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A meeting of the Federal Open Market Committee was held in the
offices of the Board of Governors of the Federal Reserve System in
Washington on Friday, November 20, 1936, at 9:30 a.m.
PRESENT:

Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

Eccles, Chairman
Harrison, Vice Chairman
Broderick
Szymczak
McKee
Ransom
Davis

Mr. Fleming
Mr. McKinney
Mr. Schaller
Mr. Hamilton

Mr. Morrill, Secretary
Mr. Wyatt, General Counsel
Mr. Dreibelbis, Assistant General Counsel
Mr. Goldenweiser, Economist
Mr. Burgess, Manager of the System
Open Market Account
Mr. Carpenter, Assistant Secretary of the
Board of Governors
Mr. Thurston, Special Assistant to the
Chairman of the Board of Governors
There was a general discussion of questions of policy involved in
the administration of the System Open Market Account and the circumstances
under which the total holdings of long term bonds in the account should
be increased or decreased.

It

was the consensus of those present that,

in view of the large aggregate amount of securities held in the System
account, it

would be logical in

the proper administration of the account

to authorize the executive committee, as and when market conditions
justify, to increase to $600,000,000 the amount of bonds with maturities
in excess of five years.
The Secretary submitted the minutes of the
meetings of the executive committee of the Federal

Open Market Committee held on May 25 (2 meetings),
May 27, June 24 and September 2, 1936, and upon

motion duly made and seconded, and by unanimous

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vote, the actions set forth therein were approved,
ratified and confirmed.
The meeting recessed at 11:30 a.m. in order to enable members of
the committee to keep an appointment for a conference with the Secretary
of the Treasury.

The meeting reconvened at 2:00 p.m. with the same

attendance as at the morning session.
There was a discussion of the procedure that should be followed
in the future in the presentation to the Federal Open Market Committee
of the minutes of the meetings of the executive committee for approval
and ratification of the actions set forth therein.
Upon motion duly made and seconded, the Secre
tary was authorized to send the preliminary and re
vised drafts of the minutes of the meetings of the
executive committee to the members of the full Com
mittee who are not members of the executive commit
tee in order that all of the members of the full
Committee may be advised of the actions of the
executive committee and be prepared at the next
succeeding meeting of the full Committee to act on
the approval and ratification of such actions as
On this action Mr. Ransom
shown by the minutes.
voted "no", stating that he felt that these pre
liminary drafts should be approved by the members
of the executive committee before being sent to
the other members of the full Committee.

In connection with the above matter it was
agreed that, whenever in the future a meeting of
the executive committee of the Federal Open Market
Committee is held in Washington just prior to a
meeting of the full Committee, the members of the
full Committee who are not members of the execu
tive committee and who are in Washington should be
invited to attend the meeting of the executive
committee and that, whenever possible, a copy of
the minutes of such meeting should be prepared and
furnished, prior to the meeting of the full
Committee, to members of the Committee who did not
attend the meeting of the executive committee.

The Secretary then read the recommendation approved at the meeting
of the executive committee yesterday with respect to authorizing that
committee to replace maturing securities and to make shifts between maturi
ties in the System Open Market Account, and it

was pointed out that the

authority as recommended differed from a similar authority granted at the
meeting of the Federal Open Market Committee on May 25, 1936, in that the
recommended authority provided for increasing the limit upon the amount
of bonds in the account having maturities in excess of five years to
$600,000,000, whereas the previous authority limited to $500,000,000 the
amount of all bonds, without reference to maturities.

The reasons for the

proposed change, as set forth in the minutes of the meeting of the executive
committee on November 19, 1936, were reviewed for the information of the
full Committee and it

was stated that the replacement of the System's

holdings of December 15, 1936, and February 15, 1937, note maturities
would afford an opportunity to increase the amount of longer term bonds in
the account, which would be a logical step in the distribution of maturi
ties in the account.
President Harrison suggested that it

might be found to be desirable

at times, in order to exercise an influence toward orderly conditions in
the market, to effect small reductions in the amount of bonds held in the
account by shifts into corresponding amounts of shorter term securities,
and that therefore it

might be desirable also to place a limit on the

amount of such reductions that might be made by the executive committee.
The discussion of the recommendation of the executive committee
indicated general agreement that the proposed authority to the executive

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committee was necessary for the proper administration of the System account
to meet changing market conditions.
Accordingly, upon motion duly made and seconded,
and by unanimous vote, the Committee instructed the
executive committee to direct the replacement of
maturing securities in the System Open Market Account
with other Government securities and to make such
shifts betveen 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 maintained at not less than
1,000,000,000
and that the amount of bonds having
maturities in excess of five years be not over
$600,000,000 nor less than $300,000,000.
The recommendation of the executive committee with respect to
allowing fluctuations in

the total holdings of securities in the System

account between weekly statement dates was read and it

was agreed that the

suggestion should be approved because of the fact that it

is necessary as

a practical matter to make advance purchases in order to obtain replacement
securities with proper maturities and that such advance purchases are in
such small amounts in relation to the total System holdings as to have no
material effect upon the general credit situation.
Upon motion duly made and seconded, and by
unanimous vote, the Committee authorized the execu
tive committee to permit such fluctuations, within
reasonable limits, in the amount of holdings of
Government securities in the System Open Market
Account between weekly statement dates as may be de
sirable for the practical administration of the
account in making shifts between and replacements
of securities pursuant to the general authority
granted by the Federal Open Market Committee.
After a reading of the recommendation of the executive committee
that it be given authority to increase or decrease the present total amount
of securities in

the System account by not more than $250,000,000, it

was

agreed that the executive committee should have such authority in order

11/20/56
that it

-5
might be in a position to act promptly if

circumstances not now

foreseen should make such action desirable before another meeting of the
full Committee.
Accordingly, upon motion duly made and

seconded, and by unanimous vote, the Committee
authorized the executive committee, subject to
telegraphic or written approval by a majority
of the members of the Federal Open Market Com
mittee, to direct that the present amount of
Government securities in the System Open Market
account be increased or decreased by not more
than $250,000,000.
President Harrison stated that at the Presidents' Conference on
November 18, 1936,

copies of a memorandum,

dated November 19, 1936 pre

pared by the Federal Reserve Bank of New York on the subject of accounting
procedure for the System Open Market Account had been furnished to the
Presidents of all

Federal reserve banks; that the Presidents had agreed in

principle with the procedure suggested in the memorandum which includes a
change in the method of carrying and distributing profits in

general

accordance with the previous memorandum dated October 1, 1936,

on this sub

ject, which was sent to all members of the Federal Open Market Committee
and to all Presidents; that it

had been understood that they would discuss

the matter with the officers of the Federal reserve banks and advise
President Harrison by letter of any suggestions that they might have to
make with a view to putting the suggested procedure into effect as of
January 1, 1937; and that following receipt of advice from all Presidents
the matter would be submitted by President Harrison to the Board of
Governors for consideration.
Reference was made to the consideration which had been given by
the Board of Governors and the Federal Reserve Bank of New York recently

11/20/36

-6

to the procedure to be followed in connection with foreign relationships
of Federal reserve banks and to the question of the overlapping jurisdic
tion of the Board and the Federal Open Market Committee with respect to
foreign transactions of the Federal reserve banks.

President Harrison

stated that the latter question had been discussed at the Presidents'
Conference on November 18, 1936, and that he had suggested that a de
sirable arrangement would be one under which the Federal Open Market
Committee would grant blanket authority to the Federal reserve banks to
purchase and sell bills of exchange and bankers acceptances payable in
foreign currencies and cable transfers in

connection with accounts of

Federal reserve banks established in foreign countries with the approval
of the Board of Governors pursuant to the provisions of section 14 of the
Federal Reserve Act; it

being understood that all such transactions in

such accounts are subject to special supervision by the Board of Governors
of the Federal Reserve System.

The Presidents'

Conference, President

Harrison said, had expressed agreement with this suggestion.

Thereupon

President Harrison moved the adoption of the following resolution, and
the motion was duly seconded.
"RESOLVED that, unless and until the Federal Open
Market Committee hereafter directs otherwise, each Federal
Reserve Bank, subject to the provisions of Section 14 of
the Federal Reserve Act as amended and the regulations, con
ditions, and limitations of the Board of Governors prescribed
thereunder, may without further directions or authorization
of the committee purchase and sell, at home or abroad, cable
transfers, and bills of exchange and bankers acceptances
payable in foreign currencies, to the extent that such pur
chases and sales may be deemed to be necessary or advisable
in connection with the establishment, maintenance, operation,
increase, reduction or discontinuance of accounts of Federal

-7

11/20/56

"Reserve Banks in foreign countries,"
The foregoing resolution was adopted
by unanimous vote.
A suggestion was offered that a uniform procedure be determined
upon for the election of Federal reserve bank representatives as mem
bers of the Federal Open Market Committee and the matter was discussed
briefly in the light of the various procedures followed in the election
of the present Federal reserve bank representatives on the Committee.
It was agreed that consideration of the subject should be deferred until
the next meeting of the Committee, with the understanding that during
the interim Counsel would prepare a draft of a suggested form of pro
cedure, as well as a draft of any clarifying legislation that may be
desirable, and that copies of such drafts would be furnished by the Secre
tary to the members of the Committee in

advance of such meeting.

In connection with the proposal submitted by President Harrison
at the meeting on March 19, 1936,

that authority be granted by the

Committee to the Federal reserve banks to purchase Government securities
in an emergency,

on which action was deferred at the meeting of the

Committee on May 25, 1936, President Harrison stated that he still

felt

strongly that the suggested authority should be granted, but that he
.ould suggest that consideration of the matter be deferred at this time
and that prior to the next meeting of the Committee he would prepare a
memorandum and a draft of resolution for its

consideration.

President

Harrison's suggestion was approved with the understanding that copies of
such memorandum and draft of resolution would be furnished by the Secre
tary to all members of the Committee as soon as available.

11/20/36

-8

The Secretary stated that copies of the memorandum prepared by Mr.
Dreibelbis, Assistant General Counsel, under date of October 13, 1936,

in

which the conclusion was set forth that section 12A of the Federal Reserve
Act requires that the Federal Open Market Committee shall meet at least
four times during each calendar year, had been sent to all members of the
Committee with a request that they indicate whether they had any objection
to the opinion, and that no objection had been received.

All of the members

present indicated that the opinion was entirely acceptable to them.
There followed a general discussion of the question of open market
policy, including its
banks.

relation to the existing excess reserves of member

Consideration was given particularly to the question whether it

would be preferable for the Board of Governors to use its
increase reserve requirements,

inasmuch as it

power to further

was understood that excess

reserves are fairly generally distributed among member banks and an increase
in reserve requirements probably would work no hardship on any substantial
number of member banks, or for the Federal Open Market Committee to reduce
the total holdings of Government securities in the System Open Market Account,
which might be interpreted as a reversal of the present easy money policy.
In this connection reference was made, as indicating that the time had not
yet arrived for a reversal of policy, to the continuing large amount of
unemployment,

to the fact that there is

still

unused productive capacity,

and to the relatively low aggregate of national income in the United
States, together with the fact that there is
unhealthy growth in the use of bank credit.

no general indication of
Some of the members expressed

the opinion that no action should be taken at the present time in the

11/20/56

-9

direction of either an increase in reserve requirements or a reduction
of the System portfolio and that another meeting of the Committee should
be held in January when the President's budget message had been sent to
Congress,

the results of the year-end return flow of currency would be

known, the reserve position of the member banks would be subject to
closer analysis, and the general credit and monetary situation might be
more clarified.
Chairman Eccles suggested that, if

the Board or the Committee

seriously contemplated taking action in January or February, some
indication of the fact that the matter was being given serious consider
ation should be given out in order that the investing public might be
reminded that developments in

the money market are being closely watched

and that further action would be taken in the field of reserve require
ments or in the form of open market operations whenever necessary.
At this point in

the discussion Messrs. Schaller and Hamilton

left the meeting.
There was also a discussion of the question whether,

in the event

action should be taken by the Federal Open Market Committee in January
to reduce the System portfolio, the action should be in

the nature of

allowing maturing securities to run off without replacement or whether
it would be necessary also to sell securities from the account.
indicated as the consensus of those present that if
portfolio should be made it
run off.

It was

a reduction in the

would be preferable to allow maturities to

-10

11/20/36

At the conclusion of the discussion it was suggested that the
Federal Open Market Committee take the position at this meeting that,
after having reviewed the business and credit situation, the Committee
is of the opinion that in the present circumstances it

is not now ad

visable to make any change in the System's present credit policy; that
the Committee is

concerned, however, over the current and potential

effects on both the credit and banking situation of the continued in
crease in the excess reserves of member banks; and that, therefore, it
be the sense of the Committee that a meeting of the Committee should be
held in January, when the situation will have been further clarified by
such events as the return flow of currency and the President's budget
message, to consider whether it
action in the open market in

may not then be advisable to take some

the light of the reserve position of member

banks at that time.
The position set forth above was approved by
all of the members present, with the exception of
Mr. McKee, who stated that he believed that, prior
to the issuance of any public statement by either
the Board or the Federal Open Market Committee that
would refer to the possibility of further increase
in member bank reserves, action should be taken by
the Federal Open Market Committee to reduce its
portfolio by allowing maturities to run off or by
direct liquidation.
There was a further discussion of the question whether any state
ment should be given to the press and it

was pointed out that it

was

known to the public that the Federal Advisory Council, the Presidents'
Conference and the Federal Open Market Committee had held meetings this
week, and that it

might be advisable for the Chairman of the Board of

Governors to give a statement to the press which should state that the

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11/20/36
Federal Reserve System is

considering the problem created by the existing

large amounts of excess reserves with a view to taking action at such

time as it appears to be necessary in the public interest.
At the conclusion of the discussion, upon
motion duly made and seconded,

the Chairman was

authorized to issue to the press such statement
as he deemed advisable.

Thereupon the meeting adjourned.

Secrtary.

Approved:
Chairman.

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