The deposits in the federal reserve banks come from member banks on the one hand and from the government on the other. Deposits of prescribed reserves, it will be remembered, are required of member banks. Government deposits are not mandatory but are made at the discretion of the Secretary of the Treasury.

Federal

Advisory

Council

As the reserve banks opened for business on November 16, the first reserve instalment from member banks was due on that date. The total cash paid in by November 20 was $241,408,000, of which $204,945,000 was in gold and gold certificates and the remainder in legal-tender notes, silver certificates, and fractional coin. By December 31, 1914, the cash holdings of the reserve banks had increased to $255,647,000; by December 30, 1915, through periodic reserve payments and otherwise to $358,488,000, and by December 30, 1916, to $474,590,000. The total reserve on June 1, 1917, was $526,458,000.

As the deposit balances of member banks are built up through loan and discount operations as well as through deposits of actual cash, and as the cash required as reserve is only 35% of the superimposed deposit liability, the deposit liabilities of the reserve banks have grown more rapidly than the cash itself. The following table, based on the figures given in the Reports of the Reserve Board, shows the increase of net reserve deposit liabilities from November 20, 1914, to June 1, 1917.

Bank deposits

Net Reserve Deposit Liabilities of Federal Reserve Banks

For some time after the establishment of the Federal Reserve System no attempt was made by the government to utilize the reserve banks. On August 20, 1915, Secretary McAdoo issued a statement in which he said that "public moneys had not yet been deposited merely because the banks do not need them now and have not yet found full use for their present resources, which appear to be more than adequate for the demand at this time." It had been hoped by many that the government would at the outset deposit all available funds in the reserve banks and thus establish a firm precedent for such a policy. The secretary's statement, however, shows that the treasury department is to maintain all the discretion that the law itself provides.

Government deposits

The first use of the reserve banks was made by the government in connection with the handling of the crops in 1915. Special deposits were made in the Richmond, Atlanta, and Dallas banks, $5,000,000 being placed in each. The deposits were made by adding to the credit of the banks concerned in the gold settlement fund at Washington,1 although the Dallas bank drew $1,000,000 in currency. The secretary offered to make similar deposits to the credit of the St. Louis, Kansas City, and Minneapolis banks, but these banks indicated that they were amply supplied with funds.

On November 23, 1915, a more important step in this connection was taken. On that date the Secretary of the Treasury formally designated the reserve banks as fiscal agents of the United States government, and on January 1, 1916, the treasury transferred $9,000,000 to the reserve banks by withdrawing funds from national bank depositories in the cities where the reserve banks are located. Thenceforward the treasury employed the reserve banks extensively in fiscal operations of the government, especially in connection with the sale of the short-time treasury notes and of the $2,000,000,000 worth of the 3 1/2%, 15-30 bonds provided for in the $7,000,000,000 "Liberty Bond" issue.