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F.R.B. CHAIRMEN'S CONFERENCE Washington, D.C. December 10, 1948 (K.R.B.'s notes) INTRODUCTION A. A great pleasure to be here 1. My first assignment in the F.R.S. came from the Chairmen 2. That assignment led me into the System 3. To renew acquaintance with Chairmen then George Brainard - Frank Neely - Bob Caldwell and Russell Dearmont of my old 8th District 4. To meet men who have become Ohaixven in past decade B. Attraction of F.R.S* is support of strong board of directors; if my work is any good, it is because of the environment at the Philadelphia Bank Feel part of important national public service institution C. Illustrated last night Diversity of amateur voices let the same tune Over-all harmony Impact of the Ststea I. Principle» of commercial b*«* y— if» requirwaents A. Why require banks to hold reserve» at all? 1. Analogy with alloy steel (a) Can control output of alloy steel only if you control both (1) Total amount of alloy available to producers (2) Percentage of alloy in finished steel (b) Limitations of the analogy (1) Do not want centralized control of steel output, but do want control over supply of money 2. Summary "Unless commercial banks are required to maintain at least reserves against deposits, the country would be without a mechanism for regulating the supply of money in the general interest." - 2 - B. What should total requirements be? 1* If you are to control the volume of deposits, reserve requirements must be related to the amount of reserves available. (a) Present position Gold Governments *23 bil* 23 n Notes %2U bil. Reserve deposits 20 " Other dep. 2 " Change within the past year Gold Governments 2* C. / 1^ bil. n / 1 Notes Reserve deposits - è bil. / 3 " Can compensate for reduced control over volume of reserves through greater control over requirements How should each bank's share of the total be determined? 1. Principles (a) General Reserve requirements may be thought of as immobilized assets Amount a bank must hold is its contribution to effective national monetary policy (b) Basic principle is equity (1) (2) 2. Hornet's nest: the nonmember bank problem Location vs. character of business (c) Administratively feasible (d) Smooth transition A specific plan: five points (a) Abolish reserve city designations (b) Classify deposits (1) Interbank (2) Other demand (3) Other time (30%) (20%) ( 6%) (c) Vault cash as reserves (d) Due froms as partial reserves (e) Authority to change requirements - 3 - II. The current problem A* How to control total volume of reserves 1» Open Market Policy 2. &ebt mangsment policy (a) Funding - refunding, etc. B. How best to absorb additional reserves unavoidably created as result of A. Answer depends on what aspects are considered most important - including incidental effects 1. If chief concern is with smooth transition and danger of very great increase in volume of reserves, then bonds with -reserve money Ceiling reserve plan - that is, 100% reserves against increase in deposits This solution raises questions about bank earnings 2. If concern is bank earnings, then payment of interest on all or part of reserves 3. Possible combinations
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