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L. 1 . Piter Bftj&t regarding profereati*! rat* In *©#erd»»ee with your re*p««t» the aj-gu»e»tt adv«»ee4 fey the R«««rf« auric* for em i&orattue i s the preferential rate from %/% t o 3/li f49f etfet rnth«r tbtua i t * •Xiniisuitloa &r« mu follow*) I* By mm*±n$ «a*a* doubt ©a tfe# p«mRa#iio« of th» p»tt«m ef % is4itsatisg A pr#f«r«iie# ©» th« xmrt of for bank inTwit'.n«at In •hort»'t«rsi «*euriti#» # I int«r««t In e«rtlfioatM* 2 . It ahoald !#«»#» th* pr©##»t «tr#a$ app#tit« f^r e « r t i f ! • cate« without un4«rBinin£ %hm lair*#^«®t d«s*^d f@r tlMMi* It would te« l«ss ikkruft *Bi 1»*B lik#ly to ist«rf«r« with «»!#• of mm 5* It w©al4 ra»#r# most of tk« profit l a borrowing to c«rtificsates, wh^rm* olialm»tioa of th« pt*«f«r«&ti*l rm.t« might to h&rrum at tii# rogul*r di»#©«st r*t« i s @rd«r to $«#uriti«« 9 whioh would destroy tfeo warket for It might to»4 to doprosc further tho ;loldt on lorig#r-t#rm «#ourlti««« ii. It would oOBticuo t© oaeourftg*fe*3Dk«to of foot tompormry adJvuitaentt of r«*erT« ^>otition» b^ borrowing, whoroiio ollmisfttioa would «acour*£« thorn to t o l l oortiflomt«t* f&ii would mak« ehaugot i» total iooonro B»ak credit l o t s floxiblo «tnd would la©r«»so 1^so dlff 1* ©ult¥ of anintftteiBg tfeo pattora of ratos* f« It would bo los« ftotioo^felo th*a oliaiitmtimi of tho rato con»»quectly would of for bottor opfortuaity for worklaf out an program with, tho 6« It would iurtle&t** same f l o x i b i l l t y i s Syttom polioy with* out up#otting tho ?• It would IOHTO ««»%«r bMUr« in ft s l i g h t l y ffcferod pooitiom compart with n<mmmh«t i« H would t«ad to euro 9« It would loftTo tho Sy»tom l a m i l e x i b l e petition, whore*« olimiaati .n would SHOEO i t d i f f i c u l t to rolfuit«t# the rmto I f that should lator t o b« d««lrabl«. 0 $m If • 2t would givm the $j*to* an •pptrtuaity to «xusino tbo *oa«ofaoaooo ©f * partial stop In tfeo d««ir*d direct! n, aJttor which ti*o situation oould bo r«~«xajnined to ditiraiM whothar farther action would be aooooMrv a»a v?h»t tha corj»equ#ir»c«a la rlow of tho afpoiiitatoiit ef * now So«rot«ry of tho to d#f«r aaiiojti until * later p for «li«lMiti«» rnth«r than mm iaor«as« «p« as followtt tbi* rat* be«ftttft« th* prebl«i mew i# to r«tard rather than t# «a©earag« bank in a* It* altaination w#@14 not iat«rf«rt with th« war lag pr«gr*»» b#«*wai« n<ml*aV fuB^i ar« flowing into Govtnawnt securiti«« In tr««ndous «®«M»iit i a the dri^#«# b»eau»» conbank b*T« burg* «&i&iNf»t#4 fund»A asi b««au§« fr«m«ury | « It wvuld b« a«r« «ff#etiT« ia •r«4it ami p r l l f ^ l a r l ^ in ratardiag I^uak imT©it««at la securities, ceeaute i t would <s»«t aor« i©«bt cm ttut p«nsAnm«« of fftttera e# rat»« # b##am«« i t wnuH rmm<w* m^r% mt %hm praflt In to |Hirofea*« ««c?«riti©«, am4 %•«»«§« 1% would hair* nor* *tfe@t on th# r*t«i by hmSm on Xtmm to d«al#r« mx4 l^# 1% would fe i t vovJM r^^ro mor« #f the profit In lika t© mak« tb» followiag •••»•»*• o» tha ©f cr»f«•«!©• la tha purl of for oaale inT*«t»aut la short*t«rm iecuriti«s has MA no «ff«@t on teauk iBVootaont 2« 2U«iao.tioa of ttto r*to probably would set uuderain« th# inva«t»«nt ioaamd for eortifioatoo, b«caue« tho ioma»i I* bated larg#Jy en tho ability to t o l l to tho F l o r a l and to mly a limited oxtomt oa tho borrowing rato* 3» It Is difficult to undorotAiiA why banks would borrow wero at 1 for «o»t than ite,v wouli a t 3/I4 for ooet I s ord«r to porehooo t « m •oonritioo* Governor Haaao* flaxlbility la total Kaaaroa Bank ©radit eaa ha maintained If $y§t«a Account operation! ara floxlbla* 5* #r« Ball indicated a prmtmrmem for 6. Eithar ohasga would iadiaata flexibility. / . A • ligfetly faT«r«d petition for »«aber baaka ewer B<aaM»bar ia not i»i?©rtant» iii Elimination *ould ba aor« affaetiva In ewbing 9 # Sew that Traaa-ory l>arrawiag *•*&* ara daclinia^ rapidly, thara ia l i t t i a likallhawi that tha »ytt«a wauld «Ml ta ralaitata tha rata onea i t h*& tern allaixiata4» 10* tha argttaaaat thafc aa iaoaraata ta }/k p»r oant wou!4 tha Syataa an opporttuaity ta aacaaiaa tha ©an««quanc»§ of a partial a tap in tha da«ira4 4ir*etioa b«f«ra iatarmiaing upon •limination B%mm ta *a ta V* tha itrongstt of tha arga«aaata advanced by tha Kaaarra Banks* An inaraaaa to ^/k par om% vould 4e «oas got»dt and oertainly could So n© ft at ham* Aftar parhapt a faw moatha* axpari«Eia« ulth tha 3/f* P * * rata, tha coa8«qu«iic65 of alialeati^n would ba muoh olaarar tjan t hay ara at tha praaaat tl»a. 11 • U tha ahftnga ia not oaia uutil tha maw Seoratary takaa office, i t probably could not bo mad« i»stil aftar tho naxt driva* • HMJ • . •
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