Although there were between 7,50o and 7,600 national banks in active operation at this time, and 45 national currency associa tions organized, the membership of these associations was but 2,197, and of that number only 1,363 took out additional circula tion. All the states of the Union except Maine and Wyoming were included in one or more of the currency associations, but in nine of the states not a single national bank applied for additional circulation, and of the authorized issue 8o per cent was for banks in the reserve city associations, the amount for New York City banks being The tax collected on this additional circulation for the fiscal year 1914-1915, which practically covers the period of the issue, was $2,977,066.73. As the tax was not applied until the notes were actually put into circulation, many banks took out notes for which they had no immediate need and held them in their vaults against emergency.
Conversion and Refunding of Bonds under the Federal Reserve Act The Federal Reserve Act repealed the provisions of Section 5159 of the Revised Statutes of the United States and of the Acts of 1874 and 1882, and any other provisions of existing statutes that required national banks to deposit a stated amount of bonds with the United States Treasurer before being authorized to commence banking business.
The Federal Reserve Act also provided for the retirement of the national bank circulation, and for the sale and transfer to the federal reserve banks of the United States bonds securing circu lation. A member bank desiring to retire the whole or a part of its circulating notes is empowered at any time during a period of twenty years after December 23, 1915, to file with the Treasurer of the United States an application to sell for its account, at par and accrued interest, the United States bonds securing the circula tion to be retired. The Treasurer is required to furnish the Federal Reserve Board, at the end of each quarterly period, with a list of such applications; and the board may in its discretion require the federal reserve banks to purchase such bonds from the banks whose applications have been filed with the Treasurer at least ten days before the end of the quarterly period at which the board may direct the purchase to be made. But the federal reserve banks cannot be required to buy an amount to exceed $25,000,000 of such bonds in any one year, this amount including all such bonds which they may have bought in the open market. The board is required to allot to each federal reserve bank such proportion of these bonds as the capital and surplus of the bank bear to the aggregate capital and surplus of all the federal reserve banks. When such sales are made the member bank assigns and transfers the bonds to the federal reserve bank purchasing them; the reserve bank pays the purchase price in lawful money to the United States Treasurer, and the Treasurer in turn pays the sell ing bank any balance due after deducting a sufficient sum to redeem its outstanding notes secured by such bonds. When re
deemed these notes are canceled and permanently retired. The federal reserve bank purchasing such bonds is permitted to take out an amount of circulating notes equal to the par value of the bonds. These notes, known as "federal reserve bank notes," have the same tenor, qualities, basis, and method of issue and redemption as national bank notes, except that they are not limited to the amount of the capital of the federal reserve bank issuing them.
The Federal Reserve Act went further and provided for the conversion of the 2 per cent bonds bearing the circulation privi lege, but not having any circulation outstanding at the time, into 3 per cent securities without the circulation privilege. Upon application of any federal reserve bank, approved by the Federal Reserve Board, the Secretary of the Treasury may issue, in ex change for the United States 2 per cent gold bonds bearing the circulation privilege but against which no circulation is outstand ing, r-year United States 3 per cent gold notes without the circula tion privilege, to an amount not to exceed one-half of the 2 per cent bonds so tendered for exchange, and 3o-year 3 per cent gold bonds without the circulation privilege for the remainder of the 2 per cent bonds so tendered. In obtaining the i-year notes, however, the federal reserve bank enters into a contract with the Secretary of the Treasury to purchase, if the Secretary so re quests, from the United States for gold, at the maturity of these I-year notes, an amount of I-year notes not to exceed those originally received from the Secretary in exchange for the 2 per cent bonds, this obligation to buy notes at each maturity of the previous issue continuing for a period not to exceed 3o years. The Treasury notes so issued are to run not longer than one year, are to be issued at par, in coupon or registered form, in denomina tions of $ioo or multiples thereof, are to bear 3 per cent interest payable quarterly, redeemable at maturity in gold, and are exempt from payment of all taxes of the United States (except as provided by this act) and of state, municipal, or local taxes. The bonds, on the other hand, are payable in 3o years, bear 3 per cent interest, and are like the United States bonds without the circula tion privilege. Upon application of any federal reserve bank, approved by the board, the Secretary may issue at par such 3 per cent bonds, to take up the r-year gold notes. The Secretary may convert any amount of 2 per cent bonds that he deems best, and the establishment of such amount is a matter to be annually determined in accordance with the requirements of the situation.