BERNARD M.BARUCH 597 MADISON AVENUE NEW YORK 22, N. Y.

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1 BERNARD M.BARUCH 597 MADISON AVENUE NEW YORK 22, N. Y. Mrch 11, Mr. Mrriner S. Eccles, Federl Reserve System, Wshington, D.C. My der Mr. Eccles: Is the enclosed bill stisfctory to you nd hs it ny reltion to the mtter tht you nd I recommended to give the Federl Reserve Bnks the right to lend up to #500,000,000 bsed 9«< upon the $136,000,000 tht hd been tken from A them? Plese red nd return with such comments s you think necessry. We re reping the hrvest of the improper finncil controls of the wr. I ws very much opposed to the reduction of txes, nd of course ny reduction now would be even more unwise until we know wht our obligtions re. The price of bred is not bright hrbinger of the future.

2 80TH CONGRESS A f \ 0 1ST SESSION IN THE SENATE OF THE UNITED STATES JANUARY 2T, 1947 Mr. TOBEY introduced the following bill; which ws red twice nd referred to the Committee on Bnking nd Currency A BILL To repel section 13b of the Federl Reserve Act, to mend section 13 of the sid Act, nd for other purposes. 1 Be it encted by the Sente nd House of Represent- 2 tives of the United Sttes of Americ in Congress ssembled9 3 REPEAL OF SECTION 13B OF THE FEDERAL RESERVE ACT 4 SECTION 1* Section 13B of the Federl Reserve Act is 5 hereby repeled; but such repel shll not ffect the power 6 of ny Federl Reserve bnk to cny out, or to protect its 7 interest under, ny greement heretofore mde in crrying 8 on opertions under tht section. Within sixty dys fter 9 the enctment of this Act, ech Federl Reserve bnk shll 10 py to the United Sttes the ggregte mount which the 11 Secretry of the Tresury hs heretofore pid to such bnk

3 2 1 under the provisions of section 13b of the Federl Eeserve 2 Act, together with ny net ernings thereon for the period 3 from Jnury 1, 1947, to the dte on which such pyment 4 to the United Sttes is mde; nd such pyment shll con- 5 stitute full dischrge of ny obligtion or libility of the 6 Federl Eeserve bnk to the United Sttes or to the Secre- 7 tiy of the Tresury rising out of subsection (e) of sid 8 section 13b or ny greement thereunder, 9 AMENDMENT OF SECTION 13 OF THE FEDEEAL EESERVE 10 ACT 11 SEC. 2. Section 13 of the Federl Reserve Act, s 12 mended, is hereby further mended by dding t the end 13 thereof the following new prgrph: 14 "Subject to such limittions, restrictions nd reguláis tions s the Bord of Governors of the Eederl Eeserve 16 System my prescribe, ny Federl Eeserve bnk my 17 gurntee ny finncing institution ginst loss of principl 18 or interest on, or my mke commitment to purchse nd 19 therefter purchse from finncing institution, ny lon 20 mde to business enterprise which hs mturity of not 21 more thn ten yers. ~No Federl Eeserve bnk under this 22 prgrph shll gurntee or mke commitment to pur- 23 chse more thn 90 per centum of the unpid blnce of 24 ny lon. The ggregte mount of gurnties nd com- 25 mitments of the Federl Eeserve bnks under this pr-

4 8 1 grph outstnding t ny one time, together with the mount 2 of lons cquired thereunder nd held by them t the sme 3 time, shll not exceed the combined surplus of the Federl 4 Reserve bnks t such time; nd the ggregte mount of 5 such gurnties nd commitments outstnding t ny one 6 time nd lons held t the sme time, which individully 7 re in excess of $100,000, shll not exceed 50 per centum 8 of the combined surplus of the Federl Reserve bnks t 9 such time."

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6 Mroh 1I+, 19U7. Mr«Bernrd M. Bruoh, 597 Mdison Avenue9 Mew York 22, Hew York. My der Mr«Bruoh: I ws plesed to hve your letter of Mroh 11«We sponsored 3. I4O8 under which the Reserve Bnks would function s they did under the V-lon progrm. This would be in ooordnoe with your joint report with Mr. Hncock. The only mteril difference between S. i 08 nd the previous Wgner-Spenoe Bill is tht the Federl Reserve Bnks would use their surplus s bsis for gurnteed lons under S. 1*08 insted of using the 139 million dollrs derived from the gold increment which «s set side for the industril lons under section 13b of the Federl Reserve Act. The reson for the chnge ws tht t my instnce the Bord proposed to turn bck to the Tresury this 139 million dollrs in view of the urgency of the Tresury's budgetry needs. In ddition, we proposed tht FDIC reimburse the Federl Reserve for nother sum of 139 millions tht ws tken from our surplus nd put into the FDIC 9 s gurntee fund bck in 1933«As you know, the bnking system is in stronger position thn ever before nd the FDIC's surplus hs gone up bove billion dollrs. I hve long felt tht the bnks, which bitterly complined bout Government subsidies, should not hve subsidised insurnce fund. Therefore, I hve dvocted tht the FDIC py bck most of the Government money. The Presidents Budget Messge proposes three things in this connectiont First, the 139 millions tht the FDIC received from our surplus would be returned nd covered into the Tresury* second, the dditionl 139 millions out of the gold increment set side for 13b would be turned bck to the Tresury* third, the FDIC would py to the Tresury 100 million of the 150 millions which the Tresury put into the FDIC fund. I mention this becuse you will note tht these items dd up to 378 d Hi cm dollrs, wheres the President 9 * Budget Messge showed surplus of only 200 million dollrs. The Budget Director, ccordingly, hs been sorlbing to me in converstions I hve hd with him the chievement of this blnce becuse his budget did not show surplus until fter he hd tlked with me nd I hd mentioned these potentil items*

7 Mr* Bernrd M. Bruch - (2) Mrch lh, 19U7 Any support tht you oould muster for S. UQ8 would certinly be gretly welcomed nd pprecited. The chief opposition, so fr s I cn see t this time, comes from big city bnks, prticulrly in Hew York, becuse of their correspondent reltionships. In other words, they wnt to tke on lons tht their correspondents would only be ble to crry under the prtil gurntee proposl. I gree with you tht we re reping hrvest of mistken fiscl nd Government finncing policies nd premture removl of controls. One of the worst mistkes ws to repel the excess profits tx ltogether while keeping the crry-bck excess profits credit. It might well hve been reduced from the pek wrtime levels, but tking it off entirely produced the sitution which is illustrted by the Nthn Report. There is every indiction tht in the ltter prt of this yer or erly next yer we re going to get rection from this infltionry sitution nd unemployment of n indeterminte degree. Accordingly, if ny txes re to be reduced, the benefit, in my opinion, should go to the lower income groups who hve suffered most from inflted prices nd whose purchsing power would be needed in recession. I feel tht ny tx reductions, therefore, should not pply during n infltionry period nd should not be pplicble until the beginning of 19148» It ws good to her from you nd to know of your continuing interest in the objectives of the proposed bill. Sincerely yours, M. S. Eccles, Chirmn.

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