The Dolores star., 1922-11-03
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going up all over the country-a
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:
federal reserve bank does for banks almost
exactly what banks do for their customers II
receives money on deposit from such banks as
have become members of the Federal RESERVE
system. and lends to them. All national banks
members of the Federal Reserve system, ana
many state banks and trust companies nave
become members also. Every member bank Is
obliged by law to keep with its federal reserve
bank al amount of money which bears certain
proportion to the deposits 1t has received from
fits customers. This is called reserve and as
the federal reserve Sanks keep the reserves OF
their members they called reserve banks
AT times. member banks borrow from their federa
reserve bank just as individuals borrow from their
bank. individuals cannot deposit money
with q 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 long things went well
in the business world but even then the machinery
of banking was so cumbersome that 1t often
worked badly.
In order to the requirements of law and
to pay depositors, all banks used to keep large
amounts of gold and currency on hand and most
banks in the larger cities When all went we'll
the money on deposit with the city banks could
be withdrawn in currency whenever 1t was
wanted. But when. as sometimes happened busi-
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 depositors might want to with
draw their 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.
and there 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
its own protection. to withdraw such currency as
It could from other banks and pay out as little as
possible 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 they might impair their abil-
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 greatest
The result was that every few years money
manic occurred bringing disaster and depression.
These money pancs from which the United States
suffered and which the organization of the Fed
eral Reserve system prevents. were, of course
ouite different from the commercial, crises from
which every country occasionally suffers.
Under the Federal Reserve system there is a
onck certain automatic way by which the banks
that are members of the system help 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 organzation-the
kind of organization that makes system of
reservoirs in a community better than many sep
arate wells.
II 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 Fran
cisco-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 it.
ms the need arises. credit is supplied to the
her 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 city reservoir, from which
n is supplied to houses and their occupants.
1t may be thought strange that such thing as
credit which in this sense Is the power to make
loans can be stored up. But the fact is, great
deal of 1t is stored up in the federal
voirs For as we have seen, the member banks
deposit in the Federal Reserve 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 1t is the gold which fed
eral reserve banks require In this and other ways
that gives them the ability to make loans and
issue currency.
federal reserve banks can make loans to an
amount between two and three times much as
tn gold they have. So having supply of gold