local congestion of funds#. In times of general
confidence each bank finds it profitable, and is tempted, to extend
its credit to the extreme limit permitted by the law governing the
proportion of reserves to deposits. Of the 15 per cent reserves
required in most banks, three-fifths (9 per cent) might be kept in
banks in reserve cities, and of the 25 per cent in reserve city banks,
12-1/2 per cent might be kept in central reserve cities, where it
counted as part of the depositing banks' legal reserves, was a fund
upon which domestic exchanges could be drawn, and usually earned a
small rate of interest (usually 2 per cent). Very large reserves were
kept in New York city where they could be loaned "on call," and the
largest use for call loans was in stock-exchange speculation. Thus
every period of prosperity encouraged an unhealthy distribution of
reserves, gave an unhealthy stimulus to rising prices, and "promoted
dangerous speculation."

Sec. 8. #Unequal territorial distribution of banking facilities.# Another
aspect of this concentration of surplus money and available funds in
the larger cities was the comparatively ample provision of banking
facilities in the cities and in the manufacturing sections, and
imperfect provision in the agricultural districts. The whole financial
system seemed designed to induce the poorer country districts to lend
funds at low rates of interest to be used speculatively in cities,
instead of enabling the richer districts, the cities, to lend to the
rural districts for productive enterprise. The rates of bank
discount in different sections of our country have long been most
unequal--lowest in the largest cities, and highest in the rural South
and West--whereas in all parts of Canada, with a different system of
banking, the rates have long been much more approximately uniform.

Indeed, our national banking development has been predominantly urban
and commercial to the neglect of rural and agricultural interests.
National banks were (until 1913) forbidden to make loans on real
estate, and this greatly "restricted their power to serve farmers and
other borrowers in rural communities." There was "no effective
agency to meet the ordinary or unusual demands for credit or currency
necessary for moving crops or for other legitimate purposes." The lack
of uniform standards of regulation, examination, and publication of
reports in the different sections prevented the free extension of
credit where m