Regional President Speech

INSTRUMENTS OF FEDERAL RESERVE POLICY Presented at the meeting of the Board of Directors on September 7» 1967. Research Seminar, Board Room on September 13 and September 21, 1967» Lecture given before the Department of Economics Seminar of the University of Pittsburgh, Pittsburgh, Pa., on September 22, 1967. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis I October 19(3 issue of the BUSINESS REVIEW) Meeting of the Board of Directors, 9/7/67. FEDERAL RESERVE TOOLS: WHO, WHAT, WHEN, WHERE, WHY, AND HOW DISCOUNT POLICY OPEN MARKET OPERATIONS CHANGE IN RESERVE REQUIREMENTS SELECTIVE INSTRUMENTS Discount Rate Member Bank Borrowing I. What is it? Rate charged member banks for borrowing from the Federal Rules and practices involved in borrowing. Rules are not Mainly purchases and sales of Government secur­ Change in percentage of deposits which member Instruments designed to Influence the amount of Reserve Bank. changed flexibly as a tool of policy but have an important ities. banks are required to hold as reserves. credit put to use in a particular sector of the econ­ bearing on use and impact of borrowing. omy. At present, only margin requirements are in effect. Margin requirements: set minimum required down fiayments for purchasing or carrying of securities isted on national exchanges. Consumer credit controls: set minimum down pay­ ments and maximum periods of repayment ap­ plied to consumer credit. Real estate credit controls: set minimum down payments and maximum periods of repayment for credit extended to finance new construction. 2. Who has the Board of Directors of each FRB establishes rate subject to re­ Rules of Board of Governors (Reg. A) administered by each Federal Open Market Committee. Board of Governors. Board of Governors. authority? view and determination by Board of Governors. Federal Reserve Bank. 3. Who takes the Federal Reserve Member bank Federal Reserve Federal Reserve Federal Reserve initiative? 4. Limits to use Lower limit, zero; no upper limit. Lower limit, zero; upper limit provided by tradition against Limit of purchases: lower, zero; upper, gold certifi­ Demand deposits: Reserve City banks - 10-22% Stock Margin Requirements: lower limit, zero; borrowing, administration of discount window and total expan­ cate reserve ratio. Country banks - 7-14% upper limit^ 100 per cent. sion of reserve credit permitted by gold certificate reserve Sales: lower, zero; upper, size of portfolio. Time deposits: Reserve City banks ) , , 0/ Consumer Credit: the power to change the mini­ ratio. Country banks ( ' '° mum down payments and maximum periods of repayment was not limited, but was left to the dis­ cretion of the Board of Governors. Real Estate Credit: power to change requirements was in some cases limited by statute. 5. Can it be used Changes can be small but are not easily reversed over short With borrowing at the initiative of the banks, reserves can be The most subtle instrument of all; volume can be The least subtle instrument; a large volume of de­ Flexibility is limited by trade practices and ad­ flexibly? periods; for this reason, experimental "probing" action is more supplied in precise amounts and for periods needed by individ­ large or small; operations easily reversible. posits is affected by small change in requirements; ministrative problems. Makes over-all policy more appropriate for open market operations, with later "confirma­ ual banks. not easily reversible. flexible, however, by enabling the Federal Reserve tion" through change in discount rate. to influence credit in one area of the economy without restricting credit in others. 6. How is it coor­ Generally to "confirm" prior action in open market operations; Acts as a safety valve; if other instruments unduly tighten re­ Used in conjunction with discount rate and mem­ Often may require use of other instruments to Jn relation to the general instruments, selective dinated with (e.g. by selling Government securities the F.R. can bring about serves of individual banks, they may resort to the discount ber bank borrowing (as explained under those smooth the effects of changes. instruments generally reinforce, compensate, or 'flj .. other instruments? higher rates on Treasury bills and then follow with an increase window. headings); also may smooth effects of changes in at certain times serve as a partial substitute. in the discount rate; also, by restrictive open market operations Pressure on the discount window will depend partly on coordi­ reserve requirements. the F.R. can tighten reserve positions, forcing more banks to nation of discount rate and open market operations (e.g. if borrow from the Reserve Banks and hence making the discount the discount rate is significantly below rates on Treasury Dills rate more "effective"). for an extended period, banks will tend to obtain reserves by discounting rather than selling bills). 7. Administrative None Administration of discount window requires close observation Execution of open market operations requires the Because changes in requirements apply to large Administrative difficulties are much greater than problems? of nature and purpose of borrowing by individual banks; prob­ trading desk to be in intimate contact with the groups of banks, the impact on individual banks for general instruments. The difficulties include lem of determining eligibility of paper for rediscount arises money and Government securities markets. must be studied carefully in advance; also, changes problems of determining the value of collateral, only occasionally. impose some burdens on member banks in calcu­ recognition of trade practices, and policing ac­ lating their positions. tions of a large number of lenders to enforce regulations. 8. What is its Varies. May be taken as reflecting a major policy decision by Tradition against continued indebtedness means that rising Unless operations are very large scale, likely to May be considerable. Often used for major policy Impact on individuals is likely to be greater than psychological the monetary authorities; or may be merely a technical adjust­ volume of borrowing has increasing tightening effect through have little effect because it receives relatively actions for dramatic effects; all affected banks that of general instruments because individuals impact? ment of discount rate to market rates. Because bank rate is so banker psychology. little publicity. necessarily made aware of the action in computa­ are made aware of regulations in the process of 1 important in other countries, a change in the discount rate tion of required reserves. borrowing or buying the listed articles. takes on additional symbolic significance at times of balance of payments difficulties. How does it affect Determines the price for borrowing reserves. Borrowing increases reserves; repayment decreases reserves. Purchases increase reserves; sales decrease re­ No effect on total reserves; changes the amount of No effect. bank reserves? serves. deposits which a given amount of reserves will sup­ port. A reduction in requirements frees reserves for expansion of deposits; increases in require­ ments nave been used principally to mop up excess reserves. 10. Where is the Borrowing member banks. Borrowing member banks. Money market banks and Government securities All in particular class of member banks whose re­ Borrowers and lenders in the selected credit con­ immediate impact? dealers. quirements are changed (Reserve City or Country). trol area. 11. How does the Primarily through the complex of short-term rates in which the By shifting indebtedness from bank to bank; because of reluc­ Through the normal flow of funds among banks effect spread? discount rate plays a pivotal role; a change in the discount rate tance to be in debt except for short periods, borrowing banks and regions (e.g. the additional reserves from F.R. influences the method by which banks adjust reserves and sell securities to repay the Federal Reserve; this reduces re­ purchases spread from money market centers to hence affects other rates (e.g. a rise in the discount rate above serves of other banks (assuming the F.R. does not increase other parts of the country) and through the com­ the Treasury bill rate induces banks to sell bills rather than total reserves by other means) and forces them to borrow. plex of rates in the money and Government securi­ borrow, thus tending to raise the bill rate). ties markets. Changes the distribution of credit among differ­ 12. How does it ent sectors of the economy. affect credit? Although each of the tools has its unique impact, it works through the supply, cost and availability of bank reserves and the level and pattern of interest rates. In turn, this has an effect, at the margin, on the supply, cost MM availability of maaay «ad cradit. And, finally, this influences the flow of expenditures and the pace of economic activity. M i Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis ohW Copies distributed to the Directors on 9/7/67 smcl to the members of Ifthe Research Seminar on 9/13/67- FEDERAL RESERVE TOOLS: WHO, WHAT, WHEN, WHERE, WHY, AND HOW DISC O U N T POLICY OPEN MARKET OPERATIONS CHANGE IN RESERVE REQUIREMENTS SELECTIVE INSTRUMENTS Discount Rate Member Bank Borrowing I. What is it? R R e at s e e rv c e h a B r a g n e k d . member banks for borrowing from the Federal c b R h e u a l a e n r s i g n e g a d n o d n f l e u p x s i r e b a l c y a t n ic a d e s s i m a i p n t a v o c o o t l l v o e o f d f bo p in r o r l o ic b w y o i r n r b g o u . w t in h g a . v e Ru an le s i m a p r o e r ta n n o t t M iti a e i s n . ly purchases and sales of Government secur­ C ba h n a k n s g e a re in r p e e qu rc ir e e n d t a t g o e h o o f l d d e a p s o r s e it s s e r w ve h s i . ch member c o In r m s e t y d r . i u t m A p t e u n t p t s r t e o s d e u e n s s e t i , g i n n o e n a d l y p t a m o r a ti i r c n g u f i l n l u a e r r n e s c e q e c u t i t o r h e r e m o e f a n m t t h s o e u a n e r t c e o o n in f ­ effect. Margin requirements: set minimum required down payments for purchasing or carrying of securities listed on national exchanges. Consumer credit controls: set minimum down pay­ ments and maximum periods of repayment ap­ plied to consumer credit. Real estate credit controls: set minimum down payments and maximum periods of repayment for credit extended to finance new construction. 2. Who has the Board of Directors of each FRB establishes rate subject to re­ Rules of Board of Governors (Reg. A) administered by each Federal Open Market Committee. Board of Governors. Board of Governors. authority? view and determination by Board of Governors. Federal Reserve Bank. 3. Who takes the Federal Reserve Member bank Federal Reserve Federal Reserve Federal Reserve initiative? 4. Limits to use Lower limit, zero; no upper limit. Lower limit, zero; upper limit provided by tradition against Limit of purchases: lower, zero; upper, gold certifi­ Demand deposits: Reserve City banks - 10-22% Stock Margin Requirements: lower limit, zero; borrowing, administration of discount window and total expan­ cate reserve ratio. Country banks - 7-14% upper limif 100 per cent. sion of reserve credit permitted by gold certificate reserve Sales: lower, zero; upper, size of portfolio. Time deposits: Reserve City banks I Consumer Credit: the power to change the mini­ ratio. Country banks ) ™ mum down payments and maximum periods of repayment was not limited, but was left to the dis­ cretion of the Board of Governors. Real Estate Credit: power to change requirements was in some cases limited by statute. 5. Can it be used Changes can be small but are not easily reversed over short With borrowing at the initiative of the banks, reserves can be The most subtle instrument of all; volume can be The least subtle instrument; a large volume of de­ Flexibility is limited by trade practices and ad­ flexibly? periods; for this reason, experimental "probing" action is more supplied in precise amounts and for periods needed by individ­ large or small; operations easily reversible. posits is affected by small change in requirements; ministrative problems. Makes over-all policy more appropriate for open mariet operations, with later "confirma­ ual banks. not easily reversible. flexible, however, by enabling the Federal Reserve tion" through change in discount rate. to influence credit in one area of the economy without restricting credit in others. 6. How is it coor­ Generally to "confirm" prior action in open market operations; Acts as a safety valve; if other instruments unduly tighten re­ Used in conjunction with discount rate and mem­ Often may require use of other instruments to In relation to the general instruments, selective dinated with (e.g. by selling Government securities the F.R. can bring about serves of individual banks, they may resort to the discount ber bank borrowing (as explained under those smooth the effects of changes. instruments generally reinforce, compensate, or other instruments? higher rates on Treasury bills and then follow with an increase window. headings); also may smooth effects of changes in at certain times serve as a partial substitute. in the discount rate; also, by restrictive open market operations Pressure on the discount window will depend partly on coordi­ reserve requirements. the F.R. can tighten reserve positions, forcing more banks to nation of discount rate and open market operations (e.g. if borrow from the Reserve Banks and hence making the discount the discount rate is significantly below rates on Treasury bills rate more "effective"). for an extended period, banks will tend to obtain reserves by discounting rather than selling bills). 7. Administrative None Administration of discount window requires close observation Execution of open market operations requires the Because changes in requirements apply to large Administrative difficulties are much greater than problems? of nature and purpose of borrowing by individual banks; prob­ trading desk to be in intimate contact with the groups of banks, the impact on individual banks for general instruments. The difficulties include lem of determining eligibility of paper for rediscount arises money and Government securities markets. must be studied carefully in advance; also, changes problems of determining the value of collateral, only occasionally. impose some burdens on member banks in calcu­ recognition of trade practices, and policing ac­ lating their positions. tions of a large number of lenders to enforce regulations. 8. What is its Varies. May be taken as reflecting a major policy decision by Tradition against continued indebtedness means that rising Unless operations are very large scale, likely to May be considerable. Often used for major policy Impact on individuals is likely to be greater than psychological the monetary authorities; or may be merely a technical adjust­ volume of borrowing has increasing tightening effect through have little effect because it receives relatively actions for dramatic effects; all affected banks that of general instruments because individuals impact? ment of discount rate to market rates. Because bank rate is so banker psychology. little publicity. necessarily made aware of the action in computa­ are made aware of regulations in the process of important in other countries, a change in the discount rate tion of required reserves. borrowing or buying the listed articles. takes on additional symbolic significance at times of balance of payments difficulties. 9: How does it affect Determines the price for borrowing reserves. Borrowing increases reserves; repayment decreases reserves. Purchases inevase reserves; sales decrease re­ No effect on total reserves; changes the amount of No effect. bank reserves? serves. deposits which a given amount of reserves will sup­ port. A reduction in requirements frees reserves for expansion of deposits; increases in require­ ments nave been used principally to mop up excess reserves. 10. Where is the Borrowing member banks. Borrowing member banks. Money market banks and Government securities All in particular class of member banks whose re­ Borrowers and lenders in the selected credit con­ immediate impact? dealers. quirements are changed (Reserve City or Country). trol area. 11. How does the Primarily through the complex of short-term rates in which the By shifting indebtedness from bank to bank; because of reluc­ Through the normal flow of funds among banks effect spread? discount rate plays a pivotal role: a change in the discount rate tance to be in debt except for short periods, borrowing banks and regions (e.g. the additional reserves from F.R. influences the method by whicn banks adjust reserves and sell securities to repay the Federal Reserve: this reduces re­ purchases spread from money market centers to hence affects other rates (e.g. a rise in the discount rate above serves of other banks (assuming the F.R. does not increase other parts of the country) and through the com­ the Treasury bill rate induces banks to sell bills rather than total reserves by other means) and forces them to borrow. plex ot rates in the money and Government securi­ borrow, thus tending to raise the bill rate). ties markets. k Changes the distribution of credit among differ- 12. H af o fe w c t d c o r e e s d i i t t ? 1 ent sectors of the economy. Although each of the tools has its unique impact, it works through the supply, cost and availability of bank reserves and the level and pattern of interest rates. In turn, this has an effect, at the margin, on the supply, cost and availability of money and credit. And, finally, this influences the flow of expenditures and the pace of economic activity. . Source: October 1963 issue of the BUSINESS REVIEW. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Economics Department Seminar of the U. of Pitts., 9/22/67. 53rd ANNUAL REPORT OF BOARD OF GOVERNORS, 1966 July 15, 1966 Disapproval of proposed discount rate Increase. The Board disapproved action taken by the Boards of Directors of the Federal Reserve Banks of New ^ork, Cleveland, Chicago, and St. Louis on July 14 establishing a rate of 5 per cent (an increase from 4Vi per cent) on discounts for and advances to member banks under Sections 13 and 13a of the Federal Reserve Act, along with appropriately corresponding subsidiary rates on advances under other sections of the Act. Votes for this action: Messrs. Robertson, Shepard- son, Daane, Maisel, and Brimmer. Votes against this action: None. (In accordance with provisions of the Federal Reserve Act, the Federal Reserve Banks establish rates on discounts and advances to member banks at least every 14 days and submit such rates to the Board for review' and determination. No changes had been made in such rates since those re­ ferred to on pages 63-70 of the Board’s Annual Report for 1965.) In considering the discount rates established by the several Federal Reserve Banks, the Board was not unmindful of con­ siderations that might have formed a basis for approval. As described in the Record of Policy Actions of the Federal Open Market Committee, published elsewhere in this Annual Report, the Committee had been pursuing for several months in the win­ ter and spring a policy of reducing net reserve availability gradu­ ally in an effort to resist inflationary pressures. This monetary policy process, together with strong credit demands, had resulted in an upward movement of market interest rates that left the 4Vi per cent discount rate substantially out of alignment. This cir­ cumstance had led to rather widespread expectations of a dis­ count rate increase and had contributed to market uncertainties. The directors of the Reserve Banks concerned reasoned that an adjustment of the discount rate would serve as a stabilizing influence. They also believed that a discount rate increase could be helpful in symbolizing continued concern about the persistent deficit in the U.S. balance of international payments and that the 94 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis FEDERAL RESERVE SYSTEM use of the discount rate instrument, along with other instruments of Federal Reserve policy, was called for to maximize the ef­ fectiveness of monetary policy in the absence of greater fiscal re­ straint, in the form of a tax increase, to limit excessive credit expansion. For a variety of reasons, however, it was the conclusion of the Board that on balance a discount rate increase was not warranted at this particular time. Those reasons were not necessarily sub­ scribed to in toto or accorded equal weight by each of the mem­ bers of the Board. There had been a recent international development on which some members placed considerable stress. On the preceding day, announcement had been made of an increase from 6 per cent to 7 per cent in the discount rate (Bank rate) of the Bank of England. This raised the question whether the effect of the British action, designed to strengthen the position of the pound sterling, should be weakened by offsetting action here. With respect to the domestic situation, some doubt was ex- j)ressed within the Board as to whether a discount rate increase one-half of 1 percentage point would be sufficient to quiet prevailing uncertainties, and therefore to provide a stabilizing in­ fluence, or whether such an increase might not simply promote speculation concerning the possibility of additional discount rate action. In view of the many strains and crosscurrents prevailing in financial and credit markets, it also appeared possible that the announcement effect of even a modest change in the discount rate could be exaggerated and such action misconstrued, with ramifications extending beyond the intended scope of the action. Further, although the discount rate was lower than usual rela­ tive to market rates, it was not evident that this circumstance was hampering the pursuit of a policy of monetary restraint or that it was causing unmanageable problems in the administration of the Reserve Bank discount windows. Another factor contributing to the Board’s decision was the widespread desire to avoid further escalation of interest rates, in­ 95 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis ANNUAL REPORT CF BOARD OF GOVERNORS eluding those being offered for funds by banks and nonbank financial institutions. Action was being announced today (July 15) by the Board (and also by the Federal Deposit Insurance Corporation) to lower the maximum rates payable by banks on time-deposits with multiple maturities, and the Board had only recently raised the reserve requirement against time deposits in excess of $5 million at each member bank. In addition, the Board was even now submitting to the Congress, with a recom­ mendation for prompt action, a legislative proposal to broaden the regulatory power over rate practices of banks and savings and loan associations. As to the point that an increase in the discount rate could be regarded as primarily a technical adjustment in view of current money market rates, it was suggested that if the discount rate were moved regularly in order to conform to market rates and market expectations, that would tend to reinforce the role of expectations and make them still more dominant. Thus, control of monetary policy would tend to shift from the monetary authority to the market. Members of the Board noted that, although the preceding reasons weighed against increasing the discount rate at this particular juncture, the rate might usefully be varied from time to time. The effect of the Board’s action was that the rates on discounts and advances contained in the existing rate schedules of the re­ spective Federal Reserve Banks automatically continued in effect. * * * * * The Boards of Directors of several Federal Reserve Banks sub­ sequently submitted to the Board of Governors additional pro­ posals, as follows, for discount rate increases. The rates were 96 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis FEDERAL RESERVE SYSTEM disapproved in each instance for reasons generally similar to those stated above. Reserve Bank Proposed rate Date of Board (per cent) action Boston July 19 Philadelphia July 22 Minneapolis August 24 Cleveland August 25 Chicago August 26 Boston August 30 Philadelphia September 2 July 15, 1966 Amendment to Regulation Q, Payment of Interest on Deposits. Effective July 20, 1966, Regulation Q was amended to define multiple- maturity time deposits, and the Supplement to the Regulation was amended, to prescribe maximum rates of interest on such deposits as follows: 5 per cent on such deposits of 90 days or more and 4 per cent on those of less than 90 days. Votes for this action: Messrs. Robertson, Shepard- son, Daane, Maisel, and Brimmer. Votes against this action: None. The term “multiple-maturity time deposit” was defined as any time deposit (1) payable at the depositor’s option on more than one date, whether on a specified date or at the expiration of a specified time after the date of deposit (for example, a deposit payable at the option of the depositor either 3 months or 6 months after the date of deposit), (2) payable after written notice of with­ drawal, or (3) with respect to which the underlying instrument or contract or any informal understanding or agreement provides for automatic renewal at maturity. Previously, member banks had been able to pay as high as 5Vi per cent on such deposits. The Board’s action, which made no change in the maximum permissible rate for time deposits 97 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Digest of Principal F ^ al Reserve Policy Actions in 1966 Period Action Purpose January Reduced System holdings of U.S. Government securi­ To continue to moderate money and credit market ad* ties, on balance, by about $650 million. Member bank justments to the December 1965 discount rate in* borrowings averaged about $400 million. crease early in the month, and then to offset seasonal reflow of funds and maintain about the same money market conditions that had prevailed in early January. February- Limited the increase in System holdings of U.S. Gov* To effect gradual reduction in net reserve availability early June crnment securities to about $1.5 billion. Average mem* and thereby to restrain the growth in the reserve base, bcr bank borrowings rose to nearly $600 million. bank credit, and the money supply. June Raised from 4 to 5 per cent the reserve requirements To exercise a tempering influence on the issuance of against time deposits, other than savings deposits, time certificates of deposit by larger banks and to in excess of $5 million at each member bank, efTec- apply some additional restraint on the expansion of tivc July 14 and 21 for reserve city and country mem­ banks’ loanable funds, thus reinforcing the opera­ ber banks, respectively, thereby increasing required tions of other instruments of monetary policy in con­ reserves by about $420 million. taining inflationary pressures. Made shorter-term bank promissory notes and similar To prevent future use of these relatively new instru­ instruments issued after June 26, 1966, subject to reg­ ments as a means of circumventing statutory and reg­ ulations governing reserve requirements and payment ulatory requirements applicable to bank deposits. of interest on deposits, effective September 1,1966. vo FEDERAL RESERVE SYSTEM 53rd ANNUAL REPORT OF THE BOARD OF GOVERNORS, 1966 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis D igest of Principal Federal R eserve Polk Period Action Early June- Limited the increase in System holdings of U.S. Gov­ September ernment securities to about $800 million. Average member bank borrowings rose to $750 million. July Lowered from 5Vi to 5 per cent the maximum rate pay­ able by member banks on new multiple-maturity time deposits of 90 days or more, and from 5Vi to 4 per cent the maximum rate payable on such deposits with maturities of less than 90 days. Granted temporary authority to the Federal Reserve Banks to provide emergency credit facilities, under certain conditions, to nonmember depositary-type in­ stitutions, including mutual savings banks and savings and loan associations. No lending was necessary under this authority. August Raised reserve requirements from 5 to 6 per cent against time deposits, other than savings deposits, in excess of $5 million at each member bank, effective Sep­ tember 8 and 15 for reserve city and country banks, respectively, thereby increasing required reserves by about $450 million. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 1966—Continued cy Actions in Purpose To continue to restrain bank credit expansion while maintaining about the same state of net reserve avail­ ability and/or money market conditions and taking | account, at various times, of scheduled financings by the Treasury, any unusual liquidity pressures, and any significant deviations of required reserves or bank credit from current expectations. To help forestall excessive interest rate compétition among financial institutions for consumer-type time deposits. To assure that funds could be provided to assist in meet­ ing unusual withdrawals that might develop at non- i member depositary institutions and to safeguard | against the possibility of additional pressures on mort- I gage and securities markets resulting from such ex- i ceptional withdrawals, f I To exert a tempering influence on the issuance of cer­ tificates of deposit by the larger banks and to apply some additional restraint upon the expansion of bank credit to businesses and other borrowers. i ANNUAL REPORT OF BOARD OF GOVERNORS Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis September Requested member banks to moderate their rate of ex­ pansion of loans, particularly business loans; indica­ ted that bank use of Reserve Bank discount facilities would be expected to be in a manner consistent with this objective; and noted the continuing availability of discount facilities to cushion deposit shrinkages. In exercise of authority given by new temporary legisla­ tion, reduced from 5V4 to 5 per cent the maximum interest rate payable on any time deposit under $100,000, other than savings deposits, effective Sep­ tember 26. October- Increased System holdings of U.S Government securi­ late Novem­ ties by nearly $500 million. Average member bank ber borrowings declined to $680 million. Late Novem- Increased System holdings of U.S. Government securi­ ber-Decem- ties by about $970 million, including about $660 mil­ ber lion in repurchase agreements. Average member bank borrowings declined to $550 million. December Issued new 1967 guidelines for banks and other finan­ cial institutions as part of broader governmental pro­ gram of voluntary foreign credit restraint. Terminated special discount arrangements announced on September 1 when member banks were asked to curtail their business loan expansion. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis To moderate excessive expansion of business loans at banks and at the same time to avoid additional pres­ sure on financial markets resulting from further sub­ stantial liquidation by banks of municipal securities and other investments to obtain loanable funds; also to reaffirm availability of Federal Reserve credit assist­ ance in case of deposit shrinkages. To limit further escalation of interest rates paid in com­ petition for consumer savings, and to help keep the growth of commercial bank credit to a moderate pace. To permit somewhat less firm conditions in the money market in view of the recent lack of growth in bank credit. To relax monetary restraint somewhat in the light of both the outlook for slower economic growth and persisting lack of expansion in bank credit. To continue, and in some respects to intensify, the vol­ untary effort to restrain the outflow of private capital. To eliminate discount arrangements that were no longer needed, since expansion in business loans had been reduced to a moderate rate and banks were no longer unloading securities in unreceptive markets to obtain loanable funds. FEDERAL RESERVE SYSTEM Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Karl R. Bopp (1967, September 6). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19670907_karl_r_bopp

@misc{wtfs_regional_speeche_19670907_karl_r_bopp,
  author = {Karl R. Bopp},
  title = {Regional President Speech},
  year = {1967},
  month = {Sep},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19670907_karl_r_bopp},
  note = {Retrieved via When the Fed Speaks corpus}
}