6. Computation By A Reserve Bank

Some additional figuring is needful to determine the amount of reserve that must be held by a reserve bank which is not in a central reserve city, unless it keeps its entire reserve at home. of course, any bank can do this; but generally the banks not located in the central reserve cities keep that portion of the reserve permitted by law with other banks, and when this is dune then some other questions enter into the calculation.1

7. Reserves Of State Banks And Trust Companies

Until quite recently no duty to keep a reserve was imposed by the central reserve cities. It often happens that a reserve bank has a reciprocal account with a central reserve bank instead of simply depositing a portion of its reserve with it, and there are balances due on both sides growing out of collections or other business done by each for the other. How shall these balances be treated? If the balance due from the central reserve bank on this account exceeds the balance due to it, the excess or final balance is available for the 12 1/2 per cent reserve that may be kept there, but if the final balance is due to the central reserve bank, then the amount of such balance is to be treated as a deposit 'due to other national banks,' against which a reserve must be held as previously explained. Though the balance due from a central reserve bank to any other bank may be treated as belonging to the reserve fund that may be kept with other banks, it can never be used to make up a deficiency in that portion of its reserve, 12 1/2 per cent, or one eighth of its deposits, which it must always keep at home. This rule is inflexible But the excess may be used to reduce the liability on deposits having the effect to reduce the balance due to banks or bankers, even perhaps to exclude altogether that item from the calculation. To repeat, when the addition with the reserve banks added to the amount due from other banks and bankers equals or exceeds the amount due to them, the item is then dropped from the computation of the reserve; but when the addition of the excess to the amount due from other banks and bankers is less than the amount due to others, then the effect of the excess is to reduce the amount against which a reserve must be held, as previously explained. When the excess is used to reduce the amount against which a reserve must be held, the calculation becomes somewhat intricate if a bank is desirous of reducing its deposit to the smallest possible amount permitted by law."(Bolles. Practical Banking, 11th edition, page 207, which see for a full description of the way of making this calculation.)

1 "This class of reserve banks, it will be remembered, must keep one half of its reserve, 12 1/2 per cent, at home;, the other half may be kept in banks law, with few exceptions, on state banks and trust companies. In imposing this duty on the state banking institutions the law at first did not apply to trust companies as their mode of lending, so they contended, did not require them to adopt the same precaution in maintaining a reserve as banks of discount and deposit. Slowly however the states are applying the same requirements to both, - a reserve of about fifteen per cent. In New York City the trust companies have been put into line with the state banks through the action of the clearing house.