The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
r
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Form F. R. 567
END SHEET
V
K IND OF MATERIAL OR NUMBER
333 . - l >
na m e
Open Market Investment Committee
Open Market Operations
or s u b j e c t
DATES ( I n c l u s i v e )
1926
PART NUMBER
Part 3
-
-l
1927
Reproduced from the Unclassified / Declassified Holdings of the National Archives
w o as, in?.
D M
x
Kr. t a M t
I?** qonfl*»tlal lotto? Of the
latioa to opoainartcst oporauoat ilaoo
lottor to d o m tm r lw m $ dotod D§oo*fcor I3iht mm
this ■oming and I food i t to tho aoafcoro of th*
Board at oar noott&g this morning. Tfcoro wao favorable ooamtnt I say tor on th* statoaaat that |om do
not aatlcipato any ohango la jour program outlinod
i» s®w lettor to Oownor Ifcang.
Tours w r y truly.
Vico Governor.
Ur. J . H. C*so, Dijwity Ooyoiuor,
Federal Reserve Bonk;,
H w York, N w fork.
o
o
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority'E
Jk
Dear Governor P l a t t :
S in c e my J^ a st l e t t e r to Governor Young uofifir..d a
b er IS ..
IS 27 k n e r e h a s been [no] i n c r e a s e in th e ^ar v alu e or th e h o ld in g s o f Governs e c u r i t i e s in th e S p s c io l Ac conn
i'n ere hai? e , how ever, in coi-in 0 c t ion
w ith th e December 1 5 , 1927 o p e r a tio n s been some changes m tiie m a t u r i t ie s ot
th e i s s u e s h e ld .
T hese chan ges w ere, f o r th e most p a r t , caused by supply
in g th e f i s c a l ag en t c f th e B r i t i s h Government w ith th e $ 9 2 ,0 0 0 ,0 0 0 . odd o f
T reasu ry N otes due December 1 5 , 13 &7 to oe used Dy them in making th e payment
to t h i s Governm ent, and a t th e same tim e a c q u ir in g from th e s e f i s c a l a g e n ts
a l i k e amount o f o th e r s h o r t-te r m n o t e s .
E v ery th in g worked a cco rd in g to
sch ed u le w ith one e x c e p tio n , th at, i s , one o f th e fo r e ig n c o rre sp o n d e n ts a t
th e l a s t m inute d ecid ed to r e in v e s t th e amount r e a l i s e d from th e m aturing
n o te s in b a n k ers a c c e p ta n c e s which l e f t u s toith $ £ G , 0 0 0 , 0 j 0 . o f s h o r t d ated
Government s e c u r i t i e s due March 1 5 , 19&8.
T hese .were p la c e d te m p o ra rily
in ou r own in v estm en t a c c o u n t, o v er $ 4 ,0 0 0 ,0 0 0 having s in c e been so ld and &e
e x p e c t to d is p o se o f th e b a la n c e s h o r t ly d i r e c t l y to th e T re a s u ry , o r to
o t h e r s , i f f a v o r a b le o p p o rtu n ity o c c u r s b e fo r e th e T reasu ry i s p rep ared to
ta k e them u p .
Our lo a n s to member banks on th e f i f t e e n t h showed a s l i g h t re a u c
tio n but w ith th e c o l l e c t i o n o f th e income ta x ch e ck s tn e New York C ity in
s t i t u t i o n s have s t a r t e d borrow ing again on a r a t h e r la r g e s c a l e , and t h e i r
lo a n s now stan d some $ 5 0 ,0 0 0 ,0 0 0 . h ig h e r than th e y were a ^eek ago.
How
e v e r , d e s p ite th e f a c t t h a t shipm ents and earm arking o f g o ld d u rin g t h i s
movement have co n tin u e d and now re a c h a t o t a l o f about $17fa,0 ^ 0 ,0 0 0 , accom
p an ied by th e u su a l seaso n ax Qeiuano i o r c u r r e n c y , • th e volume o t i? eciei a l r e
se rv e c r e d i t in u se th u s f a r h a s been due to th e in c r e a s e in ou r lo a n s w ith
o u t f u r t h e r p u rc h a se s o f Government s e c u r i t i e s beyond th e $ 4 5 ,GOQ,Gj O. p re
v io u s ly r e p o r te d .
Q o il money to —
day i s 4 l/2/b and w h ile we e x p e c t t h a t th e r e *ibe a tem porary h ard en in g in money r a t e s w ith in th e n e x t few days w ith c a l l
money p o s s ib ly going to 5% o r h ig h e r , we a n t i c i p a t e no change in th e prog ran
o u tlin e d in my l e t t e r to Governor Young o f l a s t week.
fo u rs,
f v .
J.
L i. G ni:L
A ctin g Chairm an, Open M arket
In v e stm e n t Committee
h on orab le Edmund P l a t t ,
V ice G overnor, F e d e ra l h eserv e Board,
W ashington, D. C.
»
*
'A '/ : ?
.
_______ __ . _ _.......
wiuuu flusasri:
A TBO A RD IfifflH BBO 1
DC 22 1927.
E
Reproduced from the Unclassified I Declassified Holdings of the National Archives
Dooosfoor 18, 1927*
D t Mr* Gato«
m
1
iMroaght to tho attoation of tho Federal Reoenro
Board yoitorday 3
rtaigLl»»tor of DoaoriwrJtaSliJ adrtata*
th at to ta l
m tho ro eoat noronaat hafo aow reaahed «a aggrogato of #148,000,O O
Of
with farther aatloipated ohlgamtft th is week of 114,000,000*
hot th at m additional o ff tottin g purohaoet of OoveraaiBt
•ooaritioo ikifi %o*a aade hoyaad tho *46,000,000 provioaoly
1*0parted*
tho Board «*• lafeeroatod ia yoor dlooaooloa of tSio
prohafelo woaoy aarfeet iitn a tle a ia oonneotioa with tho
DoMfcor 13th froaoary operations, «ad X aao reqaeoted
t t adrioo you of the Beard*• ooaftarreaoe in tho opiate*
of y*»r direotor* th at i t aigfet ho woll to lo t yoar
— » it beako barrow aay additiaaal fteado th at may ¥•
aoodod rather thaa to aaiertafce to oa«o tho oitaatioa
tqr aakiag fo rt her parehaoeo of «eearltiee*
Very traly yoar*.
▲ Totiag,
«
Qorernor*
E*
ir * J . H* Caoo, Depwty Oororaor,
Federal fleverve Baak,
loir York, *«?•
Reproduced from the Unclassified I Declassified Holdings of the National Archives
d e c l a s s if ie d
Authority
------
/ V
>
/
I
y
FEDERAL. RESERVE BANK
i
OF NEW VORK
/ /
December 13, 1927
CONFIDENTIAL
Dear Governor Young:
In Governor Strong*s absence, I shall be glad to undertake to keep you
informed regarding any changes in the Open Market Investment Account and to
furnish you with such information as may have a bearing on the status of the
account*
Additional shipments and earmarking of gold on the recent movement have
now reached an aggregate of $148,000,000, with further anticipated shipments this
week of $14,000,000.
No additional offsetting purchases of Government securities
have been made, however, beyond the ^45,000,000 previously reported.
The recent ease in call money has in part been due to the rather un
expectedly large redemptions of Second Liberty Loan bonds called for payment
November 15, with a resultant overdraft of #57,000,000 now being carried by this
bank.
This overdraft will be further augmented, on Thursday, December 15, when
the maturing 4jr% Treasury notes will be presented here for redemption,
at which
time the overdraft, we estimate, may run as high as #150,000,000 or thereabouts.
With the receipt and presentation of the income tax checks, this overdraft should
be materially reduced from day to day until about Tuesday, December 20, when, by
reason of a call from depositary banks, it is anticipated that the overdraft will
be wiped out and the Treasury again have a normal balance.
During the last ten
days in December, we anticipate that the usual holiday currency withdrawals and the
usual year-end nwindow-dressing1 on the part of banks throughout the country, will
1
cause money to be in good demand and that, temporarily at least, call money rates
may range from, say, 4^% to 5/b.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
d e c l a s s if ie d
Authority
.^rfiRVE
BANK OF
12 /1 3 /2 7
Governor Young
NEW YORK.
As you know, th is situ a tio n was discussed with our d ire c to rs when you
were here in the bank two weeks ago, and the prevailing opinion was and i s th a t
i t might be well to l e t our banks borrow any additional funds th a t may be needed
(which we estim ate may run as high as from $ 1 00,000,000 to #150,000,000) ra th e r
than to undertake to ease the s itu a tio n by making fu rth er purchases of Government
i/
s e c u r itie s .
There w ill be an unusually larg e volume of tran sactio n s in connection
with the Treasury’ s turnover fo r December 1 5 , perhaps the prin cip al one having
to do with our furnishing the f i s c a l agents of the B ritis h Government, from our
open market p o rtfo lio , with $92,5 7 5 ,0 0 0 of the 4^% U. S. Treasury notes due
December 15, 1927, which, in tu rn , are to be used immediately by the f i s c a l agents
in making payment to the U. S. Treasury.
W have agreed to take over from the
e
f i s c a l agents, in replacement, a lik e amount of other short-term Government paper.
This tran sactio n i s being made in order to sim plify the Treasury’ s borrowing
program as of December 1 5, 1927.
The foreign exchanges continue strongs
s te rlin g has maintained i t s p osition
a t high le v e ls , today’ s cable quotations being 4 .8 8 5 /1 6 .
Very tr u ly yours,
J . H. CASE,
Deputy Governor
Honorable E. A. Young,
Governor, Federal Reserve Board,
Washington, D. C.
d e c l a s s if ie d
Authority'.
DwmAey U,
IHT«
Vm* Hr* HarrliMttt
.
**
£*
* 1 iirt ffw
*
/
^MWtt
t o th *
Of t h * B o ard , who feat** & t* d w ith i n t* r e « t
0
whrnt yo* h ttf* t * nay re g a rd in g th * re d u c tio n
« f ou r g o ld *asp *rt j> *iat« t * w t o i # B u rop ***
oa*m fcrl«a.
T**y tvmly your**
I» A» Touag,
0*V*f9MWf ♦
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Bu
t
Im
b
, D.jwty S m r w r ,
fltlil H*i * y y Bank.
I** T*rk< V*T*
Reproduced from the Unclassified I Declassified Holdings'of the National Archives
^
DECLASSIFIED
Authority
K B W
I
SPECIAL CIRCULATION '
Readpromptly, initial a^d rstuhh TO ,fp ErARy.s 0 W I
Mr. P la tt C -X
McInt0£
OF
NEW
3
YORK
3f 3
*
•December 5, 19£7.
Dear Governor Youngs
Supplementing the le t te r s which I d ictated on Saturday but
which has not been mailed u n til today, concerning the changes in our
gold export p oin ts, you may be in terested to know th a t because of the
approach of the guilder to our outgoing point Dr, Vissering has ar
ranged with us to ship $4,00 0 ,0 0 0 in gold coin to the Netherlands
Bank on Saturday of th is week, December 10,
Since the guilder has not as y et reached the export point,
i t would not be p ro fitab le as a commercial tran saction to ship gold to
Holland.
But the arrangement made by Dr. V issering is somewhat in
lin e with the usual policy of the Netherlands Bank to lim it gold move
ments to and from Holland to tran saction s with the Netherlands Bank
rath er than with the p riv ate banks i f i t is possible to do so.
Even
when exchange ra te s have in the past warranted the shipment of gold
from Holland as a commercial tra n sa ctio n , the Netherlands Bank has
generally undertaken to make the shipment themselves rath er than to have
the shipments made by p riv ate banks.
Very tru ly yotfrs,
RGILL. HARRISON,
Deputy Governor.
honorable R. A. Young,
Governor, Federal Reserve Board,
Washington, D G.
„
a a ■ c- *
;
DEH 1 2
■
X)
Reproduced from the Unclassified / Declassified Holdings of the National Archives
' d e c l a s s if ie d
Authority'.
N
j
3 33,
Federal R e s e r v e B ank
o f
N
ew
Y
l
o r k
December 3, 1927.
/
(kfrdwi
Dear Governor Young:
As you no doubt have observed the pound sterling closed last niffht
at $4.88 5/52 the highest it has been since December 1914.
opened at $4*88 l/&.
This morning it
Guilders which, not many weeks ago, approached our
import point of 40*07^ have advanced steadily since the increase in the dis
count rate of the De Nederlandsche Bank oft October l£, 19^7 and closed last
night at 40.42 3/4.
Other Contiaental exchanges are also strong.
As a result of this more or less general rise in the exchange value
of foreign currencies much discussion has been heard of late as to the possibility of our losing gold to Europe.
This is particularly true of England
and Holland concerning which there has been much newspaper comment in the last
several days.
In the circumstances you may be interested in knowing what we estimate to be the present outgoing gold points as revised to meet the recent
reduction in eastward freight rates.
In the case of London the freight rate
is now .15% in place of the 3/8$ heretofore prevailing.
Prior to the reduc-
tion we figured that the outgoing point to London was $4.89 3l/3<i.
We now
figure it to be $4.88 7/8 so that this morning's opening for sterling is only
3/4 of one cent under the outgoing point.
Our export point to Holland has also been reduced owing to lower
freight rates and is now 40.49^ rather than 40.58jzf prior to the change in
those rates.
So also for the same reason we have had to lower our outgoing point
to Germany from 24.02jzf to 23.97g<.
http://fraser.stlouisfed.org/
L
Federal Reserve Bank of St. Louis
The mark this morning opened at 23.89 l/2f*.
l /
Reproduced from the Unclassified / Declassified Holdings of the National Archives
" “^ ^ D E C L A S S IF IE D
Authority
I
FEDERAL
RESERVE
BANK
OF
NEW
hK
Z ............ G
------
o v e r n o r
Youn^
The strength in sterling at this season of the year is unusual
and has been difficult to account for except by an accummulation of factors
such as the delay in the production and export of cotton and an appreciable
shift in the financing of cotton from the sterling draft to the dollar draft.
It is also likely that speculative short covering of sterling has played some
part in its strength during the fall months.
But even with its increasing
strength we 'have not thought in the past few weeks that we would lose gold to
London believing that it would not have sufficient momentum to reach the
export point from New York before some of the sterling drafts drawn to export
cotton and other commodities from this country begin to mature.
In the past few days, however, we have had inquiries from some of
our New York banks as to the possibility of their purchasing sovereigns from
us.
As you perhaps know we hold about L 500,000 in sovereigns.
It is our
opinion that we should be willing to part with them for export to London only
at a price which when the coin is melted down in London would yield a return
the exporter of about the equivalent of what the bars would yield if bought
in New York and sold in London at the present buying rate of the Bank of
England.
We have therefore informally indicated that we would sell the
sovereigns at a price of $19 an ounce ll/l£ fine which would net us a profit
of some $7,000 on the total amount.
This profit results from the fact that
we bought the sovereigns by weight less a slight discount for the loss which
usually results from melting any coin which has been circulated.
The price which we have quoted means that it will not be orofitable
to buy them for export until sterling reaches the same point that
it profitable to export bars, $4.88 7/8.
Would make
It is likely, however, that if
sterling does reach that point sovereigns would be taken in preference to
bars owing to their immediate availability in London,
Reproduced from the Unclassified I Declassified Holdings of the National Archives
“ — ^DECLASSIFIED
Authority
FEDERAL
RESERVE
BANK
OF
N E W ^ .I
k
.
...3..
Governor Youn^
1//7
262
For your information I cu enclosing a table showing the various
n
fa c to rs taken into consideration in figuring the present export point to
London.
Please l e t m know i f there are any questions which occur to you
e
concerning which you would lik e our fu rth er views.
Very truly^yours,
GE(JIGE L. HARRISON,
Deputy Governor.
Hon. R. A. Young,
Governor, Federal Reserve Board,
Washington, D. G.
d e c l a s s if ie d
Authority'.
EIJGLAUD
QUR GOLD EXPORT POINT
U.S. $18.949181735 (Selling £rice)
<0070^
.0035
.1500
.0425
.0889
*0009
£3.8875 (Buying P^ice)
- U. S.°|4.87438
Packing in New York (#3.50 per #50,000)
Trucking in lew York (3i£ per $1,000)
Freight (ll 0/00)
~ '
Insurance (4 l/4£ per $100)
Ihterest (8 days at 4% on 1OOJ0
JJnterest (8 days at 4% on 1%)
y s s s a * /
U.S. §4.87438
X
.2928% a
Expenses. . . U. S..
.01427
U. S. $4.88865
Gold Export Point . . . .U.S. $4.88865
(Say $4.88 7/8)
^ *¥
V
jjovember 29, 1927
Reproduced from the Unclassified I Declassified Holdings of the National Archives
--------d e c l a s s i f i e d
Authority
------
December 2, 1927.
Dear Governor Young:
Since writing you on November 25,\ the anticipated firming of call
money rates has taken place.
As I explained to you yesterday, this is due
partly to the heavy calls made upon depositary banks by the Treasury, and
partly to the continued outflow of gold.
Total shipments and. earmarking of
gold on this movement now amount to $123,500,000, while the total of Government
securities purchased as an offset amounts to $44,000,000, leaving a net
balance of |S4,500,000 against which no purchases have been made.
As you know, in our talk yesterday we pretty generally agreed that,
under existing conditions, there is at the moment no occasion for making
further offsetting purchases of Government securities.
The $4,000,000
purchased during the past week represents a single block of Treasury paper
due December 15, which we took over from a foreign correspondent.
There will, of course, be some necessary shifting about incident
to the December 15 Treasury operation.
For instance, at the request of
the Treasury Department we are proposing presently to sell, from our Open
! S
•
‘
\
^ Market Investment Account and from holdings for account of foreign
*
I
CZ
J■ £. S
correspondents, as nearly as may be $92,000,000 of the
notes maturing
December 15, 1927, to the fiscal agents of the British Government for its
payment to our Treasury on December 15.
We shall, at the same time,
acquire in their stead a like amount of other maturities.
This program
will enable the Treasury to reduce its current borrowing requirements by
/)ff J L e J Z l *
^ 3 3/
' v>
I1
Reproduced from the Unclassified / Declassified Holdings of the National Archives
~
“
declassified
Authority'.m
>
FEDERAL
RESERVE
o
m
jr
BANK O F
NEW YORK....
Governor I
ig
1 2 /2 /2 7 ,
the amount of December 15 paper turned in on account of the B ritish debt
payment.
I am inclined to think th a t i t may be desirable to have a meeting
of the Open Market Investment Committee within the next two or three weeks,
and I am asking Sir. Case to arrange th is with you during my absence from
the bank*
Very tru ly yours,
Ik
m m .
st.
Chairman, Open Market
Investment Committee*
Honorable R. A* Young,
Governor, Federal Reserve Board,
Washington, D. C.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
-------- DECLASSIFIED
Authority
------
Ai.
Office CorrespbnJek.ee
5j g v 2 8 1 1
1
9
FEDERAL HESS
BOARD
T o — Govemc^ Young____
Ffom_Mr* SMftd-------------
,
|
—..-Datejjjoyember 28. 1927p
Subjects -Am
ount of gold that could be
^
exported -without causing a shortage
of gold in the Ufciited States.
I have read Governor Strong*s very in te re stin g l e t t e r of November 21 I
regarding the amount of gold whicii the federal toserve " oank s 'ooul a i o s ? 1^ r ------ 4
1
export purposes without causing a shortage o f gold in the United S ta te s , and
have examined the statements enclosed with hie l e t t e r which were prepared by
h is Beports D ivision.
O of the statements in d icates th at the System could lose 993 m illions
ne
of gold fo r export purposes by the purchase of a corresponding amount of United
^ S ta te s s e c u ritie s , as compared with a to ta l o f 782 m illions given in my memorandum
> of November 4 . M memorandum did not matoe any allowance fo r increased note c i r
y
cu latio n and d ep o sits, being based on the condition of the Federal reserve banks
on November 2; nor did i t contemplate any change in present operating methods,
under which the Federal reserve barks hold in th e ir own v a u lts , secured by
c o lla te r a l pledged with the agen ts, about 400 m illions o f unissued Federal reserve
n otes. She ITew York calcu latio n made an emergency allowance of 235 m illions fo r
additional note c irc u la tio n and d ep osits, but did not provide fo r the 400 m illions
of c o lla te r a l required against Federal reserve notes held by the reserve banks,
i . e . , i t provided fo r c o lla te r a l against notes in c ir c u la tio n instead o f notes
outstanding. Neither did i t provide fo r a 35-m illion 5 per cent gold redemption
fund Which the Federal reserve banks would have to ca riy against 700 m illions o f
paper-secured n o tes.
I f the Hew York memorandum had made allowance fo r 400 m illions o f co l
la t e r a l against unissued notes held by the reserve banlssand fo r 35 m illions in
the gold redemption fund, i t s figure would have been reduced by 435 m illio n s, or
from 993 m illions to 558 m illio n s; while i f we had made the emergency allowance
of 235 m illions fo r the additional note c ircu la tio n and d ep osits, our figure would
have been reduced from 782 to 547 m illio n s. The two ca lcu la tio n s are su b stan tially
reconciled as follows:
(In m illions of d o lla rs)
33E YO K FIGUHB.......................................... 993
W H
Deduct gold required as c o lla te r a l fo r 400 m illions of
unissued notes held by
F. S. banks . . ............................. 400
Deduct 5% gold redemption
fund against 700 m illions
of paper-secured n o t e s ......... 35
435
3TOf YOBK FIGUM a d j u s te d .................. 556
O B FIGUBE.......................................... 782
U
Deduct emergency allowance fo r additional:
Note c ircu la tio n . . . . 200
Deposits .........................J3 5
235
Q H FIGURE a d ju s te d .................. 547
U
I f gold exports were to be o ffse t by member bank borrowings and by b i l l
purchases, the lim itin g fa c to r would be the 40 per cent reserve against note
c ir c u la tio n (plus the 35$ deposit re se rv e ), since discounts and b i l l purchases
would replace the gold c o lla te r a l withdrawn fo r exp ort. When, however, United
S tates s e cu ritie s are purchased to o ffs e t gold exp o rts, the lim itin g fa c to r is
the requirement for c o l l a t e r a l , as pointed out by Governor Strong, since the
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority
-
2
-
securities are not eligible to replace the gold collateral withdrawn for export.
Inasmuch as, under the law, collateral is required for the total amount of notes
outstanding, not the amount in circulation only, it would seem that the figures
given by New York should be reduced by 435 millions, or from 993 to 558 millions.
Of course, the amount of unissued Federal reserve notes held by the Federal reserve
banks could possibly be reduced from the present figure of 400 millions (the New
York bank alone holds 120 millions), with a corresponding release of gold for
export, although it should be noted ttat this amount of unissued notes is close
to the average held in recent years in the reserve banks* vaults.
The second table prepared by New York is based on the assumption that
1 billion of gold is withdrawn from circulation in exchange for a like amount of
Federal reserve notes, and indicates that of the 2,033 millions of gold that could
then be withdrawn from the System for export purposes, 1,040 millions would have
to be released by the Federal reserve banks through the discount or purchase of
eligible paper, leaving a maximum of 993 millions, as in the first calculation,
that could be released through the purchase of United States securities.
This table, like the preceding one, is compiled on the basis of
collateral requirements against notes in circulation, rather than notes out
standing, and like the other one it makes no provision for the 5 per cent
redemption fund against paper-secured notes outstanding.. Furthermore, it
assumes that about 1 billion dollars of gold could be withdrawn from circulation,
although there is considerable doubt about the feasibility of this as only 1,068
millions of gold certificates were in circulation on November 1.
Assuming that 1 billion of gold could'be withdrawn from circulation,
but basing our calculations on notes outstanding instead of notes in circulation,
and making provision for the gold redemption fund, we find that of the 2,033
millions of gold exportsf 1,553 millions would have to be offset by eligible
paper and only 480 millions could be offset by security purchases. 2he differ
ence of 513 between our result and New York*s represents the 400 millions of
additional paper that is required to cover the unissued notes held in the
bank’s vaults and 113 millions of paper to replace the gold which would have
to be carried by the banks against paper-secured notes outstanding. This
difference is brought out in detail in the following comparison of New York’s
calculation and ours:
p**""----------------------- -
; -------------------------------: '■ --------------— "=
Reproduced from the Unclassified I Declassified Holdings of the National Archives
1
-------DES.ASSIFiED
Authority
- 3(In millions of dollars)
m s YO K
R
OR
U
U
FIG RES FIG RES
U
F. R. note c i r c u l a t i o n ............................ . . . . . . .....................
(1700 + 1000 to replace gold + 200 emergency allowance)
D e p o s its .................. ..................... ..................... ...............................................
(including emergency allowance)
2,900
2,900
2,450
2,450
F . R. bank reserves a f te r withdrawal of 1,000
from c i r c u l a t i o n ..................................... ................................................
Gold exports . . . . ...................................................................................
4,050
2,033
4,050
2,033
...............................
2,017
2,017
Reserve required:
Against F. R. note circu la tio n - 4 0 $ ................................... .... .
Against deposits
- 35$ . . ...................................
1,160
857
1,160
857
2,017
2,017
Reserves a f te r exports
. . . . . . . .
Total
C o llateral required ag ain st:
Uotes in circu la tio n . . ......................................................................
Hotes outstanding . . . ......................................................................
E lig ib le paper required as c o ll a te r a l :
ITow a v a i l a b l e ............................... ............................................... ....
Addi t i onal requi rement .............................................................................
Total
Gold exports ........................................ ............................................................
Amount to be o ffse t by discounts and b i l l purchases . . . .
3,300
. . . . •
1,160
1,047
700
1,040
700
1,553
2,900
Gold reserve available as c o lla te r a l ............................... « . . .
(The New York figure includes and ours excludes 113
m illions of gold required to be maintained by the banks
as a redemption fund against paper-secured notes)
Amount that can be o ffse t by secu rity purchases
2,900
3,300
2,033
1,040
2,033
1,553
993
480
Reproduced from the Unclassified / Declassified Holdings of the National Archives
,-i-i
i
M dear Governor YjfliogPlattG *
y
'
!/v\^y
Referring to the l a s t paragraph of your l e t t e r of November 161 the
Treasury overdraft together with the November 15 financing undoubtedly haa
had a tendency to rath er sharply ease the money market.
Our la rg e member
banks today were about ninety m illions over in actual reserves although only
about six m illions over in average.
This situ atio n should co rre ct i t s e l f in
a few days as withdrawals of Government deposits and th e ir disbursement in
payment of Second L ib erty bonds subject the la rg e amount of deposits to the
usual reserve requirements when no longer held by the Government.
W are
e
making no fu rth er purchases of s e c u ritie s and probably will not do so un til
the tru e position of the money market i s c le a re r.
Very tru ly yours,
Honorable Ft. A. Young,
Governor, Federal Reserve Board,
Washington, D. G.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
/ •/
Hovembar 25, X92f
Dear Governor
S tr o n g
t
% aeknowledg* reooipt of and havo brought
to th© atten tio n of th© other tfesiber* of the Qpard
nrho ar© here today your l e t t e r of the 23rd in s ta n t,
advising of the statu s o r the upon' Maf&at Invest
ment Account and the exten t to v iiloh purohaaes have
been made to o f f s e t recen t exportations and ear
markings of geld*
Very truly yours,
a
*
1* A* Young,
Governor
Mr* Benj# Strong, Governor,
Federal Soserve Bank,
H York, H Y*
ew
*
/
CfV
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Jfovwibor 16,
Dm
i
Gorenxor Strong:
a « 1 U aaknotftodgo receipt of four lotto * of
tB ffp I
I T
ing O T tdlsphOEO 00Hf6rSft1Ji0Xl Of
U
in reference to ocrrering tha earmarking
and asportation of g o M U I t o w not aa yet imparted thia
natter fcrmlly to the Board. but X explained tho prooedaro
i & i ^ y i T ^ r f O l l o w i n g to a majority of tho naanbara, m *
they odriood » that thoy aiprofo of yoar action in not
mt
haaoa a l l of ths gold that haa boon oa**
M M^lla ad^iaod m this morniEg that th® Troa>*
r*
•uiy orarAiaft wiH tun approaclmatoly #90,000*000 aa of tho
4U N of htaaioM laat night, thoir aatlmto waa about
NI
M
$4*000.000* I t aaiat bo* l«ww r» **at tho groat oaottnt of
pibliolty given to Hio redaction of soooada h # boon qjtito
a
auoooaaful, ao tlmt aoro of tha obligation# wore turaod in
an the oalX day than haa boon the oaao with any prerioua
iaaua* St will bo intonating to watob tho overdraft of
tha Troaauxy t o tho noxt week*
With kind peraonal regard*, I am
Toura Tory truly
H A Young,
« *
Governor.
M Beajaadn Strong,
r*
federal laoarvo lank
lav Yosk City, H Y*
*
Ooramor,
Reproduced from the Unclassified / Declassified Holdings of the National Archives
FOR SPECIAL CIRCULATION
P L E A S E R E A D PI
PTT
-/
1
^ o v . YoungK/1
INI T I A L A N D RETURN' TO S.
-J
Mr. Hamlin
tpMf
L
Mr, Mi ller//AA/'
^
Fe d
s
f
N
e w
Y
ffc
Y *S offflp j p —
W
'/ L
\
.
’"** * Vj4«c '
Mr. Jameeyy W*' Mr. McI^t^^/^,|=|)Cp'1
!)
M r .C u n n i n g h a n f i ^ ^
e r a l (r e s e r v e
o f
!J
/
Bank
i
o r k
[November £3, 19 87
Dear Governor Young;
There have been no changes in the holdings of Government securities
in the Special Investment Account since I wrote you on November 15>1 the total
amount and the respective issues still being as follows:
4
3
3
3
4
1/2%
1/4$
%
1/8$
1/4$
Dec.
March
March
June
Sept.
15,
15,
15,
15,
15,
1927 T/N
$ 86,195,500
1928 c/l
69,546,500
1928 ®
87,599,000
1928 *
55,500,000
1928 3rd L/L 177.161,000
$415,824,000
Additional earmarkings and some further shipments of gold during
tiie past week brings the total movement to date up to $101,500,0u0 as follows:
Previously earmarked
Shipped to Brazil on
Earmarked for Poland
Shipped to Brazil
m
1 Canada
1
t
t
t
t
n
Earmarked for Poland
Shipped to Brazil
*
u Canada
for a foreign correspondent. . $50,000,Gu0
11,000,000
November 4 . . ...............
10 000,000
on November 10 . . .
11 000,000
”
”
11 . . .
{ ,QOo ,U00
)
m
”
17 . . .
1 000,000
«
u
18 . . .
000,000
*
*
18 . . .
11 000,000
”
1
1
18 . . .
2.500.000 $101,500,000
”
”
21 . . .
,
,
,
£
,
,
lh.ile it is considered likely that further earmarkings or shipments will be made
this month, ¥; know definitely as to the following:
ve
To Brazil . . . . . . .
.................
* Poland ................................
$ 3,500,000
^ 0 ^ 0 0 0 —
6^00 ^0 00
Making an aggregate of . . . .$108,000,000
No offsetting purchases beyond the $40,000,000 of which you have already been
advised have as yet been made to cover these transactions.
r^ 'A 7
,
A4J?.
/C U 2 J L
6 L A
A
J &
n
/> r /v 7
The large Treasury
/
/
F"
Reproduced from the Unclassified / Declassified Holdings of the National Archives
11/SZ/Z1
Governor Young
2
transactions in connection m t h the redemption of the Second Liberty Loan bonds
have resulted in some ease in money, the Treasury having a temporary overdraft
at the Federal reserve banks estimated to amount to about $7.2,000,000 as at the
close of business to-night.
The Treasury has made a call upon depositary banks
for payment of this amount on Friday, November 25.
Call money has remained
easy all week at S 1/2%, while sterling has remained steady, the cable rate
being 4.87 5/8 to-day.
With the covering of the Government overdraft, however,
we may expect some firming up of money.
It may therefore be desirable to make
further purchases of Governments in the near future .as a partial off set to the
large amounts of gold exported or earmarked.
We shall continue to keep a care
ful lookout in order to act promptly if conditions seem to warrant further
action.
Very truly yours,
Chairman, Open Market
Investment Committee
Honorable R. A. Young,
Governor, Federal Reserve Board,
Washington, D. C.
j g r S Q S K D MBBIHK**
»v
e
I9 2 r
’
Reproduced from the Unclassified I Declassified Holdings of the National Archives
Korember 23, 192?
Dear Governor Strongs
/
th is w ill /^knowledge receipt of your
la tte r of Norenfeer 8 1 . 1n reference to the amount
of goldexparta th atcau ld be offset by purchases
of eeourltiee, together with a memorandum prepar
ed by your s ta tis tic a l department*
I hare read your le tte r very hurriedly
end have found i t most Interesting* Tomorrow is
a holiday and I w ill hare an opportunity to study
i t a l i t t l e more carefully* Hany thanks for your
thoughtfulness in fdewarding the Information to me.
With kind personal regards, I am
Yours very truly,
1« A* Young,
Governor*
Hr* Benjaaln Strong, Governor,
Federal Beserve Bank,
H York 01 ty, H Y*
ew
«
Reproduced from the Unclassified / Declassified Holdings of the National Archives
FEDERAL. R E SE R V E
OF
NEW
BANK
3 3
YORK
3 -
November 21, 1927
Dear Governor Young:
At the meeting of the Federal Reserve Board and the Open Market In
vestment Committee recen tly the question was raised as to how much gold could
be exported from th is country without forcing additional borrowing on member
banks, and thus tightening money conditions*
To put i t another way, the
question i s how much gold exports could be o f f s e t by our purchases o f secu ri
tie s.
W have been making a l i t t l e study o f th is problem, some o f the
e
re s u lts o f which I am attaching herewith.
The answer appears to be th a t we could export not f a r from one
b illio n d o llars o f gold, o ffs e ttin g i t with purchases o f s e c u ritie s , before
the reserve percentage of the Reserve System reached i t s le g a l minimum.
The
lim itin g f a c to r , as the computation shows, i s the requirement fo r c o lla te ra l
fo r Federal Reserve notes*
Because o f the f a c t th at b i l l s purchased and
discounted now amount to only about 700 m illion d o lla rs, a ll the re st o f the
c o lla te ra l fo r Federal Reserve notes must be in the fora of gold, and th is
t i e s up one b illio n d o lla rs o f gold against Federal Reserve notes, whereas
the actual reserve requirement fo r these notes i s only 40 per cant of $1,700
m illion d o lla rs, o r 680 m illion dollars*
The export o f one b illio n d o lla rs o f gold would s t i l l leave us a
considerable e l a s t i c i t y in our domestic situ atio n because borrowing by member
banks, o r additional purchases o f bankers acceptances, would promptly provide
additional c o lla te ra l which would release gold, and gold could also be ab
sorbed from circu latio n *
I f we assume th at member banks would be allowed to
" h i t in
Reproduced from the Unclassified I Declassified Holdings of the National Archives
fed er a l r eser v e
ba n k o f n ew
y o r w
___I
___
Governor Youngp
Wo
jnber 21, 1927#
borrow to pay for gold exported, or assume a considerable increase in our
holdings of bills, it would be possible to export another one billion dollars
in addition to the first billion.
This could only be done at the cost of
firm money conditions as member bank borrowing was increased.
This raises, of course, the whole question as to our future policy
with regard to gold*
I think we would all agree that looking into the future
we want to give ourselves a considerable amount of leeway;
that is, we want
to have sufficient gold so that it is possible at any time, by the purchase of
securities, to keep money rates moderately easy when this condition seems to
be required by the business situation or the world financial situation.
In
other words, we want in the future to be able to do exactly what we are doing
this autumn.
As we look into the future, it is reasonably clear that the normal
increase in business from year to year, about 4% a year, will require some
additional amounts of currency and some additions to bank reserves, so that
our basic need for gold reserves will increase.
There are so many complicat
ing factors like the increase in time deposits, the replacement of currency
transactions by check transactions, the policy to be pursued with respect to
national bank notes, etc., that it is difficult to predict how much the
requirements for gold reserves will increase year by yearj
though it will be
of value to estimate these tendencies as closely as we may.
The principal conclusions as to the present situation, it seems to
me, may be summarized somewhat as follows:
1.
Any large loss of gold beyond, say, a few hundred million, and the
persistence of conditions indicating further losses, should raise
the question as to whether our policy should not be changed so
as to protect us from further large losses.
2.
We have at present sufficient leeway in our gold supply so that we
can well afford to lose up to at least two or three hundred million
further, without retarding or hampering this country*s business.
-"
r
r
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Governor Young,
F E D E R A L R E S E R V E B A N K O F N E W Y O R f c s ____ V .
wvem
21, 1927
3,
Our position is sufficiently elastic so that we can at least
well afford to allow the world* s output of gold to go to
other countries for many years to come.
4.
The problem of the world* s future gold supply and the gold
policies of different countries is one to which we should
give most careful continuous study, with a view to avoid
ing disturbance by a capricious gold policy on the part of
any country.
There is plenty of gold in the world if it
is intelligently dealt with.
We are making some further studies along these lines, the results of
which I hope to send you from time to time.
Very truly yours,
BENJ. STRONG
Governor
Honorable Roy A. Young,
Governor, Federal Reserve Board,
Washington, D. G.
enc.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
r
m isc.
3. i
6om
FE D E R A L . R E S E R V E
7-2«
OF
N EW
BA N K
YORK
O FFIC E C O R R E S P O N D E N C E
To
Dr. Burgess_____________
F r o m ______
H V. Roelse_____________
*
ntTF
November 16.
iq? 7
Subject. Amount of gold th a t could be
exported without causing a shortage o f
~
gold in the United S ta te s .
______________
The amount o f gold th a t could be exported without seriously a ffe ctin g
money conditions in th is country appears to be a l i t t l e over 850 m illion d o lla rs.
This figu re i s arrived a t as follows:
Total Reserves, a ll Federal Reserve Banks
$5,0 5 0 ,0 0 0 ,0 0 0 *
Reserve requirements, a l l F . B. Banks
Security fo r note c irc u la tio n ,
P resent note circu la tio n . . . . . $ 1 ,7 0 0 ,0 0 0 ,0 0 0
Less b i l l s and discounted
notes available as c o lla te ra l .
700.000.000
Gold required as c o lla te ra l fo r
note circu la tio n • • • • • • .
Reserve against deposits
(55% of
. . . .
$, ,
1 000 000,000
822,000,000
$2,550,000,000)
Emergency allowance fo r additional
note circu la tio n (100$) . . .
Emergency allowance tor reserve
against additional deposits
(35$ o f $100,000,000)#
................
200,
000,000
55.000.000
Total gold requirements ..................
Surplus available fo r e x p o r t .................. ..
2 .0 5 7 .0 0 0 .0 0 0
$
995,000,000
To avoid drawing down the reserve deposits of member banks, $993,000,000 of
s e c u ritie s would have to be purchased by th e Reserve Banks to o f f s e t the gold
exports.
* A fter allowance fo r earmarking now in progress, and month-end currency circu la tio n .
# The $100,000,000 to be provided by secu rity purchases by the F. R. System
Reproduced from the Unclassified / Declassified Holdings of the National Archives
misc. 3. ,
60m
7 -2 «
FEDERAL
OF
RESERVE
NEW
OFFICE CORRESPONDENCE
To
D atf
November 16,
1i 7
Q>
Sl]R,FrT.
Amount o f gold th a t could be_____ _
exported without causing a shortage o f
gold in the United S ta te s .__________________
Dr> Burgees_________________________
f r o m ________________
BANK
YORK
W H. V. Roelse_______
-
2
-
The emergency allowancesindicated above should fiovid e fo r any
ordinary flu ctu atio n in demand.
A considerable additional amount (about one b illio n d o llars) might
be exported before the reserves of the Federal Beeerve System f e l l to the
legal~BinimuE, through the withdrawal o f gold from c ircu la tio n , but only in
the event o f heavy borrowing a t the Reserve Banks which would produce a money
situ atio n lik e th a t o f l a t e 1919*
This could be accomplished as follows:
Reserves o f a l l F . R. Banks
Reserves a f te r withdrawal o f $ 1 ,0 0 0 ,0 0 0 ,0 0 0 from circu la tio n .* $ 4 ,0 6 0 ,0 0 0 ,0 0 0
Gold e x p o r t s ........................... ......................................................................... ....
Reserves a f te r exports ........................................................................
2 .0 55.000.000
$2,017,000,000
Required Reserves
C ollateral required fo r note circu la tio n
Necessary note circu latio n ......................
($ 1 ,7 0 0 ,0 0 0 ,0 0 0 plus $ 1 ,0 0 0 ,0 0 0 ,0 0 0
to replace gold, and $200,000,000
emergency allowance)
Less b i l l s and discounted notes avail
able . . . . . . ........................... . . .
(Additional discounting to the
amount of $ 1 ,0 4 0 ,0 0 0 ,0 0 0 would be
req u ired .)
1
$ 2 ,9 0 0 ,0 0 0 ,0 0 0
1 .7 4 0 .0 0 0 .000
Gold reserve - 40^ minimum - required as
c o lla te ra l fo r note c ircu la tio n . . » • » . . • » • •
Reserve against deposits
(35$ o f $ 2 ,6 5 0 ,0 0 0 ,0 0 0 , whioh includes emergency allowance)
Total required reserve . . .
$ 1 ,1 6 0 ,0 0 0 ,0 0 0
857.000.000
$ 2 ,0 1 7 ,0 0 0 ,0 0 0
Reproduced from the Unclassified I Declassified Holdings of the National Archives
1A REAP *
SE
FOR SPECIAL CIRCULATION
/M T, INITIAL A D RETURN TO
P'
N
Y jy n g ^ V Mr.
Mr. Miller N a
FEDERAL
OF
RY*S OF
Mr.
Ur- McI
Mr.Cunningl^^.
RESERVE
NEW
3RF
BANK
YORK
^
^
November 15, 1927.
Dear Governor Youngs
I have received your letter of November 1 2 [and am glad that you found
t8S9BHBSSBS9MHBMHMHHHHHBS9B3SS&SSSS&tt^v
the information contained in mine of the 10th.\with regard to open market
transactions, of interest.
Since that time there has been but a small increase in the holdings
of Government securities in the System Account.
Including the transactions
completed today, the par value of the securities held on November 15 will be ap
proximately |415,000,000, against $375,000,000 at the middle of last month, the
increase of $40,000,000 representing purchases to offset the $50,000,000 of gold
earmarked for one of our foreign correspondents.
A recapitulation of the important gold export transactions that have
been consummated during the past month, is as follows:
Earmarked for foreign correspondent...$50,000,000
Shipped to Brazil, November 4........ 11,000,000
Earmarked for Poland, November 10..... 10,000,000
Shipped to Brazil, November 1 1 ....... 11.000.000
182 , 000,000
It is also expected that further earmarkings or
shipments will be made this month:
To Braail.............................. 14,500,000
To Poland..............................
6.000.000
Total........ $102,500,000
No further offsetting purchases have as yet been made to cover these transactions,
as the satisfactory price of sterling (4.87 7/16 for cables today) and the favorable
state of the money market have not seemed to justify such action.
In other words, taking into consideration gold already earmarked or shipped,
pUUL
A m / ®
''/ W
v7
Reproduced
from the Unclassified / Declassified Holdings of the National Archives
Governor Y
ng.
11/15/27
we are now upwards of $42,000,000 short of making offsetting purchases, with
$20,000,000 outstanding commitments yet to be executed.
The recent activity in
the open market account has, therefore, been confined, in the main, to changes in
maturities.
The present state of the Government security market afforded a good
opportunity to dispose of the longer maturities, and, with the approval of the
Open Market Investment Committee, we have sold (at a profit) all of the 3f$
3-5 year Treasury notes and Fourth Liberty Loan 4^% bonds, aggregating some
|79,000,000, replacing these with shorter maturities, mostly the new 3 l/8$
Treasury certificates.
This will result in the total holdings in the account being
in short-time paper maturing within the next ten months, as follows:
4
3
3
3
4
1
$
l/2$
1/4$
:
$
$
1/8$
1
$
1/4$
Dec.
March
March
June
Sept.
15,
15,
15,
15,
15,
1927
1928
1928
1928
1928
T/N, •••••#<£ 4&0yS fx juuu
.| 28,195,500
X/rl
mjJ
69,548,500
C/l,
C/I.....
C/l.....
87,599,000
C/l
C/I.....
53,500,000
C/l,
3rd L/L.. 177.181.000
#415,824,000
As to our future program, a good deal depends upon how the operation of
redeeming the Second Liberty Loan bonds works out.
It looks now as though the
Treasury might run something of an overdraft for a number of days, which would tend
to keep money moderately easy, but it also seems possible that toward the latter
part of this month money conditions might tend to be considerably firmer and it
\
might be desirable to offset more fully the amounts of gold exported or earmarked.*
We shall continue to watch carefully the condition of the money market, and will
keep you informed as to the situation.
Very truly yours,
Chairman, Open Market
Investment Committee.
Honorable R. A. Young,
Governor, Federal Reserve Board,
Washington, D. C.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Kcvas&or 1 2 f 1927
Bear Qerernor Strong:
This Hill aokiioir ledge receipt of yout
le tte r of Koramber 3JP,\ glflng detailed information
in reference to Open 5,iark»t matters*
I &;3pr*oiete your aotion in forwarding
th is inforsaition end hope that a le tte r of thia
kind can l> sent to w each week*
t>
&
Teura very taculy
Ooremor*
Up* Benja»in Strong, Gorernor,
Federal Reeerre Bank,
K*w Toric 01 ty , N. 7 .
Reproduced from the Unclassified / Declassified Holdings of the National Archives
FOR SPECIAL CIRCULATION / ' y '
rps*
-as
a~ r ~ T
'
PT_
°
f *
U r.U ille,f
Mr. E l a t t ^ c J
y 13 0T?F
RETORN T O S ^ n ^
^ 4 #
tar.Ctmnin ^
FEDERAL. R E SE R V E
OF
NEW
'
Mr. Mclnt
BAN
YORK
November 10, 1927,
Dear Governor Young:
In accordance with our conversation, I am writing you something
of open market matters and will do so at frequent intervals, if you de
sire.
Details of the activities of the Open Market Investment Committee
and the changes in the holdings of Government securities are, as usual,
contained in the weekly report of the secretary of the committee, which is
regularly sent you.
You will observe that there has been a gradual increase in the
uGovernment security holdings during the past few weeks.
As you know,
these increases have been due to purchases to partially offset the current
earmarking of gold, amounting in all to #50,000,000, for a foreign cor
respondent.
The following will show ^ u c h recent changes:
Approximately
Holdings of Government securities
in account, October 19........ ...$375,000,000
Purchases during week ending Oct. 26.. 12,000,000
"
1
1
«
Nov. 2.. 18,000,000
n
”
”
Nov. 9..
6,500.000
Making a total of.......1411,500,000
From these figures you will note that, so far, offsetting purchases
of $56,500,000 have been made against $45,000,000 of gold already earmarked.
Further purchases of Government securities will gradually be made to offset..,
the total of $50,000,000.
/use
<
x
m
/z
'*/<y
Reproduced from the Unclassified / Declassified Holdings of the National Archives
FEDERAL
RESERVE
BANK O F
Governor
NEW YORK..J
v
11/10/27
/
'
In addition to the earmarked gold for French account, shipments to
Brazil, amounting to $36,500,000, and to Poland, amounting to $15,000,000,
a total of #51,500,000, are to be made this month.
About $11,000,000 has
already gone forward to Brazil, and it is expected that the total going to
both Brazil and Poland will be shipped between now and- November 30.
No
purchases have as yet been arranged as an offset to these latter prospective
shipments, and we are inclined to await developments before doing so.
At
the moment, therefore, we have deferred offsets to $8,500,000 on account
of the French and $11,000,000 on account of the Brazilian transactions.
The shipment of $31,500,000 to Argentina v/as not entirely offset,either.
In our view, the continued steady rates for money and the strength
of sterling, which closed yesterday at 4.87J, justifies this delay in further
buying of Governments.
/
Very truly yours,
BENJ. STRONG,
Chairman, Open Market
Investment Committee.
/
Honorable R. A. Young,
Governor, Federal Reserve Board,
Washington, D. C.
W
"""*--------------------------------------------------------------- -—
—----
Reproduced from the Unclassified / Declassified Holdings of the National Archives
r
i
From report of O
ge~» v—'y t Investment ,
Committee for peri
October 6
to O
ctober 1 2 1927, inc asive.
S TE PmCHASSS 07 B C S AC EPTAN ES
YS M
AN TB
C
C
^
^
}
Purchaseg of bankers acceptances since the beginnlngof the year,
19 2 7
t o f t r / v ]
B ills Acquired
Boston............................................ .$
91,448,000
$
88,299,000
H York.....................................
ew
295,612,000
297,970,000
Philadelphia..............................
89,528,000
89,064,000
Cleveland...................................../
110,040,000
110,928,000
Hichmond.................................... J
88,926,000
90,718,000
Atlanta...................................../ .
49,566,000
49,081,000
Chicago...................................S . .
159,191,000
159,685,000
f
/
St. Louis...... . ..................60,271,000
60,569,000
Minneapolis.. .L.......... ..............
48,452,000
49,602,000
Kansas C i t y . . . ) ^ ^ / . ............
67,236,000
68,371,000
Dallas...........................................
49,088,000
49,877,000
San Francisco............................ 80.547.000
Total
$1,189,905,000
_________ 75.741.000
$ 1,189,905,000
/
Reproduced from the Unclassified / Declassified Holdings of the National Archives
F o r m I : >, A M i .
Office Correspondence
FEDERAL RESERVE
BOARD
Date Sept either 3 0 , 1927a
Subject:.
fj A
~ 3 3
3 . A - I
^ 1
1
/
At ct meeting of tho
Governor Strong reported
$60,000,000 of gold from
England for the H York
ew
from the minutes of that
Federal Reserve Board held on M 5 . 1927.
ay
verbally arrangements being m
ade to purchase
the Bank of France, to be held by the Bank of
bank's account. The following is an excerpt
meeting:
**At this point, Governor Strong of the Federal Reserve Bank
of N York, entered the roaa and advised the Board that the Bank
ew
of France had contemplated and made arrangements to ship #90,000,000
of gold to the American Exchange Irving Trust Company of N York
ew
City, that #12,000,000 of tha gold had been received by the member
bank and #18,000,000 is now in transit# He stated that the Federal
Reserve Bank of M York has about completed an arrangement whereby
ew
the balance cf the gold not yet shipped (#60,000,000) would be sold
to i t by the Bank af France and held for the Federal Reserve Bank,
properly earmarked, by the Bank of England* H also referred to
e
a telephone conversation th is morning with Deputy Governor Harrison
of the Federal Reserve Bank of H York, regarding impending arrange
ew
ments for stabilization of U\e JPolJ.sh Currency,"
k.
7 f.
/Yy /
3
3 3 .4 * 5 - 3
AU. CL
Ho action was taken by the Federal Reserve Board a t this meeting.
The Board has in its file s /a letter fran the Secretary of, the Governors*
Conference, dated M 24, 1927J enclosing a copy of the minutea of the
ay
meetings of tKe~10pen M
arTcet lnvestment Coosnittee held in Washington on
M 9th, 11th and 12th, and a copy of the preliminary memorandum re la
ay
tive to Open Market policy which was submitted to the Governors'Conference
in connection with the Committee's report. The Governors’ Conference was
in session in Washington during the period from M 9th to 12th.
ay
The minutes of a meeting of the Open Market Investment Committee
held in Washington on the morning of M 9th show th at the Secretary
ay
read the preliminary d raft of the memorandum referred to above and that
i t was the opinion of the Conmittee that copies of the memorandum, with
suggested amendments, should be submitted by the Chairman of the Committee
to the Federal Reserve Board for its consideration in order to familiarize
the Beard with the footers which would be in the minds of the Committee
later in preparing its report. The minutes of a meeting of the Open
Market Committee held on the afternoon of M 9, 1927s,yroat the Committee
ay
considered a redraft of the preliminary memorandum containing the amendMints agreed to at the morning meeting, and that the ChairBan of the
Committee was requested to transmit seven copies of the memorandum as
amended to Governor Crissinger for the members of the Board, with advice
that the Coiaaittee would be glad to meet with the Board and discuss the
memorandum any time suitable to ite convenience. According to the
minutes of said meeting, copies of the amended memorandum were submitted
to Governor Crissinger a t ll&pm, immediately following adjournment of
the afternoon meeting of the Ccomittoe.
A copy of the preliminary memorandum referred to is attached hereto,
from which the following is quoted:
i
r
Reproduced from the Unclassified / Declassified Holdings of the National Archives
K o r in
y -v
ff
*
1 »l.
i
Urrice Corresponds »ce
T o ______
From_
FEDERAL RESERVE
B'R
OD
,
__
Dle
a
Subject:_ _____
_
.
-2-
"During the la st pert of A pril, the Bank of France recovered approxi
mately $90,000,000 of gold from the Bank of England by the repayment of
it s credit to the Bank of England. Of this $90,000,000, $12,000,000 a r
rived in N Ycrk last week, $18,000,000 is s t i l l on the water, and
ew
$60,000,000 was purchased by the Federal Reserve Bank of N York on
ew
M 6 and is near held by the Bank of England under earmark for account
ay
of the N York bank* In addition to this Bank of France gold, $2,500,000
ew
has recently been imported from Australia, and another $2,500,000 more
is no* on the water fr cm Australia and expected to arrive in this country
this week
*A scmewhat disturbing factor arose in the probability of the
importation and sale to the Federal Reserve Bank of N York of the
ew
$90,000,000 of gold, negotiations for the purchase of whioh had been
concluded by one of the N York member banks from the Bank of France,
ew
I t was learned th at space had been reserved on the steamers and arrange
ments had been made for shipping the entire amount of gold; in f a c t, one
shipment was about to arrive in N York, and others were being loaded*
ew
In view of this situation, after consulting with a l l members of the Open
Market Investment Committee and with the Federal Reserve Board by te le i ghjoue-, i t was arranged to purchase from the"Bank of Fr ance a 1 l of the
gold - nearly $60,000,000 - whioh had not been shipped, and to se ll
the Bank of France a like amount cf the September maturity of c e r t i f i j
cates of indebtedness held in the Open Market Investment account. By
^/
this arrangement, the money market status remained unchanged, except as V
to the gold which had already been shipped, leaving the conmittee in
position to determine later a t its meeting whether these securities
should be replaced or not. Securities were sold to offset $9,000,000
of the $12,000,000 already arrived, but no arrangements have been made
for sales to offset the balance of the gold which w ill arrive from
London and from A ustralia, amounting in a l l to about $20,000,000* With
the sale already m
ade and further sales, if made to offset further
gold a rriv als, the securities remaining in the System’ s portfolio
account w ill be a l i t t l e over $100,000,000, too small an amount to
afford security against possible future developments* This w ill be
appreciated, for example, if the $90,000,000 new purchased had arrived
a t a time when w had no portfolio of government eecurities available*
e
I t is c le a r, therefore, that the committee mast fran now on give care
ful attention to meeting this gold problem, either by increasing its
portfolio in anticipation of future developments, or by adopting other
measures* The method of doing so should be determined with regard to
whether the tima has or has not arrived when the Federal Reserve System
can afford to put new funds in the market, the effect of which would be
/fto reduce the System’ s holdings of b ills . There are various poesibilities
/ for dealing with the gold problem as a whole which have never heretofore
I
been discussed in the Committee’ s report and which are new submitted
simply for discussion. None of them are recommended a t th is time, but
are intended simply as a summary of a l l possibilities.
» reduce
the borrowings of member banks, principally in N York,and possibly
ew
Reproduced from the Unclassified / Declassified Holdings of the National Archives
l-Y jrm N o . 3 Si.
i
Urrice Correspondence
T o _______
.
FEDER AL RESERVE
°“D
...............
D
a
te
Subject: ____ .. . .
From__
-3 The f i r s t of the several possib ilities referred to in the preliminary
memorandum is as follcwrs:
"(1) The committee could replace the securities sold to
the Bank of France* The inmediate effect would he to reduce
the amount of member bank borrcurings in M York, which are
ew
nor running on the average a t from $100*000,000 to #150,000,000. "
A second meeting of the Open Market Committee was held on the After
noon of M 9, 1927, attended by six members of the Federal Reserve Board*
ay
The minuses of that meeting shew that there was a long discussion by various
members of the committee and the Federal Reserve Board of the preliminary
memorandum previously distributed among the members of the committee and
the Federal Reserve Board, and that Governor Strong explained that th is
preliminary memorandum did not embody any recommendations but merely
raised points for discussion with the Reserve Board which would enable
the committee later to file a report with definite recommendations* The
meeting adjourned with the understanding that the Committee would submit
i ts fin al report to the Federal Reserve Board later on in the week*
A report of the Open Market Ccuanittee dated M 11, 1927, was submitted
ay
to the Board at a meeting held on M 12, 1927. In this report, the
ay
Open Market Canmittee made the following recommendations: of policy for
the period ending August 1, 1927;
"(1) Tha/Tlio fUftftSF Sales of system securities be made in
order to offset arrivals of gold from abroad nor known or a n tici
pated.
**(2) That it shall be the policy of the committee between
now and August 1 next, gradually to acquire, i f possible to do
so without undue effect upon the money market, sufficient addi
tional short-time government obligations to bring the to ta l of
the committee’ s investment acoount up to #250,000,000* In inter
preting the expression 1
undue effect upon the money market,* the
committee would expect to keep in mind any changes which might
occur in the general level of money ra te s, as well as the extent
to which these purchases might effect a reduction in the amount
of borrowings by member banks.
"While this policy is not directed towards bringing about a
reduction in discount rates by any Federal reserve bank, nor is
__
that immediately anticipated,
of m
arket rates for ««n«y might nevertheless .justify such a redue*
tijn later in t he year, especially a t the principal financial
centers.. The reccomendation in paragraph two is also made after
consideration of the f a c t th a t somewhat lower interest rates
ordinarily operate to check gold imports; in f a c t, that was etie
of the effects of purchases of securities made in 1924.
"The conmittee further expects to continue studies of those
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Vorm ><. l'J
'> -J.
jT
\ f * £••
(Jr r ic e
To
FEDERAL RESERVE
J
C o r r e s p o n d e iu c e
..................
B“ °
O
___
__
D
ate
Subject:...... .................
From_
_
-4 the amount of Federal reserve credit inthe market* It expects to
discuss with the Treasury Department those methods with which the
Treasury is concerned, and requests that the Federal Reserve Board
give consideration to those particular items, such as reserves on
time deposits, which relate to the regulations cf the Federal
Reserve Board.”
At the M 12th meeting of the Board, following submission of the
ay
above recommendations, Governor Crissinger called attention to the ffcct
that the Board, under the impression that the Federal Advisory Council
would meet here tomorrow recently requested the Council to make a care
ful review of the open market policy of the Federal Reserve System since
the organization of the Open Market Committee and to give the Board the
benefit of i ts views and to submit any recommendations that may seem
desirable with regard to changes in the method or objectives of open
narket policy* The Governor stated that the Federal Advisory Council
would not meet until next Friday, M 20th, and consequently would
ay
not be able to discuss the matter as ccntemplated jointly with the Board
and the Open Market Committee. Governor Strong, uhair man of the Committee,
called attention to the fkct that the preliminary memorandum presented to
the Board shows the present condition of affairs and requested that con
sideration be given to that memorandum in connection with consideration
of the Committee’ s recommendations* Thereupon ensued a detailed discussion
as to the present Open Market situation and the desirability of increasing
the System*s portfolio of government secu rities, as recommended by the
Committee, and of methods whereby such an increase oould be accomplished
without disturbing"'tlicLmogia^ market* ife*. Miller expressed his opinion
that the recommendation of the Committee for an increase in the invest
ment account up to $2 50,000,000 was in the rigjht direction but that
the most important question concerned the proper time a t which to m
ake
purchases. Governor Strong stated that the purpose of the Committee
was to agree with the Board upon the policy which would extend, under
existing conditions, until August 1 s t, and having done so that i t would
seem to be the responsibility of the Committee to put the policy into
execution, keeping the Board inf armed daily of a l l transactions. There
followed a discussion as to the possibility of future imports of gold
and tbi effeot of such imports upon the money market, in conjunction
with a policy cf the Federal Reserve System which its e lf might result
in adding to the present supply cf money. Governor Strong expressed the
opinion that the policy ocntemplated in the Committee’ s recommendations
would not resu lt in any increase in Federal Reserve credit in the money
market, but would be offset by reductions in member banks* borrowings
from the Federal Reserve Bank of H York or in the b ill holdings of the
ew
System* Upon motion, the recommendations of the Open Market Investment
Committee were received by the Board and made special order of business
for a date to be fixed by the Governor a fte r conference with the Chairman
of the Board.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
Fr>r.m > '< . l-'.l,
• >
I*
£>
m
j
Urrice Correspondence
FEDERAL RESERVE
BB
OO
A
To ._______
D
a
te
Su b ject_____
From__
-5 The Board reconvened during the afternoon of M 12th, and during
ay
that session the Governor referred to the statement made by Governor
Strong a t the meeting of the Board on M 5th to the effect that the
ay
Federal Reserve Bank of N York was endeavoring to purchase from the
fcw
Bank of France certain gold which the Bank of France was withdrawing
from the Bank of England and had sold to and intended to ship to the
American Exchange Irving Trust Company of H York City, which, if
ew
purchased, the Federal Reserve Bank of N York intended to have earew
Barked and held for i t by the Bank of England* The Governor stated
that he had been advised by Governor Strong that the gold in question,
totaling $59,548,000 had been purchased by the N York bank, had been
ew
earmarked and was being held by the Bank of England, and that a t the
Conference of Governors of the Federal reserve banks new in session
in Washington i t had been voted unanimously that a ll Federal reserve
banks participate in the purchase and that said gold be not counted as
part of the banks' gold reserves# The Governor stated th at he had also
been advised that the participation was to be made effective as of M
ay
11th, and recommended that in the Board*s published statement shoring
the condition of the twelve Federal reserve banks, the gold in question
be reported against the caption, "Gold Held Abroad”, inanedlately pre
ceding the item "Due from Foreign Banks”, and th at the published
anlysis thereof accompanying the statement contain the foliaring
brief comment in regard thereto: "During the week the Federal Reserve
Bank of N York purchased abroad $59,548,000 cf gold, the purchase
ew
being participated in by a ll Federal reserve basks* This gold is nor
held earmarked by one of the foreign correspondents of the N York
ew
bank and is shown in the statement against a new item 'Gold held
abroad*1
W
The only action taken by the Board a t th is meeting was with regard
to har the gold should be reported, and to reaffirm a previous position
taken that Federal reserve banks should not regard as part of their
reserves gold earmarked in foreign countries. Up to this point, no
formal action had been taken, according to the minutes, approving of the
purchase of the goldf
At a meeting of the Board held on M 1 3 ,1 9 2 7 , consideration was
ay
given to the recommendations of the Open Market Investment, which had been
submitted at the meeting held on the previous day, and in this connection,
the entire reoord as i t appears in the minutes of the Board is quoted
below:
"At this point, the Secretary of the Treasury entered the
meeting and took the Chair*
~
ttThs Board then proceeded with further consideration of the
recommendations of the Open Market Investment Committee, submitted
a t the meeting yesterday and on which no action was taken a t that
meeting*
r---------------------------------------------------------Reproduced from the Unclassified I Declassified Holdings of the National Archives
F o r m >ro . I:S1.
f
J
FEDERAL RESERVE
(Jrrice Correspondence
B0A!'0
D
a
te
To _______ _______________________________ Subject:—.....................................
From
-6-
nMr. Hamlin moved that, the Board approve ths roccramendationo of the Open Market Investment Committee contained in
the report of the Committee dated M 11, 1927*
ay
f,M Miller stated that he would prefer to have action
r*
on the recommendations af the Committee deferred until the
Board ha a had an opportunity to discuss the general question
of open market policy * ith the Federal Advisory Council at
their meeting on next Friday. He stated, however, that if
the Board did not believe i t desirable to defer action he
wished to present for the Board's consideration, as an
alternative for M Hamlin's motion, a m
r*
emorandum prepared
by him as the basis of a le tte r to the Open Market Investment
Committee regarding its report.
"The Chairman pointed out the desirability of establish
ing a policy which he stated could, of course, be changed by
the Board at any time if developments warranted* H stated
e
that he believed unless there was som particular reason for
e
not doing so the Board should concur in the recommendations
of the Open Market Investment Committee, and pointed out that
if the Board did so, and following the meeting of the Federal
Advisory Council, wished to change th at policy there was no
reason why an amendatory action should not be taken by the
Board. E» suggested th at the Board might approve the recom
mendations of the Committee and in advising of such approval
state to the Ccmmittee that the question of open market policy
w ill be kept under consideration and that the Board upon review
might wish to take further action*
nM Platt then moved that M Hamlin's motion be amended
r*
r*
to read as follows:
’"Resolved, that the Federal Reserve Board approve the
report and reooramendatione of the Open Market Investment
Committee, with the feeling that the securities proposed to
be purchased should be accumulated slowly and with a view to
the possibility that i t may not be advisable to purchase the
fu ll amount authorized within the time limit mentioned*'
.
V
/
"Mr* Hamlin acoepted the amendment moved by M P latt and
r*
by unanimous consent withdrew his original motion*
ttM Miller then read to the Board the following memor*
randum prepared by him and as a substitute for Mr. Platt*s
motion moved its adoption by the Board as the basis of a
le tte r to the Open Market Investment Committee;
A/
^
r
Reproduced from the Unclassified I Declassified Holdings of the National Archives
F o r m >■<>. l'-lt.
/ ”\ C
f
(Jrrice
T o ___ . _____
_
fl
FEDERAL RESERVE
Correspondence
___
D
a
te
804110
Subject;___
. .
From_
_
-7-
"'Ths Beard has considered the recommendations of the
Open Market Coramittea dated M 11, 1927, for the period
ay
ending August 1:
(1) That no further sales of System securities be made
in order to offset arrivals of gold from abroad nor known
or anticipated*
(2 ) That i t shall be the policy of the oammittee between
nar and August 1 next, gradually to acquire, if possible to do
so without undue effeot upon the money nmrket, sufficient
additional short-time government obligations to bring the to tal
of the committee*s investment account up to $260,000,000,
With respect to recommendation No. 1, i t does not appear
to the Board th at the next few months w ill she* gold imports
to the United States in any such volume as would indicate the
necessity or desirability in existing oircumstances of an off
setting operation by the sale of System securities* I t has,
therefore, nothing to suggest by way of modification of the
course of action outlined by the Committee, unless there
should be a marked change in the situation in which case the
matter should be reconsidered# The Committee* s recommendation
i s , therefore, approved*
With respect to recommendation N 2 , i t is the opinion
o®
of the Board that the System's Special Investment Account
should, sooner or la te r, in accordance with the policy which
has governed the operation of the Account in the past, be replenished
by the purchase of an amount of securities th at would bring up
the to ta l holdings in the Account to not less than $200,000,000*
I t i s , however, the opinion of the Board that the present
situation is not a favorable one for such an operation and
that the resumption of purchases of secu rities for the Special
Investment Account should be deferred until such time as i t may
appear that such purchases w ill have a desirable stimulating
effect upon trade, industry or agriculture* The country is near
entering a period of interseasonal trade lu ll with the dem
and
for oredit for commercial use slackening. The only highly
active market in the country is the secu rities market* There
is accumulating evidence of speculative exoesses, w
hioh in part
ha8 been reflected in recent weeks in a g real growth cf
brokers' demand leans. I t is thought not to be desirable to
stimulate these by a reduction of the cost of money in the
N York market such as would resu lt from the purchase during
ew
the next two months of from $100,000,000 to $150,000,000 of
securities for the System account*
/
^
Reproduced from the Unclassified I Declassified Holdings of the National Archives
F o rm
>'<». i : : i .
I
Utrice Correspondence
T o ...... ........
FEDERAL RESERVE
BR
OD
A
„
D
a
te
Subject:___
From
-
8-
I t is the view of -the Board that tha movem nt of busi
s
ness, cred it, gold, money rates and other factors bearing
upon the credit and open market policy of the Federal
Reserve System should be carefully and constantly watched,
in order th at when action is taken to replenish the Special
Investment Account i t may be done with a minimum of undesir
able stimulation*
For its part the Board w ill fo lia r coming developments
affecting open market policy with care and w ill keep in touch
with the Coomittee in order that there may be a prompt exchange
of views and suitable action when conditiom warrant. Far the
present the Board does flofc t hink t he situ ation favorable to a
gecuritiearl^ o h ^
and ^ th erefore, withholds approval of the recomaendation th at the Committee at this time
be given authority to purchase securities between now and
August 1 to an amount sufficient to bring up the System's
account to $250,000,000**
After a detailed discussion, Mr. M iller's subs t i tute motion was put by the Chair and lo st, the members
voting as follows:
The Chairman, "no”
M P la tt, "no1
r*
*
Mr. Hamlin, "no”
Mr. James, "no”
M McIntosh, "no"
r*
Governor Crissinger, "aye"
Mr. M iller, "aye”
Mr. Cunningham, "aye"
M P la tt's motion was then put by the Chair and
r®
carried, the members voting as follows:
The Chairman, "aye”
Governor Criasinger, "aye1
1
M P la tt, "aye"
T.
Mr. Hamlin, "aye”
Mr. James, "aye"
Mr. Cunningham, "aye"
Mr. McIntosh. "—“
Mr. Miller , ^ n a
M Cunningham then made the following statement:
r©
"With the sincere hope th a t the view expressed
u
Reproduced from the Unclassified I Declassified Holdings of the National Archives
T 'o r m N o . 131..
4
Urrice Correspondence
T o _______ __________
FEDERAL RESERVE
BR
OD
A
___
D
a
le
Subject:____......
From___
«9»
in Ur* P la tt1 s resolution that the securities whioh the
open Market investment coomittee recommends be purohased
w ill be accumulated gradually up to August 1st next, X
am voting in favor of the motion*n
The Board then approved the following draft of le tte r to the Chairman
of the Open Market Investment Coomittee advising of the action taken by the
Board with respeot to the Committee's recommendations:
"At the meeting of the Federal Reserve Board th is morning,
consideration was given to the report of the Open Market Invest
ment Coomittee, dated M 11. 19Z1* in which the Conmittee recanay
mended: " (1) That ^oTfurther sales cf System securities be m
ade
in order to offset arrivals of gold from abroad new known or
anticipated" and "(2 ) That i t shall be the policy of the com
mittee between now and August 1 next, gradually to acquire, if
poesible to do so without undue effect upon the money market,
sufficient additional short-time government obligations to bring
the to ta l of the committee's investment account up to #250,000,000*
In interpreting the expression 'undue effect upon the money market,'
the coomittee would expect to keep in mind any changes which might
occur in the general level of money ra te s , as well as the extent
to which these purchases might effect a reduction in the amount of
borrowings by member banks*
"The Beard voted to approve the report and recommendations
contained therein, with the feeling that the securities proposed
to be purctesed should be accumulated slowly and with a view to
the possibility that i t n*y not be advisable to purchase the fu ll
amount authorized within the period of time mentioned*n
/
At this point, M 13th, the account stood a t approximately $136,000,000,
ay
having been redueed during the previous week about $66,000,000, by reason
of sales cf approximately $60,000,000 of securities to the Bank of Franc*,
and $5,000,000 for reasons not recorded*
O June 8th, the account stood a t $316,050,300*
n
O June 9th, Governor Strong addressed a ocmainication to Governor
n
Crissinger, reading as follows:
" i t w ill interest you to have a resume of the transactions in
the open market which have been neoessarily quite active because of
the large amount of securities which we are called upon to buy*
"As you have been advised we have made purobases of a to ta l
cf $100,000,000, offsetting exactly that amount of gold earmarked
for account of one of our foreign correspondents, and that part of
the transaction is concluded*
**W have also concluded purchases aggregating a to ta l of
e
Reproduced from the Unclassified I Declassified Holdings of the National Archives
F o r m !N'o. 1 ■»!.
|
Urrice Correspondence
T o ........ .
FEDERAL RESERVE
80
...
R
O
Subject__
D
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#115,000,000 for delivery on or before June 15, to replace a l l of
the maturities held in the System account and fo r the account of
foreign correspondents maturing on that date* In addition to
that ve have purchased in round figures #16,000,000 for the
System's open market investment account, thie purchase having
been made in connection with the adjustment of purchases current
ly being na.de for account of the Treasury Dtpaitment, and so far
that is a l l that has been dons pursuant to the recommendations
of the Opsn Market Investment Committee recently approved by the
Fsderal Reserve Board*
"preparations for the June 1 financing, occurring simultaneously
with the holiday a t the end of May, necessitated somewhat heavier
borrowing here than would ordinarily be the ease, and the rates in
the money market shored a tendency to stiffen somewhat, but we be
lieve that the effect was only temporary and that the return flo r
of funds from the interior and of currency, coupled with the pur
chases which we have made, w ill leave rate conditions not greatly
above where they were during the latter part of M
ay*
"The present situation is that the member banks in N York
ew
City ow us about #50,000,000 and that the dealers ow us an addi
e
e
tional #50,000,000 under sales contract agreement* Between now
and June 15 th is indebtedness of the banks and market to us may
be somewhat further re&ucsd. For a few days after the 15th as
usual money w ill be easy, as Treasury maturities are in excess of
tax payments, but after three or four days large tax payments will
come out of the market* The amount of funds available to the
market will be reduced fi-oc the present situation by approximately
#65,000,000 as a net result c£ June 15 maturities. That means
that the N York banks and a*rket w ill have to be borrowing from
ew
us a t least #150,000,000, and, on top of th is, w ill come the usual
extra denmnd for cred it in connection with the end of the half
year* This w ill give us a situation that we w ill have to think
about and watch carefully* Further purchases w ill then be desir
able."
Governor Strong’ s communication of June 9th was brought to the attention of
the Board at a meeting held on June 10th. Ind/action was taken by the Board.
In presenting the le tte r , Governor Crissinger stated that Governor Strong
advised him yesterday (June 9) over the telephone that the Federal Reserve
Bank of N York had purchased from the Reich abank and earmarked abroad
ew
#2,600,000 additional of gold, making a to ta l of gold earmarked abroad of
between #62,000,000 and #63,000,000. Governor Crissinger further stated
that Governor Strong this morning (June 10) advised him th at conditions
are so shaping themselves as to probably make i t neoessary for the Federal
Reserve System to convert th is earmarked gold into earning assets through
the purchase of b ills abroad.
\/
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At a meeting of the Federal Reserve Board held on June 14th, there was
presented a le tte r dated June 11th from the Deputy Governor of the Federal
Reserve Bank of N York, with reference to the purchase of 12,600,000 of
ew
gold by the Federal Reserve bank from the Reichsbank, which was earmarked
a t the Bank of England, the Heputy Governor transmitting copies of caamunications addressed to other Federal Reserve banks regarding the transaction
and their participation therein. At this meeting, the Governor also "re
ported a telephone c cnversaticn with Governor Strong during which he was
advised of the sale to the Bank of France of apprcKisoately $60,000,000 of
gold which the Federal Reserve Banks have held earmarked a t the Bank of
England* The Governor reported that the sale was m
ade a t a price approais»tely $86,000 above that paid for the gold which is to be taken down by
the Bank of France a t the rate of $15,000,000 a week, with an option to
the Bank of France to take $30,000,000 the f i r s t week. The Federal
Reserve Banks in payment w ill receive a deposit credit a t the Bank of
England, a t in terest, which is to be invested in Sterling b ills as and
when such b ills are available. The matter, he stated, was submitted to
the directors of the Federal Reeerve Bank of N York and unanimously ap
ew
proved by them and w ill be made the subject of a formal communication to
the Board in the course of the next day or so,"
Following the Governor’ s
report, a general discussion ensued as to the position of the United
States in the world gold market and the policy involved in the purchase
of foreign b ills reported by the Governor.
At the meeting of the Board held on June 15th, the Governor presented
a le tte r dated June 14th from the Deputy Udvernof of the Federal Reserve
Bank cf N York, transmitting for the information of the Board copies
ew
of telegram and le tte r addressed to the Governors of a l l other Federal
reserve banks, concerning the sale to the Bank of Franoe of approximately
$60,000,000 of gold held under earmark in the Bank of England for account
cf the Federal reserve banks, as reported informally by the Governor at
the meetirg of the Board on June 14th. Thereupon ensued a discussion a a
to the authority of the Federal Reserve Board in connection with transac
tions of th is kind entered into under the provisions of Section 14 of the
Federal Reeerve Act* The relations between the Federal Reserve Bank of
N York and the Bank of England were also discussed, and by direction
ew
of the Board the Secretary opened and read to the Board the fcarnal agree
ment between the N York bank and the Bank of England which has been
ew
carried in the file s under seal. H also read the action of the Board
e
a t its meeting on December 19, 1916 in voting "That the Federal Reserve
Bank cf N York be authorized to appoint as i t s correspondent and agent
ew
The Bank of England of London, England, and that i t be further authorized
to open and maintain banking accounts with and for said correspondent
and agent fear the purpose of purchasing, selling and collecting b ills of
exchange, in accordance with the provisions of Section 14 and other pro
visions of the Federal Reserve Aot, as amended; and for such other pur
poses as Buy be permitted under said Federal Reserve A ct, as amended.”
Reproduced from the Unclassified / Declassified Holdings of the National Archives
F o r m N o . 3-53.
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FEDERAL RESERVE
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Following the discussion, i t was verted to request the Law Conmittee to re
port to the Board with respect to what limitations and restriction s the
Board is authorised to impose on operations conducted by the Federal
Reserve banks under Section 14 and as to the Board*s general authority
in such transactions* In this oonneetioa j M James requested that the
g,
Q
enaiittoe include in i t » -»epe»t an opinion as to the author ity of the
gederal Reserve isnW in -connection with the ■pm
iehase of foreign bi lls ,
impose s ooimrissAfii eueh as wae im
n
posed on the Ifatieiial Bank -ef---Belgium and the Bank -of Poland A connec t i on with the agreem s entered
n
ent
into wi th those in stitu tions by the Federal R oerwe banks te-purchase
e
-prime bi l l s-bea r i ng their guarantee.
O June 15th, the account stood a t #244,256,300, having been reduced
n
during the week from about #316,050,300, the point a t which i t stood on
June 8th. Operations over th is period are referred to in the following
le tte r , dated June 16th . addressed by Governor Strong to Governor
Crissinger, and presented a t a meeting of the Board held on June 17th:
"Referring to m le tte r of June 9 in regard to transactions
y
in the open market there has been some change in the position due
to the unexpectedly large overdraft of the Treasury in connection
with June 15 transact!ons whieh leads m to write you further as
e
to the position of the money market and as to prospective pur
chases by the Open Market Investment Committee*
“W had calculated, with such information as we usually have,
e
that the amount of the overdraft would be, in round figures,
#180,000,000. It turned out to be #240,000*000, the disbursements
for the Treasury’ s account being larger than the preliminary esti
mates* Against th is large disbursement pending'tax collections
w distributed #104,000,000 of participations to various member
e
banks, leaving the net amount of funds put into the market as a
result of treasury transactions #136,000,000* This means, of
course, that there must be withdrawn from the money market between
now and early next week not only the #136,000,000 which w ill repay
the government’s temporary certificate of indebtedness (net) but
also possibly #30,000,000 more to restore the government's working
balance in the Reserve banks* In other words, on top of borrowings
from us aggregating between #25,000,000 and #50,000,000 at the
present time, the market w ill lose, say #165,000,000, and we
anticipate that the borrowing in a l l forms a t this bank next week
for a time may exceed #200,000,000, and th is , of course, w ill be
in the week prior to the double holiday when we have to meet quite
a heavy demand for currency, a demand on the part of those who
practice window dressing a t semi-annual periods, as well as a
demand arising from the very heavy July 1 interest and dividend
disbursements*
"One hundred million dollars of the securities near held in
Reproduced from the Unclassified / Declassified Holdings of the National Archives
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80 0
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-13the opon market account wore purchased to offset the loss of that
amount of gold earmarked for foreign account as described in mp
le tte r of June 9, so we have only realized about $15,000,000 of
the increase in the account which was contemplated when the com
mittee and the Board discussed the matter a t the M meeting* So
ay
th at, to realize fully the aims we had in mind a t that tin * , we
might s t i l l purchase an additional $100,000,000 between new and
August 1*
’’Having in mind, however, the size of the Stock Exchange Loan
account and the expressions of views contained in your le tte r of
M 13, our directors to-day, after a fu ll discussion, took the
ay
view which is held by the officers of the bank that i t might be
well to defer further purchases until possibly after the f i r s t of
July, even though in the meantime money rates might advance somewhat
in the general money market*
"This was the recommendation of the officers of the bank after
fu ll discussion of the situation, and we thought we should bring
i t immediately to the attention of the Board* W are, however,
e
prepared to act promptly in making further purchases in case money
market conditions indicate the need for it*
nI hope you w ill be good enough to bring this le tte r to the
attention of the Board as i t somewhat elaborates the report con
tained in m letter of June 9*”
y
At the meeting of the Board on June I7th_. following presentation
of the last quoted le tte r frcm Governor Strong, discussion ensued as to
the action of the Board a t its meeting on M 13 in approving a recommenda
ay
tion of the Open Market Investment Committee "That i t shall be the policy
of the Committee between nm and August 1st next, gradually to acquire,
i f possible to do so without unfltto effect upon the money market, sufficient
additional short time government obligations to bring the to tal of the
Ccmmittee*s investment account up to $250,000,000* Attention was called
to the fact that the System account nor (June 17) amounts to approximately
1235,000,000 and that regardless of the manner in which the account was
b uilt up the authority granted by the Board has been exercised and the
aims which the Board had in mind have been realized. After discussion,
i t was understood that there would be prepared and submitted to the Board
a t its next meeting draft of a letter to Governor Strong along the lines
of the discussion a t this meeting*
At a * meeting of the Board held on June 20th, Governor Crissinger,
in accordance with the action of the Board a t its meeting on June 17th,
submitted d raft of le tte r prepared by Mr* Miller replying to Governor
Strong's le tte r of June 16th, reading as follows:
"Receipt is acknowledged of your le tte r of June 16th, supple
menting your letter to m of June 9th, and commenting upon the
e
Reproduced from the Unclassified I Declassified Holdings of the National Archives
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-14changed position of the money market due to the unexpectedly large
overdraft of the Treasury in oonnecticm with June 15th transactions*
I note your views regarding the possibility of further purchases
by the Open llarket Investment Camnittee and note the opinion of
the offioers of your Bank concurred in by the members of your Beard
of Directors th at i t might be well to defer any further purchases
until after the f i r s t of July, even though in the meantime money
rates might have advanced scmswhat in the general money market*
**Your le tte r was brought to the attention of the Board at its
meeting this morning, and there was a disoussion of ssveral of the
matters mentioned. Particular reference was made to your statement
that the Open Market Investment Committee has realized only about
#15*000,000 of the increase in the System's account which was
contemplated when the Committee and the Board discussed the matter
at the time of the Governors' Conference, and the further statement
that 't o realize fully the aims we had in mind a t that time, we
might s t i l l purchase an additional #100,000,000 between new and
August 1st**
"Such purchase of an additional #100,000,000 would result in
an enlargement of the System's investment account beyond the limit
approved by the Board a t its M 13th meeting* Action of the
ay
Beard at that time was to approve the Committee's recommendation
to purchase sufficient additional short term government obligations
to bring the to ta l of the investment account up to #250,000,000*
"Ths System's special investment account amounts a t this
time to approximately #235,000,000, leaving a leeway for future
purchases of #15,000,000 to reach the limit previously approved*
"in view of the contingencies pointed out in your, le tte r and
such other inf ornation as the Board has regarding money market
conditions, i t may later on be advisable to m
ake additional pur
chases of securities on System account. The enlargement of the
System's account in the near future, however, raises a new ques
tion , and the matter should, therefore, be submitted to the
Board in the usual course."
In presenting the draft of le tte r just quoted, the Governor stated
that "he understood from a telephone conversation with Governor Strong that
a further le tte r on this subject is being forwarded to the Board, and
action on the le tte r prepared by M Miller was therefore deferred.
r*
At a meeting of the Board held on June 21st . Governor Crissinger pre
sented the following le tte r from Governor^Streng, dated June 20th, which
Governor Crissinger had stated a t the meeting on June 20th was being fo r
warded to the Board:
"in our telephone conversation on Friday you mentioned that
some members of the Board f e l t that the purchases already eon-
Reproduced from the Unclassified I Declassified Holdings of the National Archives
I ’o r m Ts'o. 1:51.
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FEDERAL RESERVE
Date
T o ________
-Subj'ect:.
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-15cluded by the Open Market Investment Committee had completed the
amount which was reconaaended by the conaaittee to the Federal Reserve
Board in its last report, and that the position should non be re
viewed again to determine whether any further purchases were ju s ti
fied.
’*W have prooeeded in making these purchases in accordance
e
with m understanding of the policy agreed upon by the Board with
y
the Open Market Investment Committee in the past, that large movenftnts of gold such as we have recently experienced are, as a matter
of course, to be offset by purchases or sales of Open Market Invest
ment Conmittee holdings. I think you w ill find this general view
of the committee* s policy referred to in previous reports of the
committee, three of which I have before me, that is , November 8,
1926, September 10, 1926, and the last meeting held in May. The
records of the earlier meetings of the committee a re , as I re c a ll,
even more specific on this point, but they are not before m as I
e
dictate this le tte r.
M review the present situation, when the Bank of France secured
To
the return of $90,000,000 of gold in London we negotiated for its
purchase, as you know, on very short notice in order to avoid its
getting into the country when, having coce crossed the exchange
b arrier, it would form a permanent part of our gold reserves.
$30,000,000 we were unable to arrest in London, but we partly off
set the effect of its addition to bank reserves by sales, as I
re c a ll, of about $15,000,000 of the System’ s securities. The purctese of $60,000,000 in London was effected by our selling a like
amount of the System^ securities to the Bank of France and so
avoiding the expansion of bank reserves which would have resulted
from our paying for the gold without reducing our investment account.
While the effect of th is was to give the Bank of France dollar
balances for $90,000,000 in N York, about $75,000,000 or there
ew
abouts of th is gold was actually offset by sales of securities.
"How exactly the reverse operation has taken place as to
$100,000,000, because the Bank of France has withdrawn $100,000,000
of their deposits with Sew York banks, transferred them to us, and
purchased that amount of gold, thus effecting a reduction of bank
reserves in this c ity of $100,000,000. As explained to you by
telephone, this made i t necessary to offset the loss of reserves
by purohases of securities as rapidly as they could be made. Had
we failed to do so we would have had a sharp advance in interest
rates a t a time when it would have caused inconvenience to the
Treasury financing then under way and would have increased the
liMihood of even higher rates which we also expected after the
June financing was concluded.
**A in previous similar cases we did not feel that these pur
s
chases formed a part of the $116,000,000 authorised by the Board
following the submission of the canmittee, s report of M 9. In
ay
Reproduced from the Unclassified / Declassified Holdings of the National Archives
F o r m X » . 1 'S l.
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-16fact we f e l t that under that authority only $15,000,000 of pur
chases had been effected and that the general scheme of the report
to continue purchases up to $250,000,000 before August 1, if money
market conditions made that possible, clearly contemplates that
regard for money market conditions and for the volume of borrow
ing in H York would be the guiding principle. Were this not the
ew
case the effect of this loss of $100,000,000 cf gold would be to
entirely nullify the action of the Open Market Investment Committee
and the Federal Reserve Board.
*As explained by telephone and in ray last two le tte rs on this
subject, we are anticipating heavy borrcsring this week, although
the amount cannot accurately be forecast. I t w ill furnish the
opportunity to enlarge the committee's holdings of securities which
the committee believes, and which we f e l t the Board believed, was
a desirable thing to accomplish if i t could be done without creating
an undue ease cf money, but the continued enlargement of the securi
ty loan account seemed to ju stify our delaying these purchases for
a short time so as to see what effect a brief period of somewhat
higher rates would have.
^W realize, as the Beard doubtless does, that there has been
e
a considerable speculation in stocks, although far less active and
menacing in its proportions than that which had developed in either
Berlin or Paris. Just as is Abated in the committee's report and
in m previous le tte rs this situation w ill require careful scrutiny
y
from day to day until the true position of the money market dis
closes its e lf . But I am sure the Board has in mind that if a
period of definitely higher rates now develops and no purchases are
made practically a ll the b ills in the market will cane to the
Federal Reserve Bank which might make i t necessary for us to advance
our b ill buying ra te , and th at, in turn, make i t necessary to advance
our discount rate. Such action at this time we do not believe is
ju stified , and our directors feel would be d istin ctly harmful.
"So, summarizing the position as i t appears to be to-day, I
should say that we are quite willing to watch the effect of some
what higher rates for a short period, but we believe i t would be
hasardous a t this time to allow a general revision of the level
of interest rates to occur, for the reasons -
(1) That i t might force an increase in our b ill rate
and ultimately our discount rate,
(2) That such an inc raase would be detrimental to the
business of the country ,
(3) Tha^ it would have a~~£endency to depress the value
of sterling and ultimately the continental ex
changes, and possibly embarrass us by starting
another gold import movement, and
,
'
k
Reproduced from the Unclassified / Declassified Holdings of the National Archives
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-17(4) That with the heavy refunding operations now under
way and in prospect for the Treasury we believe
that any general advance in the level of interest
ra te s, unless necessitated by other impelling
reasons, might have a detrimental effect upon the
Treasury's plans which would be quite unnecessary.
ttI have endeavored, by telephone and le tte r , to keep you and the
members of the Board fully informed of these developments from day
to day in the hope that what we are doing was fully understood and
would meet with the Board's entire approval* If that is not the
case may I ask you to let m know a t once, as the situation is
e
certainly one of sufficient importance to make i t necessary that
there should be no misunderstanding of the Board's action and the
oonmittee's policy.”
Following the reading of the above le tte r, a detailed discussion en
sued during which Mr. Miller read to the Board the proposed le tte r to
Governor Strong prepared by him on which action was deferred a t the meet
ing on June 20th. Mr. Miller also submitted to the Board certain suggest
ions for changes in the proposed le tte r in light of information contained
in Governors Strong's conmunication of June 2Oth. During the discussion
which ensued, Governor Crissinger was called from the meeting and upon
his return stated the c a ll was from Governor Strong who suggested that if
members of the Board desired more detailed information regarding present
conditions than is contained in his le tte rs , he would be glad to come to
Washington tomorrow.^June 22nd) for an interview. At the request of the
members of the Board, Governor Crissinger expressed to Governor Strong
the desire of the members that he come to Washington. Action by the
Board on Governor Strong's le tte r of June 20th was thereupon deferred.
Accordingly, Governor Strong came to Washington and attended a meet
ing of the Board held on June 22nd, a t which a l l members were present,
except Messrs. P latt and McIntosh. The minutes of the meeting held on
June 22nd are as follows:
“Governor Crissinger stated that the meeting had been called
for the purpose of discussing with Governor Strong in further de
t a i l the matters referred to in his letters to the Board of June
9th, 16th and 20th. The Board, with Governor Strong, then m
ade an
extended review of present and prospective conditions. Governor
Strong reported upon the money markets, a t hom and abroad, and
e
on the gold and exohange situation. During the discussion, i t
was brought out that if money rates should firm or rise i t would
be desirable to give re lie f to the situation through purchase of
securities in the open market. The opinion was expressed by sane
members of the Board that authority to the Open Market Investment
Committee to make such purchases up to $100,000,000 already exists
Reproduced from the Unclassified I Declassified Holdings of the National Archives
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-18under the action taken by the Board on M 13th, as the 1100,000,000
ay
of securities purchased since that tixas to offset gold exported to
the Bank of France should not be considered as having been purchased
under the Board’ s authority referred to. This opinion was not con
curred in by a ll members of the Board.
Following the discussion, Mr. Hamlin submitted and moved
adoption of the following:
'After hearing a report upon the money markets, a t
home and abroad, and of the gold and exchange situation,
the Board authorize the Governor of the Board to advise
the Open Market Investment Committee th at it doesjjnotj
consider the $100, 000,000 of securities purchased by
the Committee since M 13, 1927 as forming part of the
ay
authority granted to the Coimittee“^y^HenBoard^6n^that
d ate.f
Mr. Hamlin*8 motion being put by the Chair
was carried, the members voting as follows:
The Chairman, H
ayew
Governor Crissinger, "ayeM
Mr. Hamlin, "aye*
Mr. James, "aye"
M Miller, M
r*
no
M Cunningham, M
r*
noM
In explanation of his negative vote, Mr. Miller stated
that his view was already, in part, set out in the drafts of
letters he had submitted for the consideration of the Board
as the basis of a reply to Governor Strong *s le tte rs of June
9th, 16th and 20th«
H added, in further explanation, that open market pur
e
chases and sales of securities for System account were becom
ing the most important operating instrumentality of the Federal
Reserve System for influencing the credit situation and he
thought i t very important, therefore, that the action of the
Open Market Investment Committee should never re st upon infer
ential or implied authority, but that every considerable in
crease or dimumition of the System account should be considered
as a separate matter by the Board, and made the subject of
positive action*
With regard to the prospective credit situation, Mr.
Miller said that he thcught i t not improbable that the later
Reproduced from the Unclassified I Declassified Holdings of the National Archives
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•19months of the year would shew a tedenoy toward hardening of
money rates. Should such prove to be the ease he thought i t
would probably be advisable action for the Federal Reserve
System, through open market purchases, to ease the credit
situation; but he added that the true position of the money
market has not yet disclosed its e lf and appropriate policy
cannot be determined a t this time.
For these reasons, he stated, he voted "no” on Mr. Hamlin's
resolution, "
During the period from June 22nd to the date of the next meeting cf
the Open Market Investment Ccmaittere held in Washington on July 27th, purchases were made for the account which increased the to tal from $250,448,300
to $265,998,300.
A meeting of the Board and the members of the Open M
&rket Investment
Committee was held in Washington on July 27th, and the minutes of said
meeting read as fo llo w :
"The meeting was called as a meeting of the Open Market Invest
ment Ccomittee with the Federal Reserve Board and representatives of
two of the mid-western banks were present* The Chairman presented
his report reviewing open market operations and credit conditions.
The credit policy of the System was thereupon fu lly discussed,
^Consideration was given to the continued f a ll in commodity
prices, to the fact that there was a diminution of borrowing from
the reserve banks due apparently to some slackening in business,
and especially to the relation of money rates in the United States
to money rates in Europe* I t was reported that because of heavy
foreign payments which are likely to inorease with the f a ll movement
of commodities to Europe, there was a continued drain on European
central bank gold reserves, which made i t more than likely that
central bank rates in Europe would need to be further advanced this
f a l l . The (Isrman and Austrian rates have already been once advanced
and there~ is sora9~pro5abilityr^«f a one per oent~£ftvance in tns rate
of the Bank of England,
“All present at the meeting recognized that these developments
would necessarily have a depressing effect upon business abroad and
might tend to r e s tr ic t the freedom of purchases of goods in this
country a t the usual season. I t was also brought out that i t is
the duty of the central banks to keep money rates a t as lew a level
as my be attained with safety, and that at this time rates could
be reduced not only without harm but with reasonable expectations cf
beneficial results* I t was f e l t that the only possible adverse de
velopment resulting from a general lewering of discount rates would
be in the speculative security markets, but that this possibility
should not stand in the way of the execution of an otherwise d esir
Reproduced from the Unclassified / Declassified Holdings of the National Archives
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-20—
abls policy*
"There was no exception to the view that the time had arrived,
or w a s approaohing, when the discount rate in N York should be
ew
reduced, and with one or two exceptions there was no dissent from
the view that a System policy of lorer discount rates should in
general prevail. It was pointed out, however, that local conditions
in same of the interior reserve d istrio ts did not indicate any de
m
and for rate reductions in those d istric ts and that the small bor
rowings from the reserve banks indicate an adequate supply of
credit for a l l needs a t the present rates. Officers of some of the
larger member banks were quoted as opposed to rate reductions. O
n
the other hand, i t was pointed cut that reductions near, which would
result in no harm and considerable possible benefit, would place the
reserve banks in position to make increases later which might serve
as warnings without penalizing business with high rates.
" i t was also suggested that in order to m
ake a three and onehalf per cent discount rate effective some further purchases of
securities might be desirable up to say #50,000,000*
"The most important consideration a t the meeting was undoubted
ly the fact that the differential between the rates in N York and
ew
the rates in London was not today sufficient to enable London, and
therefore the rest of Europe, to avoid general advances in rates
this autumn unless rates here were lowered, and that the consequence
of such high rates as would result in Europe would be unfavorable to
the marketing of our export produce abroad and would have an adverse
effect generally on world trade."
The minutes above quoted were written during recess, and upon reconven
ing, were approved by the meeting, following which i t was moved and carried
that the authority of the Open Iferket Investment Committee be extended for
the purchase, as and when conditions warrant, of not to exceed an additional
#50,000,000 of investments.
At this point, July 27th, when the account stood a t $265,998,300, the
Committee had authority to- increase the holdings in the account up to
$315,£Q0i^m>
During the period from August 15th to lgtJv^the following letters were
exchanged between Governor Crissinger^idrtyovernor Strong:
“August 15, 1927.
M dear Governor Crissinger:
y
I am sending you a letter today as Chairman of the Open 2£arket
Investment Committee which I think explains its e lf , but wish to add
something to i t personn&lly so that you may understand the atmosphere.
There has been a considerable movement of funds away from N
ew
York. I t resulted as you have observed in the money market remain
Reproduced from the Unclassified I Declassified Holdings of the National Archives
l<’o r m N o . 1 • I ,
»
,
Urhce Correspondeiice
To
...._
FEDERAL RESERVE
. _ _____
Subject
__
From____
-
21 -
ing somewhat firmer than we had anticipated and it not only resulted
in our purchasing somewhat more for open market account than 1 had
expected, but in our doing so much more rapidly than had been a n tic i
pated. The transactions reported in m separate le tte r are simply
y
routine and arose in connection with adjustments made in the various
accounts as explained.
W are about facing the need for a very considerable preparation
e
for the September 15 financing. W hold for account of the Open
e
Market Investment Committee and for account of our foreign corres
pondents something over $200,000,000 of the certificates maturing
September 15. If repayment of these were received from the Treasury
without any offsetting purchases i t would of course result in a very
severe stiffening of money rates and a large shortage of reserves in
N York, much the largest in fact that we have experienced in some
ew
years. In view of this fact we are near proceeding vigorously to
purchase several longer maturities against offsetting sales of the
September 15 naturities as rapidly as these can be effected. The
account w ill be up and down from day to day, but I want you to under
stand just what is taking place, and hope you w ill explain i t to ycur
colleagues in the Board.
Fran th is time cm I anticipate there may be a fa irly steady
growth in demands upon us by the money market and we would not wish
to have the money situation complicated by failure to anticipate
these maturities.
With best regards believe me,
Sincerely yours,
(Signed) Benj. Strong"
"August 16, 1927.
Dear Governor Strang:
I have received this morning your private and confidential
le tte r tof August i5th concerning the market situation as i t is nm
developing. It is very interesting. I think i t was reasonable to
expect i t in view of the differential between the rates of N
ew
York and London.
I quite agree that you should take vigorous steps to prepare
for off-setting the September maturities.
I t appears to m that we have some problem on, but I feel
e
confident that you w ill be able to work i t out. I would be very
glad to take this matter up with the Board if there was any Board
here, but there is nobody here but M James. H
r*
amlin and
are away as usual; Miller is in California; Cunningham is a t his ^
farm in Iowa; and the Comptroller is in and out, but not very well.
So there is nobody le ft but the cripples to run the business.
Sincerely yours,
(Signed) D R. Crissinger"
*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
F o rm
N o . 1 'i J .
Office Correspondence
To —...........;
FEDERAL RESERVE
BOARD
Date
___
Subject:,
From___
-
22-
N
August 15, 1927.
Dear Governor Crissinger:
At the opening of business this morning the Open Iferket In
vestment Account stood a t about $501,000,000, with additional pur
chases made last week, for delivery today, of $4,000,000, whioh w ill
make the to ta l $305,000,000. This brings us up to a to ta l of
$40,000,000 of purchases against the $50,000,000 recently authorized.
This morning one of our foreign correspondents requested us to
s e ll $10,000,000 of September 15, 1927 c e rtific a te s , whioh we are
taking for the System Account* This w ill complete our purchases for
the present. In addition to this $10,000,000 purchase we have been
offered a block of $20,000,000 of the September 15 c e rtific a te s , and
as we hold in the System account $2 0,000,000 of the Treasury 3 3/8 %
bonds (for which we turned in Second Liberty Loan 4 l/4$ bonds on
June 15) which can new be sold to an advantage, i t has seemed to us
an opportune time to make the switch. W a re , therefore, taking in
e
the $20,000,000 of September 15 c e rtific a te s , against which we w ill
sell the long-term 3 3/8$ bonds, and have today sold $10,000,000
of the la tte r a t 100 22/32, for delivery tomorrow. The remaining
$10,000,000 w ill undoubtedly be sold within the course of the next
few days.
Very truly yours,
(Signed) Benj. Strong,
Chairman, Open Market
Investment Committee.’*
"August 16, 1927.
Dear Governor Strong:
I have your le tte r of August 15th explaining the condition of
your Open Market Investment Account and note that i t is now up to
$305,000,000, and that you are about to complete the full authoriza
tion.
I am very glad to have your le tte r and w ill bring i t to the a t
tention of the Board.
With m kind regards, I am
y
Sincerely yours,
(Signed) D. R. Crissinger"
Reproduced from the Unclassified / Declassified Holdings of the National Archives
K o r i n N o , 1■ 1,
'!
Office Correspondence
FEDERAL RESERVE
BOARD
Date
To
Subject:.
From_
-23"August 16, 1927.
Dear Governor Crissinger:
Since writing you yesterday we have s t i l l another development
which has a bearing upon the money market. Sterling exchange since
rate reduction has been consistently strong and yesterday we
were able to liquidate h 1.000,000 of our Lond^aooount at a s a tis rate. And the arrangement witn the Bank of England to con
tinue this policy w ill possibly result in further sales of sterling
from time to time so long as the market ju stifie s it .
These sales of course have the effect of taking funds out of
the money market in N York and consequently of impairing banking
ew
reserves. If sterling is strong enough to justify considerable
sales i t w ill possibly be necessary for us to extend our purchases
of Government secu rities. This, of course, is one of the offsetting
transactions which w ill be current from time to tin », and i t simply
means that as the London portfolio decreases the N York portfolio
ew
w ill correspondingly increase, and vice versa. O the other hand,
n
i t may be that we can buy gold in London a t satisfactory prices and
hold i t earmarked so as to be in position to se ll i t at a favorable
opportunity.
Very truly yours,
(Signed) Benj. Strong”
"August 17, 1927.
Dear Governor Strong:
Your le tte r of August 16th in re selling of i» 1,000,000 Sterling
out of your London account has been received, and i t is noted that
these sales of Sterling from the London account w ill withdraw funds
from the N York market and that it w ill be necessary probably to
ew
extend the purchases of securities in order to offset i t .
I am bringing your le tte r to the attention of the Board.
Very truly yours,
(Signed) D R. Crissinger,
0
Governor."
Reproduced from the Unclassified I Declassified Holdings of the National Archives
F o r m X o . 3 5J .
/ I
A
(Jrrice Correspondence
FEDERAL RESERVE
“R
°A
O
T o _______ _.
D
a
te
Subject;,._____ ..
From__
-2-4-
"August 19, 1927,
Dear Governor
Crissinger:
Matters are developing from day to day in money market affairs
and onoe mere I should advise you just what is transpiring*
In the f i r s t place you w ill observe from the gold settlement fund
figures that we have lost ever $120,000,O X of our reserves in the
C)
la st few weeks to the rest of the country. While this is not unusual
at the season, I have a feeling, which is shared by some of my associa
tes here, that the .movement has been accentuated by the f » i l ^r« of
>/
C
hicago and Philadelphia to r educe iheir discount rates. But after
a l l that is a matter for them~To decTdiTand^we must make our arrange
ments accordingly.
Until the last day or two the trend of the money market disclosed
an underlying strength which disturbed m somewhat, but within the
e
last forty-eight hours i t has shewn evidence of ease, stock exchange
rates today were reduced to 3-l/2 ^ , there is a somewhat lessened de
m
and for Federal Reserve funds, and signs that the commercial paper
market has eased a bit as well as the rate on collateral time loans.
O of the results of this ease, of course, is to strengthen the
ne
sterling rate somewhat and we have been successful in disposing so far
of about b 3,750,000 of our sterling balances - in round figures about
$18,000,000 - This, of course, takes money out of the money market and
considering th at i t involves no change in policy and simply a shift in
portfolio from London to N York, we have f e lt obliged to buy a moderate
ew
amount of governments in order to offset these withdrawals*
Taking the situation as a whole, i t has worked out most s a tis flactbrily. If we find after the turn of January that our portfolio is
larger than necessary we can readily liquidate a part of i t . And as
matters stand today I think i t may be better later in the year to le t
the needs of the market be supplied by the member banks borrcuring frcm
us* The liquidation immediately following the f irs t of January w ill
enable us to judge of the extent, if a t a l l , we should s e ll government
securities,
I hope the whole program has worked out to your satisfaction, I
know it has to ours, and our directors expressed satisfaction when the
subject was reviewed a t yesterday^ meeting.
I beg to remain
Sincerely yours,
(Signed) Benj* Strong”
All of the above caamunications were presented at an Executive Committee
meeting held on August 24th, Koa ction was taken by the Committee exoept to
note the contents thereof.
At the meeting of the Executive Committee held on September 2nd, the
Reproduced from the Unclassified / Declassified Holdings of the National Archives
l*’o r in X o . i:» l.
g *1
A
Urrice Correspondence
To ________
FEDERAL RESERVE
ba
oo
r
____
D
a
te
Subject;______
From__
-25Ccxnmittee noted the following communication from Governor Strong dated
August 25th:
"Since m le tte r of August 16 in reference to changes in the
y
Open Market Investment Account, the strength in sterling has
enabled us to make further sales fran our London account* Such
sales have reached a to ta l of h 7*180,000 through the close of
business tonight, involving the withdrawal from this market of
approximately #35,000,000* and up to the close of business last
night we had purchased for the System Account, as an offset, a
to ta l of #17,004,500 par value of Government securities*
"Today one of our foreign correspondents requests us to sell
froa its holdings #25,000,000 of Treasury certificates maturing
September 15 next; of this amount we have purchased for the System
Account #15,000,000, making to ta l purchases to offset sales d£
sterling #32,000,000 and increasing the holdings in the System
Account to #347,000,000# The remaining #10,000,000 of these
September ce rtifica te s we have purchased for our ow investment
n
account, to be held there temporarily for sale to the Treasury
early in September*
"With the continued strength in sterling, we w ill, no dcubt,
be able to make further substantial sales, in which event we shall
continue making offsetting transactions."
Nowhere in the Board's records do?s i t appear that formal action was
takezTapproving specifically the purchase of securities by the Open Market - k Investment Caamittee to offset sales of ^sterling balances* The f i r s t sale
of sterling was made during the week ending August 17th, and on that date
the Open Market Investment Account stood a t #317,956,300* Since that
date, the sterling balance has been practically liquidated, and the Open
Market Investment Account has increased right along up to September 21st,
when i t stood at #362,819,000*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority’
September 30, 1927.
At a Mating of the Federal Koserve Board held on M 5 , 1S27,
ay
Governor Strong reported verbally arrangements being atdt to purchase
$60,000,000 of gold frrns' the Bank of France, to bo hold by tho Bask of
tag land for tho Sow York bank’ s account. Tho f allowing is an exoerpt
from tho minutes of that meeting:
\
V
"At this point, Governor Strong of tho Fodorai H serve Bank
e
of V York, entered tho root and advieed tho Board that ths Bank
ow
of Franeo had contemplated and made arrangements to ship $90,000,000
of gold to tho Aaerioan Exchange Irving Trust Company of V York
ow
C ity, that $12,000,000 of ths gold had boon received by tho meaner
hank and $18,000,000 is no* in tra n sit. Ba stated that tho Fedora 1
looorre Bank of V York has about completed an arrangement whoroby
ow
tho balanoo ef tho gold not yet shipped ($60,000,000) would bo sold
to i t by tho Bank ef Frsnoo and hold fer tho Fodorai Reserve''ftank,
properly earmarked, by tho Bank of England. Be also referred to
a telephone comer cation th is morning with Deputy Governor Barr loon
ef tho Faderal ieeerve Bank of V York, regarding impending arrange
aw
ments fer stabilisation of the Polish Currency.1
1
otion was taken by tho Federal Reserve Board a t this mooting.
The Board has in its file s a letter from the Secretary of the Governors*
Conference, dated M 24, 1927, enoloeing a copy of the Minutes ef the
ay
meetings of tho Open Market mvestrnsnt Comnittee hold in laehington on
M 9th, 11th and 12th, and a copy of tho preliminary memorandum re la
ay
tive to Open Market policy whioh was submitted to the Governor o’ Conference
in connection with the Ccmmittee's report. The Governors* Conferenoe was
in so salon in lashington during the period from M 9th to 12th.
ay
The minutes of a costing «f the Open Market Investment Cenmittee
held in Washington on the morning of M 9th show th at the Secretary
ay
read tie preliminary d raft of the memorandum referred to above and that
i t was the opinion of the Comaittee that oeples of the memorandum, with
nigested amendments, should ho submitted by tho Chairman of the Csmlttee
to tho Federal Reserve Board for its consideration in order to familiarize
tha Board with the factors which would be in the minds of the Gosadttee
later in preparing its report. Ths minutes of a meotingof the Open
Market Cenmittee hold on the afternoon of M 9 , 1927 J*tfi!at tho Cenmittee
ay
considered a redraft of the preliminary sM
morandum ccntaining the amend
ments agreed to a t tho mornixqs mooting, and that the Chaiman of the
Cenmittee was requested to transmit seven copies of the M
emorandum as
amended to Govern or Crissinger for tho members of the Board, with advice
that the Coesilttee would bo glad to meet with tho Board and discuss the
memorandum any time suitable to its convenience. Aooording to the
minutes of said meeting, copios of the amended memorandum were submitted
to Governor Criasinger a t 116pm, immediately following adj oiamment of
tha afternoon meeting of the Ccwaittee.
A copy of tho preliminary memorandum referred to is attached hereto,
from which the following is quoted:
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority*
-2 -
”Dur ing the l a s t part of A p ril, the Bank of France recovered approxi
mately # 90,000,000 of gold from the Bank of England by the repayment of
i t s c re d it to the Bank of England. Of th is $ 9 0 ,0 0 0 ,0 0 0 , $ 1 2 ,0 0 0 ,0 0 0 a r
rived in lev York la s t week, $ 1 8 ,0 0 0 ,0 0 0 is s t i l l on the water, and
$£ 0 ,0 0 0 ,0 0 0 was purchased by the Federal Reserve Bank of H York on
ew
May 6 and is nor held by the Bank of England under earmark for account
of the N York bank. In addition to th is Bank of France gold, $ 2 ,5 0 0 ,0 0 0
ew
has recen tly been imported from A u stra lia , and another $ 2 ,5 0 0 ,0 0 0 more
i s now on the water f r cm A u stralia and expected t o a rriv e in th is country
th is week
" I somewhat disturbing fa c to r arose in the prob ability of the
importation and sale t o the Federal He serve Bank of M York of the
ew
$ 9 0 ,0 0 0 ,0 0 0 of gold, negotiations fo r the purchase of which had been
concluded by one of the H York member banks from the Bank of France,
ew
I t was learned th a t space had been reserved on the steamers and arrange
ments had been made fear shipping the e n tire amount of gold; in f a c t , one
shipment was about to a rriv e in H York, and others were being loaded.
ew
In view of this s itu a tio n , a f t e r consulting with a l l members of the Open
Market Investment Committee and with the Federal Reserve Board by t e l e
phone, i t was arranged to purchase from the Bank of France a l l of the
gold - nearly $ 6 0 ,0 0 0 ,0 0 0 - which had not been shipped, and to se| l
jbhe Bai&htf Franc-•a lik e amount of the September maturity of c e r t i f i
c a te s cf imetrtedness held in the Open Market Investment account. By
th is arrangement, the money market sta tu s remained unchanged, except as
to the gold which had already been shipped, leaving the committee in
position to determine la te r a t i t s meeting whether these s e cu ritie s
should be replaced or not. S e cu ritie s were sold t o o ffse t $ 9 ,0 0 0 ,0 0 0
of the $ 1 2 ,0 0 0 ,0 0 0 already a rriv e d , but no arrangements have been made
fo r sales t o o ffse t the balance of the gold which wi l l a rriv e from
London and from A u s tra lia , amounting in a l l to about $20,000,000# With
the sa le already made and fu rth er s a le s , if made to o ffse t further
gold a r r i v a l s , the s e cu ritie s remaining in the System*s p o rtfo lio
account w ill be a l i t t l e over $ 1 0 0 ,0 0 0 ,0 0 0 , to o small an amount to
afford secu rity again st possible fu tu re developments* This w ill be
ap p reciated, for example, i f the $ 9 0 ,0 0 0 ,0 0 0 now purchased had arrived
a t a time when we had no p o rtfo lio of government s e c u ritie s a v a ila b le .
I t is d e a r , th e re fo re , th at the committee must from new on give c a re
fu l atte n tio n to meeting th is gold problem, e ith e r by increasing i t s
p o rtfo lio In an ticip atio n of futu re developments, or by adopting other
measures. The method of doing so should be determined w ith regard to
whether the t i a * has or has not arrived when the Federal Reserve System
can afford to put new funds in the market, the e f f e c t of which would be
*to reduce the System* s holdings of b ills * There are various p o s s ib ilitie s
fo r dealing with the gold problem as a whole which have never heretofore
been discussed in the Committee’ s report and which are now submitted
siaply for discussion, None of them a re recommended a t th is tim e, but
a re intended simply as a summary of a l l p o s s ib ilitie s .”
to reduce
the borrowings of member banks, p rin cip ally in N York, and possibly
ew
Reproduced from the Unclassified / Declassified Holdings of the National Archives
d e c la ss jE ie d
f
Authority’
The f l r * t of tho eeveral possibilities referred to in the preliminary
memorandum is as follow*:
*(1) Tbs cosaedttee could replace tho oMurities sold to
tho Bank of IrtM t* Tho immediate effect would bo to reduce
the amount of menfeer honk borrowings in H York, which ore
ow
now running on tho average a t from #100,000,000 to #150,000,000."
A second meeting of tho Open Market Committee was hold on tho After — ton of Ifcy 9 , 1927, attended by six so p o rs of tho Federal Re serve Board.
The minutes of that mooting show that thoro was a long discuss lcsi by various
members of tho committee ia i tho Fodoral Reserve Board of the preliminary
aam
orantou previously distributed among tho msmhors of tho eomsdttee and
tho Federal Reserve Board, and that Governor Strong explained that th is
preliminary memorandum did not esfcody asy rooeMikdationS but merely
raised points for discussion with tho Reserve Board which wcmld enable
the oosKittoe later to file a report with definite recommendations. Ifee
mooting Adjourned with tho understanding that tho Committee would submit
its final report to the Fodoral Reserve Board later on in the week.
A report of tho Open Market Committee dated M 11, 1927, was submitted
ay
to the Board at a meeting hold on M 12, 1927* In th is report, the
ay
Open WUrkst Committee made tho following recommendations:«f policy for
tho period ending August 1, 1927:
"(1 ) That no further sales of system securities bo mode in
order to offset arrivals of gold from abroad nor know or an tici
n
pated*
“(2 ) That i t shall be the policy of tho ooermlttee between
now and August 1 next, grsdually to acquire, i f possible to do
so without undue effect upon the money market, sufficient addi
tional short-tims government obligations to taring the to ta l of
the oommittee' s ifnrd&tmeni account up to #250,000,000* In inter
preting the expression *undue effect upon the money market, * the
oosmdttoe would expeot to keep in mind any changes which might
occur in the general level of money ra te s , as well as the extent
to which these purchases might effect a reduotiou in the amount
b<rrmrinri bv member banks*
"While thla policy is not directed towards bringing about a
reduction in discount rates by any Fodoral reserve bank, nor is
t i » t immediately anticipated, i t is recognised that some lowering
of market rotes for money might nevertheless ju stify such a reduc
tion later In the year, especially a t the principal financial
centers** Tho recommendation in paragraph two is also made after
consideration of the f a c t th a t somewhat lower interest ratos
ordinarily operate to check gold imports; in f a c t, that was one
of tho effects of purchases of securities made in 1924*
«The conalttee further expects to coutline studies «f thosa
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority’
«4-»
the amount of Federal reserve cred it inths market. I t expects to
discuss with ths Treasury Department thoss methods with which the
freasmry is concerned, and requests that ths Federal fisssrve Board
give ccnsidsratlon to those particular items, such as reserves on
tins deposits, which rs la ts to the regulations of ths Fsderal
Rsssrve Beard# *
*
At the Hiy 12th msstl|§g of the Board, following submission of the
above recommendations, Geverilor Crissinger called attention to ths Ikct
that the Board, under ths impress ion that ths Federal Advisory Council
would meet hsre tomorrow recently requestsd ths Council to maks a oars,
fml review of the open market pel icy of the Federal Heservs Systsm sinse
ths organisation of ths Opsn Jkrket Commlttee and to give the Board the
benefit of i t s views and to submit any rscammsndations that may sees
desirable with rsgard to changes in ths method or objectives cf open
market policy, Ths Governor statsd that ths Federal Advisory Council
would not stsst until next Friday, M 20th, and c cr sequent ly would
ay
n**t he able to discuss ths mattsr as eantsmplated jointly with the Board
aftd ths Open Market C m itte e . Governor Strong, Chairman cf ths Committss,
oallsd attention to the Diet that the preliminary memorandum presented to
the Board ahess the present condition of a ffa irs and requested that con
sideration bs given to that memorandum in connection with consideration
ef the Cremittee*s reooasBsndations, Thereupon ensued a detailed discussion
as to the present Open Market situation and the desirability of increasing
ths System1s portfolio ef government secu rities, as recommended by the
Committee, and of msfthods whereby suoh an increase oould be accemplishsd
without disturbing the monsy market, J%i Millet i x f essed Hlff gpl'ffVaff I
mont"mooeast
^>ae
im
i)x
|
in iohwees. Governor Strong statsd that the pirpoae of the Committee
was to agrse with the Board upon the policy which would extend, under
existing conditions, until August 1 s t, and having done so that i t would
seem te be the responsibility of the Cosanittee to put the policy into
execution, keeping the Beard informed daily of a ll transactions. Thors
followed a disease ion as to ths possibility of futurs Imports of gold
and ths effect of such Imports upon the money market, in conjunction
with a pel ley ef ths Federal lessrvs Syetem which its s l f might result
in adding to ths present supply of monsy. Governor Strong expressed the
opinion that ths poliey s cntsmplatsd in ,ths Canmittss's rscommsndations
would not rssu lt in any insrsase in Federal Bsservs credit in ths monsy
market, but would bs offset by reductions in membsr banks* borrosings
frsm ths ftd iral Rsssrve Bank of Sew York or in the b ill holdings of the
System. Upon met ion, ths rsemszidations of ths Opsn Market Investment
Coesdttee were rscsivsd by ths Bssrd and mads spsoial order of businsss
for a data to bs fixed by the Governor after conference with the Chairman
of the Board.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
declassif T d ""
e
Authority*
EO<ioWt
\
A A
y ^ f 0000^
Tho Board roocrrvonod during tho aftornoon of M 12th, and during
ay
that sossion tho Govorncr roforrod to tho statomont aado |y Govornor
Strong a t tho mooting of tho Board on Kay
to tho of foot that tho
Fodoral Rooorvo Bank of H Yc*L i&i ondoavoring to purchaso tram tho
ew
Bank at Franco oortain gold whioh tho Bank of Frano# was withdrawing
from tho Bank of England and had sold to and intondod to ship to tho
Amsrioan Utohmngo Irving Trust Company of H York City, whioh, if
ow
purohasod, tho Fsdoral Rooorvo Bank of V York intondod to havo oarow
marfcod and hold for i t by tho Bank of England. Tho Governor otatod
that ho hod boon advisod by Governor Strong that tho gold in quootian,
totaling #69,648,000 had boon purohaood by tho V York bonk, had boon
ow
earmarks* and mo boing hold by tho Bank of England, and that a t tho
Conforonoo of Governors of thi Fodoral rooorvo banks now in ssssicm
in ffashington i t had boon voted unanimously that a l l Fodoral roserve
banks p a rtic ip a te in tho pnrebase and that oaid gold bo not eoomtod ao
port of tho books* gold reserves* Tha Governor otatod th at ho had also
boon advised that tha participation was to bo aado affective as of M
ay
11th, and roeonsondod th at in tho Board*s published statement shoring
tho oendi t ion of tho twelve Federal rooorvo banks, tho gold in question
bo ro ported against tho oaption, "Gold Hold Abroad", isomdlately proooding tho item H
Dno firon Foreign Banks11, and th at tho pmbUshed
anlyois thoroof accompanying tho statomont oonto In tho follmring
brlof ocmraent in rogard thoroto: "During tho wook tho Fodoral Kooonro
Bank of V York purohaood abroad #69,643,000 of gold, tho purchase
ow
boing participated in by a ll Fodoral rooorvo banka. this gold is nos
hold earmarked by or* of the foroign oorrospondonts of tho V York
ow
bank and is shown in tho statement against a now item 'Gold hold
abroad* **
Tho only action taken by tho Board a t this mooting was with rogard
to ho* tho gold should bo roportod, and to roof firm a pregicma pooiticn
taken tlmt Fodoral roserve banks should not rogard as part of thoir
rooorvos gold oanaarkod in f or^i*n countries. tJp to this point, no
formal aotion had boon takon, aooording to tho minutes, approving of tho
purchase of tho gold.
At a mooting of tho Board hold on Hay IS, 1927, consideration was
given to tho roc<mmendations of tho Opon Market Investment, whioh had boon
submitted a t thi mooting hold on tho provious day, and in this oenneotion,
tho ontiro rooord as it appoars in tbe minutes of tho Board is quotod
bolas:
"At this point, tho Seoretary of tho Troaoury ontorod tho
mooting and took tho Cimir*
*Ths Board thorn proooodod with farther oonsidoration cf tho
roe omsendations of tho Opon Narkot Investment Coamittee, oubmittod
a t tho mooting yostorday and on whioh no aotion was takon a t th at
mooting.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
d e c l a s s if ie d
Authority*
EO'ioWt
"M Hamlin &mmI that the Beard approve the reeow#andar*
tione of the Open Market Xgvostaeixt CoRnittee contained in
th* report of the Cawittee dated M 11, 1927.
ay
n r* Miller stated that he would prefer to havo action
M
on the recommendations «f the Committee deferred until the
Beard hue had an opportunity to discus a the general question
of open Market pulley with the Federal Advisory Counoil a t
th eir Meeting on next Friday* He stated, however, that if
the Beard did net believe i t desirable to defer action hi
wished to present for the Board vs consideration, as an
alternative for M Hamlin* s motion. a memorandum prepared
r*
by him as the basis of a le tte r to the Open Market Investment
Committee regarding its report*
♦
"the Chairman pointed out the desirability of establish
ing a policy vhieh he stated could, of course, be changed by
the Board at any tin t if developments warranted* Be stated
that he believed unless there was scow particular res son for
not doing so the Beard should concur in the recemendations
of the O
pen Market Investment Committee, and pointed out that
if the Beard did so, and following the meeting of the Federal
Advisory Council, wished to change th at policy there was no
reason why an amendatory action should not be taken by the
Beard* Bt smggeeted th at the Board might approve the recom
mendations of the Goraalttee and in advising of sueh approval
state to the Committee that the question of open market policy
w ill be kept under consideration and that the Beard upon review
might wish to take further action.
“Mr. P lait then moved that M Hamlin's motion be amended
r*
to read as follows:
*
'Resolved, that the Federal Reserve Board approve the
report and recommendations of the Open Market Investment
CoHuittee, with the feeling that the securities proposed to
be purchased should he accumulated slowly and with a view to
the possibility that i t may not be advisable to purohaee the
fu ll amount authorised within the time limit mentioned* *
*Hr. Bamli* aeeepted the amendment moved by Mr. F la tt and
'by unanimous consent withdrew his original motion*
“M Miller then reed to the Board the following memo*
r*
ramdum prepared by him and as a substitute for M P la tt's
r*
motion moved its adoption by the Board as the basis of a
le tte r to the Open Market Investment Cosaslttee;
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority’
"'The Board has considered the recommendations of the
Cfcen ifarket G am itlen Sated M 11, 1927, for the period
ay
ending August 1:
(1) That no further >«i«i of Systom securities bs made
in order to offset arrivals cf gold fro* abroad nor knewn
or antioipated*
(2) That i t shall bo tho policy of the oems&ittee between
nos and August 1 next, ^adually to acquire, if pees ibis to do
so without undue offoot upon tho money market, sufficient
additional short-time government obligations to bring the to tal
of the oonsidt tee’ s investment account up to #250,000,000.
With raspeot to recommendation Ito. 1, i t does not appear
to the Board the t tho xmxt few months w ill shew gold imports
to the United States in any such volume as would indicate the
necessity or desirability in m in tin g circumstances of an off
setting operation by the sale of System soourities* I t has,
therefore, nothing to suggest by way of modification of the
course of action outlined by the Committee, unless there
should be a marked change in the situation in whieh oaso the
aa&tter should bo reconsidered* The Committee's recocsmendation
i s , therefore, approved*
With respeot to roe ©emendation So* 2 , i t is the opinion
of the Board that the System9s Special Investment Account
should, sooner or la te r , in accordance with the policy which
has governed the operation of the Aooount in the past, be replenished
by the purchase of an amount of securities th at would bring up
the to tal holdings i\ *he Aooount to not less than #200,000,000*
It i s , however, the opinion of the Board that the present
situation Is not a favorable one for such an operation and
that the reemption of purchases of s eourittes for the Special
Investment Account should be deferred until such time as i t may
appear that such purchases w ill have a desirable stimulating
•ffeot upon trade, Industry or agriculture* The country is new
entering a period of inter seasonal trade lu ll with the demand
for credit for commercial use slackening. The only highly
motive market in the com try is the secu rities market* There
is acomulating evidence of speculative excesses, which in part
has boon reflected in reoent weeks in a g reat growth of
brokers* demand loans* I t is thought not to be desirable to
stimulate these by a reduction of the cost of money in the
Sow York market such as would resu lt from the pur dm so during
tho next two months of from $100,000,000 to $150,000,000 of
securities for the System aooount*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
i
\
I
I
|
!
“ d Fc l a s s if ie d
Authority’
EO'ioWt
It is tha t i* t cf *tha Board that tha aorsaant of busi~
aaas, credit, gold, aonay rate* and other factors bearing
upon tha credit m open aarkat policy of the Federal
ad
teaanre Systea should 1M carefully and constantly watchedf
la order that when action is taken to replenish the Special
Xnveataent Account i t m ba dona with a aintaua of undeiiray
able stimulation*
For its part the Board will follow oming developMnta
affecting open Market policy with oara and will kaap In touch
with the Ccnaittee in ordar that there my ba a prospt exchange
®f T^ f * *»d suitable aotion whan conditions warrant. For tha
,
present tha Board data not think the situation finrorable to a
eecurities-parohase operation and, therefore, witKhalds ap
proval of tha reaomaadatioci that tha Coaaittaa at this tias
ba given authority to parahasa securities between n and
ow
August 1 ta an saount stiffioiant ta bring up tha Systea9s
aooount ta 1250,000,000**
Aftar a data Had diseaasioa, Hr* M iller's substi
tute action was put by tha Chair and la st, tha aeabers
▼
orting as fallows:
Tbs Chairnan, "no*
M P latt, "no"
r.
ttr. H a a lin , "no"
M feats, "no*
r*
' H r * McIntosh, "no"
Governor Crias inger, "aya"
Hr* Millar, "aya
Hr* Cannlnghaa, "aya"
Mr. Platt*s aotion was than pat by ths Chair and
oarriad, tha atabers voting as follows;
Tha Chairmn, "aya*
Oorernor Crissingar, "aya"
Mr. P la tt, "aye*^
M Hamlin, "sye*
r*
Mr. Jaats, "aye"
Hr. Cunningham, "aya*
Mr. McIntosh, "aya^
Hr. Millar, no"
Ifro Cuiaing^iAer than aada tha following stataaant:
"With tha sinoara hops th at tha via* expressed
r —
!
'— —
-
Reproduced from the Unclassified / Declassified Holdings of the National Archives
D E C L A S S IF IE D
A u th o rity * E
a
/ o
w
t
-9~
in M P la tt1 s resolution that tha securities whieh tha
r*
open Market investment conaiittee reocrcsends ha purchased
w ill ha accumulated gradually up to August 1st next, I
aa voting in favor of the motion* "
ths Beard then approved tha f o il curing draft cf le tte r to the Chairman
af the Open Market Investment Committee advising of the action taken by tha
Beard with respect to tha Ceeaiittee*s recommendations:
" i t tha msating of the Federal Reserf a Beard thia morning,
consideration was given to tha report of tha Open Market Invest
ment Coamittee, dated M 11, 1927, in whioh the Comaittee reocmay
mended: *(1 ) that no further sales dt System seourities ha m
ade
ia order ta offset arrivals of gold from abroad no* knmvn or
anticipated” and ” (2} That i t shall he the palioy of the cem~
mittee between new and August 1 next, gradually to aoquire, if
peesible to do so without undua affect upon the money market,
sufficient additional short-tims gavernnent obligations to bring
ths to ta l af tha eondttee** investment aooount up t a 1280,000,000*
In inter prating the expression ’ undue effect upon the money market,*
ths ooamittee mould m peat to keep in mind any changes whicti might
e
occur ia the general level of money ra te s , as well as the extent
to whieh these purebases micht effaat a reduction in the amount of
berreaings by member banka*
"Ths Beard voted to approve the report and rea ommendationa
contained therein, with tbs feeling that tha aeauritias prapased
to be purehaeed should be acouanlated aloaly and with a view ta
the poceibility that i t smy not be advisable t a purchase the fu ll
amount authorised within the period of time wenticoed."
At thia paint, M 13th, the account stood a t approximately $136,000,000,
ay
h*vlrg bean reduced daring tha pravieae weak about $6&,000,000, by reason
of aal*e of appromlmataly $60,000,000 of securities t a tha Bank a ffn a a a ^
O Juns 9th, Qavarncr Strong addressed a acoatmidetien ta Governor
n
Crissinger, reading as fallaaa:
I
iw fi^ ^
A
If
" I t w ill interaat you to have a resume ef tha transaction* in
the apam market whlah have bean necessarily quite active because af
the large amount of saauritSaa which we are aallad upon to buy*
"Aa you have bean advieed we have made purehtsee of a tc&al
cf $100,000,000, offsetting acactly that amount of gold earsmrkad
for aecount cf one of our foreign correapondents, and that part of
tha transaction ia concluded*
"la have alec concluded purchases aggregating a to ta l of
|p -= »
p ™----------------------------------------------------------
UJiUlJU1
U U .11
A.
■-
---
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
A u th o rity * E
O
' i o W
t
$115,000,000 for delivery on o r before June 1 6 , to replace a l l of
the naturlties held In the Swstea account aad fo r tho aooount of
foreign ocr respondents maturing on that dato. In addition to
that «o have purohmtod in round figures $16,000,000 for tho
Systea's opon aarkot investaent account, this purohaao having
boon aado in connection with tho adjustaent of purchases current
ly being a*do for aooount of tho Troasury Dejrtaent, and so far
that is a l l that has been done pursuant to tho rooaaaendat ions
of tho Opon Market Investaent Cooaittee rooontly approved by tho
Fodoral leserve Board.
"preparations for tho Juno 1 financing, occurring siaultansously
with tho holiday a t tho ond of May, nooossitatod soaewhat heavier
borr •rl»S horo than would ordinarily bo tho oaso, and tho rates in
tho aonsy aarkot shooed a tendency to s ti f f on soaewhat, but wo be
lieve that tho offoot was only teapsrary and that tho roturn floo
of funds from tho intorior and of ourronoy, oouplod with tho purohasos which wo have aado, w ill leave rato eoaditions not groatly
above whoro thoy woro during ths lattor part of M
ay.
*The prosont situation is that tbt ■enber banks in lee York
City ovo us about $50,000,000 and that tho doalors eve us an addi
tional $50,000,000 uador salos contract agreement. Botwoon nos
and Juno 15 this indobtodnoss of ths banks and aarkot to us aay
bo soaswhat further roduood. For a fow days aftor tho 16th as
usual money w ill bo sasy, as Tr«asury naturities aro in excess of
tax payasnts, but aftor throo or four days largo tax payaonts will
ooN out of tho aarkot. Ths aaount of funds available to tho
aarkot w ill bo roduood from tho prosont situation by apprcaiaately
$65,000,000 as a not rosult of Juno 15 aatu rities. That asans
that ths H York banks and aarkot* w ill have to bo borrowing frca
ow
us a t loast $150,000,000, and, on top of th is , w ill ooao tho usual
extra doaand f fir crodit in connootion with tho ond of tho half
year. This w ill give us a situation that w w ill havo to think
o
about and watoh oareftolly. Further purchasea w ill thon bo desir
ab le.”
Garera or Strang's oonamioation of Juno 9th was brought to tho attention of
tho Board a t a asst ing hold on Juno 10th* M aotion was takon by tho Botrd.
o
In prossnting tho lot to r , Governor Crissingor statod that Governor Strong
advised hia yesterday (June 9) over the telephone that the Federal Boserve
Bank of lew York had purchased trm the Beiehsbank and earaarked abroad
$2,600,000 additional of gold, asking a to ta l of gold earaarked abroad of
between $62,000,000 and $6$,000,000. Governor Crissinger further stated
that Governor Strong this aoming (June 10) advised hia th at oondi t ions
are so shaping theaselves as to prcfcably aake i t neoessary for the Federal
Boserve Systea to convert th is earaarked gold into earning assets through
the purohaao of b ills abroad.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
Authority'
E a/oW
-U -
At a nesting of ths Fsdsral Hsssrvs Board hsld on Juno 14th, thsrs was
presented a I s tts r dsisd Jims Uth frow ths Beputy 5«firnar tf ths Fsdsral
Rsssrvs Bank ef l«v York, with reference to tho purohass ef |2,600,000 of
gold by tho Fsdsrsl Rsssrve bank trm ths Rslshsbank, which wee earaarked
s t tbs Issk of England, tha Bsputy Gcwsrnor transmitting oopiee of a aaaunisstlons sddrssssd to otbsr Fsdsrsl Rsssrvs banks regarding ths transaction
aad tb sir partisl|stloci therein. At th is asstiug, tbs Oowsrnor sis# * rs psrtsd a telephone scnvsrsation with Governor Strong during wbioh hs was
adviasd of ths sals to tbs Bank of France of apfr«Kls*tsly §60,000,000 ef
gold whlsh ths Fsdsrsl Rsssrvs Banks havs hsld saraarksd a t tbs Bank of
Saglaad* Tbs Osrsra or rsportsd that ths eals was aads a t a price spprosiaetsly #86,000 shows th at {aid for ths gold whlsh Is to bs taksn d<arn by
tbs Bank ef Franss a t ths xmts of #16,000,000 a wssk, with aa option to
tbs Bank cf Franss to tsks #30,000,000 the f i r s t wssk* the Fsdsral
Reserve Banks in payment w ill rssslvs a deposit credit a t ths Bank of
England, s t in tsrset, which Is to bs itwestsd in Stsrling b ills as and
when snob b ills ars avallabis* fhs a a tts r , hs ststsd , was sifcaittsd to
tbs dir sot ore of ths Fsdsrsl Rsssrvs Bask of Bsw Tsrk sad unaniaouely ap~
prstsd by them aad w ill bs aads tbs subjsot of a foraal oeamKnisatien to
tbs Board in ths sour so of tbs nsxt day/or so*"
Following tbs Gwfsrnor’ s
rsp ort, a gsnsral disoussion snsusd as to tbs position of tbs Uhitsd
States In ths world gold aarkst and ths polioy involvsd in tbs purohsss
of foreign b ills rsportsd fcy tbs Gorsrnor*
At tbs aseting of tbs Board hsld on Jons 16th, tbs Uorsrnor prsesntsd
a Is tts r dated Juns 14th fra* tbs Dsputy Oovsmor of ths Fsdsral Rsssrvs
Bank of Xsw York, transmitting for tbs information of tbs Board ssplss
of tslsgraa aad Is tts r addrssssd to tbs Governor* of a l l otbsr Fsdsral
rsservs banks, oonesrnli^ ths sals to tbs Bank of Franss of apprcnciaatsly
#40,000,000 of gold bold undsr saraark in ths Bank of England for aossunt
of tbs Fsdsral rsservs ^sjiks, as rsportsd inforaally by tbs Governor at
tbs aseting of tbs Board on Jane 14tb. fhsrsupon ensued a discussion as
to tbs author ity of tbs Fsdsral Hsssrvs Board in oonnsoticn with transac
tions of this kiwi sntsrsd into under tbs provisions of Soot ion 14 cf tbs
Fsdsral Rsssrvs Act. The rslation* between ths Fsdsral Rsssrvs Bank of
Bsw fork aad tbs Bank of England were also discussed, sad by dirsstlon
of tbs Beard tbs Ssorstary opsnsd and rsad to tbs Board tbs foraal agrssa ta t bstwssn tbs Bsw York bank and tbs Bank of England whlsh has bssn
sarrisd in ths f lls s uadsr ssal* Bs also rsad ths aotion of ths Board
a t its assting on Dsssabsr 19, 1916 in voting "That tbs Fsdsral Rsesrvs
Bank of low York bs author i t sd to appoint as it s ssrrsspondsnt and sgsat
the Bank of England of London, England, and that i t bs furthsr authoritsd
to opsn and aaintaln b a lin g accounts with and for eald oorrsspondsnt
and agsnt for ths purpose of purchasing, sslling and oollsoting b ills of
sxshaage, in accordance with tbs provisions of Sootion 14 and otbsr pro
visions of tbs Fsdsral Hsssrvs Aot, as sasndsd; sad for suob otbsr ju rposss as my bs psralttsd unisr said Fsdsral Rsssrvs A st, as aaendsd*”
ir " "
Reproduced from the Unclassified
~
----------------------------
I Declassified Holdings of the National Archives
DECLASSIFIED
Authority:
Ea/ow t
Following the discussion, it wa* ^oted to request the Law Conanittee to re
port to the Board with
pect to what limitations and restrictlone the
Board la authorised to im
pose on operations conducted by the Federal
Reserve bank* under Section 14 and as to the Board1* general authority
in such transactions.
“wmvvtlen j H Jam requested that the
r»
es
0-O
iftHiAtwe i
— fira— '
-A
jr-#
i iiR opirv-iesi «*e
i^ «y |t.y
>
~%He-
i-ere w 4tft t h » fw e haoe o f..4‘opeign. b i l l s ,
i e-4atpooe a eoamiss lea aueh as was im osed.on the National -B
p
ank o ■
f
Belgium - nd the B
a
ank cf-froianA
.4<u4<Ba>tU<M dlM h».ftgroew nts-4mt*radi Uoaorwe ~H
anks ~4ft-
M»te with tiiMt
jyUh>--lt4twU l i u m
-yr lm b i l l s bearing their -guarantee.
e
banks t ff pwrshsev
O June 16th, the account stood at $244,256,300, having been reduced
n
during the weak from about #316,050*300, the point at which it stood on
June ath. Operations over this period are referred to in the following
letter, dated June 16th, addressed by Governor Strong to Governor
Crissinger, and presented at a meeting of the Board held on June 17th:
“Referring to m letter of June 9 in regard to transactions
y
in the open market there has been som change in the position due
e
to the unexpectedly large overdraft of the Treasury in connection
with June 15 transactions which leads m to write you further as
e
to the position of the m
oney market and as to (roepeotive pur
chases by the O Market Investment Committee.
pen
”ls had calculated, with such information as w usually have,
e
that the amount of the overdraft would be, in round figures,
#180,000,000* It turned out to bs #240,000,000, the disbursement#
for the treasury* s accfcunt being larger than the preliminary esti
mates. Against th is large disbursement pending tax collect ions
w distributed #104,000,000 *f participations to various m ber
e
em
banks, Isaving tlae **et amount of funds put into the market as a
result of treasury transactions #136,000,000. This means, of
oourss, that there rust be withdrawn from ths m
oney market between
now and early next week not only the #136,000,000 which will repay
the government’s temporary certificate of indebtedness (net) but
also possibly $30,000,000 mors to restore the government’ s wwrking
balance in the Reserve banks. In other words, on top of borrowings
from us aggrsgating between #25,000,000 and #60,000,000 at the
present tiro , the market will lose, say 1165,000,000, and w
e
anticipate that the borrowing in a ll forms at this bank next week
for a time m exceed #200,000,000, and this, of course, will be
ay
in the week prior to the double holidey when w have to meet quite
e
a heavy dem for currency, a dem
and
and on the part of those w
ho
practice w
indow dressing at semi-annual periods, as well m s a
dem arising from the very heavy July 1 interest and dividend
and
disbursements.
"One hundred million dollars ef the securities now held in
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECLASSIFIED
A u th o r ity f
\a
4a
m
-13the open market account Mare purchased to offset the loss of that
Attaint af gold oarm
erkwd t*T foreign account aa described In n r
g
latter of June S, so w have only realized about $15,000,000 of
a
the inereaae in the account which was contemplated w the oom
hen
®it tee and the Board dlaouaeed the waiter at the Kay meeting* So
that, to realise fully the aims w hadin m at that tin *, w
e
ind
e
might s t il l purchase an additional #100,000,000 between new and
August 1,
"Having in mind, however, the size of the Stock Exchange Lean
account and the expressions of views contained in your letter of
M IS, our directors to-day, after a fu ll discussion, took the
ay
view which is held by the officers of the bank that it might be
well to defer further purchases until possibly after the fir s t of
_July, even though in the meantime m
oney rates might advance som
ewhat
in the general m
oney market*
"This was the reconwendetion of the off feere of the bank after
full discussion of the situation, and w thought w should bring
e
e
i t immediately to the attention of the Board. W are, however,
e
prepared to act promptly in making further purchases in case m
oney
market conditions indicate the need for it*
*1 hope you will be good enough to bring this letter to the
attention of the Board as it som
ewhat elaborates the report con
tained in m letter of June 9."
y
At the meeting of the Board on June 17th, following presentation
of the last quoted letter from Governor Strong, discussion enetted aa to
the action of the Board at its meeting on M 13 in approving a recommenda
ay
tion of the O Market Investment Committee "That it shall be the policy
pen
of the Committee between now and August 1st next, gradually to acquire,
i f possible to do so without
effect upon the m
oney market, sufficient
additional short time government ooligations to bring the total of the
Canmittee’e investment account up te $280,000,000. Attention was called
to the fact that the System account n (June 17) amounts to approximately
ow
1236,000,000 and that regard leas of the m
anner in which the account w
aa
built up the authority granted by the Beard has been exercised and the
aitte which the Beard had In m have been realised. After dleouaelon,
ind
i t waa understood that there would be prepared and submitted to the Beard
at its next meeting draft of a letter to Governor Strong along the lines
of the diecusslon at this meeting.
At a meeting of the Beard held on June 20th, Governor Crleeinger,
in accordance with the action of the Board at its meeting on June 17th,
eubmitted draft of letter yawpsred. Vip.jrtn ftfrfclsw replying to Governor
Strong’s letter of June 16th, reading as follows:
"Receipt is acknoelodged of your letter of June 16th, supple
menting your letter to m cf June 9th, and commenting upon the
e
Reproduced from the Unclassified I Declassified Holdings of the National Archives
DECLASSIFIED
Authority E i f l
10901
-1 4 -
0hanged pot it ion of tho uatwy kclrket duo to tho unsxpeotedly largo
overdraft of tho Treesurr in connection with June 15th transactions.
1 noto your views r*gwNlistf *he possibility of further purchase*
by the O Market Investment Cemittes and note tho opinion of
pen
the officer* at your Bank concurred in by the m bers of your Board
em
of Directors that it might be well to defer any further purchases
until after the fir s t of July, even though in the meantime m
oney
rates might have advanced somewhat in tho general m
oney market.
•Your letter was brought to the attention of the Board at its
meeting this morning, and there was a discussion of several of the
matters mentioned, particular reference was m to your statement
ade
that the O Market Investment Committee has realised only about
pen
115,000,000 of tho increase in the System's account which was
contemplated w
hen the Committee and the Board discussed the matter
at the time of the Governor#1 Conference, and the further statement
that 1to realise fully the aims w had in m at that tine, w
e
ind
e
might s t ill purchase an additional #100,000,000 between n and
ow
August 1st. *
"Such purchase of an additional #100,000,000 would result in
an enlargement of the System’ s investment account beyond the limit
approved by the Board at its M 13th meeting. Aotion of the
ay
Board at that time was to approve the Committee*s recommendation
to purchase sufficient additional short term government obligations
to bring the total of the investment account up to #250,000,000*
"The System’ s special investment account amounts at this
time to approximately #235,000,000, leaving a leeway for future
purchases of #15,000,000 to reach the limit previously approved*
uIn view of tho contingencies pointed out in your letter and
such other inforsaation as the Board has regarding m
oney market
conditions, it m later on bo advisable to reake additional pur
ay
chases of eeeuritlee ou *>yjwm account. The enlargement of the
System's account in the near future, however, raises a new ques
tion*, and the matter should, therefore, be submitted to the
Board in the usual course*1
1
In presenting the draft of letter just quoted, the Governor stated
that "he understood from a telephone conversation with Governor Strong that
a further letter on this subject is being forwarded to the Board, and
action on th* letter M
poyared b;|
,,«rr*ltHej vas therefore deferred.
At a meeting of Ah* Board held on June 21st, Goremor Crissinger pre
sented the following/ letter fraa Governor Strong, dated June 20th, which
Governor Crissinger/had stated at the meeting on June 20th w being for
aB
warded to the Boara;
"In our/telephone conversation on Friday you mentioned that
som m bers/ of the Board fe lt that the purchases already eone em
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~DECLASSiFIE~D
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~1Selated by the Open Market laveatiaeat Committee had oaepleted the
amount which wtt rto m tn iid by thc committee to iht Federal Reeerve
Boord in its lost report, m thet tho position should nor bo re
od
viewed again to dotermino whether any further purehaeee wara ju e tifl*d.
"tie have proceeded in sacking thoae purchaaea in accordance
with ®y undaratand tog of tho policy a greed upon by tha Baard with
tho Open Market Investment Cceaalttee in tho peat, that largo
■eats of gold auoh aa wo have recently experienced ora, aa a matter
of oouraa, to bo off eat by purchaaea or aaloa of Open Market Inveatrnent C onittao holding a. I think you w ill find thla general via*
af tha o<aaaittaef a policy referred to in previoue reperta of the
oonalttee, throe of which 1 lave before me, that Is, Hovsaber 8 ,
1926, Ssptenfcor 10, 1826, and the laat Meeting hold in M
ay* the
reeorde of tho earlier neotlx«a of the eoanittee a re , aa I re c a ll,
"even more epeoifle on thla point, but they are not beforo m aa I
e
d ictate thla letter*
“fo review the prcaaut altaaU on, when the Bank af France eeettrod
the return of #90,000,000 of gold in London wo negotiated for its
purchase, aa you knot/ m very abort notice in order to a t old ita
getting into the country when, having once croaeed the exchange
b arrier, it would fora a poraanest part of our gold reserves.
$30,000,000 we were unable to arroat in London, but we partly off
set the effect of ita addition to bank reservee by ealee, aa I
re c a ll, of about #15,000,000 of tha System’ s asomritlea* The purohaae of $60,000,000 in London waa effected by mr aelling a like
amount of tha System's eecuritlea to the Bank of France and ao
avoiding the expanaion of bank reserves which weald have resulted
from our paying for the gold without reducing our inveataent account*
While the effect of th is waa to give the Bank of France dollar
balancea for $90,000,000 in W York, about $78,000,000 or there
ow
about a of thla gold waa actually offset by aaloa of aecurltlee*
*Iaw exactly
reva**ao operation ha a taken place aa to
$100,000,000, baoause tha 8ai* of France haa withdrawn $100,000,000
af th eir depoalta with Sew York banks, transferred them to us, and
purchased that aaount of gold, thus effecting a reduction of bank
reeerroa in thla c ity of $100,000,000. Aa explained to you by
telephone, this a*do i t necessary to offset the loss of reserves
by purchases of securities as rapidly as they could be nade. Bad
wo failed to do so we would have had a sharp advance in intereet
rates a t a time when i t would have caused inconvenience to the
freaaury financing then under way and would have increased the
lifelihoed of even higher rates which we alao expected a fte r the
June f Inane list was concluded*
"As in previous similar oases we did net feel that these ju rohaaea formed a part of the $115,000,000 au th o rise by the Board
following the submission of the C0Baltteef s report cf M 9. In
ay
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•1«~
Ikot w fit that undar ti»at *sth ority only * 15,000f000 of puro
ohasas had boon affected and that tho gonoral aohons of tho r«p«ri
to q cation* purchases up to #2&0#O O O O baforo August 1 , i f »cnsy
O#O
smrkot e seditions wd« that possiblo, olaarly ocntanplataa that
ragard for mcnay narkat conditions and far tha voiimo af b«rrov~
ing In H York would bo tha gnidlng; principle. Wars thia not tha
aw
oaaa tha offoot of thia laaa of $100,000,000 af gold would ha ta
antiraly nullify tha action of tha Open iferkst luvastaant Connittaa
and tha Fadaral Reserve Board*
*As axplainad by ta!a*fc*na and ia «y laat two la tta ra on thia
aubjaot, aa ara &tu»ieipating hoavy barrowing thia waak, although
tha anoint aannot aaourataly ba £ oracast. i t w ill furnish tha
opportunity ta anlarga tha ooasnittaa'a holdings af atanrltiaa whlah
tha oonmittaa baliswas, and whioh wa f a i t tha Board bsliowad, waa
a dosirabla thing to aoocapliah if I t oould ba dona without creating
an undue aaaa «f menay , but tha continued enlargement of tho securi
ty loan accciint aeened to Justify our dalaying thaaa purchases for
a short tino ao aa to soo what affaot a b rief period of aonowhat
higher rataa would have.
**o re alise, aa tha Board doubtless doaa, that thara haa baan
a considerable apoonlation in stocks, although far laaa aetiwe and
aonaotag ia ita |cq?crtioRs than that whioh had dereloped in aithar
Berlin or Paris# Just aa ia dtated in tha cauaittee's raport and
in ®y praviona latta ra thia situation w ill require oareful scrutiny
from day to day until tha tmo position of ths nonoy narkot diaoloasd itaolf« But I am anra tha Basrd haa in »ind that if a
psriod of definitely highor rataa nos develops and no pnrohaaaa ara
nada practically a l l tha b ills in tha narkot w ill oans to tha
Fodorai Bosorve Bank whioh might make i t noooasary for no to advnnoo
our b ill buying r a ta , and th a t, in turn, naka i t noooasary to advanoo
our discount rata# Such notion a t thia tin t wo do not believe is
ju stified , and our diraotors foal would ba diatinetly harmful.
"So, susaaarising ths position as i t appeare to ba to-day, I
should say that wa ara qnite willing to watoh tha affaot of a«N«
what higher rataa fer a short period, but wa believe i t von Id ba
hasardoos a t this tlao to alien a general revision of tha level
of interest rataa to ooour, for tha rsaaona *
{1 } Thai, i t night f oroo an inoraaao in our b ill rata
and u ltim ta ly our discount rn ta,
(2) that *ttoh an inoreaae would bo detrimental to tha
businoaa of tha oountry,
(3) That i t would have a tandanoy to depress tha value
of atarling and n ltlaataly tho omtinontal an*
ohnngoa, and pooaibly a^arrnaa no by atarting
another gold import aowraant, and
PF— ---------------------- ----------------------------------------—
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A u th o rity *
l a s s if ie d
1 0 5 0 1
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(4) That with the heavy refunding operatic* s now under
way and in prospect for the Treasury we believe
that any general advance in the level of interest
r a t i t , unless necessitated by ether impelling
reaaoos, might have * detrimental effect upon the
Treasury’ s plane which would be quit* unnecessary.
"X have tadttTored, hy telephone and le tte r , to keep you and tho
members of the Board fully Informed of those developments fro* day
to day in tho hope th at wh*t wo aro doing was fully undorstood and
would meet with tha ^sard1* satire approval* If that is not tho
easo n y I ask you to lot ko knew a t ones, as the situation is
eerta inly one of sufficient importance to sake i t neeessery that
thoro should bo no misunderstandteg of the Board’ s action and the
committee*e policy,"
Following the reading of tho above le tte r , a detailed dleeussien en
sued during whioh M Hiller road to the Board the proposed le tte r to
r*
Gorernor Strong prepared by him in whioh action was deferred a t the meet*
lsg on Juno 20th* Mr. Miller also submitted to the Board eertaia suggostions for ehtngec in the propoeed le tte r in light of information contained
in Govern ore Strong* s ecssniiiioetien of June 20th. During the disouse ion
whioh ensued, Governor Crissinger was eelled from the meet log and upon
hie return stated the oell was frost Governor Stronglwho suggested that if
msmbsrs of tho Board desired mere detailed inforWtlon regarding present
conditions than is contained in his le tte r s , he would be glad to cows to
Washington tomorre* (June 22nd) for an interview# At the request of the
members of the Board, Governor Criesinger expressed to Governor Strong
the desire of the mesfcers that he c*ae to Washington. Action by the
Board m Governor Strong's le tte r of June 2oth was thereupon deferred*
Accordingly, Governor Strong came to Washington and attended a meet
ing of the Bimrd held on June 22*d, a t whioh a l l members were present,
except Koesrs. P latt and Melntooh. The minutee of the meeting held on
Jtani 22nd are as fello es:
"Governor Crisa trigger stated that the meeting had been called
for the purpose of discussing with Governor Strong in further de
t a i l the natters referred t * in his letters to the Board of June
fth , 16th and 20th. The Board, with Governor Strong, then made an
extended review of present and prospective conditions* Governor
Strong reported upon the money markets, a t hone and abroad, and
on the gold sad exchange situation* During the discussion, i t
was brought out that if money rates shoild firm or rise i t woild
be desirable to give re lie f to the situation through purchase of
securities in the open market* The opinion was expressed by see*
■embers of the Board thet authority to the Open Market Investment
Comalttee to make suoh purchases up to $100,000,000 already exists
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I
trador tho motion t&kon 'by th t Board m my 13th, as the f 100,000,000
of aoouritioa porchaood sine® th at time to offsot gold exported ta
tho Sank of Franoa should not ba oocaidored os having boon parchaood
under tha Board1# authority r t f arrod to* This opinio© waa not con
curred in by a l l members of tha Board,
4 0‘
^ 0
Following tha discussiou, Mr. Haailln submitted and morod
adoptica of tho following :
•After hoariMg a roport upon tho money aarkot a, a t
hom and abroad,
o
of the gold and exchange situation,
tha Board aiifkoriie tho Governor of tho Board to advise
tho O
pon Market Inveatment Cacmlttee th at i t dooo not
conoidor tho f 1*0,000,000 of securities purchased by
tho Coamittoa since Kay IS, 192? aa forming part of tho
authority granted to tha Com it too by tho Board on that
data,
M Hamlin*o motion being pat by tho Chair
r*
wae carried , tho meatoera voting aa felleoe:
Tha Chairman, *sye*
Oafor nor Criasinger, *aye“
lr« Kami in, "aye*
M James, "aye"
r*
Hr# Millor, "no
H Cunningham, "no**
r#
In explanation of hia negative vote, M Millor otatod
r*
that hia vioir waa already, in p art, aot oat in tho drafta of
letters ho had submitted for tho consideration of tho Board
as tho baaio of a roply to Governor Strongfa lottoro of Juno
9th, 16th and 2oth.
go addad, in further explanation, that opon market pur*
ohaoaa aad aalaa of aoouritioo for Syatoa aaoount were boeomins tho moat important operating Instrumentality of tho Fodoral
Hoaorvo System for infltmnolng tho orodit situation and ho
thought i t v<sry inp«**C‘ 3t, thoroforo, that tho aot ion of tho
*
O
pon Iferket Investment 0 cnmittoo should novor re s t upon inferontial or impliod authority, bat that every considerable in
crease or dimumitiom of tho Syetem account ahcetld bo considered
as a sojurat© mattar by tho Board, and aada tho aubjeot of
paaltivo aotion.
With rogard to tho proepeotive orodit eitm tlo n , M
r*
Millor aald that ha thought i t not imprsfcable that tho later
r~"'
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m ths of ths y*tr would show a tsdsmy toward hardsning of
m
monsy ratss* Should suoh prwrs to bo tho oaso hs thought i t
would probably bo advioabls motion far tho Fsdsral ftosorvs
Syatsm, trough opsa uarkst purohasos, to saoo tho orodlt
situation; but ho addod that tho trus position of tho mousy
markst has not yot dlsolosod its s lf ond appropriate polioy
oaaaot bo dstsrniasd a t this tins*
lo r tho oo reasons, ho stated, ho votsd ’*aow on M Hoadin fs
r*
resolution, ”......
During tho psriod frora «Tux» 22nd to ths dats of tho asxt westing of
hold ia »ashington on July 2?th# parobasss woro mads fo r tho aooount which inoreassd ths to ta l iron $250,448,500
to #266,»St>,300*
A nsstiag of ths Board aad ths msafesrs of tha jflpm, MarJtft J^ sstB ^ n t
oao h* Id la.Washington on July 2?th^aad ths nixratss of saj
it lag rsad as TsXlflfj^
1 ths Opsa Markst Imrortawnt
|
I
"ths asstiag was oallsd as a nesting of ths Opsa Jeiarkst Invastmsat Conmittss with ths Fsdsral Hsssrvs Board aad reprsssatstIvss of
two of ths mld«*#»t*ra baaks wars prsssat. Ths Chsiraan prsssntsd
his rsp srt rsviswiag opsa aarkst operations aad orsdit o endi t ions.
Tbs orodit polioy of ths Systsm was thsroupoa fu lly dlssusssd*
"Considsration was givsa to ths continued f a ll ia osomodity
prioes, to tho fbot th at thsrs was a diminution of harrowing from
ths rsssrvs banka dus apparently to soos slaotasalng ia busiasss,
aad sapsololly to tho relation of money ratos ia ths 0nltsd Statss
to monsy ra tss ia larops* I t was rsportsd that boosuss cf bsavy
foreign psymsnts which are likely to inoreaso with ths fa ll movoasat
of oommsditlss to Europe, thsrs was a ooatiauod drala ca luropooa
ooatral bonk gold rosorvosf whioh mads i t aero thaa likoly that
ooatral baak ratos la Europe would nsed to bo furthsr advaaood this
f a l l . Ths %srmaa aad Austrian ratss havs alrsady hsoa onse advaaosd
aad thsrs is soms probability of a ono psr soat advaaoo in tho rato
sf ths Bank of Bagland*
r.
All prsssat a t ths mooting reoogaised that tho so develefa»ats
would asssssarily havs a ds press lag sffso t upon bus lasso abrsad and
might tend to rs s tr lo t ths frssdom of purohasss of goods ia th is
oouatry a t tho usual season* i t was a lso brought out that i t is
ths duty of ths ootitml baw*r to kssp money ratss a t as low a lavol
as aay bs attained with <mfstyA aad that at this tins ratos sould
bs rsdussd aot only without harm but with reasonabls expectations df
£enef ioial results* I t was f s l t that ths cnly posslbls advarse ds*
velopment ro salting trm a general lowsrlag of discount ra tss would
bo la ths spsoulatlvs ssourity markets, but that this psssibility
should aot stand ia ths way of ths SKSoutlon of an othorwiss desir-
fr*
i
I
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abl# polioy.
’’Thar# wa# no exception to ths view th at the tin s had arrived,
ir m s approaching, wh#n the discount rat# in Ne# York should be
reduced, and with on# or two #xeeptlon« thor# was no dissent fro#
tli# view th at a 8yst#m policy a t invar discount rata# sheuld In
g#ner*l prevail* I t was pointed out, hueever, th at local condition#
In m m at the intoricr reserve district,* did not indioat* any d#«
m
■and fo r rat# reduction# in those d is tric t# and th at th# # s*ll bar
r e t lags froo the reserve bank# indicate an ad#quet# supply of
or#dlt fo r #11 need# a t the present ratee* Officers of son# of the
larger member bank# were quoted a# opposed to rat# r#du#tl®n#« O
n
th# other hand, I t was pointed out that reductions no#, whioh would
re su lt in no her is and c otjsiderab le poes ib 1# b#n#fit, would place the
reserve busk# in jpositim t * ^ak# increases la te r which r«i£ht serv#
## warnings without fctnalising business with high rat##*
" i t was also suggested th at in carder to stake a three and onehalf per cent discount ra ts effective sons further $urchases cf
se cu ritie s Slight he d##irabl# up t o say #60,000,000*
"the most Important consideration a t the *##t|ng wa# undoubted
ly the f a c t th at th# d iffe re n tia l betw##n th# imtes in Setr Yerk ana
the ra te s in London was not today su fficien t to enable London, and
therefore th# re st of Europe, to avoid general advances in ra te s
th is autuou unless ra te s here were lowered, and th at th# consequent#
cC #uoh high imt## as would re su lt in Bur op# would be unfavorable to
th# narketing of oucr expert produce abroad and would have an adverse
• ffect generally on world trad#**
Tha minut#a abov# quoted w#r# w ritten during r#c#e«, end upon reconrenlag , were approved by the meeting, folio#ing which i t wa# moved and carried
th a t the authority of the Open Mrk et Investment C«aaittee be extended fo r
i
th# purchasef as and when conditions warrant, of not to exceed an additional
$60,000,000 cf investments*
At th is point, July 27th, when ths account stood a t 1266,998,300, the
CosBltt## had authority to lner«as# th# holding# in th# account up to
During th# period frcn August 15th t o 19th, the following le tte re were
exehangod between Governor Crissinger and Governor Strong!
“August 16, 1927.
My deer Governor Crlstingert
I am sending yeu a l a tte r today as Chairman of the Open Market
Investment Gmmitte e which 1 think explain# i t s e l f , but wish to add
sea#thing to i t psrsonnally so th at you aay understand the atmosphere.
Thar# has b#en a considerable movement of fbnds away from Sew
York* I t resulted a# you have observed in the money market remain-
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**21—
ing «(Mf«hat firuar than wa had antioipatsd and i t not only rosultod
in our purchasing scmowhat mors for opsn aarkot account than I had
ox pootad, but la our doing 10 ouoh aoro rapidly than had boon a n tic i
pated. Ths transactions reported in b t ssparats la tte r arc s imply
q
r oat ins And arsss ia oounsotion with adjustments aads in ths various
accounts as sftfiaiitsd*
i s arc about fkcing ths ns«d for a vary considerable preparation
far tha September 15 financing. W hold for account of ths Open
s
Market Xnvestasnt Coomlttos and for account of our foreign corres
pondents something oror $200,000,000 of ths oortif ioatea aataring
Septeafeer IS. Xf repayment of tho so were raooiyad frosi tha Trsasury
without any offsetting purchases i t would of oourss rssu lt ia a very
savors stiffening of mousy m te* and a largo shortags of rsssrvos In
Boa York* much ths largast ia fact that wa havo experienced in soaa
years* la viaa of this fa st ws ars nor prsosodlng vigorously to
parchass *everal longer ia * * r ltte i against off sotting salss t f ths
September 16 maturities as rabidly as thsss oan bs affected* Ths
account w ill bs up and dean fraa day to day, but I want you to understand ju st what is taking place, and hops you w ill explain i t to your
colleagues in ths Board*
Froi th is tia s on 1 anticipate thsrs nay bs a fa irly stsady
grorth in dsaaads upon us by ths asnsy market and its would not wish
to havo ths mousy situation complicated by ffcilure to antioipsto
thsss maturities.
With boat regards boliovo ms,
Sinooroly your*,
(Signed) Bcnj. Strong"
"August 16, 1927.
Dear Oorsruor Strong:
X have roooivod this morning your privats and confidant la 1
U tta r fcf August l&th sonooming ths aarkst situatioii as i t is nm
developing* I t is vary interesting* X think i t was reasonabls to
sxpsst i t ia viaa of ths d lffsrsn tial between ths rats* of Rea
York
London*
I quits agroa that you should taks vigorous staps to froptro
for off-sotting tha September aaturitiss*
I t appaars to »s that ws havs son* problem on, but I fool X
oonfidsnt that you w ill bs abla to work i t ait* I would bs vory
glad to taka this jsattcr up with tho Board if thsrs waa any Board
hors, but thsrs U nobody M r* but M James* Hamlin and p lait
r*
aro away as usual; Miller is in California; Cunningham is a t his
farm in Joea* and ths C o n troller is in and out, hut not vory woll*
So thors is nobody lo ft but ths oripplss to run tho businos**
Sinooroly yours,
(Signad) D R Cri•singsr"
* *
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"August IS, 1927*
Dear Gcwernor Crlesinger:
At the cpinlng of business th is morning the Opm Harkot In~
vesta*nt Aooount stood a t about #3*1,000,000, with additional purehasee s*de last week, f i r delivery today, of #4,000,000, whleh w ill
sake tho to ta l #306,000,000* This brings us up to a to ta l ef
#40,000,000 cf ^irohaeee sgeiast tho $60,000,000 recently authorised.
This moraine os* of oar foreign correspondents requeeted us to
s e ll #10,000,000 of September 16, 1927 c e rtific a te s , which wo ere
taking for tho Systen Aooount* This w ill coaplete oar purchases for
tho pro eont . In addition to this #10,000,000 purchase wo have boon
offered a block of #20,000,000 of tho September IB c e rtific a te s , and
ao wo hold in tho iyatem aooount #20,000,000 of tho treasury 3 3/8#
bonds (f or which wo turned in Second Liberty Lean 4 1/4% bonds in
3mm 16} whioh oan nov bo **** to an advantage, i t has soonod to as
an opportune tins io make tho switoh* to aro , therefore, taking in
tho #20*000,000 of September 15 c e rtific a te s , against whioh wo w ill
soli tho long-torn 3 5 / $ bonds, and have today sold #10,000,000
ef tho latto r a t 100 ZZ/9Z, far delivery teoorroe* Tho regaining
#10,000,000 w ill undoubtedly bo sold within tho ocurse of tho neat
fow days*
Very truly yours,
(Signed) Bcnj. Strung,
Chairaan, Open Market
Investaent Ceanittee*"
"August Id, 192T.
Dear Governor Strong z
1 havo your le tte r of August 16th explaining the condition of
your Open Uarfest Investment Aooount and note that i t is new up to
#306,000,000, and th at you are sbot& to ooaploto the fu ll authorise*
tion*
I an very glad to havo y«ar le tte r and w ill bring i t to the a t
tention of tho Beard*
With w kind regards, X an
y
Sincerely yours,
(Signed) £» & Crissinger1
•
1
"August IS , 1927,
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%gust IB, 1987*
&aar 0o?ornor Crieslngar:
Sines writing yea yaatarday wo havo • till a notbar d«volofa»nt
whiah hat a baaring upon tho aonoy arfeiW Starling axohaaro slxioo
our rata reduction baa boon oonsiatontly atrarcan d yaatarday wo
woro abl# to liquidato h 1,000,000 of mx Lond/Sftcount a t a a a tia factory rato. And tho arrangaaont with tha Bank of England to ocnXimm this policy w ill poaaibly rosnlt in farthar solos of atarlin*
fraa tins to ti a t so long as tha aarkot Just i f is* it*
thoso salos of o ourso havo tha offoot of taking funds out of
tho aonoy aarkot in low York and ocnsoquantly of iajairing baideing
rosorvos. If starling is strong onough to ju stify ®maidarabla
oalaa i t w ill poasibly bo nooasaary for na to axtand air furohasaa
af Sofarnaant aaonritiaa.
of oour.u, ia one of tha offsottiiw
tranaactiona whioh w ill bo enrront froa tiao to t ia » , and i t aiafly
naans that aa tha Lend on portfolio doorooaos tho Sow York portfolio
w ill oarraapcndingly incraaaa, and vioa voraa* O tho othar hand,
n
i t aay ba that wo oan boy gold ia London a t a a ti affect ory priaaa and
h*M i t aaraarkad so aa to bo in position to soil i t a t a favorablo
o p p o rtu n ity *
Tory truly yoora,
(Signsd) BanJ. Strong"
j
“Aaguat 17#
|
i
W fm
Z
Boar 0 otor nor Strangs
|
i
Tour lo tto r of Aagnat 16th in ro soiling of h 1,000,000 Starling
out of your London aooount has boon raoaivad, and i t i« netod that
thtao salos of Btorling from tho London aooount w ill withdraw ftatds
froa tho Bow York aarkot and that i t w ill bo noooosary probably to
axtand tho purohaaoa of aaouritioa in ordor to offsot i t .
I aa bringing; your lo tto r to tho attontian of tho Board*
J
Very truly yours,
I
|
[
(
1
(Signad) D. H. Criaaingar,
Goraraor."
Reproduced from the Unclassified I Declassified Holdings of the National Archives
D E C L A S S IF IE D
A u th o rity *
*Auguat 19, 1927.
Doar Gotoraor Griaaingor:
liattors aro dovoXoping Ar«n doy to day is aonoy aarkot a fla ir a
and cnoo more X ahould adviaa you just what is tranapirlng*
In the f i r at pXaoo you w ill ob««ni i*«a tho gold aottXoaont fund
figurea that we have lost at or $120,000,000 of our rooervee in the
la at few weeka to tha iwat of the country. fihile thia ia not uxwauaX
a t tha aeaaon, X have a feeling, whioh la aharad by a one of ay aaaooiatee here, that tha movement haa boon aoeentuated by tha failure of
Chioago and Philadelphia io redaoo thair die count rata a* But aftor
alX that ia a matter for than to deelde and wo m at aake oar arrange*
m ate accordingly.
e
Until tho Xaat day cr tiro tho trond of tho money aarkot diaoXoaad
an underlying etrs&^Ui whioh disturbed m somewhat, but within tha
Xaat forty-a ight houra i t baa ahcan evidence of eaae, atook exchange
rata a today woro roduood to 3-X/W , thoro ia a somewhat leeaened do*
■and for FodoraX Kaaerve fund a , and aigna that tho oemmereiaX paper
Market haa aaaod a b it aa woXX aa tho rate on collateral tlao loana.
O of tho raauXta of thia eaao, of oourae, la to etraagthen tho
na
atarXiag rato aomewhat awi vo have boon auooeaaful in diapoaing ao far
of about h 5,760,000 of oar ater ling balanoea * in round figurea about
$18,000,000 * Thia, of oourae, takoa money oat of tho money aarkot and
oonaidering th at i t involves no change in policy and a imply a ahift in
portfolio from London to Vail York, w have foXt obliged to bay a moderate
o
amount of governments in ardor to offaot thoao withdrawala.
Taking tha aituation aa a whole, It baa workad eat aoat aatiafaobbftily. If vo find aftar tha tarn of Jemary that oar portfolio la
largor than noooaaary vo oan roadlXy liquidate a part of it* And aa
aattora atand today 1 think I t aay ba bottor Xator in tho yoar to lo t
tha naoda of tho aarkot bo supplied by tho aaribor banka borrowfog froa
aa* tha liquidation immediately foXXowing tho f i r a t of January w ill
onablo aa to Judge of tho extent, If a t aXX# vo ahoaXd ae il government
aeouritiea.
X hopo tho whoXo program haa worked oat to your aatiefaoticn. X
know i t haa to oara, and our dirootora expreaaed aailafaotion vhon tha
eubjeot waa reviewed a t yeeterday'a meeting.
X bo| to raaain
Sineoroly your a,
(Signad) Benj. Strong"
All of tho above oaaaunicatlona woro prosontod a t an Sxeeutlve Committee
meeting haXd on Auguat 24th*. Boa ction vaa takon by tho Committee except to
aoto tha e antente thoroof.
At tba mooting of tha Executive Coaaittoo hoXd on Septeaber 2nd, tho
Reproduced from the Unclassified I Declassified Holdings of the National Archives
decI assified
Authority'
t .O
l o ^
t
Cttnaittee acted th* folleifing eamBunioatlon
trm Governor Strong dated
A u gust 2 6 t h :
“Since ay le tte r of August 16 in rtftrtn M to changes in the
Open Market Investwent Account, the strength In sterling has
enabled us to stake further sales trm our Lendon see oust. Such
asles have reaohed a to ta l of & 7,180,000 through the elese o€
bus ins as tonight, involving the withdrawal fro® this markst ef
approximately 133,000,000, a n l up to the close of business last
d
sight we had purchased for the Syste* Account, as an offset, a
to ta l of 117,004,600 per value of Gofermasnfc secu ritiss.
*Teday one of our foreign correspondents requests us to sell
from its holdings 126,000,000 of Treasury ce rtifica te s maturing
September 16 next) of this amount we have purchased for the System
Account 116,000,000, making to ta l fwrchasea t o offset sales of
sterling $32,000,000 atv! increasing the holdings in the System
Account to 1347,000,000. The rmmtodmg 110,000,000 ef these
September eertifictttoa we have purchaaed for our dan investment
aeeount, to be held there temporarily for sale to the Treasury
early in September.
"With the continued strength in sterling, we w ill, no doubt,
be able to sake further substantial sales, in which event we shall
continue making effsetting transactions.”
Mesfeere In the Beard’ s records does i t appear that formal aetien was
takes approving specifically ths purohase of securities by the Open Market
Investment Cenaittee to offeet sales cf sterling balances. The floret sale
ef sterling was made during the week ending August 17th, and m that date
the Open Market Inveetaent Account steed a t $317,966,300. Since that
date, the sterling balance has been practically liquidated, and the C p
^ en
Market investment Account has Inereaeed right aleng up te September 21et,
when i t stood a t 1362,819,000*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
D E C L A S S IF IE D
Authority*
E a /o w t
FEDERAL RESERVE BANK
OF NEW YORK
Ju n e 2 4 ,
1927.
D ear G o v ern o r C r i s s i n g e r :
I
b eg t o
a c k n o w le d g e an d t h e n k y o u f o r
o f Ju n e 2 a /a d v is in g o f th e a c t i o n
B o ard a t i t s
o p e ra tio n s
m e e t i n g o n W ed n esd ay l a s t
in
F ed eral
re g a rd
R e se rv e
to
th e
o f t h e Open M a r k e t I n v e s t m e n t C o m m itte e .
I
fu lly
o f th e
am v e r y
an d t h a t t h e
s u r e t h a t t h i s m e e ts th e
r e s u l t w ill
s itu a tio n
be s a t i s f a c t o r y
to
R e se rv e B o ard .
V e ry t r u l y
y o u rs,
B e n j. S tr o n g
G o v e rn o r
Hon. D. R. C rissint^j,,
Governor, Federal/Reserve Board,
Washington, D.
v e ry
th e F e d e ra l
Reproduced from the Unclassified I Declassified Holdings of the National Archives
rt.
Ju n e 2 5 , 1 9 2 7 .
Dear Governor Strong:
In v im of what yoq had to say in y m t le tte r s of
^faae 9th> 16th andSOtluUnd daring thediscuBsion of
tgr~sf&3?e€ ilie r v o i which took place a t the meeting of
the Board yesterday, the following jaotion wag adopted
by the Board:
"After bearing a report upon the money markets,
a t home and abroad, and of the gold and exehange
situation, tho Board authorise the Qovernor of the
Board, to advise the Open Market Investment Cosiaittee
that i t does
coneider the 1100*000*000 of seeurit
tie s purcietaod cy the Conusittoe since M 13, 191?,
ay
as forming part of the authority granted to the
OoKzaittee by the Beard m that date#1
*
Tery truly yours,
D* R* Crisainger,
Q o v e j& o r#
llr« B«nJ* Strong, Chaira*n,
Open Market Investment Camlttee,
c/o Federal Reserve Bank,
H York, H*Y.
ew
/
Reproduced from the Unclassified I Declassified Holdings of the National Archives
Ju n e 2 3 ,
A f t e r h e a r i n g a r e p o r t u p o n t h e m o n ey m a r k e t s ,
and a b ro a d ,
and o f
a u th o riz e ^ th e
th e g o ld and e x ch a n g e
G o v e rn o r o f th e B o a rd to
I n v e s t m e n t C o m m itte e t h a t
of
it
does n o t
s e c u r i t i e s p u r c h a s e d by t h e
fo rm in g p a r t o f t h e
s itu a tio n ,
a d v is e th e
co n sid e r th e
th e
to
a t home
B o ard
Open M a rk e t
$ 1 0 0 ,0 0 0 ,0 0 0
C o m m itte e s i n c e May 1 3 ,
a u th o r ity g ra n te d
1927
1927,
as
t h e C o m m itte e b y t h e
B o ard o n t h a t d a t e *
B a s i s o f m o t i o n b y M r . H a m lin
A t B o a rd M e e tin g J u n e 2 5 , 1 9 2 7
Reproduced from the Unclassified I Declassified Holdings of the National Archives
c if n / i
Y
h c iU
A a v -tu ( f
a
(iL p c n r t
it t o
k p ry O
C bu A
JM
O tS r T r ^ }
■
O
n -}
/
%
g f~ c )
C k t)
' S o c e k a io - &
?
fz ^
x
7% o
u
d iL T K o ^ - ^ f^
fZ x
_ _
6
t v
v
l u
.
$ 7 \
/%
(%
;
jl
r\ ,
" T f a &
k r ~
T
To
d ^ ^ d J
v
l
v
'v i r f y ^
f r ir
't l a ^
>
Reproduced from the Unclassified I Declassified Holdings of the National Archives
3
3 3 . ■ -4
July 13, 1927*
Statement by E, H* Cunningham relativ e to
cred it policies of the Federal Reserve Board*
Realizing that the question of a credit policy by the Federal
Reserve Banks may com up fo r discussion and consideration during my
absence, I dftsire in th is memorandum to present my views relativ e to
such policies so far as can be discerned a t this time:
F irs t*
In the absenee of any m aterial change in existing
cred it conditions between th is date and August 15th, 1927, I would
favor a reduction in the discount ra te of the Federal Reserve Banka
on or about August 15, 1927*
I believe such a ction would have a
very stimulating e ffe c t on the mar Iceting of crops and on general
business a c tiv itie s during the f a l l season, without giving undue
encouragement or added impetus to stock mar bat a c tiv itie s *
Second*
I do not favor additional Open Market purchases
by the Open Market Committee unless or u n til i t has been fu lly demon
strated that the reduction in the discount ra te has not created the
ease in the cre d it situ ation th a t was expected*
Submitted a t Board Meeting
July 13, 1927
JCN
I
Reproduced from the Unclassified I Declassified Holdings of the National Archives
~t
4~
-
Ju ly 13 th, "927
Statement by S. H Cunningham relative to credit policies of the
.
federal Reserve Board.
^ B 3 7
Realizing that the question of a credit policy by the federal
Reserve Banks m com up for discussion and consideration during m
ay
e
y
absence, I desire in this m orandum to present m views relative to
em
y
such policies so far as can he discerned at this time*
First.
In the absence of any material change in existing
credit conditions between this date and August 15th, 1937, 1 w
ould
favor a reduction in the discount rate of the federal Reserve Banks
on or about August 15, 1927,
I believe such action would have a^very^
stimulating effect on the marketing of crops and on general business
activities during the fa ll season, without giving undue encouragement
or added impetus to stock market activities.
Second.
I do notlfavor additional O Market purchases
pen
by the O Market Committee unless or until it has been fully dem
pen
on
strated that the reduction in the discount rate has not created the
ease in the credit situation that w expected.
as
*****
:
r
Reproduced from the Unclassified I Declassified Holdings of the National Archives
July 27, 1927
Dear Oovernor Strongt
This Is to advise you Ibrm lly of the aotion
of tho Federal Reserve Boerd today, following it# se a t
ing with the Open Market Investment Coomittee, in vot
ing th at the authority of the Ccasodttse be extended fo r
“
khe purchase, as end when conditions warrant, of not to
exceed >n additional 160, 000,000 of investments.
Very tru ly yours.
D. R, Crissinger,
Governor
Mr* Benj* strong, Governor,
Federal Reserve Bank,
Hew York, B* Y*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
i
v ^
v
POSTAL TELEGRAM
2 8787
—
16
3
->
gp0
©fftce
?
P H 73
*7
COLLECT N L
CHATEAU LAKE LOUISE ALTA
H N D R CRISSINGER
O
JULY 26
'
■
FEDERAL RESERVE BOARD W N
ASH
t
IjH h fl/ l 7 y - ^irr f
% %a
i^ |
J
YOUR TELEGRAM RECEIVED^ASSUMING PURPOSE OF MEETING TO ?K t OPEN MARKET
| OR RATE ACTION IMPRESSIONS AN INFORMATION GAINED SINCE LEAVING WASHINGTON
D
j AN SUBSEQUENT REFLECTION HAVE CONFIRMED M IN OPINION PREVIOUSLY STATED
D
E
: STOP CONVINCED SITUATION NOT YET SUFFICIENTLY CLARIFIED FOR WISE ACTION
j- WITH INDICATIONS OF FIRMING COMMODITY PRICES A D OF ACTIVE TRADE FOLLOW
N
ING! AUGUMENTED RETURNS FROM CROPS THIS AUTUM CHEAPENED M EY vllGHT GIVE UNN
ON
. ! HEALTHY STIMULUS,POLICY SHOULD THEREFORE BE TO/WAIT FURTHER DEVELOPMENTS
- | BEFORE ACTING GREETING TO ALL
A C MILLER
935AM JULY 27
Reproduced from the Unclassified I Declassified Holdings of the National Archives
My d e a r G o v e r n o r C r i s s i n g e r :
T h is i s
o f Ju ly
B o ard in
to
27 A d v is in g
e x te n d in g
a c k n o w le d g e an d th a n k y o u f o r ^ o u ^ f a v o r
of
th e a c t i o n
a u th o rity
to
o f th e F e d e ra l
t h e Open M a r k e t I n v e s t m e n t
C o m m itte e t o m ake f u r t h e r i n v e s t m e n t s n o t t o
o f $ 5 0 ,0 0 0 ,0 0 0 ,
R e eerv e
a s an d when c o n d i t i o n s
V e ry t r u l y
exceed
w a rra n t.
y o u rs,
B e n j. S tro n g
G o v ern o r
Hon. D. R. C rissinger,
Governor, Federal Reserve Board,
Washington,
C.
B S /R M
an a d d i t i o n
w^
DECLASSIFIED
ss‘°
5^
Authority*
\\
E0</otdt
(
C O P Y )
FEDERAL RESERVE BANK
OF NEW YORK
(F o llo w in g
le tte r
sen t to
G o v e r n o r s H a rd in g
Fan c h a r
M cD ougal
N o rri s
3
d
^ r - 'l
B o sto n
01 e /e la n a
C h ic a g o
)
P h ila d e lp h i a
CONFIDENTIAL
S e p te m b e r 2 0 ,
1927.
D e a r G o v e r n o r ______ __ :
T h e a c c o m p a n y in g l e t t e r w h ich i s b e in g s e n t t o t h e G o v e r n o r s o f a l l
R e s e rv e banks e x p l a i n s i t s e l f .
W hat w i t h t h e t r a n s a c t i o n s f o r a c c o u n t o f t h e
T r e a s u r y , f o r o u r f o r e i g n c o r r e s p o n d e n t s a n d f o r t h e O pen M a r k e t C o m m itte e a c c o u n t ,
M r. C a s e h a s b een su b m e rg e d w it h a m a s s o f t r a n s a c t i o n s , t h e n e t r e s u l t o f ^/shich
c o u ld h a r d l y b e r e p o r t e d u n t i l now .
T h ey w e re f o r e c a s t i n o u r l e t t e r o f Au g u e t _ 2&r an d t h e d e t a i l s , o f c o u r s e , a p p e a r i n t h e r e g u l a r w e e k ly r e p o r t s .
,yta4
T h ere a r e
tw o q u e s t i o n s a b o u t w hich we m u s t g i v e
c o n s id e ra tio n
a t an e a r l y
d a te .
One i s i n r e g a r d t o f u r t h e r p u r c h a s e e t o o f f s e t t h e e f f e c t _ o f
g o ld .
W ^ h a v e b e e n m ak in g t h e s e r e g u l a r l y t o o f f s e t t h e w it h d r a w a l o f f u n d s fro m
t h e m a r k e t r e s u l t i n g fro m a a l e s o f s t e r l i n g b a l a n c e s , b u t h a v e n o t c o m p l e te d p u r
c h a s e s t o o f f s e t g o l d e x p o r t s s u c h a s t h o s e u n d e r way t o A r g e n t i n a .
T h a t m o vem en t
may ru n up t o b e tw e e n $ 2 0 , 0 0 0 , 0 0 0 a n d $ 2 5 , 0 0 0 , 0 0 0 .
O u r own v ie w i s t h a t we s h o u ld
buy g o v e r n m e n t s e c u r i t i e s f o r a n e q u i v a l e n t am o u n t a s a t t h i s s e a s o n o f t h e y e a r
when t h e r e i s a p r e t t y h e a v y d r a f t o n New Y o r k r e s e r v e s , t h e i n f l u e n c e o f t h e l o s s
o f t h a t am o u n t w i l l b e q u i t e m a r k e d .
We w ou ld a p p r e c i a t e a n e x p r e s s i o n o f y o u r
v ie w s .
T h e s e c o n d q u e s t i o n i s g e n e r a l l y a s t o t h e o u t l o o k f o r t h e f a l l a nd
w h e th e r i t i n d i c a t e s t h e n e e d f o r f u r t h e r o p en m a rk e t p u r c h a s e s beyon d t h o s e a b o v e
re fe rre d to .
T h e F e d e r a l R e s e r v e S y s te m f ro m som e d a t e i n A u g u s t , w h ich v a r i e s
a c c o rd in g to c o n d itio n s , t o th e f i r s t o f th e fo llo w in g Ja n u a ry each y e a r , i s c a l l e d
u p on t o s u p p ly a n e x p a n s i o n o f b an k r e s e r v e s a g g r e g a t i n g a r o u n d $ 4 0 0 , 0 0 0 , 0 0 0 a s
shown by p a s t e x p e r i e n c e .
R o u g h ly , n e a r l y h a l f o f t h a t h a s a l r e a d y b e e n t a k e n .
We a n t i c i p a t e t h e r e may b e some l i t t l e s l a c k e n i n g o f t h i s dem and a f t e r t h e f i r s t
o f O c t o b e r , b u t f o r o n l y a s h o r t p e r i o d , an d t h e r e a f t e r t h e h o l i d a y dem and w i l l
a r i s e a n d we m u s t b e p r e p a r e d t o m e e t i t
O ur d e c i s i o n o f c o u r s e r e l a t e s to th e
d i s c o u n t r a t e > . H a v i n g r e d u c e d ,x a -t e iL ,lo 5 l / 2 p e r c e n t . , i t se e m s t o u s t h a t i t
w ou ld b e r a t h e r u n f o r t u n a t e t o h a v e t o o much o T 'l i E i s dem and m e t by d i s c o u n t i n g a t
t h e F e d e r a l R e s e r v e B an k o f New Y o r k , w h e re m o s t o f i t o c c u r s , a n d we w ou ld p r e f e r
t o m o d e r a t e i t s i n f l u e n c e u p on o p e n m a r k e t r a t e s by b u y in g a r o u n d am o u n t o f g o v
e r n m e n t s w ith t h e u n d e r s t a n d i n g o f c o u r s e t h a t i m m e d i a t e l y a f t e r .t h e f i r s t o f
J a n u a r y , o r e v e n a n t i c i p a t i n g t h e l a r g e r e t u r n o f c u r r e n c y w h ich t h e n o c c u r s , we
s h o u l d b eg i n t o 1 i m i i d a t e a p a r t ..o f t h e O p e n ..M a rk e t a c c o u n t .
I f th e e n t i r e r e
q u i r e m e n t s o f t h e s e a s o n w e re m e t by b o r r o w i n g , f t w ou ld a u t o m a t i c a l l y l i q u i d a t e
a s i t d i d l a s t y e a r a n d t h e y e a r b e f o r e , b u t i f we f u r n i s h t h e e n t i r e am o u n t by
b u y in g s e c u r i t i e s , w e m u s t o f c o u r s e b e p r e p a r e d t o s e l l them p r o m p t l y , o t h e r w i s e
m oney w o u ld be u n d u ly c h e a p an d we s h a l l n o t e x p e r i e n c e t h e s e a s o n a l l i q u i d a t i o n
w h ic h i s w h o le so m e an d t o b e p r o m o t e d .
o f a ll
g est
it.
I n v ie w o f t h e p o s s i b i l i t y o f i t s b e in g m is u n d e r s t o o d d u r i n g t h e p e n d e n c y ,
o f t h i s d i s c u s s i o n .o £ . . . . m £ _ j lia R g e s i n l a s h i n g t o n ,~ r ~ h s J e ^ E e s i t a t ed t o s u g
a m e e t i n g o f t h e O pen M a r k e t C o m m itte e t h e r e an d b e l i e v e i t w as w is e t o d e f e r
I f , h o w e v e r , t h e c o m m i t te e w i l l b e w i l l i n g t o m e e t i n t h e n e a r f u t u r e , I
■Authority’ E
O ' / o W
-
2
i
-
t h i n k i t i e i m p o r t a n t t h a t t h e y s h o u ld do s o , a n d i f c i r c u m s t a n c e s m ake i t u n w is e
t o m e e t i n W a s h i n g t o n , I s h a l l t a k e t h e l i b e r t y o f a s k i n g M r. P l a t t t o a r r a n g e
f o r som e o f t h e m em b ers o f t h e B o a r d t o m e e t w i t h u s i n New Y o r k .
W o n 't y o u p l e a s e
w r i t e me v e r y f r a n k l y j u s t how t h i s i m p r e s s e s y o u , a n d b e l i e v e m e,
V e ry
tru ly
(S ig n e d )
y o u rs,
B e n j. S tro n g
C h a ir m e n , Open M a r k e t
I n v e s t m e n t C o m m itte e .
Reproduced from the Unclassified / Declassified Holdings of the National Archives
D E C L A S S IF IE D
A u th o rity *
( C O P Y )
Fk
(F o llo w in g l e t t e r
aL RESERVE BANK OF NEW YOiuv
se n t to
G o v ern o rs
W e llb o r n
B ig g s
Young
B a ile y
T a lle y
C a lk in s
Seay
A tla n ta
S t . L o u is
M i n n e a p o li s
K a,n sas C i t y
D a lla s
S an F r a n c i s c o
Hi chmond
C O N F ID E N T IA L
S e p te m b e r 2 0 ,
1927.
D ear G o v e rn o r S e a y :
S i n c e I w r o t e y o u l a s t on A u g u s t 2 6 , t h e p r i n c i p a l c h a n g e i n t h e a m o u n t o f
G o v e rn m e n t s e c u r i t i e s h e l d i n t h e S y s te m O pen .M ark et I n v e s t m e n t A c c o u n t h a s b e e n d u e
t o t h e c o n t i n u e d p u r c h a s e o f s e c u r i t i e s t o o f f s e t s a l e s o f s t e r l i n g w h ich w u l d o t h e r
o
w is e h a v e h a d t h e e f f e c t o f t i g h t e n i n g t h e m oney m a r k e t a n d p o s s i b l y j e o p a r d i z i n g t h e
o b j e c t o f r e c e n t S y s te m r a t e a c t i o n .
B ecau se o f th e s tr e n g th in s t e r l i n g , i t h a s
b e e n p o s s i b l e t o m ake so m ew h at l a r g e r s a l e s t h a n h a d b e e n a n t i c i p a t e d w ith c o r r e s
p o n d in g r e d u c t i o n i n o u r s t e r l i n g b a l a n c e .
S u ch s a l e s now am o u n t t o $ 4 7 , 0 0 0 , 0 0 0 ,
c o n s e q u e n t l y o u r p u r c h a s e s f o r t h e Open M a r k e t I n v e s t m e n t A c c o u n t now t o t a l $ 4 7 , 0 0 0 , 0 0 0 ,
in c r e a s in g th e a cc o u n t to $ 3 6 2 ,0 0 0 ,0 0 0 a t th e p r e s e n t tim e .
I n a d d i t i o n t o t h i s c h a n g e i n t h e t o t a l , t h e r e h a v e b e e n a n u m b er o f c h a n g e s
i n t h e c o m p o s i t i o n o f t h e a c c o u n t , a s we a d v i s e d y o u w o u ld b e n e c e s s a r y .
T h ese
c h a n g e s c o n s i s t e d l a r g e l y o f t h e r e p l a c e m e n t o f t h e S e p te m b e r 1 5 m a t u r i t i e s w it h
o t h e r i s s u e s an d t h e e x c h a n g e o f o u r S e c o n d L i b e r t y L o a n b o n d s f o r t h e new i s s u e o f
3 1 /2 p er c e n t, n o te s .
T h e w e e k ly r e p o r t s w i l l show t h e d e t a i l s o f t r a n s a c t i o n s m ade i n r e p l a c e
m en t o f t h e S e p te m b e r 1 5 m a t u r i t i e s i n t h e O pen M a r k e t A c c o u n t .
B e s i d e s t h e s e we
h a v e p u r c h a s e d i n t h e m a r k e t a p p r o x i m a t e l y $ 8 0 , 0 0 0 , 0 0 0 o f G o v e rn m e n t s e c u r i t i e s t o
r e p l a c e t h e S e p te m b e r 15 m a t u r i t i e s h e l d f o r f o r e i g n a c c o u n t s *
W ith a l l o f t h e s e
t r a n s a c t i o n s o u r t u r n o v e r o f G o v e rn m e n t i s s u e s a r o u n d t h e 1 5 t h o f t h e m on th was- a b o u t
$ 3 2 0 ,0 0 0 ,0 0 0 .
As y o u w i l l h a v e n o t e d , t h e t a x p e r i o d p a s s e d w ith o u t any s e r i o u s d i s t u r
b an ce to th e m a rk e t.
T he T r e a s u r y o v e r d r a f t h e r e w ae $ 2 0 0 , 0 0 0 , 0 0 0 , o u t o f w h ich we
s o l d te m p o r a r y p a r t i c i p a t i o n s o f $ 5 0 , 0 0 0 , 0 0 0 t o m em ber b a n k s t o t a k e up t h e te m p o r a r y
o v e r-s u p p ly o f fu n d s.
T h e o v e r d r a f t h a s now b e e n r e t i r e d , w h ic h h a s c a u s e d t h e b a n k s
t o e n t e r t h i s w eek d e f i c i e n t i n r e s e r v e s .
W ith t h e T r e a s u r y b a l a n c e i n t h e r e s e r v e
b a n k s p i l i n g u p , a s in c o m e t a x e s c o n t i n u e t o b e r e c e i v e d , t h e r e may b e a n a p p e a r a n c e
o f so m ew h at t i g h t e r m oney f o r t h e b a l a n c e o f t h i s m on th an d p o s s i b l y e a r l y n e x t , b u t
we a r e h o p i n g t h a t i t w i l l b e o n l y t e m p o r a r y .
, /
S i n c e S e p te m b e r 1 t h e r e h a v e b e e n l o s s e s t o t h e m oney m a r k e t d u e t o n e t
v
g o l d e x p o r t s , l a r g e l y d u e t o s h i p m e n ts o f $ 1 3 , 5 0 0 , 0 0 0 . ( a n d m o re i n p r o s p e c t ) ""to
A r g e n t i n a , a g a i n s t w h ich no p u r c h a s e s o f G o v e rn m e n t s e c u r i t i e s h a v e a s y e t b e e n m a d e .
F u r t h e r p u r c h a s e s t o o f f s e t t h i s g o l d l o s s w i l l b e m ade i n d u e c o u r s e , a f t e r c o n s u l t
i n g t h e C o m m itte e , i f t h e y a g r e e w i t h o u r own v ie w , t h a t we sh ou lfd e n d e a v o r t o o f f s e t
any u n d u e i n f l u e n c e u p on t h e m oney m a r k e t d u e t o c o n s i d e r a b l e g o l d m o v e m e n ts .
I am w r i t i n g y o u a g a i n a t t h i s t im e i n o r d e r t o k e e p y o u f u l l y a d v i s e d . I t
i s s o m e tim e s d i f f i c u l t t o do t h i s a s f r e q u e n t l y a s we w o u ld l i k e when i n t h e m i d s t o f
so a c t i v e a p e r i o d a s t h e p r e s e n t .
You n o d o u b t w i l l b e i n t e r e s t e d , h o w e v e r , t o l e a r n
t h a t t h e v a r i o u s o p e r a t i o n s a b o u t w h ich I w r o t e y o u p r e v i o u s l y , h a v e g o n e t h r o u g h
s a t i s f a c t o r i l y , a l l o f w h ic h I t r u s t m e e t s w it h y o u r a p p r o v a l .
V ery t r u l y y o u r s ,
(S ig n e d )
B e n j. S tr o n g .
Reproduced from the Unclassified / Declassified Holdings of the National Archives
3
FEDERAL RESERVE BANK
OF NEW VORK
3
S e p te m b e r 2 8 ,
." T r - /
3
1927
D e a r M r. P l a t t :
R e fe rrin g
to
o u r r e c e n t te le p h o n e c o n v e r s a tio n
o f t h e O pen M a r k e t C o m m it te e , I
re c e n tly
p e r e n clo s e d
a n d I now h a v e r e p l i e s ,
co p y o f my l e t t e r ,
w r o t e t h e m em b ers o f t h e
2
a s fo llo w s :
A ll
t h e m em b ers o f t h e
0 -
c o m m i t te e a g r e e
as to
o ffse t
exp ressed
a s i m i l a r v ie w a s t o m a k in g p u r c h a s e s o f
s h o rtly ,
le
s h o u ld l i k e
and t h i s
to
o f ab o u t $ 2 5 ,0 0 0 ,0 0 0
to
co u rse ,
s e c u ritie s
a g a in s t s a le s o f
s te rlin g
a c c o u n t v e ry
o r $ 1 2 ,0 0 0 ,0 0 0
o u r O pen M a r k e t C o m m itte e h o l d i n g s ,
th e
th e y h av e a lr e a d y
a d d itio n a l,
in v o lv e th e
b rin g in g
a d d itio n s to
it
a d d itio n
c lo se
to
t h e a c c o u n t so
c o m p ri e e -
$ 1 0 0 ,0 0 0 ,0 0 0
4 7 .0 0 0 .0 0 0
3 0 .0 0 0 .0 0 0
5 0 .0 0 0 .0 0 0
u res
t h e w isdom o f m a k in g p u r
b a la n c e o f th e
th a t
as
s u b s t a n c e o f w h ich a r e
t h e p r e s e n t m om ent w i l l
Y ou h a v e i n m in d , o f c o u r s e ,
f a r m ade r o u g h l y
a to ta l
th e
of
in v o lv e s th e p u rch a s e o f $ 1 0 ,0 0 0 ,0 0 0
s o t h a t t h e s e tw o a c c o u n t s t o g e t h e r a t
$ 4 0 0 ,0 0 0 ,0 0 0 .
A rg e n tin a an d ,
liq u id a te
th e
c o m m itte e ,
2. y
ch a se s to
s te rlin g .
s h i p m e n ts o f g o l d t o
a b o u t a p o s s i b l e m e e tin g
to o f f s e t
to o f f s e t
under th e
under th e
o f $ 2 2 7 ,0 0 0 ,0 0 0 ,
t h e l o s e o f g o l d t o t h e Ban k o f F r a n c e
sa le s o f s te rlin g
a u t h o r i z a t i o n a r r a n g e d a t t h e m e e t i n g l a s t May
a u t h o r i z a t i o n a r r a n g e d a t th e m e e tin g o f J u l y 27
w h ic h w it h t h e c o m m i t t e e * s o r i g i n a l h o l d i n g s i n
ro u n d f i g
a c c o u n ts f o r th e p re s e n t t o t a l .
As t o
th e
dem and f o r f u n d s ,
s u g g e s t i o n o f m a k in g a d d i t i o n a l p u r c h a s e s t o m e e t t h e
th e
re p lie s
season al
a re a s fo llo w s :
M cD o u g a l:
B e l i e v e s a s t h e a c c o u n t i s now $ 3 6 0 , 0 0 0 , 0 0 0 , a d d i t i o n s h o u ld
o n l y b e m ade i f d e m o n s t r a t e d t o be c l e a r l y d e s i r a b l e a n d ,
t h e r e f o r e , a m e e tin g a t a c o n v e n ie n t d a t e i s i m p o r t a n t.
E x p r e s s e s som e a p p re h e n s io n a b o u t s t a t u s o f S t o c k E x c h a n g e
s p e c u la tio n .
H a rd in g :
B e l i e v e s we s h o u l d i n c r e a s e o u r p u r c h a s e s i n a d d i t i o n t o t h o s e
m e n t io n e d a b o v e so a s t o m eet t h e f a l l d em an d s w i t h o u t an y
co n s id e ra b le
ch an g e in
t h e open m a rk e t r a t e s .
Reproduced from the Unclassified / Declassified Holdings of the National Archives
FEDERAL
RESERVE
BANK
OF
NEW
H o n o r a b le Edi
RK.
i P'
c<t
9 /8 8 /2 7
F an ch er:
T h in k s we s h o u l d h a v e a m e e t i n g , an d i f we d e c i d e t o i n c r e a s e
o u r p o r t f o l i o i t s h o u l d b e d o n e i n t h e e x p e c t a t i o n o f m a k in g
lib e ra l
s a l e s a ro u n d t h e t u r n o f t h e y e a r ,
N o rris :
I s op p osed t o
f u r t h e r p u rch a s e s u n le s s
New Y o r k b eco m e e x c e s s i v e .
E x p r e s s e s som e d o u b t a s t o t h e
t h e d em an d s u p on u s i n
s p e c u la tiv e
s itu a tio n
in
th e
S to c k E x ch a n g e .
W ould l i k e t o h a v e m e e t in g h e l d i n P h i l a d e l p h i a .
P e rs o n a lly ,
be a rra n g e d on th e
g e n tle m e n ,
to
I
s h o u ld l i k e
to
s e e a m e e t i n g h e l d i n New Y o r k i f . i t
d ay t h a t o u r d i r e c t o r s m e e t ,
who a r e i n
clo se
c o u ld
a s an e x c h a n g e o f v ie w s w i t h t h e s e
c o n t a c t w ith a f f a i r s h e r e ,
I
b e l i e v e w o u ld be h e l p f u l
ev ery b o d y .
A fte r co n sid e rin g
on t h e
th is l e tt e r ,
t e l e p h o n e s o t h a t we c a n t a l k
I
b eg t o
it
Honorable Edmund P l a tt
Federal Reserve Board,
Washington, D. C.
o v er?
re m a in ,
V ery
BS/RAH
c o u ld you n o t h a v e y o u r s e c r e t a r y
tru ly
y o u rs,
c a l l me
Reproduced from the Unclassified / Declassified Holdings of the National Archives
/>
FEDERAL- RESERVE BANK
!
11
I 'V
i fJ\
I
‘W
*
OF NEW YORK
l W
/
S e p te m b e r 2 9 ,
1927.
D e a r M r. P l a t t :
S u n n ie m e n tin g my l e t t e r o f y e s t e r d a y A p o s s i b l y
ju s t
w hat h ad b een d o n e so f a r i n
th e
I
w as n o t
c le a r as to
S y s te m i n v e s t m e n t a c c o u n t :
A t t h e l o w p o i n t we h e l d
............... ..$ 1 5 5 , 0 0 0 , 0 0 0 »
We p u r c h a s e d t o o f f s e t t h e s a l e o f g o l d t o
t h e B an k o f F r a n c e . . . . . . . . . . ................................................. 1 0 0 , 0 0 0 , 0 0 0 .
Of t h e a u t h o r i z a t i o n o f $ 1 0 0 ,0 0 0 ,0 0 0 a r r a n g e d
i n M ay, we p u r c h a s e d o n l y .................................* ......................
8 0 ,0 0 0 ,0 0 0 .
We p u r c h a s e d t h e e n t i r e .................. ..........................................................
5 0 ,0 0 0 ,0 0 0 .
w h ic h w as a u t h o r i z e d a t t h e m e e t in g o f J u l y 2 7 .
And o u r p u r c h a s e s t o o f f s e t
u p t o d a t e am ou nt t o
sa le s o f
s te rlin g
4 7 , 0 0 0 , 0 0 0 ..
M aking t h e p r e s e n t t o t a l . ......................................... . . . . . . . . . . . . $ 3 6 2 , 0 0 0 , 0 0 0 .
We a r e
co n c lu d in g t h e
$ 1 0 ,0 0 0 ,0 0 0
m ade t o
to
s a l e o f th e b a la n c e o f o u r s t e r l i n g
o r $ 1 2 ,0 0 0 ,0 0 0 .
d a te ,
in g
in
th e
add a b o u t
th a t th e t o t a l
o n ly $ J 0 ,0 0 0 ,Q 0 0 .
a s t a t e m e n t fro m w h ich y o u w i l l o b s e r v e t h a t
n e a rly o f f s e t s
th e a d d itio n t o
s e v e n o r e i g h t m o n th s o f t h i s y e a r ;
$ 1 3 0 ,0 0 0 ,0 0 0
f o r 1927
a ls o
a s a g a in s t $ 1 2 0 ,0 0 0 ,0 0 0
im p o rts o f g o ld t h i s y e a r a r e t o
in g
a ss e ts,
an d t h e
th e
th e d if fe re n c e
f u r n i s h e d by t h e F e d e r a l R e s e r v e S y s te m t h i s
o u r g o ld due t o
th a t th e
im p o rts d u r
seaso n al in c re a s e
am ount o f F e d e r a l R e s e r v e c r e d i t b e i n g e m p lo y e d s i n c e t h e f i r s t
A u gust i s
p u rch a se s
w i t h d r a w a l s o f f u n d s fro m t h e m a r k e t d u e
am o u n t t o
c r e d i t now b e in g
an d l a s t y e a r v e r y
th e f i r s t
in g ,
s te rlin g ,
am a t t a c h i n g
b e tw e e n t h e am ount o f
year
se e , th e re fo re ,
e x c e p t t h o s e w h ich o f f s e t
s a l e s o f g o ld o r o f
I
You w i l l
w hich w i l l
fo r 1926.
week i n
R o u g h ly
som e e x t e n t o f f s e t b y r e d u c t i o n s i n
season al in c re a s e i s
an d c o n s i d e r i n g t h e f a c t
r e c e i v e d fro m
t h a t o u r m oney r a t e s
w h at i t
sp e a k
o u r e a rn
sam e p e r i o d .
I n v ie w o f t h e r e p l i e s
a lm o s t e x a c t l y
w as l a s t y e a r f o r
t h e o t h e r m em b ers o f t h e c o m m i t t e e ,
are
s till
c o m f o r t a b l e and t h a t
th e
.
% '*
:,f
Reproduced from the Unclassified / Declassified Holdings of the National Archives
o f t h e Open M a r k e t I n v e s t m e n t C o m m itte e b e d e f e r r e d
and
sh a ll
th e n b e h e ld in
th e
w h o le s i t u a t i o n .
C o n fe re n ce ,
w ill
W a s h in g to n a f t e r M r. *o u n g i s
And t h i s m e e t i n g ,
e n a b le u s t o
c o n f e r e n c e w ith a l l
f o r a f o r tn ig h t o r th e re a b o u ts
d is c u s s th e
co m in g b u t
We c a n t h e n
s a tis fa c to ry
r e s u l t s o f t h e m e e t in g
a t t h e tim e o f t h e
t o y o u and y o u r c o l l e a g u e s .
S in c e re ly y o u rs ,
H o n o r a b l e Edmund P l a t t ,
F e d e r a l R e se rv e B o a rd ,
W a s h i n g t o n , D. C .
re v ie w
a fe w w eek s b e f o r e t h e G o v e r n o r s
p re s e n t.
I hope t h i s i s
th e re .
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Dally Average of Total B ills and Securities held by System
(In millions of dollars]
Week
Ended
1926
Avg* 7
14
21
28
Sept. 4
11
18
26
1163
1153
1152
1161
1191
1205
1205
1240
Week
Ended
1927
Aug* 6
15
20
27
Sept. 3
10
17
24
3 days ended
Sept.28
1283
3 days ended
Sept.27
.4 f 1 - l/
1016
1004
1019
10m.
1030
1144
XIU
1121
1147
w
Reproduced from the Unclassified I Declassified Holdings of the National Archives
Office Correspondence
To
FEDERAL RESERVE
BOARD
Date
Subject:
From.
2— M»S
O Rgcember 3^ 1925» the Federal Reserve Beard considered a report
n
subm itteooythe Open^^fertet Investment Committee a t the Conference of
Governors held in November, and following a meeting with the members of
the Committee on the same date, adopted a resolution declaring i ts e l f in
favor of the purchase of a limited volume of. short term government securi
t i e s , i t being understood that the Board reserved the righ t to discontinue
purchases and to require the sale of any of the secu rities purchased a t
any time i t might deem expedient, the minutes of the Committee show that
i t was understood that the Chairman would ask for the views of the Federal
Reserve Board and the participating reserve banks as to further purchases
a fte r a to ta l of 1100,000,000 had been acquired* The Committee agreed
that only early maturing obligations of the Treasury should be purchased*
At the beginning of the j rear 1924 the Open % rket Investment Account
amounted to #12,773,000* By the end of January the account amounted to
something over $51,000,000 and a meeting of the Committee was held in
Washington on February 8th a t which the principal subject of discussion
was the increased price of government securities* One of the actions of
the Committee was That the authorised prices for purchase of government
secu rities be revised to an extent th at w ill permit of increased purohases
in moderate volume, say up to the amount of $100,000,000 as previously
agreed upon * * * .M
j
Another meeting of the Committee was held with the Board on February
/ 26th a t which the Committee rec anmended the extension of the purchases of
Treasury notes and c e r tific a te s to include a l l m aturities up to and includ
ing the issues maturing jn the year 1927 and voted to authorize the Chair
man to submit ttr a X T par t i c ipat ing banks a recommendation that further
purchases, not exceeding $100,000,000, be made a t a new schedule of prices
to be approved by the Committee, afte r the f i r s t $100,000,000 purchase
had been completed* Apparently th is action of the Committee was ^
peveP)
submitted to the Board. At th at time (Fabruary 27. 1924^ the account
amounted to $84,090^500* A new schedule of prices for purchases of secu ri
tie s was shortly afterwards approved by a l l Federal Reserve banks, includ
ing issues maturing up to December, 1927, and the account began to expand
un til A pril 22, 1924, the date of the next meeting of the Committee when
i t had almost reached the $200,000,000 mark* At th is meeting i t was voted
that additional purchases for the account be authorized up to an amount
not exceeding in the aggregate $250,000,000 and that within th is lim it
the Committee might make purchases a t i ts discretion a t current market
prices* By M 2 ar~-4££4-r--the account had expanded to $258,093,300, and
ay
a t a meeting of the Board and the Committee held in Washington the foilow
ing day, M 29th, i t was voted that the holdings in government secu rities
ay
for special investment account be increased by an additional $150,000,000,
such purchases to be made a t the discretion of the Committee a t current
market priees* This action raised the lim it of the acoount to $400,000,000*
At a meeting of the Ccuaaittee held in Boston on July 16th* i t was voted to
raise the lim it of government secu rities for th e s p e c ia l account from
$400,000,000, a t which figure i t then stood, to $500,000,000, such purohases
to be made a t the discretion of the Chairman as to p r lc e s and to be so
I
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OO
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conducted as toaroid or minimize changes in the cred it situ ation or the
market quotations for the se cu rities. I t was also voted that the Committee
express the view that i t would be in favor of increasing s t i l l further
the lim it of $500,000,000 i f conditions remain substantially as they nor
are and that the Federal Reserve Board be asked to give th is proposal i ts
consideration and furnish the Cenmittee with an expression of i ts views.
The Board a t a meeting on July 29th approved the recommendation of the
Open Market Cenmittee that the holdings be increased to $500 .0 0 0 ^000 but
action on the question of further increasing the account to $600,000,000
was deferred. The peak of holdings of secu rities in the Open Market
Investment Account was reached on September 17th when they amounted to
$5lO
^JZfiS^O O but purchases and saTes ^uring the ensuing week for later
O,
execution actu ally balanced the account on that date a t $500,000,000
where i t continued un til the middle of November^ 1924,. At a meeting of
the Committee held in Chicago on Gotcfcer"'24tK~ * resolution was passed
that the Chairman should be given authority to buy or s e l l , a fter con
ferring with the other members of the Committee, up to $100,000,000 of
government secu rities in order to meet any situ ation in the money market
which might develop. As stated above, however, the account continued a t
$500,000,000, and a t a meeting of the Board held on November 10th, the
Secretary was instructed to confer with the Chairman of the Open Market
Committee and report the present status of the resolution adopted a t
the October meeting. However, another meeting of the Committee was held
in Washington the next day, f o il or ing which the Federal Reserve Board
approved several recommendations of the Cenmittee including (1) That the
Committee continue to make temporary sales or purchases from the special
account as may be necessary to stab ilize money ccnditions a t tax periods;
(2 ) That the Committee be authorized to commence as soon as practicable
to exchange c e r tific a te s maturi-ng a fte r December^31.. X925 for shorter
term c e r tif ic a te s ; (5 ) That the Committee be authorized to replace
$65,000,000 of December m aturities to such extent as may be advisable in
consideration of n»rket conditions a t that time and to offset exports or
earmarking of gold for foreign account to such extent as may be advisable
in consideration of market conditions but not to exceed $100,000,000; and
(4) That the Committee be authorized to se ll investments in the special
account in order to reduce that account to the amount of $500,000,000 as
rapidly as money conditions make i t practicab le. There was an under
standing th at another meeting of the Conmittee would be held some time
during December. This meeting was held on December 19th at which time
the account had been reduced to about $435,000,000. The Committee reported
that since the la s t meeting the principal operations of the Committee had
been the sale of March 15th c e r tif ic a te s of indebtedness to f a c ilita te
the distribution of new Treasury 4% bonds and the redemption of $65,000,000
of December 15th x » tu r itie s . I t was f e l t by the Committee at that time
that the account should probably not be increased above the then amount
but that from time to time some of the holdings should be liquidated and
th is was concurred in by the Board with the understanding that a meeting
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FEDERAL RESERVE
Dale
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-3 would be held shortly a f te r the f i r s t of the year to review, before any
further action is taken, the e ffe ct of sales and of advances in b i l l
ra te s which had been agreed upon. At the end of the year the System
account stood a t $449,035,000*
O JanuaryJB. 192&, the Open Market Investment account stood a t
n
$598,125_,500. A meeting of the Committee was held in N York on January
ew
9th a t which i t was voted "That the Committee stand ready to nake such
further sales of secu rities as seem necessary from time to time in view
of changing money conditions to prevent undue ease in the money market.M
According to the minutes of the Committee "This was also concurred in
by a l l the members of the Federal Reserve Board present.” (Messrs.
Crissinger and P l a t t) . Approval was given to the sale to the Treasury
of c e r tif ic a te s of indebtedness held in the account maturing March 15,
1925, or September 15, 1925, and i t was also voted to approve the sale
of some $40,000,000 of June and September c e r tific a te s to a dealer in
New York. The minutes of this meeting of the Committee were presented
to the Board on January 16th and were noted with approval.
Another meeting of the Committee was held with the Board on February
^ ^ 1 9 2 5 , a t which time the System account stood a t about $270,000,000.
At tK ii“
“meeting the Committee voted that in case the flow of funds to
N York continued the Committee should continue to s e ll secu rities from
ew
time to time to prevent undue ease in money conditions, such sales to be
limited for the present to an amount to bring the special System account
down to $200,000,000. No action by the Board was deemed necessary.
At the time of the Governors L Honference (April 6 , 1925) a meeting
of the Open Market Investment Committee was he Id in~Washi'ngt on a t which
i t was voted to be the sense of the Committee th a t, under authority now
vested* in itjth e Committee should increase i t s holdings up to apprcocinnate
ly $300,000,000 as and when market conditions warrant, i t being the belief
of the Committee that present and prospective gold movements make this
increase advisable. At the close of business March 31, 1925, the account
stood a t $245,203,500. The minutes of th is Committee meeting were sub*
mitted to the Board a t a meeting on A pril 23rd and were merely ordered
circu lated .
At a meeting of the Board held on M 21. 1925, attention was called
ay
to the f a c t th at no purchases had been made by the Committee under its
authorization to increase the account by purchasing $50,000,000 of securi
tie s from time to time. The Board advised the Chairman of the Committee
that upon review of existing conditions i t f e l t th at before any purchases
to increase the aggregate of the account were made they should be submitted
to the Board for consideration. Governor Strong replied that the recent
distribution of investments, together with the situ ation in the money
market, made i t unnecessary for the present to consider exercising the
authority and that he would not feel w illing to do so without further
consultation with the Committee and the Board.
At the time of the next meeting of the Committee on June 24, 1925,
the account amounted to $221,408,800. At th is time i t was the conserisus
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of opinion that further sales from the account might be necessary, under
existing authority, for an amount which might bring the account darn to
#$>0,000,000 i f there appeared to be a large flow of out-of-town funds to
H York during the summer dull period* No formal vote was taken, however,
ew
and i t was agreed th at the members of the Committee should be ccnsulted
before any sales were made* The minutes of th is meeting were presented
to the Board on June 26th and were ordered circulated*
O June 29th the Board approved a recommendation of the Open Market
n
Committee that #31,000,000 of June l&th maturities in the account be re~
placed, #15,000,000 immediately and #16,000,000 a t a later date*
O September 21 p 1925, the account stood a t #210,000,000 and a meet
n
ing of the Canmittee was held in Washington on September 22nd* I t was
suggested by the Committee th at the present situation appeared to c a ll
not fo r open market operations but careful consideration of the position
of the discount rate which was cut side of the province of the Committee*
Following the meeting of the Committee a motion by M Miller was voted
r*
on and lost* The motion read as follcsrs:
X i\
"Resolved that a reduction of holdings of government secu ri- \
\
t i e s , to be followed in due course by an advance in the d is - jj
count rate of tije Federal Reserve Bank of N York should i ts
ew
discounts show an appreciable increase$ w ill be conducive to ij
the maintenance of a good sfcate of business sentiment au to , /y
rtS
a healthier cred it condition."
>
At the time of the F a ll Conference af-S-nvflrnors t he Open Market Invest
ment Account was s t i l l being maintairied a t #210,000,000* In the report
submitted to the Conference, i t was stated by the Canmittee "The influence
of our ra te s is now f e l t on a considerable body of borrowings and i f i t
appears desirable the next step should possibly consist of changes in
discount ra te 8 rather than changes in open market holdings* I t also seems
desirable to maintain the present account a t a t le a st its present size so
th at we may be prepared to deal with any emergency situation* The Committee,
therefore, is not prepared to recommend a t present any change in our hold
ings of secu rities*” Reference was made to preparations for the usual
turn of the year slackening in the demand for cre d it and the Committee
stated " i t w ill, th erefore, be well to consider seine temporary purchase of
se cu ritie s a t the time of the Christmas currency demand to be sold in
January* The wisdom of such a policy can not be determined upon in ad
vance*
This report was considered a t the meeting of the Board on
November 2 3 , i925. The ultimate action of the Board was to approve in
genisraT the report of the Committee and t o advise the Committee th at an
immediate meeting is desired to consider whether changed conditions do
not make a change in the Open Market policy of the System desirable* O
ne
of the matters referred to tha Committee was the question of alleging
December 15th m aturities of government secu rities to run off without
replacement*
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In accordance with th is action a meeting of the Committee with the
Board was held in Washington on December 1st, At th is meeting i t was the
consensu* of opinion th at the Treasury c e r tific a te s held in the account
amouny fro about $38,000,000 maturing on Deoember 15th, should be replaced
by other m aturities to be purchased by the Committee and this procedure
was approved by the Board,
O December 21, 1925. conditions in N York City resulted in the
n
ew
d irectors of tha?Tbank authorizing the Governor to make open market
purchases for i ts account up to $50,000,000. Governor Strong took the
matter up with the Board and expressed the opinion if the purchases were
made they should be for the System* s account, although i f the Board d is
approved the transactions as a System one the N York bank would carry
ew
in i ts own p ortfolio $18,000,000 of purchases which had already been con
tracted fo r. After discussion, the Board approved the recommendation
that there be purchased for the System’ s open market account from $25,000,000
to $50,000,000 of s e cu ritie s. I t was understood that these secu rities
would probably be resold during the early part of January. Under this
authority the account by the end of the year was increased to $260,000,000,
A meeting of the Open Market Investment Committee was held in N
ew
York on January 18j 1925^ and the following day Governor Crissinger r e
ported tlTtKsTFoa]^
the Committee had discussed the question of d is
posing of the $50,000,000 of short term government secu rities which i t
acquired during the la tte r part of December for possible resale in
January, At this time, the account amounted to $260,000,000, He stated
that the Committee f e l t in view of existing market conditions and the
fa ct th at there were about $65,000,000 of secu rities in the account which
would mature the following March that i t would not be advisable to s e ll
the $50,000,000 immediately, but that developments in the situation should
be closely watched and action taken a t such time as developments disclose
the d esirab ility of sellin g . O January 25th, the Board considered a le tte r
n
from the Deputy Governor of the New'Yort~bank advising that money conditions
in N York were easing considerably with the resu lt that a moderate demand
ew
for short term government secu rities has sprung up and advising further that
the N York bank is inclined to the view th at i t might be well to supply
ew
the market from time to time with & moderate amount of these se cu ritie s,
not exceeding $50,000,000 from the System's open market investment account,
as and when definite orders are received. The proposal set out in the
Deputy Governor*s le tte r was noted by the Board with approval*
v^A t a meeting of the Board on March 8th , Governor Strong appeared be
fore the Board for a discussiori^afTS^rSen^and prospective business con
ditions. H stated th a t the System held about $100,000,000 of government
e
secu rities which would mature on March 15th, about $34,000,000 of which
were held fo r account of foreign banks and the remainder in the open market
investment account. The account a t th at time amounted to about $245,000,000,
H stated th a t the bank had to da,te received from foreign correspondents
e
requests to replace about $31,000,000 of secu rities held for th eir account
and th at he thought i t advisable, and would reconsnend, that the run off of
about $66,000,000 of se cu ritie s from the open market investment account be
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replaced i f i t possible to do so. H stated , however, that i t might be
e
impossible to replace the en tire amount. Later on in the meeting, the
Board voted to "interpose no objection to the Open Market Investment
Committee replacing so far as possible the $66,000,000 of government
seourities held in the System account which mature on March 15th. "
A meeting of the Committee was held in Washington on March 20th, a t
which meeting " i t was the unanimous opinion of the Ccoinitt'dethat other
than to replace March 15th maturities no action should be taken, a t least
until a fte r March 25rd, when the Treasury pays off $121,000,000 of Third
Liberty Bonds and when readjustments a fte r the usual quarter day movement
w ill have been completed. It was f e l t that until that time i t w ill be
d if fic u lt to judge the normal trend of the money market." At a jo in t
meeting with the Federal Reserve Board on the same day "individual members
of the Federal Reserve Board s tre s s e d th e ir agreement with the recommenda
tio n of the Committee re la tiv e to replacement of March 15th m aturities,
but no formal action was taken T/ith respect eith er to that or to the sug
gestion as to possible future purchases. At that time the System account
stood a t $178,588,900* The question of future purchases was discussed in
a report which the Conmittee submitted to the Governors* Conference then
in session which contained the statement "we should prepare ourselves now
for a prompt purchase of some further amount of securities i f and when
there should be further evidence of a recession in business a c tiv ity , es
pecially if there is no further liquidation in the amount of Federal
Reserve cre d it employed*"
At a meeting of the Board he Id on March 23. 1926. i t was voted "th at
the Committee be advised th at the Board has considered the report and ap
proves the proposal contained therein to the e ffe ct th at the System's
8pscial investment account should not be changed in amount, except that the
March 15th m aturities should be replaced as conditions seem to warrant."
The following day there was a discussion & open market policy a t a jo in t
session of the Board with the Governors* Conference, following which the
Conference voted " i f developments"in~the money market indicate any need
for doing so the amount of secu rities in the System account be increased
to $300,000,000, but no purchases shall be made a fte r April 15, 1926,
without further consideration."
The ultimate action of the Board was
to adopt a motion "that the recommendation of the Open Market Investment
Conmittee and the Governors1Conference be approved*
In a le tte r dated My 28th (a t which time the account stood at
a
$275,000,000} the Acting Chairman of the Open Market Investment Committee,
with the approval of the Committee, took up with the B o a r d the question
of replacing c e r tific a te s of indebtedness maturing June 15, 1926, held in
the System s special investment account to tallin g $36,525,500. The
Acting Chairman stated " th is , of course, w ill not change the face amount
of government seou rities held iu the special aooount and is in line with
the usual procedure." This replacement was approved by the Board a t its
meeting on June 2nd.
At a jo in t meeting of the Board and the Coraaittee held in Washington
Reproduced from the Unclassified / Declassified Holdings of the National Archives
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BOARD
Date
Subject:.
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on June 2 1 s t, i t was voted "th at i t is expedient th at the System holdings of
government sacurities should be maintained for the present a t the existing
amount, approximately $275,000,000 (actual holdings $270,500,000) but
with authority to make temporary purchases or sa le s, within a range of
$50,000,000, as may be deemed advisable by the Committee, any such pur
chases to be liquidated within a reasonable time as market conditions
w arrant,"
At a meeting of the Conanittee held in N York on Augus t 17tht i t
ew
was voted that a sale of approximately $40,000,000 of Third Liberty Loan
bonds, about $25,000,000 of which were in the System account, be made to
the Treasury without replacement, and that a meeting be called the early
part of September to consider conditions a t th at time. I t was also voted
to approve the sale without replacement of approximately $20,000,000 of
secu rities from System account to foreign correspondents. This action
of the Open Market Investment Committee was presented to the Board a t a
meeting on August 24th, by the submission of the minutes of the Committee's
meeting which were ordered circulated without action. A previous advice
received from the Secretary of the Open Market Committee th at the proposed
sale to the Treasury had been approved by the Federal Reserve banks was
noted without a c tio n :a t a meeting of the Board held on August 23rd.
The Open Market Conmittee meeting held on September 10, 1§26, voted
"th at the Open Market Account should be mintaiiiedTOTr^tHe^5’esent a t
$200,000,000, with the understanding th at the Committee could, in i ts
d iscretio n , increase or decrease the account by not more than $50,000,000*"
At that time the account stood a t about $210,000,000* The Board on the
same date considered the Committee's report and voted "to authorize the
Open Market Investment Committee to maintain the System's special invest
ment account a t from $200,000,000 to $225,000,000'^ therefore increasing
the lim it of the account to $225,000,000*
The Open Market Investment Committee, a t the time of the 1926 F a ll
Conference of Governors, submitted a report containing the suggestion
ti»T*^itrmay be desirable t o purchase up to $100,000,000 of secu rities
during the coming six weeks to be sold again a t such time as cre d it con
ditions appear to make th a t course desirable. (The account a t that time
stood a t $200,0 0 0 ,0 0 0 .) At a meeting on November 10th, the Board directed
that a le tte r be addressed to the Acting Chairman of the Committee stating
"the Board understands from the Committee's report that as the Committee
views the situ atio n a t th is time there is no need for action looking toirard
a change in the amount of the special investment account, as approved by
the Board on September 10, 1926, and in th is view the Board concurs. The
Board, therefore, construes the Committee's suggestion as an expression
of opinion on the part of the Cenmittee th at in the event of a future
change in the present situ atio n , i t may be desirable to give consideration
to increasing the account temporarily*
At a meeting of the Board on March 21. 1927. with the Open Market
Investment Committee, the Committee recommended that i t be authorized to
replace $25,000,000 of government secu rities which were held in the special
Reproduced from the Unclassified I Declassified Holdings of the National Archives
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«8»
investment aooount and matured March 15th, and that the Coraaittee be author
ized to purchase an additional #50,000,000 of short term government securi
tie s should a situation develop that would seem to ju stify such action.
At that time, the System account stood at about $175,000,000* The Board
placed a limit of $200,000,000 upon the account by authorizing the replace
ment of the $25,000,000 of March 15th maturities, but did not approve the
recommendation that the Ccxmnittee be authorized to purchase an additional
$50,000,000*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S OFFICIAL. C O R R E S P O N D E N C E T O
T H E FEDERAL. RE S E R V E B O A R D
Ju n e 2 2 ,
1927
D e a r G o v e rn o r S tr o n g * .
R e ce ip t is
a c k n o w le d g e d , o f y o u r l e t t e r s
o f J u ne 1 6 t h | a n d 2 0 t h ,
|
s u p p l e m e n t i n g y o u r l e t t e r t o me o f J u n e 9 t h a n d co m m e n tin g upon t h e
ch an g ed p o s i t i o n
of
o v erd raft
T reasu ry
o f th e
I n o t e y o u r v ie w s
t h e m oney m a r k e t d u e t o
in co n n e c tio n w ith
re g a rd in g th e p o s s i b i l i t y
t h e O pen M a r k e t I n v e s t m e n t
o ffic e rs
th e
u n e x p e cte d ly la r g e
Ju n e 1 5 t h t r a n s a c t i o n s *
o f f u r th e r p u rch ases b y
C o m m itte e a n d n o t e t h e
o f y o u r b a n k c o n c u r r e d i n b y t h e m em b ers o f y o u r B o a r d o f
D ire c to rs
th a t
a f t e r th e
firs t
it
m ig h t b e w e l l t o
of Ju ly ,
m ig h t h a v e a d v a n c e d
Your l e t t e r s
w as d i s c u s s i o n
d e fe r any f u r th e r p u rch a se s u n ti l
e v e n t h o u g h in t h e m e a n tim e m oney r a t e s
som ew hat i n t h e
w e re b ro u g h t t o
g e n e r a l m oney m a r k e t .
th e a t te n t io n
o f th e
o f s e v e r a l o f t h e m a t t e r s m e n t io n e d *
nee w a s m ade t o
y o u r sta te m e n t t h a t
i t t ee had r e a l i z e d
o n ly a b o u t $ 1 5 ,0 0 0 ,0 0 0
o ard d is c u s s e d th e m a tte r a t
th e
f u rth e r sta te m e n t t h a t " t o
in d a t t h a t t i m e , we m ig h t s t i l l
B o a rd and t h e r e
P a rtic u la r
t h e O pen M a rk e t I n v e s t m e n t
o f th e
p s t e m f s a c c o u n t w h i c h w as c o n t e m p l a t e d w h en t h e
nd t h e
o p in io n o f th e
tim e o f t h e
re a liz e
in c re a s e
referCom
in th e
C o m m itte e a n d t h e
G o v e rn o rs1 C o n fe re n ce ,
fu lly
t h e a im s we h a d i n
p u rch a se an a d d itio n a l
$ 1 0 0 ,0 0 0 ,0 0 0
e tw e e n now a n d A u g u s t 1 s t . ”
S u ch p u r c h a s e
o f a n a d d i t i o n a l $ 1 0 0 , 0 0 0 , 0 0 0 w o u ld r e s u l t
in a n
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-2 -
enlargement of the System’s investment account beyond the limit approved
by the Board at its M 13th meeting. Action of the Board at that time
ay
was to approve the Committee’s recommendation to purchase sufficient
additional short term government obligations to bring the total of the
investment account up to $250,000,000, which is the am
ount now held
in the account, accordingly to the Board’s latest information*
In view of the contingencies pointed out in your le tte rs and such
other information as the Board has regarding money market conditions,
i t may la te r on be advisable to make addition al purchases of secu rities
on System account*
The enlargement of the System’ s account in the near
future, however, raises a new question, and the nfttter should, there
fore, be submitted to the Board in the usual course, especially in view of
the f a c t, as stated in your le tte r of June 20th, that a t th is time and
’’ until the true position of the money market discloses i t s e l f " , i t can
not be determined whether additional purchases would be advisable., in the
immediate future*
Very tru ly yours,
D. R. Crissinger,
Governor.
Mr. Benjamin Strong, Governor,
Federal Reserve Bank,
N York, N.Y.
ew
Reproduced from the Unclassified I Declassified Holdings of the National Archives
FED ERAL R ESERVE BOARD
WASHINGTON
A D D R E S S OFFICIAL C O R R E S P O N D E N C E T O
T H E FEDERAL. RESERVE B O A R D
June 17, 1927.
Dear Governor Strong:
Receipt is acknowledged of your letter of June 16th, supplement
ing your letter to ms of June 9th and comment mg upon the changed
position of the money market due to the unexpectedly large overdraft
of the Treasury in connection with June 15th transactions#
X note
your views regarding the possibility of further purchases by the Open
Market Investment Committee and note the opinion of the officers of
your bank concurred in b y the members of your Board of Directors that
it might be well to defer any further purchases until after the first
of july, even though in the meantime money rates might have advanced
somewhat in the general money market.
Your letter was brought to the attention of the Board a t its meet
ing this morning, and there was a discussion of several of the matters
mentioned.
Particular reference was made t o your statement that the
Open Market Investment Committee has realized only about $15,000,000
of the increase in the System’s account which was contemplated when
the Committee and Board discussed the matter at the time of the
Governors* Conference, and the further statement that "to realize
fully the aims we had in mind at that time, we might still purchase
an additional $100,000,000 between now and August 1st*"
Reproduced from the Unclassified I Declassified Holdings of the National Archives
I
-
2-
S u ch p u r c h a s e o f a n a d d i t i o n a l
e n la rg e m e n t
o f th e S y s te m ^
b y th e B o ard a t
its
w as t o a p p ro v e th e
a d d itio n a l
th e
sh o rt
g o v e rn m e n t
i n v e s t m e n t a c c o u n t up t o
I n v ie w
m ay l a t e r
tie s
th e
th e
le a v in g a
le e w a y f o r f u t u r e
p o in te d
tim e
p u rch ases
out in y o u r l e t t e r
t o m ake a d d i t i o n a l
T he e n la r g e m e n t
h o w e v e r,
b e s u b m itte d t o
ra ise s
and su ch
o f th e
a new q u e s t i o n ,
p u rch a se s o f s e c u r i
S y s t e m 1s a c c o u n t
and th e m a tte r
th e B o ard i n th e u s u a l c c u r s e .
V er y
tru ly
y o u rs,
D . H. C r i s s i n g e r ,
G o v ern o r.
M r. B e n j .S t r o n g , G o v e rn o r,
F e d e r a l R e se rv e B ank,
Hew Y o r k , N.Y#
of
B o a rd h a s r e g a r d i n g m oney m a rk e t c o n d i t i o n s ,
on b e a d v is a b le
on S y s te m a c c o u n t .
th e re fo re ,
to ta l
i n v e s t m e n t a c c o u n t a m o u n ts a t t h i s
o f th e c o n tin g e n c ie s
near fu tu r e ,
to b rin g th e
s u ffic ie n t
re a c h th e l im i t p re v io u s ly a p p ro v e d .
o th e r in fo rm a tio n a s
it
o b lig a tio n s
p u rch ase
$ 2 5 0 ,0 0 0 ,0 0 0 .
t o a p p ro x im a te ly # 2 3 5 ,0 0 0 ,0 0 0 ,
| 1 5 ,0 0 0 ,0 0 0 t o
A c t i o n o f t h e B o a rd a t t h a t tim e
C o m m i t t e e ^ r e c o m m e n d a t io n t o
te rm
in a n
in v e s tm e n t, a c c o u n t b e y o n d t h e l i m i t a p p r o v e d
May 1 3 t h m e e t i n g .
The S y s t e m 1s s p e c i a l
of
$ 3 . 0 0 , 0 0 0 , 0 0 0 w o u ld r e s u l t
in
s h o u ld ,
Reproduced from the Unclassified / Declassified Holdings of the National Archives
FEDERAL RESERVE BOARD
W ASHINGTON
A D D R E S S OFFIC IA L. C O R R E S P O N D E N C E T O
T H E FED ERA L RESERV E BOARD
June 17, 1927.
De^r Governor Strong:
HeceiiDt is acknowledged of your letter of June 16thj
supplementing your letter to me of June <?th^ commenting upon
cmJ tb
I C
the changed position of the money market aa*4 the unexpectedly
large overdraft of the Treasury in connection with June 15th
transactions.
I note your views regarding the possibility of
further purchases by the Open I'arket Investment Committee and
fij ; c L
f&
note the opinion ox your Bank concurred in by the members of
your Board of Directors that it might be well to defer any fur-,
ther purchases until after the first of July, even though in
the meantime money rates might have advanced somewhat in the
general money market.
Your letter was brought to the attention of the Board
A t its meeting'this morning, and there was a discussion of
j
several of the matters mentioned.
Particular reference was made
to your statement that the Open Ilarket Investment Committee has
tljL
realized only about : 15,000,000 of the increase in System’s ac
i
)
count which was contemplated when the Committee and Board dis
cussed the matter at the time of the Governors* Conference, and
the further statement that "to realize fully the aims we had at
A
Reproduced from the Unclassified / Declassified Holdings of the National Archives
2
-
that time^we might still purchase an additional ^100,000,000
between now and August 1st.”
J j) Such
purchase of an additional
£100,000,000 would result in an enlargement of the System’s
investment account "beyond the limit approved by the Board at
its Hay 13th meeting.
Action of the Board at that time was
to approve the Qommittee’s recommendation to purchase suffi
cient additional short term government obligations to bring
the total of the
investment account up to .}250,000,000.
The System’s special investment account amounts at
this time to approximately 3235,000,000, leaving a leeway for
future purchases of ^15,000,000 to reach the limit previously
approved.'
In view of the contingencies pointed out in your let
ter and such other information as the Board has regarding money
market conditions, it may later on be advisable to make addition
al purchases of securities on System account.
The enlargement
of the System’s account .in the near future raises a new question,
A
and the matter should be submitted to the Board before'-way cut
a
ftuyohftaog ago
Very truly yours,
D. R. Orissinger,
Governor.
Mr. Benjamin Strong,
*
G o v e rn o r, F e d e r a l R e s e rv e B a n k ,
New York Oity.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
FEDERAL RESERVE BOARD
W ASHINGTON
A D D R E S S O F F IC IA L C O R R E S P O N D E N C E T O
T H E FED ERA L RESERV E BOARD
June 16, 1927,
Dear Governor Strong:
Receipt is acknowledged of your letter of June 16th, supplementing
your letter to me of June 9th, and commenting upon the changed position
of the money market due to the unexpectedly large overdraft of the
Treasury in connection with June 15th transactions.
I was very much
interested in your views regarding the possibility of further purchases
by the Open Market Investment Committee and note the
ion of
the officers of your bank, concurred in by members of your board of
directors, that it might be well to defer any further purchases until
after the first of July, even though in the meantime money rates might
advance somewhat in the general money market.
This morning, I brought your letter to the attention of the Board,
and general discussion was carried on of the various matters referred to %
ML.-ycm " le^i'er»
b
Particular reference was made to your statement that
the Open Market Investment Committee has realized only about $15,000,000
of the increase in the System*s account which was contemplated when
the Committee and the Board discussed the matter at the time of the
Governors Conference, and that Hto realize fully the aims we had in
mind at that time, we might still purchase an additional $100,000,000
between new and August 1st
The action of the Board at the time of the May meeting^specifically^
Reproduced from the Unclassified / Declassified Holdings of the National Archives
-2-
was to approve a recommendation of the Open Market Investment Committee
nthat it shall be the policy of the Committee between now and August
lstjt next, gradually to acquire, if possible to do so without undue
effect upon the money market, sufficient additional short tern Govern
ment cfoligations to bring the total of the Committee’s investment account
up to $250,000,000.
The System account at the present time amounts to
approximately $235,000,000, and members of the Board are of the opinion
that what was in contemplation at the time of the May meeting, to wit,
the building up of the Open Market Investment account, has been sub
stantially satisfied.
Of course, there is the quest ion as to whether
or not it would be advisable, in view of the contingencies pointed out
in your letter and other information which the Board has before it,
to build up the account to a larger amount by the purchase of additional
securities.
Whether, ae suggested in your letter, additional purchases
of $100,000,000 should be made between now and August 1st is not clear
to the Board, which, however, is of the opinion that the situation should
be reviewed and the matter submitted to the Board before any such pur
chases are made.
Very truly yours,
D. R. Crissinger,
Governor•
l*
i
Benj. Strong, Governor,
Federal Reserve Bank,
New York, N.Y.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
FEDERAL
OF
RESERVE
NEW
BANK
YORK
Dear Governor Crissinger:
In our telephone conversation on Friday you mentioned that some members
of the Eoard felt that the purchases already concluded by the Open Market Invest
ment Committee had completed the amount which was recommended by the committee to
the Federal Reserve Board in its last report, and that the position should now be
reviewed again to determine whether any further purchases were justified.
We have proceeded in making these purchases in accordance with my under
standing of the policy agreed upon by the Board with the Open Market Investment
Committee in the past, that large movements of gold such as we have recently ex
perienced are, as a matter of course, to be offset by purchases or sales of Open
Market Investment Committee holdings.
j
I think you will find this general view of
the committee’s policy referred to in previous reports of the committee, three of
which I have before me, that is, November 8, 1926, September 10, 1926, and the last
— ----------- ______ — ------------ ------------------------ — ...— -----meetirigj3^ard~-iTH4fty.
The records of the earlier meetings of the committee are, as
fjl recall, even more specific on this point, but they are not before me as I dictate
letter.
V
To review the present situation, when the Bank of France secured the
15%
^return of $90,0d0,000 of gold in London we negotiated for its purchase, as you know,
'Sk M o n very short notice in order to avoid its getting into the country when, having
once crossed the exchange barrier, it would form a permanent part of our gold re
serves.
$30,000,000 we were unable to arrest in London, but we partly offset the
effect of its addition to bank reserves by sales, as I recall, of about $15,000,000
of the System^ securities.
The purchase of $60,000,000 in London was effected by
our selling a like amount of the System^ securities to the Bank of France and so
avoiding the expansion of bank reserves which would have resulted from our paying
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Hon. D. R. Cri
FEDERAL
RESERVE
BANK
OF
NEW
ngf
6/20/27.
K
for the gold without reducing our investment account.
While the effect of this was
to give the Bank of France dollar balances for $90,000,000 in New York, about
^75,000,000 or thereabouts of this gold was actually offset by sales of securities.
Now exactly the reverse operation has taken place as to $100,000,000, be
cause the Bank of France has withdrawn $100,000,000 of their deposits with New York
banks, transferred them to us, and purchased that amount of gold, thus effecting a
reduction of bank reserves in this city of $100,000,000.
&s explained to you f y
c
telephone, this made it necessary to offset the loss of reserves by purchases of
securities as rapidly as they could be made.
Had we failed to do so we would have
had a sharp advance in interest rates at a time when it would have caused inconven
ience to the Treasury financing then under way and would have increased the likelihood
of even higher rates which we also expected after the June financing was concluded*
As in previous similar cases we did not feel that these purchases formed a
part of the $115,000,000 authorised by the Board following the submission of the
committee1s report of May 9.
In fact we felt that under that authority only
$15,000,000 of purchases had been effected and that the general scheme of the report
to continue purchases up to $250,000,000 before August 1, if money market conditions
made that possible, clearly contemplates that regard for money market conditions end
for the volume of borrowing in New York would be the guiding principle.
Were this
not the case the effect of this loss of $100,000,000 of gold would be to entirely
nullify the action of the Open Market Investment Committee and the Federal Reserve
Board.
As explained by telephone and in my last two letters on this subject, we
are anticipating heavy borrowing this week, although the amount cannot accurately be
forecast,
It will furnish the opportunity to enlarge the committee’s holdings of
securities which the committee believes, and which we felt the Board believed, was
a desirable thing to accomplish if it could be done without creating an undue ease
Reproduced from the Unclassified / Declassified Holdings of the National Archives
FEDERAL
RESERVE
BANK
OF
NEW
A K .4
Hon. D. R.
Is
ger
6/20/27.
of money, but tb continued enlargement of the security loan aocoupt^seeinjBd to
.
justify our delaying these purchases for a short time so ss to see what effect a
brief period of somewhat higher rates would have.
We realize, as the Board doubtless does, that there has been a considerable
speculation in stocks, although far less active and menacing in its proportions than
that which had developed in either Berlin or Paris.
Just as is stated in the com
mit tee’s report and in my previous letters this situation will require careful
scrutiny from day to day until the true position of the money market discloses
rtself.
But I am sure the Board has in mind that if a period of definitely higher
rates now develops end no purchases are made practically all the bills in the market
will come to the Federal Reserve Bank which might make it necessary for us to ad
vance our bill buying rate, and that, in turn, make it necessary to advance our
discount rate.
Such action at this time we do not believe is justified, and our
directors feel would be distinctly harmful*
So, summarising the position as it appears to be to-day, I should say
that we are quite willing to watch the effect of somewhat higher rates for a short
period, but we believe it would be hazardous at this time to allow a generei re
vision of the level of interest rates to occur, for the reasons (1)
That it might force an increase in our bill rate and
ultimately our discount rate,
(2)
That such an increase would be detrimental to the busi
ness of the country,
(S)
That it would have a tendency to depress the value of
sterling and ultimately the continental exchanges,
and possibly embarrass us by starting another gold
import movement, and
(4)
That with the heavy refunding operations now under way
and in prospect for the Treasury we believe that any
general advance in the level of interest rates, unless
necessitated by other impelling reasons, might have a
detrimental effect upon the Treasury’s plans which
would be quite unnecessary.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
FEDERAL
RESERVE
BANK
OF
N E W YOVi
Hon. D. R. Criesinger
3/20/27
I have endeavored, by telephone and letter, to keep you and the membere
of the Board fully informed of these developments from day to day in the hope that
what we are doing was fully understood and would meet with the Board*6 entire ap
proval.
If that is not the case may I ask you to let me know at once, as the situa
tion is certainly one of sufficient importance to make it necessary that there should
be no misunderstanding of the Board’s action and the committee’s policy.
I beg to remain,
Sincerely yours,
t-'w x vs 1*5
Ghai nnan
of the Open Market Investment Committee.
Hon. D. R* Crissinger,
Governor, Federal Reserve Board,
Washington, D. C.
BS/RAH
Reproduced from the Unclassified / Declassified Holdings of the National Archives
FEDERAL
OF
RESERVE
NEW
BANK
YORK
June 16, 1927
CONFIDENTIAL
My dear Governor Criesinger:
Referring to ra letter of June 9(Jjr regard to transactions in the open
y
market there has been some change in the position due to the unexpectedly large
overdraft of the Treasury in connection with June 15 transactions which leads me
to write you further as to the position of the money market and as to prospective
purchases by the Open Market Investment Committee.
We had calculated, with such information as we usually have, that the
amount of the overdraft would be, -in round figures, $180,000,000.
It turned out
to be $240,000,000, the disbursements for the Treasury*s account being larger than
the preliminary estimates.
Against this large disbursement pending tax collections
we distributed $104,000,000 of participations to various member banks, leaving the
net amount of funds put into the market as a result of Treasury transactions
$136,000,000.
This means, <4f course, that there must be withdrawn from the money
market between now and early next week not only the $136,000,000 which will repay
the government’s temporary certificate of indebtedness (net) but also possibly
$30,000,000 more to restore the government’s working balance in the Reserve banks.
In other words, on top of borrowings from us aggregating between $25,000,000 and
$50,000,000 at the present time, the market will lose, say $165,000,000, and we
anticipate that the borrowing in all forme at this bank next week for a time may
exceed $200,000,000, and this, of course, will be in the week prior to the double
holiday when we have to meet quite a heavy demand for currency, a demand on the
part of those who practice window dressing at semi-annual periods, as well as a
demand arising from the very heavy July 1 interest end dividend disbursements.
One hundred pillion dollars of the securities now held in the open market
A jU I
Reproduced from the Unclassified / Declassified Holdings of the National Archives
o
j
ERAL
RESERVE
BANK
OF
NEW
RK__
Hon. D. E. (
ssi'
<
r
6/16/27
account were purchased to offset the loss of that amount of gold earmarked for
foreign account ae described in my letter of June 9, so we have only realized
about $15,000,000 of the increase in the account which wae contemplated when the
committee and the Board di ecus seel the matter at the May meeting.
So that, to
realize fully the aiirs we had in mind at that time, we might still purchase an
additional $100,000,000 between now and August 1.
Having in mind, however, the siae of the Stock Exchange loan account
and the expressions of views contained in your letter of May IS, our director
to-day, after a full discussion, took the view which is held by the officers of
the bank that it might be well to defer further purchases until possibly after
the first of July, even though in the meantime money rates might advance somewhat
in the general money market.
This was the recommendation of the officers of the bank after full discussion of the situation, and we thought we should bring it immediately to the
attention of the Board.
We are, however, prepared to act promptly in making
further purchases in case money market conditions indicate the need for it.
I hope you will be good enough to bring this letter to the attention of
the Board as it somewhat el aboratesthe report contained in my letter of June 9.
I beg to remain,
Very truly yours,
Benj. String
Governor
Hon. D. R. Crissinger,
Governor, Federal Reserve Board,
Washington, D. C.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
3
June 11, 1927.
My dear
Qoremart
I hare your let tor of June 9 th in whloh you give
a resume of year doings in tho open suufest trader tho
authorisation of tho Board*
I
hare
brought this letter
to the attention of the Board whloh proved to be of great
interest*
Siaoerely yours$
D. B# Crisslnger.
Hr, fienj. Strong. aovernor,
federal Beaerre Bank*
Sew York, B. Y.
3
3-^7
V
Reproduced from the Unclassified / Declassified Holdings of the National Archives
/
FEDERAL.
OF
RESERVE
NEW
BANK
VORK
June 9, 1927.
Dear Governor Criesinger:
It will interest you to have a resum* of the transactions in the open
market which have been necessarily quite active because of the large amount of
securities which we are called upon to buy*
As you have been advised we have made purchases of a total of $100,000,000,
offsetting exactly that amount of gold earmarked for account of one of our foreign
correspondents, and that part of the transaction is concluded.
We have also concluded purchases aggregating a total of $115,000,000 for
delivery on or before June 15, to replace all of the maturities held in the System
account and for the account of foreign correspondents maturing on that date.
In
addition to that we have purchased in round figures $16,000,000 for the System’s
open market investment account, this purchase having been made in connection with
the adjustment of purchases currehtly being made for account of the Treasury
Department, and so far that is all that has been done pursuant to the recommenda
tions of the Open Market Investment Committee recently approved by the Federal
Reserve Board.
Preparations for the June 1 financing, occurring simultaneously with the
holiday at the end of May, necessitated somewhat heavier borrowing here than would
ordinarily be the case, and the rates in the money market showed a tendency to
stiffen somewhat, but we believe that the effect was only temporary and that the
return flow of funds from the interior and of currency, coupled with the purchases
which we have made, will leave rate conditions not greatly above where they were
during the latter part of May.
The present situation is that the member banks in New York City owe us
about $50,000,000 and that the dealers owe us an additional $50,000,000 under sales
Reproduced from the Unclassified I Declassified Holdings of the National Archives
i-EDERAL
re se rv e
bank
of
contract agreement.
new
r
k
Hon. D. R. Criss
er
6/9/27
Between now and June 15 this indebtedness of the banks and
market to us may be somewhat further reduced.
For a few days after the 15th as
usual money will be easy, as Treasury maturities are in excess of tax payments,
but after three or four days large tax payments will come out of the market. The
amount of funds available to the market
will be reduced from the present situa
tion by approximately $65,000,000 as a net result of June 15 maturities.
That
means that the New York banks and market will have to be borrowing from us at
least $150,000,000, and, on top of this, will come the usuil extra demand for
credit in connection with the end of the half year.
This will give us a situation
that we will ha¥e to think about and watch carefully. Further purchases will then
be desirable.
Very truly yours,
Uh a ir m a n
Open Market Investment Committee
Hon. D. R. Crissinger,
Governor, Federal Reserve Board,
Washington, D. C.
BS/RAH
'
Reproduced from the Unclassified / Declassified Holdings of the National Archives
M
j
r
I
i
!
I
Dear Q w c r agf Btronet
w tnM
At tho iaoetlng of tli» 7*4* m l Ro*onre Board this
aoming*
m m given to tb e **port of the
Cpoa Ifcrfeot towHiaant Oonnittee* dated tfty U f X92?,
la which tho Cocmittee reeoMwndods °(X) fb o t no
fUrthW O X # Uf SyfttORI BMlWiti l&s bo s*do In order to
OO
offteot *rr£f*Xs of gold fro* ebroed nor low/or e n tio ipeted" »ad *(fc) ¥fc*t i t flt*n 1)« tho policy of tho eo*»
alttee botmwi acor end Aqguot X ne*i# gradueily to ooquire, I f poooibXe to do to without uodi* offoet i^on
tho aeney M te tp «uffioS*nt additional *hort-fciB»
ganrernneift ofoligfttione to bring tin to ta l of tho com
m ittee1* inveetaexit innmrit ud to S£»SQ O «Q O Tn
*G O Q *
in terp retin g tho «xpre»*ion 1undue effect upon tho
sacoey ra^rkot#f tho eo m ittee wauid oaqpot to keep In
aind «ny chance* whieh ml#*t ooour In tho general XeveX
of iat»oy ratoe, mi well «* tho extent to efcioh these
pwefcaoe# mlg*t efjfeot a reduction In tho mount of
borrowing# by wm&or benfc***
fho Board voted to approve tbe report and recaaaeadat lone contained therein* with tho fueling that
proposed to bo ptrdtftftod should bo m
o*
cumulated slowly and with a view to tho poeeibiXity
that it
not bo Advisable to purchase tho fuXX
amount authorised within tho period of tlao ia«»iitmed*
\
i
!
I
I
j
i
*
i
.
!> R* Cris«inger,
•
Governor.
\
Hr# Beajanla Strong, Chairsfcn,
C|>on l* rk rt Invoatoent Committee,
e/o Federal Reserve Bonk,
Sow fork* ».¥•
Reproduced from the Unclassified / Declassified Holdings of the National Archives
May 13 , 19B7
Statement of Mr. Cunningham
With the sincere hop* that tho view expressed la Hr.
Platt’ « resolution that the securities which the O Market
pen
Investment Cosa&ittee recommends he purchased w ill he accumulated
gradually up to August 1st next, I am voting in favor of the motion*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
With the sincere hope that the view expressed in Mr, Platt’s
resolution that the securities which the Open Market Investment
Committee recommends " e purchased will he accumulated gradually up
b
to August 1st next, I am voting in favor of the motion.
i
Reproduced from the Unclassified / Declassified Holdings of the National Archives
IT"—
-----------;
■
: ------------------------- -------— ——
-
Reproduced from the Unclassified / Declassified Holdings of the National Archives
■333-4-1
EXCERPT FROM MIH0TES OF THE FEDERAL RESERVE BOARD, MEETIHG OF MAI 15, 1927,
«=*-" % J 3 -3 S . A i X 6 - f ' 2
I rs M * T f c b d 5 ~ 't l~ Z 7
"Risolved, that the Federal Reserve Board approve
the report/and recommendations [of the Open Market Invest
ment Committee7rH t E n E K e ^ e e H i g that the securities pro
posed to be purchased should be accumulated slowly and
with a view to the possibility that it may not be ad
visable to purchase the full amount authorized within the
time limit mentioned.n
Reproduced from the Unclassified I Declassified Holdings of the National Archives
F o i- m K o . 131.
^
v ^ i i c c
1
L o r r e s p o L j e ;
20
T o ----- Governor Cria.lnger-----------
FEDERAL RESERVE
board
<^
5
j
' L>ate y w 'Em* IBZf»_____
___ ___________
3?? . -
t
/
From____Mr • Eddy#_____ ________
2 4S
—8U
a r o
fhl# it to raaind you of tho action of the Beard M
it*
aeeting yoaterdfty i» voting that tho recommcndatIcpb of tho
ujmii* Market lanreetmont Cttaaittee, which woro tubaitted at
that mooting* he roc©itod by tho Board and
special
®
p^*r
kuoinoos fur a date to bo flasod by you after
eonforonoo with tho Chairman of tho Board.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
'S3 3
U , iStT.
l/v\
«nA «fMr
tfe*
§***#, «*&•
it t* tfe* M U » i i | rm. t ^4*ti*e* «t f«il*y f*r tit* ^«rM » a ll« |
A«fctt*t I ■ s
■**%
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Reproduced from the Unclassified / Declassified Holdings of the National Archives
■i« 9, 19275,
V
PRELIMINARY MEMORANDUM RELATIVE TO OPEN MARKET POLICY £
The principal transactions in the Special Investment Account since
the last Governors Conference were reviewed in the chairman»a report to the
committee on March 21, and copies of this report were sent to all Governors*
In accordance with the action taken at that meeting, purchases of 25 million
dollars of securities were made in the market to replace March 15 maturities,
and the Special Investment Account was thus restored to 200 million dollars,
which is approximately the same amount as has been maintained for the past
two years.
Recent transactions resulting from large purchases of gold,
are described hereafter.
General Credit Situation
For many months business has been active and has continued to
maintain, and in some directions even to exceed, the rate of production
and consumption of immediately preceding years, although a number of re
cent developments have been of a character which might have had a wide
spread unfavorable effect had the general business and financial situ
ation not been fundamentally sound.
These developments are, of course,
the extensive floods in the lower Mississippi Valley, some overproduction
and price declines in the oil industry, disturbing financial developments
in Japan, reduced production and consequently reduced working time for
labor in two or three large automobile concerns, and not so recently the
collapse of a number of real e state and building speculations and of one
or two large installment finance companies.
The total volume of credit in use, estimated from the reports
of the reporting member banks, is now about a billion and a half dollars
larger than a year ago.
The considerable expansion of the last two
Reproduced from the Unclassified I Declassified Holdings of the National Archives
-
2
-
months has been distributed between increases in commercial loans, security
loans and investments.
On the other hand, the total amount of credit ex
tended by the Reserve banks is about one hundred million dollars less
than this time last year.
As the net gold imports (excluding the move
ment now under way) within this period were about 105 millions, the re
duction of Reserve bank credit has about offset gold imports.
The figures for Reserve System earning assets are as follows:
(in millions)
April 37,1927
Bills
Bills
U. S.
Total
discounted - - - - bought in open market
Securities
- - - bills and securities
April 28,1926.
444
- - - - - - - - - - - - - - - - - - --------
514
199
389
1114
242
318
1006
While total discounts at the Reserve banks are smaller than a year
ago, the difference is largely due to reduced borrowings by country banks
as reporting banks in principal centers are borrowing nearly as much as
they did a year ago.
Money rates are about 1/2 per cent, above this
time last year, as shown by the following table.
is for higher rates than last year.
than last year,
The present tendency
Tor example, time money is 3/8 higher
90-day bills are 1/2 higher, and Treasury certificates and
notes show an even larger increase.
The New York discount rate is 1/2 per
cent, higher.
Money rates at Hew York
April 28, 1927
Call money
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Time money - 90-day - - - - - - - - - - - Prime commercial paper - - - - —
—
- Bills - 90-day unendorsed - - - - - - - - Treasury certificates and notes maturing June 15 - - - - - - - - maturing September 15 - - - - - Federal Reserve Bank of Hew York rediscount rate - - - - - - - - Federal Reserve Bank of Eew York buying rate for 90-day bills - - * Prevailing rate for preceding week.
*
4
4 3/8
4-4 1/4
April 28, 1926
*
3 1/2
4
441/4
3 5/8
3 1/8
3.46
3.51
2.51
3.07
4
3 1/2
3 3/4
3 1/2
Reproduced from the Unclassified / Declassified Holdings of the National Archives
A review of the- general credit situation, of rates and 'business,
brings out the following striking facts:
(1) That the general level of interest rates in Hew York, rfhere
changes of rates generally originate, is about 1/2 of one -per cent, above
last year, the discount rate of the Federal reserve bank also being 1/2
of one per cent, higher.
(2) The amount of bank credit employed for conducting the o o m t r y ‘s
business, at a volume certainly much above the average of the last few years,
is only $1,500,000,000 above what it was last year.
(3) While irregularly distributed between the classes of goods,
the general level of commodity prices has experienced a considerable fall,
and over the greater part of the past year the decline in prices has been
in both agricultural and non-agricultural commodities.
Considering the
reluctance of member banks to borrow from the Reserve banks, coupled with
the considerable decline in interest rates which is occurring in Europe,
the question is raised as to whether the somewhat greater restraint now
being applied to the extension of credit at the money center (STew York),
coupled with the reduction of the total of the open market investment ac
count over the past 18 months or two years from $500,000,000 to loss than
$200,000,000, has not gradually had the effect of exercising some pressure,
imperceptible in any change over a short period, but now becoming apparent
when examined as to its effects over a longer period.
Gold Movements
Between January 1 and May 1 of this year, gold imports into the
United States have amounted to about $110,000,000, including $8,000,000 from
Japan, and exports during the same period were $26,000,000.
during this period were thxarefore $84,000,000.
Net imports
Inasmuch as approximately
$14,000,000 of the gold exported was gold which had been earmarked before
Reproduced from the Unclassified I Declassified Holdings of the National Archives
- 4 -
the period -under discussion, about $98,000,000 was the net amount added to
the monetary gold supply of the country during the first four months of the
year.
This gold movement, together with the imports of 1926, account large
ly for the fact that the System’s earning assets show a decline during the
past year, in spite of an increase of some billion and a half dollars in "bank
credit.
Entirely apart from the movement of gold referred to above, there
have been some significant developments since May 1, not included in the above
figures.
During the last part of April, the Bank of France recovered approx
imately $90,000,000 of gold from the Bank of England by the repayment of its
credit to the Bank of England.
Of this $90,000,000, $12,000,000 arrived in
Few York last week, $18,000,000 is still on the water, and £60,000,000 was
purchased by the Federal Reserve Bank of Hew York on May 6 and is now held
by the Bank of England under earmark for account of the Few York bank.
In
addition to this Bank of France gold, $2,500,000 has recently been imported
from Australia, and another $2,500,000 more is now on the water from Austra
lia and expected to arrive in this country this week.
A somewhat disturbing factor arose in the probability of the
importation and sale to the Federal Reserve Bank of Hew York of the
$90,000,000 of gold, negotiations for the purchase of which had been
concluded by one of the Few York member banks from the Bank of France.
It was learned that space had been reserved on the steamers and arrange
ments had been made for shipping the entire amount of gold; in fact, one
shipment was about to arrive in Hew York, and others were being loaded.
In view of this situation, after consulting with all the members of the
Open Market Investment Committee and with the Federal Reserve Board by
telephone, it was arranged to purchase from the Bank of France all of the
gold - nearly $60,000,000 - vrhich had not been shipped, and to sell the
Reproduced from the Unclassified I Declassified Holdings of the National Archives
Bank of Prance a like a no-ont of the September maturity of certificates of
indebtedness held in the Open Market Investment account.
By this arrange
ment, the money market status remained unchanged, except as to the gold
which had already been shipped, leaving the committee in position to deter
mine later at its meeting whether these securities should be replaced or
not.
Securities were sold to offset $9,000,000 of the $12,000,000 already
arrived, but no arrangements have been made for sales to offset the balance
of the gold which will arrive from London and from Australia, amounting in
all to about
$20,000*000.
With the sale already made and further sales,
if made to offset forther gold arrivals, the securities remaining in the
System's portfolio account will be a little over $100,000,000, too small
an amount to afford security against possible future developments.
This
will be appreciated, for example, if the $90,000,000 now purchased had
arrived at a time when we had no portfolio of government securities avail
able.
It is clear, therefore, that the committee must from now on give
careful attention to meeting this gold problem, either by increasing its
portfolio in anticipation of future developments, or by adopting other
measures.
The method of doing so should be determined with regard to
whether the time has or has not arrived when the Federal Reserve System
can afford to put new funds in the market, the effect of which would be
to reduce the borrowings of member banks, principally in Hew York, and
possibly to reduce the System’s holdings of bills.
There are various
possibilities for dealing with the gold problem as a whole which have
never heretofore been discussed in the committee1s report and which are
now submitted simply for discussion.
Hone of them are recommended at
this time, but are intended simply as a summary of all possibilities.
They are:
(1)
of France.
The committee could replace the securities sold to the Bank
The immediate effect would be to reduce the amount of member
Reproduced from the Unclassified I Declassified Holdings of the National Archives
- 6 bank "borrowings in Hew York, which are now running on the average at from
$100,000,000 to $150,000,000.
(2)
Those Federal reserve hanks which have considerable holdings of
long time bonds could dispose of those bonds, realize their profit and repurchase
through the committee as a part of the committee’s account, an equivalent amount
of short time securities.
These, with other short term government securities
owned by individual Reserve banks, could be added to the System holdings without
reducing the total earning assets of the individual Reserve banks, and thus in
crease the committee’s account to over $200,000,000.
(3)
Arrangements might be made with the Secretary of the Treasury for
somewhat increasing balances carried with the Federal reserve banks, and reducing
the amount carried with special depository banks*
(4)
Some or all of the $75,000,000 of 2 per cent. Panama Canal bonds
could be called and the national bank notes issued against them retired.
Fur
ther purchases of the 2 per cent. Consols of 1930 could be made in anticipation
of their possible retirement in 1930, as contemplated by the Secretary of the
Treasury in his report of 1924*
(5)
By gradual stages, or all at once, the time schedule of the Par
Collection System could be adjusted so as to increase the volume of uncollected
checks and correspondingly reduce the reserve of members.
(6)
Plans could be undertaken for retiring the greenbacks, which
however would require legislation*
(7)
Further amounts of the capital of the Federal reserve banks could
(8)
The reclassification of reserve cities could be gradually under
be called.
taken so as to increase reserve requirements.
(9)
A readjustment of the relations of the Reserve banks to the
market for gold could be effected if the Secretary of the Treasury saw fit
Reproduced from the Unclassified I Declassified Holdings of the National Archives
1
<
"
— - i‘
—
7
—
*
as authorized by law, to discontinue paying cash up to 98 per cent, of the
!
value of imported gold, thus throwing the market for gold entirely upon
the Federal reserve banks and enabling them to reduce the gold point for
imported gold by the equivalent of a loss of interest for the period dur
ing which payment would be delayed.
By reason of our Treasury practice,
the United States is today paying the highest price of any world market
for gold.
(10)
The Federal Reserve Board, of course, after awiftguate study,
could revise the definition of what constitutes a time deposit, tins rais
ing the reserve requirements.
This is probably justified by the fact that
something like 60 per cent, of the increase in bank deposits in the United
States over the past ten years consists of that class of deposits which re
quire only 3 per cent, reserve.
(11)
A revision of the regulations of the Federal Reserve Board
in relation to the maintenance of reserves, by averaging reserves for a
period, of a week in Federal reserve bank cities, and two weeks in the rest
of the country, could have the practical effect of somewhat increasing the
I
[
f
|
amount which member banks mast borrow.
I
currency in transit, which in effect reduces reserve requirements in those
(12)
The Federal Reserve Board could revise its ruling relative to
districts where the ruling is now applied.
The above comprehend most, if not all, of the possible measures
!
available for dealing with the problem of gold imports in view of our re
duced portfolio.
They are submitted for consideration and study.
The possibility of gold imports mast not be overlooked, and may
indeed be imminent.
(l)
The underlying causes of such a movement would be:
The continued maintenance of our present level of interest
Reproduced from the Unclassified I Declassified Holdings of the National Archives
rates, somewhat higher than a year ago, in the face of declining interest
rates and reducing hank rates in Europe*
(2)
The fact that our technical practice in dealing with gold
makes this the test market in which to sell it and one of the most dif
ficult from which to export it*
(3)
The possibility, regarded by some as the probability, that
within the next two years Germany will he forced to ship us large amounts
of gold in order to meet reparation payments in the standard year*
(4)
Heavy foreign payments to meet ihe service on all foreign
loans*
Nor must the possibility be overlooked that conditions may change
rapidly and instead of experiencing a large addition to our gold reserve,
there is indeed a possibility, although more remote, that within the next
few years we may sustain a large loss of gold*
Gold exports from this country can arise from two causes:
(1)
The first is the perfectly normal movement resulting from
exchange rates reaching a level at which it is cheaper to make payments
abroad by shipping gold than by buying exchange*
(2)
The other, however, can occur irrespective of the gold
shipping point, because of large balances held in this country for account
of foreign governments and foreign banks of issue, which, as in the case
of Germany, may decide to take gold for reserve purposes, irrespective
of the gold point.
No danger need bp apprehended as to a nonnal export of gold, but
we might sustain a large loss of gold under the second category at any
time, and that we are now prepared to deal with successfully because of
the large proportion of such balances held by the Federal reserve bank,
Reproduced from the Unclassified / Declassified Holdings of the National Archives
9
the export of which could easily "b provided for by our purchasing the
e
securities now held for account of our foreign correspondents.
The only
embarrassment likely to occur as a result of such a demand will he due to
the lack of an adequate supply of American gold coin, concerning which
discussion has "been had from time to time with the Treasury.
Looking, therefore, to the future, that is, say for the next
*
three years, the committee is of the opinion that the policy of the Fed
eral Reserve System should he to prepare itself to deal with either a
large import movement of gold or a large export movement of gold.
Any
other position would expose the System to the charge of lack of foresight.
In view of the many alternatives to he considered, and especially
in view of the fact that whatever may he the policy of the System it will
involve taking a definite position as to the money market, the committee
prefers to defer any recommendation until after discussion with the Fed
eral Reserve Board and a definite expression of their views.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
Ammmm
■ j J
v|
f y
......... n - - ■
■
'
FEDERAL
OF
RESERVE
NEW
BANK
J
U
T
“
VORK
<
A
Dear Governor Crissinger:
In re: Open Market Investment Committee Meeting; - March 21.
I have xourJLgttGr of March z i.J notifying/me that the Federal
Reserve Board as of that date approved the proposal to replace the
£■25,000,000 short-term Government securities that were permitted to run
off as of March 15, 1927, and that, in the event that it should presently
appear desirable to purchase an additional amount, say up to §50,000,000
of these short-term government securities, the Board will be prepared to
act upon a recommendation of the Open Market Investment Committee, as a
committee, or of the Federal Reserve Bank of New York, if the Committee
prefers to leave the matter of such recommendation in its hands.
Thanking you, I am
Very truly yours,
J. H. CASE,
Acting Chairman,
Open Market Investment Committee.
Honorable D. R. G?issinger,
Governor, FedejidL Reserve Board,
Washington.
~
Reproduced from the Unclassified / Declassified Holdings of the National Archives
> “
V
9
bllmriag the meeting today with the Open Market Xnveet*
neast Oomittee, the fe&emi Reserve Board considered the Qoanittee1a recommendations, v&ilch you xaadte verbally, to the af
fect that th» Opm Marfcet Investment Oamitioe he authorised
to replace the aroount (j35.0Q0.CKX)) of govemraeat securities
which were Held txPEHe Social Xaveateent Account and matured
on Match 15th, m d that th e Oomittee he authorized to purchast
an aMitionel ...|»,000*000 of shortterm goreroaent securitiesshould'a 8 l t m i l 6 s '''S f : %op that would seem to J&stlfy iueti
0 e
aaticm. ■
^
l?he Board voted to authorise tho Committee to replace
*
the ‘
£35,000*000 of ^ovensnont securities stitch natujred fro®
j
tha 9p@ eM Investment Account on Hsrch isth, «ad will hold it*
!
go!f reader, xtom advice from, the O p m Majrtcet Investment G s *
os'-.littee, ag a ooBK&ittae, or from the Y*deral Reserve Basak of
lem Toxic, if the Oesaaittee prefer* to leave the setter la the
l^mds of the federal Reserve Bank, to not upon & reroTOend&tioft
for the pforch&se of an &ddifcioia&l 100, ^ 0,000 of short-tens
govaraaent securities, at any time such a course should «wp*sr
to
dastmble.
Tory truly ytmrs.
P. H, >issjte/*<sr,
Gorernor.
Mr.
J. H. &ase» Acting: Chalsttsn,
Open Maifeet Xnvetteaoftt Oomittee,
c/o Ifcdeml Heservc Saik,
Hew Toife, ». T.'
•>
v
/2j2e,.
eproduced from the Unclassified I Declassified Holdings of the National Archives
,
4
m r * h B, 182T*
Dear Mr* 0**«i
Tho Board is g m tifiod to b * v your le tte r of
)*rch 5ih/«jcpr<B« lng the view of thedir«c4or« of your
b o t t l S t i i f th* Op«n
Imrertaent Conolttc«
concur*, i t would b* w»ll to l* t th* >*r*h 16th ^ t u r i ti*» in tha 8y§tm** «p*olal inv**tia*nfc account run
o ff. Th# Board ted this in mind wh*n I t ©an®*ll*d th*
s i t i n g of th# Qp*n t*rk*t lawgtmoni Ccmmitt** callod
for Uarch ?th, and in order that th* rooord a*y b* In
proper for»i I m w riting to «*y that th* Board appro***
Of th* COHaittoe f l l grinf theoc r a W l t i e e tO-n m of f «At th* mooting call*d for Iferoh 21r t , it can b« d*rttr
ained if and wh*& it w ill fe* mtvi*ablf to FopJae* tfe*m*
Very tru ly your*,
.<f ,
-e
Bdaund Platt,
Vico <Jov*mor.
ffr
ce*
H* Qa*** Deputy (Jortmor,
Federal ftp*®*-** !*»&*,
B*w fork, *UY.
r '"•
~“
Reproduced from the Unclassified / Declassified Holdings of the National Archives
DECEIVED
MAR
FEDERAL
OF
RESERVE
NEW
BANK
7 1927
o m c e o i'
M R
P
—
I A T T*I«V
.
"
3 3 3."
VORK
March 5, 1927.
Dear Governor Platt:
We are in receipt o f your letter of March Z transmitting the
resolution of your executive committee, asking us to get the views of our
board concerning recommendation No. 1 of the Federal Advisory Council.
Yo'ur letter arrived while our directors' meeting was in session
on Thursday and was read to the directors.
There had not been, however,
any time for us to prepare a review of the question for the directors and
it was not possible to give the question the extended consideration which
it warrants.
Since the Open Market Investment Committee meeting has been
postponed there will, we trust, be an opportunity to give it more adequate
consideration.
As you know, we are facing a very complex situation at the tax
day period.
In addition to the 30 million dollars of maturities in the
system account, there are 90 million dollars of maturities in foreign
accounts, all of which must be taken care of in one way or another.
Total
maturities of Treasury notes, of well over 600 million, constitute the
largest maturity for some time and the new Treasury issues will probably
be more difficult to handle than for some time past.
In view of the complexity of the situation, we have not yet
been able to make up a comprehensive balance sheet as to the probable
effects on the money market of the operations on and following the fifteenth
of the month, and before that is done it is dif
itis-
factory program for our operations.
MEEEHN0-,
Reproduced from the Unclassified / Declassified Holdings of the National Archives
* FEDERAL
RESERVE
BANK
OF
Hon. Edmund Platt,
Federal Reserve Board
N E W YO, . , -
3/5/27
In discussing the matter, however, in a tentative way, it was the
view of our directors that, if the Open Market Investment Committee concurred,
it would be well to let these securities mature on March1ft, thus having the
effect, for the time being at least, of removing the funds from the market
for the period when money tends to be very easy for the few days following
the fifteenth, and that the time and manner of replacing these maturities be
determined upon later as it becomes possible to visualize the situation more
clearly.
We hope to be able to make up a survey of the tax day operations
before the end of next week, which we shall be glad to send you as soon as
it is ready.
With regard to the policy relating to bankers acceptances, our view
here has coincided with the position taken by the Federal Advisory Council,
and it has been the feeling of our officers that our buying rates at which we
stand ready to purchase bills should be maintained at the present levels, so
that if and when market rates declined there would immediately be some pressure
on the market to reduce the amount of its offerings to the Reserve Bank.
This
process will, we believe, tend to absorb any substantial amount of money in
the market available under 4 per cent, and keep our discount rate effective.
Our directors have concurred in this general program.
As you may have noticed, the New York City banks now owe us about
$80,000,000.
There is no danger of sloppy money as long as that is true.
Very tru"
J. H. Case
Deputy Governor
Honorable Edmund Platt,
Vice-Governor, Federal Reserve Board,
Washington,
C.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
3
March
2, 1937.
Dear Mr. Case*
At a meeting of the Executive Committee of the federal Reserve Board
on yesterday, following the presentation of th®_ reoomeftdatio?** of the re
cent meeting of the Federal Advisory Council, it was voted
*tbat Reccimaendatioo SO. 1 bo traasmltted to the Board of
Director* of the federal Reserve Bank of Hew Yotfc for an expression
of their views and any recommendations they may care to make* end
that th© directors I e advised that the Board thirika it pertinent,
r
la connection with consider attea of the recomeadatio n, to take
cognisance of tse gold inserts since the first of the year and the
present state of the acceptance market, an£ to consider whether
there should he any change in the voluaae of iiivestrents in the
System’s special investment account, especially in vie*? of the
March 15th m&turities from the account .11
This resolution speaks for itself, hat I might add that while the re
commendation of th© Council, if taken literally, would seem to refer only
to Mbills bought in the open .sarkst*, the Council in discussion with the
Board indicated that they had reference rather more to short term Government
securities bought through the Open Market Committee than to Mi l e , thou&h
seme of them evidently had in aind the fact that hills purchased are maturing
every day and that there might be some aeane of reducing the purchases each
day* •
As there is to be m Open Market Corsalttee meeting on Monday next I
presume this whole matter will be discussed at that time with the Board*
Yours very truly.
YICS GOV3ERHOR
Mr. J. H. Case, Deputy Governor,
federal Reserve Bank,
Hew York, lew York.
P. S. - 1 am enclosing copy of the Council** recoraaendatlons to the Board.
WM
Reproduced from the Unclassified / Declassified Holdings of the National Archives
118.
*£•
^
fice Corresponuer e
b
■ ■
r
u
n
m
w
rm .
T o ----- Mr,,.Platt______________________
FEDERAL RESERVE
ROARH
^
D oLLm
llj
w *
Subject:.
From___ Mir. Noe11.__________
At the meeting this morning, following presentation of the at
tached recommendations of the Federal Advisory Council, it was voted
...................................
C Jbu .
..
nthat Recommendation No. 1 be transmitted to the Board of
Directors of the Federal Reserve Bank of Hew York for an
expression of their views and any recommendations they may
care to make, and that the directors be advised that the
Board thinks it pertinent, in connection with consideration
of the recommendation, to take cognizance of the gold imports
since the first of the year and the present state of the
acceptance market, and to consider whether there should be
any change in the volume of investments in the System's
special investment account, especially in view of the March
15th maturities from the account.,
f
/
P
*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
RECOMMENDATIONS OF THE FEDERAL ADVISORY COUNCIL TO
THE FEDERAL RESERVE BOARD
February 18, 1927
TOPIC No, 1.
What is the view of the Federal Advisory Council in respect
to the future discount and open market policies of the Federal Reserve Banks?
RECOMMENDATION:
The Federal Advisory Council does not believe that there
is anything in the present business situation which would warrant any reduction
of existing discount rates, or necessitating any change in present open market
policy.
The Council feels, however, that should interest rates continue to
decline the Federal Reserve banks should reduce their holdings of bills bought
in the open market.
TOPIC No, 2,
What aid should be rendered by a Federal Reserve Bank to a
member bank in weakened condition.
Should consideration be given in^fche first
place to the depositors of the bank or to the ability of the bank to make
further loans?
RECOMMENDATION:
fhe Federal Advisory Council believes that no general
rule can be laid down in regard to the assistance to be rendered by a Federal
Reserve Bank to a member bank in weakened condition.
The Council is of the
opinion that satisfactory management is of first importance in determining
policy and that the ultimate end to be achieved should be the conservation of
the interest of depositors,
TOPIC No# 3,
What action, if any, is advisable in view of the diminution
of the number of par points?
RECOMMENDATION:
While there has been some diminution in the number of
par points largely due to failures and mergers, there
present situation to warrant any action at this time*
A T JSH-j
CU-'-V’ COSiOG/i
S
MEKONG,
Reproduced from the Unclassified / Declassified Holdings of the National Archives
m
f l ' T J S SBC5XM
w
'T '
FEB -119 4 4 ^
3 3 3
W tea on Bsooc»endationa of the O* M. I . 0*
o
,
■. ^
/ i
lo t®
X*
&
l/l8/26
Ths Committee Bet and discussed advisability of disposing
of #60,000,000 short term securities aoquire^. daring Deoember,
1935 for possible resale at this time.
Agreed that while it was
not desirable to s e ll these securities Immediately (beoaum of ex
isting conditions and since %
hem m r e $66,000,000 of March m
a
tu rities in the aooount) developments should be carefully watched.
(pp*4fl-*49)
lot©
Zt
I/Z b /Z t
Vote
3:
3/8/26
Chairman of Q.M.I.C., present at Board meeting, stated that
about |66,000,000 of ocuaoittee aoooant holdings would retire Haroh
16 aad suggested that the maturing securities be replaced, if pos
sible.
The Board voted to interpose no objection to this action.
(p. SO)
Wete
4j
3/23/26
The O.M.I.C. submitted its report to the Board, no Immediate
change except reoomnendlng that the issues which had matured on
March 15 be gradually replaced as mart»t oond it ions narranted, and
that preparation be made f t o ^purchase some farther amount of seonri*
ties if and when then® should be evidence of a reoeasion in business
activity, especially if there is no further liquidation" of reserve
bank credit.
(p. 66)
On 3/24/26 the Joint meeting of the Board and Governors w&a
advised that the Board had voted approval of the replacement of
March 15th maturities but had tafcen no vote on the rooownendation
of fmrther purchases, foaling that the Ccemittee’s report had not
h#©n specific on this point*
The committee r e l a t e d authority
to bring up to #90,000,000 additional securities raising total
holdings to $300,000,000 should developments warrant it before
April 16, 1926.
Approval of the Board was not granted, (p. 56)
Oa 3/26/26 the Board granted approval of an Increase of
the account to $300,000,0001 no purchase to be made under such
authority after April 15.
(p. 56)
The Board, In meeting, authorised the sale of not more than
$60,000,000 of securities against definite orders.
Action taken
following ^resentatioB of letter from the Deputy $©veri»r of the
H. Y. Bank, advising that a Moderate demand for short terrc securi
ties waa being felt restating tm m a considerable easing o f money
conditions, and that U. T. Bank officials ffelt that the marlnst
should he supplied from time to tlrae with moderate amounts of
these seomrltlos, not axoeadlng $50,000,000 t r m the 3. 1. aooount,
on receipt of definite orders,
(pp.46-49}
Reproduced from the Unclassified I Declassified Holdings of the National Archives
2.
Hote
5»
6/15/26
After the Maturity date tbe account m i off to $239,000,000,
and waa increased %e #275,000,000 the securities being replaced
with Board approval*
ip* 66)
Hote
6»
6/21/26
She Canalttee and Beard voted to maintain the S. 1*. ao~
aount at akout #&?5,000*000j tbe Coesaittee being granted authority
to nafc* tesporary purchase• or sales within a range of #50,000,000
as deemed advisable ; such purchases to be liquidated as soon a#
conditions warrant.
(this authority m § evidently not expected
to oover more than the subsequent two weeks* J
(pp. 57 and 59 }
Hote
71
8/17/26
Rote
£t
8/17/26 to 9/10/26
During this period the account decreased from
$275,000,000 to about $210,000,000, the sale of #40,000,000 of
Liberties to the Treasury (Hote 7) was m
ade entirely from the ac
count . the three $V R. banks having exchange Liberties from their
holdings with the account for other securities. At this tin»
authority to purchase amounts increasing the account up to
$325,000,000 was held by t*» Ooranittee.
(p. 63)
Hote
9 1 9/10/26
being
Committee voted {1} to se ll to, and on request of the
Treasury, #25,000 ,0'0 Third Liberty Loan
Bonds fin addition •
to $15,000,000 trm the holding* of three F* 1* banka} without
replacement 1 (2) to approve the tale Of $2*337,000 to a foreign
oorj^spondent without rsplaco-iont 1 (3) to sell |6 ,000,000 during
the current week, and $15,000,000 during* following weeks, to
foreign correaposdents*
(p* SO)
the Committee voted to maintain th© account for the time
at about #&00tO00,0O0, with the under standing that the 0 m ~
a it tee could at discretion effect purchases or sales of not nore
than #50,000,000*
It was also understood by the Conreittee and
the Board that tbs effect of gold imports in the mar future
should be offset by furnishing foreign correspondents securities
from tho 3* I# account *
The Board, meeting on 9/10/26, voted to authorize the main
tenance of the aooount at frost #3100,000,000 to #225,000,000.
ip* 66)
H 10:
ot©
I I / 7/26 'the Committee suggested the d esirability 0^ purchasing
up to #100,000,000 during the following six isseks to he sold as
changing credit conditions indicate.
(p. 6$)
the Board in Meeting on 10/ 10/26 construed the 0OB#Bitte#'fs
suggestion as an expression of ©pinion:, and so informed the Com
mittee, adding "The Board assumes that should there be any change
•••whioh would seem to warrant increasing the account (above the
#225,000,000 approved 9/10/26) temporarily the Coisnittee w ill
confer further with the Board1*.
ip
---------
--------------:
— — —
Reproduced from the Unclassified I Declassified Holdings of the National Archives
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•YEAR-END MOVEMENT OF FUNDS
(Extract from Minutes of Board of Directors of the Federal Pvoserv;
Bank of New York, December 16, 1926)
On the subject of open market operations, Mr* Case referred to tho
report of the Open Market Investment Committee of N0venber 3, 1926, suggesting
that the purchase up to $100,000,000 of securities may be desirable over the
year-end, and the action of the Federal Reserve Board in noting the suggestion
and requesting that the matter be referred to the Board again before definite
action was taken in this direction with respect thereto*.
Dr, Burgess presented
comparative figures on the situation in the money market over the year-end
periods of 1924, 1925, and discussed the probable situation this year*.
In the course of the discussion it developed that the increased dor:and
for credit durin; the forthcoming year-end period would bo due to the following
f our causes#
(1)
Income tax collections, which would create a Treasury balance in
the reserve banks which might total $100,000,000 by December 23*
(2)
increase in the demands of the money market upon New Y0rk banks
due to (a) withdrawals of out-of-town funds, amounting tG
perhaps <^150,000,000, (b) an increase in total requirements
because of 'Vindow dressing” by corporations and others,amounts
ing to a further $150f000,000*
(3)
”¥indow dressing” on the part of the New York City banks which
leads them to seek large average reserves the last week of the
year, but to show no debt to the Reserve Bank on December 31*
(4 )
Currency withdrawals, which in previous years have totaled as much
as y50,000,000 in New Y0rk and $100,000,000 elsewhere in the
week before Christmas*
Mr. Case reported with regard to (l) that it was the intention of the
Treasury to invest its balance by purchases of securities up to $60,000,000 to
the extent that the securities are available and that, with regard to (2 ) and
(3), as previously reported, he had discussed the problem with some of the large
City banks and understood they would be prepared to furnish the funds required
in the money market even thou'h it were necessary for them to report a debt to
Year End Movement of Funds - 1925
(In millions of dollars)
.. ^
.....
| Treasury
Position of Kew York City Banks
Street Loans
Reservs> (23 BainVa}
s
Call
Balances
I Balance Borrowing at F.R.BT
Currency in Circulation Transfers
..
Daily
with
,
... '
of
Gain or
1Aver.Week Loan
Change
Required Actual| to date Closing
Own Account Correspondents Correspondents jF.R.Banks Actual
Loss
New York
u. s.
>
;
Date
i
frwv. 17
+ 9
18
+10
19
21
+ 5
22
23
24
+4
0
+10
>+163
I (BBt.)
+
J
8
+ 0.5
-32.5
-19.*
+ 7.1
+ 6.7
+ 4.4
-14.5
+17
+61
+ 2
- 9
-15
-31
+ 1
-10
6.2
- 1
2
-28
-
+18
- 2
+13
+11
- 8
20.0
+ 5
+7
+5
11.9
35.5
30.0
30.0
+ 3
-20
Total
+46/
-47.7
+107
-54
-36
D 26
ec•
- 3
-16
- 9.5
+ 2.4
-U.3
+ 1.3
+ 2
+19
+34
+74
- 2
+ 1
-29
- 7
-34
+12
-17.1
+•129
-72
+68
-14
+39
110
164
126
-38
142
151
150
146
28
29
30
Tf
\
D 31
ec.
-11
+2
)
>-147
(®rfc.)
-28
4 6
J
-13
+38
- change
2
Dc
« .17-30
+18
-64.8
+236
-126
+
Net change
D 17-31
ec.
+24
-75.8
+304
-140
+41
593
593
593
593
+39
+54
+16
+9
+38
-11.0
29.1
]
- 1
593
593
- 4
593
601 ;
635 :
594
570
583
633
570
575
589
623
619
596
596
596
627
640
607
600
600
♦.75
5.50
-
6.00
6.00
6.00
5.50
+75
1
21.5
17.9
19.3
15.1
130
162
171
219
604
604
-16
+32
♦9
+48
—
604
686
615
629
6.00
6.00
6.00
604
603
625
6.00
604
+73
16.4
161
-58
+148
-------+
90
I
L
* la addition to changes in discounts $37,000,000 of securities were purchased in New York and |13»000,000 elsewhere from December 17 to 31; al«o
there were net bill purchases in N«w York of tL3y
000,000 from December 17 to 24 and net sales of $3,000,000 from December 26 to 31.
4
(In millions of dollars)
Dec. 17
18
19
20
22
23
24
Total
Position of New York City Banks
Treasury
Reserves (22 Banks)
Balance Borrowing at F.R.B.t
Balances
Street Loans
Currency in Circulation Transfers
|Aver.Week Loan
Daily
with
of
'l i or
an
Required Actual to date Closing
Change
Own Account Correspondents Correspondents F/R.Banks Actual
Loss
New York
U. S.
T
+1
13
+ 2
- 1
-11
- 3
- 2
- 1
12
- 6
22.3
-27
-14
+8
♦7
- 2
1 10
41.2
- 4
-27
♦33
-29
+9
♦6
16
Not compiled
-16
- 1
55.1
+10
+4
+120
*7
.
4
78
63.5
+17
(Est.)
-9
-13
♦6
- 3
+12
5
- 6
-4
62.3
+12
-10
♦1
0
90
*
-14
+29
58.1
♦5
+1
+3
..........
+78
-21
-29
-56
+31
+29
Dec. ?6
2
7
29
30
- 2
-13
- 8
- 6
- 2
Total
-31
N. 1h £e
s l an
Dec, 17-31
- 2
-158
(Est.)
57.3
59.4
84
84
80
56
32
- 6
0
- 4
-24
-24
♦3
5
-ii
-14
+57
+1
- 3
+12
+20
-18
- 3
-21
♦19
+16
+12
-9
■■0
*4
+12
+23
-58
-47
+71
- 9
- 6
+20
-22
- 6
+26
+10
+1
!
62:3
54.0
51.2
614
614
614
614
629
655
653
653 i
629
638
642
645
tin addition to change, in ai.aou.rt., there wero net purchn.es of tfl.OOO.OOO of hills fro» December 17 to 24, and net Bales of $4,000,000 free December
26 to 31.
V
Reproduced fro th Unclassified I Declassified Holdings of th National Archives
m e
e
Year End Movement of Funds - 1924
o f t M f S W a l Archives
/
•
/
h f-
1920.
/
Sm i >Mr* O m i
r
5 3 3-^/
Tbe Board baa conaidered the report of the Open I&rket
t— ----tnveatsjent Cotsuittee and note* particularly the CaBBnittee**
8 u ggo stio n th a t H i nay bo de« ir a b le t o jw c h a iie up to 10 0
m illio n o f *© o u ri$ia * d u rin g the o oein g i | j t w eek*, t o be e o ld
a g a in a t such t i s * &# ©tfodit © oniiti^nfl appear t o iaake t h a t
cou rse d e s ir a b le " * tho Board understand* from th e Committee *s
re p o rt t h a t a* tho 'poiaaitto© t&owi th e s it u a t io n a t ih li- t & a o
then* is &0 nood f o r a c t io n loo kin g toward a change in tfe#
amount o f the s p e c ia l iim a trn en t accou n t, aa approved hy th e
Board On S e fte a h o r 10 , 10 2 6 , and in t h is view* t b * Board con
c u r** fh e B o a ra , t h e r e fo r e , ooftatn*©# th ® Coiamitt®©*^ tug©#*-*
t io n m an e x p re ssio n o f o pin io n m th e p a r t o f the Committee
th a t in th e e w n t of a fu tu r e change in the p reterit s it u a t io n ,
i t ioay be deB ir a b le t o £ iv e .oons i de ra t ion to in c re a s in g the
aocouat tewpcrarily.
Tho Board U M B
tliat should there be any change in the
^rofcfnt situation or any »ow
which wow Id eee;a to
warimnt increasing th© aooount temporarily the Cesmaiit## will
confer further w ith th e Board.
Very truly yours,
/ •>
j *
,
.....
-
/.!
P
D. % C rliaingw ,
governor*
Hr*
H Case, Acting Hbairaia,.
*
0p«a Marlosi Imrestiosnt Ccwaitteo*
Watliington* 0* C0
_______
)ABC lOBKTBTO
//-* -*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
FEDERAL RESERVE BOARD
WASHINGTON
O FF IC E OF G O V ER N O R
November 9, 1926
Dear Mr. Case
The Board kt its meeting this ^ternoon con
sidered the report of the Open Market Investment
Committee to the yovernors1 Conference, now in
session, and withNrespect to the Committee’s sug
gestion that "it mav be desirable to purchase up
to 100 million of securities^during the coming
six weeks to be sold VgaiiVat such time as credit
conditions appear to
L k o / t h a t course desirable",
I have to advise that t^e Board sees no occasion
at the present time fc & change in the amount of
the special investmei
acoount, as approved by the
Board last September - 200\;o 225 million. It is
understood that the Committed is authorized to re
place the December 15, 1926 maturities now held
in the account • /
\
The Board'stands ready, of %
©ourse, to give con
sideration aM any time to any profnpsal affecting the
account pre/ented by the Committee in the light of
any new conditions or developments which the Committee
may bring? to its attention.
Very truly yours,
Governor
Mr* J. H. Case, Acting Chairman,
Open Market investment Committee,
Washington, D. C.
yi'U tl-rcy
.C
*/P / 9 L
j:
Mess®*'
Reproduced from the Unclassified / Declassified Holdings of the National Archives
September 15, 1926.
Dear Governor Crissinger:
I am in receipt of your letter of
reference to the action taken at the joint meeting of the Open
Market Investment Committee and the Federal Reserve board on that
date, and note your statement that the uoara voted to authorize the
committee to maintain the System Special Investment Account at from
$200,000,000 to $225,000,000.
Enclosed you will find a copy of the minutes of the
ljul
3
meeting.
I think you will recall that the resolution which was
f'inaliy voted upon provided for the maintaining of the account, for
the present, at #200,000,000 or thereabouts, with the understanding
that the committee might, in its discretion, increase or decrease the
account ty not more than #50,000,000.
iexy truiy yours,
J. H. CASE,
Deputy Goven
r.
Honorable D. B. Grissinger,
Governor, Federal Reserve Board,
Washington^C). C.
Encl. J*
A E E U IV C M O E
T XC T E O M TS
ME I G
E TN ,
SEP 15
J5 5 I
»
Reproduced from the Unclassified I Declassified Holdings of the National Archives
h
D*a?
Mr.
O&aet
j
) ft
Shi fedawtl
Board this a£t»rao<m
©oii#id©r#d |hf *#£or^ «abraitt«d by you us Acting
OhalttMB of the Opdm t*a*9e»t tnvesfca«at Cteralfctt# % c
f
tha zMNtia^: o£ the OoHsaitt#* held with tha ?«d»ral
Board this zsjoraiag.
fh« Board voted to
aaithori*« tha Opm Itetikfi tavaateant Couraitte* to
aaintaia th# % a t « a apodal Xiv?m%wi I Account n c
f
fro® |3ootooofooo to $aa§,000,000.
V&rj truly yours.
( S
i g
n
e
d
)
! > •
P
-
1
3. 3* Crisslaeer,
QoTtmor*
~ r. J* 1 » Cate, Deputy 0o*aw*or,
f
!
l%d«rad
3«ik,
M r fOlfk, !?. T.
/2-£e
C is v t» &
%x
-}{&
/
I/
Reproduced from the Unclassified / Declassified Holdings of the National Archives
T f r
3
>
Upon notion, i t was Voted that the open aarket aoeoaat
should be maintained for tha prasant at #200,000,000, with
i
'
,
’
i
r ■
tha understanding that tha ooanittaa ootild, in its diapration,
i
■ '
■
i ■!
i
inoreasa or daoraasa tha adoount toy not aore than #60,000*000*
V
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Having considered the report and the final recommendations of the Open Market Investment Committee, the Board is
of the opinion that the present situation of the money market
by purchases or sales in the open market.
Should subsequent
developments arise as the autumn advances that would make a de
parture from this position advisable, the Board will be ready
to consider the matter again in the light of actual changes in
the money or general economic situation.
The Board has, therefore, concluded
1.
That there should be no change in the present vol-
ume of securities held in the System’s Special Account.
The
10 millions of September 15th maturities should, therefore, be
replaced as the opportunity for purchase is favorable.
While this w u l d result in an enlargement in the amount
not
of securities held in the System’s account, it would/in effect
alter the amount of money maintained in the open market by pur
chases of Treasury securities either for Federal Reserve or for
foreign correspondent account|
in brief, would leave the exist
ing situation unmodified so far as the Federal Reserve’s relation
to it is concerned.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
1J
f e d e r a l
OF
't
,
r e s e r v e
i.4 .— 4*-
b a n k
| i d hi uu
NEW
YORK
August 19, 1926
Sederal Reserve Board,
Washington, D. C»
Attention:
v
Honorable D» R« Crissinger
Dear Governor Crissinger:
Approval has been received from all Federal reserve banks to
sell to the Treasury from System’s holdings approximately $40,000,000
Third liberty Loan 4 1/4/& bonds, without replacement.
The Treasury
has advised that ♦ 10,000,000 of the bonds vill be taken over on
August 19 and the balance August 24*
At the request of Governor Seay of the Federal Reserve Bank
of Richmond, I am sending you herewith a copy of his telegram dated
August 18, 1926, setting forth his views with regard to the action
taken at the Open Iferket Investment Committee meeting held August 17.
Secretary, Open Iferket
Investment Committee
B n c l. (1 )
AT BOASE
m
2
926
Reproduced from the Unclassified / Declassified Holdings of the National Archives
k -
r
51BDB0 Blofcmoad,
■
■
“
^
10$12 a 0
m«
Aiagast 18* 1926c
Matteson:
treasury i t welcome to
need the Investment 't/at
our
I
proportion of bonds i f i t wants
find i t impossible to
W
e
them
approve the policy of
system bonds i f i t re su lts in taking sueh a large amount
of
cred it
do not
taking
from the
market in the face of risin g in te re st rate s a t a time when financing orops
and preparation fo r tax payments is going onC
)
isorease in te re st ra te s
in the ffew
York
bank
at
rate
It
can
hardly fail
le a st temporarily; and coming on top
oast
a
o h ill
over
business
whieh
of
to
farther
increase
has managed
to
survive splendidly notwithstanding the
work of the oracles and sign readers
who predicted decline and depression
Busineaa does not
nead
a
©hill but
eoceuraganent when commodity prices and ©Detraction work are showing hesi
tancy and declining tendencies c
have an
prsss
unfavorable
this
Furthermore rising interest
influence on Ts^eaenry
opinion to &ie Board
Septeaber
and ©th@r ¥©4eml
Sa&y ^
ac
m
ra te s
financing-
reserve banks*
should
Please ex=
Reproduced from the Unclassified / Declassified Holdings of the National Archives
FEDER/
4FIRMATION
RESER VE B A N K O F R l
OUTGOIN vj PRIVATE WIRE TELEGKAM
SEN DER
GJS :N
w
TO
MATTE SON, SECRETARY, NEW YORK
DEPARTM ENT
Officers
T IM E W R IT T E N
9:45 A. M.
?
C H A R G E SY M BOL.
1
1
■n i 9 1926
JIFlU-ri O j'
?
1
— ------------- 1 - m E GOVJ&UaiOff— i _
DATE
OC-1
\
August 18, 1926
TREASURY IS YiKLCOME TO OUR PROPORTION OF BONDS IF IT WANTS THEM. WE DO NOT NEED
THE INVESTMENT BUT I FIND IT JMPOSSTBLB TO APPROVE THE POLICY OF BUYING SYSTEM
BONDS IF IT RESULTS IN TAKING SUCH A LARGE AMOUNT OF CREDIT FROM THE MARKET IN
THE FACE Q ^ RISING INTEREST RATES AT A TIME WHEN FINANCING CROPS AND PREPARATION
FOR TAX PAYMENTS IS GOING ON. IT CAN HARDLY FAIL TO FURTHER INCREASE INTEREST
RATES AT IE AST TEMPORARILY, AND COMING ON TOP OF
KT1 Yfmv
T|W
BATE CAST A CHILL OVER BUSINESS WHICH HAS MANAGED TO SURVIVE S’
PLENDIDLY NOTWITH
STANDING THE WORf^ OF THE ORACIES AND SIGN READERS WHO PREDICTED DECLINE AND_
DBPHESSION,- BUSINESS DOES NOT NEED A CHILL BUT ENCOURAGED NT WHEN COMMODITY PRICES
AND CONSTRUCTION WORK ARE SHOWING HESITANCY AND DECLINING TENDENCIES. FURTHERMORE
RISING INTEREST RATES SHOULD HAVE, AN UNFAVORABLE INFLUENCE ON TREASURY SEPTEMBER
FINANCING. PLEASE EXPRESS THIS OPINION TO THE BOARD AND OTHER F. R. BANKS.
£
6m L* c
SEAY.
A
CONFIRMATION
Reproduced from the Unclassified / Declassified Holdings of the National Archives
c .
0
p
T
June 9, 1926.
Dear Mr. Case:
In the Governors absence I discussed with the Board
this morning the question of holding an Open Market Com
mittee meeting on June 21st with particular reference to
the question whether it should be held in Washington or
Hew York. X stated that as I understood it there was no
proposition for a change in the general policy, i.e. in
addition to or subtraction from the Systemfs open market
fund, but that temporary purchases on account of the con
ditions arising from the Treasury* s unusual action and from
the window dressing at.the end of the month might be necessary.
Several members of the Board expressed considerable interest
in the situation due to the fact that the Treasury is not
to issue any new certificates but is to accumulate funds and
pay off the maturing obligations, and the sentiment seemed to
be very strongly in favor of holding the meeting in Washington
on the date mentioned.
Yours very truly,
Edmond Platt
Vice Governor.
Mr. J. H. Case, Deputy Governor,
Federal Reserve Bank,
New York, N. Y.
F
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Dtar Mr. C i i
m
of
23 tb.
!•
roar lftttir
2f®n «#* *$*!«»& f c h a t M fttarftl
a55#mT5o3i today
tsr
a
tiM, or tiw ! $ * £
& &«
mmrn %mmm& o*rtifioat*«
tit* psam sm < f Qtfm it Aort
w
Of l»4§bt*da»i*# maturing Jtg» X5» X9E6, inM la
&• a » m 3j»oial
y t«
at J o a t» totaling
*o&
$3* ,636,500.
ftiy
3r «US*
d
X4nc0|l Platt#
na#~a«roni<ir»
3 3 # 4 • H» 0a*#f
1?
Dopaty O o T a m w ,
r#daru). i w c m Bank*
Htv T ark, f»: f *
'-tllfe’Unclassifled^DeClassiteffWfiings <3fflWS$SSW Archives
I
m rn m wmm- m
|
1£"--- j
5 r 4 ' f
Jforacibcr 1A
/
, i ^ S 3 3.3/ //-7-2^
INNMf fe* & U M H
— — Invaatoant Cot&oitta« and note* particularly the Coaaiitae1*
•uggaation that "it
be dee Irable 'to p^chaae up to 100
ail lion of eoouritiat during th* eoning feix vaaki*. to ba colt
again at such tiaa aa credit ftflB&ti&k* appaar to aake that
eoursa
Tha Baard undaratanda from tha Coraait tae 1>
raport that aa tha Cotoaittae viawi tha situation at thi» titaa
then* i£ no aaod for .action looking toward a change in tha
« M « W t of tha apeciftl inveatuaut account* aa approved by the
«r
sa
2
%
and in thia viaw tha Board ton*
mflm* ffca Board* tlsarafora* <?ouatn*aa tha Owmltiea*$ auggaatian aa an expraaaion of opinion m tha part of tha Cocaaittee
that in tha a rant of a future change .in the present situation*
it «% ba d#airabi*a t# giva .nanaida-iifction to increasing tk*
account temporarily*
—
Tha ioard aa-«u»aa "that should th©re ba any ohange in tha
praaant altufciion or any no# ARrm&ggvMHiU which wtxild eaaia to
iwwr^int increaaing tha aooount temporarily tha Comitta# will
#0
af#r further with th# dtturft*
Very truly yours,
D* lb C rlsain g or,
Qovernor*
M £« S* Caaa, Acting Chairman,
r*
Opm M
arksat Znvaatoiant eowaittoo,
Waahingtou, 0* 6#
Reproduced from the Unclassified / Declassified Holdings of the National Archives
FEDERAL RESERVE BOARD
W ASHINGTON
O FF IC E OF G O V ER N O R
November 9, 1926
Dear Mr. Case
fxernoon conThe Board kt its meeting this
sidered the report of the Open Mari
Investment
Committee to the governors » «— ^-^ence, now in
Committee’s sug
session, and with
gestion that "it mebv be desirable to purchase up
to 100 million of securities/during the coming
six weeks to be sold\igaiiy/
at such time as credit
that course desirable",
conditions appear to
Board sees no occasion
I have to advise that
k change in the amount of
at the present time
the special investmei
account, as approved by the
Board last Septembe/ - 200Nfco 225 million. It is
understood that the Committed is authorized to re
place the December 15, 1926 maturities now held
in the account • /
\
The BoarcK stands ready, of V ourse» to give con
sideration air any time to any projfrpsal affecting the
account pre/ented by the Committee in the light of
any new conditions or developments which the Committee
may brings to its attention.
Very truly yours,
Governor
Mr. J. H. Case, Acting Chairman,
Open Market investment Committee,
Washington, D. C*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
September IS, 1926.
Dear Governor Grissinger:
I am in receipt of your letter of
reference to the action taken at the joint meeting of the Open
Market Investment Committee and the Federal Reserve Board on that
date, and note your statement that the Board voted to authorize the
committee to maintain the System Special Investment Account at from
1200,000,000 to $225.000^000.
Enclosed you will find a copy of the minutes of the
meeting.
^
I think you will recall that the resolution which was
finally voted upon provided for the maintaining of the account, for
the present, at #200,000,000 or thereabouts, with the understanding
that the committee might, in its discretion, increase or decrease ti
account ty not more than $50,000,000.
&ery truly yours,
J. H. CASE,
Deputy Governor.
Honorable D. R. Grissinger,
Governor, Federal Reserve Board,
'•
Encl. /
^
^
A
. /
A E E U IV O M lT H
T XC T E O M T a
Reproduced from the Unclassified I Declassified Holdings of the National Archives
a ~ h
.+() ' -
di»r
Om
mh
)
,/ < 3 i
2
-r<'' ’ ^
r
Tb# Fedoral S««»r*« Board thla aftoraooa
cojiaidertd the report nobmitted *by jrou as Acting
Chairman of tho Open ltoufls*t Inveatiaeat <lorml%%94 %t
tha si#«tia£ of tho Ooiaaittoo hold with tho ?od»ral
Boserro Board this ooraiag.
f
?ho Board voted to
authori*o tho Op«a Mar'-ot Inv««twont Ooi-injittee to
nm in tain fch# 3yat«o *3pocial fcv7o<5V*‘'«iJ; A ccount at
from $200,000,000 to $225,000,000.
Very truly yours,
(S ig n e d ) D . R * C r is e in g e r .
% £. Crltaia^or,
OoTtmor*
Ur*
1# Oaao,
lMHf«
$S&iVI& K M M P N I Sink#
K m H r c f* T.
wt,
■*v*
/L z e
G & & *'
reproduced from the Unclassified / Declassified Holdings of the National Archives
L
3
3
Upon Motion* it w*« totod ,th*t tho opon aarkot aooowit
•hcmld bo ■aintainod for iho prooont at f 804,000*000* Mtk
\
. (
T'
tho undoTstaiidlim that ih* ooaalttoo 00*14, |n tt» dU#ro44o»,
lnoroaao or dooroaoo tho Zoomit fc r not aoro than #50,000^000*
g
■ \v
7
/v
3
r
f
/
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Having considered the rejjort and the final recommen
dations of the Open Market Investment Committee, the Board is
of the opinion that the present situation of the money market
noninterference by the Federal Reserve System either
by purchases or sales in the open market.
Should subsequent
developments arise as the autumn advances that would make a de
parture from this position advisable, the Board will be ready
to consider the matter again in the light of actual changes in
the money or general economic situation.
The Board has, therefore, concluded;
1.
That there should be no change in the present vol-
ume of securities held in the System’s Special Account,
The
10 millions of September 15th maturities should, therefore, be
replaced as the opportunity for purchase is favorable.
While this would result in an enlargement in the amount
not
of securities held in the System’s account, it would/in effect
alter the amount of money maintained in the open market by pur
chases of Treasury securities either for Federal Reserve or for
foreign correspondent account*
in brief, would leave the exist
ing situation unmodified so far as the Federal Reserve’s relation
to it is concerned.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
FEDERAL. R E S E R V E
OF
NEW
^|
BANK
YORK
August 19, 1926
federal Reserve Board,
Washington, D. C.
Attention:
j
Honorable D. R. Crissinger
Dear Governor Crisainger:
Approval has been received from all Federal reserve banks to
sell to the Treasury from System's holdings approximately |40#000,000
Third Liberty Loan 4 l/4/£ bonds, without replacement.
The Treasury
has advised that $10*000,000 of the bonds will be taken over on
August 19 and the balance August 24*
At the request of Governor Seay of the Federal Reserve Bank
of Richmond, I am sending you herewith a copy of his telegram dated
August 18, 1926, setting forth his views with regard to the action
taken at the Open Market Investment Committee meeting held August 17.
Secretary, Open Iferket
Investment Committee
B n c l. (1 )
~ ja iB O M ®
m2
926
T~~
Reproduced from the Unclassified / Declassified Holdings of the National Archives
JEfiti£S§AK
P r t r e t a B lra ° in o o a in g
8 U D B 0 BiabBOUd,
10tl2
Augns* 18s 1926,
M atteson :
Treasury i s welcome t o our p r o p o rtio n o f bonds i f i t w ants than
Wo do n o t
n eed tho In v estm en t hat I f in d i t im p o s s ib le to approve the policy of taking
system bonds i f i t r e s u l t s i n ta k in g such a la r g e a a o u n t of ore&it from the
m arket i n th e fa c e o f r i s i n g i n t e r e s t r a t e s a t a t in e *hen fin a n c in g orop s
and p r e p a r a tio n f o r ta x payments i s g o in g onc
it can hardly f a i l to fu r th e r
in c r e a s e I n t e r e s t r a t e s a t l e a s t t e m p o r a r ily and coming on top o f in c r e a s e
in th e le w Tork bank r a t e e a s t a c h i l l over business which h a s managed to
s u r v iv e s p le n d id ly n o tw ith sta n d in g th e wosk of $he oracXes and s ig n rea d ers
who p r e d ic te d d e c lin e and d e p r e s s io n .
Business does no* n eed a © M i l but
encouragem ent when c e n s e d ! t y p r ic e s and c o n t r a c t i o n work a r e show ing h e s i
tan cy and d e c lin in g te n d e n c ie s 0
Furthermore rising i n t e r e s t r a t e s sh ou ld
h ave an unfavorable in f lu e n c e on Ts^eaanry sep^e&ber fin a n c in g .
P le a s e ex
p r e s s this o p in io n to &ie Board and <*thsr F ed er a l r e s e r v e banks 0
Seay X? r*5 a c
»
Reproduced from the Unclassified I Declassified Holdings of the National Archives
F
e d e r
<(FIRMATION
/
R
e s e r v e
o u t g o i n g
SEN DER
B
private
DEPARTM ENT
a n k
w i r e
o f
r i
wm
^
n d
?
t e l e g k a m
T IM E W R IT T E N
C H A R G E SY M B pL.
.. ... .
GJS :N
Officers
o c -i
9:45 A. M.
‘1
19
|
:
i
JFFIG-ti! i r :
n
7
| JX M ,uvV*X’ U W
l Ar - f \ j
J
To
MATTE SON, SECRETARY, NEW YORK
DATE
August 18, 1926
T
C>-\
k TREASURY IS YiKLCOME TO OUR PROPORTION OF BONDS IF IT WANTS THEM. WE DO NOT NEED
THE INVESTMENT BUT I FIND IT JMPQSSTRLR TO APPRQVE. _ H POLICY OF BUYING SYSTEM
_TE
BONDS IF IT RESULTS IN TAKING SUCH A LARGE AMOUNT OF CREDIT FROM THE MARKET IN
THE FACE Q%LRISING INTEREST RATES AT A TIKE YfflEN FINANCING CROPS AND PREPARATION
FOR TAX PAYMENTS IS GOING ON. IT CAN HARDLY FAIL TO FURTHER INCREASE INTEREST
RATES AT LEAST TEMPORARILY, AND COMING ON TOP OF INCREASE IN THE mm Ym v
&ATE CAST A CHILL OVER BUSINESS WHICH HAS MANAGED TO SURVIVE SPLENDIDLY NOTWITH
STANDING THE WORK OF THE ORACLES AND SIGN READERS WHO PREDICTED DECLINE AND_
DEPRESSION,- BUSINESS DOES NOT NEED A CHILL BUT ENCOURAGEMENT WHEN COMMODITY PRICES
AND CONSTRUCTION WORK ARE SHOWING HESITANCY AND DECLINING TENDENCIES. FURTHERMORE
RISING INTEREST RATES SHOULD HAVE, AN UNFAVORABLE INFLUENCE ON TREASURY SEPTEMBER
FINANCING. PIEASE EXPRESS THIS OPINION TO THE BOARD AND OTHER F. R. BANKS.
SEAY.
*
CONFIRMATION
i
s
.
Keproduced from the Unclassified / Declassified Holdings of the National Archives
L
c .
0
p
T
June 9, 1926
Dear Mr. Case:
In the Governorfs absence I discussed with the Board
this morning the question of holding an Open Market Com
mittee meeting on June 21st with particular reference to
the question whether it should be held in Washington or
Hew York. I stated that as I understood it there was no
proposition for a change in the general policy, i.e. in
addition to or subtraction from the Systemfs open market
fund, but that temporary purchases on account of the con
ditions arising from the Treasury^ unusual action and from
the window dressing at. the end of the month might be necessary.
Several members of the Board expressed considerable interest
in the situation due to the fact that the Treasury is not
to issue any new certificates but is to accumulate funds and
pay off the maturing obligations, and the sentiment seemed to
be very strongly in favor of holding the meeting in Washington
on the date mentioned.
lours very truly,
Edmond Platt
Vice Governor.
Mr. J. H. Case, Deputy Governor,
Federal Reserve Bank,
New York, N. Y.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Jos* ft
mm
IMtipi Ul i u ^ i i i g V i i #r _____
m wm gatb, m yesi «ari
nd
taWTW"
B S S m T S o w iQiir
tgr
t>» por^ftfi* of otba? ibort
Mauri'
tlM f i f tha U*lt#d Statd* l « M # « « rtifto *t*i
of liwUbUdb»»Bf joaturln^ Juai 15, 19£6„ M M III
$»+ % * ! • * 3j»«lal Iar«tT*nt A»o<matt totally
$*6,638,300.
f* ? traly y*u*f
Sy
71o*~a«r<iraw%
gtf# J * S* O o M ,
Deputy (Jor^nkw,
r#4ctrai m m m
!•«&*
3M Tw3c, I* I*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
Jfens 5, 1926*
Beer Mr. Hurt las
la reviewlag tbs open aarket operations of the
Federal reserve banks for the m
onth of Ifey, vs nots that
bstwssn m ? § and 20 your bank purchased a total of
#3«O00V O of Third Liberty Bonds from 0. P* Childs and
OO
Goinpeny and tbs Bankers frost Company. You w ill rsoall
that tbs qnsstlon of baying Unitad Statss bonds was dlsoasssd quits thoroughly at tbs A^lXJ^2&J3<ut$rnprsf
vy
oonfsrsnos, and it sseaed to be tbs oonosnsus of opinion
at that tins that tbs Federal reserve banks m j buy Ubltsd
Statss securities froa tbslr own M ber banks without going
em
through tbs Opsn a&rkst investment Ooinmittse, but that a ll
etbsr purchases of Qovenusent ssourltlss should bs aade
through tbs Coawittee* It has also bssn ths general
undsrstanding rsosntly that a ll opsn w«.rii«t
operatjana^ars to bs oarrisd on in aooordaaos wiHrths
v
opsn^rkst^poTioy of ths hoard as outlined in its 19&S
Annual Bsport. and not for ths purpose*!)*building up tBe
earaiag position of ths reserve banks*
In view of ths above* ws should appreciate
advice regardIng ths factors which your bank took into
consideration la purchasing ths $3,000,000 of Liberty
bonds and whsthsr or not I t is your latsntlon to hold
ths* until aaturity or to s s ll the® la ths nsar futurs
si thsr looally or in ths central sonsy aarket*
Tsry truly yours,
Hr. w. M . Martin.
aQ
Federal fteserve Agent*
St* Louis, lo.
u ~ a e 3* 1 9 2 6
*• "
-> S
*
3- .
<
Recent open-aarket
Governor Crissinger
.
/
Mr. Ooldenweiser
operations
On March 22 the Open-Market Investaent Committee request*
ed authority* in addition to replacing #66*000,000 of maturing
United States securities* to nake further purchases not to ex
ceed #90*000*000 during the last week of March and the first two
weeks of April.
This amount would have carried the total account
to #300*000*000.
At the time the reooamehdatlon was made and
approved by the Board money rates in lew York were fairly high*
the renewal rate on call loans being around
5 per
cent* and dis
counts at the reserve bank were also relatively large* averaging
around #1^0*000*000.
It was* furthermore, the opinion of the
Open-ttarket Committee that business was slowing down and that it
would be desirable to bring about somewhat greater ease in the
money market
order to encourage business.
Purchases* over and above^replaceaents, began with the approval
of the Federal Beserve Board on March 2 9 and continued until April
14* the total aaount of securities purchased during the period
being 165*000*000.
During that tiae the call loan rate deolined to
about k 1 / k per cent and soon after fell further to 3 1 /2 per cent.
On April
23 the
Federal Reserve Bank of New York reduced its fate
froa k to 3 1 /2 per cent; discounts of tha Hew York bank want down
to a low point of #61*000*000 on April £1* but Increased again and
were at the end of April about as large as at the and of March.
This was due In part to the faot that during the period Mew York
Reproduced from the Unclassified I Declassified Holdings of the National Archives
- 2 -
lost fund* to the Interior through the withdrawal of banker#»
balances mud otherwise.
The attached table shows daily purchases of United States
securities by the Investment Committee between laroh 2^ and April
t#» total holdings in the system investment account, the voluae
of discounts at the federal Heeerve Ban* of lew York, the renewal
oall rate, and the discount rate*
aaa-m ir » * « «»»jm « at m mxk m. m£
(
.i i ^ a t t m t e - g X 4 a U i £ t I - — _ -----SPuroha»«*t of ifotfcl hold-lDitoouatt :Renewal : Discount
jU«8. mg* tors lags In ln~:of F. l*B.t oall
j
rat#
tlQ T<»t. w ' t i T t r t .
fccoUio* 1. Y. i rat*_ l
_
26
6,000
6,000
11,000
31
6,000
1*000
7,000
1
3,000
Ifaroh 24
25
2
2
April
2
3
7
8
9
10
u
I
1§
ii
3,000
4,000
a,ooo
7,000
11,000
3fO 0
O
11,000
193
199
210
210
216
217
224
227
227
227
230
230
210
235
000
000
000
000
000
000
000
000
000
000
000
n
000
000
20
275
000
275 000
000
275
275
2i
000
k
5
5
*
k 3/4
5
000
000
275 000
M
.
k
4
5
000
i/ii
000
000
4
4
000
k
000
I
f
000
000
000
000
000
1/2
1/4
000
19
2?
000
*
000
1^3 000
2S0 000
«1
264 000
275
m
000
000
000
000
000
000
000
000
k
k
k
I
t
k
k
k
*
3 1 /2
3
I
t
l
i
I
3
3
3 1/2
3
1/8
1/2
3 1/2
i
-----
------------------------------------- —--------
Reproduced from the Unclassified / Declassified Holdings of the National Archives
F o r m 148
TELEGRAM
FEDERAL
RESERVE
BOARD
L E A S E D W IR E S E R V IC E
W A S H IN G T O N
a**
-*
OT Q
», I ' m ,
T*ll*y - D a
alU
*****
Boari In torpor* no objection to yaaur
pr«po«ar*d exchange Garment •e<mrltl*i m cwtHrwd therein.
WUS&6
~
2
, |
j
wn
,‘
!
' --- --
Reproduced from the Unclassified I Declassified Holdings of the National Archives
.
%
F o r m 148
LEASED W IR E SERVICE
W A S H IN G T O N
2-oiM
«PO
Juno 1, 1928
I c\ ley • U n l l M
f
y
Your tm U e m w tj* exchange of Govern neats, m ttm r will bo e nsldarod n©:<t
meeting soord# t;Ail
you notion t»kon by Board#
Eddy
Reproduced from the Unclassified I Declassified Holdings of the National Archives
72
TELEG RAM
or'
FEDERAL RESERVE SYSTEM
(U E A S E D W IR E S E R V IC E )
180fta
Pallas
1254pm may
f
3 2/
^ E C E IV E D A T W A S H I N G T ° N . D
C ,,
Board* Washn
^ave been giving
consideration to selling third liberties amounting to
about $3,750,000 which are now yielding approximately 3#71 on average purchase
price and buying like amount treasury 3 3-4 % bonds to replace them . Our
inclination to make exchange suggested above is predicated on thought that
ovt credit basis mightTgo to lower.level within fairiy reasonable time I
I e feel also that such eirohsniprncyF^^
it ion somewhat in that
we would have option of holding or selling treasury bonds when third liberties
mature instead of being compelled to redeem thirds at that time and probably
reinvest proceeds in other Government issues on lower yield basis than treasury
bonds would yield if purchased at present time, -juch exchange would not increase
our independent holdings of Governments and that treasury bonds we contemplate
purchasing would be only long term bonds we would have . our other independent
holdings of Governments consist of about <j500,000 first four quarter liberties,
about #2,800,000 second four quarter liberties and .*>1,000,000 fourth four quarter
liberties all of which have fairly early optional maturities. Liatteson of
Ae&iork bank
g l l us pan sell direct to ^reasuiy our holding^ of third
ff
liberties at flOl 7-32 netWithout oommission and if board does not object to
suggested exchangu" (ve'Tril dispos¥~ojT'third 1 iber t ^ ^
at price
quoted and place order for like amount of Sreasuiy bonds to be qoiapleted as soon
as practicable, ,/ill appreciate your views in matter fey wire as early as possible
http://fraser.stlouisfed.org/
oovnKmnrrnuMEoraomci
Federal Reserve Bank of St. Louis
Galley
223pm
(arc w m n m
2 - 1926
Reproduced from the Unclassified I Declassified Holdings of the National Archives
"7
FEDERAL. R E S E R V E
OF
NEW
BANK
VORK
i a 28, 1926.
ly
Federal Reserve Board,
?iashington, D. C.
Attention of:
Governor Crissinger
Lear Governor Crissinger:
The matter of the replacement of United States Treasury
certificates of indebtedness, maturing June 15, 1S26, held in the
System Special Investment Account, totaling $56,528,500, has been
taken up with the members of the Open Market Investment Committee,
and they have agreed that these certificates should be replaced t y
r
the purchase of other short-term Government securities.
course, will/not change the face
rf
>
This, of
securities
held in the Special Account and is in line with the usual procedure.
Very truly yours,
il» w n ltn MJCiriUK}
)UN 2 * 1!
J. H. CASE,
Acting Chairman, Open Market
Investment Committee•
Reproduced from the Unclassified / Declassified Holdings of the National Archives
April 6, 1926.
Dear Governor Crissinger:
Your favor of April 2,|£idvising of the action taken at the
Board*s meeting on March 8, and the further vote on March 25, in regard to
Open Market Purchases, has just been received.
Of courseyou understand that in both cases it was necessary
for the committee to act upon verbal advices of the action taken by the
Board.
This has proved a source of embarrassment heretofore, and the
last misunderstanding with regard to the nature of the action taken by the
Board on March 8 in respect of the Belgian Credit, might have resulted in
a very difficult situation,
Cannot some method be devised by which Board action, especially
in matters relating to transactions of the Open Market Committee, can be
immediately transmitted in writing, or at least by telegraph?
Very truly yours,
Honorable D. R. Crissinger,
Governor, Federal^Reserve Board,
Washington, D.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
A r l sf m$
pi
$#*r Qownor Strongs
X h*r* Ju st di»oorsrsd that you wsrs not
giron w rittsn strio # of ths tuition tsksn by tbs
Bosrd on Marsh 8tb» in voting to intsrposs no abjsst~
ion to tbs Op#n Isriest X»y##ta#at Co*»itt#s r«pUoiii|
to f*r as postibis tb# Oovsra*snt ssouritiss hold in
tb# tystMi iMomt wbioh natursd on tfuroh 18th. Tou
• Also hsvs not p w io u ily rsosivsd writtsn adries of
tb# Bosrd1* aotion at its *##tiag on Msrob M tb, In
approving tb# rssomsndstion af tb* Opsn Xsrkst 2araifm aitt
O ovtniArs * n o n firiH M tb tts
* If dsvslopaoats in tb# aoasy
■srkst indioats say nssd for doing to*
tb# snount of ssouritiss in tb# aysts*
aooouat b# Inersassd to | 800,000,000,
but no purshassa shall bs nsd# sft#r
April 16, l i f t without furtbsr ooasidsr*
ation."
2 sm writing you tbis Isttsr for tb# purposs
of your rsoortls ss Chairman of tbs Opsn Msrkst Invsstasnt 0oa*itt##«
Tsry truly yours,
Oorsrnor
Hr* Ssaj* Strong, Oovsrnor,
Fsdsrsl a#s#rr# Bank,
lav Tork, V* I .
Reproduced from the Unclassified / Declassified Holdings of the National Archives
FEDERALOF
RESERVE
NEW
BANK
VORK
■? -
V
April 1, 1926.
My dear Governor Crissinger:
the subject of the place of
meeting of the Open Market Investment Committee is just received.
I sm transmitting a copy of it to the members of the Committee.
Possibly we can discuss this matter further when I next have
the pleasure of seeing you.
Very truly yours,
BENJ.
Governor.
Honorable D. R/ Crissinger, Governor,
Federal Reserve Board,
Washington, D. C.
*u */ A
Reproduced from the Unclassified / Declassified Holdings of the National Archives
3 33
March 30, 1926,
M dear Governor Strong*
y
I want to again call your attention to tha ;*ctioii of the Board
yesterday in the matter of the meeting place of the Open Market Invest
ment Ocsamittee*
It seem* that the Board it \indor the impression that important
argument and m
aoh Information la brougfrt oat at thetej^ietiJ^gi jifelflh
they are lit-a^senae deprived of gven Wottgh tlicaotlop of the Ocseaittee
is reported to the Board, as hae alwsys been done* Toa w ill remember
the former letter In which the very resolution was given stating the
motion of tha Board* the following is a re-draft of the resolution,
which the Board passed, and is self-eaqSimtorys
IRBBRlfi, on Uaroh f , 1926, the 9ederal Beserve
Board passed the following resolution!
'fhat Washington he designated as the future
regular meeting place of the O Marfcet Investment
pen
Committee, except when the Committee is authorised hy
the Board to meet elsewhere#*
BOV, 5H
ISREFQ the Covernor is directed to advise,
R&,
from time to time, after consultation with the Chair*
m of said Oomittes, when in his opinion it is de
an
sirable
the nature of the business to be transacted
that meetings of the Oceralttee he held at places other
than Washington,”
I
should be pleased to have your views and the views of the O
pen
Market investment Committee on ths Board9s action*
Sincerely yours.
(fllfMf) O. R. CrlMt'Kwr.
P. B# Orissinger,
doveraor.
Mr. BenJ. Strong, Governor,
federal Beserve Bank,
Hew Tout, 5. I.
fJJ
icL
7 '/
Reproduced from the Unclassified I Declassified Holdings of the National Archives
FEDERAL RESERVE
BOARD
Date__ March. 30« 1926«
From.
I
Subject:
To
Mr* Eddy
At the meeting of the Board yesterday, the following
resolution was unanimously adopted?
WWHEEEAS, on March 9, 1926, the Federal He serve
Board passed the following resolution?
’That Washington be d e s i g m t e d as the future
regular meeting place of the Open Market Investment
Committee, except Tsfoen the Committee is authorized
by the Board to meet elsewhere.1
How, therefore, the Governor is directed to ad
vise, from time to time, after consultation with the
Chairman of said Committee, when in his opinion it is
desirable from the nature of the business to be trans
acted that meetings of the Committee be held at places
other than Washington#**
✓
i
T'
Reproduced from the Unclassified I Declassified Holdings of the National Archives
i ’o r jp . K o . 1 3 1 .
Urrice Lorrespon^ei. je
T o ___ XT. BMdte.
................. .
F m. . llr. itoClaLlaa*.
ro -.
FEDERAL RESERVE
Date. Jh-Mil
.. Subject:......................................... 3 3
_
_
.
.
.
.
1S «
3 . ~3 - ' i
___
__
Jijjjg .
3 -~ie>
fbftzv is qpot*d M m tlis iw &utiqft(»aps*«i % *** M i «* ths
nsstisg sn mmih ifcli* w d li It «•* uaa«rrfcood talay 90a venld iviin
fc o
f«r oansldaratiftn al « later m llag*
"Oiat WAe&iagton 1 # dasigaafesd «s t x future r®golar
»
l>
mating place 0 * tfe« Op*a llukst Iavestsasfc Cosmltteaf
Q33©pfc «lM*n tho Oecsalttea is eatfea:ris9& ^ 7 the Board ta
msot ftlseiA&XQ**
R M FRASER
N
Digitized forF.NTfKtNTINO
t
’ / * 6 /'
2 840 -- .
“ 5
&
Reproduced from the Unclassified I Declassified Holdings of the National Archives
X-vi.-o.bD
HHPORT OF THE OPE2I MABKET IKV3SH13NT COMMITTEE TO TEE
GOVERNORS' CClTFZnSHCI', March 22, 1926.
Since the last Governors * Conference the changes in the
special iiwectment account have consisted of (a) temporary readjust
ments to offset the effects on the money market of government finaneing at tax periods,
X
(b) purchases and sales to offset seasonal changes
over the turn of the year, and (c) a reduction in total caused by the
repayment of March 15 maturities, which have not yet "been wholly
replaced.
At the December 15 tax period temporary sales of 30 million
dollars were made to Hew York City banks, and at the March
tax
period temporary sales of $38,000,000 were made, of which $35,000,000
were made in Hew York and $3,000,000 in Chicago.
The result of these
sales was to exert a considerable stabilizing influence on the market
at these periods.
During the latter part of December the committec purchased
50 million of short-term government securities to decrease the
seasonal strain in the market, and those securities were resold in
the latter part of January .and early in February.
On March 15 there matured 65 million dollars of securities
held in the special account, and in addition $32,500,000 held for
foreign account.
These amounts have been fully replaced for the
foreign accounts but only partially replaced as yet by the purchase of
$34,355,600 of securities for the System account.
This leaves a balance
of $31,411,100 to be purchased for the special account in order to re~
Reproduced from the Unclassified I Declassified Holdings of the National Archives
X -4 5 S 5
-
store it to 210 million dollars;
2
~
the $ 08,160,000 of Treasury notes
which, matured December 15, 1925, were replaced by purchases of other
maturities, thus causing no change in the account.
In the past few weeks, there has been some change in credit
conditions, but more particularly in business and financial psychology.
The stock market boom has lost its impetus and the amount of funds
employed by the market has diminished by about 300 million dollars from
tho da to when public reports were commenced.
has calmed down somewhat.
Seal estate speculation
There arc also reports of business hesita
tion, evidence of which may be found in a weakness in commodity priccs,
a decline of unfilled orders of the Steel Corporation, some recession
in retail trade and some decrease in the amount of building permits
taken out, although the actua.1 volume of current business transactions
continues very large.
But some business hesitation appears to be a
not unusual accompaniment of a rather sharp arrest of stock speculation
following a long extended period of activity.
Thus far it would appear that the'.diminution of
activity is wholesome.
3pe3ulative
The movements which have taken place have
been orderly and there has been no indication so far of untoward con
sequences.
It is not yet clear how far liquidation will be continued
and it is, of course, still possible that there might be a revival of
speculation with the dangers it involves.
It appears more probable,
however, that the peak of this speculative and business expansion has
been passed.
It therefore seems appropriate in view of the above
to discuss at this time what our open market policy should be in the
Reproduced from the Unclassified I Declassified Holdings of the National Archives
X -4 5 6 5
3 -
event a "business recession [calls for a revision of policy "before we neet
in another governors* conference.
Experience in the past has indicated that member "banks when
in debt at the Federal Reserve Bank of Hew York, and in less degree at
other money centers, constantly endeavor to free themselves from that
indebtedness, and as a consequence such pressure as arises is in the
direction of curtailing loans.
This is now accentuated over a year
ago as the discount rate at New York is a'full 1$ higher, and 1/2$
higher at four other banks.
As the accompanying table of the earning
assets of the System shows, the amount of credit furnished by Reserve
Banks on member banks direct borrowing, just prior to the March 15th
operations, was larger this year than on any corresponding date since
1923.
EARNING- ASSETS - FEDERAL RESERVE SYSTEM
(In millions of dollars)
1924
1925
1923
1922
Mar. 8- Mar.7-■ Mar.12- M a r .11Discounts
New York (City)
Chicago
(City)
Other
19;
M ar,
14
3
614
149
22
400
53
7
423
149
2
259
103
17
382
Total
631
571
483
410
502
Bankers Acceptances
102
219
243
301
285
-
140
275 '
245
113
115
-
15
12
938
1,114
U.S. Securities-Committee - U.S. Securities-Other
444
345
Other Earnings Assets
-
-
Total
1,177
1,135
72
1,159
Reproduced from the Unclassified I Declassified Holdings of the National Archives
X -4 5 6 5
- 4 -
The total amount of "borrowing undoubtedly exerts some pressure
upon the "business community.
Should we go into a business recession
1
while the member hanks were continuing to borrow directly 500 or 600
million dollars, (if bills are included nearly 800 million dollars,)
we should consider talcing steps to relieve some of the pressure which
this borrowing induces by purchasing government securities and thus
enabling member banks to reduce their indebtedness.
It is not possible to predict to what extent member banks will
continue their borrowing on the present scale in the event of a business
recession.
The release of funds now employed in the security markets,
a decrease in currency requirements, and some decrease in bank loans
for business undertakings, would likely be partly offset by increased
requirements for funds to carry accumulating inventories.
major determining factor will be the movement of gold.
Perhaps the
During the first
hallf of March we received 30 million dollars of gold from Canada and
this movement resulted in easy money rates in New York in tho second
week of the month.
It seems possible that this gold movement may be
continued somewhat further, and, if so, it would correspondingly
liquidate the borrowings of member banks in Hew York.
The usual move
ment of gold, however, if seasonal causes operate, would lead us to
anticipate gold exports rather than imports during the summer months,
with perhaps further imports in the fall.
tendencies future,
With these conflicting
changes in our loan account are especially signi
ficant as a guide and we should see that the total does not become or
continue too burdensome.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
X-4565
- 5 -
Future Policy.
As a guide to the timing and extent of any purchases which
might appear desirable, one of our best guides will be the amount of
borrowing by member banks in principal centers, and particularly in
New York and Chicago.
Our experience has shown that when Hew York
City banks are borrowing in the neighborhood of 100 million dollars
or more,
/
.
H
there is then some real pressure for reducing loans, and
money rates tend to be markedly higher than the discount rate.
On
the other hand, when borrowings of these banks are negligible, as
j
in 1924, the money situation tends to be less elastic and if gold im
ports take place, there is liable to be some credit inflation, with
money rates dropping below our discount rate.
When member banks are
owing us about 50 million dollars or less the situation appears to be
comfortable, with no marked pressure for liquidation and with the
requisite elasticity.
Under these circumstances no single bank tends
to be in debt for any extended period and borrowings are passed around
among the different banks.
Hall and time money rates tend-taJfaa but
slightly above our discount rate.
With this situation existing in
Hew York, there is less tendency for funds to be attracted to Hew York
(particularly since commercial rates at such times are apt to be higher
than stock exchange rates for call money) and the situation has a
considerable degree of stability.
The accompanying chart shows the amount of borrowing of Hew
York City banks by weeks during the past four years.
It shows borrow
ings to be large during 1923, when, as we all know, there was some
Reproduced from the Unclassified I Declassified Holdings of the National Archives
X -4 5 6 5
-
pressure for liquidation.
6 -
Allowing for the seasonal increase and de
crease in December 1923 and January 1924 borrowings were very snail
during 1924 and we recall that during the balance of that year while
there was considerable instability in. money conditions, it was accompanied-^
by a gradual revival of business over 1923.
In 1925 borrowings were
sufficiently high during parts of the year to place some pressure on the
ITew York City banks.
It was in this stage that rate advances were made.
In the event of business liquidation now appearing it would seem ad
visable to keep the New York City banks out of debt beyond sone thing in j/
the neighborhood of 50 million dollars.
It would probably be well if
some similar rule could be applied to the Chicago banks, although the
amount would, of course, be smaller and the difficulties greater be
cause of the influence of the Hew York money market.
In general it would appear that we should not increase or
diminish the special account immediately beyond gradually replacing
the issues which matured on March 15 as market conditions warrant, but
that we should prepare ourselves now for the prompt purchase of some_
further amount of securities if and
when there should be further
no further liquidation in the amount of Federal Reserve credit employed*
March 19, 1926.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
Exhibit A
STA EN SHOTOG PARTICIPATION BY FEDERAL RESERVE BA K IN SYSTEM SPECIAL IN ESTM T
TEM T
NS
V
EN
_______ A C U T A D CLASSIFICATION OF ISSUES H
CON N
ELD IN THS A C U T BY M
CON
ATURITIES________
Holdings
Holding
Ratio
Holdings by Maturities
1,688,000
1.0^
June
15, 1926
C /l
£ 1,800,000
>
43,733,900
24-5 f
June
i5, 1926 3 l / H c/i
28,900,000
Philadelphia
1,331,000
.7i
Cleveland
9,908,500
s, s i
Richmond
3,488,500
Atlanta
B o st on.
New York
$
3%
'
September 15, 1926 4 1/4^
TA
Dec emb er
15, 1926 3 3/4%
C /l
47,2^0,000
1.9fo
March
15, 1927 4 3/47S
T/fo
44,85^,600 /|
10,289,000
5*8^
December
15, 1927 4 l/Z% T/fa
Chicago
18,718,000
10. 5%
September
15, 1928 4 1/4^ 3rd L/L
St. Louis
16,049,500
9.0^
Minneapolis
7,671,000
4.3#
Kansas City
17,726,000
9,9$
Dallas
18,831, 500
1 0 .6%
San Francisco
29,154*000
16. 3/
S
$178,588,900
100.0#
•
17,901,000
35,371,500
2 , 500,000\
$178,588,900
^Viis statement includes future purchases to be delivered on or before March 20,1926*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
Exhibit B
PURCHASES OF BANKERS ACCEPTANCES FROM JANUARY 4 TO MARCH 10, 1926 AND AMOUNT
EACH BANK HAS RECEIVED IN EXCESS OR SHORT OF ITS PRO RATA SHARE
___________ UNDER APPORTIONMENT PLAN FUT INTO EFFECT JANUARY 4. 1 9 2 6 ________
Bills
Acquired
(Net)
Ratios of
Participation
/I'
Bills Entitled
to Acquire
Bills Over
Pro rata
Share
j
19,830,000
v 19,247,000
24/o
62, 659,000
65,992,000
8%
25, 752, 000
21,997,000
10%
27, 395,000
27, 197, 000
0
102, 000
Richmond
5%
13, 792,000
13, 748, 000
44, 000
0
Atlanta
■/
V=
11,390, 000
10,999,000
391,000
0
Chicago
14/o
38 , 012, 000
38 , 495, 000
0
48 3, 000
St. Louis
5/
o
13,262, 000
13,748 , 000
0
48 6, 000
Minneapolis
4%
10, 691,000
10,999, 000
0
308, 000
Kansas City
6%
15,908 , 000
16,498,000
0
590,000
Dallas
4/
3
10,732, 000
10,999, 000
0
267, 000
San Francisco
0%
25. 543. 000
24.747. 000
79 6.000
0
)274,966, 000
0274,9 66, 000
s?5, 569, 000
Boston
New York
Philadelphia
Cleveland
Totals
n
100%
£
583,000
Bills ShorJ
.
Pro rata
Share
0
3,755, 000
0
0
3, 333,000
0
s 5 569, 000
),
STATEMENT SHOWING EFFECT OF DISTRIBUTION OF SYSTEM OPEN MARKET PURCHASES DURING 1925 TO MEET EXPENSE
'REQUIREMENTS OF FEDERAL RESERVE BANKS, WHICH DISTRIBUTION (l) DURING FInST NINE MONTHS
Y/A3 ON BASIS OF c u r r e n t EXPENSES a n d d i v i d e n d s AND (2) DUk ING b a l a n c e
OF YEAh TO PROVIDE FOn CHAhGE-0f F3 A3 COkPiETEUf AS POSSIBLE
♦ 2,528,503
10,217,174
Philadelphia
Charge-offs,
Depreciation
Chargesf etc,
Net After
All Charges
and Dividends
7^0,043
v 122,110
8,213,398
2,003,776
788,674
1,215,102
3,135.549
. 2,709,480
426,069
21,162
404,907
Cleveland
4,013,456
3,378,441
635,015
203, 250
431,765
Richmond
2,162,460
1,809,776
372,684
154,736
217,948
Atlanta
2,072,378
1,502,220
570,158
820,455
250,297
Chicago
5,424,663
4,686,253
738,410
551,153
187,257
3t. Louis
2,055,637
1,696,853
358,784
759,078
400,294
Minneapolis
1,438,341
1,291,338
146,953
105,558
41,395
Kansas City
2,309,936
1,985,370
324,116
299,621
24,495
Dallas
1,813,626
1,478,583
335,043
312,147
22,896
648.890
^■171.555
677.335
67,7,031
-
#41,800,706
*34,452,320
*7,348,386
*4,615,279
Boston
New York
San Francisco
Totals
«
«
637,933
*2,533,107 •
Holdings of th National Archives
e
« 3,288,546
Current Net
Earning 9
I Declassified
Gross
Earnings
Current Ex**
penses and
Dividends
Reproduced fro th Unclassified
m e
Exhibit C,
Exhibit "DH
Boston
B i l l s discounted
- March
3
10
#172,576
153,887
51,117
156,018
1 3 ,7 7 8 -
- March 3
10
Net Change
1 6,558-
43,375
40,595
67,263
69,140
2 ,7 8 0 -
Government s e c u r itie s - March 3
"
"
10
Net Change
Total earning a s se ts
N
N
M
$36,089
22,311
8,267
7,778
489-
- March 3
N
JQ
Net Change
88,392
71,353
1 7,039-
1,877+
54,349
61,297
6,948+
2,770-
19,299
19,717
418+
19,063
21,309
2,246+
296,572
96,126
2 88 , 8 6 6
96,029
7 ,7 0 6 -
97-
Cleveland
Richmond
A tlanta
Chicago
S t. Louis
|48,620
52,007
|43,417
43,650
♦33,055
30,336
♦88,667
64,501
♦25,607
20,214
3,387+
19,124
21,009
1,885+
31,559
33,496
1,937+
100,234
107,453
7,219+
233+
9,374
10,841
1,467+
5,443
6,125
682+
58,695
61,082
2,387+
2,7 1 9 -
22,312
18,499
3 ,8 1 3 -
15,208
17,219
2,011+
70,923
66,406
4,517-
24 ,1 6 6 -
31,092
30,234
858-
44,021
46,816
2,795+
164,972
14?,?57
22,215-
5 ,3 9 3 -
13,797
14,300
503+
23,907
27,044
3,137+
63,685
61,936
1,749-
Minneapolis
♦10,518
3,876
6 ,642-
7,047
7,974
927+
16,578
18,078
1,500+
34,421
30,209
4,212-
Kansas City
♦22,558
14,145
8,413-
14,739
13.896
843-
33,960
37,474
3,514+
71,696
65,958
5,7 3 8 -
D allas
♦ 6 ,6 *4
6,705
61+
14,194
13,723
471-
29,458
33,387
3,929+
50,601
54,123
3,522+
San Franciffco
♦41,576
37,545
4,031-
24,991
24,592
399-
43,945
49,643
5,698+
11 1, 1 1 2
112,387
1,275+
Total
♦
583 , 21 4
502,425
80,789-
286,607
284,520
2 ,087-
325,758
359,666
33,908+
1,207,429
1,158,559
48,870-
Weekly Average of Earning Assets
Dec. 31, 1925 to March 10, 1926
Corresponding period 1925
Net Change
December 31, 1925 to Mar.10,1926
E n tire year 1925
Net Change
109,703
92,788
16,915+
109,703
93,459
16,244+
269,672
323,935
5 4 ,2 6 3 -
269,672
287,133
17,461-
93,283
76,011
17,272+
93,283
35,078
8,205+
100,275
122,724
22,449-
100,275
113,904
1 3 ,629-
52,909
34,709
82,023
24,422
18,200+
57,601+
52,909
54,734
82,023
56,548
1 ,8 2 5 -
25,475+
153,667
129,311
23,356+
153,667
138,045
15,622+
63,756
3 8 ,S68
25,008+
63,756
55,936
7,320+
31,940
27,033
4,907+
31,940
37,271
5,331-
67,702
45,023
56,654
41,791
22,679+
14,363+
67,702
57,293
56,654
49,024
10,409 +
7,630+
103,443
1C3,775
327-
103,448
109,366
6,418-
1,135,032
1 , 0 60 , 6 9 0
124,342+
1,185,032
1,138,291
46,741+
Comparison of Earning Assets
March 10, 1926
March 11, 1925
Net Change
71,353
91,730
20,377-
288,366
384,709
95,843-
96,029
87,649
8,380+
107,453
125,294
1 7 ,3 4 1 -
44,466
66,406
29,501
16,616+
36,905+
61,082
142,757
121,914
20,343+
61,936
31,195
30,741+
SU M R FO SYSTEM
M AY R
B i l l s discounted for week
♦ 80 , 789B i l l s purchased for week
2 ,0 3 7 Govemment s e c u ritie s for week
33,908+
Total earning assets for week
48,370Weekly average of earning a ssets Dec. 31, 1925 to Mar. 10/26
against corresponding period 1925
124,342+
Weekly average o f earning asse ts Dec.31, 1925 to H a r.lo /26
against e n tire year 1925
46,741+
Comparison of earning a s s e ts March 10, 1926
with March 11, 1925
44,499+
30,209
30,581
372-
43 , 490
54,123
32,469
22,468+
21,654+
65,958
112,337
91,062
21,325+
1,158,559
1,114,060
44,499+
Holdings of th National Archives
e
B i l l s purchased
«
■
Philadelphia
I Declassified
Net Change
N York
ow
Reproduced fro th Unclassified
m e
STATEMENT SHOW
NG EARNING ASSET HOLDINGS OF ALL FEDERAL RESERVE BAN M R H 10, 1926 CO PA
KS A C
M RED W
ITH PREVIOUS W
EEK A D M R H 11, 1925; ALSO W
N AC
EEKLY AVERAGE
__________
OF EARNING ASSETS FRO DECEM
M
BER 31, 1925 TO M R H 10, 1926 AS C M RED W
AC
O PA
ITH CORRESPONDING PERIOD A D ENTIRE 'rEAR 1925__________________
N
[666 Omitted)
Reproduced from the Unclassified I Declassified Holdings of the National Archives
Spllll
•
•
&
%
TltLUONS
%
I
Borrowings of New York City Member Banks at Federal Reserve Bank
Reproduced from the Unclassified I Declassified Holdings of the National Archives
Dear Oavomor Strong!
330a 1* %o advia* you, at Cliainawi ot
o p m S£axk0 * lnre«teaiti* G<*»iU*« f»r HIM
m o r a l a m m 3y»t«u of aaticm t*to#n by t c
f©
F#deral Bfc*ervw Bofc*4 at it* meeting till* a»mlag in voting tb&t
*f£&gnfttad~a»
t.« u c a s .jr&galar
}i.f f t s L
plao® ©x ths Opttt
m ?m % ..
0o»piti®# ia witlioriiiad f y %h& Board to xaeit
c
?*ry truly youra,
O. R. Crlg0/ngt>t>
B* B* Crifi»la09rt
Governor#
Mr. B«a4ad» 3tifon^
Fftdertd *t®*«rva B*ak,
H«r York, H.Y.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
F u f m N o . 181.
rtULKAL K toLK V t
FEDERAL
il
urrice Lorrespor. er
To
c~£
*c
RESERVE
u tiiU B L
ba
od
r
________________
Subject:____________________ 3 ' -
From. _
&t H * mmi&m. # f
mr# Sftii**
1
m
m »t
Wm
te»
itfdcfti Is*
of U # 1mm»
s
e*&&m- r n m i m w m
« * * » 09m a « * * » JcrwtewiMi
O M r a l t t M t m # ! m m V m a m a U a m is m 9 w r & m
/0X€„
-i'
C--
* /?
/
> 6
w,
Reproduced from the Unclassified I Declassified Holdings of the National Archives
F o r m N o . 131*
]
Ofhce Lorresponde ze
For your information.
FEDERAL RESERVE
Please return to Secretary
Governor Crissinger
%/Mr. Platt
\yAilr. Hamlin
/ M r . James
i ' v r Cunningham
/ll.
Miller
1. McIntosh
The Board lias considered the recommendations of the
^
Open Market Committee dated May 11, 19279 for the period.ending
J
________
(1)
->//
That no further sales of System seourities be made
in order to offset arrivals of gold from abroad now iaiovm or an
ticipated.
(2)
That it shall be the policy of the committee between
now and August 1 next. . g
^ radually to acquire, if possible to do so
without undue effect upon the money market, sufficient additional
short-time government obligations to bring the total of the committee's investment account, up to f250,000,000.
With respect to recommendation Ho* 1, it does not appear
to the Board that the next few months will show gold imports to the
tJ<ed States in any such volume as would indicate the necessity
or desirability in existing circumstances of an offsetting operation
by the sale of System securities.
It has, therefore, nothing to sug
gest by way of modification of the course of action outlined by the
Committeef
unless there should be a marked change in the situation
in which case the matter should be reconsidered.
The Committee’s
recommendation is, therefore, approved.
With respect to recommendation ITo. 2, it is the opinion
of the Board that the System’s Special Investment Account should,
sooner or later, in accordance with the policy which has governed
the operation of the Account in the past, be replenished by the
purchase of an amount of securities that would bring up the total
v
Reproduced from the Unclassified I Declassified Holdings of the National Archives
- z -
holdings in the Account to not less than $200,000,000.
It is, however, the opinion of the Board that the present
situation is not a favorable one for such an operation and that the
re simp t ion of purchases of securities for the Special Investment
Account should be deferred until such time as it may appear that
such purchases will have a desirable stimulating effect upon trade,
industry or agriculture.
The country is now entering a period of
trade
interseasonal/lull with the demand for credit for commercial use
slackening.
The only highly active market in the country is the
securities market.
There is accumulating evidence
of speculative
excesses, which in part -has been reflected in recent weeks in a
great growth of brokers* demand loans.
It is thought not to be
desirable to stimulate these by a reduction of the cost of money
in the Hew York market such as would result from the purchase during
the next two months of from$100,000,000 to $150,000,000 of securities
for the System account*
It is the view of the Board that the movement of business,
credit, gold, money rates and other factors bearing upon the credit
and open market policy of the Federal Reserve System should be care
fully and constantly watched, in order that when action is taken to
replenish the Special Investment Account it may be done with a mini
mum of undesirable &t3#nulation.
For its
part the Board will follow coming develop
ments affecting open market policy with care and will keep in touch
Reproduced from the Unclassified / Declassified Holdings of the National Archives
with the Committee in order that there may he a prompt exchange
of views and suitable action when conditions warrant.
For the
present the Board does not think: the situation favorable to a
securities-purchase operation and, therefore, withholds approval
of the recommendation that the Committee at this time be given
authority to purchase securities between now and August 1 to aai
amount sufficient to bring up the System*s account to $250,000,000
J m 0 • Miller.
i
Reproduced from the Unclassified I Declassified Holdings of the National Archives
A
FEDERAL RESERVE
OF B O S T O N
W. P. G. H A R D I N G , G O V E R N O R
w i l l i a m w .p a d d o c k ,d e p u t y q o v
W I L L I A M W I L L E T T , CASHIER
K R I C K E L K.CARR1CK,s e c r e t a r y
BANK
F R E D E R I C H.CURTISS
ernor
C HAI RMAN O F T H E B O A R D
AND F E D E R A L R E S E R V E AG E N T
A L L E N HOLLIS
D E P U T Y CHAIRMAN OF T H E B O A R D
A SSISTA N T
C A S H I E R S ____________________
C H A R L E S F. G E T T E M Y
A SSISTAN T FED ERAL R E S E R V E AGENT
E R N E S T M.LEAVITT
L.WALLACE S W E E T S E R
February 3, 1926.
Dear Governor Crissinger;
Supplementing my letter of January 27,\
■with enclosures, I hand you herewith copy of letter^Te^eTvecT
today from Mr. Case, Acting Chairman of the Open Market Investment
Committee,together with copy of my reply.
Hon. D. R. Crissinger, Governor,
Federal Reserve Board,
Washington, D. C.
J
Enclosures
Reproduced from the Unclassified / Declassified Holdings of the National Archives
V '
C O P Y
FEDERAL RESERVE BANK
OF NEW YORK
February 2, 1926.
Hon. W. P. G. Harding,
Governor, Federal Reserve Bank of Boston,
Boston, Mass.
Dear Governor Harding:
I have your letter of January 27 and note with satisfaction that, upon
thorough investigation, you find that the practice of the Boston bank in buying bills
has conformed in every respect to the practice which has been carefully considered
and generally adopted for Federal reserve banks.
While there seemed to be some doubt expressed at the last meeting of the
Open Market Investment Committee in that regard, any doubt now is entirely dissipated
by the result of your investigations, and there remains only for consideration the
question of whether or not bills bought by reserve banks outside of New York should
be distributed as New York's purchases are distributed, in accordance with the
plan of the Ooen Market Investment Committee which has been accepted by each of the
banks not represented on the Committee.
I note that your directors have expressed the opinion that the bills in your
portfolio should not be turned over to the Committee for distribution but, however,
are anxious to deal fairly with the other reserve banks and that you have no doubt
that if the best interests of the System call for a distribution from your portfolio,
they will be disposed to give you the necessary authority.
To me it seems a bit unfortunate that, in
of the discussions at
governors' conferences with regard to the distribution of bills and the desirability
of Federal reserve banks( restricting their purchases to bills offered in their own
districts, the question of the place of origin of bills, i.e., the location of the
accepting bank,was frequently injected.
To my mind it only serves to becloud the main
question as to what policy is most advantageous for the System, as a System, to
pursue.
I do not understand that in the deliberations, either of the Conference cf
Governors or of the Open Market Investment Committee, it was ever considered that
the best interests of the System would be served by any Federal reserve bank*s
developing as its open market policy in the buying of bankers bills, a monopoly of
bills accepted in its own district or that, as a matter of right, any reserve bank
should regard the volume of bills accepted in its district as a measure of the amount
of bills which it might properly hold for investment, either with or without regard
for the investment requirements of all of the other Federal reserve banks. On the
contrary, as I have always understood it, the Sy&terr. policy for many years has been
to^distribute purchases according to the requirements or the abilities of each Federal
reserve bank.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
-
2-
At times this has affected the position of the New York bank very substantially
and in opposite ways.
In times of stringent money and credit, the offerings to the
federal Reserve Bank of New York and its necessary purchases would have far^exceeded
the ability of the bank to continue to render the necessary support to the bill
market, had it not been for its ability to distribute and the willingness of the
other reserve banks to participate in the purchases made in New York for System
account.
At other times when the reverse of such conditions existed, the New York
bank has been entirely willing not only to distribute its purchases in proportions
determined by whatever committee w as functioning at the time, but also to give off
its own share in the distribution to banks which most needed additional investments,
believing firmly that the best interests of the System were served by that policy.
You will recall that during the entire period of reserve bank operations in
support of the bill market, the distribution of New York’s purch«ses(and it was New
York merely because New York happens to be the principal financial center cf the
country) has been dictated by a committee or comitteeman (originally, I believe,
Governor Seay was a committee of one) and, generally speaking," that the extemt 0f
the deficiency in earnings in the several reserve banks was the basis of the
measure of distribution. Practically, that is the basis of the distribution now,
as recently ordered by the Open Market Investment Committee, and you will, of course,
understand that the burden of responsibility for carrying out the policy of the
Ooen Market Investment Committee, while shared by each member of it, rests in a
somewhat -reater degree upon the Chairman, and that his position is a difficult one
if any one of the twelve reserve banks evidences apparent disregard for the
recommendations of the policy recommended by the Open Market Investment Committee
and accepted by each of the twelve banks.
It is very apparent to me that the
retention by the Boston reserve bank of bills bought in its market in exeess of
the proportion of bills bought in the system that the Boston bank would be entitled
to receive or isetain according to the Committee’s schedules, constitutes a
disregard for_JfoflL-Sy**«a~pQl ^ ^
by the, Comnii±±Q.e
by all of
^
the banks.
~
,--Incidentally, I note from the Secretary’s report covering purchases from
January 4 to January 27 that the Boston bank bought upwards of $2<i,000,000 of bills
which it has retained and that this constitutes an excess holding merely on those
purchases of about |14,500,000 and I feel that I must suggest that unless the whole
arrangement of System policy in open market bill purchases is to be thrown in to the
discard, an adherence to the plan agreed upon, i.e., distribution on a pro rata
basis of all bills purchased, wherever purchased, and without regard to the district
in which they originate, is clearly indicated.
An expression of your own views in reply to this will be appreciated.
Very truly yours,
S/ J. H. Case,
Acting Chairman, Open Market Investment
Committee,
L"
-'
Reproduced from the Unclassified / Declassified Holdings of the National Archives
February 5 , 1926*
% de»r W * Gii«i
I aa obliged to you for your Utter of February Z which 1 shall
cring to tho attention of our Directors at their me^tinf next Wednesday*
Tour
lett r, X thtnkj oltfifiei tho iituation and o^ens the way for * satisfactory
adjustment of the quoition of tho distribution of bill* purchased by thi» bank*
^
■
You w ill reaerabar th at, at tho l'-et atetlng of tho open Market
Investment Committee, It was rathar broadly intimated that the practice of th is
bank in Purchasing; b ills ^as unsound and une thloal as a statement w r &A* thnt
na
J g + j g g L l B - 1 f . f l u f e t i n g £&&**-«- I suggested to our Directors a t their la s t
iseetln^ that they authorise m to submit to the Committee a plan fo r the distribution
e
of b ill* wHioh seemed to m to be equitable, but the Directors were unwilling to
erree to eay proposition as lon^ aa the bank rested under the imputation of
unethioal oonduot.
I said to the Directors that as fa r as I knew, the d irect
purchases of b ills by a ll Federal reserve banks oxdept tlew York were retained by
the* in th eir respective p o rtfo lios, *nd that the earnings derived fro.® euoh
inveetments were neoessarily taken into account by the Coimittee in the distribution
of b ille purchased in few York,
1 reoall that Governor Norris said that the amount
of b ille purchased by the Philadelphia bank was not in excess of the amount whloh
would otherwise fee a l l i e d to i t by the Comalttee, and I sucres ted that authority
be ^iven m to say to the Cotni-^ee that any b ills held by this bank In excess of
e
#40,000,000 be placed a t the disposal of the Committee to be sold either d irect to
the llew York bank for red istrib u tion , or to be sold from time to tin * te such
reserve benks as the Chairman of the Coamittee might indicate*
However, Tor the
reason above stated , the Directors deolinod to agree to th is .
Based upon our experience of the oast two years, I e*tl«.ate that
i t w ill be neoeestury fo r this bank to hold as a minima #40,000,000 of b ills in
order to meet ite expense* and dividends.
I do jjro^pthlnk there would be any economy In turning- ovar ±a. t ho
O
swalt toe a l l b ills purflMlM and^faoeiviiy jbaok our proportionate a llo tment: and
I do not believe that our Dlreotors would agree to th is unless every other Federal
reserve bank should a€ ree to do the saute thing*
At t he m xt meeting of the
Directors I shall renew aay recommenda t ion j and I hope to be able to advise you
e fte r that mooting that a il the b ills in our portfolio in excess of #40,000,000
are eubjeot to the disposal of the Committee*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
m
In oass i t should ba found as ths ysar adwanoss, t,h*t $40,000,000 w ill
lik sly be mors than is nsosssary to a sst our rsqulrsmsixts, I w ill thsn sue-sst
that our holdings bs further rsduosd in order that a larger amount might bs mads
available for ths Comalttss*
In sitin g ths flgu rss whish I underatand wsrs furnlahed by ths American
Asoeptanos Counoll shoving ths noosptanos lia b ility of banka snd bankers in e»oh
Fed.ral rsssnrs d i s t r i c t , ny objsot w*is merely to point out ths faot that Boston
ranked nsxt to H York as s h ill market and that ths aoosptanos businsss hsrs
ew
was mush larg sr than that in any of ths other tf a Federal reserve d is tric ts *
X a^rse with you fu lly that in ordsr to develop a b ill market properly,
ns Fsdsral reservs ban's should undertake to asours a aonopcly of b ills accepted
in i s own d i s t r i c t , or confine its purohasss to suoh b ills* nor did I intend
to givs ths impression that i t was m opinion that a ressrvs bank should regard
y
ths rolums of b ills aocsptad in i t s own d is tr ic t as a measure of ths amount of
b ills vhioh i t might properly hold for investment without regard to ths lnvestmsnt
reqttiramsnts of othsr Fsdsral reserve banks* On th is point there is no difference
of opinion between us*
In v is * o f ths fa c t, however, that cred it in th is d i s t r i c t is extended so
largsly through ths medium of hsnkers* aooept&nces and demands on us for rediscounts
ars ordinarily small, i t is neesssary for us to hold a larger voluas of aoosptanoss
than would otherwise bs ths oass*
I shall bs glad to hsar from you again befors zisxt ?»ednesday«
Vsry tru ly yours,
Oovsrnor*
Mr. J . II. Cass, Aoting Chairman,
Opsa Blarkst Investment Comilttss,
Fsdsral Reserve Bsnk,
H York, N t .
ow
«
Reproduced from the Unclassified I Declassified Holdings of the National Archives
SPECIAL
r
To:
i
r
'Hr
S'®
far,
Mr,
V
Platt
Hamlin
James
Gunn ing;ham
McIntosh
For your information, there is attached
hereto letter and enclosures from Governor Harding
with reference to the purchase of bills in the open
market by the Federal Reserve Bank of Poston.
Please return to Secretary’s Office.
Reproduced from the Unclassified / Declassified Holdings of the National Archives
F o r m N o . 131.
Office Correspondence
To
£)ate__Jan . 5 1 , 1926 +
Subject:.
Mr. Eddy
From
FEDERAL RESERVE
BOARD
Governor Crissinger
r/o
I have glanced over hurriedly the letter/of Mr. Matteson with a state
ment of the practice of the Federal Beserve Bank of Hew York regarding the pur
chase of hills in the open market.
The practice, as reduced to writing, illustrates that you can £ot)always
depend upon just what is said at an open market conference.
As I understood,
the explanation made at the open market conference was this:- that they rarely
bought from dealers, but I see from this statement that there was $547,900 pur
chased direct from dealers, which is not unlike the practice at Boston.
To
that extent I want the Board to understand the information is surprising to
me because I think Governor Strong stated that they rarely bought from dealers
but occasionally did.
This would indicate that there is a pretty free access
of the dealers into the Federal Reserve Bank with bills.
I am taking the Matteson letter and a copy of the statement with me
and will return it.
{2^4
'-.
di
Reproduced from the Unclassified I Declassified Holdings of the National Archives
FEDERAL RESERVE
OF B O S T O N
W. P. G. H A R D I N G ,
FR E D E R IC H .CURTISS
GOVERNOR
C H AI RMAN O F T H E B O A R D
AND F E D E R A L R E S E R V E AG E N T
W I L L I A M W. P A D D O C K , d e p u t y g o v e r n o r
WILLIAM W I L L E T T , c a s h i e r
KR1CKEL K .CA RR tCK ,S E C R E T A R Y
A SSISTA N T
ALLEN HOLLIS
D E P U T Y CHAIRMAN OF T H E B O A R D
C H A R L E S F. G E T T E M Y
C A S H I E R ^ ____________________
A S S I S T A N T F E D E R A L R E S E R V E AG EN T
■■■■■■■■■■I
E R N E S T M.LEAVITT
BANK
L.WALLACE S W E E T S E R
January 27, 1926.
Dear Governor Crissinger;
You no doubt recall the discussion which took
place at the last meeting of the Open Market Investment Committee
regarding the purchase of bills by the Federal Reserve Bank of
Boston.
I am now enclosing copy of a memorandum dated January 21
from Mr. Kenzel of the New York bank together with copy of letter
I have today addressed to Mr. Case.
This letter was read to our directors just
before their meeting adjourned today in order that I might be sure
it reflected their sentiments correctly.
Hon. D. R. Crissinger, Governor,
Federal Reserve Boar4,
Washington, D. C.
J
Enclosures
M s
r
Reproduced from the Unclassified I Declassified Holdings of the National Archives
FEDERA L RESERVE BANK O F BOSTON
30
PEARL STREET
^enuary 21, 1926.
m t m C E Of THE FEDBKAL HESSSVS B&RK OF t B S IDHK II THE
tS
OF
-----------' urn" i f .m r ' n m m ---------------------------------m
B ills »re bought fbr Systea aooount of offering* by raewbcr bank*, banking
in stitu tio n * and discount bouses* T o offerings are mads at rataa naaad bv tho seller
tm
and arc accapted or deoiined by tbs bank, which &iss“5£i bid for b ills or naas r*tea
a t which it would buy# A ll b ills bought anst bear banking indore«»ent, i* s . , bank or
to tha Federal Reserve Bank*
banker (but not necessarily a member bank) favorably
thus requiring three-name paper, t m diffarant naswa o (which sh all ba banking naaaa,
ind®rs«*snt o f discount houses
and at la a s t ona of thosa sh all ba an American m m *
isarkat is regarded ae banking
with substsntlal cap ital used exclusively in tha disc
indorsement.
rith a vCfe^te requiring distribution
Effective buying rates are establ
t, rather than inducing or permit*
o f b ills aaong tha banka, bankers and otha^
Ink by discount dealer*. To this and*
erve
tin g offers o f long b ills diraotly to tha
__ maintained a t or near tha rata a t
lti<
the mlniaua buying rata for tho longer
n t dealers, and alig h tly lower rates
which investors buy two-naaa paper from
rooae and a ffe c t of thla are to a ttr a c t , /
are mada e ffectiv e for short m aturities.
ia regarded aa daairable in that i t
short M aturities and repel long m aturities ,
rad lt is liberated and laakes rata
tanda to lim it tha tia a for which
rasa
£ penalts af*ligh t profTt^to banks and banking t
ohangas «ora immediately e ffa o tl
ndary re*ervc, thereby inducing; breadth In
Institutions which buy and hold
ok to aa# a cons Idarable portion o f tha
the market, and i t alao pan*ita
th at they are in eonetant touch with tha
b illa which have circu lated in
character o f tho papar currant.
tha
m o f these practicaa la to give a degrgc of a ta b lllty to _______ ..S
the prinoi
confidi a that prime b illa m y ba negotiated safely by banka
market which w ill lnsp
a t home and abroad, w
ifcfe a ce rta l y of th e ir discount In tha market, a t ratea reaaonably &
•table and ra la tad to b\h«r iaonayv a te s . thla require* that tha bank sh all buy freely
r itie a offered to i t a t i t s currant established rataa
from banks p r im b ills \S L all
__
taken freely from discount houses. On oeeaaion a lso ,
and that short maturitie
when there is a temporary surplus of b ill* in dealers’ hands, longer m aturities nay ba
quite freely taken from diacount houses, but ordinarily dealers are not encouraged by too
free purchaae* of long b ills to relax in th eir e ffo rts to distribute the® through ordin
ary banking channel*.
fha occasion for the rather free purchaee of ahort m aturities from dealers
arises in tha fa ct that as they oust stand ready to buy a l l site s and m aturitie* offered
by th eir c lie n ts , and short maturitie* and small places are net fSreely reaalable to
banks, which buy for th e ir reaenre requirement* # conaldarable Quantities of such b ills
acouaulcte In dealera* handa, which constitute p ractically an excess o f b ills on the
M a r k e t*
By relieving tha dealara of this unfashionable paper th eir a b ility to buy and
, /
carry longer "S ills Is refreshed.
'
'
*"
In buying for account of foreign correspondent banka, the bank goes to tha
market, thereby giving the primary Market the advantage of that Investment buying
through the reeerve bank, the same aa would resu lt i f the purchases by foreign banks
were Bade through other American correspondent*♦
the resu lt of these practices over a period of years is illu stra te d in the
s t a t i s t i c s of operations for the year 1925.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
FE D E R A L RESERVE BANK O F BOS i ON
30
PEARL STREET
-£•
In 1925, the bank's to ta l purchases o f b ills amounted to
O tliia volume, purchases from banks and bankara ware
n
and
*
* dealers
11,542,600,000
794.600.000
547.900.000
Elim in atin g purchases made for aooount o f fo reig n banks and
th a purchases f o r the System wares
From banks and bankers
From dealers
iber banka.
000,000
Total
Of the purchases fo r System ee
4200,000,000 were o f v ery she
token a t times and in asttunt '
efffcetive functioning o
t
d ealers, roughly 8 /5 , or over
ie s , the balsmse being of long b ills
to maintain s ta b ility of rates and
houses*
jK
Reference is made to the r e s o ld im * ed» pted by tha Oeneral Committee on
Bamkers A cceptances, appointed by tbs qovcrnoihr^onference o f May 1922, a t i t s masting
in Chicago, <ftms 12-14, 1922, s n e^^rsnot^roa i wih&h, with regard to the op©r u t ions
o f F ed eral re se rv e banks in the/M&n discbwvt market t o r aooeptanoes, i s atta ch ed hereto*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
FED ER A L RESERVE BANK O F BOS i ON
3 0 PEARL STREET
extract t m m K m o w n m s a d o p u d at r m i m n m or ® e m m m t m m i n m
— ---------------............................ -------------------------------------------------------------------------------~ --------------
(9) Operations of federal reserve banks in tht open discount mrket for acceptances*
Transactions in th® open msrket should be recognised as entirely distinguished
from rediscounting under Section IS. Whereas the latter permits discount only for member
banks, snd contemplates the rediscount for any member bank of a reasonable line of such
bank’s advances to customers in eligible transactions, thereby assuring to the member bank
a reasonable and certain aooomn»dat4jwLjthrough rediscount in which the initiative is al
ways taketL-bg-JAg_jB*mber b«**k and {Cannot1be taken by ilPaderal reserve * > nk. the open
8
Tg
iaarket provisions of the Act contemplate and provide Anr the voluntary purchase by federal
reserve banks from sny corporation, firm, or inuividuaj\of bankers acceptances and trade
bills of such high standing as circulate freely i i iJSTljyn market; snd free circulation
f
of any paper in the open market depends upon the wtlllnghe)** of a large number of strong
financial institutions, firms, and individuat*^tjHbuy it* ^^uch willingness cannot exist
with respect to paper, the proper origin
purartue of which is not recognised and under
stood by dealers end buyers in the open jmrcet m J with respect to paper accepted by in
stitutions or concerns financially
only locally known, unless its market
ability has been 1mparnved by th# additu»^s<)f /wxrong and well known indorsement, which a
banking Indorsement is recognised to be, w i M / ^ e regard for the amounts indorsed in re
lation to the known financial strength of thK^dorser* Federal reserve banks, therefore,
i t buying bills in th#.
t
open Mfk#Vw£30i4 '
tekc^t^ai only through recognised open market
channel* and should not buy as wL^penflisiket operation, paper which has not first been
sold ia and carried in th# opeiy market inV\bona fide and customary way* Bills accepted
for customers and discounted m [th# accept#* should not be offered to federal reserve
banks by the acceptor nor shouldl Federal rtyerve banks buy such bills so offered* Such
a transaction is in essence a rro^ountyef customers* paper indorsed by the accepting
bank and should not be r > e p > d t ^ e d i n the disguise of an open market purchas#* The
nurcha*#, however, frmywsBBmr banka of open market paper which they themselves have
either wirchased or di^ounted la^a proper and necessary open market operation as by such
purchases, as well ss/ay purchasesjof open market paper offered by duelers and discount
houses* do the Federal preserve baWcs give that stability to the ©pen discount market
without which it coul^Wt
ither the strength or breadth required to make it of
national importance an<r>^^ti^al asset* the true function of Federal reserve banks in
the open bill market is to*W5?Sstantly and actively support it so that holders of accept- <~
ances may with certain confidence rely upon it, that when no other purchaser happens to
be in the market absorbing the bills earning into it that Federal res#rv# banka will al- %
ways be ^
to. frk# UP thejtlack. Thus will b# established a standing for banker* ac
-t
ceptances in the open market
will create so constant a stream of buyers that th#
moral support of the Federal reserve banks will prove of greater importance than their
actual purchases* Since Federal reserve banka asust be prepared at all times to support
the acceptance market by liberal purchases under whioh large lines of particular names
may accumulate, the requirement of a third nssie, 1* e*,a banking indorsement other than
that of the acceptor should always be a condition* This requirement not only provides
a distribution of risk in respect of the liabilities of any acceptor but also assure*
the bona fldes of the market standing of the particular bill and name* Oar# should be
taken, however, to guard against acquiring bills whioh bear accommodation indorsement!
/
aa might happen if accepting banka exchanged bills, particularly if both or either of
V
the® were names, that would not freely circulate in the open. isarket* Such paper should
aot be taken by federal reserve banks as open market purchases, since it is not open
market paper, but rather they ahould require it to be offered for rediscount at the re
discount rate*
the function of federal reeervo b&nks being to give stability to the open
discount market, they should abstain from conducting their open market operation* in a
/
*
Reproduced from the Unclassified I Declassified Holdings of the National Archives
FED ER A L KESERVE BANK O F BOS i ON
3 0 PEARL STREET
— 2*»
way that would tend to create instability in ratea* either to advance or to depress them. 1
hither the rate it high or .low is of lost importance to tho user of orodit or the holder ^
of hill* thsn the knowledge that tho bill will find * reedy market at a r*te fairly
parable mltk-tho nAXini~mricat_rato. ond tho bunker must bo able to rely on a fairly
•table rate. Therefore, Federal reeerve banka should £ t _ compete in tho market for bills.
ff
even for the purpose of Increaainf eamlair assets*.since the injection of oontral bank
fun5s~~£y suoh competition haa the effoot of reducing rates abnormally; nor should they
•ell bills from portfolio book intothe market and so conversely oroate an abnormal and
artificial stringency in rates* <Sfith5> should theyjiooLtao to purchase at thoir
current baying rate considerable ouajnfitTfirgf^~ared"blTra\lprfered» without consideration
of the offsot that such refusal would have in advancing rates in the aarkot* Xhe position
of a central bank in relation to the open aarkot is best preserved by their declining to
bid for bills offered for isaaediste delivery and t^gr quimlfffferln&s to
made at rates
named by the seller* If suoh rate is lBappmprlatw^CEe^ff^oqg should be declined; in
foot, in all offerings tho position of tho Fede n*3” rMerve b«nfe<> should bo of accepting or
doolining* negotiations and bargaining with r p w e o m V tho usual open market offerings
of bills should not be permitted* the exoep&ums tojyhe above rule are the reasonable
assistance that should bo afforded to acuntyy ban. aZ/out of close touch with up-to-theminute market rat«st which night desire to^&Xl b m e from thoir portfolios to thoir
Federal reserve banks i and the emoting ©f r a ^ M ^ a offerings of bllla to arrive from
foreign countrlee at some future date, eay thirtos*ixty# or ninety days hence. It is
the proper function ofJPederal roaervo J»«ks to cuo.be rates and make forward contracts
for the pircSase of^lllTjfco~jiJT?W^£^Cl3^rt^
to rates,
'
/
botlTof bills in the dosestic ma*i«yand of dbller exchange In foreign markets , i # there
t
by created, strength and etaMlity/in the fofward aarkot is as Important as similar
conditions in the spot market and 14 times theri is no element In tho market other than
Federal reserve banks competent and\Mlling to/make an important forward oonsdtmont that
would do Justice to the position of doJ^^-J^hanfc and dollar bills In world markets*
In establiahlny'effeotivo.buyinif rates for prime bills the purpose of Federal
reserve banks should be to/keep theiJfVatos fbr long bills ellastly above th© rates at
which they are sold by dealers in tho jcpen tsarkei, thus encouraging a wide distribution
of new bills as they comoNfrto thejmrket* In the present state of development of the
bill market they should bujp^Owg^jrpds freely at suoh rates when they are offered by
member banka and acceptance baSJOfwhioh carry their reserve* in bills, and when they are
offered by dealers at timea when there is a congestion of bills in the market resulting
from temporary lack of demand coincident with increased offerings of now bills in tho
market, ti * making It possible for dealers and discount houses to shsorb the new bills
nt
offered without themselves aooumuietlng unwieldy lines* In Hating tho Offective buying
rate for long bills the value of the banking Indoreement should bo oonaidorod and allowed
for. fho opon market quotes unindorsed bills and indorsed bills differently, there
usually being from l/8 to l/i# per annum spread between the two, depending upon the com*
bination of names, so that a bill that sold in the open market without indorsement at
might sell at t 7/8$ with a good inlareement and a Fedoral reserve bank buying suoh bill
bearing satiafactory banking indorsement at 2 l/%% or at 3$ would be buying it at or above
the market aa the case might bo* Too muoh spread between open market prices and the
Federal reserve bank buying rate is not desirable because long bill* will not be freely
bought by banks and bankers for secondary reserve pirposes at ourront rates if they b j r
eS
lieve that in the event o f .
their having occasion to sell a portion of their portfolio to
a Federal reserve bank they willjlneur an actual loss of interest on a long bill* ( o
t
short bills, say those within fiftoei^ko thirty days of maturity, Fedoral reserve banks
in the present stage of development of the open discount market should make and maintain
an effeotive buying rate for practically unlimited volume slightly under tho rates ob
taining In the open market on slmilsr bills of longer maturity, the purpose being to
attract offerings of short bills, thus permitting Federal reaerve banks to see a goodly
Reproduced from the Unclassified / Declassified Holdings of the National Archives
r
F E D E R A L R E S E R V E B A N K O F B O S .O N
3 0 PEARL STREET
I
proportion of all the bills which earn* through their retpeetive saarkets end to encourage,
I making it profitable for bcnks and bankers to cerry the longer bill®, in their portby
|
folios as secondary reserve, buying the long bills in the market and telling them to
redereI reserve .bank* aa they approach maturity* In buying long bill*.and in quoting
.forward ratea for bills to arrive the aim should be to establish rate* which in the judgmeajt of the Federal reserve bank will be a fair average of the rates which spot bills
will coanand during the pjpHod from the tlae of purchase or contract to the maturity of
the bills bought. Thus if the tendency of rites seems to be upward forward eontraot*
will be made slightly sbove the spot rate for bills of similar aaaturlty, but if the
tendency of rate* is downward the forward rate emoted m*r4 be at or slightly under the
spot rate for similar maturities* In general* the purp!S»V of Federal reserve banks
should not ordinarily be to lead the market up or dunm* VAhen that is the purpose of
Federal reserve banks it is more definitely m 4 better aadb»pliuh©d by a change in the
rediscount rate. 'Ekceptingr in unusual circuacteases tiwfrkfor* the Federal reserve hanks
will W at servejis stabilisers In the open dUoounF1iI»?ki^^
the market in its
deflate swings up or down, but'~dlsregarding
ohangeswiioh m y occur in the ©pen
market from day to dsy until a definite 1rend/jfs developed and recognised*
__
Inasmuch as the primary market m / bill/£% with the disoount houses and bill
dealer* who ®ust earry at all times smbstfcfutly^rtfelios in their service to buyers
and sellers of bills-in the market, i ' is en^ytftial to the saaintenanee of a broad end
t
strong market that dealers and disoount hmtseaNniall at all tisiea have available to them
funds with which to carry smbstant4al^ie*s^iiorSKrates releted to the »arket rates for
bills rather than to the recjuire^n^tfTlBWk broSrfra who borrow call money against in
vestment securities* Use day to dmy fluctuations in the rates for call money against
investment securities are such that dependence upon woney loaned in that market at auch
rates' is impracticable for discount houses awdf bill, dealers, and a new call and short
tiae money market .a. been developed in htm Adrk and is in the course of development in
hs
other ©enter* for the aceoaaa0 dat.lo^^-iih^jdsc®unt »a.rket* the supply of sueh funds
available being at times Ijrfgefilato a$rr*tee at which the discount ssarket oan afford to
borrow, Federal reaerve Mima may and do properly assist the disoount market by testperary
purohss«s of bills from $&slers andf^iaoount houses undeifjre*mirohase^sgreewents^ef s.hort
duration, say not to exekhd fifteen)days. The cosmittee m m * that tit* radlTty is
e^ual in importance to tkV purchssy i y Federal reserve banks of the excess of bills that
>
fro» time to ties is creax^^but^tfret is purely an open market operation and should b e
granted only to.dealers and^*Iw<tmt houses who httvr,
liot>the facility of rediscount avail|>
able- to member hanks and farther limited to those .houses and corporations which have filed
-aatiaiaptory financial stfitasseat* with the Federsl reaerve .bank#•
and to amounts. for such
houses as the Federal reaerve bank would fe willing'to take of the indorsement of such
e
houses on short bills, if it were'the .practice of such houses to indorse*
the rate at which this accommodation is granted to discount houses and dealers
should be a money rate reasonably related to the current rate* for unindorsed ninety day
hill* in the open market, and the current effective rate at the Federal reserve bank
for abort bills* The Federal reserve banks should not us© thhl outlet for their funds
in competition with the outside money market and should not grant -ths facility at times
when thci*uppiy of ftin&a available to discount houses and dealers inthe outside market
is sufficient for their need* at.rates reasonably related to the rates earned-on the
portfolios carried by the discount houses and dealers, the purpose of this operation being
to supplesjent the supply of -outside money in periods of temporary stringency and to assist
the development of local call money m-mrkets o n bills in Federal reserve bank; cities*
Reproduced from the Unclassified / Declassified Holdings of the National Archives
January 27, 1926*
D*nr Hr* 0*#•*
Inferring to the question of purchases »nd distribution of
aeeeptanoes whioh was brought up at the redent meaning of the Open Market
Investment Commit-tee, I wish to say that on Monday la s t we received from
Mr. Matteson oopy of Mr* E sasel's memorandum dated January 21, to whioh was
attaohed a paper containing excerpts from a resolution or rather a declaration
whioh was made a t a meeting held in Chicago In June 1922. by a special
oonaaiitee which was appointed at thiTOovernors’ Conference held ia M of that
ay
ye**r*
This declaration was submitted to ths Federal Reserve Board While I
was still a member of that body and was approved*
Upon receip t of Mr* Keniffl1« usirngrandu” I held a conference
*,
with the Deputy Governor, Cashier and three Assistant Cashiers and went over
i t line by line*
1 find that in a ll oases we have sdhered s t r i c t l y in buying
b ills to the ra te s a t which they were bought by the Federal Eeserve Bank of
Sew York* that we have in a ll cases required three assies, i.s * the drawer and
the acceptance and endorsement of a bank or banker.
Our p ractice has coincided
with th at of the Federal Reserve Bank of H York as outlined by \!r* lexisel and
ew
conforms s t r i c tl y to the principles outlined in the Chicago resolution or
declaration to which reference has been made above*
Ths whole question was discussed fully a t our D irectors' meeting
th is morning and thsy see no reason why we should change our p ractice.
Sow, in regard to the distribution of acceptances*
I have
before m som figures whioh were compiled by our S ta tis tic a l division and whioh
s
shew the acceptance l ia b il it i e s o f a ll bank# and aooapanoa corporations on the
la s t day of each month throughout the year 1926*
The avorage for the year
for a ll twelve Federal reserve d i s t r i c t s amounts to about 1700*000,000*
The
average for the lew York d i s t r i c t was about #600,000,000.
For the other
d i s t r i c t s the averages are as follows;
Boston
| 90,0 0,000
Philadelphia
12,000,000
Cleveland
11,000,000
Richmond
10,000,000
Atlanta
13,600,000
Reproduced from the Unclassified I Declassified Holdings of the National Archives
January 2 7 #
Hr* Cm *
Chicago
S t. Louis
Minneapolis
Kansas C ity
D allas
San F ra n cise s
$
i$
n«
5 2 ,6 0 0 ,0 0 0
6 000,000
5 ,0 0 0 ,0 0 0
8,000
2 ,3 0 0 ,0 0 0
,
IS,000,000
Oar s t a t i s t i c i a n t e l l s a s t h a t aooeptanoes made by Brown B rothers 4 Company,
Kidder, Peabody & Company sad L ee, iiigginson & Company a re included in New York* s
fig u re s and do not appear in th s Boston t o t a l s *
Ths ave#ags accep tan ce holdings of th s Fed eral Reserve Bank o f Boston throughout 7
tho y e a r have boon s u b s ta n tia lly lo s s than tho average aoooptsnoo l i a b i l i t i e s o f banks
and acceptanoo co rp o ratio n s in th is d i s t r i c t ,
While i t i s tru s th a t ths b i l l s in m t
p o r tf o lio have not been e x clu s iv e ly b i l l s o r l in ailn g in th is d i s t r i c t , tho d iffe re n c e
i s more than made up by the Amount o f Boston b i l l s whioh have boon purchased elsewhere^
In o th er o rd s, had t h i s bank e xerted i t s e l f to monopolise the purchase o f Boston b i l l s
andt hsd rs fra in e d from purchasing any b i l l s which o rig in a te d in o th er d i s t r i c t s , our
t o t a l holdings would not hare been diminished*
However, t h i s bank has purohassd no
b i l l s I n j athor
*y t has co n fined I t s e l f e x clu s iv e ly to aooeptanoes o f fe r e d"
here In Boston* ■
~
'
-— -------------- --------
^==~
Aoooptsnoo c r e d i t s are widely used in th i s d i s t r i c t ;n e r e so than in any o th er
d i s t r l o t with the excep tio n o f lew York* and our tran sact,io n s with a m b e r banks in the way
o f advances and red isco u n ts during the year 1920 averaged only about # 5 0 ,0 0 0 ,0 0 0 o r le s s
than 26 p er oent o f member banks' ra se rv e d ep osits*
This i s a such sm aller p rop ortion
than i s shown in most o f the o th e r d i s t r i c t s *
Tho Income derived from meafcor banks
advances and re d isco un ts would have been u t te r ly inadequate^ to moot, our expenses* ItT is
n ecessary fo r us to have average earning a s s e ts throiipftdUt the year o f a t l e a s t
I T 5 ,0 0 0 ,OOP in ord er t o pay oxponsss and dividends*
W a re approaching the season when
e
bur earning a s s e ts may bo ©xpeetsd to d e clin e rap id ly w ith no re a c tio n u n til l a t e in th s
yoar*
Qttr D ire cto rs a t t h e ir masting t h i s morning expressed the opinion th at the b i l l s
in our p o r tf o lio should [no^ bo turned over bo ths Commit *.os f o r d is trib u tio n * They do not
fo o l th a t th ere has bssn anything u n e th ica l in the oonduot o f ths business o f tn s bank and
are unw illing to sa n ctio n any ao tion whioh might have the appearance o f making suoh a
concession* They a re anxious, however, to teal f a i r l y with the .other reserve banks and
i f i t could be shown that the b e st i n te r e s t o f the System c a l l s fo r a relinquishm ent to
oth er banks o f a proportion o f our b i l l p o r t f o l i o , 1 have no doubt
that they w ill be
disposed to j*;ive me the n ecessary au th o rity *
Yery tr u ly yo u rs,
Mr* J * H* C sse, Deputy Governor*
fe d e ra l Beeerve Bank,
lew York, S* ¥«
Reproduced from the Unclassified I Declassified Holdings of the National Archives
SFECIAL
F eb r ua ry 1 , 192 6.
I th in k you w i l l be i n t e r e s t e d in reading the
a tta c h e d correspondence b e fo re i t is presented t o
th e Board.
I have brought i t t o Governor C r i s s i n g e r ’ s
a t t e n t i o n , and your a t t e n t i o n is c a l l c d t o his
memorandum which i s a l s o a t t a c h e '’
Reproduced from the Unclassified I Declassified Holdings of the National Archives
ZJm m r y
25, 1926
D r H*C a t
a r
ao
S o i t ii * l s w £ 6r T F
oo
p
o c M« f H
o
*
*
Jaaaarv
* »Aabr«g—d to O om or Crlaalngor, itt
iS ^ T yS lsE ste that Goferoar Strceg has «i£y*«toii
that yoo ad»i*ii the a*Hfe«rs of the O O Marteot E
p»
fiH
*ort»«nt
tfeai »oti»y oonditiofw a**a «Mia|
oonaldorably im low York with tho rw*«lt t M ft
a ^ t t « dtw yvl for #hort-*t#r» SawmssiH* has
&
l ym ig 19, and that ye* sow therefore i»»ltn«6 to
tho «t*v that i t sight b« wall* be*in*li% fchti ^w
ofe*
to *ttpply tho aarkat f*<* tiw» to tl»e with a wodorato
aaotttt of thaso «eoorlii«l (sot ooHiooilxig Ii0 #
000#
000)
as a«* vfcon doflftlto order* pr**«it tl
T u l t o m m bo g tt U at ni no t *
o r ot r
r u h & » t e to
f b
B ada i s a « x;t l n r l g a Sn c j oi ©
or
tt
» U i ha oa * a o be t
f
n
o
w s« q * * dt y u Q * l t «
a s i * o o o r « * fwmimhiwg t eM r e
r
t«
h
ak t
w ha w t n o o rii ac au t $ 00 00 0
i
t
n aw t f »lfo f e
p o 6, 0, 0
a a o d fnt o N na
g i t oi l o k h r .
a
Tory truly your*,
■ CH. * nNUukA •
t
s I 1 im “juav%,
v1s i
r
V oG r i o.
l
o
oo
wr
K*J H G * # o ayS r m r
r . . « o Dp t
oo o,
F d r l R a noB n ,
o ea o o r
ak
K w ok H T
o Y r , **
Reproduced from the Unclassified / Declassified Holdings of the National Archives
j@fr*ctsurij Itepartmsttt
W ESTERN UNION TELEGRAM
2— 8786
aPO
^
■*.
S te le g r a p lj © f f t r ?
80w fn 5 c o lle ct govt
Marion Ohio I34p 3an 25 1926
Eddy
fed res bd Wash
Approve selling f if ty million'
D H Crissinger
Reproduced from the Unclassified I Declassified Holdings of the National Archives
k-
FEDERAL. RESERVE BANK
OF NEW VORK
3
3
3 *
January 22, 19 26.
Dear Governor Criesinger:
IN RE;
/
Open Market Investment Committee
C&^dod
Referring to the discussion at the meeting of the committee held
here on January 18, with regard to the $50,000,000 of short-term Government
securities acquired during the latter part of ?9£5 for possible resale in
January 19 ?6:
In considering, to-day, the liquidation that has taken place in the
earning assets of the System, and the fact that our own earning assets have been
reduced approximately $200,000,000 since January 1, Governor Strong has suggested
that I advise the members of the Open Market Investment Committee that money con
a t i o n s are easing considerably in this center, with the result that a moderate
demand for short-term Governments has sprung up;
and we are, therefore, inclined
to the view that it might be well, beginning next week, to supply the market from
time to time with a moderate amount of these securities (not exceeding $50,000,000)
as and when we have definite orders presented to us for them,
(Yesterday one of
the dealers offered to purchase $1,000,000 of the December 1 5 - 5
5/4$ certificates
at par, and to-day another dealer stated that he could place $?,500,000 on the
same basis.)
The foregoing appears to be in line with the thought of the members
of the committee as expressed at the meeting last Monday.
Very truli1 yourj
‘i
J f I) ^ "
Honorable D. R. C r i e s i ^ ^ ^ i l ^
Governor, Federal Reserve Board,
Washington, D. G.
I
'/ F
i j
/
J. H. CASE,
Deputy Governor.
-I
Reproduced from the Unclassified / Declassified Holdings of the National Archives
F o r m N o . 131.
Office Correspoi.de ce
FEDERAL RESERVE
BOARD
Datei
Subject:.
To
FronL___Mr. .
Eddy
With your permission I will insert in the minutes of yesterday’s meeting
the following as your verbal report to the Board of what took place at the
meeting of the Open Market Committee last Monday:
The Governor stated that he had attended the meeting of the
Open Market Investment Committee held in Hew York on Monday, January
18th, and reported that the Committee had discussed the question
of disposing of the $50,000,000 of short-term Government securities
which it acquired during the latter part of December for possible
resale this month*1 He stated that the Committee felt, in view of
existing market conditions and of the fact that there are about
$65,000,000 of securities in the open market investment account
which mature next March, that it is not advisable to sell the
#50 ,000,000 of securities immediately, but that developments in
the situation should be closely watched and action taken at such
time as developments disclose the desirability of selling. The
Governor also reported that the Committee had discussed the matter
of the large volume of bills being offered by dealers in Boston
and acquired by the Federal Reserve Bank of Boston, and that it
was the sense of the Committee that all purchases of bills made by
Federal Reserve banks in cities outside of Hew York in excess of
the pro rata shares of the purchasing banks, should be allotted
proportionately to all banks participating in the open market
account.
-Fha* n ■m m . .w m i w i Tn r n p.
7f f f "
i lr
n+
| Mi i
m m m n * 'n ii*wa«r i
i
fin
r l r n n t n m iiih ntnT^Tnm11JTTT"*"!—r m
l
He stated that the reason for the bills being offered out of New
Y o r k B o s t o n was duo to the method of buying bills in Boston.
Bills are only bought in the New York market from member banks,
while at Boston, if bills are offered to the member banks, say,
at 3 5/8ths,**^fr they are not taken by the member banks, then the
practice has been to take such of the bills as the Federal Beserve
Bank of Boston desires at 3 l/z•
This method of buying opened a
direct inlet into the Boston bank instead of going through member
banks and paying a commissioi^f l/8th to the member banks for endorsing and
handling the .bills ^ w hcn- t . T h e method in Boston eliminated this
of c
and gAve the [profi^of l/8th to the brokers.
He stated that
Governor Ha Jain^^as without power himself to make an agreement
about changing this policy, but Governor Harding advised that he
would take/ft up with the directors of the Boston bank and advise
them of/€ne views of the Open Market Committee and that he believed
he coud'd bring about an adjustment with the directors.
FEDERAL RESERVE BANK
OF NEW VORK
anuary 18, 1926
REPORT ON FORSIGrIT AGCOU
To the II ant
OPEN llXKKE'l
S
(fo rd e d
Since the last report to the Committee, there has been an increase
of about $44,000,000 in the amount of bills held for foreign bank accounts and
we expect an additional amount of |>2,000,000 to be added today for account
of the Swiss National Bank.
The increase in the amount of bills is brought
about principally by purchases of $35,500,000 of bills for the Reichsbank;
^5,000,000 for the National Bank of Hungary, and increases of ^2,300,000 in
the holdings of the Swiss National Bank; £500,000 for de Javasche Bank and
^700,000 for de ilederlandsche Bank.
The usual comparative statement is attach
ed hereto from which it will be observed that all of the foreign accounts are
included in the participation which the other Federals have accepted since
the last meeting of the Committee.
We have already distributed among the other Federal reserve banks
their prorata shares of tiie profits on the foreign accounts for the past year
and the Governors have received explanatory statements.
In accordance with the established practice, the percentages
of participation of Federal reserve banks for the foreign accounts have been
brought up to date using the figures for capital and surplus as of January 2,
1926.
These new percentages for the year 1926 have been advised to the
other Federal reserve banks and are given below for the Committee’s records:
Reproduced from the Unclassified / Declassified Holdings of the National Archives
FED ERAL
RESERVE
BANK OF
NEW YORK..4
H
To the Members odr^ie
OPM liffiXST XWESmMT ^Jm/IITTSS.
Uei?
Percentages
Boston
New York
Philadelphia
Cleveland
Richmond
A tlanta
Chicago
S t. Louis
Minneapolis
Kansas City
D allas
San Francisco
7 .6 $
2 7 .4
9*5
10.7
5 .3
4 .0
13.7
4 .3
3 .2
3 .9
3 .5
6 .9
t
Old
Percentages
7 .4 $
2 7 .0
9 .3
10.7
5 .3
4 .1
1 3 .8
4 .6
3 .3
4 .0
3 .5
7 .0
Very tru ly yours,
a
1 /1 8 /2 6 ,
V
J . H. C&SB,
Deputy Governor.
v
113,475,847 .23
16,320,333.55
112,737,326.23
Purchased
4,322,513.56
12,397,521.92
5,609,544.20
13,964,481.90
Matured or dif-*
counted
*,322,881.11
11 , 708,994.76
5 , 126, 943.60
11,657,578.32
On Hand l / l t / H
4, 53s ,068.75
14,164,174.39
6, 802, 934.15
15,044,229.81
$
C
♦
35.493.331.41
0
76,789,029.61
0
35.493.381.41
32,816,397.79
5,001,586.62
81,036,575.13
Holdings of th National Archives
e
«aJ>
De JaTasche Bank
Bank of the Republic
Swiss National Bank,
Reichsbank
137,063,943.31
5,001,586.62
0
TREASURY SECURITIES
Agent General
Bank of England
Sverige a Riksbank
♦ 2,590,000
20,000,000
11.000.000
♦33 *590*000
I
814,260.00
1 , 000, 000.00
2,554,965.90
_ 5.000.000.00
_
♦9 , 369, 225.90
FOREIGN LO N 01,' O L
AS
OD
&
Bank Polski
Rat»
_ iSSSB l
♦6, 300, 000.00
Maturity Date
February 25, 1926
4 «•/ 2^
1
m
f**af
FRK BA N
Li LA CES
Close ll/lQ/2?
$
32,334.90
Agent General for Reparation Payiriexits
Bank of England
Bank of France
Bank of Japan
Banque Nationale Suisse
Bankovni urad Llinisterstva Financi
Bank Polski
Bank of the Republic of Colombia
de Javasche Bank
de Nederlandsche Bank
National Bank of Belgium
National Bank of Hungary
Reichsbank
Sreriges Riksbank
65.80
502,114.00
2,116,133.37
100,159.68
3,274.03
482,521.63
249,976.04
250,200.26
583.14
127,320.79
1,939,284.68
T ------ » .5 W .5 9
* 10 , 361, 615 . 9?
♦2,025,550.09
Bankers Aeoeptances
Treasury Notes
Nederlandsche Bk
♦6,857.69
fiiLj 9 f
♦2,097.11
W
Q L COIMSSIONS EA ED
TA
RN
2 5 t o 3/1$/26
inclusive
es i&
HafijWy.
♦2,924.24
,809.13
Collateral
J*
Amount
Ueld by
■
♦10, W , 596.16
Bank of England
Clgae
$
0
4,562,442.96
66.28
502,213.53
141 , 898.91
100,159.68
252,705.18
495,224.09
250,539.B8
249,774.50
583.14
From
Javasche Bk,
♦2^948.20
.
Totals
I Declassified
♦4,530. 436.30
January 18, 1926
♦17,563.82
Reproduced fro th Unclassified
m e
Close of Business
O Hand ll/ l(^ 25
n
De Nederlandsche
Bank
Baak of Japan
BgORT TO 0P£. M R ET INVEST? 1SM CCU3TTEE
AK
T
3Ai:i:£llS A
CCEPTA CES
N
De Javasche
Vvi 88 National
National Bank
Bank
Reicusbank
- .
.
SveriF.es Rinsbank A^ent Gen.
LSD
I
0
♦ 0
3,768.83
321.95
Totals
♦39,200.19
M 3,290.$f
Reproduced from the Unclassified / Declassified Holdings of the National Archives
F e d e r a l R e s e r v e Ba n k
o f
r a m
N e w Yo R K
HB3SHVB BiHK 07
SM. aE a
n i m g aan n stm ^ a m m n tm
m n
w
tosw
u
MMM ?CB POLLQKHO gOgBIM AOCODM3 FHCBj
JOLT 1 t0 B O M B 81. 1926 IML03ITO
B E BB
Uo So
Bank
Treasury
Acceptances
S ecxiritiss
$
$
Agrat awaral for Bapfcration Payments, fiarlin
Baalc of japan »B"
BoS: of japan nQ
css
p
Banque Bationale Suisse, Zurich.
Pa Javasche Bank, Batavia
Be Rederlandsohe B a c Amsterdam
al*
national Bank ef Hungary, Budapest
Heichsbank, Berlin
SVQrigea Hlksbank, Stockholm
3 ,3 0 1 ,7 5
1 ,9 5 7 *5 7
1 5 ,4 8 7 .4 1
8 ,5 1 3 .3 4
17,660*76
2 ,9 2 4 .2 4
1 4 ,5 1 1 .5 4
_____ ....... .
------------------------------
$ 6 4 ,3 5 6 .6 1
’BBPAl.R - .—
#
m m w Auo
i
Beakers A c ce p ta n ce s -------- --- -----------------------tJ# S* freasn ry S e c u ritie s — - . «
—
$64,356»61
4 .5 4 6 * 8 3
Less estim ated o u t-o fpocket expenses ef Federal
Heserve Bank o f Hew York
In running p a r tic ip a te d
accounts Ju ly 1 to December
3 1 , 1925 i n c l u s i v e -------- ----------
1 0 ,0 1 5 .6 9
H JKOUHX AVAILABLE FCR BIS1SIBOTIQI - - -------- --------------# 5 8 ,8 8 7 .7 5
E'D
Percentage your p a r tic ip a tio n
your p ro ra ta sh are
December 3 1 , 1925.
$
j
778®00
4 ,5 4 6 *8 3
Reproduced from the Unclassified / Declassified Holdings of the National Archives
J
u
■
-J
FEDERAL RESERVE BANK
OF NEW YORK
FEDERAL HBSEHVE BAKE 0?
Statement of free balances, investments and earmarked gold
held for foreign banks as of close of business December 31#
1925, in which Federal reserve banks participated.
Free Balances
Bank of
n u
Bank of
Bank of
t
f
M
England Current Account
n
Deposit Account
France Account "A*
Japan Account M
B*
f
»
«
«(H
«J
Banque Rationale Suisse, Zurich
Bankovni urad H inisterstva Finanoi
Bank polski, Warsaw
Bank of the Republic of Colombia
D J avasche Bank
e
D Nederlandsche Bank
e
national Bank of Belgium
Rational Bank of Hungary, Budapest
Beichsbank
Sverige8 Hiksbarik
Actual figures
at close iz/zi/zh
|
312,442,96
4 ,2 5 0 ,0 0 0 o O
O
65*80
500,508.68
7,981.01
423,591.89
100,159*68
203,287»37
482,521«63
250,964o17
250,817.01
583.14
618,101 o,18
672,672.61
172.545.57
$ 8,246,242.70
P. S. freaflurv securities
Agent General for Separation Payments
Bank of England
Sveriges Hiksbarik
i 1 ,4 0 0 ,0 0 0 «C0
20, 000, 000.00
11,000.000*00
>32,400,000.00
Bankers Accepting&g
Bank of Japan Account *BM
#
♦
M
*
«
rQ*
tf
Banque Rationale Suisse, Zurich
D Javasche Bank
e
D ^ederlandsche Bank
e
National Bank of Hungary
Heichsbank, Berlin
Earmarked Gold
Banque Rationale Suisse, Berne
De ^avaschs Bank
Heichsbahk
D SM R 31, 1925.
BC BK
# 2,517,159*59
2,009,099.07
12,930,842.66
6,732,235.13
14,157,250.99
5 ,001,586.62
26.996,698.65
%70,344,870.71
% 6,554,965.90
814,260.00
5.0QQcQQ
Q.Q0
$12,369,225.90
Reproduced from the Unclassified / Declassified Holdings of the National Archives
j
FEDERAL RESERVE BANK
OF NEW YORK
FEDSK L BBSE&VS BAKX O
A
F
STA BH O PARTICIPATION Q FSDBRAk BESERYB BAMS
*BM T F
F
IK FE£B,SAX4^JS£-M3I-QC^IJiSMT
BA BES ACCEPTAN
KK
CES Ptm ASED AM M .
CH
)
FOS FO G BASKS A O CLOSE QF
REX K
S F
BUSIKBSg D EM
EC BSH 3U. 1925.
Fra©
Balances
610,607.06
} 5 ,204 ,601 o6 7
-
9 ,3
7679635a90
6,541,169.62
10,7
885,192.99
7 #525,861&
8£
Boston
7*4$.
Philadelphia
Cleveland
I
BanVers
A ccept anoee
Richmond
£- 2
■>
427,469® 92
3,727,762.35
Atlanta
4,1
228,420.12
2,883,741,46
Chicago
13*8
1,129,072.62
9,706*251,69
St* Louis
4 .6
279,690.87
2*225,417o2£
Misnsspolis
2 ,3
272,286.92
2*221*060.19
Kansas City
4*0
2209165*98
2,812,406.29
Dallas
3*5
288*896.22
2,461,72-0*50
San Francisoo
7 ,0
577f790.46
.4„32£§4 e :00
;
$6,025,529.09
■$51,244,-$£4: 7?
73*0$
Totisl*
lew Tortc
m m
t o flL
2 l S J m » J 0 £ i-a£
-SZiBl
XO ^
O
M ^ 4i^ 242.70
jSia,5ii»II0in
Reproduced from the Unclassified I Declassified Holdings of the National Archives
FEDERAL. RESERVE BANK
»
OF NEW YORK
r*
“
-----/
3 J
January 15, 1926.
My dear Governor Crissinger:
The first two weeks of January are now past, and we can begin to get
a view of the effect of the year-end financing, although we do not consider that
the process has yet been quite completed.
From the high watermark, our earning assets have declined $160,OCX),OCX),
and they are still declining gradually, although the rate is so slow as to in
dicate that the process is about completed.
Of the late outgo of currency, which was about $50,000,000, the entire
amount has returned and in addition about $60,000,000 less about $5,000,000 of
gold coin paid out, which has not yet come back.
co
C4
■ m rather rapidly.
But the currency is still coming
The System figures show a reduction of about $100,000,000 in the last
week and an increase over last year at this same time of $130,000,000 in earning
assets.
The increase of $130,000,000 in earning assets does not quite offset the
net outflow of gold from the country in the period covered.
In view of this, I should suppose that we can hardly expect the earning
assets of the System as a whole this year to get much, if any, below $1,OCX),000,000.
In fact, I would doubt if they would get below $1,100,000,000 unless some change
in conditions develop which cannot be foreseen.
Liquidation in the stock market
would naturally reduce our loan account considerably, or a reduction in the activity
of building, but viewing the situation as a whole, the developments this January
seem to be just about what we anticipated they would be, and at the meeting on
f/
Monday we will be able to determine what, if anything, should be done in the System
investment account in Government securities.
I had not expected to raise that que^—
Reproduced from the Unclassified I Declassified Holdings of the National Archives
FEDERAL
RESERVE
BANK
OF
NEW
C ./i
Honorable D. R.<
tion, but simply consider the usual problem of percentages*
;er
1.15.26
If, however, you or
your associates have views in regard to our program from now on, I hope that you
will discuss them with the Committee quite fully, and I am glad that you are able
to attend the meeting.
It is to be held here on Monday to meet the convenience
of tha members of the Committee, which seemed only possible by having it on that day.
Very truly yours,
Honorable D. R. Crissinger,
Governor, Federal Reserve Board,
Washington, D. C.
P.S.
I am enclosing a memorandum giving some analysis of the situation.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
M c. 3 . 1-50M-8-25
is
FED ERAL
OF
RESERVE
NEW
BANK
YORK
OFFICE C O R R E S P O N D E N C E
T\
r
S u b je c t :
Governor Strong
January 15,
___ 1926-
Money Market Changes Over the
Year-end._________________________
W. R. Burgess
Fr o m
Date.
Second District
Currency and Coin:
During the six weeks before Christmas coin and currency to an
amount of about 100 million dollars was put into circulation in this
district.
Almost exactly that amount of currency and coin has now
been redeposited in the Federal Reserve Bank.
The rate of return is
about the same as last year.
Transfers to and from interior:
For the six weeks prior to January 1 New York lost about 60
million dollars through the gold settlement fund as funds were withdrawn
out-of-town to take care of year-end requirements in other parts of the
country.
Since January 1 funds have flowed back to New York from other
districts to an amount of about 60 million dollars.
Use of Federal Reserve credit:
In order to meet the demands for currency and the withdrawal of
funds from this district, the earning assets of the Federal Reserve Bank
of New York had increased rather steadily during December to nearly
400 million dollars on December 30.
This increase is exclusive of
50 million of U. 3. securities purchased in New York and distributed to
other Reserve Banks.
These purchases took the place of additional
borrowing by banks or the market which would have otherwise been
necessary.
Hence this effect of the purchase was to lessen the year-
end credit strain.
Since December 30 total earning assets have bedn
Reproduced from the Unclassified / Declassified Holdings of the National Archives
M
isc. 3 . 1-50M-8-25
FEDERAL
OF
RESERVE
NEW
BANK
YORK
OFFICE C O R R E S P O N D E N C E
Date.
To
Subject:
Fr o m
2
reduced, as the result of the return flow of currency and transfers to
240 million dollars last night.
This represents a total decrease from
the December high point amounting to about 155 million dollars, as com
pared with a total gain to bank reserves through currency returns and
transfers of about 160 million.
Change in street loan account:
The street loan account as reported by New York City banks ran
♦
up to a new high point for the year on December 31, about 40 million short
of 3 billion dollars.
Since that time there has been a reduction in the
account of about 62 million dollars, but it still remains substantially
above the figures for any period except the last few days of December.
There has been an interesting change in the composition of the loan account.
In the weeks prior to the end of the year loans placed for correspondents
showed a reduction of over 100 million dollars, and loans placed by New
York City banks for their own account showed an increase of about 300
million dollars.
have come back
to
Since the first of the year loans for correspondents
the old level and above by an increase of about 127
million dollars, and loans by city banks have decreased about 190 million
dollars, or over half their previous increase.
It may be noted that the
changes in the ownership of the street loan account are much larger than
would be accounted for from the transfer of funds between New York and
the rest of the country.
Probably what has happened has been that heavy
dividend payments leaving New York have been returned for employment here,
192__
Reproduced from the Unclassified I Declassified Holdings of the National Archives
C ("■
:
r
O
v...
..
.
M
isc. 3. 1-50M
-8-25
FED ERA L
OF
RESERVE
NEW
YORK
OFFICE C O R R E S P O N D E N C E
I
T 0 ______ __________ _______________________________
Fr
om
___ .
_____—
----------------------------
4.•
S
BANK
D a t e _________________________ 192— -
S u b j e c t :___________ ____________ _________________ _____ —
-------------- — ------------- -
- 3 a transaction which would result in little net change in the gold settlement
fund figures, but would result in a drawing down of deposits of New York City
banks and an increase in the amount of o u t —
of—town funds lent here.
i
Federal Reserve System
Currency and Coin:
For the country as a whole it appears from changes in total reserves,
holdings of non-reserve cash, and note circulation of all Reserve Banks, that
the amount of coin and currency drawn into circulation in the six weeks ended
|
December £3 was about 325 million dollars.
In the three weeks after Christmas
!
about 390 million was returned to the Reserve Banks.
Hi
that the holiday currency movement has been practically completed.
So that it appears
Use of Reserve Bank credit:
During the period of heavy currency withdrawals total earning assets
i
of all Reserve Banks showed an increase of 242 million dollars, 200 millions
of which was in discounts and the rest in bills and securities.
Between
i
i
December 23 and January 13, when currency retired from circulation amounted
I
to nearly 400 millions, earning assets of Reserve Banks declined about 295
millions, of which 260 millions represented a reduction in discounts taking
place after December 30.
Movement about completed:
From these figures and the attached diagram it appears that the
first of the year readjustment is now approaching completion.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
M IL L IO N S
O F DOLLARS
1'otal Louns and lnvosti.ients, F eu er al Maservo Bank of Hew York.
Reproduced from the Unclassified I Declassified Holdings of the National Archives
M ILLIO N S
OF DO LLAR5
* ? ; a l loans uud investments, a l l ifeaoral Reserve Banks
