RESERVE BANKS, FEDERAL, a system of Government banks to act as a stabilizing influence on private banking institutions during periods of financial disturbances. The discussion of Govern ment support of private financial insti tutions came as a result of the financial panic of 1907, when through the popular distrust of depositors hundreds of pri vate banks were forced into the hands of receivers, not through lack of a sound economic basis, but through inability to liquidate their assets in time to meet the runs of depositors, clamoring for their funds. The idea behind the Federal Re serve Bank was to give confidence to the people in the private banks by placing the financial strength of the Government behind them, thus assuring the deposit ors of the financial safety of their sav ings.
The Federal Reserve bank was estab lished by an Act of Congress, finally passed on Dec. 23, 1913. By this law the country was divided into Reserve Bank districts, in each of which was es tablished a reserve bank. One was placed in each of the following centers: Boston, Mass., New York City, Philadel phia, Cleveland, Richmond, Va., Atlanta, Ga., Chicago, St. Louis, Minneapolis, Kansas City, Dallas, Tex., and San Fran cisco. Each of these acts as a depos itory for the national banks of its dis trict, each of which subscribes stock to the extent of six per cent. of its paid-up capital and surplus. State banks also have the privilege of becoming partici pants in the plan, provided that they are willing to submit to certain conditions imposed as to the amount of their re serves, etc.
Each Federal Reserve district bank is governed by nine directors; three repre senting the national banks of the dis trict, tin_ ee representing agriculture, in dustry and commerce in general, and the rest representing the Government, being appointed by the Federal Reserve Bank Board, in Washington, D. C. This lat ter body controls the whole system and consists of the Secretary of the United States Treasury, the Comptroller of Cur rency, ex-officio, and five members who are appointed by the President, subject to the approval of the Senate.
The functions of the Board are to so mobilize the finances of the country as to act as a reserve in any part of the coun try where private banks may he threat ened by a panic. The very existence of the system, however, acts as a deterrent on any such threat. This is done through the Secretary of the Treasury, who has the power to place Government gold reserves at the disposal of any of the district centers, where the national banks may quickly realize on their long time securities or investments by bor rowing from the reserve banks. Aside from this, any individual bank in tem porary difficulties on account of a sud den run of depositors is able to utilize the reserves of other banks, through the district bank, and is in no danger of be ing tied up with long-time notes or mort gages, on which the loans may be quickly made. Through the reserve banks, also, the practice of REDISCOUNTING (q. so common a practice in European coun tries, is in this country becoming more common, and banks are able to utilize the capital sunk in negotiable instru ments by utilizing them as a form of currency. National banks participating in the plan are also able to issue notes on their gold reserves to the extent of 40 per cent.
On Oct. 17, 1919, a report of the Board in Washington showed the financial con dition of the Federal Reserve Bank to he as following: Gold reserves $2,128,000.000 Capital paid in 85,000,000 Government deposits 133,000.000 Total gross deposits 2,958,000,000 Total resources 6,161,000,00C Federal Reserve Bank notes in circu lation amounted to $2,752,000,000, and notes issued by the participating na• tional banks amounted to $249,000,000.