banking principles and practice volume 2 the banking system of the united states

VOLUME n— THE BANKING SYSTEM OF THE UNITED STATES Classification of the Financial Institutions TheFirstBankof theUnitedStates Services of FirstBanktoGovernment Dissolution of FirstBank H

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VOLUME n— THE BANKING SYSTEM OF THE UNITED STATES

Classification of the Financial Institutions

TheFirstBankof theUnitedStates

Services of FirstBanktoGovernment

Dissolution of FirstBank

History ofSecondBank

Defects ofNote RedemptionSystem

Services ofSecondBanktoCommerce

StateBanksBefore the CivilWar

Evils ofEarlyBankNoteIssues

TheNationalBanking Act

TheGrowthof the National Banking System

TheFederalReserveDistricts

ForeignBranchesof FederalReserveBanks

Membershipin FederalReserveSystem

LegalRequirementsofMembership

Growthin StateBankMembership

Objections toMembership

Capitalization of FederalReserveBanks

Surplus

Election of Directors

Liabilities of the FederalReserveBanks

FiscalAgentsof theUnitedStates

Duties ofFormerSub-Treasuries

Membershipof theBoard

Criticism of Constitution of theBoard

Administrative Duties

TheFederalAdvisoryCouncil

TheComptroller of theCurrency—PowersandDuties

TheComptroller'sExaminers

NationalBankReports

StateandNationalBranchBanks

Needfor ForeignBranchesofAmericanBanks

ForeignBranchBanksEstablished

Growth andFunctions of ForeignBranches

Federal ForeignBankingAssociations

Provisions of theEdgeAct

EdgeCorporations Established

XVII LegislationGoverning National Bank NoteIssue .

Bond DepositRequirement from 1864 to 1900

TheAldrich-Vreeland Act—Emergency Circulation of

As-sociations

EmergencyCirculation of NationalBanks

Character of theEmergencyNotes

Effect ofWaron EmergencyCirculation

Reserve Act

Effect of Liberty Bond Issues on Bond Refunding andConversion

311

CONTENTS V

Preparation of NationalBankNotes

TheRedemptionFund

MethodofNote Redemption

Effect of Liquidation

EflFect of Failure toRedeemuponDemand

TheTax onNationalBankNotes

PublicAdvantagesof NationalBankNotes

Methodof Calculating Profiton NoteCirculation

Inelasticity

Other Disadvantages

Issue of FederalReserveNotes

MethodsofRedemption andRetirement

Effect ofGold Reserve Concentration

Tax onDeficiency ofReserves

Characteristics of FederalReserveNotes

Provisions for Controlling Excessive Issues

Responsibility forStemmingInflation

Safety of FederalReserve Notes

Elasticity of FederalReserve Notes

Effect ofWaronDiscountofCommercial Paper

StatisticalStatementof the Discounts

2. Open-MarketOperations

Factors InfluencingDiscountPolicy of FederalReserveBoard

ControlbyLines of Credit

VI CONTENTS

Effect of Redeposited Reserves on Securities and MoneyMarkets

Effecton CashCarried,Exchange,and Accommodation

ReservesandStockExchange Loans

AmendmentstoReserveRequirements

Amounts andDistribution of Reserves

Effects of FederalReserveSystem on Reserves

2 Concentration ofReserves

3 Decentralization of Bank Balances in Central Reserve

Cities

4 Cessation of InterestPayments onReserves

Calculation of Reserves ofMemberBanksAgainst Deposits Definition ofReserveCities

Operation ofGoldSettlementFund

Telegraphic Transfer ofFunds

Members' DraftsonFederalReserveBanks

TheParCollectionSystem

Progress ofParCollectionSystem

StatisticalStatementof Deposits in theUnitedStates

StateBanks—Growth

Limitations as toLoans

GrowthofTrustCompanies

SupervisionandRegulation

PrivateBankers

Mutual andJoint-Stock SavingsBanks

StatisticalStatementof theBankingSystemof theUnited

States

Postal SavingsBanks

Savings in theUnitedStates

CattleLoan Companies

Rediscounting CattlePaper

SecurityandLiquidity of CattlePaper

TheFederalFarmLoanSystem

Federal Land Banks

FederalFarmLoan Bonds

NationalFarmLoanAssociations

Joint-StockLand Banks

FederalFarm LoanBoard

XXV Bank Organization and Conversion 469

Introductory

Organization of aNewNationalBank

Articles of AssociationandOrganization Certificate

Election of DirectorsandOfficers

Reorganization ofaBankintoaNationalBank

Organization ofaStateBank—PreliminaryRequirements

Authorization Certificate

Qualifications of Directors

Organization ofa TrustCompany

Organization ofaMutualSavings Bank

Increasing Capitalization of a NationalBank

ChangeofNameor Location

Methodsof Consolidation

Liquidation of NationalBanks

FORMS AND ILLUSTRATIONS

6 Oflficial Organization of the FederalReserveBanksofNewYork 268

Banking Principles and

CHAPTER XII

1. Federal reserve banks

branches

3. Federal land banks

4. Federal joint-stockland banks

6. Postal savingsdepositories, including branchpost-offices

7. "Edge" corporations

2. Private individual banks

5. Joint-stockand"special deposits" savings banks

6. Bond houses and investment companies

7. Co-operative savingsassociations andbuildingandloan

associations

212 BANKING SYSTEM OF THE UNITED STATES

8. Morris-plan banks

9. Personal loan companies

10. Personal loanbrokers

18. Cattle loancompanies

thischapter to present the historical backgroundof this system

Aspartof a generalscheme tosupport public credit in 1791,

firstBankof theUnited States Hismain argumentsin support

the savingsofthecommunityforbusinessuses.

Theoppositiontotheschemewasledby Madison and camefrom

the southern states.

with

FEDERAL RESERVE SYSTEM—ANTECEDENTS 213

within two years The United States government subscribed

the loan to be repaid in ten annual instalments Thus the

ineligibleforre-election. Stockholdersin foreign countriescould

notvotebyproxy The votesallowed per share decreased with

thus providing for decentralized control, and no subscription,

save thatofthegovernment,wastoexceedi,000 shares

tenderinpaymentofall debtstotheUnitedStates Thebank'sdebtswerelimited totheamountofthecapital. This limitation

could be exceeded only by authorization of Congress, and the

forbidden to tradein merchandise, itwas permittedtosell—but

loansand discounts wasfixed at 6per cent Thedirectorswere

214 BANKING SYSTEM OF THE UNITED STATES

of the bank The charter ran for twentyyears and meanwhile

In 1792 thebankestabhshedin thechiefcitiesofthecountry

appor-tioned

Banknotes were issued by the parentbank and itsbranches

refused to redeem the notes of its branches, this forced each

thispolicyalsorelieved theparentbankfrom a sudden demand

"half-notes" and "post-notes" tomake payments ata distance

As these notes circulated widely, they had a salutary effect in

Services of FirstBankto Government

suchasthe $2,000,000 loanfor itsstocksubscription, whichboreonly 6 per centinterest, whereas the dividend rateon the stock

notes from the bank When by 1795 long-term loans to the

institu-tion to help the government with short-term accommodation

aggre-gating $671,860 Meanwhile the government had receiveddividendsamountingto $1,101,720

FEDERAL RESERVE SYSTEM—ANTECEDENTS 215

de-posits,andincompensationfortheuseofthe deposits transmitted

Collec-torofthe InternalRevenueusedthebankaswellasitsbranches

tocollectthematuring revenuebonds,promotingtherebygreater

punctualityand economyin the service.

DissolutionofFirstBank

frompolitical controversies Gallatin, who pleaded the bank'scause withJefferson, waswilling to waivepolitical objectionsin

considerationofthe fiscaland business advantages of its

opera-tion,andin1808whentheoriginalcharterwassoontoexpirehe

against thebank wasthelargeholdingsofthebank's stockabroad

trade organizationsofthe countryin generalfavored the renewal

ofthe charter butstate jealousyof the national institutionand

Pennsylvania, butfailed. Theyobtained one, however, in New

con-tinuedtodobusiness asastate institution

The first Bank of the United States failed of success cause of political opposition,despite the factthat ithad served

2l6 BANKING SYSTEM OF THE UNITED STATES

After the dissolution of the first Bank of the United States

and during the war against Great Britain, the money market

exceptin NewEngland, andthe publiccreditsankto alowebb

A demand for the re-establishment of the bank arose

currency through the resumption ofspecie payments

Subscriptions were payable within a year, one-fourth in specie,

ap-pointed annually by the President of the United States from

any public stock Loans to the United States were limited to

$500,000,andtoanystate to$50,000 Debts, excludingdeposits,

up to 60 days The organization of branches of the bank was

requiredundercertain conditions, andcontrol ofthebranchwas

lodged with the parent institution by the appointment of the

FEDERAL RESERVE SYSTEM—ANTECEDENTS 217

ment fundsin thebankor itsbranches;and iffor anyreasonhe

didnotdoso, hewasto report the reasonstoCongress Incase

of thesuspensionof speciepayments, theobligations ofthebank

weresubjectto 1 2 per centinterest untilresumptionofsuch

pay-ments The bank wasto make periodical statements, notmore

often than once a week, tothe Secretaryof the Treasury, andhe

Historyof Second Bank

Professor Dewey summarizes the history of the bank

to gointo effect on February 20, 1817. The bank was quicklyorganizedimderthepresidencyofoneJones,andbeganoperations

inJanuary,1817 Owingtomismanagement,Joneswasforcedto

June, 1829, SenatorWoodburyofNew Hampshirebrought

branch; in the following December PresidentJackson in his

accused it of failing to establish a sound currency On April

at lengthonthequestionsraisedbyJackson,itsconclusionsbeing

rechartering thebank InJanuary, 1832,thebankpetitioned for

of the Senateand the House anda billforrecharterwaspassed

The bill,however, wasvetoed byJackson,July10, 1832 In the

autumn of the sameyearJackson was re-elected President, and

2l8 BANKING SYSTEM OP THE UNITED STATES

the fundsofthegovernmentweresafe inthecustodyofthebank

whoobjected to the removal, and appointed Taneyin his place

Thelatter,onSeptember 26, ordered that deposits henceforthbe

re-ported to the Senate hisreasonsfor theirremoval In 1836 thecharter of the bank expired

A number of weaknesses developed in the operations of thesecondbankduringits earlieryears Thesubscriptiontoitsstock

there-forespeculativeincharacter;besides, thepaymentson the notes

Frictionalsodeveloped withthestatebanksover thetransfer

of public deposits and over the credit tobe given to state bank

bank effect the resumption of specie payments, and when this

embittered When the national bank charged the delinquent

placed

AcontroversywhichcenteredintheWest, whereinflationhad

than

FEDERAL RESERVE SYSTEM—ANTECEDENTS 219

should devolveupon the Treasury, butthe Treasury threatened

Natur-ally this dispute also contributed to the unpopularity of thenationalbank

de-manded that many branches be established, and 27 in all were

founded Almost everystatehadat least one, and thiswas too

manyfor the best businessefficiency. Lossesweregreater inthe

pressurefor favors in operation andpolicy Thebranches were

district, and thiswas a furthercauseofcomplaint

month and this fluctuation was a very disturbing factor in thebank's loan operations The original theory was that the bank

transmit government funds free of charge, the Treasury drew upon the bank at anyplace wherepublic money was deposited,

itbeingunderstoodthat theTreasurywouldgive thebank

220 BANKING SYSTEM OF THE UNITED STATES

lengthsofnoticewasarranged Thetransfer ofpublicmoneys by

Defects ofNote Redemption System

Thoughtheoriginalsystemofbanknoteredemptionaidedin

standing of their notes and created a good national currencyacceptedeverywhere, it wasnevertheless defective Theparent

bank agreed to redeem itsown notesand those of the branchesnorth of Charleston, without distinction, at any branch One

noteswerelikelytobepresented Loanswerealsocreatedfreely

conserva-tive.

bank resolved that no branch should take the notes of otherbranches except in payments due to the United States It

bankorotherbranchesexceptwhenitwasacreditor oftheotherbank, and then only when the exchanges indicated that such

acceptable at theothers, however,agoodcurrencywasprovided

sogreat that thebankofficerssoughtrelieffromCongress;failing

to secure this reliefthebank in 1827 invented "branch drafts,"

in $5 and $10 denominations These draftswere signed by the

FEDERAL RESERVE SYSTEM— ANTECEDENTS 221

they contracted thecirculation ofthestatebanks

Servicesof Second Bankto Commerce

The second Bank of the United States operated in domesticexchange, the sale of drafts to the public constitutingno small

helped tofacilitatecommerce and toequalizeexchange Inthis

businessitcompetedwith thestatebanks Theexchange

by purchasing, or refusing to purchase, bills from the differentareas

granted, mostly on pledge of personalty Not only by aiding

commun-ityas anationalinstitution

The opposition which brought the bank to an untimelyend

BANKING SYSTEM OF THE UNITED STATES

criticswere that some ofits officers whowere incompetent were

retained in office bypoliticalinfluence, that it tried to influence

political elections and state legislation, and that some of thebranches were established for political effect. It was further

character and thereforedangerous toourinstitutions Onother

drafts, the practice of usury in exchange dealings, the sale of

coin, tradinginpublic securities, speculationinreal estate, and

thelike. TheaggressiveandpeculiarcharacteroftheDemocratic

South, really explains why the inconsequential charges brought

against so serviceable and successful an institution led to its

dissolution

StateBanks Before the CivilWar

the financing of Washington's army Theinstitution was

com-mercial influence as well. In 1782 it was chartered as a state

bank in Pennsylvania, and under this charter, renewed from

Philadelphia

FEDERAL RESERVE SYSTEM— ANTECEDENTS 223

to grant it a charter until 1791 The tendency in both these

states, as timepassed, was tolayheavier restrictionsupon their

banks The restrictions included the imposition of personal

shouldnotexceed somespecified multiple of the paid-incapital,

dealinginmerchandiseorstocks, andthe requirementof reports

of condition

28, and by 1811,to 88 Thisrapidincrease, though itindicated

opposition to the rechartering of the first Bank of the United

publicfunds Thepoorconductofthe nationalfinances,

particu-larlythefailuretolevytaxes, the heavyissue ofTreasury

leftthe field free tothe statebanks, whichincreased from88 in

balance of trade made the situation still worse The Treasury

granta charter

Fromitsorganizationin 1816downto 1834, theyearinwhich

thesecondBankoftheUnitedStateswasrefusedanextensionof

224 BANKING SYSTEM OP THE UNITED STATES

thecharacterofwhichvariedgreatly,dependingupon statelaw,

localconditions,andindividualmanagement.

After Jackson's re-election in 1832 he became more

anddecided to sever relations between the government and the

institution, removing the public deposits and putting them in

reason-able care and subjected to fairly strict conditions, were called

Jackson's "pets," and political motives were alleged to have

enteredinto theirselection. Theentireperiodfrom 1816to 1837

wasoneofrapiddevelopmentandspeculativeprosperity Land

cotton farming were particularly active features of finance, and

The hope ofprocuring some of the redistributed public surplusduring Jackson's administration was a further stimulus By

1836 thenumberofstatedepositorybanksincreasedto89and by

$149,000,000

In 1836 theTreasuryissuedthe "speciecircular,"anorderto

itspublic land agentsto receive for thesale ofpubliclands only

specie, and to refuse the notes issued by the banks Theorder

notesand bankcredits, andto protect theTreasury The

easternagents Thisrestriction,inconjunctionwiththefailureofa

and apanicwhichhadbeen brewing some

FEDERAL RESERVE SYSTEM—ANTECEDENTS 225

fundsfailedstraightwayand thegovernmentlostheavily

Dur-ing the long period of depression that followed, the number of

banks, after increasing to 901 in 1840, declined to 691 in 1843,

$59,000,000in 1843

After the crisisof 1837 manyprojects wereadvancedto

publicdepositories Two national bankshad failed forpolitical

the interveningperiods, 1812-1816 and 1832-1836, when it had

clause" to the effect that the government would accept only

nationalbank The Democrats in 1846re-established the

andtreasurynotesto bereceivedbythegovernment,andpublicfunds tobe kept onlyintheTreasury,sub-treasuries, the mints,

and the custom-houses The Independent Treasury system

inaugurationof thesystemwasplainly forcedbythe abusesand

failureofthebanking system oftheday, and wasa protestboth

against the central national bank and the state bank systems.Before the Civil War the state banks hadincreased in number

$59,000,-000, to $202,000,000; and in deposits from $56,000,000, to

—

226 BANKING SYSTEM OF THE UNITED STATES

The period between 1790 and 1861 was one of experimental

thingsout for themselves locally. But thecountrywas poor in

specie,inloanablecapital,in financial institutions,andin

specie. Banksofmanykindswere developed, andfour typesof

1. Generalassets.

2. Ageneralsafetyfund

I. General Assets Of the banks whose issues rested upon

general assets, the best examples were those of New England

amount of issue to a multiple of the capital and specified the

minimumdenominationof thenotes, butnoprovisionwas made

reporttheirconditionfrom timetotimetothestate. Theygrew

up inaconservative area and were sounder thanthose inotherpartsofthecountry Asaresult,in 1814 theyaloneofallbanks

Thoughrepealedin 1842,thesystemwasreadoptedin 1851

Massachusetts, and they maintained intimaterelations with the

FEDERAL RESERVE SYSTEM— ANTECEDENTS 227

keep, in addition toa sum sufficient for the current redemption

notesofany bank whichrefused tomake thisdepositwere sent

The banknoteswereredeemedthroughthisagencyon anaverageten times a year, and this redemption constantly tested the sol-

2. Safety Fund The safety fund system was illustrated in

fund was made to cover deposits also. Each bank was to pay

annually tothe State Treasurera sumequalto}4 per centof its

proceeds applied to its notes and deposits, was paid from this

fund In 1837 thelawwaschangedtoprovidefortheimmediate

theassets. Hadthefund not beenmade tocoverbothnotesand

the safetyfund system ofprotectingbanknotes as employed in

passed Banking was "free"in the sense thatanyindividualsor

228 BANKING SYSTEM OF THE UNITED STATES

deposit with the State Comptroller of securities of the United

Comptroller After 1840 the securities of otherstates were notaccepted Provision was also made, though little used, for the

soimd,andin1863itbecamethemodelofthe nationalbanknotesystem Manyotherstates alsoadoptedthemethodofprotection

bydeposit of securities, but usually without due safeguards, so

issue developed until thesecurities fellbelowpar

bythestate. ThoughtheConstitution forbade thestates to issue

bills of credit, in 1837 the Supreme Courtdecided that anissue

bya bank owned in whole or partby the statewas not thereby

issues,weremostunfortunate Ontheotherhand,thestatebank

private citizens. Thestatemade good profitsonits investment

anditsnatural resourceswere developed verywellindeedthrough

the help of the bank

Prior to the year i860 the state bank notes consisted of aheterogeneous currency, lacking all uniformity, under diverse

FEDERAL RESERVE SYSTEM— ANTECEDENTS 229

otherexceptions, statebanknotesenjoyedonlyalocal credit.

media, the diflScultiesconfronting travelers in procuring

doubtful notes thattheirrecipienthadtohave almosttheexpert

accepted at varying rates of discount in others, and the

Afteritsunfortunate experiencesinthepanicof 1837,the national

more ignorant classesinto whose hands the worst notes drifted, lostheavilyfrom failures of theissuing banks In 1861 awriter

in the Chicago Tribunesaid the "bank nuisancehad becomebearable." Accordingto that writei many banks made it their

they couldby any contrivancekeep in circulation, regardless of

the dearthof reserves Somewere "merely banks of circulation

the notes being issued at goodly distances from the place of

Since the notes circulatedsometimebeforeredemption, they

counter-feiting. It was necessary to inspect all bills carefully and the

"Counterfeit Detectors,"with weeklysupplements, found a

use-ful place in every counting-room A writer in 1863, examining

230 BANKING SYSTEM OF THE UNITED STATES

Considering the number of issues, the different forms and

failed banks, thatformed the currency of the day, it isnot

ignor-ant classes, whowere least able to refuse tendered notesand to

detectandrejectworthlessones, sufferedmost andyet couldnot

wasconsiderably decreasedbyfailuresofissuingbanks,but

pros-perous yearsgavebirth tonewissues. The volumein circulation

the speculationandtrafficinbanknotes Speculatorswould buy

points orputthemoutinregionswhere theycirculatedathigher

in-creased by the suspension of the banks, a suspension which

greenbacks, ifredeemedat all. A sound,sufficient, anduniform

currency was also rendered necessary by the government's

sus-pension of specie payments and by the passage of the Internal

farcical or unequal if the revenues could have been paid in the

Inhisfinancereportof 1861, SecretaryChasefirst stated the

FEDERAL RESERVE SYSTEM—ANTECEDENTS 23

intocoinbythepledgeofUnitedStatesbonds." Theadvantages

4. Protection fromlosses ondiscountsand exchanges

6. Increased facilitiesforobtainingwarloans

greatmoneymonopoly

8. Increased securityto theUnion,springing fromthe

and convenient agencies for the depositofgovernment moneys

suggestingasanalternativetheissue ofbond-securedbanknotes

The plan necessitated the nationaUzation of the banks, a step

de-posited against circulation on the market in competition with

232 BANKING SYSTEM OF THE UNITED STATES

cxx),Qoo,andthemarketcreatedforbondswouldthereforebe

neg-ligible; (3)nationalizationwouldtake place slowlyandthe

The NationalBankingAct

The National Banking Act became a law on February 25,

foundation of which the leading financiers had nothing to do

3. Theconvenienceand utility of thenational banksto the

government

constitut-ing what is commonly called the National Banking Act On March3,1865,anactwaspassedimposinga taxof10per centon

the amount of notes issued by state banks after July i, 1866

Up toNovember 15, 1864,only 584 nationalbankshadbeen

or-ganized,with$81,961,450capital. Theeffectofthe taxby

$276,-219,450capital. Thoughduring theCivilWarthe nationalbank

bonds, after the amendment ofMarch 3, 1865, the plan quickly

FEDERAL RESERVE SYSTEM— ANTECEDENTS 233

years 1865 and 1866 Since that time the numberof banks hasincreasedeightfold,withperiodsofgrowth between1871and1875,

The mostrapidexpansion occurredafter 1900,at which date the

minimum required capitalization, as well as the tax on tion, was reduced

of the country, but more particularly, after 1900, to the lower

and 1917 when the Aldrich-Vreeland currency was being

con-tracted

The twobest indexesofbankingactivityare thedepositsand

aggregate resources Except during the panic periods of

in the extentof theiroperations, and thepanic of 1907 and thedepression of 19 13-19 14 retarded but did not reverse this tend-ency

national bank columns Possibly a fairer comparison of the

minimum

234 BANKING SYSTEM OF THE UNITED STATES

Growth of the National Banking System

NumberofBanks Total Resources

Date

Bank Notes , Deposits

Increase Decrease

Increase (In millions)

Decrease

(In millions)

Increase (In millions)

Decrease

(In millions)

Increase (In millions)

Decrease

(In millions)

134

450

1863 1864 186s 1866 1867 1868 1869 1870

1871

1872 1873 1874 1875 1876

1877

1878 1879 1880 1881 1882 1883 1884 188s 1886 1887 1888 1889 1890 1891 1892 1893 1894 1895 1896 1897 1898 1899 1900 1901 1902 1903 1904

$5.0 20.6

8.5

23.8 26.8 36.5 34-5 18.8

2.3

239

SI

127 73 85

232

IIS 73 14

i''i

71

74 56

297

314 50

197

66s

2.1 277

27 102 7.6 256 237 423

73

442 289

FEDERAL RESERVE SYSTEM—ANTECEDENTS 235

Date

Bank Notes Deposits

Increase Decrease

Increase (In millions)

Decrease

(In millions)

Increase (In millions)

Decrease

(In millions)

Increase (In millions)

Decrease

(In millions)

478

175

446 313

2,131 2.374 1.549 2,960

1906 1907 1908 1909 1910 1911 1912 1913 1914 191S 1916 1917 1918 1919

$59.0

28.3 61.2

340

24.0 14.6

H.I

10.7 367.S

7.4 4-9

137

331 358

137

247 343

1,537 1.595 1,476 1,720

to 1888 to 1899 to 1909

Movementto ReformNationalBanking System

Certain defects in the national banking system appeared

andin the reductionofnationalbanknotecirculationas the

andstem panicshadbeen demonstratedin 1884, 1890,and 1893

movement which has culminated in the federal reserve At the

236 BANKING SYSTEM OP THE UNITED STATES

1893 a plan for a currency protected by a joint guaranty fund

contributed by all the banks was advocated; this ''Baltimore

In1896 thereformofthebankingcurrencybecameinvolvedwith

the question of bimetallism versus the gold standard The

Indianapolis Currency Commission, a body composed of

segre-gationof the reservegold fundagainst greenbacks andits

establish-ment of national banks with a smaller capitalization than had

beenallowed theretofore, and permittedthe issueofnotes up to

100 per cent insteadof 90per centoftheparvalueofthebonds

completely In 1901 and succeeding years the Banking and

bills to establish an elastic currency and a centralized banking

system Several banking students advocated in private

circu-lars, in the press, and in Congressional bills,various schemes ofcentralization

The movement thus wellunderway wasprecipitated by thepanic of 1907 Inthe springof 1908 theBanking and Currency

bonds Asa compromise, the Aldrich-VreelandAct of May

FEDERAL RESERVE SYSTEM— ANTECEDENTS 237

currency associations," and for the issue ofnational banknotes

Com-missionwithwide powerstomake aninvestigation ofthecurrency

made anextensiveinvestigationandpublishedanexcellentseries

presented inabilltheoutlines ofthe Aldrich orMonetary

Com-mission plan A Republican Congress meanwhile had become

assembled, andwith thehelpof theAldrich,Fowler, Muehlman, and other bills, prepared, during 1912 and 1913, a preliminary

ItisknownastheCurrencyAct, ormore commonly andproperlythe Federal Reserve Act, and is the most important piece of

CHAPTER XIII

The Federal Reserve Act provides for the division of the

organized, and each ordinarily dependentupon no otherpart of

Federal Reserve Board

washotlydebatedinCongress Thoseinfavorof the idea

main-tainedthatnoarea thesizeof the United Stateswasorcould be

concerned Undoubtedly one deep-seated motive behind the

needed, and at the sametimelocalautonomy enoughtoremove