Chapter II Quotations From

agricultural and industrial products. Advances may be made by a Federal Reserve Bank to a member bank on the latter’s promissory note secured by collateral. (Page 49) Under the two foregoing provisions a Federal Reserve Bank may supply a member bank with any amount of additional reserves the member bank needs, the only limitation being the amount of good assets the member bank can offer the Federal Reserve Bank as security.” Page 50: “In recent years, however, banks have had a large volume of excess reserves, there has been little occasion for them to borrow from Federal Reserve Banks.” (Note: Sure: The $250 billion U.S. Bonds gave banks $1,250 billion Reserves.) Page 50: “The second method of supplying banks with additional reserve funds is through open market purchases (Page 51) of government securities and other obligations. These purchases are undertaken at the initiative of the Federal Reserve authorities and not of individual member banks. They do not have particular banks in view, but the aggregate reserves of the banking system as a whole. “Securities purchased by the Federal Reserve authorities in the open market come out of the portfolios either of banks themselves or of investors and corporations that are customers of banks. If they come out of the portfolios of investors and corporations, the cheques given in payment by the Federal Reserve authorities (Page 52) are deposited by the investor and the corporation in their respective banks” and as a result bank deposits are increased. The banks in turn deposit the Reserve authorities’ cheque in their reserve accounts at the Federal Reserve Bank, so that reserves also are increased (dollar for dollar) purchases of securities by the Federal Reserve authorities always increase the reserves of banks, therefore open market purchases increase bank reserves relative to bank deposits, they tend to furnish member banks a larger basis for credit expansion. . . . Thus if $100,000,000 of securities purchased by the Reserve authorities came from the portfolios of investors, the result would be that bank deposits as well as reserves would be increased by that amount.” Page 55: “Loans and purchases of securities by the Federal Reserve authorities are one of the important