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TWENTY-FIFTH ANNUAL REPORT OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM COVERING OPERATIONS FOR THE YEAR 1938 UNITED STATES OF AMERICA WASHINGTON: 1939 80 ANNUAL REPORT OF BOARD OF GOVERNORS system's influence toward the maintenance of orderly market conditions, should not be interpreted as in conflict with or as counteracting the Government's recent program to increase excess reserves; and that in order to meet its responsibility more effectively under prevailing con ditions the executive committee should have authority to sell securities or allow maturities to run off without replacement. The majority voted against the substitute motion on the ground that a reduction in the system account would effect a corresponding reduction of excess reserves of member banks from the amount that would exist otherwise; that such action at this time would be regarded as inconsistent with the Government's announced program and par ticularly with the action of the Board of Governors in reducing reserve requirements; and that such action should not be taken unless there were developments subsequent to this meeting which would require a reconsideration of the general policy, in which event another meeting of the Committee should be called. The unanimous action of the full Committee on the original mo tion was taken in the light of the position of the majority on the substitute resolution, it being agreed that in these circumstances the executive committee should have the usual authority to replace matur ing securities and to make shifts of securities in the account subject to the limitation that maturing Treasury bills should be replaced only with Treasury bills or notes maturing within two years to the extent that they could be purchased without paying a premium over a no-yield basis; and that in order to meet unforseen conditions that might arise in the interval before another meeting of the full Committee could be convened, the executive committee should be in position to act promptly with approval of a majority of the full Committee to increase or de crease the system account as circumstances might warrant. MEETING ON AUGUST 2. 1938 Members present: Mr. Eccles, Chairman; Mr. Harrison, Vice Chair man; Mr. Szymczak, Mr. McKee, Mr. Ransom, Mr. Davis, Mr, Draper, Mr. Sinclair, Mr. Schaller, Mr. Newton, Mr. Peyton. 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, and by unanimous vote, the following resolutions were adopted: "That the executive committee be directed, until otherwise di rected by the Federal Open Market Committee, to arrange for the replacement of maturing securities in the system open market ac count with other Government securities and for such shifts in maturities as may be necessary in the proper administration of the account, provided (1) that maturing Treasury bills shall be re placed only with Treasury bills or notes to the extent that they can be purchased without paying a premium over a no-yield basis; (2) that, subject to the foregoing limitation, the amount of securities in the account maturing within two years be maintained at not less than $1,000,000,000; and (3) that the amount of bonds in the ac count having maturities in excess of five years be maintained at not less than $500,000,000 nor more than $850,000,000. FEDERAL RESERVE SYSTEM 81 "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 author ized, 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 the system open market account to such extent as the executive committee shall find to be necessary for the purpose of exercising an influence toward main taining orderly market conditions, provided (1) that the total amount of securities in the account be not increased or decreased by more than $125,000,000, 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 $850,000,000." The members of the Committee agreed that the resolutions containing instructions to the executive committee which were adopted at the previous meeting of the full Committee should be renewed and for the same reasons, but that the new resolutions should contain a modification with respect to the replacement of maturing Treasury bills. In June, 1938, considerable difficulty was experienced in replacing maturing bills with Treasury obligations maturing within two years (as required by the authority granted at the meeting of the Federal Open Market Com mittee on April 29) without paying a premium over a no-yield basis for the new securities and it appeared that further replacements with Treasury bills and notes within the two-year limitation would be ex tremely difficult if not impossible without paying such a premium for the replacement securities. In these circumstances the members of the Federal Open Market Committee (except Mr. Davis who was absent), on July 1, 1938, agreed to waive, until otherwise directed by the Com mittee, the requirement contained in the first resolution adopted at the meeting of the Committee on April 29 that Government securities pur chased in replacement of maturing Treasury bills have maturities within two years and this action was ratified by unanimous vote at the meeting of the Committee on August 2. As it was thought that there might be a continuation of the difficulties in obtaining replacement securities with maturities up to two years without paying a premium over a no-yield basis the Committee decided that the resolution adopted at this meet ing authorizing replacement of maturing securities should provide that maturing bills be replaced with bills and notes without limitation as to maturity, but only to the extent that they could be obtained without paying a premium over a no-yield basis. MEETING ON SEPTEMBER 21, 1938 Members present: Mr. Harrison, Vice Chairman; Mr. Szymczak, Mr. McKee, Mr. Ransom, Mr. Davis, Mr. Sinclair, Mr. Newton, Mr. Schaller, Mr. Peyton. 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 were adopted by unanimous vote:
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