Review

One responsibility of the Federal Reserve System is to promote sound banking practices. In recent years this Federal bank regulator has been concerned that some banks were tending to leave themselves vulnerable to liquidity crises by concentrating a large share of their time deposits in short maturities, particularly large certificates of deposit. One tool that the Board has used to counter this tendency has been higher reserve requirements on short-term lime deposits than on longer maturity deposits. The latest such Board action came in October 1975 and January 1976 when reserve requirements were reduced on member bank time deposits with maturities of 180 days or more.

Monetary policy in 1975 was directed at aiding economic recovery from the most severe recession in the post-World War II years without rekindling the fires of inflation. As in recent years, the Federal Open Market Committee pursued short-run objectives of monetary policy formulated in terms of both an interest rate and money growth rate targets. These dual objectives were pursued through open market operations—that is, the buying and selling of U. S. Government and Federal agency securities and bankers’ acceptances.