The Federal Reserve Act was essentially a plan for banking cooperation and self-government. It provided for the establishment of not less than eight nor more than twelve institutions to be known as reserve banks to be located each in a separate "district." Membership in the Federal Reserve System implied subscription to the stock of the local Federal Reserve Bank, in an amount equal to 6 per cent. of the capital stock and surplus of the members. Of this sum one half was payable in installments upon assuming membership and at specified dates thereafter, while one half was callable at a later date under described conditions. Subscription for such stock that is to say, membership in the system was compulsory for national banks and was voluntary for incorporated State banks and trust companies. A further obligation of membership in addition to subscription for capital stock was seen in the requirement that each member bank should establish with the Federal Reserve Bank in its district a "reserve balance" or balance on the books of that Federal Reserve Bank in an amount equal to a specified percentage of outstanding deposits. This percentage was fixed at 7 per cent. of the demand deposits and 5 per cent. of time deposits for central reserve city banks, 6 per cent. of demand deposits and 5 per cent. of time for reserve city banks, and 5 per cent. of demand and 5 per cent. of time for country banks. But in the case of banks outside of New York, Chicago and St. Louis a period of three years was allowed for the completion of the transfer of reserves. Such reserves might be established by actually transferring either cash or currency to the reserve banks or by discounting with the reserve banks paper of specified kinds.

Such paper, now described as "eligible, " was to be the outgrowth of commercial, agricultural or industrial transactions and was to comply with certain requirements. It was not to be of speculative origin, but must represent genuine bona fide transactions. It must not exceed ninety days maturity i.e., must not at the time of rediscount have more than ninety days to run before reaching maturity in the case of the commercial and industrial or more than one hundred and eighty days in the case of agricultural paper. The member banks must keep in cash in their vaults 6 per cent. for central reserve city banks, 5 per cent. for reserve city banks, and 5 per cent. for country banks, but might, if they chose, transfer all their reserves above these figures to the reserve banks and might further be allowed to establish such reserves both in the amounts already specified above as required and in those referred to as voluntary, - making roughly two thirds of their entire reserves, - through the rediscount of paper. This left them obliged to keep only about one third of their entire reserves in actual cash in their own vaults. The reserve banks on the other hand thus had opened to them a large field of business in rediscounting paper which might be brought to them by their members. They themselves were obliged to keep a reserve of 40 per cent. gold against notes and 35 per cent. lawful money against deposits; and accordingly had a very large power of increasing the volume of credit in the community. In addition to this regular work of rediscounting paper the reserve banks were ordered to receive on deposit checks and drafts left with them for collection and to perform the functions of a clearing house for their members. A broad field of other duties, some optional, some required, was also opened to them under the terms of the Act. Dividends at 6 per cent. cumulative were allowed to members but all earnings above that figure were to go to the government.

The central controlling mechanism of the new system was to be a governmentally appointed body known as the Federal Reserve Board, consisting of seven members, five appointed for that specific purpose by the President by and with the advice of the Senate no two from any one district, two to be men of banking experience. These with the Secretary of the Treasury and the Comptroller of the Currency made up the entire personnel. To this body were given the general functions of what may be called "pure banking." Such functions included the definition or selection of paper for discount through the issuance of regulations designed to determine the character of this paper; the passing upon rates of discount first to be named or suggested in the several banking districts, and the establishment of salaries and personnel as well as the general type of organization in the several reserve banks. In this connection there was given to the Board the power to name three out of nine directors who made up the board of each Federal Reserve Bank, the other six directors in each district three bankers and three business men being chosen by the banks of the district voting in three groups or sections, established in accord with the size of the institutions, and electing one banker and one business man in each such group. An important function which was entrusted to the Federal Reserve Board was that of acting as a super-clearing house for the various Federal Reserve Banks.

Before the Act could take effect it was, however, necessary to lay out the eight to twelve districts and to determine their exact number, to incorporate the Federal Reserve Bank in each district and to secure the election of its six banking and business directors, to choose the Federal Reserve Board and put it into office, while the latter body had to name the remaining three directors of each reserve bank and to exact from the completed boards in each district the collection of capital and the receipt of reserves on behalf of the member banks in such district. Of these functions, all except those relating to the Federal Reserve Board and its duties were to be discharged by a body known as the "Organization Committee" provided for in the Act and including the Secretary of the Treasury, the Secretary of Agriculture, and the Comptroller of the Currency. The committee in question took office immediately after the adoption of the Reserve Act and completed its work early in the following spring. It mapped out twelve districts, the full number allowed by law, and secured the incorporation of a Federal Reserve Bank in each. The President selected the Federal Reserve Board and nominations thereto were eventually confirmed by the Senate, the Board taking office on August 12, 1914, while the banks were fully called into operation through the payment of capital, an operation which was completed so far as the first installment of about $18,000,000 was concerned on November 1 following. The first installment of reserves was paid to them on November 16.