The chief functions of the Federal reserve banks are suggested in the preamble to the Act, namely, "to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes." These banks, of which twelve, the maximum number permitted by the Act, have been established, are essentially bankers' banks, dealing only with member banks and the Government, and not with the general public, except for certain open market operations to be discussed later. Their main activities will be rediscounting, issuing notes, and investing surplus funds in ways permitted by the Act By discounting commercial paper and issuing notes these banks will furnish an elastic currency, and by holding a part of the reserves of member banks they will make it possible for any solvent member bank to obtain cash to meet an emergency.

1"The Federal Reserve Act of 1913," Yale Review, April, 1914, p. 439.

The funds of the Federal reserve banks will come from three sources: subscriptions of member banks, government deposits, and deposits of member banks. It is estimated that if only the national banks enter the system the paid-in capital of the Federal reserve banks will aggregate about $53,000,000, and that when the system is in full operation the required deposits of reserves by member banks will increase their contribution, on the basis of present-day conditions, to about $365,000,000. It is probable that member banks will find it necessary to keep with the Federal reserve banks deposits in excess of the required reserves because of the various clearing arrangements to be undertaken by the latter. If member banks decide to carry their optional reserves on deposit with the reserve banks, the latter may hold deposits of member banks aggregating $605,000,000 and possibly as high as $750,000,000. At the option of the Secretary of the Treasury, government funds may be kept with the Federal reserve banks, with national bank depositories, or in the Treasury. If, as is probable, the bulk of the free funds of the Government is deposited with the Federal reserve banks, their resources will be increased by some $150,000,000 to $200,000,000. It is possible, therefore, that the aggregate resources of the reserve banks may range somewhere between $418,000,000 and $1,000,000,000.1

The source and character of deposits that may be accepted by Federal reserve banks are stated in Section 13 of the Act, as follows: "Any Federal reserve bank may receive from any of its member banks, and from the United States, deposits of current funds in lawful money, national bank notes, Federal reserve notes, or checks and drafts upon solvent member banks, payable upon presentation; or solely for exchange purposes, may receive from other Federal reserve banks deposits of current funds in lawful money, national bank notes, or checks and drafts upon solvent member or other Federal reserve banks, payable upon presentation."

1 Thomas Conway. -Jr.: 'The Financial Policy of the Federal Reserve Bunks," Journal of Political Economy, April, 1914, pp. 820-321,

The earnings of each Federal reserve bank, after all necessary expenses have been met, are to be distributed as follows: (1) the stockholders are to receive an annual 6 per cent cumulative dividend; (2) the balance is to be paid to the United States as a franchise tax, except that one-half of it is to be paid into a surplus fund until it amounts to 40 per cent of the paid-in capital stock of the reserve bank. The net earnings thus derived by the Government are to be used, in the discretion of the Secretary of the Treasury, either to supplement the gold reserve held against outstanding United States notes, or to reduce the bonded indebtedness of the United States under regulations to be prescribed by the Secretary. Should a Federal reserve bank be dissolved or go into liquidation, any surplus remaining after the payment of all debts becomes the property of the United States.