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February 1J, 19U7 The Honorable Jesse P. Woleott, Chairman, Committee on Banking and Currency, House of Representatives, Washington, D. C. Dear Mr. Chairman« Attached is an explanatory letter and oopy of the bill covering the two legislative natters that ve discussed, among others, on yesterday. the bill, as you know, covers two points: first, extension of the authority of Federal Reserve Banks to sake direct purchases from the Treasury up to 5 billion dollarsj and second, lifting the limit on amounts that may be expended for Federal Reserve Bank branch buildings. As 1 understand it, you desire to introduce this promptly and to have hearings around the first of next month. Within the next two or three weeks, 1 shall also send you a copy of a holding company bill and one covering regulation of consumer credit. 1 was oertainly glad of the opportunity to have an extended discussion with you of these and related matters for which you and the Cosmdttee bear a responsibility. Sincerely yours. M. S. Socles, Chairman. Attachments ET:b February 13, 19U7- The Honorable Charles W. Tobey, Chairman, Committee on Banking and Currency, United States Senate, Washington, D. C. Dear Senator Tobey: I am attaching an Identical letter, together with a bill, which I am also sending to Chairman Wolcott of the Rouse Banking and Currency Committee after having a talk with him yesterday. As you will note, the bill has the merit of brevity. It provides for extension of the authority expiring March 31» 19k7# for the Reserve Banks to purchase Government securities directly from the Treasury and, secondly, for removing the restriction on what may be expended for Federal Reserve Bank branch buildings. The Treasury is in full accord with the Board, as are most of the banking leaders, on the necessity for the extension of this direct purchase authority. I would not expect amy controversy over either point in this bill, and would greatly appreciate it if you would introduce it in the Senate at your earliest convenience if that is agreeable with you. If you have any question about it I would, of course, be glad to discuss it with you in person or over the telephone whenever you wish. Sincerely yours. M. S. Bccles, Chairman. Attachments ET:b J Hotiorable Jetie P. Woloott. Chairman, Comadttee on äenking and Currency, House of tiepresentatives, Washington, D. C. ) /lì* 1 3 1347 liear Kr. Ghairman i There i« enclosed hereeith a draft of a bill "To uoand the Föderal Reserve Aet, and for other purposee", «hioh tha Board ri ids be enacted into law« Tha purposes of the proposed legislation are (l) to sake perit the existing temporary authority of the Federal keserve Banka to purchase Government securities directly fron the Goverxuasmt, subject to a 15,000,000,000 limitationj end (2) to repeal the limitation upon tha amount whicn nay be expended in the erection of sny federal Keserve Bank branch building« Direct Purchase of Govorngcnt ¿Securities« - The existing authority for the purchase of Government securities by the federal Reserve Banks directly from the Gorernaent, subject to the limitation that the amount of seeurities held by the federal ita serve Banks which hare been purchased in this manner shall not exceed 5,000,000,000, is contained in a proviso which ems added to section lit(b) of the Federal Reserve Act by Title IT of the Second *ar Powers Act, and will expire onfearoh 31, 1947, or such earlier date as may be designated by the Coagreas or the President« The Uoard believes that this authority should be made pel it« The direct purchase of seeurities provides the Treasury with a source to which it may turn to obtain funds in a substantial amoimt on little notioe to meet temporary situations end contingencies* With such en emergency source of funds, it is possible for the Treasury to operate with a smaller cash balance then might otherwise be neeessary, thus resulting in a saving of interest« To obtain funds to meet such temporary requirements without direct purchases by the ¿federal Reserve Banks, the Treasury would be obliged to arrange for the aale of seeurities to dealers in the market, with the assurance that the federal Reserve Banks would repurchase the securities j and this not only would be inconvenient end troublesome but also could increase the expense without serving any useful purpose« Furthermore» direct buying provides a flexible method of casing the money market in periods of heavy drain, as* for exsaple, around income tax dates. 3y borrowing fund« froxa the Federal Reserve Bank« and expend* ing the» prior to tax dates, the Treasury oan put the funds into the market j and, as the taxes are received, such special borrowings are reduced and soon ratired. This power is one tsnerally possessed by central tanksj and, until 1955# there was no limitation upon direct purchases by the federal Reserve denks. Ubder both the existing law and that prior to 1955* the authority of the Federal aeserve Banks to purchase securities directly fron the Government has besn used only occasionally and for brief periods» ordinarily around tax dates. While not used extensively, direct buying has proven to be a useful and oon reliant mechanise to facilitate Treasury operations and to effect temporary adjustments in the »onay market. It in no wise results in en Increase in the public debti instead, its effect, as indicated above, is to eliminate needless uoveru&eut expense* The Treasury .op ear trim, t has advised the Board that it concurs in the Board's ¿>03 it ion that the existing authority should be Bade permanent* Federal Reserve Bank Branch buildings. - The ninth paragraph of section 10 of the Federal Reserve Act, as added by the Act of June 5. 1922, sod amended by the *ct of February 6, 1923, provides as follows« "ifo federal reserve bank shall have authority hereafter to carter into any contract or contracts for the erection of ray branch benk building of any kind or character, or to authorise the erection of any such building, if the eeet of the building proper, exclusive of the cost of the vaults, permanent equipment, furnishings, and fixtures, is in excess of 4250,000» Provided, that nothing herein shall apply to any building voider construction prior to June 1922." The Board believes that it is eeec&tial that this 1 imitation be reeved in order that tLe federal reserve oarJcs nay construct branch building facilities which are adequate for the increased volume of work of the branches. The construction of such buildings does not involve the use of any Oovernwent funds or appropriated moneys since the funds ef the Federal Reserve danks are used for this purpose. Since the adoption of the statutory limitation, and particularly during the war, the operations of the 2U branches ef the Federal reserve Banks have greatly increased, and there has been a corresponding increase in the space required. As one indication of this growth, there new are about 6,200 snployees at the branches, as compared with about 2f 600 when the limitation was adopted. The largest single factor in this expansion has been a tremendous Increase in the value* of fiscal agency operations performed by the Federal Reserve Hanks for the Treasury ticket Incut end ether Government departments and agencies 1 and there also have ceen substantial -3- lr crçmsua in currency o^in transactions, check collections, and other operations of the Federal i: «serve Janks. A furwier lector in the growth of the brar.cn©a has seen the enlargimaent of the scope of their operati ons to tu ah an extent that, with few exceptions, the branches new offer the same services as are available at the head offices» To »eet their minimum space requirement«, it has been neoeeaery for all but two of the brandies to resit spaoe outside of their regular quarters« Such arrangements are not satisfactory. Operations obviously could be carried on store efficiently and economically under one roof than in scattered quarters, koreover, vault facilities are so inadequate that it is becoming difficult to provide the necessary protection for the large quantities of money, securities, and other valuables handled by the branches« «hile operations have declined somewhat from their wartime peak, and there perhaps will be soue further decline, it is apparent that the work of the branches. Including fiscal agency work in connection with the servicing of the public debt, will continue indefinitely on a much larger scale than prior to the war« It therefore appears that nost of the branch buildings have become permanently inadequate. Consequently, the federal Reserve ¿auks believe that it would be a matter of economy to enlarge their ©ranch building facilities at the proper timef but such a program cannot be carried out under the existing limitation on the cost of the buildings* In this connection, it le pertinent to note that the limitation 1« much no re restrictive than when It was enacted, both because of the growth of the branches and the increase in construction costs which has occurred since 192J. Congress baa vested in the board, as an agency of the Government, general supervision over the Federal Reserve Banks* In the exercise of this supervision, it Is the Board's practice to consider in advance all options for the purchase of real estate snd all plans and specifications for buildings end vaults for the federal «eserve 3anks and their branches, and no construction 1« undertaken without express approval by the âoard* In the ci rouas tances, the Board believes that the statutory limitation serves no useful purposeThe Board, of course, would not authorise any substantial construction, except in ease of emergency, until there Is an adequate supply of labor snd materials. The statutory limitation, however, should be eliminated now. Until this is dene, the federal Reserve Banks, being uncertain as to what eventually may be permissible, cannot make effective preparations for the construction to be undertaken at en appropriate time* The Board beli « v a « that the mattar« dieoussed abore warrant «ariy canaidaration by yovur Cosamittaa and the Congraa» and it earuestly reeomcands th® smaetmsnt of legialation a long the lina« of the proposed bill ansiose* bar evi th. Sa «111» of oourse, * cleome an opportunity te appear before your Committee to discusa these mattare in further detail and to fumi ah any addi t Iona 1 Informati«! ahi eh may be desi r ed. Sincerely yours. TJififMd) fàtitTÌm S. ¿edes K» S. £ aelea« ¿hai man« Snelosare ^0CB:sad l-lO-itf A B Io aia^rid the *edarai Heserve Àct, and far other parpoees» Be lt «uacted by the Sanata and «fesa® of Hspresentativea of tha tinited **tatea of ^sarlea In Contras« asseabled, That the proviso coiitained in subseetion (b) of «eeticm. Ih of tha redarai Heserve as amended (U. g» C., Title 12, seetion 555) la hereby aeended to read as eat ferth belo», without regard te the provi»lima of Title XV, saotion 1501* of the ì>eeond *mr Povera Aet, 1942» approved Mareh 2?, aa aaiended (ù. S» *Prorì Cm» Title 50, Appendi*, seetion 6h5)t ag, That any bonds, notes, or other obligatioma «hieh are direat obligations of tha United ¿»tata« or «hieh ara fully ¿uaranteed by the Ifeited Statai aa te r*rineipal and interest s>ay be bou^ht and «old without regard to saturi tiaa eithar in the opm market or direetly fresi or to the &tited State«» tot ali sueh pureiiases «ad «ala« shall be a&ade in aeeordaaoe with the provi «lena of seetion ISA of this A et and the «pregate aaomt of «non obliati m a aa» qui rad direetly fro» the Mited ¿tates whiah is held at any m e U s e by the taelva ¿-'edera! ^eserve banka shall net excoed 15,000,000,000*» See. 2. Tha ninth paragraph of seetion 10 of the baderai He- serve Aet, a« added by the Aet of ¿une 5* 1922, and as&ended by the Aat of February 6, 1923 (0» C.» Title 12, seetion 522) prohiMting any Federai Easarva iank fra» entering into any eontraet or eontraete for the ereetion of any braneh bank building or from ast-horisiag tha «reation ef any su oh building if the cost of the òaildl&g proper 1« in exeess of #250,000, 1» hareby repealed* # DigitizedJCB:sad for FRASER . 10 EIGHTIETH CONGRESS TAL i JESSE P . WOLCOTT, MICH., CHAIRMAN RALPH A. GAMBLE, N. Y . FREDERICK C. SMITH, OHIO JOHN C. KUNKEL, P A . HENRY O. T A L L E , IOWA FRANK L . SUNDSTROM, N . J. ROLLA C. MC MILLEN, I L L . CLARENCE E. KILBURN, N. Y . HOWARD H. BUFFETT, NEBR. ALBERT M . COLE, K A N S . M E R L I N HULL, WIS. W I L L I A M G. STRATTON, I L L . HARDIE SCOTT, P A . P A R K E M. BANTA, MO. CHARLES K . FLETCHER, CALIF. ELLSWORTH B. FOOTE, CONN. BRENT SPENCE, K Y . PAUL BROWN, GA. WRIGHT P A T M A N , T E X . A . S . MIKE MONRONEY, OKLA. JOHN H. FOLGER, N . C. BROOKS HAYS, A R K . JOHN J. RILEY, S . C. ALBERT RAINS, A L A . DONALD L . O'TOOLE, N . Y . FRANK BUCHANAN, P A . HALE BOGGS, L A . HOUSE OF REPRESENTATIVES COMMITTEE ON BANKING AND CURRENCY W A S H I N G T O N Febuary 18, 1947 W I L L I A M J. HALLAHAN, CLERK Honorable Marriner S* Eccles, Chairman Board of Governors of the Federal Reserve System Washington, B.C. Dear Mr. Eccles: This is to confirm the telephonic notice given your office this date that this Committee will commence hearings on the proposed bill to amend the Federal Reserve Act in regard to continuing the authority of Federal Heserve Barks to make direct purchases from the Treasury up to five billion dollars and lifting the limitation on amounts that may be expended on Federal Reserve Bank branch buildings on Monday, March 3, 1947• The Chairman, the Honorable Jesse P. Wolcott, requests your presence at that time to testify before the Committee on the proposed bill. The hearings will commence at 10:30 A.M. in the Committee Room. Pursuant to the provisions of subsection (e) of sectian 133 of the Legislative Reorganization Act of 1946, it will be appreciated if you will furnish the Committee in advance thirty copies of your proposed statement. If your advance statements are received in this office by Thursday, lebuary 27, 1947, it will be in sufficient time to make them available to the Committee members for their study and consideration. Sincerely yours '3i>, February 28, 19U7- Mr. William J. Hallahan, Clerk, Committee on Banking and Currency, Hous© of Representatives, Washington, D. C. Dear Mr. Hallahan: In accordance with your letter to Chairman Eocles of February 18 and our phone conversation, I am sending you herewith 35 copies of a memorandum on H.R. 2233 on. which Chairman Wolcott is holding hearings beginning at 10:30 A*M. on Monday, March 3* I am not giving any copies out here and assume that it will not be made available to the press until after the hearing begins. Sincerely yours, Elliott Thurston, Assistant to the Chairman. Enclosures 35 ET:b
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