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Speech delivered before
Employees of the Federal Reserve Bank
Richmond, Virginia^
November 13, 1935

The Federal Reserve System was formed for the purpose of giving
unity to the American banking structure, which consists of thousands of
separate banks. Before the System was established, the efforts of these
separate institutions to protect themselves in times of emergency by individual action was a frequent cause of general weakness.
As it is now,
the member banks in each district pool their reserves and thereby make
reserve funds more efficient and more readily available. The local banks
are united by membership in the Reserve bank of the district.
The principle of cooperation does not end with the union of banks in
a given district as members of the Federal Reserve Bank, however. The
Reserve banks themselves unite with one another to make the services of
the System more effective. They do this in several ways:

Open Market Operations. Each Federal Reserve bank has its
own rates of discount and final authority to accept for
discount the paper submitted to it by member banks. But,
although a higher or a lower discount rate has an influence
on the demand for credit, the individual Federal Reserve bank
is in a more or less passive role until actually called upon
to discount. It has no means of'making the discount rate
exercise its influence upon credit conditions except as it is
asked to discount member bank paper. Moreover, such influence
as any particular Reserve bank can exercise through its discount rate is largely local or regional. In order to carry
out a comprehensive and nation-wide control of credit the Reserve banks must act in cooperation with one another. This
fact is recognized in the establishment of an open market com/mittee, which includes members of the Board in Washington and
also representatives of the twelve banks. It constitutes the
System's instrumentality for taking positive action in concert
upon matters of credit. Through it the System is able not'
only to take comprehensive and nation-wide action, but is also
able under ordinary circumstances to take the initiative instead of having to wait for a request for action. The Reserve
banks, by selling securities in the open market, can force a
reduction in member bank reserves; by buying securities in the
open market they can expand member bank reserves.. Through cooperation, accordingly, the Reserve banks and the Board can
accomplish a control of credit that would be impossible if attempted alone.

Clearnace and Interdistrict Settlement. The Gold Settlement Fund, after January 1 to be called the Interdistrict
Settlement Fund, was established by the deposit by each Federal Reserve Bank of a sum of gold with the Treasury in Washington. The credit created in the name of each Reserve bank

by this deposit is daily increased or decreased by debits
and credits on account of items to be cleared and funds to be
transferred from one district to another. This system effects
interaistrict settlements in the shortest possible time. It
replaces a former system of clearances and transfers that waS'
excessively burdensome, slow, and expensive. By cooperating
in the establishment of a single system for effective clearances
and settlements the Federal Reserve banks have made possible an
immeasurable improvement of service.
• •
• '

Statistical Information.
Each of the Federal Reserve banks compiles for "its own district figures which are forwarded to the
Board in .Washington for combination with similar figures furnished by other Federal Reserve banks. These compilations and
reports include figures of the condition of reporting member
•banks in 101 cities, debits to individual accounts, rates of
interest charged by banks, department store sales, information
with respect to the establishment and discontinuance of branches,
etc. From the point of view of the employee of the individual
Reserve bank, the preparation and submission of these figures
to the Board may be thought of merely as something that is done
for the Board. As a matter of fact the work is one of cooperation on the part of the System as a whole, and the publication
of the results of such work is of interest to the country in
general. The Reserve banks, by acting together, compile and furnish to the public information about the banking and economic
situation which is more complete than that furnished by any central bank in the world. No one reserve bank could furnish the
bankers and businessmen of its district the information that can
be furnished by the System as a whole.


Retirement System. The Retirement Fund is not one of the public
services of the Reserve System,', but it is of importance to the
personnel of the System, and it may therefore be pointed out that
without the cooperation of the Reserve banks with one another and
with the Board retirement benefits could scarcely have been provided in a satisfactory manner.
Special Problems. It frequently happens that special problems
arise which the separate banks and the Board do not try to meet
individually, but in cooperation.- For example, years ago there
was litigation over par clearance in the Atlanta district. It
involved the Federal Reserve Bank of Atlanta directly, but because of its importance the Board and the other banks participated in the study and handling of the case. Similarly, the subjects of Reserves and of Branch, Group and Chain Banking, which
concerned all the Reserve banks as well as the Boar.d, were
studied by a committee representing the System as a whole.

While certain services are performed by the Reserve banks in union
with one another and the Board, other services are performed by the Reserve banks individually. Cooperation normally implies a division of labor. An illustration of this within the bank is the division of labor

among the employees, whereby some handle checks, some handle currency,
some have custody of securities, and so on, but all cooperate in con~
ducting all of the activities essential to the efficient functioning of
the organization. This decentralization is not merely necessary, but
desirable. Theaitonoiry of the Federal Reserve banks is apparent in such
activities as the extension of credit within their districts, the clearance of checks drawn and payable within their districts, and the supplying of currency and coin to member banks.
In their respective districts, the Reserve banks are in a position
to act as depositaries for the U. S. Treasury and as agents in the handling of government securities, with convenience both to the Treasury and
to the public.
There are many powers which might advantageously be vested in the Re
serve banks. This would expand the authority and responsibility of the
Reserve banks and make for more prompt and efficient administration of
the System. The general supervision of the System must remain vested in
the Board, but the direct and ultimate action in many matters should be
taken by the Reserve banks. The law bars the way to much delegation of
authority, but considerable decentralization can nevertheless be accomplished. An example of the kind of thing that might be advantageously
handled at the ueserve bank without being referred to the Board is approval of changes in member bank holdings of federal Reserve bank stock.
Authority to approve these changes has recently been given to the Federal
Reserve agents.

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