National banks wishing to issue bank notes are required to deposit with the Treasurer of the United States registered bonds of the United States. The Treasury stands ready to exchange for this purpose registered bonds for coupon bonds which have the same par value, bear the same rate of interest, and run for the same period. A bank desiring to take out circulation remits the necessary bonds to the Comptroller of the Currency to be placed by him in the custody of the Treasurer, who gives a receipt in duplicate, one copy of which is sent to the bank and the other retained by the Comptroller, the bank bearing the expense incident to sending the bonds to the Comptroller. The bonds are assigned by the cashier or other officer of the bank to the "Treasurer of the United States in trust for the National Bank of...." The bank surrenders title to these bonds, which the Treasurer holds in trust primarily for the purpose of securing the redemption of the bank's circulation. The Comptroller gives the depositing bank power of attorney to receive and appropriate to its own use the interest on the deposited bonds, but this power becomes inoperative whenever the bank fails to redeem its circulating notes. Moreover, the interest is withheld if the bank fails (1) to pay the tax on the circulation, (2) to pay the penalty for failure to make reports required by the Comptroller of the Currency, (3) to pay instalments on account of capital stock, or (4) to make good an impairment of capital.

Upon the basis of these pledged bonds the depositing bank is authorized to receive from the Comptroller of the Currency an amount of circulating notes equal to the par value, but not greater than the market or cash value, of the bonds, and not in excess of the paid-in capital of the bank. Whenever the market value of any bonds thus deposited falls below the amount of the circulation issued for them, the Comptroller may demand and receive from the bank the amount of such depreciation, in other United States bonds at cash value or in money, to be deposited with the Treasurer so long as the depreciation continues. If a bank desires to substitute United States bonds of a different issue for some already deposited. the Comptroller may permit such exchange, if in his opinion it can be made without prejudice to the United States. The Comptroller may direct the return to the depositing bank of any bonds, in sums not less than $1,000, upon the surrender to him and upon the cancellation of a proportionate amount of its circulating notes, provided neither the market nor the par value of the remaining bonds deposited by the bank is less than the amount of notes not surrendered. To make withdrawals or transfer of deposited bonds for any purpose, the Comptroller and Treasurer insist upon the authority given by the board of directors under seal of the bank, together with the duplicate receipt given by the Treasurer at the time of deposit.

The Comptroller keeps a registry of all transfers or assignments of deposited bonds, and immediately advises the bank from whose account any transfer is made as to the kind, amount, and numerical designation of the bonds transferred. The Comptroller has access at all times to the books of the Treasurer to ascertain the correctness of any transfer or assignment of any deposited bonds, and the Treasurer has like access to the books of the Comptroller. The Comptroller also has access at all times to the bonds on deposit, to ascertain their amount and condition. Every depositing bank is required once or oftener in each fiscal year to examine and compare with the books of the Comptroller and the accounts of the bank the bonds pledged by the bank and, if no error is found, to present to the Treasurer a certificate setting forth the different kinds and amounts of the pledged bonds and stating that the same are in the possession and custody of the Treasurer at the date of the certificate. Such examination may be made by an officer or agent of the bank duly appointed in writing for that purpose. The bank is thus made directly responsible for ascertaining the actual presence and safety of these bonds.

The United States bonds which have the circulation privilege are as follows: the 4's of 1925, the 2 per cent consols of 1930, and the 2 per cent Panama Canal bonds. Of the $793 million of eligible bonds, on June 30, 1919, there were on deposit to secure national bank notes, $692 million, and to secure federal reserve bank notes, $17 million. Of the 245 new banks chartered during the fiscal year ending June 30, 1919, only 65 deposited bonds for this purpose.