View original document

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

TWENTY-THIRD ANNUAL REPORT
OF THE

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
COVERING

OPERATIONS

FOR THE YEAR 1936

UNITED STATES OF AMERICA
WASHINGTON: 1937

228

ANNUAL

REPORT OF BOARD

OF GOVERNORS

FEDERAL RESERVE SYSTEM

229

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.

The purpose of this action was to simplify the procedure in connection
with the handling of accounts with foreign central banks which are
subject to special supervision by the Board of Governors of the Federal
Reserve System under Section 14 of the Federal Reserve Act.

1. Authority to Make Shifts in System Open Market Account.

4. Consideration of Excess Reserves of Member Banks.

MEETING ON NOVEMBER 20, 1936

The Committee, by unanimous vote, 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 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.
This action continued the previous authority of the executive com
mittee to make shifts and replacements necessary for the proper admin
istration of the System account and granted additional authority to
increase the holdings of bonds with maturities in excess of five years,
as well as authority to reduce such holdings, to meet changing market
conditions and to improve the distribution of maturities in the account.
2. Authority to Increase or Decrease System Account.

The Committee, by unanimous vote, authorized the ex
ecutive committee, subject to telegraphic or written ap
proval by a majority of the members of the Federal Open
Market Committee, to direct that the amount of Govern
ment securities then in the System open market account be
increased or decreased by not more than $250,000,000.
The purpose of this action was to continue previous authority so
that the executive committee would be in a position to act in the open
market promptly if circumstances not foreseen at this meeting should
make such action desirable before another meeting of the full Committee.
3. Transactions in Accounts with Foreign Central Banks.

The Committee, by unanimous vote, adopted the follow
ing resolution:
RESOLVED that, unless and until the Federal Open Market
Committee hereafter directs otherwise, each Federal Re
serve 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 pre
scribed thereunder, may without further directions or au
thorization 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 purchases and sales may be deemed to be necessary or
advisable in connection with the establishment, mainte
nance, operation, increase, reduction or discontinuance of
accounts of Federal Reserve banks in foreign countries.

The Committee took the position that, in the circum
stances, it was not then advisable to make any change in
the System's existing credit policy; that the Committee was
concerned, however, over the current and potential effects
on both the credit and banking situation of the continued
increase in the excess reserves of member banks; and that,
therefore, it was the sense of the Committee that a meet
ing of the Committee should be held in January, when the
situation would have been further clarified by such events
as the return flow of currency and the President's budget
message, to consider whether it might not then be advisable
to take some action in the open market in the light of the
reserve position of member banks at that time. This posi
tion was approved by all of the members present (Messrs.
Schaller and Hamilton having departed prior to this action)
with the exception of Mr. McKee who, in the light of a
previous discussion with respect to the desirability of issu
ing a statement to the press, 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 a further increase in member bank
reserve requirements, action should be taken by the Fed
eral Open Market Committee to reduce its portfolio by
allowing maturities to run off or by direct liquidation.
The reason for this position, which was taken after consideration of
the question whether, if action were taken to reduce excess reserves,
it would be preferable for the Board of Governors to use its power
further to increase reserve requirements or for the Federal Open Market
Committee to reduce the holdings of Governmnt securities in the System
open market account, was that most of the members of the Committee
were of the opinion that the continued large amount of unemployment,
unused productive capacity, and relatively low aggregate of national
income and the fact that there was no general indication of unhealthy
growth in the use of bank credit, indicated that the time for a reversal
of the existing easy money policy had not arrived. As pointed out in
the statement of position, in January the President's budget message
would be sent to Congress, the results of the year-end return flow of
currency would be known, the reserve position of member banks would
be subject to closer analysis and the general credit and monetary situa
tion might be further clarified.
Upon taking this position, it was voted unanimously to authorize the
Chairman to issue a statement to the press, for the reason that it was
felt that the investing public should be reminded that the System was
considering the problem created by the existing large amount of excess
reserves with the view to taking action at such time as it appeared
to be necessary in the public interest.

230

ANNUAL REPORT OF BOARD OF GOVERNORS

After the meeting, under the authority thus granted to him, the
Chairman prepared and gave out the following statement:
The Board of Governors of the Federal Reserve System met
during the week with the Federal Advisory Council and later with
the Presidents of the Federal Reserve banks. In addition, there
was a meeting of the Federal Open Market Committee.
In the course of these meetings, the business and credit situation
was fully reviewed. Particular attention was given to the fact that
since the Board's action last July in raising reserve requirements,
there has been a continued and substantial increase of member bank
reserves, resulting principally from a further large inflow of gold
from abroad, so that member bank reserves are once more far in
excess of legal requirements and of present or prospective needs
of commerce, industry and agriculture.
Those charged with responsibility for credit and reserve policy
are now giving careful consideration to the various problems raised
by the effects of these reserves with a view to taking such action
at such time as it appears to be necessary in the public interest.

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