The Redemption Fund Immediately after a bank receives its first circulation from the Comptroller it is required to deposit with the Treasurer of the United States, as a redemption fund, a sum of lawful money equal to 5 per cent of its circulation. Remittances for credit to the 5 per cent fund may be made in several ways: 1. By check drawn on New York, payable to the Federal Reserve Bank of New York, collectible through the clearing house (of which the reserve bank is a member), forwarded to the reserve bank with instructions to deposit the amount to the credit of the 5 per cent fund and to forward the certificate of deposit to the Treasurer of the United States.
2. By the deposit of lawful money with any of the federal reserve banks or branch banks, on account of the 5 per cent fund. Banks not located in cities having a federal reserve bank or branch bank can request their correspondents to make the necessary deposits. The certificate of deposit must be for warded immediately to the Treasurer of the United States, as no credit is given until he receives such certificate.
3. By sending direct to the Treasurer of the United States, Washington, D. C., the proper amount of lawful money. This package, if specifically marked "For the credit of the 5 per cent fund," will be transmitted by express companies at government rates. If the bank does not pay the express charges, the Treasurer will pay them at government rates and deduct the amount from the bank's remittance.
The term "lawful money" includes every form of money which is endowed by law with the legal-tender quality. There is a diversity of opinion as to whether silver certificates can be used for this purpose.' The bank's contributions to the redemption fund cannot be counted as part of its reserve against deposits, nor can the bank count as reserve any amounts thus carried in excess of the min imum required; the redemption fund is not in the proper sense a bank reserve against notes, as the Comptroller uses it in re deeming for the most part only worn and mutilated notes pre sented to him; and it is not in any sense a reserve against deposits as it is not available for paying depositors. The amount of the fund is calculated on the amount of notes issued to the bank, no deduction being made even though all or part of such notes be lost, stolen, or put into circulation without the signature of the president, or vice-president, and of the cashier, or held in the vaults of the bank.
Method of Note Redemption The notes must be presented to the Treasurer in sums of $1,000 or any multiple thereof. Upon receipt they are sent to the National Bank Redemption Agency of the Treasurer's office, and are there sorted and redeemed. A bank sending notes should
first have them assorted by denominations and enclosed in paper straps. No straps should contain more than ioo notes, and each package should be marked with the amount of its contents. A memorandum giving the amount of each denomination of notes, the total amount in the package, the address of the sending bank, and the disposition to be made of the proceeds, should be enclosed with each package and a letter of advice sent by mail. All pack ages are sent to the "Treasurer of the United States, Washington, D. C., " "collect, " under special government express rates.
The Treasurer on redeeming the notes charges them to the various issuing banks and notifies such banks on the first day of each month, or oftener, of the amount of their notes so redeemed and the corresponding reduction of their 5 per cent funds. When a bank receives such notification it must immediately deposit with the Treasurer lawful money equal to the amount of its notes redeemed, and keep the 5 per cent fund intact. If the amount redeemed does not exceed the 5 per cent fund of the bank, the notes fit for circulation are promptly forwarded to the issuing bank by express, and any notes unfit for circulation are delivered on the same day to the Comptroller of the Currency. If the bank's 5 per cent fund is overdrawn by such redemption, an amount of notes equal to the deficit is held by the Treasurer until the bank makes good the fund by the deposit of lawful money. As soon as this is done, all the fit notes are returned to the issuing bank and the remainder delivered to the Comptroller for destruction and for the issuance of new notes. Every bank is required by law to have in Washington a legal representative to witness the destruc tion of the mutilated currency, which is now done by maceration.
Withdrawal of Circulation Should a bank reduce its circulation, either by depositing law ful money or by permitting notes to be redeemed by the Treasurer and destroyed and asking for no new notes to take their place, the amount of the 5 per cent fund may be correspondingly re duced. In such case the Treasurer will, upon receiving the proper advice, surrender any excess in the 5 per cent fund that may result from such destruction or reduction of notes; but he will not so release a portion of the 5 per cent fund until the details of the re duction of circulation are completed by depositing lawful money and withdrawing the bonds.