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BENJAMIN STRONG, LL.D. Governor of the Federal Reserve Bank of New


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


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

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