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RESERVE SYSTEM
BY
EDWIN WALTER KEMMERER, PH.D.
PROFESSOR OF ECONOMICS AND FINANCE
IN PRINCETON UNIVERSITY
With a Preface by
BENJAMIN STRONG, LL.D.
GOVERNOR OF THE FEDERAL RESERVE BANK OF NEW YORK
FOURTH EDITION
PRINCETON UNIVERSITY PRESS
PRINCETON, N. J.
LONDON: HUMPHREY MILFORD
OXFORD UNIVERSITY PRESS
COPYRIGHT, 1920.
-
Princeton, N. J.
Published September, 1918 Revised December, 1918 Revised March, 1919 Second printing April, 1919 Third edition, November, 1919
Fourth Edition, April, 1920
Printed in the United States of America
277750
Lack of familiarity with federal reserve system on part
of public, and its dangers, 1.-Purpose of book, 2.—
Plan of book, 2.
CHAPTER II
DECENTRALIZATION OF AMERICAN BANKING PRIOR TO FEDERAL
Banks lacked organization and effective leadership in
time of crisis, 3-4.—Reserves widely scattereà, 4-6.—Re-
serves immobile, 7.
1-2
3-7
CHAPTER III
INELASTICITY OF AMERICAN BANK CREDIT PRIOR TO FEDERAL
Extent to which bank credit is used as a medium of
exchange, 8-10.-Why circulating bank credit should be
elastic, 10-11.-Bank-note inelasticity over long periods
under old banking system, 11-13.-Seasonal inelasticity
of bank notes, 13-15.-Bank-note inelasticity in times of
crisis, 15-17.-Inelasticity of deposit credit, 17.-Evil re-
sults of credit inelasticity, 18.
CHAPTER IV
DEFECTIVE EXCHANGE AND TRANSFER SYSTEM
...
The "float" and the practice of routing checks, 19-21.—
Checks in transit commonly counted as legal reserve
money, 21-22.-Large domestic shipments of currency re-
quired under old banking régime, 22-23.—Foreign exchange
difficulties, 23-24.
CHAPTER V
8-18
19-24
DEFECTIVE BANKING MACHINERY FOR FEDERAL GOVERNMENT. 25-27
Difficulty of apportioning government funds among nine
sub-treasuries and over fifteeen hundred depositary banks,
25-26.-Four evil results of practice, 26-27.-Summary of
defects of old banking system, 27.
CHAPTER VI
PAGES
HOW THE FEDERAL RESERVE SYSTEM IS REMEDYING THE OLD
EVIL OF THE DECENTRALIZATION OF AMERICAN BANKING.. 28-49
Division of country into twelve federal reserve dis-
tricts, 28-29.-Membership in federal reserve system,
29-31.-Democracy of federal reserve banks' plan of or-
ganization, 31-33.- Coordination of twelve federal reserve
banks and centralization of their control provided for by
means of federal reserve board, advisory council, and class
C directors of federal reserve banks, 33-35.-District cen-
tralization of bank reserves, 35-38.-Mobilization of re-
serves, 38-39.-Inter-district mobility of reserves, 39.-
Rediscounting by one federal reserve bank for another,
39-42.-Open-market operations, 42-44.-Creation of a
broader discount market for commercial paper, 44–45.—
Increasing use of the trade acceptance, and advantages of
trade acceptance over open-book account credit, 45-46.—
The bank acceptance, 46-48.-Inter-district mobility of
reserves promoted by increasing use of trade acceptances
and bank acceptances, 47-48.-Intra-district mobility of
reserves increased by federal reserve system, 48-49.
CHAPTER VII
CREDIT ELASTICITY UNDER THE FEDERAL RESERVE SYSTEM.... 50-65
Provisions of federal reserve act for bond-secured
national bank notes, 50-51.-The federal reserve bank
note, 51.-Federal reserve notes, 51-52.-Their elasticity,
52-57.-Elasticity of deposit currency obtained in a num-
ber of ways: Removal of old rigid legal reserve require-
ments, 58. New legal reserve requirements less rigid
and may be suspended in times of emergency, 58-61.
Privilege of rediscounting at federal reserve banks, 61-
62. Privilege of borrowing on collateral notes with short
maturities, 63.-Contractility of circulating credit un-
der federal reserve system, 64-65.
CHAPTER VIII
DOMESTIC AND FOREIGN EXCHANGE UNDER THE FEDERAL RE-
SERVE SYSTEM
....
Provisions of federal reserve law concerning domestic
exchange, 66-69.-Early experiments of the federal reserve
authorities as regards the clearing and collection of
checks, 69.-Present clearing and collection system,
70-75.-The gold settlement fund, 75-78.-Foreign ex-
change, foreign agencies and branches of American banks
organized for foreign business under the new banking
system, 79-83.
66-83
CHAPTER IX
THE FEDERAL RESERVE SYSTEM AND THE FEDERAL TREASURY.. 84-92
Federal reserve banks authorized by law to be deposi-
taries of government funds, 82-83.-Extensively used as
depositaries by Secretary of the Treasury, 83-87.-Fed-
eral reserve banks as fiscal agents of Government render
invaluable services in the financing of the war, 88.-
President Wilson's appeal to non-member banks to join federal reserve system as a matter of patriotic duty 88-90.
APPENDIX A
COMBINED BALANCE SHEET OF TWELVE FEDERAL RESERVE
BANKS AS OF MARCH 28, 1918, AND BRIEF EXPLANATIONS
OF THE VARIOUS ITEMS..
93-97
APPENDIX B
FEDERAL RESERVE ACT AS AMENDED TO MAY 1, 1918, WITH A
MARGINAL INDEX AND WITH CITATIONS OF AMENDATORY
ACTS
.98-180
APPENDIX C
PROVISIONS OF THE FARM LOAN ACT, APPROVED JULY 17, 1916,
WHICH AFFECT FEDERAL RESERVE BANKS AND MEMBER
BANKS OF THE FEDERAL RESERVE SYSTEM.
APPENDIX D
SECTION 7 OF "AN ACT TO AUTHORIZE AN ISSUE OF BONDS TO
MEET EXPENDITURES FOR THE NATIONAL SECURITY AND
DEFENCE,
APPROVED APRIL 24, 1917, WHICH AF-
FECTS FEDERAL RESERVE BANKS AND MEMBER BANKS OF THE
FEDERAL RESERVE SYSTEM"
APPENDIX E
181-183
....184-185
THE "PITTMAN ACT" OF APRIL 23, 1918, WHICH PROVIDES FOR
THE SUBSTITUTION OF FEDERAL RESERVE BANK NOTES FOR
SILVER CERTIFICATES
INDEX TO FEDERAL RESERVE ACT AND ITS AMENDMENTS......191-203
INDEX TO TEXT OF BOOK
..204-208