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Operation Of The System
Land Banks
Services Performed By Banking Institutions
Commercial Paper
Foreign Exchange
Classification Of Banking Institutions
Domestic Exchange
State Banks
Common Features

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The Interrelations Of These Institutions

Under the operation of the national banking act, New York, Chicago,
and St. Louis have been designated as central reserve, and
forty-seven other cities as reserve cities. The national banks in
these reserve cities act as reserve agents for national banks in the
cities and towns not so designated and ordinarily receive on deposit
the major part of their reserves plus surplus funds not needed for
local purposes. Banks in the central reserve cities act as reserve
agents for the banks in the reserve cities as well as for country
banks, and on account of their importance as commercial and investment
centers receive and hold in the form of bankers' balances a large part
of the reserve funds as well as the surplus investment funds of the
national banks of the entire country.

State banks and trust companies manage their reserve and surplus
investment funds in substantially the same manner as national banks,
using national banks in the reserve and central reserve cities as
their reserve agents. State laws usually allow approved state banks
and trust companies also to act as reserve agents for the banks and
trust companies under their jurisdiction, but these approved banks are
generally located in the reserve and central reserve cities, and
themselves employ the national banks there located as their reserve
agents, thus forming simply an additional conduit through which the
reserve and surplus investment funds of state banks and trust
companies reach the central money reservoirs administered by national
banks in the central reserve cities.

National banks in the reserve and central reserve cities are also
clearing centers for the enormous volume of checks and drafts which
the administration of the checking accounts of the banks and trust
companies of the country bring into existence. They act as
correspondents as well as reserve agents for these other banks and
trust companies, and in this capacity collect out-of-town checks and
drafts and conduct checking accounts for them. Within these cities, as
well as in hundreds of others, clearing house associations conduct the
local clearings and also act as agencies through which national and
state banks and trust companies cooperate in the promotion of common

The center of the entire system is in New York City. The clearing
house association of that city, consisting of over fifty national and
state banks and trust companies, includes the banks the vaults of
which constitute the central money reservoir of the country and which
constitute the center of the country's clearing system. Through the
New York subtreasury pass the greater part of the receipts and
disbursements of the government, and the chief assay office in the
country is located there. The New York stock exchange is our only
stock and bond market of national scope, and consequently the
investment center of the country.

The Associated Banks of New York City, as the members of the clearing
house association are called, hold the greater part of the reserves of
the banks and trust companies not required by law to be kept in the
local vaults, as well as the greater part of the surplus investment
funds of the entire country. It is through the operation of the New
York subtreasury on the reserves of the Associated Banks that the
chief influence of the independent treasury system on the banking
business of the country is exerted, the greater part of the
government's receipts coming directly out of those reserves, and a
large part of the expenditures going into them, and the greater part
of the money deposited in national banks by the Secretary of the
Treasury going directly or indirectly into New York institutions. Most
of the exports and imports of coin and bullion pass through New York,
and the major portion of the foreign exchanges of the entire country
are there effected. The New York Assay Office receives and distributes
the greater part of the new supplies of gold and silver bullion which
come from our mines and transforms into bullion the major part of
these metals that come to us from abroad and do not find employment as
foreign coin. The New York Stock Exchange is the medium through which
a large part of the surplus savings of the country are invested in our
industries or loaned for the use of our national, state, municipal,
and other local governmental agencies.

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