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Authorized for public release by the FOMC Secretariat on 5/27/2020

BOARD OF GOVERNORS

REC'D NRECORDS SECTION

OF THE

FEDERAL RESERVE SYSTEM

OCT3

1966GG

WAHINUlrTO

October 3, 1966

CONFIDENTIAL (FR)

TO:

Federal Open Market Committee

FROM:

Mr. Holland

Attached is a memorandum concerning possible authorization
by the Committee of repurchase agreements in agency issues, following
enactment of H.R. 14026.

The Committee may wish to consider this

memorandum, perhaps on a preliminary basis, at its meeting tomorrow.

Robert C. Holland, Secretary,
Federal Open Market Committee.

Attachment

INRECORDS
Authorized for public release by the FOMC SecretariatKEC'D
on 5/27/2020
OCT3

1966

October 3, 1966

CONFIDENTIAL (F)

To:

Federal Open Market Committee

From:

The Staff

As you know, Section 6 of the recently enacted H.R. 14026
(P.L. 89-597) amended Section 14(b) of the Federal Reserve Act to
authorize the Reserve Banks "To buy and sell in the open market,
under the direction and regulations of the Federal Open Market Committee, any obligation which is a direct obligation of, or fully
guaranteed as to principal and interest by, any agency of the United
States."
Accordingly, the Committee may wish to consider taking some
action at this juncture in recognition of the new authority.

The

Account Manager, for reasons similar to those he advanced in his

memorandum to the Committee of June 23, 1966 (entitled "Federal
Reserve operations in Federal Agency issues") does not plan to recommend outright transactions in agency issues at this time, but, as he
stated in that memorandum, he would consider repurchase agreements
in such issues to be a potentially useful addition to the kit of

tools available for reserve management.
If and when the Committee decides to authorize repurchase
agreements in agency issues,

it could accomplish this purpose simply

by amending Section 1(c) of its continuing authority directive to
read as follows:

SECTION

Authorized for public release by the FOMC Secretariat on 5/27/2020

To:

Federal Open Market Committee

"(c)

To buy U.S. Government securities, SECURITIES THAT

ARE DIRECT OBLIGATIONS OF, OR FULLY GUARANTEED AS TO PRINCIPAL
AND INTEREST BY, ANY AGENCY OF THE UNITED STATES, and prime
bankers' acceptances with maturities of 6 months or less at the
time of purchase, from nonbank dealers for the account of
the Federal Reserve Bank of New York under agreements for
repurchase of such securities or acceptances in 15 calendar
days or less, at rates not less than (1) the discount rate
of the Federal Reserve Bank of New York at the time such
agreement is entered into, or (2) the average issuing rate
on the most recent issue of 3-month Treasury bills, whichever
is the lower; provided that in the event Government securities
OR AGENCY ISSUES covered by any such agreement are not

repurchased by the dealer pursuant to the agreement or a
renewal thereof, they shall be sold in the market or transferred to the System Open Market Account; and provided
further that in the event bankers' acceptances covered by
any such agreement are not repurchased by the seller, they
shall continue to be held by the Federal Reserve Bank or
shall be sold in the open market."
A copy of the complete directive in its present form is

attached.
The staff also has reviewed the Committee's "Regulation
relating to open market operations of Federal Reserve Banks" (copy
attached) but has concluded that no changes in that Regulation are

Authorized for public release by the FOMC Secretariat on 5/27/2020

To:

Federal Open Market Committee

required to bring it into conformance with the new amendment of the
Federal Reserve Act.

As you will note, paragraph (b) of Section

270.2 - Definitions reads as follows:
"(b)

Obligations.--The term "obligations" shall include

all bankers' acceptances, bills of exchange, cable transfers,
bonds, notes, warrants, debentures, and other obligations,
including Government securities, which Federal Reserve Banks
are authorized by law to purchase in the open market."
(Underlining added.)
Paragraph (c) of the same Section reads as follows:

"(c)

System Open Market Account.--The term "System Open

Market Account" applies to Government securities and other
obligations heretofore or hereafter purchased in accordance
with open market policies adopted by the Committee and held
for the account of the Federal Reserve Banks."

(Underlining

added.)
Since Federal Reserve Banks have now been authorized by law
to purchase direct or fully guaranteed obligations of U.S. agencies
in the open market, those obligations would seem to be encompassed
by the language cited.

Attachments