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OF mm YORK 7
April Ik, 1914W
Hon. M. S. Eccles, Chairman,
Federal Open Market Committee,
c/o Board of Governors of the
Federal Reserve System,
Washington 25, D. C.
Dear Marriners
Since returning to the bank, I have gone over the two drafts of a
supplementary memorandum on Treasury financing which you had Mr. Piser send
to me. As I told you on the telephone, after working over the memorandum we
ran into a snag in the mechanics of the two-way bill offering. With a
fluctuating volume of weekly exchanges of ^>/Q% and ^>/Q% bills for ^>/Q% bills,
by the Federal Reserve Banks, it would not be possible to maintain both a
constant weekly offering of bills of two maturities and a fixed aggregate
amount of bills outstanding. The resulting complications would almost certainly
make the program unacceptable to the Treasury, and perhaps to the public, and
would have drawbacks for us because of the erratic uncontrolled additions to and
subtractions from the supply of funds in the market which would result. We
think we have overcome some of our difficulties, however, by providing for a
constant weekly volume of exchange of 3/8% bills by the Federal Reserve Banks.
Accordingly, I am sending you my idea of how the memorandum should read for presentation to the Secretary of the Treasury. For convenience, I have included
enough copies for the other members of the Executive Committee at the Board,
and I have also sent a copy to Hugh Leach at Richmond.
Aside from changes in form and organization, you will note the following changes in substance:
a. I have left out the recommendation that a public statement be made
that no other kinds of financing will be used between drives, as I think this
would be an unnecessary advance commitment without offsetting advantages, which
the Treasury would reject.
b. I have left out the alternative of a 6-months 5/8 of 1% bill, as
this rate for 6 months would actually be a reduction in rates on the basis of
the "pattern" as we have allowed it to swing recently.
c. I have moderated the claims as to the amount of increased sales
of bills to banks and business concerns to be expected as a result of the change
in rates. I do not think it necessary br desirable to make our claims too sweeping, particularly in view of a possible increase in the tendency of banks and
corporations to extend maturities in order to get better, yields, a natural consequence of our long continued maintenance of a pattern of rates.
d. I have left out some of the details of methods of offering bills,
deeming this to be a subject for discussion by the technicians, rather than for
inclusion in a memorandum from the Executive Committee to the Secretary of the

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e. I have avoided giving our blessing to an extension of the practice
of fomenting bids by dealers to fill our requirements, and renewed our suggestion of an exchange offering. If an extension of dealer bidding is to be included, it should be on the initiative of the Treasury, not us*
One other thing we should have in mind. Our fixed buying rate for
bills, with repurchase option, is in effect a payment of interest on demand
deposits. If now we are to contemplate a large increase in use of this facility
by corporations, and other nonbank investors, we may expose ourselves in the
battle of Regulation Q«
Yours sincerely,
(Signed) Allan Sproul.
Allan Sproul, Vice Chairman,
Federal Open Market Committee.

Encs. (3)