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FEDERAL RESERVE BOARD
WASE1NGTON

2b, 19Z6

Dear Mr. Case:

Ihe Federal Reserve Board has considered

the report and
r eCOAIIIE endations submitted by the Open market
investment Committee today, a
copy of which, in the form finally adopted by
the Committee is attached hereto.
The Board approved the k;o1 i cy outlined in the
authorizes the sale of further securities from the report
Open
Market investment Account, if such sales are deemed necessary
by the Committee.

Very truly yours,
(Si6ned)

R. A. YOUNG

Governor

B. Cbse, Actin6 Chairman,
Open hi arket investment Committee,

c/o Federal Reserve Bank,
iAew lork, N. Y.

JUme 1, 1928.

-Governor Youngs
Supplementing our daily letter to the Federal Reserve

Board

gains and losses to the money market, I am summarizing herein a few of

important changes

which have taken place in

Now York and throughout

concerning

the

the System

1ring the past week.

Except for a temporary rise in

,o 5 1/2%

cal money

to 6 1/2% on Monday, and doable

Tuesday afternoon the money market has been steady and moderately firm

past

qring the

week, due largely to further sales of securities from the System.

.,:ount, reduction in Reserve Bank bill holdings, gold exports and a holiday and

al-end currency demand.
There has been a fairly steady flow of funds tO New

York which,

except

the reduction in Reserve Bank bill and security holdings, would have enabled
vue iam-York banks to reduce their indebtedness considerably and, consequently,
would have eased the money market.

links

As it was, the borrowings of the New York City

totaled $246,000,000 yesterday, an amount slightly larger than a week ago,

while borrowings by banks outside of New York increased about $90,000,000 during
week.

On Monday, a sale of nearly $260000,000 of securities to the market
wall made and was immediately reflected in an increase in the borrowings of New

Ork City banks.

On Tuesday, there was-a temporary increase of slightly lesn

hau $7,000,000 in the System Account, which was due to the temporary purchase
,f securities from a foreign aocount.

Sales contract holdings of securities also

ncreased #7,000,000 during the week; so that the net reduction in total security
oldings was but $11,0000000.

At the close of business tonight, the open market.

ortfolio will stand at #750000,000,




3overnor Ibung.

or:oat,

8/1/28.

resent level of our buying rates
on bills, which, with the cost of
,

ices them above the open market offering
rates on

tee

the shorter maturities,

has resulted in small offerings of
bills to us and a consequent reduction
of $27,000,000
in the total bill holdings of the
System during the past week.
Yesterday, maturities
here exceeded purchases by an
additional 010,0000000 A factor in the
comparatively
low open market rates on short bills
has been the strong demand for bills
account

for foreign

The new law exempting income
received by foreign central banks from
bills

(effective as of January 1 1928) is likely further
to stimulate the
bills in this market.

foreign demand for

The gold movement continuea to be
an influence toward firm money. The
principal item during the past week
was an export of $15,000000 to
London by a New
York bank. This shipment and the 0,000,000
shipment to London last week are
reported
to have been special transactions - they
were not warranted by the position of
sterling,
figuring the usual coats involved in
the calculation of the gold export
point. Sterling
exchange has advanced to the
highest lewel of the year, notwithstanding
the relatively
high level of money rates here.
We understand that a factor in its
strength has been
the 00,000,000 Australian loan recently
floated here, the proceeds of
Which have been
Amde available to the
British Government.
Holiday and month-end currency
requirements have created a. further,
though
temporary, demand for funds this weak.
A considerable part of
this currency will
probably return from circulation nikt week,
but the influence of this on the
money
market is likely to be offset by the
withdrawal of funds from Now York,
which usually
ocours in the first week of each month.
Recapitulating, the principal developments
of the week have been the following:
Increase in borrowing from Reserve
Banks:




By New York City banks
0611Q0000s.00400.o OOOOOOO 0004 8,000,000
By all others(aocompanying
transfers to New York.
and some increase in
currency requirements)...... 86.000,000
Total

08,000,000

-

Principal causes of increased demand for reserve funds:
Net reduction in security
Reduction in bill holdings°

sold exports....00000000
Temporary

00000000000000 00000000

increase in currency

26,000,000
1700009000

circulation0.00000000. 43 0_1_0_0,01_91

TOtal0p.00400000**000D00497000,000

continued firmness in
The immediate prospect then, appears to be for
market during the coming week. It seems likely that the total
will remain above $900900090000
7ebtedness of all member banks for the present

continue to gain9 through transfers0 for a
It is possible that New York banks may
they are rerweagaged
day or two longer, but in View of the fact that

first-of-the-month dividend and interest disbursements,

offer funds freely in the call loan market.
lending freely,

If

they are not likely to

however, they do appear to be

additional security sales may be necessary to

prevent a decline

in money :etas. Call money has Twet gone to 6 1/44
Very truly yours9

Z. R. CASE,
Deputy Governor.

:/lorable R. A. Young,
c.iovernor, Federal Reserve Board0
Washington, D. C.




in meeting

rune 1, 1928,

enrapat

AND CONYIDWFIAL

Dear Governor Youngs

enoloelta a preliminary statement of the gold movement during Nei
:lob you will observe that the net loss for the month was 4109,000,000 in -

both satusl shipments and earmarking transactions.

This in the largest

in any one month since the present export movement began
.11,427

in September

The total eAports of gold for the month were 483,0009000 and although

that figure wao exoeeded by alightly over 410,0009000 in both March and April,
nevertheless there were practically no imports in May and the ,mount of gold earmarked was muoh larger than any month this year.

As you know, the large amount

of gold earmarked for the Bank of France at the beginning of the month was respowsible for this.
-

.

The following table ahowing gains or losses of gold through exports and

earmarkinge in millions of dollars will be of interest;

Mbnth
1927
September
October !-

Through
Net
,....r.te,

00
0 0 0 0+
0 0 0 0 0 0 0 OD
0.

OD

November.0 0 G, ,

0 C CO 0
,
December- - - - - - - - 1928
0 0 0 0 DO
January - 0 OD
OD 0 0 0
February
a
0
OD 0 ID 0
Wm)) - - z
OD

AO

c_. a

April .., -

May -

DO

c..

2.-,

0,

.,

OD

- - - - - - - Total 9 months

OD

-

..,

11
9

-

53
68

-

14
11
95

-

91

Through
Earmarking,

Total

-

20

- 25
- 40

- 6

9

- 34

- 76

+

6

+

3

.36
+46

83*

- 26*

=35-1°7

-

93

8
8= 59
- 45
- 109*

773-77T

AS I have said, the Bank of France was the most important factor in oUr

transactions; so also with respect to actual Shipments of gold the
largest amount withdrawn during May was for account of the Bank of France.

4Fre1iminary



For

;meson

'Met

a s pp

as we

vs no

ns

Jae

further dhipments to France and have received no intimation that the amount
of gold which they

now hold

earmarked with Us (*93,0009000) Is to be taken home in

the near future.

The second largest withdrawals of gold during May were to Oreat Britain.

Two shipments aggregating $5,0000000 arid #159000A0 were made to London by the
National City Bank of New York and were in part brought about by the present strength
of sterling exchange.

Taking into consideration the present shipping costs from New

York to London, it is impossible to see how any profit could be made on these two
consignments with sterling at $4.88 5/16 to $4.88 3/8D unless the gold were sold in
the London market at close to the maximum price of 7780 10 1/2d.

Only a very small

part of the first consignment of $5,000,000 was sold in the London market, most of

the gold having been sold to the Bank of Englend at its minimum buying price of Mg.
id.

The second consignment of $16,0009000 has not yet arrived but there does not

appear to be any atrong derand for gold in the London market and we must, therefore)
ionclude that these transactions are of a special nature and are not being undertaken primarily for profit.

Argentina took a fairly substantial amount of gold during the month as
he has been doing now since the latter part of last year and there was a small
Amount seat to Italy.

Otherwise there is nothing of importance in the gold move=

t daring May which requires special oomment.
Very truly yourso

7. H. CaseD
Deputy Governor0

YA. Young,
Federal Reserve Board°
;on9 D. C.




.

GOLD MOVEMENT

May 1- 31 iac. 1926:
(000's)

Imports
from

Exports

Argentina

-

Belgium

Colonbie

Country

Earmarks

Releases

12,700

-

-

-

-

2,500

-

.113

1,517

-

France

-

42,462

679000

Great Britain

-

20,026

-

-

Italy

-

4,000

-

-

Venezuela

44

1,300

All Other

377

600

Totals

to

..1
$620605

503

42,468

=1.

$69,500

$42,965

152,105

_43,40
106,596 Net Lose for Month

Since Last Thursday's Report
$14,991,000 exported to England
" Italy
2,000,000
"
"
* Colombia
510,000
"
90,000
* Mexico
"
52,000
* Germany
6
15,000
6 India
it17.65et000,

Federal Reserve Bank of New 'York
Foreiga Information Divisioa

June 1, 1926

NEM,




Still to Go
$2,000,000 to Italy and
$1,0000000 to Argentina on
June 1.
$500,000 to Colombia on
June 6.
Note:
Total gold held under
earmark by Federal
Reserve Bank of New York
as of close May 31 was
$136,050,294.36.

(c)

PERSONAL

July 5, 1928.

Dear Governor Young:

I have received the copy of your letter to Governor McDougal
under date of June 50, which you were good enough to send me and in which
you so clearly set forth your views with regard to the credit situation
and further increases in the discount rates.
Your resume of what has taken place in the field of credit and the

money market since last September, in the way of security sales and loss of
gold, very clearly reflects the cause of the present tenseness, and,
personally, I find myself in exact agreement with your views.

I think that

what happened over the mid-year period, when call money went to 8%, and
again, the happenings of yesterday, with call money at 10%, is a definite

indication that natural forces are at work which, if given a reasonable
amount of time, will undoubtedly bring about a corrective of a more satisfactory sort.than would be the case if the System were to again begin moving

up its rates, which action of course might have an adverse effect on commerce and industry.

Call money went to 10% yesterday about half past one, and shortly
thereafter I was called upon by one or two dealers in Government securities,
who suggested that they could obtain large amounts of short-term Governments
from one or two of the banks for the purpose of making repurchase agreements
with us, and thus give the banks in question additional funds to use in the
market.

My reply was that we were not interested.

I had gone over the

situation carefully with our Executive Committee at two o'clock,

and they

agreed with me that the best course for us to pursue was to keep hands off
and let nature take its course.




2.

7/3/28.

Hon. R. A. Young,
150 Bluff Street,
Marquette, Michigan.

In reading the press reports this morning I was very glad to

observe a leading article in the New York Herald-Tribune, which contained

an endorsement

of this policy by Mr. C. E.

National City Bank.

Incidentally, I

Mitchell,

President of the

A copy of the clipping is enclosed for your information.

think he put his

finger on

the sore spot when he pointed out

that loans of member banks for account of "all others" had mounted from
roughly, $850,000,000 at this time last year to $1,729,00u,000 as of last

week - an increase of approximately 000,000,000, and some of the banks at
leaet have not

heretofore fully

with Mr. Mitchell this morning,

understood just whet this means.

In talking

he told me that one large corporation which

had dividend payments to make yesterday had sent out its checks on

Saturday,

and its account with the City Bank was put in funds only yestercay morning

by the receipt of a check for more than $20,000,000 deposited by a private
banking firm which Mr. Mitchell had reason to believe had been loaning money
on the "street" on call for account of the corporation.

In other words, the

corporation issued its dividend checks on Saturday against its call loan
account, depending upon the collection of these funds Monday for this purpose.

Apparently this class of operations

ran up into big figures, and as

our banks

already owed us $550,000,000 or thereabouts yesterday morning, they were
naturally somewhat reluctant about taking on additionalloans.
the inevitable happened!

Of course

The associated banks are now beginning to realize

that, in the last analysis, they are the underwriters of the whole "street"

loan account*

for others, and they had of course to supply the funds needed

at some rate - 10% indicating how reluctant they were to put up additional
funds.

Today call money renewed at 8%, went to 7% at 12 o'clock and to 6%

at one o'clock, closing at 5%.
I do not know whether Mr. Platt has referred to you my suggestion
up-to-date on the subject, I am enclosing chart
of this account.

* In order that you may be

http://fraser.stlouisfed.org/
showing the current poilition
Federal Reserve Bank of St. Louis

7/3/28.

Hon. R. A. Young,

5.

150 Bluff Street,

Marquette, Michigan.
that we have a meeting of the Open Market Investmont Committee at Washington
on Wednesday, July 18.

As I understood that you would be back that week, and

as Dr. Miller was leaving at the end of the week, it seemed to me an
appropriate time for the committee to meet and review what had taken place and
just what our policy should be for the summer.

There was one paragraph of your letter to McDougal that did

not

appeal to me,and that wae the one containing the suggestion that, in the

proposed conference oetreen the directors of the Chipago bank and the Federal

Reserve Board (which

I think is admirable) representatives of all the other

Federal reserve banks should be

present.

This, I think, would be inadvisable;

and as an alternative saggestion, perheps you
Open Market

Investment

Committee, or, indeed,

representatives from the other Federal

it essential

might have the members of the

merely pick one or two

reeeeve banks, if you

really feel

that some one from the other reserve banks should be present.

Pereonally, I think it would be more diplomatic and complimentary to the
Chicago directors to limit the meeting eolely to the

and the directors of the bank.
Very truly yours,

J. H. CASE.

Honorable R. A. Young,
150 Bluff Street,

Marquette, Michigan.

Enclosures.




Federal Reserve Board


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102