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R&S 216

Board Statements on Easy Money, 1929 - 1940
(largely from Annual Reports)

“ ...At the end of October the drop in security prices
was acoompanied by a subsidence in the demand for credit from the
stook exchange; a drastic liquidation of security loans} outflow
of gold; and an easing oredit policy by the Federal reserve
system... In the latter part of the year large purchases of
aooeptances by the Federal reserve banks* followed in tho last
two months by purohases of Government securities, enabled member
banks to reduce their borrowings, and by tho end of the year
disoounts wero in the smallest amount for noarly two years; 13x18
low level of indebtedness of member banks was an important factor
in the easier condition of the money market...
"During the last three months of the year the net liquida­
tion of loans on securities, by banks and by other lenders, may
be estimated in the aggregate at $3,900,000,000... This liqui­
dation was accompanied by a reversal of the credit policy of the
Federal reserve system. Over a period of about two years in­
crease in the volume of credit utiliEed in the security market
had been the principal consideration determining the firm money
policy of the system; and -the diminution in the demand for such
credit was followed by a reversal of the system's policy. Dur­
ing the first week of liquidation, when the member banks were
taking over in large volume loans previously carried by nonbank­
ing lenders, the reserve banks bought $150,000,000 of United
States Government securities, thereby reducing for member banks
tho necessity of borrotfing at the reserve banks. The reserve
banks continued this policy of open-market purchases throughout
November and tho larger part of December, with the oonsequenoe
that member banks were able to meet the seasonal demand for
currency, as well as considerable withdrawals of gold for export,
and at tho same time to decrease their indebtedness to the re­
serve banks... Reserve system policy, therefore, during the last
two months of the year, in oontrast to the two preceding years,
was oxorted in the direotion of easier money conditions.
"This reversal of policy, made possible by diminution in
the demand for credit in the security markets, appeared desir­
able also in view of the sharp reduotion in business activity.
Industry, which had been operating in record volume up to June,
and notwithstanding some recession had remained at an exception­
ally high level in the following four months, declined abruptly
in November and still further in December... Liquidation of

bank credit in tho last two months of 1929 and the easing
policy of the resorve system were refleotod in a deoline
of money rates in tho Unitod States, and particularly of
open-markot rates on call and short-time money."
(Annual Report for 1929, pp. 1, 10-12.)

"Tho year 1930 was marked by reduoed demand for bank cred­
it from trade and industry and by decreasing commodity prioos
and money rates, all characteristic of a period of declining
activity in business* In those circumstances the Federal re­
sorve system pursued a polioy of monetary ease. This policy
was expressed through the purchase at intervals of additional
United States Government securities and in progressive reduc­
tions of roservo bank disoount and acceptance rates...
"While discounts for all member banks wore at a low level
throughout the year, banks in tho finanoial centers wore practioally out of dobt during a considerable part of the year.
This low level of indebtedness at the resorve banks was an in­
fluence in the direction of easier money conditions, whioh
wore reflected in lower rates both on open-markot paper and
on loans made by banks to their customers*"
(Annual Report for 1930, pp. 1, 3*)

"During the first nine months of the year the Federal
reserve system pursued a polioy of further easing credit
conditions through reductions of rates and through openmarket operations. In the autumn of the year, when, following
upon the suspension of gold payments in England, the system
was subjeoted to heavy withdrawals of gold from abroad and of
currency for hoarding in this country, it met these demands
freely by discounting paper for member banks and by the pur­
chase of acceptances in the open market."
(Annual Report for 1931, p. 1.)


"During 1932 the Federal Reserve System continued to
pursue the policy of monetary ease which it had followed sinoe
the boginning of the depression. This polioy was expressed
through the purohase of United States Government securities

in the open markot and through the roduction of rates charged
for discounts and for acceptances••• After tho passage of tho
Glass-Stoagall Act on F e b ru a ry 27, 1932, tho Federal Reserve
System pursuod a policy of large-soalo open-market purchases
of United States Government obligations, which oarried thoir
total to $1,850,000,000 on August 10, a lovel that was main­
tained throughout tho rost of tho year*..
"The increase in excess reserves of member banks after
February 1932 was accompanied by further easing of the money
markfct... Money rates usually tend to decline during a depres­
sion, because the low level of business activity results in
diminished demands on the commercial banks for current finan­
cing and in an increase in their reserves through the return of
currenoy from circulation. During the depression that began in
1929, however, member banks were under the neoessity of meeting
foreign demands for gold and domestic demands for currency,
both developments which would have tended toward the tighten­
ing of conditions in tho monoy market, had it not been for the
fact that tho Federal Reserve System through purchases of
United States Governmont securities enabled member banks to
moet these demands and at tho samo time to reduoo their in­
debtedness to the Reserve banks and to build up a considerable
volume of reserves in oxcoss of legal roquiromonts• At the
end of 1932 short-term monoy rates wore at record low levels,
but low rates did not oxtend to tho long-term markets, where
yields on long-torm issues, oxcopt those of the Unitod States
Government; continuod high and flotations of new capital issues
wore small."
(Annual Report for 1932, pp. 10-11, 15-16.)

'•Throughout tho poriod of tho depression the Federal Rosorvo System lent its support to efforts to oountoract defla­
tionary forces said to facilitate expansion of business activity.
With this end in view the System pursuod a polioy of reduoing
its discount and opeu-mrkot rates and of purohasing United
States Government securities in the opon markot, thereby plac­
ing a large volume of reserve funds at tho disposal of membor
“Open-market operations in 1933 may be described as having
been conducted primarily for the direot purpose of building up
exooss reserves of tho membor banks with a view to further
easing conditions in tiie money markot and encouraging the banks
to adopt more liberal lending and investing policios and so to

- 4 -

facilitate th© recovory of business*«* It is diffieult to
say ■what the course of tho depression would have been had
the Federal Reserve System not pursued a policy of liberal
open-market purchases, which at first helped the banks to
meet extraordinary demands upon them and later to build up
excess reserves to an unprecedented levol. This policy,
together with the concurrent roduotion in discount rates,
was an important factor in tho goneral decline of money rates
to extreme low levels* Commercial paper, which at th3 open­
ing of 1930 was at a 5 porcont level, had declined by the end
of 1933 to 1-1/2 per cent* Bankers’ acceptances declined
from 4 porcent to five eighths of a percent* The oall monoy
rate doolined from 6 to 1 percent* The rate on Treasury
certificates doolined from 3-1/2 to one fourth porcent, and
average rates charged by barks in leading cities to thoir
commercial customers declinod from about 6 to 4-1/2 porcont...
review of open-market operations by the Federal Re­
sorve System during the 4 yoars indicates, therefore, that the
placing of reserve funds in tho market through the purchase
of Unitod Statos Govornment securities has boon an effective
moans of preventing exceptional demands upon the member banks
from tightening the credit situation and that these funds
have been a powerful means toward the establishment and main­
tenance of ease in the short-tom money market* Although the
abundant credit providod was not effectively employed by bus­
iness, it would appear that the maintenance continuously of
a substantial volume of excess reserves through open-market
purchases helped to arrost a powerful deflationary movement
and created conditions propitious to business recovery."
(Annual Roport for 1933, pp. 17-18, 20-21.)

"Developments in 1934 wore all in tho direotion of easier
credit conditions* The expansion in excess reserves during
tho year, which was caused ohiefly by gold imports, was not
accompanied by an increase in bill or security holdings of the
Federal Reserve banks that could be sold for the purpose of ab­
sorbing the excess reserves, if that should become desirable*
With this limitation on the System* s power to reduce member
bank reserves by the sale of assets in the open market, the
System's ability to restrict credit expansion, if it should
become excessive, rests chiefly on new powers conferred upon
it by recent legislation* Among these are the power in an
emergency and with approval of tho President to raise reserve
roquiroments of member banks, provided in tho act of May 12,

- 5 -

1933} authority to restrain speculativo activities of member
banks under difforent provisions of tho Banking Aot of 1933}
and control of margin requirements on soourity loans by
brokers and by banks, granted by tho Securities Exchange
Act of 1934."
(Annual Report for 1934, pp. 1-2.)

"Federal Reserve policy during 1935 continuod to be
diroctod toward monetary ease...
"In viow of tho largo and growing volume of oxcoss rosorvos,
no further action dirootod toward obtaining easier monoy con­
ditions was noccssary during 1935. On tho contrary, tho con­
tinued growth of oxcoss rosorvos raisod the question of taking
measures to roduco Idiom*..
"In the latter part of the year the Board gave frequent
consideration to probable future changes in the volume of exoess reserves, to possibilities of excessive credit expansion
on the basis of these reserves, to methods of reducing the
reserves and controlling credit expansion, and to the proper
timing of such action. After a meeting of the Board of Governors
with the Federal Open Market Committee on December 17 and 18,
at which these matters were considered, the Board and tho Com­
mittee issued tho following statement:

Tho Board of Governors of tho Federal Reserve System
and the Fodoral Open Markot Committee have given extended
considoration to the gonoral business and credit situation
and to the recommendation of tho Federal Advisory Counoil
and are of tho opinion:
1. That oontinuod improvement has boon made in
businoss and financial conditions but that tho country
is still short of a full rooovory*
2* That tho primary objoctivo of tho System at tho
prosont time is still to lend its efforts to a furtherance
of rocovory*
3* That thoro is at tho prosont time no evidence
of ovarexpansion of businoss activity or of tho uso of
business ofrodit•

- 6 -

4« That the present volume of member bank reserves,
which have been greatly inoreased by imports of gold
from abroad, continues to be excessive, far beyond the
present or prospective requirements of credit for sound
business expansion*
Therefore, the special problem created by the
continuing exoess of reserves has had and will oontinue to
have the unremitting study and attention of those charged
with the responsibility for crodit policy in order that
appropriate action may be taken as soon as it appears to
be in the public interest•"
(Annual Report for 1935, pp. 2-3«)

"In order to change a part of the excess reserves into
required reserves and thus to eliminate the possibility of this
part of the reserves becoming the basis of an injurious credit
expansion, the Board on July 14 decided to exorcise its power
under tho Banking Act of 1935 to raise membor bank reservo
requirements...<These excess reservos have resulted almost
entirely from the inflow of gold from abroad and not from the
System's polioy of encouraging full recovery through the crea­
tion and maintenance of easy money conditions. This easy monoy
polioy remains unchanged and will bo continued...
"'The present is an opportuno time for the adoption of
such a measuro. VJhilo tiiero is now no excessive oredit ex­
pansion, since tho excess resorvos have not been utilized,
later action when some member banks may have expanded their
loans and investments and utilized their excess rosorvos
might involve tho risk of bringing about a severe liquidation
and of starting a deflationary cycle. It is far bettor to
sterilize a part of those superfluous reserves while they are
«till unused than to permit a credit structure to be erocted
upon them and then to withdraw the foundation of tho structure...
"’In the light of recont oxperionce and in view of tho fact
that after the increase in requirements goes into effect member
banks will still have approximately $1,900,000,000 of excess
resorvos, the Board is convinced that this action will not af­
fect easy monoy conditions now prevailing. It does not consti­
tute a roversal of tho ersy money policy which has been pursued
by the System since tho beginning of the depression. Rather
it is an adjustment to a chan god reserve situation brought
about through the extraordinary inflow of gold from abroad.

"*Tho prevailing level of long-time intorost rates, which
has boon an important factor in tho revival of tho capital mar­
kot, has boon duo principally to the largo accumulations of idlo
funds in the hands of individual and institutional investors.
The supply of investraont funds is in oxcoss of tho demand. Tho
incroaso in resorve requirements of member banks will not dimin­
ish the volume of deposits held by those banks for thoir custom­
ers and will, therefore, not diminish the volume of funds availablo for investment. Tho maintenance of an adoquato supply of
funds at favorable ratos for capital purposes, inoluding mort­
gages, is an important factor in bringing about and sustaining
a lasting recovery.*”
(August 1936 Rrlletin, pp. 613-614.)
"During 1936 the Federal Reserve System, as reconstituted,
continued to pursue the policy of monetary ease which had been
in effect since the beginning of the depression, and money
was available in abundance at the lowest rates of interest the
country has known... In July 1936 and again in January 1937
the Board of Governors took action to increase reserve require­
ments and thereby to eliminate a largo part of tbo excess re­
serves that had accumulated. The combined effect of these two
actions of tho Board was to double tho reserve requirements
of member banks. Thus tho power conferrod upon the Board
by tho Banking Aot of 1985 to increase reserve requirements
for tho purpose of provonting injurious crodit expansion was
fully utilized.
" .. .Monoy ratos declined almost continuously from 1929
to 1935, with briof interruptions in tho autumn of 1931, when
England and a number of othor countries suspended spocio pay­
ments and gold was loaving this country in large volume, and
again during tho banking crisis in 1933. From the middle of
1934 to the end of 1936 rates in the open market on short­
term paper were extremely low and showed little change, and
rates charged customers by banks in leading cities and bond
yields continued to decline in 1935 and 1936.
"Rates on bankers' and Treasury bills were generally
below l/4 of 1 percent from the middle of 1934 through 1936.
The lowest level reached by bankers' acceptances before 1930
was 2 percent in 1924. The rate on call loans with stock
exchange collateral, until recent years the most important
open-market rate, declined to l/4 of 1 percent in 1935, but
was fixed in May 1936 at 1 percent. There were only six scat­
tered years in tho period from 1890 to 1930 when this rate
averagod below 2 percent and in only one month did it average
loss than 1 percent. Open-market commercial paper, which
for more than half a century has boen a popular medium for

investraont of short-tom funds by country banks, was at a
rate o f -3/4 of 1 porcent from oarly in 1935 until early
in 1937. The lowost quoted commercial paper rate prior to
1930 was 3 peroont in 1924«
"Prioes of bonds continued to rise in 1936, and yields on
high-grade long-term bonds, which were at tho lowost levels
sinco tho oarly years of this century, declined further*
Long-term United States Government bonds sold in the latter
half of 1936 on a yield basis of less than 2-1/2 percent*
The lowest level reached by these bonds in the twenties was
3-l/4 per cent. Pre-war rates are not comparable because
most United States Government bonds then bore the circulation
privilege, which was at that time of considerable value. The
highest-grade corporate bonds sold in 1936 on a yield basis of
3 to 3-1/4 percent, compared with a low level for the twenties
of 4 to 4-1/2 porcent and with 3-1/4 to 3-1/2 porcent in tho
years around the turn of tho oontury.
"Low money rates prevailing in recent years wero the result
of ■the large supply of funds seeking profitable use and the
small demand from accoptablo borrowers. Excess reservos of bonks
woro tho principal factor of supply in tho short-torm markot end
woro also an important influonoo in tho decline in long-term
ratos. Tho abundant supply of available funds, togothor with
tho small demand for loans, encouraged banks to buy large
amounts of socuritios, particularly United States Government
obligations, and bank holdings of socuritios woro tho largost
on record not only in total amount but also in proportion to total
bank assets.
wThe abundant supply of investment funds hold by others than
banks was also a f aotor in the low yields on long-term obliga­
tions. Insurance companies, othor institutional investors,
corporations, and individuals havo in recent years held a
largo volume of idle doposits awaiting investment. Continued
businoss rocovery and improved corporate earnings to some
extent oncouragod active investment of those funds. Many
investors, holding idlo funds awaiting tho return of what they
would consider as normal interest rates, gradually began to
put funds to use at prevailing rates.”
(Annual Report for 1936, pp. 1, 29-30.)

"During 1937 tho principal objectives of Federal Reserve
policy wore to assure tho continued availability of bank crodit

at low ratos for ourront roquiromonts of businoss and at tho
scuno time so to rogulato tho available volume of mombor
bank resorvos as to avoid tho likolihood of injurious crodit
expansion in the futuro.”
(Annual Report for 1937, p. 1.)
Inoroaso in rosorvo roquiromonts
"On January 30 tho Board announood a further inoroaso in
the reserve roquiromonts of mombor banks... ’This action com­
pletes tho uso of tho Board’s powor undor tho law to raise
rosorvo roquiromonts to not raoro than twice tho amount prescribod
for mombor banks in section 19 of the Pedoral Rosorvo Act.
?'By its prosont action tho Board eliminates as a basis of
possible crodit expansion an estimated $1,500,000,000 of oxcoss
rosorvos which aro superfluous for tho prosont or prospoctivo
noods of commorco, industry, and agrioulturo and which, in tho
Board's judgment, would rosult in an injurious credit expansion
if permittod to bocomo tho basis of a multiple expansion of
bank crodit. The Board ostimatos that, aftor tho full inoroaso
has gono into offoct, mombor banks will have oxcess rosorvos
of approximately $500,000,000, an amount amplo to finance fur­
ther rocovory and to maintain easy monoy conditions* At the
same time tho Fodoral Reserve Systom will be placod in a posi­
tion whore such roduction or oxpansion of mombor bank resorvos
as may bo doomed in tho public intorost m y bo effectod through
open-market operations, a moro floxiblo instrumont, bettor
adaptod for keeping tho reservo position of mombor banks
currently in oloso adjustment to credit needs...
'"It is the Board's expectation that, with approximately
$500,000,000 of oxcess resorvos romaining with the banks,
crodit conditions will continue to bo oasy... Tho Board's
action doos not roduco tho largo volumo of existing funds avail­
able for investment by depositors, and should not, therefore,
oocasion an advance in long-tom intorost ratos or a rostrictivo policy on tho part of institutional and other invostors
in mooting tho noods for sound businoss, industrial and agri­
cultural orodit.'"
(February 1937 Bulletin, pp. 95-97.)

Autumn easing
"Early in August, total oxcess reserves of mombor banks
woro in the neighborhood of $700,000,000, but, owing to sub­
stantial withdrawals of balances by country banks, oxcoss

- 10 -

rosorvos at Now York City banks had declined to below
$50,000,000 as comparad with $200,000,000 in May. It appoarod, thoroforo, thr.t tho New York banks night oxporicnco sono
pressure in mooting tho autumn domnds for curronoy and for
"To avoid tho dovelopmont of such prossuro, casing action
in tho noncy m r k o t was undortalcon. Tho Board of Governors
in Soptonbor roquestod tho Socrotary of tho Treasury to roloaso
$300,000,000 from tho inactive gold account, and at tho sane
tine tho Rosorvo Systom anno vineod that it would stand roady to
buy additional Government socuritios in order to meet tho ex­
pected soasonal domnds on tho banks for currency and crodit
during the coming weeks. Tho Board stated that the purpose of
this action was to maintain at mombor banks on aggro gate volume
of oxcoss resorvos adoquato for tho continuation of the Systems
polioy of monetary ease for tho furtherance of economic recovery*
Tho aotion was in conformity with tho usual polioy of
tho Syatoti to faoilitato tli; f i r c . n o .. orderly
marketing of orops and of autumn trade, and together with tho
roduction of discount rates at sovoral Federal Resorve banks
it placed tho mombor banks in a position to moot roadily any
increased soasonal demands for crodit and curronoy and contri­
buted to the continuation of oasy crodit conditions•••
"’The Board's approval 4of roduotion in discount ratos-)
was basod upon tho view that tho roduotion of discount rates
at this timo would assist in carrying out the System’s polioy
of monetary oaso and make Federal Reservo bank crodit roadily
available to riombor banks for tho accommodation of commerce,
businoss and agriculturo, without encouraging member banks
to borrow outside of thoir districts or to liquidato thoir
portfolios in order to be in a position to moot tho needs of
prosont or prospective borrowers *.*
"’It is tho Board’s view, thoroforo, that at this timo
tho Federal Rosorvo Systom can best dischargo its public re­
sponsibility and promote tho continuance of recovery by making
it possible for mombor banks to obtain accommodation from
Federal Reserve banks at ratos which will oncourago them to
omploy thoir funds to moot the noods of agriculturo, industry
ana conmorco.’
"'The Federal Open Market Committee mot in Washington on
September 11 and 12 and reviowod the business and crodit situ­
ation. In viow of tho expected soasonal demands on tho banks
for currency and crodit during the coning wooks tho Committee
authorized its Executive Committee to purchase in tho open

- 11 -

markot from time to timo sufficient amounts of short t o m
U. S. Government obligations to provide funds to moot seasonal
withdrawals of curronoy fron tho banks and othor soasonal
requirements • Roduotion of tho additional holdings in tho opon
market portfolio is contemplated when tho soasonal influences
arc reversed or other circumstances inako thoir retention un­
"’The purpose of this action is to maintain at member
banks an aggregate volume of excess reserves adequate for the
continuation of the System’s policy of monetary ease for the
furtherance of eoonomic recovery.
"'As a further means of making this polioy effective, the
Open Market Committee recommended that the Board of Governors
of the Federal Reserve System request the Secretary of the
Treasury to release approximately $300,000,000 of gold from the
Treasury’s inaotive account. The Board of Governors aoted upon
this recommendation and tho Secretary of the Treasury agreed
to release at. once the desired amount of gold. This will place
an equivalent amount of funds at tho disposal of the banks and
correspondingly inoreaso thoir available reserves.
"’This aotion is in conformity with the usual policy of
the Systom to facilitate tho finanoing of ordorly marketing of
crops and of autumn trade. Togethor with the recent reductions
of discount rates at the sevoral Federal Rosorvo banks, it will
onable tho banks to meet readily any incrcasod seasonal demands
for crodit and ourrency and contribute to tho continuation of
easy orodit conditions.’
"Tho Committoo had given full consideration to general
businoss and credit conditions and it was tho general fooling
that tho oxisting volume of oxooss rosorvos was abundant for the
continuance of easy crodit conditions and for mooting tho oredit
requirements of commerce, businoss and agriculture, that in the
light of oxisting businoss and crodit conditions offootive
aotion to moot and overcome tho prosont business rocossion should
be taken outsido tho field of tho Systom's various monetary
powers, and that tho System could best contribute to tho further­
ance of economic recovory by boing propared in case of any change
in conditions to act promptly in pursuance of tho ^enoral objec­
tives set forth in tho resolution."
(Annual Report for 1937, pp. 9, 2^3-206,219-220^

- 12 -

"In considering tho problem.of reserves at this timo tho
Board wishes to emphasize that the long-viow problem created
by tho existing largo volumo of bank deposits and bank roservos
is distinct from tho inuaodiato problem of making ample bank
oredit available for the expansion of business from current
"In recent years it has been the policy of tho Govornmont
and of tho Fedoral Rosorvo Systom to encourage the expansion of
credit. This lias constituted tho so-callod policy of monetary
ease, which has boon diroctod at keeping banks supplied with an
abundant volumo of roservos, so as to oncourago thorn to oxpand
their loans and invostmonts. This policy has boon ono of the
faotors in the oreation of tho existing largo volumo of doposits
in tho hands of business ontorprisos and of individual and cor­
porate investors, and has rosultod in reducing intorost ratos
to the lowest lovols in history. It has boon rofloctod in a
decline in tho carrying chargos on mortgage debt for farmers
and urban housoholdors, has enablod many corporations to rofund
their dobt at lower ratos, and has lightonod the cost of cur­
rent financing to commerce, industry, and agriculture.
"Nor is there any immediate reason for considering a re­
versal of this policy. Thero is n o t M n g in the prosont monetary
or banking situation that would point to a proximato dangor of
injurious oredit oxpansion. It is in such a poriod as this,
however, whon thero is no call for quiok action to meet emergency
situations, that problems that may arise in -fee future should bo
analyzod and the efficiency of existing machinery appraised.
"It is from this point of view that the System's oxisting
powers to absorb oxcoss resorvcs should bo considered* Member
banks at presont have excess roservos of $3,600*000,000, and
this total may bo doubled in tho future. To absorb these re­
serves tho Systom has tho power to raise roservo requirements
by $800,000,000 and to make sales out of its portfolio of
United States Government obligations, whioh amounts to $2,560,000,000. Tho uso of these available moans of absorbing rosorvos,
to tho extent that it may be in tho public intorost to do so,
would still leave tho banks with a volume of oxcoss reserves
upon which it would bo possible for an injurious credit oxpansion
to devolop.
"The ability of tho banks groatly to oxpand the volume of
thoir oredit without rosort to tho Federal Reserve banks would
make it possible for a speoulativo situation to got under way
that would be beyond tho powor of the System to check or control*

- 13 -

Tho Rosorvo System, would, therefore, bo unable to dischargo
tho responsibility plaood upon it by Congross or to porform
tho service that tho country rightly expects from it»
"In viow of this situation tho Board has doemod it its
duty to point out to Congross tho prosont and prospoctivo
rosorvo position of our banking systom and tho limitations
on tho powors of "tho Systom to rogulato it*.,
"This action 4 roduotion in roser/o requirements in
April 1938} had boen agrood upon by tho members of tho Board
as a part of the program announced by the President of the
United Statos on April 14, 1938, for the encouragement of busi­
ness recovery. Although thero had boon excess reserves in
amounts oonsidorod amplo to moot all probable noods of agri­
culture, commerce and business, tho volumo of businoss activity
had declined with such rapidity as to produce injurious defla­
tionary offoots upon commodity prices, tho oapital market, and
industry generally. In those circumstances and in view of the
other stops proposed to be taken in tho Government's program for
encouraging businoss rooovory, tho Board decided that a roduotion
in reserve requirements of member banks might be helpful, as a
part of a conoorted effort by tho Govornmont to carry out the
purposes of this program, by assuring the continued availability
of amplo funds for mooting business requirements and thereby
proventing injurious credit contraction."
(Annual Report for 1938, pp. 21-22, 73-74.)

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