The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
BANKERS TRUST COMPANY NEW YORK 16 WALL STREET FIFTH AVENUE AT 4 4 ™ STREET ROCKEFELLER PLAZA AT 51'JST. 26,OLD LON D O N B R O A D STREET, E C . 2 . 16 WALL STREET NEW YORK 15 , N.Y. June 7, 1948. Hon. Marriner S. Eccles % Federal Reserve System Washington, D. C. Dear Marriner: As you know, there has been a lot of beefing around New York since the extra 2$ you slapped on the other day, and a lot of comment to the effect that New York and Chicago are not the places that need the damper and everybody is wondering why it was done and why at this time. Instead of trying to imagine what you fellows had in mind, and instead of tiying to supply the answers, I thought I would just drop you a line and ask you why it was done at this time and what was the thinking back of it. I donft imagine there is any secret about it or wouldn't ask. Maybe we can straighten out the thinking of some people by giving them the answer from the Board's point of view. There is also a lot of talk, as you know, to the effect that Tom McCabe was absent and the implication was that he didn!t agree or would not have agreed. What's the answer to that one? With a 11 good wishes, Sincerely yours, Alex H. Ardrey Vice President dune 16, f.'r. Alex H. Ardrey, Vice President, Bankers Trust Coapany, 16 Tffall Street, H w York 15* $«w York. e Dear Alex: Your candid inquiry of June 7 regarding the recent 2 per cent increase in reserve requirements at H w York and Chicago and e the Board*s reasons for the action calls for a frank reply which I a glad to give. m You know, of course, that this was the second in a possible aeries of three steps, th® f i r s t of which was effective last February* I t simply tends to restore the relationship which the law oontemplates between the central reserve, reserve and other c i t i e s , namely, the ffiaxisiua of 14, 20 and 26 per oent on demand deposits which had existed in 19Ij2• I t was not an action taken hastily but on the contrary only after repeated consideration* I t had a background of careful study and discussion before the f i r s t step was taken as well as during several intervening meetings since then. At some of these meetings T m KoCabe was present although he o was not able to be present because of illness a t the meeting to which the determination of the question had been postponed. In fact, action had been postponed four times on his account* When i t was taken, the other Biemberi of th® Board had th© benefit of his views and he did not request further postponement* Time was running short because i t had become apparent that the effective date must be prior to the June tax payments and the July 1st refunding or should be postponed until sometime in July or August, or until after the September financing* In the final discussions live question became one solely of tiroing* The postponements which had a l ready taken place left less than two weeks for notice of the Board's action to become effective at the end of the l a s t reserve calculation period before the June tax payments* I a sure that you will see from m this that w# were not trying to take advantage of Toiaf8 absence, especially sinoe his vote even if adverse would not have changed the resul • I may add that one of the factors entering into the decision was that if the support levels on certificates were to be dropped in July or August in preparation for a raise in the certificate rate in . Alex H. Ardrey, Vloe President -2- to l-l/Ij pmt e-e»t i t would b difficult to justify a ® rent raise in resarw retpiirejiients* In other word*, having Held the banks the 1-l/S per cent certificates in July, i t wonld not seem fair than to apply the prefer® of increased reserve requirements on top of a drop in the support levels, if decided upon, for such certificate*, as the batiks ight hare to sell then in order to taaet itie increased ra^ui rouenta* T © step which haa be«*n takan was for the purpose of h applying sorse pressure now, and the dropping iti support level« later wsald Is for the purpose of continuing 1o pressure over the summer fe nontfoaj thus, the timing of the tfeird step in raising reserve requirei < »® could follow in the fall* . Otherwise, the raise in reserve reR gt qai recent* eo«ld be made in Jfcly or A^g^st, i^4 13ie short-terns oertifrate were jsot ponaitted to riae» You will see from what I have said that the possibility of a farther two pnr o«at increase in reserve requirements after the f i r s t step which became effective in February was irs contemplation long before the Tremsury decided against a rate increase for the June refunding aad that ^ie tm acts wer# not necessarily i»t»rdep®nd€«it« Khlle the Board as well as the Qpm Market Cawaittee had hoped that the Treasury would sake ttie Increase proposed in the rate frees 1-1/8 to l-l/'-i p@r cent und they were disappointed, that decision was one which was reoognixed as being within the province of the Treasury• the Treasury equally recognited that i t was within the province of the Board to raise reserve requirements fct H w York and Chicago if i t f e l t e warranted in doing so. the Treasury has the responsibility for the cost of Govermont fSftflMllg whilt? the Board has Hm r«spon«lbillty for such anti-inflatioumry steps ae l i e within i t s }>owert# 1 © step actuh a l l y taken was relatively In this connection you may recall that the Federal Advisory Council, the membership of which includes representatives of N w York e and Chicago, one of whoie i s president of the Council, unanimously opposed the Board's proposals for increased power over rQ*®rrt3 require* MatMp on fh® grotsnd aiaong others? that th© Board " s t i l l has the pemer t© ra.i»e ffjujrii requirements in central reserve oiti@e and so tighten money1* vhioh i t had not used* The Board had already used the full extern! of i t s pc«?©r in reserve and non-reserve c i t i e s and recognised the difficulty of convincing Ejany people of th« need for additional power «h«n i t had cot used fully 1he pattern laid down by law for the principal *cn«?y af*rk«t», 1« York and Chitmgo* 10fief«fore the Soard felt that i t fw could properly go ahead within i t s o n responsibilities even though the w had not in i t s discretion se«n f i t to raise the certificate r a t e . W oaa well understand why so©* bankers who would be affected e by th© raise would be "beefing" about i t . that IK a perfectly natural reaction, bat we do not believe i t is justified in th* circumstances* t?r. Alex H. Ardrey, Vice President the fundamentals of the inflation picture have not altered aad i s no present indication of a decline In the inflationary trend. I t 1* generally aooepte*! % the banking fraternity that the inflationary trend warrants an inorease in the ghorVteym r*te# In the absence of aetiooa by the Treaatiry in thia regard, a raise in reserve requirements might also have some anti~inflaticBi»ry influence when taken as procau* tioaery or preventive merfioine, and wajld have less iralue as %tte disease advanced, these were 1 © views of a laajority of the Board Mwnbers and h I wish again to emphasise that the aotlon was neither hasty nor inadequately considered nor was i t taken without due regard for & y differn ing viewpoints. Contrary to sciae interpretations, i t was not a slap at the ,Treasury nor was i t taken without giving T M MeCahe every eonO sideration, wry «ino«srely, M, S* Eooles, G. i am NEW YORK 16 WALL STREET FIFTH AVENUE AT 441" STREET BANKERS TRUST COMPANY LON DON 26.OLD BROAD STREET, EC 2 PARK AVENUE AT S7™ STREET 16 W A L L STREET N E W Y O R K IS, N.Y. June 17, 194-8 Personal and Confidential Mr. M. S. Eccles Board of Governors Federal Reserve System Washington, D. C. Dear Marriner: I have your letter of June 16 to Alex, who left last night for a short trip in Europe, I appreciate your frankness in replying to him as you have, and I know he will likewise. The contents of your letter will, obviously, be held confidential by both of us. With best wishes. Sincer S. Sloan Colt President BANKERSTRUST COMPANY NEW YORK 16 WALL STREET FIFTH AVENUE AT 44TT STREET ROCKEFELLER PLAZA AT 51V ST. LON DON 26.OLD BROAD STREET, E C 2 16 WALL STREET NEW YORK 15 , N.Y. August 4, 194-8 Mr. M. S. Eccles Board of Governors Federal Reserve System Washington, D. C. Dear Marriner: I just got back from six weeks in Europe and find your letter of June 16 answering mine of June 7. In the meantime, the pot is boiling again, and, from this morning's paper, it looks as though the Republicans will pass a political gesture and go home. Everybody agrees that the fundamentals of the inflation picture have not been changed, and everybody wants to fix it by doing something to the other fellow but doesnft want his own earnings and prospects touched. As far as I can tell, nobody in Washington wants to talk about the fundamentals except yourself. Thanks for your letter, and if you are in New York come in and we will buy you a lunch. Kindest regards. Sincerely yours, Alex H. Ardrey Vice President
