NONMEMBER BANKS AND MONETARY CONTROL.

There are several different facets to the argument for the extension of FRS reserve requirements to nonmember banks, including issues of regulatory equity between member and nonmember banks, ability of the commercial banking system to withstand financial shocks, etc. However, the heart of the argument is that the Federal Reserve authorities need to be able to set reserve requirements on nonmember bank deposits in order to better control the money stock. The purpose of this paper is to present some evidence which is germane to the question of whether or not FRS reserve requirements on nonmember bank deposits are needed for greater precision in money stock control. Specifically, evidence is presented on the impact of nonmember banks upon the precision of Federal Reserve control over the money stock during the 1960's and early 1970's. Section I contains a discussion of the nonmember bank data problem (a problem which severely limited the scope of this study and which makes its findings less trustworthy than they might otherwise have been) and Section II presents the logic of the empirical inquiry. Section III contains the findings of the study, none of which supports the contention that the absence of FRS reserve requirements on the deposits of nonmember banks has been a source of instability for Federal Reserve control of the money stock. [ABSTRACT FROM AUTHOR]