Evening star., 1953-06-25
Reserve Board Eases
Tight Money Policy
To Aid Borrowing
By tha A,,eeia,ad Pra,,

~ wv USSSStStSS two
The Federal Reserve Board has
suddenly eaSed it's tight money
policy in a move it said will help
the Treasury meet huge borrow
ing needs without cutting into
the Nations prosperity.
The board announced late yes
terday it was lowering the
amount of reserves it's member
banks are required to keep. The
action was expected to increase
bank lending power by about
$3.50, 100000.
A Treasury spokesman said
the Treasury estimates it will
have to borrow between $5 and
$6 billion in the next three
months, and will announce next
week how it. will do so.
Thus, the Reserve Boards &C
ton will provide approximately
the amount of new credit the
Treasury says it will need during
July, August and September.
No Shift in Policy.
Secretary of the Treasury
Humphrey said in a statement
the Reserve Board had not start
ed a retreat from the Eisenhower
administrations hard money
policy.
He said the board acted inde-
pendently, but after "full con-
sultation" with the Treasury.
The Reserve Boards an
nouncement said it acted lin an
ticipation of the exceptionally
heavy demands on bank reserves
which will develop in the near
future when seasonal require
ments of the economy will ex-
pand and Treasury financing
(borrowing) in large volume is
inescapable."
Needs Up to $12 Billion.
Secretary Humphrey said the
Treasury will need SO to $12 bill
lion new money in the next six
months. The Federal Reserve has
acted to supply Treasury money
needs of the next three months
only, and evidently, will await
developments before any further
looSening of the money supply,
or new restriction.
The boards action in lowering
reserve requirements backed up
the promise, implied in a recent
speech at Boston by Federal Re-
serve Chairman William Nc
CheSney Martin, jr., that the
Reserve Board would not let its
tight-money policy tighten to the
point of strangulation. Mr..
Martin said, in part:
THE purpose is to see that the
supply and flow of credit is
neither so large as to induce de-
structive inflationary forces nor
so small as to stif1e our great
and growing economy"
Percentage of Deposits.
The boards action yesterday
concerned the percentage of de-
mand deposits, such as checking
accounts, which member banks
must deposit as a reserve with
the Federal Reserve System.
Deposits which the Federal Re-
serve requires banks to hand over
to it can neither be loaned nor
invested, SO the percentage OF
required reserves regulates the
amount banks can lend. When
the Federal Reserve lowers re-
serve requirements, as at present,
lending power Is increased.
Under the new regulations. eff
fective July l, the smallest
C"country') Federal Reserve
member banks may keep 13 in
stead of IA per cent of their de-
posits in the hands of the reserve
system.
Effective July 9, the board said,
banks in cities with Federal Re-
serve branch banks may drop
their reserves to 10 instead of
20 per cent of their demand de-
posits, and banks in cities with
Federal Reserve district banks
may keep % instead of "a per
cent of their deposits in reserve.
Federal Reserve member banks
hold about IS per cent Of COM
mercial deposits,
Won't Alter General Average.
The board said this would lib
crate about $1,156,000,000 of
bank reserves. This would add
about per cent to the $21 bill
lion in reserve last week. The
reduction in reserve require
ments was not enough to change,
materially, the present general
average allowing member banks
to lend about SIS for every one
they have on reserve. There
fore, the freed reserves could be
multiplied, in lending power. to
about $5,780,000.000 of new
credit.
This meant Treasury borrow
ing in the next three months can
be done without further strain
on the already tightly extended
money market, and, possibly,
without forcing interest rates
much. If any, higher than the
20-year peak they have already
attained.