Great Falls tribune. [volume] (Great Falls, Mont.) 1921-current, 1922-06-20
business or banking conditions wer'

business or banking conditions were
disturbed and suspicion was in thu
air, the banks were anxious to in
crease the amount of cash on hant
lest an unusual number of deposit
ors might want to withdraw thei,
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, anc
there was no quick way of increas.
ing it.
This limited supply of currency
led to the panic of 1917. For, moved
by apprehension, almost every one
of the twenty-four thousand banks
sought, for its own protection, to
withdraw such currency as it 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
prevent 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 so they
might impair their ability to meet
the possible needs of their own Gus.
toners. Each bank, in seeking to
protect itself, necessarily weakened
the entire banking structure. The
defenses were weakest when the
danger was greatest.
"The result was that every few
years a money panic occurred,
bringing disaster and depression.
These money panics from which
the United States suffered, and
which the organization Of the Fed
eral Reserve system now prevents.
were, Of course, quite different
from the commercial crisis from
which every country occasionally
suffers.
Under the Federal Reserve sys-
tenn there is a quick, certain. auto
matte way by which the banks that
are members Of the system help
n 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 organization-the kind of organ.
ization that makes a system of
reservoirs in a community better
than many separate wells.
1T is appropriate to think of the
Federal Reserve system as exactly
that-a system Of reservoirs. There
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 Francisco-each
serving the needs of the member
banks in its own Federal Reserve
district. In each Of these reser-
voirs credit is stored up, and from
it, as the needs arises, credit is
supplied to the member 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 storing up of water in a city
reservoir, from which it is supplied
to houses and their occupants.
ut may be thought strange that
such a thing as credit, which in this
sense is the power to make loans,
can be stored up. But the fact is,
a great deal Of 1t is stored up in
the Federal Reserve reservoirs.
For, as we have seen, the member
banks deposit in tn Federal Re-
serve banks most of the gold they
formerly kept in their own vaults
and some of the money they used
to keep on deposit with other
banks. And it is the gold which
Federal Reserve banks acquire 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 Federal Reserve
banks can make loans to an amount
between two and three times as
much as the gold they have. So,
having a supply of gold in storage,
they have a lending power in stor-
age also. AS this lending power Is
used, the level in the reservoirs
r mon A. . -