The Dolores star., 1922-11-03


districts
Very closely connected with the power OF tn,
federal reserve banks to lend is their power tc
Issue currency-federa reserve notes The power
to lend, taken by itself would be OF far less value
II the power to issue currency did not 70 with
II. JUST as the customer who makes loan at his
bank may need to draw out part all of 1t IL
currency, So member bank in making loan at
federal reserve bank may need to draw out part
or all of IL in currency. The power to issue cur
rency insnres TO everyone who has a deposit in q
solvent bank the ability to draw 1t out in cur
rency. That explains why this country neve,
again need have 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 M fve-dollar bill bearing the portal,
of Lincoln. on Its face 1t says that 1t is an
obligation of the United States: its back tina,
II is redeemable in gold at the treasury in Wash
inSton. 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 ii issues. The security may be either
gold. borrowers payer very shortly to be paid
representing either loans for the production dis
trihution of goods and farm products loans tO
holders of the United States government securi
ties. The gold which the law requires federal
reserve bank to maintain 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 man needs currency he draws a check
on his bank and cashes It. II 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, 1t 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.
o. the other hand when man has cur.
rency than he needs he deposits it at his bank
and perhaps pays off loan with it Just does
member bank at the federal reserve bank. That
is how the total amount of currency In crcula
tion decreases. AS federal reserve notes for which
there is no demand accumulate in 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 ir
circulation increases decreases depends no,
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 t!ieir
customers AS in drawing water from reservoir
it 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 wosk as
unit in a national emergency. or be mobilizsd tt
meet a local emergency too severe for local re
sources to cope with II also preserves the right
of local self-government In banking. These are
principles with which Americans are familiar ir
the working of the federal and state governments
under the Constitution.
The country Is divided into twelve districts
each with a 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 OWL
stockholders directors. officers and clerks like
other banking institutions. The stockholders are
the member banks. Its nine directors are resi-
dents of the district some from the cities ant
some from the country. Three are appointed By
the federal reserve board in Washington, and the
other six are elected by the member banks eact
having one vote. In voting, the banks are divided
into three groups, each of which elects two di
rectors. These groups are composed respectively
of the smallest banks the mddle-sIzed banks anf
the largest banks Only three of the directors car
be officers or directors of other banks. At least
three, and usually majority, are representative
of industry. commerce and agriculture For thes,
the interests which, through the membe,
banks the system Is intended particularly tc
serve and protect.
These men are responsible for the mana gemen
and control of the federal reserve bank. The,
elect Its officers, determine the policies unde,
which 1t operates, and establish, subject to ap
prOval by the federal reserve board, the rate M
discount it 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-ordinating body is the federal reserv,
board In Washington, which is made up of seve,
members-five who are appointed by the Presi
dent and devote their entire time to the worl,
together with the secretary of the treasury an,
the comptroller of the currency
The federal reserve board, however Is NOT ar
operating body. Except for its power 70 reouir,
one federal reserve bank to lend to anothe,
federal reserve bank, its powers are almos
entirely supervisory. But the board does not pas.
upon the individual loans which federal reserv,
bank makes to member bank. The board itself
of course, cannot lend money because it has non,
to lend.
In their right to borrow at a federal rosary.
nahk m all mehoer banks, large or small, are equal
make each member bank such loans as nav ~,
safely and reasonably madS
The Federal Reserve system provides tb,
7firn