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A meeting of the Executive Committee of the Federal Open Market
Committee was held in the offices of the Board of Governors of the Federal

Reserve System in Washington on Monday, December 21, 1936, at 10:00 a.m.
PRESENT:

Mr. Eccles, Chairman
Mr. Szymczak
Mr.

Broderick (as alternate for Mr. Ransom)

Mr. Harrison
Mr. Fleming

Mr. Morrill, Secretary
Mr. Goldenweiser, Economist

Mr. Dreibelbis, Assistant General Counsel
Mr. Burgess, Manager of the System Open
Market Account
Mr. Carpenter, Assistant Secretary of the
Board of Governors
Upon motion duly made and seconded, the minutes
of the meetings of the executive committee held in
Washington on the morning of November 19, 1936, and
the afternoon of November 20, 1936, were approved

unanimously.
Mr. Burgess, as Manager of the System Open Market Account, dis
cussed briefly the transactions conducted by the Federal Reserve Bank of
New York in the account since the last meeting of the executive committee
end outlined the effect of such transactions on the maturity distribution
of the securities in
securities.

the account and the average rate of return on such

He also stated that the details were now being worked out for

putting into effect the reallocation among the Federal reserve banks of
securities in the account as of January 1,

1937, and the revised accounting

procedure for the System Open Market Account which was discussed at the
meeting of the Federal Open Market Committee on November 20, 1936.

Upon motion duly made and seconded, it was
voted unanimously to approve, ratify and confirm
all of the transactions effected by the New York
bank in the system account since the previous
meeting of the executive committee, as set forth
in the reports submitted by the bank.

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12/21/36

Reference was made to the fact that on the afternoon of December
4, 1936, at the request of Chairman Eccles, the members of the executive
committee were communicated

with concerning the desirability of granting

authority to the Federal Reserve Bank of New York to acquire longer-term

Government securities in place of the securities in the System Open Market
Account maturing on December 15, 1936 and February 15, 1937, and all
agreed that the bank should be given authority to make shifts in the
System Open Market Account totaling $177,000,000 by sale in the market of
December 15 and February 15 maturities of notes in the account and the
purchase of $75,000,000 of bonds to be issued in connection with December
15 financing, $75,000,000 of notes having maturities as near five years as

market conditions warrant, and $27,000,000 of bonds of any maturity, this
authority being in addition to the authority granted to the bank by the
executive committee on November 20, 1936.

Advice of this authority was

communicated to the New York bank by telegraph on December 5, 1936, by
Mr. Morrill, Secretary of the Federal Open Market Committee.
Upon motion duly made and seconded, it
was voted unanimously to approve, ratify and
confirm the informal action of the members of
the Executive Committee authorizing the Federal
Reserve Bank of New York to effect the trans
actions above referred to.
It

was pointed out that the authority granted to the Federal Reserve

Bank of New York at the last meeting of the executive committee to re
place maturing securities and make shifts in maturities of securities

held in the System Open Market Account was to run only until the next
meeting of the executive committee and that, therefore, it

would be neces

sary at this meeting to give the Federal Reserve Bank of New York further
directions with respect to transactions in the account.

12/21/36
Upon motion duly made and seconded, and by unani
mous vote, the executive committee directed the Fed
eral Reserve Bank of New York, until the next meeting
of the executive committee, superseding all previous
authorizations, (1) to replace maturing securities in
the System Open Market Account by purchases of like
amounts of bills or of notes maturing within two years,
(2) to make such shifts of securities in the account
as may be necessary in the proper administration of
the account, up to an aggregate of $50,000,000, into
other Government securities having maturities within
a range of one year from those of the securities sold,
(5) to make such other shifts (which may be accom
plished when desirable through replacement of maturing
securities) of securities in the account as may be
necessary in the proper administration of the account,
up to an aggregate of $50,000,000 into other Govern
ment securities having maturities which are not with
in a range of one year from those of the securities
sold, (4) upon approval by a majority of the members
of the executive committee, which might be obtained
by telephone, telegraph or mail, to make such other
shifts as might be found to be desirable and advis
able within the limits of the authority granted to
the executive committee by the Federal Open Market
Committee, and (5) to permit such fluctuations, up to
a limit at any one time of $25,000,000, in the amount
of holdings of Government securities in the System
Open Market Account between weekly statement dates as
may be desirable for the practical administration of
the account in making shifts between and replacement
of securities pursuant to the authority granted by
the executive committee.
Chairman Eccles stated that the meeting of the executive committee
had been called to provide an opportunity for the members to discuss with
the Secretary of the Treasury the relations between the Treasury and the
Reserve System in their operations in government securities.

Chairman

Eccles revieved briefly the history of these relations, and particularly
the informal understandings with the Treasury which had been reached in
July and later in October to the effect that purchases of government bonds

12/21/36

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made during periods of weakness in the market would be equally divided
between the System Open Market Account and funds available for investment
by the Treasury, it

being understood that if

for any reason it

was thought

to be undesirable for the System account to take any part or all of its
half of the securities purchased on a given day the Treasury would be
illing to take them up to the entire amount.
There ensued a general discussion of the responsibilities of
the Reserve System and the Treasury with respect to the market, during
the course of which it

was brought out that, in addition to its

opera

tions to serve generalcredit policy, the Reserve System had some
responsibility for the maintenance of an orderly money market, and that
in recent years the government security market had become so large a
part of the money market that the general responsibility for the money
market involves some measure of responsibility for avoiding disorderly
conditions in the government security market,
side.

The view was expressed that it

is

either on the up or down

the duty of the reserve system

to determine at any period of weakness whether the market is

sufficiently

disorderly to justify intervention from this broad standpoint, and that
at times of disturbing weakness when intervention is

justified it

would

appear desirable to consult with the Treasury, indicating the intention
of the committee to operate in the market and its

willingness (a)

to make

all necessary purchases itself, (b) to operate 50/50 with the Treasury,
or (c) to keep out of the market entirely in
a desire to make all purchases itself in
be on hand for investment.

case the Treasury expresses

order to employ funds which may

There was general agreement to these

12/21/8
principles.
At the conclusion of this discussion the meeting was adjourned
and the members of the committee went to the offices of the Secretary
of the Treasury.
The Chairman submitted for the record the following report of the
discussion
The members of the executive committee met with the
Secretary of the Treasury and a number of his associates
and reviewed the discussion they had just held. There
was no disagreement on these principles.
The Secretary
called attention to the fact that, in dealing with the
market, action often has to be taken immediately, and
asked whether the manager of the System Account would
always have adequate authority from the System to operate
promptly at periods of undue disturbance.
Chairman Eccles
answered that authority up to $50,000,000 was available,
and that more could be obtained promptly when necessary.
After considerable discussion there was general agreement
that in all cases of market weakness sufficient to justify
Federal Reserve intervention the manager of the System
account would be prepared to act with the Treasury promptly
up to the amount of the authorities granted from time to
time; that, in case the manager of the account indicates
to the Treasury that the situation is not such as to call
for Federal Reserve action, the Treasury will be free to
go ahead on its own account and may, if it wishes, ask for
a further discussion with members of the executive committee.
It was understood that this whole procedure would be
subject to change whenever advisable.

Secretary.
Approved:
Chairman.

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