Various collateral is used by member banks in their borrowings from the Federal Reserve bank. These borrowings are of two kinds, those classified by member banks as bills payable and those called rediscounts. Under the bills payable arrangement commercial or agricultural paper, Liberty Loans supported by their collateral, or Liberty Bonds themselves are pledged as collateral to loans at the Reserve bank. The period under Federal Reserve regulations has been fifteen days. A note is given by the member bank signifying that it will repay its obligation at the end of fifteen days. During the stringency of 1921 at the expiration of the fifteen-day period new notes were frequently given so as to extend the loan. To illustrate the entries for such a transaction, assume that $10,000 of Liberty Loans secured by Liberty Bonds are delivered to the Federal Reserve bank as collateral for a fifteen-day loan. As the Reserve banks always take their interest in advance, the entries would be as follows:

Specimen Reconcilement Statement

On maturity these entries would be reversed and the collateral would be returned. Of course, there would be no credit to "interest paid" because that item was the cost of borrowing. Some banks prefer to omit entirely the first entry just given, but it is considered better practice to use it.