Additional data submitted to the subcommittee by-Continued Federal Reserve System-Continued Replies to questions propounded on behalf of Hon. Abraham J. Multer to the Federal Reserve Board in re H.R. 5237__ Appendix A. Reserves of member banks-Regulation D.... Appendix B. Supplement to regulation D. Appendix C. Compilation of Federal and State laws relating Textual changes which would be made in section 19 of the Federal 11 A bill to amend the National Bank Act, as amended, and the Ratio of deposits due to U.S. banks to total demand deposits_ Schedule I. Ranking of central Reserve and Reserve cities by percentages of demand deposits due to domestic banks_. Schedule II. Reserve city banks (as of June 30, 1958).- Schedule III. Vault cash holdings of member banks, by classes, Schedule IV. Required reserves, excess reserves, vault cash, and demand balances with domestic banks, by classes, on selected Independent Bankers Association, letter of April 10, 1959.. 319 Capital funds and deposits of Chicago central Reserve city banks 212 Demand deposit rate of turnover (seasonally adjusted). Metropolitan Bank of Miami, Miami, Fla., letter of March 31, 1959. New York Clearing House Association: H.R. 5237-An analysis and recommendations.. Part 1. Summary of provisions. 218 214 212 Ratios of member bank capital accounts to total loans and 315 Additional data submitted to the subcommittee by-Continued Table 5.-Interbank deposits of member banks as a percentage Table 6.-Annual turnover of demand deposits of member banks Table 7.-Member bank excess reserves and borrowings from Federal Reserve banks as a percentage of total reserves. Turnover of bank deposits at banks in selected cities (chart)- Rockefeller, Hon. Nelson A., Governor, State of New York, letter of State of New York, Banking Department, letter of April 1, 1959_ Stratton, Hon. William G., Governor, State of Illinois, letter of The Chase Manhattan Bank, New York, N.Y., letter of March 18, 323 Wagner, Hon. Robert F., mayor, New York City, letter of March 24, 319 MEMBER BANK RESERVE REQUIREMENTS TUESDAY, APRIL 7, 1959 HOUSE OF REPRESENTATIVES, COMMITTEE ON BANKING AND CURRENCY, SUBCOMMITTEE No. 2, The subcommittee met, pursuant to notice, at 10 a.m., the Hon. Paul Brown, presiding. Present: Messrs. Brown, Spence, Barrett, Vanik, Barr, Moorhead, Johnson, and Hiestand. Mr. BROWN. The committee will come to order. We will take up H.R. 5237. (The bill, H.R. 5237, follows:) [H.R. 5237, 86th Cong., 1st sess.] A BILL To amend section 19 of the Federal Reserve Act with respect to the reserves required to be maintained by member banks of the Federal Reserve System against deposits Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 19 of the Federal Reserve Act, as amended, is further amended by striking out the provisos in the fourth and fifth paragraphs of such section, lettered (b) and (c), respectively (U.S.C., title 12, sec. 462), by changing the colon in each such paragraph to a period, and by adding after such fifth paragraph the following: "Nothwithstanding the other provisions of this section "(1) the Board of Governors, under such regulations as it may prescribe, may permit member banks to count all or part of their currency and coin as reserves required under this section; and "(2) a member bank in a reserve city may hold and maintain the reserve balances which are in effect under this section for member banks described in paragraph (a), and a member bank in a central reserve city may hold and maintain the reserve balances which are in effect under this section for member banks described in paragraph (a) or (b), if permission for the holding and maintaining of such lower reserve balances is granted by the Board of Governors of the Federal Reserve System, either in individual cases or under regulations of the Board, on such basis as the Board may deem reasonable and appropriate in view of the character of business transacted by the member bank." SEC. 2. (a) The fifth paragraph of section 19 of the Federal Reserve Act, lettered (c) (U.S.C., title 12, sec. 462), is amended by striking out the word "thirteen" in such paragraph and substituting in lieu thereof the word “ten”. (b) The sixth paragraph of section 19 of the Federal Reserve Act (U.S.C., title 12, sec. 462b) is amended by striking out the words "on the date of enactment of the Banking Act of 1935". Mr. BROWN. I believe our first witness is Mr. Balderston, Vice Chairman of the Board of Governors of the Federal Reserve System. Is Mr. Balderston here. Mr. BALDERSTON. Yes, sir. Mr. BROWN. All right, Mr. Balderston, you may identify yourself and proceed in your own way. 1 STATEMENT OF C. CANBY BALDERSTON, VICE CHAIRMAN, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, ACCOMPANIED BY WOODLIEF THOMAS, ECONOMIC ADVISER, AND HOWARD H. HACKLEY, GENERAL COUNSEL Mr. BALDERSTON. Mr. Chairman, I am C. C. Balderston, Vice Chairman of the Board of Governors of the Federal Reserve System. At my right is Mr. Thomas, economic adviser to the Board. At his right, Mr. Hackley, the Board's general counsel. Mr. Chairman and members of the committee, the Board of Governors favors enactment of the proposal before your committee, H.R. 5237, to amend section 19 of the Federal Reserve Act by making three changes in the present law respecting the reserve requirements of member banks. This bill, it should be emphasized, is not designed to make any radical changes in the existing system of reserve requirements that would have an important bearing on monetary policies. The application of its provisions would have to be effected in a manner and be accompanied by other measures, so as not to negate policies directed toward provision of an appropriate supply of bank credit and money. In the judgment of the Board, the basic characteristics of the existing system of reserve requirements provide a workable and effective medium for execution of monetary policy. The amendments proposed are for the purpose of removing from the present law some structural inequities and difficulties of administration. The amended law would provide a means of effecting gradually a better structure of reserve requirements within the existing framework, adaptable to meeting over the foreseeable future the prospective monetary and credit needs of a growing economy. The bill proposes three changes in existing law that would authorize the Board to: (1) Permit member banks to include in their required reserves all or part of their vault cash holdings in addition to balances with Federal Reserve banks. (2) Set the reserve requirements for demand deposits of central Reserve city banks within a range of 10 to 20 percent, instead of the present authorized range of 13 to 26 percent. (3) Permit individual member banks in any part of a Reserve or central Reserve city to carry, where reasonable and appropriate in view of the character of business transacted by the individual banks concerned, reserves at the lower requirement level prescribed for country or for Reserve city banks. The relatively simple changes the bill would make in the text of section 19 of the Federal Reserve Act are described precisely and completely in an attachment to this statement. The purposes and possible effects of the proposed changes may be summarized briefly. VAULT CASH AS RESERVES Present limitation of reserves to balances held at the Reserve bank results in an inequitable situation as between individual banks, because many banks find it necessary for operating purposes to hold relatively larger amounts of vault cash than do other banks. The counting of |