, 1922-10-26

districts.
Very closely connected with the power of the
federal reserve banks to lend Is their power to
Issue currency-federalr reserve notes. The power
to lend, taken by itself. would be of far less value
II the power to issue currency did not go with
1t. Just as the customer who makes a loan at his
bank may need to draw out part or a1l of 1t in
currency. so a member bank in making n loan at a
Federal reserve bank may need to draw out part
or all of it in currency. The power to issue cur
rency insnres to everyone who has a deposit In a
solvent bank the ability to draw 1t out in cur
rency. That explains why this country never
again need have a money panic such as that OF
1907; explains, indeed, why there was no sug
gestion of a money panic In the difficult months
of 1920.
Look at a fve-dollar bill bearing the portrait
OF Lincoln. On Its face 1t says that it Is an
obligation of the United States; on its back that
1t is redeeinable in gold at the treasury in Wash
ington. Federal reserve notes are also redeemed
in gold at any federal reserve bank.
Each federal reserve bank is required by law
to set aside security, dollar for dollar, against
the notes it issues. The security may be either
gold, or borrowers paper very shortly to be paid
representing either loans for the production or dis
tribution of goods and farm products, or loans to
holders of the United States government securi
ties. The gold which the law requires a federal
reserve bank to maintain as a reserve against its
notes must always be at least forty per cent OF
the amount of its notes in circulation.
These notes get into circulation and pass out
of circulation in much the same way as money is
drawn out of n bank and returned to it.
IN HE honl, ard oashos - TO l. - - onanat
ona ia ~. lant - - -
hive 70 mako a loan +, irst tba soma woy when
n member bank needs currency, 1t draws and
cashes n check on its federal reserve bank. Per
haps the member bank had to borrow Mt the fed
hor, ~ 80, - - IS
,ncroosas
"uHu' ~ u IA Ia -" :"
renes tn"n ne heeus he ueposits IL at MS Dahk
80 ~ - WI" a" 'u' ;" uoe
a IN ann Ut 'ne ieuerai reserve Dunk. 1ha'
10 " ~ 'ot". nvu"t U currency III c'reuia'
- uei noieS y witch
- 20 NJ ue""nu II ii ieuerai reserve
ann ,aey ae ilne uestroyeu or put away IN
10 ,"ui, uu.n so"e { ans them u asaih-
WIENER the voiume Oh lederai reserve notes In
VI ueeieaSes uepehus no'
sron ~ lna.s y .e leoera reserve pahks
pus upon .he heeus . II ,neinper panks. ineir
ors,o7nars II h~aud.~ -
customers. AS IN drawing water from a reservoir
81" ~ ~ WY ,Ae 'ne nrs' s'ep'
pan Vi orsani~atoh "hich the law lays
wv Nr ~ reue' neser'e system uoes IVY
.nnss, - pIoNlues II hauoh-"iue system SO KIM
.ose,ne. 'nnt n"1o"-"iue RESOURCES muy worh as
u UNI III " na'ioh"i emergency or De niopiiized u
nee a .oe"i e"e,seney " severe U local re
'ou,ees " eope Will ~ aiso preserves the righ'
Oh iocai sei.-go'ernment IN oahking' Ihese are
pi"eip'es WIN "hien Amerieans ure iahiiihr III
II "'iAi"s VI - anu s'u,e governments
unuer tne constitution.
Inc c"uhiry Is oi'iueu INTO twelVe uistricts
eacn win a, ieuer"i reserve oanR. In many dis
,r'cts the Ieuerai reserve panks nave one or more
Dranches ior une oet'er service OF the member
Dahks' Each ieuerai reserve oanK mas It's OWE
stockholders directors omcers and clerks likt
other banking ihs'itutions- Inc stockhoiders are
me member banks. us nine directors are resi-
dents or the district. some from the cities and
some from the country. Ihree are appointed By
'e ieuernl reserve ooaru IN washington. and the
other SIX are erected oy the memDer Danks. eacf
having one vote. In voting. the banks are divided
into three groups each OF which elects two dl
rectors. These groups are composed, respectively
OF the smallest BANKS the middle-sized banks, and
the largest banks Only three of the directors car
be officers or directors or other banks. At least