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ances in other banks if it suits their convenience to do so all that is their own affair for which their responsibility is to their stock holders and their customers—but their legal reserve, the reserve which the Government looks upon as the minimum below which the public interest demands that banks should not go, that reserve must all be kept on deposit in federal reserve banks, the nation's reservoirs of reserve money.

For reasons that will soon be made clear the concentration of the country's reserve money in a few large reservoirs makes possible a much more efficient use of each dollar of reserve money than under the old system of scattered reserves, and, as a result, the legal reserve requirements have been greatly reduced. The percentage reserves at present required against demand deposits and time deposits are as follows:*

Demand Deposits, Time Deposits, i.e., Deposits Pay- i.e., Deposits Pay

able Within able After 30 Banks

30 Days

Days Notice Central reserve city banks, Reserve city banks,

10 Country banks,

4 Banks located in the outlying districts of a central reserve city or a reserve city, or banks located in territory added to such a city by the extension of its corporate charter, may, upon the affirmative vote of five members of the federal reserve board, reduce their legal reserves to the percentages required of country banks. In the case of banks located in central reserve cities the reduction may be authorized to the percentage required of country banks or merely to that required of reserve city banks.

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On November 1, 1918, the twelve federal reserve banks held deposited reserves of other banks to the amount of $1,442 millions. Reserve money collected in a few large reservoirs is quickly available in large quantities either for export or for domestic use, and the fact that it is readily available in large quantities inspires public confidence and lessens the danger of financial panic. When the public knows that gold in abundance is available on demand it does not want it, except to meet the normal demands of international trade. The federal reserve banks, of course, do not keep on hand all the reserve money deposited by member banks. Like other banks, they invest it. The law, however, requires them to keep a reserve of thirty-five per cent against deposits, and it is their established policy to maintain reserves much larger than this normal legal minimum.

Mobilization of Reserves A corollary to the district centralization of reserves is their mobilization. Reserve money must not only be piped into a few large reservoirs, but these large reservoirs must be piped together, and there must be a pumping engine of sufficient power to force the reserves promptly and in large quantities to any place desired. The federal re

5 See pages 58-60.

serve system creates just this machinery. It provides numerous devices by which reserve money can be quickly moved from places of redundancy * to places of scarcity. A few of the more important of these devices will be briefly described here, while others will be discussed later in connection with the general topics of currency and credit elasticity and the transfer system. Let us consider first the inter-district mobility of reserve money, namely the movability of reserves from one federal reserve district to another; and second, the intra-district mobility of reserves, or the movability of reserves within the boundaries of one district.

Inter-District Mobility Broadly speaking there are three ways in which the federal reserve law has increased the interdistrict mobility of reserve money. They are: (1) Rediscounting by one federal reserve bank for another. (2) Open market operations of federal reserve banks. (3) Creation of a broader discount market for commercial paper. Rediscounting by one Federal Reserve Bank for

Another Under the old banking system, as we have seen, in time of emergency, each bank held tight its own reserves, or, to change the figure, “sat firmly on the lid.” In the controversy for banking re

On November 1, 1918, the twelve federal reserve banks held deposited reserves of other banks to the amount of $1,442 millions. Reserve money collected in a few large reservoirs is quickly available in large quantities either for export or for domestic use, and the fact that it is readily available in large quantities inspires public confidence and lessens the danger of financial panic. When the public knows that gold in abundance is available on demand it does not want it, except to meet the normal demands of international trade. The federal reserve banks, of course, do not keep on hand all the reserve money deposited by member banks. Like other banks, they invest it. The law, however, requires them to keep a reserve of thirty-five per cent against deposits, and it is their established policy to maintain reserves much larger than this normal legal minimum.

Mobilization of Reserves A corollary to the district centralization of reserves is their mobilization. Reserve money must not only be piped into a few large reservoirs, but these large reservoirs must be piped together, and there must be a pumping engine of sufficient power to force the reserves promptly and in large quantities to any place desired. The federal re

8 See pages 58-60.

serve system creates just this machinery. It provides numerous devices by which reserve money can be quickly moved from places of redundancy > to places of scarcity. A few of the more important of these devices will be briefly described here, while others will be discussed later in connection with the general topics of currency and credit elasticity and the transfer system. Let us consider first the inter-district mobility of reserve money, namely the movability of reserves from one federal reserve district to another; and second, the intra-district mobility of reserves, or the movability of reserves within the boundaries of one district.

Inter-District Mobility Broadly speaking there are three ways in which the federal reserve law has increased the interdistrict mobility of reserve money. They are: (1) Rediscounting by one federal reserve bank for another. (2) Open market operations of federal reserve banks. (3) Creation of a broader discount market for commercial paper. . Rediscounting by one Federal Reserve Bank for

Another Under the old banking system, as we have seen, in time of emergency, each bank held tight its own reserves, or, to change the figure, “sat firmly on the lid.” In the controversy for banking re

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