The weakness of the system of diffused cash reserves was accentuated by the absence of a general and active market for commercial paper. Under the former system banks buying good short-time commercial paper issued for agricultural, industrial and commercial purposes were practically compelled to hold it until maturity. They had no assurance of being able to rediscount or market the paper they held at favorable rates when they needed more funds. They were therefore compelled to keep on hand considerable quantities of reserve money which either lay idle or was invested in call loans on stock exchange collateral - the only liquid asset available During the panic of 1907 the banks of the country had an abundance of good assets but there was no way to convert them into cash. It is believed that this defect will be corrected by the regional reserve system which provides for the centralization of bank reserves and also provides a means by which member banks may secure funds as long as they can present live commercial paper growing out of legitimate commercial transactions. Assured of a source where sound commercial assets can be converted into cash when needed, banks will be freed from the fear of exhausting their reserves and will not engage in the mad scramble for gold which under former conditions quickly converted a crisis into a wild panic.

The creation of a central institution for the holding of the banks' reserves and the establishment of a broad discount market should tend to reduce and render much more stable the rate of discount which varies so widely throughout the country. Formerly the borrower in the South and West generally had to pay a higher rate than the borrower in the East. This was due in part to the absence of suitable machinery for the distribution of the loanable funds of the country. In recent years the note broker has entered the financial field as an intermediary between the banker with surplus funds and the borrower who cannot get all the accommodation needed at his local bank. This has helped to some extent in broadening the loan market and in equalizing rates, but it has failed to provide general relief. The organization of regional reserve banks under central control will probably tend to standardize commercial paper and create a broad market for it. Then all banks may enter this market when they have surplus funds to invest, and prime commercial paper originating in sections where rates have been very high will find a market on terms more nearly equal to those for similar paper originating in other sections.