Form B.-Calculation of the Lawful-Money Reserve of National Banks
Not Located in Reserve Cities or Central Reserve Cities.
Items on Which Reserve is to be Computed.

Items Composing the Net Reserve and Distribution of Same.

CHAPTER II.

LAWFUL-MONEY RESERVE.

Explanation of Rules applying in Exceptional Cases.

As some readers will naturally wish to know the reasons for applying the rules for "exceptional" cases given in the preceding chapter, the following explanation in each of the two cases therein illustrated is given here.

Explanation of Case of 25 Per Cent. Reserve Bank.

It is evident, at a glance, that when the "apparent excess" of $59,697 is considered as "due, from other banks," and is applied to reduction of liability on "deposits," it will have the effect of making a proportionate reduction in the amount of reserve required. The reserve allowed with "agents being one-half of one-fourth, or one-eighth of the amount of "net deposits," the reduction here will be in the proportion of one dollar of reserve to every eight dollars applied in reduction of "deposits."

This being the established ratio, we know that the "additional excess" with "agents" must be one-eighth of the "exact excess" to be applied in reduction. We also know that this "exact excess"

will consist of the "apparent excess" ($59,697), increased by the "additional excess," and knowing so much, we can readily ascertain the amount of (( additional excess."

To simplify the illustration, let us assume that X represents the unknown "additional excess," and, from what has just been stated, we obtain the following equation:

Eight times X is equal to $59,697 increased by X; or, taking the amount X from each side of the equation, seven times X is equal to $59,697, and dividing each side by seven we find that X, or the "additional" amount, is equal to $8,528; and that $68,225 (eight times X) is the exact amount that can be applied to reduction of liability on "deposits."

As this "exact excess" ($68,225) exceeds the balance due to banks and bankers ($55,495) it will have the effect of eliminating the latter item from the computation, and of converting the "apparent deficiency of reserve in bank" ($6,500) into an actual excess of $437 instead. (See Rule I, clause (a), page 13.)

As the "apparent excess" in this example was of itself greater than the balance due to banks,

it was not necessary to carry out the computation to find "exact excess," but this has been done simply to show how it should be done when circumstances require.

Explanation of Case of 15 Per Cent. Reserve Bank.

In the case of this 15 per cent. reserve bank, the excess with reserve agents can be applied in the same way to reduction of liability on "deposits," the proportion, of course, being changed.

With such a bank the law allows a portion of its reserve equal to 9 per cent. of net deposits to be kept with "agents;" therefore, the proportion that "reserve with agents" should bear to "deposits" is as 9 to 100.

Applying the same line of reasoning as in the case of the 25 per cent. bank, we find that the apparent excess" is $29,120, and assuming that X represents the whole "excess" that can be applied, we know that 9 per cent. of X, or 18 of X, will be the "additional" excess which can be released from its function as reserve and applied to reduction of liability, and also that the "exact excess" will be the "apparent excess" increased by this "additional excess."

We have, therefore, from this the following equation: X equals $29,120, increased by 9 per cent. of X; and, deducting 9 per cent. of X from each side of the equation, we have X less 18 of X, or of X equals $29,120; and from this, ro of X, or 1 per cent. of X, equals $320; and 9 per cent. of X equals $2,880, which is the "additional" excess to be added to $29,120 to make $32,000, the "exact excess" which can be applied to reduction of liability.

As the ratio of "reserve in bank" to "deposits" is 6 per cent., when the "deposits" are reduced by $32,000, $1,920 less "reserve" will be needed in bank. But, $1,920 is just of $29,120, the "apparent excess," so that the amount by which the reserve apparently required in bank may be decreased will be

of the "apparent excess" with agents. (See Rule II, clause (b), page 14.)

Simple Method of keeping the 5 Per Cent. Redemption Fund Account.

As it appears to be the custom with many banks to credit their circulation account with all of their notes, both "fit" and "unfit," which have been redeemed and returned by the United States Treasurer, and to charge this account with all amounts remitted to the Treasurer to reimburse their 5 per cent. fund, it is suggested that all such redemption