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Twenty-Sixth

ANNUAL REPORT
of the

BOARD OF GOVERNORS of the
FEDERAL RESERVE SYSTEM

COVERING OPERATIONS
THE YEAR

1939

FOR

68

ANNUAL REPORT OF BOARD OF GOVERNORS

toward maintaining orderly market conditions, provided (1) that
the total amount of securities in the account be not increased by
more than $200,000,000 nor decreased by more than $200,000,000
including such decreases as may result from allowing Treasury
bills in the account to mature without replacement, and (2) that
the amount of bonds in the account having maturities over five
years be maintained at not less than $500,000,000 nor more than

$900,000,000."
These resolutions were adopted for the purpose of continuing the
existing policy of the Federal Open Market Committee and for sub
stantially the same reasons as prompted similar action at the meeting
of the Committee on December 30, 1938. These reasons are set forth
in the policy record on pages 80 to 84, inclusive, of the annual report
of the Board of Governors for the year 1938.
MEETING ON MARCH 20, 1939

Members present: Mr. Eccles, Chairman; Mr. Harrison, Vice Chair
man; Mr. Szymczak, Mr. McKee, Mr. Ransom, Mr. Davis, Mr. Draper,
Mr. Fleming, Mr. Leach, Mr. Martin, Mr. Hamilton.
Authority (1) to Replace Maturing Securities and to Make Shifts of Securities
in the System Open Market Account and (2) to Increase or Decrease the
System Open Market Account.

Upon motion duly made and seconded, the following
resolutions, which were in the same form as the resolutions
adopted at the meeting on March 7, 1939, were adopted,
Messrs. Harrison, Szymczak, McKee, Davis, Fleming,
Leach, Martin and Hamilton voting "aye" and Messrs.
Eccles, Ransom and Draper voting "no":
"That the executive committee be directed until otherwise directed
by the Federal Open Market Committee, (1) to arrange for the
replacement of maturing Treasury bills in the System open market
account with other Treasury bills or Treasury notes, or, from time
to time, to allow such bills to mature without replacement or pend
ing subsequent replacement (a) when market conditions are such
as to make it impossible to procure other bills or notes without
paying a premium over a no-yield basis, or (b) when such notes
are not obtainable without undue disturbance to the market; (2) to
arrange for the replacement of maturing Treasury notes and bonds
in the System open market account with other Government securi
ties; and (3) to arrange for such shifts in maturities in the System
open market account as may be necessary in the proper admini
stration of the account; provided, (a) that the amount of securities
in the account maturing within two years be maintained at not
less than $1,000,000,000; (b) that the amount of bonds in the
account having maturities in excess of five years be maintained at
not less than $500,000,000 nor more than $900,000,000; and (c) that,
if Treasury bills in the account are allowed to mature without
replacement, the total amount of securities in the account be not
decreased by more than $200,000,000.
"That, in addition to such authority as may be contained in
other resolutions of the Federal Open Market Committee and until

FEDERAL RESERVE SYSTEM

69

otherwise directed by the Committee, the executive committee be
authorized, upon written, telephonic or telegraphic approval of a
majority of the members of the Federal Open Market Committee,
to arrange for the purchase or sale (which would include authority
to allow maturities to run off without replacement) of Government
securities in the open market from time to time for System open
market account to such extent as the executive committee shall
find to be necessary for the purpose of exercising an influence toward
maintaining orderly market conditions, provided (1) that the total
amount of securities in the account be not increased by more than
$200,000,000 nor decreased by more than $200,000,000 including
such decreases as may result from allowing Treasury bills in the
account to mature without replacement, and (2) that the amount
of bonds in the account having maturities over five years be main
tained at not less than $500,000,000 nor more than $900,000,000.
This action continued the existing policy of the Committee and was
taken for substantially the same reasons as prompted similar action by
the Committee at its meetings on March 7, 1939, and December 30, 1938.
MEETING ON APRIL 19, 1939

Members present: Mr. Eccles, Chairman; Mr. Harrison, Vice Chair
man; Mr. McKee, Mr. Ransom, Mr. Davis, Mr. Draper, Mr. Fleming,
Mr. Leach, Mr. Martin, Mr. Hamilton.
1. Authority to Increase System Open Market Account in the Event of Serious
Disturbance in the Government Securities Market Resulting from Armed
Conflict Abroad.

At this meeting Chairman Eccles reported that on April 13, 1939, the
executive committee of the Federal Open Market Committee agreed
unanimously that the executive committee should ask the Federal Open
Market Committee for authority, in the event of serious disturbance in
the Government securities market resulting from armed conflict abroad,
to direct the purchase of securities for the System portfolio in an amount
not to exceed $500,000,000 with the understanding that in making such
purchases it might become necessary to exceed the $900,000,000 limita
tion on bonds having maturities over five years contained in the second
resolution adopted at the meeting of the Federal Open Market Commit
tee on March 20, 1939, and that on April 14, 1939, all of the members of
the Federal Open Market Committee who were not members of the exec
utive committee approved the granting of authority to the executive
committee as set forth above.
Upon motion duly made and seconded, and by unanimous
vote, the action of the members of the Federal Open Market
Committee in granting this additional authority to the exec
utive committee was approved, ratified and confirmed.
This action was taken because of the expectation that an outbreak of
armed conflict in Europe would result in serious disturbance to the securi
ties markets in this country and there was complete agreement that,
should such disturbance occur, the System should be prepared to exercise
its influence toward preventing disorderly conditions in the market for
Government securities.

ANNUAL REPORT OF BOARD OF GOVERNORS

2. Authority (1) to Replace Maturing Securities andto Make Shifts of Securities
in the System Open Market Account and (2) to Increase or Decrease the
System Open Market Account.

Upon motion duly made and seconded, the following
resolutions were adopted, Messrs. Eccles, Harrison, McKee,
Ransom, Davis, Fleming, Leach, Martin and Hamilton
voting "aye" and Mr. Draper voting "no":
"That the executive committee be directed until otherwise directed
by the Federal Open Market Committee (1) to arrange for the
replacement of maturing Treasury bills in the System open market
account with other Treasury bills or Treasury notes, or, from time
to time, to allow such bills to mature without replacement or pend
ing subsequent replacement (a) when market conditions are such as

to make it impossible to procure other bills or notes without paying
a premium over a no-yield basis, or (b) when such notes are not
obtainable without undue disturbance to the market; (2) to arrange
for the replacement of maturing Treasury notes and bonds in the
System open market account with other Government securities; and
(3) to arrange for such shifts in maturities in the System open
market account as may be necessary in the proper administration
of the account; provided (a) that the amount of securities in the
account maturing within two years be maintained at not less than
$1,000,000,000; (b) that the amount of bonds in the account having
maturities in excess of five years be maintained at not less than
$500,000,000 nor more than $1,000,000,000; and (c) that, if Treas
ury bills in the account are allowed to mature without replacement,
the total amount of securities in the account be not decreased by
more than $200,000,000.
"That, in addition to such authority as may be contained in other
resolutions of the Federal Open Market Committee and until other
wise directed by the Committee, the executive committee be
authorized, upon written, telephonic or telegraphic approval of a
majority of the members of the Federal Open Market Committee, to
arrange for the purchase or sale (which would include authority to
allow maturities to run off without replacement) of Government
securities in the open market from time to time for System open
market account to such extent as the executive committee shall find
to be necessary for the purpose of exercising an influence toward
maintaining orderly market conditions, provided (1) that the total
amount of securities in the account be not increased by more than
$200,000,000 nor decreased by more than $200,000,000 including such
decreases as may result from allowing Treasury bills in the account
to mature without replacement, and (2) that the amount of bonds in
the account having maturities over five years be maintained at not
less than $500,000,000 nor more than $1,000,000,000."
These resolutions were adopted for the purpose of continuing similar
authority granted at the three previous meetings of the Committee and
for substantially the same reasons. The change from $900,000,000 to
$1,000,000,000 in the maximum amount of bonds having maturities in
excess of five years which might be held in the System account was in
recognition of the possibility that a substantial increase in the holdings
of bonds might result from disturbed market conditions.

FEDERAL RESERVE SYSTEM

71

3. Authority to Increase the Amount of Securities in the System Account in
the Event of Armed Conflict or Political Developments Threatening Armed
Conflict Abroad.

Upon motion duly made and seconded, and by unanimous
vote, the following resolution was adopted:
"That, in the event that armed conflict or political developments
threatening armed conflict abroad result in serious disturbance to the
Government securities market in this country, the executive com
mittee be authorized, in addition to the authority granted by the
resolutions set forth above and notwithstanding any limitations or
restrictions in those resolutions, to increase the securities in the
account by not to exceed $500,000,000, and upon written, telephonic
or telegraphic approval of a majority of the members of the Federal
Open Market Committee by not to exceed an additional $500,000,000,
if deemed necessary for the purpose of exercising an influence toward
the maintenance of orderly market conditions, and, if and when
market conditions warrant, to sell securities in the amount of any
securities so purchased. Any purchases made under the authority of
this resolution shall not be construed as limiting the powers granted
under resolutions previously adopted at this meeting."
The reasons for this action are stated above in connection with the
ratification of the previous action of the members of the Federal Open
Market Committee in authorizing the executive committee to increase the
System account in the event of the outbreak of hostilities abroad.
MEETING ON JUNE 21, 1939

Members present: Mr. Eccles, Chairman; Mr. Harrison, Vice Chair
man; Mr. Szymczak, Mr. McKee, Mr. Ransom, Mr. Davis, Mr. Draper,
Mr. Fleming, Mr. Leach, Mr. Martin, Mr. Hamilton.
Authority (1) to Replace Maturing Securities and to Make Shifts of Securi
ties in the System Open Market Account, (2) to Purchase or Sell Securities
from the System Open Market Account, and (3) to Increase or Decrease
theAccount intheEvent ofArmed ConflictorPolitical DevelopmentsThreat

ening Armed Conflict Abroad.

Upon motion duly made and seconded, the following reso
lutions were adopted, Messrs. Eccles, Harrison, Szymczak,
McKee, Ransom, Davis, Fleming, Leach, Martin, and
Hamilton voting "aye" and Mr. Draper voting "no," he
being opposed to authorizing the executive committee to
allow bills to run off without replacement but otherwise
favoring the resolutions:
"That the executive committee be directed until otherwise directed
by the Federal Open Market Committee (1) to arrange for the
replacement of maturing Treasury bills in the System open market
account with other Treasury bills or Treasury notes, or from time
to time, whenever market conditions warrant, to allow part or all
of such bills to mature without replacement; (2) to arrange for
the replacement of maturing Treasury notes and bonds in the Sys
tem open market account with other Government securities; and
(3) to arrange for such shifts in maturities in the System open
market account as may be necessary in the practical administration
of the account; provided (a) that the amount of securities in the