ARGUMENTS IN THE NEGATIVE
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arose, pressure always came on the banks, their deposits would be withdrawn, the rates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)
History
Independent
Treasury
National Danks
Treasury's
Procedure
Reserve Banks