Full text: Referendum on the report of the Special Federal Reserve Committee

Having had to consider the nature of the federal reserve system, 
in reaching a decision that courts do not have jurisdiction to review 
‘he policies of reserve banks directed toward the credit situation, the 
federal Court of Appeals for the second circuit began its opinion with 
1 brief description covering the reserve act and legislation which 
asreceded it. As a summary, this description is quoted here, as follows 
“The federal reserve act marked the end of a long struggle and was thought to 
ifford the solution of many difficulties. When the independent treasury bill was passed 
'n 1846, the effect was completely to divorce the government from all connection with 
the money market by making it its own banker and by keeping government funds in 
‘he vaults of independent treasury office banks. The public then had to depend on 
state banks for currency and credit, with a result that.in times of financial stress is 
well known. 
“To meet the necessities of the Civil War, national banks were established. They 
secame the official depesitaries of the government and furnished an enlarged currency 
secause of their ability to issue circulating notes against government bonds deposited 
with the treasurer of the United States. They were required to maintain reserves in 
certain cities based upon a percentage of their deposits. As the government debts of the 
Civil War became liquidated, the means for issuing currency lessened, though the 
Jusiness requirements of the country were expanding. In such a situation business 
orosperity inevitably promoted monetary stringency. Moreover, as the reserves were 
deposited in relatively few banks in the metropolitan centers, when financial stringencies 
arose, pressure always came on the banks, their deposits would be withdrawn, the rates 
‘or call loans would advance and a liquidation of collateral and depreciation of values 
would ensue. 
“While the national banking system was a great improvement over what went 
sefore, it provided no central regulating force and furnished no adequate means for 
ontrolling interest rates or preventing or lessening financial stringencies and panics. 
The usual method of furnishing funds needed for business was for the Treasury to de- 
bosit moneys from its vaults in the national banks and to withdraw these deposits if 
hey were used too much in speculation. This was a rather ineffectual way of dealing 
with complicated and difficult situations. It was dependent too much upon the de 
ermination of a single official and lacked the information and guidance that a scientific 
‘ederal banking system would afford. 
“To remedy the difficulties we have mentioned, the federal reserve act was passed 
The federal reserve banks have national charters and their stockholders are member 
yanks. Each federal reserve bank has nine directors, three chosen from the member 
(Continued on page 7) 
National Danks 
Reserve Banks

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