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FEDERAL RESERVE BOARD WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE T O T H E FEDERAL RESERVE BOARD X-7325 January 13, 1933. SUBJECT: Extension of P r o v i s i o n s of S e c t i o n 10(b) and the Second Paragraph of S e c t i o n 16 of Federal Reserve Act, as Amended. Dear S i r : For your information there i s transmitted herewith copy of a l e t t e r dated January 9, 1933, addressed t o the Chairman of the Senate Committee on Banking and Currency by Governor Meyer i n which the Federal Reserve Board recommended the enactment at t h i s s e s s i o n of the Congress of appropriate l e g i s l a t i o n extending f o r at l e a s t one year from March 3 , 1933, the*authority conferred "by s e c t i o n 10(b) and by the second paragraph of s e c t i o n 16 of the Federal Reserve Act as amended by the Act of February 27, 1932, known as the G-las s~ S t e a g a l l Act. A s i m i l a r l e t t e r bearing the same date was addressed • the Chairman of the House Committee on Banking and Currency. Very t r u l y yours, Inclosure. Chester M o r r i l l , Secretary. TO CHAIRMEN AND GOVERNORS OF ALL F. R. BANKS. COPT X-7325~a Jan 9 1933 Honorable Peter Norbeck, Chairman, Senate Committee on Banking and Currency, United S t a t e s Senate, Washington, D. C. Dear Mr. Chairman: The Federal Reserve Board r e s p e c t f u l l y recommends that appropriate l e g i s l a t i o n he enacted at t h i s s e s s i o n of the Congress extending f o r a t l e a s t one year from March 3, 1933, the a u t h o r i t y conferred by s e c t i o n 10(h) and hy the second paragraph of s e c t i o n 16 of the Federal Reserve Act as amended hy the Act of February 27, 1932, known as the G-lass-Steagall A c t . The G-lass-Steagall Act amended the Federal Reserve Act "by adding thereto s e c t i o n 1 0 ( b ) , which authorizes the Federal r e reserve banks, u n t i l March 3, 1933, i n exceptional and exigent circumstances and subject t o the a f f i r m a t i v e a c t i o n of not l e s s than f i v e members of the Federal Reserve Board, to make advances to member banks which lack s u f f i c i e n t e l i g i b l e and acceptable a s s e t s to enable them to obtain adequate c r e d i t accommodations from the Federal r e serve banks by the customary methods. TZhile demands upon the Fed- eral r e s e r v e banks f o r accommodations under s e c t i o n 10(b) have not been l a r g e , the e x i s t e n c e of the a u t h o r i t y t o extend such accomodat i o n s has been a h e l p f u l f a c t o r i n the disturbed s i t u a t i o n through which we have been p a s s i n g and has enabled the Federal r e s e r v e banks to render s e r v i c e to i n d i v i d u a l member banks i n a number of i n s t a n c e s . The G-lass-Steagall Act amended the second paragraph of 9 X-7325-a honorable Peter ITorbeck - (2) s e c t i o n 16 of the Federal Reserve Act so as to provide that u n t i l March 3, 1933, should the Federal Reserve Board deem i t i n the p u b l i c i n t . e r e s t , i t may, upon t h e a f f i r m a t i v e v o t e of not l e s s than a majori t y of i t s members, authorize the Federal reserve banks to o f f e r , and the Federal reserve agents to a c c e p t , as c o l l a t e r a l s e c u r i t y f o r Federal r e s e r v e n o t e s , d i r e c t o b l i g a t i o n s of the United S t a t e s . This amendment provides t h a t such a u t h o r i z a t i o n s h a l l terminate on March 3, 1935, and such o b l i g a t i o n s s h a l l be r e t i r e d as s e c u r i t y f o r Federal reserve n o t e s . On May 5, 1933., the Federal Reserve Board author- i z e d the Federal r e s e r v e banks to pledge d i r e c t o b l i g a t i o n s of the United S t a t e s as c o l l a t e r a l f o r Federal reserve notes and the procedure t h e r e f o r was s e t out f u l l y i n the Federal Reserve B u l l e t i n f o r the month of May, 1932, a copy of which i s i n c l o s e d f o r your convenience. In the opinion of the Board, the authority granted by s e c t i o n 3 of the G l a s s - S t e a g a l l Act has served a very u s e f u l purpose. In t h i s connection, i t may be s t a t e d that the Federal reserve agents and the Governors of the Federal r e s e r v e banks have recommended unanimously that the a u t h o r i t y conferred by t h e s e prov i s i o n s be extended f o r at l e a s t one year and that the Federal Adv i s o r y Council, at i t s meeting i n Washington on November 17, 1932, adopted t h e f o l l o w i n g r e s o l u t i o n : "It i s the sense of the Federal Advisory Council that Congress be asked to extend f o r a period of at l e a s t one year the p r o v i s i o n s of Section 10(b) and S e c t i o n 3 of the G l a s s - S t e a g a l l B i l l , H. R, 9203." t o X-7325-a Honorable P e t e r iTorbeck - (3) TThile t h e Grlass-Steagall Act was under c o n s i d e r a t i o n i n Congress the q u e s t i o n of the a d v i s a b i l i t y of l i m i t i n g t o I/iarch 3 , 1953, the "period i n which the a u t h o r i t y conferred "by t h e second and t h i r d s e c t i o n s t h e r e o f could be e x e r c i s e d was d i s c u s s e d and i t was p o i n t e d out then that i f experience should i n d i c a t e t h e wisdom of extending the p e r i o d , there would "be ample time "before i t s e x p i r a t i o n f o r Congress to take the necessary a c t i o n . The Federal Reserve Board f e e l s that the Congress might w e l l consider the enactment of t h e s e p r o v i s i o n s i n permanent form, ^'itli whatever safeguards may "be deemed appropriate as t o the e x e r c i s e of the a u t h o r i t y granted "by them, "but, i n any e v e n t , i t i s the o p i n i o n of the Board t h a t , i n view of e x i s t i n g c o n d i t i o n s , i t would "be h i g h l y d e s i r a b l e t o extend such a u t h o r i t y f o r a t l e a s t one ;~ear beyond March 3 , 1933, Respectfully, Eugene Meyer, Governor. Inclosure.
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