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463 federal reserve board WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE TO THE FEDERAL RESERVE BOARD D e c e m b e r 9ยป S t . 6824 SUBJECT: Dear a your letter Federal ficient that, to Mr. I am e n c l o s i n g Attebery, Bank of St. for purpose reserves, and h o l i d a y s the information, addressed Reserve quirement of R e q u i r e d r e s e r v e s o f member b a n k s on Sundays and h o l i d a y s . Sir: For of 1930 shall the required be of reserves based preceding business Louis, Deputy with on d e p o s i t a copy Governor regard assessing of herewith to the at Board's penalties member b a n k s liabilities on for at the de- Sundays the close day. Very truly yours, E . M. M c C l e l l a n d , Assistant Secretary. Enclosure GOVERNORS OF ALL FEDERAL RESERVE B A M S EXCEPT S T . PHILADELPHIA* re- L O U I S AND 464 (COPY) December 9, 1330 St. bS?3 Dear Mr. Attebery; This w i l l acknowledge r e c e i p t of your l e t t e r of November 29, with regard to the requirement of the Board t h a t , f o r the purpose of a s s e s s i n g p e n a l t i e s on r e s e r v e d e f i c i e n c i e s , the r e q u i r e d r e s e r v e s of member banks f o r Sundays and h o l i d a y s s h a l l be based on deposit l i a b i l i t i e s a t the c l o s e of the preceding business day. As you know t h e r e was considerable a g i t a t i o n on the p a r t of member banks in the l a r g e r c i t i e s during the p a s t few y e a r s f o r a change in the Board's Regulations which would permit them to determine t h e i r r e q u i r e d r e s e r v e s , so f a r a s the assessment of p e n a l t i e s i s concerned, on the b a s i s of d e p o s i t s a t the opening of b u s i n e s s . This r e quest was considered by the Governors of the Federal r e s e r v e banks and by the Board on several occasions but f i n a l a c t i o n thereon was not taken u n t i l October 2, 1930 when the Board voted to amend Regulation D so a s to accomplish so f a r a s p o s s i b l e the above purpose. In modifying the r e g u l a t i o n , however, as s t a t e d in ay l e t t e r of November I f , i t was not the purpose of the Board to change the amount of r e q u i r e d r e s e r v e s used i n determining p e n a l t i e s on d e f i c i e n c i e s . Some time a f t e r the issuance of the new r e g u l a t i o n one of the Federal r e s e r v e banks asked the Board whether r e q u i r e d r e s e r v e s f o r Saturdays and days preceding holidays should be r e p e a t e d f o r Sundays and h o l i d a y s , or whether the r e q u i r e d r e s e r v e s f o r Sundays and h o l i d a y s should be based on d e p o s i t s a t the close of busine ss on the immediately preceding days. This matter was given c a r e f u l consideration by the Board, and in order to determine the e f f e c t which the r e p e a t i n g of Saturdays' requirements f o r Sundays would have on r e q u i r e d r e s e r v e s we obtained d a i l y f i g u r e s on d e p o s i t s of member banks in New York City, and found t h a t n e t demand p l u s time d e p o s i t s over the t h r e e - y e a r period 1927-1929 averaged $27,000,000 more on Saturday mornings than on S a t urday n i g h t s . I t i s q u i t e probable t h a t somewhat the same t h i n g holds t r u e a t banks in many other p l a c e s , but whether i t does or n o t , i t i s evident t h a t d e p o s i t s a t the opening of business Saturday a r e d i f f e r e n t than a t the c l o s e of b u s i n e s s , and r e q u i r e d r e s e r v e s based on Saturday morning d e p o s i t s a r e consequently d i f f e r e n t than r e s e r v e s based on Saturday n i g h t d e p o s i t s . 465 It eral is required plying to clear reserve reserve with carry the on a higher at the in order to avoid to carry a any not an of the relates ing fact this of to not of its "business it is of concerned. To Saturday would be of a penalty that for actually require for r e q u i r e d by a regulation a bank f o r a deficiency of the com- a "bank "by i t s compelling deficient issue requirements the Fedto t h a n w o u l d "be c a l l e d can avail opening way reserves in night than of stated on opening it, reserves, law. The which might under in when reserves Federal to a change Reserve Saturday the the deposit in must be re- reserve reserves and requirements as banks regard- do a v e r a g e lowered requirements liabilities morning would, in are the on regulation deficient legal Saturday and any its The B o a r d ' s for on balance balance deficiency therefore, periods, where reduction reserve deposit penalties Inasmuch, cases this requirements. purport over those of closing would create assessment any itself Saturday's Saturday1s amount its the in Saturday urday close with equal Sunday legal that required reserves. their it the could not the in basis does excess that the reserve is "business penalize maintained against duction at a Saturday h a s been o b j e c t e d t h a t a bank which h a s a r e d u c t i o n i n i t s on S a t u r d a y , j u s t i f y i n g a d e c r e a s e i n i t s r e s e r v e b a l a n c e Sunday, because on bank has "business Sunday assessment complying with It deposits over of in feel of deposits reserve circumstances it is Act. a member close so far a s close reserve does if the its law deposits Board that "bank a t less for on S a t - ordinary course of b u s i n e s s , b e a v e r a g e d o u t o v e r t h e r e s e r v e c o m p u t a t i o n p e r i o d . However, a bank which l i t e r a l l y f o l l o w e d the F e d e r a l R e s e r v e Act would n e c e s s a r i l y the close posits at If vided of of the the that each deposit have business close of recent in a amendment at balances the at that as the for the any former state other in your required their deposit liability day. That true, is to carry of the close of Federal the reserve requirements Board's of the Regulation required each day business bank a t on its de- D had pro- reserve shall the member b a n k s a r e reserve on banks such days days, at i.e., the letter makes being the to be balances based preceding day, on its which c o u r s e t h e same a s a t t h e o p e n i n g o f b u s i n e s s question under c o n s i d e r a t i o n might not have deposits regulation to close that Federal same a s You or we a d m i t the required reserves basis are If with with equal deficiencies deposit balances are of on t h e c u r r e n t d a y , t h e serve day business. computing member bank arisen. reserve each any the course, should be on close that Sunday of you specific reserves at on it it of not on find business been on a re- follows the deposits, pamm which Saturday. that the present t o member banks on h o l i d a y s based reference has carry calculated business do to logicallv morning Sundays and close but required on S u n d a y s on the the preceding practice in the on p a s t to r e p e a t S a t u r d a y ' s reserve requirements f o r Sunday, and t h i s meant t h a t the Sunday's r e q u i r e d r e s e r v e s were "based on dep o s i t s a t the c l o s e of business Saturday. This i t would seem conforms to the i n t e n t of the Federal Reserve Act which presumably intended t h a t banks should maintain required r e s e r v e s with the Fede r a l r e s e r v e banks a t a l l times or be s u b j e c t to a p e n a l t y f o r def i c i e n c i e s . Under your proposal, you would r e q u i r e a bank to c a r r y a r e s e r v e on Sunday based on d e p o s i t s a t the c l o s e of b u s i n e s s Friday, which the Board f e e l s i s not c o n s i s t e n t with the p r o v i s i o n s of the Federal Reserve Act. Inasmuch a s member banks are permitted to average t h e i r r e quired r e s e r v e s over given p e r i o d s the n e c e s s i t y of knowing a c t u a l r e q u i r e d r e s e r v e s f o r Sundays and h o l i d a y s during b u s i n e s s hours on the preceding days i s not of g r e a t importance except when a reserve computation p e r i o d ends on Sunday or a h o l i d a y . Reserve computation p e r i o d s f o r banks in c e n t r a l reserve and reserve c i t i e s never end on Sunday and r e s e r v e computation p e r i o d s f o r a l l other banks a r e on a semi-monthly b a s i s . I t i s f e l t , t h e r e f o r e , t h a t the Board's r e q u i r e ment would not s e r i o u s l y inconvenience member banks i n view of the comparative infrequency with which reserve computation p e r i o d s end on Sundays or h o l i d a y s . This l e t t e r was p r e s e n t e d to and unanimously approved by the System's Committee on Bank Reserves. In accordance with a f u r t h e r recommendation of the Committee a copy of t h i s l e t t e r i s being sent to each Federal r e s e r v e tank. Very t r u l y yours, E. M. McClelland, Assistant Secretary. Mr. 0 . M. Attebery, Deputy Governor, Federal Reserve Bank, St. Louis, Mo.
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