РА How THE FEDERAL RESERVE SYSTEM IS REMEDYING THE OLD EVIL OF THE DECENTRALIZATION OF AMERICAN BANKING.. 28 Division of country into twelve federal reserve dis- tricts, 28-29.—Membership in federal reserve system, 29-31.-Democracy of federal reserve banks' plan of or- ganization, 31-33.- Coordination of twelve federal reserve banks and centralization of their control provided for by means of federal reserve board, advisory council, and class C directors of federal reserve banks, 33-35.-District cen- tralization of bank reserves, 35-38.—Mobilization of re- serves, 38-39.-Inter-district mobility of reserves, 39.- Rediscounting by one federal reserve bank for another, 39-42.-Open-market operations, 42-44.-Creation of a broader discount market for commercial paper, 44-45.- Increasing use of the trade acceptance, and advantages of trade acceptance over open-book account credit, 45-46.- The bank acceptance, 46-48.--Inter-district mobility of reserves promoted by increasing use of trade acceptances CREDIT ELASTICITY UNDER THE FEDERAL RESERVE SYSTEM.... 50 Provisions of federal reserve act for bond-secured national bank notes, 50-51.—The federal reserve bank note, 51.-Federal reserve notes, 51-52.-Their elasticity, 52-57.--Elasticity of deposit currency obtained in a num- ber of ways: Removal of old rigid legal reserve require- New legal reserve requirements less rigid and may be suspended in times of emergency, 58-61. Privilege of rediscounting at federal reserve banks, 61- 62. Privilege of borrowing on collateral notes with short DOMESTIC AND FOREIGN EXCHANGE UNDER THE FEDERAL RE- Provisions of federal reserve law concerning domestic exchange, 66-69.-Early experiments of the federal reserve authorities as regards the clearing and collection of checks, 69.-Present clearing and collection system, 70-75.-The gold settlement fund, 75-78.-Foreign ex- change, foreign agencies and branches of American banks THE FEDERAL RESERVE SYSTEM AND THE FEDERAL TREASURY.. 84-92 Federal reserve banks authorized by law to be deposi- taries of government funds, 82-83.-Extensively used as depositaries by Secretary of the Treasury, 83-87.-Fed- eral reserve banks as fiscal agents of Government render invaluable services in the financing of the war, 88.- President Wilson's appeal to non-member banks to join FEDERAL RESERVE ACT AS AMENDED TO May 1, 1918, WITH A PROVISIONS OF THE FARM LOAN ACT, APPROVED JULY 17, 1916, AFFECT FEDERAL RESERVE BANKS AND MEMBER PREFACE By BENJAMIN STRONG, LL.D. Governor of the Federal Reserve Bank of New York The federal reserve banks came into being in the month of November, 1914. The passage of the legislation by which they were created had been preceded by five years of discussion, following the financial upheaval of the fall of 1907, such as might have been expected to prepare the way for the considerable changes in banking methods contemplated by the new law. Notwithstanding, however, that American bankers had gained a better understanding of the deplorable defects in the American banking and currency system, the managers of the new federal reserve banks soon found that the welcome accorded to them by the banks of the country was, to say the least, cool. Business men generally welcomed the change for the better, recognizing the protection which the reserve system afforded them; but nevertheless both bankers and is business men were regrettably ignorant of what it all meant. It was the influence of the war which demanded that the federal reserve banks be organized as promptly as possible. The best banking machinery and the best banking talent in the country seemed to be required to protect the interests of both bankers and business men. Much was expected from the new system, once it was started. Very shortly, however, immense imports of gold from abroad, general business prosperity stimulated by war profits, and reasonably comfortable conditions in credit and banking, appeared to put the federal reserve banks for the first two and one-half years of their existence into the class of expensive luxuries; in fact, they were regarded as examples of governmental interference with business which were tolerated but, nevertheless, were not appreciated by many bankers. During this interval, November, 1914, to April, 1917, the system, by slow stages of progress, found itself. The machinery for conducting actual operations was designed and developed far beyond the requirements of the moment. The terms of the Act were perfected where need was discovered, the men engaged in the work became better acquainted with their duties and with each |