The herald. [volume] (New Orleans, La.) 1905-1953, 1922-11-09

Very closely connected with the power of the
federal reserve banks tn lend is their power to
issue currency-federal 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
II. Just as the customer who makes loan at his
bank may need TO draw out part or all of ii In
currency, SO a member bank in making a 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 IL 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 az fve-dollar bill bearing the portrait
Of Lincoln. On It's face it says that IL is an
obligation Of the United States on Its back that
II Is redeemahle 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
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 q 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 1t.
When man needs currency he draws a check
on his bank and cashes it. If he has not enough
money In the bank to meet the check he may
have to make loan. In Just the same way, when
member bank needs currency, it draws and
cashes a 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
On. the other hand, when a man has more cur
rency than he needs he deposits 1t at his bank
and perhaps pays off a loan with It. Just SO does
member bank at the federal reserve bank That
Is how the total amount Of currency In circula-
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 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 a NATIONWIDE system SO Knit
together that nationwide resources may work as
unit In a national emergency, or be modified to
meet a local emergency too severe for local re-
sources to cope with. 1t also preserves the right
Of local self-government in banking These are
principles with which Americans are familiar I'm
the working Of the federal and state governments
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 more
branches for the better service of the member
banks. Each federal reserve bank has its own
stockholders, directors, officers and clerks like
other banking institutions. The stockholders are
the member banks. It's nine directors are resi-
dents OF the district, some from the cities and
some from the country. Three are appointed by
the federal reserve board In Washington and the
other six are elected by the member banks each
having one vote. In voting the banks are divided
into three groups, each of which eIects two di
rectors These groups are composed, respectively
OF the smallest banks, the middlesized banks and
the largest banks Only three of the directors can
be officers or directors of other banks At least
three, and usually majority are representative
Oh industry, commerce and agriculture For these
are the interests which. through the member
banks the system Is intended particularly to
serve and protect
These men are responsible for the management
and control Of the federal reserve bank. They
erect its omcers, determine the policies under
which 1t operates. and establish, subject to ap-
prevail by the federal reserve board. the rate of
discount 1t charges. All profits after setting
aside the surplus provided In the law and after
paying the member banks six per cent dividends
on their stock, go to the United States treasury
and are used to reduce the national debt.
Inc co-ordinating body is the federal reserve |
BOARD In washington, which Is made up of seven
members-fve who are appointed by the Presi |
lent and devote their entire time to the work. |
together with the secretary of the treasury and |
he comptroller of the currency.
The federal reserve board however. il NOT an |
operating body Except for its power TO reoure
me federal reserve bank to lend to another |
euerai reserve bank its powers are almost
Entirely supervisory. But the board does not mass
ipon the Individual loans which federal reserve |
'ank makes to a member bank The board itself |
u course, cannot lend money because 1t has none
o lend ~
In their right to borrow at a federal raservo
,ank all member banks. large or small are equal
Inc law says that a federal reserve bank shalt
make each member bank such loans as NAV no
a1eiy and reasonably made.
Inc Federal Reserve system provides tho
ntire country with a currency responsive TO its
aryihg needs, and thus removes the danger of a
money panic Moreover, 1t provides the entire
ountry with great reservoir Of credit from
Vhlch farm and range, forest and mine. factory
no store may receive assistance in nroduc,n, |