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1220

CLASS OF SERVICE

SYMBOLS

DL=D»yLetter

Th« is a full-fate
Telegram or Cablegram unless its deferred character is inicated by a suitable
.ymbol above or preceding the address.
A. N. WILLIAMS

PRESIDENT

UNION
NEWCOMB CARLTON

LC -Deferred Cable
NLT=Cable Night Letter

J . C. WILL-EVER

CHAIRMAN OF THE BOARD

NT = Overnight Telegram

Ship Radiogram

FIRST VICE-PRESIDENT

Thefilingtime shown in the date line on telegrams and day letters is STANDARD TIME at point of origin. Time of receipt is STANDARD TIME at point of destination

1W SHELT 2

IMS JUL 28 A I I 2 6
M
THE SECRETARY OF THE TREASURY
WASHINGTON

JULY 27,1945.
DEAR MR RANSOM;
SINCE TALKING TO YOU OVER THE TELEPHONE ON MONDAY, * HAVE
GIVEN CAREFUL CONSIDERATION TO THE TWO LETTERS WHICH CHAIRMAN
ECCLES SENT TO SECRETARY MORGENTHAU ON JULY 9, 194$, AND TO THE
MEMORANDUM PREPARED BY THE EXECUTIVE COMMITTEE OF THE FEDERAL .
OPEN MARKET COMMITTEE, WHICH WAS ATTACHED TO THE LETTER WHICH
MR, ECCLES SIGNED IN HIS CAPACITY AS CHAIRMAN OF THAT COMMITTEE.
THE LETTERS AND THE MEMORANDUM CONTAIN A NUMBER OF RECOMMENDATIONS
WITH RESPECT TO THE FUTURE CONDUCT OF TREASURY BORROWING OPERATIONS,
PARTICULARLY THE EIGHTH WAR LOAN, THEY ALSO STATE THAT THE BOARD
OF GOVERNORS AND THE FEDERAL RESERVE BANKS ARE CONSIDERING THE
DISCONTINUANCE, AT AN EARLY DATE, OF THE PREFERENTIAL DISCOUNT
RATE OF 1/2 OF ONE PERCENT ON GOVERNMENT SECURITIES MATURING OR
CALLABLE IN ONE YEAR OR LESS. THE MEMORANDUM STATES THAT
"A NECESSARY COROLLARY" OF THIS. ACTION WOULD BE ".•. THE DlSONTI.NUANCE
OF ATTEMPTS TO MAINTAIN A PATTERN OF RATES EETWEEN THE }/8 OF ONE
PERCENT BILL RATE AND THE 7/8 OF ONE PERCENT CERTIFICATE RATE",
SUBSTITUTING INSTEAD A UNIFORM SUPPORT* PR ICE FOR ALL CERTIFICATES
—

IRRESPECTIVE OF MATURITY— AT A 7/8 OF ONE PERCENT RATE.


http://fraser.stlouisfed.org/
THE COMPANY WILL APPRECIATE SUGGESTIONS FROM ITS' PATRONS CONCERNING ITS SERVICE
Federal Reserve Bank of St. Louis

V,

J
C L A S S OF SERVICE

T n p is a full-fate
Telegram or Cablegram unless its deferred character is inicated by a suitable
,ymbol above or pre*
ceding the address.
_/"

TE
UNION
NEWCOMB CARLTON
CHAIRMAN OF THE BOARD

1220

SYMBOLS
DL» Day Letter
NT •» Overnight Telegram
LC -Deferred Cable
NLT=Cable Night Letter

J. C. WILLEVER
FIRST VICE-PRESIDENT

Ship Radiogram

The filing time shown in the date line on telegrams and day letters is STANDARD TIME at point of origin. Time of receipt is STANDARD TIME at point of destination

JUL 28 AM 11 2 6
I EXPECT TO REVIEW THOROUGHLY THE WHOLE PICTURE OF GOVERNMENT
BORROWING OPERATIONS BEFORE MAKING MY DECISIONS WITH RESPECT TO
FUTURE WAR LOANS. IN THE COURSE OF THIS REVIEW, I SHALL GIVE CAREFUL
CONSIDERATION TO THE CHANGES IN BORROWING TECHNIQUE
SUGGESTED IN THE EXECUTIVE COMMITTEE'S MEMORANDA

WHICH ARE
AND LOOK FORWORD

TO DISCUSSING THESE, PROPOSALS FURTHER WITH YOU AND THE COMMITTEE.
IN THE MEANTIME, HOWEVER, I DO NOT BELIEVE THAT IT WOULD BE
WISE. TO INITIATE AN INCREASE IN SHORT-r-TERM INTEREST RATES.
THE PREFERENTIAL DISOUNT RATE OF 1/2 OF ONE PERCENT ON MEMBER
BANK BORROWING, SECURED BY GOVERNMENT OBLIGATIONS MATURING OR
CALLABLE IN ONE YEAR OR LESS, WAS INITIATED IN ORDER TO ENCOURAGE
BANKS TO HOLD SHORT—RATHER THAN LONG-TERM OBLIGATIONS. ITS ELIMINATION
WOULD INCREASE THE RATE OF INTEREST ON MEMBER BANK BORROWINGS
SECURED BY SUCH OBLIGATIONS FROM 1/2 OF ONE PERCENT TO ONE PERCENT;
AND, CONSEQUENTLY, IT WOUfcD GREATLY WEAKEN THE INCENTIVE OF BANKS
TO HOLD SHORT-TERM GOVERNMENT OBLIGATIONS AT A TIME WHEN WE ARE
BOTH AGREED THAT SUCH INCENTIVE IS PARTICULARLY NECESSARY.
PRACTICALLY ALL MEMBER BANK BORROWING NOW SECURES THE BE^EFIT
OF THE PREFERENTIAL RATE, AND THIS FACT IS GENERALLY KNOWN. THE
ELIMINATION OF THE PREFERENTIAL RATE, THEREFORE, WOULD HAVE THE
EFFECT, BOTH ACTUALLY AND PSYCHOLOGICALLY, OF DOUBLING THE EFFECTIVE
DISCOUNT .RATE OF THE FEDERAL RESERVE BANKS.

I AM CONCERNED THAT

SUCH ACTION, PARTICULARLY IF IT OCCURRED AT THIS JUNCTURE,

http://fraser.stlouisfed.org/
THE COMPANY WILL APPRECIATE SUGGESTIONS FROM ITS PATRONS CONCERNING ITS SERVICE
Federal Reserve Bank of St. Louis

* CLASS OF SERVICE

"ftrfTiis a futl-fate
Telegram or Cable'
gram unless its de/• 'erred character is inI
cated by a suitable
/mbol above or pres
i ceding the address.
"\

A. N. WILLIAMS
PRESIDENT

TERN
UNION
NEWCOMB CARLTON
CHAIRMAN OF THE BOARD

SYMBOLS
D L = D » T Letter

NT ™ Overnight Telegram
LC -Deferred Cable
NLT=Cable Night Letter
Ship Radiogram

J . C. WILLEVER
FIRST VICE-PRESIDENT

in^he date line on telegrams and day letters is STANDARD TIME at point of origin. Time of receipt is STANDARD TIME at point of destination

W5 JUt 28 A I I 26
M
MIGHT BE INTREPRETED BY THE MARKET AS AN INDICATION THAT THE
GOVERNMENT HAH ABANDONED ITS LOW-1NTE REST-RATE POLICY AND WAS
NOW VEERING IN THE DIRECTION OF HIGHER RATES,
I RECOGNIZE, OF COURSE, THAT THE F I X I N G OF DISCOUNT RATES
IS A STATUTORY PREROGATIVE OF THE BOARD OF GOVERNORS AND OF THE
FEDERAL RESERVE BANKS. WE HAVE BOTH ALWAYS RECOGNIZED, HOWEVER,
THAT

IT IS NECESSARY, FOR THE DURATION, TO WORK AS A SINGLE

TEAM IN FINANCING THE WAR IN THE BEST POSSIBLE MANNER. I AM SURE,
THEREFORE, THAT YOU WILL BE WILLING TO CONTINUE THE PRESENT
PREFERENTIAL DISCOUNT RATE AND THE PRESENT POLICY WITH RESPECT TO
SHORT-TERM RATES AS LONG AS I T IS REQUIRED IN THE INTEREST OF
-SOUND WAR FJNANCE.
SINCER&Y YOURS
(SGD)

FRED-M VINSON,

HONORABLE RONALD RANSOM
ACTING CHAIRMAN. BOARD OF GOVERNORS.
OF THE FEDERAL' RESERVE SYSTEM
WASHINGTON 2 5 DC.


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THE
Federal Reserve Bank of St. Louis

RONALD RANSOM.
1102A
COMPANY WILL APPRECIATE SUGGESTIONS FROM ITS PATRONS CONCERNING ITS SERVICE