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OF TALLAHASSEE Ta GODFREY SMITH,V i c e l l a h a s s e e P r e s id e n t IV le iy M r. M a r r in e r S. M e m b e r, 4 , F l o r id a 1 9 5 1 E c c le s B o a rd o f G o v e rn o rs F e d e ra l R e s e rv e B o a rd W a s h in g t o n , D ea r M r. D. C. E c c le s : M y a s s o c ia t e s a n d I h a v e r e a d w i t h g r e a t i n t e r e s t th e c o p y o f y o u r t a l k a t th e P a c if ic N o rth w e s te rn C o n f e r e n c e o n B a n k in g a t W a s h in g t o n S ta te C o lle g e , P u llm a n , W a s h in g t o n , B a n k e r A p r il 12, W e r e a liz e a s r e p o r t e d b y th e A m e r ic a n 1951. t h a t m a n y p e o p le a r e in t e r e s t e d in c u r b in g in f la t io n a n d th a t y o u h a v e ta k e n th e le a d e r s h ip in t h is m o v e m e n t. W e a g re e th a t r a is in g b a n k r e s e rv e s w ill d e c r e a s e th e le n d in g a b i l i t y o f b a n k s a n d t h e r e f o r e c u r t a i l lo a n s . re s e rv e s H o w e v e r, w e d o n o t fe e l th a t in c r e a s e d s h o u ld b e r e q u i r e d o n l y o f n a t i o n a l b a n k s o r b a n k s t h a t a r e m e m b e r s o f th e F e d e r a l R e s e r v e S y s te m . I f in f la t io n is to b e c u r b e d th r o u g h in c r e a s e d r e s e r v e s , s h o u l d n !t s t a t e b a n k s b e i n c l u d e d ? I f th e y a re n o t, we t h in k th e g o v e r n m e n t i s d e fe a t in g th e p u r p o s e i t i s e n d e a v o r in g to a c c o m p lis h . In T a lla h a s s e e t h e r e bank, tw o a re , s ta te b a n k s , in a d d it io n to th e o n e n a t io n a l a n in d u s t r ia l b a n k , s a v in g s a n d lo a n a s s o c ia t io n . and a fe d e ra l T h e d e p o s it s o f th e n a t io n a l b a n k a r e le s s t h a n o n e h a l f o f th e c o m b in e d Page 2 M a y 4, M r. 1951 M a r r i n e r S. E c c le s d e p o s its o f th e o th e r f o u r i n s t it u t io n s . c a n in f la t io n be c u rb e d b y in c r e a s in g H o w e ffe c tiv e ly re s e rv e r e q u ir e m e n ts f o r th e n a t io n a l b a n k o n ly ? T h e o ld a r g u m e n t o f p r e s e r v in g th e d u a l s y s te m in g i s a lw a y s u s e d a s a r e a s o n f o r e x e m p te d f r o m f e d e r a l r e g u la t io n s , b u t i f th e g o v e r n m e n t s p u r p o s e is to c u r b in f la t io n a ll b a n k s in a n y fe d e r a l r e q u ir e m e n ts th a t a r e W e s h a ll g r e a t ly a p p r e c ia te m a k e o n th is G S :m b of bank s ta te b a n k s b e in g s u b je c t. s h o u ld b e i n c l u d e d a u th o r iz e d . a n y c o m m e n ts y o u c a re to Hay 28, 1951. Dear Mr. Smith: I appreciate your thoughtful letter of May A , relative to my address before the Pacific Northwest Conference on Banking as reported "by the American Banker. I can assure you that I, as well as other members of the Federal Reserve Board, fully agree with your view that any further reserve restrictions which apply to member Reserve Banks should likewise apply to State non-member banks — otherwise, member banks would be penalized in comparison tonoEHfflember banks. Such a development would tend to weaken the Federal Reserve System by encouraging banks to give up their memberships, and such restric tive legislation would also discourage non-member banks from join ing the System. The old argument of preserving the dual banking system is not a sound reason for exempting State non-member banks from regulations which may be needed to curb inflationary bank credit. You may not have had an opportunity to read what to say about credit restraints before the Joint Committee Economic Report on January 25, 1951, and I am, therefore, ing a copy of that statement. On pages 3, U and 5 1 have the portion in which I believe you will be interested. I appreciate your interest in this matter. Sincerely yours, M. S. Eccles. Mr. Godfrey Smith, Vice Pres., Capital City National Bank, Tallahassee, Florida. I had on the enclos marked
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