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BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

Office Correspondence
To

Chairman Eccles

Frnm

Date—J^ 19,1947
Subject:

J» Burke Knapp

Late this afternoon while in the Treasury Department I was shown
a proposed exchange of letters between the International Bank and Secretary
Snyder as Chairman of the NAG by which the U.S. Government would grant certain authorities to the International Bank in connection with its security
issues. I was informed that the International Bank required clearance of
these letters by tomorrow in order to permit their proceeding with the
filing of a registration statement covering their first issue.
The first two authorities requested by the Bank are perfectly
straightforward and I had no hesitation in giving the Treasury our clearance on the proposed letter. The third point raised, however, presents
difficulties and the matter will probably be taken up with you tomorrow.
With respect to the first two points the U. S. Government is
asked
a) to confirm that it has no objection to the Bank*s issuing debentures in this market in amounts up to 500 million dollars(you w m recall
that the Council instructed the U. S. Executive Director to xnform the
Bank that such a request would be granted), and
b) to approve the Bank's converting the dollar proceeds from deben--

tures into thSS currencies to the extent that such f ^ e " f f . £ % 2 t S
fZ the Bank's operations (it has always been understood that the United
Sates w o S d not try to -tie- the dollars borrowed by the Bank, although
the e L T S Council action did not specifically cover thxs point.)
With respect to the third point, the proposed letter from the
Bank would read as follows:
"The Government of the United States is hereby further
requested, pursuant to Section 8 of Article IV of f£id
Articles of Agreement, to confirm its approval of the Bank

ffom IZe toilme buying and selling any such bonds or other
obligations which shall be So issued by xt.«

issues.




To: Chairman Iccles

-2 -

make some reference to consultation with the Federal Reserve System
(perhaps the Open Market Committee) in connection with the timing of
these operations.
Following my return to my office I received a telephone call
from the Treasury saying that this suggestion had been passed on to
the Bank and that the Bank was perfectly willing to agree informally
to engage in such consultation. They are anxious, however, not to
have any qualification attached to the official letter of approval
from the U. S. Government and urged that this matter be settled tomorrow. I further understand that somebody in the Bank or in the Treasury
will be calling you on the matter.
I should only like to add that I do not see why we should
be pressured into an immediate decision on this question. The first
two points referred to in the above memorandum must be settled before
the Bank files any registration statement. I am not sure, however,
thet the registration statement will contain any statements relating
to the Bankfs intentions with regard to buying aid selling its debentures, and even if such statements are contemplated they could be
incorporated by an amendment to the original registration statement
to be filed, say, sometime next week. Alternatively, if we are forced
to take action at once, perhaps the approval given to the Bank for
operations in its own securities could be qualified by the words
a
until further notice11 or some other phrase indicating that the authority now given is not irrevocable.
Incidentally, this same problem of consultation by the International Bank with the Federal Reserve System arises in connection
with the Bankfs operations in TJ. S. Government securities. This subject
is covered on pages 4-6 of my memorandum to you dated February 4, 1947,
which we have never found an opportunity to discuss. I should especially
like to call your attention to the fact that the Hew York Bank has put
the International Bank on notice that its operations in our market for
TJ. S. Government securities must conform to System policy. From the
point of view of money market effects, since the International Bank
will be operating with ^Federal funds*, it is perhaps just as important
to assure consultation on the Bankfs operations in the market in its
own securities•