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Form F. K. 131
BOARD OF GOVERNORS
DF THE

FEDERAL RESERVE SYSTEM

Office Correspondence
To
From

Chairman Eccles

Date—March 9,1932.
Subject:

Mr«




In connection with your Treasury meeting*

Tr* 16
March 9, 1937

CONFIDENTIAL
CURRENT COMMENTS IN BRIEF

Adjustment to new reserve requirements
The decline in excess reserves of $790,000,000 in the week ending
March 3 was mostly at New York City banks, which showed a reduction of
$480,000,000, of which $320,000,000 reflected increased requirements and
the remainder a loss of reserves*

This loss of reserves at New York re-

flected in part withdrawals of bankers1 balances of $90,000,000 and
transfers through other financial and commercial transactions* Banks outside New York City, as a consequence, gained reserves, thus offsetting in
part the decrease in excess reserves resulting from increased requirements*
From Wednesday to Saturday of last week outside banks showed a further increase in reserves*
Loans and investments
Commercial loans at reporting banks increased 1^2,000,000 last week,
making a total increase of 193,000,000 since the end of January*

Holdings

of Government securities declined further at banks outside New York*
Securities markets
The stock market was more active last week and prices rose to new
high levels, while corporate bond prices showed little change* Prices of
Government bonds, particularly the long-term issues, declined substantially on Monday of this week*

Brokers1 borrowings and their advances to

customers on margin accounts increased further in February*
Foreign security buying last week approached the volume of last
October and November*




- 2 Business conditions
Industrial production, on a daily average basis, showed about the
usual seasonal increase from January to February, and the Board's production index remained at about 114-»

Department store sales increased more

than seasonally.
Higher prices of finished steel, pig iron, and steel scrap were announced last week and prices of nonferrous metals have risen further to
new high levels for the post-depression period.




March 9, 1937

Hew financial program in France
The French Government on Friday, March 5, announced a program designed
to draw into the Treasury the great mass of funds that are either hoarded in
France or have taken flight abroad. A National Defense Loan will be floated
payable in francs, dollars, or pounds. The French hoarder who has failed to
turn in his gold at the old par as required by the law of October 1 is
offered the opportunity to sell it to the Bank of France at the current price
without identifying himself, thus putting himself in funds to purchase the
loan. The capitalist who has sent his money abroad as protection against a
further decline in the franc is now enabled to bring it home and invest it in
the loan without sacrificing his safety in pounds or dollars. An appeal is
made to all investors by the promise that Government expenditures will be curtailed. Not only will the Government refrain from demanding any new credits,
with one minor exception, but it estimates that the economic recovery now in
progress will permit reduction of expenditures on relief and public works by
6,000,000,000 francs —

an amount greater than the deficit in the ordinary

budget. Hence it promises that the National Defense Loan will be the only
long-term issue during the course of the year. Other Treasury needs it believes can easily be covered by normal operations in the short-term market.
While the move appears to be primarily designed to bring the Treasury
money for its extraordinary expenditures —
tures —




in particular military expendi-

it is also hoped that it will make easier the task of maintaining

— 2—
a stable value for franc exchange and render unnecessary any form of exchange control. For the better administration of the Stabilization Fund
a commission has been appointed composed of Labeyrie, Governor of the Bank
of France; Rueff, a high official of the Finance Ministry and ex-officio
a director of the Bank of France; Baudouin» General Manager of the Bank
of Indo-China who has been seriously considered recently as a possible
governor of the Bank of France; and Rist, economist,Ahonorary governor of
the Bank of France, and veteran of French finance. Almost the first act
of this new group was to remove official support from the franc which had
been pegged at just over 105 francs to the pound since the middle of
October. With the removal of the peg the franc dropped from about 4.65
cents in New York to 4-»52, from which point short-covering drove it above
4-»56 yesterday. Had the French Fund not stepped in to preserve an orderly
market, the advance would have been even more abrupt. The volume of shortcovering suggests that speculators are unwilling to bet on the failure of
the loan and the continued movement of French capital abroad —

a good

augury for the French Treasury. Just where the new commission will undertake more definite stabilization operations is uncertain. It may be that
instead of pegging the franc again to the pound (or the dollar) the commission will follow the British policy of giving way slowly before market
trends, subject only to the condition that the franc cannot be permitted
to fall below 4«35 cents nor to rise above 4-»96.
The commission will also have responsibility for "watching" the government bond market (i.e., rentes) and for cooperating with the measures
to be taken to prevent an unjustifiable rise in commodity prices which




- 3would penalize the rentier. In other words, a new monetary power has been
established in France with a view to making the Popular Front's bid to the
investor successful*

The proposal for a National Defense Loan, which is

the core of the whole program, is being presented to Parliament today. Its
precise terms have not yet been announced, although there is talk of a
10-year loan at J+ percent to be offered just under par in installments aggregating altogether not more than 9,500,000,000 francs. Perhaps the most
interesting feature of the loan will be the triple ratio between the franc,
the pound, and the dollar, which will be established for the purpose of
optional payments.