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BOARD DF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Office C o r r e s p o n d e n c e Chairman Ecoles Prntn Pdchard A* Musgrave \)l t\ \XA Date_A^st Subject: Safekeeping of Government securities* Mr* Bartelt called with reference to a letter addressed to the Seoretary of the Treasury by the Colorado State Bank in Denver* The letter requested the Secretary to issue Treasury certificates in registered form "because the bank feels that otherwise it can not continue to purchase Treasury certificates now that the safekeeping service for nonmeraber banks is being discontinued by the Federal Reserve Banks* Mr. Bartelt expressed concern that this action might narrow the market for short-term Treasury securities which would be undesirable at this time when efforts are being made to revitalize the short-term market* I told Mr. Bartelt that I would bring this to your attention and I am attaching a brief summary of recent Federal Reserve action regarding discontinuance of the safekeeping service for nonmember banks* BDARD OF GOVERNORS OF THE FEDERAL RESERVE SYSXEjyi Office C o r r e s p o n d e n c e Xo From Mr* Musgrave i \jU' * - l w " Date A^ust u, Subject:_ Mr* In accordance with our telephone conversatio n, the following is a brief resume of the facts leading up to the discontinuance of the safekeeping privilege extended to nonmember banks for the custody of short-term Government securities* In September 19^2 the Presidents voted that the Federal Reserve Banks be permitted during the war to hold in safekeeping for nonmember banks Treasuiy bills and certificates of indebtedness* One of the primary considerations which prompted this action was that it would aid in broadening the market for short-term Government securities* The Board approved this action in October 1942In view of the fact that this privilege to nonmember banks was granted for the period of the war only, a recommendation that the Board1s approval be withdrawn was acted upon favorably, and on May 6, 19h7, the Federal Reserve Banks were requested to take steps to terminate such custody accounts by July 1, ]$hl* The matter came up for discussion at the June 19U7 Conference of Presidents, and the following is an excerpt from the minutes of that meeting: w# •* # Following receipt of the letter S-97U (May 6, 19h7) some of the Reserve Banks notified nonmember banks for which they were holding such securities that this service would no longer be availablej others have adopted a more gradual procedure. The presidents are in accord with the desirability of terminating the service, but believe that it should be terminated in accordance with the conditions prevailing in each district and surrounding each such custody, so as to minimize any adverse effect from the point of view of bank and public relations. The presidents believe, therefore, that Reserve Banks which now have such custody accounts should notify the nonmember banks involved that they will refrain from accepting new custodies on or after July 1, 19U7- Since all of the securities involved in such custodies mature within a year, the custodies would be terminated within a reasonable time and in an orderly fashiont "Chairman Eccles stated that the Board was in agreement with the presidents1 suggestion with the understanding that after July 1, I9J4.7, the Federal Reserve Banks would not accept further securities for safekeeping from nonmember banks and that such custodies would be terminated within one year from that date*11 On June 18, the Board advised all Reserve Banks that was in agreement with the opinion expressed by the Presidents indicated above.
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