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Chairman Eccles


December 8,


Reserve position of banks

L. M. Piser

Between July 12, the reporting date immediately following the end
of the Fifth War Loan, and November 15, the reporting date immediately preceding the beginning of the Sixth War Loan, both the outflow of currency into
circulation and the increase in required reserves amounted to 2.2 billion dollars . The total reserve needs of member banks, including other factors, were
3.9 billion dollars. Of this total, they supplied about 500 million dollars
by reducing their excess reserves from the high levejL reached at the close of
the Fifth War Loan to the more normal level of 1.1 billion. They also supplied
about 300 million dollars by borrowing from the Reserve Banks.
The remaining 3*1 billion dollars was supplied by an increase in
Federal Reserve holdings of Government securities. The increase in holdings
included 2#9 billion dollars of Treasury bills, divided between 1*3 billion
in the option accounts and 1.6 billion in the System Account. About 600
million dollars consisted of certificates and 0«90 per cent Treasury notes.
On the other hand, the Federal Reserve sold about i . 0 million dollars of other
Treasury notes and of Treasury bonds.
Between November 15 and December 6, required reserves declined by
about 700 million dollars. The influence of this factor was more than offset,
hew-ever, by other developments, including a continued outflow of currency in
circulation. Member banks also built up their excess reserves by about 300
million dollars. As a result, Federal Reserve holdings of Government securities increased by an additional I . O million dollars. This increase was
accounted for by certificates and 0*90 per cent notes, while an increase in
bills in the System Account was about offset by a decline in bills in the
option accounts.
Between December 20, the reporting date inEnediately following the
end of the Sixth War Loan, and April 18, which may be about the beginning of
the Seventh War Loan, it is estimated that the reserve needs of member banks
will be between 2.2; and 2«9 billion dollars. The range in the estimate is
based on different assumptions as to the end of the war in Europe, the lower
figure assuming that the war will be over at the end of December and the higher
figure assuming that it will be continuing at the end of the period. If 500
million dollars of these reserve needs are supplied by a decline in excess reserves and 300 million by borrowing from the Reserve Banks, the increase in
Federal Reserve holdings of Government securities will be between 1.6 and 2.1
billion dollars.
Holdings of Government securities by all commercial banks increased
during June and July by 9 billion dollars, compared with an increase of 5 billion
during the Fourth War Loan. Between the end of July and the end of October,
commercial banks reduced their holdings by 2 billion dollars• It is too early


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as yet to make a definite estimate of the increase in commercial bank holdings
during November and December, but on the basis of developments to date it seems
likely that the increase will be in the neighborhood of 6 or 7 billion dollars,
or between the results of the Fifth War Loan and the Sixth War Loan. If this
result is actually achieved, the total increase in holdings by the banking
system for the calendar year will amount to 23 billion dollars, compared with
an estimate made at the beginning of the year of an increase of 22 billion.
Of this total, 7 billion dollars will be in holdings by the Federal Reserve
and 16 billion in holdings by commercial banks.