Licking Valley courier., 1922-11-02
had SURPLUS credit, they lent it to agricultural

had SURPLUS credit, they lent it to agricultural
districts.
Very closely connected with the power of the |
federal reserve banks to lend is their power to
Issue currency-federal reserve notes. The power
to lend, taken by ITSELF would be of far less value
If 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 all Of 1t In
currency so member bank in making loan at a
federal reserve bank may need to draw out part
or all Of 1t in currency The power to issue cur
rency insures to everyone who has 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 money panic In the difficult months
of 1920.
Look at a fve-dollar bill bearing the portrait
of Lincoln. On It's face it says that 1t is an
obligation Of the United States; on Its back that
1t Is redeemabe 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 1t issues. The security may be either
gold, or borrowers paper very shortly to be paid,
representing either loans for the production or dis
trlbutlon Of goods and farm products, or loans to
holders Of the United States government securi-
ties The gold which the law requires 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 bank and returned to IT,
When a man needs currency he draws check
on his bank and cashes 1t. If he has not enough
money In the bank to meet the check, he may
hoy IN mo xn In fha vhan
member bank needs currency, II draws and
cashes check on its federal reserve bank. Per
haps the member bank had to borrow at the fed
eral reserve bank for this very purpose. That is
how the total amount of currency in circulation
Increases.
o. the other hand when q man has more cur
rency than he needs he deposits II at his bank
and perhaps pays Off loan with 1t. Just SO does
member bank at the federal reserve bank. That
is how the total amount Of currency in crcula-
ton decreases. AS federal reserve notes for which
there is no demand accumulate In a federal reserve
bank, they are either destroyed or put away in
Its vaults until some need calls them out again.
Whether the volume of federal reserve notes in
circulation increases or decreases depends not
upon the initiative Of the federal reserve banks
but upon the needs of the member banks. Their
needs, in turn, are decided by the needs Of their
customers. AS In drawing water from a reservoir,
1t is the Individual who takes the first step.
The plan of organization which the law lays
down for the Federal Reserve system does two
things, 1t provides nationwide system so knit
together that nationwide resources may work as
a unit in a national emergency or be mobized to
meet local emergency too severe for local re-
sources to cope with. 1t also preserves the right
of local sef-government in banking These are
principles with which Americans are familiar in
under the Constitution
The country Is divided into twelve districts
each with federal reserve bank. In many dis
trIcts the federal reserve banks have one or NOR,
branches for the better service OF the member
banks. Each federal reserve bank has It's owl
stockholders, directors, officers and clerks like
other banking institutions. The stockholders ar,
the member banks Its nine directors are resi-
dents Of the district, some from the cities anC
some from the country. Three are appointed b.
the federal reserve board in Washington and IN,
other six are elected by the member banks, eacl
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 mldde-slzed banks, an
the largest banks Only three of the directors ca
be, officers or directors Of other banks. At leas
three and usually majority, are representatlv
are the interests which, through the membe
banks, the system is intended particularly I
serve and protect.
These men are responsible for the managemer
and control OF the federal reserve bank. The
elect Its officers, determine the policies unde
which II operates, and establish, subject TO al
prOval by the federal reserve board, the rate {
discount II charges. All profits after settin
aside the surplus provided in the law and afte
paying the member banks six per cent dividend
on their stock, go TO the United States treasur
and are used to reduce the national debt
The co-ordnating body is the federal resery
board In Washington which is made up Of seve
members-fve who are appointed by the Pres
dent and devote their entire time to the wor
together with the secretary OF the treasury an
the comptroller Of the currency.
The federal reserve board, however, is not q
operating body Except for It's power to requl
one federal reserve bank to lend to anoth
federal reserve bank Its powers are almo
entirely supervisory. But the board does not pa
upon the individual loans which federal reser,
bank makes to Il member bank The board itse
of course, cannot lend money because 1t has moi
to lend.
In their right to borrow at federal reser
bank all member banks large or small, are ecu,
The law says that federal reserve bank sh,
make each member bank such loans us may
safely and reasonably made
The Federal Reserve system provides I
entire country with Il currency responsive to
varying needs and thus removes the danger OF
money panic Moreover II provides the entl
country with a great reservoir OF credit frc
which farm and range, forest and mine fncto
and store, may receive assistance in product
and marketing all the lnnumeruble goods a
r wares which go to make up American cemmer
!, industry and agriculture.