Licking Valley courier., 1922-11-02

fact which shows the magnitude and Importance
Of the system In response to public demand Tor
information about the Federal Reserve Banking
system and its operations the following official
statement is presented:
A federal reserve bank does for banks almost
exactly what banks do for their customers 1t
receives money on deposit from such banks as
have become members Of the Federal reserve
system. and lends to them. All national banks
are members Of the Federal Reserve system, and
many state banks and trust companies have
become members also. Every member bank Is
obliged by law to keep with its federal reserve
bank an amount of money which bears certain
proportion to the deposits 1t has received from
Its customers. This is called reserve" and as
the federal reserve banks keep the reserves OF
their members they are called reserve" banks.
At times member banks borrow from their federal
reserve bank Just as individuals borrow from their
own bank. individuals cannot deposit money
with federal reserve bank, or borrow from 1t;
their relation with It Is through the member
banks
Before the Federal Reserve system was In oper-
alton, each individual bank stood virtually alone
This was safe enough as long as things went well
In the business world, but even then the machinery
Of banking was SO cumbersome that 1t often
worked badly.
|
to pay deposltors, all banks used to keep large
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be withdrawn in currency whenever 1t was
wanted But when, as sometimes happened, busl-
ness or banking conditions were disturbed and
suspicion was in the air, the banks were anxious
to increase the amount of cash on hand lest an
unusual number Of deposltors might want to with
draw their money And 1t 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 no 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
It's own protection, to withdraw such currency as
II could from other banks and pay out as little as
possible to It's deposltors. 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
sepaWte 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 abb
ity to meet the possible needs of their own GUS
toners Each bank, In seeking 20 protect itself,
necessarily weakened the entire banking struc-
ture. 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 panlcs 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 crises from
which every country occasionally suffers.
, Under the Federal Reserve system there Is a
, quick, 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 II Is the result Of organzatlonthe
A kind OF organization that makes system OF
reservoirs in a community better than many sep
arate wells.
1t is appropriate to think of the Federal Reserve
/, system rs exactly thnt-a system of reservoirs
. There are twelve Of these reservoirs, the federal
; reserve banks Of Boston, New York, Philadelphia
L Cleveland Richmond Atlanta, Chicago st. Louis
+ Minneapolis, Kansas City, Dallas and san Fran
: clsco-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 1t
as the need arises, credit is supplied to the mem
\ ber banks and through them to their customers
including not only business men and farmers, bu
other banks as we'll The process is much like the
storing up OF water In city reservoir from which
It is supplied to houses and their occupants
1t may be thought strange that such thing a
, credit, which in this sense Is the power to make
= loans can bc stored up. But the fact ls n grea
deal OF II is stored up in the federal reserve
volrs. For as we have seen, the member bank
deposit in the Federal Reserve banks most of tn
gold they formerly kept in their own vaults an,
9 some of the money they used to keep on deposl
q with other banks, And It is the gold which fed
"a eral reserve banks require in this and other way
n that gives them the ability to make loans AM
n Issue currency.
" The provisions Of the law are such that tn
,e federal reserve banks can make loans to Al
u amount between two and three times as much n
n the gold they have. So, having supply Of gol