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Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED Authority E o , !o9oj MINUTES OF THE MEETING OF THE JOINT CONFERENCE OF THE FEDERAL RESW E BOARD AND THE OPEN MARKET POLICY CONFERENCE TUESDAY, MAY 17, 1932, WASHINGTON, D. C. The meeting was c a lle d to order a t 10:15 a. m ,, there being present; From the F ederal Reserve Board Governor Meyer and Messrs. Hamlin, James, Magee, M ille r , and P o le , From the Federal Reserve Board s t a f f Messrs, H arrison , M o r r ill, Goldenweiser, W yatt, Smead, and M cC lelland, From the Federal reserve banks Governor H arrison, chairman, Governors Young, Fancher, Seay, Black, McDougal, M artin, Geery, McKinney, and C alkin s, and Deputy Governors Burgess, s e c re ta ry , and W orthington. The prelim in ary memorandum and the s e c re ta ry ’ s rep o rt o f operation s were submitted and read. Governor Meyer reported on the volume o f operation s o f the Reconstructio n Finance Corporation, Governor Meyer discussed b r i e f l y the apparent re s u lts o f the program o f purchases agreed upon at the meeting o f A p r il 12 and in d icated that the e ffe c tiv e n e s s o f the op eration was impaired somewhat by disturbances which had taken p la c e , including passage by the House o f the Goldsborough B i l l , which had occasioned an unfavorable rea ctio n in Europe and some go ld w ithdrawals. A t th is poin t Governor H arrison reported on the withdrawals o f fo r e ig n balances, in d ic a tin g th at the amounts remaining had been reduced markedly in recent months. At 10:40 Governor N o rris entered the m eeting. Governor Meyer in d icated the.t i t was the fe e lin g in Washington that the program had been g e n e ra lly w e ll re c e iv e d and had worked as w e ll as could be expected under unusual circum stances. Governor H arrison said that w hile in the public mind the success o f the program had not been demonstrated because the downward movement in p ric e s Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED Authority 2 and business had not been stopped, the re s u lts were important and included a reduction o f debt by the member banks a t the Reserve banks, and a change in the bank a ttitu d e about loans and investm ents. G enerally speaking the bankers had rec e iv e d the program fa vo ra b ly and the d eclin e in bank c r e d it appeared to have been checked. The p rin c ip a l New York C ity banks had begun buying bonds, although re s tra in e d by fe a r o f adverse le g is la t io n . Their excess o f reserves had only been su b stan tial fo r three or four weeks. He b e lie v e d purchases should be con- t inue d• Governor Meyer c a lle d f o r an expression o f views from the governors and p a r tic u la r ly requested some comment on the question as to whether i t would be h e lp fu l to have the Reserve Board c a l l a meeting o f banks and business men or perhaps to have meetings in the d iffe r e n t d is t r ic t s which might p o ssib ly be attended by some re p re s e n ta tiv e o f the Board f o r the purpose o f discussing means fo r p u ttin g to use funds made a v a ila b le by the Reserve banks. Governor Black said that the c h ie f value o f the program up to this p oin t appeared to have been in the preven tion o f d i f f i c u l t i e s . He in d icated that banking con d ition s were much improved in h is d i s t r i c t by reason o f the ? operation s o f the Reconstruction Finance C orporation, but he b e lie v e d that p o s it iv e a ctio n should be taken to g e t the cooperation o f member banks, The Reserve System had been p layin g too much o f a lone game and had not been s u f f i c ie n t ly in a p o s itio n o f lea d ersh ip . Meetings in d iffe r e n t cen ters might be h e lp fu l in g e ttin g cooperation and in d ealin g with excessive fe a r and r e s t r ic tio n o f c r e d it . He favored continuation o f the program o f purchases. He in d icated a lso that business men and bankers were w aitin g on Congressional a c tio n b efo re going ahead. He would be glad to have a member o f the Reserve Board come to h is d i s t r i c t fo r a m eeting. Governor Geery stated th at he f e l t very w e ll s a t is fie d w ith the re s u lts o f the program to d a te r con sid erin g the handicaps. He b e lie v e d i t would be a mis take to stop* that the program should be continued u n t il given a f a i r t r i a l , and Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED Authority E o . / Q ^ O j 3 that considerable re s u lts should not be expected w ith in n in ety days. The s e n ti ment o f h is d i s t r i c t uras fa vo ra b le towards the program. Governor Seay said that the most notable e f f e c t of the program had been a check in the d eclin e o f bank d ep osits, and loans and investments. He had some question as to ju st how fa r the system should go or could s a fe ly go in view o f the one-year lim ita tio n o f S ection 3 o f the Glass S te a g a ll B i l l . He a lso f e l t that there was so much d iv e r s it y o f opinion among bankers that not much could be gained by attem pting to lead the bankers. Mr. M ille r stated that he b e lie v e d the best way to assure extension o f Section 3 o f the Glass S te a g a ll B i l l beyond a year was to use th is p ro v is io n w isely and V igorou sly, and that in the la s t a n a lysis the Federal Reserve Board incurred the major r e s p o n s ib ilit y fo r the use o f th is p ro v is io n . He emphasized the r e s p o n s ib ility o f the Reserve System f o r e x e rc is in g lead ersh ip at th is tim e. Governor Young s%id that the Reconstruction Finance Corporation had done a remarkable work in h is d i s t r i c t , that i t ap p lied the sa lve where the sore was. He b e lie v e d i t was s t i l l too e a rly to see the good or bad e ff e c t s o f Federal re serve a c tio n . He b e lie v e d th at each Reserve bank should take i t s f u l l propor tio n o f the t o t a l s e c u r itie s which had been purchased. Governor Calkins said he b e lie v e d thp a ctio n taken was ju s t i f i e d and the r e s u lts were a l l that could be looked fo r , though i t is not y e t p o s s ib le to judge the success o f the o p era tio n . He was in sympathy with Governor Black in p r in c ip le but saw the d i f f i c u l t i e s o f the prop osal. Bank morale was g e n e r a lly so low that & m eeting o f bankers might w e ll cause alarm. G en erally speaking, he b e lie v e d that we were s t i l l dealing with a p sych o lo gica l condition.. The question was whether i t was d e s ira b le fo r the System to apply i t s lead ersh ip through it s operations or through admonitions. He was in sympathy with anything which could p r a c t ic a lly be done, but in h is own d i s t r i c t has found g re a te s t success in deal ing with in d ivid u a ls ra th er than working through conferences# Reproduced from the Unclassified / Declassified Holdings of the National Archives DECLASSIFIED Authority 4 Mr. M ille r suggested that there was no adequate program. was s t i l l thinking in terms o f s a f e t y ra th er than resumption. resumption was reeessary. The country A program o f He b e lie v e d th is could best be brought about by summon ing to Washington a n a tion a l group rep resen tin g industry as w e ll as bankers to form ulate a program. Governor Martin reported th at in the eigh th d i s t r i c t loans and in v e s t ments of banks were s t i l l goinc- down, though d ep osits were perhaps showing some s t a b iliz a t io n . The banks had stood the lo s s o f deposits w e ll, and the Reccnstruc tio n Finance Corporation had been very h e lp fu l* He b e lie v e d the program f o r the purchase o f governments had shown r e l a t i v e l y l i t t l e e f f e c t in the eighth d i s t r i c t Deputy Governor Worthington stated that the opinion o f the Kansas C ity bank was in general accord w ith the statement o f Governor Calkins. The d ire c to rs o f the bank were somewhat doubtful and relu cta n t as to the program, but expected to continue to do t h e ir share. The operation s of the Reconstruction Finance Corporation had been most h e lp fu l. Governor Fancher stated that the p o lic y had been w ell re ceived in his d is tr ic t, that he had hoped f o r a broader e f f e c t , but th ere had been variou s h in drances to the e ffe c tiv e n e s s o f the p o lic y . Through th is program and through the Reconstruction Finance Corporation, banks had been helped to reduce th e ir debt, and the higher p r ic e of government bonds had enabled banks to s e ll some o f th e ir bonds. He b e lie v e d the f i n a l disposal of b i l l s now before Congress would be a g re a t help to the e ffe c tiv e n e s s o f the program and th e r e a fte r meetings o f bankers might be h e lp fu l. The time had been too short fo r the f i l l e f f e c t o f the program I t should be continued, though he had some question as to the scale o f future purchases. Governor N o rris said he did not b e lie v e that the d i f f i c u l t y was p r i m a rily a c r e d it o r currency d i f f i c u l t y , and th e re fo re there were lim it s to the e ffe c tiv e n e s s o f the F ederal reserve program in dealing w ith the s itu a tio n , but since the program had been begun i t could not be abandoned# Reproduced from the Unclassified / Declassified Holdings of the National Archives DECLASSIFIED Authority 5 Governor McDougal stated that c re d it extended by the R econstruction Finance Corporation to banks in the Seventh Federal Reserve D is t r ic t had been tim ely and i;ould undoubtedly save a good many o f the d is tre s s e d banks, but that w hile the gen era l banking s itu a tio n throughout the d i s t r i c t looked better# u n fortu n ately many banks, through impairment o f t h e ir c a p ita l stru ctu re, are s t i l l in a very weak p o s itio n . With resp ect to open market p o lic y * he stated that the member banks in Chicago were carryin g about $70,000,000 o f excess r e s e rv e s , the System as a whole approxim ately $265,000,000, and suggested that purchases o f Government s e c u r itie s be slowed down somewhat u n t il these la rg e excess reserves wore put to work. Governor McKinney in d icated that Governor Black had o u tlin ed much the same p o s itio n as the D allas bank held* He doubted whether the proceeds o f purchases had reached the eleventla d i s t r ic t much, but he b e lie v e d the open market program reassu rin g. He b e lie v e d that the Federal Reserve System should d iv id e the r e s p o n s ib ilit y o f leadersh ip among the bankers, but was doubtful o f the d e s ir a b ilit y o f b rin gin g in oth ers than bankers. Governor Meyer ra ised the question whether i t might not be p ossib le to do something about cotton and w ool, and there ensued some discussion on th is p o in t, Governor Calkins suggesting that something might be accomplished by making c r e d it a v a ila b le f o r carryin g w ool. At 12:40 S ecretary M ills entered the m eeting. There ensued a discussion with regard to the p o s s ib ilit y o f some pro gram by which meetings might be c a lle d o f business men and bankers to develop a program o f resumption and reemployment* Mr. Hamlin, a ft e r agreeing w ith Mr. M ille r as to the d e s ir a b ilit y Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED Authority ] T , Q / 0 £ 0 / 6 o f having a conference in Washington, stated that he would lik e to have a survey made in each Federal reserve d i s t r i c t with the view to b rin gin g about cooperation between banks and borrowers. He stated that th ere was undoubtedly much con stru ction work which not only could but should be under taken at the present time and that w hile th is might not produce paper . e l i g i b l e fo r rediscount by the Federal reserve banks, i t would tend to lessen unemployment and such paper could in an emergency be taken care o f by the F ed eral reserve banks. Governor Meyer expressed the opinion that needs fo r con stru ction and o p p ortu n ities f o r in d u s tria l a c t i v i t y undoubtedly e x is t in d iffe r e n t communities o f the various Federal reserve d i s t r i c t s , and, as an illu s t r a t io n , advised the conference o f a recen t p rop osal, in v o lv in g the construction o f about two hundred medium-priced homes in W estchester County, New York, which had not been put in to e f f e c t because o f the lack o f c r e d it f a c i l i t i e s . He stated that the Reconstruction Finance Corporation could not handle the m atter under the law, but that he had c a lle d i t to the a tte n tio n o f some people in New York, through the C orporation’ s loan agency, with the r e s u lt that arrangements f o r the necessary fin an cin g are being made. Governor Harrison reported h is experience in ta lk in g w ith groups o f bankers in New York and indicated that the p rin c ip a l d i f f i c u l t y in pro curing a program o f a ffir m a tiv e a c tio n was the u n certain ty created by the s itu a tio n in Congress. There was general agreement that each Reserve bank should study the problems in it s l o c a l i t y w ith a v ie w o f securing cooperation toward b rin gin g about a wider use o f the c r e d it now being made a v a ila b le * Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED Authority 7 The meeting adjourned at 1:05 p. m. At 2 :SO the meeting o f the Open Market P o lic y Conference recon vened, th ere being present: Governor H arrison, chairman, Governors Young, N o rris , Fancher, Seay, Black, McDougal, Mfcrtin, Geery, McKinney, and C alkins, Deputy Governors Burgess, s ecreta ry , and Worthington. Governor McDougal r e fe r r e d again to the d i f f i c u l t i e s in the banking s itu a tio n and stated that he b e lie v e d i t necessary fo r the Reserve System to avoid d is s ip a tin g it s resources so as to be in a p o s itio n to meet any s itu a tio n which might a r is e . He hoped no program would be adopted s p e c ify in g in advance a d e fin it e amount o f s e c u r itie s to be purchased from week to week. There fo llo w ed a discussion o f the reallotm en t o f purchases made since A p r il 12, and i t was Moved and c a rrie d that i t was the sense o f the conference that a l l Reserve banks should p a r tic ip a te in the usual r a tio s to the exten t allow ed by t h e ir res e rv e p o s itio n s in a l l purchases made f o r the System open market account since ^ p r il 12, A motion to extend th is reallotm en t to a l l system holdings o f government s e c u r itie s was d efea ted . Governor Calkins poin ted out that the Federal Reserve Bank o f San Francisco could not y e t take it s share under the mechanism o f the Federal Reserve Board’ s plan o f using government s e c u r itie s as c o lla t e r a l, but he hoped that m atter would be adjusted. The following resolution was then moved and c a r r ie d , Governors McDougal and Young voting in the negative: " A ft e r discussion o f c r e d it , banking and business condi tio n s and the e ffe c t s o f the System’ s Open Market Operations on those con dition s in recen t weeks, i t was vo ted , subject to the approval o f the Federal Reserve Board, to au th orize the Executive Committee o f the Open Market P o lic y Conference to continue the purchase o f Government s e c u r itie s fo r System account as may seem a d visab le from week to week but not to exceed an aggregate o f $500,000,000 without another meeting o f the Open Market P o lic y Conference*" Reproduced from the Unclassified / Declassified Holdings of the National Archives DECLASSIFIED Authority 8 This re s o lu tio n was then transm itted to the Federal Reserve Board. There fo llo w ed some fu rth er gen eral discussion o f methods o f fo llo w in g up the p o lic y by meetings o f bankers and in other ways, and i t appeared to be the concensus o f view that a meeting o f a la rg e group in Washington would be o f doubtful value at th is tim e, and that i t would be d e s ira b le in each d i s t r i c t to consider means for making the p o lic y e f f e c t i v e * Governor Meyer entered the meeting and reported that the Federal Reserve Board had approved the r e s o lu tio n . He suggested that purchases under the re s o lu tio n should be made at a somewhat slower ra te than had been fo llo w ed in recent weeks* He then l e f t the meeting a ga in . There was some discussion o f discount r a te s , without any conclusion being reached* i t was recognized that the qu antity o f c r e d it was a t present the most iiranediate con sid eration * Governor Calkins said the Federal Reserve Board has suggested the appointment o f a committee from the Reserve banks t o work with a committee o f the Board in making a thorough and d iscrim in a tin g study o f American acceptance p r a c tic e . He proposed the appointment o f a committee c o n s is tin g o f Mr. Kenzel o f New York, Mr. McKay o f Chicago, and Mr. Clerk o f San Francisco. There was general agreement with th is a c tio n . Governor Young reported th at there.w ould be a meeting on Wednesday morning o f the committee o f governors to discuss the Glass B i l l , and the commit te e would be glad to have any other governors jo in them. At 4:40 the fo llo w in g members and s t a f f o f the Federal Reserve Board again entered the m eeting. From the Federal Reserve Board Governor Meyer, and Messrs. Hamlin, James, M ille r and Magee, From the F ederal Reserve Board s t a f f Messrs, H arrison , M o r r ill, Goldenweiser# W yatt, Smead, and M cClelland. There was an inform al discu ssion o f Federal re s e rv e s a la r ie s . At 4;50 S ecreta ry M ills entered the m eeting. ^ ^ — Reproduced from the Unclassified I Declassified Holdings of the National Archives — ■ l* r L; ' ' "' " ' 1! ■ DECLASSIFIED Authority E O . I O ^ O ) 9 Governor Meyer indicated th a t the m a jo rity o f the Board appeared to favor some so rt o f public statement concerning the fin d in g s o f the Conference, and there ensued a general discussion o f th e d e s ir a b ilit y o f making some s ta te ment. Governor H arrison said that he b e lie v e d a statement was u n d esirab le, f i r s t , because i t set a bad^/precedent; second, because i t was d i f f i c u l t to make a statement without making an undue commitment and th ir d , i t was always d i f f i c u l t to secure agreement on any form o f statem ent. He f e l t that Governor Meyer1s appearance on Wednesday morning before the Senate Committee on Banking and Currency would fu rn ish an opportunity f o r an adequate statement which would be more e f f e c t i v e and le s s dangerous than a prepared statement issued by the Conference, S everal forms o f statement were then read and discussed a t len gth . I t was moved and carried by the Open Market P o lic y Conference th at some statement be issued. A ft e r fu rth e r extended discussion i t was voted that s short form o f statement be used rath er than a lon ger form, end a f t e r s t i l l fu rth er discussion the fo llo w in g statement was approved by a m a jo rity o f the Conference. ’’The Governors o f the Federal reserve banks met to-day with the Federal Reserve Board and i t was decided to continue open market operations by the purchase o f government s e c u r itie s , the exten t and amount to be d eter mined from time to time as con d ition s j u s t i f y . " The meeting adjourned a t 6:05 p. m. W» Randolph Burgess, S ecreta ry .
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