National banks in Reserve Cities are required to keep on hands an amount of lawful money of the United States equal to 25 per cent. of their net deposits. The reserve requirements of Reserve Banks are also 25 per cent. of their net deposits; but one-half of such reserve may be kept upon deposit with one of the national banks in a Central Reserve City. Country Banks, or all other banks outside of Central Reserve and Reserve Cities, must maintain a reserve of 15 per cent. of their total deposits, three-fifths of which may consist of balances with other national banks located in Central Reserve or Reserve Cities.

Besides actual "lawful money" held in the bank's own vaults the following may be counted as legal Reserve:

Balance due from Reserve Agents.

The Five Per Cent. Redemption Fund on deposit with the Treasurer of the United States for the redemption of circulating notes.

Clearing House Certificates, which represent money deposited in any Clearing House. These certificates circulate only between banks in settlement of debit balances.

United States Note Certificates. Any national bank may deposit with the Secretary of the Treasury, United States Notes in amounts not less than $10,000, and receive therefor Certificates of Deposit payable on demand in sums not less than $5,000. These certificates

are usually accepted by banks in places where deposits are made in settlement of Clearing House balances.

Bank notes and nickels and cents are not counted as reserve.

If the Reserve of any national bank should fall below the required limit it must not make any new loans, declare dividends, or otherwise increase its liabilities, except by discounting and purchasing bills of exchange payable at sight until its legal Reserve has been restored.

The Comptroller of the Currency may notify the bank to make good its impaired Reserve and if the bank fails to comply within thirty days, he may, with the consent of the Secretary of the Treasury, appoint a receiver to wind up its affairs.

NATIONAL BANK CIRCULATION.

The note issuing function of a national bank is little understood by the average layman, and, in fact, is quite a mystery to many bank directors themselves. While it is a subject not essentially connected with the management of a bank, yet a bank director should have a clear conception of the various functions of a bank in order to intelligently administer its affairs. A brief explanation of the note issuing function therefore will not be amiss.

DEPOSITS OF UNITED STATES BONDS AS SECURITY FOR CIRCULATION.

All national banks are required to deposit with the Treasurer of United States government bonds to the amount of at least onefourth of the capital stock of the bank, except in cases of banks having a capital of over $150,000, when the amount must not be less than $50,000. These bonds are held by the Treasurer as security for the bank note circulation issued by national associations. While national banks are compelled to deposit bonds

the par value of which must not be less than one-fourth of the capital, they are not limited to that amount, but may deposit bonds to the amount of their full paid-in capital, against which their own notes may be issued to the extent of the par value of the bonds deposited. United States bonds deposited for security for circulation are held exclusively for that purpose until the outstanding notes are redeemed and cancelled. The bank receives the interest on the bonds thus deposited the same as if they were in their own vaults.

EXCHANGE OF COUPON BONDS FOR REGISTERED

BONDS.

Banks having United States Coupon Bonds on hand and wishing to increase their circulation may exchange them for Registered Bonds, as all bonds deposited to secure circulation must be in registered form. The Secretary of the Treasury receives such bonds, cancels them, and issues in lieu thereof registered bonds of the same amount, and of like interest and maturity. The Comptroller of the Currency may at any time, upon such terms as may be prescribed, permit banks to exchange bonds deposited with him for any other bonds which are legal as security for Circulation, provided such change would not be prejudicial to the interests of the United States.

In order to substitute one issue of bonds for another, however, a resolution authorizing the exchange must be passed by the Board of Directors, a copy of which must accompany an application to the Comptroller of the Currency. The Treasurer's receipt for the bonds originally deposited should accompany the copy of the resolution.

ASSIGNMENT OF BONDS.

Bonds deposited with the Treasurer upon the organization of a bank, and as security for its Circulation, are assigned by the bank to the Treasurer of the United States in trust. The cashier, or some other officer of the bank, must sign a printed transfer which is on the back of each bond. The Comptroller of the Currency then issues his receipt to the bank depositing the bonds, stating that the bonds are so held in trust for the institution as security and for redemption of its Circulating Notes.

EXAMINATION OF BONDS.

Every national bank having bonds on deposit with the Treasurer of the United States as security for its Circulation, must examine the bonds at least once every year and compare them with the corresponding entries on the books of the Comptroller of the Currency. If found correct the bank issues a certificate to the Treasurer, describing the bonds and