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BERNARD M . B A R U C H
5 9 7 MADISON AVENUE
N E W Y O R K 2 2 , N. Y.

March 11, 1947.

Mr. Marriner S. Eccles,
Federal Reserve System,
Washington, D.C.
My dear Mr. Eccles:
Is the enclosed bill satisfactory to you
and has it any relation to the matter that you
and I recommended to give the Federal Reserve
Banks the right to lend up to #500,000,000 based
9«<

upon the $136,000,000 that had been taken from
A

them?

Please read and return with such comments

as you think necessary.
We are reaping the harvest of the improper
financial controls of the war.

I was very much

opposed to the reduction of taxes, and of course
any reduction now would be even more unwise until
we know what our obligations are.

The price of

bread is not a bright harbinger of the future.




80TH C O N G R E S S
1ST SESSION

A

f

\

0

IN THE SENATE OF THE UNITED STATES
J A N U A R Y 2T,

1947

Mr. TOBEY introduced the following bill; which was read twice and referred
to the Committee on Banking and Currency

A BILL
To repeal section 13b of the Federal Reserve Act, to amend
section 13 of the said Act, and for other purposes.
1

Be it enacted by the Senate and House of Representa-

2

tives of the United States of America in Congress assembled9

3

REPEAL OF SECTION 13B OF THE FEDERAL RESERVE ACT

4

SECTION 1* Section 13B of the Federal Reserve Act is

5

hereby repealed; but such repeal shall not affect the power

6

of any Federal Reserve bank to cany out, or to protect its

7

interest under, any agreement heretofore made in carrying

8

on operations under that section.

9

the enactment of this Act, each Federal Reserve bank shall

10

pay to the United States the aggregate amount which the

11

Secretary of the Treasury has heretofore paid to such bank




Within sixty days after

2
1

under the provisions of section 13b of the Federal Eeserve

2

Act, together with any net earnings thereon for the period

3

from January 1, 1947, to the date on which such payment

4

to the United States is made; and such payment shall con-

5

stitute a full discharge of any obligation or liability of the

6

Federal Eeserve bank to the United States or to the Secre-

7

taiy of the Treasury arising out of subsection (e) of said

8

section 13b or any agreement thereunder,

9

AMENDMENT OF SECTION 13 OF THE FEDEEAL EESERVE

10

ACT

11

SEC. 2. Section 13 of the Federal Reserve Act, as

12

amended, is hereby further amended by adding at the end

13

thereof the following new paragraph:

14

"Subject to such limitations, restrictions and regulá-

is

tions as the Board of Governors of the Eederal Eeserve

16

System may prescribe, any Federal Eeserve bank may

17

guarantee any financing institution against loss of principal

18

or interest on, or may make a commitment to purchase and

19

thereafter purchase from a financing institution, any loan

20

made to a business enterprise which has a maturity of not

21

more than ten years.

22

paragraph shall guarantee or make a commitment to pur-

23

chase more than 90 per centum of the unpaid balance of

24

any loan.

25

mitments of the Federal Eeserve banks under this para-




~No Federal Eeserve bank under this

The aggregate amount of guaranties and com-

8
1

graph outstanding at any one time, together with the amount

2

of loans acquired thereunder and held by them at the same

3

time, shall not exceed the combined surplus of the Federal

4

Reserve banks at such time; and the aggregate amount of

5

such guaranties and commitments outstanding at any one

6

time and loans held at the same time, which individually

7

are in excess of $100,000, shall not exceed 50 per centum

8

of the combined surplus of the Federal Reserve banks at

9

such time."







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Maroh 1I+, 19U7.
Mr« Bernard M. Baruoh,
597 Madison Avenue9
Mew York 22, Hew York.
My dear Mr« Baruoh:
I was pleased t o have your l e t t e r of Maroh 11« We
sponsored 3 . I4O8 under which the Reserve Banks would function as
they did under the V-loan program. This would be in aooordanoe
with your j o i n t report with Mr. Hancock. The only material d i f f e r ence between S. i|08 and the previous Wagner-Spenoe B i l l i s that the
Federal Reserve Banks would use t h e i r surplus as a basis f o r guaranteed loans under S. 1*08 instead of using the 139 million dollars derived from the gold increment which «as s e t aside f o r the industrial
loans under section 13b of the Federal Reserve Act.
The reason f o r the change was that at my instance the Board
proposed t o turn back t o the Treasury this 139 million dollars in
view o f the urgency of the Treasury's budgetary needs. In addition,
we proposed that FDIC reimburse the Federal Reserve f o r another sum
of 139 millions that was taken from our surplus and put into the
FDIC9 s guarantee fund back in 1933« As you know, the banking system
i s in a stronger p o s i t i o n than ever before and the FDIC's surplus
has gone up above a b i l l i o n d o l l a r s . I have long f e l t that the banks,
which b i t t e r l y complained about Government subsidies, should not have
a subsidised insurance fund. Therefore, I have advocated that the
FDIC pay back most o f the Government money.
The P r e s i d e n t s Budget Message proposes three things in t h i s
connectiont F i r s t , the 139 millions that the FDIC received from our
surplus would be returned and covered i n t o the Treasury* second, the
additional 139 millions out o f the gold increment s e t aside f o r 13b
would be turned back t o the Treasury* t h i r d , the FDIC would pay t o the
Treasury 100 m i l l i o n of the 150 millions which the Treasury put into
the FDIC fund. I mention t h i s because you w i l l note that these items
add up t o 378 ad H i cm d o l l a r s , whereas the President 9 * Budget Message
showed a surplus o f only 200 million d o l l a r s . The Budget Director,
accordingly, has been §sorlbing t o me in conversations I have had with
him the achievement of this balance because h i s budget did not show a
surplus u n t i l a f t e r he had talked with me and I had mentioned these pot e n t i a l items*




Mr* Bernard M. Baruch

-

March lh, 19U7

(2)

Any support that you oould muster f o r S. UQ8 would certainly
be greatly welcomed and appreciated. The chief opposition, so f a r as
I can see at this time, comes from big c i t y banks, particularly in Hew
York, because of t h e i r correspondent relationships. In other words,
they want t o take on loans that t h e i r correspondents would only be
able t o carry under the partial guarantee proposal.
I agree with you that we are reaping a harvest of mistaken
f i s c a l and Government financing p o l i c i e s and premature removal of cont r o l s . One of the worst mistakes was to repeal the excess p r o f i t s tax
altogether while keeping the carry-back excess p r o f i t s c r e d i t . I t
might well have been reduced from the peak wartime l e v e l s , but taking
i t o f f entirely produced the situation which i s i l l u s t r a t e d by the
Nathan Report.
There i s every indication that in the l a t t e r part of this
year o r early next year we are going to get a reaction from this i n flationary situation and unemployment of an indeterminate degree.
Accordingly, i f any taxes are to be reduced, the b e n e f i t , in my
opinion, should go t o the lower income groups who have suffered most
from inflated prices and whose purchasing power would be needed in a
recession. I f e e l that any tax reductions, therefore, should not apply during an inflationary period and should not be applicable until
the beginning of 19148»
I t was good to hear from you and to know of your continuing
i n t e r e s t i n the objectives of the proposed b i l l .




Sincerely yours,

M. S. Eccles,
Chairman.