Every "member bank" - national bank, trust company and State bank, belonging to the Federal Reserve System - is required to maintain an actual net balance equal to a certain percentage of its deposits, with the " Federal Reserve Bank" of its particular district, as follows:
1 J. Martin Miller, United States Consul at Rheims.
In "central reserve cities," that is New York, Chicago and St. Louis, 3% of "time deposits" and 13% of "demand deposits "; in " reserve cities," that is in over 50 other prominent cities listed under that subject, 13% and 10% respectively; and in "country banks," meaning all other " member banks' located in cities other than those already mentioned, 3% and 7% respectively.
In addition to the foregoing, "Federal Reserve Banks" are required to maintain a "reserve" in gold or "lawful money" of 35% against deposits, and 40% in gold against notes in actual circulation, less gold or gold certificates deposited with the Fed. Res. Agt. as collateral for Fed. Res. notes.
The difficulty of making clear this term as used among those in the business of life insurance is demonstrated by the following extract from a letter from a well-known life insurance official: "It is not as easy as one might think to give a definition of the word 'reserve' as used in the life offices, that will be immediately recognized by the layman. Even actuaries, when they come to an analysis, dispute on the definition."
The writer has obtained no less than seven distinct and varying definitions for this term, two of which are given below: A sinking fund computed each year to be held in possession by the life insurance company in well invested assets at a given rate of interest to make good, with expected premiums, each contract at maturity."
"The reserve is the excess amount charged in the early years of 'level premium policies' to offset the failure to increase the premium during the later years. This reserve is invested by the company, and the proceeds from it make up the deficiencies in the later premium payments."1