ury called a conference of bankers and clearing house representatives from twenty cities to meet with the members of the Federal Reserve Board at Washington, September 4, 1914. At this conference a committee of bankers was appointed to formulate a plan and submit it to the Federal Reserve Board. The committee in a report dated September 4 recommended the creation of a fund of $150,000,000 in gold through contributions by the banks to meet our foreign obligations and to clear up the sterling exchange situation. One-sixth of this gold fund was to be paid immediately into the Canadian depositary of the Bank of England, the remainder to be subject to call by the New York committee charged with the duty of fixing the price at which foreign exchange should be bought and sold. When the Federal Reserve Board took up the consideration of this proposal on September 8, it was found that the proposed fund included $80,000,000 of obligations of New York City held by European creditors and maturing within the next few months; and that a syndicate of New York bankers had arranged to underwrite this $80,000,000. As a result the bankers' committee made a second report, September 19, recommending that the proposed gold pool be reduced to $100,000,000. This recommendation was approved by the Reserve Board, and a committee of New York bankers was appointed to manage the fund. On September 24 the Board addressed letters to the clearing house associations in the central réserve and reserve cities recommending that they appoint committees to secure from the national banks and state banking institutions of their respective cities their subscriptions to the gold fund, naming amounts that represented their fair proportions based upon their holdings of gold. Assurances were received that the entire fund of $100,000,000 would be subscribed and the call for the first installment of 25 per cent was sent out. Some of the members of the Gold Fund Committee believed that this first payment of $25,000,000 would prove sufficient to restore practically normal exchange conditions. In the meantime the committee arranged with a group of New York banks to advance $10,000,000 so that the sale of foreign exchange might begin without delay. This gold was taken from the Subtreasury in New York and shipped to Ottawa on October 2, and on the following day a sub-committee began passing on applications for checks on London. Upon invitation of the Secretary of the Treasury the British Government sent two representatives to this country, October, 1914, to confer with the Federal Reserve Board upon further adjustments of the exchange situation if the United States should not succeed in liquidating its indebtedness by the natural movement of exports. Soon thereafter the establishment of a better understanding regarding contraband and the opening of the North Atlantic water routes made possible the restoration of trade with Europe. The rapid development of the export trade made it apparent that our current indebtness to Great Britain especially would be liquidated at an early date without further assistance. "By the time the reserve banks were ready to open, exchange notes on London had fallen to normal and there was, therefore, no danger that when opened the reserve banks might, as for a time feared by some, find their gold rapidly drawn away from them in order to meet the requirements of the gold export movement. On January 1, 1915, the gold pool was dissolved and the gold returned to the subscribing banks. As a result of our heavy surplus exports to Allied countries the return movement of gold began early in the year 1915, and before the close of the war more than $1,000,000,000 in gold was shipped to the United States, thus creating a situation in foreign exchange even more acute, but in the reverse direction, than that which prevailed at the outbreak of the war. Early in the war the central banks and the government treasuries of Europe gathered up all the gold available and soon it disappeared from circulation. The urgent need for munitions and war supplies compelled 1 Willis: The Federal Reserve, p. 111. the Allies to ship vast amounts of gold to the United States, the neutral countries of Europe, South America and Asia. As the European countries were exporting only a fraction of their normal volume and needed at home all the gold available, embargoes were placed on the export of gold, and it became necessary to stabilize the rates of exchange on foreign countries. Accordingly agreements were entered into by which sterling was "pegged" at $4.76 to the pound and French francs at 5.46 to the dollar.1 In addition to its enormous exports of gold to this country, Europe (Great Britain chiefly) in order to pay for its heavy imports from us returned a vast amount, estimated at over $3,000,000,000, of American securities held abroad as investments, and American investors absorbed a further amount of foreign securities estimated at over $2,000,000,000. Furthermore, the United States Government made loans to the Allied countries aggregating nearly $10,000,000,000. 182. Organization of the Federal Reserve System.--The Federal Reserve Act provided that, as soon as practicable, the Secretary of the Treasury, the Secretary of Agriculture, and the Comptroller of the Currency, acting as “The Reserve Bank Organization Committee," should designate not less than eight nor more than twelve cities to be known as Federal reserve cities and divide the continental United States into districts, each to contain only one of such Federal reserve cities. It further provided that the determination of the Organization Committee was not to be subject to review except by the Federal Reserve Board, provided that the districts should "be apportioned with due regard to the convenience and customary course of business." The Organization Committee held its first meeting December 26, 1913, and announced that it would hold hearings in various important cities on certain fixed dates for the purpose of securing the views of bankers and business men as to the division of the country into districts and the location of the Federal reserve banks. The points upon 1 The exchanges of the Allied countries remained pegged until March, 1919, after which they declined to levels previously unknown. which the Organization Committee desired to be informed particularly were: "First, geographical convenience, which involves transportation facilities and rapid and easy communication with all parts of the district; second, industrial and commercial development and needs of each section, which involves consideration of the general movement of commodities and of business transactions within the districts and the transfer of funds and exchanges of credits arising therefrom; third, the established custom and trend of business as developed by the present system of bank reserves and checking accounts. In laying out the districts and establishing the headquarters for reserve banks every effort will be made to promote business convenience and normal movements of trade and commerce. The Committee announced that political considerations would not be permitted to influence it in determining these important questions. The Organization Committee held public hearings in eighteen of the leading cities of the country, and gave every reasonable opportunity to all applicant cities to furnish evidence to support their claims as locations for Federal reserve banks. More than 200 cities were heard through their clearing house associations, chambers of commerce or other representatives; of these 37 cities asked to be designated as the headquarters of a Federal reserve bank. The preference of each bank as to the location of the Federal reserve bank with which it desired to be connected was ascertained by a card ballot addressed to each of the 7,475 national banks which had formally assented to the provisions of the Federal Reserve Act. On April 2, 1914, the Organization Committee announced its decision to create twelve Federal reserve districts and to locate a Federal reserve bank in each of the following cities: Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, San Francisco. Among the factors which governed the Committee in selecting the districts and cities chosen were the following: first, the ability of the member |