Upon the basis of careful investigation, conducted under direction and supervision of that committee, partly at public hearings during the winter of 1912-13, partly by private investigations, it was finally determined what features should and what points should not be embodied into a new banking measure. The bill thus drafted was first submitted to and received the approval of President Woodrow Wilson, and was thus, When introduced in the House of Representatives on June 18th, an administration bill in the sense that it had received the approval of those charged with administrative responsibility, while it had been developed by the authorized legislative agencies of Congress. As thus drafted for presentation, the banking bill covered certain main points, which were subjected to no serious change and which were there succinctly reviewed in a report, submitted to the House on September 9, 1913, by Chairman Glass on behalf of the Banking and Currency Committee, as follows:

After looking over the whole ground, and after examining the various suggestions for legislation, some of which have just been outlined, the Committee on Banking and Currency is firmly of the opinion that any effective legislation on banking must include the following fundamental elements, which it considers indispensable in any measure likely to prove satisfactory to the country:

1. Creation of a joint mechanism for the extension of credit to banks which possess sound assets and which desire to liquidate them for the purpose of meeting legitimate, commercial, agricultural, and industrial demands on the part of their clientele.

2. Ultimate retirement of the present bond-secured currency, with suitable provision for the fulfillment of government obligations to bondholders, coupled with the creation of a satisfactory flexible currency to take its place.

3. Provision for better extension of American banking facilities in foreign countries to the end that our trade abroad may be enlarged and that American business men in foreign countries may obtain the accommodations they require in the conduct of their operations.

Beyond these cardinal and simple propositions the committee has not deemed it wise at this time to make any recommendations, save that in a few particulars it has suggested the amendment of existing provisions in the Natonal Bank Act, with a view to strengthening that measure at points where experience has shown the necessity of alteration.

4. In order to meet the requirements thus sketched, the committee proposes a plan for the organization of reserve or rediscount institutions to which it assigns the name "Federal Reserve banks." It recommends that these be established in suitable places throughout the country to the number of twelve as a beginning, and that they be assigned the function of bankers' banks. Under the committee's plan these banks would be organized by existing banks, both national and state, as stockholders. It believes that banking institutions which desire to be known by the name "National" should be required, and can well afford, to take upon themselves the responsibilities involved in joint or federated organization. It recommends that these bankers' banks shall be given a definite capital, to be subscribed and paid by their constituent member banks which hold their shares, and that they shall do business only with the banks aforesaid, and with the government. Public funds, it recommends, shall be deposited in these new banks, which shall thus acquire an essentially public character and shall be subject to the control and oversight which is a necessary concomitant of such a character. In order that these banks may be effectively inspected, and in order that they may pursue a banking policy which shall be uniform and harmonious for the country as a whole, the committee proposes a general board of management intrusted with the power to overlook and direct the general functions of the banks referred to. To this it assigns the title of "The Federal Reserve Board." It further recommends that the present national banks shall have their bonds now held as security for circulation paid at the end of twenty years, and that in the meantime they may turn in these bonds by a gradual process, receiving in exchange 3-per-cent bonds without the circulation privilege.

In lieu of the notes now secured by national bonds and issued by national banks, and, so far as necessary in addition to them, the committee recommends that there shall be an issue of "Federal Reserve Treasury notes," to be the obligations of the United States, but to be paid out solely through Federal Reserve banks upon the application of the latter, protected by commercial paper; and with redemption assured through the holding of a reserve of gold amounting to 33 1/3 per cent of the notes outstanding at any one time. In order to meet the requirements of foreign trade, the committee recommends that the power to establish foreign branch banks shall be bestowed upon existing national banks under carefully prescribed conditions, and that Federal Reserve banks shall also be authorized to establish offices abroad for the conduct of their own business and for the purpose of facilitating the fiscal operations of the United States government. Finally and lastly, the committee suggests the amendment of the National Bank Act in respect to two or three essential particulars, the chief of which are bank examinations, the present conditions under which loans are made to fanning interests, and the liability of stockholders of failed banks. It believes that these recommendations, if carried out, will afford the basis for the complete reconstruction and the very great strengthening and improvement of the present banking and credit system of the United States. The chief evils of which complaint has been made will be rectified, while others will at least be palliated and put in the way of later elimination.

The Federal Reserve banks suggested by the committee as just indicated were to be in effect co-operative institutions carried on for the benefit of the community and of the banks themselves by the banks acting as stockholders therein. It was proposed that they should have an active capital equal to 10 per cent of the capital of existing banks which might take stock in the new enterprises. This would result in a capital of something over $100,000,000 for the Reserve banks taken together, if practically all existing banks should enter the system. It was supposed, for a number of reasons, that the banks would so enter the system. More will be said on this point later in the discussion. How many state banks would apply for and be granted admission to the new system as stockholders in the Reserve banks could not be confidently predicted. It was, however, thought fair to assume at this point that the total capital of the Reserve banks would be in the neighborhood of $100,000,000. The bill recommended by the committee provided for the transfer of the present funds of the government, included in what is known as the general fund, to the new Federal Reserve banks, which were thereafter to act as fiscal agents of the government. The total amount of funds which would thus be transferred could not then be predicted with absolute accuracy, but the released balance in the general fund of the Treasury was not far from $135,000,000. Certain other funds then held in the department would in the course of time be transferred to the banks in this same way, and that would result in placing, according to the estimates of good authorities, an ultimate sum of from $200,000,000 to $250,000,000 in the hands of the Reserve banks. If the former amount be assumed to be correct, it was seen that the Reserve banks would start shortly after their organization with cash resources of at least $300,000,000. As will presently be seen in greater detail, it was proposed to give to the Reserve banks the reserves then held by individual banks as reserve holders under the National Banking Act for other banks. Confining attention to the national system, it was probable that the transfer of funds thus to be made by the end of a year from the date at which the new system would be organized would be in the neighborhood of $350,000,000. If state banks entered the system and conformed to the same reserve requirements, they would proportionately increase this amount, but for the sake of conservatism the discussion was at first to be confined to the national banks. From figures which were developed from bank returns, it seemed likely that at least $250,000,000 of the reserves just referred to would be transferred to the Reserve banks in cash; and if this were done the total amount of funds which they would have in hand would be at least $550,000,000. This would create a reservoir of liquid funds far surpassing anything of similar kind ever available in this country theretofore. It would compare favorably with the resources possessed by government banking institutions abroad.

It will be observed that in what has just been said the Reserve banks have been spoken of as if they were a unit. The committee, however, recommended that they should be individually organized and individually controlled, each holding the fluid funds of the region in which it was organized and each ordinarily dependent upon no other part of the country for assistance. The only factor of centralization which had been provided in the committee's plan was found in the Federal Reserve Board, which was to be a strictly government organization created for the purpose of inspecting existing banking institutions and of regulating relationships between Federal Reserve banks and between them and the government itself. Careful study of the elements of the problem had convinced the committee that every element of advantage found to exist in co-operative or central banks abroad could be realized by the degree of co-operation which would be secured through the Reserve-bank plan recommended, while many dangers and possibilities of undue control of the resources of one section by another would be avoided. Local control of banking, local application of resources to necessities, combined with federal supervision, and limited by federal authority to compel the joint application of bank resources to the relief of dangerous or stringent conditions in any locality, were the characteristic features of the plan as thus put forward. The limitation of business which was proposed in the sections governing rediscounts, and the maintenance of all operations upon a footing of relatively short time, would keep the assets of the proposed institutions in a strictly fluid and avai able condition, and would insure the presence of the means of accommodation when banks apply for loans to enable them to extend to their clients larger degrees of assistance in business. It was proposed that the government should retain a sufficient power over the Reserve banks to enable it to exercise a directing authority when necessary to do so, but that it should in no way attempt to carry on through its own mechanism the routine operations of banking, which required detailed knowledge of local and individual credit and which determined the actual use of the tmds of the community in any given instance. In ser ther words, the Reserve-bank plan retained to the sec government power over the exercise of the broade ot, an king functions, while it left to individuals and provision owned institutions the actual directions of rou he decl.