102 PRESIDENTIAL ADDRESS SECTION F. 



these banks is compulsory for national banks, and State banks 

 have strong inducements to become members. Up to ist January^ 

 1919, about 900 State banks had done so. Thus the Federal 

 Reserve system now controls about 80 per cent, of the commer- 

 cial banking resources. Member banks are required to provide 

 the capital of the reserve banks up to 6 per cent, of their capital 

 and reserves. The public may also subscribe. As the issue of 

 notes is one of the functions of these banks, the public, by the 

 restriction of dividends to 6 per cent., obtain some of the advan- 

 tages of Government issue, while reducing the incentive to over- 

 issue, which is always a danger of Government paper. Half 

 of any profits in excess of 6 per cent, go to the Government, 

 the other half to the reserve fund until this reaches 40 per 

 cent, of the paid-up capital. Thereafter the whole surplus goes 

 to the Government. It may be used either to increase the gold 

 reserve or to reduce the national debt. To unify the opera- 

 tions of the twelve Federal Reserve Banks a Federal Reserve 

 Board was set up. The Secretary of the Treasury and the 

 Comptroller of the Currency are ex-officio members of the 

 Board. Five other members are appointed on the advice of the 

 Senate. This Board not only exercises general supervision over 

 the whole system, it also has a direct share in the management 

 of the Federal Reserve Banks, as it appoints three of the nine 

 directors of each. Thus one-third of the directorate of the Federal 

 Reserve Banks represents the Government. The other direc- 

 tors are appointed by the member banks — three as representing 

 the commerce, manufactures, and agriculture of the district, 

 three as representing the banks themselves. 



In the United States both the old and the new law control 

 not only note issues but the reserve against ordinary banking 

 liabilities, a principle which was adopted here, in a modified 

 form, in the old Natal Bank Law of 1888. The new law in the 

 States made the Federal Reserve Banks the sole approved re- 

 serve agents, distinguished between the reserves required against 

 demand deposits and those subject to notice of 30 days or more, 

 and laid down the following new schedule of minimum reserves 

 for member banks : — 



Federal Reserve Svstem. 



The reduction in these requirements set free reserves of 

 about $465,000,000. or, from another aspect, greatly increased 

 the power to manufacture credit. The Federal Reserve Banks 

 themselves are required to keep at least a 35 per cent, reserve 



