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WAR BORROWING

kept by national banking associations and other
members of the Federal Reserve System should not
apply to “ deposits of public moneys by the United
States in designated depositaries.” This provision
was promptly construed to mean that such banks
would not be required to maintain reserves against
any deposits made by the United States in desig-
nated depositaries, regardless of the source of the
funds deposited — without, however, such exemp-
tion applying to government deposits in the Fed-
eral Reserve Banks.15

The occasion for redepositing borrowed funds
did not present itself in conjunction with the ante-
bellum issue of certificates of March 31, 1917. The
issue was taken in entirety by the Federal Reserve
Banks, payment being made in the form of new or
additional government deposits to the credit of the
Treasurer’s general account. A different proced-
ure developed with the initiation of war borrowing
proper, and the transfer of the lending function
from the Federal Reserve Banks to the member
and non-member banks. The First Liberty Loan
act authorized the Secretary of the Treasury in
his discretion to deposit in such banks and trust
companies as he might designate the proceeds or
any part thereof arising from the sale of certificates
of indebtedness and bonds. The deposits were to
be secured in the manner required for other de-
posits by existing law, and to bear such rate of in-
terest and be subject to such terms and conditions
as the Secretary of the Treasury might impose —
with the restriction that the amount so deposited
15 Federal Reserve Bulletin, June, 1917, p. 458.