Treasury. Moreover, how could a federal reserve bank place adequate pressure on member banks to conserve their strength in time of need, to advance discount rates, to contract loans, etc., if the member banks could "go around" the federal reserve bank and the federal reserve board and get funds directly from the Secretary of the Treasury?

For these and other reasons it was expected that the Secretary of the Treasury, in the exercise of the discretion granted him by the law, would deposit his funds in a large and increasing degree in federal reserve banks. Events pointed clearly in this direction prior to our entrance into the war. Governor Strong of the New York Federal Reserve Bank writes me: "The first deposit of government funds made by the treasury with the federal reserve banks was on September 4, 1915, when certain special deposits were made in a number of banks. Later, arrangements were made to have the collectors of customs and collectors of internal revenues in the twelve federal reserve bank cities deposit all of their funds in the federal reserve banks and as a matter of fact, for a long period prior to the passage of the bond act of April 24, 1917, which altered the status of public deposits, the federal reserve banks had been receiving the principal

revenues of the Government outside of postal funds and had been paying a very large proportion of government checks and warrants. The limitation of this fiscal agency service in the collection of revenues and payment of checks to the twelve federal reserve bank cities was, of course, due to the inconvenience of extending these operations to places where federal reserve banks had not yet established branches. The plan therefore of actively employing the federal reserve banks as fiscal agents had been put into operation some time before the first bond bill was passed and was an important and very active part of the work of the reserve banks almost immediately after the arrangement was established."

The abnormal conditions, however, created by the European War set up obstacles in the way of the Government's discontinuing the use of individual banks as depositaries of government funds. During the early days of the war the heavy demands for funds in America to meet obligations due abroad and the frenzied condition of the money markets throughout the world naturally prevented the inauguration of a policy of withdrawing government funds from individual banks and depositing them in the federal reserve banks. Later the heavy buying in this country by European belligerents discouraged such a

policy. Such was not a time for withdrawing large sums from individual banks. Finally our own entrance into the war and the floating of our huge Liberty loans rendered a transfer of this kind out of the question. In the interest of causing a minimum of disturbance to the money market in the floating of these loans, the Government wisely adopted the policy of keeping the funds widely scattered and to as large an extent as practicable in the banks of the communities where they were received. The result is that in recent times there have been more government funds in individual banks than at any previous period in our history. The deposit of government funds, moreover, is no longer limited to banks that are members of the federal reserve system, since the law under which all government bonds and certificates of indebtedness have been issued since we entered the war provides for the deposit of their proceeds in qualified national banks and state banks and trust companies against certain approved collateral. Numerous nonmember banks therefore have qualified as depositories in connection with our Liberty loans.

What will be the Government's policy in this matter after the abnormal conditions resulting from the war have passed, of course, it is impossible to say at this time.

As fiscal agents of the Government, the federal reserve banks rendered the nation services of incalculable value after our entrance into the war, services in connection with the issuance of our large Liberty loans and our ad-interim treasury notes, with a minimum disturbance to our money markets. They aided greatly in the conservation of our gold resources, in the regulation of our foreign exchanges, and in general in the centralization and efficient utilization of our financial energies. In this time of great emergency the federal reserve system was a bulwark to our national finance. One shudders when he thinks what might have happened if the war had found us with our former decentralized and antiquated banking system. Think of pouring the crisis of 1914-1918 into bottles that broke with the crisis of 1907!

The post-war situation demands in financial matters the maximum of efficiency. If we are to do our part in solving the tremendous financial problems of world reconstruction, we must make every dollar count to the utmost. This means the coordination of all parts of our banking system. It means integration under a responsible central control, and it means administration with sole regard to national welfare. Upon this subject we may conclude this book with the

words of President Wilson, made public October 13, 1917. They apply to the period of reconstruction as truly as they did to the period of the war:

"It is manifestly imperative that there should be a complete mobilization of the banking reserves of the United States. All who are familiar with financial operations must appreciate the importance of developing to the maximum our banking power and of providing financial machinery adequate for meeting the very great financial requirements imposed upon our country by reason of the war. A vigorous prosecution and satisfactory termination of the war will depend in no small degree upon the ability of the Government not only to finance itself, but also to aid the governments associated with it in the war, which must be kept supplied with munitions, fuel, food, and supplies of all kinds. The banking problem involved is one which concerns all banks alike. Its solution does not depend upon the national banks alone, nor upon the state banks. The burden and the privilege must be shared by every banking institution in the country.

"The extent to which our country can withstand the financial strains for which we must be prepared will depend very largely upon the