reserve city banks were first located in New York and then Chicago and Saint Louis were added in 1887. The reserve city banks were located in sixteen other large cities. All of the national banks were required to hold reserves, while country banks were allowed to hold a percentage of these deposits in reserve city banks. When the various country banks required some additional reserves, in order to meet their customer's cash demands, they would call on the reserve city banks. These banks would then demand funds from the central reserve city banks. Any weak section in this particular system threatened a collapse to the entire system. Additional funds could not be created anywhere, and postponement of gold coin payments was the most predominant consequence. "In the United States, the Resumption Act had restored the gold standard in 1879, and the Gold Standard Act of 1900 had established gold as the ultimate standard of value" (Crabbe 423). Many banking crises occurred in 1873, 1883, 1893, and 1907. It was, however, the panic of 1907 that led to the formation in 1908 of a "bipartisan congressional body," titled the National Monetary Commission, whose report then set the stage for the Federal Reserve Act of 1913 and a decentralized, adaptable banking system (423).
             The reason for the need was made evident when the First World War nearly demolished the international gold standard (Crabbe 423). Although it was not until 1917 that the United States entered the war, the outbreak of war in Europe in 1914 immediately disrupted the U.S. financial and commodity markets. The commodity markets were heavily dependent on London for the financing of exports. As Europe was preparing for war, the world's financial markets became highly disorganized, especially after acceptance and discount houses in London shut down their operations. Late in July of 1914, as foreigners began liquidating their holdings of U.S securities...