ARGUMENTS IN THE NEGATIVE 
reserve banks became fiscal agents at the beginning of 1916; they have since continued 
to act in this capacity. It is not necessary to refer now to the services of the reserve 
hanks in war financing. When the extent of the government’s present financial opera: 
tions are considered, the extent and value of the services performed by the reserve 
hanks without cost to the government are obvious. The annual report of the Federal 
Reserve Board for 1925 contains a brief description of the functions performed as 
Ascal agents, as follows: 
“The fiscal-agency operations of the federal reserve banks include the sale and 
delivery of government securities newly issued, the redemption of securities called for 
payment or matured, denominational exchanges, interchanges of coupon and registered 
bonds, transfers of ownership, purchases of securities in the open market for govern- 
ment account, maintenance of government deposit accounts with designated deposi- 
“aries, and the custody of government securities. Acting as depositaries for the Treas- 
ury, the reserve banks pay government checks, warrants, and coupons, collect checks 
and non-cash items for the account of the Treasury, withdraw government deposits 
from depositary banks, transfer funds by telegraph, and render services formerly 
rendered through the subtreasury offices, including the replacing exchange, and re- 
demption of United States paper currency and coin. Expenses incurred by the reserve 
banks directly in connection with the issue of new securities are reimbursed by the 
Treasury, but all other expenses incurred in the discharge of their fiscal-agency func 
tions are absorbed in the operating costs of the reserve banks.” 
The circumstance that in 1928 these reimbursable expenses were $371,000 suggests 
that the nonreimbursable expenses properly chargeable to the costs of the fiscal-agency 
‘unction were a substantial portion of the total expenses of the reserve banks for al 
purposes, of $26,904,000. 
The facts about earnings of reserve banks and their disposition appear in a recent 
address of the governor of the Boston Reserve Bank at a meeting of its member banks. 
Although there was advocacy only of a distribution of a larger part of excess earnings 
to member banks, the following quotations are taken from this address, because the 
principles involved in fact support the cutting off of payment of any part to the 
government : 
“I have noticed a sort of a feeling of unrest on the part of some of our member 
sanks, due to what they term the expense of membership in the system. I take it the 
sanks of New England may have to pay more on their deposits than banks in other 
sections. Now, the member banks know that the reserve balances which they carry 
with the federal reserve bank yield them no interest. If those balances were carriec 
with other banks they would get ‘interest. They inquire why it is that the federa 
seserve bank cannot pay them interest. I will tell you. 
“It is because this bank is a reserve bank. You carry, on an average, about 5% 
of all your deposits as a reserve with this bank. In the old days a national bank located 
outside of a reserve or central reserve city had to carry 6% lawful money in its own 
vault, on which it got no interest. You carry about 5% with the federal reserve bank 
[t would take at least $3,000,000 a year for us to pay you 2% interest on your reserve 
Jeposits. Ordinarily that is more than we make. We have had an exceptionally good 
year this year, but our total net earnings this year will hardly exceed $2,900,000 o1 
$3,000,000. That includes a dividend of about $600,000, * * * 
“At the same time, there is a matter of gross injustice which member banks may 
call in a temperate way to the attention of the Federal Reserve Board and the Congress 
of the United States in the hope that they can get it remedied. The government, as 
Senator Glass has pointed out, has not one dollar of proprietary interest in the federal 
Description 
Cost 
Bostom Reserve 
Bank 
Amount of Reserves 
Dwnership of 
Reserve Banks 
4’ 
Continued on page 49)