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FEDERAL RESERVE BANK OF NEW YORK Fiscal Agent of the United States [ Circular No. 3 6 9 6 May 3 ,1951 O ffe rin g o f $ 1 ,1 0 0 ,0 0 0 ,0 0 0 o f 9 1 'D a y T rea su ry B ills Dated M ay 10, 1951 Maturing August 9, 1951 To all Incorporated Banks and Trust Companies in the Second Federal Reserve District and Others Concerned: Following i the t xt of a notice published today: s e TREASU RY DEPARTM ENT W a sh in gton F O R R E L E A S E , M O R N IN G N E W S P A P E R S , T h ursday, M ay 3, 1951. T h e S ecretary o f the T reasu ry, b y this public notice, invites tenders fo r $1,100,000,000, o r thereabouts, o f 91-day ire a s u ry b ills, fo r cash and in exch an ge fo r T reasu ry bills m aturing M ay 1U, 1951, to be issued on a discou n t basis under com p eti tive and non-com p etitive b idding as h ereinafter provided . T he bills o f this series w ill be dated M ay 10, 1951, and w ill mature A u gust 9, 1951, when the face am ount w ill be payable w ithout interest. T h ey w ill be issued in bearer form only, and in denom inations o f $1,000, $5,000, $10,000, $100,000, $500,000, and $1,000,000 (m atu rity va lu e). T en ders w ill be received at F ed eral R eserve Banks and B ranches up to the clo s in g hour, tw o o 'c lo c k p.m., Eastern D ayligh t S a vin g time, M on day, M a y 7, 1951. T en ders w ill not be received at the T reasu ry D epartm ent, W a sh in gton . E ach tender must be fo r an even m ultiple o f $1,000, and in the case o f com petitive tenders the price offered m ust be expressed on the basis o f 100, w ith n ot m ore than three decim als, e.g., 99.925. F raction s m ay not be used. It is urged that tenders be made on the printed form s and forw a rd ed in the special envelopes w hich w ill be supplied by F ed eral R eserve Banks or Branches on application therefor. O th ers than banking institutions w ill not be perm itted to subm it tenders excep t for their ow n account. T en ders w ill be received w ithout deposit from in corpora ted banks and trust com panies and from responsible and recogn ized dealers in in vestm ent securities. T en ders from others m ust be accom panied b y paym ent o f 2 percent o f the face am ount o f T reasu ry bills applied for, unless the tenders are accom panied by an express guaranty o f paym ent b y an in corporated bank or trust com pany. Im m ediately after the closin g hour, tenders w ill be opened at the F ed eral R eserve Banks and Branches, fo llo w in g w hich public announcem ent w ill be made b y the Secretary o f the T reasu ry o f the am ount and price range o f accepted bids. T h ose subm itting tenders w ill be advised o f the acceptance or rejection thereof. T he S ecretary o f the T reasu ry exp ressly reserves the right to accept o r reject any or all tenders, in w hole or in part, and his action in any such respect shall be final. S ubject to these reservations, n on -com p etitive tenders fo r $200,000 or less w ithout stated price from any one bidder w ill be accepted in fu ll at the average price (in three decim als) o f a ccepted com petitive bids. Settlem ent fo r accepted tenders in a ccord a n ce with the bids must be made or com pleted at the Federal Reserve Bank on M ay 10, 1951, in cash or oth er im m ediately available funds o r in a like face am ount o f T reasu ry bills m aturing M ay 10, 1951. Cash and exch ange tenders w ill receive equal treatment. Cash adjustm ents w ill be m ade fo r d ifferen ces between the par value o f m aturing bills a ccepted in exch an ge and the issue price o f the new bills. The incom e derived from T reasu ry bills, w hether interest or gain from the sale o r other d isp osition o f the b ills, shall not have any exem ption, as such, and loss from the sale o r oth er disposition o f T reasu ry bills shall n ot have any special treatment, as such, under the Internal Revenue Code, o r law s am endatory or supplem entary thereto. T h e bills shall be subject to estate, inheritance, gift, o r oth er e x cis e taxes, w hether Federal or State, but shall be exem pt from all taxation n ow o r hereafter im posed on the principal o r interest th ereof b y any State, or any o f the possessions o f the U nited States, o r by any loca l ta x in g authority. F o r purposes o f ta xation the amount o f discou nt at w hich T reasu ry bills are origin a lly sold by the U nited States shall be con sid ered to be interest. U nder S ections 42 and 117 ( a ) ( 1 ) o f the Internal Revenue C ode, as am ended by S ection 115 o f the Revenue A ct o f 1941, the am ount o f discou n t at w hich bills issued hereunder are sold shall not be con sidered to a ccru e until such bills shall be sold, redeem ed or otherw ise disp osed of, and such bills are exclu d ed from con sideration as capital assets. A ccord in g ly , the ow n er o f T reasu ry bills (oth er than life insurance co m panies) issued hereunder need include in his incom e ta x return on ly the difference between the price paid fo r such bills, w hether on origin a l issue or on subsequent purchase, and the am ount actu ally received either upon sale o r redem ption at m aturity du rin g the taxable yea r fo r w hich the return is made, as ord in a ry gain or loss. T reasu ry Departm ent C ircu lar N o. 418, as am ended, and this notice, prescribe the terms o f the T reasu ry bills and govern the con dition s o f their issue. C opies o f the circu la r m ay be obtain ed from any Federal R eserve Bank or Branch. This Bank w l receive tenders up to 2 p m , Eastern Daylight Saving time, Monday, May 7 1951, a the S c ri i il .. , t e u t es Department of i s Head O i e and a i s Buffalo Branch. Please use the form on the reverse s d of t i c cular t t ff c t t ie h s ir o submit a ten e , and return i i an envelope marked “Tender f r Treasury B l s ” Payment for the Treasury bills dr t n o il. cannot be made by credit through the Treasury Tax and Loan Account. Settlement must be made in cash or other immediately available funds or in maturing Treasury bills. A l l a n S p r o u l , President. d a t e d M a y 3 , 1 9 5 1 , m a t u r i n g A u g u s t 2, 1 9 5 1 ) T o ta l applied f o r .........$2,176,555,000 T o ta l a c c e p t e d .............$1,101,893,000 (in clu des $112,178,000 entered on a n on -com p etitive basis and a ccepted in fu ll at the a ver age price show n b elow ) A ve ra g e p r ic e ........... 99.619 Range com petitive b id s : (E x ce p tin g one tender o f $1,000,000) 99.625 E quivalent rate o f discount approx. 1.484% per annum of accepted H igh ........................... L o w ............................. 99.617 E quivalent rate o f discount a pp rox. 1.508% per annum Equivalent rate o f discount approx. 1.515% per annum $ N ew Y o rk ..................... Philadelphia ................. C leveland ....................... R ich m on d ....................... A tlanta ........................... St. L o u i s ......................... M in n e a p o lis ................... K ansas C i t y ................... D allas ............................. San F ra n cisco ............. 40,124,000 1,600,637,000 39,095,000 56,412,000 12,900,000 14,509,000 228,491,000 15,601,000 2,926,000 39,901,000 56,789,000 69,170,000 (5 percent o f the am ount bid fo r at the low price w as accepted) T o ta l ........................... Total Accepted Total Applied for Federal Reserve District $2,176,555,000 $ 38,224,000 691,440,000 20,010,000 41,767,000 9,400,000 14,509,000 145,481,000 9,326,000 2,876,000 36,901,000 47,289,000 44,670,000 $1,101,893,000 ( over) 25G Tenders will be received up to 2 p.m., Eastern Daylight Saving time, Monday, May 7, 1951. IMPORTANT— If you desire to bid on a competitive basis, fill in rate per 100 and maturity value in paragraph headed “ Competitive Bid.” If you desire to bid on a non-competitive basis, fill in only the maturity value in paragraph headed “ Non-competitive Bid.” DO NOT fill in both paragraphs on one form. A separate tender must be used for each bid. No. T E N D E R FOR 91-D A Y T R E A S U R Y BILLS Dated May 10, 1951 To F ed eral R eserve B a n k of N ew Maturing August 9, 1951 Dated at......... Y ork, F s a Agent o the United S a e . icl f tts 1951 COMPETITIVE BID NON-COMPETITIVE BID Pursuant to the provisions of Treasury Department Circular No. 4 18, as amended, and to the provisions of the public notice on May 3 1 , 951, as issued by the Secretary of the Treasury, the undersigned o f r fes Pursuant to the provisions of Treasury De partment Circular No. 418, as amended, and to t e h provisions of the public notice on May 3 , 1951, as issued by the Secretary of the Treasury, the undersigned o f r a non-competitive tender fes for a t t l amount of $................. oa ................ * for a t t l amount o oa f (Rate per 100) (Not to exceed $200,000) $................... (maturity value) of the Treasury b l s therein described, or f r il o any l s amount that may be awarded, settlement es therefor to be made a your Bank, on the date t stated i the public n t c , as indicated below: n oie (maturity value) of the Treasury b l s therein il described, a the average price ( n three d t i eci mals) of accepted competitive b d , settlement is therefor t be made a your Bank, on the date o t s t d i the public n t c , as indicated below: ta e n oie □ amounting to....... $--------------- □ By surrender of maturing Treasury b l s il amounting to....... $_______________ □ □ By surrender of maturing Treasury b l s il By cash or other immediately available funds By cash or other immediately available funds P rice must be expressed on the basis of 100, with not more than three decimal places, for example, 99.925. * The Treasury b l s for which tender i hereby made are t be dated May 1 , 1951, and are t mature il s o 0 o on August 9 1951. , This tender will be inserted in special envelope marked “Tender for Treasury Bills.” N am e o f B id d er. (Please print) B y ... (Official signature required) (Title) Street A d d ress ...................................... (City, Town or Village, P. O. No., and State) I f this tender is subm itted b y a bank fo r the accou nt o f a cu stom er, indicate the custom er’s nam e on line b e lo w : (Name of Customer) (City, Town or Village, P. O. No., and State) U se a separate tender fo r each custom er’ s bid. IMPORTANT INSTRUCTIONS: 1. N o tender fo r less than $1,000 w ill be con sidered, and each tender must be fo r an even m ultiple o f $1,000 (m aturity v a lu e). A separate tender must be execu ted fo r each bid. 2. I f the person m aking the tender is a corp ora tion , the tender should be signed by an officer o f the corporation authorized to m ake the tender, and the sign in g o f the ten der by an officer o f the corp ora tion w ill be construed as a rep* resentation by him that he has been so authorized. I f the ten der is made by a partnership, it should be signed by a m em ber o f the firm, w ho should sign in the form “ ................................................................................................................, a copartnership, by a m em ber o f the firm.” 3. T en ders w ill be sible and recogn ized dealers 2 percent o f the fa ce am ount o f paym ent by an in corporated received w ithout deposit from incorporated banks and trust com panies and from respon in investm ent securities. T en d ers from others must be accom panied by paym ent o f o f T reasu ry bills applied for, unless the tenders are accom panied by an express guaranty bank o r trust com pany. 4. I f the language o f this tender is changed in any respect, w hich, in the opin ion o f the Secretary o f the Treasury, is m aterial, the tender m ay be disregarded. Payment by credit through Treasury Tax and Loan Account will not be permitted. Digitized T B —1088-a T E N for FRASER ( over) FED ERAL RE SE R V E BANK OF NEW YORK N ew Y ork 4 5, N . Y ., May 1, 1951. To Member Banks in the Second Federal Reserve District: A s directors o f the Federal Reserve Bank o f N ew Y ork, elected by you, we have had in mind repeating the experiment o f last September, when we tried to give you a report on our stewardship which went somewhat beyond the regularly published reports o f the bank. The period o f public discussion o f Treasury and Federal Reserve policies since our first letter might have seemed a good time for such a second attempt. Our position as directors o f one o f the Federal Reserve Banks made it appropriate, however, for us to refrain from discussing these matters in this way while the Treasury and the Federal Reserve System were adjusting their differing views as to the means and methods o f fighting inflation in the area o f debt management and credit policy. And now that these differences have been resolved in the accord announced March 4th, the implementation o f the agreement is more a matter o f coordinated action than o f exposition by us. W e do feel that it may be helpful, however, to review with you the broad range o f credit policy problems which now face us, in the light o f the new circumstances growing out o f the Treasury-Federal Reserve agreement. The agreement has encouraged us to believe that we in the Federal Reserve System are in a better position than before to discharge our responsibilities and to combat inflationary pressures. Since the outbreak o f the war in Korea, last June, a number o f actions have been taken by the Federal Reserve System to restrain bank credit expansion. In individual credit areas where inflationary pressures were greatest, or promised to become troublesome, selective controls were imposed or made more severe. They had as their purpose restricting the further growth o f con sumer instalment credit, real estate mortgage credit, and credit to finance the purchase o f securi ties. In the field o f general credit control, where the object o f action is to make access to reserve funds (w hich banks must have to support a further expansion o f loans and investments) more difficult and costly, the Reserve Banks increased their discount rates and, during January, the Board o f Governors increased the reserve requirements o f all member banks o f the System. As bank credit continued to expand at an unprecedented rate during most o f this period, how ever, it became clearer that further steps should be taken to restrict the acquisition o f additional reserve funds by member banks. This could be accomplished only by limiting the sale o f G overn ment securities, by these banks or by other investors, to the Federal Reserve Banks. Unless the Federal Reserve System could regain some initiative in its open market operations, other measures to restrain credit expansion were severely handicapped if not nullified. The essence o f the agreement between the Federal Reserve System and the Treasury is the restoration o f the necessary degree o f initiative to the System in its open market operations, with which is combined the continuing responsibility o f maintaining conditions in the Government security market which w ill enable the Treasury to meet the Government’s refunding requirements, and its requirements for new m oney if needed. These objectives are now being worked out on a cooperative basis, both in terms o f credit policy and o f debt management. The Federal Reserve System continues, o f course, to recognize and discharge its responsibility for the maintenance of orderly conditions in the Government security market. Limitation o f the supply o f reserve funds through restored initiative in open market purchases o f Government securities by the Federal Reserve Banks may do m ore than give effect to official policies; it may also give a necessary boost to the Program for Voluntary Credit Restraint. A s you know, under the Defense Production A ct o f 1950, committees o f commercial bankers, investment bankers, and life insurance representatives— with participation o f Federal Reserve officials— have been appointed and are starting to function throughout the country, assisting lenders o f various kinds in their determination to avoid making non-essential loans, and to hold less essential loans to a minimum. So long as reserve funds were readily and freely available at the Reserve Banks, and so lon g as competition for new business within and between financial groups was so keen, the odds against the success o f a program o f voluntary credit restraint were great. N ow that the availability o f reserve funds is under some control again, and now that measures o f voluntary credit restraint have legal sanction, this undertaking o f the financial community can be a useful supplement to the general control measures o f the monetary authorities. For the year as a w hole the goal should be no increase in the aggregate volum e of credit extended by all banks o f the country. A decrease in the use o f credit for ordinary personal and business purposes should, if possible, offset the increased use o f credit for defense purposes. Any substantial increase in total bank credit would, in the end, only create m ore dollars to compete for a limited supply o f goods. W e do not predict scarcities or shortages, but there is no getting around the fact that the civilian econom y w ill have less real goods and services at its disposal over the next year or two than it would have if so much o f our productive capacity did not have to be channeled into defense requirements. It may be, o f course, that the crest o f the wave o f bank credit expansion has passed, for the moment. In so far as this expansion was based on swollen inventories, signs are not lacking that liquidation has begun, at least in some lines, and this should be reflected in a decline in the volume o f bank credit. W e cannot rely on this, however, nor would it w holly solve our problem. Another potential, if not actual, inflationary force has appeared which also complicates a program o f general credit restraint. This is the problem to which the national Voluntary Credit Restraint Committee recently turned its attention in its Bulletin N o. 2 urging restriction o f business capital expenditures, where such expenditures w ill not tend to increase output essential to the defense effort.* The direct demand for bank credit, growing out of business capital expenditures, may not be too great. T o the extent that such expenditures are not financed out o f internal resources, they pre * This bulletin was sent to you on April 20, 1951 by the Second District Commercial Banking Voluntary Credit Restraint Committee. sumably will be financed by insurance companies, and in the capital market. But if expenditures for capital investment exceed the total o f corporate and individual savings during the remainder o f the year and if, in addition, substantial amounts o f such savings have been committed in advance for confirmed projects, the indirect effects on credit policy could be disturbing. They would be particu larly disturbing if institutional holders o f Government securities should seek to sell a large volum e of such securities in a short time, in order to obtain funds with which to take up past commitments or to finance new commitments for capital expenditures. Com ing at a time when the Treasury w ill be in the market with substantial refunding offerings, and may be faced with the need for new borrow ing, such selling might disrupt the Government securities market. Y et for the Federal Reserve Banks to purchase these securities could put reserve funds into the banking system when general credit policy pointed in the opposite direction. It is our hope that the counsel o f the national Voluntary Credit Restraint Committee, to curtail non-essential or postponable capital expenditures, will be follow ed by both borrowers and lenders, as well as by business concerns which do not need to borrow. As the Committee points out in its Bulletin N o. 2, there is undoubtedly a substantial amount o f anticipated capital expenditures which could be postponed without detriment to the defense effort, and in the interest o f reducing inflationary pressures and conserving labor and mate rials. These expenditures include, for example, those to improve the competitive position o f indi vidual producers o f non-essential goods, to expand and modernize facilities for distribution or service which is not defense supporting, and to expand and modernize the manufacture o f consumer goods not related to the defense effort. There is one other aspect o f the fight against inflation which we would like to stress. There w ill be a grow ing need, as defense requirements bite into the supply o f goods available for civilian consumption, to promote saving by the public and to channel these savings into economically desir able uses. It seems clear that incomes o f individuals w ill increase, in the aggregate, during the rest o f the year and that, despite actual and prospective increases in taxes, the volum e o f purchasing power thus becom ing available will be in excess o f the supply o f goods and services currently being produced which can be shared by the civilian econom y. If this gap is not closed by a wise savings program, attempts to spend available income (o r accumulated liquid reserves) w ill renew and enlarge the upward pressure on prices without being able to bring forth an increase in production. It is not possible to make a hard and fast listing o f desirable uses o f savings which w ill fit all individual situations, and which w ill meet all the fears o f those w ho are concerned about the future purchasing power o f funds presently saved. Nevertheless, in these critical times when the financial needs o f defense are so great, there are com pelling national reasons for placing a considerable v o l ume o f these savings in United States Savings Bonds. There are two kinds o f financial hazard which particularly confront the individual planning a savings program under present conditions. One is the general hazard o f a decline in the purchasing power o f the dollar, which w ill affect the future purchasing power o f money currently saved. N o sure defense against this hazard is available to the individual, although our w hole anti-inflation program, including restraint o f credit expansion and prom otion o f savings, is directed toward this end. The second hazard is individual misfortune involving financial demands beyond the capacity o f current income. M oney invested in United States Savings Bonds w ill help to meet such contingencies; money spent w ill not. In our opinion the banks o f the district can continue to perform a constructive service by prom oting the sale o f Savings Bonds, and by making known their views as to how the savings program can be improved and enlarged, so that it w ill better meet the challenge o f the times. This letter has been confined to an expression o f our views on certain financial aspects o f the anti-inflation program. It is still true as it always has been, o f course, that this is only part o f the problem. There must be action in other areas. Taxes sufficient to pay the increased cost o f G overn ment must be levied, and levied so that they w ill impinge on spending rather than saving. N onessential Governm ent expenditures at all levels o f Government should be eliminated. Direct con trol o f those forces in our economy which raise costs without compensating increases in productivity, must be made effective. Increased production must be a continuing goal. A ll o f these things are essential to a broad and consistent effort to com bat inflation. Credit policy can complement action on this whole front and, in turn, w ill be supported by such action. W e deem it highly significant that credit policy has now been freed sufficiently from past inhibitions to enable it to do this job. Sincerely yours, John C. T ra p h a g e n , Class A director Elected by banks in Group 1 B u r r P. C l e v e l a n d , Class A director Class B director Elected by banks in Group 2 M a r io n B. F o ls o m , R o g e r B. P r e s c o t t , J a y E. C r a n e , Class A director Class B director Elected by banks in G roup 3 Robert T. Stevens, Chairman, William I Myers, Deputy Chairman, and Robert P Patterson, . . Class C directors appointed by the Board of Governors of the Federal Reserve System, are wholly in accord with the views expressed above by the elected directors of the Federal Reserve Bank of New York.