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»UNCAN C A R T W , GLASS. VA U. irurrcHER,-A-. C H A I R M A N |R, PETER NORBKCK, S . D A K . JOHN A . T O W N 3 E N D . JR., DEL. ROBERT D. C A R E Y , WYO. JAMES COUXENS, MICH. ^ICmfeb Pieties JSycncdc /// COMMITTEE ON BANKING A N D C U R R E N C Y ' CALIF. January 11, 1957 WILLIAM L. HILL, CLERK BY MESSENGER Hon. Marriner S. Eccles, Governor Federal Reserve Board Washington, D. C. My dear Governor Eccles: At the direction of Chairman 7/agner of the Senate Committee on Banking and Currency, I am enclosing copy of bills nov pending before the Committee which are referred to you for consideration. He will appreciate your submitting a report thereon, in triplicate, at the earliest date possible. Kindly address all communications to Honorable Robert F. 7/agner, Chairman, Senate Committee on Banking and Currency, 505 Senate Office Building, Very sincerely your c Leon K. Keyserling Clerk Encl 7 jiy ^ $1 Honorable Robert F. agner, Chairman, Senate Committee on banking and Currency, 303 Sent to O f f i c e Building;, ashington, • 0, t:y dear Senator: This r e f e r s to the l e t t e r da ed January 11, 1937, f r o :. " r , Leon F* Keyserling, Clerk of the cnato Ooramittee on Banking and Currency, requesting that the Board of Governors of the Federal Reserve System submit a report on S. 417, a b i l l to extend the period during which direct obiirations of the United States nsay be used as c o l l a t e r a l security f o r Federal Reserve notes. The Board of -OTernors favors the enactxaent of this b i l l , and there i s inclosed herewith a statement whioh expresses the views of the Board with reference to tlx d e s i r a b i l i t y of i t s enactment. Very t r u l y yours, S iccta Inclos are JTO:am ;arr iner S • ice le s* Cbairsmiu EXCERPT FROM THE MINUTES OF A MEETING OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM / / / HELD ON JANUARY 6, 1957. - Further reference was made to the question what action should be taken by the Board looking toward an amendment of the second paragraph of Section 16 of the Federal Reserve Act to extend the authority of the Federal reserve banks, with the approval of the Board, to pledge direct obligations of the United States as collateral for Federal reserve notes. In connection with the consideration of this matter, it was stated that, while, as a consequence of the large gold imports in recent years, there are now enough gold certificates held by the twelve Federal reserve banks combined to enable them to provide a 100 per cent cover for all outstanding Federal reserve notes, this is not true as regards all of the banks individually, particularly in view of the small amount of eligible paper available for use as collateral for Federal reserve notes. Furthermore, should gold leave the country in large amounts, as it has done on previous occasions, notably in 1951 and 1952, the Federal Reserve System, in the absence of authority to pledge United States Government obligations to secure Federal reserve notes, might find itself compelled to adopt a restrictive credit policy at a time when an easy credit policy might be the desirable one, resulting in less liberal lending policies on the part of menber banks and increasing interest rates and consequent serious restraint on business activity at a time when directly opposite results shoulc be sought for. All of the members were of the opinion that it was clearly not in the public interest to run the risk of such a development by permitting the authority to pledge government securities against Federal reserve notes to lapse, and that the Board should take the position that such authority should be extended for a further period* Accordingly, by unanimous vote, Chairman Eccles was authorized to take such steps as were necessary in the circumstances to place before the appropriate committees of Congress a draft of an amendment extending the authority for a further period, the draft to be accompanied by a statement of the desirability of enacting the amendment prior to the expiration on March 5, 1957 of the existing authority.
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