The defect of decentralization

This question brings us back to the first of the three defects we have discussed, namely, decentralization. For even in New York City bank reserves were decentralized, that is, they were scattered among a number of different competing banks. In the nature of the case each bank was interested in doing the largest possible volume of business and in making maximum profits for its shareholders.

No one bank was responsible for the maintenance of the surplus reserves which would have given real elasticity to the American banking system. Just because no one bank was responsible, no one bank, as a matter of fact, ever attempted to maintain such reserves. When the return of money from the West, or imports of gold from Europe, or payments by the federal treasury, brought New York bank reserves above the 25 per cent line, this surplus lending power was at once utilized. There was always a sure market for call loans made at low rates to finance stock exchange speculations.