convenience and customary course of business," to make each district large enough to provide the minimum capital of $4,000,000 required by law, and to make none so large as to dominate the others thereby endangering the federal principle which the law sought to establish. A map showing the boundaries of the twelve federal reserve districts and the location in each district of the federal reserve city, namely, the city in which the main office of the federal reserve bank is located, is given below.1

The fact that the number of banks and the amount of banking capital in different sections of the country vary so widely explains the great differences in the geographic sizes of the federal reserve districts.

Plan of Organization

All national banks are required to be members of the system, and state banks and trust companies (which conform to certain standards as to size and character of business) are encouraged to join. Comparatively few state institutions joined during the first two years of the system, but the liberal policies of the federal reserve

1 The map is a reproduction of the one published in the 'Federal Reserve Bulletin of September, 1919.

authorities, together with later amendments to the law and a growing feeling that it is the patriotic duty of state institutions to join the system in these times of national emergency, these factors have all made the state institutions more favorably disposed toward the system and they have lately been joining in ever increasing numbers.

Member banks are required to subscribe to the capital stock of the federal reserve bank in their district to an amount equal to six per cent of the member bank's capital and surplus. Only onehalf of this subscription has so far been called, giving the federal reserve banks a paid-in capital of $85,140,000 on September 12, 1919, but the other half may be called at any time by the federal reserve authorities."

There are two noteworthy features of a federal reserve bank's plan of organization. They are first, its democracy, and second, its recognition of the quasi-public nature of the banking business through its grant to the public of participation in the bank's management.

The administrative control of a federal reserve bank is democratic. "One bank, one vote" is the rule. Furthermore, in order to prevent the large

2 Provisions for the establishment of federal reserve branch banks are contained in the federal reserve act (section 3). Up to September, 1919, twenty-one branch banks had been established.

banks from dominating the small ones by reason of their greater prestige and to assure the small banks of representation on the board of directors, there is a device by which all the member banks are divided according to their capital into three groups, which, reminiscent of the three bears in the Goldylock story, may be called big banks, little banks, and middle-sized banks. All the member banks in a federal reserve district are classified into these three groups. Each of the groups was originally required to contain approximately the same number of banks, but by the amendment of September 26, 1918 this requirement was discontinued. At present. the federal reserve board has authority to determine the number of banks which shall constitute each group, being merely subject to the requirement that "each group shall consist as nearly as may be of banks of similar capitalization." The largest bank in the group of little banks is therefore normally smaller than the smallest one in the group of middle-sized banks, and the largest one in the group of middle-sized banks is normally smaller than the smallest one in the group of big banks. On the basis of the one bank one vote principle, each group elects two directors, one of whom, called a Class A director, is a banker and represents the stock-holding banks, while the other, called a Class B director, is a business man or farmer and

represents the business community. To these six directors so elected there are added three others known as Class C directors, who are appointed by the central federal reserve authorities at Washington to represent the interests of the federal government and of the general public. One of these Class C directors, who is required to be a person of "tested banking experience," is designated by the central authorities as Chairman of the Board, and is known as federal reserve agent. The board thus consists of nine directors, who hold office for three years (the term of office of one director of each class terminating each year), and who are broadly representative of different interests among the American public.

Crowning the arch of which the twelve federal reserve banks constitute the structural stones and forming its keystone, is the central board at Washington, known as the federal reserve board. This board consists of seven members, including the Secretary of the Treasury and the Comptroller of the Currency, who are ex-officio members, and five members appointed by the President of the United States with the advice and consent of the Senate, who hold office for a period of ten years. At least two of these five members the law says must be "experienced in banking or finance." The Secretary of the Treasury is exofficio chairman of the federal reserve board. The