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Show MAKES REFORMS IN CURRENCY SYSTEM New Money Measure Is Most Important Law Relating to Financs Enacted in Many Years Salient Features of the Code Succinctly Explained. Washington, Dec. 23. The new bill affecting the currency, banking and finances of the country is one of the most far-reaching measures relating to finance that hava been enacted in many years. Ths magnitude of the subject, the diversity of interests affected and the length of the debates in both branches of congress has to follow the changes and grasp the essentials of this highly technical measure in its important bearings on money, finance, banking and the entire range of fiscal subjects, public and private, which it affects. . Summary of the Bill, With a view, therefore, of presenting present-ing succinctly and in non-technical language an epitome of the salient features fea-tures of the measure as finally framed, the following summary is given of the bill as a whole and of its principal details: de-tails: Generally speaking, the first steps to be taken to bring into operation the nation's new financial system will be through an organization committee consisting of the secretary of the treasury, secretary of agriculture and controller of the currency. Banks have 60 days within which to file their applications for membership In the new system, and one year's time is allowed before the government will compel the dissolution of any national na-tional bank that refuses to Join. Will "Take Up the Slack." The new law will make little direct cnange in tne operation or tne present pres-ent national banks, except to allow them to loan a certain amount of their funds upon farm mortgages. Its chief purpose is to add a new piece of machinery to the banking iystem that will "take up the slack" during the changing business conditions condi-tions of each year; that will give the banks a place to quickly convert their assets into cash in time of need, and that will bring out new federal currency cur-rency when it is needed, and retire it whan money becomes "cheap." Banks are now required to keep , a eertin percentage of their deposits as "reserves," part in cash in their own I vaults and part of which mety be re-deposited re-deposited in the banks of New York, Chicago, SL Louis and othe,r designated designat-ed cities.. In times of sudden, financial demands, de-mands, when banks ha.ve loaned up to the full limit of thelf resources, these reserves furnlah little relief, because If they are paid Out to i meet demands the banks are left in a precarious condition. con-dition. BaslcHnclple of Law. The basic principle of the new law Is to get, these reserve funds out into uKaiacfon when necessary without lessening; tie safety of any bank, and to provide a place to which local banks may rush in a crisis and get casa ior me prime commercial paper" pa-per" they hold In their vaults. This is to be accomplished through a chain of regional reserve banks, or "reservoirs of reserves," in which all banks shall deposit a stated part of the money they are required to hold E3 reserves. Under the new system, when a financial flurry comes the banks can take commercial paper, such as notes, drafts and bills of exchange, to these "reservoirs," and secure the use of their own reserves, or, if necessary, even the reserve of other banks, by depositing this security. The new regional banks will receive re-ceive about one-half of the bank reserves re-serves of the country. They in turn will be permitted to loan back to the banks all but 35 per cent, of these reserves, so that in case of emergency millions of cash can be brought out Into circulation quickly. The banks will have to pay for these loans, however, as individuals have to pay for a loan from any local bank, and this charge is expected to prevent the too free use of the reserves held by the regional banks. v New Paper Currency. A new form of paper currency is also provided for, to come out in case of emergency, and which is expected to go back into the hands of the government gov-ernment when times are normal. These "treasury notes" will be printed by the government and issued through each regional reserve bank, and will bear the guarantee both of the regional re-gional bank and of the government. The following analysis presents the details of the new law without adhering ad-hering closely to the technical division or language of the measure: At the head of the system will stand a federal reserve board at Washington, Washing-ton, appointed by the president, and to consist of the secretary of the treasury, the controller of the currency curren-cy and five other members. Two of these shall be expert bankers, but none shall have banking affiliations or own bank stock during their service. This board will exercise general control con-trol over the entire system. The temporary "organization committee," com-mittee," or. the federal reserve board, will select from eight to twelve cities where regional reserve banks shall be located and will divide the entire country geographically with these cities as the centers of districts. All national banks in a district will be required to subscribe for the stock of the regional reserve bank in that district dis-trict and to keep a portion of their reserves there. Known as "Member Banks." Local banks will be known as "member "mem-ber banks" because they will own the stock of the regional reserve bank of their district. Each member bank will be required to take capital stock of the regional reserve bank, equal to 6 per cent, of the member bank's capital capi-tal and surplus. The capital of the regional re-gional bank will increase or decrease so that it always represents 6 per cent, of the combined capital and surplus sur-plus of all the banks of the district that have Joined the system. National banks are compelled to join and state banks are permitted to if they bring their reserve requirements require-ments up to the standard set for national na-tional banks and submit to national examinations. Public Can Buy Stock. Public ownership of the stock of the regional reserve banks is permitted only in case enough banks do not Join in any district to provide capital stock of $4,000,000. In such vent the public may purchase the stock in quantities limited to $25,000 for each Individual, but the voting of this stock will be placed in the hands of government govern-ment representatives on tb- board of directors of the regional reserve baDk. The regional reserve banks may d j business only with their member banks, not with the public, except that certain "open market operations" such as the purchase and, sale of gold, government, gov-ernment, or municipal bonds, and certain cer-tain forms of bills of exchange, are permitted.'' These banks will make "their earn'ngs from the loans made to member banks, and from the purchase and sale of bonds and foreign bills of exchange. Must Put Up Cash. Member banks will be compelled to' put up in cash only one-half of their subscription to the capital of the new banks, the rest can be called for if needed by the regional bank. Dividends Divi-dends of 6 per cent, will be paid on this stock to the member banks, and the stock will be non-taxable. After these dividends are paid one-half one-half of the surplus net earnings goes to create a regional surplus fund, and when this has reached 40 per cent, of the regional bank's paid in capital these earnings are to go into the United States treasury: The balances of the net earnings are to be paid to the United States as a franchise tax. With the machinery thus created for a new banking system that is supplementary sup-plementary to the commercial bar-i of the country, the law provides roi gradual transfer of part of th? hank reserves to these new "reservoir" banks. In order not to disturb business conditions, con-ditions, or to withdraw too suddenly the heavy deposits of country banks in the large cities, the law provides that three years may be consumed in shifting shift-ing these balances and that, if necessary, neces-sary, part of the reserves transferred to the regional banks may consist of commercial paper. The amount of reserve required from every bank under the new law, and the place where it must be kept, are as follows: Country banks Total reserve required, requir-ed, 12 per cent, of demand deposits and 5 per cent, of time deposits. Five-twelfths Five-twelfths must be held in the bank's own vaults for two years and four-twelfths four-twelfths after that. For the first year two-twelfths must be kept in the regional re-gional bank, increasing one-twelfth each six months thereafter until it reaches five-twelfths of the total reserve. re-serve. For three years the unallotted part of the reserve may be kept in the banks of reserve cities. After that .ime it must be kept either in the country banks and vaults or in the regional reserve bank. Reserve city banks Total reserve required, 15 per cent, of demand and 5 per cent, of time deposits. Six-fifteenths must be kept in the bank's vaults for the first two years and five-fifteenths five-fifteenths after that time. Three-fifteenths must be kept in the regional reserve bank for the first year, increasing in-creasing one-fifteenth every ' six months thereafter until it reaches six-fifteenths. six-fifteenths. For three years the unallotted un-allotted portion of the reserve may be kept in other banks, in its own vaults, or in the regional bank; after that time in one of the latter two places. Regional Reserve Banks. These immense funds of reserves from "member banks," together with government moneys, will make up the deposits of the regional reserve banks. Each of these banks will be adminis- tered 'by a board of nine directors, -stt of whom will be elected by the banks, and three appointed by the federal reserve re-serve board. The regional reserve banks may re-district re-district that is, buy at a discount from Its member banks "prime commercial com-mercial paper" when the member banks desire to convert these assets into money. Character of Paper. The exact terms of this important provision as to the character of paper upon which the regional reserve banks may furnish cash are as follows: "Upon the Indorsement of any of its member banks, with a waiver of demand de-mand notice and protest by such banks, and federal (regional) reserve bankmay discount notes, drafts, and bills of exchange arising out of act ual commercial transactions; that is, notes, drafts, and bills of exchange issued is-sued or drawn for agricultural, industrial indus-trial or commercial purposes, or the proceeds of which have been used, or are to be used, for such purposes, the federal reserve board to have the right to determine or define the character char-acter of the paper thus eligible for discount, within the meaning of this act. Nothing in this act contained shall be construed to prohibit such notes, drafts and bills of exchange, secured by staple agricultural products, or other oth-er goods, wares, or merchandise, from being eligible for such discount; but such definition shall not include notes, drafts, or bills covering merely Investments Invest-ments or issued or drawn for the!' purpose of carrying or trading in stocks, bonds or other investment securities, se-curities, except bondB and notes of the government of the United States. The "Elastic" Element. The new treasury notes, which are to furnish the "elastic" element In the currency system, and to add to the country's circulating money in time of need, will come into ujie in the following follow-ing way: The notes will be printed by the government, gov-ernment, with a distinctive style for each regional reserve bank. One of the three directors named by the federal fed-eral reserve, hoard for each regional bank ill be known as the "federal reserve re-serve agent" for that bank, and a supply sup-ply of the notes will be placed in hia custody. Should a regional bank desire to pay out more money than Its cash resources re-sources will permit, the law provides that it may put some of its rediscount ed commercial paper into the hands of the "federal reserve agent," and received re-ceived In return the new treasury notes. For each note that it puts out lute circulation, the regional reserve bank must set aside in gold 40 per cent, ot the value of the note as a guarantee for its redemption. This gold, with the commercial paper held by th "federal reserve agent," Is the protection pro-tection behind the new money; but these notes will also be guaranteed by the government and may be redeemed redeem-ed in gold in the United States treasury. treas-ury. Each regional bank, under the act, ' must keep a reserve of 35 Der cent the deposits it has received, besides the 40 per cent, gold reserve behind' the treasury notes it issues. If the gold reserve behind the notes falls below be-low 40 per cent, a heavy tax is imposed im-posed on the bank, which in turn adds the tax to the rate it charges member ' banks for rediscounts. This was designed de-signed to stop an over-expansion ol currency. In times of sudden stress the federal reserve board can suspend these reserve provisions, in order to furnish quick relief to any commit nity. Take Up Bonds. None of the existing forms of cur rency except the national bank notes will be disturbed by the new law. The United States bonds, now used to secure se-cure the issue of Aiational bank notes, are to be taken up at the rate of $25, 000,000 a year by the regional re serve banks and new treasury notes or short term three per cent, bonda will take their place. National bank currency is expected gradually to retire. re-tire. The federal reserve board will exer cise final control over the entire operation op-eration of the system. It can compel one regional bank to loan to anothei in time of need; can suspend all re . strictions surrounding the reserves' , which regional banks xiust hold, and can remove directors ol regional re serve banks whenever it .s believed 1 necessary. Banks In Control. While the banks retain control o the boards of the regional reserve banks, their connection with the federal fed-eral reserve board is only through an advisory council, made up of one representative from each federal reserve re-serve district. This council wili meet in Washington to confer with the federal fed-eral reserve board "on general business busi-ness conditions" and to make recommendations recom-mendations and suggestions concerning concern-ing discount rates, note issues, and reserve re-serve conditions. An important change in national banking methods embraced in the new low will permit ail national banks except ex-cept those in New York, Chicago and St. Louis to make direct loans on five year farm mortgages up to 25 per cent, of their capital and surplus, or up to one-third of their time deposiU- |