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Reproduced from the Unclassified I Declassified Holdings of the National Archives ! 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 Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED 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 Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED Authority 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) G# 1, R ep rod uced from the U ncla ssified / D eclassified H oldings of the N ational A rch ive s DECLASSIFIED J Authority m n 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 to. 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 am- writing you with 'the hope that you may appreciate 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* Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED Authority * * 16, 1956, Whether ambers ifcr* fVymtt, t e l l Counsel as* FU trtl of O p m Ifcrloet CcwlttM wil 1 be require 1 Haekley, Lae* ’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 tlie > deral 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 \se bou'd W flaW or Affirmation, to support 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 lay any person elected or appointed to any office of honor or profit . either in the civil, militar, # or nr.vet1 servioe, 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 ti e sajroj t•at I take this obli 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 iienks of Richmond, Atlanta, 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 >er. 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 Reproduced from the Unclassified I Declassified Holdings of the National Archives j DECLASSIFIED i Authority fWlChll' i& %Jj> 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 fliyirr— 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, SOS (1878)| 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 xteanbera of the new Federal 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 bto regarded as suoh offloors* (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). tie has also rulec, 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* iiia opinion waa baaed 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 * Reproduced from the Unclassified / Declassified Holdings of the National Archives DECLASSIFIED Authority - ' ,v — [ ■ 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 Issr sr he*i of a department* lilted States 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 • • • - • 8 - (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 Corasdtt©#. In so far as they will be members of the Committee, the;, will hold their positions 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 * R ep rod uced from the U ncla ssifie d / D ecla ssified H oldings of the N ational A rchives !. DECLASSIFIED Authority 'v • 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- R ep rod uced from the U n cla ssified DECLASSIFIED' I D ecla ssified H oldings of the N ational A rchives Authority j___ > text haul soswtlaes g i m it an enlarge* th— wing *»d hm» found it to include others then those appointed bgr the President, hseds of the depertasrts, and cohorts"* (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 ;.'ourt 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 DECLASSIFIED Authority *, > I D eclassified H oldings of the N ational A rchives R ep rod uced from the U ncla ssifie d 0 0 • i. who are "officers* in t'no usual sense of the 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 Ccesftitt.ee are required to prescribe regulation* governing the open narfeet transaotio&s of Fe<*ar«il Keserre banks end they will therefore perform duties olearly presoribed by lew* la *&>lted States mrtwell, 75 ;'»S* 365 (1867) the Supreme 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 fcy the OomRiiesloner of Pensions was not an offieer within the constitutional definition of the term, the Supreme Court considered the nature of the surgeon’e employment end found that hie duties were 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 tfcsrtu eewsft ws® tes^ersflry ssily% D— Hbln»» W>tw wot FM. 667 (c.co* S t f c .1913). Si*iUrly, la Co. t» City of D— »ln— , « ■ ,Bnwri. U FMU (£4) *789 (£«&• I*T* 1926), a reeeiwsr appointed by a Federal oourt te M bs ever the assets ef a eerporatlen was held net te be an offieer of the DECLASSIFIED Reproduced from the Unclassified / Declassified Holdings of the National Archives * Authority •' v ' --- • • • Otaited State* m the ground* mmwig othere, that the parted during whieh toe was te act m e not definitely fixed• The duti*s of tim — atiere of the Federal <^pen Ifcrtoet C— ultts* would appear te be af ft ecBtlaulnc a»d peraanent native ilaee they ere 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* Tfee fteei that they *r# required te ■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 1aw, 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* i’ow 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 DECLASSIFIED Reproduced from the Unclassified I Declassified Holdings of the National Archives Authority • ■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 "officers11 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 Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED Authority • •* * • - u . 1, ’ ''» • • 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 Ofcan Market Coanittae will be "publie offiaera* within the uoual, aa dletinguiehed from tise oonatltutlonal, 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»a follavlag laagoagat #* * • And that I will wall and ffcitkfal^f diaoharge tka dwtlee of tha offloe m attlah I aa about to enter** * • R ep rod uced from the U ncla ssifie d I D ecla ssified H oldings o f the N ational A rchives i DECLASSIFIED Authority • # ” 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 lid* 445, 22 Atl* 8 (1891)i Poore v» United States, 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 * DECLASSIFIED Reproduced from the Unclassified I Declassified Holdings of the National Archives Authority f* sad toniltalofii (1) M r Motion 16 of title S of tho United States Code, t w tj "offieer of tho T Jnlted States” except tho President, elected 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 tfce tors as wall as within its constitutional 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# Reproduced from the Unclassified / Declassified Holdings of the National Archives DECLASSIFIED 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 of, directors of this bank has devoted the 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. DECLASSIFIED Reproduced from the Unclassified I Declassified Holdings of the National Archives Authority QHj'fdjLfiQUj&lj? / 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 If DECLASSIFIED Reproduced from the Unclassified / Declassified Holdings of the National Archives Authority tQQSlj? 2 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* Reproduced from the Unclassified / Declassified Holdings of the National Archives j DECLASSIFIED |Authority j !& 2 ) S £ | 3 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 Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED j |Authority QcQfdjlf !& 4 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 sfcune period the reserves of the member 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, Reproduced from the Unclassified / Declassified Holdings of the National Archives | DECLASSIFIED ; 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. Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED j |AuthorityS/i)TCM(~i&'bSl# 6 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 Reproduced from the Unclassified / Declassified Holdings of the National Archives j DECLASSIFIED Authority S^Ofciiir 7 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 Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED j I A u t h o r i t y QcVrckriQ 8 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. Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED Authority QtiJrdSLC/ £ I 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 ffclever manipulation”. In general, It 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 "passive11 policy to an active policy of restraint. In other words, 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, fcy the Federal Advisory Council on open aarket 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 H W 1* # 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(jP 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. 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 Treasury trans actions 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 1935 DEC 7 AM j | December 6, 1935. Sirs: \ I have for acknowledgment your ^Letter..of 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* j h i tv 44 Reproduced from the Unclassified / Declassified Holdings of the National Archives DECLASSIFIED iQy'd&lj? Authority FEDERAL RESERVE b o a r d W ashington ^ «? f\ i\ 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 .....^.tks . / I. '. I acknowledge the receipt of Mr. Morrill*s I r.y.TJDS ./ . •** Board1s letter of November 25 Irelatine to the resolu- ji,. . . . . . . .y •Mr. r.zynw-Jk . • . C M o i U - w ^ . r,..( ................... : L i t , r^M,a!at^ aa&l,ll>lWW*n^^*wl,*|^M ,^ ^ --------rminifnnMM.tiOTiwiirniiiitmimi^. ' tion adopted by the Federal Open Market Committee at s meeting on October 22-24 concerning shifts in i.lr. Ls: m .. u*y.‘s ,\y/^/..... .maturities in the System account. It is noted that ........-the Board now approves the authority given to the Mr. ' .......................... *••• jVw, .... 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, :e L. Harrison, 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, \ ............. rtnwwurm 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 ?$£ F o r m N o . 13 1 f EDEf Office Correspondence FEDERAL RESERVE BOARD BO L R ESER VE B O ARD A rfU FMILl E p J te November 5 0 , 1955♦ Subject:. To.______ G e n e ra l C o u n sel____ From____M r. Carp e n t e r ______ C O P Y The B oard h a s a p r o v e d th e d r a f t o f l e t t e r to D eputy G overnor W o rth in g to n o f t h e F e d e r a l R e se rv e Bank o f K ansas C i t y , r e f e r r e d to i n Mr, B e n e d ic t* s Memorandum o f November 2 0 , 1 9 35, w ith r e g a r d to th e g r a n t i n g o f a u t h o r i t y to th e F e d e r a l R eserv e Bank o f K ansas C it y t o a c q u ir e Governm ent bonds fro m th e F e d e r a l Land Bank o f Omaha upon r e p u rc h a s e a g re e m e n t, and h a s a l s o ap p ro v ed th e recom m endation c o n ta in e d i n Mr. B e n e d ic t’ s memorandum t h a t a s tu d y o f th e s u b j e c t r e f e r r e d to i n th e l e t t e r be made w ith t h e v ie w o f m aking a p p r o p r i a t e reco m m en d atio n s to th e F e d e r a l Open M ark et C o ran ittee a s r e o r g a n iz e d on March 1 , 1936, a s to i t s r e g u l a t i o n s o r d i r e c t i o n s r e g a r d in g such ag ree n B n ts* * c c : Mr. Smead SRC:mgh ( F i l e copy f i l e d 3 3 2 .3 -6 ) DECLASSIFIED Reproduced from the Unclassified I Declassified Holdings of the National Archives A u th o r ity . NCV 23 Confidential 1r* Ft S* Cttriliif Chairman, »epoerBJL mmwwFVW Wmwm OX »O0vwl| B o i t f f i km *m* * > « < • m Iter Mr* CurtiMi Thoro is iaeloeod, for tho information X a . //- Z ‘/ ~ >s of yowr b«ak, « w a r jrf a U i t w W l i w addMMad today to the Chairman of Hie Fodeml Open Sarfcot Ooaaitteo adrisinir of further action bjr tho Board ia eosnootlott with <me of tho notion* adopted tgr tha Fadorml Open Market Condttoe et it# Mooting in Waehington on October 22-14, 101$# 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 IKrnmwm Beni; of leu Tork, Hew foi% 9 »ew to*It* Dear Hr* Canei There ie lacloaed, for the lafor*etioa i *7 v" <h? i 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* ft* 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 ft letter foelag addressed 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*5r toiler yw & & 9 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 /QQSjP 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 ITifr 'M fc'tHKM^ '■ m "Im rn& m g Twi^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 iifftlfM1 1 !# adopted fey 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 SSarfcat 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 ppp— ^ ■■■■ ■*— j Reproduced from the Unclassified I Declassified Holdings of the National Archives / X £ £ for £Ut/» Digitized FRASER * V * . . . . . . . f ■ - .J f — P— — — 1— — DECLASSIFIED | A u t h o r i t y Q d J fc iiir J ^ o v 29 1935' Hr* I# V* $tevons» Chair*®* fsder&X S s i o m Smak of Chisago# Chicago, tllittois*. Dear Is** Stevoasf 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 .In fftshingtoa on Ootdbsr 22-24, liSS# 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 | ttr* f* S. food# Ch*ir*an, 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 Morrill 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 $o*tltieis advising «f further bf ill* in foaneifttoii with one of the motions adopted tjy the Federal 0pan Market Co*alttee at it* seatin* in iMbiAtftOA 0«ti&*r ??-84, 1996* Very truly yours, (Signed) Chrrrcr ftforrilt Chester lofflUi Secretary. Incloirttra Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED Authority QtQ'fciiif /Q&5{jp Mr, % s.* fai«t% F#iai*i3» liWfff Bant of;"£aBA«» Dear ir* Then* 1« for the Information ^ 3 r" of you# bank, * copy of » l*tt#lf W l a f addressed 2 today i# the Chairman of th# Federal Open Marlwt Oo*»lt%»# adrlaing of further action by the lo&r*! In oonisettififi with one of tha notion* adopted by the Federal Open Market Cowiittoe at its amtlnf in faahiuftoa on Ooiofeei?' XSfi* Vary truly yowfif* Cheater Morrill# 8*iwst«y* Incloaure If Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED Authority Qlfjfcijir/&£$# 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 ltt connectioa *lth one of the notions adopted hr 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 BET* U«OT{t J*» H*rF<WaBll§ 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* —...... . .iiiurri mrt::;^^^ ta you witb ragard to tiia raaolution and Motions adoptad by tbo Fad*ral Opan Narkat Cowrtttao at it* *ootiac la faahingtoo on Qetobar Si«§if 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 asi aggrogato amount 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 ffM fUf « ■T f/ f .iA '’ ' hLvtl'i cr.nc!'/v.'s •c ED ERA!. R K E n v ',: / " Fe d e r a l R e s e r v e B a n k of 5 ' 1935 NOV 30 Ne w 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 SOUTH l_A SALLE ^ 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: HU Board of Governors of the Federal Reserve System Washington, D. C. i R c/ M n E 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 . InrMini* run .^Jimn-nrv -■** 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 iv, AYr.V*-•"*£: P m p 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 !t a c c o rd a n c e w ith O c to b e r 21^ 1 9 5 5 ^ and ly g iv e n you, of 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 . -i, o 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 of* Governors 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* S9« Stevens, Chairman, 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 fcy every member of your board with one exception, and 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 fey ft proper statement of its objective* would be favorably interpreted by the financial and business interests rather than otherwise. •We recognise thftt in addition to the measure referred to, that of ftn increase in required reserves, consideration 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 Ifew York, 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 ttai 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*r) being addreaaed 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. If. Austin, Chairaan, 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 i. Reproduced from the Unclassified I Declassified Holdings of the National Archives — 1 ^ WWW 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 ..195|k m the Board i III-....... .....4,— 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 11 - X S-3-f 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* II. Peyton, Chairman, 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* It 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 ai&de to the resolution adopted by the Federal 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 <2Ui*» *V V A * J H T “M i F I n the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED Authority QcjJrckri&2 6 (p -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 Reproduced from the Unclassified I Declassified Holdings of the National Archives J DECLASSIFIED j Authority Qdjfdil CIB ! 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 'bo bald ooMotiae before 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 cM 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* Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED Authority 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 , v J L - '/>//& 1 Reproduced from the Unclassified / Declassified Holdings of the National Archives j DECLASSIFIED 'Authority l&'Z&P j j -2- 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 Reproduced from the Unclassified I Declassified Holdings of the National Archives [ DECLASSIFIED f /$ 'Authority -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 iis strongly of the opinion that, in order to 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 Reproduced from the Unclassified / Declassified Holdings of the National Archives DECLASSIFIED Authority iQt&ij) -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 tie too severe, it is possible to suspend or even temporarily 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. Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED Authority QcQfckf l&'bSb / 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 "but also in the turnover* 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 to: rost temporarily in large 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. Reproduced from the Unclassified / Declassified Holdings of the National Archives j DECLASSIFIED jAuthority QiX)id&C - 2 - Procedure !The original suggestion was to obtain information on identical 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? rr~—-— __ __________ „__ DECLASSIFIED Reproduced from the Unclassified I Declassified Holdings of the National Archives Authority QcQfdiLf iQu&ljp - 3 - 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-. Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED j jAuthority QtQfciiLf IQQ&Lq <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 ksgr your board of directors of a statement regard 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 Reproduced from the Unclassified I Declassified Holdings of the National Archives | DECLASSIFIED ! Authority Q^DfdsiC lQ2)5(jp I ' — 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 Igfe&tr taJ&?*rnor^ / that it would ba willing to accept a record prepared and su&altted by tha co**ittae. (Sifned) Chester Man# Secretary* CM yd c d rlM 1 & ) Reproduced from the Unclassified / Declassified Holdings of the National Archives j DECLASSIFIED i A u t h o r i t y Q o U r d & r IB Q3j) RECORD Of ACTIOH U Z M BJt THJS FEMRAL 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 nn<Hr m B r M ) milfXkaflwrrttto U L m a S mID 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 V 1 'UJ "" Jl' l 1" - ----------------------------- ^ . 1 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 QCi)fdiLCiQ2i5u) | 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 ssay be possible 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* R ep rod uced from the U n cla ssified I D ecla ssified H oldings o f the N ational A rch ive s ! DECLASSIFIED Authority C^V'iChli' f9 «»5"» 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 I D ecla ssified H oldings o f the N ational A rch ive s R ep rod uced from the U ncla ssifie d j DECLASSIFIED Authority t^OtCki f i9> nwdbmr 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 Reproduced from the Unclassified / Declassified Holdings of the National Archives | DECLASSIFIED j A u t h o r i t y j 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 i Reproduced from the Unclassified / Declassified Holdings of the National Archives DECLASSIFIED ! Authority QdJfdjLf iB&Hj? - 2 - 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 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 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 jP - 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 fcy the Federal Reserve banks, either by 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. ”¥e 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. / TSWe, therefore, as a Board, desire to respectfully suggest 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. !lY;;e recognize .that in addition to the measure referred to, that 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 Mr. Carpenter i FEDERAL RESERVE BOARD Date November 9, 1955 Subject:. 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 u t h o r i t y QcQrdar / £ I 1 I 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 steady1and .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^-O'lCksJj'i9> - 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 *AuthorityQcj)rckf/£2n5b 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. Rfrayfl #f Ck*r»raor* FEDERAL RESERVE BOARD Subject From. epo 16—862 Oft October 30 excess reserves of neaber banks amounted to approximately $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« $1*177*000,000 246,000,000 Minneapolis Kansas City Swerve el* hmka $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 35,000,000 41,000,000 32,000,000 50,000,000 20,000,000 San Francisco Total Country banka __ J£*SQQ*QQSL. $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 1935. ' Y ? < ~ http://fraser.stlouisfed.org/ 7 Federal Reserve Bank of St. Louis Reproduced from the Unclassified I Declassified Holdings of the National Archives j DECLASSIFIED I A u t h o r i t y Q c ijfc iilf j ’““ 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 Umber with deficient reserves 6 ~ilQ 38 129 *7 768 1,M4 1,529 1,278 1,562 8 f 7 4 3 18 Re serve city hunk® Countiy banks 329 6*024 12 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 j j A u t h o r i t y C^Xj'iCk^L f 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 test J® country beaks 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 per- cent of requirements, all but W 7 country banks, I reserve citgr beaks and 14 central reserve city banks had balances with correspondents sufficient to neet the increase* The extent to Which Iw ik balances would be witf for the purpose of nesting an increase in reserve requirements and the eacfcent to which such m Increase would be net lagr borrowing or by selling securities Is inposslble 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 lagr Sew fork Citgr banks in the aggregate* there are attached, hereto two tables* one of which shows the 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 SAfldbAX* IjMyslCSft 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 Itar >WHi ___ 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 Siai Franeiiee 41*071 16*7 •Ml '<***** 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 15*260 1*226 13f220 1*140 11*125 9, 6*1 10*171 7*246 422 205 371 m % m 5*227 5*190 12*469 J£ 6 12 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 / mmm mmm mmmns wmtxm mwrnmnm mmm mmmumn to mast ah mm 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 M tM fekefcdfetie • 50£ laereaaeii* required reeerwee plyfi htwif kil«n(>fg QuSDtr x'l""".r galMftCoa.... insufficient to &mt of baaka IhiHdbiy Portent Jwalionil of eaCfa of of a 50$ increase in reaerwee due fro* required reserves . . . resort* . ol&or.bsaka ■*' 1' ■ .. . (IhouMad. of 4oll*r») " All «Ma>W Hartlrm TOTIfc '..6»4lfl 2,041 Central Roeerwe otlgr baa cat TOTAL 56 L ..m ... lew fork €1% n 24 5 is law rw citr twtoi TOTtt 329 Dtetrlcte Bsitaft Hew lark Philadelphia Clerelaad 31.1 3 2 J .8 2 0 1.103.666 53L8 1S.7S8 63.2 27.8 150*024 1,734 4§«0 129*859 ... 65.692 ...........16... 16 58,844 6,848 ....767.095' ........ . ...... 1 .. . 12 12 34 34 5 8 17 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 Hitiswattdi Atlaat* Chleago St. Lmila 30 If m u 11 13 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 51 33 33 2 22 13 23 22.2 43.1 39U 69.7 671 io ,m 3*464 39,217 5,405 129,294 58,155 153,572 il&p8.... 46.203 350.877 7,284 13,830 5,600 4#0Q1 41,226 61,114 43,189 34,247 12 32 27 7 Cmmtrrb»ak#t TOTAL j& itricf Boston New lot* i 6.031 .... MW — — « *w ... .... . M L Clevolaad 353 74 a 630 590 159 256 302 IT S 45*0 34*5 47.9 29.8 SlebaORd Atla&ta Chicago St. Louie 371 309 628 366 119 100 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 I 01% 500 134 111 176 131 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 521 33* — 13 1 - Reproduced from Hie Unclassified I Declassified Holdings of the National Archives J DECLASSIFIED j AuthorityQtQfdjir/BQ5(jP \ 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 be- *ado when advantage 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£L q F o r m N o . 131 ( T \C C * I y Urrice Correspondence To_____ tfr._S2^zak___ _____________ B 0A R D FEDERAL RESERVE Datpn^eaber e, ms. 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. B 0A R D 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 hfc® bM B m U M far Friday aoming, BowAwr 8, 1985f *t Hi 00 &• a*f for jwrpoM of furth»r consideration af th* aattnr which wn« liacueaed at tfen mmting today* 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, UK. Randolph Burgess 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 u t h o r i t y E jC -O fciil/' l - o r m m . 131 ^ FEDERAL FEDERAL RESERVE RESERVE BOARD Office Corresponuen^e Tn Messrs. Eccles, Thomas, FTamlinj Mi-11p-r, James, Szymczak, 01Connor and Clayton From_______ «r» Cxnm afaM t___________ _ B 0A R D 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 tlft» Boated thi* aostklisgt 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 Tfcit* ?ta*% 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 l!Reasons 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 h o r i t y Q c D fd ilf \ ■ ~ : m m m m Toi GbMirwm Batai tivrmtomr 1* 101$ Front Hr* S»oa4 Subjnttt Exooea r*amnm* of nMbtr banks* On Qetobor SO ixqici nMwrvaa of iaa«b«r banks uwimttd to $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 tfa* •oath of' Septoabor, whoa 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 jAAjttjHi Haw York Philadelphia Clovaland ms*ooo*ooo 11,177,000,000 Richmond Atlanta. Chicago it* l«ouia £46*000,000 Mlaitospoll* Kenans City SnllftS Ban Fr%ooiaoo 11*423*000,000 total Exeosa StaMTf* Oity r*m rm B $*000*000 71,000,000 US,000,000 £6*000*000 21*000,000 74*000*000 54*CX)0,OQO |Country bank* 145*000,000 81*000,000 U *000,000 45*000,000 1 1 *000,000 25*000,000 •$*000,000 28,000,000 11*000,000 60*000,000 20*000,000 102*000,000 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* 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 tfeo fortsula usod fiTNS# 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 J__________________________ » b&nkn 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 ibanicB i_____ ‘lorlc : cago 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! 88 22 74 25 per cent or less 788 74 684 684 768 55 1,144 99 26-50 per cent 1,144 72 72 1#060 1#060 1,448 51-100 per cent lf529 69 1#448 1#S29 55 69 77 101-200 per cent 4 6 50 1,278 1,218 2 I Over 200 per1#S62 cent 5 1,562 52 15 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 smt&adi of p m m n t Him m wmM. Imi « eortftift wmbrn?' &f 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 toeuafe«* th* mmkm «f tatai th&t wauM b* In tfeni 4ik£ th« amount of MSMitlott*.* mmrmu th*t ttMgr *at&<l femi to iN m 1# 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 iiiwiVM mii Piiaiiiiii #ffm III WWW !£#* ?ark City towiw? Imk* Total f*r M il district* Boston $•* T**% m ia m j m * €lrr*l©»d Rlofomo&d n « 7M m im w 19mw m m9m 9om $9i04,0®0 Uttt^OOO 14 ^^HfOOO %EI9§000 4i ft# Uml» 4^ Tiff ii SflUft S^h*8Si.SWI m9mi9m m 9tm m9m $m U94M9tm 64 Atlft&tS If CitjT m m rv m *a*m lamrMufd 308 I M w r Of , ^MUSiilUf * 8£L t lltiiW* s itr banks M yaij^^wiPiyg&iis. WIMpr 1,^ 1 Cmntral r*«8#rwi eitjr Itomktt £®ttm$MM m n m &9m?9<w i9m 9m® m 9ooo Sf2S4#000 fiwS5j|OOCI i 4^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 XSQ m ii? 10^ $$m i 9® m $9t m 9t m at lift &s§ lii 154 i%9m$m 49m $m tpi4n9® m * 9* m 9( m 41,10^,000 t* r t immmmd !'*$$# §®f hsmkm wm k d h*v* t© pswlits f#0*000*000 ©tf ftdditloaftl r#a«rr#»| *m& if »f?#* R e p rod uced from th e U n cla ssified j I D ecla ssified H oldings o f the N ational A rch ive s DECLASSIFIED Authority QcV'fciilf m 4 *» m m%» m r m t m r m m 4 ffl$B % 0 4 1 U m * w m 14 % m m to | W » 0CM}f0Qa #f fttidlttcm*! xwfrnwtf* &JT t&M 49f thera ^ d i m w m M m i m t m m tkmir m m m m III p f M i of iiwrtnNttfiU, *11 M fcnufcs to M U t f 4t M ' t e X m M W witH <30rr»n- t# jwm&to tt* «M&3iU«aftX Uk®wim9 #f ilk# t#Oil r tojc« ttot «c»»34 it** to iaef**** tteiar ro»#jr*Mi *» M * i to iNimMMit of 4ttffl*4«ftt W * & t**t XfS 1*3 ImiXmunw *ltJ* «omgp«a6f*t» .«M»t t&*S $&« «K't«ftt to «M*I* ««tf& fe&iftlttOfc W i m M 1* for tfeo pftYgMM* of oe«ti*£ «» i u i w # # in n w orto oxtfftt «s£ tlMi fei»«li «b £o«ro*«e «n9aU4 Ini ant It? tewwota# or ty iriUUat eoimriiio# iit iaposttl&o to tuli ftnw i».fo»mtis»* X» t&m mvmt of #*« Ijsorosao l«. 3ri#or** iwi-ak* in io* w «1* * MMtar of s*ii*fc*>r € 1 % nwdut prn»aw»li^ taws* to ^iU^r * o U «o«isriUo* or tot* to ooot th# $ r m % m r jmft of ill# «44itUNMUL r m m i m m t m of If roq^iNMNftta i®a*r# la«r«feiMi ii pMNkmfy or IIIOfOOO^OdQi If «^ulY, «MKtit ##ro in#i^i»«4 $0 j**r*oot# In th* f JjmiI Mmlyti® It 1# to ton wt®m%$4 tfefct %Jmi tonk* W M &4 Ilfaiil®'!®' eon* of tlk»&r m m m l % $ m m t i m r liwm I i m t o i b r Malyi la M M t * * ottt** #:$$ country fetttki p oil tfe#ir citgr M m a M 4r$* fart* » ifcrpi p*9 t of ill# *44it&cwft& :r#n#rf»g ti**t %h*? wmi14 Ini .roqijiro* to 4of*o#it tl%)i 9M m p »1 i « i « m tafitfr* 4i m « «0#t ®f tli# '«tlMrttw3# flmmiel % I* «Mi» O m Istalt in tlm lArjpt pkti&tox%6*Xy M m Ior&* witMrfcm t t m Wmw Tt$wfc§ M m m w * m m if w w w r m m tt isM# w#wi vribMtfat n«nxl4 W nirnmmim m m im*mm& Id pm m m % § m m M rm% Im ^ffiel^at t# Ijrtmg #kml. a <l3P»i» #f tm d & m hltfo i«« lurk 'tok« jjot »^#t« 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)'(Zhl.f fS 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 ’ nmsimmm) of Q&mmmm of ttM» FfrtwwdL ftoaom gjroto* issued * *egalat.ioa lacrrwaoijig hy fl ptaNMMkt* offoetlTo on ,.. -.-r— .» the r**qalrmmmt9 m to mmmmB to Is# M&itiriUied lr wmfow tank* ogaiaot doB*ad «sti tin* do?o«tt*» Sbo Board1* action la till* ■otter *a* under tbo *utb<*ri^r oonfomrod fcgr th» B&fddnf let of 19S5 w&ieh wwSedi pme^pm^k • ««eti9s If of ttoo Yod*n& &et* p*wid* that, upoaa the •fttvmtir* vote of not loo* tluui foor of it* swofcHMPO* tb* Booyd* tm oistor to &p cofttrftctian* mht ob»iw** iltlitt Gffrtali) liiiiit tk* a* to tmmmm* to bo aatatoitiod Afaiiioi deposit® fcjf ■oajbor b*ak*« m m reooat i&orooae 1b shioInis^ $mmi£!i .twssipfs# Iiiui ©oxriod then to a they eMOpffd legal ro^ir®a®ttt# by the uitpf^eedoisted Iw’ fbI At a m a t of #8*000,003,000* ?h®*e exoe** r«®«firv*»* tf utlli*ed ia ffcll* OQBLJUB WEppOlnw *S CuSCMDES* OX OBUK UJtHUil 3RQXO U H Q QOawi^ OH* OXIUpwXSp VOllMMI *Ad f*3P ^PWttOl* ttMUl 0*81 bO JifEBBftdC^JT OB|>lC(yed* « m witb Ml 1ici1no>w TGC&F9vy+ £»*!* & grtwtli of b*»k oredlt noald (rcmotitttt* aa injurious credit eatpaiiilasu tbe lllOl'OOOO iA SPOIWBPIWi T'O'QtJIil*8flWBlt* iibOtti^S HOt OffilllO #J3 WitlTOQOO 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 jjjt ywwpy Igr AftOX* *0*tiBg th* iatvooood ro^lroaesLt* the wmtbm banks* in tiio «Mn^tS»tof will otill 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 harra $£,$00,000,090 of axOase rosortas# and thosa rasorras aro so widely hold that all bat a weuy t m mmbvr hax&ks «ro %& a positisa to aoot tha inoroaso in ra^ttirwaratB V the moo of th«lr balances with tha Saaorva bank or with oontt6poodoitii« I» Tiaw of the m b m d m m of m m e m * ia ail olassos of banks* tha Board ha# »ada tha incraaao in rasarta WNsalyoaoat* appllaittt* to all mewtbQT 1baatai# inclodiikf ooaatxy bank* ao wall ax banks .in central rowMPfo eltlos and la rasarra oitios* A swiajf aada fey tha Board shows that eoostiy batiks hata a laxfpr aaocxat of axcaaa roaawas 1b proportion to thatr dapoaita than hmm rosanra altar baak* aai hara* la addition, Inrfa balancas with their dtjr p on which so.oh oountrjr banks aa do aot hsaa sttffidsnt m * m * w with tha Bosorro banka oan draw far tha pirposa af asail&f; tha inera&aod roqairasaottt*. A larga part of the aidstint aaeoosa roaarra* la, ia fast, diraetly or iadlraatly> ownod b^r Qflwotry basics ahlsh aro oooao^aaaptly ia fiiltjjr as good a position, as oity ba*k* to aaot tha iaoraaaa la raaarwa roqairaaoiiti without our*** tailing thalr loans or tayaaiaoata* tha iaoraaaa of roaoiwa mfilraaslt proseribod by tha Bo*rd will absosfe tha rasorraa oroatad ia reooat aoatlis largely bj an inflow of gold aot ariaing oat of ordinaiy transaction# in iatoraatioaal trada a m n nanoo, rat oaasoct sy a aaiaaaasi o* xancLS *ro# zoraxim ooaai#ri»os aoo to dlstiarbod nolitioal and oooaoaio doaditioia* It would aot %o good, pollqr to hata *aaam* arlsiaf twm tills oaasa iaoorporatod la oor orodlt baaa* Aa achranoo of ?S poroaat ia *o<pi$onaats at this tiao 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 ■it may 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 tyr the Treasuiy, 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 comimmiML tfffTAti f i f f » b y V t t in R it M s a a m rvnvts u n i wttm fjAMlfTWPL»|P nfwnt>t» o « 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 JT 1 1) E « I I A t ItoVMBtMH- S, 1SW JtiD8S88BSdE JS33C jfeSJ&SSli I* Koobor boafe rooorfoo at tbo jKrooeat tim ore $£,000,000,003 in Furtbor iaaroaooo .In m m m excoca of legal through gold taporta, silver pureboooo, m d through tfeo ultimito m ® of tbo goM lt> the 1*mm'k.t.mt WamA mmm b& are now higher tb*fi tfeigr s w ba#lo of exi«ii|g roisenro#, will bo aeooooaiy ot soae PMtrtos* AlOftfitdd< more This %%m a f ngffibfr brinks fimmmmA tfo#y ocm be xmktu tb^n doubled on tho wmM bo iojuriou* erodlt expansion. It to **o tbo Board1* pmmm for absorbing mmm It i % therefore, not & question of isbothor or not tlio Federal Eeoervo % *taa will faovsi to oot, but merely o queuticm of tbo boot tlalng of tbo action. £* Xt would 90091 best to tube mmmurm for sbeorbiag at leant « por tion of *jcl«ttsg oxoooo ro«omos before tho bwskc hovo boil aa op ortunit<r to expand tboir sctivtti©* on tbo baoi* of tho®# The banks are being urged l^r tbo Qovornaoat actively to oeete opportanitiot for attending oddltioaol orodit and later, *b*a m& mmy ttaorafy to foetlitoto reoovory. to lot thea proceed of thoa nay no laager have exoem rooorfoo* to pot in &obt bjr increasing ro^ilroiiont# or soiling oeottrltleii any lay* tbo Systea open to tbo ohorge of laoattftlatoitoy* s#ore$ aigbt deflationary 5. to Hquidst® wammmt* lotion ot oiiob * tiao, further^ or invootaoitt* nod w^ght. start & 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 isoplo' 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 (JllirOMWlt# WGR&X/& not 1 & pomlt&m tot m I. Tflfl* #- tlMMR -ftift'4 la rmmrm not feOt Hi $ FOOtr&int 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 "In tbs ottyy&tioii %fKH prs|Xk3hNI to t&ko tho m t m m f f #%®p# to «iwl£ inflation* JyggjgSB9&GL HSUL JQyyKlB& JESBStiteHBttift $« Tho prooodiag wmM «*pXy o«po3% to oolliiig «oom*iti§i and to redoing ros#rvo roquir«isiont«# but raising hum tho &Smtli&go not fe# *&nute*&f oxeopt Igr tho aoels ration of it eould not 1mm voqidroMitft w n l l of ws&iag u»o of * a** n o t h M *hioh wa* not awaiiatols prior to ti»* pooaafo of i&o Banking Aot of it$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§» <rf»r oolllag Gov«ra»ant aaotiritloji that it would not hmm any mt&mmhlB effect on th# a&rfcot for thaae a®curitia«>* ft» It wmdd &l*o fcM* tlto of not diniaiahifii th« aiming aaaat# of tbo fodoral r w i m fetal;** tiiioii w^r b#«o»t * ooriott# natter If tl»oa# bftnius itottM bo put in a position «^oro tiaarp wooM !»▼« to go to 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®, oaoii &o tho proaont unproeedontod MrtM* of ofMKt aarteot operation# awl m «l to u»o tfa* traditional m % m a« tfae in^tnoHmto for <siroot infimonoo on Mpanoiiai or oontrootion of orodit* R e p rod uced from th e U n cla ssified I D ecla ssified H oldings of the N ational A rch ive s j DECLASSIFIED Authority QcjJfciilf iQ F«t» % t» « p«int *J#*re «3r<s««hs r * « « r r e « w o u ld m & t v a r y P»«lt4*n. to m * »g»*MMWM*fe«rfc ia iO m $ iio m r y tf ttt& ftn e lM * t i t * «Mii* k e y w i l d p£ m *& i » « m r ® £ lm £ b l® , t& w u i ^ w m j I 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 gr action of a reatraiaiog oharae~ 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 aof-1ffi*a that ro^uir# aoro or loaa aabtlo mnF*t-tftTi$ 5* Tho Syatoa*a oowaxra for tionfltoisaetijM tho ananaHU valttM nf roaorvoa now in oxlatoaoo mad ia proapoot aro llaitod* Tho opoanaaricot porfc** 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 (loiaraaaat aooarltloa ia largo wlnaa, aay bo a difficult aattor* For thia roaaoa, it alght bo battor policy to hn»l^nyyl tho &yataa* a ro8ourooB ia ardor to bo .ia a poaltioa to atiliao thoa 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 "by 25 percent* effective oa 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 DECLASSIFIED 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 tnciflcas yos eaisiso Biamyi OTamnmwa 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 tfala ti** wh«n 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 ctata. R ep rod uced from th e U ncla ssifie d / D ecla ssified H oldings of the N ational A rch ive s | DECLASSIFIED : Authority Qdjfciilf /ty Page 2 4* Bank* are aim in eucfa a poaition that an advance %n reaar*• raqulreaants 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* JfiElBfllJyi J^Oy raialnp 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 h o r i t y Q t D f d i l f IB S S& S K i MSJ&3X tfflttS M I,* tlioro 1# ot thi* till* smi iadiootiota of «a 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 do*>«id to part on it* psychological offaot* for that reaaea it ought to bo oirtrowly sijaplo* SSmi pit1!iff sh(raid fcao* that *h*n tli« Podoral loaorta Systo* doo® anything la tho dirootioa of 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 fagr action* that rottiiro ami or 1#** oabtlo czplsn&ticm* J* in© pppw*~'p pCNMKrw *vT CwKlwriCwaf wa® Vwllttf ▼wAwHwB ®1 WmGmmw rosorvei1 ao« la oadstoaoo and .in proapoot or* li*ltod* tho of*a-«arfcot port folio in §a#40Q«d00f0Q® *ad tto saiina* by ihisfc roaorro ro$»ir«i**ai* aay bo raiaod asbousat* to a similar flgaro* T^immi* iressrvss sight larger aauld Ini ©o^ts®a#tod by both of tho** iAStyiaiwiiSi* fhair Hill ittilisatioti# ftaiihirwfr#^ jwurtioalarly th* sal* of CkwornsMwit aoourltio* Ift largo *oli&sof aay bo « difficult aattoar. for thi* roaaea* 1% algfct fco fcottor policy to hi**hoad th# %*to*#* roaourooa in ordor to bo in a position to atilt** tho* to th*'rnxtjwni *ffoot iftftn th# P**d '00(11**# 4# iottlMiat tho prosaist tlao sight, *w*n Ifewffe it slfewld not# roault in * m m hoaltaat attttnda oil tho port of bonk* axid alght, thoroforo# rotard 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 fcy the Banking Act of 1955* Very truly yours, Chester Morrill, Secretary* 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 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 | 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 j 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 jP CONFIDENTIAL ,t ACTION TAKEN BY FEDERAL OPEN MARKET. COMMITTEE/OCTOBER 25, 1955, WITH 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 ^ Vv After 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 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 | i DECLASSIFIED A u t h o r i t y Q d j f d i i r iQ Q S u p 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 $ 1 ,1 7 7 ,0 0 0 ,0 0 0 2A ; 000,000 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 $1,423,000,000 R e se rv e c ity banks C o u n try b an k s $ 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 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 t a l num ber o f member b an k s Number w ith d e f i c i e n t r e s e r v e s | 1 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 C o u n try banks 6,410 6 .0 2 5 . 18 129 *7 768 1 ,1 4 4 1 ,5 2 9 1 ,2 7 8 1 ,5 6 2 8 9 7 K 3 18 329 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 lQ>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 % " 11 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 /Qul5(jP ! " "* ! 1 Fk. OCT30 1935 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, tfco Couao II sahadttad to tho Board a ■ U tMoil voftdlfift as followat •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 ootaittry and thia m j hoocae lapoaaiHa 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* ea<! eonelderations hevs the const-sat attention of the Board* e Division of Reeearoh and are the subject of fre<juent, reviow by the Hoerd «n<* aleo' by the Teflsrel Opfea 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 it* the p&et, b© giftA to reoeive thea nnd eosieider then* Very truly youre, f$s#T?eo) C hester ttw rftf Chester Morrill, fecretery* Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED A u t h o r i t y Q d J fd jM " 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 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 j Authority8(V fd jlf !& | 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 1fo t o 1 3 /4 $ . 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 [ !Authority Q^V'fcislf j ' 3 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 http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis I f& DECLASSIFIED Authority QcOfdilf iB2^£ 5 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&5Lq 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 [ ] !Authority SWfZisl/'/QQSIjP j 7 /(I 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 I D ecla ssified H oldings o f the N ational A rch ive s | DECLASSIFIED ! Authority /Q u & (jp 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 I D ecla ssified H oldings o f the N ational A rch ive s [ DECLASSIFIED ! Authority Q c P f d H f !& j j 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 . We 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 : 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 | DECLASSIFIED ! A u th o r ity S ^ O I j—f d i --------------------------------------------Z f IQ W t $ . 11 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 _ 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 I DECLASSIFIED Authority Pti)rdSLf IQ2s61m I 12 / „-v f/ ;\v 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 . /Z (L ^ 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 \ 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* *##$$& a. r # j? # n t w # 1ft# •t»*h -*g&U$t* t« m f &# ^ ««%#t :m&, t&# m i o a i 'iiit* * Im * i# * 4 # # t# tb « fm 1§&* te ®f th© % * n 3M & $t ■$»«&$$•* ''*&»$%&&%$ a t p a & t& f tf- it th» ft%#§ 'llit t k m w iW Is *m h .m^ih H i# * * H « r t&ik -*M $&*& *fam & s» M ifiiX fe# t f tfc# ##***& frU # W i $ipsd} Qwstar tto ii * w i m & ON I© fc t #& * *y *# & feft 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 Mr. G-oldenweiser FEDERAL RESERVE BOARD 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 u t h o r i t y Q c V f d i l f iQ Q S ljp 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 ' A u th o r ity Q I t O j f c i i l f ^ - 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 Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED j Authority QcQfdjM " !Q> \ 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 t h o r i t y QcQrdsir 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 IF IF T ) 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+00 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 - 20 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 $1 , J 00, 000,000 l a r g e r th a n two y e a r s e a r l i e r , b u t c o n s id e r a b ly s m a lle r th a n in th e p e r io d from 1928 to 1931 * The r e c e n t d e c l i n e in P o s t a l S a v in g s d e p o s i t s a t b an k s r e f l e c t s th e d i r e c t in v e s tm e n t o f fu n d s b y th e P o s ta l.S a v in g s System ; th e amount o f d e p o s i t s h e l d b y th e p u b l i c in P o s t a l S a v in g s a c c o u n ts h a s shown l i t t l e change s in c e 1933* The c o n tin u o u s g ro w th i n in t e r b a n k b a l a n c e s , w hich a r e now th e l a r g e s t on r e c o r d , r e f l e c t s a n in c r e a s e i n i d l e fu n d s h e l d b y b a n k s . R ep rod uced from th e U n c la ssifie d I D ecla ssified H oldings o f the N ational A rch ive s DECLASSIFIED Authority Q tQ fd jlf IB 2)51$ - 22 ~ 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 QCD'fdsiCf&2)51$ 23 i(J MEMBER BANKS IN LEADING CITIES DEPOSITS AND LOANS AND INVESTMENTS 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 . s e c u 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/&&5jP ~ 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 E C L A S S IF IE D A u th o r ity 31 S tQ fc i& f - loan and Government c re d it agencies tota led $8 6 5 ,OCX),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 $35,000,000 a month during the period A p ril 1 ~ September 3 0 , which is in excess o f average monthly issues fo r such purposes in any year since 1931* Stocks, p referred and common, have been issued to only a small degree* Nearly three-fourths o f the issues fo r new ca p ita l have been in the form o f long-term bonds and notes* Reproduced from the Unclassified I Declassified Holdings of the National Archives D E C L A S S IF IE D A u th o r ity - 32 Q cQ fd& f /$££& ~ 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. 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 $100,000,000 per annum. fW Reproduced from the Unclassified / Declassified Holdings of the National Archives DECLASSIFIED Authority S lO fd jir !Q ?b5l$ 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 D E C L A S S IF IE D j J A u th o r ity 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-safia 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 member banks to transfer such 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 ment 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 pflBMn effect upon excess reserves of member banks as a sale in corresponding amount of Government securities by the Federal Reserve banks. To give member banks 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 j D E C L A S S IF IE D A u th o r ity Q c Q fd ilf 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 may be adopted ty the System, it seems to me that we should avoid wherever practicable giving depositary banks the tools with which to negative such policies as the System may decide upon. The fact that action taken ty member 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 member banks do deposit any large volume of funds in the Federal Reserve banks the 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 some of the higher official 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 I D E C L A S S IF IE D 1 ! Authority Q 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 ; Reproduced from the Unclassified I Declassified Holdings of the National Archives D E C L A S S IF IE D A u th o r ity 2 Q c D fd llf /&QS& - $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 Reproduced from the Unclassified I Declassified Holdings of the National Archives | D E C L A S S IF IE D A u th o r ity QtVfidilf/ B j 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 ! 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 VYXi^SiwwmmV 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 D E C L A S S IF IE D A u th o r ity Q tiJ fd jL f /B j '[ - 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^/Qn /%, 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. 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>5 0 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 QtVfCAilf/&Q3# 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^ FFn'??;._ 'F?>._ ___ ____ ...... 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 D E C L A S S IF IE D A u th o r ity E fcV f(M f 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 Bir. Morrill 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 E C L A S S IF IE D | A u th o r ity Q c V fid jlf !Q 2)SLq / OCT 10 1935 r 5/ Mr. Carpenter: A copy of the is being submitted to ber of the Board as a tion of the questions of the Boep^d. attached memorandum\ eajbh appointed mem basis for considera involved at a meeting C. M. Reproduced from the Unclassified I Declassified Holdings of the National Archives D E C L A S S IF IE D j ! A u t h o r i t y l&2)5(jp 3 COPT OCT X 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