[285] John Skelton Williams, Address before the Kentucky Bankers' Association, October 6, 1915. The Commercial and Financial Chronicle, Vol. 101, No. 2624, October 9, 1915, pp. 1137, 1138.
[286] Journal of the American Bankers' Association, Vol. VIII, No. 9, March, 1916, pp. 755-6.
CHAPTER XXXI
THE FEDERAL RESERVE SYSTEM
The Federal Reserve Act[287]
THE SPIRIT AND OBJECTS OF THE ACT
The primary purpose of the Federal Reserve Act of December 23, 1913, is to make certain that there will always be an available supply of money and credit in this country with which to meet unusual banking requirements. Banks of a new class, to be known as Federal Reserve Banks, are to be established, and upon these banks is to rest the heavy responsibility of supporting the structure of credit in periods of financial strain. The new banks are expected to keep themselves in a condition of such strength in ordinary times that the other banks may safely rely upon them for all needed cash and credit in emergencies. In the past, the banks in this country, when subjected to financial pressure, have relied mainly upon loan contraction and the selling of securities. In future it is expected that they will resort to the Federal Reserve Banks, securing additional funds from these by rediscounting commercial loans. If the new arrangements work well, loans in future will not be reduced merely for the purpose of strengthening the banks. Loan contraction will take place only when there is evidence of an over-extended condition of business; and even then contraction will be carried through gradually, so as to conserve all interests so far as may be possible. Under the new system a most important influence, if not the most important single influence determining the character of banking operations, will be just the reverse of what it has been in the past.
To meet the heavy responsibilities placed upon the Federal Reserve Banks, two things are absolutely essential—good management, and ample powers and resources. Good management cannot be secured with certainty by means of legislative provisions, however carefully designed with that end in view. In the particular instance of the Federal Reserve Act, an ingenious combination of government and banking influence in selecting the management is provided. Purely banking operations are very largely to be handled by boards of directors, a majority of the membership of which is to be chosen by banks. General supervision, and for some purposes control, is placed with the Federal Reserve Board, which is to be appointed by the President of the United States, by and with the advice and consent of the Senate. Experience alone can determine the wisdom of these arrangements for securing effective management.