Before the Federal Reserve System was created, a large part of the reserves of commercial banks was
A) in the form of state and federal government bonds.
B) deposited with the United States Treasury.
C) held as deposits with large city banks.
D) held as cash in their vaults.

Question

Quizplus · Accepted Answer

Before the Federal Reserve System was established, commercial banks often held a significant portion of their reserves as deposits with larger banks located in major cities. These larger banks acted as correspondents and provided a variety of services, including the facilitation of transactions that required access to national and international financial networks. This practice was part of the "pyramiding" of reserves, where smaller banks kept their reserves in larger banks, which in turn kept reserves in even larger banks, concentrating financial risk.

Before the Federal Reserve System Was Created, a Large Part