Editing Federal Reserve (section)

=== Before the Federal Reserve: the National Bank System and the New York Clearing House ===
Since 1863 America had operated under the '''National bank System''', a veritable relic. Ostensible decentralization left banks across the country at the mercy of New York. Created by treasury secretary Salmon Chase in the midst of the civil war, banks partaking in the system had to invest in a proportionate amount of government bonds, deposited with the treasury as collateral, in order to issue notes. Chase wanted to force banks to invest in government debt in order to finance the war, and in that desperate context, to that specific end, the system worked well enough. But half a century later it was an unwieldy and inflexible giant. Currency was inelastic since it could only expand via investment in government bonds, bearing no relation to the level of trade. Strict reserve requirements keep 25% of NY deposits locked away, and similar restrictions on other banks kept reserves largely immobile. At the top, there was nothing, as member banks acted in their own interest. In times of crisis, currency remained inelastic, strict requirements kept existing reserves immobile, and there was no central governor, nothing that could coordinate the system toward response.

''De jure'', the system was acephalic and possessed no recourse to elastic currency. ''De facto'', things are complicated by the presence of the '''New York Clearing House'''. Already by 1860 the “largest ten banks in New York City [came to possess] 46% of the total banking assets of the City.” This ongoing concentration of capital was reflected in the explicit organization of New York Banking during the 1850s in the form of the New York Clearing House Association, formed 1853. Originally organized to virtualize specie transfer, the Clearing House “soon developed into a mutual association capable of developing and enforcing cooperative action among the City banks … controlled by a committee composed of five bank officers, usually representing each of the most powerful banks in the City…  regulating the admission or expulsion of Clearing House members.”<ref>Gische, David M. “The New York City Banks and the Development of the National Banking System 1860-1870.” ''The American Journal of Legal History'' 23, no. 1 (January 1979): 21. <nowiki>https://doi.org/10.2307/844771</nowiki>.</ref>

By 1907, the organization functioned in this vacuum as an unofficial 'bankers bank.' It took care of the daily exchange of checks between banks and, more importantly, they would pool member bank reserves and issue emergency currency ('loan certificates') to mitigate fallout during crises.<ref name=":1">Broz, J. Lawrence. 1999. “Origins of the Federal Reserve System: International Incentives and the Domestic Free-Rider Problem.” ''International Organization'' 53 (1): 39–70. <nowiki>https://doi.org/10.1162/002081899550805</nowiki></ref> Holding this power, they could dictate terms to the lesser houses during crises. To deny their services at such a juncture was to destroy, and they knew this. With this power, the clearinghouse, "dominated by the more conservative and solidly entrenched institutions which were either within the Morgan sphere of influence or the National City Bank [Rockefeller] sphere of influence," imposed an order on New York finance which favored establishment finance.<ref>Allen, F.L., G. Morgenson, and M.C. Miller. ''The Lords of Creation: The History of America’s 1 Percent''. Forbidden Bookshelf Series. Open Road Integrated Media, Incorporated, 2017. <nowiki>https://books.google.com/books?id=4fwnswEACAAJ</nowiki>. p110</ref>