ess. They are not
an "elastic currency," increasing or diminishing with the needs of
business. The changes in their amount depend upon the chance of the
banks to make more or less in this way than by any other use of their
capital, and this in turn depends largely on the price of bonds and on
the rate of interest they bear. From 1864 to 1870, fortunes were made
from this source, but thereafter banks could make little more from
note issues than they could by investing the same amount in other
ways. Many banks for a long period did not avail themselves in the
least of their privilege of issue. The notes were subject to a tax.[2]

A national bank (as the law now stands) may be organized, with $25,000
capital in towns not exceeding three thousand population, with $50,000
in towns not exceeding six thousand, with $100,000 in cities not
exceeding fifty thousand, and with $200,000 in large cities. Three
cities, New York, Chicago, and St. Louis, have long been designated as
central reserve cities, and some 47 other cities as reserve cities,
in which the reserves of banks were required to bear a considerably
larger proportion to their deposits than in other cities.[3] Other
banks might count as part of their legal reserves their deposits in
reserve city banks, up to a certain proportion. The national banks in
the larger cities thus became the great capital reservoirs of cash for
the whole country.

National banks have been subject to stricter inspection than have been
the banks in most of the states, a fact which has strengthened public
confidence in their stability. Except in this and the other respects
above mentioned, a national charter offered few, if any, attractions
to small banks, a majority of which have found it more advantageous to
operate under state charters because of less stringent regulations as
to amount of capital, reserves, and supervision.

Sec. 4. #Defects of our banking organization before 1913#. Taken
altogether, the banks in the United States since 1868 have represented
great banking power and very efficient service for the community in
times of normal business. But in several respects it long ago became
evident that our banks were operating less satisfactorily than those
of several other countries. American banking organization had failed
to keep pace with the increasing magnitude and difficulty of its
task. Especially at the recurring periods of financial stress, such as
occurred in 1893, 1903, and 19