View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

TWENTY-FOURTH ANNUAL REPORT
OF THE

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
COVERING

OPERATIONS

FOR THE YEAR 1937

UNITED STATES OF AMERICA
WASHINGTON: 1938

210

ANNUAL REPORT OF BOARD OF GOVERNORS

RECORD OF POLICY ACTIONS-FEDERAL OPEN
MARKET COMMITTEE
Following is a copy of the record of actions by the Federal Open
Market Committee during the year on questions of policy, required by
the last paragraph of section 10 of the Federal Reserve Act, as amended
by the Banking Act of 1935, to be kept by the Board of Governors of the
Federal Reserve System:
MEETING ON JANUARY 2, 1937

Members present: Mr. Eccles, Chairman; Mr. Harrison, Vice Chair
man; Mr. Broderick, Mr. Szymczak, Mr. McKee, Mr. Ransom, Mr.
Davis, Mr. Fleming, Mr. McKinney, Mr. Schaller, Mr. Hamilton.
1. Exchange Directly with Treasury Department of Maturing Government

Securities Held in System Open Market Account for New Securities.

It was voted unanimously that, whenever such action
appeared to be desirable in the proper administration of
the System open market account, maturing Government
securities held in the account might be exchanged directly
with the Treasury for securities of an issue being offered to
the public under terms which permit the tender of the ma
turing securities in exchange.
The Committee was of the opinion that the provision contained in sec
tion 14 (b) of the Federal Reserve Act that bonds, notes and other direct
obligations of the United States may be bought or sold without regard to
maturities but only in the open market does not prohibit the exchange
of maturing Government securities for an equal amount of new securities
carrying the conversion privilege, and that, inasmuch as such exchanges
would result in saving a substantial amount previously paid as com
missions in connection with the purchase and sale of securities which
otherwise might be exchanged without such expense and it would be pos
sible thereby to eliminate the accounting problem of the treatment to be
given to profits on securities sold and premiums paid on securities pur
chased in the market, such direct exchanges should be made.
2. Emergency Purchases of Government Securities by Federal Reserve Banks.

It was moved that the following resolution be adopted:
"RESOLVED that, in an emergency, when necessary to afford relief
in a situation involving one or more specific banking institutions in
its district, any Federal Reserve bank may purchase Government
securities for its own account (a) up to and not in excess of $100,
000,000 with the prior consent of the executive committee, or (b) up
to and not in excess of $50,000,000 without the prior consent of the
executive committee, if because of the necessity for prompt action
it is not possible to obtain such prior consent. All purchases of Gov
ernment securities by any Federal Reserve bank for its own account
shall be reported promptly to the executive committee; and the

212

ANNUAL REPORT OF BOARD OF GOVERNORS

executive committee shall promptly notify all members of the Fed
eral Open Market Committee of such purchases. The Federal Open
Market Committee reserves the right, and authorizes the executive
committee, at any time to require the sale of any Government securi
ties purchased by an individual Federal Reserve bank for its own
account, or to require that such securities be transferred to the Sys
tem Open Market Account, or to reduce the holdings of other Gov
ernment securities in the System Open Market Account in an
equivalent amount."
On this motion the members voted as follows: "aye,"
Messrs. Harrison, Fleming, Schaller, Hamilton, McKinney,
and Broderick; "no," Messrs. Eccles, Szymczak, Ransom,
McKee and Davis.
Mr. Broderick then stated that he desired to withdraw his
vote, that, while he favored the adoption of the resolution,
he believed that motions of this character, if adopted,
should prevail by a larger margin than had been indicated
in this case, and that, therefore, he wished to be recorded
as not voting. Thereupon the motion was declared lost.
The reason advanced for the motion was that it was important that
the Federal Reserve System be prepared to act promptly in any emer
gency which might arise, that there was doubt whether the appropriate
machinery was available to take care of a pressing emergency involving
individual member or nonmember banks, that on some occasions in the
past events had taken place so rapidly that adequate opportunity was
not available for committee action of that sort, and therefore that each
Federal Reserve bank should be in a position to purchase Government
securities when necessary to afford relief in an emergency situation in
volving one or more specific banking institutions in its district which
might arise so rapidly as to require action before the executive com
mittee of the Federal Open Market Committee could consider the mat
ter. The votes against the motion were upon the ground that the Federal
Reserve banks, through the exercise of their powers to make loans and
resale agreements, had ample authority to deal with specific local situa
tions which might arise without warning; that in all other cases the
Reserve banks would have sufficient notice of the development of the
situation to bring the matter to the attention of the executive committee
of the Federal Open Market Committee for consideration and action;
and that, therefore, authority in the Federal Reserve banks to make
emergency purchases of Government securities was not necessary.
3. Authority to Replace Maturing Securities and to Make Shifts of Securities
in System Open Market Account.

By unanimous vote, the Committee instructed the execu
tive committee to direct the replacement of maturing securi
ties in the System Open Market Account with other Gov
ernment securities and to make such shifts between matu
rities in the account as may be necessary in the proper
administration of the account, provided that the amount of
securities maturing within two years be maintained at not
less than $1,000,000,000 and that the amount of bonds hav
ing maturities in excess of five years be not over $600,000,
000 nor less than $300,000,000.

FEDERAL RESERVE SYSTEM

213

This authority was granted for the reason that it was felt that the
executive committee should have such authority as might be necessary in
the proper administration of the System open market account to enable
it to replace maturing securities and to make shifts between maturities
in the account, including authority to increase the holdings of bonds
with maturities in excess of five years as well as authority to reduce
such holdings within certain reasonable limitations, to meet changing
market conditions and to improve the distribution of maturities in the
account.
4. Authority to Increase or Decrease System Account.

By unanimous vote, the Committee authorized the execu
tive committee, subject to telegraphic or written approval
by a majority of the members of the Federal Open Market
Committee, to direct that the present amount of Govern
ment securities in the System open market account be in
creased or decreased by not more than $500,000,000.
The Committee had in view the possibility of a decision by the Board
of Governors to make a further increase in requirements as to reserves
of member banks, which, if made to the full extent permitted by law,
would result in a substantial reduction in excess reserves and, conse
quently, in less flexibility in the money market, in which circumstances
larger open market operations might be necessary. The probability of a
substantial net withdrawal of funds from the market over the March
15th tax payment period was also considered, and the Committee was of
the opinion that the executive committee should be in a position to take
such action with respect to an increase in the System account as might
be necessary to offset any undesirable effect that might result from a
large withdrawal of funds. It was also agreed that the executive com
mittee should have authority to take such action with respect to an
increase or decrease (which would include authority to allow maturities
to run off) in the System portfolio as might be necessary to meet
unforeseen circumstances.
MEETING ON MARCH 15, 1937

Members present: Mr. Eccles, Chairman; Mr. Harrison, Vice Chair
man; Mr. Broderick, Mr. Szymczak, Mr. Ransom, Mr. McKinney, Mr.
Martin, Mr. Peyton (alternate for Mr. Day).
1. Authority to Replace Maturing Securities and to Make Shifts of Securities
in the System Open Market Account.

By unanimous vote, the Committee instructed the execu
tive committee to direct the replacement of maturing
securities in the System open market account with other
Government securities and to make such shifts between
maturities in the account as may be necessary in the
proper administration of the account, provided that the
amount of securities maturing within two years be main
tained at not less than $800,000,000 and that the amount
of bonds having maturities in excess of five years be not
over $800,000,000 nor less than $500,000,000.
After a review of business and credit conditions including the condi
tion of the Government securities market, the members agreed that, in