This section is from the book "Elementary Banking", by John Franklin Ebersole. Also available from Amazon: Elementary Banking.
The note issues provided for by the Act of 1913 are of two kinds:
(1) Federal Reserve Notes: These are obligations of the United States loaned to the Federal Reserve banks and secured 100% by gold or gold certificates, or by commercial paper deposited with the Federal Reserve Agent and there must be at least a 40% bank reserve of gold (of which at least 5% must be with the United States Treasury), and the notes are a first lien upon the assets of the issuing bank. These are redeemable in gold at the United States Treasury and in gold or lawful money at any Federal Reserve bank, and they are receivable by all National Banks for taxes, customs and other public dues. Such notes when redeemed by a Federal Reserve bank are promptly returned to the bank of issue. They are retired by deposits with the Federal Reserve Agent. The amount of this currency issued varies in accordance with the business needs of the country, thus securing the elasticity which the old system did not provide. As amended June 21, 1917, gold or gold certificates, as well as commercial paper, are accepted as collateral for Federal Reserve notes. The gold or gold certificates held as such collateral may be counted as part of the gold reserve which the Federal Reserve bank is required to maintain against its notes in actual circulation. This change results in all outstanding Federal Reserve notes being shown as a liability of the Federal Reserve bank and of gold or gold certificates deposited with the Federal Reserve Agent being included among the assets of the bank. There is a further provision that gold deposited with the Treasurer of the United States for the purpose of redeeming outstanding Federal Reserve notes shall be considered as collateral security on deposit with the Federal Reserve Agent. There is another provision requiring Federal Reserve notes, gold, gold certificates and lawful money issued to or deposited with any Federal Reserve agent to be held in the joint custody of himself and the Federal Reserve bank under regulations to be prescribed by the Board.
(2) Federal Reserve Bank Notes: Notes may also be issued by Federal Reserve banks upon the deposit of United States bonds with the United States Treasurer. These notes possess the same form, and are issuable upon the same terms, as National bank notes are now issued. There is of course no limitation in respect to the bank's capital, as there is with National banks. The Federal Reserve Board may compel Federal Reserve banks to buy deposited United States bonds at par and assume the note liability of existing National banks at a rate not over $25,000,000 a year, provided the National banks ask to have their bonds taken over.