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332.3-6 - Repurchase Paper
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(1924 Discount Rates - Operations of FRBanksil)

CONFIDENTIAL - FR

Mr. Young
Earl C. Hald

_
Report of the New York Clearing
House Association on government
security dealer financing.

The core of this report is an attack on the use by government
security dealers of repurchase ar7eements negotiated with corporations
as a partial means of financing their government security inventories.
Basically, the money market banks want the Federal Reserve to stop this
practice, and preferably also to curtail its own RP's with dealers, thus
driving security dealers back to money market banks for their financing
needs. The recommendations of the study may be summarized as follows:
(1) Recognize the discount window as the basic source of funds
flowing through banks to dealers in periods of unusual dealer needs. This
point deals with that indefinable degree to which the Federal Reserve Bank
"discolireges" moMber bank borrowing. Essentially, the money market banks
want freer access to the discount window "'within some reasonable limits"
when It is apparent that bank needs result from dealer accommodation.
(2) Encourage dealers to finance their carries by time loans
with banks. Implicit in this in discouragement of RP's terminable at the
option of the dealer. (See recommendation #7).
(3) Improve availability of securities that dealers may borrow
to tirplement short sales.

(4) Reduce reserve requirements; more specifically, abolish
the c(mtral reserve city classification.
(5) Restrict Federal funds settlements to banks, thus restoring
clearing house settlement as the basic medium for bank customers. Federal
Reserve open market operations should be in terms of "regular way" settlemento.
(6) "Reconsider the place" of Federal Reserve RP's. They should
be made only at rates higher than the rediscount rate. BP's should be made
available to member banks.
(7) "Repress" the uses of dealer RP's with corporations. It
in argued that these violate Regulation Q, which prohibits payment of
interest on demand deposits. Failing this, dealer activity should be
subjected to formal licensing, periodic examination, and public reporting.
RP's payable on demand should probably be forbidden.




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CONFIDENTIAL - FR
Itr. Young:

In consideration of the above reforms money market banks would
undortako to recognize the financing of primary underwriting and clearance
operations of dealers as a "normal and necessary" function.
Of the above 7 points, (3) is a technical matter and (4) requires
no comment as being unrelated to the problem.
The sum of what is suggeoted comes very close to a program to
dealers into the money market banks for their borrowing needs. If
force
by declartng them to be in violation of Regulation Q, we prohibit dealer
RP's vith corporations, establish a rate on Federal Reserve RP's higher
than the discount rate, and restrict settlement in Federal funds to banks,
dealers will have no practical alternative. The money market banks then
wish the dealers to make time loans and to take the proceeds in clearing
house rather than Federal funds. This would mean that for those purposes
for which the dealers must have Federal funds they vill have to barmy
one day prior to such a need. It is not too much to say that the writers
of this report seek the best of all possible worlds.
Points for and against each of the specific proposals listed
above may be summarized:
(1), (6). It is suggested that the discount window be more
freely available. In practice, the discount window is always open, but
it is clearly essential to Federal Reserve policy that we retain the
right to discourage borrowing. If we did not, there would in the extreme
case be no control at all except through the discount rate.
Related to this question are the proposals that the Federal
Reserve negotiate RP's with dealers only at rates higher than the discount
rate, that we extend RP's to member banks, and that dealers not be permitted to negotiate RP's with corporations.
Since the Federal Reserve has a vital interest in the market
making function of dealers, we would of course be required, under the
conditions as proposed, to give specific recognition to member bank
discount needs resulting from dealer accomodation. Admittedly there
is need for a safety valve. Presently we have a direct routo to the
dealers through RP's. If the dealers had to go to banks, and the banks
then to 113, it might be argued that the result would be the same; namely
that the Federal Reserve under certain conditions makes credit available
to dealers, whether directly or indirectly.




C

F'0% "Tevfe,

CONIINCITIAL - F. B.

-3

Icalever, an the face of'it the direct relationship has obvious
advamtagois to the Federal Reserve, Federal Reserve RP's with dealers
serve at least two purposes that would be lest under the proposed reforms:
First, RP's are ideally suited for short-term adjustments where the alternative of open market purchases or sales might be somewhat misleading to the
market as to the general direction of prevailing open market policy.
Second, (and I suspect thic is a very important point) the possibility of
negotiatingR:Ps with the Federal Reserve keeps dealers constantly informing the trading desk as to their status relative to financing needs. The
trading desk would certainly lose something in the area of up-to-theminute knowledge of the state of the market if the BP practice were discontinued.
Another advantage of the present dealer RP arrangement as compared
with dealer accommodation via member bank borrowing from the Federal Reserve
is that dealer RP's are negotiated on Federal Reserve initiative. Thus
Federal Reserve funds are not readily "available" in the same sense that
discount funds are available. To repeat the point made earlier, the ready
availability of Federal Reserve funds at the borrower's iniative 'would
mm.
0y weaken the credit control mechanism at times of credit stringency.
Some of the same considerations apply to the suggestion that
made available to member banks. I know of no rationale for
RP's be
substituting BP's for the discount window. If the Federal Reserve offered
RP's to member banks at the discount rate, the latter might prefer them
over borroving for reasons of balance sheet appearance (although the recent
ruling classifying such transactions as loans argues against this to dOMO
extent). But there appears no good reason to rely on a new MP arrangement
in addition to the discount window as a means of adjusting member bank
reserve positions. It is true, of course, that if the Federal Leserve
stopped negotiating RP's with dealers it might find brink RP's convenient
from time to time as a means of adjuating to temporary market situations.
(2), (7). These two proposals are clearly relatod. As pointed
out earlier, they would be instrumental in forcing dealers to borrow from
member banks, presumably on time loans.
First, as to the legplity of dealer RP's with corporations,
Federal Reserve counsel has indicated that this would be for Justice
Department determination, but that such arrangements do not appear to
be illegal under the prohibition of payment of interest on demand deposits.
There is no basic reason why we should seek to prevent one ',rivets firm
from borrowing from another, especially when neither one is a bank. To
end this practice would be to revert to a less sophisticated way of doing
business. If credit scarcity has stimulated dealers to devise ways to




C

cOIVIDEVTIAL - FR
Mr. Young:

.
4

utilire the total available fir101 of the economy more efficiently, why
should they be stopped from doing this? Nor is there any reason why
corporate lenders should not be allowed to make such use as they please
of funds derived from economizing on balances. On the contrary, Federal
Reserve pollster and operntions can and should bc (and no doubt have
been) adapted to this now development. In fact, the oxirtonce of dealercorooration RP'n has created a more closely-knit natiouwide money market
and it may be argued that the effectiveness of Federal Reserve policy is
grantor by reason of this 2aechanism for diffusing the impact of money
mrket covlitions throughout the economy more promptly and completely.
Forbidding RP's payable on demand is part of the same package
as is the regulation of dealero by licensing, etc. (which would require
legislation). Presumably the standards presently used by the Federal
Reserve to maka sure deniers are responsible, whilo informally administered,
are now operatinr, satisfactorily.
Any or all of the above proposals would, during most periods,
raise the cost of dealer financing, thus aggravating the problem of the
negative carry, discussed further below.
(5). Restricting Federal funds settlements to banks, and reverting to settlement in clearing house funds would again be a backward step.
If firms other than banks desire to transact business in Immediate funds,
see no basis for our interference. The related proposal that the Federal
Reserve restrict open market transactions to regular way settlement would
also be objectionable. We should not give up our present useful alternative of roquirtiv; settlement in Federal funds when conditions suggest such
settlement.
As pointed out in the January 23 memorandum by Riefler, et. al.,
the proposals of the study do not attack the problem of the negative
carry; that Is, the situation prevalent during periods of tight money in
which dealers have to borrow at rates exceeding the rate earned on the
securities inventoried. (Even with easier money the difference between
the bill rate and posted bank rates to dealers has been substantial.
Durinp, the veek of April 21, e.g., there were times when there was a 3/
4
cent differential, and a 1/4 - 1/2 per cent differential between the
per
bill rater and the Federal funds rate.)
It appcnrn that the Open Market Committee has been concerns&
the persistence of negative carry, presumably because dealers with
about
small capital relative to inventories may not be able to afford inventories
of sufficient size and diversity to give the market desirable "depth,
breadth, and resiliency". It has been suggested that the existence of




C li=Tr

CONFEOMUL - FR

Kr. Young:

..
5

negative carry is in some sense an unnatural phennmenon; that in accordance
with the arbitrage principle banks would sell bills and lend to dealers
until the rates are brought together. As I see it, there are practical
reasons why negative carry exists and will tend to continue to exist:
First, on the banks' balance sheets and in the scrutiny of
bank examiners, dealer loans are loans, while bills are investments with
the highest secondary reserve characteristics. Federal Reserve Board
examiners confirm the view that bank °seminars make little effort to
ascribe liquidity to bank loans—even security dealer loans. Thus, if
banks do not have a good-sized bill portfolio, they will be deterred for
reasons of portfolio balance and balance Sheet appearance from moving
from bills to dealers loans, even for improved earnings.
Second, while the security which dealers offer is of the best
the loans are highly liquid, banks may hesitate to.see too big a
and
spread between the dealer loan rate and the prime rate. After all, borrowers at the prime rate are also credit risks of impeccable character.

expense

Third, the making and servicing of loans may involve greater
per dollar of return than the direct ownership of bills.

As an offset against these possible disadvantages of dealers
loans, it is true that dealer loans do not involve the market risks inherent
in the ownership of securities. In the case of bills, however, this factor
is probably of minor significance.

dealers
dealers
against
profits

In the long run, as the Clearing Rouse study points out, security
must expect the carrying of inventories to involve some cost. Like
in any other commodity, they must plan to offset these costs
earnings from their buying-selling spread, together with such
or losses as market movements may bring.

ECH:ilm




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BOARD OF GOVERNORS

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OF THE

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FEDERAL RESERVE SYSTE

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C'D RI RECORDS SECTION
FEB1 81958

WAS
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OFFICE
-OF THE CHAIRMAN
:

1)

February 12, 1958
Honorable Ray M. Gidney,
Comptroller of the Currency,
Washington 25, D. C.
My dear Mr. Gidney:
This is in reply to your letter of February 7 with respect
to a sentence suggested for inclusion in the House Banking Committee
Report on the proposed Financial Institutions Act of 1957 (S. 1451
and H. R. 7026). You request the Board's views on the following proposed clause regarding paragraph (8) of section 34(b) of Title I:
". .. nor is it intended that the change in this section
deletion of the words tin the form of notes') shall
in any way alter the applicability to security transactions of section 32 of this title."
The Report of the Senate Banking Committee on S. 1451
(S. Rep. No. 121, 85th Cong.) referred specifically to the proposed
deletion of "in the form of notes". It pointed out (p. 14) that
loans on the collateral of United States securities "often take the
form of repurchase or similar agreements. The legal obligation of the
obligor under such agreements is considered to be of equol stature
with that evidenced by a promissory note. It is therefore the intent
of the Congress that any obligation secured as required by this paragraph may qualify for the exception to the usual limitation."
Your Office and the Board of Governors have taken the
position that repurchase agreements and similar agreements involving
Government securities are loans and not securities transactions, and
the Senate Committee Report is in accord with that view. Although
the sentence quoted in your letter is ambiguous, nevertheless, in view
of the history of the subject, its inclusion in the House Committee
Report might plausibly be advanced thereafter as an indication that
the House Banking Committee regarded repurchase agreements and similar
agreements as "security transactions" and therefore subject to the
provisions of section 32 of Title I ("Dealing in securities") rather
than to those of section 34 ("Maximum loan limitations"). Any Committee

;
LA'rf—i




61-2-

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Honorable Ray M. Gidney

-2-

statement that might be used to support the erroneous contention that
extensions of credit via repurchase agreements and the like are
securities transactions rather than loans might impede the efforts
of your Office and the Board of Governors to enforce the provisions
of law that actually are applicable to those transactions. Accordingly,
the Board concludes that the inclusion in the House Committee Report
of the sentence quoted in your letter would be undesirable.
Sincerely yours,

air
Wm. McC. Martin, Jr.

2
4uly IN 1957
I ,.•",

Files
Mr. Hexter

Conversation with kubrey Lanston
re repurchase agreements

This morning Richard YOungdahl of Aubrey Lanston & Co. telephoned
me and then Mr. Lanston got on the phone. He said he had been talking with
Mr. Donald Miller and that he had two conversations yesterday with Mr.
Jennings, Deputy Comptroller of the Currency.
It seems clear that Mr. Lanston is displeaad with the Gomptroll_r's
actions based on the view that ordinary repurchase agreements with respect
to Government securities constitute loan transactions rather than sales and
purchases of securities. I told him that, as far as the Investment Securities
Regulation and the new regulation under paragraph 8 of R.S. 5200 are concerned, the matter is within the llirisdiction of the Comptroller rather teen
the 3oard of Governors. However, I expressed my personal lawyer's opinion
that the Comptroller's office is on sound legal ground in viewing these
transactions as loans.
Mr. Lanston apparently wished to discuss the soundness of the
Comptrollerts view, and we did so. He mentioned a Federal Court decision
in which a repurchase agreement with respect to commercial paper was held to
be a securities transaction rather than a loan transaction. I told him
that Irecall having seen such a decision, but emphasized that the status
of the transaction for tax purposes (which were involved in that caee) might
be suite different from its status in ordinary legal thinking and for the
purpose of bank supervision.
iAr. Langton asked me when paragraph 8 of R.S. 5200 was enacted
and when the investment securities provisions of R.S. 5136 were enacted. I
told him the dates were 1918 and 1933, respectively. He thereupon based
an argument (which I did not quite comprehend) an chronology, and also
emphasized that repurchase agreements have been "popularly viewed as
securities transactions" for decades. He also mentioned the fact that the
Federal Reserve System enters into repurchase agreements ana regards them
as purchases and sales of securities.
I explained briefly the special factors justifying the use of
repurchase agreements by the Federal eserve System, which are not present
in the case of such agreements between banks, or between dealers and banks
or dealers and other private lenders.
Ir. Lanston mentioned that the Chase Manhattan Bank, as a matter
of general ,olicy, does not enter into repurchase agreements. Recently
Chase had excess funds that it wished to utilize, and in view of that




. FOR KIS
1,11 Broke

Files 7/30/57

-2-

policy, it purchased bills or other Government securities in order to
get some return on the existing funds. Mr. Lanston said that this showed
that repurchase agreements and ordinary sales of securities are simply
"alternative" procedures. I agreed they '::ere alternatives, but said that
in my opinion the choice of alternatives was between loans (via Federal
funds transactions, repurchase agreements, or otherwise) and securities
transactions. I said that in my opinion the crucial circumstance is that
when there is a real purchase of securities, the purchaser undertakes
the market risk--if the securities diminish in market value, he loses,
and if the securities increase in market value, he gains; whereas, in a
repurchase agreement transaction the purported "purchaser" sets back the
money he advanced, plus interest, regardless of what has happened meanwhile to the market price of the securities he "purchased".
Mr. Lanston made some comments abcut the soundness of paragraph
of R.S. 5200, and I commented that such argummts„ if valid, sh.,uld be
addressed to Congress in an effort to persuade Congress tc permit loans
on Government securities in unlimited amounts.

8

Mr. Lanston stated that he understands that Ir. Jennings' real
objective is to restrict Federal funds transactions. When I expressed
some surprise at tlis, he repeated that Ax-. Jennings said, in yesterday's
conversations: "I want to stop this selling of Federal funds."

4,74
D. B. Hexter

7/30/57
This afternoon I called Mr. Jennings and told him the substance
of the last paragraph, above. Mr. Jennings said that he was absolutely
misquoted, his attitude being just the reverse--that is, that Feaeralfunds transactions should be encouraged rather than discouraged. He said
he probably would call i'Lr. Lanston to correct this misunderstanding.

DBH
DBE:db




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BOARD OF GOVERNORS

....,_ . .....
REG': 1 RECORDS SLCTi4011

OF THE

FEDERAL RESERVE SYSTEM

•ace Correspondence

JUN 1 2 1957
Elate MaY 24, 1957

To

Board of Governors

Subject: (1) Securities Repurchase

From

Er. Hexter

Agreements; (2) Revision of Comptroller's Investment Securities
Regulation

In the attached letter dated May 21, 1957, the Comptroller's
office informs the Board that the Secretary of the Treasury has given
his approval to the Comptroller's contemplated issuance of a regulation
(as authorized in exception 8 to R.S. 5200) permitting a national bank
or member State bank to lend up to 100 per cent of its capital and surplus an the security of United States obligations that will mature within
18 months.
The May 21 letter also encloses a revised draft of the proposed
revision of the Comptroller's Investment Securities Regulation. In its
letter to the Comptroller dated April 19, 1957, the Board made comments
and suggestions regarding the proposed revision in its form at that time.
The most important of the Board's suggestions was that the Regulation
should omit my reference to repurchase agreements, since both the Comptroller and the Board consider such transactions (with negligible
exceptions) to be loans rather than sales and purchases of securities.
The Comptroller has adopted this suggestion, and the proposed revision
now contains no reference to purchases or sales under repurchase agreements.
The Board's April 19 letter also recommended further study of
the Comptroller's proposal to authorize banks to invest in high-quality
municipal revenue securities even where the entire issue is held by a very
few investors, a condition that is generally considered to limit marketability. Nevertheless, after further consideration the Comptroller has
decided to include this new provision in the revised Regulation. The
Comptroller also did not adopt one or two minor suggestions made by the
Board.
The present Investment Securities Regulation contains a pro- vision authorizing banks to purchase securities of "established commercial
or industrial businesses" that meet certain standards with respect to
quality and terms, even though there is no public distribution of the
securities or other assurance of the marketability prescribed by
R.S. 5136. The Comptroller had intended to delete this provision (and
had omitted it from the draft previously submitted to the Board) on the
grounds that (1) banks actually have not purchased securities of the nature
described therein, and (2) it is doubtful whether purchase of such
securities would comply with the provision of R.S. 5136 that prohibits
national banks (and member State banks) from purchasing any securities
that are not "marketable obligations". Apparently the Comptroller has
reconsidered this matter, however, because the currently proposed revision
does include the paragraph containing this provision.




FOR FILES
Betty Vanni

BOARD

OF GO

To Board of Governors

ORB

OF THE FEDERAL RESERVE SYSTE

-2-

In my opinion, the deletion of this paragraph (section I(1)(c) of the present Regulation; section I(b) of the proposed
revision) would have been desirable for the reasons mentioned above.
However, the Comptroller has exclusive responsibility for promulgation of the Regulation and is fully aware of these considerations.
Accordingly, it does not seem necessary or appropriate for the Board
to object to the retention of the paragraph, particularly in view of
the fact that it has not given rise to any practical difficulties
during the past 20 years.
The Comptroller has sent copies of the proposed revision
to the President of the National Association of Supervisors of State
Banks requesting an expression of its views thereon, and he hopes to
receive a reply in time to promulgate by June 30, 1957 both the new
Investment Securities Regulation and the regulation raising the
ceiling on repurchase agreements to 100 per cent of capital and
surplus.
Unless the Board wishes to record its objection to the abovementioned reinstated paragraph or other features of the proposed
Regulation, no action is called for.

Attachment




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•
FEDERAL RESERVE BANK OF NEW YORK
NEW YORK 45, NY
RECTOR 2-5700'

HI RECORDS
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•-• .-• !

195
/
June 28, 1956

Hon. James K. Vardaman, Jr.,
Board of Governors of the
Federal Reserve System,
Washington 25, D. C.
Dear Governor Vardaman:
At the meeting of the Open Market Committee on May 23,
Governor Mills commented on repurchase agreements for the period of one
day.

Although there was no further discussion of the point, I thought

it advisable on my return to New York to ask our Securities Department
to put down on paper the reasons for entering into such agreements.

I

sent a copy of the Department's reply to Governor Mills, inquiring
whether he thought it should have any wider circulation.

He has indi-

cated that he would consider further distribution worth while, so I am
enclosing a copy in the hope that you will find it of some interest.
Sincerely yours,

William F. Treiber, Alternate Member
Federal Open Market Committee

Enclosure




CONFIDENTIAL

c

(F.R.)

0 P

1 RECOPDS SEC-1

REC'u

FEDERAL RESERVE BANK
OF NEW YORK

OFFI CE: CORRESPONDENCE
CY

19:1
DATE

Mr. Treiber

TO
FROM

SUBJECT.

June 19, 1956

One-day Repurchase Agreements

T. C. Gaines, for the
Securities Department

This memorandum was prepared in response to your request for information
n the general circumstances under which one-day repurchase agreements have been
sed and the advantages to be derived from their use.
One-day repurchase agreements have been used relatively infrequently.
Between January 1, 1955 and June 1, 1956 approximately 600 repurchase agreements
of all maturities were written, of which 43 were written for one day.

The one-day

agreements were in an aggregate amount of $422 million while total repurchase
agreements for this seventeen-month period aggregated close to $6 billion.
The circumstances under which one-day repurchases might be made fall
under two general headings.

One-day repurchase agreements may be extended to

dealers at the System's initiative when the Trading Desk learns through various
reports to it, including dealers

requests for accommodation, that there is likely

to be more strain in the money market than indicated by the projections; by offering one-day contracts, the Trading Desk is able to test the real need for funds.
This type of situation, therefore, is one in which repurchase maturities are
limited to one day for tactical purposes in the execution of Federal Reserve
policy.

In other cases, also under circumstances when the System would be pre-

pared to make some repurchases available, the dealer himself may request a one-day
maturity because his particular financing situation requires only overnight assistance.

It is not possible to catalogue all one-day repurchase agreements exactly;

however, the records indicate that perhaps as many as one-half of the one-day
agreements are written at dealer request as to term.




2
1.

Circumstances under which dealers have
wished only one-day accommodation
On several occasions when the Trading Desk has been willing to extend

repurchase agreements for longer terms, one or more dealers have elected to take
only a one-day maturity.

As a general rule, this occurs when the dealer's residual

financing need is represented by securities he has already sold for next day delivery or by a need for Federal funds.

Although such repurchase agreements place

reserves in the market for only one day, it is advantageous for the Trading Desk
to be able to make them when they assist in achieving a specified reserve objective.
In addition, situations arise occasionally in which a single dealer
approaches the Trading Desk for overnight assistance in working out a particularly
difficult financing problem confronting him.

Even though the Account Management

may not have planned to make repurchase agreements on that day, and although the
over-all reserve picture appears to be consistent with policy objectiv
es, it is
sometimes expedient to supply the funds on an overnight
basis to prevent this
isolated problem from exerting an undesirable squeeze on
the money market.

For

example, problems of this sort have arisen when large nonbank
repurchase agreements have expired, usually near a tax or dividend date.
occurred on September 26,

Another instance

1955, the first business day after the President's

heart attack, when the temporarily disturbed conditio
ns in the money market
created a problem for a dealer who had to finance a
large block of short-term
securities.

Many of these requests for one-day accommod
ation have reflected more

a problem in finding Federal funds rather than a
shortage of dealer loans, as
such.

In all cases, of course, the repurchase faciliti
es are made available only

if the release of funds will further the broader
objectives of System policy.
2.

Circumstances under which the Trading Desk,
for
tactical reason, might offer one-day
repurchase

agreements

There are two types of situations when it is
advantageous for the
Trading Desk to be able to offer one-day repurcha
se agreements at its option.




3
a.

The first situation arises when the projections show an adequate

reserve position (consistent with the objectives of Federal Reserve
policy at the
time) but dealers are pressing requests for repurchase agreements upon
the Trading
Desk.

In a situation of this sort, the pressures from the market may reflect only

the attempts of dealers to secure financing with the System at attractive terms;
but on the other hand, they may indicate that the projections were wrong or that
the distribution of reserves is unfavorable to the money market, so that a real
squeeze exists.

The Trading Desk must always take this "feel of the market" into

consideration when arriving at operating decisions.

Of course, if credit policy

at the time is one of ease, the Trading Desk might meet the signs
of pressure on
the market by liberal extension of regular-term repurchase agreeme
nts; but if the
objective is restraint, the Trading Desk would
provide repurchase agreements only
on the basis of a clear-cut need.

In this situation, the offer of one-day repur-

chase agreements in response to the dealer requests can
have the effect of testing
the real need for funds and of screening out those
requests that can be financed
without serious strain through regular dealer financi
ng channels,

The net effect

is to make the repurchase agreement more expensive,
since the entire handling cost
involved in transferring the securities to the System
will have to be absorbed in
one day's cost rather than spread over several days.*

At the same time, the

Management of the Account will gain time to
review the latest reserve data as they
become available and to determine whether
the apparent pressures on the market result from a tighter reserve position than
had been projected and whether they are
likely to continue, in which case the
contracts could be renewed.
Dealer practices vary, but most dealers
would view this additional cost as
equivalent to about 1/4 per cent on
the borrowing rate. That is, the clerical
handling cost and the clearing charge
assessed by the clearing bank for delivering the securities would make the 2
3/4 per cent rate on a repurchase agreement
for one day roughly equivalent to a 3 per
cent rate on more permanent financing
in the street. On longer-term agreements, these
costs would be spread over two
or more days and the rate disadvantage would be corresp
ondingly reduced.




4
b,

A second type of situation when the Trading Desk might offer one-day

epurchase agreements for tactical reasons occurs when the market needs funds on a
particular day, but it is virtually certain that the reserve need will disappear
on the next day.

Offering one-day agreements is a method of indicating to the

dealers that, as the Trading Desk views the situation, the knot in the market is
very temporary.

Such circumstances might arise around a Treasury tax date, at a

time when float is expected to increase, on a statement date, or at other times
when there are persuasive reasons to expect funds to be more readily available on
the following day.

The System objective of releasing funds for only one day at

such times frequently coincides with dealer financing requirements, as noted
earlier, and specified dealer needs may take the form of a need for Federal funds
rather than dealer loans, as such.
In two recent situations in which one-day repurchase agreements were used,
on Thursday, May 17, and Thursday, May 31, it appears in retrospect that either
outright purchases or longer-term repurchase agreements could have been made.

At

the time, however, the latest projections of reserve positions indicated that the
Trading Desk should proceed cautiously in releasing reserves, and under the circumstances the proper approach was to attempt to test the intensity of the need
for funds.

Were an identical situation to arise in the future, it is likely that

the same decision would be reached.

One-day repurchase agreements have proved very

useful toth in avoiding strain on the market when particular problems involving
temporary dealer needs have arisen and as a tactical instrument for testing the
amount of pressure on the market at times when the signals coming from the market
indicate greater restraint than shown by the reserve projections.




•

1111

1E',.; 1 Pi:4

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

March

4, 1955.

CONFIDFNTIAL (FR)

Dear Sir:
At the meeting of the Federal Open Market Committee held
on March 21 1955, the Committee continued the authority relating to
repurchase agreements with, however, one change in the statement of
conditions for repurchase agreements. The one change referred to
was the deletion of the words "short-term“ from condition 1(c) of
tha statement approved at the meeting on June 23, 1954, a copy of
which was transmitted to you with my letter of June 24.
For your information and files, a copy of the amended
authority as approved at the meeting on March 21 from which the
word "short-term" in condition 1(c) has been deleted, is enclosed.
Very truly yours,

,4

infield W. Riefler, Secretb.ry,
Federal Open Market Committee.
Enclosure

TO THE MEMBERS AND ALTERNATE MEMBERS OF THE FEDERAL OPEN MARKET
COMMITTEE, PRESIDENTS OF OTHER FEDERAL RESERVE BANKS, AND MR. ROUSE,
MANAGER, SYSTEM OPEN MARKET ACCOUNT




-5t1\

Talirgr
BEDFORD AVENUE AND AVENUE H
BROOKLYN 10, N. Y.

1,i,Ca IN FILES SECTION

DEC 3 0 1954

DEPARTMENT OF ECONOMICS

9 liece ber, 1954
Federal Reserve board
giashington--25, DC
Gentlemen:
If available for public distribution I would like the weekly
figures on repurchase agreements, broken down by type of security (that
is, bills, certificates of indebtedness, notes, and bonds), starting with
the last week in 1950., If that is not for public distribution, would
you
furnish the weekly amounts held under repurchase agreements, from the last
week of 1950 through April 1952?




Very truly yours

EDWARD MARCUS

,
4 1 7.1•
,

REC'D IN FILES SECTION

•
To:

Date:

Executive Committee of the
Federal Open Market Committee
Mr. Vest

From:

OCT 2.0 1954
1954

October 1,

Subject: Legality and
history of repurchase agreements
of Federal Reserve Banks

/1/6
At the meeting of the Executive Committee of the Federal
Open Market Committee on September 22, 1954, during a discussion of
the subject of repurchase agreements involving Government securities,
it was indicated that the legal authority of the Federal Reserve Banks
with respect to such repurchase agreements should be considered by
Counsel.
Accordingly, the legal aspects of the matter have been studied,
in the light of the history of the subject since the establishment of
the Federal Reserve System. The attached statement entitled "Historical
Background", summarizes the history of the use and the consideration of
the legality of repurchase agreements by the Federal Reserve Banks*
This memorandum relates only to the legal aspects of the
matter and is not intended to indicate any views with respect to questions of policy or equity in regard to the use of repurchase agreements.
Opinion
It is my opinion that under the present law the use of
repurchase agreements is within the legal authority of the Federal
Reserve Banks under section 14 of the Federal Reserve Act because (1) Although they contain certain features normally
found in loans, such transactions which are in form purchases
and sales of Government securities are entered into for the
primary purpose of implementing open market policies pursuant
to section 14 of the Federal Reserve Act rather than for the
purpose of providing credit accommodations to particular institutions; and
(2) The use of such repurchase agreements as purchases
and sales pursuant to section 14 has been recognized and
approved administratively for some 30 years, first by the
Board and later by the Federal Open Market Committee, and
this administrative practice has been called to the attention of Congress in the Board's annual reports.
It is believed, therefore, that repurchase agreements with respect to
Government securities may be legally justified as open market operations under section 14 of the Federal Reserve Act and are subject to
regulations, including rates, established by the Federal Open Market
Committee.




-2

The present authority given by the Federal Open Market Committee
permits repurchase agreements only with nonbank dealers. Proposals have
been made in the past, however, to extend the authority to bank dealers,
and possibly even to member banks, at rates less than the discount rate.
If this were done in such a way as to bring about widespread or regular
use by member banks of the repurchase arrangement with Federal Reserve
Banks in lieu of borrowings through discounts or advances by the heserve
Banks under other provisions of the Federal Reserve Act, a situation
might result in which credit accommodations extended to member banks
would be regulated by, and at rates established by, the Federal Open
Market Committee, whereas the Federal Reserve Act contemplates that
usual credit accommodations extended to member banks will be regulated
by the Board of Governors and at rates established by the Federal Reserve
Banks, subject to review and determination of the Board. While such an
arrangement, in my opinion, would not be illegal, it would be a departure
from the general scheme of the Federal Reserve Act and perhaps considered
inconsistent with the intent of the Act. Any criticism on this score
might be lessened if it could be shown that the primary purpose of the
arrangement was to assist in carrying out open market policy°
Discussion
It is to be noted in the first place that, whether or not
repurchase agreements are regarded as purchases or as loans, they are
)
within the legal authority of the Federal Reserve Banks since if they
authorized expressly by section 14 of the Federal
are purchases they are
Reserve Act and if they are loans or advances they are authorized expressly by the last paragraph of section 13. This was not the case
before 1933 with respect to repurchase agreements entered into with
others than member banks, since, prior to the enactment of the last
paragraph of section 13 in 1933, the Federal Reserve Banks were authorized by that section to make advances on Government securities only
to member banks. Accordingly, there is believed to be no question involved as to the ultra virus nature of such transactions as far as the
Federal Reserve Banks are concerned, and the only question is whether
they are lawfully carried out under section 14 and are therefore subject
to the regulations of the Federal Open liarket Committee.
Authority for Repurchase Agreements under Section 14. - Under
the form of repurchase agreement now used by the Federal Reserve Bank
of New York the dealer agrees as follows:
,In consideration of the purchase by you of such securities,
'
we hereby agree to repurchase them from you at any time at your
, at the same price plus
or our option on or before
per cent per annum for the
interest thereon at the rate of
number of days that said securities were held by you."




•
-3The form also states that the dealer's obligations under the contract
"are secured by and subject to the terms and conditions of our general
collateral agreement with you,"
On its face, this agreement is in the form of a purchase of
securities, accompanied by an agreement to sell securities. Section 14
of the Federal Reserve Act expressly authorizes the Federal Reserve
Banks "to buy and sell" Government obligations. Also, under section L.
of the Federal Reserve Act, the Reserve Banks are authorized "to make
contracts" and they therefore have authority to make contracts to sell
securities.
However, the repurchase agreement contains certain features
are ordinarily found only in the case of a loan. For example,
which
it provides for payment of interest and is accompanied by a collateral
security agreement. Also, there are court decisions which, for certain
purposes and in view of the apparent intent of the parties, have held
that contracts in the form of a purchase and sale actually constituted
loan transactions, particularly where the contract absolutely required
the vendor to repurchase within a specified period. It was chiefly
for this reason that in 1923 the Board's General Counsel, Mr. Wyatt,
expressed the opinion (never adopted by the Board) that repurchase
agreements by the Federal Reserve Banks were actually loans and therefore beyond their legal authority. At that time such agreements were
obligatory in form.
The form of agreement now in use is as a legal matter
rather than obligatory. The Federal Reserve Bank, by exeroptional
cising its option to resell, can require the dealer to repurchase the
securiti77 within the prescribed 15-day period, and vice versa. However, if neither the Reserve Bank nor the dealer exercises its option
within that time the securities would not be resold to the dealer. The
authorization of the Open Market Committee with respect to repurchase
agreements itself indicates this possibility. It provides that if the
Government securities "are not repurchased by the dealer pursuant to
the agreement or a renewal thereof, the securities thus acquired by a
Federal Reserve Bank shall be sold in the market or transferred to the
System Open Market Account."
However, even though there may be certain features of the
agreement which suggest a loan rather than a purchase, the courts, in
determining the nature of the agreement, would look to the purpose for
which the agreement is executed. In the present case, it is believed
clear that, even though such agreements may incidentally have the effect
of providing dealers with credit, their primary purpose is, by providing
funds to the market, to implement open market policies determined by the
Federal Open Market Committee rather than to provide credit accommodations
as such.




As bearing upon the purpose of repurchase agreements, the
presently outstanding authorization of the Federal Open Market Committee with respect to repurchase agreements states that they "shall
be used with care and discrimination as a means of providing the money
market with sufficient Federal Reserve funds to avoid undue strain on
a day-to-day basis." In the Board's 1951 Annual Report to Congress,
repurchase agreements were referred to as "increasingly important as
one of the mechanisms available to the System in executing open market
policy."
It might be suggested that the repurchase mechanism is not
properly a transaction authorized by section 14 subject to regulations
of the Federal Open Market Committee, because it is not actually an open
market transaction, since it is carried out at a fixed rate rather than
at a rate determined by the market alone. However, the term "open
market" used in section 14 is not defined and is necessarily a phrase
of somewhat broad and general meaning. It is not believed that it can
be said that a transaction is not an open market transaction merely
because it is carried out at a fixed rate rather than at a rate resulting
completely from the play of the market forces. For some years prior to
1951, when the Federal Reserve operated on a "pegged rate" basis, purchases and sales of Government securities were carried out at rates
fixed by the Federal Open Market Committee, the Lxecutive Committee,
or by the Manager of the Account under authority from the Committeeso
During the Second Iorld War the Open Market Committee directed the
Federal Reserve Banks to purchase all Treasury bills that might be
offered at a rate of 3/8 per cent per annum. This included authority
to purchase bills outright or to purchase under option by the seller
to repurchase. Also it has been the practice of the Federal Open Market
Committee to have a minimum buying rate on bankers' acceptances. It is
clear, therefore, that the administrative practice respecting open
market operations has for years included transactions (other than repurchase agreements) in which fixed rates were involved.
Weight of Long Administrative Interpretation. - Whatever
have been the situation in the early 1920's when the legal authority
may
of the Reserve Banks to enter into repurchase agreements was under consideration, the legal status of such agreemeats as purchases under
section 14 is now given strong support by long years of administrative
interpretation. The view that such agreements are proper open market
transactions under that section has been the announced position of the
Federal Reserve Board since 1925, and has also been the consistent
position of the Open Market Committee, Since 1925, the open market
provisions of the Federal Reserve Act have several times been amended
and, although with imputed knowledge of the Board's position, Congress
has taken no steps to override that position.




•
-5.)
Even in the early years of the use of repurchase agreements
being
the Board's annual reports indicated that such agreements were
, For example, the 1923 Annual Report
made as open market transactions
class
listed in a table in the Appendix (p. 112) the par value of each
including securities
of Government securities held by the Reserve Banks
1925 conheld "under repurchase agreement"; and the Annual Report for
ry notes and
tained tables showing the volume of United States Treasu
these tables
certificates of indebtedness "purchased in open market" and
"under reseparately listed Treasury notes and certificates purchased
purchase agreement".
as open
In recent years the treatment of repurchase agreements
attention of
market transactions has been expressly brought to the
Committee
Congress in the record of policy actions of the Open Market
ss, (1951 Annual
as set forth in the Board's annual reports to Congre
, p. 9l,)
Report, p, 107; 1952 Annual Report, p. 97; 1953 Annual Report
;
It is a well-settled rule of statutory construction that
courts will
although they may not be conclusively bound thereby, the
adminisgive weight to the interpretation of a statute adopted by the
The
tering agency in any case in which the statute is ambiguous.
Supreme Court of the United States has stated that "settled adminnot be
istrative construction is entitled to great weight and should
o, North
overturned except for cogent reasons" (United States vu Chicag
s are slow
-and-that "court
Shore & Milwaukee R. Co., 288 U.S. 1 (19327
settled administrative construction of a statute long
to disturb the
United States,
and consistently adhered to" (Alaska Steamship Co. v
290 U.S. 256 (l933)).
had not
If the question under discussion were a new one and
some 30 years,
been the subject of an administrative interpretation over
on, however,
the answer would be more doubtful. Even as a new questi
ory situation
statut
strong arguments could be made under the present
l Reserve Banks are authorized to enter into such transthat the Federa
Open
actions under section 14, subject to regulations of the Federal
al form of repurchase agreement
Market Committee, because of the option
es of the
and their purpose of assisting and implementing the polici
taken of this question as a
Committee, Whatever view one might have
t has,
completely novel proposition, however, any doubt on the subjec
the long administrative
in my judgment, been thoroughly resolved by
position and practice,
For all of the reasons stated above, it is believed that
ties may legally
repurchase agreements with respect to Government securi
pursuant to the provisions
be entered into by the Federal Reserve Banks
tions of
of section 14 of the Federal Reserve Act, subject to the regula
that Act,
the Federal Open Market Committee under section 12A of




.6Rate on Repurchase Agreements. - In view of the above con)
clusion it is my opinion that repurchase agreements are subject to
such rates as may be established pursuant to direction of the Federal
Open Market Committee) whether or not the rates are above or below the
discount rate.
It has been suggested in the past that the repurchase agreemechanism, instead of being limited to nonbank dealers as at
ment
present, might be extended to bank dealers or to all member banks and
at rates below the Federal Reserve discount rate. If, because of the
lower rates, member banks as a regular or usual practice should then
seek credit accommodations through this medium from the Reserve Banks
rather than through discounts and advances under the provisions of
section 13 of the Federal Reserve Act, this extended use of repurchase
agreements might well be the subject of criticism. The Federal Reserve
Act appears to contemplate that credit accommodations to member banks
shall be regulated by the Board of Governors and shall be made at rates
fixed by the Reserve Banks, subject to review and determination by tne
Board. Accordingly, any use of repurchase agreements in a manner which
would have the effect of bringing extensions of credit by the Reserve
Banks entirely or principally under regulations and rates established
by the Federal Open Market Committee might be regarded as out of harmony
with the general scheme of the statute or inconsistent with its intent.
It is believed, however, that even in this situation, the legality of
the arrangement could not be successfully attacked. Any criticism of
the use of the repurchase agreements in the manner described might be
at least partially met if it could be demonstrated that the agreements
were being entered into primarily for the p'arpose of implementing open
market policies pursuant to sections 14 and 12A of the Federal Reserve Act.
In this connection, it may also be noted that, if the use of
repurchase agreements were extended only to bank dealers and not to all
member banks, but at rates lower than the discount rate) it is possible
that such action might be criticized as inconsistent with those provisions
of section 4 of the Federal Reserve Act which require the board of
directors of each Federal Reserve Bank to administer the affairs of the
bank fairly and impartially and "without discrimination in favor of or
against any member bank or banks". However, it seems apparent from the
context of this provision of section 4 that it was intended to relate
primarily to extensions of credit rather than to open market operations
of the Reserve Banks under section 14. Moreover, section 12A, giving
the Open Market Committee broad regulatory authority over open market
operations, was enacted many years after the provisions of section 4
with respect to nondiscrimination between member banks and, accordingly, if there should be any element of inconsistency between the two




-7provisions, the later enactment would control. It is believed,
therefore, that the provision of section L. requiring nondiscrimination among member banks need not be so narrowly interpreted as to
prevent the Open ilarket Committee from establishing for repurchase
agreements such rates as it deems advisable and necessary in order
to carry out its policies effectively.




George B. Vest

•
HISTORICAL BACKGROUND WITH RESPECT TO REPURCHASE
AGREEMENTS BY TIE FEDERAL RESERVE BANKS

Origin and early use of repurchase agreements
Repurchase agreements by the Federal Reserve Banks first carre
into use in 1917, as an announced means of enabling member banks to
avoid payment of a Federal stamp tax on promissory notes which became
effective on December 1, 1917. In 1916, the Federal Reserve Banks had
been authorized for the first time to make 15-day advances to member
banks on their promissory notes secured by eligible paper or Government
obligations. The new stamp tax meant that such advances would nor be
more costly to member banks.
On November 28, 1917, the Board wired the Federal Reserve Banks
although promissory notes of member banks would be subject to the
that,
stamp tax, eligible commercial paper could still be rediscounted without
such tax and that the Reserve Banks might, if they desired to do so,
"resell such paper with customary rebate of unearned discount."
Two days later, on November 30, 1917, the Board again aired
the Federal Reserve Banks suggesting "that member banks obtain short
time advances from Federal Reserve Banks by rediscounting eligible
commercial paper of longer maturities, under repurchase agreement by
member bank on whatever date may be agreed upon" and that the Reserve
Banks might adjust rebate of discount in advance on the basis of the
period covered by such agreement. In addition, the Board suggested
that "Reserve Banks may purchase from member banks United States bonds
and Treasury certificates subject to repurchase agreement by member
bank on given date." This suggestion was reiterated in a letter from
the Board to the Reserve Banks on December 1, 1917, which again pointed
out that "the Federal Reserve Banks may further aid the situation by
purchasing, either from member or nonmember banks, notes or bonds of
the United States under similar agreements of resale."
Notwithstanding its reference to "nonmember banks" in the
letter just mentioned, it appears that the Board at that time regarded
repurchase agreements as a means of providing credit to member banks
pursuant to the provision of section 13 of the Federal Reserve Act
authorizing 15-day advances to member banks on eligible paper or Government obligations. It also seems clear that the Board contemplated that
when the tax on
such repurchase agreements would be discontinued if and .
notes of member banks should be repealed.
promissory




-2
On January 26, 1918, Governor Harding advised the Federal
Reserve Bank of Minneapolis by wire as follows:
1*
' * * Sale and repurchase agreement surgested
by Board was intended to avoid use of revenue stamps
on short loans maturing within fifteen days. Law does
not provide for banks borrowing longer than fifteen
days and Board doubts its power to authorize sale and
repurchase agreements for longer periods. * * *"
Several days earlier, Counsel for the Board had stated in a memorandum
that he "assumed that the practice will be discontinued if the Revenue
Act is amended."
On April 5, 1918, the stamp tax was repealed with respect
secured by Government obligations. In advising the Federal
to notes
Reserve Banks of this change in the law, the Board in a letter dated
April 6, 1918, suggested that, since revenue stamps would no longer be
necessary in connection with notes secured by Government obligations,
"the practice of purchasing Liberty bonds and certificates of indebtedness under so-called repurchase agreements be discontinued and that
such borrowing by member banks be made on their own promissory notes
secured by such bonds and certificates." (Underscoring supplied)
Notwithstanding this letter, intimating that repurchase
agreements were regarded as "borrowings" under section 13 and suggesting that such agreements be discontinued after repeal of the stamp tax,
it appears that certain of the Reserve Banks continued thereafter,
without objection from the Board, to enter into repurchase agreements,
not with member banks, but with nonbank dealers in Government securities.
The continuance of the use of such agreements with respect to nonbank
dealers gave rise to question as to the legal basis for such agreements.
1921 legal consideration
On November 28, 1921, the Board's Counsel, Mr. Walter Logan
(later General Counsel of the Federal Reserve Bank of New York) expressed
the opinion that the practice of the New York Federal Reserve Bank in
purchasing eligible bills from dealers with an agreement by them to repurchase within 15 days and with deduction of discount for the 15-day
period only, instead of for the full period of the bills, was legally
authorized. Although his memorandum did not specifically refer to section 14 of the Federal Reserve Act, it was entitled "Open Larket Purchases
of Bills under Repurchase Agreement". Moreover, he could not have concluded
that repurchase agreements with nonbank dealers were legally authorized
except on the assumption that they constituted open market operations
under section 14, since at that time the authority in section 13 for 15-day
advances on Government securities and eligible paper was confined to member
banks.




•
-3On December 2, 1921, Governor Harding of the Board wrote to
Governor Strong at the Federal eserve Bank of New York, stating that
)
after consideration of the matter by the Board and its Counsel, the
Board was of the opinion that the practice in question was legal. In
this letter it was intimated that the Board regarded such repurchase
agreements as authorized by the open market provisions of section 14
of the Federal Reserve Act. Referring to the fact that that section
provided for the issuance of regulations by the Board covering open
market transactions, the letter stated that the Board should therefore
be kept fully advised regarding the open market practices of the Federal
deserve Banks, including the use of repurchase agreements.
Treatment as "open market" transactions established
The Board definitely adopted the view that repurchase
agreements constituted open market transactions and could, therefore,
be entered into with nonbank dealers when on February 2, 1922, it
advised all Federal Reserve Banks that it would not object to temporary advances to dealers against Victory Notes, since a Federal
Reserve Bank "under its open market powers may purchase them or carry
them for dealers under agreements by them to repurchase at stated
times." Later in the same year, on December 5, 1922, the Board
specifically stated that it would not object to the purchase of
Victory Bonds from a Federal land bank under a repurchase agreement
and that such bonds should be carried by the Reserve Banks as "bonds
owned".
When the nonstatutory "Open Market Investment Committee"
was organizedon.April 1, 1923, the Board advised the Reserve Banks
that open market purchases should be primarily commercial investments
"except that Treasury certificates be dealt in, as at present, under
so-called 'Repurchase' agreement."
Consideration of legal question in 1923
Shortly after the organization of the nonstatutory Open
Market Committee, the Board requested its General Counsel, Er. Wyatt,
for an opinion as to the legal authority for the purchase of Government securities and bankers' acceptances under repurchase agreements.
Mr. Wyatt's opinion, dated August 18, 1923, was to the
effect that, where the repurchase agreement absolutely required the
vendor to repurchase within a stated time, it was in effect a "loan"
and not a "purchase"; and that, if the repurchase agreement merely gave
the vendor an option to repurchase within the stated time, the question
was not entirely clear but that even in such cases the transaction




would probably be construed as a loan. Since the agreement then in
use by the Federal Reserve Banks was obligatory in form, Mr. 'iyatt
concluded that the execution of such agreements was beyond the legal
authority of the Federal Reserve Banks. In this connection, he also
expressed the view that, even where such agreements were entered into
with member banks, they could not be upheld as "advances" under authority of section 13 because the debt would not be represented by a
"promissory note" as required by the provisions of that section.
In reaching the conclusion that the repurchase agreement was
a loan rather than a purchase, Mr. Wyatt argued that the courts would
be governed by the intent of the parties rather than the form of the
transaction and that the repurchase agreement used by the Federal Reserve Banks, although in the form of a purchase, had significant
characteristics of a loan, such as the requirement for the deposit
of additional collateral, the authority given the Reserve Bank to
sell the securities purchased if the seller should fail to comply
with the agreement, and the provision for payment of interest based
upon the period involved.
Reactions by the Federal Reserve Banks and their Counsel
to Mr. Wyatt's opinion varied.
Counsel for the Federal Reserve Bank of Minneapolis concurred
in Mr. Wyatt's conclusions. Counsel for the Federal Reserve Bank of
San Francisco (Mr. Agnew) concurred in his conclusions with respect to
obligatory contracts to repurchase but felt that an optional form of
agreement, stripped of the characteristics of a loan, would not be construed as a loan but as a purchase. Similarly, Counsel at the Federal
Reserve Bank of New York (Mr. Mason) agreed with .7r. Wyatt's opinion
with respect to obligatory agreements but felt that an optional form
of agreement would not be construed as a loan and that in any event
the Board's previous opinion upholding the legality of the obligatory
form would be given great weight by the courts. Counsel for the Federal Reserve Bank of Richmond (Mr. Wallace) agreed with Mr. Wyatt's
conclusions of law except that he felt that the repurchase agreement
could be properly regarded as constituting a "promissory note" and
that, therefore, such agreements could be entered into with member banks
pursuant to section 13.
On the other handl Counsel for the Federal Reserve Bank of
Boston sharply disagreed with Hr. Wyatt's opinion. He argued that a
Federal Reserve Bank clearly had power to purchase and sell securities
under section 14 of the Act, and, pursuant to section 4 of the Act, to
enter into contracts to sell securities$ and that the repurchase agreement form had not been adopted for the purpose of circumventing the law
but had been developed as a means of effectuating open market policies.




-5
Governor Harding of the Federal Rcserve Bank of Boston wrote Covernor
Crissinger of the Board on October 15, 1923, taking issue with
Mr. Wyatt's opinion. He felt that Mr. Wyatt had ignored the fact that
repurchase agreements looked toward "the maintenance of a broad market
for Government securities," as well as the power of the Federal Reserve
Banks under section 4 of the Federal Reserve Act to enter into contracts.
Counsel for the Federal Reserve Bank of Chicago, while not
expressing a definite opinion, felt that the nature of the agreement
depended upon the intent of the parties and that from a practical standpoint it would be unfortunate if the Board should decide that the Reserve
Banks could not continue this practice.
It does not appear that the Counsel for the other Federal
Reserve Banks expressed any opinion regarding the question.
In the Fall of 1923, the Board directed Mr. Wyatt to go to
New York for the purpose of attempting to work out a plan under which
no legal question could be raised.
An optional form of agreement was
suggested and Mr. Tratt apparently felt that, if divested of its loan
features, such an optional agreement might be construed as constituting
a purchase under section 14 of the Federal Reserve Pct.
On February 11, 1925, Deputy Governor Harrison of the Federal
Reserve Bank of New York (who had previously been Counsel for the Board)
wrote to Governor Hamlin of the Board reviewing the matter. Mr. Harrison
contended that repurchase agreements had long and properly been regarded by the Board as open market transactions; that their legality
had been considered and sustained in 1921; and that, if the intent of
the parties should govern as to the nature of the transaction, it was
clear that repurchase agreements were intended, not as loans, but as
open market operations.
Mr. Ilyatt's opinion was never approved by the Board. On the
contrary, the Board on March 19, 1925, formally adopted the view that
repurchase agreements were legally authorized. A resolution of the
Board of that date, Which was transmitted to the Federal Reserve Banks
stated:
"The Federal Reserve Board reaffirms previous decisions
authorizing the practice, long continued, of purchase and
sale in the open market of bankers' acceptances and Government securities by Federal Reserve Banks from and to banks
and qualified dealers, under 15-day ;repurchase agreements',
it being understood that such transactions shall be open,
under similar facts and conditions, to all Federal Reserve
Banks with relation to banks and similarly qualified dealers
in their respective districts."




-6On June 30, 192(1 the Board approved the recomendatlon of
the nonstatutory Open Narket Investment Committee that the Federal
Reserve Banks extend the repurchase agreement practice with recognized
dealers in Government securities to include Third Liberty Bond loans.
On March 2, 1933, the Board interposed no objection to the
acquisition by a Federal Reserve Bank of Government securities from a
State member bank subject to repurchase agreement.
ffect of statutory changes in 1933
IINNIMPIlmtmonue

The Emergency Banking Act of March 9, 1933, added to section 13
Federal Reserve Act a paragraph authorizing the Federal Reserve
of the
Banks to make advances up to 90 days to any individual, partnership,
or corporation on its promissory note secured by direct obligations of
the United states. This amencent affected the legal situation with
respect to the status of repurchase agreements with nonmember banks and
nonbank dealers, since it meant that even if such agreements should be
regarded as "loans", they could now be considered as authorized by this
new provision of the law. In a note to the files in September 1939,
Mr. Wyatt expressed the view that, although he still regarded the transactions as loans, they were now authorized by the last paragraph of
sectiol 13 of the Federal Reserve Act; and at this date he raised no
question, as he had in 1923, as to whether the repurchase agreements
could be regarded as involving a "promissory note" within the meaning
of section 13.
The Banking Act of June 16, 1933, for the first time gave
statutory recognition to the Open Market Committee but only as an advisory and not as a regulatory body. Regulatory authority was fixed
in the Federal Reserve Board; and pursuant to that authority, the Board,
in August 1933, issued its Regulation M relating to open market operations.
1936 reconsideration of the legal question

••••••

In September 1935, the Federal Reserve Bank of Kansas City
wrote the Board regarding that Bank's authority to purchase securities
under resale agreements from a Federal and bank. The Board ad-ised
the Federal Reserve Bank of Kansas City that the contemplated purchase
of securities by that Bank was governed by the Board's Regulation Ii
relating to open market operations and, pursuant to the Regulation,
the Board gave its consent to the proposed purchase. At the same
time, however, the Board requested its Counsel to review the legal
aspects of the matter in the licht of the recently enacted Banking Act
of 1935, which had reorganized the Federal Open Market Committee with
full authority over open market operations.




•

-7-

On May 19, 1936, Mr. Dreibelbis, then Assistant General
Counsel to the Board, expressed the view that the repurchase transaction which had been proposed by the Federal heserve Bank of Kansas
City was in effect a loan, thus agreeing with Mr. Wyatt's previous
1923 opinion. Mr. Dreibelbis, however, then pointed out that the Board
in 1925 had expressly reaffirmed previous decisions authorizing the
repurchase agreement practice and concluded, therefore, that, unless
the Board should reverse its decision, transactions of this type would
appear to come within the scope of section 12A of the Federal Reserve
Act and could be engaged in, if at all, only subject to directions and
regulations of the new Federal Open Market Committee.
Soon after its reorganization, the Federal Open Market Committee,
on May 25, 1936, granted authority to each Federal Reserve Bank "to
make temporary purchases of Government securities under resale agreements for periods not exceeding fifteen days."
Developments since 1936
It appears that there was little use of repurchase agreements
in the years immediately following enactment of the Banking Act of 1935.
As a matter of fact, on March 1, 1945, the Federal Open Market Committee
terminated the authority which it had given to the Reserve Banks in
1936 to enter into such agreements.
On January 20, 1948, the mechanism was revived when the
Executive Committee of the Federal Open Market Committee took action
(later approved by the full Committee) authorizing the Federal Reserve
Banks to enter into repurchase agreements with qualified dealers in
Government securities, provided that such agreements should be at rates
not below the currently effective discount rate, should not be for
periods of more than 15 days, and should cover only short-term Government securities selling at a yield of not more than the issuing rate
for one-year Treasury obligations.
In June 1949, the Federal Reserve Dank of New York purchased
Treasury bills under resale agreement and it was then stated that this
was the first purchase of Government securities under repurchase agreement which had been made by that Federal Reserve Bank since 1933.
On October 4, 1951, the Committee revised its directive
to the Federal Reserve Banks so as to authorize them to enter into
repurchase agreements with qualified nonban% dealers in Government
securities, with the urderstarding that such agreements should. cover
only short-term Treasury obligations, should be for periods of 15 days
or less, should be made it rates "close to the average issuing rate"




-8on the most recent issue of three-month Treasury bills, and should be
for the purpose of aiding temporary money market adjustments. In connection with this action the Board's Annual Report to Congress for 1951
pointed out that "the use of repurchase agreements was becoming increasingly important as one of the mechanisms available to the System
in executing open market policy" and stated that the revised authority
"would enable dealers to absorb as much of the buying and selling in
the market as possible and to carry the necessary inventory of securities to provide a market, leaving the System as only a residual buyer."
On July 22, 1952, the Open Market Committee amended the
authority of the Reserve Banks with respect to repurchase agreements
so as to permit the Manager of the System Open Market Account to
specify the rate on such agreements from time to time, provided that
it should not be less than whichever was the lower of (I) the current
discount rate Cr (2) the average issuing rate on the most recent issue
of three-month Treasury bills. This change was made because the
issuing rate on Treasury bills had recently been higher than the
discount rate and, under the previously given authority, an increase
in the rate on repurchase agreements would have been necessary. It
was "considered desirable to change the procedure so as to avoid the
necessity of raising the repurchase rate above the discount rate whenever the issuing rate on Treasury bills moved higher than the discount
rate."
On March 4, 1953, the Open Market Committee discontinued the
requirement that repurchase agreements be entered into only with
"qualified" nonbank dealers. The system of qualification of dealers
was terminated. In addition, the condition which previously had
limited repurchase agreements to Government securities selling at a
yield of not more than the issuing rate for one-year Treasury obligations was changed to refer to "short-term Government securities maturing
within fifteen months".
On June 23, 1954, the general authority for repurchase agreements was again changed by the Open Market Committee to place such
authority in the Executive Committee of the Open Market Committee
with the rates (or rate ranges) to be such as the Executive Committee
might prescribe. Pursuant to this delegation of authority, the
Executive Committee on the same day authorized the Federal Reserve
Banks to enter into repurchase agreements with nonbank dealers in
Government securities at a rate of 1-1/2 per cent.
At its recent meeting of September 22, 1954, the Executive
Committee authorized the Federal Reserve Banks to enter into repurchase
agreements with nonbank dealers in Government securities at a range of
rates of 1-1/4 per cent to 1-1/2 per cent, but only until the close of
the day on which the next meeting of the Executive Committee is held.




-9-

From the foregoing historical review, it is apparent that,
Board seems to have regarded
although at the very outset in 1917 the
e of "loans", the Board after
repurchase agreements as in the natur
such agreements as open market transpiarch 1925 definitely considered
tiarket Committee since 1936 has
actions and that the Federal Open
such agreements are purchases and
likewise adopted the position that
of the Federal heserve Act.
sales authorized by section 14

October 1, 1954.




REC'D IN FILES SECTION
!
OCI

L
34-r. fiackley
.Tr. O'Shea

.1 1954

/

October 1, 19

Open Market Committee purchase:3 of
securities subject to repurchase option-loan or sale?

The Federal Open Market Committee through the Federal Reserve
Banks purchases Government securities from nonbank dealers subject to
the seller's option to repurchase and the rank's power to require the
seller to repurchase within 15 days, interest being paid by the seller.
in considering whether this transaction, as a '.aatter of law, is a loan,
the followin material will be helpfUl:
(1) Usury cases. The question whether a sale subject to an
option to repurchase is a loan arises where the seller contends an
excessive pircriase or repurchase price was a device to make a loan in
fact but to avoid the usury law. The cases seem to reason thusly:
If the parties intended the transfer of funds and repurchase opti)n
to be a loan, the buyer's "profit" is really interest. As interest, if
it would be usurious, the transaction is then presumed to be a usurious
loan. Uthout having exhaustively considered the cases, it appears to
the writer that whether a transacti n is a usurious loan turns not so
mach on whether the arrangement was to put funds into the hands of the
seller, but whether the parties used that arrangement in order to evade
the usury laws. See 6 Lilliston, Contracts q687 (footnotes omitted),
itemizing the forms of sale used as a colorable method of makinc a
usurious loan:
"(2) If property is sold at much less than its true value
and an option is given to the seller to repurchase it at a
later day for a price not e)ceeding the value of the property,
but ereater than the original selling price by more than legal
interest, the transaction is presumably a usurious mortgage,
the apparent seller being in fact a borrower; and the same intention is evident if the agreement instead of attempting to
secure usurious interest by means of a repurchase price, excessive
as compared with the original selling price, does so oy a provision that the seller shahl hire the propert prior to its repurchase at a rental greater than legal interest.
"00 Instead of making a loan in terms a seller may turn
over to the buyer property, immediately and readily salable for
cash, for which the buyer promises to pa- in the future a sum
i
amounting to the present cash value of the property plus an
amount greater than legal interest. Such a transaction intended
by the parties as a means of providing the buyer with woney from
the sale of the propert% vill be regarded as usurious.

H //:_

AYr

C
e,-




e.
))

. Hackley

-2-

"(4) Though, as has been seen, it is _entrally held permissible to sell property for deferred payments bearing a higher
rate of interest than is permissible on a loan of Iloney, yet if
such a transaction is merely a colorable device for making what
is in substance a loan, it is usurlous.
"(5) A sale with a lease back and an option to repurchase
for the price paid Ls presumably usurious If the rent reserved
is greater than legal interest.

"(6) Parties may call a transaction a sale which they really
intend as a usurious lortgke or pledge. Thass a purported 'sale'
of notes or se-punts receivable at an excessive discount vith a
guaranty of collection in full may be made a device for what is
intended as a usurious loan; and similarly objectionable is a
'sale' of its seares by a corporation with an agreement to repurchase at the same price and to guarantee dividends higher in
amount than legal interest. In all cases it is the substance
and not the form of a transaction which Is important."
See also Transaction in form a sale, but accoryanied by an,
a reement or option for repurchase 'by the vendor or a third parr reousl interested, as a loan, as regards usury law, 154 A.L.R. 0 31079(945). The cases can be summed up in saying that, for purposes
of the usury law, whether a sale with option to repurchase is what it
purports to be or Is a loan turns upon what is the intention of the
parties.
Restatement, Contracts

529:

"Uhere the intent of a party to a bargain is to make a
loan of money or an extension of the maturity of a pecuniary
debt for a reater profit than is allowed by lam, the agreement
is illegal though the transaction is put in whole or in part in
the form of a sale, a contract to sell or other contract."
(2) Morttiage cases. In discussing whether a conveyance ldth
a right to repurchase is in law a loan secured by a mortgage on the
conveyed property, it is stated in 5() C.J.S. ':28 (footnotes omitted):




"A contemporaneous agreement or option for repurchase Oxen
with a deed absolute in form does not, of itself, make the deed
a mortgage, but that question must be determined according to
the real intent of the parties.

C Ey

Mr. Hackley




-3-

"Where a deed absolute on its face is acconpanied by an
agreement giving the grantor the right of repurchasing the
property, the instruments must be considered together in determining wnether the transaction amounts to a mortgage, or is a
sale with a :acre option to repurchase.
"The question whether the instruments will be construed as
a mortgage depends on intention of the parties in the light of
the attendant circumstances, and it has been held that the test
to be applied is whether the debt existing prior to the conveyance
is still subsisting Jr has been satisfied by the conveyance. It
has been said that the line of demarkation between a mortgage and
a sale with a right of repurchase is shadowy and that it is frequently a matter of great difficulty to determine to winch category a given transaction belongs.
"It has , enerally been held that, where a deed is made for
a conaiderati)n paid at the time, whether the payment is made in
cash or by the surrender and satisfaction of a precedent debt,
an
agreement on the part of thìe rantee to allow the vend_x
to repurchase the property at a future day, for the same or an advanc
ed
price, does not of itself convert the tranaaction into a
mortgage,
at least where the conveyance extinguishes tie debt and the
parties intend sac:1 result, or where the grantor is under
:1
no obligation
to repurchase the property. If the deed is intended to
be absolute,
the option given the grantor to repurchase the property is
merely
a contract to pay a certain price within a certain time,
and the
grantor has no rights after the time fixed for exercise of
the
option.
"It has been held, on the other hand, that the existence of
an option to repurchase is a circumstance to be considered
in
favor of the existence of a mortgage, and, where the
execution of
a deed together with an agreement giving the grantor the
right to
repurchase the property on payment of a specified sum is intend
ed
by the parties merely as a security transaction to
secure the
repayment of a debt, the court will treat the deed as a
mortgage,
especially where it appears that the grantee has the
right to
compel the grantor to pay the consideration named in
the stipulation
for reconveyance. Where a new debt is created at the
time the
transaction is entered into, a provision that, if the
agreement
to purchase should not be consummated within a specif
ied time,
the agreement to purchase shall become null and
void will not
defeat the character of the transaction as an equita
ble mortgage."

[72)y

a

Mr. Hackley

The following sheds light on what may result from the obligation to repurchase as against the option to repurchase: 59
C.J.S. ¶38
(footnotes omitted):




"Where an absolute deed is given as security for a debt,
no personal covenant or promise on the part of the grantor to
pay the debt is necessary to make it a mortgage. The want of
such an obligation may be an important circumstance on the
question of the intention of the parties, but it is not conelusive, and other circumstances in the case may be sufficient
to overcome the presumption arising from this fact and establish
the deed in the character of a mortgage. This has been held
to be the case where the deed expressly recites that it is given
for the purpose of securing a loan from the grantee to the
grantor or where gross inadequacy in the price is shown. If,
however, the transaction appears on its face to be a sale, or
a sale with a mere privilege to the vendor to repurchase, and
its alleged character as a mortgage is not sustained by competent extraneous evidence, the lack of any binding obligation
on the grantor to pay the sum fixed on as the condition for a
reconveyance is generally accepted as decisive proof that it
was not meant as a mortgage."

59

C.J.S. 1443:

"The fact that the mortgagor is given an option to repurchase
the premises does not necessarily render a conveyance of the
mortgaged property by him to the mortgagee a mere change in the
form of the security.
"A mortgagee may legally take a deed transferring the
mortgaged property in satisfaction of tne debt, and at the same
time give the mortgagor or grantor a right or option to repurchase the property. Such a transaction constitutes the
instrument a deed absolute with an option on the part of the
vendor to repurchase for the consideration named and within
the time named, or a conditional sale, and the mere fact that
the mortgagee in such a transaction agrees that on the payment
of a stipulated sum within a specified time he will
reconvey
the property does not render the deed a mortgage. The mortgag
or
claiming a right to repurchase must establish such right by
clear and convincing proof.
"If the agreement under which the grantor is to regain
title does not impose on him a liability to pay the necessa
ry
amount in any event, but only gives him the right to repurch
ase

E__=3

Mr. Haalcley

the property at a stipulated price . ithin
a limited time, it
is not a mortgage but a conditional sale,
or an absolute sale
with right of repurchase on conditions.
However, the fact
Unat the mortgagor has promised to repu
rchase the property,
instead of merely being given an option to
repurchase, does
not necessarily esteblish that the transact
ion amounts to a
mortgage rather than a deed. Thether the inst
rument is a
mortgage or a conditional sale will not affe
ct the mortgagor's
right to a redemption or reconveyance of the
property on
performance •of the 3tipulated conditions."
(3) Tax cases. Because a cash sale at a prof
it results in
reportable ince 17. 1ederal tax purposes, the
- 7question sometimes
arises whether a transaction which is in form
a loan is a sale for
tax purposes. jee 1.54 CCH lederal Tax Repo
rter, Vol. 1, Paragraphs 51.145-51.153.
Commir of Internal Revenue v. H. F. Neig
hbors Realty Co.,
81 F. 2d 173 (6th Cir. 1936). A transaction
whereby the taxpayer
sold realty to a trustee who leaEel. the
realty back to the taxpayer
and provided taxpayer could repurchase
the property was held to be
a "loan", not a "sale" for tax arpo
ses. The court said:

0111011rItrol,

"it has lon6 LE,cn estr!Jlishtd doctrine
that a court of equity
will treat a deed absolute in form as
a mortgage when it is
executed as securit, for a loan. In
such case the court looks
beyond the terms of the instrument to
the real transaction,
and when that is shown to be one of secu
rity and not of sale,
it will give effect to the actual cont
ract of the parties.
PeuLh v. Lavie, 96 U.5. 332, 24 L.hd
. 775. While the doctrine
that a court will look through norm to subs
tance to ascertain
the essential nature of a transaction undo
ubtedly had its
origin in equity, it is not confined to equi
table causes.

"The more comon criteria which indicate
a borrowing and
lending rather than purchase and sale, are
inadequacy of consideration, provisions for redeeption or
reconveyance, continued
possession and management of the property
by the transferer,
payment by him of taxes and assessments,
and his receipt and
use of the rents and prof
its of the property." P. 175.
(Comment: As noted from the last
paragraph above, receipt
of the profits of the property by
the transferor indicates a loan
and
security transaction. This is the
case with the 3pen Market Committe
e
purchases, interest on the securiti
es being paid to the seller
-dealer.)




ED)

Mr. Hackley

-6-

1954 CGH Federal Tax Reporter, Vol. 1 Paragraph 51.1508:
:
"Petitioner oade absolute sales of units of cemetery
property and delivered deeds to the purchasers. The pirchasers
executed agreements giving petitioner the option to repurchase
the lots at any time within eight years, for which option petitioner agreed to pay :12 annually per unit. Petitioner agreed
to repurchase the units at the end of eight years, but the
obligation ceased in the event of certain conditions subsequent.
The transactions were sales; payments from purchasers were income
from sales rather than loans, and annual payments by petiti.ner
were for retaining the options rather than interest.
"Resthaven Memorial Cemetery, Inc., 43 BTA 683, Dec. 11,667
."

(4) The following case would support the position that the
repurchase agreements are simply substitutes, not subterfuges,
for a
loan, and are not to be disrearded merely because the resvlt is
the
same as that of a loan. A similar approach is found in dealin
g with
the disregard of the corporate entity cases; i.e., that the
law permits
persons to engage in business through the corporate device and
it will
not be disregarded unless abused.
Litwin v. Allen, 25 N.Y.S. 2d 667, 696 (3. t. I. Y. County
1940). This was a stockholders' derivative suit, one aspect
of which
was As follows: klleghany Corporation was in need of a0,000
,000 but
was unable to borrow the amount because of borrowing limita
tions in
its charter. In order to obtain the money, Aileghany sold
bonds in
its possession to J. P. iloman and Co., subject to the
seller-Alleghany's
option to repurchase within six months at 1001$ plus intere
st. Guaranty
Trust Cola any participated in the purchase and Guaranty Trust
Company's
subsidiary, Guaranty Company, agreed to purchase the bonds
from the
Trust Company if the seller did not exercise the option
. The bonds
dropped in value, the option was not exercised, and the
subsidiary
took over the bonds which were ultimately sold at an
81,f. loss.
Held, the directors of the Trust Company who were
responsible
for the transaction were liable, because it is against
public policy
for a bank to purchase securities giving "the seller
the option to buy
them back at the SPTC price, tereby incurring the
entire risk of loss
with no possibility of -aia other than the interest
derived from the
securities durinr; thr3 period that the bank holds
them." P. 698.




L=Dy

Ni'. Hackley

_7_

Thus, while it was not nec
essary to the ultimate res
determine whether Alleghany
ult to
had obtained a loan in exc
ess of its
charter limitations, the cou
rt had this to say:
"Of course, if the transacti
on was a subterfuge for a
loan, as the plaintiffs claim,
then it clearly was improp
er
because the essential and mos
t elementary re tuLrement
of a
loan was lacking; no one obliga
ted himself to repay it.
1
reject this contention. The
transaction was not a sub
terfuge
for a loan; it was a substitut
e for a loan, and should
be
viewed on that basis. The
fact that a transaction,
from the
point of view of the party
receiving the funds, answer
s substantially all the requireme
nts of a loan, does not mak
e it a
loan in law. Youssoupoff V.
Adener, 246 U. Y. 174, 150
Commonwealth v. Reading Sav
N.E. 64;
i s Bank, 137 l':ass. 431,
Yorkshire
Railway Wagon Co. V. Aac
lure C.A. 1882) L.R. 21 Ch.
D. 309."

(0
°
Ryes
,
10 1/54




CoPY

•
FEDERAL RESERVE BANK
OF NEW YORK
NEW YORK 45, N.Y.

September 28, 1954.

Howard H. Hackley, Esq.,
Assistant General Counsel,
Board of Governors of the
Federal Reserve System,
Washington 251 D. C.
Dear Howard:
In accordance with the telephone conversation
this morning of Mr. Bailey and me with Mr. Vest and you
we enclose a draft of our proposed memorandum to Mr. Rouse
with respect to the legality of repurchase agreements.

As

requested by you, we also enclose memoranda, dated
December 21 14 and 15, 19481 of Mr. Brome.
Sincerely yours,

Encs.




Harding Cowan,
Assistant Counsel.

FOR FILES
L. racC011, :ch
.

I

DRAFT - HC/HJ
9/28 54
/

TO
ROM:

Mr. Rouse

SUBJECT:

C'D IN FILES SECT/ON

OCT 4 1954

Repurchase Agreements

Harding Cowan
Henry J. Bailey, III
Reference is made to Mr. Sproul's memorandum to you of

September 23, 1954 in which, among other things, he asks to be
advised with respect to the legality of repurchase agreements.
While we do not find any specific statutory authority
for such agreements, upon the basis of our research, we would not
question the power of Federal Reserve banks to enter into such
repurchase agreements pursuant to Section 14 of the Federal Reserve
Act.

We would predicate the validity of such agreements upon long

established practice and the continuing sanction of such practice
by the Board of Governors of the Federal Reserve System and the
Federal Open Market Committee.

It should also be noted that, while

the practice has been carried on by Federal Reserve banks with the
sanction of the proper administrative authorities, Congress has
from time to time amended Section 14 of the Federal Reserve Act
without making any relevant change in the provisions of that section
applicable to the question at hand.

Such action might be considered

to be Congressional approval of the continuing sanction of the
practice by proper administrative authorities.
In this general connection, we attach memoranda dated
December 2, 14 and 15, 1948 of Mr. Robert H. Brome.
Att.




FOR FILES
L. Triceciiccii

.2-100M-2-53

COPY

0
REC

,FFICE CORRESPONDENCE

FEDERAL RESERVE BANK
0 0N
AP2837/e
4
IN

OCT 4 1954
cc: Mr. Treiber
To
FROM

Mr. S. A. Miller
_Robert H. Brome

ATE December 2, 1948
___

SUBJECT

__
General Pledge and Collateral

_Agrppment,with aavernmpnt Bond Dealers.

I refer to your memorandum dated September 30, 1947,
addressed to Mr. Tiebout, entitled "Repurchase Agreements",
in
which you refer to the collateral agreements execut
ed some 25
years ago by selected government bond dealers and inaui
re whether
such agreements are adequate at this time to
cover any repurchase
agreerients we may now make with such dealers
or whether it is
necessary to request the dealers again to
sign such agreements
in the present or in a revised form.
It is probable that the old agreements
are still in
effect, or at least, that the execution
of a repurchase agree:lent
in the form heretofore used would, in
each case, revive the old
collateral agreement because specifical
ly referred to therein.
Your memorandum raises the further
questions of whether
this bank should use a collateral agree
ment at all and whether
the repurchase agreement form should be
revised. In this connection, I refer to Mr. Trimble's memorandum
to you dated November 26,
1941, entitled "Proposed Purchase of
Treasury Bills from Dealers
upon Fifteen Day Resale Agreement, at
a Different Rate than
Prescribed by Section 10(b) F.R.A." and
to the following note on
Mr. Tiebout's memorandum to you dated
May 7, 1942:
"Mr. Trimble has read this memorandum
and raises the
question, which is implicit in his
memorandum of
November 26, 1941, whether, in view of
the Supreme
Court and other decisions since
1933, at which time
it is understood the repurchase
agreement went into .
disuse, this bank should not now reexa
mine its position,
particularly as a matter of policy
with respect to the
repurchase agreement before its use
is revived.
"
As I understand it, our form of repurchase agreement,
entitled "Sales Contract", for use
in connection with purchases
of short-term Government securities (see Exhibit A attached hereto)
is in substantially the same form prepar
ed and used since prior to
1923. Under this form, the seller agrees to repurchase the same
securities on or before a specified date for a specified sum with
"interest thereon at the rate of
per annum for the number
of days that said securities are held by you, subject to the terms
and conditions of our general collateral agreement with you." In
1923, opinions were rendered by the General Counsel of the Board




FOR FILES
L. IVIeCoiloch

1

•

FEDERAL RESERVE SANK
OF NEW YORK

/ OFFICE CORRESPONDENCE

DATE

To Mr. S. A. Miller
FROM____R o bar:LE—Er

December 2,1948

SUBJECT

me

of Governors, by Mr. Agnew, General Counsel of the Federal Reserve
Bank of San Francisco, and by Mr. Mason, General Counsel of this
bank, all to the effect that repurchase agreements such as this
one, especially when accompanied by general collateral agreements,
evidenced transactions which were, in reality, buns and not bona
fide purchases and sales of securities, and that such transactions
might be ultra vires because the only authority then existing was
section 14 of the Federal Reserve Act which merely authorized the
Federal reserve banks to purchase and sell Government securities
and bankers acceptances in the open market.
In March 1925, the Federal Reserve Board Published a
resolution reaffirming "previous decisions authoriz
ing the practice, long continued, of purchase and sale in the open-market
of bankers acceptances and government securities, by Federal
reserve banks from and to banks and qualified dealers, under
fifteen day 'repurchase agreements,' . . ." Although this action
of the Board did not specifically identify our particular form
of repurchase agreement, the General Counsel for this bank
shortly thereafter expressed the view that, in the light of the
Board's action, the procedure at this bank (involving substantially the repurchase agreement referred to above) was within
the corporate authority of this bank.
It is my understanding that this bank continued to use
this form until these transactions were discontinued in 1933.
The 13th paragraph of section 13 of the Federal Reserve
Act, as added by act of March 9, 1933, contains the following
provisions:
"Subject to such limitations, restrictions and
regulations as the Board of Governors of the Federal
Reserve System may prescribe, any Federal reserve bank
may make advances to any individual, partnership or
corporation on the promissory notes of such individual,
partnership or corporation secured by direct obligations
of the United St9tes."
Section 12A(b) of the Federal Reserve Act, as amended
by Act of June 16, 1933 and again in 1935, provides that




"(b) No Federal Reserve Bank shall engage or decline

4
/

•

.2-100M-2-63

4111

FEDERAL RESERVE BANK
OF NEW YORK

FFICE CORRESPONDENCE

DATE

To Mr. S. A. Miller

FROM

December 2, 19.0

SUBJECT _

Robert H. Brome
-.3 to engage in open-market operations
under section 14
of this Act except in accordance
with direction of
and regulations adopted by the Feder
al Open Market
Committee.”
I understand that the Executive
Co:;,mittee of the Federal
Open Market Committee at its meeting on
January 20, 1948, voted
unanimously to authorize each Federal
Reserve Bank to enter into
repurchase agreements with dealers in
United States Government
securities, provided such agreements (a)
are
the rate in effect at the bank on discounts at rates not below
for and advances to
member banks under section 13 and 13(a);
(b) are for periods not
to exceed 15 days; (c) cover only short
-term Government securities
selling at a yield of not more than the
issuing rate for one-year
Treasury obligations; and (d) are used
only for periods of strain,
with care and discrimination, as a means
of last resort in the
special types of situations and condi
tions reviewed in the attached
memorandum.
It is my opinion, with which Mr.
a transaction represented by a "repurchas Trimble concurs, that
e agreement' in the form
,
heretofore used by this bank would be
held to be a loan to the
"seller". Our form of agreement could
be revised so as to constitute it a sale v.ith a condition
subsecuent, namely the agreement to repurchase; but this would invol
ve the elimination of the
collateral security. The action of the
Federal Open Market Committee does not seem to require that vie
take collateral security,
and it is at least doubtful whether that
committee could authoriy,e
or direct Federal Reserve Banks to make
loans in the guise of open
market operations. On the other hand, it
is also our opinion that,
in view of the provisions of section 13 of the
Federal Reserve Act
and the long continued use by this bank of repur
chase agreements
in the form att2ched and with collateral agreements, the use of
these forms to effect the repurchase transactio
ns described in
the above-quoted resolution of the Open Market Conmittee is not
ultra vires.

This points up the policy ciliestion involved in the
memoranda referred to above; namely Ihether this bank should
make loans to dealers under the guise of repurchase agreements
(and in reliance upon section 13) in order to obtain collateral
security or whether we should enter into a true repurchase agreement (under authority of section 14 only) in vthich case we would




S

FEDERAL RESERVE BANK
OF NEW YORK

FFICE CORRESPONDENCE
DATE

To MX., S. A„Kille

December 2, 1948

SUBJECT

FRom_Raberta--Bralme

_4
have to forego collateral security.
If it is decided to continue the use
of a general collateral agreement, I suggest that no
change be made in the Sales
Contract form. I have, however, prep
ared a revised form of
general collateral agreement (Exhibit
B attached hereto) which,
among other things, provides that in
case the dealer is a partnership, the agreement shall not be
affected by the death, resignation, or addition of any partner. I
believe that it would be
desirable for you to ask each of the
selected dealers to execute
a new agreement in substantially the form
of this draft.
If, however, it is decided to
require no collateral and
no general collateral agreement, we shou
ld revise our repurchase
agreement so that it would be held to
evidence a conditional sale,
or more specifically a present sale subj
ect to a condition subsequ-mt to-it: our right to require
repurchase within 15 days.
I am sending a copy of this
attachments to Mr. Treiber v‘ith whom memorandum and a set of its
I have discussed this matter
briefly.
Att.
RHB:HON




.2-4 01.4.11-S3
,

COPY

0

FEDERAL RESERVE BANK
OF NEW YORK

FF10E CORRESPONDENCE
64- 1211•111

DATE
4

To

Legal Files.

H,

SUBJECT
Ue7-471954

FROM

Robert H. Brome
I refer to my memorandum dated December 2, 1948, addressed
to S. A. Miller, entitled "General Pledge and Collateral Agreement
with Government Bond Dealers", on page 3 of which I set forth the
following conclusion:
"On the other hand, it is also our opinion that, in
view of the provisions of section 13 of the Federal
Reserve Act and the long continued use by this bank
of repurchase agreements in the form attached and
with collateral agreements, the use of these forms
to effect the repurchase transactions described in
the above-quoted resolution of the Open Market
Committee is not ultra vires."
It did not seem to me desirable to encumber that memorandum
with the reasoning upon which that conclusion is based, but it is the
purpose of this memorandum to set forth that reasoning.
In the first place, in 1923 Messrs. Wyatt, Agnew and Mason
expressed the view that the form of repurchase agreement and general
collateral agreement used by this bank actually evidenced loans rather
than bona fide purchases and sales of securities in the open market
within the authority granted by section 14 of the Federal Reserve Act,
and that such transactions were ultra vires because this bank had no
authority to make such loans. Section 14 does not, of course, deal
directly with this question and is, therefore, unclear on this Point;
but I believe that the foregoing conclusions were correct.
For the following reasons, however, I believe that similar
transactions today, when entered into in accordance with the authorization of the Federal Open Market Committee, are not ultra vires.
(1) The action of the Board of Governors in 1925 in officially
and publicly reaffirming its position to the effect that the Federal
Reserve Banks had authority under section 14 to enter into repurchase
agreements, when it well knew the form of our agreement and did not
take any exception or objection thereto, is in the nature of an administrative interpretation that a repurchase agreement in such form is an
open market transaction under section 14.
(2) Since this administrative interpretation, section 14 has
been reenacted in substantially the same form, thus constituting a
Congressional adoption of the Board's interpretation.
(3) Since 1923, section 12A has been added to the effect
Federal Reserve Bank shall engage or decline to engage in
that "No
open-market operations under section 14 of this Act except in accordance




413,2-som-11-s3
/1

oFEDERAL RESERVE BANK
OF NEW YORK

,OFFICE CORRESPONDENCE
DATE_De_Pemloer

To
FROM

Legal Files

14 1948
,
.

SUBJECT

,Robert H. Brome
-2with the direction of and regulations adopted by the (Federal Open
Market) Committee." I believe that the direction and authorization
to the Federal Reserve Bank to enter into repurchase agreements, made
with the knowledge of the form of this bank's agreement and of the
prior interpretation by the Board, is (1) an authorization to use such
form, and (2) an administrative interpretation of the Act similar to
that of the Board of Governors in 1925. This conclusion is based, in
part, upon the fact that the Committee's action was taken in the light
of a memorandum dated January 2, 1948, entitled flRepurchase Agreements"
which was prepared at this bank and which opens with the following paragraph under the heading "Repurchase Agreements Defined":
"Repurchase agreements covering United States Government securities (also referred to at times as sales contracts
,and purchases under resale agreements) may be defined as a
means for making available to brokers and dealers in United
States Government securities Federal Reserve Bank funds
at
a fixed rate of interest under arrangements which involv
e
the purchase by the Federal Reserve Banks of such securi
ties
subject to the seller's commitment to repurc
hase them at the
same price within a specified period of time.
Such
ments (ordinarily involving only short-term securi agreeties) have
run for a maximum period of fifteen days and
were evidenced
by a sales contract which, in turn, was subjec
and conditions of a general collateral agreem t to the terms
ent. As a
matter of policy, the purchase and sale prices
under repurchase agreements generally have been fixed
so that the cost
to the dealer conformed closely to the
Federal Reserve Bank. Purchase prices rediscount rate of the
for securities generally
were below the market for issues sellin
g at a discount and at
par for those at a premium."
(4) In 1923, the Federal Reserve
Bank had no power or
authority to make loans to individuals
or private corporations on
security of obligations of the United
States. This authority was
added by the 13th paragraph of section
13 of the Federal Reserve Act.
I believe that the first three
reasons listed above are
sufficient to justify the conclusion
expressed in my memorandum to
Mr. Miller. They constitute, in effect,
three reasons for the conclusion
that section 14 of the Federal Reserve
Act should be construed as authorizing, as an open market transaction, a
repurchase
agreement in substantially the form of purchase subject to a
our present Sales Contract. As
indicated above, this is contrary to the
views expressed in 1923 by Messrs.
Wyatt, Agnew and Mason. I believe that
the latter views were sound, but




*FEDERAL RESERVE BANK
OF NEW YORK

38.2-60M-11-53

;OFFICE CORRESPONDENCE
DATE
To
FROM

Legal Files

December 141 1948

SUBJECT

_Robert H. Biome_

-3section 14 being, inEffect, ambiguous, and the Board and the Open
Market Committee being vested with administration of section 14 and
having, in effect, interpreted section 14 to the contrary, I believe
that such interpretations are now controlling.
The fourth reason stands on its own feet. It is in effect
that, although the repurchase agreements in this form are, in fact,
loans on the security of Government bonds, such loans areintra vires
because the Federal Reserve Banks have the power, under the 13th paragraph of section 13, to make such loans. This Paragraph contains two
provisions qualifying this authority: (1) it is "Subject to such limitations, restrictions and regulations as the Board of Governors of the
Federal Reserve System may prescribe," and (2) such loans '
,shall bear
interest at rates fixed from time to time by the Federal Reserve Bank,
subject to the review and determination of the Board of Governors of trip
Federal Reserve System." The first provision does not, in my opinion
,
require that any such regulations be first issued before the Federal
Reserve Banks may act. A more difficult question is whether the fact
that this bank in its rate schedules sets forth the following rate:
”Advances under the last paragraph of section 13 of
the Federal Reserve Act secured by direct obligations
of the United States
2 1/2%fl
would render a loan in the guise of a repurchase agreement to an individual partnership or corporation ultra vires if the only statuto
ry
authority for such loan is the last paragraph of section 13. In
my
opinion, it would not, because (1) the provisions of the Act to
the
effect that such rates shall be fixed by the Bank subject to review
by the Board is not, in my opinion, a condition precedent to
the
exercise of the power, and (2) it seems to me that this
provision is
substantially complied with by virtue of the fact that
the Federal
Open Market Committee (which includes all of the members of the
of Governors) authorized the transactions in this form, at the Board
discount rate, and the further fact that formal notice of the
Committee's
action was officially transmitted to each Federal Reserve
Bank by the
Board of Governors with its letter dated January 23,
1948, with a
copy of the memorandum dated January 2, 1948, referred
to above.

RHB:HON




4ISC. 3B.2-100M-2-53

FEDERALRESERVEMANK

!

COPY

REC'D IN FILES SECTION

OFFICE CORRESPONDENCE

OCT 4 1954

DATE
To
FR

Mr. S. A. Miller
Robert H. Brome

SUBJECT

December 15, 1948
1

General Pledge and Collateral—

Agreement with Government Bond Dealers.

I refer to my memorandum dated December 2, 1948, addressed
to you on this subject.
In the second full paragraph on page 3 of that memorandum
the phrase "and it is at least doubtful whether that committee
could authorize or direct Federal Reserve Banks to make loans in
the guise of open market operations" is, Perhaps, too broadly
stated and implies that repurchase agreements in our present form
may not be within the authority granted to the Federal Reserve
Banks to enter into open market transactions under section 14 of
the Federal Reserve Act.

This is not the implication intended

and since the quoted words add nothing to the memorandum, I should
appreciate it if you would strike them out on the copies you have.
For your information and records, I am sending you here—
with a copy of my memorandum dated December 14, 1948, addressed to
the Legal Files, setting forth the legal reasoning upon which is
based the conclusion expressed in my memorandum to you and which
will, I believe, further explain the reason for deleting the clause
quoted above.

RHB:HON




Fon PILES
L. litcOolloch

DIN FILES SECTION
• Al'

SEP 2 1954
C:7

um.L.
Gov, Robertson
Peter M. Keir

0, 19

Analysis of proposal that dealer
repurchase contracts with the Federal Reserve System be made more like actual openmarket transactions.

It is alleged that as currently constituted repurchase contracts between
the Federal Reserve System and dealers in United States Government securities are
essentially loan transactions. Question has been raised whether the System has
the legal authority to make such "loans" to dealers.
To avoid these legal uncertainties it has been proposed that repurchase
contracts be made more like actual open-market transactions. Under this plan the
dealer would sell his securities outright to the Federal Reserve open market account
at the prevailing market price, with the understanding that the issues would be
repurchased on a specified date. The repurchase price would be the price in the
market at the end of the repurchase period. From the standpoint of both dealers
and the Federal Reserve System a change of this type would pose a number of problems.
Contracts of the proposed type would remove the penalty rate normally applicable
to present repurchase agreements.
System repurchase agreements presently in use normally involve some
carry loss, or penalty rate, to the dealer. In other words the repurchase rate
at which contracts are discounted with the Federal Reserve is usually higher than
the market yield on the securities placed under agreement. For example, assuming
a repurchase rate of 1 1/2 per cent, a dealer with Treasury bills yielding 1 per
cent would pay a penalty rate of 1/2 per cent. The System sets the repurchase rate
above market yields deliberately, in order to insure that repurcnase agreements
with it will be attractive to dealers only at times of money market stringency.
Under repurchase contracts of the proposed type there would be no
penalty rate. It is true that since the System would obtain full rights to the
securities involved in such agreements, the dealer would forego his interest
earnings during the repurchase period. At the same ti, however, the dealer
would also be free of borrowing costs. With no earninss and no borrowing costs,
the dealer's carrying charge or penalty rate, would be zero. From the standpoint
of carrying costs alone, therefore, a repurchase system of the type proposed would
become attractive to dealers as soon as market borrowing costs rose above Treasury
bill rates, a development that now frequently occurs when money is only slightly
on the tight side and when the Federal Reserve has no desire to expand bank
reserves.
Spreads between bid and asked quotations might create difficulties.
Repurchase agreements of the type proposed might also encourage
dealers to profit at the expense of the System. For example, even if the
Federal Reserve were to adhere strictly to best price behavior in the negotiation
of proposed type contracts, bsying and reselling as favorably as possible (i.e.,




15z,,

,
(ke
t'•

e
off

Gov. Robertson
trading on the inside market) the transactions would produc
e some gains for
dealers on the basis of their yield spread. Possibly this
difficulty in the
proposed change could be overcome if the System made
all repurchase transactions
at the mean market yield. However, such a compromise
might still result in
lingering legal uncertainties. :loreover it would leave open
the difficulty of
determining the mean, for dealer spreads vary from one
time to another and in
setting such spreads dealers would not be subject to the
discipline of being
obliged to trade on them.
Dealers would forego the possibility of gain and risk the
possibility of
loss from yield declines during the repurchase period
.
Notwithstanding the absence of carrying costs and the possib
ility of
trading profits on repurchase agreements of the type proposed,
such contracts
would be inherently risky and would therefore probably be
unattractive to dealers.
Yield declines during the repurchase period on issues under contract
could easily
force a dealer to repurchase his securities from the System at a
higher price than
the one at which he sold.
As is demonstrated statistically below, yields do tend on balanc
e to be
lower at the end of repurchase periods more often than they
are higher. This is
true because, in practice, the System repurchase account expand
s during period of
tight money and contracts as the money market eases. At times
of monetary stringency, the supply of short-term securities offered in the
secondary market frequently exceeds the demand, and short-term yields tend to back
up (i.e., prices fall).
With the return of easier money, the demand for short-term
maturities rises, and
short-term yields tend to fall.
Under the present repurchase system this money market bias
toward lower
yields at the end of repurcnase periods tends to add to
dealer returns. Under the
proposed system, hoeever, it could easily add to losses
. A review of the repurchase
process will make the reason for this difference
clearer.
Dealer repurchase activity with the Federal rises during
periods of
tight money for two reasons. First, when private lendin
g rates rise above the
Federal Reserve repurchase discount, dealers frequently find
it cheaper to carry
their outstanding positions in short-term Governments on repurc
hase with the System.
Secondly, dealers add to their positions by absorbing the
residual supply of shortterm issues brought into the market by the tiehtness of
bank reserves. In the
absence of cheaper borrowing alternatives these added holdin
gs are also likely to
be carried with the System. Subsequently, as money condit
ions ease and demand for
short-term maturities picks up, dealers liquidate their
contracts with the Federal,
both by selling in the market and by switching to lover
cost private borrowing
alternatives.
It is apparent, therefore, that under the existing
repurchase system
dealers can buy short-term securities at reduced
prices when money is tieht, carry
them with the Federal Reserve (at known costs)
until the market strengthens, and
then sell at a higher price. Similarly,
the existing system assists the dealer
in
carrying over other short-term holdings (acqui
red prior to the tightening of money)
to a more favorable ee•ike
iod.




Gov. llobertson

-3 _

If the proposed system were adopted, however, when money conditions
tightened and market yields rose, dealers in turning to the repurcaase facility,
would have to sell both their outstanding holdings and their new acquisitions to
the Federal at a reduced market price. As money conditions eased and contracts
were withdrawn, market prices would rise and consequently the prices at which
dealers repurchased from the Federal would also rise. Thus, the proposed system
would be likely to produce negative dealer gains over the repurcease period unless
losses resulting from yield declines were offset by trading profits (obtained from
dealer spreads). For the latter possibility to be true market yield declines
would have to be minimal.
The above generalizations relate to repurchase contracts considered in
the aggregate. Taken as a group repurchase agreements with the Federal Reserve
expand in volume in periods of tight money and contract when money conditions ease.
Securities on repurchase under individual contracts might, of course, be withdrawn
prior to any general easing of money conditions and under the proposed system might
therefore be repurchased at lower prices (higher yields) than they were sold.
Assuming the dealer in question had no further recourse to the repurchase facility
in the overall period of tightness, he would thus gain at the expense of the System.
Even dealers in the aggregate might occasionally gain at the expense
System. For example, at times when general interest rate levels were
of the
sharply rising the usual money market tendency toward lower yields at the end of
periods of repurchase activity might be more than offset by the upward trend of
rates. At such times, although System policy would normally restrict the expansion
of bank reserves to strictly temporary periods of tight money, the absence of a
penalty rate would make dealers eager to profit from System repurchase agreements.
In the last analysis it is clear that uncertainty would be a prime
feature of repurchase agreements of the proposed type. Individual dealers could
never be absolutely sure whether or to what extent they might gain or lose from
their commitment on any particular contract. The ultimate attractiveness of such
contracts (relative to existing contracts) would seem therefore to depend on the
rate at which dealers discounted the risk of loss from yield declines. If the
discount to cover uncertainty on proposed contracts normally exceeded the penalty
rate on existing contracts, dealers would be made worse off by the change.
Of course the penalty rate on existing contracts is itself variable,
for market yields on short-term Government securities change more rapidly than
the repurchase rate set by Federal Reserve banks. In fact, occasionally, as was
true at times in the first half of 1953, rapid increases in market yields may more
than offset the repurchase rate, eliminating all penalty and leaving the dealer
with a net gain on his repurchase agreement. In such instances for a dealer to
prefer the proposed type of contract to the existing type, he would have to anticipate market gains (from yield advalces during the repurchase period) that exceeded
the carry gains realizable under existing type contracts.




•
0
r2.5

OW. Robertson
Table I shows the monthly maximum and minimum carry rates effect
ive
during actual periods of repurchase activity since Januar
y 1953. Market yields
from which carry rates were calculated are averages of closin
g bid rates on 30,
60, and 90-day Treasury bills. The maximum and minimum carry
rates for the whole
period, a loss of 1.06 per cent and a gain of .32 per cent respec
tively, are extremes which do not reflect the norm. A range between an .80
per cent maximum
penalty and a gain of .15 per cent probably generalizes the
1953-54 experience
better. Although it is true that the System repurchase contra
ct does not typically
allow for gains to dealers, the 1953 experience suggests that
in periods of sharply
rising yields, the repurchase rate will lag behind the market
.
Table II attempts to throw some light on the degree of uncertainty
and
risk of loss that would be inherent in repurchase contracts of the
proposed type.
As has been indicated, if market yields remain unchanged, dealers
would be better
off with contracts of the proposed type by the amount of the carryi
ng costs on
existing agreements. Only in instances where existing type contra
cts resulted in
carry gains, would dealers be bettor off under the present system
(again assuming
market yields to be stable).
Table II is designed, therefore, to show how far market yields
could
change during the repurchase period before the net carry
advantage (or net disadvantage) of proposed type contracts would be wholly offset
. The table considers
three hypothetical carry rates which roughly generalize
the 1953-54 experience,
two which are penalty rates and one which produces a carry
gain. The hypothetical
rates were calculated using market yields and repurchase
rates similar to those
that actually resulted in equivalent carry rates
during 1953-54. In the case of
the two penalty rates, Table II indicates the number
of basis points that yields
could decline during the repurchase period (assumed to
be four days) before the
relative advantage of proposed type contracts would
be wiped out. In the case
where the existing type contract is assumed to
produce a carry gain, the table
shows how far yields would have to rise to elimin
ate the disadvantage that would
otherwise result from use of the proposed type contra
ct.
The data in Table II suggest that with few exceptions yield
declines
of 1 - 15 basis points would wipe out the relative carry advant
ages of proposed
type contracts. The data also indicate that the ranee
of yield movement tolerable
is less where securities used for repurchase are of longer
maturity. In other
words dealers would run more risk of loss from yield
declines when using longer
term maturities for repurchase purposes. As a general
rule dealers' positions in
Treasury bills consist predominantly of the issues most recent
ly sold. In practice,
therefore, the longest bill maturities are most freque
ntly placed on repurchase.
In the examples shown, yield declines on 90
-day- Treasury bills in
excess of 4 easis points would offset the relative
advantage of proposed type
contracts. Day to day yield declines of over 4 basis
points on the longest
Treasury bills have been a frequent occurrence in recent
years. During 1953 in
the contract periods wnen repurchase agreements of
1 to 5 days maturity were
actually in effect, yields on 90
-day Treasury bills experienced declines as great




/

.
Gov Robertson

... 5 ...

as 18 3 and advances up to 22/32. 1/ During nearly 30 per cent of the
/2
1 - 5 day contract periods, rates on 90—day bills declined 4 basis points or
more, and in approximately 20 per cent of thc periods they advanced 4 basis
points or more. Y
Admittedly 1953 was a year of rather drastic changes in interest rates.
In 1954 dealer recourse to the repurchase facility has been less frequent and
yield fluctuations during 1 — 5 day repurchase periods have been more moderate.
So far in 1954 yields have declined in approximately 40 per cent of the 1 — 5 day
ontract periods, advanced in about 30 per cent, and were unchanged in about
30 per cent. The smaller range of yield variation is indicated by the fact that
yields have declined by 3 basis points or more in only 6 per cent of the contract
periods and have advanced by 3 basis points or more in approximately 19 per cent
of the periods.
One other variable that affects the relative attractiveness of proposed
type contracts should be mentioned; namely, changes in the length of the repurchase
period. Table II assumes a contract period of four days. Shorter contract periods
would of course result in lower dollar carrying costs on existing contracts and
would therefore give proposed type contracts a smaller carry advantage. With a
lower carry advantage, allowable yield declines during the repurchase period would
be smaller, although over a one or two day period the probability of a yield
decline would also be less. In practice, dealer repurchase contracts with the
System are more often 4 days or less- than they are longer than 4 days.
Dealer efforts to avoid the risk of loss could create problems.
Assuming that the Federal Reserve shifted to the proposed type of
repurchase agreement, dealers would naturally seek ways to avoid the risk of loss
resulting from yield declines during the contract period. Because the System
would be committed to resell to a dealer on a specified day, the market price on
that date would assume considerable! 1 4 4 rtance for the dealer and there would be
a strong temptation for him to try j 4g the market. Where a number of dealers
were in the position of having to reurChase securities from the Federal on the
same date, market prices could be 3te
4oug4 influenced by this fact, at least for a
long enough period to force the System tO resell at an artifically depressed price.
\
\
if In order to evaluate the significance of these yield advances, it should be
recalled that during much of 1953 market yields were above the System discount
rate on repurchase agreements. Carry gains were therefore realizable on exist—
ing type contracts. Under such conditions for contracts of the proposed type
to be more attractive to dealers than existing contracts, market gains during
the repurchase period would have had to exceed the carry ains.
2/ In the absence of a complete listing of all individual repurchase agreements
with the Federal Reserve, the dtta on yield changes during contract periods
are derived from the record of gross daily changes in the System repurchase
account.

PMK:epl
"ewe.




V

r—

FOR FILES
, D. C. MILLER

Table I
Monthly Maximum and Minimum Carry Rates
Effective on Dealer Repurchase Agreements with the Federal Reserve System
January 1953 - July 1954
System
repurchase
rate

Month

Effective Carry Rate
Loss (-•) or Gain (+)
Maximum
Unimum

1953 - January
February
March
April
lay
June
July
August
September
October
November
December

1 3/4% to Jan. 16
2%
2%
2%
2%
2%
2%
2%
2%
2%
2%
1 3/4% Dec. 7-31

1954 -

2% after Jan. 6
1 3/4 % after Feb. 4

January
February
March
April
May
June
July

Over-all:

PMK:epl




1 3/4%
1 1/2% after Apr. 16
1 1/2%
1 1/2%

1 1/2%

Yaximum - 1.06

.15
- .20
.09
.03
- .12
- .02
- .16
.09
- .19

- .61
- .79
- .56

+.32
+.02
+.03
+.26

+.22
+.15
-.16
+.07
-.58
-.54
-.08

- .72

-.48

-1.06
- .78
- .69
- .72
- .90

-.31
-.67
-.69
-.72

- .86

Minimum - +.32

-.86
-.86

Table II

ilffect of Yield Changes During the Repurchase Period on the Relative
Attractiveness to Dealers of Proposed-Type Repurchase Agreements
(Assuming a 4-d5y contract period)

Assumed repurchase
rate
(per cent)

Assumed market
yield at start of
repurchase period
(per cent)

Carry loss(-) or Yield change in basis points
gain (+) on ex- that would offset carry loss
isting type con-k
or caiii
-day -a7 1 IN-4y
tracts(per cent) )0
bills
bills
(Cols. 1-2) 1/ bills

.0
7

-.80

1.45

-.30

1.90
2.15

-12

-53

-1

-5

-22

-.10

-1

-.2

-7

+.15

+1

+2

+9

1 The carry rates used here generalize the range of actual experience during 1953 and
/
1954. The assumed combination of repurchase rates and market yields approximate
those which actually produced equivalent carry rates during the 1953-54 period.

.1111
,




...'"WmmmmgWmum.Li6m.mm.m.

June 2L, 1951.

Dear Sir:
Supplementing my telegrar to you todgy,/ there is enclosed a
copy of the amended authority relating to repurchase agreements which
was approved by the Federal Open rarket Committee at its meeting on
June 23, 195h. This amended authority supersedes the statement of
conditions which was ado?ted at the meeting of the full Committee on
parch 14-5, 1953, and which vas transmitted to you , .Lth m; letter of
:
April 8, 190.
As you know, the general authority for repurchase agreements
has existed continuously rince January 190. This latest amendment has
the effect of placing in the executive committee of the Federal Open
Market Comnittee,the authority to direct Federal Reserve 3anks to enter
into repurchase agrvements "at s-ch times, in suet. amounts, and at such
rates (or rate ranges) as the executive comittee sUall prescribe. The
authority which had been in effect previously ran from the full Co-nittee
direct to the Federal Reserve :,anks, authorizing each of them to enter
into repurchase aLreements at rates specified from time to time by the
Manager of the System Oi.en Market Account. The cher conditions for such agreements were substantially unchanged by the amendment adopted yesterday.
Pursuant to the authorization of the full Committee at yesterday's meeting, and as stated in my telegram to you today, the executive
committee has authorized, effective today, each Federal Reserve Bank to
enter into repurchase agreements with nonbank dealers in United States
Government securities at a rate of 1-1/2 per cent, wit. the anders- anding
„
that such agreements shall be subject to the other conditions set ferth
in the attached copy of the amended authority. For your information,
further consideration will be given to the conditions for repurchase
agreements, including the question of the rate, at the meeting of the
executive committee to be held on July 7, 195h.
Very truly yours,

'infield W. aiefler, Secretary,
Federal Open Market Committee.
Enclosure
TO THE PRESL)ENTS OF ALL FEDERila R7SE2VE BANVS
AIR MAIL E7CFPT TO : 14 YO
ADIZ7
h copies t
MS:me



fly

I

)

IVWD IN 7ILES SECTION
1%.

29i54

CONDITIONS FOR REPURCHASE ACREFLENTS
PRESCRUED BY THE FEDERAL OPEN MARKET COAiITTEE
As Amended, June 23, 1954

In lieu of the authority granted with respect to repurchase
agreel%ents at the meeting of the Federal Open Earhet CoLmittee on
harch Ii, 1953, the executive committee is hereby authorized to direct
the Federal Reserve Banks, or any of them, to enter into repurchase
agreements with nonbank dealers in United States Government securities
at such times, in such amounts, and at such rates (or rate ranges) as
the executive committee shall prescribe, subject to the following conditions:
1.

Such agreements
(a) In no event shall be at a rate below whichever is the
lower of (1) the discount rate of the purchasing Federal
Reserve Bank on eligible commercial paper, or (2) the
average issuing rate on the most recent issue of threemonth Treasury bills;
(b) Shall be for periods of not to exceed 15 calendar days;
(c) Shall cover only short-term Government securities maturing within 15 months; and
(d) Shall be used with care and discrimination as a means of
providing the money market with sufficient Federal Reserve
funds to avoid undue strain on a day-to-day basis.

2.

Reports of such transactions shall be made to the Eanager of
the System Jpen harket Account to be included in the weekly
report of open market operations which is sent to the members
of the Federal Open Jlarket Committee.

3, In the event Government securities covered by any such agree-




ment are not repurchased by the dealer pursuant to the agreement or a renewal thereof, the securities thus acquired by a
Federal Reserve Bank shall be sold in the market or transferred
to the System Open harket Account.




—
REC'D IN FILES
SECTION
CV,
14
JUN 1

1

71954'

June 14, 1954.

It'. Aubrey G. Langton,
15 Ett.oad Street
New York 5, N. T.
Pear Aubrey:
Thanks for your letter of June 11th.
It is an interesting idea that you suggest here.
Tim passing this letter around o the others here
at tits Board may have the benefit of your thinking.
iiith kind personal regards.
ineerely yours,

Woodliet Thomas,
Economic Adviser.

:17:cdn

410
15

C

.44

% c..vt.131611141

•
AUBREY G. LANSTON & CO. INC.
SPECIALISTS IN

UNITED STATES GOVERNMENT
STATE AND MUNICIPAL SECURITIES
CHICAGO • NEW YORK • BOSTON
AUBREY G. LANSTON

FIFTEEN BROAD STREET
NEW YORK 5, N. Y.

PRESIDENT

WHITEHALL 3-1200

June 11, 1954
REC'D IN FILES SECTION
CA4

JUN 1 71954
Mr. Woodlief Thomas
Economic Adviser to the Board
Board of Governors of the
Federal Reserve System
Washington 25, D. C.
Dear Woody:
While it is on my mind I thought I would drop you a note
to say that I believe the recent open market operations are a very
strong argument in favor of the idea of an expanded use of repurchase
agreements which, as you know, was the subject of my Indianapolis
and Alabama talks.
It seems to me that had the open market operation of the
last five weeks been exactly reversed we would have been saved a lot
of confusion and upset in the markets and the over-all result would
have been infinitely better. For example:

zulc EnO.ng

Actual Change in
Reserve Bill Holdinas

May 12
19
26

..:—
.•

June 2

.

9

+

The Program
-1122.
1
1..C.Lal

0
55
50

175
75
50

75

55
0

175

With kind regards,
Sincerely,

AGL/1
Cc - The Honorable William McChesney Martin, Jr.




FOR"FILM
lith3MtlefThom.'

Form F.R. 326

•

—CON FILES SECT

OCT 20 1954
CROSS REFERENCE
XECGORKEEOCIEDLIMMEZERCXECEOMOBC

DATE
KIND OF MATERIAL:

NAME OR SUBJECT:

REMARKS:




April 1

195L

memo Youngdahl to Files

re; Lanston suggestions for automatic repurchase facility to
cushion reserve fluctations

original filed 333.1

CHECKED BY

F- Smith

DATE

10/20/54




REGION FILES SECTI N

DEC 1 8 1953

December 9, 1953.

To:

Federal Open T.T.arket Committee

From: Messrs. Riefler and Thomas

At the meeting of the Executive Committee
November 23rd, it was decided that questions regarding
repurchase agreements would be considered at the
meeting of the full Committee to be held on December
15th. Attached is a memorandum pointing out various
aspects of the questions that might be raised regarding
the use of repurchase facilities and the establishment
of the rate on such facilities.

This memorandum has

been prepared on the basis of discussion of the matter
with the Associate Economists of the Committee and
contains suggestions received from them. In its final
form, however, it has not been cleared with this group.

Attachment

December 9, 1953
USE OF REPURCHASE CONTRACTS TO MEET
=CRARY RESERVE NEEDS IN DECEMBER
In reviewing the questions of the use of repurchase contracts and
of the rate on such contracts during coming weeks, the following considerations are pertinent:
(1) During December there are substantial drains on
bank reserves due to purely temporary and seasonal factors.
After the turn of the year the return flow of currency and
other factors generally brings about a Sharp reversal in the
supply of reserves. In December and January reserve needs vary
considerably from week to week and even from day to day.
(2) The System can take care of broad movements of reserves
through outright purchases and sales of securities, but a device
that reflects more promptly and automatically changing market
pressures is needed for the purely temporary though wide swings.
Under many circumstances member bank borrowing could serve this
purpose, but in the present economic climate that may be a toorestrictive instrument if relied upon to meet the greater part of
the needs. It is also not likely to be used on the dates of
published statements. Repurchase contracts provide a device just
suited for the purpose.
(3) The repurchase facility provides an instrument that is
helpful in reducing temporary fluctuations in the money market.
In periods of purely temporary money market tightness, as around
holidays and month-ends, the repurchase facility is a particularly
useful device. The principal merit of this instrument is that in
general it comes into operation only when there is an over-all
shortage of reserves in the market and goes out of use when the
market has adequate reserves. Such purchases are not likely to
be used to supply reserves for extended periods of time.

(4) In order for this procedure to be most effectively used
when the temporary needs for reserves are very large, the System
buying rate on such contracts cannot be too far out of line with
market rates. If the System rate is far above the market rates,
then the latter are likely to rise more than may be consistent
with
current policy before dealers will resort extensively to the
use of
repurchase contracts.
(5) Until December 8 the effective repurchase rate corresponded
to the discount rate and was above market rates. At such
a level it
could not effectively aid in meeting forthcoming Christm
as and endof-year demands without the money market becoming
tighter than it
had been. To prevent undue tightness from develop
ing, unless the
repurchase rate had been lowered, the System would
have had to make
larger outright purchases at prevailing market rates. If the latter
procedure were followed, the System would have to act positively to
reduce its holdings in January to avoid creating an unduly easy
money market situation for the early part of the year.



I
-2-

(6) At present the repurchase facility is available only
to nonbank dealers and objection has been raised to a reduction
in the repurchase rate without a reduction in the discount rate,
on the grounds that it would be favoring dealers as against
member banks.
(7) A question remains, however, as to whether the privilege
should be extended to bank dealers, which do not now have it. If
this were done, then there might be a question as to discrimination against other banks. Also, it is difficult to define a bank
dealer. This difficulty could be eliminated by extending the
repurchase facility to all member banks.

(8) To make the repurchase facility available to all member
banks would not be the same as the bill buying rate and repurchase option procedure used during the war. It would differ from '
the wartime procedure in the following respects:
(a) Repurchase contracts would be limited to a specified
period--not over 15 days--within which sellers would
be required to repurchase; under the wartime practice
the seller had an option to rebuy but no obligation
to do so.
(b) Banks would report such contracts as bills payable
on their statements.
(c) The System buying rate would be flexible and not
pegged at a fixed rate corresponding to the yield
on the bills as was the case during war.
(9) This procedure could be put into operation by a relatively small amendment to the present directive of the Federal
Open Llarket Committee. The existing directive governing the use
of repurchase contracts is attached.
(10) Important points to be considered with respect to
making the repurchase facility available to banks or even to bank
dealers are as follows:




(a) Actually banks would be aided and not harmed
by a lower repurchase rate, even though the
facility were available only to nonbank dealers,
because banks ordinarily endeavor to adjust
reserve positions by selling bills before
borrowing and would be aided by the ability of
dealers to buy bills at favorable rates°
(b) Banks do not want to show borrowings on published statements and hence would tend not to
use the repurchase facility over statement

I

-3-

dates, even if it were available to them, They
would be aided, houever, by a lower repurchase
rate to dealers because they could avoid
borrowing by selling bills to dealers, who
would sell them to the Reserve Bank under repurchase contracts.
(c) Banks would probably use the facility only to
the extent that they otherwise would be
willing to borrow and then might use it rather
than borrow only if the repurchase rate were
belaa the discount rate.
(d) Any advantage to nonbank dealers at being
able to borrow temporarily at below the discount rate is offset by the fact that
frequently they must borrow from banks at
rates above the discount rate.
(e) Making repurchase contracts available to
member banks at a rate below the discount rate
would in practical effect provide for advances to member banks at a rate fired by
the
Open Market Committee or the Manager of the
Account and not by the Reserve Bank board
s of
directors, which under the law fix the rate
on
discounts (including advances). Also,
question
may be raised as to whether such repurchase
transactions with member banks are actua
lly
conducted in the open market, but,
of course,
the same question is present with respe
ct to
repurchase transactions with nonbank
dealers.
Question may be raised as to whether the
maturity of each repurchase contract shoul
d
be fixed separately by the Reserve Bank
concerned or conform to a definite standard
fixed
by the Committee or the 1:anager.
The Comptroller of the Currency would
have to
rule as to whether the facility could be
used
by national banks, (It is believed that
such
use could be permitted if the outstandin
g contracts are reported as bills 1.
Jyable,)
(h) Most member banks would not
be familiar with
the use of this device and it might not
be
possible to inform them as to avail
ability in
time for use this year.

(i)




Should the facility be made available
as a
permanent matter or only for specified
periods
of temporary reserve drains as may be
determined from time to time?

Form F.R. 326

;ILES sE9jorr
CROSS

OCT 20 1954

REFERENCE

NENMENNEEXEXXXXXXXWMAINIP

DATE
KIND OF MATERIAL:

December 7 1953
4

Wire Abbot, St. Louis to Riefler FRBoard

NAME OR SUBJECT:

/ /53 "Use of Repurchase Contracts
re: comments onmemo of 12 2
temporary reserve needs in December"
to meet

REMARKS:

Original filed FOMC General




CHECKED BY

F. 'Dmith

DATE

10/20/54

Form F.R. 326

411
CROSS

,ECD IN FILES 6EUJON

OCT 20 1954

REFERENCE

NIENKINNIETWENSAMMIRXXXXEXAMXNX

DATE
KIND OF MATERIAL:

NAME OR SUBJECT:

REMARKS:




December 7 1953

Wire Hostetler, Glevelana to FRBd

re; comments on memo of 12 2
/ /53 on Repurchase

Original filed FOMC General

CHECKED BY
DATE

F. bmith
10/20/54

Agreeements

iILE

Form F.R. 326

CROSS

OCT 20 1954
REFERENCE

MgratalWAIMMIRIELMOSX3EVIAMX

DATE

December 7, 1953

KIND OF MATERIAL:

dire Powell to Riefler

NAME OR SUBJECT:

re; comments on uses of Repurchase Agreements

REMARKS:




Original filed FOMC General

CHECKED BY
DATE

P.

triith

m

-I

,

Form F.R. 326

med..

RECD IN FILES SECTION
REFERENCE
CROSS
naLREFAEAMNIAIVILEURENDSOTIMN

DATE
KIND OF MATERIAL:

OCT 20 1954
_
December 4, 1953

Wire Willis FRBk Boston to FRBd

NAME OR SUBJECT:
re; extension of Repurchase Agreement

REMARKS:




Original filed FOMC General

CHECKED BY
DATE

F Smith
10/20/54

I

A.1,C.D IN FILES SErAION
. 7,(

Form F.R. 326

OCT 20 1954
CROSS

REFERENCE

MOX1XXIMIVIENBAMMIUMIUMMORX

DATE

December 2, 1953

KIND OF MATERIAL:
Letter H. V. Roelse, FRBk NY to Riefler .FRTioard

NAME OR SUBJECT:

REMARKS:




re: Purposes & Uses of Repurchase Agreement & enclosing Memo
"Conditions for Repurchase Agreements as Prescribed by the
Open Market Committee"

Original filed FOMC General

CHECKED BY

F. Smith

DATE

10/20/54

REC D IN RECORDS SECTION

•

"JUN 1? 1955

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

April 80 1953.

Dear Sir:
At the meeting of the Federal Open Market Committee on
March 4, 1953, the Committee approved a revision in sub-paragraph
(c) of the statement of conditions under which Federal Reserve Banks
are authorized to enter into repurchase agreements with non-bank
dealers in U. S. Government securities. This paragraph previously
provided that such agreements "(c) Cover only short-term Government securities selling at a yield of not more than the issuing
ratebr one year Treasury obligations; and". It was revised to
provide that such agreements "(c) Cover only short-term Government
securities maturing within 15 months; and".
At the same meeting, the Committee agreed to abandon the
rigid system of qualifications for dealers who transact business
with the System open market account, which had been approved at the
meeting of the Committee on February 29, 1944 (see Thirty-first
Annual Report of Board of Governors for 1944, pages 48-51) and renewed from time to time since then.
The statement of conditions for repurchase agreements as
prescribed by the Federal Open Market Committee and which was transmitted to you on July 30, 1952 has, accordingly, been revised to
reflect the foregoing actions, and a copy of the revised statement
is attached.
Very truly yours,

/
Winfield W‘ Riefler, Secretary,
Federal Open Market Committee.

Kkit, d4k,. /Yid
Attachment

F m

)6v
"

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS



CONDITIONS FOR REPURCHASE AGRLIIENTS AS
PRESCRIBED BY THE FEDERAL OPEN MARKET COMMITTEE
Each Federal Reserve Bank, in lieu of all similar previous
authorizations, is authorized to enter into repurchase agreements with
nonbank dealers in United States Government securities under the follow
ing
conditions:
1.

Such agreements
(a)

Are at a rate which shall be specified from time
to time by the Manager of the System Open Market
Account in the light of market conditions and developments and in accordance with any directives
or limitations prescribed by the full Committee
or the executive committee for the purpose of
carrying out the current policies of the Federal
Open Market Committee, but in no event shall the
effective rate be below whichever is the lower
of (1) the discount rate of the purchasing
Federal Reserve Bank on eligible commercial
paper, or (2) the average issuing rate on the
most recent issue of three-month Treasury bills;

(b) Are for periods of not to exceed 15 calendar days;
(c) Cover only short-term Government securities maturing within fifteen months; and
(d)

2.

Are used with care and discrimination as a means
of providing the money market with sufficient
Federal Reserve funds as to avoid undue strain
on a day-to-day basis.

Reports of such transactions are made to the Manager of
the System Open Market Account to be included in the
weekly report of open market operations which is sent
to the members of the Federal Open Market Committee.

3. In the event Government securities covered by any such

agreement are not repurchased by the dealer
pursuant to
the agreement or a renewal thereof, the
securities thus
acquired by the Federal Reserve Bank are sold
in the
market or transferred to the System Open Market
Account.

As Revised
March 4, 1953







•

REGIllpCUiD3 SECTION
ilUC: 1 ii1956
'
!
C

Excerpt from Goldsmith service "United States Government
Securities", November 22, 1952.

A more aggressive policy of Federal acquisition
,repurchase agreements, together with
of Treasury bills_on
the greater willingness of banks to discount with the
Federal, should prevent as tight a squeeze in the money
market over the holidays as occurred last year. Then too
there will be a greater understanding that tight money
over the holidays is by the nature of things entirely
temporary.

REC'D IN FILES SECTION

z

r
G 28 1952
,
j

;•

17ugailf"1571952
-- Mr. Leonard
M. D. Daniels

I.

3 0,

GlassificaLion of Government
securities repurchase agreements
in maturity distribution schedule

I feel confident that these repurchase agreements have
always been classified in the -aturity distribution schedule in terms
of the deriod of the agreement rather than the maturities of the
securities. o.e have searched the fties, '0T:ever, and cannot find
any instruction that pley be so classified. Mr. 6mead's memorandum
of November 11, 1236,i states that "the Federal :eserve Banks report
any securities and bills held by them under resale contracts in the
maturity classification in accordance with the maturity of the resale
contracts, not the maturity of the securities themselves."
The repurchase agreeaent device was apparently originally
approved by the Board in November 1917 as a substitute for member
bank borrowing on 15-day collateral notes secured by Liberty Bonds
and certificates of indebtedness so that the member bank would not
have to pay the stamp tax on promissory notes. (At the same time
the Reserve Banks were instructed that meaber banks might properly
obtain short-time advances by rediscounting eligible commercial
paper of longer maturities under repurchase agreements.)
The War Finance Corporation Act of April 5, Lin, exempted
promissory notes secured by obligations of the United States from
the stamp tax. On April 6, the Board wrote to the Federal eserve
Agents suggesting lifirti.e practice of purchasing Liberty Bonds and
certificates of indebtedness under repurchase agreement be discontinued and that such borrowing of member banks be :aade on their awn
promissory notes. dthin the next few years, however, the use of
repurchase agreements was extended to transactions in Government
securities with nonmember banks and dealers and to transit. tions in
bankers' acceptances with dealers. In March 1925 the Board adopted
a resolution reaffirmineprevious decisions authorizing the practice,
long continued, of purchase and sale in the open market of bankers
acceitances and Government securities, by Federal reserve bar-•s from
and to banks and qualified dealers, under 15-day 'repurchase agreements . . .
Some evidence' bearing on classification is found in various
comments and instructiclina. For exaraple, in the
jter
March 12, 191d .CALq.Wi the banks were instructed not to report
Government securities repurchase agreements as o15-day advances".
Furthermore, the Board originally suef.5ted that the Reserve Bank




y

\

row, FILES
D.L.Werner 1

Mr. LeonaId

-2-

might charge interest only for te time of
the agreement when rediscounting eligible commercial paper of longe
r inaturities under repurchase
agreements (letter of December 12 _1217 X-545
),/ That practice was later
approved for -bankers' acceptances. Presu
mably, there was no question
but that interest for the period invol
ved would be cisarged on Government securities repurchase agreements.
Form 34 did not provide for reporting repurchase
agreements
until 1927, when they were listed on the
reverse as a memorandum item.
However, for about a month in 1918
the Banes were instrlIcteo to report
repurchase agreements (Liberty Bonds and certi
ficates of indebtedness)
on t'orm 34 and to wire the figures in the
weekly condition statement
telegrams. Beginning with the 1937 edition,
Form 34 has provided
for reporting repurchase agreements separately
among holdings of
U. S. Government securities: Prior to 1935
the maturity distribution
schedule on ?orm 34 provided only for reporting
short-term Government
securities. Effective January 1, 1935, the matur
ity classification
shown in the weekly condition statement
was changed to include bonds
and notes. Beginning in 1937 the maturity distr
ibution schedule was
expanded to show four groups instead of .ne for rtatu
rities over six
months. AL that time, in connection with a propo
sal to show the
various classes of Government securities in the
schedule,
Owens
made a suggestion that a footnote be shown stati
ng that securities
held under a resale contract were listed accor
ding to the maturity
of the contract rather than the matur
ity of tie security (November 19,
1936, memorandum to Mr. Wyatt).
r.
In case you are interested I have marked in the
attached
file (Repurchase paper, 332.3-6) certa
in memoranda of interest regarding
th., history of this type of Reserve Bank
credit aria in the other file
(Revisions-t.eekly Condition Statement, 330.223)
the Laaterial referred
to above on repurchase k:reements
in the maturity schedule.

Attachments - 2 folders

* The pr
a6reemc
ment s




us
inn
nothlig e 50
At-r

48

es

"repurchase
ler J. S. Govern-

REC' IN FILES SECTION
D
I
*ARO OF GOVERNORS
it

OF THE

SEP 1 2 1952

_FED ERAL RESERVE SYSTEM

Office Correspondence
To

Mr. Leonard

From

M. B. Daniels

Date

August 25, 1952

Classification of Government
. securities repurchase agreements
in maturity distribution schedule

Subject:

I feel confident that these repurchase agreements have
always been classified in the maturity distribution schedule in terms
of the period of the agreement rather than the maturities of the
securities. We have searched the files, however, and cannot find
any instruction that they be so classified. Mr. Smead's memorandum
of November 11, 1936, states that "the Federal Reserve Banks report
any securities and bills held by them under resale contracts in the
maturity classification in accordance with the maturity of the resale
contracts, not the maturity of the securities themselves."
The repurchase agreement device was apparently originally
approved by the Board in November 1917 as a substitute for member
bank borrowing on 15-day collateral notes secured by Liberty Bonds
and certificates of indebtedness so that the member bank would not
have to pay the stamp tax on promissory notes. (At the same time
the Reserve Banks were instructed that member banks might properly
obtain short-time advances by rediscounting eligible commercial
paper of longer maturities under repurchase agreements
The War Finance Corporation Act of April 5, 1918, exempted
promissory notes secured by obligations of the United States from
the stamp tax. On April 6, the Board wrote to the Federal Reserve
Agents suggesting that the practice of purchasing Liberty Bonds and
certificates of indebtedness under repurchase agreement be discontinued and that such borrowing of member banks be made on their awn
promissory notes. Within the next few years, however, the use of
repurchase agreements was extended to transactions in Government
securities with nonmember banks and dealers and to transactions in
bankers' acceptances with dealers. In March 1925 the Board adopted
a resolution reaffirming"previous decisions authorizing the practice,
long continued, of purchase and sale in the open market of bankers
acceptances and Government securities, by Federal reserve banks from
and to banks and qualified dealers, under 15-day 'repurchase agreements . . .
Some evidence bearing on classification is found in various
comments and instructions. For example, in the Board's letter of
March 12, 1918 (X-795), the banks were instructed not to report
Government securities repurchase agreements as "15-day advances".
Furthermore, the Board originally suggested that the Reserve Bank




2,Pre

Mr. Leonard

-2-

might charge interest only for the time of the agreement when rediscounting eligible commercial paper of longer maturities under repurchase
agreements (letter of December 1, 1917 x-545). That practice was later
approved for bankers' acceptances. Presumably, there was no question
but that interest for the period involved would be charged on Government securities repurchase agreements.
Form 34 did not provide for reporting repurchase agreements
until 1927, when they were listed on the reverse as a memorandum item.
However, for about a month in 1918 the Banks were instructed to report
repurchase agreements (Liberty Bonds and certificates of indebtedness)
on Form 34 and to wire the figures in the weekly condition statement
telegrams. Beginning with the 1937 edition, Form 34 has provided
for reporting repurchase agreements separately among holdings of
U. S. Government securities.* Prior to 1935 the maturity distribution
schedule on Form 34 provided only for reporting short-term Government
securities. Effective January 1, 1935, the maturity classification
shown in the weekly condition statement was changed to include bonds
and notes. Beginning in 1937 the maturity distribution schedule was
expanded to show four groups instead of cne for maturities over six
months. At that time, in connection with a proposal to show the
various classes of Government securities in the schedule, Mr. Owens
made a suggestion that a footnote be shown stating that securities
held under a resale contract were listed according to the maturity
of the contract rather than the maturity of the security (November 19,
1936, memorandum to Mr. Wyatt).
In case you are interested I have marked in the attached
file (Repurchase Paper, 332.3-6) certain memoranda of interest regarding
the history of this type of Reserve Bank credit and in the other file
(Revisions-Vieekly Condition Statement, 330.223) the material referred
to above on repurchase agreements in the maturity schedule.

Attachments - 2 folders
References
In File 332.3-6:
2/7/25 memorandum entitled "Repurchase Agreements"
3/19/25 letter X-4295 "To all Governors except Bailey"
9/27/28 Memorandum from Mr. Smead to Governor Young
11
/21/41 copy of memorandum from Mr. Van Fossen to Mr.
Goldenweiser
11
/29/41 Memorandum from Mr. Musgrave to Mr. Goldenweiser
11
/20/42 Memorandum from Mr. Daniels to Mr. Morrill
* The present title, used beginning 1948, does not
specify "repurchase
agreements", but nothing else could be reported in
"Other U. S. Government securities."
-4 ,
- 3,



7

;

1..) IN FILES SECTION
SEP 1 2 1952
op

,
•

August 18, 1952.

Mr. Daniels:
Among the questions to which I should like to
have answers regarding the distribution of repurchase agreements in the maturity schedule of the weekly Federal Reserve
statement are the following:
1. What was the former practice
2. When was it changed
3. Why was it changed

4.

What consideration was given to the maturity
distribution when repurchase agreements were
resumed

S.

Who made the decision that the repurchase
agreements should be shown in the 1-15 day
group of Government securities in the maturity
schedule

.
R F. L.

CetI

RFIAjbs



91

."




J
REC'0 IN RECORDS SEC. IMIL
1_ 61956
July 7, 1952
Mr. Leonard Resale agreement transactions in
Government securities are reported to the
Board by the Federal Reserve Bank of New
York under the headings shown below:
Purchases:

"U. S. Government securities
purchased from dealers under
15-day resale agreements."

Sales:

"U. S. Government securities
previously purchased from dealers
under 15-day resale agreements."

M .D




•
FEDERAL RESERVE BANK OF CHIO
cr(—;Li
REC'D IN FILES SECTION
CHICAGO 90
OCT 3 0
3—
September 28, 1950

Mr. Lowell Myrick, Assistant Director
Division of Bank Operations
Board of Governors of the Federal Reserve System
Washington 25, D. C.
Dear Mr. Myrick:
As requested in your letter of September 26, we are
forwarding the following schedules prepared by our Investment
Department:
Securities purchased under repurchase agreement,
$50,000,000, September 1, 1950.
Securities sold under repurchase agreement,
$50,000,000, September 5, 1950.
Yours very truly,

-7"
C. Schelling
-Assistant Federal Reserve Agent

CS:MES




Mr. A. L. Olson, Vice President,
Federal Reserve Bank of Chicago,
Chicago 90, Illinois.

It has been noted that on September 1 your
Bank's holdings of United States Government securities
included 550,000,000 held linder repurchase agreement.
Vie have apparently not received schedules
covering the purchase and sale of these securities, and
accordingly, it rill be appreciated if you will submit
copies.

Lowell ,:yrick„
Assistant Director,
Division of 2ank Operations.

FOR FILES
Patricia B. Tvie

rEEC-1

IN FILES SECT

'SEP

•

28 1950
3

•

,Septambpr

Files
L. Goheen

On September 25, the Federal Reserve Bank of New York
purchased, under sales

contract

agreement, $40,000,000 of the

October 13 Treasury bills at a 1-3/8% discount.

A rate of 1-1/2%

will be charged by the Reserve Bank.
$1,000,000 of these bills were re-purchased on
September 26.

LG:mag

-evv


FOR FILES
L. M. Golieen

\

REC'D IN FILES SECTION
41111rRD OF GOVERNORS

• 28 1950
SEP

OF THE

FEDERAL RESERVE SYSTEM

Office Correspondence
To

Files

From

L. Goheen

Date

September 26, 1950

Subject:
Cs

On September 25, the Federal Reserve Bank of New York
purchased, under sales

contract

agreement,

$4o,000,000 of the

October 13 Treasury bills at a 1-3/6 % discount.

A rate of 1-1/4

will be charged by the Reserve Bank.
$1,000,000 of these bills were re-purchased on
September 26.




--------TVR,FTLX'
GolleeT

L. Goheen

On September 1 the Federal Reserve
1111,-. of ChicL:zo purchased under sales contract
aLruoment $50,000,000 Govern:Bent securities
consistinE of :40,000,000 bends and

10,000,000

certificates at a rate of 1.40.
It is understood that the sell.,r
(C. F. Childs and Co.) will repnrchase tic
entire amount on September

cdv,




5.

COPY

REC'D IN FILES SECTION
*RD OF GOVERNORS

SEP
• 6 1950

OF THE

FEDERAL RESERVE SYSTEM

0 ce Correspondence
To

Files

From

Date

Septether 5, 195o

L. Goheen




Subject:

On September 1 the Federal Reserve
Bank of Chicago purchased under sales contract
agreement $50,000,000 Government securities
consisting of $40,0001000 bonds and $10,000,000
certificates at a rate of 1.40.
It is understood that the seller
(C. F. Childs and Co.) will repurchase tie
entire amount on September

5.

I

FOR FILES I
Dr L. Werner

C'D IN FILES SECTION
t
e,

ITji.t 22, 195 4
0
Files
Cktheen

Of the ;! 95,000,000 U. 0. Goren-ix:lent socurities
,
purchased under

seles contract agreements, by the

New York Rescrve Bank on Au rust 7, a total of $70,500,000
eonsistinr, of *-36,000,(X)0 certificates, 616,500,000 notes,
and S',18,000,000 bonds were held for the entire period when
they were repurc'resed by the sellers on Iurst 22.

T,Gs




1

REC'D IN F LE8 SECTION
ARD OF GOVERNORS

AUG 23 1950
•

OF THE

FEORAL RESERVE SYSTEM

Office Correspondence
To

Files

From

Date

August 22, 1950

L. Goheen-r

Subject:

Of the $95,000,000 U. S. Government securities
purchased under 15-day sales contract agreements, by the
New York Reserve Bank on August

7,

a total of $70,500,000

consisting of $36,000,000 certificates, $16,500,000 notes,
and S18,000,000 bonds were held for the entire period when
they were repurchased by the sellers on August 22.







.1•L'4L
rthES

AUG
2.

August 9, 1950
Files
L. Goheen

On Auolst 7 the Federal Reserve Bank of New York purchased,
under fifteen-day sales contract agreements, v. total of $95,000,000
U. S. Governent scurities, which consisted of the follolidng:
Treasury bills
Certificates of indcbtedness
Treasury notes
Treasury bonds

.115,000,000
40,500,000
20,500,000
19,000,000

On August 8, $5,000,000 bills ald 3,500,000 certificates
of indebtedness were repurchased by the seller; reducing the holdings of such securities by the New York heserve Bank to $10,003,000
and 07,000,000, respectively, and the total holdings to $86,500,000.

1

SECTION

9 1950

Aurust 14, 1950
rr. 'yrick
Ciss (7oheen




On August 2, the Federal Reserve Bank of Nev York purchased,
end held for one day only, the following United States Govern
rent securities unr3er sales contro.ct agreement:
Certificates of indebtedness

-

f,8,000,000

Treasury notes

-

12 001j) 000
'

LG:ct
*1.41
1:

f

t kill FILES
C. S. Turner

'D IN FILES SECTION
p r)

7
)

42-fr 28 19,5o
1
Mr. Leonard
L.

U. S. Govern-bent securities
purchased under resale
agreement

Goheen

Recorded. below are the transactions in Government securities
from dealers under repurchase aLreement by tle Federal Leserve
acquired
Bank of New. York from April 6 to April 27.
These are the first such purclases since the establishment
of the new minimum buying rate of 1/3 per cent above the average
issuing rate on the most recent iss-kie of U. 6. Treasury bills, as
authorized by the Federal Open Market Committee on March 1, 1950.
All purchases have been at a rate of 1-3/8 per cent. heekly issues
of Treasury bills have been at averae discount rates of 1.145%
(arch 30); 1.148% (April 6); 1.160g, (April 13); 1.162% (April 20);
and 1.166% (April 27).

Date
April

Issue

Purchases

6 Trea:,ury bills

Total amount
outstanding

468,000,000

Certificates of
indebtedness
April 10

7,000,000

Certificates of
indebt,edness
Treasury bills

April 12

::;5,000,000

7,000,000

Treasury bills
Certificates of
indebtedness

April 27

120,000,000
5,000,000

115,000,000

96,000,000
19,000,000

TreaLury bills

Totals

t0,000,000

73,000,000

Treasury bills

April 17

75,000,000

35,000,000

Treasury bills
Certificates of
indebtedness

April 14

$75,000,000

5,000,000

Treasury bills

April 13

Lepurchases

50,000,000

50,000,000

$210,000,000 $160,000,000
eu,

1

Lciicalv




r
ROD IN FILES SECTION
!

*ARID OF GOVERNORS
OF THE

HAY

FEDERAL RESERVE SYSTEM

Office Correondence
To

Mr. Leayd

From

Mae

L. M. Goheen

1 i830

April 28, 1950----4

Subject: U. S. Government securities
purchased under resale
agreement

Recorded below are the transactions in Government securities
acquired from dealers under repurchase agreement by the Federal Reserve
Bank of New York from April 6 to April 27.
These are the first such purchases since the establishment
of the new minimum buying rate of 1/8 per cent above the average
issuing rate on the most recent issue of U. S. Treasury bills, as
authorized by the Federal Open Market Committee on March 1, 1950.
All purchases have been at a rate of 1-3/8 per cent. Weekly issues
of Treasury bills have been at average discount rates of 1.145%
(March 30); 1.148% (April 6); 1.160% (April 13); 1.162% (April 20);
and 1.166% (April 27).

Date

Issue

April 6 Treasury bills
Certificates of
indebtedness
April 10 Certificates of
indebtedness
Treasury bills
April 12

Treasury bills
Certificates of
indebtedness

April 14

Treasury bills
Certificates of
indebtedness

April 27




Treasury bills

TotaLs

Total amount
outstanding

$75,000,000

7,000,000

5,000,000
$5,000,000

75,000,000

351000,000

40,000,000

73,000,000
120,000,000

7,000,000

Treasury bills

April 17

Repurchases

$68,000,000

Treasury bills

April 13

Purchases

5,000,000
Welt

115,000,000

96,000,000
19,000,000

50,000,000

f
F
t

50,000,000

$210,000,000 $160,000,000

11

-03'fa \
'bs

c.Dr
E

FILES SECTION

„AN 9 195'J'''
3-6.
. 33

X

lbb:T

December 231 1949

Mr. D. W. Rich
Rich and Company, Incorporated
New York, New York
Dear Dominic:
Thank you for remembering me again this year in

Saw your letter to Elliott Thurston about the
repurchase arrangement and have expressed general agreement with the idea but it still has some obstacles to
overcome.

Sincerely yours,

Woodlief Thomas
Economic Adviser

WT:pvj

i




../
(;)

/

•,.•

• -- "if

,eptelliber 28, 19149
6onnell
L. Goheen

On September 26 the Federal Reserve bank of
New York purchased, under sales contract agreements,
00,200,000 Treasury bills; the fol1owin6 dad i10),000
.
of thL.se bills were repurchsed and an additional

0,400,000 boqght, increasing the total outstanding on
September 27 to 03,500,000.
All purchases were at a 1-1/4 per cent discount
and at the prevailing 1-3/8 per cent interest rate.

141/d1w4yA
9




1

rF\DNFILTS
RLNVerner

EcIF:

SEc.FION

E.RD OF GOVERNORS

SEP

OF THE

1949

FEDERAL RESERVE SYSTEM

Office Correspondence
To

Mr. ConnellV

From

Date

September 26, 1949

L. Goheen




Subject:

On September 26 the Federal Reserve Bank of
New York purchased, under sales contract agreements,
00,200,000 Treasury bills; the following day $100,000
of these bills were repurchased and an additional
0,400,000 bought, increasing the total outstanding on
September 27 to 03,500,000.
All purchases were at a l-l/4 per cent discount
and at the prevailing 1-3/8 per cent interest rate.

REC'D IN FILES
SECTION

SE? 15 1949
Septe.71ber 14, 1949
Mr. Connell
L,IL aoheen

On September 12 the Federal Reserve Bank of
Nev York purchased the following United Status Government
securities under sales contract agreemt;nts at the prevail—
ing 1-3/3 per cent rate:
Treasury bills

04,050,000

Certificates of indebtedness

4,000,000

Treasury notes

2000 000
)

Total

',20,050,000

The entire lot was repurchascd on September 13,

IG/div
4
-Ytk-53



ED
1

r-FOR FILES
C. S. Turner

*RD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

fondence
Office Corres
To
From_

Connell

Date

September 14, 1949

Subject:
REC'D IN FILES SECTION

L. E. Gohee

On September 12 the Federal Reserve Bank of
New York purchased the following United States Government
securities under sales contract agreement, at the prevail—
ing 1-3/8 per cent rate:
Treasury bills

$14,050,000

Certificates of indebtedness

4,000,000

Treasury notes

2,000,000

Total

c$20,050,000

The entire lot was repurchased on September 13.




rc

rv:3

t Sntlqk

z

PP•C'D IN FILES SECTION

SEP 8 1949
September 8, 1949
Mr. Connell
L. Goheen

There have been no purchases under sales contract agreements since kptember 1. The entire lot of ,7102,802,000 Treasury
bills, held by the New York Reserve Bank at tiie close of business
on that day, has been repurchased by the sellers; $100,000 on
Septelliber 2

the remaining t102,702,000 on September 6.

Lrom ivadust 29 through September 1, the New York Reserve
Bank purchased a total of 3126,002,000 Treasury bills (at 1-1/4
per cent discount) under sales contract kyeements at the 1-3/8
per cant rate established on August 5, 1949.




‘4 • =......s.........m.................—........C...10.
1. 11,1 1
1
1

FOR,' FILES
D.L Werner

•RD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

Office Correspondence
To

Mr. Connell v

From

September 8, 1949

Date

L. Goheen

Subject:

I

RECD IN FILES SECTION

SEP 9 1949

There have been no purchases under sales contract agreements since 6eptember 1. The entire lot of $102,802,000 Treasury
bills, held by the New York Reserve Bank at the close of business
on that day, has been repurchased by the sellers; $100,000 on
September 2 and the remaining $102,702,000 on September 6.
From August 29 through September 1, the New York Reserve
Bank purchased a total of $126,002,000 Treasury bills (at 1-1/4
per cent discount) under sales contract agreements at the 1-3/8
per cent rate established on August




5, 1949.

r

1

7;11)ill FILES ggripNI

L. Goheen

On .September 1, 0,500,000 of the $77,302,000
Treasury bILL held under salcs contract agreements by
the Nev4 York Loserve Bank on

ugust 31 were repurchased,

and $35,000,000 additional bills were bought.

Total

noldino of Treasury bills under repul'chase agreements
were thireby increased to 0.02,302,000.




sEp 2
.

1949

. 1

I

liC'D IN FILES SECTION I

•RD OF GOVERNORS
j.
OF THE

Office Corresyondence

SEP 2 1949

h

FEDERAL RESERVE SYSTEM

Date

September 2, 1949

Subject:

To

Mr. layrick

From

L. Goheen J9 4)
,
1




On September 1, $9,500,000 of the $77,302,000
Treasury bi116 held under sales contract agreements by
the New York Reserve Bank on August 31 were repurchased,
and $35,000,000 additional bills were bought.

Total

holdings of Treasury bills under repurchase agreements
were thereby increased to $102,802,000.

REC'D IN FILES SECTION

)949
(
August 31, 1949
Connell
L.

G0110On

Holdings of Treasury blUs purchased under resale agre.e—
ncl increa”cd fro ;7;69,102,000 on August 30 to :.771 302,000 on
-rt;
:1
,
iluigust 31, reflectinfr, purchases by the limr York Federal Reserve
flank of 20,000,000 and ropurchaml by dealers of '12,500,000.




C

REC'D IN FILES
*ARID OF GOVERNORS

S EP 1

OF THE

FEDERAL RESERVE SYSTEM

° Office Corresp ndence
To

Mr. Connell

From

1949

73rjr,73{7
-

Date

August 31, 1949

L. Goheen

Subject:

Holdings of Treasury bills purchased under resale agreement increased from $69,802,000 on August 30 to $771302,000 on
August 311 reflecting purchases by the New York Federal Reserve
Bank of $20,000,000 and repurchases by dealers of $12,500,000.




SECTION




Mr. Connell
L. Goheen

On August 29 the Federal ieserve Bank of ;.ew York
purchased 446,002,000 Treaoury bills under repurchase aL;reement at the recently estaoiished minimum rate of 1-3/8 per
cent. Today '1,200,000 of the 446,002,000 was repurchased
and an aditional ,,25,000,000 purcha5ed by New York making
a net Lotal of ;691 802,000 held under repurchase aeyeement
on August 30.

-crIT
FOl
t
T

r*

16, GobeerL




--\

July 20, 1949.

Mr. Lobert G. rouse, Vice President,
Federal 1-:e3erve 1311k of New York,
.
New York 45, New York.
Dear Bob:
Thank you for your letter of July_ 18 (enclosing forms of
general collateral agrement and letter covering sales of Government
securities by dealers to your bank under repurchase agreement. This
information :1.11 be useful
us and I appreciate your sending it
to me.
With my kiwi rerds,
SLncercly yours,

George B. Vest,
General Counsel.

t
'W
0,
-00 !r

REC'D IN FILES
SECTION

FEDERAL RESERVE BANK
OF NEW YORK
'7
NEW YORK 45,N.Y.
July 18, 1949
Mr. George B. Vest, General Counsel,
Board of Governors of the
Federal Reserve System,
Washington 251 D. C.
X

Captled

CtL
;

Dear George:
We have reviewed the arrangements which we had in
effect some years ago with several of the dealers in United
States Government securities covering the purchase by us from
such dealers, in times of temporarily tight money market conditions, of short-term Government securities under repurchase
agreements by the dealers. It was the practice in that
connection for the dealers to enter into a general collateral agreement which was a continuing instrument and, from time
to time as temporary accommodations seemed appropriate, the
dealer would deliver the specific securities sold to us
accompanied by a short letter agreeing to repurchase the
securities on or before a specified date (not over fifteen
days) for a certain price with interest thereon at a specified
rate.
These forms of general collateral agreement and
letter covering sales by a dealer of specific securities under
repurchase agreement have been revised and I thought that, as
a matter of interest, you might like to have the enclosed
copies for your files.
We propose to use the revised forms
in connection with any future transactions with the qualified
dealers. This arrangement, of course, does not apply to the
qualified dealer-banks which have access to Federal Reserve
Bank discount facilities.
With kindest personal regards, I am
Very truly yours,

Robert G. Rouse,
Vice President.
Enclosures




(4)

t.

•

REC'D IN FILES SECTION

RUG 3

REPURCHASE AGREEMENT

(Date)
Federal Reserve Bank of New York,
New York 45, N. Y.
Gentlemen:
We hand you herewith United States Government securities
(with all unmatured coupons, if any, attached), having a total
par
value of
, listed below, which we have today sold to
you for $
. In consideration of the purchase by you of
such securities, we hereby agree to repurchase them from you
at any
time at your or our option on or before
at the
same price plus interest thereon at the rate of
% per annum for
the number of days that said securities are held by you.
Our obliga—
tions hereunder are secured by and subject to the terms
and conditions
of our general collateral agreement with you.
Very truly yours,

(Name of dealer)
By
(Signature)

(Title)
SCHEDULE OF SECURITIES COVERED BY ABOVE AGREEM
ENT

Description of issue




Maturity

Amount (Par Value)

1949

111

REC'D IN FILES SECTION

AU) 3

1949

GENERAL PLEDGE AND COLLATERAL AGREKIENT
In consideration of purchases and sales of bills, notes, accept
ances,
bonds, securities and other property, effected between the
Federal Reserve Bank
of New York (hereinafter called the "Reserve Bank") and the unders
igned by virtue
of agreements from time to time entered into between the
parties, and other good
and valuable consideration, and as collateral security for
any and all indebtedness, obligation and liability of any kind of the unders
igned to the Reserve Bank
now or hereafter existing and whether absolute
or contingent or due to or to
become due (hereinafter called "Liabilities"), the
undersigned hereby pledges and
agrees to pledge to the Reserve Bank all moneys
, credits, negotiable instruments,
bonds, stocks, commercial paper, securities, mortga
ges, choses in action, claims,
demands, rights, interests and property of every
kind which are now in, or which
may at any time hereafter come into, the posses
sion or control of the Reserve
Bank, or of any of its agents or correspondents,
or which may now or hereafter
be in transit to the Reserve Bank or any of
its agents or correspondents, and
which belong to, or are held for account of
or subject to the order of, the undersigned (all of which are hereinafter collectively
referred to as the "Collateral");
and the undersigned further gives and agrees to give
to the Reserve Bank, as
collateral security for the Liabilities, a lien, right of offset and
other appropriate security interest in any of the Collateral which
by its nature is or may
be incapable of pledge.
The undersigned shall, whenever requested by the Reserve Bank,
deliver
to the Reserve Bank such collateral and such additional and furthe
r collateral,
rights and property as the Reserve Bank in its discretion may
deem necessary to
secure properly the payment of the Liabilities.




•
Upon default in the payment of any of the Liabilities including any
interest thereon, or in the performance of any obligation of the undersigned to
the Reserve Bank, or in case of the failure of the undersigned to furnish additional collateral as herein provided, or if the undersigned shall suspend or
discontinue business, or shall be adjudicated bankrupt or insolvent, or shall
make an assignment for the benefit of creditors or a composition with creditors,
or shall file a voluntary petition, or an answer admitting the jurisdiction of
the court and the material allegations of an involuntary petition, or shall consent to an involuntary petition, pursuant to any bankruptcy, reorganization or
insolvency law of any jurisdiction, or if any order shall be entered pursuant
to any such law approving an involuntary petition seeking reorganization of or
to effect an arrangement or plan for the undersigned or appointing any receiver ,
or trustee of or for the undersigned or of or for all or any substantial portion
of the property of the undersigned, or if the undersigned shall apply for or consent to the appointment of such a receiver or trustee, then, and in every such
event, any and all of the Liabilities shall, at the option of the Reserve Bank,
immediately become due and

payable without presentment or demand or notice of

any kind, all of which are hereby expressly waived, notwithstanding any provision
to the contrary in any instrument evidencing any of the Liabilities. In any
such event, the Reserve Bank is authorized to sell, assign and deliver, in its
discretion, the whole or any part of the Collateral at public or private sale
or at broker's board (being at liberty to become the purchaser if the sale is
public or at broker's board), with or without demand, advertisement or notice of
the time or place of sale or adjournment thereof or otherwise, upon such price
and terms as the Reserve Bank may deem advisable, the undersigned hereby waiving
and releasing any and all equityl or right, ofredemption. In case of any such
sale, after deducting all costs, attorney's fees and other expenses of collection,




2

sale and delivery, the Reserve Bank may apply the net proceeds of sale to the
payment of any or all of the Liabilities whether due or not, as the Reserve Bank
may deem proper, the undersigned remaining liable for any deficiency with legal
interest, and the balance of such net proceeds, if any remain after payment in
full of all Liabilities, shall be paid to the undersigned.
The Reserve Bank may assign or transfer the whole or any part of any
obligation or liability of the undersigned and may or may not transfer as collateral security therefor the whole or any part of the Collateral, and the
transferee shall have the same rights and powers with reference to such obligation or liability and the Collateral transferred therewith as are hereby given
to the Reserve Bank.
This instrument shall constitute a continuing pledge and agreement
between the undersigned and the Reserve Bank applying to all future as well as
existing transactions between said parties (and, in case the undersigned is a
partnership, shall not be affected, impaired or released by the death, resignation
or addition of any partner), and shall not be terminated by the closing at any
time of all transactions between said parties but shall apply thereafter to any
new transaction or transactions and shall continue in full force and effect until
notice is received in writing by either party from the other of the intention to
terminate it.

Any such termination shall have the effect of cancelling this

agreement only as to transactions thereafter entered into.
IN WITNESS WHEREOF the undersigned has caused these presents to be
executed this




day of

1 19
•••1=1,M

Name ofdealer
By
(Signature)

(Titiej

3

REC'D IN FILES SECTION

_ JUL 14 1949

Yr. Leonard

rici ir.

yrick

lass Goheen

The Federal Reserve Bank of Eer York on June 27
purchased under rerurchpse agreement $75,000,000 in Treasury
Bills. This is the first such transaction at the New York
Bank since 1933. The last time the System held securities
under repurchase agreement vms in 1935.

LO/d1w




H

RnARD OF GOVERNORS
OF THE

FEDE.RAL RESERVE SYSTEM

SEC1110/4

ftEC"D

'Ail

5 1343

ffice Correspondence
To

Mr. lon rd

rIci Mr.
•

,

Subject:

From Miss Goheen




The Federal Reserve Bank of New York on June 27
purchased under repurchase agreement $75,000,00
0 in Treasury
Bills. This is the first such transaction
at the New York
Bank since 1933. The last time the System
held securities
under repurchase agreement was in 1935.

Janu.ry 20, 19/18.
77177
rtirren
tion L u
y t*,
At the conclusion of the discussion upon
m

14 1349

rede and seconded it was voted unanimously
to authorize each Federal
Reserve Bank to enter into rerurchase agree-en
ts with dealers in
United States Covernment s-curities who are
qualified te transact
business with te System Open Yeret Aeco
unt Frovided that (1) such
agreem-nts (a) are at rates not below
the rate in effect at the
Bank on discounts for and advances
to member banks under Sections
13 and 13a, (b) are for reriods of not
to exceed 15 calendar days,
(c) cover only short-term Government
securities selling at a yield
of not more than the iesuinc rate for
one year Treasury obligations,
(d) are accepted only in reriods
of strain with care and discrimination es a -neans of lest resort in
the special tyles of siturtions
and conditions revieued in }Jr. Rous
e's remorandum, and (e) that
re orts of such transactions should
be included in the weekly report
of transactions furnished the comm
ittee, and (2) in the event Government securities covered lee such an
agreerent ar not repurchased by
the dealer pursuant to the aFre
erent or a renewal thereof, the
securities will be sold in the rark
et or transferred te the System
Open rerket Account.

Dictated over rhone
6 2
/ 8/49 by Yr. Coe.
dlw



T•••••••••••

D IN FILES SECTION

r3

OCT 1

,

,

October 181 1948.
Mr. Snead
Mr. Sheresn

The follovine is an excerpt from the minutes of the meeting
of the Board with the Presidents of the Federal Reserve Benks on Octo—
ber
"3.

51

1948:

Treesury bills sold by :qember bank to nember bank of &nether Fed—
eral Reserve district ender repurchase aereement as proper items
for safekeepine by Federal lieeerve Bank of dittrict in which selling
member bank is loceteet. Tho Conference gave consideration to the
practice coneempletee-1 by the request recently made or the Fedeeal
Reserve Bank of cievelancl by one of its member banks to hold in
sefekeeping for a member bank located in New York, from time to
time, blocks of Treasury bills sold to the New York :!Lember bcenk
by the member bank in Cleveland, subject to a repurchase 4greement
or under an underetanding to that effect. The reason for the
request, as explained to the Conference, is that the Cleveland
member bank desires to be in a pcoltion to make quick adjustments
in its reserve position as late as eossible in the day and feels
that such eeles by way of CPD transactions will not serve the
desired purpose because CPD transactions must be co:let:melted not
later than 1:30 p.m, ordinarily and can not be nude at all on
the last day of the month. The President?. see no objection to
permitting the requested practice under the circumstances.
"Chairmen McCabe stated that the Board was eill:ne to concur in

the declEe!en of the Presidents! Conference."

cc: Mr. Millard
MS:ids




,•)_

410 ' ......,....,...............„......,,
t "D IN PILES SECTION

A,
EOARD OF GOVERNORS

MAR 25 1948

OF THE

FEDERAL RESERVE SYSTEM

.6.Mo

WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

March 12, 1948.

CONFIDENTIAL

Dear Sir:
In my letter of February 19, 1948, it was stated that if the
minutes of the meeting of the executive committee of the Federal Open
Market Committee on January 20, 1948, were approved in the form transmitted with that letter, the letter sent to the Federal Reserve Banks
under date of January 23, 1948, authorizing the Federal Reserve Banks
to enter into repurchase agreements with dealers in United States Government securities who are qualified to transact business with the
System open market account, would be amended to provide that in the
event Government securities covered by such an agreement are not repurchased by the dealer pursuant to the agreement or a renewal thereof,
the securities thus acquired by the Federal Reserve Bank were to be
sold in the market or transferred to the System open market account.
At the meeting of the executive committee on February 26,
1948, the minutes of the meeting on January 20 were approved in the
revised form and therefore the second paragraph of the letter of
January 23, 1948, has been changed to read as follows:




"Accordingly, the executive committee at its
meeting on January 20, 1948, considered the matter
in the light of the attached memorandum prepared
by Mr. Rouse and, after a full discussion, voted
unanimously to authorize each Federal Reserve Bank
to enter into repurchase agreements with dealers
in United States Government securities who are
qualified to transact business with the System
open market account, provided that (1) such agreements (a) are at rates not below the rate in effect
at the Bank on discounts for and advances to member
banks under sections 13 and 13a of the Federal Reserve Act, (b) are for periods of not to exceed 15

•6

•0
-2-

calendar days, (c) cover only short-term Government
securities selling at a yield of not more than the
issuing rate for one-year Treasury obligations, and
(d) are used only in periods of strain, with care and
discrimination, as a means of last resort in the
special types of situations and conditions reviewed
in the attached memorandum, and (2) in the event Government securities covered by such an agreement are
not repurchased by the dealer pursuant to the agreement or a renewal thereof, the securities thus acquired
by the Federal Reserve Bank are sold in the market or
transferred to the System open market account."
Very tr

fours,

•
S. E. Carpenter, As stant Secretary,
Federal Open Market Committee.

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS
(With a copy mark3d for Mr. Rouse)




GS 13




FEDERAL RESERVE BANK OF CLEVELAND

I R1 'D IN
iiLRS
i-

February

sEciioi
rti3 i 4 194/

3, 1947

Board of Governors of the
Federal Reserve Lgstem
.ashington 25, D. C.
Gentlemen:
We are pleased to enclose herewith the following reports:
Form F. R. 417,
and 417A

Fors:

3e

Lionthly report on Industrial i:dvances and
comaitmcnts covering the month of January,
1947.
Classification of bills discounted by Federal Reserve Bank of Clevelanu for month of
January, 1947.
lionthly report on guarantee fees collected
on Regulation "V" loans.
Schedule covering month of January, 1947,
of U. 6. Treasury Bills bou,ht under repurchase agreement.
Very truly yours,

H. i J. Smith
1
Assis1 Vice President
Encl.

UNITED STATES TREASURY BILLS PURCHASED UNDER
REPURCHASE AGREEMENT DURING MONTH OF JANUARY 1947
Date of
Purchase

Maturity
Value

Maturity
Date

1-3-47

11000,000
3,000,000
3,000,000
3,000,000
100,000
3,500,000
10500,000
500,000
3,500,000
3,500,000
1,500,000
71 320,000
20000,000
21 135,000
70,000
5,000,000
21000,000
3,600,000
1,400,000
500,000
2,500,000
500,000

1-9-47
3-27-47
3-6-47
3-6-47
1-23-47
1-23-47

999,937.50
2,997,4o6„25
2,998,093.75
2,998,187.50
99,984.38
3,499,453.13

Cleves Natl Bank, Cleves, Ohio
Cleveland Trust Co., Cleveland, Ohio

3-20-47
1-23-47
2-20-47

1,498,890063
499,927008
3,498,468.75

Firestone Bank, Akron, Ohio
Cleveland Trust Co., Cleveland, Ohio

1-4-47

1-7-47
1-8-47
1-9-47
11
ft

1-10-47
1-11-47
1-13-47
1-14-47
1-15-47
1-16-47
1-17-47
It
It

1-18-47
1-21-47
1-23-47

114-47

1-25-47
1-27-47
II

1-28-47
1-30-47

3,500,000
1,500,000

1„000l000
20500,000
1,000,000
2,100,000
450,000
200,000
200,000
200,000
200,000
200,000
500,000
3,000,000
2,050,000
150,000
1,000,000
5ol000
50,000
500,000
11500,000
200l000
1,000,000




2-6-47
3-27-47
4-13-47
3-27-47
4-10-47
2-13-47
4-10-47
2-6-47
2-27-47
3-20-47
3-6-47
3-27-47
2-27-47
1-23-47
3,27-47
2-27-47
2-6-47
2-27-47
4-3-47
3-27-47
2-2o-47
2-27-47
3-13-47
3-20-47
4-3-47
3-13-47
3-27-47
4-10-47
3-6-47
2-27-47

Name of Seller

Cost

Union Bank of uommerce Co., Cleveland, Ohio
It
tt
Cleveland Trust Co., Cleveland, Ohio

3,498,979.17
12498,796.88

7,313,061.25
1,998,416.67
2,132,998,44
69,975,94
4,995,468.75
1,999,520.83
3,598,387,50
1,399,066.67
499,744,79
2,498,203.13
499,736.46
3,499,781.25
1,498,921.88
999,583.33
2,499,583.33
999,635.42
2,098,468.75
449,704.69
199,943.75
199,929.17
1990900.00
199,885.42
199,856.25
499,750.0o
2,998,062.50
2,0489377.08
149,935.94
999,656.25

4-1.0-47
4-24-47
3-13-47
2-6-47
4-3-47

49,961.98
49,954.69
499,765.63
1,499,859.38
199,868.75

2-27-47

999,708.33

it

It

Mellon Natl Bank & Tr. Co., Pittsburgh, Pa.
Union Bank of Commerce Co., Cleveland, Ohio
It

11

State Savings Bank, Maumee, Ohio
Mellon Natl Bank & Tr. Co., Pittsburgh, Pa.
Cleveland Trust Co., Cleveland, Ohio
it
Pt
It

Pt
Pt
It

,
Union Bank of Commerce Co., ClevelandOhio
Firestone Bank, Akron, Ohio
Cleveland Trust Co., Cleveland, Ohio
Pt

tt

Peoples First Natl Bank & Tr.Co.,Pittsburgh,Pa.
Cleveland Trust Co., Cleveland, Ohio
Peoples First Natl Bank & Tr.Co.,Pittsburgh,Pa.
Cleveland Trust Co., Cleveland, Ohio
It

First Natl Bank
ee
It

Pt

East Liverpool, Ohio
tt

tt

Pt
11

ft

Firestone Bank, Akron, Ohio
Union Bank of Commerce Co., Cleveland, Ohio
Cleveland Trust Co., Cleveland, Ohio
11

tt

Peoples First Natl Bk. & Tr. Co.,Pittsburgh,Pa.
Huntington Natl Bank, Columbus, Ohio
Citizens Natl Bank, Marietta, Ohio
Firestone Bank, Akron, Ohio
Cleveland Trust Co., Cleveland, Ohio
New Richmond Natl Bank, New Richmond, Ohio
Peoples First Natl Bank & Tr. Co.,Pittsburgh,Ftc

//
/
/13O47
It
ft

It

1-31-47

2,190,000
455,000.
7,320,000
4,000,000
200,000
100,000
100,000
.
1000,000
2,050,000
3,oaf),000

3-6-47
3-27-47
4-10-47
5-1-47
4-10-47
4-17-47
4-24-47
2-27-47
2-6-47
2-20-.47
650,000 3-20-47
1,000,000 4-10-47
1,0(X),000 2-13-47

971 240,000




2,1892201,
356
454,734,58
7,3141662,50
32996,208.33
199,854,17
99,920,83
99,913,54
999,718.75
2,049,871.88
2,999,375.00
649,675.00
999,281,25
999 864 58

Mellon Nati Bank et Tr. Co,Pittsburgh, Pao
Pt

ft

It

It

Pt

New Richmond Natl. Bank, New Richmond, Ohio
Lagonda Nati Bank, Springfield, Ohio
Pt

/1

Peoples First Nati Bank et. Tr.Co.,Pittsburgh,Pa.
Cleveland Trust Co., Cleveland, Ohio
PP

ft

It

9

It

Nati City Bank, Cleveland, Ohio

97,185,3.31.19

-2-.

0
0ARD

OF GOVERNORS

IL

OF THE

FEDERAL RESERVE SYSTEM

Office Correspondence
To
From

Mr. Vead
Mr

Date

June 17, 19/4

Subject:

Dicni

Responding to your question -s to how Treasury bill purchases would otherwise be reported, it might be well to review the
background of the present reports. The Board's letter of April 15,
1943 (S-637), authorized the Reserve Banks to submit a monthly list
of Treasury bills purchased with the resale option in lieu of daily
schedules. At the time, we had discovered that half of the Banks
were not submitting these schedules. (Two of them were not reporting the monthly volume and the amount outstanding at the end of the
month on Form F. R. 38.) Also, one of the Reserve Banks had suggested that, since the form it was using for reporting purchases of
Treasury bills was not designed for the purpose and since transactions
handled were not in lnrge volume on any one day, it might be desirable
to report them in some other manner.
The requirement that the Reserve Banks submit daily schedules of their discount and investment operations has presumably been
in effect with this exception since the Reserve Banks were organized.
The instruction to submit a monthly summary of Treasury bills purchased was sent out in pjNe)of a suggested letter authorizing the
Banks to discontinue allA repA.ts of discount and investment operations
except those covering industrial loans and commitments.
If your question means how Treasury bill purchases would
be reported if these monthly reports lAnre discontinued, there would
remain the volume figures reported on Form 38.




•
•
•

FEDERAL RESERVE BANK
OF BOSTON

April 15, 1946

Board of Governors of the
Federal Reserve System
Washington, D. C.
Gentlemen:
In accordance with the instructions contained in your letter of
April 15, 1943, we forwarded to you on April 3, 1946 a report
in duplicate showing purchases of United States Treasury Bills
under Option to Repurchase made by this bank during the month
of I-arch 1946.
Up to the present time our records do not indicate receipt from
you of the letter of acknowledgement provided therefor. For
your convenience we enclose duplicate copies of our letter of
April 3, 1946.
After you have had an opportunity to review your records. kindly
advise us with respect to this matter.

/Very

ruly

ours,

C 1 B. Pitman
Vice President
IC
Enclosures




f
d14*

FIE .




FEDELAL RESERVE BANK OF EI,JS ON
30 PEARL STREET

April 3, 1946

Board of Governors of t
Federal Reserve System
Washington, D. C.

ie ,
•- s\

fTh

Gentlemen:
You will find enclosed a rrInnea
iMplicate showing pur—
chases of United States Tt-eauury Bins made by this bank
under Option to Repurchase for the month of March, 1946.
This report is filed in c
dated April 15, 1_943.
Kindly acknowledge recel
on the copy of the lett°

*.th the Board's letter
ve described report

Very truly yours,

Carl B. Pitman
Vice President
IC
7nclosures

COPY

e•
FEDERAL RESERVE BANK

I

HECTICT

BEO,
D

7 1946
*ampliMiDpIPIMW,V,

OF RICHMOND
POST OFFICE DELIVERY UNIT 13

January 3, 1946

Board of Governors
of the Federal Reserve System,
Washington, D. C.

Dear Sirs:

In response to the Board's letter of April 15,
1943, 3-647, there is attached a report of purchases of
Treasury Bills by this bank under resale agreement during
the month of i)ecember 1945.
Effective January 1, 1946, each of the branches
of this bank at Baltimore and Charlotte will carry on its
books the Treasury Bills purchased from the banks within
its territory under the repurchase agreement and will
otherwise perform, independently of the Head Office, all
functions with respect to purchases and resales of Treasury
Bills. In keeping with this change in procedure, the Head
Office and each branch will submit a separate monthly report beginning with the reports for January 1946, which
we assume will be satisfactory with the Board.

Very truly your

C. B. Strathy,
V ice President.

CrORY
BUY
UNITED
STATE

WAR
ONDS
AND




FOR FILES
Goheeid

6
14

Uarch 2, 1945.
Flanders-Boston
Sproul-New York

Young - Chicago
Davis - St. Louis
Peyton - Kinneapolis
Leedy- Kannas City
Gilbert- Dallas
Day - an Francisco

Gidney-L1eveland
Leach-Richmond
McLarin-Atlanta

At meeting of Federal Open .larket Comotittee yesterday follooing actions
were taken:
(1) Direction isoued by Cooauittee on March 1, 1944$ with respect to
Teurchase by Federal Reserve Banks of Treasury bills Wbs renewed as follos:
"Until otherwise directed by the Federal Open Market
CooJiittee, the 1P Federal lieserve Banks are directed to
purchase all Treosury bills thA may be offered to such
Banks on a discount basis at the rate of 3/8 per cent
per annum, any such purchases to be uoon the condition
that the Federal iieserve Bank, upon the re,,uest of the
seller before the maturity of the bills, oill sell to
him Treosury bills of like amount and maturity at the
same rat::: of discount. All bills purchased under this
direction are to be held by the purchasing Federal aeserve Bank in its own account and prompt reoorta of all
transactions in Treasury bills are to be made to the
Manager of the System Open Maxket Account."
As in the ca.e of earlier direction this action was taken with the
understanding that resales of Treasury bills held under option would be
for immediate delivery Alen so reuested by option holder.
announcement being made.

No public

C.enge in last sentence of directLon made to

conform direction to existing orectice.
(2) Pursuant to provisions of par. 2(a) of proceaure for allocation
of vecurities in Lyste... account (sent to you with my letter of Septe:::ber
25,1944) t.nd oanding further action by Federal Oper Market Committee, it
was agreed unaLimously that Treasury bills should tot be allocated to any
Federal Reserve bank in an amount which would reduce it reserve ratio
below 4aA.
(3) Authority granted at taeeting of Corx.ittee on May 5, 1936, to fach
Federal heserve Bank to make temporary purcha&eo of Government securities
under resales agreer.ents for ,•eriods not exceeding fifteen days, 13,e terwinated. See aly letter of June 12 1936.
La,



,ines

notaILL.

• OF GOVERNORS
OIARD
OF THE

FEDERAL RESERVE SYSTEM

Office Correspondence
To

FiiJ

From

410
7 7.0 2 3 134,1 -' -Date

August 18,

Mr. Daniels

Subject:

There is attached a statement sumnarizing by
class of seller purchases by Federal Reserve Banks of
Treasury bills at the established discount rate during
the period January-April.
Figures for the Chicago and San Francisco Reserve Banks do not include figures for the purchase of
660,000,000 and )140,000,000 Treasury bills, respectively,
from the Federal Reserve Bank of St. Louis, and the figures
for St. Louis do not include P10,000,000 of such bills repurchased.
The sellers other than "banks", as the term is
used for purposes of this tabulation, were as follows:
Roston, Lae Higginson Corporation (200,000), Noyes Buick
Company (P708,000); New York, Federal Home Loan Bank
(9,330,000), Panque Beige pour l'Etranger (13,750,000),
First Boston Corporption( 664,000), Royal Bank of Canada
6
(S3,260,000), Bank of London and South America, Ltd.
(n,000,000), Brown Bros. Harriman and Company (,t9,785,000),
Banco Central de Reserva del Peru (n,500,000), Federal
Home Loan Bank, Cincinnati (Lt.,500,000), Federal Home Loan
Bank, Los Angeles (q3,078,000), Federal Home Loan Bank,
Portland (2,1400,000); Chicago, Homo Loan Bank, Indianapolis,
($1,684,000).


PAD/d1w


Attachment

19144 .

Purchases by Federal Reserve Banks of Treasury Bills with Repurchase Option
January-April 3944
(Amounts in thousands of dollars)

r

•

Member banks:
Head office or branch city
Outside head office or branch city
Nonmember banks
Other
Totals

Number of I Number of Amount
sellers transactions'

Number of I Number of I
sellers transactions Amount

Number of 1 Number of
sellers transactions 1 Amount

All Federal Reserve Banks

Source of Purchase

Boston

New York

252
504
93
13
862

2,739 $15,934,877
1,395
1,351,344
241
286,095
61,859
42
4,417 17,634,175

7
81
10
2
100

Philadelphia
Member banks:
Head office or branch city
Outside head office or branch city
Nonmember banks
Totals

12
57
13
82

203
178
29
410

•
•

547,004
150,609
22,415
720,023

17
42
6
65

2
5
6
2

84
16
2

139,223
12,589
150

33

102

151,962

19
47
22
33




579
261
91
38

145

969

194
116
9
319

24
59
2
1
86

137,010
124,797
2,105
263,912

99
95
27
221

20
18
8

381
/43

1,987,342
17,505
550

46

432

2,005,397

30

18
8
56

633,817
53,105
1,595
688,517

39
a

172
123
13

262,014
84,210
13,250

63

313

359,14-74

16

St. Louis

341
156
2
2

4,121,530
148,556
150
1,684

501

14,271,920

217
39
8
264

$6,550,470
486,443
221,850
59,267
7,318,030

Richmond

32
21
3
.
56

Kansas City

San Francisco
Member banks:
Head office or branch city
Outside head office or branch city
Nonmember banks
Totals

27
99
9
10

Chicago

Minneapolis
Member banks:
Head office or branch city
Outside head office or breach city
Nonmember banks
Totals

407

$440,020
P/01,341
12,515
908
697,784

Cleveland

Atlanta
Member banks:
Head office or branch city
Outside head office or branch city
Nonmember banks
Other
Totals

93
289
23
2

290

44
21
355

649,872
13,477
9,555
672,904

Dallas
300,764
7,439
660
308,863

23
17
2
42

86
35
3
124

165,811
8,273
1,300
175,384

03
.
4

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8T44 4114/4 'Judd' 41 '1i goal* jo euo ftypeoeid 844 144140,
4.todeJ eq4 2uwirdao0 '1461. ON go usAy9 ey 'uoy4do
61
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evegoaudeJ
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14.1vAsol,g •aig
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MUM Sr= la earn




OF THE

'c\VK
Office Correspondence

AUG

FEDERAL RESERVE SYSTEM

To

Yr. Smead

From

sicRoN

I

0411ARD OF GOVERNORS

Date

July;

3 1944
71
114 -

J. J. Connell

Subject:

In response to your inquiry as to whether or not any of
the Reserve Banks were pledging Treasury Bills - Repurchese Option,
in addition to their participation in the S.O.Y.A., to secure Federal Reserve notes, I find that St. Louis is the only Bank which
has done so for the dates shown below:
(In thousands of dollars)
S.O.Y.A.
Treasury Bills
July 1

3
4

450,000

u
ft

Total

35,240

485,240

40,770

490,770

40,770

490,770

5

“

42,030

492,030

6

ii

57,810

507,810

7

n

57,738

507,738

55, 8
63

505,638

61,386

511,386

8
10

tt

Should you desire the same information prior to July 1,
please indicate how far back you would want to go.




FEDERAL RESERVE BANK
OF ST. LOUIS
J

ead, Director
Mr. E. L.
Division J Bank Operations
Board of Governors of the
Federal Reserve System
Washington 25, D. C.
Dear Ed:
Replying to your letter of the .twenty-fourth,
banks in the branch territories can sell Treasury Bills
under repurchase agreement to our branches or ourse±ves,
whichever is the more convenient to them. Such banks,
particularly in the branch cities, usually deal through
the branches in such matters.
Since we pledge all Treasury Bills with the
Agent as collateral to our outstanding Federal Reserve
notes, resales can only be made ilith our approval as the
collateral must be released by the Agent or his representative. This, however, has not caused any delay since
the transactions are handled by wire and the banks usually
request the securities be placed back in safekeeping; no
,physical delivery being made.
Incidentally since Treasury Bills are issued
only by the head office, most of such securities are held
by the head office.
Yours very truly

Vice

Altebery
sa ent

EFENSE
BUY

UNITED
STATES
SAVINGS
DON DS
AN0STANPS




190411
it. A. Oro




25

June 24, 19/4.

W. O. M. Attebery, Vice President,
Federal Reserve Bank of St. Louis,
St. Louis 2, Missouri.
Dear Olin:
Referring to your letter of Jim. 19, we note
that from an accounting and reporting standpoint your
Bank feels it preferable that Treasury bills acquired
under repurchase from banks be carried on the books of
the Head °Moo even though purchased from banks in
branch territories.
It seems to me that it is not too Important
where they are carried, but / an wondering whether the
banks in the branch territories that have Treasury bills
to sell under repurchase agreement deal with the branches
or with the Head Office.

Tour advice in this connection

will be appreciated.
Sincerely yours,

E. L. Smead, Director,
Division of Bank Operations.

be




FEDERAL RESERVE BANK
OF
ST_

Louis
(2)

June 19, 1944

Mr. F. L. Smead, Acting Administrator
Office of Administrator for
War Loans Committee
Board of Governors of the
Federal Reserve System
Washington, D. C.
Dear Ed:
When the examiners were here recently, they
raised the question of why Treasury Bills acquired
under repurchase from banks attached to our branches
were not carried on the books of the branches.
We indicated that they were being carried at
the head office by reason of the fact that originally
they were an Open Market Committee asset. We further
indicated that it made little, if any, difference to
us where they were carried and that we thought it was
something that the Board should determine. Since then,
we have come to the conclusion that from an accounting
and reporting standpoint, it is preferable that they
be carried at the head office.
Yours v

truly

O. M. Atebery
Vice P

BOARD

OF

GOVERNORS

OF THE FEDERAL RESERVE
SYSTEM

(2 13, 14.114
,

6 10
/

4 ' 4disc

If we are going to authorize the Bank
s to
ontinue certain °
L
s.
schedules I believe we
I•should orepare a memorandum to the Boar
i&
d giving
the Board the history of our discot
m and invest-714A
'
li\? \s._ ment schedule procedure. It
l
nay be that we
,
should discontinue all schedules
and merely get
some sort of volume report, like for
\
. A umber of purchases of securities andexample the ''','ti.43
acceptances ‘ )
N
classified as a group accordirg to clas
ses of
, sellers and the number of discounts grouped
with some slight grouping.

Q
,

E.L.S.

44.4.

A

,ff

VA
)

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)
/ REC'D IN FILE 3 SiA.TION7}
,

JAN 12 1948
Board of Governors
Mr. Snead

e
There is attached a letter authorizing the Federal Reserv
g daily data on discounts
Ban...cs to discontinue certain reports showin
and investments. The reports to be disoontinued are:
ed
1. A list submitted monthly of Treasury bills aoquir
ts, showing the
by the Banks for their option accoun
of
name of seller and the amount and maturity date
the bills.

2. Statements of securities purchased for and sold from

York
the System Open Market Account, submitted by New
se and sale by
periodically. This shows each purcha
issues.

3.

L.

Daily schedules of discounts and advances to member
banks except on industrial loan commitments. These
schedules show data concerning each discount.
. As
Daily schedules of bills bought in open market
acceptances
the Reserve Banks have not purchased any
years these
for their awn account for a number of
the present
schedules are not being submitted at
time.
above-mantione\

reports is recommended
Discontinuance of the
classified summaries of
for the reason that we now receive monthly
e all the data on
investments, discounts and advances which provid
this subject that we ordinarily need.
\

Attachment

y
1
VD:sans

Dear Sir:
Effeotive November 1, 1944, reports on Form S-2 (investments purchased and sold 14 the open market) and the monthly report
of United States Treasury bills purchased, requested in the 3oardis
letter of April 15, 19143 (S.637), may be discontinued. Reports on
Forms AD44 and RD-7 (daily sdhedules of bills discounted and purchased in open market respectively) may be discontinued also, except as to (1) indust:iAl lowilie and committnents, (2) loans to individuals, partnerships, and corOorations (other than member banks),
and (3) schedules of add!.tional .or excess collateral on discounts
and advances to member banks required under paragraphs (d) and (e)
under Section 3 of the Roardts Regulation A O Daily schedules covering such loans, discounts, and advipaes should continue to be submitted.
As of the same date, reports\of collateral ,pledged with the
Federal Reserve Agent as security for 'Federal Reserve notes and Federal Reserve flank notes, requested in the Board's letters of
December 16, 1920 (St. 1653), April 29, /932 (X-71146), and its wire
6
of March 12, 1933 (Trans. 1 47), also maybe discontinued.

Nothing in this letter is intended\to alter the procedure
under which collateral for Federal Reserve notes or Federal Reserve
Bank notes is pledged with the Federal Rosario Agent, including the
pledge of Government securities in the System Open Market Account,
and the release of such collateral, The Boarevrill continue to receive reports from the Federal Reserve Agent on\Form F.R. 5 and on
Form P.R. 6 if and when the Federal Reserve Bank has a liability on
Federal Reserve Bank notes outstanding. Informat1on with regard to
collateral pledged with the Agent for Federal Reserve notes and Federal Reserve Bank notes will continue to be report44 also on the reverse side of Form F.R. 34, and the Board's examines will, of course,
continue to check the records of the Bank and the Federal Reserve
Agent relating to Federal Reserve notes and Federal Reserve Bank
notes and the pledge and release of collateral therefo*
Very truly yours,

OF
0 THE
te.4 RESER
RESERVE AGENTS EXCEPT AT NEW YORK
!ID:mum




ltim?)
r
tary




TELEGRAM
BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
LEASED

WIRE

SERVICE

WASHINGTON

June 6, 1944.

Young — Chicago

Referring our telehone conversaticn rgardin,;
repurchase agreeaents involving Government securities, I
took this mcitter up immerliately with Under

ecretary 5ell

who advised me that he had it ;Ictively under consideration
but had not made up his mind ac, to the reply and I have
s
been no4nq from day to day to he, .r further.

So far nothing

na.s developed.

(Signed) Chester l`itorritt
Morrill
C:nch

Gladyt; Glo.ver

TELEGRAM
otird of Governors

4 ,44 JUN 6
0
1
PM 3 44

.?ederai..Reserve System
Leased. Wire bervice

Recoivcd at Washington, D,Os
WAO1G30WASH GX158 CGO 6-230
MORRILL

IN TALKING WITH DAN BELL ABOUT ANOTHER MATTER HE MENTIONED THE
WIRE HE CONTEMPLATED SENDING IN ANSWER TO YOUR INQUIRY REGARDING
REPURCHASE AGREEMENTS INVOLVING GOVERNMENT SECURITIES.

HE STATED

HE THOUGHT IT INADVISABLE TO SEND A WIRE BUT GAVE INFORMAL APPROVAL
TO ARRANGEMENTS WHICH WE HAVE MADE WITH CHICAGO BANKS IN CONNECTION
WITH THE PURCHASE OF GOVERNMENT SECURITIES BY INSURANCE COMPANIES.
THIS INFORMAL APPROVAL IS ENTIRELY SATISFACTORY TO US




YOUNG.




(25)

June

5, 1944

Mr. H. F. Slade, Assistant Cashier,
Federal Reserve Bank of San Francisco,
San Francisco 20, California.
Dear Mr. Slade:
Referenoe is made to your letter of May 23,
1944, concerning revision of your Form S2 for use
in the reporting of Treasury bills purchased. The
revised form as described in your letter will be
satisfactory for our requirements.
In this connection, we hqve been reviewing
certain reports submitted by the Reserve Banks, and
it may be that the monthly report on Treasury bills
purchased 7ith repurch9se option will be discontinued,
though I cannot say definitely one way or the othlr
at the present tiiue.
Very traly yours,

E. L. Smead, Director,
Division of Bank Operations.

1
I.

•

•
•

FEDERAL RESERVE BANK OF SAN FRANCISCO
Fiscm, AGENT OF THE

UNITED

ST.vrE s

SAN FRANCISCO 20, CALIFORNIA

kay 23, 1944

AIR lr_AIL
Board of Governors of the
Federal Reserve System,
Washington, D. C.
Attention: Er. E. L. Smead,
Chief, Division of Bank Operations.
Re:

Reports of Treasury Bills Purchased.

Sirs:
Reference is made to the second paragraph of)your_letter dated
ebruary 9, 1944, in connection with submitting reports of Treasury Bills
purchased on Form S2.
Inasmuch as our present supply of Form 82 is becoming exhausted,
we are contemplating the preparation of a revised form for our use in the
reporting of Treasury Bills purchased. It is our intention to use a sheet
81" x 11" in size with all of the information previously reported on
Form 82, which new form may be prepared with an ordinary typewriter instead
of specialized machinery which we have heretofore been using. We feel that
the revised-size sheet will be more convenient to handle by all concerned.
We assume that your primary interest in this matter is in obtaining information covering Treasury Bills purchased by us for our account under resale agreement, regardless of the form on which such purchases
are reported to you. Furthermore, we intend to continue to submit such
reports on a monthly basis as authorized in your letter of February 9.
Before we undertake the preparation of the contemplated revised
form, we should, however, appreciate receiving your reaction as to whether
such revised form will be satisfactory and conform to your requirements.
Yours rspectful
/

H. F. Slade,
Assistant Cashier.
BUY
UNITED
STATES

WAR
BONDS

STAMPS



(25)

April 28, 1914

Mr. L. J. "Sub, Manager,
Credit Discount Department,
Federal Reserve Bank of St. Louis,
St. Louis 2, Missouri.
Dear Mr. Bub:
In checking your Bank's report on Form
F. R. 38 of bills and s.)curitiee purchased during
the month of March, the amount of U. S. Government
securities, resale option, is shown as *327,784,000.
The monthly statement, "Treasury bills purchased
by Federal Reserve Bank of St. Louis under repurchase
agreement during month of March 3944", however, shows
a total of $326084. Your advice as to this discrepancy will be appreciated.
Very tni ly yours,

B. L. Smead, Director,
Division of Bank Operations.

soko
v



C




ivEC'D IN FILES S.
LA_TION

JAN

2 1948
r .

,
Y7/.3741,ei

Dear Sir:
Effective JunI 1, 1944, daily schedules of
United States Government securities purchased and the
monthly report of United tates Treasury bills purchased under resale &groom ,nt requested in the Board's
letter of April 15, 1943 (31
037), may be discontinued.
As of the same date, reports\of collateral pledged
with the Federal Reserve Agenkc, as security for Federal Reserve notes and Federei4eserve Bank notes
may also be discontinued with the exception of such
information in regard to collatellma as is called
for by items appearing on the reverse side of Form
F.R. 34 and on Forms F.R. 5 and FA, 6.
Very truly yours\

L. P. Bethea,
Assistant Secretary.

TO THE PRESIDENTS AND FEDERAL RESERVE AGENTS
OF ALL FEDERAL RESERVE BANKS

Woo=

=
4,




-1
6:7
IN FILED S1TiY1 - 1

/JAN I 2 1948
,

(25)

Mr. Beardsley Rum',
Federal Reserve Agent,
Federal Reserve Bank of New York,
New York 7, New York.
Dear Mr. Ruml:
Reference is made to the Board's letter of April 29,
1932, to Mr. J. Herbert Case, then Federal Reserve Agent.
There is enclosed copy of a 1etter being sent today
to the Presidents of all Federal Reserve, Banks and to all
other Federal Reserve Agents with referehoe to discontinuing
certain reports. Submission of copies of\schedules requested
in the Board's letter of April 29, 1932, referred to above,
listinr securities pledged with the Federal\Reserve Agent by
the Federal Reserve Bank of New York, eitherfor its own account or for account of another Federal Reserve Bank, to be
held as collateral security for Federal Reserve notes or Federal Reserve Bank notes, may be disoontinued, et ective June 1,

1444.
Very truly yours,

Chester Morrill,
Secretary.

Enclosure

The necessity for the
separate letter to New York
is owing to the fact tht
the Board's circular letter
of April 29, 1932, was not
sent to the Federal Reserve
Agent at New York and a
separate letter was sent to
him. It seems to me the
circular letter now proposed
would fail to rescind the
instructions in this separate
letter.




REC'D IN FILES S ECTITN

I

IPARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

Office Correspondence
To

Board of Governors

From

ON
• 1 2 1948
Date

May 15

1911,

Mr. Smead

Subject:

Attached is a draft of a proposed letter to the Presidents and Federal Reserve Agents of all Federal Reserve Banks
authorizing them to discontinue furnishing the Board with schedules of United States Government securities purchased and of collateral pledged against Fed ral Reserve notes.
The only United St tes Government securities purchased
by the individual Federal Reserve Banks at the present time, of
course, are Treasury bills purehased under resale agreement. The
New York daily letter and weekly open market letter contain full
information regarding all transactions in United States Government securities for the System Open Market Account and of purchases and sales of Treasury bills by all Federal Reserve Banks
under resale agreement. Accordingly, there is at present a
duplication in reports on United States Government securities
purchased by the Federal Reserve Banks which would be eliminated
by the authorization contained in the above-mentioned letter.

34)

The Federal Reserve Banks report daily on the reverse
side of their balance sheets (Form F.R.
separately the amount
of gold certificates, United States Government securities and of
eligible paper pledged against Federal Reserve notes outstanding.
Similar information is contained in the daily statements narnished
by the Federal Reserve Agents in regard to Federal Reserve notes,
Form F.R. 5, and Federal Reserve Bank notes (when the Banks have
a liability on such notes), Form F.R. 6. There does not appear
to be any necessity in addition to have the various Federal Reserve Agents submit daily statements of collateral pledged and
withdrawn, including schedules furnished in their behalf by the
Federal Reserve Bank of New York covering participation in the
System Open Market Account pledged against Federal Reserve
notes outstanding6

Attachment







REC'D IN PILE S

JAN 12 1948
Yky 15, 1904,
Board of Governors
Mr, Smead

\
Attached is'a draft of a proposed letter to the Presidents and Federal Rose v. Agents of all Federal Reserve Banks
authorising them to di ilontinue furnishing the Board with oohedules of United States GOvernment securities purchased and of collateral pledged against *ederal Reserve notes.
\
The only United States Government securities purchased
by the individual Federal R serve Banks at the present time, of
course, are Treasury bills p ohased under resale agreement. The
New York daily letter and weekly open market letter contain full
information regardinp; all trankactiona in United States Government securities for the System pen Market Account and of pun.
chases and sales of Treasury bile by all Federal Reserve Banks
under resale agreement. Accordin'ly, there is at present a
duplication in reports on United S tes Government securities
purchased by the Federal Reserve Bais which would be eliminated
by the authorisation contained in theabove-mentioned letter.
The Federal Reserve Banks report daily on the reverse
side of their balance sheets (Form FOR. 314) separately the amount
of gold certificates, United States Government securities and of
eligible paper pledged against Federal Reserve notes outstanding.
Similar information in contained in the dail,y statements furnished
by the Federal Reserve Agents in regard to Federal Reserve notes,
Form P.R. 5, and Federal Reserve Bank notes (khan the Banks have
a liability on such notes), Form F.R. 6. There does not appear
to be any necessity in addition to have the various Federal Reserve Agents submit daily statements of collateral pledged and
withdrawn, including schedules furnished in their\behalf by the
Federal Reserve Bank of New York covering participMtion in the
System Open Market Account pledged against Federal Reserve
notes outstanding,
*

Attachment

1

.

C'D IN FILES SkaLTION

•ARD OF GOVERNORS
•
Or THE

JAN 1 2 194

FEDERAL RESERVE SYSTEM

Office Correspondence
To

Mr. Smead

-

Date
Subject:

From Yr. Van Fossen

Referring to Mr. Daniels' March 9 memorandum and particularly to
the last paragraph thereof regarding discontinuance of certain reports,
I recommend as follows:
I do not find anything in the Federal Reserve Act or in the Federal
Reserve Loose-Leaf Service requiring Federal Reserve Banks to submit schedules
of United States securities purchased. I believe the information furnished
on Form P.R. 38 in regard to bills bought under option is sufficient for our
purposes. If the reports, however, are continued, I would recommend that
they be reduced to a monthly summary showing the total amount of bills purchased during the month from any given institution.
I am unable to identify the illsnthly summary of transactions in
the System Open Market Account sent in by New'York, discontinuance of which
is recommended by Mr. Daniels,
In view of the references to loan schedules submitted to the Board
of Governors in paragraphs (d) and (e) of section 3 of Regulation A and to
daily reports on 13b loans in section 6 of Regulation S, I doubt whether
daily schedules of discounts and advances could be discontinued without
amendment of Regulations A and S. In any event, I believe discontinuance
of these schedules might have unfortunate consequences.
I do not find anything in the Federal Reserve Act or in the Federal Reserve Loose-Loaf Service requiring Federal Reserve Agents to submit
reports of collateral pledged against Federal Reserve notes and Federal Reserve Bank notes and believe the information on this subject contained in
the daily statements F.R. 5 and F.R. 6 is sufficient for our purposes.
Accordingly, I recommend that all other reports of collateral pledged
against Federal Reserve notes and Federal Reserve Bank notes be discontinued.




c
)11
3
Si,1 3144







41, OARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

Office Correspondence
To

Mr. Smead

From

• JAN
7

2 1948

Date

Mr. Daniels

Subject:

With regard to your request whether we need the monthly
reports from the Federal Reserve Banks listing their purchases of
Treasury bills at the established 3/85 discount rate, it seems
advisable to review their development.
Since the Banks were established the Board has required
them to submit daily schedules of investments and discounts. From
June 30, 1936, when all Government securities held by the Banks were
transferred to the System account, until the Federal Open Market Committee authorized the Banks to hold for their own accounts Treasury
bills bought with an option on the part of the seller to repurchase,
there was no occasion for the Reserve Banks individually to submit
schedules of investments. About a year ago one of the Reserve Banks
suggested that since the form it was using was not designed for the
purpose of reporting purchases and sales of Treasury bills it might
be desirable to report them in some other manner. This suggestion
led to the Board's instruction (letter S-637, April 15, 1943) to
submit a monthly list of Treasury bills purchased in lieu of the
daily schedules. It was felt the monthly list would be less burdensome for the Banks.
For many years the schedules of discounts and investments
received from the Banksdhave also borne statements signed by the
Federal Reserve agents when the discounts or investments have been
pledged as collateral against Federal Reserve notes or Federal Reserve bank notes.
At the present time the monthly reports of Treasury bills
purchased are used only to check with volume figures shown on the
monthly Form 38's. We used to send a memorandum to the Board summarizing discount and open market operations of the Reserve Banks,
but this was discontinued after February 3, 1943, and consequently
at the present time I can think of no reason why we need the reports
of Treasury bills purchased, unless we want to know where the bills
are coming from--that is, whether from brokers, member banks, or
nonmember banks.
It may be noted that Mr. Connell has recently raised with
Mr. Van Fossen the question whether the reports of Treasury bills
are of any value. I recommend that these reports be discontin0--and that at the same time we discontinue (1) the m()_ifl_41rstimliary of
?
transactions in the System Open Market Account sent in by New York,
(2) daily schedules of discounts and advances, except perhaps




•
•

•
•
Mr. Smead

- 2-

industrial loans, and (3) the required reports of collateral pledged
with Federal Reserve agents against Federal Reserve notes and Federal
Reserve bank notes. In this connection, you stated to me orally
about a year ago that you might be willing to recommend all of this
but for the fact that you thought it inadvisable at the time to raise
any question on procedure with regard to Federal Reserve bank notes.







,

1

IF FIT7P s*:;7:7970w

1LFEB

'
u194 61-

(25)
February

9, 1944

fi.
Mr. H. F. Slade, Assistant Cashier,
Federal Reserve Bank of San Francisco,
San Francisco 20, California.
Dear Mr. Slade:
In checking schedules received from your Bank for
indtistrial advanoes and commitments, we find that we appar—
ently have not received schedules for advances of $25,000
mad. in December 1943 as shown by your Bank's reports on
Form F. R. 417a and the revised Form F. R. 38 submitted as
per Mr. Hale's January 14 telegram. It will be appreciated if
you will send duplicate copies of the schedule or schedules
for these advances.
Your reports for the month of December of Treasury
bills purchased, submitted in accordande with letter of Desomber
20, 1943, and our reply of 1104011110er 27, include eahediiiiof
bills purchased (Form S '0 and schedules of bills sold (Formv
S 2A). As we do not get information from the other Federal
Reserve Banks regarding Treasury bills repurchased from the
Federal Reserve Bank, it will be satisfactory if you wish to
discontinue sending the schedules of Treasury bills sold.

,

Very truly yours,

J. . Van Fossen,
Assistant Director,.
Division of Bank Operations.

C

i ,, - - _.
7
y -!!!„12s122!?_!!..,1_




(25)

Deoembar 27, 1943

Mr. H. F. Slale, '‘.sst3tan4; Cashier,
Foder21. Reserve Bank of San Franeisoo,
San Francisco 20, California.
Dear Mr. Side:
This will aolmowlerise your_letter of
Docembor 20, 1943, concerning t"-'e monthly rerort
of Treasury Pills purchased. It will he satis—
factory for your Bank to submit oopies of purchase
sine, resale transactions on Forms S 2 and S 2A as
referred to in the fourth paragraph of yoUr latter.
Very truly yours,

E. L. Smead, Chief,
Division of Bank Operations.

-

'ID/11.AL

1

121L -.t Lil]uTfor!

•M-1

n EC 2 8 t143
3 • 3. -

t

FEDERAL RESERVE BANK OF SAN FRANCISCO
FISCAL AGENT OF THE 1TNITED STATES

San Francisco 20, California
December 20, 1943

Board of Governors of the
Federal Reserve System,
Washington, D. C.
Attention: Mr. L. P. Bethea,
Assistant Secretary.
Re:

Monthly Report of Treasury
Bills Purchased.

Sirs:
In accordance with instructions contained in your
1
letter 8-637, dated April 15, 1943, we have been furnishing as
the end of each month a report with respect ,to Treasury Bills
of
purchased by us for our own account under resale agreement.
As you know, the activity in this operation has increased very materially in the last few months, and the preparation of a schedule such as that forwarded with our letter of
December 3, 1943, entails a considerable amount of clerical work
which possibly is out of proportion to the information furnished
therein.
Inasmuch as the report covers purchases only, it does
not show sales or redemptions, with the consequence that an
analysis of the report would not permit the elimination of the
duplications therein.
For our own records, the purchase and resale of Treasury Bills are recorded on forms S 2 and S 2A. It occurs to us
that possibly an extra copy of these forms could be prepared and
forwarded to the Board of Governors either daily or accumulated
and forwarded at the end of the month, thereby furnishing more
complete information with a minimum amount of work.
It will be appreciated if this matter can be given
considerytion, informing us of your desires with regard to
your
the suggested substitution.




Yours r specfull

Assistant Cashier.
•-•

2,4 .
1 gi. ,)) i N riT, Fs . 7(11 tr.trait

ilL

Mr. Van Fossen

It has cone to my attention that General Pi/es is making preparations to microfilm certain records of the Division of Bank Operations
prior to destruction that would scarcely seem to be warranted. Following is a description of the records referred to above:
Retrospective Sheets on Condition of Federal Reserve Banks on Weekly,
Statement Dates
These retrospective sheets have been maintained for their current value in shaming the trend of the more sirpificamt items in the
statements of condition of the Federal Reserve Banks. Their uce for
this purpose has been pretty largely superseded by the chart book now
compiled by the Division of Research and Statistics. So far as any
other use of these sheets is concerned, it is believed that the data
published in the Federal Reserve Bulletin, in the Annual Reports and
in the Base Book make the microfilming of these records for prior
years unnecessary.
Average Pate and Maturity of Discounted and Purchased Paper
These records are working Sheets used in compilinr the average maturity and the average purchase or discount rate on bills bought
in open market and bills discounted from 1925 when these calculations
,
were inaugurated to 193, when they were discontinued. For purchased
bills there are two sets of working sheets, one covering bills bought
exclusive .f those bought under rep-rchase agreement, and the other
including all bills bought. In the case of discounted paper there
are five sets of working sheets, three covering member bank collateral
notes, of which one includes all such notes, and the other two notes
secured by Government Obligations and notes secured by eligible paper,
respectively. The additional sets of working Sheets on discounted
covering
paper are one set covering so-called custo:ers paper and one
including member bank collateral notes. These
all paper discounted,
computations were made at a time when information in regard to the
being
volume of discount and open market operations was regarded as
than has been the case in recent years. For
much more important
daily
some years, an you know, we have felt that figures on average
classes of bills and securities are much
holdings of the various
ion of
more significant, and it was for this reason that calculat
discontinued. The results of the calculaaverage maturities was
tions, except for a short period :2*ior to their discontinuance,
no likewere published in the Board's Annual Reports and I can see
interested in the data coLtained in the
lihood of anyone ever being
is
working sheets, destruction of whicn has been authorised. It
sheets be not microfilmed.
recommended that these workin7




,

•

To:

Mr. Carpenter

Riqu.sts for Shipments of Federal Reserve Rotes to Federal Reserve
'orms 1'5 and 45a)
These requests are not believed to have any permanent value
and it is understood that they have already been destroyed up to and
including 1937. For any practical use, the information regarding
Federal Reserve notes received by the Federal Reserve Agents contained
in the monthly reports /94 and 160 which are to be microfilmed, are
much more convenient and the preservation of these forms would serve
any Purpose that would be served by the preservation of forms 145 and
45a. Furthermore, a complete record of all shipments is kept in the
Office of the Comptroller of the Currency and the facts in regard to
any given shtpnent could readily be ascertained from that office
should reed therefor arise. As a matter of fact, I do not believe
there has been any occasion to refer to one of these forms as much
as 10 days after shipment in the entire period of my experience.
It is recommended that these forms be not microfilmed.
Duplicate Gold Settlement Fund Checks and Treasury Deposit Slips
These duplicate checks and deposit slips have been destroyed
up to and including 1935. There does not appear to be any worthwhile
purpose that would be served by microfilming these documents inasmuch
as the originals are on file in the Treasury or in the General Accounting Office and the Board receives monthly from the Treasury a statement showing the balance in the corbined Interdistriot Sett:ament
Fund and Agents' Gold Certificate Fund at the beginning and end of
the month and a record of daily transactions. Once this statement
has been received and verified by the Examination Department, there
is no reason, so far as I can see, for retaining the duplicate checks
and deposit slips. If we thought it worthwhile, we could have the
original checks returned to us in due course. This has never seemed
to be necessary, Chiefly for the reason that, unlike cancelled
checks of an individual, they do not represent valuable receipts
for payments made. All Interdistrict Settlement Fund checks are
made payable to the Treasurer of the United States so that there
are no third party payees. It is recommended that the duplicate
checks and deposit slips be not micr6filmed.
Interdistrict Settlement Fund and Federal Reserve Agents' Gold Cerfificata Fund Record Books
It is understood that there are 69 volumes of these record
books, destruction of which has been authorized. Mlile I believe
that there is serious question as to whether there is any need to
microfilm these books if they are to be destroyed, it would seem
that there is no necessity at least of microfilming, them at this
ti-de when there is a shortage of nanpower and materials, inasmuch
as the books themselves can very well be retained for an indefinite




Li

Tos

Hr. Carpenter

period. It is suggested that these books be notdestroyed at this time
and that the question of their possible microfilming be deferred until
after the existing emergency.

VF:mnm




C




1

REVD 3 A FILES SECTION 1
i

JUN -2 1943

Zone 25
June 1, 1943

Mr. Carl B. Pitman, Cashier,
Federal Reserve Bank of Boston,
Boston, Massachusetts.
Dear Mr. Pitman:
Acknowledment Is made of your letter of ray 29,
12
43.
We understand that the difference between the total of
'136,920,000 for United States Treasury Bills purchased
under resale option, as reported on Form F. R. 38, and : 36,650,
1
000,reported
on the statement submitted in accordance with the Board's
letter
of ApA1 15 1943_1S-637), represents purchases for
i:
the System
Open market Account he1 overnight by your Bank. In future
reports on Form F. R. 38 it will be appreciated if you will
exclude
Treasury Bills purchased for transfer to the System Open Market
"ccount so that Form 38 will agree with the monthly report in
this respect. We, of course, receive rrTorts from the manaFer
of the System Open Market Account ircludinF purchases made
for
the System Open Market Account by the individual Federal
Reserve
Banks.
Very truly yours,

J. R. Van Fossen,
Assistant Chief,
Division of Bank Operations.

•
•
[REVDLN FILES SECTION

FEDERAL RESERVE BANK
OF BOSTON

JUN -2 1943

Cr 29, 1943

Board of Governors of the Federal Reserve System
Washington, D. C.
Attention:

Mr. J. R. Van Fossen, Assistant Chief,
Division of Bank Operations.

Dear Sir:
We acknowledge receipt of your letter of May 28, 1943,1 regarding
reports submitted for the month of April 1943, covering the transactions in United States Treasury Bills purchased by this bank under
resale option.
Please be advised that it has been the practise of this bank when
United Stetes Treasury Bills are offered for cash sale, without the
previlege of purchase under repurchase option, to hold these bills
in our own account overnight for regular delivery to the System
Open Marl-et Account on the next business day.
Therefore the difference between 11e total of 08,920,000.00 as
.
reported on Form 38 and the amount of 436,650,000.00 reported in
accordance with the Boards' letter of April 15, 1943 (S-637)1represents transactions agyf6iaing 2,270,000.00, purchased for cash
for System Open Market Account and held overnight by this bank are
discribed as follows:
Date of
Purchase
4/12/43
4/12/43
4/15/43
4/17/43
4/17/43

Maturity Value
5?

250,000.00
200,000.00
620,000.00
1,000,000.00
200,000.00

Maturity

Cost

4/21 $249,976.56
199,893.75
6 2
/
4 21 619,961.25
/
4/21 999,958.33
4/21 199,991.67

lInnie of Seller
Springfield Institution for
Savings, Massachusetts
New England Tr. Co.Boston
Worcester Co. Tr. Cc. Mass.
Blackstone Canal Nat.Bk.
Providence, R. I.

If we can be of any further assistance to you in this respect,
please advise us.
truly yours,

Carl B. Pitman
Cashier
TYM
EL






)
• 1 RA,'D IA FriESiECTiOR
1:
L

i

MAY 29 1943
/

May 28, 19443

Mr. Carl B. Pitman, Cashier,
Federal Pesorve RRnk of Boston,
Poston, Massachusetts.
Dear Mr. Pitman:
In °hooking your Bank' L; monthly report of
Treasury Bills purohased under resale agreement submitted in accordance with tha Boares.lettzr of Apri1.15,
1943_(3-637), it is noted that the total shown, t36,650,000,
doe's not agree with the figure for bills purchased under
resale agreement duriag the month of April as reported
on Form 38, namely, $38,920,000. Your advice in this
conneotion will be appreoiated.
Very truly yours,

J. R. Van Fossen,
Assistant Chief,
Division of Bank Operations.

npPla

C

I
1

•
•

C'D IN FILES
SECTION
iW

111V

APR 23 1043

FEDERAL RESERVE BANK
OF DALLAS
I:2_ R. GILBERT
PRESIDENT

April 20, 1943

Board of Governors of the
Federal Reserve System
Washington, D. C.
Attention:

Ir. L. P. Bethea, Assistant Secretary

Gentlemen:
In accordance with your letter of April 15,
S-637,)we will discontinue furnishing the Board daily
iClieaUles of Treasury Bills purchased under resale agreement, and in the future we shall be glad to submit to the
Board monthly reports of such purchases.
It has not been the practice of this bank to
forward to the Board schedules covering the purchase of
Treasury Bills held temporarily for transfer to the System
account.
Very truly yours,

R. R. Gilbert
President

SE
BUY

UNITED
STATES
SAVINGS
MONDS
AND STAMPS




OR FILES
B. Daniels

TA FTI.R

•41

-$E0YI1Si

4
0
•APR 16

-

BOARD OF G.OVERNORS
OF THE
45;q0fflOOlike,,
,

FEDERAL RESERVE SYSTEM

s'*

WASHINGTON

tx 0

)
\S-637

•tt
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

**ItN
get *
,

April 15, 1943.

Dear Sir:

In lieu of daily schedules furnished the Board with
respect to purchases ofiTreasury bills under+resale agreement,
it will be appreciated if in the future you will submit to the
Board a report as of the end of each month showing the follow—
information for each separate purchase made during the report
month:
Date of purchase
Maturity value
Maturity
Cost
Name of seller
In this connection, schedules being submitted to the
Board by. some of the Reserve Banks for Treasury bills purchased
without resale agreement--that is', those to be transferred to
the System open market account--need no longer be submitted.
Very truly yours,

L. P. Eethea,
Assistant Secretary.

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
IP VICTORY

ak-tt,

BUY

--/Y\

WAR
BON DS
•
STAN'P•1




kftei

••

I.

REC'D IN F.Iab

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

APR 17 1943

WAS
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

Dear Sir:
In lieu of daily schedules furnished the Board
with respect to purchases of Treasury bills under resale
agreement, it will be appreciated if in the future you
will submit to the Board a report as of the end of each
month showing the following information for each separate
purchase made during the report month:
Date of purchase
Maturity value
y44.!;—pft4,
Maturity
Cost
Name of seller.
In this connection, schedules being submitted
to the Board by some of the Reserve Banks for Treasury—
bills purchased without resale agreement—that is, those i'•;1-7"FQ
to be transferred to the System open market accaant—need
no longer be submitted.

ii,PR 15 1943

Very truly yours,

L. P. Bethea,
Assistant Secretary.

VICTORY
BUY

TO THE 'PRESIDENTS OF ALL FEDERAL RESERVE BANKS.

UNITED
STATES

WAR
ilt(BONDS

/CeiSTAAMDPS



11(




1i

'D 111 /9IEt
4
ErWITIODI

APR 17 1943

1

„
-434

Dear Sir:
In lieu of daily schedules furnished the Board
with respect to pa-chases of Treasury bills under resale
a7reelr!ert, it will be appreciated if in the future you
will submit to the Board a report as of the end of each
month elbowing the following information for each serRrate
purchase lade durinr the report month:
Pot() of nurcha-o
Maturity value
"IrilTtr—rt -7/1
"
i
MRturity
Cost
Name of seller.
In this connection, schedules being submitted
to the Board by some of the Reserve banks for Treasury
bills purchased without resale agreement—that is, those
to be transferred to the System open market account—need
no longer be submitted.
Very truly yours,

Lo P. Bethea,
Assistant Secretary.

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS.

1

IT

kg,&101INg
;3 1344/ —
0
"

- BOARD OF GOVERNORS
Or THE

FEDERAL RESERVE SYSTEM

Office Correspondence
To

Mr. Goldenweiser and Er. Van Fossen

worm

Elide TMarch 18, 1943

ftodlief Thomas

&laded: Bulletin table of Federal
Reserve Banks

Neither the present Bulletin table showing principal
assets and liabilities of Federal Reserve Banks nor the weekly
statement now include figures on special one-day certificates
of indebtedness or figures en bills held under resale agreement.
These figures are of some current significance and should be
available in the Bulletin, if not in the weekly statement. I
would suggest that they be inserted in the table corresponding
to that on page 229 of the March Bulletin.

c?,

In this table certificates could be shown under two
classes: (1) special one-day certificates, and (2) other. The
figures on special one-day certificates are published in the Daily
Treasury Statement and their inclusion in the Bulletin would raise
no problem of approval by the Board for publication. It would serve
the purpose of having available a record of the amounts of such
certificates outstanding as of Wednesday and end of month dates.
The publication of figures regarding bills held under resale agreement would presumably need to be approved by the Board and
perhaps the Open Darket Committee. The figures have some significance,
although their changes are fairly well reflected in the total holdings
of Treasury bills. They are also significant by districts, and it
might be advisable to show them, if they are published at all, in the
table that gives figures by districts and nerhaps also in the weekly
mimeographed release. I do not feel particularly strongly about
their publication, however, and unless you think it is a point worth
pushing with the Board, we might drop the suggestion.

33..3- Co
C-Cf".

.6. I


(
4`1,
otr)




rD TA

'Jute

STOTION

JAN 29 1943

i!

r4-4.1447m.--ucw.a411
JAN 3 r; 1943

Mr. H. E. J. ":;71ith, Assistant Cashier,
Fodoral Rannrv flank of C1avs19nd,
Clevoland, Ohio.

This refmrs to your letter of January 22, 1943,
transmitting sohedules Of-treasUiY Bills bought
and sold under repurchase agreement.
It will be satisfactory to us to have reports
of such transactions by letter as suggested.




•
•

Ii

FEDERAL RESERVE RANH_
OF CLEVELAND

January 22, 1943

Mr. E. L. Smead, Chief
Division of Bank Operations
Board of Governors of the Federal
Reserve System
Washington, D. C.
Dear Mr. Smead:
We are enclosing schedule" of Treasury Bills
bought and sold under repurchase agreement dated
January 22, 1943.
To date we have reported these transactions
on our form D 24, Schedule of Bills Discounted—
Members. Since the enclosed form of schedule
was not designed for the purpose of reporting
purchases and sale transactions of Treasury Bills
and since transactions handled by this bank are
not in large volume on any one day, it occurred
to us that it might be more desirable to report
these transactions by letter. If this is agree—
able to the Board or if you have any suggestions
as to the manner in which you would like to have
these transactions reported, we would appreciate
your writing us and we shall be pleased to follow
your suggestions.

Very truly yours,

,ssist

Cashier

REC'D IN FILES SECTION1

' JAN 3 0 1943"

l'UPD Di MUM SECTION
\i' 2 3 1942

,-7
2
Ihnember 20, 1942 114
Ur. norrill
Mr. Laniels

This refers to your memorandum or Iovember l askine to wielt
there have been transactions at the Now York, Cleveland, and
extent
Dallas Banks under the "Hates on Government securitiese-resale option"
and whether the files contain any correseohdenoe explaining the
purpose of the adoption of tho rates.
In the first place I should say that the last column of the
rate schedule table should have been headed "Rates on Government
aecurities-eresale acreemont (or contract)", as I understand the seller
was obligated to repurchase the securities. The column VMS not inteaded to cover the recent arrangement for purchase of Treasury bills,
with an option on the part of the seller to repurchase.
In addition to Aow Yorki Cleveland, and allas, the Lansau
City hank reported havine a rate on Government securities--resale agreement until June of this year. In ouch case the rate is the samo as
the rediscount rate prior to the reductions to one per cent which took
place last spring and is reorted as having been established when the
discount rate as previously reduced, as follows:
New York
Cleveland
Ramses City
Dallas

1%
1-1/Z;
1-1rn
lel/b%

August 8, 1937
Ilay 11, 1935
September 3, 1957
August 31, 1937

Exclusive of the recent transactions in Treasury bills, there
have been no purchases or Government securities under resale agreement
by the Federal Reserve Banks since 1935, although the eederal Open
Market Committee on nay_25„ 1936, granted Federal Reserve i;anks authorie
ty to make such purehases (evidently arlsinc from a request of the
Federal Reserve Bank of 3ansas City to tee Committee.)
There is attached a statement showing the volume or purchases
of Government securitiee under resale agreement by Federal Reserve
Banks 1923 to date. io are not able to find figures for such transactions
prior to 1923, nor for the year 1923 by Banks.
The original purpose or the Government security resale agreee
ment appears to have been that of protecting and facA.itatire- the




To:

Mr. Morrill

- 2-

market for short-term Government securities. By means of the arrangement dealers in Government securities can obtain funs from the Feder.
al Reserve Banks for short periods without sellin,; securities on the
in Government securities under resale
market. Most transactions
agreement by the Federal Reserve ',lank of Nert York have been with
dealers. That the New York Bank still retains trio rate in question
for this purpose is indicated by ITr, Sproul's letter of October 13,
1942, to Chairman Eccles, in which it is stated: "While such transactions are of no significance at the moment, it would seem that the
prinoi?le of the differential rate should be applied to resale agreements in order to permit Government security dealers to carry shortterm Treasury securities with us pending distribution, in the event
that accoeriodation can not be obtained at commercial banks."
There appear to have been other reasons at some of the Reserve
Banks for pule:11E10es of Government securities under resale agreenents,
principally-1.

To enable meer banks to obtain funds without
showing "borrowed money" on their statements.

2.

At Kansas City, to zake available funds to Federal Land Banks in the interim between sales of
land bank bonds so that the Land Banks would
not have to liquidate investments in Government
securities.

Because of chances in the member bank condition reports in 1938 and
the addition to the law of the last paragraph of Section 13, with the
present lam rates to "nonmember banks", these two reasons seem no
longer of importance.
I attach the file on "Repurchase Paper", in which I have put
slips at points where the material might be of interest to you.

Attachments.

:th




•••••.,

CN

U. S. SECURITIES F4 0111;111' flITJi RESAL}..; AGRI.1.:ENT,
.
BY FEDERAL In:SERVE BANKS

CT
)

(In thousands of dollars)
_
!Year

System

Boston

I
I

New
York

192i

1,083,960

19214
1925

226,614

17,378 1114,527

703,5146

110,826

Phila-1ClevelRichAtLinn- Kansas
1 San
delphia land mond 1- lanta 1 Chicagor St.
Louis eaFolis City Dallas Francisco

1926
1927
1928

1119,692
7)!0,379
1,071,3)15

517,215

7,659 233,097
3R,/7h /171,632
10,2F3L 776,606

.1.11. IND

NM MID

1

19A1

2 1
53,943

3149,981
169,355

1932

1933
193h

1935

3.3939I1

--

278,939

•••••••

133,781

VW IM

MP MP

MEP

1,819

260

•••

•••

11,000

21,300

--

3,600

--

32li
21
,

dM NIP

MP GM

76,575
Mose

--

52,302
92,575

2,000
ammo

1,000

23,14.h2

-ow,...,

4.1.

41IMM.

204,177
7,9L9 189,c31
1,200 169,021
1,050 68,532
1,295
705

3,943
8/114

2,012 6,850
-13,650

.101M1

01•11,0•12
,

,./••

••••••

IMMO

WI go.

IMMPOPP

9119
Mb

3.314

M.OM

111..•

4111.8M

61•1•41.•

MM.

MEP M.

Note-Figures by Banks for 1923 and
for transactions prior to 1923 not available.




MID MOP

all• OM.

-

0.1.

61.GOP

5,030
UNIDIM

M.. MD

•••••

M..11

11,509

106,lili

1,0145,
960

401.

Ole

1
h1,049
)
4MM.

1929

1930

.11.11.4M

UNDONE.

WPM.

4111. AIM

M.M1

3,5
.45
39,280

411.10.•11.

OM. VI.

114,825 23,062
10,500 20,596
54,
850 32,125
750
1,200
1,250

5,750
26,220
21,300
2,Oco

•••••

1,50
MOM

-

4E1610

M.010

41.1. MN*

MO NM

aARD OF GOVERNORS
•
OF THE

III
•

FEDERAL RESERVE SYSTEM

Office Correspondence
To

Mr. Goldenweiser

From Richard Musp-rave

Date November 29 1941
Subject: Reserve Bank nurchases of bills
and securities under resale agreement

This memorandum presents (1) data
bills and securities purchased under resale
charged for such accommodation, (3) a brief
these transactions and of (4) their present

on Reserve Bank holdings of
agreement, (2) interest rates
discussion of the purposes of
legal status.

Holdings under resale agreement
Bills and United States Government securities held by the Reserve
Banks under resale agreement are given in the tables on pages 2 and 3:
figures through 1926 are for the New York Bank only, subsequent figures include all Reserve Banks. Bills held under resale agreement have usually been
in larger volume than securities held under resale agreement. In the period
covered by the tables, such holdings of bills rarely exceeded P100,000,000
and such holdings of securities seldom exceeded half that amount. Since 1933
the Reserve Banks have not held any bills nor since 1935 any securities under
resale agreement.
For the most part securities purchased by the Federal Reserve banks
under resale agreement have been confined to United States Government obligations. A year-end breakdown of these holdings by types beginning 1927, when
such figures were first reported, is given on page 4. The Reserve Banks purchased all types of Federal Government securities; that is, certificates of
indebtedness and Treasury bills, notes, and bonds. The amount of such securities
held by the New York Reserve Bank, the largest holder, is shown in the table
on page 4.
,Onlyomall amounts of securities that were not United States direct
obligations woPe"riUrchased under resale agreement. As shorn by the table,
some Federal Intermediate Credit Bank debentures were held at the end of 1930
Small amounts
and a small amount of municipal warrants at the end of 1931..
of Government securities were also probably held on some other dates.
Compared with their total securities purchased in the open market,
Federal Reserve holdings under repurchase agreement have usually been of
minor importance, seldom exceeding 15 per cent of total holdings since 1927.
For bill holdings, however, a greater proportion was usually purchased under
resale agreement, frequently exceeding 25 per cent of total bill holdings.




FOP. FILES
E. A. (,,oldcr,....-_iser

I.

•
•

- 2TABLE 1

FEDERAL RESERVE BANK HOLDINGS OF BILLS PURCHATTD
UNDER RESALE AGREEMENT*
(In millions of dollars)
End of
month

1913

January
February
March
April

1919

1920

_

1
-1
.3
5

22
10
12
6

15
12
I18

10
8
15
8

7
4
7
11

47
14

May
June
July
August

_
_
3

5

la_
5

10
10
A

19
22
7
15

25
2S
17
17

21
-

23
26
13

1

9
13
6
13

September
October
November
December

7

1
13
10
14

8
24
6
14

7
33
11
46

6
13
12
30

14
27
40
41

26
16
28

21
27
34
28

20

19

.3
1
4

1921

1922

1923

1

1924
37
LIA

8

1925
12
10
20
10

5

,
Average

3

End of
7onfli

1926

January
February
March
Awn

10
35
29
19

May
June
July
August

32
20

6

1927

12

,

14

14

1

19

1928

1929

1930

1931

49
67
54
Al

4.6
41
54
31

57
26
16
JO
...,

96
37
135
48

1
1
10
30

4

69
30
19
67

21
23
13
32

12
9
30
62

50
24
2
1

5
10
5
19

_
14
5
_

40
-

September
October
November
December

20
17
63
41

76
76
66
82

60

79

84
59
50

35
11
155

16
3
8
39

20
4
6
-90

-

19

Average

25

58

43

45

38

17

3

6

8

1932
8
7

5
.3

1933
12
2
-

Through 1926 includes New York Reserve Bank only. First resale agreement
at New York Bank was on August 19, 1918. All such agreements
of the New
York Bank have been with dealers only. There have been
no purchases of
bills under resale agreement since the end of 1933.



•
•

•
1
TABLE 2

FEDERAL RESERVE BANK HOLDINGS OF U. S. GOTT:NM= SrCTIRTTTES
PURCHASED UNDER RPSALr AGREE:77T *
(In millions of dollars)
End of
Month

,
1920

1921

January
February
March
April

10
3
2

1922

1923

12
—

A

—
—
0
k.
1

5

23
22
15
5

May
JuneJuly
August

16
6
12
15

1
—
—
—

12
16
9
10

September
Octobcr
November
December

12
9
7
._

—
3
12
8

52
13
8
51

1924

8

2

1926

.5
17
19
1

—
5
—

12
11
16
20

—
—
—
—

—
32
A
7

A

lA
10
18
56

R

.1
—
3
—

—
—
6
2

•

A

1927
1
11
31
5
8
3
7
3

A

,

9
—
1
3
—
4
2

19
3
A
57

11

3

13

27
5
19

,

t
Average

1925

16

17

1

_
End of
Month

1928

January
February
March
April

6
6
8
15

3
4
6
23

May
June
July
August

16
56
11
11

6
68
21
23

September
October
November
December

29
27
31
31

35
50

1929

1930

1931

1952

2
3
8
2

—
—
.1
—

2
—
12
—

2
10
.2
4.

—
—
—
—

.3
22
13
13

.3
—

4

A

23

-

43

i

—

I

-

42

I

1933
—
30
2
1

1934

1935

2
2
2
—

—
—
—
_

.3
—
1
1

—
2
2
2

_
.5
—
—

3
—

-2

1

_
—

_

2.

.-

4

2.

1
----1

_

.5

_
6
1
3
1
4
6
22
19
Average
the
Through 1926 includes New York Reserve Bank only. All such agreements of
Nev: York Bank since the beginning of 1922 have been with dealers only. The first
securities
with dealers occurred April 13, 1920. There have been no purchases of
under resale agreement since the end of 1935.



.1'
TABLE 3
FEDERAL RESERVE BANK HOLDINGS OF SECURITIES
PURCHASED UNDER RESALE AGR7ELIE1T
END OF YEAR
(In thousands of dollars)

1927

1928

1929

Certificates of indebtedness
24,545 18,461

1930

1931

1932

2,425 1,100

Treasury notes

16,900 10,180 16,216 18;360 1,500

Treasury bills

1933

1934

1935

25

21,700

Liberty bonds

15,114

U. S. Bonds

1
7,080 23,218n19,284

1,479

913

2,122

500

-293

Total

56,559 30,931

Thereof in
New York

51,704 25,190




99

811

Municipal Warrants

1/ Includes

3,198

23,296 44,003 43,584 4,111

i

2,496

21,850 36,403 24,300

600,000 of Federal Intermediate Credit Bank Debentures.

•••••••••

•
5

4,(
31W''

Purchases under resale agreement have usually been
dealers.
At the New York Bank purchases of bills under resale agreement began
August 19, 1918 and from the outset have been only with dealers. Security
purchases from banks under resale agreement began in November 1917 and
from. dealers on April 13, 1920. Since the beginning of 1922 all such
security purchases by the New York Bank have been confined to dealers.
Weekly condition statements of the Reserve Banks released for
the press have never reported separately the amounts of bills or securities
purchased under resale agreement, nor were these amounts ever given as a
supplementary memorandum item. Beginning 1927, however, the Federal Re—
serve Bulletin and Annual Reports of the Board reported such holdings of
bills and securities separately from those bought outright.
Interest rates charged
Interest rates charged by the New York Bank for purchases of
United States Government securities under resale agreement since 1920
are compared with the discount rate charged under Sections 13. and 13A
of the Federal Reserve Act given in Table 4 on the following page. These
rates have been closely in line with discount rates and since August 27,
1937 the two rates have been 1 per cent at the New York Bank.
At Cleveland, Kansas City, and Dallas, the only Reserve Banks
that now set such a rate, it has been the same as the rate on rediscounts
and advances under Sections 13 and 13A not secured by United States
Government obligations. The rate is now 1?J- per cent at these banks.
Presumably rates charged on purchases of securities other than
Federal Government securities under resale agreement have been the same
as those charged for Government securities.
For a number of years, at least as far back as 1925, trans—
actions under resale agreements have been for a term of 1 — 15 days for
both bills and securities.
Rates at the New York Reserve Bank on bills purchased under
resale agreement are given in Table 5 beginning August 1918, when the
first transaction took place. These rates have been the same as buying
rates on 1 — 15 day acceptances since January 1932 and prior to that
time it appears that they were the same as the buying rate for 1 — 90
day acceptances. At the present time such rates at other Reserve Banks
are identical to the New York rate.




410 410

TABLE IV

•

RATES FOR PURCHASFS OF U. S. GOVERNMENT SECURI
TIES
UNDER RE-SALE AGREEMENT COMPARED WITH RE-DISCOUNT
RAT
Federal Reserve Bank of
New York

Date effective
Jan. 23, 1920
Apr. 13, 1920 L./
June 1, 1920
Apr. 1, 1921
May 5, 1921
June 16, 1921
July 21, 1921
Aug. 2, 1921
Sept. 22, 1921
Oct. 31, 1921
Nov. 3, 1921
March 23, 1922
June 22, 1922
Feb. 23, 1923
Apr. 10, 1923
May 1, 1924
June 12, 1924
Aug. 8, 1924
Nov. 6, 1924
Nov. 28, 1224

Discount
rate

Sales contract rate

6
5 1/8
5 3/4
61
6
5?
-3.
5

4
4
4,
5
Ait

A

3
3

Date effective
Feb. 27 1925
)
Apr. 9, 1925
Jan. 8, 1926
Apr. 23, 1926
Apr. 29, 1926
Aug. 13, 1926
Aug. 5, 1927
Feb. 3, 1928
May 18, 1928
July 13, 1928
Aug. 9, 1929
Oct. 25, 1929
Nov. 1, 1929
Nov. 15, 1929
Feb. 7, 1930
Mapch 14, 1930
May 2, 1930
June 20, 1930
Dec. 23, 1930
Dec. 24, 1930
Feb. 2, 1934
Aug. 27, 1937

Discount
rate

Sales contract rte

3,15
4

4

A

3.

4
5_
1
2

4

4

4..
5
6

41;
5
5 V8
5

5
Al

4
3

3
2

2

1/ Pate of firct sales contract agreement with dealers.
*

No rate quoted.




Dashielsewhere in table indicates no change in previous rate.

•

•
•

TABrJE
RATES F OR PURCHASE OF ACCEPTANCES UNDER RESALE
AGREMINT AT FEDERAL RESERVE BANK OF NEW YORK
Date Effective
August
Nov.
Dec.
Jan.
June
Aug.
Sept.
Oct.
Nov.
Mar.
n
July
Oct.
"
n
May
June
Sept.
Nov.
n
Dec.
n
August
Jan.
August
July
n
August
Feb.
April
May
July
Jan.
n
March
n
July
August
Oct.




16
28
29
23
28
2
26
4
3
6
22
5
17
23
27
26
17
3
17
28
5
22
28
8
23
21
29
5
3
13
18
13
4
21
21
25
11
9
25

1918
1919
1920
1921

1922

1924

1925
1926
1927

1928

1929

Rate
4 1/4
4 1/2
4 3/4
5 1/4
5 3/4
5 1/4
5
43/4
4 1/2
4
31/2
3 1/4
3 1/2
33/4
4
3 1/8
2 1/2
2
.2 1/4
2 1/2
23/4
3
3 114
3 1/2
3 3/4
3 5/8
3 3/8
3 1/4
3 1/2
3 3/4
4
4 1/2
4 3/4
5
5 1/4
51/2
5 1/4
5 1/8
5

Date Effective

Rate

November 1
1929
4 3/4
n
15
4 1/4
n
22
4
Feb.
11
1930
3 7/8
March
5
3 3/4
n
6
3 1/2
n
11
3 1/4
n
19
3
May
2
2 3/4
is
8
2 5/8
n
19
21/2
5
June
2 3/8
n
16
2 1/4
"
20
21/8
n
30
2
Dec.
24
1 3/4
Jan.
26
1931
1 5/8
April
9
1 1/2
n
27
1 3/8
May
13
1 1/4
n
19
1
Sept.
25
1 1/4
9
Oct.
1 3/4
Oct.
2 1/4
13
It
16
30
27
3
Nov.
1932
2 3/4
26
Feb.
2 1/2
25
March
24
June
1
20
1/2
1933
Feb.
It
27
1
March
1 1/2
1
ft
2
2
n
3
31/4
"
13
3 1/2
fI
17
3
"
20
2 1/2
tt 22
2
29
June
1
20
Oct.
12
(unchanged to date 11/2/4l)

r

RC'ni
j

/

tt,

`f

rug., sgonoN
641
/

lisesiber 21i 1941.
L. Go/denweiser
Yr• Tan Volum
The prastise of 'buying aseeptanses and short-imarmikrrernment
seourities from banks and dealers under repurchase agreement vas adopted by sons at the Federal Reserve Banks, notably Rev York, at a very
e5r1y period. Fran the correspond/wee it appears that this practice
was for the purpose of developing the bill and United States Government
an
security earkets and at the sane time as regards bills was looked
as being more eoavenient to the Reserve Basks than would be the dismount
of the bills to maturity.
_L....4 On Marsh 19, 1925:the Board adopted the following resolutions
'The Federal Reserve Board reaffirms
previous decisions authorising the proties,long oentinued, of purehase and sale
in tie open market of bankers' seeeptamees
and Government seeurities by Federal reserve banks from and to banks and qualified
-day trepurehase agreemembst,
dealers, under 15
it being understood that such traasaotions
shall be open, under similar fast* and sonditians, to all Federal reserve banks with
relation to banks and similarly qualified
dealers in their reapmebilmsdistrists".
Ia Septimber /M/an analreie of schedules reeetved fraa the
Federal Reserve Banks covering ftited States Governmemt seeurities taken
under repurchase agreement indleated that sueh traasastioms were eonfimed
to purchases free dealers except in the ease of two of the smaller Federal
Reserve Imaks, cash of Which vas purehasing securities trait miler banks
in a small volume. It is possible that the fast that member tank oollatoral promissory motes seeumibyilavernmest obligations were eligible as
oollateral seeurity for Federal Reserve motes, whereas Government moilerities could net be se used, may have had something to do with the prastiee
of eonfiming repurchase agreements to transaetions with dealers. In this
eenneetion it may be stated that the rate ',barged ea repurehase agreements
was eemesemly, though not invariably, the sans as the dises110 rats.,
--/(•(
i
Regulation Ms *Motive Amnia 10, aga, preisEWMIedthe Federal
Reserve Banks fres purchasing or selling Government securities a:wept is,
asoordamewith an spar market policy *approved by the Federal Reserve
Beard mad in effeet at the time, with mortal* rpossifie eneeptions.
tag the passage of the Banking Mt of /555 the Federal Open Market Oemp,
ndttee appointed under the terms of that let adopted a Regulation ea




... .
. ..........-,- .........-- ,......T
1

.-..
i

Toe

Mr. Oe/461000
1,

r o,
t
:
i .t

Mier* 19, 193614iLiiiiiimg the Maul RANDOM Silks free wok:aging
or-dialing Governess* seourities emeept pursuant to authority granted
by the Committee or in asoordanoe 'with the open market policy adopted
by the Committee and in offat at the time. The Committee also reserved the right to require the sale of any Government seeurities thea
held or thereafter purchased by an individual Federal Deserve lank or
to require that suoh saurities be transferred into the System Oros .
Market Acoount. As you know, all Government impurities hold by the
Federal Reserve Banks are transferred to the System Open Maztet
Al:mount as of July 4. 1936. ft May 25, 1936 *Upon motion, duly made and
seanded and by unanienes irthelteentittee granted authority to alb
Federal reserve bank to make temporary purehases of Government moswittos
under resale agreements for periods not exeeedimg fifteen days.'
Report:hese agreenents avowing United States Government sear*
ities have been reported separately in the Federal Reserve Masks' daily
balsas: shoots among holdings of United States Government searities.
Memorandua items showing sah holdings by *lasses of seeuritios, alas
holdings of bills taken under reperehaso agreement, haves also been
:berried on the reverses side of the balsa* skeet. No distinction has
been made in time Beard's meekly statememt between bills and sauritios
taken under rows:base agrosmont and bills and seourities purehased outright.

Ly"
VF:seh



C PY




!_-)

inrlo

February 2,1959
The Files
Mr.

yatt, General Counsel.

,Sale of Securities by a
Bank under Repurchase
Agree:A:Int.

The American Banker for February 1, 1939 (pa,,e 2) reports
a decision of the New York Court of Appeals in the case of
Martin Rothschild vo 7,.ianufacturers Trust k;ompany, holding that
where a ban1, ()Moor agreed orally with a customer that the bank
would repurchase securities bought by him and thus protect him
from loss, thJi agreement was ultra vires and without force,
since it was against public policy, even though in the interim
the bank had at one time bought back some securities under the
aGreement.
A quotation from the opinion cites te case of
..e;wotin v. Ltlas achange Lank, 295 U.S., 209.

CO 4
L
Form F. R.148

111V q

TELECRAM
BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
LEASED WIRE SERVICE

WAS H I N GTO N

C 0P Y

April 10, 1937

Conniff, Vice President,
Atlanta

RELET April 8, 1937, STOP Committee adopted following
reso.lution may 25, 1936 "Upon motion duly mde and seconded
and by unanimous vote, the Co.omittee granted authority to each
ilederal reserve bank t

mke temporary purchases of Government

securities under resale agreements for periods not exceeding
fifteen days."

Refer my letter June 12, 1936 (X-3616)
(Signed) Chester blorrill
Morrill,
Secretary, Yederal Open Market Committee

J PD/ebb
.

H I
fl



(9-, •
4
.0-

)%1 C

CoPY

COPY

COPY
FEDERAL RESERVE BANK
OF
ATLANTA

/
April 8, 1937.

Mr. Chester Morrill, Secretary,
Federal Open Market Committee,
Washington, D. C.
Dear Mr. Morrill:Please find enclosed copy of letter addressed to us by
the First National Bank of Gadsden, Alabama, under date of April
7, 1937, in reply to our letter to them, dated April 5, 1937, a copy
of which is enclosed, with respect to their desire that we purchase
United States Government securities from them under repurchase agreement.
Mr. Newton, President, Mr. Parker, First Vice President,
and I have discussed this matter, having in mind the regulation of
the Federal Open Market Committee relating to open market operations
of Federal Reserve Banks, and it is our opinion that Government securities purchased under a repurchase agreement would come within the
scope of the regulation, and inasmuch as this particular question has
not arisen here since the adoption of the regulation we would appreciate being advised as to the proper course to pursue.
You will note from the letter of the First National Bank
of Gadsden that an immediate ruling is desired, and it will be greatly
appreciated if you will find it convenient to furnish us with telegraphic reply.
Very truly yours,
(Signed) H. F. Conniff,
H. F. Conniff,
Vice President.
HFC:OGM
Encls.

Q

,

\.Q., ,e,os

I.




1A\\

COPY
THE FIRST NATIONAL BANK
GADSDEN, ALABAMA.
April 7, 1937.

Mr. H. F. Conniff, Vice President,
Federal Reserve Bank,
Atlanta, Georgia.
Dear Mr. Conniff:We are in receipt of your letter of the 5th, in reply
our letter to Mr. Schuessler, relative to the handling of
overnment bonds for us under a repurchase agreement.
With increased demand for loans and with a further
increase of reserve requirements, effective May 1st, it will
probably be necessary that we handle some of our bonds under a
repurchase agreement. We are not willing to sell at the prevailing market and will want to take advantage of a repurchase agreement
in securing additional funds if the demand requires it.
We have seen no ruling on this except that in the
Federal Reserve Bulletin of March 1937, footnote (1) under Reserve
Discount Rates the following appears, "1 Rates indicated also
apply to United States Government securities bought under repurchase
agreement". From tnis it appears that such transactions are being
handled or they were contemplated.
Please secure an immediate ruling from the Federal
Reserve Board on this form of transaction so that we may avail ourselves of its use if necessary.




Yours very truly,

John L. Ray,
(Signed)
Assistant Vice President.

COPY
FEDERAL RESERVE BANK OF ATLANTA
ATLANTA, GEORGIA
April 5, 1937.

Mr. Jobn L. Ray, Assistant Vice President,
First ational Bank,
Gadsden, Alabama.
Dear Mr. Ray:This is written in reply to yours of April 2 1937, addressed to Mr. S. P. Schuessler, Assistant Cashier of this bank.
In your letter you refer to your holdings of Government securities, and make inquiry as to the procedure of selling Government
Bo ds to the Federal Reserve Bank under repurchase agreement.
We, of course, stand ready to extend our member banks full
a ccommodation in the matter of making advances upon the security of
overnment obligations. Whether any such advance would be evidenced
y a borrowing member's note or covered by a repurchase agrement (in
the event the member bank should prefer the transaction to be put into
that form) is a matter which we have not had occasion to consider. As
you know under the Banking Acts of 1933 and 1935 and the Regulation of
the Board of Governors of the Federal Reserve System issued pursuant
thereto, no Federal Reserve Bank is permitted to purchase or sell Government securities except pursuant to authority granted by the Federal
Open Market Committee. We have seen no ruling or regulation which
would be determinative of the question whether the entering into of a
"repurchase" agreement with a member bank would amount to the purchase of
securities within the meaning of the law and the regulation. Should
this question become material we could, of course, take up the matter with
the Board, but in any event as stated above you may be sure that our
member banks will have ample opportunity to "carry" their Government
obligations with the aid of this bank.
Very truly yours,

H. F. Conniff,
Vice President.
RSP:OGIA




4,1

041V5E7;11. RF3E4777. ':Iilirl. nii f

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

i -3 ,
x.4,64

—

WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
4
411Qat 6

June 12, 1936.

Dear Sir:
During the Presidents' Conference on May 26, 1936, advice was given as to actions taken on May 25, 1936, by the Federal
Open Market Committee in regard to the adoption of the formula for
the allotment of securities in the system open market account to
the individual Federal reserve banks; the transfer to the system
account of Government securities held in the individual accounts
of Federal reserve banks; the discontinuance by Federal reserve
banks of purchases for their own investment accounts of Government
securities pending sale of such securities for the account of member or non-member banks; authority to each Federal reserve bank
to make temporary purchases of Government securities under resale
agreements; and authority to individual Federal reserve banks to
replace maturing securities and to make shifts between maturities
of securities held in their individual accounts.
There is inclosed herewith for the records of your bank
a set of copies of excerpts from the minutes of the meeting of the
Federal Open Market Committee setting forth the resolutions adopted
by the committee on these matters.




•
•

•
•
X-9616

- 2

Since the date on which these actions were taken complications in working out the details connected with the allocations among the Federal reserve banks of the securities held in
that account have developed with the result that the members of
the Federal Open Market Committee who participated in its meeting
on May 25 have unanimously approved deferring the effective date
of the transfers to the system account of Governmcnt securities
held in the individual accounts of Federal reserve banks and of
the reallocations of the securities in the system account from
June 15 to June 25.
Very truly yours,

)
Chester LlorriLl, Secretary,
Federal Open Market Committee.

Inclosures.

TO ALL PRESIDENTS




Si

0.
X-9616-a

Excerpts from Minutes of Meetine of Federal Ooen
Market Counittee on May 25, 1936.

"After detailed discussion of the various aspects of the questions involved, upon motion duly made and seconded and by unanimous vote, the Committee (a) approved and continued in effect
the formula adopted by the Federal Open Market Committee as constituted prior to March 1, 1936, and the practice followed under
its authority, with respect to allotments to the various Federal
Reserve banks of Government securities held in the System open
market account; (b) authorized and directed the executive committee to make such adjustments as of June 15, 1936, as may be
necessary to bring the allotment to each Federal reserve bank of
Government securities held in the System open market account into conformity with such formula; and (c) authorized and directed
the executive committee to make thereafter from time to time such
readjustments as may be necessary to maintain the distribution
of Governmcnt securities among the Federal reserve banks in accordance with such formula: provided, however, that if at any
time the reserve ratio of any Federal reserve bank should fall
below 50% or would be reduced below 50% by reason of the operation of such formula the executive committee shall make such readjustments in the allotments as shall be necessary to raise the
reserve ratio of such bank to 50% by allocating the necessary
amount of securities to the other Federal reserve banks in accordance with the formula. In this connection it was agreed that
any profit received by any individual Federal reserve bank as a
result of the transfer as of June 15, -936, to the System open
market account of United'States Government securities held in
the individual investment account of such Federal reserve bank
should be treated as a non-recurrent item which should not be
taken into account in the application of such formula. It was
also agreed that there should be obtained from each Federal reserve bank at quarterly intervals reports showing the nature and
amount of any unusual charge-offs which such bank anticipates
will be made during or at the end of each calendar year and that
the Board of Governors of the Federal Reserve System should be requested to endeavor to bring about the observance of a uniform
policy among the Federal reserve banks with reference to such
charge-offs.”
* ** * * * * * * *
*

"Accordingly, upon motion duly made and seconded and by unanimous vote, the Committee directed that the Federal reserve banks
transfer on June 15, 1936, to the System open market account, at
the market prices prevailing on that date, all the United States




X-9616-a

- 2-

Government securities held in the individual investment accounts
of such Federal reserve banks, including Government securities
held as investments of self-insurance funds."
* ** * * * * *
*

*

"Upon motion duly made and seconded, and by unanimous vote,
the Committee directed that any Federal reserve bank which purchases and holds for its own investment account Government
securities pending their sale for the account of member or nonmember banks shall not later than June 15, 1936 discontinue such
purchases and sell all Government securities so held."
*

**** * * ** *
*

"Upon motion duly made and seconded and by unanimous vote, the
Committee granted authority to each Federal reserve bank to make
temporary purchases of Government securities under resale agreements for periods not exceeding fifteen days."
* * * * * * * ** * *
*

"Accordingly, upon motion duly made and seconded, and by unanimous vote, authority was granted, until June 15, 1936, to each
Federal reserve bank holding Government securities in its individual investment account to replace maturing securities in such
account and, with the approval of the executive committee, to
make shifts between the maturities in such account, provided that
no change in the total amount of Government securities held by
such Federal reserve bank shall be effected by such transactions.'i




* * * it-

* *it- * it- *

o. 131

yffice Corresponkite
*rfo

General Counsel

•

FEDERAL RESERVE
BOARD

1111

11.AL RESERVE BOARD FILE

Date _November E0, 1935.
Subject:

Mr. Carpenter
urn

\\ i

0/*

V _...L._

i
The Board has annroved the draft of letter to Deputy.
Governor Worthington of the Federal Reserve Bank of Kansas City,
referred to in Mr. Benedict's memorandum of November nj, 197.5,
with regard to the granting of authority to the Federal Reserve
flank of Kansas City to acrlare Government bondr from the Federal
Land Bank of Omaha upon repurchase llgreement, and has also approved the recommendation contained in !.r. Bonedictts memorandam
that a study of the subject referred to in the letter be made
with the view of making airropriate recommendat'ons to the Federal
Open narket Committee as reorganized on March

1, 19FG,

regulations or directions regarding such agreements.

cc: Mr. Snead




as to its

16 852
-

•

I•

FEDERAL RESERVE BANK
OF

KANSAS CITY
November 29, 1935.

Board of Governors,
Federal Reserve System,
Washington, D. C.
Gentlemen:

Attention:

Mr. Chester Morrill,
Jecretary.

This will acknowledge receipt of_y91,2,x_W.I?F of:, November
...
Ur_aimtaining information to the effect that the Board has
granted its consent to this bank to acquire Government bonds
from the Federal Land Bank of Omaha under repurchase agreements
executed by that bank for 15 day periods, provided the aggregate
principal amount of such bonds shall not at any time exceed
4,500,000, each such transaction to be reported promptly, as
required by Regulation M. It is noted that this question of
repurchase agreement should be brought to the attention of the
Federal Open Market Committee when the new Committee is constituted after February 29, 1936.
In accordance with your request, there is enclosed
a copy of the form of repurchase agreement heretofore entered
into in connection with our transactions of this nature with
the Federal Land Bank of Omaha.
Very truly yours,

C. A. .4rthington,
Deputy Governor.

CAW:B




•
PURCHASE 2. D RESALE CONTRACT
7

Federal Reserve Bank of Kansas City
Kansas City, Edssouri
Gentlemen:
We hand you herewith United States Government securities
amounting to
) par value
as listed below, which we have today sold you for the
sum of
) and Which we hereby aree to repurchase
from you on or before
, for the sum of
) and interest thereon at the rate of
($
percentum ( ) per annum for the number of days
that the securities
are held by you.

In consideration of tnis repurchase agreement
and as collL'teral security for the performance of this contra
ct, we hereby agree to
liver to the Federal Reserve Bank of Kansas City,
an additional amount of
acceptable United States Government issues
as and iqlen in the opinion of
the Federal Reserve Bank of Kansas City, market
conditions warrant.
It is further agreed that in the event rer)ur
chase is not
made on or before
, authority is hereby given the Federal
Reserve Bank of Kansas City, to sell the United States
Government securities
ccvered by this contract, together with such United
States Government issues
as have been pledF,ed as additional security,
if any, and to apply the Proceeds arising therefrom in payment of this obliation,
remitting any residue
after payment of expenses incurred in connection therew
ith, if any, to us.

FEDERLL LZ.TD BATT OF

BY

SCHEDULE OF SECURITIES OFFERED UNDER ABOVE PURCHASE AND
RESALE COT7RAcmt







•
•

"WHERELS, it will be necessary and expedient from
time to time for the Federal Land Bank of
, to make sale and repurchase
agreements of bonds and other securities held and owned
by said Bank;

TIERET'ORE, BE IT RESOLVED, that
President of the Bank be, and he is hereby, empowered
to make with any and all aencies sale and repurchase
agreements that in his judgment are for the best interesta of the Bank; that he be and is more particularly
authorized and empowered to execute, as occasion may
arise, sale and repurchase agreeents with the Federal
Reserve Bank of Kansas City, Missouri, as per the terms
of contract submitted by the Federal Reserve Bank."

In testimony whereof, witness my hand and seal of office.

4

)ENAL EESERVE DARD FILE

GC?

Nov 27 1935

3

_Ir. C. I,. orthington, Deputy Governor,
Federal Reserve Bank of Kansas City,
Kansas City, Aosouri.
Dear 4.1r. ,orthincton:
This refers to:y2_L_u.1_ette;2Sz_tamiaer 24,

nati,\ regard-

ing purchases by the Federal Reserve 3ank of Kansas
City of
Government '.)oads from the Federal Land Bank of

!liaha under

a,y,ree_ents obligating that bank to reeurchase the roads
with
a period not exceeding lb days in each case.
In your letter you ask whether any action on your
part is
necessary at this tie, in con7)eotion with such
repurchase
agreeeuts, and what steps should be token to bring the
matter
to the attention of the Open Market Committee to be
appointed
under the Banking Lot of 1936.
Your attention is called to section VI of ,egulation
(which is still in effect) as follows:
"No Federal -esorvo bank shall purchase or sell
Government securities except in accordance with an
open market policy approved by the Federal Reserve
board and in effect at the ti,e, except thats
V
I

(1) In an eAergenoy, any Federal Aeserve bank .Aty purchase 6ovornment t,ecurities when necessary to afford relief in a
situation involvini, specific bankin, institutions in its district; and
(2) After obtoinin the consent of
(
the Federal Reserve onrd ony ederel Reserve bank may purchase or sell Government
securities for other specific purposes, for
its own account.
A.J4 „A va.

/




EF-7
0-(t.±
-

C. A. e!orthineton - 2

"All purchases and sales of Government securities by any elderel neeserve benk for its own
account
shall be reported promptly to the Federal Reserve
iloard and to the cheir-an of the executive coeeittoe;
end the executive meaittee may eake such compensate
ry
purchases or sales for the System account and such
reallocations of the obligations in the ystem accou
nt
as may be appropriate in the light of purchases and
sales made for their awn account by individual
Federal
Reserve banks."
The provisions of the fianking Act of 193b eiend
ing :ection 12A
of the 'eederal

eserve Let and creating the iederal Jeen .arke
t CcreAttee

do not beeorle effective itti.learch 1, 1936.

eurchases of Government

bonds froei the Federal Land (tenk of Omaha
of the type referred to by
you are therefore sAlb:lect, except in
the case of an emergency decribed
in subdivision (1) of the above quote
tion, to obtaining the consent of
the Board.
In vied

the facts stted in your letter, the doard
hereby

erents its consent to the Federal 4eser
ve Jrnk of eansas City to acquire Government bonds froet the ieder
al Lend :der& of Omaha at the request of end for the coavenience
of that ijane in financing its needs,
under agreements oblieating the Federal
Land jank to repurchese the
bonds within a period not exceeding
lb days in each case: Provided,
That the aeeregete principal amount of
bonds embraced within the
terms of such outstanding repurchase agree
ments shall not at any
time exceed .
:1,500,000) end that every s eh
trensection viii be
reported promptly as required by
heg lation M.




, G.

f.

eirthincton - 3

Alen the Federal Open

arket GoAnittee provided for under the

Banking ict of 193b is constituted after i4Jbruary 20, 1936, it will be
aw)ropriate for you to bring to its attention such

nfor:lation as you

believe desirable in connection with the repurchase agreeents.
Yt K111 be appreciated if you will send to the 3oard a copy
of the forms of repurchase agreements entered into by you in the
tranesctions , eritioaed in your letter.
Very truly yours,

Chester ?2orrill,
,.ecrotary.

b/
FPB/ah




C44Ai

41
wormilifr r"
Nov 2:1 1925

s+1,

COPY

Form No. 131

Office Correspontite

FEDERAL RESERVE
BOARD

Ehae

To

The Board of Governors.

From

Mr. Benedict, Assistant Counsel

4IP

vember 20, 1935.

Subject: Government bonds purchased by
Federal Reserve banks under agreements
by the seller to reptwchase.
—SS

7114C
--

x!a ee

)1e

The attached lette

from Deputy Governor 7:orthington of

the Federal Reserve Bank of Kansas City requests information regarding the purchase of Government bonds by that bank from the Federal
Land Bank of Omaha under agreements obligating the Land Bank to repurchase the bonds within a period not exceeding 15 days in each case,
and particularly as to whether further action on the part of that
Federal Reserve bank is necessary.

Assuming that the repurchase agree-

ments are not loans (which is open to serious question, as indicated
by the latter part of this memorandum) they come clearly under the
provisions of section 6 of Regulation M, as quoted in the proposed
reply attached.

In view of this, it is recommended that Mr. Smeadls

suggestion in his memorandum, also attached, be adopted by granting
the consent set forth in the attached reply to Deputy Governor Worthington.
The proper legal construction of such contracts is raised
when they contain an absolute agreement by the seller to repurchase
within a definite period.

Since March 19, 1925, such repurchase

agreements have been permitted under a resolution adopted by the
Board on that date, if limited to 15 days.

In many States such re-

purchase agreements would be construed by the courts to be loans and,
accordingly, the agreements would constitute loans by Federal Reserve

0 1 0

AA7774-


http://fraser.stlouisfed.org/
/
4—ct
Federal Reserve Bank of St. Louis

The Board of Governors - 2

banks to nonmember banks or other persons, apparently contrary to the
provisions of the statutes.

Whether or not there is adequate legal

sanction for the Boardts long continued construction of the Federal
Reserve Act to permit such transactions the new Federal Open Market
Committee will start afresh without being necessarily bound by this
construction.

Accordingly, it is recom:oended that a study of the

subject, both from a legal and a practical side, be entered into with
the view of making appropriate recommendations to the new Committee
as to its regulations or directions regarding such agreements.
Respectfully,

Frederic P. Benedict,
Assistant Counsel.
Attachments




Form No.131

Office CorresponSke
To

Mr. Wyatt

-

FEDERAL RESERVE
WARD

RUF_EVE SOMM

AL

F-171:

ctober 12, 1935

),

Subject:

1

Mr. Smead
•r•

, Attached is a letter dated September 24 from :dr. ‘iorthington, Deputy
Governor of the Federal Reserve Bank of Kansas City, with respect to the
bank's authority to acquire securities under reaurchase agreements from
the Federal Land Bank of Omaha without specific approval of the Board of
Governors of the Federal Reserve System. In view of the provisions of
Regulation "M" promulgated following the passage of the Banking Act of 1933,
it appears that this is largely a legal question. From a practical stand—
point it would seem that the bank should be permitted to acquire securities
under repurchase agreements from the Federal Land Bank from time to time with,
out securing the advance approval of the Board with the understanding that
each such transaction will be promptly reported to the Board on the proper
schedule and with the further understanding that such repurchase agreements
have a maturity not in excess of 15 days and are for amounts not in excess of
say $1,500,000.

At tachnont
.

NI ET.573

LT-

orr2.1c.72: c,T.0 CT

(5,rt




-----NUMBER

I

I_ -±

COUNSEL

1935

00

•

FEDERAL RESERVE BANK

,
RceErrTED

-..DERM. RESE.R\•T
I

OF

1101.

KANSAS CITY

Mr. Bethea"
Mr. Carpenter




rEDERAL FIESVIVE BO RD FILE

1955 SEP 2.5

September 24, 1935.

Board of Governors,
Federal Reserve System,
7lashington, D.C.
Gentlemen:
For many years we have purchased Government bonds
from time to time from the Federal Land Bank of Omaha under
repurchase agreements executed by that bank.
Such repurchase agreements have been for periods not exceeding fifteen
days and,in most instances, the bonds have been repurchased
Such transactions
by the Land Bank within less than a week.
have at all times been handled at the request of the Land
This matter was the subject
Bank and for its convenience.
of considerable correspondence with the Federal Reserve Board
4
,
s1n,..,a52?-411-15234-11i),Vskaqr.L,192,5.and the Board's approval was
Our attention, however, has been
granted at that time.
directed to the fact that no approval has been obtained
since the enactment of the Banking Act of 1933, although
such transactions have been regularly brought to the attention of the Board through reports on Schedule BD-6 and have
been reported to the Executive Committee of the Open Market
Committee each week for inclusion in the weekly reports of
the open market operations.
It will be appreciated if you will let us know
whether any further action on our part is necessary at this
time and what steps should be taken to bring this matter to
the attention of the new Open Market Cowmittee provided for
in the Banking Act of 1935.

Very

truly you

0.111111r
C. A. Worthington,
Deputy Governor.

:
CAl7 L

ri/

I

TEL GRAM
40
•
(L

krifIN

SERVE SYSTEM 3aav veyer

FEDERAL,,

..„

ED WIRE SERVICE)

JE

RECEIVED AT WASHINGTON, D. C

Mr.
7714

r.

!7r1

120c fDhiladelphia 255p Mar 14

9 33

P:Ma

and

Board
7ashn
7e have the case of a life insurance company which has
a
large volume of checks that have been uncollectible and
wanted to borrow one million on Governments for a few days
under section 403

•

There being doubt as to right of officers

or executive committee to borrow under their bylaws we are
buying the governments under a repurchase agreement.
Norris
3pm

,,.I. anvilnimilMT TIOROMII OWNS: 19211




2-11901

14i)
a

FormI isI I




T CLG RA

FEDERAL RESERVE BOARD
W ASHINGTO

March 2, 1933.

114clure,
Sanzas Oity

3oard will interpose no objection your bank acquiring Govern—
Lent securities on repurchase agreement from State member bank
651
.01)

In existing circumstanctil Board will not object to use of

suen bonas as collateral for 'federal reserve notes if agreement
with meliber bank autorizes reserve bank to pledge the same.

MORRILL

/ ((if
I .
il
j

WW sad

2-94n4

TELEGRAM

O.

FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)

"347b

Rush

RECEIVED AT WASHINGTON, D. C.

Kunsascity Mar 2 frlr
Board
1ashington
One of our state member banks wishes us to take substantial amount of
Government securities on repurchase agreement stating that it understands this practice is being followed in some other Federal rieserve
Districts.

Please advise whether there is objection to making an

advance in this manner, and also advise whether bonds so had by us
can be use' if needed as collateral for Federal Reserve Notes rush
reay as member bank wishes to complete transaction today.
Mcclure.
321p

L SOVERNYINT PRINTING STVlCi ISIS




2-11901

III
(CONFIDENTIAL TENTATIVE DRAFT)
FEDERAL RESERVE BOARD
REGULATION M, SERIES OF 1929.

Loans, Discounts or other Credit Accommodations for. Member Banks having_qpeculative Security_Loans.
SECTION I.

(a) Security Broker.

DEFINITIONS.

Within the meaning of this regulation,

the term "security broker" shall include every person, firm, partnership, corporation, company, or association, whose principal business
it is to negotiate purchases or sales of, or to purchase, sell, or
otherwise deal in, stocks, bonds, or other investment securities,
either for his or its own account or for the l a3counta of others.
(b) Speculative Security Loan.

Kithin the meaning of this

regulation, the term "speculative security loan" shall include every
loan to a security broker and every other loan the proceeds of which
have been or are to be used Poi* the purpose of purchasing, paying
for, carrying, or trading in, stocks, bonds, or other investment
securities, except bonds and notes of the Government of the United
States.
Every loan made, renewed, extended or permitted to run past
due after the effective date of this regulation which is secured
by a pledge of stocks, bonds, or other investment securities (exce-Dt
bonds and notes of the Government of the United States) shall be
deemed to be a speculative security loan within the meaning of this
regulation, unless there is attached to the note, draft, bill of exchange or other evidence of such loan a written statement signed by
the borrower to the effect that:



•
•
-2(1)

X-6275

The borrower is not a security broker as de-

fined in this regulation;
(2)

The stocks, bonds or other investment securities

pledged to secure such loan are, and for at least thirty
days have been, the absolute property of the borrower;
(3)

The proceeds of the loan have not, and will not

be, used for the purpose of purchasing, paying for, trading
in, or carrying stocks, bonds or other investment securities,
except bonds and notes of the Government of the United States;
(4)

The proceeds of the loan have not, and will not be,

loaned to any security broker or to any other person, firm,
partnership, corporation, association or company for the purpose of purchasing, paying for, trading in, or carrying, stocks,
bonds, or other investment securities; and
(5) The proceeds of such loan have been or are to be used
for another purpose, which shall be stated in such affidavit.
SECTION II.

RESTRICTIONS.

Except with the permission of the Federal Reserve "Board, no
Federal Reserve Bank shall discount or rediscount any note, draft or
bill of emhange for, or make any loan or advance to, or purchase any
bills of exchange, bankers' acceptances, or government, State or municipal securities (under repurchase agreement or otherwise) from, any
member bank which at the time has any speculative security loans outstanding.
SECTION III.

EVIDENCE OF ELIGIBILITY.

In addition to the evidence of eligibility required by
Regulation A, every application made by a member bank to a Federal



S.
-3-

•
•
X-6275

Reserve Bank for any discount or rediscount or any loan,
advance, or other credit accommodation, shall b

accompanied by

a statement of the applying bank as to the •amount of speculative
security loans, which such bank has outstanding at the time of
sucli application.
SECTION IV.

PERYISSION OF TEE FEMRAL RES:RVE BOARD.

A Federal Reserve Bank desiring to obtain the permission
of the Federal Reserve Board to discount or rediscount any notes,
drafts, or bills of exchange for, make any loan or advance to, or
to purchase any bills of exchange, bankers! acceptances, or govern-

/f

ment, State or municipal securities (under repurchase agreements or
otherwise) from, any member bank within the prohibitions of this
regulation, shall make application therefor in writing or by tele ,rra h
(not by telephone) to the Federal Reserve Board and shall furnish
with such application a full explanation of the circumstances :iving
rise to such application and the reasons why the applying Federal
Reserve Bank thinks it should be granted.




•

December 29,1928

Dear novernor llack:
This will acknoeledce receipt of ,your letter of Decerter 19
in reference to the request of the Barnett Itatithial Bank of Jackson,
vile, Florida, that you purchase from...0qt bank under a.ropurchaas
,-...,
agreament, ,112,000,000 in Governiaent securities.
Generally speaking, it is not the policy of other Federal reserve banks to enter into such agruevonts with their member banks, althouLli it has been done on several occasions; in fact, I resorted to it
when I was in Minneapolis. I did it in good faith at a time when I
thowL4t it would he decidedly to the advantage of the member bank not
to show any Obligations for borrowed money. However, the practice spread
from one bank to another and after a short time the Federal Reserve Bank
of Minneapolis did not have sufficient collateral for Federal reserve
notes.
It would be extremely hard, in my opinion, for you to permit
the Barnett National Bank to resort to this practice and deny it to other
member banks.
In the early part of this year some repurchase agreements were
made at the Dallas bank, but when I was there I talked the matter over
with the directors and they all agreed with me that the practice should
be discourae;ed, and Mr. Talley informed mn recently that it had been discontinued. A request was also made of the !=ew 'York bank last week for
similar accommodation by one of their member banks that never borrows,
but the Mew York bark discouraged the idea after giving it careful consideration from all angles.
I think you know me well enough to know that I would not venture
any advise in this matter, but inasmuch as you have asked me, I have exproceed mysoli' rather frankly.
With kind personal regards, I am
Yours very truly,
.

•

R. -. Young,
Governor.
Mr. B. R. 711a4, Governor,
wederal Reserve Bank,
Atlanta, Ga.



•
•
/
•

FEDERAL RESERVE BANK
A_INT TA_
OFFICE OF

G0 RN0
VE
It




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December 19, 1928.

Pear Governor Young:

During the present week we received
a request from the Barnett National Bank, of Jacksonville, norida, that we purchase from that bank
under a repurchase agreement 2,000,000 of its
Government securities.
This bank at the present time owes us
)2,850,000 secured by Governments and it is desirable
that the bank reduce its indebtedness under such repurchase agreement. When this matter 'presented itself I recalled my conversation with you on the
subject of such repurchase agreements and in the
consideration of the matter by our Executive Committee on yesterday the position stated in our conversation was presented to the Committee.
It is .he desire of the Committee to
know more fully the policy of other Federal Reserve
Banks in this matter and I am writing for an expression from you as to such general situation.
The Barnett National Bank is one of our large banks
and has asked very little service from our bank. It
borrows very rarely and never borrows except on Government securities and our Committee would like to
accommodate it unless it is contrary to the general
attitude of Reserve Banks. An expression from you
to me on this subject, having in mind this request
for such service, will be appreciated.
Thanking you, I am

Yours v

Governor.
Mr. R. A. Young, Governor,
Federal Reserve Board,
Washington, D. C.

I

No. 131

Office Corres contellince
To

_Mr. Jemison

FEDERAL

AL RESERVE
BOARD

(

)
Date_ )ctober-13, 1928.

ject:

From Mr.__McClellanclisi
‘lv

Please suspense the attached file for the Fall Confereptc,e,
at which time Governor Yo
Will
with 'tb.e Governors of
the Federal Reserve Bank of Atlanta and.. Dallatha- practi
ce at
those banks of purciiififireire airfities from member banks
under resale agreement, sales being made by the member banks, presum
ably
for the purpose of making it unnecessary to redisc
ount and show
bills payable in their statements.




I

Form No. 131.

•
•

0 ice Correspondence
To

FEDERAL RESERVE
BOARD

Governoz_Islung___

Date_ SeDtember 27, 192._
Subjectl____Thlrchases-o,f-U-, S. aecurit.
by Federal Reserve Banks
under resale agreement.
•

From Mr. Smead

2-9,9s
OPO

With reference to the discussion at the aednesday morning conference
regarding purchases of securities under resale agreement, I thought you might
be interested in having a detailed statement covering purchases of Government
securities under resale agreement at all Federal reserve banks, instead of at
just the Atlanta and Dallas banks, to which I referred at the conference. I am
therefore attaching hereto a statement showing the purchases since July 1, by
dates, the number of days the securities were held, and the bank or dealer from
whom purchased_ You will note from these statements that securities were taken
under repurchase agreement by the Federal Reserve Banks of New York, Atlanta,
Chicago, Kansas City, and Dallas, the Atlanta and. Dallas banks being the only '
ones that purchased securities from member Lanks and the Atlanta bank the only
one that has taken them for a. period in excess of 15 days. At one time the
Federal Reserve Bank of Kansas City purchased securities from Federal Land Banks
for a. period, in excess of lj days, and on one or two occasions the Federal Reserve
Bank of San Francisco has purchased such securities from one member bank in the
Twelfth District for a period of practically a month. So far as I know, all
other purchases of United States securities under resale contracts have been for
periods of 15 days or less and in very few cases have they been taken from
member banks.
Mile I am not familiar with the reasons therefor, it would seem that
the sales to the Dallas Federal Reserve Bank by the North Texas National Bank of
Dallas have been for the puroose of avoiding borrowing on member bank collateral
notes, as otherwise it would be logical to assume that the bank would have used
the securities as collateral for its own note, the same as is done by other member
banks.

NO%

N4,

In order to give you some idea as to the volume of these transactions,
I am showing below the amount of securities taken by each -Federal reserve bank
unJer repurchase agreement during 1927, January to June 192S, and July 1 to date.
of the last schedules received.
192S
Since
1927
Jan.-June
July 1
Boston
'Jew York
Atlanta
Chicago
Kansas City
Dallas

$33,474,000
471,632,000
204,177,000
10,500,000
20
6 000

7 0,379,0W

$9,305,000
229,1S6,000
2,550,000
100,97g,000
32,500,000

$127,335,000
1,S00,000
24,355,000
13,600,000

12,196,000
386,715,000

_1,724,000
176,814,000

All of the six Federal reserve banks above listed are taking United
States securities under repurchase agreement at the Federal reserve bank discount
rate at the present time, but prior to June 7, 192S, the Federal Reserve Ban:2: of
Kansas City was charging the rate borne by the securities, usually 4-1/4 per cent.




• •

•
•

U. S. GOVERNMENT SECURITIES PURCHASED UNDER RESALE AGREEVENT
BY THE FEDERAL RESERVE BANK OF NEW YORK SINCE JULY 1, 1928.

17;ld forDate of
(Daysl
Purchase
Resale
July 2
2
2
2

2
2

2
2
3
3
3
3
6
6

6
6

6
6
b
6

July 3
b
3
9
3
5

1
4
1
7
1
3

b

14

9
5
6
10
18
9
11
12
16

7
2
3
7
15
3
5
6
10
12

18
19

9
10
10
11
11
12
12
13

20
9
20
10
10
13
25
13
17
17
17
16

13

17

b
6

13.

4
1
3
15
2
b
5
5

3
4

13

19

b

16

17
20

1
4
7

16
16
17
17
24
24
24

Aug.
July

24
24
25
26
26
30
31
31
1
3




23
20

3

23

b

26
27
30
Aug, 1
8

2
3
b
8
15
15

9

6

1
2
July 31
Aug. 8
15
2

7
1
8
15
1

6

3

.A.mount

From whom purchased

$2,575,000
Saloman Bros. & Hutzler, New York
u
3,865,000
200,000
C. F. Childs and Company, New York
It
800,000
180,000
Discount Corporation
II
1,250,000
It
870,000
ss
800,000
740,000 C. F. Childs and Company
si
290,000
is
b80,000
is
125,000
is
1,450,000
it
250,000
is
70,000
ti
200,000
is
100,000
u
200,000
is
3,930,000
711,000
Shawmut Corporation
is
974,000
380,000
Saloman Bros. & Hutzler
so
2,000,000
u
490,000
500,000
C. E. quincey & Company
2,300,000
Saloman Bros. & Hutzler
II
700,000
u
2,100,000
1,760,000
C. F. Childs and Company
II
300,000
II
720,000
u
980,000
1,145,000
Saloman Bros. & Hutzler
100,000
C. F. Childs and Company
I,
125,000
u
190,000
u
110,000
if
700,000
II
150,000
u
850,000
II
2,000,000
u
1,300,000
500,000
C. E. quincey and Company
480,000
C. 7. Childs and Company
u
520,000
320,000
Saloman Bros. & Hutzler
500,000
C. F. Childs and Company
500,000
u
100,000
Saloman Bros.& Hutzler
55,000
C. F. Childs and Company

IMMO

Date of
Purchase r- Resale
Aug.

Held for(Days)

Aug.

1
2
2
2
2
2
2

3
6
3

2

6

1

4

5
1

3

1

13
16
17

11
14
15

9

1
1
2

1

7
7
10
14
17
23
10
13

9
9
9
9
10
10
10
13
13
13
1
14
14
17
17
17
17
17
20
21
21
22
22
22
22
22
22
22
22
22
23
23
23
23
23

15
1
4

14
13

8

4

13
13
14
14
17
16
14
16
16
29
18
20
22
24
28
21
22
22
23
27
3
0
Sept. 5
Aug. 23
27
30

6
9

5
3
3
4
1
4

3
1
2
2
15
1

3
5
7
11
1
1
1
1

5
8
14
1

5
8
1
2
1

24
31
29
30
Sept.




8
6
8

5

13

Amount
$500,000
2,400,000
2,060,000
800,000
1,000,000
1,500,000
50,000
450,000
3,050,000
1,490,000
500,000
1,650,000

16o,000
440,000
250,000
200,000
1,115,000
705,000
500,000
200,000
500,000
505,000
650,000
700,000
300,000
400,000
500,000
135,000
365,000
1,200,000
300,000

14.00,000
40,000
210,000
490,000
955,000
100,000
150,000
650,000
200,000
650,000
100,000
125,000
75,000
805,000
485,000
300,000
400,000
350,000
625,000
325,000

0
0
From Whom purchased
Saloman Bros. & Hutzler
ft

Discount Corporation
C. F. Childs and Company
ii
It

Discount Corporation
Saloman Bros. & Hutzler
It

C. F. Childs and Company
11

Discount Corporation
11

C. E. quincey and Company
Saloman Bros. & Hutzler
C. F. Childs and Company
Discount Corporation
ft
II

Saloman Eros. & Hutzler
Discount Corporation
C. F. Childs and Company
It

Saloman Bros. & Hutzler
II

C. F. Childs & Company
It
II

Saloman Bros. & Hutzler
Discount Corporation
Saloman Bros. & Hutzler
11

11
It

C. F. Childs and Company
It

First National Corporation
It

Saloman Bros. & Hutzler
II

C. F. Childs and Company

3

Date of
Purchase I
Aug. 23
24
24
24
25
27
27
27
27
27
28
28
28
28
29
29
29
30
31
31
Sept. 4

U.
14

Held for(Days)
Sept. 7
Aug. 23
27
27
27
28
29
30
28
29
30
Sept. 4
Aug. 29
31
30
31
30
Sept. 5

5
6
5
6
7

15
1
3
3
2
1
2

3
1
2
2

7
1
3
1
2
1

6
5
6
1
2

3

10

5
5
6
6
6
7
7
7
10
10
10
11
11
13
13
13
13
13
13

Aug.

14
14
14
17
17
31
31




6
7
7
12
12
19
21
11
11
17
12
14
19
21
17
14
14
17
17
18
20
21
18
19

14

1
2
•1
1

"6
5
12
14
1
1

7
1
1
6
14
1
14

7
2

40
Ow,

Amount
$1,300,000
1,780,000
250,000
170,000
230,000
1,000,000
150,000
150,000
10,000
1,190,000
25,000
425,000
540,000
610,000
210,000
680,000
325,000
200,000
290,000
410,000
250,000
200,000
190,000

400,000
46o,000
590,000
300,000
600,000
2,400,000
2,000,000
100,000
1,050,000
340,000
500,000
500,000
300,000
2,000,000
75,000
300,000
125,000
1,500,000
2,000,000
2,130,000
510,000
515,000
2,000,000
200,000
800,000
2,150,000
350,000
500,000
1,000,000

I

From whom purchased
C. F. Childs and Company
It
II

Saloman Bros. & Hutzler
ft
11
It
It

Discount Corporation
It

C. F. Childs & Company
II

Saloman Bros. & Hutzler
It
ft
It

C.

Childs and Company
11
Saloman Bros. & Hutzler
II

C. F. Childs and Company
Saloman Bros. & Hutzler
It
It
II

ft

Discount Corporation
ft

C. F. Childs and Company
Saloman Bros. & Hutzler
First National Corporation
C. F. Childs & Company
11

C. E. quincey and Company
C. F. Childs and Company
ft

Discount Corporation
ft

Soloman Bros. & Hutzler
11
11

C. F. Childs and Company

•
•

•
•
taf•

of
ase
Sept. 17
18
18
18
19
19
19
20
20
20
21
24




Resale

Held for—
(Days)

Sept. 21
19
19

4
1
1

20
21

1
2

21
21
21
24

1
1
1
3

Amount
$500,000
850,000
2,450,000
250,000
800,000
550,000
1,150,000
950,000
1,760,000
3,500,000
250,000
3,400,000

From whom purchased
C. F. Childs and Company
Saloman Bros. & Hutzler
ti

Discount Corporation
Saloman Bros. & Hutzler
First National Corporation
C. F. Childs and Company
1I

Saloman Bros. & Hutzler

S.

•

U. S. GOVERMENT SECURITIES PURCHASED UNDER RESALE AGREEMENT,
BY THE FEDERAL RESERVE BANK OF ATLANTA, SINCE JULY 1, 192g

Date of
Purchase
Resale

June 30
30
*Sept. 20
22

July2
2

Held for(Days)

Amount

From whom purchased

2

$250,000 Barnett Natl. Bank, Jacksonville, Fla.

2

2,300,000 Atlanta & Lowry Nationsl Bank, Atlanta
1,650,000 Barnett Natl. Bank, Jacksonville, Fla.
150,000

"

Is

Is

*Agreement provides for resale on or before October 20 at option of Federal
reserve bank.




U. S. GOVERNMENT SECURITIES PURCHASED UNDER RESALE AGREEM
ENT
BY THE FEDERAL RESERVE BANK OF CHICAGO SINCE JULY 1,
1928

Date o
Purchase
July2

Resale
July

3
3
3
3
3
3
5
5
6
6
9

3
5
6
6
9
9

Held for(Days)

1
2

3
3
6
6

11
11
10
11
10
11
12
13

10
11
11
11
11
11
11
11
11
11
11
12
12
12

16
17
18
19
20
23
24
26
13
19

ao
16

13
13

18
18
19
19
20
23

17
17
18
19
19
20

1
6
4
5
1
1
1
2

5
7
9
12
13
15
1

7
3
5
1
2
1
1
14

20
20
23
23
2
3
23
23
24
24
24
25
25
25




25
24

Aug.
July

27
1
25
2b
25
26
26
27

1
2

3
14.
9
1
2
1
1
1
2

Amount
$365,000
200,000
95,000
500,000
475,000
10,000
255,000
140,000
70,000
85,000
125,000
355,000
565,000
365,000
700,000
205,000
65,000
5,000
25,000
510,000
40,000
35, 00
0
50,000
115,000
30,000
220,000
125,000
30,000

From whom purchased
C. F. Childs & Company, Chicago
11
II

First National Corporation
11

C. F. Childs & Company,

II
It

If
If

II

11
It

11

It
II
11

146o,000
595,000
495,000
225,000
5,000
95,000
15,000
25,000
365,000
185,000
450,000
15,000
10,000
525,000
85,000
300,000
75,000
605,000
115,000

It
It

It
II

It
11
II
It

First National Corporatio-a
C. F. Childs & Company

rate
iurchasej
July 25
25
26
26

26
26
27
27
27
27
30
30
31
Aug. 1
1
1
1
1
2
2
3
3
3
6
6
6
7
7
8
8
g
g
g
8
9
9
10
10
10
10
10
10
13
14
14
14
15
15
16




Resale
July 30
Aug. 1
July 27
30
31
Aug. 1
July 30
31
Aug. 1
July 30
31
Aug. 1
1
2
3
7
6
10
3
7
6
7
10
7
8
10
g
10
9
10
13
15
16
22
22
15
13
13
14

Held for (rays)
5
7
1
14
5
6
3
4
5
3
1
2
1
1
2
6
5
9
1
5
3
4
7
1
2
4
1
3
1,
2.
5
7
8
14
13

b
3
3
4

12

Z

17
14
15
16
22
16
17
17

7
1
1
2
g
1
2
1

Amount
15,000
20,000
65,000
360,000
160,000
25,000
225,000
150,000
51000
80,000
1,195,000
270,000
640,000
215,000
135,000
125,000
75,000
40,000
400,000
15,000
25,000
210,000
4o,coo
200,000
25,000
10,000
430,000
40,000
75,000
320,000
5,000
45,000
40,000
170,000
1,275,000
15,000
125,000
150,000
25,000
75,000
175,000
25,000
155,000
65,000
80,000
35,000
190,000
10,000
5,000

From whom purchased
C. F. Childs and Company, Chicago
n
II

tt
n
n
n
n
11
Saloman Bros. & Hutzler, Chicago
C. F. Childs and Company
n
ti
II
n
n
n
n
II
ii
II
ti
n
n
u
li
II
II
n
n
n
n
II
H
n
First National Corporation
C. F. Childs and Company
n
n
n
11
n
n
n
It

it
n
n

3

Dat . of
Furchase
Resale

6
6
17
17
20
20
20
20
22
22
22
23
23
24
27
28
28
29
30
ert. 4
4
5
5
6
6
6
7
lo




Aug. 20
22
30
20
3
0
23
24
28
Sept. 4
Aug. 24
Sept. 5
6
Aug. 24
27
Sept. 10
10
Aug. 29
Sent. 10
Aug. 30
Sept. 7
5
5
6
6
7
lo

Held for(DaLs
)
.
4
6
14
3
13
3
4
8
15
2
14
15
1
4
17
14
1
13
1
8
1
1
1
4
1
4

411..•

Amount
1
65,000
15,000
10,000
420,000
10,000
40,000
5,000
120,000
320,000
15,000
100,000
1,380,000
100,000
4o,000
20,000
40,000
55,000
65,000
55,000
75,000
6o,000
260,000
250,000
160,000
20,000
295,000
1,085,000
95,000
520,000

From whom purchased
C. F. Childs and Company
II

ti
11
!I

It

II
II

First National Corporation
C. F. Childs and Company

11

11

First National Corporation
C. F. Childs and Company

II

U. S. GOVERNMENT SECURITIES PURCHASED UNDER RESALE AGREEMENT
BY THE FEDERAL RESERVE BANK OF KANSAS CITY, SINCE JULY 1, 1928

Date of
Purchase I Resale

Held for(Days)

Amount

7

4

$500,000

7

21

14

2,750,000

21

Aug. 3

13

2,750,000

3

18

15

4

20

18

July

From whom

3 .

July

purchased

Federal Land Bank, Omaha
II

It

H

M

II

H

H

II

2,500,000

H

II

H

H

16

500,000

H

II

II

Wichita

22

4

200,000

II

It

11

Omaha

18

Sept.1

14

1,700,000

8

It

8

20

Aug.31

11

500,000

8

8

9

Wichita

Sept. 1

Sent.5

4

400,000

II

u

H

Omaha

1

12

11

100,000

It

It

u

It

1

17,

14

900,000

II

It

iii

u

800,000

II

II

II

H

Aug.

15




8

••

•
•

U. S. GOVERNMENT SECURITIES PURCHASED UNDER RESALE AGREEIENT
BY THE FEDERAL RESERVE BANK OF DALLAS SINCE JULY 1, 1928.

Date of
Purchase
Resale
July

3
3
3
5
9
9

12
13
17
18
27
30
Aug. 2

6
6

3
3

18

15
1
1
15
15

July

6
10
24
27
3
0
Aug. 1
2
11
14
17

7
10
14
14
16
17
21
23
24
27
29
31
Sept. 4
8

15
19




Held forI
(Days)

11
29
29
31
Sel?t.4
Aug.24
Sept.5

7
7

17
15
15
15
15
15
1
1
15
15
15
18

3
13
14

Sept,13

11
15

7

7

19
11

17

15

3
2

Amount

$45,o0o

From whom purchased
North Texas National Bank, Dallas

300,000
450,000
71,550
250,000
50,000
250,000

II

II

II

IS

II

H

H

11

II

11

II

II

II

II

II

11

II

H

If

II

II

II

if

II

II

11

II

II

It

II

71,550
145,000
450,000

H

II

II

It

II

II

II

11

H

II

It

It

II

II

It

150,000
371,550
495,000
100,000
100,000
371,550
100,000
200,000
595,000

225,000
225,000
100,000
125,000
471,550
200,000
595,000
225,000
896,550
300,000
700,000
1,195,000

El Paso National Bank
North Texas National Bank, Dallas
II

H

H

II

tl

II

II

It

H

II

II

H

It

II
II

11

II

It

11

II

II

H

II

H

It

II

It

II

H

II
It

II

It

11

II

II

II

II

11

51

II

It

H

II

It
II

It

H

It

II

II

11

H

II

II

II

II

It

It

II

11

It

It

II

II

H

II

11

II

11

IS

H

It

H

II

IS

II

II

II

II

II

It

II

II

IS

II

II

H

II

It

II

II

II

II

H

.. •




70(
!.arch 17, 1923

i.ear Professor Bee:ski-girt:
I acknowledge receipt of :Your oarrmnication of the 13th instant, and am advised by our
statistical divistm that we do not have separate
Mures showing the amount of United States securities purchaseditil_resale agreement by the Federal
roserliZ BIEnG prior to 1923.
-

Sincerely yours
:

•
Walter L. Eddy,
Secretary

Professor B. H. Belikhart,
School of Business,
Columbia University,
New York, N. Y.







REC'D-B(. OP MAR 1 4 192e
11
0

(nombid anibergap
in theap nihcbliVark
SCHOOL OE BUSINESS

March
1

9

Thirteenth
2

8

Yr. Walter L. Eddy,
Secretary, Federal Reserve Board,
lasnington, D. C.

My dear Sir:
Referring to your letter of the /tn of Larch
which you wrote in answer to a letter of mine dated the
5th of larch, I wanted again to raise the question whether
data of United States securities purchased with re-sale
agreement by all Federal Reserve banks and/or separate
Federal Reserve Banks can be secured prior to January 1923.
Sincerely yours,
BTIB:S

/

(

•




1

v.

March

7, 192g.

Dear Sir:
Referring to your letter of March

5, I

beg

to state that figures of United States securities
purchased

with

resale agreement by all Federal

reserve banks combined during each month in 1926 and
for the years 1923-1925 are shown in the next to the
last column of table No.
1926 annual report.

35

on page 86 of the Board's

Figures of similar purchases, if

any, by each Federal reserve bank are shorn in Part II
•
of the 1926 annual report - Boston page 227, New York
page 246, etc.
Very truly yours,

"c470.1i-fer L. If.&447
Walter L. Eddy,
Secretary.
Prof. B. H. Beckhart,
School of Business,
Columbia University,
New York, N Y.

.




(E1oIttinbia Cilittibergitp
iii Till)of31au rk
SCHOOL OF BUSINESS

,

March Fifth
1

9

28

Federal Reserve Board,
Washington,
District of Columbia.
Attention Secretary.
Gentlemen:
Can you tell me whether it is possible to
secure data for the volume of securities purchased by
each and by all Federal Reserve Banks under the resale purchase agreement prior to May, 1926?

So far as

I have been able to determine, such data can not be
found in the bulletin prior to that date.
Appreciating your cooperation in this matter,
I am,
Sincerely yours,
BHB:S




?-

February 14, 1923.

Lear 3overnor Calkins:
In reply to your letter of

3, I beg to advise that for the present
at least the revised form of schedule for reporting
acceptances purchased under resale contract enclosed
with your letter will be satisfactory to this office.

Very truly yours,

..,-r

61r
t'
-

NE%

Walter L. Eddy,
secretary.

Mr. J. U. Calkins, Governor,
Federal Reserve Bank,
San Francisco, Calif.

or

131.

Ofice CorrespoilltfAce
To

Mr. Smead

From

FEDERAL RESERVE
BOARD

III 410
Elate February 8, 1928

Mr. Eddy

Subject:
2 114i06
G P

Please prepare appropriate reply to the attached letter from
..
Governor Calkins, cli._ Eqhmuy....argil,je schedule of bills under repurchase agreement. I would like to talk with you about it before
it goes out.




REC'D-LIK. OP FEB

8 192s
kJ* I

FEDERAL RESERVE BANK

(soe'

OF SAN FRANCISCO

February

Federal Reserve Board,
Washington, D. C.

31 1923

Schedule of Bills
under repurchase
agreement.

Dear Sirs:

To foster the development of a market for bankers'
acceptances on the pacific Coast, the Federal Reserve Bank of
San Francisco from time to time has taken bills from two repuThe aggregate amount
table dealers under repurchase agreement.
of unendorsed bills carried under repurchase agreement has at
times reached ',7,000,000. Endorsed bills are taken without limit
i
as to amount.
One of these dealers sold bills on the Pacific
Coast last year amounting to 0_0410001000.
That the dealers will use the Federal Reserve Bank
as little as Possible, we maintain our rates at a point where
accomniodation can be acquired elsewhere on more favorable terms
if there is any available surplus of short-time funds in San
Francisco.
During the past few days, for instance, no bills
have been carried by us under repurchase agreement, whereas on
January 21 19281 we had 871 290,149.25.
The turnover of these bills, on account of sales
to investors and the shifting of bills from the Federal Reserve
Bank to Commercial banks, proceeds so rapidly at times that it
is almost impossible to complete scheduling bills before they
are withdrawn and again returned to us. To avoid this large
amount of ii.ork, which is not only cbstly but hinders a free and
desirable movement of bills, we are writing to inquire whether
it would be agreeable to the Federal Reserve Board for us to
list bills acquired under repurchase agreement in total, as per
the enclosed schedule, instead of following the customary detailed method.




BD 7 (1-23) 5M-5-27 (4463)

Schedule No.

FEDERAL RESERVE BANK OF SAN FRANCISCO
TO

Schedule of Bills Purchased

FEDERAL RESERVE BOARD, WASHINGTON, D. C.

Date

UNDER SALES CONTRACT

1/28/26

.
iM.1-1M-- MMilia_vm I

Dee
Purchased

Our
Number

128

III JAN

i**XtX
,
AR

28

0000(44110(

Due

Amount

Rate

Discount

Proceeds

SUNDRY ELIGIBLE BANKERS ACCEP TAN CES PURCHASED UNDER SALES CONTRACT AS FOLLOWS—.

1

NATIONAL CITY CO

SAN FRANCISCO CALIF

2/10/28

13 ITEMS AGGREGATING
DISCOUNT FOR 14 DAYS AT

352 025 28

3 1/41,

CREDIT BK OF CALIFORNIA N A
SAN FRANCISCO WITH PROCEEDS

2

AMERICAN NATIONAL CO SAN FRANCISCO CALIF

69 ITEMS AGGREGATING

444 92

351 580 36

DISCOUNT FOR 15 DAYS AT 3 1/4*

•




•

984 795 47
1 333 57

CREDIT AMERICAN TRUST CO
SAN FRANCISCO WITH PROCEEDS

28
2
A/

983 461 90

Drawer and Endorsers

Broken

ie
• TELEGRAM

•40

FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)

RECEIVED AT WASHINGTON, D. C.,

7bmr7
Boston Jan 31 945a
Smead
Washington
Twill 866 January 30.
Boston
954a


2-11901

GOViliNifINT PROMO. &MCI

TELEGRAM
FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)

RECEIVED AT WASHINGTON, D. C.,

2brar
Eew York 918a Jan 31.
mead
Washincton
Twill 866 today
Strong
924a


2-11001

•OVSILNIMINT PRINIMNO 111.51C.

ip TELEGRAM

•

FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)

RECEIVED AT WASHINGTON, D. C.,

8cdea
Cleveland 927am Jan 61
Snead.
Wasin
Twill 866
Blancher
942em


2-11901

1/0 VIIA141.11PIT P 11.1301 OVVICZ

c-

110

TELEGRAM

• •
/

FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)

RECEIVED AT WASHINGTON, D. C.,

265gs 6
-3
6hicago. oan :30 43::td
Smeaci
,1a6hn
JAvill

eight sixty


2-11901
111011111111/flaff 11.1011=0 011110.


six

January thirtieth
J
,
Lic. oug:„.1
;
5/19 ,

c

•TELEGRAM
FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)

RECEIVED AT WASHINGTON, D. C.

276gs 6
Lan sasui ty Jan 30 439p
6me ad.
dashn
Twill Trans 866 thirtieth
Bailey

2-1 1tiO 1


GOY PHN WENT PRINTS-NO 0791.11

410

IP

TELEGRAM

FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)

RECEIVED AT WASHINGTON, D. C.,

37g La
jan 31 927arn
6me ad
dashia
1
11.1:12.1

866
.1.
( 1a11ey


2-119ot
00Y ZI1241tIANT PRINTL110 0171C1


1037am

TELEGRAM

P

Oft

FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)

RECEIVED AT WASHINGTON, D. C.,

lgta

2
'3anirancisoo

jan 30 /110 pra jan 31

Board
kiashn
Odorous unaccorded
Z14,-

g


2-11901
ROYNNNYTIGT PRINTING OTTICII


90431;1

•
°
TELEGRAM
FEDERAL RESERVE BOARD
LEASED WIRE SERVICE
WASHINGTON

2-.4464
GPO

Jsauary 30, 1928
Harding. Boston
Strong. New York --fftncher, e1ev,1 nd (--MsDoudftl, Chicago 1 -

THAWS

XAMIAS City
Talley, Dallas C. Calkins, ';;Itn rrancitce

BeilOy,

IMMO

rloinninz "ebranry l please report daily os rovers* side

of form 34 =oust of securities and bills hell* nadir report:boos agreement
Anumemaw

iedneedsly sight form 34 telegram total mount
also wire weekly na part of ,
so 114.1„i of eacuritiefo. coda MIXT mid of ascortancos, cods MATE,




October 19, 1926.

Dear Governor Young:
tion to the somewhat
Tpar letter of Octabor_Othiwith rela
purchac...e cartain
peculiii situation that has led you to
e banks in Anneapolis
Governmeut securities from some of the larg
repirchase
an
an St. rr;a1, without a definite bat with
he 3oard.
tiohTbill
agreement, has been brought. to_the_attan
and that inaeirach as the transactions
expresse
scale and to
limited
gaged in by the aunea:olie bank were on a
situation, there is no occr:sion to go into
meet a transitory
the matter formally or more fully.
exactly the.
might add that these transactions are not
h the New York Yederal
slne as the regurdhase agreements under *Mc
er banks short term
Reserve Bank takes from dealers and some memb
as the last
:evt
Government securities nd bankers' ac, l.nces,
rally for a few days only and clearly
mentioned. transactions are gene
the azney market.
steedying influence on the fluctuations in
111,ve
Tours very truly,

Vice Governor.

Mr. R. A. Twang, anernor,
Federal Reserve Bank,
Minneapolis, '•linnesota.




o --74-rir,Tra
001 2 92

Al ROAR!'

r EDERAL
•

RESERVE BOARD

OFFICE OF THE VICE GOVERNOR




•
Form No. 131.

411
•
Office Correspondence

To

_ 7,.,/[r• Platt

FEDERAL RESERVE
BOARD

•I6
Date October 12, 1926.

Subject:

From

At the meeting of the Board this morning, there was referred to
you for the preparation of a reply the attached letter, dated October
8th, from the Governor of the Federal Reserve Bank of idnneapolis,
with reference to repurchase transactions with certEdn Twin City barks.
It was the consensus of opinion at this morning's meeting that, taking
into consideration conditions existing in the lAinneapolis district, the
Board should approve the action of the Federal reserve bark in these
transactions, and that there appears to be no occasion for going into
the general question of principle involved inasmuch as the transactions
are to be for only a limited amount. It is understood that the letter
you draft is to be submitted to the Board later.







•
•

•

FEDERAL RESERVE BANK
OF MINNEAPOLIS
October 8, 1926.

2
5

Hon. D. R. Crissinger, Governor,
Federal Reserve Board,
i:ashington, D.C.
_
Dear Governor Crissinger:
Oeing to the very unusual conditions that have existed in the
Ninth Federal Reserve District for the last six years, the depositing
public are watching published bank statements more carefully than they
member and non member banks closed, the
ever have before. Nith
public has observed that practically every one had the item "Rediscounts"
or "Bills Payable" in their statement before they closed. The public,
therefore, looks with suspicion upon these items in a bank's published
statement.

960

The banks know that this erroneous impression has developed, a -d
those which are in good condition will do almost anything rather than sh:w
these items. The larger banks in Minneapolis and St. Paul have been
affected, althou4h they inform me that they are not so much concerned
about the individual depositor as they are about the' effect that their
publishing Bills Payable has upon their country bank correspondents.
Most of their country correspondents feel that they are dependent upoA
the Twin City banks for aid in case of emergency, and apparently the
Bills Payable that have been shown at different times by the Twin City
banks have caused considerable talk and some unrest on the part of their
I have had the feeling, myself, that the
country correspondents.
stronger banks were unduly alarmed and have so advised them. I have
taken the position that some day they will have to show obligations for
borrowed money, and they might just as well fight the situation out now
when they are in a position to r'o so successfully, as to wait and have to
do it at some time when their position may not be quite so strong.
Nevertheless, many of the good banks do not feel that this is the opportune
time to take any chances, and the result is that they will sell United
States bonds or other marketable securities rather than show obligations
for borrowed money in a published statement, e-en though the borrowing
may be only of a temporary nature.
Mr. Paul Leeman, Vice President of the First National Bank, and
a member of our Executive Committee, told me a short while back that
the reaction from the country correspondents was so 4reat because of
their bank showing a small Bills Payable item on a previous published
report, that he would not do it again at this time if it could possibly
The First National Bank is an excellent institution, and
be avoided.
a heavy holder of United States Bonds (aproximately $19,000,000). To
the
adjust their reserve position, they frequently borrow from us on
in any
United States Bonds. They are not, however, "steady boarders"
or
sense of the word. About two weeks ago, they owed us M.,000,000.
call for
bones. Anticipating a
1'5,000,000. secured by United States

Hon. D. R. Crissinger---2

a statement, Mr. Leeman told me that he was thinking of sel]inz the bonds
and retiring his obligations with us, but didn't like to do it because he
was sure that his deposits would increase shortly. He also thought of
sellinc, them to another correspondent with an option to repurchase, but
he asked me if our bank would be willin;; to take the bonds off his hands
temporarily. I told him that we would not care to take them at the market
or handle them on any more favorable basis than our rediscount rate. He
said he would be willing to sell them to us on a 4, basis and take an option
from us to repurchase at the same price. He did not, however, agree to buy
the bonds back, but inasmuch as our bank was taking them much below the
market, his bank would be compelled to repurchase at some future date.
This transaction was referred to our Executive Committee (MitchellLeeman - Young , before it was put through, and unanimously approved. Mr.
Mitchell returned from the East a few days ago and stated that upon reconsidering, he thought that we in!ght be subjecting ourselves to later
criticism by the Federal Reserve Board.
Now, of course, this method of procedure was followed by the First
National Bank of Minneapolis for two reasons:
1. To avoid showing obligations for borro,;ed money.
2. To avoid selling securities and later repurchasing from
dealers and paying a commission both ways.
Our bank entered into the transaction for three reasons:
1. Because we acquired U. S. bonds on a much more favorable
basis than we could in the open market.
2. The transaction resulted in a profit that we would have
lost had we refused.
3. The accommodation would have been secured elsewhere and
the same results obtained.
I personally feel that we did the right thing in the circumstances,
but still at the same time I i.ould not want to take any action that would
be embarrassing to the Federal Reserve Board or our own institution. From
a legal standpoint, I do not think there can be any question about the procedure,
but as Mr. Mitchell has stated, there may be sore question as to the advisability
of handling it the way we did. I am sure that the First National Bank of
Minneapolis would not care to have any transaction with us that might later
embarrass the Federal Reserve Board or ourselves
/
7
Our Committee, therefore, would appreciat
from the Board relative to the transaction.




very much an expression

Yours re

verno


http://fraser.stlouisfed.org/
•
Federal Reserve Bank of St. Louis

d

FEDERAL RESERVE BANK
o)
4
"

OF MINNEAPOLIS

'N40

October 8, 1926.

Hon. D. R. Crissinger, Governor,
Federal Reserve Board,
Washington, D.C.

Dear Governor Crissinger:
Supplementing my lett( r to you today, I
advise that no preference has been shown to the
First National Bank of Minneapolis.
We have
put similar transactions through for two other
member banks, the Merchants National Bank, St.Paul,
and the Northwestern National Bank of Yinneapolis.
Of course, because U. S. bonds are not eligible
as collateral for Federal reserve not, while a
member bank's note secured by the bond is eligible,
there is naturally a limit as to hovd ar we can go
in transactions of this kind.
Yours re

3rs

R. A. 'ung
Gov nr
RAY-C

4

SO

S.

Excerpt from memorandum dated February 9th, from the Board's
Chief Lxaminer, submitting report of -xanim-tion of Federal Reserve
Bank of LIinneapolis as at the close of business September 30, 1926:

The inclination to avoid showinp; liability for borrowed money
seems to have reached some of the banks in the Twin Cities. In
the assets of the reserve bank were $7,000,000- in United States
securities purchased from the following banks:
Minneapolis, Minn.
fl

St. Paul,

First National Bank
$3,800,000
Northwestern National Bank 2,200,000Merchants National Bank
1,000,000-

07,000,000"Under a verbal agreement it was understood that the selling
banks could repurchase the securities at par, paying the reserve
bank interest at the rate of 4 per cent per annum for the time it
carried the bonds. These transactions were arranged shortly before the Comptroller of the Currency made his call for a report
of condition as of Septernber 30, 1926 and conseatently they assume
the character of "window dressing" for this report."




••

1.

PFCM-1114. OP OCT 1 5 Ms

FEDERAL RESERVE BANK
J. BAI LEY,GOVERNOR
A.WORTH I NGTON,DEPUTY Go VERNOR
J. W. HELM , CAsN,Lp
JOHN PHILLIPS.JP,AssI.CAsFNER
E P. TY N ER , Ass,CASNiER
G. E. BARLEY, Assr.CAswER
m.W. E.PA RK

M.L Mc:CLORE

OF

CHAIRNIAN DOARD OF DIRECTOR
;I
AN0 FE DERil RES,RVE
E , ti0

I

Ki.NSAS

PI

CITY

- AN
•

f

D OF

ace-k

ASST.CASNIER

A.M.MCADAMS,ASST.CASHIER
G. H. PI PKI N. ASST.CASI.IER

IV"

'RECTORS

BOARDMAN
ASST. FEDERAL RESERVC AGENT
,
AND SECRET-AR

October 13, 1926.

Mr. Walter L. Eddy, Secretary,
Vederal Reserve Board,
Washington, D. C.
Dear Ur. Eddy:
This will acknowledge receipt of your _letPer of
October 11th, with reference to purchase of Liberty' Bonds and
Treasury Notes from the First National Bank of Kansas City, which
securities were resold to that bank on October 5th and 6th.
,I•v•Vs,4••arAi,N••P'k."•,,O,-,'J,,,,,,•••,,,,,,,,,,', •

•,

-.
•••
• ••••,...SP•w•-••"..e04*.•••.0•ANYV•rvo.W....T

These securities were not acquired under repurchase
agreement, but were purchased from the First National Bank of KanThey were carried by us one
sas City for our investment account.
and two days, respectively, and resold to that bank at their request, our earnings receiving the benefit of the coupon rate borne
by the securities for the period carried.
Your instructions to mark our schedules so as to
indicate securities acquired under repurchase agreement will be
observed in all oases where securities are so acquired.
Very tru,12,sma eel
,
ems

Deputy Governor.

CAW*FA







October 11, 1926.

DeLlr Governor Bailey:
We recently received from your bank investment
schedule S-2, dated October 4, 1926, reporting the purchase
of :;!500,000 of Liberty bonds and :',500,000 of Treasury notes
from the First 7ationa1 3ank of Xansas City. Inasmuch as
the notes and bonds were sold back to the same bank on
October 5 and 6, respectively, it was thought that they had
been acquired under repurchase agreement. It is noted,
however, that they were taken at 4-4 and 44 per cent,
:
4
-respectively, whereas your bank advised the Board on
January 14 that its rate on Government securities acquired
under repurchase agreement was 4 per cent.
It will be apereciated if you will kindly advise
U3 in regard to the nature of the transaotiong and if the
securities were acquired under re2urchase agreement, will
you kindly have the schedules so marked in the Puture.

very truly yours,

1:laiter L. Eddy
(Siwned)7
Talter L. Eddy,
Secretary.

Mr. V. J. Bailey, Governor,
Federal Reserve 3ank,
(Cansas City,

.

4,
•

00

,Z)-/ FEDERAL RESERVE BANK
OF NEW YORK

July 6, 1926

Federal Reserve Board,
Washington, D. C.
Attention:Honorable D. R. Crissinger
Dear Governor Crissinger:
This will acknowledge receipt of Federal Reserve Board
letter No. X-4629 dated June

30, 1926

advising that the Federal

Reserve Board has approved a recommendation of the Open Market
Investment Committee that Federal reserve banks extend the re—
purchase agreement practice with recognized dealers in Govern—
ment securities to include Third Liberty Loan bonds which mature
September 15, 1928.
Very truly yours,

CI
J. H. Case
Deputy Governor

Ni



-t
( 3077-1'

•
•

•
41

FEDERAL RESERVE BANK
OF NEW YORK

July 1, 192

Federal Reserve Board,
Washington, D. C.
Attention: Honorable D. R. Crissinger
Dear Governor Crissinger:
I beg to acknowledge receipt of your letter of June
30,1926 advising me that the Federal Reserve Board, upon the
recommendation of its Executive Committee, has voted to ap—
prove the suggestion made by the members of the Open Market
Investment Committee at the last meeting of the Committee on
June 21, 1926 that the Federal reserve banks extend the re—
purchase agreement practice with recognized

dealers in Govern—

ment securities ainclude Third Liberty Loan bonds maturing
September 15, 1928.




I also note that the Board has advised the Federal
reserve banks of its action.
Very truly yours,

a

------'7.
t4.•''

H. Case
Acting Chairman, Open Market
investment Committee

fJ

•
•

•
•

X-4629

FEDERAL RESERVE BOARD
WASH I NGTON

June 30, 1926.

ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE 13OARD

SUBJECT:

Purchase of Third Liberty Loan Bonds by Federal
Reserve Banks under agreement to resell.

Dear Sir:
This is to advise you that the Federal Reserve
Board has ap-Droved a recommendation of the Open Market
Investment Committee for the Federal Reserve System that
Federal Reserve Banks extend the repurchase agreement
practice with recognized dealers in Government securities
to include Third Liberty Loan bonds. These bonds mature
September 15, 1928, and now have only a little more than
two years to run.
The volume of United States Treasury certificates
and notes outstanding has been greatly reduced and it
seems proper to increase the trolume of short-term securities
which dealers can borrow on from the Federal Reserve Banks
by the addition of the Third Liberty Loan bonds.

Yours very truly,

D. R. Crissinf,er,
Governor.

TO ALL GOVERNORS OF FEDERAL RESERVE BANKS.




•
FEDERAL RESERVE BOARD
WASHINGTOkl.
t

ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE DOARD

\ik

10.,„,pine

0, 1926.

\,\6 \-\;EWS
1

SUBJECT: Purchase of Third Liberty Loan Bonds by Federal
Reserve Banks under agreement to resell.

Dear Sir:
This is to advise you that - the Federal Reserve
Board has approved a recommendation of the Open Market
Investment Committee for the Federal Reserve System that
Federal Reserve Banks extend the repurchase agreement
practice with recognized dealers in Government securities
to include Third Liberty Loan bonds. These bonds mature
September 15, 1928, and now have only a little more than
two years to run.
The volume of United States Treasury certificates
and notes outstanding has been greatly reduced and it
seems proper to increase he volume of short-term securities
which dealers can borrow on from the Federal Reserve Banks
by the addition of the Third Liberty Loan bonds.

Yours very truly,

D. R. Crissinger,
Governor.

TO ALL GOVERNORS OF FEDERAL RESERVE BANKS.







2
'
A/

June 30, 1926.

Dear 11r. Case:
This is to advise you that the
Federal Reserve Board y!:q5-terdv.y, upon tho
recoassendation of its "Executive Committee,
voted to approve the action of the Open
Markot Investment Counittee at its ,Est
'
meeting in vating that the Federal reserve
banks extend the z2EgraboAtitjammilat
i.
practice latirgaccrti zed deale re in
.
lovernment seeurities to include Third
Liborty Loan bonds, which mature September
15, 192'3, and nav have only a little more
than two years to run.
The Board is todtly 4.(.1vising all
Federal resorvE, lo, n'es
a
action.
Yours irry truly,

D. R. Crissinger,
Governor.
Mr.J. H. Case,
'toting Chairman,
Open Market Investment Committee,
Federal Reserve Bank,
"New York City.




•

•

-

FEDERAL RESERVE BANK
OF NEW YORK

June 30, 1926.

Sirs:
Leceipt is acknowledged of your letter of June 24, 1926,
advising that the Executive Committee of the Board has considered
the recommendation of the Open :larket Investment Committee at their
recent meeting that the Federal reserve banks extend the repurchase
agreement practice with recognized dealers in Government securities
to include Third Liberty Loan bonds, and voted to recommend to the
Federal Reserve Board approval of the action of the committee.
Respectfully,

J. H. 4dase,
Acting chairman, Open Market
Investment Committee.

The Federal Reserve Boafd,

Washington, D.CV




Juno 24, 1926.

Dear -r. Case:
with reference to your letter of
June 21, the Executive Committee of the
Board this morning considered the recorlmendation of the Open 'Market Investnent
Committee at their recent meeting that
the Federal Reserve Banks extend the repurchase agreement practice with rec.:g.
nized dealers in Goverment securities
to include Third Liberty Loan bonds.
Although this question must ultimately
be decided by the Board, our committee
voted to recommend arTroval of the action
of the Open Market Investment Committee.
The matter will be presented to the
Board at the first opportunity and you
will be promptly advised of the action
taken.
Yours very truly,

Edmund Platt.
Vice Governor.
1.1r. J. H. Case,
Acting Chairman,
Opon Market Investment Committee,
Federal Reserve Bank,
New York City.




3 3 31

June 24, 1926.

Dear nr. '
,
Austen:
Your note with reference to the Open ttfolalt Investment oizttte&g rncorrtendation with relAtion to riltrd
7141rrty. TIO,M„:170nds.itras received this marring just .after
.
had 1ai(1 the recortrienattion before the 7.:tecative Conmittee of the Ilonrti. There were only three of Its present,
but no ol),Inction wrts rn_isedtt thn prorositior. to include
Third Liberty Tom bonds in the .repurchmse ag'eers.mt
practice.
ore.er to avoid minunderzt-tndine,s, holTover, I think
it would be hatter to have the finctrrs of the Ylxecntive
Connittee on this Initter ri.tified by a quormi before my
of these Third. Liberty loan bonds arel nctoally tpkim uncler
repurchs.ne agreements.
Yours very truly,

Vice GOvernor.

Fion. Garrard s. ineton,
Underrleoretnry of the Troawary.

6

THE UNDERSECRETARY OF THE TREASURY
WASH I NGTON

June 24, 1926.

Dear Mr. Platt:
I notice that the Open Market Investment Comaittee has
recommended that the Federal Reserve Banks extend the repurchase
agreement practice with recognized dealers in Government securities
to include Third Liberty Loan bonds.

The Third Liberty Loan is

now a recognized part of our ghort-dated Government debt maturing,
as it does, in a little over two years.

It also constitutes really

over a balf of our short-term obligations now outstanding, and I
think it could very well be included in the repurchase agreement
practiee.
Very truly yours,

7;incton,
-- Ge .rard
t€arsec etary of the Treasury.

Hon. Edmund Platt,
Vi -.Governor,
Federal Reserve Board,
Washington, D. C.




teumitm

fotiotrial
FEDERAL RESERVE BANK
OF NEW YORK

June
•y
AL
git

.

Sirs:
At the meeting of the Open Market Investment Committee
held to—day, subsequent to the meeting with the Federal Reserve
Board, Governor McDougal of the Federal Reserve Bank of Chicago
recommended that Federal Reserve Banks extend the repurchase
agreement practice with recognized dealers in Government securi—
These bonds mature

ties to include Third Liberty Loan bonds.

September 15, 1928 and now have only a little more than two years
to run.

The volume of United States Treasury certificAes and

notes outstanding has been greatly reduced and it would seem
proper to increase the volume of short—term securities which
dealers can borrow on l'rom the Federal Reserve Banks by the
addition of the Third Liberty Loan bonds.
This recommendation was unanimously adopted by the Com—
mittee and, in accordance with the action taken, I am submitting
it to the Federal Reserve Board for approval.
Respectfully,

afie-

Act' g Chairman
Open Market Investment Committee
Federal Reserve Board,
Washington, D. C.




.A.T Eszamr.rvn OCIDOTTEE
MEETING,

:MN 14100




June 23, 1926.

Dear lir. Case:
Yours of the 21st, submitting for approval
a recommendes.
tion that Yederal reserve banks cltend
the returchase agreement
-oractice with recognized dealers in gove
rnment securities to
include Third Liberty Loan bonds matu
ring September 15, 1928,
was received this morning. Just at preo
ent on account of the
illness of Governor Crissinger and
7r. Cunningham there is
not a quoram of the :Aard,

it I shall su )mit the recowiendation
,

to the ),Ioard at the earliest oppo
rtunity.
Yours very truly,

Vice Governor.

:Ir. J. H. Case, Deputy Governor
,
i,edera1 Reserve Bank,
7ew York,
Y.

.111

Form No. 131.

Office Correspottce
To

Governor Crissinger

FEDERAL RESERVE
BOARD

Date___May, 1926.
it.'

Subject_

From
\
\
Dear Governor Criasinger:
I return herewith the file as to repurchase agreements. I have been
locking over my scrap books, and I find the following which may be useful:
1. Memorandum by Mr. Smead, dated July -11, 1923, stating how
these repurchase agreements originated.
137 - 1
2.

The Federal Reserve Board, in its open market circular, directs
that Treasury certificates be dealt with under the head of
repurchase agreements. April 7, 1923.
132 - 77

3.

Mr. Wyatt rules that such repurchase agreements are really loans
to individuals and are illegal. Aug. 18, 1923.
136 - 51

4.

Governor Harding criticises Mr. Wyatt's opinion. Oct. 15, 1923.
135 - 99

5.

The Federal Advisory Council favors repurchase agreements covering
acceptances and Treasury certificates, but not for Treasury
notes or United States bonds.
September 17, 1923. 135 - 44, 94.

6.

Memorandum by 0.5 H. giving history of rulings on repurchase
agreements. Feb. 7, 1925.
151 - 59.

7.

The Federal Reserve Board passes tentative resolution reaffirming
early decisions in favor of the validity of repurchase
agreements.
Mar. 5, 1925.
149 - 29

8.

List of United States securities bought under repurchase agreements
by the Federal Reserve Bank of Kansas City from the Federal
Land banks of Wichita and Omaha since Jan. 1, 1924.
149 - 68

 orrto•

Oa,RUMOUR" TIIIINTIP.

=

-2-

9.

•

01

The Pedaral Reserve Board passes a formal resolution reaffirming
the tentative resolution of March 5, 1925.
March 19, 1925.
149 - 134

The above references are to my scrap books which you are welcome to use
at any time.




Sincerely yours,




Mr. 3doly

WArlebruary 16,
1926

Ur. Sad

Fron the weekly statem
ent fuinished :our of
rates charged on accept
fice showing
ances and U. S. securi
ties purchased by
Federal reserve banks
as shown by schedules
received by the Fe
eral Reserve Board, yo
du will note that the Fed
eral Reserve Bank
of Boston discontinued ea
rly in January its pra
ctice of taking
acceptances from dealer
s at rates 1/8 below the
dealers rate and
began applying the minimu
m
per cent rate as is
Under Boston's former pra 3i
done by New York.
ctice the bulk of it
s acceptances were
taken at a rate 1/4 pe
r cent above its minimu
m buying rate. Fr
January 11, the date on
om
which Boston raised it
s minimum rate to
per cent, to the end of
the month the bank pur
chased acceptances
under repurchase agr
eement at the flat rat
e of * per cent as
follows:
Shawmut Banking Cor
poration
0,563,000
First National Corpor
ation
3,86q,000
National City Corpor
ation (Boston 4,337,
000
At the present time Bost
on and New York acq
under repurchase agreem
uire acceptances
ent at the minimum
rate of 3 per cent,
Chicago applies varyin
g rates which I und
erstand bear a definite
relation to the rates
at which the accept
ances are carried by
brokers and San Francisco
the
usually charges 1
/ per cent above the
8
minimum rate or at presen
t 3-5/8 per cent.
None of the other Federal reserve banks buy
acceptances under
repurchase agreements.

)
5
FEDERAL RESERVE BOARD\5
WASHINGTON

-4493
1
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD

January 5,

1926.

,-.•
ECT:

Procedure at Reserve Banks on Rates.

Dear Sir:
order to give greater uniformity to the
procedure in the matter of fixing discount and open-market
rates and to provide for a consideration
of these questions
at each meeting of the Boards of Directo
rs of the Federal
Reserve Banks, the Board requests that each
Federal Reserve
Agent, in his capacity as Chairman, present to
his Board
of Directors a complete schedule of the
rates Prevailing
at the bank for their consideration and
action.
following:

1/

The schedule of rates should include the

1. Discount rate.
2. Llinimum buying rates by maturities
for bankers'
acceptances.
3. Rotes at which bankers' acceptances
may be purchased, with agreement to resell (so-called
repurchase agreements).
4. Rates at which Government securities may
be pur
chased with agreement to resell.

Following each meeting of the Board of
Directors the Board desires to be advised by telegra
ph of the
action taken by the Directors, either in approvi
ng the existing schedule of rates, or in recommending change
in any
one of the rates.

Very truly yours,

D. R. Crissinger,
Governor.
TO ALL FEDERAL RESERVE AGENTS.



Form. No. 131.
•

-Office Correspond
To

ERAL RESERVE
BOARD

__Er. Eddy _

4111 ,
•,
Date

r

Deaember

194..

Subject:ates chgrged obeUnfied States-securities acquired under
repurchase agreements.

Smead

2 41416
-

7e recently received three schedules from the Federal BeserVe Bank
of Boston, dated "..covember 17, 23 and 24, reporting the purchase under resale
contracts of

887,040 of United States certificates of indebtedness from the

Shawmut Corporation.

"j;ach of the schedules bears a note to the effect that

the securities are to be repurchased on or before 15 days at 3-1/2 per cent.
These are the"only schedules covering United States securities acquired under
resale contracts which we have received from Boston since it increased its
rate from 3-1/2 to 4 per cent on 7ovember 10.

In view of previous correspond-

ence with Boston it may be that the use of the 3-1/2 per cent rate on these
contracts was a mistake, and that it is their intention to continue their
past policy of charging the discount rate on such purchases, as requested in
the Board's letter of December 1, 1922.
For your information I am attaching hereto a memorandum prepared
by Mr. Scudder giving the amounts of securities taken under repurchase
agreement by each of the five Federal reserve banks that make such
purchases, and showing the names of the banking institutions from which
purchased.

The Dallas bank seems to be the only one which makes a regular

practice of taking such securities from member banks under resale contracts,
although Boston did make such a purchase, as you will note, in one instance.



011/ICIMIMNI

,111,111

•
•
fice Correspondence
. 1:g1

•
4)
Date

7ovember 30, 1925.

Subject:_

Yr. Smead

From_mr.

FEDERAL RESERVE
BOARD

Scudder

The investment schedules submitted by Federal reserve banks since
SePtember 1 to present time show that five banks have bought United States
securities under repurchase agreements.
The approximate amounts and from whom purchased are

as

follows:

BOSTON
04,984,000,
4,955,000,
1,600,000,
1,000,000,
190,000,
80,000,
Tota112,709,000

Shawmut Corporation, Boston
First National Corporation, Boston
Bankers Trust Company, Boston
Solomon Bros. & Hutzler, Boston
Atlantic 7ational Corporation, Boston
7aw Britain 7ational Bank, ITew Aritain, Conn.

'Z7 YORK

Total

57,805,000
26,425,000
24,740,000
10,000,000
8,290,000
127,260,000

Solomon Bros. & Hutzler
Discount Corporation
First National Corporation
C. F. Childs Company
Shawmut Corporation

CHICAGO
14,549,000 First National Corporation
12,343,000 C. F. Childs Company
1,130,000 Solomon Bros. & Hutzler
28,022,000

Total

MOSAS CITY
„2,000,000 Federal Land Bank, Wichita
500,000
rf
" Omaha
"
Total
2,500,000

Total

$18,990,000 Republic National Bank, Dallas
675,000 North Texas National Bank, Dallas
25,000 City National Bank, Dallas
19,690,000

 51`,1


a

December 1, 1925.
_j_stes_pherged on United States
acquired under
repurchase agreements.

Te recently received three schedules from the Federal Reserve Bank
of Boston, dated ::ovember 17, 23 and 24, reporting the purchase under resale
contracts of 4887,040 of United States certificates of indebtedness from the
Sharmut Corporation.

3ach of the schedules bears a note to the effect that

the securities are to be repurchased on or before 15 days at 3-1/2 per cent.
Those are the only schedules covering United States securities acquired under
resale contracts which we have received from Boston since it increased its
rate from 3-1/2 to 4 per cent on November 10.

In view of previous correspond-

ence with Boston it may be that the use of the 3-1/2 per cent rate on these
contracts was a mistake, and that it is their intention to continue their
past policy of charging the discount rate on such purchases, as requested in
the Board's letter of Jecember 1, 1922.
For your information I am attaching hereto a memorandum prepared
by Mr. Scudder giving the amounts of securities taken under repurchase
agreement by each of the five 7ederal reserve banks that make such
purchases, and shoring the names of the banking institutions from which
purchased.

The Dallas bank seems to be the only one which makes a regular

practice of taking such securities from member banks under resale contracts,
although Boston did make such a purchase, as you will note, in one instance.




November 30, 1925.
:01e
/

Mi1 Smead
Mr. Scudder

The investment sohedulea submitted by Federal reserve banks since
September 1 to present time show that five banks have bought Unite
d States
securities under repurchase agreements.
The approximate amounts and from whom purchased are as follows:
BOSTON
$4,984,000,
4,955,000,
1,500,000,
1,000,000,
190,000,
80,000,
Total 12,709,000

Shawmut Corporation, Boston
?irst National Corporation, Boston
Bankers Trust Company, Boston
Solomon Bros. & Hutzler, Boston
Atlantic National Corporation, Boston
New Britain National Bank, New britain, Conn.

Ni' YORK

Total

$57,805,000
26,425,000
24,740,000
10,000,000
8,290,000
127,260,000

Solomon Bros. & Hutzler
Discount Corporation
First National Corporation
C. F. Childs Company
Shawmut Corporation

CHICAGO

Total

$14,549,000 First National Corporation
12,343,000 C. F. Childs Company
1,130,000 Solomon Bros. & Hutzler
28,022,000

KANSAS CITY
2,000,000 Federal Land Bank, Wichita
500,000
" Omaha
"
Total
2,500,000
.11.LLA.S

Total

$18,990,000 Republic National Bank, Dallas
675,000 North Texas National Bank, Dallas
25,000 City National Bank, Dallas
19,690,000




CH
FEDERAL




RES ERVEIA NK OF
230 SOUTH LA

CAGO

ALLE STREET

_3‘

November 27, 1925

7.r. Walter L. Eddy, Secretary
Federal Reserve Board
Washington, D. C.

My dear Mr. Eddy:
We have your letter of November 24
addressed to Governor McDougal, with reference to our
schedule showing the purchases of bankers acceptances
under repurchase agreement. According to your wishes,
we shall be glad to change our schedule of future transactions to read: "With agreement to repurchase on or before fifteen days."
We are familiar with the practice of
other Federal reserve banks when taking acceptances under
repurchase agreement, and we believe our plan of buying
the bills outright at the dealers' buying rate is better.
If we were to deduct the discount for fifteen days it
would be necessary for us to take additional collateral
in connection with all bills purchased, and we would prefer to actually purchase the bills and allow the dealer
the privilege of buying them back.

Very truly yours,

•
C.'R. /McKay,
Deputy Govern° .
J-




Xovember 24, 1925.

Dear Governor McDougal:
In going over schedules received from your bank
showing the purchase of bankers' acceptances under repurchase
_Agreement we note that such schedules are marked with thi
----words Vith agreement." It is assumed that all such agreements have a maturity of 15 days or less, but there is nothinrs
on the schedules to indicate that fact. Accordingly it will
be appreciated if you will have future schedules marked with
the words "With agreement to repurchase on or before 15 days,"
or some similar words, in order that the schedules may clearly
bring out the fact that the repurchases do not run for a
longer period than 15 days.
For your information I may say that all other Federal
reserve banks which take acceptances under repurchase agreement
charge interest for 15 days, or for a lesser number of days in
case the agreement provides that the acceptances are to be
repurchased within less than 15 days. In the case of your bank,
however, we note that interest is charged from the date
acceptances are purchased until their actual maturity, and
rebate made for the period from repurchase to actual maturity.
Very truly yours,

:7alter L. 1?.ddy,
Secretary.

*fr. James B. ::cDougal, Governor,
Federal Reserve Bank,
Chicago, Ill.

00

/

FEDERAL rcEsERVE DANK
W. .J. BAI LEY,GOVERNOR
C A WORTHINGTON,DEPUTY GovERNon
J W. HELM CASHIER

e

,

K. BOAR OMAN
ST F FOLRAL RESERVE AGENT
FIFTARY

MW.E.PARK. ASST.CASHIER
A.M.MSA DA M S,ASST.CAS111E/7
G. H. RIRKIN,AssT.CAsNIER




1
- ....W;
ARD7VriVe 5

EBER HORD
DEPUTY CHAIRMAN
BOARD OF DIRECTORS

KANSAS CITY

JOHN PH I LLIPS,
E P. TY N ER. ASST.CASMIER
G E BARLEY, ASST.CASHIER

e

. McJURE
CKNerrAN e

F

Li

NOVF7.IRER SIXTEENTH,

kr,I,
v
opL., -k
P444OF
):
4

- 1 9 2 5 -

Federal Reserve Board,
Washington,

D.

C.

Gentlemen:
Attention - Governor Platt.
This will acknowledge receipt of your
letter under date of November 12th, in regard to
this bank's purchase of $1,000,000 Liberty bonds
from the Federal Land Bank of Wichita on a 30-day
repurchase agreement.
This matter was an oversight. The agreement in our Discount Committee was to take the
naturally
bonds, but no mention of time was made, all
be for 15 days. However, in
Presuming that it was to
days
the drawing up, the papers were made out for 30
hope will not happen again.
in error, which we
Further in this connection I beg to advise
out of
that the bonds were all redeemed today and are
only
the bank so, after all, the transaction covered
.
the 15 day period
Very truly your

o v




3-2
November 12, 1925.

Dear Governor. Bailey:
In reviewing inveeement schedules received from your ban:
during recent months -es note thet, on numerous occasions you
have bought Liberty bonds frem the Omaha Federal Land Bank
under repurchase agreements drawn for a period of 15 days, or
less, which is in accordance with the ruling of Ae Board, of
which you wore advised in my letter of March 19, 1925. On
Novedber 2, however, we find that your bank purchased C*1,000,000
of Liberty bonds frau the Federal Land Bank of eiohita under a
repurchase agreement maturing Deosedber 2, 1925, or 30 days after
date. In our letter of March 21, 1925, you *were adviscd that
the Board in adopting its resolution gave you an opportunity
of presenting an application for an exception to the ruling ec(miring all repurchase agreements to be drawn for a period of
15 days or less, and inasmuch as no application for such an Cx...
oeption has been received and as all other repurchase agreementc
acquired by your bank since last March have been drawn for a
period of 15 days or less, we assume that the purchase of
t1,000,000 of Liberty bonds from the ;ichita Federal Land Ban:.
under a repurchase agreement running for 30 days was an oversight. We assume that your bank intends to follow the ea=
policy in acquiring United States securities from the wichita
bank as that adopted in the case of the Oetaha Federal Lead
Bank.
I shall be glad to have you write MA fully regarding this
matter, however, as I feel that to make an exception to the /,-)
day limit in the case of securities purchased from the 111ch1te
bank would open up the whole question of repurchase agreements
and might cause considerable edbarrassment before the question
was finally settled.
Very truly yours,

Vice Governor.
Vr. ;7. J. Bailey, Governor,
Federal Reserve Bank,
Kansas City, Yo.

••

O.

FEDERAL RESERVE BOARD

•

) '
•

'
O..
tor."

WASHINGTON
ADCR,ESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD




November 11, 1925.

My dear Governor:
In reviewillg investment schedules received from
your bank during recent months we note that on numerous
occasions you have yought Liberty bonds from the Omaha
Federal Land Bank 135ader repurchasg agreements drawn for
,
a period of 15 day or less, which is in accordance with
the ruling of the hoard, of which you were adviselin my
letter of March 1
1925. on November 2, however, we find
that your bank pichased $1,000,000 of Liberty bonds from
the Federal land/Bank of Wichita under a repurchase agreement
4
maturing Decembet 2, 1925, or 30 days after date. Lamy
letter of March
1925, you were advised that the Board in
adopting its re olution gave you an opportunity of presenting
an application tor an/exception to the ruling requiring all
repurchase agre ments to be drawn for a period of 15 days or
less, and inasnilch as no application for such an exception
has been receilleq, and as all other repurchase agreements
l
acquired by yoO'bank since last :!.arch have been drawn for
a period of 15 iiays or less, we assume that the purchase of
.4,000,000 of/ lberty bonds from the Wichita Federal Land
Barn: under afr purchase agreement running for 30 days was
an oversight. !WA assume that your bank intends to follow
the same policy in acquiring United States securities from
the Wichiia b k as that adopted in the case of the Omaha
Federalliand B nk.

pi,

I sh 11 be glad to have you write me fully
regarding this matter, however, as I feel that to make an
exotiption to t e 15-day limit in the case of securities
purchased from the Wichita bank would open up the whole
question of rep rchase agreements and might cause considerable
embarrassment lAfore the question was finally settled.
Very truly yours,

D. R. Crissinger,
Governor.
W. J. Bailey, Governor,
Federal Reserve Bank,
T:ansas City, yo.

,-Office CorresponfAce
To
From

Governor Crissinger

FEDERAL RESERVE
BOARD

Subject_

/

otewart
Z 8496
-

I am returning to you the memorandum you gave me entitled "Purchases
of anited States Securities under 1- esale Contracts." Attached to the
,
memorandum is a draft of a letter advising the Federal reserve banks that
rates
charged on securities taken under resale or repurchase contracts should
not
be less than the discount rate on eligible parer.
As shown by the attached table, the rates charged on securities taken
under resale contracts by the Pew York bank have at times been higher than
the discount rate 'and at other times, as in the latter part of 1924 and at
present, below the discount rate. In general, however, the rates on resale ,
contracts has corresponded with the bank's discount rate.
The policy of maintaining a rate for sales contracts on goverment securities lower than the discount rate r.ay be'argueu for as a method of carrying
dealers' portfolios of government securities for short lerious at a rate which
will protect then. from fluctuations in the call money rate. This argument
would be applicable only at a time when the discount rate at the reserve banks
was so high as to be out of touch with the day-to-day rate for money, a situation which actually existed after the middle of 1J24. It was during this
periou that the rate at which dealers could carry certificates of indebtedness
under repurchase agreements at the Lew York Federal -eserveBank was below
the .
discount rate. In the same way that a lower rate for buying anu carrying
bankers' acceptances has assisted in the development of the bill markets,
it coulu be argued that a rate lower than the uiscount rate for carrying short
term government securities assists in the development of that market and protects it from erratic fluctuations in the call loan rate. The Federal reserve
bank has an interest in the development and maintenance of an adequate market
for short term government securities, not merely or primarily because of its
fiscal agency function, but chiefly because it is part of the open market in
which the Federal reserve banks are authorized by the Act to purchase and
sell securities. ,Le maintenance of a rate on sales contracts for government
securities lower than the uiscount rate as a means of assisting the Treasury
in placing its securities at rates lower than they might otherwise command
in the market uoes not seem to me a sound basis for the policy.
In general my feeling is that the rates charged on securities taken under
resale contracts as well as similar rates for acceptances should come up for
review regularly by the Boards of Directors o: the Federal reserve banks in the
same manner as changes in the discount rate. In order to permit prompt action
upon these rates, it may be undesirable to require the approval of the Federal
Reserve Board in advance of the changes in rates on resale contracts. The
Board would, of course, be promptly notified of changes in any of the rates
prevailing at Federal reserve banks and with a complete schedule of rates before it, would be in a position , when it seers desirable, to advise a Federal
reserve bank of the Board's views concerning any of the existing rates. This
seems to me a better procedure than the present irf-Ictice of the Board in establishing an authorized minimum for buying rates on bills or than the proposal




CorresponMc

FEDERAL RESERVE
BOARD

10
Date_

Subject:_
2--8496

-2

that rates charged on securities taken under resale contract
s shoulu not be
less than the discount rate. 2his woulu allow for a change
in the structure
of rates whenever it seemed desirable and would be less
rigid than a rule
which unuertook to establish a definite relationship between
rates or sales
contracts anu the discount rate.
Me structure of rates now prevailinL; at :.ew York Aderal Reserve
Bank
are as follows:

Discount rate on all classes of paper
Bill rates:
authorized by the federal Reserve board
tt
" directors of the rew York Bank:
:aturities up to 60 days, inclusive
60-90 day bills
Above 90 days up to 4 months
2or longer than 4 months
Actual buying rates on bills on April 1:
Actual buyint, rates on bills corresponded with these
minima except that 30-60 day bills were purchased at
3 1/0 per cent; i.e., 1/0 per cent higher than the
minimum.
Rates charged on resale contracts:
Resales coLtracts on acceptances
Resales contracts on securities




Rate
(Per cent)
. 3 1/2
2
3
. 3 1/6
3 1/4
3 1/2

3
3

,
/Ace CorresponikAce
Governor Crissinger

FEDERAL RESERVE
BOARD

11411
1 Ear ell _31, 192. .
L.Jate__

Subject:_

Stewart

/4rom

2-8496

I am returning to you the memorandum you ave me entitled "Purchases of
United States securities under resale contracts." Attched to the memoran
dum
is a Graft of a letter advisinL, the Federal reserve banks that rates charged
on securities taken under resale or repurchase contracts should not
be less
than the discount rate on eligible payer.
.A_zemparison-4f the rates charged on securities
t er
iyinder resale contracts by the low York Bank an4-th.e.,ix-diseount-r,li,a-sEOA-Chat at
timps,4140
,
-ratf.....ma-salez.--c,ontraots-ilas been higher than the uiscoun rate
:
and Atimes,
as in the latter part of 1924 and at present, below the discoun
t rate. In
general, however, the ate on resale contracts has corresponded
with the
bank's discount rate. Two arguments might be made for maintai
i
ning a rate
lower than the discount rate for sales contracts on governm
ent securities.
The first, which seems to me an unsound basis for establi
shing a Federal
reserve bank rate, is that a lower rate on sales contrac
ts for government securities might assist the 2reasury in T.lacing its securit
ies at rates lower
than market rates. The second, which seems to me more convinc
ing, is that
it furnishes a method of carrying dealers' portfolios of governm
ent securities for short periods at a rate which will Trotect them
from the fluctuations
in the call money market anu would be applicable only at a
time when the discount rate at the reserve banks was out of touch with the day-today rate
for money.
his was the situation in the latter part of 1924 and it
was
during this period_ that the rate at which dealers could carry
certificates
of inuebtedness at Federal reserve banks under relurchase agreeme
nts was
below the discount rate. In the same way that a lower rate
for buying and
carrying bankers' acceptances assists in the development of
a bill market,
it could be argued that the lower rate for carrying short
term government
securities assists in the developl.ent of that market
and that protects it
from erratic fluctuations in the call
loan rate.

i

In general my feeling is that the rates charged on securit
ies taken
under resale contracts as well as similar rates
for acceptances should come
up for review regularly by the Boards
of Directors of the Federal reserve
banks auee-nreule recuiae. ti,Q-a1;11=aval-of--the-r'ederal ::eserve. Beserd in the
as
same manner/changes in the discount rate.A
Phis,,i arrangement would also be
less rigid than a definite ruling that saAs
,
,ntrats on government securities shoul6 not be less than the
disco u pate a„nd at/the same time would
allow for change in the structure of
r tes/wheneVer it seemed desirable.
The structure of rates now prevailing at :.ew
York Federal ileserve Bank
are as follows:
Discount rate on all classes of paper, 3 1/2
per cent.
Bill rates:
Finimum authorized by the Federal deserve Board,
2 per cent
" directors of the Few York Bank,
3 per cent for all maturities up to 60 days, incl.
3 1/6 "
" " 60-90 day bills
3 1/4 " " above 90 days up to 4 months
3 1/2 " " for longer than 4 months




11•01••••

.*/
COrrespolattice
'

FEDERAL RESERVE
BOARD

6__
1
Date

Subject:_

- 2 Bill rates: (Cont'd)
Actual buying rates on bills
on ;Ear-eh-2-71
Actual buying rates on bill
s corresponued with these minima
except
that 30-60 day bills were
purchased at 3 1/8 per cent; i.e.,
1/6 per cent higher than the
minimum.
Rates charged on resale cont
racts:
Resales contracts on acce
ltances, 3 per cent
Resales contracts on secu
rities, 3 per cent
If the Board were to have
before it each week a schedule
of this kind
showing the rates prevailing at
Federal reserve banks,, it woul
d then be ma
position when it seemed desi
rable to advise any Federal
reserve.,bank of the
3oaru's views concerning aiX
of the existing rates.
his v.rould sto me
a better procedure tnl_n the pres
ent practice of establishing
an authorized
miniroam for buying rates on bill
s or than the proposal that
rates charged
on securities taken under resale
contracts should not be less than
the discount rate.




it as

4,

V,.(1

WINAVAX

411‘...1111
,

Rates under which U. S. Government Securit4s
were purchased under Sales Contract
from January 1, 1921 to date

t
3cLtis,,iQ
C. of I.
Rate

Date
1921

—

January 1 to March 31

April

1

August

5 3 4 & 6%
/

August 1

5 34
/

lum-t \k.,
July 21 — 5 1/2

October 30

5 1/4

Sept. 22 — 5

March 22, 1922

It

2

4 1/2

April

4

Nov. 3 — 4 1/2
v‘5.1
June 22h — 4

4 1/2

Feb.V3 -h 4 1/2

4

Mayi:24 —4

2 1/2

June 12 — 3 1/2
Aug. 8 — 3
1v03
Feb. 27N — 3 1/2

(1921) —

October 31

(1922) —

March

23

April

10, 1923 to April 30, 1924




May

Discount Rate
Ia.'\A,
c.

ft

9, 1923

1, 1924 " Nov.

5, 1924

November 6, 1924 " Nov.

27, 1924

November 28, 1924 to present date

3

March 21, 1925.
My dear Governor:
Your lettir_allaroh 13 in the matter of repurchase agreements of
government securities Le at hand.
The Bourd has passed the tentative r2so1ution horotofore presented
to you and it is now the action of the Board, but in passing the resolution
the Board, as you have been heretofore advised, gave you the opportunity of
presenting an application for an exception of your bank; to the rule.
I am
personL.11;i 'vary much opposed to ming any exception to the rule.
If we
are to aiake au c:xoption and permit repurchase a6reements up to ninety days
then the rule must be ohaugad au that iwill bu applicable to all banks
and to all perzone.
I think you will rJadily understand that it would be
unfair, us I view it at least, for your bank to have a privilege that other
banks are denied and for the 2aderal .14.und.
banks to have a privilege that
other brokers are denied, and I hope that I may have an opportunity of talking
to you about it before you make an - application.
I see that it is assigned
as a topic of discusaion at the Governors meeting to be held on 1pril 6,
and no doubt you will hold any applioation in abayanoe until you have at
least had it disoused before the Governors hooting.
Ihere is One sentence in your letter,
wever, tnat souas to me
to make it clearly inadvisable. 'Lou say:- "I an sure any cwunercial bank
would make thum the loans on the saw.) basia Le havo."
airs seems to me
to be a direct competition with member banks for a business that the
federal Reserve banks should not 31r-ndle and I would like to have your
views on the subject along this line.
It BOOMS to me that if we break
down the fifteen day rule we are going to get the system into deep water
and it may finally involve us in a lot of amoarrasamant.
I shall await seeing you.
Very truly yours,

Mr. W. J. Bailey, Governor,
federal Reserve Bank,
Kansas City, KO.




D. R. Criasiner,
Governor.

March 19, 1925.

War Governor :1„%lloys

This is to advise you that
below, 17.fai
vas tentatively adopted
3oard on :,:arch 5, 1925, and referred
of Yarch 6th, was finally adopted by
tolay:

the resolution quoted
by the Federal Reserve
to in rly letter to you
the 7locrd at its mooting

"The Federal Aeserve '3oard reaffirls
previous decisions authorizing the pract
ice,
lOnr,47 continued, of purdhaso aad sale
in the
Open market of bankers' acceptances and
Government securities, by Federal reser
ve
banks from and to banks and qualified
dealers,
under 15..day 'repurchase agreements', it
beunderstood that such transactions shada
be open, under similar facts and conditions
,
to all Federal reserve banks with relation
to
banks and similarly qualified dealers in their
respective distriets".
Your letter of March 13th, enclosin7 dopy of a letter
addressed to you by the President of the Feder
al Land Bank of
aneha, was read to the 30ard at the meet
ing and will be considered as an application comin from you for autho
rity to treat as
excentional transactions purchases of Government
bonds from the
Federal Land Banks, under rerarchase agree
ments running for periods
lOngor than fifteen days. I extf)
ct the Board will aettiln this
matter in the caurse of the ao:t few days and
1 will -2romptly advise you of its decision.
Very truly yours,
4.,
41wc_i)
1.1r. . J. 6ailey, Governor,
Federal teserve Bank,
Kansas Jity, Mo.




•

v....

Governor.

9

•

FEDERAL RESERVE BOARD
X-4295
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD




March 19, 1925

This is to advise you that the resolution
quoted below, wilich was tentatively adopted by the Federal Reserve Board on March 5th, 1925, and referred to
in my letter to you of March 6th, was finally adopted by
the Board at its meeting today:
"The Federal Reserve Board reaffirms
previous decisions authorizing the practice, long continued, of purchase and sale
in the open market of bankers' acceptances
and Government securities, by Federal reserve banks from and to banks and qualified
dealers, under 15-day 'repurchase agreements',
it being understood that such transactions
shall be o-oen, under similar facts and conditions, to all Federal reserve banks with
relation to banks and similarly qualified
dealers in their respective districts".
Very truly yours,

Governor.

To all Governors except Bailey.

0*
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD




March ;1,9, 1925

rit

-Peerr-eovernor
This is to advise lou that the resolution
quoted below, which was tentatively adopted by the
,
-7Scc-c-ra-P/ -c---`-e-t------1
Board on March 6th, 1925, 'was finally adopted by
the
Petierri-1-Board at its meeting today:
"The Federal Reserve Board reaffirms
previous decisions authorizing the practice, long continued, of purchase and sale
in the open market of bankers' acceptances
and Government securities, by Federal reserve banks from and to banks and qualified
dealers, under 15-day 'repurchase agreements'
it being understood that such transrctions
shall be open, under similar facts and conditions, to all Federal reserve banks with
relation to banks and similarly qualified
dealers in their respective districts".
Very truly yours,

Governor
To -11 Governors, except Governor Bailey

FEDERAL RESERVE BANK W. J. BAILEY.GOVERNOR
c.A.woRTHINGTON,Deet.rry GOVERN
J.W. HELM,CASHIER
JOHN PHILLIPS,JR.,Ass-r.c.sHiE
E. F.. TyN ER. AssT.CAsHieR
G. E BARLEY, Assr.CAst-tueR
M.W.E.pARK, ASST.CASHIER
s
A. G.FROST, Assr.c.s.sn
A.M.MCADAmS,Assr.CAsHtee
0.H. PIPPIN, Assr.C.sHiER\

M.L.McCLURE

OF

CHAIRMAN BOARD OF DIRECTORS
AND FEDERAL RESERVE AGENT

KANSAS CITY
MARCH TT-TIRTELTTH,

Federal Reserve Board,
Washington,

D.

C.

Gentlemen:
Attention - Governor Crissinger:
Replying to your telegram under date of
March 11th, in which you ask to be advised of the
reasons why Federal Land banks sell Government securities under repurchase agreements for longer
periods than 15 days:
We took the matter up with our Managing
Director at Omaha who, in turn, communicated with
the Federal Land Bank there and they wrote him a
letter, copy of which I enclose you and which gives
their explanation. We feel that this is very safe
and desirable business for us. They usually avail
themselves of the repurchase of the bonds in advance of the expiration of the time originally
asked for, as the notes are written 'on or before.'
We hope you can see your way clear to
allow us to continue handling this business in the
future as we have in the past for, as I said, it is
a very desirable as well as profitable business, and
under the present circumstances we dislike to lose
it. I am sure any commercial bank would make them
the loans on the same basis we
I will talk this matter over with you more
fully when I am in Washington on April 6th for the
Conference.
With personal regaras, I am

&e_

Very truly yours,

BOA:1DMiTrNG

E:‘,2I U1095



DEPUTY

CHAIRMAN

BOARD OF DIRECTORS
C. K . BOAR D mAN
ASST. FEDERAL RESEIRVE, AGENT
AND SECReTARY —

- 1 9 25 -

AT

HEBER HORD

Eno

COD

0

(C

THE
LAND

Y)

P

FEDERAL

BANK

OF

OMAHA

OMAHA, NEBRASKA.
Larch
Twelfth
1925.
Mr. L. H. Earhart, Manager,
Federal Reserve Bank,
Omaha, Nebraska.
Dear la% Earhart:
It is the practice of the Federal Land Bank of Omaha to sell bonds in
quite large volumes in periods about four months apart. Such sales
are made in anticipation of needs for farm loans.
The Federal Farm Loan Act authorizes the Federal Land Banks to invest
only in Government bonds and approved first mortgage loans on farm
lands.
It is the custom of the Federal Land lank to invest proceeds of its
bond sales in United States GOvernment securities pending the loaning
of such funds.
It has been found profitable to the Land Bank to continue to own and
hold between 41,000,000 and 2,000,000 in government securities and
sell such securities on repurchase agreement to the Federal Reserve
Banks when funds are needed for loans, and repurchase same from the
Federal Reserve Bank upon the sale of its bonds, rather than sell the
government securities outright on the market when funds are needed
for loans and repurchase government securities again from the proceeds of the sale of Federal Land Bank bonds.
In thus handling such transactions with the Federal Reserve Bank it
is desirable that such repurchase agreements be for a period of on
or before 30, 60 or 90 days, covering the period between the time
funds are needed for loans and the date of the next sale of Federal
Land Bank bonds.
Very truly yours,
(Signed) L. Y. Hogan
President

DPH
bb




Form No. 131.

Office Corresp
ddr

ce

FEDERAL RESERVE
BOARD

;
# ;L;;Iirch 16, 1925.
1111
te

Subject:
•

2-13496

ith refereaCe to my memorandum...of :ar.h 2 reFardius purchases of
onited --tates 3ecurities ulfdOT—i
-esale contracts you ray be intersted in
knovi:IY that the :ow York bank did not raise tl:e rate charged on such contracts
on 2ebru—ry 27 when it raised its discount rate from 3 to 33- ayer cent. The
latest- schedule we have shos that the :ow York bank is still charging 3 per
cent interest on these contracts.




•TELEGRAM •
•
•
FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)

RECEIVED AT WASHINGTON, D. c.,

149 Cc

Dal1 as ::arch 1j,

1 215pm,

Boare

Jashn

resolution

banks the

is

ble

relating

board

sufficient

referred

to

villume

lioVERNMENT III .



Crissinger

Governor

"
eferri ng

is

to

which

in

to

open

advised

permit

as

the

board

conliu c Lion

s 1etterLch6thin

market

that

the

of

Federal

resolution

in

our

understands

of

have

operations

r:chiraie y
122p m,

tentative

transaction

continuance

with

re

of

Ju6gem en t

transactions

be en

of

this

bank.

Reserve

of

rather

character

negligi—

TELEGRAM
•
•
FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)

192fcq

RECEIVED AT WASHINGTON, D. C.,

anfranciL:co rarch 1L 1144am,
Crissinger,
ashington DC
Replying your letter rarch sixth we believe rsolution sufficient
for purpose and that transaction involved are are necessary at
times to conduct of open market operations of banks and system.

2-11001
GOIMINMENTPRINT.OFFICIL



Calkins
28p

Form 148 A

FEDEr?Al RESERVE BO
LEASED WIRE SERVICE
WA SHI N 3TO N

The telegram given below is hereby confirmed.

r

2-9464 a

March 11, 1925

Priley

Kanss City

i
)
Y'.)ur telegram 9th. Board is not inclined
period in which repurchase agreements may
reasons land banks selling Governments to
rT,reements and necessity for their 1).P.ving




to extend beyond 15 days
run. Ylease advise fully
you under repurchase
30 to 90 days accommodalAon.

Crissinger

l'orm No. 131.

0 Ice Correspoilace

FEDERAL RESERVE
BOARD

•
uaiver_oh 10, 1925.
, 0 0 ,..., ,:::-.)

r
)
t --);; --4 —} —,_
,
..
t
....;,..=.#'''

Subject:
„

0
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......- -

lb.

For your information.
,..,_

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4.e, 4- cz-1(z --IZ, I,
4

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.:d.
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.

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Form No. 131.

Office Corresp41111tce
To

]
72*. - ddy

FEDERAL RESERVE
BOARD

AP

ate
ll March
at,o,

10, 1925.

Subject:

From Mr. Van Fossen
2-8485

In accordance with your request Te have prepared the following; table
rearding United states securities imrchased since January 1, 1924, by the
Federal Reserve Bank of Kansas City under repurchase agreement from the
Federal Land Banks of :ichita and umaha.
Rate at
Period for
Date
Kind
.
Amount
which taken
From
which taken
1924
Treasury notes
Jan. 9
,75D,000
7ichita
23 days
iI
It
9
4th I. L. Bonds
500,000
4.;9
Treasury notes
250,000
4
,-,-;
*Omaha
3 months
23
C. of I.
200,000
Omaha
47
;
1
30 days
!!
100,000
23
3d I. T. Bonds
4!r,-30 days
tt
250,000
...pri1 16 3d L. I. Bonds
3 months
14
Treasury notes
250,000
16
4?.
3
*Omaha
3 months
23
250,000
3d I. I. Bonds
4T,,
Omaha
86 days
June 4
4th T. L. Bonds
1,000,000
4
7ichita
30 days
600,000
Treasury notes
14
*Omaha
4-:;
‘.
31 days
3d L. L. Bonds
17
200,000
4:
Omaha
;
1
28 days
tI
24
200,000
3d L. L. Bonds
ej
21 days
It
27
200,000
3d L. L. Bonds
418 days
Treasury notes
July 15
600,000
*Omaha
431 days
Aur-2.11
3d L. L. Bonds
200,000
4
Omaha
21 days
It
23
3d L. L. Bonds
200,000
4
18 days
;sept.11
Treasury notes
100,000
*Omaha
4
60 days
3d T. T. Bonus
Oct. 31
500,000
Omaha
3i
63 days
,,
3d I. L. Bonus
Tiov. 25
250,000
38 days
3-1;3d T. I. Bonds
Dec. 3
230,000
62 days
al1925
,,
Jan. 2
3d I. 1. Bonds
1,350,000
31 days
3,1t.




*Federal Intermediate Credit Bank ,.

ace,,re

de_x_

ID
• TELEGRAM

•

FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)

RECEIVED AT WASHINGTON, D.

PrOFT../P.:D
JAR 10 1925
OFFICE OF
THE GOVERNOR,

'691ot
:7inneapo1iL3 i34am "arch 10 1925
CrisLinger
dashington
Your letter March sixth.

Our Bank has not used fifteen day . repuraase agreement and are not
familiar with its operEtion. Re,solution paesed by Board eeems
sufficient to permit us to operate if we occasion to do E0
loung
1046a

2-11901


.
,
60,..PENT 11 M

*

TELEGRAM

FECIEVMD
MAR i 0 1925

FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)

OFFICE OF

THE GOVERNOR

RECEIVED AT WASHINGTON, D. C.,
.
e'

88fje
btouis llam I:ar 10
Crissinger
.4ashn
In absence of Bigg, n short
to him.

1/Az,vT
am ans_ering your letter

esolution seems sufficient to pernit continuance such

transactions and sufficient recognition as necessary at times
to conduct of open market operations.

Our policy not to

purchase governments on repurchase agreement from member banks.
Prefer banks to use same as collateral to fifteen day note.
de do not carry government securities for brokers on repurchase
agreement.

Have purchased bankers acceptances on fifteen day

repurchase agreement from dealers at their purchase rate in
effort to establish and maintain open market in this district.
Mye felt dealers not entitle& to profit.
Martin. 1218pm.

orrice
.ERNWINT



•
dp TELEGRAM
FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)

RECEIVED
MAR J. 0 1925
OFFICE OF
THE GOVERNOR

RECEIVED AT WASHINGTON, D.

118fje
-hicago 1143am Ear 10
Board
iiashn
Referring Board's letter 6th we consider Board's resolution
sufficient to permit continuance of use of repurchase agreements
with recognized dealers for purchase and sale in the open market
of bankers acceptances and government securities. i It is not, however,
clear to ust- whether it is intended to extend the use of repurchase
agreements to banks which are not recognized dealers and which do
not make a practice of borrowing money on call in the open market.
_

2-11901
WirEWOMNT.M.OFFIC
 K


rchay
1254pm

do TELEGRAM
•

•

FEDERAL RESERVE SYSTEM

1.1.11.1••••••1111.
-

RECEAVED
MAR 1 0 1925

(LEASED WIRE SERVICE)

RECEIVED AT WASHINGTON, D. C.,

OFFICE OF
TI GOVERNOR
-TTil

28anot
102a Larh 10 1925

L

,
jrissinger
da shn

Je concur in resolution your Board quoted
your letter
sixth permitting continuation repurchase
agreement transaction
in system open market operations

Wellborn
1161a

VERNWESTPRINTMIOMC.

2-11901




0

FEDERAL RESERVE BANK
PET

!

/ OF N EW YORK

1
1

TEE GO\TER TIO .1,

March 9, 1925.

Dear Governor Crissinger:
This is to supplement the telegram I sent yo,iIon March
6 to acknowledge in letter form your letter of March'5 enclosing
the resolution tentatively passed by the Federal Reserve Board in
regard to fifteen day re-purchase agreements.
As I wired you all of the officers of the bank are heartily
in favor of the resolution as tentatively passed and are very happy
at this outcome of the discussion of this subject.
Thanking you very much for advising me, I am,
Very truly your,

J

Honorable D. R. Crissinger,
Governor, Federal Reserve Board,
Washington, D. C.
PJ/RAH




)1925

ciiyi

Pierre Jay
Chairman

•

TELEGRAM

FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)

t

I

RECEIVED AT WASHINGTON, D. C.,

28nrfa
Bo ti 1115a :.:a r 9
Crissinger

2osc1ution quoted :7;:u- i lettor si1thentL.oir satisfacto2.7 to this bmil:
L
.....
_
Ilardinc
1131a

2-11901



MIVEUSWICNT 1.11INT

OFFICIII

9 1925
OFFICE U.k.11
CLLU

OCOVIiatNOlis

TELEGRAM
•
*
FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)

.1925
.:-. ; AR 9 o-e
0FFICL
\\ TELB ciovERN°11
......,.....--,-,,,Ag

RECEIVED AT WASH I NGTON, D. C.

124vcd a
Cleveland 1.:arch 9,1925— 156p
Crissiner

ReferrinL: your letter si_;.th. Tentative resolution renffirminL B07 rd's previous
decisions as to fifteen day repurchase agreements in satisfactory form.aink it
very important that the practice of using; those agreements now so well established
very essential to the conduct of open market operations.
2ancher
203pm

2-11901


GoVERNW,O,141,0,110.101:

• TELEGRAM

• ;
•

FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)

36rbhf
Phila

Larih

1230p

sylAR 9 1925
OFFICE abi
r.CHE GOVERNOR

RECEIVED AT WASHINGTON, D. C.,

Crissingor,
Washn.
ReplyinL your letter sixth we think resolution tentatively adopted re-purchases
under repurchase agreements sufficient and satisfactory.
Norris
10p
12,

2-11901

OfFIE.
1i0VERNMENT PRINT



dp ip TELEGRAM
FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)

RECEIVED AT WASHINGTON, D. C.,

236fta
::ansasCity

421pm mar 9

Govr Crissinger,
Washington
Replying your letter Liar sixth; It has been our custom to take Govt bonds
from Federal land banks at V;ichita and Omaha on a repurchase agreement as
long as ninety days usually thirty or sixty days.

1;7111 them resolution

passed by your Board prohibit us from sill transactions with the land banks ?

2 We fear

that fifteen days will not be long

enough

to meet their requirements

and that they would rather go to a commercial bank if they are limited to this
short time. 'A hone we may continue the practice as heretofore, please advise.
Bailey

ZITTj

2-11901
Digitized VIINWENT MINT NO OITICI
HOW for FRASER


'ig95

556pm

dp TELEGRAM
•

•
•

FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)

RECEIVED AT WASHINGTON, D. C.,

28rhta
Richmmnd llam mar
Crissinger

7

Govtr
Wasbn

adequate
Resolution your letter 6th approving repurchase agreements entirely
market and a
and such transactions are believed useful in developing open
reasonable exercise of the powers granted in section 14.

!Pool



Seay
1114am




March 7, 1925

Dear Governor 3tron6:
aoliovilodge rocuipt of und thank you
for your lotr of tho 64h instan:,:, with enclosures,
.
and shtill brimr same to the tiention of to othr
members of

iiu Board.
Very tru,,. yours,
:

k6igned)

Governor

Mr. 9enj. Strong, Governor,
Federal !qesorve Bank,
New York, U. Y.




•
1

0

FEDERAL RESERVE BANK
OF NEW YORK

(,••
,•••••"".-

FiF(77;:7•FIN D
1925 ,
,:l•3%k
oFFicr.
"Pi CrOVERN0j.

March 6, 1925.

Federal Reserve Board,
Washington, D. C.
Attention: Honorable D. R. Crissinger
My dear Governor:
Your telephone message of yesterday and now your
letter of the fiSh, received this morning, were of course,
most welcome.
It seems to me that the resolution adopted by the
Board meets the situation completely in every respect, and
Mr. Jay is telegraphing you as you request.
6e are all most grateful to you for what you have
done to secure prompt disposition of the matter.
Very truly yours,

ce,
BENJ. SM
Governor.

*TELEGRAM
•

•
•

FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE,

RECEIVED AT WASHINGTON, D. C.,

36nrfa
Nev.york 1122a mar 6
Honorable D R Crissinger
Governor FRB Washn
Resolution Tentatively passcl by Federal Reserve Board yesterday regardinc
repurchase agreements considered by officers council this morning and I
was directed to advice you that; it 1:eet:.-, with their heartiest arproval
p ierre Jay
llauaa

PRINT Nu OtileE

2-11901

(i)VIMNIIPP:NT



Alsor

FEDERAL RESERVE BANK

RECEIVED
MAR 7 11925
OFFICE OF
THE GOVERNOR

OF NEW YORK

March 6, 1925.
Federal Reserve Board,
Washington, D. C.
Attention:flonorable D. R. Crissing_er
My dear Governor:
After our conversation in relation to acceptances and their treatment
in the market, I started to have a careful description prepared, first, of the
transaction giving rise to the credit; second, of the methods employed in opening
the credit; third, the way in 71lich credit is used by the beneficiary, and,
fourth, the way in which the resulting bill was marketed and dealt in.
This is a rather elaborate statement to have prepared and it happened
to come at a tire when Mr. Knzel is to be absent from the office for a short time,
so it has been suggested that possibly the enclosed famphlets, issued by the
American Acceptance Council, would cover the ground as fully as any new material
which we might prepare in the bank.

They are in the nature of primers for use by

those who were seeking information very actively when the use of acceptances was
first developed.

If this will furnish you and your associates with the informa-

tion desired, it will save us quite a little work and avoid some delay.
With this I am also enclosing the correspondence with Governor Harding and
the National Bank of Boston, which you were good enough to hand me while I was in
Washington; also a complete set of the forms used for commercial credits by the
National City Bank of this city.
I strongly urge that these papers be circulated among the Board members
as it will help them to have a fuller understanding of just how this business is done.
ery t
7
.4
&ca.




ly yourer-n „, 194 / 1
.( 4
lir
BENJ. StRONG
Governor.

,
J.
No. 131.

ffice Corresporeklece
To ______

Governor Crissinger.

From_

FEDERAL RESERVE
BOARD

•
itch 6_, 1925
.

Mi.. Eddy.




Subject:

3

If the attached form of letter is O.K., I will prepare
similar letters to the Governors of all other banks, except
New York.
Upon reconsideration, I think we should write instead of
wire the Governors of the Western banks.




S.
THE SECRETARY OF THE TREASURY
WASH I NGTO N

RECEIVED
• 1925
OFFICE OF
TiL141 GOVERNOR
j

March 6, 1925.

My dear _Governor:
I have your letter of illa2--5th enclosing resolution
in connection with the 15-day repurchase agreement and
wnich in effect proves the practice.

I think the form of

this resolution is satisfactory and the resolution has my
approval.
Very truly yours,

,

_ /4!

Secretary of the Treasury.

Hon. D. R. Crissinzer,
Governor, Federal Reserve Board,
Treasury Department.




t.1

March 6, 1925.

Deer Governor Hardin:
The Federal Reserve !;oard has had uAder consideration the
practice of some of the Federal reserve banks buying bankers'
acceptances rnd Government securities in the open market from
banks and 11.telified dealers under 15-day "repurchase agreements",
and particularly the relationship of saeh transactions to the
conduct of the open market operations of the System. AL a meeting yesterday, et which all members were present except the
Secretary of tYe Treesuey, the Board reviewed action heretofore
taken by it on questions involving various phases of these
transactions, and it wet: unanimously voted to tentatively adopt
the following resolution, tid c copy of it ..'as ordered sent to
each Federal reserve bank with the rcqueet that the banks %Attire
the Board their views ez to the se22iciency of the resolution
to pemit of the eJetinannce of such teanseetions end recognition of them as neceserry at time to the conduet of the open
mar'eest uperrLione of the beLks re.d the Systted.
"The Federal Reserve Board reaffirms previous
decisions authorizing the practice, long continued,
of purchase and sale in the open market of bankers'
acceptances and Government securities, by Federal
reserve banks from and to banks and qualified deal-day 'repurchase agreements', it being
ers, under 15
understood that such transactions shall be open,
under similar facts and conditions, to all Federal
reserve banks with relation to banks and similarly
qualified dealers in their respective districts".
Very truly yours,

(5rned) D. VZ, Crissinger.
Governor.
Mr. W. P. G. Harding, Governor,
Federal Reserve Bank,
Boston, Mass.




March 6, 1925

Deer Governor lorris:
Theieederal heserve 3oard ha aad endee eonsideration
the practice of some of the Federal reserve banks buying
benkers' acceptences and Government sceerilies in the open
market from banks end qualified dealers under 15-day "repurchase agreements", and prrticelarly thu relvtiorship of
such transactions to the conduct of the open market operations of the System. At a meeting yesterday, at ehich all
members were present except the :eecretazy of the Treasury,
the Board reviewed potion hereto:Lore tekee by it on questions involving various phases of tl_eae tru:Isectione, and it
as ulanineeusly voted to teetativele adopt the follewing resolution, and a copy of it was ordered aunt to eech Federal
reserve 'Genie' with the reetuest that the banks wire the Bonrd
their views as to the sufficiency of the reseluti -Ya to permit of the continuance of such trnnsactions rind recognition
of them us necessary nt times to the conduct of the Ten
u rket operations of the banks and the System.
"The Federal Reserve Board reaffirms previous
decisions authorizing the pr-ctice, long continued,
of purchese and sale in the open merket of bankers'
acceptances and Government securities, by Federal
reserve banks from and to banks end qualified dealers, under 15-day 'repurchase agreements', it being
understood that such transactions shall be open,
under similar facts rind conditions, to all Federal
reserve brinks with relation to brinks and similarly
qunlified clealers in their respective
districts".
Very truly yours,
(.9.?:ree) 11. t. Crissinger.
Governor
Mr. G. a. Norris, Governor,
Federal Reserve Bank,
Philadelphia, Ta.




March 6, 1925.

Dear Governor Fancher:
The Federal Reserve Board has had under consideration the
practice of some of the Federal reserve banks buying bankers'
acceptances and Government securities in the open market from
banks and qualified dealers under 15-day "repurchase agreements",
and particularly the relationship of such transactions to the
conduct of the open market operations of the System. At a meet,ing yesterday, at which all members were present except the
Secretary of the Treasury, the Board reviewed action heretofore
taken by it on questions involving various phases of these
transactions, and it was unanimously voted to tentatively adopt
the following resolution, and a copy of it was ordered sent to
each Federal reserve bank with the request that the banks wire
the Board their views as to the sufficiency of the resolution
to permit of the continuance of such transactions and recognition of then as necessary at times to the conduct of the open
market operations of the bahl:s and the System.
"The Federal Resarve Board reaffirms previous
decisions authorizing the practice, long continued,
of purchase and sale in the open market of bankers'
acceptances and Government securities, by Federal
reserve banks from and to banks and qualified deal-day 'repurchase agreenents', it being
ers, under 15
understood that such transactions shall be open,
under similar facts and conditions, to all Federal
reserve banks with relation to banks and similarly
qualified dealers in their respective districts".
Very truly yours,

mgreect) U. R. Crissinger.
Governor.
Mr. E. R. Fancher, Governor,
Federal Reserve Bank,
Cleveland, Ohio.




Merch 6, 1925

Dear Governor Seay:
The Federal Reserve Board has had under consideration
the practice of come of the Federal reserve banks buying
bankers' ecceptances and Government securities in the open
mnrket from banke :end qualified dealers under 15-day "repurchase agreamenta", and particularly the relationship of such
traaseetiens to the conduct of tho open market operations of
the Vstem. At a meeting yesterday, at which all members were
present axce?t; the Loc:etury of the Treusury,
3oard reviewed
action heretofore aken 3y it on questions involvinE; various
phaues of these transactions, and It aes unanimously voted to
tentativelj adopt the following resolution, and a °op./ of
it
was ordered sent to each Fedorel roJervo bank aith the request
that the banks wire the ;3oerd their views as to tho sufficiency
of the resolution to permit of the continuance of such transactiens and recognition of thom as eeeassary at times to the conduct of the open earket operations of the banles and the
1yetem.
"The Federal "eserve Roard reaffirees previous
eeoislons authoriziee; the prectioe, long continued,
of purchase and sale in the open market of bankers'
eeceptances and Government securitdoe, by Federal
reserve banks from and to banks and qualified dealers, under 16-day I repurohase agreements', it being
understood that such transactions shall be open,
under similar Picts and conditions, to all Federal
reserve banks with relation to banks and similarly
qualified dealers in their respective districts".
Very truly yours,

Governor
Mr. G. J. Seay, Governor,
Federal Reserve Bank,
Richmond, Va.




March 6, 1925.

Dear Governor Wellborn:
The Federal Reserve Board has had under consideration the
practice of some of the Federal reserve banks buying bankers'
acceptances and Government securities in the open market from
-day "repurchase agreements",
banks and qualified dealers under 15
and particularly the relationship of such transactions to the
Conduct of the open market operations of the System. At a meet,ing.yesterday, at which all members were present except the
Secretary of the Treasury, the Board reviewed action heretofore
taken by it on questions involving various phases of these
transactions, and it was unanimously voted to tentatively adopt
the foilowini; resolution, and a copy of it wes ordered sent to
each Federal reserve bank with the request that the banks wire
the Board their views as to the sufficiency of the resolution
to permit of the continuance of such transaction2 and recognition of them as necessary at times to the conduct of the open
market operations of the banks and the System.
"The Federal Reserve Beard reaffirms previous
decisions authorizing the practice, long continued,
of purchase and sale in the open market of bankers'
acceptances and Government securities, by Federal
reserve banks from and to banks and qualified dealers, under 15-day 'repurchase agreements', it being
understood that such transactions shall be open,
under similar facts and conditions, to all :ederal
reserve banks with relation to banks and similarly
qualified dealers in their respective districts".
Very truly yours,

(5igne41) D.
Governor.
Mr. M. B. Wellborn, Governor,
Federal Reserve Bank,
Atlanta, Ga.




Mozoh G

•

19!?5.

DOW Governor 77cDols;a1:
The Federal deserve Board has had under consideration
buying
the practice of some of the Federal reserve banks
open
bannrst asoeptanses and GovJrnmalt securities in the
ay "remar-kot from banks and qualified dealers under 15-d
onship of
purchase areomonts", ana particularly the relati
operasuch transactions to the conduct o the Open mar'xst
Which all
tions of the Systm. At a mootin6: yostJrday, at
:!reasury,
mlmbors were preSent elcept the 3ecrotary of the
questhe 3oard reviewed action heretofore taen by it on
ctions, and it
tions involving various phases of those transa
followinp: reswas unanimously voted to tezltatively adopt the
to each Aideral
2
olution, and a co4 o- it aas orlerad sent
wire the Board
reserve bank with tho request that the banks
sufficiency of the resolution to pertheir views as to the
and reco7nition
mit of the continuance of such transactions
at ttmos to the conduct of the open
Of them as necessary
market operations of the banks anA the ;;istem.
"74e :ederal J.eservo 3oard reaffirms 7;rovious
decisions wathorizing the practice, lon continued,
of purchase and sale in the anon market of bankers'
acceptances and Government securities, by Federal
reserve banks from and to bank's and qualified dealers, under 15-dau 'repurchase afTeementst, it being
understood that such transactions shall be open,
under simiLT facts anl conditions, to all Federal
reserve banks with relation to banks oz.1d similrly
qualified dealers in their respective districts".
Very truly yours,
,“..!,•neki,
• ‘

Lrissinger.

Uovernor.
lir. J. 3. NO4ouETa, v-evornor,
Federal Ao4orva 3ank,
Chicao, Ills.




Yarch 6, 1925.

Dear Governor Biggs:
Tee Federal Reserve Iloerd hes had urier censideretioe
the practice of gee() of the Federal reserve banks buying
bankers' aoceptances and Government securities in the open
market free bane and qualified dealers under 13-day "repurchase aereements", and particularly the relationship of each
transactions to the condaot of the open market operati
ons of
the Seetem. At a meeting yesterday, at lihich all members
were erosent except the Secretor.' of the Treasury, the Board
reviewed action heretofore taken by it on questions involvi
ng
various phaels of those transactions, and it eons unanimo
usly
voted to tentativele adopt the following resolution, and a
copy of it was ordered sent to each Federal reserve bank with
the request that t7le banks wire the Board their views as to
the safficience of the resolution to perrit of the continuance
of such transaction and recognition of thee as necessary at
times to the conduct of the open market operations of the banks
and the System.
"The Federal Reserve Board reaffirms erevioes
deoisions althoriein - the practice, ion continued,
of peeeheee and sale in the open market of
bankers'
acceptances and Government securities, be Federal
reserve ban'ee from and to ban°13 and unlined leale
ere, unler 15edee 'repurchase aexeeelentsl, it being
underetooi that sech transact ions shall be open,
ender similar facts and conditions, to all Federal
reserve banks with relation to baaka and similarle
qualified dealers in their reaeective listricts".

Vim truly yours,
(5ignedl

Crissinc•r'
Governor.

kr. D. C. Biggs, Governor,
Federal Reserve 3ank,
St. Louis, Yissoeri.




March 6, 19':5,

,)oar Governor Yelliv,
;:
The Federal iosorva 3oard has had und3r considfwatiou
3
th3 practice of somo of the 'Federal reserve banks bilyin,
bankers* wceptances end Gov,irament securities in the open
•triarket from banks and ,jualifloa dealers under 15-Klay "repurchase agreements , and particularly the relationship of
such transactions to the conduct of tlIt; open market °pare"tions of the System, :It a meetinc; yest aqau„ at which all
members wore present except the Jecratary of the Treasory,
the 13oavd revicraed action heretofore taken by it on questions involvia(:: various phases of these transactions, anft it
was auanimouslu voted to tentatively adopt the followin,' resolution, and a copy of it was ordered cent to each Federal
reserve bank with the request that the .)an:cs wire the F3o are.
their views as to the auffieV.mcy of the r-osolution to
mit of the continaanco of such tradloactions and reco,03.1tion
of then as necessarj at times to the conduct of tho ol)en
market oporationm of the banks an:1 the 3;,,Gtc7.
"The 'Federal .teserve ?,oarzi reaffirms previous
decisions authorizinc the practice, low:: continued,
of ,urchase end sale in the coon nirket of bankers'
acceptances aid Government securities, by Federal
reserve bari:fzo frcel ana to bezikf: and qualified dealors, un- or 15-day tropixrchcse a--;ree:.lentst, it be Inr;
l
understood that such traasactions shall be o - on,
uer strail.r facts and conaition:, to all i'eaeral
reserve banks filth relation to beaks and similr1:7
qualified dealers in their respective districts".
Very truly yours,

ks,..
Governor
7:06 1. A. Youw., Governors
2odoral .oserlro 3adk,
Lannospolis, Minn.




1:arob. 6, 1925.

Dear Governor 3a1levs
The Foderal Reserve '3oord has had under conmideration
aot.e of the Fedora' reserve ban*.z.; buying
the ,Taoticio
ban:Icon!' aoo t'inces and Go7er.r..p?rat se
• t
a in the open
Tnarket from br...n*. 1 and (1..7.alified dealers 172v.ler 1::
:
,—day "rep:1rohase b!?..:rieLie-ats", and pErtionlarly t7e relati.:
-nship of such
trans:lotions to the eandttot of the open rerIcat oreraticm.3 of
the S- te. At 3Tneetinc yesterday, at whieh all nenbers
wore prenent exce-t the Oeoretar7 of the Treasury, the T3o3rd
reviewed Matt or. haretorore taken by it on questions involvin?7
v5111.0111 rhttsln of those trazannot5ons, Dud it war; unanirousiz:
voted to tentlAivo1:.7 adopt the following rotiol-tion, and a
00.-oy of it WEI3 order- 4 sent to eaoh Poderal rlsorve bank with
.
,
the request that the b*.n1:tt wire t'!Le 3oard their vLevIe tia t
i
the alffielenay of the rosoko,tion to perr.it of filo couti- tuanoo
of wierh trtsaissations rend r000tp.ition of thT tSilooessary let
the bra/If:5
tires to the oonduot of the open market o;ration3
end the System.
'The Federal Reserve Board reaff.irms previa:as
thc praotioel
:ieoisions
cl-,1 77ed„
$
purohase :Ilia sale in the open market of benkers°
rxeciptcnoes aid Governrent eeormities, 4:7 Pedoral
ronervl ban.1:5 from and to b...1n1-s mid cmi1ifed deal..
15—day trepnre7lase necrrtementst, it being
!rs,
unleratood thnt such trills:lotions shall be open,
miler sirilar Theta and conlitions, to all Pederal
nserro bars with relation to ban' a and sirilarly
qrlified del:)1nre in their rtIspeetive distriots"•
yours,
Ten truly
c.C:rissirs?:,.t1;
(51gne4io U.

Governor.
Vr.

J. 3u.1.1q:;, Governor,
.
rederal 'Reserve 13ank,
Kansas Cit7,




l'ere'l 6, 1925.

Dear Governor EcKinneJ:
The Federal Reserve Board has had under consideration
the practice of some of the Federal reserve banks buying bank,.
ere acceptances and Government seouritios in the open market
from banks and qualified dealers under 15
-day "repurchase
agreements", and particularly the relationship of such transactions to the conduct or the Open market operations of the
System. At a meeting yesterday, at. which all members were
present except the Secretary of the Treasury, the Board reviewed
actien heretofore taken by it on questions involving various
phases of these trensections„ and it was enenimousle voted to
tentatively ado:et the following resolution, and a copy of it
was ordered sent to oaoh Federal reserve bank with the request
that the ban%s wire the Board their views as to the slfficiency
of the resantion to permit of te contInuanee of such transactIons and reeceylition of them as nseessary at. tires to the
conduct of the open market operations of the ben7rs and the
3ystem,
'The Federal Reserve Board reaffirms previous
decisions authorizing the practice, long continued,
of purchase aad sale in the open market of bankers'
acoeptances and Government securities, by Federal
reserve banks from and to bans and qualified dealers, nieler 15
-day 'repurchase agreements', it being
understood that such transactions shall be open,
under similar faots and conditions, to all Federal
reserve banks with relation to lean'ts and similarly
qualified dealers in their respective districts".
Very tralu yours,

(...5igmea) b. R. Crissittvc-

Governer•
Yr. 3. A. McKinney, Governor,
Federal Reserve Bank,
Pa
s, Texas.




I

March 0, 1925.

Dear Governor Calkins:
The Federal Aeserve 3oard has had under considoratiOn
the practice of SOW of the Federal res,)rve banks buying
bankers' eceeptances and Government securities in the open
-day "remerket from banks and qualified dealers un -er 15
purchase w.7roements", and particularly the relationship of
such transactions to the conduct of the oeen market operations of the :);:atom. Lt a meet1n.7 yesterdau, at which all
embers were present except the Sec:rotary of the Treasury,
the Fioard reviewed action heretofore taken by it on ques:
tions involviar.7 various phases of thee° transactions, ead it
was unanimously voted to tentatively adopt the followilre resolution, and a copy of it was ordered sent to each Federal
reserve bank ieth the request tat the banks wire the .loard
their viaas as to the sufficiency of tha resolution to permit of the continuance of such transactions and recognition
of them as necessary at times to the conduct of the open
market ooerations of the banks and the System.
"The Federal ...eservo '.ireard reaffirms erevieus
deeisioes authorizing the practice, loir:; continued,
of purchase and cab o in the open market of bankers'
accetances and Alflrament securities, by Federal
reserve banks fram and to banks and crualified deal:
ers, under lb-lau 'repurchase ar!xeements', it boine7
understood that seeh transactions shall be open,
under similar facts and conditions, to all Federal
reserve banks with relation to balik and similarly
Qualified dealers in their respective districts".
IT:ry truly yours,

004 Oct% "JEL k. LriA.601- 2tl.
.
Governor
Ur. J. U. :;alkins, Governor,
Federal Aservo Bank,
5an Francisco, Cal.




March 5, 1925.

My dear Mr. Secretary:
The enclosed resolution pertaining to the 15 day
repurchase agreament for bankers acceptances in the open
market has been tentatively agreed upon by each and evary
member of the Board.
I wish you would read the resolution and if you see
any reason why it should not be finally mad.e the policy of
the Board I would like to have any sugzestions you have to
make
.

Respectfully,

D. R. Crissinger,
Governor.
Hon. A. V. Mellon,
The Secretary of the Treasury,
Washington, D. C.
no.




larch 5, 192b.

My dear Mr. Undersecretary:
The Federal Reserve Board this morning unanimously
agreed upon the enclosed resolution pertaining to the lb day
repurchz,se asreammt for bankers acceptnoes in the open market.
I want ;*rou to read it over and if you find anything in it that
you think needs clarifying I hop() you will let ma have your
suggestions.

for myself I think it alearly roastablishes

and reaffirms all the former rulings of the Board which heretofore have clearly held the agreements legal.
have sent a copy of the resolution to Secretary
Mellon.

Will you kindly have your conference with Mr. Mellon

and let me have the result.
Respectfully,

D. R. Crissinser,
Governor.
Hon. Garrard B. Winston,
Undersecretary of the Treasury,
Washington, D. C.
En0.

MI5

411111k

3. 1-75M -9-Z3
•

o.

p.

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To

Governor Strong.

00
uAiL

February 24, 1925.192

SUBJECT:

E. R. Kenzel.

FROM

Through the courtesy of the National City Bank, I am able to hand you
the following forms which have to do with their commercial letter of credit and
acceptance business:
(1)

Documentary acceptance credit agreement signed by customers in
connection with acceptances involving domestic shipments or the
pledge of staples in warehouse.

(L)

A continuing agreement signed by customers in connection with
the issuance of commercial letters of credit, either sight or
time.

(3)

Application for commercial letter of credit by customer.

(4)

Application for commercial letter of credit by domestic bank.

(5)

An irrevocable credit form with duplicate copy incorporating
customer's agreement.

(6)

Correspondent's irrevocable export credit.

(7)

Our own confirmed irrevocable export credit.




Form No. F.D. 927A—H.P. 200-8-24

04

ft
•

•

DOCUMENTARY ACCEPTANCE CREDIT AGREEMENT No.
THE NATIONAL CITY BANK OF NEW YORK.
NEW YORK CITY.

192

Dear Sirs:
In consideration of your accepting as our agent and for our account, in reliance hereon, at your option, any one or more of any drafts drawn by
which we may designate at any time or times, we agree as follows:
(1) We agree to pay to you, your successors or assigns, at your New York orlice, in United States currency, the amount of each such acceptance, on the last
business day before its maturity or, upon demand, at any time prior thereto, together with the amount of your commission at such rate or rates as you may fix
and the amount of all charges and expenses paid or incurred by you in the premises.
(2) We undertake and represent that all drafts which we may at any time or times designate for acceptance by you hereunder will be drafts which
(a) grow out of transactions involving the importation or exportation of goods; or (b) grow out of transactions involving the domestic shipment of goods and
have shipping documents conveying or securing title attached; or (c) are secured by warehouse receipts or other such documents conveying or securing title
covering readily marketable staples, and upon each acceptance by you of any such drafts, we will, as you may prefer, hold for your account, deliver to you or
deliver for your account to such correspondent as you may approve, in the above cases (a) and (b) all shipping and other documents relative to the goods being
or to be imported, exported or shipped in the transactions relative to which the drafts in such cases are drawn, and in the above case (c) the warehouse receipts
or other such documents conveying or securing title covering readily marketable staples against which as security the drafts in such case are drawn ; it being
further agreed that all documents in each such case shall be satisfactory to you, shall be issued by some one other than the drawer of the relative drafts and in
the above cases (a) and (b) cover goods, and in the above case (c) cover readily marketable staples, as described in such documents, of a market value estimated
by us as in excess of the face amount of the relative acceptances; and relative to drafts heretofore or hereupon accepted by you hereunder, we herewith deliver or
designate to be held for your account, the following:
Bills of Lading
Warehouse Receipts

cm ering goods or readily marketable staples, as therein described of a market value estimated by us as in excess of the face amount of such drafts.
(3) We hereby recognize and admit your ownership and unqualified right to the possession and disposal of the above described documents, as well as of all
ether bills of lading, warehouse receipts and other documents at any time held by you, or held for your account by us or by any correspondent of yours, and relative to any draft or drafts accepted by you hereunder, and of all goods, readily marketable staples and other Property covered by or relative to such documents or
drafts, whether or not such documents, goods, readily marketable staples or other property be released to us, or to any other person at our request, on trust or
bailee receipt, and in and to all of the proceeds of the foregoing, all as security for the payment of all obligations or liabilities of us to you hereunder, as well
as for the payment of all other obligations and liabilities of us to you, direct or contingent, due or to become due and whether now existing or hereafter arising,
and we also hereby give you a lien, for the payment of all such obligations and liabilities, upon all cash, stocks, bonds and other securities and all other
property of every name and nature whatsoever, whether real, personal or mixed, which may now or hereafter belong to us, or in which we may have any interest,
and which may now or hereafter be delivered, conveyed, transferred, assigned or paid to you, or come or have come into your possession or control or into
the possession or control of any one for you in any manner whatsoever, whether expressly as security, or for safekeeping or otherwise, including all bills
of lading, warehouse receipts and other documents and all goods, readily marketable staples and other property covered thereby and all such property consigned to or
by you or any one on your behalf, and all items received for collection or transmission and the proceeds thereof, whether or not all or any of such documents or property be released to us, or to any other person at our request, on trust or bailee receipt, and, upon demand, or, should the market value of
the documents held by you, or held for your account by us or by any correspondent of yours, relative to the draft or drafts accepted by you hereunder at
such time outstanding, and of the goods, readily marketable staples or other property covered by such documents, as a whole, suffer any decline, without demand
we will deliver to you or for your account to such person as you may designate, other documents, securities or other property of a character and value satisfactory to you as additional security for the payment of any and all of our obligations and liabilities above described, or make such cash payments
thereon as you may require. We have obtained or will obtain from the drawer of any and all drafts accepted by you hereunder, and prior to each such
acceptance by you, an agreement whereby such drawer will undertake to pay to us when due the amount of any and all sums due or to become due from us to
you hereunder relative to such draft or drafts, and we hereby sell and assign to you all rights accruing to us at any time or times under such agreement or agreements, with authority to you to commence, prosecute or settle in our name or otherwise any actions or proceedings at law or in equity in connection therewith.
(4) In extension and not in limitation of your rights and powers, we agree that you and your correspondents may act and rely upon any verbal, written,
telegraphic or other instructions or representations by us, or by any agent or officer of us, on our behalf, in the premises, including any such instructions or
representations regarding: the sale, extension, renewal, discharge or other disposition of any drafts accepted by you hereunder, or the disposition of any
proceeds thereof; the transfer, substitution, sale, Pledge, delivery or other disposition of any bills of lading, warehouse receipts or other documents held by you
or held for your account by us or by any correspondent of yours relative to any of such drafts: the insurance, or shipment, warehousing, cartage or other disposition of any goods, readily marketable staples or other property covered by or relative to any such documents; or, the disposition or handling of any other property,
security hereunder, or any proceeds thereof, and, in the absence of any such instructions or representations, you or your correspondents may take or omit such
action in the premises as you or your correspondents may deem advisable, and any action so taken or omitted, shall be binding upon us, and we agree to hold you
harmless from all loss in acting or relying upon any such instructions or representations or in acting or omitting to act in the absence of such instructions and to
reimburse you promptly upon demand for the amount of any charges or expenses paid or incurred by you or your correspondents in the premises.
(5) We agree to procure promptly any export or other licenses in connection with the shipping or warehousing of any goods, readily marketable staples or
other property covered by any documents at any time held by you, or held for your account by us or by any correspondent of yours, relative to any draft or drafts
accepted by you hereunder, which you may deem necessary, and to comply with all governmental regulations in regard to the shipping, warehousing or financing
of said property, and to furnish such certificates in that respect as you may at any time require; to keep the said goods, readily marketable staples or other
property insured against all usual risks and such special risks as you may designate, with such companies and in such amounts as may be satisfactory to you,
and to assign the policies or certificates of insurance to you, or, at your option, make the loss or adjustment, if any, payable to you, and to furnish you with
such evidence as you may require in that respect; and to pay any and all taxes and shipping, warehousing, cartage or other charges or expenses upon or with
regard to the said goods, readily marketable staples or other property, and to furnish you with such receipts or other evidence in that respect as you may at
any time require; and should you or your correspondents pay for or incur any liability in connection with, any above mentioned shipping or other licenses or any
insurance, tax, shipping, warehousing, cartage or other charges we will satisfy the same or reimburse you promptly therefor upon demand.
(6) Upon any transfer, sale, delivery or endorsement of any bill of lading, warehouse receipt or other document at any time held by you, or held for
your account by us or by any correspondent of yours, relative to any draft or drafts accepted by you in reliance hereon, neither you nor any of your correspondents
shall be responsible for the genuineness or validity of such documents, or of any endorsements thereon, or for any difference in the character, quantity, quality,
condition or value of any relative goods, readily marketable staples, or other property from that expressed in such documents and you shall not be responsible for any
act, neglect, default, omission, insolvency or failure in business of any correspondent, carrier or warehouseman, nor for any error, omission, interruption or
delay in the transmission or delivery of any messages or documents by mail or of any messages by telegraph, wireless or other usual means of transmission,
whether or not any such messages be in cipher.
(7) Upon the non-payment of principal or interest when due on any of our obligations or liabilities to you, herein described, or upon our failure to
deposit additional security or to make cash payments on account when required as herein provided or to perform any other promise herein contained, or in case
of the filing of a petition in bankruptcy by or against us, or upon the application for the appointment of a receiver for, or upon the application for a writ of
attachment against, any of our property, or in case of the failure in business of, or the commission of any act of insolvency by us, then and in any such case
all our obligations and liabilities to you, herein described, shall thereupon become due and payable without demand or notice and notwithstanding any credit or
time allowed to us by any instrument or agreement; and full power and authority are hereby given to you thereupon, or at any time or times thereafter,
without either demand, advertisement or notice of any kind, all of which are hereby expressly waived, to appropriate any or all of our said cash, securities,
documents, goods, readily marketable staples or other property, security hereunder, or any property substituted therefor, or added thereto, at such current value as you
may estimate the property so appropriated to be worth, and/or to sell, assign and deliver the whole or any part of the said property, security hereunder, at any
broker's board, or at public or private sale, at your option, either for cash or credit, or for future delivery, without assumption of any credit risk on your
part, and, in case of any such appropriation or sale, after deducting from such property appropriated and/or from the proceeds of such sale or sales, any or
all costs and expenses hereunder, including any or all of your commission and other charges, the costs of any said sale or sales and any or all costs and
expenses for care, warehousing, shipping, cartage, insurance and taxes, to apply the remainder of any property so appropriated by you and/or the residue of
the proceeds of any such sale or sales, in full or partial payment of any one or more or all of our said obligations or liabilities to you, whether except for this
agreement such obligations or liabilities would then be due or not, making proper rebate for interest on obligations and liabilities not otherwise then due, and
returning the over-plus, if any, to us, who agree to be and remain liable upon all of said obligations and liabilities or any part thereof not satisfied by such
application of property appropriated or such application of the proceeds of such sale or sales. At any said sale or sales, you may purchase the whole or any
part of said property sold, free from any rights of redemption on our part, which rights are hereby released.
(8) You shall not be deemed to have waived any of your rights hereunder by any act, delay or omission whatsoever on your part, unless you or your
authorized agent shall have signed such waiver in writing, and no such waiver, unless expressly so stated, shall be effective as to any transaction occurring or .,
breach continued subsequent to the date thereof.
(9) This agreement shall continue in full force and effect and be binding upon us and our successors and assigns, and shall not be affected, impaired or
released by our insolvency or dissolution, provided that upon receipt by you of written notice signed by us, and the receipt from you of such notice by your
departments, branches and correspondents concerned, your power thereafter to accept any draft or drafts in reliance hereon shall end and determine.
Yours very truly,

[Bank Seal]




•

• •

•

COMMERCIAL LETTER OF CREDIT AGREEMENT

TWE NATIONAL CITY BANK OF NEW YORK.
55 WALL STREET, NEW YORK, N. Y.
Dear Sirs:
In consideration of your opening, from time to time, at your option and at the request of the undersigned or any of us, your Commerical Letters of Credit
(hereinafter referred as to the "Credit") we hereby jointly and severally agree as follows:
1. As to drafts or acceptances under or purporting to be under any Credit, which are payable in United States Currency, we agree: (a) in the case of each
sight draft, to reimburse you at your New York office, on demand, in United States Currency, the amount paid on such drafts, or, if so demanded by you, to
pay to you at your office in advance in such coin the amount required to pay aich draft; and (b) in the case of each acceptance to pay to you, at your New
York office, in United States Currency, the amount thereof, on demand but in any event not later than one business day prior to maturity, or, in case the
acceptance is not payable at your New York office, then on demand but in any event in time to reach the place of payment in the course of the mails not later
than one business day prior to maturity.
2. As to drafts or acceptances under or purporting to be under any credit, which are payable in currency other than United States Currency, we agree:
(a) in the case of each sight draft, to reimburse you, at your New York office, on demand, the equivalent of the amount paid, in United States Currency at the
rate of exchange then current in New York for cable transfers to the place of payment in the currency in which such draft is drawn; and (b) in the case of
each acceptance, to furnish you, at your New York office, on demand, but in any event in time to reach the place of payment in the course of the mails not later
than one business day prior to maturity with first class bankers' demand bills of exchange to be approved by you for the amount of acceptance, payable in the
currency of the acceptance and bearing our endorsement, or, if you so request, to pay to you, at your New York office, on demand, the equivalent of the acceptance
in United States Currency at the rate of exchange then current in New York for cable transfers to the place of payment in the currency in which the acceptance
is payable.
3. We also agree to pay to you, on demand, a commission at such rate as you may fix, on such part of each Credit as may be used, and in any event a
% of the amount of each Credit, and all charges and expenses paid or incurred by you in connection therewith; and interest
minimum commission of
where chargeable.
4. We hereby recognize and admit your ownership in and unqualified right to the possession and disposal of all property shipped under or pursuant to
or in connection with each Credit or in any way relative thereto or to the drafts drawn thereunder, whether or not released to us on trust or bailee receipt,
and also in and to all shipping documents, warehouse receipts, policies or certificates of insurance and other documents accompanying or relative to drafts
drawn under any Credit, and in and to the proceeds of each and all of the foregoing, until such time as all the obligations and liabilities of us or any of
us to you at any time existing under or with reference to each Credit or this agreement, or any other credit, or any other obligation or liability to you,
have been fully paid and discharged, all as security for such obligations and liabilities; and that all or any of such property and documents, and the proceeds
of any thereof, coming into the possession of you or any of your correspondents, may be held and disposed of by you as hereinafter provided; and the
receipt by you, or any of your correspondents, at any time of other security, of whatsoever nature, including cash, shall not be deemed a waiver of any
of your rights or powers herein recognized.
5. Except insofar as instructions may be given by us in writing expressly to the contrary with regard to, and prior to the issuing of, any particular
Credit, we agree that you and any of your correspondents may receive and accept as "Bills of Lading" under each Credit, any documents issued or purporting
to be issued by or on behalf of any carrier which acknowledge receipt of property for transportation, whatever the specific provisions of such documents,
and that the date of each such document shall be deemed the date of shipment of the property mentioned therein; that you and any of your correspondents
may receive and accept as documents of insurance under each Credit either insurance policies or insurance certificates; and that you and any of .your
correspondents may receive, accept or pay as complying with the terms of any Credit, any drafts or other documents, otherwise in order, which may be signed
by, or issued to, the administrator or executor of, or the trustee in bankruptcy or the receiver for any of the property of, the party in whose name it is
provided in the particular Credit that any drafts or other documents should be drawn or issued.
6. Except insofar as instructions may be given by us in writing expressly to the contrary with regard to, and prior to the issuing of, any particular
Credit, we agree, that part shipments or shipments in excess of the quantity called for in any Credit may be made and you may honor the relative drafts,
our liability to reimburse you for payments made or obligations incurred on such drafts being limited to the amount of such Credit, and that if the particular
Credit specifies shipments in installments within stated periods, and the shipper fails to ship in any designated period, shipment of subsequent installments
may nevertheless be made in their respective designated periods and you may honor the relative drafts.
7. We agree that in the event of any extension of the time of shipment or of the time for the drawing, negotiation, acceptance, presentation, or of the
maturity of any drafts, acceptances, or other documents, or any other modification of the terms of any Credit, except an increase in the amount thereof,
at the request of any of us, with or without notification to the others, or in the event of any increase in the amount of any Credit at our request, this
Agreement shall be binding upon us with regard to the Credit so increased, extended or otherwise modified, with regard to drafts, documents and property
covered thereby, and with regard to any action taken by you or any of your correspondents in accordance with such extension, increase, or other modifications.
We further authorize you to surrender, from time to time, to such parties as we or any of us may designate, or their nominees, the whole or any part of
any merchandise shipped under any Credit, or the bills of lading or other documents representing the same, against payments satisfactory to you or under
your usual form of trust or bailee receipt, signed by any of such designated parties.
8. The users of each Credit shall be deemed our agents and we assume all risks of their acts or omission. Neither you nor your correspondents shall
be responsible for the existence, character, quality, quantity, condition, packing, value, or delivery of the property purporting to be represented by
documents; for any difference in character, quality, quantity, condition, or value of the property from that expressed in documents; for the validity, sufficiency
or genuineness of documents, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; for the time,
place,' manner or order in which shipment is made; for partial or incomplete shipment, or failure or omission to ship any or all of the property referred to in
any Credit; for the character, adequacy, validity, or genuineness of any insurance; for the solvency or responsibility of any insurer, or for any other risk
connected with insurance; for any deviation from instructions, delay, default or fraud by the shipper or anyone else in connection with the property or the
shipping thereof; for the solvency, responsibiltiy or relationship to the property of any party issuing any documents in connection with the property; for delay
in arrival or failure to arrive of either the property or any of the documents elating thereto; for delay in giving or failure to give notice of arrival or any
other notice; for any breach of contract between the shippers or venders and ourselves or any of us; for failure of any draft to bear any reference or
adequate reference to the Credit under which it is drawn, or failure of documents to accompany any draft at negotiation, or failure of any person to note the
amount of any draft on the reverse of the Credit under which it is drawn, or to surrender or take up any Credit or to send forwad documents apart from drafts
as required by the terms of any Credit, each of which provisions, if contained in any particular Credit itself it is agreed may be waived by you; or for
.
,
errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, wireless or otherwise, whether or not they be
in cipher; nor shall you be responsible for any error, neglect, or default of any of your correspondents; and none of the above shall affect, impair, or
prevent the vesting of any of your rights or powers hereunder. In furtherance and extension and not in limitation of the specific provisions hereinbefore
set forth, we agree that any action taken by you or by any correspondent of yours under or in connection with any Credit or the relative drafts, documents
or property, if taken in good faith, shall be binding on us and shall not put you or your correspondent under any resulting liability to us; and we make like
agreement as to any inaction or omission, unless in breach of good faith.
9. We agree to procure promptly any necessary import and export or other licenses for the import or export or shipping of the property and to comply
with all foreign and domestic governmental regulations in regard to the shipment of the property or the financing thereof, and to furnish such certificates in
that respect as you may at any time require, and to keep the property adequately covered by insurance satisfactory to you, in companies satisfactory to
you, and to assign the policies or certificates of insurance to you, or to make the loss or adjustment, if any, payable to you, at your option and to furnish
you if demanded with evidence of acceptance by the insurers of such assignment.
10. Each of us agrees at any time and from time to time, on demand, to deliver, convey, transfer, or assign to you, as security for any and all of the
obligations and liabilities of us and/or any of us hereunder, and also for any and all other obligations and liabilities, absolute or contingent, due or to become
due, which are now, or may at any time hereafter, be owing by us and/or any of us to you, additional security of a value and character satisfactory to you,
or to make such cash payment as you may require. Each of us agrees that all property belonging to us or any of us, or in which we or any of us may have an
interest, of every name and nature whatsoever, now or at any time hereafter delivered, conveyed, transferred, assigned, or paid to you, or coming into your possession or into the possession of any one for you in any manner whatsoever, whether expressly as security for any of the obligations or liabilities of us or any of
us to you, or for safekeeping or otherwise, including any items received for collection or transmission and the proceeds thereof, whether or not such property is in
whole or in part released to us or any of us on trust or bailee receipt is hereby made security for each and all such obligations and liabilities. Each of us agrees
that upon our failure or the failure of any of us at all times to keep a margin of security with you satisfactory to you, or upon the making by us or any of us of
any assignment for the benefit of creditors, or upon the filing of any voluntary or involuntary petition in bankruptcy by or against us or any of us, or upon any
application for the appointment of a receiver of any of our property or of the property of any of us, or upon any act of bankruptcy or state of insolvency of us
or any of us, all of such obligations and liabilities shall become and be immediately due and payable without demand or notice notwithstanding any credit or time
allowed to us or any of us, or any instrument evidencing any such obligations or liabilities or otherwise; and each of us, as to property in which he may have any
interest, and all of us, as to Property in which we may have any interest, expressly authorize you in any such event, or upon our failure or the failure of any of
us to pay any of such obligations or liabilities when they or any of them shall become or be made due, to sell immediately, without demand for payment, without
advertisement and without notice to us, or any of us, all of which are hereby expressly waived, any and all such property, arrived or to arrive, at private sale or at
public auction or at brokers' board or otherwise, at your option, in such parcel or parcels and at such time or times and at such place or places and for such price
or prices and upon such terms and conditions as you may deem proper, and to apply the net proceeds of such sale or sales, and any balance of deposits and any
sums credited by or due from you to us or an y of us in general account or otherwise, to the payment of any and all of our obligations or liabilities and/or the
.
obligaations or liabilities of any of us to you however arising If any such sale be at brokers' board or at public auction you may yourself be a purchaser at such
sale, free from any right of redemption, which we and each of us hereby expressly waive and release.
11. You shall not be deemed to have waived any of your rights hereunder, unless you or your authorized agent shall have signed such waiver in writing.
No such waiver, unless expressly so stated therein, shall be effective as to any transaction which occurs subsequent to the date of such waiver nor as to any continuance of a breach after such waiver.
12. The word "property" as used in this agreement includes goods, merchandise, securities, funds, choses in action, and any and all other forms of property,
whether real, personal or mixed and any right or interest therein. If this agreement is signed by one individual, the terms "we", "our", "us", shall be read
throughout as 'I", "my", "me", as the case may be.
•
13. This agreement shall continue in full force and effect and be binding upon us, and each of us, and our respective executors, administrators, successors
and assigns, with respect to any and all credits which have been or may at any time or times hereafter be opened by you at the request of us, or any of us, or
opened by you in reliance upon this agreement, in substantially such terms and amounts as may be fixed in any written, oral, telegraphic, cable or other applications or in any subsequent negotiations, your interpretation of any such applications or negotiations being controlling, and this agreement shall not be effected,
impaired or released by the death of any of us, or by the death, resignation or addition of any partner of us, or any of us, provided that upon receipt by you at
your New York office at 55 Wall Street, of written notice signed by us or any of us, or by the administrator or executor of any of us, your power thereafter to
open any Credits under or in reliance upon this agreement shall be withdrawn, but such withdrawal shall not in any way affect, impair or revoke this agreement
with respect to any credits opened by you hereunder prior to receipt of notice thereof, and said Credits and all the obligations and liabilities of us and each of
us under this agreement with respect thereto, shall not be in any way affected, impaired or released by such notice.
Very truly yours,

Dated




192

APPLICAT* OR COMMERCIAL LETTER 01INIT
I
,

•

•

THE

192

NATIONAL

CITY

BANK OF NEW

YORK

55 WALL STREET
NEW YORK. N. Y.
GENTLEMEN:
WE HEREBY REQUEST YOU TO ISSUE BY

CABLE
IRREVOCABLE
LETTER OF CREDIT. IN ANY OF
YOUR
MAIL
REVOCABLE

YOUR

USUAL FORMS.

AS FOLLOWS:
IN FAVOR OF
FOR ACCOUNT OF
UP TO THE AGGREGATE AMOUNT OF
AVAILABLE BY
(PLEASE SIGNIFY TENOR)
FOR

DRAFTS DRAWN AT YOUR OPTION. ON YOU OR YOUR CORRESPONDENTS

PER CENT AMOUNT OF INVOICE.

WHEN ACCOMPANIED BY THE FOLLOWING DOCUMENTS: (PLEASE INDICATE BY CHECK BELOW)

n

FULL SET BILLS OF LADING DRAWN
TO ORDER OF THE NATIONAL CITY BANK OF NEW YORK
NOTIFY

CALLING FOR SHIPMENT TO

LI
LI
El
LI
El
LI

COMMERCIAL INVOICE STATING THAT IT COVERS
(PLEASE MENTION COMMODITY ONLY. OMITTING DETAILS AS TO GRADE, QUALITY. PRICE. ETC.)
CONSULAR INVOICE
MARINE INSURANCE POLICY OR CERTIFICATE
WAR RISK INSURANCE POLICY OR CERTIFICATE
OTHER INSURANCE POLICY OR CERTIFICATE
(IF OTHER INSURANCE IS REQUIRED. PLEASE STATE RISKS)
OTHER DOCUMENTS
(IF SPECIAL DOCUMENTS ARE REQUIRED. PLEASE STATE NAME OF COMPANY TO ISSUE SAME)

INSURANCE TO BE EFFECTED BY
(IF INSURANCE EFFECTED OTHER THAN BY SHIPPERS, GIVE ALSO THE NAMES OF COMPANIES WRITING SUCH INSURANCE)
BILLS OF LADING TO BE DATED NOT LATER THAN
BILLS OF EXCHANGE TO BE NEGOTIATED NOT LATER THAN
SHIPPING DOCUMENTS FOR CUSTOM HOUSE ENTRY

TO

BE SENT

TO

In consideration of your issuing a Letter of Credit substantially conforming with the above request, we hereby agree,
when requested by you, to sign and deliver to you an Indemnity Agreement in a form satisfactory to you, and we further agree that
each and all of the provisions of any general Indemnity Agreement heretofore signed and delivered to you by us, or any of us, relating to Letters of Credit issuable by you, in the absence of written agreement to the contrary, shall be deemed to be incorporated
as a part of the above request.
RESPECTFULLY YOURS,

Fla 150-PS




KINDLY SIGN WITH AN AUTHORIZED SIGNATURE
REGISTERED WITH US

.
O

A

•

APPLICATION FOR COMMERCIAL LETTER OF CREDIT

•

192_

NEW YORK,
THE NATIONAL CITY BANK OF NEW YORK.
55 WALL STREET,
NEW YORK CITY, N. Y.

DEAR SIRS:

WE HEREBY REQUEST YOU TO ISSUE AS OUR AGENT. BY
YOUR

IN

IRREVOCABLE
CABLE
LETTER OF CREDIT. IN ANY OF
YOUR
MAIL
REVOCABLE

USUAL FORMS, AS FOLLOWS:

FAVOR OF_ _

FOR ACCOUNT OF
UP TO THE AGGREGATE AMOUNT OF
_DRAFTS DRAWN. AT YOUR OPTION. ON YOU OR YOUR CORRESPONDENTS

AVAILABLE BY
( PLEASE SIGNIFY TENOR)

PER CENT AMOUNT OF INVOICE

FOR

WHEN ACCOMPANIED BY THE FOLLOWING DOCUMENTS:

11

(PLEASE

INDICATE

BY

CHECK

BELOW)

FULL SET BILLS OF LADING TO ORDER THE NATIONAL CITY BANK OF NEW YORK, CALLING
FOR SHIPMENT TO

111 COMMERCIAL
0CONSULAR

INVOICE STATING THAT

IT

COVERS
COMMODITY

(PLEASE MENTION

ONLY, OMITTING

DETAILS

AS TO

GRADE. QUALITY. PRICE. ETC.)

INVOICE

O MARINE INSURANCE POLICY OR CERTIFICATE
0WAR

RISK INSURANCE POLICY OR CERTIFICATE

O OTHER
El OTHER

INSURANCE POLICY OR CERTIFICATF
(IF OTHER

DOCUMENTS
( IF SPECIAL

.
REQUIRED. PLEASE STATE NAME OF COMPANY TO ISSUE SAME)

ARE

DOCUMENTS

INSURANCE IS REQUIRED. PLEASE STATE RISKS)

INSURANCE TO BE EFFECTED BY
(IF

INSURANCE

EFFECTED

OTHER

THAN

BY

SHIPPERS, GIVE ALSO THE

NAMES OF COMPANIES WRITING SUCH

INSURANCE.)

BILLS OF LADING TO BE DATED NOT LATER THAN
BILLS OF EXCHANGE TO BE NEGOTIATED NOT LATER THAN
SHIPPING DOCUMENTS FOR CUSTOM HOUSE ENTRY

TO

BE SENT

TO

conforming with the above request, we
In consideration of your issuing as our agent a Letter of Credit (hereinafter referred to as the "Credit") substantially
hereby agree as follows:
Currency, we agree: (a) in the case
1. As to drafts or acceptances under or purporting to be under the Credit, which are payable in United States on
drafts, or, if so demanded by
of each sight draft, to reimburse you at your New York office, on demand in United States Currency, the amount paid casesuch each acceptance to pay to you,
of
and (b) in the
you, to pay to you at your office in advance in such currency the amount required to pay such draft;
to maturity, or, in
at your New York office, in United States Currency, the amount thereof, on demand but in any event not later than one business day prior course of the mails
the
case the acceptance is not payable at your New York office, then on demand but in any event in time to reach the place of payment in
not later than one business day prior to maturity.
we agree:
2. As to drafts or acceptances under or purporting to be under the Credit, which are payable in currency other than United States Currency,
United States Currency at
paid,
(a). in the case of each sight draft, to reimburse you, at your New York Office, on demand, the equivalent of the amountdraft isindrawn; and (b) in the case
in the currency in which such
the rate of exchange then current in New York for cable transfers to the place of payment
course of the mails not
of each acceptance, to furnish you, at your New York office, on demand, but in any event in time to reach the place of payment in the

 PS S•24
PO ISOM IN


•
•

-•

later tnan one business day prior to, maturity, with first class bankers' demand bills of exchange to be approved by you for the amount of acceptance, payable
in the currency of the acceptance and bearing our endorsement, or, if you so request, to pay to you, at your New York office, on demand, the equivalent of the
acceptance in United States Currency at the rate of exchange then current in New York for cable transfers to the place of payment in the currency in which
the acceptance is payable.
3. We also agree to pay to you, on demand, a commission at such rate as you may fix, on such part of the Credit as may be used, and in any event a
of the amount of the credit, and all charges and expenses paid or incurred by
minimum commission
you in connection therewith, and interest
where chargeable.
4. We hereby recognize and admit your ownership in and unqualified right to the possession and disposal of all property shipped' under or pursuant to or
in connection with the Credit or in any way relative thereto or to the drafts drawn thereunder, whether or nct released to us
receipt, and
trust or
also in arid to all shipping documents, warehouse receipts, policies or certificates of insurance and other documents accompanyingonor relativebaileedrafts drawn
to
under the Credit, and in and' to the proceeds of each and all of the foregoing, until such time as all the obligations and liabilities of us
or any of us to you it
any time existing under or with reference to the Credit or this agreement, or any other Credit, or any other obligation or liability to you,
and discharged, all as security for such obligations and liabilities; and that all or any of such property and documents, and the proceeds have been fully paid
coming
into the possession of you or any of your correspondents, may be held and disposed of by you as hereinafter provided; and the receipt of any thereof, any of
by you, or by
your correspondents, at any time of other security, of whatsoever nature, including cash, shall not be deemed a waiver of any of
your rights of powers herein
recognized.
5. Except insofar as instructions have been heretofore given you by us in writing expressly to the contrary, we agree that you and
any of your correspond •
cuts may receive and accept as "Bills of Lading" under the Credit, any documents issued or purporting to be issued
acknowledge receipt of property for transportation, whatever the specific provisions of such documents, and that the date by or on behalf of any carrier which
of each such, document shall be deemed
the date of shipment of the property mentioned therein; that you and any of your correspondents may receive and accept as documents
of insurance under the Credit
either insurance policies or insurance certificates; and that you and any of your correspondents may receive, accept or
pay as complying with the terms of the
Credit, any drafts or other documents, otherwise in order, which may be signed by, or issued to, the administrator
or executor of, or the trustee in bankruptcy
or the receiver for any of the property of, the party in whose name it is provided in the Credit that any drafts or
other documents should be drawn or issued.
6. Except insofar as instructions have been heretofore given you by us in writing expressly to the contrary,
in excess of the quantity called fur in the Credit may be made and You may honor the relative drafts, our liability we agree that part shipments or shipments
to reimburse you for payments made or
obligations incurred on such drafts being limited to the amount of the Credit, and if the Credit specifies
in
shipper fails to ship in any designated period, shipment of subsequent installments may nevertheless be shipmentstheirinstallments within stated periods, and the
made in
respective designated periods and you may
honor the relative drafts.
7. We agree that in' the event of any extension of the time, of shipment or of the time for the drawing,
negotiation, acceptance, presentation, or of the
maturity of any drafts, acceptances, or other documents, or any other modification of the
request, this Agreement shall be binding upon us with regard to the Credit so increased, terms of the Credit, or any increase in the amount of the Credit, at our
extended, or otherwise modified, with regard to drafts, documents and
property covered thereby, and with regard to any action taken by you or any of your correspondents in accordance
with such extension, increase, or other modification, and we further agree to hold you harmless against any and all losses suffered or obligations or liabilities
including our instructions modifying the terms or the amount of the Credit, and our instructions with respects incurred by following any or all of our instructions
to the drafts, documents or other property relative
to or covered by the credit. We further authorize you to surrender, from time to time, to such parties as we or any
whole or any part of any merchandise shipped under the Credit, or the bills of lading or other documents representing of us may designate, or their nominee's, the
the same, against payments satisfactory to
you or under your usual form of trust or bailee receipt, signed by any of such designated parties.
8. The users of the Credit shall be deemed our agents and we assume all risks of their acts or omissions.
Neither you nor your correspondents stall be
responsible: for the existence, character, quality, quantity, condition, packing, value, or delivery of the property
difference, in character, quality, quantity, condition, or value of the property from that expressed in documents; purporting to be represented by documents; for any
for the validity, sufficiency or genuineness of documents, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent
or forged; for the time, place, manner or order
in which shipment is made; for partial or incomplete shipment, or failure or omission to ship any or
character, adequacy, validity, or genuineness of any inSurance; for the solvency or responsibility of any all of the property referred to in the Credit; for the
insurer, or for any other risk connected with insurance;
for any deviation from instructions, delay, default or fraud by the shipper or anyone else in connection with
the property or the shipping thereof; for the solvency,
responsibility or relationship to the property of any party issuing any documents in
connection with the
either the property or any of the documents relating thereto; for delay in giving or failure to give notice property; for delay in arrival or failure to arrive of
of arrival or any other notice; for any breach of contract
between the shippers or vendors and ourselves or any of us; for failure of any draft to bear any reference
or adequate reference to the Credit,
ments to accompany any draft at negotiation, or failure of
note the amount of any draft on the reverse of the Credit, or to or failure of docuperson
the Credit or to send forward documents apart from drafts any required to the
take
as
by
terms of the Credit, each of which provisions, if contained insurrender or itself,up
the Credit
it
is agreed may be waived by you; or for errors, omissions, interruptions or delays in transmission or
or otherwise, whether or not they be in cipher; nor shall you he responsible for any error, neglect, or delivery of any messages, by mail, cable, telegraph, wireless
default of any of your correspondents; and none of the above
shall affect, impair, or prevent the vesting of any of your rights or powers hereunder. In furtherance
and
sions hereinbefore set forth, we agree that any action taken by You or by any correspondent of yours under extension and not in limitation of the specific provior in
documents or property, if taken in good faith, shall be binding on us and shall not put you or your correspondent connection with the Credit or the relative drafts,
under any resulting liability to us; and we make
like agreement as to any inaction or omission, unless in breach of good faith.
9. We agree to procure promptly any necessary import and export or other licenses for the import or export
or shipping of the property and to comply with
all foreign and domestic governmental regulations in regard to the shipment of the property or the financing
respect as you may at any time require, and to keep the property adequately covered by insurance satisfactory thereof, and to furnish such certificates in that
to you, in companies satisfactory to you, and to
assign the policies or certificates of insurance to you, or to make the loss or adjustment, if any, payable to
you, at your option; and to furnish you if demanded
with evidence of acceptance by the insurers of such assignment.
•
10. We agree at any time and from time to time, on demand, to deliver, convey, transfer, or assign
and liabilities hereunder, and also for any and all other obligations and liabilities, absolute or contingent, due to you, as security for any and all of our obligations
or to become due, which are now, or may at any time
hereafter, be owing by us to you, additional security of a value and character satisfactory to you, or
to obtain from our client an agreement in our favor with respect to the Credit in substantially the to make such cash payment as you may require. We agree
terms of this agreement, and do hereby sell and assign to
you, all our right, title and interest therein and thereto as additional security for any and all
all property belonging to us, or in which we may have an interest, of every name and natureof our above mentioned obligations and liabilities. We agree that
whatsoever, now or at any time hereafter delivered, conveyed,
transferred, assigned, or paid to you, or coming into your possession or into the possession of any
one
security for any of the obligations or liabilities of us to you, or for safekeeping or otherwise, including for you in any manner whatsoever, whether expressly as
any items received for collection or transmission and the
proceeds thereof, whether or not such property is in whole or in part released to us on trust or
bailee receipt is hereby made security for each and all such obligations and liabilities. 'We agree that upon our failure at all times to keep a margin of security
with you satisfactory to you, or upon the making by us of any
assignment for the benefit of creditors, or upon the filing of any voluntary or involuntary
petition in bankruptcy by or against us, or upon any application
appointment of a receiver of any of our property, or upon any act of bankruptcy or state of
for the
insolvency or suspension of payment on our part,
obligations and liabilities shall become and be immediately due and payable without
demand or notice notwithstanding any credit or time allowed to us, orall of such
ment evidencing any such obligations or liabilities or otherwise; and, as to
any instruevent, or upon our failure to pay any of such obligations or liabilities when property in which we may have any interest, we expressly authorize you in any such
they or any of them shall become or be made due, to sell immediately,
for payment, without advertisement and without notice to us, all of which are
without demand
hereby expressly waived, any and all such property, arrived or
sale or at public auction or at brokers' board or otherwise, at your option,
in such parcel or parcels, and at such time or times, and at such to arrive, at private
for such price or prices and upon such terms and conditions as you
or
may deem proper, and to apply the net proceeds of such sale or sales, placeany places and
and
deposits and any sums credited by or due from you to us in general account
balance of
or otherwise, to the payment of any and all of our obligations or liabilities
however arising, If any such sale be at brokers' board or at public
to you
auction you may yourself be a purchaser at such sale, free from any right of
which we hereby expressly waive and release.
redemption,
11. You shall not be deemed to have waived any
No such waiver, unless expressly so stated therein, shall of your rights hereunder, unless you or your authorized agent shall have signed such waiver in writing.
be effective as to any transaction which occurs subsequent to the date of such waiver
continuance of a breach after such waiver.
nor as to any
12. The word "property" as used in this agreement includes
goods, merchandise, securities, funds, choses in action, and any and all other forms
whether real, personal or mixed and any right or interest
of prOperty,
therein.




Very truly yours,

FORM 13

•
11
THE NATItt CITY BANK OF NENTv YORK

•-

55 WALL STREET

IRREVOCABLE CREDIT

NO.

NEW YORK
ALL DRAFTS DRAWN MUST BE MARKED:
DRAWN AS PER ADVICE NO. B

DEAR SIRS:
WE HEREBY AUTHORIZE YOU TO VALUE ON

FOR ACCOUNT OF
UP TO THE AGGREGATE AMOUNT OF
AVAILABLE BY YOUR DRAFTS AT

FOR

TO BE ACCOMPANIED BY CONSULAR INVOICE

INVOICE COST
BILLS OF LADING

DRAWN TO THE ORDER OF
AND COMMERCIAL INVOICE EVIDENCING SHIPMENT OF

BILLS OF LADING MUST BE DATED NOT LATER THAN

BILLS

OF EXCHANGE MUST BE NEGOTIATED NOT LATER THAN

A COPY OF THE CONSULAR INVOICE, COMMERCIAL INVOICE, AND ONE BILL OF LADING MUST BE FORWARDED
BY FIRST MAIL DIRECT TO
ATTACHING TO THE DRAFT A STATEMENT TO THAT EFFECT.

ALL REMAINING DOCUMENTS MUST ACCOMPANY THE

DRAFT.

THE AMOUNT OF ANY DRAFT DRAWN UNDER THIS CREDIT IS TO BE ENDORSED ON THE REVERSE SIDE HEREOF.

WE HEREBY AGREE WITH THE DRAWERS, ENDORSERS AND BONA FIDE HOLDERS OF DRAFTS DRAWN UNDER
AND IN COMPLIANCE WITH THE TERMS OF THIS CREDIT THAT THE SAME SHALL BE DULY HONORED ON DUE PRESENTATION TO THE DRAWEE.


FD 881-2M-11.-24


YOURS VERY TRULY,

THE NATIONAL CITY BANK OF NEW YORK

FORM B

" THE NATPAI CITY BANK OF NON YORK
I
AL

•

55 WALL STREET

•

IRREVOCABLE CREDIT NO.

NEW YORK

DEAR SIRS:
WE HEREBY AUTHORIZE YOU TO VALUE ON

FOR ACCOUNT OF
UP TO THE AGGREGATE AMOUNT OF
AVAILABLE BY YOUR DRAFTS AT

FOR

TO BE ACCOMPANIED BY CONSULAR INVOICE

INVOICE COST
BILLS OF LADING

DRAWN TO THE ORDER OF
AND COMMERCIAL INVOICE EVIDENCING

BILLS OF LADING MUST BE DA
BILLS OF EXCHANGE MUST BE DRA

TER THAN
ER THAN

A COPY OF THE CONSULAR IN c) E, COMMERCIAL INVOICE, AND ONE BILL OF LADING MUST BE FORWARDED
.
BY FIRST MAIL DIRECT TO
ATTACHING TO THE DRAFT A STATEMENT TO THAT EFFECT.

ALL REMAINING DOCUMENTS MUST ACCOMPANY THE

DRAFT.
THE AMOUNT OF ANY DRAFT DRAWN UNDER THIS CREDIT IS TO BE ENDORSED ON THE REVERSE SIDE HEREOF.
WE HEREBY AGREE WITH THE DRAWERS, ENDORSERS AND BONA FIDE HOLDERS OF DRAFTS DRAWN UNDER
AND IN COMPLIANCE WITH THE TERMS OF THIS CREDIT THAT THE SAME SHALL BE DULY HONORED ON DUE PRESENTATION TO THE DRAWEE.

YOURS VERY TRULY,
ALL DRAFTS SO DRAWN MUST BE MARKED:
DRAWN AS PER ADVICE NO. B


F D 582-1M-5-24


THE NATIONAL CITY BANK OF NEW YORK

•
COMMERCIAL LETTER OF CREDIT AGREEMENT
•
THE NATIONAL CITY BANK OF NEW YORK.
55 WALL STREET, NEW YORK, N. Y.
Dear Sirs:

1z!,1::)1` 11;1 V

In consideration of your opening at the request of the undersigned or any or us, your Commercial Letter of Credit No
(hereinafter callaed the 'Credit ), the terms of which appear on the reverse side hereof, and are hereby approved by us, we hereby jointly and severally
.
.
agree as follows: "
I.
As to drafts or acceptance's under or purporting to be under the Credit, which are payable in United States Currency, we agree:(a) in the case
of each sight draft;t6 reimburse you at your New York office, on demand,'in United States Currency, the amount paid on such drafts, or, if so demanded
.by you, to pay'to you'at your office in advance in such coin the amount required to pay such draft; and (b) in the case of each acceptance to pay to
you, at your New York office, in United States Currency, the amount thereof, on demand but in any event not later than one business day prior to maturity,
or, in case the acceptance is not payable at your New York office, then on demand but in any event in time to reach, the place of payment in the course
of the mails not later than one business day prior to maturity.
2.
As todrafts or acceptances under or purporting to be under the,Credit, which are payable in currency other than United States' Currency, we
agree:-(a) in the case of each sight draft, to reimburse you, at your New York office, on demand, the equivalent of the amount paid,•in United, States
(:urrericy at the rate of exchange then current in New York for cable transfers to the place of payment in the currency in which stich draft is drawn; and
(b) in the case of. each acceptance, to furnish you,'at your New York office, on demand, but in any event in time to reach the place of. payment in the
course of the mails not later than one business day prior to maturity with first class bankers' demand bills of exchange to be approved by you for the
amount of acceptance, payable in the currency of the acceptance'and bearing our endorsement, or, if you so request, to pay to you, at yotA9 1iiv'York
,
office, on demand, the equivalent of the acceptance in United States Currency at the rate of exchange then current in New York for Cable transfers to the
place of payment in the currency in which the acceptance is payable.. .
- 3.
We also agree to pay to you, on demand, a commission at such ratd 'you .way fix,IbnAieitt part•of theoCt:edit vos._TnaVt.eodv and in any
% of the amount of the Credit, and all charges and expenses Paid or incurrecrby you jo.connection
.event a minimum commission of
therewith, and interest where chargeable.
4.
We hereby recognize and admit your ownership,in and unqualified right to the possession and disposal of all property shipped under or pursuant
to or•in connection with the Credit or in any way relative thereto or to the drafts drawn thereunder,- whether or not released to us on trust or bailee
receipt, and also in and to all shipping documents, warehouse receipts, policies or certificates of irisurance and other documents accompanying or relative
to drafts drawn under the Credit, and in and to the proceeds of each and all of the foregoing, until such time as all the obligati9ps
or any of Us to you at any time existing under or with reference to the Credit "or this agreement, or any other credit, or any otherobligalbrf brItability
." to you, have been fully paid and discharged, all as security for such obligations and liabilities; and that all or any of such property and documents, and
the proceeds of any thereof, coming into the possession of you or any of your correspondents, may be.held and disposed of by you as hereinafter providecl;,
and the receipt by you, or any of your correspondents, at any time of other security, of whatsoever natiire,sinauding eash,
4Wat1ve
-r-•
of any of your rights or powers herein recognized.
5.
Except insofar as• instructions have been heretofore 'given by us in writing expressly to the contrary, we agree that you and any of your
1.7)(CithirOondents may re'iehie...and accept as "Bills of Lading': under the Credit, any documents issued or purpoqinictv,be,iswefi by or•optiehalkof•any
'
•
carrier which acknowledge receipt of Property,for transportation, whatever the specific provisions of such documents, and that the date of each such
document shall be deemed the date of shipment of the property mentioned therein; that you and any of your correspondents may receive and accept as
-.Iidgcpnlefkm of insurance under the Credit either'insurance policies or ,insurance,Certificatesi Am4 that youand •494) of YgLir corr,e,sponcients mgy, receive,,
- accept or pay as complying' with the terms of the Credit, any drafts or other documents';'otherWfse in order,'which maY•bsigned by',
issued to,'the
administrator or executor of, or the trustee in bankruptcy. or the'receiver for any-of the property of, the party in whose name it is provided in the Credit
that any drafts or other documents should be drawn or issued.
.
•
'
6.
Except insofar as instructions have been heretofore given by us in writing expressly to the contrary, we agi•thitITArt
in excess of the quantity called for in the Credit may be made.,and you may'honor the relative drafts, our liability to reimburse you for payments made
or obligations incurred on such drafts being limited to the amount of the Credit, and that if the Credit specifies shipments in installments within stated
periods, and the shipper fails to ship in any designated Period, shipment of subeetitienrolostollatentsInay nevertheleSs tX.Malkin their,tespectiv.e.clolgriated
periods and you may honor the relative drafts.
7.
We agree that in the event of any extension olthe-tirne of shipment or of the time for the drawing, negotiation, acceptance, presentation, or
of the maturity of any drafts, acceptances, or other documents, or any other modification' of the terms of the Credit, except an increase in the -amount
thereof at the request of any of us, with or without nOtification'to the others; or iri the event'of atCY increase in the amount of the Credit at our request,
this Agreement shall be binding upon us with regard to the Credit so increased,: extended or otherwise modified, with regard to drafts, documents and
property covered thereby, and with regard to any action taken' by yOu or any of yoUr..correspondents i,n accordance with such extension, increase, or other
modifications. We further authorize you to surrender, from time to time, to such parties as we or any of, us may designate, or. their nominees, the whole
or any part of any merchandise shipped under the Credit, or the bills of lading or other documents repreienting the same, against payments satisfactory
to you or under your usual form of trust or bailee receipt, signed'by any of such 'designated parties.
8.
The users of the Credit shall be deemed our agents and We assume all risks of their acts oromission. Neither you nor your correspondents
shall be responsible for the existence, character, quality, quantity, condition, packing, value, or delivery of the property purporting to be represented by
documents, for any difference in character, quality, quantity, condition, or value of ,the property 'from that expressed in documents, for the validity,
sufficiency or genuineness of documents, even if such documents should in'fact prove to be.in any-or all respects invalid, insufficient, fraudulent or forged;
for the time, place, manner or order in which shipment is made; for partial or incomplete shipment, or failure or omission to ship any or all of the property
'the solvency or responsibility of any insurer, or for
referred to in the Credit; for the character, adequacy, validity, or genuineness of any -ipsurapee; fort
any other- risk connected with insurance; for any deviation from instructions, delay; defiiure Or fraud by the.shipper or anyone else in connection with -the
property or the shipping thereof; for the solvency, responsibility or relationship to the property-A-4 any party issuing any documentS in connection with
the property; for delay in arrival or failure to arrive of either the grever.ty,qr,any: of the clocurnents relating thereto; for delay in4i,xing or,fajlure to give
notice of arrival or any other notice; for any breach of contract bettv'Moi ehe'shiprsert( rir vendeFs•and Oiteselves-Or'any'bf us: lor.failCtre-of'riny draft to
bear any, reference or adequate reference to the Credit, or failure of documents to atc,ompany any draft at negotiation, or failure of any person to note
the amount of any draft on the reverse of the Credit, or to surrender or take up -the Credit or to-Send 'forward documents apart from drafts as required
by the terms' of the Credit, each of which provisions, if contained in die Cred
t
egreeei Mar ,be
by."yoW.:Or.for, erroa,
ission's;:
interruptions'or delays in transmission or delivery of any messages, by mail, cable, telegraph; wireless or otherwise, whether:'or not they be jet cipher; nor
shall you be responsible for any error, neglect, or default of any of your correspondents; and.none'of the above'shall affect, impair, or prevent the vesting
. of any of „yout.rights prpower,s.hereunder. , In furtherance aod extension and not in limitation of ON specific provisions bereinbefore set forth we agree
'that arfy atiletS"-takeifisb,/ 'youfatfbY-tirry coireApontlerit of yours undet'Or in connection with the Credit'or the relative'draft's, &cur-hints-or property, if
,
'
taken in good faith, shall be binding on us and shall not put you or your correspondent under any resulting liability to us; and we make like agreement'
as to any inaction or omission, unless in breach of good faith.
. 0.
We agree to procure promptly any necessary import and- export or other licenses- for the import or exporf OFshiWiriiti4 thi1
Pr6Periy ti'nd
- comply with all foreign and domestic governmental regulations in regard to the shipment of the property or the financing thereof, and to furnish such
-property .adequately covered by insurance satisfactory.to you in companies
certificates in that respect, as, you may at any time require, and to keep the
•Y A
isfactOry tzdothe loS4 actjfiitment-; • if •ariji;
o-Yoti;'and'tdrissign the policies tit'eerrilicates-oFinsurante to you, or too
o to YOU, ;t *Yriul'optiOn,
and to furnish you if demanded with evidence of acceptance by the insurers of such assignment.
10.
Each of us agrees at any time and from time to time, on demand, to deliver, convey, transfer,- or assign to you, as security for any and.all of..
the obligations and liabilities of us and/or any of us hereunder, and also for any and all other obligations and liabilities, absolute or contingent, due bi"to '
become due, which are now, or may at any time hereafter, be owing by us and/or any of us to you, additional security of a value and, character satisfactory to you, Or to make such cash payment as you may require. Each of us agrees that all•property belonging to us or any of us, or in which we or
any of us may have an interest, of every name and nature whatsoever, now or at any time hereafter delivered, conveyed,,transferred, assigned, or paid
yotc or corimricirit&smar,00sgessinn or. into'the PosseStion'6LattiOnt fOryolEin'any matotrof
, •
setatS<Wer;:„..vhether - (41reSsliy.,06.:SetalritNtfidr any of the
0
obligations or liabilities of us or any of us to you, or for safekeeping or otherwise, including any items received for collection or transmission and,the
proceeds thereof, whether or not such property is in whole or in part released to us or any of us on trust or bailee receipt is hereby made security for.each
and all such obligations and liabilities. Each of us agrees that upon our failure or the failure of any of us at all times to keep a margin of security with
•
,,,yqu-satisfactory,to-iYou,-, or,upon the; maickig.-by. us.or,any, of us of< aay asOgripent,,for ..the,illtaneht of oreditOrs, or, wpon.,the filws,gvf.ariy.!yoluntary or
,
invOluntary'petitiOh in liarikeuptcy by or against us or any' of' us or UPon any application -for the appbIntThent.'of a receRrer orally o, our property or of
,
the property of pny,of.4s,,or upon any.act of,bankruptoy,.or state.of insqlyency-of twor,any of,us, ali of such4tOligations,and liabilities, shall become .and
be -irnmediately due and pa3/able Withdilt demand 'or notice notwithstanding 'anY'eredit 'Or tithe allowed to us or any orus; anY insfrumereevidencing'
any such obligations or liabilities or otherwise; and each of us; as to property in which he may have any interest, and all of,u,spap- to property.in which
we may have any interest, expressly authorize you in any such event, or upon our failure or the failure of any of us to pdy any Orsuch obligation's Or
liabilities when they or any of them shall become or be made due, to sell immediately, without demand for payment, without advertisement and without
notice to us, or any of us, all of which are hereby expressly waived, any and all such property, arrived or to arrive, at private sale or at public auction
or at brokers' board or otherwise, at your option, In such parcel or parcels and at such time or times and at such place or places and for such price or
, prices and upon such terms and conditions as you may deem proper, and to apply the net proceeds of such sale or sales, and any balance of deposits and
any sums credited by or due from you to us or any of us in general account or otherwise, to the payment of any and all of our obligations or liabilities
and/or the obligations or liabilities of any of us to you however arising. If any such sale be at brokers' board or at public auction you may yourself he
a purchaser at such.sale, free from,anmig,ht,of redemption, which we and each of us hereby expressly waive and release.
11.
You shall not be deemed to have Waived On of your rights hereunder, unless you or your authorized agent shall have signed such waiver in
writing. No such waiver, unless expressly so stated therein, shall be effective as to any transaction -which (=um.
sqseque9t., to the do:ct.a.-suety:waiver .
.
nor as to any continuance of a breach after such waiver.'
weird
in-this agreement includes goods, merchandise, securities, funds choses in ct.
,>'3'.'.'
d•
h• f 0-0
'17Y.*9
(
9{ 1.s f
property, whether real, Personal or mixed and any right or interest therein.
13.
If this agreement is signed by one individual, the terms -we, -Our,- -us,- shall be read throughout as -1, -my, -mc, as the case may he.
If this agreement is signed by two or more parties, it shall be the joint and several agreement of such parties.




Very truly yours,

FORM B

THE NAT1111
0#AL CITY BANK OF 1N YORK

•

55 WALL STREET
4

IRREVOCABLE CREDIT NO.

NEW YORK

DEAR SIRS:
WE HEREBY AUTHORIZE YOU TO VALUE ON

FOR ACCOUNT OF
UP TO THE AGGREGATE AMOUNT OF
AVAILABLE BY YOUR DRAFTS AT

FOR

TO BE ACCOMPANIED BY CONSULAR INVOICE

INVOICE COST
BILLS OF LADING

DRAWN TO THE ORDER OF
AND COMMERCIAL INVOICE EVIDENCING SHIPM

‘k.\
4

2

NCE
BILLS OF LADING MU

ATED NO

BILLS OF EXCHANGE MUST BE DRAWN NO

R THAN

INR THAN

A COPY OF THE CONSULAR INVCE COMMERCIAL INVOICE, AND ONE BILL OF LADING MUST BE FORWARDED
BY FIRST MAIL DIRECT TO
ATTACHING TO THE DRAFT A STATEMENT TO THAT EFFECT.

ALL REMAINING DOCUMENTS MUST ACCOMPANY THE

DRAFT.

THE AMOUNT OF ANY DRAFT DRAWN UNDER THIS CREDIT IS TO BE ENDORSED ON THE REVERSE SIDE HEREOF.

WE HEREBY AGREE WITH THE DRAWERS, ENDORSERS AND BONA FIDE HOLDERS OF DRAFTS DRAWN UNDER
AND IN COMPLIANCE WITH THE TERMS OF THIS CREDIT THAT THE SAME SHALL BE DULY HONORED ON DUE PRESENTATION TO THE DRAWEE.

YOURS VERY TRULY,
ALL DRAFTS SO DRAWN MUST BE MARKED:
DRAWN AS PER ADVICE NO. B


F D 882-1M-5-24


THE NATIONAL CITY BANK OF NEW YORK

7

•

II
C,

VI

A E,

T

A yol

„

t.4'fro

COMMERCIAL LETTER OF' CREDIT AGREEMENT
.,.?•
-LiP.

I,
•\

•

THE NATIONAL CITY BANK OF NEW YORK,
55 WALL STREET. NEW YORK, N. V.
. .")!3,n-

Clear Sirs:

In consideration of your opening at the request of the undersigned or any of us, your Commercial Letter of Credit No
• (hereinafter called the -Credits.), the terms of which appear on the reverse side hereof, and are hereby approved .by us, we hereby jointly and severalLy
•
. •
agree as follows:
I. • As to drafts or acceptances under or purporting to be under the Credit, which are payable in United States Currency, we agree:(a) in the case
of each sight draft; to reimburse you at your New York office, on demand: in United States Currency, the amount paid on such drafts, or, if so demanded '
by you, to pay to you at your office in advance in such coin the amount required to pay such draft; and (b) in the case of each acceptance to pay to, •
you, at your New York office, in United States Currency, the amount thereof, on demand but in any event not later than one business day, prior to maturity, .
or, in ease the acceptance is not'payable at your New York office, then on demand but in any event in time to reach the place of payment in the course,
.
,
of the mails not later than one business day prior to maturity.
As to drafts or acceptances under or purporting to be under the Credit, which are payable in currency other,thin United States Currency, we
2.
agree:-(a) in the ease of 'each sight draft, to reimburse you, at your New York office, on demand, the equivalent .of the amount paid,-in United gtates
Currency at the rate of exchange then current in New York for cable transfers to the place of payment in the currency in which such draft 'is drawn; and
(b) in the case of each acceptance, to furnish you, at your New York office, on demand, but in any event in time to reach the place.of payment in the
course of the, mails not later than one business day prior to maturity with first class bankers' demand bills of exchange to be approved byypti for.the
amount of acceptance; payable in the currency Of the acceptance and bearing our endorsement, or, if you so request, to pay to you, at Youtr.leiV
• filet, on demand, the equivalent of the acceptance in United States Currency at the rate of exchange then current in New York for cable transfers to the
place of payment in the currency in which the acceptance is payable.
3. . *We also agree to pay to you, on demand, a commission at such rate us synt.i.thay fix, sort Such part of the:Credit aslriarbe us,ecl;:and.in.any
% of the amount of the Credit, and all charges and expenses paid or incurred by you in connection
event a minimum commission of
therewith, and interest where chargeable. •
4.
We hereby recognize and admit your ownership in and unqualified right to the possession and disposal of all property shipped under or pursiumt
to.or in connection with the Credit or in any way relative thereto or to the drafts drawn thereunder, whether or not released to us on trust or bailee
receipt, and also in and to all shipping documents, warehouse receipts, policies or certificates of insurance and other documents accompanying or relative
and
to drafts drawn under the Credit, and in and to the proceeds of each and•all of the foregoing,,until such time as all the obligati
or any of us to you at any time existing under or with reference to the Credit or this agreement, or any other credit, or any other'Oblig'alion'or
'
_to you, have been fully paid and discharged, all as security for such obligations and liabilities; and that all or any of such property and documents, and
hereinaftser proyi4eci;
the proceeds of any thereof, coming into the possession of you or any of your correspondents, may be held and,disposed of by,,you
a
and the receipt by you, or any of your correspondents; at any time of other security, of whatsoever neetre,'01a-tiding Cash,'shell not‘be-eleeMM 'a w4 ivet
of any, of your rights Or powers herein recognized.
.
Except insofaras instructions have been heretofore given by us in writing expressly to the contrary, we agree that you and any of your
t- rreesnondents may reeelkiestnd accept as "Bills of Lading under the Credit, any documents issued or petrportlrigAn:be:issued-lay or on behalf of •a114`y*
carrier which acknowledge receipt of property for transportation, Whatever the specific provisions Of such,documents, and that the 'date of each such
document shall be'cleemed the date of shipment of the property mentioned therein; that you and any of your correspondents may receive and accept as
iiZl
- 1,teicncrientCof insurance under the Credit, either insuravee policies or insurance certificatea;-graq.„tkaa! yoy4 and ktnysof your ,eorresportents, may receive,
-,
.
may be signedby,or issued to the
accept or pay as complying with the terms of the Credit any draft orother documents. Otherwise In or'der,
administrator or executor of, or the trustee in bankruptcy; or the.,reCeiver for any of the property of, the party- in whose name it is provided in the Credit
that any drafts or other documents 'should be drawn or issued:"
a• a
e ts'ors p ent •
6.
Except insofar as instructions have been heretofore givt.n by us in'tvilting expressly to the contrary, we agr
in'excess of the quantity called for in the Credit may be made and you ma_y•hopor the relative drafts, our liability to reimburse you for payments made
:
,
or obligations incurred'on such drafts being limited to the amount of the Crolit. and that if the Credit specifies shipments in installments within stated
periods, and the shipper fails to ship in any designated period, shipment of sufiseiqueid.iiittftlIthentOnly'rieliertheless be Mat:it in their.tesptetive designees!)
periods and you may honor the relative drafts.
7.
We agree that in the event of any extension of the time of„siiioment or of the time for the drawing, negotiation, acceptance, presentation, or '
of the maturity of any drafts, acceptances, or other documents, or any'bther'modification of the terms of the Credit, except an increase in the a mount
thereof at the request of any of us, with or without notification to the others or in the event of any increase in the amount of the Credit at our request.
this Agreement shall be binding upon us with regard to the Credit so ineteased, extended or otherwise modified, with regard to drafts, documents and
property covered thereby, and with regard to any action takeh by you or any'of,your Correspondents in accordance with such extension, increase, or ,other.
modifications. We further authorize you to surrender, from time, to time, to such parties as we Or any of us may designate, or their nominees, the whole
or any part of any merchandise shipped under the Credit, or the bills of lading 'or other documents representing the same, against payments satisfactory
to you or under your usual form of trust or bailee receipt, signed by any of such designated ',parties.
8.
The users of the Credit shall be deemed our agents and we assume all risks of their' acts or omission. Neither you nor your correspondents
shall be responsible for the existence, character, quality, quantity, condition, packing, value, or delivery.of the property purporting to be represented by
documents, for any difference in character, quality, quantity, condition; or value of theproperty from that expressed in documents, for the validity, .
sufficiency or genuineness of documents, even if such documents should in' fact.. prove to be in any or all respects invalid', insufficient, fraudulent or forged; ,
for the time, place, manner or order in which shipment is made: for partial or, incomplete shipment, or failiire,or.omission to ship any or all of the property
referred to in the Credit; for the character, adequacy, validity, or genuineness of any Insurance; for. the-solvency or responsibility of any insurer, or.for
any other risk connected with insurance; for any deviation from'instructions, detaY, default or fraud bythe.-Shipperor anyone else in connection with the
property or the shipping thereof; for the solvency, responsibility or relationship to the property of shy pasty issuing any documents in connection' with
the property; for delay in arrival or failure to arrive of either the pi' grey
of the documents ielatjpit,therq,; for clay ip giving or,failure to give
notice of arrival or any other notice; for any breach of contract bieNeeh thesh1Ppers oi'venderS -and otirservs-of-anyrn 'ut:•for failure' of'any draft to
hear any reference or adequate reference to the Credit, or failure of documents to accompany any draft at negotiation, or failure of any person to note
the amount of any draft on the reverse of the Credit, or to surrender or take up the Credit or to sendlorward documents apart from drafts as required
by the terms of the Credit, each of which provisions, if contained in tinitirledits,
irself; it is': b*
-eid•irfti? be -WI ivid by.'you.d e.ferinis, Ornislioni;
l
,
interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, Wireless or otherwise, whether or not they be in cipher; nor
'hall you be responsible for any error, neglect, or default of any of your correspondents; and nonz.of the above shall affect, impair, or prevent the vesting
.of any of your rights%or powerfrbereunder,..,In,furtherance and extension aod no, in limitation of.tbe sweific.prcivisions hereinbeforcset.forth, we agree
' that any actin?, taken'by you or by'ariS, ebrrespOndent of yours finder bt in CorinectiOn with the'Credit or'the relative drafts, documents or -property, if
taken in good faith, shall be binding on us and shall not put you or your, correspondent under any resulting liability to us; and we make like agreement
as to any inaction or omission, unless in breach of good faith.
&
..
9.
We agree to procure promptly any necessary import and export or other licenses for the import or expore- -siiipp `k'o'ittielpr‘er —and
—ty'''
comply with aft foreign and domestic governmental regulations in regard to the shipment of the property or the financing thereof, and to furnish such
headequlutely co ery.i.by in ranee satisfactory to you,.p ornpanie,s
r usre and to
property
rtifidates in.that. e
,y
,
.
.,
maYsia! any 4-inle
!•-•
satisfactory to you,andsto aSstgh the 15olicies or eertincates insurandestd You, or to make the 1633 or a justment, any,-Payable tb you, at yobr option,
•.and to furnish you if demanded with evidence of acceptance by the insurers of such assignment.
. 10.
Each of us agrees at any time and from time to time, on demand, to deliver, convey, transfer, or assign to you, as security, for any and all of,.
the obligations and liabilities of us and/or any of us hereunder, and also for any and all other obligations and liabilities, absolute or contingent, due or'to -become due, which are now, or may at any time hereafter, be owing by us and/or any of us to you, additional security of a value and character satisfactory to you, or to make such cash payment as you may require. Each of us agrees that all property belonging to us or any of us, or in which we or
any of us may have an interese„of eyery name and nature whatsoever, now or at any time hereafter delivered, conveyed, transferred, assigned, or paid
.A
in any isiiairier'whatiitivier;:whether expressly.as seturitY for any of the
asa yeti; av'tciniiiiifiiito'yoCrt=posaerilorr.ot-into the fiaisessioh;Of ariyone for
obligationa or liabilities of us or any of us to you, or for safekeeping or otherwise, including any items received for collection or transmission and the
or not such property is in whole or in part released to us or any of us on trust or bailee receipt is hereby made security for each
proceeds thereof, whether
and all such obligations and liabilities. Each of us agrees that upon our failure or the failure of any of us at all times to keep a margin of security with
arry
.yoluntary or
ya2c1 0,,•
,pts,,satisfantory•to -you,.or -upon _Chain-taking by t4 or;any of, us oft ariy,-ainispniente,for,che benefic_pf•creditors, or upop,the
involuntary petition in bankruptcy by or against us or any of us, Or upon any applicatibn (or the appointment Of a receiver of-any of Our property or of
oCany-,of
state-of ihsolveney of us or anyrof.us:, all of such obliaations apd ialilkics'sball become and
;
or upcitgny Act of,bctnicruptcy. or
be Immediately due and payable without demand or notice notwithstanding any credit or time allowed to 't's Or any of us, or any instruinent evidencing
any such obligations or liabilities or otherwise; and each of us, as to property in which he may have any interest, and all of us, as to property
which-;
we may have any interest, expressly authorize you in any such event, or upon our failure or the failure of any of us to pay any of such obligations or
liabilities when they or any of them shall become or be made due, to sell immediately, without demand for payment, without advertisement and without
notice to us, or any of us, all of which are hereby expressly waived, any and all such property, arrived or to arrive, at private sale or at public auction
or at brokers' board or otherwise, at your option, in such parcel or parcels and at such time or times and at such place or places and for,such price or
priees'and upon such terms and conditions as you may deem proper, and to apply the net proceeds of such sale or sales, and any balance of deposits and
any sums credited by or due from you to us or any of us in general account or otherwise, to the payment of any and all of our obligations or liabilities
and/or the obligations or liabilities of any of us to you however arising. If any such sale be at brokers' board or at public auction you may yourself be
a purchaser at such sale, free frorn„anyiright,of. rederpptipn, which we and each of us hereby expressly waive and release.
11.
You shall not be deemed to have Waived any of your rights hereunder, unless you or your authorized agent shall have signed such waiver in
writing. No such waiver, unless expressly so stated therein, shall be effective as to any transaptionaThieh occurs.30sequant.to the ciatemf-such.waiver
.
.
, nor asto any continrice, of a4
,
tp
breackafter ,such waiver.
• . IV. I
word spapperty...(aisiAec1 In -this agreement includes goods, merchandise, securities, funds, chases in,action, anchor-IT:and 0i other forms of
:
property, whether real, personal or mixed and any right or interest therein.
13.
If this agreement is signed by one individual, the terms • we, "our," "us, , shall be read throughout as "I," "my," "me,
the case may be.
If this agreement is signed by two or more parties, it shall be the joint and several agreement of such parties.

-r-




•

Very truly yours,

ST4i.t

•

e'

FORM C-A

"TP-IE NATIOA CITY BANK OF
'A YORK
55 WALL STREET

CORRESPONDENT'S IRREVOCABLE STRAIGHT CREDIT

NEW YORK

ALL DRAFTS DRAWN MUST BE MARKED:
DRAWN AS PER ADVICE NO. C-A

DEAR SIRS:

WE ARE INSTRUCTED BY

TO ADVISE YOU THAT THEY HAVE OPENED THEIR IRREVOCABLE CREDIT IN YOUR FAVOR FOR ACCOUNT OF

UNDER THEIR CREDIT NUMBER

FOR A SUM OR SUMS NOT EXCEEDING A TOTAL OF

AVAILABLE BY YOUR DRAFTS ON US AT

TO BE ACCOMPANIED BY

EVIDENCING SHIPMENT OF

INSURANCE TO BE EFFECTED BY
EACH OF THE PROVISIONS ON THE BACK HEREOF, EXCEPT SO FAR AS OTHERWISE EXPRESSLY STATED, IS
INCORPORATED AS PART OF THIS ADVICE.

THE ABOVE MENTIONED CORRESPONDENT ENGAGES WITH YOU THAT ALL DRAFTS DRAWN UNDER AND IN
COMPLIANCE WITH THE TERMS OF THIS ADVICE WILL BE DULY HONORED ON DELIVERY OF DOCUMENTS AS SPECIFIED
IF PRESENTED AT THIS OFFICE ON OR BEFORE

THIS LETTER IS SOLELY AN ADVICE OF CREDIT OPENED BY THE ABOVE MENTIONED CORRESPONDENT AND
CONVEYS NO ENGAGEMENT BY US.




YOURS VERY TRULY,

THE NATIONAL CITY BANK OF NEW YORK.




)
,..4s • v.

A.

(1) Railroad export and forwarders bills of lading will not be accepted.
(2) Ocean bills of lading permitting transhipment will be accepted.

B.

(1)

D.

A shipment for any part of the specified property may be drawn against if the pro rta
value can be verified.

E.

If shipment in instalments within stated periods is specified, and thers h: failUreio'ShiP• •
in any designated period, shipments of subsequent instalments, made in their respective
designated periods, may be drawn against. .

F.

When the indicated expiration date for presentation or negotiation falls upon a Sunday or
legal holiday, the expiration is extended to the next succeeding business day.

G.
H.

Presentation must be made during the usual banking hours.
The terms -prompt shipment,- -shipment as soon as possible,- -immediate shipment- or
words of similar import shall be interpreted as requiring shipment to be effected Within
thirty days; and if no date for presentation or negotiation is stated, such presentation or
negotiation must be made within thirty days from the date of the Credit or advice.. .

1.

Documents representing more than the specified quantity of property may be accepted in
the discretion of the. paying or negotiating bank without thereby binding the buyer to
accept or pay for such excesses but payment shall be limited to the sum named in the credit
or advice.

J.

The terms -approximately,- -about, or words of similar import, shall be construcsi to
permit a variation of not exceeding ten per centum from the named sum or quantity.

Bills of lading shall contain no words qualifying the acceptance of shipments in
apparent good order and condition.
(2) -Received for shipment- or -alongside' bills of lading will be accepted and thc date
.
thereof taken to be the date of shipment, and in this case insurance shall cover the
shipment from such date of -shipment and on whatever vessels carried.
• (3) When -on board- shipment is required and such shipment is represented by an 'ton
•
board- bill of lading, the bill of lading date will be taken as the date when such ship-%
ment was effected; if evidenced by -on board- endorsement, the endorsement date
will be so taken.
(4) Any extension of the date of shipment shall extend for an equal length_ of time. the
date for presentation or negotiation, and vice versa.
„
C. The term "insurance" shall be construed as including underwriters' certificate of insurance.

K. - Drafts drawn withOut recourse will not be-honored.
L.

Definitions of • Export Quotations .will be those adopted by the National 'Foreign Trade
1
Cobricil, Chamber of Commerce of the U. S. A., National Association of .`viaritifaetnfers,
American Manufacturers Export Association, Philadelphia Commercial Museum - Anierican •
Exporters and Importers Association, Chamber of Commerce of the State of New York,
New York Produce Exchange and the Merchants' Association of New York at a conference
held in India House: New York, on December 16, 1919.

FORM ID-A

„THE NAT04.1- CITY BANK OFOIOV YORK
55 WALL STREET

CONFIRMED IRREVOCABLE STRAIGHT CREDIT

NEW YORK

ALL DRAFTS DRAWN MUST BE MARKED:
DRAWN AS PER ADVICE NO. 0-A

DEAR SIRS:

WE ARE INSTRUCTED BY

TO ADVISE YOU THAT THEY HAVE OPENED THEIR IRREVOCABLE CREDIT IN YOUR FAVOR FOR ACCOUNT OF

UNDER THEIR CREDIT NUMBER

FOR A SUM OR SUMS NOT EXCEEDING A TOTAL OF

AVAILABLE BY YOUR DRAFTS ON US AT

TO BE ACCOMPANIED BY

INSURANCE
EVIDENCING SHIPMENT OF

EACH OF THE PROVISIONS ON THE BACK HEREOF, EXCEPT SO FAR AS OTHERWISE EXPRESSLY STATED, IS
INCORPORATED AS A PART OF THIS CREDIT.

THE ABOVE MENTIONED CORRESPONDENT ENGAGES WITH YOU THAT ALL DRAFTS DRAWN UNDER AND IN
COMPLIANCE WITH THE TERMS OF THIS CREDIT WILL BE DULY HONORED ON DELIVERY OF DOCUMENTS AS SPECIFIED,
IF PRESENTED AT THIS OFFICE ON OR BEFORE

; WE CONFIRM THE CREDIT AND THEREBY

UNDERTAKE THAT ALL DRAFTS DRAWN AND PRESENTED AS ABOVE SPECIFIED WILL BE DULY HONORED BY US.

YOURS VERY TRULY,

THE NATIONAL CITY BANK OF NEW YORK.

FD 877-1M-12-24




4ii-411t

A.

(1)
(2)

B.

Railroad export and forwarders' bills of lading will not be accepted.
Ocean bills of lading permitting transhipment will be accepted.

Bills of lading shall contain no words qualifying the acceptance of shipments in
apparent good order and condition.
(2) -Received for shipment- or -alongside- bills of lading will be accepted and the date
thereof taken to be the date of shipment, and in this case insurance shall cover the
shipment from such date of shipment and on whatever vessels carried.
(3) When -on board- shipment is required and such shipment is represented by an -on
board- bill of lading, the bill of lading date will be taken as the date when such shipment was effected; if evidenced by -on board- endorsement, the endorsement date
be so taken.
(4) Any extension of the date of shipment shall extend for an equal length of time the
date for presentation or negotiation, and vice versa.

(1)

C.

The term -insurance- shall be construed as including underwriters' certificate of insurance.

D.

A shipment for any part of the specified property may be drawn against if the pro rata
value can be verified.

E.

If shipment in instalments within stated periods is specified, and there is a failure to ship
in any designated period, shipments of subsequent instalments, made in their respective
designated periods, may be drawn against.

F.

When the indicated expiration date for presentation or negotiation falls upon a Sunday or
legal holiday, the expiration is extended to the next succeeding business day.

G.
H.

Presentation must be made during the usual banking hours.
The terms -prompt shipment,- -shipment as soon as possible,- -immediate shipment- or
words of similar import shall be interpreted as requiring shipment to be effected within
thirty days; and if no date for presentation or negotiation is stated, such presentation or
negotiation must be made within thirty days from the date of the Credit or advice.

1.

Documents representing more than the specified quantity of property may be accepted in
the discretion of the paying or negotiating bank without thereby binding the buyer to
accept or pay for such excesses but payment shall be limited to the sum named in the credit
or advice.

3.

The terms -approximately,- -about, or words of similar import, shall be construed to
permit a variation of not exceeding ten per centurn from the named sum or quantity.

K.

Drafts drawn without recourse will not be honored.

L.

Definitions of Export Quotations will be those adopted by the National Poreign Trade
Council, Chamber of Commerce of the U. S. A., National Association of Manufacturers,
American Manufacturers Export Association, Philadelphia Commercial Museum, American
Exporters and Importers Association, Chamber of Commerce of the State of New York,
New York Produce Exchange and the Merchants' Association of New York at a conference
held in India I-louse, New York, on December 16, 19i9.

'




—„

•
•

•
•

FEDERAL RESERVE BANK
OF BOSTON

February 27, 1925.

Ly dear Governor:

ftI

I have received your letter of the 2C‘I iand ma glad to have
an opportunity of o:xplatrrr-,-our—tratts'ttCtions with the ,First
...
National Cororation under the so-called repurlurxjaaaaa u
This matter was quite fully discussed at the meeting in Washington
on Wednesday, but as I did not know in advance that it would come
up for discussion, I had to rely as to certain details upon my
memory.

I
\




I think it quite immaterial whether the ownership of the First
National Corporation is vested in the stockholders of the First
National Dank of Boston under the Chicago plan, or whether it is
ownership under the provisions of
a
direct
actually
As a matter of fact,
Federal Reserve Act.
Section 25 of tho
is correct, that with the exception of
I find that Yr. Herson
directors qualifying shares, the stock is owned by the First
National Bank of Boston. The essential point is that the First National
Corporation is a distinct and separate legal entity.
Ur. Wing is out of the city but I understand from Vice President
Dwinnell that one of the other Vice Presidents of the First
National Bank of Boston, Mr. Brennan, is to see you today and
will explain fully the character of business transacted by the
I am enclosing a copy of a letter
First National Corporation.
which I have received from Mr. Dwinnell relating to his bank's
stock ownership in the First National Corporation, and he has
also sent me a copy of his letter to you under date of yesterday.
-er he explains that of the total amount of
In this let'
acceptances made by the First National Bank of Boston, approximately one-third comes to the bank direct with the request
that they be marketed for the benefit of the drawer of the
bills; the other two-thirds come mostly from foreign countries
to other domestic banks, who forward them to the First National
With the
Bank of Boston for acceptance and return to them.
of this two-thirds, of course, the First National
marketing
As explained in Er. Dwinnell's
Bank of Boston has nothing to do.
bills representing one-third of the total of
letter, of the
acceptances which they are asked to market for the account of the
drawer, the bank sells them to the First National Corporation
at the current buying acceptance rate of the day with the understanding that the First National Corporation will retain not
more than one-half of the amount of the acceptances so turned
over to it, and that the other half will be turned over at the
It would
buying rate to other discount houses and bill dealers.
appear therefore that only one-sixth in amount of the total
acceptances made by the First National Bank of Boston are sold
to and retained by the First National Corporation.

t of
Governor Strong explained how necessary it is in the developmen
against fluctuations in call
a bill market to protect dealers
money rates, and he also explained that the responsibility of
dealers is carefully checked, and that while theoretically anyone
who desires to do so can become a dealer, a certain amount of responHe
sibility represented by capital investment is necessary.
that bills seek the best
showed also, I think, veryconclusively
market and if there is no market in Omaha or Des Moines they go to
Chicago, and if there is a better demand for bills in the east,
Should there be a better market
they go to New York or Boston.
abroad they would go to London as was the case in the old days
before the Federal Reserve System was established.
Now as to the so-called repurchase agreements; as I stated the
other day, Section 14 of the Federal Reserve Act authorizes
Federal Reserve Banks to purchase and soil in the open market,
at home or abroad, either from or to domestic or foreign banks,
firms, corporations or individuals, bankers' acceptances and
bills of exchange of the kinds and maturities made by the Act
eligible for rediscount, with or without the endorsement of a
member bank.
Reserve I
Section 4 of the Federal Reserve Act authorizes the Federal
Banks to make contracts.
I was of the opinion that our repurchase agreement contained
nothing which obligated the bank to sell back to dealers any bill
'which it had acquired under such agreement, but as I did not
have a copy of our form with me, I did not care to make the
I find now that it has never
statement without being positive.
been the practice of the Federal Reserve Bank of Boston to
I am enclosing
obligate itself to resell any bills so acquired.
made by the First National
a photostatic copy of an actual agreement
Corporation back in 1923, which I think will relieve the Board
of the impression that the First National Corporation confines
its business solely to the purchase of bills from the First
I ma also enclosing copy of our present
National Bank of Boston.
From this
form which has been in use since November28,1923.
to repurchase from us on
you will see that the dealer agrees
or before ( ) days from date of agreement, at the various rates
specified, the bills which we take under the agreement, and that
there is no obligation on the part of this bank to resell those
It is therefore a repurchase agreement and
bills to the dealer.
Our practice, of course,
not a repurchase and resale agreement.
the dealers upon application
has been to soil those bills back to
The dealers
but we are under no legal obligation to do so.
confirmed at a conference
understand this and I have had this
with some of them this morning.




As you know, national and State banks which are accustomed to
buy commercial paper from brokers, do so on an agreement from the
broker that the purchasing bank may within ten days return any
This repurchase agreement of
note which is not satisfactory.
ours in effect obligates the dealer to buy back from us, within

•
•

•
•

the time limit, never more than 15 days, any bill which we desire to
resell.
While we are permitted under the law to buy unendorsed bills, we never
do so, and the obligation of the dealer under repurchase agreement
Should we fail to request the dealer
is equivalent to an endorsement.
to buy the bills back, we would in effect lose his endorsement at the
end of fifteen days.
Consequently we always require the dealer to
repurchase the bills from us, and going a step further, as -a matter of
courtesy, we permit him to repurchase the bills before the time limit
expires if he desires to do so.
Looking into the matter I find that it has long been the invariable
practice of this bank to take bills from dealers under repurchase
agreements, for the first fifteen days at a rate which is 1/8;;
less than the rate at which the dealers had bought the bills.
Should, however, any bill held by us under repurchase agreement
remain unsold by the dealer at the end of the fifteen-day period,
and is again acquired by us under a new seven-day repurchase agreement, it is then taken at the actual buying rate.
In no case does
this bank carry any bill for a dealer for a period longer than thirty
days.
Our buying rate today for prime endorsed bills maturing
within 90 days is 3 per cent, and our rate for endorsed second grade
bills is 3 1/8 per cent.
If the First National Corporation or any
other dealer should ask us to take bills under a repurchase agreement,
the rate might be 3 per cent, 3 1/8 per cent or at. per cent, depending
upon the rate at which the dealer acquired the bills.
As an example
I am enclosing photostatic copies of today's agreements with the
First National Corporation, from which you will see that we have
taken from that Corporation under repurchase agreement, some acceptances
of the First National Bank of Boston at 3 1/8 per cent, and some of
the same bank at &I per ceht, although our buying rate for these bills
endorsed would be 3 per cent.
The First National Corporation bought
these bills at a: - 3 3/8 per cent, and consequently under our
arrangements they are paying us 3 1/8 - 3-:1 per cent.
The object of
this bank in taking bills under repurchase agreement is, as was
explained the other day, to aid the local bill market, and no member
bank can obtain from this bank through an affiliated corporation a
lower rate than that at which it could sell an endorsed bill to us.
On occasions where a dealer has reported a buying rate very much
out of line with current rates, we have declined to give him the
one-eighth differential on his buying rate, and have taken the bill
at the same differential below current buying rates.
Yr. Dwinnell in his letter has shown that the First National Bank
of Boston does not acquire ownership of bills by accepting them.
It may occasionally purchase its own acceptances, but it cannot
obtain funds at less than the market rate by selling acceptances
owned by it to the First National Corporation.
Vie know what the
dealers' buying rates are from day to day; they are usually
1/85 above the quoted selling rates, and we never give the First
National Corporation or any other dealer a differential greater
than one-eighth off their own buying rates.




;

I am enclosing one of the daily circulars of the First National Corporation which we received this morning.
This contains.a list of unendorsed
bankers' acceptances offered for sale; the rate as you will see is
3 1/8 per cent in each case e=ept one, a second grade bill, whore
the rate is 3,1 per cent.
We would not buy any of those bills without
an endorsement; but with a satisfactory endorsement we might purchase
any of them at 3 per cent; or would carry them under 15-day repurchase
agreement for the First National Corporation or for any other responsible dealer at a rate one-eighth off the rate at which the dealer
had bought them, regarding the agreement to repurchase as equivalent
to endorsement.
The question may be raised, why do not the dealers endorse the bills
instead of merely guaranteeing them for a short period by agreeing to
repurchase? The answer is, the dealers are distributors; they sell
what they buy without any additional security or endorsement, just as
bond houses and note brokers do, and the small margin of profit in
the business does not justify their incurring the very large contingent
liability which their endorsement would involve.
The effect upon
the credit of the accepting bank should be considered also, for the
appearance in the market of the bills of a largo bank bearing the
endorsement of a dealer would certainly create unfavorable impressions
and comments.

Very truly you
c

---4
1:5Z --.1---e
---e---

P. G. Harding1;?,
overnor.

Hon. D. R. Crissingor, Governor,
Federal Reservo Board,
Washington, D. C.




FEDLRell. RIZ.;liVi.; BANK
OF BOSTON
February 27, 1925.
My dear Uovornort
I have reoeived your letter of the 26th inst. and am glad to have an
opportunity of explaining our transactions with the First National Corporation under the so-called repurchase agreements.
This matter was quite fully diacuesed at the meeting in Washington on
tedneeday, but as I did not know in advance that it would come up for discussion, I had to rel!r as to certain details upon my memory.
I think it guide L Jaterial whether the ownership of the Yirat National
Corporation is vested in the stockholders of the First National Bank of Bostor
under the Chioago plan, or whether it is actually a direct ownership under
the provisions of Section 25 of the Federal Reserve Act.
As a matter of tacti„
find that Mr. Hereon is correct, that with the exception of directors
qualifying shares, thu stock is awned by the First National Bala of Boston.
The essential point is that the First National Corporation is a distinct and
eeparate legal entity. Mr. Wing is out of the city but I underetend from
Vice President Dwinnell that one of the other Vice Presidents of the First
National Bank of Boston, Mr. Brennan, is to see you today and will explain
fully tho oharacter of business treneacted by the First National Corporation.
I am onclocin a copy of a letter which I have received from Mr. Dwinnell
relating to his bank's stock beneership in the First National Corporation, and
he has also sent me a copy of his letter to you under date of yesterday.
In
this letter be explains that the total amount of acceptances made by the
First National Baia. of Boston, approximately one-third cos to the bank
direct with the request that they be marketed for the benefit of the drawer
of the bills; the other two-thirds come mostly from foreign countries to
other domestic bankie, who forward them to the First National Bank of
Boston
for acceptance and return to them.
With the marketing of this two-thirds,
of course, the First National Bank of Boston has nothing to do.
As explained
in 1r. Dwinnell's letter, of the bills representing one-third of the
total
of acceptances which they are asked to market for the account of the
drawer,
the bezik sells them to the First National Corporation at the current
buying
acceptance rate of the day with the understanding that the First
National
Corporation will retain not more than one-half of the amount of
the acceptances
so turned over to it, and that the other half will be
turned over at the tritying
rate to other discount houses and bill dealers.
It would appear therefore
that only one-sixth in amount of the total acceptances made
by the Pirat
National Bank of Boston are sold to and retained by the
First Rational Corporation.




Liovernor etrong explained how neceseary it is in the develoement of
a bill market to protect dealers against fluctuations in eal money retest
and he also explained that the responsibility of dealers io carefully checked,
beoome a dealer,
and that while theoretically anyone who desires to do ao c
a certain amount of responsibility represented by capita investment is necHe showed also, I Chink, very conelusively that bills sece: the best
essary.
market aua if there is no market in Omaha or Des Loinee they go to Chicago,
and if there is a better oemaud for bills in the east, they eo to Nor York
eneule there be a better market abroad they would eo to London
or *Sestet"
as was the case in 4he olu days before the ?ederal iteserve System as etbabl1sh04.
Now as to the so-called repurchase agreemente; as I stated the other day,
eectiou le of the dedaral Reserve Act aathorizea 2odoral iteeerve Bunke to purchase and sell in the epon market, at home or %brow, either free or to domestic
or foreien banes, firma, eorporations or individuels, bankers' eaceptenoes eri.
bills ot exehange oi the kiuda and maturities made ey the Act elieeible for
rediscount, with or without the endersement of arm-giber bulk.
eection e et the ioderai 4eserve Act authorize::: the 2ederal eservo Banks
to make contraeta.
I was of the opinion tlelt aue repurch. se egreemcae ciente:Laud othing
0zAkfX LO Lee:eare Lsey bill which ie Lae acquired
whiee oelieatod the pene tu sell 1
under such egreemaLt, but az e did not heve e coey of our form with me, I did
i find now that it has
not care to make 141+7 etatement without being poeitive.
never been the uraotioe of the ?ederal Ileeerve 'Bank of lionton to cbliceate itself
I i neloeirve a iihutoetaiic copy of an
to revell any bLils so eceuired.
actual agreement made by the Arst National Corporation back in 1923, Which 1
think will relieve( the 'Jo e:d of the impression that the First National Corporation confines its buaineue solely to the pure:heat) of bills from the First
eiti also enclouine copy or our present form which
National bank of Boeton.
e'rom this you will eee that the
has been in use since November LS, 1923.
) days from auto of
dealer aGeees to repurchase from as on or before (
aereement, at Vila various rates apecifiod, the bine whieh we take under
the eeruement, anu that there is no obligetien'eu the part of this benk to
It is therefore a repurahase agreenent
resell these bills to the dealer.
Our practice, of coarse, has
and not a repurchase and resale agreement.
been to sell these bills back to the dealers upea application but we are
under no legal oblieation to do so.
The dealers understand this eau 1 have
had this nonfirmeci et a conference with come of them this morning.
As you knew, national and Stato banks which are accustomed to buy
=N1610141 paper free brokers, do so on an agreement from the broker that the
purchasing bank may within ten clays return any note which is not satisfactory.
This repurchase agreement of oars in effect obligates the dealer to buy back
from us, within the time limit, never more than 15 days, any bill which we
desire to resell.




While we are permitted under the law to buy unendorsed bills, we never

do so, and the obligation of the dealer under ruparehase agreement is equivap
.
lent to an endorsement.
Should we fail to request the dealer to buy the bills
back, we would in effeot lost his endorsement at the end of fifteee
cteys.
Consequently we always require the dealer to repurchase the bills from
us,
and going a atop farther, az amatter of courtesy, we permit him to
repurchase
the bills before the time limit expires if he desires to do so.
Looking into tha matter I find that it has long been the
iovarieeble
preotice of this bank to take bills from dealers under repurchase
acreeetents,
for the firet fifteen days at a rate which is 1/8e; loss than the rate
at
which the dealers had bout tho bills. Should, however, any bill
held by
us under repurehase agreement reT.:in unsold by the dealer at the e:aa Of
:
the fifteen-they perie,!, anl itfattuired be vs under a new eeven-day repurehazo agreement, it le then taken et the actual buyine: rate.
in no case
doss Uls back carry any '011 for o dealer for a period longer than
thirty
deys.
Our buyine rate todeor for prime eneorsed bills maturing within
'IssO
&lye is 3 per cent, Lena our rate for enlorsea second orado bills is 3
1/8 per
cent.
if the iirst National Corporation or any other eealer eLould ask
us to take bine eeleor a roperchose aiereement, the rate might be .3 per
cent,
3 1/8 eer cent. or 3 lie per cent, depending upon the rate at which the
dealer
acquired the bill.
As an example I am enoloeing photostatic ()opted of
today's ugreemente with the Arst ratioral Corporation, from Wtich
you will
see that we have takeen from that Corporation tender repurch&se agreem
ent, eame
aceeotances of the !first rational Bank of lioston at
1/6 per cent, and some
Of the sumo bank at 3 1/4 per cent, althouch our hoeing rate for these
bills
endorsed would be 3 per cent.
The First NEtional Corporation bought the
bills at 3 1/4 3/8 per cent, and consequently under our arrangeoloatu
they are paving us 3 1/6 - 3 1/4 per cent.
The object of thie bank in
taking bills uoder repurohLue Lgreement is, as was explained the
other Lt.ay,
to aid the local bill market, and no member bank can obtain from
this barer
through an affiliated corporation a lower rate than that at whioh
it could
sell an endorse& bill to us.
On occasions where a deoler hies reeorted a bnyinre rsto
very muoh
out of line with current rates, we have declined to elve htn the
ane-eieliCe
differential on his buyin rate, And leivo teZeon the bill
at the come dif,
ferwetial below current buying rates.
Owinnell in his letter has ahovn that tho
First National 3ank
of Boston does not acquire ownership of bine by
aceeptiAe then.
It may
occasionally purchase its own acceptances, but it
cannot obtain fuiads at
less than the market rate - by selling aceentances
weed by it to the First
National Corporetion.
We know what the dealers' beyine
rates are from
day to day; thy are asoally 1 84 above the
/
quoted eelline rates, and
we
never give the First National Corporation or
any other dealer a
diferential
greater than one-eiehth off their own buying
rates.




HM ezioloinc onJ of the L:%Ily circulars of the 2irst National
Corporation vfhir_th ereci3iIred thin nornin7.
This contains u list of unendorsed
bankers' acceptances offered for sale; the rate as you will aoe ir 3 1/6
per cent in each case ortcept on, a sr)cond ,..:rside IU,'hero thu rte is
3 1/.1 per cant.
We would not bay say of th.3o hills withaut an enaorse,
mon; 'out with a satisfactory endorsament we milht purchase any of than at
J per °tint; or would carry them 411a4r 15-day repurchase ukc:rei-lnont for the
First National Corporation or for any other ros-noncible dealer at it rate
one-eit:hth ofi the rate at which the dealer had bought them, regarding the
agreemont to repurchase as equivalent to 9nuorsentont.

The questiolt play bo rLijaed, why to not the iealer. endorse the bills
,
.
in6toad o meruly
xtt€b
hst for a short period by acxeoinc to reonrchLi4s7
The (mower is, the dealers aro distributors; th:e7 sell what they
buy vitLout any additio4a1 ueourity of on1or5ementz, juct at bond houses
and note brokers do, and the snail margin of profit in the buanc02 does
not ,itifj their IncurriA8 tho very larv coat.. 1ont liability 011ich thPir
endorsements would involve.
The effect upon the credit of the accepting
bank should be considerud lso, for the appearance in the mrket of the
bills of a lizgo banIc bea- ?in
J
endorst:.;
cetinly
create unfavura'Ula impres:;loiLs id.oonmoxAs.
Ve:rzi" truly

Hon. :J. A. CrieGiniser, .,:ovornor,
Federal .4osorv3 Bo.4..rd„
Waalington, D. C.




---,,...,

F F".Z.CHASE AGREEMEN'

,

-

BANKERS' ACCEPTANCE

FEDERAL RESERVE BANK, BOSTON, MASS.
•

Eel)
.13, 1923;

Date,

We hereby agree to repurchase from the Federal Reserve Bank of Boston, on or before
15 days from date, the Bankers' Acceptances herein described, aggregating $ 203,653.56
and at the various rates specified.
,,,
THE. FIRST NATION.,,)?.PORAT;(;):
Due 2/28

re
- ..

B. D. 1
-^

Acceptor

Due

Days to Run
Bills
Agreement

1
Rate ,
I

Principal

Discount

f

Na

1

4/27

Lmericc.n Tr.. Co.

I
2

It

73

15

4

ii

ii

it

4,38!.8:
3
I'II

iv

4/23

69

"

4 24

70

"

u

u

430

76

"

86

"

u

IIII

2 ,00

111

"

7.i.r,:t 1.u.t.21:.Chicgo En . 5/10
.

•

ti

u

16,00

i

---i - + '--,
-

eston

rst Nat. Bk. Boston

“

,

3/30

45

"

u

4/11

57

"

II _
. _

111169

015111

III .11111

u

II
,451gri

11,00ENIIIII
I
II
I II

5 14

90

"

u

Th(-, (;olorly Trust Co.

4/
10

56

"

9 •2 ,
00E11

u

58

84

"

u II=
ell

" 4310

, .L. •

u

,

.
F,

III)00
E11III.

u

5/8

84

"

Union Nr.t. Bk. Phila.

3/19

34

"

4 I 8

u

3 20

35

"

u

;

It

eLond Nv.t. .3k. -

/

II

1

.0

,9C) .4

'2111211
__

ME5.3

. \

NM
ifilif3.4 ll
11111114.4i)

00

111.
BOUGHT
PV

APPROVED
F,

an

-

EXAMINED

•4:I
-


http://fraser.stlouisfed.org/
\
Federal Reserve Bank of St. Louis

II

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1

203

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'

PURCHASE AGREEME'
3ANKERS' ACCEPTANCES

-

Date FEB 27, 19 25
To the Federal Reserve Bank,
Boston, Mass.
We hand you herewithtile$
bankers' acceptances listed below, aggregating I43,9
_
57-03 , which we hereby
agree to repurchase from you on or before ____14._days from the date hereof
at the various rates specified, delivery to be
taken by us at the banking rooms of the Federal Reserve Bank of Boston unless
otherwise requested in writing by us. It
is understood and agreed that in the event of delivery being made elsewhere the accepta
nces will be transmitted by registered
mail uninsured, unless we make written request to the contrary, and that all costs
and any loss resulting from shipment of
said acceptances are to be borne by us.

Official Si
ACCEPTOR
(List by Acceptors Separately)

1

FLT NAT BANK,BUSTON

DUE
(Bills/

5/26

2

II

3

If

5/213

4

TT

5/20

5._

It

I

lure

•

Days to Run
Bills

Agree

Principal

Discount

DATE REPURCHASED
(Make No Entries)

3,288 3

1?

6
7

It

3/27

8

II

n

9

TY

3/26

2 00_0
22 0 2.0

594 70
757
6 93
02

2

_

a_
9

18
19
20
21
22
23
24
25
26
27
28
29
30
31 I
32

33
34
35
6




143.775-68
NET (For

Dealer)

Date FEB 27, L9 25
To the Federal Reserve Bank,
Boston, Mass.
We hand you herewith the bankers' acceptances listed below, aggregat
ing $_a50,000•10
1
, which we hereby
agree to repurchase from you on or before 14
days from the date hereof at the various rates specified, delivery to
be
taken by us at the banking rooms of the Federal Reserve Bank of Boston
unless otherwise requested in writing by us. It
is understood and agreed that in the event of delivery being made elsewher
e the acceptances will be transmitted by registered
mail uninsured, unless we make written request to the contrary, and that
all costs and any loss resulting from shipment of
said acceptances are to be borne by us.
s

DUE 3/13

B. D.

ACCEPTOR
(List by Acceptors Separately)

1

FIRST NAT BA NK,B0 STO N

DUE
(Bills)

Days to Run
Bills

Principal
Agree

Discount

DATE REPURCHASED
(Make No Entries)

5/27
11
11

TI

6

8
9
10
11

'I

TT

12
13

tt

14

tt

15

tt

.16

_ 27 28
_ 29

30
_ 31
32
33
34
35 I
36




249,696.18

COPY

(17..11;

FIT

nTIONAL DANK OF BOSTON

Boston, Massachusetts.

February 2e, 1C25.

VI. P. G. Harding, Governor,
Federal Rosary° Bank,
Boston, Massachusetts.
nr dear Govornor Harding:
The questions in the letter of Governor
Crissingcr to yourself arc perhaps bc,st covered by sending you a
copy of a letter which we are sending today to Governor Crissingor
by Mr. Drennan, who is going to be in Washington tomorrow and from
which lett...r we think probably you can word your reply.
Answering your further inquiry to me, we
made applic'Ition to the Federal Recervo Board under .cction 25, of
the Federfd Reserve Act, for permission to invest part of the
Bank's funds in the stock of the First National Corporation, in
accordance with the terms of the second clause of said Act.
That
permission was granted by the Board on the fifteenth day of April
1918, and under that authorization, the bank invested $2,250,000
in the stock of the First National Corporation.
On the twenty-eighth day of April 1919,
the capital of the First National Corporation was reduced to
$1,500,000, and further reduced on March 18, 1921, to $1,000,000.




Very truly yours,
(Signed) Clifton H. Dwinnell,
Vice President

23
3zflflf

*Poi:CHASE AGREEMENS
NKERS' ACCEPTANCES

W

41

Date
To the Federal Reserve Bank,
Boston, Mass.
We hand you herewith the bankers' acceptances listed below, aggregating $_
which we hereby
agree to repurchase from you on or before
days from the date hereof at the various rates specified, delivery to be
taken by us at the banking rooms of the Federal Reserve Bank of Boston unless otherwise requested in writing by us. It
is understood and agreed that in the event of delivery being made elsewhere the acceptances will be transmitted by registered
mail uninsured, unless we make written request to the contrary, and that all costs and any loss resulting from shipment of
said acceptances are to be borne by us.

B. D. I

Items

Official Signature

ACCEPTOR
(List by Acceptors Separately)

I

DUE
(Bills)

II

Days to Run
Rate
Bills

Principal

DATEEPURCHASED
R
(Make No Entries)

Discount

Agree

i
-

2
3

_

4
5
6

-- --

7
8
9

,
1

10
_

-4

11
,

12
13
14
15
16

18

19
20
21
22
23
24

25

_

26
27
28
29
1
31
32
33
34

!

35

36
37
38



_

_I
,

NET (For Dealer)

THE FIRST NATIONAL BANK OF BOSTON
BOSTON,'
7 \ASSACHUSETTS
,
CLIFTON H.DWINNELL
VICE -PRESIDENT

February 26, 1925.

D. R. Crissinger, Governor,
Federal Reserve Board,
Washington, D. C.
Dear Mr. Crissinger:
Mr. Wing is in Chicago for a few days
but as my associate Vice President, Mr. J. D. Brennan, is
to be in Washington tomorrow, I um asking him to hand you
this letter, which is in reply to your letter of February
20, 1925.
First of all, I think the following
description will convince you that the handling of acceptances by the First National Corporation and by this Bank
is entirely in accord with the spirit and letter of the
Federal Reserve Act. We are distinctly at fault in one
particular, namely, the reporting by the First National
Corporation in their year-end statement to the Federal Reserve Board of the_litT_"_Repurchase luemer under the
caption "Loans Payable". Thrs aTerical error was made in
—
the December 1924 report, although, on the ledgers of the
Corporation, repurchase agreements were correctly posted.
Such repurchase agreements are made on the proper forms
furnished by the Federal Reserve Banks. This clerical
error in reporting we find was due to the fact that the detail forms furnished by the Federal Reserve Board provide
no specific place for reporting repurchase agreements and
the letter were therefore classified under the caption
most nearly fitting the case, namely, "Loans Payable".
This error will, of course, be corrected.
In order to give you a clear picture
of the First National Corporation acting as a dealer in
acceptances and the methods by which the acceptances made
by the First National Bunk of Boston are marketed, we will




ST NATIONAL BANK




•
•

TON

D. R. Crissinger, Governor,
Federal Reserve Board,
Washington, D. C.

-2-

2/26/25

trace through the typical transaction.
In the first place, of the total
amount of acceptances made by this bank, approximately
one-third come to us directly with a request that they
be marketed for the benefit of the drawer of the bills.
The other two-thirds come mostly from foreign countries
to other domestic banks, who forward them to us for
acceptance and return to them. With the marketing of
this latter two-thirds, we, of course, have nothing to
do.
In the case of acceptances coning
directly to the bank, the typical process by which the
bill eventually is sold to the ultimate buyer of the
bill is as follows:
It should be borne in mind that
such bills are not the property of the bank, but are delivered to us for our acceptance, with instructions to
dispose of the, bill at the best market price. This we
do through the Corporation acting for our clients, and
credit our clients' account with the net proceeds. The
Corporation sells them in the open market or in the
event of slow market conditions, they carry them in
their own portfolio. It is at this point that the repurchase agreement comes in. The Corporation has always endeavored, so far as possible, to finance its
portfolio of bills outside of the Reserve Banks.
It will very likely interest you to
learn how the distribution by the Corporation of First
National Bank bills is accomplished. Previously, all
the dealers in bills called the First National Bank of
Boston each day, knowing that they had from time to time
bills to dispose of Fs instructed by their clients. This
took considerable time and we decided that all of the
bills that the First National Bank had to dispose of for
account of its clients would be turned over to the Corporation at the current buying acceptance rate of the day,

•
•

IE FIRST NATIONAL BANKOT.TON




D. R. Crissinger, Governor,
Federal Reserve Board,
Washington, D. C.

2/26/25

-3-

with the understanding that not more than 50% of the
acceptances so turned over would be marketed by them
and the remaining 50% would be turned over at the buying
rate to the other discount houses and bill dealers. The
reason for this is obvious. In the normal upbuilding of
the bill market in this country, it is to the advantage
of all accepting banks to have as wide a distribution ES
possible and it is to the advantage of each accepting
bank to have as many buyers of bills throughout the
country as possible. Each bank naturally aims to have
its bills classified as time goes on as the fastest moving prime bill, which means, of course, thA its bills
should be known and purchased by a large number of banks
and institutions. The First National Bank's interest,
therefore, lies in the direction of having the First
National Corporation market only such proportion of its
bills as the distributing capacity of the First National
Corporation bears to the total distributing capacity of
all dealers. As a matter of practice, however, the First
National Corporation actually markets just about onehalf of the acceptances th-t the Bank turns over to them
for distribution on behalf of its clients. The First
National Corporation, upon receipt of these acceptances
from the First National Bank, sells without profit at the
current acceptance rate approximately one half of such
acceptances to the leading acceptance dealers, retaining
only for themselves the balance for distribution to its
own customers. It must be clear to anyone who cares to
look at the facts that there is not the slightest foundation for the intimation that this Bank, either directly,
or through the First National Corporation, is abusing any
of the machinery provided by the Federal Reserve Banks.
Very t_r41y yours,

Vice President

4010

•
•

•

•

TH E FIRST NATIONAL BANK OF BOSTON
BOSTON, MASSACHUSETTS

REOSIVED
FEB 26 1925
OFF/CE OFOB,
G-OV

CLIFTON H.DWINNELL
VICE -PRESIDENT




February 24, 1925.

D. R. Crissinger, Governor,
Federal Reserve Bobrd,
Washington, D. C.
Dear Mr. Crissinger:
We have your favor of February
20th addressed to Mr. Wing, regarding repurchase
agreements of the First National Corporation, which
letter we are taking the liberty of holding for answer
awaiting Mr. Wing's return, which will probably be
Thursday or Friday of this week.
Trusting the delay will not inconvenience your office,
Ver

truly yours,

Vice President
DS

Yebruary 20,

awar AAr. '1u;
am writin; Olio letter or biur zonfidential inComation oaacorning your bank and. the First National Corporation, which is owned in
some ranalor by your stockholderu. however, - Were goinG. further 1 want
to advise you that your bank and the First National Corporation have been
,oud- of thc:i rupurdhaso adr3ounder quite a little critici= here •
allegod that your bank and the dorporat an afe*Thlifiarity;
ments, which it is
,
J
Of cours.3, you are under no obligations to ,mswermy queztie. 1u, only I
fair to you that yoJ should understand the criticism and if you
think it
think advisable, then to Lave me such information JA. ILAW rolive the
situation.
Confidentially, we have quite a division in the Board on the
The conquestion of rogurchase coatrat4 used In th4 olpa mart.
tention, as I view it, grows out of a misunderstanding of what is actually
done b:( your bank and by your corporation in znakinc; thest) repurchase contracts.
It to contended that the First National Bank =Ices acceptances
running into many millions of dollars und then :ollE them to your corporation, thereby, by a short-out of this kind, making available to the
national bank funds at the TIon market rate, whieh has been lower than
the rediscount rate, It is contended that your corporation then sells
these securities under_th_repurch;Ase ._frot-Iriont'L to thu 4.04r41,1W:lervo
The record hero is not very clear as to what method is pursued
Bank.
Lome momboru of the Board
by the national bank and your corporation.
have (lug up the fact that your corporation carries those repurchase agreements as loans to their account instead of repurchase areaments and that
thereby if they are loans and considered loans by your bank or by your
corporation, or both, that then in that event the transaction iu wholly
illegal and without the pule of the Federal Reserve Act.

The legality of the repurchase agreements is being attacked in
the Board; in fact our solicitor holds that the repurchase a4roement,s' are
illegal, aad by co holding has unsettled two- perhaps three- members of
the Board on the question as to the advisability of continuiw; the repurohaso agreements.




In this contention of the illegality of the transaction I do not
concur.
I am quite convinced if the repurchase agreements or resale contracts- whatever you want to call them- are properly made, that they come
squarely and fairly within the provisions of bection it of the Federal
Reserve Act which authorizes the sale and purchase of bills, and 1- oetion
J
4 of the Act which authorizes contracts.
It may be true that your corporation is carrying them improperly
in their statement as loans.
If they ,re so carried, it should not be done,
as I view the law.
I um quite sure that the whole matter of the repurchase
agreements needs to be considered in a way that we may have a uniform manner
of setting them up in the accounts and a uniform manner of htIndling them
and then we will have no trouble.
As above stated, I am not in accord with the theory that your
national bank is taking a short-cut in some way to get fuAls as is alleged
by those raising the point.
I am rather of the opinion that your national
bunk and your corporation are carrying on these transactions within the
spirit of the Federal Reserve Aot, and I an also convinced and foul sure
that you would want to_cooperate in every way with the Federal neserve Board
and the Federal Reserve banks in bringin3 about a uniform way of handling
these repurchase agreements so that they would come not onl-r within the
spirit but within the legal scope of the Federal Reserve Act.
If after reading this you feel that it is proper, I wish you would
give me a Votter expressly statins the exact manner in which you handle
those bankers acceptances from the time you maka the acceptance- giving
aL illustration of a concrete case- what, if anything, the national bank
does with the acceptnoe or what Is done with the acceptance before it
reaches your corporation, i4n4 how anally it is distributed by your corporation to buyers of such bills.
I want to assure you that it is my purpose to establish in the
minds of some of the Board who doubt the legality of these transactions
that they are legal and can be properly handled.
If, however, we find
that there are any wrong methods applied in the handling or in the bookkeeping or in the statements then I aim to have those discrepancies removed so that we will have a uniform operation.
Assuring you of my very great esteem and hoping that I have not
imposed upon you in writing you this letter, I an,
6incerely yours,

1.1r. Daniel Wing, President,
First National Bank,
Boston, Mass.




D. R. Crissinger,
Governor.

• II

0I
THE FIRST NATIONAL CORPORATION
1 FEDERAL STREET
BOSTON

February 27, 1925

TELEPHONE, CONGRESS 7200

We offer, subject to sale or change in rate, the following

BANKERS' ACCEPTANCES
.

Pieces

Amount

40,000

4

90,000
3 100.000

Days

Discount
Rako

Apr. 13

45

3 1/

Mar. 27

28

3 1P3

Apr. 7

39

3 1/i

Mar. 16

17

3 1P3

"

13

14

3 1P

May

The First National Bank of Boston
New York

Dominion Bank of Canada

International Accept.Bk.Inc. "

25,000

Citizens National Bank

50,000

4

Due

18

80

3 1P3

19

81

3 1./

Acceptor

Baltimore Trust Co.,

"

Norfolk
Baltimore

Boston

6 100,000

National Shawmut Bank of

7 100,000

Lee Higginson & Co.

"

8 100,000

Kidder Peabody Accept. Corp.

"

"

25

87

3 1/ 3

50,000

The First National Bank of

,.

"

25

87

3 1./

50,000

State Street Trust Co.

"

25

87

3 1/ 3

"

12

74

3 1/1

10

11 100,000

"

t1

International Accept.Bk.Inc. New York

12

75,000

Kidder Peabody Accept.Corp.

"

n

"

12

74

3 1./ 3

13

75,000

Huth & Company

n

u

"

18

80

3 1/1

"

"

"

18

80

3 1/

14 100,000

*Goldman Sachs & Co.

15 100,000 i

Seaboard National Bank

"

"

"

19

81

3 1/

16 100,000

J. Henry Schroder Bkg. Corp.

"

"

"

20

82

3 1/,8

17 100,000

Brown Bros. & Co.

"

"

"

22

84

3 1/

18 100,000 E

National Bank of Commerce

"

n

"

25

87

3 1/8

19 100,000 E

Central Union Trust Co.

"

..

"

25

87

3 1/8

20 100,000 E

Guaranty Trust Company

“

"

"

23

87

3 1/8

n

.,

"

25

87

3 1/8

Co.

21

50,000

J. P. Morgan

22

45,000

Bank of the Manhattan Co.

"

"

"

26

88

3 1/8

23 100,000

Chase National Bank

"

"

"

26

88

3 1/8

24

45,000

Equitable Trust Co.

n

u

"

26

88

3 1/8

25

25,000

French American Bkg. Corp.

n

"

"

26

88

3 1/8

26

50,000

First National Bank

Chicago

"

20

82

3 1/8

27

30,000

Federal Nat'l Bank

Boston

"

14

76

3 1/4

DD896 8-23 75M


A $5,000


DENOMINATIONS
B $10.000

C $15.000

D$20,000

ft
E$25,,000

;
F $50,000

THE FIRST NATIONAL BANK OF BObTON
BM TON, Miw.)AOHUSET5.
15

February 26, 1925.
D. R. Criesinger, Governor,
Federal Reserve Board,
Washington, D. C.
Dear Mr. Oriesinger:
Mr. Wing is in Chicago for a few days but as my associate Tice
President, Mr. J. D. Brennan, is to be in Washington tomorrow, I am asking him to hand you this letter, which is in reply to/our letter of
February 20, 1925.
First of all, I think the following description will convince you
that the handling of acceptances by the First National Corporation and by
this Bank is entirely in accord with the spirit and letter of the Federal
Reserve Act.
We are distinctly at fault in one particular, namely, the
reporting by the First National Corporation in their year-end statement to
the Federal Reserve Board of the item "Repurchase Agreements" under the
caption "Loans Payable".
This clerical error was made in the December
1924 report, although, on the ledgers of the Corporation, repurchase agreements were correctly posted.
such repurch:.se agreements are made on the
proper forms furnished by the Federal Reserve Banks.
This clerical error
in reporting we find was due to the fact that the detail forms furnished
by the Federal Reserve Board provide no specific place for reporting repurchase agreements and the latter were therefore classified under the caption
most nearly fitting the ease, namely, "Loans Pay,lble".
This error will, of
course, be corrected.
In order to give you a clear picture of the First National Corporation
acting as a dealer in acceptances and the methods by which the acceptances
made
by the First National Bank of Boston are marketed, we will truce through the
typical transaction.
In the first place, of the total amount of acceptances made by this
bank, approximately one-third one to us directly with a request that
they
be marketed for the benefit of the drawer of the bills.
The other twothirds come mostly from foreign countries to other domestic banks, who
forward them to us for acceptance and return to them.
With the marketing
of this latter two-thirds, we, of course, have nothing to do.
In the case of acceptances coming directly to the bank, the
typical
by which the bill eventually is sold to the ultimate buyer
of the bill
as follows:
process




It should bo borne in mind that such bills are not the property of
the bank, but are delivered to us for our acceptance, with instructions to
dispose of the bill at the best market price.
This we do through the Corporation acting for our clients, and credit our clients' account with
the
net proceeds.
The Corporation sells them in the open market or in the
event of
slow market oonditians, they carry them in their awn portfol
io.
It is at this point that the repurchase agreement ones in.
The Corporation has always endeavored, so for as possible, to finance its
portfolio
of bills outside of the Reserve Banks.
It will very likely interest you to learn how the distribution by
the Corporation of First National Bank bills is accompl
ished. Previously,
all the dealers in bills called the First National Bank
of Boston each day,
knowing that they had from time to time bills to dispose of
as instructed
by their clients.
This took considerable time and we decided that all of
the bills that the First National Bank had to dispose of for
account of its
clients would be turned over to the Corporation at the current
buying
acceptance rate of the day, with the understanding that not more than
50%
of the acceptances so turned over would be marketed by them and
the remaining 50 would be turned over at the buying rate to the other discoun
t houses
and bill dealers.
The reason for this is obvious.
In the normal upbuilding of the bill market in this country, it is to the advantage of
all accepting banks to have as wide a distribution as possible and it is to
the advantage
of each accepting bank to have as many buyers of bills throughout
the country
as possible.
..;asth bank naturally aims to have its bills classified as time
goes on as the fastest moving prime bill, which means, of course,
that its
bills should be known and purchased by a large number of banks and
institutions.
The 'irat National Bank's interest, therefore, lies in the directi
on of having
the ioirat National Corporation market only such proportion of its bills
as
the distributing capacity of the First National Corporation bears to
the
total distributing capacity of all dealers.
As a matter of practice, however,
tho First National Corporation aotually markets just about one-half of the
acceptances that the Bank turns over to them for distribution an behalf
of
its clients,
The First National Corporation, upon receipt of these acceptances
from the First National Bank, sells without profit at the current acceptance
rate approximately one-half of such acceptances to the leading acceptance
dealers, retaining only ior themselves the balanoe for distribution
to its
own customers.
It must be clear to anyone who cares to look at the facts
that there is not the slightest foundation for the intimation that this Bank,
either directly, or through the First National Corporation, is abusing any
of
thu machinery provided by the Federal heserve Banks.




Very truly yours,
CLIFTON H. DWINNUL
Vice President.

February 20, 1925.

LT dear Lir. Wing:
I am writing this letter for your confidential information concerning your bank and th First National Corporation, which
is owned in
some manner by your stocl6iolders.
However, before going further I want
to advise you that your bank and tha First National Corpora
tion have been
under quite a little criticism here growing out of the repurah
ase agreements, which it is alleged that your bunk and the corpora
tion are handling.
Of course, you are under no obligations to answer my questio
ns, only I
think it fair to you that you should understand the critici
sm and if you
think advisable, then to give me such information as may relieve
the
situation.
Confidentially, we have quite a division in the Board on the
question of repurchase contracts used in the open market.
The oontention, as I view it, grows out of a misunderstanding of what
is actually
done by your bank and by your corporation in making that repurch
ase contracts.
It is contended that the First National Bank makes acceptances
running into many millions of dollars and then sells them to your
corporation, thereby, by a short-cut of this kind, making available
to the
national bank funds at the open market rate, which has been lower
than
the rediscount rate.
It is contended that your corporation then sells
these securities under the repurchase agreements to the Federal Reserve
Bank.
The record hero is not very clear as to what method is pursued
by the national bank and your corporation.
Some members of the Board
have dug up the fact that your corporation carries these repurchase agreements as loans in their account instead of repurchase agreements and
that
thereby if they are loans and considered loans by your bank or by your
corporation, or both, that then in that event the transaction is
wholly
illegal and without the pale of the Federal Reserve Act.
The legality of the repurchase agreements is being attacked in
the Board; in fact our solicitor holds that the repurchase agreements are
illegal, and by so holding has unsettled two- perhaps three- members of
the Board on the question as to the advisability of continuing the repurchase agreements.

_e t



In this contention of the illegality of the transaction I do not
concur.
I am quite convinced if the repurchase aereemanto or resale contracts- whatever you want to cull them- are properly made, that they
came
squarely and fairly within the provisions of bectio l of the i?elieral
Reserve Act which authorizes the sale zaid parchase'of bills, and :Jection
4 of the Act which authorizes contracts.
It may be true that your corporation is carrying them improper
ly
in their ctateent as loEns.
If tl,cly are ee carried, it should not be done,
as I view the law.
I um quite sure that the v.hule matter el' th repurchase
tv7rocywnts neatle to be consic:.erol in a Ivey that we may have a uniform manner
of setting them up in the accounts and a uniform mamaer of hendling them
and then we will have no trouble.

An above ste.ted, I am not in 4ccord with the theory that your
national bank ie taking a short-cut in cam we.,y to gut 1'w:de as iv, ;illeged
by those raiz:nig the otnt.
I am 2.thor of the opinion that your national
bank and your corporation aIT carrying on thosIJ trenotxtione 71.thin the
spirit ol* the Federal Reserve Act, and I an also convinced and feel sure
that you would wt tocooperato in every NNty
tie Feaaral Ileserve 3oard
and the Federal Ileservl banks in bringin3 about a uniform way of handling
those repurchase .eemente ao that they woulLL co:
it only within the
spirit but within the legal SOODO of the Voderal Reserve Ult.
If after reading this you fool that it is proper, I wish you would
give mu a letter expressly utatin3 the ezact Planner in which you handle
these bankers acceptances from the time you make the acceptance- giving
an illuration of a conereta case- what, i2 anythinr, the nation21 baak
does with the acceptance or what is done with the acceptance before it
reaches your corporation, ath how finally it is distrib.atod by jour corporation to buyers of such bills,
I want to assure you that it is my purpose to establish in the
minds of some of the Board who doubt the legalit'd of thee, truistions
that they are legal and can be properly hamied.
If, however, we find
that there are any wrong methods applied in the 11,ndlinis or in the bookkeeping or in the statements then I alm to have those cliscruancios removed so that we will have a uniform operation.
Assuring you of my very groat esteem and hoping that I have
not
imposed upon you in writing you this letter, I an,
2inoorely yours,

Mr. Daniel Wing, President,
First National BmIk
Boston, Mass.




D. It. Crissinger,
Governor.

FEDERAL RESERVE BANK
OF NEW YORK
February 19, 1925,

Dear Yr.
In my letter of February 11, 1925, relative to the so-calleu repurchase
agreements with dealers in Government securities anu bankers acceptances, I forwarded
you a copy of Governor Harding's letter dated December 2, 1921, stating that in the
opinion of the Board our present practice in this matter is legal.

I failed, how-

ever, to send you two other subsequent letters dealing with incidental points which
were raised in the letter of December 2.

In order that there may be no omission in

your record in this regard, I am enclosing herewith a copy of a letter from 1:,r. Henzel
to Governor Harding dated December 20, 1921, as well as a copy of Governor Hardings
reply dated December 21, 1921.
You may remember that Governor Harding in his letter of December 2 made a
supplementary suggestion that the reserve bank consider purchasing bills up to the
estimated average maturity of all bills presenteu at one time rather than for a specific period of say 15 days. Lx. Kenzel in his letter of December 20 points out certain objections to this proposal and Governor Harding in his letter of December 21
to your
states that the Board considers Ls. Henzel's letter and "offers no objection
purchase."
plan of taking appropriate collateral to secure the dealer's contract to
Governor Crissinger is in the bank today and at his request I am giving
him also copies of this entire corresponuence.

I am taking the liberty of giving him

also a copy of my letter of February 11 addressed,, to you.

Honorable C. S. Hamlin,

Feueral Reserve Board,
http://fraser.stlouisfed.org/
-dashington,
Federal Reserve Bank of St. Louis

Very truly yours,

ithRGi L. HARRIS()
Deputy Governor.

Form No. 111.

Office Correspo44k.
c
To
From

FEDERAL RESERVE •
BOARD

S.

Date Feb* -18,-1926.
-

Subject:
-Mr FA.dy




2-8495

For your information there is attached hereto the menorandtun
presented by Mr. Janos at the meeting yesterciv listing questions
with reference to the practice of certain Federal ieserve banks
in buying and selling government securities and acceptances under
repurchase or resale agreements.

Mr.
21r.
Mr.
Mr.
Mr.

Platt Y.
Hamlin
Miller
Cunningham
McIntosh

5

tice Correspon
Federal Reserve Board

To
From

FEDERAL RESERVE
BOARD

Datekic

February 11, 1925.

Subject:

__Er. James

For the pursose of getting information uoon which to base
my judgment on matters relating to "Sales or Repurchase ,,greements made
by Federal Reserve Banks", I respectfully submit the following questions:
(1)

What is the legal status of the so-called sales or repurchase
agreements through which acceptances are bouk.ht and sold
by Federal reserve banks%

(2)

Has not the Comptroller of the Currency ruled that in the case
of national banks making such sales under repurchase agreement the transactions Should be Considered and treated as
loans?

3

"aly should some "Recognized Dealers" in making report of condition to the Federal Reserve Board show "acceptances pledged
as security for Loans due Federal Reserve Bank" if these
transactions are legally sales? (For instance, see "Report
of Condition of the First i,ational Corporation
as of December 31, 1924").

(4)

Does not the buying and selling of accepta
nces under repurchase
agreement with corporations affiliated with member
banks
enable these member banks to provide funds
from the Federal
Reserve Banks for the use and benefit of
their customers
without showing direct liability,
other than possibly the
liability as acceptor%

(5)

Lre not the rates, as a rule, more favorab
le under this method
of borrowing than by straight rediscount'

(6)

Just what is meant by "Leconized Dealers"%

(7)

That are the qualifications requisite to obtain this designation
or distinction%

(8)

By whom and by what authority is the designation made%

(9)

Is there any list of "Recognized Dealers" that is available for
public inspection or information%

1
)
. •

f•-•

rn

(10)

(11)




Can producers of staple commodities sell direct to Federal Reserve
Banks (either on straight sale or under re-urchase agreements
bankers' acceptances based upon such commodities either individually or collectively through cooperative marketing associations%
Cannot the preferential rates that are applied on bankers' acceptances be made available to producers in some way?

CUP!
FL.01-11tALR4S.MVE
BOARD
February 11, 1925.
TU

PEDZRAL R;IRVI; BOARD

FROM

Mr. James,

?or the purpose of getting information upon which to base my judgment on matters relnting to "Sales or Repurchase Agreementn made by Federal Reserve iinnks", I respectfully submit the following questions:




(1) Whet is the legsl stntus of the eo-called sales or repurchase
agreements through which acceptances are bought end sold by
Federal Reserve Brinks?
(2) Has not the Comptroller of the Currency ruled that in the case
of National blinks meking such sales under repurchase egreement
the trenseetions should be considered and treated as loans?
(3) Ay should same "Recognized Deniers* in making report of coedition to the Federal Reserve Board show "scceptences plelged as
security for Loans duo Pederel Reserve Bank' if these transactions are legally sales? (For instance, see "Report of Condition of the First Netionel Corporation as of Deoember 31, 1924").
(4) Does not the buying and selling of soceptences under repurchase
agreement with corporations effilitated with member banks enable
these member banks to provide funds from the Federal Reserve
:3ankm for the use and benefit of their customers without showing
direct liability, other than possibly the liability as acceptor?
(5) Are not the rates, as a rule, more favorable under this method of
borrowing than by straight rediscount?
(6) Just what is meant by "Recognized ,
lealers"?
(7) What are the qualifications requisite to obtain this designation
or distinction?
(8) By whom and by whet authority is the designation made?
(9) Is there env list of "Recognized Peelers" that is available for
public Inspection or information?
(11) Can producers of staple commodities sell direct to Federal Reserve
Banks (either on straight sale or under repurchase agreements)
bankers' acceptencee . based upon such commodities either individumlly or collectively through coopiretive marketing eusoeintions7
(11) Cannot the preferential rates that are applied on bankers' eceeptances be made available to producers in some way?
(Signed) Geo. R. James

60
FEDERAL RESERVE BANK
OF NEW YORK

February 13, 1.925

Dear Mr. Hamlin:
I want to thank you for your letter of February 12, in reply to
mine of the 11th, concerning repurchase agreements.
I was very much interested in your comments about the several
other occasions when the Federal Reserve Board has authorized Reserve banks
to enter into repurchase agreements relative both to bankers' acceptances
and Government securities.
As I think I wrote to you in my other letter, there does not seem
to me to be any question of our legal right to enter into these agreements
in one form or another.

While I personally see no very substantial

objection to the present practice, even in taking collateral to protect us
in the obligation of the dealer to repurchase at the end of a given time,
nevertheless that practice, if necessary, could be amended if it should be
decided to be illegal.
In view, however, of the previous ruling of the Board and the
Board's counsel to the effect that the practice is legal, I hope there will
be no occasion to make any substantial change in our present procedure.
Very truly yours,

GFLR
L. HARRISON,
Deputy Governor.
Honorable C. S. Hamlin,
Federal Reserve Board,
V,ashington, D. C.
GLH.MU




•• 4




FebruAry 3:7, 1925.

Doar
11%ny thanl,!.-ss for your ltote of Fel,r.0 r.. 11,

re nuch va1na-

'.)1c inowtt1o. r find .%1so th•At on F--)b)-u.--,ry 1, 1922, 11191Bor
that

Y-3dul...1

Res rveBn

victor. notes at:

un er thoir open

:
11 ac Treasury not,:s

:74 11ci
.

t1:f_14. for them tavier repurch-t

rulos

po?rts nay plrrlhcAs,.--•
l.ficates fro
cert.

.ea1ers
f..1

r,remnents.

I f3_11,1 Also tint on October 4, 12, th' 13or. to1,
7.7raphed Go-or-or
IleKituley tIrtt br acceptwicos rybe t-.1:3n tut ler repurch•'13e rorocnents
,
from ,,o-orerative mrtrketinp, Snotat5ons.
bier 5, 1922, th.t P,Aer .1
,

T

Bo-rd saro r-aletc1 on

h.-tre-es rr y t4o Libcsrt•,r Bon's nr-1.7 r re,
,

apTP.)onents fron“
1923, the Berri

1 mr,

ances tn.}:nr, •uncier revurchn.se rir,reements f-on rieTtlers.
Bo-rd also publisi.rld a st.tettent

owr

ac-ept-

In !lay, 1923, tiv

Trc7
.....nur7.-- not en• VI-tory notes .

Trertsury certific.*.ltee purchased under repur,7hase agreements from banks
,
e -..1,
7!re.
V

(1301-.T.:e Ti. R-trri.s'n,,E:lq.,
dr.re.I RE*Merva 1374-4 •
,
.
New York, N. Y.

sincf:rel:r rolu4n,

t(
Ri;3;;FIVII
BOARD
February 11, 1925.
TO

FEDSItibl,

FROM

130/‘111)

Mr. James.




?or thu purpose of getting information upon which to Wise my judgment on matters relating to ":,3a1es or Repurchase Agrements msde by Federal Reserve Unlike, I respectfully submit the ,:ollawing questions:
(1) Art is the legml status of the so-called seles or repurchase
agreements through wW,ch acceptances are bought in sold by
Federal heserve Hanks?
(2) Res not the Comptroller of the Currency ruled that in t1-..e cPse
of National brinks makin6 such Belem under repurchase agrelient
the transsctions shou/d be considered and treated es loans?
(3) hy should some "Recognized ')enlers" in :slaking report of codition to the Federal Reserve lioard show "acceptances pleiged as
security for Loans due Federal i'serve Bank" if these transactions are legally soles? (For instance, see "Report of Condition of the First rational Corporation as of December 31, 1924").
(4) Does not 1 .he buying and selling of ecceptainces under repurchase
.
.
pgreprient with corporations affilitated with member banks enable
these member banks to provide funds from the Federal Reserve
Banks for the use and benefit of their customers without showinz
direct liability, other than possibly the liability as scceptor?
(5) i.re not the rates, as a rule, Lore favorable under this method of
borrowing than by straight ro'Ascount?
(6) Just whet is .leant by '
.ieconized Jonlere?
(7) ohet ere the quelifics
,tiunn requisite to obtain this desiolation
or distinction?
(8) By whom and by what authority is the desiznatiun made?
(9) Is there any list of 'liecognised Dealers
public tnspection or information?

that is available for

(10) Can prOducers of staple commodities sell direct to Federal Reserve
3onks (either on straight sale or under repurchase
agreements)
bankers' sccepttnces basea upon such cotimodities either
individuslly or col.Lectively through coopi:rative marketing
associntions2
(11) Oannot the pref rential rates that are applied on bankers'
acceptsnoes be made ?mailable to producers in some way?
(Signed) Geo. R. Jemes

Form No. 131.

'Office Correspe rice
To

Mr.. Hamlin.

From

FEDERAL RESERVE
BOARD

ft lltruary 11
e

192a

Mr. Wyatt- General Counsel.

Subject: _Repurchase Agreements.

'2-8-11:111

As requested by you, I have carefully checked against the
Board's files an this subject the statements contained in your memorandum of February 7th" with reference to repurchase agreements, and
reT7ectful1y submit the following comments:
(I have nrnbored the paragraphs of your r.ermrandum consecutively and shall refer to them by such nuabers.)
1. The telegram which originally suu:ested that Federal
reserve barils miglt rediscount eligible paper and later resell it
and rebate the unearned discount ws dated November 28, 1917, instead of Noveaber SO, 1917. It was also expressly limited to transactions with lember banks.
3. The wire limitin7 the period to fifteen days is dated
Jenuary 26, 1918, instead of January 20.
5. You say the tax on promissory notes was abolished an
April 6, 1918. The act referred to abolished the tax only as to
notes secured by Liberty Bonds or United States Certificates of
Indebtedness. The stamp tax an other notes was repealed by the Act
of June 2, 1924, effective July 3, 1924.
8. Since this referred to the ruling of NoveaLer 28, 1917,
obviously referred only to dealings with =amber banks.
it
9. As I understand the letter of July 22, 1918, it does
not expressly authorize repurchase El7reements covering paper with
maturities in excess of fifteen days; but, by fixing a higher rate
for repurchase a7reezents covering such paper, it impliedly recognozes that such paper may b-e rediscounted under areemea's to repurchase it within fifteen days.
11. This is aerely a aemrandum by lir. Smead (..aotinpr certain
recomendations of the Governors' Conference and he does not say
that this practice is well known to the Federal Reserve Board, but
that he "assumed that the Board was thoroughly familiar with the
policy of the Federal reserve banks with reference to purchase of
certificates of indebtedness under repurchase agreements."
12. The first sentence of this paragraph is substantially
correct. In the second sentence, however, you mote
Logan as
saying that the Board has approved forms of repurchase agreements
which obligated Federal reserve banks to resell, and what he said
is this. "In this connection I should say, however, that the Board
has approved forms of repurchase agreements coverinr rediscounts




which obligated the Federal reserve banks to re-sell." In view
of be
words "covering rediscamats" and in view of the other langu
aF, of
,e
,
his opinion, it is clear that he had reference to repurchase
agreements
covering dealings with mmber banks, when he made that
particular statenent.
az-eadu-e •
12. I find. that this circular letter was approved by
the Board
on February 1, 1922.
14. I find that the Board ap:roved the telegram
of October 4 to
Governor McKinney. As I understand. the
facts, however, that telegram
did, not have reference to acceptances
acquired from dealers under
repurchase agreements but referred to
aeceptances acquired from a
cooperative marketing. association
under a repurchase agreement.
15. The substance of this telertram is that
the Board would interpose no objection to a Federal reser
ve bank taking Liberty Bonds
(not Federal Land Bank bonds) direct from
a Federal Land. Bank under
a repurchase agreement and carrying such
bonds on its records and. re-ports as bonds owned,.
17. This statement does not irclude
bankers' acceptances acquired
from banks. Those listed were all acqui
red from dealers or from corporations like the National City Compa
ny which are affiliated with member banlm.
18. These tables show the amounts
held. under repurchase agreements
during the month of May,, 1923.Your date,
July 11, 1923, therefore, may
be misunderstood.
19. In my memorandum of August 18,
1923, I reached the following
conclusion with reference to the optio
nal form of rer.urchase agreements:
"Most if not all sale agreements made
by Feder
reserve banks reserving to the seller the privi al
lege
of repurchasing are, properly construed,
loans and
not sales."

A

At the end of your nemorandum, after discu
ssing mor memorandum on
this subject, you state that the question
of the validity and. propriety
of making advances to dealers on re_;Aarchase agree
ments has been raised
but not yet determined. I submitted. an opinion on this quest
ion to Governor Crissinger under date of August 18, 1923,
in which I reached definite conclusions both as to the legality and propr
iety of such agreements; but I understand. that that opinion has
never
en formally adopted
the Board.. Sub.sequently, the Board. requested
me to reconsider the
c,uestion and,under date of November 3,
1923, I submitted to the Governor
a preliminary report of a conference on this subje
ct which I had. with
officers of the Federal Reserve Bank of New
York. I have never rendered
a final report embodying the results of w reccnsideration
;because I




60
1411•
.;
0

had received the impression that the Board as somewhat embarrassed
by the cuestion and possibly did not desire a final report. I am
ready, however, to submit a final re. 2
2.rt on the question et any time
.
the Board desires it.




a

Respectfully,

••

•

FEDERAL RESERVE BANK
OF NEW YORK

February 11, 1925.

Dear

Mr.

Hamlin:
You asked me over the telephone on Saturday to send to you a copy of

the letter of the Federal Reserve Board which authorized Federal reserve banks
to enter into the so-called repurchase agreaments with dealers in Government
securities and bankers' acceptances.
I am glad to forward to you now a copy of Governor Harding's letter
dated December 2, 1921, which states that our present practice in this matter is
legal.
While you may be familiar with the various stages of the so-called repurchase agreements, it may be convenient briefly to review what has transpired
since the fall of 1921, when this question was considered at the Governors
Conference.
At the Conference held in October of that year, there was a long discussion by all the Governors with reference to the practice of the Federal Reserve Banks of New York, San Francisco and Boston, in buying bills from brokers
under resale agreements, which contemplated the discounting of the bills for the
term of the agreement rather than for the maturity of the bills.

Governor Strong

pointed out that that arrangement, while believed to be necessary in order effectively to develop the bill market in the financial centers, resulted in a purchase
by the Federal reserve bank of bills at prices in excess of their value at the
time of their purchase, since - as already explained - discount was deducted only
for the term of the resale agreement rather than for the whole maturity of the
bill.




Without any formal action by that Conference, it was understood that

FEDERAL RESERVE BANK OF NEW
YORO

411-

Honorable C. S. Harl410

411 February 11, 1925

Governor Strong should take the matt
er up with the officers of the Federal Reserve
Bank of New York, and that he would
report back to the Federal Reserve Banks of St.
Louis, Boston, San Francisco, Chicago
and Cleveland.
After the Federal Reserve Board revi
ewed the Secretary's Jinutes of the
October, 1921 Conference, reportin
g this discussion of the Governors, Governor
Harding wrote to me under date of
November 10, 1921, stating that the Federal Reserve Board had some doubts as to
the propriety of a continuance of the then
practice and wished to consider the
matter from a legal standpoint as well as one
of policy.
The Board, therefore, asked to have
copies of Governor Strong's correspondence with the Federal Reserve Bank
s of St. Louis, Boston, San Francisco, Chicago
and Cleveland, which were contempl
ated by the action taken by the Conference.
Accordingly, on November 22, 1921
, Governor Strong wrote to Governor
Harding, enclosing a copy of a lett
er which he forwarded on the same date to each
of the Federal reserve banks then in
the habit of making 15 day purchases of bills
under contract to resell to the
dealer from whom they were purchased.
For your information and
convenience in reference, I am enclosing a copy
of the letters in question.
It will be seen from this
correspondence that the practice now in vogue,
whereby bills are discounted for
the period of the repurchase agreement rather
than for the maturity of the
bill, was prompted originally and continued later
primarily as a matter of conv
enience and economy to the Federal reserve banks, for
as pointed out in Governor Stro
ng's letter of November 22, 1921 to the several
Federal reserve banks - it
would have greatly increased the clerical work of the
bank and the expense of
conducting the business, and would also have caused considerable delay in concluding
transactions, if each individual bill had to be
discounted to maturity.
The practice of taking collateral was suggested solely
to give the Federal rese
rve banks a margin to cover the slight excess in price
paid by the Federal reserve
banks over the worth of the bills at the time of
purchase.



,
E0ERAL RESERVE SANK OF NEW
VOIR

•
_

410

Honorable C. S. Had,

Ø

February 11, 1925

On December 2, 1921, Governor Harding in behalf
of the Federal Reserve
Boaru acknowledged receipt of Governor
Strong's letter of November 22, 1921, outlining the proposed practice for handling
bills which is now in vogue, and stated
in part that "after consideration of the matter
by the Board and its Counsel, the
Board is of the opinion that the practice in
Question is legal."
Since that date, the Federal reserve banks have handled
this business so necessary to the protection of the bill market,
and the market in Government
securities as well, under authority of that letter.

There has never been any

official action by the Board since that time denying
our right to continue these
so-called repurchase agreements.

Mr. Wyatt's opinion of August 18, 1923, so far

as we are aware, was never approved by the Federal
Reserve Board.

In fact, that

opinion was never officially forwarded to this bank, although
it is understood
that it was sent to several of the Federal reserve banks.

The only copy that we

obtained was through another Federal reserve bank.
But in November, 1923, the opinion was considered by the
Conference of
Governors, upon request of the Federal Reserve Bank of San Francisco
, and the
following resolution was passed:
"That it is highly desirable and important in the development of the
market for bankers' acceptances and in the protection of the market for Government securities that the present business of the Federal reserve banks in buying
acceptances and Government securities under repurchase agreements be continued on
substantially the same basis as at present, but in such form as may be decided
prober under advice of counsel."
So far as I am aware, the Federal Reserve Board has never taken any
official action since that time, so that it may be assumed that Governor Harding's
letter of December 2, 1921 still defines the authority given by the Federal Reserve Board to conduct these repurchase agreements in the very manner in which
they are now being conducted by several of the Federal reserve banks.
If these transactions with dealers in Government securities and bankers'
acceptances are desirable as a matter of policy in order to support both the




tko

RESERVE EIANK OF NEW YOR

Honorable C. S.

401
0

February 11, 1925

Government security market and the bill market, and in the past it has been generally agreed that they are desirable, then the only question is whether the
transactions are conducted strictly according to law.
As you know, section 14 specifically authorizes Federal reserve banks
"to purchase and sell bankers' acceptances and bonds and notes of the United States.
Section 4 of the Act also authorizes Federal reserve banks "to make contracts."
Clearly, the right to make contracts can only mean a contract to exercise in the
future some power that the law confers upon the bank.

Our repurchase agreements,

therefore, involve (1) a purchase of Government securities or bankers' acceptances
(as authorized by section 14), and (2) a contract (as authorized by section 4) to
sell (as authorizecl by section 14) securities and bankers' acceptances previously
bought.

If certain incidents to the transaction, such as requiring collateral,

as outlined in Governor Strong's letter of November 22, 1921, tend to make the
transaction look like a loan - as argued by Mr. '4att - rather than a purchase
and sale, the form of the transaction can, without much difficulty, be amended so
as to obviate this particular objection - if it really is an objection.

The im-

portant fact is that these incidental questions of form should not - as Mr. Tyatt
implies - be controlling evidence of our intention to do a thing in an illegal
way, when the real purpose and intent is to conduct with the greatest economy in
handling and expense an operation clearly authorized by the law and expressly
approved by the Federal Reserve Board in its letter dated December 2, 1921.
Mr. Wyatt argues that the form of the transaction including the requirement of collateral is evidence of our intention to make a loan,

but it seems

more reasonable to presume that our "intent" was to complete the transaction in
a legal way, that is, through a purchase and resale and not to do so in an illegal
way, that is, through a loan secured by collateral.

If, therefore, as Mr. Wyatt

and all the Court decisions to which he refers state, the question of actual
intention must control, then it seems quite apparent that the transaction in




£0ERAL RESERVE BANK

or

qp

NEW
YORO

OFebruary 11, 1925

qu stion must be held to be proper both within the spirit and the letter of the
law.
The Supreme Court of the United States, in the case of Hobbs v. McLean,
117 U.S. 575, seems fairly to support this construction in the now well established
rinciple that where a transaction is open to two constructions, it may be presumed
that the one which is legal is intended and not the one which is illegal.

That

opinion in part reads as follows:
"*** But if the articles of partnership were fairly open to two con—
structions, the presumption is that they were made in subordination to and not ir
violation of Section 3737, and if they can be construed consistently with the
prohibitions of the section they should be so construed. For it is a rule of
interi
lretation that, where a contract is fairly open to two constructions, by
one of which it would be lawful and the other unlawful, the former must be
adopted. "
I have written you at same length only because of the fact that you ex—
prest;ed your great interest in the whole question and asked me to forward to you
any data that I had with regard to it.

If there is anything further that you

may care to have me do, I hope that you will not fail to call upon me.
Very truly yours,

GEORGE L. bARRISON,
Deputy Governor.
Honorable C. S. Hamlin,
Federal Reserve Board,
r,ashington, D. C.
GLH.MM
enc.




Febru,iry

riVTitC11,1137
.AG

TS.

rxidum.

.,:utlicrivtd to avoii
on pro;,..liasory

1917.

C...trnot b(i usel

L

ity of pAyinv the stiimp tax

colLiteral for F1.11ri.1 Reriervl not

t al to peri O. of 1 fi dfkys.

Dpceaco -1* 18, 1'7417.

January 20,19'18.

Trea.sury certificater.; way be t;ii-..,
3n on 15-da.:, reriurchase agroecon
ts.
February 28, 1918.
T.i!ix on promizsor} aot

bo1i3hed.

April 6, 1918.

Bc...,t on held 37 millions of Untti
3tatea crttfi.tit of initilbteineas
:4c:iuired uniir raeurchase a.R.,raeraents.

Ju.nu Iry 8, 1918.

Rinks orti,
r3d not to claazify such rtlyurchaal
but tia r

urch

rint.rc

Fedfral Reciervl 13o;Tcl ru1

“ YivInc

12, 1918.

LL.it d thouril r ,nirchase

Nere

orir1.n111 y 4.-tuthorized to facilitate tr.
.,.4ns..,ction: in GovIrrnent bonds h.nd
Trqn.aury carti1ic!.te4, r1,1 :
..1.thoup), the 3tfanp tax 113.:‘ ';len repe
ftled, thlrl
no objrIcti(:n to rurcrze a.:re.eel.
-mts us to co.
,
,rcir.11 pltplr. Jul., 221 1.9 1E.
R32 urchLa.se ,4
7,raistaints ,.altilorized for p.Ap..1,r runn
,
ing 1ong4r th,tn 15 days,
but Bo...trd rul,io that the r Ito ahoulct
be it higher than that it
collat(s,ral not




subject to .itaral: tqrk- would bn

3n.

July 2":, 1916.

-2.

Tables shoving count of Treasury certificates talcen under repurchase
agreements durin,-; the Irst four months of 1919.

May 26, 1919.

The Governors' Conf rence recommends th.t dealers be ancouraF7ed by
having free

cc es to Fed ral Reserve banks to a e11 bills &tad, to carry them

under 15-day repurchase agreements.

Mr. Smead states that this practice is

well known to the Federal Reserve Board.

May 26, 1919. ,

Counsel rules that the practice of deducting discount only for the
15-day period in the case of purchase of eligible bills from dealers is
legal, as the Board has made the same ruling as to renscounts, and the
same principle applies.

Opinen states that the Board has ar.proved forms

of repurchase agreements which Obligated Feder,11 Reserve banks to resell.
Nov idler 28, 1921.

The Board rules that Federal Reserve banks, under their open market
powers, may purchase Victory notes as well as Treasury notes and certificates
from dealers, and carry them for than under repurchase Lgreements.
February 2, 1.922.

The Board rules that bankers' acceptances may be handled for dealers
under repurchase agreements. October 4, 1922.

The Board rules that Federal Reserve banks may handle Federal Land Bank
bonds under repurchase ar;reements, at the request of Feral Land Banks.
Pecembor 5, 1922.

The Board advised the Federal Reserve Bank of Boston thc-.t the rates
charged under repurchase aereamant a should not be lass than the discount
rate on eligible paper.




December 26, 1922.

.

•
-3-I

Tables

hc.--zing bankers ae.ceptances purchased under repurchase

aereammte frorei banks, and also dealers, by all Federal Res,wve banks,
total 98 millions.

May, 1923.

Similar table showing Treasury notes, Victory notes, and Treasury
..
certificates purehased under repurchase af:reements by Fed ?ral Reeerve banks
from banks and dereler:- total 89 millions.

Opinion Mr. Wyatt.

The Coreptroll

July 11„ 1923.

holds paper bou:lit under repurchase

agreements must be carried as borrowed money, while Federal Reserve Board has
held that it should be carried as security sold under repurchase ae:reemonte.
The queution is whether such transactions are purchases on oe...,n market, or
merely loans •,:ecured by deposit of securities or acceptances as collateral.
The opinion expressed that if the dealer is obligated to repurchase, it is
a loan and not a sale, and is ultra viree.

If, however, it is optional.as

to the dealer, opinion '27Lpret;stId that no universal rule can be laid Joni,
but that the courts would very likely construe such a trans . cticti as a loan
and as ultra vires.

FeCUn'al Reserve

August 18, 1923.

Board calls upon Federal Reserve banks to send in the

forme used by them in these repurchase agreement::.

Wyatt.

October 11, 1923.

Preliminary report of Conference held with Fedetal Reserve Bank

of Nee:, York,
The Federal R031rva Bank of New York today obligates the dealer to
rei:urcha.se, and this, in my mind, is a loan and not a sale, and is ultra vires.




States that he d.ieeeueeed cetional •ig,rements with Mr. Kenzel.

States that there is a conflict of ;Authority in

h3 case of optional

liwreer..imits, but that if tide optional form ‘Aas dive4ted of
the ,Jarraari:s of
loc.n, It might be cons•tilred by tri,i1 scurts ai;
Suggested tc

r. Kenzel t,Qt th

stlle.

i1 1* give a ;,.7uArantee of payment of
-

all acc-?..ptance, , o1d by him to tile Fed:-n7a1 Rerve bank.
. 2
'Ir. Kenzel thinks this would not be

roc- t prottion fer tLe Fdrl

Res:trve bank, but Nould probably be ;sufficient -protectio
n.
Opinion exprel;sed that even in :Rich a cast:), In titpirit it would
a.-.1ount
to a
Di:3C:113 S
1.

ctre,ument adnced by :Ir. Harrison:,
Sectim 14 was ju...tased to rmb1a redc,ria Reserve bank3
to stabilize all market.
Repurchase aiireerrients :enable the Federal Res,Arve
banks
to atabilise the Twaekets with less tianAar of loan
than u if they purchaseci th.e aocitpt,anc(r: cutrit7ht.

0.

Fe-leral Reserve bank2, are not ixpreesly proht5ited
by
the Fadr,-..ral 1133el'Vt3
t frc
rnal:ing ciirt leans
to clealers, - they are simply not apecifically,
Authorized to imAke such

4.

This practice of repurchase agren:lents has grown up .
qith
the consent of the loadvel Rec,erve BoArd.

Counsel advanced additional objection to o9tio
rk1
that under them dealers ceuld ,r1p3eulat,3by rurc
hase if the Trice 7o,
e
-213 by failure to repurclz‘se if the 2nd e 0)-31i
cioNn, but et&t3: that
.
Mr. vickrburg told hir thtd.,-.)al'Irs would
not dare to ply fast ani lew:A in
this mann,..1r with the Federal R1rver
Counsel

3tattvi

that this is not a final ory'inion

rei:urchase agreernInts, but ig




to the validity of

1:3' elirlinary re:.)ort of his convrGatic
.T.

with Federal Raa..31.v! but* officials.
,

The undersiffned, from an examination of the records of the Federal
Rgrve 3card, feels that it is cleArly established that the 3oard
has
authorized the us3 of repurchase a:7reaments, not only .vith
banl.s, but also
with ders; that the quel;ticn of validity and propriety
of such !.cticia has
been raised, but has not yet been determined.







RESERVE BOARD FILET

J

Fabruary 2, 1924.

Ly dear Lir:
Answering your letter of January 28, you are advised
that the Federal reserve banks have not changed the method Of
handlin, repurchase ar_:reements and that Mori) has been no
;
•t•••••••••••••••••••••+.•

order =de up to this time.
Very truly yours,

(Signed') O.

Crissinfrer.

D. R. Crissinsor,
Governor.
Lr. R. • Valentino,
90C ',est Oregon -t.,
Urbana, Illinois.

/

906 rest Oregon St.
Urbana,Illinois.
January 2E,1924.

1.1r.Thlter 17i.Eddy,9ecretary,
Federal Reserve Board,
,
ashington,D.C.

Dear 9ir:

I understand that recently the question was
raised as to whether the Federal Reserve Banks,in ,entering into repurchase agreements with dealers handling
bankers' acceptances,were going beyond the powers granted them under the law. As I understand it,t1-e question
arose at the time of the examination of one ol the banks
and they were instructed to discontinue the pracice.An,
appeal was made,I believe,to the Federal Reserve Board.
ty the dealers and an agreement in the matter was effected.
"Auld you kindly furnish me with the facts in
the case and the final ruling or decision rendcred in the
mafter,if one has been made?




yours very truly,
110.

Pederal Reserve Board

4

F.R
Forlil

TiOok

No. 131.
el

Office Corresiltridence
- :'.3....1:1__Ro6erve Boards
.

From__

__Committee_orDiaeounta -and
Open Market Policies.

FEDERAL RESERVE
BOARD

D4e

;::), -I 1 /
3 I
nuary_16,___19

Subject:ilaixaroliasa a memo
to transactions involving debentures of
Intermediate EtreditAyAlimm =
mw

Tha comnittea concurs in t-J4 vieq orpressed by tba Governors that
the Federal IntonasditJ C;odit Banks s'boIlld float their debentures
through the investro.at as,rket, leaving the) raderll reser.m. Banks nevertheless
iiier ouch case on its Nerits anl to afford all possible help
free to con.
whenever tamporar7 n3d W.fe!M to revire it.
.(


Misc-%7


••
•
ROw$.1 PIE

FEDERAL RESERVE BOARD.

1

'?)

WASHINGTON

X-3946
--TrEaary 21, 1924.

Debentuves of Federal Intermediate Credit B
Dear
It appear
Te been the sense of the recent
GovernorsT Conference that Yederal Intermediate
Credit
Banks should, if possible, float their debentures through
the investment marhat, rather than by direct sale to
Federal Reserve Banks under re-purchase agreements.
It
seems to have seen a6. e
e on erenc:e, owever, t at
in view of the important purpose for which the Federal
Intermediate Credit Banks were created, that the Federal
Reserve Banks should consider each case on its merits and
afford all possitle help whenever the temporary need
of a
Federal Intermediate Credit Bank would require it.
The purpose of this letter is to advise you that
the Federal Reserve Board concurs in the views of the
Conference.
By dit-ection of the Yederal heserve Board.
Ycars very truly,

Walter L. Eddy
Secretary.

TO CHAIRMEN OF ALL F. R. BANKS
(COPY TO GOVERNOR OF EACH F. R. BANK).




v-_
f,iorni No. 131. it
7

Office Corresiiitete
To ___

niiai

Federal Reserve roar..

From

FEDERAL RESERVE
BOARD

16, 1924

Committee on 7
)iscount and 0
Market Policies.

Agreements.
^
s,h

The conference voted tl...at it i:' hiTshly desiraMe and important in
the development of the market for b nkers acceptances and in the protection of the market for Government securities that the present business
of the Federal 'Reserve banks in lAlving acceptances and Government
securities under repurchase agreements be continued on substantially
the same basis as at present, but in such form as may he decided prorer
under advice of counsel.
The committee concurs in this recommendation.

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