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Authorized for public release by the FOMC Secretariat on 2/25/2020 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON July 1, 1960. CONFIDENTIAL (FR) TO: Federal Open Market Committee FROM: Mr. Young For your information, there is enclosed a copy of a memorandum dated June 30, 1960, prepared for Mr. Hayes by Mr. Gaines of the Federal Reserve Bank of New York with respect to total reserves and nonborrowed reserves. Enclosure Authorized for public release by the FOMC Secretariat on 2/25/2020 Misc. 3a FEDERAL OFFICE RESERVE BANK NEW YORK OF CORRESPONDENCE CONFIDENTIAL TO Mr. Hayes FROM T. C. DATE SUBJECT: June 30, 1960 Total reserves and nonborrowed reserves Gaines Copies to members of the Informal Credit Policy Group Table I shows the response of total reserves to the change in Federal Reserve policy over the past few months. Without seasonal adjustment, total reserves reached a low point in March, and in April, May and June increased. (the latter month partly estimated) total reserves have Using the seasonal adjustment factors computed by the Federal Reserve Bank of Atlanta, the low point in total reserves came in April, and total reserves have been increasing during the past two months. The unadjusted data show an increase between March and June at an annual rate of 6 per cent, and the adjusted data increased between April and June at an annual rate in excess of 5 per cent. Table I Total Reserves (Average of daily figures) Unadjusted January February March April May June* * 18,878 18,213 18,027 18, 104 18, 242 18, 302 Adjusted for Seasonal 18,780 18,360 18,170 18,120 18,260 18, 280 Change from Year Earlier - 20 -360 -400 -560 -340 -150 Projections used for June 29 and 30. These results would suggest that the Committee's intentions are being realized. The year-to-year change in total reserves, also shown in the table, indicates the extent to which progress has been Authorized for public release by the FOMC Secretariat on 2/25/2020 2 made in re-establishing a growth process. Total reserves in April averaged some $560 million below April 1959, while it is estimated that in June total reserves averaged only $150 million less than a year ago. The conclusions suggested by the data on total reserves are shown even more clearly by the data for "nonborrowed reserves" (total reserves less borrowing from the Reserve Banks). The logic in using this measure is that there is a difference between reserves owned by a bank and reserves borrowed by the bank from a Federal Reserve Bank. reserves That is to say, it may be assumed that wholly-owned in excess of requirements are active reserves, in the sense that banks will make every effort to find employment for them. Reserves which are borrowed from the Reserve Bank are usually to meet an already existing need, are repaid as soon as possible, and do not encourage the borrowing bank to go out seeking new uses for his funds. Table II Nonborrowed Reserves* (Average of daily figures) January February March April May June** * ** Unadjusted Adjusted for Seasonal Change from Year Earlier 17, 973 17,397 17,392 17,880 17, 5 40 17,530 17, 502 17, 520 -360 -670 -44o -490 17, 740 17,869 17,760 17,850 +325 - 70 Total reserves less borrowing from Federal Reserve Banks. Projections used for June 29 and 30. Table II shows that nonborrowed reserves also declined after December 1959, bottoming out in February and March of this year. recovery from the low point has been even more rapid than in the The case Authorized for public release by the FOMC Secretariat on 2/25/2020 3 of total reserves, however. Unadjusted nonborrowed reserves increased at an annual rate in excess of 10 per cent between March and June. Using the Atlanta seasonal adjustment factors, the increase in nonborrowed reserves between March and June was an annual rate of 7 per cent. Looking at year-to-year comparisons, nonborrowed reserves February dropped to it is estimated that $325 million some $1 a point some In in the short, February 1959, by June average nonborrowed reserves space of but averaged swing in relative position of year--a above June of last billion $670 million below in four months. whether one uses total reserves or nonborrowed reserves--unadjusted or using the Atlanta seasonal adjustment--for only the last few months or compared with a year ago--it is obvious that substantial progress has been made toward reversing the decline in total reserves that carried over into this year from the restrictive policy pursued last year. toward growth in It is more than likely that a the money supply will develop this similar turn month or next.
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