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July 27,

Chairman Eccles
L. U. Piser and D. H. Kennedy

Attached is a draft of a suggested circular to
be sent by the Federal Reserve Banks to all banks in each
district designed (1) to induce banks to invest their
temporarily idle funds in Treasury bills and (2) to
reduce the amount of speculative purchases of new securities
in the drive*




July 27, 1943.
Draft of suggested circular to be sent by the Federal Reserve
Banks to all banks in each district.

During the Third War Loan drive in September, banks having war loan accounts
will find that a substantial amount of their individual deposits will be transferred to war loan accounts*

As a result, the required reserves of these banks

will decline sharply and their excess reserves consequently will increase sharply.
The attention of the banks is celled to the fact that this increase in free funds
will b# only te»porary, since it will be absorbed shortly as the Treasury spends
the funds and they are transferred froa war loan accounts to

accounts on which

reserves are required*
In these circumstances, banks are urged to invest their temporarily idle
funds in Treasury bills, which are the best mediuu for adjusting for changes of
this nature*

Banks that hsve sold bills to the Reserve Banks under option can

invest their funds by repurchasing these bills*

Other purchases of bills can

be made by bidding for new issues and by purchasing bills in the market*
Also in connection with the drive, it is desirable to

reduce as much as

possible the amount of speculative purchases of new securities*

In order to

accomplish this purpose, it is suggested that banks sake loans on Governwent
securities for the purpose only of enabling investors to purchase the securities
out of funds that they expect to receive over the next few months.

These loans

should be made on an amortized basis and should be repayable within six months*
Any other loans on Government securities, particularly where the bank believes
that they nay be speculative in character, should be covered by substantial
margins•