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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:
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
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
ff c
t t
h s ir
submit a ten e , and return i i an envelope marked “Tender f r Treasury B l s ” Payment for the Treasury bills
t n
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 ...........



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



H igh ...........................
L o w .............................


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


(5 percent o f the am ount bid fo r at the low
price w as accepted)


o ta l



Applied for

Federal Reserve




( over)


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.

Dated May 10, 1951


F ed eral R eserve B a n k


N ew

Maturing August 9, 1951

Dated at.........

Y ork,

F s a Agent o the United S a e .




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

Pursuant to the provisions of Treasury De­
partment Circular No. 418, as amended, and to t e
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
for a t t l amount of $.................

................ * for a t t l amount o
(Rate per 100)

(Not to exceed $200,000)

$................... (maturity value)
of the Treasury b l s therein described, or f r
any l s amount that may be awarded, settlement
therefor to be made a your Bank, on the date
stated i the public n t c , as indicated below:

(maturity value) of the Treasury b l s therein
described, a the average price ( n three d
mals) of accepted competitive b d , settlement
therefor t be made a your Bank, on the date
s t d i the public n t c , as indicated below:
ta e n


amounting to....... $---------------

□ By surrender of maturing Treasury b l s
amounting to....... $_______________



By surrender of maturing Treasury b l s

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
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)


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.

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

( over)


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,

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.

Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102