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Taken to President by Mr. Eccles




on July 9, 1936

7

'

June 30, 1955 B&reh 4, 1956
(Xa billions)
#6,890

in dea&nd deposits
Inc eases la time deposits
total

ll

MS

this Increase was attributable to an lacreas®
la the holdings of Goveraaent and
securities of
Increase in ©th@r &a«urltles of

704

Aa inflow of gold and ®ilY©r of
Decline in bsnks* other loans
Other factors
•

•

•

Required re«erv*3 held by aembar banks
on June 50# 195S

,

1^790

Excess held lay asaber banks on
50, 1955
r«s«rv©i held lap aoaber banks
on March 4, 1956

«,780

£xc«ss held b^r aemb©r banks on
larch 4,

3,004

The growth of deposits inere&a^d requirements by nearly ft billion,
foe»ea reserves lner®seed over #2§ billion in the aaae period* this
due to the inflow of gold m& silver of approximately $5.4 billion.

total supply of deposit currency plus cash outside benksi
June 50, 1929
June SO, 1933
lime m, 1956




26.4
19*9
$0.0

-

Memorandum for the Chairman

Arguments for, ^creasing reserve requirementst
X* Excess reserves are beyond all present and prospective needs of
businessi
£• The excels has been created by gold Imports and not bj Sy@tea
policies which created easy money prior to the inflow of gold.
3. It would remove the danger of inflation fron this quarter
show that the Board appointed by the President is on guard to
prevent inflation*
4* The very existence of this surplusage of reserves la disquieting$
removal of the surplusage should be reassuring and tend to encourage inrest^nt ifl the long term market*
|« A more than adequate base for legitimate credit expansion would
still remain.
6« Action would vindicate the Banking Act of 1955 which contemplated
the exereis© of just such control of credit by & public body*
7* The action would in fsct place the reserves under the control of
the Open Market Cooaitteei this is & flexible inBtrusttmt whereas
reserve r©quireia«nts are not*
8. The longer action is delayed the more difficult it will be to act
because banks will get In deeper, use up their excess reserves and
action then would require liquidation with consequent deflationary
effect, it present practically a U itmkB have excess reserves*
Deposits mre now back to 1029 levels so that no such leeway M is
represented by the abnormal excess of resei^ves is needed to replenish
10. the reserves hav© recently dropped by a billion dollars without
causing a ripple*
XX* the time is opportune to act as Congress is out of session* Treasury
financing is out of Ike way and the stock n&rket is quiet, so th**t
action would aot be misconstrued as aimed in th&t direction.




— 2*
•

1« It is still uncertain how such »ore f,old Bay come in or how
much aay leave the country,
2« The continued existence of the vast excise of reserves has done
no hara«
S. Action ©ay be Misinterpreted as putting U M I br&fe«® on recovery
Just as the capital aarket is reviving for new Investment and
construction is getting well under
4. Banking opinion is mixed with an apparent preponderance now
opposed to action; those who have been aoet sympathetic toward
Administration policy, including the Morgan partners, have b@en
against action — B O is David Stern.
5« The Le®3£e*Coiighlia group might be ®xp©ct«4 to attack the action
as restrictive, deflationary and typical of the "aoney
6« The action contemplated will not satisfy those groups which have
been cl&storing for action in the hope that it would stiffen interest
,rates. If there were any serious danger of such a result, I should
tuppose action*

I would not favor action under any circumstances unless
assured of authority through the Open Market Executive Committee to
counteract any recession of a point or more in the price of governments*