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332.3-6 - Repurchase Paper C /? t.. 5 (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. iuoot ) is \ 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 C • (i .,{0'..t•fic., .,, 1,, 4' Iv 0 ;1,, ' ( .7 ..,?:•/: \, - ,,,f, BOARD OF GOVERNORS •-•"------ OF THE /( 1 r• FEDERAL RESERVE SYSTE 'isN ?", * 'd' 's, ;', • C'D RI RECORDS SECTION FEB1 81958 WAS ',— 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- 1-s fjt 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 . ., . FL L._ ,y- D. Brooke i —. i ! 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 A.V3 ex.,j \lac' • FEDERAL RESERVE BANK OF NEW YORK NEW YORK 45, NY RECTOR 2-5700' HI RECORDS j n •-• .-• ! 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 $440,020 P/01,341 12,515 908 697,784 Cleveland Atlanta Member banks: Head office or branch city Outside head office or branch city Nonmember banks Other Totals 93 289 23 2 290 44 21 355 649,872 13,477 9,555 672,904 Dallas 300,764 7,439 660 308,863 23 17 2 42 86 35 3 124 165,811 8,273 1,300 175,384 03 . 4 •suoy4wedo won JO goTswia *.ao4oeJla 4um4sysey auessoi uvj •ig •11./.110A An'; Laei •Iveoxide JuoA cola nee. syq4 4mq4 was Imo ea 4sn2ny eseyan pump iatia Aima4uoo eq4 o4 noAtuoaj xseq 0 04 e4lop eq4 2u- h:ego ese ea lAySluypaopoy -eous4.104pv -ay OnoJ144 patinae sea .ala ei 4sany uvq4 stelmma wimp 8T44 4114/4 'Judd' 41 '1i goal* jo euo ftypeoeid 844 144140, 4.todeJ eq4 2uwirdao0 '1461. ON go usAy9 ey 'uoy4do 61 LaustmeJL uo e4ex Ifuyinq eq4 jo e4vp evegoaudeJ eeroejjo .T4 t6T Igai OW JO; 96a 41 'I MaChi uo few 41,eae4u1 pum ;mosey 4o vodea eopreg Jnoi ax 14.1vAsol,g •aig •yanoseln az rpm -41; 'wpm •4$ jo Aumg *Lies** Isaepej *Amp:woesPu, 4uepyeald sou 14-nluss4/3 'II -3 •.in t11161 'et 'eosin :1 7 416t 6 I 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 ) ,f oc."1,4! .2 A-1211 ,f)t_tr(19—c ---01 f 44t.e._ti, v / ..--t"-e• ' le.....&,,, 44,41/ Zi.,: , , -o :}1 A, 1,--1-,. dt.......,..," c,'2• it . ' - ) / 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 -, < . t'N 6' .. t •,,oo -c ` :cits ? ..--:) .-:#) ..-, --='-—L, 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 t..1 ......- - lb. For your information. ,..,_ : e, , „ - k e. 4.e, 4- cz-1(z --IZ, I, 4 / .:d. -,.:-.:: (1 t.e,•-(.4.--.., z---i,r_...../. ( i a-t-,6e...... --( / -c-ekc- e . . /..._/.........z.„ . . ,,, -...e ..e, SOT 1110..PINT rititiT1N3 OM. . Pt ---e,lce, d_ V oct. .4.41 , Ltv-si....- "1-2,t_e4( ,... -6-14_ , 11,-.. -),-,,c,, -r f." 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 , 1 203 N I II III _ II II 4 I II ' 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. ..., ,i,i , :x.,,,.. ,,,, "i/.., / 4., ,,,,-,,,,, p' li -/ ../it..,4 .e ...., nr.,0, ,,.!,. t ,/4ir . , , ,vic 0-:,,, 4.1? Zr ... c 4\ ; " : f /(..„.4 • i .4. r , ., ii' '' :,... 44 I 'A , ;.. r,r 4...,/ 04. 7,9 f 'h-, A,' ei,..e.r . ',..-FRASER Digitized for M150-37 , Z..!r st•,*.,. ' .1, t.. . ' ' c i' c- ( , 61 , er.i.....--sk..4.94 '. 411. *1 fl 3 .:fi - /t r& e 41 do'tt0 'At-11/ K.se:7?...