Before June 21,1917, there was, after the manner of the Bank of England, a severe separation of the gold held against notes (100 per cent or nearly that amount being carried with the federal reserve agent, and at least 40 per cent being carried in the bank itself) from the gold held (wholly in the bank itself) against deposits. The amendment made the system more logical by providing a means of combining or interchanging the reserves against notes and deposits. Gold which was lodged with the federal reserve agent, and which was the basis of 100 per cent credit at most, now became the basis for 250 per cent credit, or even more if the reserve requirements were suspended or the tax on deficient reserves was paid.

During the period 1917-1918 the gold in the federal reserve banks was greatly increased by several factors. For one thing the Federal Reserve Act had provided for a gradual transfer of the deposits of member banks from their correspondents to the federal reserve banks, and the amendment of June 21, 1917, provided for the immediate completion of that process. Again, the state banks and trust companies were empowered by law in many states to carry their reserves, in whole or part, to the federal reserve banks; all institutions of this kind which joined the system were automatically forced to carry their full reserve with the federal reserve banks, and many others found it expedient to do so to avail themselves of the clearing and collection facilities of the federal reserve system. Then, too, the banks of the country were importuned to concentrate their reserves in the federal reserve banks and thus strengthen the system for the strains of war financing. Moreover, the reserve banks have issued notes for gold at every opportunity, and have advised against withdrawals of gold. Finally, heavy importations of gold during 1915-1917, and the prohibition or regulation of gold exportations during the war, have favored the accumulation of large specie holdings.

The amendment of June 21, 1917, also provided for the joint custody and control of gold, lawful money, and federal reserve notes heretofore held by the federal reserve agents alone. These funds are now kept in safes with two locks or combinations, one in control of the federal reserve agent and his representative, the other in control of the officers of the reserve bank, and a joint record and periodic audit of accounts are made. The amendment made no provision for the joint custody of the commercial paper and other eligible securities pledged as collateral for federal reserve notes, but the board has recommended the same treatment for these also.

The Federal Reserve Act provides that a gold reserve of not less than 40 per cent must be maintained by the federal reserve bank against its federal reserve notes in actual circulation and not offset by gold or lawful money deposited with the federal reserve agent. The federal reserve notes are redeemable in gold, on demand, at the United States Treasury in Washington, or in gold or lawful money at any federal reserve bank. The board must require each federal reserve bank to maintain on deposit in the Treasury a sum in gold sufficient, in the judgment of the Secretary of the Treasury, for the redemption of the federal reserve notes issued to each bank, but in no event less than 5 per cent of the amount of these notes. This redemption fund may be counted as part of the 40 per cent reserve required against the notes.