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Minutes for
To:
Members of the Board
From:
Office of the Secretary
October 26, 1960
Attached is a copy of the minutes of the Board of Governors
Of the Federal Reserve System on the above date.
It is proposed to place in the record of policy actions
required to be kept under the provisions of Section 10 of the
Federal Reserve Act an entry covering the item in this set of
minutes commencing on the page and dealing with the subject
referred to below:
Page 1
Amendments to Regulation D, Reserves
of Member Banks.
Should you have any question with regard to the minutes,
it will be appreciated if you will advise the Secretary's Office.
Otherwise, please initial below. If you were present at the
meeting, your initials will indicate approval of the minutes. If
You were not present, your initials will indicate only that you
have seen the minutes.
Chin. Martin
Gov. Szymczak
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
40o
Minutes of the Board of Governors of the Federal Reserve System on
Wednesday, October 26, 1960.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 10:00 a.m.
Martin, Chairman
Balderston, Vice Chairman
Szymczak 1/
Mills
Robertson
Shepardson
King
Mr.
Mr.
Mr.
Mr.
Sherman, Secretary
Thomas, Adviser to the Board
Molony, Assistant to the Board
Hackley, General Counsel
Amendments to Regulation D relating to vault cash and reserve
rements.
Chairman Martin stated that yesterdayts meeting of the
ederal Open Market Committee was indicative of the problem that had been
discussed in a preliminary fashion by the Board at its 9:00 a.m. session
°11 October 25, regarding the need for additional bank reserves during the
holiday season this fall and possible steps that might be taken to supply
a substantial portion of those reserve needs through further action to
l elease vault cash holdings of member banks and equalization of the reserve
'
I'equirements of member banks in central reserve and reserve cities.
Some
or the Federal Reserve Bank Presidents had expressed themselves as feeling
that action along these lines would be an appropriate means of meeting some
O
f the need for reserves during the latter part of this year, rather than
t° Meet such needs entirely through open market operations and use of the
cliaeount window.
It had become obvious to him, the Chairman said, that it
A ttended afternoon session only.
4 Of1(3
10/26/60
-2-
14as highly desirable to clear away the vault cash question by permitting
all member banks to count all of their vault cash in computing reserve
requirements at an early date.
It was also highly desirable to equalize
the Position of the central reserve city banks in New York and Chicago
'with that of reserve city banks insofar as reserve requirements were
ecqicerned, even though there remained a year and nine months before the
oPeration of Public Law 86-114 would bring about an elimination of this
differential no later than July 28, 1962.
the
Starting with the premise that
sooner these actions were taken the better, he had argued in his mind
the question of the best time for making such action effective as well as
the n
4uestion of the best time for an announcement of such action.
He noted
It in the memorandum distributed by Mr. Thomas under date of October 24
th'
the suggestion had been made that vault cash at central reserve city banks
811d at reserve city banks be released effective November 3, 1960, that
vctult cash at country banks be released effective November 24, along with
4111 increase in reserve requirements of country banks from 11 per cent to
12-1/2 per cent against net demand deposits, also effective November 24,
411d that reserve requirements of central reserve city banks be reduced
*Om 17-1/2 per cent to 16-1/2 per cent (the level now applicable to
Ise"rve city banks) effective December 1, 1960.
Under that schedule the
l'eserve and central reserve city banks would be getting the benefit early
November of any action taken.
While an argument could be made both
on balance he had come to the conclusion that the best procedure
4007
10/26/60
-3-
'Gould be to make an announcement before the Treasury announced its largescale refunding of securities maturing November 15, 1960, but to defer
the effective date of action by the Board until after the exchange of or
Pe,yrnent for such securities had been completed.
It could be anticipated
that the Treasury would make an announcement on October 28 of the terms
°f the refunding of the 4-3/4 per cent certificates in the amount of
aPProximately $7 billion due November 15, 1960, and of the 2-1/8 per
cent Treasury bonds in the amount of approximately $3.8 billion also
due November 15, 1960.
Chairman Martin went on to say that from the standpoint of open
tilarket operations a case could be made for having some action taken to
release vault cash effective almost immediately.
Arguments against
41ch action included consideration of recent developments in connection
l'ith gold and the balance of payments.
For a variety of reasons, his
conclusion on balance was, as indicated earlier, that the best procedure
1/01Ald be to make an announcement promptly but to defer the effective date
some time after the Treasury financing operation had been completed.
The Chairman then referred to another possible action mentioned
In the memorandum distributed by Mr. Thomas, that is, a change from two
days to three days in the maximum deferment schedule for granting of
credit for checks collected through the Federal Reserve System, such an
increase in the deferment schedule to be effective on January 16, 1961,
118
a means of withdrawing a portion of the reserves that would be made
10/26/60
-4-
available in one way or another during November and December to meet
seasonal and holiday needs.
Whatever the logic or lack of logic for a
change in the time schedule, any such change would complicate an action
relating to the release of vault cash or changes in reserve requirements.
While it could be argued that an increase in the time schedule would
never be practicable unless it were taken in conjunction with an action
that would release reserves to member banks, he had come to the conclusion
that it would not be desirable at this time to make a commitment as to
Net how reserves would be withdrawn from the market in January 1961.
It
Igas not possible at this time to know how much would have to be taken out
Of the market or whether the most suitable means in January would be to
absorb funds through selling of Government securities or in some other
4114-11er) but an announcement of a change in the time schedule would to a
degree tie the hands of the Board and of the Open Market Committee in
deeling with whatever situation developed after the turn of the year.
?°r this and other reasons, he felt that it would not be desirable to put
into one announcement actions relating to the release of reserves in implemen_
t"thn of the 1959 legislation and also action relating to the time schedule,
%411-ch involved a controversial question both within the Federal Reserve
YEitem and the commercial banking system.
Chairman Martin then referred to a discussion that he had had with
the
Under Secretary of the Treasury regarding the probable timing of an
10/26/60
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eluwuncement of the November refunding.
While an announcement of vault
cash release and equalization of reserve requirements at central reserve
and
reserve city banks might have some psychological effect on the Treasury
leAlnding, deferment of the effective date of such action until, say, Novem'
ber 24, which would be after the refunding had been completed and before the
1)eak seasonal demand for reserves arrived, would not be a complicating factor
tronl the standpoint of the Treasury financing.
He then asked that the other
Members of the Board express their view as to what action might be taken
514d the timing of such action.
Governor Mills said that, as he had indicated at yesterday morning's
r"eetinig of the Board, if the Board reached a conclusion that action along
the lines Chairman Martin had suggested was best, it would be agreeable to
414. He did not think this would be the best action. Rather, he believed
it/rould be advisable to make the announcement of the release of vault cash
Etticl the equalization of reserve requirements of central reserve and reserve
"AY banks at once and to advance the effective date to early November
1141tesd of waiting until November 24. A substantial amount of reserves
vouid
be required during the first three weeks of November, he said, and
if
+.1.
ullOae
reserves could be provided through a release of vault cash to
4441e of the banks on, say, November 3, there would not be as great an
"as might otherwise be felt on short-term interest rates.
11441
He was
4-ined to discount any political implications of an early release of
'd cash and he would prefer to make the announcement and provide some
(10
10/26/CO
-6-
°f the reserves against the pressing needs that would be arising within the
If there should be criticism, in his opinion such criticism
next few weeks.
ould be on the grounds that the action was more helpful to central reserve
City banks than to others as far as changes in reserve requirements were
concerned.
As for the release of vault cash, such action would apply to all
member banks and would be shared in by country as well as central reserve
and reserve city banks, but his feeling was that there would be an advantage
in making the announcement now, especially since some of the gain to country
banks would be offset by the proposed increase in the level of their reserve
l ecNirements.
'
Governor Robertson said that he had come to a somewhat different
(311clusion as he had turned this over in his mind since yesterday morning's
cliscussion.
He felt that the reasons against making an announcement of any
n before the general election in November were greater than if the
announcement were delayed until after •the election and nearer the time
711ell the bulk of the reserves might be needed.
He recognized that an
nolIncement after election day ran the risk of a charge that the action
118.8 related to the results of the election, but in his opinion this involved
leas danger than if an announcement were made prior to the Treasury financing
annoUncement.
The wiser course, in his judgment, would be to delay an
8111101-Incement until sometime in November and to make it in a way that would
tic)% interfere with the Treasury financing.
401 1
10/26/60
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With respect to the deferment of credit for cash items collected
through the Federal Reserve Banks, Governor Robertson stated that he was
convinced an increase in the time schedule, which would absorb reserves,
could not be brought about except as a pert of a package which included
sc)me compensating action that would ease reserve requirements for banks.
The proposed action for permitting the counting of vault cash and reducing
reserve requirements of central reserve city banks would give a greater
amount of benefit to large banks than to smaller banks; although the
smaller banks would be provided with a substantial amount of reserves,
some of those would be taken back by the increase in requirements against
their net demand deposits so as to reduce the differential between country
banks and reserve city banks.
The tone of a statement covering the action
Proposed would in his opinion show that the Board was putting a massive
artiount of reserves into the market to meet seasonal needs during November
and December, and if the announcement included a statement that a subportion of these reserves was to be absorbed in January by a
lengthening of the deferment schedule, that would simply help to confirm
th
at the action in releasing reserves was for the purpose of meeting some
of the seasonal needs.
Governor Shepardson said that in general he was in favor of the
Proposed actions to release vault cash, to reduce reserve requirements of
"Iltral reserve city banks to the level of those at reserve city banks,
to increase reserve requirements for country banks so as to reduce
It
"
40:12
10/26/60
-8-
the advantage which those banks would experience through the combination of
their lower reserve requirements and the gain they would have from being able
to count all of their vault cash.
He recalled that a year ago he had favored
action to help meet the seasonal needs through a partial release of vault
cash rather than to have to meet the year-end demands entirely through the
°Peh market and the discount window, and he had searched for further steps
that might be taken this year to meet some of the immediate seasonal needs
in November and December by a means other than through the open market.
It
l'as obvious that some of the reserves that would have to be put out between
and the year-end would have to be absorbed shortly after January 1, and
he had hoped some of that absorption could be accomplished without the
necessity of having to sell large amounts from the System's portfolio in
January.
He recognized that while there would be some need for additional
reserves in the first part of November, there was reason to make the effective
clate of the proposed action toward the end of the month.
With respect to the deferment schedule, Governor Shepardson said that
he had been concerned about this problem from the time it had first come up
ill 1958.
On principle, the System would not be accomplishing anything by a
change in the schedule from two to three days.
If it was wrong to extend as
11111ch credit as was now being extended through float because the maximum
dep
,- erment schedule was too short, it would still be wrong on principle to
be extending a substantial amount of credit on float even if the maximum
were increased to three days.
A change to the three-day schedule
10/26/60
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vcu1d be only a change in degree.
Another consideration was that, with the
tendency toward acceleration of the time taken for clearing of checks, further
substantial gains toward expediting check collections could be expected over
the next several years. This would be of benefit to the entire community.
Thus, unless a change in the time schedule could entirely remove an objection
to the principle of the Federal Reserve carrying float, he had grave doubts
as to whether any change in the existing deferment schedule was desirable in
aV event.
This meant that the only reason for taking action now to increase
the deferment schedule would be for whatever benefit such action might proin absorbing redundant reserves after the turn of the year without
haring to sell securities in the open market.
Because of the uncertainties
°I that might be needed in January and of how those needs might best be met,
he had
come to the view that actions at this time should be limited to
l'eleasing vault cash and adjusting reserve requirements at central reserve
citY banks and at country banks along the lines indicated on page 7 of the
Illeraorandum distributed by Mr. Thomas.
In any event, he would leave the
Itlestion of a change in the deferment schedule for consideration at a
later time.
Governor Shepardson then referred to the type of announcement that
'11-ght be made of action that might be taken by the Board.
He felt that the
to
Ile of such a statement was important, that regardless of whether reserve
l'ecliairements were reduced or reserves were made available through permitting
10/26/60
-10-
banks to count vault cash the same purpose was served,and that it would be
helpful if the statement could make it clear that the different classes of
banks were being benefited on an equitable basis in the overall picture
regardless of whether the benefit came about through a change in their
reserve requirements or through their being permitted to count vault cash.
Governor King said that to delay an announcement until mid-November
Or later and to emphasize that the action was then being taken to meet
eeasonal needs did not impress him as a convincing argument against making
a4 announcement now of actions that would be directed toward furnishing the
l'eserves that would be needed in November and December.
He felt it would be
Preferable to make an announcement of the action at once.
On one aspect of
the changes that had been suggested earlier in the discussion, he would prefer that the reduction in reserve requirements of central reserve city banks
t0 become effective on December 1 might better be 1/2 percentage point rather
than a full percentage point, leaving some further action to be taken by the
/3°a1"cl in equalizing reserve requirements of central reserve and reserve city
banks between now and July 1962. This was his preference, he said, but he
1148 villing to go along with changes such as had been suggested in the
Ilterilorandum from Mr. Thomas and discussed by the Board during this meeting
wa
the one held on October 25.
Governor Balderston said that he would make an immediate announceOf the contemplated action, to become effective some time in the latter
lialf of November.
Looking at the specific proposals, he would prefer to
10/26/60
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release all vault cash and he would also wish to equalize the position of
central reserve and reserve city banks at the present time.
With specific
respect to country banks, Governor Balderston said he favored increasing
their requirements from 11 per cent to 12 per cent at the time they were
Permitted to count all of their vault cash holdings, rather than to
increase them to 12-1/2 per cent.
The amount of reserves involved was
leas than $200 million and the number of banks that would be affected
adversely because of an increase in reserve requirements from 11 to 12
Per cent was only 68 as compared with approximately 300 country banks
that would be adversely affected by an increase in the percentage to 12-1/2
Per cent.
With respect to the deferment schedule, Governor Balderston
said that he had been of two views on this question from the beginning.
In a classroom atmosphere, he would be for taking action to increase the
deferment schedule, but from the practical aspects of the matter he did
not believe that the Board at this time should indicate that it was going
to
increase the time schedule in the month of January which of necessity
1°Oki.ng
to a time when the Doard could not be certain as to what would
then he needed.
In response to a question from Chairman Martin, Governor Mills
said that he would take no action on the deferment schedule at this time.
11°14.ever, on the technical side, the Board should remember that the time
schedUle for granting of credit by the Federal Reserve Banks was something
that came into existence in the earliest days of the Federal Reserve System
401
10/26/co
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'fl the Reserve Banks were linked to commercial banks more than at the
Present time.
Actually, commercial banks make a practice of granting
immediate credit While the System today defers credit for checks
collected through the Reserve Banks as much as two days.
The Reserve
1/allks had not attempted to follow a practice of granting free reserves
to
member banks but rather had followed for many years a practice of
4°1ding back credit on checks processed through the Reserve Banks.
He
did not believe that the commercial banks would understand the reasoning
back of a move to increase the time schedule as a means of reducing
float in connection with the administration of monetary policy, even
though the existence of float provided some reserves to member banks.
Governor Robertson said that he had assumed that the total
Package on page 7 of the October 24 memorandum distributed by Mr. Thomas
ll'a8
based on what would be equitable for all banks.
He assumed that if
this Provided equitable treatment for all groups of banks - central
reserve
city, reserve city, and country - the elimination of the Change
the deferment schedule would mean that the package did not provide
''Nuitable treatment for the various groups of banks.
Mr. Thomas spid that the table to which Governor Robertson
Iseferred listed possible actions that might be taken.
bavp
4 8 'would
'
Actually, country
benefit proportionately more than either reserve or central
Isese rve city banks through the release of vault cash, and the inclusion
or
increase in the deferment schedule would simply mean that reserve
401'
10/26/6o
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and central reserve city banks would get less benefit from the various
actions proposed than otherwise.
He did not think it would be correct
to state that country banks had not benefited substantially from the
actions already taken or under the actions listed in the memorandum
refered to, since the Whole operation of authorizing the counting of
vault cash had been designed to benefit country banks relative to banks
in central reserve and reserve cities.
With respect to the proposal
that reserve requirements of country banks be increased from 11 to 12
Per cent rather than from 11 to 12-1/2 per cent on their net demand
dePosits, Mr. Thomas stated that this would leave the country banks in
a relatively more favorable position than reserve or central reserve
City banks as compared with the position they were in prior to any
sction taken to implement Public Law 86-114.
In his opinion, a margin
between country banks at 12 per cent and reserve and central reserve
City banks at 16-1/2 per cent of net demand deposits would be too large
ln favor of the country banks.
Mr. Hackley expressed the view that any change in the deferment
schedule in connection with the other actions proposed should be conaidered in terms of Whether this was an appropriate monetary instrument.
14h1le it was true that reserves provided through float affected reserves
available for monetary purposes, and while it was true that such reserves
had increased more thar had been anticipated when the time schedule maxias reduced from three days to two days in 1951, it should be borne
10/26/Co
in mind that the whole amount of float was only an incident to the check
collection system.
Float had never been regarded as an instrument for
changing the volume of bank reserves, although of necessity it was an
element to be taken into account in calculating the needs of banks for
reserves from time to time.
If the Board were now to take an action
that implied that the volume of float was to be changed through a
change in the deferment schedule for the purpose of accomplishing monetary objectives, such action woulo run counter to the arguments advanced
by the Board in response to criticism by Professor Walter Spahr and others
that the Board had violated the law- with regard to creating credit in
connection with the check collection schedule.
Mr. Hackley felt that,
while there was a perfectly good defense against the charges of Professor
8Pahr N4tien one considered the practical operations of the Federal Reserve
Check collection system, it would be desirable for any change in the time
schedule to be made separately and apart from a change reflecting the use
"monetary instruments.
He pointed out that, although commercial banks
railed to receive immediate credit for all checks collected through the
Pederal Reserve, they were granted credit at the time the checks were
handled and only the final passing of credit for a portion of such items
l'as deferred until the checks concerned could on the average be collected.
In sum, Mr. Hackley felt that it would be undesirable for the Board to
adopt the use of the time schedule as another instrument of credit policy.
01
10/26/60
-15-
Mr. Thomas noted that in January 1961 as in any other January there
vould be a problem of absorbing reserves as funds returned from the banks
and from the public following the holiday season.
The excess funds would
be dealt with in one way or another, and the inclusion in the memorandum
that he had distributed of a possible change in the time schedule was only
for the purpose of indicating that a lengthening of that schedule could be
a means of absorbing perhaps a half billion dollars of such reserves.
A
change in the deferment schedule that involved an absorption of such a
volume of reserves must be carefully considered from the standpoint of
timing because of the effect that it would have on the execution of monetary.
policy. Therefore, such a change should not be made without regard
to when a reduction in float would become effective.
However, if such a
change were to be made, it could be timed in January of any year since it
alweys necessary to absorb a substantial volume of excess reserves at
that season of the year.
Chairman Martin said that he would be entirely willing to accept
the 12 per cent figure suggested by Governor Balderston for reserve requireille/Its of country member banks although he was inclined to feel that this
l711/3 a relatively unimportant matter.
'
As to the suggestion that requirements
f°r central reserve city banks be reduced by one-half rather than a full
13ercentage point, because of various factors including the heavy outflow
Of
gold these banks were in need of the reserves that would be provided
4020
10/26/60
-16-
a reduction from 17-1/2 to 16-1/2 per cent in their requirements.
The
Chairman then turned to the question of timing for making reserves available.
Mr. Thomas said that he shared Governor Mills' feeling that it
vould be helpful if a portion of the reserves could be made available
starting early in November.
Such action would reduce the amount of open
market operations that would be necessary.
If, however, it did not seem
vise to make the reserves available early in November, provision of the
added funds as of November 24 at the beginning of the Thanksgiving and
Christmas holiday season and at central reserve city banks on December 1
you'd meet much of the seasonal needs.
Chairman Martin said that this was a question of dealing with
alternatives.
In his view the danger of misunderstanding of the Boardts
action would be greater if the action were made effective early in November
than if the reserves became available in the latter half of the month.
Nobody would be able to suggest that on the eve of an election campaign
l‘aserves had been put into the market to assist in a Treasury financing
°Dcration.
It was true that the technical situation would call for some
increase in open market operations early in November but, as he had
Indicated before, his conclusion was that the Board would be in a slightly
stronger position to make an announcement now but to delay the effective
date until after the Treasury financing was out of the way.
The Chairman
thee polled the members of the Board as to their views on the actions to
10/26/60
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taken and the effective date or dates of such actions as well as the
timing of the announcement.
Governor Robertson stated that he would dissent from the entire
Program for the reasons that he had indicated, and Governor Mills stated
that he would approve the proposed actions but would prefer that at least
Part of the vault cash be released early in November rather than late in
the month.
There was agreement on the part of all members of the Board
141° were present and who were inclined to favor the action that reserve
'
l equirements of country banks against their net demand deposits should
he increased from 11 to 12 per cent rather than from 11 to 12-1/2 per cent.
Chairman Martin then suggested that inasmuch as Governor Szymczak
'Arould not return to his office until noon today, the Board meet again at
2:30 p.m. for the purpose of taking action on the proposals discussed in
this session.
Report on competitive factors
(Hyattsville and Gaithersburg,
There had been distributed under date of October 24, 1960, a
dIse.ft of report to the Federal Deposit Insurance Corporation on the comIletitive factors involved in the proposed merger of Suburban Trust Company,
4Yattsville, Maryland, with The Maryland State Bank of Montgomery County,
Gaithersburg, Maryland.
Governor Mills stated that he had a number of suggestions for
Isevision of the wording of both the body of the report and of the conclusion
-18-
10/26/60
as to delete certain words such as "monopoly" and "alteration" of the
area with offices of the bank concerned.
Governor Robertson stated that he felt the changes suggested by
Governor Mills would be desirable, and he also suggested a substitution
in the conclusion of the report to bring out more clearly the effect that
the merger would have on the competitive situation in the area concerned.
Thereupon, unanimous approval was given to the report with the
understanding that the changes suggested by Governors Mills and Robertson
vould be incorporated prior to its transmission to the Federal Deposit
Insurance Corporation.
The conclusion of the report in the form in which
it was sent later in the day read as follows:
The two banks involved in this application do not appear
to be competitive with each other to a significant degree and,
hence, there would be little, if any, lessening of competition
in this respect. Suburban Trust could provide more effective
competition in the Gaithersburg-Germantown area for Farmers &
Merchants Bank, Rockville, when Farmers & Merchants branch is
established in that area than can Maryland State. The move
into northern Montgomery County by Suburban Trust represents
the continuation of its area coverage with branches. In Montgomery County and the adjoining county of Prince Georges the
proposed transaction amounts to further expansion of the
largest and most extensively branched bank in either of said
counties and would appear to be in furtherance of a trend
toward dominance in the two-county area.
The meeting then recessed and reconvened at 2:30 p.m. with all
IlleMbers of the Board in attendance and with Messrs. Sherman, Thomas,
11°10ny, Fauver, and Hackley present.
4023
10/26/6o
-19-
Amendments to Regulation D (Items 1 and 2).
Chairman Martin stated
that since the morning session he had talked with Governor Szymczak to give
him the background of the Boardls discussions of the proposed release of
He then
vault cash and changes in reserve requirements of member banks.
asked that Governor Szymczak express his views on the proposals.
Governor Szymczak said that, after studying the matter, he felt
that if the Board was going to increase reserve requirements of country
member banks as a means of absorbing some of the funds that would be
provided through a complete release of vault cash, a preferable procedure
to that suggested in the memorandum distributed by Mr. Thomas would be
to make the increase from 11 to 12 per cent effective in January of 1961
at the time When it would be necessary in any event to absorb some of the
sXcess reserves rather than to make it effective in November.
He believed
this would be better timing from the standpoint of the effect upon open
market operations.
However, he did not feel strongly about this point.
With respect to the deferment schedule, Governor Szymczak said
that before any action was taken by the Board to lengthen the time
schedule, he believed the whole matter should be discussed with the
?ederal Advisory Council.
This would be in keeping with the practice
that had been followed in the past.
°r
A change in the time schedule was
such special importance in terms of its relation to member bank
°Perations that a discussion with this group should take place before
81V action was announced.
10/26/60
-20-
With respect to the timing of an announcement on a release of
vault cash and changes in reserve requirements, Governor Szymczak said
that he had some hesitation about making an immediate announcement
because of the way in which it might be interpreted.
On the other hand,
80ma advance notice of the actions proposed for the latter part of
November and December 1 would be desirable.
On balance, he felt that
the Board had no option but to make its announcement prior to announce1t by the Treasury of its financing, if the reserves were to be made
"ailable in the second half of November.
Mr. Thomas then commented, in response to a question from Chairfl Martin, on the level of reserve requirements proposed for country
raeMber banks and on whether Governor Szymczakts suggestion for delaying
eal
increase in requirements for those banks would greatly facilitate
°Pell market operations.
He said that the proposed 12 per cent figure
141'U1d still leave country member banks in a relatively more favorable
13Q5ition than in the past, considering the benefit they would receive
f—
r°,11
a release of all vault cash to be counted in meeting reserve requireFrom the standpoint of providing or absorbing reserves, however,
the amount involved in this particular part of the proposal was not
sill'ficient to make a significant difference in operations for the Open
ket Account.
r°r
Thus, although a delay in the increase in requirements
country banks until January would fit in with the absorption of
l'e8erves that would be needed at that time, it would seem to him preferable
to
Make the increase effective at the same time the banks were being given
10/26/60
-21-
the benefit of permission to count all vault cash toward meeting their
reserve requirements.
teed of the full
The country member banks would not be in great
900 million of reserves that would be released by
Permitting them to count vault cash in the latter part of November,
and it would be easier to offset some of that amount by a simultaneous
increase in their reserve requirements rather than by absorbing a portion
of the unneeded reserves through open market operations.
Governor King said that he felt it preferable to increase reserve
requirements for country banks simultaneously with giving them permission
to count vault cash.
The proposed increase in reserve requirements was
Modest, very few banks would find that their reserve requirements were
greater than before the change, and he felt there would be no difficulty
ill
explaining the increase if any question were to arise.
Governor Szymczak then said that he was in favor of action that
would authorize the counting of all vault cash and the changes in reserve
requirements that had been suggested but that he would be opposed to any
ection at this time changing the deferment schedule.
The discussion then turned to the form of announcement that might
be issued this afternoon and to a draft of such announcement that had been
distributed prior to this meeting by Mr. Molony.
Following a discussion, the Board acted to (a) authorize the counting
s'r all vault cash in partial compliance with member bank reserve requirements,
effective November 24, 1960, (b) increase reserve requirements against net
('o)
10/26/6o
-22-
demand deposits of banks not carrying the requirements of reserve or central
reserve city banks from 11 per cent to 12 per cent of their net demand
deposits, effective November 24, 1960, and (c) to reduce from 17-1/2 per
cent to 16-1/2 per cent the reserves required against net demand deposits
°f
banks located in a central reserve city and subject to requirements for
that group of banks, effective December 1, 1960.
On this action Governor Robertson voted "no" for the reasons he
had stated.
The foregoing action was taken with the understanding that a
statement would be released to the press at 4:00 p.m. this afternoon,
that appropriate advice would be sent by telegram to all Federal Reserve
8anks and branches, and that arrangements would be made for publication
Of a notice in the Federal Register.
A copy of the amended Supplement
t° Regulation D, Reserves of Member Banks, is attached to these minutes
as Item No. 1, and a copy of the statement for the press issued at 4:00
Psm. E.D.T., October 26, 1960, is attached as Item No. 2.
The meeting then adjourned.
Secretaryts Notes: Governor Shepardson today
approved on behalf of the Board a letter to
the Interstate Commerce Commission requesting
the detail to the Board of Mr. Edward H. McMahan
for a three-month period beginning November 18,
1960, to serve as Hearing Examiner in connection
with a hearing to be conducted under section 4(c)
(6) of the Bank Holding Company Act, the Commission
to be reimbursed for Mr. McMahants salary only for
the time in which he is actually engaged in the
conduct of the hearing.
rt. 0-,..yr.4..„0
10/26/60
-23Governor Shepardson also approved on behalf of
the Board a telegram to the Federal Reserve Bank
of Boston (attached Item No. 3) approving the
designation of Ronald C. Currie as special
assistant examiner.
Pursuant to the recommendation in a memorandum
dated October 25, 1960, from Mr. Fauver, Assistant
to the Board, Governor Shepardson today approved
on behalf of the Board a visit to the Board's
offices on December 6, 1960, by the Executive
Committees of the National and State Bank Divisions
of the American Bankers Association, with the understanding that the program would include a luncheon
in the staff dining room.
SUPPLEMENT TO REGULATION D
Section 204.5—Supplement
ISSUED BY THE BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Effective as to all member banks at the opening of business on
November 24, 1960, except as otherwise indicated.
(a) Reserve percentages.—Pursuant to the provisions of section
19 of the Federal Reserve Act and § 204.2 (a), but subject to paragraph (b) of this section, the Board of Governors of the Federal
Reserve System hereby prescribes the following reserve balances
which each member bank of the Federal Reserve System is required
to maintain on deposit with the Federal Reserve Bank of its district:
(1) If not in a reserve or central reserve city—
(i) 5 per cent of its time deposits, plus
(ii) 12 per cent of its net demand deposits.
(2) If in a reserve city (except as to any bank located in
such a city which is permitted by the Board of Governors of
the Federal Reserve System, pursuant to § 204.2 (a) (2), to
maintain the reserves specified in subparagraph (1) of this
paragraph)—
(i) 5 per cent of its time deposits, plus
2 per cent of its net demand deposits.
/
(ii) 161
(3) If in a central reserve city (except as to any bank located
in such a city which is permitted by the Board of Governors of
the Federal Reserve System, pursuant to § 204.2 (a) (2), to
maintain the reserves specified in subparagraph (1) or (2) of
this paragraph)—
(i) 5 per cent of its time deposits, plus
2 per cent of its net demand deposits until the
/
(ii) 171
2
/
opening of business on December 1, 1960, and 161
thereafter.
deposits
demand
net
its
per cent of
(b) Counting of currency and coin.—The amount of a member bank's
currency and coin shall be counted in partial compliance with the
reserve requirements of paragraph (a) of this section.
Item No. 1
1026/60
29
Item Ho. 2
10/26/60
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Statement for the Press
October 26, 1960.
For release at 4:00 p.m. E.D.T.
October 26, 1960
The Board of Governors of the Federal Reserve System today
almended its Regulation D, relating to bank reserves and reserve require—
Ments, in three respects. The amendments will become effective
November 24 and December 1, 1960.
The changes, made in further implementation of a 1959 Act of
Congress relating to vault cash and reserve requirements, will make
available to the System's 6,200 member banks about W.,300 million of
additional reserves as the economy enters, between Thanksgiving and
Christmas, the peak season of rising cash and credit needs. The
changes are as follows:
1. Effective November 24, all of the System's 6,200
member banks will be authorized to count all their vault cash
(i.e., all the coin and currofty they hold) in meeting their
reserve requirements.
2. Also effective Novembei4 .440 the reserve requirement of
"country banks" (i.e., banks not tlassified as central reserve
city or reserve city banks) against their net demand depoeits,
now 11 per cent, will become 12 per cent.
-23. Effective December 1, the reserve requirements of
central reserve city banks against their net demand deposits,
now 17 1/2 per cent, will become 16 1/2 per cent. This
change is in accordance with a provision of the 1959 Act that
would have the effect of eliminating the differential between
the requirements of central reserve city banks and reserve city
banks by July 28, 1962.
These actions are the third in a series taken over the course of
4 Year
to implement the legislation cited. The previous actions, both
authorizing member banks to count specified portions of vault cash in
meeting reserve requirements, were made effective December 1 and 3,
1959, and August 25 and September 1, 1960.
The actions announced today will release, for loans, investments,
and for provision of seasonal cash needs, a net amount of approximately
4,050 million of reserves on November 24 and $250 million on December 1.
Of the $1,300 million total, $400 million will be released at central
l eserve city banks, 0380 million at reserve city banks, and $520 million
'
COUntry
banks. The net amount of additional reserves to be made
41ai1able to country banks reflects the result of a release of $900 million
(311 vault cash, partly offset by an increase of $380 million in their
reserve requirements.
All member banks are required to set aside a portion of their
deposits to meet basic reserve requirements established by the System.
Ilefore the 1959 Act of Congress, member banks had to meet these require—
Melts with balances kept at their respective Federal Reserve Banks. They
Were not permitted to count, as reserves, cash in their own vaults.
However, the amount of cash that banks have found it necessary to hold,
in relation to their deposits, varied bank by bank depending upon the
daily needs of their customers. The legislation adopted by Congress was
designed to smooth out the inequities resulting from these operating
differences. When the changes announced today become effective, all
tilember banks will be permitted to count all cash on hand, as well as
balances kept at their Federal Reserve Bank, in meeting their basic
l'eserve requirements.
Before the 1959 Act, country banks, on the average, were in the
position of having 14.5 per cent of their net demand deposits immobilized
in the form of reserve balances and needed vault cash. In consequence of
the legislation and the series of actions over the last year in relation
to it, this amount will be changed to a uniform 12 per cent, after the
effective date of today's action.
The corresponding percentages for reserve city banks will be
Nduced from an average of 18.2 per cent to a uniform figure of 16.5 Per
cent. For central reserve city banks, the comparable figures are 18.7
and 16.5 per cent.
O32
Item No. 3
10/26/60
AM
TELEGR
WIRE SERVICE
LEASED
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON
October 26, 1964
GROOT - BOSTON
: Board approl.es designation of Ronald C.
Reurtel October 26, 1960
Reserve Bank of
Currie as special assistant examiner for Federal
tions of Depositors
Boston for purpose of participating in examina
Company, Bangor,
Trust Company, Augusta, Maine; The Merrill Trust
d, Connecticut;
Maine; The Connecticut Bank and Trust Company, Hartfor
and Rhode Island Hospital Trust Company, Providence, Rhode Island.
(Signed) Elizabeth L. Carmichael
CARMICHAEL
@FedFRASER