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I have weaned

r attention , in outline,

the methods employed, the practices adopted, in the monetary

legislation and usages of the great countries whose ca644444a4
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and business methods are analogous to ours, because I believe
I
t

that the experience of the countries, covering centuries of
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.

st. ft:.e,„,

discussion and experiment , shoo44-40e-rmAm-tteeftal Uwe, in the
,
f

•

w,.

construction of any plan for monetary reform.

While the essen-

i\
tial governing principles of all the European systems are the

same, there are differences in the details of their applicatiotor,

growing out of different conditions in the various countries.

These differenette are found in the business habits and customs

of their people and their general financial requirements.

Dif-

ferences in the relative use of other credit instruments affect
aAA--V

i

Athe relative importance of note issues.
the


.


Differences in the form

and extent of territory have necessitated differ-

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enzei in the character of ot.g.aakZition.

These differences have

been recognized fully and provided for in the monetary legisla-

tion as well as in the banking methods La-wre in the different

7c—ed4r3-)1.1441countries.

And 1

41-4---4.1.-v,„044—,-/W-1414444

1
`tr- 14.

impair.4Q the

vital force of the sound economic doctrine upon which these

various systems are based or disturbbAi_the provisions for a

wise and effective administration which are the distinctive

characteristics of eaberh.
L-‘
There .iima....beac a general agreement among students of
'jvs4-1

monetary problems that it would not be possible >i adopt any of
5ctalthe European banking systems without modifications or revision

to meet our conditions.

In a dttion to the differen es in econ-

omic conditions to which I have refered as existing in European

couatzi

ITATer to
-ww-

reju-

dices. The questions we are discus ing-are of the highest im


/
LA

Very much the larger part of the deposit and disciunt
11/
business 4all these countries is

one by the joint 6t,‘k corn-

/

/

mercial banke.

The relations betweyr

e centr;

commercial banks in the various co' . ries is

bank and then'

,endly, and while ',6(
,--,

(
\ly
some of the central banks are

deposits and to discount for

modern legislation has been

)rized tc

vate

wards res'

to powers and functions Itionging stri,

-ceive individual N

, the tendency of

4 .ing the central banks
,

,y to banks of issue.

Even An countries where central banks are authorized to do comm-

ercial business this fact has not interferedthe rapid growth of

,tete deposit banks.

For instance, in France, the deposits in the

commercial banks increased from 790 millions of francs in 1885
to 4,940 millions in 191l,while the deposits of the Bank of

France have remained practically stationOry for many years at
„c14.44 a,
Ccn




millions.

There has been a very marked

"

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7
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\ tk,-) t!..k„A.

1ir

/t

teft&enzy- in recent years towards the consoliaatiWe banking
7`
capital and resources into a few very large commercial banks
IN
with numerous branches established in every community of

their respective countries.

We have thought it wiser in this

country and more in consonance with the spirit of our institu-

tions to preserve the independence of the thousands of our com-

,
mercial banks,believing that a local bank would be more in touch

with local interests and would have a more accurate knowledge of

the wants of the people and would be better able to serve them

satisfactorily than an agent sent from New York or WashinEton

to control a local branchi'L




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44

The Central Bank is eAmeiwitp-ms- important en element in

A
'40•OPE- 01-0

the international organization of credit as i.a-the nstinal.
A
GI! 4 11r)% e
1

In

.

•
our times w-ii-th-am international commerce grown to enormous propor-

tions, with means of instant communicationOstablish

part of the world, and with tad

o every

+n-f-facilities for

A
/
rapid transportation, when the products and securities of every
(
country seek"( a market in every other

62 9-147,7741 4 eD
444
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there has -dleoen

'
' cia66° re44-14
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a new

aL
and stronger mutuality of interests, a closer inter- A

3

Ate4A*1471W
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relation and interdependence aaa4R,-alk-coura,rdles in banking
euelL

and financial affairtx

4e1,

All the great commercial nations ,

among which the United States should have the first place ,

are vitally interested in maintaining financial peace and in

securing the stability of institutions" 7144ipee tran W-Yest
0-4"- 4441-Za,

1

42u•2 -w1
secured tor-baake-aft4-46,4444re

mr

i
CL4-c-C
7

eugh co"

operative action and support in times of trouble.



It is the

duty of the-Central Bank't'keep in close touch with the finanntal needs and conditions of every country and to be ready to act

promptly to afford assistance in emergencies.

The active cooper-

ation of the three great European banks have saved many a danger-

Ira.441Aous situation and the LaQk of a great central organization in the
- -0
4
United State

in 190 7-, i -nti7tfe L
t-: ‘--ha:
i
tt
7onfi7de n7e -2 the great Euro'
of

pean banks, with the credit and the power to borrow gold, cost

our people a great many millions of dollars.




9

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41

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jp_OZ4TpAe
ramt0 the kaeriean peopl

ei

/ra't

0,7tez
47 i Ji

a444,64of-have a right to in-

sist that all those who seek to influence -tire4r determinatio

krr

i
f

should be free from bias or prejudice of any kind.

Every student of Stas-eyvVt monetary systems must be

I mpressed with the fact that ueasitI-44---trite-- terfn irtri"all
t
44,7 4
' 0
'
we sufferfra

so- frequ-e41-tly---ittw-e- been eIC/713144reir
be_ CA
ps-an---axper Jenae

ments, have foun4

s

k

444 runt-ft•
after many and costly experi-

theoretical find practic

)solutionS f the

problems which Ireac usAhich d4R approved alike by economists and
• .7
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—

bankers.

The lessons drawn from this expetience aivreutii have the
-

4/-

greatest practical value

or us in determil*g the character of a

Ineamie4ory system to be adopted by the United State4.

While it is evident that we cannot adopt any 14 ropean

system , we certainly cannot ignore the vailuable le sons to be



4 4.*
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If four reserve tanks should be located in these States they

would have a capital of about l

million dollars each.

The

/

/
eight located in the remaining States would have a capital of

about 5 millions each.

The reserve bank in New York would have

&AL.(
a great...ix capital and much greater resources than al-1.-tlease

located in the 13 Southern States Imi.L.Aspelogher7'

A

'
A

It is true that armaiLlaio
..a.isz....taCt-reilliert. dollars will be

withdrawn, by the operations of the bill, from the banks in the

reserve and central reserve cities, :1,1ut- it-411-25-afe-tb- yi5
that

at least two-thirds of this amount will be deposited in the re-

serve banks in the 13 Eastern and Middle Western States.

If

we assume that these reserve tanks are simply adjuncts of *le

A 043-1,
other-heaks, this process will lae-elnipay'taking money out of one

pocket and putting it into another.



T he

EtzaiuTil.7tii:74:4Diaratrietwn

frQm tTe'reifel ficTritrcteTroiattistrli
—
e:1-erih.
,
f
would not, irt arry--oar.errt5ic eed IZO

erve Lar.lca in n.ther

millio r. Aollfafe

Ta.iee Ze case of the banks in the central re7:1

k

I. till:* L.
serve cities.

They now hold cash reserves amounting to 407
A
,
iekee

million dollars?

.241x.ia....et 25% of their net deposits.

nder the b kl,),,,.._th1e....x.a.cluir.ed .t o,, hold --cash---to ••th
the

r
-tent'

7Lr.4

•el V.
.

depoweiid in the reserve

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t

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...#

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bAnke Qr._ the ir respective

i,str.ic ts

Unter- eirrttilligr-TeifilItttorre

-4....4.,,,.
rattrt--be he r
'lirire f7iiitn73 -11:- `irriiat "iall it
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-

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.....,-,,,„,

can be used for..4414,x_9114upurpos.
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Under:.theatepevslitiet.iien41-11.0f -the

d:, ine-4t i‘..e.,,r-, -,Li.,:. t.,
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b i-3.1-2,62. zaililleae.
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The House bill reduces the required fserves
of central
serve banks from 255 tc 18%.




This rele

re-

es 112 million dollars

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BI:tt would it be safe to vest even this more limited power
in the agents of the government?

On the contrary, may we not

confidently pronounce that it would be abused?

#

#

#

Would not--ought not--then, the jealousy to which we have
adverted refuse to repose so great and dangerous a trust in
those who would have the strongest inducements to violate it,
who could violate it with the most facility and the least danger
of detection, and whose violation would be the most serious and
perilous to the nation in its dearest interests?
If a private corporation were thus to abuse its power, there
would soon be means of detection by the sharp-sighted stockho
lders
though the officers succeeded in deceiving the public, and
hoodwinking the legislature;

and, in that case, either the pub-

lic of the corporation would lose money to the extent of the
fraud;

but no injury could be done to the other rights and

interests of the people.

But should the abuse be committed by

the officers of the government, it might be for the purposesof
corruption, and the first use made of the money might be to buy
up those who would be most likely to detect them, and most interested in bringing them to punishment.
The use of money to an individual may be the same as the
gift of money.
business;

It always is the same to most men engagedin

and some who would never think of defrauding the

public treasury, might have no scruple about lending its
money
or its credit.

In more than one of the states, both before

the revolution and since, those who have had the
custody




It must be evident from the dealara •on of Mr. Bryan of

the transcendant importance of Gogernme

note issue, and from

the proposals of the two leading members of the Banking and
Cur-

rency Committee of the Senate to issu

United States notes in

place of gold certificates and Unit -d States bonds, that this

bill is only the first step in a r volutionary program.

These

democratic Senators may be persu !led to postpone their compre
-/

hensive demands, but if the co ntry once adopts the policy
of

the unlimited ism use of U

by theSenators IAstomom

result.




t d States notes, the ends desired

o will follow as a logical

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panic of 1907.

The extent of the losses w- .4err—cf,44owod tat dis1

aster can never be measured.

The principal sufferers were the busi-

ness men of the country, great and small, and the mass
of wane

trk LS.;
earners01 lo s of employment and reduced wages.

These people were

innocent of any responsibility for the oalko-co of tie
panic.

,
p.wr

distressU

the suffering and destruction caused by this catas-

tkLa-chLkil
trophe, 'Those blighting effects vcre Cca44 aroun
d -le world, is

heightened by the conviction, in which all thoughtf
ul observers
7f-rpe
mAst share, tit its fatal results were unnecessar
y and that with a

A

better monetary system its consequences could
have been a-:oided.

A
I am, of course aware, that with the sangu
ine nature of the

American people, wr.eo-sm nervous crier 7 is not
always confined within

limits of prudence, we shall rave recurring
p(riods of oirr-

speculaLion and of abnormal inflation of value
s, and that such




result in failure.

overspeculation and inflation will

ILA

t,

effects
But I am sure that it is quite possible for us to confine tne

supporters,
of such failures to the transgressors and their immediate

and

-k< the

great business and industrial interests of the countr:7

et4.4-t 4 A

,e)14AlOF
49
diol:r &
4z

should nat—o4*.f44.0r f.x.0" a

destruction of credit.
/‘

iiiefteraa
,

suspension of banks and a widenlread

--el---d--,
Tttite—t-i-re—e-a- e of the i. reat, commercial nation
s-

:
.
ca,t1;
of Europe, where human nature has r

1144aof L.c &awe characteristics

A

a---.ii

our country)

1g4 re has

not been for flalf a century a wide-

spread financial crisis involving a general suspension of credit
1'Th-e r-cia4A C
,
institutions.

There has been at timegover peculation ilit—c-e-rtm±n

Ar;1967-cA

orailkA
Ao

at ire

s errience

ct,-)•
p

.

890 at the time of the Baring failure, -sr_ i-a—Favref,anci0.
L. I
att-icr

"

__carr

the Comptoir diff,ftmpte4




l8F.1

down

ed

-8

1

&

prompt and efficient actie 11 of te_i),LT_k of i.nrlqnd and the Bank

of France, aa4-1-g-2414

:
ccoreration ae the 'Teat 1inz125cia1
St I

,

-410%—

1
P Gbyt,•1".

re7ented atLy widespread disaster.

The power of te

-At tanks in EuroFe to prevent i:anics and to

ameliorate t'le conditions of distrust and uncertainty, is in t -he

*
strength of44-64r—renTrrTe.s and in the unquestion01confidence of all

A
21/
classes in their ability to successfully talc care of any situatio:1,
7
/

however complicated or dangerous it




,
avi. 14.7)
The

0
1,00 0
g methods, and
ecessity for improved bankin

desirabilit

e issue
visions with reference to not
of a chanre in legislative pro

in an emof tne country and Congress
was brought to t:.e attention

financial
s results which followed the
phatic mardler by the disastrou




In this country we have had troubles and contentions over tkie

character and volume of our circulating medium extending substan-

tial3y over our entire national existence.

The adoption of the

gold standard act in 1900 fortunately settled many of the vexed

questions upon which pl)blic opinion had .
4,0n divided.
./6P4+ 4mcs
)
7.
marks
,a new era in our financial
/I
question of 1.414Adtrie note issues.



A

—

This act

but it left unsettled the

73
thc subject of most of the monetary discussions of 44tert, time.

I-4444Aik

can say without fear of contradiction that i401-10434401La.
certAI
"SOL

62.-fr
countrifts all tbougItful men, economists, bankers, students of the

subject from every standpoint, look upon the proper manner and char-

acter of note issue as no longer an open question or one of paramount

importance.

The conclusion has been rflached with unanimity that

the issues should always be made under governmental control, at
/
‘

.174,4e;,14 AE
least Jos,irirk governmental restrictions and limitations, and that this

can only be successfully done through one central and exclusive bank

of issue.



•4

•

all classes.

•
The worR of study and
examination of the exieri
ence of
ether countries is sim
plified by the fact that
there is

( unifornity of method and
11Yt
principle throughout the
civilized

world, both with reference
to note issue credit
organization.

This does not mean, of cou
rse, that any existinr;
system cJuld be
et1
4-




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130NYNI.3 NO 331.1.11411,
400

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When I say that we are not yet able to adopt a definite plan,
it must not be understood as a commiittat- of the Commission to a
policy of hesitancy or delay.

As soon as the preliminary studies

and conferences to which I have alluded can be had, the Commission
will at once enter upon the won: of preparinr• a i)lrLII and report.

6 alEg_

11-•L
that ,
it is evident

at the coming

session, but I have every reason to believe that we may be able to
414 Ot-Ac a-

rc.);ac...t at the 1.)eninninr of the last session of the Tresent Con-ress.
Inc in fixin-

r a formal

ru.crr..t,
Ate-

dmeo.oralQa0

construction.

Criticism in

t44.11-ciase is much easier and simpler than

—en our constructive work commences in earnest we

r
shall encounter objections of all kinds, real and imacinary.)

At

/
f
6)

()
moment the authors of hypothetical objections to imagithe present
nary plans are seeking to attract public attention.4

'"
4 AA

T realiz,e the necessity of action at the: earliest momet con-

sistent with tiorourth preparation.

We might be able Lo no on in

a haltinr7 way for another decade with conditions remaininr, as they




are, but a :
.
,raire responsibility would rest upon both the Connission
and ConEress i

t

dolwr _3.....--441.--.1,cipermitted.
A-

Th
q. normal grolibt.:_
111

and development cyc-...4414-14.- ;-----its 4nnefc industries and
1-e- -----e er„---/
.
iY(tA-td->i

international tra 'c

'
II to-e-Lr

.sx'retarded by 2
.r-m..0.. -obsolete banking
"

It is difficult for us to realize the rapidity of the

methods.

progress which has been made in ever:- direction by the 7nited fttates

IL
within the last ten years.

Take r-pankir '

an illustration.

1900 we had 11,n00 banks, in 1909, 25,0nn;
eLl
, IN.We'rtAALAL4
ti-le 1.7?-- -.++.(3 were

In

in 1900 the 44.1.4.44,44,s

aril in 1909,

491 banks
ae/.497J. 61- •
17

reporting to t:_e Commission out of 25,000

Z.)

0-

a lzrecs

.reatr:r than ar

e rest of the world combined.
7 T.

4111111141111111W

7 4. -4-4
-it
the United ntates will have re-

le-a.."45- 50,00( banks.

Unless gifts.

by some act of fell:- we Oc somethinir, to halt this onward

movement, somethinr to impair the development of our wonderful ripftres

rce s

e ______„/„/ 4 At -1
-6N-e

•--(-401--1 —e
.
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-20

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-

et-e-ee
-

The depositors in our -aricus 'banking institutions numbcr more

than one-third of ty;ke entire 1..opulation of ti-re county, and is

. reater than the total numberof people, men, women and children,
,
ct-t
,
cu - aged in gainful occupations.

fikc
Our entire 1.PoLle are vitally in-

terested in the soundne3s and adequacy of our curre cy and in tho

unquestioned solvency and continued credit of our banks.

We m4.64

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all
k-sr7NZ2

and

14e- disposed of lightl

consideration of the effect which -;ossible canres would have upon




o

every section.

Our investiation, contemplatinr as it does an ultimate r—ra4+-

and scientific treatment of the whole subject, is naturally Ji-

17isib1e into two important branches, first, with reference to note

issues, sccO?d, with reference to the organization of credit or the

requirements of our banking system.

At the be-:inning of our inquiry

I 7(pd tire opinion, which I think is quite common, that the question

of note imsue was the more important of the two, but further exami-

nation hris led me to change my mind in this respect, and I now f-ecol

i. tl..at an efficient organization of the credit and banking,

system of the country tits- much more important.

tlie past

t
It is true . at in

r,st half of the 18th ccnture ani the first

half of tLe 19th, the question of note issues, that is to say, who

should have the rich. to issue bank notns, upon what conditions they

should be issued and the kind of security to be reguirPd, furnished







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if:

.ink student of history who considers the composition of this

Board, consisting of three members of the President's family, who,

with one other of his appointees, constitute a majority of the

Board, with power to issue obliEations of the United States,z144ft

1
oulmi4oW4 and to loan them to banks whose officers and directors

would oe susceptible to the Board's influence, and with every part
banking
of the vast machinery of the country within their reach, we4,1441—Ue

amazed that a proposition of this kind should have originated with

the representatives of a party which has been, from its earliest

days, opposed to a centralized government, and whose declarations
,
c t.

4
of principles have abounded in denunciation of monopoly and pri-

vilege4




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banking business of the country, which today is controlled by

28,000 independent State and national banks, with banking re-

sources in excess of 25 thousand millions of dollars.

The

mere statement of the magnitude of the interests involved will

f

furnish some indications of the perils which may arise from this

extraordinary concentration of power in a central political

board.




of cash which can be used for the 4era1 purpo/es of the banks.

Of the 18% required by the new provlsions onlj 9% is required to

be held in cash, and the other 95 i

deposi ed in the reserve

banks, where two-thir s of it will be avai4ab1e for discount

purposes.




416

71
'

thetical conditions.

For purpose

of comparison I propose to

I
take a bank in the country and one lin a central reserve city.

A bank in the country with 0.5,00( capital and 2 millions
I
7
net deposits is now required to keep $120,000 in cash in its own

vaults.

The remaining 9%, or $186,000, would be kept in a re-

serve or central reserve city, on wtich the bank would receive

2%, or $3,600 a year.

A balance at,Troximating 0.80,000 would

necensarily be kept by the country 'bank for exchange purposes,

and the character of reserve agents is such that the balances

are always available except in tiles of commercial crises.

country banker can borrow money

The

his needs at any time from

his corresponding bank.

In contrast to these conditions, under the oill this bank

would have to purchase stock in the reserve bank to the extent of



10% of its capital, oft l,000.

It would have to deposit in

the reserve bank 7% of its liabilities, or $140,000, or a total

deposit and investment of $155,000, or '5,000 more than the capi-

tal of the bank.

The only income which the bank would receive

1
from this $155,000 would be the 5;0 on its t15,000 investment in

the stock of the reserve bank.

No income would be received from

the $140,000, and the amount of this balance cannot be reduced

except in violation of law.

The reserve bank can, it is true,
1
1 . p4

-09
use two-thirds of kVE77 - poat*e to redisCount the paper of the de-

positing bank.

This rediscounting process, if carried to its

fullest extent, would reduce, in the case I have suggested, the

actual reserve of the bank from $180,000 to 460,000, or 6% of

(
4
its liabilities instead of 9%.

And„..44-s I have-shown, :this eX,

cannot be drawn out, and the reserve bank having exhausted its






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b-1

Ir-immOPRO9F9iist r
icl:e United States has assumed ceispberiva obli
-

gations with reference to the redemption
of melse44,1g national

bank notes, and friends of the pending bill
have asserted that

the position of the United States in rega
rd to its own notes to

be issued by the Federal Reserve Boar
d are analagous to existing

conditions with reference to national
bank notes.

But the dif-

ferences are fundamental.. In one case
we have d4reet obligations
of the GoirefiiMpri+



in the othe,r4iise obligations of nati
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discount capacity would find itself 4 a position where
it could

not possibly afford any assistance tO its shareholding
banks in
1
an emergency.

The banks which now act as reserve agents have large
re-

sources outside of the deposits by ceirresponding banks
, while
?
the reserve bank, by its capital and deposits, is restr
icted in

its usefulness and capacity to assiOt within very narro
w limits.

If, from the necessities of banks

or

communities, or from the

purpose to avoid contractions, the discount lines of reser
ve banks

should be full in ordinary times, ?they would prove entir
ely

useless for the relief purposes for which they were creat
ed.







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thorized national banks to issue a limited amount of notes based
it
upon securities other than Government bonds, and upon a certain

propottion of commercial paper;

but the notes to be issued in Iht

this case are purely emergency notes, issued under conditions

which would make their use under ordinary circumstances unprofit-

able.

They are subject to a payment of a progressive tax,

which would enforce their retirement whenever the occasion for

the emergency should pass.

There are no indications or suggestions that the notes is-

sued under the proposed plan are emergency notes, and there is

no provision in the bill itself for their enforced retirement.

There is nothing to indicate that they are not intended for gen-

eral and continuous circulation.

It is true that paragraph D

of section 12 authorized the Board to supervise and regulate the





Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102