To continue the discussion of the items shown in the statement on pages 2 75 and all the federal reserve banks are now provided with suitable building sites (item I I) and plans are under way for the erection of buildings. It is obviously desirable for these banks to have permanent and commodious quarters, alike for the efficiency of their service and for their prestige.
The federal reserve banks act as clearing houses for the banks of their respective districts, and, through the gold settlement fund, for the banks of the whole country. The operation of this fund as part of the federal par collection system will be described later. The reserve banks accept the items for collection and defer the availability of the proceeds until sufficient time has elapsed for collection to be made. At any one time, therefore, the un collected items (item i 2) on hand are a resource and the deferred availability (item DO is a liability.
Liabilities of the Federal Reserve Banks The paid-in capital of the reserve banks (item is) amounts to 3 per cent of the capital and surplus of the member banks. The surplus of the reserve banks (item 16) now exceeds their capital and this item will continue to increase, for io per cent of the net earnings are converted to surplus after the surplus of a reserve bank reaches ioo per cent of its capital. The other 3 per cent of the capital subscription remains as a contingent asset of the bank.
The deposits of the reserve banks are liabilities to the govern ment (item 17) and to the member banks for reserve account (item i8), and to the banks which have sent collection items whose availability has been deferred (item x9). The reserve of a mem ber bank consists of the deposit rights against the federal reserve bank. The balance of a member bank with its reserve bank is divided into "account current" and "reserve account," and transfers from one account to the other can be made at the mem ber's instance.
The note liabilities are of two classes: the federal reserve notes (item 21) and the federal reserve bank notes (item 22). The nature of these items is discussed in the following chapter.
Fiscal Agents of the United States The Federal Reserve Act provides that moneys held in the general fund of the United States Treasury, except the 5 per cent redemption funds against national bank notes and federal reserve notes, may, upon the direction of the Secretary of the Treasury, be deposited in federal reserve banks, which banks, when required by the Secretary, shall act as fiscal agents of the United States. The revenues of the government in whole or part may be so de posited and disbursements made by checks drawn against such deposits.
On January 1, 1916, the Secretary began to use the reserve banks as depositories. He commenced by transferring part of the government deposits from banks in federal reserve cities to the reserve banks. Not until the United States began the sale of treasury certificates of indebtedness and Liberty Loan bonds, however, did this item become important or considerable. In announcing the first Liberty Loan in April, 1917, the Secretary also announced that each federal reserve bank would be con stituted a central agency in its district for the organization of a bond campaign, for receiving subscriptions and payments, making deliveries, and managing the necessary details. Through these duties the reserve banks were brought into intimate contact with the Treasury and with the member banks of their districts, and together they proved invaluable agents of the Treasury in war financing.
The duties of a fiscal agent are numerous. They include the handling of all details connected with the sales, subscriptions, allotments, redemptions, conversions, and distribution of govern ment loans and certificates of indebtedness; the collection of all bond and certificate payments, and the redeposit of these funds with designated depositories, whence they are withdrawn upon request of the Treasury; the payment of due coupons; the opera tions connected with the treasury savings certificates, the war savings stamps, and the thrift stamps. The expense of the fiscal agency function is kept separate from the other expenses of the reserve bank and is reimbursed from the Treasury.
The average government daily balance with the depositories during 1919 was $738 million; the number of depositories desig nated by the Treasury through the federal reserve banks was 7,632 on December 31, 1919; as security for these deposits, the federal reserve banks received and cared for the collateral of $1,338 million. During the year the reserve banks handled 33 million government checks, amounting to $14.5 billion. The government balance in the federal reserve banks averaged $99 million, though it fluctuated widely because of the constantly changing requirements of the Treasury and the seasonal character of the collections of the internal revenues. By means of inter district settlements through the gold settlement fund, the Treas ury is able to leave the funds with the designated depository banks throughout the country until actually required, transfer being made by telegraph to federal reserve banks in cities where government disbursements are made.