The Holly chieftain., 1922-10-26
9 q
Fl I;

y
going up all over the country-a
fact which shows the magnitude and importahee
of the system. In response to puDilc ueihahu i
Information about the Federal Reserve bahkihs
system and its operations the following ohicia'
statement is presented:
A federal reserve bank does for banks almost
exactly what banks do for their customers.
receives money on deposit from such banks us
have become members of the Federal reserve
system. and lends to them. All natlohal oahhs
are members of the Federal Reserve SYSTEM anu
many state banks and trust companies nave
become members also Every member Dahk ls
Obliged by law TO keep with its federal reserve
bank an amount of money which bears a certain
proportion to the deposits 1t has received from
its customers. This is called a reserve, anu us
the federal &nks keep the reserves oi
their members they are called reserve" banks
At times. member banks borrow from their tederai
reserve bank just individuals borrow from their
own bank Individuals cannot deposit money
with n federal reserve bank, or borrow from III
their relation with 1t is through the member
banks
Before the Federal Reserve system was in oper-
alton, ench Individual bank stood virtually alone
This was safe enough as long as things went wen
In the business world but even then the machinery
Of banking was so cumbersome that it often
worked badly.
In order to meet the requirements of law and
to pay depostors, all banks used to keep farse
amounts of gold and currency on hand and most
of them also kept money on deposit with other
banks in the larger cities When all went well,
the money on deposit with the city banks could
be withdrawn in currency whenever It was
wanted But when, sometimes happened, ousi-
ness banking conditions were disturbed ana
suspicion in the air. the banks were anxious
TO increase the amount of cash on hand lest an
unusual number of depositors might want to With
draw their money And it was at those times that
the city banks were least able to furnish cash.
For the available supply of currency was limited
and there was quick way of increasing it.
The limited supply of currency led to the panic
of 1907 For, moved by apprehension almost every
one of the twenty-four thousand banks sought, for
Its own protection to withdraw such currency as
II could from other banks and pay out as little as
possible to its depositors. Though emergency
measures were finally taken, they were too late
to proven, the coming of trouble, and the existing
banking machinery fell apart into thousands of
separate units
Each bank had to trust largely to its own cash
resources because, however willing the other
banks felt they could not give up much Of their
cash. for by doing they might impair their abil-
fly to meet the possible needs of their own GUS
TONERS Each bank, in seeking 10 protect itself,
necessarily weakened the entire banking struc-
fure The defenses were weakest when the
danger greatest.
The result was that every few years money
panlc occurred bringing disaster and depression.
These money parcS IRON wrch the Un.teu StateS
suffered and which the organization of the Fed
eral Reserve system now prevents. were of course,
auite different from the commercial crises from
which every country occasionally suffers.
Under the Federal Reserve system there is a
,,rtck certain automatic way by which the banks
that are members of the system help one another,
In good times and bad. This Is important to every
business man. every farmer, every working man,
every citizen 1t is the result of organizaton--the
kind of organization that makes a system of
reservoirs in community better than many sep
arate wells
Il is appropriate to think of the Federal Reserve
system MS exactly that-a system of reservoirs.
ahere are twelve of these reservoirs the federal
reserve banks of Boston, New York, Philadelphia,
Cleveland Richmond, Atlanta Chicago, St Louis,
Minneapolis, Kansas City, Dallas and San Fran
c,sco-each serving the needs OF the member
banks in its own federal reserve district In each
of these reservoirs credit Is stored up and from It,
sas the need arises. credit Is supplied to the mem
her banks and through them to their customers,
Including not only business men and farmers but
other banks as we'll The process is much like the
atornc up of water in city reservoir, from which
IL is supplied to houses and their occupants.
at may be thought strange that such thing as
credit which in this sense is the power to make
loans can be stored up. But the fact Is great
deal of II is stored up the federal reserve reser-
yors For, as have seen. the member banks
deposit in the Federal Reserve banks most of the
gold they formerly kept in their vaults and
some of the money they used to keep deposit
with other banks. And 1t is the gold which fed
erai reserve banks require in this and other ways
that gives them the ability to make loans and
Issue currency.
The provisions of the law are such that the
f,derul reserve banks can make loans to an
amount between Two and three times as much
the gold they have. So having supply of gold