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BOARD DF GDVERNDRS DF THE FEDERAL RESERVE SYSTEM Office Correspondence T o From Chairman Eccles Mr Date_ March 25,1944 Subject: » Morrill I talked with Dan Bell on the phone about 2 o'clock and told him in substance what you had on your ntind about the letters and he made no particular comment beyond expressing his interest in the subject and his appreciation of our sending him a copy at the same time it was sent to the Secretary. He did make the remark that having already received the communication about the dealers in New York it looked as if we were trying to formalize everything. I told him that the Committee was really trying to develop practical methods of procedure which it thought would be of benefit both to the Treasury and the Committee in the long run. He asked whether I was mailing the letters and I told him that I had planned to send them over by messenger. He suggested I mail them instead as he personally would rather not receive it today. Accordingly, I have mailed the letter to the Secretary and a copy to Dan Bell and copies to all the Presidents. In addition, I am furnishing a copy to each member of the Board. March 25, 1944- Dear Dan? Referring to our telephone talk regarding the procedure for presenting Federal Reserve recommendations to the Treasury concerning important matters of Government financing, 1 &ia eaclo^iag for your information • copy of the letter nrftich I am sending today to the c-ecretary setting forth the procedure agreed upon by the Federal Open Market CoMidttee at its last meeting. Sincerely yours, L S* Eccles- Honorable D. rU Bell, under Secretary of the Treasury, Washington 25,*C C. Msrch 25, 1944. Dear Mr, Secretary: In order to improve the procedure for presenting F#4«ral Reserve recommendations to the Tre&sury in regard to important matters of Government financing, the members of the Federal Open Market Coarait tee have agreed unanimously that such recommendations should be presented to you through the Chairman &nd Vice Chairman of the Committee. It was felt that this procedure would be helpful from the standpoint of the Secretary of the Treasury as well as that of the Federal Reserve, and that the System's responsibilities under the law ia connection with open-market policy could best be aiet if, before reaching final decisions on financing matters, the Secretary of the Treasury were to give the Federal Open Market CoWittee, or its Executive Coamittee, an opportunity to consider the recommendations obtained from staff and outside sources before presentation of Federal Reserve views. It was agreed that, whenever practicable, Federal Reserve recofflaend&tioas should be submitted in or following conferences between the Secretary and the Under Secretary of the Treasury and the Chairman and Vice Chairman of the Federal Open Market Committee, which should be held after staff meetings and after meetings with private bankers and others. The considerations underlying the recommendation of this procedure may be sumarized as follows: The Federal Open Market Cosait^ee is a statutory body created by Congress and empowered to direct and regulate the open market operations of the Federal Reserve Barks, Under the law, the time, character aad volume of these open market operations nust be governed with a view to accoasiod&ting commerce and business and with regard to their bearing upon the general credit situation of the country. Ho Federal Reserve B&nk may carry on open market operations except in accordance with the directions of the Committee. Under existing conditions, the objectives of o^ea-siarket policy must be end &re to provide the reserve funds required for the orderly functioning of our money and banking system and to maintain a general credit situation which will facilitate Treasury borrowing necessary to finance the w&r. The System h&s undertaken to m&intain conditions im the Govermsent security market which will be conducive to the continued success of Treasury financing on the present general basis of yields. m 2 « The means of accomplishing these objectives are ordinarily the purchase ana sale of Government securities in the open market. The Federal Open Market Committee, in discharging its responsibilities is, therefore, of necessity a participant with the Treasury in the rcainttnance of the market for Government securities and in the problems of war fin&ncing. Its responsibility is that of a public body which has a greater concern than any group or persons outside of the Treasury in the tisaing of Treasury offerings, the types of securities offered, m& their terms and conditions because of the importance of relating current financing to credit and monetary policies. It has been customary for the Secretary and Und#r Secretary of the Treasury to request the members of th© Executive Committee of the Feder&l Open Market Comraittee to confer with them, or with Eie®bers of the Treasury staff, on matters of financing policy ©nd procedure. These have invariably been informal meetings with the individual members of the Executive Coaamittee rather than formal meetings with the Executive Committee M such. In these conferences the members of the Executive Coismittee at times hfive given their individual views and recommendations, at timea they have spoken Tor the Executive Committee, and at other times for the Feder&l Open Market Committee. In addition the Treasury at times has requested the individual views of Federal Keserve Bank presidents* In view of the System1s statutory responsibility and the portance of the matters involved, the Cotmrdttee felt that the discussions with the Treasury should be on i more clearly defined basis, and that this would be accomplished by having the Chairman &&& Vice Chairman of the Federal Open Market Committee recognized as the appropriate representatives through whom to present all Federal Reserve recosBaend^tionfe*, written or oral, to the Treasury on important matters of financing policy. It was felt also that better results would be obtained by presenting euch recommendations in conferences with the Secretary and Under Secretary of th# Treasury alone, after whatever conferences &re held by the Treasury with others at the staff or technical level, and after whatever meetings are held by the Secretary and Under Secretary with advisers or consultant®, such as private bankers and Government security dealers, who &r« without direct public responsibility. In making their recommendations, the federal Keserve representatives would thus be able to take account of information obtained fro® these sources* The Feder 1 Open Market Committee authorised its Executive Committee, through its Chairman and Vice.Qhairman, irv so f&r as it i© - 3- practicable, to follow the procedure outlined above. If you so desire, kr* Sproul and I will be glad to discuss this procedure with you at your convenience. Sincerely yours, If. S. Eeeles, Chairman, Federal Open Market Cosanittee. Honorable Henry Morgenth&u, Jr., Secretary of the Treasury, Washington 25, D» C. Form F. R. 131 BOARD OF GOVERNORS DF THE | FEDERAL RESERVE SYSTEM Office Correspondence Tft Chairman Eccles Date Mp'rcb 3 ° * 19J'M Subject: From. It has just come to our attention that late yesterday afternoon Mr. Bell wired the Presidents of all the Federal Reserve Banks asking for tljeir reaction to a proposal to Drovide a $250 denomination for Series E bonds which would first be m?,de available for the fifth war loan. This was not mentioned in any of our recent discussions of Treasury financing and no mention was mpde of it in your reDort at the meeting yesterday afternoon of the discussions at th^ Treasui-v. T^° wire disregards the procedure suggested in your letter of March 25 to Secretary Mor^enthau. cc: Mr* McKee Mr. DraDer Mr. Piser BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM pate__APrti 7, Office Correspondence Tn Chairman Eccles prom Subject:_ Chester Morrill, Secretary You will find attached a copy of a letter dated April 5 addressed to Chairman Eccles by Mr. Bell, of the Treasury, which was received in the Chairman's Office yesterday, in reply to the Chairmen's letter of March 25, 1944, outlining a procedure for the presentation of Federal Reserve recommendations to the Treasury in regard to Govemnent financing. Attachment. THE UNDER SECRETARY OF THE TREASURY WASHINGTON " r« The Secretary hai asked re • r letter . . ' . / , outli • "-•• li o -• I a procedure t< imno? ; he Tor- • ' •' - • sndatlonf pfere with tl • - - • ions i • • - ., ->-"-_ »serve : '
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