The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
June 17, 1958, Dear Henry: Inasmuch as you mentioned the other day the subject of the record of the Federal Reserve in making loans, I did not want you to be under the impression that the record was open to any justified criticism- While the matter is not of vital importance, I felt you might be interested to have the facts* to make Section of June The law In the first place, the only authority the System has direct loans to business and industry is contained in 13b, which was added to the Federal Reserve Act by act 19, 1934• However, this is a very restricted power* provides: n In exceptional circumstances, when it appears to the satisfaction of a Federal Reserve bank that an established industrial or commercial business located in its district is unable to obtain requisite financial assistance on & reasonable basis iroia the usual sources, the Federal Reserve bank, pursuant to authority granted by uUe Board of Governors of the Federal Reserve System, may make loans to, or purchase obligations of, such business, or Jaay make commitments with respect thereto, on a reasonable and sound basis, for the purpose of providing it with working capital, but no obligation shall be acquired or commitment made hereunder with a maturity exceeding five years«• In other words, loans could only be made for working capital purposes and could not be for more than five years- In addition, subsection (d) created industrial advisory committees in each Federal Reserve district *for the purpose of aiding the Federal Reserve banks in carrying out the provisions of this section** While the Board here in Washington was authorized to prescribe regulations, it is questionable whether it could have forced these industrial advisory committees and the Federal Reserve banks to make loans other than those they deemed legal and proper« •• 2 —• There was one other limitation in lais which was not material, namely, that the total amount of such loans should not exceed the combined surplus of the Federal Reserve banks as of July 1, 1954, ($158,583,000) plus advances by the Secretary of the Treasury not to exceed $139,299,657, or a grand total of about $277,685,000. As a flatter of fact, rather a good shoving was made considering the restrictions. The Board put on a special caapaign with the banks and mrerj possible effort was saade to acquaint the public with the opportunity to borrow under the conditions specified by Congress* Froa June 19, 1954, up to May %5 of this year the Federal Reserve banks received 9,096 applications for a total of ^380,648,000, and approved 2,556 of these applications for a total of $158,962,000. A large proportion of the applications mt& for loans for fixed capital purposes, which were specifically prohibited by the act and, of course, there was the usual percentage of applications that were not acceptable for other reasons. As you will recall, a similar authority was granted to the R.F.C., and while I axa hesitant about drawing comparisons, I venture to say that our record will compare very favorably with what *as accomplished under that authority, I shall not burden you with the details, but I did not want you to have a wrong impression about this aatter. Sincerely yours, . S. Eccles, Chairman, Honorable Henry Morgenthau, Jr*t Secretary of the Treasury, Washington, B. C. THE SECRETARY OF THE TREASURY WAS HI NGTON June 29, 1938 Dear Marriner: Thank you for your lettsr of June 17th and the information it contains with respect to the authority given Federal Reserve banks to make direct loans to business and industry I am glad to have your statement on this. Sincerely yours, cretary of the Treasury Honorable Marriner S. Eccles, Chairman, Board of Governors of the Federal Reserve System, Washington, u. C«
@FedFRASER