GROWTH OF THE NATIONAL BANKING SYSTEM

in the United States, whereas in the same month of the final year of
the period, bank note circulation was $722,000,000, or 19.49, of the
total money in the United States.
The year 1918 is taken as the termination of this period in the
national bank system’s history, because that year marked the passage
of the Federal Reserve Act which had such a far-reaching influence
on the entire system and which altered it in so many essential features.
 For many years it had been obvious to close students of
finance that the nation’s banking system, splendid as it was in many
respects, contained many defects, and that the whole might be so
altered that the individual banks could be of even greater service to
their particular communities and to the country at large.
During the few years just preceding the passage of the Federal
Reserve Act, careful and comprehensive studies of banking in the
United States were made by various competent agencies. Probably
the most exhaustive of these inquiries was that followed by the
National Monetary Commission, which, after the most diligent labor,
presented a plan for the entire reorganization of our banking system.
This plan, generally known as the Aldrich scheme, was not adopted
by Congress, but the Congress which came in after the election of
1912, turned its attention forthwith to that banking plan which was
ultimately embodied in the Federal Reserve Act.
The National Monetary Commission, in its report, had detailed
seventeen criticisms of American banking. This body of criticism
provides a splendid commentary on our whole banking structure—
national, state and private—before the passage of the Federal Reserve
 Act; it gives, moreover, a vivid picture of the causes from
which the Reserve Act arose. A summarization of the list of the
Monetary Commission’s criticisms follows, and is included here because
 it gives, in the briefest way possible, matter that is essential
to the understanding of national banking.

Reserves

1—There was no provision for concentrating the cash reserves of the banks and
for their mobilization and use in times of need;

9— Inadequate federal and state laws restricted the use of bank reserves, thus
decreasing lending power;

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