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R ep rod uced from th e U ncla ssified / D ecla ssified H o ld in g s o f th e N ational A rch ive s



September 21, 1934.

3 3 3.3-4-/

The meeting was called to order at 10:45 o fclock a. m., the following
being present:
Governor Harrison, chairman, Governors Young, Norris, Fancher,
Black, Schaller, Martin, Geery, Hamilton, McKinney, Calkins
and Deputy Governors Peple and Bounds, acting secretary.
The secretary’s report of operations was distributed and ordered filed.
The preliminary memorandum was also distributed.

The chairman discussed

this memorandum with reference to the bond market and particularly to the govern­
ment bond market, pointing out that the immediate problem^was to determine how the
Treasury and the Federal Reserve System can best cooperate to assure sources of
government financing.

In this connection the desirability of selling early matrui-

ties now held in the open market account up to possibly $50 millions, and buying in
replacement thereof called 4ths which would then be exchanged for 4 year notes, was

The chairman reported that Undersecretary Coolidge had already requested

the Federal Reserve Bank of New York to purchase this morning called 4ths for Treasury
account, and had suggested that it would be helpful if the system open market account
would make the exchange suggested above with informal understanding that the Treasury
would take back the 4 year notes the following week in exchange for some shorter

Following discussion it was


to authorize the Executive Committee, if advisable, to sell up to

$50 millions of short maturities and to buy a like amount of called 4ths, it being
understood that the called 4ths purchased would be exchanged for 4 year notes.
It was understood also that the Executive Committee was authorized in
its discretion to negotiate with the Treasury for the subsequent exchange of the
4 year notes for shorter maturities held by the Treasury in various investment

R ep rod uced from the U ncla ssified

I D ecla ssified H o ldings o f the N ational A rchives


Governor Martin entered the meeting at this point.
The chairman raised the question as to whether the practice of all re­
serve banks was uniform with respect to the granting of loans secured by government

A poll of those present indicated that all reserve banks were now

lending the full par value, although two of the banks had a rule limiting such loans
to an amount less than par if and when the bonds dropped a certain number of points
below par.

The chairman stated that he had raised the question because of the pos­

sibility that the Treasury might ask the Federal reserve banks concerning their
practice in this regard, and also in view of the possibility that it might be sug­
gested that a public announcement to this effect be made.

Discussion of the ques­

tion indicated general agreement with the present policy of lending at par, but
considerable question as to the wisdom of making any public announcement partly be­
cause of the commitment involved in so doing, and partly because of the danger of
its being interpreted as an artificial effort to support the government market.
Upon motion of Governor Calkins it was

that it be the policy of all Federal Reserve Banks under present

conditions to lend to member banks up to the par value upon the security of obliga­
tions of the government, it being understood that no publicity would be given it
since this action did not reflect any material change in policy, which policy was
already well understood by member banks, and it was believed that any public
announcement might do more harm than good.
The chairman referred to discussion at a previous meeting regarding the
possibility of the Treasury using part of the stabilization fund for the purpose
of acquiring a part of the government bond portfolio of the reserve banks.
Governor Norris pointed out that the Treasury has over $£ billions cash balance
at this time and in addition $2,800 millions in the stabilization fund for which
it had no present use, and in view of these large balances, he added, the Treasury
might well reduce both its balances and its debt by buying up to . 2 billions of its

R ep rod uced from the U ncla ssified / D ecla ssified H o ld in g s o f the N ational A rchives

d e c l a s s if ie d

obligations from the Federal reserve banks upon an agreement by the banks to
purchase a like amount in new securities from the Treasury upon request any time
prior to December 31, 1936*

He pointed out the effect this operation

upon the current earnings of the Federal Reserve System.

would have

He suggested that the

profit upon the bonds sold to the Treasury offset this loss of current income*
Governor Black suggested that the System should offer to take from the
Treasury additional securities as needed provided the Treasury would agree to buy
from the System a like amount within a specified time.

There m s some doubt whether

the Treasury could or should make any such contract of repurchase.

There followed

considerable discussion concerning the merit of the Reserve System in effect under­
writing the governments credit by a definite offer to take whatever might be
necessary of Treasury issues.

While it was generally agreed that the System should

under present conditions do all it properly can to assist the Treasury in its financ­
ing program it would not be advisable from the point of view of the Treasury or the
System to make any offer which might be construed as equivalent to an offer to under­
write financing of the Treasury deficit*
After discussion Governor Black offered the following resolutions;


upon motion duly made and seconded, was adopted:
That it is the sense of the conference that the Federal Reserve System is
deeply interested in the present, as in the past, financing of the Treasury, and


instructs the chairman of the Federal Open Itoket Committee to convey to the


Secretary of the Treasury the Reserve Systemfs interest, and to advise the Secretary



of the Treasury that the System will continue its active aid in this financing and


will be pleased to consider such suggestions as may be made for further cooperation*
The meeting adjourned for lunch*

Afternoon Session
Undersecretary Coolidge attended the afternoon session for a brief periods
He stated that the Secretary would very much appreciate the System’s offer for


R ep rod uced from the U ncla ssified / D e cla ssified H o ld in g s o f the N a tional A rch ive s



Au*ority 8 s c o n & r j o ^


cooperation in the financing of the current issue and added that as a matter of
fact the System had through the, Federal Open Market Committee cooperated fully in
the past, and he did not himself see any way in which greater cooperation could be
given at the moment.

He reported concerning the current offering and added that

while it was impossible to estimate at this time with respect to the December
financing, it was expected that the Treasury would run into December with large
balances which it was believed would reduce somewhat the amount of the offering
to be made at that time.
The Chairman reported to Undersecretary Coolidge that the conference
had been wondering what, if anything, the Reserve System could do to allay fear
which seems present in places regarding the government bond market.

Mr. Coolidge

said he could think of no way or of nothing that the System could do that would be
helpful more than it has already done.

The meeting adjourned at 3 o ’clock p. m.

R. Leslie Rounds,
Acting Secretary.