BANKS AND BANKING 



581 



BANKS AND BANKING 



FEDERAL RESERVE DISTRICTS 

 The twelve districts and location of the Reserve Bank in each. 



serve, are shown on the accompanying map. 

 Every national bank in the United States must 

 subscribe six per cent of its capital and surplus 

 to the stock of the reserve bank in its district. 

 State banks may subscribe, but are not re- 

 quired to do so. As the capital and surplus 

 of individual banks vary from year to year, 

 the capital of the reserve bank varies, but the 

 minimum capital is $4,000,000. 



Each reserve bank is under the direction of 

 a board of nine directors, three of whom are 

 bankers named by the member-banks of the 

 district, three of whom are citizens, not bank- 

 ers, but named by the banks, and three of 

 whom are appointed by the Federal Reserve 

 Board at Washington. The Federal Reserve 

 Board is in supreme control of the entire sys- 

 tem. It is composed of the Secretary of the 

 Treasury and the Comptroller of the Currency, 

 who are members ex officio, and five < 

 members appointed by the President for a 

 term of ten years at a yearly salary of $12,000. 

 of these five members must be experienced 

 bankers, but must have no connection with any 

 bank during their term of office. 



Tin- primary function of a Federal Reserve 

 Bank is to rediscount commercial paper. A 



national bank, for example, presents to the 

 reserve bank notes which it has discounted for 

 its own customers. The reserve bank redis- 

 counts the notes, thus releasing the funds of 

 the national bank. In ordinary times the 

 reserve bank will pay for such commercial 

 paper out of its current funds, but if there is 

 a great demand for money, and if much paper 

 is being presented, it will pay for them in 

 Federal Reserve or treasury notes. These notes 

 are issued in denominations of $5, $10, $20, $50 

 and $100. If the demand increases the supply 

 automatically keeps pace. A reserve bank is 

 not allowed to pay out the notes of another, 

 except on the payment of a ten per cent tax. 

 This. tax is prohibitive, and hastens the retire- 

 ment of notes as soon as they have served 

 their immediate purpose. The United States 

 Treasury will redeem in gold all Federal Re- 

 serve notes presented to it, and the reserve 

 banks keep in the Treasury a redemption fund 

 for this purpose. 



One of the three directors of each bank, 

 appointed by the President, is designated Fed- 

 eral Reserve Agent, and the notes are in his 

 custody until they are needed. To secure the 

 notes the reserve bank must deposit with this 



