The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
BOARD OF GOVERNORS • F F E D E R A L THE R E S E R V E S Y S T E M Office Correspondence Date T W Chairman Eccles Subject: From Governor Evans January 8 , 194-8 _ _ _ _ _ _ A t my s u g g e s t i o n , M r . Leonard prepared t h e a t t a c h e d memorandum. T h i s statement shows t h e average f i g u r e s f o r member banks i n c e n t r a l r e s e r v e , r e s e r v e c i t y , and c o u n t r y bank s t a t u s and a l s o shows how t h e s p e c i a l r e s e r v e p l a n would a p p l y t o t h e average bank. I t seems t o me t h e p i c t u r e one gets f r o m these f i g u r e s i s e a s i l y understood and would be h e l p f u l i n s e l l i n g t h e program. I w i s h y o u would l o o k over t h i s s t a t e m e n t and i f you t h i n k w e l l o f i t we can send a copy t o each o f t h e Banks and t o each member o f t h e F e d e r a l A d v i s o r y C o u n c i l . Attachment. The S p e c i a l Reserve Plan as a p p l i e d t o a Country Member Bank (The statement i s the aggregate of country member banks as o f June 30, 1947, d i v i d e d by t h e number o f c o u n t r y member banks.) r. Assets Loans TJ.S. Govt, o b l i g a t i o n s Treas. b i l l s , c e r t i f i c a t e s and notes Treas. bonds Other s e c u r i t i e s Cash assets Real e s t a t e assets Other assets #1,395,000 $ 796,000 2,713»°°° 3,509,000 4.69,000 1,486,000 54,000 12,000 $6,925,000 Liabilities Demand d e p o s i t s Deposits of banks i n U . S . Other demand d e p o s i t s Time d e p o s i t s # 136,000 4,103>000 4,239,000 2,219,000 T o t a l deposits Other l i a b i l i t i e s C a p i t a l accounts #6,458,000 27,000 440,000 $6,925,000 S p e c i a l Reserve Requirements ( D e t a i l s o f computations shown on attached sheet) I f t h e s p e c i a l reserve requirements were 10$ o f demand and 1$ o f time d e p o s i t s , the bank would have s p e c i a l reserve assets o f #649,000 i n excess o f requirements and thus no adjustment would be necessary. r I f t h e s p e c i a l reserve requirements were a t t h e maximum provided i n t h e b i l l - 25$ o f demand and 10$ o f time d e p o s i t s - t h e bank would have a d e f i c i e n c y o f o n l y |120,000 i n i t s r e q u i r e d s p e c i a l r e s e r v e . T h i s could be met by a s w i t c h o f $120,000 from l o n g term t o s h o r t t e m G o v t s . , increase o f $120,000 i n s p e c i a l reserve assets through conversion o f o t h e r assets i n t o cash o r short term G o v t s . , o r by borrowing $120,000 - o r any combination o f t h e t h r e e . The p r i n c i p a l r e s t r i c t i v e e f f e c t would be n o t so much t h e adjustments necessary t o p r o v i d e t h e i n i t i a l s p e c i a l r e s e r v e , but t h e brakes placed upon f u t u r e expansion o f c r e d i t . These brakes are t w o - f o l d - t h e r e s t r a i n i n g i n f l u e n c e through t h e r e d u c t i o n i n a bank f s secondary reserve and the r e d u c t i o n i n t h e expansion power o f r e s e r v e s . At present $1.00 o f r e s e r v e o f c o u n t r y member banks supports about 17.14 i n demand d e p o s i t s . W i t h s p e c i a l reserve o f 10fo o f demand d e p o s i t s , f l . 0 0 o f reserve would support about $3*33 i n demand d e p o s i t s ; i f t h e s p e c i a l reserve were 25$, an a d d i t i o n a l f l . O O i n reserves would support o n l y about $2.22 i n demand d e p o s i t s . I n a c t u a l p r a c t i c e , o f course, an i n d i v i d u a l bank f s a b i l i t y t o expand c r e d i t i s l i m i t e d n o t o n l y by t h e amount o f reserve i t has a v a i l a b l e t o support the e p o s i t which i t creates by making a l o a n , but a l s o by t h e f a c t t h a t the borrower "may withdraw a considerable p o r t i o n o f the d e p o s i t thus created. Computation o f S p e c i a l Reserves Cash a s s e t s Reserves w i t h F.R.Bank Cash i n v a u l t Demand balances w i t h hanks i n t h e U*S. Other bank balances #709,000" 120,000' 526,000 3,000- Cash items i n process o f c o l l e c t i o n 128,000 Less - bank balances Other Demand d e p o s i t s o f banks i n t h e U . S . $1,486,000 ^ 3,000" 136,OOQ#' 139>000 " Net cash a s s e t s $1,347,000 ' Deduct 20$ o f gross demand p l u s 6$ o f t i m e d e p o s i t s as p r o v i d e d i n t h e b i l l Excess cash a s s e t s T r e a s . b i l l s , c e r t i f i c a t e s and n o t e s T o t a l s p e c i a l r e s e r v e assets 981,000 " 366,000 796,000^ $1,162,000 - S p e c i a l r e s e r v e s r e q u i r e d a t g i v e n percentages (a) 10io a g a i n s t demand and i $ a g a i n s t time deposits Excess o f s p e c i a l r e s e r v e a s s e t s (b) Maximum o f 25% a g a i n s t demand and 10% a g a i n s t t i m e d e p o s i t s D e f i c i e n c y of s p e c i a l reserve assets $513*000 * $649,000 * $1,282,000 / $120,000/ § Only t h e excess o f demand balances w i t h banks i n t h e U . S . over demand d e p o s i t s due t o banks i n t h e U.S # i s c o n s i d e r e d as a s p e c i a l r e s e r v e asset. The S p e c i a l Reserve P l a n As a p p l i e d t o V a r i o u s Types o f Banks (The statement f o r each t y p e o f bank i n t h e aggregate f o r t h e c a t e g o r y as o f June 30, I94.7, d i v i d e d by t h e number o f banks i n t h e group.) Nonmember - - —Member Banks Insured C e n t r a l Reserve Commercial Country Reserve Banks Chicago Assets Banks C i t y Banks New York 000 o m i t t e d 1 Loans U.S.Govt, o b l i g a t i o n s Treas. b i l l s , c e r t i f i c a t e s and notes T r e a s . bonds Other s e c u r i t i e s Cash a s s e t s R/E assets Other a s s e t s #176,971 #111,754 # 32,410 54,451 32,781 168,739 4,458 43,278 163,136 24,809 108,626 1,108 726,763 i»49i 454,202 13,808 45,242 6,587 31,845 960 500 131,352 Demand d e p o s i t s Time d e p o s i t s 613,042 359,793 62,202 90,602 39,437 Other l i a b i l i t i e s C a p i t a l accounts 13,915 60. ffl 726,763 2,497 29,710 454,202 906 7,921 131,3^2 96,319 64,545 20,306 S p e c i a l Reserve R e q u i r e ments - 10$ a g a i n s t demand, 1$ a g a i n s t time deposits 62,882 38,467 10,337 513 223 33,437 26,078 9,969 649 312 25$ a g a i n s t demand, 10$ a g a i n s t t i m e deposits 157,204 96,168 25,843 1,282 558 DEFICIENCY i n special reserve assets 60,885 31,623 5,537 120 23 285,300 .,395 711 454 1,086 209 541 19 7 Liabilities S p e c i a l Reserve A s s e t s EXCESS s p e c i a l reserve assets 31,923 M o u n t o f demand d e p o s i t s supported by #1.00 r e s e r v e s : Under p r e s e n t r e q u i r e m e n t s #5.00 #5.00 W i t h special r e s e r v e o f 10$ 3 . 3 3 3.33 W i t h s p e c i a l reserve o f 2;% 2 . 2 2 2.22 4,239 2,219 1,840 27 440 11 193 3|027 1,162 #7.14 3.33 2.22 983 535 Depends upon S t . requirements 3.33 2.22
