The Waterbury Democrat., 1933-03-30
(By NEA Service)


 washington.-The scramble of banks to get under the protecting wing of the federal reserve system directly affects every American.
 Yet the system is widely mis- understood. And no wonder. It is called federal" though Uncle Sam doesn't own its banks. It Is called Q system" though each of the 12 reserve banks iS an in-- dependent organization, united only by the influence and partial control of a federal board in Washington"
 The idea of the federal re- serve banks is simple. A federal reserve bank does for it's member banks almost exactly what an or- dinary bank does for its custom CTS.
 John Smith, thrifty citizen, having saved up little more cash than he needs at the moment, goes to his bank and deposits 1t. It isn't much, but the surplus cash of thousands of Smiths, pooled to- gether in bank deposits, give the bank great sums to lend out to responsible men who want the money to serve business needs. A Bank for Banks
 A federal reserve bank does the same thing for its members. It receives and pools the surplus cash funds of its member banks, collecting these into reservoirs of cash and credit. Each member must keep there from 2 to 13 per cent of its deposits. Those reser- voirs may then he tapped, by loans, by member banks when they have need, just as John Smith may withdraw deposits or get a loan from his bank.
 All national banks had to become members, and any state banks above a certain capitalization could join if they met certain require- ments. Such banks in each district formed their federal reserve bank, each bank subscribing to stock their own capital stock. Thus the member banks own the reserve banks.
 But they do not entirely control them, nor do they get all the profits from them. They may re- ceive 6 per cent on the federal re- serve stock they hold. Profits above that are added to the reserve banks surplus until that surplus equals its capital. After that, q tenth of such profits are added to surplus and the remaining profit goes into Uncle Sam's treasury az a franchise tax. Uncle made $2,- 000.000 that way last year. Since the member banks own their federal reserve bank, they elect It's directors; that is. they elect six out of the nine, the other three being appointed by the fed- eral reserve board in Washington. Where U. s. Comes Tn That Is where Uncle Sam and the "federaw part come in. The 12 widely separated banks are co- ordinated by an eight-member federal reserve board in Wash- ington. The secretary of the treasury is always chairman and the comptroller of the currency is a member. The president ap- points the other six "by and with the advice and consent of the senate" It is this board and its influence on the reserve banks that makes "the federal reserve system."
 The board makes no loans itself; 1t has no money. It's principal control is because 1t must approve the "rediscount rates" established by the reserve banks.
 "Rediscount" is not as myste- rious as 1t sounds. Let's, say John Smith is 8 grocer. He wants to buy 100 barrels of flour. He hasn't the money. But he Is known to his bank as an honest merchant who pays his debts. His bank is glad to lend him the money. taking his short-time note. But let's say the bank just at that time is having a lot of other re- quests for loans; so many that 1t hasn't itself the cash to grant them all. The bank. too, must borrow. Betting a federal reserve