The most important cause of change in attitude towards rediscounting was the necessities of war finance, with its huge spasmodic receipts and payments handled through the banks. The war made it necessary to have an ever ready source of funds in large abundance, and this was afforded by the reserve banks. As the discount rate at the reserve bank was prevailingly below the market rate for funds, the motive of profit also inclined the member to use the reserve bank rather than the correspondent with which it had previously dealt.

On the other hand, the use of war paper lessened the necessity for the use of commercial paper, and the great preponderance of borrowings by members from the reserve banks has been on war paper. War paper as an element in the earning assets of the reserve banks reached its height in May, 1919. Since that date. not only has the volume of war paper declined but the volume of commercial bills has increased faster than the volume of war paper has declined, with the result that the commercial paper now (1921) constitutes about half of the earning assets, and the fraction will continue to grow larger. Many of these facts are shown by Figure 9.

Figure 9. Graphic Chart Showing Earning Assets of the Federal Reserve Banks, 1914 1920

Figure 9. Graphic Chart Showing Earning Assets of the Federal Reserve Banks, 1914-1920