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FEDERAL RESERVE BOARD
WASHINGTON

/ /I
February 2, 1935.

onorable Daniel . oil,
Aotinc Jireotor of tho Bureau of the Budget,
•lashin, ton, '•)• C.
My dear Mr* Bells
There is inclosed herewith a letter addressed to the
President recommending that, pursuant to the authority conferred
upon him by the second paragraph of section 16 of the Federal
Heserve Act- he prescribe an additional ^**3Akof two years after
".arch 3, 1935 during which the Fedep^T^Aserre Board may authorise
the Federal Reserve banks to pled^eoliroct obligations of the
United states as collateral >8/0c~!rity fbr outstanding Federal Keserve notes, together with a \ ^ a ^ / o f a procla»atlon extend ing such
period.
The draft of^&tfr/ proclamation is transmitted to you in
accordance with the terms of the Executive Order of August 10, 1933,
and it -will be appreciated if you will expedite its consideration
and transmission with the accompanying letter through the channels
prescribed in the Executive Order, to the President for his consideration*




Very truly yours,

' • S. Kccles,
ovemor.
FOR DIVISION OF BANK OPERATIONS

FEDERAL RESERVE BOARD
WASHINGTON

ify dear Mr. Presidentt
The second paragraph of section 16 of the federal Reserve
Aot empowers the Federal lieeerve ioard, until liaroh 3, 1935 or until
the expiration of such additional period not exceeding tiro years as
the President nay prescribe, should it deem ii in the public interest,
upon the affirmative vote of not less thair-e^Wiority of its members,
to authorise the Federal Reserve ba^feefto offer and the federal reserve agents to accept direct obligations of the United Utates as
collateral security for Fed^mOteiwrve notes issued to the Federal
Reserve banks by the Federal^eae^re agents. This provision of paragraph 2 of section lc/wos edhed to the Federal Reserve Aet by the Aot
of February 27, 1932, iw2^as originally enacted authorized the pledging of direct obligations of the United States as collateral security
for Federal Reserve notes only until -larch 3, 1935*

The authorization

was extended to March 3, 1934 by the Aet of February 5* 1933, and the
paragraph was amended by the Act of March 6, 1934 so as to extend such
tine until iiarch 3, 1935, or until the expiration of such additional
period not exceeding two years as the Jresident may prescribe.
The extension of the authority conferred by the second
paragraph of section 16 of the Federal Keserve Let for the pledging
of direct obligations of the Unitod states as collateral security for
Federal Reserve notes has enabled the Federal reserve



FOR DIVISION OF BANK OPERATIONS

anks to neet
//

The President, The .vhite House mm Z

FEDERAL RESERVE BOARD
WASHINGTON
the demands upon then for currency by paying out Federal Reserve notes
in excess of the amount that oould otherwise hare been suppliud*
direct obligations of the United States hare been pledged by the federal Reserve banks with the federal Heeerve agents since May 1932 and
on January 16, 1935, the amount of direct obligations of the United
States so pledged was 1195,000,000.
In the opinion of the Federal Reserve I*oard the authority
to use direot obligations of the United States, as collateral for Federal P.eserve notes has been of material a»e4&x4nce to the Federal
Reserve banks in supplying, the ourr

Wrtds ojNthe eountry and it is

recommended that you extend the pe

ln, which the Federal 2e*9rv

deard may authorise the

nks to offer and the Federal

Reserve agents to accept

as collateral for Federal Reserve

notes until March S, W * ^

^

or consideration/in the event that you should determine to
take such action, a draft of a proolamatlon extending the authority to
the federal Reserve Board and to the Federal Reserve banks in this
respeet for tho period reeoiHsmded has been prepared and transmitted
to the

ireotor of the Budget, accompanied by this letter. In accordance

with the tonne of the Exeo ttlve Offfcf of August 10, 1935.
Faithfully yours,

II. •« Eeeles,
jovemor*
the President,
•*»

The thite iiouse*






FOE TwO YhARti TBB HUUOO WITHIM WHICH THK FKDHUL
I B B B t t t BOAJU) MAY AUTmiRIXB THE FWBRAI. BESIXYK BASIS TO
OFFXH AHU THE FKDttAL 1B8IKTB AMITS TO ACCEPT OIXSOT OBLIOATIOM OP TO UHITKD STATBS AS OOLUTEftAL SSCJRITY FOR RSOBKAL
MOWS UHDB8 PARAGRAPH B OF SJ5CTIO* IB OF THK FKD8RAL
ACT M

»T THE IKSB1SKBT 0? THS UHITKD STATES OF AMERICA
A
tb* •••ond paragraph of Motion IB of th* Fadaral
i«»«rrt Aotf aa anmdad by tha Aat of ^aroh 8, 1954 (43 Stat.
393), roads aa followst
"Any Fadoral Rasarrs bank nay aako applioatioa to tho
looal Fadoral Hoaorro agant for suah aaouat of the Fodoral
Hatorto notos haralnboforo provldad tor as it aay roqulro.
3uoh application shall bo aoooapaniod with a tondar to tho
looal Podoral Rosarrs agoat of oollatoral la snount oqual
to tho sura of tho Fadaral Rosonro notos thus appliod for
and igsuod pursuant to suoh appl loatlos* Tho oollatoral
soc irity thus offorod shall bo notos, drafts, bills of ox*
ohan o» or aoooptanoos acquired undar tho provisions of
sootIon IS of this Aot, or bills of oxchango indorsod by a
BMnbor bank of any rodoral Kosorrs distrlot and purohaaod
undor th« prorisiwis of section 14 of this Aot, or bankors1
aoooptanoos purohasod undor tho provisions of said section
14, or ,,old certificatest

Provldod, howovor. That until * a

i^aroh 5, 19355, or ^rvtil tho ©x^. Iratloa of such additional
porio: not oxooodlng two yoars as tho rosidont nay prosoribo, tho iodor&l Rosorro board aay, shoal it dooa it in




the public interest, upea the afflraatl-ve vote of not leas
than a Majority of lt« Members, authorise tho Fodoral Ha*
sort* banks to offor, and tho Federal fteeerro agents to
aoeept, as sueh collateral aeourity, dlroot obligation* of
tho United states• On sueh dato or upon tho expiration of
suafc porlod ao prescribed by the President, or sooner should
tho Fodoral Reserve Board ao deeido, «uoh authorisation aha11
terminate and auoh obligation* of th« United tatos bo retlrod as soourlty for Fodoral Reserve notos* In no arrant
shall suoh oollatoral soourlty bo loss than tho amount of
Fodoral Roaorro aotos appllad for* Tho Fodoral Rosorf» ag*nt
•hall oaoh day notify tho odoral B o s o m Board of all issuos
and withdrawals of Fodoral Hosorrs notes to and by tho Fadoral Koaorrt bank to vhioh ho is aoorodltod* ?h« said Fad*
oral Kosorro Board say at any tims call upon a Fodoral Hosorrw bank for additional soourlty to protoot the Fodoral
Rosorvs notos ibsuod to lt«M
ABO WMtKAS I, Franklin is RoosoTelt, irosident of tho Unite
Statos of Ajaarioa# doan it advisable that tha a thority of tho rod*
oral Hosonro Board to authorise the Fodoral Itesorro banks to offor
and tho Fadoral Kosorvo agonts to aooopt diroot obli£-atlcns of tho
Unltod States as oollateral soourlty t*sr Fodoral Hosorrs notos Iss iod to tho Fodoral Kosorro banks bo oontlmiod for an ad-lit -rial
poriod after iiaroh 3, 1935*
, THKtSPOIB* X t WtAHKLIK

•

m&T/.UI, Prosidont of tho

Unitod states of Aa»rloa« acting ondor and by rirtu© of the
authority eonf errod upon me by said sootlon 16 of the Fodoral Reserve Act, M aneodad, do hereby proolaim, deolaro and prosoribo

/ S

b




J
which tha fadaral iiaaarvo Board may, should It das<m it in tha
public intara»t, upon tha ftiTirwatira yota ot not last than a
majority of it* aattbars, author!sa tha **d«r*l ii««anr« banks to
offer ari-i tho adoral Heaonre agaxtts to aoo«;vt dlr««t obligations
of tha nitad ^tatas aa collateral aaourlty for Fadaral lasarva
notas lataad to tha iadaral Haaarre bnnJta undar tha provisions of
tha said saotion*
IB WITMBSS mOttOf • X hava harawnto aat «y hand and omusad
tha saal of tha nitad MutMl to ba affixad*
IK)HI «t tha City of ashi t;ton this

day of

in tha yaar of our Lord ainataan
huadrad wad thirtyfiva, and of
tha indapandanaa of tha nitad
I tataa of Amarloa tha ona husdrad
and fifty-ninth.

Sy tha Prasidanti

of