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1 FEDERAL RESERVE BOARD WASHINGTON ADDRESS OFFICIAL. CORRESPONDENCE TO THE FEDERAL. RESERVE BOARD X-9410 January 2, 1956. Dear Sir: Recently I received from Mr. Stevens, Chairman of the Federal Reserve Bank of Chicago, & letter quoting a resolution adopted by a clearing house association rec·ommending that the Federal Reserve Banks of St. Louis and Chicago select as their member of the Open Market Committee a man of wide experience in business and financial affairs who is not an officer of either bank. The letter was considered at a meeting of the Board today and I am inclosing, for the information of the board of directors of your bank, a copy of my reply whlch was approved by the Board. Very truly yours, Inclosure. TO CHAIRMEN OF ALL F. R. BANKS EXCEPT CHICAGO. 2 COPY X-9410-a January 2, 1936. Mr. E. M. Stevens, Chairman, Federal Reserve Bank of Chicago, Chicago, Illinois. Dear Mr. Stevens: Your letter of December 16 in which you quoted a resolution of a clearing house association recommending that the Federal Reserve Banks of St. Louis and Chicago select as their member of the Open Market Committee a man of wide experience in business and financial affairs who is not an officer of either bank was brought to the attention of the members of the Board. In this connection several in- fornal in0ui.ries which have come to the attention of the members of the Board of Governors indicated that there w~s doubt at some of the Federal reserve banks as to what course should be followed with respect to the selection of their r-epresentatives to serve after March 1, 1936, as members of the Federal Open Rfurket Committee. 'fhe law is silent as to the procedure which shall be followed b,r the boards of directors in the selection of such representatives and it does not place upon the Board of Governors of the Federal Reserve System any duty or responsibility with respect to the determination of such procedure. However, since the question has arisen the Board feels that it may be of some assistance to the directors of the Federal reserve banks by giving them its views and s~ggestions regarding these matters. Without reviewing in detail the history of the legislation, it is clear that throughout the discussions the persons whom the X-9410-a -2- proponents of representation of the Federal reserve banks on the Open Market Committee had in mind were the Governors of the Federal reserve banks, as shown for example by the recommendations of the American Bankers• Association, the Reserve City Bankers' Association, and the Federal Advisory Council. When, in addition to this, the fact is taken into consideration that the amendment took away from the Federal reserve banks the power of declining to participate in open market operations recommended by the Federal Open Market Committee and instead made the decisions of the committee binding upon the banks, it becomes especially significant that the members of the committee to be selected by the banks are referred to in the amendment as "representatives of the Federal reserve banks". The Board therefore believes that it is clear that the Congress intended that these members should be persons in position to present adeqlli~tely the views of the Federal reserve banks and to speak authoritatively for them. Aside from these considerations it is evident that any person having otherwise satisfactory individual qualifications who might be selected from outside the official personnel of the Federal reserve banks would almost certainly have or represent interests of a business or investment character which might affect his action as a member of the committee. Even though not influenced by his personal interests, their existence might affect the public interpretation·of the actions of the Federal Open Market Committee in which he participated. More- over, he could not be intimately acquainted with the affairs of the 3 4 -3- X-9410-a member banks and the Federal reserve banks, the financial policies of the Government, and other phases of monetary matters to the extent that would be d.esirable and as fully as would be possible in the case of representatives who served only the Federal reserve banks. A~hough he would have a vote, his contribution to the deliberations of the committee would be more likely that of a consultant or adviser called in at the meetings than that of a true spokesman for the Federal reserve banks. It is apparent that the situation also presents the question of an appropriate method by which the directors of the banks may contact each other and determine their selections in a mutually satisfactory manner and it seems to the Board that this might be accomplished by preliminary meetings between committees of directors of the banks who could be authorized to formulate procedure and make recommendations for the consideration of the full board of directors of each Federal reserve bank concerned. The Board will be glad to be adviseq as to the views of the directors of your bank regarding these suggestions. Very truly yours, (Signod) M. S. Eccles rvi. S. Eccles, Chairman.
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