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EX-OFFICIO MEMBERS W. P. G. HARDING. Governor PAUL M. WARBURG, VICE GOVERNOR FREDERIC A. DELANO ADOLPH. C. MILLER «AM L!N WILLIAM G. McAOOO SECRETARY OF THE TREASURY CHAIRMAN JOHN SKELTON WILLIAMS COMPTROLLER OF THE CURRENCY FEDERAL RESERVE BOARD W A S H IN G T O N H. PARKER WILLIS, SECRETARY SHERMAN P ALLEN. ASST. SECRETARY AND FISCAL AGENT ADDRESS REPLY TO FEDERAL RESERVE BOARD May 22i 1 9 1 7 Dear Sirs: The task of developing an organisation for the success ful flotation of the Liberty Loan through the agency of the Feder al Reserve Banks has made satisfactory progress* All districts re port that the committees organized by the Federal Reserve Banks are actively at work with very encouraging results * At its meeting to-day the Federal Reserve Board consid ered the question how Federal Reserve Banks may use their credit facilities to assist in the placing of the Loan, and it was deter mined that this could be brought about by establishing a special rate for notes secured by Liberty Loan bonds and United States Treasury certificates of indebtedness and by a special ruling ap plying to facilities to be granted to member banks rediscounting such notes for nonmember banks. In order that the instalments due on the Liberty Loan may be steadily and gradually anticipated, the Board believes that all the banks of the country should cooperate in accumulat ing United States Treasury certificates of indebtedness- The pur chase of these certificates in advance of the dates on which the Liberty Loan instalments fall due, combined with the plan of re deposit outlined by the Secretary of the Treasury in Circular No7 9 , dated May 1 6 , 1 9 1 7 , will, it is thought, reduce to a minimum any disturbance of the money market that might result from the transfer of the large sums of money employed in paying for the Liberty Loan, As far as possible all moneys paid in will be returned to the market without delay, in order that there may be no sub stantial withdrawal of funds from general use. With this policy in operation, it is hoped to avoid any appreciable shortage or contraction of banking funds, even though some time be required for the return of the funds to the usual channels. To meet temporary shortages which may arise here and there, however, the Federal reserve system should freely render assistance as needed, and it is suggested, therefore, that when the time for the payment of the instalments draws near Federal Reserve Banks establish or maintain liberal rates of discount at V416 x-16 8 - 2 - which member banks may, by rediscounting with the Federal Reserve Banks, recoup themselves for any unusual withdrawals they may have to meet* The facilities offered by Federal Reserve Banks for the rediscount of 15-day member bank collateral notes, secured by commercial paper or Government securities, should prove of great value in meeting such withdrawals. The rates now established for this class of paper are low, varying between 3 and 3^ Per in the various districts* Banks should realize that, under present circumstances, it will be their patriotic duty freely to avail themselves of these facilities* They will thus be able to keep money rates easy. Member banks should also be impressed with the importance of making their rediscount arrangements in advance of the dates of payment of the various instalments* The Board has been advised that many Corporations includ ing savings banks have agreed to subscribe to substantial amounts of the Liberty Loan, carrying the bonds for their employes subject to payment in small instalments* It has been suggested that it would be helpful t 0 the banks in placing the Liberty Loan, and particularly in assisting corporations which make subscriptions of this character, if Federal Reserve Banks were authorized to es tablish a special Liberty Loan rate of 3 s~ Per cen^ f°r notes, drafts, and bills of exchange drawn by customers of the banks, including savings banks, having a maturity not in excess of 9 ^ days, and secured by Liberty Loan bonds or United States Treasury certificates of indebtedness* The Board has given this matter its careful consideration and has determined that it will grant such a rate to any Federal Reserve Banks requesting it, good un til countermanded or modified* Consideration has also been given to the needs of nonmember banks under jpresent conditions, While the law provides tnat member banks may not, except with the special is$23nof the Board, act as agents in rediscounting for nonmember banks, the Board feels that, in view of the magnitude of the task imposed upon all banks of the country, member tanks should be permitted to rediscount for nohmember banks, including the savings banks, whenever the proceeds have been or will be used in meeting demands caused by subscriptions to the Liberty Loan. From June 15 to July l5 i 1 $1 7 , subject to further hotice, Federal Reserve Banks are, therefore, authorized, for such purposes, to rediscount such nonmember bank paper, indorsed by member banks and otherwise eligible, without any further permission from this Board. It is left to the discretion of the Federal Reserve Banks to with hold the facilities whenever they believe that assistance is requested for other than the large objects and purposes to be carried out at this time. Very truly yours, Vice Governor.
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