The regional system has the effect of reducing the balances carried in central reserve city and reserve city banks, and of lodging them in the twelve federal reserve banks or of investing them locally. The federal reserve system does not count balances with former reserve agents as reserve; hence, what balances are so carried reduce by that amount the bank's available funds, and are a source of expense to the bank. Besides, the federal par collection system has largely eliminated the profits from exchange charges that were realized from the old collection arrangements. It is also possible to sell exchange on the federal reserve bank. The existence of a goodly quantity of commercial paper for purchase, as well as the United States Treasury certificates of indebtedness, have provided the member banks with a form of direct investment earning more than 2 per cent. The member banks can rely upon the federal reserve banks for accommodation and no longer have to maintain friendly relations with reserve correspondents for that purpose.
Unless, therefore, the old reserve agents provide additional services, the country banks are tempted to close out their balances with most of their old correspondents. The reserve city banks that have suffered most as a result of the abolition of reserve depositories have been the smaller national banks. The very large banks may have profited by it, for while many out-of-town banks which formerly had a dozen or more New York correspondents have reduced them to one or two, the balances carried with these few are larger than formerly. State bank and trust company members are also inclined to drop their former connections. To hold balances, the reserve city banks have recently been bidding higher interest rates. Most of the clearing houses fixed upon a sliding scale of rates, varying with the market rate for money, or else fixed a maximum rate, payable by any of its members.
Along with this change of relations, it is noteworthy that the New York Clearing House banks give over to the federal reserve banks a goodly part of their responsibility for and guardianship of American finances. Henceforth the clearing house will do less of the extra clearing functions; when in any federal reserve district help is needed by any of the member banks, relief will now be principally obtained by rediscounting at the federal reserve bank instead of by borrowing from the New York banks. The issue of clearing house loan certificates and the importation of gold by the New York banks to this end will also cease. In case of panic the federal reserve banks, it is hoped, will support the financial world more efficiently than the cumbrous clearing house arrangements of former years.