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HBtras of m e e t in g of m e o t t o c o m m r m of the
^ >fVC &>EN MASKS? POLICY CONFSRMC:
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29* 1935
B y J ^ ^ N A R A . Date^n ' S
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fliu juiuuwing was called to order at 11:10 a* m*» there being present
Governor Harrison, chairman, Governors Young and Fancher, and
Beputy Governors Hutt, M«£ay, and Barge as {secretary) and
Hr, J* H* Williaaas (of the New York bask)
The preliminary memorandum and the report of operations were distributed,
and after discussion accepted#
Governor Harrison reviewed recent open marieet operations carried on under
action of the Open Market Policy Confer one o at its meeting on ipril 22, as modified
.later.
Governor Black entered the meeting at this point.
In a discussion of future policy Governor Harrison indicated that with
the return flow of currency after the July 4 holiday it seemed possible that ex
cess reserves might increase to the neighborhood of $500,000,000,
A situation
would thus be created which would provide some justification from a technical
point of view for tapering off purchases of government securities.
On the other
hand the psychological effect of the continuance or discontinuance of purchases
needed careful consideration, particularly as they might be related to movements
in the foreign exchanges or any steps which might or might not be taken toward
stabilization of the dollar.
The increase in prices and in business activity re
quired some continued support until it became more firmly established.
If the
ispetus which has arisen from the instability of the dollar in foreign exchange
should be removed, it might be desirable to increase purchases of government secur
ities, in accordance with the suggestion made by Governor Black at the meeting on
May 23*
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There ensued a discu ssion o f the d e s ira b le p o lic y to be pursued in the
current week, and at the conclusion o f th is discu ssion i t was moved and ca rried
that purchases o f approxim ately $20,000,000 be made in the current week.
I t was
agreed that th ese purchases should be made fo r d e liv e r y on Thursday and E riday,
June 29 and 30, in order to p ro v id e the market w ith funds which would tend t o o f f set any p o s s ib le strin gen cy over the end o f the h a lf yea r.
I t was a lso agreed
that i t would be unwise to roach any d e fin it e d e c is io n beyond the current week be
cause o f the great u n c e rta in tie s as to the p o s itio n o f the d o lla r and other in
fluences a ffe c t in g business a c t i v i t y .
Governor H arrison then review ed b r i e f l y h is discussions in London and
the present s itu a tio n with resp ect to proposals fo r monetary s t a b iliz a t io n .
There was a lso a discu ssion o f the p o lic y to be pursued in keeping open
licen sed member banks, Governor Black s ta tin g that i t was the A d m in istra tio n ’ s
p o lic y to make th e utmost e f f o r t to keep open a l l licen sed member banks.
The meeting adjourned at 12:15 p . m.
W. E. Burgess,
S ecreta ry .
sam
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JwEMU*
MINUTES OF MliTlNG OF tOCTCT
OF THE
P P M MARKET POLICY CONFlff«JCg- MAY 231 1953
A meeting of the executive committee of the Open Market Policy Conference
was called in Washington at Governor Black’s office on Tuesday, May 23, at 11 a* m.
There were present:
Governor Harrison, Chainaan,
Governors Young, Norris, Fane her
and McKay, and
Governor Black*.
Governor Harrison called attention to the fact that because of Governor
Black’s appointment to the Federal Reserve Board, there was a vacancy on the
executive committee of the Open Market Policy Conference and that with the approval
of the other members of the committee he bad invited Governor Fancher to serve in
Governor Black’s place pending another meeting of the Open Market Policy dbnference.
Governor Harrison then presented to the committee the secretary*s report
of operations and a preliminary memorandum on credit conditions which was read and
discussed in some detail.
Governor Harrisold, referred to the fact that the Federal
Reserve Board’s approval of purchases of United States Government securities by
the executive committee of the Open Market Policy Conference up to an aggregate of
#1,000,000,000 was broader in scope than the resolution adopted at the last meeting
of the conference on April 22c and stated that Governor Black had requested him to
take up with all of the members of the conference in seme appropriate fashion the
question whether or not the authority given to the executive committee by the
resolution passed at the last meeting of the conference might not be extended.
After discussion it was voted unanimously to be the sense of the executive committee
that the authority given to the executive committee at the last meeting of the con
ference, which limits the right to purchase government securities, either in the
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market or direct from the Treasury, wto mSet Treasury requirements," should be
amended so as to remove that restriction in order that purchases of securities
may be made promptly if in the judgment of the committee such purchases are
considered desirable, whether- or not to meet Treasury requirements.
It was
pointed out that this action, if approved by the conferencei ^ould enlarge the
powers of the committee to conform to the broader action of the Federal Reserve
Board in approving purchases of United States Government obligations without the
limitation as to Treasury requirements.
Governor Black expressed himself as being in agreement with this action
by the executive committee.
The committee then discussed the general situation in the light of the
preliminary memorandum with a view to ascertaining whether or not it would be
advisable to initiate some purchases of government securities at this time.
After discussion it was unanimously voted that the committee should purchase
$25 million of government securities this statement week provided a majority
of the Open Market Policy Conference approved of the proposed extension of
authority to the executive committee.
Governor Young explained that his vote
was predicated on the assumption that the Treasury would approve this action.
Governor Black advised the members of the committee that he was in
clined to believe that a larger amount of securities - possibly $100,000,000
or $200,000,000 - should #be purchased, when there was more evidence of a real
need therefor.
He inquired whether, if the present improvement in business
activities and prices should fall off seriously, thp committee would then be in
\
favor of heavy purchases of securities.
Members of the committee expressed the
view that they would be in favor of such purchases under such circumstances.
Governor Black then stated that in consideration of the views expressed at this
meeting, as to the possible advantages of prompt action, he was agreeable to
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the proposal to buy $25,000,000 of securities this statement weekf with the under-*
standing that, if need for more vigorous action develops, such action will be
taken promptly*
Governor Black advised the committee, prior to the final action on the
resolution to purchase government securities, about proposed legislation to
eliminate the so-called gold clause from new issues of government securities#
He showed the committee a memorandum prepared by the Treasury on this subject and
stated that the Treasury and Administration were in favor of the bill.
point Secretary Woodin joined the meeting.
At this
Governor Harrison advised the
secretary that the committee had voted to purchase $25 million of securities this
statement week, but that one of the members of the committee wanted to be in
formed of the views of the Treasury with respect to such a program. I Secretary
Woodin stated that he and the Treasury would have no opposition to open market
operations, but he felt, as did a majority of the committee, that there is no
necessity for Treasury approval of the proposal^
At the request of Governor Black each member of the executive committee
then expressed his opinions regarding:. (1) the proposed open market operations;
(2) the problem of keeping open licensed member banks; and (3) liberalization of
membership requirements in the Federal Reserve System.
During the course of
this discussion it appeared to be the unanimous opinion that one of the most im
portant problems now before the system is to devise a procedure or program for
keeping open all member banks which have been licensed to open.
To accomplish
this, either the Federal reserve banks should have some legal protection against
losses on account of liberal 10(b) loans made for the purpose of keeping member
banks open, or else the Reconstruction Finance Corporation Act should be amended
so as to make it possible for the R. F. C. to advance sufficient funds to keep
open any member bank that had been licensed to open.
If this were done, and
membership requirements in the Federal Reserve System were liberalized, and prompt
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action taken upon the applications of sound state banks for membership, it was
felt that it would be possible adequately to take care of all sound banks either
through liberal 10(b) loans by the Federal reserve banksf or by loans through the
R. F. &•
Governor Black reported steps which were being taken designed to handle
these problems, but stated that there might be difficulty in obtaining the
requisite amendments to the law#
During the course of the discussion it was pointed out that various
governmental agencies had substantially different yardsticks for appraising loan
values and that it would be helpful were a more uniform basis of appraising values
arrived at.
There was also some feeling that the office of the Comptroller of
the Currency was becoming more strict rather than more liberal in the reopening
of closed banks and that the present regulations of the Federal Reserve Board re
garding the admission of state banks to membership in the system are probably
more strict than present circumstances require#
George L. Harrisonf
Cha irman*
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Or Hffl OP1N MAEKST POLICY CONITOWIC*
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SATURDAY, APRIL 22, 1933,
WASHINGTON, D, C.
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Th® ae9 ting was called to order at 11 a. m.> there being present
the following:
Governor Harrison* chainaan# and
Governors Young, Norris, fane her, Seay* Black, Martin,
Geary, BBtmilton, McKinney, and Calkins, and
Deputy Governor Melay*
t
following completion of the deliberations of th© governors con
ference, a meeting of the open market policy conference was convened to
consider what, if any, action should be taken by the conference with a view
to giving the executive consulttee power to function if necessary in the
*
emergency pending another meeting of the conference*
The report of the secretary of the operations in the system account
since the last meeting, which had been previously distributed, waa received
and ordered to be placed on file*
The conference then considered the pre-
i
liminary memorandum which had also been distributed during the course of tUe
governors conference*
There was a general discussion of the memorandum and
a review of banking and business conditions which had been considered during
the course of the governors conference,
particular reference was made to the
j r
I
Thomas Amendment to the Faun Bill giving the President among other powers the
right to direct the Secretary of the Treasury to arrange with tha Federal re
serve banks for the purchase of government obligations up to three billion,
dollars*
As drafted, this provision of the law is not obligatory so far as
the Federal reserve banks are concerned* But the conference was generally in
agreement that during the period of the emergency it would be advisable for
the Federal reserve banks, so far as possible and consistent with their own
position and requirement#! to cooperate with the Treasury with a view to
feeilltat tag any necessary issuee of government securities or to support the
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market for government securities in order to make such public issues possible, r
The majority of the conference however did not feel that at the present time
it would be advisable for the Federal reserve banks to purchase government
securities solely for the purpose of increasing member bank reserves.
After
further discussion and in order that the executive cornuittee might be prepared#
if deemed advisable at the time* to purchase government securities with a view
to making it possible for the Treasury to meet its requirements, it was
VOTED to be the sense of the conference that
subject to approval of the Federal Reserve Board the
executive committee be authorized to arrange with the
Secretary of the Treasury from time to time to pur
chase up to one billion dollars of government securi
ties to meet Treasury requirements.
Deputy Governor McKay of the Federal Reserve Bank of Chicago asked to
be recorded as not voting*
All the other governors voted in the affirmative.
During the debate on this resolution it was pointed out that this
authority, if approved by the Federal Reserve Board, would permit the executive
committee to purchase government securities in the market as a means of facili
tating public issues of government securities rather than to force the Treasury
to seek accommodation directly from the Federal reserve banks.
It was understood
that a purchase in such circumstances would be with a view to meeting Treasury
requirements as specified in the resolution*
The conference then considered the question of the average maturity
of the securities held in the system account, it being pointed out that in
present circumstances a larger proportion of longer time government securities
might not be inappropriate, especially if the exchange of short term securities
for longer maturities would facilitate the marketing of government issues when
necessary.
It was emphasized that it might be possible by shifting various
issues in the system account from shorter to longer maturities to promote a
better relationship of rates in the government security market and also tone up
the market so as to facilitate public issues where otherwise direct recourse to
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the Federal reserve banks might be sought*
After discussion it was un
animously
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v
A A
VOTED to be the sense of thr conference that
while as a general principle the average maturity of
governments held in the system account should be kept
as short as possible* nevertheless in the present emergency and especially in view of the need of full cooperation with the Treasury in meeting its fiscal problems,
the executive committee should be authorized from time to
time to shift maturities in the system account if condi-_
tions in the market or requirements of the Treasury^appear
to make that advisable* Furthermore, it is understood that
in replacing maturities in the system account the executive
committee will use its discretion in the light of existing
conditions and this resolution in selecting replacements.
In view of the fact that the present emergency might make it necessary
or advisable for the Federal reserve banks to acquire further amounts of govern
ment securities* it was the belief of the conference that there should be the
fullest cooperation on the part of the several Federal reserve banks in reallo
cating existing and possible future holdings of government securities as between
reserve banks to enable the reserve banks to operate effectively as a System,
^
Accordingly, it was unanimously
executive
system of
purchases
at a more
VOTKD to be the sense of the conference that the
committee {fshouldjbe instructed to work out a
allotment of existing holdings as well as new
of government securities with a view to arriving
equitable relationship of reserve percentages*
It was pointed out that the reallocation of securities between reserve
banks might be necessary not only to permit of further purchases of securities
by the system but also to enable any Federal reserve bank freely to accommodate
its member banks on 10 B loans in cases whore large amounts of sucl^ loans might
be required to keep open licensed member banks in its district.
At 11:50 a, m. the open market policy conference met with the Federal
Reserve Board.
The three resolutions adopted were read to the Board, it being
pointed out that the first resolution authorizing the executive committee to
purchase up to one billion dollars of government securities would require the
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approval of the Federal Reserve Board*
Governor Harrison outlined some of
tho reasons which prompted the adoption of th<* resolutions in the form sub
mitted*
At 12:30 the meeting adjourned*
George L. Harrison,
Chairman*
J
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M2NDT3S OF MEETING OF THE
OPSt MARKET POLICY C0NEER2HC3
wmrasMY,
4, 1933,
wismNaF«, d. c.
jmsmt
The meeting was called to order at 10:20 a* m., there being present
the following!
Governor Harrison, chairman, and
Governors Young, Horris, 5*nchar, Seay, Black, McDougal,
Martin, Geery, Haailton, McKinney, and Calkins,
and Deputy Governor Burgess, secretary.
The secretaryfs report of operations was received, and placed on file.
The preliminary memorandum on credit conditions was distributed*
Governor Harrison pointed out that the present organization of the con
ference called for rotation in the membership of the executive committee, and it
was moved and carried that the present executive comaittee be continued for
another year*
Governor Young reported that the committee on banking legislation had
been in session the previous day and had reached a general agreement. He indicated
that the preliminary report of the committee would be mailed to the governors in a
few days*
At 10:35 the members of the Federal Reserve Board entered the meeting,
there being present:
Governor Meyer, Messrs. Hamlin, James, Hiller, Magee, and
from the Board Staff Messrs, Floyd Harrison, Morrill,
Goldenweiser, Wyatt, Smead, McClelland, and Carpenter*
Dr. Goldenweiser reviewed the recent developments in the credit situa
tion, and presented a memorandum on the subject prepared in the Board’s Division
of Research and Statistics.
During Dr. Goldenweiser»s statement the Chairman of
the Board joined the meeting*
Governor Meyer stated that probably at no time since the war has the
relation between the open market policy of the Federal Reserve System and the
general economic situation been so important and that for this reason it is
y / r / 3
3 3 3 .- C - J .
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p a r t ic u la r ly necessary that the d e c is io n o f the Open Market P o lic y Conference be
o f such a character as to be capable o f expression in d e f in it e terras which w i l l
be understandable t o th e p u b lic and j u s t i f y confidence in th e soundness and
s t a b i l i t y o f the System’ s p o lic y .
He r e fe r r e d t o th e a g ita tio n , e s p e c ia lly in
Congress, f o r the adoption o f in fla t io n a r y measures and p oin ted out th at under
conditions l i k e th ese the System must o f n e c e s s ity g iv e due con sid eration to such
fa c to r s in reaching a determ ination as t o fu tu re p o lic y .
He also stated that
during h is recent v i s i t s to seven o f th e Federal re s e rv e banks, when he discussed
the open market p o lic y w ith th e d ir e c to r s o f those banks, he found what appeared
t o be gen era l approval, and he expressed th e opinion that the p o lic ie s o f th e
System, in th e lig h t o f conditions which have e x isted during th e la s t two years,
have been remarkably fr e e from p u b lic c r itic is m *
The S e c re ta ry o f the Conference then read th e p relim in a ry memorandum on
c re d it con dition s p r e v io u s ly d is trib u te d *
S e c re ta ry M a lls on request review ed the budgetary s itu a tio n o f th e gov
ernment*
He also reviewed the proposals fo r in fla t io n which were being made to
th e Congress and suggested that any slackening in Federal re s e rv e open market
p o lic y might p ro vid e an excuse f o r an unsound in f la t io n b i l l * .
.
%
S e creta ry M ills
poin ted out, however, that the Treasu ry i t s e l f was not d i r e c t l y or in d ir e c t ly in te r e s te d in th e d ecisio n th e open market p o lic y conference might rea ch .
The
Treasury should pay th e market p r ic e fo r i t s money and should not exp ect, fo r
example, to take advantage o f any abnormal s itu a tio n f o r a la rg e refu nding opera
tio n *
P o lic y should be determined independently o f the Treasury p o s it io n j
As a basis fo r discu ssion by th e Conference, Governor H arrison then out
lin e d the various arguments both fo r and against somo redu ction in tho s e c u r ity
h oldings o f Federal re s e rv e banks*
o f some red u ction .
He suggested the fo llo w in g arguments in fa vo r
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(1 ) The System open market p o lic y had not been one t o
accumulate any d e fin it e amount o f s e c u r itie s but rath er to check
d e fla tio n through the redu ction o f bank debt and the c re a tio n o f
su b stan tial excess re s e rv e s , which had been accomplished* I t
had been g e n e r a lly agreed that a ft o r a su b stan tial e f f e c t iv e
pressure had been secured th e System would reduce i t s s e c u rity
holdings as soon as p o s s ib le without r e lie v in g that p ressu re,
Tlie turn o f th e year appeared to o ffe r th e best chance to de
crease th e amount o f s e c u r itie s without reducing member bank
reserves and so not changing p o lic y * I f t h is opportu n ity were
not used during January i t might not be fe a s ib le to liq u id a te fo r
a year without decreasing bank re s e rv e s and thus g iv in g the ap
pearance o f a change in p o lic y *
(2 ) Any fu rth e r su b sta n tia l in crease in excess reserves
might not in fa c t increase e f f e c t iv o pressure and would thus
serve o n ly to minimize c o n tro l when necessary.
/
(3 ) Though i t was not th e m otive th e fa c t that th e Reserve
banks have bought so la rg e amounts o f government s e c u r itie s has
in fa c t enabled th e Treasu ry to borrow cheaply and so in some
measure has encouraged th e continuance o f an unbalanced budget . y
Governor H arrison suggested the fo llo w in g arguments in fa v o r o f h oldin g
the government p o r t f o lio in t a c t .
I
,/
' ( 1 ) There is danger that a red u ction in s e c u r ity holdings
might be construed as a r e v e r s a l o f p o lic y which might in turn
in crea se the danger o f the adoption o f some r a d ic a l in fla t io n a r y
polic37 by Congress since th e most e f f e c t i v e argument against such
in fla t io n is that an o rd e rly p o lic y o f r e f l a t i o n is now at work..
Any move so in te rp re te d a lso might be discou ragin g to business
or to bankers h o ld in g a la r g e volume o f government s e c u r itie s ,
who might s ta rt to liq u id a t e ,
(2 ) A red u ction in the t o t a l holdings might operate as a
check to the bond market thus re ta rd in g business re c o v e r y and
fu rth er in ju rin g bond p o r t f o lio s o f banks.
(3 ) One question was the e ffe c tiv e n e s s o f varyin g amounts
o f excess re s e rv e s . There are in d ica tio n s that in te re s t on
d ep osits in p r in c ip a l centers might be elim in ated . I t is
d i f f i c u l t to tr a c e the e f fe c t s o f such a move but i f lim ite d to
bank d ep osits i t would probably d is tr ib u te the pressure fo r p u ttin g
money to work more v/idely and would thus j u s t i f y a la r g e r t o t a l o f
excess res e rv e s .
Governor H arrison fu rth er suggested that any redu ction in s e c u r ity h o ld
ings should in any event not exceed the return flo w o f currency, and that the
System should not attempt to o ffs e t g o ld imports sin ce that might be in terp reted
as c o n s titu tin g a p o lic y o f s t e r i l i z a t i o n o f go ld .
T5BT
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Governor Meyer suggested that what is most requ ired i s assurance as to
th e continuance o f th e pressure o f excess re s e rv e s .
Mr, M ille r suggested that the p re c is e amount o f excess re s erves main
tain ed was an in c id e n ta l d e t a il, but that th e important, question was one o f p o lic y
and d ir e c tio n o f movement, and that th ere might be harm in stopping excess reserves
from accumulating.
There ensued a gen eral discu ssion during which the question was ra ised
whether country banks could and would make use o f excess re s erves i f d riven back
from the cen ters.
Governor M artin poin ted Out that fe a r o f bank fa ilu r e s was
p reven tin g banks from using t h e ir excess re s e rv e s and i f that s itu a tio n were cor
rected th e excess re s e rv e s would be put to u se.
Governor Calkins emphasized th e same d i f f i c u l t y , p a r t ic u la r ly in r e l a
t io n to a g r ic u ltu r a l banks.
Governor Meyer pointed out that one e f f e c t o f the p o lic y had been to
r e l i e v e g r e a t ly th e finances o f c i t i e s and s ta te s , so that th e y could secure money
in th e market fo r r e l i e f and other necessary a c t i v i t i e s .
This was h e lp fu l in
keeping the s o c ia l o rga n iza tio n goin g.
Governor N o rris ra is e d th e question o f th e probable renewal, o f th e p ro
v is io n s o f S ection s 2 and 3 o f the Glass S te a g a ll b i l l ? and in general discu ssion
i t was suggested that th ere would probably be l i t t l e d i f f i c u l t y in the renewal o f
the p ro v is io n s r e fe r r e d t o , and that in any event the s itu a tio n o f the banks with
resp ect to c o lla t e r a l fo r Federal re s e rv e notes could not be r e lie v e d by the sa le
o f any reasonable amount o f government s e c u r it ie s .
There ensued some fu rth er discu ssion o f th e use o f excess reserves and
the probable e ffe c t s o f a discontinuance o f in te re s t on d ep osits in New York
should that occur.
There was some d iffe r e n c e o f opinion as to the extent to which
an excess o f reserves would be put to use by banks i f i t were d is trib u te d more
w id e ly throu^iout the country, some expressing the b e l i e f that th e funds would be
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put to use in investments or somewhat fr e e r len d in g, and oth ers expressing the
opp osite o p in io n .
The m eeting adjourned at 1:10 p# m*
The m eeting reconvened at 2:25 p . m ., th e re being present th e fo llo w in g :
Governor H arrison, chairman, and
Governors Young, N o r r is , Fancher, Seay, Black, McDougal,
M artin, Geery, Hamilton, McKinney, and Calkins,
and Deputy Governor Burgess, s ecreta ry *
A fte r some fu rth e r gen eral discu ssion each o f th e governors stated h is
views which may be summarized b r i e f l y as fo llo w s :
Governor Black said that w h ile he saw no economic reasons fo r not le t t i n g
m a tu rities run o f f he was g r e a t ly impressed by th e dangers o f unsound in fla t io n a r y
vj
proposals and b e lie v e ? that th ey could o n ly be combated bjf th e continuance o f th e
present p o lic y o f th e Federal Reserve System,
Governor Geery favored le t t i n g January m atu rities run o f f a ft e r making a
statement that th e p o lic y o f m aintaining excess reserves would be continued.
Future p o lic y could be governed by th e e f f e c t s o f th is o p eration .
Governor Seay b e lie v e d that th e dangers o f a fu rth er accumulation o f
re s e rv e s were g re a te r than those o f disposin g o f some s e c u r it ie s .
He b elie v e d a
statement th at th e re was no change in p o lic y would be adequate t o d ea l w ith p o l i t i
c a l problems which have a way o f not m a te r ia liz in g .
He would le t not le s s than
$200,000,000 o f s e c u r itie s go.
Governor Young emphasized th e op p ortu n ity in January f o r l e t t i n g govern
ments go without in t e r fe r in g w ith excess re s e rv e s .
i
He would le t January m aturi-
t i e s run o f f and perhaps those o f February and would t r y to speed up th e renewal
o f the Glass S te a g a ll b i l l .
Governor Calkins stated that he was not impressed by th e p o l i t i c a l
argument and p a r t ic u la r ly with th e System*s power t o deal with in f l a t i o n i s t s .
He
was not a supporter o f the th eo ry that excess res e rv e s were e f f e c t i v e in expanding
c r e d it .
He would, however, l e t a sm aller amount o f governments than the January
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m a tu rities run o f f and not decide yet about February,
Governor M artin thought the elim in a tio n o f in te r e s t on d ep osits would
re s u lt in hoarding and other d i f f i c u l t i e s .
He b e lie v e d the
banking s itu a tio n
must be straigh ten ed out b e fo re excess reserves would have t h e ir f u l l e f f e c t .
He
would fa vo r l e t t i n g some s e c u r itie s run o f f , w ith the execu tive committee keeping
in c lo s e touch with th e r e s u lt s .
/
Governor Hamilton b e lie v e d th e System should not base i t s a ctio n on the
p o l i t i c a l s itu a tio n .
He would fa v o r l e t t i n g January m a tu rities run o f f and having
another meeting to decide on February m a tu ritie s .
He considered i t
important to
exp la in the a ctio n t o th e p u b lic .^
sl
Governor Fancher thought an elim in a tio n o f in te re s t charges due to in
creasing res e rv e s would be u ndesirable*
He b e lie v e d some o f the m a tu rities in
January should not be rep la ced , r e la t in g any changes to the retu rn flo w o f curren
cy.
Governor N o rris suggested that fu rth e r increases in excess reserves
would a d versely a ffe c t bank earnings and incur the r is k o f disturbance which might
a r is e from e lim in a tin g in te r e s t on d e p o s its .
was the encouragement to an unbalanced budget.
As to p o l i t i c a l e ff e c t s one danger
The other r e la te d to in fla t io n a r y
p rop osa ls.
He b e lie v e d t h is la t t e r d i f f i c u l t y could be met by a c a re fu l statement
o f p o lic y .
He would fa vo r le t t i n g January m a tu rities run o f f t o the extent o f the
currency retu rn but would on ly fa v o r doing th is i f an explanation were made*
If
no explanation were made he would fa v o r m aintaining the p o r t f o l i o .
« ;
U
/
Governor McDougal b e lie v e d that fu rth e r increase in excess reserves woulc
/
j
: be unwise and that reductions in the p o r t f o l i o might make open market money r a te s
firm er and strengthen the p o s itio n o f the R eserve System.
He favored l e t t i n g at
le a s t January m a tu rities run o f f ; and would p r e fe r to include the February m atu ri-
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Governor McKinney did not fa vo r g iv in g to o much con sid eration t o the
p o l i t i c a l a sp ects.
t i e s t o run o f f ,
He said he would permit th e g re a te r p o rtio n o f January m aturi
adding th a t, in h is judgment, such a ctio n would have a heartening
e ffe c t on the banks, in h is d i s t r i c t at le a s t , as w e ll as tend to crea te in the
p u b lic mind g e n e r a lly th e b e l i e f that because o f improved con dition s i t is no
j
j
lon ger necessary to r i g i d l y m aintain a fix e d amount o f Government s e c u r itie s in
th e System . jj
Governor H arrison said he had f e l t a l l along that some s e c u r itie s should
be allow ed t o run o f f in January but he attached considerable weight to the dangers
o f th e in fla t io n a r y movement a l l over th e country.
He feared m is in te rp re ta tio n o f
sa les by th e banks, th e market, and by Congress, but b e lie v e d th at t h is d i f f i c u l t y
might be la r g e ly avoided i f th e p o lic y were c le a r ly understood to be one o f con
tin u in g t o maintain su b sta n tia l excess reserves in prosent con d ition s.
T h is might
in v o lv e purchases as w e ll as sa le s o f s e c u r it ie s .
The conference then proceeded to d ra ft a r e s o lu tio n , s ta r tin g with a
motion by Governor Calkins that th e ex ecu tive ca a n ittoe be authorized to dispose
o f $100,000,000 t o $125,000,000 o f s e c u r itie s in January to o ffs e t currency r e
tu rn s.
B efore adjournment a p re lim in a ry d ra ft o f the re s o lu tio n was voted upon
fa v o ra b ly , Governors McDougal, Seay, and Black, v o tin g in the n eg a tive*
I t was
decided to hold a fu rth e r m eeting in th e morning, and since Governor Black was
unable t o s ta y u n t il morning he desired t o record h is dissent from any proposal
f o r reducing th e System p o r t f o l i o , as fo llo w s :
*1 am in accord w ith the economic reasons given by
th e Conference f o r the proposed redu ction in governments*
I , however, have an intense f e e lin g that th e present s itu a tio n
as to proposed in fla t io n a r y measures creates a new con d ition
that i s most serious and should be persu asive o f a ctio n r e
s u ltin g in m aintaining our present h o ld in g s; and I th e r e fo r e
v o te ’ no* on th e present m otion .”
A fte r fu rth er discu ssion o f th e d ra ft re s o lu tio n th e meeting adjourned
at 6:05 p . m.
f
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January 5, 1953.
The meeting was c a lle d to order at 10:06 a. m ., th ere being present th e
fo llo w in g :
Governor H arrison, chairman, and
Governors Young, N o r r is , Fancher, Seay, McDougal,
M artin, Geery, Hamilton, McKinney, and Calkins,
and Deputy Governor Burgess, secreta ry*
The discu ssion o f the d ra ft r e s o lu tio n was continued, and a ft e r fu rth er
m o d ific a tio n s , i t was passed by unanimous vo te in th e fo llo w in g form:
I t i s th e sense o f th e Open Market P o lic y Conference
th at th ere should be no change in th e System’ s p o lic y intended
to maintain a su b sta n tia l amount o f excess member bank reserves
inasmuch as th e continuance o f excess reserves in su b sta n tia l
amounts is d e s ira b le in present co n d itio n s. In view o f the
retu rn flo w o f currency during January and p ro s p e c tiv e gold move*ments th e amount o f excess reserves may r i s e con siderably above
th e present le v e l which is deemed appropriate under present con
d it io n s .
BE IT RESOLVED, THEREFORE, That, pending another
meeting o f the Conference, the Executive Committee be
given a u th o rity (a ) to reduce th e S 3rstemTs holdings o f
short term Treasury b i l l s in order to o ffs e t such
amount o f th e retu rn flo w o f currency as may seem de
s ir a b le , provided such a ctio n does not re s u lt in any
su b stan tial redu ction in e x is tin g excess re s e rv e s and
(b ) i f necessary, t o purchase Government s e c u r itie s in
s u ffic ie n t amounts to prevent member bank excess reserves
f a l l i n g below th e present gen eral l e v e l ,
c)
Governors Seay and McDougal d esired to be recorded as v o tin g with a
re s e rv a tio n .
They b elieved that th e proposal represented a step in the r ig h t d i r
ectio n but would p r e fe r to see a la r g e r redu ction in th e p o r t f o l i o and did not
fa v o r the maintenance o f as la r g e excess res e rv e s as at p resen t.
Some re s e rv a tio n
as t o th e value o f th e maintenance o f th e present volume o f excess re s e rv e s was
expressed by severa l o f th e governors.
Governor Young sa id he was v o tin g f o r the re s o lu tio n bocause he b elie v e d
i t t o be a step in the rig h t d ir e c tio n and not because he had changed h is views
in re fe re n c e t o excess r e s e r v e s .
iar
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I t was understood in fo rm a lly that th e re s o lu tio n should be in terp reted
by th e execu tive committee as fo llo w s :
s'
(1 ) Treasury b i l l s up t o $125,000,000 would be allowed to
run o f f in January to the extent that th ere is a retu rn flo w o f
currency, but not to bring excess re s e rv e s below ^500,000,000.
(2 ) When th e r e s o lu tio n r e fe r s to th e present l e v e l o f r e
serves i t means approxim ately §500,000,000.
(5 ) When the r e s o lu tio n r e fe r s t o th e return flo w o f
currency i t means the retu rn flow from the December peak ju st
b efo re Christmas.
(4 )
There would be another meeting o f th e Conference
b efo re any in crease in the System holdings o f government s e c u ri
t i e s above $1,851,000,000.
At 11:00 a. m* o f clo ck tho members o f the Federal Reserve Board entered
the m eeting, th ere being p resen t, in ad d ition to the governors o f the Federal
res e rv e banks, th e fo llo w in g :
Governor Meyer, M essrs. M ille r , Hamlin, James, Magee,
M o r r ill, H arrison, Wyatt, M cClelland, and Carpenter.
The re s o lu tio n adopted by the Conference was presented to th e Board and
unanimously approved by i t .
Governor Meyer expressed s a t is fa c t io n with th e form o f re s o lu tio n in that
i t provided a more s c i e n t i f i c basis fo r a ctio n than the usual re s o lu tio n which
sim ply indicated a d e f in it e amount o f s e c u r itie s t o be bought o r sold.
The re s o lu
t io n g iv e s assurance t o banks and business men as to the continuation o f easy money
and should help make the p o lic y more e f f e c t i v e .
it
Governor Meyer then stated that
is th e opinion o f the Federal Reserve Board that the governors o f the Federal
re s e rv e banks can con trib u te a great d ea l to th e success o f the System open market
p o lic y by exp lain in g t o member banks in a p o s it iv e way, whenever an opportu n ity
i s a ffo rd e d , the purposes sought to be accomplished by th e p o lic y .
Governor H arrison rep orted th e in te rp re ta tio n s o f the re s o lu tio n upon
which the conference was agreed.
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There ensued a gen eral d iscu ssion o f what i f any statement might be
g iv e n t o th e p re s s , and Dr, M ille r and Mr. Hamlin, and Governors H arrison and
N o r r is vrere con stitu ted a committee to d ra ft a statem ent, and th ey withdrew to
prepare a statement.
At 12:52 p* m ., the committee returned and the fo llo w in g statement was
read and adopted without d issen t:
The Open Market P o l i c y Conference o f th e Federal R eserve System, with
re p re s e n ta tiv e s from a l l o f the tw e lv e Federal re s e rv e banks in attendance, con
cluded i t s meetings with the F ed eral Beserve Board tod ay.
The sessions o f th e
Conference were devoted to a review o f economic, business, fin a n c ia l and banking
con dition s in each o f the tw e lv e F ederal re s e rv e d is t r i c t s and t o the economic
and fin a n c ia l s itu a tio n in th e country as a whole.
P a r tic u la r re fe re n c e was made
in th e discussions t o the workings and e ffe c t s o f th e open market p o lic y thus fa r
pursued by the Federal Reserve System during th e course o f the economic depression .
Consideration was also given t o th e a ttitu d e o f the System in ad ju stin g i t s opera
tio n s to con dition s and needs as th ey may change and develop*
% ie f i r s t and immediate o b je c tiv e o f th e open market p o lic y was t o conJ
tr ib u te fa c to rs o f s a fe t y and s t a b i l i t y in meeting th e fo rc e s o f d e fla t io n .
The
la r g e r o b je c tiv e s o f th e System’ s open market p o lic y , t o a s s is t and a c c e le ra te th e
fo rc e s o f economic re co very , are now assuming importance*^
With th is purpose in mind, the Conference has decided that th e re should
be no change in th e System’ s p o lic y intended to maintain a su b sta n tia l amount o f
excess member bank re s e rv e s , th e continuance o f which is deemed d e s ira b le in
present con d ition s*
Adjustments in the System’ s h oldings in the open market ac
count w i l l be in accordance w ith th is p o lic y *
Governor Meyer sa id that the Board had approved redu ctions in th e ra te
on 10-B loans in th e case o f two re s e rv e banks and would be glad to act upon other
a p p lic a tio n s *
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Governor Meyer suggested the importance o f b u ild in g up th e man power o f
the Beserve System by b rin gin g in ab le young men.
There ensued some discu ssion
o f the aid which an adequate pension plan would g iv e to t h is proposal, and i t was
in d ica ted that th e Board was studying th e recommendations o f th e governors upon
that p o in t .
At 1:00 p . m ., the meeting adjourned.
W. Randolph Burgess,
S ecreta ry .
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CONFIDENTIAL
MINUTES OF MEETING 01 THE
OPM MARKET POLICY CONFERENCE
TUESDAY, NOVMBSR 15, 1932,
WASHINGTON, D. C,
A.I'
•
The m eeting was c a lle d to order at 11 a* m ., th ere being present the
fo llo w in g
Governor H arrison, chaiiman, and
Governors Young, N o r r is , Fancher,
Seay, Black, McDougal, Geery, M artin ,
Hamilton, McKinney, and Calkins*
The Conference voted to re c e iv e and place on f i l e th e report o f th e
s e c re ta ry r e la t in g to operations in the system account since th e la s t m eeting o f
the Conference on July 14, 1932*
The chaiiman read t o the Conference the p relim in ary memorandum which
had p re v io u s ly been m ailed to each member o f th e Conference,
He then r e fe r r e d to
the fa c t that at the Joint Conference th e day b efo re he had reviewed the Open
Market operations o f the system since la s t February, o u tlin in g p o lic ie s and ob
je c t iv e s and commenting upon the e f fe c t s o f those operations on the c re d it and
banking p o s itio n o f the country.
While i t was not necessary again to review that
gen eral statem ent, he discussed the s p e c ific problem now b efore the Conference,
that is , whether the systan should buy more s e c u r it ie s , s e l l same o f the present
h oldin gs, o r le a v e th e account sta tio n a ry *
He mentioned that th e net in flu en ce
o f the various fo rc e s a ffe c t in g the excess res e rv e p o s itio n o f ‘ member banks in th e
next few weeks v e r y probably would be in the d ir e c t io n o f a reduction o f those
excess re s e rv e s .
The gold in flo w has lessened somewhat in the past s e v e ra l weeks,
the ra te o f return o f currency frcm hoarding has slackened and we are now fa c in g
the season when currency c ir c u la tio n might be expected to expand f o r h o lid a y pur
poses.
A d iffe r e n t set o f fa c ts w i l l e x is t a ft e r the turn o f the year.
A l l o f th e msabers o f the Conference were o f the opinion that th ere is
no occasion to buy more s e c u r itie s at the present tim e.
The question f o r the
s
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d e c is io n o f the Conference th e r e fo r e was whether the system should now s e l l some
o f i t s present holdings o r lea ve the account s ta tio n a ry .
In discussing th is
question the chairman expressed h is opinion that in a l l the circumstances which
were mentioned the system should not s e l l now and that the question o f when it
should do so was one which should he determined l a t e r in the lig h t o f circumstances
as they might develop in the fu tu re .
Governor McDougal stated that in h is opinion th ere was c e r ta in ly no
reason fo r in creasin g the syston account at the present tim e and th a t, w h ile he
would not recommend sales o f present holdings at the mcment, n everth eless, he
thought it n igh t be w ise not to rep la ce some o f our Decsnber m a tu r itie s .
Governor Seay said that in considering the problem we should keep in mind
that the p rovision s o f the G la s s -S te a g a ll B i l l , a u th orizin g the Reserve Banks to
6
pledge government s e c u r itie s as c o lla t e r a l f o r Federal reserve notes e x p ire ^ on
March 3 next unless fu rth e r extended by Congress.
Governor Calkins suggested that i t might be wise t o au th orize the
Executive Committee to decrease the present holdings up to an amount o f $150
m illio n , provided the excess reserves o f menber banks do not go belov/ £250 m illio n s *
Governor Young said that i t would be p re fe ra b le not to make any change
in the system holdings b efore the turn o f the year;
that he favored allow in g some
o f our holdings to mature, but that i t would be b e tte r to do so a f t e r the turn o f
the year rath er than b e fo re .
He f e l t , howeve'r, that even though we should not
make any change in th e account u n t il a ft e r the turn o f the year., i t might be w ise
now through d is c r e e t but in fe rn a l comment through th e press to l e t the public know
that a reduction in the account might be expected a ft e r the turn o f the year.
Governor Fancher expressed the opinion that we should do nothing now, but
that perhaps we should lo o k towards a considerable reduction o f our holdings
during January,
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Governor Hamilton stated that in h is opinion it was important from the
point o f view o f the banks o f the country that we do nothing u n t il the Treasury
ta x program is c le a r , perhaps sometime a ft e r December 15,
Governor N o rris mentioned th e Importance o f economy in government fin a n ce,
but stated he did not b e lie v e th ere was much chance o f an e a r ly adoption o f an econcmy program.
He then stated that he did not fa v o r making any advance announcement
o f our program, as might be im plied from Governor Youngf s remarks.
He did f e e l ,
however, that at the time we do make a change in the system account i t must be ex
plained to the country through d is c re e t p u b lic ity ;
not by any foim al statanent o f
the Federal Reserve Board or o f any Federal reserve bank, but through u n o ffic ia l
advice to key nev/spaper men.
Governor N o rris agreed f u l l y with the opinions
p re v io u s ly expressed that th ere should be no change in the account at the present
time*
Governor Seay ranarked that w hile i t is no doubt true that January might
be a b e tte r time than the present to allow s e c u r itie s to run o f f , n everth eless, we
must recogn ize the fa c t that we should take advantage o f any fa vo ra b le opportu n ity
to do so, perhaps even during December,
Governor McDougal said he would lik e to see the systems holdings reduced;
that th ere is too much reserve c re d it in the market and that w hile January might
be a b e tte r opportu nity, n eve rth e le s s , th ere is ju s t ific a t io n fo r doing so now,
e s p e c ia lly as we cannot see c le a r ly what may be ahead o f us and that we should take
advantage o f present o p p o rtu n ities.
Governor N o rris then made the fo llo w in g mot ion :
"th at i t is the consensus o f the Conference that
no change should be made at th is time in the
amount o f the syst® i holdings o f government s e c u ri
t i e s , and that th ere should be another m eeting o f
the Cpen Market P o lic y Conference during the f i r s t
week in January to consider the system ’ s p o lic y in
the lig h t o f conditions as th ey ex ist at that tim e .”
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Following this motion, which was duly seconded, there was a discussion
about the time of the meeting, Governor Calkins and Governor Seay raising the
question whether it would be preferable to have it about the middle of Decaaber.
Governor Seay then offered a substitute motion to the effect that the December
maturities be allowed to run off without replacanent and that there should be another
meeting of the Open Market policy Conference the first week in January.
This motion
was seconded by Governor McDougal, but when put to a vote it was not carried,
✓
Governor Seay and Governor McDougal voting in the affirmative, but the other ten
governors voting in the negative.
Governor Norris* motion was then carried un
animously.
After this action of the Conference there was a general discussion of the
book profit in the systsn account with particular reference to the reserve that had
been set up last year against losses existing at that time*
It was the consensus
of opinion that our present holdings should not be written up to market values but
that the amount set up as reserve against losses last year should be restored to
surplus«
The meeting adjourned at 1 o*clock*
George L* Harrison,
Chaiiman*
GLH:MAR
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/
MINUTES Or THE MEETING OF THE
OPEN MLHKET POLICY CONFERENCE
THURSDAY, JULY 14, 1932, WASHINGTON, D. C.
The m eeting was c a lle d to o rd er a t 10:30 a. m ., in jo in t session with the
fe d e r a l Reserve Board, th ere being present the fo llo w in g :
From the Federal Reserve Board
Governor Meyer, and Messrs. Hamlin, Janes, Magee,
and M ille r ,
From the Federal re s e rv e banks
Governors Young, H arrison, Faneher, Seay, Black,
McDougal 1 Geery, M artin, Hamilton, McKinney, and
C alkins, and Deputy Governors Hutt and Burgess,
From the Federal Reserve Board s t a f f
M essrs. F. H arrison , Goldenweiser, Wyatt, Sinead,
and M cClelland.
The p relim in a ry memorandum and s e c r e ta r y 's re p o rt o f Open Market operation s
were d is trib u te d and a few minutes were taken f o r the reading o f these re p o rts .
Governor Meyer review ed the events since the la s t meeting and r e fe r r e d
p a r tic u la r ly t o the completion o f the French gold movement and the tendency f o r the
in te rn a tio n a l movement o f funds to turn in fa v o r o f the d o lla r .
He review ed the
a c t i v i t i e s of the R econstruction Finance Corporation as to t h e ir volume o f opera
tio n s , the a c c e le ra tio n o f demands f o r funds in the second h a l f o f June, and a
recen t dim inution o f the demand.
He discussed b r i e f l y the Glass su b stitu te f o r
the GoIds borough b i l l and the Glass amendment to the r e l i e f b i l l , g iv in g a u th o rity
to tho Reserve banks to make loans to in d ivid u a ls and corporations under c e rta in
c lo s e ly p rescrib ed co n d itio n s.
With re fe re n c e to the system open market p o lic y Governor Meyer in d ica ted
th at while business had not undergone any revolu tion a ry r e v i v a l everyth in g had
hem. achieved by the open market p o lic y which there m s a r ig h t to expect in view
o f a l l the circum stances.
He suggested that in determining fu tu re p o lic y i t was
important to consider th at the pul l i e e f f e c t o f any sudden discontinuance o f the
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p o lic y which had been pursued would be unfortu nate, and a lso that in fu tu re p o lic y
every e f f o r t should be made to secure an e f f e c t i v e united system p o lic y .
He p o in t
ed out th a t there e x is te d a trend in Congress toward g iv in g the System more
c e n tr a liz a tio n , and that the open market program o f fe re d a t e s t o f the ca p a city o f
the System to fu n ction e f f e c t i v e l y in i t s present form*
Secretary M ills entered the meeting a t th is p o in t.
Governor H arrison r e fe r r e d to h is l e t t e r o f July 5 to members o f the conrference v;hich contained an an alysis o f the d is p o s itio n o f the funds made a v a ila b le
through open market op eration s.
Thus fa r these funds had been used la r g e ly de
fe n s iv e ly , to meet go ld exports and to repay red iscou n ts, but there now appeared to
be a much b e tte r opportunity to ach ieve the o b je c tiv e o f the program.
In view o f
the stoppage o f the gold exp ort movement i t now appeared to be p o ssib le to maintain
surplus reserves a t the c o s t o f r e l a t i v e l y sm all fu rth e r purchases o f governments,
assuming bank fa ilu r e s and currency hoarding can he kept in check.
Governor
Harrison suggested a program co n sistin g o f th ree p o in ts :
(1)
To prevent bank fa ilu r e s ,
(2 )
To continue to maintain excess reserves o f
$200,000,000 to $250,000,000 u n t il they are
used as a basis fo r a d d itio n a l c r e d it
(3 )
To coordinate the a c tio n o f the banking and
in d u s tr ia l committees in d iffe r e n t d is t r ic t s
to promote the use o f c r e d it .
There ensued a g en era l discussion o f the banking s itu a tio n , the e ffe c tiv e n e s s o f
open market operation s, and the fu tu re program.
During the course o f th is discus-,
sion a number o f the governors expressed the view that a c tiv e methods should be
taken fo r pu ttin g excess reserves to work, and a number introduced evidence to show
that business was having considerable d i f f i c u l t y in obtaining from the banks the
funds re q u ire d .
The meeting adjourned a t 1:05 p, m#
The meeting reconvened a t 2:50, there being present the same persons as
a t the morning meeting w ith the a d d ition o f I£r. M e r r ill o f the Board’ s s t a f f .
The
■tip
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general discussion was continued.
The governors o f a number o f banks pointed out
that with th e ir reserve percentages not fa r from 50% th e ir d ire c to rs were relu cta n t
to p a r tic ip a te much fu rth er in open market purchases, p a r t ic u la r ly unless the opera
tions were a united system undertaking.
A number suggested the d e s ir a b ilit y o f
a r e d is tr ib u tio n o f government s e c u r itie s to bring about a le v e lin g up in reserve
percentages.
At 3:35 the members o f tho Federal Reserve Board and it s s t a f f l e f t the
meeting, and the discu ssion o f a future open market program was resumed w ith only
the members o f the open marker p o lic y conference present, Governor Harrison p resid
in g.
A lt e r fu rth er continued discussion the fo llo w in g motion was ca rried by a
vote of 9 to 3, Governors Young, Sway and McDougal votin g in the n eg a tive.
’’That the Executive Committee be authorized to buy
Government s e c u r itie s to the ex ten t necessary to maintain ex
cess reserves o f member banks at approxim ately 200 m illio n
d o lla r s , t o t a l purchases to bo lim ite d to the amount p reviou sly
authorized by the Open Market P o lic y Conference which is 207
m illio n d o lla rs .
For the guidance of the Executive Committee
i t was the sense of the conference that except in unusual or
unforeseen circumstances purchases should not exceed 15 m illio n
d o lla rs a week, but fo r the next fou r weeks should be not lo ss
than 5 m illio n d o lla r s a week.”
There then ensued a fu rth er discu ssion o f tho d is tr ib u tio n o f purchases
o f government s e c u r itie s among the d iffe r e n t Federal reserve banks, during the
course o f which Governor Young pointed out that r h ile tho Boston reserve bank had
been opposed to tho program, i t had p a rtic ip a te d to a la rgo e x te n t in the purchases
since A p r il 12 and had also taken over $22,000,000 o f s e c u r itie s from the o u trigh t
holdings o f the Federal Reserve Bank o f New York on a temporary b a s is , w ith the
understanding that these could be sold back to the New York bank whenever necessary
The Boston bank was w illin g to continue th is s o rt o f a s s is ta n c e .
Governor McDougal
also pointed out that the Chicago bank had p a rtic ip a te d in a l l purchases since
A p r il 12 and would continue to g iv e c a re fu l con sid eration t® the question o f p a rtic
pation although the d ir e c to r s o f his bank f e l t th a t, in view e s p e c ia lly o f the bank
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la rgo l i a b i l i t y fo r Federal Roservo n otes, they hold a l l the governments that they
d esired .
He pointed out that tho Chicago bank had purchased $41 m illio n o f secur
i t i e s fo r it s own account and had a ls o made temporary purchases from Now York, and
would be w illin g to make fu rth er such purchases from New York or any other reserve
bank which needed assistan ce in m aintaining i t s reserve p o s itio n .
The S ecreta ry reported upon the expression s o f view r e c e iv e d from various
reserve banks in response to his l e t t e r of June 24 subm itting data upon s e v e ra l
p ossib le bases fo r the d is tr ib u tio n o f s e c u r ity purchases.
In the course o f d is
cussion i t was g e n e ra lly recogn ized th a t the r a tio s o f d is tr ib u tio n now being used
were a r b itr a r y and u n s a tis fa c to ry but no other basis appeared to be more s a tis fa c to r y
except an allotm ent on the basis o f reserve percentages, which was im practicable by
reason o f the views o f the Boston and Chicago banks as to the program.
A ft e r ex
tended discussion i t was agreed that operations should be continued on the basis o f
tlie present allotm en t r a t io s .
I t was recognized however, that a number o f the banks
would not be ab le to p a r tic ip a te f u l l y on th is basis in view o f th e ir low reserve
percentages, and i t was understood a lso that the Boston and Chicago banks would
stand ready to g iv e temporary assistance to any bank req u irin g a id because of it s
reserve percentage, though th is operation would o r d in a r ily be clea red through New
York.
Governor Harrison rep orted th a t the F ederal Reserve Board had expressed
agreement w ith the re s o lu tio n adopted by the conference as to fu tu re p o lic y .
Governor H arrison then rep orted in fo rm a lly the developments with resp ect
to gold movements and r e la tio n s with fo re ig n banks of issue since the preceding
m eeting.
The meeting adjourned a t 6:00 p. m.
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— .........•—<-
JOINT CONBERMCE OF THE FEDERAL RESERVE BOARD
AND THE GOVERNORS OF FEDERAL RESERVE BANKS
FRIDAY, JULY 15, 1932, AT WASHINGTON, D. 0.
The meeting was c a lle d to order at 10:35 a. m. as a jo in t conference, there
being p re s e n t:
From the Federal Reserve Board
Governor Meyer, and Messrs* Hamlin, James, Magee,
and M ille r ,
From the Federal reserve banks
Governors Young, H arrison, Fancher, Seay, Black,
McDougal, Geery, M artin, Hamilton, McKinney, and
G alkins, and Deputy Governors Hutt and Burgess.
From the Federal Reserve Board s t a f f
Messrs. F. H arrison, M o r r ill, Goldenweiser, Wyatt,
M cClelland, and C arter.
Governor Meyer reported the status before Congress o f the p ro visio n o f the
pending r e l i e f b i l l re q u irin g p u b lic ity fo r loans by the Reconstruction Finance
Corporation.
Governor Meyer then suggested a discussion o f the p ro v is io n fo r loans to
in d ivid u a ls and corp oration s by the F ed eral reserve banks embodied in the Glass
amendment to the r e l i e f b i l l .
He suggested th a t th is p ro v is io n might prove h e lp fu l
in making c r e d it more f r e e l y a v a ila b le fo r business, fo r the p ro visio n would open
the way fo r
the Federal res e rv e banks to become informed as to p a rtic u la r c r e d it
situ a tio n s , and to work out means by which bank c r e d it might be made a v a ila b le even
in cases where the Federal re s e rv e banks themselves might not make the loan.
There ensued a g e n e ra l d iscu ssion in the course o f which the dangers as
w e ll as the advantages in th is new proposal were emphasized.
The dangers s p e c ia lly
mentioned were the danger o f the Reserve banks being c a lle d upon to make r is k y
loans, and the danger of the Reserve System becoming to o g r e a tly in volved in the
commercial banking business*
Governor Meyer and others suggested th a t i t would probably be necessary fo r
many o f the Reserve banks to employ a d d itio n a l people s p e c ia lly q u a lifie d to ca rry
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through su c c e s s fu lly the work in volved in th is proposal.
There was discussion of a te n ta tiv e d r a ft o f regu la tion s coverin g th is
p ro visio n which had been prepared by the s t a f f o f the Board.
In response to a qu estion Governor Meyer said that the Board did not
propose to approve each loan but ra th er to authorize the Reserve banks to make
such loans t o r a sta ted p e rio d .
A ft e r discussion i t was agreed that th is p rovision does not authorize
loans to nonmember banks since these banks, which have access to the Reconstruction
Finance Corporation, could not o f f e r s a t is fa c t o r y proof th at they were unable to
secure loans elsewhere, and in view a ls o o f the tech n ical wording o f the p ro v is io n .
With regard to a p o ssib le lim it a t io n o f the amount o f a loan which a
Reserve bank might make to any one borrower, i t was the concensus o f view that 1
per cent o f the p a id -in c a p ita l was too narrow a lim it a t io n , and i t was f e l t that a
proper lim ita tio n ?/ould be that no loan to a s in g le borrower should be la r g e r than
1 per cent o f the p a id -in c a p ita l and surplus o f the lending Federal re s e rv e bank
except with the consent o f the Federal Reserve Board.
There was considerable discussion as to the r a te which should be charged
on these loans, and i t was agreed that there should be some f l e x i b i l i t y o f rate
both by reason o f d iffe re n c e s in l o c a l i t y and d iffe r e n c e s in the character o f the
r is k .
I t appeared to be the gen era l view o f the governors that the most p r a c t ic a l
plan would be to have a minimum and a maximum r a te fix e d by each Federal reserve
bank su bject to review and determ ination by tho Federal Reserve Board w ith in which
a ra te f o r each loan might be determined by the ad m in istra tive o ffic e r s *
G en erally
speaking i t was f e l t that the ra te charged should correspond with the going rata
charged by commercial banks.
Governor Meyer suggested that w eekly rep orts from the Reserve banks show
ing in a general way the amount and kind o f business a c tu a lly done under th is
p ro v is io n and the assistan ce rendered to applican ts in obtain in g accommodations from
other banking in s titu tio n s would be u sefu l in en ablin g the Board to keep informed
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as to progress being made.
This was g e n e r a lly agreed to by those present and i t
was a ls o suggested that th ere should be another meeting b efo re long to compare notes.
There was some discussion o f the dom icile o f loans and i t was suggested
that no ru le be adopted on th is question at the s t a r t , le a v in g i t to the Federal
Reserve Banks to work out p a r tic u la r cases between themselves.
There was some discussion o f the purchase o f trade acceptances under th is
p ro visio n but i t was g e n e ra lly agreed that the requirement f o r s e c u rity under the
new law made i t d i f f i c u l t to handle trade acceptances under th is p ro visio n but th at
they could best be handled under the present law.
The governors present requested that the F ederal Reserve Boardf s s t a f f
should draw up te n ta tiv e forms fo r use in adm inistering th is p ro visio n .
Governor Meyer emphasized the opportunity th a t th is p ro v is io n o ffe r e d f o r
the Reserve banks to e x e rc is e a p o s itiv e in flu en ce in making funds a v a ila b le fo r
business.
The jo in t conference adjourned at 12:35,
The governors present then reconvened as a govern ors1 conference, Governor
Calkins p re s id in g ,
A rep o rt of the standing canm ittee on c o lle c t io n s was presented, and upon
motion, adopted, w ith the understanding th at p ra c tic e should be uniform throughout
the System,
Governor Fancher ra is e d a question as to the valu e o f the f i d e l i t y bonds
now being c a rrie d by the System.
This question was upon motion r e fe r r e d to the
Insurance Committee.
The meeting adjourned a t 12:45 p, m.
W. R. Burgess,
S ecreta ry,
DECLASSI FI Fn
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MINUTES OF THE MEETING OF THE EXECUTIVE COMMXITEE
OF THE O lffl MARKET POLICY CONSSRlffCE
mmsn/LY, JUNE 16, 1932, NSW YORK, N. Y.
>
*
/
'
The m eeting was c a lle d to order at 10:45 a. m ., there being present:
From the Federal Reservo Board
Governor Meyer and Mr, Magee
From the Federal reserve banks
Governor H arrison, chairman, and Governors Young,
N o rris , Black, and MeDougal, and Deputy Governor
Burgess, se c re ta ry .
Governor Harrison reviewed the changes which had taken place in fo r e ig n
accounts, the movement o f g o ld in recent weeks, and the changes in short time
fo r e ig n funds in the New York market.
/
There ensued a gen era l discussion o f the over-th e-cou n ter payments o f
gold coin by the d iffe r e n t Reserve banks, in which i t was brought out th at w h ile
these payments had become h e a v ie r during May and the f i r s t week in June th ey had
in the past few days beoome much lig h t e r .
The p relim in a ry memorandum and the s e c r e ta r y 's rep ort o f open market
operation s were presented and read by thost> present.
The question was then ra is e d as to the extent o f fu tu re purchases o f
government s e c u r it ie s , f i r s t ,
as to whether th ey should be continued, and second,
as to what should be the o b je c tiv e .
Governor Harrison pointed out the d i f f i c u l t y
o f d ecid in g on the o b je c tiv e each week by telephone, and suggested in stead that i t
might be b e tte r to endeavor to maintain the excess reserves o f member banks at a
fig u r e somewhere between $250,000,000 and #300,000,000 u n t il there was some ex
pansion o f c r e d it which would make i t d e sira b le to recon sid er the program.
With
the g o ld export movement reduced, i t would probably be p o ssib le t o m aintain sub
s ta n tia l excess reserves w ith sm aller purchases than in the p a st, though th ere
were l i k e l y to be con sid erab le swings frcan week to week.
3
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Governor N o rris ra ised the question about what might have to be done to
deal w ith window d ressin g and p o ssib le disturbances to the market in connection
w ith the mid^year adjustments*
The fo llo w in g proposal was then discussed:
(1 )
That u n t il fu rth er n otice s u ffic ie n t purchases o f government
s e c u r itie s should be made to keep excess reserves o f member banks at a fig u re
between ^250,000,000 and $300,000,000#
(2 )
That the system should continue to show an increase from week to
week in t o t a l holdings o f government s e c u r itie s in order to avoid the c re a tio n o f
a fe e lin g th at the p o lic y o f the system had been changed, but that such increases
should be in amounts as small as might be, to preserve these excess reserves,-a n d
take care o f s p e c ia l co n d itio n s a r is in g from week to week*.
(3 )
That in the caning week i t appeared that th is purpose might b6
accomplished by sm aller purchases, bull at the end o f June the Reserve banks should
be prepared to do whatever was necessary to meet the s itu a tio n .
This proposal was agreed to unanimously by the members o f the committee!
Governor Young p o in tin g out that he was v o tin g as a member o f the committee to
adm inister the p o lic y determined by the Open Market P o lic y Conference ra th er than
as a rep re s e n ta tiv e o f h is own d i s t r i c t opin ion .
There ensued an inform al discussion o f discount r a te s , s a la r ie s and
other m atters*
The m eeting adjourned at 1:00 p. m*
/
The meeting reconvened at 3;15 p. m ., there being present
Fran the F ederal Reserve Board
Hr. Magee,
From the Federal reserve banks
Governors N o r r is , B lack, and McDougal, and
Deputy Governor B uigcss.
There was an inform al review o f the d is trib u tio n o f government secur
i t i e s among the severa l Federal reserve banks.
I t was pointed out that a number
o f the banks were lim ite d by r e l a t i v e l y low reserve percentages from taking th e ir
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f u l l quota o f p a r tic ip a tio n in System purchases, and the Hew York bank had found
i t necessary to absorb a con siderably la r g e r amount o f governments than i t s own
share*
S everal o f the Reserve banks had suggested that some basis o f allotm ent
be explored other than that cu rre n tly used, which was put in to e f f e c t a t a time
when variou s Reserve banks were fin d in g d i f f i c u l t y in making s u ffic ie n t earnings.
I t was agreed that the s e c re ta ry would prepare a number of ta b le s show
ing how the p a r tic ip a tio n s would work out on s e v e ra l d iffe re n t*fo rm u la e .
The meeting adjourned at 3:30 p. m.
W. R. Burgess
S ecreta ry
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MINUTES OF THE MEETING OF THE
JOINT CONFERENCE OF THE FEDERAL RESW E BOARD
AND THE OPEN MARKET POLICY CONFERENCE
TUESDAY, MAY 17, 1932, WASHINGTON, D. C.
The meeting was c a lle d to order a t 10:15 a. m ,, there being present;
From the F ederal Reserve Board
Governor Meyer and Messrs. Hamlin, James, Magee, M ille r ,
and P o le ,
From the Federal Reserve Board s t a f f
Messrs, H arrison , M o r r ill, Goldenweiser, W yatt, Smead,
and M cC lelland,
From the Federal reserve banks
Governor H arrison, chairman, Governors Young, Fancher,
Seay, Black, McDougal, M artin, Geery, McKinney, and
C alkin s, and Deputy Governors Burgess, s e c re ta ry , and
W orthington.
The prelim in ary memorandum and the s e c re ta ry ’ s rep o rt o f operation s
were submitted and read.
Governor Meyer reported on the volume o f operation s o f the Reconstructio n Finance Corporation,
Governor Meyer discussed b r i e f l y the apparent re s u lts o f the program
o f purchases agreed upon at the meeting o f A p r il 12 and in d icated that the
e ffe c tiv e n e s s o f the op eration was impaired somewhat by disturbances which had
taken p la c e , including passage by the House o f the Goldsborough B i l l , which had
occasioned an unfavorable rea ctio n in Europe and some go ld w ithdrawals.
A t th is poin t Governor H arrison reported on the withdrawals o f fo r e ig n
balances, in d ic a tin g th at the amounts remaining had been reduced markedly in
recent months.
At 10:40 Governor N o rris entered the m eeting.
Governor Meyer in d icated the.t i t was the fe e lin g in Washington that
the program had been g e n e ra lly w e ll re c e iv e d and had worked as w e ll as could be
expected under unusual circum stances.
Governor H arrison said that w hile in the public mind the success o f
the program had not been demonstrated because the downward movement in p ric e s
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and business had not been stopped, the re s u lts were important and included a
reduction o f debt by the member banks a t the Reserve banks, and a change in the
bank a ttitu d e about loans and investm ents.
G enerally speaking the bankers had
rec e iv e d the program fa vo ra b ly and the d eclin e in bank c r e d it appeared to have
been checked.
The p rin c ip a l New York C ity banks had begun buying bonds, although
re s tra in e d by fe a r o f adverse le g is la t io n .
Their excess o f reserves had only
been su b stan tial fo r three or four weeks.
He b e lie v e d purchases should be con-
t inue d•
Governor Meyer c a lle d f o r an expression o f views from the governors
and p a r tic u la r ly requested some comment on the question as to whether i t would be
h e lp fu l to have the Reserve Board c a l l a meeting o f banks and business men or
perhaps to have meetings in the d iffe r e n t d is t r ic t s which might p o ssib ly be
attended by some re p re s e n ta tiv e o f the Board f o r the purpose o f discussing means
fo r p u ttin g to use funds made a v a ila b le by the Reserve banks.
Governor Black said that the c h ie f value o f the program up to this
p oin t appeared to have been in the preven tion o f d i f f i c u l t i e s .
He in d icated
that banking con d ition s were much improved in h is d i s t r i c t by reason o f the ?
operation s o f the Reconstruction Finance C orporation, but he b e lie v e d that
p o s it iv e a ctio n should be taken to g e t the cooperation o f member banks,
The
Reserve System had been p layin g too much o f a lone game and had not been s u f f i
c ie n t ly in a p o s itio n o f lea d ersh ip .
Meetings in d iffe r e n t cen ters might be
h e lp fu l in g e ttin g cooperation and in d ealin g with excessive fe a r and r e s t r ic
tio n o f c r e d it .
He favored continuation o f the program o f purchases.
He
in d icated a lso that business men and bankers were w aitin g on Congressional
a c tio n b efo re going ahead.
He would be glad to have a member o f the Reserve
Board come to h is d i s t r i c t fo r a m eeting.
Governor Geery stated th at he f e l t very w e ll s a t is fie d w ith the re s u lts
o f the program to d a te r con sid erin g the handicaps.
He b e lie v e d i t would be a mis
take to stop* that the program should be continued u n t il given a f a i r t r i a l , and
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that considerable re s u lts should not be expected w ith in n in ety days.
The s e n ti
ment o f h is d i s t r i c t uras fa vo ra b le towards the program.
Governor Seay said that the most notable e f f e c t of the program had been
a check in the d eclin e o f bank d ep osits, and loans and investments.
He had some
question as to ju st how fa r the system should go or could s a fe ly go in view o f
the one-year lim ita tio n o f S ection 3 o f the Glass S te a g a ll B i l l .
He a lso f e l t
that there was so much d iv e r s it y o f opinion among bankers that not much could be
gained by attem pting to lead the bankers.
Mr. M ille r stated that he b e lie v e d the best way to assure extension o f
Section 3 o f the Glass S te a g a ll B i l l beyond a year was to use th is p ro v is io n
w isely and V igorou sly, and that in the la s t a n a lysis the Federal Reserve Board
incurred the major r e s p o n s ib ilit y fo r the use o f th is p ro v is io n .
He emphasized
the r e s p o n s ib ility o f the Reserve System f o r e x e rc is in g lead ersh ip at th is tim e.
Governor Young s%id that the Reconstruction Finance Corporation had
done a remarkable work in h is d i s t r i c t , that i t ap p lied the sa lve where the sore
was.
He b e lie v e d i t was s t i l l too e a rly to see the good or bad e ff e c t s o f Federal
re serve a c tio n .
He b e lie v e d th at each Reserve bank should take i t s f u l l propor
tio n o f the t o t a l s e c u r itie s which had been purchased.
Governor Calkins said he b e lie v e d thp a ctio n taken was ju s t i f i e d and
the r e s u lts were a l l that could be looked fo r , though i t is not y e t p o s s ib le to
judge the success o f the o p era tio n .
He was in sympathy with Governor Black in
p r in c ip le but saw the d i f f i c u l t i e s o f the prop osal.
Bank morale was g e n e r a lly
so low that & m eeting o f bankers might w e ll cause alarm.
G en erally speaking, he
b e lie v e d that we were s t i l l dealing with a p sych o lo gica l condition..
The question
was whether i t was d e s ira b le fo r the System to apply i t s lead ersh ip through it s
operations or through admonitions.
He was in sympathy with anything which could
p r a c t ic a lly be done, but in h is own d i s t r i c t has found g re a te s t success in deal
ing with in d ivid u a ls ra th er than working through conferences#
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Mr. M ille r suggested that there was no adequate program.
was s t i l l thinking in terms o f s a f e t y ra th er than resumption.
resumption was reeessary.
The country
A program o f
He b e lie v e d th is could best be brought about by summon
ing to Washington a n a tion a l group rep resen tin g industry as w e ll as bankers to
form ulate a program.
Governor Martin reported th at in the eigh th d i s t r i c t loans and in v e s t
ments of banks were s t i l l goinc- down, though d ep osits were perhaps showing some
s t a b iliz a t io n .
The banks had stood the lo s s o f deposits w e ll, and the Reccnstruc
tio n Finance Corporation had been very h e lp fu l*
He b e lie v e d the program f o r the
purchase o f governments had shown r e l a t i v e l y l i t t l e e f f e c t in the eighth d i s t r i c t
Deputy Governor Worthington stated that the opinion o f the Kansas C ity
bank was in general accord w ith the statement o f Governor Calkins.
The d ire c to rs
o f the bank were somewhat doubtful and relu cta n t as to the program, but expected
to continue to do t h e ir share.
The operation s of the Reconstruction Finance
Corporation had been most h e lp fu l.
Governor Fancher stated that the p o lic y had been w ell re ceived in his
d is tr ic t,
that he had hoped f o r a broader e f f e c t , but th ere had been variou s h in
drances to the e ffe c tiv e n e s s o f the p o lic y .
Through th is program and through the
Reconstruction Finance Corporation, banks had been helped to reduce th e ir debt,
and the higher p r ic e of government bonds had enabled banks to s e ll some o f th e ir
bonds.
He b e lie v e d the f i n a l disposal of b i l l s now before Congress would be a
g re a t help to the e ffe c tiv e n e s s o f the program and th e r e a fte r meetings o f bankers
might be h e lp fu l.
The time had been too short fo r the f i l l e f f e c t o f the program
I t should be continued, though he had some question as to the scale o f future
purchases.
Governor N o rris said he did not b e lie v e that the d i f f i c u l t y was p r i
m a rily a c r e d it o r currency d i f f i c u l t y ,
and th e re fo re there were lim it s to the
e ffe c tiv e n e s s o f the F ederal reserve program in dealing w ith the s itu a tio n , but
since the program had been begun i t could not be abandoned#
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Governor McDougal stated that c re d it extended by the R econstruction
Finance Corporation to banks in the Seventh Federal Reserve D is t r ic t had been
tim ely and i;ould undoubtedly save a good many o f the d is tre s s e d banks, but
that w hile the gen era l banking s itu a tio n throughout the d i s t r i c t looked better#
u n fortu n ately many banks, through impairment o f t h e ir c a p ita l stru ctu re, are
s t i l l in a very weak p o s itio n .
With resp ect to open market p o lic y * he stated that the member banks
in Chicago were carryin g about $70,000,000 o f excess r e s e rv e s , the System as
a whole approxim ately $265,000,000, and suggested that purchases o f Government
s e c u r itie s be slowed down somewhat u n t il these la rg e excess reserves wore put
to work.
Governor McKinney in d icated that Governor Black had o u tlin ed much
the same p o s itio n as the D allas bank held*
He doubted whether the proceeds o f
purchases had reached the eleventla d i s t r ic t much, but he b e lie v e d the open
market program reassu rin g.
He b e lie v e d that the Federal Reserve System should
d iv id e the r e s p o n s ib ilit y o f leadersh ip among the bankers, but was doubtful
o f the d e s ir a b ilit y o f b rin gin g in oth ers than bankers.
Governor Meyer ra ised the question whether i t might not be p ossib le
to do something about cotton and w ool, and there ensued some discussion on th is
p o in t, Governor Calkins suggesting that something might be accomplished by
making c r e d it a v a ila b le f o r carryin g w ool.
At 12:40 S ecretary M ills entered the m eeting.
There ensued a discussion with regard to the p o s s ib ilit y o f some pro
gram by which meetings might be c a lle d o f business men and bankers to develop
a program o f resumption and reemployment*
Mr. Hamlin, a ft e r agreeing w ith Mr. M ille r as to the d e s ir a b ilit y
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o f having a conference in Washington, stated that he would lik e to have a
survey made in each Federal reserve d i s t r i c t with the view to b rin gin g
about cooperation between banks and borrowers.
He stated that th ere was
undoubtedly much con stru ction work which not only could but should be under
taken at the present time and that w hile th is might not produce paper .
e l i g i b l e fo r rediscount by the Federal reserve banks, i t would tend to
lessen unemployment and such paper could in an emergency be taken care o f
by the F ed eral reserve banks.
Governor Meyer expressed the opinion that needs fo r con stru ction
and o p p ortu n ities f o r in d u s tria l a c t i v i t y undoubtedly e x is t in d iffe r e n t
communities o f the various Federal reserve d i s t r i c t s , and, as an illu s t r a t io n ,
advised the conference o f a recen t p rop osal, in v o lv in g the construction o f
about two hundred medium-priced homes in W estchester County, New York, which
had not been put in to e f f e c t because o f the lack o f c r e d it f a c i l i t i e s .
He
stated that the Reconstruction Finance Corporation could not handle the
m atter under the law, but that he had c a lle d i t to the a tte n tio n o f some
people in New York, through the C orporation’ s loan agency, with the r e s u lt
that arrangements f o r the necessary fin an cin g are being made.
Governor Harrison reported h is experience in ta lk in g w ith groups
o f bankers in New York and indicated that the p rin c ip a l d i f f i c u l t y in pro
curing a program o f a ffir m a tiv e a c tio n was the u n certain ty created by the
s itu a tio n in Congress.
There was general agreement that each Reserve bank should study the
problems in it s l o c a l i t y w ith a v ie w o f securing cooperation toward b rin gin g
about a wider use o f the c r e d it now being made a v a ila b le *
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The meeting adjourned at 1:05 p. m.
At 2 :SO the meeting o f the Open Market P o lic y Conference recon
vened, th ere being present:
Governor H arrison, chairman, Governors Young, N o rris ,
Fancher, Seay, Black, McDougal, Mfcrtin, Geery,
McKinney, and C alkins,
Deputy Governors Burgess, s ecreta ry , and Worthington.
Governor McDougal r e fe r r e d again to the d i f f i c u l t i e s
in the banking
s itu a tio n and stated that he b e lie v e d i t necessary fo r the Reserve System to
avoid d is s ip a tin g it s resources so as to be in a p o s itio n to meet any s itu a tio n
which might a r is e .
He hoped no program would be adopted s p e c ify in g in advance
a d e fin it e amount o f s e c u r itie s to be purchased from week to week.
There fo llo w ed a discussion o f the reallotm en t o f purchases made
since A p r il 12, and i t was
Moved and c a rrie d that i t was the sense o f the
conference that a l l Reserve banks should p a r tic ip a te in
the usual r a tio s to the exten t allow ed by t h e ir res e rv e
p o s itio n s in a l l purchases made f o r the System open
market account since ^ p r il 12,
A motion to extend th is reallotm en t to a l l system holdings o f
government s e c u r itie s was d efea ted .
Governor Calkins poin ted out that the Federal Reserve Bank o f San
Francisco could not y e t take it s share under the mechanism o f the Federal
Reserve Board’ s plan o f using government s e c u r itie s as c o lla t e r a l, but he hoped
that m atter would be adjusted.
The following resolution was then moved and c a r r ie d , Governors McDougal
and Young voting in the negative:
" A ft e r discussion o f c r e d it , banking and business condi
tio n s and the e ffe c t s o f the System’ s Open Market Operations on
those con dition s in recen t weeks, i t was vo ted , subject to the
approval o f the Federal Reserve Board, to au th orize the Executive
Committee o f the Open Market P o lic y Conference to continue the
purchase o f Government s e c u r itie s fo r System account as may seem
a d visab le from week to week but not to exceed an aggregate o f
$500,000,000 without another meeting o f the Open Market P o lic y
Conference*"
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This re s o lu tio n was then transm itted to the Federal Reserve Board.
There fo llo w ed some fu rth er gen eral discussion
o f methods o f fo llo w in g
up the p o lic y by meetings o f bankers and in other ways, and i t appeared to be
the concensus o f view that a meeting o f a la rg e group in Washington would be o f
doubtful value at th is tim e, and that i t would be d e s ira b le in each d i s t r i c t to
consider means for making the p o lic y e f f e c t i v e *
Governor Meyer entered the meeting and reported that the Federal
Reserve Board had approved the r e s o lu tio n .
He suggested that purchases under
the re s o lu tio n should be made at a somewhat slower ra te than had been fo llo w ed
in recent weeks*
He then l e f t the meeting a ga in .
There was some discussion o f discount r a te s , without any conclusion
being reached*
i t was recognized that the qu antity o f c r e d it was a t present
the most iiranediate con sid eration *
Governor Calkins said the Federal Reserve Board has suggested the
appointment o f a committee from the Reserve banks t o work with a committee o f
the Board in making a thorough and d iscrim in a tin g study o f American acceptance
p r a c tic e .
He proposed the appointment o f a committee c o n s is tin g o f Mr. Kenzel
o f New York, Mr. McKay o f Chicago, and Mr. Clerk o f San Francisco.
There was
general agreement with th is a c tio n .
Governor Young reported th at there.w ould be a meeting on Wednesday
morning o f the committee o f governors to discuss the Glass B i l l , and the commit
te e would be glad to have any other governors jo in them.
At 4:40 the fo llo w in g members and s t a f f o f the Federal Reserve Board
again entered the m eeting.
From the Federal Reserve Board
Governor Meyer, and Messrs. Hamlin, James, M ille r and Magee,
From the F ederal Reserve Board s t a f f
Messrs, H arrison , M o r r ill, Goldenweiser# W yatt, Smead, and
M cClelland.
There was an inform al discu ssion o f Federal re s e rv e s a la r ie s .
At 4;50 S ecreta ry M ills entered the m eeting.
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Governor Meyer indicated th a t the m a jo rity o f the Board appeared to
favor some so rt o f public statement concerning the fin d in g s o f the Conference,
and there ensued a general discussion o f th e d e s ir a b ilit y o f making some s ta te
ment.
Governor H arrison said that he b e lie v e d a statement was u n d esirab le,
f i r s t , because i t set a bad^/precedent; second, because i t was d i f f i c u l t to make
a statement without making an undue commitment and th ir d , i t was always d i f
f i c u l t to secure agreement on any form o f statem ent.
He f e l t that Governor
Meyer1s appearance on Wednesday morning before the Senate Committee on Banking
and Currency would fu rn ish an opportunity f o r an adequate statement which would
be more e f f e c t i v e and le s s dangerous than a prepared statement issued by the
Conference,
S everal forms o f statement were then read and discussed a t len gth .
I t was moved and carried by the Open Market P o lic y Conference th at
some statement be issued.
A ft e r fu rth e r extended discussion i t was voted that s short form o f
statement be used rath er than a lon ger form, end a f t e r s t i l l fu rth er discussion
the fo llo w in g statement was approved by a m a jo rity o f the Conference.
’’The Governors o f the Federal reserve banks met
to-day with the Federal Reserve Board and i t was decided
to continue open market operations by the purchase o f
government s e c u r itie s , the exten t and amount to be d eter
mined from time to time as con d ition s j u s t i f y . "
The meeting adjourned a t 6:05 p. m.
W» Randolph Burgess,
S ecreta ry .
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M eeting o f j o i n t c o n fe r e n c e o f th e
FEDERAL RESERVE BOARD AND THE
OPEN MARKET POLICY CONFERENCE
TUESDAY, A p r il IE, 1932, WASHINGTON, D. C.
}> b.
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The m eeting was c a lle d to ord er a t 10:20 a. m. w ith Governor Meyer in
the Chair.
Those present were
Governor Meyer, Messrs. Hamlin, M ille r , James, and Magee,
and Governors Yo\*ng, H arrison, N o r r is , Fancher, Seay,
McDougal, M artin, Geery, Hamilton, McKinney, and Calkins,
Messrs. Goldenwedser, M o r r ill, M cClelland, Floyd H arrison
and Smead, and Mr. Burgess, s e c re ta ry .
The prelim inarjr memorandum on c r e d it con d ition s and the s e c r e ta r y ’ s r e
p o rt o f operations were presented.
Governor Meyer reviewed the open market program which had been pursued
since February 24, the return o f currency frcm c ir c u la tio n , progress in the a rre s t
o f bank fa ilu r e s ,
and the len d in g program o f the R econstruction Corporation.
He
reviewed also the changes in business and the c r e d it s itu a tio n , in d ic a tin g th at
the d eclin e in c r e d it volume and the d eclin e in business and p ric e s had not stopped.
He c a lle d a tte n tio n , m erely as a m atter o f in form ation , to the fa c t that a re s o lu
tio n had been o ffe r e d in the Senate asking the Federal Reserve Board to s ta te i t s
program fo r d ea lin g with the s itu a tio n and to in d ica te any le g is la t io n necessary.
Consideration o f th is re s o lu tio n had been postponed.
Reserve Board f e l t
He stated that the Federal
that the Reserve System could now undertake to do more toward
a id in g in the recovery than i t had y e t done, and that he b elie v e d the time had
come when the System might be expected to use it s powers more f u l l y in an e f f o r t
to stop the c re d it d e c lin e .
Dr. M ille r s ta te d that a c r i t i c a l point had been reached in the c re d it
s itu a tio n , th at n e a rly every other reasonable expedient had been t r ie d and exhaust
ed, but that the f u l l fo r c e o f F ederal re s e rv e a ctio n had not yet been exerted
3 3 3 t~ c~
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and he believed the tim© had come to use the resources of the System courageously.
Mr. Hamlin sta ted h is agreement with Governor Meyer and Dr. M ille r .
Mr. James ra ised a number o f qu estion s as to the p o s s ib le consequences o f
buying government s e c u r itie s .
Mr. Magee in d icated the n e c e s s ity f o r an increase in a g r ic u ltu r a l p r ic e s .
There ensued a gen era l d iscu ssion , in the course o f which Governor Seay
emphasized the n e c e s s ity f o r ga in in g the cooperation o f the banks in any program
adopted.
Governor Young questioned whether purchases o f governments which p ile d up
reserves in tiie centers would r e s u lt in the d is tr ib u tio n o f these funds to other
p a rts o f the country.
He was s k e p tic a l o f g e ttin g the cooperation o f the banks
w ithout which success appeared d i f f i c u l t , and was apprehensive that a program o f
th is s o rt would develop the anim osity o f many bankers, and was apprehensive also
that an. ex ten sive program o f purchases o f government s e c u r itie s would impair the
confidence o f the p u b lic in the Reserve banks.
He c ite d the experience o f 1931 as
an in d ic a tio n o f the f u t i l i t y o f government purchases.
Governor Meyer responded th at the d i f f i c u l t y la s t summer was that con
fid en ce was impaired by the German co lla p se and by the B r itis h departure from the
gold basis;
so that any program adopted was n egatived.
He b e lie v e d th at to-d ay
the country was in a more fa v o ra b le p o s itio n to take advantage o f funds made a v a i l
ab le.
He b e lie v e d th at a stron g program would in sp ire more confidence than d is
tru s t, and did not b e lie v e that there would be seriou s op p osition by banks.
Governor H arrison stated that he b e lie v e d that in the present s itu a tio n
the banks were much more in te re s te d in a vo id in g p ossib le lo s s e s than in augmenting
th e ir current income, and that th e ir a ttitu d e had changed grad u ally since la s t year
in the face o f the shrinkage in va lu e s .
Governor Meyer s ta te d th at he b e lie v e d a stron g program would quicken
the currency return and might make i t unnecessary to complete the program.
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He a lso in d ica ted the g rea t value in a unanimous program in v/hich the e n tir e
Reserve System took p a rt.
S ecreta ry M ills who had entered the m eeting a f t e r i t had begun stated
that he b e lie v e d a g re a t duty now rested on the Federal Reserve System;
that
Congress and the A dm inistration had done a l l they could in developing rem edial ac
tio n , and yet d e te r io r a tio n was taking place s t e a d ily .
For a g re a t c e n tra l banking
system to stand by w ith a 70% g o ld reserve 'without takin g a c tiv e steps in such a
s itu a tio n was almost in con ceivab le and almost u n fo rg iv a b le .
The resources o f th©
System should be put to work on a sca le commensurate with the e x is tin g emergency.
At 11:50 the members and s t a f f o f the Federal Reserve Board l e f t the
m eeting, and a t 11:55 i t reconvened as an Open Market P o lic y Conference, Governor
Harrison p re s id in g .
I t was moved and c a rrie d that the prelim inary memorandum and the
S ecreta ry ’ s re p o rt be received and incorporated in the record s.
Governor Harrison ra ised question o f the condition o f banks in va rio u s
d is t r ic t s and sta ted that in the second d i s t r i c t the con dition o f the banks was on
the whole worse than i t had been, due to bond d ep recia tion and to impairment o f
value o f loans h e re to fo re considered prime.
Bank fa ilu r e s were being avoided by-
len ien cy on the part o f the examining a u th o ritie s and by the a c t i v i t i e s o f the
Reconstruction Finance Corporation.
Governor McDougal in d ica ted that the same was true in h is d i s t r i c t ,
what was most u rg en tly required was a turn in basic commodity p ric e s ,
and
and e s p e c ia l
l y p ric e s o f corn and liv e s to c k , and an improvement in the s e c u rity markets.
Governor McKinney in d ica ted that s im ila r conditions e x is te d in h is
d is tr ic t.
What was requ ired was not so much a la r g e amount o f money as a change
in mental a ttitu d e .
Governor Calkins a ls o in d ica ted that he b e lie v e d the problem
was m ainly p s y c h o lo g ic a l.
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These view s were g e n e r a lly assented
by the other governors, who agreed
that the s itu a tio n requ ired a ction o f some so rt.
Governor Harrison sta ted that he b e lie v e d the only p r a c tic a l program was
a dramatic purchase o f government s e c u r itie s .
were ready to cooperate in such a program.
He b e lie v e d that the member banks
The u n certa in ty as to the budget and
bonus le g is la t io n had c o n stitu ted ob stacles to inaugurating such a program, but he
b e lie v e d th at the outlook in these d ire c tio n s was h op efu l, and th a t i t would not
be p o s s ib le o r necessary to w ait u n t il these two qu estion s were com pletely solved .
Governor Calkins ra ised the question whether a p o lic y o f th is -s o r t would
be fo llo w ed by la r g e fo r e ig n withdrawals o f funds, and Governor Harrison r e p lie d
that there might be some withdrawals but he did not b e lie v e these would be s u f f i
c ie n t to prove embarrassing.
Governor McDougal ra is e d the question whether the Reserve System could
r e ta in the confidence of the p u b lic a ft e r inaugurating a p o lic y o f th is sort.,
¥tfiich was in some measure in fla t io n a r y , p a r t ic u la r ly since i t in vo lved the use o f
government s e c u r itie s as c o lla t e r a l f o r Federal reserve notes.
Governor H arrison c ite d the p ra c tic e o f fo r e ig n countries in using gov
ernments as c o lla t e r a l f o r currency, in d ic a tin g th at the p ra c tic e was qu ite gen era l.
■S
In the course o f discussion i t appeared to be the concensus that i f the
program was undertaken i t should be a system m atter in v o lv in g the use o f s e c tio n 3
o f the G la ss-S tea g a ll b i l l .
There was some inform al discussion o f discount ra tes and the opinion was
expressed that the present s itu a tio n was very l i t t l e
in flu en ced by ra te s but was
more la r g e ly influenced by the supply o f money.
Governor Harrison then presented the fo llo w in g re s o lu tio n :
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That*- subject to approval of the Federal Reserve Board the
Executive Committee be authorized to purchase up to
#600,000,000 of government securities in addition to the
unexpired authority granted at the meeting of the Open
Market Policy Conference on February 24, and that these pur
chases, at least in the initial weeks, should be at a rate
as rapid as may be practicable and if possible should amount
to 100 million in the current statement week.
L
This resolution was adopted by a vote of 10 to 1, Governor Young voting
in the negative.
There ensued discussion as to the desirable policy to be pursued in mak
ing general use immediately of Section 3 of the Glass-Steagall bill*
It was
agreed that no written resolution on that subject should be submitted to the Federal
Reserve Board, but that the opinion of the governors should be stated orally that
an early use of this section of the bill would be desirable as a means of securing
widespread system participation in purchases.
There was some discussion of publicity in connection with the program of
^
purchases of government securities, and Governor Harrison indicated that he was
c
«
appearing before a sub-committee of the House on the Goldsborough Bill on
Wednesday, and it would probably be necessary for him to make some reference to
J
the program at that time.
i
l
After some informal discussion of the status of the Glass Bill the meet
ing adjourned at 1:30 p„ m.
The Open Market Policy Conference reconvened at 2:43, there being present
the following:
Governors Young, Harrison, Norris, Seay, Fancher, McDougal,
Geery, Martin, Hamilton, McKinney, Calkins, and Deputy
Governor Burgess.
Governor Harrison called attention to the fact that when the new organiza
tion of the Open Market Policy Conference was adopted it was decided that there
should be rotation in the membership of the executive committee, and that a year had
passed since any change in that committee had been made.
It was agreed that tho
principle of rotation should be continued, but that the present committee membership
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should be continued for another year.
At three o*clock the meeting reconvened as a joint conference of the
Federal Reserve Board and the Open Market Policy Conference, and the following
entered the meeting:
Governor Meyer, Secretary Mills, Messrs. James, Pole, Hamlin,
Magee and Miller, members of the Federal Reserve Board, and
Messrs. Goldenweiser, Smead, McClelland and Floyd Harrison,
of the Board's staff*
Governor Meyer reported that the Federal Reserve Board had approved the
resolution adopted by the conference*
Governor Harrison reported that the governors felt that the program
should be widely participated in, which would involve an early exercise of section
3 of the Glass-Steagall bill.
The governors believed that a general participation
by the Reserve banks would assist psychologically in making the purchases effective.
Governor Meyer suggested that whatever danger there was in the program
lay in the possible interpretation that it was inflationary.
From this point of
view the danger might be lessened if the first large purchases of bonds did not
take place simultaneously with the first use of Section 3 of the Glass-Steagall
bill.
While the use of that provision would be necessa^ before long the
psychological effect might be better if the two events were separated by a reason
able period of time.
There ensued a discussion of the free gold position of different Reserve
banks, on the basis of which it appeared that there was sufficient free gold at
present, particularly if further steps were taken in reducing the amount of Feder&J
reserve notes outstanding but not issued, to enable most of the banks to partici
pate in p
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£0r ^ w00k or -two.
that the additional purchases of
securities to be Aade during the current statement week u n d ^ ^ t i ^ p ^ g j r ^ ^ ^ h ^
had been adopted could, if necessary, be absorbed by
se banks having considerable.
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their boards of directors
next week *s purchases should b© participated in by all Federal reserve banks to
whatever extent might be practicable in view of their respective free gold posi*
tiOns, and beginning with the third or fourth week of the program, each Federal
reserve bank should take its pro rata share of securities purchased, it being
understood that when the necessity therefor developed the Federal Reserve Board
would act promptly upon request from the banks for authority to pledge government
securities with the Federal reserve agents as collateral for Federal reserve notes.
The conference was interrupted for a brief meeting of the executive
committee which voted that the program of purchasing governments should start
immediately, and that in accordance with the resolution orders should be placed at
once for $75,000,000 of government securities for delivery April 13, to bring the
purchases in that statement week to a total of $100*000,000,
The meeting of the joint conference was resumed and Governor Harrison
pointed out that the success of the program depended on the use of excess reserves
by macaber banks, and raised the question of what and how much should be done by the
Reserve banks in endeavoring to secure member bank cooperation.
Generally speaking
it seemed to him the wisest course for the Reserve System to carry out its own
action vigorously but to leave the action of the member banks largely to their own
initiative.
Probably discussions with the banks would be desirable to point out
the significance of the program and to get their understanding, but it probably
would not be desirable to get definite commitments of cooperation from the member
banks, because the success of the program depended so much upon a spirit of willing
ness and a desire for profits on the part of the banks, which would arise best from
their own initiative rather than from the Reserve banks* request.
Br. Miller indicated that the idea of talking with bankers to interpret
the program commended itself to him, and he suggested that the wise program would
be first to acquaint the directors of the Reserve banks with the purposes to be
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accomplished, and then to talk with key bankers not only in ths cities but outside
also.
There was general agreement on the part of those present on the desir
ability of discussion of the Federal reserve program with member bankers.
There ensued an informal discussion of the publicity which might bo
desirable in connection with this program.
It was agreed that a formal statement
would not be desirable, but that some informal explanation of the increase in gov
ernment securities might be desirable in order that it might not be interpreted
as connected with some emergency in New York.
The joint conference was adjourned at 4:37 p. m*
At 4:45 the Open Market Policy Conference reconvened, there being present
Governors Young, Harrison, Norris, Fancher, Seay, McDougal,
Hamilton, Geery, and Deputy Governor Burgess.
Governor Harrison shortly left the meeting.
After discussion the following resolution was adopted with regard to the
Glass Bill to be transmitted to the Federal Reserve Board and by it to the Senate
Committee on Banking and Currency:
"The Governors of the Federal Reserve Banks, sitting
to-day as an Open Market Committee, have necessarily given
consideration to Senate Bill No. 4115, and to the suggestions
in reference thereto submitted by the Federal Reserve Board*
"There are certain provisions in the bill which we
think inadvisable, and certain others which are difficult of
interpretation, and whose ultimate effect cannot be foreseen.
Even the adoption by the Committee of all the suggestions sub
mitted by your Board would not, in our opinion, entirely remove
these difficulties.
nWe cannot well discuss the bill in any communiciation
of reasonable length. We respectfully request you, however, to
communicate to the Banking and Currency Conmittee of the Senate,
our unanimous concurrence in the opinion expressed by the
Federal Advisory Council that the present is an inopportune time
to inaugurate such changes in banking practice, and in the rela
tions between the Federal Reserve Board, the Federal reserve
banks, and the member banks, as are provided in this bill."
The meeting adjourned at 5:25 p. m.
W. Kandolph Burgess
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MINUTES OF MEET IMG OF THE EXECUTIVE COMMITTEE
OF TEE OPEN MARKET POLICY CONFERENCE HELD AT THE
OFFICE OF THE FEDERAL RESERVE BANK OF NEW YORK
APRIL 5, 1932.
4j' / S 7-
The meeting was called to order at 10:25 a. m., there being present
Governor Harrison, chairman, Governors Young, Norris, Black, and McDougal, and
Deputy Governor Burgess, secretary.
A preliminary memorandum by the chairman and the secretary’s report
were presented.
Governor Harrison reviewed the current economic situation, the con
tinued decline in prices, the increase in the pressure of debts, the increase
in bankruptcies, and the threat of radical action in Congress.
He reviewed in
particular conversations with Senator Thomas with regard to a proposed bill for
a soldier's bonus financed by the Federal reserve banks.
He reported also recent
conversations with member banks indicating that some change in lending policy was
already taking place on the basis of funds made available through government
purchases and the return of currency.
After extended discussion of these questions it was moved and carried
that purchases of government securities be continued at a rate of $25,000,000
a week as authorized by the program adopted at the meeting of the Open Market
Policy Conference on February 24.
This motion was carried unanimously, although
two members of the committee explained that they voted in the affirmative in a
ministerial capacity in carrying out the wishes of the open Market policy confer
ence.
While these two of the members of the conmittee were in general opposed
to further purchases of government securities it appeared that purchases made up
to this time had been followed by about as satisfactory results on the banking
position as could be anticipated, and there seemed to be no new factor in the
situation which would justify a discontinuance of the program adopted by the
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full conference.
It was further voted that a meeting of the Open Market Policy Confer
ence should be called for April 12 in Washington to review the open market
program, particularly with the object of considering the extent of the present
program, both as to amount and duration, and deteimining whether, in view of
current developments, a more comprehensive program should be adopted.
The meeting adjourned at 12:45.
W. Randolph Burgess
Secretary
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MINUTES OF THE MEETING OF GOV7SNOES
HELD AT WASHINGTON, D. C., FEBRUARY 24 and 25, 1932.
February 24, 1952*
■
The meeting was called to order at 10:20 a* m . , Governor Meyer in the
Qhair, there being present:
From the Federal Beserve Board
Secretary Mills, Governor Meyer, Messrs, Hamlin*
James, Magee and Miller,
Messrs, Floyd Harrison, Morrill, Goldenweiser,
Wyatt and McClelland,
From the Federal reserve banks
Governors Young, Harrison, Norris, Fancher, Seay,
Black, McDougal, Martin, Geei*y, Hamilton, McKinney>
and Deputy Governor Burgess, (secretary pro tem),
Governor Meyer indicated that with the Glass-Steagall bill in conference
and likely to be acted upon in the immediate future, it seemed wise to have a
meeting of the governors both for a consideration of general policy and a considera
tion of the procedure to be adopted by the Federal Reserve System under the powers
conferred by this bill*
With respect to the provision of the bill for loans to groups of banks,
Governors McDougal and Fancher suggested that the law would operate effectively in
principal clearing house centers, but would prove difficult elsewhere#
Governor
Norris suggested that this clause would provide an additional impetus toward organ
izing county clearing houses and thus towards developing group responsibility and
group examinations#
There ensued a general discussion of the provision of the bill for theuse of government securities as collateral for Federal reserve notes.
Question
was raised whether, if action were taken under this provision, it would be better
to transfer a large block of government securities at once for use as collateral
or whether it Would be better to do it gradually as each bank had need.
With
respect to publicity it seemed clear that it would be necessary because of the
public interest in the matter to report separately the amount of government securi
ties being used from time to time as collateral for Federal reserve notes.
This
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amount could in any event be computed from figures now published.
A possible
program suggested was that enough governments should be transferred to bring the
free gold to $500,000,000, and that the free gold be kept at that figure.
A
(differing point of view was that it might be well to show the maximum of free gold
\
at once.
Another possibility suggested was that governments be transferred to
collateral only as required by each bank.
With reference to the general question of loans against collateral other
than eligible paper, a number of the governors pointed out the dangers in the
Federal Reserve System’s becoming loaded down with loans of this sort.
From this
point of view it was recognized that the provisions in the new Act should be ad
ministered cautiously.
It was pointed out by Dr. Miller that if loans on ineligible paper should
make it possible for a bank to make eligible loans, eligible paper would thus be
provided to repay the first loan.
Mr. James, Governor Harrison, and others suggested that whatever regula
tions were adopted should guard against the implication that the bill constituted
in any sense a guaranty of deposits of member banks, and should safeguard the
Reserve banks against becoming unduly loaded with ineligible paper, but that the
regulations adopted should not be too rigid, because of great differences in bank
ing conditions between different parts of the country and the lack of experience
with loans of this sort which may make it necessary to modify the procedure from
time to time.
Both Governor Meyer and Dr. Miller pointed out that it must be assumed
that the tide will turn some time;
that the Reconstruction Finance Corporation
was making loans upon that assumption;
and that was a necessary assumption for
Federal reserve operations.
With regard to the relationship between loans by the Reserve banks and
loans by the Reconstruction Finance Corporation Governor Meyer suggested that cases
rmr
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requiring loans for relatively short periods should be handled by the Federal
Reserve System, and that cases where a longer time use of money was clearly hecessary should be handled by the Reconstruction Finance Corporation.
The meeting adjourned at 1:00 p. m . , to reconvene in the afternoon as an
Open Market Policy Conference.
The meeting of the Open Market Policy Conference was called to order at
2:40 p. jr., there being present
Governors Young, Harrison (chairman), Norris, Seay, Fancher,
McDougal, Martin, Gesry, Hamilton, McKinney, and Iteputy
Governor Burgess, secretary.
•
There was farther informal discussion of the character of regulations
which might be adopted to govern operations under Section 10(b) of the Glass-Steagall
Bill in order to avoid having the Reserve banks loaded up with loans on ineligible
paper.
Suggestions to that purpose were that the discount rate upon these loans
should be at least 2% above the discount rate, that no time note for a period
longer than 90 days should be taken, that the collateral which might be taken should
be defined in a regulation, that the aggregate advances made under the provision
might well be limited to some percentage of the reserve deposits of the Federal
reserve banks or to the total surplus.
Governor Black suggested there was danger that limitations prescribed in
regulations as to the amount of these loans might be construed as tending to de
feat the purpose of the Congress, and would tend to interfere with the good psy
chological effect produced by the passage of the bill#
Governor Young stated that he believed that the group plan constituting
Section 10(a) of the bill would r>ot prove effective since it would be impossible
to organize groups of this sort.
At 3:50 Governor Meyer entered the meeting, ana there was continued dis
cussion of possible regulations and particularly of what rate should be -charged on
advances under the bill.
Governor Norris suggested that the rates charged on loans
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made under Section 10(a) and 10(b) should probably be the same in order to avoid
discriminating against country banks which would presumably borrow largely under
provisions of 10(b) Governor Meyer indicated that something was to be said for a
flat 5 1/2$ rate which would correspond to the rate now being charged by the
Reconstruction Finance Corporation*
At 4:06 p. m. , the Secretary of the Treasury and Messrs. Magee, Miller,
Hamlin, James, Morrill, Wyatt, and McClelland entered the meeting.
There ensued a general discussion of the regulations which might govern
loans under 10(b) of the Glass-Steagall bill.
The meeting then proceeded to a discussion of open market policy.
Governor Harrison reviewed the action of the conference in January auth
orizing the executive committee, if the occasion arose, to purchase up to
$200,000,000 of government securities.
He indicated that action had not been taken
under that authorization, partly because various elements in the domestic program
have developed more slowly than had been anticipated, partly because of gold with
drawals to Europe, and partly because of the limited emount of free gold held by
the System.
These conditions were all being modified in a favorable direction at
the present time, said the question might now be raised upon the merits whether it
might be well to proceed with the program as originally planned.
The important
reason for considering action at this time was the continued rapid deflation of
bank credit which was a seriously depressing influence on the whole business struc
ture and the price level.
Governor Meyer added that the question of buying government securities
also related itself to hoarding;
that it seemed unnecessary for the banking posi
tion to be subjected to severe strain because of the funds withdrawn for hoarding,
when the Reserve System under the new bill has the necessary power by the purchase
of government securities to relieve the banks from some of their indebtedness to
the Reserve banks.
He said he did not believe that buying governments alone would
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control the situation, but the operations of various favorable factors, including
the Reconstruction Finance Corporation, would be aided by a gradual purchase of
government securities which would help the banks to reduce their bills payable, and
so lighten the pressure on the credit situation*
The question was raised whether the purchase of governments in the centers
would relieve the country banks which are most heavily in debt.
Governor Meyer
responded that he believed that the money pool was so liquid and money circulated
so freely that purchases in the centers would at least in part relieve pressure in
the interior.
Governor Harrison pointed out that a Treasury program of selling
obligations in the centers, the proceeds of which would be distributed by the
Treasury throughout the country, would have the effect of relieving the situation
and making funds put into the New York market available elsewhere,
Governor Harrison further pointed out that the country’s gold stock had
been reduced by about §100,000,000 in the first two months of the year, with no
offsetting gains to the market, and that further gold losses at the rate of about
950,000,000 a month were to be anticipated.
The purchase of government securities
would have the effect of offsetting this gold loss and preventing it from causing an
increase in rediscounts.
Governor Meyer pointed out that the Reconstruction Finance Corporation was
making many loans which i; was hoped would have a favorable psychological effect;
that at the present time the public state of mind was a major factor; and that no
single sentimental factor was so important in the minds of the public as the purchase
of government securities by the -federal Reserve System.
Various factors in the
situation look hopeful, and it seems a prudent time to act.
Governor Seay said that while he had opposed
purchases at the last pre
vious Conference he now believed the time had come to lay down a barrage all along
the line, that there was now a better justification for purchases of governments
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than at any time in eighteen months* •
Governor McDougal said that he was not clear what good would come from
investing in government securities now, and that, with the doors open as the new
bill provides, the Reserve banks are liable to be called upon for additional amounts
of funds which would have the same effects on the System’s reserves as buying gov
ernment securities.
He would be opposed to purchases at least until after there
w,as opportunity to see what pressure arises from the new legislation.
On general
principles he preferred to see the banks borrowing to secure funds,
Dr. Miller stated that he believed there was never a safer time to operate
boldly than at present.
He indicated that he would approve purchases on an even
larger scale than the amounts being discussed.
There ensued a general discussion of the desirability of discount rate
changes in addition to security purchases, and the general opinion was expressed
that rate changes in the interior districts were not as important as they had ap
peared to be in January, in view of the hope and anticipation that a large part of
the new issues of government securities would probably be taken by eastern centers,
with the result of drawing money from the money market to other parts of the country.
Governor Martin suggested that one effect of the Glass-Steagall bill in
his district had been to make many banks more cautious because they felt there was
something hidden in the situation which they did not know.
Governor Norris said that he would approve the purchases if he were con
fident that all of our serious troubles were behind us, that he feared further
possible bank failures, further commercial failures and possible municipal defaults,
and raised the question of what might be accomplished by a purchase of government
securities, particularly in view of the question whether funds so placed in the
market would be distributed through the country.
Secretary Mills replied that the pressure of gold exports cam© directly
upon New York where most of the purchases would presumably be made, and that,
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furthermore, the New York banks would have to carry the major pert of the load on
government financing* and that the money so raised would then be distributed, by
the government all over the country.
In this way a very direct mrthod of distribut
ing funds was provided,
Governor Norris indicated that he was satisfied with this reply.
Governor Harrison then offered the following resolution:
T’It is moved that it is the sense 01 the conference
that, subject to the approval of the Federal Reserve Board,
the Executive Committoe shall be authorized to purchase up
to §250,00X),000 of government securities for System account
at the approximate rate of $25,000,000 per week. It is under
stood that purchases under this program shall be made after a
meeting of the Executive Committee called for the purpose of
considering such purchases,and that the program shall be sub
ject to review by the Conference at any time on call of the
Conference or the Federal Reserve Board."
At 6:04 the members of the Federal Reserve Board withdrew from the meet
ing.
After some further general discussion the resolution was adopted, Governors
Young and McDougal voting in the negative.
The meeting adjourned at 6:15 p. in.
At 6:15 a meeting of thr executive corxiittec of the Open Market Policy
Conference was convened and received a report that the Board had approved the
resolution adopted by the Open Market Policy Conference.
The executive committee
then voted by a vote of 3 to 2 to start the program as authorized the end of this
week or beginning of next week.
The meeting adjourned at 6:20 p. m.
A meeting of the Governors Conference was convened at 10:20 on February
25, 1932, there being present
Governors Norris, Fancher, McDougal, Geery, Martin,
Hamilton, and McKinney, Deputy Governor Burgess (secretary
pro tern).
On motion Governor Norris was elected chairman pro tern.
The conference proceeded to a discussion of the method of operations to
be adopted under the Glass-Steagall bill,
ing resolution was adopted:
.after some general discussion the follow
Mr
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"The conference believes it desirable that as
promptly as possible a regulation or letter be issued by
the Federal Reserve Board outlining principles and pro
cedure under Section 10(a) and 10(b) of the Glass-Steagall
bill, and the Governors present are prepared to aid in the
preparation of this material in any way desired*
This motion was submitted to the Federal Reserve Board with the suggestion
that the governors would make available two or three people to work with somebody in
the Board in drawing up the forms, etc., if the Board desired.
After receiving this
suggestion the Federal Reserve Board notified the Conference that the Secretary of
the Board, with the assistance of the Board's counsel, would discuss the matter with
such representatives of the banks as might be selected by them to work out the proce
dure and forms, it being understood that the procedure proposed to be followed will
be reviewed by all Federal reserve banks and counsel before it is submitted to the
Board for consideration.
(New York), Zurlinden
The governors, thereupon, designated Messrs. Rounds
(Cleveland), and Donaldson
(Philadelphia), a committee to
deal with this matter with the general understanding that they could employ or
requisition any help that they required.
The question of organizing groups under Section 10(a) of the bill was dis
cussed, and it was the sense of the meeting that when material as to procedure was
available it should be explained to key men in the different districts, letting
these men use their judgment as to the extent to which groups should be organized.
It was recognized that there was danger in the Reserve banks undertaking to stimu
late the definitive organization of groups because that would lead to a discussion
of the problem by boardsof directors, to differences of opinion, and perhaps make
it more rather than less difficult to take care of any situation that might arise.
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It was the general opinion that■it should be made clear to city banks
that the purpose of this plan is not to relieve correspondert banks.
The question of definition of collateral to be accepted under section
10(b) was discussed.
Same of the governors at first favored some negative defini
tion as to collateral which should not be accepted, but finally agreed that a
definition of collateral wculd probably be unsatisfactory because any definition
might include some undesirable paper and exclude some desirable paper and could
not provide adequately for differences between districts.
The question of relating the total volume of these loans to some figure
like the Reserve bank surplus was discussed, and it was recognized that there was
danger of interfering with the good psychological effect of the passage of the
bill by naming any maximum f igure.
The Conference also discussed Provision
10(c) of the Glass-Steagall Bill
relating to the use of government securities as collateral far Federal reserve
notes.
The governors generally expressed the belief that the one year limitation
included in the final form of the Act should not interfere with the System's operat
ing under this provision.
There was informal consideration of some limitation which might be
placed upon the amount of government securities which might be pledged against
notes*
One suggestion was that it should be limited to 20 per cent of the outstand
ing circulation of each bank.
Another suggestion was that the amount of free gold
should be constantly maintained at $500,000,000.
There appeared to be general
agreement that while the Board might make a general authorization of a maximum use
of governments the banks should be free to act within that maximum to as great or
as small an extent as each desired.
The meeting adjourned at 12:15 p. m.
W. Randolph Burgess,
Secretary pro tern.
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MINUTES OF THE MEETING OF THE 0 P M MARKET POLICY CONFERENCE
WASHINGTON, D. C., JANUARY 11 and 12, 1932.
The meeting was called to order at 10:35, there being present:
Governor Harrison, Chairman,
Governors Norris, Seay, Black, Fancher, McDougal,
Mart in, Geery, McKinney, and
Deputy Governors Day and Burgess (secretary).
The preliminary memorandum of the' Chairman was submitted to the con
ference together with the Secretary’s Report of Operations,
On motion the members of the Federal Reserve Board were invited to
join the Conference, and the following entered the meeting:
Governor Meyer, Messrs, Hamlin, James, and Magee, together
with Messrs. Floyd Harrison, Goldenweiser, and McClelland,
Governor Meyer reported that Mr. Herman Langworthy, newly appointed
director of the Kansas City bank, had been designated by the board of directors
of that bank to represent the bank at this meeting, and Mr. Langworthy was in-*
vited to join the meeting, which he did.
On opening the meeting Governor Harrison called attention to the
arrangement that had been made previously for a meeting in January and indicated
that recent developments made it particularly important for this meeting to
review the whole financial picture*
Governor Harrison pointed out that the deflation of bank credit in the
United States had amounted to more than #6,000,000,000 in two years in addition
to a decrease of $6,000,000,000 in brokers* loans by others than banks*
In the
past three months the deflation had become still more.rapid and was at the rate
of 20 per cent per annum.,
A continuation of this deflation might be expected
to lead to still further serious price declines*
There had been some interruption
of bank failures in November following the inauguration of the National CreditCorporation but lately the number of failures had again increased and currency
withdrawals for hoarding appeared to have begun again to some extent*
’
fa r "
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The gold situation, he indicated, was fairly quiet but likely to became
active again if bank failures continued.
The question now was what could be done to prevent a further deflation
and to bring about some improvement in conditions.
With developments already
begun or in prospect there seemed some possibility of getting an upward movement
started by combined effort.
Recent important developments included an improvement
in the condition of the bond market, prospects for a readjustment of wage rates
for railroad employes, and prospects for the passage of a bill providing for the
Reconstruction Finance Corporation.
It seemed clear, however, that these steps to stop deflation would not
be sufficient alone, and active Federal reserve cooperation would appear to be
necessary to bring about some increase in credit.
A discussion of purchasing Government securities raised immediately
the question of the System*s free gold position.
Governor Harrison had dis
cussed somewhat with Senator Glass a possible amendment to the provisions of the
Federal Reserve Act respecting collateral requirements against Federal reserve
notes that would have the effect of broadening these requirements to include any
of the assets of the reserve banks and so increase the amount of free gold.
In informal discussion a proposed amendment of this sort to the Federal
Reserve Act was approved in principle by most of those present,
Governor Harrison referred to the Treasury program and indicated that
the Treasury would require about one and a half billion dollars of new money
between now and June 30 and that under present conditions it would be difficult
for the Treasury to borrow this amount without a serious effect on the government
security market and the general bond market.
He stated that he believed a success
ful Treasury sale of these securities would require
(1)
General strength in the bond market
(2)
Direct discuss ions with the member banks
as to the importance of their cooperating
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(3)
Discount rate adjustments to enable
banks to borrow at a profit
(4)
Probably some purchases of G-overnment
securities by the Reserve banks.
Any program to be successful must also include a definite policy
by the administration as to the total amount of borrowing to be undertaken and
also a definite policy as to balancing the budget after June 30, 1932*
Governor Harrison believed that through successful issues of govern
ment securities, purchased largely by the banks aided by Federal reserve co
operation, it might be possible to stop the deflation of credit.
With reference to the Reconstruction Finance Corporation Governor
Meyer indicated that the speed with which the corporation could be put into
operation depended on the form of the bill and particularly whether under it
the Reserve banks would be authorized to assist the corporation in its initial
activities.
The meeting then adjourned as a meeting of the Open Market Policy
Conference and reconvened as a meeting of the Governors’ conference.
Thereupon
the following resolution was adopted:
"RESOLVED that the passage of the Reconstruction
Finance Corporation Act at the earliest possible date is
most desirable in the interest of the financial and business
situation which now exists in all of the Federal Reserve
Districts; and that in order to expedite the operation of
the Reconstruction Finance Corporation, if and when author
ized, the assistance of the operating facilities and services
of the Federal reserve banks should be available to the Corportion, with the understanding that the Corporation should
reimburse the Federal reserve banks for such facilities and
services in such manner as may be agreed upon,”
In the discussion some of the Governors expressed the opinion that
the proposed new corporation should not be authorized to finance municipalities.
It was also agreed by those present that the Federal Reserve Banks should not be
expected to act formally as the loaning agencies of the corporation and that there
ohoald be a proper dissociation of the functions of the reserve banks and the new
corporation.
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The resolution was passed with the understanding that Governor Meyer
would be free to use it if and when it appeared desirable,
The meeting then adjourned as a Governors1 Conference and reconvened
again as the Open Market Policy Conference,
Governor McDougal presented a memorandum opposing further purchases of
^Government securities, giving his reasons therefor, and suggesting that the
/ $425000,000 of such securities acquired in December be gradually disposed of in
the market, this on the ground that in view of conditions now current efforts
should be made to strengthen the position of the Federal Reserve System.
He further
suggested that the $83,000,000 of Government securities due March 15 be sold gradu
ally, and that Treasury bills due in January and February be allowed to run off.
Governor Seay suggested that under the present form of the Federal Re
serve Act he would be opposed to buying further bonds as such purchases would
tend to weaken the strength of the system.
Member banks should get what funds
they required by borrowing.
Governor Harrison suggested that it would be desirable in future dis
cussions to decide whether the system should follow a purely defensive course or
should take affirmative action designed to stop liquidation and bring about some
increase in credit.
The meeting adjourned at 12:50 p. m.
Afternoon Session
The meeting reconvened at 2:18 p. m * , there being present:
Governors Harrison, Norris, Seay, Black, Fancher,
McDougal, Martin, Geery, and McKinney,
Deputy Governors Day and Burgess, Mr. Langworthy, and
Messrs. Magee and Goldenweiser.
There was further informal discussion of a proposed amendment to the
Federal Reserve Act designed to release larger amounts of free gold.
The two
alternatives discussed were to remove altogether the provisions of the Act re
quiring collateral
for Federal reserve notes or simply to take out the definition
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of the types of collateral which could be accepted.
The Governors generally
favored some such modification of the Act and those who expressed an opinion
preferred the second alternative*
Governor Meyer, Mr. Hamlin, and Mr. James
entered the meeting at this point*
There followed discussion of administrative methods which could be
used to increase the amounts of free gold available prior to any modification
of the law, including the appointment of Acting Assistant Federal Reserve Agents
at branches in order that unissued notes might be returned to the custody of the
agents and that discounted bills held at branches might be available as collateral.
It was also suggested that the Federal reserve notes currently received at each
Federal Reserve Bank might be returned to the agent each night without serious
difficulty.
Members of the Board present indicated that they saw no objections
to the suggested procedures.
Under Secretary Mills and Assistant Secretary Ballantine entered the
meeting at 3:00 p. m., and Mr, Mills discussed the problem of Government financ
ing in coming months.
He indicated that the Treasury felt that the problem to
be dealt with was much larger than merely financing the Treasury but was rather
one of preserving Government credit and of restoring a normal functioning of
credit machinery.
The Treasury faces a problem of raising about one and a half billion
dollars additional money between now and June 50 to meet current expenditures
and the requirements of the Reconstruct ion Finance Corporation, the farm loan
banks, and the proposed home loan banks.
The effects of increasing the national
debt during the past year had not been inflationary as might have been expected
but rather the reverse.
Funds appear to have been withdrawn from other necessary
uses to finance Treasury requirements.
budget without any of its advantages*
We suffered the evils of an unbalanced
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If the Treasury and the Federal reserve banks do not now woi*k in close
harmony it will not be possible to obtain the one and a half billion dollars
required except by very sharp increases in interest rates, which would in turn
result in severe depreciation in government and other securities and further
impair the credit of the Government* which must be restored,
We now have to
deal with an emergency only comparable with the emergency of war and are justified
in returning to war techniques in the sale of government securities.
If war techniques are followed, June 50 next must bo a deadline beyond
which the national debt will not be increased.
The inclination of banks to sub
scribe would be increased by reductions of Federal reserve discount rates to give
some differential between those rates and the yields on government securities.
If banks can be induced to borrow and buy the net effect roust be an expansion
of credit.
This could not fairly be called an inflation of credit in view of
the recent unprecedented deflation which has occurred.
Mr. Mills felt that, in the interest of maintaining the credit of the
government, maintaining the value of securities, strengthening the credit struc
ture, and reversing deflationary trends, the Treasury was justified in asking
cooperation in the use of methods used in the last great crisis of the country.
Any danger such a program might involve can b© avoided if it is a temporary
expedient to terminate definitely at the and of this fiscal year.
He said this
termination would be supported firmly and definitely by the Executive and he had
reason to hope by Congress.
In informal discussion the question was raised as to whether flat dis
count rate reductions would be better or simply reductions of rates on loans
against Government securities, thus establishing preferential rates.
It was
agreed that this question would have to be decided by each bank for itself.
The question also was raised whether in the sale of these securities
a drive should be made to bring money out of hoarding* and Mr, Mills and others
suggested that the danger of such a course would lie in its bringing money out
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of weaker banks instead of out of hoarding.
The question was raised whether the collateral requirements for postal
savings deposits could not be liberalized as a means of making postal savings
deposits available to more banks which need them.
Governor Harrison raised the question of the flexibility of bill rates
and indicated that the New York Bank would probably desire to precede any change
in discount rate by a reduction of bill rates and that, furthermore * there was a
considerable advantage in putting money into the market through the purchase of
bills as far as possible because these bills would serve as collateral against
Federal reserve notes.
Governor Harrison suggested that it might be desirable to
drop the bill rate to 2 5/4 or 2 7/8 and asked if anybody saw any objection to
this program.
No objections were made.
Governor Harrison suggested that the following appeared to be the pro
gram for consideration to stop deflation and encourage some credit increase:
(1)
pessage of the Reconstruction Finance
Corporation bill
(2)
Organized support of the bond market
predicated upon railroad wage cuts
(3)
Federal reserve and member bank co
operation with the Treasury program
(4)
Buying bills when possible
(5)
Reduction in discount rates
(6)
Buying of Governments,if necessary,
facilitated by an alleviation of the
free gold position.
He believed that the system’s hands should not be tied on any one of the
last four points and that it was important to have a definite cooperative program
in order that progress might be made.
In a discussion of the policy of the several reserve banks on loaning
against Governments the following reports were made:
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These hanks lend against Governments at p^r in all cases:
New York
Atlanta
Minneapolis
Dallas
Cleveland
This
bank
lends against Governments at market in all cases:
San Francisco
These banks lend at market in some cases and at pur in others:
Boston
Richmond
Philadelphia
Chicago
St. Louis
The meeting adjourned at 4:25 to reconvene in the morning.
Meeting Tuesday, January 12, 1932.
The meeting was called to order at 10;30 a. m . , there being present
the following:
Governor Harrison, Chairman,
Governors Norris, Seay, Black, Fancher, McDougal,
Mart in, Geery, and McKinney, and
Deputy Governors Day and Burgess (secretary).
Governor Harrison reviewed his recent discussions with the Treasury
and others concerning the government budget and indicated that as a preliminary
to any program of government financing there had been emphasized the necessity,
first, of the government balancing its budget after June 30, next, and second,
of arriving at an outside aggregate figure for the increase in the national debt
prior to that time.
Governor Harrison believed much progress had been made
towards these objectives.
Governor Harrison then raised the question as to the extent to which
the different governors were prepared to recommend to their boards of directors
cooperation with the general program which had been discussed, including as one
feature a reduction in rediscount rates either in the form of a differential rate
on government securities or a flat reduction of rate.
that the New
Governor Harrison indicated
York bank favors a flat rate reduction; that whatever action was
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taken would be taken not simply for the benefit of the government, but as a part
of a broad general program to combat credit deflation,
A differential rate might
on the other hand give the impression that it was being done simply to aid Treas
ury financing.
There ensued a discussion of the desirability of discount rate reduc
tions,
Governor McDougal raised the question of what alternative there was to
reducing rates and Governor Black replied that it appeared to him that the
alternative was that the Treasury would do the best it could and would issue
securities at constantly advancing rates to the point where the difficulties of
sale and the reaction upon the bond market would be so great that the Reserve
banks would be practically forced to cooperate.
Governor Faneher raised the question whether the Reserve banks could
consistently reduce rates in the face of present large demands for Federal reserve
credit.
In this situation it might be advisable to make a special rate for new
issues.
In the course of discussion the difficulties involved in a special rate
for particular issues were brought out.
It was suggested that such a procedure
would discriminate unfairly against recent issues and would be ineffective.
What
was required to sell government securities was not so much attractive terms for
any single issue but an easy money position and a good government security market
generally.
After further discussion it was agreed that without any formal resolu
tion the minutes should contain an informal statement that it was the unanimous
individual opinion of those present,
(1)
That in view of all the circumstances and especially
the important place the Treasury program occupied
in the general credit situation and in any program
to check credit deflation, the Reserve banks should
generally cooperate with the Treasury program, and
(2)
That the governors present would recommend to their
boards discount rate reductions either in the form
of flat reductions or preferential rates on govern
ment securities.
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It was agreed that in any cases where preferential rates might be adopted
they should apply to all government securities and not to specific issues alone.
It was further made clear in the course of the discussion that those present re
garded reductions in discount rates not so much as a means of aiding the sale of
government securities but as an important step towards stopping credit deflation.
Undersecretary Mills entered the meeting at this point and Governor
Harrison reported to him the views of the governors with regard to cooperating
with the Treasury program.
In response to questions Mr. Mills stated,
(1)
That the administration proposed that the govern
ment budget should be balanced after June 30,
next*
(2)
That the administration program called for sales of
approximately $1,500,000,000 of additional govern
ment securities before June 30, 1932,
(3)
That it seemed likely that new issues would take the
form of short term issues rather than bonds.
There ensued discussion as to whether the Treasury should advance the
interest rate it receives on government deposits in depositary banks.
Mr. Mills
asked the opinion of the governors present and their consensus of opinion was in
favor of leaving the deposit rate at 1/2 of 1 per cent*
Governor Harrison presented a resolution designed to summarize the
conclusions of the discussions of the two day$* meetings, and in the ensuing
discussion particular attention was given to the proposal for possible purchases
of government securities.
At this point Mr. Mills left the meeting and Governor Meyer joined it.
Governor Meyer stated that he believed in the present situation the
Reserve System should be prepared to use all of its powers if and when necessary.
Governor Black asked whether the members of* the Federal Reserve Board
were in accord with the suggestion for lower discount rates, and Governor Meyer
replied that the matter had received no formal attention in meetings of the
Board but that the members of the Board with whom he had discussed the matter
were in favor
of lower rates for the purpose of facilitating the general program.
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He also suggested that any lower rates which were established should not, in
fairness to the member banks cooperating with the program, be withdrawn too
quickly*
Governor Black suggested that definite action should be taken with
regard to the $42,000,000 of government securities purchased for System Account
at the year-end.
A motion to sell these $42,000*000 of securities was made by
Governor McDougal but did not receive a second.
Governor Harrison’s resolution was then considered and, after a number
of amendments, was adopted in the following form, Governors Seay and McDougal,
and Deputy Governor Day voting in the negative.
The Conference has considered the preliminary memorandum
and discussed at length the current business and banking situa
tion. It gave particular attention to the increase in bank
failures and the pressure upon the business and price structure
of the country resulting from or coincident with the huge
deflation in bank credit during the past year, the contraction
of bank loans and investments during the last quarter of 1951
being at the rate of about 20$ per annum. The Conference be
lieves that this deflation cannot continue without most serious
damage to the business and financial structure of the country.
While the Conference is of the opinion that the proposed Recon
struction Finance Corporation will be of material help in check
ing the failure of sound banks and in thus tending to relax
further unnecessary pressure for liquidation, and that while the
further acquisition of bills by the Federal reserve banks may
be encouraged by Federal reserve bank rate adjustments, never
theless because of the seriousness of the general situation and
the importance of relieving the drastic pressure on the credit
structure now inspired largely by fear of further liquidation,
the System should be prepared, if necessary, to supplement these
other steps by the purchase of government securities. It, there
fore ,resolves that the Executive Committee be authorized if and
when desirable to purchase for System account not to exceed
$200,000,000 of government securities, such purchases to be made
only after the approval of the executive committee at a meeting
to be called for the purpose of considering the occasion or need
therefor.
At 12:50 the Open Market Policy Conference was adjourned, and the meet
ing reconvened 83 a Governors Conference.
The meeting proceeded to consider Senate Bill S-2310 providing for
relief of depositors of closed banks and involving thp direction to the Federal
reserve banks to subscribe from their surplus $50,000,000 of the capital of the
corporation
to be organized for this purpose
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On invitation Deputy Comptroller of the Currency Await entered the
meeting and there ensued a general discussion concerning the legality of the
provision with regard to the use of Federal reserve surplus for this purpose.
Mr. Await then left the meeting and the following resolution was adopted:
It is the sense of the Governors Conference that quite
apart from the question of the constitutionality of Congressional
appropriation of surplus of Federal reserve banks already ac
cumulated in accordance with law, the proposal in Senate Bill
2810 to require Federal reserve banks to subscribe $50,000,000
of their surplus to the capital stock of a corporation designed
to pay off deposits in closed banks is detrimental to the best
interests of the Federal reserve banks, their member banks, and
the public at large, and, without expressing any dissent what
ever to the objects of the bill in question, the Conference be
lieves it would be unwise to retain in the bill any provision
which would appropriate any of the accumulated surplus of the
Federal reserve banks for the purposes of the proposed corporation.
On motion it was agreed that discussion of the recommendations of the
Reserve committee should be put over until another meeting.
At 1:45 p. m« the meeting adjourned.
W. Randolph Burgess,
Secretary*
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H
MINUTES OF THT. MEET DIG- OF THE OPEN MARKET POLICY CON
________________ WASHINGTON, NOVEMBER 50, 1951
The conference convened at 10:50 a, m.
Present:
Governors Young, Norris, Fancher,
Seay, Black, McDougal, Martin,
Geery, Bailey, McKinney, Calkins,
and Harrison, Chairman,
Governor Harrison referred to the procedure which had been
followed at past meetings of the conference, in accordance with the
Revised Plan of Procedure as approved by the Federal Reserve Board and
the Federal Reserve Banks, and referred to the fact that at the last
meeting of the conference the question was raised by some members of the
Federal Reserve Board as to the advisability of a joint meeting with the
Board prior to the adoption of any formal resolution by the conference.
Accordingly, it was understood to be the sense of the conference that the
chairman should invite the Federal Reserve Board to meet with the confer
ence at the outset of its deliberations and to consider with the confer
ence the preliminary memorandum submitted by the chairman.
Governors
Calkins and Harrison acted as a committee of two to confer with Governor
Meyer regarding this suggested procedure*
Governor Meyer subsequently reported back to the conference
that the proposed procedure was agreeable to the Board.
Thereupon the
Federal Reserve Board joined the conference, and copies of the preliminary
memorandum were distributed to the members of the conference and the Board,
A general discussion then ensued during the course of which
various members of the Board and of the conference expressed their views
regarding the policy' which might be followed over the end of the year.
It
was generally the opinion of those present that it would be impossible at
this time to formulate any long range open market policy for the System,
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In discussing possible means of handling the year**end situation,
attention was directed to the fact that the System has unusually heavy maturities
of bankers acceptances during the month of December, owing to the heavy purchases
of acceptances which were made in the period of a few days in the middle of
September following the suspension of gold payments by the Bank of England.
The
currency and banking situations were also discussed and some question was raised
whether or not the demand for currency for Christmas purposes, usually amounting
to about $200,000,000, might not be reduced this year as a result of the utilizar
tion of currency withdrawn during the past several months for hoarding purposes.
It was the general sentiment of the members of the conference that
there would no doubt be a vigorous effort on the part of many banks throughout
the country to "window dress* over the turn of the year, in order not to issue
statements showing bills payable.
It was pointed out that the System now has
approximately $650,000,000 of discounts but that the borrowings by banks in Hew
York and Chicago were relatively insignificant, an unusual situation considering
the total amount of discounts.
Governor Harrison indicated, however, that in
his opinion it would probably not be possible to go through the month of
December without a substantial increase in the discounts of New York City banks,
even though a number of those banks would no doubt prefer to be. out of debt at
the end of the year if only because of their desire to show their foreign cor
respondents that they were not borrowing.
Governor Meyer expressed the hope
that the System would not take any position, by action or inaction, which would
place any unnecessary further pressure upon the banking or credit position.
After further general discussion the Board withdrew from the meeting and the
conference then proceeded with its discussions.
Upon motion duly made and seconded, the Secretary’s report of the
operations of the System Account since the last meeting of the conference was
accepted and ordered placed on file.
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The conference then proceeded to discuss the preliminary memorandum
submitted by the chairman.
Governor Harrison suggested that there were two
possible approaches to the problem:
first, the policy to be pursued by the
System during the month of December and over the turn of the year, and, second,
a long range open market policy of the System.
There are so many complex and
imponderable factors in the situation at the present time that he suggested the
conference devote its attention solely to the first problem, leaving the second
to consideration by a subsequent meeting sometime in January*
Governor Harrison then suggested for consideration of the conference
the advisability of authorizing the Executive Committee in its discretion to
purchase up to 1200,000,000 of government securities between now and the end of
the year with a view to avoiding any unnecessary pressure upon the credit or
banking structure of the country.
This was considered important lest such
pressure might tend to revive difficulties with banks which already have suffer
ed large withdrawals of deposits in face of a heavy depreciation in their assets,
especially bond portfolios.
Governor McDougal asked whether any members of the conference believed
that government securities should be bought imnediately.
It was the consensus
of views that there is no occasion for such purchases at the moment and that
there might be some disadvantage in purchasing any such securities before the
middle of December, if only because of the likely large operation by the gov
ernment at that time.
Governors Norris and Fancher said that they were not disposed to ap
prove of the purchase of government securities solely for the purpose of enabling
the New York and Chicago banks to keep out of debt at the end of the year.
^
Governor Young said that in his opinion these and other banks should be expected
to borrow over the turn of the year.
Governor Martin called attention to the
fact, however, that possibly when the end of the year arrives it might be con
sidered desirable by everyone that the New York banks should not be in debt, if
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only because of the possible bad effect that it might have on public sentiment
both here and abroad.
Governor Harrison said it was difficult at this time to
state what would necessarily be the appropriate course to pursue at the end of
the year;
that while he believes that the New York banks will have to be bor
rowing some amounts at that time, nevertheless, the Executive Committee should
not be limited in its discrotion to purchase government securities only in the
event that the New York and Chicago banks are in debt.
Governor Harrison then formally presented to the conference a resolu
tion which, with some later amendments * reads as follows;
"The conference reviewed a preliminary memorandum
submitted by the Chairman. They discussed business
banking and credit conditions both here and abroad and
considered in particular the effects upon the American
banking and credit structure of the recent huge with
drawals of gold and currency and possible further with
drawals of currency for holiday purposes or for hoarding.
They further considered the heavy maturities of bills in
the System portfolio before the end of the year. While
the conference was of the opinion that there is no oc
casion for any immediate purchase of government
securities, nevertheless, they voted that in view of all
circumstances and in order to be prepared if and when
occasion arises, the Executive Coumittee be authorized
in its discretion to buy up to $200,000,000 of govern
ment securities before the end of the year.
It was
the sense of the conference that the committee should
also be authorized in their discretion to sell any
securities so bought after the turn of the year if con
ditions then permit. The conference felt that there
should be another meeting of the conference early in
January to consider the System’
s general operations and
policies in the light of conditions as they then exist.*
Before final action on this resolution, Governor Harrison discussed at
some length the international situation calling attention particularly to the
change in conditions in various countries of the world since the abandonment of
the gold standard by England.
He emphasized the steps which have been taken
in recent weeks by various countries to increase tariffs and to impose
exchange
restrictions which act as serious deterrents to international trade.
He indi
cated that it was difficult to see how many of these countries can determine
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a
upon their future monetary policy until England finally decides
u p o n /b o u rs e
of
stabilization, but that it is not likely in his opinion that England will at
tempt to stabilize its currency until some definite action is taken about
reparations and intergovernmental debts, and until they are in a position better
to determine their own trade balance and price levels which will be affected by
the tariff which the government has now enacted.
After further discussion and consideration of various aspects of the
international situation and especially trade balances and monetary policies,
action on the resolution proposed by Governor Harrison was called for and after
it was duly seconded the resolution was unanimously approved and a copy delivered
to Governor Meyer for consideration by the Federal Reserve Board,
Some question then arose as to the procedure to be followed in hand
ling profits and losses in the System’
s Open Market account at the end of the
year.
Upon motion duly seconded, it was voted unanimously to follow the pro
cedure suggested in the report of the secretary of the committee, previously
submitted to the conference.
The conference adjourned at 5:30 p* m.
GEORGE L. HARRISON
Chairman
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MINUTES OF MEETING- OF THS EXECUTIVE COMMITTEE
OF THE OPEN MARKET POLICY CONFERENCE HELD AT THE
OFFICE OF IKE FEDERAL RESERVE BANK OF NEW YORK
OCTOBER 2 6 , 1931
The members of the committee arrived at about 10:30 a. m . , and report
of operations and memorandum on credit conditions were distributed and read.
The meeting was formally called to order at 11:25, there being present
the following:
Governor Harrison, chairman, and Governors Young, Norris, Black, and
McDougal, Governor Meyer of the Federal Reserve Board, and Mr. Burgess, secretary.
The report of operations and memorandum on credit conditions were
ordered received and placed on file.
Governor Harrison stated that there appeared to bo two important problems
to consider, the first relating itself to system general policy, whether to buy
governments, soil governments, or to maintain present holdings unchanged, and
second, the question of the distribution of governments and bills between individ
ual reserve banks to take care of needs which might arise for banks to maintain
their reserve percentage or their amount of free gold.
He proposed discussing the
first question first and separately from the other question.
Governor McDougal made a statemrnt as to the position of the Chicago
Bank with regard to government securities citing the changes which had taken place
in Federal Reserve credit and recommending the reduction of system security hold
ings by the amount of the maturities through next March.
Governor Harrison reviewed the considerations affecting open market
policy, indicating, first, th^t the free gold position of the System was not a
consideration at this time first because there is now, even after a loss of over
$700,000,000 of gold over $800,000,000 free gold in the System, practically as
large as before the outward gold movement started and second because a sale of
government securities would not in fact really strengthen the System’
s gold posi
tion.
Its only effect would be to provide additional collateral for Federal
s^ai
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reserve notes, whereas there is an ample amount of collateral either now on hand
or in sight so that a shortage of collateral would not be a limiting factor on
the amount of gold which could be exported or the amount of Federal reserve notes
which could be issued.
At the present time only $300,000,000 of Treasury notes
out of $2,700,000,000 outstanding are not collateraled to 60% of value by eligible
paper.
The most important question which the System faces at present is the
problem of bank failures and hoarding of currency.
Failures had been increasing
at a rapid rate and are exercising a terrific pressure on the credit situation.
Every action of the System should be considered in the light of its possible
effect on these failures and on the willingness of banks to help out their corres
pondents in time of difficulty#
A decrease in the System’
s holdings of govern
ment securities might affect the situation adversely, first, by its psychological
influence as indicating a policy of pressure, and second* as tending to increase
the amount of member bank discounts and so making them somewhat less willing to
lend freely to help banks actually in need.
Governor Harrison reported his conversations with New York bankers in
which he had recommended that a policy of veiy liberal lending be followed, partic
ularly to out-of-town banks which had need.
should be used rather than preserved.
The present was a time when liquidity
He felt it desirable that nothing should be
done by voluntary System action unnecessarily to discourage the use of this liquid—
ity in rendering aid to banks in need.
There ensued a general discussion of the attitude taken by city banks
toward assisting banks in difficulty, the general sentiment of the meeting being
that everything should be done to persuade banks to adopt a liberal policy in
this regard and to borrow freely from the Federal Reserve System when that was
necessary to meet the needs of the- situation*
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Governor Norris stated that while he had recently been opposed to pur
chases of government securities and would like to see System holdings reduced*
he did not think the present was a time when we could wisely sell securities.
The System had cooperated in the movement toward easy money as a result of which
many banks had bought government bonds at low yields, and any action now which
tended to accentuate the losses of banks on governments would be most unpopular.
Governor Meyer indicated that the committee at present had no authority
to sell governments, but that it could* if desired, request the Federal Reserve
Board to approve the recommendation of the last Open Market policy Conference
that the executive committee be given authority to sell up to $>120f000,000 of
governments*
Governor Young summarized the advantages and disadvantages of a decrease
in holding of government securities, and concluded that it would not be wise at
this time to sell government securities or to let the total run off except possibly
to the extent that it might be desirable to offset purchases of Intermediate Credit
Bank debentures and municipal warrants.
Governor McDougal moved that unless conditions changed System maturities
of government securities in November be allowed to run off.
The meeting adjourned at I2:j50 without action having been taken on this
motion.
The members of the committee attended the meeting of tho executive com-r
mittee of the Federal Reserve Bank of New York and resumed their own meeting at
3:25 p. m ., there being present all of those who were present at the morning
meeting*
Governor Harrison reported the probable plans of the Bank of France with
respect to its American balances*
Governor Meyer reported a series of telegrams from Governor Calkins of
the Federal Reserve Bank of San Francisco recommending letting maturities of goyornment securities run off for the balance of this year at least, and recommending some
^^8
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plan for a more equitable distribution of holdings between the Reserve banks to
provide a more ample free gold position and reserve position for some of the banks*
The motion made by Governor McDougal at the conclusion of the morning’
s
meeting was seconded and on mot ion defeated by a vote of 4 to 1*
//
It was moved and carried that while for the moment there is no occasion
for a reduction in System holdings of government securities, that by reason of
the views expressed by a number of governors favorable to a sale of government
securities, and because of the possibility of changes in the credit situation
which might make sales desirable * the committee ask the Federal Reserve Board to
give the executive conmittee the same leeway with respect to sales of government
securities as it now possesses with respect to purchases as recommended by the
resolution of the Open Market Policy Conference on August 11*^
With regard to the desirability of a meeting of the Open Market Policy
Conference it was agreed that the results of the dayfs meeting should be sent to
the other Federal reserve banks by telegram and letter as early as possible, and
it was the sense of the committee that there should be a meeting of the Conference
as soon as conditions appeared to make it wise and practicable for the governors
to leave their own institutions for such a meeting.
There ensued a discussion of the distribution of government securities
between individual Reserve banks with special reference to a number of requests
which have been received recently to take over securities from Reserve banks whose
position required strengthening.
It was agreed first that a bank which was short
in its reserves should ask for relief through the sale of bills to other Reserve
banks whenever its situation- could be relieved by that method; and second, that in
the case of a bank where its difficulty was in its free gold position rather than
simply in its reserve position, it should offer its government securities to other
Reserve banks through the committee, but should only make this request when it was
really necessary to strengthen its position-, and the amount of the request should
be limited to that necessary to meet the usual fluctuation in its gold holding.
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The committee would then offer participation in these bills and securities to
the other banks with the understanding that those whose reserve position is such
as to enable them to take bills or securities should cooperate to the fullest
extent possible*
There was then some discussion as to the policies followed by the
Reserve banks as to lending on government bonds.
The New York, Chicago,
Minneapolis, and Atlanta banks were reported as lending on government bonds at
their par value.
The Philadelphia bank was lending at pur value when the market
price was 95 or better, and the Boston bank was reported as lending on values at
market.
In the discussion it was emphasized that the Reserve banks had been
vigorously supporting the ruling of the Comptroller under which prime bonds were
to be listed at par, and the acceptance of governments at something less than
par would appear to be inconsistent with this position.
Moreover, there was a
good deal of disturbance among member banks at recent declines in government
bonds which would be accentuated if the Reserve banks took These bonds at less
than pur.
In view of the limited amount of governments selling below par and
the additional protection the Reserve banks possessed it was not believed any
considerable risk was taken.
Governor Young raised the question whether there was any way of distri
buting earnings or losses on open market holdings in a more equitable manner, but
after discussion no motion was made upon this point.
Reference was made to payments of gold coin into circulation, and it
was agreed that the principle which must be followed was that payments should be
made with complete freedom.
been important.
The amounts of such payments made thus far have not
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G-overnor Harrison reported that at the New York bank gold certificates
were being paid into circulation only on request* but that there was no hesita
tion in making such payments when asked*
As a result considerable amounts of
gold certificates were being retired from circulation#
The meeting adjourned at 4:40 p. m#
W. Randolph Burgessj
Secretary*
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Confidential'
MINUTES OF THE MEETING OF THE OPEN MARKET POLICY CONFERENCE
AT THE FEDERAL RESERVE BOARD, AUGUST 11, 1931
j
*5 I ill
3
The meeting was called to order at 10:20 a. m # , there being present
Governors Young, Harrison, Norris* Fancher, Seay,
Black, Martin, Geery, Calkins
Deputy Governors McKay, Worthington, Gilbert, and
Assistant Deputy Governor Matteson, who acted as Secretary
of the meeting*
The Secretary’
s report of open market operations since the date of the
last meeting of the Conference on April 29, 1931,was presented and, on motion
duly seconded, it was accepted and ordered placed on file.
The tentative minutes of the meeting of the Executive Committee of the
Conference held at the Federal Reserve Bank of New York on August 4, 1931, were
presented.
The preliminary memorandum was also presented and was accepted and
placed on file, with supplementary figures designed to bring the changes in the
various element® of Federal reserve credit and other factors influencing the money
market up to the close of business August 10, 1931.
Governor Harrison stated that the Executive Committee after having re
viewed the general credit and economic situation at home and abroad had voted that
a meeting of the Open Market Policy Conference was desirable in the near future to
consider the wisdom of granting such authority to the Executive Committee as would
prepare it to act in the further purchase of government securities if and when that
might seem to be necessary and desirable*
Governor Harrison then reviewed the recent developments abroad, and par
ticularly in those countries where credits had been granted by the Federul reserve
banks, discussing in detail the situation in Austria, Hungary, and Germany.
i<j i . j j
t-/ b I % z / z /
3 3 3 .-c ■ 2-
The
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various credits extended were reported as shown in the following statement:
Total
-Amount
of Credit
Date of
Credit
Amount of
F.R.Banks*
Partic ipation
Availed of
F.R.Banks’
Participation
Rate of Interest
on Bills Pur
chased Under
Various Credits
Engage
ment
Commis
sions
FIRST AUSTRIAN
May
30
100,000,000
schill ings
(§14,070,000)
7,700,000
schillings
($1,083,000
7,700,000
schillings
1/4 of 1%
1/4 of 1% above
Austrian National
Bank discount rate,
with minimum of
5 1/0.
1/4 of 1%
The discount rate of
the Austrian Nation
al Bank.
None
Discount rate of the
National Bank of
Hungary
1/4 of 1%
Discount rate of the
National Bank of
Hungary.
SECOND AUSTRIAN1
June 33 1£0,000,000
schillings
($14,070,000
8,225,000
schillings
($1,157,000)
None
FIRST HUNGARIAN
June 19
” 22
$10,000,000
5,000,000
2,000,000
2,000,000
SECOND HUNGARIAN
July
8 #10,000,000
3,000,000
3,000,000
REICHSBANK
June 26 $100,000,000
Expired
July 16,
renewed
to Aug.6
and again
to Nov.4
25,000,000
25,000,000
1/2 per mill Discount rate of the
on theorigi- Reichsbank for the
nal credit
original credit
and first
and first renewal,
renewal,
Discount rate of
2 1/4 per
the Reichsbank, or
mill on the
10%, whichever is
2nd renewal
the lower, for the
second renewal*
BANK FOR INTERNATIONAL SETTLEMENTS
July
30 $10,000 ,000
sight
deposit
10,000 ,000
10,000,000
None
B.I.S. current rate
for sight deposits,
at present 1 3/4%
It is the intention of the B. I. S. to purchase from time to time, as
conveniently available, dollar or foreign currency bills, up to
$10,000,000.
BANK OF ENGLAND
Aug.
1 #250*000*000
125*000,000
11,4291000
l/16th of 1%
3 3/8%
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Between July 23 and August 8, 1931, sterling exchange was purchased to
the amount of approximately £1*650,000 in support of that exchange.
Prior to
August 8 IsS00-,000 of the above sum were invested in sterling bills by the Bank of
England, for our account.
On August 8 the £.900,000 were transferred to apply on
the Bank of England credit of $125*000,000 and the remaining i.750,000, which were
delivered to the Bank of England on August 8j were invested in bills and applied
directly to the credit.
Governor Harrison reviewed the background of these credits and the
negotiations which had led up to them, as outlined in his letter of July 9, 1931,
to the Governors of all Federal reserve banks.
The continued lack of confidence
and the state of fear and unrest which exist all over the world and the continued
decline in coimiodity prices had brought about a condition approaching bankruptcy
in many foreign countries and in certain sections of our own country, due to the
inability of these countries and sections to meet their fixed charges.
conditions one of two things must happen:
Under these
eithei* commodity prices must go up* or
debt structures must be reorganized, involving defaults or postponements in many
cases.
While bank credits may serve to patch up various situations temporarilyi
they cannot correct the basic difficulties.
The only possible additional step
which now appears open to the Federal Reserve System as & means for exerting some
favorable influence upon the situation is the purchase of Government securities,
The only question is whether conditions are now such as to make such a step prac~
ticable or reasonably effective.
Governor Harrison stated his belief that economic, social, and political
conditions throughout the world were so very serious, the prospects for the winter
indicated such severe unemployment and distress, and the threat of political and
social upheavals in various parts of the world was so great that the Federal
Reserve System should certainly be prepared to take any helpful steps within its
power if and as soon as conditions indicated reasonable prospects of their success.
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Governor Harrison did not advocate immediate purchases of securities because it did
not appear that the attitude of the banks and investors was such that funds thus
made available would be put to work, but he believed the system should be prepared
to make substantial purchases as soon as there was some prospect that the purchases
might be effective*
In the course of an ensuing discussion Governor Harrison stated that he
felt that if some such action were not taken by the Federal Reserve System the
question would be asked why the system did not exhaust every possible means that
it possessed in an endeavor to help out in this crisis.
He reiterated that he,
in common with others, felt that the present was not the proper time to make further
purchases of Governments, but that the Executive Committee should be authorized by
the Conference to make purchases of sizeable amounts if, and when, such action
should appear desirable.
Governor Calkins brought up the question of the inability of the majority
of the banks to participate in further purchases, due to the lack of gold cover*
The New York and Chicago bank were the only ones really in a position to participate
to any extent in purchases of Governments at this time.
Governor Calkins also
stated that there were bad banking situations in all districts, which might lead
to heavy withdrawals of reserves which none of the banks except New York and Chicago
were in a position to stand*
Governor Harrison stated that the amount of free gold in the system was
about $750,000,000, which could be increased to a billion dollars by withdrawals
from the agents.
With regard to the immediate situation in New York, Governor Harrison
reported that the New York banks for two months past had been holding currently
excess reserves of from $60,000|000 to $80,000,000, but that in the past iew days,
due to currency withdrawals and the action of the Bank of France in allowing its
Treasury Bills and bankers’bills to run off, this excess had been wiped out and
the banks had been obliged to borrow at the reserve bank from $40,000,000 to
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$80,000,000.
In view of this sudden arid unusual change and to avoid a disturbance
to the money situation, the New York reserve bank had made purchases on August 10
and 11p for its own account, of §50,000,000 of Government securities, any part of
which it will be glad to give to any bank that wishes to participate.
This action
was not taken with a view to creating excess reserves but to supply enough funds
to take care of the unusual withdrawals,
The Bank of France has now a $170,000>000
free balance with the Reserve Banks and holds about ^40,000 ,000 more of bills matur
ing within the next few weeks.
Governor Seay said that the amount of free gold which his bank held would
not permit them to participate in any further credit, or purchases.
In fact they
had not participated in the Bank of England credit as that would have required
about $6,000,000 or $6,500,000 of free gold.
Governor Harrison pointed out that the question to decide was not whether
individual banks could, or could not, participate, but to try to agree on a System
policy which would be helpful*
Governor Meyer joined the meeting at 12;25 p. m . , and stated that he
would like to get the opinion of the Governors of the Federal reserve banks as to
whether they would favor the adoption by the Comptroller of the Currency of a policy
which would permit national banks to carry all bonds in their portfolios at cost
price, regardless of the market value, unless such bonds were in default as to
either principal or interest, in which event their depreciation should be written
off.
Under this plan the difference between the cost value of the undofaulted
securities and the m&rket value would be classified as either slow or doubtful*
The Governors expressed themselves as in favor of some such formula; whereupon
Governor Meyer left the meeting*
The discussion of further purchases of Government securities being re
sumed, Governor Calkins expressed the opinion that additional purchases at this
time would not do any good.
He also raised the question of the desirability of
maintaining a proper amount of liquidity in the System.
An urgent demand for
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credit from some other quarter might prove embarrassing if the System’
s resources
were tied up in Government securities.
Mr. McKay stated that it was his feeling and that of the Governor and
directors of his bank that they should keep in the strongest position possible.
The meeting adjourned at 1:20 p. m.
for lunch and reconvened at 2:30
p. m.* with all present that attended the morning session.
Governor Meyer joined
the meeting shortly after it reconvened.
Governor Meyer reviewed the various facts in the present situation and
stated that in his opinion the situation was one which called for some action by
the Federal Reserve System* and he hoped that the Conference would give serious
consideration to the matter of buying securities*
Furthermore, it was his opinion
that such additional action could be taken without any possibility of really weaken
ing the System*
Governor Calkins asked what would happen in the event that we should buy,
say, $500,000,000 of Governments now and in the course of thirty days be asked to
extend another *>200,000*000 credit to England, to which Governor Meyer stated that
if governments are purchased we should not hesitate to sell them if end when conditions
did not th-tok we -should hesitate to oell Governments in order -t-o holp Snglaadr
make it necessary or desirable.
Governor Calkins suggested that those present give the attitude of their
respective boards of directors in regard to the purchase of securities.
Members
of the Conference thereupon responded as follows:Governor Young stated that his directors were opposed to the purchase of
any further Governments and went along reluctantly on the last purchase.
Governor Black; stated that if he were to report on the question now he
would be in favor of empowering the Executive Committee to make further purchases
if, and when, they considered it desirable.
The question, however, of making
further purchases at this time has not been taken up with his board of directors
and he, therefore, could not give their views at this time.
*49
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Governor Seay stated that for a year prior to the first of this year
his directors had been opposed to the purchase of Governments and also had been
opposed to the purchase of acceptances because of the rates, but since then they
have participated in System purchases.
As they have a very small amount of free
gold his directors would not be willing to reduce that amount further by parti-'
cipating in purchases*
Governor Calkins stated that the directors of the San Francisco bank
have been consistently, since the beginning, disposed to go along with the System
and to participate in the operations of the Open Market Policy Conference.
They
have been* on the whole, of the opinion that nothing has been accomplished by the
very large amount of money that has been put in the money market.
They did not
consider it proper for the San Francisco bank to participate in further large
purchases of Governments*
Governor Geery stated that he had not had a chance to discuss the matter
with his directors, but that the Executive Committee, on account of their free gold
position is opposed to the further purchase of Governments#
Mr. Gilbert stated that there was no meeting of his board in August
and the matter had not been discussed with them#
The- position of his bank has
made it necessary to discontinue participating#
He stated that his own personal
feeling is that he would be opposed to the purchase of
Governments but would be
in favor of forcing bills into the System*
Governor Martin stated that his board of directors appreciates the
gravity of the world situation and also the local situation and desires to go
along in every way that it can in anything that will help the general situation*
However, at the last board meeting* the board felt decidedly that the System had
gone about as far as it was justified in extending foreign credits; also that it
had gone as far as it could in the purchase of Governments.
He said his local
situation was such that unfortunately they cannot participate unless their gold
cover improves.
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Governor Norris stated that at his board meeting last week only four
directors were present, which Wc.s not a quorum, and he therefore could give no
authoritative recent statement of their opinion.
In a recent discussion, however,
the majority of the board had been opposed to further purchases of Government
securities.
Neither his board nor he individually can see that any possible good
can be done by making purchases now or any time that we can look forward to.
With
only $40,000,000 of free gold he was afraid that for the first time in their entire
history they would have to decline to participate, which they would dislike to do.
Governor Fancher said his board has been divided on the question of buying
Government securities, probably the majority against it.
In expressing his own
opinion he said that if the resolution was reduced to §100,000,000 he would not
oppose it, as a situation may arise in which the purchase of $100,000,000, or a
part of it, may be desirable.
He feels that there is nothing today that would
warrant the purchase of additional Governments, but that the Executive Committee
should not be without authority if the unforeseen happens*
Mr. McKay said he had submitted the question to his Executive Committee
who had discussed it freely and are of the opinion that the purchase of Governments
at this time would not do any good and might result in harm.
They feel that a
little firming in money rates from present abnormally low levels would do more good
than easing would do.
These are Governor McDougal*s views and his own.
Mr. Y/orthington said he thought it has been the opinion of the majority
of the board, also of Governor Bailey* that the easy money policy has been carried
too far and has not accomplished the desired result.
His bank has always parti
cipated and is now participating, but at this time has gone about as far as it can.
His personal opinion is similar to that of Mr. McKay.
Governor Harrison said he had gone over the whole matter with the New
York directors last Thursday and they are all of the opinion that it would not be
wise to buy Government securities now inasmuch as the present attitude of the banks
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and public about bond investments would probably defeat the program.
They do
feel, however, as he does, that the situation throughout the world is very
critical and that the System should be in a position to act promptly and use what
means we have left in the effort to facilitate recovery if and as soon as a favor
able opportunity offers itself.
V/ith this in mind they were very hopeful that
the Conference would empower the Executive Committee to make purchases of Govern
ment securities promptly in a substantial amount if and when that might he desir
able.
Governor Harrison presented the following resolution:
"It is the sense of the Conference that, subject to the
approval of the Federal Heserve Board* the Executive Committee
be authorized to purchase for account of such Federal reserve
banks as desire to participate, up to $300,000*000 of Government
securities if and when it becomes necessary or advisable to do
so.
It is the opinion of the Conference that economic conditions
in this country and throughout the ’
world are now such that it is
essential that the System be prepared promptly to take whatever
further proper steps are in its power to encourage or facilitate
a recovery in conditions as soon as it appears likely that such
steps will be effective in accomplishing this purpose."
Governor Calkins then stated that if it is in order, he would offer
the following as an amendment to the resolution.
The motion to amend was made
and seconded by Governor Fancher -
’’That the Executive Committee be authorized to purchase
for account of such Federal reserve banks as desire to participate
up to $100,000,000 Government securities if and when it becomes
necessary or advisable to do so, or if necessary or advisable
to sell up to a similar amount.”
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This amount was then changed by mutual agreement to read $120,000,000,
to coyer the 5^0,000,000 unexecuted balance of the present authorization.
Governor Harrison explained that he would vote against the proposed
amendment because if the Conference were not prepared to authorize the purchase of
a more substantial amount it would not in his opinion be wise to embark upon the
purchase of an amount too small to accomplish the objective,
■A vote was taken on the amendment, all of the Governors voting in favor
of it except Governors Harrison and Young,
A vote was then taken on the resolution, as amended:
’’It is the sense of the Conference that, subject to the
approval of the Federal Reserve Board, the Executive Committee be
authorized to purchase for account of such Federal reserve banks
as desire to participate, up to ^120,000,000 of Government sec
urities if and when it becomes necessary or advisable to do so,
or if necessary or advisable to sell up to a similar amount.
It
is the opinion of the Conference that economic conditions in this
country and throughout the world are now such that it is essential
that the System be prepared promptly to take whatever further proper
steps are in its power to encourage or facilitate a recovery in
conditions as soon as it appears likely that such steps will be
effective in accomplishing this purpose,"
All Governors voted in favor of the resolution, as amended, except
'X
Governor Young*
There followed a discussion as to the best date for the Governors’
Conference, and it was the sense of the meeting that it should be held as soon as
the Committee on Reserves were ready to report, which would be about the middle of
October.
The meeting adjourned at 5:20 p* m.
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JOINT MEETING OF THE FEEERAL RESERVE BOARD AND THE OPEN MARKET POLICY CONFERENCE
____________________HELD IN WASHINGTON ON AUGUST 11, 1931_____________________
Present:
Governor Meyer, Dr. Miller, Messrs. James, Hamlin
and Magee, members of the Federal Reserve Board
Governors Young, Harrison, Martin, Geery and
Deputy Governors Worthington, McKay and Gilbert
of the Federal Reserve Banks; also
Messrs. Goldenweiser, Wyatt, Sinead and McClelland
of the Federal Reserve Board
I/Ip . Matte son of the Federal Reserve Bank of New York.
The meeting was called to order at 5:30 p. m. by Governor Meyer.
Governor Harrison presented the preliminary memorandum, relative to credit
conditions, the report of operations, and the tentative minutes of the Executive
Committee meeting.
Governor Harrison then reviewed the general credit and economic
situation at home and abroad as it had been discussed at the conference.
He then
acquainted the members of the Federal Reserve Board with the action taken at the
meeting of the Open Market Policy Conference and read the resolution as it had
first been presented to the Conference, and in the form in which it was later adopt
ed.
In discussing the reasons why the members of the Conference were not in
favor of purchasing large amounts of Government securities immediately, he pointed
out that at present the effect of purchases would probably be limited to the piling
up of excess reserves in member banks which would not be employed.
The natural
outlet for such excess reserves is in investments and if action were taken at the
right time it might result in pressure upon the banks for the use of surplus funds
in the purchase of bonds, mortgages, etc.
One difficulty at the present tine is
that the most prime investments are selling on a very low yield basis, while
secondary bonds consist largely of railroad issues, of which a considerable propor
tion may in a short time become ineligible for investment by savings banks, insur
ance companies, and trust funds, due to the provisions of various state laws.
addition the
In
bond r.'.arket has been uncertain because of pressure on the market, due
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to forced liquidation of bond portfolios of closed banks.
The conference felt,
however, that the existing situation was so critical that the System should be pre
pared to act quickly if and when conditions are changed to a point which might
make it appear that an operation in Government securities would be effective in en
couraging or facilitating busite&s frecoyetfy.
He referred also to the purchase of 150,000,000 of Government securities
by the Federal Reserve Bank of New York on August 10 and 11, and stated that it
was not contemplated that these securities would be absorbed into the System ac
count as part of the $120,000,000 authorized by the Conference but that, unless
some of the other reserve banks desired to participate in those purchases, they
would be carried in the portfolio of the New York bank.
Governor Meyer and other members of the Board expressed disappointment
at the action taken by the Committee in that it limited possible purchases to an
ineffective amount.
They also indicated some disappointment that the procedure
followed by the meeting did not give the members of the Board an adequate opportun
ity for discussion with the members of the Conference before final action was taken
by the Conference.
Governor Harrison stated that the present procedure was not satisfactory
to him either but that it was precisely in accordance with the procedure followed
ever since the Open Market Committee had been changed to the Open Market Policy
Conference, including representatives of all of the Federal reserve banks.
Mr. Hamlin asked the Governors who voted against the amendment to state
their reasons for so doing.
Governor Young stated that he would rather see the portfolios of the
Federal Reserve System composed of bills and discounts, and regretted to see two
important functions nullified by operations in Government securities.
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Governor Harrison stated that his reason for voting against this amendment
was that the amount was entirely inadequate for any program designed to stimulate
the use of credit in the country.
Purchases under this limited authority, he
said, would do no more than offset present withdrawals of funds»
While not in
favor of purchases at the present time for reasons elaborated at the meeting of the
Conference, he felt that the Executive Committee should have authority to purchase
substantial amounts promptly if, and when, such action seemed necessary and desirable
and with likelihood of being effective..
Occasions arise where quick action is
necessary, and that the delay in having a meeting of the Conference might nullify
the effect of such purchases.
There then followed a general discussion regarding foreign credits, the
position of various foreign countries, and the probable effects on the Reserve
System of possible events in this field'.
Governor Meyer asked Mr. Goldenweiser if there was any danger to the
System in locking up $800,000,000 or $300,000,000 of Government bonds.
Mr.
Goldenweiser stated that there was no danger in that direction as we have
$750,000,000 free gold which can be increased to $1,000,000,000 by withdrawals from
the agents.
Governor Meyer suggested as a matter of procedure that the members of
the Conference should come to the meeting without instructions by their boards of
directors, but prepared for a free discussion with the members of the Board.
He
suggested that there should be another meeting held at an early date, to be attend
ed by the Board, for a further discussion of these questions.
The meeting adjourned at 6:45 p. m.
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TENTATIVE
MINUTES OF MEETING OF THE EXECUTIVE COMMITTEE
OF THE O I ® MARKET POLICY CONFERENCE HELD AT THE
OFFICE OF THE FEDERAL RESERVE BANK OF NEW YORK
AUGUST 4, 1951.
The meeting was called to order at 10*50 a. m., there being present
Governors Young, Harrison, Norris, and Black, and Deputy Governors McKay and
Burgess.
A memorandum summarizing the credit situation was presented by the chair
man, together with a report of the secretary.
Governor Harrison then reviewed the developments since the last meeting,
/
saying that the meeting had been called because the world situation bqth economic
and financial appeared to have developed to a point requiring careful review.
While there had been some hope of an improvement in business conditions this autumn,
recent developments in Europe have led to a lack of confidence and a state of fear
and unrest more severe than at any time since the World War.
national difficulties lay the commodity price movement.
At the root of inter
With comodlty prices
where they are now many countries are unable to meet their fixed charges.
two things mist happen:
One of
either cocmodity prices mist go up, or else some parts of
the world mast completely reorganize their debt structures involving defaults or
postponements in many cases.
Bank credits, while they patch up the situation
temporarily, cannot correct the basic difficulties.
In these circumstances the only possible additional step which appears to
be open to the Federal Reserve System is the purchase of government securities.
There is now a substantial body of opinion which believes that government purchases
by the Reserve System would be helpful.
Because of the greater general lack of
confidence purchases at present are perhaps less likely to be effective than ap
peared to be the case six weeks ago.
Bit now, for the first time, because of the
system’s small holdings of discounts and bills, any money the Reserve system puts
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out has to stay out.
There is of course no assurance that a program of government
purchases would necessarily be effective:
the banks might keep excess reserves
unused, reducing their deposit rates to zero.
In any event it seems that such a
program would be most likely to succeed only if the bankers in principal centers
were taken into confidence and their cooperation secured.
Governor Moyer entered the meeting at this point.
Governor Harrison reviewed recent developments abroad in those countries
to which credits had been granted by the Federal Reserve Banks, discussing in some
detail the situations in Austria, Hungary, and Germany, and reviewing the reasons
for the $10,000,000 deposit in the B. I. S.
Governor Black raised the question of the possible use of sterling bills
as collateral for Federal Reserve notes, and Governor Harrison pointed out that the
difficulties were not legal but rather mechanical and perhaps also related to the
criticisms which might be provoked by the use of these holdings of foreign bills as
collateral for Federal Reserve notes.
Reverting to the previous discussion, Governor Harrison summarized the
position with regard to purchases of governments by saying that, admitting the
world was in the midst of a social, economic, and political crisis, the question
was whether there was anything the Federal Reserve System could do.
If by the
purchase of government securities it could facilitate an increase in world prices,
clearly it should be done.
It is doubtful whether a purchase of governments would
have such an effect, at least immediately, but the question is whether in the
presont crisis, which involves perhaps a struggle between socialism and capitalism,
the system can wisely omit doing anything which might be helpful and which a growing
number of responsible people believe would be helpful.
Deputy Governor McKay said that in his opinion everything should be done
to strengthen the position of the Federal Reserve System so that there might be
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continued confidence in the system.
Any disturbance abroad might bring withdrawals
of deposits from banks in this country*
In those circumstances it would be better
if the member banks rather than the Reserve system held the government securities;
so that they might be used as a basis for borrowing and as a basis for Federal
Reserve note issues.
He did not believe that purchases of government securities
would help the situation, but would rather hurt it, since interest rates were very
low and many banks were already suffering from lack of earnings and would have to
cut their dividends.
Governor Harrison said that he would be doubtful about buying governments
unless there were at least an informal understanding v/ith the principal member banks
concerning the employment of excess reserves.
He would not want to suggest that
the banks make wholesale purchases of bonds, but would rather suggest the placing
of substantial bids for second grade bonds to aid the market price, the difficulty
now being not so much that many bonds are being pressed for sale as that in many
cases the#e are no bids whatever.
Governor Meyer said that all were agreed that it is desirable to keep
the banks in a strong position, but that their losses were occurring more largely
in principal than on income account.
The policy of buying governments would be
designed to affect attitudes and sentiment in the country and so improve the value
of principal, a step which would be more effective in preventing losses by the
banks than anything that could be done to improve their income.
A large body of
responsible opinion favored the buying of government securities and there is ques
tion whether the Reserve system can be said to have done everything within its
power, until it has tried that policy more vigorously.
Governor Black stated his general agreement with this position and, re
ferring to the attitude of the banks, said that there appeared to be two questions;
first, are the banks following the right policy because of timidity, and if not
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what can we do to help them?
He did not believe that the purchase of governments
would weaken the Reserve system.
At It 10 the meeting adjourned for lunch.
At 3:20 the members of the committee met with the executive committee of
the Federal Reserve Bank of New York and there ensued a general discussion of the
proposal to buy government securities covering somewhat the same ground as the
morning meeting.
At 4:05 the meeting of the executive committee of the Federal Reserve
Bank of New York adjourned and the executive committee of the Open Market Policy
Conference reconvened.
Governor Young stated that he found it difficult to be
lieve that a purchase of government securities at this time would prove of value,
but he had an open mind on the question and believed that it would be desirable to
call a meeting of all the governors to consider the question.
After further dis
cussion the following resolution was passed.
The executive committee having reviewed the
general credit and economic situation at home and abroad
and believing it to be serious, with the consequences of
present tendencies impossible to foresee, it was voted
that there should be a meeting of the Open Market Policy
Conference in the near future to consider the wisdom of
granting such authority to the executive committee as
would prepare it to act in the further purchase of govern
ment securities if and when that might seem to be necessary
or desirable.
After discussion with Governor Meyer it was agreed that the meeting should
be called for Tuesday, August 11, in Y/ashington, at 10 a. m.
There was some general discussion of the attitude of bank examiners to
ward the treatment of bonds in the portfolios of member banks.
The meeting adjourned at 4{30.
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MINUTES OF THE MEETING OF THE EXECUTIVE COMMITTEE
OF THE OPEN MARKET POLICY CONFERENCE HELD AT THE
OFFICE OF THE FEEERAL RESERVE BANK OF NEW YORK
JUNE 22, 1931.
Tlie meeting was called to order at 11:10 a. m., there being present
Governors Young, Harrison, Norris, Black, and McDougal, Governor Meyer of the
Federal Reserve Board, and Deputy Governor Birgess.
Governor Harrison outlined developments in recent weeks in the interna
tional markets, and particularly in connection with the assistance required by the
Austrian Credit Anstalt, and the further succeeding developments in Hungary and in
Germany, and indicated that on Friday the Reichsbank reserve was close to its legal
minimum, that altogether the Reichsbank had sold us over $100,000,000 in gold, and
its total losses of gold and foreign exchange had been approximately $250,000,000.
It had begun a policy of credit rationing at home.
As a result largely of the
gold frcm Germany this country had gained $112,000,000 of gold since June 1, and
the total net gain since January 1 amounted to $298,000,000.
Governor Harrison stated that at the April meeting of the Open Market
Policy Conference all appeared to be in agreement that this country was receiving
gold which it did not desire, and which other countries could not afford to lose,
and that if possible we should find some way to avoid being in the position of re
ceiving this gold without allowing it to produce its usual effects in expanding
credit.
Since the April meeting incoming gold may be considered to have been
partly absorbed by currency withdrawals in connection with bank difficulties.
If
the influence of these currency withdrawals could be eliminated Federal reserve
earning assets would show a substantial reduction.
In other words, the gold has
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been to a degree sterilized, and the aim of the April meeting of maintaining earning
asset3 and putting new gold to work has not been fully achieved.
Governor Young objected at this point that he did not agree with the con
clusions of the April conference with respect to the sterilization of gold.
Governor Harrison, continuing, pointed out that the other aim of the
April conference was to reduce short money rates and thus encourage the shifting of
funds to employment in longer use.
Partly as a consequence of the action taken
there had been large and widespread reductions of rates paid by banks on deposits,
and in short time money rates generally.
He further stated that the events of the past two weeks were in some ways
the most critical which the world has passed through since the war, that there had
been a threat of a general moratorium and a possible breakdown of capitalism in
Europe.
In the meantime developments in South .America had indicated the danger of
a moratorium in certain countries there.
In these circumstances it seemed desir
able to take every possible measure available to the Federal Reserve System for
improving the situation.
but considerable advantage.
He could see no risk in buying governments at this time,
It was a particularly good tin®, because the improve
ment of psychology and the lift in the commodity markets and the security markets
following the announcement of the administration*s position as to reparations pro
vided an impetus toward revival which, with proper encouragement, might now bring
the turning of the tide.
As far as the bill holdings of the system were concerned Governor Harrison
stated that it would probably be somewhat easier to maintain these holdings because
of the fact that the Bank of France was allowing all its bills to mature*
since
these holdings constituted something like 25% of the total bills outstanding in the
American market, the release of these bills would provide a more ample supply, part
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of which would presumably come to the Reserve bank.
The Bank of France intended,
however, to increase its balances at the Reserve banks as its bills matured, an
action which would be a tightening factor in the money market.
It might be desir
able in the near future to make some reduction in bill rates since technically bill
rates were becoming out of line with other short term money rates.
In fact the
directors of the New York bank had already requested from the Federal Reserve Board
a lower minimum buying rate on bills, though there was no present intention of re
ducing the actual buying rate.
Governor Meyer reported that the statisticians of the Federal Reserve
Board computed that from $350,000,000 to $375,000,000 of currency was now hoarded
throughout the country as a result of banking disturbances since last autumn.
This represented an additional demand for Federal reserve credit which tended to
offset the effects of gold imports under the normal working of the gold standard.
A draft of the minutes of the meeting of the Open Market Policy Confer
ence in April was distributed and read by each of those present.
It was agreed
that these minutes should be sent out in their present form even though it was
somewhat more detailed than usual.
The secretary's report of operations in the System Account was received
and placed on file.
The memorandum submitted by the chairman was received and placed on file.
Governor Norris suggested that the two major objectives of the April
program were
(1)
to check gold imports, and
(2)
to drive down the interest rates paid on deposits by banks.
There had been great success in pursuing the second objective, though as
to the first we appeared to have gone as far as it was possible to go since gold
V
movements now appeared not to be due to interest rates but rather due necessity or
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due to thi6 Market being the safest place for funds*
Governor Harrison pointed out that the first objective of the April meet
ing was perhaps somewhat broader, and included a desire to make the incoming gold
effective and not sterilize it.
Governor Norris asked whether the real difficulty at present was not the
rates for money but lack of demand for credit from high grade borrowers while lend
ers were timid and hesitant with respefct to any other type of borrower.
Governor Harrison suggested that the pressure of excess reserves sooner
or later tends to overcome timidity.
Under the traditional gold standard the pil
ing up of fttnds in any country sooner or later operates toward an expansion of
credit which in turn is an influence towards raising the price level.
He hoped
that the purchase of governments might first avoid sterilizing gold, and might
second be a stimulus operating with other favorable recent events towards giving an
additional lift toward business recovery.
Governor Norris raised the question whether the system would not be
criticized for taking a step to make money still easier when it was already very
easy.
Governor Harrison suggested that the proposal simply recognized that in
coming gold would inevitably produce credit ease, and the effect of the action was
to bring somewhat earlier rather than later the normal effects of the gold movement,
and thus to avoid in part some of the serious effects on European countries of th©
loss of gold.
Governor Meyer suggested that other critics would say that by inaction
we were preventing the normal influence of gold.
Governor Black commented that the action taken at the April 29 meeting at
Washington was affirmative, in favor of positive action which was to continue until
it accomplished its results.
The methods to be followed were first the reduction
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of bill rates and second the purchase of governments*
The results hoped for were
a favorable psychological reaction, lower interest rates, and the prevention of the
sterilization of gold.
The first remedy, action through the bill market, appeared
to have been exhausted.
situation was worse.
Business had not shown any recovery.
The European
The remaining remedy was to buy governments which should be
done as a logical continuation of the affirmative policy.
The President, by his
announcement, had taken a constructive step which should be backed up to the limit,
and Governor Black believed that the purchase of governments would give this im
pression and have this effect.
Governor Meyer stated that the Federal Reserve Board would be sympathetic
to the purchase of Government securities,wouMhave seme preference for a larger
program of purchases than $50,000,000, and that the Board would regard this program
as simply discounting in advance the easing effect of the return of hoarded cur
rency when the period of apprehension was over.
Governor Young discussed the question of gold sterilization and indicated
that he believed that sterilization had been and was natural and inevitable under
the operation of the Federal Reserve System}
that the only way sterilization could
be stopped was to have continuously an excess of credit, but that any such excess
never lasts but is rather quickly absorbed through a reduction in Federal reserve
credit.
It is, therefore, impossible to prevent sterilization without adopting
the Macauley policy of buying an exceedingly large volume of government securities.
He agreed that something should be done to support the action of the President,
but did not believe that the purchase of $50,000,000 of Govtsmment securities would
accomplish this purpose.
He did think that there was a great opportunity to deal
more directly with the problem by some form of advance to Germany.
This might
mean announcing the advance on gold in transit, or announcing that we were pre
pared to make advances to the Reichsbank.
Such action would put the injection
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precisely into the place where needed.
Governor Harrison stated that it would hardly be appropriate to announce
the advance against gold since that was in the nature of temporary and ordinary
banking operation which would pass quickly# and moreover, might suggest weakness
on the part of the Reichsbank*
He said that there had not yet been any request
from the Reichsbank for a credit though word from abroad indicated that such a
request might come before long.
Governor McDougal stated that while he was impressed at the last meeting
by the considerations with respect to gold, he considered the domestic bank situa
tion the most important and pressing element in the situation, and speaking in
general he questioned the desirability of putting out more credit now that the
market is already glutted.
Following the Presidents announcementr however, we
have had an exhibition of the effect upon the state of mind of some positive action.
If purchases of governments would be received by the public as supporting the
Presidents announcement that would appear to him of great importance.
Governor McDougal asked what the prospective demands for credit from
Europe were likely to be, and Governors Harrison and Meyer reported recent communi
cations from Europe and indicated that any demands from Europe would be in suffi
ciently limited amounts as to constitute no strain upon the System and leave us
free to pursue the policy which seemed best from other points of view*
At 1:20 the meeting adjourned for lunch.
At 3:25 p. m. the meeting reconvened, there being present Governors
Young, Harrison, Norris, Black, McDougal, and Talley, and Deputy Governor Burgess.
Governor Harrison stated that the directors of the Federal Reserve Bank
of New York were unanimous in favoring the purchase of government securities, at
this timei
Governor Meyer joined the meeting at this pointy
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Question was raised as to the general effects of buying government
securities, on sentiment and otherwise, and there was also discussed the form
which publicity might take.
The general opinion was that probably no attempt to
explain the reason for purchases was desirable*
The action would probably be
interpreted as part of the general program.
Governor Harrison suggested that the attitude of the member banks toward
purchases of government securities had changed considerably during recent weeks and
that two New York City bankers had suggested to him the desirability of buying
governments as a means for aiding 1fte situation.
Governor Talley said that the purchase of government securities might
have
an important effect in helping banks to maintain their liquidity and so en
couraging them to use their funds courageously.
After some further discussion it was voted to buy up to $50,000,000 of
government securities with the understanding that there would be further conference
by telephone or otherwise between members of the committee before any purchases
were made beyond that amount.
Governor Young asked to be recorded as voting in the negative, and
Governor Norris did not vote.
The meeting adjourned at 4:12,
W, Randolph Burgess>
Secretary.
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i
MINUTES OF MEETING OF THE OPEN MARKET POLICY CONFERENCE
HELD a t THE OFFICES OF 1HE FEDERAL HESERVE BOARD
WASHINGTON, D. C., APRIL 29, 1951.
The meeting convened at 8:30 o»clock, there being present the followings
Governors Young* Norr.is, Fancher, Seay, Black, Geery,
McDougal, Martin, Talley, Calkins,
and Harrison, Chairman*
Deputy Governor Worthington*
The chairman presented the secretary’s report of open market operations
since the last meeting of the conference on January 21, 1931.
After considera
tion, it was
VOTED that the report be received and placed on file.
The chairman then stated that the attached report of the chairaian of
the conference, which had previously been read during the meeting of the governors’
conference, was before the open market policy conference for consideration.
There was a long discussion of the report by the various members of the
conference with particular reference to the present gold trends and the possibility
of making the gold standard work more effectively.
It was pointed ait that in
view of the present favorable trade balance of the United States, amounting in re~
cent years to about $500,000,000 a year, the only way in v&ich that trade balance
could now be paid for was by the shipment of gold since the foreign bond market in
this country was practically closed to any new issues.
As indicated in the report
of the chairman, this country has received over #400,000,000 of gold in the last
fiftean months.
This gold,, however, has not in any way reflected itself in tha
©
expansion of member bank loans and investments but rather has been utilized to re
duce the amount of Federal reserve earning assets*
To that extent it may be said
that the noxmal effects of the import of this volume of gold have been nullified*
I
*7 j
j
3(
3 3 3 ,~C
<5—
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The question which was discussed by the conference was whether there was any ap
propriate way in which the Federal Reserve System could take action in order that
any further gold imports will have their normal and natural effect upon the loans
and investments of member
banks.
Governor Harrison pointed out that this was one of the reasons which had
prompted the
Federal Reserve Bank of New York in recent weeks to reduce its bill
mates, hoping that by that action it would be possible to maintain or even in
crease the System’s bill portfolio in spite of the fact that gold is still coming
into the country.
He said that to have done nothing with the bill rates would
very likely have resulted in a rapid diminution of the bill portfolio of the system
as gold came in, not only thereby nullifying gold imports but liquidating the
System*s earning assets by a substitution of gold, of which we already have a
plethora.
Governor Harrison then said that it was the purpose of the New York
bank, if necessary, to reduce its bill rate as low as one per cent in the hope of
accomplishing its
objectives of maintaining or even increasing the b ill portfolio
in the face of gold imports;
that it was likely that next week or the following
week he vjould recommend a reduction in the discount rate.
The chief purpose of
this program was, he stated, not only to tend to reduce the amount of gold imports
or to make those imports that actually take place more effective, but also, by its
effect upon the short time money market, ultimately to make credit, of which there
is now plenty, especially in the big centers, more active and more widely distribut
ed.
It was felt that this policy sooner or later would necessarily, because of
its effect upon the short time money rates, encourage banks and depositors in banks,
in spite of their present liquidity, to employ their money, n&ich now is becoming
relatively so unprofitable.
More specificallyr he said that he hoped that this
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policy might encourage the New York Clearing House banks further to reduce interest
rates on deposits.
Win this connection, it seemed to be the general sentiment of the conference that one of the difficulties with the banking situation today is the con
sequence of the competition of banks throughout the country for increasing deposits
at unjustifiably higji rates of interest, and that any action which might encourage
a more general reduction in those interest rates could not but be helpful to the
banking situation as a whole.
Governor Harrison then said that if the policy
which the New York bank has adopted is to become completely effective it requires
System cooperation both in the matter of rates and in the matter of open market
purchases of government securities for with bill rates as low as they are, in the
event that the System’s bill portfolio runs off, even after rates may have been
reduced to one per cent, the only effective instrument which the System has left
to aid in maintaining the total volume of its credit outstanding is the purchase of
government securities.
He, therefore, recommended that the conference authorize
the executive committee of the conference, if and when it appears to them necessary
or advisable, to purchase up to $100,000,000 of government securities.
In making
this recommendation, he pointed out that it was not/the intention to purchase
government securities immediately but rather to attempt to carry out the policy,
first, through bill rates., second, through the reduction in disc cunt rate, and then,
if necessary, to resort to the purchase of government securities.^
^Governor Meyer was then invited to join the conference, and each member
of the conference, in turn, discussed this proposal*
Vi Governor Norris was of the opinion that the proposed policy might not
accomplish any great amount of goodj
that the System was in a strong position;
that there was little or no danger of speculation;
that he saw no probability of
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any bad results from the policy;
and that in those circumstances he was ready to
participate in the policy and to contribute by recommending a reduction in the
Philadelphia bank rate to three per cent.
His chief misgiving about the adoption
of the policy was the danger of a slowness in the reversal of the policy when that
might become necessary.
This was a danger to which all the members of the con
ference referred and which Governor Meyer stated he did not believe would be ex
istent in the present circumstances, especially in view of the fact that the country
would look upon a reversal of the policy as an evidence that the turn had come in
the business depression.
(^Governor Young stated that they are even now following the New York re
ductions in bill rates and in the past have followed in the reduction of discount
rates;
that he believes it is important to have harmony in the System;
and that
if New York reduces its discount rate to 1 1/2 per cent, he will recommend the
same rate in Boston.
He believes that it is inadvisable to buy more government
securities at the moment but that even so he would, of course, be willing to buy
government securities at the present time from any member bank that needed accommo
dation in that fashion.
He felt that while the program might be right or wrong,
the only thing to do, in view of all the circumstances discussed by the conference,
is to go through with it,
\vGovernor Fancher stated that the economic situation throughout the world
has seriously changed in the past year and is perhaps more serious than ever;
gold flow is most important;
program designed to check it.
the
and he said that he was willing to go along with any
He also agreed that the System can lend its efforts
to make money so cheap as to put it to work.
He stated that it was probable that
Cleveland would not reduce its discount rate but that the System cannot afford to
go along drifting in this extreme situation, and that he was, therefore, in favor
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of the recommended program.
(<Govern or Seay stated that he had no great degree of confidence that the
proposed policy will accomplish anything very definite or that business recovery
is dependent upon any further ease in credit.
He intimated that it was possible
that a further easing program might be construed as a move in the wrong direction
and as a policy of desperation.
He did feel, however, that any move that would
force banks to reduce rates which they pay on deposits is a most important one, and
that if the proposed program fafls in accomplishing that, the program itself would
fail.
He stated that if New York reduces its rate to 1 1/2 per cent, he would
recommend a reduction in tho Richmond rate to thrae per cent*
He felt, therefore,
that while the program may or may not accomplish good, it would probably have very
little risks attached to it, and that as far as possible the Richmond bank would
follow the program.
^Governor Black stated that, in his opinion, the present situation is
extreme and that it was important that we do something;
that there were only three
courses before the Systems
(1) that it should follow a policy of further pressure
by going up in its rates,
(2) that we should maintain the status quo, or (3) that
we should make further ease.
H& hopes and believes that the program recommended by
Governor Harrison will be effective, at least in part;
the gold which we have more useful;
that it would tend to make
and that it would tend to drive some short
time money to work, which is what the situation now needs.
He questions whether
f
the Clearing House banks in New York will further reducejtheir rates, but that
even so that should not deter us in the adoption of the program, which he is pre
pared to follow.
He said that the Atlanta bank would follow on bill rate reduc
tions but is not sure what the bank would do about discount rate, but that he is
determined to have the Atlanta bank follow the program as far as it can.
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(Governor McDougal stated that the gold problem, as discussed by the
conference, is an impressive one and should be corrected, if possible;
is the big question before us.
problem;
that that
The banking situation is also an outstanding
and that while he thinks money rates are now cheap enough and does not
see how cheaper rates will stimulate business, nevertheless it may serve to move
gold elsewhere.
In his judgment, there is no danger in the stock market but fears
that low or lower rates may lead banks to take imprudent steps.
He was not in
favor of buying governments at the moment but that if lower discount rates were
established in the Eastern districts, Chicago would probably have to follow,
lvGovemor Martin said that there is no historical precedent for the present
situation, and that it would, therefore, be difficult to predict the results of the
proposed policy.
He saw some objections to it but, on the whole, the majority of
reasons were in favor of it.
What objections there are he felt could be overcome
if we were prepared to go quickly enough to reversal.
He was in favor of trying
the experiment and said that St. Louis would follow with reductions in the bill
rates and probably with the discount rate.
IVGovernor Geary was somewhat at a loss to foresee the precise results of
the proposed policy but was willing to give it a fair trial at this time and was
willing to vote for it.
^Governor Talley stated that he still has confidence that gold will finally
express itself.
It always has in' the past sooner or later, and he said we are now
at a practical minimum of discounts and have only #180,000^000 of bills to be
absorbed.
If gold cones beyond that point, it will certainly express itself in the
country’s credit structure.
The proposed program would
bring this
event nearer.
He also agreed that the policy would tend to shove short time funds outside of New
York, though probably not into remote country districts.
In his judgment, there
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was some question whether it ?/ould be desirable to have the New York banks reduce
their interest rates further;
that it was more desirable, in his mind, for thpse
banks to send money abroad into short caanercial credits.
While somewhat appre
hensive about attempting the policy, he saw little anmunition loft, and he was in
favor of trying it.
((Deputy Governor Worthington said that while the Kansas City bank has felt
for some time that money rates have been too low and that there would be no revival
in business until rates
go up, nevertheless he sees no objection to the program
and that it was necessary, in his judgment, now to make some effort to overcame
present difficulties.
He sees no harm and possible good in the program and that
Kansas City would always cooperate with any plan approved by the conference.
\VGovernor Calkins said that he agreed with the desirability of harmo
nious action in the System but questioned how harmonious it would be unless a
program is agreed to without reluctance*
He is somewhat skeptical of the pro
posed program because of the fact that the present situation was so lacking in
precedents that it is not possible to compare it with the past.
Furthermore,
conditions are largely psychological and causes of it go away back to the war at
least.
He disagrees with the theory that small reductions in bill rates and
discount rates would stimulate credit or that it is possible to make the gold
standard work in any orthodox fashion when two nations have most of the gold*
He referred to the fact that the Federal Reserve System has already contributed
in a large measure to the mobility of credit because of the telegraphic transfer
system, and that indeed this system contributed largely to the inflation during
1928 and 1929.
The big question, in his mind, is whether we would be prepared
to correct or reverse tho policy if it proves to be wrong, but that San Francisco
will be prepared to follow and participate in the program, even though not with
the wholehearted acquiescence which he thinks so advisable*
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^Governors Moyer and Harrison then said that they did not have any
fixed certainty of the outcome of the procedure but that it was one in which
wc had little* if any* volition since it would be forced upon us by the
present gold movement sooner or later, in any event.
liAfter further general discussion and upon recommendation of Governor
Harrison, the conference
\VOTED
that pending another meeting of the conference, as soon as
that may be deemed necessary by the Federal Reserve Board or the members of
the conference, the executive committee of the conference should be author
ized, if and when it appears to them necessary or advisable, to purchase up
to $100,000,000 of government securities*^
Ghairmani
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TAT
,
MINUTES OF MEETING OF THE OPEN MARKET POLICY CONFERENCE
HELD AT THE OFJICES OF THE FEDERAL RESERVE BOARD
WASHINGTON, D. C., JANUARY 8 1 ^ 1931,
The meeting convened at 10:00 o*clock, there being present the
following:
Governors Youngj Fancher, Seay, Black, McDougal, Martin,
Geery, Talley, Calkins and Harrison, Chaiiman
Deputy Governors Hutt, Worthington and Burgess, secretary#
The preliminary memorandum submitted by the chairman and the report
of the secretary covering System operations in government securities were dis
tributed and read by those present.
It was moved and. carried that these re
ports be received and placed on file*
* Governor Harrison then reviewed for the conference his discussions
with European bankers and others and the impressions he gathered on his recent
European trip#
In the course of extended discussion of these matters Governor
Harrison pointed out that the world owes tho United States on balance about
#600,000,000 each year, and that payment has to be made in gold, in imports from
foreign countries to us, or by borrowing from us.
These countries were unable
to send us much more gold, their exports to us were now limited and now finan
cing curtailed.
Their only alternative was to diminish their purchases of goods
from us, which was now being done to our detriment.
He indicated that the people he met abroad appeared to bulieve that
recovery from the present business depression depends largely on America, part
ly for psychological reasons and partly because of the importance of exports to
us and borrowing from us.
Generally speaking he felt that tho economic situation of European
countries had grown distinctly worse since his visit last spring, and has
probably grown somewhat worso in tho weuks since his recent return from Europe#
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Aftur general discussion with regard to the foreign situation,
Governor Harrison referred to tiie reduction of the discount rate of the
Federal Reserve Bank of New York, effective liecember 24, 1930,
He indicated
that the banking situation was of primary importance in the decision.
He had
been urged from many quarters to make a reassuring statement which might aid
in quieting the banking situation.
Such.a statement was practically impossible
because to be strong enough to do any good it would run the risk of being contra
dicted by any small bank failure which might thereafter occur#
The rate re
duction, apart from other reasons, served as a method of stating to the public
that money was freely available.
by the money situation.
It would probably help the foreign situation as well
as the domestic situation.
to reduce her rate*
The rate reduction was justified technically,
Incidentally, it might make it easier for France
The discount rate decision had been made very rapidly,
and there had not been an opportunity to discuss the matter with most of the
other Reserve banks.
In fact* the proposal had only arisen after the meeting
on December 20 of the executive committee of the Open Market Policy Conference*
Governor Harrison referred to the holdings of sterling bills purchased
during the period of greatest weakness of sterling last autumn.
He said it
had been the intention to sell these bills some time after the turn of the year,
when it was hoped that sterling would be strong enough to make that an orderly
operation.
Recent weakness of sterling, however, has made this program seem
undesirable up to this time, and instead of the sale of sterling the directors
of the New York bank had voted at their last meeting to sell a part of the se
curities which had been added to the portfolio of the New York bank during the
recent banking emergency*
Governor McDougal commented on the recent discount rate change by
the Federal Reserve Bank of Chicago and indicated with regard to the last three
changes in their discount rate that in the case of the first two of these changes
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it had been hoped that the reduction in the rate would have some encouraging
effect upon business, but that the latest change had been made without any such
belief, but was designed to correct to some extent the large differential of
1 1/2$ between the Chicago rate and that of the New York bank*
Governor McDougal expressed the hope that there would be no further re
duction in the bill rate; that money was too cheap with Federal funds quoted at
1/4 of one per cent; and that it would be better for the market to get the
bills if it wanted them*
Governor Calkins suggested that the position should be one in which we
kept our bill rate low, but tried to correct any over-sloppy condition in the
money market by the sale of government securities*
Several of those present
concurred in this view*
There ensued a discussion as to the statement of facts in the prelim
inary memorandum submitted by the chairman, and Governor Harrison further re
viewed the changes in the money market since the last meeting of the Open Market
Policy Conference, pointing out that the seasonal expansion in the requirements
for Federal reserve credit up to the time of financial disturbances nad oeen less
than normal, and bill purchases appeared to be sufficient to take care of seasonal
needs without additional purchases of government securities.
This appeared to be
true 1 until the banking emergency when the New York bank had found it necessary
to take over securities from two member banks and at the end of tho year when pur**
chases were necessary in order to avoid too great tightening of credit due to an
unusual amount of ’
’
window dressing*” Purchases made for the open market account
had since been liquidated as had also $20,000,000 of the emergency purchases made
by the New York bank.
Since the turn of the year the return flow of funds ap
peared to have greatly aided the bond market.
cess
deal*
There had been a considerable ex
of reserves of the New York City banks, though this had fluctuated a good
It was the general plan of the New York bank to liquidate the balance of
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the temporary purchases of ^45,000,000 of securities, as the surplus of reserves
offered opportunity without interfering with the bond and money market.
It was moved by Governor McDougal that it was xhe sense of the confer
ence that the present was an opportune time to let government securities go from
the open market portfolio as and when it could be done without undue disturbance,
with the understanding that sales should not be made rapidly and should be made
in orderly fashion.
Governor McDougal explained this motion by saying that some
time ago System open market operations had followed a general principle which he
believed to be sound, and should be reverted to, that whenever the market is
ready to take bills and government securities the Reserve System should sell them,
and conversely, the System should acquire them when the market cannot take them
readily*
On this principle he would like to hold bill rates where they were to
push bills out of the System,
Governor Harrison coumented that if we sell governments' we should have
the bill rate at a point nearer to the market so that we might be ready to take
in bills without such a big penalty to the seller.
He would not favor any sales
of governments unless the bill window were opened to provide in this way any money
the market required.
There ensued a general discussion as to how a general policy might be
tr
stated in which Governors Harrison, Black, Young, and Seay participated, all of
them agreeing that a statement of policy as well as proposed action was important.
Governor Young stated that a sale of $50,000,000 or $60,000,000 of
governments might perhaps injure the bond market; that a eomercial banker who saw
a reduction in government holdings of the Reserve System would be inclined to sell
bonds.
In any event it was important to decide the general policy whether the
conference favored firmer or easier money, or the status quo.
Governor Black presented a substitute resolution to that of Governor
McDougal, the provisions of which were then discussed.
The morning meeting adjourned at 1:10,
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The meeting reconvened at 2:37, and after further discussion the follow
ing resolution was adopted by unanimous vote:
❖
The Conference has considered the preliminary
memorandum submitted by the Chairman and has reviewed
business and credit conditions as they now appear. It
is the sense of the Conference that in view of these con
ditions it should be the policy of the System to continue
an easy money policy in the best interest of trade and
commerce. It is the belief of the Conference, however,
that the seasonal return flow of currency and credit and
other factors have tended during recent weeks to make for
an undue excess of funds in the principal money centers.
It is therefore the opinion of the Conference that in these
circumstances it would be desirable to dispose of some of
the System holdings of government securities as and when
opportunity affords itself to do this without disturbance
or any (undue *) tightening of the money position. It is
understood that there shall be a new meeting of the Con
ference as soon as or whenever conditions in the opinion
of the Conference or the Federal Reserve Board justify a
reconsideration of this policy."
'
this word later omitted
While this resolution was being typed, Governor Harrison reported brief
ly his appearance before the Senate sub-committee investigating monetary problems#
At 4:30 Governor Meyer and Messrs. Hamlin, James, Miller, and
Goldenweiser, McClelland, and Smead joined the meeting.
Governor Harrison reviewed the discussions of the Conference, read the
preliminary memorandum of the chairman, and the resolution stating the findings
of the conference.
He also reported the action of the directors of the Federal
Reserve Bank of New York in voting to sell $35,000,000 of government securities
out of the emergency purchase made during December, of which amount $20,000,000
had already been sold.
Mr. Miller inquired whether the banks of other districts than New York
had surplus reserves.
Governors Young and McDougal replied that the banks in
the Boston and Chicago districts did not have surpluses*
Mr. Miller inquired
how surplus reserves were to be interpreted, and Governor Harrison replied that
; they appeared to indicate first, little demand for funds by borrowers, and second,
\ \ reluctance to employ funds.
lie stated that the New York banks were in a very
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liquid position, their per cent of liquid assets being as high as perhaps ever
before.
Governor McBougal stated that the three largest banks in Chicago showed
a very liquid statement, probably never exceeded in liquidity.
Governor Harrison said that the recent test in New York of the ability
of certain banks to stand losses of 30$ to 50fo of their deposits raised the
question of the desirability of the Federal Reserve System having power to dis
count notes secured by listed bbnds under proper safeguards.
He believed such
a provision might make it much easier to deal with cases of banks facing runs.
Mr. Miller suggested that the banking situation might be suffering just
now from excessive caution and excessive desire for liquidity.
Governor Harrison
replied that that was one reason why our easy money policy had not proved more
effective.
Governor Meyer suggested that money was not really easy until last
summer, and that the expected good results from easy money had been interrupted
by bank failures and other difficulties,
Mr. Miller referred to a memorandum which he had received relating to
the possible use of Clearing House certificates and discussing the liquidity of
the city banks, which was then read by the assistant secretary of the Federal
eserve Board,
Governor Meyer stated that the banking situation was at present the
primary thing to consider, and that whatever policy was adopted should be adopted
with that in view.
He suggested that bill maturities would respond to changes
in the money market, and would act as a buffer in taking up surplus funds.
Any
proposal for the liquidation of governments should consider the present extra
ordinary reluctance of banks to show bills payable.
The present banking situa
tion was so delicate that it could be easily disturbed.
Governor Harrison pointed out that the resolutions of the conference
represented a compromise since some of those present were in favor of considerable
sales of securities, while others were only in favor of such moderate sales as
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might be necessary to take up some of the slack.
Governor Meyer suggested that
any move which the Federal Reserve System made in its automatic assets immediate
ly put the acts of the System on the skyline where they were subject to observa
tion and criticism.
—
Governor Harrison indicated that he would not be content with even
the proposed moderate program of sales of governments unless the buying rates for
bills were nearer to the market rate, as bills coming back to the System would
act as a safety valve in case too much funds were withdrawn from the market.
!J
Mr. Miller stated that the banking situation was now more important
than the credit situation, and asked what the governors wure planning to do in
different districts if further banking trouble started.
The Federal reserve
bank is the normal place of leadership, and plans should be developed to keep
any bank with good resources from suffering.
Governor Harrison outlined a method which had been devised in New York
to deal with any banks which might hereafter be in trouble.
At this point Governor Harrison left the meeting.
Governor Meyer stated that a reduction of bills and discounts of the
System did not involve tho launching of any major policy, whereas the sale of
governments is commonly interpreted as a major move in Federal reserve policy.
The Reserve System has been accused in a number of quarters of pursuing a de
flationary policy in the past year, and a sale of government securities at this
time is likely to draw fire.
In this situation it would appear most desirable
to avoid a move which appears to represent a major change in policy when there
is no necessity for doing it.
Governor Young said that those present would certainly not favor any
program which they believed would affect bank confidence, or that was a new and
major change in policy.
Government bonds had first been bought under an emergency,
and their purchase had proved helpful, but there was a limit to what the System
could do in buying bonds.
Some sales would put the System into a position to go
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back into the market and buy again if it is necessary.
Governor McDougal pointed out that no one present was desirous of dump
ing securities in the market, but they favored a program that would be worked out
gradually,
Governor Calkins stated that he believed the word "undue" should be
omitted in the phrase "any undue tightening of the money position."
There seemed
to be general sentiment in favor of this suggestion.
Governor Meyer stated that in this position the Board has an apparent
responsibility to the country; that the world was now in the worst economic con
dition that he had ever seen.
There had been the worst breakdown in credit
conditions which he had witnessed.
The present situation in Germany and
Australia in which a nation’s credit was at question being cases in point.
employment, unrest, and discontent were severe.
Un
Under these circumstances every
thing which the Federal Reserve System does which is or may be interpreted as a
move in major policy is on the skyline.
Governor Calkins stated that the proposal was not considered as a major
change in policy, that his idea was that a beginning of sales might be made by
letting February 16 maturities of Treasury bills run off.
It could not be con
sidered a major change in policy because it provides specifically for the "con
tinuance of an easy money policy."
The meeting adjourned at 6:15*
W. Randolph Burgess,
Secretary,
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MINUTES OF THE MEETING OF THE EXECUTIVE COMMITTEE OF THE
OPEN MARKET POLICY CONFERENCE HELD AT THE OFFICES OF THE
FEDERAL RESERVE BOARD, WASHINGTON, D. C., DECEMBER 20, 3,930.
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The meeting was called to order at 10:30 a. m . , there being present
Governor Meyer and Messrs. Hamlin and James of the Federal Reserve Boa^d.
Undersecretary Mills
Mr. McClelland
Governors Young, Harrison and Fancher, and
Deputy Governors McKay and Burgess, secretary.
At 10:40 Messrs. Goldenweiser and Smead entered the meeting, and at
10:45, Governor Norris.
Governor Harrison reported concerning the developments in recent weeks
in the New York banking situation, including a review of the events preceding the
failure of the Bank of United States, and of the events since that time affect
ing other institutions.
He indicated that on Saturday, December 13, when one of
the large institutions in New York was having heavy withdrawals of currency, the
Reserve bank had purchased from this institution about $40,000,000 par amount of
government securities in order that that bank might acquire sufficient reserve
funds without unduly increasing its borrowing.
These securities were purchased
for the account of the Federal Reserve Bank of New York as a temporary emergency
purchase.
Governor Harrison then reviewed his European trip and his conversations
with representatives of central banks and others in France, England, and Germany.
At 12 p. m* the representatives of the Federal Reserve Board and Mr.
Ogden Mills retired from the meeting which reconvened with Messrs. Young, Harrison,
Norris, Fancher, McKay, and Burgess present.
Governor Meyer rejoined the meeting at 1:00 o ’clock.
The preliminary memorandum dealing with the credit situation was dis
tributed and read by those present.
ensued.
An informal discussion of the memorandum
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^Governor Harrison then summarized the credit position, indicating that,
owing to some tenseness in the banking situation, the public state of mind was now
more sensitive than when the program of the Open Market Policy Conference meeting
on September 25 had been adopted, which provided for a possible purchase of up to
$100,000,000 Government securities if necessary, as a supplement to bill purchases,
to prevent any tightening of the money market due to seasonal or other causes.
It was his view that if there was any difficulty in securing an adequate amount of
bankers acceptances to take care of all seasonal needs for the next ten days, the
committee should be prepared promptly to buy governments rather than have any in
crease in nervousness arise from any indication of strain in the money situation.
This question was then discussed by the members of the committee.
In
the course of discussion reference was made to the banking situation at different
important centers, the probable currency and window dressing demands‘over the
first of the year, and problems which had arisen in connection with some discrim
ination against certain names existing in the market for bankers acceptances.
Those present agreed that if any real need arose they would be willing
to leave it to the judgment of the Federal Reserve Bank of New York whether some
additional amount of government securities should be purchased within the
|100,000,000 authority with the understanding that the New York bank would keep
in close communication with the members of the committee.
With reference to the question as to whether any governments purchased
at this time or other governments in the portfolio should be sold after the turn
of the year, while it seemed to be the sense of the committee that this would
prove undesirable or difficult in all the circumstances, it was agreed that a
meeting of the open market policy conference should be held early in January to
consider future policies at that time.
January 12 was suggested as a satisfactory
date.*
The meeting adjourned at 1:15 p. m.
George L. Harrison,
Chairman.
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KflTOfflS OF THB MEETING OF TEE O M H KAHKET POLICY COMPERJMCE
iTOT.-n AT THE OFFICES OF THE FEDKRA1 RESERVE BOARD, WASHINGTON, %. C.
SEPTEMBER 25 , 1830
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The meeting was called to order at 10:30 a. m., there being present
Governors Harrison (chairman), Young, Norris, Fancher, McDougal, Black, Martin,
Bailey, Geery, Talley and Calkins, and Deputy Governors Peple and Worthington,
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Governor Harrison referred to the discussion which had taken place th^
\
day before at the conference of governors with respect to th® procedure followed
by the open market policy conference since the last meeting of the conference in
June, and suggested, as had been the sense of the governors conference, that the
procedure to be followed by the open market policy conference should be one which
contemplates the formation of a general System policy by the whole conference with
a mandate to the executive consaittee to execute the policy so as to attain the
objectives agreed Upon by the conference.
Such a procedure would avoid the neces
sity of -casing a new meeting of the whole conference except at such times as
consideration of a change of general policy appeared to be necessary either to the
Board pr to th© members of the conference'*
At the same time it would empower th©
executive committee to take such steps as might be deemed necessary by it to
execute the policy without the steed for calling a meeting of the whole conference
whenever it might be necessary to buy or sell securities in order to carry out the
policy agreed upon.
Ihile nofoimalvote was taken it appeared to be the sense of
the conference that this would be the most practicable procedure to be followed in
the formation and execution of open market pq^icies of the System.
1>overnor Harrison reviewed the status of foreign accounts with the
Federal reserve banks, and poin$Qd out tbe changes which had taken place since the
last meeting of the conference*
pe also discussed the general position of the
various central banks of issue abroad, calling attention to the fact that th© gold
reserves of most of those banks have not only increased in percentage but in actual
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|dlount during tho past year.
The increase in the reserve percentage of most of
these foreign institutions is due not only to an increase in the actual gold
supplies of the respective banks but also to a very substantial decrease in note
and deposit liabilities, the decline ranging in most cases from 25$ to 50% from a
year ago.
He pointed out that this, of course, reflected the depression in busi
ness flnri trade which exists in those countries and throughout tho world.
This
depression was further evidenced by the figures which were presented to indicate
1 the substantial decline in both the export and import trade of most every one of
i^the principal countries in Europe, South America, and the Far East.^
The report of the aecretary of the open market policy conference outlining
all of the operations for the System account since the last meeting of the confer
ence, which was submitted to the members of the conference the day before, was
considered and by vote of the conference was accepted and placed on file.
The preliminary memorandum dated September 23, 1930, which had also been
submitted to the conference the day before by the chairman was then discussed at
some length and by vote of the conference was accepted and placed on file.
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Governor Harrison then stated that it was in order, on the basis of the
facts submitted in the preliminary memorandum, ^s well as in the discussion of all
of the governors, to consider the formation of an open market policy for the System,
it being pointed out that at the present time the conference has authority to pur
chase not to exceed $50,000,000 in order to maintain the present easy money
position.
The question before the conference was whether there should be a change
in this policy and if so what that change should be.
*Governor McDougal stated that he believes it to be important that the
executive committee should have^power to operate, that is^ authority both to buy
and sell government securities, when nocessary.
Hfe added, however, that in his
opinion money conditions in the principal centers are now too easy and that this
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was probably largely due to the operations of the Federal reserve banks in the open
market, but that he would not at the moment favor the sale of any government
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securities.
Ho felt nevertheless that it might be advisable to allow some of
the System’s holdings of bills to fall off.
Governor Young stated that this
could probably bo dono only by increasing the acceptance rate.
Both Governors
McDougal and Norris felt that there might be some advantage in a slight increase
in tho bill rato.
Governor Harrison mentioned, however, that any such action
would necessarily have a tightening influence and that such action should be
made dependent entirely upon whether or not the System was to agree upon a
general firming money policy.
Governor Norris, after a brief discussion of his
views with regard to open market policy, read to the conference & memorandum
which he toad prepared and which he stated had been approved by his directors.'*
After discussion of this memorandum, upon the suggestion of Governor Young, it \
informally agreed that it. should be made a part of the record of the con
ference.
A copy of that memorandum is hereto attached.
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Before adjournment for luncheon, Governor Harrison stated that he
hoped that after lunch the conference would be prepared to vote on a definite
open market policy for the System, that is, (1) whether the System should lend
its influence towards further easing of the credit situation, (2) whether it
should seek to maintain the status quo, or (3) whether it should decide upon a
firming money policy.
At 1:15 p. m. the conference adjourned to reconvene at-2:30 p. m.
At 2:30 p. m. the conference reconvened (with Governors Bailey, Black
and Talley absent) and continued its discussion of the business and credit
situation in relation to the System’s open market policy.
'Governor Fancher said that while credit and money rates were very
easy in the larger cities in his district and in his opinion perhaps a little
too easy, he did not think that now is a time to sell government securities.
Governor Calkins in summarizing the situation said that he would not be in
favor of any further easing at this time nor would he be in favor of any
tightening, that while money rates are now very easy, nevertheless it was his
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judgment that this is not the time to change tho System policy and that he favors
maintaining the status quo*
Mr. Peple said that he and Governor Seay, who
could not be present at the conference, were in substance in favor of the views
expressed by Governor Calkins. Governor Geery agreed with Governor Calkins, but
said that he would prefer to see member banks borrow a. little more from the
Federal reserve banks before any purchase of securities was undertaken.
Governor
Young stated that, in his opinion, credit conditions are very easy but that this
is no., time to attempt any change, that he favors maintenance of tho status quo,
and that in order to execute such a policy he feels that the System should be
in a position either to buy or sell securities.
It was his judgment, however,
that there would be no real opportunity to sell securities until the turn of
the year when the normal return flow of credit and currency would perhaps
afford appropriate opportunity for some sales of securities.
Mr. Worthington
stated that Governor Bailey was of the opinion that some action toward firming
would be wise when possible but that the question of time was the important
factor and that the turn of the year would probably be the right time to take
such action.
Governor Harrison stated that he was in agreement with what
appeared to be the opinion of tbs majority of the members of the conference,
that quite regardless of the past, the present policy of the System should be
to maintain the present easy money position in the principal money centers and
that while the System should be prepared to buy or to sell government securi
ties in order to maintain that position, nevertheless there appears to be no
reason at the present time either to buy or to sell.
He then outlined a report
with recommendations which he submitted for the consideration of the conference
and after some discussion (during the course of which Governors Talley and
Black rejoined the meeting), the open market policy conference voted to approve
the following report:
"The Open Market Policy Conference has considered the
preliminary memorandum submitted to it by the chairman and has
reviewed at length general business and credit conditions.
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"In view of the continued sever© depression in busi
ness activity, trade, and commodity prices in this country, as
well as the rest of the world, it is the sense of the conference
that it should be the policy of tbe System, so far as possible,
to maintain the present easy money rate position in the principal
money centers, it being the opinion of the conference that under
present conditions no further easing of such money rates would
be advisable and that no firming of such rates would be desirable
whether because of seasonal requirements, gold exports, or other
auses. /ITTsT^herefore, recommended that the executive comndttiin&o authorized, if necessary, to supplement bill purchases
by the purchase of government securities in tho event that the
seasonal demand for Federal Reserve credit, gold exports, or
other factors should tend unnecessarily to tighten present money
rates, and that in the event that any conditions should develop
which would require sales of government securities to execute
this policy, the executive committoe should be authorized to
make such sales. It is understood, however, that if the com
mittee should have to buy or sell more than $100,000,000 of ^
government securities to maintain the status quo, new authority
should be procured in accordance with the prescribed procedure.
"It is recommended that there should be another meet
ing of the Open Market Policy Conference early in January, unless
a change in conditions suggests to the Board or the members of
the conference the advisability of an earlier meeting." ^
Governors Me Dougal and Calkins voted in the negative and Governor
Talley asked to be recorded as not voting.
Governor McDougal explained that he
voted "no" on the ground that he thought some firming of rates might be advis
*
able at this time.
Governor Calkins explained that his negative vote was based
upon the fact that authority to buy or sell up to $100,000,000 rather than
$50,000,000 might be construed as a further easing policy rather than a policy
to maintain the status quo inasmuch as the committee now has authority to buy
v\^upjto only $50,000,000.
The open market policy conference adjourned at 5:30 P» m. to meet in
joint conference with the Federal Reserve Board and the conference of Federal
Reserve Agents.
The meeting reconvened at 3:45 p. m. with the Federal Reserve Board
and the Federal Reserve Agents.
Governor Hairison reported in some detail the discussion of the members
of the open market policy conference concerning present business and credit
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conditions in relation to tho System’s open market policy, and after summarizing
tho viev/s of different members of the conference, he reported the action taken
by the conference, recorded above.
Governors McDougal and Calkins explained
their reasons for voting in the negative and Governor Talloy stated the reasons
why ho had asked to be recorded as not voting.
There ensued a general discussion of credit policies in which ono of
e members of the Foderal Roserve Board asked whether the conference had con
sidered the advisability of a very much more active open market program involving
substantially larger purchases of government securities with a view to forcing
upon tho country a more active use of credit through the stimulus of such purchases
of securities by tho System.
Governor Harrison explained that that had not been
considered specifically because of the fact that the majority of the conference
felt so strongly that there is no need for any further easing of the present easy
money rate position at the pro^ont time.
The meeting adjourned at 4;45 p. m.
George L. Harrison,
Chairman.
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MINUTES OP THE U W f i m OF THS EXECUTIVE C<B®UTTSB
OF THE OPEN MARKET POLICY CONFERM C E
HELD 12? THS OFFICE 0? THS fEDffiAL RESERVE BOJRD
WASHINGTON, D. C., JUNE 23, 1930,
The meeting was ealled to order at 10:40 a* b u , there being present
Governors Harrison {chairman), Norris, P&ncher, McDougal, and
Deputy Governors pstddock and Burgess (secretary)*
A preliminary memorandum reviewing credit conditions, and the secretary* s
report were submitted to the meeting*
Governor MeDougal expressed his desire to explain to the committee the
reasons underlying Chicago*s participation in the last purchase of Governments,
even though as a member of the committee he had opposed the purchase*
He expressed
the opinion that when the transaction was under consideration there was a surplus
of available credit; that money rates were low, and in his opinion too low, and
consequently he had voted accordingly*
Subsequently it was concluded that not
withstanding the action referred to, Chicago would accept its participation in the
purchases because of a desire to support the majority of the committee in so far
as possible*
Governor McDougal further stated that under conditions now current,
rather than to further increase the System* s holdings of securities, he would be
willing to lot the market have a part of the present holdings of the system, and,
furthermore, would favpr letting acceptances go to the investing public where they
are in great demand, even though the System* s holdings mi git be materially reduced*
Governor McDougal then moved that no further purchases of Government
securities be made for System account at tbis time.
Governor Harrison stated that the occasion for the meeting was to review
the results of purchases of $50,000,000 of securities in the first two weeks in
June and to determine whether the executive canmittee desired to recommend any
further action to the Open Market Policy Conference,
Ho then reviewed recent
,
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developments in business and in the banking situation* pointing out that the busi**
ness situation appeared to be growing worse rather 'than better* that eatports aI>e
still falling off, that ecueaodity prices continue to decline and that there was
as yet no definite indication of a turn for the better.
He stated that it was the
view of the directors of the New York bank that the Reserve System should continue
to do everything possible to establish money conditions which would be favorable
to the recovery of business* and particularly which* would provide an ample supply
of funds for the bond market and thus afford means of distributing capital to
those businesses and sections of the world where purchasing power for our surplus
goods is now seriously curtailed*
The recent purchase of government securities
had been followed by seme further easing of money rates and by some improvement
in the bond market* though that market was not strong and was having difficulty
in meeting fully the demand for capital funds for business use.
This purchase of
securities had* however* been largely offset by a decline in the bill holdings of
the Reserve System, and it had become clear that in order to keep some surplus
supply of funds in the money market and thus stimulate the bond market it would
be necessary to continue the purchase of Government securities further*
Harrison stated that the directors of the New York Reserve Bank
Governor
voted at their
last meeting that in their opinion further purchases in the amount of about
$25*000,000 a week should be continued*
Governor Fancher left the meeting at lit30 and returned about 12; 15*
Governor Norris stated that the directors of his bank were opposed to
any further purchases of Government securities*
He indicated that in his view
the current business and price recession was to be ascribed largely to over-pro due**
tion
and excess productive capacity in a number of lines of business rather than
to financial causes, and it was his belief that easier money and a better bond
market would not help the situation but on the contrary might lead to further in~
creases in productive capacity and further over-production#
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Governor McDougal*s motion was then carried by a vote of four to one:
that it was the opinion of the executive committee that it was not desirable at
this time for the Federal Reserve System to undertake any further purchases of
Government securities for System account at this time.
Governor Harrison voted
in the negative.
Question was raised as to whether it would be desirable to distribute
realized profits held in the Open Market Investment Account at the end of the half
year rather than waiting until the conclusion of the year as had been voted at the
Governors Conference in the autumn of 1929.
It was agreed by those present that
it was not desirable to make any change in the procedure agreed upon at that time
inasnuch as keeping the profits undistributed for the calendar year made it possibl
to average out profits and losses.
Governor Harrison raised the question as to
what would be the policy of the System in case it was found that discounts of the
System began to increase accompanying a continued seasonal decline in bill holdings
It was agreed by those present that any considerable increase in discounts should
lead to a further consultation as to the policy to be pursued, since an increase
in discounts was not desirable at this time.
The meeting adjourned at 1;35|># m.
During lunch at the Hotel Washington at which all members of the
committee were present the earning position of the different Reserve banks, as
shown by a tabulation of actual figures for the first five months and estimated
figures for the last seven months of the year was discussed.
It was agreed by
those present that it would not be desirable to have a general redistribution of
security holdings in the System account, in view of the fact that most of the
Reserve banks would prohably show a loss in their operations for the year, and any
distribution would simply operate to reduce the deficit shown by one bank at the
expense of increasing the deficit shown by another bank.
Those present, there
fore, agreed that the distribution of purchases of bills and governments should
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continue to be made on the same basis as in recent months; that is, on the basis
of the size and general earning requirements of the banks as determined by their
expenses, dividends, and charge offs#
The meeting reconvened at 3:35 p. m. with the Federal Reserve Board,
there being present
Vice Governor Platt and Messrs. Hamlin, James, and Pole, and hlso
Messrs. McClelland, Smead, and Carpenter* and
For the committee, Governors Harrison, No iris, and Fancher, and
Deputy Governors Paddock and Burgess.
Governor McDougal found it necessary to take an earlier train.
Governor Harrison reported the findings of the Conference, stated the
position of the New York bank, and summarized the views of the other members of
the committee.
These views were further amplified by Governor Norris, Governor
Fancher, and Mr. Paddock.
There ensued a general discussion.
Mr. Platt submitted to the meeting a letter dated June 16 from Governor
Calkins, a copy of which is attached herewith*
The meeting adjourned at 4:30 p. ia*
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FEDERAL RESERVE BANK OF SAN FRANCISCO
Juno 16, 1930*
Mr. Roy A. Young,
Governor, Federal Reserve Board,
Washington, D. c.
My dear Governor Young:
Recalling somewhat late a remark you made to the
effect that when a bank disapproves of the recommendations
of the Open Market Policy Conference it might properly advise
the Board as to the reasons for its disapproval, I think I
may briefly summarize our reasons for not participating in
the |50,000,000 Governments recently purchased as follows:
a* With credit cheap and redundant we do not
believe that business recovery will be accelerated by making
credit cheaper and more redundant.
b. We find no reason to believe that excessively
cheap money will promote or create a bond market, seeing
evidence in the recent past to the contrary, and, further, do
not consider the promotion or creation of a bond market one
of the functions of the Federal Reserve System*
c* We believe that there may come an opportune
moment to put money into the market when that action will
have a beneficial effect and feel that if, at such a time,
our open market portfolio of Governments is excessive there
may be hesitation to increase it.
There is much more that might be argued, but I have
endeavored to summarize briefly.
Yours very truly,
(s)
Jno. U. Calkins,
Governor*
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minutes of the meeting of t h e o pe n m ar ke t p ol ic y conference
HTCT.n a t THE OFFICES OF THE FEDERAL RESERVE BOARD
WASHINGTON, D* C., May 21 and 22, 1930,
The meeting was called to order by Governor Young at 10:40 a# m.
H
^->30
The following were present:
From the Federal Reserve Board,
Governor Young and Messrs. Cunningham, Hamlin, James,
Miller, Platt, and Pole.
Frcm the Federal Reserve Board’s staff,
Messrs. Goldenweiser, McClelland and Staead.
From the Federal Reservo Banks,
Governors Harrison, Norris, Seay, Black, Fanchor, Geery,
Martin, Talley and Calkins, and Deputy Governors Burgess
and McKay.
Dr. Goldenweiser presented the facts as to the recent credit situation.
Governor Young asked the Conference to consider whether or not it was
desirable to hold a Governors Conference in the near future.
Governor Young reported informally on the discussion of the Federal
Advisory Council with, the Federal Reserve Beard on May 19.
Governor Young reported that the Open Market procedure as amended by the
meeting of Governors of the Reserve banks on March 25 had been submitted to all
the Reserve banks and t&at they had all indicated their willingness to participate
in accordance with the suggested procedure.
The New York bank had accompanied its
acceptance with a letter explaining its interpretation of tho proposed procedure.
A copy of this letter was distributed to the Governors and is attached herewith.
In view of the acceptance of the procedure by all Resorvo banks which was approved
by the Federal Reserve Board, Governor Young indicated that this meeting might be
regarded as tho first regular meeting of the Open Market Policy Conference.
Governor Young indicated that a number of suggestions had come informally
II
before the Federal Resorvo Board from various quarters, including the following:
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1. A sale of securities for the purpose of checking
speculation, improving bank earnings, and aiding the liquidation
of security loans,
/
2. A sale of $200,000,000 of Government securities to
bring about an adjustment of System earning assets so that re
discounts might be approximately equal to the total of Government
securities and bankers acceptances held, this salo of securities
to be simultaneous with reductions in the discount rates of a
number of the Reserve banks.
3. One Reserve bank in order to increase its earnings was
considering the desirability of its buying for its own account
in the market $500,000 a month of Government securities,
4* A proposal to purchase Government securities and reduce
, / discount rates to secure a deliberate inflation of credit for the
benefit of business, particularly through the bond market,
5. To do nothing now but to be prepared to meet autumn
seasonal requirements for Federal reserve credit (computed at
between $350,000,000 and $400,000,000) by purchases of Government
securities and increases in bill holdings.
There followed a brief discussion of the implications of the findings of
the last meeting of Governors on March 25,
Governor Young indicated that he had
hesitated to vote favorably on the New York application for a three per cent
discount rate because of the position of Governors at that meeting on M&rch 25.
Governor Harrison indicated that the Now York Reserve bank ho was sure did not
want to be in a position of feeling that they were violating the spirit of the
findings of the Open Market Policy Conference in making a change in disccunt rate
following such a conference, particularly when a number of ?/eeks had elapsed after
the conference.
The decision as to discount rates he regarded as primarily the
responsibility of the boards of directors of tho rospective Reserve banks subject
to the review of tho Federal Reserve Board, and he did not believe the action of
the Open Market Policy Conference should be regarded as in any way restricting
freedom of action on discount rates,
A number of othor governors indicated their
agreement with Governor Harrison’s statement.
rmr
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At 11:45 the representatives of the Federal Reserve Board re'tired from
the meeting and the Open Market Policy Conference reconvened by itself.
The action taken in the organization of the Conference at the meeting pja.
March 25 was reaffirmed both as to the election of the representative of the Hew
York bank as chairman of the conference and as ex-officio chairman of the Executive
Ccouiittee, and as to the appointment for one year of an executive coe^ttee composed
of the representatives of Boston, Philadelphia, Cleveland, Chicago and New York
banks.
It was agreed that in following the principle of reasonable rotation in
the membership of the executive committee, there should be sufficient flexibility so
that the committee should not be made up altogether of new members and should be
fairly representative of different sections of the country and various interests*
Mr. Burgess was elected secretary of the conference for one year,
Mr. Harrison explained the considerations which had led to the calling of
the Co&f^rence indicating in particular that he desired an opportunity to report to
the othejp Governors concerning his recent trip abroad, and also that a full dis
cussion of the credit situation seemed desirable prior to the beginning of the
vacation season.
Governor Harrison then gave a full Report of his trip ta Europe, of the
point of view with regard to the credit and business situation held by the heads of
bank* of issue of different countries, the developments with regard to the gold
position abroad, and with regard to the establishment of the Bank for International
Settlements and the extent of its relation to the banks of issue, and in particular
to the Federal Reserve System.
In the course of the discussion Governor Harrison emphasized the worldwide
nature of the recent price declines and business depression, and indicated the in*fluence of this world depression upon the position of the United States as reflected
In part by the fact that this country’s export trade for the first quarter of this
year was about 22 per cent less than in the like period of 19£9 and the import trade
was approximately 20 per cent less*
While the worldwide depression appeared in
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part to be due to an over-production of certain principal conmodities it also
appeared to reflect a shortage of working capital, and thus a restriction of pur
chasing powerf. in a number of countries, and had been affected by the stringent
credit conditions prevailing last year in world money markets which in turn were in
part a reflection of the use of funds for speculation centering about the New York
security markets but worldwide in its scope*
The recovery of world trade appeared
in turn to be in no small degree dependent upon the restoration of purchasing power
through the medium of foreign borrowings in the New York money market, just as the
recovery of domestic trade appeared to be much dependent on the new financing for
domestic enterprise in the United States.
Before the adjournment of the morning meeting the Conference voted it to
be the sense of the meeting in response to the specific inquiry made by Governor
Young that in view of the full discussion of business and credit conditions had a.t
this meeting there was no need for holding the usual spring conference of governors*
The morning meeting adjourned at 1:15 p. m.
At 2:30 p. m. the Conference reconvened, all of the Reserve Bank repre
sentatives being present except Governor Black who joined the meeting at about 3
p. m.
Governor Harrison continued his discussion of the European situation and its
relation to business and credit conditions in the United States.
There were distributed to the meeting and reviewed the preliminary memorandum of the Chairman, the Secretary’s report, and a copy of a letter of May 15
from Mr. Case to Governor Young giving the New York Reserve Bank’s interpretation
of the Open Market Policy prodeeure reviewed to March 25.
There was further extended discussion of the procedure of the Federal
Reserve System in its relationships with the Bank for International Settlements.
Those present indicated that they were in agreement with the policy and procedure
adopted by the directors of the Federal Reserve Bank of New York, first in passing
upon any question submitted to the New York bank by the Bank for International
Settlements, in accordance with the terms of the statutes of that institution,
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and second, in giving the Federal Reserve Board an opportunity to dissent frcm the
conclusions of the directors of the Federal Reserve Bank of New York as to any
major operations which might affect credit conditions in the country at large.
Those present further agreed that it would be impracticable to attempt to submit
questions of this sort to the other Federal reserve banks for their views*
35iere ensued a general discussion of the credit situation and the dif
ferent proposals which had been made for Federal Reserve action, and there was
a discussion by different governors present both as to the degree of the severity
of business depression and the extent to which it would be wise for the Reserve
System to go in throwing its influence towards easy money and an abundant supply of
credit.
In the course of the discussion Governor Harrison reported that in a
number of recent weeks the Federal Reserve Board had failed to approve without
delay applications of the Federal Reserve Bank of New York for a lower raininum buy
ing rate on bills, and that for considerable periods the New York bank had therefore
been without any downward flexibility in its bill buying rate as was the case at
that very time.
After discussion it was the sense of the governors present that
the minimum buying rate for purchases of bankers acceptances approved by the Federal
Reserve Board should always be at a point which will give flexibility in the bill
operations of the Federal reserve banks.
The discussion reverted to the question which had been raised by Governor
Young concerning the relationship between the findings of the Open Maifet Policy
Conference and discount rate action by the several Federal reserve banks, and the
following motion was adopted:
The conference voted to go on record that reconmendations as to the dis
count rate of any Federal reserve bank or Federal reserve banks are not within its
proper province and that the directors of any Federal reserve bank must be free at
any time to change the discount rate of their bank subject only to the review and
determination of the Federal Reserve Board.
■BMMapa
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The letter of May 15 from Mr. Case to Governor Young giving the New York
Reserve Bank’s interpretation of the Open Market Policy procedure, revised
to
March 25, was read, and it was generally agreed that this interpretation of the
procedure was not in anyway inconsistent with the sense of the meeting of March 25.
Governor Harrison reported that the Federal Reserve Bank of Kansas City
had requested the allotment of an additional amount of $10,000,000 of Government
securities in order that its volume of earning assets might be sufficient to assure
an amount of earnings adequate to cover expenses and dividends.
A discussion ensued
in the course of which it waa reported that a number of tho Reserve banks did not
at that time have sufficient earning assets to cover completely their expenses and
dividends, and that a redistribution of Government securities to one Beserve bank
b
without a full consideration of the requirements of all mi$it result in possible
unfairness.
It was, therefore, agreed that the figures for each Reserve bank should
be assembled as of the end of May with a view to determining the results of opera
tions of the first five months with respect to earnings, expenses, and dividends,
and an estimate be then made of the probable results for the balance of the year on
the basis of which new ratios of allotments of securities micbt be determined and
necessary readjustments in the Open Market portfolio effected.
^—
With regard to the suggestion of one of the Federal reserve banks, that
I
it be permitted to purchase government securities for the purpose of supplementing
its earnings, it was the sense of the conference that the supplementing of income
of a Federal reserve bank is not a proper reason for the purchase of governmeaarfr^s^
securities.
With regard to the policy to be pursued to meet fall credit requirements,
it was th© sense of the conference that, in view of the uncertainties as to credit
conditions, it is too early at this time to formulate definite plans as to the
means to be used to provide Federal reserve credit to meet autumn seasonal require
ments.
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The meeting adjourned at 6:15 p. m.
The meeting reconvened at 10:00 ft. m. on the morning of May 22, there
being present»
Governors Harrison, Norris, Seay, Black, Fancher, Geery,
Martin, Talley and Calkins, and Deputy Governor McKay.
The action taken on the preceding day as it had been formulated in a
series of motions was reviewed and approved by those present.
After a further review of the credit position the following minute was
adopted:
The Conference has considered a preliminary memo
randum reviewing domestic business and credit conditions and
has discussed at length the present trends in world trade,
cormeree and comaodity prices. Particular consideration was
given to the rapidly declining volume of our export trade
and its probable relation to the decline in commodity prices
in this country.
It appears to the Conference that conditions in
business, agriculture and trade are still seriously depressed,
not only in this country but evidently throughout the r$st
of the world as well. It is the sense of the Conference
that these conditions merit continuous careful observation
by the Federal Reserve System in order that the System will
be prepared to act promptly in the event that conditions
further develop in such a way as to make action seem advis
able.
In the present circumstances, however, it does Inot)
appear to the Conference that any affirmative reconsnendation
as to Open Market operations is advisable iustljiqw. But "Tt
is the sense of the Conference that if the situation so de
velops as to require an Open Market operation by the System
the members of the Conference will be prepared to reconvene
or else, if a meeting of the whole Conference is not prac
ticable, to act promptly on recommendations of its Executive
Committee.
At 11:00 a. m. the Conference met with the Feioral Reserve Board, there
being present, in addition to the above, the following:
Governor Young and Messrs. Cunningham, Hamlin, James, Miller
and Platt,
and Messrs. Goldenweiser, McClelland and Smead.
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The Chairman of the Conference reported on the action taken by the
Conference in the matter of its organization.
He also read to the meeting the
motions passed by the Conference with regard to
(a)
(b)
(c)
(d)
(e)
the spring Governors* Conference,
the minimum buying rate for bills,
the relation of action of the Conference
to discount rates,
the purchase of Government securities to
supplement earnings, and
the policy with respect to meeting autumn
credit requirements.
The minute with respect to business and credit conditions adopted by the
Conference was then read to the Federal Reserve Board and discussed fully.
The
advisability of the immediate purchase of Government securities was raised by a
member of the Federal Reserve Board, frcm the point of view of seeing to it that
the Reserve System did everything in its power to remove every possible restraint
of business as far as credit was concerned, and particularly as to the desirability
of an active bond market.
The query was also raised as to whether any formula
could be found for the desirable total amount of Federal reserve credit which
might be a guide for open market operations*
In commenting on the minute submitted by the Conference Governor Harrison
indicated that he believed the possible necessity for the purchase of Government
securities might become imminent at any time.
The meeting adjourned at 12:30 p. m.
¥/. Randolph Burgess,
Secretary.
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15, 1930
Dear Governor Young:
The directors of this bank have considered the Federal Reserve Board’s
letter of March 31, 1930, together with the enclosed draft of open market procedure
as revised on March 25, 1930, and have voted that this bank accept participation
in the open market policy conference under the terms of the proposed plan as they
interpret that plan*
In considering the plan of procedure it has seemed to our directors that
there may be some possible ambiguity with regard to the extent to which the proposed
procedure is applicable to Federal reserve bank transactions in bankers acceptances
and our directors interpret the revised plan as not establishing any different
procedure with respect to bill operations than has existed heretofore*
Operations in bankers acceptances are, of course, governed by a technique
quite different from operations in government securities.
Whereas the volume of
purchases or sales of government securities may be determined directly, the volume
of holdings of bankers acceptances on the other hand is subject largely to a rate
control which must be adjusted promptly from time to time to changing market condi
tions, and therefore does not subject itself to determination in advance by an open
market policy conference.
We are mentioning this matter now only because of our desire to avoid
any possible misunderstanding in the future, and to make sure that the plan suggest
ed is not intended to set up any new procedure with regard to bill operations.
Faithfully yours,
(Signed)
Honorable Roy A. Young,
Governor, Federal Reserve Board,
Washington, D. C.
J. H. Case,
Chaiman.
@FedFRASER