For the purpose of computing these amounts the Federal Reserve Board has prepared a form to be followed by all member banks in reckoning reserves. In order to illustrate the method of calculation, the form as filled out by a member bank is presented below:

In the above statement a separate computation is made for demand and for time deposits. As the Federal Reserve Act does not require the keeping of reserves against government deposits, only the balances of individuals and of banks are considered. The Federal Reserve Act does not insist upon the maintenance of reserves against gross bank deposits, but merely upon the net difference between the amount due to other banks and the amount due from them. Thus for reserve purposes, net demand deposits include only accounts due to individuals and net balances due to banks.

Item 1 represents individual demand deposits. This sum does not include United States government deposits, for these require no legal reserves. Checks which have been certified by the bank or drawn by its cashier are carried as separate entries, and items 2, 3, 4 together constitute the total sums due to other banks. These three accounts represent the gross liabilities due to other banks, and from the sum a deduction of the assets due from other banks must be allowed. These accounts arise either from balances carried with correspondents or from items being collected by the Federal Reserve Bank, the clearing house, or the bank's messengers. These amounts are indicated by items 5, 6, 7, and 8, which together represent the amount due from other banks. The difference between the total of items 2, 3, and 4, the amount due to other banks, and the total of items 5, 6, 7, and 8, the aggregate due from other banks, is indicated by item 9, which is the net balance due to other banks.

A bank does not always owe to other banks an amount larger than that of their indebtedness to it, and at times the sum of interbank credits more than offsets the total debits. From this situation the bank derives no advantage, for under the Federal Reserve plan when the total due from banks exceeds the amount due to banks, both groups of items must be entirely omitted from the calculation of reserves. In this case the bank carries a reserve only against item 1, its individual deposits. If there is a net balance due to other banks as shown in item 9, it is added to item 1, and these two accounts together form the total net demand deposits.

Less difficulty is encountered in calculating time deposits, which include the following items: (11) Savings accounts, (12) certificates of deposit, (13) other deposits payable only after thirty days, and (14) postal savings deposits. As mentioned above, a time deposit is any account which is payable only after a notice of thirty days.

In the illustration under consideration the net demand deposits amount to $264,594, and time deposits to $9,710. Assuming that this bank is located in the nonreserve class, it is required to hold as reserve 7 per cent of its demand deposits and 3 per cent of its time deposits. Its reserve against demand deposits will thus amount to $18,521.58, against time deposits, $291.30, and these two sums together $18,812.88. Although reserves must be computed every day, the bank's required amount is counted not as a daily, but as an average, monthly balance, and a deficit on one day may be offset by a surplus at another time.