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COPY X-6176 FEDERAL RESERVE BOARD To Federal Reserve Board From Governor Young. SUBJECT: October 27, 1928. Topic for Advisory Council Meeting. Section 19 of the Federal Reserve Act permits the Federal Reserve Board, upon the a f f i r m a t i v e vote of f i v e members, to reduce the reserve requirements of member banks on demand deposits when they are located in the outlying d i s t r i c t of a reserve or c e n t r a l reserve c i t y or in the t e r r i tory added to such c i t y by the extension of i t s corporate c h a r t e r . The Board has already granted lower reserve requirements to some of i t s member banks and in such cases the determining f a c t o r s have been distance and the character of the deposit business handled. In cases where the applying bank was conducting a country bank business, the Board has f e l t j u s t i f i e d in denying the request, even though the bank was at a s u f f i c i e n t distance from the main f i n a n c i a l section to grant the request on distance alone. Recently several member banks in what could no doubt be properly defined as outlying d i s t r i c t s of a reserve c i t y have made application f o r lower reserve requirements. If the Board t r e a t s these banks f a i r l y , which i t must do, i t w i l l no doubt grant the requests in some cases because of precedents which have already been established and because similar conditions e x i s t elsewhere where lower reserve requirements have been granted. The d i r e c t o r s of the Federal reserve bank' in the d i s t r i c t in which these applying banks are located recommend- . to the Federal Reserve Board that the lower reserve requirements be not granted, supporting t h e i r recommendation with reasons. If the Board cooperates with the d i r e c t o r s of t h i s p a r t i c u l a r reserve bank, which of course i t wants to do, i t w i l l obviously be in the r i d i c u l o u s position of granting a lower reserve requirement f o r an outlying bank in one d i s t r i c t and denying i t to a bank in another d i s t r i c t s i m i l a r l y s i t u a t e d and with the same character of business. I t would appear, t h e r e f o r e , that the time i s opportune to reconsider t h i s whole matter and when conclusions a r e reached, have those conclusions apply both to f u t u r e requests and also existing permits. In o r der to enable the Board to get the best opinions and information a v a i l a b l e , i t would be appreciated if the Council would acquaint us with i t s views in reference to the following: 1. Should an outlying d i s t r i c t be determined by .distance alone and if so, what distance? 2. If distance alone i s not a determining f a c t o r , should the Board givo consideration to a l l of the following f a c t o r s , or if not a l l , which ones: (a) Outlying banks located in business d i s t r i c t s which depend f o r t h e i r existence to any extent upon commercial business. X-6176 - 2 - (b) Banks located in outlying d i s t r i c t s but in the center of i n d u s t r i a l a c t i v i t y and depending upon manufacturers and others to a large extent f o r t h e i r existence. (c) Outlying banks which s o l i c i t and perform a city-wide business by mail, truck, s o l i c i t o r s , or otherwise. (d) Outlying banks which depend largely upon savings accounts and checking accounts of i n d i viduals and small shopkeepers.
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