r single feature of the act is, however, that by which each
Federal reserve bank is to rediscount notes, drafts, and bills of
exchange arising out of actual commercial transactions, when indorsed
and presented by any of its member banks. This, quite apart from
the note issues, gives a power to the banks collectively, under
the general supervision and control of the board, to expand credits
indefinitely at any time for real business purposes. Any business man
able to offer any commercial paper of sound quality should now be able
to borrow on it at some rate of discount, even in the most stringent
times. And, in turn, every member bank will now be able at such times
to rediscount such paper and thus secure credit toward its reserve
requirement on the books of its Federal reserve bank. Suppose, for
example, that a member bank (in a central reserve city) saw its
reserve in the Federal bank fall below 7 per cent of its deposits. It
could by rediscounting $7000 worth of notes increase by $38,888 the
amount to which it might legally extend credit to its customers (i.e.,
$7000 is 18 per cent of that sum). The deposits of the Federal reserve
bank would then be increased $7000, against which it must have a
reserve of 35 per cent, or $2450. If the reserves of any Federal
reserve bank fall too low, it can in turn rediscount its paper with
the other Federal reserve banks.[10] If the time comes when no one of
the twelve banks can longer maintain a 35 per cent reserve, the
board may reduce or suspend the requirement, levying a tax graduated
according to the deficiency. The provision here for elasticity of
credit combined with union and solidarity of all the central banking
reserves of the country to meet unusual demands in emergencies,
exceeds any needs which can be expected to arise.
Sec. 9. #Changes in national banks.# There is here created a national
system of reserves, but it will be observed that membership in the new
system of the Federal reserve banks is not limited to national banks,
but is open on equal terms to banks organized under state laws. While
in most respects the general banking law remains as it was, certain
changes are of importance. The percentage of reserves henceforth
required of all member banks (as above indicated) is a substantial
reduction of the former requirement for national banks. In some other
respects the powers of national banks are enlarged. One with a capital
and surplus of $1,000,000 may with the
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