The extensive examinations provided for by the Federal Reserve Act were alluded to before.3 In arranging for examinations, as in other matters, the Reserve Board largely followed the recommendations of the expert Preliminary Committee on Organization that had submitted an admirable report on the organization of the reserve banks. This committee was composed of H. Parker Willis, chairman, and of the following: Edmund D. Fisher, Andrew A. Benton, 0. Howard Wolfe, Joseph A. Broderick, Ralph Dawson, and Stephen H. Farnham. It had been provided for by the Reserve Bank Organization committee, its report was confidential but it was in part reproduced in the first report of the Federal Reserve Board.

1 Excess of exports.

2 Since the entrance of the United States into the war, however, in the interest of our own needs, it has become necessary to prohibit gold exports except under the supervision of the Reserve Board. This has strengthened the Board's control.

3 See ante, p. 263.

Examinations under the supervision of the Reserve Board are handled by the Division of Audit and Examination. The functions of this division were broadly outlined by the Board itself. First provision was made for the examination and audit of the reserve banks themselves. Then followed provisions for the examination of member banks.

The provisions relating to the reserve banks cover not only the banks but also the federal reserve agents. While the law provides for examination of reserve banks at least once a year the Board decided upon two examinations per year "covering thorough examination of rediscounts, collateral loans, investments, and open market transactions, particular attention being paid to compliance with the provisions of the Federal Reserve Act and regulations promulgated by the Federal Reserve Board."1 Eligibility of paper accepted for rediscount must be tested and inquiries concerning the condition of member banks offering the paper must be instituted. The examiners must report to the Board concerning the competency of management, adequacy of record, etc., and the attention given by directors to the affairs of the bank. They must also call attention to "any unsafe or unsound condition or any vicious tendency that might appear in any department of the bank.,, The Reserve Board asks each director of a federal reserve bank to read and initial the semi-annual report of examination of his bank. The chairmen of the several boards of directors then advise the Reserve Board when "the report has been read by their directors and had their full consideration." For this purpose copies of the report of each examination are sent to the reserve banks.

The records and accounts of the federal reserve agents are required to be examined quarterly and a complete report of each examination must be rendered to the Board. The examination covers "a verification of the money, federal reserve notes, and collateral in the hands of the federal reserve agent."1 With respect to the member banks two regular examinations each year are required to be made by examiners under the Comptroller of the Currency, excepting in so far as the Reserve Board accepts the examination of state institutions by state authorities. The law permits the Reserve Board as well as the several reserve banks to make examinations of member banks. But as the Board itself recognized:

Division of audit and examination

Reserve banks

Federal reserve agents

11914 Report, p. 50.

If advantage is taken of the right to examine member banks by all of the authorities upon whom the power is conferred it will place member banks under continuous examination at a tremendous expense, cause duplication and confusion, and defeat the purpose which the law is intended to serve.

Hence the Board takes the position that the regular examinations shall be those made by the national bank examiners. Examinations by the Board itself, or by reserve banks with the Board's approval, shall be special examinations made only when deemed necessary by the Board. To To meet the legitimate requirements of the reserve banks copies of the reports of the regular examinations of member banks and such additional special information as is desired is submitted by the national bank examiners to the reserve banks. With respect to the state institutions that are members of the system the Board takes the position that "the intent of the law seems to be to accept the examination made by state authorities wherever it can be done without discrimination." Hence there is imposed upon the Division of Audit and Examination the duty of studying carefully the adequacy of state systems of examination to ascertain whether such systems attain a satisfactory standard. State authorities are requested to give information concerning each state institution that is a member of the reserve system. When special examinations of state member banks are necessary they are made wherever possible in connection with examinations by state authorities.

Member banks

1 Loc. cit.

The development of a system of credit bureaus is also put under the jurisdiction of the Division of Audit and Examination. Each federal reserve bank has its own credit bureau, but results of general interest are to be brought together so far as possible, in the central bureau. The credit bureaus collect and record data concerning member banks and the standing of all who discount paper at or borrow from member banks.

Reports of various kinds are made by the reserve banks to the Reserve Board. Reports concerning rediscounts and loans are made daily. Other periodic reports deal with different aspects of the bank's business. The work of collating the reports and of preparing the statistical tables is intrusted to a Division of Reports and Statistics which necessarily cooperates with the Division of Audit and Examination.

Before the passage of the Reserve Act the national bank examiners were paid on a fee basis. Section 21 of the act put national bank examiners on a salary, and a charge was required "to be assessed by the Comptroller of the Currency upon the banks examined in proportion to assets or resources held by the banks upon the dates of examination." In the March, 1916, Federal Reserve Bulletin (p. 122) a table of costs of examination under the old and under the new system is reproduced. For institutions in central reserve and in reserve cities, and with resources under $10,000,000, the cost is lower than before, but for the larger institutions the cost is greater than under the old system. It is uniformly higher for country banks. For institutions with resources of $50,000,000 or more the cost, in central reserve and in reserve cities was $710 and for the country banks was only $75, but under the new system the cost is $1,024.50. Under the old system examination costs ranged from $50.50 to $710 in central reserve cities and from $20 to $75 for country banks. Under the new system the ranges of cost are from $26 to $1,024.50 for all institutions. In a statement in the Federal Reserve Bulletin (May, 1916, p. 213) the Reserve Board explains that gross inequalities existed under the old system. "While in reserve and central reserve cities 38% of the banks are now paying more than before, 62% are paying less. In the whole system only 32 banks had, at the time of the statement, resources in excess of $50,000,000, and 31 of these were in reserve and in central reserve cities. Moreover, under the old system the examiners paid all their expenses out of their fees, and there was, in consequence, a temptation to speed up examinations. Reports of the examinations also were made only to the Comptroller, and bank directors had special examinations made of their institutions for their own benefit. As the examiners now receive stated salaries, they make more leisurely and more thorough examinations, and as copies of the reports are sent to the boards of directors concerned the Reserve Board believes that special examinations will no longer be required.

Credit bureaus

Reports ana statements

Cost of examination

The "reports of condition" of all the national banks and of state institutions in the Federal Reserve System are regularly published. Five of such reports each year are made to the Comptroller. The Comptroller's published statements, however, do not deal with the individual banks, but represent abstracts covering the system as a whole. The individual reports are locally published.

The statements of the reserve banks are published weekly by the Reserve Board. The items are given in detail for the individual reserve banks and the totals for the system as a whole are also clearly set forth. The Board prepares an explanatory statement showing the changes from week to week in the principal items of resources and liabilities. Copies of the statement are sent to newspapers all over the country and the widest publicity is thus obtained for them. On special occasions the Board also prepares other statements for the press.