Introduction to Finance

Treasury Tax and Loan Accounts 
The Treasury’s primary checkable deposit ac-
counts for day-to-day operations are kept at Reserve Banks. Most cash fl ows into the Treasury 
through Treasury Tax and Loan Accounts of banks, S&Ls, and credit unions (referred to here 
as 
banks
, for short). Employers deposit the income taxes, Social Security, and railroad retire-
ment taxes they withheld in their Treasury Tax and Loan Accounts. They have the option of 
depositing these government receipts with either Reserve Banks or one of the other banks. 
Most employers make their payments to the latter.
The Treasury may also pay income and eligible profi ts taxes into Tax and Loan Accounts. 
Many excise taxes may also be paid either to a Reserve Bank or to a qualifi ed bank with a Tax 
and Loan Account. The proceeds from a large portion of the sales of new government secur-
ities also fl ow into Tax and Loan Accounts. If the Treasury feels its balances at the Reserve 
Banks are too large, it can transfer funds to its accounts at the banks.
Treasury Receipts and Outlays 
The Treasury tries to handle its cash receipts, 
outlays, and balances to avoid large changes in bank reserves. To do this, the Treasury tries 
to keep balances in its accounts at the Reserve Banks relatively stable. Almost all Treasury 
disbursements are made by checks drawn against its deposits at the Reserve Banks. Most 
Treasury receipts are deposited in Tax and Loan Accounts at the various banks, but some 
are deposited directly in the Treasury accounts at the Reserve Banks. The Treasury adjusts 
its withdrawals to keep its balances at the Reserve Banks as stable as possible. This means 
that the funds shifted from banks and the funds deposited directly in Reserve Banks must 
closely correspond to the volume of Treasury checks that are likely to be presented to the 
Reserve Banks.
If the Treasury accounts at the Reserve Banks are kept at a stable level, bank reserves 
are not changed. This is possible only if accurate forecasts are made of the daily receipts and 
spending from the Treasury account so that funds from the Tax and Loan Accounts may be 
shifted in the right amounts at the right time. If the forecasts were not worked out with a reas-
onable degree of success, Treasury operations would cause bank reserves to change a great 
deal over short periods. Despite these precautions, the Treasury’s account frequently does 
fl uctuate by as much as several billion dollars from day to day. The Fed closely monitors the 
Treasury account and takes any changes into consideration in conducting daily open-market 
operations to minimize the eff ect on bank reserves. 
Powers Relating to the Federal Budget 
and to Surpluses or Deficits
The government may also infl uence monetary and credit conditions indirectly through tax-
ation and expenditure programs, especially by having a signifi cant cash defi cit or surplus. 
Budget-making decisions rest with Congress and are usually based on the needs of the gov-
ernment and on political considerations, without giving much weight to monetary and credit 
eff ects. Because of the magnitude of the federal budget, government income and spending 
may be one of the most important factors in determining credit conditions. 

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5.4 Treasury Cash and General Management Responsibilities