materially during the period 1900-1913.

In June of the former year, bank note circulation was $265,000,000, or 11.3% of the total money in the United States, whereas in the same month of the final year of the period, bank note circulation was $722,000,000, or 19.4% of the total money in the United States.

The year 1913 is taken as the termination of this period in the national bank system's history, because that year marked the passage of the Federal Reserve Act which had such a far-reaching influence on the entire system and which altered it in so many essential features. For many years it had been obvious to close students of finance that the nation's banking system, splendid as it was in many respects, contained many defects, and that the whole might be so altered that the individual banks could be of even greater service to their particular communities and to the country at large.

During the few years just preceding the passage of the Federal Reserve Act, careful and comprehensive studies of banking in the United States were made by various competent agencies. Probably the most exhaustive of these inquiries was that followed by the National Monetary Commission, which, after the most diligent labor, presented a plan for the entire reorganization of our banking system. This plan, generally known as the Aldrich scheme, was not adopted by Congress, but the Congress which came in after the election of 1912, turned its attention forthwith to that banking plan which was ultimately embodied in the Federal Reserve Act.

The National Monetary Comrnission, in its report, had detailed seventeen criticisms of American banking. This body of criticism provides a splendid commentary on our whole banking structure— national, state and private-before the passage of the Federal Reserve Act; it gives, moreover, a vivid picture of the causes from which the Reserve Act arose. A summarization of the list of the Monetary Commission's criticisms follows, and is included here because it gives, in the briefest way possible, matter that is essential to the understanding of national banking.

Reserves

1-There was no provision for concentrating the cash reserves of the banks and for their mobilization and use in times of need;

2-Inadequate federal and state laws restricted the use of bank reserves, thus decreasing lending power;

3-The banks lacked adequate means for replenishing their reserves or increasing their loaning power under unusual demands.

Currency

Bank note currency-the only form of currency which might be expected to respond by expansion and contraction to unusual needs-was deprived of elasticity because its volume largely depended upon the amount and price of United States bonds.

Coöperation

1-Banks lacked the means to insure such effective coöperation as was necessary to protect their own and the public's interests in times of stress. There was no coöperation of any kind among banks outside of clearing house cities;

2-The banks had no effective agency covering the entire country affording necessary facilities for making domestic exchanges.

Commercial paper

1-Lack of commercial paper of an established standard issued for agricultural, industrial and commercial purposes, and available for investment by banks, had led to an unhealthy congestion of loanable funds in great centers, thus hindering production throughout the country on the whole;

2-There was no open market for the discount of such paper;

3-There was a disparity in discount rates throughout the country generally, and there was in existence no agency, the influence of which could secure uniformity, steadiness and reasonableness in rates of discount.

No banking facilities for emergency cases

We had no effective agency that could surely provide adequate banking facilities for different regions, promptly and on reasonable terms, to meet the ordinary or unusual demands for credit or currency necessary for moving crops or for other legitimate purposes.

Lack of uniformity

There was no power to enforce uniform standards throughout the country with regard to capital, reserves, examinations and the character and publicity of reports of all banks in the different sections of the country.

Foreign banking

There were no American banking institutions maintaining branches in foreign countries, and the organization of such foreign branches was necessary for the proper development of our foreign trade.

Loans on real estate

The inability of national banks to legally make loans upon real estate restricted their power to serve farmers and other borrowers in rural communities.

IV

UNDER FEDERAL RESERVE SYSTEM

It is often said, and generally conceded, that the Federal Reserve System saved the United States from financial chaos during the European War. With equal emphasis it may be said that the national banking system made the Federal Reserve System possible. The national banks (particularly in the early days of the Federal Reserve System's existence) supplied not only the skeleton for the Reserve plan, but they supplied likewise its sinews-its very lifeblood.

Two elements, in analysis, were necessary to make the Federal Reserve System a success: first, capital for the twelve Federal Reserve Banks; second, support and use of the facilities offered by those banks. Both of these elements the national banks supplied. The Federal Reserve Act itself provided that each national bank should be a member of the Federal Reserve System and should subscribe to the capital stock of one of the twelve Federal Reserve Banks. The alternative, in effect, was surrender of the charters of those national banks which did not see their way clear to join the

System. In other words, when the government was ready to put the Federal Reserve System into effect, it found already in existence an eminently strong banking system, reaching to every point of the national compass, able to subscribe the necessary capital, lend the necessary support and coöperation, and "make the system march."

The non-national banks, likewise, rendered invaluable coöperation in the launching and operation of the Federal Reserve System. Up to December, 1922, 1654 banks other than national had joined the System, indicating a ratio of approximately 1 non-national member bank to every 5 national members.

In referring to the national banks as making possible the Federal Reserve System it is essential not to lose sight of the fact that, despite the splendid case the System has proved for itself by its own successful achievements, it was, nine years ago, untried, and looked upon questioningly by many substantial bankers and business men of the country. Had there been in existence no great body of banks, subjected to Federal legislation, it may well be doubted whether the Federal Reserve System would have had such an early and freehanded opportunity to demonstrate its merits.

With the inauguration of the Federal Reserve System, national banking in America entered upon a period influenced by elements of more radical departure from established principles of finance than those of any previous epoch. New regulations have become operative; new forces in the general scheme of banking have been introduced; a closer kinship between the national and non-national banks that are members of the System has arisen. And above all, the fact that in the neighborhood of ten thousand banks are encompassed in one central banking system, working together for one purpose, has in itself had as tremendous a moral effect upon the member banks themselves as upon the country at large.

During the period 1914-1922, the average yearly increase in the number of national banks organized was 201, but total assets of all national banks increased from 11.5 billion dollars to 20.9 billion (September 15, 1922), or nearly 100 per cent. In other words, the increase in total resources shown during the period mentioned practically equaled the growth of assets during the entire 51 years that the national banking system had been in existence up to 1914. Individual deposits in national banks more than doubled during the

period, and loans increased over 90 per cent. These two items per $1 of capital, at the beginning and close of the period were:

It must, of course, be borne in mind that these unprecedented advances have been by no means due solely to the fact that the Federal Reserve System was in operation, but have been due likwise to other important financial and economic forces-chiefly stimulated by the war—which were concurrent with the development of the Federal Reserve System.

In September, 1922, there were 8240 national banks in operation, out of a total of some 31,000 banks in the entire country. The capitalization of the national banks was 1307 millions, as compared with 1636 millions for all other banks (June 30, 1922); their total deposits 16,598 millions, as compared with 23,929 millions for other institutions.

The table on page 22 will show at a glance the development by periods, of certain important features of the national banking system since its inauguration 60 years ago. In reading these figures, as well as those set forth on the preceding pages, it is well to remember that reliable statistics for all the national banks in the country are obtainable only through reports compiled at the calls of the Comptroller of the Currency, and that these calls vary in number and dates from year to year. For the compilations set forth here, figures have been drawn from returns to calls falling the nearest to December 31 of the last year of the period concerned, except in reference to the stock of money in the United States, and national bank circulation, where June figures are used.