Immediately after a bank receives its first circulation from the Comptroller it is required to deposit with the Treasurer of the United States, as a redemption fund, a sum of lawful money equal to 5 per cent of its circulation. Remittances for credit to the 5 per cent fund may be made in several ways:
1. By check drawn on New York, payable to the Federal Reserve Bank of New York, collectible through the clearing house (of which the reserve bank is a member), forwarded to the reserve bank with instructions to deposit the amount to the credit of the 5 per cent fund and to forward the certificate of deposit to the Treasurer of the United States.
2. By the deposit of lawful money with any of the federal reserve banks or branch banks, on account of the 5 per cent fund. Banks not located in cities having a federal reserve bank or branch bank can request their correspondents to make the necessary deposits. The certificate of deposit must be forwarded immediately to the Treasurer of the United States, as no credit is given until he receives such certificate.
3. By sending direct to the Treasurer of the United States, Washington, D. C, the proper amount of lawful money. This package, if specifically marked "For the credit of the 5 per cent fund," will be transmitted by express companies at government rates. If the bank does not pay the express charges, the Treasurer will pay them at government rates and deduct the amount from the bank's remittance.
The term "lawful money" includes every form of money which is endowed by law with the legal-tender quality. There is a diversity of opinion as to whether silver certificates can be used for this purpose.1
1 See Federal Reserve Bulletin, May 15. 1917, and Opinions of Attorney-Generals, Vol. 17, P. 123.
The bank's contributions to the redemption fund cannot be counted as part of its reserve against deposits, nor can the bank count as reserve any amounts thus carried in excess of the minimum required; the redemption fund is not in the proper sense a bank reserve against notes, as the Comptroller uses it in redeeming for the most part only worn and mutilated notes pre -sen ted to him; and it is not in any sense a reserve against deposits as it is not available for paying depositors. The amount of the fund is calculated on the amount of notes issued to the bank, no deduction being made even though all or part of such notes be lost, stolen, or put into circulation without the signature of the president, or vice-president, and of the cashier, or held in the vaults of the bank.