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William McChesney Martin, Jr., Papers
Series V, Subseries A
Box 21/Folder 2
FRB Official memos, 1951-56
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THE WHITE HOUSE
WASHINGTON
Key West, Florida
March 10,
MEMORANDUM FOR
THE SECE3TABY OF THE TREASURY
THE DIRECTOR OF DEFENSE MOBILIZATION
THE CHAIHMAN OF THE BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
THE CHAIRMAN OF THE COUNCIL OF ECONOMIC
ADVISERS
By direction of the President, I am sending
you herewith, for consideration and further
acknowledgment, a copy of a letter which he has
received from Honorable R. C. Leffingwell*
Particular attention is invited to the third
paragraph on page eight of Mr* Leffingwell's
letter.
(s) William D. Hassett
WILIXAM D. HASSETT
Secretary to the President
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23 Wall Street
New York 8
PERSONAL
March 1, 1951
y
R. C. Leffingwell
Dear Mr. President:
You were very gracious to me Tuesday, and I am
grateful for the hearing you gave me*
Perhaps a letter repeating the views I tried to
express to you and filling in some details, may be of use to you*
I remember vividly the great deflation which was
begun in 1920 when I was fiscal Assistant Secretary of the Treasury
(there was then no Under Secretary). The Federal Reserve Bank of
New York raised its rate to 1% in May, and my last official act,
in June, was to issue one year G?o certificates of the United
States. A little later, on my return to the practice of the law
in New York, I had to sell some of my Liberty bonds at about 84
to pay for the house I had to buy to get a place for my family
to live in*
Nobody wants anything like that to happen again ever*
Nobody wants deflation or dear money*
At the other extreme is the Treasury's present policy
of forcing the Federal Reserve to inflate credit to buy Treasury
securities at par or more* Federal Reserve credit has been inflated by more than |5 billion since the latter part of June, of
which more than $4 billion was for the purchase of Governraent
securities*
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This inflation of basic credit cannot, in my view,
2.
be continued without disaster to the credit of the United States
and overwhelming inflationary pressure on prices and wages, which it
will be impossible to control.
The inflationary force of the ex-
pansion of basic credit by the Federal Reserve cannot be capped
any more effectively than Vesuvius can be capped; nor, to change
the metaphor, than we can by dams and levees, however useful, stop
the flow of the Mississippi River to the sea. The Government cannot
stem the flood of inflation of Federal Reserve credit by building
dams and levees here and there.
May I amplify that with particular reference to the
points on which you asked your advisers to report in the statement
which you submitted to them on Monday, the 26th, the day before you
received me?
The efforts of the American Bankers Association,
Investment Bankers Association and Life Insurance Association, to
bring about voluntary private restraints on lendings and borrowings,
are laudable*
I had of course experience with the Capital Issues
Committees of World War I. If a Capital Issues Committee were created
now, and given control of capital issues by States and municipalities
and Federal agencies, as well as business corporations, that might
help to preempt the market for the Government's own borrowing. This
would be a good thing if the Treasury is now willing to try to sell
some bonds of its own to investors.
The suggestion of using the authority of the Emergency
Banking Act of 1935 and the Trading with the Enemy Act to police bank
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3.
lending does not seem practical to me. We had some experience in the
Treasury in the period after the First World War with the efforts by
•what was then called "direct action" to control inflation. And
Secretary Glass and I then concluded that these were ineffective.
I observed similar efforts of the Federal Reserve banks in the late
1920s, when again inflation was rampant, and observed their failure*
There are, as you know, some fourteen thousand banks,
big and little, in this country, and it is an individualistic country,
and bankers are as individualistic as anybody.
I do not know how
the Federal Reserve could undertake to police the loans of the member
and non-member banks of the country. And I donft know what would
become of the country if they did seriously try to do it«
Capital issues are one -tiling. Bank borrowing is quite
another.
Capital issues take time for planning. Officers and directors
take their time to think the thing out.
They may have to be submitted
to stockholders. They may have to be submitted to the Security and
Exchange Commission or Interstate Commerce Commission or other commissions and public authorities.
They may have to be submitted to
competitive bidding. All this delay is made possible by the fact that
the borrower can go to its bank and get the money to meet payrolls
and operating expenses, working capital needs, or, temporarily, even
capital needs.
But if that source of temporary funds were stopped up
until a loan application to a bank had been policed by the Federal
Reserve, very serious consequences indeed might follow to the economy
and to the defense effort*
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I do not think it is a good idea at all to attempt
4.
to police the loans of member "banks or non-member banks.
Nor do I favor further increasing the reserves of the
member banks of the Reserve System. That is a rough and crude and
destructive method. As long as the member banks have G-overnment
securities to sell it is ineffective.
The reserve requirements in
the central reserve and reserve cities are already too high. Many
members banks1 earnings are so low in relation to their capital resources
that their shares sell in the market way below their asset value.
It
would be too bad further to weaken our independent banking system by
expropriating still more of their earning assets, to be turned over to
the Federal Reserve without compensation, and so further undermine the
member banks1 ability to earn a living. This reserve increase is
just another special tax on banks, like their contribution to the
F.D. I.C., which banks alone must pay, in addition to the income tax
which all corporations must pay.
The effect of subtracting further
sums from the earning assets of the member banks will be to lead the
member banks to seek more speculative and less safe loans than heretofore in order to bolster up their already too small earnings.
Even
a bank must live, and among the fourteen thousand banks there are many
that are working for less than a living wage.
The effort to solve the problem by increasing reserve
requirements will be unsuccessful as long as the banks have Government
securities to sell to the Federal Reserve, and can only have the
effect of weakening the private banks and driving business, industry
and agriculture to depend increasingly on public lending agencies,
of which there are already too many.
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5.
These are some of the grave objections to the expedients
which in the memorandum you asked your advisers to consider. But
the main difficulty is that these expedients do not deal with the
cause of inflation, "but with the consequences.
The cause of in-
flation is not lending "by the commercial "banks and other financial
institutions of the country, "but the manufacture of unwanted and unneeded credit "by the Federal Reserve "banks for the purpose of "buying
up the public debt of the United States and maintaining an artificially high price for it. No expedients, however ingenious, no
price controls, no wage controls, no policing of the banks, can
possibly stop the inflationary pressure from breaking bounds as
long as the Federal Reserve banks go on pumping out credit.
What is needed is to break the present log jam which
has been so highly injurious to the country, to break the deadlock
between the Federal Reserve and the Treasury, and to find some
constructive solution to induce both to make concessions.
I suggest neither dear money as in 1920 or 1929 nor
the extreme cheap money desired by the Treasury, but a moderate
increase in interest rates.
That will not be deflationary but is
necessary to promote the sale of Government securities to investors
and to relieve the Federal Reserve banks of the necessity of creating
fresh supplies of basic credit to buy up the public debt.
The Treasury should allow the Federal Reserve to lower
its supporting prices, but the Federal Reserve should continue their
support and maintain a stable and orderly but not fixed and
frozen market.
of
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Then it will be no longer profitable for the holders
bonds and other securities of the United States (including banks,
insurance companies and other financial institutions and corporations)
to sell their holdings, "but rather painful and unpleasant for them
to do so. The present situation in the bond market is that few
want to buy Government bonds and many want to sell them, because
everybody understands that the price is artificially high. When
the price of securities is pegged too high, the tendency of investors
is to sell whenever they can and not to buy unless they have to.
Government credit would not be affected adversely by
fluctuations in the price of its bonds. It never was before Secretary
Morgenthau froze bond prices. The credit of States and municipalities
and business corporations, whose bonds are not pegged, is not affected
at all adversely by fluctuations in the price of the securities*
These fluctuations merely reflect the market situation and the relation of supply and demand.
It would be a strange thing indeed
if the credit of the United States depended on perpetuating a pricepegging practice which if engaged in by banking syndicates would be
illegal. When a market is known to be rigged, as the Government
bond market has been rigged for so long, investors habitually
hesitate to buy, and are overprone to sell. When investors get to
be of that state of mind there is not much good arguing with them.
Sir Stafford Cripps found this out, in relation to
the pound sterling which once had been the world's premier currency,
when he tried to peg the pound above the market's estimate of its
value. It isn't possible to maintain the peg after the market has
made up its mind that the price is not a fair one.
One may say
the price is unalterable, and say it again and again, as Cripps did,
.
but, just as the waves of the sea wet King Canute's feet, so the
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market will demonstrate the impossibility of maintaining forever
an artificial price.
The credit of the Government of the United States
can be impaired, but not by fluctuations in thamarket price of its
securities. It can be impaired by the depreciation of the buying power
of the dollar. It is that depreciation which is impairing the real
value of Government bonds, and the cause of that depreciation is
Federal Reserve inflation. As long as the Federal Reserve goes on
buying up the public debt with Federal Reserve credit, the impairment of
the dollar, and therefore of the bonds which are payable in dollars,
will continue.
Another and most constructive thing would be for the
Treasury to issue a new bond on terms that would be attractive to
investors, and put on a liberty loan campaign to sell it. Just by way
of illustration, say a 2 3/W forty year bond, with limited tax
exemption to little people. Such a campaign at this time should result
in substantial sales to investors, and have the collateral advantage
of arousing the enthusiasm of the people for the defense effort and
giving them a part in that effort.
The country sadly needs the moral
stimulus of such a campaign, indeed a series of campaigns led by
community leaders.
An unfortunate controversy arose between Secretary
Morgenthau and the Federal Reserve which led him to discontinue the old
practice of using the Federal Reserve banks as fiscal agents in
selling its bonds.
It would be most helpful if the Treasury were to
revert to the previous practice of McAdoo, Glass, Houston and their
successors, and employ the Federal Reserve banks as fiscal agents to
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a.
sell Government securities and to organize the local liberty loan
committees. If the Federal Reserve banks had to work for the Treasury
as its fiscal agents to sell its bonds, instead of just bickering
with the Treasury about its policies, many of the differences between
them should soon disappear.
One of the consequences of the inflationary monetary
and banking policies now being pursued by the Federal Reserve in
compliance with the Treasury's wishes is the aggravation of the
gold outflow* Our gold holdings are enormous and beyond our present
needs* But our gold losses since the devaluation of foreign currencies
have exceeded 10$ of our holdings a year and a half ago, and
continuation of gold losses at this rate for the period of a protracted
defense effort such as is now contemplated, not to say the period of
a total war, might gravely impair our ability to maintain our armed
forces abroad and to continue our purchases of necessary supplies
from abroad. Our gold holdings must now be regarded as a war fund,
and should be conserved. The flight from the dollar which is now
taking place in consequence of the fear of present inflationary
monetary policies must be arrested, if for no other reason.
It occurred to me that this memorandum of my views,
which is really only an elaboration of what I said to you in the half
hour I was privileged to have with you Tuesday, might be of some use
to you at this time, and even perhaps to Mr» Snyder, Mr» McCabe,
Mr* Wilson and Mr. Keyserling, if you think it worthwhile to show it
to them.
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I hope very much that you are going to have a rest
while you are down South, and at least that you will enjoy the
warm weather and sunshine*
I am, my dear Mr. President, with great respect,
Faithfully yours,
(s) Ro C. Leffingwell
The President
The vfaite House
Washington, D, C,
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;
STATELSMT
_ >
I wish to make a few remarks on a problem •which is attracting a great
deal of public attention.
As you know, one of the important contributing
factors to the inflationary pressure ^e are experiencing today is the steady
expansion of bank and related credit, -which has risen by
since Korea.
In order to check this expansion it is clear that some means will have to
\
be found to reduce the potential of the banking system to extend credit.
In
the effort to deal with this problem, we have run squarely into a basic
conflict between the objective of maintaining a stable market for government securities which form such an important part of our financials tructure
and the power which this objective now gives to our bsnks to expend credit
at will.
This difficulty arises because the banking system now holds a large
volume of government securities purchased at par or better, which are the
assets which it holds against the deposits of the public.
Tho ocnringo "3f
tho public, in n f f f i o t j nrrn i.rmirtM I n tkmjii ^H-IIMEI* handa iiftdtui^ly
thivmgh' tlw b'aBlfinp ayetam.
The banks have not hesitated to sell these
government securities to the Reserve System and make additional loans on the
basis of the reserves thus established,
One way of dealing with this
problem of expanding loans by the banks would be to allow the price of government bonds to fall so that banks would not sell them to (a^ike loans of
inflationary character.
That is to say, if the Federal Reserve System should
no longer be prepared to buy the bonds at or above par, the banks would not
sell them to the Reserve.System because they would take a loss, and hence
would be reluctant to establish the reserves necessary to make the additional
loans.
The Federal Reserve System is now persuaded that th«dcourse of action
should be adopted.
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Against this point of view, it is the Treasury opinion
- 2-
that there are other more effective ways of limiting the expansion of loans
by the bankin^ systerr, and that this particular method has the serious disadvantage of hampering the efforts of our government to raise the necessary
funds through tapping the savings of the public.
in two ways.
It hampers this operation
First, it increases the cost to the Treasury of borrowing
money, and makes the Treasury pay to the banks and other financial acokkiscEri±±gx
institutions larger amounts in the form of interest on the public debt, thus
adding to the overall expenditures of the government and the over-all deficit
to be financed by appropriations and taxes.
confidence of i»y*«i»*»M*i j i i i n i i
Secondly, by disturbing the
iiiinniy»Aaa|Mi»<A«*iiii j mini «tiriiir savers,
it
may accelerate a flight from government securities into commodities and other
forms of wealth.
The Treasury believes that, at this critical juncture, the overall
lon&i -farm
fiscal advantages of maintaining the level of interest rates is more
/i
important to the country, than the limited contribution which would be made
to the bank loan problem by allowing interest rates to rise fractionally and
the prices of government to fall.
There are a number of reasons why we do
not feel that, under prevailing circumstances, a rise in bank loans would
be effectively prevented by unsettling the government bond market. The
banks today can replenish their cash reserves and go on mfcing loans, without
needing to sell aay long-term government securities to the Federal Reserve
System.
They have in their portfolios short term bills and notes some of
which mature every day, week or month.
To make new loans all that is
necessary is that they fail to renew some of the maturing short-terra
securities which they now hold.
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It is for this reason that we do not believe
- 3that banks will forego opportunities to make profitable loans ever, if
their long term government securities are made unmarketable except at
a loss.
The fact that in recent months they have preferred to sell long-
term government securities rather thai let the short-term holdings run down as
a means of replenishing their reserves, I believe is to a substantial extent due to the desire to reduce their portfolios because of the threat that
prices of these securities might be allowed to decline.
It -would not, in my opinion, have been easy to stop the loans that the
banks have been mak ing during the past few months by any of the indirect
measures which affect primarily the prices and the interest rates on government securities.
I strongly suspect that nothing short of a definite ceiling
on the loans permitted to any bank, in the form of a quota for total loans
fixed by the Federal Reserve EostrcLwuld really have achieved the result of
preventing an expansion in bank loans during recent months.
lYhile I remain rather skeptical as to the effect of indirect measures
in holding down the level of bank loans when the bank's customers are
vigorously demanding credit, there are other ways of applying indirect pressure
to the level of bank loans without at the same time incurring the risks of
unsettling the government . securitj^insrket or adding to the cost of the defense effort and the size of the budget.
These might take several forms:
a general increase in reserve requirements, the addition of special emergency
reserve requirements during the emergency period, and an extension of selectivecontrols on credit in the form of directives to the banking system.
Though
I do not place agHMffliMMar as great emphasis on ths significance of bank
credit in the fotraxmibotbcKEtiiM total inflationary picture as some others do,
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-hI fully agree that no objection should be made to any attempt to deal with
this aspect of the inflationary problem unless it involves dangers to other
objectives we have before us.
Consequently, I would support the adoption of
legislation authorizing the Board of Governors of the Federal Reserve System
to increase reserve requirements above present levels.
I would also endorse
the proposals which the Board of Governors haf made at previous dates, as a
special emergency period device only, the i^uquii' mm aut of a special reserve,
A
over and above regular reserves, to be held in the form of eligible securities
of a short time character.
I believe this should be a special emergency
measure rather than a permanent authority.
In the third place, I would be glad to see the powers of the Federal
Reserve System extended to enable them to provide limits as to the amount
of business inventories as well as consumer credit, which may be final ced for
a given borrower.
I would also be glad to see them given powers to direct
the banking system to refuse credits for particular types of activities.
In
5tfp/»orjtT
fact, I ana prepared to awMtaHiD any request of the Federal Reserve System
for powers to control bank loans directly, so long as these powers are not
exercised in such a way as to make more difficult the problem this country
faces in financing, this gigantic effort of national survival and maintaining
a steady and confident market for the billions of government securities which
must eventually be placed with the public and with the financial system, at
rates which are reasonable but which do not add unnecessarily to the heavy
burden of e xpenditures which we must write into ourf or th coming budgets.
In conclusion, I would like to try to make a few points clear about
th^is whole issue.
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There has been, and still is, an area of honest difference
of opinion between the Federal fieserve System and the Treasury as to
just "where the balance of advantage and disadvantage has in the Federal
Reserve interest rate proposals.
They think that the balance is plus. I
think that the disadvantages clearly outweigh the advantages and that -we
roust follow a different Ybute from here on out to achieve the objective on
which v;e are all agreed.
But what is and has been troublesome to me is the
way in which the issue has been publicly distorted to create the impression
that the two viewpoints are diametrically opposite and that the objectives
of the Federal Reserve System and the Treasury are in basic conflict.
are not and have never been.
They
The Federal Reserve has an admirable record
over the years in fighting inflation and deflation at every turn with the
weapons at its disposal. So, if I may say so, has the Treasury. The
particular issue which has now come to a head has been inherent in our situation eveH the public debt reached its present day levels and our banks acquired large holdings of government securities.
I am more than ready to
stand from here "on out «*M*i*p«p<pppiW that you cannot resolve this issue with
the puny weapon on which the Federal Reserve System proposes to rely. It
•w
may achieve some slight short-run results but only at a permanet
cost vastly
/*
out of proportion to the results.
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Mr. Martin Since you are planning to go directly to the Treas.,
and the Secretary might wish to discuss Mr. Cobbold's
cable to Mr. Sproul, I thoughtyou might like to see
a copy.
Mr. Riefler has seen it and has passed it on to
Gov. Szymczak who, I understand, talked to the Secy
about it. The Secy asked to see a copy of this cable.
Hoveu&er ?f
SECRET AHD P^RSOHAL
FROM*
OQBBQLD
TO
SFROUL
s
Dictated by Hr. Knoke
(London)
We are proposing to Government a small increase in bank rate together
with two other measuress
(a) A special rate for advances against Treasury Bills slightly lower
than new bank rate in order to cushion cost to Exchequer without
prejudicing free working of short-term market.
(b) Operation to reduce volume of floating debt by funding substantial
part into short-term bonds suitable for banking holders.
Objective is to get away from rigidity and restore flexibility to
short-term market, We shall expect Treasury Bill and other rates to rise
somewhat and fluctuate according to supply and demand and to our own operations.
Ws shall no longer stand ready to supply our market with money in unlimited
quantities by buying Bills at fixed rates.
Tsfe have preferred recomsiending these small but definite moves away
from rigidity and toward flexibility and reality rather than isore drastic
increase in rate which would sound drastic but have incalculable effects
financially and politically.
these changes, if accepted, will be announced in their proper perspective
as part of a coaiprehensive program*
Routine advice will be sent to you as scon as decision announced.
keep this cable absolutely "confidential1* until then*
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Please
August 25, 1952
Assignments of Subjects for Initial Consideration by Individual
of the Board of Governors
In accordance with the Board's established policy, no division
or portion of the staff Is to be regarded as being attached to, or under
the Jurisdiction of, a particular Board member by reason of any of these
assignments. All members of the staff are to serve all members of the
Board, and while a member of the Board nay have occasion to call on a
certain division or certain members of the staff more than others, they
are not attached to, or subject to the control of, such member.
The scope of each Board member's assignments includes the prep*
eration by the staff of such reports, studies, memoranda, and other
Incidental material, i.e., research and statistical material, legal opinions, informational memoranda, etc,, as may be considered appropriate
within the limits of the staff organization and budget.
If a Board member desires to initiate a discussion of a subject
that Is among the assignments of another Board member, he should first
take the matter up with the Board member who has the assignment. If
that Is not done, the Secretary will comply with the Board member's
request that the matter be placed on the agenda and the Board will decide whether It will discuss it or refer It to the appropriate member
of the Board for a recommendation.
these assignments will be reviewed In February of every other
year or whenever there Is a change in the membership of the Board.
Chalraan Martin
(Alternate; Bone)
1. leoncalc and aonetary policy Batters (open Market operations,
discount rates, reserve requirements, Interest rates, Goveraaent finance,
International monetary questions).
2. Policies involved In the initiation and adoption of legislation and executive orders affecting the System.
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Governor Szyaczak
(Alternate! Governor Vardaman)
1. Relations of Reserve Banks vlth foreign banks, banker*, and
itsj staff aiseions and travel of Individual staff aambers of
Beeenre Banks and Board to foreign countries.
2. International financial institutions and institutions engaged
in foreign banking subject to sections 25 and 25(a) of the Federal Reserve
Act; foreign branches of domestic banks.
3. Relations with foreign central banks and foreign treasuries.
4. Extension and maintenance of credit by brokers, dealers, banks,
and others for purchasing or carrying securities.
(Alternate for Chairman Martin on Rational Advisory Council) ,
.
Governor Evans
( Alternate i Bone)
1. Agricultural conditions, including prices, production, and
Markets; relations concerning these subjects vith the Department of Agriculture, Farm Credit Administration, food and Agriculture Organization of
the United Hat ions, and other agencies; leading activities of Government
agencies in the agricultural field.
2. Informal liaison between Board and Chairmen of Reserve Banks;
preparation of topics for agenda of Federal Advisory Council, Chairmen's
Conference, Presidents* Conference, and similar groups.
3. Operation and Maintenance of Board's building.
k. Regulation of real estate credit. (A* alternate for Governor
Morton).
5» Lending and loan guarantee and insurance activities of Government agencies, other than in agricultural field. (As alternate for Governor
Norton).
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/
6. Services of Reserve Banks and reimbursement therefor; ex*
pendltures, including Reserve Bank budgets and functional expense reports;
reserves for losses; chargeoffs and dividends; Reserve Bank stock; discounts and advances of Reserve Banks; operations under section 13b of
toe Federal Reserve Act; purchases by Reserve Banks of securities and
bills other than through System Open Market Account; questions of eligibility of paper for discount or as security for advances. (As alternate
for Governor Morton).
7« Coordination and development of relations of the Board and the
Reserve Banks with Member banks, nonmember banks, banking associations,
educational Institutions, and the general public. (As alternate for GOT*
ernor Morton) .
Governor Vardaman
(Alternate; Hone)
1. Activities of Federal Reserve Banks as fiscal agents In guaranteeing loans under Defense Production Act of
2. lstablisbs»nt, regulation, and discontinuance of branches and
agencies of Reserve Banks; determination of district and branch territorial
limits.
3. Currency natters $ interdietrict settlement fund,
k. Outside business and other relations of directors, officers,
and employees of Reserve Banks{ removal of directors, officers, and employees of Reserve Banksi disposition of criminal charges against such
persons.
Governor Mills
(Alternatei Hone)
1. Research programs of Reserve Banks and the Board of Governorsj
publications of the Federal Beserve System; call reports of conditions and
other periodical reports of member banks.
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2. Clearance and collection systems.
3. Hatters relating to Treasury savings bonds.
k. Federal Reserve Retirement System; trustee of the Retirement
System, elected by the Board as Its representative! associate of the
Investment Coaalttee of the Retirement System.
Governor Robertson
(Alternate: Hone)
1. Supervision and examination of State member banks, including
foreign and domestic branches, mergers and consolidations, capital, maintenance of required reserves, payment of Interest on deposits, loans and
Investments of member banks; natters relating to membership of State banks
In the Federal Reserve System; supervision and examination of bank holding companies and their affiliates) trust powers of national banks; later*
locking relations of directors, officers, and employees of member banks;
loans to executive officers of member banks; removal of, and criminal
charges against, directors, officers and employees of member banks; relations regarding the above matters vlth the Comptroller of the Currency,
the Federal Deposit Insurance Corporation, this Reconstruction Finance
Corporation, State banking departments, and bankers associations.
2. Examination of Federal Keserve Banks and examination of
institutions engaged In foreign banking subject to sections 25 and 25a of
the Federal Beserve Act.
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BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
February 28, 1951.
To:
Board of Governors
From: Personnel Committee
On October 25 > 1950, the Personnel Committee was requested to
study the existing policies, rules, and procedures of the Board with
respect to the expenses incurred by members of the Board for various
purposes and to submit a recommendation for the Board's consideration.
It was understood that after the recommendation of the Personnel Committee had been received the Board would review existing policies in executive session when all of the members of the Board are present so that
effective rules and procedures with respect to the control of such
expenses might be provided for the guidance of the staff.
In response to this request the Personnel Committee makes the
following recommendations:
1. Under existing policy whenever an expenditure is proposed which in the judgment of the Director of the Division of
Administrative Services is not justified and the proposal is
not withdrawn, the matter is considered by the Secretary and if
it can not thus be disposed of it is presented to the Board's
Personnel Committee. As a means of emphasizing the need for
careful expenditure of Board funds it is recommended that the
members of the Board pay special attention to the policy which
was restated in connection with the approval of the budget for
1951> i.e., specific expenditures should be carefully scrutinized
before they are authorized to make sure they are necessary and
are thoroughly justified.
2. It is also recommended that the Board approve the attached revised statements with respect to:
(a)
(b)
(c)
(d)
Travel by members of the Board and its staff
Use of Board automobiles and chauffeurs
Board members' messengers
Policy with respect to speeches and articles
3» Since they appear to be working satisfactorily, no
change is recommended in existing policies with respect to:
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(a) Operation of the private dining rooms
(b) Assignment of employees
(c) Gatherings, dinners, etc.
Copies of these statements are also attached.
-2-
The Personnel Committee was prompted in recommending the revision of the statements referred to in paragraph (2) above by the following
considerations:
Travel. The statement with respect to travel is in the form of
an amendment to paragraph (8) of the Board's travel regulations and would
require a full statement of (l) purpose of the travel, and (2) why it is
deemed necessary in the conduct of the official business of the Board. It
is the feeling of the Personnel Committee that a mere statement that the
purpose of the travel is to attend a meeting or conference is not sufficient justification for the travel request and that a sufficiently complete
statement should be given to make it clear why the travel is official and
in the interest of the Board. The travel would not be approved if it
appeared to be for any purpose other than official business that necessarily must be taken care of at the time. For example, travel merely to
suit the convenience of the traveler even though official business was to
be done during the trip would not be justification for approval. A third
requirement in the amended paragraph would be that except in an emergency
no official travel would be undertaken without the required approval in
advance. This is to give an opportunity for a review of the need for the
travel before the trip begins.
Use of Automobiles. The Personnel Committee believes it is
important that members of the Board observe the requirement which was contained in the previous statement and is continued in the attached revision
that the Board's automobiles shall not be used for travel between home and
office in the ordinary course. This does not mean, however, that if a
member of the Board needs to make a trip home from the office to get his
bags for an official trip or to change clothes for an official function or
if he is home and wants a car to take him to the station or airport in
connection with official travel, the car should not be used for such purposes. The statement is directed at the use of the Board's cars for
ordinary travel between home and office which is not regarded as official
travel. The revised statement also requires that, except in an emergency,
approval of the use of an automobile and chauffeur outside official working hours shall be obtained in advance and that an automobile will not be
accompanied by more than one chauffeur or other attendant during the hours
when the payment of overtime is involved. The purpose of this requirement
is to hold the payment of overtime to a minimum consistent with the proper
use of automobiles outside of regular working hours. The statement contains the additional requirement that any apparent violations of this
policy shall be brought to the attention of the members of the Board. This
is suggested because the Personnel Committee feels that care should be
taken in the use of official cars and the members of the Board should know
of any use that does not appear to be in harmony with established policies.
Board Membersf Messengers. This statement would discontinue the
assignment of a messenger to the office of each Board member and the recommendation is made for the reasons that have been discussed on various
occasions by the members of the Board.
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—3—
Speeches and Articles. The previous statement was limited in
its scope to the distribution of speeches and articles. The proposed
revision contemplates that there will be a more systematic selection of
occasions on which members of the Board and its staff will speak or write
articles in the interest of a more effective public relations program and
that every effort will be made to conserve the time of the Board and its
staff in the preparation and processing of speeches and articles,
particularly at the present time when everyone is under such heavy pressure.
Attachments
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TRAVEL BY MEMBERS OF THE BOARD AND ITS STAFF
8, Whenever any travel at the Board1s expense is contemplated by any member of the Bo&rd or by the Advisers to the Board,
the Assistant to the Bosrd, the Assistant to the Chairman, heads,
associate heads, and assistant heads of divisions, a memorandum in
a form provided for the
purpose shall be submitted in advance of
the trip to the Board1s Personnel Committee*, and whenever any such
travel is contemplated by other members of the staff a similar
memorandum shall be submitted in advance of the trip to the division
head concerned, setting forth the proposed date or dates of absence
on such travel, the itinerary to be followed, a full statement of the
purpose of the travel, and why it is deemed necessary in the conduct
of the official business of the Board (a statement that the purpose
is to attend a meeting, conference, etc., will not be sufficient,
but the nature of the meeting, conference, etc., and the necessity
for the presence of the traveler must be fully set forth). If it
appears in any case that the travel is for any purpose other than
necessary official business that needs to be taken care of at the
time, it shall be the duty of the Personnel Committee* or the Division
Head not to approve the travel. Except in an emergency, the nature
of which shall be fully set forth in the travel voucher, no official
travel shall be undertaken until approved by the Personnel Committee*
or the Division Head as the case may be and in the event of an emergency such approval shall be obtained as promptly as practicable. No
voucher for travel expenses shall be paid by the Division of Administrative Services unless the Division shall have been furnished with
advice of approval of such travel as required by this paragraph.
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(* Note: When travel of a member of
the Personnel Committee is
involved, the Chairman,
Vice Chairman, or Chairman
pro tern, will substitute
for such member on the
Personnel Committee.)
BOARD MEMBERS' MESSENGERS
The present practice of assigning individuals with the
title of messenger or clerk to each Board member shall be discontinued, and the services of these employees shall be pooled and made
available to all offices in the Board members' section vithout specific assignment.
The services of messengers shall not be used at
the Board's expense at any time for private purposes, except that
during regular business hours when no overtime pay is required,
messengers assigned to the Board members' section may be used for
running personal errands. Responsibility for the supervision of these
messengers will be in the Division of Administrative Services and
policies with respect to such supervision shall be determined by the
Division in consultation with the member of the Board whose assignments include the supervision of the operation of the Board's build-
ing.
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POLICY WITH RESPECT TO SPEECHES Ai-JD ARTICLES
The time that can be devoted by members of the Board and its
staff to the preparation of speeches and articles is necessarily limited,
Furthermore, the time required for writing and processing speeches has
made a very substantial drain on the time of the staff and every effort
should be made, particularly during the present period of extraordinary
demands, to keep such work at a minimum and to systematize it so that
the effort expended can be used to the best possible advantage. For
these reasons the following procedure has been approved by the Board.
The procedure does not suggest in any way that the members of the Board
are not entirely free to make their own decisions as to whether they
will make a speech or write an article or as to what they may choose
to say. Rather, it is designed to make the best possible use of the
time available to the members of the Board and its staff and at the
same time make our public statements as effective as possible in the
interest of a better understanding of the System and its functions.
1. All invitations to speak or to write articles received by members of the Board and its staff will, be reported
to Mr. Thurston's office.
2. Mr. Thurston will review these invitations and he and
the member of the Board whose assignments include public relations shall, in consultation with such other members of the
Board and the staff as the situation might suggest, make recommendations as to the invitations that should be accepted (and
perhaps invitations that should be sought).
3. The members of the Board will consider these recommendations in making their decisions as to speeches and
articles that they will undertake.
4. Unless a speech or article is to be published in the
Federal Reserve Bulletin and reprints made thereof in accordance
with current policy with respect to such publication, not more
than 300 copies of the speech or article shall be printed or
otherwise reproduced and not more than 200 copies shall be distributed through the use of the franking privilege or at the
expense of the Board.
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USE OF BOAhD AUTOMOBILES AND CHAUFFEURS
Board automobiles shall not be used for travel between home
and office or for any other non-official purpose at any time. Board
automobiles shall not be accompanied by more than one chauffeur or
other attendant during hours when the payment of overtime would be
involved. Board automobiles shall not be used outside working hours
during which Board chauffeurs are regularly on duty, without written
approval, on a form provided for the purpose, by the Board member
whose assignments include the supervision of the operation of the
Board s building, or by his alternate when his use of a Board automobile is involved or when he is absent. In an emergency when such
approval can not be obtained in advance, it shall be obtained as
promptly as practicable after the use of the automobile and chauffeur.
The record of trips made try official cars which the chauffeurs are required to keep under the Board's existing rules shall be reviewed from
time to time by such Board member or his alternate, and it shall be
his duty to bring to the attention of the Board any situation which
appears to be a violation of the provisions of this paragraph.
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RULES GOVERNING OPERATIONS OF THE PRIVATE DINING ROOMS
The private dining room area is to be used only by the Board
Members, heads and assistant heads of Divisions, certain members of the
Board1s staff and others to whom invitations have been issued by the
Board, and such guests as they may bring with them.
On October 22, 1948, the Board approved the following arrangement with respect to the use of the Board Members' two dining rooms:
"Both the Brown and the Blue dining rooms shall be
open to the members of the Board and their guests, the
Special Adviser to the Board, the Assistant to the Board
and the Assistant to the Chairman, with the understanding (1) that as a general rule a member of the Board will
take preferably not more than one guest, and in any event
not more than two guests, into the Brown Room, (2) that
the Blue Room will continue to be used for special luncheons for the Federal Advisory Council and the Presidents1
Conference as in the past, (3) that when a member of the
Board wishes to invite a special official guest or guests
for a luncheon to which will be invited the other members
of the Board, and such members of the staff as the Board
member may wish, the Blue Room may be reserved for that
purpose and the member arranging the luncheon will advise
the other members of the Board and the Supervisor of the
cafeteria as far in advance as possible and ask her to
reserve the Blue Room for the luncheon, and (4-) that when
the Blue Room is not being used for a special luncheon
as referred to above it will be set up to accommodate
eight persons."
The large room, known as the Staff Dining Room, is to be used
primarily by staff members and others who hold invitations, and the use
of this room is confined exclusively to men. However, a Board Member may,
of course, reserve a table in this room should he desire to do so.
Luncheon may also be served in the Board Members1 offices. Under
the arrangement approved by the Board, the cafeteria will prepare the food
and place it in carriers, upon reasonable advance notice, to be called for
by the Board Member's messenger not later than 2:00 p.m. This service
is confined to the offices in the Board Members' area on the second floor.
Dining room checks will be presented by the waitress at the time
of service and should be signed by the Board or staff member both for himself and for any guest accompanying him. A bill will be rendered each
month. A surcharge of 15 cents for service is made for each person served.
There is no tipping. The hours of service are from 1 to 2 p.m.
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-2-
The following is a list of persons whose luncheon checks may
be charged to the Board:
1. Directors, officers and employees of the Federal Reserve
Banks and their Branches; and the members and Secretary of the Federal
Advisory Council. In these cases the checks may be signed by the individual served; or they may be signed by any member of the Board or of
the senior staff and charged to the Board if the notation "Official
Guest" is placed upon the check.
2. Cabinet officers and the Under Secretaries and Assistant
Secretaries of all Executive Departments; the Directors of the Federal
Deposit Insurance Corporation; the Comptroller and the Deputy Comptrollers
of the Currency; the Administrator or members of the Board in charge of
any independent Federal Agency; and the Directors of any Government-owned
corporation. In these cases the check may be charged to the Board when
it is signed by a member of the Board or a member of the senior staff and
the notation "Official Guest" is placed upon the check.
3. Any member of the Board may charge to the Board's account
the luncheon check of any other official guest of such member by placing
on it the notation "Official Guest" and signing the check.
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ASSIGMEMT OF EMPLOYEES
The Board shall not carry on the pay roll of, or charge to
the budget of, one office or division the salary of an employee who
performs service in another office or division, except when such
service is only for brief periods of an intermittent character. Any
transfer necessitated by this regulation shall be subject to approval
in advance by the Board*
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GATHERINGS» DINNERS. ETC., AT FEDERAL RESERVE BAMS
In order to remove any basis for misunderstanding as to the
relation of the Board or any of its members to any special gatherings
or luncheons> dinners or other occasions which may create expense for
any Federal Reserve Bank or its branch that would not be incurred
otherwise, no such arrangements shall be requested or suggested by any
member of the Board or of its staff, except with the approval of the
Board which will be communicated to such Federal Reserve Bank by the
Board's Secretary or Assistant Secretary. No arrangements at the
expense of the Board for such purposes shall be made without the
approval of the Board which will be communicated to the Division of
Administrative Services by the Board's Secretary or Assistant Secretary.
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BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Members of the Official Staff
Who will retire within ten years
Division
Name
Present
Age
Board Members
.Elliott Thurston
56
Board Members
Winfield W. Riefler
55
Legal
George B. Vest
56
Examinations
Fred A. Nelson
56
Examinations
George S. Sloan
60
Bank Operations
J. E. Horbett
53
Bank Operations
R. F. Leonard
58
July 28, 1952.
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COMMENTS OF CHAIRMAN 1ORTII AT CONGRESSIONAL HEARINGS
RELATING TO
THE BOARD'S AUTHORITY TO ADMINISTER OONSIMR CREDIT CONTROLS
March 1;, 195>2 - Hearings before Senate Banking and Currency
Committee on extension of Defense Production Act
_
"While there are difficult and onerous problems associated with
regulation W, the regulation of installment credit has proved a useful sup
plement to general measures directed toward the stabilization of our economy. Consumer credit is relatively unresponsive to the effects of general
credit instruments; *- * •* It was the dramatic experience mth stock market
credit in the 1920' s, along just these lines, that led Congress to provide
permanent authority to regulate that type of credit selectively.
"Accordingly, we recommend that the basic authority contained in
the Defense Production Act of 1950 be extended and that the limitations
placed on the Board's authority to fix appropriate terms imposed by the
Defense Production Act amendments of 195>1 be deleted." (From prepared statement read to the Committee, pp. 82, 83 of Hearings)
May 21, 195>2 - Hearings before House Committee on Banking
and Currency on extension of Defense Production Act
_
"MR. BARRETT. Mr. Martin, I would like to bring you back to regulation W for a moment. Would you recommend that this committee go on record
for the abolition of regulation W, or set up a stand-by?
"MR. MARTIN. No, I would not recommend that you abolish it. I
would recommend that you renew the authority. I would even go so far as to
hope you would restore the flexibility in it. But that might be too much to
ask.
"MR. BARRETT. But you would recommend it being inserted as a stand-
by?
"MR. MARTIN. I would indeed, yes, sir. I consider it as auxiliary
fire-fighting equipment that we ought to have available in these times.
"MR. BARRETT. Then let me ask you another question, if I may: What
would be your attitude on regulation X?
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"MR. MARTIN. I would feel the same way about regulation X." (p. 1371)
-2-
March 30, 1953 - Hearings before Senate Committee on Banking
and Currency on Standby Economic Controls
In response to a direct question by Senator Bennett -whether consumer credit controls should be a permanent part of Federal Reserve legislation, Chairman Martin commented as follows:
"Well, Senator, I would like to speak as an individual, rather
than for the Board on that. I have changed my thinking since I have been
here, and I lean now individually to the thought that they ought to be a
permanent part of the Federal Reserve Act.
"My thinking along that line runs in this way—we have a massconsumption and mass-production economy, and that if these controls are to
be useful as a minor screwdriver in the kit from time to time, and are to
be effectively administered in a useful way, they should be removed from
emergency legislation and put into the framework of the Federal Reserve Act.
"Nclow, I am not advocating that this morning. I am just giving you
an insight into the course of my own thinking on it.'1 (p. ll;79)
May 5, 1953 - Hearings before House Committee on Banking and
Currency on a bill amending the Federal Reserve Act to increase
authority for branch bank buildings
In response to a question by Congressman Deane, Chairman Martin
made the following coiranentt
"I say with due deference to the committee that I think the Cbngress did make a mistake in removing regulations W and X at the time that
they did.
& #• # -x- -x- #
"Now, as I said before the Senate committee, my own thinking on
this matter has changed some-what since I came into the system. I would think
that, with the mass production, mass consumption economy, of the type that
we have today, that it might be desirable for the Federal Reserve Board, as
a part of the Federal Reserve Act, free from the political pressures on one
side and the private pressures on the other, that Mr. Fatman has rightly
said, the role that we should play would be to have this authority invokable
from time to time, in the same way that open market operations, reserve requirements, and the discount rate are invokable." (p. 2?)
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Oct. 30, 19^2 - WT
FEDERAL RESERVE OPERATIONS IN
PERICDS OF TREASURY FINANCING
Since the Treasury-Federal Reserve accord the principal broad
objectives of fiscal and monetary policy have been to finance the Government deficit growing out of the defense program, together with moderate
private credit expansion, principally by borrowing the savings and liquid
funds of the public with no more recourse to bank credit than is necessary to supply the reasonable cash balance requirements of a growing
economy operating at a high level of activity without inflation. This
Jias been a particular3y difficult task because private credit demands
have continuously been large and, even before the Treasury deficit developed .there were recurrent refunding operations. With the growing
deficit to be financed, the task is becoming increasingly difficult. The
difficulty will be reduced only if there should be a decrease in private
credit demands.
Nature and Results of System Operations
Under these circumstances, Federal Reserve operations have been
designed to promote a condition in which access to Federal Reserve credit
was primarily through the discount window and in which open market operations were limited as much as possible to the moderate additional needs
of an expanding economy with the maintenance of financial equilibrium
and occasionally to cover the larger seasonal variations in currency and
reserve needs. Operations of this nature carried out correctly mean
that interest rates, including yields on Government securities, are
largely established by market processes with a minimum of Federal Reserve intervention.
Market rates are generally related to the discount
rate, which could be changed if there were evidence that the amount of
credit supplied through the discount window were out of line with
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- 2reasonable economic needs. As this relationship has developed,3bill rate
f^:_
and the weekly bill auction have assumed a great deal of importance and
bill rates have fluctuated largely in response to market forces. Other
money rates have shown similar .though somewhat smoother and narrower,
movements. As credit demands to meet currency and other monetary needs
have expanded, member bank borrowing at the Federal Reserve and money rates
have shown intermittent tendencies to rise,
been
Full reliance upon this mode of operation has not/consistently
carried out because of periodic Federal Reserve support provided to
Treasury refunding operations* Most of the Federal Reserve purchases of
securities in the open market have been made during periods of Treasury
refunding.
As shown in the following table, of $5*2 billion of gross
purchases (other than those under repurchase contracts) since July 1, 195>1,
|3.9 billion were made during periods of refunding and of these $3 billion
consisted of the purchases of rights. Fortunately for the effectiveness
of the policy of restraint on undue expansion, the System was able to
offset a large part of these purchases by sales. Total sales in this
period amounted to $i|.*5 billion, of which $1.5 billion were made during
refunding periods and |3 billion in other periods.
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Open Market Account Transactions in U. S. Government Securities'
July 1, 1951—September 30, 1952
(In millions of dollars)
During periods
of
refunding^/
Purchases Sales Purchases - Sales
Total
Class of Security
Maturing issues (rights)
Other securities maturing
Within 91 days
91 days to llj. months
ll* months to 5 years
5 years to 10 years
Over 10 years
Total
3,059
3,059
1,568
591*
1
3
Other than
periods of
refunding
Purchases Sales
2,206
51*1
2,277
31*1
—
_
—
372
1,151*
—
23
5
6
—-3
5,2U8
1*,1*88
3,91*7
1,529
1,027
253
1
3
17
1,301
1,831*
1,123
—
—2
2,959
Excludes repurchase agreements with dealers and brokers and purchases and sales
of special certificates from and to Treasury.
Commitments from date of announcement to closing of books, plus all transactions
in new securities on a when-issued basis.
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- 3The net increase in the total Federal Reserve portfolio in the
period from June 30, 1951, to September 30, 1952, was less than $700
million. This increase, together with additional Federal Reserve advances
of fij.00 million and a net gold inflow of $1.6 billion, supplied the basis for
an expansion of money in circulation of $1.6 billion and anjncrease in
member bank reserves of about $1 billion. The total expansion in bank
deposits and currency of about f 13 billion in this period is probably larger
than could be expected to be maintained indefinitely. To a considerable
extent, however, it reflects a growth of savings held in liquid form, and
the absence of inflationary pressures during the period gives a basis for
not viewing the development with alarm.
Although up to the present the Federal Reserve has found it
possible to provide substantial support to Treasury refunding operations
and still keep the over-all monetary expansion within reasonable bounds,
we can not be confident of continuing to attain such results if strong
credit demands and inflationary pressures should develop. To provide
unlimited support for Treasury refunding in such periods might defeat the
objective of exercising restraint on excessive credit expansion.
The large volume of Federal Reserve purchases made to support
Treasury refunding operations and the danger that they might under strong
inflationary pressures prevent the following of an adequately restrictive
policy have prompted considerable discussion of the broad problem of the
System*s responsibility in underwriting treasury offerings. In addition
to this major policy question, there is the further question of techniques
of System operations during periods of Treasury financing; it is with the
latter phase that this memorandum is primarily concerned.
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Establishment of Appropriate Terms of New Issues
As a general rule, the first requisite for Treasury financing is
that the terms on any securities offered are such as to assure that the new
issue will be taken by the market without Federal Reserve support* There
should be a sincere and determined effort on the part of both the Treasury
and the Open Market Committee to agree upon a coupon and term for a new
issue of securities that could confidently be expected to develop for that
issue its own natural rights value in the market. Thus the normal
expectation should be that there would be no occasion or necessity
for
intervention by the Open Market Committee while the books were open.
The information essential to this judgment could be developed by the
early announcement of the general terms of a forthcoming
Treasury issue,
with the announcement of the exact coupon and terms delayed until a day
or two before the opening of the books for subscription.
This would give
the market time to evaluate the new issue and to indicate both to the
Treasury and to the Open Market Committee the exact coupon and terms that
could reasonably be expected to assure adequate subscription.
Experience indicates that the pricing of refunding issues has
generally been too close to assure adequate reception by the market. As shown
in the attached table, the total attrition on refunding operati ons (including
both Federal Reserve support purchases and cash redemptions ) has been
substantial on all but three of the operations since the accord, and, two
*(>JLAM/-U.^,
of these were small issues.
Generally, the total attrition has been 20 and
2f> per cent of the amount outstanding held outside of the Federal Reserve
at the time of the refunding announcement.
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-5Question may be raised as to whether the persistent large attrition
on maturing issues could be corrected by different pricing or whether it
reflects the large volume of maturing issues owned by owners who want their
cash on or near the particular maturity dates and would not want to sell
prior to that date at any reasonable rights value. The substantial
attrition on two or three issues which seemed to be favorably priced in
the light of the then current market conditions and which subsequently sold
at substantial premiums in the market would seem to indicate that it might
not be possible to count upon pricing alone to prevent substantial attrition,
unless the terms were so generous as to bring in large arbitrage buying with
substantial selling of other issues.
Regardless of these qualifications, it is nevertheless evident that
successful reception of refunding issues depends to some extent upon pricing
not
which will produce a moderate premium and thus encourage holders/wishing to
make the exchange to sell their maturing issues rather than to redeem them
for cash. To rely upon the Federal Reserve to provide such a premium by
market purchases discourages buying by other investors who might otherwise
be willing to buy maturing securities in order to get the new issue. The
problem is one of fixing a price which will maintain a delicate balance
between those who want to sell and others who might be willing to buy,
without unduly disturbing the market structure of prices.
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-6Techniques of Federal Reserve Support
In view of the difficulties of setting the terms of a refunding
issue so as to assure satisfactory exchanges and in view of the possibility
of developments after the announcement of the terms that would upset the
market, Federal Reserve support to the market during the period of the
offering may in many cases be unavoidable. Such support should be rendered
only in the event that market rates tend to rise to a point at which the
new issue would be unacceptable or if, because of uncertain prospects, the
market appears unwilling to accept the terms of the refunding.
Supporting operations should be directed toward the objectives
of keeping Federal Reserve purchases to the minimum needed to provide a
reasonable volume of exchanges and of encouraging maximum exchanges from
other holders. This would mean setting support prices at levels which,
while discouraging cash redemptions, would not discourage purchases of the
rights by others in the market. In order to accomplish these objectives,
the following techniques of operation would be appropriate:
(1) Purchases of bills. The first line of support operations
would be free and aggressive purchases of bills by the Open Market Committee to be undertaken in the event that rates in the bill market
threatened to rise to levels inconsistent with the rights value needed to
assure successful exchange. This practice, however, might be varied in
accordance with prospective seasonal or other reserve needs. In addition
to, or perhaps at times in lieu of, direct purchases of bills, aid to the
market could be provided through acquisitions from dealers under repurchase
agreements of either short or long bills or other very short term securities,
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Federal Reserve Bank of St. Louis
From the point of view of its effect on monetary policy, it would
be most desirable if the Open Market Committee could confine its support
operations during a period of treasury refundings to aggressive purchases
of short-dated bills and repurchase contracts in sufficient quantity to
minimize attrition on refinancing or the possibility of failure of a new cash
offering. The advantage of this technique is that support operations would
be confined to the short-dated market. Such purchases would be less confusing
to the market than other types of Open Market Committee support, and would
impair less the ability of the market to make the new financing successful
through the development of appropriate arbitrage operations. Short-dated
bills would also be the most appropriate additions to the Open Market
portfolio in support operations of this type, since, once the books were
closed, they could be permitted to mature in accordance with the requirements of monetary policy. At times when seasonal or other increased reserve needs are in prospect for some time after the refunding, as in the
fall months, purchases of longer-term bills would be appropriate.
One possible disadvantage of the technique of confining operations to bills is that it does not really assure the Treasury that attrition
will be in a tolerable volume* Circumstances might well arise in which
heavy attrition actually fell on the Ereasury despite the injection by the
Open Market Account of embarrassingly large amounts of reserve funds through
the bill market. In such cases, reliance on the technique would promote
neither debt management nor monetary objectives. At times there would be
no tendency for bill rates to rise above an appropriate level relative to
the terms of the new issue, as measured by usual market relationships. Often
when a new offering is unpopular and particularly if the market expects a
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-8 subsequent rise in money rates, there is a demand for bills and a tendency
to shift out of rights into bills. Under these circumstances, bill yields
tend to decline and the Federal Reserve could acquire bills only by bidding
up the price and accelerating the decline in yields. While this would tend
to discourage the shifting from rights to bills, there are limits to the
extent to which such transitory variations in rates should be forced and
also to the effect in stimulating the demand for rights*
(2) Purchases of rights. The Committee might also stand ready
to purchase the maturing rights at a small premium. Such purchases should
be made from dealers acting as principals at a fixed price and not on an
agency basis at a commission.
On the basis of experience with larger and smaller premiums, it
would appear that a price of 100 1/32 on a net basis appears to be the only
rights value for Federal Reserve support purchases that might be expected to
minimize attrition both to the Treasury and to the Open Market Account and
at the same time leave a sufficient margin to induce at least some holders
of the maturing rights who want cash to sell them in the market rather than
to let them mature. On the one hand, it would be adequate to cover the
costs of the dealers who handle the transaction. It would not be so high,
on the other hand, in the case of a properly priced issue, as to prevent
the formation of a higher natural rights value in the market, or to
inhibit dealers from taking positions and making markets at those higher
values. Neither would it induce potential purchasers of the new issue
to delay their acquisitions until after the support was withdrawn with the
closing of the subscription book. The main purpose served would be to
underpin the market from erratic movement during a period of large turnover.
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Federal Reserve Bank of St. Louis
- 9If the new issue were not attractively priced, attrition would be large.
At this rights value, such attrition would fall only in part on the Open
Market Account. In the main, it would have to be absorbed ty the Treasury.
A variant, used in the August 1952 refunding, would have the Open
Market Committee stand ready to purchase maturing issues eligible for exchange at par, or par plus 1/6U or a commission to the dealer, and give
support to the refunding by aggressive purchases of bills, by swaps out
of maturing issues into other maturities more desired "by the market, and by
active support of outstanding market issues whose maturities are comparable
to the maturity of the new offering* This variant is less acceptable than
the other suggestions. A bid of par or par plus 1/6U is really no bid at
all for an issue with only a few days to run to maturity. It would not,
therefore, minimize attrition to the Treasury. It would pay the market
under almost all circumstances to hold the maturing issue for redemption
at maturity rather than sell it to the market at these prices. Objections
to swaps and purchases of other securities are discussed in a later section,
Experience with various refunding operations has seemed to demonstrate that the establishment of a rights value of 3/614. or higher on
maturing certificates directs attrition to the Open Market Account and
prevents the development of natural rights values in the market that might
minimize attrition either to the treasury or to the Open Market Account.
At the same tijne, a rights value of par or par plus 1/6U has little market
significance at all.
The process of elimination, therefore, suggests that a rights
value of par plus 1/32 may be the most appropriate tolerable value. It
would be expected that attrition to the Treasury would be larger than if
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Federal Reserve Bank of St. Louis
- 10 -
support were given at 3/6h but not intolerably so. Only experience can
indicate whether a 1/32 rights value would attract too much attrition to
the Open Market Account to be tolerable to the Open Market Committee or
whether it would direct so much attrition to the Treasury as to make no
substantial contribution to the Treasury's financing problem.
(3) Limitations on swaps,, purchases of other issues, and sales
during refunding. In order to permit the operation of as free a market as
possible with price relationships set by arbitrage operations, Federal Reserve support operations should be confined as much as possible to bills
and to maturing rights. Generally speaking, concurrent purchases and sales
for the System account in similar securities should be avoided, because
any sales tend to have the effect of increasing necessary purchases of
rights, so that the System would be working against its own support operation. If the Open Market Committee participates in swaps out of the
maturing issue or purchases outstanding issues of comparable maturity to
the new issue, the effect may be to confuse the market and prevent market
switching and market arbitrage from developing differentials that might
operate to make the refinancing a success. Such operations automatically
create an artificial pattern of rates and may result in the acquisition of
securities by the System which will be frozen in the Account.
In an extreme situation where operations in bills and rights
seem to be inadequate to assure a successful refunding operation and the
market in general is upset for one reason or another, the Open Market
Committee may find it desirable to operate in other issues. Perhaps as a
W^M/VUv-*
rule of thumb a policy might be followed of first purchasing issues rights
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Federal Reserve Bank of St. Louis
- 11 up to some stated maximum, say $5>00 million with no offsetting sales, thus
easing the money market and probably moving yields of other securities to
lower levels. If, despite these purchases, pressure on the rights should
continue, subsequent purchases may be made of either rights or other issues
and these might be offset by sales of other issues for which there is a
market demand. Then following the closing of the exchange books, sales of
either the new issue or other securities in order to recover the f>5>00
million (or other maximum amount supplied ) would be made regardless of
the interest rate effect.
(M
Operations after the close of books. In general, it would
be unnecessary and undesirable for the System to continue support
operations after the close of the books on the exchange offering through
the purchase of the when-issued or newly-issued securities.
Such purchases
would be desirable only in case there was occasion to put reserve funds in
the market and in case the prices of the new issues seem so far out of
line with prevailing prices for bills or other short—term securities as
to justify some degree of support. It would be preferable, however, to
provide reserves through short-term securities and allow market arbitrage
to bring about the necessary price adjustments.
It should also be expected both in the Treasury and in the Open
Market Committee that once the books were closed following an offering
which required considerable support by the System, the Committee would
proceed to reduce its portfolios to levels consistent with the S5rstemts
general credit policies. Withdrawal of funds should be effected through
the sale or run-off of bills or the sale of other short maturities as well
as through the termination of repurchase agreements. Bill redemptions are
preferable to sales of bills since no attempt to set rates is inherent in
such action.
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Federal Reserve Bank of St. Louis
- 12 -
Sales of tte new issue acquired through purchases of rights and
the subsequent exchange should not normally be made because they would
tend to reduce the profit that other subscribers might be able to obtain
from the sale of the new issues and thus discourage future subscriptions
on exchange offerings.
ifhether the new issue is maintained at a price of par or above
after the exchange books are closed would be immaterial, but it would
probably be preferable not to sell any of the new issue which was
acquired, regardless of any premium or discount which might obtain
during the period after the refunding has been completed. If the new
issue goes to a discount after the closing of the books, System sales
would only lead to the establishment of an even greater discount; on the
other hand, sales of an issue which goes to a substantial premium after
having been supported by the System during a refunding period would
probably tend to discourage private underwriting during subsequent refundings.
itHmaybe c o n EdeJ
c d e fromthis analsis
analysis that the whole problem of
underwriting market issues with reserve funds is inherently difficult,
Such underwriting is almost bound to inject a disproportionate amount of
reserve funds in the market. Of necessity, the maintenance of a fights
value sufficiently high to encourage holders to sell to the Open Market
Account rather than hold to maturity automatically tends to discourage
other investors from immediate purchase of those same rights even though
they may desire to acquire the new issue. Acceptance of an underwriting
responsibility with respect to treasury refinancing necessarily requires
that the Open Market Committee establish a rights value on maturing issues
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Federal Reserve Bank of St. Louis
- 13 high enough to ensure that attrition to the Treasury is held within
tolerable limits when the new issue is attractively priced. If the underwriting responsibility does not achieve this minimum objective it does not
aid the Treasury in its financing problems and had better be dropped
altogether since underwriting almost invariably operates to complicate
the proper execution of monetary policy.
The acquisition by the Committee of rights or of other issues
in support of refunding hampers the System's freedom of action* It tends
toward the reestablishment of pegged market prices and the ^freezing of
rate differentials into the market structure of interest rates. It tends,
furthermore, to freeze the Open Market portfolio because securities,
other than bills, once acquired in the portfolio tend to remain there.
To sell them prior to maturity always involves judgment as to timing and
the danger of disrupting dedicate demand and supply relationships in the
market. When the disruption orginates in decisions of the Open Market
Committee, it may be completely disproportionate to the actual volume of
sales. It is even more difficult for the Open Market Committee to permit
Treasury securities (other than bills) to mature for cash. It is now the
invariable practice of the Open Market Account to exchange its holdings
of maturing issues for the new offerings, since to redeem them would greatly
accentuate Treasury attrition. As each refinancing rolls around, consequently, the Open Market Committee, though its support purchases is adding
to the volume of issues which it will subsequently feel required to exchange. In this sense, the practice of underwriting on the part of the
Committee has a tendency to result in the acquisition of a semi-frozen
portfolio.
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Federal Reserve Bank of St. Louis
-lit Treasury Financing Without Federal Reserve Support
In view of the difficulties and dangers involved in supporting
refunding operations and the possible conflicts with desired Federal
Reserve policies, the preferred procedure would be for Ireasury financing
to be conducted without Federal Reserve support. Such a course of action
would require the following procedures in order to assure the
Treasury
that it will be able to redeem maturing securities or obtain any additional
funds needed:
(1) Pricing of issue. In this case, it is particularly important
that the terms of the new issue be properly set. To determine what coupons
and terms would establish a market value adequate to float an issue successfully, the Treasury might announce the amount, maturity, and other identifying
features of a forthcoming new issue, say, a week in advance of the opening of
the books for subscription. This would give the market an opportunity to
evaluate the new issue and to adjust to the impact of an additional volume
of securities in a particular maturity area. The market, consequently,
would indicate the coupon at which the new issue could be successfully
floated. The Treasury would then be in a position to make a realistic
choice of coupon wh^ch would be announced only a day or two prior to the
opening of the books for subscription. This technique would apply equally
to new cash offerings and to the refunding of a short-term issue with a longer
term security as well as to a roll—over.
The advantage of this approach is that it places responsibility for
debt management decisions and for their consequences in the Treasury, where
it properly rests. The responsibility of the Open Market Committee would be
limited, to keeping the Ireasury correctly informed of its credit policy
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Federal Reserve Bank of St. Louis
objectives and money market conditions and prospects. It would be understood
that the Committee would assume no responsibility for underwriting and it
would refrain from purchasing rights or maturing issues for which an exchange was being offered, when-issued new securities, or any outstanding
securities of comparable maturity to those being offered either for cash
or refunding.
(2) Federal Reserve operations. During the period of Treasury
financing, the Federal Open Market Committee might be expected to suspend
temporarily any open market operations in which it might be engaged that
would tend to be disruptive to the point of hampering the new Treasury
offering.
That is, it would be understood that with the Treasury's pre-
liminary announcement of general terms, the Committee would refrain from
any sales in the market. This would, permit a natural market adjustment
to the impact of the new offering. Further, the Federal Open Market Committee might assure the Treasury that during the period the books were
open it would take action to see that the open market bill rate did not
rise above the highest rates prevailing during the period of the preliminary announcement and the announcement of specific terms.
Under this approach, the Federal Open Market Committee would
completely eliminate its present underwriting activities.
This would call
for realistic pricing of refunding and new issues and would reduce the
possibility of an inflationary injection of reserves into the market to
bolster an inadequately priced offering. Instead the availability of reserve funds in the market would reflect basically the credit policy objectives of the Open Market Committee. Once the subscription books were
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Federal Reserve Bank of St. Louis
-16 closed on a new offering, the Committee would be free to pursue its
monetary objectives without regard to the effect of its operations on
the prices of the newly offered securities.
It would be free to dispose of
any bills that had been acquired while the subscriptions books were opened
or whatever lesser or greater amount would be needed to effectuate its
policies.
(3) Means of covering attrition. Under such a procedure, the
Treasury would have to meet all attrition by holders of the maturing issues
wanting cash, including any willing but not able to sell their rights in the
market at satisfactory prices as well as those not wanting to sell rights.
The treasury would have to raise additional funds to meet such redemptions
and the amounts involved might be sufficiently large to require early
financing. Various techniques could be employed to raise such funds.
(a) If the cash position of the Treasury permits, a regular
exchange offering could be made and any attrition could be covered later
through special offerings in the market or through additions to regular
bill issues or other scheduled offerings*
(b) Another technique would be to offer a new issue for cash of
sufficient size to pay off the entire maturing issue without any exchange
privilege.
Given the same offerings by the Treasury, that technique may
have greater success than an exchange. By giving the banks the tax and
loan deposits arising from the sale of the new offering, it would make
the thousands of commercial banks with tax and loan accounts salesmen for,
or underwriters of, the new issue. While banks as a group might not gain
tax and loan deposits through a refunding operation, individual banks
would stand, to gain or lose in proportion to the effort made to merchandise
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Federal Reserve Bank of St. Louis
- 17 the new issue. A possible further advantage of such a procedure is that
additional cash could be raised in connection with a refunding operation.
Disadvantages of this procedure are that it would involve a large shifting
of funds in the market and it might lose some existing holders who would
make an exchange but would not subscribe for a cash offering.
The entire problem of rights values would be avoided and no buying
by the Federal Reserve to add to its holdings would seem to be necessary to
make the operation a success. A critical disadvantage of such a procedure
when the Federal holds substantial amounts of the maturing securities
would be the necessity for the System to make purchases in the market to
replace its holdings.
(c) A variant of the technique considered above might be a combination of a cash offering with an exchange privilege. Full allotment of
the new offering would be made on any maturing issues offered in exchange.
The new offering would also be opened for cash subscription for whatever
amount is not covered by exchange subscriptions. The cash subscriptions
would be subject to partial allotment should the total of all subscriptions
exceed the total amount of the new offering. Cash subscriptions could be
paid for through tax and loan accounts.
This procedure would have the advantages of a straight cash
offering discussed above and in addition the following:
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Federal Reserve Bank of St. Louis
1. It would permit the System to exchange its
maturities and avoid the necessity for large
market transactions to maintain its portfolio.
2. It would make use of the present mechanism
for merchandising the new offering as well as
set in motion a selling effort by banks in
order to get the Treasury accounts.
Redemption Sxperience in Treasury Refundings
June 1951—October 1952
(Amounts in millions of dollars)
Issue refunded
Per cent F.R.
purchases and
cash redempHeld
tions to
outside Federal
Cash
amount held
Amount
Federal Reserve
outstanding Reserve purchases redemptions outside F.R,
New
offering
June 1$, 1951
2-3/k% bond
July 1, 1951
1-1/1$ notes (3)
1-7/8$ C/I
April lp 1952
10,072
8,235
1,119
5U7
August 1, 1951
1-1/1$ note
1-7/8$ C/I
July 1, 1952
5,351
3,750
5U
135
5.0
Sept. 15, 1951-55
3% bond
1-7/8$ C/I
Aug. 15,1952
755
755
172
22.8
Oct. 1, 1951
1-1/1$ note
1-7/8$ C/I
Sept.l, 1952
1,918
1,913
62
86
7.7
Oct. 15, 1951
1-1/1$ note
Nov. 1, 1951
1-1/1$ note
1-7/8$ C/I
Oct. 1, 1952
11,1*
3,928
503
332
21.3
Dec. 15, 1951-53
2-1/1$ bond
1-7/8$ C/I
Dec. 1, 1952
1,118
1,118
Il2
55
8.7
liar. 15, 1952-51*
2-1/2% bond
2-3/8$ bond
Mar. 15, 1957-$?
1,021).
977
292
97
39.8
April 1, 1952
1-7/8* C/I
1-7/3$ C/I
Feb. 15, 1953
9,521+
6,365
658
656
20.6
July 1, 1952
1-7/3$ C/I
1-7/3$ C/I
June 1, 1953
5,216
U,799
556
253
16.9
August 15,1952
1-7/8* C/I
Sept. 1,. 1952
1-7/8* C/I
2$ C/I
Aug. 15, 195:
2,1*15
2,)415
180
Uodp
2U.3
Oct. 1, 1952
1-7/8* C/I
2-1/8$ note
Dec. 1,. 1953
10,861
U,083
711*
318p
25.3
*
p - preliminary
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Federal Reserve Bank of St. Louis
20.2
Changes in Membership of Board during period Feb. 3. 1936, through Feb. 28. 1953
Board composed of Governors Eccles, Ransom, Szymczak,
McKee, and Broderick
February 10, 1936 Governor Morrison took oath of office
Governor Davis took oath
June 25, 1936
Governor Morrison resigned
July 9, 1936
September 30, 1937 Governor Broderick resigned
Governor Draper took oath
Harch 30, 1938
Governor Davis resigned
April 15, 19U1
Governor Evans took oath
March lU, 19U2
April U, 19U6
Governor McKee*s service terminated: Governor Vardaman
took oath
February 1U, 19U7 Governor Clayton took oath
December 2, 19U7
Governor Ransom died
Chairman McCabe took oath
April 15, 19U8
Governor Clayton died
December U, 19U 9
September 1, 1950 Governor Draperfs service terminated: Governors Norton and
Powell took oath
Chairman McCabe resigned
March 31, 1951
Chairman Martin took oath
April 2, 1951
Governor Eccles resigned
July 1U, 1951
February 1, 1952
Governor Norton resigned
February 18, 1952 Governors Mills and Robertson took oath
Governor Powell resigned
June 30, 1952
No. of
Members
Elapsed period
before change
TrT HoT 5a7
5
6
h
February 3, 1936
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Federal Reserve Bank of St. Louis
7
15
7
6
1
2
6
6
3
10
15
29
6
li
-
20
10
9
b
10
18
13
19
27
6
7
6
7
6
7
6
7
6
5
7
6
1
7
8
Hi
21
7
3
6
u
7
1
12
17
17
12
28
February 28, 1953
Board consisted of the follovring number of
Members during the periods indicated belovr;
Elapsed Period
Yrs» Mos, Days
Dates
FIVE MEMBERS
February 3-10, 1936
September 30, 1937 - March 30, 1938
April 15, 19U1 - March lU, 19U2
February 1-18, 1952
7
6
10
~T
T
29
17
"Si
SIX MEMBERS
February 10 - June 25, 1936
July 9, 1936 - September 30, 1937
March 30, 1938 - April 15, 19iil
March lli, 1912 - February lh, 19U7
December 2, 19U7 - April 15, 19U8
December li, 19h9 - September 1, 1950
March 31, 1951 - April 2, 1951
July lli, 1951 - February 1, 1952
June 30, 1952 - February 28, 1953
1
3
k
IT
U
2
11
U
8
6
7
10
15
a
1 5
13
27
1
17
28
17
SEVEN MEMBERS
June 25 - July 9, 1936
February lU - December 2, 19^7
April 15, 1918 - December U, 19U9
September 1, 1950 - March 31, 1951
April 2 - July lU, 1951
February 18 - June 30, 1952
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1
"7
9
7
7
3
U
"ff
18
19
12
12
T£
.
If*T
(|
1936
-
1937
1938
1939
19UO
19U
19U2
19U3
19 Ui
19U5
191*
. Morrison
1 2-10-36 to
Eccles
11-15-3U
7-9-36
to
7-1U-51
Ransom
2-3-36
to
Davis
6-25-36 to
12-2-U7
to k-k-kb
Szymczak
o-Ui-33
I
Broderick
2-3-36 to
9-30-37
•
Draper
3-30-3d
to 9-1-50
..
Evans
3-11-142
.
1
I
.
' Vardaman
011
ioL7
11 c^y*
2-1U-U7
19U7
19U8
19U9
1950
1951
1952
1953
1
1
1
to
"•"•
McCabe
U-15-W to
,
3-31-51
.
Powell
9-1-50
to
6-30-52
Mills
1 2-18-52
1
•
.
Martin
U-2-51
Norton
9-1-50
,
•
.
'
.
•
.
•
.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
McKee
2-3-36
U-15-U1
,,
•
..
.
Robertson
2-16-52
to 2-1-52
BOARD OF GOVERNORS
OF THE
Date
Chairman Martin
October 6,1953
Subject:
Mr. Thurston
Attached are copies of the preliminary drafts of the
minutes of the meetings of the Federal Open Market Committee and
its executive committee held in Washington on September 2h> 1953«
It will be appreciated if you will review the drafts and advise
not later than Friday, October 16, whether you have any changes
to suggest.
The minutes of the meetings of the Federal Open Market
Committee held on June 11 and of the executive committee held on
September 8, 1953 > were approved in the form sent you on July 6
and September lii, respectively.
Attachments
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Federal Reserve Bank of St. Louis
PRELIMINARY DRAFT
CONFIDENTIAL
A meeting of the Federal Open Market Committee was held in the
offices of the Board of Governors of the Federal Reserve System in
Washington on Thursday, September 2ii, 1953* at 10:30 a.m.
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Federal Reserve Bank of St. Louis
PRESENT: Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr,
Martin, Chairman
Sprouls Vice Chairman
Erickson
Evans
Fulton
Johns
Mills
Powell
Robertson
Szymczak
Vardaman
Mr. Riefler, Secretary
Mr. Thurston, Assistant Secretary
Mr. Vest, General Counsel
Mr. Solomon, Assistant General Counsel
Mr. Thomas, Economist
Messrs. Abbott, Hostetler, Peterson, Roelse,
and Ralph A. Young, Associate Economists
Mr. Carpenter, Secretary, Board of Governors
Mr. Sherman, Assistant Secretary, Board of
Governors
Mr. Youngdahl, Assistant Director, Division
of Research and Statistics, Board of
Governors
Mr. Gaines, Securities Department, Federal
Reserve Bank of New York
Messrs. Leedy, Williams, and C. S. Young, Alternate
Members of the Federal Open Market Committee
Messrs. Bryan, Earhart, and Leach, Presidents of
the Federal Reserve Banks of Atlanta, San
Francisco, and Richmond, respectively
Mr. ¥. D. Gentry, First Vice President, Federal
Reserve Bank of Dallas
Upon motion duly made and seconded, and
by unanimous vote, the minutes of the meeting
of the Federal Open Market Committee held on
June 11, 1953 were approved.
9/2ii/53
-2Chairman Martin stated that advice had been received from the
Federal Reserve Bank of New York that Mr, Sproul had been selected as
Manager pro tern, of the System Open Market Account to serve while Mr.
Rouse is in Europe during the period approximately September 16 to
October 28, 1953. Chairman Martin also noted that Mr. Sproul had been
serving in this capacity since Mr. Rouse left for Europe on September 16.
Upon motion duly made and seconded, and
by unanimous vote, the selection of Mr.
Sproul as Manager pro tern, of the System Open
Market Account to serve during the period while
Mr. Rouse is in Europe from approximately
September 16 to October 28, 1953 was approved.
Upon motion duly made and seconded, and
by unanimous vote, the actions of the executive committee of the Federal Open Market Committee as set forth in the minutes of the
meetings of the executive committee held on
June 11, June 23, July 7, July 21, August ii,
August 25, and September 8, 1953 were
approved, ratified, and confirmed.
Before this meeting there had been sent to the members of the
Committee a copy of a report prepared at the Federal Reserve Bank of New
York covering operations in the System open market account from June 10
to September 18, 1953, inclusive. At this meeting Mr. Sproul presented a
supplementary report covering commitments executed from September 21 to
September 23, 1953, inclusive, and commented briefly on the reports,
copies of which have been placed in the files of the Federal Open Market
Committee.
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Federal Reserve Bank of St. Louis
Upon motion duly made and seconded, and
by unanimous vote, the transactions in the
System open market account for the period
June 11 to September 23, 1953, inclusive, were
approved, ratified, and confirmed.
Chairman Martin referred to the action taken at the meeting of the
-3-
Federal Open Market Committee on June 11, 1953 in connection with a proposed revision in the directives of the Federal Open Market Committee and
its executive committee, at which time the matter was referred by the full
Committee to the executive committee with the understanding that the
latter would appoint two of its members to consider the proposal further.
The executive committee, Chairman Martin noted, at its meeting on June 11
appointed Mr* Sproul and himself for this purpose and it was understood
that the special committee would submit its recommendations to the members
of both the full Committee and the executive committee*
Chairman Martin went on to say that in accordance with that action,
further drafts of revised directives were prepared and considered* After
reflection upon the entire matter and in the light of the various drafts
that had been prepared, he said, Mr, Sproul and he felt that it was questionable whether much would be accomplished by further consideration of a
revision at this time of the directives now in use. They felt, instead,
that the full Committee and the executive committee might well continue to
utilize the existing forms of directives, modifying them, of course, upon
such occasions as circumstances may dictate. Accordingly, Chairman Martin
said, the special committee recommended the continued use of the existing
forms, with changes being made by the respective committees from time to
time as special circumstances may indicate*
The recommendation of the special committee as set forth by Chairman Martin was
approved unanimously.
Chairman Martin called attention to a memorandum prepared by Mr,
Vest under date of September 10, 1953, with respect to the debt limit of
the United States in relation to purchases by the Federal Reserve Banks
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of Government obligations.
The memorandum had been prepared at the request
of the executive committee at its meeting on August 25> 1953 and copies had
been sent to all members of the Federal Open Market Committee. At the
Chairman's request, Mr. Vest summarized the content of the memorandum,
stating that in his opinion obligations of the United States sold directly
to Federal Reserve Banks would not be excluded from the statutory debt
limit of the United States; and that if the Treasury should issue obligations in excess of that limit and if the Federal Reserve Banks should have
some of the obligations which were issued in excess of the debt limit,
they would be invalid and unenforceable obligations against the United
States, Furthermore, Mr. Vest said, the memorandum indicated that there
would be no difference between special certificates issued by the Treasury
and an overdraft on the books of the Federal Reserve Banks since the
authority for either type of obligation of the United States must be
derived from the same statutes and, therefore, legally they were in the
same category,
Mr. Sproul stated that this matter had been considered by Counsel
of the New York Bank who had taken the position that any purchases which
the New York Bank might make for the System open market account, or any
overdraft which might occur at the New York Bank which would result in
United States Government obligations in excess of the statutory debt limit,
would, as Mr. Vest stated, not represent valid or enforceable obligations.
Mr. Vardaman inquired whether this meant that in the event the New
York Bank incurred an overdraft for the Treasury in excess of the statutory
debt limit, the Treasury would be requested not to formalize the matter by
issuing special certificates of indebtedness to cover the overdraft.
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-5Mr. Vest stated that while he could not answer as to what a Fed-
eral Reserve Bank would do, it would be his opinion that the Bank should
follow the normal procedure and get the special certificates since
legally there would be no difference between holding that obligation and
carrying an overdraft* The answer to the question might depend, Mr. Vest
said, on whether the Treasury would be willing to issue such certificates
if it found that, inadvertently, the overdraft had resulted in its exceeding the statutory debt limit.
Mr, Vardaman stated that he would not consider it desirable for a
Reserve Bank to accept special certificates to cover an overdraft under
such circumstances, even if the Treasury were willing to issue them,
Mr. Sproul stated that the position of Counsel for the New York
Bank was that the legal position of the Bank would not be improved if it
held an overdraft rather than taking the special certificates since in
neither case would the Bank have a legally enforceable claim against the
Government.
Chairman Martin noted that copies of Mr. Vest's memorandum had
been made available to all Federal Reserve Banks for their information,
and he stated that no further action was called for with respect to the
matter.
At this point members of the staff of the Board's Division of Research and Statistics and Division of International Finance entered the
room for a visual presentation on the current economic situation. A copy
of the script of the presentation has been sent to each member of the Federal Open Market Committee and a copy has been placed in the Committee's
files.
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-6Following the presentation, the members of the staff who had
entered the room for the purpose of assisting in its presentation withdrew
from the meeting.
Chairman Martin stated that as had been brought out by the minutes
of the meetings of the executive committee since the last meeting of the
full Committee, open market operations had been arranged for in accordance with the general directive laid down by the full Committee at its
meeting on June 11, which provided, among other things, that transactions
for the System account should be "with a view to avoiding deflationary
tendencies without encouraging a renewal of inflationary developments
(which in the near future will require aggressive supplying of reserves
to the market),n He noted that, in carrying out this policy, the executive committee at its meeting on September 8 agreed upon a program of
"active ease", as described in the minutes of that meeting* This was
being followed, he said, with the thought that the System would supply
the reserves needed in the economy to meet the seasonal and growth demands
even though they were large.
It was felt that the risk of inflation was
not sufficiently great to warrant being overly restrictive in the light
of the adjustments that have been appearing on the fringe of the economy*
Chairman Martin then called upon Mr* Thomas who stated that in
making projections of possible demands for Reserve Bank credit during the
rest of this year it had been assumed that there would be an increase in
the money supply, that is demand deposits-adjusted and currency, for the
year 1953 as a whole of about 3 per cent. On the basis of this assumption
of moderate needs, Mr. Thomas said, estimates of the amount of Reserve Bank
credit that would be needed to supply the basic reserves had been made*
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Federal Reserve Bank of St. Louis
Thus far, actual developments have been somewhat smaller than projected,
he said, and in fact growth in demand deposits and currency has been only
about seasonal with no element of long-term growth during the past six
months. After commenting upon recent changes in demand deposits and in
the Treasury balance, Mr, Thomas said that the conclusion appeared to be
that something like $1-1/2 billion of additional Reserve Bank credit
would be required during the remainder of 1953*
This could be supplied
entirely by System purchases of Government securities, or in part by
purchases (including repurchase agreements) and in part by member bank
borrowings. Another way of supplying the needed reserves would be by a
reduction in reserve requirements, and still another source of reserve
funds would be provided if the Treasury were to use some of the free gold
now held in its general balance.
Chairman Martin suggested that consideration now be given to the
Committee's general policy, i«e., whether it should supply roughly the
amount of reserves which Mr. Thomasr remarks indicated would be needed by
the economy, after which there would follow a discussion of the way in
which any additional reserves might be provided,
Mr, Sproul stated that his views and the estimates of the New York
Bank were in general accord with the views and estimates presented by Mr,
Thomas as far as the need for reserves was concerned. It was his view
that policy should be based on an estimate of the business and credit
situation being one of stability with the possible danger of slipping into
deflation, rather than the danger of inflation. This would indicate a
policy of ease and not restraint of credit, one of supplying reserves needed
to meet seasonal and growth factors, During the past few weeks, Mr, Sproul
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said, operations for the System account had pursued this objective, but
a period of more severe testing will occur during October and November
when other factors affecting the money market are estimated to take a
considerable amount of funds out of the market. He noted that the way in
which the Treasury may use its free gold may affect operations for the
System account and, in a comment on the difficulty of making projections
of operations for the System account, Mr. Sproul referred to the last
paragraph of a staff memorandum dated September 21, 1953 on the outlook
for Treasury cash requirements and bank reserves, copies of which were
distributed before this meeting.
This paragraph suggested that if demand
deposits were to show a growth for the year 1953 of as much as 3 per cent,
they would have to increase over |6 billion in the fourth quarter and that
such a growth would mean an increase of about $650 million in required
reserves in the last quarter of the year. The paragraph also mentioned
probable large drains on reserves due to a currency outflow and possible
gold losses; and stated that on the assumption that excess reserves would
remain around $600 million, an expansion in Federal Reserve credit of
approximately $1*3 billion would be required to meet needs for reserve
funds over the remainder of the year, that more than two-thirds of this
demand would probably occur during October and early November, and that if
member bank borrowings were not to increase above the level of excess reserves, most of these needs would have to be supplied by means other than
discounting, Mr. Sproul expressed the view that the needs at the end of
the year when demand for currency would rise sharply could most appropriately be met by increasing discounts, but aside from that he felt that increased open market operations would be needed during the next few weeks.
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-9¥ith respect to the usefulness of the several estimates as a guide to
operations for the System account, Mr. Sproul cautioned that, while such
estimates tended to be borne out over a period of several weeks or months,
they should not be looked upon as precise or accurate projections from
day to day or week to week, and that operations would not necessarily conform with weekly estimates that might be projected for the period ahead.
Chairman Martin agreed as to the difficulty of day to day estimates
of reserves needed. He pointed out, however, that what he was seeking at
this time was a pattern with respect to the over-all amount that might
need to be supplied between now and the end of the year. He asked
whether any of the members of the Committee felt that operations would be
overly tight if they moved in the general direction outlined by Mr, Sproul
and in more or less conformity with the figures which Mr. Thomas had
presented.
Mr. Riefler commented that the estimates presented by Mr. Thomas
and in the staff memorandum assumed a somewhat tighter situation than
might be indicated by the foregoing discussion, the figure of #1.3 billion
of additional reserves was the approximate amount that would be needed to
maintain a rough balance between borrowings and excess reserves. It was
Mr. Riefler's thought that it might be desirable to have excess reserves
above borrowings; therefore, he would look upon the £1.3 billion figure
as the minimum additional reserves that probably would be necessary if
borrowings were not to rise above excess reserves.
Chairman Martin stated that irrespective of the level of borrowings, he was seeking an indication of the Committee's views as to the
approximate over-all amount of reserves that would have to be gotten into
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the market during the rest of the year. He asked whether any of the members of the Committee differed with the estimates presented by Messrs.
Sproul and Thomas, or with the thought that the executive committee, in
arranging for operations, should continue to pursue a policy of active
ease in the market, having in mind the general estimates which had been
cited regarding the amount of reserves to be furnished during the remainder of this year.
Mr. Mills stated that as he understood it this would contemplate
that additional reserves would be provided in substantial amounts at an
early date, that the operations of the Committee would not be frozen
into any particular attitude as to the relationship between discounts and
excess reserves, that there would be flexibility in the Committee's operations as directed by the executive committee, and that at the end of the
year it probably would be desirable to meet the temporary heavy currency
demands more largely through discounts than through open market operations.
Mr. Sproul said that the understanding stated by Mr. Mills would
represent a modification of the idea that borrowings should be held down
below excess reserves.
The bulge in need for reserves at the end of the
year was one which properly and naturally accommodated itself to being met
at the discount window, he said, if that window was kept freely open and
funds were available.
He felt that individual situations could be met in
that manner more satisfactorily than through open market operations. He
also noted that repurchase agreements represent a flexible instrument for
meeting individual situations.
Chairman Martin stated that another meeting of the full Committee
probably would be held before the bulk of the year-end demand for currency
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appeared and that in the nieantime the executive committee would be meeting
from time to time* He suggested, therefore, that unless there was objection the full Committee approve a continuation of a policy of active ease
with the understanding that reserves would be supplied to the market to
meet seasonal and growth needs, having in mind the estimates of total
needs as presented at this meeting and recognizing that open market operations would be flexible in relation to the volume and timing of supplies
of reserves from other sources*
There was unanimous agreement with this statement of policy.
Chairman Martin then referred to the letter which Mr» Sproul had
sent to members of the Federal Open Market Committee and to the Presidents
of Federal Reserve Banks who are not currently members of the Committee
under date of July 16, 1953 • He also referred to a letter and enclosure
which he (Chairman Martin) had sent to all members of the Committee and
to all Presidents not currently serving on the Open Market Committee under
date of September 15, 1953 with respect to confining operations for the
System account to the short-term sector of the market and to refraining
from certain purchases of Treasury securities during periods of Treasury
financingso
He then made a statement substantially as follows:
In introducing this subject today I feel I want to make a
few comments as Chairman of the Committee with respect to my
general view as to the necessity for the System grappling with
what I conceive to be issues. I want to make very clear that
I welcome the letter Mr. Sproul wrote on July 16, 1953.? ^nd I
welcome similar letters from all members of the Open Market
Committee at all times. The fullest and most open discussion
we have in the Open Market Committee at all times of problems
of this sort is to the benefit of all of us0 I am also confident that none of us act on these problems as a face-saving
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device or for any reason other than to get the best answer,,
I, as Chairman, never ask anybody to vote with me unless their
judgment indicates they conscientiously should do so. Nevertheless, it is sometimes necessary for us to disagree,. There
are times when you have basic differences
of opinion*
After studying Mr, Sproul!s letter of last July and thinking the matter over, I think there is more than a minor difference of opinion. There is a basic difference. I would like to
say in commenting on this, that if you will review the minutes
of the meeting last March you will see that I pretty well
stated there the origin of the ad hoc subcommittee report in my
thinking. It really goes back to a time four and one-half years
ago when I first began to get a little on the fringe of this
problem. Many of you, and Mr, Sproul in particular, have had
more experience in actual operations of the open market account
than I, but I was in the Treasury four and one-half years ago
and began then to see some of the problems, A great amount of
bitterness and acrimony can get into the situation when people
say they would have done things differently*. I confess that I
would have done some things differently but I have tried to
refrain from putting this into an area of individuals or
particular operationse
The thing I like most about the Federal Reserve is the
word "System"« The first two words don't make much difference
but "System" does, ¥e are all working in the interests of the
System in all that we are trying to do. The ad hoc subcommittee report was to assay the market in terms of the responsibility of each of the members of the Open Market Committee for
what is a full operation at times. We were not trying to
criticize anybody at any time* The essence of the problem we
were struggling with was a matter of degree of discretion. Each
member of the Open Market Committee is responsible in a very
real sense for what is the heart of the System. I don't profess
that I have all the answers, but I do think we want the Manager
of the Open Market Account to have adequate discretion but
don't want to put him in the position of having more discretion
than is necessary; if we are going to give him wider discretion,
then I think each of the members of the Open Market Committee
ought to follow each of the details considerably closer than
we do9
In my letter and memorandum I have concentrated on just two
matters raised at the meeting in June, confining operations to
short-term securities and refraining from certain transactions
during periods of Treasury financings,. With respect to uhe
housekeeping and other matters placed in the hands of the ad hoc
subcommittee, I think Mr, Sproul and the subcommittee ought to
get together and review themc But in these two matters that
came up in June—the confining of operations to short-term
securities and refraining from transactions in certain securities during periods of Treasury financings—I would like to have
a further discussion at this meeting.
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It is true that we can call a meeting of the full Committee on 2ii hours notice if we have to, and there is no
intention at any time to freeze the Committee's views on these
or any other matters« I think this is a very fundamental
problemP The whole problem of a free market is a matter of
degree,, I think it is essential for us, if we are going to
operate the type of device we have in the open market operations, that we get out on the table all of the issues, all of
the problems we have, and discuss theirio No one can read the
future but I do think it is terribly important .for us to have
a framework within which to carry on our thinkingo If we
want to recede from a framework, let's do it as a Committee.
Let's give the Manager of the Account all the discretion he
must have in order to operate the account but let's not put
him in the position of bearing the entire brunt and let's not
put the entire Open Market Committee in the position of saying
we have put the Manager of the Account in a position of
responsibility and of our being just a defender of the fact that
the Manager has carried out our instructions. I should like to
have these questions out on the table for discussions I know
that I could make a motion from the Chair, but since Mr. Mills
feels as I do on this question, I have asked him to present
a motion along the lines of the action I think the full Committee ought to take at this meetingo
Mr0 Mills then referred to the action taken at the meeting of the
full Committee on March h and 5, 195>3 when it was agreed that under
present conditions operations for the System account should be confined
to the short-end of the market (not including correction of disorderly
markets) and at which meeting it was also understood that, pending further
study and further action by the Committee, the Committee approved the ad
hoc subcommittee recommendation that it should refrain during a period of
Treasury financing from purchasing (l) any maturing issues for which an
exchange is being offersd, (2) when-issued securities, and (3) any outstanding issue of comparable maturity to those being offeree for exchangee
These agreements, he noted, were rescinded by a f? to h vote of the Committee at its meeting on June 11, 1953.
Mr, Mills stated that in presenting
the motion, he did so in the belief that the action of the market and the
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operations of the open market account had given a very convincing performance that the motion to be proposed was a proper policy for the System to ?dopt.
Mr. Mills then moved that the Federal
Open Market Committee take the position that
operations for the System account be confined to short-term securities (except in the
correction of disorderly markets) and that
during a period of Treasury financing there
be no purchases of (1) maturing issues for
which an exchange is being offered, (2) whenissued securities, or (3) outstanding issues
of comparable maturity to those being offered
for exchange; and that these policies be followed until such time as they may be superseded or modified by further action of the
Federal Open Market Committee.
Mr, Szymczak seconded Mr. Mills1 motion.
Chairman Martin suggested that Mr. Sproul open the discussion of Mr.
Mills1 motion, commenting that he knew Mr. Sproul struggled very vigorously for the views he held to be right, that he and Mr. Sproul agreed
on many things, and that he was sure Mr. Sproul would not respect him if
he did not struggle equally vigorously for the views which he held.
Mr. Sproul then made a statement substantially as follows!
1. My most recent letter and memoranda on open market operations were sent to the members of the Federal Open Market
Committee (and potential members) on July 16, 1953. The
Chairman's reply, dated September 15>, 1953, states that
certain of the matters I discussed are still pending before the ad hoc subcommittee, and he confines his statement to a consideration of two matters on which action was
taken by the Committee in June to rescind action taken in
March. I shall do the same.
2, Obviously there has not been time since the receipt of the
Chairman's letter and memorandum last Wednesday, to pursue
exhaustive staff studies and prepare an exhaustive rebuttal.
This is probably an advantage. Too much of our discussion,
perhaps, has been devoted to scoring debating points worked
up by the staff of the Board and of the New York Bank,
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Federal Reserve Bank of St. Louis
-15I have several pages of discussion here of the Chairman's letter and memorandum concerning open market
techniques during the past several months. I am going to
omit them and merely say that I disagree with his
analysis and with his conclusions. Maybe all that indicates is that it is possible for two equally sincere
people to draw different conclusions from similar experiences when dealing with the non-physical world,
3. If you clear out all of that underbrush it seems to me
that the forest looms up pretty distinctly. I do not see
much remaining difference of opinion, if we straighten
out our assumptions.
lu It is not the position of the New York Bank, as the Chairman suggests, (A) "that the Management of the Open Market
Account should be given blanket discretion to operate in
the intermediate arid long term, as well as the short-term
sectors of the Government Security Market within general
directives laid down by the Federal Open Market Committee
and the Executive Committee."
It is not the position of the New York Bank that (B)
"it should have (blanket) discretion during periods of
Treasury financing to purchase maturing Treasury issues
for which an exchange is being offered, when issued
securities, and outstanding issues of comparable maturity
to those being offered for exchange."
My position—and that of the New York Bank—is that
the Federal Open Market Committee should lay down the general lines of credit policy, that the interpretation and
direction of the policy under changing conditions is the
job of the Executive Committee, and that the Executive
Committee should give the management of the Account only
such discretion as to execution of policy, including
market teehnioues, as is necessary for effective performance of its job. In support of this, I may remind you
that following the action of the Federal Open Market Committee in June, rescinding two of its March actions, it was
I who pointed out to the Executive Committee that the purpose of my motion to rescind, was not to control the
actions of the Executive Committee, but to restore its
freedom to use its discretion within the general lines of
policy laid down by the full Committee.
TAfaat I have been objecting to as a matter of principle—
and still object to—is trying to write into a "constitution"
of the Open Market Committee, as one member called it, a
prohibition against actions deemed undesirable by particular
members of the Committee, holding particular views, at a
particular time. We can't afford a freeze of ideas or practices.
We who presently constitute the Committee, or a majority
of the Committee, may agree that ordinarily it would be
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-16preferable to conduct our open market operations in short
term Government securities, and that -whenever possible we
would like to stay out of the market at times of Treasury
financing. But we shouldn't try to tie our hands by
preventing the Executive Committee from using its judgment,
within the limits of our general credit policy, in whatever circumstances may arise between meetings of the full
Committee. lAfaile, as has been pointed out, a meeting of
the full Committee can be quickly convened in these days of
air travel, I do not think the full Committee can or will
be brought together to decide questions of market techniques; it isn't the best way to operate and I doubt if we
really intend to operate that way.
It was
to avoid this strait jacket of an imposed t!con11
stitution that I proposed the June motion to rescind the
March action on the two points at issue today. That was
the purpose and that was the result of my motion.
So far as I can see our present situation differs
little, if at all, from the final views expressed by the
Chairman in his letter. If we do not assume, first, that
the Executive Committee cannot be trusted, and, second,
that the New York Bank and the Manager of the System Open
Market Account are so habituated by a long spell of price
support that they will jiggle with the market regardless
of their instructions from the Executive Committee, that
is where we come out, I don't think the first assumption
is justified and the second, I think, is preposterous.
Therefore, I would say that we are in agreement, as we
stand, and that no further action is needed by this Committee at this time, with respect to the two items presented for discussion.
One further word in an overlong presentation—in this
job I think we need an "informed intelligence conscious of
its (almost) infinite ignorance".
Chairman Martin stated that he subscribed heartily to Mr, Sproulrs
last comment. He then called upon Mr. Johns who made a statement substantially as follows:
As you all know, at the June meeting I voted in favor of
Mr. Sproul's motion to rescind the March actions on these two
matters. Since that time I have been amazed and disappointed
to find that my vote and the votes of those who voted as I did
have been construed by some as indicating that it was my desire
to vest in the management of the account and/or the New York
Bank a large and almost unlimited discretion, I respectfully
submit that such was not the legal import of my vote and I am
almost persuaded to suggest, as a member of the Supreme Court
did some years ago when he said that it is precarious to
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psycho-analyze Congress, that it is a precarious business to
try to psycho-analyze me and the motives of my vote. What I
did was intended to leave the executive committee a rather
large area of discretion within which to make decisions which
are more than operating decisions and which involve considerable policy-making prerogatives, As I understand the motion
Mr. Mills makes, the question I am presented with now is
whether to delegate such policy-making authority to the executive committee or whether to retain that prerogative in the
hands of the full Open Market Committee,
I will admit that from the one point of view of good
administration, it may be that such discretion can be more
easily and possibly at times more quickly made by a smaller
body such as the executive committee* However, I am not convinced that there is such lack of ease of administration in
retaining that prerogative in the hands of the full Committee
as might superficially appear. If, as usually is the case, the
members of the Board of Governors who are always members of
the full Committee, all are always at their posts, and if Mr*
Sproul is at his post and in constant communication with the
offices of the Board of Governors, the fact is that there are
only four other Presidents to be called in order to obtain
action of the Open Market Committee. If the urgency of a
situation is so great that a delay of 2h hours within which
the Open Market Committee could convene and assemble around
this table would be serious, I see no difficulty about
getting in touch with the absent Presidents who are members
of the full Committee on the telephone and I suspect that in
most instances that could be done within a period of 30 minutes.
I am aware of the fact that the executive committee of
the Open Market Committee is a nonstatutory body. I have
some doubt about the degree of discretion and policy making
which can be and at least which ought to be delegated to the
executive committee. Therefore, Mr. Chairman, having attempted
to psycho-analyze myself which I think is perhaps more accurate
than psycho-analyzing by others, I am prepared for the foreseeable future which will probably extend for the period of the
duration of my present membership on the Open Market Committee, to accept the proposal that the authority to modify
the general instructions be retained in the hands of the full
Open Market Committee. I am, therefore, presently disposed
to support Mr. Mills1 motion.
Mr. Johns went on to say that he would like to ask a question concerning Mr, Mills' motion, namely, whether there was any implication of a
connection between what the motion says and the proposal in the report of
the ad hoc subcommittee to publicize so-called ground rules. Such
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-18publication, he felt, might inhibit or make more difficult a change in
the policy proposed in Mr. Mills1 raotion0
Mr. Mills stated that the motion contained no such implication
but that he would add that the booklet on the Federal Reserve System
which -was available for general distribution was being revised and that
it was being written around the background of confining open market
operations to short-term securities. There was no implication, however,
that there would be made public any statement of principles suggested by
the ad hoc subcommittee or that any such statement would be given to
members of the investment community.
Chairman Martin stated that the Committee should bear in mind
that under section 10 of the Federal Reserve Act the Board'of Governors
was required to include in its annual report to Congress a record of policy
actions taken by the Federal Open Market Committee and that this record
would, of course, be made public in accordance with the statutory provisions.
Mr. Johns said that he had no objection to that procedure since
it was a statutory requirement.
Mr. Robertson referred to the discussion at the meeting last March
of the recommendation of the ad hoc subcommittee that the open market
account make known to dealers in Government securities the "ground rules"
which henceforth would govern the occasions for its transactions with
dealers.
At that time, he said, it was clearly understood that there
would be no publication of such rules pending further consideration of what
ground rules might be agreed upon and whether and how such rules might be
made known.
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-19Mr. Erickson said that he had given a great deal of thought to the
subject of Mr, Mills' motion since the meeting of the Committee in June and
that he felt very much as Mr* Johns had expressed himself. He wanted to
be sure that there was enough flexibility so that action could be taken
to deal with any situation that might arise, but under all the circumstances that existed today, Mr. Erickson said, he would be inclined to
vote to approve Mr. Mills1 motion.
Mr. Powell stated that he did not particularly like the motion presented by Mr. Mills because it put into language a continuing directive
to the Open Market Committee concerning a subject which he felt should be
a matter for consideration at every meeting of the full Committee and
perhaps at meetings of the executive committee in the interim.
He doubted
whether there had been experience with enough different kinds of economic
situations to enable the Committee to say its operations should remain in
the short-term market except under most unusual circumstances.
It would
be better not to have such an expression as Mr, Mills proposed, Mr.
Powell felt, unless it was in a form in which it would serve only between
meetings of the full Committee. Mr. Mills' motion, he thought, was intended as a much more far reaching document and he, therefore, would not
be disposed to vote to approve it.
Mr. Fulton said that at the time of the meeting of the Federal Open
Market Committee last June he anticipated that operations for the System
account would remain in the short-term sector of the market but he was
apprehensive of having those operations frozen in so that the account could
not operate in other parts of the market.
In the meantime reserve require-
ments of member banks have been reduced, a move which had had a powerful
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Federal Reserve Bank of St. Louis
9/2 It/53
-20-
effect in easing the market, and while he felt it still desirable that
the executive committee have considerable latitude in carrying on
operations, he agreed with the statements made by Mr. Johns to the effect
that the full Committee could be brought together at least by telephone
so that there did not seem to be danger that operations in the account
would not have enough flexibility to meet any situation.
On the whole,
in view of these factors and because of the general situation as it
appeared today and with the full expectation that the Federal Open Market
Committee could change the action at any meeting, he would vote to approve
the motion presented by Mr, Mills.
Mr. Evans stated that he would vote to approve Mr. Mills' motion,
that he had studied the report of the ad hoc subcommittee carefully, that
he agreed with the conclusions reached in that report, and that he felt
the proposal now before the Committee was simply returning to the position taken by the full Committee last March after full discussion of the
report.
Mr. Vardaman stated that had he been present at the meeting of the
full Committee last June he would have voted against rescinding the action
taken by the full Committee at its meeting in March, at which time it
agreed that under present circumstances operations in Government securities should be confined to the short-end of the market.
Because he still
held this view, he would vote to approve Mr. Mills' motion. At the same
time, he emphasized that he was in favor of giving the executive committee
such operational latitude as was necessary so long as that latitude was
not sufficient to enable the executive committee to conduct its operations
in such a manner as to amount to policy decisions.
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Federal Reserve Bank of St. Louis
9/2V53
-21Mr. Robertson requested that Mr. Mills' motion be reread and,
following the reading of it by the Secretary, stated that he would vote
to approve the motion.
Mr. Szymczak stated that he had been unable to attend the meeting
of the full Committee in June because he was in the hospital on that day,
but if he had been present he would have voted against rescinding the
actions taken at the March meeting on the two points under discussion.
He noted that, at the meeting of the executive committee on June 23, he
had expressed himself as believing that operations for the System account
should be limited to Treasury bills. He felt that the full Committee
should be constantly aware of the situation in the Government securities
market and that whenever the situation was such as to call for a change
of policy of the nature of shifting from purchases of short-term securities to other sectors of the market, such a change should be authorized
by the full Committee. He, therefore, favored approval of Mr. Mills1
motion.
Mr. Leedy stated that he was a little disturbed by Mr. Sproul's
suggestion that decisions in such matters as were involved in Mr. Mills'
motion might be delegated by the full Committee to the executive committee.
He wondered what would be left for the full Committee if such decisions
were to be turned over to the executive committee. Mr. Leedy noted that,
as Mr. Johns had stated, the executive committee is not a statutory body;
it was set up by the full Committee as an operating committee and, while
it has a wide responsibility as to executing operations, he felt that it
should not have responsibility for adopting fundamental policy decisions.
In Mr. Leedy's opinion, decisions of the sort involved in Mr. Mills'
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Federal Reserve Bank of St. Louis
9/2V53
-22-
motion were of fundamental importance.
Mr. Williams stated that he was somewhat concerned lest the formal
nature of Mr. Mills' motion and the attendant discussion might give the
Committee's action an air of permanence that it otherwise would not have.
The full Committee, he noted, has power to make any change at any meeting,
and the extended discussion of Mr. Mills' motion and the formal nature of
the motion should not give the action to be taken an importance out of
proportion to what it should have,
Mr. Vardaman stated that he would have no hesitation in changing
this or any other action of the full Committee at the next meeting or any
other subsequent meeting if that seemed appropriate at the time, and he
noted that the last clause of Mr. Mills' motion—"that these policies be
followed until such time as they may be superseded or modified by further
action of the Federal Open Market Committee"—seemed clearly to indicate
that the action proposed was subject to change by the Committee at any
time.
Mr. Robertson stated that this was the very point which had caused
him to request a rereading of Mr. Mills' motion, that he, too, had felt
concern along
the lines indicated by Mr. Williams, but that the re-
reading of this clause in the motion satisfied him that the matter was
properly covered.
Mr. TATiiiiams stated that he certainly did not intend to indicate
an objection to the motion, that in June although not a member of the full
Committee, he had taken the position that the policies adopted in March
should be looked upon as experimental in nature, and that he still felt
that the Committee should look upon a policy such as that proposed in
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Federal Reserve Bank of St. Louis
9M/53
-23-
Mr. Mills1 motion as experimental.
Chairman Martin stated that there was no intention, in raising
this Question or in presenting Mr. Mills' motion, to bind the Committee
in any way that would not be binding in connection with any other decisions of the Committeeo
Mr0 Sproul stated that Mr. Williams had expressed very well the
question in his mind.
Taking the background of the whole discussion, the
content of the ad hoc subcommittee report,, and the discussion at the meeting last March, he felt there was an implication of permanent policy in
Mr. Mills' resolution which, despite the clarifying clause at the end of
the motion, tended to inhibit the free and flexible consideration of the
problem by either the full Committee or the executive committee.
This
carried with it, he said, the implication of "writing a constitution" for
the open market operation, of setting down a policy which, under only the
most extraordinary circumstances, could or should be changedo
He felt
this was the wrong atmosphere to create for the executive committee, and
he found it difficult to see what change had occurred to cause a shift in
the views of some of the members of the full Committee since last June
which would warrant putting into the record a formal motion such as that
proposed by Mr. Mills.
Mr. Szymczak noted that the full Committee included all members of
the Board of Governors and five Presidents of the Federal Reserve Banks,
not all of whom were equally close to the market or to the detailed operations of the System account.
For that reason, he felt it much better for
matters of this type to be brought to the attention of the full membership
of the Committee so that each individual would be kept alert regarding a
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Federal Reserve Bank of St. Louis
9/21/53
-2ii-
subject for which he had a responsibility, and so that he would have an
opportunity to express himself on any policy to be established. Mr.
Szymezak also expressed dislike for reaching decisions on the basis of
a closely divided vote such as had taken place at the full Committee
meeting in June when some of the members were not present, and at the
subsequent meeting of the executive committee. If there were to be differences of opinion on policy matters, he felt it much better to have the
Questions fully discussed at a meeting when all members of the Committee
and the Presidents who were not members could be present, in an attempt
to find out the best course to follow.
Mr0 Johns stated that he had no fear that passage of Mr. Mills'
motion would in any way limit the full Committee in changing the policy.
If any member of the Committee felt the policy ought to be changed between
full Committee meetings, he would have an opportunity and responsibility
to make his views known. As for reasons for a change in his views since
June, Mr* Johns said that, as first alternate, he had been called upon to
serve almost continuously as an active member of the executive committee
during the past few months, and that experience had made him feel the
change in authorization
was desirable. During that period, Mr, Johns
said, he would have been most uncomfortable to have taken the action of
authorizing operations in securities other than Treasury bills without
having had the benefit of consultation with the other members of the full
Committee. Out of this experience had come the conclusion that decisions
in such matters should be left to the full Committee*
Mr. Leach stated that the only aspect of the motion which he did
not like was the air of permanence to which Mr, Williams had referred.
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Federal Reserve Bank of St. Louis
His conception of the Open Market Committee, he said, was that it did not
make public statements of its policies and that it would not take a position indicating that it had set any particular policy from here on out,
The fact that some of the members of the Committee attached so much
importance to the subject under discussion indicated to him that the
decision was being regarded as a matter of permanent policy,
Mr. C. Sc Young stated that he shared and believed what Mr. Johns
had said about the executive committee, that for the first time in years
he was now hearing that the Federal Open Market Committee was an active
body. He would like to see the full Committee have a little more authority
than it had had and would like to have the members feel that they were an
active part of the open market operation, Mr, Young said he could see no
grounds for fears in Mr. Mills' motion and was inclined to feel that its
adoption would make the members of the full Committee feel that they were
more a part of the mrnagement of the open market account than they had
been. He agreed wholeheartedly with the statements Mr, Johns had made*
Mr, Sproul said there was no question of a policy different from
that being followed being authorized by the Open Market Committee as a
whole if the resolution proposed by Mr, Mills was adoptedj it was a question whether the full Committee, with all the background of the discussion,
wanted to put into the record this prohibition on the actions of the executive committee. He felt such a prohibition was unnecessary and undesirable.
Since June, the executive committee had operated within the lines of policy
of the Open Market Committee and within the lines proposed by Mr, Mills'
motion. His objection was to making this a matter of formal record which
he felt would give to the recommendations of the ad hoc subcommittee an air
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Federal Reserve Bank of St. Louis
9/2li/53
-26-
of being a permanent part of policy of the full Committee as though such
policies were being "written in tablets of stone".
Chairman Martin stated that he felt sure the minutes of this
meeting would make it clear that no tablets of stone were being written.
Thereupon, Mr. Mills1 motion was put
by the Chair and carried, Messrs*, Martin,
Erickson, Evans, Fulton, Johns, Mills,
Robertson, Szymczak, and Vardaman voting
"aye", and Messrs. Sproul and Powell voting "no"o
Mr0 Riefler referred to the understanding earlier in the meeting
as to the policy to be pursued in supplying reserves to the market until
the next meeting, and to the wording of the existing directive to the
executive committee covering transactions in the System open market
account. He suggested that, in view of the policy agreed upon at this
meeting, it would be desirable to change the instruction in clause (b)
that such operations should be with a view "to avoiding deflationary
tendencies without encouraging a renewal of inflationary developments (which
in the near future will require aggressive supplying of reserves to the
market)." During the ensuing discussion, it was agreed that this clause
should be modified to delete all the words following "tendencies" so that
the clause would read "to avoiding deflationary tendencies1'^
Mr, Sproul stated in response to a question from Chairman Martin
that he felt the existing limits in the directive would be adequate for
the present.
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Federal Reserve Bank of St. Louis
Thereupon, upon motion duly made and
seconded, the following directive to the
executive committee was approved unanimously:
9/2 It/53
-27-
Th e executive committee is directed, until otherwise
directed by the Federal Open Market Committee, to arrange for
such transactions for the System open market account, either
in the open market or directly with the Treasury (including
purchases, sales, exchanges, replacement of maturing securities, and letting maturities run off without replacement), as
may be necessary, in the light of current and. prospective
economic conditions and the general credit situation of the
country, with a view (a) to relating the supply of funds in
the market to the needs of commerce and business, (b) to
avoiding deflationary tendencies, (c) to correcting a disorderly situation in the Government securities market, and
(d) to the practical administration of the account5 provided
that the aggregate amount of securities held in the System
account (including commitments for the purchase or sale of
securitj.es for the account) at the close of this date, other
than special short-term certificates of indebtedness purchased
from time to time for the temporary accommodation of the Treasury, shall not be increased or decreased by more than
#2,000,000,000.
The executive committee is further directed, until otherwise directed by the Federal Open Market Committee, to arrange
for the purchase direct from the Treasury for the account of
the Federal Reserve Bank of New York (which Bank shall have
discretion, in cases where it seems desirable, to issue
participations to one or more Federal Reserve Banks) of such
amounts of special short-term certificates of indebtedness as
may be necessary from time to time for the temporary accommodation of the Treasury, provided that the total amount of such
certificates held at any one time by the Federal Reserve Banks
shall not exceed in the aggregate £2,000,000,000.
There was a discussion of the next date for the meeting of the Federal Open Market Committee and, while no definite date was set, it was
understood that it probably would be held during the week beginning December llj, 1953*
(Later in the day, at the joint meeting of the Board of
Governors and the Presidents of the Federal Reserve Banks, it was agreed
that the next meeting of the Federal Open Market Committee would be held
on Tuesday, December l£, 1953•)
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Federal Reserve Bank of St. Louis
Secretary's notes At the meeting of the
executive committee of the Federal Open Market
Committee held immediately following this
meeting, and at the joint meeting of the Board
of Governors and the Presidents of all Federal
9/2L/53
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Federal Reserve Bank of St. Louis
-28Reserve Banks held later in the day, Chairman Martin reported that the Secretary of
the Treasury had indicated informally that
it was expected that approximately $1 billion of free gold carried in the Treasury's
cash balance would be used during the fall
months of this year, one of the purposes of
such use being to enable the Treasury to
meet necessary payments within the $2?£
billion statutory debt limit. Chairman
Martin also noted that, depending upon how
this gold was used by the Treasury, it would
affect the amount and timing of open market
operations*
Thereupon the meeting adjourned.
Secretary,
PRELIMINARY DRAFT
CONFIDENTIAL
A meeting of the executive committee of the Federal Open Market
Committee was held in the offices of the Board of Governors of the
Federal Reserve System on Thursday, September 21|, 1953, at 12:i£ p.m.
PRESENT: Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Sproul, Vice Chairman
Erickson
Evans
Mills
Messrs. Robertson, Szymczak, and Vardaman, Members
of the Federal Open Market Committee
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Riefler, Secretary
Thurston, Assistant Secretary
Vest, General Counsel
Thomas, Economist
R. A. Young, Associate Economist
Sherman, Assistant Secretary, Board of
Governors
Mr. Youngdahl, Assistant Director, Division of
Research and Statistics, Board of Governors
Mr, Gaines, Securities Department, Federal Reserve
Bank of New York
Upon motion duly made and seconded, and
by unanimous vote, the minutes of the meeting
of the executive committee of the Federal Open
Market Committee held on September 8, 1953 were
approved.
Upon motion duly made and seconded, and by
unanimous vote, the transactions in the System
open market account for the period September 8
to September 23, 1953* inclusive, were approved,
ratified, and confirmed.
Chairman Martin stated that, as implied in the statement Mr. Thomas
had made at the meeting of the full Committee earlier today, the Treasury
planned to use the "free" gold in its cash balance in the approximate
amount of $1 billion for the purpose of reducing the public debt. He
stated that he and Mr. Sproul were to discuss the matter with Treasury
officials this afternoon.
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Federal Reserve Bank of St. Louis
9/2V53
-2Mr. Riefler noted that to the extent reserves were to be supplied
by the Treasury through use of the "free" gold, the program with respect
to open market operations would be affected in carrying out the general
policy agreed upon at the meeting of the full committee. He felt that
the timing of the Treasury's use of the gold was of primary importance,
in considering the instructions to be given by the executive committee for
carrying on operations in the System account.
Mr. Sproul stated that he would assume that the total amount of
reserves that would be needed by the market this fall would be the same
whether the Treasury used the gold or not and regardless of the timing;
to the extent the Treasury did use the gold, System open market operations
would be reduced, and the timing of System purchases might be affected.
In a further discussion of the timing of the use of the gold and
its possible effect on open market operations, it was suggested that the
next meeting of the executive committee be held on October 6, 1953 > at
which time more information as to the Treasury's plans for use of the gold
might be available.
In a discussion of the directive to be issued to the New York
Bank, Mr. Kills suggested that the limitation in the first paragraph be
increased from $500 to $75>0 million. It was also suggested that the wording of clause (b) be changed in line with the change made in the corresponding clause of the directive from the full Committee at its meeting
today, so that it would read that purchases for the System account should
be with a view "to avoiding deflationary tendencies".
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Federal Reserve Bank of St. Louis
Thereupon, upon motion duly made
and seconded, the executive committee
9/2V53
-3voted unanimously to direct the Federal
Reserve Bank of New York until otherwise
directed by the executive committee:
(1) To make such purchases, sales, or exchanges (including
replacement of maturing securities and allowing maturities to run
off without replacement) for the System account in the open market or, in the case of maturing securities, by direct exchange
with the Treasury, as may be necessary in the light of current
and prospective economic conditions and the general credit situation of the country, with a view (a) to relating the supply of
funds in the market to the needs of commerce and business, (b)
to avoiding deflationary tendencies, and (c) to the practical
administration of the account; provided that the total amount of
securities in the System account (including commitments for the
purchase or sale of securities for the account) at the close of
this date shall not be increased or decreased by more than $750
million\
(2) To purchase direct from the Treasury for the account of
the Federal Reserve Bank of New York (with discretion, in cases
where it seems desirable, to issue participations to one or more
Federal Reserve Banks) such amounts of special short-term certificates of indebtedness as may be necessary from time to time
for the temporary accommodation of the Treasury; provided that
the total amount of such certificates held at any one time by
the Federal Reserve Banks shall not exceed in the aggregate
$500 million.
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Federal Reserve Bank of St. Louis
Thereupon the meeting adjourned.
Secretary's note: At the meeting of
the Federal Open Market Committee held
earlier today, unanimous approval was given
to a recommendation of the special committee
appointed at the meeting of the executive
committee on June 11, 1953 to consider a
proposed revision in the directives of the
Federal Open Market Committee and its executive committee. This recommendation,
•which was presented by Chairman Martin on
behalf of Mr. Sproul and himself, was that,
for the reasons stated on page 3 of the
minutes of the full Committee meeting held
today, the Committee approve the continued
use of the existing forms of directives,
with changes being made by the respective
committees from time to time as special
circumstances may indicate.
Secretary.
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Federal Reserve Bank of St. Louis
From fhe desk of
WILLIAM McCHESNEY MAHTiN. JR.
MEMBERSHIP OF THE BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSOT
1913-1951
Federal
Reserve
District
Effective
data of
Appointment
Qjarles S. Hamlin
Boston
Aug. 10, 191k Reappointed 1916 and 1926. Served
until Feb. 3, 1936, on which date
his successor took office.
Paul M. Warburg
Hev Tork
Aug. 10, 191U Term expired Attest 9, 1918.
Frederic A. Delano
Chicago
Aug, 10, 1911i Resigned July 21, 1918,
W. ?» 0, Harding
Atlanta
Aug. 10, 191U Term expired August 9, 1922.
Adolph €. Miller
San Franciaco Aug. 10, 191U Reappointed in 192lt. Reappointad
in 193U from the Richmond District.
Served until Feb. 3, 1936, on which
date his successor took office.
Albert Strauss
Mew Terk
Oct. 26, 1918
Resigned March 15, 1920.
Henry A. Moehlenpah
Chicago
Hov. 10, 1919
Term expired August 9, 1920.
Sdsmmd Platt
New Tork
June 8, 1920
Reappointed in 1928. Resigned
September lit, 1930.
David C. Will*
Cleveland
Sept. 29, 1920 Term expired March k, 1921.
John R. Mitchell
Minneapolis
May 12, 1921
Resigned May 12, 1923.
Hllo D. Campbell
Chicago
Mar. lit, 1923
Died March 2?, 1923.
Daniel R. Cristinger
Cleveland
May 1, 1923
Resigned September 1$, 1927.
Oeorge H. James
St. Louis
May 1U, 1923
Reappointed in 1931. Served until
Feb. 3, 1936, on which date his
successor took office.
Edward H. Cunningfra*
Chicago
May lh, 1923
Died Jfovember 28, 1930.
Roy A. Young
Minneapolis
Oct. U, 192?
Resigned August 31, 1930,
Eugene Meyer
Hew York
Sept. 16, 1930 Resigned May 10, 1933*
Wayland #, Magee
Kansas City
May 18, 1931
Terra expired January 2l±, 1933.
lugene R. Black
Atlanta
May 19, 1933
Resigned August 15, 193U.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Federal
Reserve
District
Effective
date of
Appointment
J. J. thomas
Kansas City
June 14, 1933 Served until February 10, 193^, en
which date his successor took office,
Joseph A. Brederiek
Sew fork
Feb. 3, 193&
Eesigced effective Septeiafeer 30,1937,
John K. McKee
Cleveland
Feb. 3f 193^
Served until April k, 1^6, m wfeiofa
date his successor took office.
Ronald Ransom
Atlanta,
Fefe. 3» 193^
leappoint^d effective February 1,
l^lit. Died December t, 3L9k7.
Rslp^ W. «0rrieos
SaUas
Feb. 10, 1936 iasigned effective J\ily 9» 193^*
Chester C* Davis
ftic^a^d
June 2f>, 193^ Resided effective March ?, 19l|0f t©
accept reapfsoiataent effective
«aj^i 8, 19l*D, for t«ra of lit years
from February 1, 191*0. Resigned
effective April 15, l?iil»
Imest 0. Orap@r
Hew t<*rk
Usar. 30f 1938 Served until September 1, 1950, ©a
which date his successor took
office.
fcawremee Qisyten
Boston
^oaas B, McCabe
Philadelphia
Feb. Ut, 19U7 Died Oeeeiaber ti, 191tf.
Apr. 15, 19liS leslgaed March 31> 1951.
Motei Um^er the provislotts ©f the original Federal teaerv«_ Aet tbe Federal leaearfe Board
vaa cc»if^po8@d of 7 m^tbers, inoladiag % appointive m««ber», 'the Secretary of thm
H&© was ex*officio ehairman of the Board, and tbe Ce^trQllar of tfc® Omrninoy. ftie
original term of office was 10 y^ars, and toe five original appoiativ® it«»ber» Jiad
of 2, k» 6, 6, aad 10 years, r«ap-^otiv@iy» la 19ff ths msmber of appointive msajfeers ira«
inereaaed to 6, and in 1933 the t^r® of office was incroaaed to 12 y«ars. The Baniriag Act
of 193£§ improved Amidst 23, 193£* changed the name of the Federal B@eerre Board to the
Board of Governors of the Federal Heserve System and provided that the Board should be
csnposed of 7 appointive m-s«bers| that th© S<ier«tary of the treasury aixd th« Controller
@f the Oarreney should oostiiiae to serve as w^ibers mntil February 1, l?36j that the
appointive m^ibsrs in office on the date of that Act should eontiime to sorv® until
February 1, 193©", or until their saoeessors w«re appoint^ aad, had qualified and that
th@r®aft®r the torus of neatoers should b® 1^ years and that the designation of Qiainsaa (
and Vie@ Chairmaia of the Board shewld.fe@for a term ©f fmr ye&rs.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
OF fHI
OF
Federal
Reserve
District
Effective
date of
Appointment
X* $• $zyme*ak
Chicago
June 14, 1933 ftsaf^oioted effective February 3,
1936* and February 1, 19MU Present
term expires Jamaary 31, 19&£*
Harriaer S* Ecel@s
San Fraaeisea MOT. l£, 193k tftappoint^d effective Feb. 3, I936f
March 8, 1910 (switched t*«8S wi^i
Chester Devia * »ee above)$ and
February 1, 19Wi* Present tent
ei^ireg J&minry 31f 19^* /
/fjRy
a*i4@lpt* M. KTWMI
Sidamoa4
Har. ll*t 19lit Appo^ited for unexpired portion of
/ /- Chester 'Davis* tens, which expire*
Jfaa&ry ;&* 1.9^4.
V "'-'
James K. Vardaiiaii, Jr.
St. L@ttis
Apr. It, 19U6
B^rard !•« Norton
Atlanta
Sept* 1, 1950 Appointed to fiH meaaey at expiration of Ernest Draper's term.
Present tsrm expire* Jaau&ry jljl^U
Oliver S. Powell
Minneapolis
Sept* 1, 19^0 Appointed to fill vaeancy caused ly
resignatioR .of Balpfa Morarisoa,
utiidi had never been filled* Pr**«at
term expires Jaimary 31 ft 3*,^*
Ife* MeC. MartiB, Jr.
Sew fork
Apr. 2f 19S1
-5-^
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Federal Reserve Bank of St. Louis
ltpp^i»t@4 to fill meimey mt ©x«
piration of John XoKet't terra*
Presenit appointi^nt ®Kpir«s
Janmary 31f I960*
A|^?int<»d to fill Tacamey camsed l^r
resipiatioa of tfeomas MeCabe, wh&
was appointed for the uaexpired
p©rti©n of Ronald H«»somfs term.
Present tens expires January 31^19^
Of TifS BOARD
Charles S. Hamlin
tf. P. 0. Harding ..............
0. R. Crissiuger ..............
Roy A. Toting ..................
Imgeae Meyer ..................
Blaek
$. Iceles ............
ffceaias B. MoCabe ..............
W&. McC* Martia, Jr.
*.
August 10, l91I**August 9,
August 10, 1916-Auipst 9,
May 1, 1923~Septe»ber 15,
October k, 192?-August 31*
September 16, 1930-May 10, 1931 J
Kay 19, 1933-August 15, :
November 15, 193l4-«Jaimary 31, 19a8
April 15, 19l*8-MarQh 31, 1951
April 2, 195^fjg BQAM)
F. A* Delano ..
August 10, X?llHk*ftt*t 9, 1916
Paul M. Warburg
August 10, 1916-August 9, 1916
Albert Strauss ................ October 26, 19lB^arch 15, 1920
23, 19tO-Sept««b©r Hi, 1930
<t»T • OT .
21f 193if»F«bruLary 10, 1936
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Federal Reserve Bank of St. Louis
-
Note i Prior to Aaga*t £3§ 1935> the Qjairmaii and ?lc« Qiairman
of tha Board w«r® kuonn a® Gk>-wirr-»r and ?!©« Qov*mor, respectively.
0? fl®
23, 1913-Beember 15, 1918
16,
F. ioaston
February 2, 1920*March 3, 1921
I. MeHoa
HsreJi k$ 1921-February 12, 1932
Ogdem L. Wills .............. February 12, 1932-Marcli It, 1933
William I. Meodln ........... March I*, 1933-Besember
31, 1933
Henry Horgeathau* Jr. ....... JaBaary 1, 193^*l!*brtt^ry 1, 1936
Cart«r CHass
Go^-farollers of, ^the Qurrfncy
Jotoi Skelton WlHisas .......
B. ft. Crisstegar ............
leary
M. X^Mes ..............
r
~*»^|jh M, lelatesii ..........
f. Pole ..................
% f. O f Connor
February 2, l^lli-March 2, 1921
March 17, 1921*April 30, 1923
May 1, 1923*Be©e®ber 17, 192k
B®eeafcer 20, 192li-I©ve«b«r 20, 1928
Iovemb«r 21, 1928-»ieptember 20, 1932
Hay 11, 1933*F«braary 1, 1936
former and Present Members of the
Board of Governors of the Federal Reserve System
(Federal Reserve Board prior to February 1, 1936)
Length of Serviee
|roa''"
Charles S* Baralia*
8-10-U*
2- >36
Frederic A. Delano
8*10-ll4
7-21-18
Paul H. Warburg
8~ia.lb
8- 9-18
W. P. 6. Harding*
8-10-11*
S- 9-22
Adolpfc a. Miller
8-10-H4
2- 3-36
Albert Straus©
10-26-18
3-15-20
Henry A. Moshlenpah
11-10-19
8~ 9-20
Edmund Platt
6- 8-20
D. a. wuis
5^-29-20
John R. Mitebell
5*ia-2i
5-3.2-23
Hilo D, aateqpbeU
0. R. Grissing@r«George E« Janies
>Ht^23
5- 1-23
£»U*«23
>22-23
9-15-27
2- 3-36
^11^-23
10- l*-2?
11-28-30
8-31-30
Sugene Meyer*
9-16-30
5-10-33
Wayland ¥. Magee
5-18-31
l-2li-33
Eugene R. Black*
5-19-33
S-l5~3k
6-U^33
6-lii-33
U-15-314
2-10-36
Present
7-ll*-5l
Edward H. Owmiogham
Eogr A. Xotmg*
J. J. Thomas
H. S. Saymcsak
Hajfriner S. flseles*
Eonald Hansom
2- >36
Joseph A. Broderick
2- >36
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Business Affiliation at
fime of Appointment
Assistant Secretary of the
treasury, S. S.
President, C.I.&L, (Morion Railroad)
Chicago, Illinois.
Member, Kuhn, Loeb, 4 Co., Bankers,
Hew fork, Hew fork.
President, First Hational lank,
Birmingham, Alabama.
Assistant to the Secretary of the
Interior, 0. S.
Member, J.IM. Selipian It Co.,
Bankers, Hew fork, Ilew fork.
President, fh@ Citizens Bank,
Clinton, Wisconsin.
Member of II. S. Congress,
26th Sew fork District.
> li-21
12-
9-30-3?
Federal Reserve Bank of Cleveland,
Cleveland, Ohio.
President, Capital National Bank,
St. Paul, Minnesota.
Farmer, Coldwater, Michigan.
Comptroller of the Currency, U. S.
President, ¥ro. R. Moore
Dry Goods Co., Memphis, Tennessee.
Farmer, Cresoo, Iowa.
Governor, Federal Reserve lank of
Minneapolis, Minneapolis, Minnesota.
Engaged in personal affairs,
Hew fork, Hew lork.
Farmer and Stockman,
Bennington, Nebraska.
Governor, Federal Reserve Bank
of Atlanta, Atlanta, Georgia.
Attomey-at-L«w, Seward, Nebraska.
Comptroller, City of Chicago, TTHncals.
Assistant to the Secretary of the
treasury, U« S.
Executive ?ice President, Fulton
Hational Bank, Atlanta, Georgia*
Superintendent of Banks of the
State of Hew fork
Former and Present Members of the
Board of Governors of the Federal Reserve System (Goat.)
(Federal Reserve Board prior to February 1, 1936}
John K. McKee
2- 3-36
1** k-k6
Ralph W. Morrison
Chester G. Davis
2-10-36
6-25*36
7- 9-36
k-l5~Ja
Ernest S. Braper
3-30-38
9" 1-5*0
Rudolph M« Brans
>li^-l42
Present
. Jb- lt-i|6
Present
laawrenc© Clayton
Z-lk'-kl
12- k~k9
Thomas B. HcCabe*
li^l^S
>31-Sl
idsrard L. Morton
9- 1-50
2- 1*52
Olltar S. Powell
f» l-f>0
6*30-52
Mm. MaC. Martin, Jr.
ii» 2-51
Present
A. L* Hills, Jr.
2-18*52
Present
J. L. Robertson
2-18-5&
Present
James K. Vardaman, Jr.
Chief, Examining Division
Reconstruction Finance Corporation,
Washington, B, C.
Rancher, San Antonio, Texas.
Administrator, Agriculture
Adjustment Administration, U. 3.
Assistant Secretary of Commerce,
U. S.
Administrator, Agriculture
Adjustment Administration, tl. S.
Kami Aide to the i'resident of
the United States,
President, Clayton Securities
Corporation, Boston, Massachusetts.
President, Scott Paper Co.,
Chester, Pennsylvania.
President, Coosa River newsprint
Co., Coosa River, Alabama.
First ?ice President, Federal
Reserve Bank of Minneapolis,
Minneapolis 2, Minnesota.
Assistant Secretary of the
treasury, U. S,
First Vice President, the United
States national Bank of Portland,
Portland, Oregon.
First Deputy Comptroller of the
Currency, U. S.
* Chairman «•- prior to August 23, 1935* title was Governor.
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Federal Reserve Bank of St. Louis
REMARKS OF ALLAN SPROUL, PRESIDENT,
FEDERAL RESERVE BANK OF NEW YORK,
AT THE MID-WINTER MEETING
NEW YORK STATE BANKERS ASSOCIATION,
JANUARY 25, 1954
Independence of the Federal Reserve System
I hope that you will not hold me too closely to the assigned topic
of my talk this evening. I intend to weave in and out around it, but I am
not going to try to give you an historical and philosophical dissertation on
the independence of central banks. Even if such a task were not beyond my
powers of exposition, it would probably be beyond your powers of endurance.
The subject is continuously interesting to central bankers, however,
and it may be that by relating it to banking discussions and credit policy in
recent years and months, I can make it of some interest to you. It is important, I think, that neither frozen attitudes of mind concerning the past independence of central banks, nor misconceptions of the present situation of
the Federal Reserve System, be allowed to jeopardize a position which, even
though it be confirmed from time to time, is never free from attack. The possibility that there might be a "money power" able and willing to flout the
economic policies of elected Government, or exposed to the coercion of special
private interests, disturbs many men and attracts demagogic assault,
When your President asked me to speak tonight, I told him that I
thought the bankers of New York State, and of the Second Federal Reserve
District, have a special call upon my time and energies. This could be seized
upon by those who hold that the Federal Reserve System is banker-dominated,
and banker-oriented in its attitudes and actions, but it carries no such implication. Our relations with you are close to be sure, but this is necessary
both as a matter of law and as an aid to the proper functioning of our money
economy. In the performance of our primary duty of relating the supply of
money to the needs of agriculture, commerce, and industry, and of our secondary
duties such as supplying coin and currency, collecting checks, and supervising
member banks, we necessarily work with and through the private banking system.
Our objective in both areas, however, is to meet a public need. In
the first instance it is to provide, to the fullest extent permitted by actions
of Government and the private economy, over which we do not have control, a
money supply which has reasonably stable purchasing power and which will contribute to the steady growth of the economy. In the second instance, it is to
promote the improvement of our banking facilities for the benefit of every
citizen, whether or not he ever borrows from a bank or makes or withdraws a
deposit.
One line of criticism of the Federal Reserve System, which during
the past year has made ominous forays into the public prints, is that the
Federal Reserve Banks perform all sorts of free services for the commercial
banks of the country, while charging the Federal Government for many services
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Federal Reserve Bank of St. Louis
performed for it. We are accused of favoring private institutions as against
the Government and of using funds, which otherwise would revert to the
Government, to consummate this favoritism. As a consequence it is sometimes
suggested that the Federal Reserve System be brought within the budget-making
orbit of the Congress, and be subjected to the general accounting procedures
of the Government, presumably so that these twin "evils" may be curbed or
eliminated.
It is a narrow and myopic view, I think, to look upon the services
we perform for our member banks as subsidies to the banking business. If
there are such subsidies, as distinguished from services that we can and should
perform at no cost or low cost, as part of our job of providing efficient monetary arrangements for the nation, they should be eliminated. But the real and
overriding purpose of these services, when wisely conceived and economically
performed, is the provision of that better banking system, which the original
Federal Reserve Act envisaged, and which is a necessary part of the proper
functioning of our economy. Banking in this country is a highly regulated
public utility. Individual banks are operated for the profit of their stockholders, but the banking system as a whole operates for the benefit of the
community. And it is the Federal Reserve System which, nationally and in
collaboration with the Comptroller of the Currency and the Federal Deposit
Insurance Corporation, draws all of these private units together, and with
them and through them tries to see to it that the public is provided with
efficient and effective banking facilities, in the form and at the place where
these facilities will be most useful. The expenses which we absorb in pursuit
of this objective are not subsidies to the private banking system. They represent a service to everyone in the country who depends on the proper functioning of our monetary system. And that means everyone.
Reasonable men and friendly critics are somewhat attracted, nevertheless, by the idea that these expenditures of the Federal Reserve Banks should
be brought under the budgetary control of the Congress, and the subsequent
review of the General Accounting Office. If there were real abuses to be corrected, this might be one solution, albeit one which would introduce the
unfortunate but probably inescapable element of rigidity of "Big Government"
and bureaucracy into operations which, both on behalf of the Government, as
its fiscal agent, and on behalf of the public, through the member banks, require
a high degree of flexibility in the allocation and uses of funds. For myself,
I do not believe there exists any possibility of abuse which cannot be detected
and eliminated under present procedures, or improvements in those procedures.
The facts as to the earnings and expenses of the Federal Reserve Banks are
readily available. The efficiency of operations of the Federal Reserve Banks
is open to the daily observation of all who have dealings with them. Their
operations are under the immediate scrutiny of boards of directors performing
a public service but, in most cases, used to the compulsions of operating a
private business for profit. And the banks are subject to the check and audit
of the Board of Governors of the Federal Reserve System at Washington, There
is no lack of control of the financial affairs of the Federal Reserve Banks.
On the question of the services which, as fiscal agents, the Federal
Reserve Banks perform for the Government, and for some of which a charge is
made, I am inclined to believe that both the public and the Congress would
look with a jaundiced eye on a broad extension of the free list. The net cost
to the Government, in any case, is a small one, since the charges made for
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Federal Reserve Bank of St. Louis
fiscal agency operations prevent erosion of the net earnings of the Federal
Reserve"Banks, approximately 90$ of which are now paid to the Treasury. And
there are dangers as well as costs to "be considered, The first danger here
is that extravagant Government departments and "bureaus, or economy-minded
agencies, depending on which way the wind is blowing, would find this a convenient way to improve their own "budgetary position, and to escape some of the
controls of the Congressional appropriation procedure. There must be literally
hundreds of financial housekeeping jobs, I suppose, which Government departments might seek to have performed free of charge by the Federal Reserve Banks,
as fiscal agents of the Government, if the doors were opened to this sort of
thingo The final danger would then be that the Federal Reserve Banks would
become swamped with these incidental, mechanical functions to the detriment
of the performance of their primary duties as central banks.
It is no help in the resolution of questions such as these, of course,
to find that there are many bankers who still think that the Federal Reserve
Banks are "making money" out of member bank reserves and who do not realize
that, on the contrary, the Reserve Banks have for a long time been creating
reserves to provide the basis for present day deposit banking. These bankers
are inclined to argue that the Federal Reserve Banks are making large profits
out of the use of the reserves deposited with them by their member banks,
and that these earnings should be used to provide more "free services" for the
member banks, instead of being paid over, in large part, to the Federal
Government. Such argument not only gives support to those who see in this
matter only a question of division of spoils between private banking institutions and the Government, it also indicates a tenacious misunderstanding of
how our reserve deposit banking system really works. The reserves originally
paid into the Reserve Banks by their member banks were not, of course, earning
assets and did not become such by this shift from one vault to another. And
over the years these reserves have long since been submerged under a thick
layer of reserves created by the Federal Reserve Banks, using the powers
granted to them by the Congress. The reserves which you paid into the Reserve
Banks could be put back into your own vaults, and they would be there just as
inert as they now lie in the vaults or, better, on the books of the Reserve
Banks. The reserves which we created, primarily by buying Government securities during the war, now find a reflection in the substantial earnings which
we report each year. And similarly created reserves will be a similar source
of earnings for the Federal Reserve Banks, if the reserve base needs of a
growing banking system in a growing economy continue to be met in this way.
We do not live on the reserves which you once placed with us.
This has nothing to do, of course, with the level of reserves which
different classes of banks are required to keep with the Federal Reserve Banks.
If the percentage amount of your required reserves is increased there will be,
in effect, a transfer of earning assets from the member banks to the Reserve
Banks„ And if the percentage amount of your required reserves is reduced,
there would be a reverse movement of such earning assets. Perhaps this has
helped to confuse the picture. The way to get at this situation, however, is
not to demand free services from the Federal Reserve Banks, but to examine the
history and effect of present reserve requirements, to see if some more up-todate and more equitable method of fixing reserve requirements cannot be devised.
The Federal Reserve System has made studies of this problem, and it is one which
will have to be solved at some time if our fractional reserve banking system
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Federal Reserve Bank of St. Louis
is to keep in step with changing conditions. But so far the interest which
the banking community has shown in the problem has "been small, sporadic, and
perhaps, too much tinged with the particular interests of particular groups
of banks.
Well, you now have a right to ask, what has all this got to do with
the independence of the Federal Reserve System? Only this. If the charge
can be made to stick that the Federal Reserve Banks now serve primarily the
selfish and pecuniary interests of the private banks, the independence of the
Federal Reserve System will be in danger. Whether the attack be a frontal
one, involving so-called nationalization of the Federal Reserve Banks, or
whether it be an encircling movement putting the Federal Reserve System in
with sprawling Government departments, subject to stereotyped Governmental
budget and accounting procedures, the independence and the regional character
of the Federal Reserve System—and, I believe, its effectiveness--will be
undermined. It can happen here, particularly if bankers themselves do not
take the trouble to broaden public understanding of the basic principles and
the organizational advantages of the central banking system which have evolved
in this country.
In defending what we have, however, and in trying to improve it as
we go along, we may be in danger at the hands of friends as well as critics.
Here I have in mind some of the fiction which, it seems to me, is getting
mixed up with the facts about our experiences during the war and post-war
period, and some of the loose language which is being used to describe our
recent adaptations of flexible credit policy.
I shall refer to the earlier period only briefly. It is becoming
part of the legend that during the war, and during the post-war years until
March 1951, the Federal Reserve System was the supine servant of the Treasury.
The demands of capsule treatment of a difficult period in credit policy and
debt management seem to make for such easy generalization. So far as the war
period is concerned, I think it is closer to the facts to say that the Treasury
and the Federal Reserve System reached an agreement, with some compromises
along the way, as to war financing and credit policy. It is quite true that
we lost our "independence", but we lost it to the inexorable demands of war.
It was not meekly handed over to the Treasury in abdication of our responsibilities.
The long post-war delay in dismantling war financing policies is
less defensible. Our problem was to recapture from the commercial banks of
the country, and other holders of Government securities, the initiative with
respect to the creation of reserve credit, and to restore the ability of the
Federal Reserve Banks to vary the availability and the price of such credit
to meet changing economic conditions. The problem was complicated by the fact
that the Treasury faced, during these years, an unprecedented job of funding
and refunding an enormous mass of public debt, and by the fact that large
segments of that debt had not yet settled into firm hands. The bases for
strong differences of opinion existed even though we and the Treasury professed
the same ultimate objectives. The result of our debates was a policy so
cautious, so hesitant, so distrustful of general credit measures, that credit
policy lost much of its effectiveness. It is worth remembering, though, that
during much of the early post-war period the Treasury was drawing in cash surpluses which were used, to a significant extent, to reduce bank reserves, and
thus to offset much of whatever harm was done by our release of reserves in
support of Government security prices.
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Federal Reserve Bank of St. Louis
.5
Here again, however, there was no meek surrender of independence;
this time it was a running fight all the way. And we did accomplish something
as early as 1947 with the unfreezing of short-term interest rates, which enabled us to offset with one hand, by sales of short-term Government securities,
what we. were doing with the other, in support of the long-term market. But
despite such qualifications, those who hold that we should have acted sooner
than we did to restore our freedom of action probably express the majority
opinion. But to impute our failure to a lack of courage, in defense of our
independence, is like sitting in the bleachers and demanding more courage of
some young men who are having all they can do to stay in the game.
There is one prime fact to be remembered, also. A more independent,
more effective monetary policy could not have prevented the post-war inflation;
at best it could only have slowed it down. The big damage had already been
done. The money supply of the country had been increased from $36 billion to
$102 billion during the war, without any similar increase in civilian goods
and services. The inflationary effects of this warborn development were suppressed but not eliminated by direct controls. They were bound to break out;,
unless we were ready and able to embark on a drastic program of deflation
which would have resulted in a decline in production, a decline in employment,
a decline in income, and a decline in consumption. I did not then and I do
not now believe that this would have been the right prescription for the
troubled post-war world, when so much depended on this country's economic
strength. A credit policy so drastic as to erase the inflationary effects
of war financing was not the answer. We had to grow up to the wartime expansion of the money supply through an increase in production and prices, moderated by increases in productivity. Perhaps we could have prevented some of
the increase of $10 or $11 billion in the money supply which took place in
1946 and 1947> hut the money and credit requirements of a massive readjustment
from a war economy to a primarily civilian economy would have made even this
doubtful.
When our economy had pretty well grown up to the new monetary magnitudes decreed by war and when, after the mild recession of 1949, the outbreak
of hostilities in Korea set off a new spiral of inflation, we did act promptly
and vigorously. This involved us, in August 1950, in a public knockdown and
dragout fight with the Treasury, which we had been trying to avoid for so long,
in what we conceived to be the national interest. The independence we then
asserted was broadened and affirmed in the "accord" of March 1951 > with growing support of banking and public opinion.
That support has. been evident ever since, and has found expression
in the findings of two Congressional committees charged with looking into our
actions and status. What we have to guard against now is renewed erosion of
our independence.
To illustrate this danger, I might quote from a weekly magazine of
enormous circulation, In a recent issue it published a picture of the Council
of Economic Advisers with the caption "President's Prophets" and then indulged
in some prophecy of its own about the anti-depression planning of the present
Administration. One section of this statement said that "the 'tight moneyT
policy, which has already been liberalized, would quickly be switched to fast
expansion of credit by decreasing Federal Reserve margins, resuming the pricepegging of government bonds, and stimulating instalment buying." The implication was that this remarkable hodge-podge is part of the Administration's
anti-depression planning, and that the Federal Reserve System is in the
Administration's pocket so far as the implementation of such a program is concerned.
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Federal Reserve Bank of St. Louis
Or take another example from a banking magazine published in London.
"The attempt of the Republicans to go back to Coolidge and 'sound money' has
failed before it started. At the first whiff of deflation Mr. Randolph Burgess
and Mr. Humphrey, the big battalions of the dear money and 'putting value into
the dollar' school, broke and fled, leaving the rearguard action to the hastily
organized open market operations of the Federal Reserve." Here we are tied in
with the monetary ideas of President Coolidge, and charged with being used as
expendables by the present Administration, when all the time we thought we were
acting on our own non-political initiative to accommodate credit policy to the
needs of a changing economic situation.
An
again become
It all seems
was given up
erudite domestic critic puts it more subtly. He says we have
subordinated to the Treasury by a process of intellectual osmosis.
to add up to the charge that the independence we achieved in 1951
again in 1953.
Now what exactly have we done during the past year? I shall leave
out the way we have done it, which has caused some intra-mural debate, and
confine my discussion to broad policies and broad objectives. The story cannot
be definitive, of course, because to a certain extent we have been pioneering,
and we shall need later judgments properly to assess the results. If we had
only to work by the book, we should not have had to cope with, first, inflationary excesses and then with deflationary dangers, while the Treasury was
almost continuously a borrower or prospective borrower of new money to meet
cash deficits„
My outline, then, will be just a broad sketch of policies as they
appeared at the time. In January 1953^ there was considerable general or nonstatistical evidence of some revival of boom psychology in business, supported
to some extent by the statistics of November and December 1952. On the other
hand, in the critical area of prices there was little confirmation and some
denial of the emergence of inflationary forces. We were concerned, however,
about consumer spending increasing faster than consumer income, the increasing
investment in inventories, and the possible consequences of the prospective
removal of remaining price and wage controls. The situation was characterized
as precarious balance at high levels. In such circumstances a continued policy
of mild restraint of credit expansion seemed indicated. In keeping with such
a policy and consistent with previous open market operations, the discount rate
was increased in January from 1 3/4$> to 2$, and gains in banking reserves, resulting largely from the return flow of currency from hand to hand use, were
offset or slightly more than offset by reductions in our holdings of Government
securities. As an indication of the mildness of this holding action, the
member banks gained about $1,200 million in reserve funds from January 1, 1953
to mid-March, through the return flow of currency and a decline in required
reserves, and lost a little over $1,300 million through gold and foreign account
transactions and a reduction in the Government security holdings of the Federal
Reserve Banks.
As we came into the spring season, however, the need for alertness to
signs of possible declines in economic activity increased, highlighted by the
decline in farm prices and farm income and the then unpredictable economic consequences of the cessation of fighting in Korea. At the same time, the pressure
of an unusually sustained private demand for bank credit was augmented by the
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Federal Reserve Bank of St. Louis
emergence of Treasury needs for new money, some of which would have to come
from the banks. These cumulating pressures, operating against a policy of
mild restraint on the part of the Federal Reserve System, converted that policy
into one of more severe restraint than the economic situation seemed to justify.
The risk of giving a final fillip to unwholesome inflationary developments, of
creating a bubble on top of a boom, had receded.
Taking cognizance of this situation the Federal Reserve Banks began
buying Government securities in the open market during the week ending May 13
and, before the month was out, a total of $157 million of Treasury bills had
been purchased. In addition the amount of reserve credit in the market was
increased by $125 million through repurchase agreements made with non-bank
dealers in Government securities. A net increase of $282 million in reserve
funds available to the market is no small chunk. It might have been considered
as a significant sign of a change in policy and of a prospective easing of
credit availability. But markets are creatures of expectations as well as
events, and the money market and capital market had become disturbed and
jittery, in the face of what they thought would be normal increases in private
demands for funds during the second half of the year, accompanied by Treasury
demands which seemed to grow in size with each new estimate. There was no
immediate reaction to our relaxation of credit restraint during May. We were
up against the fact that, at best, central banking is an art, not an exact
science, that there are lags of unpredictable duration between action and
reaction, and that our problems are still quite largely problems of human
behavior„
The market had to be shaken out of the view that credit would not
be readily available during the second half of the year, if we were not to
run the risk of giving deflationary influences a hard shove into the foreground, by reason of faulty market assumptions concerning future credit
policy. The action the System then took was precipitated in timing and
form--but not in substance--by the needs of the Treasury. Our open market
operations were stepped up in June, and lower bank reserves were announced
to take effect early in July. The cynic or the skeptic can say that this
reduction in reserve requirements coincided too neatly, in timing and amount,
with the reserve needs of the banks, as related to Treasury borrowing, to
pass muster as an act of credit policy,, The alternative, however, in the
face of the necessitous borrowing of the Treasury, was to allow that borrowing to press hard on bank reserves and on private financing, at a time when
the economy was no longer balanced between inflation and stability, but
between stability and deflation. It seemed to me then, and it seems to me
now, that it would have been economically unjustified to run the risk of
tipping the balance toward deflation.
From early July until early September, we followed pretty much a
hands-off policy while the economy moved sidewise at high levels and with
stability in the broader price indices. We had become convinced, however,
that it was safe to make our errors on the side of credit ease and, during
September, we began to anticipate the expected increase in demand for credit
during the last quarter of the year. The fact that private demands for
credit did not come up to seasonal expectations made it look as if we had
overshot the mark by our purchase of $359 million of Government securities
during September and the first week of October, and this exposed us again
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Federal Reserve Bank of St. Louis
8
to the charge that we had "become creatures of the Treasury's needs. I have
no hesitancy in saying, however, that our policies were dictated primarily by
economic factors, other than the Treasury's debt management problems, and
that whatever mistakes we made were not dictated mistakes.
It is an unfortunate fact that our estimates of what may happen to
bank reserves from day to day and even from week to week, as a result of
ordinary market factors, are not too accurate. Over a longer period they
come out pretty well, but the intervening swings may be wide. If we were
going to give the business community and the money market a lead as to credit
policy during the last quarter of the year, when it seemed necessary that
there be no question of the continued availability of reserve funds, we had
to run the risk of overshooting our immediate objective in order to achieve
the longer term result.
When the demand for reserve funds again began to catch up with the
supply at the end of October we resumed open market purchases of Government
securities and carried on through the year-end. And, as the special demands
of the year-end began to impinge on the central money markets, while the reserve position of the rest of the country remained easy, we gave special
relief to the money market by reducing from 2 to 1 3/4 per cent the rate
applying to repurchase agreements with non-bank dealers in Government securities. In this way the dealers were enabled to supply a temporary home for
short-term Treasury securities which corporations and others wished to convert into cash in connection with year-end adjustments, and the banks were
provided with additional reserves with which to meet seasonal demands.
There, in brief, is the story. We have been trying to do what it
is possible for monetary management to do in helping to maintain a high
level of production and employment without encouraging inflation or deflation. In the process we have moved from a policy of mild restraint, when
the business situation still had some aspects of a "boom", through a brief
period when market expectations induced more vigorous restraint than we had
contemplated, to a policy of increasing ease, as signs of a modest and
gradual downturn in the economy became more and more evident„ At no time
since last June has there been any real concern about the ready availability
of reserve funds needed to support the credit requirements of the economy.
On the record, therefore, and without claiming too much credit for
what has happened, because monetary policy, at best, is only one part of the
picture, I would say we have been reasonably successful. Up to the end of
1953 adjustments which were taking place in the economy proceeded gradually,
without setting off a chain reaction of downward movements. If this continues, present policies plus the normal forces of growth in our economy,
which are very strong, should be sufficient to reverse the movement before
it has gone too far, too fast. If a cumulative decline should appear to be
getting under way—if this second transition from "war" to "peace" should
show signs of economic breakdown—it would be necessary to try to check the
movement with more positive measures,
I now submit that the record of the Federal Reserve System during
the past year has been the record of an independent central banking system,
performing its functions within the framework of the American political
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Federal Reserve Bank of St. Louis
system, and in the light of the economic conditions with which it was confronted. It is less than accurate, and less' than fair, to try to shove it
"back into a niche at the Treasury. To be sure our policies have been consistent with the over-all economic policies of the Government, and have
coordinated well with the debt management policies of the Treasury. That is
what you would expect when reasonable men have the same objectives and are
working from the same set of facts in formulating their policies and programs
We do not seek to use our independence to oppose Government, merely for the
sake of showing our independence. That would be intolerable and impossible.
As I have said before, our independence is within the Government of the day;
we cannot be independent of the Government. But neither can we afford to
be--even be suspected of being--Independent within the Government when it is
of one complexion, and subservient when it is of another. If that should
happen, our independence would be a sham, and would be destroyed with the
next turn of the political wheel of fortune.
That is why I have taken your time and tried your patience with
this review of our policies during the past year. It is important that they
be understood, if we are not to begin to slip again into a situation which,
eventually, would bring the independence of the Federal Reserve System into
jeopardy.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Date October 18, I960
To
Chairman Martin
From Jerome W. Shay
MESSAGE:
Earlier today I sent you
excerpts from various hearings at
which you testified and during which
there was some discussion of circumstances under which a resignation
might be offered.
In this connection, you might
like to review also the attached
copy of a memorandum to you from
Mr. Solomon in 195>U regarding term
of office of Board chairman.
Attachment
cc: Mr, Molony
Message delivered by
F.R. 468
Rev. 1/47
COPY
May 12, 195U.
Chairman Martin
Terra of Chairman of Board
Mr. Solomon
of Governors.
You have inquired as to the meaning of the provision in
section 10 of the Federal Reserve Act -which states that:
"Of the persons thus appointed (as members of the Board),
one shall be designated by the President as chairman and one
as vice chairman of the Board, to serve as such for a term of
four years."
Two questions arise in connection with the provision. The
first is whether the four-year term begins all over again with each
designation of a Chairman, or whether there is such a thing as filling
the remaining portion of a term. The second question is whether or not
the President can revoke the designation after it has been made.
How Term Huns. - On the first question there is an administrative practice that the designation is for a full four years from the
time of the designation. The first time the question arose was when
Chairman McCabe was designated. His designation was dated April 15,
19U8* two months and 15 days after the four-year designation of his
predecessor had ended, and it designated Chairman McCabe "to serve as
such for a term of four years, unless and until his services as a member
of said Board shall have sooner terminated." The same language was used
when you were designated as Chairman on April 2, 1951. The question is
not free from doubt, but the administrative practice would certainly be
persuasive, and the chances are that it probably would be followed in
the unlikely event a court should have occasion to pass on the question.
Whether President Can Revoke Designation. - Although some arguments can be offered to the contrary, it is my opinion that the President
should be considered to be without authority to revoke the designation of
a Chairman of the Board. The specific provision for a four-year term suggests on its face an intention to provide a definite and irrevocable term
for the Chairman, and both the nature of the office and the history of
the changes which were made in this provision in 1935 reinforce the plain
meaning of the words.
The law before 1935 simply said the Chairman was to be designated by the President, with no reference whatever to any term of office.
The version of the bill which passed the House in 1935 would have had
the Chairman "serve as such until the further order of the President".
The Senate changed this to the provision which is now in the law, and
which provides for a four-year term. The change from no provision at
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Federal Reserve Bank of St. Louis
Chairman Martin
-2-
all in the previous law, and from the contrary provision in the House
version of the bill, emphasizes the intention to provide a fixed term
for the Chairman. It is only reasonable to assume that Congress did
not intend a meaningless, futile act when it added the provision for a
fixed term.
It is significant that at the same time that it made this
change, Congress terminated the membership of the Secretary of the
Treasury and the Comptroller of the Currency on the Board, and also
provided that members of the Board may be removed from office only
"for cause". These steps, like the prescribing of a four-year term
for the Chairman, were clearly part of a pattern of increasing the
independence of the Board.
Some cases have held that the President may remove an official he has appointed even though the appointment was under a
statute which provided for a term of years. However, the provisions
in those cases did not have the clear legislative history that is
present here and, in addition, they involved officers who had purely
executive functions, as for example a district attorney. The courts
have distinguished the tenure of such purely executive officers from
that of officials, such as the Chairman of the Board, who have important quasi-legislative or quasi-judicial duties. Accordingly, I
do not believe those cases apply to the present situation, and they
do not alter my opinion that the President is without authority to
revoke the designation of the Chairman of the Board.
cc: Mr. Cherry
FS: lim
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Federal Reserve Bank of St. Louis
B O A R D DF G O V E R N O R S
DF THE
FEDERAL R E S E R V E SYSTEM
Office Correspondence
To
Chairman Martin
Frnm
Woodlief Thomas
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Federal Reserve Bank of St. Louis
pate November 2,
Subject:
Following my discussion of reserve requirement
proposals at a Board meeting, you suggested that the
Board would like to have a memorandum covering the material that I presented. Attached is a copy of a memorandum
•which I have prepared.
The principal purpose of this memorandum is to
serve as a basis for discussion at the meeting of the
System Committee on Reserve Requirements. It should be
emphasized that although the material presented is based
in part upon deliberations and studies of the Committee,
the selection of material and the views expressed are
mine and may not represent the views of other members of
the Committee or of the Board1 s staff. Following the
scheduled meeting on November 10, the Committee may wish
to present to the Board a progress report of a different
sort
-
a
o
y
Attachment
November 1,
REVIEW OF RESERVE REQUIREMENT PROPOSALS AND STUDIES
(Draft for Committee Consideration)
For twenty-five years or more, the Federal Reserve System has given
frequent consideration to the desirability of altering the system of computing
reserve requirements for member banks<> It has come to be recognized that the
major function of bank reserves and reserve requirements from the standpoint
of Federal Reserve policy is to limit the capacity of the commercial banking
system to expand credit and create money<, Hence reserve requirements provide
an important mechanism for the Federal Reserve authorities to use in their
policy actions designed to influence the volume of bank credit and the supply
and use of money. Nevertheless, any particular system or structure of reserve requirements that contains variations with respect to types of deposits
or locations of banks affects individual banks differently in accordance with
the nature and place of their business. Such variations should have a defensible reason and should be devised so as to not be inequitable with respect
to individual member banks.
There are two primary sets of reasons for various proposals that
have been made for reform of the reserve requirements structure:
1, The inadequacy of the existing system as a means of exerting effective control over the volume of bank credit and the supply
and use of money has been the major reason for some proposals,
which are designed primarily to affect the level of reserve requirements.
2, Questions of equity as among individual banks and of efficient administration of reserve requirements have occasioned
other proposals, which are concerned primarily with the structure
of reserve requirements rather than the level of reserves*
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Federal Reserve Bank of St. Louis
- 2Plans Designed to Improve Control Function of Reserve Requirements
Several plans have been considered in the past twenty-five years for
the purpose of improving the function of reserve requirements in exerting control over the level of reserves and hence over the supply of credit and money.
None of such proposals has been actually adopted, except authority to the
Board to raise and lower the reserve percentages within designated limits on
the basis of the existing structure. Stricter regulation with respect to the
definition of time deposits may also have affected slightly the level of requirements by removing a potential loophole» Among the proposals, the more
important were as follows:
•*•• Y.e.'f:loc^y reserve proposal. This plan, suggested in the early
1930s after a careful and comprehensive study of the function of reserve requirements by a System committee, was in part designed to improve the structure of requirements. It also aimed to enhance the control powers, particularly to correct weaknesses indicated ty the use of credit—bank and nonbank—
in the stock market speculation of the 1920s. Another aim was to close a loophole that appeared in the 1920s owing to the loiver requirements against time
deposits.
The proposal would base requirements in part on the volume of deposits with no distinction as to type of deposits and in part on the rate of
turnover of deposits as measured by the volume of checks drawn against or
withdrawals of deposits. Thus reserve requirements would reflect the rate of
use of money as well as the volume of money. This proposal ?;as given considerable study in the 1930s and was recommended to Congress by the Board. It
was never pushed vigorously, partly because during that period of small credit
use and large excess reserves it would not have been particularly effective,
nor was it needed. Certain difficulties of administration also raised some
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Federal Reserve Bank of St. Louis
-3 opposition to the plan,/ The problem of time deposits was largely corrected
by new legislation and regulation in the 1930s and granting of discretionary
authority to raise requirements offered a more effective means of absorbing
redundant reserves when the occasion arose0
Various
proposals have been sug-
gested to impose higher reserve requirements on increases in deposits beyond
some basic level or ceiling than on deposits below that level. The first
such proposal was designed to absorb some of the excess reserves caused ty
the continued gold inflow of_the^!930sa
These reserves threatened to go be-
yond the capacity of the System to absorb them under its then existing powers
and resources. The ceiling proposals were considered again in the 19l*0s as a
possible means of absorbing reserves created by the System policy of supporting Government security prices,
3* Special or^security reserve Pj-ans*. Proposals were made in the
19^0s for requiring banks to hold supplementary reserves in the form of shortterm Government securities, These were designed to deal with the problem of
Government security price supports.
U, Asset reserve proposals. Proposals have been made from time to
time that bank reserve requirements should be based upon types of assets rather
than upon deposits. These in essence would impose a sort of qualitative credit
control over banks by imposing larger reserve requirements on certain types of
assets than on others.
Present status. Although proposals for reserve requirement systems
designed primarily to provide for changes in the total volume of requirements
have been justified at times in the past, it is questionable whether at present
any additional authority of this sort is needed, TTith the System open-market
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Federal Reserve Bank of St. Louis
n
-U-
fiJJ I
portfolio as large as it now is and with freedom to use it, it is likely that
existing reserve requirements are higher than necessary to give the Federal Reserve authorities adequate means of restraining credit growth. During the past
two years, requirements have been reduced and, with continued growth in the
economy and in monetary needs, further additions to reserves or releases of
existing reserves will be needed by the banking system.
Ihese could be sup-
plied through Federal Reserve purchases of Government securities, but it appears likely that the vSystem portfolio is already more than adequate and need
not be further enlarged. Hence reductions in reserve requirements from time to
time may be an appropriate means of making available additional reserves needed.
Such action would also make possible a further increase in earning assets of
commercial banks and therefore facilitate the raising of additional capital
which may be desirable on other grounds. Consequently, it would appear that
any alterations in the method of computing reserve requirements would need to
be justified on the basis of eguity and administrative_cpj^iderations rather
than to give any additional authority for increases in the level of required
reserves.
Revisions in^Structure for Equity and Administrative Reasons;
Among defects to be found in the existing structure of reserve require
ments from the standpoint of equity as among individual banks and of efficient
administration, the following are the more important:
1. Vault cash. Exclusion of vault cash from eligible reserves is
both inequitable and irrational.
Cash held by the banks in their vaults, al-
though for working purposes, in effect serves the function of reserves in that
it places some limitation on the capacity of those banks to expand credit.
Moreover, vault cash can be obtained by banks only by giving up reserves to the
Federal Reserve Banks. In turn, currency can be supplied by the Federal Reserve
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Federal Reserve Bank of St. Louis
-$.Banks through the issuance of currency, which is a Federal Reserve liability
similar in nature to member bank reserve balances. The amounts of vault cash
that must be held, moreover, vary considerably from bank to bank according to
type of business and proximity to the Reserve Bank or branch. This means that
some banks must have larger cash holdings than other banks, and thus have
less to lend or invest. These differences are illusrated in Table I.
TABIE I
Selected Ratios of Vault Cash to Net Demand Deposits
(Per Cent)
Country Member Banks
Central Reserve
City Banks
New York Chicago
Reserve
City
Banks
Total
With interbank demand
deposits of
$3 million
or more
Average ratio
.6
.6
1.8
3.8
3.0
Highest ratio
2*7
3.8
17.8
-){•
S.I
.ij.
.3
-;c-
.9
Lowest ratio
I/
Middle 90 per cent:
High
2.6
2.8
6.0
•5C-
Iu9
Low
.1
.1;
*8
-X
US
I/ Less than .05 per cent,
*
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Federal Reserve Bank of St. Louis
Not computed.
- 62. Classification of banks. The existing classification of banks according to groups of cities creates a number of inequities.
This classification
has derived from the system of reserve depositories that was established under
the National Bank Act, before the Federal Reserve System came into existence.
The basis of classification was originally the holding of interbank deposits,
but the higher and lower requirements apply not to interbank deposits alone but
to all demand deposits held \yy the banks. Since the inauguration of the Federal
Reserve System, the location, the amounts, and the extent of use of interbank
deposits have changed considerably. A number of banks in lower classifications
hold relatively larger amounts of interbank deposits than most banks with
higher classifications*. Some banks in the higher classifications hold relatively little or no interbank deposits0
The task of designating reserve cities and the determination of exceptions for individual outlying banks present difficult administrative and
judicial problems for the Federal Reserve Board* It is clear that there are
glaring inequities among individual banks vfith respect to classification but
under the existing law it is not possible to correct these inequities without
creating new ones.
3* Alloivance_j>or_Jbalances due from banks. Another aspect of interbank balances which has not heretofore been given much consideration is that
for banks owning the deposits which are carried with correspondents these
balances serve in effect the same function as reserves in that they limit the
capacity of the owning bank to extend credit on the basis of a given volume of
deposits.
The depositing banks in effect pass on a part of their cash reserves
to the banks receiving the deposits, yet the former obtain only a small reserve
credit through permission to deduct amounts due from banks from their deposits
in computing reserve requirements and thus cannot extend credit on the basis
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Federal Reserve Bank of St. Louis
- 7of these reserves. While city banks must hold larger reserves against these
balances, they obtain from them additional funds to lend or invest. Since the
carrying of interbank balances seems to be an ingrained and perhaps an essential feature of our structure of small unit banks, the country banks must in
practice hold more of their cash in this form than do banks in the central
money markets. Any system of reserve requirements should make allowance for
this practice.
To a considerable extent under the existing system, inequities resulting from the exclusion of vault cash and the inadequate reserve allowance
for balances due from banks are compensated for by the differentials in reserve requirements against deposits for the three classes of banks. This compensation, however, is more or less haphazard and does not work equally for
individual banks0
vs. nonmember ^ank r_e^mr^mejnts_. Under the existing structure of reserve requirements the position of member banks of the Federal Reserve
System is less favorable than that of most nonmember State banks. If it should
become essential for the Board to raise requirements for member banks, these
inequities would be increased and the effectiveness of restrictive credit policies lessened. Positions of member banks relative to nonmember banks would be
improved if member bank reserve requirements were lowered nearer to a level below which State banking authorities would be willing to reduce nonmember requirements. Any lowering of member bank requirements would present an opportunity to
make alterations in the structure of reserve requirements in a way that would remove some of the inequities among the individual member banks.
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Federal Reserve Bank of St. Louis
- 8Uniform Reserve Plan
Various plans have been considered for removing inequities in and
improving administration of the system of reserve requirements.
One of these
was the velocity res^™*- proposal, which has already been discussed. The most
comprehensive recent suggestion for changing the structure of reserve requirements was the so-called uniform reserve plan, first suggested in 19U3. This
plan was worked out by a staff group within the Federal Reserve System and was
based in part upon ideas that had been evolved principally in the Board8s Division of Bank Operations. It was presented informally as an illustration of
the nature of the problem to the Board and the Reserve Banks, to the Federal
Advisory Council, and to a subcommittee of the Congressional Joint Committee on
the Economic Report, The essential features of this plan were as follows:
1. Classification of banks by cities would be eliminated.
2. Higher reserve requirements would be placed on interbank
deposits than on other demand deposits«> Requirements against time
deposits would continue at a lower level than those against demand
deposits,
3. Banks would be given a reserve credit for balances due
from other banks equal to the required reserves that the depository
banks were required to hold against these balances,
lu Vault cash would be included as reserves,
£. The Federal Open Market Committee would be given authority to change percentages of requirements within limits to be
fixed by statute.
The principal objections raised against this proposal were that it
would substantially raise requirements, either absolutely or relative to other
banks, for banks, particularly country banks, having a large proportion of deposits in balances due to other banks. At the same time, it would lower requirements for some city banks with relatively small amounts of interbank balances. There was also some objection on the part of banks to doing away with
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Federal Reserve Bank of St. Louis
- 9the reserve city classification. Putting the plan into effect would involve
substantial transitional adjustments, particularly if it were done at a time
when it was undesirable to lower total requirements,, Since this was the case
most of the time from the end of the war until 1953, adoption of the proposal
was not given serious consideration during that period, although from time to
time studies of it were made v;ith a view to its possible adoption as a means
of raising requirements.
Modified Uniform Reserve^jProposals
In the summer of 19£3 some modifications of the uniform reserve proposals were presented by the Board's staff for consideration by the Board and
were sent to the Reserve Banks for comments. The modifications in the 19U8
plan were designed to ease the transition from the existing to the new system
and also to retain classification of banks and make more adequate allowance for
correspondent banking.
There were two modified plans. Both of them were similar to the 19U8
plan in that they would count vault cash as reserves; would give a reserve
credit for balances due from banks; would have uniform reserve requirements
against demand deposits (other than interbank) for the different classes, as
well as similar requirements for time deposits; and would have authority in the
Board to change requirements within limitsa
The modified plans differed from
the 19U8 plan in that they would establish two classes of banks—reserve depository banks and other banks, YJlth different requirements for interbank balances. Banks would be permitted to choose the classification in which they
ivanted to be.
Modified Plan A would set higher requirements against interbank deposits than against other demand deposits, but these applied only at the reserve
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Federal Reserve Bank of St. Louis
-"10*- '
depository banks. The depositing banks would be given reserve credit equal to
this higher requirement for such balances. Requirements against other demand
deposits would be uniform. Plan B would set uniform requirements against all
demand deposits—interbank and other at both classes of banks—but would
authorize a higher reserve credit for depositing banks for balances carried
with reserve depository banks. The latter proposal would give greater recognition to the role of correspondent banking; but it was subject to the objection
that it would allow some pyramiding of reserves and thus would restrict Federal
Reserve control over the supply of reserves. Because under each plan the
higher reserve credit would be allowed only for balances with reserve depository banks, any banks wanting to attract correspondent bank balances would
probably have to choose to be in the reserve depository class.
More Moderate Proposals
As an alternative to proposals for fundamental revision of the reserve
structure, suggestions have been made from time to time for revisions which
would correct only more glaring defects in the existing system without changing
its essential nature. These proposals would call for legislation permitting
vault cash to count as reserves and authorizing the Board either to classify
individual banks rather than cities or to grant more exceptions for individual
banks within reserve and central reserve cities. These proposals would generally
involve no change in the existing statutory limits as to percentages of reserve
requirements or in the existing authority to change them, although in putting
them into operation the Board would make some changes in requirements within
those limits to bring about a nearer approach to uniformity.
Proponents of these suggestions expressed the view that, with the
minimum revisions suggested, the Board could make adjustments which would remove
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Federal Reserve Bank of St. Louis
-11 most of the important inequities in the existing structure. The Board could
use a variety of criteria in classifying banks. Specific criteria might be indicated in the legislation or the Board might be given authority to set up its
own criteria.
Putting such proposals into effect would result in substantial reductions in reserve requirements for most banks if increasing those for some
banks is to be avoided. The effect of any such total additions to reserves
could be offset by Open Market Committee sales of short-term Government securities without unduly depleting the Systemjs portfolio.
Comments on the Ifodified_Proposals
Comments received from the Federal Reserve Banks in 195>3 with respect
to these recent proposals indicated a majority opinion that some change in the
reserve requirement structure is desirable, although a few questioned the need
for any change. Each particular proposal, however, was opposed by a majority
of the Reserve Banks. There was considerable objection to the elective classification of banks suggested in the modified plans, but the nature of some of the
objections indicated that perhaps the implications of the idea were not fully
recognized by some of those objecting to it.
The more moderate or minimum approach was generally viewed in 19f?3 as
inadequate by most of the Reserve Banks, many of whom thought it would not be
advisable to request that vault cash be permitted to count as reserves without
accompanying this modification with a more fundamental revision in the reserve
requirement structure. More recently there have been a number of expressions of
interest in the minimum approach as a means for quick action in case the situation called for substantial modification in reserve requirements.
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Federal Reserve Bank of St. Louis
- 12 Although the uniform reserve proposal in its 19^8 form has not been
again presented for consideration, voluntary and incidental comments by many
of the Reserve Banks last year indicated considerable feeling in favor of the
plan, The principle of requirements based on type of deposits rather than on
location of bank is viewed with favor by a large number of persons, both in
and out of the System.
Further Study _of Problem by Staff Committee
Study of the reserve requirement problem has been continued by the
Board, It was felt that the Board should be prepared to present some plan in
case one were requested by Congress or considered "by the Board to be desirable,
or at any rate should be in a position to pass judgment upon any plans that
might be proposed from other sources,. Accordingly, the Board set up a committee composed of Federal Reserve Bank staff members to work with members of
the Board's staff in studying the problem,, The committee is to give further
study to the problem of reserves and the possible impact of various proposals
upon individual banks. On the basis of these studies it might be possible to
prepare a suitable plan that the Board might propose in case some such proposal
seemed desirable.
This committee has had one meeting to explore the problem. At this
meeting some members were impressed with the desirability of early action on a
minimum attainable basis. Others felt that before recommending action there is
need for study of the basic questions of the purposes and functions of reserve
requirements and of the effect of particular changes* Although there was
general agreement upon some important points, the members of the committee held
rather vsride differences of views as to the particular details of possible changes
in reserve requirements. The committee decided to proceed with studies of many
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Federal Reserve Bank of St. Louis
-33—
aspects of the problem and assignments were made to various individuals to carry
out these studies. A list of the studies now in process is as follows:
1.
2.
3.
U.
5.
6.
7.
8.
9.
Role of reserve requirements
Optimum level of reserve requirements
Shortcomings of existing system of reserve requirements
Problems in bank classification
Central reserve cities
Branch bank classification
Interbank balances
Deposit activity
Reserve differentials - a concluding study
Preliminary drafts have been received for six of the eight basic
V
studies under preparation^ These manuscripts indicate that a searching attempt has been made to achieve a better understanding of the purposes and functions of reserve requirements, the operations and shortcomings of the existing
reserve requirements mechanism, and the difficulties in trying to develop a
better system of requirements. At the same time,, the manuscripts reveal substantial differences in views among the various members of the Committee on some
basic issues and bring to light a number of areas in T7hich further study would
be desirable before definite conclusions could be adequately supported.
Points of ^Agreement
It might be said that there is general agreement upon the following
points:
1. The major function of legal reserve requirements is to
establish a framework for controlling the supply of credit and
money, i.e., to serve as a tool of monetary policy.
v 2, The existing system of requirements is workable for the
purpose of regulating the money supply.
3. Authority to raise or lower the level of reserve requirements is needed but it would appear that existing limits would provide an adequate range for most foreseeable circumstances. Although
These manuscripts have been reviewed in a staff memorandum on "Current Issues
in the Reserve Requirement Study" that has been given to members of the Committee on Reserve Requirements,
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Federal Reserve Bank of St. Louis
the pi^esent level of reserve requirements is probably higher than
necessary,, the statutory powers for reduction are adequate. Also, in
view of the possible growth of the economy and barring extremely large
gold movements or return flow of currency, it is likely that the existing power to increase requirements will be more than adequate for the
future.
Uo As between the broad classes of member banks, the inequities
in the existing structure of requirements may not be as great as has
been commonly believed when allowance is made for the additional working balances in the form of vault cash and deposits with correspondents^,
that banks with the lower legal requirements apparently find it necessary to carry. These working balances serve the function of reserves
for the banks owning them^ The question of whether this is an appropriate standard of equitableness may be subject to some debate and
require further study.
£. For individual banks within classes, however, there are inequities of a fairly serious nature and there are also administrative
difficulties in classifying banks, The more important changes needed
to correct these defects include the following:
(a) Permit vault cash to be counted as reserves,,
(b) Discontinue the reserve classification of banks, making
reserve requirements vary only with respect to types of
deposits, or base classification on individual banks
rather than cities, or at least permit more exceptions
of individual banks in reserve cities.
Questions for Further Consideration
There remain many unsettled questions regarding various aspects of the
problem.
These include some matters of principle regarding the purposes of re-
serve requirements, various details with respect to an appropriate structure of
requirements, and the need for more information as to the effect of particular
changes that might be considered. Some of the more important of these questions
are as follows:
1. Should there be further analysis of the basic function of
reserve requirements, with view to evolving new criteria, or should
the principle that the function is to regulate the money supply be
accepted as basic premise?
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Federal Reserve Bank of St. Louis
- 152. What criteria should govern the general level of requirements
and what provisions should be retained for changing* the requirement percentages as a means of varying the level?
3. What is an appropriate reserve requirement base?
(a) Types of deposits?
Should there be higher requirements for interbank balances?
How high, if any, for time deposits? Should
there be a distinction between savings and
other time deposits?
Should other classifications of deposits be
considered, such as foreign, large, business
deposits?
(b) Types of assets - should reserve requirements be used
as a form of qualitative credit control?
(c) Deposit turnover - velocity?
(d) Growth in deposits?
iu What should be done about classification of banks or cities?
(a) Should classification of banks be completely abandoned,
with requirements based entirely on type of deposit?
(b) Should classification of cities continue on the basis
of some specific criteria, with exemptions for individual banks?
(c) If classification of individual banks is employed,
what should be the criteria of classificationtotal deposits due to banks, net amounts due to
bank less amounts due from bank, total volume of
deposits.) turnover of deposits? How specific should
the law be with respect to these criteria?
Analysis of Classification of BanksrSome study has been made as to variations in holdings of interbank deposits by individual banks in different classes*
This study was undertaken in
I/ This section presents some . of the preliminary results of studies in process
on a particularly significant aspect of the problem. These results are
tentative and further studies may be needed before final conclusions are
accepted.
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Federal Reserve Bank of St. Louis
- 16 part to inquire into the feasibility of classifying banks for reserve purposes
according to their holdings of interbank deposits.
Tests were made according
to amounts of balances due to banks and also according to the net difference
between balances due to banks and thosadue from banks. Some of the differences
are illustrated in Table II.
It appears from this analysis that any classification of banks based
on holdings of interbank deposits would involve substantial shifts from existing classification.
Also the number of shifts and the particular banks affected
might vary substantially according to the criteria used, For example,
Of 35 central reserve city banks from 15 to 23 should have
lower classifications, and h to 10 of them might be
country banks*
Of 315 reserve city banks, 10 or more should be central reserve city banks and 100 to 165 should be country banks*
Of 209 country banks with balances due to other banks of over
$1 million, anywhere from 30 to all, depending on the
criteria adopted, should be reserve city banks.
Before suggesting that banks be classified on any such basis, further
study is needed of magnitude of effects and of other possible criteria.
Basis for Differentials by Classes of Banks,-'
Many inquiries into the reserve requirement structure and its problems
have come forth with the conclusion that it would be desirable to abolish classification of banks and to adopt a system of uniform reserve requirements by type
of deposits,, lAdoption of any such proposal, however, has run into the difficulty
that requirements of country banks would be raised relative to those of city
banks. This would seriously disturb established relationships among banks and
groups of banks and create difficult transitional problems. Permitting vault
I/This section presents some of the preliminary results of studies in process
on a particularly significant aspect of the problem. These results a re
tentative and further studies may be neeced before final conclusions are
accepted.
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Federal Reserve Bank of St. Louis
- 17 TABLE II
VARIOUS CLASSIFICATIONS OF MEMBER .BANKS
BASED ON INTERBANK DEPOSITS I/
June 30, 1953
New
Classification
Total
Present Classification
Central
Reserve
Reserve
City
Country
City
559
35
315
209
22
208
329
12
13
10
10
155
150
0
UO
169
20
168
371
12
Ik
9
8
1U2
165
0
12
197
22
12
10
0
216
17
169
30
321
6
136
179
70
21
U9
0
393
96
10
b
m92
209
0
Basis No. 1 - Gross "due to" of
C.R.C. - Over $100 million
R.C. - $6 to #100 million
Country - Under $6 million
Ra
OT o 1\T/"N
Mo-f tfHnei
r\H
.DSS-LS
1MO. 9
C •" ivuu
U.U6 4-UU
nf
OI
C.R.C. - Over #100 million
R.C. - #U to #100 million
Country - Under #U million
"Ro on Q Mn
"^ .» iVfn vorl
C.R.C. - Gross of over #100 million
R.C. - Gross of under #100 million
with gross over $10 million
or net over #1 million
Country - Gross of under #11 million
and net of $1 million or
less
Basis No. k - Mixed
C.R.C. - Net of over 425 million
R.C. - Net of under $25 million
and gross of #1 million
or more
Country - Gross under |1 million
I/ All central reserve and reserve city banks and those country
banks that have balances due to banks of $1,000,000 or over.
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Federal Reserve Bank of St. Louis
-18cash to count as reserves would diminish the effect of this change for some banks
but by no means remove it as compared •with the present levels of requirements.
It might be said, however, that the existing lower requirements for
country banks or higher ones for city banks have no rational basis and should
be removed by adopting a set of requirements that would be uniform for all banks.
This might be done without actually raising requirements for country banks by
lowering those for city banks and absorbing the reserves released, as may be desired, by Federal Reserve open market operations. Analysis of the over-all
cash holdings of banks, however, reveals that the existing differentials in required reserves are in practice fully compensated for by holdings of other cash,
including cash in vault, balances due from other banks, cash items in process
of collection, and excess reserve balances at Federal Reserve Banks.
This
analysis shows (1) that ratios of the total of these cash items (excluding required reserves) to gross demand deposits for any particular broad group of banks
has been remarkably uniform throughout the postwar period; (2) that ?/hen required
reserves against demand deposits are added to these cash items the ratio of that
total to gross demand deposits for each class of bank is closely similar to
corresponding ratios for other classes of banks at any given time; but (3) that
there are persistent differences by districts and presumably by individual banks
in these ratios. Such ratios are shown in Tables III and IV.
It appears that banks on the average tend to maintain for working purposes certain rather fixed amounts of cash in addition to required reserves and
that these holdings broadly compensate for differences in required reserves among
the different classes of banks. Thus if bank classifications were abolished and
uniform reserve requirements were imposed on all demand deposits, interbank and
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Federal Reserve Bank of St. Louis
TABLE III
Ratio of Cash Assets Less Required Reserves to Gross
Demand Deposits and Applicable Reserve Requirement Ratio,
by Class of Bank, Selected Periods 19U7 - 195k
Period £/
March
20
6.5
10.8
19ii8 March
June
Sept.
Dec.
22
7-8
10 ol
I9kl
I
ON
Central Reserve City Banks
Reserve City Banks
Country Banks
Cash Asset
All Member Banks
Ratio
Res* Req« Cash Asset Res. Req0 Cash Asset Res. Req. Cash Asset
Res. Req.
Ratio
Deiru Deps.
Ratio
Time Deps.
Ratio
Dem. Depsc New York Chicago Demc Deps*
2k y
8.5
7.6
26
19i;9 June
Sept.
20
15.2
Ik
20.5
19.8
19.5
20.3
19.3
15.7
16.1
6
1U.5
1U.8
15.0
15*0
lii.9
8.9
10.7
9.7
10.1
22
15.9
15- k
16
2k
22
8.7
7-7
10.0
9-3
21
18
15.1
1U.9
12
19.1
21. k
7
5
lu.6
15.0
1951 March
2U
9.7
10.7
20
15.6
111
18.8
6
15.0
1953 Sept.
22
9.1
10.0
19
15.5
13
19.1
195U Sept.
20
9.9
10.3
18
15.2
12
20o7
15
7-1/2
15*1
5
a/ Averages of daily figures for first half of March, June, September, or December, except vault
cash which is a single date figure for the end of the preceding month. Periods have been
selected during or following each change in reserve requirements since
b/ Change in reserve requirement ratio during period.
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Federal Reserve Bank of St. Louis
15.8
TABLE IV
Ratio of Cash Assets Less Required Reserves to Gross Demand Deposits
by Class of Bank and by District, 19U8 and 195U
Reserve City Banks by District
All
Boston New York Phila« Clev. Rich. Atlanta Chicago St. Louis Minn » Kas. City Dallas San Fran. Districts
First half of:
June 19U8
March 195U
June
Sept.
11.2
15-5
13.1
1U.5 16.2
10.0
10.5
9.6
liloO
13*9
Iiu2
13.ii
lii.2 16.3 18.1*
1U.6 16.8 18.2
13.3 16 ol 17.7
Ui.5
lu.O
18.1
17-9
17.3
19.0
20 06
21.1;
13.7
16.1
16,0
15.9
15.2
16.0
17.1
16.2
17.2
19-2
17-3
19.0
19.0
16.U
19.8
20,3
20.5
13.9
lb.3
13.7
15-5
15.9
15.2
o
CM
Country Banks by District
First half of:
June 19l;8
March 195U
June
Sept.
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Federal Reserve Bank of St. Louis
17.8
17.7
19.1
20.0
22.3 20.8
20.0
17.5
19.0
20.0
22o3
17.0
19.5
17.0
17.1
15.9
16.1
16.7
18,3
18.8
19.9
17.6 22.1 22.9
17.6 22. U 20.8
19.9 2U.3 21.6
18.9
19.5
20.6
19.1
18, U
20.8
18.0
19-3
20.0
22.2
22.8
23.8
23.ii
25.8
18.9
19.2
19.3
20.7
17.6
22.2
18.8
19.5
- 21 bther^ country banks and to a degree reserve city banks would in effect be de1
prived of the lower Reserve requirements which now compensate them for having
to carry balances with other banks. They would either have to reduce their
balances with correspondents or would maintain much larger total cash holdings
relative to demand deposits than banks that find it possible to operate with
relatively small balances with other banks, particularly New York City banks.
It should be noted that all cash balances serve the function of reserves for the
banks owning them in that they limit possible extensions of credit by these banks.
It might be argued that banks obtain some advantages from carrying balances with
correspondents and hence do not deserve the compensation of lower reserve requirements; yet to shift to a different system without some allowance for established
practiceswould create serious transitional difficulties and might be of
questionable equity.
This difficulty might be reduced and less drastic changes from existing broad relationships result if larger reserves were required against interbank deposits than against other demand deposits, while abolishing differentials
between classes of banks. In this event, however, banks with a greater than
average proportion of interbank to total deposits would have relatively larger requirements than other banks and would also have a bigger increase from existing
levels than other banks in the same reserve class. Nor would this measure
directly compensate for differences in holdings of balances due from banks0
Banks holding substantial amounts of both balances due to and balances due from
other banks would be particularly penalized in terms of total cash holdings relative to other banks.
A more effective correction would be accomplished by permitting banks to
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Federal Reserve Bank of St. Louis
- 22 -
count as reserves a somewhat larger portion of their balances due from banks than
is now permitted, at the same time requiring , reserves against interbank deposits as high as the reserve credit allowed. Identity of these two figures would
prevent pyramiding or creation of reserves without Federal Reserve action.
Such
an arrangement would permit abolishing differentials by classes of banks and provide a closer approach to uniformity among banks in total cash holdings relative
to demand deposits.
This reasoning leads to the uniform reserve plan with relatively high requirements against deposits due to banks and equally as large reserve credits
for balances due from banks. It also furnishes a rationale for higher requirements against interbank deposits, in addition to, and perhaps better grounded
than, the reasons, heretofore used, of volatility, velocity, and expediency* It
does not, however, conflict with those reasons*
It recognizes the necessary
existence of correspondent banking in our banking structure and fits it more effectively into the reserve structure without sacrificing Federal Reserve control.
An Example
It may be possible to work out a structure of reserve requirements in
accordance with this rationale that would provide reasonable equity among banks,
involve little change in existing broad relationships, and furnish administratively feasible and simple procedures. Following is one possible scheme that is
presented for illustrative purposes*
Uniform requirements of 30 per cent against interbank deposits
l£ per cent against other demand deposits
5> per cent against time deposits.
With reserve credit of 30 per cent for balances due from banks and
cash items in process of collection
100 per cent for cash in vault.
# The Committee will wish to consider whether it wants to recommend any particular
plan at this time or even wishes to present one for illustrative purposes,
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Federal Reserve Bank of St. Louis
- 23 On the basis of the existing structure of deposits, this scheme, as
shown in Table V, would bring about a reduction of about $3,7 billion, or 21
per cent, in total required balances at Federal Reserve Banks. Percentage decreases for each of the broad classes of banks would be closely similar* The
resulting level of requirements at this time would be approximately the same as
would be obtained under the present method of computations (with no allowance for
vault cash) if requirements were as follows: Against net demand deposits - 16
per cent at central reserve city banks, lit per cent at reserve city banks, and
9 per cent at country banks; and against time deposits - $ per cent at all member
banks.
There would be greater variations from existing levels for individual
banks and probably also for different dates, but the results would probably be
more reasonable and equitable than the present ones. Some device for a ceiling
or maximum might be necessary to avoid increases in requirements for a few
individual banks, such as permitting them to carry either the amount required by
the new method or that required for reserve city banks under the present method.
Legislation to permit such a change should include authority for the
Board to raise and lower the percentages within some specified limits —- perhaps
20 to UO per cent for interbank deposits, 10 to 20 per cent for other demand deposits, and 3 to 6 per cent for time deposits.
This scheme is presented at this time as an example, not as a recommendation. Further study of the effect of t his and possibly other combinations would be
needed before determining whether to sponsor this scheme and if so what figures
to propose.
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Federal Reserve Bank of St. Louis
TABLE V
MEMBER BANK REQUIRED RESERVES ON PRESENT BASIS AND
UNDER A MODIFIED UNIFORM RESERVE FLAW
(Average of daily figures, first half of September 195U. In millions of dollars)
Central reserve Reserve
All
Country
city
member
city banks
banks
banks New York] Chicago banks
Basic data and present required
reserves
Interbank demand deposits
Other demand deposits
Net demand deposits
Time deposits
Cash items in process of collection
Due from banks
Vault cash (Aug. 25)
Reserve balances with F.R. Banks
Present required reserves
13,237
95,753
9U,653
39, Ola
7,1*32
6,906
2,057
18,366
17,577
3,971
18,1*26
20,3UU
3,671
2,015
38
lliQ
11,271*
U,252
6,657
35,788
36,720
15,37U
3,708
1,299
36,806
32,137
18,721
109
31
1,159
1,15U
2,017
1*,7U2
627
7,U8l
7,378
1,259
393
710
61*
1,997
1,309
U,733
5,1^52
1,271*
1*81
1,228
5,U53
i*,792
30-15-5 Modified Plan
3Q% of interbank
l5/=> of other demand deposits
5$ of time deposits
Total
Less 30/b of due from banks and cash
items in process of collection
Less vault cash
Required reserves with F.R. Banks
Decrease from present
requirements: Amount
Per cent
Ratios:
Cash assets (excluding required reserves against time
deposits) to gross demand
deposits.
Present basis
Under modified planf/
3,971
Ik, 363
1,953
20, 287
U,302
2,057
13,928
1,191
2,761*
181*
U,139
616
11*0
3,383
3,61*9
869
-20.8
-20. k
30.1
26,8
28.1
2U.2
1,167
177
31
959
195
-16.9
28. h
25.2
5,368
390
5,521
769
936
8,131*
6,81*7
1,718
1,791
1,259
3,797
627
5,789
1,589
995
-21.5
-20.8
30.8
27.0
30.8
28.2
I/ In this modified plan, exchanges for clearing house, items with Federal Reserve
Banks in process of collection, and all other reported cash items would be
treated the same as due from banks.
2/ Assumes that banks would continue to hold same amounts of cash assets other
than required reserves as they now hold.
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Federal Reserve Bank of St. Louis
BOARD OF G O V E R N O R S
or THE
FEDERAL RESERVE SYSTEM
^
e Correspondence
To.
Chairman Martin
From.
Elliott Thurstnn
Date
June 30. 1955.
Subject: Suggestions for board
appointed directors at Los Angeles
and Portland.
Los Angeles (2 vacancies)
The following names are offered for consideration in connection
with the vacancies on the Los Angeles board resulting from the resignations of Mr. Helms and Mr. Essick.
1. Shannon Crandall, Jr.
Hardware Company,
(53), President of the California
2. Charles Detoy (approx. 58), a partner of Coldwell Banker
and Company, realtors, of Flintridge.
3. Paul G. Hoffman (64), Chairman of the Board of StudebakerPackard Corporation, of Pasadena.
4. S. W. Royce (63), President and General Manager, PasadenaSheraton Hotels Corporation, Pasadena.
5. Carleton B. Tibbetts (59), President and General Manager,
Los Angeles Steel Casting Company, San Marino.
Also, in connection with the Class C vacancy at San Francisco,
last January, the name of someone associated with the California Fruit
Growers or Packers Association was mentioned by Mr. Wilbur, but a
thorough search of the files has not turned up the name of this individual.
Portland (1 vacancy)
For the vacancy created by the advancement of Mr. Welk to the
San Francisco Board, the following names have been suggested:
1. Henry J. Barbey (70), Vice President, Barbey Packing
Company, Astoria, Oregon.
2. Warren W. Braley (42), partner, Braley and Graham,
automobile dealers, Portland.
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Federal Reserve Bank of St. Louis
-2-
3.
Winston W 0 Casey (48), industrialist, Portland,
4. James C. Compton (71), President, Spaulding Pulp and
Paper Company, MeMinnville„
50
Elmer R, Goudy (55), lumber executive, Portland.
6. Wade Newbegin (48), President, R. M. Wade &: Company,
farm equipment, Portland.
7.
Harold E. Sanford (61), grain corporation executive,
Portland.
8. William L. Williams (58), President, Port of Portland
Commission, Portland.
Biographical data on these men are attached.
In connection with the vacancies at Los Angeles, you may want
to check these names with Mr 0 Freeman and also see whether he would
have any other suggestions.
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Federal Reserve Bank of St. Louis
•I
BOARD OF G O V E R N O R S
or THE
FEDERAL RESERVE SYSTEM
Office Correspondence
Tf>
rVha-i-rmar) Martin
Prnm
Date November 23,
Subject:
G. Canby Balderston
CONFIDENTIAL (FR)
Attached is a confidential analysis by Mr. A. ¥. Marget
of the Objectives, Functions, and Products of the Division of International Finance. It is the first Division to be thus analyzed
by its Director. After you have had a chance to study this report,
the individual and collective views of the members of the Board
would be helpful.
Attachment
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Federal Reserve Bank of St. Louis
November 2,
DIVISION OF INTERNATIONAL FINANCE
I. Objectives
1, Overall objective:
to enable the Board to discharge those func-
tions in the international field which fall to it as the Monetary Authority of the United States, especially by virtue of
the unique international position of the United States as the
economic and political leader of the free world,
2.
Objectives as adviser to the Board.
The Division should be able
a. To advise the Board of foreign developments affecting, or
likely to affect, the level and direction of domestic economic activity, and, conversely, of the effects of changes
in the level of domestic economic activity (including the
effects of domestic monetary policy) upon economic developments abroad.
b. To advise the Board of the significance of actions by foreign
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Federal Reserve Bank of St. Louis
central banks, and of foreign problems (including foreign
methods of dealing with them) which parallel the domestic
problems faced by the Board,
c. To advise the Board on economic aspects of international
operations and foreign relations of the Federal Reserve
Banks which, in accordance with Section llj(g) of the Federal
Reserve Act, are subject to special supervision by the Board,
(For further breakdown, see II, 2, below.)
- 2d. To advise the Board on the economic aspects (as distinguished
from the legal or examination aspects) of the international
and foreign operations of member blanks. This involves (i)
matters for which the Board has regulatojry responsibility
(including Edge Act and Agreement corporations and their
subsidiaries, regulation of acceptance financing, and the
establishment of branches abroad); (ii) matters in which
the Federal Reserve System may have a policy interest (such
as financing of gold transactions and the making of foreign
loans by commercial banks, or the foreign exchange transactions of such banks); and (iii) matters relating to the
effectiveness and competitive position of American banks in
the foreign field.
e. To advise the Chairman of the Board; or his designated Alternate on the National Advisory Council on International Monetary and Financial Problems, on all matters requiring action
by the N.A.C.
f. To advise the Board (or the Chairman) on matters of interna-
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Federal Reserve Bank of St. Louis
tional financial policy requiring testimony before Congressional Committees or replies to individual Senators and
Representatives. Related to this is the preparation of
special memoranda for Congressional Committees. (Examples:
memorandum on foreign Treasury-Central Bank relations for
the Joint Committee on the Economic Report5 replies to international questions included in Patman Subcommittee questionnaire, etc.)
- 33. Objectives as representative of the Board.
The Division should be able
a«
To participate, on a basis similar to that of other N.A.C.
agencies, in the staff work of the N.A.C. I/ ^ ^s expected
that the Federal Reserve staff representatives will have a
special responsibility for all N.A.C. matters affecting
monetary policy.
be
(Fcr further breakdown, see II, 6, below.)
To participate, on a basis similar to that of the other agencies represented, in a review of documents prepared by the
inter-departmental United Nations Economic Committee (UNEC)
and the inter-departmental Committee on Inter-American
Economic Affairs. 2/ (The purpose of participation in these
two committees is primarily to make sure that no position is
adopted as the "U. S. position" which commits the System to
actions or policies that have not been approved by the Board}
but it also involves the preparation of special briefing
memoranda whenever the material falls within the special competence of the Division.)
c. To respond to requests from the President's Council of Economic
Advisers for studies in fields within the special responsibility
I/ Apart from a very small secretariat which is concerned solely with
mechanical procedures such as the reproduction of documents, etc a, the
"staff" of the N.A.C. consists entirely of staff representatives from the
constituent agsncies*
2/ The UNEC, on which, in addition to the Board, all Departments of
the Administration, plus the Bureau of the Budget, the Council of Economic
Advisers, the S.E.C., and the Tariff Commission are represented, prepares
and reviews position papers for U. S. representatives in those agencies of
the United Nations which deal with economic problems. The Committee on
Inter-American Economic Affairs performs a similar function for U. S. delegations to Inter-American economic conferences.
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Federal Reserve Bank of St. Louis
- hand competence of the Division.
(Example of such requests:
see letter from Mr. R. J. Saulnier, apnended as Annex I.)
d. To respond to requests from the Central Intelligence Agency
for information concerning international, monetary developments held to be of strategic significance.
(By request
of the C.I.A., two members of the Division's staff are
designated as liaison officers for the purpose of maintaining contact with the inter-departmental Economic Intelligence Committee, which operates under the chairmanship of
the C.I.A.)
e. To respond to requests from the Bureau of the Budget, Office
of Statistical Standards, and to participate in the work of
committees set up by that Office, on matters relating to
international statistics.
(Example:
committee work to re-
view U. S. Government views on foreign trade and balance-ofpayments statistics in advance of the Inter-American Statistical Conference sessions in Rio de Janeiro, May 195>5>*)
f. To participate, on request, in the staff work of ad hoc Presi-
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Federal Reserve Bank of St. Louis
dential assignments on foreign economic policy, whenever
these assignments involve international monetary policy.
(Examples: Studies prepared at the request of Mr. Lewis
Douglas for his report to the President on U. S. foreign
economic policy; participation in staff work of the Randall
Commission. The Director of the Division is currently a
member of the Working Party headed by Mr. Randall as Special
Assistant to the President.)
- 5? g. To participate, on request of other Government agencies (such
as the State Department or the International Cooperation
Administration), in the preparation of briefing material
for U. St presentation before international organizations
other than those for which preparation is handled by the
N.A.C. or the UNEC. Example:
memoranda prepared for U. S.
presentation to the O.E.E.C* (Organization for European
Economic Cooperation) on European dollar import restrictions;
cf. the letter, appended as Annex II, from Mrr Isaiah Frank
(State Department), the U. S. representative designated
ad hp£ for this exercise.
h. To maintain contact, and — within the limits permitted by
security requirements — to exchange information, with
personnel of foreign central banks. This should include
continuing contacts with foreign central bank personnel
temporarily assigned to the International Monetary Fund, the
International Bank for Reconstruction and Development; and
foreign embassies, as well as reception of foreign visitors^
and — so far as the budget permits — visits by staff members abroad,
i. To arrange, on request of foreign central banks or other agencies of the U. S* Government, for procurement of personnel
for foreign missions to advise on problems affecting central
banks or monetary policy.
Subsidiary objectives as a unit of the Board's staff.
The Division should be able
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Federal Reserve Bank of St. Louis
- 6a. To maintain close working relationships with other Divisions
of the Board's staff, especially with the Division of Research and Statistics (in connection with objectives 2a and
3g) and with the Legal Division and the Division of Examinations (in connection with objectives 2c and 2d).
b. To participate in staff work related to System economic research and the needs of the Federal Open Market Committee
(in connection with objectives 2a and 2b).
c. To maintain close contacts with the officers and staff of the
Federal Reserve Banks, particularly the Federal Re serve Bank
of New York (in connection with objectives 2b, 2c, and 2d).
d. To advise the Board (or the Economic Adviser to the Board, or
the Editorial Coinmittee) on questions of publication of
material (in the Federal Reserve Bulletin or elsewhere) to
improve public understanding of the problems that concern
the Board (in connection with objective 1 and objectives 2a
to 2f).
e. To maintain informal contacts with Drofessional economic research personnel in other Government agencies concerned with
related fields of study, in order to help maintain a high
level of technical competence and a broad understanding of
problems on the part of members of the Board's staff.
f. To maintain within the Division a lively spirit of inquiry; to
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Federal Reserve Bank of St. Louis
be on the look-out for useful techniques of research and
analysis; in general, to foster, in the international field
standards of professional performance consistent with the high
reputation of the Board's staff in the field of economic analysis
- 7II.
Functions and their allocation within the Division*
1.
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Federal Reserve Bank of St. Louis
Advice to Board on foreign developments and their relation to
doirestic economic activity and central bank policy (I, 2, a and
b, above).
Allocation of responsibility:
a0
For continuing appraisal of foreign developments affecting
particular areas and for technical evaluation of foreign
central banking policies and. techniques, the area chief
is responsible.
For example:
a memornncbjm on contents
of a cable from the Bank of England to the Chairman, reporting a change in the Bank of England's discount rate
or a British funding operation, will be prepared by Mr.
Katz, working under the general direction of Mr,, Furth,
Chief of the Western European and British Commonwealth
Section.
Similarly, Foreign News Notes, submitted weekly
to the Board, labile prepared under the editorial direction of Mr. Tamagna (Chief of the Financial Operations
and Policy Section), is contributed to by all sections,
the individual contributors being indicated in each case.
b. Analysis of actual and Drospective gold and dollar movements,
their effects on member bank reserves and on the ratio of
the U. S. gold stock to this country's foreign liabilities^
movements of short-term banking and non-banking funds, and
other international capital flows (such as foreign investments in U« S. securities), and their effect on U. S. money
and capital markets. Responsibility:
Financial Operations
and Policy Section, The estimates of actual and prospective
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Federal Reserve Bank of St. Louis
- 8gold and dollar movements submitted by the Financial Operations and Policy Section are in turn based on estimates
for particular countries provided by the area sections, as
well as on U. S. balance of payments estimates provided by
the Special Studies Section (Mr. Kersey, Chief).
c. U. S,. balance of payments: exports and imports; price movements of internationally traded commodities; effects of
these factors on the domestic economic position in the
United States.
Responsibility: Special Studies Section.
The Special
Studies Section is also charged with the overall responsibility for evaluating the effects on the domestic economic position caused by changes in the level of foreign
economic activity (as well as the effects of our domestic
position and monetary policies on foreign developments).
It obtains basic information with respect to foreign developments from the relevant area sections, and is jointly
responsible with them for exploiting sources of information that cover areas broader than those assigned to area
sections. It is expected to take the lead in developing
and applying suitable techniques for an integrated analysis of world business fluctuations.
d. The Division prepares the international sections of visual
presentations and of the memoranda entitled "Current Economic and Financial Situation" which are prepared for the
use of the Federal Open Market Committee.
- 9Responsibility: Special Studies Section, which calls on
other sections of the Division in accordance with the
particular developments to be stressed in the presentation, and maintains a continuing working relationship with
those members of the Division of Research and Statistics
charged with the- preparation of these presentations and
memoranda,
e. In the System Committee on Current Business Developments,
which meets, alternately in Washington and at one of the
Federal Reserve Banks, to appraise business prospects in
the United States for the coming six months, the Division
is represented (at the meetings held outside of Washington) alternately by Messrs. Tamagna and Hersey, respectively*
2. Advice to the Board on international operations and foreign rela-
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Federal Reserve Bank of St. Louis
tions of Federal Reserve Banks (I, 2, c s above).
Responsibility: Financial Operations and Policy Section.
Specifically:
a. Advice on gold loans.
The Financial Operations and Policy Section is responsible
for keeping in touch with the Federal Reserve Bank of
New York with respect to applications, actual or prospective, by foreign central banks.
It is also charged
with the responsibility for obtaining, from the relevant
area section, material with respect to the applicant
country's economic position, to serve as a basis for
recommendation to the Board. Clearance of applications
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Federal Reserve Bank of St. Louis
- 10 with the State Department is ordinarily handled by the
Assistant to the Director of the Division (Mr. Thome),
but in special instances (e.g., Brazil) may be handled
by the Chief of the relevant area section, dealing with
his opposite number in the State Department. Preparation and processing of cables reporting action by the
Board on gold loans are handled by the Assistant to the
Director,
b. Advice on matters affecting (i) correspondent relations
of the Federal Reserve Banks with foreign central banks
and (ii) operations by the Federal Reserve Bank of New
York as fiscal agent for international institutions
(IMF, International Bank for Reconstruction a.id Development, International Finance Corporation) and for the
U. S. Treasury in the international field, (i) involves
Board approval of opening of new foreign accounts and
general, supervision of the System1 s operations on behalf
of foreign correspondents. Of particular significance
to the System under (ii) are gold transactions (with
the gold policy questions related thereto), and the
purchase and sale of Government securities on behalf of
the indicated international institutions.
Responsibility* Financial Operations and Policy Section.
Clearance with State Department on opening of foreign
accounts, and processing of cables in relation thereto,
is handled as in the case of gold loans.
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Federal Reserve Bank of St. Louis
c. Because of the special position of the Federal Reserve Bank
of New York in the field of foreign operations,, there is
a Staff Group on Foreign Interests, composed of representatives of the Board's Division of International
Finance and of the Foreign and Research Departments of
the Federal Reserve Bank of New York, plus such other
staff representatives of the Board or the New York Bank
(legal, examinations, etc.) as may be interested in the
particular topics that are to be discussed. The Staff
Group meets alternately in Washington and New York, in
all cases under the chairmanship of the Director of the
Board's Division of International Finance.
Responsi-
bility for the preparation of the agenda, in coordination
with the staff of the New York Bank, rests with the
Assistant Director.
Responsibility for the preparation
of such memoranda as may be submitted to the Staff Group
will vary in accordance with the problems to be discussed.
Advice on economic aspects of foreign operations of U. S. commercial
banks (I, 2, d, above).
Responsibility:
Financial Operations and Policy Section.
T/tfhere
a particular area is involved (e.g», Liberia, in the case of the
International Banking Corporation and. the Bank of Monrovia, the
relevant area section is consulted, and handles discussions with
opposite number in the State Department.
The responsibility of
the Financial Operations and Policy Section for the economic
- 12 aspects of the foreign operations of U. S. commercial banks involves also participation in the work of ad hoc System committees
such as the Special Committee on Foreign Operations of American
Banks (the "Neal Committee").
U. Advice to Chairman (or the Chairman's designated Alternate) on
N.A.C. matters (I, 2, e, above)*
Responsibility: Director or Assistant Director of the Division.
Preparation of any necessary memoranda, in cases in which they
are riot prepared by the Director or the Assistant Director, is
the responsibility of the Financial Operations £.nd Policy Section, which calls on relevant area sections for assistance if
the action to be taken by the N»A.C. concerns a particular area*
!?•
Advice to Board (or Chairman) on matters requiring Congressional
testimony or correspondence (I, ?, f, above).
Responsibility:
any or all sections depending on the nature of
the problem.
6. Representation of Board in N.A.C. staff work (I, 3> a, above).
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Federal Reserve Bank of St. Louis
a
*
Participation in M.A.C. staff meetings, to prepare action by
the Council*
At the Staff Committee level, which is the
level just below the Council itself, the Board is usually
represented by the Director or the Assistant Director of the
Division, who call for supporting information from the particular section within whose responsibility the problem proposed
for Council action falls. If the Staff Committee's consideration of the problem is preceded or followed by consideration
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Federal Reserve Bank of St. Louis
- 13 by a spec-lal Working Party, the Board is represented on the
Working Party by the particular Section concerned. The
Financial Operations and Policy Section has general responsibility for the coordination of information and for the processing of N.A.C. documents.
b»
Contribution to N^A.C. staff studies., From time to time the
N.A.C* staff is called upon, through the Council itself, to
prepare extended studies on particular topics. This usually
involves, in addition to participation in meetings at which
plans or results are discussed, assumption of responsibility
by each of the N.A.C. agencies for the preparation of draft
memoranda on particular aspects of the general problem, the
work thus being divided up among the N.A.C. agencies. Within
the Division, the work is assigned according to the nature of
the problem involved, (Example:
On the basis of a request
to the N.A.C. by Mr. Joseph M. Dodge, Special Assistant to
the President and Chairman of the Council on Foreign Economic
Policy, for a study of the position of, and problems facing,
U. S. private investment in specific foreign under-developed
areas, the N.A.C. Staff Committee, directed by the Council to
carry out such a study, assigned to the Board1s representatives originating responsibility for drafts on India and
Indonesia, which were prepared by the Far Eastern Section.
In the Working Party meetings devoted to discussion and revision of the drafts, all area sections of the Division have been
represented, depending upon the country discussed in a particular meeting,)
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Federal Reserve Bank of St. Louis
- Ill c. Preparatioji^ofjaaterial for U.J3. Executive Director of the
International Monetary Fund, By statute, the U. S. Executive
Directors of the IMF and the International Bank for Reconstruction and Development get their instructions from the
N.AeC. But, particularly in the case of the IMF, the U, S.
Executive Director is called upon continually to participate
in discussions in which no immediate formal decision — and
therefore no formal N.A.C. action — is called for. Having
no staff of his own, the U. S. Executive Director must ask
assistance from the particular N.A»C« agency within whose
special competence the topic scheduled for discussion is
held to fall. When the subject deals with operations and
policies of the IMF, the help requested from this Division
will usually be furnished by the Financial Operations and
Policy Section; when the desired assistance relates to other
subjects, assignment is made within the Division to the particular section or sections involved.
(If, for example, the
topic to be discussed by the IMF Executive Directors is the
position of the U. S. economy and its relation to developments abroad, the Special Studies Section is called upon for
preparation of the required memorandum and its coordination
with other sections of the Division and with the Division
of Research and Statistics.) The effectiveness of the Division's work in this field is attested by the letter from Mr*
Frank Southard (U. S. Executive Director in the IMF),
appended as Annex III,
?• Representation of the Board in the UNEC and in the Committee on
Inter-American Economic Affairs (I, 3, b, above)*.
Responsibility:
for UNEC, the Financial Operations and Policy
Section and Special Studies Section, with assistance from area
sections as requiredj for the Committee on Inter-American Economic Affairs, the Latin American Section, with assistance from
the Financial Operations and Policy Section arid the Special
Studies Section as required*
3. Representation of the Board in relation to requests from the
Council of Economic^ Advisers on inter-national topics (I, 3y c,
above).
Responsibility: all sections, depending on the nature of the
request.
In cases in which more than one section is involved,
responsibility for coordination is centralized in one Section
Chief. For example^ Mr, Furth (Chief, Western European and
British Commonwealth Section) was assigned coordinating respon~
sibility for the papers on international subjects included among
the Staff Studies on the Role and Effects of Credit and MonetaryPolicies, originally requested by the Council of Economic
Advisers, and later elaborated for discussion with a group of
outside economists*
9. Representation of the Board in relation to requests from the
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Federal Reserve Bank of St. Louis
Central Intelligence Agency (I, 3, d, above).
Responsible for liaison: the Assistant Director and the Assistant
to the Director (Mr* Thorne). Responsible for presentation of
material requested:
all sections, depending on the nature of
- 16 the request.
At present, the Chief of the Special Studies Sec-
tion (Mrt Hersey) represents the Division on the Economic Intelligence Committee's Subcommittee on Foreign Trade.
10e
Representation of the Board in relation to requests from the Bureau
of the Budget, Office of Statistical_St_andar_ds (1, 3, e, above).
Responsible for liaison; the Assistant to the Director, as member of the Federal Committee on International Statistics.
sponsible for substantive work:
Re-
all sections, depending on the
nature of the request,
11, Representation of the Board in staff work on a.d hoc Presidential
assignments (I, 3> f, above).
Responsibility: apart from personal representation by the
Director, all sections, depending on the nature of the assignment.
^' Representation of the Board in preparation of briefing material for
Uc So presentation before international organRations3 insofar as
this preparation is not performed by the N.A-.C, and UNEG (I, 3? g,
above).
Responsibility:
all sections, depending on the nature of the
problem.
13• Representation of the Board in contacts with personnel of foreign
central banks (I, 3, h, above).
Responsibility:
all economists in the Division, from the
Director down, depending upon rank and country of foreign central bank personnel involved.
1)4.
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Federal Reserve Bank of St. Louis
Representation of the Board in procurement of personnel for foreign missions (I, 3> i> above).
Responsibility:
the Assistant Director of the Division,
- 17 III.
Products
1*
Recurring products:
a
* Foreign News Note_s
For internal use only. Weekly. For purpose and for assignment of responsibility, see II, la, above0
b. Weekly Review of [Foreign] Periodicals I/
Weekly. Responsibility:
Miss Ernst, working under general
supervision of the Assistant to the Director.
c. Gold and dollar movements
-"•*
Projection of gold and dollar movements, and of their
effect on member bank reserves.
use only. Responsibility:
Quarterly.
Internal
see II, 1, b, above.
ii. Review of gold and dollar movements and related capital
flows.
Article in Federal Reserve Bulletin. Annual.
Responsibility: as under ia
d. The U. S. and world trade, with special referenee to effects
on the U v S. domestic economy.
i. Article in Federal Reserve Bulletin. Annual.
Respon-
sibility: Special Studies Section.
ii. International sections of visual presentations and
other material prepared for the Open Market Conmiittee.
I/ This publication, originally intended solely for the use of the
System itself, has now attained a circulation of 2,300 copies, a considerable number of which go to universities for teaching purposes. Attempts
have been made, from time to time, to reduce the number of recipients, and
even to stop publication altogether; but the protests have been so strong
when such attempts were made that it has been difficult to effect a reduction in the number of outside recipients, to say nothing of stopping publication altogether.
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Federal Reserve Bank of St. Louis
- 18 Primary responsibility: Special Studies Section.
See II, 1., d, above,
iii.
International sections of Board's Annual Report.
Responsibility:
at present, Special Studies Sec-
tion, with cooperation from other sections. Responsibility may vary in accordance with decisions made
by the Editorial Committee as to the general form
and emphasis of the Annual Report.
e. "Comments on foreign operations of the Federal Reserve Bank
of New York."
summary.
Internal use only. Weekly, with monthly
Responsibility: Miss Garber, under the direction
of Mr. Tamagna (Financial Operations and Policy Section).
f.
"Foreign Exchange Rates." I/
The Division prepares monthly a table, showing the monthly
averages of daily rates, which is circulated to a special
mailing list who have requested this material. These
averages are later published in the Federal Reserve Bulletin.
The Division also prepares a table every Monday
morning showing the daily rates certified by the Federal
Reserve Bank of New York for the preceding week.
This
table, also is circulated to a special mailing list who
have requested it.
I/ The System's responsibility in this field derives from the provisions~"of Section £22 of the Tariff Act of 1930, dealing with the conversion
of foreign currency for purposes of the assessment and collection of duties
upon merchandise imported into the United States, According to these provisions, the Federal Reserve Bank of New York must ascertain or calculate
on each business day the New York market buying rates at noon for cable
transfers payable in the respective currencies of various foreign countries
and must certify the same to the Secretary of the Treasury.
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Federal Reserve Bank of St. Louis
- 19 -
Responsibility:
Mrs. Farringtcn, under the supervision
of the Assistant to the Director,
g.
"London Money Market Developments."
Every four to six weeks, or oftener if developments
warrant.
Internal use only.
Responsibility:
Mr.
Katz, under the general supervision of Mr. Furth e
h0
"International Bank and Export-Import Bank Loans and Commitments. "
Quarterly,
Circulation limited to Board and Federal
Reserve Banks.
Responsibility:
Financial Cperations
and Policy Section (Miss Smith, under direction of
Min. Tamagna).
i.
"Review of Foreign Developments <," I/
In principle, bi-weekly.
In practice, its frequency of
appearance depends on the rate of progress on particular projects and the amount of pressure from other
divisional responsibilities.
ity:
Editorial responsibil-
the Assistant to the Director (contributions
from all economists in the Division).
The Review is
made available to Federal Reserve Bank personnel, and
also to selected Government personnel, on the basis
I/ The material presented in the Review represents the results of the
kind of day-to-day study of problems within the field of the Division's
responsibility, involving both current analysis and long-run basic research,
without which the Division would not be prepared to provide answers when
called upon to advise or to represent the Board. Although the essential
purpose of the Review is to make available, for internal purposes, the results of the Division's day-to-day studies, an incidental by-product has
been that a gratifyingly large proportion of these studies have subsequently
been published in technical economic journals of high professional standing.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
- 20 of a selected list (all additions to which must be
approved by the Director), and in special cases (for
particular issues of the Review) on permission of the
Director.
j. International Statistics for the Federal Reserve Bulletin.
The Division is responsible for the Bulletin tables on
international capital transactions of the United
States, gold production, estimated gold reserves and
dollar holdings, reported gold reserves of central
banks and governments, net gold purchases and gold
stock of the United States, International Bank and
Monetary Fund statistics, central and commercial bank
statements, money rates, foreign exchange rates, and
price movements in principal countries.
Statistics relating to international capital transactions are collected by the twelve Federal Reserve
Banks from all banks in the United States in accordance with the Treasury Regulation of November 12,
193ii»
This material is prepared for publication in
the Bulletin by the Financial Operations and Policy
Section*
The various tables covering gold produc-
tion, foreign gold reserves and dollar holdings, gold
reserves of central banks and governments, and net
gold purchases and gold stock of the United States
are also prepared for publication by the Financial
Operations and Policy Section. In addition, this
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Federal Reserve Bank of St. Louis
- 21 Section is responsible for the Bulletin table on the
International Bank and the International Monetary
Fund.
All other international tables in the Bulletin,
including the central and commercial bank statements,
money rates, foreign exchange rates, and price movements in principal foreign countries are prepared by
members of the Administrative Staff, under the supervision of the Assistant to the Director.
The material
on merchandise exports and imports (now grouped with
domestic statistics) is prepared in the Special Studies
Section,
k. Charts for Federal Reserve Chart Book.
Charts on the U. S. balance of payments, and on merchandise exports and imports, are the responsibility of
the Special Studies Section; on foreign gold reserves
and dollar holdings, and on short-term liabilities
to and claims on foreigners, of the Financial Operations and Policy Section; on foreign exchange rates,
of the Administrative Staff,
1.
Organization and circulation of documentary materials.
Procurement and circulation of documentary materials
concerning the operations of foreign central banks
and other matters for which the Division has responsibility. Responsibility:
Supervisor of the Divi-
sion's Information Center (Mrs. Crews), under the
general direction of the Assistant to the Director,
and with the cooperation of all sections.
- 22 -
2, Special products
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Federal Reserve Bank of St. Louis
a. -Special
articles for
Federal
Reserve
Bulletin.
•*•_
... -„„ ., , , , . . , . - . . .
—- ~"
•—I—/ • r ——~
""--•"—"rgv *..."": i—""-~~r
In addition to the two leading articles, prepared annually
for the Bulletin, which are listed above under III, 1, c,
ii and III, 1, d, i, respectively, the Division prepares
special articles for the Bulletin, by arrangement with the
Editorial Committee*
A recent example: article by Messrs,
Tamagna and R. Soloiaon on "Bankers1 Acceptance Financing
in the United States," in the May 19#> issue of the Bulletin,
k*
Preparation of documents for Board action,
Originating responsibility will depend on the nature of the
problem, In the case of loans on gold collateral, the
memorandum summarizing the proposal by the operating Federal Ressrve Bank, together with a draft reply, is prepared by the Assistant to the Director in consultation
with the Financial Operations and Policy Section and the
particular area section involved.
(See II, 2, a, above.)
c, Preparatipn of memoranda for information of Chairman and
the Board.
In general, an effort is made to keep to a minimum the number of memoranda submitted to the Chairman and the Board,
even in cases in which a document already exists for internal use by the Board's staff. A distinction is also
made between memoranda for the Chairman and those which
go to the Board as a whole.
(For example, memoranda
involving action by the Chairman as a member of the N.A.C.
- 23 -
normally go only to the Chairman and his N.A.C. Alternate.
Similarly -- as the Board itself has decided — memoranda
reporting gold loan discussions by the Federal Reserve
Bank of New York go only to the Chairman, as long as these
discussions are still in a preliminary stage.
On the other
hand, memoranda on topics raised in Board session [e«g«,
the current series of memoranda on foreign dollar liabilities in relation to our gold reserve; foreign experience
in housing finance, etc.""] S° to the Board as a whole,
Assignment of responsibility within the Division for the
preparation of memoranda under either heading will depend
upon the nature of the problem involved.)
3.
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Federal Reserve Bank of St. Louis
Preparation of other materials.
In addition to memoranda and other written materials, a considerable volume of statistical tabulations and charlis is maintained for working purposes in each section, and particularly
in the Special Studies Section.
As for written material pro-
duced by the Division other than that summarized under III, 1,
by far the greater part of it is never seen by the Board. But
all of it is prepared in fulfilment of the objectives outlined
in Part I of this memorandum. This applies also, and without
limitation, to material prepared at the request of other agencies \ the Director of the Division, with whom all such requests
are checked, regards it as part of his responsibility to reject
requests which cannot be justified under the head of the
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Federal Reserve Bank of St. Louis
Division's responsibilities to the Board, either as adviser
or as representative.
(A recent exaiaple:
we refused a re-
quest of the State Department that the Central and Eastern
European Section provi.de a briefing memorandum on "Recent
Financial Developments in Germany," on the double ground that
the occasion for which the briefing was required was not one
of distinctive concern to the Board and that the State Department's own staff should be able to handle a topic of so
general a nature.)
In the nature of the case, both the amount and the subject-matter
of the written material which is here in question will vary
very greatly from one week — or one month — to another, depending both on the pressure of other day-t-o-day obligations
(for example, the number of meetings which must be attended
by members of the Division) and the trond of developments of
concern to the Division.
But we are prepared to provide on
request either a representative sample of the material here
under discussion or, by way of indicating its scope over a
period of time, documents prepared on previous occasions to
describe the activities of the Division.
C O P Y
ANNEX I
EXECUTIVE OFFICE OF THE PRESIDENT
Council of Economic Advisers
Washington 25, D. C.
September 29,
Dr. Arthur ¥. Marget
Director, Division of International Finance
Board of Governors of the Federal
Reserve System
Washington 25s D, C.
Dear Arthur:
As you are well aware, in the preparation of the Economic Report of
the President it is necessary for the Council to have a comprehensive picture of developments in the international commodity demand and supply situation. The paper prepared late last year by Mr. Arthur Mersey, entitled
"Changes in the Commodity Demand and Supply Situation," proved to be quite
us3ful, and we were hoping that a similar paper covering developments during 1955 might be available for our use by December 1, 1955• It would
also be helpful if the paper included some discussion of the impact of
these commodity developments on the major producing areas.
Another field in which we would like to seek your help is in the analysis of capital movements in the U. S. balance of payments during 1955•
For example, to what extent have the capital accounts been influenced by
relative changes in interest rates here and abroad.
Finally, we would like to have a brief review of international private
portfolio capital movements over the past year or so, both between the
United States and abroad and between foreign countries, To what extent has
there been a revival of the flow of international private portfolio capital?
I have asked Mr* Mikesell of the Council's staff to be in touch with
you on details regarding our needs in these areas,
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Federal Reserve Bank of St. Louis
Sincerely yours,
(Signed)
STEVE
Raymond J. Saulnier
Member
C O P Y
ANNEX I I
DEPARTMENT OF STATE
WASHINGTON
September 16,
1955
Dear Arthur:
I have been tapped to represent the U. S. at an OEEC meeting to be
held soon to review the effects of European dollar liberalization and the
prospects for further liberalization. To my knowledge this is the first
full-dress meeting to •which representatives from capitals will be going
especially for this purpose, and it is obviously important that we be
fully prepared to deal with the points that will inevitably come up.
My reason for writing is to let you know that I have just finished
going over a paper on this subject prepared by Ilr. J. E. Reynolds of the
Fjderal Reserve Board in the form of a critique of an ECE paper entitled
"The Effects of Liberalization on Dollar Imports". Mr. Reynolds' memorandum is a first-class job of critical analysis—it is sharply focused,
sophisticated, and well balanced, I have no doubt that we will draw
upon it heavily at the meetings in Paris. Herbert Furth tells me that it
was prepared in a very short space of time, which makes the performance
all the more impressive.
Many thanks for the cooperation of the Board on this subject.
With warm personal regards.
Sincerely yours,
(Signed) ISAIAH
Isaiah Frank
Deputy Director, Office of
International Trade and Resources
Mr. Arthur ¥. Marget,
Director, Division of International Finance,
Board of Governors,
Federal Reserve System,
Washington 25, D. C.
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Federal Reserve Bank of St. Louis
C O P Y
ANNEX I I I
INTERNATIONAL MONETARY FUND
Washington 2$, D. C.
October 1,
Dear Arthur:
This is to thank you for Mr. Kersey's
containing comments on the two Fund papers
ments, 1950-51. His comments will be most
tion for the discussion of those papers in
memorandum of September 26,
on the U. S« Balance of Payhelpful to me in my preparathe Board,
This is only one of a long series of very helpful contributions
which members of your staff and of other parts of the staff of the
board of Governors have made to my work here in the Fund, and I have
intended for some time to express my warm appreciation.
Cordially yours,
(Signed) FRANK A. SOUTHARD, JR.
Frank A. Southard, Jr.
U. S. Executive Director
Mr. Arthur W. Marget, Director
Division of International Finance
Board of Governors of the
Federal Reserve System
Washington 25, D. C.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
s
I ,
s\
Mr. Martin
11/28
' >
Duplicates of the attached material
sent to Bob Fleming this a . m . by messenger.
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Federal Reserve Bank of St. Louis
7810
Prom tk® desk of
WILLIAM McCHESNEY MARTIN, JR.
By Messenger
November 28
To: Mr. Robert V. Fleming
No real decision has been
made as to the best way of doing this,
but I thought you would like to have
this material before talking to
Senator Fulbright. Whatever is the
best means of attaining it is the way
we want to go.
Enclosures < Memo Vcst to Martin' U'25;
memo re proposed amendment to law
with alternative drafts A, B, and C1
11-22 letter from Roger Jones and his
nrrmosed amendment.
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Federal Reserve Bank of St. Louis
V I
November 25, 1955.
J
Chairman Marlon:
In accordance with our conversation
on Wednesday, I attach alternative draft,s of
legislation regarding compensation of the
Chairman and members of the Board, together
with an explanatory memorandum on the subject.
In addition to the draft in the form
of a separate bill, if an amendment to the
Executive Pay Act is to be considered it is
necessary to have two other alternative drafts
because we do not know at this time whether
such an amendment might be offered to the
House bill or to the Senate bill. All three
drafts are identical in language and effect.
I presume it is not necessary at
this tiiTie to send a letter of reply to
Mr. Roger Jones' letter of November 22, 1955.
I would be glad to discuss this
further with you if you wish.
George B. Vest.
PROPOSED AMENDMENT TO THE LAV REGARDING
COMPENSATION OF THE CHAIRMAN AND MEMBERS
OF THE BOARD OF GOVERNORS OF THE FEDERAL
RESERVE SYSTEM
There are attached three alternative drafts (A, B and C)
of amendments to the statute with respect to the compensation of the
Chairman and members of the Board of Governors of the Federal Reserve
System. Each of these drafts is in the form of an amendment to the
Federal Reserve Act and they are all identical in language and in effect. The only difference between the drafts is that Draft A would
take the form of a separate bill to be passed by Congress, while the
other two are in the form of amendments to the Federal Executives Pay
Act of 1955 now pending in Congress, Draft B being an amendment to the
House version of this legislation, H.R. 7619, and Draft C an amendment
to the Senate version, S. 2628.
If Draft A, which is in the form of a separate bill, were
introduced in Congress, it would in normal course be considered by
the Banking and Currency Committees of the House and Senate and thereafter by each House in the usual manner. However, the House version
of the Executive Pay Act, H.R. 7619, passed the House of Representatives on July 30, 1955, and the Senate version, S. 2628, was reported
favorably from the Senate Committee on Post Office and Civil Service
on July 29, 1955* Both bills are now pending on the Senate calendar.
Accordingly, consideration might be given to proposing an amendment
to the Executive Pay Act at the time when the legislation is debated
on the floor of the Senate, or possibly in any further consideration
of the legislation in the Senate Committee on Post Office and Civil
Service. Such an amendment could be in the form of Draft B or Draft C
attached, depending on whether the House bill or the Senate bill is
under consideration at the time. In normal course the legislation
would then be considered by the Senate and also in conference committee
but it would not have further consideration by the House Committee on
Post Office and Civil Service or the House Banking and Currency Committee,
Effect of Proposals. - Each of the attached drafts would provide that the Chairman of the Board of Governors would receive the compensation "now or hereafter prescribed by law for the heads of executive
departments", and the other members of the Board would receive compensation "as now or hereafter prescribed by law".
Heads of executive departments under present law receive
|22,500 per annum, and under the existing drafts of the Executive
Pay Act in Congress would receive $25,000 per annum. Under the proposals contained in the drafts attached, the Chairman of the Board
would receive whatever compensation heads of executive departments
receive.
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Federal Reserve Bank of St. Louis
.
The other members of the Board under the legislative drafts
attached would receive whatever compensation is now or hereafter prescribed by law. The salaries of the members of the Board of Governors
are now $16,000 per annum. Under the House version of the pending
Executive Pay Act, Board members other than the Chairman would receive
compensation at the rate of $20,000 per annum and under the Senate
version of the Executive Pay Act they would receive $20,500 per annum.
11/25/55
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Federal Reserve Bank of St. Louis
A
BILL
To provide for the compensation of the Chairman and
members of the Board of Governors of the Federal
Reserve System.
Be it enacted by the Senate and House of Representatives
of the United States of America in Congress assembled, That the first
paragraph of section 10 of the Federal Reserve Act, as amended, is
hereby amended (1) by striking from the last sentence the words
"an annual salary of $15,000 per annum, payable monthly, together
with" and (2) by adding the following at the end of the paragraph:
"The member designated as chairman pursuant to this section shall,
while serving as chairman, receive the compensation now or hereafter
prescribed by law for the heads of executive departments, and other
members shall receive compensation as now or hereafter prescribed by
law."
11/25/55
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Federal Reserve Bank of St. Louis
On page 11, after line 12, insert a new section after
section 110 reading as follows:
"Sec. 111.
The first paragraph of section 10 of the
Federal Reserve Act, as amended, is hereby amended (1) by
striking from the last sentence the words 'an annual salary
of $-15,000 per annum, payable monthly, together with1 and
(2) by adding the following at the end of the paragraph:
•The member designated as chairman pursuant to this section
shall, while serving as chairman, receive the compensation
now or hereafter prescribed by law for the heads of executive departments, and other members shall receive compensation as now or hereafter prescribed by law.»"
11/25/55
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Federal Reserve Bank of St. Louis
PEOPOSED AMENDMENT TO S. 2623
On page 5> after line 11, insert a new section after
section 103 reading as follows:
"Sec. 104.
The first paragraph of section 10 of the
Federal Reserve Act, as amended, is hereby amended (1) by
striking from the last sentence the words 'an annual salary
of $15,000 per annum, payable monthly, together with' and
(2) by adding the following at the end of the paragraph:
•The member designated as chairman pursuant to this section
shall, while serving as chairman, receive the compensation
now or hereafter prescribed by law for the heads of executive
departments, and other members shall receive compensation as
now or hereafter prescribed by law.fn
11/25/55
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
EXECUTIVE OFFICE OF THE PRESIDENT
BUREAU OF THE BUDGET
WASHINGTON 25, D. C.
November 22, 1955 •
Dear Bill:
Confirming our telephone conversation of this
morning and in furtherance of instructions which I received from the White House last Friday, there is attached language for a proposed amendment of Section 10
of the Federal Reserve Act* This amendment would provide that the salary of the Chairman of the Board of
Governors should be the same as that for the heads of
Executive departments* The language is so drawn that
any change in the structure of Cabinet salaries would
automatically change that of the Chairman*
If this language is acceptable to you, it is my
understanding that you -will seek to have it introduced
and enacted in the next session of Congress* Formal
endorsement of it -will be made at such time as is appropriate *
Sincerely yours.
Assistant Director for
Legislative Reference
Honorable William McC, Martin, Jr*
Chairman, Board of Governors of the
Federal Beserve System
Washington, D* C*
Enclosure
That the first paragraph of section 10 of the Federal Reserve Act,
as amended, is hereby amended (1) by striking from the last sentence
the words "an annual salary of $15*000 per annum, payable monthly*
together with" and (2) by adding the f ollowing at the end of the
paragraph: "The member designated as chairman pursuant to this
section shall, while serving as chairman* receive the compensation
now or hereafter prescribed by law for the heads of executive
departments, and other members shall receive compensation as now
or hereafter prescribed by law*"
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Federal Reserve Bank of St. Louis
THE FEDERAL RESERVE AND THE POLITICAL GANTLET:
1956
On Thursday, April 12, 1956, the Board of Governors announced
increases in discount rates at eleven Federal Reserve Banks, The increases—
from 2 1/2$ to J>% at Minneapolis and San Francisco and to 2 3/1$ at all other
banks except Chicago—marked the first movement of discount rates in 1956,
following four successive increases during 1955o
Reports of disagreement by Administration officials began blossoming
in print within a week, and before a month had passed the reports of "behindthe-scenes conflict" were raised, and commented upon, at two successive
Presidential press conferences. By that time, three members of President
Eisenhowerfs cabinet—-Secretaries George Humphrey of Treasury, Sinclair
Weeks of Commerce and James Mitchell of Labor—>and the Chairman of the
President's Council of Economic Advisers, Arthur Burns, had been named
in the press as critics of the Federal Reserve action
Newsweek magazine was first in print with the story in its issue
(pre-dated April 237"that went on newsstand sale Tuesday April 17, five
days after the Federal Reserve announcement. Newsweek writers Bart Rowen
and Clem Morgello said in their report:
"For nearly two weeks, Federal Reserve officials
huddled in conferences with Treasury people and other top
Administration aides, arguing whether it was time to tighten up.
"Chairman Bill Martin and other FRB officials feared
(surging credit demand, as exampled by the fact that 'in February
alone, commercial bank loans increased $1,3 billion, or 5 per
cent') would do more to kick up prices than to boost production,
since business was already at peak levels. And the price picture
already looked dangerous, » *
"But a number of top Administration officials, including
Treasury Secretary George Humphrey, believed that talk of inflation was being exaggeratedo • »
"White House insiders also contended that consumer
buying was not creating a real inflationary push*, 0 o The gain
(in retail trade) did not seem great enough to them to force
prices up, , •
"As a matter of fact, Newsweek learned, the President's
top economic adviser Arthur F, Burns believes the increases have
been surprisingly small, considering the current worldwide economic
boonio Burns thinks the economy could absorb the pressure even if
prices edged up a bit.
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Federal Reserve Bank of St. Louis
-2-
"Humphrey's views dovetailed with these and he argued
his point in conversations with the Federal Reserve's Martin.
The Treasury boss—-who well remembers the complaints that rolled
in three years ago when money was tightened sharply—wanted to
wait a few months to see if loans continued to expand rather
than to act now and risk knocking the economy into a skid,
"But in the end it was Martin's decision to make, and
he made it. The decision: Boost the discount rate from 2 1/2%
to 2 3/h% (and to 3 per cent in two districts,) By approving
this increase—the fifth such boost in a year—Martin hoped to
dry up some demand by making it more expensive for banks to
borrow from the Federal Reserve, which in turn would make it
more expensive for businessmen and consumers to borrow from
their local banks. So strongly did Humphrey disagree that he
drafted a public statement of his views. He killed it at the
last moment to avoid an open controversy* « 0"
On April 23, the New York Timess not given to picking up items
from other publications without verification on its own, said thisj
"It is not generally known, but the Treasury had serious
reservations about the latest increase in the discount rate by the
Federal Reserve. This resulted in probably the sharpest dispute
between the two agencies since the Eisenhower Administration came
to office.
"The opposition of George M. Humphrey, Secretary of
the Treasury, and his men was in part a traditional concern
over the effect of ever-tight money on the Government's own
securities. But apparently it was based more on a different
assessment of the business picturec • •"
On April 2£> President Eisenhower held a news conference on which
the Dow-Jones newswire reported as follows:
"President Eisenhower took note of reports that
Treasury Secretary Humphrey and Doctor Arthur Burns, Chairman
of the ^resident's Council of Economic Advisers, disagreed
with the Federal Reserve Board in its increase earlier this
month in the Federal Reserve discount rate. The President
said he believes, however, that since the Federal Reserve ia
watching the money situation closely it would move to loosen
up lending terms if money gets too tight*
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Federal Reserve Bank of St. Louis
-3"When asked about the report that administration
financial leaders disagreed with the Federal Reserve on the
discount rates, the President said that it is probably right
that certain people didn't like the action. However, he
noted, the Federal Reserve is set up as a separate agency of
Government outside of the authority of the President. He
thinks it would be a mistake if the Board should be brought
under the President's power,
"The Fed had unanimous agreement among 11 of its
District banks before it went ahead with the boost in the
discount rate, he noted. Having done so, the Board is watching
the money situation from day to day and he is sure would move
in the opposite direction if money gets too tight, the President
said."
(Criticism of the Federal Reserve's action was not confined to
Federal officeholders or Republicans. The N» Y. Journal of Commerce,
noting May 1 that the Comptroller of New York State, Arthur Levitt, a
Democrat, "has just fired a broadside on current Federal monetary policies
because of their restrictive effect on New York StateTs school building
program," commented editorially: "New York's Comptroller grudgingly
admits that the current objective of Federal Reserve policy may be sound,
inasmuch as too much inflationary stimulation of the economy at this
particular time might easily create serious headaches for later on.
Being a politician, however, obviously makes it impossible for him to
accept a sound economic policy. Instead, he comes up with a typical
politician's approach which is that an exception to ghe general rule should
be made in order to facilitate the easier financing of school construction
and other public worksB 0 . If excessive borrowing and building produce a
boom and bust cycle, as well they could, Mr, Levitt's political party
would be the first to criticize the present Federal Administration for
not taking more aggressive steps to curb the boonu . • ")
On May 3, little more than a week after President Eisenhowerrs
initial press conference remarks, two of his cabinet officers had press
conferences of their own, at which the subject came up again.
The WashingtoniPost bracketed the development^s: t
' '.
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C/ . " J
"Two Cabinet members yesterday questioned credit-tightening
moves by the Federal Reserve System and scouted its fears of inflation,
"Labor Secretary James P. Mitchell said the Reserve
Board's approval of discount rate increases last month 'may have
l?een a mistake.' He told a news conference, 'I see no threat of
inflation at all,'
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Federal Reserve Bank of St. Louis
"At another news conference, Commerce Secretary Sinclair
Weeks noted, 'money is tight today and that may prove to be a
handicap.1 He predicted that prices would be held in cheeko
"Their views were the first open affirmation of Administration discontent with the Reserve Board's action0 George M.
Humphrey, Secretary of the Treasury, and Arthur F, Bums, Chairman of the Council of Economic Advisors, have also been reported
as disagreeing with the System's estimate of the economic climate,"
(Messrs, Weeks and Mitchell were credited additionally
with disagreeing between themselves, this time, said the Journal
of Commerce, "over whether or not forthcoming wage increases for
organized 1'abor pose an inflationary threat to the economy.
Secretary Mitchell flatly stated, 'I see no threat of inflation
at all in labor contract settlementsa! Secretary Weeks was less
unequivocal on the other side of the argument. But he noted that
'if wages and prices go up much faster than productivity, the
stability of the dollar is threatened.1 ")
The next day, President Eisenhower held another press conference
and, naturally, there were more questions. Dow-Jones reported the answers
this way:
^President Eisenhower said today that Administration
policy is to assure that there is adequate money available for
the expansion of the country and that he's sure the Federal Reserve Board seeks to do the same.
"He gave this view at his press conference in commenting
on a question which noted that Secretary of Commerce Weeks and
Labor Secretary Mitchell have been critical of the Federal Reserve's
recent boost in its discount rate*
"As he has commented before on this subject, President
Eisenhower told his press conference that everybody has his own
opinion on such an action. But the Federal Reserve is an independent body reaching decisions and it is the duty of the Board
to put its conclusions into effect, he saidc
"The administration is watching the money situation all
the time, Mr. Eisenhower said, and he's sure the Federal Reserve
is tooc"
Business Week, in an editorial in its May 5 issue, introduced a
new note, "criticising the Federal Reserve for NOT playing politics. Discussing "The Politics of Tight Money," Business Week commented?
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Federal Reserve Bank of St. Louis
"The prestige of the Federal Reserve System, which
had fallen to a low estate during the first postwar years, has
had a remarkable recovery. Under the chairmanship of William
McCo Martin5 the Federal Reserve Board has met skillfully and
courageously the problems of a turbulent economy0 At home and
abroad, there is an almost alarming degree of confidence in its
ability to steei- our economy between the dangers of boom and bust9
"The renaissance of the Fed reached a high point last
week when President Eisenhower reaffirmed the complete independence
of our central banking organization. He acknowledged that the
policy of credit stringency now being pursued by the Federal Reserve was one that raised grave doubts on the part of hiw own
advisers. Nevertheless, with his usual patience and breadth of
view, the President defended the right of the Federal Reserve to
pursue an independent course. No other President has ever spoken
thus.
"Yet, even at this moment of triumph, the Federal Reserve System, it seems to us, stands in considerable peril. No
matter how secure their independence, Martin and his fellowmembers of the Federal Reserve System are up to their armpits
in politics*
nation's
Economic
action.
country
"It is impossible to influence the basic trend of a
economy without at the same time influencing its politics.
intervention, if it is effective, is bound to be political
And at the moment the Federal Reserve is subjecting the
o the most drastic credit squeeze since early 1953* » «
"If the Federal Reserve persists in this course, we may
expect the current hesitation in business to develop into a downtrend. Such a downtrend in the normal course of events ought to
be plainly evident in terms of falling sales and rising unemployment by September and October nexta
"Without in any way impugning the purity of the Federal
Reserve Board, we may assume that this timing will cause no sadness in the Democratic National Committeeo * «
"The Federal Reserve System ought to be above politics.
It ought not to use its great powers for political purposes, and
we are quite sure that no responsible official of the System
would, under any circumstances, knowingly consent to such a course.
Yet the System will not survive if it attempts to close its eyes
to the political consequences of its actions. If the Federal Reserve System, by over-doing its policy of credit restraint, brings
on a business recession this year, we may be certain that a new
Administration of another party would not wait long to take away
powers that can be used, however correct the motives, to accomplish
such drastic political consequences."
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Federal Reserve Bank of St. Louis
-6Also on May 5< however, Chairman Martin made a speech to the
Pensylvania Bankers Association at Atlantic City that the press widely
carried and characterized as reassuring. The New York Times noted that
"Mr. Martin spoke of five 'basic considerations1 that enter into the
making of decisions in monetary policy. In his discussion of them the
emphasis was on the duty of the Federal Reserve not to let credit dry up,"
This "reassuring" talk by the Reserve Board Chairman apparently
served to relieve tension momentarily, for the uproar quieted for a few
days, during which the Washington Post, in an editorial on May 7, suggested
that the Federal Reserve's independence in the future would hinge on the
correctness of its economic and financial judgment in the present, since
"when it makes an economic decision it directly affects political decisions»"
The next rumbles on the political front came from Democrats.
On May 12, the Washington Post reported that Representative Patman!s
Joint Economic Subcommittee was "quietly investigating the Administration's
protests against credit tightening moves by the Federal Reserve System,"
The Post, observing that "the probe could have wide political repercussions,"
assessed the motivation this way:
"Democrats have been arguing that if the economy turns
sour in the next few months, the Administration will try to
blame the Federal Reserve System's credit squeeze. This (Republican)
argument, Democrats say, would be shattered if the (Administration)
protests came after the System made its move, . « The Patman committee has sent questionnaires to three cabinet officers (Humphrey,
Weeks, Mitchell), Economic Adviser Arthur Burns, and Federal Reserve
Chairman Martin asking what if anything they said or wrote each
other before the credit screw was tightened." (On May 18, Rep.
Patman confirmed that he had sent letters of inquiry to all mentioned, had gotten three answers, and was thinking of "holding
hearings.")
Rep. Rains (D~Ala.), as chairman of a
on housing, issued a report that the Washington
as asserting that "recent Federal Reserve Board
market will have 'unfavorable repercussions' on
House Banking subcommittee
Post of May lii characterized
action tightening the money
the housing industry."
Businessmen were next in the headlines with blasts against "tight
money,"
General Motors President Harlow Curtice was quoted by the Journal
of Commerce as saying at a press conference in Detroit May l£: "The restrictive
money'policy
of the Federal Reserve Board has not only contributed to
a lower trend in auto sales since April 1 but it has made it questionable
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Federal Reserve Bank of St. Louis
-.7—
whether gross national product will remain at close to the $UOO billion a
year level* » , He urged the Board to reverse itself as quickly as possible.11
The National Association of Home Builders was similarly critical
the following day in testimony by its president, Joseph B. Haverstick, before Repe Rains' House Banking Subcommittee at Washington, as was the
National Association of Real Estate Boards, represented before the Subcommittee by Vice Chairman Robert £• Scott»
The following day, May_17, the New York Times reported from Hot
Springs, Va,, en the meeting of the (Commerce Department's) Business Advisory Council, "a group of more than 1^0 of the nation's leading manufacturing, financial and retail executives," Said the Times:
"Uppermost in the minds of many early arrivals was
concern over the present restrictive money policy of the Federal
Reserve Board. This was evidenced in comments that ranged from
mild criticism to outright disapproval of the Board's recent
increase in the discount rate* . • Those sharpest in their
criticism said the rise , . * had already made short-term money
tight and might eventually reduce the present plentiful supply
of long-term funds greatly in demand for industrial expansion*
The tightness of money, it was added, might aggravate the
economic situation in the third quarter, which is expected to
show a softer tone primarily because of the weakness in auto
and housing sales * . »"
On that same May 17, Secretary of Treasury Humphrey, testifying
at a Senate Committee hearing before leaving for Hot Springs to attend
the Business Advisory Council himself, finally confirmed publicly the
month-long reports he had disagreed with the Federal Reserve about the
discount rate increase,1'
"He said if the decision had been his 'I would not have made
the move,' " Dow-Jones bulletined . * . "Mr, Humphrey's statement before
the Senate Finance Committee was the first time he has publicly expressed
his attitude. He also told the Committee (which had called him to testify
on tax aspects of a highway construction bill) he agreed with the four
rounds of increases in the discount rate (in 19£5) • • • that preceded
the last such boost,"
Mr. Humphrey, said Dow-Jones, commented when cornered by Senator
Long (D-Lac). At first, he "launched into a description of the Board as
an agency independent of the Administration and of his own relationships
with Mr, Martin," saying "he cooperated closely with the FRB Chairman on
all actions that either take that might affect the economy. In trying to
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Federal Reserve Bank of St. Louis
-8gauge future economic conditions and demands for money and credit, Mr.
Humphrey said he and Mr. Martin frequently differ in their views on the
meaning of various economic pressures. When Sen. Long pressed for a
more direct answer to his question, Mr. Humphrey replied: 'If it were
my responsibility I would not have made the last movee I would have
let natural conditions take their course. I agreed with all the other
moves but the last one0T "
The St* Louis Post-Dispatch, taking note editorially May 18 of
the Humphrey, Curtice andHSusiness Week comments, observed in an editorial
entitled ORDEAL OF THE 'FED*:
"It will take fortitude • 0 » to stand up against this
sort of pressure , 0 o Right or wrong, the Board must use its
own jiidgment if it is to act as a politically independent regulator
of the economy . « 0 The Board's independence, (if) sacrificed in
fact, will some day be ended by law t e « If control of credit
policy becomes political^ the people will have every right to
insist that responsibility for it also become political,"
- I n t e r n a t i o n a l New Service's Ruth Montgomery
said she was told by a "top White House official" that the White House was
"putting pressure on the Federal Reserve Board to relax its tight credit
policy to avert a possible deflationary trend during the fall's election
campaign," Her report went on:
"The White House fears the Board's recent action
will cause a mild recession at the very moment that the
Administration wants a booming economy. One of the OOP's
favorite campaign slogans is 'Everything's Booming but the
Guns.' "
OP. May 23, exactly one week after Secretary Humphrey!s "first
public confirmation" of the then one-month-long round of reports, the New
York JTimes said it was "revealed publicly for the first time" that Presidential Economic Adviser Arthur Burns had "opposed the latest increase in
interest rates by the Federal Reservea" The revelation came from Rep.
Patman, who made public replies to inquiries he had made about reported
differences over the discount rate increase. Mr. Patman also voiced
criticism of Messrs. Humphrey and Martin for "avoiding answering Mr.
Patman's questions about the disagreement directly," and said he therefore
would "call hearings to look into the matter0"
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Federal Reserve Bank of St. Louis
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One day later3 Dow .Jones said that Secretary Humphrey had reconfirmed his position, this time to a wider audience. At a National Press
Club luncheon, the wire service reported, Mre Humphrey said "downward
pressures" that were "evident in the economy forced him to oppose the
Federal Reserve Board's latest credit squeeze,," Dow-Jones added:
"Mrc Humphrey said he felt confidence on the part of
business and the public might have been shaken a bit by the
Board's action. . ."
Bankers were heard from next, with suggestions as well as some
support of the Federal Reserve,,
Allan Sproul, retiring as president of the Federal Reserve Bank
of New York, made on May 2k what the American Banker termed a "valedictory"
address before the New Jersey Bankers Association convention in Atlantic
City, Mr. Sproul "answered critics of Federal Reserve credit restraint,"
citing economic and financial conditions, but also, in his conclusion,
"voiced his belief the time is ripe for a broad national inquiry (by a
Presidential commission) into the banking and monetary system 6f the
United States." He said there was "need to know what to expect of our
central banking system, of our commercial banking system, of our savings
banks and building and loan associations, of our insurance companies and
pension trusts. . ." But he emphasized, the American Banker said, "he did
not mean 'such piece-weal inquiries as those concerning the Federal Reserve
System and the Federal Open Market Committee which have marked the last few
year0'"
A prominent private banker, Henry C. Alexander, Board Chairman of
J0 PC Morgan and Company, was headlined shortly afterwards as advocating an
"easing of restraint*" Mr. .Alexander addressed the Buffalo, N. Y.,
Chamber of Commerce, The Buffalo Evening News account of May 26 led off
with the statement that Mr. Alexander has said "more money should be made
available to further the nation's expanding economy, but the dollar must
not be cheapened by relaxing interest rates0" The Wall St» Journal said
Mre Alexander declared he was "all for the Federal Reserve's increase last
month in the discount rate" but "suggested the Federal Reserve consider
reducing the reserve quirements of member banks as a way to increase the
money supply0"
As May came to an end, Federal Reserve assurances to inquirers
that seasonal needs for credit would be met as would cash needs over the
approaching Memorial Day holiday, drew such headlines on i-lay 29 as "FEDERAL
RESERVE TO PROVIDE RESERVES FOR BUSINESS NEEDS" (American Banker) and
"EASIER MONEY: FEDERAL RESERVE BEGINS TO RELAX CREDIT: CITES CHANGES IN
BUSINESS" (Wall St» Journal). But the Associated Press, on May 31, supplied
more perspective: "T"he Federal Reserve Board, while keeping a close watch
on the money supply and credit situation, thus far has given no sign of a
major change in its policy,"
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Federal Reserve Bank of St. Louis
-10As June began, Democrats were spotlighted. U0 S. News magazine,
in a pull-together of the month-and-a-half-long controversy in its issue
of June 1, focused on the replies Rep. Patman got., and now planned to
develop further at a public hearing. U, S. News digested the replies:
From Arthur Burns: "In view of somewhat conflicting
tendencies,, particularly the divergent movements that have
occurred of late in retail trade and capital expenditures, I
doubt the timeliness of this action,"
From George Humphrey: "Any important actions on
money matters by his department or the Federal Reserve are always talked over in advance. 'It is, of course, only natural
that we often have some differences of judgment arising from
varying appraisals of the timing and effect of economic trends*1"
From Sinclair Weeks: "I did disagree with the action
taken, but my disagreement was more in the realm of rtiming1
than otherwise,"
From James Mitchell: 'Wrote Mr. Patman a non-committal
reply. Mr. Mitchell has said publicly he does not see any inflationary danger and does not feel the Federal Reserve move was
necessary,"
From William McC. Martin: "Stressed the Board's
'independence'. He said the Board would always consult with
other agencies but that 'such consultations do not, however,
mean any loss of independence by the Federal Reserve in discharging the responsibilities delegated to it by Congress . . «
From time to time there are bound to be differences of judgment, of emphasis and of timing. It would be astonishing in
a democracy if this were not so and indeed it would be a
reason for grave concern if precautionary action had to wait
for unanimity."
On June U? the Journal of Commerce spotted caution in the attitude
of some of Rep. Patman's Democratic colleaguess
"Considerable behind-the-scenes planning is going
on among Congressional Democrats to make sure that the forthcoming investigation of the Federal Reserve's increase in the
rediscount rate doesn't get out of hand . « • The date for
the hearing, which (Joint Economic Committee) Chairman Paul
Douglas and others want to hold for just one day, has tentatively been set for June 12. Chairman Douglas and other
members of the full committee also want to limit the scope of
the investigation to the mechanics of the decision making on
the rediscount rate rise. They feel it's far too early to
try to assess whether or not the decision was a wise one."
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Federal Reserve Bank of St. Louis
-11On June 12, the Patman inquiry into"Treasury-Federal Reserve
differences" opened and the New York Times said it "proved mild today.
Both sides answered all questions readily,, conceded their disagreements
in April and said all was proceeding as before."
Witnesses Humphrey and Martin,, instead of widening the area
of dispute, "found themselves in agreement in principle » • . when Mrc Patman
turned to other (than the April disagreement) matters/' the Times said.
There were some good-humored passagess
"Mr. Humphrey laughed off a suggestion by Mr, Patman,
who said he had seen it in the press, that the Administration
might blame the Federal Reserve if the economy should slump
later this year. Mr, Patman noted that Mr, Martin was a Democrat and asked if that were not a way to throw the blame for
any slump to the Democrats0 'I assure you5l said Mr, Humphrey
with a broad grin, 'that if I found a way I'd be glad too'
Everybody laughed, including Representative Patman."
There was also some incidental information on the way the Federal
Reserve Board Chairman took the change in administrations and parties in
control. The Times recorded it thus!
"Mr0 Martin revealed that he had not submitted his
resignation at the beginning of the Eisenhower Administration,
as Mr. Humphrey had previously asserted. Actually, said Mr0
Martin, he was considering a 'very attractive' private offer,
and a few people knew it* But people 'close to1 the new Administration had told him, he said, not to be too hasty about
submitting his resignation. Then after the Administration
took office, both Mr. Humphrey and the President had urged him
to remain as chairman. Mr. Humphrey repeated today that he
still thought 'Bill Martin is the best qualified man in the
country for the job-*' "
Before June was out, however, the economy began to gather steam
and the controversy over credit began to lose it* By June 29, the N. Yc
Herald Tribune, surveying the scene editorially, was able to sum up developments cheerfullys
"Business activity has taken a turn for the better and
the economic outlook is brightening. The Commerce Department
reports a 'slight lift1 in national production, consumer prices
have climbed back to their record high of three years ago, and
retail sales volume has picked up markedly. There are encouraging
signs that the economy is getting ready to break away from the
plateau on which it has rested . « .
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Federal Reserve Bank of St. Louis
-12"A perceptible shift in sentiment is perhaps the
most significant of the recent developments. Where economists,
bankers, businessmen and others not long ago were pointing to
soft spots, they now are singling out the upward pressures
for comment. Their talk has a fresh, optimistic ring « .0
"Buying demand is displaying the bounce that the Federal Reserve Board was fretting about when it made its much
debated move to tighten credit in mid-April, Last month's
rise in the cost of living emphasizes the fashion in which
the U. S. is delicately balanced between inflation and recession. There can be endless debate about what would have
happened if the Federal Reserve had not acted. But two things
are clear—the credit squeeze did not start a recession and,
in fact, most major indicators now are pointing up, not down."
Start of a steel strike brought out some subtle changes in thought
in the Executive branch and in the Congress.
Secretary of Commerce Weeks, in a press conference reported by
the Washington Post July 16, "repeated that he disapproved of the Federal
Reserve Board's moves last spring to tighten credit," but added that "he
feels the situation today 'is in much better shape.1" He said prosperity
in 19£6 would eclipse 195>5> provided that the steel strike is !short-lived.'
On Capitol Hill, where Rep, Patman had concentrated on disagreement about past action, Senator Willis Robertson, taking note of suggestions
such as former Federal Reserve Bank President Sproul's for a study of the
financial system by a Presidential Commission, introduced a resolution
for n a full and complete study and investigation of existing banking and
credit needs of the nation." The study was proposed for a Senate Banking
subcommittee headed by Senator Robertson.
The focus of fear swung more sharply from deflation to inflation
as the steel strike was settled July 30—with an increase in steel prices
as well as an increase in wages—and almost simultaneously the entire
international front flared under impact of the "Suez Crisis." In Canada,
the central bank boosted its discount rate from 3 to 3 1/2$ and the N. Y»
Times noted from Ottawa August 10 that: 1) The increase was the Bank of
Canada's "fifth in twelve months"; 2) It brought another "immediate
protest from the Opposition party"—i.e., the Conservatives, whose acting
leader Earl Rowe led the assault with a warning the action might have
"dangerous effects" on the Canadian economy. Finance Minister Walter Harris
"replied that while he had been advised in advance of the move, the Bank
of Canada had the statutory powers to make its own decision. He added
that there was a 'considerable body' of financial opinion that . * . the
Canadian economy might be adversely affected if the increase . „ • had
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Federal Reserve Bank of St. Louis
-13not taken place*" (Three months later, the Bank of Canada dropped
"discretionary" increases in the discount rate and adopted its present
system of automatically determined rate movements.)
In the United States, the Canadian action spurred talk about
another round of Federal Reserve discount rate increases. Speculation
of this kind mounted as short-term rates rose, business loans "soared,"
the bond market showed signs of strain, and a "broad wave of price increases" caught headlines. On August 19, the N» Y0 Times started a story
on this notes
"The continued heavy demand by expanding business
for long-term capital is putting the bond market to its
greatest strain since the beginning of the Great Depression."
The same story ended on this note:
"The Reserve System has been shown to have been right
this spring and summer in recognizing inflationary trends at a
time when leaders in business and government thought otherwise*"
But bouquets for the Federal Reserve were neither numerous nor
long-lasted.
On August 23, 195>6!s "second round" of discount rate increases
was announced as under way as the rate went up from 2 3/U to Jfo at the
Federal Reserve Banks of New York, Philadelphia, Richmond and Chicago,
matching the rate that had prevailed since April at Minneapolis and San
Francisco*
The timing was striking. It came just one day after (l) Republicans
had nominated President Eisenhower for a second term, and (2) Democrat
Patman1s Small Business Committee had blasted Federal Reserve "credit
restrictions" for causing a "high mortality rate" among small business
firms.
The N^ Y. Times for August 2£ saw editorially "the threat of
inflation looming again as a darkening shadow upon the horizon of the
American economy," but others saw different shapes in the darkness. The
Herald-Tribune on August 2? headlined "3 DEMOCRATS HIT RESERVE BOARD BOOST"
and named them in its story as Reps. Emanuel Celler and Abraham D. Multer
of New York ("they charged in a joint statement that big business can
weather tight money but small business cannot") and Wright Patman of Texas.
Mr. Patman "threatened an investigation.1'
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Federal Reserve Bank of St. Louis
Officials of the Republican party, which had just adopted a
platform plank endorsing nthe present policy of freedom for the Federal
Reserve System to combat inflation and deflation by wise fiscal (sic)
policy," endeavored with temporary success to go unquoted in the headlines,, On September 17? however, Democratic Presidential nominee Adlai
Stevenson he"ld a press conference in Washington that included these exchanges, according to the unretouched transcript carried by the AP;
"Q. Would you, if elected,, support and continue an
independent Federal Reserve System and, particularly, the independence of the Federal Reserve System's Open Market Committee?
"A. I would make, on the basis of what information
I have with respect to the working of the Federal Reserve System,
I would suggest no legislation to alter the present position of
the Federal Reserve System with respect to the Treasury Department
and also with respect to its Open Market Committeea"
Mr. Stevenson, pressed to discuss whether he had "given consideration" to"ways of meeting (the rising cost of living) by price control or
anything, possibly, less drastic," made the further reply:
"Ac Well, of course I have, sir. It is a subject
I am not sure whether you want me to—whether this is an
appropriate occasion to discuss the problem of inflation control, the methods that are traditional, like Reserve Bank
requirements, consumer credit controls, commercial bank requirements and all that sort of thing, but it is a serious
problem, and becoming more so rapidly . . . The problem
basically is to distribute equitably the burden. I think
that is one of the major difficulties and objections that I
would have with the manner in which it has been conducted
by this Administration. But here you get into, of course,
the question of the responsibility of the Treasury and of
the, of the Federal Reserve System, which we have already
adverted to here.
"I really don't know how to answer your question,
I am afraid, or how to enlarge upon it0 But I made a speech in
Texas, I believe a year ago this month, in which I pointed, at
the University of Texas, in Austin, with considerable alarm,
and a suggestion that some steps be taken to, in contemplation
of the very rapid increase in consumer debt. That was a year
ago. At that time nothing was done. My recollection is that
President Eisenhower 0 . . in one of the major messages early
this year, in January, asked for a study of the expansion of
consumer credit which, I believe, at that time was outracing
the growth of the national product by 3 to 1, and that very
shortly after that his own Secretary of the Treasury, Mr.
George M. Humphrey, testified that no such study was necessary.
This is one of the examples of contradictions that I have never
quite understood,11
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Federal Reserve Bank of St. Louis
Republican feelings were assessed again by the Wall St. Journal
on the following day. Said the Journal for September 28;
"Secret feud smolders between Ike's advisers and
Federal Reserve credit men. The Administration strongly
opposes, in private, any further credit tightening moves,
Officials still smart over the Fedfs latest discount rate
boost. They shy from public disagreement to avoid recurrence of last spring's family split 0 0 e"
On the other hand, the October ^Washington Post had a somewhat
different private—if not the party—line. Said "the Post:
"Treasury Secretary George M. Humphrey, hitherto
dubious of the Federal Reserve's tight money policy, has
recently told associates he thinks it is right. Economically,
he concedes, it is the proper thing even though its political
repercussions are something less than vote-catching for the
Republicans."
Meanwhile, "tight money" stayed in the headlines as the campaign
days ticked away and, unsurprisingly, popped up in questioning at the next
press conferences held by President Eisenhower, on October 5?, and again on
October 110
The thing that struck the Washington Post as most emphatic about
the first of these press conferences was that?
"President Eisenhower yesterday disclaimed responsibility for the Federal Reserve's credit-tightening moves,
declaring that the agency is independent« He did not comment
directly on a reporter's statement that the Administration had
helped lift interest rates. But he said . » 0 tThe Federal
Reserve Board is not under my control, and I think it is proper
that the Congress did set it up as an independent agency?• . •
He thereby sought to blunt Democratic charges that his Administration had fostered tight money policies hurting local
governments, small business, farmers and others . c 0"
At the second of these conferences, Mr. Eisenhower
once more "voiced his conviction that the Federal Reserve
System is properly independent of the Administration." But
this time there was a new and more positive note in the lead
of the Wall St* Journal's account, and the beginning of a
theme that would be heard again. Said the Journal's lead:
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Federal Reserve Bank of St. Louis
-1611
President Eisenhower declared American prosperity and strength
at home depend on !a sound dollar.1 0 « « And, he told his
news conference, an increasing cost of living must be dealt
with intelligently3n
The President's attitude toward the Federal Reserve continued
unshared by all members of his political party. On September 23, the
Washington Post reported that BusinessWeek Publisher Elliott Bell^
described by the Post as "an important though unofficial White House
adviser," had urged "linking the Federal Reserve to the Administration
in a President-directed national economic council^"
Mr« Bell, addressing the American Bankers Association Convention
in Los Angeles, was giving personal advocacy—and wider distribution—to
the ideas advanced earlier by his magazine's editorial page. The Post
said in its story:
"Contending that the Federal Reserve should not
'ignore or even go counter5 to the Administration, Bell
blueprinted a counterpart to the National Security Council
for the economic fronto
"This body would fgive the Administration power
to help determine basic economic and monetary policy for
which it must take full political responsibility, Bell said
o e « While President Eisenhower has publicly affirmed the
Federal Reserve's independence, Bell declared, 'You can't
keep the Federal Reserve out of politics.1
"He charged Board Chairman William McC. Martin and
the Reserve Governors with 'resolutely ignoring the political
aspects of their course'. Despite the President's disclaimer
that he can't control interest rates, 'the public holds Mr.
Eisenhower responsible for tight money,! Bell saide
"The one-time New York Banking Superintendent under
former Governor Thomas E. Dewey also called for selective
credit controlse The Reserve's 'crude' overall restraints,
said Bell, have unfairly hit small business and home building
while 'the big corporation is not affected at all.' This
view echoes private observations of the Eisenhower inner
circle."
The Bell view, did not, however, get echoed in public observations
of Undersecretary of the Treasury Randolph Burgess when he spoke to the same
bankers convention the next day. Mr. Burgess, reported the Wall St0 Journal
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Federal Reserve Bank of St. Louis
-17°^ September 2h> said the Administration had "assured the Federal Reserve
System its freedom to exercise independent judgment in its monetary policy."
He said a Federal Economic Council such as suggested by Mr, Bell "was unnecessary*" (The following day, however, Mr. Bell's suggestion was
"supported," according to the N« Y0 Times, by another speaker at the same
convention: T. V, Houser, Chairman of Sears, Roebuck. The Times reported
October 2£ that Mr. Houser contended "monetary policy isn?t consistent in
its impact," and that "it operates only on the employer side of the ledger
and restrains labor only through an adverse effect on the employer.")
With election day only a couple of weeks away, Representative
Patman moved back into the news October 25> with, once more, an "announcement
of an investigation," The Wall St, Journal quoted Mr. Patman as saying his
Joint Economic subcommittee would "reopen its investigation of Federal Reserve policies with one day of hearings in December." This time, said Mr.
Patman, the undertaking would be "to find out whether the trend toward
higher interest rates 'has already gone too far1 and whether the use of
monetary devices has 'failed1 as an economic stabilization device." The
paper pointed out that"Democrats had criticized the latest discount rate
boost and !tight money1 policies*" While Administration officials were
"openly critical of the Federal Reserve's approval of a general increase
in the discount rate last April," the Journal added, they "did not comment
publicly on the latest hike in August. However, Administration leaders
privately opposed the action."
The election was held November 60 The Wall St. Journal rolled
out its early editions even before the early returns began coming inc
Conscious that some old controversies never die, the Journal, without
feeling it needed to wait for the election outcome, filled the feature
space on its editorial page with a confident prediction:
"The voters yesterday ended the political campaign.
But the fighting over one of the main domestic issues may have
just begun.
"The cause of the fighting is money. The immediate
stake in the battle is the independence of the Federal Reserve
Board, And the skirmishing is likely to take place at both
ends of Pennsylvania Avenue, in Congress and in the Executive
Offices concerned with this highly volatile subject . 0 0
Certainly the invasion forces are already sending skirmishers
out."
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Federal Reserve Bank of St. Louis
—END-
'>^£&*-*-' --~-
Fl D E R
-A- L
R
K S E R V E
;
D :i s E C T 0 R S
^
^ The Federal Reserve Board today announced the names of Class C
directors for the Federal Reserve Banks of Boston, New York, Richmond,
St. Louis and Minneapolis.
The names of Class C directors for the other
banks of the system will be announced at an early date.
In selecting the directors the Board has made the utmost effort to
weigh and compare the merits of all those whose names were presented to
it.
It has also inquired into the qualifications of all other suitable
men as to whom it could get information, to the end that in every case
the best might be chosen.
Llembers of the Board have made special jour-
neys for the purpose of investigating conditions in various Federal Reserve cities and of ascertaining facts regarding those who were being
considered; by the Board.
In other instances persons have been invited
to Washington for consultation.
In each case the Board has endeavored
to assure itself that the mr.n selected is able to comply with the requirements of the Federal Reserve Act, is a man of ability, and has the
confidence of the banking and business community in which he is placed.
So far as reasonably possible, geographical considerations have been
taken into account in order that different portions of each district
might bo represented on the board of directors.
The names of the directors announced and the main facts regarding
each follow:
MEW YORK
PIERRE JAY, 'New York City, born 1870; banker; vice president, Old
Colony Trust Coupany, Boston, Lass., 1903-05; Bank Commissioner of
Massachusetts 1906-09} vice president, Bank of the Manhattan, Ne1-- York,
1909-14; is trustee or director of various financial institutions.
Mas
hfd special experience in investment and foreign exchanges, operations •
Draftsd
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Federal Reserve Bank of St. Louis
bill for incorporation of credit unions in Massachusetts,
-2;
CHARLES STAREK, New York City, appointed national bank examiner
March IS, 1903,
At the time of his appointment was employed by Depart-
ment of Commerce and Labor as a special accountant, resigned in 1911 to
go to First National Bank, New York City.
He was reappointed bank ex-
aminer on August 3, 1912 and assigned tb New York*
GEORGE FOSTER PEABODY, Lake George, N. Y.j born in Cblumbus, Gat, *
July 27, 1852.
Retired banker; Chairmah of the State of New York Reser-
vation Commission at Saratoga and widely identified with educational and
philanthropic work.
¥. McC. MARTIN, St. Louis, born in 1874;
issippi Valley Trust Co., St. Louis, Missouri.
Trust Officer of the MissVery considerable exper-
ience as banker and trust officer and as careful student of banking methods.
WALTER* -7. SIIITK, St. Louis, born January 19, 1877.
Now national bank
examiner for St. Louis, St. Joseph and surrounding districts.
of the St. Louis Bar.
A member
Has had three years experience in accounting office
of Missouri Pacific Railroad; nine years ivith Mississippi Valley Trust
Company; three years as Assistant Chief Examiner, St. Louis Clearing House;
appointed National Bank Examiner April 15,
1911.
JOHN W. BOEHNE, Evansville , Ind . , born in Indiana Oct. 28, 1856;
former member of Congress and a prominent manufacturer.
Served as Council-
man in City of Evansville four years j Mayor of Evansville three terms.
BOSTON.
FREDERIC H. CURTISS, Bos-con, Born Yonkers, New York, 1859; retired
banker.
Clerk in Broadway National Bank, Boston, 1891; Assistant Cashier
1393, Cashier, 1898; cashier and director Mass. National Bank, 1900; cashier a.nd director of Fir.st National Ba:;!:, Boston, 1903; Resigned, November
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Federal Reserve Bank of St. Louis
1912.
Member of executive committee, American Bankers Association, 1907,
1910.
WALTER S. HACKNEY, Providence, R. I., born Aurora, 111., about 52
years of age; banker; manager credit department, Crane Company, Chicago
latter part of that 'time acting treasurer; treasurer, General Fire Extinguisher Company, Providence, R. I.; twenty years director and member executive committee Rhod3 Island Fire Insurance Company; director, National Bank
of Commerce, Providence] R* I;, last fifteen years*
ALLEN HOLLIS, Concord, ft. H. , born Dedembei* 20, 1871;
officer of
Union Guaranty Savings Bank, Concord; counsel fbr Boston and Maine railroad rate cases for State of New Hampshire three years; president, Concord
Electric Company.
Hollis has been many years secretary of the Union
Guaranty Savings Bank and the Union Trust Company of Concord.
MINNEAPOLIS.
JOHN H. RICH, Mayor of Red Wing, Minnesota, born 1852, ret.rred
manufacturer and banker, for many years engaged in manufacture vitrified
clay products at Red Wing; seven years president of Goodhue County National Bank at that place; retired from both positions about three years ago;
was President, Minnesota Branch, National Citizens League, to which he
devoted much time,
PETER M. KERST, born 1869; Clearing House Examiner for Minneapolis
and St. Paul, for the past seven years; had many years experience as
cashier of a bank in St. Paul; was
State bank examiner, and two years
Superintendent of Banks for Minnesota.
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Federal Reserve Bank of St. Louis
-4JOHN W, BLACK, Houghton, Mich., born Jersey City, 1872.
Vics-
President and General Manager the M. Van Orden Coal Company, wholesale
coal dealers, and a member of the Board of Control of the Michigan School
of Mines.
Came to Michigan in 1899 as Manager for contracting firm of
Prendergast & Clarksoh.
In 1901 helped organize the M. Van Orden Coal
Company.
. RICHMOND.
WILLIAM INGLE, Baltimore, born in Baltimore in 1858; is now vice
president, Merchants and Mechanics National Bark.
Entered bank in a
_^~--""^
clerical capacity in 1881 and has remained with that institution since that
time being promoted in the bank to the position which he now holds.
i
JAMES A. TONCU^F, Richmond, born in Suffolk County, Va., about 53
years ago; educated in Suffolk County and Fredericksburg, Va.; moved to
Richmond and engaged in general mercantile business until about fifteen
years ago when he and his associates took over the Richmond Guano Company;
at one time an alderman in the City of Richmond.
M. F. H. GOUVERNEUR, Wilmington, N. C .•, member of the firm of Hugh
MacRae and Company, Bankers, of Wilmington, North Carolina; has never
held
^ublic office; is a great grandson of President Monroe.
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Federal Reserve Bank of St. Louis
@FedFRASER