48. How To Figure Required Reserves

It would take quite a volume to explain the method of figuring the reserve required by the National Bank Act and by the laws of the states and territories for the various banking institutions. The requirements also vary with the density of the population. If it is not possible to get a chart from the department having supervision, showing just how the reserve should be figured, the law itself should be studied and a chart prepared. Figure 29 on page 70 shows such a chart prepared for figuring reserves for national banks in the city of New York where 25 per cent of the deposits must be kept in cash in the bank's own vault. Notes of national banks may not be counted as part of the reserve. The subject of reserves required for national banks in all parts of the country is fully discussed and illustrated in "Pratt's Digest of the National Bank Act." National bank organizers, directors and officers can hardly get along without a copy of this handy volume. The reader is referred thereto for additional information.

Figure 30 on page 71 shows the reserve requirements for banks operating under the laws of the State of New York and the method of computation. This chart, which was issued by the banking department, is perfectly clear except as to the method of ascertaining the amount due from reserve depositories, excess over amount required to maintain reserve.

Calculation Of Reserve New York City National Bank

Add

Individual deposits

Time certificates of deposit

Demand certificates of deposit

Cashier's checks

Certified checks

Dividends unpaid

Deposits due U. S. Disbursing Offices

Deduct

Exchanges for clearing house

Checks on other national banks in same place

National bank notes held, exclusive of own

Add Difference Between

Due to banks Due from banks

(Omit both if due from greater)

Deduct

Four times five per cent fund

Twenty-five per cent of remainder is reserve required

Figure 29. Reserve Of New York State Banks And Method Of Computation.

To ascertain the amount of aggregate deposits upon which reserve is to be computed:

Add

Amount due banks

Amount due bankers

Amount due trust companies

Amount due other depositors

Amount due on certificates of deposit

Amount due on certified and cashier's checks

Amount due on unpaid dividends

Total $

$

Deduct

Amount due from banks, bankers and trust companies not reserve depositories

Amount due from reserve depositories, excess over amount required to maintain reserve

Amount due on exchanges and checks on other banks and trust companies

Amount due on deposits secured by outstanding unmatured bonds of the State of New York

Total

Balance upon which reserve is to be computed $

$

Note: In case reciprocal accounts are kept with reserve depositories, only the excess due from them can be counted as reserve.

This is indeed a rather hard problem to solve and we will not attempt to discuss it. The method adopted by those familiar with figuring reserves is to deduct first the sum of the other three deductible items which are definite and determinable, and to say that the gross reserve required is the proper percentage of this balance, 15, 20 or 25 per cent, according to location. The amount actually held in cash is then deducted from this gross reserve to ascertain the amount required from reserve depositories to complete the reserve. Whatever is left is treated as the excess with reserve depositories over amount required to maintain reserve and is deducted from the first net deposits mentioned above in order to find the amount on which to figure the true reserve.

The reserve requirements for New York state trust companies and the method of computation is shown in Figure 31 on page 73. It is obvious that where the reserve must all be in cash there can be no excess with reserve depositories. The whole amount on deposit may be deducted.