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55 Wall Street
New York 15, N. Y.

March 27, 1947-

Dear Marriner:
I enclose a copy of a letter I have
just written to Congressman Wolcott about his
Committee report on the bill to extend the
authority of the Treasury to sell directly to
the Reserve Banks* I think somehow this record
ought to be straightened out, and perhaps you
could get it done in the Senate report or somewhere else.
Sincerely yours,
(Signed) Randolph

Honorable Marriner S. Eccles
Chairman, Board of Governors
of the Federal Reserve System
Washington, D. C*

March 27, 1947.
Dear Jess:
This may be locking the door after the horse is stolen, but
I have just had an opportunity tc read the Committee report dated
March 10 accompanying H.R. 2413* In general it tells the story in
satisfactory shape, but there are two statements in the report, which
I assume was prepared on the basis of data submitted by the Federal
Reserve people, which are not accurate.
The first statement is on the first page—"The Federal
Reserve System had used this direct purchase authority without any
limitation as to amount of holdings from the time of its creation in
1913 to 1935> etc." This statement is misleading. There was a limitation on any purchase of Government securities which lay in the fact
that securities purchased could not be used as collateral for Federal
Reserve notes. This provision of the law restricted the amount of
securities that the Federal Reserve System could buy in World War I,
and it was especially a limiting factor in the Autumn of 19319 when the
System was losing gold. The Glass Bill early in 1932 corrected this
situation and made possible the billion dollar open market operation
of the Spring and Summer of 1932. You will remember that this bill
was extended from time to time, and that I appeared before your
Committee when the power to pledge Governments as collateral for notes
was made permanent.

Honorable Jesse P. Wolcott


M^rch 27, 1947

One reason for the prohibition of direct purchases in the
Banking Act of 1935 was that the Glass Bill of 1932 had thrown the door
wide open for the purchase of Government securities» The two things
wont together.
The other statement which is not wholly true is on the next
page—!lTo obtain funds to meet such temporary requirements without direct
purchase Ity the Federal Reserve Banks, the Treasury would be obliged to
arrange for sale of securities to dealers in the market, with the
assurance that the Federal Reserve Banks would repurchase the securities;
and this not only would be inconvenient and troublesome but would increase
the expenses without serving any useful purpose•" While I was in the
Federal Reserve System I had charge of the operations under the Banking
Act of 1935, and they are not correctly described by the foregoing
sentence. What we did was to sell special Treasury certificates to some
of the larger member banks, which was always simple to do by telephone in
a few minutes, for at times when the Treasury needed the overdraft the
banks were by the nature of the circumstances in possession of extra
funds. There was no expense involved.
I am not opposed to this legislation under the present circumstances, with the three year limit that your Committee has placed on it,
but the record ought to be correct, as I know you want it to be.
Sincerely yours,

Honorable Jesse P. Wolcott
House of Representatives
Washington, D. C.


April 3, 1947.
The Honorable Jesse P. Wolcott,
Chairman, Committee on Banking
and Currency,
House of Representatives,
Washington 25, D. CDear Mr, Wolcott:
Randolph Burgess has sent me a copy of his letter of March
27 addressed to you with respect to two statements in the Banking
and Currency Committee Report on H.R, 2413* Speaking on the basis
of his years of experience with the Reserve System, he indicates some
qualifications that might be made to the two statements mentioned.
In my opinion, however, these are very minor qualifications which do
not contradict the essential truth of the Committee's statements.
It is true, of course, that inability to pledge Government securities as collateral for Federal Reserve notes prior to 1932
served on some critical occasions as a limitation on the total amount
of Government securities that the Reserve Banks could purchase• It
might also be mentioned that the reserve ratio required to be maintained by the Federal Reserve Banks now serves as a limitation. Such
limitations, however, apply to total holdings of the Reserve Banks,
and not simply to amounts purchased directly from the Treasury. Accordingly, I think this point raised by Mr. Burgess is irrelevant to
the issue presented t>y H.R. 2413* which deals solely with authorization for the Reserve System to purchase a limited amount of Government
securities directly from the Treasury and has nothing to do with the
question of the total amounts of securities which the System may
purchase, whether in the open market or directly.
1 was surprised by Mr. Burgess1 statement that Mone reason
for the prohibition of direct purchases in the Banking Act of 1935
was that the Glass Bill of 1932 had thrown the door wide open for the
purchase of Government securities.11 That is an explanation for the
prohibition which I had not previously heard. It is a very poor
reason, at best. I think the real reasons for writing the prohibition
into the Act were far more practical and can be traced to certain
Government bond dealers who quite naturally had their eyes on business
that might be lost to them if direct purchasing were permitted.

The Honorable Jesse P. Wolcott - (2)

April 3, 1947

Mr* Burgess1 second point seems to me even more remote from
the questions raised by H.R. 2413* What he is saying in effect is
that instead of having the Federal Reserve Banks carry the Treasury
over some of these tax periods, he would call up some of the big banks
and get them to perform the service. I, personally, have an instinctive
dislike of a procedure which requires the Government of the United
States to go, so to speak with hat in hand, to private banks to ask
for this kind of accommodation. At the time of which Mr. Burgess
speaks, these banks had large amounts of excess reserves and hence
were in a position to be accommodating. While New York City banks
are likely to obtain additional reserve funds in a period when the
Treasury would need a temporary adyance, it is not at all certain
that they would always have excess reserves and be in a position to
help out the Government. In any case, this sort of a procedure was
a means of getting around the prohibition. It serves to emphasize
again the desirability of removing that prohibition.
While Mr, Burgess states that he is not opposed to this
legislation under preaent circumstances, it is my understanding that
he preferred not to have the authority extended but took the position
that if it were extended, it should be limited to 2 billion dollars
under a 3~year extension. It was certainly my personal impression in
the meeting I attended when he was present that he was not favorable
to the proposal.
Possibly this letter may be raking over dead coals, but I
did not wish you to gain an impression, as you well might from Mr.
Burgess1 letter, that the record misrepresented the facts.

Sincerely yours,
(Signed) M. S. Eccles
M« S. Eccles,