126

WAR  BORROWING

The  measures  taken  have  thus  been  of  two  general ­
  kinds:  (A)  those  designed  to  enable  the  lending ­
  banks  to  make  the  necessary  advances  to  the
Treasury  without  corresponding  curtailment  of  ordinary ­
  business  accommodations,  and  (B)  those  designed ­
  to  permit  (i)  the  withdrawal  of  government
deposits  and  (ii)  the  payment  of  subscriptions  to
the  Liberty  Loans,  without  strain  upon  the  banks’
resources  and  upon  the  general  money  market.  In
the  first  group  have  been  the  redeposit  of  borrowed
funds,  payment  by  credit  and  exemption  of  government ­
  deposits  from  reserve  requirements.  In  the
second  group  have  been  the  rediscount  facilities  of
the  Federal  Reserve  Banks,  extended  and  modified
to  meet  the  new  exigency.  The  nature  and  growth
of  these  policies  may  now  be  briefly  reviewed:
(A)  One  of  the  important  reforms  which  the
Federal  Reserve  act  of  1913  was  designed  to  accomplish ­
  had  to  do  with  the  deposit  of  government
funds.  Many  of  the  advocates  of  the  new  system
“  believed  that  the  practice  of  depositing  government ­
  funds  in  thousands  of  banks  scattered  over
the  country  was  a  vicious  and  expensive  one  ”  and
desired  that  the  new  law  should  “  make  the  federal
reserve  banks  the  depositories  of  practically  all
general  funds,  dispensing  with  the  use  of  individual
banks  as  depositories  and  ultimately  with  the  independent ­
  treasury  system.”  13  As  passed,  the
measure  vested  the  Secretary  of  the  Treasury  with
full  discretionary  powers  in  this  respect.  But  it
was  expected  that  this  officer  “  in  the  exercise  of
13  Kemmerer,  “  The  A  B  C  of  the  Federal  Reserve  System  ”
(Princeton,  1918),  p.  83.