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DECLASSIFIED

! Authority 8 4 ) m r l S 2 & e

Form P. R. 567

END SHEET
K IN D OF M A T ER IA L OR NUMBER

333#3-&

name o r s u b j e c t

Federal Open Market Conmittee
Open Market Operations

DATES

Oct - Dec 16 1935

(In c lu s iv e )

PART NUMBER




Part 3

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Authority Qdjfciilf /Q'&S#

C
0
p
I

FEDERAL RESERVE BANK OF KANSAS GITf
November 24, 1956*

Mr* M* S* Eccles,
Chairman, &oard of Governors
Federal Reserve System,
Washington, D» C*
Bear Hr* Icclesi
There seemed to be no opportune time during the recent meeting of
the- Federal Open Market Committee .for me to express ay opinion with refer­
ence to open Market operations or member bank reserve requirements, and
I am taking the liberty of giving my views by letter*

While the responsibility with reference to member bank reserve re­
quirements is wholly upon the Board of Governors, nevertheless discussion
of the subject was -Invited, particularly on the part of the bank represen­
tatives on the Open Market Committee*
I was impressed with the statement made by Dr. Goldenweiser that

raising the reserve requirements on country banks to the limit permitted
would be of relative unimportance, as the 'total would amount to three to
four hundred million dollars and only to that extent would It affect the
amount of excess reserves. While with few exceptions the country banks In
the tenth district could meet the additional reserve requirements without
liquidating bond accounts or borrowing from the Federal Reserve Bank,
nevertheless most country banks find It desirable to maintain a substantial
account with some friendly reserve city correspondent. Such banks would,
not deem It advisable to oarry their total reserve balance with the Federal
which might be necessary to avoid borrowing money for reserve purposes*
Additional reserve requirements would tend to put member country banks at
a further disadvantage in competition with nonaember banks, and might in .
some instances influence their withdrawal from the system*

It would be a

further handicap in obtain new State member banks, and I for one hope that
an Increase in reserve requirements when made effective be not applied to
country banks*
Concerning Open Market Operations*
I feel that there is a great deal of merit in the suggestion that
something be done in the near future* 1 feel, of course, that no action
should be taken prior to the December financing, but at any convenient time
thereafter it would be desirable to let some of our bills run off if only
for the psychological effect of getting the public and the banks accustomed




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IQQ&Lf)

Hr# H. S. Iccles

to tla# operation* The open market account has remained static so long that
unless the public is made accustomed to some changes in the total holdings
in the account, with an accompanying explanation that such changes do not
represent a reversal of policy, I fear that when the time comes to use this
method of credit control the' shook and repercussions will be greater than
we would anticipate and be so extensive as to be undesirable *
I believe Mr* Ransom made the statement that he had not fully made
up hi# Hind as to whether or not it was desirable to have the shock as great
as possible in order to sake the open market operations more effective, but
I believe there could be danger in too great a shock. There is no doubt
that many banks are watching the system*s holdings with the idea of dumping
whenever there is a change made in our policy, and I for one do not believe
that a wholesale dumping of securities would be desirable or in the public
interest*
A careful engineer tests his air brakes a mile or two before reach­
ing a stopping place, and I feel that such a test should be made of our
open market authority from time to time. A few banks might become littery
when such a test is made, but the best time to find out what the results
might be would be when the bond market is strong as ii is at this time*
A convincing statement could be made to accompany the running off of a few
millions of bills- that this does not constitute a reversal of policy and
we would always step in and reverse the action if the repercussions were
greater than expected. In any event I feel that it is worth attempting and
I believe the experiment would be more effective if made in a small way both
before and after reserve requirements are raised*
lours very truly,
(signed)

Geo. H* Hamilton
Geo* H* 'Hamilton,

en**'V
,
P* S* After dictating the above statement a letter was received from a member
bank, copy of which is enclosed herewith*
This banker is more articulate than most country bankers, but in a
general way I think he expresses the views of most of them* At that he is in
a little different situation from the smaller banks in the smaller towns as
their holdings of Governments are almost entirely in bonds* These little
fellow* are more concerned with the bond market than the Joplin banker is, as
he is in a short term position and to that extent I believe they are more sus­
ceptible to panic, unless they are .made accustomed to some open market action
by the O p m Market Committee*




(initialed)

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JOPLIN SATXOMAL BANK k HHJ&T GOMFAHI

Joplin, Missouri,
Horeaber £5* 1956#

Sir. Georg* B* Hamilton, President,
Fcdord Reserve Bank*
Kansas City, Mo*
Dear Mr. Hamilton*
X have noted with s o m interest in the daiiy press a ,
euggeation that the Federal Reserve B o w l had under consideration the ;
;
proposition to further increaae reserve requirements for aeaber bank** ■
I sincerely hope such action will mot be taken -or if it does, it will
not be sade to app3# to.
tti* general run of country institutions*

A country bank like the Joplin National, has nothin
to do with the natter of increase ia gold reserves*. It eeems to we
this proposition affects the largo banlcs mt the gaoney
directly
and the saaller 'banks auch less, if any, and In a very indirect manner*
% sympathise with the effort® of the federal Beaerve Board and the fed­
eral Reserve % ‘
siem to control runaway earkets la securities and oommodlties. Fro* .the standpoint of a country bank, however, it would sees t .
o
ae that haring already made a 50£ increase''in reserves for menber banks.
It would be fair to now try out' the alternative of selling United states
bonds in order to influence the market.
Xou realise, of course, that in our came as with all
banka of like character, we are confining ourselves largely to short taro,
low 'rate invoauaents. the commercial deaand haa shown a alight improve­
ment but notains material as yet# *• are vitally interested in protect**
ing our capital funds from depreciation when the ultimate increase in ia»
tereiit -rates- coaea and bring© along a depreciation in longer term securi­
ties. This being true the only chance we h a w to maintain earnings at
all 1* through an increase in ?ditst«* Our deposits show a 'substantial
increase but if reserve requirements were again substantially raised* it.
would limit our remort to this procedure in what seems to me a very esrioua
msy*

I
a - writing you with 'the hope that you may appreciate
m
and see some merit in ny argument and If aof that you may communicate a
viewpoint of at leaat oae country banker, to fee Federal Reserve authoritiesin auch manner am you may see fit*




H t h very kind regards, X am
Sincerely yours,
(Signed) J. £. Germ
' J. 1. Gar*,
Pxwldtaftt*

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*

*

16, 1956,

Whether ambers

ic* fVymtt, t e l l Counsel
fr

as* FU trtl

of

O p m If
crloet CcwlttM wil 1 be require

1

Haekley, L
ae* ’
lerlr.

to take 0*th» of offiea*

I.

q ;*stick fees *:ted
;

Uaier Motion ISA of tho Fedor*! Keeerte Aot a* aaaanded by
the Bonking Aot of 193$, tho Federal qpen Ifcrket Coaedttoo After
Maroh 1# 1956* will consist of tho nuftero of tho Board of Govemoro
of tho Federal Reserve System end five representatives of t i > deral
le

Reserve banks* The q ootion arises whether the soakers of the

row

ooaenittee vill bo required under tho lev to ta&e oet e of offioo*
ii* o p b i o :
:

In the opinion of the under*igned* oil the neabors of the
amr Federal C^on tlartoet Cosssdttoo will bo of'ioer* of the

nited State*

and will t erefore be required to take oatha of office*

III.

C0TI3TI7 TIOEAL AND STAT TORY ;Wfc:i#;S.

Artiolo 71, paragraph 3, of the Constitution of tr*e 'nited
States provides as follows*




"The Senator* and Representatives before men­
tioned* and tlie «akers of the several State Legis­
latures* and all executive and judicial Officer*,
both of tho nited States and of tite aeveral States
shall \ e bou'd W flaW or Affirmation, to support
s
fei* Oon*tituti<m| tut no religious Vest shall ever
T*T required as a 4ualifioation to a^y Offioe or
public Trust under the ’
kited States•" (:nderscoring
supplied)

The Plaited States Code, title

B0

sectior. 1G# provides ms

f o il curs*
"The oath to b© taken l y any person elected
a
or appointed to any office of honor or profit
.
either in the civil, militar, # or n . e 1 servioe,
rvt
except the President of t e nit .d tates s'all
be as followsi •I, A 3, do aolermly swear (or
aff'
ra) that I will support and defend ti e Con­
stitution of the nit ad itates against all fmeries,
farei&Bk and domestic! t at I will bear true faith
and allegiance to t e sajroj t•at I take this obli­
i
gation freely, without any wonts 1 reservation or
purpose of evaaioni and that 1 will roll and
faithfully discharge t © d ti ?s of the offlee on
which I aa a.out to enter. So help me ~od. * ? is
section shall not affect the oaths prescribed by
existing statutes in relation to the -erforntuic©
of duties in special or particular subordinate
offiees and employments•"
Xb addition to the general provisions of this section of the
Code* t ere are numerous provisions of law specifically requiring that
eertaln officers of the United States take oaths of office before enter­
ing upon their duties•

For ex&aple* the oath of office Is expressly

req ired to be taken by the aensbers of Congress ( !
*S.C.# title 2*
see* 21, 25) j directors and officers of t e Reconstruct ion Finance
Corporation (U«S*J«, title 5, see* <303)| the Controller of the Cur­
rency (

title 12, see* S)| nanbers of the Federal

asm

Loan Bank

Board ( #S •€*, title 12* sec. 1437) j and awabors of the hoard of Governors
of the Federal Reserve System ( V>*e*# title 12# see* 242)*
With respect to the organisation of the

mm

Federal Open Market

Comittee, section 12A of the Federal Reserve Act as amended by the
Banking Act of 1935, provides as follows i




‘There is hereby created a Federal Open
’
harket Coaalttee (hereinafter referred to as

•3*

•

•

•

•

the ’Coaanittee* )# which shall consist of t:
+
members of the Brard. of Gcrremors of the Federal
Reservo Systen and five representative* of the
Federal Reserve basics to be selected as hereinafter
provided* Such representatives of the Federal Heserve banks shall be eleeted annually as follows*
One by the boards of directors of the Federal Re­
serve Banks of Boston and Kew York, one by the
boards of directors of the Federal Reserve Baziks
of Philadelphia and Cleveland, one by the boards
of directors of the Federal Reserve Banks of Chicago
and Saint Louis* one by the boards of directors of
the Federal Reserve i enks of Richmond, Atlanta,
i
and Dallas, and one by the boards of directors of
the Federal Reserve Banks of lianeapolis, Kansas
City, and San ^ranoisoo* An alternate to serve in
the abeenee of each such representative shall be
eleeted annually in the same nan >e
r. The meetings
of said Cooedttee shall be held at Washington,
District of Columbia, at least four tinea each year
upon the oall of the ehalnnn of the oard of Governors
of the Federal Reserve Syate* or at the request of any
three Members of the Cownittee."
IV. DIS0OSSIOK
(A) awsbers of the Co»aittee mat take oath if "officers of Qnited States"

Slnee the lav does not specifically require that the nenbers of
the new Federal Open ISarket Cownittee shall take oaths of office, such
a requirement Bust be fo»md either in the provision of article VI of the
Constitution or the previsions of seotior 16 of title 5 of the nlted
States Code.
The courts apparently heve had no occasion to construe the con­
stitutional prorision whioh requires every judicial or executive officer
of the United States to take an oath to support the Constitution* How­
ever* It is not believed that that provision ®lene would be sufficient




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to require the raerobers of the new Federe1 Open Market Committee to take
oaths of offlee since, as will be indicated later in this memorandum,
they will not be “officers of the United States’ within the meaning of
*
the Constitution. Accordingly, the question must be detemitted from a
consideration of the provisions of section 16 of title 5 of the United
States Code.
Seotion 1 of title 5, chapter 4, of the United States Code
provides that the provisions of that ohapter shall apply to "the fol­
lowing exeoutire departments'* and the executive departments of the
Government are listed.

Sinee seotion 16 of title 5 is a part of that

ohapter, it may be argued that that seotion is applioable only to the
executive departments and would therefore not apply to independent
agenoies suoh as the Federal Open Market Conmittee • However, the two
seetions were not parts of the ease statute and it is believed that
section 16 is applioable, as it in terns so states, to "any person
eleeted or appointed to any officer of honor or profit"• Moreover, it
siy be noted that the Attorney General of the United States has held
that the seotion is applioable to members of Congress (17 Op. Atty.
Pen. 419) and they cannot be regarded as officers of an executive
department.
It seems clear that the statute hare in question does not ap­
ply to all employees of the Government, but is applioable only to per­
sons who way be regarded as *offioers of the United States*N Thus, as




early at 1868, the Attorns? tfameral of M m United Statee held that *
similar ititnt* (ilMt np«il«d) did not iMluii persons la the
serrlee of the f i i r
lyr—

t eho n y be called aaployeee, as contradis­

tinguished from officers of the Ifeited States. 12 Op. Atty. Qsm. M l .
Furthermore* the very feet that ea eati ef efflee la required has been
regarded as one of the clreumstenees dlatinguishlng an "officer" trma
an "ss^leyee".

United States t> Germaine, 90 U.S. 608, S S(1878)|
O

Martin ▼. United States. 168 Fed* 198 (C.C*A. 8th, 1909)i Metealf &
Bddy t> Mitchell, 869 U«S« 514 (1926)* In tier of these authorities.
It seoas unnecessary to determine whether the x e n e a of the new Federal
tabr
Open Market Committee will be "«ployees" of the Ooveraneate

The statute

is applieable only to offleers of the United States and the acmbers of
the new Committee will be required to take oaths of offloe only if they
■ay properly b o regarded as suoh offloors*
t
(B) Members of the Co— ittee will not be "officers of the United States"
in the sense of the Constitution.
Apparently the oourts hare not had oeoasion to determine
definitely who are "officers" within the meaning of the statute here
under eonsideration. iowever, the Attorney General has declared that
postmasters. In common with all other officers of the United States exoept the President, are required to take the oath of offioe prescribed
by this statute.

18 Op. Atty. Gen. 181, 182 (1886).

t e has also rulec,
i

with respeet to a similar statute enacted In 1862 and repealed in 188J,
that clerks in the executlre departments (12 Op. Atty. Gen. 621) and




•

m

•

*

6-

Mtoere of Congreae (IT Op* Atty* Qtn, 4X9) ware required to take tho
oath preeoribed by that atatuto* However, la no reported eaae or
deeiaion of tho Attorboy General haa thoro boon a dissuasion of tho
queation whether poraona deaignatotl at tho ra«abere of tho now Comaittoo
will bo deeignated aro "offioora of tho Unitod Statea" within tho moan*
ing of tho atatuto horo under oonaideration or within tho moaning of
any othor atatuto*
Tho now Federal Open Market Committee will be oonatituted in
an unuaual and apparontly unprecedented method*

Fire of the aembora of

tho Coanittee will bo aolootod by tho Fouor&l Keaerve banka*

Tha othor

aeven aambere of tho Comit too will alao bo membera of tho Board of
Goromora of tho Federal heserve System*

In tho lattor

capacity

thoy

will bo "publio offioora* of tho Unitod l»tatee (SO Op* Atty* Gen* 508)*
That fact alone, however, would not make than offioora cf tho Unitod
Statos in thoir capacity aa members of tho Federal Open Market Coanittoo*
In this connection, it may bo notod that in 1907 tho Attorney Jeneral
hold that whore tho Coamiaaioner of Labor waa appointed to memberahip
on tho Immigration Cowedaaion, ho waa not appointed to another "office"
within the meaning of a atatuto prohibiting the holding of more than
one lucrative ’
offioe”* 26 Op* Atty* Uen* 247* i i opinion waa baaed
ia
on tho foot that the dutiea of the menbora of the Immigration Comniaaion were not of a continuing and permanent nature and that they were*
therefore, not offioora*

Thia deoiaion indioatoa that the question

whether the membera of the new Op«n Market Committee will be officers
of the United Statea auat be determined without regard to the faot that




*

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—

[■I
H E
they msy already be offleers of the Unite* States in anoter capacity.
In the abeenoe of authorities discussini* the status of persons
designated in the manner in wfcioh the members of the Costnittee will
be designated, it is necessary to examine the decided eases with res ect
to the general meaning of the phrase "officers of the United States"*
With respect to the appointing power of the President* Article II,
Motion 2, of the Constitution of the United States provides as follows*
*e * e he [the President ] shall nominate and by
and with the advise and Consent of the Senate*
shall appoint Ambassadors, ether ptxbllo Ministers
and Ceneuls* Judges of the supreme Court* and
all ether Officers of the United States* whose
Appointments are not herein ottarwise provided
for* and witleh shall be established by ^nrt hut
the Congress may by Law vest the Appointment
of siaoh inferior Officers* as they think proper*
in the President alone* in the Courts of lew* or
in the Heads of Departments**
la view of this provision* the Sugnrens Court of the United States
has uniformly held that a person can he regarded as an "offleer of the
Itoited States" in the sense of the Constitution only if he is appointed
by the President* by and with the advioe of the Senate* or by a eourt of
I s sr he*i of a department* lilted States
sr

Germaine* 99 0* 8* 508

(1S78) | Ihited States ▼» Mwat, 124 u*S* 80S (1888) f United States ▼*
Smith* 124 U*S* 626 (1888)* Burnap v* lilted States, 262 U*S* 512 (1920)*
this so-sailed "constitutional" definition of an "offioer of the ignited
Stateo" has been strictly applied* although it has been interpreted as
including persons appointed by an Inferior officer of an executive depart*
ment with the approval of the head of that department (Phlted States
Isarteell* 78 i. 6* 386 (1867)I Woodford v* Halted States* 77 Fed* (2d) 861
!

http://fraser.stlouisfed.org/
_______________________________________________________________________
Federal Reserve Bank of St. Louis

i

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(C.c.A* 8th, 1&S5)), provided such appointment is expressly authorised

by law (Unitec, States

i..uuat, supra)•

Clearly, the members of the ew Federal open Market Committee
selected by the Feueral Reserve banks will not be appointed by the
^resident, the head of a department, or a oourt of law*

It is true

that members of the Committee who will also be members of the Hoard
of Oorernors of the federal Keserve System will hare been appointed by
the President with the advioe and consent of the Senate j but their
appointments will hare been to membership on the board of Qo^mmorn and
not to membership on the Federal Open Market Co dtt©#.
ras

In so far as

they will be members of the Committee, t e , will hold their positions
h;
at the result of direct legislative appointment, and not as the re­
sult of appointment by the President or the head of a department*
It seems obvious, therefore, that the members of the new federal
open Market Committee will not be “officers of the United states* in the
constitutional sense, since their offioes will not be derived from any
of the sources mentioned in the Constitution*
yC) The statute includes "officers of the United States** in the broad
sense of the tern*
In United States v* Mouat, 124 U* 8* 909 (1888), the Supreme Court
held that a paymaster's elerk appointed by a paymaster In the Navy was not an
offioer of the Navy within the meaning of a statute allowing benefit ef mile*
age* sinoe the clerk dli net fulfill the constitutional definition of an effloar*
On the



day, however, the Suprema Court held that sueh a paymaster’s

*

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alark m

{

*

•

•

mi "effiaer* of ths HSfiy within the mssnlng ef a statute

relating ts the lemgerlty psy of offiaers and enlisted w m in tha Arwy
and Na*y*

Ifrltad Stmt— v» Hand— , 124 U. S. 309 (1868)*

In Justifying

this ooacluaion* tha oourt saidt
"Wa hats Just decided* in tha oase of United
Statas
Mouat, ante, 80S* that a peyaaster^s elork
ISnoi#% & e ocSmutloaal sansa of toe word* s»
officer of tha United Statasi but wa addad also that
Cengrass may haws used tha word ,
affiaer9 in a lass
striet sansa in soms other conneotioi^ and in tha
passage of aartain statutes ml^it haws intended a
more popular signification to ba given to that term#
• * *

"* * * Ha ara of opinion that tha word •offioer*
is usad In that statute [tha ona under consideration
in this oasa] in tha more eneral serse whioh would
inaluda a paymaster's clerks that this was tha in­
tention of Csograss in its enactment, * *
Similarly* tha tsrm *offlaer of tha felted States" was given
a broad connotation in Steele
(1925)«

nited Statas ?io< 2,

267

S* 605

That ease was an appeal from a conviction for unlawfully

possessing intoxicating liquors in violation of tha 'iational Prohibition
Aot*

The defendant contended that einse the warrart under whieh he was

arrested was issued to a general prohibition agent, it was not issued
ta a "olril offioer

f tha inited States" as required

by

the lew.

It

was held, for reasons not here xmterial, that that question was res
adjudicate as to the defendant} but the eourt took the occasion to
refute the defendant’s content ion that the prohib tion agent was not
an officer of the Exited Statas* and in this connection stated *




"♦ ♦ * It is quite true that the words ’officer
of the United States’, when employed in the statutes
of the Ignited States* is to bo taken usually to have
the limited constitutional meaning. * * * But wa
find that this Court in consideration of the con-

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text h u soswtlaes g i m it an enlarge* t— wing *»d
al
h
hm» found it to include others then those appointed
b r the President, hseds of the depertasrts, and cohorts"*
g
(267 U* S* at page 807)
Ob the authority of this ease* prohibition agents, although not apponted
In any of th* nethods mentioned In the Constitution, have been held to
be "offleers of the United States”* Carvalho t* United States, 54 Fed,

(2) 232 (C,C,A# 1st, 1931)*
In Tiev of these deeisions. It apneerw that a person aay be
regarded as an "offleer of the United States" within the meaning of
certain statutes, although he is not such an officer within the strict
constitutional sense#

Accordingly, two questions are suggested * (1) whet’er

the statute Here under consideration requiring oaths of office applies to
"officers of the United States" within the broad ncaning of the term as
well as within the meaning of the Constitution? and (2) if so, whet
the members of the Federal

pen

Mturk&t

er

Cosnittee will be of ^Ic rs of the

•nited States in tvis broad a d popular sense*
The first question appears to be disposed of by tie very wording
of the statute*

It Is

expressly

applicable to persons "elected or appointed”

to any office of honor or profit| and sinee the constitutional definition
appears to include only persons who are appointed to office it would not
seem to be contemplated by t e statute*

'Moreover, it

those cases in which t1e Supreas ;.'o
urt of the
strict constitutlonel definition
of criMnal statutes*

were

The stet to

be noted that

nited States applied the

cases involving the construction

ere \mdvr

consideration is not a

criminal statute and need not be strictly consttued*

Accordingly, it is

believed that the statute m y properly be construed as inc1-ding persons



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who are "officers* in t n usual sense of the
'o

terms

«

and, it remains therefore

to determine whether the aft&bere of the Committee will be "officers” within
that meaning of the term and without regard to the strict constitutional
definition#

(p) Member* of the Coaaittee will be "officers of the ifalted States”

within the broad sense of the torn*
In the first plaee* it seeras to be well settled that in order
for a person to be an officer he m e t hold a publio position created
or provided for by the Constitution or by law*

liaigbt v> Caagiiiaioner,

52 Fed* (2d) 779 (C,C*A* 7th, 1931)| Ustcnlf A Lddy v. Mitchell, 269
U.S. 514 (1925)$ lilted States v* Galbreath, 8 Fed* (2d) 560 (D.C.Calif.
1926).

With respeot to this requircaerrfc, there would seem to be no

difficulty in the present case*

The members of tho Cojaeaittee will hold

offiee expressly created by a statute of Congress*

A fundamental characteristic of a public officer is that lie
exercises sons portion of the sovereign funetions of GoTsrnaent for the
benefit of the public. People ▼. Brady, 302 111. 576, 125 3*E« 87f
State ▼* MoLaurln* 131 So*89,90 (Miss* 1930)* The ambers of the
Coacnittee will exercise an extremely important governmental function in
regulating open narfcet operations and indirectly controlling credit
oonditions.
Another of the oliaraoteristios of an offleer, as distinguished
from aa employee, is that hs performs duties Whioh are prescribed by law*

Bowden v» Cumberland Co», 128 Atl» 168* 169 (Me* 1924) f United States ▼*
Sohllorhols, 137 Fed* 616 ( > c* Ark* 1905)| People v* flrady, supra,
!•



*

The smmbers of .the jwsr C e f i t e are required to prescribe regulation*
cstt.e
governing the open narfeet transaotio&s of F < a « l Keserre banks end
e*ri
they will therefore perform duties olearly presoribed by lew*
la *&>lted States

mrtwell, 75 ; » * 365 (1867) the Supreme
'S

Court of the Jaited States deelared that the term "officer of the
inlted Stetee1 enbreees "the liee of tenure* duration, emolument, end
*
duties*. The idee of duties has already been mentioned* Howenrer, in
ordor for e person te be en "offieer* in the proper eenee of the word,
hie duties nust be of e oeutlnuing end permanent nature* i*e*# hie
offiee siuet possess the ©leaets of tenure end duration*

Thus, in

United Stetee ▼» Geramlne, supra, after holding that a eiril surgeon
appointed f y the OomRiiesloner of Pensions was not an offieer within
c
the constitutional definition of the term, the Supreme Court considered
the nature of the surgeon’ employment end found that hie duties were
e
met ef such a continuing end permanent nature as to oonstltute him en
effleer*

It has previously been noted that the Attorney General has

ruled that a member of the Emigration Commission was not en "offieer*
sinee hie duties on that ^omission were of a temporary nature* 26 Op*
Atty* Gen# £47 (1907)* Fer the sans reason, a Federal oourt has helf
that a pereon appointed te a oourt of oemdeieiatlea te determine the value
ef eertela waterworks property m s not en "offieer* beeauee the purpose of
tcru eewsft ws® tes^ersflry ssily% D— Hbln»» W>tw
fst
wot

F . 6 7 ( . o Sf .
M 6 c c * tc
1913). S * U l , l
iiry a

Co.

t» City of D— »ln— ,

«, B w i U F U
■ nr.
M

(£4) * 8 (£«&• I*T* 1926), a reeeiwsr appointed by a Federal oourt te
79
M

bs

ever the assets ef a eerporatlen was held net te be an offieer of the




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*

Authority •' v
'

---

•

•

•

Otaited State* m the ground* mmwig othere, that the parted during whieh
t e was te act m e not definitely fixed•
o
The duti*s of tim — a i r of the Federal <^p I c t e C— ultts*
tee
en f r o t
would appear te be af f ecBtlaulnc a»d peraanent native ilaee they ere
t
required te issue regulatl—

ce*erainc ope* Market operations* prwena*

ebly art for a pertioular oeeaaioa* bat trim tins to ti»» taring the
period of their terse of effiee* T e fteei that they *r# required te
fe
■eet only four tiaea a yeer would not eeeei to affect the oeatinulnc end
permanent nature of their duties* Meafwwr, their ter*e of eff^lee ere
definitely fixed by the 1
aw, iee*?meh as thoee seaabere of the Ceenlttee
elected by the Federal Keaorve banka will be reeleeted ummlly# end
thoee members who will also be aeabers of the Board of Gorarnors will
oei'ro for the period for which they «re appointed to »e»bership on
that Boerd*
I* a nixmber of caaes, the rooelpt of a ealary or of eaolunenta
haa been mentioned anong the cheraoterlrtloe of an "officer**

T&ilted

States t , mrtwell, supra | 'Hitod States t , Genaftlne, gupraf United Statee
v> Sohlierholtj suprai Fleming ▼> Bpwera» supra* iow ver# it haa been held
’
that the receipt of a ealary is only one of the Indieia of an of flee and
is not a necessary part of It.

Raasay v» Vwn Uetor» 300 111* 193,

153 1*E. 193 (1921)| People v» Brady # s prej 46 n.J* 931*

Moreover,

the statute here under consideration Is by its teras applicable to a
person elected or appointed to any office of *honor or profit*, and It
would therefore seem to include versons who receive no salary or enolu


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•

■ant*

•

'•

-1 4 -

•

•

Aoccrdingly, the fact that th* members of the Cwnitt—

will

*ot be entitled under tbs 1nr to any m !ary ® * caa^jeaeetion would
*
not appear to prevent tbeai frcsi being regarded as *offioors of the

J»it#d States**
In son* M M i | there has been language indieating that an
oath of effiee and an official bond mist bo required by lor to oonatit to
a person a "publie offleor"*

Thus* in United States r, Oorroalne* gupra*

la holding that a civil surgeon appointed by the Costeissioner of Pensions
was not an "offioer of the United States* within tho mooning of a criminal
statute* the Suppeae Court said*
*He gives no bond and takes no official oath*
unless by nom order of the Commissioner of
Pensions of wfcich we are not advised**
Likewise, in Foshay v« Jtolted States* 64 Fed* (2d) 668 (2>*C* 3*Y, 1931)*
a post offioe olerk was held to be an of *leer of the

nited States beea se

he was appointed ty the ’
-ead of a department and because he was required
to take an oath and make a bond*

However, it seens obvious* without furt or

conment* that the taking of an oath and the giving of an official bond
»srely result

tram

the status of a "public offioer" and are not pre­

requisites to that status*
In at least one instance* a State court has held that Members
of a corrission created

'iy

State lssr could not be regarded as "officers1
1

within the meaning of tho provision of the State const it t ion requiring
oat a of of ioo*

Clark v» liarford Agric ltural and

118 :M* 608* 86 Atl* 503 (1312)*
that the members



readers* Asso.,

The decision was based on tho ground

f tihe ooar ission could exeroise no powers exoept

_ _ _
_ _i

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iaaloa and that to be a publia offleer a person mat necessarily

aet la hla individual oapaelty* Hcwerer, it eeeisa to be well eettled
that a pwnon wmy be a publlo offleer notarithstanding the fact that he
ia a weaber of a oaaeaiaiiioa, board, or ooaaittee* See State
of Eaiiain, 52 Mont. 91,

196

Board

Pao. 124 (1916)* 80 0p> Atty« Gan, 5081

26 0p» Atty* 0*n» 247*
In the light of the foregoing dlaouaalon, it la aubadtted that
tha i whera of Ham near Federal Ofc Market Coanittae will be "publie
—
an
offiaera* within the uoual, aa dletinguiehed from t s oonatltutlonal,
ie
weaning of that term, einee they will be persona designated by la*
to hold, for definitely fixed tense, petitions involving the aoccreiae
of a gavarzsaental ftaaetlon and the perforamnee of preeeribed dutlea of
a continuing and permanent nature.

It ia beli«*wed, therefore, that they

ara to be regarded as "offiaor# of the l&itad Statoa* within the Meaning
af eeetion 16 of title 6 of the United Stataa Code and that they will
be required to take the oath of offiee preeeribed by that eeation*
The faet that the aenbere af the Beard of Oerernoro will
alraajy kata takas one oath of affioa weuld not aoan to mice it im*
noeeaeary far thaai to taka a aaeond oath of Ifflii open aaetadng their

iKtlM aa — j»ar< of tta Federal Open Market Conittaa*

The aath of offiaa

praacribed ty oootlaa 16 of tttie 6 af the Uaitai Stataa Coda eeatelns
tl» follavlag laagoagat
a




#* * • And that I will wall and ffcitkfal^f diaoharge
tka dwtlee of tha offloe m attlah I aa about to enter** * •

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I D ecla ssified H oldings o f the N ational A rchives

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1 ' ■
.

- 16 -

•

•

This language dearly indicates that the oath must be tak«n with respect
to eaeh particular office which a person mii^ht hold*

In this connection.

It nay be noteu that the Attorney General has ruled, in construing the
almost identical >rcrdsione of a statute since repealed, that that statute
contemplated that the oath should be taken at every new appointment be­
fore entering upon the duties of office; and it was therefore held that
the inoumbent of the office charge d'affaires to a foreign country was
required to take a new oath of office upon his appointment to the position
of Minister to that country*

19 Op* Atty* Gen* 219 (1839)•

A word should be said with respeot to the effeet oi failure
to take the oath of office prescribed by the statute*
prescribed for such failure*

Ho penalty is

The Attorney General has expressed the

opinion that the taking of an official oath is a prerequisite to the
rssslpt of a salary and to entering upon official duties*
218, SSI*

19 Op*Atty*Gen*

In view of the fact that the members of the Conaiittee will

resetvs no salary, failure to take the oath of office would not be im­
portant In that respeot* however, since the taking of an official
eath of offlee is regarded as an acceptance of the office conferred
(Archer v* State, 74 l d 445, 22 Atl* 8 (1891)i Poore v» United States,
i*
49 Ct. Cl. 192 (1914)| 19 Op* Atty* Sen* 288 (1809)), it would soot
advisable for say person required by lew to take an oath of office te
eo«ply with that requirsabent In order that there nay be no question as
to his legal acceptance of the office*
(K) Conclusion,




The following propositions are submitted by way of sunoaary

*

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Authority

f*

sad toniltalofii
(1) M r

Motion 16 of title S of tho United States Code,

t w tj "offieer of tho Tnlted States” except tho President, elected
J
or appointed to any offiee of bonor or profit* is required to take tho
seth of offiee prosorlbod by that eeotlon#
(2) The nswbsrs of the new Federal Open Ifcrket Coasilttee will
set be Vfftaers of the United States” within the strict constitutional
vanning

that tin*
(8) The statute eovsri pereons who are "offleers" within the

usual and popular waning of t c tors as wall as within its constitutional
fe
definition*
(4) The asabsy of the new Condttee will be "offloors of the
nited States" within the usual tanning of the torn and will therefore
be required to taka the oath of offiee prescribed by the statute*




Respectfully*

ikmmr* H# liaeWLogr*
Is* Clark#

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Authority QfCQ fckil. C 1 3

Fe d e r a l R e s e r v e B
of

N

e w

Yo

a n k

r k

December 16, 1955.
Dear Governor Eccles:
As I believe you know, the board o , directors of this bank has devoted the
f
major part of its consideration of matters of credit policy, during the past year or
more, to the questions created by the tremendous expansion of this country's monetary
gold stock, and by the consequent increase of excess reserves of member banks, since
January 1934.

A memorandum adopted by our board of directors in March 1935, as an

expression of its then existing views, was, I believe, transmitted to your Board and,
in October, a statement of views which had been thoroughly discussed here was made the
so-called preliminary memorandum for submission to the Federal Open Market Committee at
its meeting on October 22, 1935.
These questions naturally have continued to occupy the attention of our
directors since that time, and today a special meeting of the directors was held for
the sole purpose of considering a memorandum on the subject of Excess Reserves and
Federal Reserve Policy which had been prepared as a result of earlier discussions.

At

that meeting this memorandum, copy of which is enclosed, was unanimously adopted as an
expression of the present views of our board of directors.
In transmitting this memorandum to you, in accordance with the wishes of our
directors and in the belief that your Board is interested in receiving such expressions
of opinion from the individual reserve banks, I should emphasize that this is a statement
of present views which, of course, might be altered by changing circumstances in the
future.
Faithfully yours,

Honorable Marriner S. Eccles,
Chairman, Board of Governors of the
Federal Reserve System,
Washington, D.C.

Enc.


George L. Harrison,
Governor.

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c a m iV M iiu ,

EXCESS RESERVES AND FEDERiL RESERVE POLICY

At its meeting on October 22 - 24 the Open Market Committee considered
the problem of excess reserves, the possible methods of dealing with the problem,
and the question of the timing of any action that might be taken.

Since that

time these questions have been discussed by the Board of Governors, and also by
the Federal Advisory Council, which has presented to the Board a statement of its
views with a request that the statement be transmitted to the Federal Open Market
Committee.

There has also been considerable public discussion of the problem*
In considering the questions involved, it is important to bear in mind

that the growth of excess reserves has embraced two distinctly different phases*
In 1932 - 33 the Reserve System was actively pursuing a policy, first of getting
the member banks out of debt to the Reserve Banks, and then of creating excess
reserves.

By open market purchases of government securities it created excess

reserves amounting by January, 1934, to $ 900,000,000.

This great volume, until

then unprecedented, was generally regarded as adequate to accomplish whatever
desirable effects, toward stopping deflation and assisting recovery through credit
expansion, might reasonably be expected from excess reserves, particularly as they
were by that time well distributed throughout the country, and not, as in 1932,
merely concentrated in the big city banks.

The security purchases were therefore

brought to an end in November, 1933, and since that time the Reserve Banks have
simply maintained their security portfolio at about its current volume of
#2,400,000,000*
In February, 1934, however, following the devaluation of the dollar, there
began a wholly new phase of growth of excess reserves, which has continued to the
present time and is still continuing.




In this second phase the Reserve System

I
f

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has played no part.

The spectacular increase of excess reserves from

$900,000,000 in January, 1934, to $3,300,000,000 at the present time has been
wholly due to gold inflow, which in the past two years has amounted to
$2,900,000,0C0,
As we have observed this enormous increase in excess reserves, to a
figure far beyond what the System had had in view, two questions have arisen in
our minds*

First, by what means could the Reserve System under these circumstanc­

es* entirely unprecedented in the history of central banking, exercise its re­
sponsibility for bank reserves and the control of credit, when the time for action
came?

Second, what, under conditions like the present, is the appropriate time

for action?
The accepted method of affecting the reserve position* as the practice
has been developed since the War, is by open market operations*

But this method,

by itself, would in the present circumstances be both inadequate and impracticable.
Even though the Reserve Banks should dispose of their entire portfolio there would
still be left a substantial margin of excess reserves, without taking into account
the further increase in such reserves through continued inflow of gold*

Incidentall;

such an operation would entirely deprive the System of earnings, since it now has
virtually no other earning assets.

It has been computed that at the level of

interest rates obtaining in 1925 and 1926 the Reserve Banks would need to retain
about half of their present earning assets to cover their expenses,

*

Recognizing the inadequacy of open market operations, by themselves, for
dealing with excess reserves of the present magnitude, the Banking Act c f 1935 gave
to the Board of Governors of the Federal Reserve System the power to increase the
reserve requirements of member banks to not more than double the present require­
ments,

The question which we now face is not whether the System should use one or

the other of these powers, the open market operation or 'the increase of reserve re­
quirements, since for a complete control it will probably be necessary to use both*.
The real questions are in what order they should be used and when*



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The increase of reserve requirements ought logically to precede the
open market operation.

As has been pointed out in our previous discussions, and

as is remarked by the Federal Advisory Council in its recent statement, these two
methods of control are quite unlike in nature and in purpose.

The open market

operation is a highly flexible instrument, permitting of continuous adjustment to
the conditions and needs of the banks and the general economic situation.

The

alteration of reserve requirements would represent, on th^ other hand, a funda­
mental readjustment, whose chief purpose would be to bring the reserve situation
once again within a range where short-period changes could be effected by openmarket operations, rather than by periodic changes in reserve requirements.

To

put the matter concretely, if we should begin with the open-market operation, we
would then be forced to make the short-period adjustments by continuous alterations
of reserve requirements.

Considering the fundamental nature of reserve require­

ments, the difficulties of foreseeing their effects upon the position of individual
banks or classes of banks, the very grave hazards to which banking would be subject
if continually in fear of alterations of reserve requirements, it is surely to be
hoped that this method will be resorted to only at rare intervals and only when,
under conditions like the present, it is necessary to make a fundamental readjust­
ment of the credit base.
There is, moreover, a further, and a decisive, reason under the present
circumstances for dealing with the excess reserve problem in the first instance by
raising the reserve requirements.
stated, in gold imports.

Our present problem has its origin, as already

The gold imports of the past two years, though larger

than in any equal previous period, represent a continuing phase of a movement
which began with the World War.

If we go back to 1917, when the present reserve

requirements of the member banks were enacted, we find that the total gold stock of
the country has grown from #2,800,000,000 to approximately #10,000,000,000 at the




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present time, and that the reserves of the Federal Reserve Banks have grown from
$ 1 ,200,000,000 to $7,400,000,000.

In the s c n period the reserves of the member
fue

banks haye grown from about $1,500,000,000 in 1917 to $2,400,000,000 in 1929 and

6,000,000,000 at the present time, the last total including $2,700,000,000 of re­
quired reserves and $3,300,000,000 of excess reserves.
In other words, our gold stock in the past eighteen years has more than
trebled;

and it seems clear that even if we make a generous allowance for secular

growth, our gold stock has at least doubled as compared with what in the earlier
period was regarded as adequate for the support of our credit structure.

It is,

therefore, not surprising that member bank reserves have also, by reason of this
large and persistent inflow of gold, developed a large excess of actual reserves
over their legally required reserves.

The only alternative, according to generally

accepted theory, would be such an expansion of bank deposits as would use up the
excess reserves, and such a rise of our price level accompanying that expansion a?
would halt the inflow of the gold itself.

When we consider that the present ex­

cess reserves would support bank credit of from $30,000,000,000 to twice that
amount, and that the resultant rise of prices would therefore assume the proportions
of a major inflationary movement, such as has always proved uncontrollable, it be­
comes apparent that the only practicable and desirable solution is an alteration of
reserve requirements.

Must we not, in particular, recognize that the devaluation

of the dollar carried with it, as one of the necessary conditions of its successful
operation, the need for a fundamental readjustment of reserve requirements?

Must

there not, in other words, be an adaptation of reserve requirements to our new
gold base?
There remains the question of the timing of the System’s action.

The

purpose of the excess reserve policy has been to aid recovery, and it is of para­
mount importance that no action should be taken that would imperil or retard re­
covery*

Up to the present the System’s policy has encountered considerable success,




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; Authority QcQfciilf

5

as evidenced first by the cessation of contraction of bank assets, in which the
rehabilitation of the capital structure of the banks also played an important part,
and subsequently by the increase of bank holdings of government securities, the
successful conversion of the government war debt, the large volume of refunding of
private corporate issues during the past year, and the improvement of the mortgage
market.

But two of the most significant and reliable signs of a return to more

normal credit conditions have not yet appeared, the flotation in substantial
volume of new corporate issues and the expansion of business borrowing from banks,
though these, under present conditions, might well be expected to appear only at a
later stage of recovery.
In the general economic situation there has been a marked change for the
better.

There have been genuine indications this year that recovery is under way,

and in recent months it has appeared to be proceeding at an accelerated pace.

But

here also some of the most reliable signs that might convey certainty as to the
permanency of the present trend are lacking.

Building construction, which has

made rapid and substantial improvement in recent months, is still 60 per cent below
normal.

Recovery cannot be regarded as assured so long as production in the

heavy industries, which have been the seat of the depression, still remains sub­
stantially below a normal volume.

Moreover, unemployment is still very large and

the Federal budget is still unbalanced, which means that national production and
consumption are not yet on a normal self-sustaining basis.
These facts warrant the conclusion that there is no justification as yet
for the System*s changing its easy money policy.

Nor would it be desirable to

take any action respecting excess reserves which might have a harmful psychological
effect, even though in intent and in fact the action would not reverse the present
policy.

From these points of view alone, the time for modification of our easy

money policy would not arrive until production has returned to normal, or at least
until the present trend toward a return to normal provides unmistakable evidence of

continuing.


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On the other hand, it may well be doubted whether reserves of such mag­
nitude as we have had in the past year, during which excess reserves have increased
#1,500,000,000, to almost double their size a year ago, have been in any way essen­
tial to recovery.

It appears significant that much the greater part of the fall

of interest rates to their present low levels occurred prior to this year, and that
short-time money rates and highest grade bond yields, which should most clearly
reflect monetary influences, have changed but little from a year ago.

It seems

very probable that with excess reserves of such extraordinary dimensions there
comes a point where further increases have no further constructive effects.
At such a point excess reserves may contain possibilities of positive
harm.

There is the danger, for example, that excess reserves may give rise to

disproportionate bank investment in government securities.

There is the danger

that banks may acquire government and other bonds at prices which later may not be
sustained.

There is the danger that with money so freely available, states,

municipalities and the national government, and other borrowers as well, may be
tempted to over-borrow.

There is the general fear which many people entertain

that excess reserves of the present magnitude must sooner or later set in motion
inflationary forces which, if not dealt with before they get strongly under way,
may prove impossible to control.

There is the possibility also that the very fact

of such inordinately large excess reserves may, by causing foreign expectation of
favorable conditions for speculative investment, accentuate the gold inflow which
is the real source of our problem.
From this point of view there is much to be said for an increase of
reserve requirements sufficient to absorb some substantial amount of present excess
reserves.

Such a step would reduce the excess reserves to a point where they are

more susceptible of being handled, once again, by the usual method of open market
operations;

it would put them back to the volume of a year ago.

As the reserves are

now widely distributed among the banks of the oountry, such an increase of re quiranents could



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now be carried through with virtually no disturbance to the banks and should not
affect either interest rates or the ability or willingness of the banks to expand
credit.
It must be borne in mind that the longer action is delayed the greater is
the likelihood that some or many banks will have utilized their reserves, rendering
the process of reserve adjustment, when it does come, as at some time it must, all
the more painful and harmful both to them and to the country.

This conclusion

applies also against initiation of action through open market operations, whether
now or at any future date.

The more excess reserves are reduced by open market

operations before reserve requirements are raised, the mote will inequalities in
the distribution of excess reserves among the banks of the country be accentuated
and the more disturbing will be the eventual adjustment of reserve requirements.
Such an increase of reserve requirements as has been suggested would
represent not an act of credit control, not in any sense a reversal of the present
easy money policy, but an act of reassurance to the banks and the country that ex­
cess reserves, though still ample for credit expansion, had been brought within the
range of control.

It would be an act of technical readjustment of our reserve

requirements to our new gold base.
There is one further important aspect of the problem of timing.

Under

conditions like the present, when the Federal budget is unbalanced and the govern­
ment i s still engaged upon a large emergency program of borrowing and spending,
there is need for a close coordination of fiscal and credit policy.

It would go

far tox^ard removing any possible misinterpretation and toward insuring that the
corrective adjustment of reserves would have beneficial rather than disturbing
effects if that action were accompanied or preceded by steps looking definitely
toward the tapering off of budgetary deficits.

One fear that has frequently been

expressed is that the readjustment of reserves, unless properly timed and properly




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understood by the banks and by the country, might seriously disturb the government
bond market, but that would almost certainly not be the case if there were some
clear indication that the governments need of new borrowing would definitely
diminish.

Presumably, early in the new year there will be presented to the

Congress a budgetary estimate for the fiscal year 1937.
reserve requirements of the member banks

The readjustment of

would be rendered much more effective,

and whatever psychological risk that might otherwise attend it would be avoided,
if the forthcoming budgetary estimate should indicate the desirability and the
feasibility of tapering off the budgetary deficits, and the purpose of the
government now to move toward this objective.

12/13/35.




r

i

t

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Authority QtiJrdSLC/ £

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F o r m N o . 131

ce Correspondence
To

Chairman Eccles.

From

Lauchlin Currie

FEDERAL RESERVE
BOARD

Subject-

Date

December 15, 1935

Mfi-itttaining excess reserves
at around PC?DbISl&i*£S SECTION

APR 1 U 9 3 8 U -

I have been thinking about your suggestion and several possible disad­
vantages occur to me. You have probably considered them but in case
you have not I shall list them.
1. Fixing upon excess reserves on a day when for various special
reasons they are much lower than in the immediate past and declaring
that they will be held there for the time being may possibly be looked
upon as a sort of trick or fclever manipulation”. In general, It
f
may be argued that policy should take as simple and understandable a
form as possible.
2. The figure of $2.7 billion will receive a disproportionate amount
of attention. If excess reserves were to be kept there by open market
sales it would not be so bad, but since all member banks will be affected
by increased reserve requirements the course of excess reserves may be
followed intently and discussed continually with reference to this fig­
ure. Action to lower excess reserves below this figure may be a more
1disturbing* development than action taken without reference to any
particular figure. It may be interpreted as marking a transition from
a "passive1 policy to an active policy of restraint. In other words,
1
by setting upon a definite figure we make a commitment on future policy
which we may not want to hold to for long and a change will require
more explanation.
3. An instrument of control that affects all member banks is not
flexible and should be used sparingly. To use the reserve reo^uirement
instrument to keep excess reserves at a given figure may call for
frequent changes (we cannot predict what gold flows will occur in the
next few months) and this would be a continual source of irritation to
all member banks. If, on the other hand, we let excess reserves go
above or below that figure it would require explanation as it would
be interpreted as a change in policy.
4. Reserve requirements are computed on different days in different
sections of the country. Frequent changes might cause considerable
inconvenience on this score.
5. It can be argued that the justification for raised reserve require­
ments is that they are a means of adjusting ourselves to the situation
created by devaluation. For this purpose a series of §ize&ble though
manageable upward steps are preferable. Open market operations should
be the instrument used when flexibility and frequent adjustments are
called for.




Reproduced from the Unclassified / Declassified Holdings of the National Archives

Authority ScQfdnf iQi&fa

I have only listed some of the possible objections that occur to me
as I know that you are fully aware of the merits of the proposal.
I should like to mention a possible alternative course.
Announce that reserve requirements will be raised on some day in
January by 25%. Explain our two objectives (easy money to promote
recovery now, prevention of boom later), and point out the customary
ease in January due to inflowing currency offers an opportunity to
take anticipatory action for the more distant future while interfering
in no wise with the present easy-money policy and causing a minimum
of inconvenience to member banks. This is as simple and understandable
as the thing can be made and it avoids the possible difficulties I
mentioned above, while giving us a free hand to take further action
in the future along the same lines when occasion warrants.




Reproduced from the Unclassified I Declassified Holdings of the National Archives

|

DECLASSIFIED

;Authority QtQfdjlf IB

3 3 3

December 10, 1935.

.for, the Files:
Today Chairman Eccles suggested that there be foraardad
to each aeaber of the Federal Open Market Coaaittee a copy of
the recomaendation submitted to the Board under date of Hoveaber 21, 1955, f y the Federal Advisory Council on open aarket
c
operations.

I called hl8 attention to the fact that at the

aeetlng of the Board on Noveaber 22 it was agreed that copies
of the recoumenda tion should not be sent to the aeabers of the
Federal Open Market Coaaittee but should be teamed to the* at
the next nee ting of the Coaaittee in Washington.

Mr. Eccles

stated that, inasmuch as the recommendation has been given to
the press by someone outside of the Federal Reserve Board ha
felt the recommendation should be sent to the aea'oers of the
Federal Open Market Coaaittee at this time.

Accordingly, I

took the aatter up with Messrs. Thomas, Hanlin, James and
Miller (Mr. Szyaciak being out of the city) and they ooncurred
in the Chairman*s suggestion*
Accordingly, a copy of the recoamendatian is being sent
to each member of the Federal Open Market Coaaittee today.




Reproduced from the Unclassified I Declassified Holdings of the National Archives

!Authority Q d jf d s lf IQ>2)51$

f— — — ............ —-REC
IN FILES SECTION

F o r m N o . 181

Of ficeCorresponuen^e
To

FEDERAL RESERVE
BOARD

Dale

HW1 #
*

Subject; Estimated changing excess

Mr. Goldenweiser

reserves to January 29. 1956.

From_L. M.

•p o

16— 852

:ess reserves of all member banks were $3,310,000,000 on December 11.
During the two weeks ended December 24 it is expected that excess reserves
Y till

show a net decline of $680,000,000, reaching a level of $2,630,000,000,

the lowest since October 2.

The principal factor in this decline w i ll be

the sale of $620,000,000 of Treasury securities for cash.

Treasury trans­

actions in the aggregate for the two-week period may be expected to take
about $540,000,000 out of the market and payments of money into circulation
about $170,000,000.

As an offset against this there may be an increase of

about $40,000,000 in monetary gold stock, so that reserve balances in the
aggregate might decline by something over $660,000,000.
During the following five weeks to January 29 it seems probable that
excess reserves will rise again by something like $720,000,000, bringing
the total back to approximately the present high level.

Such an increase

would constitute approximately 26 percent of the present level of reserve
requirements.

About half of the increase may be expected to occur during

the first two weeks, and the remainder in the last three vreeks.

Factors in

the increase will be a return flow of approximately $340,000,000 of money
from circulation, net Treasury disbursements of about $350,000,000, and a
gradual growth of perhaps $75,000,000 in monetary gold stock.

A partially

offsetting factor may be a continued gradual growth in reserve requirements.




r

Reproduced from the Unclassified / Declassified Holdings of the National Archives

[

DECLASSIFIED

'A u t h o r i t y

I&Q5(j
P

TABLE 1
ESTIMATED FACTORS OF CHANGE IN EXCESS RESERVES
(in millions of dollars)

Week
ending

Monetaiy
gold
stock

1955
Dec. 18
24
31
1956
Jan.

Treasury
trans­
actions

Money in
circu­
lation

Reserve
balances

Reserve
require­
ments

Excess
reserves

Estimated
excess
reserves

+25
+15
+15

-580
+40
+70

-70
-100
+120

-62.5
-45
+205

-5
-5
-10

-650
-50
+195

2,680
2,630
2,825

+15
+15
+15
+15

+70
+70
+70
+70

+100
+70
+30
+20

+185
+155
+115
+105

-10
-10
-10
-5

+175
+145
+105
+100

3,000
3,145
3,250
3,350

+115

-190

+170

+95

-55

+40

8
15
22
29

TOTAL

TABLE 2
ESTIMATED EFFECT OF TREASURY TRANSACTIONS ON EXCESS RESERVES
(in millions of dollars)

Yfeek ending
1935
Dec. 18
24
31
1936
Jan.

8
15
22
29

TOTAL




Cash sales
of new
issues
-620
—

Income tax
receipts

Interest
payments

| Other
transactions

Net

-140
-50

+90
+20

+90
+70
+70

-580
+40
+70

+70
+70
+70
+70

+70
+70
+70
+70

+510

-190

—

—

—

—

—

—

—

—

—

—

—

—

—

—

-620

-190

+110

Reproduced from the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED
AuthorityQcDfjdlil~ IB tbSi
#

—

_

Fe d e r a l R e
of

N

RECEI___
FEDERAL r e s e r v e

_
serve

e w

Yo

Ba

r k

n k

193 DEC 7
5

AM j |

December 6, 1935.

Sirs:
\

.of
I have for acknowledgment your ^Letter. JJovember £9^
enclosing copy of a letter addressed to the Chairman of the Federal
Open Market Committee advising of further action by the Board in
connection with one of the motions adopted by the Committee at its
meeting in Washington on October 22-24, 1955.

lour letter and the

enclosure were presented to our board of directors at its meeting
on December 5, 1955.




b o ar d

i * h i tv
j

44

Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED

iQy'd&lj?

Authority

f

i
\

FEDERAL RESERVE b o a r d
W ashington
^ «
?

\
Fe d e r a l R

eserve

Ba

n k

1935 DEC 4

of N e w Y o r k

December 3, 1955,
S i r s :

x ^
p

.. November 29 ^supplementing that part of the

.. ^ t s . /
.. .k
.
I. '.

I acknowledge the receipt of Mr. Morrill*s

I r.y.TJDS

./

.

•* Board1s letter of November 25 Irelatine to the resolu*

j....... .
i
,
y

•Mr. r.zynw-Jk . • . C M o i U - w ^ .
r,..(
...................

:

L

i

t

, r^M !a aa&
,a t^
l,ll>lW *n^*w |M ^
W ^ l,* ^,
^

--------rm ifnn M T i i im
in M.tiO iwirn
iiitm i
^.

'

tion adopted by the Federal Open Market Committee at
s

meeting on October 22-24 concerning shifts in

ir Ls: m ..
l
.
.
u*y.‘ ,\y/^/.... .maturities in the System account.
s
.

It is noted that

........-the Board now approves the authority given to the
Mr.

'

..........................

*•
•
•
jw
V,

.... Executive Committee by this resolution to the extent
. . . .. .......

necessary to enable the Executive Committee, during
I
\

Per*0 * before the next meeting of the Federal
<
Open Market Committee, to make shifts, in the aggre­
gate amount not exceeding |300,000,000, in maturities
of Treasury bills and Treasury notes held in the
System account.
Very truly yours,

: L. Harrison,
e
Chairman, Federal
Open Market Committee.
Board of Governors of the
Federal Reserve System,
Washington, D. C.




I

AM 8

52

from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED
Authority,

Fe

d e r a l

Re

s e r v e

Ba

n k

o f

P

hiladelphia

3 ^ $ ' ^

— '

T hird District
Rich ard

L .A ustin

C h a ir m a n o f t h e B o a r d
and

D ecem ber 2 ,

F e d e r a l Re s e r v e Ag e n t

1935

, r e c e iv e d
SAL RESERVE BOARD

n'ASHIflOTOnl
B o a rd o f G o v e rn o rs o f t h e
F e d e r a l B e s e 'r v e S y s t e m ,
W a s h in g to n ,
D. C.
D ear S ir s

We b e g l e a v e

of your le tte r
le tte r

to

a c k n o w le d g e

a d d re sse d

to

th e

C h a irm a n o f t h e
o f fu rth e r

c o n n e c tio n w ith one o f th e




24, 1935,

re c e ip t
a copy o f a

F e d e r a l O pen

a c tio n

by th e B o a rd

m o tio n s a d o p te d

F e d e r a l O p en M a r k e t C o m m itte e a t
o n O c t o b e r 22 -

th e

o f N ovem ber S 9 th j e n c l o s i n g

M a rk e t C o m m itte e ,a d v is in g
in

1935 DEC 3

its

m e e tin g

by th e
i n W a s h in g to n

f o r w h i c h we t h a n k y o u .

AM

8

40

Reproduced from the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED

|

Authority fjcOfdjlC !Q2)3j>

i

FEDERAL RESERVE BANK OF CHICAGO
23 0

OFFICE
CHAIRMAN
FEDERAL

OF

OF
THE

S O U T H

LA S A L L E

STR EET

December 2, 1955

THE
BOARD

RESERVE

AND

AGENT

RECEIVFP

FEDERAL RESERVE b o a rd
C o n fid e n tia l

Board of Governors
of the Federal Reserve System
Washington, D. C.

* c r iEC 4

PM I

46

Gentlemen:
I am in receipt of your confidential_JLgjkter. of November 29, \
............. rtn
wwurm

enclosing copy of letter addressed to the Chairman of the Federal
Open Market Committee, advising of further action by the Board in
connection with one of the motions adopted by the Committee at its
meeting on October 22-24, 1955.
y

/
/
./
EMS HH




Very

F

Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED
| Authority QcQfdilf IB ?$£

F o r m N o . 13 1

f EDEf

Office Correspondence

FEDERAL RESERVE
BOARD

BO A rfU M l
L R ESER VE B O ARD F IL E

p J te November 5 0 , 1955♦

Subject:.

To.______ G e n e ra l C o u n sel____
From____M r. Carp e n t e r ______

C O P Y

The B oard h a s a p r o v e d th e d r a f t o f l e t t e r to D eputy G overnor
W o rth in g to n o f t h e F e d e r a l R e se rv e Bank o f K ansas C i t y , r e f e r r e d to
i n Mr, B e n e d ic t* s Memorandum o f November 2 0 , 1 9 35, w ith r e g a r d to th e
g r a n t i n g o f a u t h o r i t y to th e F e d e r a l R eserv e Bank o f K ansas C it y t o
a c q u ir e Governm ent bonds fro m th e F e d e r a l Land Bank o f Omaha upon r e ­
p u rc h a s e a g re e m e n t, and h a s a l s o ap p ro v ed th e recom m endation c o n ta in e d
i n Mr. B e n e d ic t’ s memorandum t h a t a s tu d y o f th e s u b j e c t r e f e r r e d to
i n th e l e t t e r be made w ith t h e v ie w o f m aking a p p r o p r i a t e reco m m en d atio n s
to th e F e d e r a l Open M ark et C o ran ittee a s r e o r g a n iz e d on March 1 , 1936,
a s to i t s r e g u l a t i o n s o r d i r e c t i o n s r e g a r d in g such ag ree n B n ts*

* c c : Mr. Smead

SRC:mgh




( F i l e copy f i l e d 3 3 2 .3 -6 )

DECLASSIFIED

Reproduced from the Unclassified I Declassified Holdings of the National Archives




A

u

t h

o

r

i t y

.

NCV 23

Confidential

1r* Ft S* Cttriliif Chairman,
»e o r J mmwwFVW Wmwm OX »O0vwl|
peBL

Bifi
otfk
m

*m *>< m
*«•

Iter Mr* CurtiMi
Thoro is iaeloeod, for tho information
X a . //- Z ‘/ ~ >s

of yowr b«ak, « w a r jrf a U i t w W l i w addMMad

today to the Chairman of Hie Fodeml Open Sarfcot
Ooaaitteo adrisinir of further action b r tho Board
j
ia eosnootlott with <me of tho notion* adopted t r
g
tha Fadorml Open Market Condttoe et it# Mooting
in Waehington on October 22-14, 101$#
Veiy trefy jroorOf

^ostBC

r ^ 1

Chaster UonrtU,
OtQItvAIJ*

r
C

w

a

7

_
tr~

, .,
,

F

Reproduced from the Unclassified / Declassified Holdings of the National Archives




DECLASSIFIED
Authority Q djfdjlf lQ/h5($

Confidential

Hr. 1* H* Ca«e» Chai«att,
Federal Irnmwm Beni; of leu Tork,
K
Hew foi% 9 »ew to*It*
Dear Hr* Canei
There ie lacloaed, for the lafor*etioa
i

* v< i
7 "h
?

of four bank, a oopy of a.letter) being addressed

today to the Chalmwtt o f the Federal Open Market
Coaalttee advising of further aetlom by the Board

In eonnecrtion with one of the aotloa# adopted by
the Faderal Open Market Coealttee at it* aeetlag
is W»ahin*ton on Oetober

IfSS*

feiy truly youra*

Chester ttorrtll,

Secretary*
Xaoloaura.
«th

Ot/AJ

DECLASSIFIED

Reproduced from the Unclassified I Declassified Holdings of the National Archives




Authority QtVfCXilf / & £ $ #

Confidential.
Hr* f *
t
Austin* %ilri«S|
Federal H«»enr* Bank of Philadelphia,
roliaaeipniaf renai^iTaaia#

Dear Mr* Austin*
There is inclosed, for the information
1 /- X.

of

3

ban*, a espy of f letter foelag addressed
t

today to tho Ch«irw» of the Federal Open iarket
Cowdtteo advising of further action by the Board
in oonaootiim with one of the Motions adopted by
the Federal Open Haxfeet Coswdttee at it# aeetlng
in Washington osi October C8«t4f X9Sf,
fe*5 toiler yw & & 9
r

C h e s te r f c o r r il l *
S e c re ta ry .

Xnclosure*

Reproduced from the Unclassified I Declassified Holdings of the National Archives




DECLASSIFIED
Authority

Hr* 1* 8, Burka* Jr., Acting Cbftir»»n,
Federal Eeaerre Bank ®f Cleveland,
Cleveland* Ohio#
Bear Hr* Burket

There 1# ineloaed* for tho Information
//<sr''
of your b «l| * copy of a letter; feeing addreaaed
.

todagr to flie Chalxvan of the Federal Open Market

Cowdttee advlalng of further action by the Board
In connection with one of the notion* adopted bjr

the Federal Open Haricot Cosnlttee at its nesting
in Haahlngton on Ootober

1955*

ferr truly j m m §
.
Chestar Momii

Cheater llorrUl,
wfCrfWIJ *

Inclosttr®

DECLASSIFIED

Reproduced from the Unclassified / Declassified Holdings of the National Archives




Authority

/QQSj
P

C o n fid e n tia l

Hr* W* V*

CMnmi

r f O W n ii H 999I^4P wMBE fpZ ^ B O I WPBi
I
f HM
c
"Im rn& m g TTifr 'M'tK ^ '■ m
wi^gxiMMNi

VSil

Dew* Mr. Hoxtoas

there t* iaeloeed* for the information
of j w

t / / - 2 ^ - J I ""
hank* * copy of « Xetie*\&«iag addreaaed

today to the Chatman o f the Fed# m l Open Market
CoMklitee •dhrlelxtf of further motion by the Board
In

w , t ftfW of tho iftlfM1# adopted fey
|'&
if
1
!

the Federal 0pm Martosrt Coaa&ttee at lte jaeetiag

%
m

VftihSjiftoai on October £SM64# 1955*
¥#*jr truly youre*

(%isdj Chester Morrill
C h e s te r M
11#
S e c re ta ry *

lacloeore.

j

Reproduced from the Unclassified/Declassified Holdings of the National Archives




DECLASSIFIED

Authority
j
i

IQ Q 5 (jP

Confidential

W. H* Xattlg, Deputy Chairman,
Federal Reserve Bank of Atlanta,
Atlanta, Ooorgla*
Bear Mr* lattigt
There la Inclosad, for tbe information
of your bank, a oopy of a latter|>ela# addreeeed
today to tha Ohalmaa of the Fads**! 0pan S a f a
Srct
Coaoilttae advising of farther action by tha Board
In connection with ona of the aotloaa adopted by
the Federal Open Market Coaalttee at Ita naeting
la Waehington on October

1985*

?afjr truly roar®,

iSignal? Chester Morrill

Cheater Morrill,
Seerataxy.
Inclosure.

r
C^\a

a

J

p p p —

^

■ *

—

Reproduced from the Unclassified I Declassified Holdings of the National Archives

/ X £ £ FRASER
Digitized for £Ut/» * V *


.

.

.

.■ f

f
|

A

u

. — P - ■ . — ■ — —■ . 1 — . J —
■
DECLASSIFIED

j

t Qh d Jo f c i ri i r t y
i

J

^ o v 29

1935'

Hr* I# V* $tevons» Chair*®*
fsder&X S s i o m Smak of Chisago#
Chicago, t i
ll ttois*.
Dear I * Stevoasf
s*
fho*o 1« incloeod, for th© ittforaimtian
of your bsnkf • oopy of m lottoi^boli»& addremwsd
today to th* Chairman of ths Federal ®poa Haricot
Oo»#ittoo a£rl*|&f of farther ootloa by ths Board
In oooaootlofi with ono of th* notions adopted by
th® Faderal Opsn iarkot Cooalttoo ot its sooting
. n fftshingtoa on Ootdbsr 22-24, liSS#
I
foiy truly yonra*
(Signed) Chester Mcrr#

Ohostor iorrill*
Seerot&ry,
Inolositro#

j

*
/Q

c
;W
11
\

i
\v

n

j j

}>

J

3 * 3 ^

^L.

Reproduced from the Unclassified/Declassified Holdings of the National Archives

|

DECLASSIFIED

| Authority QtQrtiilf

Novoaber ftp 19SS

|

t r f* S. food# Ch*ir*an,
t*
Fadarml Wmwxv* Bank of St. t*ml«f
81# Louie* lliaa<mrl*
Itear «r. Woods

:

That* is lacloaod, for tho information

I

I

.1 i - z

jr"

*f your bank* a copy of a latter^bataf addroaaod
today to the Chairman of the Fadaral Open S&rkat
Cowittaa advising of further actio® by tha Board
ia DMSMttlon with on# «f the notion* adoptad by

[
the Fadaral Op«a Varicat CoMitts* at iti meeting
la #aahi»fttaa on October

1985.

\

j

Fary truly youre,

(Signed) Chester Morrill

Chaatar lorrlll*
Saoraiafy.

|

I

I
\
\
$

b




Xneloaura*

7

cp%

^

Reproduced from the Unclassified I Declassified Holdings of the National Archives




DECLASSIFIED
Authority QcQfdjlf iQ&Slj?

Ioveaber tt» 19S5*
Confidential

Mr* *# !• Peytotu Chalraaa*

Federal Beeerre Bank of Minneapolis,
Mtime«poli8f ilna®eote.
Doer Mr* Feytoai
There 1« iacloeed* for the tnforaatioi*
of your beak# a copy of a letter^ being addreeaed
today to the Cbatrwn of the Federal Open Market
Coaalttee edtrlaiag of further actioa by the .Board
ia coaneetion with oae of the aotiona adopted by

the Federal Open Market Coaaittee at its aeetlag
ia feahlagton on October

1988*

¥ety truly youre,

(Signed) Chester M r i l
orl

Cheater llorrill,
Seeretary*

Incloeure.

DECLASSIFIED

Reproduced from the Unclassified I Declassified Holdings of the National Archives




Authority QU)fciilf

N O V 2 9 193?

C o n fid e n tia l

Hr* 1# f* Brown, Stprty Chairman,
Federal I»uer*a Bank o f Kimsac
K m ttm City# fct**««ri*

Bear I > Browni
**
fhare la

tod«y to

for th* imtwmmtim

the €!»inaail of the Federal Open tfarkut

$o*tltieis

advising «f further

bf ill*

in foaneifttoii with one of the motions adopted t y
j
the Federal 0pan Market Co*alttee at it* seatin*
in iMbiAtftOA

0«ti&*r ??-84, 1996*
Very truly yours,
(Signed) Chrrrcr ftforrilt

Chester lofflUi
Secretary.

Incloirttra

Reproduced from the Unclassified I Declassified Holdings of the National Archives




DECLASSIFIED
Authority QtQ'fciiif /Q&5{jp

Mr, % s* fai«t%
.
F#iai*i3 liWfff Bant of;
»
"£aBA«»

Dear ir*
Then* 1«

for the Information
^ 3 r"
of you# bank, * copy of » l*tt#lf W l a f addressed

2

today i# the Chairman of th# Federal Open Marlwt
Oo*»lt%»# adrlaing of further action by the lo&r*!
In oonisettififi with one of tha notion* adopted by
the Federal Open Market Cowiittoe at its amtlnf
in faahiuftoa on Ooiofeei?'

XSfi*

Vary truly yowfif*

Cheater Morrill#
8*iwst«y*

Incloaure

I
f

Reproduced from the Unclassified I Declassified Holdings of the National Archives




DECLASSIFIED
Authority Qlfjfcijir/&£$#

Saveetoar 29* liii*

Hr* f. H« Mooret Bejwty Chairman,
Federal B*mmw Bank of San Francisco,
B m Francisco, California*
Do** )Kr# Moorei
There Is Inclosed* for the information

of your bank*

a

copy of a lettei^ being addressed

todagr t* the Chairaan of the Federal Open Market
Conalttee adTiaia* of further action by the Board
l t connectioa *lth one of the notions adopted hr
t
the Federal Open forfeit Coawittee at Its neetlng
In ftashiagtoa on October $&*S4f 10BS*
Yeiy truly youre,
(Signed) Chester Morrill

Chester Morrill*
Secretary*

Xnclosure.

DECLASSIFIED

Reproduced from the Unclassified I Declassified Holdings of the National Archives

Authority

B T U«OT{t J» H r < a l §
E*
* *FWBl
ChAiraan, Fod*ral Open llarkot Gowaltta®,
Oar* Fader*! Roaor*§ Bank of •** fork,

Mmr fork, Mm fork*
Daar Governor Harrlaont
Bofaraaeo la mad* to tb* Board1a X*tt*r of I©v**bor tl« 18SI*
—...... .

.iirirt::;^^^
iurm

ta you witb ragard to t i raaolution and Motions adoptad by tbo Fad*ral
ia
Opan Narkat Cowrtttao at it* *ootiac la faahingtoo on Qetobar SiǤif 1991
Hill* tho Board took the position tbat a ailbatantlal abift froa
abort to long a&twitlo* in the Sy*t*n

would not bo d**trabl*

at tbla tl»of tho atataaaat of thl* poaitloa waa intandod to apply

otdy to a abift to bond* aaA *** not latandod to apply to auob abifta
In tb* aaturitlaa of tb* bill* aad not** bold In tho portfolio a*
night bo advlaabl* la tb* Jodgnant #f tbo ixooutlvo Goiadtto** Tboro*
fora, tbo Board ha* r*qu*#tad m to &dvi*o you tbat it &pproY** tb*
authority givaa to tb* ExaoiitiT* Ooaaaltt** to tbo aatont naooaaary
to *ft*bl* itf during tb* poriod boforo tb* no*t MN»tlng of tho Fod~
oral opao llarkot Comittoo* to mt^n ahlft*} in a i aggrogato amount
s
not axooodlng 1*00,000*000, In aiaturltioa of fr*aaury billa and

iha board of dlrootor* of *•*& of tb* Fodoral r*a*rva banka.




7

Choator MorrlUt

Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED
Authority QdJfd&f

/

U 1/9

T
« f/ f M.iA '’U f
■ f f f '

!/.s
hLvtl'i cr.nc ' v '
• ED ERA!. R K E n v ',:
c

/ "




Fe d e r a l R e s e r v e B a n k
of

5 '
1935 NOV 30

New York

November ?9, 1935.

S i r s :
I wish to acknowledge receipt of
of November 2 Z , 1955j enclosing copy of a letter, bearing
the same date, addressed by your Board to the Chairman of
the Federal Open Market Committee.

This letter was pre­

sented to our board of directors at its meeting Novem­
ber 27, 1935.

/
/Respectfully,

J. H. CASE,
Chairman.
/
Board j/f. Governors of the
Federal Reserve System,
Washington, D.C.

OAHD

/M

8

39

w

Reproduced from the Unclassified I Declassified Holdings of the National Archives




DECLASSIFIED
Authority Q djfckf /Q2$Jp

Hoveabar 87* X9S5

Hr* Qaorgo J. Seay, Governor,
Federal Raserva Bank of Richmond,
Richmond, Virginia.
D**r Govoraor Saayi
In complianca with tho raquost ©ontainod
in your lattar of Hovsmbar 25, 1935J than*
-

i

............... ...............

'

■................................n i w i r i i i t i r r r T i" ' * * — im iiw ri

mm

inclosad h«r**ith thro* copias of tho st&taawmt
prepared by tha Board1* DiYiaioo of Bank Oparatiotsa on tha *ub|*0t of •xooa* r**orvas of aambar
banka.
Very truly your*,

S. E« Carpantar,
Assistant Saeratary

Reproduced from the Unclassified / Declassified Holdings of the National Archives




DECLASSIFIED
AuthorityS^OfdSif /&&5dP

'X v
xJ

Fe d e r a l R e s e r v e B a n k
OF

S t. L

o u is

November 2 7 , 1955.

Board of Governors of the
Federal Reserve System,
Washington, D. C.
Gentlemen:
Attention:

Mr. Chester Morrill,
Becrets.iy.

Receipt d.s acknowledged of
dated November £51 enclosing a copy of the Board1s
\
T i t t e r to tne flminaan of the Federal Open Market
Committee, in reply to letter received by the Board
from the Committee under date of November 4 y 1955^
Very truly yours,

JOHN S. WOOD,
Chairman of the Board.

Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED
AuthorityQcQrd&C l&Q5(jp

I—

w

Fe

d e r a l

Re

s e r v e

Ba

n k

P

o f

hiladelphia

T hird D istrict
Richard

L .A ustin

C h a ir m a n o r t h e B o a r d
and

N ovem ber 2 5 ,

F e d e r a l Re s e r v e Ag e n t

«Mi“ nP AR0

B o a rd o f G o v e rn o rs o f th e
F e d e r a l R e s e r v e S y s te m ,
W a s h in g to n ,
D. C.
D ear S irs

1935«

to

a c k n o w le d g e

o f y o u r l e t t e r .. o f
a d d re sse d

to

th e

C h a irm a n o f t h e

a d v is i

b y th e B o a rd w ith r e g a r d
a d o p te d by th e

th e

e n c lo s in g

O pen M a rk e t C o m m itte e ,

to

C o m m itt e e a t

to n O c to b e r 2 2 - 2 4 th ,




26

AM I I

We b e g l e a v e

a le tte r

1935

fo r

re c e ip t
a copy o f

F e d e ra l

of t h e

a c tio n

t

L u tio n s

%

Lng h e l d

ta k e n

an d m o tio n s
i n W a s h in g ­

l i c h we t h a n k y o u ,
V ery t r u l y

y o u rs,

C h a irm a n .

22

IP"'
"1

-------- ------- a -'"1 .■""
...I —
"■”
I
DECLASSIFIED

Reproduced from the Unclassified / Declassified Holdings of the National Archives




Authority QtiJrdslfl&2)5[e

F e d e r a l R e s e r v e Ba n k
of

Ric h m o n d

November 2 5 , 1935-

B oard o f G o v ern o rs
o f th e F e d e r a l R e se rv e S y stem ,
W a sh in g to n , D. C.
Dear Sirs:

Attention of Mr. Morrill, Secretary*
I h av e b e f o r e me th e c o n f i d e n t i a l com m unication o f

th e B oard to Chairm an g o x to n g iv in g a copy o f th e b o i r a 's
/ f ■3
^ r
r e p l y \ t o th e C hairm an o f th e Open M arket Com m ittee r e l a t i v e
to th e a c t i o n ta k e n a t t h e i r r e c e n t c o n f e r e n c e , and g iv in g
c o n f i d e n t i a l d a t a , p r e p a r e d by th e B o a rd ’ s s t a f f , r e l a t i n g
to e x c e s s r e s e r v e s o f member b a n k s.
I do n o t know w h e th e r i t i s th e p u rp o se o f th e
Board to sen d c o p ie s o f t h i s d a t a t o th e G overnor o f th e
bank o r n o t , b u t I am w r i t i n g to s a y t h a t , a s a member o f
th e Com m ittee and a s th e c h i e f e x e c u tiv e o f f i c e r o f th e b an k ,
I s h o u ld l i k e to h a v e , f o r s tu d y , a t l e a s t th r e e c o p i e s , i f
a v a ila b le .

j

Reproduced from the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED

iAuthority QdJfdiif /Q&5{jp

//
v
«r<
*.
<3 -3 A ^

FEDERAL RESERVE BANK OF CHICAGO
2 30

S O U T H

l _A S A L L E

STREET

RECEIVED
FEDERAL RESERVE .DARP
November ■
OFFICE
CHAIRMAN
FEDERAL

OF

O F TH E
THE

BOARD

RESERVE

AND

AGENT

1935 NOV 27

AM

8

44

CONFIDENTIAL:

Board of Governors
of the Federal Reserve System
Washington, D. C*

Gentlemens
I acknowledge your letter, marked. confidential, of
November 23*, in which you enclosed a copy of the Board1s letter
to the Chairman of the Federal Open i r^et Committee dated
November 23, 1935, and also the resplt of the Board’s study of
,/v

excess reserves of member bdnks./
Thanking you for this information, I am

EMS HH




Reproduced from the Unclassified / Declassified Holdings of the National Archives

|

DECLASSIFIED

|Authority QdJfdSLf l&2)5(jp

FEDERAL RESERVE BANK OF CHICAGO
230

S OUT H

l_A S A L L E

^

STREET

November 25, 1955

OFFICE O F THE
CHAIRMAN O F T H E B b A R D A N D
FEDERAL RE SE R VE AGENT

f# •m::

F^

CONFIDENTIAL:
H
U

Board of Governors
of the Federal Reserve System
Washington, D. C.

i

R/
Ec M n

wA 5 H ih i$ 4 . u 0 A i'0

27

Mi

8

58

Gentlemen:
I acknowledge receipt of your confidential letter of
November 25,^ in reply to our letter of November 15,^ which enclosed
. InrM i* run
in
.^Jim r
n-n v
-*
■
*
a copy of the statement expressing the opinion of the Board of
Directors of this bank sifter a review of the report of the meeting
of the Federal Open Market Committee on October 22 to 24, 1955*
Inasmuch as our letter above referred to was forwarded
at the request of our Board of Directors, I shall bring to its

M S HH




i

Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED
AuthorityQtQfdjir IQOSLq

.3
,

^ * ''i 'p'
'
p
.rt
i , A r V* • * : P m p
v Y . -"£
It
'

Federal Reserve B a n k
N^w Yo

of

r k

^5f/ov-:n
“u

N ovem ber 2 9 ,

1955.

S i r s :
In

a c c o rd a n c e w ith

O c to b e r 21^
ly




g iv e n

you,

of

!t

1 9 5 5 ^ and

th e

a c tio n

ta k e n by

m itte e

at its

m e e tin g

O c to b e r
re la tin g
th e

to

2 2 -2 4 ,
to

c o n firm in g

th e

s u b m it h e r e w ith

1925,

th e
h e ld

ta k e n

u n d e rly in g

each

p re v io u s ­

F e d e r a l O p e n M a r k e t Com­
i n W a s h in g to n ,

upon a l l

in

a d v ic e

a fo rm a l re c o rd

q u e s tio n s

open m a rk e t o p e r a tio n s ,

c o m m itte e

re a so n s

I

th e B o a rd ’ s l e . t ^ r ^ a L

c o n n e c tio n

th e

D. C .,

o f p o lic y
v o te s

th e re w ith ,

of
and

th e

such a c tio n .
V e r y .tr u ly

y o u rs,

G eoiyge L . H a r r i s o n ,
C h a ir m a n , F e d e r a l O pen
M a rk e t C o m m itte e .

B o a rd o f G o v e rn o rs o f th e
F e d e r a l R e s e r v e S y s te m ,
W a s h in g to n , D. C .

-, o
i
8

ra

Reproduced from the Unclassified / Declassified Holdings of the National Archives

[

DECLASSIFIED

!AuthorityQtVrdslf IB

RECORD OF ACTION TAKEN BY THE FEDERAL
OPEN MARKET COMMITTEEfAT ITS MEETINGS
IN WASHINGTON, D* C*, ON OCTOBER 2224, 19?5,| UPON QUESTIONS OF POLICY
RELATING TO OPEN MARKET OPERATIONS.

There were present:
Mr* Harrison, Chairman of the Federal Open Market Committee
and Governor of the Federal Reserve Bank of New York;
Messrs. Young, Norris, Fleming, Seay, Newton, Schaller,
Martin, Geery, Hamilton, and Calkins, Governors of the
Federal Reserve Banks of Boston, Philadelphia, Cleveland,
Richmond, Atlanta, Chicago, St* Louis, Minneapolis,
Kansas City, and San Francisco, respectively;
Mr. Gilbert, Deputy Governor of the Federal Reserve Bank of
Dallas; and
Mr. Burgess, Secretary of the Federal Open Market Committee
and Deputy Governorcf the Federal Reserve Bank of New York*
After a review of business and credit conditions the Committee,
by unanimous vote, adopted the following resolution*

The reasons for the

Committee*s action are set forth in the resolution:
The Committee reviewed the preliminary memorandum sub­
mitted by the Chairman and discussed at length business and
credit conditions and the banking position in relation to
them. It was the unanimous opinion of the Committee that the
primary objective of the System at the present time is still
to lend its efforts towards the furtherance of recovery*
While much progress has been made, it cannot be said that busi­
ness activity on the whole is yet normal, or that the effects
of the depression are yet overcome*
Statistics of business
activity and business credit activity, both short and long
term, do not now show any undue expansion. In these circum­
stances, the Committee was unanimously of the opinion that
there is nothing in the business or credit situation which at
this time necessitates the adoption of any policy designed to
retard credit expansion.
But the Committee cannot fail to recognize that the rapid
growth of bank deposits and bank reserves in the past year and
a half is building up a credit base which may be very difficult
to control if undue credit expansion should become evident.
The continued large imports of gold and silver serve to increase
the magnitude of that problem. Even now actual reserves of
member banks are more than double their requirements, and there
is no evidence of a let-up in their growth*
That being so, the
Committee is of the opinion that steps should be taken by the




Reproduced from the Unclassified / Declassified Holdings of the National Archives




|

DECLASSIFIED

jAuthority

-

2

/Q

-

Reserve System as promptly as may be possible to absorb at
least some of these excess reserves, not with a view to
checking some further expansion of credit, but rather to
put the System in a better position to act effectively in
the event that credit expansion should go too far.
Two methods of absorbing excess reserves have been dis­
cussed by the Committee: (a) the sale of short-term Gov­
ernment securities by the Federal Reserve System, and (b)
the raising of reserve requirements.
Tftiile the Committee feels that method (a), if employed,
would have the dual effect of absorbing excess reserves and
improving the position of the Reserve Banks, nevertheless,
there are two risks in this method, First, that it may be
a shock to the bond market, inducing sales of securities by
banks all over the country; second, that however it may be
explained publicly, it may be misconstrued by the public as
a major reversal of credit policy, since this method has
never been employed except as a means of restraint, which is
not desired at this time. A majority of the Committee is
opposed to the sale of Government securities at this time,
believing that its advantages do not now justify the risks
involved in this method of dealing with the subject.
There are also risks incident to method (b), - raising
reserve requirements. This method of control is new and un­
tried and may possibly prove at this time to be an undue and
restraining influence on the desirable further extension of
bank credit. The Committee feels, therefore, that before
this method of dealing with the problem of excess reserves
is employed, it would be wise for the Board of Governors of
the Federal Reserve System to make a thorough study, through
the twelve Federal Reserve Banks, of the amount and location
of excess reserves by districts and. by classes of banks, in
order thus to determine whether, or to what extent if at all,
an increase in reserve requirements might interfere with the
extension of loans and investments of member banks.
In view of the monetary powers now possessed by the
Treasury, the Committee is impressed with the importance of
advising with the Treasury relative to -any steps that may be
takan by the Reserve System in order as far as possible to
insure reasonable coordination of action.
Furthermore, the Committee recognizes the possible
dangers of the public misunderstanding of any action which
may be taken in this matter, and would favor a careful pub­
lic statement before action is taken.

Reproduced from the Unclassified I Declassified Holdings of the National Archives

|

DECLASSIFIED

jAuthorityQcVfciiir/B

-

7 ;

In making these suggestions to the Board o * Governors
f
regarding reserve requirements, the Committee recognizes
that it is going somewhat beyond its own immediate jurisdic­
tion, but it has found it impossible to consider open market
operations independently from the whole credit situation and
other Federal Reserve policies.
After discussion it was agreed that the authority previously
granted to the executive committee of the Federal Open Market Committee
to make shifts of maturities in the System open market account should
be continued, as necessary in the proper administration of the account,
to enable the executive committee to replace maturities from time to time
and to make shifts in maturities to meet changing market conditions.
Therefore, it was unanimously
VOTED that superseding previous authorizations, the execu­
tive committee be authorized to make shifts between maturities
of government securities up to $700,000,000, provided that the
amount of securities maturing within two years be maintained
at not le: r than $1 ,000,000,000 and that the amount of bonds be
not over $500,000,000.
It was also agreed that authority should be given to the exec­
utive committee to buy or sell (which would include authority to allow
maturities to run off) securities for System account up to a certain
amount, in order that the committee might be in a position to act
promptly if circumstances not now foreseen should make action appear
desirable before a further meeting of the full committee.

Therefore,

it was unanimously




VOTED that the executive committee be authorized to buy
or sell up to $250,000,000 of Government securities subject
to telegraphic approval of a majority o f the Federal Open
Market Committee and the approval of J m e Board of Governors
of the Federal Reserve System.

irge L. Harrison
Ctikirman, Federal Open
Market Committee

Reproduced from the Unclassified I Declassified Holdings of the National Archives

!

DECLASSIFIED
Authority S^Vtciili !
~B

'J 3 "
3

T.QilQhr.OJJywi

Mr* E* S « Stevens, Chairman,
9
Federa1 Reserve Bank of Chicago,
Chicago, Illinois.
Dear Mr* Stevenst
the menders of the Board of Governor# of the Federal Reserve
Systea have read with Interest your letter gf ffoyeabar IS* 19861 in­
closing a copy of the statement adopted by your executive committee as
an expression of the opinion of the board of director# of your bank
after a review of the report of the meeting of the Federal Open Market
Coaaittee on October £?~24, 1956*

It Is noted that the statement has

been concurred In f y every member of your board with one exception, and
c
that the opinion of that director la definitely that action should be
taken toward a decrease In the amount of holdings of government securi­
ties by Federal reserve banks, either by the sale of securities or by
allowing maturities to run off without replacement, rather than by
action providing for an Increase In th© reserve requirements of meaber
banks*
The statement referred to reads in part as followsi
"We, therefore, as a Board, desire to respectfully sug­
gest for earnest consideration by the Board of Governors of
the Federal Reserve System, an increase In required reserves
against bank deposits in Central Reserve and Reserve City
banks to possibly twenty-five per cent of the increase now
peraitted by law, thereby not only fortifying our banking




AM.

"/ vr/jiT

Reproduced from the Unclassified / Declassified Holdings of the National Archives

j

DECLASSIFIED

!Authority tfcVrdsl f

IB 2 ^

-2-

*structure to this extent, bat giving »»@nrence to buslsees sad the '-mblie that the lexers of control are operatire and in the hands of authorities who are ready to use
them* W* believe that such action accompanied f y f proper
e t
statement of its objective* would be favorably interpreted
by the financial and business interests rather than otherwise.
•We recognise t f t in addition to the measure referred
ht
to, that of f n increase in required reserves, consideration
t
nay properly be given to another effective power in the con­
trol of inflationary tendencies, under ifh ich credit nay be
withdrawn from the market either by the sale or by the
maturity without replacement of Government securities held
in the Federal Reserve System* However, because it is co**~
sidered that the application of such a measure might be re­
flected in the maztcet for Government bonds at this particular
time, we are disposed to suggest the primary consideration of
an increase in reserve retirements.*
The action taken by the Federal Open Market Com m ittee at its
meeting in Washington on October

1955, and the statement quoted

in your letter h*ve been very carefully considered by the Board, and
there Is being addressed to the Chairmen of the Federal Open Market
Committee today a letter advising of the Board1a decisions in connec­
tion with the resolution and motions adopted by the committee* This
letter contains the following paragraphs!




•in view of the Committee’s observations, with which
the Board concurs, that there is nothing in the business or
credit situation which at this time necessitates the adoption
of any policy designed to retard credit expansion, and that
the primary objective of the System at the present time is
still to lend its efforts to a furtherance of recovery, the
Board feels that it would not be timely to undertake at t h i s
stage of business recovery any measure for t h e absorption of
excess reserves*
•The Board is alive to the injurious consequences that
will be caused by the excess reserves if they are permitted
to go uncontrolled beyond the point where it will become rea­
sonably clear that further pursuit of the policy followed thus
far by the Federal Beserve System during the depression will
be attended with economic hasards to the country which the
%-stem could not safely ftssume* When and as that point ap­
proaches the Board will act.*

Reproduced from the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED

!

Authority 3^1)

f'J

j

\

The Board appreciate0 very m c h the interest which your
directors are taking in the

qmwt ioa

of System open market policy

mid expresses the hope that they will not hesitate to gtre the Board
the benefit of axgr views that they may have froa time to time on this
Important subject.
Very truly yours,

C h e s te r Morrill,

Secretary*

T

cM~

7

*U -

V




n

Reproduced from the Unclassified I Declassified Holdings of the National Archives




DECLASSIFIED
Authorityd^OfdSLf l&Q5(jp

j

j

3 -

cohfidbhtial

Hr, F* H. Curtins, Ch&irasa,
Federal iasarfa Bank of Boston,
Bo«toiif Massachusetts*
Dear Mr.,Curtiss:
tJnd.r data of Hovaabar 4, X98sjth« Board
received fro* the Secretary of th# Federal Open
Market Coaaittee copies of the final draft*of th*
resolution and actions adopted by th* Coiaaittee
at its neeting in Washington cm October ££~£4,

. . %
3C

1955, and there is attached a copy of a lattar V
being addressed to the Chairman of tha Coaalttee
today advlaiag of the actio© taken by tha Board
in connection therewith.
Vary truly yours,

Cheater Morrill,
Secretary.

^/VW'

r

Reproduced from the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED
Authority QtQfdjLC

m

u

m

Hr* J» B* Oase* Chairman,
Federal Reserve Bank of If w York,
e

New Tork, Hew York,
Dear Mr. Caaes
Under data of Hoveaber 4,19gSt the Board
received fro* the Secretary of the Federal Open
Market Committee copies of the final drafts of t a
ti
resolution an d motions adopted by the Cownlttee at
ita Keating in Hashington on October

1§HS^ and
//- 2 3 ' S S

there la attaohed a copy of a lett* ) being addreaaed
r
to the Chairman of the Coaaittee today advising of the
action taken by the Board in cornieotion therewith.
Very truly yowra,

Cheater Morrill
Seoretary.

CD)

"A iM " J



r

Reproduced from the Unclassified /Declassified Holdings of the National Archives

DECLASSIFIED

|

jAuthority QdOfdiLf !&

November 25, ItSfi,

ommmuk




Mr. H. I . Austin, Chairaan,
f
Federal Reserve Bank,
Philadelphia, Pennsylvania.
Bear Mr* Austins
Under date of loveaber 4, 195§j| the Board
received froa the Secretary of the Federal Open
Market Committee copies of the final drafts of the
resolution and notions adopted by the Counittee at
its neeting in Washimton on October 22-84 f 195S, and
i /— 2 - 3 ~ ? . r
there is attached a copy of a letterVbeing addressed
1
,

i„ j___iijj-iHffl-r—
tri-'iiMnfj___ X .

- ' if

to the Chairsan of the Goamittee today advising of the
action taken by the Board in connection therewith*

Very truly yours,

Chester Morrill,
Secretary#

w

Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED
Authority QcQfdjlf !Q05(jp

COMF1DKSTXAL




Ur* £• 5. Barken Jr., Acting Chairman,
Federal Reserve Bank,
Cleveland, Ohio.
Dear Mr. Burke:
Coder date of !feveaber_4
received

from

19SS^\ the Board

the Secretary of the Federal Open

Market Coanlttee coplea of the final drafts of the
resolution and notions adopted by the Coffittittee
at its Meeting in Washington on October

1935,

and there is attached a copy of a letter)being addressed
to the Chairman of the Committee today advising of the
action taken by the Board In connection therewith.

Very truly yours,

Chester Morrill
Secretory*

Reproduced from the Unclassified I Declassified Holdings of the National Archives

j

DECLASSIFIED

|Authority QcQfdjlf

Bovember 23, 1956,

Hr* 1* 1, Hoxton, Chairman,
Federal Reserve Bank,
Richmond, Virginia.
Dear Hr. Hoxtoni

tod.r dat. of W M u - J , 198S,(th. *»**
received from the Secretary of the federal Open
Market Committee copies of the final draft® of the
resolution and motions adopted by the Committee at
its meeting in Washington on October £2*24, 1955.

, //- * J - * r
and there is attached a copy of a jLetter\jming ad­
dressed to the Chairman o f the Committee to d a y
advising of the action taken by the Board in con­
nection therewith.

fery truj.y yours,

Chester Morrill,
Secretary.

j

AM ■ (t& t-r



t

,

■MK

m
Reproduced from the Unclassified I Declassified Holdings of the National Archives

i .

1
^
DECLASSIFIED

—

Authority Q^OfdjLf iQf
&Slj}

*>

Noveasber 23 # 1935.

CONFIDENTIAL




Hr • 1* H* Kettlg* Deputy Chairaan*
Federal R e se rv e Bank,
Atlanta, Georgia,
Deer Mr* Kettig*
Onder date of Noveaber

4, 1955j

tho Board

received fro* the Secretary of the Federal Open
Market Co**ittee copies of the final drafts of the
resolution and notions adopted by the Coftsiittee at
its aeetirig in Uashlngton on October £2-24, 1955,
3-3$
and there is attached a copy of a letter)being ad­
dressed to the Chair»an of the Committee today ad­
vising of the action taken by the Board in connec­
tion therewith.

Very truly yours.

Chester Korrill,
Secretary.

DECLASSIFIED

Reproduced from the Unclassified / Declassified Holdings of the National Archives

Authority QcOfdjlf IQQSj?

3

November 25, 1955

COKFIDfiKTIAL




Mr. 1. K| Stevene, ehair»an,
Federal Bemrve Bank,
Chicago, Illinois.
Dear Mr* Stevensi
Under date of November 4,^1935,^ the Board
received fro* the Secretary of the Federal Open
Market Goiwiitee copies of the final drafts of the
resolution and Motion* adopted by the Comittee at
its aeeting in waahington on October 22-24, 1955,

addreaeed to the Chairaan of the Cowiittee today
advieing of the action taken by the Board in con­
nection therewith •

Very truly yours,

Cheater Morrill,
Secretary*

r

Reproduced from the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED
Authority QcOfdilf

j 'J*

November '<2 $ Ii5®
%

m

im




s m

Mr, J. S« food* Ohairaaa,
Federal Keserve Bank,
St. kouis, Missouri,
Dear Mr* loodf
0sd©r date o f !3ove»ber 4,—195|k the Board
m
i II-....... ..... ..
I
received from the Secretary of the Federal Open
Market Cowiittee copies of the final drafts of the
resolution and notions adopted by the Cow&ittee at
its aeeting in Washington on October 22-24, 1935,
and. there is attached a copy of a

1 - X S-3-f
1
ad*

dressed to the Chairwm of the Committee today
advising of the action taken by the Board in con­
nection therewith.

Very truly'yours,

Chester Horrill
Secretary*

*3

.

Reproduced from the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED
Authority QtQfdjlf /QQSjp

3

November 23, 1955.
!
i

Hr. J* I . Peyton, Chairman,
I
federal Beaerre Bank,
Minneapolis, Minnesota,
Dear Ur* Peytons
Under date of Soveaber 4, 1955^ the Board
received fi*o» the Secretary of the Federal Open
Market Coaaittee copies of the final drafts of the
resolmtiott and aotioas adopted by the Coaaittee at
its Meeting in Hashing ton on October
there is attached a copy of a

U t \ mf

22~24,

1955, and

being eddroeaed

to th# Chaizmn of the Coamittee today advising of
the action taken by the Board in connection therewith*

Very truly your#,

Chester Morrill,
Secretary*

f cQ \ aa/
\r:\ r

J




y

I- J )
.

[zi

r ...

\V/

u

Reproduced from the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED
Authority

Hoveaber 25.# 1955.

PA * I1 P TT M 1 M * T A t




ir. E. F* Brown, ©ep&ty Chairman,
Federal Keserve Bunk,
Kansas City, Missouri*
Dear Mr.

Brown*
(Jnder date of ^ovesaber 4, 195si the Board
vt.—

------------------------^ ............... ..... ..........y

r i ----------

received fro* the Secretary of the Federal 0pm
Market Committee copies of the final drafts of the
resolution and actions adopted by the CoistBittea at
its meting in lashington on October

k2~24,,

1955,

l l ~ t

3 - 3 *

and there is attached a copy of a letter^ being ad­
dressed to the Chairman of the Committee today
advising of the action taken by the Board in con­
nection therewith.

Very truly yours.

Chester Morrill,
Secretary.

(r*

I
t

CD)

r

Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED
Authority

7

Boveaber 23, 1955

COSKIl&aTlAL




Hr* C. C» falah, Chairman,
Federal Heserve Bank,
Dallas, Texas*
Bear Hr* ialsht
Under date of Hov^iaber 4t 1955» [the Board
received fro® the Secretary of the Federal Open
Sarket Coniaitte© copies of the final drafts of the
resolution and Motions adopted by the Cooadttee at
Its naeting in lashington on October £&»£4» 19$$,
and there la attached a copy of a letter) being ad*
dressed to the Chairman of the Coral ttae today
advising of tha action taken by the Board in con*
nection therewith*

Vary truly yours,

Cheater Morrill,
Secretary#

3

Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED
Authority QlOfcljLf

IfcrreMber

1955,

CQariraaiytAL




Hr* i« N* Moore, D epu ty Q h td r m n ,

Federal leserve Book,
Ban Francisco, California.
Dear Hr, Sloore*
Dnder date of Hovesber 4* 19551 .the Board
r e c e iv e d fro ® th # -S e c re ta ry o f th e F e d e r a l Open
h.

liarket C om m ittee copies o f til© f i n a l drafts o f; th e
r e s o l u t i o n and M otions a d o p te d by the Committee a t
it® Meeting in Washington

m

October

ins#.,

^ * „ ** <f
* „

and t h e r e i n a t ta c h e d a oopy o f a l e t t e r [b e ltig ad-*d r e s s e d t o th # C hairm an o f th® C o ia a ltte e to d a y
a d v ie iiig of th e a c t i o s taken by th e B oard i n oosa-

* V
\ k~
\

s e c t i o n th e re w ith *

Very .truly youre,

Chester Morrill,
Secretary*

r

A W
!ZZ3

Reproduced from the Unclassified / Declassified Holdings of the National Archives

i

DECLASSIFIED

Authority

mmmmm k
Mr* Georg* L, Harrison, Chairman,
Federal Open Market Committee,
Care Federal Reserve Bank of Sew York,
Hew York, New York*
Bear Governor Harrisoni
Reference is a & e to the resolution adopted by the Federal
id
Open Market Cosu&itte© at its meeting on October 25, 1955, in Washington•
the Board has given careful consideration to the Goa«itteefs
statement about the present credit situation and the possible deslrability of taking steps to absorb some of the excess reserves of aeaber benks, either through the reduction of the System*® portfolio of
Government securities, or through the raising of aeaber bank reserve
requlreaents.
In view of the Committee*s observations, with which the Board
concurs, that there is nothing in the business or credit situation
which at this tiae necessitates the adoption of any policy designed
to retard credit expansion, and that the prlaary objective of the
System at the present time Is stHl to lend its efforts to a further­
ance of recovery, the Board feels that it would not be tiaely to under­
take at this stage of business recovery any aeasure for the absorption
of excess reserves*
The Board is alive to the injurious consequences that will
be caused by the excess reserves if they are peraitted to go uncon­
trolled beyond the point where it will becoae reasonably clear that
A m <Ui*» *V V
2

A *

J

H T

“M i




F

I

n the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED

Authority QcjJrckri& 6 (p
2

-2further purstilt of the policy followed thus far by the Federal Reserve
System during the depression will be attended with econoaic hasards to
the country which the Systea could not safely assuae.

When and

me

that

point approaches the Board will act*

A

preliminary study has been aade of the possible effects on

the position of aeaber banks of any change in reserve requirements
that night be aade by the Board*

A

suaaary of the results of thi«

7
study, as presented by the Division of Bank Operations, is attached.
The authority granted in the notion adopted by the Federal
Open Market Coaaittee at its aeetlng with respect to the purchase
and sale (which it Is understood would include allowing aaturities
to run off without replaceaent) of Govemaent securities by the
executive coaaittee, is in the sane fora as that approved by the
Federal Open Market Coaaittee at Its aeetlng on May

Z7$

1955, and,

inasmuch as it provides that before any purchases or sales are aade
by the executive coaaittee telegraphic approval of a majority of the
Federal Open Market Coaaittee and the approval of the Board will be
obtained, there appears to be no necessity for the Board to take ac­
tion on the authority at this tiae.

However, the Board will hold

itself in readiness to consider any action proposed by the executive
coaaittee with the approval of a majority of the Federal Open Market
Coaaittee, as provided in the motion.
^

The second notion adopted by the Federal Open Market Coa­

aittee authorises the executive committee to aake shifts of aaturi­
ties of Government securities in the Systea accowit up to $500,000,000,
provided that the aaount of securities maturing within two years be




DECLASSIFIED

j

Authority Qdjfdil CIB

Reproduced from the Unclassified I Declassified Holdings of the National Archives

J

!

maintained at not lea® than $1,(XX),000,000 and that the aoount o f
bonds in the account be not owar $600,000,00).

The Board ha*

fully considered the ra a e o n a gi^ea for tha adoption of thia notion,
but feala that a aubatantial ahift is naturitiaa of aecurities held
in tha account would not b« daalrable at thia tine.

th4^oforef the

Board approwaa tha authority g l m to. tha executive oanttittee o n ly
to tha o*tont oaceeeary to enable the committee to replace aecurltiaa naturing between now and the date o f the

meeting o f tho

Fodoffajl Open Market Com»ittae which will ' o bald ooMotiae before
b
tha and o f t h a current yoar in ooapllanoo with tha requirement of
tha la* that at. laaot four ooot&^pi bo .JM4 aach yoar*

A copy o f thia latter io beInc forwarded to tha ahairaaa
of tha board o f dlrootoro o f each of tho Kadoral raaorre banka*




fary truly j m m :
$

Reproduced from the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED
Authority 8^0'fciilf

F o r m N o . 131

FF

Office Correspondence
To______ Mr.

Am **___

FEDERAL RESERVE
BOARD

•’ A L R E S E R V E B O A R D F i L E

Date

Subject:.

From _ _f e i - i g g j i l i g
2— 8495

There Is attached, for your information, ah excerpt froa
the minutes of the Meting of the Board held on Hovember 20, 1955,
froa ihioh it will be noted that it m e agreed at the meeting that
you should have an opportunity to record in the minute* any position
that you may desire to take with regard to the letter to the Chair**
man of the Federal Open Harfcet Committee, a copy of which is attached.




3 -o' S'

Reproduced from the Unclassified / Declassified Holdings of the National Archives

|

DECLASSIFIED

Authority Q c
M

k

I ^ I

j

:

V

mmtPT mm m s mutoes of a mmtm of the
B0A1D OF GOVKHllOfiS OF TSB FEBFRAL SBSHRVX 3ISTSH
_________________________________g

m

, l^

, , , i f f a

E

R

, . g

i i ll2

i

f

&

....... ... ........... ............ ..

In accordance with the request marie at the meeting of the
Board on Roveaber 8# 1955, Mr. Siller presented a draft o f letter to
the Chairman of tha Federal Open Market Cosasittee with regard to t h e
action taken fcy the Coamittee at I t s aeetlag held Is Washington on
October

1955*

the proposed draft was discussed and certain

amendments were suggested*




It the conclusion of the discussion* It was
unanittemsly agreed that item letter should be re­
vised ia accordance with the- suggestions and
circulated aaong the raeabers of the Board for
initials* with the uaderstanding that if the let­
ter were approved fey the iww^eris
are in Wash­
ington it would he tranaaitted isasediately.
In this connection* it was pointed out that
Hr* fm es would not return to Washington until
next week and it was agreed that he $iould be g iv e n
an opportunity to record ia the minutes may position
that he ia&y desire to take with regard t o the matter.

r

Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED
Authority QcQfdiif

t
X-9S67

B O A R D

QF

G O V E R N O R S
OF

F E D E R A L

THE

R E S E R V E

S Y S T E M

FOR THE PRESS
IMMEDIATE RELEASE

NOVEMBER 22. 1955.

Statement by Chairman Eccles on inflation and reserves.




J 3 3, 3

Reproduced from the Unclassified / Declassified Holdings of the National Archives

|

DECLASSIFIED

!Authority QcVfciilf

!Q

X-9367

T h ere a p p e a rs to b e w id e s p re a d m is u n d e r s ta n d in g o f th e s i t u a t i o n
now e x i s t i n g w ith r e s p e c t t o i n f l a t i o n a r y p o s s i b i l i t i e s , a s w e ll a s a
m is c o n c e p tio n o f my own a t t i t u d e w ith r e g a r d to i n f l a t i o n .

I so u g h t

to em phasize i n my sp e e c h b e f o r e th e A m erican B an k ers A s s o c ia tio n t h a t
i t was th e d u ty o f t h e G overnm ent to in t e r v e n e i n o r d e r t o c o u n t e r a c t
a s f a r a s p o s s i b l e th e tw in e v i l s o f i n f l a t i o n and d e f l a t i o n .

The

word i n f l a t i o n i s u s e d by some p e o p le to mean any e x p a n s io n o f c r e d i t ,
o r any r a p i d ad v an ce i n p r i c e s .

I n o r d e r to make i t c l e a r w hat I h a v e

i n mind when I sp eak o f i n f l a t i o n a s a phenomenon t h a t n e e d s t o be con­
t r o l l e d , I d e f in e i n f l a t i o n a s a c o n d i t i o n b ro u g h t a b o u t when th e means
o f paym ent i n th e h a n d s o f th o s e who w i l l sp en d them i n c r e a s e s f a s t e r
th a n goods can be p ro d u c e d .

I n o t h e r w o rd s, th e volum e o f money m ust

be r e l a t e d t o th e volum e o f a c t u a l an d p o t e n t i a l p r o d u c tio n o f r e a l
w e a lth .
I a sk e d th e q u e s ti o n :

"How i s i t p o s s i b l e t o h av e i n f l a t i o n when

men a r e i d l e and p l a n t s a r e i d l e ? "
"T h ere can be s p e c u l a t i v e e x c e s s e s when s u r p lu s fu n d s b id up
s to c k s o r r e a l e s t a t e , b u t i n f l a t i o n i n th e g e n e r a l l y a c c e p te d s e n s e
can o n ly come a b o u t by i n c r e a s i n g th e means o f paym ent i n th e h an d s
o f p e o p le who a r e w i l l i n g to sp en d f a s t e r th a n we can i n c r e a s e p r o ­
d u c t io n .

We a r e a lo n g way from su ch a p e r io d o f i n f l a t i o n . "

C o n s id e r a b le c o n f u s io n seems to e x i s t i n some q u a r t e r s , a s r e ­
f l e c t e d i n some o f th e n e w s p a p e rs , a b o u t th e d a n g e rs o f " i n f l a t i o n "
a t p re s e n t.

B ut i t i s e v id e n t t h a t w hat i s m eant i n m ost c a s e s i s

n o t i n f l a t i o n i n th e s e n s e I h a v e i n d i c a t e d , b u t a s to c k m a rk e t " i n f l a t i o n "
In o t h e r w o rd s, t h e r e seems to be c o n c e rn a b o u t a r e p e t i t i o n o f th e s to c k




J

Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED

Authority ScDrdjLf

X-9367

m a rk e t e x c e s s e s o f 1929 and a la c k o f u n d e r s ta n d in g o f th e F e d e r a l R e se rv e
S y s te m 's power to d e a l w ith th e s i t u a t i o n .

I w ish so f a r a s p o s s i b l e to

c l a r i f y th e p i c t u r e i n o r d e r t o c o r r e c t th e n o tio n t h a t th e F e d e r a l R e serv e
System c o u ld , by a c t i o n a t t h i s tim e , r e a c h th e s to c k m a rk e t s i t u a t i o n , and
s e c o n d ly , th e t o t a l l y m ista k e n id e a t h a t th e C hairm an, o r f o r t h a t m a tte r ,
th e o t h e r o f f i c i a l s o f th e F e d e r a l R e s e rv e S y stem , a r e i n d i f f e r e n t to o r d i s ­
i n c l i n e d to do w h a te v e r i s w ith in t h e i r power t o p r e v e n t th e d ev elo p m en t o f
an unsound c o n d i tio n .
Anyone who w i l l ta k e th e t r o u b l e to c o n s u l t th e R e se rv e S y stem 1s r e p o r t s
on th e c o n d i tio n o f member b an k s w i l l s e e a t once t h a t th e t o t a l o f s e c u r i t y
lo a n s by banks b o th t o c u s to m e rs o th e r th a n b r o k e r s and to b r o k e r s h av e shown
no grow th s in c e th e m id d le o f M arch, when th e p r e s e n t r i s e i n s e c u r i t y p r i c e s
b eg an .

I n f a c t , th e f i g u r e s show so m eth in g o f a d e c l in e b etw een M arch 13 and

November 1 3 , a s i s i n d i c a t e d by th e f o llo w in g t a b l e :
LOANS ON SECURITIES BY REPORTING
MEMBER BANKS IN 101 LEADING CITIES
( in m illio n s o f d o lla r s )
M arch 13
1935
T o t a l lo a n s on
To b r o k e r s and
T o ta l
I n New Y ork
O u ts id e New
To cu sto m e rs*

s e c u ritie s *
d e a le rs :
C ity
Y ork C ity

November 13
1935

Change

3 ,2 3 9

3 ,0 5 2

- 187

1 ,0 3 1
854
177
2 ,2 0 8

974
815
159
2 ,0 7 8

- 57
- 39
- 18
- 130

STOCK PRICES
(1926= 100)
421 s to c k s

6 3 .1
___




* E x c lu s iv e o f lo a n s t o b an k s

9 3 .3

+30.2
(+ 48%)

J
DECLASSIFIED
Authority fW rm r/B S d p

Reproduced from the Unclassified I Declassified Holdings of the National Archives

X-9367
- 3 The r i s e i n s e c u r i t y p r i c e s h a s n o t been f in a n c e d by bank c r e d i t .
The s e c u r i t i e s a r e b e in g b o u g h t m o s tly f o r c a s h o u t o f th e a b u n d a n t i n ­
v e stm e n t fu n d s i n t h e h a n d s o f c o r p o r a t io n s and i n d i v i d u a l s and o u t o f
fu n d s s e n t 'to t h i s c o u n try by f o r e i g n e r s who w ish t o i n v e s t h e r e b e c a u se
th e y b e l i e v e t h a t t h i s i s t h e s a f e s t an d m ost p r o f i t a b l e u s e f o r t h e i r
money,
I w ish to em p h asize two p o i n t s a s s t r o n g ly a s I c a n :

F i r s t , I th in k

t h a t t h e r e i s an e le m e n t o f s a f e t y and o f s t r e n g t h i n th e f a c t t h a t th e
s e c u r i t y p u r c h a s e s a r e b e in g f in a n c e d o u t o f c a s h w ith o u t in c r e a s e d u s e
o f bank c r e d i t .

I am d o u b tf u l w h e th e r a ru n -aw ay s to c k m a rk e t s i t u a t i o n

can p ro c e e d v e r y f a r w ith o u t b e in g r e f l e c t e d i n an in c r e a s e d demand f o r b o r­
row ed f u n d s .
I n t h i s c o n n e c tio n 1 w is h a l s o t o p o in t o u t t h a t th e am ount o f money
g o in g i n t o t h e s to c k m a rk e t i s n o t , a s some h av e c o n te n d e d , d e p r iv i n g th e
c a p i t a l m a rk e t o f a d e q u a te fu n d s and th u s r e t a r d i n g r e c o v e r y .

T h a t am ple

fu n d s a r e a v a i l a b l e i n th e c a p i t a l m a rk e ts i s e v id e n c e d by th e f a c t t h a t o f ­
f e r i n g s o f lo n g te rm s e c u r i t i e s and m o rtg ag es a r e b e in g a b s o rb e d a t y i e l d s
w hich h av e b een s t e a d i l y d e c l i n i n g .
The seco n d p o i n t w hich I w ish t o em p h asize ev en more s t r o n g l y i s t h a t
th o s e who a r e s u g g e s tin g t h a t th e F e d e r a l R e s e rv e System s h o u ld do so m eth in g
a b o u t s to c k m a rk e t c o n d i tio n s a t p r e s e n t a r e u n d e r t h e m is ta k e n im p re s s io n
t h a t t h e System c a n in t e r v e n e i n th e m a rk e t a t an y tim e .

As a m a tte r o f f a c t ,

th e System h a s no a u t h o r i t y w h a ts o e v e r t o c u rb b u y in g o f s e c u r i t i e s by
i n d i v i d u a l s o r c o r p o r a t i o n s , w h e th e r f o r e i g n o r d o m e s tic .

I t s o n ly a u t h o r i t y

i n t h i s m a tte r i s o v e r m arg in r e q u ir e m e n ts , w h ich a p p ly o n ly when t r a n s a c t i o n s




Reproduced from the Unclassified / Declassified Holdings of the National Archives

j

DECLASSIFIED

I

!Authority C^VfChlf /'J u£(p !

_ 4 .

X-9367

a r e on c r e d i t , a s i s n o t t h e c a s e t o a n y e x t e n t a t t h e p r e s e n t tim e*

The

o n ly power th e System h a s i s t o c o n t r o l t h e s p e c u l a t i v e u s e o f bank c r e d i t*
T h e re i s no s p e c u l a t i v e u s e o f bank c r e d i t i n th e p r e s e n t s i t u a t i o n *
T h e r e f o r e , I s h o u ld l i k e to n a i l once and f o r a l l , i f p o s s i b l e , th e
i d e a t h a t th e F e d e r a l R e s e rv e S ystem i s n e g l e c t i n g a t t h i s tim e t o e x e r ­
c i s e i t s pow er o v e r s to c k m a rk e t s p e c u la tio n *

T h e re i s no t r u t h i n t h i s

id e a *
As f o r th e g e n e r a l b u s in e s s an d c r e d i t s i t u a t i o n and th e volum e o f
member bank r e s e r v e s - i t i s c l e a r t h a t t h e r e i s no e x c e s s iv e e x p a n s io n
i n an y f i e l d a t t h i s tim e .

T h ere i s no e v id e n c e o f a c c u m u la tio n o f in v e n ­

t o r i e s , o r o f f r a n t i c b id d in g f o r a l i m i t e d am ount o f g o o d s, o r o f an ex ­
p a n s io n o f b an k c r e d i t , s a v e th r o u g h th e p u rc h a s e o f Government s e c u r i t i e s *
The tu r n o v e r o f d e p o s i t s i s s t i l l lo w .
The g e n e r a l c r e d i t s i t u a t i o n a s w e ll a s d ev e lo p m e n ts i n th e s to c k
m a rk e t r e q u i r e c l o s e and c a r e f u l s tu d y a s t o t h e a p p r o p r i a t e tim e f o r and
m ethod o f a c tio n *

T h is c l o s e s tu d y i s b e in g g iv e n by th e S y stem , i n c lu d in g

n o t o n ly th e B oard o f G o v ern o rs i t s e l f , b u t th e Opea M arket C om m ittee and
t h e A d v iso ry C o u n c il a s w e ll*




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I9>2£ip

RECOMMENDATIONS Of
ADVISORY COUNCIL T
fHE BOARD OF GOVERNORS OF TH£ FEDERAL RESERVE SYST

November 2 1 , 1955
T opic No. 1 ,

Open M ark et O p e ra tio n s

RECOMMENDATION;

The F e d e r a l A d v iso ry C o u n c il, i n view o f th e f a c t

t h a t i t h a s b een a d v is e d by th e C hairm an o f th e B oard o f G o v ern o rs o f th e
F e d e r a l R e se rv e System t h a t th e B oard d oes n o t hav e th e a u t h o r i t y to
i n i t i a t e open m a rk e t o p e r a t i o n s , r e q u e s t s t h e B oard to s u b m it th e f o llo w ­
in g recom m endation to th e Open M ark et C om m ittee and to c a l l f o r t h a t
p u rp o se a s p e c i a l m e e tin g o f s a i d Com m ittee a t an e a r l y d a t e .
The F e d e r a l A d v iso ry C o u n c il o f th e F e d e r a l R e s e rv e System h a s r e ­
c e iv e d th e co m m u n icatio n o f th e B oard o f G o v ern o rs o f th e S y stem , w h e re in
r e f e r e n c e i s made t o th e s ta te m e n t o f th e C o u n c il made to th e B oard a t
i t s m e e tin g o f S ep tem b er 2 4 , 1 9 3 5 , c o n c e rn in g th e am ount o f Governm ent
s e c u r i t i e s h e l d by th e S y stem , w hich h a s n o t v a r i e d f o r a lo n g tim e , and
c a l l i n g th e a t t e n t i o n o f th e B oard t o th e b a s i c th e o r y o f open m a rk e t
o p e r a t i o n s : t h a t t h e r e s h o u ld a t a l l tim e s p r e v a i l s u f f i c i e n t f l e x i b i l i t y
to p r e v e n t undue e x p a n s io n an d c o n t r a c t i o n i n th e c r e d i t s t r u c t u r e o f
th e c o u n t r y .

The C o u n c il e n q u ire d w h e th e r th e B o ard a g re e d w ith th e

p r i n c i p l e e n u n c ia te d .
The p r e s e n t com m unication o f th e B oard r e c o g n iz e s " th e n e c e s s i t y
f o r th e c o n s i d e r a t i o n o f th e f a c t o r s r e f e r r e d t o i n th e s ta te m e n t a s
e le m e n ts i n th e d e te r m in a tio n o f open m a rk e t p o li c y " and c l o s e s w ith th e
s ta t e m e n t t h a t " i f th e C o u n c il h a s any p r o p o s a ls to make w ith r e s p e c t to
th e o p e r a t i o n o f th e open m a rk e t a c c o u n t o f th e F e d e r a l R e se rv e S ystem ,




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whieh it believes to be pertinent in the existing situation, all factors
considered, the Board will, as in the past, be glad to receive them and
consider them".
The Council is fully cognizant of and thoroughly appreciates the
importance and significance of the obligation imposed upon, it by law "to
confer directly with the Federal Reserve Board" and Hto make recommenda­
tions in regard to discount rates, rediscount business, note issues,
reserve conditions in the various districts, the purchase and sale of
gold or securities by reserve bapks, open market operations by said banks,
and the general affairs of the reserve banking System", and it has given
its most careful and earnest consideration to the suggestion by the Board
that it will be glad to receive from the Council such proposals as it may
make with respect to the open market account of the System.
As a result of this consideration the Council desires to call the
attention of the Board to the fact that, since the discontinuance, more
than two years ago, of open market purchases by the Stystem, excess reserves
of member banks held by the System have now reached the unprecedented total
of more than three billion dollars, which may well be considered as a base
upon which additional bank credit can be extended to the extent of at least
thirty billion dollars with a corresponding increase of bank deposit lia­
bilities *
The Council believes that there have now been some considerable evi­
dences of recovery in business, of an increase in prices generally, and
particularly in the security markets of the country, with the possibility,
at i.©ast, that a too rapid advance of security prices could easily develop




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-3into a new wave of speculation such as preceded the market collapse of
1929.

The constant pressure of the very large excess reserves of the

member banks creating a plethora of the available supply of bank credit
has a very distinct tendency to foster and encourage speculative activity,
increase prices., and raise the living cost of the population.

The Council

believes that, even with the practically complete elimination of excess
reserves, the banking system of the country would still be prepared and
ardently desirous of meeting any and all legitimate and proper demands
for bank credit, and it i s strongly of the opinion that, in order to
i
obviate the probability of an undue and dangerous credit inflation, it is
desirable from every point of view to eliminate or at least greatly reduce
the excess reserves now being carried in the System.
Since the enactment of the Banking Act of 1935, there exist two
methods by which this can be accomplished.

1.

The selling or ’permitting
’

to run off” of a portion or all of the System holdings of Government securi­
ties,

Z.m

Raising of reserve requirements *

The Council has most earnestly considered the question as to which
of these two methods might be the more desirable under the present circum­
stances and has determined to recommend as strongly as possible the first
method.
The controlling reason for this is the indisputable fact that so
long as Government bonds are held under the ownership of the System, either
the currency of the country or the reserves of member banks, to a corre­
sponding extent, are dependent entirely upon a Government obligation.

The

world history of currency and banking has demonstrated the dangers inherent




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-4in such a system or policy too many times to make it necessary for them
to be elaborated upon in this communication.
There is, however, another reason for preferring the first method,
namely, the ease and flexibility with which it may be administered.

Under

that method, Government security holdings may be permitted to run off or
may be sold, rapidly or gradually, as in the judgment of the Open Market
Committee, may seem to be feasible or advisable.

If at any time, the

effects seem to t e too severe, it is possible to suspend or even temporarily
i
to reverse the policy.
Under the second method, namely, increase of reserve requirements,
rigidity is substituted for flexibility, since it must be entirely apparent
to any one that frequent changes in reserve requirements would create a
chaotic condition in planning for the future by member bank management.
Finally, the Council wishes to make perfectly clear to the Board
that, after Government security holdings of the System have been eliminated
or greatly reduced, and if, then, further curbs upon speculation should
seem to be desirable, there would certainly be no possible objection to
an increase in reserve requirements.

On the contrary, it would become

the clear and plain duty of the Board fearlessly and promptly to take
such action.




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Confidential
R« and S.

November 20, 1935*
MEMORANDUM ON PROPOSED BEQ.UEST FOR INFORMATION BE LARGE DEPOSITS

Purpose

The Board of Governors in formulating Its general policies is
interested not only in the volume of .deposits " u also in the turnover*
bt
non and in the future.

One factor that has a hearing on the turnover

is the distribution of deposits among different economic groups, about
which almost no current information is available,*

Since 1933 over

billion of new demand deposits have come into existence.
happened to this purchasing power?

What has

Has it been distributed among all

economic groups or has the bulk of it come t : rost temporarily in large
o
corporate accounts?

It is known that deposits in New York and Chicago

are far in excess of their 1929 $>eak»

It is also known that demand de­

posits in the central reserve city and reserve city member banks have
increased over $+ billion since 1933*

this represents a growth of

large corporate balances what bearing will this have on the probable
future denandjfor bank credit and on the volume of new capital issues?
As there are over fifty million separate accounts a complete cover­
age and classified distribution of deposits would bo a largo task.

It

is known, however, that in 1933 about U5 percent of total deposits were
in ^7>000 accounts of over $50»000 each.

It appears, therefore, that

information on the larger accounts in tho larger banks would throw con­
siderable light on what has happened to the deposits created in the
past two years while involving a minimum of trouble to collect.




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Procedure
!T e original suggestion was to obtain information on identical
h
accounts at intervals during the past six years*

If, however, the

inquiry were confined to a few accounts in a few banks it would be
impossible to determine whether the changes shown were actual changes
in corporate accounts or merely represented shifts between banks.
If the inquiry were limited to the period since the bank holiday it
is believed that changes due to shifts of deposits would be minimized.
It is now proposed* therefore, to investigate the feasibility of obtain­
ing information on all accounts above a certain amount, classified by
manufacturing! trade, public utility and railroad, financial, personal,
and other, as of a recent date* and the same accounts as of June 30,
1933 *

®ie broad classifications would preclude the possibility of

identifying the ownership of any deposit*

If the information here

suggested were obtained it would throw light upon the present distri­
bution of the larger deposits and would aid in determining what has
happened to the deposits created by Government financing and by inflows
of gold,
Questions
The specific questions on which assistance is solicited from the
Advisory Council are as follows?
1,

Accounts above what size in New York and Chicago banks would

include some 30 or k O percent of their deposits?
2# Accounts above what size in the jS largest banks outside of

New York and Chicago would include some 25 percent of their deposits?




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3* Would the tabulation and classification of such accounts
involve much inconvenience?

Before proceeding with the inquiry the answers to these questions
would be sought from the individual bankers affected.

In the meantime

the Board will appreciate any assistance the Advisory Council may give
it in this matter-.




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2

H&wmb&r 1%

1935*

Mr, Eugene M. Stevsns, Chairman,
Federal Reserve Bank of Chicago,
Chicago, Illinois.
Daar Mr. Stevens:
Receipt is acknowledged of your letter of
Jlovember 15

kp

Chairman Eccles relative to the adop-

tion kg your board of directors of a statement regard­
sr
ing the report of the last meeting of the Federal Open
Market Committee,
Tour letter is being brought to the atten­
tion of the members of the Board,
Very truly yours,

Secretary,

CM yd




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Koyenber 13* HISS.

Mmmm&m M Pr_«Jfo«rgiM*
fa hs*s spam over tha tentative draft of the pro­
posed record of tha action* taken ly tha Federal Open Market
Conadttee At its stating* on October EE - M, 1955, and I
attach a substitute draft for your oonsider&tion* the prin­
cipal purpose of tha changes is to anplify tha reasons for
tha adoption of tho two short resolutions and in doing so
we have utilised tha oral explanation nada by Governor Har~
risen* tha change in tha caption mas aada In flaw of %
suggestion in tha Board»s Igf & r taJ&?*rnor^
et

/

that

it would ba willing to accept a record prepared and su&altted
by tha co**ittae.

( i n d C e t r Man#
Sfe) hse

Secretary*

CM yd

c d

rlM




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RECORD Of ACTIOH U Z M B t T J FEMRAL
J HS
OPES XABKKT CQBBXmB At ITS HEOTSGS
IB WA2HIHGT08, D, C.9 OH OCTOBER
«
x#5*f w m t m m m s o f p q li c x
B«r m a S m m nn<Hr m B r M ) milfXkafwrto
lrtt
UL
ID
Miaygl QrgMTIQgS>

Thoro ooro proaoatf

Mr. Horrlooa* Chalraan of tho Fodaral Opoa Ilarkot Coswittoo
aad Gowaor of tho FodoroX Booorvo Bonk of Bo* Torkj
Koaara* Xowag, iorrla, FX«ing, Soay, Booto**, Schollor,
Bartln, Goosy, Hoolltoa, aad Colkiaa, Governors of tho
FodoroX Boaorro loako of Boaton, PhlXodolphlo, ClovoXoai*
Richmond, Atlanta, Chi«*£0, St* 1ouist, Kloaeopoli*, laaooa
Cltgr* aad San Francisco, roapootlvolyf
!r. Coloaaa, Doputy Oorortior of tho Fodoral Botorvo Bank of
Dallas* and
Br. Borgoaa, Socrotajy of tho FodoroX Opoa Borkot Comdttoo
oad Dopaty Govotaor of tho Fodoral Baoorvo Bank of Bov Xork.
iftor a rovloo of busiaoaa and orodit conditions tho Coaalttoo,
aaoatmrao voto, adoptod tha following resolution.

tho roaaoaa for

tho C— tit— 1# aotloa *70 ao% forth la tho r«»olutian:
Tho Conit too F w i m d tho parollainary a a a m a i n mb*
alttod by tho Chalraan and dlooaaaod at loagth buainoas and
erodlt conditions aad tho hawking pooltlon in rolotloa to
thoa* It 'aaa tho uaaalaoaa opinion of tho Comlttoo that tho
^riaugr ohjootivo of tho lyotoa at tho proaoat tiao la stiXX
to load ito offort# towards tho ftortharaaaa of rocovory.
BhiXo aoch progrooo fcoa boon aado, It aaaaot ho aoid thot baolnoaa aetivlty oa tho aholo is yot oozaal, or that tho offoeta
of tho doproaolo© mem yot ovtreoao. Statistics of buolaos*
ootiTltr aad httalaoaa oradit activity, both abort and Xoag
to*a, do not now ahov any aadna oxponalon. In thoao cIfomk
ataacoa, tho Comlttoo oaa uaaalaouoly of tho opinion thot
thore la aothlag la tho tmainoaa or erodlt altaotion ohlefa at
thla tlao noooaaltatoa tho adoption of any policy doslgnod to
rotard orodlt oxpoaaloa*

But tho Gooalttoo eoaaot foil to roeogalao thot tho ropid
growth of bonk dopoalta and honk rosarvea In tho past yoar
o half la bttlldlag up a erodlt baoo vhloh *•? ho vory difficult
to oontroX If i»Khio erodlt expmnmton shomld becooe evident,
tho eoottmaad largo laporta of gold mad alXTor o^rvo to lncroose




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th* angnitwl# o .f that p?oble»* Bnss* mm actual reserves of
aeaher hanks are sore than doubt® their iwuirtmenta, and
there is no evidence of a let-«p in their growth. That be­
ing so* the ComKittee is of th® opinion that ?«teps should
be taken by the Reserve System us promptly as s a be possible
sy
to absorb at least sons of then® excess reserves* mot with m
view to cheeking sows farther expansion of credit* but rather
to pat the %»t«* in a better position to net effectively in
the event that credit explosion shcmld go too far*
two method a of absorbing excess reserves hair® been dis~
enssed hr th© Cassa&tfcee* (sJ the sals of .%ori~term Govern­
ment securitise by the Federal Hoserv# Synfottt, am! (b) the
raising of reserve retirement g*

While the Committee feel* that ssthod (a). If employed#
maid hair# the daal effect of absorbing excess reserves and
improving the position of th© Hesarve Bank** nevertheless,
there ar© two risks in thir- Method* First* that it map be
a shock to th© bond smrket, Inducing sales of securities by
banks nit over the country§ ssoond, that however it may be
explained pdbllely, it &ey he misconstrued by the mblic as
a major reversal of credit policy, aince thin method has
never been employed except aa a m m » of restraint, which is
not desired at this tine* k majority of the Committee is
opposed to the sale of Government securities at this tiae,
believing that its advantages do not now justify th* risks
involved in this method of dealing with the subject.
There are also risks incident to method (b), - raising
reserve retirements* This isethod of control is new tm& nntried and say possibly prove at this tine to be m untitoe and
restraining influence on th© desirable farther extension of
hank credit. The Cbaaittee feels, therefore* that before
this <a*thod of dealing with the problem of excess reserves
is employed, it would be vise for 'the Board of Governors of
the Federal Be serve System to make a thorough stou^r, through
the twelve Federal leserve Banks* of the amount and location
of excess reserves by districts and by classes of banks, in
order thus to determine Aether, or to what extent if at all,
an increase in reserve requirements sight Interfere with the
extension of loans and investments of member banks*
In view of the Monetary powers now possessed by the
Treasury, the Committee is Impressed with the importance of
advising with the Treasuiy relative to any steps that may be
taken by the leserve System in order as far as possible to
insure reasonable coordination of action*

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»"
Furthermore, the Committee recognlms the possible
dangers of the public aisunderstanding of m y action which
may be taken la this natter, end would favor a careful pub­
lic statement before action Is taken*
In aaking these suggestions to the Board of Governors
regarding reserve requirements, the Committee recognises
that it is going somewhat beyond its o«& immediate jurisdic­
tion, but It has found it impossible to consider open aarket
operations Independently fro* the whole credit situation and
other Federal Reserve policies*
After discussion it was agreed that the authority previously
granted to the executive coaaittee of the Federal Open Market Coaaittee
to aake shifts of aaturities In the System open aarkat account should
be continued, as necessary in the proper administration of the account,
to enable the executive coaaittee to replace maturities froa time to
time and to aake shifts in aaturities to meet changing aarket conditions*
therefore, it was unanlaously
VOTED that superseding previous authorisations, the executive
coaaittee be authorised to aake shifts between aaturities of
government securities up to $$00,000,000, provided that the
anount of securities maturing within two years be aaintalned
at not less than |1,000,000,000 and that the amount of bonds be
not over $$00,000,000*
It was also agreed that authority should be given to the
executive coaaittee to buy or sell (which would include authority to
allow aaturities to run off) securities for Systea account up to a
certain amount, in order that the coaaittee sight be in a position to
act promptly if occasion for action should arise due to unforeseen causes
or, to offset, through open aarket operations,

may

unsettlement that

eight result in the Government bond market from a change by the Board
of Governors of the Federal Reserve Systea in reserve requirements of



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banks, should imcfc action be taken by the Board*

Therefore*

It was ttoanlaoaiftjr




f f y f W tbftt the executive eoaialtte# be «athoYi*«d to buy
or sell up to $280t&x>t000 of fkfirmmmmt securities sub­
ject to telegraphic approval of a aaj oritjr of the Federal
0r*m Market Goiwiitee and the approval of the Board of
Governors of the federal Beserve Srsteai*

George L. Harrison
Chairaan, federal Open
Harlot Goiaatttee

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CONFIDENTIAL
REPORT OF ACTION TAKEN BY THE FEDERAL
OPEN MARKET COMMITTEE AT ITS MEETING
HELD IN WASHINGTON, D. C., OCTOBER 2224, 1955, UPON QUESTIONS OF POLICY RELATING TO OPEN MARKET OPERATIONS.

There were present
Governor Harrison, chairman, Governors Young, Norris, Fleming,
Seay, Newton, Schaller, Martin, Geery, Hamilton, and Calkins.
Deputy Governors Gilbert and Burgess, secretary.
After a review of business and credit conditions the Committee adopted
the following resolution unanimously.
The Committee reviewed the preliminary memorandum
submitted by the Chairman and discussed at length business
and credit conditions and the banking position in relation to
them.
It was the unanimous opinion of the Committee that the
primary objective of the System at the present time is still
to lend its efforts towards the furtherance of recovery. While
much progress has been made, it cannot be said that business
activity on the whole is yet normal, or that the effects of
the depression are yet overcome. Statistics of business activity
and business credit activity, both short and long term, do not
now show any undue expansion. In these circumstances, the Com­
mittee was unanimously of the opinion that there is nothing in
the business or credit situation which at this time necessitates
the adoption of any policy designed to retard credit expansion.
But the Committee cannot fail to recognise that the
rapid growth of bank deposits and bank reserves in the past year
and a half is building up a credit base ?rhich may be very diffi­
cult to control if undue credit expansion should become evident.
The continued large imports of gold and silver serve to increase
the magnitude of that problem. Even now actual reserves of mem­
ber banks are more than double their requirements, and there is
no evidence of a let-up in their growth. That being so, the
Committee is of the opinion that steps should be taken by the
Reserve System as promptly as may be possible to absorb at least
some of these excess reserves, not with a view to checking some
further expansion of credit, but rather to put the System in a
better position to act effectively in the event that credit ex­
pansion should go too far.
Two methods of absorbing excess reserves have been
discussed by the Committee: (a) the sale of short-term Govern­
ment securities by the Federal Reserve System, and (b) the rais­
ing of reserve requirements.
Yftiile the Committee feels that method (a), if employed,

Copy attached herewith




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would have the dual effect of absorbing excess reserves and
improving the position of the Reserve Banks, nevertheless,
there are two risks in this method. First, that it may be
a shock to the bond market, inducing sales of securities by
banks all over the country; second, that however it may be
explained publicly, it may be misconstrued by the public as
a major reversal of credit policy, since this method has
never been employed except as a means of restraint, which is
not desired at this time*
A majority of the Committee is
opposed to the sale of Government securities at this time,
believing that its advantages do not now justify the risks
involved in this method of dealing with the subject.
There are also risks incident to method (b), - rais­
ing reserve requirements.
This method of control is new and
untried and may possibly prove at this time to be an "undue and
restraining influence on the desirable further extension of
bank credit. The Committee feels, therefore, that before this
method of dealing with the problem of excess reserves is em­
ployed, it would be wise for the Board of Governors of the
Federal Reserve System to make a thorough study, through the
twelve Federal Reserve Banks, of the amount and location of
excess reserves by districts and by classes of banks, in order
thus to determine whether, or to what extent if at all, an
increase in reserve requirements might interfere with the ex­
tension of loans and investments of member banks.
In view of the monetary powers now possessed by the
Treasury, the Committee is impressed with the importance of
advising with the Treasury relative to any steps that may be
taken by the Reserve System in order a . far as possible to
s
insure reasonable coordination of action.
Furthermore, the Committee recognizes the possible
dangers of the public misunderstanding of any action which may
be taken in this matter, and would favor a careful public state­
ment before action is taken.
In making these suggestions to the Board of Governors
regarding reserve requirements, the Committee recognizes that
it Is going somewhat beyond its own immediate jurisdiction, but
it has found it impossible to consider open market operations
independently from the whole credit situation and other Federal
Reserve policies.
After discussion of the authority which it was necessary to give the
executive committee in order to replace maturities from time to time In the
System account, and in order to make shifts in maturities to meet changing
market conditions, it was unanimously



Reproduced from the Unclassified I Declassified Holdings of the National Archives

j

DECLASSIFIED

|Authority QtVfciilf / Q & S j
P

- 5 -

VOTED that superseding previous authorizations, the execu­
tive committee be authorized to make shifts between maturities
of government securities up to $300,000,000, provided that
the amount of securities maturing within two years be main­
tained at not less than $1 ,000,000,000 and that the amount
of bonds be not over $600,000,000.

V

After discussion as to further authority which should be given to the
executive committee in o M e r to keep the committee in a position to act promptly
if any occasion for action arose due to causes not now foreseen, it was unani­
mously




VOTED that the executive committee be authorized to buy or
sell up to $250,000,000 of Government securities subject to
telegraphic approval of a majority of the Federal Open Market
Committee and the approval of the Board of Governors of the
Federal Reserve System.

George L. Harrison
Chairman, Federal Open
Market Committee

DECLASSIFIED

Reproduced from the Unclassified I Declassified Holdings of the National Archives

Authority QtQfciilf lQ2)5(jp

il*\

FEDERAL RESERVE BANK OF CHICAGO
230

S O U T H

LA S A L L E

STR EET

November 15, 19b5
OTFICE
CHAIRMAN
FEDERAL

OF

O F TH E
THE

BOARD

RESERVE

AND

AGENT

Hon. Marriner S. Eccles
Chairman, Board of Governors
of the Federal Reserve System
Washington, D. C.

CEJVID
FEDERAL RESERVE FOARD

1935 NOV 18

AVi 9

48

Gentlemen:
At a meeting of the executive committee of this bank today, the
appended statement was adopted and ordered spread on the records, and the
Chairman of the Board was requested to forward a copy thereof to the Board
of Governors at Washington. This statement has been concurred in by every
member of our board of directors excepting one member, whose opinion is
definitely that action should be taken toward a decrease in the amount of
holdings of Government securities f y the Federal Reserve banks, either by
c
sale or by maturity without replacement, rather than an action providing
for an increase in the reserve renuirements of member banks.
In accordance with the instructions of our committee, therefore
I am quoting the statement which has been adopted as an expression of the
opinion of the board of directors of this bank, as follo?;s:
*After a careful review of the report of the meeting of the
Federal Open Market Committee held in Washington, D. C., October 22.
to October < 4 1935, inclusive, and presented to us by our member
-,
of that committee, the Board of Directors of the Federal Reserve Bank
of Chicago expresses concurrence in the conclusions reached at said
meeting and especially, as set out in the resolution prepared and
delivered to the Board of Governors.
’This Board fully realises that the application of any of the
’
methods of credit control suggested lie within the power of the
Treasury.. Department and the Board of Governors, to be used when, in
their judgment, it is necessary. However, in a spirit of cooperation
with both of these agencies we desire to call their attention to a
feeling of growing uneasiness in the minds of the public as to possible
credit inflation, caused by repeated reference to this danger by our
press and public speakers.
Ӵe cannot help but feel that for the moment our greatest
potential danger is from our excessively large bank reserves, caused
by a rapid rise in bank deposits, through gold imports and governmental
financing, the control of which might well be considered our first
objective.
/
TWe, therefore, as a Board, desire to respectfully suggest
S




Reproduced from the Unclassified / Declassified Holdings of the National Archives

j

DECLASSIFIED

; Authority tMVfCislf IB

F E D E R A L R E S E R V E B A N K O F C H IC A G O

November 15, 13 35
Hon. Marriner S. Eccles
Chairman* Board of Governors

"for earnest consideration by the Board of Governors of the
Federal Reserve System, an increase in required reserves against
bank deposits in Central Reserve end Reserve City banks to possibly
twenty-five per cent of the increase now permitted by law, thereby
not only fortifying our banking structure to this extent, but giving
assurance to business and the public that the levers of control are
operative and in the hands of authorities who are ready to use them.
We believe that such action accompanied by a proper statement of its
objectives would be favorably interpreted by the financial and business
interests rather than otherwise.
!Y ; recognize .that in addition to the measure referred to, that
l; e
of an increase in required reserves, consideration may properly be
given to another effective power in the control of inflationary ten­
dencies, under which credit may be withdrawn from the market either by
the sale or by the maturity without replacement of Government securities
held in the Federal Reserve System. However, because it is considered
that the application of such a measure might be reflected in the market
for Government bonds at this particular time, we are disposed to
sugpest the primary consideration of an increase in reserve require­
ments .n




Reproduced from the Unclassified I Declassified Holdings of the National Archives

j

DECLASSIFIED

[ Authority QcQfdjlf /Q

F o r m N o . 131

Office Correspondence
Tn

Dr. Miller__

From

FEDERAL RESERVE
BOARD

Date November 9, 1955

Subject:.

Mr. Carpenter

i

At the meeting of the Board yesterday you were requested to pre

( fi§y

pare, in consultation with Mr. Goldenweiser, a reply to the attached letter dated November 4, 1955,[from Mr. Burgess, for consideration at the
first meeting of the Board following the return of the Chairman from
the annual convention of the American Bankers Association in New Orleans.
It was agreed at the meeting that the draft of the reply should
review the consideration which has been given by the Board to the resolu­
tion adopted by the Federal Open Market Committee with regard to open
market policy, and advise (l) that there appears to be no necessity for
action by the Board on the motion adopted by the Committee authorizing
the Executive Committee of the Federal Open Market Committee to buy or
sell securities, and (2) that the Board approves the authority granted
to the Executive Committee to make shifts of maturities of securities
in the account to the extent necessary to enable it to replace securi­
ties maturing between now and the date of the next meeting of the Federal
Open Market Committee which, in view of the provisions of law requiring
at least four meetings each year, should be held sometime before the end
of the current year.




R ep rod uced from the U n c la ssifie d / D e cla ssified H oldings o f the N ational A rch ive s

J

DECLASSIFIED

I

; Authority Qcj)f(jjlfjQ SSj? 1

BOARD OF GOVERNORS OP THE FEDERAL RESERVE SYSTEM
Statement for the Press
For immediate release

/

November 8 , 1935

The Federal Reserve System during the/past three years has
continuously pursued a policy of monetary ease!.

Discount rates have

been reduced to the lowes\ level in the history of the System.

Pur­

chases of Government securities in the opjen market have been carried
to the highest point on record, and hoMings have been maintained for
two years at a level of approx\mately/two and a half billion dollars.
Gold which has come to the country yin a steady flow, amounting to
$2,500,000,000 in the past two yeewrs, has been permitted to exercise
its full effect in adding to th© volume of member bank reserves.

In

consequence, member banks today have the largest volume of reserves in
their history, aggregating/approximatelA$5 ,700,000,000, which is
$3 t000,000,000 in excess/of the amount theV are legally required to hold
as reserves against their deposits.

These constitute the so-called

excess reserves of tne member banks.

\

These/excess reserves are widely distributed throughout the
banking system amd throughout all sections of theXcountry so that all
classes of member banks have a large volume of idle\funds in the form
of reserves/at the Federal Reservo banks and as balances with corres­
pondent ba{nks.

Central reserve city banks, reserve cityS^anks and

country/banks have, respectively, 125 percent, 9^ percent and 2 $o percent
of reserves above their legal requirements,




m ® oh
nov

a

R ep rod uced from th e U n c la ssifie d

/D ecla ssified

H oldings o f the N ational A rch ive s

[

~

DECLASSIFIED

1Authority QcQ'fciiif

-

i
2£jj) j

2-

The movement of gold internationally and the accompanying
growth of exce^^reserves have resulted in an unprocemented situation
to which the federal Reserve System for some time ifas given careful
consideration with a\iew to determining the cpurse of action most
appropriate in adjusting the position of th^f banking system of the coun­
try with relation to the superabundance p i reserves, and the effect they
may exert upon future financial stability.

)

Under the provisions^ o f the Banking Act of 1935* the Board
of Governors of the Federal R esj/ rv\ System has authority to increase re­
serve requirements of member/banks ai$. thus deal with the unusual situa­
tion confronting it withoux departing fVom the System*s general policy
of monetary ease and without occasioning increases in money rates,
tightening of credit/conditions or a more hesitant lending policy on
the part of member banks,
iyview of these considerations and ^

an offset against ac­

cumulating efxcess reserves resulting from gold imports, the Board,
without departing from its policy of assisting economies, recovery through
monetary ease, has determined that reserve requirements o\ member banks
shall be increased by 25 percent effective




Reproduced from the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED ~
~

|

j

A

1

QcQrdar / o £ r i I t y
u t h

The controlling purpose of the Federal Reserve System in
the period of the depression has been to relieve the financial
economy of the country of tension in any form or degree, so far
as this result could be accomplished by the Systemts action.
To this end it has pursued without hesitation or reservation a
policy of easy money.

Discount rates have been maintained at

the lowest level in the history of the System;

purchases of

Government securities in the open market have been carried to the
highest point in the history of the System and maintained there
at a level of approximately

3-1/2 billion dollars;

importations

of gold, which have come in a steady1
and .increasing flow, have
been permitted to exercise their effects without hindrance or in­
terference.

In consequence, the member banks of the Federal

Reserve System today hold either in their own vaults or in the
reserve account which they carry with their Federal reserve banks,
or in their correspondent banks, the largest amount of cash in
their history - so large that taken in the aggregate, they hold
approximately

billions of dollars in excess of what they are

legally required to hold as reserves against their deposits*

These

constitute the so-called "Excess reserves" of member banks of the
System.
During the past two years the chief factor in the growth
of these excess reserves has been the large flow of gold from for­
eign sources into the United States.




(Here give a few facts and figures
for the calendar year 1934 and for
the first half of the year 1935.)

Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED
Authority QcQfdilf /QQSjp

-

2

-

The influx of gold and the growth of excess reserves has
continued in the second half of the year 1935 not only ?dthout
abatement but with considerable acceleration.

For the four

months ending October 30 of this year they increased by an amount
of 600 million dollars, the importations during the month of
about
September alone accounting for/380 millions of this amount.
The excess reserves arising out of these enormous impor­
tations of gold have spread to every part of the country, and
member banks of every class have felt the effects of this influx
in the growth of their excess reserves.
(Here give a few facts and
figures showing the partici­
pation of the country banks*}
Such shifts of gold internationally as have taken place in
the past two years and such gains as have accompanied them in the
growth of the surplus and unused cash holdings of the banks of
the United States

constitute a condition never hitherto even ap­

proached in the United States or in any other country and present
a situation of concern to the future of the American financial and
credit economy.

They have therefore, and.for some time, been

claiming the attention of the Federal Reserve System with the view
of determining $ae course of action that the Federal Reserve Sys­
tem might most appropriately take in adjusting the position of the
banking system of the country to this anomalous condition.




R ep rod uced from the U n cla ssified / D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED
Authority C - ' C s j i >
^OlkJ' 9

- 3 -

It is believed that the policy thus far pursued by the FedReserve
eral/System in allowing the influx of gold to exert its natural
effects on the growth of member bank reserves without interference
has justified itself.

Not only has money tension disappeared bat
the
money raxes have experienced / decline to be expected from the
extraordinary increase in the supply of money, with effects in
assisting the progress of economic recovery which are not to be
underestimated in the circumstances which have obtained thus far
during the period of the depression.
Viith excess reserves over 3 billions of dollars and the
stream of *old still flowing into the country, a prudent regard
for the strength and solidity of our financial and credit economy
counsels an attitude of caution on the part of the Federal Reserve
System, lest the purpose of the System to support and induce eco­
nomic recovery by pursuinr an easy money policy be defeated by
raising doubts as to the future of money in the United States,
which would be prejudicial to the restoration of investment spirit
and enterprise

and the development of capital markets so essential

to full economic recovery.

The whole matter occasioned by the

huge and continuing gold inflow and the enormous growth of surplus
banking reserves is one that relates itself both to the economic
recovery of the country and to the future economic stability of
the country.

It is in this spirit that the Federal Reserve System

has considered the matter and with a view of discharging the
particular responsibility which has been laid upon it by the ex


Reproduced from the Unclassified / Declassified Holdings of the National Archives

|

DECLASSIFIED

*A t o i yQcj)rckf/£2n5b
uhrt
i

.

:

- 4

tensive grant of new powers conferred upon the Board of Governors
of the Federal Reserve System under the Banking Act of 1935.




R ep rod uced from th e U ncla ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

[

DECLASSIFIED

' Authority Qdjfciilf /Qu$jp

Clothed as the Board now is with power to change the reserve
requirements of member banks, it is in better position than it
otherwise would be to deal with the unusual situation confronting
it effectively and with a minimum of disturbance, if any at all,
to money and financial markets, and without any departure from the
controlling purpose of the Federal Reserve System of assisting and
accelerating the forces of economic recuperation by pursuing an
easy money policy.
The Board has reached the conclusion that of the two methods
which are open to the Federal Reserve System for dealing with the
problem, (l) the sale of securities by it in the open market, or
(2) the raising of reserve requirements of member banks, the latter
appears to be the more appropriate and satisfactory course.

It is

neither intended nor expected that any disturbance in the structure
of money rates should or would result from this course, and no
pressure whatever upon financial markets.

The effect of an increase

of reserve requirements will be to offset in some measure the effect
of gold imports upon the reserves of the member banks by taking
them out of harm** way and conserving them for future use.
The Board has therefore decided that, beginning with
reserve requirements of member banks of the Federal Reserve System
will be Increased.




,

DECLASSIFIED

Reproduced from the Unclassified I Declassified Holdings of the National Archives

Authority QtD'cd&C

____
F y n a N o . 131

Office Corresponc^n
To.

Rfrayf #f Ck*r»raor*
l

FEDERAL RESERVE
BOARD

Subject

From.
eo
p

1—82
6 6

O t October 30 excess reserves of neaber banks amounted to approximately
f
$3*000,000*000* m about $600*000*000 above the amount reported for Jime 29,
1935** sad about $380*000*000 more than average dally excess reserves for the
■oath of i e y M w f t when they aaomtsd to $2*628,000*000* The average dally ex­
cess reserves during the nenth of September of central reserve city, reserve
city* and cotmtry banks, in each Federal Reserve district, were as followst

Federal Reserve districts
Boston
lew lork
Fhiladelphla
Cleveland
Atlanta
Chicago
B%* Louis

Central re­
serve eity
lmnk«

Swerve
el*
hmka

246,000,000

$125,000,000
3,000,000
75,000,000
129,000,000

143,000,000
81,000,000
32,000,000
43,000,000

56,000,000
21,000,000
74,000,000
54,000,000

31,000,000
25,000,000
69,000,000
23,000,000

25,000,000

$1*177*000,000

Minneapolis
Kansas City

35,000,000
41,000,000
32,000,000

50,000,000
20,000,000

San Francisco
Total

Country banka

_ J£ Q *Q S
_ *S Q Q L.
$1,423*000,000

$734*000,000

$471,000,000

Sxcess reserves of lev lork and Chicago banks on October 30 sere about
$200*000*000 and $90*000*000* respectively, above the September averages* Later
figures for reserve city and for ooimtry banks separately are not available* bat
the caaMned average for these two classes of banks for the nonth of September,
$1,205*000*000* was approximately $100,000*000 less than at present and not such
above the figures for lime 29*
_ '

I ^Calculated in accordance with the fonrala nsed since the
passage of the Banking Act of 1 3 .
95

 ' Y ? < ~
http://fraser.stlouisfed.org/
7
Federal Reserve Bank of St. Louis

Reproduced from the Unclassified I Declassified Holdings of the National Archives

j
I

j

DECLASSIFIED
A

u

t Qh c i jo f c ir i l f t y
i

’“
“

Board of Goveraors * #2

The last date for which we have figures of required and excess re­
serves of each aanber beak is J me 29, 1935# the date of the last call report*
Qa the basis of the Jane 29 condition reports 129 nenber banks had deficiencies
in reserves# 768 had excess reserves of 25 percent or less# 1*144 banks had
excess reserves aaoanttng to between 26 and 50 percent of required reserves*
and 4,369 had excess reserves amounting to aore than 50 percent of required
reserves* The following Is a distribution of the nunber of central reserve city,
reserve city* end cowtxy banks on M e 29, 1935# according to the ratio of ex­
cess reserves to required reserves!
Total
Central n n m
niaioer or eit.v huBlrs
Chinenber lew
aeo
lozk
6 ~ilQ

Umber with deficient reserves

38

129

768
1,M4
1,529
1,278
1,562

8
f
7
4
3

Countiy
banks

329

6*024

12

*7

18

Re­
serve
city
hunk®

no

74
72
69
50
52

684
1,060

limber with excess reserves
anointing to the following peiv
centages of required reserves*
25 percent or less
26-50 percnat

51*100 percent
101-200 percent
Over 200 percent

2
3
5
6
2

1*448
1,218
1,505

•On the basis of average figures for the aeai-weefcly reserve
caapa&ation period ended October 25 no aenber bank in lev fork
city had a deficiency in reserves* but 14 had excess reserves
aaonnting to 25 percent or less of required reserves#
On the basis ef the above figures It appears that 30*4 percent of
central reserve city beaks# 26.1percent of reserve city banks* and 13*2 percent of eemtry banks had reserves equal to 125 percent or less of requirements!
and that $1*1 percent of central reserve city beaks* 4* percent of reserve



W
—

— — ---------------------------------------------------------------------------------------------------------------------------------------------

R ep rod uced from th e U ncla ssifie d

‘

--------------------------

I D ecla ssified H oldings o f the N ational A rch ive s

.

1

'

DECLASSIFIED

!

A

u

j

j

t h C^Xj'iCk^L f y
o
r i t

Board of Governors - #3

city banks, and 30*8 percent of

com tvy

percent or less of requirements.

banks bad reserves amounting to 150

The additional reserves required to meet

an increase of 25 percent in reserve requirements would have been appi»xiaiately
$39#000,000 for central reserve city banks, $4,6,000,000 for reserve city banks,
and $15,500,000 for country banks.

Similarly, the increased reserves necessary

in case requirements were raised b y 50 percent would be approximately $152,000,000
for central reserve city banks, $130,000,000 for reserve city banks, and
$4-6,000,000 for country banks*
The following table shows the total number of banks of each class
and in each district i&th reserves insufficient to meet an increase of 25 per­
cent and an Increase of 50 percent in requirements, together Ydth the amount
of additional reserves required to meet such increases:

If required reserves
-mere increased ?5%
Humber of
banks with ! Additional
insufficient reserves
..reserves J required
total - all

member

banks

If required reserves
were increased 50^
Nuaber of
banks with Additional
insufficient reserves
reservea
._r.eciul.re4.

897

$99*377.000

2,041

$327*820.000

15
2
36
794

37,461,000
510,000
45,910,000
15,496,000

24
5
158
1,854

150,024,000
1,734,000
129,859,000
46,203,000

95
U5
137

H

5,283,000
46,882,000
6,104,000
11,526,000

164
288
319
196

13,344,000
172,388,000
18,894,000
28,431,000

Richmond
Atlanta
Chicago
St* Louis

51
45
52
42

2,604,000
2,259,000
3,957,000
1,307,000

130
113
117
102

8,921,000
8,758,000
12,469,000
4,788,000

Minneapolis
Kansas City
Dallas
San Francisco

54
53
79
60

755,000,
3,234,000
826,000
14,640,000

136
133
189
154

2,141,000
11,742,000
4,758,000
41,186,000

Central reserve city bankst
New Xork City
Chicago
Reserve city banks
Country banks
Total for each district*
Boston
Hew lork
Philadelphia
Cleveland




R ep rod uced from th e U n c la ssifie d

I D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED
Authority

Board of governors * #4
*

Of the 897 banks which would have had to Increase their reserve*
to bring than up to 125 percent of requirements, all t s J® country beaks
et
end t central reserve dty banks bed balances with carw ^ ontoii banks suf~
f l d m t to provide the additional reserves* Likewise, of the 2,041 bankai
that would have had to increase their reserve* to bring then up to 150 pe -­
r
cent of requirements, all but W 7 country banks, I reserve cit r beaks and
g
14 central reserve city banks had balances with correspondents sufficient
to neet the increase*
The extent to Which I i balances would be witf for the purpose
w k
of nesting an increase in reserve requirements and the e c c n to which such
afet

m Increase would be net lg borrowing or by selling securities Is inposslble
ar
to tell fron available information* It is probable, however, that sesfeer
banks in reserve cities and country banks would draw on their city corree
pendents for a large part of the additional reserves that they would be
required to deposit with federal Reserve banks* It this were done nost of
the witbdjfcwals would be nade fron nenher banks in the lange financial centers*
particularly Sew forte* The total anount which would be withdrawn fron Hew
Xork, however, if reserve reqnlrenents were increased 50 percent* is snail,
oenpared with the biqp volaae of excess reserves now held lg Sew fork Citgr
ar
banks in the aggregate*
there are attache , hereto two tables* one of which shows the
d
total aoafeer of basks of each class in each district, the nunber and per­
centage of such banks with reserves insufficient to neat a 25 percent
increase in reserve requirements, the anoint of additional reserves required
to neet such an increase, and the ntnfcer of banks with reserves pins bank
balances insufficient to neet the lncreesegand the other shows sinilar data
for banks vdth reserves insufficient to meet a 50 percent increase in re­

serve requirements.


R ep rod uced from th e U ncla ssifie d /D e c la s s ifie d H oldings o f the N ational A rch ive s

J

DECLASSIFIED

j Authority QcQfidjLf IB

total m m m of m m m sm . ,
wm n n n m m m m m m <
at
m m m
increase of 25 w m m t m m m m m m m m w R B , m m ? or m x n m m
m m m m m i w m to m a m m m c m m m b j**u.ucm m m to m m
m m m m m m n bahis,
(Ba««d m J m * 289 1935 condition ruport*)
total

Bonks «ltfa T*9*rT9* ln*uftleloit to mmt

Banks with*r^Sr5H^,
,
T
r
baok

3 S LM

mm
A m fro*
attar tenhi

tlURlfflolat to M « t
• 29f incr**«» la
xmauheA r»»err»«

(ThouM&ds of dollar*]
111 SAfld A * I M s C f
b X jylSt

to m

i&«S.
M m m

99.3T?

688,224

3

JM ZL
37,461

law Toi* Citjr
Chicago

2

U .1

46

30,958
s ,m

$

n»ftm I a >WHi
tr
___ 2a

*»«.

PirtrtoU
Boito*
i«* !«fc

fill 1

^

la

2

12
24

4
i
43

33*3
33*3
n .z

2*494
3*992

13*074
43,4®2

10,300

CSUmfiXsb A

14
m

I

Atlanta

19
4*
24

4
10

20*6

2*642

4

14*7

909

14*547

14*439

96*315
26*500
101,155

iJ i»m ..

MAsM,

St* IioaU
iin^wpoiii
laatM* City

S Franeiiee
iai

41*071

16*7

•l '
M <*****

4M 59

t

51
33

14
4

27,

33

U

la A

Owptnr btttot

TOTAL
Dlatricta
Boston

i22i
353

m

93

26.3

17*0
20*5

2*789
5,429

INnr To*fc
yhf 1
phi*
Cleveland

430
590
371
309

46
39

12*4

Atlaat*

12*6

1*214

Chi****

628
366

40
3S

6*4

it* Loulg

10*4

SQ5
39*

KlnAMLpoiii
citgr

500
w t
521

52

10*4
mMr9^

39
75
46

5*#

Dalia*
Saa £ra&d**»




33®

126
129

13*6

25*S14
36*389

1*296

13f220

1*140

11*125
9,
6*1
10*171
7*246

6
12

15*260

1*226

J£

422
205
371
m

% m

5*227

5*190
12*469

2
1

3

6

R ep rod uced from th e U ncla ssifie d

I D ecla ssified H oldings o f the N ational A rch ive s

|

DECLASSIFIED ~
~

j

|Authority QtDfdslC IB

j

/

m m m m
m
m
m m s w txm
mn m

m rn nm mmm mmmumn to ms ah
wm
at
m
m

total
of
BAmdi*
INCREASE OF 50 PStCIRT II I H E R B BIQOlftlMHfTS, AilOOltT OF kWITlQHML
to n m
ihcbease and bauucjs sox to soot
BASKS FROM 0T8XR BANKS.

(Bmsed oa Juno 29f 1935 ©onditlon report*)

1■
'

Total Bank* with reserve# insufficient to eeet Bank. wi'th rtH m i
M fkcee • 5 £ laereaaeii* required reeerwee
Mefdt
t e fi
M
plyfi h if kil«n(>fg
tw
QuSDtr
0
x'l""".r
iH b
ftCoa.... insufficient to &mt
of baaka Ih d iy Portent Jwalionil galM
of e C
a fa of
of
a 50$ increase in
reaerwee due fro*
. resort* . ol&or.bsaka . required reserves
.
■ 1 ■ . ..
* '
'
(IhouMad. of 4oll*r»)

"

All «Ma>W H rtlrm
a
TT
O Ifc
'..6»4lfl

2,041

31.1
5 L8
3

lew fork €1%

24
5

is
law rw citr twtoi
TOTtt
39
2
Dtetrlcte
Bsitaft
H lark
ew
Philadelphia
Clerelaad

150*024
1,734

4§«0

n

1S.7S8

63.2
27.8

Central Roeerwe otlgr baa cat
TTL
OA
56 L ..m ...

3 2 J .8 2 0 1.103.666

129*859

... 65.692 ...........16...
16

58,844
6,848

....767.095' ........ . . . . . . 1 .. .
.

1
2
12
34
34

5
8
1
7
20

41*7
66.7
70*8
58*8

6,060
8.534
13,294
24,430

17,509
13,686
70,379
86,324

—

1
1
1

H a i
itisw ttd
Atlaat*
Chleago
St. Lmila

3
0
If

m
u

11
1
3
16
8

36*7
68.3
33.3
33.3

5,841
6,155
8,1*6
3,146

69,568
74,832
65,481
22,892

fiiiBtwirftti >
1inMi 01%
>kl 1 f
,^
Sea Franelaoo

9
5
1
33
3
3

2
22
1
3
2
3

22.2
43.1
39U
69.7

67
1
io ,m
3*464
39,217

5,405
129,294
58,155
153,572

il& 8
p ....

46.203

350.877

7,284
13,830
5,600
4 Q
#0 1

41,226
61,114
43,189
34,247

1
2
3
2
27
7

Cmmtrrb»ak#t
TTL
OA
j& itricf
Boston
N lot*
ew

i

6.031

....

M W
—

—
« *w

.... . M

. . .

L

Clevolaad

33
5
74 a
630
50
9

159
256
32
0
I T S

45*0
34*5
47.9
29.8

SlebaORd
Atla&ta
Chicago
St. Louie

31
7
30
9
62
8
36
6

19
1
100
96
94

32.1
32.4
15.3
25.7

3,080
2,603
2,569
1,642

25,716
20,270
24,549
18,321

3
2
3
1

llltt&eepolie
X
l i M 01%
I

50
0

13
4
111
176
131

26.8
16^
33.8
38.8

1,470
861
1,294
1,969

20,992
13,120
13,009
35,124

6

*

y | | |

1.A

f

Sea Fraaeieoo




m

51
2
33*

—

1
3
1

-

Reproduced from Hie Unclassified I Declassified Holdings of the National Archives

J

DECLASSIFIED

j

AuthorityQtQfdjir/BQ5( \
j
P

1r* George L* Harrison, Governor,
Federal Bese*** Bank of Xtv fork.
New fork, Vew tork«
Dm t Governor Harrlsoni
Receipt is acknowledged of Mr* Sprouts letter of October SI,
X958 J advising of the ietl« taken by the board of director# of your
bank on that date la instructing tha officers of tha Federal K«serve
Bask of Saw Tork to sell tha #£1,80$,£00 of long ter» United States
Government bond* hold in tha beak*• own investment account, m d to
purchase an equivalent aaount of Government securities of shorter
ttftturltlaas it being anticipated that tha sales will extend oner a
period of waaka so that tha appearance of a change In a large aaount
in tha naturtty distribution of published holding# of tha bank In any

one week will be avoided, and that sales will b - *ado when advantage
e
can be taken of parloda of strength In the narkei*
fhla natter haa been considered at a neetlng of the Board
and I have been requested to advise you that the Board Interposes no
objection to the sale and purchase of securities by your bank in &#*
oordance with the progran authorised by your directors, on the under­
standing that the transactions will result in no change in the.
total




Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED

j

j Authority

fQ 2 q
£L

F o r m N o . 131

( T \C C *

I

y

Urrice Correspondence
To_____ tfr._S2^zak___ _____________

BR
0D
A

FEDERAL RESERVE

Dt n e b r e m
ap ^ a e , s.

Subject:__________ _J

From * Mr, Carpenter____ _______________________________________ " ? - 3
'J » 1
This memorandum I s to remind y o u that a sieeting of
the Board has been called for Friday morning, Hoveaber 8, 1955,
at lit00 &• amf for the purpose o f further consideration of the
matter which was discussed at the meeting today*

(Mr. Szymczak advised Mr. Morrill this afternoon that he would not
be back from Cleveland in time for the meeting on Friday morning,
but that if action were taken by the Board on the matter discussed
at the meeting this morning, he could be recorded as being in favor
of an increase of 25% and that if there were any question as to the
date the increase should be made effective he could be reached at
the Federal Reserve Bank of Cleveland.)



R ep rod uced from th e U ncla ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

j

DECLASSIFIED

! A u th o rity

S V rc k r /£>

F o r m N o . 131

ft / * *

'

Urhce Correspondence

RESERVE
FEDERAL RESERVE.

BR
0D
A

Messrs. Eccles, Thomas, Hamlin, Miller,
To James. Szymczak. and 0* Connor, individually. Subject:______

From

***• C«rp«t«IP________________ _________________________ _

j

i?
O

___

<s G*
s*J

'W

'“*«
•"

a rt

Thi* a m n t d u i Is ta reaind you that & BMting of
tb« Hoard h c bM B m U M far Friday aoming, BowAwr 8, 1985f
f®
*t Hi 00 &• a*f for

jwrpoM of furth»r consideration af th*

aattnr which wn« liacueaed at t e mmting today*
fn




p

DECLASSIFIED

R ep rod uced from th e U n c la ssifie d / D ecla ssified H oldings o f the N ational A rch ive s




Authority S ^ O fd H f

i

,v

| c,

X f 0* *

_
_

Federal Reserve Bank
of

N

e w

Yo

r k

November 6, 1935.

Dear Mr. Morrill:
Thank you for your.

November 5
,

We are preparing a separate record of the meeting on
October 22-24 in accordance with your suggestion.
Very truly yours,

U . Randolph Burgess
K
Secretary, Federal
Open Market Committee

Mr. Chester Morrill,
Secretary, Board of Governors of the
Federal Reserve System,
Washington, D. C.
WRB.H

DECLASSIFIED

R ep rod uced fro m th e U ncla ssifie d / D ecla ssified H o ldings o f the N ational A rch ive s

A

l - o r m m . 131
^

FEDERAL RESERVE
FEDERAL RESERVE
BOARD

Office Corresponuen^e

Tn

t h E jC -O fciil/' y
o
r i t

u

Messrs. Eccles, Thomas, FTamlinj Mi-11p-r,

James, Szymczak, 01Connor and Clayton
From_______ «r» Cxnm afaM t___________ _

BR
0D
A

Date— Mgrmimr C ,

198$.

Subject:.
_____

Tbmm a m attached to this mmsmm&m for jrour consideration
cnplam of

following doeoeents wtdeSi *fit <?lffcaas#d «t th* ?*etin]

of tf» B a e thi* a s k i g
lt o t d
otlst
1* ttoaoresdwi dmtad ^fombor 1# 1 '
,
53t from Ir* $ma&
m tl* aohjoet of wxeaa* m m m a * of mttoar b*n\t«.

$* BMoanuKftai
f a r Bf&la&ag

5, 1375f oatitlod
B e ^ o lre w its

T h is

5. itororsartaa d*t«d Sonredbar 5t 19f5t oatitlad
•Hoftdo®* Against Raising lilNVi Rowiijrwwaati? »t

T c t ?ta*%
fi*
4* SrAft of a
ftatimal *itii jr#i^s*ei to raiding
r a a m m ra<Tilr+iaanta+

5* X*tt«r £«&a& Ikmakmr 40 1M$0 fro* Ir* Purge** to
wtilch ie sttaobad copl** of final draft* of %%m raw**
lutlon mad motion* adooiad by the T#<S«il Opm Martc^t
Ccanlttoa at It# laot 9**tia*.

Copies shomi on the attached statement as not having been
distributed have been placed in the safe in Mr. Carpenter’s
office.




DECLASSIFIED

R ep rod uced from th e U n c la ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

Authority QlV'fcjllf

DISTRIBUTION OF FOLLOWING DOCUMENTS DISCUSSED AT THE
_______ MEETING OF THE BOARD ON NOVEMBER 6. 1955

1.

Memorandum dated November 1, 1935, frost Mr. Smead on the sub­
ject of excess reserves of member banks.

2.

Memorandum dated November 5, 1935, entitled lReasons for Rais­
!
ing Reserve Requirements at This Time”,

3.

Memorandum dated November 5, 1935, entitled "Reasons Against
Raising Reserve Requirements at This Time”.

4.

Draft of a press statement with respect to raising reserve
requirements•

5.

Letter dated November 4, 1935, from Mr. Burgess to which is
attached copies of final drafts of the resolution and motions
adopted by the Federal Open Market Committee at its last meeting.




Copy Number

To Whom Distributed

1

Mr. Hamlin

2

Mr. Miller

3

Mr. James

4

Mr. Eccles

5

Mr. Morrill

6

Mr. Bethea

7
8
9

Mr. Thomas

10

Mr. Szymczak

11

Mr. O ’Connor

12

Mr. Clayton

13

0

14
15
16

R ep rod uced from th e U ncla ssifie d /D e c la s s ifie d H oldings o f the N ational A rch ive s

j

DECLASSIFIED

'

\

A
■

u

t Qh c Do f d r i l f t y
i
~

:

m m m m

Toi

GbMirwm

Batai tivrmtomr 1* 101$

Front

Hr* S»oa4

Subjnttt

Exooea

r*amnm* of

nMbtr banks*
O Qetobor S ixqici nMwrvaa of iaa«b«r banks uwimttd to
n
O
$SfOll*OQO*OQ0* or about 1600,000,000 abov® i&e mmmt xwportod for Juna 29,
itfSB*, and about $380,000,000 nor# th m

dally o*e«ea rawrm* for t a
f*

•oath of' Septoabor, w
hoa tfeoy awoiattod to #2,628,000,000* Th* avorago dally «x~
caaa r«MrvM during tbo month of Soptoa&or of eonirauL r«earv* ett?, r«««r*»

city, «ad country b«aks, in ©&oh Fodnral Boaor** diatrict, *«rt
'Central r»~
aorvo ilty

Fodoral Bosnrv* districts
jAtji
AjtH
Haw York
Philadelphia
Clovaland

ms*ooo*ooo

11,177,000,000

Richmond
Atlanta.
Chicago
it* l«ouia

£46*000,000

$*000*000
71,000,000
US,000,000
£6*000*000
21*000,000
74*000*000
5 *C )0 Q
4 X ,O O

11*423*000,000

total

145*000,000
81*000,000
U *000,000
45*000,000
1 1 *000,000

25*000,000
•$*000,000
28,000,000

r*m rm B

s2*ooo*ooo
18*000,000

I7S4*000,000

$471,000,000

$1*000,000
41*000,000

of low Tork sad C&lcago banks cm Octobor

|8C%0Q0*000 acid #80,000,000, rosptetlttfty* &bo*»
fi^yro*

|
Country bank*

11*000,000
60*000,000
20*000,000
102*000,000

Mlaitospoll*
Kenans City
SnllftS
Ban Fr%ooiaoo

Exeosa

StaMTf*
Oity

follows i

$Q wore

tbs Soptonbor fttm|ii,

about
I* tor

for roaorto tity «*ad for cowitry bank* tmpmrmUfyr aro not •Wiilablo* but

the eostbiaod svorogo
$1,206*003,000, was

for tbooo two claoaoa of banka for tfeo oontb of fcxvrt«mb«r,

a^proaiaftioly #100*000*00® Xna* than at prssont and not nuoh

*bo*» th® flguroii for Juno 29*




•C&loulatod in &ocordaooo ?ltb t e fortsula usod fiT
;
fo
NS# tba
of tho looking He4 of IMS*

R ep rod uced from th e U ncla ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

|

DECLASSIFIED
Authority

f f3

Chairman Eccles - 2

The last date for which we have figures of required and excess re­
serve* of each meaner bank is Jun.© 23# 1955# the date of the last call report*
On the W e i s of the June 28 condition reports 129 messier banks had deficiencies
in reserves# 768 had excess reserves ef 25 per cent or less# 1,144 banks had
excess reserves amounting to between 26 and 50 per cent of required reserves,
and 4#569 had excess reserves amounting te sore then 50 per cent of required
reserves*

The following is a distribution of 'the nuaber of central reserve city#

reserve city, and country banks on June 29# 1955# according to the ratio of ex­
cess reserves to required reserves!

I
l
t

__________________________ » b&nkn
J
J TataX nuaber of aaabar banka
j.
*
*
*

i

TTotal
{Central reserve! Re- s
tnuaber oft cltr banks
iserve s Country
t aeaber tWew t Chi- icity i banks

*
t

iaiB i
b n c _____

‘ o l : cago
lrc

6.410____ £8_____IS____522____ M ,

Number with deficient reserves

120

*7

—

12

110

Humber with excess reserves
amounting to the following percentages of required reserves!

8
2
74
25 per cent or less
788
8
2
74
684
684
768
5
1,144
9
26-50 per cent
1,144
9
5
72
72
1#060
1#060
1,448
51-100 per cent
lf529
7
5
69
1#448
1#S29
5
69
7
101-200 per cent
4
6
50
1,278
1,218
2
I
Over 200 per cent
1#S62
5
1,562
52 1
5
1,505
2
4---- ----------------------------- -----------------------------------------!
.
!
I

1
*
*
!
*
g
I
52

L

It will be noted that 17 central reserve city banks# 86 reserve city
banks# and 794 country banks did not have sufficient reserves to meet an increase
of 25 per cent in requirements#

These figures represent 50 per cent of the total

nuaber of central reserve city banks end 26 per cent of the total number of reserve
city banks# but only 13 per cent of the total number of countiy banks*
*en the basis of average figures for the sod-weekly reserve
computation period ended October 25 no member bank in Hew Xork
City had a deficiency in reserves# but 14 had excess reserves
amounting to 25 per cent or less of required reserves*



1,

R e p rod uced from th e U n cla ssified

I D ecla ssified H oldings o f the N ational A rch ive s

|

D E C L A S S IF IE D
A u th o r ity

Q c D fc is L f I B S & *

< %m
m

III m m x m m w

w m sm adi
t&

of p m m n t

Him m wmM. I « eortftift wmbrn?' &f
mi

m,®% h&rm

m m m

tJ**it

or t* i$q

IM

whlets m w &4

m & m rrm t® mm% Wm tm m tm m witomt &**!&£ M m

memi%Xm&§

with #th«r Iwuaks*

W

l*OfT01fiUg; JVon t&©

ln « m to u fe * th* mmkm «f tatai th&t wauM b* In tfeni
ea «

4ik£

th« amount of MSMitlott*.* mmrmu th*t ttM *at&<l femi to iN m 1#
gr
ly »1*»iw* of tafts «n»i ly IMawkX BtoMNrv* iistrisit ia tfe*

If wmvtomA w m m m
! M m r «f

MdlUoeud
J^WNMT*WMi

ffm mii Piiaiiiiii
iii
# III wiVM WWW

!£#* ?ark City

tow ? Im
iw k*

Total f*r M il district*

Boston
$•* T
**%

m ia m j m *

€lrr*l©»d

R o&
lofom d

n
«
7M

m
im
w

19 m
mw

mm 9
9 om

$9i04,0®0
Uttt^OOO

14

^^HfOOO
%
EI9§000

4i

ft# Uml»

4^

T
iff

ii

S ft S^h*8S W
flU
i.S I

m mi9
9 m
m9
tm
mm$
9 m
U9 Mtm
49

64

Atlft&tS

I
f
CitjT

m m rv m

*a*m lamrMufd 308
I M w r Of
,
^Uilf
MSiU

* 8£L

t

lltiiW* s itr banks

M

yaij^^wiPiyg&iis.
WIMpr

1,^ 1

C n l r*«8#rwi eitjr Itomktt
m tra

£®ttm$MM

m
n
m

&m <
9 ?9 w
i9 9 ®
m m
m 9o
oo
Sf2S4#000

fiw 5 O I
Sj|O C

i4
^Mifado

i* l»?li«iii«Ki l« ib* t&ble, it tmmtm

£4
$
Hi
l #*C4
184

lS0t9£4tdO9
ItTMtOOO
lttiM^ooo
4«f« i0®®

11,944,300

m

l^SM^OQO

im

m 9m i 9m 0

XQ
S
m
ii?
10^

$$m i 9® m
$9t m 9t m

at

lift
&s§
lii
154

i% m$
9 m
49m $m

tpi4n9® m
* 9* m 9( m

41,10^,000

t* r t immmmd !'*$$# §®f

hsmkm wm k d h*v* t© pswlits f#0*
000*000 © f ftdditloaftl r#a«rr#»| *m& if
t




»f?#*

R e p rod uced from th e U n cla ssified

j

I D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED
Authority QcV'fciilf

m 4 *
»

m m%» m r m t m r m m 4 ffl$B % 0 4 1 U m * w m 14 % m m to

| W » 0C }
M f0Qa #f

fttidlttcm*! xwfrnwtf*
&JT t&M 49f
thera ^

d i m w m M

m

i m t m m tkmir m m m m

III p f M i of iiwrtnNttfiU, *11 M

fnfs
cuc

to M U t f

4t M ' t e X m M W witH <
30rr»n-

t# jwm&to tt* « & iU«aftX
M3

Uk®wim9 #f

ilk# t#Oil rojc« ttot «c»»34 it** to iaef**** tteiar ro»#jr*Mi *» M * i
t

to

iNimMMit of

4ttffl*4«ftt W

* & t * XfS 1*3 ImiXmunw *ltJ* «omgp«a6f*t»
*t

.«M»t t&*S

$&« «K't«ftt to «M*I* ««tf& fe&iftlttOfc W i m M 1
*

for tfeo pftYgMM* of oe«ti*£ «» i u i w # # in n w orto
oxtfftt

«s£ tlMi

f i « i «b £o«ro*«e « 9
e»l
n aU4 Ini ant I ? tewwota# or ty iriUUat
t

eoimriiio# i t iaposttl&o to tuli ftnw
i

i».fo»mtis»*

X» t&m mvmt of # « Ijsorosao l . 3ri#or**
*
«
i i a * in io*
w-k
w

«1
*

* MMtar of s i * c >
*if*r

€ 1 % nwdut prn»aw»li^ taws* to ^iU^r * o U «o«isriUo* or tot*

to ooot th# $ r m % m r jmft of ill# «44itUNMUL r m m i m m t m of

If

roq^iNMNftta i a r la«r«feiMi ii pMNkmfy or IIIOfOOO^OdQi If «^ulY,MKtit ##ro
®*#
«
in#i^i»«4 $0 j**r*oot#

In th* f JjmiI Mmlyti® It 1# to t n wt®m%$4 t e c %J i
o
fft m

tonk* W M &4 Ilfaiil®'!®' eon* of tlk»&r

m m m l % $ m m t i m r liwm I i m

t o i b r Malyi la M M t * * ottt** #:$$ country fetttki p
oil tfe#ir citgr

M

m a M 4r$*

f r * » ifcrpi p*9 t of ill# *44it&cwft& :r#n#rf»g ti**t
at

%h*? wmi14 Ini .roqijiro* to 4of*o#it tl%)i 9M m p »1 i « i « m tafitfr*
4 m « «0#t ®f tli# '«tlMrttw3#
i
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%

I* «Mi» O m

Istalt in tlm lArjpt

pkti&tox%6*Xy M m Ior&*

witMrfcm t t m Wmw T $ f § M m m w * m m
twc

if w w w r m m

tt isM# w#wi

v i M f t n«nxl4 W
rbta

nirnmmim m m

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m

i«« lurk 'tok«




jjot

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flu# ft«owi of

*hl©li mlftet im

j

R ep rod uced from th e U n cla ssified / D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED

- 5 -

withdraw! from New York to meet an increase of 50 percent in reserve require­
ments is small compared with the huge volume of excess reserves now held by
New York City banks in the aggregate.
Should you desire it at any time we can furnish you with excess reserves
as of any Wednesday for each of the weekly reporting member banks in New York,
Chicago and 99 other leading cities.




R ep rod uced from th e U ncla ssifie d

I D ecla ssified H oldings of the N ational A rch ive s

I

DECLASSIFIED

' Authority Q<S)' h .f fS
(l
Z

W W W W TIM*

%wmSt>or 5, W M *

(m ilt or f m m m t z m a m m

Oa

M&rmAmv

.n. th*

raisisg w m m m ’ m s i m m m )
n

of

Q&mmmm

of ttM» FfrtwwdL ftoaom

gjroto* issued * *egalat.ioa lacrrwaoijig hy fl ptaNMMkt* offoetlTo on
, --— .» the
.. .r

r**qalrmmmt9 m

to

mmmmB

to Is# M&itiriUied lr

wmfow

tank* ogaiaot doB*ad « t tin* do?o«tt*» Sbo Board1* action la t l
si
il *
■otter *a* under tbo *utb<*ri^r oonfomrod fg th» B&fddnf let of 19S5
cr
w&ieh wwSedi pme^pm^k •

««eti9s If of t Yod*n&
too

&et*

p*wid* that, upoaa the •fttvmtir* vote of not loo* tluui foor of
it* s o H O tb* Booyd* tm oistor to
w fc MP *

&p

cofttrftctian* mht ob»iw** iltlitt Gffrtali) liiiiit tk*

a* to tmmmm* to bo aatatoitiod Afaiiioi deposit® fj ■oajbor b*ak*«
cf
m m reooat i&orooae 1b s i I i ^ $m£i .
h o n s mi! twssipfs# Iii ©oxriod then to a
iu

they eMOpffd legal ro^ir®a®ttt# by the uitpf^eedoisted

Iw’bI At
f

a m a t of #8*000,003,000* ?h®*e exoe** r«®«firv*»* tf utlli*ed ia f
fcll*
OQBLUB WEppOlnw *S C S M E * OX OBUK UJtHUil 3RQXO U H Q QOawi^ OH* OXIUpwXSp
J
uCDS

VOllMMI *Ad f 3 ^PWttOl* ttMUl 0 8 bO JfBfd^T OB|>lC(yed* « m witb
*P
*1
iEBtCJ

Ml

1ici1no>w TGC&F9vy+ £»*!* & grtwtli of b*»k oredlt noald (rcmotitttt* aa
injurious credit eatpaiiilasu
tbe lllOl'OOOO iA SPOIWBPIWi T O Q J i * f W l * i b t i S HOt O f l l # 3 WitlTOQOO
''tIl8lBt i O t ^
filO J
of aoBMQr roto* w
a. rsot^ftlBt on
m w m w t

of tho

fMl^f

ti^twi m a l t msaditioa* mwl
loading policdoii of bas&s*

s

ehtmM

aot aot oo

It I* notf

poliejr of oaoc»iy«M)fiag' tmoigio#* Foooragr

jj
jt

y wpy
w

Igr

AftOX* *0*tiBg th*

iatvooood ro^lroaesLt* the wmtbm banks* in t i «Mn^tS»tof will otill
io




R ep rod uced from th e U n cla ssified / D ecla ssified H oldings o f the N ational A rch ive s

j

DECLASSIFIED

! Authority QcVfcijLf iB

h r a $£,$00,000,090 of axOase rosortas# and thosa rasorras aro so
ar
widely hold that all bat a weuy t m mmbvr hax
&ks «ro %& a positisa to

aoot tha inoroaso in ra^ttirwaratB V the moo of th«lr balances with
tha Saaorva bank or with oontt6poodoitii«
I» Tiaw of the m b m d m m of m m e m * ia ail olassos of banks* tha
Board ha# »ada tha incraaao in rasarta WNsalyoaoat* appllaittt* to all
mewtbQT 1 a t i inclodiikf ooaatxy bank* ao wall ax banks . n central
baa#
i

rowMPfo eltlos and la rasarra oitios* A swiajf aada f y tha Board shows
e
that eoostiy b t k hata a laxfpr a x t of axcaaa roaawas 1b proportion
ais
aoc a
to thatr dapoaita than hmm rosanra a t r baak* aai hara* la addition,
la
Inrfa balancas with their dtjr

p on which s . h oountrjr
oo

banks aa do aot hsaa sttffidsnt m * m * w with tha Bosorro banka oan
draw far tha pirposa af asail&f; tha inera&aod r q i a a t t . A larga part
oarsot*
of the aidstint aaeoosa roaarra* la, ia fast, diraetly or iadlraatly>
ownod b r Qflwotry b
^
asics ahlsh aro oooao^aaaptly ia fitj as good a position,
iljr
as oity ba*k* to aaot tha iaoraaaa la raaarwa roqairaaoiiti without o r *
u**
tailing thalr loans or tayaaiaoata*

tha iaoraaaa of roaoiwa mfilraaslt proseribod by tha Bo*rd will

a fe tha rasorraa oroatad ia reooat aoa l s largely bj an inflow of
bsos
ti
gold aot ariaing oat of ordinaiy transaction# in iatoraatioaal trada
a m n nanoo, rat o a o t sy a aaiaaaasi o* x n L *ro# zoraxim ooa i r » s
asc
acS
a#io
aoo to dlstiarbod nolitioal and oooaoaio doaditioia* It would aot %o g o ,
od
pollqr to hata *aaam* arlsiaf twm t l s oaasa iaoorporatod la oor
il
orodlt baaa* Aa achrano of ?S poroaat ia *o<pi$onaats at this tiao
o
a&ll hara tha offaot of r®storing axoosa rasorra* to tha lavol of last
aprta*f *h«a tha rooaat flight of oap&tal ffcaa abroad hegaa*




R e p rod uced from th e U n cla ssified

I D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED

j

Authority

IB 2 & P

C O P !

m r a i i reserve
OF K M 20®K

Hoveafeer 4, 195S.

Dear Governor Ecoleat
Suppleoentiag the tentative ninnies of the meeting
Of the Federal Open Market CoaBiittee which I mailed you a*
October 26, I am transmitting herewith for such action as the
Board of Governors aay wish to take a revised and final draft




of the resolution and actions adopted lay the Cooaittee having
to do with System open naricet policy.
Very truly yours,

(signed)

W. Randolph Burgess

W. Randolph Burgess
Secretary, Federal
Open Market Coamittee

Honorable Marriner 0* lecles,
Chairaan, Board of Governors of the
Federal Reserve System,
Washington, D* C»

R ep rod uced from the U n cla ssified / D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED

!

Authority EkVfdil C IB

c o n fid e n t ia l

RESOLUTION ADOPTED BY FEDERAL OPES MAEKET COMMITTEE,. OCTOBER £5. 1955

The C om m ittee re v ie w e d th a p r e lim in a r y memorandum s u b m itte d by
th e C hairm an and d is c u s s e d a t le n g th b u s in e s s an d c r e d i t c o n d i tio n s and
th e b a n k in g p o s i t i o n i n r e l a t i o n to them .

I t was th e unanim ous o p in io n

o f th e C om m ittee t h a t th e p rim a ry o b j e c t i v e o f th e System a t th e p r e s e n t
tim e i s s t i l l to le n d i t s e f f o r t s to w ard s th e f u r th e r a n c e o f r e c o v e r y .
W hile much p r o g r e s s h a s b e e n m ade, i t c a n n o t b e s a i d t h a t b u s in e s s a c t i v ­
i t y on th e w hole i s y e t n o rm a l, o r t h a t th e e f f e c t s o f th e d e p r e s s io n a r e
y e t overcom e.

S t a t i s t i c s o f b u s in e s s a c t i v i t y an d b u s in e s s c r e d i t

a c t i v i t y , b o th s h o r t and lo n g te rm , do n o t now show any undue e x p a n s io n .
I n th e s e c ir c u m s ta n c e s , th e C om m ittee was u n an im o u sly o f th e o p in io n
t h a t t h e r e i s n o th in g i n th e b u s in e s s o r c r e d i t s i t u a t i o n w hich a t t h i s
tim e n e c e s s i t a t e s th e a d o p tio n o f any p o lic y d e s ig n e d to r e t a r d c r e d i t
ex p an sio n *
B u t th e C om m ittee c a n n o t f a l l to r e c o g n i s e t h a t th e r a p i d grow th
o f bank d e p o s i t s and bank r e s e r v e s i n th e p a s t y e a r an d a h a l f i s b u i l d ­
in g up a c r e d i t b a s e w hich may b e v e ry d i f f i c u l t t o c o n t r o l i f undue
c r e d i t e x p a n s io n s h o u ld become e v id e n t*

The c o n tin u e d l a r g e im p o r ts o f

g o ld and s i l v e r s e r v e t o i n c r e a s e th e m a g n itu d e o f t h a t p ro b lem .

Even

now a c t u a l r e s e r v e s o f member b an k s a r e more th a n d o u b le t h e i r r e q u i r e ­
m e n ts , and t h e r e i s no e v id e n c e o f a l e t - u p i n t h e i r g ro w th .

T h a t b e in g

s o , th e C om m ittee i s o f th e o p in io n t h a t s t e p s s h o u ld b e ta k e n by th e
R e se rv e System a s p ro m p tly a s may b e p o s s i b le to a b s o rb a t l e a s t some o f




R ep rod uced from th e U ncla ssifie d

I D ecla ssified H oldings of the N ational A rch ive s

j

DECLASSIFIED

' Authority tfcOfdilf i&2)5(jP

these excess raserves, not with a view to checking some further expansion
of credit, but rather to put the %stem in a better position to act ef­
fectively in the event that credit exnansion should go too far*
Two methods of absorbing excess reserves have been diseussod
by the Committeet

(a)

the sale of short-term Government securities by

the Federal Reserve System, and (b)

the raising of reserve requirement®*

While the Committee feels that method (a), if employed, would
have the dual effect of absorbing excess reserves and improving the posi­

tion of the reserve banks, nevertheless, there are two risks in this
method.

First, that it say be a shock to the bond market, inducing sales

of securities by banks all over the countxyj

second, that however ■ may
it

be explained publicly, it may be misconstrued by the public as a major
reversal of credit policyt since this method has never been employed ex­
cept as a means of restraint, uhlch is not desired at this time*

A

majority of the Committee is opposed to the sal© of Government securities
at this time, believing that its advantages do not now Justify the risks
involved in this method of dealing with the subject.
There are also risks incident to method (b)f - raising reserve
requirements*

This method of control is new and untried and may possibly

■prove at this time to be an undue and restraining influence on the desir­
able further extension of bank credit.

The Committee feels, therefore,

that before this method of dealing with the problem of excess reserves is
employed, it would be wise for the Board of Governors of the Federal




R ep ro d u ce d from th e U n c la ssifie d / D ecla ssified H o ldings o f the N ational A rch ive s

DECLASSIFIED
Authority Qc0rdgrJB26lp

Reserve %stea to

mkm

a thorough study, throu# the twelve Federal Eeserve

Banks, of tho is o m i and location of excess reserves by districts and by
classes of banks, in order thus to determine Aether, or to what extent if
at all, an increase in reserve requirements sight interfere with the exten­
sion of loans end investaent* of member banks*
In view of tha aonetaxy powers now possessed t r the Treasuiy,
y
the Coaaalttee is tapressed with the importance of advising with the
Treasury relative to any steps that aay be taken by the Beaerre System in
order as far as possible to insure reasonable coordination of action*
Furthermore, the Chastities recognises the possible dangers of
the public »isunderstanding of any action which may be taken in this
matter, and would favor a careful public statement before action is
takea.
In asking these suggestions to the Board of Ooveraors regard­
ing reserve requirements, the Coaaittee recognises that it is going
somewhat byroad its

&m

isaedlat* jurisdiction, but it has found it

impossible to consider open aarket operations independently fro® the
^iole credit situation and other Federal Reserve policies*




R ep rod uced from th e U n cla ssified / D ecla ssified H oldings o f the N ational A rch ive s

j

DECLASSIFIED-------

; Authority tWrdttf/Q

O O P I

com m L
im iM
tfffTAti f i f f » b y V t t in R it

M s a a m

rvnvts u n i wttm fjAMlfTWPL | nfwnt>t» o «
»P

late

■onrmrj

. g a i n s t a „sbi , . b b m s s s m k

After a brief discussion of th© authority which It was accessary
to give the executive committee In order to replace nativities from time
to time In the System Account, end in order to sake shifts In maturities
to meet changing market conditions* it was unanimously
TOPED that superseding previous authori aatlons, the
executive ccraaitiee be authorised to sake shifts be*
tween maturities of government securities vp to
$300,000,000, provided that the amount of securities
maturing within two years be maintained at not less
than $1,000,000,000 and that the amount of bonds be
not over $500,000,000.

ifter discussion as to further authority which should be given
to the executive committee in order to keep the committee in a position
to act promptly if any occasion for action arose due to causes not now
foreseen, it was




VOTED that the executive ccwdttee be authorised to
buy or sell
to #250,000,000 of Government securi­
ties subject to telegraphic approval of a majority of
the Federal Open Market Committee and the approval of
the Board of Governors of the Federal Reserve System.

R ep rod uced from th e U ncla ssifie d

I D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED

j

0 e 8 J 1 1) E « I I A t
T

ItoVMBtMH- S, 1SW

J i 8 88BSdE JS33C
t DS

jeJSl
fS&Si

I* Koobor boafe rooorfoo at tbo jKrooeat tim ore $£,000,000,003 in
Furtbor iaaroaooo . n m m m
I

excoca of legal

through

gold taporta, silver pureboooo, m d through t e ultimito m ® of tbo goM
fo

lt> the

1*mm'k.t.mt

WamA mmm b&

are now higher tb*f t e g s w
i fir
ba#lo of exi«ii|g roisenro#,
will bo aeooooaiy ot soae
PMtrtos*

AlOftfitdd<

more
This

%%m

a f ngffibfr brinks

fimmmmA

tf#y ocm be xmktu tb^n doubled on tho
o

wmM

bo iojuriou* erodlt expansion. It

to **o tbo Board1*

pmmm

for absorbing

mmm

It i % therefore, not & question of isbothor or not tlio Federal

Eeoervo % *taa will f o s to oot, but merely o queuticm of tbo boot tlalng of
avi
tbo action.
£*

Xt would 90091 best to tube

mmmurm

for sbeorbiag at leant « por­

tion of *jcl«ttsg oxoooo ro«omos before tho bwskc hovo boil aa op ortunit<r
to expand tboir sctivtti©* on tbo baoi* of tho®#

The banks are

being urged l r tbo Qovornaoat actively to oeete opportanitiot for attending
^
oddltioaol orodit
and later, *b*a

m&

mmy

ttaorafy to foetlitoto reoovory.

to lot thea proceed

of thoa nay no laager have exoem rooorfoo* to pot

in &obt bjr increasing ro^ilroiiont# or soiling oeottrltleii any lay* tbo
Systea open to tbo ohorge of laoattftlatoitoy*
s#ore$ aigbt
deflationary
5.

to Hquidst®

wammmt*

lotion ot oiiob * tiao, further^

or invootaoitt* nod w^gh . start &
t

iarly notion sotdd avoid U b s o difficulties*

Q rm m l &&vmms

in

rm m rm

requirements otortosi ot this tiaio itaa

rea»nro« i»ro i
soplo' irould bo looo UUtol^r to rosult in looing o^oborf Crow tbo
Fodoml Eooorvo Sjotao tbao bou M 4ro»tie aetioo ot o Is ter dato*




R ep rod uced from the U ncla ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED

i

Authority QcQfcUr /9&5(p

f*m *

mm mm

4*

In

meh

( l i O W t W R X & not 1
J l r M l # G&/

&

pomlt&m

tot

m

IT ll- t M R -i'
.ff# l M ff4
*
tt

la

rmmrm

not f O Hi $ FOOtr&int
et

m buainaes

£• Action si tho p t m m % M m m*y bmv* m good :p#yete©logie&X offoot*

kpi&t-

tho

if oioFt " n tbs ottyy&tioii %fKH prs|Xk3hNI to t&ko
I

tho m t m m f f #%®p# to «iwl£ inflation*
JyggjgSB9&GL HSUL JQyyKlB& JESBStiteHBttift
$«

Tho prooodiag

wmM

«*pXy o«po3% to oolliiig «oom*iti§i

and to redoing ros#rvo roquir«isiont«# but raising

hum

tho

&Smtli&go

not f # *&nute*&f oxeopt Igr tho aoels ration of
e

it eould not

1mm

voqidroMitft w n l l

of ws&iag u»o of * a** n o t h M *hioh wa* not awaiiatols

prior to ti»* pooaafo of i&o Banking Aot of it$S*

of tha Fro«i4iat*

itwmrm

Fwriouoly rtaorftft o o u M

m mmrg@mp

and with approval

Tho mae of thio oatbod now <m*iblo# tho ijritoai to any that
aotod aoonar baoauaa of iiwk of imt&ority,

7* Raialng r*mrm roqotroaottta oouli haw tbo additional a4f®*rta§»
< f r oolllag Gov«ra»ant a o i i l j that it would not hmm any mt&mmhlB
r»
atrtoi
effect on th# a&rfcot for thaae a®curitia«>*
f» It wmdd &l*o fcM* t t
t
lo

of not diniaiahifii th« aiming

aaaat# of tbo fodoral r w i m f t l * t i o i w^r b#«o»t * ooriott# natter If
e a ; * iii
t » a b t i s itottM bo put in a position «^oro tar wooM !»▼« to go t
l o # fnu
iap
o
Congroea for «p:>ropriationa*
9* It nay bo & $«*3 g«n*ral poliqy to xmm chango# in rocorve rocplr#**

aont# a# a nathod of roadjuaitlftg t&o banking p w $ M m to now condition®,
o o i &o tho proaont unproeedontod
ai
MrtM* of o M t aarteot operation# awl
fK

m «l to u»o t a traditional
f*
m % m a« t a in^tnoHmto
fe

for <siroot infimonoo on Mpanoiiai or oontrootion of orodit*



I D ecla ssified H oldings of the N ational A rch ive s

R e p rod uced from th e U n cla ssified

DECLASSIFIED

j

Authority QcjJfciilf iQ

F«t»

%
r

*

t» « p«int *J#*re « r<««hs
3 s

«

«

r

r

e

«

v

wa

ro

y u

P»«lt4*n. to m * »g»*MMWM*fe«rfc
i

a

i

$

O




m

i

i

o

m

tl d i

t

* m

& k

«Mii*
r

y

t

f

t

t

e

p £ wm * &

y

i i l » d

m r ® £ lm £ b l® , t& w u i ^ w m j I
t

t

&

f

t

n

e

l M

*

«

R e p rod uced from th e U n cla ssified

DECLASSIFIED

I D ecla ssified H oldings o f the N ational A rchives

Authority fidjfciilf IB

ifcmafter S, 1*55

M M fiii Jlii£8&X. MMMMl MMKBM MBMtfflMtKM. J£ JQIM J311
1« Thoro la at thla tlao m IMlcatloa of m oxpaaaion of erodit &ad#
therefore* m roal occasion for taking m g action of a reatraiaiog oharae~
r
tor*
£» Fodaral R itwm polity should dopond in part on its payehologieal
offoot* For that raaaoa It ought to bo exiroaoly aiwplo* Tho public should
know that whon the Federal Roaorv* Syata* doos anything In tho direction of
roatraiat that thia conatitutea a policy of roatraiat* a ainplo uaderataadlag of rod and gro«*t aigaala of orodit policy ia m advaatago which aay bo
loat or iapair^d by a f 1fia that ro^uir# aoro or loaa aabtlo
o - f*

mnFttti
*-fT$

5* Tho Syatoa*a oowaxra for t o f t i a t j tho ananaHU valttM nf
inloseiM
roaorvoa now in oxlatoaoo mad ia proapoot aro llaitod* Tho opoanaaricot p r c *
of*

folio la $2,400,000,000 aad tho

Milan

ky which rvaorvo roqulroaoata nay bo

raiaod aao&ata to a aiailar flgaro* fxooaa roaormaa sight boooao largor fhaa
oottld bo oouatoraotod by both of thoao iaatraaoata* Thoir fall utllixatioa,
furthoraoro, particularly tho aalo of (oi
l araaaat aooarltloa ia largo wlnaa,
aay bo a difficult aattor* For thia roaaoa, it alght bo battor policy to
h » ^ y l tho &yataa* a ro8ourooB ia ardor to bo . a a poaltioa to atiliao thoa
nlny
i
to tho aaa&atsa offoot whoa tha aood oosaa*
4* Actioa at tho proaoat tiao alght* ovoa though it ahould aot, roaalt
ia a aoro hoaitant attitado on tha part of
rooofoiy*




aad aight, thoroforoi rotard

R ep rod uced from th e U n c la ssifie d

I D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED
Authority Scijfciilf jQfdSj)

November 5* 1935
(DBAIf OF FUSS S f k m a m 35 Minim B2SXBVX RSQ^IEIMEHTS)

Ob Yovsmber

. . the Board of Governors of the federal Beserve

System issued a regulation increasing " y 25 percent* effective oa
b
the requirements as to reserves to he maintained by member
banks against demand and tiao deposits. The Board9* action ia this
matter was under the authority conferred by the Banking Act of 1935
which amended paragraph 6 of ••etion 19 of tho 7odoral Beserve Act*
to provide that* upon tho affirmative to to of not loot than four of
its members* tho Board* in ordor to prevent injurious orodit expansion
or oontraetioa* nay change* within certain limits* tho requirements
as to reserves to he maintained against deposits by member hanks*
Tho rocont iaeroaso in member hank reserves has earriod them to a
level at which they exceed legal requirements by the unprecedented
amount of $3»0®0#000*000* These excess reserves* if utilised in fall*
could support an amount of hank credit more than double the existing
volume aad far groater than can he soundly employed* even with full
business recovery* Such a growth of hank credit would constitute an
injurious credit expansion*
The Increase in reserve requirements should not cause an advance
of monoy mtes or tighten credit conditions and should not act as
a restraint on the leading policies of hanks* It is not* therefore#
a reversal of the Systsm's policy of encouraging business recovery hy
maintaining easy conditions in the money market* After mooting tho
increased requirements the member hanks* in the aggregate* will still




R ep ro d u ce d from th e U ncla ssifie d / D e cla ssified H o ldings o f the N ational A rc h iv e s

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J

Authority QdJrckr / >S6(p
£

Page 2#
ban $2,300,000,000 of tzoMi m « m « t and these mtnrti are so
£
_

widely hold that all but a very few member banka art la a position to
soot tho increase ia requirements by the use of their balances with
tho Reserve bank or with correspondents*
In view of tho abundance of reserves in all classes of banks, tho
Board hat made tho laortaoo in reserve requirements applicable to all
member banks, Including country banks as well as banks In central
reserve cities and in reserve cities* A survey mad* by tho Board shows
that country hanks have a larger amount of excess reserves In proportion
to tholr deposits than hare reserve city banks and have. In addition,
largo balances with their city correspondents on which such country
hanks as do not hare sufficient reserves with the Reserve banks tan
draw for the purpose of Meeting the increased requirements, A large part
of the existing excess reserves is, in fact, directly or indirectly,
owned by country banks which are consequently in fully as good a position
as city banks to aeet the increase in reserve requirements without cur*
tailing their loans or investments*
The increase of reserve requirements prescribed by the Board will
absorb the reserves created in recent months largely by an inflow of
gold not arising out of ordinary transactions in international trade
and finance, but caused hy a movement of funds from foreign countries
due to disturbed political and economic conditions.

It would not he good

policy to have reserves arising from this cause Incorporated in our
credit base* An advance of 2$ percent in requirements at this time
will have the effect of restoring excess reserves to the level of last
spring, when the recent flight of capital from abroad began,/




R ep ro d u ce d from the U n c la ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED

j

! AuthorityQtijfdlLf !

° QAr/r/p/rMT i FU
.............................. .................................

7 3 J . 3

'

lovMbn- 5» 1939

t c f c s yos eaisiso Biamyi OTamnmwa
nila

X*

at

mis Tim

Inabtr teak reserves at the present tie© are f3,QOQ,GQO,0GO la

excess of legal requirements*

Further increases la excess rewnrtfl

through gold inporta, silver purchases, and through th# ultlaate use of
the gold is tli« Stabilisation Fond aay be expected*

|teaa&d deposits of

aeaber banks are now higher thaa they ever were end they can be more than
doubled on the basis of existing reserves*
expansion*

It sill be necessary at soae tim to use the Board’s powers for

absorbing excess reserves*

m%

this would be injurious credit

It is, therefore, not a question of whether or

the Federal Reserve Systea will have to act, but merely a question of

the best tialng of the action*
2*

It would seem best to take measures for absorbing at least a por~

tioo of existing excsss reserves before the banka have had an opportunity
to expand their activities on the basis of these reserves*

The banks are

being urged by the Goveraaent actively to seek opportunities for extending
additional credit and thereby to facilitate recovery.

To let thea proceed

and later, when aaay of thea aay no longer have exoess reserves, to put
thea in debt by inore&sing requireaent* or selling securities aay lay the
Systea open to the charge of inconsistency.

Action at such a tiae, further­

more, aight cause banks to liquidate loans or investments and aight start a
deflationary aoveaent*

3.

Early aetlon would avoid these difficulties*

Qradaal adraneac la

n n i m

reqjireaante atarted *t t a a ti** wh«n
fl

reserves are a*ple «ouid b* l«aa lifcely to result In losing a n U r t froa tha
Federal l « H m Syste* than wwld drastic action at a later c a a
tt.



R ep rod uced from th e U ncla ssifie d / D ecla ssified H oldings of the N ational A rch ive s

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y

Page 2

4* Bank* are aim in e c a a poaition that an advance %n reaar*• rauf
qulreaants would not inconvenience the* and would not act a# a restraint
on business recovery.
5*

Action at the present ti*e stay have a good psychological effect,

indicating that the Syatea la alert to the situation and prepared to taka
tha naoasaary steps to avoid inflation*

J i l f l y J O raialnp
fEBlJi ^y
6.

the preceding arguments would apply equally to nailing securities

and to ralalag reserve requirements, bat raising reserve requlreaiente would
have tha advantage of making use of a new method iiiich was not available
prior to the paaaage of the Banking Aet of 1935*

Previously reserves could

not ba advanced, except by tha declaration of an emergency and with approval
of tha President.

the use of thia aethod now enables the System to aay that

it could not have acted aooaar because of lack of authority*
7*

Raising reserve requlreaants would have the additional advantage

ovar selling Government securities that it wotild not have any unfavorable
effect on tha aarkat for thaaa securities*
I*

It voald also have the advantage of not diainisfeing tha earning

assets of tha Fedar&l Reserve banks, *hich *ay become a serimie natter If
thaaa banks should ba put in a position where they would have to go to
Congress for appropriations.
9.

It aay ba a goad general policy to use changaa in reserve require-

aaata as a >aethod of readjasting the banking position to new conditions,
such aa the precast unprecedented reserves, and to use tha traditional
methods of

&pm

aarkat operations and discount rataa aa tha instruments

for direct influence on expansion or contraction of credit*



R ep rod uced from the U n c la ssifie d / D ecla ssified H o ldings of the N ational A rch ive s

I

D E C L A S S IF IE D
A u th o r ity

S ^ V 'f C h if tQ i & i '

Fag@

3

By raising reserre requireaenta gradually to a p o i n t where excess
reserves would not be very large, the Reserve beaks

m nld

be placed la a

position to use open-amrket sales,which are more flexible, to counteract
inflationary tendencies.




R ep ro d u ce d from th e U n cla ssified / D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED
|

A

u

t Qh t Do f d r i l f I B
i t y

of

«a

S S& S K i MSJ&3X tfflttS M
I,
*

tlioro

1#

ot

thi* till*

smi

iadiootiota

of

orodlt

sad#

thorofore, no ro*l o o w i o a for taking say *Oti<»i of a restraining oharaet»t*

f* Federal trnmmm polioy should d
o*>«id to part on it* psychological
offaot* for that reaaea it ought to bo oi t o
r r wly s j p o S m pit!if s ( a d
i a l * Si 1 f h r i
f a * that *h*n t i Podoral loaorta Systo* doo® anything la tho dirootioa of
co
l«
roatraiat that this eooetitut** * policy of r«*traict. 4 aiapl* uadorsiaadlag of m d and grooa signal* of orodtt policy is m adrantago ihish »ay bo
lost or i«poir*d fg action* that rottiiro ami or 1#** oabtlo czplsn&ticm*
ar
J*

in© pppw*~'p pCNMKrw *vT CwKlwriCwaf wa® Vwllttf ▼wAwHwB ® WmGmmw
1

rosorvei1 ao« la oadstoaoo and .in proapoot or* li*ltod* tho of*a-«arfcot port­
folio in §a#
40Q«d00f0Q® *ad tto saiina* by i i f roaorro ro$»ir«i**ai* aay bo
hsc
raiaod a b u a * to a similar flgaro* T^immi* iressrvss sight
sost

larger

aauld I i ©o^ts®a#tod by both of tho** i S y a w i i fhair Hill i t l s t o i
n
AtiiiS*
tiiait#
ftaiihirwfr#^ jwurtioalarly th* sal* of CkwornsMwit aoourltio* It largo *oli&sof
f
aay bo « difficult a t o r for thi* roaaea* 1% a t f o fcottor policy to
ata.
lgfc c
hi**hoad th# %*to*# roaourooa in ordor to bo in a position to atilt** tho*
*
to th*'
rnxtjwni *ffoot itt th# P**d '01*#
ff n
0(1*
4# iottlMiat tho prosaist tlao sight, *w*n I e f e it s f w d not# roault
fwf
lel
in * m m hoaltaat attttnda o l tho port of bonk* a i alght, thoroforo# rotard
i
xd
rooooory*




wtwnTORoir

R ep rod uced from th e U ncla ssifie d

I D ecla ssified H oldings o f the N ational A rchives

[

DECLASSIFIED
Authority Q^Dfcislf /B

2

Mr* W* Randolph Burgess, Secretary,
Federal Open Market CoMidttee,
Care Federal Reserve Bank of Sew Tork,
Men fork, lew York*
Beer Mr* Burgees:
Chairaan Eccles has requested ae to acknowledge receipt of
your letter of October 26,

IM & i

with which you inclosed a tentative

draft of the ainutes of the meeting of the Federal Open Market Coaaittee in Washington on October £2-24, 1935, and to advise you that he
has no suggestions to aake with regard thereto*
It is noted that Mr* Clayton is show® as being present at the
Meeting of the Federal Open Market Coounittee witli the Board of Governors
on October 24.

However, Mr, Clayton did not join the meeting until it

convened as a seating of the Board with the Governors* Conference*
In accordance with our telephone conversation of Noveaber £,
1956, it is understood that, in preparing the final draft of the minutes
you will also prepare for the Board a separate record of the actions
taken at the aeeting, the votes cast in connection therewith, and the
reasons underlying each such action, for the purpose of enabling the
Board to aeet the requirements of the last paragraph of section 10 of
the Federal Reserve Act, as attended f y the Banking Act of 1955*
c




Very truly yours,

Chester Morrill,
Secretary*

R ep rod uced from th e U n c la ssifie d

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DECLASSIFIED
Authority

vf“

Federal Reserve Bank

3




of

N

e w

Yo

r k

November 4, 1955.

X

Dear Governor Eccles:

idM M l

Supplementing the tentative minutes of the meeting
of the Federal Open Market Committee which I mailed you on
October 26, I am transmitting herewith for such action as the
Board of Governors may wish to take a revised and final draft
of the resolution and motions adopted by the committee having
to do with System open market policy.
Very truly yours,

W. Randolph Burgess
Secretary, Federal
Open Market Committee

Honorable Marriner S. Eccles,
Chairman, Board of Governors of the
Federal Reserve System,
Washington, D. C.
WRB.H
encl.

Mn nmftoi*

NOV 6 -

N0V8-

R ep rod uced from th e U ncla ssifie d

I D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED”

[

:

|

|Authority QtQfdsir !& H & b |

CONFIDENTIAL

'RESOLUTION ADOPTED BY FEDERAL OPEN MARKET COMMITTEE. OCTOBER 25, 1955

1 The Committee reviewed the preliminary memorandum submitted
by the Chairman and discussed at length business and credit conditions
and the banking position in relation to them.

It was the unanimous

opinion of the Committee that the primary objective of the System at
the present time is still to lend its efforts towards the furtherance
of recovery.

While much progress has been made, it cannot be said

that business activity on the whole is yet normal, or that the effects
of the depression are yet overcome.

Statistics of business activity and

business credit activity, both short and long term, do not now show any
undue expansion.

In these circumstances, the Committee was unanimously

of the opinion that there is nothing in the business or credit situation
which at this time necessitates the adoption of any policy d e s ig n e d t o
retard credit expansion.
But the Committee cannot fail to recognize that the rapid growth
of bank deposits and bank reserves in the past year and a half is build­
ing up a credit base which may be very difficult to control if undue
credit expansion should become evident.

The continued large imports of

gold and silver serve to increase the magnitude of that problem.

Even

now actual reserves of member banks are more than double their require­
ments, and there is no evidence of a let-up in their growth.

That being

so, the Committee is of the opinion that steps should be taken by the
Reserve System as promptly as may be possible to absorb at least some of
these excess reserves, not with a view to checking some further expansion




R e p rod uced from th e U n cla ssified

I D ecla ssified H oldings o f the N ational A rch ive s

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DECLASSIFIED

! Authority QcVrckf IB

of credit, but rather to put the System in a better position to act
effectively in the event that credit expansion should go too far.
Two methods of absorbing excess reserves have been discussed
by the Committee:

(a)

the sale of short-term Government securities

by the Federal Reserve System, and (b)

the raising of reserve require­

ments.
While the Committee feels that method (a), if employed,
would have the dual effect of absorbing excess reserves and improving
the position of the reserve banks, nevertheless, there are two risks in
this method.

First, that it may be a shock to the bond market, induc­

ing sales of securities by banks all over the country;

second, that

however it may be explained publicly, it may be misconstrued by the
public as a major reversal of credit policy, since this method has never
been employed except as a means of restraint, which is not desired at
this time.

A majority of the Committee is opposed to the sale of Gov­

ernment securities at thin time, believing that its advantages do not
now justify the risks involved in this method of dealing with the
subject.
There are .also risks incident to method (b), - raising re­
serve requirements.

This method of control is new and untried and may

possibly prove at this time to be an undue and restraining influence
on the desirable further extension of bank credit.

The Committee feels,

therefore, that before this method of dealing with the problem of ex­
cess reserves is employed, it would be wise for the Board of Governors
of the Federal Reserve System to make a thorough study, through the
twelve Federal Reserve Banks, of the amount and location of excess



R ep rod uced from th e U ncla ssifie d

I D ecla ssified H oldings o f the N ational A rch ive s

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DECLASSIFIED

| Authority QU)fckr IQ &5(jp

i

~~
'

- 5 -

reserves by districts and by classes of banks, in order thus to determine
whether, or to what extent if at all, an increase in reserve require­
ments might interfere with the extension of loans and investments of
member banks.
In view of the monetary powers now possessed by the Treasury,
the Committee is impressed with the importance of advising with the
Treasury relative to any steps that may be taken by the Reserve System in
order as far as possible to insure reasonable coordination of action.
Furthermore, the Committee recognizes the possible dangers of
the public misunderstanding of any action which may be taken in this
matter, and would favor a careful public statement before action is
taken.
In making these suggestions to the Board of Governors regard­
ing reserve requirements, the Committee recognizes that it is going
somewhat beyond its own immediate jurisdiction, but it has found it
impossible to consider open market operations independently from the
whole credit situation and other Federal Reserve policies. fi




R ep rod uced from th e U n c la ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED
Authority S^Ofdjlf I & Q S j
P

CONFIDENTIAL

, ACTION TAKEN BY FEDERAL OPEN MARKET. COMMITTEE/OCTOBER 25, 1955, WITH
t
RESPECT TO OPERATIONS IN! THE SYSTEM SPECIAL INVESTMENT ACCOUNT

\
\

After a brief discussion of the authority which it was necessary

to give the executive committee in order to replace maturities from time
to time In the System Account, and in order to make shifts in maturities
to meet changing market conditions, it was unanimously
VOTED that superseding previous authorizations, the
executive committee be authorized to make shifts be­
tween maturities of government securities up to
|500,000,000, provided that the amount of securities
maturing within two years be maintained at not less
than |1 ,000,000,000 and that the amount of bonds be
not over f>500,000,000 ^

V After discussion as to further authority which should be given
v
to the executive committee In order to keep the committee in a position
to act promptly if any occasion for action arose due to causes not now
foreseen, it was




VOTED that the executive committee be authorized to
buy or Bell up to $250,000,000 of Government securi­
ties subject to telegraphic approval of a majority of
the Federal Open Market Committee and the approval of
the Board of Governors of the Federal Reserve System. fl

R ep rod uced from th e U n c la ssifie d

I D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED
Authority QtDfciliflQHl5(jp

t—




REC'D IN FILES SECTION

APR 1 1 1 9 3 8

I

Federal Reserve Bank
of

N

e w

Yo

..3.

r k

CONFIDENTIAL

November 4, 1955

Dear Governor Eccles:
I have taken a whack at a possible statement to be
issued by the Board of Governors in the event that it should
be decided to increase reserve requirements*

It has been put

down on paper rather hastily since, in our conversation this
afternoon, you indicated you would like to have a draft to­
morrow morning.

I have tried to make it as short and as non­

technical as possible, having in mind the advisability of
avoiding unnecessary controversy as to details.
I shall take a copy home with me tonight and if I have
any second thoughts concerning this draft I shall get in touch
with you sometime late tomorrow or early Wednesday morning.
not as easy as I thought it would be I
Faithfully

Hon. Marriner S. Eccles,
Chairman, Board of Governors
of the Federal Reserve System,
Washington, D.C.
Enc.

It’s

R ep rod uced from th e U n cla ssified / D ecla ssified H oldings o f the N ational A rch ive s

j

DECLASSIFIED

! Authority EkOtciilf fB '&£($

November 4, 1955.

The Banking Act of 1925 authorizes the Board of
Governors of the Federal Reserve System to increase reserves
required to be maintained by member brinks against demand or
time deposits, in order to prevent injurious credit expansion.
In the opinion of the Board there is now no evidence,
either in the figures of bank credit or of business activity,
that injurious credit expansion is taking place, nor is there
any occasion to reverse the present credit policy of the Federal
Reserve System which is designed to facilitate an increased use
of credit and an increase in production and employment.
The present reserve position of the member banks,
which is chiefly the result of an unprecedented inflow of gold
to this country from abroad, does, however, make possible an in­
jurious expansion of credit in the future.

The amount of

reserve funds now held by the member banks totaling $
is more than double the amount of the reserve which such member
banks are required to maintain.
reserves totaling $

There are, therefore, excess
which could support an expansion

of bank credit far greater than can be usefully and soundly em­
ployed with a full business recovery.

Such a surplus of reserve

funds lying idle constitutes a danger to the country’s economy
and it is prudent, therefore, that action be taken now not to
restrain present credit expansion, but with a view toward pre­
venting injurious expansion in the future.

For this reason

the Board of Governors of the Federal Reserve System will raise
the reserves required to be maintained by member banks by



Reproduced from the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED

|

i

A

u

t h Q d j f d ii i tr yiQ Q S u p
o
r

2.
amount on
The change which is ordered will have the effect of
immobilizing a part of the present excess reserves.

It will

leave with the banks as free reserves a sufficient amount to
support a much further expansion of bank credit.

This action

should not, therefore, act as a restraint upon the lending
policies of banks generally, but on the contrary, should give
confidence to the banks and to the public by making more cer­
tain the proper control of credit in the future.




Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED

I&2&JP

Authority

O O N F (Qfz k( T | fit
To:

G hairm an E c c le s

From:

Mr. Sraead

D a te :

November 1 , 1935
<r
'
s
'
S u b je c t: E x ce ss r e s e r v e s o f
/
member b a n k s .

On O c to b e r 30 e x c e s s r e s e r v e s o f member b an k s am ounted to
1 3 ,0 1 1 ,0 0 0 ,0 0 0 , o r a b o u t $ 6 0 0 ,0 0 0 ,0 0 0 above t h e am ount r e p o r te d f o r June 2 9 ,
1 935*, and a b o u t $ 3 8 0 ,0 0 0 ,0 0 0 more th a n a v e ra g e d a i l y e x c e s s r e s e r v e s f o r th e
m onth o f S e p te m b e r, when th e y am ounted t o 5 ^ 2 ,6 2 8 ,0 0 0 ,0 0 0 .

The a v e ra g e d a i l y ex­

c e s s r e s e r v e s d u r in g th e m onth o f S ep tem b er o f c e n t r a l r e s e r v e c i t y , r e s e r v e
c i t y , and c o u n tiy b a n k s , i n e a c h F e d e r a l R e se rv e d i s t r i c t , w ere a s f o llo w s :

F e d e r a l R e se rv e d i s t r i c t s

B o sto n
New Y ork
P h ila d e lp h i a
C le v e la n d
Richmond
A tla n ta
C hicago
S t . L o u is

C e n tr a l r e ­
serv e c i ty
b an k s

C o u n try b an k s

2A ; 000,000

$1,423,000,000

$ 1 2 5 ,0 0 0 ,0 0 0
3 ,0 0 0 ,0 0 0
7 5 ,0 0 0 ,0 0 0
1 2 9 ,0 0 0 ,0 0 0

£ 4 3 ,0 0 0 ,0 0 0
8 1 ,0 0 0 ,0 0 0
3 2 ,0 0 0 ,0 0 0
4 3 ,0 0 0 ,0 0 0

5 6 ,0 0 0 ,0 0 0
21 , 000,000
74-,000, 000

31 ,0 0 0 ,0 0 0

54 , 000,000

25 ,
000,000
69,
000,000
23,
000,000

25,
000,000
50,
000,000
20, 000,000
102,
000,000

$ 1 ,1 7 7 ,0 0 0 ,0 0 0

M in n e a p o lis
K ansas C ity
D a lla s
San F r a n c is c o
T o ta l

R e se rv e
c ity
banks

35, 000,000
41 ,0 0 0 ,0 0 0
32,
000,000
16 , 000,000

, ,

|734 000 000

1471,000,000

E x cess r e s e r v e s o f New Y ork and C hicago b a n k s on O c to b er 30 w ere a b o u t
1 2 0 0 ,0 0 0 ,0 0 0 and $ 9 0 ,0 0 0 ,0 0 0 , r e s p e c t i v e l y , above t h e S eptem ber a v e r a g e s .

L a te r

f i g u r e s f o r r e s e r v e c i t y and f o r c o u n try b an k s s e p a r a t e l y a r e n o t a v a i l a b l e , b u t
th e com bined a v e ra g e f o r th e s e two c l a s s e s o f b a n k s f o r t h e m onth o f S ep te m b er,
^ 1 ,2 0 5 ,0 0 0 ,0 0 0 , was a p p ro x im a te ly |1 0 0 ,0 0 0 ,0 0 0 l e s s th a n a t p r e s e n t and n o t much
above th e f i g u r e s f o r Ju n e 2 9 .

-^ C a lc u la te d i n a c c o rd a n c e w ith th e fo rm u la u se d s in c e th e
p a s s a g e o f th e B anking A ct o f 1935.



Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED

j

j

Authority QdJfciilf /&2tS(jP

C hairm an E c c le s - 2

The l a s t d a t e f o r w hich we h av e f i g u r e s o f r e q u i r e d and e x c e s s r e ­
s e r v e s o f e a c h member b an k i s Ju n e 2 9 , 1 9 3 5 , t h e d a t e o f th e l a s t c a l l r e p o r t .
On th e b a s i s o f th e Ju n e 29 c o n d i tio n r e p o r t s 129 meniber b a n k s h ad d e f i c i e n c i e s
i n r e s e r v e s , 768 had e x c e s s r e s e r v e s o f 25 p e r c e n t o r l e s s , 1 , 14-4 b a n k s had
e x c e s s r e s e r v e s am o u n tin g t o b etw een 26 an d 50 p e r c e n t o f r e q u ir e d r e s e r v e s ,
and A ,369 had e x c e s s r e s e r v e s am o u n tin g t o more th a n 50 p e r c e n t o f r e q u i r e d
reserv es.

The f o llo w in g i s a d i s t r i b u t i o n o f t h e number o f c e n t r a l r e s e r v e c i t y ,

r e s e r v e c i t y , and c o u n try b an k s on Ju n e 2 9 , 1 9 3 5 , a c c o rd in g t o t h e r a t i o o f ex ­
c e s s r e s e r v e s t o r e q u ir e d r e s e r v e s :

T o ta l
C e n tr a l r e s e r v e Re­
num ber o f
se rv e
c i t y b an k s
c ity
member
New
C hi­
b an k s
banks
Y ork
cago

6,410

T o t a l num ber o f member b an k s

6 .0 2 5

.

18

129

8
9
7
K
3

18

*7

768
1 ,1 4 4
1 ,5 2 9
1 ,2 7 8
1 ,5 6 2

Number w ith d e f i c i e n t r e s e r v e s
|
1

C o u n try
banks

329
12

110

7472
69
50
52

6&4
1 ,0 6 0
1,AA$
1 ,2 1 8
1 ,5 0 5

Number w ith e x c e s s r e s e r v e s
am ounting t o th e f o llo w in g p erc e n ta g e s o f r e q u ir e d r e s e r v e s :
25 p e r c e n t o r l e s s
2 6 -5 0 p e r c e n t
5 1-100 p e r c e n t
101-200 p e r c e n t
O ver 200 p e r c e n t

2
3
5
6
2

I t w i l l b e n o te d t h a t 17 c e n t r a l r e s e r v e c i t y b a n k s , 86 r e s e r v e c i t y
b a n k s , and 794- c o u n try b a n k s d id n o t h av e s u f f i c i e n t r e s e r v e s t o m eet an i n c r e a s e o f
25 p e r c e n t i n r e q u ir e m e n ts .

T hese f i g u r e s r e p r e s e n t 30 p e r c e n t o f th e t o t a l num­

b e r o f c e n t r a l r e s e r v e c i t y b a n k s and 26 p e r c e n t o f th e t o t a l number o f r e s e r v e
c i t y b a n k s , b u t o n ly 13 p e r c e n t o f th e t o t a l number o f c o u n try b a n k s .
*0n t h e b a s i s o f a v e ra g e f i g u r e s f o r t h e sem i-w eek ly r e s e r v e
c o m p u ta tio n p e r io d ended O cto b er 25 no member b an k i n New York
C ity had a d e f i c i e n c y i n r e s e r v e s , b u t 14- had e x c e s s r e s e r v e s
am o u n tin g t o 25 p e r c e n t o r l e s s o f r e q u i r e d r e s e r v e s .




Reproduced from the Unclassified I Declassified Holdings of the National Archives

j

DECLASSIFIED
Authority QcJJfciilf !&

_

**

_

I n c a s e r e s e r v e r e q u ir e m e n ts w ere r a i s e d t o 125 p e r c e n t o r t o 150 p e r c e n t
o f p r e s e n t r e q u ir e m e n ts , t h e r e w ould be a c e r t a i n number o f b an k s w hich would
n o t h av e s u f f i c i e n t e x c e s s r e s e r v e s t o m eet th e i n c r e a s e w ith o u t d raw in g down
t h e i r b a la n c e s w ith o t h e r b a n k s , s e l l i n g s e c u r i t i e s , o r b o rro w in g from th e
F e d e r a l R e se rv e b a n k s .

The num ber o f b an k s t h a t w ould b e i n t h a t p o s i t i o n and

t h e am ount o f a d d i t i o n a l r e s e r v e s t h a t th e y w ould hav e t o s e c u r e i s i n d i c a t e d
by c l a s s e s o f b a n k s and by F e d e r a l R e se rv e d i s t r i c t s i n th e f o llo w in g t a b l e :

I f re q u ire d r e s e rv e s
w ere in c r e a s e d 2556
Number o f
A d d itio n a l
b an k s w ith
re se rv e s
ix s u ffic ie n t
r e q u ir e d
reserv es
T o t a l - a l l member banks
C e n tra l re s e rv e c i t y banks:
New Y ork C iiy
C hicago
R e se rv e c i t y banks
C o u n try banks
T o t a l f o r eac h d i s t r i c t :
B o sto n
j New York
I P h ila d e lp h ia
! C le v e la n d

i

|
j

Richmond
A tla n ta
1 C hicago
i S t , L o u is

897

1 9 9 ,3 7 7 .0 0 0

. 2,041

$ 3 2 7 ,8 2 0 ,0 0 0

15

3 7 ,4 6 1 ,0 0 0

24
5

150, 024,000

2
86

j K ansas C ity
i D a lla s
1 San F r a n c is c o
■

510,000

794

4 5 ,9 1 0 ,0 0 0
1 5 ,4 9 6 ,0 0 0

95
145
137
84

5, 283,000
46, 882,000
6 , 104,000
1 1 , 526,000

51
45
52
42

2 , 604,000
2 , 259,000

54
53
79

7 5 5 ,0 0 0
3 ,2 3 4 ,0 0 0

I

1 M in n e a p o lis

I f re q u ire d re s e rv e s
w ere in c r e a s e d 50%
Number o f
A d d itio n a l
b an k s w ith
in s u f f ic ie n t re se rv e s
re q u ire d
re se rv e s

60

3 ,9 5 7 ,0 0 0
1 ,3 0 7 ,0 0 0

826,000
14 , 640,000

158
1 ,8 5 4

1 ,7 3 4 ,0 0 0

129, 859,000
46, 203,000

I 64
288
319

1 3 ,3 4 4 ,0 0 0
1 7 2 ,3 8 8 ,0 0 0
18, 894, 000!
28, 431,000

130

8 ,9 2 1 ,0 0 0 !
8 ,7 5 8 ,0 0 0 !
12 , 469, 000!
4 ,7 8 8 ,0 0 0 :
\
2 , 141 , 000|
1 1 ,7 4 2 ,0 0 0 1
4 ,7 5 8 ,0 0 0 !
41 , 186,000 |

196
113
117

102
136
133
189
154

?

i

i

As i n d i c a t e d i n t h e t a b l e , i f r e s e r v e r e q u ir e m e n ts w ere in c r e a s e d 25%, 897
banks w ould have t o p r o v id e $ 99, 000,000 o f a d d i t i o n a l r e s e r v e s } and i f r e q u i r e -




Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED

j

Authority

f /3

-um ents w ere in c r e a s e d 50$ , 2 ,0 4 1 "banks w ould have to p r o v id e $ 3 2 8 ,0 0 0 ,0 0 0 o f
a d d itio n a l re s e rv e s .
Of t h e 897 b an k s w h ich w ould have t o i n c r e a s e t h e i r r e s e r v e s to b r i n g
them up t o 125 p e r c e n t o f r e q u ir e m e n ts , a l l b u t 45 had b a la n c e s w ith c o r r e s ­
p o n d en t b an k s s u f f i c i e n t t o p r o v id e t h e a d d i t i o n a l r e s e r v e s *

L ik e w is e , o f

t h e 2,041 b an k s t h a t w ould have t o i n c r e a s e t h e i r r e s e r v e s t o b r in g them up
t o 150 p e r c e n t o f r e q u ir e m e n ts , a l l b u t 125 had b a la n c e s w ith c o r r e s p o n d e n ts
s u f f i c i e n t t o m eet t h e in c r e a s e *

The e x t e n t t o w hich s u c h b a la n c e s w ould be

u sed f o r t h e p u rp o se o f m e e tin g a n i n c r e a s e i n r e s e r v e r e q u ir e m e n ts and th e
e x t e n t t o w h ich s u c h an i n c r e a s e would b e met by b o rro w in g o r by s e l l i n g
s e c u r i t i e s i s im p o s s ib le t o t e l l from a v a i l a b l e in f o r m a tio n .
I n th e e v e n t o f an i n c r e a s e i n r e s e r v e r e q u ir e m e n ts , a number o f member
b an k s i n Hew York C ity would p resu m ab ly have t o e i t h e r s e l l s e c u r i t i e s o r b o r ­
row t o m eet t h e g r e a t e r p a r t o f t h e a d d i t i o n a l r e q u ir e m e n ts o f $ 37, 000, 000, i f
r e q u ire m e n ts w ere in c r e a s e d 25 p e r c e n t , o r $ 150, 000,000 i f r e q u ir e m e n ts w ere
i n c r e a s e d 50 p e r c e n t*

I n t h e f i n a l a n a l y s i s i t i s t o b e e x p e c te d t h a t th e

b an k s w ould l i q u i d a t e some o f t h e i r lo w - y ie ld s e c u r i t i e s r a t h e r th a n b o rro w .
Member b an k s i n r e s e r v e c i t i e s and c o u n try banks p resu m ab ly w ould draw
on t h e i r c i t y c o r r e s p o n d e n ts f o r a l a r g e p a r t o f th e a d d i t i o n a l r e s e r v e s t h a t
th e y w ould be r e q u ir e d t o d e p o s it w ith F e d e r a l R e se rv e b a n k s .

I f t h i s w ere

done m ost o f t h e w ith d ra w a ls would be made from member b an k s i n th e l a r g e
f i n a n c i a l c e n t e r s , p a r t i c u l a r l y New Y o rk .

The t o t a l am ount w h ich w ould be

w ith d raw n fro m New Y o rk , h o w ev er, ev en i f r e s e r v e r e q u ir e m e n ts w ere in c r e a s e d

50 p e r c e n t , w ould n o t be s u f f i c i e n t to b r i n g a b o u t a d r a i n o f fu n d s w h ich
New Y ork b an k s c o u ld n o t e a s i l y m e e t.




The amount o f fu n d s w h ich m ig h t be

Reproduced from the Unclassified / Declassified Holdings of the National Archives

j

DECLASSIFIED

j

Authority QtiJfciiLf 1Q2£ii' |

- 5 -

w ith d raw n fro m New Y ork t o m eet a n i n c r e a s e o f 50 p e r c e n t i n r e s e r v e r e q u i r e ­
m ents i s s m a ll com pared w ith t h e huge volum e o f e x c e s s r e s e r v e s now h e ld b y
New Y ork C it y b an k s i n t h e a g g r e g a te .
S h o u ld you d e s i r e i t a t an y tim e we can f u r n i s h you w ith e x c e s s r e s e r v e s
a s o f an y W ednesday f o r e a c h o f th e w eek ly r e p o r t i n g member b an k s i n New Y o rk ,
C hicago and 99 o th e r le a d in g c i t i e s *




Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED
Authority d^OfdlLf l
Q>Q5(jp

F E D E R A L RESERVE BOARD FILE

Fe d e r a l R
of

N

eserve
e w

Yo

Ba

n k

r k

O c to b e r 51, 1955

D ear G overnor E c c le s s
I n a c c o rd a n c e w ith y o u r c o n v e r s a tio n w ith G overnor H a r r is o n
to d a y , I am w r i t i n g to in fo rm y o u t h a t a t i t s m e e tin g t h i s a f te r n o o n o u r
b o a r d o f d i r e c t o r s v o te d t h a t th e o f f i c e r s be a u th o r iz e d and i n s t r u c t e d
t o s e l l th e $ 2 5 ,8 0 5 ,2 0 0 o f U n ite d S t a t e s G overnm ent bo n d s h e ld i n t h i s
b a n k 's own in v e s tm e n t a c c o u n t, a s and when th e m a rk e t f o r s u c h s e c u r i t i e s
w i l l c o n v e n ie n tly p e r m it o f s u c h d i s p o s a l , and t o p u rc h a s e an e q u i v a le n t
am ount o f U n ite d S t a t e s G overnm ent s e c u r i t i e s o f s h o r t e r m a t u r i t i e s .
The bond h o ld in g s i n t h i s b a n k 's in v e s tm e n t a c c o u n t a f f e c t e d
by th e above a c t i o n o f o u r b o a rd o f d i r e c t o r s a r e now a s f o llo w s :
5
5
5
5
2

l / 4 $ T re a s u ry bonds o f
5 /8 $
"
"
"
3/8%
"
"
"
5 /8 %
"
1
1 M
7/8 $
"
"
"

1941
1 941-5
1 940-5
1 9 4 5 -7
1955-60

$ 4 ,1 7 1 ,2 0 0
750,000
1 0 ,2 6 2 ,0 0 0
4 .2 6 7 .0 0 0
4 .5 5 5 .0 0 0
$ 2 5 ,8 0 5 ,2 0 0

The d i r e c t o r s w ere moved to ta k e t h i s a c t io n b e c a u se (a ) t h i s
bank a t p r e s e n t h as no n eed to h o ld bonds i n i t s p o r t f o l i o i n o r d e r to m a in t a i n i t s e a r n in g s a n d , a s a g e n e r a l r u l e , th e d i r e c t o r s w ould p r e f e r to
c o n f in e in v e s tm e n ts i n t h i s a c c o u n t to s e c u r i t i e s o f s h o r t e r m a tu r it y ;
(b ) b e c a u s e o f th e p o s s i b i l i t y t h a t t h e S ystem may l a t e r d e c id e to i n c r e a s e
t h e am ount o f bonds i n th e System s p e c i a l in v e s tm e n t a c c o u n t, a s was d i s ­
c u s s e d a t th e r e c e n t m e e tin g o f th e F e d e r a l Open M ark et C om m ittee, i n w hich
e v e n t t h i s b an k may f i n d i t s e l f a c q u ir in g f u r t h e r bond h o ld in g s a s ^ p a r t o f i t s




Reproduced from the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED
Authority S^VrdjLf

FEDERAL RESERVE BANK OF N E W YC

-?

___

____

G o v ern o r E c c le s

0 ' i b e r ^ 1 , 1955.

p a r t i c i p a t i o n i n t h e S ystem a c c o u n t, and (c ) b e c a u se o f th e p o s s i b i l i t y
t h a t u n d e r c e r t a i n c irc u m s ta n c e s t h i s bank l a t e r may f i n d i t n e c e s s a r y
t o buy governm ent bonds from some o f i t s member b a n k s, e s p e c i a l l y i f
r e s e r v e r e q u ir e m e n ts sh o u ld be s u b s t a n t i a l l y in c r e a s e d .
I t i s a n t i c i p a t e d t h a t t h i s o p e r a t i o n w i l l be s p re a d o v e r a
number o f w eeks, a d v a n ta g e b e in g ta k e n o f p e r io d s o f s t r e n g t h i n th e
m a rk e t t o e f f e c t s a l e s , and th e a p p e a ra n c e o f a l a r g e change i n th e
m a tu r it y d i s t r i b u t i o n o f o u r p u b lis h e d h o ld in g s , i n an y one w eek, b e in g
a v o id e d .

H o n o rab le M a rrin e r S . E c c le s ,
C hairm an, B oard o f G o v ern o rs o f
th e F e d e r a l R e se rv e S y stem ,
W ash in g to n , D. C.




Reproduced from the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED

j

i

Authority

~

j

/Qu
l5(jP !
" " ! 1
*

F.
k

OT3 13
C 0 95
Mr* Waltar Llehtonatola, 3oor«tary,
fodoral Advlaory Council,
36 South Doarborn £treat,
Chicago, Illinois*

fr&t

Daar Sir*

At tha meottm*: of MMibors of tho Board of Ootinori
of tho Fadoral Raaarro Syatoa with tho Fodoral Adtioory Council
on Saptoahor 14* 193B, t c Couao II sahadttad to tho Board a
fo
■ U tMoil v f d f f as followat
otlit
•Tho Todaral Advisory Coaaoll ulohoo to oall tha
attaatlon of tho Board of Ooveraora of tho Fadaral
ftoaarva eyatoai to tho oxiatahoa Is th* qrota* of largo
ruaonnta of Oovortumt bond holdinga w&leh h»vo hot
variad for a loo# tla»* Th* whol* thooiy of opaa
a»rtcet operation# is to haw sufficient flexibility
to proasat amdua axpaaaioa aad eoetraotloo in tho orodit
•truoturo of tho o t i t y and thia m j hoocae lapoaaiHa
oatr
if tho laetai of Qoveraaaht hand holdings by tho Todaral
reearra ayatea is allow*4 to haoofta a oo&ataat quantity,
tho Cornell aoald like to kwtm ahotbor tho Board agrooa
with tha principle boro aaanotatod**
fho otatoaoBt haa boon j>raaoftte& at a aootlh£ of tho
Board end I have toon repeated to adviae tho cooaoil through
you that tho Board 1* fnlly oofialaant of the aosaeaity for tho
oonolderatloa of tho faotoro referred to in tho atateaeat aa
alea»nta in tha deteminetloa of open market poliey*
Other faotoro and oonelderetione hoaidoa thoao aentlo&ed
ia tha coaaelX*a aoiawpaiidm




i f

*

w e ii-c o n c t:iv <

~

R ep rod uced from the U ncla ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED

I

Authority Ejcijfciilf IB

- Z•

Nr* Walter Llchtenetein

and

?

justed opeo market policy for the federal Feserv* Systeei

is to result*

These further factor* e < eonelderations hevs the
a!

const-sat attention of the Board* e Division of Reeearoh and are the
subject of f e j e t reviow by the Hoerd « < aleo by the Teflsrel O fea
r<un,
n*
'
p
Market Committee*

_

If th© Council br * any proposals to mki with reapeot to
the operation of the open «*r)» t neeount of the Federal Heserve
System, which it believes to be pertiacat in the existin '

tuition,

all faotore conel<3*re<3, th© Bo*rfl wi II, at i* the p&et, b© g f A to
t
it
reoeive thea nnd eosieider then*




Very truly youre,

f$s#T?eo) C hester ttw rftf

Chester Morrill,
fecretery*

DECLASSIFIED

Reproduced from the Unclassified I Declassified Holdings of the National Archives
A

u

t h Q do J f d j M t " y
r i

PRELIMINARY MEMORANDIM ON MONEY MARKET AND CREDIT CONDITIONS
FOR THE FEDERAL OPEN MARKET COMMITTEE,
________
OCTOBER 2 2 . 1935,___________
E x c e ss R e s e rv e s and F e d e r a l R e se rv e P o lic y

F iv e m onths have p a s s e d s in c e th e l a s t m e e tin g o f th e F e d e r a l Open M ark et
Com m ittee when we d is c u s s e d F e d e r a l R e s e rv e p o l i c y w ith p a r t i c u l a r r e f e r e n c e to th e
(jie s tio n o f ex cess re se rv e s*

D u rin g t h i s p e r io d th e System h o ld in g s o f governm ent

s e c u r i t i e s and t o t a l R e se rv e Bank c r e d i t m r lf f tf itlln c have reaiaiiid d v i r t u a l l y un­
changed , b u t e x c e s s r e s e r v e s have in c r e a s e d fro m # 2 ,1 8 0 ,0 0 0 ,0 0 0 on M arch 6 t o
$ 2 ,9 1 0 ,0 0 0 ,0 0 0 on O c to b er 1 6 .

T h is in c r e a s e h a s b een due m a in ly to f u r t h e r g o ld

in f lo w , and t o a l e s s e x t e n t to T re a s u ry d is b u r s e m e n ts o f f r e e g o ld and an in c r e a s e
i n s i l v e r c e r t i f i c a t e s i n e x c e s s o f r e t i r e m e n t s o f n a t i o n a l bank n o t e s .
I n a tte m p tin g to r e a p p r a i s e o u r p o l i c y w ith r e s p e c t t o e x c e s s r e s e r v e s
a t th e p r e s e n t tim e , we m u st f i n d an sw ers to tw o q u e s t i o n s .
i s t h e r e t h a t o u r p r e s e n t p o l i c y i s h a v in g d e s i r a b l e r e s u l t s ?

F i r s t , w hat e v id e n c e
S econd, w hat d a n g e rs

a r e t h e r e t h a t a c o n tin u a n c e o f th e p r e s e n t p o l i c y may h av e u n d e s ir a b l e r e s u l t s ?
H aving answ ered th e s e q u e s t i o n s , we s h a l l b e i h a b e t t e r p o s i t i o n to c o n s id e r
w h e th e r and when and i n w hat ways o u r p o l i c y m ig h t w is e ly be c h a n g e d .
As s t a t e d i n a memorandum p r e s e n te d a t a m e e tin g o f th e E x e c u tiv e
Com m ittee on A p r i l 1 7 , th e th e o r y o f c r e a t i n g e x c e s s r e s e r v e s was t h a t i n a de­
p r e s s i o n , when th e c a p a c i t y and w i l l i n g n e s s o f b a n k s to le n d and o f p r i v a t e e n t e r ­
p r i s e to b o rro w hav e b e e n im p a ire d , e x c e s s r e s e r v e s w ould p u t p r e s s u r e on th e

>

b an k s to buy go v ern m en t s e c u r i t i e s , th u s f o r c i n g dorm th e y i e l d on th e s e s e c u r i t i e s
t o th e p o i n t ufoere b an k and o th e r in v e s tm e n t fu n d s w ould flo w o v e r i n t o p r i v a t e
c a p i t a l in v e stm e n t*

The s ig n s th e n d i s c e r n i b l e t h a t t h i s p r e s s u r e had b egun to

w ork have s in c e become c l e a r e r #

One v e r y f a v o r a b le i n d i c a t i o n i s th e p r o g r e s s

o f th e governm ent war d e b t c o n v e r s io n p ro g ram , w hich h a s now been e n t i r e l y com pleted*
T here h av e b een c o n v e r te d o v e r # 8 ,0 0 0 ,0 0 0 ,0 0 0 o f bonds i n t o bo n d s and lo n g -te rm




DECLASSIFIED

j

Authority8(V fd jlf !&

R ep rod uced from th e U n cla ssified / D ecla ssified H oldings o f the N ational A rch ive s

j

|

n o te s a t a s a v in g o f o v e r 1% o n th e bonds and more on th e n o t e s .

P ro b a b ly th e

c h i e f f i n a n c i a l d evelopm ent o f t h e l a s t se v e n m onths h a s been th e a p p e a ra n c e in
l a r g e volum e o f p r i v a t e r e f u n d in g i s s u e s b e a r in g i n t e r e s t r a t e r e d u c t io n s o f from

1f t o 1 3 /4 $ .
o

D u rin g t h e sev en m onths p e r io d ended w ith S e p te m b e r, o v e r

$ 1 ,3 0 0 ,0 0 0 ,0 0 0 o f d o m e stic c o r p o r a te r e f u n d in g o p e r a t io n s w ere c o n d u c te d .

In

a d d i t i o n , t h e r e was $ 7 5 0 ,0 0 0 ,0 0 0 o f s t a t e , m u n ic ip a l, and fa rm lo a n r e f u n d in g , ex ­
c l u s i v e o f governm ent g u a r a n te e d i s s u e s .

T h is i s e v id e n c e t h a t th e r e d u c t i o n o f

y i e l d s on s h o r t- ti m e in v e s tm e n ts and on governm ent s e c u r i t i e s i s h a v in g i t s ex­
p e c te d e f f e c t upon th e y i e l d s o f c o r p o r a te and o t h e r b o n d s .
In t h i s p e r io d , a l s o , t h e s ig n s o f b u s in e s s r e v i v a l h av e become c l e a r e r .
P e rh a p s th e b e s t e v id e n c e i s t h a t th e d e c l in e t h i s y e a r from t h e s p r in g p eak o f
b u s in e s s a c t i v i t y was m a rk e d ly l e s s th a n in any y e a r s in c e th e d e p r e s s io n b e g a n ,
and was a r r e s t e d e a r l i e r th a n i s u s u a l .

From th e h ig h p o in t o f J a n u a r y , g e n e r a l

b u s in e s s a c t i v i t y l o s t by May o n ly a b o u t 25$ o f t h e p r e v io u s a d v a n c e , s in c e w hich
tim e th e in d e x o f p r o d u c tio n h a s te n d e d m o d e ra te ly u p w ard .

In t h e t h r e e p r e c e d in g

wave movements s in c e t h e b o tto m o f th e d e p r e s s io n in 1932, from tw o - t h i r d s t o

100$ o f each upw ard movement was l o s t in t h e su b se q u e n t d e c l i n e .

At p r e s e n t i t

a p p e a rs t h a t a num ber o f consum er goods i n d u s t r i e s a r e n e a r l y b a c k t o t h e i r p r e ­
d e p r e s s io n l e v e l .

The a u to m o b ile i n d u s t r y h a s made a n o ta b le r e c o v e r y , a lth o u g h

a t t h e moment p r o d u c tio n i s low ow ing t o th e e a r l y i n t r o d u c t i o n o f new m o d e ls.
The h eav y goods i n d u s t r i e s s t i l l rem a in th e c e n t e r o f th e d e p r e s s io n b u t s t e e l
p r o d u c tio n h a s now re c o v e re d t o 50$ o f c a p a c ity and m achine t o o l o r d e r s r e c e n t l y
h a v e made th e b e s t show ing s in c e 1 9 2 9 , a lth o u g h th e y h av e d e c lin e d somewhat in th e
l a s t two m o n th s.
T h ere i s th u s some f a i r l y c l e a r e v id e n c e b o th in

i n t e r e s t r a t e s an<|. in

th e s t a t e o f b u s in e s s t h a t o u r lo n g - c o n tin u e d p o li c y o f e a s y money and e x c e s s r e ­
s e r v e s i s h a v in g th e d e s i r e d r e s u l t s .



To what e x t e n t th e s e r e s u l t s s h o u ld be

R ep rod uced from th e U ncla ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED

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!Authority Q^V'fcislf

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a s c r ib e d p r i m a r i l y t o c r e d i t p o l i c y o r t o o t h e r f a c t o r s i s now, a s a lw a y s,
p ro b le m a tic a l.

s
'~^

D o u b tle s s , th e lo n g d u r a ti o n o f d e p r e s s io n and th e co n seq u en t

w earo u t and o b s o le s c e n c e o f d u r a b le goods h a s b een an im p o r ta n t, and p e rh a p s th e
c h i e f , f a c t o r in r e c o v e r y .

A ls o , th e s tr e n g t h e n in g o f th e c a p i t a l s t r u c t u r e o f th e

b a n k in g sy stem u n d o u b te d ly p la y e d a l a r g e p a r t i n s to p p in g th e c u m u la tiv e p r o c e s s e s
o f h o a rd in g and d e f l a t i o n .

A n o th er im p o rta n t f a c t o r h a s b een th e r i s e o f a g r i ­

c u l t u r a l p r i c e s and t h e c o n se q u e n t in c r e a s e o f fa rm incom e.

A n o th e r f a c t o r in a l l

p r o b a b i l i t y , th o u g h t h i s h a s b een a much d e b a te d q u e s tio n , h a s been th e governm ent
sp e n d in g p ro g ram .

But t h e r e can be no d o u b t t h a t th e p r e s e n c e o f l a r g e e x c e s s

r e s e r v e s h a s p la y e d a fu n d a m e n ta l r o l e , n o t o n ly in f in a n c in g g o v e rn m e n ta l e x ­
p e n d i tu r e s b u t a l s o in p a v in g th e way f o r t h e r e v i v a l o f p r i v a t e c a p i t a l in v e s tm e n t.
As th e p r o c e s s c o n tin u e s , we s h o u ld e x p e c t to s e e i t s e f f e c t s in f u r t h e r
e x p a n s io n o f bank d e p o s it s and b an k a s s e t s .

A lre a d y th e e x p a n s io n o f bank d e p o s it s

h a s p ro c e e d e d a t a p ace t h a t h a s b een ex ceed ed o n ly d u r in g th e W orld War.

N et

demand d e p o s i t s o f w eek ly r e p o r t i n g member b an k s (91 c i t i e s ) have in c r e a s e d by
# 6 ,4 0 0 ,0 0 0 ,0 0 0 s in c e March 1933, and $ 1 ,4 0 0 ,0 0 0 ,0 0 0 o f t h i s in c r e a s e h a s o c c u r r e d
i n th e p a s t sev en m o n th s.

The t o t a l o f n e t demand and tim e d e p o s it s o f th e s e

b a n k s , e x c lu s iv e o f governm ent d e p o s i t s , now amount t o more th a n $ 20, 000, 000,000
and ex c e e d th e p r e - d e p r e s s i o n l e v e l .

Time d e p o s it s rem a in s u b s t a n t i a l l y s m a lle r

th a n in 1929-1930, and demand d e p o s i t s in " c o u n try " member b an k s (w hich a r e n o t
l a r g e l y r e p r e s e n t e d in t h e w eekly r e p o r t i n g member b a n k s) a r e s t i l l c o n s id e r a b ly
below 1928-1929 l e v e l s , b u t have shown a r a t e o f e x p a n s io n d u r in g th e p a s t y e a r
( 1)
n e a r l y a s r a p id a s in th e c i t y b a n k s .
On th e o t h e r h a n d , lo a n s and in v e s tm e n ts
o f t h e r e p o r t i n g member b an k s have made a more m o d e ra te r e c o v e r y , am ounting t o
*
(1) The l a t e s t f i g u r e s o f d e p o s i t s o f a l l b an k s i n th e c o u n try a r e f o r
December 3 1 , 1934, when th e t o t a l was 1 5 4 4 ,8 0 0 ,0 0 0 ,0 0 0 , e x c lu s iv e o f
in t e r b a n k d e p o s i t s . T h is i s th e h i g h e s t s in c e th e December 1931
c a l l . The p eak o f d e p o s it s o f a l l b an k s was a p p ro x im a te ly
$ 5 6 ,8 0 0 ,0 0 0 ,0 0 0 .



.? c

R ep rod uced from th e U ncla ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED

j

!Authority Qdjfdilf iQ2i5(jp

4

1 3 ,3 1 5 ,0 0 0 ,0 0 0 (O c to b e r 9) s in c e M arch 1933.

T h is change h a s r e s u l t e d from an

/(?
^

i n c r e a s e o f $ 4 ,1 5 3 ,0 0 0 ,0 0 0 i n b an k h o ld in g s o f U. S . governm ent s e c u r i t i e s , in c lu d ­
in g governm ent g u a r a n te e d s e c u r i t i e s , accom panied by a d e c lin e o f $ 8 0 7 ,0 0 0 ,0 0 0 in
lo a n s , and l i t t l e

change in s e c u r i t i e s o t h e r th a n g o v e rn m e n ts.

S in c e l a s t March

t o t a l lo a n s and in v e s tm e n ts o f b an k s have shown a n e t in c r e a s e o f $ 5 8 1 ,0 0 0 ,0 0 0 .
L oans on s e c u r i t i e s have d e c r e a s e d m o d e ra te ly t o th e lo w e st l e v e l s o f r e c e n t y e a r s ,
and a l l o t h e r lo a n s a r e l i t t l e

changed f o r th e p e r io d , a s e a s o n a l in c r e a s e o f

$ 2 0 0 ,0 0 0 ,0 0 0 in th e l a s t two m onths h a v in g o f f s e t an e a r l i e r d e c l i n e .

On th e

othc-r h an d , an in c r e a s e o f $ 8 0 1 ,0 0 0 ,0 0 0 h a s o c c u r r e d in bank in v e s tm e n ts , o f
w hich governm ent s e c u r i t i e s have a c c o u n te d f o r $ 6 8 2 ,0 0 0 * 0 0 0 .
T hese f i g u r e s i n d i c a t e , f i r s t , t h a t o u r e a s y money p o l i c y and th e m o n e ta ry
and f i s c a l p o l i c y o f th e governm ent h av e b e e n fo llo w e d by an e x t r a o r d i n a r y expan­
s io n o f bank d e p o s i t s , w hich th u s f a r h a s come p r i m a r i l y fro m e x p a n s io n o f bank
in v e s tm e n ts in governm ent s e c u r i t i e s and from h eav y g o ld in f lo w (and in t h e f i r s t
few m onths a f t e r th e b an k h o lid a y from r e t u r n o f c u rre n c y fro m h o a r d i n g ) ;

and

s e c o n d , t h a t in th e a g g r e g a te th e r e c o v e ry o f p r i v a t e b u s in e s s h a s th u s f a r n o t
b een f in a n c e d by p r i v a t e b o rro w in g from b a n k s .

I t i s n o t u n u s u a l in an e a r l y s ta g e

o f r e c o v e ry from d e p r e s s io n f o r b u s in e s s e x p a n s io n t o be f in a n c e d o u t o f c o r p o r a te
fu n d s p r e v io u s ly i d l e o r in v e s te d o u ts id e th e b u s in e s s .

In t h i s c o n n e c tio n , r e ­

f u n d in g is s u e s th e m s e lv e s become a s o u rc e o f fu n d s a v a i l a b l e f o r f u r t h e r p r o d u c tio n ,
in so f a r a s th e y r e l e a s e e a r n in g s w hich m ig h t o th e r w is e have t o be s e t a s id e to
pay o f f o r re d u c e m a tu rin g c a p i t a l i s s u e s .

But t h i s p h ase o f r e c o v e ry i s u s u a l l y

p r e lim in a r y t o b o rro w in g o f new money, and b e f o r e we can a c c e p t p r e s e n t i n d i c a t i o n s
a s c o n c lu s iv e e v id e n c e t h a t b u s in e s s r e v i v a l i s f ir m ly e s t a b l i s h e d , we m ust lo o k
f o r an in c r e a s e b o th in bank a s s e t s o th e r th a n governm ent s e c u r i t i e s and in new
c o r p o r a te i s s u e s .

I t i s e s p e c i a l l y im p o r ta n t, d u rin g t h i s r e c o v e r y , t o w atch f o r

th e s e d ev elo p m en ts b e c a u s e , in th e p r e s e n t i n s t a n c e , governm ent b o rro w in g and



I

f&

DECLASSIFIED
Authority QcOfdilf iB2^£

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sp e n d in g a r e u n d o u b te d ly s u p p ly in g an im p o rta n t p a r t o f t b e fu n d s w hich i n d u s tr y

/

i s u s i n g , and th e t r a n s i t i o n fro m p u b li c t o p r i v a t e s p e n d in g , a s r e c o v e ry p ro c e e d s ,
s h o u ld b e i n d i c a t e d by a t r a n s i t i o n fro m governm ent s e c u r i t y f l o t a t i o n s to new
c o r p o r a te i s s u e s and p r i v a t e b o rro w in g from b a n k s .
T h is b r i e f re v ie w o f th e b u s in e s s and f i n a n c i a l s i t u a t i o n a p p e a r s to i n ­
d i c a t e t h a t o u r c r e d i t p o li c y i s now b e in g acco m p an ied , q u it e d e f i n i t e l y , by
d e s i r a b l e d e v e lo p m e n ts.

What a r e th e d a n g e rs w hich may a r i s e from a c o n tin u a n c e

o f t h i s p o l i c y , and what a r e t h e s ig n p o s t s w hich s h o u ld t e l l u s when and how t o
change i t ?
T h ere a r e two p o s s i b l e d a n g e rs fro m a c o n tin u a n c e o f o u r p r e s e n t p o l i c y .
The f i r s t i s i n f l a t i o n a r i s i n g fro m e x p a n s io n o f p u b li c c r e d i t th ro u g h th e con­
t i n u e d f i n a n c i n g by th e b an k s o f governm ent b u d g e ta ry d e f i c i t s .
i n f l a t i o n a r i s i n g fro m e x p a n s io n o f p r i v a t e c r e d i t .

The seco n d i s

The f i r s t d a n g e r i s t h a t w ith

w hich we w ere p r i m a r i l y c o n c e rn e d in t h e memorandum p r e s e n te d l a s t A p r i l .

As was

th e n i n d i c a t e d , t h e r e i s an im p o rta n t d i f f e r e n c e b etw een th e e f f e c t s o f p r e s s u r e
o f e x c e s s bank r e s e r v e s a g a i n s t a f i x e d t o t a l o f governm ent d e b t and t h i s same
p r e s s u r e when e x e r t e d a g a i n s t a c o n tin u o u s ly i n c r e a s in g volum e o f p u b li c d e b t.

Itr

th e l a t t e r c a s e , t h e r e i s d a n g e r t h a t th e o v e rflo w o f b an k fu n d s i n t o p r i v a t e
c h a n n e ls may n o t o c c u r , t h a t th e b an k s w i l l become m ore and more h e a v i ly lo a d e d
w ith governm ent s e c u r i t i e s , and th e governm ent do a l a r g e r and l a r g e r p a r t o f th e
n a tio n * s b o rro w in g and s p e n d in g .

In t h e e x p e rie n c e o f o th e r n a t i o n s a lo n g -

c o n tin u e d p r o c e s s o f g o v e rn m e n ta l d e f i c i t f in a n c in g th r o u g h th e b a n k in g sy ste m h a s
alw ay s le d a t some p o in t t o r a p i d l y r i s i n g p r i c e s , e i t h e r th ro u g h a c t u a l m o n e ta ry
e x p a n s io n o r th ro u g h f e a r o f p o t e n t i a l e x p a n s io n , and a t t h i s p o in t th e p r o c e s s
h a s alw ay s become c u m u la tiv e ly u n c o n t r o l l a b l e , governm ent d e f i c i t s r i s i n g by re a s o n
o f th e r i s e o f p r i c e s and t h e la g o f re v e n u e b e h in d e x p e n d i tu r e s , th e w hole p r o c e s s




R ep ro d u ce d from th e U n c la ssifie d

DECLASSIFIED

I D ecla ssified H oldings o f the N ational A rch ive s

Authority QcQfckOjr IQ&5L
q

b e in g a tte n d e d b y g ra v e econom ic and p o l i t i c a l d i s r u p t i o n and d i s o r d e r te r m in a t in g
in c o lla p s e ,

/(

' ^

The c o n tin u a n c e o f o u r p r e s e n t p o l i c y , a s was p o in te d o u t i n th e e a r l i e r
memorandum, r e s t s upon t h e a ssu m p tio n t h a t t h i s d a n g e r c a n be a v o id e d .

T h ere i s

an im p o rta n t econom ic d i f f e r e n c e b etw een b u d g e ta r y d e f i c i t s a r i s i n g fro m e x t r a o r d i n ­
a r y e x p e n d itu r e s o f a c o m p e llin g n a t u r e , su ch a s t h e f in a n c in g o f a w ar o r huge
in d e m n ity p ay m en ts, and b u d g e ta r y d e f i c i t s r e s u l t i n g fro m d e p re s s io n *

T h ere i s a

d e f i n i t e econom ic b a s i s f o r t h e th e o r y t h a t i n t h e l a t t e r c a s e a r e v e r s a l o f th e
f o r c e s w hich i n d e p r e s s io n p ro d u c e t h e d e f i c i t s s h o u ld i n r e c o v e ry c o r r e c t th em ,
f o r a s r e c o v e ry p ro c e e d s th e n eed f o r e x t r a o r d i n a r y governm ent e x p e n d itu r e s h o u ld
be re d u c e d and governm ent re v e n u e sh o u ld be in c r e a s e d th ro u g h t h e reem ploym ent o f
th e f a c t o r s o f p r o d u c ti o n .

B u t, oh t h e o t h e r h a n d , i t w ould b e b o th n a iv e and dan­

g e ro u s t o su p p o se t h a t t h e p r o c e s s i s s e l f - o p e r a t i v e , and t h a t r e c o v e ry w i l l now
a u t o m a ti c a l ly c o r r e c t th e b u d g e ta r y d e f i c i t .

I f t h e b a s i s o f o u r p r e s e n t p o li c y

o f c o n tin u a n c e o f l a r g e e x c e s s r e s e r v e s i s c o r r e c t , n am ely , t h a t r e c o v e ry from
d e p r e s s io n a f f o r d s an o p p o r ttin ity f o r t r a n s i t i o n fro m p u b l i c t o p r i v a t e sp e n d in g
b u t t h a t f a i l u r e t o s e i z e t h i s o p p o r tu n i ty a t th e p r o p e r tim e can h av e o n ly h a rm fu l
r e s u l t s , i t t r i l l be n e c e s s a r y fro m t h i s tim e fo rw a rd t o k eep a c lo s e w atch upon t h e
c o u rs e o f governm ent re v e n u e and e x p e n d i tu r e .
The t h r e a t o f u n c o n t r o l l a b l e governm ent i n f l a t i o n now a p p e a r s t o be l e s s
th a n i t d id t o many o b s e r v e r s l a s t w i n t e r .

T h is i s t r u e n o t o n ly b e c a u se t h e r e ­

c o v e ry a p p e a r s r e a l l y t o b e u n d e r way, b u t a ls o b e c a u se th e d e f i c i t s th e m s e lv e s
a r e p r o v in g t o be c o n s id e r a b ly l e s s th a n was f e a r e d s i x m onths o r a y e a r a g o .

The

a c t u a l d e f i c i t f o r t h e p a s t f i s c a l y e a r was # 3 ,5 7 5 ,0 0 0 ,0 0 0 , in c lu d in g # 5 7 4 ,0 0 0 ,0 0 0
o f s in k in g f u n d , a s com pared w ith t h e o f f i c i a l e s tim a te o f $ 4 ,8 6 9 ,0 0 0 ,0 0 0 .

Though

th e o r i g i n a l e s ti m a t e was d o u b tl e s s o v e r s t a t e d d e l i b e r a t e l y , th e d e c r e a s e h a s b een
due a l s o t o t h e i n c r e a s e o f re v e n u e and t o th e l a g o f a c t u a l e x p e n d itu r e b e h in d t h e




R ep rod uced from th e U ncla ssifie d

I D ecla ssified H oldings of the N ational A rch ive s

DECLASSIFIED

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e s tim a te s .

I t h a s b een e a s i e r t o a p p r o p r ia te money th a n t o d e v is e th e means o f

sp e n d in g i t ;

th e r e s u l t i s t h a t e x p e n d itu r e s a r e s t i l l b e in g made t o a la r g e ex ­

t e n t o u t o f a p p r o p r i a t i o n s fro m t h e p r e c e d in g f i s c a l y e a r and a c t u a l e x p e n d itu r e s
c o n tin u e t o ru n b e h in d th e e s t i m a t e s .

In t h e p a s t 3 m o n th s, a c t u a l n e t e x p e n d itu r e s

have a v e ra g e d $ 2 7 5 ,0 0 0 ,0 0 0 a month a s a g a i n s t th e f i r s t o f f i c i a l e s ti m a t e f o r t h i s
f i s c a l y e a r * s d e f i c i t o f $ 4 ,5 2 9 ,0 0 0 ,0 0 0 w hich h a s b e e n r e v i s e d t o $ 3 ,2 8 2 ,0 0 0 ,0 0 0
i n th e P r e s i d e n t s r e c e n t b u d g et m e ssa g e .

T here i s a l s o some r e c e n t e v id e n c e o f

a d e s i r e on th e p a r t o f th e A d m in is tr a tio n t o c o n t r o l e x t r a o r d in a r y e x p e n d i tu r e s .
I t w ould be u n s a f e , h o w ev er, t o assum e t h a t th e g o v e rn m e n t’ s sp e n d in g
program w i l l d ry up fro m e i t h e r l a c k o f d e s i r e o r la c k o f a b i l i t y t o f i n d ways t o
spend th e money.

T h ere a r e s t i l l some 1 9 ,0 0 0 ,0 0 0 p e o p le on r e l i e f , t h e r e i s th e

$ 4 ,8 0 0 ,0 0 0 ,0 0 0 a p p r o p r ia te d by th e l a s t C o n g re ss, t h e r e i s e v e ry i n d i c a t i o n o f a
renew ed d r iv e in th e n e x t s e s s i o n o f C o n g ress f o r a bonus law w h ich , i f e n a c te d ,
would p ro b a b ly add some $ 2 , 000, 000,000 o f e x t r a o r d i n a r y e x p e n d itu r e , and a
P r e s i d e n t i a l e l e c t i o n i s a p p r o a c h in g .

P ro b a b ly t h e m ost s e r i o u s p ro b lem now b e a r ­

in g upon o u r p o l i c y r e g a r d in g e x c e s s r e s e r v e s a r i s e s from th e c o n te m p la tio n o f
th e s e a c t u a l and p o t e n t i a l e x t r a o r d i n a r y a p p r o p r i a t i o n s .
e f f e c t upon th e b u s in e s s r e c o v e ry w hich i s now u n d e r way?

What w i l l be t h e i r
I f b u s in e s s c o n fid e n c e

i s n o t shak en and i f th e b an k s c o n tin u e t o a b s o rb governm ent s e c u r i t i e s , p u b lic
sp e n d in g on such a s c a le a s t h i s m ig h t w e ll im p a rt an undue s tim u lu s t o b u s in e s s
a c tiv ity .

I t i s n o t im p o s s ib le t h a t we m ig h t f i n d o u r s e l v e s , much so o n e r th a n we

now t h i n k , f a c i n g o u r second d a n g e r ,t h a t o f undue p r i v a t e b u s in e s s and c r e d i t ex ­
p a n s io n .

On th e o t h e r h a n d , i f such a pro g ram o f p u b lic s p e n d in g , p a r t i c u l a r l y i f

th e bonus i s a d d e d , s h o u ld sh ak e b u s in e s s c o n fid e n c e and im p a ir th e a b i l i t y o r
.w illin g n e s s o f t h e m a rk e t t o a b so rb governm ent s e c u r i t i e s , we m ig h t f i n d o u r­
s e lv e s f a c i n g th e f i r s t d a n g e r o u t l i n e d a b o v e , p u re g o v e rn m e n ta l i n f l a t i o n .




7 ^

R ep rod uced from the U ncla ssifie d

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The p o s s i b i l i t i e s w hich have b een d is c u s s e d do n o t, h o w ev er, a p p e a r t o
n e c e s s i t a t e a s y e t any change in o u r p o li c y r e g a r d in g e x c e s s r e s e r v e s .

They m e re ly

r a i s e q u e s tio n s f o r th e f u t u r e and i n d i c a t e w hat f a c t o r s in th e c u r r e n t s i t u a t i o n
sh o u ld be m ost c l o s e l y w a tc h e d .

I f t h i s r e a l l y i s th e b e g in n in g o f a g en u in e r e ­

c o v e ry , i t ou g h t to mean t h a t s t e p s w i l l be ta k e n lo o k in g to w a rd , n o t an im m ediate
b a la n c in g o f th e b u d g e t, b u t some f a i r l y d e f i n i t e s c h e d u le o f t a p e r i n g o f f e x t r a ­
o r d in a r y e x p e n d i t u r e s ,t h e sp eed w ith w hich t h a t i s done d ep en d in g upon t h e p r o g r e s s
o f re c o v e ry .

I t may w e ll be t h a t we s h a l l have a p erm anent p ro b lem o f r e l i e f a s

E n g lan d h a s .

The v e r y f a c t t h a t r e l i e f h a s b een o r g a n iz e d on a n a t i o n a l s c a le may

mean t h a t u n em p lo y ab le s p r e v io u s ly ta k e n c a re o f in f o r m a lly and p r i v a t e l y w i l l b e ­
come p e rm a n e n tly a c h a rg e upon t h e p u b li c b u d g e t.

P a s sa g e o f th e s o c i a l s e c u r i t y

l e g i s l a t i o n , w hich i s d e s i r a b l e in p r i n c i p l e , a lm o st c e r t a i n l y m eans a perm anent
i n c r e a s e in r e l i e f e x p e n d itu r e s a s com pared w ith th e p r e - d e p r e s s io n p e r io d .

But th e

im p o rta n t c o n s id e r a tio n s s h o u ld be t h a t such e x p e n d itu r e s s h o u ld be k e p t down t o th e
a d e q u a te minimum, and above a l l t h a t th e y sh o u ld be made t o f i n d t h e i r p la c e in a
b a la n c e d b u d g e t.
I f , a s r e c o v e ry p r o c e e d s , th e e f f e c t i v e s t e p s a r e n o t ta k e n to w ard b u d g e t
b a l a n c in g , t h e r e would c e r t a i n l y be ground f o r q u e s tio n in g w h e th e r th e R eserv e
S ystem i s j u s t i f i e d in c o n tin u in g i t s p r e s e n t p o l i c y w ith r e s p e c t t o i t s s e c u r i t y
p o r t f o l i o and e x c e s s r e s e r v e s .

We n eed n o t s to p t o c o n s id e r anew th e d i f f i c u l t i e s

o f m aking a r e v e r s a l o f o u r p o li c y e f f e c t i v e u n d e r such c ir c u m s ta n c e s .

Some o f them

h av e a lr e a d y b een d is c u s s e d i n t h e e a r l i e r memorandum, su ch a s th e S t a b i l i z a t i o n
Fund and th e pow ers g r a n te d in th e Thomas .Amendment, w hereby th e A d m in is tr a tio n
co u ld e a s i l y o v e r r id e o u r e f f o r t s i f i t chose to do s o .

T h ere i s th e f u r t h e r v e r y

p r a c t i c a l d i f f i c u l t y t h a t i f we s h o u ld a tte m p t t o s e l l o u r s e c u r i t i e s to th e
m a rk e t, w hich a t th e same tim e was b e in g o f f e r e d new governm ent is s u e s t o f in a n c e
b u d g e ta ry d e f i c i t s , th e r e s u l t m ig h t be such an im p airm en t o f th e market- a s m ight



R ep rod uced from th e U n cla ssified

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n o t o n ly g iv e a s e v e re s e tb a c k t o b u s in e s s r e c o v e ry b u t f o r c e t h e governm ent a lo n g
th e ro a d to w ard i n c o n v e r t i b l e c u rre n c y i n f l a t i o n , w hich so f a r i t h a s a v o id e d .

The

m ere m e n tio n o f th e s e p o s s i b i l i t i e s i n d i c a t e s how in d is p e n s a b le i t i s f o r th e
R e se rv e S ystem and th e A d m in is tr a tio n t o c o o p e r a te in t h e f o r m u la tio n o f a program
b e s t s u i t e d t o r e c o v e r y and t o th e t r a n s i t i o n fro m p u b lic t o p r i v a t e sp e n d in g w hich
s h o u ld accom pany r e c o v e r y .
I f m a t t e r s p ro c e e d s a t i s f a c t o r i l y i n t h i s r e g a r d , th e l a r g e r q u e s tio n f o r
t h e f u t u r e w i l l be t h e r e l a t i o n o f o u r p o li c y t o th e p r o g r e s s o f b u s in e s s r e c o v e r y .
T h ere i s th e v e r y d e f i n i t e p o s s i b i l i t y t h a t p r i v a t e c r e d i t e x p a n s io n , once i t g e t s
u n d e r way, may be d i f f i c u l t t o h o ld w ith in wholesome b o u n d s.

T o ta l re s e rv e s are

now m ore th a n d o u b le r e q u ir e d r e s e r v e s and i n t e r e s t r a t e s a r e u n p r e c e d e n te d ly low .
As h a s f r e q u e n t l y been p o in te d o u t i n o u r e a r l i e r d i s c u s s i o n s , we o u g h t n o t t o a llo w
o u r f e a r s a s t o how we a r e t o c o n t r o l c r e d i t e x p a n s io n in t h e f u t u r e t o o b s c u re o u r
r e a l i z a t i o n t h a t in some fo rm and t o some e x te n t su ch e x p a n s io n i s n o t o n ly i n e v i ­
t a b l e b u t d e s i r a b l e i f we a r e t o h av e a g en u in e and c o m p lete re c o v e ry *

What th e

R e serv e S ystem ou g h t now t o be c o n s id e r in g v e r y s e r i o u s l y i s b o th t h e m ethods w here­
by c r e d i t e x p a n s io n i s t o b e c o n t r o l l e d in t h e f u t u r e and th e tim in g o f t h i s program
o f c o n tro l*

One p r e v io u s s o u rc e o f r a p id c r e d i t e x p a n s io n p e c u l i a r l y d i f f i c u l t to

c o n t r o l , s to c k exchange s p e c u l a t i o n , h a s r e c e iv e d s p e c i a l a t t e n t i o n d u rin g th e
d e p r e s s io n , and i t seems p r o b a b le t h a t th e new pow ers o f th e B oard o f G o v ern o rs o f
th e F e d e r a l R e se rv e S ystem and o f th e S e c u r i t i e s Exchange Commission t o g o v ern n o t
o n ly th e su p p ly o f such c r e d i t , b u t what i s p e rh a p s ev en m ore im p o rta n t t o r e g u l a t e th e
demand f o r i t , w i l l p u t u s i n a s tr o n g e r p o s i t i o n i n t h i s r e s p e c t th a n e v e r b e f o r e ,
p a r t i c u l a r l y a s th e " lo a n s f o r t h e a c c o u n t o f o t h e r s , ” w hich w ere so s e r i o u s a p ro b ­
lem i n 1 9 2 7 -2 9 , a r e now f o r b id d e n by la w .

But i t seems i n e v i t a b l e t h a t w ith e x c e s s

r e s e r v e s o f such m a g n itu d e , undue c r e d i t e x p a n s io n w i l l so o n e r o r l a t e r g e t u n d e r




R ep ro d u ce d from th e U n c la ssifie d / D e cla ssified H oldings o f the N ational A rch ive s

DECLASSIFIEJ
Authority Q c D f d n f h ____ .

10

way th ro u g h one c h a n n e l o r a n o th e r u n le s s a p p r o p r i a t e l y c o n t r o l l e d .

T h is i s n o t

t h e p la c e t o exam ine in any d e t a i l t h e c r i t e r i a by w hich undue c r e d i t and b u s in e s s
e x p a n s io n can be r e c o g n iz e d .
q u e s ti o n .

T h at i s a m ost d i f f i c u l t and a h ig h l y c o n t r o v e r s i a l

I t w i l l p ro b a b ly n o t become a p r e s s i n g q u e s tio n u n t i l t h e h eav y goods

i n d u s t r i e s hav e re c o v e re d and t h e g e n e r a l in d e x o f p r o d u c tio n h a s r e tu r n e d t o
n o rm a l.

At t h e p r e s e n t tim e t h e

B oard in d e x s ta n d s a t 89 a s com pared w ith

58 a t th e b o tto m o f th e d e p r e s s io n i n J u l y , 1932, and w ith 119 i n 1 9 2 9 ,

B u ild in g

c o n t r a c t s a r e s t i l l 71$ below e s tim a te d n o rm a l, and s t e e l in g o t p r o d u c tio n 28$
b e lo w .
The more p r e s s in g q u e s tio n i s t h a t o f th e n a t u r e o f t h e c o n t r o l p ro g ram .
W have th e f o llo w in g m a jo r in s tr u m e n ts o f c o n t r o l :
e

pow er t o a l t e r r e s e r v e r e ­

q u ire m e n ts , d is c o u n t r a t e s , open m a rk e t o p e r a t i o n s , and pow ers o f " d i r e c t c o n t r o l ”
a g a i n s t s to c k m a rk e t u s e o f c r e d i t .

In what o r d e r sh o u ld th e s e pow ers be u s e d i f

and when c o n t r o l becom es e s s e n t i a l ?

T h is i s a q u e s tio n o f v e r y g r e a t m a g n itu d e

w hich c an n o t be d is c u s s e d f u l l y w ith in th e sco p e o f th e p r e s e n t memorandum, w hich
i s a d d re s s e d m a in ly t o th e q u e s tio n w h e th e r t h e r e i s a n y .im m e d ia te g round f o r a
change in o u r c r e d i t p o li c y .
But t h e r e i s a d i r e c t c o n n e c tio n b etw ee n t h i s q u e s tio n o f t h e o r d e r in
w hich t h e in s tr u m e n ts o f c o n t r o l s h o u ld b e u s e d and t h e q u e s tio n o f o u r a t t i t u d e
to w a rd t h e c o n tin u e d g ro w th o f e x c e s s r e s e r v e s .

D u rin g t h e p a s t two y e a r s i t h a s

b een r e p e a te d ly p o in te d o u t t h a t e x c e s s r e s e r v e s have gone on i n c r e a s i n g , v e r y
r a p i d l y and v e r y s u b s t a n t i a l l y , n o t a s a r e s u l t o f o p e n m a rk e t o p e r a t io n s o r o f any
d e l i b e r a t e p o li c y o f t h e F e d e r a l R e se rv e System* b u t in re s p o n s e t o r e c u r r i n g i n ­
flo w s o f g o ld f o llo w in g upon d e v a l u a ti o n o f th e d o l l a r .

At th e tim e o f t h e p a s s a g e

o f th e G old R e se rv e Act in Jan u ary , 1934, e x c e s s r e s e r v e s , m a in ly a s th e r e s u l t o f
open m a rk e t o p e r a t i o n s , w ere $ 8 0 0 ,0 0 0 ,0 0 0 ;




th e y a r e now $ 2 ,9 0 0 ,0 0 0 ,0 0 0 .

G r a n tin g

e

R ep rod uced from th e U n c la ssifie d / D e cla ssified H oldings o f the N ational A rch ive s

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t h a t i t h a s b een t h e F e d e r a l R e se rv e p o l i c y e v e r s in c e F e b ru a ry 1932 t o m a in ta in
p r e s s u r e f o r c r e d i t e x p a n s io n th ro u g h e x c e s s r e s e r v e s , no one su p p o se s t h a t th e
S ystem w ould h a v e d e l i b e r a t e l y c r e a te d any su ch volum e o f r e s e r v e s a s now e x i s t s ;
and th e q u e s tio n h a s b een r e p e a t e d l y r a i s e d w h e th e r, g r a n ti n g th e d e s i r a b i l i t y o f
la rg e ex cess r e s e rv e s , i t

i s d e s i r a b l e t o p e rm it them t o a c c u m u la te i n d e f i n i t e l y .

I t may w e ll be a sk e d w h e th e r, a t some p o i n t , we sh o u ld n o t i n t e r v e n e , n o t t o p r e ­
v e n t c r e d i t e x p a n s io n b u t m e re ly t o p r e v e n t f u r t h e r a c c u m u la tio n o f s u p e r f lu o u s
r e s e r v e s w hich w i l l o n ly add t o th e d i f f i c u l t i e s o f c r e d i t c o n t r o l when t h e tim e
f o r i t a rriv e s ?
T h is q u e s ti o n , w hich i s s u r e l y v e r y p e r t i n e n t , r e v e a l s th e e x t r a o r d i n a r y
n a t u r e o f o u r c u r r e n t s i t u a t i o n w hich i s w ith o u t p re c e d e n t in c e n t r a l b a n k in g
h is to ry .

I f a c e n t r a l b a n k c r e a t e s r e s e r v e s by open m a rk e t o p e r a t i o n s , i t can con­

t r a c t them by th e same m eth o d .

B ut to d a y e x c e s s r e s e r v e s owe t h e i r o r i g i n , in th e

m a in , n o t to open m a rk e t o p e r a t io n s b u t to th e m o d i f ic a t io n o f o u r m o n e tary s ta n d a r d .
So lo n g a s g o ld c o n tin u e s t o flo w i n on such a s c a l e a s t h i s y e a r and l a s t , we
c o u ld n o t hope t o e l i m i n a t e e x c e s s r e s e r v e s by open m a rk e t o p e r a t io n s a l o n e .

As a

p r a c t i c a l m a tte r , th e m ost t h a t we c o u ld do th ro u g h th e s a l e o f governm ent s e c u r i t i e s
w ould be t o re d u c e them in p a r t and t h u s p s y c h o lo g i c a ll y t o ch eck t h e i r u s e in
c r e d i t e x p a n s io n .

I t i s p a r t l y b e c a u se we f e a r t h a t t h e s a l e o f s e c u r i t i e s a t t h i s

tim e w ould have su ch a r e s u l t now when e x p a n s io n i s s t i l l n e c e s s a r y f o r b u s in e s s r e ­
c o v e ry

t h a t we h av e c o n tin u e d in o u r p r e s e n t p o l i c y .

I f , on th e o t h e r h a n d , a

r e v e r s a l o f o u r open m a rk e t p o s i t i o n d id n o t p r e v e n t c r e d i t e x p a n s io n now, o u r
s a l e s would o n ly w eaken o u r pow er t o c o n t r o l su ch e x p a n s io n l a t e r .
In th e s e c irc u m s ta n c e s i t seems n o t u n l i k e l y t h a t th e f i r s t s te p in con­
t r o l may hav e t o be t h e r a i s i n g o f r e s e r v e r e q u ir e m e n ts .

Must we n o t re c o g n iz e t h a t

t h e m o d i f ic a t io n o f o u r m o n e ta ry s ta n d a r d in J a n u a r y , 1934^ c a r r i e d w ith i t a s one




// c _

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DECLASSIFIED

Authority Pti)rdSLf IQ2s m I
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f/ ; v
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o f th e n e c e s s a r y c o n d i tio n s o f i t s c o n tin u e d o p e r a t io n th e n e c e s s i t y o f some
fu n d a m e n ta l r e a d ju s tm e n t o f o u r whole sy stem o f r e s e r v e r e q u ire m e n ts ?
But w h a te v e r pro g ram o f c o n t r o l may he c h o se n , i t seems c e r t a i n t h a t co­
o r d i n a t i o n o f F e d e r a l R e se rv e p o l i c y and th e A d m i n i s t r a t i o n 's f i s c a l p o li c y i s t h e
f i r s t and th e fu n d a m e n ta l p r e r e q u i s i t e t o i t s s u c c e s s .

Upon th e ach iev em en t o f

t h i s c o o r d in a tio n dep en d s fu n d a m e n ta lly th e tim in g o f any c o n t r o l p ro g ram , f o r
w h e th e r we em ployed open m a rk e t o p e r a tio n s o r an a l t e r a t i o n o f r e s e r v e r e q u ire m e n ts
a s o u r f i r s t m easure o f c o n t r o l , we would be f a c i n g t h e d e f i n i t e r i s k o f a sto p p a g e
i n t h e governm ent bond m a r k e t, w ith a l l o f th e u n d e s ir a b l e c o n se q u e n c e s.w h ic h m ight
f o llo w th e r e f r o m , u n l e s s o u r p o li c y w ere c l o s e l y tim e d and c o o r d in a te d w ith a
T re a s u ry program o f b u d g e ta r y economy and c o n t r o l .




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R ep rod uced from th e U ncla ssifie d

I D ecla ssified H oldings o f the N ational A rch ive s

|

DECLASSIFIED
Authority Q t P f c i i l f

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Mr, George L. Harrison, Chairman,
Federal Open Market Committee,
Federal Sesenre Bank of Hew Xork,
Hit fork, »ew fork*
Dear Hr* HarrIson!
Tha Board has asked aa to taring to your attention the provisiom
of tha Banking Act of 1955 which amended tha last paragraph of seotion
10 of tha Fadaral Keserve Act to road as followsi
"The Board of Governors of tha Federal iasarva System shall
keep a complete record of the action taken by the Board and by
the Federal Open Market Committee upon all questions of policy
relating to opea~market operations and shall record therein the
votes taken in connection with the determination of open-market
policies and the reasons underlying the action of the Board and
the Committee in each instance, the Board shall keep a similar
record with respect to all questions of policy determined by
the Board, and shall include in its annual report to the Con*
grass a full account of the action so taken durlt^ the preceding
year with respect to open-market policies and operations and
with respect to the policies determined by it and shall Include
in such report a copy of the records required to be kept under
the provisions of this paragraph.”
Upon analysis it appears that this amendment provides for three
records, as follows!
(1)
A complete record of the actions taken by the Federal
Open Market Committee as now constituted until March 1, 1956,
upon all questions of policy relating to open market operations*
This record is required to be kept by the Board as to all actions
taken by the committee after the enactment of the Banking Act of
1966, notwithstanding the fact that the members of the Board are
not members of the committee. However, the law provides the meet­
ing of the committee, in the discretion of the Board* may be at*
tefaded by the members of the Board*




R ep ro d u ce d from th e U n c la ssifie d / D e cla ssified H oldings o f the

National A rch ive s

I

DECLASSIFIED
A uthority S c Q f c k r

Hr* George ! » Harrison, — 2*
»

(*) A cosplete record of the actions takes by the Feder­
al Open Market Oossittee which is to c o m into existence oa
Karols 1, 1956, under the terse of the Banking Act of 1955, up­
on all questions of policy relating to open sarket operations*
Tftis record is required to be kept by the Board of all actions
on questions of policy taken by the oossittee, notwithstanding
the fact that the actions taken will be those of the eossittee
as such and not of the Board as such.
(3) A complete record of the actions takes by the Board
of Governors of the Federal Jkeserv* $ystes upon all questions
of policy relatlxg to open sarket operations and with respect
to all other questions of policy detersined by the Board. This
record is required to be kept of all actions taken by the Board
on questions of policy determined since the enactsent of the
Banking Act of 195S.
the Board has under consideration the procedure which should be
followed in order to carry out the provisions of the statute, and, in
▼lev of the seeting of the Federal Open Market Cosnittee on October 22,
it is suggested that the oossittee also give consideration to th# pr*©&-In regard to the actions taken by it upon questions of policy re­
lating to open sarket operations.
It say be noted in this connection that the aseadsent requires
that the Board of Governors keep a cosplete record of the actions taken
by the federal Open Market Oossittee upon all questions of policy re­
lating to open sarket operations| that the Board shall record therein
(a) the votes taken in connection with the detersination of open sarket
policies and (b) the reasons underlying the action of the oossittee is
each instance| and that the Board shall include in its annual report
a oopy of the record required to be kept*




DECLASSIFIED

Reproduced from the Unclassified I Declassified Holdings of the National Archives

Ifep* ©##r f »

I

*4<i H i##

$&*

m % % m 0 Ht*
*##$$& a. r # j? # n t w # 1ft#
•t»*h -*g&U$t* t« m f &#

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fm 1 &
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tf- it
th» ft%#§

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t f tfc# ##***& frU #

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* w i m & ON

I©

fc t #& *

*y *# &

ff
et

f # jff

mm*

m

tprotfuc'gd from the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED
Authority S ^ Q r d j l f /Q S & u P

Worm N o. 131

Office CorrespondeK^e

FEDERAL RESERVE
BOARD

Subject:

RECD IN FILES SECTION
APR 1 1 1 9 3 8
—

j

For your use in calling the matter to the attention of Governor
•ison, the new provision of law requiring the Board of Governors to keep
and publish records of aetioxB taken by the Open Market Committee is contained
in the last paragraph of section 10 of the Federal Reserve Act as amended by
the Banking Act of 1935, which reads as follows:
"The Board of Governors of the Federal Reserve System shall
keep a complete record of the action taken by the Board and by the
Federal Open Market Committee upon all questions of policy relating
to open-market operations and shall record therein the votes taken
in connection with the determination of open-market policies and the
reasons underlying the action of the Board and the Committee in each
instance. The Board shall keep a similar record with respect to all
questions of policy determined by the Board, and shall include in
its annual report to the Congress a full account of the action so
taken during the preceding year with respect to open-market policies
and operations and with respect to the policies determined by it and
shall include in such report a copy of the records required to be
kept under the provisions of this paragraph."
This provision of law became effective on August 23, 1935, the date
of its approval by the President, and placed upon the Board the responsibil­
ity of keeping three records:
(1) A complete record of the actions taken by the Board of Gov­
ernors of the Federal Reserve System upon all questions of policy relating
to open market operations and with respect to all other questions of policy
determined by the Board. This record is required as to all actions taken
by the Board on questions of policy determined since the enactment of the
Banking Act of 1955.
(2) A complete record of the actions taken by the Federal Open
Market Committee as constituted until March 1, 1936, upon all questions of
policy relating to open market operations. This record is required as to
all actions taken by the committee after the enactment of the Banking Act
of 1935, notwithstanding the fact that the members of the Board are not
members of the committee.
(3) A complete record of the actions taken by the Federal Open
Market Committee which is to come into existence on March 1, 1936, under
the terms of the Banking Act of 1935, upon all questions of policy relat­
ing to open market operations. This record is required as to all actions
on questions of policy taken by the committee, notwithstanding the fact
that the actions taken will be those of the Committee as such and not of
the Board as such.




52

R e p rod uced from th e U n cla ssified

DECLASSIFIED

I D ecla ssified H oldings o f the N ational A rch ive s

Authority Q t Q f d l l f /&&5 (jp

F o r m N o . 131

CorresporiMei. „e
To

Mr, Morrill

From

FEDERAL RESERVE
BOARD

Mr. G-oldenweiser

Subject:

I am sending you herewith eight copies of a
business and credit conditions) prepared for the use of the Board
and the Open Market Committee next week.

There are a few minor

revisions that will be made later in the day, but I wanted to
get these copies to the Board members so that they could take them
with them over the weekend if they chose.




R ep rod uced from th e U n c la ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED
Authority Q c i) fd u /' I& 2 i5 ( jp

j

O cto b er I S , 1935
R. & S.
C r. 10

COmBEM'IAL

u
msimss m > c r e d i t c o e d i t i o n s
G e n e ra l stimmary
S u s ta in e d a c t i v i t y o f b u s in e s s a t a l e v e l n e a r th e h ig h p o in t r e a c h e d a t
th e "beginning o f th e y e a r i s th e o u ts ta n d in g f a c t i n th e c u r r e n t econom ic
s itu a tio n .
The i n c r e a s e o v e r l a s t y e a r h a s b e e n c h i e f l y i n i n d u s t r i e s p ro d u c in g
d u r a b le g o o d s, th e low l e v e l o f a c t i v i t y o f w h ich h a s b e e n th e p r i n c i p a l c h a r­
a c t e r i s t i c o f th e d e p r e s s io n .

T h ere h a s b e e n t h i s y e a r , f o r th e f i r s t tim e

s in c e t h e d e c l i n e w hich i n t h i s in d u s t r y b eg an e a r l y i n 1928, a m arked and
s u s t a i n e d i n c r e a s e o f r e s i d e n t i a l b u i l d i n g — th o u g h th e voltime o f c o n s t r u c t i o n
i s s t i l l r e l a t i v e l y s m a ll.
G r e a te r a c t i v i t y i n i n d u s t r y h a s b e e n acco m p an ied b y an ad v an ce i n th e
income b o th o f i n d u s t r i a l w o rk e rs and o f f a r m e r s , an d th e d i s t r i b u t i o n o f
co m m o d ities to consum ers a l s o i n c r e a s e d .
l a t i o n o f s to c k s o f com m odities*

T h ere h a s b een no e v id e n c e o f accumu­

W h o lesale p r i c e s o f farm p r o d u c ts an d fo o d s

h av e c o n tin u e d to ad v a n c e , b u t a t a slo w e r r a t e th a n i n 1933 and 193^*
o f m ost i n d u s t r i a l p r o d u c ts hav e phown l i t t l e

P ric e s

change i n th e p a s t two y e a r s .

N o tw ith s ta n d in g th e im provem ent i n b u s i n e s s , t h e r e i s s t i l l a l a r g e
voltime o f unem ploym ent and th e b u rd e n o f r e l i e f c o n tin u e s to b e h e a v y .
C o n tin u e d e a s e i n th e money m a rk e t an d th e a c c u m u la tio n o f a v a s t amount
o f i d l e fu n d s i n th e h an d s o f i n v e s t o r s h a s b e e n r e f l e c t e d i n a r e v i v a l i n
th e c a p i t a l m ark et#

S e c u r it y f l o t a t i o n s h av e b e e n i n l a r g e r volum e th a n i n

any y e a r s in c e 1931 ; f o r th e m ost p a r t th e y have, b e e n r e f u n d in g i s s u e s re d u c in g




R ep rod uced from th e U n c la ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

J

DECLASSIFIED

|Authority QdjfcLiirlQ&5lp

-

2

-

th e d e b t s e r v i c e , p a r t i c u l a r l y o f c o r p o r a t i o n s , b u t th e r e h a s a l s o "been an

! ^

i n c r e a s e in th e amount o f new money r a i s e d to b e u s e d i n p a r t in l i q u i d a t i o n
o f b an k d e b t and in p a r t f o r p r o d u c tiv e p u r p o s e s .
I n d u s t r i a l p r o f i t s h av e in c r e a s e d , and t h e r e h a s b e e n a s u s t a in e d advance
i n s e c u r i t y p r i c e s — r e p r e s e n t i n g th e e f f e c t o f c a s h b u y in g b y i n v e s t o r s .
Bank lo a n s to b r o k e r s have n o t in c r e a s e d and s e c u r i t y lo a n s to o th e r b o rro w e rs
have d e c l in e d .
E x p an sio n o f t o t a l b a n k lo a n s and in v e s tm e n ts h a s b e e n c o n tin u o u s d u r in g
th e y e a r and h a s r e f l e c t e d f o r th e m ost p a r t a d d i t i o n a l p u r c h a s e s b y b an k s o f
U n ite d S t a t e s Government o b l i g a t i o n s and o f s e c u r i t i e s g u a r a n te e d b y th e
G overnm ent.

Bank d e p o s i t s have grown a s th e r e s u l t c h i e f l y o f g o ld im p o rts

and d is b u rs e m e n ts b y th e G overnm ent, and demand d e p o s it s o f member b an k s a r e
a t a h ig h e r l e v e l th a n a t an y p r e v io u s tim e .

The g ro w th i n d e p o s i t s h a s b e e n

l a r g e enough to m eet th e in c r e a s e d demands o f b u s in e s s and th e tu r n o v e r o f
d e p o s i t s h a s shown l i t t l e

change.

I n r e c e n t m onths d i s t u r b e d c o n d itio n s a b ro a d an d e x p e c ta t io n s o f a r i s e
i n s e c u r i t y p r i c e s have r e s u l t e d i n a l a r g e flo w o f c a p i t a l to t h i s c o u n try
and c o n se q u e n t im p o rts o f g o ld .

T hese im p o rts have b e e n th e c h i e f f a c t o r in

c a r r y i n g member b a n k r e s e r v e s to a new h ig h l e v e l , a s shown in th e accom panying
c h a rt.

N o tw ith s ta n d in g a c o n s id e r a b le i n c r e a s e i n l e g a l r e s e r v e r e q u ir e m e n ts

c o n s e q u e n t upon th e in c r e a s e i n d e p o s i t s and a more th a n s e a s o n a l g ro w th in
th e demand f o r c u r r e n c y a r i s i n g from th e g r e a t e r volume o f t r a d e , e x c e s s r e ­
s e r v e s o f member b a n k s in c r e a s e d f u r t h e r and a t $ 2 , 900, 000,000 a r e a t th e
h i g h e s t p o in t on r e c o r d .
Im m ediate p r o s p e c ts i n th e b u s in e s s s i t u a t i o n ta k e n a s a w hole a p p e a r
to be f a v o r a b l e .




w
R ep rod uced from th e U ncla ssifie d

I D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED
A

t h Q co V fr d ii lt f yiQ Q S ljp

u

3

MEMBER BANK RESERVE FUNDS
AND FACTORS OF CHANGE IN THEIR VOLUME
Since January 31,1934

Wednesday figures

B ILL IO N S OF DOLLARS

B ILLIO N S OF D O LLA R S

6
Money in Ci rculation
V

i

Member Bank
Reserve Balances f t

v

1

1

-

f
'

Treasur i Cash and I M
Deposits v/ith F R. Banks 'Y
\

Non-member Deposits and
Other Acco unts

-----1
----- 1 A.... 1
—

F. M. A. M. J. J. A. S. 0. N. D. J. F. M. A.». J. J. A. S. 0. N.D.

1934




1935

1

1

1

1

l

1

F. M. A. M. J. J. A. S. 0. N. D. J. F. M A.M. J. J. A. S. 0. N. D
.
.

1934

1935

R ep rod uced from th e U n c la s s ifie d /D e c la s s ifie d H oldings o f the N ational A rch ive s

[

DECLASSIFIED

!Authority QtQfclilf 1&&&LP

-

k

-

i 4

| O
B u s in e s s a c t i v i t y
D u rin g th e f i r s t th r e e q u a r t e r s o f 1935 i n d u s t r i a l a c t i v i t y and em­
p lo y m en t hav e b een m a in ta in e d a t a l e v e l h ig h e r th a n i n any o f t h e f o u r
p r e c e d in g y e a r s and ab o u t h a l f way betw een th e lo w e s t p o i n t o f th e d e p r e s s io n
and th e 1929 l e v e l ,

The in c r e a s e i n p r o d u c tio n o v e r l a s t y e a r , am o u n tin g to

a b o u t 10 p e r c e n t , h a s b een l a r g e l y i n d u r a b le m a n u fa c tu re s , p a r t i c u l a r l y
a u to m o b ile s , m a c h in e ry , an d s t e e l ,

w h ile o u tp u t o f n o n d u r a b l e m a n u fa c tu re s

i n th e a g g r e g a te h a s shown a r e l a t i v e l y s m a ll i n c r e a s e .
S in c e th e b e g in n in g o f th e y e a r , i n d u s t r i a l a c t i v i t y h as s h o rn l e s s
change th a n in th e c o rre s p o n d in g p e r io d o f an y o th e r r e c e n t y e a r .

In

S eptem ber th e B o a rd ’ s s e a s o n a lly a d j u s t e d in d e x was a t 89 p e r c e n t o f th e
1923^1925 a v e ra g e a s com pared w ith a h ig h p o in t o f 91 p e r c e n t i n J a n u a r y
and a low p o in t o f 85 p e r c e n t i n May,

I n d u s t r i a l p r i c e s a ls o h av e f l u c t u a t e d

w ith i n a n arro w ra n g e and th e r e h a s b een no g e n e r a l a c c u m u la tio n o f s to c k s
o f i n d u s t r i a l p r o d u c ts su ch a s o c c u r r e d in th e r a p i d s p e c u la tiv e ad v an ce i n
p r i c e s and p r o d u c tio n d u r in g th e summer o f 1933,
The volume o f r e s i d e n t i a l b u i l d i n g , w hich h ad re m a in e d u n ch an g ed a t e x ­
c e p t i o n a l l y low l e v e l s i n 1932, 1 9 33, and 1934, h a s shown a n i n c r e a s e t h i s
y e a r , r e f l e c t i n g im provem ent b o th i n th e r e a l e s t a t e s i t u a t i o n an d in th e
m o rtg ag e m a rk e t.

The c u r r e n t l e v e l i s a p p ro x im a te ly tw ic e t h a t o f l a s t y e a r

and o n e - f i f t h t h a t o f th e p e a k y e a r s 1925 to 1928,
b u i l d i n g h a s c o n tin u e d a t a low l e v e l .

Com m ercial an d f a c t o r y

T h ere h&s b een l e s s p u b l i c con­

s t r u c t i o n i n r e c e n t m onths th a n a y e a r ag o : c u r r e n t l y , how ever, a c o n s id e r ­
a b l e amount o f new p u b l i c w ork i s b e in g u n d e r ta k e n .
Incom es i n i n d u s t r i a l co m m u n ities have in c r e a s e d som ew hat, a s com pared
w ith a y e a r ag o , r e f l e c t i n g p r i m a r i l y in c r e a s e d i n d u s t r i a l a c t i v i t y .




R e lie f

R ep rod uced from th e U ncla ssifie d

I D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED

[

'
I

A

u

t Qh

j

to O r f t c y i i l f ^
i

- 5 e x p e n d itu r e s "by th e governm ent have c o n tin u e d a t a h ig h l e v e l .

F a c to r y

p a y r o l l s f o r th e f i r s t t h r e e q u a r t e r s w ere 10 p e r c e n t l a r g e r , and t h e r e
was a ls o an in c r e a s e i n \?age p aym ents on th e r a i l r o a d s , where employment
d e c l in e d somewhat "but wage r a t e s ad v an ced .
I n d u s t r i a l p r o f i t s have a ls o b een l a r g e r th a n in th e c o rre s p o n d in g
p e r io d o f 1934,

The l a r g e s t i n c r e a s e s hav e b een i n th e a u to m o b ile ,

b u i l d i n g m a t e r i a l s , m a c h in e ry , and e l e c t r i c a l eq u ip m en t i n d u s t r i e s ,
w h ile th e p r o f i t s o f p u b li c u t i l i t i e s , w hich h ad shown a r e l a t i v e l y s m a ll
d e c l i n e d u r in g th e d e p r e s s i o n > h av e d e c re a s e d somewhat f u r t h e r t h i s y e a r .
A g r i c u l t u r a l incom e h a s b een above t h a t o f a 3,e a r ago b y a b o u t 5
>
p e r c e n t , c h i e f l y a s a co n seq u en ce o f h ig h e r p r i c e s f o r l i v e s t o c k and
l i v e s t o c k p r o d u c ts .

M ark etin g s o f l i v e s t o c k h av e b een s h a r p ly re d u c e d

w h ile cro p p r o d u c tio n h a s shown a c o n s id e r a b le i n c r e a s e o v e r l a s t y e a r ,
when d ro u g h t c o n d i tio n s p r e v a i l e d .
The volum a o f d o m e stic tr a d e h a s b een somewhat l a r g e r th a n a y e a r
ago, p a r ti c u la r ly in r u r a l a re a s.

P u rc h a s e s o f h o u s e h o ld equipm ent and

a u to m o b ile s have s h o rn a s u b s t a n t i a l g ro w th , and th e d o l l a r volum e o f
s a l e s by d e p a rtm e n t s t o r e s h a s b e e n l a r g e r , w ith th e m ost m arked in ­
c r e a s e s o v er l a s t y e a r r e p o r te d in r e c e n t m onths.
A lth o u g h econom ic a c t i v i t y h a s in c r e a s e d s u b s t a n t i a l l y fro m th e
low l e v e l s o f th e d e p r e s s io n , th e c u r r e n t l e v e l i s c o n s id e r a b ly below
t h a t in 1929 and th e volume o f unem ploym ent c o n tin u e s .h igh.
The accom panying t a b l e shows a co m p ariso n o f b u s in e s s c o n d itio n s
i n S eptem ber and th e f i r s t th r e e q u a r t e r s o f 1935 \? ith c o n d itio n s i n th e
y e a r s 1929, 1932, 1933 and 1934.




R ep ro d u ce d from th e U n c la ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED

|

!

Authority Q tV f C k i lf / 9 & 2 ( p j

BUSINESS CONDITIONS
In d ex num bers, 1923-1925 = 100
C o n s tru c ­
B ep a.rt- Whole­ R e t a i l
t i o n con­ F a c to r y f a c t o r y ment
s a le
fo o d
I n d u s tria l
p ay ­
employ­
s to r e
p ric e s p r ic e s
p r o d u c tio n t r a c t s
ro lls
ment
aw arded
s a le s
2/
1/
( v a lu e )

1929

119

117

105

1932
1933
193U
1935

64

2S

64

76

69

79

25
32

J a n .- S e p t . 3./

S7

A u g .l/
S ept .1 /

37
pS9

109

111

95

157

46

69
67
75

65
66

79

1+
9
62

75

102
100
111

31

SI

6S

7s

go

122

3S
pU i

S2
pS 2

70
P7i

79
pS2

SI
SI

122
12U

p ~ P re lin in a ry .
l / 1926 = 100; in d e x o f B u reau o f L abor S t a t i s t i c s .
2 / 1913 = 100; in d e x o f B u re a u o f L abor S t a t i s t i c s *
2 / In d e x e s f o r p e r io d s l e s s th a n a y e a r , e x c e p t th o s e f o r w h o le s a le and
r e t a i l p r ic e s , a d ju s te d f o r seaso n al v a r ia tio n .




Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED
Authority S ^ O f d k r l9& 5 b

- 7 I n d u s t r i a l p r o d u c tio n
S in c e th e m id d le o f 1932 t h e r e h av e "been f o u r p e r io d s o f in c r e a s e d
i n d u s t r i a l o u tp u t , e a c h q u i t e d i f f e r e n t from th e o t h e r s .

Some o f th e d i f ­

f e r e n c e s a r e e v id e n t on th e accom panying c h a r t , w hich shows th e B o ard * s s e a ­
s o n a ll y a d j u s t e d in d e x o f i n d u s t r i a l p r o d u c tio n an d th e p r o d u c tio n o f i r o n
an d s t e e l , a u to m o b ile s , o t h e r d u r a b le m a n u fa c tu r e s , t e x t i l e s , m e a tp a c k in g ,
o t h e r n o n - d u r a b le m a n u fa c tu re s , and m i n e r a ls , a l l e x p r e s s e d i n te rfh s o f p o i n t s
i n th e t o t a l in d e x , so t h a t i t i s p o s s i b l e to s e e . j u s t how much o f any
movement i n th e t o t a l in d e x i s a c c o u n te d f o r d i r o c t l y b y ch an g e s i n a c t i v i t y in
any o f th e s e i n d u s t r i e s ,

The in d ir e c t e f f e c t s , su c h a s an i n c r e a s e i n th e

o u tp u t o f m a t e r i a l s owing to an i n c r e a s e i n o u tp u t o f f i n i s h e d g o o d s , a r e
n o t shown s e p a r a t e l y .




DECLASSIFIED

R ep rod uced from th e U n c la ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

Authority

l& Q S t

8

Aj
C-/
INDEX OF INDUSTRIAL PRODUCTION
POINT8 IN
TOTAL INDEX




ADJUSTED FOR SEASONAL VARIATION, 192 3-2 5 AVERAGE FOR TOTAL »100

POINTS IN
TOTAL INDEX

DECLASSIFIED

R e p rod uced from th e U n c la ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

Authority

-

9

iQ lO & lj?

«

J
The f i r s t o f th e f o u r a d v a n c e s was i n th e summer o f 1 9 3 2 .

I t was s m a ll

i n amount and r e f l e c t e d l a r g e l y an in c r e a s e i n t e x t i l e o u tp u t from an un­
u s u a l l y low l e v e l .

By th e f o llo w in g M arch, a t th e tim e o f th e h a n k in g

c r i s i s , p r o d u c tio n h a d d e c l in e d t o a b o u t th e same l e v e l a s t& th e m id d le o f
1932.
The seco n d a d v a n c e , s tim u la t e d b y th e r e o p e n in g o f b a n k s , th e low l e v e l
o f s to c k s o f c e r t a i n co m m o d ities, and th e p r o s p e c t o f h ig h e r c o s t s an d h ig h e r
p r i c e s i n many l i n e s , was w id e s p re a d and e x c e p t i o n a l l y r a p i d .

O u tp u t o f

s e m i - f i n is h e d p r o d u c ts showed th e m ost r a p i d e x p a n s io n in t h i s p e r i o d , and
th e in d e x , w h ich i s b a s e d i n l a r g e p a r t on o u tp u t o f su ch p r o d u c ts , ad v an ced
tyl p o i n t s i n f o u r m o n th s, from 59 p e r c e n t o f th e 1923-1925 a v e ra g e i n March
to 100 p e r c e n t i n J u l y .

T h is a d v a n c e , p a r t l y o f a s p e c u la tiv e c h a r a c t e r , was

n o t s u s t a i n e d , h o w ev er, an d b e g in n in g in A ugust t h e r e was a g e n e r a l , r a p i d
d e c l i n e i n o u tp u t , w hich b y November h ad b r o u g h t th e in d e x down to 72 p e r c e n t .
The t h i r d ad v an ce in th e in d e x , to a h ig h o f S6 p e r c e n t i n May 193^»
r e f l e c t e d p r i m a r i l y in c r e a s e d o u tp u t o f s t e e l , p a r t o f w hich was p u rc h a s e d
f o r s to c k i n a n t i c i p a t i o n o f p r i c e ad v an c es ann o u n ced f o r th e t h i r d q u a r te r #
I n c r e a s e d a u to m o b ile p r o d u c tio n was a l s o a f a c t o r in t h i s a d v a n c e .

A f te r

May th e in d e x d e c l in e d r a p i d l y , r e f l e c t i n g c h i e f l y an a b r u p t d e c l i n e in
s t e e l p r o d u c tio n w h ich c o n tin u e d a t an e x c e p t i o n a l l y low l e v e l f o r s e v e r a l
m onths#

T here was a l s o a d e c l i n e i n a c t i v i t y a t t e x t i l e m i l l s w h ile m eatpack­

in g showed a m arked i n c r e a s e , l a r g e l y a s a co n seq u en ce o f th e d ro u g h t#
The low p o in t o f t h i s downward movement in th e in d e x o f i n d u s t r i a l p ro d u c ­
t i o n was re a c h e d i n Septem ber 193^i p a r t l y ow ing t o th e t e x t i l e s t r i k e i n
t h a t m onth.




^ e p io d u ce d from th e U n c la s s ifie d / D e cla ssified H o ldings o f the N ational A rch ive s

DECLASSIFIED
Authority Q c D f d t L f

-

10

-

|b

Tho f o u r t h a d v an c e, from t h i s low p o in t o f J1 p e r c e n t in
S eptem ber 193** to 91 p e r c e n t i n J a n u a ry 1935* was g e n e r a l f o r th e in ­
d u s t r i e s shown on th e c h a r t , e x c e p t t h a t i n th e m e a tp a c k in g i n d u s t r y
a c t i v i t y showed a r a p i d d e c l i n e d u r in g t h i s p e rio d *

The l e v e l o f

i n d u s t r i a l o u tp u t re a c h e d in J a n u a ry was somewhat h ig h e r th a n t h a t
re a c h e d in th e s p r in g o f 193^ and h a s b e e n l a r g e l y m a in ta in e d .

T h is

i s th e f i r s t ad v an ce t h a t h a s n o t b e e n f o llo w e d in th e im m e d ia te ly
s u c c e e d in g m onths b y a s h a rp d e c l i n e .
t h i s y e a r i s 85 p e r c e n t f o r May,

The lo w e s t in d e x r e p o r t e d so f a r

The m ost r e c e n t in d e x , f o r S ep tem b er,

i s £9 p e r c e n t , and t h e r e i s no i n d i c a t i o n o f a d e c l in e in th e im m ediate
fu tu re .
S t e e l p r o d u c tio n h a s b e e n m a in ta in e d g e n e r a l l y a t a l e v e l o f b etw een
HO and 50 p e r c e n t o f c a p a c it y and c u r r e n t l y i s a t 52 p e r c e n t , r e f l e c t i n g
s u s t a in e d demand from many s o u r c e s , e s p e c i a l l y th e a u to m o b ile and m achin­
e r y and m is c e lla n e o u s i n d u s t r i e s } o r d e r s from th e r a i l r o a d and b u i l d i n g
i n d u s t r i e s h av e c o n tin u e d to b e i n l i m i t e d v o lu m e.

A utom obile p r o d u c tio n ,

w h ich h ad i n c r e a s e d from a low l e v e l o f 1 ,H00,000 c a r s f o r th e w hole y e a r o f

1932 to 2 ,2 0 0 ,0 0 0
m onths o f 1935*

f o r 193^» k&s t o t a l e d 2 , 900,000 d u r in g th e f i r s t n in e
O u tp u t was s h a r p ly re d u c e d i n Septem ber a s p r e p a r a t i o n was

made f o r new m odels w hich a r e now b e in g p ro d u c e d in in c r e a s in g v o lu m e.




R ep rod uced from th e U n c la ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED
Authority QcQ'fcknC

2 )5 (jp

Lumber o u tp u t h a s in c r e a s e d c o n s id e r a b ly , accom panying a n ad v an ce i n r e s i d e n ­
t i a l b u i l d i n g a n d in c r e a s e d a c t i v i t y i n th e f u r n i t u r e in d u s tr y *

T e x tile

p r o d u c tio n a s a w hole h a s b e e n u n u s u a lly s t a b l e a t a l e v e l somewhat h ig h e r
th a n was r e a c h e d a t an y tim e d u r in g 193^*

h ig h e r l e v e l , ho w ev er, h a s

b e e n due c h i e f l y to u n u s u a ll y l a r g e p r o d u c tio n by th e wool i n d u s t r y , p a r t l y
o f f s e t i n th e t o t a l by a r e l a t i v e l y s m a ll volum e o f o u tp u t i n th e c o t t o n
t e x t i l e in d u s try .
At m ines o u tp u t h a s f l u c t u a t e d more from m onth to m onth t h i s y e a r th a n
i n o th e r r e c e n t y e a r s on a c c o u n t o f u n c e r t a i n t i e s c o n c e rn in g a p o s s i b l e c o a l
s t r i k e , w hich f i n a l l y o c c u r r e d i n S eptem ber an d was s e t t l e d a f t e r a few s a y s ,
Bnploym ent an d p a y r o l l s
T o ta l volum e o f employment i s s l i g h t l y h ig h e r th a n a y e a r ago an d sub­
s t a n t i a l l y ab o v e t h e lo w e s t l e v e l o f th e d e p r e s s io n .

I t i s , ho w ev er, co n ­

s i d e r a b l y below th e 1929 l e v e l an d , w ith a grow ing number o f p e rs o n s o f
w o rk in g a g e , th e volum e o f unem ploym ent c o n tin u e s a t a n u n u s u a ll y h ig h l e v e l .
The c o u rs e o f f a c t o r y employment s in c e 1928 i s shown on th e accompany­
in g c h a r t w ith s e p a r a t e l i n e s f o r em ployment i n th e i n d u s t r i e s p ro d u c in g
d u r a b le m a n u fa c tu r e s , s u c h a s i r o n an d s t e e l , a u to m o b ile s , m a c h in e ry , lu m b er,
a n d f u r n i t u r e , an d f o r employment i n th e i n d u s t r i e s p r o d u c in g n o n -d u ra b le
m a n u fa c tu r e s , su c h a s fo o d s , t e x t i l e s , an d l e a t h e r p r o d u c ts .
a d ju s te d f o r seaso n al v a r ia tio n .




The f i g u r e s a r e

DECLASSIFIED




j

Authority QcQfdjM " !Q
>

Reproduced from the Unclassified I Declassified Holdings of the National Archives

\

12

FACTORY EMPLOYMENT

R ep rod uced from th e U n c la ssifie d / D e cla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED

A

u

QcQrdsir r i t y
t h o

The t o t a l number o f w a g e - e a r n e rs em ployed a t f a c t o r i e s i n A ugust was
a b o u t 6 , S00,000 a s com pared w ith 6 , 600,000 a y e a r a g o , a low o f
i n th e s p r in g o f 1933*

900,000

a k ig *1 o f 9 >000,000 i n th e m id d le o f 1929.

P re ­

lim in a r y f i g u r e s i n d i c a t e t h a t i n S eptem ber th e number em ployed showed a
s e a so n a l in c re a s e .
I n 1929> a s i n m ost o f th e e a r l i e r p o s t-w a r y e a r s , th e number em ployed
i n th e d u ra b le g ro u p was s l i g h t l y l,a r g e r th a n i n o th e r m a n u fa c tu r in g i n ­
d u s trie s ,

From th e h ig h i n 1929 to th e low p o i n t o f th e d e p r e s s io n , th e d e c l in e

i n th e n o n d u r a b le - g r o u p

was a b o u t 1 , 500,000 p e r s o n s , w h ile in th e d u ra b le

g ro u p i t was a b o u t 2 ,7 0 0 * 0 0 0 p e r s o n s .

The su b se q u e n t i n c r e a s e r e p o r t e d f o r

th e d u r a b le g ro u p h a s b e e n l a r g e r th a n f o r th e n o n - d u r a b le g ro u p , am o u n tin g
to a b o u t 1 , 100,000 p e r s o n s a s com pared w ith 900, 000.
i n b o th g ro u p s h a s b e e n m a in ta in e d w ith l i t t l e
g ro u p g e n e r a l l y h ig h e r th a n a y e a r a g o .

Thi& y e a r employment

c h a n g e , w ith th e d u r a b le

D e ta i le d co m p ariso n s f o r le a d in g

g ro u p s o f i n d u s t r i e s a r e shown i n th e f o llo w in g t a b l e .




/ 3 ^

R ep rod uced from th e U n c la ssifie d

/D e cla ssified H oldings o f the N ational A rch ive s

I

DECLASS I I T )
F F

Authority QcQfckr

'

£3jp

j
I

FACTORY EMPLOYMENT
Ja n u a ry -A u g u st 1935
A verage
number
of
em ployees

Change from
........... y e a r a g o ...........
Number o f
P e rc e n t
em ployees

T o ta l

6 ,7 7 ^ .7 0 0

+111,100

+ 1 .7

D u ra b le g ro u p

3 ,0 2 4 ,0 0 0

+119,300

•44.1

41+5,100

+ 35 .9 0 0
+ 57 ,5 0 0
+15,500
+10,000
4 3 ,6 0 0

4 0 .0
4 0 .4
+ 7 .4
4 ^ .2
+ 1 .4

105,100

+ 1 , 1*00
- 1,700

2 5 5 ,9 0 0

- 16,700

+ 1 .4
-r0.9
- 6*1

-

0,200

-0 .2

+15,200
+ 11,600

+3*5
+2.3

A u to m o b iles an d p a r t s
M achinery
N o n -fe rro u s m e ta ls and p r o d u c ts
Lumber an d p r o d u c ts
I r o n and s t e e l and p r o d u c ts
T r a n s p o r ta tio n eq u ip m en t, o th e r
th a n a u to m o b ile s
S to n e , c l a y , an d g l a s s p r o d u c ts
R a i lr o a d r e p a i r shops
N o n -d u ra b le g ro u p 1 /
T e x t i l e w e a rin g a p p a r e l
P a p e r and p r i n t i n g
C hem ical g ro u p , e x c e p t p e tro le u m
re fin in g
T e x tile f a b r ic s
L e a th e r an d p r o d u c ts
Petrole-urn r e f i n i n g
Pood p r o d u c ts
R ubber p r o d u c ts
Tobacco p r o d u c ts

738*100
2 2 4 ,1 0 0
4 6 5 ,9 0 0
613, 1+ 0
0
9 6 , *400

3.750.700
4 4 6 ,7 0 0

510,900

,

292,100

1 , 023»4oo
207,600
7 0 ,9 0 0
6 5 3 .9 0 0
l o g , 600

79.300

•

+2,700
+ 2,900
- 2,700
-000
- 29,700
- 6,000
- 6,500

4 0 .9

40.3

fO .9
- 1 .1
- 4.3
~ 5 -3
- 7 .5

1 / I n c lu d e s a few m is c e lla n e o u s i n d u s t r i e s n o t s h o rn s e p a r a t e l y .




R ep rod uced from th e U n c la ssifie d

I D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED
Authority Q tQ Y $dL C /$ £ & (#

Employment a t m in es h a s f l u c t u a t e d c o n s id e r a b ly i n r e c e n t m o n th s, r e ­
f l e c t i n g th e t h r e a t o f a s t r i k e i n th e b itu m in o u s c o a l i n d u s tr y ; th e a v e ra g e
f o r th e y e a r to d a t e , h o w ev er, i s a b o u t th e same a s l a s t y e a r .

On r a i l r o a d s

em ployment h a s shown a s e a s o n a l i n c r e a s e s in c e th e b e g in n in g o f th e y e a r ,
w h ile i n p u b li c u t i l i t i e s l i t t l e

change h a s b e e n r e p o r t e d .

P a y r o l l s a t f a c t o r i e s f o r th e p e r io d from J a n u a r y to S eptem ber t h i s
y e a r h a v e b e e n a b o u t 10 p e r c e n t l a r g e r th a n a y e a r ago a n d on th e r a i l r o a d s
p a y r o l l s h av e a l s o b e e n l a r g e r , p a r t l y on a c c o u n t o f h ig h e r wage r a t e s .
P a y r o l l s a t m ines a n d p u b li c u t i l i t i e s h av e shown l i t t l e

c h an g e .

The f i g u r e s

f o r th e s e f o u r g ro u p s o f i n d u s t r i e s a r e g iv e n below ; f o r o th e r g ro u p s , su ch
a s t r a d e , c o n s t r u c t i o n , p r o f e s s i o n a l an d governm ent s e r v i c e , no s a t i s f a c t o r y
d a ta a re a v a ila b le ,

AVERAGE WEEKLY PAYROLLS IN POUR GROUPS OP INDUSTRIES
( I n m i l l i o n s o f d o l l a r s p e r w eek)
J a n ,- S e p t,
193^
T o t a l — f a c t o r i e s , m in e s , r a i l r o a d s ,
p u b li c u t i l i t i e s *

J a n .- S e p t ,
Change
1935

183-9

1 9 9 .0

+ 15.1

126,. 5

13a . S

5 8 .3

68.2

6 6 .4
7 2 .4

+ 12,3
+ 8,1
+ 4 .2

M ines

1 2 .7

1 2 .4

-.3

R a ilr o a d s

2 8 .0

30.0

+ 2*0

P u b lic u t i l i t i e s

22.9

23*s

+•9

F a c to rie s
D u ra b le g ro u p
N o rt-d u rab le g ro u p

* Stearn r a i l r o a d r e p a i r sh o p s a r e in c lu d e d i n f a c t o r i e s an d a l s o
i n r a i l r o a d s , b u t t h e d u p l i c a t i o n h a s b e e n e l im i n a te d i n t h i s
to ta l.




/s'zf

R ep rod uced from th e U n c la ssifie d

I D e cla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED
Authority Q d ) f d j l f iQ Q S lfi

Domestic trade
The total amount of domestic trade has "been larger during the first
three quarters of 1935 than it was a year ago.

Sales of general merchandise

in rural areas, as reported to the Department of Commerce by mail-order
houses and chain stores, have boon substantially larger than in any other
year since 1930*

Department store sales, as measured by tho Board’s season­

ally adjusted index, have shown an increase during this year and the average
for tho third quarter was 80 percent of the 1923-1925 average, as compared
with 75 percent in the third quarter of 193^«

Sales of automobiles showed

a considerable advance in the early part of the year and were well maintained
until September when they declined prior to the introduction of new models*
There has been an increase over a year ago in the sales of chain grocery
stores, owing in part to higher food prices, while in chain variety stores
sales have been in about the same amount as last year.
foreign trade
In the first 8 months of this year the value of exports was about the

same as in the corresponding period last year while the value of imports was
one-fifth larger.

The excess of exports amounted to $33*000,000 as compared

with $259 *000*000 a year ago.
Reflecting chiefly the effects of last summer*s drought, exports of meats,
lard, and grains showed a marked decline from last year and imports of live­
stock products, grains, and feeds increased.

Exports of cotton showed a

marked decrease and th6 quantity,of tobacco exported was also considerably
smaller.

Exports of automobiles, machinery, and crude petroleum, however,

have been in larger volume than last year.




,P f 1

;
R ep rod uced from th e U n c la ssifie d

■ ■
I D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED
Authority Q t Q ' f d s i f

-

17

-

{V

The increase in imports this year has "been general, with marked in­
creases over a year ago reported for sugar and tin, as well as for meats
and grains.

Imports of crude rubber have been larger in value but slightly

smaller in volume.
Prices
Since the beginning of the year the general level of wholesale prices
has shown less change than in the corresponding period of any other year
since 1929 .

The course of the index has been gradually upward, with an ir­

regular advance from 78 percent of the 1926 average in the early part of
January to Si percent currently.

As is indicated on the accompanying chart,

movements in the index have been largely dominated by changes in the prices
of farm products and foods, while prices of other commodities as a group
have shown little change from the level reached in the autumn of 1933 and
maintained throughout 193^ •




..
- — .......- .... Reproduced from the Unclassified / Declassified Holdings of the National Archives




DECLASSIFIED
Authority & X )fd S iC /3 S 5 Q

18
(0/

WHOLESALE PRICES

DECLASSIFIED

R ep rod uced from th e U n c la ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

Authority

iQ & S j?

~ 19 ~

The p r i n c i p a l ch an g es i n p r i c e s o f farm p r o d u c ts and fo o d s
h av e been m arked i n c r e a s e s i n th e p r i c e s o f l i v e s t o c k and l i v e ­
s to c k p r o d u c ts , a r a p i d d e c l i n e i n th e p r i c e s o f g r a in s o th e r
th a n w h e a t, and a s m a lle r d e c r e a s e i n th e p r i c e o f c o t to n .

Wheat

p r i c e s d e c l in e d i n th e e a r l y p a r t o f th e y e a r b u t from th e end o f
Ju n e t o th e f i r s t week o f O cto b er th e y ad v an ced r a p i d l y , and a l ­
th o u g h th e y h av e d e c lin e d somewhat s in c e th e n , th e y a r e now h ig h e r
th a n a t th e b e g in n in g o f th e y e a r .

P r i c e s o f s u g a r have a l s o

sh o rn a c o n s id e r a b le i n c r e a s e .
W hile o th e r co m m o d ities a s a group h av e shown l i t t l e

c h an g e ,

t h e r e hav e b een m arked movements i n th e p r i c e s o f s e v e r a l i n d i v i d u a l
c o m m o d ities.

S in c e l a s t s p r in g p r i c e s o f h id e s and l e a t h e r , s i l k ,

t e x t i l e p r o d u c ts , and s c r a p s t e e l h av e a d v a n c e d , and s in c e summer
no nforro u s

m e ta ls have ?.lso in c r e a s e d .

P r i c e s o f t i r e s and tu b e s

and c ru d e p e tro le u m h av e shown d e c l i n e s d u r in g th e y e a r .
R e t a i l p r i c e s o f fo o d s advanced c o n s id e r a b ly d u r in g th e e a r l y
m onths o f th e y e a r , r e f l e c t i n g c h i e f l y a s h a rp r i s e i n m eat p r i c e s .
S in c e A p r il t h e r e h a s b een l i t t l e n e t ch an g e i n fo o d p r i c e s and a t
th e p r e s e n t tim e th e y a r e a p p ro x im a te ly 6 p e r c e n t h ig h e r th a n th e y
w ere a y e a r ag o .




DECLASSIFIED

R ep rod uced from th e U n c la ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

Authority Q^OfciiLf /Q&5(jp

-

2

0

-

Prof its and dividends
Industrial profits, as indicated by reports of large corporations,
were somewhat larger in both the first and second quarters of 1935 than
in the corresponding periods of last year.

Automobiles, building materials,

machinery, and electrical equipment were among the industries showing the
most marked increases.

Results for the third quarter are not yet available,

but known developments indicate that profits were above those of the pre­
vious year.

Since 1932» when industrial corporations were generally operate

ing at a loss, profits have recovered substantially, but their current
volume is still only about one-third of that attained in 1929 •
During the first half of 1935 profits reported by public utility
companies were somewhat below those of the previous year.

Since the re**

cession in this field, however, was much less than for industry generally,
profits of utilities are almost two-thirds as high as the best levels
reached a few years ago.

Eailroad companies as a group failed to earn

their fixed charges during the first half of 1935 » as in other recent
years.

IDiri&oad declaration* for a largo group of corporations during the
fiapp* ala®

o f tfc* y w tf m

b y tb e

$ 2, 000, 000, 000, a n increase of a b o u t $ 100, 000,000 over the previous year.
Several of the largest banks in Hew York City have recently reduced divi­
dends because of low average yields on available funds.
Member bank deposits
Deposits at member banks have continued to show a rapid growth during
1935 1 reflecting principally the influence of gold imports and of disbursements




R ep ro d u ce d from th e U n c la ssifie d / D e cla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED
Authority Q & fd & f !& 2 )5 (p

~

21

~

I
b y th e Government o f fu n d s r a i s e d th r o u g h th e sale of o b l i g a t i o n s to th e b anks
The f o llo w in g t a b l e shows f o r r e c e n t y e a r s th e v a r io u s ty p e s o f d e p o s i t s
a t a l l member b a n k s ,

On Ju n e 29, 1935* a d j u s t e d demand d e p o s i t s , w hich

e x c lu d e U n ite d S t a t e s Government d e p o s i t s , in t e r b a n k b a l a n c e s , and r e p o r te d
A f l o a t , ” am ounted to $17i 530, 000, 000, th e l a r g e s t amount e v e r r e p o r t e d .
D e p o s its a t nonmember b a n k s , ho w ev er, an d a t a l l b an k s c o n tin u e d belo w
t h e i r p r e v io u s p e a k .

Time d e p o s i t s a t member b a n k s , e x c lu d in g th o s e o f

b a n k s and th e P o s t a l S av in g s S ystem , in c r e a s e d i n th e f i r s t h a l f o f t h i s
y e a r and a t $ 9 , 890, 000,000 w ere $1 , J 00, 000,000 l a r g e r th a n two y e a r s
e a r l i e r , b u t c o n s id e r a b ly s m a lle r th a n in th e p e r io d from 1928 to 1931 *
The r e c e n t d e c l i n e in P o s t a l S a v in g s d e p o s i t s a t b an k s r e f l e c t s th e d i r e c t
in v e s tm e n t o f fu n d s b y th e P o s ta l.S a v in g s System ; th e amount o f d e p o s i t s
h e l d b y th e p u b l i c in P o s t a l S a v in g s a c c o u n ts h a s shown l i t t l e

change s in c e

1933* The c o n tin u o u s g ro w th i n in t e r b a n k b a l a n c e s , w hich a r e now th e
l a r g e s t on r e c o r d , r e f l e c t s a n in c r e a s e i n i d l e fu n d s h e l d b y b a n k s .




R ep rod uced from th e U n c la ssifie d I D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED
Authority Q tQ

-

2

2

fd jlf IB 2)51$

~

DEPOSITS AT ALL MEMBER BAMS
OH SELECTED CALL DATES
(In m illio n s o f d o lla r s )
A d ju s te d
demand*

Time
( e x c lu d in g
P o s ta l
S a v in g s )..

U n ite d
S ta te s
Govern­
ment

P o s ta l
S av in g s

In te r­
bank

1929 Ju n e 29

16 , 32*
+

13,210

3^8

115

3,766

1933 Ju n e 30

12,089

8,192

806

788

3 .3 1
+o

193^ Ju n e 30

1^,261

9,226

1,658

505

^,397

D ec. 31

15,686

9,^56

1,636

H52

1+.905

1935 Ju n e 29

1 7 ,5 3 0

9,888

779

307

5 , 1*2

* Demand d e p o s i t s , o t h e r th a n th o s e o f b a n k s an d th e U n ite d
S t a t e s G overnm ent, p lu s c e r t i f i e d and o f f i c e r s * c h e c k s , c a s h
l e t t e r s o f c r e d i t and t r a v e l e r s 1 c h e c k s , an d due to F e d e r a l
R eserv e b a n k s ( d e f e r r e d c r e d i t s ) , m inus c a s h ite m s r e p o r te d
a s on h an d a n d in p r o c e s s o f c o l l e c t i o n .

T h a t th e g ro w th o f d e p o s i t s l i a s c o n tin u e d s in c e J u n e , alth o -u g h a t a
somewhat s lo w e r r a t e .th a n i n th e seco n d q u a r t e r o f t h i s y e a r , i s i n d i c a t e d
b y f i g u r e s f o r w eek ly r e p o r t i n g member b an k s i n $1 le a d in g c i t i e s , shown
on th e c h a r t..

A d ju s te d demand d e p o s i t s a t th e s e b an k s in c r e a s e d b y o v e r

$ 2 0 0 ,0 0 0 ,0 0 0 b e tw e e n Ju n e 26 an d O c to b e r 9 , w h ile tim e d e p o s i t s showed a
s m a ll i n c r e a s e , n o tw ith s ta n d in g a d e c r e a s e I n P o s t a l S a v in g s d e p o s i t s ,
w h ich a r e in c lu d e d in th e f i g u r e s shown.

B a la n c e s o f d o m e stic b a n k s con­

ti n u e d to i n c r e a s e , an d t h e r e h a s a l s o b e e n some g ro w th i n r e c e n t weeks
i n d e p o s i t s o f f o r e i g n b a n k s , r e f l e c t i n g th e movement o f s h o r t- te r m fu n d s
from a b ro a d .




Reproduced from the Unclassified / Declassified Holdings of the National Archives




DECLASSIFIED
Authority

QDfsC &)1
C'di f 25$

23
i(J
MEMBER BANKS IN LEADING CITIES
D
EPO
SITS A D L A S A D INVESTM
N O N N
ENTS
Since Sept. 5,1934

R ep ro d u ce d fro m th e U n c la ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

j

DECLASSIFIED

'Authority QdJfciiLf !Q2i5(jp

-

-

Batik: d e b i t s an d tu r n o v e r o f d e p o s it s
R e f l e c t i n g a n i n c r e a s e d volum e o f f i n a n c i a l a n d o th e r b u s in e s s t r a n s ­
a c t i o n s , t h e a m o u n t.o f d e b i t s to d e p o s i t o r s ' a c c o u n ts a t b an k s h a s b een
l a r g e r i n 1935 th a n i n any o f th e t h r e e p r e v io u s y e a r s .

At banks i n lUO

c i t i e s o u ts id e o f New Y ork d e b i ts i n t h e f i r s t t h r e e q u a r t e r s o f t h i s
y e a r w ere 13 p e r c e n t l a r g e r th a n i n th e same p e r io d o f l a s t y e a r .

I n New

Y ork C ity , w here d e b i t s a r e to a c o n s id e r a b le e x t e n t a f f e c t e d b y s p e c u la ­
t i v e s to c k -m a rk e t a c t i v i t y , t h e i n c r e a s e am ounted to 6 p e r c e n t.
The i n c r e a s e i n d e b i t s f o r th e c o u n try a s a w hole h a s b een somewhat
slo w e r th a n t h e g ro w th o f d e p o s i t s , an d t h e r f o r e t h e r a t e o f d e p o s it t u r n ­
over h as d e c re a se d s l i g h t l y .
Member b a n k lo a n s an d in v e s tm e n ts
Loans a n d in v e s tm e n ts o f member b an k s have in c r e a s e d t h i s y e a r by a
somewhat s m a lle r amount th a n i n t h e same p e r io d l a s t y e a r .

T h is d i f f e r e n c e

h a s r e f l e c t e d i n l a r g e p a r t th e s m a lle r volum e o f b o rro w in g by th e U n ite d
S t a t e s G overnm ent an d i t s a g e n c ie s t h i s y e a r a s com pared w ith l a s t . A n o th er
f a c t o r h a s b e e n th e r e ti r e m e n t • in* . J u l y an d A ugust o f bonds b e a r in g th e
c irc u la tio n p riv ile g e .

H o ld in g s o f d i r e c t o b l i g a t i o n s o f th e U n ite d S t a t e s

Government by a l l member b an k s showed l i t t l e

change i n t h e f i r s t h a l f o f

th e y e a r , w h ile th o s e o f w eek ly r e p o r t i n g member b a n k s i n l e a d i n g c i t i e s ,
a s i n d i c a t e d on t h e c h a r t p r e v io u s l y shown, h av e in c r e a s e d by ab o u t
$ 2 0 0 ,0 0 0 ,0 0 0 s in c e J u n e ,

A d d itio n a l s e c u r i t i e s p u rc h a s e d h av e ex ceed ed

i n am ount th e c i r c u l a t i o n b o n d s r e t i r e d .
O b lig a tio n s fxfl.ly g u a r a n te e d by th e U n ite d S t a t e s Government in c r e a s e d
by $ 570, 000,000 a t a l l member b an k s in t h e f i r s t h a l f o f th e y e a r an d by
$ 1 ^ 0 ,0 0 0 ,0 0 0 a t w eek ly r e p o r t i n g b an k s s u b s e q u e n tly .
secu
 r i t i e s in c r e a s e d


by a somewhat s m a lle r am ount.

H o ld in g s o f o th e r

R e p io d u ce d from th e U n c la ssifie d / D e cla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED

Authority&X)fdSjC !Q2)5(jp

- 25 -

T o ta l lo a n s o f member b an k s d e c l in e d in th e f i r s t h a l f o f th e y e a r ,
b u t s in c e th e en d o f J u l y lo a n s o f w eekly r e p o r t i n g b an k s h av e in c r e a s e d
som ew hat.

L oans on s e c u r i t i e s to c u s to m e rs c o n tin u e d t o d e c l i n e , r M l e o th e r

c u s to m e r s 1 lo a n s showed s e a s o n a l i n c r e a s e s i n th e s p r in g a n d a g a in i n
r e c e n t w eek s.

L oans to b r o k e r s an d d e a l e r s i n s e c u r i t i e s , w h ic h a r e d i s ­

c u s s e d more f u l l y i n a s u b s e q u e n t s e c t i o n , f l u c t u a t e d w i t h i n a r e l a t i v e l y
sm a ll r a n g e ,

r e f l e c t i n g p r i n c i p a l l y o p e r a t io n s o f d e a l e r s i n Government

s e c u ritie s .
Money r a t e s and bond y i e l d s
Short-term money rates have continued at low levels during 1935» with
rates on open-market commercial paper at j f k of one percent since January,
those on call and time loans on the New York Stock Exchange at l/4 of one
percent since April, and rates on acceptances at l / S
out the year.

of one percent through­

Yields on 9-ffiozith Treasury bills, which declined in the

first half year to .05 of one percent in July, have recently been between
.20 and ,25 of one percent.

R a to s c h a rg e d on p rim e lo a n s to cu sto m e rs b y banks h av e shown a f u r t h e r
slow d e c l i n e d u r in g th e y e a r .

R a te s a t New Y ork C ity b a n k s now a v e ra g e

l e s s th a n 2 3/4 p e r c e n t ; th o s e i n o th e r n o r th e r n and e a s t e r n c i t i e s , 3 3/4
p e r c e n t ; and th o s e i n s o u th e r n and w e s te r n c i t i e s , ab o u t 4 1/2 p e r c o n t .
Y ie ld s on o u ts ta n d in g T re a s u r y b o n d s c o n tin u e d to d e c l i n e d u r in g th e
f i r s t h a l f o f th e y e a r b u t r o s e somewhat i n A ugust and S eptem ber a s a
co n seq u en c e o f d e c l i n e s i n p r i c e s .

Y ie ld s on h ig h - g r a d e c o r p o r a te bo n d s

h av e b e e n r e l a t i v e l y s t a b l e a t a low l e v e l s in c e e a r l y in th e y e a r .




R ep ro d u ce d from th e U n c la ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED
Authority Q c O f d j l C IB

-

26

~

Security prices and security loans
There has "been a substantial increase in security prices and in st«ck
market activity during recent months, reflecting for the most part cash
purchases by investors*

The following chart brings out the fact that this

rise in prices of securities has not been accompanied by an increase in
security loans.




R ep rod uced from th e U n c la ssifie d




I D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED

|

AuthorityQ l i J i d s i f IQ 2)51 jP j

27
SECURITY LOANS AND STOCK PRICES

.^

X I^

,

R e p rod uced from th e U n c la ssifie d

I D ecla ssified H o ldings o f the N ational A rch ive s

DECLASSIFIED
Authority QtD'Cd&C/&&5j
P

~ 23 -

The a v e ra g e in c r e a s e i n s to c k p r i c e s s in c e l a s t M arch h a s ex ce ed ed

35 p e r c e n t , a c c o r d in g to th e m ost co m p reh en siv e a v a i l a b l e in d e x , w h ile
th e s e c u r i t y lo a n s o f th e w eek ly r e p o r t i n g member b an k s hav e shown l i t t l e
change,

A s m a ll in c r e a s e i n t h e i r lo a n s to b r o k e r s an d d e a l e r s i n s e c u r i ­

t i e s h a s b een o f f s e t b y a d e c r e a s e in t h e i r s e c u r i t y lo a n s to o th e r cu s­
to m ers .
I t i s an u n p r e c e d e n te d d ev elo p m en t f o r a r i s e o f 35 p e r c e n t i n s to c k ’
p r i c e s i n a s h o r t p e r io d o f tim e n o t to b e accom panied b y an i n c r e a s e in
th e am ount o f b an k c r e d i t u s e d f o r c a r r y i n g s e c u r i t i e s .

T h is u n u s u a l con­

d i t i o n i s due i n p a r t to th e ab u n d an ce o f fu n d s i n th e h an d s o f i n v e s t o r s
an d i n p a r t to th e e f f e c t s o f th e B o a rd ’ s R e g u la tio n T, w hich l i m i t s w ith ­
d ra w a ls o f c a s h from m arg in a c c o u n ts f o r t h e p u rp o s e o f r e a l i z i n g p r o f i t s
from a r i s e in s t o c k p r i c e s , and th e r e b y red u ces, th e n eed o f b o rro w in g by
b ro k e rs.
A somewhat p a r a d o x i c a l s i t u a t i o n a r i s e s o u t o f th e n a t u r e o f th e fo rm u la
f o r d e te r m in in g m a rg in r e q u ir e m e n ts s t a t e d ( b u t not p r e s c r i b e d ) i n th e law
and a d o p te d b y th e B o a rd .

The fo rm u la p r o v id e s t h a t a lo a n on a s e c u r i t y

m ust n o t b e g r e a t e r than- w h ic h e v e r i s th e h ig h e r o f :
(1) 55 per centum of the current market price of the
security, or
(2) 100 per centum of the lowest market price of the
security during the preceding thirty-six calendar months,
but not more than 75 Pe r centum of the current market price.

The th e o r y on w hich t h i s fo rm u la was b a s e d was to p r o v id e f o r a con­
s t a n t in c r e a s e o f r e s t r a i n i n g i n f l u e n c e s a s th e p r i c e s o f s to c k s ad v an c ed
f u r t h e r and f u r t h e r above t h e i r lo w s .

The way th e fo rm u la w orks o u t in

p r a c t i c e i s n o t e n t i r e l y c o n s i s t e n t w ith t h i s t h e o r y ,




Up to th e p o i n t

R ep ro d u ce d from th e U n c la ssifie d

I D e cla ssified H oldings o f the N ational A rch ive s

I

"DECLASSIFIED

j Authority& X ) f d S jT I Q Q S L p

- 29 -

I
when th e p r i c e o f a s to c k r i s e s to 133 p e r c e n t o f i t s t h r e e - y e a r low i t i s
p e r m i s s i b le to b o rro w a s much a s 75 p e r c e n t o f i t s m ark et p r i c e and an in ­
c r e a s e in p r i c e can r e s u l t i n p y ra m id in g o f p r o f i t s *

From t h a t p o i n t u n t i l

th e p r i c e r e a c h e s 182 p e r c e n t o f i t s low , th e am ount t h a t can b e b o rro w ed
re m a in s c o n s ta n t a t 100 p e r c e n t o f th e low p r i c e .

D u rin g t h a t p e r io d th e

p e r c e n ta g e o f th e m arg in t o 't h e p e r m i s s i b le lo a n i n c r e a s e s , b u t th e a c t u a l
amount t h a t can be b o rro w ed re m a in s u n ch an g ed an d , t h e r e f o r e , no p y ra m id in g
is p o s s ib le .

When th e p r i c e o f th o s e c u r i t y g e t s above 182 p e r c e n t o f i t s

low , th e fo rm u la r e s u l t s i n a c o n s ta n t *+5 p e r c e n t m arg in r e q u ir e m e n t.

T h is

i s th e h i g h e s t p r o p o r t i o n a t e m a rg in p r o v id e d f o r in th e fo rm u la , b u t s in c e
e v e ry i n c r e a s e o f $ 1.00 in th o p r i c e o f th e s to c k from t h a t p o in t p e r m its
an in c r e a s e o f 55 c e n ts 'i n th e amount t h a t c a n b e b o rro w ed on i t ,

i t be­

comes p o s s i b l e once more to p y ram id p r o f i t s a r i s i n g from p r i c e a d v a n c e s .
In t h i s way th e fo rm u la , th o u g h p r o v id in g a h ig h e r m arg in re q u ire m e n t f o r
s to c k s t h a t have ad v an ced r a p i d l y , r e s u l t s i n rem o v al o f th e a n ti- p y r e u a id in g r e s t r a i n t when th e s to c k s hav e ad v an ced b ey o n d 182 p e r c e n t o f t h e i r lo w s.
At th e p r e s e n t tim e s to c k s in w hich t w o - t h i r d s o f th e t r a d i n g i s d o ne,
in c lu d in g many m a rk e t l e a d e r s , hav e em erged from th e a n ti- p y r a m id in g zone
a n d , th o u g h s u b j e c t to th e ^ 5 p e r c e n t m a rg in r e q u ir e m e n t, w i l l a f f o r d
+
o p p o r t u n i t i e s f o r p y ra m id in g p r o f i t s i n th e e v e n t o f f u r t h e r a d v a n c e s 'in
p ric e s .
The c o u rs e o f th e m ark et in th e im m ed iate f u t u r e r e q u i r e s c l o s e
o b s e r v a ti o n to d e te rm in e w h e th e r and when a change in th e fo rm u la o r
i n th e l e v e l o f r e q u ir e d m a rg in s s h a l l become d e s i r a b l e .




R ep rod uced from th e U n c la ssifie d / D ecla ssified H oldings o f the N ational A rch ive s

DECLASSIFIED
Authority & X )X c k if

~ 30 -

Capital issues

The s u p p ly o f fu n d s s e e k in g in v e s tm e n t an d th e low l e v e l o f
money r a t e s b ro u g h t a b o u t a r e v i v a l o f th e c a p i t a l m a rk e ts b e ­
g in n in g e a r l y i n 1935»

New i s s u e s , p a r t i c u l a r l y f o r r e f u n d in g

p u r p o s e s , w ere o f f e r e d i n i n c r e a s e d volum e i n M arch and h av e
c o n tin u e d to come i n t o th e m a rk e t i n a vol-ume s u b s t a n t i a l l y
ab o v e t h a t o f r e c e n t y e a r s .

T o ta l i s s u e s i n c r e a s e d from $ 1 ^ 0 ,-

000*000 i n J a n u a r y an d $ 1 0 0 ,0 0 0 ,0 0 0 i n F e b ru a ry to $ 2 9 0 ,0 0 0 ,0 0 0
i n M arch.
month*

S in c e th e n th e y h a v e a v e ra g e d a b o u t $ 5 0 0 ,0 0 0 ,0 0 0 a

T h is com pares w ith a v e ra g e is s u e s o f $1^-0,000,000 a

m onth d u r in g th e y e a r s 1 9 3 2-193^ a n & o f $ 7 ^ 0 ,0 0 0 ,0 0 0 a m onth
d u r in g th e p e r i o d 1925- 1930*
C a p i t a l i s s u e s f o r th e p e r i o d J a n u a r y 1 — S eptem ber 30,

1935% totaled $3 ,530 ,000 ,000, including $2 ,560 ,
000,000 for re­
funding existing securities and $970 ,000,000 for raising new
capital to be used in part in liquidation of bank loans and
in part to improve or expand plant and equipment.

The i n c r e a s e d flo w o f new s e c u r i t i e s i n t o th e c a p i t a l m a rk e t
d u r in g 1935

"boon c h i e f l y f o r th e p u rp o s e o f r e d u c in g i n t e r e s t

c h a rg e s on e x i s t i n g d e b t .

N e a rly t h r e e - f o u r t h s o f th e s e c u r i t i e s

w ere o f f e r e d to r e f u n d o u ts ta n d in g s e c u r i t i e s i n t o i s s u e s b e a r i n g
lo w e r coupon r a t e s .

I n f a c t th o t o t a l i s s u e d f o r r e f u n d in g p u r ­

p o s e s d u r in g t h i s n in e -m o n th - p e r i o d ex ce ed s th e amount o f su ch
is s u e s d u r in g an y p o s t- w a r y e a r .




R e fu n d in g i s s u e s o f th e fa rm

Reproduced from the Unclassified / Declassified Holdings of the National Archives

D
A

31

E
t S tQo
h

u

C

L

fc i& i f t
r

A

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S

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I E

y

-

loan and Government c re d it agencies tota led $8 6 5 ,O
CX),000, in °f
eluding o ffe rin g s to redeem $400,000,0001Federal land bank bonds
and $325,000,000 o f Home Owners1 Loan Corporation bonds guaranteed
by the United States as to in te r e s t.

Public u t i l i t y companies

were the next most important group p a rtic ip a tin g in refunding op­
erations#

They issued $760,000,000 fo r refunding purposes, in ­

cluding twelve issues varying in amount from $3 0 ,00 0,000 to $7 0 ,000#000 each and aggregating $5 3 0 »0 0 0 ,000.
Corporate issues have become a more important fa c to r in the
c a p ita l market in 1935 than in any year since I 93I .

Total issues

by corporations in the period January 1— September 30 were $ l s600,0 0 0 ,0 0 0 , including $1 , 3 7 0 *0 0 0 ,0 0 0 fo r refunding purposes and $2 3 0 ,000,000 fo r new capital#

In addition to the refunding issues o f­

fered by public u t i l i t y companies, which have already been men­
tioned, $1 2 0 ,0 0 0 ,0 0 0 were o ffe re d fo r this purpose by ra ilro a d s ,
$340,000,000 by various manufacturing companies, and $1 1 0 , 0 0 0,000
by companies producing and r e fin in g o i l .

Corporate issues to ra ise

new c a p ita l averaged $35,000,000 a month during the period A p ril 1 ~
September 3 0 , which is in excess o f average monthly issues fo r such
purposes in any year since 1931*

Stocks, p referred and common,

have been issued to only a small degree*

Nearly three-fourths o f

the issues fo r new ca p ita l have been in the form o f long-term bonds
and notes*




D

Reproduced from the Unclassified I Declassified Holdings of the National Archives

D
A

-

32

u

E

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L

A

S

S

I F

t Q cQ fd&i f t/$££&
h
o
r
y

~

Treasury finance
During the period July 1 to September 50, 1935, Treasury ex­
penditure s 3 excluding debt retirem ent, were $1,700,000,000, re ­
ceip ts tota led $1,000,000,000, and the public debt increased by
§700,000,000.

f

On the basis o f revised budget estim ates, included in a re ­
cent statement by the President, the d e f i c i t (excluding debt re­
tirem ent) fo r the f i s c a l year ending; June 30, 1956, is expected to
be about $2,700,000,000, as compared with a d e f i c i t o f §5,000,000,000 in the f is c a l year 1935.

Vfhereas during the fis c a l year 1935

the Treasury met a la rg e portion o f i t s d e f i c i t by drawing on i t s
previously accumulated general fund balance and the public debt
showed an increase o f only $1,650,000,000, i t is anticipated that
during the current f i s c a l year the d e f i c i t w i l l be met p rin c ip a lly
by borrowing and the public debt w i l l increase by $2,600,000,000.
During the current calendar year the Treasury’ s refunding pro­
gram has included about | 5,700,000,000 o f i t s bonded debt ca lled fo r
>
redemption.

The r e tir e d issues include $1,870,000,000 o f 4th L ib erty

Loan bonds on A p ril 15, the remaining §1,250,000,000 o f 4th L ib erty
bonds on October 15, §1,950,000,000 o f 1st L ib erty bonds on June 15,
$600,000,000 o f Consols on July 1 and $75,000,000 o f Panama Canal
bonds on August 1.

About-$4,(200,000,000 o f th is bonded debt was

r e tir e d by exchange o ffe r in g s ; the new issues included 02,310,000,000 o f 2 7/8 porcent 20-25 year bonds, .$570,000,000 o f 2 3/4 per­
cent 10-12 year bonds, $860,000,000 o f 15/8 percent 5-year Treasury
notes, and $430,000,000 o f 1 1/2 percent 5 1/2 year Treasury notes.




I E

D

Reproduced from tile Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED
Authority S^D fdur IQ
i

■

- 33 -

With the redemption o f the remaining 4th L ib e rtie s on October
15 the Treasury completed the refunding program which was begun in
October 1953 with the f i r s t c a ll o f the 4th L ib e r tie s .

Under th is

program about $8,875,000,000 o f bonds have been re tir e d , including
a l l remaining war bonds and p r a c tic a lly a l l pre-war bonds.

Redemp­

tio n o f about $6,900,000,000 o f these bonds was made through ex­
change o ffe rin g s o f notes and bonds carrying lower in te re s t rates
and with varying periods to maturity and about §1,900,000,000 have
been redeemed in cash or are subject to cash redemption.

The e ffe c t

o f the exchanges was to reduce the in te re s t charges on that part o f
the redeemed debt by about $100,000,000 per annum.




fW

Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED
Authority S lO

fd jir ! ?b5l$
Q

F o r m N o . 131

Office Corresponuen e
Chairman Eccles
Clayton

FEDERAL RESERVE
BOARD

D ate_JL vQber 1 7 1 1955.
Subject:.

X
REC'P IN f i l e s s e c t io n

APR 1 1 1938
Attached hereto is a copy of a letter of October MHsfry written
by Mr. Coolidge and addressed to theljovernor of each of the twelve
Federal Reserve Banks.
In discussing this matter with Mr. Batchelder he pointed out
that heretofore banks were not at liberty to prepay war loan accounts
inasmuch as they agreed in the depositary agreement at the time of the
opening of such war loan account that balances should be drawn down
only upon demand of the Treasury. Exceptions have been granted rather
liberally when a bank made special application for purposes of readjusting
its investment portfolio, but the Treasury always reserved the right to
retain the deposits in the banks so long as it desired. It was felt
that the Banking Act of 1955 fixing the F. D. I. C. assessment and also
requiring reserves to be maintained against Government deposits changed
the situation somewhat, as it placed upon the depositary banks burdens
with reference to these war loan accounts which they had not previously
had.
You will note that Mr. Coolidge1s letter does not instruct or
authorize the Federal Reserve Banks to circularize the member banks in
each district. Yfhen I asked Mr. Batchelder about this point he advised
that Kansas City had circularized its members of its own volition and
that Governor Schaller had phoned Mr. Coolidge with reference to this
matter and was told that this was not necessary.
I
discussed this matter with Mr. Smead and suggested that he prepare
a memorandum on the subject with particular reference to the potential
effect of such prepayment of war loan accounts as being similar to an
open market operation. His memorandum is attached hereto. Mr. Smead
doubted, however, that any considerable portion of the war loan accounts
would be prepaid as a result of Mr. Coolidge1s authorization. The aggre­
gate balance of the Treasury’s war loan accounts as of October 15th was
$761,829,000 in round numbers. Mr. Crowley advised me that the F . D . I. C.
had not been consulted in this matter.




Reproduced from the Unclassified I Declassified Holdings of the National Archives

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i t y

Form N o. 181

Office Correspondence
Tn

Governor Bcclee_____________________

FEDERAL RESERVE
BOARD

Date___ Octolaer .17r .1935

REC’ D IN FILES SECTION

Subject:.

From__Mr»_
1 ^ 1 * .....

As

7011

ifi-s fia
a

know, the press carried an article a few days ago to the

effect that the Treasury had changed its policy with respect to deposits of
funds in designated depositaries so as to permit m ber banks to transfer such
em
deposits to the Federal Reserve hanks whenever they see fit , instead of only on
dates fisted by the Treasury.

/
t
.J L u -./ o -t-z X '

This morning we received a copy of a letterf written ty Mr* Coolidge
to the Federal Reserve banks on this subject, and it appears that the Federal
Reserve WmV« are authorized to permit any depositary hank to transfer Govern­
m
ent funds to the Reserve hank upon request, unless the amount to he transferred
is in excess of $2,000,000, when the Federal

Reserve

hanks were instructed to

require the depositary bank to give notice of not less than six days prior to
prepayment*
While this letter was addressed to the Federal Reserve hanks, it
is prrifiniiiid that most of the depositary banks have read about it in the press*
I f no further action is taken in the matter, however, it is quite possible that
the amounts transferred w ill not be such as to materially interfere with the System* s
©pen market policy.

Should, however, depositary banks transfer any large portion

of the $300,000,000 or $900,000,000 of Government funds now on deposit with them to
the Federal Reserve banks, the System* s open market policy would be materially
affected as the deposit of Government funds with the Federal Reserve banks has the
p M effect upon excess reserves of m ber banks as a sale in corresponding amount
flB n
em
of Government securities by the Federal Reserve banks.

To give m ber banks
em

the right to influence the volume of excess reserves by several hundred million
dollars ty transferring or failin g to transfer funds to the Federal Reserve banks
takes from the System certain powers which it must have i f it is to exercise the



Reproduced from the Unclassified I Declassified Holdings of the National Archives

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y

f

Governor Eccles - #2.
control over monetary and credit matters contemplated I y the Federal Reserve
Act.

While the Treasury can take action at any time to offset any policy which

m be adopted ty the System, it seems to m that we should avoid wherever
ay
e
practicable giving depositary banks the tools with which to negative such
policies as the System m decide upon.
ay

The fact that action taken ty m ber
em

banks might at times be in harmony with the System’s open market policy is no
justification for giving them powers in this respect they do not otherwise possess.
It is suggested, therefore, that i f under the present authorization
m ber banks do deposit any large volume of funds in the Federal Reserve banks the
em
matter be taken up with the Treasury with the object of having the Treasury after
| consultation with the Board, and not the depositary banks, determine the volume
of Government funds kept on deposit with the Federal Reserve banks•
I

understand informally that som of the higher official
e

Treasury are in favor of requiring a ll Government deposits to be kept with the
Reserve banks instead of keeping a ll but a relatively small part thereof with
depositary banks•




Reproduced from the Unclassified I Declassified Holdings of the National Archives

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E

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L

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d jfd ilf /Qu&l#

F o r m N o . 131

Office Correspondent
To

Mr. Goldenweiser

FEDERAL RESERVE
BOARD

Subject: Federal
- Investment Account

From.

Changes in account since la s t Open Market Committee meeting♦
May 24, 1955.
Since the la s t Open Market Committee meeting in May, hold­
ings o f about $29,800,000 o f Treasury b i l l s and $82,700,000 o f
bonds have been replaced tjy Treasury notes, la rg e ly as a re su lt
o f purchases to replaee maturing Treasury b i l l s , Consols and
Panamas, and o f the exchanges fo r the 4th L ib e rtie s redeemable on
October 15.

The m aturities o f the new issues o f Treasury notes

acquired f a l l in March and December 1939 and June 1940.

At the

time o f the May meeting the System’ s holdings o f F ir s t L ib e r tie s ,
redeemable in June, had been exchanged.
Bonds held in the account on May 24 and redeemed during the
period include $40,401,000 o f 4th L ib e r tie s , $24,645,450 o f Consols
and $1,987,960 o f Panamas.

Only $11,750,000 o f the L ib e r tie s were

exchanged fo r the 2 5/4 percent bonds maturing 1945-1947 o ffe re d in
September.

Funds from the redemption o f Consols and Panamas appear

to have been invested la r g e ly in Treasury notes.

Transactions in

other bonds during the period comprised c h ie fly o f a decrease o f
about $22,000,000 in the holdings o f 2 7/8 percent bonds o f 19551960.
New issues o f Treasury notes acquired during th is period
include $82,651,000 o f 1 1/2 percent Treasury notes maturing March
15, 1959 acquired in part in exchange fo r the 4th L ib e r tie s ;




S

S

I F

I

Reproduced from the Unclassified I Declassified Holdings of the National Archives

D
A

2

u

E
t Q
h

C

L

A

S

S

I F

c oD fd llf t/&QS&
r i
y

-

$77,075,900 o f 1 5/8 percent Treasury notes maturing December
^«rv
15, 1959 issued by the Government in July and purchased 2&G&
System account from funds from the redemption o f Consols; and

|121,885,200 o f 1 1/2 percent Treasury notes maturing June 15,
1940 acquired la r g e ly in exchange fo r holdings o f Treasury notes
maturing on June 15 and October 1.

Other transactions in outstand­

ing issues o f Treasury notes resu lted in a small decrease in the
holdings o f Treasury notes maturing during 19'56.
M aturities o f s e c u ritie s in the System account
Government issues in the Systemf s account which mature before
June 50, 1956 t o t a l §716,000,000, about 50 percent o f the t o t a l
account.

They include the fo llow in g issues:
Holdings in account
(in m illion s o f
d o lla rs )

Treasury b i l l s
Weekly m aturities Oct,
25-Dec. 51
Weekly m aturities Jan.
1-March 51, 1956
March 16
Weekly m aturities Apr.
1-June 50, 1956
Treasury notes, maturing—
December 15, 1955
A p r il 15, 1956
June 15, 1956

gercen£ o f t o t a l
outstanding
issues

166

50

158
51

26
15

115

14

65
134
49

15
24
7

The March 16 maturity o f Treasury b i l l s is in addition to the
regu lar weekly m aturities which f a l l on March 11 and March 18 and




I E

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Reproduced from the Unclassified I Declassified Holdings of the National Archives

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C

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A

Q o fid i t/ B
tV r ilf y

t h

S j

S

I F

I E

j

- 5 _

th is special maturity takes the place o f other m aturities on
that date.

When the la te s t se rie s o ffered has been issued, the

b i l l s outstanding which mature on March 16 w i l l t o t a l $201,000,000.
The System’ s holdings o f Treasury notes maturing on A p ril 15
comprise nearly one-fourth o f the t o t a l outstanding, while- fo r the
other note m aturities during the fis c a l year the proportion o f
the t o t a l issue held in the account is sm aller.
Outlook fo r financing requirements, fis c a l year 1956.
The amount o f new funds which w i l l be required fo r budget
purposes fo r the balance o f the f i s c a l year is subject to consider­
able va ria tio n .

Budget prospects as indicated by revised estim ates

in a recent statement by the President are that the d e f ic it during
the current quarter w i l l be about $600,000,000 during the current
quarter and during each o f the remaining quarters o f the year.

The

two most important uncertainties are (1) receip ts from processing
taxes which at t h e ir present ra te may f a l l short o f the estimates
SU>
by as much as $3007000,000 fo r the year, and (2 ) the work r e l i e f
.

program which may be so slow in gettin g under way that t o t a l expendi­
tures fo r the year w i l l not reach the estim ates.
In view o f the fa c t that the Treasury, in addition to i t s
regular turnover o f Treasury b i l l s , has only the December maturity
o f |418,000,000 o f Treasury notes to meet between now and A p ril 15,
and that i t s m aturities o f notes from A p ril 1 to June 30 t o t a l
$1,245,000,000, i t would seem l i k e ly that a substantial part o f the




D

!

Reproduced from the Unclassified / Declassified Holdings of the National Archives

DECLASSIFIED
Authority EjdJfdjLf /Q

- 4 -

new funds needed fo r the balance o f th is f i s c a l year would be
acquired by A p ril 1.
There are two charts attached showing the d istrib u tio n o f
the present debt by m atu rities:
(1) D istribu tion o f the in terest-b earin g debt by m aturities
each year beginning 1956.
(2) D istribu tion o f the m aturities o f the Treasury notes by
quarters Jt* I 4 ^ 0 .
These charts indicate the ava ila b le dates from which m aturities
o f new issues might be selected .
Government secu rity prices
Conditions in the Government security market have imppovgd
somewhat in the past week a ft e r a period o f declin in g prices in
September.

Chart _______ shows monthly averages fo r the period

beginning January 1952^weekly averages from July to date o f the
y ie ld s on long-term Government bonds, that i s , bonds ca lla b le or
maturing a fte r eigh t years^ and o f Treasury notes with a period to
maturity o f three to f i v e years, and the average discount rates on
o ffe r in g s o f Treasury b i l l s .
Y ie ld s on the three classes o f Government sec u ritie s declined
slow ly during the f i r s t h a lf o f the year and were at the lowest o f
VX S
Yi^ iwwmmV
the year in ft ijr . The average y ie ld on long-term Government bonds
.

decreased from 2.97 percent fo r December 1954 to 2.59 percent fo r
July 1955.




Treasury notes declined from 1.78 fo r December 1954 to

Reproduced from the Unclassified / Declassified Holdings of the National Archives

j

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A

u

t Q
h

tiJ fd rjLi f t/B
o
y

E

j

C

L

A

S

S

'
[

- 5 -

1.12 in May, 19S5 while the average discount ra te on 166-day
Treasury b i l l s declined from .17 o f a percent in February t o . 07
o f a percent in July.

P rices fo r bonds and notes declined in

August and September and the y ie ld s on the long-term bonds were
carried up to -&x-6ir percent on September -167 and on Treasury notes
to

f-57 T ^ cgx^/ n
Q

/% while the discount rate on o ffe rin g s
,

o f Treasury b i l l s increased to .25 o f a percent fo r the week ending
September 28.

The market has steadied somewhat during the oast two

weeks and y ie ld s have improved s lig h t ly but they are s t i l l su bstan tially
above the lows o f the year.

The average y ie ld on long-term Treasury

bonds on October 16 was 2.75 percent, and on Treasury notes 1.29
H
percent. The discount ra te on the b i l l s o ffe re d on O ctob er-18-was
^

—

percent.

This is the second year in which there has been a marked decline
in Government security prices in the la te summer when the Treasury
had before i t the refunding o f a substantial amount o f L ib erty bonds
ca lled fo r redemption on October 15.

The decline which took place

in August o f th is year was le s s severe than that during the summer
o f 1954.




I F

I

FUTURE REDUCTION IN SYSTEMS INVESTMENT ACCOUNT
( ON BASIS OF NO REPLACEMENTS OF MATURING OBLIGATIONS >
OCTOBER 1 6 ,1 9 3 5

M ILLIO N S OF DOLLARS

2500

2000
>
c
&
o

1 5 0 0

©
ft
t>
0
5
a3
5

1000

1000

500

0
OCT. 16

1935




1936

1937

1938

1939

1940

Reproduced from the Unclassified I Declassified Holdings of the National Archives

DECLASSIFIED
Authority

Q fC ilf/& 3
tV A Q #

F o r m N o . 131

Office Corresponuei.je

[)ate

Q t* w j b c r

iJ e d

1
r*

12

1

® m

M or r i l l

Th e re
in

re g a rd

o f

th e

to

by

upon

Open M a rke t
n a tte r

CM- h i b




A tta c h e d

th e

th e

is

o f

A c t

o f

In
o f

C o a m ltte e .
a t

a

fo r

o f

a y

re s p e c t

k e e p ix g

th e

p o lic y

b y th e

I

asked

have

a e e tix s

o f

M a rke t

O c to b e r

££•

th e

to

a e n o ra

c a rr y in g

w ith

Fe d e ra l Open

s c h e d u le d

co p y
fo r

10 5 5

B o a rd

q u e s tio n s

th e

a

p ro c e d u re

c o n s id e r e d

M e e tin g
know ,

la

B a n k in g

fo llo w e d
ta k e n

19 5 5

Subject:

T o__________ P r « Mil l e r
From ________ M

FF^ 'F> ___ ...
FFn'??;._____ ...
? ._

FEDERAL RESERVE
BOARD

o ut
to

th e
th e

o ffic ia l
B o a rd
M r.

th e

re q u ire m e n t*
p ro c e d u re

re c o rd *

o f

and

by

th e

E c c le s

to

have

B o a rd

p r io r

C o s a d tte e ,

B o a rd

to

be

a c tio n #

Fe d e ra l

th e

w h ic h , a s

to

th is
n e xt
you

IF

Reproduced from the Unclassified I Declassified Holdings of the National Archives

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t E fcV f(M i f t y
h
o
r

F o r m N o . 131

Office Corresponuei*je

FEDERAL RESERVE
BOARD

Date October 10, 1085
Subject:

To

M r.

E c c le s

From

B r Morrill
i.
16— 852

There is attached a memoran

copy of which has

been furnished to each member of the Board, outlining the
requirements of the Banking Act of 1935 and the procedure
proposed thereunder with respect to the records which are to
be kept ty the Board of Governors o f the Federal Reserve
System on questions of policy.
X suggest that you read this memorandum carefully
and that it be brought up for discussion at the next neeting
of the Board prior to the meeting of the Opah Market Committee
so that the procedure to be followed nay be definitely ap­
proved or determined by the Board.

It is particularly im­

portant that the Board pass upon this natter prior to the
meeting of the Open Market Committee because it will be
necessary to initiate a new procedure in connection with
that meeting.

CM-eb




Reproduced from the Unclassified I Declassified Holdings of the National Archives




D

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t Q c V fid jlf t!Qy
h
o
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2)SLq

/

OCT 1 0 1935
r 5/

Mr. Carpenter:
A copy of the
is being submitted to
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COPT
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1935

J r deer Governors
$
On August 5, 1924, Under Secretary Winston referred to your
bank a copy of & letter addressed to the Federal Reserve Bank of
Boston outlining the position of the Treasury with respect to the
prepayment of War Loan deposit accounts* This rule has been fol­
lowed rather closely since that date*
However, Title I of the Banking Act of 1955, subsection (h) (1),
amending section 12B of the Federal Reserve Act, as amended, re­
quires insured banks to pay an assessment of one-twelfth of 1$ per
annum on average deposits, and Title III of the same act, section
524 (d), aaending section 19 of the Federal Reserve Act, as amended,
requires member banks to keep the same reserves against deposits of
the United States as against other deposits* In view of these con­
ditions, it appears desirable to modify this rule*
Accordingly, you are hereby authorized, upon request from any
depositary bank, to accept prepayment in full of War Loan deposit
accounts «r**ted under the terms of Treasury Circular No* 92* In
all cases where the amount to be prepaid is more than two million
dollars, you should require the depositary bank to give notice of
not less than six days prior to the date of prepayment* However,
this is not to be an inflexible rule, and in any case where your
bank so recommends the Treasury will be glad to give consideration
to permitting immediate prepayment* Also, when the contemplated
prepayment of any one War Loan account, or several War Loan accounts
in the aggregate, amounts to one million dollars or over, you should
notify the Commissioner of Accounts and Deposits by wire immediately
upon receipt of advice of intent to prepay.
Very truly yours,
(Signed)

T* J* Coolidge

T* J* Coolidge,
Under Secretary of the Treasury*
M* J. Fleming, Esquire,
Governor, Federal Reserve Bank,
Cleveland, Ohio*
®DB:PC
9/27/35




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