The number of depositories was greatly increased during the war, and many "special depositories" will continue to be used until the war financing definitely ends. Meanwhile the Treasury, despite political pressure, is reducing the number of regular depositories and the deposits carried with many other banks; it is attempting a "scientific apportionment" by cutting off the inactive accounts and reducing balances so that each bank will be able to realize equal returns on the basis of the business done for the government. This is a logical step, for with the establishment of the federal reserve banks and their use as fiscal agents, there is less need for depositories; besides, it is now an economy to use the government money to reduce the debt, for the 2 per cent interest on deposits does not now give sufficient compensation for the rate paid by the government on its loans.
Our Independent Treasury has been a source of great financial weakness and disturbance. Want of a sensible budget system has resulted in a series of surpluses and deficits in the Treasury, causing alterations of tight and easy money in the market. The surpluses occurred at times of great importation, that is, of business boom, and, by reducing bank reserves at the time of big demand for loans, accentuated the rise of money rates. The government had no good means of making such balances available for banking uses, nor had it any efficient agency under its control and in direct intimate contact with the banks of the country, through which it could float loans. The federal reserve banks have provided for both. The sub-treasuries exercised some banking functions, such as the transfer of money by telegraph, the clearance of checks through the clearing house, and the receipt of taxes by certified checks, but most of their transactions were in currency and were slow and limited because they had no banking connections. If the government wished to redeposit the accrued surpluses, it was practically impossible to redeposit them in the banks from which they were originally withdrawn. Too often politics, caprice, or favoritism determined their distribution. Besides they were deposited in too many banks too widely separated. The twelve federal reserve banks which now act as fiscal agents for the government can supply the same facilities as a thousand or more national banks formerly supplied, thus simplifying the handling of the government funds. Another defect of the former system was, that the depositories had to pledge United States securities for government deposits, thus tying up such a quantity of bonds that the national bank note issue could not be increased in emergencies.
One of the leading criticisms against the maintenance of Independent Treasury was the discretionary power lodged with the Secretary in his choice and use of banks as depositories - a power fraught with danger as well as with good; for capricious action on his part might make or break a bank and might disturb the financial equilibrium of the country. Much depended upon the Secretary, his will, good sense, and skill. The same criticism applies to the existing federal reserve system, for the Secretary may or may not use the federal reserve banks as depositories for all or part of the government funds.