tinct, fresh motive is afforded to them for so doing. If the rediscount plan operates as it is expected to, State banks will get the benefit of it indirectly by finding themselves able to dispose of their paper on favorable terms in the open market without necessarily going to a Federal reserve bank for their accommodation. It is rather to be expected that the motive tending to lead State bankers to enter the system will be found in the clearing function. If the clearance provision in the Federal Reserve Act be successfully developed, it may be expected that business will be transferred to the member banks by those who will appreciate the immense advantage open to them as a result of the provisions freeing them from the oppressive conditions to which they have been subjected in regard to domestic exchange. It will be imperative for State banks to place themselves upon as good a foundation for appealing to the public in this regard as that upon which the member banks rest. We may say, therefore, that the early entry of State banks into the system depends in a very large measure on the way in which the clearance feature is handled and the extent to which the clearing function is taken over by the Federal reserve banks.

Not a few ask: Will the Federal reserve system tend to enlarge the national system of banking or to limit it? In other words, will the future of State institutions under the Federal Reserve Act be a future of gradual conversion into national banks, or will the State institutions find their ranks gradually enlarging until ultimately the banking system of the United States consists of a body of banks organized under State law and federated together in twelve Federal reserve institutions, the national banks being either extinct or on the road to extinction? In much of the banking discussion of the past two or three years it has been stated that the drift of things was toward the elimination of the national bank. This was on the ground that, with the bond basis for currency issue definitely removed, there would be no particular reason why a national bank should exist, while with the privilege of membership in the Federal reserve system open to State banks, it would be largely a matter of indifference under which system an institution might organize. At times it has seemed that those who thus argued had a rather substantial basis for their predictions. And yet, since the adoption of the Federal Reserve Act, the national system has grown rap

idly. During that time there have been organized (to July 1st) about 284 institutions. And this rate of growth is essentially the same as in recent years. There seems to be little disposition on the part of already established banks to leave the system, but, on the contrary, the process of new organization continues as above noted. It may be inquired whether this is not due to the fact that long experience has not been had with the new system, so that men naturally tend to follow in the groove marked out by custom, even though there are factors working against that course. Were this question to be answered in the affirmative we should have to conclude that the probable relation between national and State banks under the Federal reserve system, and the relative growth of the two groups, would be a matter for future determinination as to which no positive opinion could be expressed to-day. To some extent this is undoubtedly the situation. Some States have already been making vigorous efforts to hold their own banks under State law. An example is seen in the case of the State of New York which has recently liberalized its Banking Act, shaping a piece of legislation which some believe is more favorable to satisfactory banking

than the National Act as modified by the Federal Reserve Act. This action, however, has been taken in order to prevent State banks from converting to national. The problem before us just now is the converse of that, and is whether there will be a drift of national institutions into the State system. It would seem that there is good ground for believing that as a result of banking discussion and largely in consequence of the unifying influence of the Federal reserve system, there will be a much stronger drift than heretofore toward standardization of bank examinations and of banking legislation. The Federal Reserve Act will have a very powerful influence in bringing about uniformity of conditions in examining banks and in controlling them generally. If such uniformity be rightly developed, it may be supposed that banks already holding either a State or a national charter will continue as they are now.

CHAPTER XIV

FINANCING FOREIGN TRADE

ONE of the innovations provided by the Federal Reserve Act is found in the section relating to foreign branches. It has been a subject of complaint for a long time that the foreign trade of the United States was inadequately financed. National banks not being permitted under existing law to establish branches abroad, it has been felt that in many cases Americans doing a foreign business could not get the accommodation to which they were entitled. It has been asserted that in those countries where the foreign trade of the United States was still limited in amount and undergoing development subject to more or less severe competition, the problem of securing adequate funds for the trade was particularly difficult. There have been several considerations which seemed opposed to these views. For example, under the laws of various States it would have been possible to organize banks authorized to estab