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0-"' f") ,~,..:....r:~l '""hereas the Federal Reserve Boc..ri, unJ.ar the !JC'73rs given it in Sections 13 cnJ. 14 of the Federal Reserve /ct, h&-s authority to limit and otherwise determine the securitie-:: and investments purch~ssci by Federal reserve banks; ··n.erec:.s the Federc:.l Reserv2 3oZ:-rd hls never prescribed any lir::it2.t ion upon open rr.arket ::-urc:O.a.ses by Fe::lerE.l reserve banl<s; ... i'Thereas tr- e ~ma''nt ' a '-'-' t1· m~ ~, c~:cc r:.'..ct&r, and Ine\.nner of such purc.hases rna.y exercise an important influ.e;-:ce u.7:cn t.}e ;;:oney :r.arket; ·:nereas an open rr.arket i;~vest:rjent :;::olicy for the twelve ban~s composing the Federal reserve syste:Y: is necessc-,ry in the interest of the maintenance of a good relations1:;.ip bet··:een U1e ciiscount and purchase operations of the Federal reserve banl~s and the gener:,l :noney rr.arket; ,.':1.ereas no such System policy ha.:; been laid :iown by the Federal Reserve Boccrd nor developed by the Federal reserve banl~s; ~-:Ilereas it appears that during the year 1922 the Federal 'reserve banks have made large purchases of investments in the open rr.arket rr.ainly for the purpose of assuring the earning of their expenses and divi:iends, without much regard to the bearing of such purchases upon the money rr.arl:et and general credit requirements of the country; ··1bere:1s the total earning assets of the twelve Federal reserve banls for the year 1922 have aprroxirnated 1200 r::illions, while aggregate earning assets for the twelve bacl~s of e.pfroxirrately GOO millions would. h-.;..,ve suf- ficed to have enabled the oanl's to have earned their expenses and divi:iends; '.Ilereas approxirrztely 400 r.1illions of money has been r:ut into • -2- the money ~arket by tha action of the FBdaral resarve banks and main- tained there in excess of their earnings reouirerr:Bnts into a time Nhan ./'the general credit situation needed restraining influence rather than stimulus; Whereas such opan market purcnases have consisted very largely of United States Gov0rnment securities; and Whereas heavy investments in United States securities, particularly short-dated certificate isGues, have occasioned embarassment to the Treasury in ascertaining the true condition of the money and investi?ent markets from time t4 tirr:e, TE:SREFORE, Be J;t Resolved, That the Federal Reserve Board, in the axercise of its j?O'Ners under the Federal Reserve Act, lay do·Jin and adopt the following principles wi t.h resr~ect to open markat in- vestrr:ant operations of the Federal reserve banks, to-wit: (1) That the tirr:e, manner, character, and volume of open ~arket investments purchased by Feaeral reserve banks be governed with priiTary regard to the effect of such purchases or sales on the general credit situation. (2) That in ITaking the selection of open market purchases, careful regard be al~ays States Government sec~rities, given to the bearing of purchases of United especially the short-dated issues, upon the rrartet for such securities, and that open market purchases be mainly comrr.ercial investments, except tr~t Treasury certificates oe dealt in, as at present, under so-called 11 repurcL3.-Se 11 a~Sre3man.t. .,. . -3- X-3667 (3) 'That in ordar to enable Federal reserve ban}:s to earn their dividends with a minimum volume of open market purchases at timas when there is no active rediscount demand made on Federal *eserve banks, open market purchases made by reserve banks shall be fro-rated among them in accordance with their respective ~equirements. Be It Further Resolved, That on and after April 1. 1923, the present Comm~tt~e of Governors on Centralized Execution of Purchases and Sales of Governmsnt Securities be discontinued, and be superseded by ·a new comrni ttee l:nown as the Open Market Investment Comr.:i ttee for the Federal Reserve System, said Cowmittee to con~ist of five representatives from the reserve banks and to be under the ex-officio cnairrr~ship of the Federal Reserve Board.; and that it be the duty of this Commi ttea to arrange for the purchase and sale and Qistribution of the open rrarket purchases of the Federal reserve baru:s in accordance with the above principles. A. C. M. March 21, 1923.
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