128

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  designated ­
  depositaries,  regardless  of  the  source  of  the
funds  deposited  —  without,  however,  such  exemption ­
  applying  to  government  deposits  in  the  Federal ­
  Reserve  Banks. 15
The  occasion  for  redepositing  borrowed  funds
did  not  present  itself  in  conjunction  with  the  antebellum ­
  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  procedure ­
  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  deposits ­
  by  existing  law,  and  to  bear  such  rate  of  interest ­
  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.