While considering the general question of interbank relationships, it is desirable to refer briefly to the idea of bank federation or of interbank organization. What has been said thus far has reference to a condition of affairs in which interbank relationships have developed simply as the outcome of voluntary action on the part of different institutions and is the outgrowth of business necessity or convenience. A good example of such relationships is afforded by the national banking system prior to 1913. Under the old provisions of the National Bank Act, banks might act as correspondents for one another practically as they chose, while the law provided for a permissive system of "reserve agencies,"which meant that banks in certain places were allowed to hold balances for banks at other points and to count them as reserves in the legal sense of the term. In other cases, however, it has been found desirable to establish a more or less compulsory system of interbank relationship. This may be the outgrowth of commercial custom, which, if anything, is stronger than law, or it may be the outgrowth of actual legislation. Of the two systems the British banking system perhaps furnishes the best example in the former case, while the Federal Reserve system is the best example in the latter. The working of the Federal Reserve system is fully discussed elsewhere, but at this point it is well to note that the outstanding feature of the system is the establishment of legally required interbank relationships whereby all banks maintain a deposit credit with a co-operatively owned institution known as a Federal Reserve bank. The purpose of this system is to insure the advantages which come from close interbank relationships, and to regulate or control such relationships upon a definite plan under which all have equal access to the co-operative institutions. The use of the co-operative mechanism is left entirely to the discretion of the members, who may collect through it or discount with it, as they see fit. The system simply enables them to do these things when their necessities require or their convenience dictates. There is nothing in the law to prevent them from establishing other interbank relationships at present, and as a matter of fact most of them maintain such relationships. It should be noted also that the problem of interbank relationships is rather different in those countries where branch banking exists from what it is in those where banks are not allowed to establish branches. Experience shows the desirability of a great number of banking offices. This is partly a matter of convenience. The easier the access to the bank, the more promptly will checks and drafts be deposited and the less danger will there be of the hoarding of coin. It is also, however, a matter of easy extension of credit. Credit is best studied at close range, and not only for this, but for many other reasons, it is admitted that the tendency of banking offices is to increase in number. Thus in the United States we have to-day about 30,000 banking offices of all kinds, with perhaps 110,000,000 of people. In Canada, with possibly 10,000,000 people, there are only 17 banks, but the number of branches existing there brings the total of offices up to probably 4500 to 5000. Where the banking system is organized with a few head offices and a system of branches depending upon each, interbank relationships become less important, and in place of them the relationship between the parent bank and its offices assumes broader significance. There is still, of course, question of the relations to be maintained between the several head offices and, to an extent, between the branch offices located at a given point, but the real problem of interbank relationship is not found there, but is found in the control exercised by the parent over its offshoots. First of all is the question how funds shall be apportioned to the different branch offices as a basis for loans. Problems of exchange of course present themselves just as they do between independent banks in different parts of the country. The regulation of the seasonal flow of funds back and forth between districts presents a special question for determination. Such questions are adjusted through competition where independent interbank relationships are the basis of the banking structure, while under a system like that of the Federal Reserve they may thus be said to be adjusted upon a basis of competition subject to supervisory control by the co-operative organization. Under a pure independent branch system, like that which exists in Canada, the problem of the head office with respect to the matters already mentioned is a very broad one, since it involves not merely the question of passing upon the individual loans and credits, but also that of determining the distribution of accommodation between different parts of the country. It is because of the prevailing belief that such problems are likely to be selfishly dealt with that there has grown up, particularly in the United States, a prejudice against the branch banking system. This prejudice has been strengthened by the contention that small banks are likely to be subject to unfair competition as a result of the efforts of large competitors operating through branches established at points where there is not sufficient business to maintain more than one institution.