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WAR BORROWING

the entire ante-bellum issue of March 31, 1917, sub-
sequently withdrew from the role of direct investors
and confined themselves to the functions of distribu-
tion and remittance, with only such temporary in-
vestment service as was made necessary by admin-
istrative convenience, by the insufficiency of the
banks’ subscriptions, and by the desirability of aid-
ing wider distribution of certificates among the
banks. The provision in the war revenue act of
October 3, 1917, effective December 1, 1917, im-
posing a tax of two cents per $100 or any frac-
tional part thereof on promissory notes was subse-
quently held to include collateral notes tendered for
discount to Federal Reserve Banks. This penalty
upon banking operations in conjunction with cer-
tificate borrowing and loan flotations was avoided
by the use of “ resale ” or “ repurchase agree-
ments,” whereby the Federal Reserve Banks ac-
quired and held temporarily Liberty bonds and cer-
tificates of indebtedness until taken over by sub-
scribing banks. By the enactment of the War
Finance Corporation bill on April 5, 1918, prom-
issory bills secured by United States war obligations
were no longer subject to stamp taxes, and Fed-
eral Reserve Banks instead of temporarily acquir-
ing such securities under “ repurchase agreements ”
reverted to the practice in vogue before December
1, 1917, of accepting from the member banks
United States war obligations as collateral for
promissory notes.38

assets had invested 4.7 per cent, of their resources in the
same manner {Federal Reserve Bulletin, October, 1918, p.
953).

38 Federal Reserve Bulletin, May, 1918, p. 360.