Speech

For Release on Delivery Thursday, April 4, 1968 9;30 A.M., H.S.T. 2:30 P.M., E.S.T. THE RATIONALIZATION OF COMMERCIAL BANK RESERVE REQUIREMENTS A Paper Presented By Andrew F. Brimmer Member Board of Governors of the Federal Reserve System Before the 67th Annual Convention of the National Association of Supervisors of State Banks Ilikai Hotel Honolulu, Hawaii April 4, 1968 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis THE RATIONALIZATION OF COMMERCIAL BANK RESERVE REQUIREMENTS By Andrew F. Brimmer* The present framework for the management of bank reserves in the United States needs a fundamental reform. The mosaic of diverse provisions governing reserve requirements established by the 50 different States should be abolished. In their place, there should be substituted a universal system of reserve requirements -- applicable to all insured commercial banks -- and set by the Federal Reserve Board. Moreover, with the adoption of such a universal arrangement, the overall burden of reserve requirements for the banking system as a whole could be substantially reduced — while the management of monetary policy would be strengthened considerably. The central theme of the suggestions above has been a part 1 of the Federal Reserve Boards basic concern over the future of monetary management for a number of years. In its Annual Reports to Congress for 1964, 1965 and 1966, the Board recommended legislation calling for fundamental reforms in the administration of bank reserves. * Member, Board of Governors of the Federal Reserve System. I am indebted to a number of persons on the Board's staff for assistance in the preparation of this paper. I particularly wish to thank Mr. Edward R. Fry for taking general responsibility for much of the economic analysis. Miss Jacqueline McDaniel exercised considerable imagination in mastering the difficult computer pro- graming problems. Mr. Darwin Beck provided assistance with some of the more advanced statistical analysis, and Miss Mary Ann Graves contributed substantially to the entire project. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -2- The key features of the legislation proposed by the Board can be summarized briefly: • The Federal Reserve Board would be given authority to set reserve requirements for all insured banks — rather than only for member banks of the Federal Reserve System. - The Board would be authorized to establish graduated reserve requirements based on the amount of a bank's demand deposits rather than on its geographic location. • Nonmember insured banks would be required to maintain reserves at Federal Reserve Banks, although they would not be required to become members of the Federal Reserve System. • Nonmember insured banks would be able to borrow from Federal Reserve Banks on the same conditions which apply to member banks. The Board's 1965 call for legislative authority to establish reserve requirements for all insured banks was really a revival of a proposition which Congress once enacted into law in a slightly different form. The Banking Act of 1933 contained a provision requiring State chartered banks to become members of the Federal Reserve System by July, 1936, if they wished to qualify for the benefits of Federal deposit insurance. The provision never took Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -3- effect: very small banks were excluded from the requirement by the Banking Act of 1935. The deadline for large banks to become Federal Reserve members was extended and finally repealed in 1939. The basic 1 idea was revived in 1950, when Senator Paul Douglas Sub-Committee of the Joint Economic Committee recommended that the Federal Reserve Board be empowered to set reserve requirements for all commercial banks. A Sub-Committee chaired by Congressman Wright Patman made the same recommendation in 1952. No legislation was introduced to carry out either proposal. Nearly a decade later, in 1961, the Commission on Money and Credit (a private sector body formed by the Committee for Economic Development) recommended that all insured commercial banks be required by law to become members of the Federal Reserve System. Two years later, in 1963, the President's Committee on Financial Institutions advanced a proposal which essentially became 1 the Federal Reserve Boards recommendation in its 1964 Annual Report: that all commercial banks be subject to reserve requirements set by the Board and that they have equal access to the Federal Reserve 1 Banks discount windows. The Rationale for Universal Reserve Requirements Nevertheless, despite this long gestation period -- and even a one-time endorsement by Congress which kept a law in the statute books for six years -- the basic arguments in favor of universal reserve requirements are not fully understood by many Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -4- bankers and some public officials (at both the State and Federal level). Where they are fully understood, they are frequently opposed. Thus, it might be helpful to summarize the key points once again: • Control of the monetary base by the Nation's central bank would be strengthened. Private demand deposits are the key component of our money supply; the growth of these deposits depends on the growth rate of bank reserves as determined by the Federal Reserve System. - However, a growing proportion of orivate demand deposits (16 per cent at the end of 1956 and 21 per cent at the end of 1967) is held by nonmember banks. Ihis erosion in the share of private demand deposits subject to Federal Reserve requirements is weakening the degree of control which can be exerted over the Nation's monetary system. - This means that the burden of maintaining our fractional reserve system is falling increasingly on a shrinking number of banks, as a growing number of smaller member banks leave the System. Withdrawals averaged 9 banks per year in 1946-55; the average rose to 24 in 1956-65. In 1966, 39 members left the System, and 24 assumed non- member insured status in 1967. Moreover, while with- drawals were confined essentially to small banks in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -5- the earlier periods, in recent years a number of large banks (some with deposits exceeding $100 million) have left the System. - The prime motive behind virtually all of these with- drawals has been the desire to employ as earning assets a large proportion of the balances held at Reserve Banks. Furthermore, many withdrawals have been encouraged by city correspondents anxious to obtain additional balances. - The net result is that, during a period of monetary restraint, efforts to moderate the growth of bank credit must become progressively heavier on member banks, since nonmember banks' private demand deposits (which are also part of the total money supply) do not respond directly to the Federal Reserve's general instruments of credit control. The above arguments supporting the adoption of a system of universal reserve requirements have been made a number of times. But in many quarters, they have not been accepted — partly because of the conviction that nonmember banks must necessarily be made worse off than they are under the existing regimes of State-administered reserve requirements. This conviction, in fact, may be unwarranted. On the basis of an extensive examination and appraisal of State reserve requirements, I am personally convinced that a rational system of universal reserve requirements, established by the Federal Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -6- Reserve Board, can be devised which would lighten the reserve burden on insured banks — member and nonmember -- and greatly reduce the discrimination which now exists among nonmember banks, as well as between the latter as a group and member banks as a group: * Under State administered provisions, reserve require- ments are typically higher -- not lower — than they would be under existing Federal Reserve requirements. While nonmember banks in every State can hold their reserves as correspondent balances, and in some States they can hold them partially in earning assets, it is doubtful that these advantages fully compensate for the considerably higher requirements which they must generally meet. * Virtually all State administered reserve requirements further strengthen the tendency toward pyramiding of correspondent balances. Universal reserve requirements would substantially reverse this trend and distribute the total use of banking resources more in accordance with the geographic sources of deposit funds. * Finally, by making all bank deposits subject to Federal Reserve requirements, the new system would open the way, for further sizable reductions in the level of require* ments for both member and nonmember banks. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -7- - In the closing section of this paper, I sketch the main features of a new system of universal reserve requirements which would permit a reduction of as much as $3 billion (or more than 10 per cent) in the estimated $28 billion of reserves required of both member and nonmember banks as of June 30, 1967. Diversity of State Reserve Requirements The details of State reserve requirements vary considerably. In fact, so varied are specific provisions from one State to another that one could easily get the impression of disarray rather than order in reserve requirements. Such an impression would not be justified — although it is difficult to discern a basic rationale in the existing pattern of State reserve requirements. These requirements are set forth in detail in Table A.l (in the appendix to this paper), showing selected provisions of the 50 State banking statutes relating to reserve requirements for commercial banks that are not members of the Federal Reserve System. Even a quick scanning of these provisions makes clear the rich variations in the definitions of deposits subject to reserve require- ments, applicable ratios of reserves to deposits, and types of assets eligible as reserves. The strategic features of these State provisions can be summarized briefly in Table 1. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -8* Table 1. Principal Characteristics of State Reserve Requirements Characteristic of Requirements Number of States No reserve requirements 1 No requirement on specific types of deposits 4 Time and savings deposits 3 Passbook savings deposits 1 Requirements against both demand and time deposits 45 Same percentage for demand and time 6 Different percentage for demand and time 39 Simple gross definition of each type of deposit 23 Specific exemptions from requirements 15 U.S. Government and/or State and local deposits 12 M Due from" balances not part of reserves 3 Differentiation by type of demand deposits 1 Total 50 NOTE: Reserve requirements for banks in the District of Columbia are the same as those specified in Regulation D for reserve city member banks of the Federal Reserve System. From the above summary, several key points stand out. Nearly all States have reserve requirements against both demand and time deposits. The most striking exception is Illinois which has no reserve requirements at all. Three States (Louisiana, Massachusetts, and Rhode Island) have no requirements against time and savings deposits; one State (Connecticut) has none against passbook savings. Six States calculate requirements against a total deposit base, with no differentiation in percentage requirements on time and demand deposits. All other States do distinguish between time and demand deposits, with 23 States using a simple gross definition of each type Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -9- of deposit for reserve purposes. A dozen States exempt U.S. Government deposits and/or State and local deposits from reserve 11 requirements; four States allow deductions of "due from balances that are not counted as reserves when calculating demand deposits subject to requirements. One State (Kansas) has a rather high requirement on demand deposits due to banks; it has lower require- ments on other demand deposits equivalent to those for country member banks of the Federal Reserve System. Because of differences in definitions of deposits among the States, it is also difficult to make a comparison of reserve ratios from State-to-State and with percentage requirements for Federal Reserve member banks. However, if we overlook the differences in definition of deposits, 13 States specify percentages below those applicable to member banks, and about as many have set ratios above member bank requirements. In the next section, a systematic effort is made to estimate the quantitative effect of these differences in ratios from State-to-State. Eligibility of reserve assets is the key feature distin- guishing between reserve requirements in some States and those set by the Federal Reserve System. This is also the principal competitive factor in reserve requirements of nonmember vs. member banks. The one common reserve asset for member and nonmember banks is vault cash. In addition, a number of States specify clearing balances held with Federal Reserve banks as eligible reserves for nonmember banks. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -10- Eight States require nonmembers to maintain at least a minimum percentage of reserves in the form of vault cash. All States count demand balances due from banks as reserves, although 28 States specify that such balances must be held at approved depositary banks (includ- ing Federal Reserve Banks in some cases). Securities comprise part of eligible reserves in 20 States; all of these allow some portion of requirements to be met by U.S. Government securities (in some instances with relatively short maturities specified). Only five of these States permit banks to count State and/or local government obligations as reserves. Other reserve assets counted by a minority of States include cash items in process of collection, clearing house funds, and CCC notes. In two States (Alaska and California), reserves could be held in the form of gold dust or bullion. This is apparently only an historical legacy, since presumably no banks actually hold reserves in this formt In the light of this great diversity in reserve provisions among the different States, it seems evident that one cannot talk simply about the differential impact of State vs. Federally-established requirements. Indeed, the differences in treatment of nonmember banks from one State to another may be greater than the differences between nonmembers as a group and member banks of the Federal Reserve System. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -11- Many observers will undoubtedly hold that uniformity among thfe States is not desirable in itself. Yet, it is by no means obvious just how one would explain -- and justify -- as much diversity (and perhaps discrimination) as presently exists in reserve requirements among State-chartered nonmember banks. Lessening these differences in treatment among institutions doing essentially the same type of business in different States should be another objective in the adop- tion of legislation to permit the Federal Reserve to establish reserve requirements for all insured commercial banks. Quantitative Effects of State Reserve Requirements As mentioned above, a major effort has been made to estimate the quantitative impact of differences in State reserve requirements. Because of differences in definition of deposits and the opportunity in some States to hold required reserves partially in earning assets, the specified reserve ratios may have an effect far different from what might be implied by the numerical percentages shown in the statutory provisions. After many hours of careful analysis and imaginative computer programming (and after a considerable amount of time on the computer itself), we have obtained a fairly good estimate of the differential impact of reserve requirements in each of the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -12- 50 States.The results ate summarised in Table 2. (They are shown in detail in Appendix Table A.2.) Table 2. Comparison of Reserve Requirements Type of Requirement Required Reserves Reserve Ratio* (amount, millions of dollars) (Per cent) Federal Reserve Member Banks All members 9.1 Reserve city banks 10.4 Country banks 7.4 Insured Nonmember Banks States allowing only cash assets as reserves 2,363 7.4 States allowing earning assets as part of reserves 2,975 13.0 * Ratio of reserves to net demand deposits plus total time and savings deposits. 1/ For those interested in the analytic techniques employed to obtain these estimates, the following explanation is given. Each 1 States statute governing reserve requirements was examined to identify for each State the definitions of deposits subject to reserves and the percentage requirements applied to each type of deposit. The June 30, 1967, condition reports for nonmember insured banks were used to obtain information on deposit classifications which permitted the derivation of deposits definitions reasonably consistent with those given in the statutory provisions for each State. The next step was to program the formula so that the computer could calculate reserve requirements for each State according to the statutory definitions of deposits subject to reserves and the specified percentage require- ments applied to these deposits. The calculation of State reserve requirements was then made utilizing the bank deposits and other statistics from the June, 1967, call report. These calculations were done separately for each of the 7,400-odd insured banks, and the results were then summed for each State to obtain the total reserve requirements derived from the State's formula. The State nonmember deposits data were then multiplied by current Federal Reserve Regulation D percentage requirements to obtain a comparison between System requirements and State requirements. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -13- As one would expect, reserve ratios differ markedly from one State to another, reflecting both differences in deposit defi- nitions and percentage requirements* While there are exceptions, the ratios for States which allow only cash assets for reserves are roughly two-fifths lower than the ratios for States which permit banks to carry part of their reserves as earning assets. The ratios for member banks taken as a group fall about in the middle of the range for insured nonmember banks. On the other hand, the ratios are virtually identical for country member banks and for banks in States where only cash assets are allowed. Another aim of the project was to obtain an estimate of the total amount of reserves which insured nonmember banks must hold under State requirements. As shown above, this total was about $5.3 billion as of June 30, 1967. As of the same date, nonmember banks held about $61.2 billion of total deposits, or roughly 17 per cent of the aggregate amount of deposits held by all insured commer- cial banks. At the same time, the reserves they were required to hold were around 19 per cent of the required reserves of all insured banks. If insured nonmember banks' required reserves in relation to the total amount of such reserves had been in the same proportion as its share of total deposits, they would have been able to reduce their requirements by approximately $600 million. One can see in this a difference of $600 million or nearly 12 per cent of their required reserves --a clear indication that Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -14- substantial diversities in State administered resetve Requirements impose a sizable differential burden on some insured nonmember banks. The same conclusion stands out even more strongly when State requirements for nonmember banks are compared with what they would be if the present Federal Reserve requirements (as specified in Regulation D) were applied. This has been done, and the results are also shown in Table 3.—^ (For details see Appendix Table A.2.) Table 3. Comparison of Reserve Requirements: States vs. Federal Reserve System (amounts in millions of dollars) Classification State Federal Fed. Res. as Potential of States Regu- Reserve Per cent of Saving lation System State Amount Per cent States allowing cash assets only as reserves 2,363 2,003 84.8 -360 15.2 States allowing part of reserves as earning assets 2,975 1,566 52.6 -1,409 47.4 Illinois (no requirement) none 279 n.a. +279 n.a. Total 5,338 3,848 72.1 -1,490 27.9 n.a., Not applicable. 1/ In the calculation of nonmember requirements under Regulation D, it was assumed that all nonmember banks (except a few in the District of Columbia) would be subject to requirements specified for country banks. In the District of Columbia, the present nonmember banks are subject to the higher Regulation D requirements for reserve city banks. There are some cases in which nonmember banks are located in cities designated by the Federal Reserve Board as reserve cities which, under Regulation D, are subject to higher percentage requirements. For purposes of these estimates, it was assumed that banks in such localities would, nevertheless, be subject to the lower country bank requirements. These percentages were applied consistently for each State using deposit figures from the June, 1967, call report. The Regulation D definitions of net demand deposits and total time and savings deposits we£e derived for each State for purposes of these estimates. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -15- These data suggest that nonmember insured banks are presently holding approximately $1.5 billion more in required reserves than would be the case if they were subject to require- ments set by the Federal Reserve Board. Thus, under universal requirements, even with the present percentages applicable to Federal Reserve members, insured nonmembers could reduce their overall reserve requirement by more than one-fourth. The average reduction would be relatively modest for banks in States which allow only cash assets as reserves. This result is about what one would expect, since the conditions under which these banks can hold their reserves are already reasonably close to those affecting member banks. The situation is far different with respect to banks in States where part of the banks' required reserves can be held as earning assets. Here the level of required reserves would be cut by $1.4 billion, a reduction of almost one-half. Undoubtedly, the earnings on that portion of their reserves which these banks can invest would lessen the net burden of their much higher reserve requirements. However, it also seems very doubtful that such earnings are sufficient to compensate fully for their substantially larger requirements which State reserve provisions impose on them -- compared with what their situation would be if Federal Reserve regulations applied. In passing it should be noted that the potential savings which would accrue from the application of Federal Reserve require- ments to nonmember insured banks that now hold reserves would be Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -16- close to $1.8 billion -- not $1.5 billion. The difference (amount- ing to $279 million as of June 30, 1967) represents the level of reserves which banks in Illinois would have to carry. As mentioned previously, insured nonmember banks in Illinois currently are subject to no State-imposed reserve requirements. Putting aside banks in this State, the reduction following from the application of Federal Reserve ratios would amount to $1,769 million, or roughly one-third, in the level of reserves required under State statutes. As mentioned several times above, some 20 States allow insured nonmember banks to hold part of their reserves in the form of earning assets, while all States permit banks to count vault cash and correspondent balances. Given these different options, one would expect banks to minimize holdings of non-earning assets and to maximize investments wherever possible — consistent with the need 1 to maintain sufficient liquidity to service their customers deposits. A natural question to ask is this: just how far are these alternative means of managing reserves reflected in their earning assets? This question cannot be answered definitively. However, as shown in Table 4, banks do seem to behave as generally expected. In States in which required reserves can be partially invested, earning assets of nonmember banks do account for a slightly larger proportion of total deposits. The loan/deposit ratio for these banks is moderately higher. Although their holdings of securities Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -17- are about in line with other nonmember hanks, their ability to count part of these investments as liquidity reserves undoubtedly enables them to extend loans somewhat more freely. Their holdings of vault cash and deposits with other banks in relation to deposits are also slightly below the ratios for other nonmember banks. Table 4. Deposits and Selected Earning Assets of Insured Banks, June 30, 1967 (amounts in millions of dollars) Deposits and All Federal Nonmember Insured Banks Selected Assets Insured Reserve Total Required Required Illinois Banks Member Reserves Reserves (No Banks in cash Partly in Required assets Earning Reserves) only Assets Total deposits 358,695 297,529 61,166 31,220 25,279 4,668 Correspondent balances (Due from banks) 13,539 8,259 5,280 2,865 2,015 402 Per cent of deposits 3.8 2.8 8.6 9.2 8.0 8.6 Currency and coin 4,839 3,728 1,111 591 454 67 Per cent of deposits 1.3 1.3 1.8 1.9 1.8 1.4 Selected earning assets: Total 320,281 264,139 56,142 28,359 23,614 4,169 Per cent of deposits 89.3 88.8 91.8 90.8 93.4 89.3 Securities 100,475 79,721 20,754 10,449 8,540 1,765 Per cent of deposit 28.0 26 <8 33.9 33.5 33.8 37.8 U.S. Government 53,867 40,636 13,232 6,548 5,441 1,242 Per cent of deposits 15.0 13.7 21.6 21.0 21.5 26.6 State & Local 46,608 39,085 7,522 3,901 3,099 523 Per cent of deposits 13.0 13.1 12.3 12.5 12.3 11.2 Net Loans 219,806 184,418 35,388 17,910 15,075 2,403 Per cent of deposits 61.3 62.0 57.9 57.4 59.6 51.5 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -18- While this broad summary provides a rough indication of reserve management by insured nonmember banks, an effort was also made to obtain a more refined estimate of the inter-relations among reserve requirements, correspondent balances and vault cash. These inter- relations were examined statistically, distinguishing between the 30 States which permit only cash assets as reserves and the 20 States which allow part of the requirements to be met in the form of earning assets.~ 1/ In technical terms, the analysis employed a multiple regression equation based on cross section data for 7,418 nonmember insured banks, grouped into 30 and 20 States, respectively. The dependent variable was "due from banks" (a rough measure of correspondent balances). Explanatory variables were (1) estimated reserve requirements, (2) vault cash, (3) deposit mix (ratio of time to total deposits) and (4) number of nonmember banks in each State. The results are: States allowing cash assets only as reserves (30). Simple regression shows a statistically significant relationship M between "due from and required reserves, with a simple coefficient 2 of determination (R adjusted for degrees of freedom) of .952. The addition of vault cash as a variable does little to explain the ,f variability of due from". The multiple coefficient of determination is not significantly different at .950. States allowing earning assets as part of reserves (20). With fewer observations, the results become more tentative. However, 2 11 while the R for the relationships between "due from and required reserves declines to .736, it is still significant. The introduction 2 of vault cash raises the R to .858. This may indicate somewhat different (perhaps stronger)relationships among variables in States where earning assets are eligible as reserves. The simple correlation coefficients are: 1 "Due From' Against: State Reserve Vault Deposit No. of Requirements Cash Mix Banks 30 States .98 .91 -.36 .81 20 States .87 .92 .10 .69 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -19- The results of this statistical analysis can be interpreted generally as follows: - There is a close association between "due from" balances and required reserves. This undoubtedly reflects the fact that "due from" is the most important reserve asset under State regulations. The relationship is stronger in States allowing only cash assets to meet reserve requirements than in States which also allow earning assets* This is the pattern one should expect, because the option for meeting requirements in the cash assets States leaves considerably less room for the management of required reserves. - The relationship of "due from" balances to vault cash also is high for both groups of States. However, taken in conjunction with required reserves, vault cash seems to have little separate influence on the banks' tendency to hold correspondent balances. This perhaps indicates that holdings of both vault cash and correspondent balances are influenced in the same direction by the pattern of demand deposit usage by the banks' customers. - There is also a fairly strong association between "due from" and number of banks. But this relationship appears not to be as close as that between required reserves or vault cash. The relationship between "due from" and deposit mix is weak. However, in the 30 States which permit only cash reserves, the greater the ratio of time to total deposits, there appears to be less of a tendency to hold correspondent balances. In conclusion, the above results (which must clearly be interpreted with caution) do suggest that insured nonmember banks which can hold part of their reserves in earning assets are somewhat better off than those banks which can hold only cash assets. To me, this is a form of discrimination among institutions which are generally thought to be in essentially the same position relative to member banks of the Federal Reserve System. Universal reserve requirements set by the Federal Reserve Board would eliminate this unnecessary difference in treatment. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -20- A Rational Approach to Reserve Requirements As mentioned above, the adoption of universal reserve requirements to be administered by the Federal Reserve Board would open the way for a substantial reduction in the overall level of reserve requirements being carried by the Nation's commercial banks. Exactly what, when and how much of a reduction would be made clearly would have to be decided by the Board itself. However, in the legislation proposed to Congress, the Board did indicate the general direction in which it felt it desirable to move. It asked for authority to set reserve requirements for all insured banks within the following statutory ranges: 7 to 14 per cent of demand deposits for banks with a total of such deposits not exceeding $5 million; 10 to 22 per cent for deposits in excess of $100 million. The key feature is clearly the graduation of reserve requirements by size of bank. Taking this as a starting point, I have formulated a structure of universal reserve requirements which, if adopted, would yield a substantial reduction in the amount of reserves that insured banks (both member and nonmember) would have to hold. This graduated structure is sketched in Table 5 1/ It should be noted that this proposal calls for a 5 per cent requirement on the smallest group of banks, whereas the Board's proposal visualized 7 per cent for the smallest bracket. If the proposed legislation were admended to allow the lower ratio (and if it were established by the Board) the quantitative effect would not be greatly different compared with 7 per cent. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -21- Table 5. Proposed Structure of Universal Reserve Requirements Size of Bank: Reserve Ratio (Ne t demand depos its) Under $5 million 5 per cent $5 million - $100 million 10 per cent Over $100 million 15 per cent For purposes of this study, this graduated formula was applied for nonmember banks and for member banks separately — and for member banks by reserve class (country and reserve city). The requirements against net demand deposits calculated by using the formula were added to requirements against total time and savings deposits estimated on the basis of current Federal Reserve ratios: 3 per cent of savings deposits; 3 per cent of other time deposits under $5 million, and 6 per cent of time deposits over $5 million. The resulting estimates of total reserve requirements were compared to current reserve requirements for member banks to determine the implied change in member bank reserves by class and size of bank* The calculation provided for nonmember insured banks estimates of the level of reserve requirements resulting from the assumed graduated formula. These estimates were compared with nonmember requirements previously derived from State statutes. These calculations are summarized in Table 6. (The details for each State are shown in Appendix Table A.2.) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis table 6 Comparison of Reserve Requirements: States vs. Proposed Federal Reserve Graduated System Classification State Federal Reserve System Preposed Potential Savin Structure as via Proposed of States RReegguullaattiioonn Current PPrrooppoosseedd Per cent of Structure State Amount Percent States allowing cash assets only as reserves 2,363 2,003 1,326 55.9 -1,037 44.1 States allowing part of reserves as earning assets 2,975 1,566 1,118 37.6 -1,857 62.4 Illinois (no requirements) none 279 185 sua. + 185 n.a. Total 5,338 3.848 2,629 -49.4 -2,709 50,6 n»a« Not Applicable Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -22- Under the graduated structure proposed here, insured non- member banks would just about cut in half the amounts of reserves they would be required to carry* Again the largest share of the reduction would center at batiks in those States where part of required reserves can be invested in earning assets. The next step is to determine the effects of the proposed structure of reserve requirements on member and nonmember banks by size and class of bank. The results are shown in Tables 7, 8 and 9. Several observations can be derived: The immediate application of the strucutre to member banks would be a very large reduction of required reserves -- over $4.1 billion, or about one-fourth of total required reserves against net demand deposits. • More than half of the reserve release would be concentrated at about 130 reserve city banks in the over $100 million net demand category. Smaller country banks would account for most of the remaining reduction. * Large country banks with net demand deposits exceeding $100 million would not share proportionately in the reserve release compared to reserve city banks of like size. This reflects the relatively favorable position of large country banks under the present system of requirements. - As indicated in Table 8, country banks with net demand deposits of just over $200 million (actually about Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis S a- lable 7 Net Change in Required Reserves Against Net Demand Deposits Size of Reserve City Banks Country Banks net demand Number Change in Number Change in deposits of reserve requirements of reserve requirements ($ millions) Banks points) ($ millions) Banks (7, points) ($ millions) Under 5 5 -11.5 - 1 3,897 - 7.0 613 5 to 10 4 - 9.7 - 3 1,030 - 5.7 412 10 to 50 21 - 7.7 - 52 835 - 3.6 607 50 to 100 36 - 7.3 -196 106 - 2.8 201 100 to 500 97 - 4.1 -991 48 - 0.3 26 Over 500 29 - 2.3 -1,039 mm — Total 192 - 3.2 -2,272 5,916 - 3.8 -1,859 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -22b Table 8 Reserve Requirements Against Net Demand Deposits— Current Versus Assumed Graduated Formula* Size of Percentage requirements Change in required reserves nec demand Current Proposed Formula of Individual banks ($ millions) RC Country (all banks) RC Country (per cent of net demand) ($ millions) 5 16.5 12.0 5.0 - .800 - .350 10 16.75 12.25 7.5 -1.600 -1.150 20 16.875 12.38 8.75 -1.625 - .726 40 16.938 12.438 9.38 -3.025 -1.225 50 16.95 12.450 9.5 -3.725 -1.475 75 16.967 12.467 9.67 -5.475 -2.100 100 16.975 12.475 9.75 -7.225 -2.725 200 16.988 12.488 12.38 -9.225 - .225 300 16.992 12.492 13.25 -11.226 +2.275 400 16.994 12.494 13.69 -13.226 +4.775 500 16.995 13. $5 -15.225 1,000 16.998 14.48 -25.230 4.000 16.9983 14.87 -84.152 * - Graduated formula: 5% on first $5 million of net demand; 10% on next $95 million; 15% on deposits over $100 million. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -22c- Table 9 Estimated Distribution of Required Reserves With Assumed Universal Graduated Reserve Requirements (amounts in millions of dollars) Size of net demand All deposits insured Nonmember Member banks ($ millions) banks banks Total Reserve City Country Under 5 1,805 977 828 1 827 5 to 10 1,277 462 815 3 812 10 to 50 3,133 750 2,383 92 2,291 50 to 100 1,584 190 1.394 396 998 100 to 500 5,924 248 5,676 4,232 1,444 Over 500 8,911 8,911 8.911 - TOTAL 22,634 2,627 20,007 13,636 6,371 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -23- $210 million) would experience increases in required reserves under the proposed structure. There were 16 such banks in June, 1967. The largest country banks, of course, would experience the largest increase in requirements, an increase of about 1.3 percentage points. None of the large country banks would reach the present statutory maximum of 14 per cent, but this limit would presumably be removed any- way if enabling legislation were enacted to permit reductions in requirements below present minimums. The average reduction in reserve requirements under the proposed structure would be about equal in percentage points for the two classes of member banks -- 3.2 for city and 3.8 for country banks. The percentage requirements by size of net demand deposits shown for the proposed structure (see Table 8, Col. 4) represent the levels that would be applicable for nonmember as well as member banks. This structure would result in average requirements below 10 per cent against net demand deposits for all but 38 nonmember banks (as of June, 1967). The largest nonmember bank would have net demand requirements about equivalent to current requirements for country banks of that size. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -24- * As shown in Table 9, under the proposed graduated (but universally applied) structure, nonmember banks would hold about 11.5 per cent of total required reserves* Currently their share (based on State requirements) come to roughly 19 per cent of the required reserves of all insured banks. If the proposed graduated structure could be adopted, the question of how insured banks would adjust to it would still be significant. A possible avenue of adjustment, focusing on corre- spondent balances, is illustrated in Tables 10 and 11. The case of nonmembers is dealt with in Table 10. The 7,418 nonmember banks would have roughly $2.6 billion of reserve requirements to be met either by vault cash holdings or balances with Federal Reserve banks. If all vault cash could be applied against these requirements -- that is, if no bank held cash in excess of its total requirements -- about $1.1 billion of total requirements would be met by vault cash, and about $1.5 billion would be required in balances at Federal Reserve Banks. In providing these balances at Reserve Banks, it is 11 assumed that nonmember banks would not reduce average "due from or correspondent balances below levels held by member banks of comparable size, and it is also assumed that reductions in U.S. Government securities would be the remaining source. On these assumptions, about $1,071 million of the required balances which Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -24a- Table 10. Estimated Required Reserves of Nonmember Insured Banks with Assumed Universal Graduated Requirements * (reserve amounts in millionsof dollars) Size of net demand deposits ($ millions) 0 to 5 5 to 10 10 to 50 50 to 100 100 to 500 All banks Number of banls 6,477 609 304 19 9 7,418 Est. required reserves 977 462 750 190 248 2,627 Eligible reserve assets Vault cash 564 194 237 45 71 1,111 Required bal• at FRB 413 268 513 145 177 1,516 Est. sources of bal. at FRB: 11 Reduction in "due from 200 268 314 141 148 1,071 Reduction in U.S. Gov't. 213 — 199 4 29 445 * - Estimated sources of reserves to meet requirements are based on the assumption f, that nonmember banks would not reduce average due from" balances below levels held by member banks of comparable size, and that reductions in U.S. Gov't, securities would be the remaining source. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -24b- Table 11. Distribution and Estimated Reduction of Demand Balances of Domestic Commercial Banks with Assumed Universal Graduated Requirements* (in millions of dollars) Dfemand balances due to banks (June 30, 1967) Class of Size of net demand deposits ($ millions) bank 0 to 5 5 to 10 10 to 50 50 to"100 100 to 500 over 500 Total Nonmember insured 100 79 205 93 67 544 Country member 87 139 764 535 269 1,793 RC member 2 2 184 661 4,660 7,531 13,041 All insured 189 220 1,153 1,289 4,996 7,531 15,378 (Estimated reduction of "due to" with assumed formula*) Nonmember insured -15 - 7 - 5 -27 Country member -55 -38 -19 -112 RC member -13 -47 -333 -539 -932 All insured -83 -92 -357 -539 -1,071 * - Reductions in "due to" shown above reflect distribution of estimated reduction of $1,071 in nonmember "due from" in proportion to share of total "due to" held by each class and size group of banks having net demand deposits greater than $10 million. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -25- nonmembers would have to build at Federal Reserve Banks would be met by drawing on correspondent balances. These estimates also suggest that nonmembers might reduce holdings of U.S. Government securities by about $450 million, or little over 3 per cent of their holdings on June 30, 1967. The impact of the reduction in correspondent balances is indicated in Table 11. The upper panel of the table provides a 11 distribution of demand deposits "due to commercial banks, the liability side of correspondent balances. As one would expect, large reserve city banks account for the largest portion of these balances. The lower panel of Table 11 indicates the amount of reduction in these "due to" balances by class and size of bank, assuming that the estimated $1,071 million reduction in nonmember "due from" would be drawn from the "due to" balances in proportion to the share of total "due to" held by each class and size group. For this purpose, it was assumed that reductions in "due to" would occur only at banks having more than $10 million of net demand deposits; so it is assumed that the small amounts of correspondent balances held by banks in the smallest size categories would not be affected. These estimates suggest that almost nine-tenths of the $1.1 billion estimated reduction in correspondent balances would be drawn from reserve city banks. About 85 per cent of the reduction would occur at banks with $100 million or more in net Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -26- demand deposits. Of course, this concentrated impact on reserve city banks would be more than offset by the release of $2.0 billion of reserves at these large banks if the proposed graduated structure were adopted (see Table 7). Federal Reserve Adjustment to Graduated Structure The final -- and most critical — question concerns the magnitude of the net release of reserves for the banking system as a whole, if the proposed formula were adopted. This net release of reserves is a rough measure of the amount of excess reserves with which the Federal Reserve would have to cope. Put another way, the System could elect to give all insured banks a handsome net reduc- tion in reserve requirements — or it could offset part of the potential release through open market operations. In Table 12, the results of mutual adjustments by member and nonmember insured banks to the proposed graduated structure are summarized. With the application of the structure to members, their required reserves initially decline by $4.5 billion. As nonmembers are also affected, they draw down $1.1 billion of correspondent balances to add to their newly-opened accounts at Federal Reserve Banks. These withdrawals lead to a further decline of $200 million 1 in member banks required reserves. Thus, for these banks, the total reduction in required reserves is roughly $4.7 billion. It would be necessary for nonmembers to sell $600 million of U.S. Government securities to make up the balance of the $1.7 billion Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE A-l Selected Provisions of State Banking Statutes Relating to Reserve Requirements of Insured Nonmember Banks Deposits subject to Reserve Requirements Ratios Reserve assets eligible to meet requirements 2/ reserve requirements 1/ Vault Due from Securities Other provisions Other Minimum Maximum Current Cash banks U. S. Govt. State Local T Dem 14 11 TS 6 3 T Dem - US^SLp 20 gold dust, us SL bullion TS r t t T Dem US 7 14 10 d-slD TS - US -SL 3 6 4 fc t T Dem 15 20 15 if X # if pop. < 1,500 and capital between pop. >1500 $10,000 and $25,000,reservr ^wuire- TS 4 15 15 if X # m o e n n e t - ha a I g f a in o s f t wh t i o c t h a l m d ay e p b o e s i h t e s l ^ d ^ 5 in 0 %, pop.>1500 U.S. Govt, securities. sl T Dem-US d- D 18 FR 18 if pop. > | 100,000 15 FR 15 if i X # gold bullion pop.50,000 to 100,000 X # 12 j 12 else- FR I where, res. i depositary j 15 per cent TS (at least # (up to 4/5) FR one-fifth) T Dep (at least # (up to 4/5) one-fifth) T Dem 12 24 12 at least up to 1/6 Time other than pass* 5 10 5 1/6 book savings. T Dem FR 11 x # TS FR 4 x # ND FR System Regulation D. As applied to TS reserve city banks 1 L. ' See notes and key to abbreviations on page following tables. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -26a- Table 12. Estimated Reserve Structure under Universal Graduated Formula* (amounts in billions of dollars) Member Bank Requirements and Total Reserves Current Reg. D Requirements $24.5 (Assume no excess reserves initially) Required reserves under graduated formula 19.8 (Excess reserves generated) 4.7 Excess reserves after nonmembers meet reserves at FRB 3.0 Total reserves of member banks after nonmembers meet reserves at FRB with no absorption by System open market operations 22.8 Nonmember Requirements (Total Reserves) After meeting graduated requirements 2.8 (1.1 reduction of vault cash, 1.1 reduction of due from, .6 reduction of securities) Total Reserves All Insured 25.6 (includes l.l of nonmember vault cash not previously counted plus original 24.5 of member bank reserves) Total Required Reserves All Insured 22.6 Excess Res. (without System operations) 3.0 Based on deposit distributions as of June 30, 1967* Graduated formula applied to all insured banks is 5 per cent on 1st $5 million of t demand; 10 per cent on $5*100 million; 15 per cent on net ne demand deposits over $100 million. Time and savings reserve require- ments by current Regulation D. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -27- they would now have in required reserves. It is assumed that these securities would be purchased by member banks who pay for them by drawing further on their excess reserves at Federal Reserve Banks. After this step, these excess reserves would amount to approximately $3.0 billion. The adjustment process also can be viewed from the vantage point of nonmember banks. Their required reserves would amount to about $2.8 billion. This would consist of $2.6 billion as estimated on the basis of their initial net demand and time and savings deposits -- plus an increase of $200 million resulting from a rise in net demand deposits because of the reduction of $1.1 billion in correspondent balances. Again, to meet these requirements, it is assumed that nonmembers would rely on vault cash ($1.1 billion), a reduction in correspondent balances ($1.1 billion) and sales of U.S. Government securities ($600 million). At the end of the process, total reserves of all insured banks would amount to $25.6 billion. Total required reserves would be roughly $22.6 billion. Excess reserves would be approximately $3.0 billion. From the Federal Reserve Board's point of view, a release at once of $3.0 billion in reserves would most likely be unacceptable. On the other hand, the Board could stagger the reduction over any length of time it wished --if necessary taking as long as three or more years to complete the process. The key point is that the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -28- net release of reserves inherent in the adoption of a meaningful system of graduated reserves applicable to all insured banks could be managed within the framework of open market operations. Concluding Observations The analysis in this paper has made several points exceptionally clear: under greatly diverse State reserve require- ments , some insured nonmember banks do gain an advantage over members of the Federal Reserve System. However, this seems to be generally true in only 20 States where reserves can be held partially in earning assets. In the remaining 30 States, in which reserves must be held only in cash assets, requirements are far less favorable to nonmember banks. Thus, there is a substantial element of discrimination among banks which are assumed to be doing business under essentially the same conditions. Because of this differential treatment, it seems that, if the present Federal Reserve requirements were applied to all insured nonmembers, the reserves they would be required to hold would decline by well over one-quarter, compared with their current requirements under State provisions. Although the opportunity to invest part of their reserves in earning assets in some States reduces the burden of the existing higher requirements, the offset appears to be far from complete. If the graduated structure proposed in this paper (or some variation on it) were adopted, the way would be opened for a sizable reduction (perhaps up to $3.0 billion) in required reserves for the banking system as a whole. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -29- In addition, the adoption of a system of graduated, universally applicable, reserve requirements would greatly strengthen the control of the monetary base by the central bank. Thus, the rationalization of reserve requirements is desirable from the point of view of national economic objectives as well as from the perspective of a more efficient private banking system. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE A-1 (cont'd.) Reserve Requirements Ratios 1/ Reserve assets eligible to meet requirements 2/ Deposits subject to Other provisions State Vault Due from Securities Other reserve requirements Minimum ^Maximum Current Cash banks U.S. Govt. State Local Minnesota T Dem 12 FR 12 Cash items in process TS 3 FR 3 of collection Mississippi T Dem 15 TS 7 Missouri T Dem - "Due from" 18 if the pop. at least reserves > 200,000 7/18 12 elsewhere at least 2/5 TS x Montana T Dem - "due from" 5-1/4 FR 10 X X # TS 2-1/4 FR 3 X X # Nebraska T Dem 20 if pop. > X up Clearing house exchange and 25,000 to CCC notes at face value 15 elsewhere 1/5 TS 5 Nevada T Dem - US^SLp 10 * 10 X # * TS-US-SL 5 5 X # t t New Hampshire T Dem FR 12 at least up to U.S. Govt, securities TS FR 5 3/5 2/5 maturing in 2 years are eligible New Jersey T Dem 15 30FR 12 x # TS 3 10FR FR Reg. D x # New Mexico T Dem 7 12 12 x # up to U.S. Govt, securities maturing in TS 3 7 4 x # 1/2 100 days are eligible New York T Dem -"due from" 10 FR 16-1/2 N.Y x # Deposits arising from subscriptions reserves Albany, Buffalo to U.S. Treasury financings exempt 7 FR 11 elsewhere x # from requirements. TS 3 FR FR Reg. D x # North Carolina T Dem - US -SL_ 15 x # Clearing house exchange TS-US-SL 5 x # t t North Dakota T Dem 10 20 10 X # TS 5 10 5 X # Ohio T Dem - US * 15 X # TS-US ^ D * 10 X # up to 3/5 Oklahoma T Dem 10-1/2 30 15 X # TS 3-1/2 10 5 X # See notes and key to abbreviations on page following tables. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE A-l (cont'd.) DDeeppoossiittss ssuubbjjeecctt ttoo Reserve assets eligible to meet requirements 2/ Reserve Requirement Ratios 1,/ State rreesseerrvvee rreeqquuiirreemmeennttss Vault Due from Securities Other provisions Other Mi nimum Maximum Current Cash banks U.S. Govt. State Local Oregon T Dem - US 12 30 15 x # Cash items on banks D in same city TS- US 4 10 5 x # fc Pennsylvania T Dem 7 22 12 X # t o 2/3 TS 3 6 4 X # t o 2/3 Rhode Island T Dem 15 at least up to 3/5 U.S. Govt, securities maturing 2/5 in 91 days eligible South Carolina T Dem 7 Cash items collectible TS 3 in 10 days South Dakota T Dep - US-SL-US-SL 17-1/2 up to 3/5 D D t t Tennessee T Dem 10 X TS 3 X Texas T Dem 15 X # Demand requirements are 20 % for TS 5 banks with canital < $25,000 X # Utah T Dem FR 40 16-1/2 if pop > 50,000 X FR 30 12 else- where X TS FR 6 3 X Vermont T Dem 9 30 30 at least 2/5 in cash assets up to Deposits arising from subscription and U.S. Govt.'s maturing in 1/5 to U.S. Treasury financintffegx- TS 2 8 8 1 year" empt from requirements Up to 3/5 in other maturitia Virginia T Dem 10 x TS 3 x Washington T Dem 15 X # Cash items on banks TS 6 X # in same city. West Virginia T Dem 10 at least X TS 5 1/5 X Wisconsin T Dep 20 if reserve deposi- X U.S. Govt, securities maturing in ary 18 months are eligible to meet 15 other X 1/3 of demand requirements and banks 7/12 of time requirement. Wyoming T Dem -USp-SLp 20 X # TS 10 X See notes and key to abbreviations on page following tables. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Notes and Abbrevlations for Table A-l * - Ratio not specified in the law* # * Must be held in approved banks• 1/ Statutory range for reserve requirements is shown for States in which the banking authority is authorized to charge reserve requirement ratios* 2/ In many States demand balances due from banks must be held in approved depositary banks to be eligible as a reserve asset. Proportions specified by type of asset in some States indicate limitations on certain assets in meeting reserve requirements* Key to abbreviations of deposit subject to reserve requirements X Dep — Total deposits T Dem — Total demand deposits TS — Total time and savings deposits US ~ U. S. Government demand deposits d us — D. S. Government time deposits t SL — State and local government demand deposits d SL — State and local government time deposits t due from— demand balances due from domestic commercial banks ND — Net demand deposits: Total demand less cash items in process of collection and demand balances due from domestic banks Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Appendix Table A.2 Estimated Reserve Requirements of Insured Nonmember Banks Computed by Three Methods and Selected Reserve Assets, By State (June 30, 1967) Estimated required Selected : assets typically Average reserves held as primary and secondary reserve by Stat€b y F.R • by reserv £S ratio: regula- System assumec Currency Due frorc Securities reg. res. tion regula . grad- and coir banks U.S. State • • tion uated Gov't and net dem. State formuls local and time States allowing (amount: s in mi 11ions c f dollars ) deposits only cash assets as reserves: Alabama 68 63 37 20 89 233 136 8.43 Alaska 9 5 4 2 7 14 3 11.81 Arizona 25 29 24 6 24 61 40 6.05 Delaware 32 30 24 8 28 77 52 8.13 Dist. of Col. 15 15 14 2 16 49 14 9.59 Hawaii 46 46 43 16 41 85 83 7.49 Indiana 133 135 90 37 161 637 197 6.91 Iowa 116 147 87 36 189 532 260 5.44 Kansas 108 98 56 21 150 377 219 8.09 Kentucky 82 102 63 31 163 399 155 6.21 Maine 19 15 11 6 15 36 34 8.36 Minnesota 131 115 72 30 130 575 169 6.94 Mississippi 132 78 48 28 133 207 196 13.35 Missouri 255 225 147 55 296 760 471 8.29 Montana 10 11 6 3 19 44 22 5.92 Nevada 6 7 5 2 8 24 14 6.44 New Jersey 81 71 54 21 96 183 187 7.72 New York 97 90 71 18 111 189 208 8.15 North Carolina 160 124 99 55 134 279 288 9.54 North Dakota 33 29 17 5 35 116 54 8.00 Oklahoma 74 46 26 15 86 178 70 12.13 Oregon 33 21 14 6 30 77 51 10.06 South Carolina 32 42 26 17 56 105 86 6.13 Tennessee 89 84 53 31 143 263 203 7.08 Texas 416 240 147 71 544 573 425 12.97 Utah 22 18 12 6 22 52 45 8.09 Virginia 54 57 41 20 62 168 106 6.29 Washington 35 22 13 8 26 78 33 11.22 West Virginia 40 34 21 13 40 159 74 8.04 Wyoming 11 5 3 2 11 21 5 14.94 Total 2363 2003 1326 591 2865 6551 3900 7.36 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Appendix Table A,2 Estimated Reserve Requirements of Insured Nonmember Banks Computed by Three Methods and Selected Reserve Assets, By State (June 30, 1967) Estimated required Selected assets typically Average reserves held as primary and secondary reserve by Stat ; by F.R by reserves ratio: regula- System assumed Currency Due from Securities reg. res. tion regula - grad- and coin banks U.S. State i• tion uated Gov't and net dem. State formula local and time States allowing (amoun :s in millions of dollars deposits earning assets as part of reserves: Arkansas 213 48 26 17 97 141 113 33.6 California 288 175 146 30 205 449 304 10.75 Colorado 78 33 21 9 45 131 49 16.63 Connecticut 44 46 35 12 66 81 85 6.94 Florida 534 177 118 50 220 760 374 21.96 Georgia 165 103 61 37 177 354 179 11.26 Idaho 16 7 5 2 9 15 16 16.63 Louisiana 181 109 73 37 209 417 267 12.65 Maryland 119 94 81 28 111 278 111 9.39 Massachusetts 78 64 45 20 74 122 103 9.95 Michigan 217 105 79 35 107 431 301 12.27 Nebraska 84 52 28 12 81 162 56 12.81 New Hampshire 11 8 6 2 7 26 12 6.76 New Mexico 22 18 12 6 25 52 36 9.09 Ohio 206 90 61 35 130 405 207 14.10 Pennsylvania 262 231 185 63 192 631 511 7.82 Rhode Island 11 9 6 4 6 14 12 13.07 South Dakota 52 22 13 4 33 110 23 16.64 Vermont- 45 15 12 4 18 38 42 15.69 Wisconsin 348 161 107 46 206 825 300 13.16 Total 2975 1566 1118 454 2015 5441 3099 13.01 States with no reserve re- quirements Illinois 279 185 67 402 1242 523 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Appendix Table A.3 Required Reserves by F.R« System Regulation and Gr&dtta£6d formula and Selected Assets as Percentages of Estimated State Requirements, bviState Selected assets typically held Estimated required reserves as primary and secondary reserves by State by F.R. by assumed Currency due Securities regulation System graduated and from | State & regulation formula coin banks U.S.Govt. Local ($Millions) (% of est. State required reserves) States allowing only cash assets as reserves: Alabama 68 97.1 54.4 29.4 101.5 342.6 200.0 Alaska 9 55.6 44.4 22.2 77.8 155.6 33.3 Arizona 25 116.0 96.0 24.0 96.0 244.0 160.0 Delaware 32 93.8 75.0 25.0 87.5 240.6 162.5 Dist. of Col. 15 100.0 93.3 13.3 106.7 326.7 93.3 Hawaii 46 100.0 93.5 34.8 89.1 184.8 180.4 Indiana 133 101.5 67.7 27.8 121.1 478.9 148.1 Iowa 116 126.7 75.0 31,0 162.9 458.6 224.1 Kansas 108 90.7 51.9 19.4 138.9 349.1 202.8 Kentucky 82 124.4 76.8 37.8 198.8 486.6 189.0 Maine 19 78.9 57.9 31.6 78.9 189.5 178.9 Minnesota 131 87.8 55.0 22.9 99.2 438.9 129.0 Mississippi 132 59.1 36.4 21.2 100.8 156.8 148.5 Missouri 255 88.2 57.6 21.6 116.1 298.0 184.7 Montana 10 110.0 60.0 30.0 190.0 440.0 220.0 Nevada 6 116.7 83.3 33.3 133.3 400.0 233.3 New Jersey 81 87.7 66.7 25.9 118.5 225.9 230.9 New York 97 92.8 73.2 18.6 114.4 194.8 214.4 N. Carolina 160 77.5 61.9 34.4 83.8 174.4 180.0 N. Dakota 33 87.9 51.5 15.2 106.1 351.5 163.6 Oklahoma 74 62.2 35.1 20.3 116.2 240.5 94.6 Oregon 33 63.6 43.4 18.2 90.0 233.3 154.5 S. Carolina 32 131.3 81.3 53.1 175.0 328.1 268.8 Tennessee 89 94.4 59.6 34 .-8 160.7 295.5 228.1 Texas 416 57.7 35.3 17.1 130.8 137.7 102.2 Utah 22 81.8 54.5 27.3 100.0 236.4 204.5 Virginia 54 105.6 75.9 37.0 114.8 311.1 196.3 Washington 35 62.9 37.1 22.9 74.3 222.9 94.3 W. Virginia 40 85.0 52.5 32.5 100.0 397.5 185.0 Wyoming 11 45.5 27.3 16.2 100.0 190.9 45.5 Total 2363 84*8 56,1 25.0 121.2 277.2 165.0 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Appendix Table A.3 Required Reserves by F»R» System Regulation and Graduated Formula and Selected Assets as Percentages ofEstimated State Requirements, by State Selected assets typically held Estimated required resta rves as priin ary and secondary reserves by State by FmRm by assumed Currency Due 1 Securities regulation System graduated and from | State& regulation formula coin 11 banks U.S. Govt. Local C$millions) a of est. State required reserves) States allowing earning assets as part of reserves Arkansas 213 22.5 12 a 8.0 45.5 66.2 53.1 California 288 60.8 50.7 10.4 71.2 155.9 105.6 Colorado 78 42.3 26.9 11.5 57.7 167.9 62.8 Connecticut 44 104.5 793 27.2 150.0 184.1 193.2 Florida 534 33 „1 22.1 9.4 41.2 142.3 70.0 Georgia 165 62.4 37.0 22.4 107.3 214.5 108.4 Idaho 16 43.8 31.3 12.5 56.3 93.8 100.0 Louisiana 181 60.2 40.3 20.4 115.5 230.4 147.5 Maryland 119 79.0 68.1 23.5 93.3 233.6 93.3 Massachusetts 78 82.1 57.7 25.6 94.9 156.4 132.1 Michigan 217 48.4 36.4 16.1 49.3 198.6 138.7 Nebraska 84 61.9 33.3 14.3 96.4 192.9 66.7 New Hampshire 11 72.7 54.5 18.2 63.6 236.4 109.1 Nev Mexico 22 81.8 54.5 27.3 113.6 236.4 163.6 Ohio 206 43.7 29.6 17.0 63.1 196.6 100.5 Pennsylvania 262 88.2 70.6 24.0 73.3 240.8 195.0 Rhode Island 11 81.8 54.5 36.4 54.5 127.3 109.1 S. Dakota 52 42.3 25.0 84.6 63.5 211.5 44.2 Vermont 45 33.3 26.7 8.9 40.0 84.4 93.3 Wisconsin 348 46.3 30.7 13.2 59.2 237.1 86.2 Total 2975 52.6 37.6 15.3 67.7 182.9 104.2 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Appendix Table A.4 Number of Insured Commercial Banks, By Stake, Member and Nonmember Banks (June 30, 1967) Distribution of insured commercial banks F.R. members Nonmember State Total number number % of total number % of total Alabama 266 110 41.4 156 58. 6 Alaska 10 5 50.0 5 50., 0 Arizona 17 5 29.4 12 70. 6 Arkansas 245 83 33.9 162 66. 1 California 181 99 54.7 82 45. 3 Colorado 215 135 62.8 80 37. 2 Connecticut 65 36 55.4 29 44. 6 Delaware 19 7 36.8 12 63. 2 Dist. of Col. 14 12 85.7 2 14.3 Florida 447 208 46.5 239 53. 5 Georgia 404 73 18.1 331 81. 9 Hawaii 7 2 28.6 5 71.4 Idaho 25 16 64.0 9 36.0 Illinois 1059 522 49.3 537 50, 7 Indiana 413 205 49.6 208 50.4 Iowa 662 159 24.0 503 76.0 Kansas 598 211 35.3 389 64. 7 Kentucky 341 94 27.6 247 72.4 Louisiana 222 57 25.7 165 74.3 Maine 41 27 65.9 14 34. 1 Maryland 120 55 45.8 65 54. 2 Massachusetts 156 107 68.6 49 31. 4 Michigan 342 209 61.1 133 38.9 Minnesota 719 224 31.2 495 68. 8 Mississippi 188 42 22.3 146 77. 7 Missouri 653 177 27.1 476 72. 9 Montana 133 91 68.4 42 31. 6 Nebraska 432 140 32.4 292 67. 6 Nevada 9 6 66.7 3 33. 3 New Hampshire 72 53 73.6 19 26.4 New Jersey 227 187 82.4 40 17. 6 New Mexico 64 41 64.1 23 35.9 New York 306 268 87.6 38 12.4 North Carolina 131 28 21.4 103 78. 6 North Dakota 165 46 27.9 119 72. 1 Ohio 535 349 65.2 186 34. 8 Oklahoma 420 244 58.1 176 41. 9 Oregon 47 14 29.8 33 70. 2 Pennsylvania 523 380 72.7 143 27.3 Rhode Island 10 5 50.0 5 50.0 South Carolina 124 32 25.8 92 74. 2 South Dakota 165 59 35.8 106 64. 2 Tennessee 295 86 29.2 209 70.8 Texas 1140 614 53.9 526 46. 1 Utah 55 24 43.6 31 56.4 Vermont 45 27 60.0 18 40.0 Virginia 249 163 65.5 86 34. 5 Washington 96 37 38.5 59 61. 5 West Virginia 191 114 59.7 77 40. 3 Wisconsin 593 166 28.0 427 72.0 Wyoming 69 53 76.8 16 23. 2 Digitized for FRASE U R n ited States 13,525 6,107 45.2 7,418 54.8 http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Appendix Table A*5 Insured Commercial Bank deposits by State Member and Nonmember Banks (June 30, 1967) Deposits of insured commercial banks All Insured F.R. Members Nonmember State Total Net demand Total Net demand Tc .. 1 Net demand (millions of dollars) (millions of dollars) (millions of dollars) Alabama 3553 1645 2,652 1,227 901 418 Alaska 350 146 268 116 83 30 Arizona 2351 840 1,900 695 450 145 Arkansas 2146 984 1,408 670 739 314 California 38,831 12217 35,891 11,374 2,940 843 Colorado 3086 1206 2,563 1,004 523 202 Connecticut 3892 1802 3,179 1,513 713 289 Delaware 981 542 560 360 422 182 Dist. of Col., 2421 1218 2,232 1,151 189 68 Florida 8504 3512 5,835 2,415 2,669 1,097 Georgia 5197 2331 3,538 1,693 1,658 638 Hawaii 1090 417 414 174 676 243 Idaho 948 404 839 361 109 43 Illinois 27,386 11103 22,718 9,485 4,668 1,618 Indiana 7777 3095 5,665 2,290 2,112 804 Iowa 4702 1889 2,356 988 2,346 901 Kansas 3651 1703 2,144 1,069 1,507 634 Kentucky 3730 1741 2,217 1,091 1,513 650 Louisiana 4755 2181 3,095 1,505 1,660 676 Maine 923 373 681 281 242 92 Maryland 3820 1738 2,412 1,166 1,408 571 Massachusetts 8113 4293 7,244 3,869 869 424 Michigan 16054 4740 14,166 4,243 1,888 497 Minnesota 6635 2380 4,610 1,743 2,025 638 Mississippi 2240 1057 1,112 542 1,128 516 Missouri 8899 3955 5,502 2,608 3,397 1,347 Montana 1172 468 991 402 181 66 Nebraska 2458 1208 1,718 853 740 355 Nevada 770 313 664 279 106 34 N. Hampshire 655 271 482 241 173 30 New Jersey 10,932 4192 9,774 3,799 1,157 394 New Mexico 1035 466 759 352 275 114 New York 68,223 28863 66,900 28,343 1,323 520 No. Carolina 4901 2027 3,048 1,325 1,853 702 N. Dakota 1011 390 559 213 453 176 Ohio 17084 6151 15,358 5,662 1,727 489 Oklahoma 3996 1801 3,288 1,503 708 298 Oregon 3114 1045 2,750 926 364 119 Pennsylvania 21875 8355 18.309 7,085 3,566 1,270 Rhode Island 1327 507 1,228 443 100 63 S. Carolina 1563 913 985 623 578 290 S. Dakota 1114 449 766 307 348 142 Tennessee 5364 2163 3,953 1,651 1,411 513 Texas 18559 8032 14,662 6,502 3,897 1,530 Utah 1453 475 1,155 375 298 100 Vermont 619 170 314 98 305 72 Virginia 5510 2021 4,578 1,714 932 307 Washington 4238 1724 3,896 1,592 343 132 W. Virginia 2002 876 1,462 663 539 213 Wisconsin 7079 2376 4,210 1,508 2,869 868 Wyoming 564 209 478 183 86 26 United States3586?5 142990 297,529 120,288 61,164 22,703 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Appendix Table A«6 Distribution of Insured Commercial Bank Deposits, By State Member and Nonmember Banks (June 30 1967) p Deposits of insured commercial banks All insured F. R. members Nonmember Total Net demand Total Net demand Total Net demand SSttaattee (Millions of dollars) (% of all insured) (7» of all insured) Alabama 3553 1645 74 .6 74 .6 25 .4 25 .4 Alaska 350 146 76 .3 79 .4 23 .7 20 .6 Arizona 2351 840 80 .8 82 .7 19 .2 17 .3 Arkansas 2146 984 65 .6 68 .1 34 .4 31 .9 California 38,831 12217 92 .4 93 .1 7 .6 6 .9 Colorado 3086 1206 83 .1 83 .2 16 .9 16 .8 Connecticut 3892 1802 81 .7 84 .0 18 .3 16 .0 Delaware 981 542 57 .0 66 .4 43 .0 33 .6 Dist. of Col. 2421 1218 92 .2 94 .5 7 .8 5 .5 Florida 8504 3512 68 .6 68 .8 31 .4 31 .2 Georgia 5197 2331 68 .1 72 .6 31 .9 27 .4 Hawaii 1090 417 38 .0 41 .6 62 .0 58 .4 Idaho 948 404 88 .5 89 .4 11 .5 10 .6 Illinois 27,386 11103 83 .0 85 .4 17 .0 14 .6 Indiana 7777 3095 72 .8 74 .0 27 .2 26 .0 Iowa 4702 1889 50 .1 52 .3 49 .9 47 .3 Kansas 3651 1703 58 .7 62 .8 41 .3 37 .2 Kentucky 3730 1741 59 .4 62 .7 40 .6 37 .3 Louisiana 4755 2181 65 .1 69 .0 34 .9 31 .0 Maine 923 373 73 .8 75 .3 26 .2 24 .7 Maryland 3820 1738 63 .1 67 .1 36 .9 32 .9 Massachusetts 8113 4293 89 .3 90 .1 10 .7 9 .9 Michigan 16054 4740 88 .2 89 .5 11 .8 10 .5 Minnesota 6635 2380 69 ,5 73 .2 30 .5 26 .8 Mississippi 2240 1057 49 .6 51 .2 50 .4 48 .8 Missouri 8899 3955 61 .8 65 .9 38 .2 34 .1 Montana 1172 468 84 .5 86 .0 15 .5 14 .0 Nebraska 2458 1208 69 .9 70 .6 30 .1 29 .4 Nevada 770 313 86 .3 89 .0 13 .7 11 .0 N. Hampshire 655 271 73 .6 88 .8 26 .4 11 .2 New Jersey 10,932 4192 89 .4 90 .6 10 .6 9 .4 New Mexico 1035 466 73 .4 75 .6 26 .6 24 .4 New York 68,223 28863 98 .1 98 .2 1 .9 1 .8 N. Carolina 4901 2027 62 .2 65 .4 37 .8 34 .6 N. Dakota 1011 390 55 .2 54 .7 44 .8 45 .3 Ohio 17,084 6151 89 .9 92 .1 10 .1 7 .9 Oklahoma 3996 1801 82 .3 83 .4 17 .7 16 .6 Oregon 3114 1045 88 .3 88 .6 11 .7 11 ,4 Pennsylvania 21,875 8355 83 .7 84 .8 16 .3 15 .2 Rhode Island 1327 507 92 .5 87 .5 7 .5 12 .5 S. Carolina 1563 913 63 .0 68 .2 37 .0 31 .8 S. Dakota 1114 449 68 .8 68 .5 31 .2 31 .5 Tennessee 5364 2163 73 .7 76 .3 26 .3 23 .7 Texas 18,559 8032 79 .0 80 .9 21 .0 19 .1 Utah 1453 475 79 .5 78 .9 20 .5 21 .1 Vermont 619 170 50 .7 57 .6 49 .3 42 .4 Virginia 5510 2021 83 .1 84 .8 16 .9 15 .2 Washington 4238 1724 91 .9 92 .3 8 .1 7 .7 W. Virginia 2002 876 73 .1 75 .6 26 .9 24 .4 Wisconsin 7079 2376 59 ,5 63 .5 40 .5 36 .5 Wyoming 564 209 84 .8 87 .6 15 .2 12 .4 United States 358,695 142,990 82 .9 84 .1 17 .1 15 .9 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Andrew F. Brimmer (1968, April 3). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19680404_brimmer

@misc{wtfs_speech_19680404_brimmer,
  author = {Andrew F. Brimmer},
  title = {Speech},
  year = {1968},
  month = {Apr},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19680404_brimmer},
  note = {Retrieved via When the Fed Speaks corpus}
}