Local bankers and financiers freely gave of their time and assistance to the furtherance of the work, and in each case the Federal Re • serve bank proved an efficient basis of organi zation. The several banks, under instructions issued by the Secretary of the Treasury, re ceived subscriptions to the loan and carried on the immense work of detail resulting there from, besides taking charge of the deposits in banks and general banking relationships grow ing out of the operation.
The Federal Reserve Board itself, besides co-operating closely with the authorities of the Treasury Department in efficiently conducting the loan operations of the Federal Reserve banks, further sought to. develop a gen eral policy that would support and aid the banking community at large in taking and dis tributing the new issue of bonds. For this purpose it first established a special rate of 3 per cent per annum for the discount at Federal Reserve banks of the direct 15-day obligations of member hanks secured by the temporary certificates of indebtedness which were issued in order to anticipate the proceeds of the sale of the new bonds.
Carrying further this same policy, it later established a 3% per cent rate of discount at Federal Reserve banks intended for the 90-day paper of ordinary bank borrowers, thereby en abling the member banks of the system to ex tend accommodation to bond buyers in the assurance that they would be able to obtain accommodation from the Federal Reserve banics by discounting these notes. In order to aid the customers of banks not members of the Federal Reserve system, it further authorized the member banks to act as agents for non member institutions by rediscounting the notes of bond buyers who desired to obtain assist ance from their own banks without being obliged transfer their business to member banks. Savings banks and trust companies were assured that the Board would in every way co-operate with them in avoiding shock or disturbance to existing conditions, and that the Federal Reserve system stood ready to ex tend to them reasonable accommodation in the event of necessity resulting from withdrawals made by depositors in order to purchase or invest in government bonds.
On the night of 2 May the Secretary of the Treasury issued to the press a statement giv ing such details of the first °Liberty loan* as had been agreed upon up to that time. At the same time he advised the Federal Reserve banks that he had decided to use them as the central agencies for handling the issue. On 10 May the full prospectus was telegraphed the banks to be made public on Monday, 14 May. The subscriptions were to close on 15 June, so that the Federal Reserve banks had but one month in which to perfect an organization for the sale of the propor tion of $2,000,000,000 of bonds Allotted to the respective districts, and for the handling of details of the subscriptions. The work ing out in 20 days of a prospectus cover ing so large an issue, without a precedent in this country to guide, and the placing of $2,000, 000,000 of bonds oversubscribed approximately a billion in a month's time, was a remarkable achievement, but the second loan operation, carried through in October, resulted in the sale of nearly four billions of bonds, the amount offered being three billions, and the total sub scriptions nearly five billions.
Not only was there no disturbance to inter est rates during either loan operation beyond the necessarily gradual increase which follows upon the withdrawal of such great quantities of funds from the market, but the process was accomplished with great technical ease. In former times under the old sub-Treasury system, the withdrawal of subscribed funds in various parts of the country, or even the op erations incident to the transmission of these funds from one part of the country to another, created unavoidable and serious difficulties, due to shortage or plethora of money at various points, while exchange rates and conditions were seriously disturbed. All this has been avoided through the operation of the central gold settlement fund, conducted under the supervision of the Federal Reserve Board at Washington. By the use of this fund, the thousands of millions of dollars involved in current government operations have been re ceived in the form of local bank credits, and the proceeds have been transferred to the point where government payments had to be made. As these payments have been effected, local banks at those places have increased their de posits and the proceeds have again been grad ually shifted to different parts of the country where production and manufacture were in progress and where payments for material and labor had eventually to be liquidated.
The Federal Reserve system has thus suc ceeded in its first and most immediate objects —the establishment of a co-operative or cen tralized system of united bank reserves with rediscount arrangements designed for the relief of hard-pressed banks and for the furnishing of an elastic currency. It has further supplied the demand for an efficient and nation-wide system of check collection. The establishment of a genuine discount market is necessarily a much slower process and time will be required for its complete success. The advent of the European War and the entry of the United States into it as a participant have naturally tended to retard the normal development of the system and in some ways to divert it into unexpected channels. The growth and experi ence it is obtaining in the financing of the war will, however, serve it in good stead when the time comes for a more normal development of its powers. Meantime, it has proved itself the country's banlcing mainstay and support in the necessary operations incident to the financing of the struggle.