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

interests.



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.