6o

WAR  BORROWING

the  entire  ante-bellum  issue  of  March  31,  1917,  subsequently ­
  withdrew  from  the  role  of  direct  investors
and  confined  themselves  to  the  functions  of  distribution ­
  and  remittance,  with  only  such  temporary  investment ­
  service  as  was  made  necessary  by  administrative ­
  convenience,  by  the  insufficiency  of  the
banks’  subscriptions,  and  by  the  desirability  of  aiding ­
  wider  distribution  of  certificates  among  the
banks.  The  provision  in  the  war  revenue  act  of
October  3,  1917,  effective  December  1,  1917,  imposing ­
  a  tax  of  two  cents  per  $100  or  any  fractional ­
  part  thereof  on  promissory  notes  was  subsequently ­
  held  to  include  collateral  notes  tendered  for
discount  to  Federal  Reserve  Banks.  This  penalty
upon  banking  operations  in  conjunction  with  certificate ­
  borrowing  and  loan  flotations  was  avoided
by  the  use  of  “  resale  ”  or  “  repurchase  agreements,” ­
  whereby  the  Federal  Reserve  Banks  acquired ­
  and  held  temporarily  Liberty  bonds  and  certificates ­
  of  indebtedness  until  taken  over  by  subscribing ­
  banks.  By  the  enactment  of  the  War
Finance  Corporation  bill  on  April  5,  1918,  promissory ­
  bills  secured  by  United  States  war  obligations
were  no  longer  subject  to  stamp  taxes,  and  Federal ­
  Reserve  Banks  instead  of  temporarily  acquiring ­
  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.