07, our banking machinery showed itself
to be wofully unequal to the strain put upon it. Financial panics
were more acute here than in any other land, and the evil clearly
was traceable in large part to defects in the banking situation. In
academic teaching and in public conferences of bankers, business men,
publicists, and students, the subject was continually discussed
after 1890. At length Congress in 1908 created a "National Monetary
Commission" to inquire into and report what changes were necessary and
desirable in the monetary system of the United States or in the laws
relative to banking and currency. After the most extended inquiry
and discussion that the subject had ever received, the commission
submitted its report in January, 1912. The defects to be remedied,
as enumerated in the report,[4] may be reduced to the following five
headings: (a) Lack of system, (b) Inelasticity of credit, (c) Periodic
local congestion of funds. (d) Unequal territorial distribution of
banking facilities. (e) Lack of provision for foreign banking.

Sec. 5. #Lack of system#. Only in a loose sense could the banks of the
United States be said (before 1914) to constitute a system at all.
Both national and state laws dealt with individual banks only. It was
not legal for a bank to establish branches in another city as is done
in most countries. The several national banks in one city were legally
quite separate. It was only by voluntary agreement that in some of
the larger cities they came together into clearing-house associations.
They made possible some measure of cooeperation which, small as it
was, proved at times of stress to be of much service within a limited
sphere for the local communities. But even with the aid of these
organizations the banks were unable in times of emergency to avoid the
suspension of cash payments.

There was no provision whatever for the concentration of bank revenues
so that each bank would be supported by the strength of the other
banks, if a movement began to withdraw deposits in unusual amounts.
Each bank then was compelled for self-protection to call for any sums
it had deposited with other banks,[5] and to keep for its own use all
the reserves it might have in excess of its own immediate needs. This
threw a great strain upon the banks in the reserve cities, which
in normal times had become the depositories of a good part of the
reserves of the banks in other places. Thus developed a spirit of
panic,