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A meeting of the Executive Committee of the Federal Open Market
Committee was held at the offices of the Board of Governors of the Fed
eral Reserve System in Washington on Monday, May 25, 1936, at 11:30 a.
PRESENT:

Mr. Eccles, Chairman
Mr. Szymczak
Mr. Broderick (as alternate for Mr. Ransom)

Mr. Harrison
Mr. Fleming
Mr.
Mr.
Mr.
Mr.
Mr.
ALSO PRESENT:

Morrill, Secretary
Wyatt, General Counsel
Goldenweiser, Economist
Williams, Associate Economist
Burgess, Manager of the System
Open Market Account

Mr. McKinney, Member of the Federal
Open Market Committee

The Secretary submitted a draft of the minutes of the meeting
of the executive committee held in Washington on March 19, 1936.
Upon motion duly made and seconded,
the minutes were approved unanimously.
It

was reported that in the interval between the meeting of

the executive committee of the Federal Open Market Committee on March
19, 1936, and this meeting the individual members of the executive
committee had approved the following:
(1)

A reduction by the Federal Reserve Bank of New York of
approximately $2,000,000 in the account carried with
the Bank for International Settlements, by the gradual
withdrawal of the proceeds of approximately $1,600,000
of bills held in the account and $400,000 in the sight
deposit with the Bank for International Settlements.

(2)

A shift by the Federal Reserve Bank of Dallas of

$1,205,000 of 3 3/4%1946-56 bonds held in the bank's
own investment account into a like amount of 2 7/8%
1955-60 Treasury bonds.

m.

5/25/36

-2

(3)

An increase of $10,000,000 in the authority granted to
the Federal Reserve Bank of New York by the executive
committee of the Federal Open Market Committee on March
19, 1936, to make shifts of securities in the System
account into other securities having maturities within
a range of one year from those of the securities sold.

(4)

Transfers of participations in the System Account, as
follows:
$5,000,000 to Dallas from New York

$5,000,000 to Dallas from Chicago
Upon motion duly made and seconded, and
by unanimous vote, the actions referred to
above were approved, ratified and confirmed.
The Chairman stated that a question had arisen as to the desir
ability of effecting a more substantial shift from short term to long
term securities in the System portfolio than had taken place heretofore,
in order to improve the earning position of the Federal reserve banks.
There followed a general discussion of the subject during which the
view was expressed that the present market situation was not such as
to make it

desirable to enter the market for long term securities to the

extent that would be necessary to effect a substantial shift into bonds
and that it

would be preferable to defer action with respect to a sub

stantial increase in the holdings of bonds until such action would be
better suited to market conditions.
The Chairman then called attention to the question whether the
existing formula for the allotment of securities held in the System
open market account to the individual Federal reserve banks should be
retained, and, if

not, what formula should be adopted, which matter had

been referred at the last meeting of the Federal Open Market Committee
to the executive committee for consideration and report.

A memorandum

5/25/36

-5-

on this subject which had been submitted to the Board of Governors by
Messrs. Smead (Chief of the Board's Division of Bank Operations) and
Goldenweiser under date of May 22,
pects of the matter were discussed.
sion it
meeting.

1936, was read and the various as
During the course of this discus

was agreed that Mr. Smead should be invited to attend the
Thereupon he entered the room and participated in a dis

cussion of the principal differences between the existing formula and
the formula proposed in

the memorandum above referred to.

At the conclusion of the discussion, upon motion
duly made and seconded, it was unanimously agreed
that the executive committee should recommend to the
Federal Open Market Committee that it (a) approve
and continue in effect the formula adopted by the
Federal Open Market Committee as constituted prior
to March 1, 1936, and the practice followed under
its authority, with respect to allotments to the
various Federal reserve banks of Government securi
ties held in the System open market account; (b)
authorize and direct the executive committee to make
such adjustments as of June 15, 1936, as may be neces
sary to bring the allotment to each Federal reserve
bank of Government securities held in the System open
market account into conformity with such formula; and
(c) authorize and direct the executive committee to
make thereafter from time to time such readjustments
as may be necessary to maintain the distribution of
Government securities among the Federal reserve banks
in accordance with such formulas provided, however,
that if at any time the reserve ratio of any Federal
reserve bank should fall below 50% or would be re
duced below 50% by reason of the operation of such
formula, the executive committee shall make such re
adjustments in the allotments as shall be necessary
to raise the reserve ratio of such bank to 50% by al
locating the necessary amount of securities to the
other Federal reserve banks in accordance with the

formula.
Upon motion duly made and seconded, and by unani
mous vote, it was agreed to recommend to the Federal
Open Market Committee that it direct all Federal

5/25/36
reserve banks holding Government securities in their
own investment accounts to transfer, on June 15, 1936,
to the System open market account at the current mar
ket prices all of the United States Government securi
ties held in the investment accounts of the individual
Federal reserve banks.
Upon motion duly made and seconded, and by unani
mous vote, it was agreed to recommend to the Federal
Open Market Committee that authority be granted to each
Federal reserve bank to make temporary purchases of
Government securities under resale agreements for per
iods not exceeding fifteen days.
The opinion was ex
pressed in this connection that this action of the
Federal Open Market Committee, it was believed, would
be a satisfactory disposition of the question raised

in President Hamilton's letter of March 12, 1936, in
regard to temporary purchases of Government securities
by the Federal Reserve Bank of Kansas City from the
Federal Land Bank of Omaha under resale agreements.
Upon motion duly made and seconded, and by unani
mous vote, it was agreed to recommend to the Federal
Open Market Committee that it direct that any Federal
reserve bank which purchases or holds for its own in
vestment account Government securities pending their
sale for the account of member or nonmember banks dis
continue such purchases and sell all Government secur

ities so held not later than June 15, 1936.

It was

understood that the Federal Reserve Bank of Minneapolis
was probably the only Federal reserve bank that would
be affected by the adoption of this recommendation.

Thereupon the meeting adjourned.

Secretary.
Approved:

Chairman.