interest of special groups or special localities.

(_d_) _Operation of the Reserve System._--Each national bank now keeps
locked up in its vaults money to the amount of at least six to
twenty-five per cent of its deposits and a balance with banks in
reserve and central reserve cities sufficient to bring the total to at
least fifteen per cent of deposits in the case of country banks, and
twenty-five per cent of deposits in the case of reserve city banks. In
addition, it is customary for most banks to carry as a secondary
reserve high-grade bonds which can be readily sold in case of need.
The practice of state banks is practically the same as that of
national, and that of trust companies differs only in the amount of
reserves carried and in the proportion between the different items.

This system has many disadvantages. Among them the most obvious,
perhaps, is the withdrawal of enormous sums from the current use of
the agriculture, industry, and commerce of the country. That portion
of these reserve funds which is required to be kept under lock and key
in the vaults, amounting in the aggregate to a billion and a half of
dollars or more, is not available for use in ordinary times, and is
practically useless even in times of stringency, since according to
present law, when the reserves fall to the minimum prescribed by law,
banks must stop discounting, under penalty of being put in the hands
of a receiver. The other portions of these funds, namely, those
deposited with banks in reserve cities and those invested in bonds,
are likewise withdrawn from the uses of current commerce, since a
large part of the former is only available for use on the New York
Stock Exchange, and the latter are invested in railroads, mines,
factories, land, etc.

The explanation of the devotion of the redeposited portion of the
reserves to the operations of the New York Stock Exchange is to be
found in the fact that that exchange furnishes a regular market for
call loans on a large scale. Since these funds are held subject to the
call of the banks which deposited them, and interest at the rate of at
least two per cent is paid upon them, the depository banks are bound
to seek investment for them, and call loans on collateral listed on
the exchange under ordinary circumstances are best suited to their
purposes.

Another disadvantage of this reserve system is the dangerous situation
in which it places banks from time to time, and the tendency to pa