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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 218 ANNUAL REPORT OF BOARD OF GOVERNORS other seasonal requirements, for the purpose of maintaining at member banks an aggregate volume of excess reserves adequate for the continuation of the System's policy of furthering economic re covery through monetary ease; and the executive committee is au thorized from time to time to direct a reduction of the holdings of such obligations when the seasonal influences are reversed or if other influences make their retention unnecessary for the purposes of this resolution. It is understood that the executive committee, in the exercise of this authority, will not increase or decrease by more than $300,000,000 the amount of securities now in the System open market account without another meeting of the Federal Open Market Committee." "RESOLVED, that, with a view to cooperation in effectuating the pol icy declared in the above resolution the Committee recommend to the Board of Governors of the Federal Reserve System that it re quest the Secretary of the Treasury favorably to consider the de sterilization of approximately $300,000,000 of gold out of the Treas ury inactive account, the time and method of such desterilization to be determined by the Secretary of the Treasury in consultation and cooperation with the executive committee of the Federal Open Market Committee." The foregoing resolutions were adopted for the reasons set forth in the following statement which was approved unanimously by the Com mittee: "The Federal Open Market Committee met in Washington on September 11 and 12 and reviewed the business and credit situa tion. In view of the expected seasonal demands on the banks for currency and credit during the coming weeks the Committee author ized its Executive Committee to purchase in the open market from time to time sufficient amounts of short-term U. S. Government obligations to provide funds to meet seasonal withdrawals of cur rency from the banks and other seasonal requirements. Reduction of the additional holdings in the open market portfolio is contem plated when the seasonal influences are reversed or other circum stances make their retention unnecessary. "The purpose of this action is to maintain at member banks an aggregate volume of excess reserves adequate for the continuation of the System's policy of monetary ease for the furtherance of economic recovery. "As a further means of making this policy effective, the Open Market Committee recommended that the Board of Governors of the Federal Reserve System request the Secretary of the Treasury to release approximately $300,000,000 of gold from the Treasury's inactive account. The Board of Governors acted upon this recom mendation and the Secretary of the Treasury agreed to release at once the desired amount of gold. This will place an equivalent amount of funds at the disposal of the banks and correspondingly increase their available reserves. "This action is in conformity with the usual policy of the System to facilitate the financing of orderly marketing of crops and of au tumn trade. Together with the recent reductions of discount rates at the several Federal Reserve banks, it will enable the banks to FEDERAL RESERVE SYSTEM 219 meet readily any increased seasonal demands for credit and cur rency and contribute to the continuation of easy credit conditions." 2. 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 se curities in the System open market account with other Gov ernment securities and to make such shifts between ma turities 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 $850,000, 000 nor less than $500,000,000. The members of the Committee concurred in the opinion that the rea sons for the authority granted to the executive committee at the meeting of the Committee on May 5, 1937, to replace maturing securities and to make shifts between securities in the System open market account were still present and that, therefore, action renewing the authority was necessary. MEETING ON DECEMBER 1, 1937 Members present: Mr. Eccles, Chairman; Mr. Harrison, Vice Chair man; Mr. Szymczak, Mr. McKee, Mr. Ransom, Mr. Davis, Mr. Sinclair, Mr. McKinney, Mr. Martin, Mr. Day. 1. Authority to Increase or Decrease System Account. The following resolution was adopted by unanimous vote: "RESOLVED, that, until the adjournment of the next meeting of the Committee, the executive committee is authorized to direct the pur chase in the open market from time to time of sufficient amounts of Treasury bills or other short-term Treasury obligations to provide funds to meet seasonal withdrawals of currency from the banks and other requirements of commerce, business and agriculture by keep ing at member banks an aggregate volume of excess reserves ade quate for the continuation of the System's policy of maintaining credit conditions conducive to economic recovery; and the executive committee is authorized from time to time to direct a reduction of the holdings of such obligations to the extent that their retention is found to be unnecessary for the purposes of this resolution. It is understood that the executive committee, in the exercise of this au thority, shall not increase or decrease by more than $300,000,000 the amount of securities now in the System open market account." The Committee had given full consideration to general business and credit conditions and it was the general feeling that the existing volume of excess reserves was abundant for the continuance of easy credit con ditions and for meeting the credit requirements of commerce, business and agriculture, that in the light of existing business and credit condi tions effective action to meet and overcome the present business recession should be taken outside the field of the System's various monetary pow ers, and that the System could best contribute to the furtherance of eco- 220 ANNUAL REPORT OF BOARD OF GOVERNORS nomic recovery by being prepared in case of any change in conditions to act promptly in pursuance of the general objectives set forth in the resolution. In order to place the System in position to meet such de velopments as might require further open market operations in accord ance with the System's policy during the period before another meeting of the full Committee, it was decided to continue the authority of the executive committee to engage in open market operations. 2. Authority to Replace Maturing Securities and to Make Shifts of Securities in the System Open Market Account. By unanimous vote, the Committee instructed the ex ecutive 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 $850, 000,000 nor less than $500,000,000. The members of the Committee agreed that the authority granted to the executive committee at the previous meeting of the full Committee to replace maturing securities and to make shifts in the System open market account should be continued for the same reasons as prompted the existing authority.
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