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BOARD OF G O V E R N O R S
□ F TH E

FEDERAL RESERVE SYSTEM

Office Correspondence
To
From

C h a i r m a n B u r ns

_p^?rt r - Holland

Date

February 5. 1971

Subject: Procedures for improved communications I i connection with a more flexj
ible discount r a t e . ________________

Attached is a draft memorandum, the substance of which the

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Presidents1 Conference Committee on Discounts and Credits (consisting

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Presi(ient Hayes, Chairman, and Presidents Morris and Mayo) would
like to discuss with us on Tuesday.

I have already discussed it with

President Hayes, and I regard its proposals as generally acceptable
with the following exceptions or qualifications.
Conference of Presidents - Discussions at regular meetings
of the Conference would seem appropriate to me and potentially helpful
if they were in terms of general discount rate policy.

However, these

meetings should not, in my opinion, be allowed to develop into a
caucus on specific rate changes.
Special Conference Calls - Such calls among members of the
Board and Reserve Bank Presidents might be useful in an emergency, but,
based on past experience, they are generally unwieldy and not particularly
satisfactory.

Thus I donTt think we would want to be committed to this

procedure for the more routine rate changes that develop between FOMC
meetings.

For such ordinary circumstance^ the direct calls which I

make to individual Presidents have apparently worked well— much better
than I would anticipate conference calls working— and I propose that
we continue that procedure.




Chairman B u m s

~2-

Coded Telegrams - The proposal that the Board, upon receipt;
of a wire from a Federal Reserve Bank to the effect that its directors
had voted a change in the Bank’s discount rate, would, by coded wire, notify the other Reserve Banks already has Presidential approval.

The

staff here has been working on the implementing details and is about to
put such a procedure into place.
Reserve Bank Exchange of Letters - I do not see any reason why
the Board should object to a procedure for inter-Bank distribution of
all letters and/or wires from a Reserve Bank to the Board relating to
the discount rate and other monetary policy matters, providing a good
security system can be developed to protect the contents of those
letters when they are transmitted.

I can see a possibility, however,

that some Reserve Banks might be a little uneasy about the procedure
at times.
Information to be Provided to Boards of Directors - We have
in preparation a letter you could send to each President outlining what
could properly be told to their boards of directors about current Open
Market Committee policy.

This proposal represents a follow-up to the

discussion with Chairman Duesenberry and others at the recent Conference
of Chairmen#

Attachment

DRAFT

February 5> 1 9 7 To

The Members of the Conference
of Presidents of the
Federal Reserve Banks

From

The Committee on Discounts
and Credits

Subject:

Procedures for
improved communications
in connection with a
more flexible discount
rate

This report describes various suggestions for improved
communications and circulation of material relating to the discount
rate and other monetary policy matters that were discussed at a
meeting between the members of the Committee and the Chairman and
Secretary of the Board of Governors on February 9> 1971*
Meetings
FOMC
The regular meetings of the FOMC provide a useful forum
for an exchange of views with respect to the discount rate.

On

occasion in the past* the discount rate has been the subject of
discussion at FOMC meetings.

It is proposed that at future FOMC

meetings provision be made regularly to give each Board member
and President an opportunity to comment on the discount rate.

It .

is not expected that an extensive discussion of the rate would be
required at each meeting.

Existing circumstances would determine

the depth to which the rate should be discussed.
Conference of Presidents
The regular meetings of the Conference of Presidents
provide another useful forum for an exchange of views by the
Presidents with respect to the discount rate and other monetary
policy matters.



Some time ago when the FOMC met only quarterly,

2

the

Conference was used as such a forum.

Conference provide

opportunities

The meetings of the

for the Presidents to-learn more-

fully the views of the directors of other Reserve Ban ks on tn e
discount rate as well as on economic developments.
Since minutes

of meetings

receive rather vide distribution,

of the Conference of Presidents

their coverage of the discussions

of the discount rate and other monetary policy matters should be
very general.
Special

Conference

Calls

Special telephonic conference calls* participated in by
the members of the Board of Governors and the Federal Reserve Bank.
Presidentsj

could be arranged in the interval between regular

meetings of the FOMC whenever the next meeting of the FOMC is
some time away and developments

such as sharp movements in interest

rates or financial or other developments call into question the
matter of discount rate action.
the suggestion of the

Such calls would be arranged at

Chairman of the Board of Governors or the

Chairman of the Conference of Presidents.

The calls would provide

an opportunity for the presentation of the most up-to-date
information and the exchange of views as to the most appropriate
System response.
Coamunications
From the Board of Governors
Upon receipt of a wire from a Federal Reserve Bank to the
effect that its directors have voted a change in the Bank's discount
rate,

the Board of Governors* by coded wire, would notify the other

Reserve Banks of the directors'



action,

including some brief

3

indication of the "basis for the action.

When it is timely,

the

Board of Governors would inform the Reserve Banks, by telephone or
coded wire,

of the Board's views on the proposed discount rate

.change and its probable disposition by the Board,

as well as the

timing of the Board's prospective action.
The Board of Governors would give prompt notice to the
Reserve Banks of all major policy actions taken by the Board.
Every effort should be made to give such notice to the Banks in
advance of its release to the press.
The staff of the Board of Governors would prepare more
promptly the records
by the Board,

of the policy actions that have been taken

for circulation in draft form to the Federal Reserve

Banks so that the chief executive officers

of the Banks would have

a fuller understanding of the rationale for the policy actions
taken by the Board than is now the case.
From the Federal Reserve Banks
The Reserve Banks, by letter or wire, would regularly
inform the Board of Governors

of the views of its board of directors

on the discount rate and other policy matters of major consequence.
Consideration should be given to such a communication at the time
of every meeting of the boards

of directors.

Such letters or wires

could be sent over the signature of the Federal Reserve Bank
Chairman or President.
alternatively,

Copies of such letters and wires or,

summaries of their principal comments and co nc l usi ons ,

might be furnished to all other Federal Reserve Banks as appears
appropriate to the initiating Reserve Bank.




Copies of other letters from the Reserve Banks to the
Board of Governors relating to the discount rate and other monetary
policy natters

could also "be furnished to all other Federal Reserve

Banks.
To the Reserve Bank Boards of Directors
At meetings of the Reserve Bank boards of directors*
the President would give some very general indication of the
current monetary policy position of the FOMC* particularly on the
occasion of a change in the direction of policy.

Guidelines as

to the nature and extent of the information to "be furnished the
directors

in this regard are to be developed by the FOMC or its

staff.
At such meetings*

the Presidents as a regular matter

would also review the maj'or policy actions taken and announced
by the Board of Governors in the interval between meetings and
their significance.

Such a review will permit directors to make

a better evaluation of discount rate proposals.
directors'

meetings*

In addition* at

the officers in charge of research would make

some comparison of differences

in his economic analysis and that

of the staff of the Board of Governors.
Whenever major policy actions are taken by the Board
of Governors* particularly with respect to discount rate changes
approved by the Board,

the Federal Reserve Banks would promptly

advise the directors available,
Deputy Chairman*

especially the Chairman and the

so that the directors'

source of information is

the Federal Reserve and not the news media.

Such advice would be

given at about the same time the announcement of the Board's




5

action is released to the press.
■Important c o m m u n i ca ti o ns , including press releases* from
the Board of Governors with respect to monetary policy actions
would be-reproduced by the Federal Reserve Banks- and mailed to the
di r e c t o r s .
Protection of Confidential Information
In order to protect the confidentiality of the information
that it is proposed to furnish to the Federal Reserve Banks*
letters* vires and telephonic messages
chief executive officers of the Banks.

the

should be directed to the
This is of particular

importance in respect of specific actions taken or contemplated
that have not yet been publicly announced,
Board of Governors of a change

such as approval by the

in the discount rate voted by the

directors of a Federal Reserve Bank.

To the extent feasible, wires

relating to discount rate changes should be coded.
To protect further the confidentiality of the information
obtained, there should be restricted distribution and duplication
of the material received.

Under recent practice,

early telephonic

advice from the Secretary of the Board of Governors with respect
to anticipated Board consideration of a rate change voted by a
Reserve Bank has been restricted to the chief executive or acting
chief executive officers of the Reserve Banks.

A "need-to-knov"

test would appear to be appropriate.
Information related to possible discount rate actions by
the Board of Governors

should be transmitted orally by a Federal

Reserve Bank President only to the Chairman of his Board of Directors
with specific reference to the confidentiality of the information



6

and. only when it would appear that such action is imminent.
the, course of a directors'

In

neetingj when approval by the Board

of Governors of another Federal Reserve Bank's discount rate
action appears to be in prospect}

the President may inform the

directors of the general nature of the situation in order that
they may make a fully considered judgment.
All new di rec to rs, and particularly the Chairman and
Deputy Ch airman» should be fully briefed as to the confidentiality
of the information received by them and the necessity of protecting
that confidentiality.
As to all information received under these proposals for
improved commu nic at ion s> each President should exercise judgment
and discretion as to what information to transmit to other parties
and the timing of the transmission of such information.
cc:

Robert P. Mayo
Frank E. Morris
Alfred Kayes* Chairman




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