Reference has been made at various places in the foregoing pages to the defects of our banking system. In this chapter we shall try to summarize these defects and present a brief statement of the problem which the Federal reserve system is expected to solve.

The national banking system established in 1863, remodeled by the enactment of 1864, and patched up from time to time by sixty-odd amendments, remained substantially unchanged in scope and operation through a half century of growth and change in financial and commercial conditions. Designed to meet the fiscal necessities of war times, it proved inadequate to cope with modern commercial needs. It failed to supply commerce and industry with adequate credit facilities in normal times and in times of financial stress it broke down completely spreading disaster and ruin throughout the land. Indeed, prior to the corrective legislation of 1913, our banking system deserved the term, "panic breeder," so often applied to it. The fundamental defects of our banking system may be grouped under three general heads, concerning respectively the reserves, the note circulation, and the general banking organization.