banks from dominating the small ones by reason of their greater prestige and to assure the small banks of representation on the board of directors, there is a device by which all the member banks are divided according to their capital into three groups, which, reminiscent of the three bears in the Goldylock story, may be called big banks, little banks, and middle-sized banks. All the member banks in a federal reserve district are classified into these three groups. Each of the groups was originally required to contain approximately the same number of banks, but by the amendment of September 26, 1918 this requirement was discontinued. At present the federal reserve board has authority to determine the number of banks which shall constitute each group, being merely subject to the requirement that "each group shall consist as nearly as may be of banks of similar capitalization." The largest bank in the group of little banks is therefore normally smaller than the smallest one in the group of middle-sized banks, and the largest one in the group of middle-sized banks is normally smaller than the smallest one in the group of big banks. On the basis of the one bank one vote principle, each group elects two directors, one of whom, called a Class A director, is a banker and represents the stock-holding banks, while the other, called a Class B director, is a business man or farmer and

represents the business community. To these six directors so elected there are added three others known as Class C directors, who are appointed by the central federal reserve authorities at Washington to represent the interests of the federal government and of the general public. One of these Class C directors, who is required to be a person of "tested banking experience," is designated by the central authorities as Chairman of the Board, and is known as federal reserve agent. The board thus consists of nine directors, who hold office for three years (the term of office of one director of each class terminating each year), and who are broadly representative of different interests among the American public.

Crowning the arch of which the twelve federal reserve banks constitute the structural stones and forming its keystone, is the central board at Washington, known as the federal reserve board. This board consists of seven members, including the Secretary of the Treasury and the Comptroller of the Currency, who are ex-officio members, and five members appointed by the President of the United States with the advice and consent of the Senate, who hold office for a period of ten years. At least two of these five members the law says must be "experienced in banking or finance." The Secretary of the Treasury is exofficio chairman of the federal reserve board. The

board is assisted by a federal advisory council, consisting of twelve members appointed respectively by the boards of directors of the twelve federal reserve banks. The advisory council meets with the federal reserve board at least four times each year and oftener if called by the board.

The appointment by the federal reserve board of three of the nine directors (including the chairman) of each of the federal reserve banks and the appointment by each federal reserve bank of a member of the federal advisory council federate together the twelve federal reserve banks under the federal reserve board and give a common knowledge and a unity of purpose. Conferences from time to time of the governors of the twelve federal reserve banks and of the federal reserve agents of the banks, and occasional conferences of the governors and the federal reserve agents with the federal reserve board have added much to the smooth and unified working of the system. In matters of general policy the federal reserve board is given large powers and is the directing head of the system.3

Here then is the centralizing machinery which is bringing order into our banking system, and

The board's control is strengthened by its statutory powers: (1) "To examine at its discretion the accounts, books and affairs of each federal reserve bank and of each member bank and to require such statements and reports as it may deem necessary..."

is making possible the development of broad financial policies which can be carried out with promptness and continuity.

In considering the manner in which the old evil of decentralization is being remedied by the federal reserve system, we may now pass from the administrative machinery of centralization to the methods by which the old evils of scattered and immobile reserves are being eliminated.

District Centralization of Bank Reserves The federal reserve act as originally passed provided for the gradual withdrawal of legal reserve money from deposit in the banks of reserve and central reserve cities. All such deposited legal reserves were to be withdrawn by the end of a three-year period beginning with the date of the inauguration of the federal reserve system. Accordingly, after November 16, 1917, all legal reserve money of member banks, the law required to be held "in the vaults of the member banks or in the federal reserve bank, or in both, at the option of the member bank" (section 19 of Act). In conformity with this requirement (2) "To suspend or remove any officer or director of any federal reserve bank..." (3) "To suspend, for the violation of any of the provisions of this act, the operations of any federal reserve bank, to take possession thereof, administer the same during the period of suspension, and, when deemed advisable, to liquidate or reorganize such bank." (4) "To exercise general supervision over said federal reserve banks." Federal Reserve Act, Section 11.

the percentage of the legal reserves of member banks kept on deposit in the banks of reserve and central reserve cities declined very much by the summer of 1917. On June 21, 1917, an amendment was passed to the federal reserve act requiring every bank, banking association or trust company belonging to the federal reserve system to maintain its entire legal reserve in the form of a deposit at the federal reserve bank of its district. Thus by about five months the time was anticipated when legal reserve money of member banks should cease to be kept on deposit in banks other than federal reserve banks. The time therefore arrived in the summer of 1917 when commercial banks belonging to the federal reserve system ceased tying up their legal reserve money by de'positing it in the banks of our money market centers there to be loaned out at call to speculators on the stock and produce exchanges. This divorcing of the legal reserves of nearly 8,000 commercial banks from the speculative and capital loans of the stock market-mainly that of Wall Street-is one of the big achievements of the federal reserve system. The federal reserve law, as amended, recognizes only one form of legal reserve, and that is a member bank's deposit in its federal reserve bank. Member banks may keep as much or as little cash on hand for till money as they wish to. They may keep bal