The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority
. [0^6\
Form F. R. 567
END
SH EET
KI O MATERIAL O NUMBER 333.3 ND F
R
4
NAME O subject
R
System Open Market Account
Federal Open Market Committee Open Market Operations
DATES (Inclusive)
1935 -
PART NUMBER
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority j£,0 . (
KE0 'I> IN FILES SECTldS'
APR 1 31 9 5 4 fr/ '
Federal
OF
r e s e r v e
N E W
b a n k
YORK
N ew Y ork 45, N. Y.
April 7, 1954
Mr* !• F* Leonard, Director,
Division of Bank Operations,
Board of Governors of the Federal
Reserve System,
Washington 25, D. C.
Dear Mr* Leonard:
In accordance with telephone conversation between
Mr. Daniels and Mr. Mount, there is enclosed table showing
losses and profits on sales of T * S. Government securities
J
from System Open Market Account for the period September 30, 194-7
to March 31, 1954-*
S y s te m
Open Market Account*
Enclosure
NOTE:
The schedule attached supplements the one enclosed
with letter from Mr. Rouse __of,Q.Qjpb§r 9»
giving data for the"period June 30, 1936, to
October 9> 19U7•
CONFIDENTIAL F. R.
TABLE SHOW1 J LOSSES AND PROFITS ON SALES OF U. S. GOVERN1CENT SECURITIES
FROM SYSTEM OPEN MARKET ACCOUNT FOR THE PERIOD FROM SF-PT 30, 19ll7 - MARCH 31, 195U
191*8
19b7
31*, 1*07.1*3
,*
959.85
78.985.9U
$
,* . *
78 1 26 61
31 31 6.86
lit,911.60
11)6.103.72
,
80 310.58
31,668.58
1*5,386.51*
.
_____
Profits
Losses
January
February
March
April
May
June
July
August
September
October
November
December
$1,01*0,705*03
281,1*20*13
368,70^*68
59,21*8.83
106,569*19
297,^56*27
Totals
Deduct Profit
Net Loss
$2,l5U,l6l„88
568.037.61*
$T,W7i5T.2lI
57.75
$ 56,202.81* $
10,515.70
6,993.1*9
1,380.10
9,397.01*
11*,289.99
1*1,667.03
28,683.88
5,988.1*7
11,037.78
151*,21*3.93
210,792.27
1*1*.387.07
$568,037.61*
$27,51*1.95
Deduct Losses
Het Profit
(a) Excludes profits and losses from January 1, 191*7 to Sept. 30, 19U7
(b)
3 months only
Federal Reserve Bank of New York
Securities Department
April 7, 1951*
5, 8 6 3 ,571*.75
3 ,0 6 2 ,8 6 6 .5 0
5,859,999.39
3,30U,lli9.75
U, 861,1*18.05
I*,l58,351;.66
661*,3 6 2 .65
966 ,3 2 0 . 1 1
558,338.17
111*,327.87
807,201.1*3
1.167.01*9.1*0
$ 3,818,11*
3.50
7,031,836.1.7
9,908.59
2 * 722. 50
1,
1,763.15
3,761t.5l
1,657,386.18
1,081*,109.53
21*1,1*92.58
1,3U*,615.28
2.21*7.902.19
1*,116,057.35
1,979,58^.08
*
2,212,565.71
6,722,71*2.1*2
5,517,51*9.56
1,381,981.33
59,316.15
11*9,186.16
86.01*1*.06
131,387,962.73 $6,625,1*19.69
26.276.73
,
,
16,571,065.60 $26,276.73
356,227.1*1*
I 5 7 5 i £ t 3 0 5 --------
$ l*3,521,17l*.60
6,625.10.9.69
'55,§CT3S79i
131 361 6 0
86.0
Profits
Losses
W*5,257.79 $
9l*0,211*.86
12,930.19
205,708.1*3
188,836.99
139,720.37
35,1*51*.59
5,72l*.55
37,826.71*
3,81*0.66
3,67l*.l;0
$2,019,189.57
27.51*1.95
$1,991,61*7.62 Total Profit
$
, ** ,
7 116 168.01
195h
1953
Profits
Profits
9 ,251 * 06
.
1.12
JSSx8 7 5 .1 9
1952
1951
Losses
1950
Losses
Profits
,
. .
16 158 1*6
$192,362.18 $356,227.10*
80 310.58
5i l 2, 05l . 60(a1
Losses
159, 681*.89 $21*,105.99
8,166.38
18, 221.16
1.98
1*62.1)9
17,
21* ,553.1*6
0
625, 1*88.29
71,51*1.52
2,073.75
11 5 181.99
*,
30 0 ,298.10
6 - 636.67
71 ,
986 955.U6
95.01
25, 877.91*
1*0,885.22
31*, 791.09
3,752.99
1*6.69
36l*.79
191*9
Profits
$ I!,825.86
**
January
February
March
April
May
June
July
August
September
October
November
December
Totals
Deduct Losses
Net Profit
Lossegr
Profit*
Losses
Losses
Profits
869.1*3
117.75
215,305.67
l * * 666.1*2
i!,
12,509.35
I----Deduct Losses
I8,69l*.07
3ft, ^l. i'*
ll
987.18
$
• ; BHugS( )
m
b
1,678,678.85
851*.897. 62
L,952,270.51*
,952,270.51
W
H
S
*
!
,
w
— 8ep ieeto *r S y-19$5- - J
Mr. Leonard
It
M. 5. Daniels
Attached is a statement showing an estimate of fiscal year
1951 earnings from the System Open Market Account on the basis of
Mr. Toungdahl's forecasts as to exchanges of maturing issues* There
is given below a rough estimate of interest payments to the Treasury
by the Federal Reserve Banks for the fiscal year 195k* This Is based
on the assumption that the System Open Market Account will average out
at the present volume*
Fiscal Tear 195k
(Millions of dollars)
Earnings - System Account
Other
Total
Expenses (£2,000,000 more than 1953 budget)
Reserve for losses from fire and allied
risks
Special payments to retirement system
Profit and loss (transferred to reserve
for registered mail losses and
charge-offs)
Dividends
Snecial transfer to Surplus
(Dallas and San Francisco)
5U5
8
55J
116
6
3
1
16
i||
ii
Available for interest payments
U09
Interest payments (90 per cent)
368
Paid in July for second quarter of 1953
82
Ho systematic estimate is being made of interest payments
far the fiscal year 1955* Earnings from the System Account reflecting
both its size and the interest rate and also other earnings will depend
on policy decisions as to reserve requirements, open market operations,
etc., which can be only speculation at this tine* An estimate of
interest payments of from $365 million to $375 million might be as
good as any.
Attachment
F
£
f o r ;f i l e s
D. L. Werner
Reproduced from the Unclassified / Declassified Holdings of the National Archives
|
D E C L A S S IF IE D
J A u th o r ity j
L______
i
1v
h i-
1
______
0
•
SF.P 8
1^53
Estiaated Earnings froa 8 ystea Open Msrket Account
Septeaber 1953 * June 1 9 5 *
/c
(in thousands of dollars)
August 19# 1953 Annual rata of earning#
5 1 3 ,7*11
Septeaber-Jtme earning* 303/365 of above
*26, *75
Add:
(1)
(2)
Increased earnings froa exchange of 2$
bonds aaturing Septeaber 15**
288/365 of 5/©jt of
(It)
(5)
Increased earnings from exchange of
1 *3 / 8 * notes aaturing March 1 5 —
107/365 of 1-1/tyl of
7,*91,750
21, 6 5 *
21* , 6 5 0
Increased earnings froa exchange of
2-l/** certificates aaturing February 15-135/365 of 3/8* of
3,687,550
Increased earnings froa exchange of 2*
bonds aaturing June 1 5 -1 5 / 3 6 5 Of 5/8* of
Sub-total
Earnings July - August
* ,2 2 1
Increased earnings from exchange of
2 - 1 /8 * notea aaturing Deceaber 1 —
211/365 of 1 /2 * of
(3)
8 5 5 ,8 2 5
Total
1*61,900
896
5,11*
119
* 5 6 ,4 7 9
8 6 ,8 2 9
5*5,308
R ep rod uced from the U nclassified / D ecla ssified H o ldings of the N ational A rchives
19B3
Mr. V. D. Pulton,
First Vice President,
Federal Reserve Bank of Cleveland,
Cleveland, Ohio.
Dear Mr. Pol tom
In a letter dmfrfl
'ialprmmiAmnt Gidne* transst1
request of tha Director* of your Bank that, in view of the
tlal anount of depreciation on securities held la the Systen
tin
narket account, the Board ef Qotemors ooaalder nesting tha
either by further increasing the anount set aside a* r*eer«a*
contingencies or by having the Open Market Covilttee earrj dH
tlona which would readjust €ba naturltlea of the aooo*n* and eeft'rert
Into realised loaa sone of tha paper in** w le nov exists in Ike
fc fc
account. As you know, this matter was tha anfetfect of t*e fear** s
letter to President friary-an i
fry 16 ^ IfrS&JLat whleh tUle t e Board
te
took the position that in view of the aubataattsl net eefctiage af
the Reserve Banks availabla for leaaee there was no «e#d for inoreaeing these reeervea.
Tha Board of Qovernora appreciates tha continued
of your Directors in this natter. Although tha anouat of depi*ole~
tion has increased substantially, in view of the ©opposition af
account there is little likelihood wader preaent or pro<
tan credit policy that any eubatentiai portion of this
will devalop into raaliaed lossee. Pntfthemore, any addiii<Mia te
reserves or tha actual eatabliehneot ef Xoaeet
in President Gidney's letter would re salt in re<taetlattfi in
being nede to tha Treasury under tha ejciatdn^
Board questions whether any auoh nation should f e
e
i ir Approval, \
First to Cn>v.
Got. Srymczak ..
Gov. E tan s ...
Gov. Vardaman
The Board will continue to veto* tha natter
tine in the future it la felt that action along ttw
fated t r your Directors la oalled for it will net fcenttate to preq
W e d accordingly*
▼ety inly yours,
Oof. Mills
Got. R+bertson
^
'APlTa
*HilC
Chm. Martin
If yon approvi
initial and
Mr. Bre:
4 v*
FOI;
M. B. Treakle
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
r
‘
Authority t O .
I0^6\
iHjr n IN FILES SECTION
I
Z-3553
f
Board of Governors
M. B. Daniels
This memorandum is
for contingencies -which have
of the Federal Reserve Banks
ury under the policy adopted
1.
£ 3 3 . a>vOctober S', 1952-
Reserve for Contingencies
of Federal Reserve Banks.
intended to review the history of the reserves
been set up as deductions from the net earnings
before computation of the payments to the Treas
by the Board in April 19U7.
History of how procedure for payment of 90 per pent of Reserve Bank net
earnings to Treasury was set up.: r : K '
Tm
I"r"l' r" ■ y n--" 1 "
T ' ' r'' vr '
-
Additions to surplus of the Reserve Banks at the end of 191*6 were
such that all Banks had a surplus equal to 100 per cent of their subscribed
capital stock, and the Board gave consideration to meeting the problem
caused by the increased earnings of the Federal Reserve Banks derived largely
. . r m holdings of Government securities.
.fo
As an alternative £0 restoration of the franchise tax, which would
have required further legislation, it was suggested that, under the authority
contained in Section 16 of the Federal Reserve Act, the Board levy an interestcharge on the amount of Federal Reserve notes issued to the Reserve Bank not
covered by gold certificates pledged with the Federal Reserve Agent, in such
manner that the Banks would pay to the Government an amount commensurate with
that ■which might be payable under a franchise tax provision, i.e., approxiv
mately 90 per cent of net earnings after dividends. The suggestion was dis
cussed with the Treasury, and Chairman Eccles mentioned it in testimony before
the Senate and House Banking and Currency Committees.
A procedure to carry out this suggestion was adopted by the Board
on April 23, 19i*7* and there is attached a copy of the Board*s statement for
the press which was issued at that time.
2.
Description of contingency reserves set up before computing interest
payments,
r
r-..II l r,,.„.i..
1T; v .-^.rrr irl.
I,
T
a.
Why contingency reserve was set up; informal discussion with Treasury.
In 19^8,, consideration was given by the Board and the Presidents’
Conference to increasing the capital accounts of the Federal Reserve Banks.
This was because of changed conditions since the arrangement was adopted of
paying 90 per cent of net earnings after dividends to the Treasury. On
June 16, 191*8, Reserve Bank holdings of Government securities included over
S billion in maturities over five years, compared with $580,000 in April 19i*7.
The premium account in June 19U8 totaled $71 million, compared with $9 minion,
in April J 9 i .
Lt7
Reproduced from the Unclassified I Declassified Holdings of the National Archives
^
DECLASSIFIED
Authority f c O
. l 0*?6\
-2 -
/
This situation was discussed informally with Mr. Bartelt, Fiscal
Assistant Secretary of the Treasury, who concurred in a proposal to build up
the Reserve Bank capital accounts by setting aside, quarterly, amounts before
computing the interest payments to the Treasury, with the understanding that
t i method for handling the accounts -would not be 3uch as to give rise to
ie
questions as to continuation of the System policy with, respect to support of
the Government bond market.
As a result, beginning with the interest payment for the second
quarter of 191*3, lump-sum amounts totaling |80 million, as shown in Vne table
belcw, wrre dsdacied before the interest payments were computed, and at the
•.c o * the calendar y a . the amount;-! withheld "were added to reserves for con**
31 * i
.
e?'
tingencies. Thio method was adopted because it was felt that if the amounts
had been added to surplus accounts, it would have been necessary to amend the
April 19hi press statement.
Amounts Deducted from Net
Earnings before Computation of Interest Payments
(In Millions of Dollars)
1s j8
\
Payment
Secend quarter
Third quarter
Fourth quarter*
b.
19h9
Payment
for—
for*
First quarter
Second quarter
Third quarter
10
1$
1>
5
15
It
10
Pi'oposal by New York Bank in December 1946 for modification of
procedure and reasons why not adopted.
Hr. Sproal's letter of December 6 , 191*8, referred to prior discussion
as to whether the amounts being deducted from net earnings before computing
interest payments should be added to surplus of the Reserve Banks or to
TfPerves for contingencies. The directors and officers of the New York Baak
urged that the addition be to surplus. They believed that this would ba
better accounting, rould run the least risk of adverse publicity and adverse
public reaction, and would help to avoid possible repercussions in the Gov
ernment security market. The Nev; York Bank did not believe it would be
technically necessary for the Board to issue a statement amending its press
statement of April 2 3 , 191*7? if less than approximately 90 per cent of net
naming j was paid to the Treasury. If an amending statement were issued,
tbsy believed there would be less comment about an increase in the surplus
than about an increase in reserves for contingencies, inasmuch as a reserve
for contingencies is generally interpreted to be a reserve for possible
losses, and the only substantial losses to which the Banks might be exposed
v/eie l.wes on long-ttrm G ernrae.n bonds.
0
7
0
The Board’s letter of December’ 28, 191*8, to President Sproul stated
that regardless of any question of technicality, the Board felt that the
whole tenor of the Board’s press statement of April 23, 191*7, was that of a
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority
. (0^6
'. r
-3-
/
continuing arranternent made in lieu of payment of the franchise tax. The
•
*0
letter stated that the Board did not believe the crediting of $1 million
to contingent reserves during the year would call for the issuance of an
explanatory statement, as this would be consistent with practices currently
followed by both banks and business organizations and the amounts were not
out of line with the size of the Reserve Banks. The letter also stated that,
if a question were raised, it might be pointed out in addition that Reserve
Banks shipped many millions of dollars of currency daily and carry their own
risk, and that they then had premium accounts of approximately #80 million.
The letter stated further that the method of deductions for transfer to
reserves for contingencies was satisfactory to the Treasury, The Board
enclosed with its letter an illustration of how it proposed to show the
profit and loss account of the Reserve Banks in the annual report.
c.
Changes made in contingency reserve procedure while it was in
effect.
The deduction of . 1 million made from earnings before computing
$0
the interest payment for the second quarter of 19)48 was increased to $ 5
1>
million for the next four quarterly payments so that the contingent reserves
might sooner be brought up to the premium account on Government securities.
This was discussed at the joint meeting of the Board and the Presidents on
December 1, 191$, at which time it was understood that the $15 million
quarterly deductions would be continued through the second quarter of 191*9
but would be reviewed in connection with the payment for the third quarter
of that year.
The question of discontinuing deductions for reserves for contin
gencies was discussed in June 191*9 at a meeting of the Open Market Committee,
and the Presidents not at the meeting were also asked for their opinions0
Some Presidents felt that anaiditional amount should be set aside, at
least for the third quarter. The Board’s telegram of October 19, 191*9, to
the Presidents of the Reserve Banks summarized the consideration given to
this matter and stated the Board’s decision to make a deduction of $10
million for the third quarter, which would bring the total to $80 million0
d„
Discontinuance of contingent reserves.
As indicated above, the Board decided in October 191*9 to reduce
to < . million the deduction for contingent reserves in computing the
$0
interest payment for the third quarter of 191*9. Subsequently, the Board
and the Presidents agreed that the quarterly deductions should be discon
tinued*
At the joint meeting of the Presidents and the Board on December
I 4.1 191*9* consideration was given to whether the $1* million deducted in
I
0
19l*9 should be transferred to reserves for contingencies at the end of the
year, or whether it should be restored to earnings and thus be paid in
part to the Treasury and in part transferred to surplus. It was concluded
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority jC ' O
(0^6\
Er
-4that the $4-0 million should be added to reserves for contingencies, bringing
the amount to |B0 million so accumulated.
3.
Suggestions made since discontinuance of deductions for contingency re
serves that similar procedure be resumed.
During 1950 and 1951> as the appreciation in the System Account,
which had existed throughout 194-9, disappeared and depreciation in the account
continued to grow, the Presidents and the Board gave consideration to the
adequacy of reserves for contingencies.
Early in 1950 the Presidents1 Conference discussed the matter of
whether additional amounts should be deducted from 19 5 0 earnings on a
basis similar to that used in 194-S and 194-9. It was the sense of the Con
ference that there was insufficient basis for definite recommendations as
to method or amount of such deductions. The Board took a similar position,
stating in a letter of March 21, 1950, to Mr, Brainard, Chairman of the
Board of Directors of the Cleveland Federal Reserve Bank, that the situation
had not changed sufficiently to make a resumption of the deductions desirable.
In 1951 the question was again raised as to whether deductions from
earnings should be resumed before making payments to the Treasury. The Board
gave consideration to the matter at several meetings, and it was discussed
ty the Presidents. At a joint meeting of the Presidents and the Board in
May 1951 there was a brief discussion of whether any action should be taken
to increase reserves for contingencies or to change the arrangement under
which 90 per cent of net earnings after dividends is paid to the Treasury.
The suggestion was made that it would be desirable to increase the permanent
capital accounts of the Reserve Banks. Chairman Martin indicated that the
Board questioned whether any action should be taken at the time to reopen
the existing arrangement with the Treasury. In a letter of June 13, 1951?
to the Presidents the Board stated that, in view of the substantial net
warnings of the Reserve Banks available for losses, it felt there was no
need at the time for increasing reserves for contingencies.
This year consideration,has again been given to reserves for
contingencies of the Federal Reserve Banks. Governor Mills' memorandum
of May 5> 1952, raised the question whether the $98 million reserve for
contingencies (including the $18 million on the books before the interest
payments were begun) was adequate against market depreciation in Government
securities in the System account, which was £73 million on April 23, 1952,
as shown in the weekly Open Market report. The memorandum concluded that
there appeared to be no need at the time to resume additions to reserves
for contingencies, and at a meeting on May 8, 1952, the Board concurred in
this suggestion.
On October 22, 1952, net depreciation in the System Account, as
shown in the weekly report of Open Market Operations, was as follows:
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
\
Authority jj s O . (
n r-
Notes
Bonds
/
$106,683,406
66,317,310
Total
$173,000,716
Net appreciation in
certificates of indebtedness
(not shown in the weekly
Open Market report)
Net depreciation
2,34-6,892
$170,6.53,82-4
Depreciation shown in the weekly Open Market Reports now reflects
all depreciation, since the last of the 2-3//+ per cent nonmarketable bonds
were exchanged on October 1. While these bonds were held they were valued
at par in the weekly reports. (Had the amount converted on October 1 still
been held on October 22 the depreciation shown in the weekly report would
have been $22,307,750 less.)
Since July 1951 there has been a shortening in the maturity of
long-term security holdings through conversion of all $2,713,£48,000 of the
nonmarketable 2-3/4- per cent bonds, which were acquired in exchange for
the restricted 2-1/2 per cent bonds. The last step was the recent exchange
of the remaining $713,84.8,000 of the 2-3/4- per cent bonds. Maturity
distributions of Government security holdings before and since the conversion
are shown in the following tabulation:
Holdings of U. S. Government Securities
Maturing in:
One year
1 year to 5 years
5 years to 10 years
Over 10 years
Total
July 3, 1951
October 22, 1952.
$13,957,04.2,000
3,878,166,000
1,031,904-, 000
4 ,110,580,000
-
$7,087,141,000
14,146,950,000
1.070.224.000
1.358.247.000
$22,977,692,000
$23,662,562,000
Earnings on the Open Market Account are now running at an annual
rate of $460 million, and net earnings of the Federal Reserve Banks after
dividends, available for losses, are running at the rate of about $340
million a year, based on results for the third quarter. Profits on sales
of Government securities have totaled $1,987,973 this year to October 22,
compared with losses of $1,586,124 in the year 1951*
For convenient reference, there is attached a summary tabulation
of holdings of Government securities, maturities, premium, and net appre
ciation or depreciation, on selected dates since April 1947, when the policy
was adopted of paying the Treasury 90 per cent of the Reserve Banks’ net
earnings after dividends. There is also attached a tabulation showing
interest payments which have been made to the Treasury under the policy
adopted in April 1947.
Attachments
Reproduced from the Unclassified / Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority jj / Q . ( 0 ^ 6 \
Interest Payments to U. S. Treasury on Federal Reserve Notes
Outstanding Not Covered by Gold Certificates Pledged
With the Federal Reserve Agents
Quarterly
payment
m
Total
for year
Cumulative
amount
i
First quarter
Second quarter
Third quarter
Fourth quarter
$ 1 5 ,2 6 3 ,8 8 3 .4 7
1 3 ,9 3 7 ,4 -6 0 .4 2
1 8 ,4 7 5 ,2 7 7 .0 0
2 7 .5 4 2 ,1 9 6 .6 5
$75,223,317.54
$75,223,817.54
3 4 ,4 0 3 ,0 1 1 .8 7
36,777,742.54
5 5 ,6 8 2 ,9 7 7 .2 7
I6 6 j6 9 0 ,3 5 6 .4 8
2 4 1 ,9 -1 4 ,1 7 4 .0 2
1 9 49
First quarter
Second quarter
Third quarter
Fourth quarter
^60,156,349.43
47.838.812.71
39,500,916.44
45.649.758.72
193,145,837.30
4 3 5 ,0 6 0 ,0 1 1 .3 2
1950
First quarter
Second quarter
Third quarter
Fourth quarter
$58,885,542.95
50,125,686.69
49,225,808.36
38,391,819.43
196,628,857.93
631,688,869.25
1951
First quarter
Second quarter
Third quarter
Fourth quarter
t51,092,993.06
61,268,208.54
66,971,079.52
75,541,306.40
2 5 4 ,8 7 3 ,5 8 7 .5 2
886,562,456.77
1952
First quarter
Second quarter
Third quarter
•7 3 ,8 7 1 ,3 2 8 .6 3
7 1 ,5 6 0 ,8 7 4 .7 0
7 0 ,6 0 1 ,4 9 9 .7 2
1 948
First quarter
Second quarter
Third quarter
Fourth quarter
$39 , ,
826 624.80
Totals through end
of third quarter 1952 . . . . . . .
$216,033,703.05 *1,102,596,159.82
Reproduced from the Unclassified / Declassified Holdings of the National Archives
i
D E C L A S S IF IE D
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1 W «6 . . m S r i i c n p
J U L 1 ? B52
_
Mr. Leonard
July 15, 1952
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DepwctrtfMT'in System Open
M. B. Daniels
Market Account.
Governor Mills has asked what the estimated depreciation
in the System Open Market Account would be in the event the 2-1/2 per
cent bonds of 1967-72 were selling on a 3 per cent yield. The fol
lowing comparisons shew the estimated depreciation in the System
Account as of July 2, 1952, (1) on market quotations for that date,
and (2) on the assumed basis. The amounts on the assumed basis
reflect prices supplied by the Government Finance Section, which
used a range of yields running from 2.25 per cent on bills to 3 per
cent on the longest-term bonds. A list of the estimated prices used
is attached.
The depreciation shown by the weekly Report of Open Market
Operations covers only depreciation in notes and bonds and includes
as depreciation in the nonmarketable 2-3A per cent bonds the differ
ence between book value and par. (The premium on the bonds exchanged
was carried over as applicable to the noxsaarketable bonds.) In the
following comparison an additional amount of depreciation has been
shown for these nonmarketable bonds based on the estimated market
price of the longest five-year note outstanding. Depreciation has
also been figured on certificates.
Depreciation
July 2
quotations
Assumed
basis
(In thousands of dollars)
Notes
Bonds
7MS5
32,90$
107,290
123,972
11*5,145
269,117
Additional depreciation, valuing
2-3/ii$ bonds at price of longest
five-year note
Total
11**277
121,567
19,631
288,
71*8
Depreciation in certificates of
indebtedness
Total
» 1,629
119*738
22,057
310,805
Total
♦"’
ipprecJ 333pn.
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FORj FILES
D. L. Werner
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D E C L A S S IF IE D
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For the first half of 1952 the Reserve Banks will retain
about $16,300,000 of net earnings* The Section 7 surplus accounts
may be expected to increase about $65,000,000 during the calendar
years 1952 and 1953# This is based on the present rate of earnings
of the System Open Market Account, $1*33,000,000, expenses of
$101*,000,000 a year, and dividends of $15,000,000 a year .
Attachment
HOTEi
The estimate of an increase of $65,000,000 in Section ?
surplus in the two calendar years 1952 and 1953 is based upon present
procedure*
As mentioned in earlier discussions, I think the Board would
be justified in making provision at the end of this year that the surplus
of the Federal Reserve Banks of Balias and San Francisco be brought up
to twlee the mount of the paid-in capital before distributing earnings
between the Treasury and the regular transfer to surplus.
On the basis of present capital holdings, this would mean an
increase of about $5,600,000 for Dallas and of about $5# 300,000 for San
Francisco, or a total of $11,1*00,000, Increase in surplus for 1952 and
1955 would then be about $75,000,000 ,
The Federal Reserve Banks of Dallas and San Francisco are the
only Banks with surplus less than twlee the amount of paid-in capital.
The franchise tax before it was repealed permitted the individual
" eserve Banks to build up their surplus to twice the amount of paid-in
apital before becoming subject to the franchise tax.
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DECLASSIFIED
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J U L 171952
Estimated Market Prices on Securities iiT'~
System Open Market Account* July 2, 1952,
On Assumption That Bill Rate is 2.25 per cent and
Long-Term Restricted Bonds Sell at a 3 per cent Yield Basis
Certificates of indebtedness
—
99-7/8
.. B » 7 a n y s $ .........
■
2/15/53
"
6 / 1/53
99-3A
99-5/8
Treasury Notes
98-1/2
98-3/1*
98
97-3/1*
97-1/2
97-1/U
i
I
*
S’
£
Due
»
*
»
»
*
"
"
•
»
"
9a
l
---- -E 5 T -5 7 I5 M
"
3/15/5S
» 12/15/55
■
1/ l/ 5 6 -»Ek"
• 10 / 1/56-"EO*
■
li/ V 57-"EA"
98-3/8
99-1/1*
99-3/1*
99
99-5/8
99-1/2
97-1/2
98-1/2
96
95-3/1*.
93-1/1*
12/15/52-55
12/15/52-6/15/51*
12/15/52-6/15/55
12/15/52-51*
3/15/53-9/15/53
3/15/56-58
9/15/56-5?
3/15/57-59
6/15/59-62
6/15/62-67
9/15/67-72
Restricted Bonds
.. ' Kii’I27T5/59-62
" 12/15/63-68
■
6/15/6U-69
" 12/15/6U-69
■
liil/dlw
7-U*-52
F
3/15/65-70
"
«
»
95-1/2
9U-3/1*
9U-3/8
9U-1/8
9
1*
93-1/2
93-1/1*
93-1/8
3/15/66-71
6/15/67-72
12/15/67-72
B
L
E
C
O
P
Y
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D E C L A S S IF IE D
A u th o rity j i 0 ^ ( ) \
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Mr , R a y a . Gidney, President
Federal Reserve Bank of 01 ere land,
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Cleveland 1, Ohio.
Bear Mr. Oidneyt
fhis ref ere to your letter of Marnh
concerning
the resolution adopted by tBeT directore of ike Cincinnati Branch
on February 11, 1952*
The resolution urges that the Board of Governors pernit
eaeh Reaerre Bank to set up a reserve seeount out of earnings eaoh
year to cover its proportion of any depreciation in th» Open Market
Account at the end of the year, Xt is noted that your directors
found thenselres In agreement with the rise of the Cincinnati Branch
directors and requested that you transmit a copy of the resolution
and a letter stating that they continue to be of the opinion that
further additions to surplus or to reserves for contingencies should
be made out of the very substantial earnings which are now accruing
to the Beserre Banks,
X
3 / 1%
Am you know, this subject was discussed at the joint meet
ing of the Board and the Presidents on May 18, 1?$1, at which ti*e
it was stated that the Board questioned whether any action should be
taken to reopen the existing sroingenent with the Treasuxy, In the
Baird,l» letter
11» I f S l A ** »•* Btated that the Board alec
felt, in n e w of the substantial net earnings of the Beeeanre Banks
available for losses, that there was no pressnt need for increasing
reeenres for contingencies.
The Board has again considered the natter* in the light of
the suggeetien of the Cincinnati Branch directors, but feels that
there has been no change in the situation which would warrant taking
a different position at tikis tins, Bswercr, the Board will keep the
natter under consideration.
In this eoaneetien it was noted that the depreciation in
the Systea Account* ss shown in tbe Open Market Beport, was $76,kOO,OQO
on April 16, 1951* ss oaepared with a total ef #11*8, 61*1, 000 as shea*
# in ths Open Market report of March It* 195t, which was referred t» in
jl
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your letter. It w u ale© noted that net profits of |1,U79,000 oa
•alts of Government securities hare boon realised this year through
April 16, compared with the $1,$66,000 not losses sustained 1b 19$1*
which was the first year sines 1929 shoving a loss oa sales of Govern■ent securities.
Tory traly yours,
8. R. Carpenter,
Secretary.
•
•
•
•
I'eRbers of the Board (Individ j&lly)
Governor Bill®
Heaponding to tho Board19 recant direction, the writer
ha® prepared for its diaeuaaion the attached study of the Federal
Keaerve Syatea Hsaerres for Contingencies.
Attachment
cct
Mr.
Mr.
Mr*
Mr*
Carpenter
Leonard
Riefler
Thurston
A tM sb
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May 5, 1952
ftJSC’D IKFILES SECTION
MAY 5
RESERVES FOR CONTINGENCIES
FEDERAL RESERVE BANKS
The Statement of Condition of the Federal Reserve Banks includes
as a component part of their capital structure $106,1*00,000 in Reserves for
Contingencies, of which $3,1*00,000 is a reserve for registered mail losses,
while the remainder of $98,000,000 is available as a reserve against present
or future depreciation in the value of U. S. Government securities held in
the System Open Market Account,
Two questions have been posed regarding the
£98,000,000 segment of the total Reserves for Contingencies:
1. Is $98,000,000 an adequate reserve against market depre
ciation in the U. S. Government securities held in the System Open
Market Account?
2. Would the Federal Reserve System be better served by a
transfer of some portion of the aforementioned $98,000,000 from
Reserves for Contingencies to Surplus (Sec. 7)?
Question 1
The following schedule sets out the current depreciation in the
System Open Market Account:
As shown in
Open Market
Committee Report
April 9
April 16
April 23
$ 97,Q92,000
78,1*00,000
72, £ 1 ,000
8*
*As adjusted to
appraise nonmarketable
2-3/1* at 98-Il*/32
$116,0^8,000
S9,5$h,000
83,738,000
“The above adjustments value the System Open Market Account investment
in nonmarketable 2-3/U per cent bonds at what would be the value of an
equal amount of marketable 1-1/2 per cent notes if so converted* Hold
ings of the nonmarketable 2-3/U per cent Series fB” Bonds of 1975-1980
,
amounted to $1,213,81*8,000 on April 9, subsequent to which $500,000,000
were exchanged on April l * into marketable 1-1/2 per cent notes of
l
li/1/1957.
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Reference to the above schedule reveals that on April 23 the
$93,000,000 segment of Reserves for Contingencies was more than sufficient
to cover the depreciation existing in the System Open Market Account both
on the reported and on an adjusted basis.
Moreover, the weekly reports of
the Open Market Committee do not include either appreciation or deprecia
tion in the System Open Market Account investment in U. S. Treasury
certificates, which on April 23 amounted to $11,668,306,000 or 5 2 per cent
>
of the entire account.
As of that date the undisclosed appreciation in this
investment in certificates came to $18,667,000.
It is readily apparent that at the present time $98,000,000 is an
adequate amount to be held in Reserves for Contingencies against deprecia
tion in the System Open Market Account investment in U. S. Government
securities.
However, further reference to the preceding schedule also
clearly reveals how rapidly somevyhat minor fluctuations in the market value
of the System Open Market Account total investments of more than
$22,300,000,000 in U. S. Government securities are reflected in either de
preciation or appreciation in the total account.
Bearing that fact in mind
poses the question of the all-time sufficiency of a $98,000,000 Reserve for
Contingencies and whether its increase to a higher level would be a matter
of prudent policy.
Viewed theoretically, no such increase is necessary inasmuch as
the power of note issue insures that the Federal Reserve Banks have an un
disputed ability to meet their liabilities upon demand.
By the same token,
there is no theoretical reason for the Federal Reserve Banks to accumulate
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capital.
However, as a check against improvident practices and as a means
of reassuring a public that is relatively uninitiated in central banking
theory, it is highly advisable that the Federal Reserve Banks should main
tain adequate Reserves for Contingencies against depreciation in the U. S.
Government securitd.es held in the System Open Market Account and that their
operations should be conducted against a background of ample capital funds.
These assertions are made with the thought that the public likens the
operations of the Federal Reserve Banks to those of private banks and that,
therefore, its confidence in the entire banking system is strengthened by
having the Federal Reserve Banks adhere to reserves and capital accumulation
policies consistent to those followed in conservative private banking
practice.
"Tith that thought in raind, a sound and realistic case can be
presented to the Treasury that the public interest will best be served by
conceding that the Federal Reserve Banks should transfer continuing amounts
from their earnings to their Reserves for Contingencies against depreciation
in the System Open Market Account investment in U. S. Government securities
even though it would be at the expense of a smaller distribution to the
Treasury of such earnings via the transfer of interest charged the Federal
Reserve Banks on their note issues.
As far as the Treasury is concerned,
the amount of Federal Reserve Bank earnings thus withheld would be nominal
as compared to the benefit inuring public policy-wise and, in any event, the
Treasury would not be releasing its residual claim to earnings thus re
tained.
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Notwithstanding the ultimate case that can be made for increasing
the Reserves for Contingencies, their present adequacy argues strongly
against moving in that direction at the present time, for to do so would
needlessly raise an issue with the Treasury that would have to be decided
on a formal basis and as a matter of public record.
Furthermore, the fact
should not be overlooked that the Capital and Surplus Accounts of the Fed
eral Reserve Banks are steadily increasing through the capital stock sub
scriptions of member banks and through the retention of earnings.
As the
Federal Reserve Banks presently hold only a minimum of what might be classi
fied as risk assets, their Capital Accounts offer ample protection to risks
of that character and consequently stand as a further protective cushion
against depreciation in the System Open Market Account investment in U. S.
Government securities.
The protection provided in this manner is illustrated
in the following schedule showing the growth that has taken place in the Fed
eral Reserve Banks' Capital and Surplus Accounts over a period of years:
Dec. 31, 1932
Capi tal
Paid In
Surplus
(Sec. 7)
Percentage increase
over 1932
Dec. 315 19l)6 Dec. 31, 19,51 1955
19gl
$ 151,292,000
$ 186,830,000
$ 236,613,000
23
56
278,599,000
109,823,000
538,31*2,000
58
93
The growth in Federal Reserve Bank capital funds as above set out is under
stated as true evidence of their entire growth trend, in that $1 3 9 ,3 0 0 ,0 0 0 of
Surplus (Sec. ?) was "appropriated by Congress” in 1932 for the purchase of
stock in the Federal Deposit Insurance Corporation. Furthermore, the sched
ule does not include Surplus (Sec. 13b) which at the end of 1951 amounted to
127,500,000.
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A final factor of importance should also be borne in mind;
namely, that the very substantial earning power of the Federal Reserve Banks
stands continuously available as a means of absorbing losses that may be in
curred, including losses in excess of profits arising from the sale of U. S.
Government securities carried in the System Open Market Account.
Therefore,
all factors considered, there would appear to be no need at this time to re
sume Federal Reserve Banks1 appropriations from earnings to Reserves for
Contingencies held against depreciation in the System Open Market Account.
Action of that sort can, of course, be taken at such future date as policy
might seem to dictate.
Question 2
"Whether the Federal Reserve System would best be served by a
transfer to the Surplus Accounts of the Federal Reserve Banks of some portion
of the $98,000,000 now held in Reserves for Contingencies is debatable.
On
an over-all basis, there is no distinction between funds carried in the
Capital and Surplus Accounts of the Federal Reserve Banks and those held in
Reserves for Contingencies as far as the protection they afford against the
liabilities of the Banks.
If a transfer v r s made from Reserves for Con
\a
tingencies to the Surplus Accounts of the Federal Reserve Banks, the result
would be almost irretrievably to freeze the amount thus transferred into the
Surplus Accounts of the Banks and would limit their ultimate availability to
the Treasury solely to the claim it has upon them in the event of the actual
liquidation of the Federal Reserve Banks.
By not making a transfer from
Reserves for Contingencies to the Surplus Accounts of the Federal Reserve
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Banks, the funds thus withheld are retained on a flexible basis in that 90
per cent of them can be freely transferred to the
IT.
s. Treasury from their
position as temporarily deferred earnings> and in the event the purposes for
which the Reserves for Contingencies had been created did not eventuate.
The Treasury’ fiduciary and ultimate right to the amounts now
s
held in the Reserves for Contingencies carried by the Federal Reserve Banks
deserves recognition, and as neither the Federal Reserve Banks nor the gen
eral. public would benefit materially by their transfer to the Surplus Ac
counts of the Federal Reserve Banks, there is no good reason to change their
status at this time.
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BDARD
/D IN FILES SECTION
->
y / - n m i o 1951
s
DF G D V E R N D R S
□ F THE
FEDERAL RESERVE
SYSTEM
W A S H I N G T O N 2 5 , D. C.
ADDRESS
Z-3170 (On office ) -f
copies only)
DFFICIAL
TO
THE
CORRESPONDENCE
BDARD
-S-SUj.iJ.S)-1 '
5
August 9j 1951.
Dear Sir:
You were advised in a telegram dated June 28, 1951,
that the Board had deferred action on the question of charging
off unamortised premium on the nonmarketable 2-3/4 per cent
bonds of 1975-80 held in the open market account and that no
such charge-off would be made during the second quarter.
Since then the Board of Governors has given further
consideration to the matter and would prefer to let it rest
without further action, in view of the differences of opinion
that have been expressed and the arguments that might be
made in support of or against such special charge-offs.
However, should the Presidents wish to renew consideration
of the question, the Board will be glad to discuss it at
the meeting of the Presidents and the Board in October.
Secretary.
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS
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REC'D IN file ? se c tio n I
JUN15195K
BDARD
□ F GDVERNDRS
nrrniittiir ,t,
□ F THE
FEDERAL RESERVE
£ ©3Iy/ *P<«|i u
v c llSaHfc" = jI* ri f
5
c
D
& * IT:*vWrH B $
s
a
(V
»
SYSTEM
id
Z-3I18 (On office
copies only)
W A S H I N G T O N 2 5 , D. C.
ADDRESS
OFFICIAL
TO
THE
CDRRE PDNDENCE
5
BOARD
June 13? 1951*
Dear Sir:
At the recent joint meeting of the Presidents and the
Board there was a brief discussion of whether any action should be
taken to increase the reserves for contingencies of the Federal
Reserve Banks or to change the present arrangement under which 90 per
cent of their net earnings after dividends are paid to the U. S.
Treasury as interest on outstanding Federal Reserve notes.
The suggestion was made that it would be desirable to
increase the permanent capital accounts of the Reserve Banks. How
ever, it was stated that the Board questioned whether any action
should be taken at this time to reopen the existing arrangement with
the Treasury, particularly since the depreciation in the Open Market
Account resulted from a decline in prices of Government securities
which was permitted to occur in accordance with Federal Reserve
views advanced during recent discussions with the Treasury.
The Board also feels, in view of the substantial net earn
ings of the Reserve Banks available for losses, that there is no
present need for increasing reserves for contingencies. It has been
suggested, however, that the unamortized premium of <19,720,758 (on
June 6 1951) on the nonmarketable 2 - 3 / k per cent bonds of 1975-80
,
be charged off. This premium was carried over from the restricted
2-1/2 per cent bonds which were exchanged for the nonmarketable
2-3/14-’
s. It has been pointed out that insurance companies and
savings banks in New York State have been authorized to carry over
the premium and that this method is consistent with the 1938 Super
visory Agreement, which permits the carrying of securities of invest
ment quality at amortized book value. On the other hand, it may be
contended that the remaining premium carried over from the 2-1/2's
should be charged off, since the Open Market Account differs in
purpose from an investment portfolio. The 1938 Supervisory Agreement
contains no prohibition against charging off premium or making other
charge-downs in the carrying value of securities.
*9
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The Board would like to have your views on the suggestion
that the amount now being carried as premium on the 2—3/U P6* cent
1
bonis, Investment Series B-1975-80, be eliminated. If a majority of
the Presidents approve, the premium could be charged off this quarter.
It is proposed to show the charge-off, if made, in the statement of
earnings and expenses of the Federal Reserve Banks in the Board’
s
195>1 Annual Report as a separate item under deductions from current
net earnings opposite the caption "Losses on U. S. Government secu
rities exchanged before call date.1
'
Secretary.
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS
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MAR 2 a
1951
March 23, 1951
Ur. ^eon&rd ana Mr. Carpenter
A. b
u
w
On M&ich 21, 195l,^market depreciation in the System Open
Market Account totaled $109,390,199, as follows;
...
Treasury notes to one year
Treasury notes one to five years
$13,
121,722
Total depreciation on notes
»U7,098,61*3
Bank eligible bonds
Restricted bonds, June 15/67-72
Restricted bonds, December 15/67-72
Other restricted bonds
Total depreciation on bonds
TOTAL DEPRECIATION
Premium balance on the two longest
res trietea issues
33,976,921
$ 2,61*0,669
18,287,015
17,150,513
2U,213,359
$62,291,556
$109,390,199
$12,618, 81*5
During 1950 net profits on sales of securities from the
System Account amounted to $36,895,755* This amount reflected profits
of i l 3 1*70,251 tad losses of $6,571*,1*96. Beginning with the week
?*,
ending September 20, 1950, System Account transactions have resulted
in a net los^ each week. This year to ^arch l * net losses have
l
totaled $1,308,14148* On the same date the annual rate of earnings
on the account was $356,389,000.
Beginning in June 191*8 and continuing through the third
quarter of 191*9, amounts totaling $80,000,000 were deducted from
current net earnings before computing payments to the U. S. Treasury
of interest on Federal Reserve notes. These amounts were added to
reserves for contingencies, which now aggregate $98,000,000.* Com
parisons of premium and market appreciation or depreciation on the
System Account are shown belows
# Exclusive ot reserves for registered mail losses.
a .
a
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ir, Leonard and Mr. Carpenter
2.
Prmmtm
Karkttt
appreciation (+) or
depreciation (-)
(Thousands of dollars)
•tana 9, 19k8
October 27, 19U8 1/
November 3, 19U8 "ij
October 18, 1950
March Xli, 1951
71,669
81,987
83,863
17,693
27,38b
•^7,691
855
551
- 6,667
-100,509
1/ First net depreciation on weekly statement
date.
2/ Hlghes t premium and last net depreciation
~
until October 1950.
For the first two months of this year net earnings of the
Federal Reserve Banks after dividends but before losses on sales of
securities amounted to about $37,000,000* At this rate, the total
for the year would be about 1222 ,000,000 .
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D E C L A S S IF IE D
Authority £ 0 .
I056*
S«pt«*b«r 26, 19SO,
Hr. S . 8 * liarah, Jr.,
Sacuritiaa Department*
Federal Reserve Bank of
Seiw Terk,
Hmr lork k S § N«w Tork*
D«ar
Marsh*
1 aa returning herewith the »ea»randu* on *!fcnMenber Accounts with Dealers in Gknrerniseat Bonds," dated
Fa&roary l 6 f 1918 which you loais%o m w m m r m 1 months ago.
Thank you very
for making this available*
Very truly yours.
Richard Toungdahl, Chief,
Government Finance Section*
Enclosure
TELEGRAM
B O A R D OF G O V E R N O R S
/
OF THE
FEDERAL RESERVE SYSTEM
LEASE D W IR E SE RVIC E
WASHINGTON
MAY 6 - 1947
LEACH
MCLAiUN
YOUNG
DAVIS
-
RICHMOND
ATLANTA
CHICAGO
ST. LOUIS
PEYTON
- MINNEAPOLIS
LEEDY
- KANSAS CITT
GILBERT - DALLAS
EAHHAET
-
SAN FBAECISCO
Following reply has been made to inquiry from a Federal
Reserve Bank in connsction with procedure fo r tranafer of oatur-
ing Treaauiy b i l l s to System account:
(1) Weakly wire to Manager
of System aecount should state amount of maturing b i l l s held a t
head o ffic e and branches, separately.
(2) Federal Reserve Bank
of New York w i l l wire shipment numbers to your head o ffic e .
(Signed) S R C
. .
GASPENTER
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•9TELEGRAM
IREO' IN PILES SECTION
D
B O A R D OF G O V E R N O R S
MAY 1 3 1947
OF TH E
FEDERAL RESERVE SYSTEM
LEA SE D W IR E SE R V IC E
WASHINGTON
MY ft
A
ROtfSE
NFW YORK
Following wire sent today to Federal Reserve . a i s with
'rk
branches*
(Here quote attached wire) £ /
Signed) s. Be Carpenter
CARPENTER
SRC/mg
m
•
•
•
TELEGRAM
•
BOARD OF GOVERNORS
w«OF
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T HcE
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FEDERAL RESERVE S Y S T E IT ^ rx a F itE S S E c r**
■
r A S r D W I n r SERVICE
B\/a/ae
>>
L E^ e En uii R E eea
k
# A lAjLA
WASHINGTON
MAY 6 -
194?
7SC X
LTHR
GLmUXD
Tour wilt*
Vooklgr wiro to Kanagor of Syaton account
•hould atato M o u n t of aaturing bills hold at hoad offloo and
toranoboa, ooparatoly.
fodoral Roaorrt Bank of Row Toxic will wlro
•hlpaont nuabor® to your hoad offloo*
roCarpt*
$
CAKPENTER
fi
• f m T E L of' G - K A M
"Board
Governors
or t i
i©
Federal Reserve System
Leased Wire Service
Received at Washington, 0 C,
,
REC’ IN FILES SECTION
D
W A31G C 25B D WASH LONG D 5 2 C LEVE 6 - 1 1 0 2
CARPENTER
WE ASSUME FEDERAL RESERVE SA N K OF NEWYORK W IL L F U R N IS H THE R ESER VE BANKS
W IT H S H IP P IN G NUMBERS FOR FO RW ARDING TREA SU RY B I L L S
FOR THE ACCOUNT OF NEW YORK. AS THE B IL L S
HELD AT THE C L E V E L A N D , C IN C IN N A T I
OF S H IP P IN G A D V IC E NUMBERS W H IC H
TO THE TREA SU RY
IN OUR O P T IO N ACCOUNT MAY BE
OR P IT T S B U R G H O F F IC E S , THE NUMBER
I T WOULD SEEM NECESSARY TO A S S IG N TO
US M IG H T VARY EACH WEEK FROM ONE TO T H R E E . THE Q U E S T IO N R A IS E D , T H E R E
FO RE,
IS SHOULD OUR W IR E TO THE OPEN MARKET C O M M ITTE E A D V IS IN G THEM
OF THE AMOUNT OF B I L L S H E LD
IN THE O P T IO N ACCOUNT
IN D IC A T E THE NUMBER
OF S H IP P IN G A D V IC E NUMBERS TO B E A S S IG N E D TO US OR SHOULD SUCH
IN FO R M
A T IO N B E W IR E D TO T H E ‘ FEDERA L RESERVE BANK OF NEW YORK.
ANOTHER Q U E S T IO N R A IS E D
CLE VE LA N D O F F IC E
IS WHETHER THE NUMBERS SHOULD B E W IR E D TO THE
(W H IC H WE B E L IE V E P R E F E R A B L E ) OR SHOULD TH EY BE
W IR E D D IR E C T L Y TO EACH O F F IC E ,
FLE TC H E R
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KEC'D IN piles section
0 Apr 18194?
^«, y
5
BOARD OF GDVERNDRS
a*******-
O F THE
FEDERAL RESERVE SYSTEM
#
W A S H I N G T O N 2 5 . D. C.
AD DRESS
Z-2029 (On office
copies only)
O FFIC IA L C O R R E S P O N D E N C E
TO T H E
BOARD
April 15, 1947.
Dear Sir:
Item B, page 1 , of the Board’s Instructions Governing the
Preparation of Earnings and Expense Reports and Profit and Loss State
ments ty the Federal Reserve Banks contains instructions regarding the
accrual of earnings, as follows:
’Earnings on Government securities and other earn
’
ing assets should be accrued at least as of each
Wednesday and the last day of each month unless in
nominal amounts, in which case they may be credited
when received.”
The objective of this provision is, of course, to have pub
lished condition statements of the Federal Reserve Banks reflect cur
rent earnings as of the date of publication and to have reports of
earnings on Form F. R. 95 represent actual earnings during the calendar
month and for the calendar year to the end of the report month*
It will be noted that the above instructions do not indicate
the basis on which accruals of earnings shall be made. Some of the
Federal Reserve Banks adopted the practice of omitting the accrual of
earnings on the date an earning asset is acquired and, accordingly, of
accruing earnings on such asset beginning on the day following the date
o t which such asset is acquired and continuing daily accrual up to and
r
including the day on which such asset is disposed of. •These entries
conform with the entries made by the Federal Reserve Banks covering
their earnings on participations of U. S. Government securities held in
the System Open Market Account only in the sense that entries for Sys
tem Account^ earnings on all but the last business day of the month are
made one day late (in the morning). This is done in order to facili
tate the accounting work related to the System Open Market Account,
>
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especially to avoid sending telegrams late in the day. Actually, how
ever, the daily entries made by the Federal Reserve Banks covering their
participations in the System Open Market Account, except for the
additional entries made at the end of each month, have represented pre
mium amortization, discount accumulation, interest accrual and earnings
on their participations in the System Open Market Account at the close
of business on the preceding day.
It is believed that it would be desirable to have the Federal
Reserve Banks follow a uniform basis in making accruals of earnings on
all types of earning assets and with this in view it will be appreciated
if you will advise us at your convenience whether you would favor the
adoption of the plan outlined below:
1. Calculate earnings on all types of earning assets
for each calendar day on the basis of holdings of earning
assets at opening of business on such day or at close of
business on the last preceding business day if the day in
question is a Sunday or a holiday.
2. Make entry of such accruals on books of the Federal
Reserve Bank, either daily or as of each Wednesday, and on
the last day of each month, provided that if the last day of
the month is a Sunday, or a holiday, entries made on the last
business day shall include accruals for any day or days there
after during the calendar month on which the Federal Reserve
Bank will be closed. For example, should the 29th day of the
month fall on a Friday and the 30th and 31st on a holiday and
a Sunday, entries for accrual of earnings on Friday the 29th
would include one day1s earnings on the opening balance on
that day, and two days’ earnings on the closing balance of
the 29th.
3. If the first day of the month is not a business day
entries of accruals on the first business day shall include
accruals for the day or days prior thereto within the calen
dar month on which the Federal Reserve Bank was closed. If
entry of accruals is not made daily the entry made on the
first Wednesday in the month should include, of course, ac
cruals for any day or days prior thereto within that calendar
month.
4. In so far as earnings on securities in the Federal
Open Market Account are concerned, amend the present plan so
that the Federal Reserve Bank of Now York will wire accruals
of earnings as of Wednesday and as of the last day of the
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-3rnonth, instead of daily, as at present.
5. In any calculation of average rates of earnings on
earning assets, use holdings as at beginning of business
rather than at close of business for each day included in
the period under consideration in computing average daily
holdings.
Very truly your
S. F. varperjter,
i
Secretary,
TO THE P R E S ID E N T S
OF ALL FEDERAL RESERVE BANKS*
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February 27, 1947.
Hr. Thurston
REC’ 1 ^
D !
Mr
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t ei i
'* FEB 2 B 1947
ij.
With the exception of a few m i l amounts the Government
securities purchased in the market (other then repurchase agree
ments) daring the three souths ending January 194?, were made from
the folloelng dealer* and banket
Purchases of U. S. Gcrrarna&ent securities
by System Open Market Account
From Beelers
January
1946
December
Havember
$28, 300,000 ♦ 35, 600,000
♦31,100,000
Blair & Co., Inc.
6,199,000
5,
660,000
5,
676,000
Briggs Schaedle & C o ., Inc.
56,
600,000
62,200,000
87,
200,000
C. F. Childs & C o ., Inc.
000,000
622,000,000
$80, 350,000 587,
C. J. Bevine I Co.,Inc.
t
622,
000,000
698,
000,000 670 500,000
Discount Corp.
586 000,000
607,
000,000
622,000,000
First Boston Corp.
46,650,000
1 2,150,000
* *
12, 900,000
*
B. W. Blch & C o ., Inc.
576 000,000
622,000,000
Solomon Bros. & Hutiler
2,63l*,U*9,000 2,573,360,000 2,607,
Total
,
,
,
Txtm Banks
Bsnksrs fn»st
Co.
Quaranty Trust Co,
Continontal Illinois
■at'l Be. I Tr. Co.
t
Chicago, HI.
First Bat'l Bk. a t
Chicago
Total.
,
127 500,000
87,750,000
92,250,000
l5S,5oo,ooo
220, 500,030
388,575,000
353, 610,000
357, 360,000
82,100,000
89.k50.000
81t.000.000
713,925,000
755,810,000
794,860,000
226,
000,000
3
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"UC'D II FILES SECTIObT
5 1343
BDARD □ F GDVERNDRS
.N "ft^ E
r
V
□ F THE
FEDERAL RESERVE SYSTEM
W ASHING TO N
S-683
ADDRESS
OFFICIAL
TO THE
CORRESPONDENCE
BDARD
September 4, 1943*
Dear Sir:
The plan for securing Federal Reserve notes by pledges of par
ticipations in direct obligations of the United States in the System Open
Market Account which had been approved by the Board of Governors of the
Federal Reserve System and was set forth in a memorandum enclosed in the
Board’s letter of July 19? 1943, as amended by the Board’s telegram of
July 20, 1943, has now been approved by all Federal Reserve Banks and all
Federal Reserve Agents and will become effective at 10 a.m. Eastern War
Time on Friday, September 17, 1943•
In order that the plan may be put into operation simultaneously
with respect to all Federal Reserve Banks which have specific securities
in the System Open Market Account pledged as collateral for Federal Reserve
notes, it is important that all such Federal Reserve Banks and the Federal
Reserve Agents at all such Banks take all necessary steps to obtain the
release of the specific securities in the System Open Market Account pre
viously pledged as collateral for Federal Reserve notes and, if necessary,
to substitute a pledge of a specified dollar amount of such Bank's partic
ipation in the System Open Market Account in lieu thereof effective Septem
ber 17a 1943. Drafts of messages which may be used for this purpose are
enclosed herewith. It is suggested that the messages to the Federal Reserve
Bank of New York and the Federal Reserve Agent at New York be sent by tele
gram on September 16, 1943, the day before the effective date of the plan,
after the close of business or after it is definitely known that there will
be no change that day in the amount of System Account securities pledged.
The following code words have been adopted for use in connection
with the operation of the plan after it has been put into effect:
IWERA
FQBJ/ICTORY
This bank today pledged as collateral security for its Federal
Reserve notes (A) $______ of its participation in direct
obligations of the United States in the System Open Market
Account held in joint custody of the Federal Reserve Bank
of New York and the Federal Reserve Agent at New York pur
suant to the provisions of the plan for securing Federal
Reserve notes which became effective on September 17, 1943*
The total amount of such participation of this bank now so
pledged is (B) $_____ .
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IW3SCO
Receipt is acknowledged of your telegram dated
advising
that on that date your bank pledged as collateral security
for its Federal Reserve notes part of its participation in
direct obligations of the United States in the System Open
Market Account and that the total amount of such participa
tion of your bank now so pledged is $ _ ___ .
IWEDE
This bank today pledged as collateral security for its Federal
Reserve notes an additional (A) $ ____ of its participation
in direct obligations of the United States in the. System
Open Market Account held in joint custody of tho Federal Re
serve Bank of New York and the Federal Reserve Agent at New
York pursuant to the plan for securing Federal Reserve notes
which became effective September 17, 1943* After giving ef
fect to the pledge of this additional amount, the total
amount of such participation of this bank so pledged is
(B) | ____ .
IWj
SEP
Receipt is acknowledged of your telegram dated_advising
that on that date your bank pledged as collateral security
for its Federal Reserve notes an additional portion of its
participation in direct obligations of the United States in
the System Open Market Account and that after giving effect
to the pledge of this additional amount, the total amount of
such participation of your bank so pledged is #
*
IWIAC
The undersigned Federal. Reserve Agent has this day released from
pledge as collateral security for the Federal Reserve notes
of this bank (A) $
of the participation of this bank
in direct obligations of the United States in the System
Open Market Account held in the joint custody of the Federal
Reserve Bank of New York and the Federal Reserve Agent at
New York pursuant to the provisions of the plan for securing
Federal Reserve notes which became effective September 17>
1943* After giving effect to this release, the total amount
of such participation of this bank so pledged is (B) $
*
IWIBE
Receipt is acknowledged of your telegram dated
advising
that on such date the Federal Reserve Agent at your bank re
leased from pledge as collateral security for the Federal
Reserve notes of your bank part of its participation in di
rect obligations of the United States in the System Open
Market Account, and that after giving effect to this release,
the total amount of such participation of your bank so pledged
is $ ____ .
All messages going to New York should be addressed jointly to the
Federal Reserve Bank of New York and the Federal Reserve Agent at New York
and should be signed by both the sending Bank and the Federal Reserve Agent
at the sending Bank; and all messages going from New York to other Federal
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Reserve Banks should be addressed jointly to the Federal Reserve Bank and
the Federal Reserve Agent at the Bank to which they are sent, and should
be signed by both the Federal Reserve Bank of New York a d the Federal Re
n.
serve Agent at New York.
Very truly yours,
L. P. Bethea,
Assistant Secretary.
Enclosures 2
TO THE FEDERAL RESERVE AGENTS AND PRESIDENTS OF
ALL FEDERAL, RESERVE BANKS.
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DRAFT OF SUGGESTED TELEGRAM TO BE SENT B ' OTHER FEDERAL RESERVE BANKS
Y
AND THEIR FEDERAL RESERVE AGENTS TO THE FEDERAL RESERVE BANK OF NEW YORK.
AND THE FEDERAL RESERVE AGENT AT NEW YORK BEFORE THE DAY THE " P M "
BECOMES EFFECTIVE, IN CASES IN M I C H SUCH OTHER FEDERAL RESERVE BANKS
THEN HAVE SYSTEk ACCOUNT SECURITIES UNDER PLEDGE AS COLLATERAL FOR
TtlEIR FEDERAL RESERVE NOTES.
Dated
To Federal Reserve Bank of New York
and Federal Reserve Agent at New York:
Referring letter dated September 4, 1943> of Board of Governors
fixing September 17, 1943> as effective date of new plan for securing
Federal Reserve notes by pledges of participations in direct obligations
of the United States in the System Open Market Account:
(1) Effective when said plan becomes effective, the under
signed Federal Reserve Agent, at the request of the undersigned Federal Re
serve Bank releases, and authorizes the Federal Reserve Agent at New York
to release, from pledge as collateral security for Federal Reserve notes
of the undersigned Federal Reserve Bank tho direct obligations of the
United States held by the Federal Reserve Agent at New York under power of
attorney for account of the undersigned Federal Reserve Agent as such col
lateral security.
(2) The undersigned Federal Reserve Bank and
Agent hereby instruct and direct that upon such release
delivered into the joint custody of the Federal Reserve
and the Federal Reserve Agent at New York in accordance
sions of the first paragraph of said plan.
Federal Reserve
such securities be
Bank of New York
with the provi
(3) Effective simultaneously with such release and delivery of
securities, the undersigned bank pledges as collateral security for its
__ _ of its participation in direct obligations
Federal Reserve notes I
of the United States in the System Open Market Account held pursuant to
the provisions of said plan.
As indicated above, it is contemplated that all three of the
foregoing steps shall become effective simultaneously when said plan be
comes effective.
FEDERAL RESERVE BANK OF _________________
and
, FEDERAL RESERVE AGENT
AT
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DRAFTS OF SUGGESTED TELEGRAMS TO BE SENT BY FEDERAL RESERVE BANK OF NEW
YORK AND THE FEDERAL RESERVE AGENT AT HEW YORK TO OTHER FEDERAL RESERVE
BANKS AND FEDERAL RESERVE AGENTS ON THE DATE THE "PLAN1 BECOitES EFFECTIVE
1
When Part of Participation of Other Federal Reserve
Bank is Pledged, when Plan Becomes Effective*
Dated
To Federal Reserve Bank of
and Federal Reserve Agent at
:
Referring letter dated September 4, 1943, of Board of Governors
fixing September 17, 1943, as effective date of new plan for securing Fed
eral Reserve notes by pledges of participations in direct obligations of
the United States in System Open Market Account, and your telegram dated
, 1943. you are herebv advised that, in accordance with oaraeranh
I T T of such plan, all securities in the System Open Market Account have
today been delivered into the joint custody of the Federal Reserve Bank
of New York and the Federal Reserve Agent at New York, and that such bank
and Federal Reserve Agent now hold such securities subject to the provi
sions of such plan.
In accordance with your said telegram, we understand that the
amount of your participation in the direct obligations of the United States
in the System Open Market Account now pledged as collateral security for
Federal Reserve notes pursuant to such plan is I
FEDERAL RESERVE BANK OF NEW YORK
and
BEARDSLEY RUML, FEDERAL RESERVE AGENT
AT NEW YORK.
When No Part of Participation of the Federal Reserve
Bank is Pledged when Plan Becomes Effective.
Dated
To Federal Reserve Bank of ___
and Federal Reserve Agent at
Referring letter dated September 4, 1943, of Board of Governors
fixing September 17, 1943,
effective date of new plan for securing Fed
eral Reserve notes by pledges of participations in direct obligations of
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the United States in System Open Market Account, you are hereby advised
that, in accordance with paragraph (I) of such plan, ail securities in
the System Open Market Account have today been delivered into the joint
custody of the Federal Reserve Bank of New York and the Federal Reserve
Agent at New York, and that such bank and Federal Reserve Agent now hold
such securities subject to the provisions of such plan.
We understand that no part of your participation in direct ob
ligations of the United States in the System Open Market Account is now
pledged as collateral security for Federal Reserve notes.
FEDERAL RESERVE BANK OP’NEW YORK
and
BEARDSLEY WML, FEDERAL RESERVE AGENT
AT NEW YORK.
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B O A R D OF G D V E R N D R S
□ F TH E
’
FEDERAL RESERVE SYSTEM
W a s h in g to n
....
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■’r:
Z-1134 (On office
copies only)
ADDRESS
OFFICIAL
TO THE
CORRESPONDENCE
BOARD
July 19, 1943,
Dear Sir:
There is enclosed herewith a memorandum of a plan for securing
Federal Reserve notes by pledges of participations in direct obligations
of the United States in the System Open Market Account which was approved
in principle a t the meeting of the Federal Open Market Committee on June
.
28, 1943? with the understanding that, after such refinements as were
found to be necessary by the staffs of the Board, the Federal Open Market
Committee and the Federal Reserve Bank of New York had been made, and after
it had been approved by all of the Federal Reserve Banks and Federal Re
serve Agents and by the Board of Governors, it would become effective.
Such refinements as were found to be necessary by the staffs of
the Board, the Federal Open Market Committee and the Federal Reserve Bank
of New York have been made; and the plan as set forth in the enclosed memo
randum has been approved by the Board of Governors after consultation with
its Counsel. You are requested to advise the Board at your early conven
ience whether or not it is approved by you and your Bank.
As explained at the meeting of the Federal Open Market Committee,
the proposal of this plan grows out of the fact that some of the Federal Re
serve Banks are finding it necessary to pledge increasing amounts of direct
obligations of the United States in the System Open Market Account as col
lateral for Federal Reserve notes and the present arrangement, which in
volves the segregation of specific securities for this purpose, results in
a great amount of labor and expense which could be avoided under the pro
posed plan whereby each bank may pledge a portion of its undivided interest
in the System Account without any segregation of the securities.
If you and your Bank approve of the proposed plan, it is requested
that you so advise the Board at your early convenience with the understanding
that such advice will constitute an agreement on your part and on the part
of your Bank to operate in accordance with the proposed plan snd an authori
zation for the Federal Reserve Agent at New York and the Federal Reserve
Bank of New York to take all actions contemplated by the plan.
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When the Board has received advice of the approval of the plan
by all Federal Reserve Banks and all Federal Reserve Agents it will notify
you of the effective date.
Very truly yours,
tjL - A .W
iJ
f l n
Chester Morrill,
Secretary.
Enclosure
TO ALL CHAIRMEN AND FEDERAL RESERVE AGENTS
COPIES TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS
A
d
C
j
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PLAN FOR SECURING FEDERAL RESERVE MOTES BY
PLEDGE OF PARTICIPATIONS (UNDIVIDED INTERESTS)
IN DIRECT OBLIGATIONS OF THE UNITED STATES IN
SYSTEM OPEN MARKET ACCOUNT
(1) The Federal Reserve Bank of New York shall deliver into
and hold in joint custody with the Federal Reserve Agent at New York all
securities in the System. Open Market Account, direct obligations of the
United States to be so held for the account of each of the twelve Feder
al Reserve Banks and of the Federal Reserve Agent at each such bank as
their respective interests may appear, and other securities to be so
held for the account of each of the twelve Federal Reserve Banks as their
respective interests may appear. Specific securities will not be allo
cated to individual Federal Reserve Banks; but securities in the System
Open Market Account (hereinafter referred to as "System Account") will
be owned by the Federal Reserve Banks subject to any pledge that may
exist under the provisions of this plan. The participations of the re
spective Federal Reserve Banks in the securities in the System Account
shall be determined as provided from time to time by the Federal Open
Market Committee.
(2) Any Federal Reserve Bank (hereinafter referred to as the
’Pledging Bank”) may pledge a specified dollar amount of its participa
’
tion in direct obligations of the United States (hereinafter referred to
as "direct obligations”) in the System Account with the Federal Reserve
Agent at such Bank as collateral security for Federal Reserve notes, and
such Federal Reserve Agent may accept such pledges and release participa
tions from such pledges, in accordance with the provisions of this plan;
provided, however, that each Federal Reserve Bank shall whenever practic
able leave unpledged a portion of its said participation equal to at
least 5 per cent thereof, and shall take such steps as may be practicable
to obtain the release of a portion of its said participation if at any
time the unpledged portion of its said participation shall become less
than 5 per cent thereof.
(3) Whenever any Pledging Bank wishes to pledge as collateral
security for its Federal Reserve notes a specified dollar amount of Its
participation in such direct obligations, it will deliver to the Federal
Reserve Agent at the Pledging Bank an appropriate document evidencing
the fact that p specified dollar amount of such participation is thereby
pledged as collateral security for its Federal Reserve notes.
(4) Whenever any Pledging Bank wishes to obtain the release
from such pledge of a specified dollar .mount of its participation in
such direct obligations and such release will not reduce the collateral
for the outstanding Federal Reserve notes of such bank below the require
ments of section 16 of the Federal Reserve Act, the Federal Reserve Agent
at such bank may execute and deliver to such bank an appropriate document
evidencing such release.
(5) Whenever there is any such pledge by, or such release to,
any Federal Reserve Bank of any such participation In direct obligations
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in the System Account, such bank^(unless it be the Federal Reserve Bank
of New York) shall immediately give telegraphic notice to the Federal Re
serve Bank of New York and the Federal Reserve Agent at New York of such
pledge or release and of the amount under pledge after effecting such
change. Any such pledge or release shall be effective when the Federal
Reserve Bank of New York and the Federal Reserve Agent at New York shall
have received notice thereof.
(6) The Federal Reserve Bank of New York and the federal Reserve
Agent at New York shall permit additional System Account securities to be
delivered into their joint custody to be held pursuant to the provisions
of this plan, and shall (subject to the relevant conditions of paragraph 7
hereof) permit any System Account securities to be withdrawn from their
joint custody in order to effectuate authorized System Account trans
actions .
(7) If any transaction in the System Account (including any
reallocation of the securities) would reduce the participation of a
Pledging Bank in direct obligations in the System Account below the spec
ified dollar amount of such participation which shall have been pledged
in accordance with the provisions of this plan (as indicated in the notice
given to the Federal Reserve Bank of New York and the Federal Reserve
Agent at New York as provided in paragraph 5 of this plan), one or the
other of the following procedures, at the option of the Federal Reserve
Bank of New York, shall be followed:
(a) The Federal Reserve Bank of New York shall notify the
Pledging Bank and the Federal Reserve Agent at such Pledging Bank of such
contemplated reduction, and the Pledging Bank and the Federal Reserve
Agent at such Bank shall take the necessary steps to reduce the specified
dollar amount of the participation of the Pledging Bank which shall have
been pledged to an amount not in excess of the amount which the participa
tion of the Pledging Bank in direct obligations in the System Account will
be after the consummation of such transaction and shall notify the Federal
Reserve Bank of New York and the Federal Reserve Agent at New York that
this has been done, before the transaction in the System Account shall be
effected; or
(b) The Federal Reserve Bank of New York shall, contempora
neously with and as a part of such transaction, make a deposit in the
Agents' Gold Certificate Fund to the credit of the Federal Reserve Agent
at such Pledging Bank in an amount equivalent to the amount by which such
transaction reduces the participation of the Pledging Bank in direct ob
ligations in the System Account below the specified dollar amount of such
participation which shall have been pledged in accordance with the provi
sions of this plan. The difference between the amount so deposited and
the Pledging Bank's share in the proceeds of such transaction shall be
adjusted by credit from the Federal Reserve Bank of New York to the Pledg
ing Bank, or by credit from the Pledging Bank to the Federal Reserve Bank
Reproduced from the Unclassified / Declassified Holdings of the National Archives
|
DECLASSIFIED
^Authority j^ Q . | 0 ^ 6 \
-3of New York, as the case may be, through the Interdistrict Settlement
Fund. The Board*of Governors, the Pledging Bank, and the Agent at the
Pledging Bank will take such action as may be necessary or appropriate
to effect, complete, or confirm any credit from the Pledging Bank to
the Federal Reserve Bank of New York incident to such adjustment.
(8)
This plan shall become effective on such date as may be
fixed by the Board of Governors of the Federal Reserve System after it
has been approved by the Board and has been agreed to by all Federal Re
serve Banks and all Federal Reserve Agents.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority ^ 0
. lD^6\
i f FILES SSCTIOI
16 1343
J'j t 16 1343^^
J m e 26, 1943.
PLAN FOR SECURING FEDERAL RESERVE NOTES BY
PLEDGE OF PARTICIPATlONSjUNDIVIDED INTERESTS)
IN SlRECT OBLIGATIONS QF THE UNITED STATES IN
SYSTEM P P M MARKET ACCOUNT
(l)
The Federal Reserve Bank of New York shall deliver into and
hold in joint custody with the Federal Reserve Agent at New York all se
curities in the System Open Market Account, direct obligations of the United
States to be so held for the account of each of the twelve Federal Reserve
_ ^ Banks and of the Federal Reserve Agent at each such bank as their respective
interests may appear, and other securities to be so held for the account of
each of the twelve Federal Reserve Banks as their respective interests may
appear.
Specific securities will not be allocated to individual Federal Re
serve Banks; but securities in the System Open Market Account (hereinafter
referred to as "System Account”) will be owned by the Federal Reserve Banks
subject to any pledge that may exist under the provisions of this plan.
The
participations of the respective Federal Reserve Banks in the securities in
the System Account shall be determined as provided from time to time by the
Federal Open Market Committee.
(2)
Any Federal Reserve Bank (hereinafter referred to as the
"Pledging Bank") may pledge a specified dollar amount of its participation
in direct obligations of the United States (hereinafter referred to as
"direct obligations") in the System Account with the Federal Reserve Agent
at such Bank as collateral security for Federal Reserve notes, and such
Federal Reserve Agent may accept such pledges and release participations
from such pledges, in accordance with the provisions of this plan; provided,
I
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
Q . 1D ^ 6 \
however, that each Federal Reserve Bank shall whenever practicable leave
unpledged a portion of its participation equal to at least 5 per cent
thereof, and shall take such steps as may be practicable to obtain the re
lease of a portion of its said participation if at any time the unpledged
portion of its said participation shall become less than 5 per cent there
of.
{3} .Whenever any Pledging Bank wishes to pledge as collateral
security for its Federal Reserve notes a specified dollar amount of its
participation in such direct obligations, it will deliver to the Federal
Reserve Agent at the Pledging Bank an appropriate document evidencing the
fact that a specified dollar amount of such participation is thereby pledged
as collateral security for its Federal Reserve notes.
(4)
Whenever any Pledging Bank wishes to obtain the release from
such pledge of a specified dollar amount of its participation in such direct
obligations and such release will not reduce the collateral for the outstand
ing Federal Reserve notes of such bank below the requirements of section 16
of the Federal Reserve Act, the Federal Reserve Agent at such bank may execute
and deliver to such bank an appropriate document evidencing such release.
(5)
Whenever there is any such pledge by, or such release to,
any Federal Reserve Bank of any such participation in direct obligations in the
System Account, such bank (unless it be the Federal Reserve Bank of New York)
shall immediately give telegraphic notice to the Federal Reserve Bank of
New York and the Federal Reserve Agent at f l w York of such pledge or release
ie
and of the amount under pledge after effecting such change.
Any such
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
r
Authority
0 . ( Q ^>6 \
-3-
pledge or release shall be effective when the Federal Reserve Bank of
New York and the Federal Resfsrve Agent at New York shall have received
/
notice thereof.
(6)
The Federal Reserve Bank of New York and the Federal
Reserve Agent at New York, in accordance with the orders of the Federal
Open Market Committee or the Manager of the System Account, shall permit
additional System Account securities to be delivered into their joint
custody to be held pursuant to the provisions of this plan, and shall
permit any System Account securities to be withdrawn from their joint
custody subject to the provisions of paragraph (7) hereof.
(7)
No transaction in the System Account shall be effected
which would reduce the participation of a Pledging Bank in direct obliga
tions in the System Account below the specified dollar amount of such par
ticipation which shall have been pledged in accordance with the provisions
of this plan (as indicated in the notice given to the Federal Reserve Bank
of New York and the Federal Reserve Agent at New York as provided in para
graph {5) of this plan), unless the Federal Reserve Bank of New York shall,
contemporaneously with and as part of such transaction, make a deposit in
the Agents’ Gold Certificate Fund to the credit of the Federal Reserve
Agent at such Pledging Bank in an amount equivalent to the amount by which
such transaction reduces the Pledging Bank1s participation in the direct
obligations in the System Account below the amount of the participation
pledged in accordance with the provisions of this plan.
The difference
between the amount so deposited and the amount payable to the Pledging
Bank as a result of such transaction shall be adjusted by credit from the
Reproduced from the Unclassified I Declassified Holdings of the National Archives
j
D E C L A S S IF IE D
^Authority j
.
(0^6\
-4-
Federal Reserve Bank of New York to the Pledging Bank, or by credit from the
Pledging Bank to the Federal Reserve Bank of New York, as the case may be,
through the Inter-District Settlement Fund.
The Board of Governors, the
Pledging Bank, and the Agent at the Pledging Bank will take such action
as may be necessary or appropriate to effect, complete, or confirm any
credit from the Pledging Bank to the Federal Reserve Bank of New York
incident to any such adjustment.
(8)
This plan shall become effective when it has been approved
by the Board of Governors of the Federal Reserve System and has been
agreed to by all Federal Reserve Banks and all Federal Reserve Agents.
IF— 'D IN n!I . SECT IOH
\ Fe
JUN 25 1943""
Ju m 2 S 19^*
M r* Van Koooon,
Ur*
y % t t , t> ou»ral C ou n ao l*
''lo d g in g p a r t i ©1 p a tIo n a
I n t>y»to» Jpon J ia rk o t A ooount a« C o l*
l a t o r a l f o r f o d a r a l U o o o rro ‘o t * o .
1 aa* .landing you honraith a draft of a »u&£s«tod oubotituto
for para^rarh (?) of tho tar.tativo plan wnioh oos^blnao tho auA£«atod
rorlsioa of tills par^ i^raph ooataiuod in your nwKoraiuiuis of *.una 2i* ,
wit:. a ravlaod aubatltuto for th« laot aontaneo thoroof*
X b a lio v o t h a t V i t a w i l l
whan ro»i p ro p a ro d th o s u b s t it u t e
« « t - . i a r o m l n g and w i i 1 c o n t a in
i b i l l t y t h a t t r a n s a c t i o n * i n th e
f l o i a n o y i n th o c o l l a t e r a l *
ao oorcplloh w h a t you had i n w ind
f o r th o l a o t a o n te n o * w h ich you «%nt
b a t t e r a a f« £ u a rd a * g a l n o t t h a p o s t*
~ y a to n Aooount o i . h t o r a a te a d o *
w a it o r * y a t t #
> « t i* r a l o u n a o l*
;»ttao.H
uiont
^
^
ln FILES SSCTIO I
JUN 25 1943
(7 )
t ld f t t iM
I f a n y t ra n M o tio n la th o g y s ta a i A o o o u n t w o u ld ro d u o o th o p t r -
o f a F le d g in g B onk I n d ir o o t o b llg r t io B f I n th o ^ t « i A o o o u s t b e lo w
th o a p o o iflo d d o lla r a n o in t o f auah p a r t ia l p a t io n w h le h s h a ll h a re boon p le d g e d
la a o o o rd a n o o w ith th o p r o r ia io n a o f t h is p la n (a a in d io a to d in th o n o tlo o g ir e n
t o th o F .H . B ank o f Mow Y o rk and F e d e ra l fto s e rre A g e n t a t Vow Y o rk aa p ro v id e d in
p a ra g ra p h (5 ^ o f t h la p la n ) , th o F «JLB ank o f *o w Y o rk a h a ll* o o n tw p o ra a o o u a ly
w ith and aa p a r t o f th o eane tr a n s a c tio n * ta k o ono o f th o fo llo w in g s to p a t o p r o th o c r e a tio n o f
▼ o n l/« n y d e fic ie n c y la th o o o lla t o r a l p le d g e d b y th o P le d g in g B ank a a a o o u r ity
fo r it s
F *8 * n o te s •
(a )
M oke a d o p o a lt I n th o A g e n t'a G o ld t e r t l f i o a t e fu n d to th o
o r o d lt o f th o F .R * A g e n t a t s u ch P le d g in g B ank la a a n a o u n t e q u iv a le n t
t o th o e s u n a t b y w h io h s u c h tr a n a a o tlo n re d u o e e th o P le d g in g B a n k 'a p a r *
t i o lp a tio n l a th o d ir e c t o b lig a tio n s la th o * y a ta « Accou n t b o lo w th o
a a m n t o f th o p a r t i o lp a tio n p lo d g o d la a o o o rd a a o o w it h th o p r o r ia lo n a
o f t h la p la n and a d ju s t th o d lffo r a n o o b e tw een th o a im n t ao d o p o a lto d
an d th o a n o u n t p a y a b le t o th o P le d g in g B onk aa a r * s u lt o f auah tra n a a o
t lo n b y g iv in g o r o d lt t o th o P le d g in g B ank o r o b ta in in g o r o d lt from th o
P le d g in g B o n k , a s th o oa oo n a y b e f th ro u g h th o Ia te r « J > ie tr i© t S e ttle n s n t fu n d i
(b )
( M a la fra a i th o F .K . A g o n t a t th o F lo d g ln g B ank a d v io e t h a t
th o s p o o lflo d d o lla r i a i a i t o f th o F lo d g ln g B o n k 's p a r t ic ip a t io n I n th o
d ir o o t o b lig a tio n s i n th o * y o t i A aaaw n t p lo d g o d a s o o lla t o r a l f o r F e d o r a l l aesn ro n s t os h a s bo on re d u c e d (th ro u g h s u b s tit u tio n o f o o lla t o r a l
• r e th s a v ls e ) t o a s p o o lf lo d d o lla r a m o k n o t p » e n to r th a n th o a n a u n t
w h ic h th o F lo d g in g B o n k 's p ar t i o lp a tio n i n th o d lr o o t o b lig a tio n s l a
th o V i t s i I a m
i
I w i l l b o a f t o r th o o o n m a n M k ls n o f s a s h tr a n s e c tio n
mm V I WywwUm J W W H I t
FOL
I
I
ion m s s
B—» A.
Ji
DECLASSIFIED
j A u th o rity
!
•
»
taw ait. I9k3.
Mr. Vyttt
Mr, Tii Fm m i
H a m our dissuasion taday af tk«
16 draft af tha
plan far ssaurlng
X t M n t notos by pladga of partlaipa~
ti ans 1a tho S/it«i Opan Markat isocount, It has ooourrad to a*
that thoro wight bo i o m adrostago In a oo^.»or at lost rigid ro*
t\
f u l r f sat with ragard to tho aargin than is proridad in tho
aboro■■■antionad draft. This is for tho reason that it it asstaaad, as is lapliod I bailor* 1a paragraph U of tho draft,
that thoro oould ho no roloaso of oollataral which would rod»*o the oollatoral pledged bolow tho roqulr— ants of soot ion
16 of tho Federal Rottrn Aat# Presumably, tho provisions of
seat ion 16 would override any provision In tho proposed arrange
ment In tho evant that tho Federal Reserve Beaak, as a setter of
faet, found it nooeasary to pledge wore than 95 par aoat of
it* participation in order %a m l tho aallataral ro^ulr— awts
of seation 16. My ldsa would bo to sabstitwte for tha first 6
llaas at tha top of pago 2 f■oathlag llko tho fallowing i
"in aaoordanao with tho provisions of this plaai proTided, howwvor, that oaoh Federal Ressrfe Bank la as
far as praatiaabla shall Maintain an unpledged port Isa
of Its said partiolpatlea equal to aot loot thaa 5 par
oent thereof.*
If this is dene, sons aodi float lea of tho last aeatonoo of paragraph 7 would appear ta ba noooooary. I bellava
it Is also daoirablo to substitute "transaatlon” for "with
drawal" in paragraph 7 aherwrer it ooours, with suah inoldontal
othor ehaagee as ara invwlved, in ordar that tho previsions of
paragraph 7 way apply to roduotions 1a part iolpat Ions result
ing f m tho parladloal roalloaation of tho Syston Opon Market
Aaoount. Fallowing is a suggastad revision of paragraph 7
with this in *lnd|
"(7) If any transaatien in tha Systea Aeoouat
would reduce tho partioipation of a Pledging Bank 1a
dir oat obligations in tho Systea Aaoouot bolow tho
total specified dollar amount of suoh partiolpatian
whloh shall have boon plodgad in accordance with tho
prorricion* of this plan (as indioatad in tho notioo
given to tho Fodaral Rasarro Bank of Mow York and
Fodoral Reoerve Agent at Mow York as proridad la para
graph (5) of this plan), tho Fodoral Reserve Bank of
Saw York shall, cont— poranoously with and as a part
of suoh tranaaetien, aako a dopos it la tho Agent's
i
^
n
n
^
(
H
f
t
P
Y
Toi
Mr. Wyatt
-2-
Golri Cert ifioat# Fund to th# credit of the Federal Re
serve Agent at sueh Pledging Bank in an anount equiva
lent to the amount by nhich sueh transaction raduoas the
Pledging Bank* participation in tha direct obligation*
in tha yston Account balow th# amount of tha participa
tion pledged in aeoordanoe with tha provisions of this
plan* Tha diffarenee between tha aaount to deposited and
tha amount payable to tha Pledging Bank at a result of
such tranaaation shall ba araditad to tha Pledging Bank
or to tha Fadaral Reserve Bank of Mm York, as tha ease
nay be, through tha Inter-District Settles ant Fund*"
1 di sous sad this natter briefly with Mr. Saead and ha fa▼ors tha suggested change in tha margin requirement. 1 alao mentioned
it to Cy Millar of Mew York, but while his offhand raaation was favor
able, 1 do not know what he would think about it after further coneiderati c m.
From what wa have heretofore reeerred from New York, it is
perhaps likely that the Federal keserve bank of New York would not ba
disposed to accept the arrangement set forth in th# last sentenae of
paragraph 7*
such aase, it would be necessary, of course, to
provide some alternatiTS method of dealing with eases where the se
curities were sold at leas than par*
l'
•
•
JLR K 1 J J S S
S JK C T IO S
JUN 25 1943"'
*iun* aU« 19^5*
itr» Sand • J r Vast
£.
Flan for ;»aourin« *adaral no••rr« ICetoa by Plod&o of Undlrldod lator**t» In <iy*taa Jpan Warkat Aioount.
J r Wyatt, -4«u«r*l Gouaaol*
**
?ur*-*ant t i tho undor*tanding r«aehod during our ooni'*r*nea on
tho abov^ subjaot yoatorday aftnrnoan, Hr* Van Gossan and 2 di«ou*aod orer
tho tslaphoa* with -*r* Logan and fcr* Tiobout th oir rovi*ad d ra ft of Juno 22,
19i<J# with tho follow ing r **ult* i
Thoy agrood to tho raaowal of tho word "jo in t ly " fr o * tho aid d la
of paragraph (1 ), although thoy wora sonowhat roluotant to do so*
Thoy also abroad that tho la s t saatanoo of paragraph (1 ) was wrong,
and s 4 «t «d that i t to ohan^od to r«ad ai fo llo w *i "tho poro«ntafa* o f tho
;»
p artiei pat1on* o f tho roapoetivo radoral ;**onra Bank* in tho *o o u ritlo * la
tha &y*t*p -ecount sh all bo datoralnod aa provided from t l » # to tin * by tha
Fodoral Jpan *arkot Oonalttoa*"
On pago 2, paragraph (2 ), lin o 9, a fto r tho word "pladgo" thoy wi*h
to Ins art tho ward* ‘ or por Kit to r*K *ln uador plod^o** Thoy oontooplftt*
that, i f a aalo of bond* should a lln ln a to , or roduo# Oolow 1 por cant, tho
uaplod^od portioa o f a bank*a p artiolpation in tha *y*to*i Aooount, tho bank
would bo required ianodiatwly to provide tho Federal .Hoaerre Ageat with othor
c o lla t e r a l, ao a* to restoro tho Marcia to at le a s t 1 por oont before tho
next day, thus restoring tho protootlon against tha eroatlon o f a defloienoy
tiirough tho sala of bonds at loas than par* As 1 undorvtand it * tha ln so rtlo a
o f tho words "or porait to r t r a in uni or plodgo” is intoadod to aake th is
oloar*
Thoy abroad to tho o lla ln a tlo n of tho words " i t s entire p a r t ic i
pation tharoin or” fro a paragraph (3 )«
Thoy also agreed to our su&’estad ohan&e of phraseology in tho
la s t two lin os of paragraph (U) at tho top of pai;o $•
Thoy ro ad ily abroad to add at tha and o f paragraph ( 5 ) a r.ew
sentanoe reading *oK«ahat as follow st "Any suoh pled*;* or roloasa shall
bo e ffe c tiv e wt\«n advloo o f tho rooolpt o f notloo thoroof ha* boon di*patahad
by tha Kodaral *ioso-To Bank and Kadaral Keserve A*«mt at Now Tork to tho
Pledging bank."
Thoy did not wish to restore at tho ond o f paragraph (5) tho s ta te siant that "no raoord* *howing amount* o f p articu lar issues pledged or re
leased n*od bo Maintained", because thoy do not intond to Maintain any *uoh
raoord* and think that suoh lan^ua^e would iRi^ly that suoh rooords »i&ht bo
Maintained* Thoy ccmalder suoh language inoonsictont with othor part* of
tho uaaoranduia and think that i t * presenoe in tho Ktouoraadua
J
1
•
Mr* M
•
• Hr. T#it
•
-
•
2 -
Ia diseusainc; paragraph (7) m 4iiMV«r«4 that they 414 B*t uader« U a d 1% m oiwit w p H t l i ^ that, when eeeuritlea trt sold froa the Account at
lees than par, it it contemplated that the New York Bank Bight rewit the
face anount thereof to tha federal Kee»rve Agent at the Pledging hank and
oolleot tha differeaee from the Fledging fcenkf and they doubted whether the
other Federal xeservc Banka weald look with f a w upon this suggestion*
Thejr think that any possibility af creating a defieleney la aollateral as
a result of a sale af beads at lass than par ia obviated by tha previstsm
that no bask shall pledge or permit to rswain under pledge an amount la eneeas of 99 per oent of Its total participation. They also eonstme the
language af paragraph (7) as requiring thee to rssdt to the Agent at the
Pledging Beak not the total proceeds of the tale of beads at lee# than par
bat only seek amsunt as weald be aeaeeaary to prevent a defieleney la the
collateral* To lllaetrate, If a bank had a participation af 11,090,000* af
wUleh it had pledged $1,000,000, aad bonds having a par valaa of $100,000
ware sold, the effect would be to reduoe the beak's rcsadalag participation
to 990,000, aad they weald rcait only 410,000 to the Agent aad would remit
the remainder of the preeeeds af the sale to the beak* 1 believe this la a
oorreet interpretation ef the following language of paragraph (7) of their
draft af June 28, which appears at the top of page Ui "make a depealt la
tha Agent's <3eld Certiflemte m a d to the credit of tha Federal Keeerve Agent
at sueh Pledglag Bank in an amount act loaa than the anouwt by whleh such
withdrawal would reduoe the FI ad ring Bank's parti oiput i on in The' -i i r *c t. obTTjafcioRs In ' \ ~ Systea Xoeount ?eiow the aaaami Of the parti ci pet ion pledged
{o
Tk aecSrtianoo e it h i!,o provisions of this plea*1 tr, sueh a case, koeeverTxhe
*
?Ie2JInw liVik would Ee rVjuIredf l;v m\lately to provide the Agent with other
aollateral aad to obtain the release from pledge of I per oent ef ita remain*
lag partlelpetlem la the Account*
They stated that they had Jeet eowpleted another revised draft
ef the plea which they mere Bailing to aa last night| bat, in view af the
latemeae af the hour, weald net wadartake to retype it ae ae to incorpor
ate therein the ehaages agreed upon daring ear telepheoa conversation*
Oomeral
fcf i a
cad
ouneel*
-C’ T» FILES 3ECTI0I
D
•
•
•
JUN 22 1943
/
_______
*1, *9i3.
H M i « l Filao
flodging*!
*
is Ofii Markot i M t o t u
Mr*
• r t l ftr
Im
n l f lw m t l
M * r «l t w ir w
Yhia noraing 1 diaomaaod m r t
fco
with Hr* Logan*
▼too Frootdovt n 4 toaoal Counaol of tho Fodoral
lank of H «
York, tho » W t « aabjaet and particularly tho rariaod draft of a plan
praparod Jointly by M m r i . gaaad# tia r M N B « Toot and tho w 4 » rolgaod, droftod by Mr* Yoat# and a«at by Mr* Snoad to Mooara. Logon
and it M M
aa / « m
16tfa.
I aakod Mr*Logan what ho thought about it and ho rap11 ad that
ho thought it wao "all right". Ho l U t o ^ hovovor, that ho had not ytt
had a* opportunity to diooxioo it with Mooora* Moaaa aad Tiabowt and
that ho plaaaod to do so and oall ua baok aaaotiao aoan. Xo lndiaatod
that ho had a«ao alight nodi float! out to oug^aat and might hat o othora
aftar talJdng to thaa^ f
cmt that ho was in gonoral a y ooamt with t^o
prlnoiplaa of tho plan and thought wo had iaprorod tholr propooal o i »
aidorably.
Oao of tho dotailod ohangoo whioh Mr.Logan haa in mind io
that tho Fodoral looorro
at tho plodding hank should not aotually
iaaua Fadoral looorro notoa against a plodgo of a partiolpation in tho
opon nark at aaaouat until ho haa roooirad froa tho Fodoral Eoaorro Agoat
at low York an aoknowlodgaoat of tho notloo of tho plodgo* Mr. Logan
aaid that thla la noaaoaary to guard against tho poooiblllty that tho
low York Boak alght haro oold aaao of tho ooouritiao in tho aaantiao*
Mr* Logan aloo atatad that Mr* Tiobout had swggootod a ohaago
in tho phraooology of paragraph 7* *• waata to otriko out tho word
"aiaaltaasausly* and subotituto " o o a t o f or ano a u a l y and aa part of tho
s s a o transaatlaa".
T h ia l a for tho roaaan that tho Fodoral fto o a rv o
•aak la aaking dollt o t loo and rooolving p t j o a i t i of hoado oold all day
loag and dooa not aako lta daily aottlaaa with tho othor Fodoral loat
a a r r a lanka through tho Intor*Diatriot f ottlaaaat pond until tho olooo
o f tho day ' a b u o la o o a at } p * a *
1 told Mr.Logan that 1 thought Mr.
Tlokavt'i propo o ad ahango would h o all right*
Mr* Logan aloo aoatioaod tho faot that all oottloaonto ho*
twooa Fodoral looorro Banka aro now aado through tho Intor*»Biotrlot
gfttlaoaat fund and that oottlsoMnto through tho Agont'a fund would ho
a now proooduro and night, in aoao lnatanftoo, raoult in low York roaolrlag orodito froa a Fodoral looorro Bank through tho mtor-Diatriot
Sottlaaaat fund whilo glrint orodito to tho Agoat at tho aiao hank
uU«l»
'
T ot •o m o r a l F l l a a
throotk tfc* Ajaaifc** ftawA, whoraaio
two t m i M t i o u waul 4 offoot
othor if they W i both pvt th n *«*k tho i u m fumA* somorar, fco
4i4 ro t fa a l th at t h i i would aomotituto a* inow^orablo barriar to
tho aaopti Ml of tho plan now prOpoaa4«
I* thio ooaaootloa, I o a llo 4 n r. L o fa a ’ a ottomti m to tho
f M i tfcat m t < r t f t o f tfco p la a ha4 room fa r * l a t a f f l e x i b i l i t y ,
oiaoo 1% la alwojra p oaalk la f o r th o A* oat at %!*• yla<£ in * bank ta
t a ia othar a o l l a t a r a l am* r « l * « H a p a r t it a o f tho plad^Ln* baak*a
fo r t ia lp a t la n in tho opoa marfeot aaaoant, i f th la i t bom • « T « l w r t
ia omy g lr m m t l n w r t o i M .
1 to l4 him that X thought th at, a ft o r
U « plan ia put in to oporatloa, « i j ^ r i « M « w i l l Aorolo? tha boot
moth©4 o f o jo ra tln ^ i t , 2a aoamad lm oliao4 to a£roo with thio yiaw.
Mr* Logan raiaad a qoaotioa aa ta tho p ra a a ± «r* far o b tain *
ia * approval a f tho p la a am4 potting i t in to o ffo a t *
1 to ld him thot
1 414 mat km
— what m y aaaaaiataa horo thought abovt that| Uit ay « m
impraaaiao was that tha s t a f f * o f tka Board, tha Opoa ttarkot C o m it t M ,
am4 tho vov Tork laok wora a io p ly p roporin * aoaw*hinc fa r tho a a a a i4 a r a t io s af tho Board, tho fo d a ra l Opaa Marhat Cdmalttoo, tka law York
Bank am tho IS . TWdoral loaorva m rn k froaidam ta, an4 tkat aa farmal
d
a a tio a woul4 ba taxaa u n ti1 tk ia tomtatlTO plan haa kaao aocaidarad
ami i t la fo*ftd that tka aa ra rla u a p a r t it a wora l a fo o o ra l atroomoat*
A fto r that, 1 t h o u g h t tha p la a shoal 4 ho appro rad kjr tka Board and tho
fo d a ra l upaa hark a t C ovtittoo oad autmittod to tho 12 fo4oral kooorro
Banka and tha 12 pa4oral ttoaorwo A£«mtk with a ra^u^at that thoy * k g ~
a i t y th a lr aaaaptamoa o f i t i f thay a r * o a t la fio d with i t «
t r . Locaa
aaamad to th lak that that wwuld ko a £0*4 praaadara#
Wr ia^rao aian
g
mao that ho waa r a lia r a d t a la a rn that wa ara not axpaatin$ tha lim m .nl
to approra tha plan u n til a ft a r i t had toon conaidarad and diaauaaad
Igr tha Opam Majntat committaa aad tha Freoldamta oi u l l tho fajita,
i
thiak hi a ahia f aonaara ia tha naad fo r mora timo to oanaid ar a l l o f
tka taakniaal da t a l i a and to ^o rfo at tha oxaot wording o f tho pla c *
I o a llo 4 Mr. Lo^an * a a t t o a t io » ta tha fa a t that tho a t a ffa
Of tho Board, tha VOw Tark Bank, and tha O^aa Maurkat Comaittoo wara
axpaotad to kavo oomothiac road/ fo r aoaai^oratiocv by tha froaldmnta
at t k a ir a a o t in f ia Chioa^a tha 1at ta r part af th ia waak aad fo r o«m*
a ld a ra tia a b j tho fod oral Opaa Markot Committo« at it a aoatin^ hora
aaxt Mon da/, M a flOth* ao ra p lio 4 that ha would dlaouaa i t w itk koaara.
Tlobout aad touao aa4 a a l l « a baok aa aoao aa ha aoul4| kwt ko 414 a at
thiak ho aould 4o aa Woa/ kaoauao U r * Tiokout haa an appoiataont with
tha dantiat tk ia aftam o o n .
WW*am
Mr* Sme^jJ
Mr* Van Fossen
••••«r. V6R
iir.Wya
r
D IH FILES SSCTI01
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JUN 16 1943
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/ ________________________________
1*» 1***
Mr. T. 0. f i about,
Assists at ttenerei. Counsel,
Federal Reserve 4enk of Mew To f t
i,
New York, Mew York.
Deer Ur. Tlebout!
Many thanka for your ntgomadag of Jud» 11, IJ[igJtrsa»nlttlng a topy of Mr. Gordon* s mmmoTfmCxm of June 10, 194? regard
ing tha legislative history of section £08 of Tftle II of E.R. 5557,
S. 1715, and H.R. 741?, of the ?4th Congress, which became the
Banking Act of 1935 with certain ofe»nges Including the 7*1 •»Ion of
section t08.
I have read this wich mudt interest but do not teller#
that It is aontrolling on the question whether an undivided inter
est I * the direct obligations of the United 8tat*« In tha SyMtlft
:
0pen Market Account ©an be pledged as collateral for Federwl. Reserve
notes. The real Issue there wes whether collateral, should ba abol
ished entlrelyi and that la not what la being proposed now. On the
contrary, the present proposal contemplates that.
tha Federal JRase're
notea will always ba fully aecurad by collateral; and the only ques
tion la whether suoh collateral f ^ y consist of an undivided interest
fa
in tha dlreet obligation/* of the United States held for all Federal
Reaervs Banks In the Systav Ones Market Account.
It has long been the praatlae to count credits in tha
Amenta* Gold Certificate Fund aa collateral for Federal Reserve
notes, although each federal Reeerve Agent eerely haa a book credit
for an undivided Interest 1c tha fund ecd there Is no segregation
whatever of the gold certificate* in tha fund. It wonld seas that
what is now proposed with reference te the pledging of securities In
the System Open Market Account la the earns In prlncipls.
For this and othsr reasons, I have no misgivings about
permitting • Federal Reeerve Bank te pledge lta undivided Interest
in the dlrset obligations in the Bye t e r Open Market Account aa col
lateral for Federal Reserve notes, provided th*t all transactions
are handled in suoh a way as to preclude any possibility of trans
actions in the account ever creating any deficiency In the collateral
pledged My any Federal Reserve Bank for Its outstanding Federal Meaerve netes.
A
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"V-5
Mr. T. 0. Tiebout
Messrs. Swead, Van Fossen, Test end the undersigned have
been doing considerable work on this; and I believe tbat ve here
w o r k M out a modification of your tentative plan of May 11* 194?
which will be entirely workable, will assure that the Federal Reserve
notes will be fully secured at all times, and will constitute a sub
stantial compliance with the law, A tentative dr*ft of a m.enoranduB
describing this plan is now being prepared und we hope to sutmlt It
to you and Mr. Logan within a day or two.
In the meantlwe, two of the men In the Le;nl Division have
been doing some research work on some of the technical questions; and
I enclose for your information soae notes on whet they have found.
With kindest personal regards tnd all be-t wishes, I aw
C o r d ia lly yourp,
/ / /
'c /
Walter Wyatt, General Counsel
Federal 0 en Market Committee.
Enclosure
WW/wg
cc: Mr. Vest
Mr. Smead
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D I? FILES SECTI03
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Mr. So*ad
JU N - 5 1943
1
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6lnpllfloption of prooedure In
pledging 8 yate® Open Markat
Mr. Tan Fossen
Aooount securities as oollataral
for Federal Reserve notes.
I hara four nota auggeetlng that by having a a ah Bank1a
anti ra parti olpatlan in tha System Opan Markat Aeooxmt hald In tha
joint custody of tha Federal Reserve Bank of law Tork and lta
Fadaral Raaarra Agent for tha aooount of tha respective Federal
Reserve Banka and Agents aa thalr lntaraata nay appaar, eaah
Feder»l Reserve Bank oould pladga all, or any part, of ita parti
cipation with lta Agent without notifying tha Fadaral Raaarra Bank
af Vaw York, and reouesting that a aemorandum ha praparad praaanting
a plan to accompliah thaaa raaulta.
Bafora undertaking to do this, I ahould lika to point out
that whan the total arwur.t o f tha 8yatex Opan Markat Aooount it
reduced by tha sale or redem ption o f s e o u r lt ie e there ie a release
of tha securities frca jo i n t custody without any ooneurrent pay
ment to e it h e r tha F e d era l Reservo !%ank or tha Fadaral Peserve
Apant for whose Joint aooount tha aaouritiaa would ba hald, in
asmuch at paysaent fo r tha s e c u r it ie s ia not r'ade by tha Federal
Raaarra Bani. of Raw York \ » t i l tha followinf day. In tha event of
a tight eituation aa regards oollataral, i t would ba neeeseary for
tha F a d ara l Reserve Bank: o f Sew York to naira a spool a l trar.afar
on tha day tha s e c u r it ie s war- d e liv e r e d , that ia on tha day
*
preceding tha one on w hi ah payment would noraally ba nade through
tha Interdiatriet Settleaent Fuad Clearing. Aside fro* thia obataala
af ralaaae o f tha securities without tanediate payment, thera la
tha additional difficulty that whan payment ia made under pres art
eadditions it is m d e not to tho Fadaral Reserve Bank and Agent
Jointly t*ut to tha Federal Reserve Bank. It rould seen that to
permit tha Federal Reserve Bank and Vgent at Raw York te ralaaae
securities, theoretically it sight be the Bank's entire pcrtielpmti on, and make payment therefor to tha Faderal Reserve Bank aloae
would make meaningless any arrangaaasnt for Joint custody ef the
teouritiet by than for tho aooount of that Federal Reaerve Bank
and its Agsnt.
I f you would like to have a neat arrangssaent to solve
this p re hi an. It ooo ure to me that tho answer would be to have pay
ment te a Faderal Reserve Bank whan Its parti cipatiar la reduced
be aade to the Federal Reaerve Agent in the Federal Reaerre Agent'a
fold Certificate Fund instead of to the Federal Reserve Bank,
ttoder aueh an arrangemant, Instead of the securities In joint
custody that had been sold there would be substituted an equal
volume ef geld certificate collateral alao in joint cuetedy.
S pecifically thia plaa would a e ll fe r Hm f a ll^ ria * prae*durat
t t n m r f f t j M t t t i s a U t b y t h a F e d e r a l H e e a r r e Bank
e f le v T « it fb r N M i i t l N , M t • f f w t by a m 1 «( th e F e d e ra l
B e c e r r a A g a n t a t l e w Y o r k , w hen t h e a a a w r i t l a * w e r e d e l i v e r e d
an * tak en In to
t t o fa o e u l u i
J e i n t c u s t o d y , w o u ld w i t h d r e w an — l i t e q u a l t e
e f t h e s e e t r i t l e a f r t a t h e g e l d c e r t i f i c a t e fw a d
fer t r a n s f e r t o th e B e a k In t h a I t e t e r d i s t r i c t l o t t l — a n t F un d *
As soon aa tha securities were allocated te the ether Federal
Beeerve Banks, eaeh Faia al Beeerre Agaart weuld withdraw fraa
r
the Gold Cartlfloata Fxnd tha face anoxaxt ef tha aeeiaritlee
alleeated fbr depea it to the oredlt of the Federal Baaar^ a Agent
r
at Vew Tet%. A rererec procedure would be followed where teew*
ltlea are sold without corresponding purchases.
This is, no doubt, a soocwhat noral suggestion 1ecsamch
aa se far as T know there hara never baen any trensaetiens of this
aart In aoena stlcn with the Agent* s Geld Cartiflaate Fmd, but
my offhand belief is that It Is anti rely practicable* The prin
cipal advantage of this proposal would bo that regardless ef he*
■neh a Bank* a parti olpation In tho System Open Ifcrket Aoooiat
night fluctuate it would hare no affeat on tha total aetovnt of
eollataral pledged against its Federal |*«enra not as and, of
eourae, on its reeervea availabla against deposits. In ether
war Aa, any redaction in seourltlas pled^ad would be offset by a
aorraspending Increase In gold oartifiaates pledged and riee
▼area without any off©at sc deposit reeerrce* Itoder sueh an
arrangaaawt I de net believe it would even be necessary fer the
Faiar al h u m Banks and Agents to perfom sasy paper work in
eeeneetlen with the adbetltutlon of collateral due te ftysteai
Aocount taraneaetlane.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
d e c l a s s if ie d
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Ih e c ' 'IK FILES SECTION
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GCT 15 1942
October 12, 1942*
f*O.M*C. Files
Mr. Carpenter
At 3*40 this afternoon Messrs* feccles, hansom, Saymcsak, McKee,
Draper, Morrill, Carpenter, Clayton, and Piser met in the Board Hoom to
hear a further report by Chairman Scdea with respect to the current
Treasury financing operation* Chairman &cclea m d e a statement sub*
atantially aa followsi
On the night of Friday, October 9* the 6*00 o* clock
report received at the Treasury showed that there was; a
total of only $2,700,000,000 of subscriptions to the two
issues of securities* that aid not include m i l subscrip
tions or the subscriptions that were received at acme of
the western banks and vshich, because of the difference in
time, had not been tabulated* It was apparent, however,
at that time that we were not goin& to gfc the 14,000,000,000,
t
I talked to Secretary Morgonthau four or five times durir^g
the afternoon, and it tf&a a feeling after the 6;00 o'clock
sy
report thfct we woul l get between 13,500,000,000 and $4 ,000 , , ,
000 000
but that $3 ,$00 ,000,000 was the safest figure to count on*
Secretary Uorgenthau wanted the System to puu in a sub*
acrlptlon for a total of *1 ,500,000,000 equally divided be
tween the two issues* I talked to Mr* Sprout about the rat
ter and he felt as I did that 11,500,000,000 would be a lit
tle high and that a subscription of 11,000 ,000,000 would be
ample, but we agreed that we should put in the subscription
for 11,500,000,000 with the understanding thi*t we would with
draw what was not needed. 1 called Secretary Uorgenthau back
and told him we would put in n subscription for the t1 ,500, , ,
000 000
which we did*
With the approval of the Washington members of the Federal
Open Market Committee, Mr. Merrill wJred the representative
members of the full Committee and obtained additional authority
for the executive committee to purchase $1,000,000,000 of Governsent securities, and we wired the Mew fork Bank authorising
the purchase of the $1,500,000,000 so that the Bank could put
In the subscription*
I talked to the Presidents of all the Banks on Friday
a rternoon, with the exception of Dallaa and Atlanta, and they
confirmed the fact that the subscriptions were falling down
and that the issue would not be subscribed* 1 told them how
the situation appeared here and aaked them to contact some of
*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority j \/0 . ( 0 ^ ( ) \
10/12/42
—2—
the bigger banke In their districts which could place subscrip
tions that would amount to something and let them know that
after all It was a question of the banks underwriting the issue
or the Federal Reserve Bank® doin& It but that we much preferred
to have the banks do ltf that the jaoney ftoula not be called for
until the 15th in the ease of one issue and t i 19th la the cate
re
of the other, that the money would then be transferred into the
war loan account and would not be drawn down until the treasury
called*-and that if the banks underwrote the financing the Fed
eral Eeserve Banks, in the event the purchasing banks desired,
would take the securities off their ham**
I don't know how many additional subscriptions caste in,
but we will know in the next day or two* Between ^*00 and 3*00
o1clock on Saturday afternoon they had $3,660,000,000* Messrs*
Bell and Gaston were at Secretary mo rgenth&u* a hutae, and the
three of thea felt that they should get the $4 ,000 ,000,000 from
the banks and not have the Federal Reserve Banks take anything*
1 told Mr* Bell I did not feel vary atro%*ly one way or the
other, thaw we had obtained the authority to purchase the secu
rities, and tliat to let the market know that we had taken that
many jaight servo aa a lesson to the banks, but that if the
Secretary felt strongly the other way X would not object*
Mr* Ball a&id that he had talked to Mr* Sproul, who had stated
that he did not have much feeling one way or the other and that
the Ho* tork Bank could get another $200,000,000# With the Sec
retary feeling the way he did, th» re was nothing for us to do
but get tho rest of the money, Mr* Sproul goi $200,000,000,
£«n Francisco about $50,000,000, and Chicago about $100,000,000*
I told Mr# Bell that I thought these three Banks and Cleveland
could get additional aaount3 , Mr* Bell talked to Mr* /loaing
at Cleveland, and he said that he couldn* t do anything, that
the banks in Pittsburgh and Cleveland said that they did not
want any more, and that they had wanted a 2-1/4 par cent bond*
le now have $4*120,000,000 of subscriptions. Mr* Bell
feels that when everything is in it might amount to $4*150^300p00»
ihey are going to take it all a t the Federal aeserre Banks will
’
zf
not take anything*
the Secretary called m this mornii^ and said that he felt
'satisfied with the operation, that he was going to h»vo a press
conference at 41OO o* clock, a*id that if 1 agreed he would not
say anything to the press about the financing, but if the press
asked questions he would say that under all the circumstances he
waa veiy well pleased, that he thought the financing had been
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
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10 A 2/42
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w r y auoceseful and had had fine enpport, and that, in ifiew
of tha Iarge lseue, the abort notice given, end the fact that
the market had expected aosiethiag else, the operation was ae
sue easeful ae eottldi be expected* Me asked aa* if X agreed with
that, and I said I thought that would be * fin# »i*te»»ist«
The Secretary eajUt he wanted i» to know that be appreciated
the floe help and cooperation i m m the bye tea, He said th*t
he bad learned aoae thing and bid obtained t o m experience that
be oould profit Iron in the next t i m w i n g *
le arc advising all of the Federal Jieaerve Bank® except
Cleveland to eeaa in isanediataiy the naa^e of the banka which
put in eabecriptioGs in response to our telephone oaHa and
the **«*tttt of the a t aorlption in each eaee* The*« baitka are
te
being advised that if they want to sell tha late e i scriptlone
tb
tha Federal Meaerve Banka will take them in tha field rather
than have thea aola through the dealers* Before tha ti«a
caaeo for payaeact, m w i n hav© the iafora&tion and will send
lt to Mr# Bouse, and if any of tha a f acrlptiona come in over
te
the next week or two the Federal fceaervw Bank will taka tha
subscription at par and wire Hew Xork*
X m going to talk to Mr* Sproul tomorrow andt euggost
that we hate a meeting of the laambora of tha executive oo**
ttlttae i&o aay be available on Thursday or Friday of thia
week! I have aleo talked to Mr* Bell and he will get hia fel*
Iowa together* 1 am going to have an outline of a program
.
for the Heveaber and Decoder financing prepared ao that we
can have & program for the rest o * Uio year and diecusa it
i
«ith the Treaemy*
Following Chairman Iccle*1 atatenant, there waa a general in*
fozmal diacueaion, darir^ rhicn a telegram waa delivered to Mr* Morrill
from Mr* Attebery stating that come of the banka in the f t Louis District
i*
had reqtaaetod advice aa to how loag the commiti * f to pwrehaao the addi
*nc
tional securities that tha baake had eobacribed for would be open, and
Mr* Morrill was requested to inform all the Eeaerre Bank# inrolved that
the cofstltaeab would extend to Moveaber 1*
SRCtpbb
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority j
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This memorandum is prepared at the request of the Board of Directors of
the Federal Reserve Bank of Philadelphia*
1#
Its principal purposes are:
To appraise the position of the Federal Reserve System with
respect to (a) Its part in the war financing program, and
(b) Its pelicy and methods of providing adequate reserves
to member banks, thus enabling them to aid the Treas
ury in meeting financial requirements of the war#
2.
To examine the Reserve Bank discount rate structure, specifically
as to .
(a) The need for changing present rate levels, and
(b) The desirability of lowering the existing general
discount rate, or establishing preferential rates
on Government securities maturing in one year or
less*
For the sake of brevity, those aspects of the problem that are not sub
ject to any substantial disagreement will be presented without supporting data,
while more controversial phases will be discussed as extensively as is deemed
necessary*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
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DECLASSIFIED
j Authority \ s 0 . ( 0 h t ) \
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Appraisal of the role of the Reserve System in the war-financing program.
The Government must raise whatever sums are necessary to finance the war.
It cannot permit the war effort to he impeded by lack of funds*
The sources of
funds in the order of their preference are:
1*
2*
3*
4*
5*
Taxation*
Borrowing
Borrowing
Borrowing
Borrowing
savings from current income.
accumulated savings*
from commercial "banks.
from the Federal Reserve Banks.
The Federal Reserve System has no direct control over the first three
sources - the first two of which are the most desirable ways of securing the
funds*
The advice of the Reserve authorities with the Treasury and with Congres
sional committees on tax legislation is significant, but the final control rests
with Congress, not with the Reserve System*
Similarly, advice with the Treasury
concerning types, terms, and conditions of Government security issues and the as
sistance in the sales of such securities to others than commercial "banks accepting
demand deposits is important; but here, as with taxation, the Reserve authorities
facilitate but do not control.
It is not the purpose of this memorandum to dis
cuss ways and means of increasing the amount of funds that may be secured from the
first three sources*
It is realized that, if these sources do not produce adequate
funds, the alternatives are essentially inflationary*
Nevertheless, whenever their
yield is not sufficient the Reserve System has a direct responsibility to see that
the difference between needs and receipts from those sources is met by making
basic reserve credit available to the banking system*
Inflation is a much lesser
evil than defeat.
Supplying additional reserves to member banks*
If the war continues and war expenditures and taxation equal current
anticipations, the Government debt may exceed $100 billion at the end of 1942,
Reproduced from the Unclassified I Declassified Holdings of the National Archives
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$150 billion at the end of 1943, and $200 billion at the end of 1944.
Current
estimates suggest that nonbank purchases of securities will not greatly exceed 60
per cent of the increase and may be only 40 per cent.' Everything possible should
be done to increase this proportion; but, even so, v e must face squarely the pos
r
sibility that banks may hold between $85 and $100 billion of Government securities
by the end of 1944*
Banks face the prospect of buying $9 billion of Governments in the re
mainder of this year and $20~$30 billion in 1943 and again in 1944.
to do so depends upon their reserves.
since the end of 1940.
Their ability
Excess reserves have been declining rapidly
Furthermore, they are not evenly distributed.
At the pres
ent time the proportion varies inversely with the size of the communities in which
the banks are located.
Banks in New York City have the smallest, in Chicago next,
in Reserve cities next, country banks in larger communities next, and those in
small centers have the largest proportion of excess reserves.
The general reason
is that funds that have been secured by the Treasury in cities have been spent
throughout the nation, especially in the country areas.
It is clear that certain
classes of banks already need additional reserves, and this need will presently
be greatly accelerated#
(Charts of the reserve position of banks for the country
in general and for the Philadelphia Reserve District in particular are shown in
Appendix A.)
The amount of reserves needed in the aggregate depends primarily upon
the increase of currency in circulation and the requirements against deposits
arising out of bank purchases of Government securities#
For the purpose of this
memorandum, it is assumed that the currency drain will continue at a rate of about
$4 billion a year, and that banks will buy $9 billion of Governments during the
remainder of this year and $20-$30 billion in 1943 and in 1944.
These assumptions
should not be considered accurate predictions but only reasonable approximations
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based on present and prospective developments*
In general they indicate the im
mensity of the problem*
How to provide the banks with the necessary reserves.
It should be repeated that if the Treasury does not secure sufficient
funds from noncommercial banking sources, the Reserve System has no alternative
but to provide reserves so that banks can buy Government securities*
Reserves may be supplied by the System in three ways?
1*
2*
3*
By reducing reserve requirements*
By purchasing securities, or open market operations*
By discounting for member banks*
These instruments are alike in that each increases the ability of banks
to buy Government securities, but they differ in other important effects*
(The
operation of these instruments is summarized in Appendix B.)
1 * Reduction in reserve requirements*
If the need for reserves to meet currency withdrawals and to buy Govern
ment securities is met entirely through reductions in reserve requirements, it
would be necessary to lower average requirements to 17 per cent by the end of this
year, to 8 or 9 per cent by the end of 1943, and to about 2^**3 per cent by the end of
1944*
These ratios assume that holdings of Government securities will be distri
buted among banks so that none holds any excess reserves.
On July 7, 1942 the Federal Reserve Act was amended to permit the Board
of Governors to reduce the reserve requirements at central reserve city and reserve
city banks independently of each other*
Requirements were reduced in New York and
Chicago from 26 to 24 per cent on August 19, to 22 per cent on September 14, and to
20 per cent on October 3*
These reductions added about $1*2 billion to excess re
serves at member banks in these two cities*
Although the Board has legal authori
ty to reduce reserve requirements in these cities still further, such a step would
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
I
Authority
0 . ( 0 £?() \
-5-
not be advisable as it would create disturbing repercussions unless similar reduc
tions were made in requirements at banks in reserve cities, where there is at
present no urgent need for additional reserves*
This illustrates an important shortcoming of reductions in reserve re
quirements as a means of providing excess reserves*
They create reserves indis
criminately -''where they are not needed as well as where they are needed*
device has additional shortcomings*
The
Although the Reserve Banks are the ultimate
source of funds in the banking system, that system would be too sensitive to shock
if reserve requirements were very small#
Fluctuations in reserves would involve
deposit changes 40 times as great if reserves, for instance, were reduced to as
low a level as
per cent*
This suggests that, as a practical matter, it would
be extremely difficult to reverse the operation by increasing requirements if
future conditions should require such a reversal.
The reserve authorities will be
in a stronger position of control at the end of the period considered here if the
reserve ratio is 20 per cent with an expansion ratio of 5 to 1 than if it is 2 \
per cent with the expansion ratio of 40 to 1.
2*
Purchases of securities by the Reserve Banks, or open market operations*
If the need for reserves is met exclusively through the purchase of se
curities by the Reserve Banks, it is estimated that it will be necessary for them
to buy an additional $3/4 billion by the end of this year and $6j-$8i billion
annually in 1943 and 1944.
Consequently, by the end of 1944 it would be neces
sary for the Reserve Banks to purchase between $14 and $17^- billion of additional
securities, and the total holdings of the System at that time would be between
$17| and $21 billion.
The Reserve Banks are empowered to purchase securities either directly
from the Treasury or from the market.
erally are objectionable.
Purchases directly from the Treasury gen
In the first place, they would have serious psychologi-
Reproduced from the Unclassified I Declassified Holdings of the National Archives
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cal repercussions*
The experiences of Germany and Prance during and after World
War I indicate that not too much energy is devoted to securing a wide distribution
of Government securities when the only "penalty” for not doing so is that the funds
can be raised even more cheaply by simply selling securities to the central bank.
This method is tantamount to the direct printing of money.
Secondly, this method
is objectionable from the standpoint of proper and continuous functioning of the
market which should absorb a very substantial portion of Government securities,
depending upon circumstances prevailing at the time of issue.
Thirdly, the Reserve
Banks at present are limited by law to a maximum of $5 billion of direct purchases
from the Treasury, although this restriction can readily be removed by the legis
lative fiat.
Current purchases of securities in the open market generally have been
limited to New York City,
This is an advantage at the present time because it is
primarily banks there that need reserves*
But this is a fortuitous circumstance,
and it is not always true that funds can be placed exactly where they are needed or
withdrawn where they are in excess through open market operations.
Furthermore, although we shall end the war with a permanently larger
deposit structure, there may be times when the Reserve Banks will wish to reduce
their extension of credit to the market.
If at such times the earning assets of
the Reserve Banks consist predominantly of Governments, the reduction can be ac
complished only through sales of such securities.
Should this result in any con
siderable break in Government bond prices, the Reserve Banks may well, be subjected
to unwarranted accusations by politically powerful groups.
Certainly the Treasury
would step in and exert its pressure upon the. Reserve Banks.
It is also clear that declines in the prices of Government securities
have enormous repercussions, especially for the financial system.
Any considerable
declines would result in technical insolvency of many banks, even though super-
Reproduced from the Unclassified I Declassified Holdings of the National Archives
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-7-
visory authorities may disregard such depreciation in their valuation of these se
curities.
Bankers as a rule are extremely sensitive to this possibility, remember
ing the experiences of the early 1920’s in this respect*
(For concentration of
ownership of Government securities, see Appendix C,)
In spite of the possible complications in the future, it seems that in
the present crisis the open market instrument is the most potent measure that the
Federal Reserve System has at its disposal*
It is flexible, is quick in meeting
strained situations, and at present results in no disturbing publicity*
As a
practical matter the statutory provisions for issuing notes and creating deposits
giv« the Reserve Banks almost unlimited means with which to meet critical situa
tions at present and in the future.
And it is reasonable to suppose that they
will not be permitted to play a passive or negative role in the event
imminence of economic collapse*
of any
They will have to assume positive leadership,
if their status and influence are to continue effective in our economy.
3*
Borrowing by banks.
An important difference between open market operations and borrowing by
member banks is that the former is undertaken at the initiative of the Reserve
System which determines the amount of funds, whereas, in the case of the latter the
Reserve System sets the price for credit, and the initiative as to whether member
banks will avail themselves of the credit comes from the member banks themselves*
Most member banks have a tradition against rediscounting; and it is, therefore,
reasonably accurate to say that funds will be borrowed only as they are needed,
that is to replenish their reserves*
as soon as possible.
Banks also attempt to repay their borrowings
In other words, Reserve Bank credit extended in this way is
kept at a minimum because it is extended only where needed.
Since discounts are for comparatively short periods, the process of ex
tending credit could be reversed in short order as occasion demands through in-
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
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-
creases in the rate.
terest rates
0
(0 b b \
8-
It is quite possible also that the post-war structure of in
may contain a much wider differential between yields on Government
bonds and those on other securities, so that this operation could be undertaken
with less political repercussions than sales of Governments.
To encourage borrowings by banks, the discount rate of the Reserve Bank
must be attractive, or in line with the open market rates on sl\ort-term paper.
The ruling rates at present are those represented primarily by Treasury Bills and
Certificates 6f Indebtedness.
If these rates are taken as a guide, the prevail
ing reserve discount rate may be considered as out of line and requiring adjustment
if gjember bank borrowing is to be encouraged or made attractive.
Desirability of altering the present rate structure of the Reserve Banks*
Ordinarily, the major factor in the consideration of a possible reduc
tion in discount rates is a desire to increase the total volume of credit extended
by the Reserve Banks.
At present that is not the case.
The prime factor that de
termines the amount of credit that will be extended at this time is the need of
the Treasury.
The question of policy concerns the method by which the credit
shall be extended.
At the present time the only method by which credit is being
extended at the initiative of the market is under the 3/8 per cent rate on bills,
with option to repurchase.
This means is being used to an increasing extent, and
will continue as long as there is any difference between the bill rate and the
discount rate.
If it is desired to encourage borrowing under Sections 13 and 13a,
the discount rate must be at least as low as the bill rate, because of the tradi
tion against borrowing*
The two rates can be brought into line either through a
reduction in the discount rate, through an increase in the bill rate, or a combina
tion of both*
If it is desired to align them in part through the reduction of the
discount rate, a further question arises as to whether the reduction should apply
to all discounts or whether preferential rates should be established for discount-
Reproduced from the Unclassified I Declassified Holdings of the National Archives
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1
D E C L A S S IF IE D
^Authority ju O . ( 0 ^ 6 \
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-9-
ing on short-term Government securities.
The experience with preferential rates in the last war and the post-war
period on the whole was not satisfactory.
The general conclusion of Reserve offi
cials and analysts is that the particular paper used to secure an advance has no
relation at all to the disposition that the bank will make of the funds it secures.
The primary effect of preferential rates is merely to change the paper used by the
borrower to obtain credit rather than to influence the disposition of the proceeds.
In other words, a structure of preferential rates, unless the preferred paper is
limited in amount, is a structure in name only, while in fact practically all dis
counting would be done at the lowest rate.
(The whole problem was discussed by the
Conference of Governors on November 12-15, 1923*
See excerpts from the Proceedings
in Appendix D.)
Conditions today, of course, are different from those in World War I.
However, to the extent that these differences are significant for the problem at
hand they strengthen the case for a uniform flat rate.
Banks are devoting a much
larger portion of their facilities to the war effort than they did in the last war,
This is true of many private loans and loans under Regulation V as well as -ourchases of Government securities*
It is estimated that more than one-half, and
possibly two-thirds, of all new loans now made are for war purposes.
Even this
high proportion will increase further as consumer and other loans are reduced and
war financing is expanded*
It is difficult to say why certain efforts should be
accorded favored treatment when all are needed in the total effort.
It does not
seem to be sound in principle and may be objectionable in practice, particularly
because of its long-range implications.
Preferential rates might have some effect upon the maturities of Govern
ment securities purchased by banks.
They would tend to place a premium upon pre
ferred securities, that is those of exceptionally short term.
The spacing of
Reproduced from the Unclassified / Declassified Holdings of the National Archives
|
f
D E C L A S S IF IE D
^Authority
-
. 10
^ 6
\
10-
maturities is an important problem of bank policy*
But it does not seem sensible
for the Reserve Banks to join so many others in fostering excessive emphasis upon
extremely short maturities.
It is inevitable that banks, will have large port
folios of Governments not only during the war but for a considerable period there
after*
To emphasize very short maturities under these conditions is to speculate
upon a rise in the rate on longer term Governments*
Yet the solvency of our whole
financial mechanism - that of banks and insurance companies especially - depends
upon a 2 or 2| per cent long-term rate on Governments*
Apparently it is not
recognized that the Government - through forced savings if necessary - can main
tain that rate*
Preferential rates would encourage an unwise spacing of maturi
ties through excessive emphasis upon very short-term securities.
The extension of the preferential idea to a complex series of rates on
bills, Certificates of Indebtedness, and notes similar to the 3/8 per cent rate on
bills will add confusion to the reserve rate structure without accomplishing posi
tive benefits*
A borrower secures the greatest profit by using the collateral on
which the rate is lowest not that on which the differential in rates is greatest.
Por example, suppose that a member bank has a portfolio of 3/8 per cent bills, 3/4
per cent Certificates of Indebtedness, and 2 per cent bonds, and that the Reserve
Bank has a schedule of rates of 3/8 per cent on bills, \ per cent on certificates,
and lj per cent on bonds*
If the member bank needs reserves, it will use its
bills and secure accommodation at 3/8 per cent rather than pay 1^ per cent for
the accommodation via bonds, even though the differential is greater on the bonds.
Another way to view the matter is that the bank has part of its funds invested at
3/8 per cent*
It would surely be more profitable to liquidate this low-yielding
security rather than borrow the additional funds at 1j per cent to “carry1 the
-r
*
3/8 per cent bill.
in Appendix B*)
(The present rate structures at the Reserve Banks are given
Reproduced from the Unclassified I Declassified Holdings of the National Archives
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Probably the most important reason advanced for establishing preferen
tial rates instead of a general reduction in the over-all discount rate is that
it would tend to broaden the market for short-term Treasury securities*
This may
be true to some extent with respect to large city banks, although these are al
ready substantial purchasers of short-term paper; but it is to be seriously ques
tioned with regard to country banks that carry a large volume of costly time de
posits and are in need of earnings to cover their operating expenses and to build
up their capital funds*
It is even probable that country banks might view such
rates as discriminatory in that they would favor larger banks whose deposits are
predominantly demand liabilities*
Another factor favoring preferential rates as against a flat discount
rate may lie in the traditional objection by the banks to a general reduction in
the over-all rate on the ground that such a reduction invites pressure from cus
tomers to lower the rates on loans by the banks.
The validity of this objection
had not been satisfactorily demonstrated in the past, and it is most unlikely
that it can be so demonstrated at present.
Prevailing conditions in the market
certainly can not support such a claim.
The question of advances under Section 10(b) of the Federal Reserve Act
calls for special consideration because, although the same logic applies, the law
requires the Reserve Banks to charge a rate on such advances at least ^ per cent
above the rate on discounts and advances -under Sections 13 and 13a.
As a prac
tical matter, it is not particularly important where this rate is established
since banks will not pay a penalty rate as long as they have adequate eligible
paper.
Under the enlarged lending provisions of the Federal Reserve Act, banks
may obtain credit on any sound assets, and for purposes of securing access to the
Reserve Banks the distinction between eligible and ineligible paper has practical
ly ceased to exist*
Therefore, in applying the principle of a uniform rate as
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12-
closely as is legally possible and as conditions permit, the differential should
be kept at the minimum permitted by law.
It is rather difficult to justify any
greater penalty against advances under Section 10(b) than is at present prescribed
by the statute*
Decision on policy and course of action•
The foregoing considerations suggest the following major questions of
policy that call for definite answers!
1,
Should the Reserve Banks supply reserves to member banks (a)
(b)
(c)
(d)
2*
Through reductions in reserve requirements,
Through further operations in the open market,
Through member bank borrowing, or
Through a combination of these in proportions to be
determined by specified conditions?
Should the discount rate structure be altered (a) Through a flat reduction in the rate, or
(b) Through the establishment of preferential rates on
advances secured by Government obligations maturing
in one year or less?
3.
Should the rate on advances under Section 10(b) be reduced to
the legal minimum, that is, J per cent above the prevailing
discount rate?
The significance of the answers to these questions is that they will
reflect the attitude of this Bank toward the policy and program with respect to
the supply of reserve funds and discount rates.
It is hoped that considerations
developed in this memorandum will stimulate further discussion and the formulation
and execution of appropriate policy.
Prepared by the Department
of Research and Statistics,
Federal Reserve Bank of
Philadelphia.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority j x D . ( Q^? 6 \
A P P 2 N D I X
A
Re.jervj Position cf Ilsrtber B f j s
atc
m m
THX^D m m U L RESERVE DISTRICT
STATES
PHILAOELPilXA BAHKS
Millions
$
600
550
500
450
400
350
300
250
200
EESEBTE CITY BANKS
150
Toted
100
Required
____
COUNTRY BANKS
250
200
Required
COUWTBY BANKS
150
Total
10 0
Required
iOCS
LCCS
.JL__ t__t__ 1 !_ 1 1
__ _ __ ___L
19 4 1
-J__i _l _!__i...•_.. j __I__..I________ J
_X.
19 4 2
Excess
50
J __>.„t....I . J __u
19 4 1
• i - > _1 —J —i v j
i _! _s — - U
19 4 2
0
Reproduced from the Unclassified I Declassified Holdings of the National Archives
^
T
DECLASSIFIED
Authority f c O . 1 0 ^ 6 \
A P P E N D I X
B
Bank Reserves
Reductions in reserve requirements > open market purchases and bank borrow
ings are alternative methods of supplying excess reserves to member banks. They
differ, however, in their adaptability to particular situations. The major effects
of each instrument are summarized in the following table.
Effects of Alternative Methods of SuuDlvinf? Excess Reserves
3FFSCTS UPON:
Reduction in
Requirements
Purchases in
the open market
Bank Borrowing
Member bank excess
reserves (i.e. abil
ity to buy Gov'ts,),
Increase
Increase
Increase
Member bank deposit
expansion per C 1 of
>
reserves.... .....
Increase
Neutral"
Ncutrcl
Minima of 3%,
7-10-13$
Unlimited
Unlimited
Limits on use,..
Attitude of member
banks toward...
Applicability..
.
Earnings of l eservo
i
Banks ......
Earnigs of
Members......
Tradition against
General: creates excess reserves for
banks that do not
need as well as for
banks that do
Neutral
Immediate
effect
neutral
Long-run
effoet
increase
Confined primar
ily to money mar
ket centers
Increase
Immediate
effect
neutral
or
.reduce
Long-run
effect
increase
Specific: moots
immediate needs
of individual
banks
Increase
Immodiate
effect
reduce
Long-run
effect
indeter
minate,
probably
increase
Bill Transaction under 3/8% Policy
Specific: meets immediate needs of
individual banks.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
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D E C L A S S IF IE D
| Authority t O . ( 0 ^ 6 \
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L
A P P E N D I X
..
z r
C
O f M S H I P OF
OBLIGATIONS
O th e r
/ F.H. agen.
& Tr.fds.
Insurance
companies
// /
Banks
-------------- /______________________ __________ _____________ _________________ _______
1914
1919
1932
F.B.Bartks
1940
1942
(In millions of dollars)
_i
H
OC
D
Type of
Solder
799*
7
17
Insuxance coniponxes..................
500**
145
068
Type of
Holder
June 30,
1919
292
3,020#
1,050#
20.372
25,234
Percentage Aistrlbution
June 30,
June 30,
1914
1919
82.4
.8
1.8
1.2
12.0
4.1
2.0
Total.........................
15.0
100.0
80.7
100.0
♦National ‘
bonks only.
#In addition banks held $2,495 oillion of so-called War Paper.
**Estinatod.
June 30,
1932
1,784
5,628
590
680
800
601
9.078
19,161
June 30,
1940
2,466
14,722
1,830
3,110
6,500
7,070
12.176
47,874
June 30,
1932
June 30,
1940
9.3
29.4
3.1
3.6
4.2
3.1
47.3
100.0
5.2
30.7
3.9
6.5
13.6
14.8
25.3
100.0
June 30,
1942
2,646
24,086
2,000
3.900
8.900
10,601
24.384
76,517
luHe~30,..
1942
3.5
31.5
2.6
5.1
11.5
13.8
32.0
100.0
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
r
Authority
A P P E N D I X
. 10 ^ 6 \
D
Opinions of those who administered preferential rates
from 1917 to 1921.
With one exception, the governors of the Reserve Banks voted unanimously
that preferential rates should not be reintroduced and agreed that c:cperiencc with
then had been unfortunate. This opinion was shared by those members of the Federal
Reserve Board who participated in the discussion. (The following quotations are
taken from the Proceedings of tho Conference with the Federal Reserve Boo„rd of Gov
ernors and Chairmen and Federal Reserve Agents of tho Federal Reserve Banks on Kovonbcr 12-15, 1923.) Governor Strong comen teds (p. 1 - ) ’This same will -0 -tho -wisp of
43 ’
reducing buying rates and of preferential discount rates was pursued, vigorously and
with disastrous results during 1919 by tho Treasury and you have their written
recommendations of that tine in your files, as I have in nine, urging that we reduce
rates on bills and Treasury certificates, as an alternative to our own roconnendations....” and again: (pp. 14.8-14-9) "In a.11 consideration of special discount rates
under Section 13 for special collateral, like treasury certificates and bills, it
must always be borne in nind that such a rate sinplv induces our members to use the
kind of paper for which tho lowest rate is charged. Line of credit paper would dis
appear from our portfolios in favor of Treasury obligations if the rate wrs donror.
Nothing whatever beyond that would be accomplished, excepting possibly to put sone
sr.all premium in value upon the paper to which wo extended tho preferential rate.
Our effective rate, that is, tho ono which the members would use, would always bo
the lowest ono. During tho war or later, at one tine over eighty per cent of our
earning assets was var paper, solely because of the rate preference. whon that pre
,
ference was ended, t e other kinds of paper reached us , because of the convonicnco
h;
and smaller risk and oiipensc of handling by nail, etc.... There is sonething sacred
in a uniform rate, however, because it places our resources at the command of all of
our members, at the same rate to each, whether the member offers a Treasury obliga
tion, or a banker’s bill, or a merchant's note. That is as it should be under Sec
tion 13, whore we lend to a member m tho member’ obligation and credit.” (p. 152),
s
"It boils down to a suggestion to advance discount rates only on business paper, and
let present, or lower rates apply to Treasury certificates and bills. Wo should not
consider such a courso for one moment. Whatever the argument may now'be, tho result
is the sane, 1919 all ^vor again, tho Reserve Banks carrying all the Troasuiy cer
tificates at profitable rates for member banks. Wo hr<d our lesson once and I am
amazed that the proposal should bo seriously advanced again.... We know from post
experience that once those preferential rates are established, the large City
(especially row York City) banks, are the only ones which can promptly and fully
avail themselves of them. The country bank is neither a holder nor dealer in those
luxuiies that pay only (Sic!) four per cent, or even loss.... Our safe course will
be to observe tho real intent and spirit of the act, and furnish credit to all our
members at the same rate in our respective districts, no matter what the collateral,
not the size, strength or location of tho bank, so long as the member simply borrows
for a fixed tern under Section 13*"
A P P E N D I X
e
Federal Reserve Bank Discount Rates
Discounts and advances
to member banks
*
Secured by U.S. Other se
cured ad
Gov’t, oblig.
or elig. paper
vances
matur. not
matur. not ex
ceeding 90 days exceeding
(Sec. 13
J+ mos.
(Sec.lO(b)
and 13 a)
Advances to in
Industrial advances
div.,etc. secured
by direct oblig.
and commit,
of the U.S .Matur. matur. not exceeding 5
years (Sec. 13b)
not exceed .90 days
To industrial and
(last oar. Sec.13)
commercial businesses
To
to
nonmember
others On advances On commit.
banks
2
1
Boston......
1
2
New York....
1
2
Philadelphia.
2
1
Cleveland....
2
1
Richmond....
1
2
Atlanta.....
1
Chicago......
ig
1
St, Louis....
2
1
Minneapolis..
.
1
2
Kansas City.
.
1
2
Dallas.....
1
2
San Francisco
; --------- —
---te charged borrower less commitment rate.
- - ' n t charged borrower.
"'-ae
xFinancing institution is charged
1
1
1
1
1
1
1
1
1
1
1
1
22
Discounts or
purchases
On portion
On re
for which
maining
institution
portion
is obligated
22-5
22-5
2£-5
22-5
2 2-5
2 2-5
22-5
22-5
22-5
22~5
22
-5
A
2%
4
3
3
2*
2?
i
U
On commit.
X
-
2 2“5
32
2*
3i
To financing institutions
W2
2-I4
^-i4
2-I4
t-U
2-J-4
2-I4
2—
14
2~^-4
2 ~ I4
1-1
-«■
)*
2-I4
*
*
A
2^-5
l-l£
-B
)c
2*-5
xx
--~xx
*
Kit-
2“I4
■ 2”I4
^
1
2 J4
x-^-l*
8“1*
‘
4—
14
2~I4
X-£-l4
X.,-14
charge same rate as charged borrower by financing
institution, if lower.
g per cent on undisbursed portion of loan under commitment.
Federal Reserve Bank Buying Kates On Bills
Maturity
nate on
August 31
3/3
Bankers’ acceptances:*-'
5
'
1- 90 days............
2
91-120 days...............
3M
1
121'-180 days............
-'Established rate at which F . f i . Banks stand
ready to buy all Treasury bills offered.
-**^iniraum buying rates on prime bankers’ acceptances.
1
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
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t.
o
10%\
riro, ii P i u s suRf
i
\
'ARD OF GO V E R N O R S
□ F TH E
I
MAR 1 1944
/J-
FEDERAL RESERVE SYSTEM
Office Correspondence
To.
Date__October 15>
I 9hl____
M r. G olderareiser
Subject:
T-. M. P is e r --------------------------
-----------------------------------------------------------------
CONFIDENTIAL
The attach ed t a b le shows as o f October 8 f o r each is s u e
in the System Account, h o ld in g s , annual income, and the d iffe r e n c e
between book v a lu e and market v a lu e *
I t w i l l be noted from the t a b l e ,
f o r example, t h a t th e annual income re c e iv e d from notes amounts t o
$8 , 200,000 and th a t th e a p p re c ia tio n on th e note p o r t f o l i o amounts
t o fl i+ , 300, 000.
In oth er w o rd s, s a le o f the e n t ir e note p o r t f o l i o
a t e x is t in g p r ic e s would r e s u lt in s u f f i c i e n t p r o f i t s to o f f s e t th e
annual income f o r n e a r ly two y e a r s #
The notes may have some r i g h t s v a lu e , s in c e re fu n d in g o f the
notes in to 2 l /2 p er cen t bonds could in c re a s e income from the Account.
In view o f t h e statem ents i n G o ld sm ith 's l e t t e r t h is week, w hich he
obtain ed from Mr. B e l l , th e re i s a t l e a s t a p o s s i b i l i t y th at th e
Treasury w i l l d isc o n tin u e the g iv in g o f r i g h t s i n the fu t u r e *
If
t h is i s done the fu t u r e advantage o f h o ld in g r ig h t s f o r the purpose
o f o b ta in in g a d d it io n a l income w i l l d isap p e ar and a l s o the p r o f i t
th a t w i l l be made b y s e l l i n g the r i g h t s *
The annual income on the band p o r t f o l i o i s $32* 000, 000,
■while the a p p r e c ia tio n amounts to $87, 900* 000*
S a le o f the bond
p o r t f o l i o w ould le a v e s u f f i c i e n t p r o f i t s to o f f s e t the annual income
f o r n e a r ly th re e y e a rs *
For th e e n t ir e Account, annual income i s
$10 , 300, 000, and th e a p p re c ia tio n in th e Account i s $102, 300, 000.
+
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority
■ 10 ^ 6 \
SY^^M ACCOUNT - OCTOBER 8 , 1
91+1
4xn
'^usands o f d o l l a r s )
Par v a lu e
|4 I
T# P P P'' C
Annual income
T reasu ry b o n d s:
19I4I+-U6
19W4.-5U
19 +5-^7
1
30,1+00
1+6,500
53,000
35,000
62,300
I9h5
28,700
191+6-56
19U6-U8
24,500
72,800
23,600
10,600
31,800
6 +, 800
1
90,800
21,400
29,500
90,300
1943-U 7
19U3- 1 5
+
19U6- 1 9
+
19U7-52
19i+7
191+8-50 T axable
191+8-51
191+
9-52
1 1 9-53
9+
1950-52
1951- 5 U
1951-55
1951-55
1952- 5 + Taxable
1
1953-55
1955-60
1956-58 T axable
1956-59
1958-63
1960-65
T o ta l
Treasury n o t e s :
12-15-1+1
3-15J+2
9- 15- 1 2
+
12-15-1+2
3-15-1+3 T axable
6-15-I+3
9- 15- 1 3
+
12- 15- 1 3
+
3-I5-I4I+
6- 15- 14+
9- 15- 11
++
9- 15- 11 T axable
++
3-15-1+5
T o ta l
Guaranteeds:
7- 1- 1 2 14+ HOLC
4—
5- 1- 2 4— 52 HOLC
4.
I-I5-I4J2— 1 .7 FFMC
4
5- 15- 44— 49 ffmc
T o ta l
Grand t o t a l
554
1,063
1,272
859
1,886
2,627
724
1,307
1,599
3,347
587
574
1,627
1,861
460
5,766
234
615
1,296
2,168
1+26
742
2,163
80,000
1,890
98,800
1 +, 000
4
77,900
29,000
36,700
69,300
57,000
50,1+00
52,800
47,300
2,462
1,137
1,735
722
732
1,579
1,201
620
1,721
2,167
6,254
1,082
2,278
6,229
5,366
7,376
3,558
4,637
1,579
1,670
1,855
5,999
2,1+24
1, 359,200
1,417
1,31+8
1,1+31
1,246
32,021
43,000
448
84,800
66,200
1,198
1,031
410
30,800
39,300
102,400
35,700
69,800
109,900
76,i+00
60,600
6,000
281
1,028
216
661
1,078
561
4,753
5,323
4,332
87,359
1,005
1,706
1,734
771
312
1, 7 4
1+
375
1,256
2,113
1,019
582
43
1,143
694
8,231
1,118
ii +,316
2,000
1,000
1,000
23
16
20
36
17
600
4,600
12
10
22
2 , 184,100
40,331
102,259
95,400
620,300
72.
20
84
Reproduced from the Unclassified I Declassified Holdings of the National Archives
|
D E C L A S S IF IE D
j Authority ju O '
I0 b 0 \
October 11, 191*1
Mr* Goldenweiser
System Account polioy
L. M. Piser tad D. II* Kennedy
COHFIDUTTIAL
Question has been raised regarding the System Account polioy
that i« "advisable in the 1 i^ht> of existing ocsidl1>loQi^ | to use th#
wording of the P.O.M.C. resolution* Specifically, the question it
whether or sot the System Aeoount should be reduced at tho present time.
If it should be reduced the further question arises as to tho amount of
the reduotlon and tho issues that should be sold*
There are tiro valid reasons that might b o advanced for reducing
tho Account* First, a reduction would decrease excess reserve* and would
bo a furth«r stop in the program of seeking to prevent inflation* It
would show that tho System is willing to use ail of its powers in this
direction. Action for this purpose deserves consideration as a part of
the System*s polioy, but it should be deferred until after the Increase
in reserve requirements becomes effective and member banks have adjusted
to the new conditions*
Second, a reduction in the Account would be a step in the direc
tion of socking to prevent a further decline in Interest rates. The
1956-58 taxables arc l/2 point below tho all-time high, and the I9 6 O-6 5 S
are only 3/^2 below*
If these Issues break through their previous highs
there Is a strong argument for selling aggressively from the Account.
While the Treasury might object to action by tho System that resulted In
increased interest rates, it would be difficult to object to action that
only prevented rates ft*cm declining further, particularly in view of the
ourront inflationary trend*
The questions of credit polioy and of the Maintenance of a
pattern of rates, however, are now a subject of negotiation with tho
Treasury* A n agreement should include the extent to which all of the
instruments of Federal Reserve policy are to be used in order to further
the objectives. These instrumsnts include open-market policy ss well ss
polioy on reserve requirements* Until an agreement is r eaohed that is
mutually satisfactory it would appear inadvisable to sell securities in
the present situation* The Treasury reaction might possibly be that the
System should be given no further powers. This reaction would be particu
larly likely if sales from the Aooount should oolnclde with a peak in the
market, since the Treasury might figure that additional powers would un
justifiably result in increased Interest costs to tho Treasury.
F.
COPY
Reproduced from the Unclassified I Declassified Holdings of the National Archives
j
DECLASSIFIED
j Authority
Tot
Mr. Goldeiareiscr
0
. |0^6\
*2-
Other arguments that have been advanced both for and against
fro* tho Aooount should not be given muoh weight. tho argument
that *alee now would better enable tho Aooounfc to purchase later 1« not
of muoh practical significance, since tho M o u n t of securities that tho
Aooount can purohase i« praotioally unlimited. Tho argument against
tolling on tho grounds that It would not bo effective In preventing tho
market fro* rlolng ohowo a defeatist attitudo. fhi* argument, that tho
8ystem should do nothing because it oannot do everything, if oarriod to tho
logioal conclusion i» roally an argument that tho Systo* should never have
a policy, oineo no policy is otor completely effective, tho argu*ont that
the System should not soli booauso it has insufficient earnings runs
counter to tho faot that tho System should dotormino its policy with a
view to furtherance of tho public intorost and not with an oyo to tho
expense aooount j tho System has operated at a loss in a number of years
and in other years has built up a substantial surplus whioh oan bo drawn
on now* the argument that the System should save ammunition for an emer
gency is invalidated by tho faot that the time to use anti-inflation
powers is in tho early stages of an inflationary movement rather than
after the inflation is beyond control.
iU m
If it should be decided to reduoe tho Aooount sales should be
limited as far *s possible to taxable issues. Sales of tax-exempt issues
would run counter to the Treasury policy of reducing tho supply of suoh
Issues in the hands of the publio* Swaps that tho System Aooount might
mates to improve earnings would also bo undesirable* particularly at this
time* Tho swaps that would improve earnings would involve either a
lengthening of maturities or the swap of low-yield for high-yield issues
of comparable maturity. The latter typo would furnish the market with
issues that are particularly attractive to commercial banks and thereby
would add to some extent to the expansion of bank orodit« The former
type of swap would not only add to the market supply of securities that
are attraotive to banks but would deprive the System Aooount of short
Issues that may be needed in the future for money market adjustments
and also would tend to raise long bond prloes further.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
j
D E C L A S S IF IE D
^Authority
. (Q^6\
:C{D IN F1I MU SECTION |
FormF. R. Ill
’ A R D OF G O V E R N O R S
O F THE
FEDERAL RESERVE SYSTEM
Office Correspondence
To_
Mr. Ooldenweiser
From.
Date
Iienry I . Bdmiston
I
Subject:
Attached is a copy of the memorandum -which
I mentioned in our telephone conversation.
February 28. IQlxl
Reproduced from the Unclassified / Declassified Holdings of the National Archives
j
D E C L A S S IF IE D
j Authority
Chairman Eooles
Henry H* Edmiston
0 . ( Q &)b \
Publication of System Account
holdings of direct end guaranteed
obligations in Treasury Bulletin
Last December the Treasury requested authority to publish in the
Secretary’s Annual Report the System Account holdings of direct and guaranteed
obligations by issuers for certain June 30 dates. The Treasury also requested
authority to continue current publication of raonth-end figures on System Aooount holdings of direct obligations in the Treasury Bulletin, which had pre
viously been obtained from the confidential open-raarket letters and published
without authorisation*
The publication of the material requested for the Secretary* s Annual
Report m s authorised at the time by you as Chairman of the Federal Open Market
Committee* With regard to the request for publication of monthly data in the
Treasury Bulletin, however, it was suggested to Mr. Bell by telephone that
System holdings of dircot obligations be combined with the holdings of market
issues by Government agencies and trust funds* It was understood that Mr. Bell
mnald give consideration to this suggestion and would communicate with Mr*
Merrill in ample time to enable him to submit the matter to the Open Market
Committee for approval *
The Treasury has informally indicated that it would like to continue
to publish the System Aocount holdings separately rather than combine them
with other items shown in the table* In view of the fact that Mr. Rouse
originally raised the strongest objections to this prooedure, it was sug
gested that he and I discuss the question with the Treasury people before a
formal request for such authority was made* Mr* Rouse had planned to come
to Washington some ten days ago, but was unable to do so* The Treasury1s
February Bulletin is now about to go to press, and they have just requested
permission by telephone to publish year-end System Aocount holdings of
direct obligations in order that their table will not be three months be
hind, whioh might cause Inquiry from the press or other readers of the
Treasury Bulletin*
With regard to the first question of permitting regular publication
by the Treasury of month-end data on System Account holdings, Mr* Rouse still
feels that this is undesirable for the same reasons outlined in his letter of
December 23 to Mr* Morrill whioh is attached* The members of the Board’s
staff who have considered this question arc not oonvinoed of the importance of
Mr* Rouse*s arguments, although it is recognised that a final dcoision on the
question rests with the full Open Market Committee*
Fending the Committee’s review of this broader question, however,
we feel, aad Mr* Rouse agrees, that as a praotioal solution of the immediate
problem raised by the approaching deadline for sending the February issue of
the Treasury Bulletin to the printer, those members of the Executive Committee
of the Open Market Committee who are in 'Washington should authorise the in
clusion of figures on System Aocount holdings of direct obligations as of
December 31» 19^0*
eproduced from the Unclassified / Declassified Holdings of the National Archives
d e c l a s s if ie d
Authority fc Q . lD^fS\
REC’D IN FtU 5
$
S'"*
J 55 & J ±
October 19, 1940
Wt* Robert D* Brewer, President,
The Merchants National Bank of Boston,
28 Stats Street,
Boston, Masaaehueetts«
Coar Hr* Brewer t
this Is in reply to your
J*C.J&tober 11 j
concerning reoent changes In the Govcnsaent seourity portfolio
of tho Federal Reserve System* the increase of 181,500,000 in
the Bystaa’s holdings of G o v e m n s n t bonds shown in the statenent for the week ending October 9, that you referred to in
your letter, did not result from purchases in the aarket but
froa the conversion of notes into bonds under the terms of
the reoent treasury financing operation* She Systea exohanged
its entire holdings of Deoaaber notes, amounting to $9 2 ,5 0 0 ,*
000, for the new 2 per oent bonds of 1953*55* These seeurities
nere delivered Ootober 7« After taking this conversion into
account, tha statement for the week of October 9 showed that
the Systea actually sold $11,000,000 of bonds in the aarket
during the week*
For soaetiae the Systea has been following a policy
of flexibility in its Ooveranent seourity holdings in ordar to
contribute to the oaintenanoe of orderly conditions in the
Gevwrznent seourity aarket* In aooordanoe with thia policy,
wa bars acid G o v e m a e n t seeurities in the reoent strong aarkets
to relieve soae of the pressure created by insistent investment
deaands. This purpose has also been served in reoent months by
salee, through the Treasury and the lew York Federal Reserve
Bank, of nearly $100,000,000 of bonds for various fara oredit
agenciea in connection with their prograss for retirswsnt of
Goveraaent^-owned capital*
X night add that the reoent substantial sales of
aeouritiea by Ifce Systea have not been necessary in order for
us to be prepared to support a weak Oove m aen t security aarket
Reproduced from the Unclassified / Declassified Holdings of the National Archives
d e c la s si f ie d
Authority
%1M fUM S SECTICttf
O T2 1 1 9 4 0
C
Mr# Robert B* Brewer
2
in the event suoh action should becowm desirable* The $ys tea's
ability to buy securities In the future is not dependent upon
a prior reduction In its present holdings. Instead* it is re
lated to the reserve position of the Federal Reserve banks
thsaselves# At present the Reserve banks own a record volume
of gold certificates and lawful swney above the amount which
they are required by lav to hold against Federal Reserve notes
in oiroulation and against meaber bank reserve balances# In
fact, the trsaiendous amount of these *free reserves* of the
Federal Reserve banks would provide the basis for the ptxnofease
by the System of so many billions of Government securities
that in practice the liaits imposed by statutory refuire»snts
have beesas almost meaningless*
I appreciate your Interest in writing ma and trust
the points raised in your letter have been answered t© your
satisfaction#
Very truly yours»
(Signed) M„ S r ■
«
M, S. Eooles,
Chairman.
KS/jh
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority
c-o 'TLo
'0 -
. ( 0^?6\
Reproduced from the Unclassified / Declassified Holdings of the National Archives
|
D E C L A S S IF IE D
Authority t O .
1056
—
IflSC'D IN FILES
BOARD OF GOVERNORS
OF TEE
FEDERAL RESERVE SYSTEM
NOV 2 -1940
tl
f
.KfiS I0 0 - 1 3 U
October 18, 19^-0
A
Board of G o v e r n o r s
Ajmual rate of earnings
on System Account l/
0o o
* n J) 4
l/
L. M. Piser
STRICTLY CONFIDENTIAL
The annual rate] of earnings from the System* s present holdings of Gov
ernment securities is $1+2,200,000* The annual earnings needed to mee y <expenses
and dividends, less earnings from other sources, amounts to about $35*700,000,^“ (
“*
leaving excess earnings from the System Account of $6,500,000* This memorandum
considers the effect on earnings of various possible reductions in the Account.
JL (- w
r f>
Earnings from Treasury notes maturing through December 1 ^ - now amount * " e
943
to $6,500,000; in other words, the System Account could dispose of the entire
$610 *000,000 of notes maturing within this period before earnings would be down
to'"the amount needed. Earnings from guaranteeds and from Treasury notes and
bonds due or callable through December 19lj2 now amount to $5*800*000; the System
Account could, therefore, dispose^Qf the $1+60,000,000 included in this category
and still have a surplus of $700,|x>5& over requirements. If instead of the short
term issues long-term bonds were sold, the amount of reduction that could be made
0 f6 .
before earnings were below requirements v/ould be much smaller. The annual rate
of earnings on the four longest bonds, for example, is §6 ,900,000; if the $260,000,000 of these issues should be sold, earnings would be below requirements.
If holdings of each issue in the Account were reducod by tho same percentage, the
Account could be reduced by $370*000,000 before earnings would be down to re
quirements. The attached table shows the annual earnings from each issue in the
Account and provides the basis for calculating the effect of a reduction in any
issue or group of issues.
It may be assumed that issues due or callable in the next few years
will be refunded. Since the short-term issues now provide the System with a low
rate of return, the System's earnings could be maintained at present levels even
though part of the maturing issues were not exchanged. Assuming that maturing
issues arc refunded into 2 per cent issues, the table shows the amount of the
new issues noedod to maintain earnings at the present level. For example, since
the March 191+1 notes return the System Account less than 1 per cent, earnings
could be maintained even though less than one-half of this issue were refunded
into a 2 per cent issue; specifically, only $1+0,800,000 of the &QQr800yQQ0 would
need to be refunded. Over the five-y6ar period, under these assumptions, ti^e
System would need to refund only $830,000,000 of the $1,320,000,000 of issues\
due or callable. The remaining $1+90,000,000 could be sold, and the System’s
annual earnings would still be $142,200 ,000.
This memorandum has been prepared at the suggestion of Governor McKee
*&/■'
a
.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
|
D E C L A S S IF IE D
| Authority
0 . 1Q
^>6
\
HEC'D IN r ’.ES ^ECTI0*$ s
100-130
October 18, 191+0
STRICTLY CONFIDENTIAL
SYSTEM OPEN MARKET AC( 10UNT NOV “ IbH-U
October l6 , I9I O .... fl .... ......_j
+
i
------ -- —
ber cent
Annual
Holdings
issues needed to
earnings
maintain earnings
Actual
Cumulated
Actual
Cumulated
Cumulated
Actual
(In millions of $)
(In millions of t)
f
(In thousands of $)
Treasury notes:
3 A l ----
6A l ................
12 /Ul........
3A 2 ...................
9 /|j2 ................
12 /Zj2 .......
6 A 5 ........
9/1+3...............
1 ^ 4 3 ........
3 $ ........
.......
9/bb.......
3/45................
Total notes••«.
G-uaranteeds:
FFMC I42-I47 3s
FFMC l+M+9...
HOLC U 2 -1 4
!+...
HOLC II+-52 ...
4
99.8
58.3
1+3-0
81+.8
66.2
3 1.8
117.6
35-7
69.8
113.1+
79-U
60.6
125-1+
.985.8 .
.
1.0
0,6
815
99.8
15 8 .1
2 0 1.1
51+6
II
4+8
1,199
285.9
352.1
383.9
501.5
537.2
1.0
1 .6
l+.o
5.6
1.0
6.6
6.6
—
9.711
59.0
7,633
33.0
55.6
8,799
9,711
—
U5.6
.. 1+85.7 .
.
8,216
583
.
22.4
60.0
5 1.6
2 1.2
5,860
6,521
912
985.8
27.3
5
,61+1+
U23
1 ,1 8 1
216
661
1,112
583
799.8
860.14
.
1+
0.8
1,809
3,008
1+,0U 0
14,463
1,032
607.0
720 .1+
...
815
1,361
.
17
12
1+6
21
96
17
'9
2
75
96
™
10.8
29.2
29.2
1+
0.8
6 8 .1
90.5
150.5
202.1
223.3
282.3
293.1
326 .1
381.7
1+10.9
llo 1
++.
1+
85.7
0.8
0.6
0.8
1 .1+
2.3
3.7
1+.7
1.0
k.7
Treasury bonds:
191+ - 1+3..........
1
191+1................
191+ - 1+7..........
3
191+ - 1+5..........
3
19UU-U&.....
H +.6
57.0
30 .1+
46.5
53.0
35.0
I9iil+-5i+..........
63.6
191+5-1+7..........
191+5................
30.7
191+
6-56 ..........
21+.5
19 1 + -1+8.....
6
71.8
19 I6 - + .....
+ I9
30.9
10 .6
191+7-52.....
142.1
191+7.......
92.8
19l|B-51.....
19 I8 .........
+
21+.1+
191+9-52.....
27.5
191+9-53.....
90.3
1 9 5 0 - 5 2 .....
80.0
97.0
1951-51+.....
il.
++o
1951-55.....
86.7
1951-53.....
8 1.6
1953-55.....
19 5 5 - 6 0 .....
79.3
53.2
195^59.....
1 9 5 8 - 6 3 .....
57-3
19 6 0 - 6 5 .....
60.3
Total bonds•••• 1*391.1
Grand total.... 2,383.5
lii.6
71.6
102.0
11+8.5
201.5
236.5
300,1
330.8
355.3
I
427.1
1+58.0
I. 8.6
4
6
510.7
603.5
627.9
655.1+
71+5.7
825.7
922.7
171+
1,088
551+
1,063
2,879
1,273
721+
1,335
1+,152
629
571+
1,850
603
23I
+
815
2,216
1+87
707
2,1614-
1,890
......
2,1+71+
1,137
1,931
1,627
2,127
1,1+23
1,553
1,750
32 .j
I.02
------
142,206
966.7
1,053.1+
1,135.0
l,2ll+.3
1,267.5
l,32i
+.8
1,391.1
171+
1,262
1,8 16
l+,876
6 ,2 11
6840
,1.
7,l+ll+
9,26b
9,867
10 ,10 1
10,916
13 ,13 2
13,6 19
l + 326
l,
16 ,14.90
16,380
20,851+
21,991
23,922
25,51+9
27,676
29,099
30,652
32 ,1+02
—
—
8.7
5+1
1.+
27.7
53.2
63.6
36.2
66.8
31*1+
8.7
6 3 .1
90.8
1 II+.O
4
207.6
2i.
j3.8
310.6
31+
2.0
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority jj-U ■I 0^/6 \
*
UUI10W4U
\
,-N
4
3 ■^
?
.
Ml--- f .
•
0
*
October 16, 19i|0,
/V C
Mr, G. J. Schaller, President,
Federal Reserve Bank of Chicago,
Chicago, Illinois,
Pear Mr, Schallers
In your letter of October 9 you say that your Board
of Directors would like to credit a siibstantial amount from your
earnings against your share of the premium, on the System Open
Market Account, and would like to know whether such action would
be satisfactory to this office.
This is & matter we have given considerable thought to
in recent months and, as you know, Mr. House and I submitted a
report to the members of the Presidents* Conference and the Federal
Open Market Committee at their recent meetings whioh dealt with
this subject among others in some detail. Yihen this subject m s
assigned to Mr. Rouse and a$rself we were asked to suggest alter
native means of handling certain questions in connection with tho
System Open Market Aooount, and to be prepared to make recommen
dations in case they were asked for. I understand that each of
the Presidents now has a copy of our report and that the matter
will receive early consideration.
X hope that action on this matter will be taken before
the end of the year, but if not the Board will, of course, act on
the individual reeommendat ions of the respective Federal Reserve
Banks. My omt views are that it is desirable for each Bank to
build up its reserve for contingencies within a reasonable period
to an amount at least equal to its premium account on securities,
but that the advisability of using earnings to write down the
premium account is doubtful, as to do so would distort our earn
ings figures.
I do not know l r a attitude the Board might take if the
fit
question were presented to it, but I am sure it will be glad to
consider any recommendation that you may wish to make with respect
to the disposition of earnings not required to cover expenses and
dividends.
Very truly yours.
h 'E L S is a h
&
I
J
U
F
) W
s
-archiif,
ank Opsraticma.
d
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D E C L A S S IF IE D
Authority X / 0 . ( 0^?6\
REC'D m F M s SBCtXQH
O T2 1 1 9 4 0 *
C
ALFRED
L. R I P L E Y ,
CHAIRMAN
!
ROBERT
D.
BREW
!
ROBERT
D.
BREWER,
PRESIDENT
OFBOSTCB^
S tre et
2 8
B 0 S T 0 5 r , l > l A S IS A C fH F S E T T S
O ffice
of
th e
P r esid en t
October 11, 194-0
Mr, Marriner S. Eccles, Chairman,
Board of Governors,
Federal Reserve System,
Washington, D. C.
Dear Mr. Eccles:
The figures released by the Federal Reserve Bank of Boston show
that the Federal Reserve Banks combined have been selling notes and buying
bonds during the past two weeks.
for two reasons.
To me, that is a most surprising attitude
In the first place, it is common knowledge that there is
sustained buying by the insurance companies whose cash position has been
mounting.
This has been sufficient to drive the market to a point which,
after their buying ceases, may not be easy to hold.
In the second place, I
repeat my opinion expressed often before, that it is the principal function
of the Federal Reserve Banks to so handle their investments that they are
prepared to support a weak government market when it develops.
I merely submit my views once more, as one chiefly interested in
the stability of the banking system.
Sincerely yours,
Vi
A
RDB:HVE
fO / i f f y O
F O B F IL E S
F, Gh Ritter
s
P
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D E C L A S S IF IE D
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(0 % \
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O T1 6
C
F E D E R A L R E S E R V E BANK O F C J
330
SOUTH
LASALLE
O F F IC E O F T H E P R E S I D E N T
AG< f ^ ___
m
STREET
October 9, 194-0.
r1&
'4
Mr. E. L. Smead, Chief,
Division of Bank Operations,
Board of Governors of the
Federal Reserve System,
Washington, D. G.
Dear Mr. Smead:
As you undoubtedly know, there has at various
times been a discussion in the Open Market Committee
about applying the profits derived from the sale of
securities in the System Open Market Account on the
premium carried by the various Federal Reserve banks
under "Other assets.*1
Looking forward to the closing of business at
the end of the current year, I am sure that our Board
of Directors would like to credit a substantial amount
from our earnings against our share of this premium
account, and I am writing to ascertain if such action
would be satisfactory to your office.
I am aware that we can continue to add to
the Surplus Account, bat it seems to me it would be
much better if that account did not grow until such
time as this large premium in our bonds was at least
substantially reduced.
I appreciate that it might be better if uniform
action were taken by all of the banks, but as I am not
sure this will be done, I should like your views before
discussing the matter further with our Board of Directors.
tO
^
1940
rO
v
'
CL*#
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority
.
10^ ? 6 \
S '** *
j *
'7
'
Oototoor t# 19U0
IWC’ D W n U S SECTION
Q^nmpiiw S l
ymifc
^
L . *# ^ F isa r
OCT9 - 1 9 4 0
153
COHFIDJkiTiAL.
Th* following tabla shows th• infonaatlen oa Systsa
M m m m % transactions, liilik you raqusstadi
pcRiSTStEM OFKY MARKS? ACCOWf
s#pt.^50# X9bO * Ot%* 3 b 19 U0
Traastxnf i w n IS
Traasury
Srajod
Mar* #t»w £*•«
JtmA Doo. Total bonds
total
19U3
isbi igl4 X9l4.
19 5 3 -5 5
8#pt* 3©#** 1*0
Ofit*
I * * * 5*0
Total for
W t f t * ** 4 6*0
Sie*
Oit#
S * #• 1.0
tOs%#
3**# 2.0
0®t*
Oat*
5 .•*
J.O
o*t.
SN*5* •••** 6*0
Total t«p%*
3 0 -Oat. 3 lt*0
1.0
£.0
WWW
TOTr
1*0
2.0
2*0
1,0
2*0
*"*■
2*0
1 .0
1*0
1*0
—
yirm
1*0
£.0
1*0
2*0
£.0
2.0
xo.o
—
1.0
4*0
2.0
3.0
—
^
..
..
1*0
3.0
1.0
10*0
3 .0
5 .0
5 .0
4 .0
10*0 - .7.0..
1 7 .0
20.0
87.0
7.0
^
Reproduced from the Unclassified I Declassified Holdings of the National Archives
T
T
‘
‘
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D E C L A S S IF IE D
^Authority
. 10
\
REC'D IN FILES SECTION
F. S .131
MAR 2 9 1940
bOARD DFGDVERNORS
±
o r THE
FEDERAL RESERVE SYSTEM
Office Correspondence
To.
The F i l e s
From.
Mr* Tffyattj G eneral Counsel
D a te
March 25. 1940______
Subject -
C o n v e rsatio n w it h Mr* Lawrence
L *^G o u rley re purch ases and s a le s
f o r System Open Market Account*
Mr* Lawrence L* G o u rle y , A tto rn e y a t Law o f 806 15t h S t r e e t ,
N* W *, W ashington, D* C * , c a l l e d on me b y appointment t h i s morning t o
d is c u s s th e above s u b je c t *
Mr* G o u rley s t a t e d t h a t he re p re se n te d a c l i e n t who i s a
bond b r o k e r , h an d les a la r g e volume o f Government bonds and has one
man who devotes a l l o f h i s time t o Government bon ds, and t h a t t h i s
c l i e n t , whose name Mr* Gour le y was not p re p a re d t o d i s c lo s e , i s con
s id e r in g th e p o s s i b i l i t y o f f i l i n g an a p p li c a t i o n t o o b ta in some o f
th e b u sin e s s o f th e F e d e ra l E eserve banks i n co n n ectio n w it h t h e i r
purchases and s a le s of*^Gover nment bonds* Mr* G ourley wanted t o know
how th e b u s in e s s i s tr a n s a c t e d and how h i s c l i e n t should proceed t o
f i l e such an a p p lic a t io n *
^
A t my r e q u e s t , Mr* F i s e r jo in e d us and we e x p la in e d t o Mr*
r l e y the s e t -u p o f th e F e d e r a l Open Market Committee and t h e f a c t
t a l l purchases and s a le s f o r th e System open market account a re
h an d led by the F e d e ra l R eserve Bank o f Hew T ork under the g e n e r a l d i
r e s t io n o f th e Committee. We fu r t h e r e x p la in e d t h a t th e Committee
erm ines g e n e ra l p o li c y as t o th e tim e , manner and amount o f p u r h ases and s a le s o f s e c u r i t i e s and t h a t th e d e t a i l s o f th e e x e c u tio n
th e t r a n s a c t io n s a re l e f t t o th e F e d e ra l R eserve Bank o f New Y ork *
J
Mr* P i s e r fu r t h e r e x p la in e d t h a t the F e d e ra l R eserve Bank
o f New Y o rk d e a ls p r i n c i p a l l y w it h d e a le r s i n Government bon ds, as
d is t in g u is h e d fro m b r o k e r s , alth ou gh i t o c c a s io n a lly p la c e s o rd e rs
through b ro k e rs on t h e New York S tock Exchange*
I n respon se t o a q u e s tio n as t o how th e d e a le r s w ith whom
th e F e d e ra l R eserve Bank t r a n s a c t s b u s in e s s a re s e le c t e d , Mr* P i s e r
s t a t e d t h a t i t i s l a r g e l y b ased on th e amount o f c a p i t a l which th e
d e a le r employs i n h i s b u s in e s s , i n v ie w o f th e f a c t t h a t th e t r a n s
a c t io n s o f th e F e d e r a l R eserve Bank a r e u s u a lly i n r a t h e r l a r g e amounts
i t has t o u t i l i z e th e s e r v ic e s o f d e a le r s who have adequate amounts
o f c a p i t a l t o a f f o r d the F e d e r a l R eserve Bank r e a s o n a b le p r o t e c t io n i n
such t r a n s a c t io n s *
Mr* G o u rley thereupon in d ic a t e d some doubt as t o
whether h is c l i e n t had s u f f i c i e n t c a p i t a l t o q u a l i f y on t h i s b a s i s *
A f t e r some fu r t h e r d is c u s s io n o f a g e n e r a l n a tu re , we sug
g e ste d t h a t , i f h i s c l i e n t d e s ir e d t o f i l e an a p p li c a t i o n , he ad d ress
a l e t t e r t o Mr* R* G* Rouse, Manager o f th e System Open Market A ecou nt,
c a re o f th e F e d e r a l R eserve Bank o f New Y ork*
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D E C L A S S IF IE D
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Tos
The Files
Authority j ^ Q .
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I further advised Mr* Gourley that, if he was not satisfied
with the consideration given to his client's request by Mr# Rouse and
desired to press the matter further, he could address a letter on the
subject to the Board, which would refer it to the Federal Open Market
Committee for further consideration*
'Mr* Gourley thanked 2320 for the information which I had given
him and departed without indicating whether or not he would address a
letter to Mr* Rouse*
General Counsel*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
&0
. 10P6\
REC*D IN FILES SECTION
JibrmF. R. 1 1
3
\RD D F G O V E R N O R S
1<
Q:
D F THE
FEDERAL RESERVE SYSTEM
Office Correspondence
To_
Mr* Goldenweiser
D ate_Febru ary
Subject:.
.. 1 9I1Q,
Reproduced from the Unclassified / Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority
DRAFT
Febr
PROFITS OH SALES OF SECURITIES
l/
In carrying out tho policies of tho Fodoral Opon Market
Cooesittoo seeking to maintain orderly market conditions, it it fre
quently desirable to make shifts in the Syston Open Market Account
by selling individual issues that are in considerable demand and
buying issues in considerable supply, particularly if the shift
would b e advantageous to the Account.
Those shifts can properly be
made &t tines when tho market as a whole does not need outright
purchases or sales by the Systea Account*
In tho recent past, how
ever, most opportunities of this typo have boon refused, in part at
least because under the existing accounting practice each shift
would (1) increase the book value of the System Account, although
the par value remained unchanged, (2) reduce the future income from
the Account, and (3 ) take an immediate profit on tho Account,
Suoh
changes oa the bocks of tho Account have been considered undesirable,
because (1) the extent to which the book value is written up and
immediate profits are taken Increases the possibility of having to
take lessee in the future and (2) the extent to which current income
from the Account is reduced makes more difficult the problem of
neeting System expenses in the future*
This problem is important
1^/ Tkis meraorandua has boon prepare<£ljy the s t a & at the Moarl c£
Governors for tho Information of tho Fodoral Open Market Com
mittee* Its purpose is to examine various methods of handling
the profits obtained from sales of securities froa the Systea
Opon Market Account froa the point of view both of their sound
ness as an accounting procedure and of their effect on tho
freedom of the Account in carrying out System policy as deter
mined b y the Conradttee* Tho memorandtst is purely informative
and is not intended to present definite recommendations*
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j
D E C L A S S IF IE D
^Authority
0 ■ lP ^
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- 2 -
not only because of the refusal of some current shift* that would
be helpful to the market and to the Aecount but also beoause there
is at least a possibility that future desirable transactions nay
be refused beoause of an unwillingness to take aubstantial losses
on sales or beoause of a wish to bring tho current rate of earnings
to the level of expenses and dividends.
For example, at gone future
time when the credit situation called for a reduction in the port
folio, the System might hesitate to make sales that meant taking
substantial losses*
the System might also seek to improve the cur
rent rate of earnings b y holding a larger portfolio of long-term
bonds than desirable for the market or for the Aooount*
To meet this situation the proposal has been advanced that
profits on switches should be used to vrite down the issue purchased
in replacement.
Under suoh an accounting policy it is likely that
the Aooount mould b e sore free to make shifts at present and more
free also to operate in accordance with sound principles in the
future*
To the extent that such profits were used to write down
the book value of the portfolio they would constitute in effect a
reserve fund that would reduoe the possibility of having to take
losses or of failing to pursue a proper policy beoause of unwilling
ness to take losses in the event of a future decline in the market*
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D E C L A S S IF IE D
^Authority
,
|
~ 3 ~
Some question may b e rad sod as to whether tbs us# of
profits osi shifts to writs dona tho oost of tho issue purchased
would b o in accordance with sound accounting practice#.
Ihen an
individual issue is originally purchased outright at a prsBadua,
obviously it w o l d mot bo sound accounting to write tho issue down
to par immediately, since such a praotioe would give tho Account &
fictitious loss sad an unjustifiably high earning rats for tho
future*
To use an extreme example, if tho
1/5* por oont Treasury
bonds of 1 9 ^ 7 - 5 2 should now bo purchased at 120, the yiold of this
issue to the first oall date would be about 1 l/2 per oont*
tinder
present praotioe the 20-point premium would bo amortised at suoh a
rate that lt would bo extinguished on the first oall date*
To do
this, of the 1* I/I4. por oent interest that accrues annually 1 l/2
por oont would b e taken into e * m l n g 8 and th > r m&irdng 2 $/k por
oent would be used to write dona the premium.
X.fhowever, tho
premium were iwtodiately written off , the Acoount would show a 20
per oent loss on the trans&otlon and would subsequently show annual
earnings at a rate sore than twloe that actually earned*
In addi
tion to being unsound from an aooounting point of view, suoh a
praotioe slight work against the best interests of the Account and
the aarket, sinoe it would militate against the purchase of highpremium Issues, evoa though their purchase might be desirable from
the point of view of both the aarket and the Account*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
0 . [0^6^
-u-
Similarly, th* us* of profit* oa outright talas to write
down tho book value of other issues would bo open to question*
Leaving aside the problem of determining which partieular issues
irould be written down, the Systea would not be showing an aotoal
realised profit and would again be aooruing an unreasonably high
amount of earnings*
In this oase the total investment of the Ac
count in Government securities has been reduced*
Switehee in ths Account are, however* more of a border*
line oase*
From m m
point of view a switeh Involves two separate
transactions, a purohase and a sale*
Under the present accounting
procedure it is so regarded* on the issue sold the difference be
tween the selling priee and the book value is transferred to profit
and loss* and the issue purchased is entered on the books at its
cost prioe*
From another point of view a switch is somewhat in the
nature of an exchange, since the total Investment of tho Account
in Government securities has not b een altered*
It is merely a shift
between investments of almost identical character, and the present
practice amounts in effect to a write-up of the System9s portfolio,
the Account at times exchanges maturing social ties for new securities
issued by the treasury under an exchange offer, and for a time when
it was thought that such exchanges were perhaps prohibited by the
Federal Reserve Act the same thing was accomplished b y selling the
Reproduced from the Unclassified / Declassified Holdings of the National Archives
declassified
Authority & Q ,
- 5 *
aaturing securities and purchasing the new securities in tha mar
ket.
Obviously if any profit realised on the tala of maturing
securities were used to write down the cost of the securities pur
chased, the net result would be about the saxae as if a direct ex
change had been effected*
Prom this point of view any switoh in
the market nay be considered as an exchange of issues rather than
as a separate purchase and sale, and as such the profit should be
used to write down the cost price of the issue purchased.
It may be noted in this connection thfct profits and
losses are distributed among individual Reserve barks on the basis
of average holdings in the Aooount since June 30# 1 9 3 6 .
The premium
account and current earnings, however, are distributed on the basis
of the current participation.
A write-down of the prendxn account
presumably would be allocated on the first basis*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
j
declassified
I Authority \ t :
j u (yb \
L...........
•
•
V
Hr* F. Ouy Hitt,
1
(L,
First Vi©e President,
Federal Reserve Bank of St* Louis,
St* Louis, Missouri*
Dsar Hr. Hitti
Referenoe is nade to your letter of Deeesfcer 18,/1929,
la regard to the prospective increases in expensee of your Bank
in I9C0 incident to the installation of air conditioning equipBMBt in tha head of flo e and branch buildings*
A a n b e r of the other Federal Reserve banks which hare
Installed air conditioning equiposnt in reoent years hare set
aside a epeoial reserve at the «nd of the ywar in which the in
stallation was collated equal to the entire oost of the Installa
tion end hate charged suah oost to profit and loss rather than
currsnt expenses*
It would seem that whenever a Federal Reserve
bank wishes to dapreoiate new equipment over a period of ten
years the charge should be nade to current expenses, but when it
wishes to write off substantial asounts within the course of ons
or two years that it is preferable to sake the charge to profit
and loss, as otherwise current expanses are unduly inflated during
such years* It is suggested, therefore, that if you wish to charge
the oost of the air conditioning off within a two-year period that
you males the oharge direct to profit and loss* In order to allow
for approximately half of this cost’s being written off in 19U0,
we shall include $150,000 for this purpose in our estimate of ex
penses of your Bank in the January 1, 19^*0, reallocation of
Securities in the System Open Market Account*
Very truly yours.
^
•i J
v-'
S* L. Sm ad. Chief,
s
Division of Bank Operations,
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E E C ’ i n I t O s s e c t Io n ;
D
Form F. R. 131
I
1A R D D F G O V E R N □ RB
Dr THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Dljj
3 5 3 .
Date
1949
3
October 15* 1939
To_______Mr.
.Goidenweiser___________Subject; System Account______________________
From
M. Piser_______________
The System Account in the past has always maintained, a large
amount of short-terra securities. The reason for this, of course, has
been to Bnabls the System to reduce excess reserves rapidly or to put
member banks in debt by allowing securities to run off at maturity.
Such a course is as effective on the reserve position of banks as
direct sales in the market and does not subject the System to the risk
of price depreciation, which might occur on market sales.
With the present and prospective high level of excess re
serves the System cannot hope to control an inflationary boom either
through use of its existing powers to raise reserve requirements or
through liquidation even of the entire System portfolio. Perhaps
this inadequacy of powers is not as important as it appears to be,
since in the past fluctuations in short-term interest rates have not
been a major factor in changes in business conditions. Changes in
the long-term rate of interest are a much more important factor,
since they influence the capital markets.
This suggests that the System might in the future, or at
least until adequate powers are obtained to absorb excess reserves,
seek to influence long-term rather than short-term interest rates.
Long-term bonds could be sold in the market in the event of an infla
tionary increase in business, and this would exert a powerful influ
ence on the long-term rate of interest. It might be possible by this
method to exert as much influence on business conditions as could be
done through the absorption of excess reserves. Even with large ex
cess reserves bonds will not be issued on a declining market.
If this analysis is correct the System Account could well
continue to reduce its holdings of short-term securities, not only
by allowing bills to run off at maturity but also by selling at least
part of its holdings of Treasury notes and short-term guaranteed ob
ligations. From the standpoint of earnings this would not have an
important effect, since relatively small earnings are received from
holdings of short-term securities and the earnings rate on the entire
Account at present is well in excess of the System’s requirements.
The System*s portfolio would then consist largely of long-term bonds,
and these holdings could be increased or decreased depending on
whether or not the System wished to influence the long-term rate of
interest.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
Tos
Mr* Goldenweiser
- 2 -
1
October 1 3 # 1939
One Important objection may be raised to such a practice*
The System would subject itself to a considerable risk of price de
preciation* If an inflationary boom does develop long-term bond
prices will decline farther of their own accord, and 1 16 market
3
would soon be below the prices at which these bonds are held on the
System’s books* Sales by the System would depress the market
further, and substantial losses would be taken. While this is a
serious objection the responsibilities of the System are suffici
ently great that it may be worth while for the System to run this
risk in order to exert its influence against an inflationary boom*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority
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i:
Beptmber SO$
19S9
Mr. Allan Sproul,
Ftrit Via* Fraaidaat,
Fadaral taaarva Bank of Haw Yosft,
Nmw Yoifc, Maw York.
Daar Mr, Sprouli
Yaatarday Mr. Barriaon aho*ad one of tha
Board siarabara a copy of the statamaat prepared la your .
bank fivt&f total holfiin^a of aaoh Iasm# ia tha Syata*
Account, tha book val*# and tha appreciation or dapraoiiitloa. The Board maabar referred to aaid that ha would
appraoiet* it if we oould have a copy each week aad,
therefore, wa would ba glad if you would aend it to
Mr* Pi ear*
Vary truly youra,
Cheater Morrill
Secretary.
UtF-^-akia
4
Ju*-F om c-& JL
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
■
Saptaffibar
Qovaraor Bnvia
too dllaf fhom&B
Th* attaohad tabulation praparad by Mr, Plsar glvaa
purohasaa by the Sy&tm end el^git la Traaaury boad prlcae by
days during tha Muni oh crisis a yaur &®o* She result 8 a r not
aa
psrti eulurly conclusive as to lb® praaoat aliustloa# La*t
Saptantbar lb# prlca ehsaga* mara relatively »all and it would
appear that thara vaa fraqjuaatly a good bit of outaida buying
ia tha isarkat* On tha 19th and 20th, for axa«|s4#, the Syttan
wa» able to «all sacurltla® from tha Account oa a rising maxfcat*
Ob tha 88thf mhon the crisis ee&a dafiaitaly to * conclusion,
t
tha gyatan mada heavy purch»sas la tha ooraiag oa s daellalag
aaxtcat and *ib#a?pa»tly mada substantial a&lea oa a rapidly
rising mmtteat* la this situation tha erlaia »aa duddaaly
brought to aa and by a settlement and therefore it mould not
be considered us iadicativa of mfcat mould happaa la a market
which found ita om bottom aad attracted buyara from outalda*
Aa analysis ia being a»da of developments la tho sprlag of 1937
1*1 eh any b# eoasi dared m m nearly lika tha present altu&tloa*
Attaohaaata
1ft l t
*
13, 1939
Reproduced from the Unclassified I Declassified Holdings of the National Archives
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D E C L A S S IF IE D
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0 . 10 h b \
STRICTLY CONFIDENTIAL
MARKET OPERATIONS IN NOTES AND BONDS OF
THE SYSTEM OPEN MARKET ACCOUNT AND TREASURY
________(In thousands of dollars)_________
System Open Market Account
September
1933
Total
+500
+7,387
+8,303
...
+1,000
+1,575
-7,000
-20,250
+500
+12,588
+19,923
+4,756
-14,200
-20,250
+550
+9,862
+1,160
2/+1,475
“ -2,125
-2,000
■*43*
—..
.
+550
+10,562
+1,320
+3,985
-6,135
-2,000
+11,599
mm
mm
mm
12
13
14
15
16
17
19
20
21
22
23
24
26
27
28
29
30
Total
Total
Treasury
Bonds
Notes
+5,201
+11,620
-1,000
+3,181
-7,200
-+700
+160
l/+2,510
.-4,010
+11,162
mm
mm
mm
+500
+25,176
+39,845
+9,511
-14,200
-20,250
...
---...
+550
+10,562
+1,320
+3,985
-6,135
-2,000
+48,864
+12,588
+19,922
— 44,755
---...
-+37,56$
Price
change,
Treasury
bonds
1958-63
(In 32nds)
-.18
+ .07
-.08
+ .02
-.04
-.07
+ .04
+ .15
+ .15
-.05
- .11
-.08
-.16
0
+ .24
+ .19
+ .06
+ .15
Note: Net purchases +; net sales
l/ Purchases of $7,510,000 offset by sales of $5,000,000*
T/ Purchases of $14,796,000 offset by sales of $13,321,000.
MARKET OPERATIONS IN NOTES AND BONDS OF
THE SYSTEM OPEN MARKET ACCOUNT AND TREASURY
(in thousands of dollars)_________
System Open Market Account
1939
Notes
Aug. 28
29
30
31
Sept. 1
2
Total
Note:
Bonds
+3,000
+1,370
Guaranteeds
-
Total
+4,370
Treasury
Direct
bonds
+1,497
Guaranteeds
-
Total
Total
+1,497
+5,867
~—
~
' ^m
+400
+400
+600
+35,927 +42,162 +27,667 +105,756 +9,225
+3,876 +14,845 +1,237 +19,958 +3,107
+42,803 +58,777 +28,904 +130,484 +14,429
Net purchases +5 net sales
+600
+1,000
+654 +9,879 +115,635
+123 +3,230 +23,188
+777 +15,206 +145,690
Price
change,
Treasury
bonds
1960-65
(in 32nds)
-.22
+.22
-.03
-.09
-.31
— .12
-1.23
Reproduced from the Unclassified / Declassified Holdings of the National Archives
j
D E C L A S S IF IE D
J Authority ^ 0 . 1Q ^ () \
AUG 7
June 29, 19139,
Mr. Hobert B, Brewer, President,
The Merchants National Bank,
28 State Street,
Boston, Massachusetts*
Dear Mr* Brewer;
I have £our letter
,
16fand realise that what
you have in .mind isThaF'the System, by divesting itself of
its long-term bonds, would then be in position to support the
market in case of a decline*
You say that you had not thou^t of the System as
merely selling Government bonds, but as changing from long to
short. You will recognise, I know, that the selling off of
long-term bonds would invite, and I think no doubt would pre
cipitate, a very sharp break in the market* It is a fact,
though contrary to frequent statements, or, I should say,
misstatements, that appear in the press, that the Reserve
Systea has concerned itself with doing what it could to main
tain orderly conditions in the capital markets and not to
supporting the Government bond market* I a® of the opinion
that the course you suggest would bring about a disorderly
market *
As for shifting from long to short, I am sure you
will realize on reflection that this is not feasible for the
short-term rates have already approached so close to zero as
to aake replacement of maturing bills in the System account
at times extremely difficult without paying a premium above
a no-yield basis* I can see no possibility of acquiring
several hundred million dollars further in bills and notes
when the supply of both has proved insufficient to meet market
demands*
The System would be in a position to exert a
steadying influence on the market whether or not it retained
its present holdings of long-term Governments. To sell them
off, apart froa the disruptive effects upon the market, would,
1952
Reproduced from the Unclassified I Declassified Holdings of the National Archives
|
D E C L A S S IF IE D
r
^ iC U 0 M i
fJ
Mr* Hobart B* Brawar
-£•>
* r s r ? r u » » ic m N ]
Jtsne 29, 1*39
la my Judgment, simply divest the Systea of aost of itare~
saining amannition to deal with market conditions*
I appreciate haviag yowr candid views and 1 am
writing to p m in tha same spirit marely for your own
Infozmtlosi*
Sincerely yours.
X* S, Xcoles,
Chftixnaa.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
j Authority t O .
1056'
•5
s A
«D IK n i & ' s E c n o T q
Reproduced from the Unclassified I Declassified Holdings of the National Archives
rsm
t&
DECLASSIFIED
Authority j O .
10^ 6 '
;j
Cr
^
FILES SEClXQti
JUL 5
3
1939
H
.....
R-496
STATEMENT BY TEE FEDERAL 0 P M MARKET COMMITTEE
For release in morning newspapers
of Friday, June 30, 1939.
June 29, 1939
As a result of a reduction in holdings of Treasury bills,
this week's statement of condition of Federal Reserve banks shows a
decline of $13,378*000 in the System Open Market Account.
This is
in accordance with action taken by the Federal Open Market Committee
on June 21, 1939.
For some time past, Treasury bills have been
purchased for the System's account at or near a no-yield basis and
the account at times has had difficulty in replacing its maturing
bills.
It was decided that it would serve no useful purpose to con
tinue full replacement of maturing bills, the supply of which is not
always equal to the market demand.
This action is in response to
technical conditions in the bill market and does not represent a
change in general credit policy.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority
ALFRED
L. R IP L E Y ,
. (0^6\
ROBERT
CHAIRMAN
B o
O ffice of t h e
stccsv
M
PRESIDENT
i i ‘H [i
i
n ■i 11 »
ii »
|i
i
W
HEC’D IN PILES SECTION
0 F B 0 ST 0 5 T
2 8 S m T K
D, B R E W E R ,
S t r e e t
a s s a c h it s e t t s
WB1 1S52
t if f ''
June 16, 1959
P r esid en t
Mr. Marriner S. Eccles, Chairman,
Board of Governors,
Federal Reserve System,
Washington, D. G.
Dear Mr. Eccles:
Thank you for your most courteous and thorough treatment of my suggestion
that the Federal Reserve System sell some of its long-term government bonds.
I don*t
wish to prolong the argument and weary you, but I would like to make clear what I had
in mind, which evidently you have not understood.
In 1953 the Federal Reserve System, organized to support the banking system,
was unable to function by reason of the fact that it was clogged with loans and
'T
•*
government bonds. I suspect that the time may come again when the banks may want to
turn to the Federal Reserve System to support a falling market.
The presence of
900 millions of long government bonds in the portfolios of the Federal Reserve System
reduces by 900 million dollars the ability of the System to come to the support of a
falling government bond market.
I am thinking not of transferring earning assets from
the Federal Reserve System to member banks, but of preparing the Federal Reserve System
to come to the support of the banks if a financial or international crisis should arise.
I had not thought of the System as merely selling government bonds, but as changing
from long to short.
I recognize, and I think mentioned in my letter, the drawback of the failure
of earnings in the System.
Of the two evils —
that is to say —
remaining surfeited
Reproduced from the Unclassified / Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority f c O . I 0 ^ 6 \
1
MEt
ANTS NA TIO NAL BAN K OF BOS
V
S'
fH E E T NO:
with long bonds for earning purposes, or charging member banks for the expenses of
the Federal Reserve System, I much prefer the latter.
Nor do I think the sale in
an orderly fashion of long bonds by the Federal Reserve System would substantially
change the market if, as I suggested in my other letter, the sales were limited to
a few millions a week*
If the Qpen-Market outside of the member banks cannot absorb
long-tern governments, with the plethera of deposits in the banking system and with
the demand for income-yielding securities, I foresee that the time will never come
when the Federal Reserve System will be able to clear its decks to prepare for its
primary function of supporting a falling market*
Very truly,
RDBjHVE
Z
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
I
Authority
I
______
. (0 ^ 6 \
______________
FILES SECTION <
*
AUG 7
1952
June 14, 1939*
Hr. Robert D* Brewer, President,
The Merchants National Bank,
28 State Street*
Boston, Massachusetts*
Dear Mr* Brewers
1 lave your letter of June l( suggesting the sale of
long-term Ck>vera»ent~bonds bythe Federal Open Market Con*
mittee* Let ate say to you, as expressing my personal views
frankly and off the record, that I fall to see that this
would accomplish any desirable public purpose*
The present abnormally low level of interest rates
Is primarily due to the unprecedented volume of excess re
serves, sow exceeding sore than #4,000,000,000* If the Open
Market Gomittee should sell a n of its holdings of longterm Governments— scaetMag, of course, that could not be ac
complished without seriously disturbing effects upon the
capital markets*— the excess reserves remaining would still
exceed f3,000,000,000* Moreover, they would continue to rise
again as a reamIt of gold and silver acquisitions by the
Treasury. Tims, there would be no assurance that interest
rates would not again revert to present or even lower levels
after being temporarily disturbed by the open~market selling*
For the 3ystem at this juncture to sell off its
portfolio of long-term bonds would, in my opinion, merely
dissipate such powers as the System has left for helping to
maintain orderly market conditions* Such action could only
be construed as a reversal of policy for which there Is no
justification in the existing business situation.
Accordingly, I cannot see any reasonable grounds
upon which such action could be based as a matter of public
policy* Hot only would it tend to dissipate the System’s
remaining powers, but it would deprive it of its earning assets,
which are now scarcely adequate to cover ea$enses, Including
y
' 7 t ^ /* jA'dt#
''
■r
t
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
IV
- 1
Authority
Mr* Robert D* Brewer
0 . |Q
\
June;14, 1939
the payment of statutory dividends to Member banks* The Sys~
ten would be obliged to discontinue these dividend payments
aad, in addition, would either have to impose service chargee
upon the wmber banks with the result of tending to drive ex*
1stlag members out of the System aad to discourage new aumbershift or the Systea would hare to turn to Congress to sake
the necessary appropriations to carry on its operations* If
the System were under the necessity of applying to Congress
for appropriations, it would no longer be able to retain its
Independence*
1 am, of course, entirely sympathetic with the earn*
ing position of the banks, but the conditions which now pre*
▼all are neither due to nor can they be remedied by any action
within the present authority of this System* The remedy lies
primarily with Congress, and recognising this, the Board in
Its annual report laid before Congress the facts of the
situation and recommended that appropriate action be taken
promptly to meet the pressing problems in the banking, credit,
and monetary fields*
1 appreciate the spirit in which you write and I am
glad to have your views* X felt, however, that I should tell
you candidly for your own intonation why I believe that the
course you suggest would not be good public policy, though it
might transfer to member banks the only earning assets now
held by this System*
Sincerely yours,
X*
s* Iccles,
Chairman*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
j
7*
■
„
4
D E C L A S S IF IE D
j Authority t O .
i d 4 i
?!> IN FILES SECTION
AUG 7
1952
mm
I w « 14* itst*
■r* Robart B* Brswar, Praaidant,
Tfce Merchants national Bank*
28 Stete Street,
Boston, Massachusetts.
Dear Mr* Brewers
1 bare your letter of June 7 suggesting the sal# of
long-torn Government bonds by tha Federal Open Market Com
mittee. Lat me say to you, aa expressing sty personal views
frankly and off tha record, that I fail to aaa that this would
accomplish any desirable public purpoae*
The present abnormally low level of interest rates
is primarily duo to tha unprecedented volume of excess re
serves, sow exceeding store than $4,
000,000*
000* If tha Open
Markat Conaittae should sail all of its holdings of long*
ter* (kFrernmeatm— soeiethingv of course, that could not ba accomplished without seriously disturbing affects m p m tha
capital markets— the excess reserves remaining would still ex
ceed $3,000,000,
000* Moreover, they would continue to rise
again aa axresult of gold and silver acquisitions by tha
Treasury,
Thus, thara would be no assurance that interest
rates would not again revart to present or avaxt lower levels
after being temporarily disturbed by tha opea~ma?icet selling*
wkle^i h m & T » explained se
weal f y « »e e .
i r
t | weald tm i »
m in innimn 111—rririr^'rrnifn'i'TTnHrTTi^
u r tw iu m
tn«
I f W t o . /furthermore, if tha Treasury^wrfre to disbttps* tbs'
gold it now h^ldain tha Stabilias^fcttMi Fuad and eJL<rwhere
and lasuB^irlver oertifioates^aggalnst tha sil'CfKfbullion in
its p£*s£ssion
pilad
For tha %at«n at this juncture to sail off its
portfolio of long-term bonds would, In ay opinion, merely
dissipate such powers as tha System has left for halplng
to maintain orderly Market conditions. Suoh action could
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority t O .
O ffice of t h e
1056'
P resid en t
June 7, 1939
Mr. Marriner S. Eccles, Chairman,
Federal Open-Market Committee,
Washington, D. C.
Dear Mr. Ecclesj
You will not mind my making a suggestion, I am sure, even though
it be of no value.
The time may come when the government bond market may need the
support of the Federal Reserve Banks as it did in the Spring of 1937.
Would
it not be a wise thing at the present time for the Federal Reserve Banks to
lighten their holdings of long-term government bonds in order to put themselves
in position to come into the market again if and when needed?
I should suppose
that sales could be made in this manner without breaking prices, but if the
mere fact that the Federal Reserve Banks were selling long governments would
prove a disturbing factor in this market, the effect could be minimized by
public announcement that sales would not exceed so many millions per week.
Very trulv.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
j
DECLASSIFIED
^Authority fc Q . ( Q ^ 6 \
/
l a a 17, li39#
irh
Tha fadaral Qpaa Mark** Cossalttaa mat on Marah 80
and aoaaldarad tha quaatloa of whathar tha Syataa would ha
-c
vllllag to partialpata with tha fraaaury la tha aala of boada
for tha puxpoaa of ahaoklag a too rapid rlaa la tha Oovaxnaaat
aaaurltlaa narkat*
Xt la tha oplaloa of tha Ooanlttaa that tha raaaat
rlaa la tha Oovanmaat eacurlty maskat rapraaantad primarily
aa adjaateaat to a highar laval of prlaaa la vlaw of ftaidaaaatal
ehmgas la tha *a*teat aad waa aot a auddaa apart of a apaaulatin aatura llkaly to ha followad la tha aaar futura hy oorraapoadlag liquidation* tha fuadaaaatal faotora la tha rlaa ara
tha larfa aad laoraaalag roluaa of axaaaa raaarraa crallahla to
haaka aad a growing hallaf that aoaay rata* ara llkaly to atay '
at aaar tha praaant low larala for aona tl»a« tha adraaaa haa
raaaJLtad to a larga artant froa purohaaaa of f ad hy Haw T r c
co a
ot
City haakaf which h n a larga mount* of axoasa raaarraa aad
tr
ralatlraly a*all Mount* of loag-tasn ohllgatloaa aad w e o ara
flh
ts d r aona praaaara to laeraaaa thair aar&lnga* la tha four
aa
waaka aadlag Marah IS Haw Tork City haaka lacraaaad thalr holdlaga
of tialtad gtataa Oovazaaaat hoada hy #990,000,000, whila thalr
aoldlaga of aotaa and bllla daallaad hy #110,000,000* Hia rlaa
haa aot haan dlaordarly aad a good two-way saxfcat haa axlatad
praatlaally all tha tlaa*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
j
D E C L A S S IF IE D
^Authority
. 10f ?6\
*• £ -»
Since tha re Is no indication that the growth in hank
reserves Is likely to he reversed la the neer future, aithsr
because of an outflow of gold or by action of monetary authorities,
ther*> seecia to be no reason for attempting to check a rise In
bond prices which is a normal result of that growth.
It is en
tirely unlikely that there will be a sustained outward i30vera<iat
of gold *hich mould i ' v a substantial effect on the volume of
U.e
bank reserves.
On the contrary, a continuation of the gold flow
to titis country is more likely*
In view of the feet that we have
still not hed the full measure of recovery in business that ia
needed and since there »re no indications of excessive use of
credit for speculative purposes but rather & need for encouraging
greater volume of credit expansion, there would appear to be no
occasion for e reversal of the current easy money policy followed
by the Federal he serve System.
Action by the Qonsnittee to sell mall mounts of bonds
from the System account would probably t e e only a temporary effect
on the bond market and would not remove the fundamental causes of
the advance in prices*
These can be corrected only by dealing com
prehensively with the problem of excess reserves and related problems,
?he Committee believes that the Syataro should not use the limited
resources of its present open-market portfolio for snort-terra market
adjustment a until It has obtained more adequate powers to deni with
Reproduced from the Unclassified / Declassified Holdings of the National Archives
j
‘ ’•
d e c l a s s if ie d
J Authority
- 3 -
the situation from a long-time viewpoint*
The need for such
'powers was discussed b% some length in the Board’s twenty-fifth
armusl report and does not require further comment by the Committee.
It la the Committee’s opinion that purchases and sales
of securities from the System’s Open Market Account should be de
termined on the basis of reserve policy considerations or should
represent adjustments to changing noney-msrket condition®.
At til©
present time, in view of the large volume o f excess r e s e r v e s , the
System is out of touch with the money Tnurket, and, therefore, changes
in its portfolio would have no significant effect on member bank re
serves or on the money market, except a s an indication of a reversal
in policy*
If tbs action were interpreted by the market as a re
.
versal in System policy then it aight t e followed by a i t c larger
»
suh
liquidation of securities than would bo desirable t t this time*
a
Bank© might consider it ts f n indication that the long decline in
e
interest rates has ended and consequently decide to sell some of
their bond holdings*
At the present time it is better to encourage
banka to make more active use of available funds than to take action
which would give them an excuse for holding funds idle until there
should be a higher level of interest rates*
The Committee believes that s o t ion by the System purely
for the purpose of influencing the level of Government bond prices
might have a different effect upon the market than similar action
taken by the Treasury.
The Treasury can sell bonds from its various
—
„ „ „ me unclassified Declassified Holdings of the National A f c
j
DECLASSIFIED
Authority j ^ Q , ( Q ^ f y
« 4 —
*
investnent accounts and Increase its cash holding®.
This w u l d
be in effect simply anticipating future sales of new Issues which
%/ill need to be made to provide for Treasury cash requirements*
Sales by the Federal Reserve System, however, would mean using
for temporary market purposes part of its portfolio that will
be needed for more effective use at some later date and is re
quired at the present time as a means of subsistence for the
Reserve banks*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority
. ( Q^?6\
l:
STATEMENT BY THE FEDERAL OPEN MARKET COMMITTEE
For release in morning newspapers
of Saturday, December 31, 1938
December 30, 1938
The Federal Open Market Committee announced, following a
meeting today, that weekly statements of the total holdings in the
Federal Reserve System’s Open Market Account may at times show some
fluctuation depending upon conditions in the market affecting the
Committee’s ability to replace maturing Treasury bills held in its
portfolio.
The volume of Treasury bills available on the market has
declined materially during the year and, owing to the large and in
creasing demand, such bills are already selling either on a no yield
basis or at a premium above a no yield basis.
It has, therefore, be
come difficult and in some v/eeks impossible for the System to find
sufficient bills on the market to replace those that mature.
Short
term notes are also selling on a no yield basis and longer term notes
have at times been difficult to obtain.
In these circumstances, it
may be necessary from time to time to permit bills held in the port
folio to mature without replacement, not because of any change in
Federal Reserve policy but solely because of the technical situation
in the market.
Because no change in Federal Reserve policy Is con
templated at this time, maturing bills will be replaced to the extent
that market conditions warrant.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
0 .
L:
Form F . R . 131
ARD
DF
GOVERNORS
*
*
's
.
/
D F T H E
FEDERAL
RESERVE
SYSTEM
Office Correspondence
T o ___ __ Mr* Goldenweiser
Fi
D ate ---Deeeraber 28, -1953
Subject:
System Account
L. M* Piser
During the past three weeks the System Account has found it necessary
to replace maturing bills by Treasury notes in part*
On December 14,
$>40,100,000 of maturing bills w e r e replaced by §37,100,000 of bills and
f>3,000,000 of I/aroh 1941 notes#
On December 21, $44,290,000 of matur5.ng
bills were replaced by - ) 1 386,000 of bills and $12,904,000 of notes
|3,
maturing in 1940, 1941, and 1943,
Today*s maturities of o48,544,000 of
bills ha^^been replaced by *18,500,000 of bills and ^30,044,000 of notes*
It will be seen from these figures that the proportion that it has been
possible to replace in bills has declined progressively*
Over the next
few weeks this situation is likely to become more difficult, partly
because of increasing demands for n e w bill issues for tax avoidance and
partly because the effect of continued large purchases of notes is likely
to be cumulative in running up the market quotations on Treasury notes*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority £ , 0 . | 0 ^ 6 \
HEC’D IN FILES SECTIOK
DEO 1.. 1349
33. 34-
December 38, 1938
sBOBEfiOB oy m s A & m bills
Paring the pa&t three weeks the Federal i ©serve System Open. £serket
*
Account b&s had considerable difficulty la replaeing maturing Mil*.
This difficulty 1® likely to be even gee*ter this week and early in
January.
111 bills are now selling o * & no yield or a pressing basis, and
r
lest week not ail .par bids were accepted, and pert of the l a m e was
sold at a premiusu
Aside from th« general fact that the supply of Tre&surr bills has
been considerably reduced during
for t h e current shortage*
the year, there are special reasons
One is purchases by individuals for tax
avoidance; another p a r e h & a e t by corporation® and individuals of bills
from banks at the request or suggestion of the beaks, in order to re
duce the banks*
maesmmt for the Federal Deposit Insurance Ctorporetioz:*.
In January the situation will be aggravated by & spaetsi deaaad for bills
for tax avoidance in the State of Illinois*
On December M , 21 , and 28 the System was not able to replace all
its maturing bills with, bills and had to buy an incre&aing amount of tote®.
On the latest date it had to buy $3 0 *0 0 0 ,0 0 0 of note® out of a total of
$49 «OOOfQQO of iseturities*
t
further replacements by notes will become increasingly difficult with
out disrupting the market for notes, vfcieb is already very high*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
j
D E C L A S S IF IE D
J Authority
O . 10 ^ 6 \
Pag© 2
The System, therefore, face© the alternative of either {1 }
allowing ita totel account t - decline, or (2 ) purchasing bonds in
o
p&rtiel replacement of naturing bills*
(1 )
It would not be good policy at thla tl»e to reduce the
System Account, because thla would be Interpreted aa a restrictive
action, when no suoh action is deaired or eoBtea plated#
It certainly
would not look sensible to have reduced restive requirements by
1750*000,000 last spring and now to cut down the System Account in
order to absorb some of the resulting excess reserves,
(2)
To purchase bonds in the m rket at thia time would also
have disadvantages.
.Bond prices are high, and certainly require no
support, and a further advance may result sooner or later in a wave
of profit-taking by present holders*
If the System.*® boldines of
«bort~tlme securities are allowed to decline substantially the System
will not be in aa gaod a position to support the long-time bond snarket
when it needs support*
In view of all these considerations, it would be highly desirable
If the Treasury could increase the volume of bills , the s&arkat by
in
raising the weekly offerings to, say, |l50t000 #000#
this action would
be helpful not only from the point of view of the System Account, but
also from the point of view of the banka and of the money market as a
whole, which la clearly suffering from a shortage of available shorttime material*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority f c Q . | 0 ^ 6 \
Form F . B . 131
; —
i a J ■'ARD
OF
□
FEDERAL
FT H E
RESERVE
SYSTE
Office Correspondence
T o _______ Mr* Goldenweiser__________
From.
■DUDject:
TOSC’D IN FILES SE C TK ^ -
L* M* Piser
UhC I . 19^3
.
In the management of the System Open Market Aocount decisions
on shifts of securities are sometimes hampered by the accounting
procedure used in handling the System Account*
Whenever an issue
is sold at more than its amortised cost a profit is taken, and the
average yield on the Aocount is reduced*
This prevents the taking
of profits on certain issues which happen to have been purchased
at relatively low cost, and in some instances this accounting pro
cedure may result in the Manager of the Account failing to make
desirable shifts*
It is suggested, therefore, that -whenever an
issue is sold the profit be used to write down the cost of the is
sues purchased*
By this means profits would not be taken, and
shifts would not alter materially the average yield on the Account*
[j
U J
f
> ^ A
c t A
&
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DECLASSIFIED
Authority t O -
Form F. R. 131
1056
BJ
ARD DF GO V E R N O R S
"D IN FILES SECTION
/ 1(
OF THE
FEDERAL RESERVE
Office Correspondence
SYSTEM
DEC 1 .. 1949
STRICTLY
CONFIDENTIAL
Date Ap r il
To
Mr* G oldenw eiser
Sub j ec t :
From.
Henry Edmiston
Treasu ry b i l l s
This i s to e la b o r a t e a l i t t l e
S u g g e stio n f o r r e t a in in g maturad
in the System Account
on the s u g g e stio n I made v e r b a l l y
t h i s m orning.
The a n t ic ip a t e d d i f f i c u l t y o f m ain ta in in g the System Account un
changed might be so lv e d by r e t a i n in g in the Acoount such amounts o f
the c u rre n t w eekly b i l l m a t u r itie s as would be n e ce ssary when r e p la c e
ment cannot be o b ta in ed by b id d in g o n ly t o par f o r th e new w eekly and
o th er o u tstan d in g b i l l
it ie s
is s u e s o r f o r o th e r e l i g i b l e s h o rt-te rm s e c u r
such as In te rm e d iate C r e d it Bank d e b en tu res, Commodity C r e d it
C o rp oratio n n o te s , HOLC and FFMC d e b en tu res*
This program would r e
q u ir e c u rren t purchases o f the new b i l l is s u e and o th er s e c u r i t ie s
s u f f i c i e n t o n ly t o cover the a c t u a l s a le s o f bonds in the m ark et.
Any matured b i l l s
thus accumulated could be redeemed whenever an
e a s i e r tendency developed in the" market th a t would perm it the System
Account to purchase T reasu ry notes o r bonds w ith o u t running up p r i c e s .
U".
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DECLASSIFIED
Authority
■ (0 ^ 6 \
EFO.'D IN FILES SECTION
1 A R D □ F G O V E R N □ RS
OF THE
FEDERAL RESERVE
Office Correspondence
SYSTEM
DEC 1 .. 1949
33
3 ’-f
Date
ApriT IBy-lgS'S'
T o ________ D r. G oldenw eiser_____________
S u b jec t- The O utlook i n the Govern
Frnm
ment S e c u r it y Market and Suggested
M e ss rs. P i s e r and Edmiston
System Account P o lic y ,.
The o u tlo o k in the Government S e c u r it y market has been com pletely
changed w ith the announcement o f the A d m in is tra tio n ’ s R ecovery Program*
Every s ig n now p o in ts to a s u b s t a n t ia l r i s e in p r i c e s .
How f a s t the
r i s e w i l l b e , how f a r i t w i l l go , and how lo n g i t w i l l be s u s ta in e d a re
q u e s tio n s t o which no c o n c lu s iv e answer can be give n a t the p re se n t
tim e.
In la r g e p a r t the answersdepend^ on the p s y c h o lo g ic a l r e a c t io n s
o f in v e s t o r s in Government s e c u r i t i e s , which a re s u s c e p t ib le to change
o ver n i g h t .
Bankers p a r t i c u l a r l y have shown them selves to be extrem ely
nervous h o ld e r s o f Government s e c u r i t i e s and a p e rio d o f s u s ta in e d
advance in p r ic e s may be s u b je c t to tem porary s e t -b a c k s o f some magni
tu de.
A ls o as Government bond p r ic e s approach o r pa ss the h igh s o f l a t e
1956, the market w i l l become i n c r e a s i n g ly v u ln e r a b le t o the p e r io d ic
development o f s e l l i n g p r e s s u r e .
The p o t e n t ia l bank bu yin g o f Government s e c u r i t i e s in the immediate
fu t u r e w i l l ,
o f c o u rse , be tremendous.
Excess r e s e r v e s a lr e a d y amount
to n e a r ly $2,500,000,000 and w i l l be in c re a s e d in the n e x t th ree o r fo u r
months to about | 4 ,000,000,000, a new r e c o r d h ig h l e v e l .
This volume o f
ex cess r e s e r v e s i n i t s e l f should b r in g a s te a d y flo w o f bank bu yin g
o rd e rs in t o the Government m arket.
On the o th er hand, o f f e r i n g s a re
l i k e l y to be sc a rc e as o th er i n s t i t u t i o n a l in v e s t o r s a re a ls o fa c e d w ith
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DECLASSIFIED
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2-
the d i f f i c u l t t a s k o f k eep in g t h e i r i d l e funds in v e s te d in h igh q u a li t y
s e c u r it ie s .
Insu rance companies have in re c e n t months reduced the amount
o f Government s e c u r i t i e s c u r r e n t ly added to t h e i r p o r t f o l i o s , bu t have
s t i l l been n et p u rc h a s e rs .
I t i s u n li k e ly th a t th ese companies as a
group w i l l r e le a s e governments t o the market even w ith the s u b s t a n t ia l
in c re a s e in p r i c e s .
It
seems more p ro b a b le th a t th ey w i l l add m oderately
to t h e i r p re s e n t h o ld in g s .
Although o f f e r i n g s from o th e r h o ld e rs w i l l
be a t t r a c t e d as p r ic e s r i s e , the amount from t h i s source w i l l p ro b a b ly
a
n o t be s u f f i c i e n t to keep the expectant r i s e in p r ic e s o r d e r ly .
I t would appear t h a t the most im portant c o n s id e r a tio n to p reven t a
runaway advance in Government s e c u r it y p r ic e s w i l l be th e m arket1s
a n t ic i p a t i o n o f the l a r g e volume o f new fin a n c in g t h a t w i l l be n e c e ss a ry
to c a r r y out the proposed re c o v e ry program .
T his fin a n c in g w i l l not
appear on the market f o r s e v e r a l months, however, and i t i s n o t y e t c l e a r
how much w i l l be a c t u a l l y r e q u ir e d , Kxr th e se re a s o n s ^
££s im portance
as a market f a c t o r o ver the next few months must be d is c o u n te d .
In v ie w o f th ese circu m stan ces, i t
i s su ggested t h a t the System
Account should be prep ared t o s e l l up t o ap p ro xim ate ly $150,000,000
o f bonds from the account whenever the market shows e x c e p t io n a l s t r e n g t h .
In the p a s t any change in c o n d itio n s which r e s u lt e d in a m a t e ria l a l t e r
a t io n in the p r ic e l e v e l o f G overn m en tsecu rities has alm ost i n v a r i a b ly
proceeded fu r t h e r than was w arran ted by the lo n g -te rm p o s it io n o f the
m arket.
I n view o f the sudden change which occu rred l a s t week in the
J
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o u tlo o k f o r Government s e c u r i t i e s , i t seems l i k e l y t h a t the market in the
n ear fu t u r e w i l l advance t o a h ig h e r l e v e l than can be s u sta in e d o ver a
p e rio d o f tim e.
I f the System Account does n o t s e l l s e c u r i t i e s f o r the
purpose o f r e s t r a i n i n g the advance, i t i s p o s s ib le th a t the market w i l l
r i s e to an u n re a so n a b ly h i g g le v e l and w i l l have a sh arp r e a c t io n .
In
t h a t event i t might be n e c e ssa ry f o r the System Account to purchase a
l a r g e amount o f T re a su ry bonds in o rd e r to p reven t d i s o r d e r l y c o n d itio n s
in the m arket.
I t would seem d e s i r a b l e , t h e r e fo r e , t h a t the System
Account continue to s e l l T rea su ry bonds on a r i s i n g market and t r u s t
t h a t b e fo r e the end o f the y e a r p r ic e s w i l l have re a c t e d to such an ex
t e n t th a t i t w i l l be p o s s ib le to repu rch ase p a rt o f the bonds s o ld .
The r e a l t e s t o f the Government s e c u r it y market w i l l p ro b a b ly come l a t e
in 1938 and e a r l y 1939 when the a c t u a l d e f i c i t fin a n c in g i s resumed and
we know the amount o f income ta x r e c e i p t s f o r the c a le n d a r y e a r 1938.
I f both o f th ese f a c t o r s tu rn out to be u n fa v o ra b le from a market stan d
p o in t , i t i s p ro b a b le th a t the System and T re a su ry may have to e n te r
the market a t fre q u e n t i n t e r v a ls in o rd e r to preven t a d r a s t i c drop in
p ric e s .
T his danger w i l l , o f c o u rs e , be enhanced i f p r ic e s have r i s e n
to new h ig h l e v e l s o v er the l a s t y o a g * » .
In a d d it io n , i t
i s suggested th a t the Board re q u e s t the T re a su ry to
make s im ila r s a le s from the p o r t f o l i o o f the FDIC and the P o s t a l S avin gs
System .
These two a g e n c ie s a t the p re s e n t time h o ld about $1,150,000,000
o f open market Government s e c u r i t ie s which would be l i q u i d a t e d .
The s a le
o f some o f th ese s e c u r i t i e s would have the advantage from the p o in t o f
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Authority
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view o f the two a g e n c ie s mentioned o f p r o v id in g investm ents which may be
more r e a d i l y li q u i d a t e d in the event o f la r g e demands f o r cash e x p en d itu res
th a t may m a t e r ia liz e in the f u t u r e .
From the p o in t o f view o f the Govern
ment s e c u r it y m arket, i t would a ls o have the advantage o f p ro v id in g a sub
s t a n t i a l b a c k lo g f o r purchases o f T re a su ry bonds in the event o f fu t u r e
weakness in the m arket.
The q u e stio n o f making a d d it io n a l s a le s o f bonds from the System
Account r a i s e s the p o s s i b i l i t y th a t e a rn in g s may be reduced below what
i s n e c e ss a ry t o co v er expenses and d iv id e n d s .
On the b a s is o f a p re lim
in a r y c a lc u la t io n i t appears t h a t a f t e r d e li v e r y tod ay o f the bonds s o ld
on S atu rd ay , the a v e ra g e annual income from the System Account has been
reduced t o about #5 5 ,0 0 0,00 0 ,
On th e b a s is o f a f u l l y e a r i t i s estim ated
th a t the System Account needs t o earn about $36,000,000 to co ver expenses
and d iv id e n d s .
In v ie w o f the h ig h e r income r e c e iv e d d u rin g the y e a r to
d a t e , to g e th e r w ith the p r o f i t s which have been taken on s a le s o f s e
c u r it ie s ,
in c lu d in g about $1,200,000 o f p r o f i t s taken S atu rd ay , i t ap pears
th a t ea rn in g s f o r th e rem ainder o f the y e a r co u ld be reduced t o
$52,000,000 and s t i l l cover requ irem en ts f o r expenses and d iv id e n d s .
On t h is b a s is the System Account co u ld s e l l an a d d it io n a l $150,000,000
o f T re a su ry bonds from the Account and break even f o r the c u rre n t y e a r
as a w h o le .
The System Account, o f c o u rse , would s t a r t the y e a r 1939
w ith a c o n s id e ra b le d e fic ie n c y i n e a r n in g s .
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BEC’D IN FILES SECTION
Form F. R. 181
"ARD DF GO V E R N O R S
DEC 1.. 1949
DF THE
FEDERAL
RESERVE
SYSTEM
Office Correspondence
Tn
M r. G o ld en w eiser____________________
Date April 18, 1938
SnKjprt;
From W o o d lie f Thomas
O u tlook in the Government
s e c u r it y market and su g ge sted
System account p o l i c y
<vr 5 v
'Af *
'
I w ould a g re e i n g e n e ra l w ith the ^ a n a ly s is b y P l s e r and Idm iston \
o f the Government s e c u r it y m arket o u tlo o k , b u t I b e l i e v e th a t th e Open
M arket Committee sh ould s e l l bonds from th e System account a t a s lo w e r
r a t e than i t d id on S atu rd ay and tod ay .
It
seems t h a t becau se o f the in c re a s e in excess r e s e r v e s and the
p o s s i b i l i t y o f the rem oval o f t a x exemption on fu t u r e is s u e s o f s e c u r i t i e s ,
Government bond p r i c e s m ight i n the n e a r fu t u r e become e s t a b lis h e d upon a
h ig h e r l e v e l than th a t which h a s r e c e n t ly p r e v a i le d .
B ecause o f o th e r
f a c t o r s , how ever, wfaich a r e m entioned b y P l s e r and I& a ls t o n , i t i s l i k e l y
th a t the m arket w i l l b e e r r a t i c ,
d e c lin e s .
and w i l l a t tim es b e s u b je c t to sharp
The System should b e In a p o s it io n to m oderate th e se flu c t u a t io n s .
I t w ould seem a d v is a b le f o r the immediate p re se n t to s e l l bonds o n ly
on days when the m arket i s r i s i n g at an e x c e e d in g ly r a p id r a t e ,
S atu rd ay , b u t n o t to t r y to keep the market from r i s i n g .
as on l a s t
There would seem to
c
u
b e no p o in t in s e l l i n g In fc&e market -such a s t h a t o f today when p r i c e s were
no t r i s i n g r a p id ly *
A f t e r t h e mairito»t^hajgitreached] d e f i n i t e l y h ig h e r l e v e l ,
say on a £ l / t ^ y i e l d b a s i s ,
then th e System co u ld adopt a more a g g r e s s iv e
p o li c y i n s e l l i n g on f i n a m ark ets.
i/
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DECLASSIFIED
S' ^
Authority
. | Q^6\
\
Mf*
$ , 3 3 , 3^.
Hnvfrry 28, 1938
Mr* Goldenwelser
Systs* Open Iferkst Aooount
L« I * Plitr
I
This w m & r m A x m presents a sonewhat different approach to the problem
of distributing holding* In the System Open Market Aeoottxt SMong individual
Issues * If t « Mthod appear* to be sound and you think that the Board
ii
wight be interested* It eould be Mimeographed end distributed snong the
Mss&ers*
Thsre are *>
er**ape two criteria which Might be followed in distributing
holdings of t k %*t*M Open Market Aooount among individual issues# First,
ie
the SystCM Account Might hold approximately tise sane percentage of mu>h
*yp« of issue outstanding* In the ease of bonds# for exasiple* the f s s i
ly t e
Aooount now holds about 3 1/4 percent of the total outstanding •Mount*
Sifstsi Aooount holdings of individual bend Issues night therefore oonslst
of 8 \/Z percent of the satount of eaeh issue that Is outstanding* The at
tached table ooMpares actual holdings in the System Aooount with aa amount
equal to about 3 1ft percent of the outstanding anowtt of eaoh issue and
shows the excess or dafielsooy in Systsn Aooount holdings as coopered with
this amount* The sxtrt ease* indloate that the S^sten Aooount is defiol*
io
mat In Its holdings of the t T/B's by about $38,000,000 and has aa eaeoees
of nbout #3^,000-000 in holding* of th* old 2
Another criterion wuld be that the System Aooount should tend to in*
orease its holdings of issues that appear to be underpriced in the Market
and to reduoe holdings of issues that are overpriced* Such a shift would
improve earnings in the Aooount and would also tend to keep individual
Reproduced from the Unclassified / Declassified Holdings of the National Archives
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DECLASSIFIED
^Authority
\ 0 .l P ^ 6 \
s
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Im
In 11a* with th* rest of the sarket* The present pollay followed
u m
by tho Bow York Reserve Bsnk Is to nako no trtd«« until bids or offspr
ings are reoolTod fro» tho sstrket* Beoause of this prooedure thoro Is
a
tendency at tines to soil tho underpriced Issuos sad to buy tho oiwrprlood Issuos* whereas logically tho System Aooount ehould do tho opposite*
Recently, for example, the Syatam Aooount has sold Treasury bonds of 1948*61
and of 1966-80, two issuos whloh woro In dsswod In tho narket beoause thsy
wwre underprleed relative to other oonparable issuos« Tho attaohod tablo
also shorn for oaoh Issue whether the juries appears to be high or low rela
tive to the prlee of oos$arable Issues*
There Is also shorn In the table a tentative list of suggested hold
ings of Treasury bonds* Where the Systws Aooount holds less than 3 i f t
percent of an individual Issue and the Issue also appears to bo under—
prloed In the narkot. It Is suggested that S(yst«a Aooount holdings should
be raised to 3 1f t pereeat of the outstanding mount of the Issue* Con
versely, where tho System Aooount holds more than 9 1f t peroont of an issue
and the Issue appears to be ovarprleed In the warket, it Is suggested that
holdings be redwood to 3 l f percent of the outstanding mount of the issue*
/e
In other eases where Issues appear to be overpriced, it Is suggested tfmt
holdings I e redueed slightly and where issues are uaderprloed that holdings
r
bo Inereased slightly wren though suoh a procedure tends to bring holdings
of individual issues further froa the 3 1f t percent level*
t i d r this plan there wntld be relatively sdnor shifts saong individual
fae
Issues in the narkot* The largest inorease would be in the 2 7/8* s and the
largest deollne in the old Z lf t * 9 *
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j
declassified
^Authority
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Actual listen 'tooount IJoldir*|*s of Treasury ?*onds
Issues
Compared with Possible Holdings under Various Criteria
January” 2 7 , 1938
* .......<
r
Is sue
■prar
isccess I
1 Actual loutstand- i “
[holdings
[holdings J Price
ine
j amount
2
8
53
IB
1940-43
1941-43
1941
1943-47
1943-45
1944-46
37
1944-64
20
1945-4?
1945
1946-56
1946-48
1946-49
1947-62
1948-51
32
41
14
46
13
2
1949-52
1949-53
1951—64
1951-56
1055-30
1956-59
Total
32
70
28
93
55
29
56
56
no
10
20
30
20
50
50
40
40
20
20
30
30
30
40
20
60
60
30
00
30
720
1/ * Ittgh price* * low price
-S
-12
+23
-2
-18
-13
-20
—5
+21
-6
+16
-17
-28
+30
+8
+33
+9
-1
-35
+26
+
«
»
+
•
+
m
V
«
*
+
1/
Suffigasted hoi'lings'j
Actual J f'ltang©
0
20
60
20
30
50
20
40
20
20
-
40
30
+
0
*
+
70
30
+
90
30
60
70
20
720
-2
+12
+7
+2
-2
+13
0
+8
-21
+6
-6
+17
-2
0
+2
-33
+1
-9
+35
-26
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j Q.{
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Authority j
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F o rm F . R . 131
HARD DF G D V E R N □ RS
□ F TH E
FEDERAL
RESERVE
SYSTEM
Office Correspondence
To
G oldenw eiser
Fr
Date December 10. 1937
if* P is e r _______
Subject r System Open Market Account
There a r e perhaps two d i s t i n c t view s which could b e h e ld re g a rd in g the
d i s t r i b u t io n o f the System Open Market Account by m a t u r it ie s *
F ir s t # i t might
be h e ld th a t the System Account should be composed l a r g e l y o f Treasury bonds
on the assum ption th a t purchases and s a le s o f bonds r a t h e r than sh o rt-te rm
s e c u r i t ie s have a much l a r g e r e f f e c t upon market c o n d itio n s *
For example, the
continued o f f e r i n g o f lo n g -te rm bonds might be s u f f i c i e n t to break even the
most o p t im is t ic bond market and to put a deadening in flu e n c e on s p e c u la tio n *
S ale s o f sh o rt-te rm Government s e c u r i t i e s , however, have o n ly an in d i r e c t in
flu e n c e on th e lo n g -te rm bond m arket*
I t may be h e ld , on th e o th er hand, th a t h o ld in g s o f s h o rt-te rm Governments
i n th e System Account should be adequate to perm it r a p id re d u c tio n o f the Account
by a llo w in g s e c u r it ie s to run o f f a t m a tu rity *
P a r t i a l liq u i d a t io n o f the
Account could then be accom plished w ith o ut the lo s s which might r e s u l t from
making a c t u a l s a le s and w ith o ut d is t u r b in g e f f e c t on th e s e c u r it y m arket*
In
o rd er to p la c e member banks h e a v ily i n debt i t m ight be n e ce ssary to li q u i d a t e
as much as $2,500,000,000 from the Account*
On th e b a s is o f th e second c r i t e r i o n ,
i t would appear th a t something l i k e $2,500,000,000 o f the $2,600,000,000 o f
Government s e c u r i t ie s in the System Account should be h e ld i n sh o rt-te rm a s s e t s ,
w h ile o n ly the rem aining $100,000,000 could be con sid ered in the n a tu re o f a
permanent investm ent to b e kept i n th ose is s u e s having th e h ig h e s t y i e l d , namely,
lo n g -te rm bonds*
n e ith e r
I t i s b e lie v e d t h a t/ o f th ese two methods should be used e x c lu s iv e ly in
determ in ing the d i s t r i b u t io n o f the Account by m a t u r it ie s *
I f a l l h o ld in g s in
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the Account were in bonds, the Account would be in danger of sustaining sub
stantial losses which might affect the independence of the System*
If holdings
in the Account were entirely in short-term securities, earnings of the System
would be entirely inadequatefand the Open Market Committee could influence bond
yields to only a limited degree*
Perhaps a position between these two extremes
is the most practical for the Account to follow*
A reasonable distribution of
the Account might be to have $800,000,000 mature within six months, $400,000,000
each in from six months to one year, one year to two years, and two to five
years, and $600,000,000 in more than five years*
At the present time, maturities
in six months total $700,000,000, maturities in from six months to one year
total only $300,000,000, and maturities between one and three years total only
$200,000,000*
On the other hand, there wer*- maturities of $600,000,000 between
two and five years, a period which serves the purpose neither of maintaining
liquidity in the Account nor of securing maximum yields#
Some maturities should
be held in this period in order to avoid the necessity of making large purchases
whenever an outstanding issue enters the two*year classification, but there would
seem to be no necessity for holding such large amounts as at present*
A sub
stantial liquidation of 2-5 year securities probably could not be accomplished
without dist^bance to the market*
While such liquidation may therefore be too
large to be accomplished in an orderly manner during the next few months, it would
a
seem to be/desirable goal toward which the System Account might work* A sub
stantial part of the suggested redistribution of the Account could be accomplished
by replacing all maturities with short-term issues*
In addition, sales of 2- to
5-year notes could be timed as market conditions permitted*
Holdings of long-term bonds now total $700,000,000#
This is perhaps a little
larger than is desirable, particularly in view of the fact that the System may
need to absorb some excess reserves arising from gold imports or otherwise*
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Other reaso n s f o r d e c re a s in g th e amount o f bonds h e ld i n th e Account a re
th e lo n g -te rm market i s
(1 )
s tro n g a t p re se n t and fu r t h e r in c re a s e s -which p ro b a b ly
co u ld not b e h e ld might have an u n s e t t lin g e f f e c t ,
( 2 ) such re d u c tio n -would
p ro v id e a la r g e r m argin f o r su p p o rtin g th e market i n th e event o f another b r e a k ,
and ( 3 ) -with the System e a rn in g s now somewhat above e x p e n d itu re s , i t would be
p o s s i b le to s e l l a m oderate amount o f bonds w ith o u t red u c in g ea rn in g s to an
u n d e s ir a b le l e v e l *
As re g a rd s h o ld in g s o f i n d iv id u a l is s u e s i n the A ccount, th e re a r e perhaps
th re e p r i n c ip le s which should be f o llo w e d :
F i r s t , i t i s d e s i r a b le to h o ld
a f a i r l y even amount o f each o u tstan d in g is s u e i n th e A ccount, s in c e in th a t
event th e System cou ld a t any time s t a r t to a l lo w i t s h o ld in g s to rim o f f a t a
fa irly
even pace#
Second, th e System might h o ld sm a lle r amounts o f is s u e s which
a r e o v e r p r ic e d i n th e m arket and l a r g e r amounts o f is s u e s which a re u n d e rp ric ed
w it h a v ie w to k eeping th e market f o r each is s u e i n l i n e w ith the r e s t o f the
m ark et.
T h ird , th e System should h o ld no more t a x p e rio d b i l l s
sin c e th e purpose o f th e se b i l l s
than a re n e c e s s a ry ,
i s to p ro v id e the market w ith m a t u r it ie s , and
co n seq u en tly to in c re a s e excess r e s e r v e s a t a tim e when b a la n c e s a re b e in g drawn
down by o th e r f a c t o r s *
F o llo w in g th ese p r i n c i p l e s , s a le s among in d iv id u a l is s u e s o f bonds might
be co n fin e d to
( 1 ) is s u e s w hich a re o v e r p r ic e d , such as the 4 1/4*8 o f 1947-52,
th e 2 l/ 2 * s o f 1949-53, th e 3 *s o f 1951-55, and the 2 3/4*s o f 1956-59, and
( 2 ) is s u e s o f which th e S y s tto Account has an u n u s u a lly la r g e amount, such as
th e 2 3/4*8 o f 1948-51 and the 2 l/ 2 * s o f 1949-53*
in c re a s e i t s h o ld in g s o f b i l l s
p e rio d b i l l s *
The System Account might
to an even |20,000,000 o f each is s u e except ta x
The System Account might a ls o h o ld 1800,000,000 o f T rea su ry notes
m aturing by th e end o f 1939, d i s t r i b u t i n g the h o ld in g s among the e ig h t is s u e s
as ev e n ly as p o s s ib le i n v ie w o f th e amount o f each is s u e o u tstan d in g and th e
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condition of the market ffcr each issue
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d e c l a s s if ie d
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NOV 2 9 1937
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...toveahar 26,■-1937—
*r. Wyatt
Distribution of earnings aad
profit* and losses in Systea
Open Market.. Account, ,
^
.iB.T. ■im ■,,, M
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Mr. Van Foseen
*
In order to determine the earnings on securities suck as compose
the Systea Open Market Account, it is necessary that any preaiua paid
be amortised over the period from time of aurchase to aaturitgr, or to
the first call date if callable before aatarity, and that anjp discount
.fro* par in the purchase price be accuaulated over t i period from the
ie
date of purchase to aaturity of the securities*
While this does sot
ae&n that tbe same baais mast be used in fixing tha book value of seourities it is the ^resent praetloe to carry securities in the Systea Open
Market Account at cost modified by the amortisation of premtass aad the
accuiulation of discounts, ani this aodified cost basis is commonly used
by banks in determining book values of securities owned,
fhe actual earaiag*
Account © o ald , o f
cedar®
.oa
the securities i . the Systea Open Market
n
course, as im p lie d above be determined under this p r o -
irrespective of the practice followed as regards book value.
For
example, even though the securities were carried on the books at par, or
at original cost, it would be proper to determine actual earnings under
th e
aodified cost basis and the distribution of each earnings among the
Federal leserve banks « o o ld not necessarily h® affected by th e nee o f
original coat or par as the basis for book value*
In
othsr eords, it
would be practicable for ths Federal Reserve banks to revalue the Systea
Account periodically, for exanple on quarterly reallocation dates, so as
to
permit the transfer of securities within the account at market price
j
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without affecting in any way the true earnings on the account or without
necessarily a feeting the distribution of such earnings.
It has always
been the practice to distribute earnings in the System Account currently
on the basis of actual participations in the Account althougn prior to
January 1 , 1937, until which time the Federal Reserve Bank of New York
carried on its own books the entire premium and discount account, the otrier
eleven Federal Reserve banks were given somewhat larger participations in
the System Account than were warranted by the actual amount of money inv
vested by them.
In the beginning it was the practice to distribute currently profits
and losses resulting from sales of seeurities from the Account and to do so in
proportion to the oarticipatlons of the various Federal Reserve banks just
prior to the sale of the securities.
This arrangement was discontinued
effective January 1, 1930, for the reason that any profit or loss resulting
from the sale of securities could more properly be regarded as a profit or
loss resulting from the bolding of the securities in question from date of
purchase to date of sale.
Theoretically it would, therefore, be more equitable
to distribute the profit or loss on a given security a^ong the Federal Reserve
banks on the basis of their average participations in that particular security
over the entire period from purchase to sale.
To follow this procedure, how-*
ever, would involve very complicated accounting and it waa thought, for
practical purposes, that satisfactory results would be obtained by carrying
profits and losses in suspense until the end of the year and then distributing
the net profit or loss in proportion to average participations in the System
Account during the calendar year.
This procedure was followed from January
1 , 1930, to December 31, 1936* At the beginning of 1937 this procedure was
modified slightly in that profits and losses were again distributed currently
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f.
but, instead of in proportion to participations just prior to the sale of the
securities, they are distributed in proportion to average participations in
the System Account during the twelve souths immediately preceding the month
in which the sale of the securities takes place*
Inasmuch as the securities on which substantial profits or losses are
likely to b incurred are securities of jygyygj^aoturity it is believed that
eit would be more equitable to extend this twelve month period to include
either the entire period since the System Open Market Account m s established
on January 1, 1924, or since all Government securities held by the Federal Reto
serve banks were transferred to the System Account on July lf 1936, up/a maxis u n of five years, and it is believed that such a . arrangement would be likely
tr
n
to reduce to a minimum the objections of any Federal Reserve lank to taking an
increased participation in the Account at any tine because of any fear of pro
spective loss*
If| instead of maintaining a System Account, the various Federal Reserve
bailks were required by the Open Market Coiamittee to purchase and sell securi
ties 'for their own account from time to time and transfers of securities between
the federal Reserve tanks were accordingly made at the market, earnings on total
holdings of Government securities would not be affected, i.e. they would be
identical with total earnings under the present arrangement*
The distribution
of such earnings would be affected, however, in that the average cost price of
any given issue of *ecurities would not be identical for all Federal Reserve
banks as it is in effect under the present arrangement*
Similarly with a System
Account, if transfers of securities by the Federal Reserve hanks on account of
periodical reallocations were made at the market it would be possible to achieve
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Authority ^ 0 . ( 0 ^ 6 \
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•
results identical with those that would follow from individual parebases by
the various Federal He serve banks under the control of the Open Market Co®*
aittee*
In view of the periodical reallocations the average cost of any given
Government security to the various Federal Reserve banks under this arrange
ment would vary and be subject to reputed fluctuations, and this would involve
a very complicated accounting procedure.
Inasmuch as the average cost of securi
ties would this not m identical for all banks the average rate of return would
.
also not be identical and these fluctuations would be largely a matter of
chance, i.e. they would depend upon the relationship of the aarket value of
the account to the modified cost value at reallocation dates*
For example,
when the market value of the securities in the Account was above the modified
cost value on a reallocation date banks increasing their participations would
have the average cost of their securities increased in relation to the aver
age cost to the System Account as a whole and banks receiving the reduced
participation would have the average cost of their securities reduced as
coapared with the average cost to the Systea as a whole.
Results would be
the reverse of this if, on a reallocation date, the market price of the securi
ties held in the System Account was below their modified cost price.
Such
variations i , average cost of securities and resulting average return- thereon
n
being entirely fortuitous in character, it would seem that any arrangement
that would elmiaate such variations would not only be equitable to all Fed
eral Reserve banks but would be generally desired by the banks*
are, of course, produced by the present arrangement*
Such results
Similar results could be c'
.j
obtained also if, should transfers between the federal Eeserve banks be aade at
the market, the entire Account were revalued at the aarket at the same time,
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«r. lyatt * #5
aad the indicated profit or loss in the case of each Federal Reserve bank
carried in suspense until such tine as the securities in question were
actually sold, provided that the profit or loss realised when sale of secup~
itlea in the a&rket occurred vere distributed in the same Banner as under
the present arrangement, i.e., in proportion to average participations over
some previous period* Under such an arrangement the unrealised profit or
loss carried on the books of a Reserve bank would be of no significance
except to serve as an indication of the profit or loss that would be sustadned by the bank if the entire Systea Account were liquidated at the then
book value, which vould be Basket value as of soae recent date*
Fro* the standpoint of earnings, profits, and losses,
the Systea
Account say be regarded as an Investment trust* participations in which are
allotted to the various Federal Beserve banks by I e Open Market Coaalttee
dl
under such conditions as to insure to each Federal Beserve bank a share la
the earnings as accrued in proportion to its current participation and a
share in the profits and losses as realised distributed, insofar as practi
cable, in proportion to its average participation over the period that any
given security is held in the Account*
UDistribating profits and losses
in proportion to average participations over a period of five years vould,
it is believed, veiy closely approximate the foregoing*
V F /lw
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DECLASSIFIED
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^ '• " D IN GENERAL FILES
V
VI. 1 193?
>
y '
ffr Wyatt
ic.
Mr* Yan Fossen
r
Referring to your telephone request to Mr* Ssaead, the plan for the
distribution of profits aad losses in the Sygj
ferred to in paragraph 2 on page 2 of the^proposal aade by Governor Harrison
at the Governors* Conference held in December, 1929, and which was adopted
effective January 1, 1930, provided for the holding in a suspense account
at the Federal Eeserve Bank of Sew Xork of any profits or losses on sales of
securities froa the account until the end of the year, and the distribution
of the net profit or loss among the Federal Eeserve banks on December $1 in
proportion to their average holdings in the open market account daring the
calendar year* This plan was followed until the end of 1936*
It a&ght be inferred froa the language used in the plan submitted by
Governor Harrison that it was contemplated that distribution of the net
profit or loss should be based on average holdings in the account for the
entire period since the establishment of the special investment account
(now Systea Open Market Account) on January 1, 1924* That zaethod of dis
tribution, however, m s never actually followed and Mr* S. A. Miller,
Manager of the Securities Department at the Federal Eeserve Bank of Sew Tork,
says that the' expression "over the entire period* was intended to refer to
the period during which profit® or losses were held la suspense, i»e* the
calendar year*
Since January 1, 1937, profits and losses have been distributed among
the Federal Reserve banks currently, i«e* as of the day on which the profit
or loss occurred and in proportion to the average daily participation of
each Federal Reeerve bank in the Systea account over the twelve month period
ending with the calendar aonth preceding the date of the sale of the securities*
It will be no&ed that the present method of distributing profit# aad losses
differs froa the one adopted effective January 1, 1930, in accordance with
Governor Harrison1s suggestion, in that profits and losses are now distributed
currently whereas under the plan formerly in effect they were held in suspense
until the end of the calendar year and the net profit or loss distributed at
that time, and second, in that distribution of profits and losses is now based
on average participations in the System Account in the twelve months preceding
the month in which the profit or loss occurs, whereas under the former plan
the net profit or less for the year was distributed on the basis of average
participations in the System Account during the calendar year*
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Form F. B. 131
3 NFILES
E
HARD DF G D V E R N D R S
□ F THE
FEDERAL RESERVE
DEC 5
SYSTEM
J 3 J. 3 +
Office Correspondence
To
Date
M r. Golderrweiaer_________________
Frnm
1949
November 3 . 1937
Subject:___
L * M* P i s e r __________ _____________
The r e s o lu t io n o f th e open-market committee rea d s i n p a r t as f o l l o w s :
"The E x ecu tiv e Committee i s a u th o riz e d to d i r e c t th e p u r c h a s e * .• • • o f T rea
su ry b i l l s
or o th e r sh o rt-te rm T reasu ry o b l i g a t i o n s ........ "
The com position o f th e System open-m arket account as o f October 27 m s
as sho-wn in the f o llo w i n g t a b le *
The com position a t th e p re se n t time i s
p r a c t i c a l l y the same as on O ctober 27.
( i n m illio n s o f d o l l a r s )
T reasu ry b
i
l
l
s
630
T rea su ry n o t e s • • • • • • • • • • 1,158
T reasu ry b o n d s . . • • • • • • • •
738
M aturing w it h in :
S ix months• • • • • • • • •
600
One y e a r ....................
997
Two y e a r s . . . . * ........ 1,207
F iv e y e a r s . * • • • • • • •
1,839
T o t a l• • • • • • • « .
2,526
A cco rdin g t o th e r e s o lu t i o n i t would be n e ce ssary to purchase e it h e r
T rea su ry b i l l s
two y e a r s .
o f any m atu rity o r T reasu ry n otes m aturing w it h in perhaps
Such purchase would a ls o b e d e s i r a b le from the p o in t o f v ie w
o f having s u f f i c i e n t m a t u r itie s to a l lo w h o ld in g s to run o f f a f t e r C h ristm as.
The d i f f i c u l t y comes, however, in the f a c t th a t th e se i s s u e s a r e c lo s e ly
h e ld and could not be e a s i l y purchased in la r g e volum e.
I t m igh t, however,
b e p o s s ib le to purchase sm all amounts o f b i l l s m aturing around March 15 a t
0 .20 p e rc e n t, and perhaps m oderate amounts o f the lo n g e r b i l l s m aturing in
June and July a t 0*30 p e rc en t or l e s s .
T reasu ry n otes m aturing i n February
and March 1938 a re now s e l l i n g on a n o -y ie ld b a s i s , and th e y i e l d on June* and
4
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Sejitember 1938 notes is less than l/4 of one percent*
It might be possible
to purchase some of the 1939 notes, particularly the issue of June 1S39•
Longer maturities could be more readily purchased in the market but it would
appear that they may not be purchased without a meeting of the full committee.
I doubt if it is important enough to call a meeting of the full committee for
this purpose.
In case the question of the December financing comes up in the discus
sion, I have a few tentative suggestions.
First, it appears that the Trea
sury in order to maintain a balance of f600,000,000 between now and the
March financing will need to raise something like $500,000,000 of cash in
December*
It would also appeal* desirable to refund the February 1 maturity
of 1277,000,000 of notes*
In view of marked preferences, it would seem de
sirable to give holders of the maturing notes an option of refunding into
perhaps a one-year issue or a 5-year issue.
It would also seem likely that
the full amount of cash needed could be raised under current market condi
tions by an issue of 5-year notes*
For the shorter maturity an additional
offering of the December 1938 notes at perhaps 100 l/2 and a new offering
of December 1942 notes having a coupon rate of perhaps 1 7/8 percent is
suggested *
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DECLASSIFIED
Authority f c O .
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Mr* $»ead
Accounting In connection with
V
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Hr* fan Fossen
the System Open Market Account*
The first purchase of Onited States Government .securities by the Federal
Heserv* Bank of Sew lark for the System Open Market Account vas aade on
Beceaber 15, 1923*
Total purchases of United States Government securities
for the System Account to the end of 1923 amounted to #9,058,500*
These
securities were allocated to the various Federal Reserve banks on January 2,
1924,
as of January 1*
Allocations!
The initial allocation was designed to affect reserve
percentages equally.
This arrangement *aa continued until May 31, 1934, *it'i
special additional allotments to individual banka needing additional earnings*
Froa June 1, 1924 to Hay 2B, 1933 allocations were made on the basis of estimated
requirements inr earnings to -cover expenses, dividends and charge-offs*
Froa
lay 29, 1933 to February, 1935, allocations were made In accordance with the
ratio of each baak*B reserves above a 55 percent (later fQ percent) reserve
ratio to the Systea total*
Froa February, 1935, to June 30 , 1936, allocations
were baaed on estimated earnings requirements to cover expenses, dividends and ■
charge-offs*
Fro® July 1, 1935, to date allocations have been made on the
basis or first providing for expenses, including normal depreciation, and then
distributing any excess earnings in proportion to dividend requirements*
Alloca
tions on July I and October 1, 193% did not take into account actual results
during the calendar year to date but were computed on the basis of estimated re
quirements if the allocation had been ?
mde on January 1, 1936*
Price*
United States Government securities held In the Systea Open Market
Account have teen carried on th» books of the Federal Reserve banks at par and
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DECLASSIFIED
Authority
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Mr. Smead - #2
until January I, 1937 the orealua and discount aocount* were carried by the
F e d e ra l R eserve Bank
of Sew York*
Since January 1, 1937, the premium and
discount accounts have been allocated t - the v a r io u s Federal Reserve banks*
o
Earnings, p r o f i t s and lo s s e s were distributed as to produoe the same result
as if allocations to each Federal Reserve bank had been made on the basis
of
book value*
There nave been three instances, however, where Federal
Reserve banks have s o ld a proportion of t h e i r participations for re-allotaent
to o th e r Federal R eserve banks a t current market values as follows*
1925, St,Louis sold 110,000,000 at a loss o f approxlsately f7,000*
192S Kansas City sold $5,122,000
sold
$2,200,000
a t market v a lu e ,
at
In
September
In October
a lo s s of $13,620*22. In March, 1929, 8 t*i»ouiS
the amount o f the l o s s , i f any, not being known*
faralngai Earnings have alw ay s been distributed daily by the Federal
l
j
Reserve Bank of le w tork*
If has been the practice to amortise premiums to
Maturity or to the call date and' to amortize discounts to maturity*
SlafcdLtetUftftM
^rom January 1, 1924 to Deoeaber 31,
Jgga&LU
1929, profits and losses were distributed currently in proportion to partici
pations in tha account at the time*
From January 1, 1929, to December 31, 1936,
profits and losses were distributed at the end of each calendar year on the
basis of average holdings during the year.
From January 1, 1937, to date
profits and losses have been distributed currently in proportion to average
participations during the twelve calendar months preceding the month in which
the securities were sold, except that premiums received on maturing securities
have been used to write«dowft the cost of securities purchased in replacement
thereof*
http://fraser.stlouisfed.org/*
wA
Federal Reserve Bank of St. Louis
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Authority fc Q . ( 0 ^ 6 \
1 IN GENERAL FILES
IF
•v
MAY 1
9
1937
**, 18, 1937
nr. s*«*d
Dlstrlfcution of profits and
losses on, sales of securities in the
Systea Opia Market Account*
Hr* Van Fossen
At the preseat ti*© holdings of Salted States Government securities ia
the Systea Open Market Account are reallocated quarterly with a view to
distributing^ earnings aad profits froa the Systen accouat ia such aannar
as to give the Federal Heserve banks uniform coverage of dividend require
aenta*
This arraageaeat ia quite satisfactory so long as ao substantial
losses are sustained fron sales of Governaent securities but at tines whan
substantial losses nay be anticipated the Federal Reserve banks are reluctant
to accept increased participations aad if substantial losses are actually
sustained an increased allocation would have the reverse effect froa that
_
$
.*
Intended inasanoh as It would result In reduced net earning**
Accordingly, It would be desirable to devise some aore satisfactory
way of distributing losses»?bere In of course sone question as to legality
of an arrangement under which losses would be distributed without reference
to foldings and perhaps In a different aaaner than profits are distributed.
Leaving oat of account such considerations It Is believed that 4£*> aore
equitable way of distributing losses would be to base the distribution on
the anottnt of reservesjpor contingencies since any deficiency In earnings
as a result of such losses would ordinarily be charged to such reserves*
Inananch, however, as no naifora policy has been adopted with respect to
setting aside reserves for contingencies it would no doubt be soaewhat aore
equitable to base distribution on reserves for contingencies plus all or a
portion of Section 7 narplas*
Per naps the aost satisfactory plan would be
to bane the dUtribatioa oa reserves for contingencies plan Seotion 7 m v plas in excess of paid-in capital*
If such a plaa were adopted at tiaes
whoa earning# wore nore tiayn sufficient to cover dividend# the Federal Ra~
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority t o .
Hr* Snead * §2
lay 18, 1937
serve tanka could transfer the excess earnings either to surplus or to re*
serves for contingencies without having say effect upon the distribution of
future losses.
In other words it would not be a watter of concern to one Fed
eral Reserve bank whether another Federal Reserve bank transferred its net
earnings after payment of dividends to surplus or to reserves for losses*
Incidentallyt if very heavy losses were sustained the effect of this plan
would be to -absorb all reserves for lo ses and redone Section 7 surplus
to the amount of paid~$n capital, at which point all banks would be on an
e^ual footing, before surplus was farther reduced and it would also place the
Federal Reserve basics on a uni for* footing as regards their ability to pay
dividends out of surplus*
Any arrangement based upon the amount of paid-in
capital or the total anount of Section 7 surplus or the sun of these two
accounts would not have a similar result and night even result in the im
pairment of the capital account of one or more Federal Reserve banks while
other Federal Reserve banks still had substantial surplus accounts*
It nay be somewhat illogical to distribute profit# and loafres on a
differemt basis but it is believed that it would be desirable to centime to
distribute profits under the present arrangement whereby profits as well as
earnings are distributed in such a manner as to equalise dividends* Unless
this is done one or more Federal Reserve banks may be unable to meet dividend
reqairenemts while other banks have earnings in excess of dividends*
The
present arrangement would of course obviate this whereas to distribute profits
in the same manner as is suggested for losses would not only prevent uniform
dividend coverage but would tsnd to accentuate differences in surplus and
reserves for contingencies•
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
. I
REC’D IN FILES SECTIOJ^,
DEC 1.. ly'w
.r; ~ •
»
CONFIDENTIAL
SYSTEM OPEN MARKET ACCOUNT
L. M. Piser
March 2, 1937
- T
v
—
Reproduced from the Unclassified I Declassified Holdings of the National Archives
|
DECLASSIFIED
^Authority
-
. I0^6\
1
-
With the approach of a time when it may be necessary for the System to
begin liquidating a portion of its holdings of Government securities, it
seems desirable to examine the composition of the System Open Market
Account.
It appears that the composition of the System account should be
based principally upon two considerations.
First, holdings of short-term
Government’s should be adequate to permit rapid reduction of the account
through allowing securities to run off at maturity.
Liquidation of the
account could then be accomplished without the loss that might result
from making actual sales in the market.
Second, there should be a sufficient
amount of long-term securities in the account to give the Reserve System
earnings adequate to meet current expenses and dividends.
At the present time it does not appear that the System account ade
quately meets either of these requirements.
As nearly as can be estimated
at present, the maximum likely liquidation of securities from the System
account would be about $1,400,000,000.
Following the increase in reserve
requirements on May 1, it is estimated that excess reserves will total
approximately $500,000,000.
It is estimated further that because of various
inflexibilities in the banking system and possibly a greater desire for
liquidity, banks may more or less permanently carry something like $100,000,000 of excess reserves.
A sale of $400,000,000 of Government securities
under existing conditions would, therefore, result in a beginning of member
bank borrowing.
Although it may not be necessary in the future to force banks in debt
to the extent of $1,000,000,000 in order to make effective the policy of
the Federal Reserve System, it would seem desirable for the System to place
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority j
itself in a position to do so.
. 1Q£?6\
In order to accomplish this it would be
necessary to sell an additional $1,000,000,000 of Government securities or
a total of #1,400,000,000.
This n e o n s that of the $2,400,000,000 of Gov
ernment securities in the System account something like £1,400,000,000
should be held in short-term liquid securities, while the remaining
$1,000,000,000^may be considered in the nature of a permanent investment,
which could be kept in those issues having the highest yield.
In arranging the distribution of the £-1,400,000,000, it should be
borne in mind that in
periods when Government securities were liquidated
the entire liquidation was accomplished within two years end generally the
bulk of the liquidation was accomplished 'within six months from the be
ginning of liquidation.
A reasonable distribution might be to have $700,-
000,000 nature within six months, $400,000,000 in from six months to one
year, and $300,000,000 in from one to two years.
At the present time,
maturities between six months and two years roughly equal these amounts,
but maturities within six months total only $420,000,000, or $280,000,000
short of the desirable figure.
There are maturities of $850,000,000 between
two and five years, a period which serves the purpose neither of maintaining
liquidity in the account nor of securing adequate yields.
The actual
liquidation of an amount even approaching this figure could not be accom
plished without disturbing the market.
Part of the redistribution of the
a mma could be accomplished in a more orderly manner, however, by re
at
placing all note maturities with bills.
Between now and December 15, 1937,
this would involve maturities of $130,000,000 of notes.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
j
P
‘
DECLASSIFIED
^Authority
. (0^6
\
-3-
The earnings on this $150,00J,000 of notes at the present time total
about f2,600,000.
Earnings on the Treasury bills which would be purchased
would total, only about $500,000.
Earnings on the System account would be
increased during this period, however, by an increase in the average yield
on Treasury bills as present low-yield holdings mature and are replaced by
new bills having higher yields.
An increase in average_earnings on present
holdings of bills from the existing level of about 0.25 percent to around
0.40 percent would increase earnings on the account by about $>900,000.
The net effect of the shift from notes to bills would be a decrease of
§1,200,000 in earnings.
If these transactions were unaccompanied by other transactions,
earnings on the account would be $5,800,000 below estimated expenses in
cluding dividends.
The level of earnings could be brought up to expenses
by selling $310,000,000 of notes maturing and. bonds callable in 1940 and
1941 and replacing these issues with bonds yielding 2 1 / 2 percent.
These
transactions could be accompanied by sales of issues that are overvalued
in the market, such as the 4 1/4!s of 1947-52 and the 2 1/2's of 1949-55
and their replacement with bonds yielding 2 1/2 percent.
If such a program could be accomplished the System account would be
in a sufficiently liquid condition by December 15 to place considerable
pressure on banks by allowing maturities to run off without making soles
in the market.
Earnings of the System would also be adequate to meet
dividends and expenses.
In addition, these transactions would be a
powerful factor in keeping long-term interest rates at low levels.
While
Reproduced from the Unclassified I Declassified Holdings of the National Archives
|
DECLASSIFIED
^Authority
. IQ ^ 6 t
“4
-
this
m ig h t j
too large 'to be completed in an orderly manner in the
time Mentioned, it would seem to be a desirable goal toward which the System
account might work.
The following table shows the present distribution
of the System Open Market Account and the suggested distribution after the
completion of such a rearrangement of the account.
SYSTEM O P M MARKKT ACCOUNT AiiRANGED BY MATURITIES
(In millions of dollars)
Within
6 months
Six months
to 1 year
One to two
years
2 to 5
years
Over 5
years
Total
Present distribution
Treasury bills.... 385
Treasury notes....
54
Treasury bonds...._~
Total.........
—
—
—
298
794
_____ ____55______ -79
592
1,304
298
479
2,430
416
507
—■
—
—
284
95
286
207
—
— ________ _______________________ 55______780
723
872
835
419
207
178
___—
385
849
534
Distribution on
December 15, 1937
after completion of
program outlined
Treasury bills....
Treasury notes....
Treasury bonds....
Total.........
700
402
286
262
780
2,430
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority \ yQ . |0 ^ 6 \
L
;
February £5, 19S7
Mr. Goldenweiser
System O p m Market Account
[ r e c / d i n f il e s s e c t io n
JAN 18 1950
fith short-term intertat rates beginning to rise sloi
ti
and with the
approach of & time ahea It may be necessaxy for the ^jrstem to begin licuidafcing a portion of ite holdings of Government securities, it seems desirable
to examine the composition of the System Open Market Accomt*
It appear#
that the composition of the System accomt should be backed principally upon
t r considers tione . First, holdings of short-term Government*6 should be
io
adequate to permit rapid reduction of the System accomt through allowing
securities to m
off at maturity*
Liquidation of the account could then
be accomplished without the loss that might result frois making actual sales
in the market*
Second, there should be a sufficient aj&ount of long-term securities in
the accomt to give the Reserve System earnings adequate to meet current
expenses and dividends*
In addition, there is a minor consideration thct
purchases and salt;a of individual issues of Government securities might be
determined In part by a desire to keep the yield on each individual issue
at a reasonable level in relation to the yield on other Issues.
Another
minor consideration might be to confine all transactions in the System
accomt to even a&omts, such as in millions of dollars, and to reduce the
amomt in the accomt to an even 12,430,000,000*
This could be accomplished
by selling f£26,850 of the various odd amounts held*
At the present time it does not appear that the System accomt
adequately meets either of the first two requirements*
The maximum likely
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
COHFIBHmU*
)0 .
j
,
(0^6 \
Februaiy 25, 1957
liquidation of securities froa the System account would be about $1,400,000*000*
Following the increase in reserve requirements on May 1, it is
estimated that excess reserves will total approximately $500,000,000.
It
is estimated further that became of various inflexibilities in the banking
system and possibly a greater desire for liquidity# banks say sore or less
permanently carry something like $100,000,000 of excess reserves*
A sale
of $400,000,000 of Government securities under existing conditions would,
therefore, result in a beginning of member bank borrowing*
In 1928 and 1929 banks were placed In debt to the extent of about
$1,003,000,000*
It may not be necessary in the future to force banks in
debt to this m o m t in order to make effective the policy of the Federal
Reserve System, but it would seem desirable for the System to place itself
in a position to do so*
In order to accomplish this it would be neeessaiy
to sell an additional $1,000,000,000 of Government securities or a total
of $1,400,000,000*
this means tost of the $2,400,000,000 of Government
securities In the System account something like $1,000,000,000 may be con
sidered in toe nature of a permanent investment to be kept In those issues
having toe highest yield*
In arranging the distribution of the remaining $1,400,000,000, it is
helpful to consider the rapidity of sales of securities from the account in
the past*
There have been three periods of important liquidation of
securities, 1928-1923, 1924-1925, and 1927-1929*
The following table shows
the total liquidation of Government securities by the Federal Be serve £ystea
during each of these periods, together with the proportion of toe total
liquidation which was carried out within six months, from six months to
Reproduced from the Unclassified I Declassified Holdings of the National Archives
|
DECLASSIFIED
^Authority jjyO . (Q ^ ()\
February 25, 19ST
— 5—
CaOTMlTIAL
on® year, and fro® one to two years after the beginning of the liquidation*
Liquidation
JtoldLsUtiLBS-ww
Within
6 months to
JL.XSSI:...
May 1922.......
November 1924**#
December 1927,..
278
227
574
879
161
May 1922*.......
November 1924* ••
December 1927*••
54
79
31
is& m l
~ JL
Total,
One to two
.. XS-Jfi...
25
10
0
152
29
110
50
..J 5.... ......
225
Percent
520
286
A53L
1,265
a
u
19
It will be noted that on the average about 70 percent of the total
liquidation occurred within six months, that about 15 percent occurred between six months and one year, and that tho remainder occurred between one
end two years after the beginning of liquidation*
On this basis it appears
that about fl,000,000,000 should be held in the fora of securities maturing
within six months, about 1200f000,000 should mature between six aonths and
one year, and an additional $200,000,000 between (me year and two years*
It will be noted further, however, that the aoounts involved in these various
past liquidations were much smaller than the possible future aaounts*
Sine#
there would be question as to the ability of the market to absorb such a
rapid liquidation as $1 ,000 ,000,000 in six months, a more reasonable distri
bution might be to have #800,000,000 mature within six months, $400,000,000
fro* six aonths to erne year, and $300,000,000 from one to two years*
At
the present time, maturities between six months and two years roughly equal
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
a m m m U L
0 . |Q^>()\
~4~
February £5* L U 7
these amounts* but maturities within six months total only $480f000*000*
or $540*000*000 short of the desirable figure*
There ere aaturlties of $880*000*000 between two an<! five years* *
period which serves the purpose neither of a&lntaining liquidity in the
account nor of securing adequate yield©*
If this $©50*000*000 ef two to
five year maturities should be liquidated* something like #510*000*000
might be used to purchase Treasury bond# end the remaining #320*000*000
to acquire Treasury bill© arturing within six months*
#850*000*000 of maturities at the present H m
The earnings on this
total about #11*800*000*
E&mlags on the Treasuxy bonds which sight be purchased would aggregate
southing like |12*750*000* Mid earnings cm the Treasury bills would a*aount
to en addition*! $800*000*
Earnings ou the System accomt* therefore* would
be increased by approximately $1* 750,000, which would bring the totel to
within f850*000 of estimated expenses including dividends*
would probably be w * a up %
4
The remainder
an increase in the average yield on Treasury
bill# ss present lowryleld holdings mature &nd are replaced % ne% bill*
having considerably higher yields*
An increase in average earning* on
present holdings of bills t r m the existing level of between *£0 and *25
percent to around ,55 to *40 percent would fcccoaplish this purpose*
S l M u n t h bills under this program would aaount to about 4700*0QQ*003*
which could be distributed mtmg
individual issues in the moxmt of
between $25*000*000 m d #50*000*000 in each issue*
Six to nine-ap&th bills
woult1 regain at about, # 210*000*000* milch could be distributed with about
$15*000,000 In each Issue*
Tre&stsy notes amounting to about #550*000*000
vould mature within two years* end assuming six issues during such period*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
CONFIDENTIAL
0 .I
-5-
February 25, 1957
an average of $90,003,000 of each issue could be held*
It might he desirable
however, to vary the aaomt of each issue held depending upon th® relative
attractiveness of each issue in the market*
Is regards individual issues of Treasury bonds, most of the new pur
chases presumably would be made in the last four issues outstanding and
particularly the % 7/8 »s of 1955-60*
the holdings of this issue might be
increased frosi the present amount of arotsid $20,000,000 to perhaps #200,000,000*
yield*
The 2 5/4*© of 195J*-54 are also selliag on: ^ relatively high
Holdings of this issue might be increased from #@0,000,000 to
$200,000,000*
The remaining #£00,000,030 could be distributed among
these or other bond issues depending v & m market conditions*
At the same time holdings of some issues iMch are selling cm a lo*~
yield basis might be liquidated.
The $000,000 of 4 1/4*0 of 1947-52
could be liquidated and reductions might be a?-de in holdings of the B 1/ 2 *s
of 1949-53, both of shich are selling on & relatively low-yield basis*
Such a policy would not only give the System maximum earnings on its bond
portfolio but would also tend to make issues sell in line with other com
parable issues*
Holdings of individual issues could henceforth be adjusted
from time to time depending upon market conditions*
It is believed that something like tiie above distribution of maturities
would prove a desirable goal toward which the System account might work*
Such a large magnitude of transactions would necessarily be ©Extended over
a long period of time, in order to prevent aa unfavorable reaction snd to
cany out the operations in an orderly manner*
A start on this program
mi|$it be made by disposing of the System's holdings of the 4 1/4 percent
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
?
Authority
. 1 Q &)6 \
-S-
bonds of 1947-52 and by reducing holdings of December 1941 notes and of
the 2 1/2 percent bonds*
These sales could be replaced by purchasing
Treasury bills maturing within six months and Treasury bonds of 1955-00*
After the®e particular Issues became readjusted to a nor* reasonable
relationship to the rest of the market, purchases md. sales could be ex
tended to other issues*
The following table shows the present distribution
of the %stem Open Market Accotmt and the suggested distribution after the
completion of such • rearrangement of the account*
SISTM OPEN MAKSES ACCOttBP 1KMBGEB BX MjOTRITI&S
(In Millions of dollars)
fithin
6 months
Treasury bills** S80L
Treasury notes** 75
Treasury bcaids..i S - „
ir
Six months
U l jLxaag..
One to two
years
2 to 5 Over
m m u Lmm,
211
179
294
785
50.
590
294
853
Total
592
1,531
507L-457 _
457
2,430
Deelriible dlstrlbtttion
210
180
290
390
290
910
550
_ 97Q
1 11
Treasury bills** 700
Treasury notes.• 80
Treasury bonds** «
—
970
2,430
Reproduced from the Unclassified I Declassified Holdings of the National Archives
!
DECLASSIFIED
^Authority
D v s o o Bank O e a o Fl
iiin f
p r ti ns ie
February 6* 1937
Hr. Morrill
Mr. Smesd
With respect toj^our m m o r m d x m of February 1 in connection with
the procedure both as to llgtriBution of profits on securities held in
the System Open Market Account and to the accounting procedure in con
nection with securities held in the account, there Is attached a copy
of a letter seat to the President of each Federal Eeserve bank by Dr#
Burgess, under date of December &4, .1936* You also have the correspon
dence between Dr* Burgess and Mr* Peyton and Mr* Hamilton which Dr* Burgess
sent you recently with respect to certain phases of the proposed account
ing procedure*
Tou will note froa Dr. Burgess* letter of December 24 that since
the proposal relating to the distribution of profits on securities sold
at Treasury financing periods will not become operative before the March
financing tnere will be further opportunity to reconsider that part of
the plan* I understand that in the future the coraittee will exchange
securities direct with the Treasury when such exchanges are permitted for
new issues of securities and, If so, the proposed accomting procedure in
connection with profits arising froa the sale of securities at Treasury /
financing periods will not become effective*
Since the members of the Board of Governors constitute a majority
of the Federal Open Market Committee, and since the proposed procedure
with respect to the allocation of securities between the Federal Reserve
banks and the carrying on the books of individual Reserve banks of premium
and discount accounts, etc* has been approved by the Federal 0p m Market
Committee and ty the Federal Reserve banks m d has be°n put into effect,
I assumed that no further actios f y the Board wap necessary*
c
ELS/jbs
R ep rod uced from the U ncla ssified / D ecla ssified H o ldings o f the N ational A rchives
DECLASSIFIED
A u th o r ity
,
[ 0 ^ 6 \
Diyjsloft at Baqfr QpfittwttiUe
February 5, 1937
Mr* Saaad
Profits m .
#*Xm of Ooveraaent
.ir* Van Im m b
Attached is f statement ooapiled froa Information received over the
t
telephone froa % m Federal Reserve Bank of Sew York, and froa available
iaformation in regard to otner Federal Reserve bank*, showing * breakdown
of the total profit, $9,902*507, on sales of Dnited States securities by
the Federal llaerva banka in 1936.
It will be noted that of the total profit 12*451*610 arosa froa sales
by eight Federal Reserve banks to the Systea Open Market Account la June
lH§6t t n $3,260,774 arose froa the sal® of aaturing securities exchangeable
id
for saw issues, and that all other profits aaoonted to $3*169,121* Mr* Miller
of the Federal Reserve Bank of Kew York advised aa that a preaiua of |3,473*277.74
was paid on securities purobased to raplaoa maturing securities exchangeable
for new issues sold by the Systea Opan Market Account sod that $52,318*75 i l
l
prealoas was fa!4 on sluil**1 geo&Plties sold by the Federal &e*#rva B**&' of
Haw York froa Its own investaent account• He accounted for the fact 'that
prealuae paid exceed profits on such transaction® for the Systea account,
while the rerersa was trae 'la the cate of Saw Tork*s account, by the fact
that securities jwebaoed by Hew lork for Its invef t f B
lstt
notes on whAdi thare was a relatively lot pfeaiaa*
Attaoheent,
ao ^ ^c t
jo u i
were ^roooo^y
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority jj^D . ( 0 ^ 6 \
l,K‘f n
,’ S 0
Operations Fuk
February 1, 1957
Memorandum to Mr. Sinead:
On page 10 of the minutes of the meeting of the
Conference of Presidents held in Washington on November 18,
1936,^ reference is made to the accounting procedure for the
system open market account, with special reference to the
plan for the distribution of profits from sales of Govern
ment securities.
You will note that it was voted to approve
the procedure both as to accounting and distribution of
profits to become effective January 1, 1957, with the under
standing that each reserve bank would send a written confirma
tion of its views to the Federal Reserve Bank of New York.
The proposed plan has also been approved by the Federal Open
Market Committee.
I wonder if the Board of Governors should not advise the Presidents1 Conference of its action on this matter
and whether, prior thereto, we should not have copies of the
views sent to the Federal Reserve Bank of New York by the
individual Federal reserve banks.
Secretary
CM yd
m u u m m m m m rm m ? m m vw m m u w m im is s m m
£*rat*ig* m
turner *om m m * m m i , 1937
$%*%&* Oov#rxMHMit **earltie# ootpaUd at 1.45* ? r
»#
(JtoMtttft In tihw8»MBd* of lell*w)
B ozU m . j ^ * T
'
mi*-
CXsw
M«b~
_______ L J b d L
Htaa-
stlABt*} Chicago
SaiUlAB
■«aaaU,«, _ s $ z _
MLlttl
—
r ToUl
^E^9fi*E*e
» 38Bc2S9l
- * m
£*tl*Aiv& eurreat *xp#ti*#af normal d«~
pr»elftticft allOWftlteaft, furtti tW T <
U « *ftd
•qalpsanty «fd fte&rg building
t>
&*©•*# •** c r - •B*
w-r
*,3*0
2f
730
3,3^0
1*960
1,510
3,*90
1,630
1,230
1,930
1.350
? t960
180
610
330
150
WO
60
300
70
do
J®
100
200
2,220
ixetpt o r uov^rxut-atj*
2,400
7,6*
2,390
3,190
1,450
3,590
1,560
1,140
1,250
5,760
86,207
190,345
X,780
1,71)0
33,r m
2^ m
i of {fcv^raaant* r^airad (oa b&#is
t
!
»
153,103
» Eatio of divitiwad r^.uir«***it* of *ach
•
b i * to igrsi** total
«>.
7.2*
527,5*6 16^,828 220,000 XJ?2,?59 100,000 247,536 107,5*
38.5*
9.4*
9.7*
3.«
3.3*
78,621 117,931
9.**
2.9*
2.#
3.0*
2.9*
7.8*
29,485
9,097
7,215
9,410
9,097
24,467
85,836 127,341
95,304
214,81?
> Allocation of b*l*zio* of mymtm boldlog*
.
(§2 ,4 3 0 ,2 2 7 ,0 0 0 * #2 , 1 6 ,5 5 2 , 0 0 ) ©a
1
0
22,5*5 120,765 29,485 30,4:36 XXt292 10,351
b*sl» o f * d n
ti
U f^rosstism® of total ia parti ©ipufcioe
of t«eh t>*ok
7.2*
35.7*
e.cn
10.3*
5.51
4.6*
11.4*
3.9*
8.8*
90,707 125,855
100,637
214,396
♦ 874 -4,871 ♦1,486
* -w « * ^ *"71 t 7
T
-5,333
•►416
- 'T t'j i
t~)y
4.S*
17^,190 645,2*3 308,990 24?,769 X25,*>10 99,188 763,933 XX5,«09
alloe.itioft
♦1,498
2am, * in ftliee«iloi»i
175,6*8 648,351 194,313 250,436 X34,OSX 110,351 317,071 116,603
y
<• ¥ 7
* /*/f?
♦3,108 -14,677 ♦4,657 «*,54l ♦11*163 -6,062
4.* ^ t'/9*}sT3 - 7*Tv 3
7
a
#
* t»n -i v i 3 ■
3.5*
5.3*
uthority j > U
. ToUl eXloc«t loB of 0ov*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority M
J
M
J
Division of Bank Operations
\
i
i/
V
\
Hr* Stearin
lr* Bmmtkd
&#£©#H 8f to ytror mmo&mfym of January U , I s« submitting herewith
certain c o j a a e n on l#t%«r# received by Hr. Borges* from Messrs* Peyton and
$p«& SarketAoaount.
$r* Hamilton nude two suggestIona.
The
aoggoetion was that
raaliaed on the aale of r*aturing securities in the aarket at tiaei
of ■
new Treasury financing and
by new Treasury issues for whtoh
they are exahaageable be diatributed aaoa# the Federal ReBerre banka rather
than uaed to write dowi the ooet of the replacement seouritiea*
I f the
,£*#& la borme in aind that auoh aales of securities have been »ade in the
paat solely for the reaaon that thare was
prorialoaa of
about turning m w
mm
hesitation, in riew of tha
3(b) of Section 14 of the Federal f © ®nr« Aet,
t2
to the Treasury aaturing iiauea of securities for t e
h*
new aeourities offered in exchange therefor, there would see* to be no
logical baaia for It# Hamilton* s auggeation*
It ia underatood that in
the ft&ss* direct exciiang<=a will be Bade with the Treasury and, accordingly, .
%kmm presumably will be - o pirofit# of M s
n
ffcara&tar* Mr. 3Nft£&fca#* aeoend
auggeatloa waa that the- .lew lork bank wire the other eleven banka onca a
week, on Wedneaday, only in regard to the aaooat of preaiua aaortiiation,
discount aoorual, interest aoorued, and latereat earned in order to reduoe
the nosber of telegrams and of antjrlaa* The f>o#ii4bil%r ha# been suggested
to lew York previoualy of wiring auoh information froa time to time when
the ftfiif** change father than daily, but the *tt lork bank did not think
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Mr# Morrill * #2
well of this suggestion*
Mr* Hamilton1s suggestion is believed to bare less
to ooamend it than the one above mentioned, and in any event it will be
\
necessary to wire the information as of the last day ef each month*
Mr. Peyton made a number of suggestions* chiefly having to do with the
distribution of profits and losses* His suggestion that the distribution of
profits be based upon the entire period of time within which a given issue
has been held In the System Open Market Aooount was considered before the
adoption of the present arrangement, as you no doubt recall*
The accounting
under suoh a plan would be tremendously increased, and it is not believed
it would be worthwhile, particularly in view of the fact that participations
based on earning requirements would, generally speaking, overcome any short
comings in the method of distributing profits*
Mr* Peyton points out the
possibility that losses on Government securities may exceed earnings and#
accordingly, that under the present arrangement a bank whose expenses were
In excess of earnings might be adversely affeoted by the increased partici
pation in the System Account that would be occasioned thereby*
There ls9 of
course9 no reason why the allocation of Government securities should be based
on an assumed animal rate of earnings if It were known that an actual loss
was either certain or probable*
In other words* the method used In allocating
Government securities could and should be modified If at aqy time the present
procedure should result in an inequitable allotment of securities among the
Federal Reserve banks*
Mr# Peyton* s further suggestions have to do with the
treatment by the Federal Reserve banks of profits and losses on Government
securities allocated to them*
He recommends that profits be transferred to
reserves for losses aad that losses in excess of such reserves be charged to
surplus in order that the result of suoh losses may not be to o«po the bank
Keproauced from the Unclassified / Declassified Holdings of the National Archives
declassified
Hr* Morrill * #?
to receive an inoreaeed participation In Government securities and therebjr
possibly bo plaoed In position to incur larger losses*
Profits and losses
on salts of ssourities* or otherwise, are not now taken into consideration
in fixing participations in the Systea Aooount*
I think that tbs aethod of
handling profits m d losses on sales of securities should be loft with each
Federal Eeserve bank, with the approval of the Board of Governors*
This
would permit of the use of a fexltiLe procedure depending on the earning
position of the bank.
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^Authority
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3
BOARD DF GOVERNORS
Dhjhi,
□ F THE
FEDERAL R E S E R V E S Y S T E M
Batik
Fils
WASHINGTON
ADDRESS
RECEIVED
OFFICIAL
TO THE
CORRESPONDENCE
BOARD
JAN 181937
J
Mr. Smead;
Attached is a r file of correspondence
$
with Mr. Burgess regarding certain correspondence
'1
that he has had with Messrs. Peyton and Hamilton
with respect to the changed accounting procedure
for the system open market account.
I shall be
glad if you will let me have a memorandum of any
comments that you may have to offer.
Secretary.
Attachment.
CM yd
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3
V
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Jf
V
Division of Bank Operations File
mwwmMmKF Jmj &yjQ
Dr* W. it Burgeas, floe President,
Federal Reserve Bank of i w York,
lew f t f * *# I*
Ofe
B u r Dr*
Burg*#*!
there it inclosed & letter received froai fresident
Sohaller of the Federal Eeserve Bank of Chicago, mder date
of Hormber 23 j in shieh he itat•# that the changes ia a©~
cotaoting procedure affecting the open aarket aecomt* as
suggested in your a**or&nd\» of Sovesfter 19, are agreeable
to hie hank*
▼ery truly yours,
1* L. Is m 4| Chief,
B1vision of Bank Operations*
Inclosure
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DECLASSIFIED
0.
Authority
{0^6
C O P Y
FEDERAL RESERVE BANK OF CHICAGO
November 23, 1936
Mr. E. L. Smead, Chief
Division of Bank Operations
Board of Governors of the Federal Reserve System
Washington, D* C.
Dear Mr. Smeads
We have considered the changes in account
ing procedure affecting the open market account, as suggested
in the mrmorandum prepared by the Federal Reserve Bank of
New York, under date of November 1 9 , 1936, and we are agree
able to making the changes as proposed therein*
Very truly yours,
/s/ Geo J. Schaller
President,
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
. l Q^6\
CONFIDENTIAL
Excerpt from the minutes of the meeting of the executive
committee of the Federal Open Market Committee held on
_____________ $ ?y&mbe£
J
1 . . , ______ _____________
95$
Attention was directed to the fact that, as the Federal Open
Market Committee had approved the recommendation of the executive
committee with respect to the readjustment of the participations of
the Federal reserve banks in the System Open Market Account as of
January 1, 1937, it would be necessary for the executive committee
to direct the Federal Reserve Bank of New York to make the readjust
ment.
Accordingly, upon motion duly made and
seconded and by unanimous vote, the Committee
directed the Federal Reserve Bank of New York
to make a readjustment as of January 1, 1957,
in the participations of the Federal reserve
banks in the System Open Market Account, using
the same plan as that followed in making the
readjustment on October 1, 1956; it being
understood that before it is actually made the
proposed readjustment will be submitted to all
Federal reserve banks and the Board for any
comments that they may desire to make.
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^Authority
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DMsfen o Bank O r t o s f ?
f
pe a i n ! t
'iy
CONFIDENTIAL
Excerpt from the minutes of the meeting of the Federal
_
Qpgn Earket Jk>mm.ltte^_held on November 19. 1956
In connection with the foregoing action it was stated that
the executive committee at its meeting yesterday had voted to recom
mend to the Federal Open Market Committee that the executive commit
tee be authorized to follow, as of January 1, 1957, the same plan
as that followed on October 1, 1956, in making readjustments of the
participations of the Federal reserve banks in the System Open Mar
ket Account; it being understood that before it is actually made
the proposed readjustment of participations as of January 1, 1957,
will be submitted to the Federal reserve banks for any comments that
they may desire to make.
Upon motion duly made and seconded,
and by unanimous vote, the foregoing recom
mendation of the executive committee was
approved.
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DECLASSIFIED
S '
A
Authority
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Federal Resei'fe i .k of New York
November 19,,1936.
ACCOUNTING PROCEDURE FOR SYSTEM 63?EN MARKET ACCOUNT
Recently some questions have been raised with respect to the accounting
procedure in the System Open Market Account, with particular reference to the prem
ium account carried on the books of the New York bank.
As this procedure has not
been critically examined in many years and as the banks are at this time reviewing
the procedure for handling profits realized on sales of securities, the present is
an opportune time to review the entire procedure•
The present procedure was approved by the Reserve Banks in 1923 and amended in 1929 with respect to the method of handling profits.
Under this procedure any
premium or discount, and accrued interest on securities held in the Account are car
ried solely on the books of the New York bank and the other Reserve Banks carry on
their books simply the par value of their share of the securities held in the
Account.
The New York bank credits other reserve banks daily through the inter
district settlement fund with their share of accrued earnings on the Account and
advances funds for this purpose, reimbursing itself when interest is actually col
lected.
Profits or losses on the System Account are held in a Suspense Account on
the books of the New York bank until the end of the year when they are distributed
among the participants in relation to their average daily holdings in the System
Account during the year.
This plan was adopted as a matter of convenience at a time when the
amounts involved were not large.
This is no longer true.
The total amounts now
carried on the books of the New York bank for these premium and accrued interest
accounts range over a six months* period from about $26 to $31 million, of which
$19 to $23 million pertains to securities owned by the other eleven banks.
These
items are reflected in the statements of the New York bank under ”111 Other Assets,”
and do not appear in the statements of the other banks.
Thus, under this practice
of carrying the premium, discount, and accrued interest accounts on the books of
•
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2
the New York hank, the statements of the individual banks do not reflect precisely
the correct amount of their assets and liabilities although, of course, the consoli
dated statement reflects a true picture for the System.
Should it be deemed advisable to change the present procedure so that the
books of each bank would reflect their full share of the System Account holdings it
could be accomplished without adding greatly to the amount of bookkeeping work in
volved, by having each bank carry on its books, in total amounts only, its pro rata
share of premium, discount, and accrued interest.
A procedure of accounting for
sueh a plan is detailed in the attached memorandum.
This suggested procedure also includes a change in the method of carrying
and distributing profits in general accordance with the memorandum which was sent
to all members of the open market committee and to all presidents on October 1.
Un
der the suggested procedure all profits or losses on^transactions in the Account
would be distributed among the several Reserve Banks as they occur on the basis of
average daily holdings in the Account during the twelve full calendar months last
preceding the operation resulting in a profit or loss, except that profits realized
on sales of maturing issues in connection with new Treasury financing would be used
to write down the cost price of replacement purchases.
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DECLASSIFIED
r
Authority jp Q . ( Q^ 6 \
No. Jiber 19, 1936.
PROPOSAL FOR REVISION OF ACCOUNTING PROCEDURE FOR HANDLING
_______ TRANSACTIONS IN SYSTEM OPEN MARKET ACCOUNT_______
1.
As securities are purchased or sold the New York bank will charge or
credit the cost or proceeds of all purchases or sales to accounts carried on its
books as follows:
"A" System Open Market Account (with the par value
only).
t»B»
Premium on Securities*
”C” Discount on Securities.
”D” Interest Accrued♦
2.
^e
(a) par amount, (b) premium, (c) discount, and (d) interest
accrued on all securities purchased or sold will be pro rated by the New York bank
to each reserve bank on percentages based on formula approved by the Federal Open
Market Committee;
and settlement therefore, will be made with each reserve bank
through the inter-district settlement fund.
3.
Each reserve bank will carry on its books the following accounts:
"A” Participation in System Open Market Account
(with the par value only).
«B«
Premium on Securities.
”C” Discount on Securities*
”D” Interest Accrued.
and on its balance sheet form 34, the par value of its participation will be carried
under caption ’Participation in System Open Market Account,” the premium and interest
’
accrued under caption ’Miscellaneous Assets,” and the discount under caption
’
’Miscellaneous Liabilities.”
’
4. Adjustments in participation will be made at book values, the New York
bank debiting or crediting the banks through the inter-district settlement fund with
the total cost or proceeds of the adjustment in the same manner that purchases and
sales are handled.
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2
5.
The New York bank will maintain memorandum bookkeeping records showing
(1) the amount of premium, discount, and interest accrued daily on each issue of
securities held in the Account, (2) for the entire account the total amount of
premium, discount, and interest accrued (separately), and each reserve bank’s pro
rata share of the total of each of these three items.
(Premium is amortized to
earliest callable date and discount to maturity.)
6.
The New York bank will figure the accruals of earnings each day on
the entire amount of holdings in the System Open Market Account and each reserve
bank's pro rata share, and will advise each bank by telegram the amounts of
(1) Premium Amortization, (2) Discount Accrual, (3) Interest Accrued, and (4) Interest
Earned on U. S. Government Direct Obligations, on its participation.
bank will accrue earnings on its books daily on this basis.
Each reserve
(In order to facilitate
handling the System Account, this information will be furnished one day late, except
on the last day of the month when two days earnings will be accrued,*) Upon the col
lection of coupons on interest payment dates, the New York bank will credit each bank
through the inter-district settlement fund with its pro rata share of such payments,
and each bank will credit this amount in its Accrued Interest Account,
7.
Profits or losses on sales of securities will be distributed among the
reserve banks as they occur on the basis of daily average holdings in the Account
during the 12 full calendar months last preceding, except that profits realized on
sales of maturing issues at times of, or in anticipation of, new Treasury financing
will be used to write down the cost price of replacement purchases.
(The amount of
profit or loss on a sale is determined by the difference between the book value and
the sale price at the time of sale .)
.
8.
When purchases and sales are made in other districts, cash settlement
in full will be made with the New York bank and the operation will be carried through
in the same manner as though it had been made in New York in the first instance.
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3
9 4 Securities purchased for the Account, or vault receipts in case the
securities are held by other Federal reserve banks, will be retained at the New York
bank,
The securities will be lodged in a vault compartment apart from all other
securities of the bank, except that on proper authority amounts will be held in the
joint custody of the Federal Reserve Bank and the Federal Reserve Agent as security
for note issues.
10.
Upon adoption of the aforegoing procedure, the New York bank will
transfer to each other bank its pro rata share of Premium, Discount, and Interest
Accrued, on securities in the System Open Market Account carried on the books of
the New York bank.
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DECLASSIFIED
Authority
F o i n f . S . 131
RESERVE
10%\
*BBC’ XI PIIES SECS.I0B
D
" ' A R D DF G D V E R N D R S
FEDERAL
to.
SYSTEM
,
Office Correspondence
To
FEB -11944
November 14, 19110*
Mr. Goldenweiser
Subject: System Portfolio
ser
From.
SRTICTLI CONFIDENTIAL
It is believed to be highly undesirable for the System to allow any of
its short-term securities to run off at the present time.
There are a mamber
of reasons for taking this position.
1.
The primary object of the System is the pursuit of an appropriate
credit policy not the stabilization of the Government security market.
If,
in the opinion of the Treasury, the price of Government securities has risen
more rapidly thaft is desirable, it would appear the sales should be made ty
some of the Treasury agencies that have recently been purchasing securities.
£.
If Federal Reserve security operations are desirable at the present
time, the System Account might sell some of the holdings of long-term bonds
and purchase either short-term bonds or notes.
The System’s present holdings
of bonds are largely concentrated in long-term issues and some shortening
of maturities might be desirable.
The objection to this procedure, of
course, is that l t will reduce the profits of the Account.
i
In view of the
present size of the surplus, nearly $150,000,000, it is not believed that
the earAings position of the System should be a determining factor in Federal
Reserve policy.
Question might be raised as to whether it should ever be
a determining factor.
Certainly with the present large surplus there would
seem to be no reason to determine policy on the basis of reducing profits
by a few million dollars.
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^Authority & 0 ■ | 0 ^ 6 \
STRICTLY CONFIDENTIAL
Mr. Goldenweiser
3*
November 14, 1936
If it is desirable that the System take action at the present
time with a view to reversing credit policy, the desirable method would
appear to be through a further increase in reserve requirements.
By the
end of January excess reserves may have risen to $2,300,000,000 or more
by a seasonal return of currency from circulation.
Additional inflow of
gold may possibly have increased excess reserves even further by this
time.
If the Board considers that the statement of July 15 commits it to
use increases in reserve requirements to decrease excess reserves to a
level of not below $1,900,000,000, there would still be the possibility of
absorbing perhaps $500,000,000 by a further increase in reserve requirements.
In other words, the statement of July 15 could be interpreted to permit a
reduction of excess reserves from $2,400,000,000 to $1,900,000,000 by in
creasing reserve requirements.
This would permit an increase in reserve
requirements to 165 percent of their previous level.
If the Board does not
feel that it is committed by the statement of July 15, it might be desirable
to raise reserve requirements to the full amount permitted by law, which
might reduce excess reserves at the end of January to a level of perhaps
$900,000,000.
Such action would probably raise short-term interest rates
moderately, but it would be possible from that time to exert pressure
readily by reducing the System portfolio.
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| Authority ■ c O .
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__________ ____________
1
Form F. R. 181
OARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Office Correspondence
To
November 13 , 1936
SubjectA /Comments on New York memoranda
on A c counting BrQCedureln.System
)pen Market Account._________
M r. Sinead
From
Date
Mr. Van Fossen
SPO
V f\
1 8— 8 52
WWtlBg
In paragraph 5 it is stated that adjustments in participations
are made at book values.
This apparently should be "Par values”.
In paragraph B it is stated that each bank is advised each Wed' nesday night by the New York bank as to the division of its participation into bills, notes and bonds.
Beginning January X# 1937 the
bank^will have to show^ information daily on their balance sheets in
accordance with Form 3U as revised for 1937, and I understand the
New York bank will thereafter advise the other banks currently when
ever a change occurs in the composition of their participation, instead
of each Wednesday night.
Memorandum on proposed accounting procedu^:
In paragraph 2 it is stated that the Hew York bank will charge
or credit each Reserve bank in the Interdistrict Settlement Fund
with its pro rata share of (a) par amount, (b) premium, (c) discount,
and (d) accrued interest, advising each Reserve bank by telegram ac
cordingly; and in paragraph 3 it is stated that each other Reserve
bank will credit or debit the Federal Reserve Bank of New York through
the Interdistrict Settlement Fund.
This appears to involve a duplica
tion of payment although, of course, not so intended.
As a practical
matter, while either New York or the other Federal Reserve banks could
take care of these payments by means of debits or credits in the Inter,
district Settlement Fund it might be better to have the bank by which
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DECLASSIFIED
.
,
4
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Authority t
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O-
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Mr. Sinead - #2
the payment is to be made in all cases credit the bank to which payment
is to be made.
In paragraph U> in connection with adjustments in participations,
it is stated that the lew York bank will debit or credit the other banks
through the Interdistrict Settlement Fund.
No reference in this para
graph or elsewhere is made to debits or credits by the other Federal
Reserve banks*
In paragraph 6 it is stated that the New York bank will advise
each bank by telegram the amounts of (l) premium amortization, (2) dis
count accrual, (3) interest accrued, and (4) interest earned on its
participation.
This may be necessary although the amounts involved
presumably would not change from day to day unless there was a change ^
in securities held in the System account or in the participations of
the various banks.
Accordingly it would seem that the banks might be
advised that these amounts would continue unchanged until further
notice or, if preferred, a wire might be sent daily simply stating
that there was no change from the preceding day.
In paragraph 7 reference is made to advising each bank each Wed
nesday night as to the division of its participation into bills, notes
and bonds.
As stated in the comment on the other memorandum, beginning
January 1, 1937, it will be necessary for the banks to have information
at all times as to this division and presumably it will be feasible to
advise them only when changes occur.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
j
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j Authority Q . lQ^(S\
MISC. 136 2BM 5 -3 6
FEDERAL. RESERVE BANK
OF NEW YORK
INTERO FF
=
______ _______
ROUTE SLIP
it
TO.
DEPARTMENT
DIVISION
-SECTION
REM A R KS
1
FROM
Z
,
:
et A v
^ -j
d e par tm en t
,,. DIVISION
--- SECTION
N . B . USE THIS FORM INSTEAD OF OFFICE ENVELOPE WHEN POSSIBLE.
TO INSURE PROMPT AND ACCURATE DELIVERY A LL COMMUNICATIONS SHOULD BE DISTINCTLY
LABELED.
d Holdings of the National Archives
DECLASSIFIED
Authority
D .
10 ^ 6 \
L.
F E D E R A L RESERVE B A N K
of n e w
DATE— -
OFFICE C O R R E S P O N D E N C E
October._£4*JSBa
s u b je c t:,
.......... —
Fr
.............................................. -
Securities Dept
Accounting Procedure in---------
t m m M m^ v,
.
M&rket Account.
o m
In line with your thought that It ral^ht be desirable to have the
Federal Open Market Committee*s approval of the accounting procedure In
operation In the System Open Market Account* and also review the ssfethod of
handling the several accounts which are carried only on the books of the
Sev/ York reserve bank, there is attached herewith a memorandum on the
Accounting Procedure in the System Open Market Account with an alt' mate
paragraph giving effect to change in the method of handling profits previous
l suggested*
y
which could be submitted to the Committee for approval* and a
discussion of th© several accounts carried only on the books of the New York
bank follows•
Under the present procedure which was adopted bade in 19&5* as a
aatter of convenience in handling th© detail work in connection with the
System Account* the amount of premium,discount* and accrued interest on
the total holdings is carried on the books of the Hew York bank*
From the
viewpoint of simplicity tills practice perhaps is still the most convenient
way in which it sight be handled*
Boi ever* in earlier years the amount
carried in these accounts was not large and the
f
ct that the Account was
carried by one bank was not material although* no doubt* it was not then
expected that the aiaounts Involved would grow to their present levels*
For several months in 1924 the premium account amounted to close
to f5 million but by the end of 1925 the amount was down to a little over
£1 million*
Froa that time until May 1931* when it amounted to less than
|1 million* the largest amount carried was. under f£*5 million*
Since then
it has grown to a peak In June of this year of over $19 million and at the
present time awaits to over |17 million*
The amount of interest ac crued
not collected* has likewise Increased to aiaounts which now vary over a six
R e p r o d u c e d fro m th e U n c la s s ifie d / D e c la s s ifie d H o ld in g s o f th e N a tio n a l A rc h iv e s
MI S C . 3.2 6 0M S-36
FE D E R A L RESERVE B A N K
OF NEW Y O R K
O FFICE C O R R E S P O N D E N C E
f r Burgess
t«
]>
~ &tf October $4f l Sfl—
*
^
gl, , T.
R F^ Accounting Procedure la______
T o - ------------------------------------ ----------
I c s e Open Market Account
frt*
Securities D*pt
FROM--------------------- ---- ---------
•oaths* period fro* $6 million to flS allllow while tho amount of diecount
was never over fl aillloa, It now baing only
thousand.
la snaasrlsing
these iteme, tho total emount of tbiji accounts ever a six month#* period
is ranging fro® about $26 million to |5l aillic®* of which amounts fro* $19
million to $25 million is for pren&an sad accrued interest oo securities
owed by other reserre banks#
The funds utilised for these accounts are
furnished by the lee York bank sad the itens are Included la Its statement
under *A11 Other Assets#* I e lew forte bank, of coarse* receives no return
te
on these funds, earnings on securities being apportioned on a basis of par
value participation sad not oo the basis of dollar amount invested*
Fam
ings are creditor to each bank daily prior to the collection of interest by
the law York bank.
Although the anount of aocraed interest advanced to the other
banks is constantly a fairly substantial figure, relaburg— nt follows at
the ead of Interest periods (six months), or when the securities are sold,
hot in th# c m o of the pranium aooouat ralmbureonsnt is neeeeisaiiLy gradual
(daily amortisation) sad spread over a long parted* except of coarse whoa
the securities era sold at hook values or better* Horeorer, the praniua
accountf in the event of a aarket deoliae, is a potential liability, of
whioh a pro rata share belongs to the other beaks*
The present appreciation
($85 million) of market values over book values is a cushion, or a form of
rese*^? egaiast a decline, hot oould be wiped oat quickly la a declining
market#
Of coarse, losses would result only in ease the securities were
actually sold, otherwise they would be fully amortised by maturity end re*
dee&ed at ' a #
pr
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DECLASSIFIED
Authority
D . I0^6\
L:
FED ER A L RESERV E BANK
OF
N E W YORK
OFFICE C O R R E S P O N D E N C E
To—
bit#
Burgeaa ----
d a te
___ October U » 1986
s u b j e c t : _Accounting
Procedure la
Systam Open MarketAccount
F r o m — Se curities Bept
On instances la the past where book values exceeded sarket values
reserves have been set up by each bank at the end of the year#
However, in
view of the fact that the reserves set up by the eleven banka were against a
depreciation la aa account carried by the Nev; York bank, the question might
be raised aa to the correctness of this accounting procedure*
Also, owing
to the several accounts being carried entirely by the Sew Tork bank, the
statements of the Individual banks do not reflect the correct amount of their
assets and liabilities although, of course, a true picture Is reflected in a
consolidated statement*
Perhaps the only feasible method of handily the ^stesa Account so
that the books of each bank would reflect a true picture would be to trans
fer to each bank it® share of prealun, discount and accrued interest*
These
accounts could then be maintained on the books of each bank and entries made
in accordance with advice received dally from the New York bank*
While this
procedure would increaae the amount of bookkeeping work for the He > lark
bank it would not be burdensome provided, of course, that the Account is
continued aa a pool account and only total figures are dealt with*
In
another memorandum attached an accounting procedure for handling the System
Account is detailed giving effect to this change in procedure with an alter
nate paragraph giving effect to change in the method of handling profits you
previously suggested to the Committee*
In the event that the procedure men
tioned In tills meujorandm Is adopted the latter mmoranduis of procedure could
be rubaitted to the Co®aittee for approval*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
>
---- --------
'
Authority
0 .
I066\
_ - — ------------ -—----------- ----------- -—_—
—
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u-
.
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n
ACCOm^im PROCEDURE in
SYSTBI oral VAIOCFT ACCOUHT
1*
As securities are purchased (the procedure is reversed
If securities are sold) the Hew fork bank charge® the par amount of
the securities to a special account on its books entitled "System Open
Market Account* * The par amount of the purchases (as distinguished
from the cost price) is then pro rated among the banks on percentages
based on formula approved by the Federal Open Market Committee*
The
Hew York bank credit® the amount pro rated to the other banks to an
account on its books entitled "Participation of Other Federal Reserve
Banks in Sestets Open Market Account*"
Upon wire advice, Hew York is
credited by the other banks for the par amount of their allotment
through the inter-district settlement fund*
£•
The difference between the cost price of the securities
and their par value is set up on the books of the Hew York bank, as
the case may require, in accounts entitled "Premium on Securities,*
•Discount on Securities," and "Interest Accrued*"
Ising these sane
f
accounts, interest is accrued daily at coupon rates, premium is
araortised daily to earliest callable date, and discount to maturity*
5*
Earnings (the amount of the daily accrual of interest,
plus discount amortisation, less premium amortisation) are transferred
daily to an account on the books of the Hew York bank styled "Interest
Earned on 1 * S* Government Direct Obligations, • and the net earnings
3
distribute d out of this account at once to the several banks on the
basis of holding ratios*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
^Authority fc-Q
lD^6\
-s4«
Profits or losses on sales of securities are carried in a
"Suspense Account** on the books of the Hew York bank and distributed
among the banks at the end of the year on the basis of daily average
holdings in the Account during the year.
(The aaount of profit or loss
on a sal© is determined by the difference between present book value and
the sale price).
5.
Alternate Paragraph 4 is given below.
Adjustments in participation are made at book values, the
Hew York bank debiting or crediting the banks through the inter-district
settlement fund with the par amount of the adjustment.
6*
When purchases are made in other districts, the purchasing
bank receives payment in full from the Sew York bank and the operation
is carried through in the same manner as though it had been made in Hew
York in the first instance.
7.
Securities purchased for the Account, or trust receipts in
case the securities are held by other Federal reserve banks, are retained
at the Hew York bank.
The securities are lodged in a vault compartment
apart from all other securities of the bank, except that on proper author
ity such amounts as are requested are held in the joint custody of the
Federal Reserve Bank and the Federal Reserve Agent as security for note
Issues.
8*
The figures reported in the weekly press statement are
against the usual captions *U. S. Treasury Bills,”
and
*U. S. Treasury Botes,*
S* Treasury Bonds,* as the case may be, and each bank is advised
each Wednesday night by the Hew York bank as to the division of its par
ticipation between these three accounts.
ALTERNATE PARAGRAPH 4
Profits or losses on sales of securities a r e carri ed
a "Suspense Account** on the books of the Hew York bank and distributed
in
the Unclassified / Declassified Holdings of the N a t io n a lA r c h iv e s ^ ^ ^ ^ ^ ^ ^ ” ^ ^ " ^ ^ " ^ ^ * ^ ^ ^ ™
" ”
j
DECLASSIFIED
j Authority j^ Q . j Q ^ 6 \
• * - ' *
aaong t m bank* at the and of the year on the basis of daily average
l
holdings in tha Account during tha year, except that effective
..
. profits realised on aales of Maturing issues at tines
«
of m » Treasury financing are to ba used to write down the cost prloe
of replacement purchases* (The aaount of profit or loss on a sale Is
deteralnOd by tha difference between the book value and tha sale price
at the tiaa of sale)*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
.
(0 ^6
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•
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w
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jsjMi
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f u s Ol m m n m a a m m n » i a m i mabxxt accobit
Afo m
JC
A
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(Eaviski to Include Suggested Changes)
1
L
/C-C~y v <?
m
>£
is securities are purchased c r sold the Hew York bank will
a
charge or credit the cost or proceeds of all purchases or sales to ac
counts carried oa ita books as follows t
•A*
”B*
.■ j?'-
•
7-
System Open Hsrket Account (with
the par value only)*
Preaiua on Securities*
*
-
'
-* *
%,
;V
*C*
Discount on Securitiea*
•D*
Interest Accrued*
t• The (a) par amount, (b) premium, (c) discount and (d) inter
est accrued on all securities purchased or sold will be pro rated by the
Sew Tork bank to each reserve beak on percentages based on fornala approved
by the Faderal Open Market
"
pjn^K^r:
f
*
—* ^
log each reaerve bank l t the Inter^-dlstrict settlement fund eitti Ate pro
a
5* gpon rocelp&ef-thcse-telaBynaa, eack other-■reserve bank viil
ijMEgai T
AATxJtJ T < .\
»v
—
1
—
«
•A*
«
a
a
r
A^-r-y
accounts,
Participation la Wystan Open Market
Account (with the par value only)*
*B» PreadLua on Securities*
*C*
Discount cm Securities*
*D* Interest Accrued*
aad aa lta balanat t c a c fat* 84* tti par
faf
h
Im
af its parM<l|iittii sill be
carried under caption "Participation in Systea Open Market Account,* the
pmadam
aad latarea* aaatwad adar aaptlaa <ttmllaai«a Aaaeiej" aad U a
discount under caption •Miscellaneous Liabilities*w
num me unclassified / Declassified Holdings of the National A rc h iv e "--------------------------------------------------------------------------- -
r
j
a> cla s s i f i ! d
e
1 Authority J ^ Q ,
-
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|Q
2-
be
4*
Adjustments la i»rtlelpatlo&
at book valsc«| tha lav
York b a d debiting or crediting the banks through the inter-district settlea*at fund eith tha total cost or proceeds of tha edjustaant in tha ssae
aanaar that purchases aad sales are handled «
5« tha Baa York bank will aalataln asaorsadua bookkeeping records
showing (1) tha aaount of prealua, discount aad Interest accrued daily on tiar
^
f **
1 -■■ i.%,j n
&* t
b e te l a a m m tr o f e a c h la s a e e f s e c u r it ie s h e ld i n th e A c c o u n t / ( 2) tbm t o t a l
aaoant ef preaiaa, dlscouat sad L a te r e s t scented (separately), sad each re.
*
fK)
"gaorta beak*e pro rata shareAi 3:
'#th»a> items. (Prealua is aaortised to earliest
callable date sad discount to aaturltgr)*
§•
The lea York beak will figure the accruals ef earning - each day
on the m t & m oaount of holdings la the Qjrstsi Open Market Account and each
reserve baak’s pro rats share, aad will advise each bask by telegrea the
aaounts of (1) Preaiua Amortisation, (g) Discount Accrual, (8) Interest Ac
crued, sad (4) Interest Famed on 3* 8* Government Direct Obligations, on
its partial]
a n t h la
if *
'
&
bank will accrue aaralnfii on its books daily
by the Hee
^
fi ' J
LA.
of earnings by the latter beak ealts own
order to ftaallitate b o a d a g the 3ystea Account, thla lnforaatlon will be fur-
\
I M H T B R R M n )• Upon the collection of coupons on Interest peyasat dates,
the lew York bank will credit each bsafe.alth ite pro rata ahara of such pay/ k x A ^ l i / h i x F f& S
— ---- • s '
stents ito aarti baak a U X credit tidi aaao
aaoant la its Accrued Interest Account*
*6r
.
?•
Ike f%uree reported la the weekly press stateaent will be
sgalast tha waesl sayilmu
• S* fraasnrj Bills,• «9#8* Treasury totee,*
<"
r
sad *9* 8* Treasury Bonds,* aa tha caae aey be sad each baak will be advised
each Wednesday night by tha
York beak as to the division ef ite partial-'
A
patlon between these three accounts*
y \
’ ''
A .
.
v
■*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
A u t h o r it y t O .
1D £ 6 a
:
" i,
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j
Profits or losses on saleaof securities will be carried in a
"Suspense Account" on the books of the Sew York bank and distributed among
the banks at the end of theyear on the basis of daily average holdings in
the Account during t M year*
(The amount of profit or loss on a sale is
determined by the difference between present book value and the sale price)
Alternate Paragraph 8 is given below#
9,
When purchases and sales are made in other districts, cash
settlement in full will be made with the New York bank and the operation
will be carried through in the same manner as though it had been made in
Hew York in the first instance*
^ JkSS*
Securities purchased for the Account, or vault receipts in
case the securities are held by other Federal reserve banks, will be re
tained at the New York bank*
The securities will be lodged in a vault
compartment apart from all other securities of the bank, except that on
E,
t
proper authority amounts will be held in the joint custody of the Federal
Reserve Bank and the Federal Reserve Agent as security for note issues.
g.
/ ^ ~-H*
Upon adoption of the aforegoing procedure, the New York bank
will transfer to each other t>ank its pro rata share of Premium, Discount
and Interest Accrued, on securities in the System Open Market Account car
ried on the books of the Hew York bank*
ALTERNATE PARAGRAPH r
7
Its or losses on sales of
es will be
dis
profits realized on sales of matur- s Q
be used to write down
Ml
Ml
-P .u u u c e a rrom the Unclassified / Declassified Holdings of the National Archives'
j
DECLASSIFIED
j Authority £ 0 . l o ^ h .
the cost price of replacement purchases.
(The amount of profit
or logs on a sale is determined by the difference between the
book value and the sale price at the time of sale)*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority & D . | Q^ 6 \
/
/
OPEN M AMET ACCOUNTING PROBLEMS
Interest. Transfers from New York to other Federal Reserve banks are
now made daily covering accrued interest on United States Government
securities.
Question:
Should this plan be continued or should New York
transfer interest only as received?
If the latter policy
is adopted each Federal Reserve bank would accrue interest
on its books daily.
The amount of the daily accrual would
be furnished each bank by New York.
2.
Premium.
The premium on securities held in the System Open Market
Account is all carried on the books of the Federal Reserve Bank of
New York.
Questions
Should not each bank carry its proportion of the
premium account on its own books?
3.
Profits on sales of securities. In accordance with agreements already
M/
arrived at profits on sales of securities on quarterl^periods arising
because of the conversion privilege of maturing securities are to be
used to write down the book value of newly purchased securities.
Question}
Should profits resulting from other sales of securities
be similarly treated or should they (a) be distributed among the
Federal Reserve banks on the basis of holdings on the day the
profit is received or, (b) distributed among the Federal Reserve
banks on the basis of their average participation in the System
account during the 12 calendar months ending on the last day of
the month preceding the sale or, (c) should they be distributed
among the Federal Reserve banks on the basis of the average
participation in such securities during the period they are
-
-
unclassified / Declassified Holdings of the National Archlv“
j
DE C L A S S m E D ~
^A u th o rityj^Q , | Q ^ 6 l
-
-
#
held
4,
2r
the System?
Should losses on sales of securities be handled the same as profits?
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority
\ 0 .(
,
F o r m F . J t . 131
□ ARD
DF G O V E R N O R S
IN RECORDSW * 0 N
□ F THE
FEDERAL
RESERVE
SYSTEM
APR 2 51968
Office Correspondence
T o ____
Dat
Subject ;
Mr. Smead____
From_____Mr. Van Fossen
Accounl
October 16, 1937
Tg in' connection with
the System Open Market Account.________
The f i r s t purchase o f United S t a t e s Government s e c u r i t ie s by the F e d e ral
R eserve Bank o f New York fo r the System Open Market Account was made on
December 15, 1923.
T o ta l pu rch ases o f United S t a t e s Government s e c u r i t ie s
fo r the System Account to the end o f 1923 amounted to $ 9 ,0 5 3 ,5 0 0 .
These
s e c u r i t ie s were a llo c a te d to the v a rio u s F e d e ral Reserve banks on Jan uary 2,
1924-, a s o f Jan u ary 1 .
A llo c a tio n s :
The i n i t i a l a llo c a t io n was design ed to a f f e c t r e se rv e
p ercen tages e q u a lly .
This arrangement was continued u n t il May 31, 193-4, w ith
s p e c ia l a d d itio n a l allo tm en ts to in d iv id u a l banks needing a d d itio n a l e a rn in g s.
From June 1 , 1924- to May 28, 1933 a llo c a t io n s were made on the b a s i s o f estim ated
requirem ents fo r earn in gs to cover exp en ses, dividen ds and c h a r g e - o ffs .
From
May 29, 1933 to February, 1935, a llo c a t io n s were made in accordance w ith the
r a t i o o f each bank* s re se r v e s above a 55 percen t ( l a t e r 50 percen t) re se rv e
r a t i o to the System t o t a l .
From F ebruary, 1935, to June 30, 1936, a llo c a t io n s
were based on estim ated earn in g s requirem ents to cover ex p en ses, dividen ds and
c h a r g e - o ffs .
From J u ly 1 , 1936, to d ate a llo c a t io n s have been made on the
b a s is o f f i r s t pro vid in g fo r exp en ses, in clu d in g normal d e p re c ia tio n , and then
d is t r ib u t in g any excess earn in gs in p ro p ortio n to dividend req u irem en ts.
A llo c a
tio n s on J u l y 1 and October 1 , 1936, did not tak e in to account a c tu a l r e s u l t s
during the calen d ar y ear to d ate but were computed on the b a s i s o f estim ated r e
quirem ents i f the a llo c a t io n had been made on Jan u ary 1 , 1936.
P r ic e :
United S t a t e s Government s e c u r i t ie s held in the System Open Market
Account have been c a r r ie d on the books o f the F e d e ra l R eserve banks a t p ar and
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
. |0^6\
Mr. Smead - #2
u n t i l Jan u ary 1 , 1937 the premium and d isco u n t accoun ts were c a r r ie d by the
F e d e ra l R eserve Bank o f New York.
Sin ce Jan u ary 1 , 1937, the premium and
d isco u n t accoun ts have been a llo c a te d to the v a rio u s F e d e ra l R eserve ban ks.
E a rn in g s, p r o f i t s and l o s s e s w e re ^ d istrib u te d a s to produce the same r e s u l t
a s i f a llo c a t io n s to each J? e d e ra l R eserve bank had been made on the b a s i s
o f book v a lu e .
There have been th ree in s t a n c e s , however, where F e d e ral
R eserve banks have so ld a p ro p o rtio n o f t h e ir p a r t ic ip a t io n s f o r re -a llo tm e n t
to oth er F e d e ra l R eserve banks a t cu rren t market v a lu e s a s ’fo llo w s :
192$, S t .L o u is so ld $10,0 0 0 ,0 0 0 a t a l o s s o f ap proxim ately $ 7 ,0 0 0 .
In September
In October
1928 K ansas C ity so ld $ 5 ,1 2 2 ,0 0 0 a t a l o s s o f $ 1 8 ,6 2 0 .2 2 . In March, 1929, S t .L o u is
so ld $ 2 ,2 0 0 ,0 0 0 a t market v a lu e , the amount o f the l o s s , i f any, not bein g known.
E a rn in g s:
E arn in gs have alw ays been d is t r ib u t e d d a ily by the F e d e ra l
R eserve Bank o f New York.
It' has been the p r a c t ic e to am ortize premiums to
m atu rity or to the c a l l d ate and to am ortize d isc o u n ts to m a tu rity .
D istr ib u tio n o f P r o f i t s and L o s s e s :
From Jan u ary 1 , 1924. to December 31,
192.9, p r o f i t s and l o s s e s were d is t r ib u t e d c u rr e n tly in p ro p o rtio n to p a r t i c i
p a tio n s in the account a t the tim e .
From Ja n u a ry 1 , 1929, to December 3 1 , 1936,
p r o f i t s and l o s s e s were d is t r ib u t e d a t the end of each ca le n d ar y ear on the
b a s i s o f average h oldin gs during the y e a r .
From Jan u ary 1 , 1937, to d ate
p r o f i t s and l o s s e s have been d is t r ib u t e d c u rr e n tly in p ro p o rtio n to average
p a r t ic ip a t io n s during the tw elve ‘calen d ar months preceding the month in which
the s e c u r i t i e s were so ld *^ e x c e p t th a t premiums re c e iv e d on m aturing s e c u r i t i e s * ) ^ ?
have been used to write-down the c o s t o f s e c u r i t i e s purchased in replacem ent
th e re o f)
O'
^
J s A k ~tL
0 ^ -w A )
U
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
I
^ !>
\
'
^Authority jO 0
I Q66\
F o j f f . F . B . 131
'ARD DF
n w 'v i i f ile s
G O V E R N □ RS
□ F THE
FEDERAL
t'FP.
RESERVE
SYSTEM
Office Correspondence
To
Mr. Goldenweiser
From.
October 1, 1956
L. M. Pise;
Subject: Portfolio of the System
Open Market Account_____
It 1? suggested that the proportion of Treasury bonds held in the
System Open Market Account be increased and that a small amount of fully
guaranteed Government obligations be purchased.
This increase could be
offset by a decrease in holdings of Treasury notes.
A small change
along these lines would increase the earnings of the Account to the level
of expenses and dividends.
An analysis of the distribution of investments in different types
banks
of member banks indicates that the Federal Reserve/hold a considerably
smaller proportion of their Government securities in the form of bonds.
This is shown in the following table.
Member banks z/
Federal
Central reserve
Reserve
Reserve
city banks
city
banks 1/ New York Chicago
banks
Percent distribution of investments:
Treasury bonds....
16
28
Treasury notes.....
59
57
Treasury bills.....
25
25
Fully guaranteed...
—
12
Country
banks
56
55
5
8
45
42
2
15
50
26
1
25
15
85
50
70
46
54
Percent distribution of deposits?
—
100
2j
5
95
June 50, 1956.
It will be noted from the table that there is a tendency for a con
centration of investments in Treasury notes and bills on the part of
central reserve city banks^which hold large demand deposits in relation to
l
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
j A t oit t O. 10^6\
uh r y
Mr. Goldenweiser
Page #2
October 1, 1956
time deposits, while there is a tendency toward a concentration on
Treas ury bonds and on guaranteed securities in the case of country banks^
which hold a relatively large amount of time deposits.
On the basis of
the figures for these groups at member banks it would be expected that a
member bank holding only demand deposits, such as is the case for Federal
Reserve banks, would hold its investments largely in the form of Treasury
notes and bills.
This, of course, is the case, but it appears that the
System Open Market Account holds a relatively small amount of Treasury bonds
and a relatively large amount of Treasury notes.
Perhaps a reasonable
distribution of investments in the Account with a view to securing an
increase in earnings without acquiring an unusually large proportion of
long-term securities is as followst
Treasury bonds, 25 percent; Treasury
notes, 40 percent; Treasury bills, 25 percent; fully guaranteed obliga
tions, 10 percent.
It is estimated that a shift of this extent would
raise earnings in the Account by about $6,000,000 a year*
Since an
increase of only about $2,000,000 is necessary to bring earnings to the
level of expenses and dividends, it would not be necessary to carry this
program out in full, but the results could be accomplished
by the purchase
of perhaps $75,000,000 each of Treasury bonds and fully guaranteed
obligations and the sale of $150,000,000 of Treasury notes.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority
iO-
1056'
J~YW
Av
v m m m m f m ihe k b u i c m maekkt o a w m m and
to e w m s m a m of a u n a m i m s m t b m m
At its last mating in Washington on September 2 the executive ooumittee
of the Federal Open Market Committee discussed the question of the disposition of
profits realized on sales of government securities in the System account, and again
agreed upon -the conclusion reached at a meeting on June 24 that realized profits
should hereafter be used to write down the book value of securities purchased for
the account.
It was the opinion of the conmittee, however, that action in th is
matter should be taken only at a meeting of the full Federal Opm Market O w tittee
and after diseussion of the question with the presidents of the federal reserve
banks, possibly at the next Presidents Conference.
As a preliminary to such di#*
GumXmB it was suggested that a memorandum be sent to the coasaittee and to all
presidents setting forth the considerations bearing on this question*
A major part of the profits uiiich have been realized recently are a W&«*
salt of th# aethod of handling the Systems maturities at times of new financing
to conform with the spirit of that clause of the talking A&t of 1935 which limit®
purchases and sales of securities to the open market.
Since the passage of this
Act the System has no longer exchanged its maturing issues directly with the
®rea«Qpy t m sew issues, but has sold its maturing issues and purchased new
Other issues in the market.
Ifcia operation has resulted in a profit on the
ing issues, and the purchase of the new issues at about a point or more premium*
Hie effect has thus been to take an immediate profit at the expense of an Increased
book value for securities acquired, and hence a lower yield rate.
put it
•nother wagr the result is to mark up the book value of securities held and reduce
th# yield rata*
It sacrifices future earnings for present profits.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
j
DECLASSIFIED
^Authority £ 0 . | 0 ^6\
2
I t would appear to be sounder and more co n se rv a tiv e procedure to use
th e r e a liz e d p r o f i t s to w rite down the book v alu e o f new s e c u r i t i e s purchased*
Tn the case of an exchange offering, the new securities would thus be put on the
books at approximately par;
higher;
their current yield over a period would be a little
and the possible danger of a later depreciation be somewhat reduced*
A
study has been made of the accounting practice involved, and there appears to be
no technical difficulty in the way of the new procedure suggested.
There a r e , o f co u rse , o th er p o s sib le accounting methods f o r s e t t i n g a sid e
r e a liz e d p r o f i t s .
They could be p lac e d in re se rv e account e ith e r in the foxm o f
a s p e c ia l v a lu a tio n re se rv e or in th e g e n e ra l re se rv e funds c a r r ie d by each bank.
There are a number o f o b je c tio n s to t h i s p rocedu re, however.
F i r s t , the banks
would not g e t the b e n e fit o f the a d d itio n a l current y ie ld which would r e s u lt from
the p lan o f w ritin g down th e book v alu e o f s e c u r i t i e s , and which would be d i s
t r ib u te d among the re se rv e banks in accordance with t h e ir average d a ily h o ld in gs
in the account over the f u l l term o f th e h o ld in g s.
Second, th ere would be frequ en t
problem s to be s e t t l e d l a t e r a s to the d is p o s it io n and s t a t u s o f any re se rv e so s e t
up.
The plan of u sin g p r o f i t s to d ecrease book v alu e seems the sim p le st and sound
e st.
The d e c isio n reached on t h i s m atter w i l l , o f co u rse, have a co n sid e ra b le
in flu en ce on th e earn in g s p o s itio n o f the re se rv e banks fo r th e current and succeed
ing y e a r s .
I f a c tio n i s taken i t w ill be n e c e ssa ry to decide whether the new
procedure should be introduced e f f e c t iv e only f o r the fu tu re o r whether i t should
be ap p lie d r e t r o a o t iv e ly to some date in 1936.
The t o t a l amount o f p r o f i t s r e a liz e d sin c e Janu ary 1 , 1936, and now held
in suspense account i s $ 3 ,8 7 2 ,7 2 0 .
The e arn in g s p o s itio n o f the s e v e r a l re se rv e
banks through August i s shown in the attach ed t a b l e .
W Randolph B u rg e ss,
.
Manager, System Open Market Account.
Profit
Total Profit
ATaiilai.1 • for
Gross
*arnit**s
Boston
Jurrent
Not Deduction*
(Lurrely iJivldaad»)»
!&&*&*+*
* 1,699 >122 ♦1,511,109
MpreeittioR
Allowance*
B*s«rv«« sur^las
♦ 380,719
♦-192,706
On S»l*s Share of Profits
haelizod in
Kror. O n
w
Portfolio
♦
bystarn Account0
R ttlif*4
OU
Shi.** of
3 * c jr lt l* »
d l,669
♦ 267,795
♦ 349,664
M York
ow
7,217,082
5,3*6,?;3
2,07i,6ia
-201,489
1,349,025
1,058,829
2,407,654
Ph. .adslphia
2,100,495
1,763,991
508,658
-172,154
'113,863
314,833
428,696
roland
2,319,943
1,995,010
552,348
-227,415
-
378,341
378,341
M
iohm
ond
1,370 ,258
1 ,19 3 ,9 5 6
200,448
- 24,146
-
203,562
203,562
Atlanta
1,030 ,162
908,634
163,809
- 42,281
m
165,563
165,563
Chicago
2,978,680
2,484,996
482,620
11,12 4
475,056
463,665
938,721
St* Louis
1,288,168
1,0 16 ,8 0 7
167,055
104,306
9 ,531
2 11,14 8
220,679
Minaoapolis
901,799
818,763
69,181
13,90 5
497,793
12 5 ,5 4 *
623,339
Kansas Oity
1,310 ,20 8
1,226,780
1 4 1 ,1 5 8
-57,730
12,059
196,579
208,636
AS
1,0 6 7,577
889,966
150,479
2 7,132
680,371
142,729
823,100
P nadiM
2 ,12 9 ,3 14
1,878,560
354,378
-10 3,6 24
344,130
344,130
#25,412,808 #21,035,470
#5,242,416
♦-865,078
♦3,872,720
#7,092,287
k
f
Totals
-
#3,219*567
eluding profits on sseuritiss oithsr in own account or Systsm Account*
°Ai of tispt. 30, now held in tuspsnso Account,
Reproduced from the Unclassified / Declassified Holdings of the National Archives
j
DECLASSIFIED
^Authority j
yO .
( 0^6\
Division of Bank Operations Fil«
U
September 17, 1936
Dr* W. Randolph Burgess, Manager*
Systea Open Market Account,
F e d e ra l R eserve Bank of Hew lork,
Hew York, N* I.
Dear Dr. Burgesst
The aeaoranduB inclosed with your letter o . Septmber
f
prepared on
the instructions of the meeting of the executive committee on September 2,
with respect to the handling of profits on sales of securities ia the System
account eeens to me to cover the points involved*
While I think the Blitter should be given consideration by the full
committee, I am inclined to believe that it would be better to make the
change with respect to the handling of the profits effective a© of the date
approved by the committee rather than retroactively to some prior date in
1936* This procedure would avoid any possible question with respect to how
profits already received should be distributed* I also think it might be
well to avoid statements to the effect that the danger of later lose is gome**
what greater under the -resent procedure than under the proposed* Accord
>
ingly, I would suggest that the attached be substituted for that part of
your meaor&ndua beginning with the last sentence on page 1 and ending oa
page 3. The changes are merely in the nature of a suggestion as I think
the maaorandu® as you have written it would serve the purpose very well.
It is assumed that nhen completed the memorandum will be sent to Mr. Morrill,
Secretary of the Committee, and forwarded by Ilia to all Federal Reserve
banks*
Very truly yours,
£* I * Smead, Chief,
t
Division of Bank Operations*
Inclosure*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
|
DECLASSIFIED
J Authority
■ 10
h5 \
It treats as profits income which would be Included in current earnings If
there was a direct exchange of securities with the Treasury instead of a
purchase and sale in the open market*
It would appear to be sounder and aore conservative procedure to use
the realized profits to write down the book value of new securities pur
chased.
In the case of an exchange offering the new securities would thus
be put on the books at approximately par and the current yield would be a
little higher.
A study has been made of the accounting practice involved,
and there appears to be no technical difficulty in the way of the new pro
cedure suggested,
There are, of course, other possible accounting methods for dealing
with this problem#
All profits realized on sales of Government securities
could be credited to profit m d loss or to reserves,
Heither of these
methods, however, would result in a Federal Reserve bank,s obtaining the
portion of these profits which are properly creditable to it on the basis
of its average daily participation in the System account as would be the
case if profits were used to write down the book value of new securities
purchased,
The decision reached on this matter will, of course, have a con
siderable influence on the earnings position of the Reserve banks and, if
adopted, it will be necessary to decide whether the new procedure should
be introduced effective only for the future or whether it should be applied
retroactively to some date in 1936.
The total amount of profits realised since January 1, 1936, and now
held in suspense account is & ■
,
.
It has been suggested that this question be discussed at the next
Presidents* conference*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
j
DECLASSIFIED
j Authority t O .
1056'
L
r~
/
Operations rik
received
F e d e ra l R e s e rv e B a n k
1 5 1S3Q
of
N
e w
Yo
r k
DIVISION OF t
bank operations "
September 14, 1936.
Dear Mr. Smeads
Enclosed herew ith i s a d r a f t o f a memorandum p re
pared on the in s t r u c t io n s o f the m eeting o f the exe cu tiv e
committee September 2 .
I should lik e very much to g e t any
su g g e stio n s you may have.
Very t r u ly y o u rs,
W Randolph Burgess
.
Manager System Open Market Account
j
Mr. E. L. Smead,
C h ie f, D iv isio n o f Bank O p eratio n s,
Board o f Governors o f the
F e d e ra l R eserve System ,
Washington, D. C.
WRB.H
e n c l.
i
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority
.
(0^6
September 14, 1936.
MEMORANDUM FOR THE FEDERAL OPEN MARKET COMMITTEE AND
THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS
At its last meeting in Washington on September 2 the executive
committee of the Federal Open Market Committee discussed the question of
the disposition of profits realized on sales of government securities in
the System account, and again agreed upon the conclusion reached at a
meeting on June 2 4 that realized profits should hereafter be used to
write down the book value of securities purchased for the account.
It
was the opinion of the committee, however, that action in this matter
should be taken only at a meeting of the full Federal Open Market Commottee and after discussion of the question with the presidents of the
Federal reserve banks.
As a preliminary to such discussions it was sug
gested that a memorandum be sent to the committee and to all presidents
setting forth the considerations bearing on this question.
A major part of the profits which have been realized recently
are a result of the method of handling the System's maturities at times
of new financing to conform with the spirit of that clause of the Banking
Act of 1935 which limits purchases and sales of securities to the open
market.
Since the passage of this Act the System has no longer exchanged
its maturing Issues directly with the Treasury for new issues, but has
sold its maturing issues and purchased new or other issues in the market.
This operation has resulted in a profit on the maturing issues, and the
purchase of the new issues at about a point or more premium.
The effect
has thus been to take an immediate profit at the expense of an increased
book value for securities acquired, and hence a lower yield rate.
To put
it another way the result is to mark up the book value of securities held
and reduce the yield rate.
j/s
s 'iu d .
It sacrifices future earnings for present
i
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority
~
profits.
2
tO.
1066'
-
It also increases slightly the danger of later loss.
<J u
It would appear to he sounder and more conservative procedure
tdp.se the realized profits to write down the book value of new securities
purchased, fIn the case of an exchange offering, the new securities would
thus be put on the books at approximately par;
a period would be a little higher;
be somewhat
their current yield over
and the danger of a later depreciation
A study has been made of the accounting practice
involved, and there appears to be no technical difficulty in the way of
the new procedure suggested.
There are, of course, other possible accounting methods for
dealing with this problem.
All profits realized on sales of government
securities could be placed in reserve account either in the form of a
special valuation reserve or in the general reserve funds carried by each
bank.
There are a number of objections to this procedure, however.
First,
it is rather awkward and perhaps embarrassing for the Reserve System to be
setting up reserves against government securities.
Second, the banks
would not get the benefit of the additional current yield which would
result from the plan of writing down the book value of securities.
Third,
there would be frequent accounting problems to be settled later as to the
disposition and status of any reserve so set up.
The plan of using profits
to decrease book value seems the soundest.
The decision reached on this matter will, of course, have a considerable influence on the earnings position of the reserve banks for the
current and succeeding years.
The total amount of profits realized to date
this calendar year and now held in suspense account is
Without the
use of these profits it seems clear that the earnings of the reserve bank®
will not be sufficient to meet their expenses, dividends, and chargeoffs.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority f c Q
-
3
(0^6\
-
The fig u r e s are shown on the attac h e d t a b le .
They have a b earin g upon
the q u e stio n whether the new procedure should be introduced e f f e c t iv e only
fo r the fu tu re or whether i t should be a p p lie d r e t r o a c t iv e ly to some p a r t
o f the year to d a te .
I t has been su g gested th a t t h i s q u e stio n be d isc u sse d a t the
next P r e s id e n t 's co n feren ce.
W Randolph Burgess
.
Manager. System Open Market Account
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
Eorm F. B . 131
1^58
\RD OF G Q V E R N D R B
lj
FEDERAL
r
in c .
RESERVE
S Y S f% W ™
Office Correspondence
To
Mr. Smead
From
fWratfon* FN|g ^
Dai-p September 4, 1956.
Mr. Carpenter
C l
2
Subject:
3
|
At a meeting of the executive committee of the Federal Open
Market Committee held in Washington on September 2, 1956, approval
was given to a suggestion that the secretary of the Committee be
requested to address a letter to each member of the Committee sug
gesting that there be considered at the next meeting of the full
committee, with a view to taking action at that meeting, the pro
posal that realized profits on Government securities sold from the
System account be used in the future to write down the book values
of the securities held in the account*
I discussed this matter with Mr. Burgess following the meeting
and it was understood that he would prepare a memc^andum regarding
the matter which would contain a recommendation as to the action to
/
be taken, and that he would forward copies of the memorandum to this
office for transmission to the membe?>6 of the Federal Open Market
Committee with the letter referral to above.
When the copies of Mr.
Burgess* memorandum are received it will be appreciated if you will
prepare for Mr. Morrill1s signature as Secretary of the Committee a
draft of letter t® the members of the committee in accordance with
I understand Mr. Burgess
/
/
0
^
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
1235B
fiMtfon of B k O
an perations Fife
September 1, 1936
Governor H&nscw
Mr* Saead
Xa accordance with the suggestion rnde at the Bo.rd mating fhurad&y*
1 c a ll e d president Hamilton o f the Federal Reserve &?xk o f Kansas C ity m
the telephone this morning with respect to tha bank’ s holdings o f #181*009
o f securities guaranteed as to both principal and in terest by the United
State® Goverfis&oat*
I to ld President Hamilton t h a t Ms bank wag the only
one that held such securities and the only on© that had my securities ear
marked fo r the self-insurance fund#
I also referred to the fa ct that the
Federal Open Mfericet C o «itt@ e regulations provide that tho tern "Government
securities* shaU include obligation© fu lly guaranteed m to principal and
in terest by the United States and stated that i t was the understanding o f
so«e o f ue that i»hile a l l Govemnsnt securities were supposed to be trans
ferred to the System Opm Market Account the Cowalttee decided to take
over on July 1 only d irect obligations o f the United State#.
X told President fiaallto* that In view o f the above X mm callin g
to ask i&efcher 54.a tern intended to s e ll itu security holdings In the near
future*
He said that the^ had not contwaplated sellin g thm but that he
would take the aatter up with Ills executive eenoklttee today and 'that they
would probably decide to s e ll them*
Ha said that in vi®w o f the previous
understandings he assumed the bank would not need to obtain authority to
s e ll the securities froa the Federal Opm Market Coanlttee and X told Ills
that was my understanding.
In ay telephone conversation with President HaolXton X nade i t
clear to Mm that X was speaking informally fo r ay s e lf end not fo r the
Board.
s
R ep rod uced from the U nclassified
I D ecla ssified H o ldings of the-N afio na A rchives
D ECLASSIFIED
Authority f c .Q; 1 2 3 5 %
lC4Z-_v
IS
division of Bank O p era tio n * F flf
Mr. $. A lillo r.*
#
Securities l*p*rtme>nt
F*a#ri& Heeerre Sank of Hew 201%
New York, »#w fork
D#*r Mr, ICiMtrt
I n m $$m m %# fm r telephone request o f
end to n *
firaing information glir«» you over th# telephone t#d#y, following #r*
flpBNW* Of net jsroifii# on felted $t#te# Government ##OUftti## *#X£ to
the %#%*& open m*$*t
« n « % l
&i reported
if*
e*ch Federal
S # # # rr#
other than I#f Xatfe* for lumt 19I&*
j qv voa
?
miMeli>hi&
Chicago
| *2*069*0!
m 9m « n
$$m . M
m% V t m
0%# IiOtii#
toft#** §i%y
Ml##
u$m*n
The only other profit# on United
Slat## Government ffftgrttt##
reported during th# flr#t #i» aonth# of If$& by i l federal Reeerve
l#
tauki#* other thaE How l w m § wore #c follow##
Chicago
Dalle#
$478,954.55
99**97*90
Very truly your#,
I. L. Sawd, Chi#f,
^ii.#lon of Bank %#ratio»#.
J30$/#b
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
1
2-35B
Form P. R. 181
^OARD OF GOVE RNORS /
O F THE
ht DE RA L. RESERVE S Y S T E M
Office Correspondence
To
Date
August 1 3 , 1936
Subject
JlcHEemor-
From__ Mr. Van F ossen
R e fe rrin g to our telephone co n v e rsa tio n , net p r o f i t s r e a liz e d by the
F e d e ra l R eserve banks during 1936 to d a te from the s a le o f Government
s e c u r i t i e s from t h e ir own investm ent accou n ts are a s fo llo w s :
Boston
New York
P h ila d e lp h ia
Chicago
S t.L o u is
M inneapolis
K ansas C ity
D a lla s
$ 8 1 ,3 6 9 .0 1
1 ,3 4 9 ,0 2 5 .1 7
1 1 3 ,3 6 3 .3 3
4 7 5 ,0 5 5 .7 2
9 ,5 3 1 .2 5
4 9 7 ,7 9 3 .3 5
1 2 ,0 5 3 .7 2
6 3 0 ,3 7 0 .3 7
These amounts are in clu ded in the amounts shown a s "A v a ila b le f o r
d e p re c ia tio n allo w an ces, r e s e r v e s and s u r p lu s ” in the l a s t column o f the
Ju ly 1936 mimeographed statem en t on earn in g s and expenses o f the F e d e ra l
R eserve ban k s.
As s ta te d over the ’ phone, the f ig u r e s in the l a s t column
o f t h i s statem en t a ls o in clu d e o th er cu rren t d e b it s or c r e d it s in the p r o f i t
and l o s s accounts o f th e F e d e ra l R eserve banks.
For example, the F e d e ral
R eserve Bank o f M inneapolis in c lu d e s |4 3 ,4 4 0 deducted from the re se rv e s e t
a s id e to cover payments to the R etirem ent System on account o f p r io r se rv ic e
l i a b i l i t y re p re se n tin g the amount o f p r io r s e r v ic e payments in clu ded in the
bankrs cu rren t expen ses to the end o f J u l y .
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority E..Q* 12358
August
X§ XW$
O
ivision d BtftV Qmrit file
m
Mr. Tan ?oaa#n
In aeoordaaoa with your talaphcfcs r#qua«t w® h*T* prepared ti» Attaobad
tabla showing tha aaouat of Unltad Statas GoTarnaant bonds and all otbar
United Stata* Qownaent a*auritl«s bald by e*on Fedaral Raaanre bank In its
M
iBToatnMit fco&oaat on Jaaoary i, 1934
on Juaa 30, 1935, prior t» tha
transfar of all QoTaraaant sacurttlee to the Systaa Opan Jtarkat Aooount*
Attaob«*nt.
n/t»
jiewrrf
Bmnk
B ‘ " •~mi » iii,————« > n i m m m '
L " 1 v»: il^i
.
•
i«w■
i . mmmm*
.
On /nonary 1, l$$i
; Bond* ■ .
Sew forfc
Philadelphia
_4JX. oth»r.
.
,049,500
3»35a,iaa
SsitaX
36,937,4.50
3, 3*5,500
j
|
Bonds
$589,000
1,^5,050
1,652,000
da J a m 30, 1936
All other
Total
»
&20»3H3t S5Q
1,733,400
31ci»ond
AtlaaU
62,741,700
CfcdLcafo
7, 511,
7,511,650
7,OX ),650
62,741,000
500*000
7,511,650
.lit*
182,200
10,
000,000
1 *5,200
1
1,000
13,900,OX)
SV*Loaia
K«a*&& City
D&ll&s
185,200
207,077,850
•Prior to transfer of securities to the Syetes Open
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority fc.Q* 12358
*t ***rV
•
WvMftrw,
Mi^ust Z-f 1936
Mr* Koppang
Mr* Van
V t\
i i following information in regard to Boston* s participation in
ls
the Federal Open Eirkot account on Jjly 8 is furnished in accordance
with your telephone request:
aaount
July 8
$161,713,000
Forcent of total
6.6542
O . the baai3 of its July 8 participation Boston’s share in the
n
appreciation of 336,198,554*93 on that date was $2,403,724•
21
ft / t f x
f‘l
!»
R ep rod uced from the U nclassified / D ecla ssified H o ldings o f fhe-N atio nal A rch ive s
DECLASSIFIED
Authority jl.C * 1 2 3 5 %
D n o B k Op*f*$w*f*flle
ivisio f an
HXr 31, 193$
Mr* M o rrill
Mr*
t m Fossaa
L
la accordance with your/re.iueet m have prepared the attached table
yre
sfcowiag' the amount o f Waited States Oororoaeat bead© held by the Federal
R « H m beaks ia th eir owa inTestaeat account* which were replaced by
short tern eeouritiei by aoaths froa January 193* to June 1936, inclusive*
I t will be acted that the eaount o f Gal ted States Qowasient bands so re
placed during this period by each a f the various banka was
Bostoa
Mew lork
Philadelphia
Clerelaad
Riebaoad
Atlaata
acme
?61,321,050
1,100,000
aoae
aoae
ooue
Chicago
6t*Louis
Miatteapclis
City*
Dallas
Saa Framslsoo
TOTAL
m, follower
$$0,400,000
500,000
511,000
none
noae
i ya»
y
S4f43a,0$O
Of the total amount of Halted Stata# beads so replaoad, v53,526,350
were c alled Liberty Bond#, of *ftioh t23,OO$#000 were exchanged fo r aew
short tera issues aad #10,6^3,850 *ere oold ia the open aarket aad replaoed
fcy s^®rt turn seeurities .purchased i a the open aarket.
Attached .is
& tab
ula tloa shcwiag the aaouat of Liberty Boad holdings of the Federal Reserre
banka i a their own investment accounta oa January 1# X934, &»d the securi
ties with waioh they were replaood*
Attachaents*
°F
IBVMT2EBT ACCOUNTS OF THK FEDERAL M M Y 8 BAMS
Mew York
April - 1934
Sold or exchanged
Heplaoed by Treasury notee
Replaced by treasury bills
September < 1934
*
Sold or exchanged
Replaced by treasury note#
$7,95M00*
6,95# ,&00
1,000,000
3,042,000**
§,042*300
Marsh - 1935
Sold or exchanged
Replaced by Treasury note#
Replaced by Treasury bills
Philadelphia
$1,000*000*
1,000,300
700,030*
700,000
Cnio&^o
6 , 100,000
4,600,000**
4,600,000
3.000.3Da{a>
3)000*003
September - 1935
Sold or exchanged
.Replaced by Treasury notes
7,765,050*
7,765,050
1935
bonds sold
by Treasury notes
by Treasury bills
1511,000**
511,000
13,9^4,000
16,664,000
2,320,000
13**53,000
13,£53,000
7.100.000
3.500.000
3,600,000
3,600,000
6,750,000**
6,750,330
4,0^ i,003
4.000, XX)
total
115,053,800
7,95M00
7,100,000
3,530*000
Slay - 1935
Treasury bonds sold
Replaced by Treasury bills
Minneapolis
#£,100,000*
7,100,000*
April - 1935
Liberty bolide sold or exchanged
Replaced by Treasury notes
Treasury bonds sold
Hepi&ced by treasury bills
Soveaber Treasury
Replaced
Replaced
St#I»Otti*
#500,000**
500,000
7.250.000
7.250.000
4,000,000
4,000,000
3.000.000
3.000.303
2,600,000**
2,600,000
10.365.000
10.365.000
IS,934,000
16,664,000
£,320,000
|
Kew fork
l&oeaber - 1935
treasury bands sold
Replaced by Treasury not##
*4,821,200
4 ,8 2 1,20 0
Totals!
Called Liberty
far Treasury
Called Liberty
Replaced by
Heplaced by
14,792,000
15,723,850
U , 723,850
1,000,000
bonds exchanged
notes
bonds sold
Treasury not@i
Treasury bill#
Philadelphia
—
$*700,000
1,700,000
Cbicago
St. Loui*
«*
«iw
#7,200,000
13,230,000
3,500,000
9,700,000
«#
Treasury bonds sold
Replaced by Treasury not®#
Replaced by Treasury bills
30,805,200
21,485,200
9,320,000
—*
Total bonds sold or exchanged
61,321,050
1,700,000
20,400, O X
«»
*
$500,000
•a
Mt
*•**«
•M
l*
*N
W*
**•»
***
mm
♦Called Liberty bead#
weehaug* o f called Liberty bonds
( a)Sold to Postal S&viaga Syafcw#
Minneapolis
500,000
#511,000
Total
14,821,200
4,821,200
—*
23,003,000
30,623,850
19,923,850
10,700,000
«**»
.***
30,805,200
21,485,200
9,320,000
-**»■
rnmm
511,000
84,432,050
WW
W
X.
JbnU&Bdfc
Bald JxaOMTJ 1, Xf54
JSttllbk
S&kSBNfSL
SfcaStiBiUI
JttJtt#
j^mui
147,292,350 $2,800,000 *20,400,000 #500,000 #1 ,696,000 #125,000
JEsj&L
|K,813,050
Sxobfitt^od for m m sbort
tara l i w t
7,200,000
U , 792,000
500,000
511,000
25*005,90C
Replmoad by alwri fcar*
bought la opa*
aarfcat
15,723,850
1,700,000
l6,77S,000
600,000
200
500,000
47,292,050
2,800,000
15,200,000
30,623,850
Exebaaged for m m boad
im a m
Eaplaead
hf
—
—
18,
521,000
1,145,000
boads
loagbt la op^i n r lt t
Total galas aai
ax&feaagaa of oallad
T fhtftlfff to fitptti*
t
)amr 1*35
40,000
20,400,000
500,000
125,000
£$5,200
1,596,000
125,000
72,813,050
*A 1 1 Liberty bonds outstanding on January 1 , 1934> were called for redemption by October 1 5 , 1935
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority £..0* 12358
Hr, fan Fossen
Mr* S. A* Miller, Manager, Securities Department of the Federal Reserve
Bank of Sew Xork, advised me by telephone that th© appreciation in the System
Open Market Account holding# of United States Government securities on July
1 and on July S was as follows*
t
I
$34*095*029*19
July *
36,198,554.93
Profits froa the sale of Govemaent securities held in suspense account
on July I amounted to |3,323,145*$3*
http://fraser.stlouisfed.org/
w/iw hP\
Federal Reserve Bank of St. Louis
V
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority fc.Q* VM58
0
3 ^ t| t
Division of ?M
'v V
t
July 9, 1936
Mr* Leonard
S r Van foeaen
i*
Tbe f©I Lowing information In regard to 11011301x1*8 participation la the
Federal Open Market' Account on Juno 27 and July 1 is furnished in accordance
with your telephone request*
, * « . 27
July 1
"
*m /715,500
gSf ! I f lo g f
12A931Q95QQ
5+2670
***..• ^ a s is *>f i t » ‘ Ju ly 1 p a rtic ip a tio n Richmond* & a hare in the ap p recia
tio n o f 134#395 1 029 *19 on ta a t date m s $1,795,931.80.
TF/l»
^
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority E..C* 12358
copy
TELEGRAM
D
ivision o
f
July 2, 1936
TO ALL GOVERNORS
TRANS 2414
Paragraph relating to reserve ratios, which you were
advised in our Trans 2413 of July 1 would be included in text of
weekly Reserve bank statement to be issued today, has been modified
to read as follows:
"Since the reserve ratios of individual Federal
Reserve banks do not reflect conditions in the several
Federal Reserve districts because most of the earning
assets of the Federal Reserve banks consist of Govern
ment securities bought in the open market at the direc
tion of the Federal Open Market Committee, the individual
ratios of the several Federal Reserve banks are Elimin
ated from the weekly statement of condition.
The ratio
of total reserves to Federal Reserve notec add deposit
liabilities will continue to be shown in the consolidated
statement of assets and
liabilities of all &£ the Federal
Reserve banks combined.”
MORRILL
File copy in 330.23
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority fc.Q* 1235%
G0 P Y
""Zi? •*
I
/
ft
J u ly 1 , 1936.
TO ALL GOVERNORS
TRANS 2413
Follow ing two paragraph s w il l be in clu ded in t e x t
accompanying weekly co n d itio n statem ent o f F e d e ral Reserve bsnks to be
issu e d tomorrow:
M
Changes f o r th e week in the h o ld in gs o f government
s e c u r i t ie s o f in d iv id u a l F e d e ral re se rv e banks r e s u lte d
from th e t r a n s f e r o f a l l government s e c u r i t ie s p re v io u sly
h eld in th e se p a ra te investm ent accounts o f th e se banks to
th e System Open Market Account and th e r e a llo c a t io n o f
p a r t ic ip a t io n s in t h i s account among th e F e d e ral Reserve
banks. The t o t a l h o ld in gs o f government s e c u r i t ie s o f th e
F ed eral re se rv e banks remain unchanged*#
”As the re se rv e r a t i o s o f in d iv id u a l F e d e ral re se rv e banks
have ceased to be s ig n ific e n c e because funds o f th e
F ed eral re se rv e banks are in v e ste d in s e c u r i t ie s bought
in th e open market by th e F e d e ral Open Market Committee
and, th e r e fo r e , in no way r e f l e c t co n d itio n s in th e s e v e r a l
d i s t r i c t , th e in d iv id u a l r a t i o s on th e s e v e r a l F e d e ral re se rv e
banks are elim in ated from th e weekly statem ent o f c o n d itio n ,
but th e r a t i o o f t o t a l re se rv e s to F e d e ra l re se rv e note and
d e p o sit l i a b i l i t i e s w il l continue to be shown in the co n so l
id a te d statem ent o f a s s e t s ' and l i a b i l i t i e s o f a l l o f th e Fed
e r a l re se rv e banks combined"•
I t i s su g g e ste d th a t your bank c o n sid e r a d v i s a b i l i t y o f e lim in a tin g re se rv e
t a t i o from statem ent showing th e c o n d itio n o f your bank r e le a s e d l o c a l l y .
MORRILL.
R eproduced from the U nclassified / D eclassified H o ldings of the N ational A rchives
D ECLASSIFIED
Authority
\2 3 5 %
Mr, I * M.
i
S#cr*tary of^ th# Board,
federal Reserve Beak of Atlanta,
Atlanta, $e®J*iin
Dear Hr. Clarki
Reference 1$ aade to your l#it*r of Jnne 19 Inclosing * t «xc«rpi
f
fro» tie Minutes of t e la»# 12* 1936, neetlng of the Board of Dlreef*
tore ' f the Federal Reserve Beak of Atlanta authorising charge-offs 1m
O
the aggj*eg&te aaount of $340,000 on bank pr«iiae« at Atlanta, Blmlngha*
and Jacksonville, subject to the approval of the Board of Governors of
the Federal Reserve $retea»
Tou will note fron the naaaraadu* l a p s e d with ny letter of
S W M 17, aent to you a# Secretary of the Federal Open Market Coaaittee,
t s & it 1# piwpoetd to uee mEtrserdiiiAyy ©fcarge*«ff8 in d#te*»iii*i*jg
lst
allocations of Government securities a*ong the Federal Reserve banks
only In #a#e 1dm e***niiig« &t the Syste* as * whole are m m
%sa m f *
tsi
fldant to -meet estimated reqniramenta for expenses, ooraal depreciation
allowances, fixed charges, and dividends.
Since 1% Is apparent that
earnings will not t e s**ff&eA«nt during 1936 t© meet all of these sh&rgss,
»
extraordinary charges such m
those referred to la your letter of June 19
will not be taken Into co&eld&r&tlon this year In nftklng allocations of
Goveroneat aeourltlea held In the 8ystesi Open Market Account*
Accord-
R ep rod uced from the U nclassified / D ecla ssified H oldings of the N ational A rchives
D ECLASSIFIED
Authority E..C* 1
2.35%
«r. h* I* Clark * #2
ingly, action on the reco*»aadation of your directors with reepect to
depreciation oh^rgee in the igipeg&te aaoust of #340*000 0 your beak
$
building* in Atlanta, Birmingham aad Jacksonville will be deferred uatil
Dece»ber vhoo consideration -lill f * given to the payment of th® dividend
e
for the last hulf of 1936 aad to th* sotriea with respect to charge-offe
and re»#rven usually atade at tha end of the year*
Very truly yourn,
Chester Borrill,
Secretary.
R eproduced from the U nclassified
I D eclassified H oldings of the N ational A rchives
|~
D ECLASSIFIED
Authority
12.^5 %
~"i i n , 3
June
29, 1936
Division of B«nV. Q iw ttfo n s FNfe
Board of Qoveraora
Mr. Snead
"9
* 4 .'-
11th respect to the recowaendation of Mr. Goldenweieer and nyaelf that
reaerve ratio® o f individual Federal Reeenre banks be no 5m $#t published in
the weekly statement of condition of Federal Reserve banks, attention is
called to the resolution of the Federal Open Market CoaBittee which provides
that participations la. securities held in the Systea Open Market Account
he '
allocated to the Federal Reserve banks on the basis o f their need for earnings, provided that such allocations shall sot **eault in reducing the reeerre
percentage o f any Federal Reserve bank below 50 percent*
of the Federal Reserve banka,
fhe reserve ratios
as o f June 24 and as they would have been on
that date had the securities been reallocated among the Federal Reserve banks
on the basis o f the plan adopted fe r the Executire Coaalttee of the Federal
g
Open Market Coaalttee for allocation of V* 8. securities held in the account
on June 30# are shown below*
R t m m ratei m l m t M
Actual
After realloca
tion of ®*§.
securitiei
Boston
Sew York
Philadelphia
Cleveland
’
flu*
62.2
n s
78*9
84*0
68*3
73.2
Richaond
Atlanta
Chicago
St, Louis
71.2
70*5
85*5
68*4
68,3
71*1
#7*1
66*6
Minneapolis
Kansas City
Dallas
San Franciaco
71*8
68.8
63UO
71*6
67*7
67*1
65.9
J 0 *§
78*7
Total
'
78* 7
. , iOf
3 "
3
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority
12-35%
Board of Governors - #2
The adoption of the plan of reallocation, recommended by the Executive
Coaanittee of the Federal Open Market Committee, will not result in any Fed
eral Reserve bank1s ratio
thereto.
at this time being so low as to call attention
Should, however, at some later date any bank1a ratio approach the
50 percent minimum set by the Committee at a time when the ratios of most of
the other banks are in the neighborhood of, say, 80 percent as is the ratio
for the System as a whole at this time, attention would undoubtedly be drawn
to the reserve position of such bank and considerable comment might be taade
thereon by the press.
If such proved to be the case, the bank with the low
ratio would no doubt be very reluctant to continue Its then existing parti
cipation in the account.
If the publication of reserve ratio® for individual banks is discon
tinued, however, there sdll be nothing in the Board*s weekly press statement
to specifically call attention to such ratios, and the press will be much
less likely to comment thereon than would otherwise be the case.
Further
more, since the individual reserve ratios are governed largely by the alloca
tions of securities among the Federal Reserve banks the significance of the
reserve ratios is no doubt not understood by the public*
In the memorandum submitted by Mr. Goldenweiser and myself, under date
of May 22, the discontinuance of publication of the ratios was recommended
and a paragraph was suggested for inclusion in the text accompanying the
weekly statement in case the Board approved the recommendation * Mr* Thurston
suggests that the revised paragraph, attached, be used in the weekly state
ment in case the discontinuance of the publication of the reserve ratios
of the individual Federal Reserve banks is approved by the Board,
Attachmeni
ELS/j bs
Reproduced from the Unclassified / Declassified Holdings of the National Archives
____
DECLASSIFIED
Authority
1
2358
c 0 P 1
June 29, 1936*
The Board of Governors*
Hr* Thurston*
It has been agreed that the weakly statement of condition of
Federal reserve banks to be issued on Thursday, July 2d, contain
in the introductory text the following explanatory paragraph!
*C hanges for the week in the holdings of government
securities of individual Federal reserve banks resulted froa
the transfer of all govemaent securities previously held in
the separate investment accounts of these banks to the Sys
tem Open Market Account and the reallocation of participations
in this account among the Federal reserve bank®* The total
holdings of govemaent securities of the Federal reserve banks
reaain unchanged**
After consulting with Mr* Saead, it is suggested that the
following additional ecxplan&tory paragraph also be included in the
introductory text!
sAs the reserve ratios of individual Federal reserve
banks have ceased to be of significance because fund© of the
Federal reserve banics are invested in securities bought in
the open market by the Federal O p m Market Coraalttee and,
therefore, in no way reflect conditions in the several districts,
the in d iv id u a l r a t i o s o f the several Federal reserve banks are
eliminated from the weekly statement of condition, but the ratio
of total reserves ' o Federal reserve not© and deposit liabili
t
ties will continue to be shown in the consolidated statement of
assets and, liabilities of all of the Federal reserve banks com
bined* *
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority E..O« 12358
COPY
F o r m N o . 181
Office Correspondence
To.
The Board of Governors,
From.
FEDERAL RESERVE
BOARD
Subject:
3 p
0rBrr^*"/'
Date____ .Tune 9.91
;n r
B *t
>V O p e ra tio n * ftk-
Mr- Thurston.
SVMsior
14-
•.
r
It has been agreed that the weekly statement of condition of
Federal reserve banks to be issued on Thursday, July 2d, contain
in the introductory text the following explanatory paragraph:
"C hanges for the week in the holdings of government
securities of individual Federal reserve banks resulted from
the transfer of all government securities previously held in
the separate investment accounts of these banks to the System
Open Market Account and the reallocation of participations
in this account among the Federal reserve banka* The total
holdings of government securities of the Federal reserve banks
remain unchanged.*1
After consulting with Mr* Smead, it is suggested that the
following additional explanatory paragraph also be included in the
"introductory text:
”As the reserve ratios of individual Federal reserve
banks have ceased to be of significance because funds of the
Federal reserve banks are invested in securities bought in
the open market by the Federal Open Market Committee and,
therefore, in no way reflect conditions in the several districts,
the individual ratios of the several Federal reserve banks are
eliminated from the weekly statement of condition, but the ratio
of total reserves to Federal reserve note and deposit liabilities
will continue to be shown in the consolidated statement of assets
and liabilities of all of the Federal reserve banks combined.”
_
1—82
8 6
R eproduced from the U nclassified / D eclassified H oldings of the N ational A rchives
D ECLASSIFIED
Authority jL .Q* 1 2 3 5 %
’
Copy to aeabers of Executive
the eecretary end the economist.*
^r^r^T
of Federal Open M k _, e Committee,
ct
w
D w U \o n of
June Z&, 1956.
dMr Mr. Cbalraani
Changei la th* holding* of go*»nuwBt B*oorltle» In tho
Market Account (taring the week completed f m m 24, were m
64,
follow*!
BmlaffMMnt Purchaaea in tha Market
I 8,024,000 - !twi. bill* < a 12/li
te
150,300
«
»
*
100,000 *
*
*
i/zr/sr
6.640.000 «
•
»
&
/Z4/S7
» Tree*. bills due
fU* »H ,0 00
9»3t» la th* i t e m
I 8,000,000 - ?rea». bills dlM 9/
m
.
R it t lio n f lf t n t f t t r t t h A it f la .. Uud. K a rfra t
$ 7 ,7 0 0 ,0 0 0 - Tree®, bill* due 1/27/57
" ‘
$ 7*70®:*®©©-
♦ ?
!
There were no transactions during the week In th® outright holdings of
securities of this beak*.
Although there « M no important selling, for th* second week the governmarket was largely withoot outside buying interest, and prices con
tinued to acrre slightly lower.
Trading wan very light, and the ©hi#f source of
supply appeared to be dealers* portfolios, which remain relatively large.
Price*
Of the new issues were fairly well maintained until yesterday and today whec the
notes and bonds declined several 52nds.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority £.*6* 12358
.Son* I * S* Kcdos
I
Washington
0/25/56
For the week ended last night Treasury bonds showed an average decline
of about 5/52nds to a level nearly 1/2 point below record high prices fo r the
year and aboat l/8 point below prices prevailing immediately before the announcesent o f the recent financing*
net loss o f about 3/52nds*
Guaranteed obligations also showed sn average
There was * uniform further decline in Treasuxy
notes which averaged about 5/52nds, in a negligible volisste o f trading*
A fter
risin g gredually each wsek since May 6* the trend in Treasury b i l l rates was re
versed this week*
The average ffcte o f discount on the December 15 b ills de
clined fro® 0*191 per cent la s t week to 0*185 per cent, and on the 27&~*day o ffe r
ing from 0*242 per cent to 0*240 per cant#
Treasury bills were not readily
available this weak and thare was some difficulty in completing replaot^i^rit $m»>
chase# in System iceomt*
Activity in the bankers* M i l market was negligible*
▼cry truly yours,
Honorable I * S* lodes, Chairman,
K
Board of Governors of the
Federal Besorte System,
Wasblngton, B. C*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority fc.Q* 12358
Fo r m F. R. 131
\RD □ F G D V E R N □ R S
o r THE
FEDERAL
RESERVE
SYSTEM
Office Correspondence
To
From_
Subject: Transfer of Reserve banks*
Mr. Goldenweiser
own investment accounts to System
Piser
Open Market Account*
It has been suggested that the individual Reserve banks should be
prohibited from holding United States Government securities in their own
investment accounts.
The Federal Reserve Bank of New York, however, has
found their investment account valuable for temporary holdings.
First,
there have been instances where securities were purchased for Treasury
account, but upon time for delivery to the Treasury it was discovered that
the Treasury balance was insufficient to make full payment-
Second, the
New York bank frequently acquires securities on a temporary basis in con
nection with maturities from the System account; for example, with Treasury
bills maturing on a Wednesday it may be possible to purchase replacements
in the market more easily on an earlier date.
In addition, the Minneapolis
Reserve bank, which purchases Government securities for member bank account,
frequently has small amounts of securities held over-night, which are distri
buted to member banks on the following day*
These securities are usually held for only a day or two, but if placed
in the Sjystem Open Market Account it would be necessary to reallocate for
those days the amounts held in the account and interest accrued and amortiza
tion of premiums and discounts.
All of this would entail a considerable
amount of accounting, and it would be much simpler to place these holdings
in the bankfs own investment account.
All of these instances, although not
necessary to the operations of the Reserve banks, are highly desirable and
convenient.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
Mr. Goldenweiser
-2-
12358
May 19, 1936
A more important factor is the occasional necessity of making emergency
purchases.
Each Reserve bank should be given permission to purchase a certain
amount of securities in the event of any emergency situation in its district*
The largest purchases ever made for individual account were made at the time
of the stock market collapse in 1929, when the New York Reserve bank in the
space of two days purchased approximately $150,OCX),(XX) of Government securities.
Consequently it is recommended that the Reserve banks be allowed to
purchase for temporary holding in their investment accounts securities in
amounts to be established by the Federal Open Market Committee.
It is
suggested that 100 percent of capital and surplus would provide adequately
for this purpose, since the New York bank would be permitted to purchase
$110,000,000 under this provision and all Reserve banks could purchase
#300,000,000*
It is further suggested that these temporary holdings be
limited to two weeks, except upon approval of the Federal Open Market
^
Committee.
In addition, it appears to be desirable that the Reserve banks continue
to have authority to purchase Government securities under resale agreement,
since such purchases provide a simple form of temporary loan and are helpful
in maintaining a free market in Government securities.
Finally, the Reserve
banks should have authority to invest their self-insurance reserves.
In the list of suggested resolutions provision is made for these excep
tions.
After such allowance there does not appear to be any reason for
continuing the large amounts now held in the banks* own investment accounts.
The transfer of these accounts to the System Open Market Account would have
the advantage of placing under the immediate and direct control of the
Reproduced from the Unclassified I Declassified Holdings of the National Archives
d e c l a s s if ie d
r-
Mr, Goldenweiser
'
Authority
-5-
12358
May 19, 1956
Federal Open Market Committee and the executive committee all Government
securities held by the Reserve banks except purely temporary holdings, re
purchase agreements, and practically permanent holdings acquired for selfinsurance reserves*
Present holdings in the open-market account were originally allocated on
the basis of the distribution of expenses, dividends, and normal charge-offs.
Since these securities were originally purchased there have been a number of
changes in allotment, including increases for the purpose of increasing
earnings and decreases for the purpose of improving reserve position.
The
present distribution of the Account by individual banks is not in accordance
with this standard.
In the following table are shown the participation
ratios calculated on the basis of 1935 expenses, dividends, and normal chargeoffs.
When these ratios are applied to total holdings in the Account and
the results compared with actual holdings, it will be noted that the St. Louis
Reserve bank is holding about $17,000,000 in excess of its pro-rata amount,
while the Minneapolis bank is short by $15,000,000 and the New York bank by
$26,000,000.
If all of the System* s holdings of Government securities were placed in
the System Open Market Account and the distribution were made on the basis
of their participation ratios, the earnings from the Account would be equitably
distributed among the Reserve banks and the reserve ratios would in all cases
exceed 60 percent.
If the reserve ratio of any bank should later decline
below a desirable level, say 50 percent, it could be restored without affect
ing the bank*s earnings by the transfer of an appropriate amount of bonds
Reproduced from the Unclassified I Declassified Holdings of the National Archives
"
DECLASSIFIED
Authority fc.Q* 12358
Mr. Goldenweiser
-4-
May 19, 1956
from the System account to the bank*s investment account in exchange for the
transfer of a larger participation in the System account from the adjusting
bank to the other banks.
Until such necessity arises, however, there does
not appear to be any reason for continuing any sizable amounts in the indi
vidual bank* s portfolios.
The following table shows in detail the results of transferring all of
the Reserve banks* holdings of Governments to the System Open Market Account
and of distributing this total on the basis outlined above.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
UNITED STATES GOVERNMENT SECURITY HOLDINGS .
jc_i3trict
^N
OA
Distribu
tion of
current
expenses,
normal
charge-off&
and divi
dends in
1955
Total United St«ites
Government secur:Lties
System Open Market Account
Theoreti
cal parti
cipation
Actual
partici
pation
May 13,
1936
Over
or
short
7
28
8
9
5
4
11
4
3
5
5
8
Total
100
1/2
1/4
1/2
1/2
1/4
3/4
3/4
1/4
3/4
1/2
Over
or
short
(Thousands of dollars)
(Percent)
Boston
New York
Philade1.
Cleveland
Richmond
Atlanta
Chicago
St* Louis
nneapolis
Kansas City
D*llas
.Fran.
Actual
Theoret
ical par partici
ticipaticr pation
May 13,
1936
Deposit
Total re
and
Federal
serves
after
Reserve
note
shift
liability
155,620
633,598
183,410
211,199
122,273
94,484
244,546
105,600
83,368
116,715
83,368
188,968
156,982
607,318
173,735
218,024
116,715
100,209
258,423
122,700
68,054
116,659
85,000
199,330
2,223,149
2,223,149
+1,362
-26,280
-9,675
+6,825
—5,558
+5,725
+13, 877
+17,100
-15,314
-56
+1,632
+10,362
—
170,118
692,624
200,496
230, 875
133,664
103,286
267,528
115,437
91,135
127,589
91,135
206,572
157,677
729,383
177,120
218,025
116,716
100,209
321,164
123,200
75,590
116,844
95,000
199,351
2,430,259
2,450,259
Reserve
ratio
after
shift
(Percent)
677,062
5,819,556
592,750
780,689
595,018
505,429
1,840,747
549,727
244,101
555,572
232,529
708,848
77.5
85.4
68.9
72.9
66.5
68.2
87.2
68.6
64.6
65.2
64.1
75.9
8,067,215 10,501,828
78.5
-12,441
523,342
+56,759 5,187,585
-23,576
408,398
-12,850
568,779
-16,948
262,544
-3,077
208,213
+53,836 1,605,948
+7,763
259,965
-15,545
157,672
-10,745
251,800
+3,865
148,997
-7,241
524,172
—
>
5
o
,
!
3' Oi
^ W;
m p!
'o >
« Si
‘:
n;
)<
■
«
w.
O.
'
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority E..O* 12358
B O A R D D F G D V E R N □ RS
X-9565
□ F THE
F E D E R A L R E S E R V E S Y S T E M 0W ,o
ls- n
o( Bank O p e r a s W
WASHINGTON
ADDRESS
April 25, 1936
OFFICIAL
TO
THE
C O R R E SPO N D E NC E
BOARD
Dear Sir:
Under the regulations of the Federal Open Market Com
mittee adopted on March 19, 1936, relating to open market
transactions of the Federal Reserve banks, the term "System
Open Market Account" is designated to apply "to government
securities and other obligations heretofore or hereafter pur
chased in accordance with open market policies adopted ty the
Committee and held for the account of the Federal Reserve banks".
To insure uniformity in the use of the new title by
the Federal Reserve banks, the name of the account when re
ferred to in code words in the Federal Reserve Telegraph Code .
book should be changed, effective immediately, from "System
Special Investment Account" to "System Open Market Account".
The codo words in which the term is used are MOCKLER, MOCKLOVE,
NEGROAT, NAPPINTLE, NAVIDE and NEBULONG.
Assistant Secretary.
TO PRESIDENTS OF ALL F. R. BANKS
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority £ .6 * 12358
r
_ . nn
i
O e a i n FW«
prtos
‘ 3 S 3 . 3 y -
flareh 8| IVW*
i
Messrs* Clayton* Goldoiwei*ert &aoad#
f?y*t% end Bethoa*
Ur* Drelbelbis,
belbis,
Assistant Oaasral Counsel*
Psmffe ^ regulations end by**laws
of Open Market eow^iitee*
Attached hereto ere rorisod copies of taail^tivajbpaft^ of
proposed by*»laws And regulations for adoption by SwTFadoriS,"Opea
Market Ooasaittee*
Copie* of the original draft* used at a ba»t« for tho prepar
ation of th* instant oxio* aad refloating tho ehanges aad suggestions
of Messrs* Clayton* Geldexxiieiaer, Seeed end Bethea ara also attached*
Duo ta Mr* Morrill*« illnee*, M s suggestions were not reeeired in tiae to bo included ia tho draft* suhetitted today*
fhs sore substantial suggestions aaida fraa tho«o a» to fora
are ao follow*t
1* That seetloa 8 ho transferred to tho end of sootion 4
as paragraph (f) or inserted as tho seeond paragraph of sootion 6*
2* that tha word "underlying" ha iasartod hoforo the vorl
"reasons” in tho last lias of paragraph (h) of sootion 4*
5* fhat tho first sontenee of tho seeond paragraph of seotion 6 ho oaitted* aad t&at there ha iasartod between tho words "epos*
market operations*1 sad the ward "end* in the last sentenae on page 6
tho wards *in aeeordanee with tho regulations and direction* of tho
Csuaittee**
4* fhat oonsidoratioa ho given as to whothor or not tho
transactions, as sat out in paragraph (2) of section 7, bo allowed a t all*
5* That oonsidaratloa ho given as to whothor tho question of
delegation of authority is raised hy paragraph numbered (2) of sootion f *
c
6* fhat all of paragraph 5 of sootion 3 he onitted except
that partioa ineluding the last four lines of the paragraph and begin
ning "Any Federal Reserve bank aay purchase* ete»**
It i* ay understanding that the attaohed tentative draft* are
to be used as a basis for discussion at a eonferenee to bo arranged
later*
Very truly yours*
Attachment*.
JF&thla
J« ?* Dreibelbis,
Assistant ciensral Counsel*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority fc.Q* V2358
Tontativo 8p*ft
t a a 5, 1933
trh
DMrion of BanV Operations F
“1 3 . 3 ,
w m n u fim
mm
taoe
frf
3 s*
m m m m
* 19S8
m rm n u
P u m a n t to th# ootliorit^ ©oaforrod upon it by oeotion
I fA of th# F#3#r*l l<Ml#rvo Aot» mi «a»ndo4g tho Fodor&l %#!&
Jc
Hwrtcot Canedttoo gn*#rorlb#« tho
tho #p#a»m«rk#t trois##otioao &t tho
rofu lotion* rolatlng to
tl^ral Kooorto banks.
fh# Fodorol Opou )$Mrk#t €«a®itt#o #s$r#ii#ly rooorvo# %
'ho
rig h t to o lto r , wmm&t
ropoal t h ii .rogtilatioa In whole
lit
part f t aaty tin#*
i
swticm 2 * :
.mxmtxtm
(#} ffgyortiaoia o#o*aid1&ot.* «* Tlho torw "OotonawiHi ooou*
t
ritlo o * olmll im h id m bcnda, netoo, oortifloatoo of IrisSobtoctaoos #
Iv m m & y M ilo* mad otbor obltfottoii* ©f tho % it# i itotoo, lm lu A ~
iBg otoligatlo&o fully goorasitood m to prlnoipal oad lntoroot by
t i * Ualt#<l Utotoo*
(b)
Obligation#*
Th# tor® •obligation#** olmll iaoltKl#
oil bonioro1 ooooptonoo#, billo of #xetoanf<#t oabl# trim*for*, bond#,
f
aoto## aarraixt#, I v M ^ n t i and otbor o&Ugitioio, Inaiydlag @*v»r&»
(p U
v w
H
*
~ > /l L
me unclassified / Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority £ . Q « 12358
- I ~
w n t aaatirltiaa, wfeiah Fadaral &aaar*a banka « r author!iad by law
ua
to purabaaa In tha opam aarkat.
(a) teyataa aooaunt* * Tha tars *ayata« aaaooxit* appllatr
to Govmrmmnt oaauritlaa bald for th» aaaoitnt of tha Kadaral R*aarwa
banJn unl#r th* aootrol of tha axaoutlra aownittaa*
(d)
Ca«alttaa» - Tha %ar& *C«nmlttaa" shall M»an tha
Fadaral Opaa aiarVat Coaraittaa.
(a)
g»n»lii» < — iltt— » * Tha tara "aaaoutiva aoacdttaa*
h
•hall saaa tha axaautlva aoaaittaa of tha Fadaral Qpan ilarkat Caaaittaa*
sS£?i'.$
oorosi?» ift;necm.x?
t y tha tarna of saotlon I A of tha Fedaral Raaarra A*tt aa
t
S.
aaandad, tha tiaa, ah*r*atar# and r t r a of all pttrahaaaa a * a&laa
ol x ^
id
in tha opan aarkat hy Fadaral Maaarwa banka chall ba gomn»<$ with a
▼law to aaaawaadatlag; aaaaraa and buainaa* and with ragard to ihair
haarlng upon tha fanaral aradit situation of tha aountry.
sbsti'i?^ 4.
(a)
m m «\ i f »m
m u tm z m m m ®
Qrfta&iaatlon« - Tha Coeaeittaa araatad by aaation ISA
of tha Fadaral &aaarva Aot, as anandad by tha Banking Aat of 193&,
aotxaiats of tha »o©b«ra of tha Board of Gowarnora of tha *aiaral J a
*aarva $y*taa and of fiva rapraaantatlweo of tha Fadaral fteaerva baafca
alaotad annually*
Aa altaraata to aarp* in tha abaanaa of aaah su»h ra^raean-
Reproduced from the Unclassified / Declassified Holdings of the National Archives
D E C L A S S IF IE D
'
Authority £.»Q" 12358
m$ m
teti?w shall be eleeted
but m eltertwte aJmXl be entitled
te etteisd meeting* o f the CeRmtttee only in the ebeenee o f the repfo r whom «»eh alternate 1s elected.
(b)
Heeorde* - The Seeretery of tbe Camlttee abell keep
minutes of all ite meetings eai shall keep a eo®$>lete reeori o f tbe
eetioo taken by t C e e n l t t e e upon ell question* #f policy relating!
te epesMGseirfeet operatS-eine end •hall record therein the T©t»s taken
la eoaxseetlesi with the &eteralnation o f epeti^iaarket polleles as?! the
ptaiosa aeslpied therefor*
reeords elmll beeonse a < remain the
»3
property of t e ieef*4 of Governors ef the fe&eral ieserre System*
Ce)
Meet.lace» * Meetings e f tbe Sewalttee elm ll be held
at WiMihlnf.toa, &• G*, a t least fotir ti®*ee eaeti year upon tbe e a ll o f
the Chairman e f the Beard e f Ceveraere o f the Federal Heeerve bywtom
er e t the request o f aay three sMssfeers of the Ccwrsittee*
Seitlees o f
meetings called ehall be givm* to ell wmbmr* of the Qoeslttee by tbe
Heeretary*
(41)
?iBi*tlotie« - f t is t n dtaty e f tb» Committee to eoa*
ie
elder tbe nee&e e f eenaeree end biwiness, the §»*ieraX ered lt situa
tion of the country, e M suofc ether matters taring e bearing iheree®
as may eotue te Its attention, and to eenelder* adopt, ana transmit te
tbe seeeral Federal Beeerve banks, regulation* m M directions* with
reepeet te the epenmnarfret operations of eaefe rank# under eeetton 14
e f the Federal leserre Aet*
{•}
Qpe*»»Market policy* - The Oenadttee will fro® tiae te
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
12358
■»<£«»
m
d*terttia*
*p*iMiurk*t polio1#* of tha
notify tb# **v*na fttdvr*1 8§«trf»
m A will
of all d**i#ion# whtofc * •
**
quir# motion on t l » i r pitrt*
®83T * ft,
(* )
illC T lflfl 0 « i ! T 1 t
Or^jaadUatioEu * Tho CaMKltt**, mt it * fir s t lastin g
*?t#r lar*h 1 in #mh
b*r« *n ****'i*tive o&snitt*#
j*w?g fthftll * * i* * t frwa it * mm mm*
o f thr*# wtsfaNp* ©f t h BmmI
m
o f C-owrnosr* o f th* ?*<ttr*l % **rt* #yct*» miM two rQj3r*««ntatiTr*#
of ft m ¥*4/mt*l Ii*m rm bm0m*
Th* Clmlnmn of th * GoBamitt#© ohull b * Q m im ta of th *
S 3 P P 0 1 rW
B
nS 1
9 G B B » 3i wwmmm
Th* £*or*tary o f t l* f?«*® itt*« •h all * * t as th* ***r*ta i,y
# f tli* #**<rotive ««awdtt*# and *h all k**p u&mit** of *11 its aM tlng*
•ad furaiah oopi** tte*r*»f to th* K,*3ife*r* o f t!a* €oMffiltt**«
( e .^aa*tloi3*» - It #tmil b* th# duty of tb* *3C**utl'f«
f)
*«Mftitt**c
I*
T* il4 f**t th* *s**uttoxi o f partis**** *«a * * !* •
o f G*v*i*nn*ttt * * * a r itt* » *ad otfeey oliitf&tlofs* 1 th* ®pm
m
wmrk%t In ***®«*i*ii** with its* «p*n«&*rk*t p o ll* !* * *dof>t*ct
% tli#
O
p*®. Market <ktte»itt**i
S*
fo *& l***t* mwrn^ tli* * »w r a l f*4 * r*i B*#*rv*
btxik* th* *G£r<*g*t* ewouat o f &ov*rnn*at **e u riti** *&& *t>\*r
obligation* b*ld fo r tb* *ytt*& a*oouat *ad to *«S;hi8t imoh
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority fc.Q* V235B
allocation® frosa tliae to ti&o to noot tbo ohooci8& $oodo of
poopootivo fodorol Kooomro banks#
ttmfe allocation o M I l to
raodo with tho tIow of (a) ormbling; oooh Podoral looorvt bank
to usaintaln o «u£fcablo rooorvo $ 00itloo an«J (fc) oqttolioingr
oo for ao prootiosbla tho M t aarnixsg pooitioja of oooh
orol taoorro
h m t ik $
Mm
t o % m p tho member* o f tho f^doral
Sorfc«t
C«»3lttoo inforood o f o i l tpftooftotiono oaoootoi by tho Co*isilttoo and of o i l ollootttloao «M rooiloootiono o f ftovornnont
oooorltioo and o tte r obligatieiso hold fo r portiolpotlftf. ba»k«i
&%)d
4*
To porform oooti oibor foaotiono «nd dot loo In
ooariootioB with Qp02>*wark«t oporoAiooo oo « o j bo oooigood to
i t f r m tin o to titto bjr tho fodoral 0|m& Haricot CdMdttoof t o t
tho oxootxtlvo oomndtteo oh all fr m no authority to d o t*r»iao
polio
or aofeo dotiolooo upon quwtiono o f polioy*
SBCTt.'Vi |»
C,W**ST
0»!
o^mT!;w
look Podorol looorvo bank oholl ongogo in oposw«r1iot
operation* ttador M o t i o n 14 of tho f:
odoral
R m m r m lot only la oo~
with tiiio rogolatio® aad tho dirootlo«o isnued by tho
0o».ittoo f m tlao to tiiao* oad so fodoral tooorwo f a f oholl #oeae
ottoo to oiifofo i» oiP*n*,
i
**rfeot opoowtiofto oo dtroofcod by tho
® m m ittoo*
Oriisartly* in tho oaoduoi of opoa-ssorkot opora&iozMi for
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority fc.C- 12358
<* 0 *
•
»
»
the Systesa Aeoo*iatt tbe purohase «r sale ef
ligations will be
tnade by the ^saager ef the System Opea Sfc ce Aeooant ttarough the
rf t
Federal S t u m Bank of Hew Tork#
la the eonduet of open-r*rk«t
operations each federal Beserre b r S , when diraote $ by the Cowesitteo*
sir
will taake available to tbo ^onager of t>a Syetera Open SSsrket Aeoownt
through tho Federal leeerva Sank of Kasr forfe, swih fends *s m y be
aeeessftry to aondaot and affOetmte suofc opet*-iaarket operations and
e*eh Faderal Eeoerre barJc thrmi&h the Federal Reserve Bartk ef iew
York will be credited with ite partielpation i s the purafcese of a e
i
fll£Atiooi or witb the proeeads of eay eale thereof*
section ?.
m m & i s s mm m M
m w m m m m & m w xsm
So Federal Haeerva bm»k shall psxmhrn* e r eell Qmwnamtite
a
•eeurltles axoept ia eeeordatiee wltli an epea^iaurket poliey adopted
by the Federal Open NsrVefc Csamltie* a^d in effaet at the tis**f ex00ft theti
(1)
In an estergoney, any Federal 1«eeorva bank may
pi
t rohase OavemBeat securities when xies«*sary to afford relief
in * situation i&rol'riag specific bankinf institutions in its
flistriatf and
(2)
After obtaiaiag the oonoent of tbs Ccw&ittee,
may Federal 'Saeerve beak ?aay purehese or sell Gowrwaeist seen*
ritias for other speoifte purposes*
All purchases amd sales of GovenMat securities by any
Reproduced from the Unclassified I Declassified Holdings of the National Archives
r- J
_
~ -^ ECLASS1FIED
Authority fc.Q*
-T•
Fadaral 1sssrvs barle far its own aoootmt shall bs rsportad promptly
to tha Ssseafcary of tbs Fsdsral Opsa ISwrkst C«*w&ttas on ths day
thay ara soasiiaisaatsd and to ths
«f tbs $y*t«® Assousti sad
ths sxssutlve ecauftlttss »ay ?ssk* suoh eaapaaaatory pttrshssss or sslss
for ths tysts® aoooimt and suofe raallocations af ths « c11gatIons in
f
ths Systan Aaoouxtt as way bs appropriate in tbs light of jvarshasss
and salss sada far thsir csm asoount by ladiTidual Fsdsral Hsssrvs
banks*
Tbs Camlttss rsssrvss ths right, 1 t I . diiroration, to
f ?*
rsq:ilrs that any Q w n m m e t oseuritise no# fesld or fcsrsaftsr ptirshassd by an Individual Fadaral Bassnrs bank for its mm assetrat bs
sold or dslivsrsd lists tbs Systss* Asoouat*
& W T i m 9*
OTia 0F1I ^ Ki . <ri8*Af.L ;
A * ?
Basfc fedaral Rsssrvs bask aay aagaga In opsa-markat eparatioas othsr than ths purshass or sals of Ssvsnwsot ssetxrltlss, subJast t# ths following soadlHonst
(1) 411 susfe transaotlons shall bs rsportsd dally to
ths Sssratary of ths Coaoittse on ths day thsy taka plaos*
(I)
Airobaass of asosr'tassoas a s bills of mmhmngm
ni
shall bs is asoordanca with ths prerrisio&s of Bagulatlon 1 of
tbs Board of *lsirsn»rs of ths Fadsral Bassnr® & s s f sad tbs
ytit
ratss of Istsrsst or dlsosiast shall bs la assorda^ss with sobsdulos approvad or pras^ribsd by tbs Board of GsnrMrt of ths
_
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority fc.O* 12358
8 «
*
Fedor*1 Rooerre Py*ier:t
Provided, however, Thet no ©Isligation*
payable in foreign otirrei^oy shall be purchased without th*
specific conscnt of th* Board of Governor* of th* federal &eeerve System.
(3)
All fmrchases by 'Federal Boserve ba?s!fes o f b ills ,
jtotee, revenue bonrts ar* warrants of ftates, counties, district*,
d
p o litic a l crabdlvislens or au aloip alitles shall be in accordance
with tho previsions of legislation X o f the Board o f Governor* of
the Federal Reserve Syetew*
(4)
I o Federal Reserve ban* thall engage In tho par*
t
ehaee or eale of cable transfers for I t *
am
aoeotmt without
first obtaining the approval of the Board of Governor* of th*
Federal Heeervc iryrtora* except that Federal Reserve baa.Vs ja
ay
purohaeo and sell oable transfers through the Hehena agency in
accordance with tho resolution# nr regKla&ions of the Boar< of
3
Covernors of the Federal Keeerve System fovsralng the operations
of such agency*
($}
£x*ept with the approval o f the Comrdttee, no fed
eral Seserve banlr shall *nga§* in asy epex»*«iarfcet transaetien#
which are not of the oustoemry olaraeter, which do not occur 1a
the ordinary course o f b*aalne#s, which are engaged In fo r the
purpeae o f affecting general cred it condition* or which asay have
a Material e ffe c t upon general cred it conditions t I*rovidod, however, that any federal Reserve bank may purchase obligations for
the purpose o f affording r e lie f in a siteration iflreiving sp ecific
banking institution* ia it * d istrict*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority £..()■ 12358
foRtstiiro draft of rogttistlon * Fodorai
Q m &rk#t Committoo a « proparod i s
pm
offioo thonrisg
ohsftgs* oy Moo*r*« ^oXdonwoiitor, Snood*
Claytorn and b«thMt
EietAMMM
^u^goatod ohAago* of flr*
ratidu*~2/fca/€i sudor lixiod ia rod*
Saggootod ohangoa of if#
*/t/%4 ssdorliitod is. bluo*
Sa&gootod ohasgoo of lir*
l/z /lb wMwllm* is load ponoiX.
Im^oatod ehasgoa of lir*
aoldonwoieor mi por his aiao«
Ssnood a « por felt MB«r«todttt*»
i-Xaytoo as por hi* j&oaorandtt*Bothos uadorXl&od in post*
IO
N
f & E M L oeuk ^«r.;f w » mttfei
unroll
, 19$$
# A IMIlf Q F ^ f l ^ S
& * i1CM X*
'C
fursuast to tho authority oosforrod ttpoa i t by oootios
114 of tiio Fod«i*al ^ooorto Aot* as oatosdod* tho FodoraX 0po& ^arkot
Cowftittoo >ro*orib«« tho follow!*!*, regulations rotating to tho
opes«fliarJt«t trfc&aaotio&s of tho FodoraX fo«orvo toanJks*
tho FotfaraX Opos Haricot ^osmlttoo o*|iroo*iy rosorros tho
r i # i t to a lt a r, ctsosd* or ropoal th i* rsgslstioa is ustioX or is
o
part at any tino«
s m t t m s«
***i JUuis
(a ) ^otorisaiost oooarltioo* * fho to r* *3ov»rns**t oootiri*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority £..Q«
m Z -
tia s* shall i&olttda boads* aotas* eartifioatas of iiadabtadKSss*
iraasury b ills * aad othar obligations of tha imitad Siatas* laalud*
obligations fu lly guara&taad as to principal aad latarast by
tho mitsd Statas*
(b )
‘ bllaatlofts* * Tho tor® * obligations* shall includa
a l l backers' aaooptaaoos* b i l l s of axahaa$a* oablo transfers, bonds*
rotes, v arri£ i«| debentures* ftM oth^r obligations* iM lo d is f a w eraaeat seeurltlee* which Federal iseaerre basks ara authorised by
leu to purehaae in tho epea aarket*
(o i
SystoB account. - Tha tara *sy steai aoeouat* applies
to itoveraaeat eeeurltles bald for tho aceouat of tha Federal Haaarta
banks imuar tha oor«trol of tha exeoutire eeaaittee*
(dj
Coaaltteo* • the tors "Coaaittee1 shall aeaa tha
*
Federal *>pen •market €eaaittee»
(a )
-xooutlTQ ooaadttoo* « the tera "executive oeaaittea*
shall iMiB tha executive ooaalttee of tho Federal upm ISarfcet Ceaaittee*
SBCHai 3*
0QV&aiilJ«a m»i,XH.8S
% tho tarns of sootlsa 12A of tha Federal Reserve £e% as
aaaaAad tha tiaa* oharaotor* aad volume of a l l purchases aad salas
la tha epea market by Fadarai keserve bamks shall bo &ov#r»ed with
a view to acooaaadatiag aoaaaroa aad business and with regard to thair
bearing upea tha geaeral ©radit situation of tha country*
eproauced from the Unclassified / Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority E .O * 12358
StiGTlif* 4*
F D & U WEM m & m C^OTF.E
iS S J .
(a j
• The ^ooadttaa created by taction 12a
of the Federal Haterra Aat# at n »s4 «d by the Bankie^ Act af 193$,
contitta of tha member* af tha Beard of £avarnora of tha Fadaral Ha*
aarra Syataa and of f i r e rapraaentatlree of tha Fadaral Maianra
berka 1
alaatad annually*
An ml tartanta ta terra la the abaanea of aaah auah repre»e p t t t lft | ih iU ha 4a-aAa» alaatad annually, bat an alternate]ahall
ba entitled ta attend zaaetln&a of tha toanlttaa only in tha abaanaa
of the repretentative for whan aaah alternate it alaatad*
iha ^haintau a f tha Beard of iorernert af tha Fadaral ftaterra %atam a)tall terra ax o ffie io aa whaiman of tha Coawittea
ana in tha abtenoe of tha ^hairnan at any weetii.^ of tha uanuaittaa
tha Coaadttaa ahall alaat
♦ Chair*** ora tea », ana af tha m b a r a
of tha Board a f . * a r e i s j r j | ^
iha Saaratary af tha Board af ^oreraara af tha Fadaral aa-:
terra Syataa ahall ba tha Saaratary of tha Fadaral wpen Market i»a*«* j
alttee** and in tha abaaaaa af tha Saaratary at any seating af tha
j
^ ~ i t * i t .„ML-_4fttia$ant Saaratary i h a l l .to t,
|
tha
iraetor of tha iiiria ia * af tfaeearah and Statlatloa
af tha i^oard sf iavernara of tha Fadaral 4eterra
tha
yttem ahall ba
eoaonitt of tha -oanittee*
■
aiataa ahall aalaat a "* » * eger af tha % a t aa Opa»
^ait but inalada in B
y-Lawf*
j
from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority fc.Q*
-
---w feoV^eooaat1
*
4
-
aoy SaKall) attaad isootiRg* of bath tho Fodoral
upoa JtSarkot Conaittoa «ad I t * .oxocttti'ro vofltttiitoo aad win* shall
haadlo ppoa»aarkot operation® for tho *i*aottti*o Coa»ittoo*
{bj Kooord*. • Tli# Secretary ftf tho £o«aittoo ahall koop
miruto* of a l l i t * aoatifc£o a&d shall Im p * ©owploto rooord of tho
ftctloc tokoc by tho woamittaa upon *11 quortioi® ef policy rolatiag
to opaa-aarkat oporatioa* atd *hall record tharale tho voto* taken
i& eoaaootian with the determination of opo»«a»rkot policies and tho
roaoo&o a**igaad tharofor.
Sach rooord aha l l booowa tad r< a ila tho
property of tho Board of G ororaor*of tho lodor*! Eoaorto % *toa»
io;
ri^eotio^** • 4ho 6« M l t » aa-afo»3dH^a%--4»--*aafr*»gb«»y
-W^~*t- 'looot -fo^ 'ii«oo oool^'y<io*‘
i---~«M-'Of-%o«or.If.ttaoaod aoooo*ary.—
bo hoid ttpoa tha e e ll ^ f tho vh i raatt of the
fc
-Soard-of--*oTorfcoro-of tho > o d e r * l«to*orTo -->y*t»^ or at thoreqaeet
of aay threo aoafrer o o f the <aamittoo*
abet l ag* of tho C
oaaftlttoo
•hal l _
bo hold * t aaah.liigtoa» fi» C» at loo*t four time a oooh year apaa
tho o a il of tho Chairaam of tho Board of ioToroort of tho Fodoral
oaorvo Sy*te» or at tho roquort of aay throo woahar* of tho.^oaaiittoo*
aotieo*
of B o o tie s oallod shall to ^ifoa to a l l member » of tho Coat*
o
aiitoo by tho Soeretary*
Iotas ^xoo«tiw j2o«aittoo ohoald have authority to do*5^»*to
ono or more Fodoral no*«rvo baak*.or o»e or snore
o ffic e r* of Fodoral &e*erT* bank* to oxaouto purchase*
aad sales. ef ^over&aeat securities la It * behalf*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
~ D ECLA SSIFIED
"
Authority fL»Q‘ 12358
• & •
idj
friiaotioiio* «* It 1* tho duty of tho wowaittoo t *
sidor tho m sAi of ooaaioroo and bustnoss, tho goaoral erodit l i t a i tion of tho eountr*, and oueh other ..*tt#r» fc»T*lfe i frltH M VK»r»«g
a* my e o n to ito attention l i f fta| o » ooFiw^ %
noyoo* » and to ©ontldor* ftdtpi, And tranoalt to tb « ••▼oral Fodoral ^osorvo bmk«i
i yw i frlwi t» o>iooo» l ons r f to»h 1 m
mk
regulations » oia% a f »o
i
and
with rttp M t to tho »pi i « i r 1wt operations ©f suoh
banks sndtr
Id of th« F « d « n l Kosonre *ot*
lo )
gtll*y> • tho Coaaittoo w ill fro a tin * to
tiao dotoraiao tho t y n <asrkot polloios of fefat system and w ill notify
tho ••▼oral Fodoral iiosorro bonJto of o i l decisions which require
hotion
on tholr port*
J y i w li po lioy sh a ll "fro subjoot-t<rrw o«i»—
m
»Ado»nO
fcoa op 'Q
hoaglo at *ny fcias *f ^ o» fc h
f
O ao boooao aftfwotlto — d—
s m t i m ft*
(a )
£ *& U *T m
COttltXTT&K
Qrgoaliotloa* • Tho Coaaittoo*
- a it s f trot swot*
fr
l&i a fte r waroh 1 la oaoh calendar year, shall ooloot froa Its own
members an eaoentlwe ooasdttoo oonsistin* of throo aoaboro of tho
Board of woYornoro of tho Fodaral iiooorvo £ystoa and two represent
tatiwos of tho fodoral Kesenro banka*
Tho whalraaa of tho ^oaaittoo ohall ho vhalraaa of tho
ftsaoativa woaaittoo*
Tho &oerotary of tho weas&ttoo shall mot ao tho Soorotary
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority fc.Q* 123 5 8
of tho
i ft— lt t — u d ah *ll koop a ia a t N of *11 it s « • « ! •
la^a aad ftaralah ooploa thereof to tho aoabora of tho Coaalttoo*
^
J!252M2S£* * **
tho duty of tho Exootitlwo
coailttoti
X*
To dlroot tho oaootttlm of oa
toooto purohaaoa aad
oaloa of •'OYonaBBo&t ooourltio* m other o b li-atieaa ia tho
ad
opea aarkat 1* aooordaaoo with tho epoa-**rket policies aUepted
by tho Federal upon iarfeat Coamdttooi
Z To Allocate oaoag tho N f i r i l Federal Kotorvo
m
baska tho a^^regato amount of *roveraaeat securities aad othor
obll^atlo^e hold for tho ayatea ooootmt and to adjaat aueh
allecatio&o front t i* a to tiae to aeot tho ehaa&iag, aoeda of
roipoctiro Federal Booorvo banks*
*ueh alleeetiea shall ho
aade with tho flow of ia ) onobile* each tederal iieeerv* baak
to maiateia o suitable reserve posittea and ib j equal!*!** aa
fa r aa praetlcablo tho sot aarala* position of oaoh tho-Fodoral
ao serve basket
3*
to keep tho oasUters of tho Federal apoa market
Coamitteo iaforaod a f o i l trasaootloco exeeeted by tho Coo*
■ittoo tad of a l l allocations aad reallecatieaa of iororaaost
seourities end othor obligation* hold fo r partieipatlag banksf
aad
]
■«r* Clayton thinks allocation should ho by Ceamilttoa
rather tNus by Jiotsutiiro Coaaittee*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority
12358
« 7 *
*
4*
o « X k & H t lM
it
T® p e r f o r m
w it h
fro a iia o
to
th # o s o s u t lr o
p o llo io s
«uch
o t h e r f u n c t i o n * & ad d u t i e s
o p o a - s i a r k o t o p e r o t l o a s ft* m y
t in t
by th e
e o a n d tte e
-J m
pi
F « d « rtl
s h a l l h e ro
s m t i m «•
a a m e t Q' a m
i
be s t e l^ a e d
« *rk *t
no a u t h o r it y
o r ssako d o o i o l o a s « p o a q u e r t i o & s
of
i»
v o ssd tto o j
to
to
tent
d e t e r m in e
p o lit y .
a^juuf o m * t 1 .$$
0
*>aeh Fodoral i t w n o bank ohall oafa&o la opoa— rkot opera*
tloas u m t sootlea
14 o f
with this rogalatloa mm
tim
m
to
tlno* sad
bo
th Fodoral Booarto &si
m
th o
dirootlo&o issasd
Fodoral Mosorto
bank
sh all
o n ly
by t h o
la
accordance
tsswltteo from
d e c lin e
to oa^aga la
opea*«iarfcot oporatloas as dlrootod )qr t h o Q o n a l t t o o *
1
....... ...
■ - ■
"r' ’
'mh ...... . 1
~
ordinarily. I n tho eo&duet o f opea-aarket operations fo r
tho Systea Account, tho pur«ha#e sr sals
of
obligations w i ll ho aado
by tho ^oi»*or of tho iystoa upon Market Aecouat at II ho m m through
&
I
tho Fodoral fiosorvo Baak of low 3«rk*
la tha soadaot of opsninsrkot
..
I
?
I
j
|
}
|
oporatloas oooh Fodoral ooooroo back, whoa dlrootod fey tho -om dttoo,
|
w ill nako available to tho liaaagar of tho aystoa Jpea ^arkot Aoooaat
|
through tho fodoral aosorto daak of Jso» fork* caoh faads os aay ho
aooossory to ooadaot
aad
offootuato sueh opoa-aarket operations aad
I
I
f
oooh Fodoral Moooroo beak through tho Fodoral A m rrm Baaik of M
mm
ow
f
| lark w i ll ho orodltod alth Its partlelpotlon la tho gmrohato of oh*
j
j
I
llg a tis e * or with tho proooeds of say sals thoroof*
Sop ehaagos Soo. 4(aj paragraph j .
i
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority E..Q* 12358
V
- * -
^
Federal Maoarro beak shall purchase or M i l UoverwaoBt
cecurltlee except ia aeeerdaaoe with aa opon-aarket policy adopted
• y tho tederel vpea tricot ^oasolttee and in offoot at tho time,
j
‘
except that*
(1;
Xa aa emergency* atiy Federal Meeerpc bank m
ay
purchase /ovtrsaost eecurlties ahea aeeeecery to ifforti
r e lie f 1a • situation la *c iv ic * cpccific baaklcg la stitu *
tlena in its district| and
(2)
■iw i o n
«tm
*ft«r obtaining tho concant of the goard of
of C io fcedoaal tiysto i Co-alttoo, any federal &•*
l
a
bank nay purchase or c o ll aoveraaeat securities for
other specific pur pose s , * « » I t s mm aooeae* .
i l l purehacee and sales of ^ovononoftt securities ?y any
>
Federal fceoerte bank fo r lto « «a eeeeuat ahall bo reported arsaptly
to tho Seeretary of tho Federal Opea la ria t CoMBlttee on tho day
they are eoaouaaatod aad to tho &aaager of tho System ,-«count| and
the executive eonaittoe m m
ay ake auch compensatory purchases or
aoleo fo r tho i>yote« account aad oueh reallocations of the obll^a~
tione la tho iyctea Aecooat as nay bo appropriate la tho ligh t of
pnrehaees aad calee made fo r their mm account by individual Federal
Seeorve banka*
’i'ho voaaittoo reserves tho right* la lto dlccrotloa* to
Reproduced from the Unclassified I Declassified Holdings of the National Archives
" d e c l a s s if ie d
'
Authority
V2358
• f .
raquiro that any (taronoaaBt aaoarttlaa m hald or horaaftar pur*
ow
chased by an iBdivldaal Fadaral i i t i t m bank fo r Its oam aeooust
ba sold or dallvorad lato tha .iyataa Aaaaunt*
*»y Fadaral nasarro oao* a»y puronaso uMtad &tataa to*~
.
porarjr cartlfioataa of indabtodnass far tha aasowaodatlaa of tha
Xraasury of tha Umltad statas la aMouats roquastod by tha iraasury
and »sy s a il partialpotions tharalaf bat saah aartlfloataa sh all
aot ba haid fa r aora than 7 days without tha approval af tha &aard
I of »avaraara af tha iadaral iiasarva »ystaa*
s m z x m §•
&m : w m
M
_________
m M m
m h Fadaral iaaarva bank asy aB£*go in spaa wsrkat apara*
m
tlaas athar thaa tha purahftaa ar aala af «e¥araaa®t aaeurltlas* aab»
joct ta tha fallowl&g eaedltioBti
(I)
A ll suah trsftsaotlons shall ba rapartad i s t ly
-ta tha Saaratary of tha voaalttaa an tha day thar taka olaaa*
(I)
rtirataaaaa of aaaaptaaaaa and b i lls of axehaaga
shall ba i t aaaardanoa with tha provisions af tagiilatla* B
af tha ^aard of ^ovarnors of tha Fadoral iiasarta $yata» aad
tha rataa of lataraat ar dlaaau&t sh all ha la acoordanco with
sobodttlos a^provad or prasarlbad fc r tha &oard of aovaraora
q
of tha Fadaral aasarva &yata*i
Frovidad* howovor. That no
j « l t baaaaaa paragraph 8 of aaatian 14 pro*ids• that purehaaaa
o f i altad Stataa >ia,
fariiaaat obligati oxa nay ba aada oiuy la
tha apaa aarlat#
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority fc.Q* 12358
¥ -
- 10 *
obligations poyabla in forai^*
t fn U bo pardhAMd
without tho i p t l f l t ooasaat of th* tfoard of <ioToraors of tha
Fadaral Mooorro £jr«taa*
i*}
All purafcasos by Fadaral
baaks of b i l l * ,
iw ttii r m i 8 » bonds u d n r m t i of ^tataa* oM tatUi, d is
tr ic t s , p o litic *! subdivisions or auaiolpalitios shall bo ia
aecoraanea with tho provisions of iiagulatioii & of tho Board of
governors of tho Fodoral Jiooorro % it m «
(4)
Bo f'adorai 4 t « « m
honk ahall aafa&o ia tbo par-
chaaa or sal# of o tllo troaafora fo r it s m
aaaoaat without
f ir o t obtaining tho a u r o r a l of tho Board of ^©taraara of tho
Fadaral A«i<irfO tystoa* axoapt that Vadaral aasorva banks aay
puroh*so aad s o il eabla traasfors through tho hahaaa a^aaogr ia
aaoordanoa with tho re s o lu tio n or raguimtiosa of tho Soard of
iovaraora of tha Fadoral ttaaarva ^ i t s a $onr&i«g tho oporatioaa
of saoh igonoyt
(5 )
aoopt as providod ia Sootion
approoa i .a* 4 fca
suprs w
4th tha
ssan in ss, ao fadaral laaorwo baak shall ang*6#
ia aay apaa^SMrkat transactions which ara aot of tha ststeaerjr
<maraetar« whieh do aot ooour ia tha ordinary ooursa of bvtalnaas*
which ara aa^a^od ia for tho parposa af a ffa o tli^ gaaaral eradit
conditiona or whieh nay haw a aatarial affoot upon gaaaral
ora&it conditional
Proirldod, howoror, that an/ Fadaral ^osarto
Reproduced from the Unclassified I Declassified Holdings of the National Archives
“
r- '
d e c l a s s if ie d
Authority fc.Q * 12358
/
m■
I
• IX *
bftsk m / porch**# «bli£*tlo& * f « r th*
m
of *ffordia§
r « U * f ia • *ltnwitt«i iwrolvifife •p»ollk « iM B
l
M kisifr in itlta tio iii
I t i t * 4 l» t r k t t
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority £..Q« 12358
Division ol Bank Operations
Tantatlvo draft of %~l«a«s of Pod*raX vpaa
im t Cowalttoo as praparad in Caiiaoo!**
rkm
offlca *howiȣ ou&gootod ohaaga* fey ttoosra*
^oldafrwaisar, 3maad« i>Xaytoa and Bothoa*
■-3,
33
Xut
Su^attad ohasgo*
aaatoraaduK of
s#i^a*tod ohaago*
rar*aua of
^a^attad ahaaga*
randa* of
Suggastad ohaa&a*
of &r* uoldoswoioar aa par h it
z/tB/i 6 § uadarXiftad la rad*
of Hr* aaood aa par hfo mm**
uadarllr.od ia blua.
af Mr* vXaytoa at par his M o
em
under llr,*d is load poaoil*
of ^r* Bothoa nadorXiaad la pan*
ftuyoucr ^ m a n m
M-Lm$
ASCnetS, 1
Sootioa 1.
MKHBMS
urgaal»atloa - i t i » to [At tha f i r s t ®ooti»$
of tha woamittoo f ollow ii^ ^arah 1st aaah yoar, «aoh waafrar of tho
tosadttaa raprafaatinn tha FodoraX H t ia m haak* aad aaah aitoraata
elaotod to oorvo la tha absoaoo of iu«h ©aabor afeaXX forward pr oooafr
the raaord of hi* aXaatloa or a oortifiod copy theroof to tha Soo rotary of tha Oaaaittoai aad# if any qaaatloc bo r&lsod *a to tho
eXactlon or aXl^lbiXlty of *uah xMatbar or aXtaraata* tho Coanittoo
•haXX dotaraiao suoh quootio* boforo paraittin^ *uoh aoabor or
aXtaraata to partiolpata ia tha aaatlu&o*
Sa» l « a »*ta^Xl*had tholr
rl^ht to »arfo aa aoabar* of tha ooaaittpa, repra**ctatlira» of tha
Ftt.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority
12358
S
2
foo
r d ral fioaorto banks tm i their iHwraiWt, In their capacity as
repr*sestetIt*s of oil of tho Fodoral * oserve aanks sad with roi
m ra to their obligations to tho country at ler^e. the11 thereupon
outeriiiiiM »m ii^w iiii» ifc—
upon their dutloo*
^ »tonnK rM liM
int
-iu
a awi B n i »m ■
w w nn
■
■
Section 2*
Alternates - Alternates shall be entitled to
attoad neotinge of tho Coonlttoo o&l/ Ia the abeenoe from a seating
af the nonbor fo r w m oaoh altarnsto ia selected but la such oaooo
km
tho alternate shall have tho sane status os tho aeaber fo r whoa ho
is serving*
Seotloa S«
Oath - Saoh aeabor of tho Fodoral Q on Markat :
p
i
Cosatittee aad oaoh alternate shall take tho oath of office required |
^.n
by tho constitution for offlooro of tho waited States*
n....... .............................................................................................................................................................................................
Seotloa 4#
^uoma * Severn a«abers or ooven sortori aad
alternates present aad aotltg ia tho absence of aeabers* shall con
stitute a quorum for tho transaction of business! but less than a
quorua my adjourn fr o * tins to tlieo until a quorum is ia attendance*
Beetles 6*
^eatln^s - tho <*saaittee shall aeet ia «ash-
lagta&# if* Q* at least four times oaoh year aad of tenor i f dooaod
accessary.
footings shall ho hold upon tho e a ll »ooi«ost of tho Chair*
nan of tho Board of governors of tho Fodoral fceserve Systea or at tho
request of asxf throo roeabors of tho Coaalttee*
Mottoes of o a lls by
tho vhairaaa to othor weathers shall be given by tho Seorotary of tho
Coaaitteo*
requests of aay throo aestbere of tho Ccsadttee for tho
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority
12358
- 5 *
•a ilin g of a « N l l e | aad of tha tt a tharafor shall ba f lla d ia
m
wiritias with tha Saaratary af tha ^o*w»itt#a who shall forthwith
ratify a l l aaatears af tha Caaaittaa*
than tha Saaratary ahall hava
i,otlfiad a l l »«*b ars of tha Coamittaa that a 3»®atl£& has baaa r a quattaa hy thraa aeisbars aad af tha tins tharafor a awatiag; shall ba
daa®ad ta hava baaa aallad*
Saatiaa i «
€aadaat aad .Palibaratlotis * I ha fraeaa&ings,
dallbaratiaas, disaussioas and aotions of tha vowdttaa asd its
s ta ff axaapt as r»qiilrad b/ law aad asaapt as way be ralaasad ia
o ffic ia l sowuniaations af tha Casadttaa*shall ba stria tly corrida*t ia l, and aa iaforaatiaa sh all ba ralaasad axeapt ia o ffic ia l sea*
sfUKioatis&s authorisad by tha Cosndttaa aad ia tha aaaoal rapart r a quirad ta ba aada ta uo&^rass ^
i^at as aaaadad*
saction 10 af tha Fadaral Masarta
Saaapt as haraia pravldad ao raports aa tha meatiaiLS
I Ii.i iin -a iiiiu ir - ^ ^ •- r r i- ^ - y i^ r iW lii>lii>l||l 'M
iMi|liil|< llli(rill>(lfT.<li>i'!Tin~riiirrpiriiip-rTiiriir'tri''iiiriT-iT:°~ ' • ' ilK • ' - -T . ? ’ 'v ■
W
T
'
............................
hi
i ............. ...
af tha Canaittaa shall ba aada bi it s awabars to a»y person or persons
whatsoavar*
Saatioa 7*
v*rdar af Busiaass* * Tha following shall ba
tha ordar oi praaadara ta ba fallowed at waatifigs of tha wssralttaat
1*
tha Saaratary shall §»raaaat tha niimtas af tha
last «»atia& *
i*
fha ^aaagar of tha Systast Upaa larltsta Aaaauat
shall aaka his report of a l l aparatia&s af tha Sjrstti Aaaouat
occurring siaaa tha praaadiag aaatiag*
Saa oaaasaat ia iagulatlaa*
______
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority
12358
* 4 •
3*
the waaaittee i*ea&oaist shall «a»a kit report oa
bugles*, banking ead o t h T eeadltieaa*
4»
The Um dttm shall thaa eoc*5der epea-ewrlest
m
m
policies*
% a a a ja rity vote Piaiialaott* 1oofeoeat of aesfeers preaest,
the woaaittae m y adopt a d lffe re a t order « f baaImees fo r *cy p arti
cular aeatiag*
AWICXJS II
OFFJCMES
Saetiaa 1* ChaSrw* af the ooaa>lttao. * the Chainaaa of
tha Board **f ^o¥armor» of tha Federal Jiaeerve Systesi •hall serve
ax offlei® as Chatrasm of tha Caaadttaa*
fha Chairm* of tha -<»-
aittee shall preside at a ll aaetijifcs thereof aad shell parfera saah
other duties as tha woaaittee w $
mrequire#
Seatlea % aaN MivM M asaaH HiflaiM M MM M W • la the abseaoe or dla• ktiairaaaN praNta»»
Ma MM M
M M M iiM ii’
ability of the vhalrasa af tha CasMittaa tha aeaber e preseat shall
elect as 4 vbairaaa pra tea aae af tha aeabars af the Board af ^ovi
er&ors af tha Fadaral fSeearva %stam aha shell, ia tha absaaaa
o
f
tha Chatraan* eaareise tha paaers aad perfora tha duties af tha
'-hairaam*
Seetiaa 3*
Secretary * Tha Saaratary af tha &oard af
iioveraare af tha Fadaral Maserva Systaa •‘ ell be tha Saaratary of
the Casesittaa*
It shall be his duty te keep aixrotee af a ll aaatia^s
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority
• 8 •
of tho Goon&ttoo m d o oo«ploto wm*mI of tho aotioa toko* by tho
u
wossistttoo m
pon mil
oporotio&o
9 m of policy relating to ©poa*«orkot
u
th all r««ord tho votos takor* Is oanaootioa with
tho d«t«r»in»ti<m of opon-oiorkot polioio* tad tho r t ft iw i tttig B ti
thorofor*
r©quiro*
Ho *h o ll porfora «u«h othor 4 « t lt t ao tho ^oanittoo aoy
la tho obooaco or d isa b ility of tha ioorot*ry aa A»».lftajBt
*Seorat*ry of tho ioard of S-owuers of tho Foderal aooonrs % oto»
shall aot os Soorotayy pro ton*
^ootioa 4*
fiaoaoBiist* * vho I’iraetor of tho tiv isio a of
iiosoaroh and sta tistic s of tho ®sa#d of <*o*araors of tho Fadaral
iiooorro Syoto* oho11 bo tho Eoosittdot of tho Coandttoii*
m shall
* a i la ao odolsaay aafaalty to tho ilo—rttfcoa-. aaA »aha&l -poaf ot^a onoh
ftife aa t
h
kifciaa
i s«o^ 4 » « i aoy
H» aholl proparo for tho
u»o of tho Cooadttoo «ad orosoat to i t suah i&foraatioa aboat busiboss m crouit conditions op w ill assist tho Oaaaittao is tho 4m
ad
*
toraifiaitos n*iofwar^JfcmiTnu 111 m'im imimirnnP' i imrri imi inj i r rdlni ' aadi i shall ^»arf© rs sitoh othar
opo»-«Rrk®t polioios* i'i i
ii' iT
liinni
n
ih w in
in ir
"t " "
. v . -•....1r r iiini'in.. ..
1'ltln M th> 'HmlKf
Sootioa ft*,
BUT r»qalf«
^feppjaor of % s ta » %a& mrkmt Aeootast* *
fho
members of tha -owaittoo shall soloot a ^ilajsagor of tho % s to » Opaa
intrlcot JioooiiB** who shall « t m
ot tho ploosuro of tho Camaittaa aai
shall atioad o i l mootings of both tho Oomilitoo aad it * -xocutivo
Coaaittoo*
H sh all b« tho daty of tho ifiaaa^or of tho Systo* apoa
«*pkot Aaaaaat to eosdaot* subjoot to tho super?isioa of tho
aoaa*
tivo *»© *ittao# opon aarlfcot oporatior** dooidad apoa lay tho Caaaittaa
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority fc.Q* 12358
/
/
m $ -
t a l to p «r f«ra anah athar dutiaa aa tha Caaartttaa way raquira*
m i c i * in*
Saatla® 1*
w m m n v m e-Minsm
Bow aonstitutad * ?h# vowsittae at it a f i r at
m m
m tlng a f t « r **reh 1 af aaeh eaiasdsr yaar shall aalaat frcna ita
& isatera an ixaeut&Ta waa»lttsa of f i t * »a«h«ra o »c a i«tlt^ af
m
thras *«**bara of tha Im rd af aavaraora af tha Fadarml xiaaarra % at«a
and two r*$>raaa»tati*as of tha Fadaral Maaarra feasfca*
4 majority
af tha -xaeutiTa -oandttaa *iiinwnnni»wri,iiiiif> icocstituta -a • quartos fa r tha trass*
ahall rir<nriH m ^fi--- 1-- i— 'ff
rr--,
iiw i.iu
r»iw
r
'-irrftt— -in
aatian af hmalfcaaf
Saatiaa %•
vhairssa af tha Sacaautlva vasad-ttss • Tha
whalnaas a f tha vasaitttaa shall sarv* as off ieio aa ihairaaa of tha
^saaattra vaoMdttaa.
In tha ahaaaaa ar dlaablltty af tha Chair—ai
tha aasfrara praaast shall al#at a Chair—m pr* t a »«
s
Saatlae I *
>>aorat«*ry ~ Iha Saarafcary af tha Fadaral Opas
^ rk a t caa»lttaa shall act aa tha .aaratmry af tha iacaentira vast**
jaltta# a— it ahall ha his duty ta fcasp ai&utaa af a l l nssti&gs af
tha aaamtiva Uaaa<taa* furnish eopias tharasf ta tha assfesrs a f tha
f ederal -pan >4*rket wawsittaa* ana jparfsra suoh sthar dutiaa aa way
ha raquira«U
w
Is tha ahaanaa ar d S u t iiiit i af tha Sssratary an AssisnwnasiMiiamtmisw«aps*<tff«—
i*t—
*
•
< M Ww Mw a M w iM^ «B«a ia i«w
w M w w w Mi«a iiw M a w a w u ^
taut Saaratmyy af that Saard a f ^anaraars af tha Fadaral & assn »
yetaa shall aat aa ^aaratarr pro t w >
Saatlan 4*
Msatlsgs * fha
^xaantlra Caaadttaa ahall maa*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority E..Q* 1235B
m
tkm •nil mi %!
*•
tlMMTMf •
#•
lh*
»*^ri
latlti • i.
t
b® th* lutjr «f
<*as*lit*#t
X*
i « •— •*%% 4Ur— t th« i m u t l w « f p m m m
mb mm
« » U i <sf
**o 'ir5 U *« m other
ud
im fcim #p*»
s»riee* 1 s •*e*r4a»©# with th* np9m«mmrkifc # *ll# i*e *4©pi#<* fey tn«
t
»eri#%
I*
I# *ilee*i# *ssea* th* « m r t l f*d*r*l
bmmk*
%hm m$gpm§•%• Meant of ;
*#*w Ji*afc ##«ttriil»e ««£ ®t>»«r •fcitftifatMi
*H
& i far
*«*l<
ayrt®* m
sewiift *m to
4
t l* * t » % w t# a ««t tha
%m
k##*rt* tomk**
•a*fcll»£ **eli
ia«h *li*s«ktf«&* fra*
mm4* of the r®«f>**t!v*
iliit it lw
d ia l I to m m with th* v l* « »f i » )
*&
.■ J iirn tomlt t® m ist*in • § u it«^ l* r t i t n t
& 4 ifcj
&
*• fmw tt >r*etleftbl« tte* »•% eera1»$
af *fe# efcs^ f*4 #rel I t t w iv topics#
5*
I* keep the
i**b«rs af th# *4*r*l w^*» m r to tt
j
lm t*nm <L o f all %jraa«**tl«ftft m m w it*d by th* €«•» j
■
i
ftti af mil *ll©#*fct**Mi «md
of *imMr*«#&t #**wri« j
S M m m tliim
tt#« mid *th*r
4*
# h#l4 far pftrtlalp*tl»4; f a f a **£
cecf
fa pmrtmrm w m h other fn»eUii»a Mai 4«tia» I i
j
!<« «ith o^#r-»«rk«t «p*r*tl<»&s *» *% to *»«l$s*4 t# It fr*«
y
a*l% la
>r»
but taeittaa ^.n—rf-f.rturmJff-r.-t.rr-. in r j-i
%
m
.*
l ym
& t thlaMt» allaeatiac ,ih»4l to it r Cawalttoa
e
r«tk#r th** kxaentiva t'fwrittoa*
;
i
I
j
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority fc.Q» \2 3 5 8
/
m * m
tinm to tiaso by the Fedor*! Upon lawrfcot w<w®iitteei but t*to ox*e«tl*o
committee thall h ’ no authority to d «t«mSM
ta
SM lliO BI upO qutltio&l of poii«y*
R
AKi'icui: r*.
or m
oke
____ _
t-M&aturns
Those l ^ - l i v « my bo oaottdod * t any mooting of tho Com*
a it too fey * »oJorifcy w t o of tho entire Coowittoof
i*rovidoAa Thnt
s copy of ouoli omondstont shall hove been d o liw rtd to oooh menbor
at least ton days prior to susfe Mooting*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority
V235B
■ t o s Hie
ain
Moreh 1# l»f6.
fontotlT* Sroft
f mo m cm
m*m m mt
u m m tm
b i - la ^s
Mtms i
SftUoB !•
mm§m
* Prior to t w first
li
of tho
Coas<too following Isroh 1st sosh y « « r t ooofa nonbor « f tho Cowalttoo
roprooo»tlAf tho Fotorsl I*ooAr*o books s&6 oooh oltorssto olootod to
ssrrs In ths A m b m of t t ^ i nwrhor shall forward tho rooord o f his
olootlon or « oortlflod oopy thsroof to ths Soorotory o f tho CombIttooi
w i t I f sny quostlcn bo rolsod so to tho t U t t l M or eligibility o f saoJi
woabor or sltorAoto, tho CoMtttoo shell deterBine suoh question before
p e r*ltti»g eweh Asober or oltAfAAte to p r t l « i | i t i Ia
aoetlo&u
II«rl»g established their rig h t to sorro «s seaabers o f ths eoanlttee,
reprocess tot Iwee o f tho Peters! ^osorro beaks sad thoir alternates, Ia
tholr eapeeity as representatives o f o i l o f tho Federel l o sorro banks
m4 with rogsrl to tholr obligetioAs te tho eenntry ot lo r go 9 sholl
thereupon enter upon thslr duties*
SootloA
Altorpotos • Alternates shell ho «stitl»4 to
ettsasd aootings o f tho Cseeitteo only i m tho ebeotiee from a asetlug of
tho aoafeor for utiom mmh alternate Is solootod hot Ia suoh sosoo tho
oltOTAsto sholl h c o tho
sr
•tAtAA
oa
tho MHsfeor for *taA ho Is sorr
*A g *
Sootlon S* Ooth * l*eh i o t o of tho Fedors! upeA MorkAt
Bwhr
Ceaasittee snd osoh alter&ete sholl toko tho oath of offloo rtfiiroi
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority fc.Q* 12358
fey the
flor e f f i w r * o f the Jaited ^tAtAO*
Saatfaa 4* ftparaa *
a«fear% or
aXtaniAtAc praaaat aa* aattug I» thA ofeeAneA of aemboro* ahmll consti
tute a $aer«a for thA traaaaatiAtt o f Im 1bi««| but Xea* thaa a qoerua
aey «^ »«r B fro® tiae to tie* watiX A f*Afm io in ettendenee*
£eetio& f * fceettnKO - fhm C«a*ittee obeli s n t Ia iaAhlsgtAtt*
t
D* c*# «t X«Mt Door U s »t AAAh yeat aa* Aftaaar i f floaaai sM H ftry*
f'ieatiagA aIiaXX bA bold upon tim aaIX ef the C
i
Hainan ef tha Bear* of
^e-reraere ef thA FeierAl Eeeerre Syato* at at tit* requeet ef tety three
aeahara Af the GAMotttea# SatiAAO ef ealXe by t i Chairaaa to other
le
a r f e e ohaXX be givea fey the SeArAtary Af te Coaaittee. iefHAata Af
oacr
eay three aaabort ef tho Caaaittaa far the Aalllig Af a meeting, an! Af
thA tlaA therefor ehell f e fila d in aritiag with tha Saaratary Af tha
e
Caaaittaa who ehalX fortiorifc notify aXX aoabare Af t i* Ceaaittee* Whan
b
tha Saaratary ahaXX hare aetlfed mil aaabara Af tha Oeaadttaa that a
meeting; hee beam requeote* by three maatoa#a aa* af tha tiao therefor,
a aaetiag eHaXX ba AooammI te hava baaa eelXed*
SAAtien 6«
Cen^oAt Aai SoXIbarAtioga • The prAietdi«| > »
deliberation*, 4 l t a i a i i « u aa* motion* a f tha Cewmittee, eaeapt aa ra*
fn ira * by la v aa* aseept aa aay ba raXaeaa* in o f f ie i e i aowaiwalAAtioaa
Af tha Coamittee, shell be a tria tly confidant 1*1,
aa Information
ahalX be ralaaaa* exeep* ia ef fleiaX eeiwmaloetlono emtfeariaA* by tha
CamaittAA « o i ia tho a&aaX report require* te ba mato te C
en^rooo by
aaatiaa IQ a f thA FadereX Haaarva M t aa aaa&ded*
ixoept aa horei»
R e p ro d u c e d fro m th e U n c la s s ifie d / D e c la s s ifie d H o ld in g s o f th e N a tio n a l A rc h iv e s
DECLASSIFIED
Authority
•S»
provided, m
roports m
tho asotlngs of tho
Ita aosafcor# to say
ahall ho m
ad® fey
or poraoa* ohatooasror*
-option T*
^rdor of B*slao»a * fho following shall ho the
or dor of prmsdwro to bo followed at asatings of tho Coaaittooi
1.
ths £oorotary shall praaont tho sdxnttaa o f tho loot
f ioo l g t
f tmt
S«
The
«aogor of tho §y#ta* -pon i-‘ar kots Joooa&t ahall
aafes hi« report o f a ll operation* of tho Sy»tsa Aoooaat ooour*
ring slaoo tho pr seeding *aotin£»
8*
Tho ^oraulttoo ^oonoalst ahall m
ake hia report.
4.
Tho Co«Bittoo shall thee oocsider opoa-aarkot
polioio#*
Sy a aajorlty
TO to
of *ee*fcora preaost,
th a
Coaaaittoo M y
adopt a differen t ordar of buaiaeas for any partiaular sooting*
j m w t M ii.
tfootioa 1*
mum.®
Chalraan o f tho Soaattto# * tho Cfaairaaa o f tho
Hoard of devarattr# of' tho *ed#ral aooorre Syatoa ahall sarra ax a fflo io
aa Chairasa o f th# Coialttoi*
fha Chairman of tha Coaaitteo ahall pro-
•Ida at a l l aeetine# thoroof aad ahall porfara #i*oh othor duties as tho
Ooasdttoo say ra%uira.
Settle* 2.
Chairaaa pro toa - In tho afesoaeo or d isa b ility
©f tho Chairasa of tho Comlttee tha Mahers presont shall alaot a#
Chairasa pro tsa ona of tho aeiabora of tho Board of Cie-rernors of ths
R e p ro d u c e d fro m th e U n c la s s ifie d / D e c la s s ifie d H o ld in g s o f th e N a tio n a l A rc h iv e s
DECLASSIFIED
Authority
1
235%
r i # n i aaaarra iyataaa wbo ahall, Ia tha abaanoa of tha Chairaaa,
•xtr«li« tha p m m r i isd par for* tha dutiaa af tha Chairmaa*
%»tl * *
Saaratary* * tba Saaratary of tt*a Board of Oar-
araors of tha fadaral aasarra Syatsai aha l l ba tha Saaratary of tha
cnalttaa*
it ahall ba his duty to kaap ainutaa of a l l asati&c* of tha
Cooalttaa tad a aoaplata raaard of tha aatloa takaa by tha Caaaittaa
upoa a ll quaationa a f polioy ra la tia * to opaa ay lost oparatlona and
•hall raaord t o rataa takaa in aaaaaatioa with tha dataraiaation of
apaa"-a*rkat palialaa aad tha
raaaons assleaad tharafor.
fora aaah othar dutiaa as tha Coemlttaa may roquira*
Iu
Ba ahall par*
tha atoaanaa or
d isa b ility of tha Saaratary aa Aaaistaat Saaratary af ths Board of Gotaraors of tha Fadaral ttaaarra Systa* ahall aat as saaratary pro ta «*
S#atlQn 4#
^aoaoatist.* Tha Idraator of tha Dirlaloa of la*
aaarah astd ita tta tia a of tha Board of Cararaara of tha Fadaral Eaaarra
Syataa shall ba 'tha n*OAOalst of ths Cavnittaa*
M shall ;<rapara for
m
tha aaa o f tha Ooaa^ttsa aad prasaat to it sash information aboat busi
ness aad aradlt aonditloas aa will aasist tha Caaaittaa la tha dataraiaa*
tloa of ope aeaar feat palieiee, aad shall parforn saah athar dutiaa aa
tha Casadttaa may require.
Saatioa I*
waaaaar af Syataa Jpaa Market Aaaoust * Tha
aanbara of tha oanailttaa shall aalaat a n^aaagar of tha Syataa Ofaa
lerkat Aaaount" who ahall aarra at tha pleasure af tha wesadttae aad
ahall attaad all aeatiags ®f both tha Casmittaa aad its laaautiv* Cowlttee*
It shall ba tha duty of tha Maaagar of tha Syataa Jpec Market
R e p ro d u c e d fro m th e U n c la s s ifie d / D e c la s s ifie d H o ld in g s o f th e N a tio n a l A rc h iv e s
D ECLASSIFIED
Authority
A#count
1X^5%
to #oi*4uat# #ub>ot to tho ouporrlolon of tho &xooutiro Commit*
to©poo-»arkot opormtio&s 4#oido4 upon by tho ton«ittao wad to porfora
•uoh othor AitSti on tha Caaalttao aay roqplro*
MtZOUt III#
Saatioa 1.
JttWHHfini C m O t t M
How ooiftitut#4 * Tho tonalttoo ot it# firo t
mooting o f tor £&
aroh 1 of aaab aoloadar yaor ofeali ooloot fro a ito own
aossfearo on ,x##utir# Coswlttao of f ir a aoafear# oonoittlag of thraa m b *
bar# of tba Soar* of ( ^ m r a r i o f t&# faiaral, toaarra Syston and boo
r#pr#o#nt*tira« of tfca F#4#ral .'iooorro banks*
A ao^orlty of tho 4*aaa*
tiro vonaittoo sltoll oonstltato o y w r a i for tho tr«at«itio & of buslnaos*
ootlon 2 *
•
glMdrasa.of tha jaaaatira Comaltt+o * Th# Choir*
moa of tho
Caaaittao sholl sarra ax o fflo io as Chalrnaa of tho iaaoutiro
Cocsaittao*
In tho sbooaao or d isa b ility of th# Chalraan, th# nsnbars
ro##r t sh all #l##t o Chairaan pro toa*
tS«otloB ?• Saaratary - Th# baar#tary of tho Fadaral Op*n
Varfeot Coaaittao shall oat a# tho Saarotary of tho &aautlrn Cmaslttoa
•ad it shall bo hi# doty ta kaop aixmta# of oil mooting# of tho ^xoautlra
Co»ittaa, fur»i*h eopl## tharaaf bo th# Mnbors o f t e F#4#rol upan
f*
lar&ot Cais<tao, aad porfora snob oth#r duti»s a# nay bo m^tirad#
th#
Is
*>##n#o or disability of tho Saarotary* an A##i#taat Saaratary of
tho fcoard of 'Jmraori of tho F#daral Eoaorra Systaa shall aot aa $#ara*
tary pro ton*
R e p ro d u c e d fro m th e U n c la s s ifie d / D e c la s s ifie d H o ld in g s o f th e N a tio n a l A rc h iv e s
DECLASSIFIED
Authority E..O- 1235B
gartioa 4*
l*attftj£i * th* ajwautiva Con<taa shall m %
»m
©a th# oali #f tfa* Chairaaa tharaof•
S ^ tio n §*
Powars aad datlos * It shall b# th# duty of th#
IW iB H V I COWaitta#«
1«
To diraat til# #xaautiaa of par#has#s m sal#s o f
ad
iwot *##urltl#« and othar obligations la th# opaa aark#t la aaaor&aaaa
with th# opafr-msrkat palloi#s *dopt#d by tha Fadaral &pm Karkat Csw»
ai ttaaj
I#
I# alloaata aaon* th# sararal F#daral Sasarva books th#
agsragata saouirt of Q rm m t #aauritlas and oth#r obligation* hold for
& rm m
th# Systaa Aaaauat aad to adjust *uoh alloaationa fraa tia * to tiira to
tt##t th* ohaaglag a#ad* of th# r# *p aa tlfi F#d#ral koa#r*a bank**
Suah
allocation sh all ba aada with th* riaw of (a ) aaafcliBg #a#h F#daral
A##arra bark t# maintain a suitsbls raaarva paaitioa and (b ) oqwaliain^
as fa r as praatiaafela th# not #araing paaitioa of ###h r#4«r#l tioaarra
bankf
?•
fa to*ap th# m
srobar* o f tha Fadaral Opaa karkat &3o*aatiTa
Camlttaa iaforaad of a ll transaatioas aaaautad by tha tovnittaa aad of
a ll allaaatioaa sad raallaaatioas of Gararaaaat aaauritlas sad othar
obligations hold for participating banks* sad
4#
fa parfora sash othar fa; at io as aad datias la oaanaatloa
with opaa~aark*t oporation* as asy ba aaslpw d to i t fro a tias to tia s by
tha Fadaral Jp#a ^ark#t Cocmitt##f bat th# #x#autiT# #oaaltta# shall
hav# ao authority to datamiaa palioios or safe* daaisioas upon qaastioas
o f polioy.
R e p ro d u c e d fro m th e U n c la s s ifie d / D e c la s s ifie d H o ld in g s o f th e N a tio n a l A rc h iv e s
DECLASSIFIED
Authority
12/^5?
■ AKflCLa m
Th#«# b y la w * m b# «M#a4*4 * t w y MMtlag of th# Cowaitt#*
ay
by ft M jo r lt y rot# o f tfe* «mtlr#
Thftt a #opy of au#h
m m & m m * ahall h#r# b##n 4#lfr#r*4 to m m k w m tm r «t l# * * t t*n days
prior to auali a##tl£g*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority fc.Q * \2flK58
~ Division of Bank Operations File
March 2 f 1936
-? ' V
T V
11
^ v u ■v *
Mr. Dreibelbls
Ur* Snead
Mr* *y a tt, In his m m
m or^ndxm of February
asked no to give
you any ooanents X bad to nake with regard to tho proposed regulations
and by-law* o f tho Open Market Coaadttee*
Soso of tho changes X have to suggest are aerely typographical
and othoro aro substantive.
Section 4 (e ), paragraph 1, lin o 4 — In sert tho word *of*
boforo tho word • f i n 1.
Sootion 4 (a ) | paragraph 2 — Change words *ie a lso 9 in lin o
2 to "sh a ll bo*.
Section 4 (a ), paragraph 3 — Change word *a* in lin o 4 to *a »*
and add a fte r word * pro-ton*, *one of the other aenber* o f tho Board o f
Governors o f the Federal Heserv* Systen**
Sootion 4 (e ) f paragraph 4 — Riould not provision bo aleo nade
fo r soneone to aot in tho absence o f the Secretary o f the Board o f
Governors!
Section 4 (a ) , paragraph 6
While X appreciate the reasons
pronpting th is paragraph, i t leoai to no that instead o f having a
*a»aaager o f the Open Market CoiKaittee*, the executive eonaittee should
have authority to designate one or nore Federal Beserve banks or one
or eore o ffic e rs o f Federal Beserve banks to execute purchases and sales
o f governnent securities Dn it s behalf*
'/a/d(
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority
12358
Hr# D reibelbls — 2
Section 4 (d ) — Sugg®*t that Section 4 (d ) be revised to read
as follow si
"Functions. - I t Is tha duty of tha Committee to consider
tha needs o f c©amerce aad business, tha gaaaral credit situation of tha
country, and suoh other matters having a bearing thereon as Bay come to
it s attentionf and to consider, adopt9 and transmit to the several Fed*
e ra ! Eeserve banks* regulations and directions with respect to the open
market operations o f suoh banks under Section 14 o f tha Federal Reserv®
1 st**
Section 5 (a ), lin e 1 — Change word *in * to *at*«
Section 6 , paragraph 2 — See comment under Section 4 ( a ) f
paragraph 6«
Section 7, sub-paragraph 2 under paragraph 1 — I t is suggested
that the words *fo r it s own account* be omitted fro a lin e 4*
Some of the
Federal Beserve banks buy and s e ll securities fo r account of their aeaber
banks and i t is assumed that i t is not tha intention of this paragraph to
prevent thee hereafter fro a rendering such service to aeaber banks.
Section 7, paragraph 2 — £1 Ininate the word "promptly* at end
o f lin e 2 and in sert words *on the day they are constzaaated* a fte r the word
•committee*, lin e 3 *
Section 7, la s t paragraph — I t is suggested that th is paragraph
be elim inated, since paragraph 3 of Section 14 provides that purchases o f
United States Government obligations may be made only in the open market*
Section 8 , sub-paragraph under paragraph 1 — I t is suggested
that the word “d aily* at the end o f lin e 1 be omitted and that the words
eproduced from the Unclassified / Declassified Holdings of the National Archives
D E C L A S S IF IE D
^k
<
v
Authority
>
•
*
123 5 8
Mr. Dreibelbis — 3
•on the day thqy take place" be added at the end of H u e 2»
By-laws
Article I, Section 1 — Suggest that the word *at* is line 1
be changed to "Prior io", that the word "present* in line 4 be changed
to "forward*, aad that the words *to the Secretary of the Ccanlttee* be
added after the word "thereof* in line 5 *
Article I, Section 4 —
Should not a sentence be added stating
the umber of Bankers necessary to constitute a qnorun of the executive
coanitteaf
Article X, Section 6 —
It is suggested that the words "and
Its staff* be eliminated fro* lines 2 and 3 , as the preceding words
refer to the coanittee and not to the staff* The meaning to be given
to the word "released* In line 5 is not clear*
Does it wean released
to the press, or does It Bean that a representative of the banks on the
Cosnlttee is prohibited fron Baking known, to other officers and directors
of his bank or if another Federal Reserve bank represented
his any
of the discussions end actions of the Coanlttee?
Article X, Section 7, paragraph 1, sub-paragraph 2 —
See
eoanmte under Section 4(a), paragraph 6 of "Regulations*.
Article 1, Section 7, paragraph 1, sub-paragraph 3 —
Change
this paragraph to read "The Conodttee econonist shall report on business,
banking and other conditions"*
Article XX, Section 2
See consent under Section 4 (a), par**
Bonds of
X/iS t r m m m f Bonds af
3/if t r m & m j Bonds of
3/$f f r m m t y Bonds af
1/45 tfiMsiiry Bonds of
3/4^ treMwry Bonda of
3 / W ?:r»a«tiry Bonds of
3/4JC Treatury Bonds of
2/ 6f tr m mm y Bonds of
1/41 Tr<w**i*y Bond® of
3
3
1
3
3
3
2
3
4
1114,600
$529,000
t
1941- ':;'i
;
1943-43
1941-43
1943-45
1944-46
1943-47
1945-^47
1946-49
1947-52
110,600
162,500
160,000
65,650
total Bonds
Treasury Rotes
.Tmnsory Bills
Total WmB+Smmri%%§$
1550,000
500,000
14,000
422.000
1,766,000
103,000
165,900
4*5*300
57,600
524.600
4M *
4£ fr«a«ey B w m of 1944*54
3$ Treasury Bond# of 1951-55
3 3/4* treasury Bonds of 1946*56
V W Treasury Bonds of 1955-63
># Paa*»*g. of 1961
10,450
2,652,700
631.000
40,000
«..< «».•
>
210.600
2*000
mm
m
m,7oo
6,550
695,550
—
—
723,000
« W M it2L
M W iMS£a
—
—
7,011,650
1,695,050 1,652,000
—
1500,000
561,000
76,356,550 1,733,400
44,<^2,000
« * ^ $62,741*303
*
—* (
»
—*
600,000
695,550 122,065,600
3,365,400 62,741,000
500,000
7,572,650
~~
—
—
—
<—
*
—
—*
—
—
1795,000
4,000,000
.—
5,205,000
—
$643,fOO
10,600
10,450
2,606,700
693,500
40,000
710,000
9$7,650
1,669,000
524,600
795,600
4,37*,500
542,900
6,036,700
1,329,550
1§5,200 .10,000,000 21,239,450
—
—
79,152,950
«
—»
* . 106,753,000
—»
1*5,200
10,000,m
207,145#400 f
gp
s
»•
*
¥
£
fcptA/
ly
J
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority fc.Q* 12358
V r i
oi Bank
O
perations F
ile
Kob
Kesarst Clay tea i
Morrill
Goldonwaisari
Swoad
Cionaral OoutatU
Draft of
Jjgtjat
27,1936#
"
4t"
2 3
V"RT I'RGRKT.
Thar* ara at too hod hsrato fo r your eonsidoration, oopi«a
ef a tontatiro draft of proposad by-law* and regulations of tha rad*
oral Opan Marlost Joaaittaa whish hava baas proparad by Mr* braiboIbis
In aosordaaaa with a raaaat oo&foraaaa botwwan Hr* oldonwoioor, Mr*
M orrill and tha uadartignad*
It it important that thaaa ba plaaad ia fora suitabls for
oonsidoration by tha Board as toon aa possiblo in ardor that tha Board
M abari Kajr hara t ia s ta study thaa and, if aooossary, hava a rariaad
$raft praparad, Imform tho f i r s t mooting of tha Fadaral 0p#» Markat Cos**
aittaa which way hara to ha aallad ahartly a fta r Marsh 1st*
It w ill ha appraoiatad, thorofora, i f you w ill study tho so
drafts and 1st Mr* Draibalbis hara tho baaafit of yoar suggostio&s at
your sari is st oonwaaiaaaa*
It any substantial diffaransas of opinion
daralap wa shall andaaror ta a rr a ^ a a oonforaaaa on this subjoot at
an aarly data*
Vary truly yours.
la ! tar % a tt#
Oaaaral Jou&sali
ittashaoats*
< - 2
3
3 £
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority
12358
^r*£t
m m j k i or^ a m m t
44
*"
-
Os
Bmtim i
fwptmiit t# th*
i*a
m®twrr*& upon it %
o * th* ?*ii*r*i i**#r** .£#%« **
i
***tlon
ts&# lateral % • » &ar*«t
rtUAlng to th* *p*»»
p r m m r V b m %fm
tr**M*tl&Mi «f tht f’ & m m X timomr**
v
T m ?»^rft 1 Op«m $*f%*t C««*ltt**
r***r**# t£*
rt# % t* »it*r* fumA* er m i w & l t‘
l* r*£«l*tt«a in
«r im
part at <*ay tin*.
6 8 5 T M 2.
(a)
3 r tSttnSil
m o m r i t l m * • Th* t i s nH m m m m n % «# n ^
#*s
rltiaa * shall iatitti* b®w£m§ net**, ##rtifi**t** of i?»t#&t*a^#e*,
Trmmwty M i l » t m 4 other
•fellgfttleti# fuiif
(e
f)
*il hmkmr**
®f tli# tfettwt £**%••» lF#ii**Sing
m
t# priMtipml ami l«fc*r**t f y
e
teiifikXlmw* « Th* $ m m "obJligptlcMis* *fm%% imtmAm
•
M i l * *f
mhlm
bm�
m t m § 0 w * m n t s § dmlmsbwrm, mud otfe^r o b l i g a t i I m l m t i m 6 m * m *
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“
d e c l a s s if ie d
Authority
\2 3 S 8
m t »
m
erct
t#
*hi*h < w A # r*t B m m rm
m M m rta m d by law
p e h * %the
mm m
»
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te
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gyytiM ascent* • ¥fc» tm t
am m ltim fmM for th* mtomfc « f th*
%*•?-**
bmk* mOmt tl« toHtrtl #£ the mmitlv# n iK lltn *
(4) 6«tal%t»»« «* Tb* %
e:m
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.
£e4«rAl O e s 3fei"ta»t Cewaitt*#*
pn
• flit % rm *«*NHMtlv*
w
b mmi
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the
of tH» ?#dtevml % # « *ferfc*fc C<ttat%te««
tinSTt'S »*
T *%m
h $ 9
m m t r m
m mm ® ml p t h m **!#*
& l m t i we m
Immrr* Husk* ehtli be gftwraftA with %
Is t&» apen
r l« « t«
m m tm m d h t m m
m m
o
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m kr g r
it
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th# %mmrm\ Qm< #lto*tlm &t tfe# oeuafcry*
bearing
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I&
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:«h cedtors of tfc» »«*ri #f
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yv%
« f ti» F*A#mt
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A eltermfce % •*r*t In % alHMmt * f m m h v m h rm pv#»
m
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fe»
It «!•« ftUwMi ««mftlly# but
iWiA,
m &% r % »tmii
l 9m m
be es«tl%l»4
—
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority fc.Q* 1235%
to ottoad Mooting* o f tho CoHrotttoo o a ly
t* s
t h i •% «•»«• o f tbo
fo r « N n m ih oXtormto in olootoi*
flat Chftiraan o f tho B«or4 o f O
oooraoro o f tho FodoroX
«ooor*o Syotoo ofeoli ooroo ox o fflo io 00 Ofaoivwon o f tho Cam lttoo
fl^td 1» tho 0^00^00 o f tho C te tm n ot on/ oootlt^ o f tho Oomlttoo
tho Co&attoo i lf t l l oloot o Cbairmn pro ton* c -/
Tho Soorotory o f tho ftoovi o f SimMmorw o f tfcw FodoroX
Booorvo fiyitoo «boXX bo tho Soorwtory o f tho F#4oroX %on
*u»&ittoo*
Tho Pijroofcor o f tho S it liie e o f Hooooroh *nd * tottotioo
o f tho Boord o f Oor orooro o f tho FoioroX tiotorwt Syotai «hoXX bo
tho
ooooaUt o f tho C «n itto o *
Tho Conmittoo oholX ooXoot o *:^osjoc®t o f tho Syotoo Opoo
tv
iorhot Am o h I* who ifa ilt ut t ir t in II ago o f W D i f in lW i » i l % * *
—
Horkot Com lttoo o»d ito 1oooottvo Coowittoo oad who ofcoXX hoadlo
I
f
-
pp*&m*rk»k oporotloao for tho t e o vt lw Cow<too*
(%}
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f. *
te fflS E * * Tkw Soorotory of tho OflMdttoo ohoXX koo?»
»ii*yt*o of oXX Ito oootlogo oa®d oftoll koop * vtiwpXoto »ooord of ti»
•otic® tokoa by tho Comlttoo aj>on oXX $oootiooo of poller roXotl&g
W
rfc— gfc y i
1iifc
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In oonnootlon with tiao dbotorwta«ti<» of opwMirktl poXioio* ood tho
w m m m m oo#lga*4 tvorofor*
(o)
* *** OoMoittoo ohoXX noot In '%ohl«rt 0
toa
C# ot Xooot foar ttxaoo oooh yoor# ond oltonor If doo^iod nooooooary*
r
v
M
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority
12-35%
m % m
atoll. to to!4 uptm tto m i l of tto Ctalrafctt of tto towi
of
»f tto fto#r*i to#*r*w %*%•* m
t&rto *»*»tor* of tit* timmittm**
loll©** ef as**tin4 * c*l]*0. ctoll
to glir*s to *11 mator* of tto C®»itt**
^
*t tto r*<p**t of
th* toorttory*
£SBSM5ES* * ** *•
te eta*
•I4*r th* » • * * » ii 1 oo®a»re* *csd to«fm ««s# tto £ «»* r * l *r*4 it t ito t*
t 1.*n of tli* MMferyt
§mh oth*r mittor*^ »c my eea» to i t «
•tt*fttit«(tavift& * to*riH 4 t'tor#<m«j *£4 to ©0K*14*r# *dftpt« *ad
T"
tr*fc*»H to tli* * «v * r * l f’* # * r * l E***r¥* tonto* r*&ul* t l 0B «/r*l«titi$
c\
1
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t* th* ©p«n~wfcrfc»t tr*i»#ftottoP« of *«#tt to®*k»t Alr*«t4o&* with
to tto #p*ii«mrlr«t *|»*r*ti«ni* of *ucb tosfc* «ii«J*r *##tl*» 14
of tli* ?to*r*l M«**rf* Jy*t«
(•)
policy* • fhm C«w&itto* will f r m it** to
t l m d*t*r»im* tto «fpm«a*rtot |»©it«l«# of tto *
$
**d will notify
tto **v*r*l f*tor*l to**rv» toBk* *f nil 4*#i*l#®i* *hioi» rwqalr*
%otlen '*« ttoir p^rt* & each policy itoil to sm&J*«t to r**#»*
»sy
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tftor A*r*fe I la **#li *ftl*»&Ar y**r* *toll m l m t f r m It* m m
®*astor* * s #***»tlv* ooswltto* «*is*i»ti!% of tfer** »*ator# of tto
i
Io*r4 af rfotwuon of tto #"*d*r*l
%*t«« a*4 two r<&|*r***£~
Reproduced from the Unclassified / Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority
1235%
m i m
t
totiroo of tho Fodorftl
bork«*
Tho whtirwu of tho Cotffelitoo i h i l l b* vholrmik of tho
3t#CuCiV0 .0*saltt#O.
Tho Soorotary of tho Cwwitto© oholl 00% • « vh* Soeretfery
of th# mmwMw Coaolttoo *&d oh* 11 koop adcutoo of » H
it * *.oot«*
inui ood furttioh « o p l«« thoroof to tho aosbor* of tho Coaaittoo*
(b )
Fttttotloao* • It ohaXi bo the dttlgr of tho lx*ottti*o
Coaaittooi
I.
To oaooato purohoooo «*ad **»!•• of u&irorf«o»t
ooouritloo Usui othor obll^otlofto ia tho opou w k o t In oo»
oordonoo with tho opo»«atrkot poiloioo odoptod fcy tho
Kodorol Ufson ^orkot Cowolttoof
t* To olloooto oao»$ tho oovorol Fodorol Mooorvo
bo&ko tho *g*rogftto **«*a*t of >©Y*ri*ao»t toooritioo *ad othor
oblt&fttioiio hold for tho tyotoa ftooount ond to odjuot o«oh
ollooot&o&o fro* timo to ti»o to aoot tho oh*sgl»$ **oodo of
roopoottoo lodoroi iooorvo bonko* B»oh olloootioa tholl bo
i o o with tho vlov of (m) o&ftblim$ o*oh fodorfcl Itooonro
sd
bosk to solBtolfi f ouitoblo rooorto position o«d (b) oqufciit
stag 00 for 00 prootlooblo tho eot oomli^ pooltlae of tho
Fodorol looorto bt&koi
$«
to koof tho aoaboro of tho Fodorol Of#® iiorkot
€oa*ittoo iafarwtod of o i l trm&oootloDi oxooutod by tho ^ms*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
------------------ —
D E C L A S S IF IE D
„
Authority
12.35%
m 0 m
olttoo m A o f t U
a
oa* f f i l l n t l i t g i o f kuwwnnat
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•B el
u
*
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m
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m dofcloo In
ad
to «9 «i| ai4 to
I t fto a tlwo to tlno Ilf tho Foiorml Opoo Haricot 3<ks tttooj fcwt
tho
oare.ilttoo Rhall >«ro oo authority to *otorodoo
polio lot or so&o siooioioao upon fuootioa* o f polioy*
«*
aoOTCT or o m
M u m OMuerxtm
Booh Fo*orol looorro H ak oboil oaf*£9 1* opoo*MOfkot oporotio n i imdor oootloo U o f tho Fo4orol ftooorro Aot »mly ia oooorda&o*
•
.
with th U mmu lo tU a onA t e diroottoa* tooiao* fcy tho Cssoaitfcoo fro®
tfc&o to tl«»o* on* oo Fodoral Sonrvo took oh oll doollrjo to oagago in
opon novfcot oporatloao o» dlrooto* fcy t e Ccooalttoo*
O riia o rily , ia tho ooaduot of opow-asoriteot operation* fo r
tho Syotom Aeoo^st* t e ptirteoe or ooto o f
tgr t e
r Iw ig o r o f tho Sy* to * Opoa S M w t Aooo«**t)will too »o*e teeagfe tho
Federal Kotor** 3es& o f % » Tort*
lo tho ooaduot of opte»oorfcot
epere&iotso «ooh Federal Heeerve took* when <nrooted by t e Gemi&tee,
w i ll ttOko available to t e v^hMfior of t e &yete» % « « Hwfcet *eoeuat
£>lr t ■ ' ^
f
.
J/
th re sh t e Federal leeerv* Book of le e to r^ , oooh fO rio oo ®egr bo
ntooooory to e*?«a»et ond offootuoto ouofe ojpwa^aayfeet op eration on*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority fc.Q* 12358
eaah federal ^ « « « m tank through th# Ft4*nl laeenra Beak *f Umm
x-
tork e111 t * credited with it* partlelpetloa ia the parehaee sf obilo
^atloaa or with the proeaeat of aay «ale thereof*
"iictioi ?•
m u A m
ajs» m i s of m m m m m
mmamtm
to l«4«rtl iia*enre hex* ohall puruh**» or toil iatera^eiit
aeourltie* except Is accordance with a* opea«a*rkat volley adopted
ay the >ed«ral wpaa
»rket Comsittee aad in effect et the ti&e,
cseapt that*
( 1)
la tB eaargeaey* any *ader*l .te**r*e bank
way purchase joveraaeat securities when accessary to afford
re lie f is e situation lurolela^ epeei f |e fceakiat k «U ttt«
tlo&e i i it* district) end
(i)
After obtelair* the eoiseat of the Board of
*oweraor* of the federal Besorea System# a**y Federal *a*ar*a
fcaak aay purchase or tell aoeenuaoat securities far other
specific purpose*, for It* owa eeeonat*
All purchases erd oele* of dorertHaairfc *e#%*rltlea &y aay
Federal Haserwa taak for lta oaa accouat shell oe reported ^proaptly
to the Saaretery of tha Federal Opaa Market vaaalttec^ead to tha
*aaa£or of tha feyotea Account! aau the executive committee aay aaka
•oeh eaapa&aetery purchase* or oaloa for the Syatea aeeouat ar4 saoh
realloeetlea* af the obligation* la tha ^yoten Aecouat a* aay ha
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority
T
V
I
*
tppr^rltt#
th# ll$h% of porehoooe end oeloo a#4« for their ow»
If iMilvi4a«l F«4*r»i fcoeerve books*
%
CeMilttee res«riree Hie rigjht* 1» lie dfeeretlo»# te
require that i&jr 6 <nroraiM»t securities no* Held #r horeoft^r par*
ohosod by o& lMivi4««tl Foderol *teeer*e ho&it for lit owm oeoouat
&e eote or delivered into the Systeo Aoeoumt*
iw ?e4orol &eeorwe hook ssoy piwroheee Sotted Stotoo too*
ey
porif| oertiftootoo of lodefctodtioee fo r tho oeeoKasodetloR of the
Troosttty of tho v&itoO Stotee i» o»ou»to requests ay tho Troooury
ood aoy ooil pertielpotloao thereto* oat oooh eorttfiootoo shell
sot bo held for «oro thos» t doyo without the o#prerel of the Soord
of loiror&oro of tHo fedorel **esorwo :ysto»*
mavM
8*
m m
o ®
t t m v im m m m m
iooli Fedoroi ieser*o hot It «oy eo^e&e Is epoo«e»rket op#retlo i other the* tho pwrelioee or «e ie of ^ooeroieeot eoeurities, tub•% *
>
Jeet to tho follow ing eoodltio&e*
4 1)
A ll oooh trorztoot ions shell ho reported doily
to tho sooretery of tho ^owoittoo*
($}
,
^ *7
oroho000 of oeeeptooeoe ond hi l i t of e *»
oho&^o oholl ho to ftocordomee with the proprietor.* of Sie|^i*
lotto* » of the Boord of aoverooro of the Fodirol Boooroo
% eto» oo4 tho rotoo of lotereot or dloeoiiot oholl ho is
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority fc.Q* 1235%
•#©®r4ai**s# with ##h#4ul#« »,>pror*4 & $»r#s#riV#<i
r
$«*r4
*wmrt*®r$ of th* ?#d#r*I
%*t#*t
th#
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h#y#y»r» Xh*% no #bli**t*cm« p#yahl# in f«r«ip nurrtmy
#1 n ' b# {wr#h»##4 wlthmi th# m m m m % #f th# §o*rd of «&#*•
ill
f R o * of t o ?#<i*r#I «#*#rv# Sy#t#»*
tr i r
t#
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e
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t-Hia, eottii r«v#mm \msA* ■**& «»rr**t# #f £tat#«# #aimtl##*
? e lit l* »l
«n i» d lv i« t # K t # o r s » u jj i « 1 $ > * li t i # #
shftH
b#
Is ##« orate#• with il pr#vi*io»* of £#£ulfcti«ft £ of th#
l#
Ii-mr4 of a#*«ri&©r# of th# ?#4#r*i i###rir# %*t#s&»
(#}
1# l#6 *r*l ft###rv# fc*»k §h*U #«$***# Im th#
purefo*#* or 8#1 # of c*hl# tronsfor# for It# m m *#eott»t with*
•at first obtaining, th# approval #f th# to*r4 of 5®wr»8Ti
i
of th# !'#4«r«l **###rr# %#t#mf #so#$t that F#d#r«l *t#«#rv#
*ay f«*r#fc*»# *«ni a#ll eabi* tr*£af#rt through th# $«¥•##
in a $aor4a& # with th# r « a$l#ti o sa #r r#<gttlfttior‘# i f
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th# oporatior.a of auoh #&#s»oy«
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-xoopt with th# approval #f th# woonitt##*
ca r#4«r*l i###rt# msJt shall *n*g»%# im m y #p«»-i»rk®t trass*
aclim * f ii ire &©t of th# watosarjr «har»#t*r* «*il©h 4#
ft th
f
cot ®eeur in th# #r<ils*rjr court# of bu#it*ssf vhlofc ar# #»•
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority fc.Q* 12358
* to -
in t w
%h* porpot* of
t it t le *
m y
h*> * •
«
I%1.or**
gm m rm l • w d i t «a*s»
# ffm t
m
httitftfi that «iqf
t
t f & M y pt*r©h**« ©'slS&atiau* far th# purptM ®f
otk
*ffor4ii*£
Involving
Is l t i 4 1 «trl«t*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority E..O* 12358
*elirmry IT, WM.
tsftteti'te i-roft
fkiMMh OVfcJ *AIS*£T coiatims
a
mntm
Seetlee I .
i
ymmm
Qrga&lsatloa - At the f ir s t oeetlajK of the
Camitt«« fe lle e ia g % n li t it eoeh j t t r , eoeh arab*r of tha Co*talttee representlug the
ederol Eeooroe baafcs o&A eoeh alternate
eleeteg to serve In the ebeettoe of eoeh aeaber shall preeent the
quaetloa bo retse4 *e to the election or eligibility of s e i «m »
u!
bor or *ltero»tet tho cm ilt too shall determine saeh ^ i e « t i « bo*
lore permlttlmi’ suoh *eafeer or slteniate te ijortlelfate la tho
;
oeetiAgs*
^eetiea# S*
Altetmtao - Alteimtes shell iso entitle* to
ette&d KootlEf t of tho Csaalttoe osljr la tho efeseaee free a mootlag
of the awritor for whoa suoh alternate is selected hot la sooh eases
tho ol|»omoto shall Huyo the soae status as the aeafeer for otise he
Is serving*
loottea t«
ath - iaeh *eabor of tho federal Open driest
Cosoiltteo «a4 eaoh alternate shall take the e
etSi of offloo ra^iirol
by the eoastitotlea f«r officers «f the thsite* Ststoe*
seetiee 4.
m w na • Seven smbere or seven wanhers os4
oltensotos present end noting its tho ebsenee of aesibers, sh all «o i*
stitote o qoonai for the treaoaetlee of boslaoesi hot loss thoa a
fuoruo m y edjeuro froa tla e to ttee o a t ll s qu ern Is in sttendanee
m
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority E..Q* 12358
/
//
- t
eetion &*
»ootInc# - TImi Ceeetlttee shell **eet In ?e#hlnpton,
$ • € • » * lenet f«wr tine# eeeh yeor on* ofte**er If l» m l aeeeesory*
Meetings efcell f e h e U wren th# requeet of the thnlmnn e ' th# *oen!
e
f
of
svemora of tho ieOerel Peeeree Byetem or ot tho reqoest of eny
j
thro# w m
m fcere of tho Committee*
U t llio i of eolle f y tho Chelrvmn
e
to other fwsber# sh ell fee flvem fey the feeretory
the Committee.
Sequeets e f (uqr three nsmfeer# of the Ccreeltt.ee fo r tho eellln g of
e meeting «n4 t f the t l » » therefor sh ell fee file # l » writing eith
the Seeretnry of the C o e iU e # olio oho 11 forthwith n otify n il « « # •
feera ef the Gonmlttee,
I hen the Feeretory shell hnee notified e l l
wetter# of the Cosaslttee that n meeting ho# been requested fey three
wwtfeere end e f the time therefor n mooting ehell fee 4eeme4 to hove
been colled*
Soot ion 6*
m Hie pr eeee41a§n#
Comioot oni
n
r
dellfee«ntleme# 41#c»}#«lent nai notion# of the Committee on* its
•tarf" oneent no required fey lav owl except no nny fee reloosed In
?
1
o ff to tel eesmnanleotlame o f the c emmlttee, t e l l fee e trie tly e e n fl-
M
« •
- n
u
~ u ~ -
i«tai
c outrunloot lone authorise* fey tite C m
om itte e M i In the oxmtiol
report require* to fee *n4e to Cen&rees fey eeotlen l U
o m l ieeerve -ot no emenfted*
of the
e4~
^
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority
<y. -
12358
,
3 h t lo » fm
ifrAmr of Bmlwm*. • Tho foXXovtag ofcaXX
bo tiit or or of proootfuro to 1m foU w B d ot mootings of tho
o—
iitiMi
X#
Tho r>oor*otory ohoXI prooont tho alnutoo of tho
lost aootlag*
£»
, ^ ,
« f zk,
Tho !fca*for of tho %ot«ft O p m Ifcrtooto Aooount
■ ' 11 rak# hit
I m Mf w w ^ m & w 9m m ^
w
w
r f til w > W » o*«
t’
A*)Arfitiona fPfc tha
at Ihliw
oP«-
•
»
Aoooitttt ooeurriao si noo tho MOMMA lout swetlae*
' ) .
8 * tho Co«oSttoo skjoooolot • ‘toll ts».ko hlo roport#
it
t)M CoRwlttoo OhoXI thou oonoldor opoa mrtoot
:y unoaiaoos ooaoont of 1
intiori prooont, tho Cowotttoo
m y m&ept * dtfforont ordor of feuoimoo for oay porttoulor moot*
S iS t
a m c m u . om esos
.motion X# Oholfo* of tho Consulttoo» *
Th* 0ho Irma of
4*oa M V i wt 'v»oi«©ri ¥i w w »wcpproX4 wAan t w mww^wm W^j. % wnrw
k%o.
t 1 h aovwwi ^ood* m •bT
^
'onkom
oI
m
ox o fflo lo oo Cm lrm>n of tho Cawaittoo*
Tim Chaimtt of tho Co»-
nittoo ohoXX pro*id* ot oXX aootln&o thoroef aad ohoXX porforwt
ettoh othor 3utloo oo tho Coaratttoo my roquiro.
sootiao f*
Chatman pro t o »» -
oblXlty of tho Cholrwon of
In tho obooaoo or 4io-
Conittoo th* mmhmn jtftoi rt
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority E..C* 12358
/
• 4 •
eloet a Ohalimaa pro taa who sh a ll, In tho sboaaoo o f tho
Chfdnos, oxorelio tho powors and porfom tho dutlos o f tho
Chsirasa*
Sootion I *
Saarataiy# •
Tho naoratary o f tho Board
of ooromoro o f tho Fodorol ,;ooorro ?yata»* aboil bo tho faorotoiy
of tho Coassittoo*
I t i ! « l l bo hio doty to fcoop alantao of o i l
mootings o f tho Cawaittoo sad o ooaploto rooord of tho ootion
t o t e h; tho CoRsnittoo upon o i l questions o f p o ller ro la tla g to
opoa*mr)cot operatlona and shall raoard tho wotac takaa in oo®m otion with tho determination o f oosa-mrleet polleio* <m tho
d
reoeeao assigned thorofor*
Ho shall perf om auoh othor datioo
oo tho Canmlttee nay require*
Beotian 4*
•• c mlot* • Tho M rectors of tho Dlwiolon of
•o w
^ooooroh and ttotlotioo of tho Board o f ^ereraero of tho Ve&eral
reoerse fyotom sh all ho tho Kooncmlst of tho Canaltteo*
Ho shall
not la aa odwlsory eopeeity to tho Ccmltfcoo sad sh all porfom »uoh
othor duties as tha Committee way require*
Sootlea §•
jfrnsgor of ffystoa Coon ia r fcot *ocourit« -
Tho
nenbers of ths Coaiittot sh all ssloot a "Haaager of tho Syataa Ops*
'arket ^oeount
......
j a
....... .
who shall serve at ths pleesure o f tho Coaalttee
nad sh all attoad o i l aeetlags o f both tho Ceonlttee oud i t s l£seewti*e
Coaalttee#
It sh all ba tho daty a f tho roaagar o f tha Syatoa Opaa
;*rkst leeeaat to ooadaet, nuhjoot te the supervision o f tha Ixeeutlws
Coaalttee, opoa market operations dooldod upon fey tha Csanlttee aad to
porfons &ueh othor duties so tha Consdttoo way require*
M
m m «t©»b©r© mm &*©©©ttir*
thr©© m b m
®f flit ia©»b©rc »MiUtta| ©f
©f D u firi ©f i « v « f « n of th© f>ir©l t m w n m
©jvt«K &*#© i w r#pr©witjt©x*?©■ « . tnt i©o©r©4 K v n n v »©©«©#
i
$©©tl«© f* Chains*© oi th© »>©©©t$©© Cwiltt—
- Th©
€h©lnm ©f th© CennlttM Stull w m ©* offt©l© u ~h©lrma ©f
til $4e©©wtl©<© Coswettt©©#
#
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-
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e u t ©t
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t
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1*
f© ©x«©ut© p©r©h©*©s ©»a ©©I ©• ©f -;";©v©m»©nt *©-
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th© ©pcamartarfc P©11©1©« ©dopt©d by th© F©6©t*l Op©o w©rfc©t C«©*ltt©©|
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th© ©fcr©«©t© ©*©©at ©f &«v©ra«#at ©©©©TitS** ©«4 <?th«r ©hlljr©tl«n©
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority fc.Q* U 3 5 8
• $ *
hold fo r tho s>stom account m I to odjoot oooh t l l m t i o u
m
irmt
t i n t * tioo to moot tho th«S|i»| noods of roopootiwo I odorol
rooorvo feanfco#
S ueh
allocation sh all ho wado with tho vitv o f
(o ) oqobltae oooh I odors 1 nooorvo book to *o in to i» o soitablo
f t i o m position attd (b) oqualiiinc *• for os prootiooblo tho
J?
apt oornl4 pOOltlO* «# tk» f M W H l <ooorro t t f f
B£
tae
8* To I o p tho jaopbors of tho .odorol ■woo ?«%rkot
eo
% osrittoo iiti'omod of oil i M M l t e #»«c«tod by tho Cornsittoo
A.
owl of oil oltoeotioos and roallocations of i>ooonossst soourltios
ood othor oblimtloos hold lor portiolpotl&f katof said
': "
.'■
f
4# To porfo»* s*aoh othor jfvmottooo owl dutlos is
omnootiai with oroiMorkvt oporotions os ssoy bo oooigsod to it
fro* tisio to tioo by tho
f
odorol
t>oo 2
%rlest t owwHtooi but tho
oxooutivo e m m ittoo shotl hows oo authority to dotoroloo polio too
or moles doolsiaoo opon questions of polloy*
Attsc ix nr*
i w n n n
Thoso by*lows aoy bo awoitdod ot asy mootiof of tho €o?s„
» ittoo by o oajority voto of tho ootiro Cotssittooi
roridod, Thot
o oopy of snolt awondwont shall howo boon doli*orsd to oooh sM ibor
H
ot loost too doyo prior to sooh oootloc*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority fc.Q* 12358
D
ivis. . of B
ank Operates fite
L-425
f
Sw* vw W'
February 24, 1936,
TO:
FROM:
Board of Governors
SUBJECT: Election of representatives
of Federal Reserve banks to FedMr. Dreibelbis,
eral Open Market Committee with
Assistant General Counsel
limited authority.
My opinion has been requested as to whether representatives
of the Federal Reserve banks upon the Federal Open Market Committee,
as provided for in section 121 of the Federal Reserve Act, as amended,
may be elected with limited authority and Sfubject to the condition
that they will, as members of the Committee, act in accordance with
the instructions of the boards of directors electing them.
OPINION
In my opinion, representatives of the Federal Reserve banks
upon the federal Open Market Committee may not be elected with lim~
ited authority to act only in accordance with the instructions of the
boards of directors electing such members.
DISCUSSION
The primary purpose of Congress in creating the Federal
Open Market Committee was to fix responsibility for open market
operations in one body with a national viewpoint# As a compromise
between the views of those who believed such responsibility should
be fixed exclusively in the Board of Governors of the Federal Re
serve System and those who believed that it should be fixed in a
committee consisting exclusively of the then Governors of the Fed
eral Reserve banks, section 12A, as amended by the Banking Act of
1935, provided for a committee composed of the members of the Board
of Governors of the Federal Reserve System and five representatives
of the Federal Reserve banks. None the less, however, was the Com
mittee created as a body charged with the entire responsibility for
the conduct of open-market operations in accordance with the govern
ing principles of the Act.
It is significant that section 12A provides that the Com
mittee "shall consist of the members of the Board of Governors of
the Federal Reserve System and five representatives of the Federal
Reserve banks”, and provides that such representatives shall be
elected "one by the boards of directors of the Federal Reserve Banks
of Boston and New York", etc. The representatives of the banks are
elected by the several boards of directors of the Federal Reserve
banks as grouped in section 12A, as amended; but, when elected, they
are representatives of all of the Federal Reserve banks and not
0
$ $ $ *
^
V
J
unclassified / Declassified Holdings of the National Archives
'
D ECLA SSIFIED
,
Authority
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2
-
12 3 5 3
L-425
representatives of the particular banks whose directors elected them.
Had Congress intended that each representative should be elected as
a representative of the group of banks electing such member, it would
have so stated rather than to have provided that such members should
constitute "representatives of the Federal Reserve banks". It follows,
therefore, that tho duties and obligations of the Federal Reserve bank
representatives upon tho Federal Open Market Committee are to the
country at large and not to any one or group of Federal Reserve banks.
Among other things, section 12A of the Federal Reserve Act,
as amended, provides that "No Federal Reserve bank shall engage or de
cline to engage in open-market transactions under section 14 of this
A,ct, except i i accordance with the direction of and regulations adopted
r
by the Committee. The Committee shall consider, adopt, and transmit
to the several Federal Reserve banks, regulations relating to the openmarket transactions of such banks." Thus, rather than receiving direct
ions from the Federal Reserve banks or the boards of directors of the
Federal Reserve banks, members of the Federal Open Market Committee are
charged by law with giving directions to the Federal Reserve banks, and
the Federal Reserve banks are charged by law with the duty of following
such directions. Certainly it cannot be said, therefore, that repre
sentatives of the banks on the Federal Open Market Committee are sub
ject to instructions given by the banks electing them when, by the plain
terms of the Act, they are charged with the duty of directing the banks
in the performance of this particular function.
Thus, members of the Federal Open Market Committee are public
officers charged with the duty of conducting open-market operations of
the Federal Reserve System "with a view to accommodating commerce and
business and with regard to their bearing upon the general credit situa
tion of the country". Of necessity their deliberations and actions must
be confidential. To disseminate information as to open-market policies
while being formulated or while in the process of being executed might
defeat the results sought in the execution of such policies. Congress
must have so considered when it provided in section 10 of the Federal
Reserve Act that the Board of Governors of the Federal Reserve System
should keep a complete record of the action taken by the Federal Open
Market Committee upon all questions of policy relating to open-market
operations and should record therein the votes taken in connection with
the determination of such policies and the reasons underlying the action
of the Committee and should include in its annual report to Congress a
full account of the action so taken during the preceding year. Had
Congress intended that the consideration and execution of open-market
policies be matters of public and current information there would have
been no necessity for requiring such report to it.
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D E C L A S S IF IE D
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12-353
L-425
The very fact that Congress provided for the report to be
made to it rather than to the Federal Reserve banks or their boards
of directors, is significant. Section 12A of the Federal Reserve
Act, as amended, requires open-market operations to be conducted
"with regard to their bearing upon the general credit situation of
the country". Congress, and not the boards of directors of the sev
eral Federal Reserve banks, is the body which represents the public
interest and Congress, while recognizing the confidential character
of open-market operations, has provided for reports to be made to it
as the body representing the general welfare of the country. Had
Congress intended that the Federal Open Market Committee or any of
its members should owe a duty or responsibility to report to the
boards of directors of the Federal Reserve banks such duties would
have been included in section 10 of the Federal Reserve Act.
With respect to public officers it has long been held that
any contract or agreement tending to hamper or restrict such officer
in the due performance of his duty or which seeks to impose upon such
officer a restriction in connection with the exercise of his discretion
is illegal and against public policy.
In the case of Schneider v. Local Union. 40 So. 700, the
court, quoting from Greenhood on Public Policy, stated:
"Any contract which contemplates conduct which
will amount to an imposition upon a public officer
in the exercise of his discretion is void. * * * *
Any contract by one acting in a representative capac
ity, which restricts the free exercise of a discre
tion vested in him for the public good, is void."
In the case of Campbell v. Offutt. 151 S. W. 403, the court
stated:
h* * * * The lav/ requires of a public officer
that he shall use his best skill and judgment for the
protection of the public interest, and an agreement
before his appointment to divide the fees of the of
fice with an attorney, if sustained, might seriously
cripple the public service: * * * *.«
^
Clearly, any effort to restrict a member of the Federal Open
Market Committee in the free exercise of his discretion in the public
interest and for tho public welfare, by contract or otherwise, would
be illegal and against public policy *
In the law of corporations, it is well settled that the dis
cretion of directors in performing their duties cannot be limited or
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D E C L A S S IF IE D
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1235B
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restricted by agreements aginst the interest of the corporation with
the stockholders or otherwise.
Thus, in Manson v. Curtis. 223 N. Y. 513, 119 N. E. 559, it
is stated:
*
* * jn corporate bodies, the powers of the
board of directors are, in a very important sense,
original and undelegated. The stockholders do not
confer, nor can they revoke those powers. * * * *
As a general rule, the stockholders cannot act in
relation to the ordinary business of the corporation,
nor can they control the directors in the exercise
of the judgment vested in them by virtue of their of
fice. * * * * Clearly the law does not permit the
stockholders to create a sterilized board of direc
tors. * * * * » »
In the case of West v. Camden. 135 U. S. 507, the Supreme
Court of the United States held that an agreement by a stockholder of
a corporation to keep another person permanently in place as an officer
of a corporation was void as against public policy, since such an agree
ment might require a stockholder as a director to act contrary to the
true interest of a corporation.
In Haldeman v. Haldeman. 197 S. W. 376, the court said:
h* * * * And he (a stockholder) has the
right to demand that each director discharge
as such, not in accordance with his personal
but in the best interests of the corporation
sent. * * *
further
his duty
contract,
they repre
Other cases to the same effect are Lamb v. Lehmann. 143 N. E.
276, Ohio (1924); Rush v. Aunspaugh. 179 Ala. 542, 60 So. 802 (1912);
Scripps v. Sweeney. 160 Mich. 148, 125 N. W. 72 (1910).
It is inconceivable that Congress, in creating the Federal
Open Market Committee, for the avowed purpose of conducting open-market
operations "with regard to their bearing upon the general credit situa
tion of the country”. intended to create a body, five members of which
might be made obedient to the will of a body or bodies concerned pri
marily with local interests.
It is my conclusion, therefore, that representatives of the
Federal Reserve banks upon the Federal Open Market Committee may not
be elected with limited authority to act in accordance with instruc
tions of the boards of directors electing such members and that in the
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d e c l a s s if ie d
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conduct of their office such members are public officers exercising
public functions in the interest of the public as a whole, and not
necessarily in the interest of the particular group electing them*
Respectfully submitted,
(Signed)
J. P. Dreibelbis
J. P. Dreibelbis,
Assistant General Counsel,
I
have given careful consideration to the above opinion
and concur in it completely.
(Signed)
Walter Wyatt
Walter Wyatt,
General Counsel,
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D E C L A S S IF IE D
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Authority
12358
Division of
\
l
S Operations
ank
JAN 14 1936
Hr# I . M* Clark, Secretary,
*
Federal Reserve Bank of Atlanta,
Atlanta, Georgia*
Dear S r Clark*
i*
Receipt ia acknowledged of, and X shall
bring to the attention of the aeabers of th© Board
of Governors of the Federal Reserve Systea, your
letter of Jmuary 11, 195$, advising that the board
of directors of your bank, at its regular Jmuary
Meeting, selected Hr* Oscar Hertoa, Governor of the
Federal Reserve Bank of Atlanta, as a meaber of the
Federal Open Market Coaatttee to represent the Sixth
» w i—
..... Mini i < iuiimi ml,,
nil............. n mi i iiiwin.....
i*wWL
l
Federal Reserve District for the period froa January
1 to February 2$$ 1956, inclusive#
Very truly yours,
’ (Signed) S
-
G
arpenter
8 « E, Carpenter,
Assistant Secretary.
cos
M r. Sm ead
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority fc.O« 12358
,
./
Divis
JAN 111936
Mr. F* H. Curties, Chairman,
Federal Reservo Bank of Boston,
Boaton | Haaaachuaetta*
Beer Hr. Curtlaas
Keoelpt la acknowledged of your letter of January
0, 1956, adviaing that the board of directors of your bank,
at ita meeting on January 8 , selected the governor of the
Federal Reeerve Bank of Roeton aa a aeaber of t h e Federal
Open Market Committee, representing the Firat Federal Re
eerve Diatrict, to aerve until the oloae of buelneaa Feb
ruary £9, 1956, and appointed the deputy governor of the
bank aa an alternate to the governor, to attend any meet
ing of the Coeelttee during auoh tern and to participate
In the discussion in the ebaence or inability of the
governor.
four letter la being brought to the attention
of the eeabera of the Board of Goveroora of the Federal
Heaerve Syetea*
Very truly youra,
WM ) s. B €
g td «
S. H* Carpenter,
Assistant Secretary.
/
ccj
Mr. Smea
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority
1235%
Hr* J* S. Wood, Ch&iraan,
Fodoral Kooorro Saak o f Bt# Louis,
St# Louis, Hiadourl.
D t Hr. Hoods
m
Kooolpt is aeknowlodgod o f your lo tto r o f
January 1, 19S6, ad*islag that tho board o f director#
o f your bank, at it# — ting cm January £, solootod
Mr* Ba* MoC. Martin, O ow n or o f tho Fodoral Rosorws
Bank o f St* Louis, as a aoabor o f tho Fodoral Gpoa
Karkot Coaalttoo to roprosoat tho Eighth Fodoral Ho*
sorvo D istric t fo r tho poriod fro a January 1 to Feb
ruary 21, 1986, ineluai*#.
four lo tto r Is bolng brought to tho attention
o f tho aoatoors of tho Board o f Oowm ers o f tho Fod
o ral B osom Syetoa.
fory tru ly yours,
B« K. Carpaator,
Assistant Boorotaxy*
\l
ccs
Mr. Smead
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority fc.Q * 12358
3 "3 '3 <"3 7
THE FEDERAL RESERVE BOARD
CROSS-REFERENCE SHEET
F i l e N o . - J 3 M 1 __________
SubjeCt
... aPJ5IAL.lH^»LEBT..A3SDIffiT.....(QEfiii..l£a.iteJt..Coniml.t.tJJ
eeJ......... .
SEE
F ile N o .
....311.212.................
L e tte r of
D a t e d .... J*m&cy..a.---1936.------------------------------------------------------------------------
R e m a rk s
.JJ
amiarjc..21___ Askiiig..Mr^..Smfi£±.Jbo..noJbify..xfiimliiirsfl3DljS..siil)j3r)mmi.t.t££._________
d. a. N n u on r
nranns omoi: ism 178151
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority £..Q» V235B
"t 35, §u
c
gif'
Hr* Allan Sproul, Secretary,
Fader*l Reserve Bonk of Sew fork,
New York, Hew York.
Dear Mr* Sproult
Keoeipt is acknowledged of, and X shall bring
to the attention of tho aeabere of the Board of Governora of th® Federal Itesorve Syetea, your letter of
Janmr^ 2, 1956, advising that tho board of directors
of your bank, at it* meeting on that date, selected
Hr* Georg f I * Harrison, Governor of the Federal Re
t *
serve Bonk of Hew York, &s a aeaber of the Federal
Open Market Committee to represent the Second Fed,ral K,s«rye Patriot for th, period fro* Jmumjt 1
3
to February 28, 1056, inclueive.
Very truly youre,
S.
H. Carpenter,
Aaaiet&nt Secretary*
cc:
Mr, Smead
r
:
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority
FEDERAL RESERVE BOARD
12358
Division of Bank Operations File
WASHINGTON
ADDRES5 OFFICIAL. CORRESPONDENCE TO
THE FEDERAL. RESERVE BOARD
X-9410
January 2, 1936
Dear Sir:
Recently I received from Mr* Stevens, Chair
man of the Federal Reserve Bank of Chicago, a letter
quoting a resolution adopted by a clearing house asso
ciation recommending that the Federal Reserve Banks of
St. Louis and Chicago select as their member of the
Open Market Committee a man of wide experience in “ usi
b
ness and financial affairs who is not an officer of
either bank.
The letter was considered at a meeting of the
Board today and I am inclosing, for the information of
the board of directors of your bank, a copy of my reply
which was approved by the Board,
Very truly yours,
Chairman
Inclosure.
TO CHAIRMEN OF ALL F. R, BANKS EXCEPT CHICAGO
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority fc.Q* 12358
COPY
X-9410~a
January 2, 1936.
Mr. E. M. Stevens, Chairman,
Federal Reserve Bank of Chicago,
Chicago, Illinois.
Dear Mr. Stevens:
Your letter of December 16 in which you quoted a resolution of
a clearing house association recommending that the Federal Reserve
Banks of S t Louis and Chicago select as their member of the Open
-.
Market Committee a man of wide experience in business and financial
affairs who is not an officer of either bank was brought to the at
tention of the members of the Board.
In this connection several in
formal innutries which have come to the attention of the members of
the Board of Governors indicated that there was doubt at some of the
Federal reserve banks as to what course should be followed with re
spect to the selection of their representatives to serve after March
1, 1936, as members of the Federal Open Market Committee.
The law is silent as to the procedure which shall be fol
lowed by the boards of directors in the selection of such representa
tives and it does not place upon the Board of Governors of the Federal
Reserve System any duty or responsibility with respect to the deter
mination of such procedure.
However, since the question has arisen
the Board feels that it may be of some assistance to the directors
of the Federal reserve banks by giving them its views and suggestions
regarding these matters.
Without reviewing in detail the history of the legislation*
it is clear that throughout the discussions the persons whom the
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D ECLA SSIFIED
Authority fc.Q* 12358
-2-
X-9410-a
proponents of representation of the Federal reserve banks on the Open
Market Committee had in mind were the Governors of the Federal reserve
banks, as shown for example by the recommendations of the American
Bankers' Association, the Reserve City Bankers* Association, and the
Federal Advisory Council.
When, in addition to this, the fact is
taken into consideration that the amendment took away from the Federal
reserve banks the power of declining to participate in open market
operations recommended by the Federal Open Market Committee and in
stead made the decisions of the committee binding upon the banks, it
becomes especially significant that the members of the committee to be
selected by the banks are referred to in the amendment as "representa
tives of the Federal reserve banks".
The Board therefore believes that
it is clear that the Congress intended that these members should be
persons in position to present adequately the views of the Federal
reserve banks and to speak authoritatively for them*
Aside from these considerations it is evident that any per
son having otherwise satisfactory individual qualifications who might
be selected from outside the official personnel of the Federal reserve
banks would almost certainly have or represent interests of a business
or investment character which might affect his action as a member of
the committee.
Even though not influenced by his personal interests,
their existence might affect the public interpretation of the actions
of the Federal Open Market Committee in which he participated.
More
over, he could not be intimately acquainted with the affairs of the
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority fc.Q* 12358
-3-
X-9410-a
member banks and the Federal reserve banks, the financial policies of
the Government, and other phases of monetary matters to the extent
that would be desirable and as fully as would be possible in the case
of representatives who served only the Federal reserve banks.
Although
he would have a vote, his contribution to the deliberations of the
committee would be more likely that of a consultant or adviser called
in at the meetings than that of a true spokesman for the Federal re
serve banks.
It is apparent that the situation also presents the question
of an appropriate method by which the directors of the banks may con
tact each other and determine their selections in a mutually satis
factory manner and it seems to the Board that this might be accomplished
by preliminary meetings between committees of directors of the banks
who could be authorized to formulate procedure and make recommendations
for the consideration of the full board of directors of each Federal
reserve bank concerned.
The Board will be glad to be advised as to the views of the
directors of your bank regarding these suggestions.
Very truly yours,
(Signed)
M. S. Eccles
M. S. Eccles,
Chairman*
qg p rsa STATES GOVSKKHgrr SBOOHITiaS
OHAMSBS IH SYSTEM OPgT MAHK3T ACCOPIWP - 197?
1
1
Cleveland
•a
c*
1
Phila.
I
€0
TTi r
Sold by F. H. Bank of ITew York
Dallas
/W\ Hew York Chicago
$7,
500,000 $7,500,000 $ —
February 7
$
"
—
5,000,000 5,000,000
—
28
—
L'arck
7,500,000 7,500,000
8
mm
mm
#
5
—
16 f>t 2,500,000 2,500,000
—
25
& 2,500,000 2,500,000
13,500.000 13,500,000
27
—
—
5,000,000 5,000,000
April
30
mm
mm
—
6,000,000
—
May
15
t
—
4 •m
—
5,000,000
—
June
•
—
3.153.000
—
7 j
—
—
5,800.000
—
8
3
-—
10,000,000
—
10 >
—
—
5,000,000
—
July
10
—
5,000,000
—
—
August
-i
a
—
—
5,000,000 5,000,000
September 4
—
November 6 3
2,500,000
—
—
3
46,000,000 72,653,000 lo p o o .o o o 10,000,000
j
—
—
—
—
—
—
—
—
—
10,000,000
—.
—
—
—
5,000,000
—.
—
—
—
—
—
--
10,000,000 5,000,000
Purchased by F. R. bank of ®
San Fran.
UJotal
Minneapolis Kansas City Dallas
Bichinond
St.Louis
—
$" _
- $15,000,000
$
..
$ $15,000,000 $ _
——
HI
—
—
—
10,000,000
$10,000,000
—
-M
—
*
—
—
15,000,000
15,000,000
on
H’
l
w
—
—
5,000,000
5,000,000
in
—
—
—
5,000,000
5,000,000
•*
I
27,030,000 27,000,000
—
—
—
•—
—
—
—
5,000,000
—
—
—
—
6,000,000 6,000,000
——
—
—
—
—
5,000,000
5,000,000
mm
mm
—
—
—
—
3,153.000
3,153.000
—
—
—
5,000,000
—
—
—
—
—
—
—
10,000,000
—
—
—
—
—
5,000,000
5.000,000
—
—
5,000,000
5,000,000
—
—
—
—
—
5,000,000
—
—
■m
■m
i
i
—
—
—
2,500,000
2,500,000
500,000 33,000,000 128,653,000
13,153.000 15,000,000 10,000,000 15,000,000 17,
a
APPEECIATIOK OH U. S. QOVEHICiEHT SECURITIES HSU)
U
$-<— 7 .‘
H
\\ / «
«
A
»v
Dec. 26, 193^
<X&n* 2. 1935
Feb, 6. 1935
Mar* 6. 1935
Apr* 3. 1935
May
l. 1935
$31,240,394.29
33.675.796.07
4l, 230,522.96
**5.092,550.0?
*5.031.oi3.7i
*
t
46,377.660.45
33^/ V/
Juae 5, 1935
July 3 , 1935
Aug. 7, 1§35
Sept. 4,1935
Oct. i, 1935
% ▼ . 6 1935
,
Deo. 4. 1935
Dec.31, 1935
$41,253,149.93
45 ,020,474.11
43.459.527.^1
31,752.731.21
& ,$ V ),V }2 .1 2
33,155.292.37
i 028 794.73
. ,
,805.156.64
m n m ) states c&tcttmsm1 securities
GEAITG-SS I f SYSTEM 0 P M MARKET ACCOUNT - 1936
f
Sold by F. R. Ban3c of few York
Chicago
January ^
February 1 1
Marck
6
11
28
$5 ,
000,000
2 ,500,000
5 ,000,000
$1 0 ,000,000
2 .500.000
1 .025.000
1 0 ,000,000
6.000.000
5 .000.000
1 2 ,500,000
Par chased by F. R. Bank of St. Louis
Kansas City
Atlanta
3^,525.000
$1 5 ,000,000
Dallas
$
$
_
Total
1 0 ,000,000
$
$1 5 ,000,000
5 .000.000
1 ,025,000
1 0 ,000,000
6.000.000
1 0 ,000,000
16 ,
025,000
>7 ,025,000
+
5 ,000,000
1 ,025,000
1 0 ,000,000
6,000,000
1 5 ,000,000
6,000,000
AFPHECIATIOH OH U. S
GOVEHHMEITT SECURITIES HELD
n sysmi ofsh mmm a n - 1916
r m
ccou t
m
—■—m
■■ • M
■
M
l
I ■ 1 ■ 11
,■> ■ —
— ii ■
December 31, 1935
$3^,805,15 6 .6k
February
5 , 19 36
35.227.233.S7
March
U, 1936
to,8X2 ,89 9.01
1 0 ,000,000
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority fc.Q* 1235B
Division of Bank Operations Ffc
H ^
'\
' t # 1* §* § w t $ r * i
fp
Actta^ ChHlrwi,
Fadaral laaarva Bank of Cl***lftndt
Ohio*
Daar Mr. Bur*e»
Eaoolpt |a *o*nooledgod a/ your i*tt«r of
Dooeaber
6, 19t6,
adding tbat Uni board of dlr*ctora
or vour b&ok. at ita sattioji on that d .
p to. aelooted
Mr. i * J* Flonin*, GoTonwr of $£w Jedoral Roaorf*
f
Banlt of Cleveland ^ aa a oawtinr of tho Fadaral Opon
May3io% OoiiidUM&on ropreaonting tho Fourth Fadaral Bo**
aorfo Matriot for tho poriod faron S m m m w I to Fobruary 29, 19£6, inclualTO.
Tour lottor la boi*i§ toOtigfe* to tho atten
tion of the amabora of Hit Board of l f a n f i of tha
io o r o i
Fadaral Unaorfn Syeton.
f
: m ef
ywam$
§* 1* Carpoetor,
Aaalntant Soorotary,
cot
Mr* Saoad
1 '• ^
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority
V o rm
1 8b
4
1
2358
T E L E G R A M
FEDERAL RESERVE BOARD
W A SH IN G TO N
July 16, i m
McKay - Chicago
C m m m % with. Investswmt Co«aitt®e any % i m prior to
August
5*
PXaaae advise wh©n date lft'
dfttttraiaad+
VAH FOSSUf*
VF/li
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority fc.Q* 1M58
333
Dvso Q
iiin t
m r c h 7* 1935
Hr* H* G* Pett, Manager,
Division o f Saseareh. wad S ta tis tic s
Federal Reserve Basic o f Chicago
Chicago* I lli n o i s
Dear Hr* P a tti
R eferrin g to your le t t e r o f February 28^ the M ount o f
Suited States se c u ritie s a llo tte d to
four bank trom the
Syatatt Special Investaetit Account, as given . s oar la t t e r
i
of February 19, represents se c u ritie s bought ia the open
Market*
la addition , $l,644f000 o f treasu ry b i l l s bought from
other Federal
&m m r m banks were a llo tte d to your bank fr o *
the Systea account daring 1934#
S e c u ritie s purchased fr o *
other Federal Reserve banks are not included in fig u re s pub
lish ed by tha Federal Reserve Board ia order to avoid duplica
tio n s ia the combined fig u re s fo r a l l Federal Reserve banks.
Very truly yours,
1 , L . Sstead, C h ie f,
D ivision o f Bank Operations*
W /Xm
PG
Reproduced from the Unclassified I Declassified Holdings of the National Archives
_
p ECLASSiFiED
Authority
12358
*0/1
v v ^ f ^ t-4»*
F E D E R A L R E S E R V E B A N K OF C H I C A G O
230 SOUTH
LA S A L LE
STREET
February
28
1935
Federal Reserve Board
Washington, D.C.
Attention: Mr. J. R. Van Fossen
Assistant Chief— Division of Bank Operations
Dear Mr. Van Fossen:
In accordance with the instructions con
tained in your letter of February 19, 1935 to Mr. Stevens we
have added $4,419,250.12 to our comparative volume of openM l l market operations, bringing the 1934 total up to $7,560,000.
With respect to United States security
allotments in the System's special investment account to the
Federal Reserve Bank of Chicago, we are unable to reconcile the
data in our records with those reported to you by the Federal
Reserve Bank of New York. The individual transactions on the
enclosed list give an aggregate in 1934 of $426,666,000— an amount
$1,644,000 in excess of that reported by New York. We shall greatly
appreciate any information which will reconcile this difference.
HGP:J
Division of Research and Statistics
Reproduced from the Unclassified I Declassified Holdings of the National Archives
"
DECLASSIFIED
Authority
^ ^5%
U, S. SECURITIES TRANSACTIONS IN SYSTEM’S
SPECIAL INVESTMENT ACCOUNT WITH
FEDERAL RESERVE BANK OF CHICAGO
1934
— — — —
Jan. 3”-$7,624,500
8
842,500
10
5,434,000
9,115,500
17
22
337,000
24
5 ,038,000
3 9,217,500
1
Feb. 1
337,000
4,641,000
7
0
2,371,500
842,500
9
14
5,442,500
Q] 4,356,000
~
28
8,285,000
6,045,000
Mar. 7
5,084,500
9
12
1,044,500
I 4 ,212,500
k
15 22,284,000
16
.
589,500
910,000
19
20
2,948,500
21
8,279,000
22
4,212,500
28 9,241,500
3,370,000
29
A pr. 2
253,000
4
8,972,500
4,221,000
5
4,296,500
6
10
758,500
13
4,992,000
12
2,155,500
16
6,571,500
8,660,500
18
25
6,859,000
February 28, 1935*
1934
_ _ _ _ _
May 2- -$14,743,500
2 ,106,500
3
7,952,000
9
14
498,500
16
4,680,000
461,500
17
5,302,500
23
1 ,080,500
25
28
1,556,500
Junel
331,000
4
165,500
944,000
5
6,126,000
7
8
1,281,000
11
269,500
12
2,483,500
12
1 ,800,000
4,718,000
13
11,011,000
15
828,000
19
4,202,500
20
21
496,500
22
1,738,500
828,000
25
2,692,500
27
28
455,^00
Jul. 2
1 ,498,500
5,190,000
3
795,500
5
82,500
6
165,500
9
10
414,000
2,754,500
11
164,500
13
16
1 ,118,500
18
4,539,000
164,500
23
3,947,000
25
1934
_ _ _ _ _
Aug 1 - -$2,580
8 4,527
1,7 18
9
4,471
15
740
20
21
246
22
1,850
329
27
29
3,905
Sept.5
7,170
6
2,754
10
3,289
3,700
12
5,336
13
14
1,389
15 18 ,213
904
17
18
279
5,427
19
904
20
26 8,173
822
Oct . 1
822
2
4,198
3
4
2,105
164
5
8
1,233
10
2,883
17
2,837
18
493
2,582
24
822
26
2,837
31
Nov . 2
493
246
5
3,197
7
8
575
1,19 2
9
193^
____ _ .
000 Nov. 1 3 --$411,000
500 I
1 ^ , 231,500
500 .1
814,000
15
000 !
16
82,000
000 I
986,500
19
500 t
246,500
20
000 !
21 2,775,000
000 !
22
164,500
500 1
26 329,000
.
000 l
30 1,644,500
500
000
000 iDec-
500 1
000 1
000 J
500 »
500 1
000 1
5 5,729,500
7 3,151,000
10
986,500
13
15
19
82,000
36,445,000
2,162,500
26 3,577,000
500
000 •
500
500
500
#2T.6^,000
000
500
500
000
000
500
500
500
000
500
500
000
500
500
Division of Research and Statistics
Federal Reserve Bank of Chicago
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority
12358
F o rn b .N o . 131
^
,
FEDERAL R E f - FEDERAL RESERVE
Office Correspondence
To
From
Federal Heserve Board___
H i v i siin n
D lv k o n
nf '
o{
V f W ' . t^ tioflS F i!d
i n n # F IU
k O p-
^
/
Dstp *»aniary
198$«
Subject:________________ -' r\
V
Morrill___________
e
p
o
Advice haa been received of the selection by the board®
of directors of the respective Federal reserve banks of the fol
lowing members of the Federal Open Market Committee for the year
19551
Diatrlot
Ho* 1
No* 2
No. $
No* 4
Hanw and T1U,
R. A. Young, Governor
•Deputy Governor
Gf L« Harrison, Governor
G« W« Norris, Governor
♦Deputy Governor
M* J# Fleming, Governor
$
G* J* Seay* Governor
♦Senior Deputy Governor
No* 6
Oscar Newton, Governor
No* 7
0* J« Schaller, Governor
•R* P* Preston, Deputy Governor
No* 8
W* McC. Martin, Governor
No. 9
W* B. Geery, Governor
No* 10
G* 8 # Hamilton, Governor
No, 11
B* A. McKinney, Governor
No, 12
* Alternate,
J * D* Calkins, Governor
T
♦Senior Deputy Governor
16— 852
Reproduced from the Unclassified / Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority
12358
/
Division of
J
FEB 1 1935
Mr* !« 8* Burke,
Acting Chairman,
Federal Reserve Bank of Cleveland,
Cleveland, Ohio*
Dear Hr* BurkeI
Receipt la acknowledged of your letter of Janu-»
ary 30, 12$$, advising that th© board of directors of
your bank, at its meeting on January 19, selected Mr*
S * J* Fl«i«ing, Governor of the Federal Reserve Bank
i
of Cleveland, to succeed Governor F&ncher as a member
of the Federal Open Market Coaalttee representing the
Fourth Federal Eeeerve District during the current
year*
Tour letter is being brought to the attention
of the members of the Federal Reserve Board*
Very truly yours f
(Signed) S. R Carpenter
.
S* R* Carpenter$
Assistant Secretary.
cci
Mr. Smead
Bank Operati/ns Fil
Reproduced from the Unclassified / Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority
12358
f ... Division of Bank Operations File ^
U
January 18, 1955,
Hr, L. 1* Clark, Secretary,
Federal Reserve Bazik of Atlanta,
Atlanta, Georgia*
Dear Hr* Clark*
Receipt la acknowledged of your letter of
January 14, 19&S, advising that the board of direc
tor* of your bank, at ita meeting on January n ,
eeleeted Hr* Oeear Kewtoaa, Governor of the Federal
Reserve Bank of Atlanta, ae a aesber of the Federal
Open iarket Co«aittee representing the Sixth Federal
Reserve District during the year !$$$«
tour letter le being brought to the attention
of the oeabers of the Federal Reserve Board*
Very truly yours,
(Signed) S. R. Carpenter
S* R# Carpenter,
Asslstent Secretary,
cci
Hr* Smead
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority fc .Q* 12358
,Z y
' io ts
Division of Bank Operatiems File
January 14, 195$.
S . 1* P. Brown,
ir
Deputy Chairoan,
Federal Reserve Baak of Kansas City,
Kansas City, Missouri*
Receipt is acknowledged of your letter of
Januaiy II, 1955, advising that the board of dire#»
tors of your hank, at it# aeatiag on I m w r ?
selected Mr. G*
8* Hamilton,
10,
Governor of the Federal
Raserve Bank of Kanoaa City, as a aeober of tha Fad*
aral Open Market Coaaittee representing tha Tenth
Federal Eeserve Bistrict for the year 1015*
tour latter is being brought to the atten
tion of the aeabers of the Federal Reserve Board*
Wary truly .yours,
p p s a ) S- ^ varcenlef
'
S* 1* Carp«ater,
Assistant Secretary*
cc:
M r.
Smead
Unclassified / Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority E .6 *
m
*w
*
'"* ?
#
Division oT Bank OperaTiofis Fils
JAN 1 2
Mr* ?# I* C u rtiss, Chairman,
Federal Reserve Bank of Boston,
Boston, Masaachueetts.
Bear Mr# Curtiss*
Receipt la acknowledged of your letter of Janu
ary 10* 19&S, advising that the board of'directors of
your bank* at I t * meeting on Janu&ry 9, selected the
governor of the Federal Reserve Bank of Bofton ae a mem
ber of the Federal Open Market Committee, representing
the First Federal Reserve District, to serve until Decem
ber 51, 1955, or until hi© successor is appointed and
qualified, and appointed the deputy governor of the
bank as an alternate ' o the governor, to attend any
t
meeting of the Coaalttee during such term and to
participate in the discussion in the absence or in-ability of the governor*
four letter is being brought to the attention
of the members of the Federal Reserve Board*
Very truly yours,
(Signed^ & ^ c r-. ;.
£. l # Carpenter,
i
Assistant Secretary*
eel
Mr. Snead
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority L O 1 1235B
"V -
v Lf
Division of Bank Operations Filo
Mr. E. £. Burfce# Jr.,
Acting Chairaaa,
£#deral R e w m Bank of Cleveland,
Cleveland, Ohio.
Dear Hr* Bmrke*
Reoeipt la acknowledged of your letter of Janu.ary ?# 19&5, advising that the board o f director* of
your beak, at It® aeeting on December 7, 1954, selected
Hr. I. R, F&neher, Governor of the Federal Reserve Bank
of Cleveland, ae a aeaber of the Federal Open Market
Coaaittee representing the Tmurib Federal Keserve Dis
trict daring the year 1055.
Tour letter 1* being brought to the attention
of
the aeaber* of the Federal Reserve Board.
?ery truly yours,
=
S. £* Carpenter,
Assistant Secretary
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
'
Authority
V2358
i
JA N 6
Hr* Allan 8
proul# Soerotary,
Federal Roaarto Bank of How York,
*** Tork, Bov fork*
Dtir 1 r* Sprouli
Rocaipt la aeknovladgad of your lattar of
Jaanary Sf 19&8, advising that tho board of dirooters
of your bank, at lta aaottng on that data* solootod
*r# Goorgo L« Harrison, Govornor of tha Fodoral Rosorv*
Bank of Bow fork, aa a aeafcar of tho Fodoral Opon Karkot
Coonlttoo to roprooant tho Soeond Fodoral Boaorfo Dls~
trlet for the yoar 195S.
louor lottor la boing brought to tho attention
of tho aadbers of tho Fodoral Resorts Board*
Vary truly youra,
(Signed) S. R. Carpenter
6. R. Carpenter,
Assistant Seoretary.
cc:
Mr. Smead
SSS
