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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 i y dear Mr. Presidentt f 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 t r years as io 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provision of paragraph 2 of section lc/wos edhed to the Federal Reserve Aet by the Aot of February 27, 1932, iw2^as originally enacted authorized the pledging of direct obligations of the United States as collateral security for Federal Reserve notes only until -larch 3, 1935* The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