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MAINTAINING AND MAKING PUBLIC MINUTES OF
FEDERAL RESERVE MEETINGS
HEARINGS
BEFORE THE
SUBCOMMITTEE ON
DOMESTIC MONETARY POLICY
OF THE
COMMITTEE ON
BANKING, FINANCE AND URBAN AFFAIRS
HOUSE OF REPRESENTATIVES
N IN E T Y -F IF T H C O N G R E SS
F IR S T SESSION
ON
H.R. 9465
A B IL L TO AM EN D TH E FE D E R A L R ESERVE ACT TO REQ U IRE
T H A T D E T A IL E D M IN U TES OF FE D E R A L OPEN M A R K E T COM
M IT TEE M EETIN GS B E R ELE ASED TO TH E G ENERAL PUBLIC
TH R EE YE A R S A F T E R TH E D ATE OF TH E M EETIN G TO W H IC H
T H E Y R ELATE
H.R. 9589
A B IL L TO REQ U IRE T H A T T H E FE D E R A L R E SE R V E BAN KS
SH AL L K EEP V E R B A T IM TR AN SCRIPTS OF A L L M EETIN GS
OF T H E IR BOARDS OF D IRECTO RS AND M A K E TH E M PUBLIC
U ND ER CERTAIN LIM ITA TIO N S
OCTOBER 27, 2 8 ; N OVEM BER 17, 1977
Printed for the use of the
Committee on Banking, Finance and Urban Affairs
U.S. GOVERNMENT PRINTING OFFICE
99-331 O
WASHINGTON : 1977
HOUSE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
HENRY S. REUSS, Wisconsin, Chairman
THOMAS L. ASHLEY, Ohio
WILLIAM S, MOORHEAD, Pennsylvania
FERNAND J. ST GERMAIN, Rhode Island
HENRY B. GONZALES, Texas
JOSEPH G. MINISH, New Jersey
FRANK ANNUNZIO, Illinois
JAMES M. HANLEY, New York
PARREN J. MITCHELL, Maryland
WALTER E. FAUNTROY,
District of Columbia
STEPHEN L. NEAL, North Carolina
JERRY M. PATTERSON, California
JAMES J. BLANCHARD, Michigan
CARROLL HUBBARD, Jr., Kentucky
JOHN J. L aFALCE, New York
GLADYS NOON SPELLMAN, Maryland
LES AuCOIN, Oregon
PAUL E. TSONGAS, Massachusetts
BUTLER DERRICK, South Carolina
MARK W. HANNAFORD, California
DAVID W. EVANS, Indiana
CLIFFORD ALLEN, Tennessee
NORMAN E. D’AMOURS, New Hampshire
STANLEY N. LUNDINE, New York
HERMAN BADILLO, New York
EDWARD W. PATTISON, New York
JOHN J. CAVANAUGH, Nebraska
MARY ROSE OAKAR, Ohio
JIM MATTOX, Texas
BRUCE F. VENTO, Minnesota
DOUG BARNARD, Georgia
WES WATKINS, Oklahoma
J. WILLIAM STANTON, Ohio
GARRY BROWN, Michigan
CHALMERS P. WYLIE, Ohio
JOHN H. ROUSSELOT, California
STEWART B. McKINNEY, Connecticut
GEORGE HANSEN, Idaho
HENRY J. HYDE, Illinois
RICHARD KELLY, Florida
CHARLES E. GRASSLEY, Iowa
MILLICENT FENWICK, New Jersey
JIM LEACH, Iowa
NEWTON I. STEERS, Jr., Maryland
THOMAS B. EVANS, Jr., Delaware
BRUCE F. CAPUTO, New York
HAROLD C. HOLLENBECK, New Jersey
Clerk and Staff Director
i x o n , General Counsel
M i c h a e l P . F l a h e r t y , Counsel
G r a s t y C r e w s II, Counsel
M e r c e r L . J a c k s o n , Minority Staff Director
G r a h a m T. N o r t h u p , Deputy Minority Staff Director
P aul N elson,
W
il l ia m
S u b c o m m it t e e
P.
on
D
D o m e s t ic
M onetary
P o l ic y
PARREN J. MITCHELL, Maryland, Chairman
STEPHEN L. NEAL, North Carolina
NORMAN E. D’AMOURS, New Hampshire
DOUG BARNARD, Georgia
WES WATKINS, Oklahoma
BUTLER DERRICK, South Carolina
MARK O. HANNAFORD, California
GEORGE HANSEN, Idaho
HAROLD C. HOLLENBECK, New Jersey
BRUCE F. CAPUTO, New York
(II)
CONTENTS
Hearings held on—
October 27, 1977-'_________________________________________________________
October 28, 1977__________________________________________________________
November 17, 1977________________________________________________________
Text of—
H.R. 9465_________________________________________
_________________
H.R. 9589__________________________________________________________________
Pnjf©
1
39
47
3
5
S tatements
Burns, Hon. Arthur F., Chairman, Board of Governors of the Federal
Reserve System______________________________________________________________
Cavanaugh, Hon. John J., a Representative in Congress from the State
of Nebraska---------------------------------------------------------------------------------------------------Hannaford, Hon. Mark W ., a Representative in Congress from the State
of California_________________________________________________________________
Vento, Hon. Bruce F., a Representative in Congress from the State of
Minnesota __________________________________________________________________
A dditional I nformation Submitted
for the
49
15
8
39
R ecord
Burns, Hon. Arthur F., letter dated July 27, 1977, expressing views on the
Cavanaugh amendment to H.R. 8094_______________________________________
51
Hannaford. Hon. Mark W . :
Letter to Chairman William Proxmire of the Senate Banking Commit
tee regarding H.R. 9465, with attached reply—.____________________ _ 13,14
11
Prepared statement______________________________________________________
Mitchell, Chairman Parren J., opening statement___________________________
7
Neal, Hon. Stephen L., Representative in Congress from the State of North
Carolina and member of the subcommittee, statement____________________
20
Dakar, Hon. Mary Rose, Representative in Congress from the State of
Ohio, statement with attachments________________________________________
25
Vento, Hon. Bruce F., excerpt from “ Shadows Over the Sunshine Act” , a
Common Cause Study of Federal agency compliance with the Govern
65
ment in the Sunshine Act of 1976 (September 1977)_____________________
Williams, Prof. Walter of Temple University, statement_________ ____ ____
49
A ppendixes
Appendix I.— “Correspondence and material of Chairman Henry S. Reuss,
House Banking, Committee regarding the negotiating with Chairman
Arthur F. Burns of the Federal Reserve Board for the acquisition of
minutes of the meetings of the Boards of Directors of the 12 Federal
Reserve regional books_____________________________________________________
Appendix II.— “Public Access to Records of Federal Open Market Com
mittee Deliberations: Evolution of Policies Preceding the Decision to
Terminate Maintenance of Detailed Records” , paper prepared by Roger
S. White, analyst in money and banking, Economics Division, Congres
sional Research Service, Library of Congress____________________________
Appendix III.— Compilation of opinions received from prominent business
leaders and economic professors 011 H.R. 9465 and H.R. 9589___________
(h i )
69
131
187
MAINTAINING AND MAKING PUBLIC MINUTES OF
FEDERAL RESERVE MEETINGS
TH URSD AY, OCTOBER 27, 1977
S u b c o m m it t e e
C o m m it t e e
on
on
H ou se of R e p r e s e n t a t iv e s ,
D o m e s t ic M o n e t a r y P o l i c y o f t h e
B a n k i n g , F in a n c e a n d U r b a n A f f a ir s ,
Washington, D .C .
The subcommittee met at 8:35 a.m. in room 2222 of the Rayburn
House Office B uilding; Hon. Parren J. Mitchell (chairman o f the
subcommittee) presiding.
Present : Representatives Mitchell, Barnard, and Hansen.
Chairman M i t c h e l l . Ladies and gentlemen, the hearing w ill come
to order.
I work under the theory that neither late night sessions nor early
morning rain should delay the beginning o f a hearing, so we will
now commence the hearings o f the subcommittee.
This morning the Subcommittee on Domestic Monetary Policy o f
the Committee on Banking, Finance and Urban Affairs will hold
hearings on H.R. 9465 and H.R. 9589. These bills require mainte
nance o f detailed records o f meetings o f respectively, the Federal
Open Market Committee (F O M C ) o f the Federal Reserve System
and the Boards o f Directors o f the 12 Federal Reserve Banks.
Specifically, H .R. 9465, which was introduced by our colleague,
Hon. Mark W . Hannaford o f California, provides for reinstatement
o f the F O M C ’s “ Memoranda o f Discussion” for all FO M C meetings,
with its release for public consumption scheduled 3 years after the
meeting is held.
H.R. 9589, the Federal Reserve Public Inform ation Act, which
was introduced by our colleague, Hon. John J. Cavanaugh o f Ne
braska, requires maintenance o f verbatim transcripts o f all meetings
o f the Boards o f Directors o f the 12 Federal Reserve Banks, and
provides for their submission to the Congress after a lag time period
o f 1 year.
The legislation before us is controversial. The question o f whether
to keep and publish minutes o f FO M C meetings has been embroiled
in controversy since the creation o f the FOM C by the Banking Act
o f 1935. It was only after prolonged and sometimes heated debate
that the Open Market Committee finally decided in 1964 to release
the discussion memoranda, which are based on the FO M C minutes,
for the first time, and then only for 1959 and earlier years. So you
can see that these hearings are not breaking new ground. The intro
duction o f H .R. 9465 and H.R. 9589 reflect growing concern that the
(l)
2
public is not now getting all the information it needs to monitor and
evaluate the performance o f the Nation's money managers: the per
sons to whom the Congress has delegated its awesome constitutional
powers to control the supply o f money and regulate its value.
The Federal Reserve is the delegate through which our monetary
policy is carried out. W ithin the Federal Reserve, the Federal Open
Market Committee is the body primarily responsible for the form ula
tion and implementation o f that policy. A ny effort by the public to
monitor and assess monetary policy necessarily requires information
dealing with the F O M C ’s decision processes and the underlying rea
sons for its actions. There are three elements common to H .R. 9465 and
H .R. 9589 on which our deliberations will focus. These are: one, the
nature o f records maintained; two, their availability to the public;
and three, if they are made available, the timing o f their release.
[The text o f H.R. 9465 and H .R. 9589 fo llo w :]
3
CONGRESS *
teS-
95t h
•
^
j
H. R. 9465
IN TH E HOUSE OF RE PR E SE N TA T IV E S
O ctober 6 ,1 9 7 7
M r. H annaford (fo r himself, M r. C a v a n a u g h , M r. H a n l e y , M r. M attox , M r.
M itchell o f M aryland, Ms. O a k a r , M r. P atterson o f California, and Mr.
V en to ) introduced the follow ing b ill; which was referred to the Committee
on Banking, Finance and Urban Affairs
A BILL
To amend the Federal Reserve Act to require that detailed
minutes of Federal Open Market Committee meetings be
released to the general public three years after the date of
the meeting to which they relate.
1
B e it enacted by the Senate and House of Representa-
2
tives of the United States of America in Congress assembled,
3
That the tenth undesignated paragraph of section 10 of the
4
Federal Reserve Act
5
adding at the end thereof the following: “ The Federal Open
6
Market Committee shall maintain detailed minutes of its
7
meetings closed pursuant to section 552b (c)
8
of title 5, United States Code. Such minutes shall identify
9
the views of individual participants at any such meeting.
I
(12 U.S.C. 247a)
is amended by
(8) or (9)
4
2
1
Such minutes shall be maintained for a period of three years
2 after the date of the meeting to which they relate, after
3
which they shall be released to the general public. Detailed
4
minutes of Federal Open Market Committee meetings held
5
after January 1, 1973, and before the date of enactment of
6 this sentence and not released to the general public shall
7
be released to the general public three years after the date
8 of the meeting to which they relate or upon enactment of
9
this sentence, whichever occurs sooner. Nothing in this
10 paragraph shall be deemed to prevent disclosure by the
11 Federal Open Market Committee of minutes of such meetings
in accordance with section 552b (f) (2) of title 5, United
States Code, before the expiration of the three-year period.” .
5
95 t ii C O N G R E S S
1 s t S e s s io n
H. R. 9589
IN THE HOUSE OF RE PR E SE N TA T IV E S
O
M r.
ctober
1 7 ,19 7 7
(fo r him self, M r. M i t c i i e l l o f M aryland, Mr. V e n t o , and Ms.
O a k a r ) introduced the follow in g b i l l ; which was referred to the Committee
on B anking, Finance and Urban A ffairs
Cavanaugh
A BILL
To require that the Federal Reserve banks shall keep verbatim
transcripts of all meetings of their Boards of Directors and
make them public under certain limitations.
1
Be it enacted by the Senate and House of Representa-
2
tives of the United Stales of America in Congress assembled,
3
That this A ct may be cited as the “ Federal Reserve System
4
Public Information Act of 1977” .
5
Sec . 2. Section 4 of the Federal Reserve Act is
6 amended by adding at the end thereof the following new
7
paragraph:
8
“ The Federal Reserve banks shall keep verbatim tran-
9 scripts of all meetings of their Boards of Directors. These
10 transcripts shall be provided to the appropriate committees
I
6
2
1
of the Congress one year after the date of such meeting
2
without deletion. Transcripts shall also be released, at the
3
same time, to the general public, except that items pertaining
4
to:
5
“ (1) borrowing or prospective borrowing by indi-
f>
vidually named banks at the discount window;
7
“ (2) transactions with foreign central banks;
8
“ (3)
9
Federal Reserve Board real estate plans or
negotiations in progress;
10
“ (4) individual personnel matters; and
11
“ (5) security measures at banks,
12
may be deleted. An appropriate committee of the Congress
13
shall only make that material deleted from the transcripts
14
available after a majority vote of the committee.” .
Chairman M i t c h e l l . M y statement then goes on to cover a summary
history from 1936 up to the present time.
I will ask unanimous consent that the entire statement be submitted
fo r the record: therefore, I can omit that portion o f it,
I guess the bottom line in tracing that history is, summarily stated,
that I believe the public has the right to know the input o f individual
monetary policymakers in the conduct o f monetary policy. To assure
that the public receives relatively complete information, detailed min
utes must be kept and be made publicly available after a reasonable
time la<2%
W e shall have further discussion on what is “ a reasonable time lag.”
The questions on which these hearings will focus go beyond the Fed
eral Reserve and its relationships to the Congress and the people of
this country. They i>*o to the heart o f the problem o f public account
ability in cas^s where awesome governmental powers necessarily must
be d e le c te d to re^H velv free or independent agents. Specifically—
(1)
Does a policymaking body o f an executive agency have the
rip*ht to determine, on its own, whether the public is entitled to learn
o f its deliberations?
7
(2) Does the agency have the right, on its own, to determine the
extent to which it wili reveal policysetting information to the public
and the time lag after which it will be released ?
(3) Does a public agency whose deliberations have far-reaching
consequences have the right to deprive scholars and historians from
studying their decisionmaking process by not maintaining detailed
records ?
(4) Do the individuals involved in setting policy which is signif
icant to the xlmerican people have the right to be protected by not
having their names documented along with the specific recommenda
tions which they made ?
(5) Does the knowledge that their names will appear beside their
stated positions during deliberations encourage policy-setters to be
more accountable and responsible, or does it inhibit their decisions and
the free flow o f ideas ?
(6) Finally, is a public agency’s autonomy threatened by requiring
it to provide a detailed record o f its policy-making deliberations to the
legislative body which has oversight responsibility for it ?
Those are some o f the questions we would like to address, and I am
convinced there will be others.
[The opening statement o f Chairman Mitchell follow s:]
O p e n in g
Statem ent
of
H.R. 9465
H o n . P arren
and
H.R. 9589
J. M it c h e l l , C h a i r m a n , o n
O c t o b e r 27, 1977
This morning the Subcommittee on Domestic Monetary Policy of the Committee
on Banking, Finance and Urban Affairs will hold hearings on H.R. 9465 and
H.R. 9589. These bills require maintenance of detailed records of meetings of
respectively, the Federal Open Market Committee of the Federal Reserve System
and The Boards of Directors of the Twelve Federal Reserve Banks.
Specifically, H.R. 9465, which was introduced by our colleague, Mark Hannaford, provides for reinstatement of the FOMC’s “Memoranda of Discussion” for
all FOMC meetings, with its release for public consumption scheduled 3 years
after the meeting is held.
H.R. 9589, the Federal Reserve Public Information Act, which was introduced
by our colleague, John Cavanaugh, requires maintenance of verbatim transcripts
of all meetings of the Boards of Directors of the twelve Federal Reserve Banks,
and provides for their submission to the Congress after a lag time period of
one year.
The legislation before us is controversial. The question of whether to keep
and publish minutes of FOMC meetings has been embroiled in controversy since
the creation of the FOMC by the Banking Act of 1935. It was only after prolonged
and sometimes heated debate that the Open Market Committee finally decided
in 1964 to release the discussion memoranda, which are based on the FOMC
minutes, for the first time, and then only for 1959 and earlier years. So you can
see that these hearings are not breaking new ground. The introduction of H.R.
9465 and H.R. 9589 reflect growing concern that the public is not now getting
all the information it needs to monitor and evaluate the performance of the
nation’s money m anagers: the persons to whom the Congress has delegated its
awesome constitutional powers to control the supply of money and regulate its
value.
The Federal Reserve is the delegate through which our monetary policy is
carried out. Within the Federal Reserve, the Federal Open Market Committee
is the body primarily responsible for the formulation and implementation of
that policy. Any effort by the public to monitor and assess monetary policy
npce^sarilv requires information dealing with the FOMC’s decision processes and
the underlying reasons for its actions. There are three elements common to H.R.
9465 and H.R. 9589 on which our deMberations will focus. These are: (1) the
nature of records maintained; (2) their availability to the public; and (3) if
they are made available, the timing of their release.
From March 1936 to May 1976, the FOMC kept meticulous records, called
Memoranda of Discussion of its proceedings, which were released after a time
lag of five years.
In addition, the Board of Governors, pursuant to section 10, Federal Reserve
Act, annually submits to the Congress a report containing public records com
monly known as records of policy actions. These include actions by the FOMC
In fact, currently, the summary records of the FOMC’s policy actions are released
30 days after its meetings.
Following discontinuation of the discussion memoranda, the FOMC expanded
the “ records of policy actions” by way of attempting to make up for the loss of
the more detailed discussion memoranda derived from the minutes. But even in
the expanded form, the policy records fail to convey the dynamics of interchanges
among FOMC members. As a result, it is difficult, if not impossible, to evaluate
the contributions of individual FOMC members to the formation of monetary
policy. I concur wholeheartedly with John Kenneth Galbraith who, in a letter
to the x>revious Chairman of this Subcommittee, Steve Neal, w rote: “There is not
the slightest reason why their positions should not be known, and they should
not be held fully responsible for their comments.” This applies with equal force
to directors of Federal Reserve Banks. They too, are doing the public’s business.
In summary, I believe the public has a right to know the input of individual
monetary policymakers into the conduct of monetary policy. To assure that the
public receives relatively complete information, detailed minutes must be kept
by policymaking bodies, and be made publicly available after a reasonable time
lag.
I am not wTedded to a specific time lag. I want to say only that a 3-year lag
is clearly long enough to prevent any possible unwarranted speculation.
The questions on which these hearings will focus go beyond the Federal
Reserve and its relationships to the Congress and the people of this country.
They go to the heart of the problem of public accountability in cases where awe
some governmental powers necessarily must be delegated to relatively free or
independent agents. Specifically:
(1) Does a policymaking body of an executive agency have the right to
determine, on its own, whether the public is entitled to learn of its
deliberations ?
(2) Does the agency have the right, on its own, to determine the extent
to which it will reveal policysetting information to the-public and the time
lag after which it will be released?
(3 ) Does a public agency whose deliberations have far-reaching conse
quences have the right to deprive scholars and historians from studying
their decisionmaking process by not maintaining detailed records?
(4) Do the individuals involved in setting policy which is significant to
the American people have the right to be protected by not having their
names documented along with the specific recommendations which they
made?
(5) Does the knowledge that their names will appear beside their stated
positions during deliberations encourage policysetters to be more accountable
and responsible, or does it inhibit their decisions and the free flow of ideas?
(6 ) Finally, is a public agency’s autonomy threatened by requiring it to
provide a detailed record of its policymaking deliberations to the legislative
body which has oversight responsibility for it?
C li n i r man M i t c h e l l . Congressman Hannaford, thank you for being
first, thank you for being on time and we are delighted to have you
before the subcommittee o f which you are a very distinguished
member.
STATEMENT OP HON. MARK W . HANNAFORD, A REPRESENTATIVE
IN CONGRESS PROM THE STATE OP CALIFORNIA
Mr. H a n n a f o r d . Thank you, Mr. Chairman. Mr. Barnard.
I arrived despite the rain and 14th Street bridge and without my
glasses.
9
You state the case very well, Mr. Chairman, very completely. I will
try to expand on it a little bit. W hat we are talking about essentially
is oversight, and. historical reflection and analysis that is being affected
because o f the Federal Reserve’s arbitrary decision.
H .R. 9465 requires the Federal Reserve System’s Open Market Com
mittee to reinstate detailed minutes o f its regular meetings on mone
tary policy. As my colleagues will recall, in May 1976 the committee
decided to discontinue maintenance o f its detailed memoranda o f dis
cussion in favor o f summaries, though somewhat expanded, which
would be released at a 30- to 40-day lag, instead o f its previous 90-day
lag.
Mr. Chairman, the expanded summaries or records o f policv action
are useful documents and the board’s decision for their more timely
release is commendable. However, I do not believe such summaries
themselves are sufficient records for future use in monetary policy re
search and analysis.
In addition, I submit that even an immediate release o f these sum
mary documents w^ould be beneficial and would not represent a threat
to the stability o f our financial markets.
H.R. 9465 also provides that detailed minutes to be maintained by
the FO M C identify individual participants and that these minutes
be released to the general public 3 years after the meetings to which
they relate.
Furthermore, minutes o f FO M C meetings held after January 1,
1973, and before the date o f enactment o f this legislation would also
be subject to the 3-year release lag. However, the FO M C would not
be prohibited from releasing any portion of these minutes before the
expiration o f the 3-year period. Thus, the Federal Reserve is amply
protected from fears o f politicization and from the premature dis
closure o f detailed confidential discussions.
Prior to the termination o f the memoranda o f discussion in May
1976, these documents were released 5 years after the meetings oc
curred. The decision by the FO M C to establish a 5-year lag was an
arbitrary one.
In 1964, the FO M C form ally decided to release minutes o f meet
ings held prior to and subsequent to 1961 after a 5-year lag. This
decision followed a series o f requests by Representative W right Patman as chairman o f the Joint Economic Committee in 1961 and later
as chairman o f the Domestic Finance Subcommittee o f the Banking
Committee in 1964.
Also, in the early 1960’s extensive and critical research on the F ed’s
conduct o f monetary policy bv Milton Friedman and Anna Schwartz
resulted in a major study which was published in 1963. Professor
Friedman’s research was based in large part on the personal notes o f
George Harrison, who served ns a Governor and then President of
the New York Federal Reserve Bank.
As Dr. Friedman has stated, access to the F O M C ’s memoranda o f
discussion would have substantially facilitated his work and con
tributed to its exactness as well.
It is significant to note that the termination o f the memoranda o f
discussion in May 1976 followed several developments relating to
FO M C disclosure including a lawsuit brought against the FO M C
10
for timely disclosure o f records of policy actions and Senate passage
of sunshine legislation in November 1975.
Mr. Chairman, it is my belief that sufficient documentation o f the
monetary policy decisionmaking processes of the FOM C should be
maintained for future use. These records will not only be o f use to
the appropriate congressional oversight committees, academic and
business researchers, but to individual members of the FOM C as well.
As a matter o f fact, the rationale for documentation was perhaps
best stated by the Federal Reserve System itself.
In a report on the projected role of the Federal Reserve System in
the year 2000, the Federal Reserve Bank of Cleveland noted with
respect to monetary policy that, and now I am quoting:
Some periodic public performance review will be required. The general citizen
and the Congress are increasingly more sophisticated in analyzing the national
economy and the dependence of individual welfare on national policy decisions.
Additionally, still quoting from the Federal Reserve Bank report :
Some mechanism for review and accountability will be necessary, not only
to make sure that monetary policy is conducted in a manner that is bo^h rosponsible and responsive to the long-term goals established by Congress, but also to
keep the Fed from becoming an arbitrary, bureaucratic and unresponsive mono
lith in the field of bank supervision and regulation, and to provide some safe
guard against improprieties and inefficiency in Reserve bank operations.
Mi*. Chairman, these are compelling reasons for the reinstatement
of the FOM C's memoranda o f discussion.
In its fifth report on the conduct o f monetary policy pursuant to
May 1977 hearings on House Concurrent Resolution 133, the Senate
Banking Committee’s analysis o f the Federal Reserve Board’s mone
tary policy objectives focuses on a significant point. That is, that a
considerable shortcoming o f congressional oversight over the F ed’s
monetary policies is evidenced by our receiving views which basically
reflect the opinions o f the chairman o f the board.
Unquestionably, the contributions o f each member of the Open
Ma rket Committee would be desirable. The legislation which I propose
would insure that the views of individual FOM C members be recorded.
I am confident that members o f the FOM C. who serve in vital public
positions o f economic decisionmaking, would be pleased to go on record
in the manner that I suggest.
As my colleagues may recall, on May 25, Senator Proxmire sent a
letter to each member o f the FOM C soliciting their comments on the
importance o f the growth o f both money and velocity and their rela
tionship to the growth o f the nominal G X P . The responses submitted
clearly prove that individual FOM C members were anxious to offer
personal observations.
I might add that detailed minutes also include summaries o f formal
staff presentations,
Mr. Chairman and members o f the subcommittee, the case for this
legislation is a simple one. Public officials are responsible to the gen
eral citizenry and to the Congress. The FOM C is a subdivision o f the
Federal Reserve System which has been vested with specific govern
mental authority by act o f Congress. Therefore, in order for Congress
to perform responsible oversight functions and for the education of the
general public, detailed minutes o f FOM C deliberations are
imperative.
11
H.R. 9589, introduced by my colleague Congressman John J.
Cavanaugh, is a commendable bill encouraging public accountability
on the part o f the Boards o f Directors o f regional Federal Reserve
banks, and it should be carefully scrutinized by the subcommittee.
My suggestion with respect to this measure, however, would be to
require detailed minutes as proposed in my bill rather than stipulat
ing that verbatim minutes be maintained. Verbatim minutes may, in
the long run, be detrimental by fostering ‘ ‘hallway decisionmaking1’
to which Federal Reserve officials and academicians have previously
alluded.
I thank you, Mr. Chairman, and Mr. Barnard, for this opportunity
to testify and I hope that my comments will be useful to you.
[Congressman Iiannaford’s prepared statement with an attached
copy o f a letter to Chairman Proxmire o f the Senate Banking Com
mittee regarding H.R. 9165 and Chairman Proxmire's reply follow :]
S t a t e m e n t of H o n . M a r k W . I I a n n a f o r d , a R e p r e s e n t a t iv e i n
t h e S t a t e of C a l if o r n ia
C ongress F rom
Mr. Chairman and members of the subcommittee, I appreciate this oppor
tunity to testify on H.R. 9105 which I have introduced along with your co
sponsorship, Mr. Mitchell, and that of nine other members of the Banking
Committee. This bill requires the Federal Reserve System’s Open Market Com
mittee to reinstate detailed minutes of its regular meetings on monetary policy.
As my colleagues will recall, in May 11)76, the committee decided to discontinue
maintenance of its detailed memoranda of discussion in favor of summaries,
though somewhat expanded, which would be released at a 30 to 40-day lag
instead of its previous 90-day lag.
Mr. Chairman, the expanded summaries, or records of policy action, are useful
documents and the board’s decision for their more timely release is commend
able. However, I do not believe that such summaries themselves are sufficient
records for future use in monetary policy research and analysis. In addition,
I submit that even an immediate release of these summary documents would
be beneficial and would not represent a threat to the stability of our financial
markets.
H.R. 9465 also provides that detailed minutes to be maintained by the FO M C
identify individual participants and that these minutes be released to the general
public 3 years after the meetings to which they relate. Furthermore, minutes of
FOMC meetings held after January 1, 1973, and before the date of enactment
of this legislation would also be subject to the 3-year release lag. However, the
FOMC would not be prohibited from releasing any portion of these minutes
before the expiration of the 3-year period. Thus, the Federal Reserve is amply
protected from fears of politicization and from the premature disclosure of
detailed confidential discussions.
Prior to the termination of the memoranda of discussion in May 1976, these
documents were released 5 years after the meetings occurred. The decision by
the FOMC to establish a 5-year lag was an arbitrary one.
In 1964, the FOMC formally decided to release minutes of meetings held
prior to and subsequent to 1961 after a 5-year lag. This decision followed a
series of requests by Representative Wright Patman as chairman of the Joint
Economic Committee in 1961 and later as chairman of the domestic finance sub
committee of the Banking Committee in 1964. Also, in the early 1960’s extensive
and critical research on the FED 's conduct of monetary policy by Milton Fried
man and Anna Schwartz resulted in a major study which was published in
1963. Professor Friedman’s research was based in large part on the personal
notes of George Harrison, who served as a governor and then president of the
New York Federal Reserve Bank. As Dr. Friedman has stated, access to the
FOMC’s memoranda of discussion would have substantially facilitated his work
and contributed to its exactness as well.
It is significant to note that the termination of the memoranda of discussion
in May 1976 followed several developments relating to FOMC disclosure includ
ing a lawsuit brought against the FOMC for timely disclosure of records of
policy actions and Senate passage of sunshine legislation in November 1975.
12
Mr. Chairman, it is my contention that sufficient documentation of the mone
tary policy decisionmaking processes of the FOMC should be maintained for
future use. These records will not only be of use to the appropriate congressional
Oversight Committees, academic and business researchers, but to individual
members of the FOMC as well. As a matter of fact, the rationale for documenta
tion was perhaps best stated by the Federal Reserve System itself. In a report
on the projected role of the Federal Reserve System in the year 2000, the Fed
eral Reserve Bank of Cleveland noted with respect to monetary policy that, and
now I am quoting:
“ Some periodic public performance review will be required. The General citi
zen and the Congress are increasingly more sophisticated in analyzing the na
tional economy and the dependence of individual welfare on national policy
decisions.’’
Additionally, still quoting from the Federal Reserve Bank report:
“ Some mechanism for review and accountability will be necessary, not only to
make sure that monetary policy is conducted in a manner that is both responsible
and responsive to the long-term goals established by Congress, but also to keep
the Fed from becoming an arbitrary, bureaucratic and unresponsive monolith in
the field of bank supervision and regulation, and to provide some safeguard
against improprieties and inefficiency in reserve bank operations.”
Mr. Chairman, these are compelling reasons for the reinstatement of the
FOMC's memoranda of discussion.
In its 5th report on the conduct of monetary policy pursuant to May 1977 hear
ings on House Concurrent Resolution 133, the Senate Banking Committee’s anal
ysis of the Federal Reserve Board's monetary policy objectives focusses on a
significant point. That is, that a considerable shortcoming of congressional over
sight over the Feds monetary policies is evidenced by our receiving views in
colloquy which basically reflect the opinions of the chairman of the board. Unques
tionably, the contributions of each member of the Open Market Committee wrould
be desirable. The legislation which I propose wrould insure that the views of
individual FOMC members be recorded, I am confident that members of the
FOMC, who serve in vital public positions of economic decisionmaking, would be
pleased to go on record in the manner that I suggest. As my colleagues may
recall, on May 25, Senator Proxmire sent a letter to each member of the FOMC
soliciting their comments on the importance of the growth of both money and
velocity and their relationship to the growth of the nominal GNP. The responses
submitted clearly prove that individual FOMC members were anxious to offer
personal observations.
In this connection, I hasten to add that the “views of individual participants”
at FOMC meetings which are to be incorporated in detalied minutes might also
include statements of staff members. This would certainly not be unusual as con
gressional transcripts often include comments of and responses by certain mem
bers of committee staffs.
Mr. Chairman and members of the subcommittee, the case for this legislation is
a simple one. Public officials are responsible to the general citizenry and to the
Congress. The FOMC is a subdivision of the Federal Reserve System wThich has
been vested with specific governmental authority by act of Congress. Therefore,
in order for Congress to perform responsible oversight functions and for the edu
cation of the general public, detailed minutes of FOMC deliberations are
imperative.
H.R. 9589, introduced by my colleague Congressman John Cavanaugh, is a com
mendable bill encouraging public accountability on the part of the boards of
directors of regional Federal Reserve banks; and it should be carefully scruti
nized by the subcommittee.
My suggestion with respect to this measure, however, would be to require
detailed minutes as proposed in my bill rather than stipulating that verbatim
minutes be maintained. Verbatim minutes may, in the long run, be detrimental
by fostering “hallway decisionmaking” to which Federal Reserve officials and
academicians have previously alluded.
Mr. Chairman, I thank you for the opportunity to testify on H .R. 9465 and
hope that my comments will be useful to the subcommittee.
13
M A R K VV. HAN NAFORD
34 th D ist r ic t . C alifo rn ia
COMMITTEE. ON BANKING.
FINANCE AND URBAN AFFAIRS
COMM ITTEE ON
V ETERANS’ AFFAIRS
(Congress of the lu-acb States
JE^ouSr of I'tfprcfjfnlafibtfi
EHaSfjington, B.C.
October
20,
*199 East PaC('.c Coast H.C..
20515
1977
Hon. W i l l i a m P r o x m i r e
Chairman
Senate Banking Committee
5300 D i r k s e n S e n a t e O f fi c e Bldg.
W a s h i n g t o n , D.C. 20510
D e a r Mr.
Ch a ir man :
E n c l o s e d is a co p y of a bill w h i c h I ha ve r e c e n t l y i n tr od u ce d
a l o n g w i t h te n of m y c o l l e a g u e s on the Banki ng, F i n a n c e and Ur b an
A f f a i r s Co mm i tt ee .
Thi s l e g i s l a t i o n r e q u i r e s a r e i n s t a t e m e n t of
the d e t a i l e d m i n u t e s of the F e d e r a l R e s e rv e S y s t e m ' s O pe n M a r k e t
C om m i t t e e , w h i c h w e r e d i s c o n t i n u e d in M ay of 1976.
As the m o n e t a r y
p o l i c y m a k i n g u ni t of the n a t i o n ' s ce n t r a l bank, it is m y be li ef
th a t d e t a i l e d m i n u t e s of the F O M C 's p r o c e e d i n g s w h i c h id en t i f y
i nd i v i d u a l p a r t i c i p a n t s and w h i c h w o u l d be a v a i l a b l e for re le a se
to the g e n er al p u b l i c a ft e r a t h r e e - y e a r lag are n e c e s s a r y in ord er
to g r a n t the p r o p e r c o n g r e s s i o n a l o v e r s i g h t c o m m i t t e e s and m e m be rs
of the b u s i n e s s an d a c a d e m i c c o m m u n i t i e s ac ce ss to d o c u m e n t s w h ic h
w i l l e n a b l e i n d e p t h a na l y s e s and d e s c r i p t i o n s of m o n e t a r y po l i c y
decisions.
Th e S u b c o m m i t t e e on D o m e s t i c M o n e t a r y P o l i c y i nt e n d s to hold
h e a r i n g s on this le g is l at i on .
F u r t h e rm o re , a s o o n - t o - b e re l e a s e d
s t u d y by the s u b c o m m i t t e e in d i c a t e s .that m an y f or m er F e d e r a l
R e s e r v e Bo a r d Gov er n or s , F e d e r a l Re se r ve ba nk pr e si d e n t s , and
m e m b e r s of the a c a d e m i c and b u s i n e s s c o m m u n i t i e s feel t h a t the
t e r m i n a t i o n of the F O MC ' s m e m o r a n d a of d i s c u s s i o n wa s a p o o r de cision.
In v i e w of y ou r i n t er e st in the Fe d e r a l Re se r v e and its d i s
c l o s u r e po li c ie s , as we ll as in the b r o a d e r a re a s of the a c c o u n t
a b i l i t y of p u b l i c off i ci a ls , their r e s p o n s i v e n e s s to the ge n er a l
p u b l i c and to the Congre ss, and in the d e c i s i o n - m a k i n g p r o c e s s e s
of the p u b l i c sector, y o u r vi ew s on this l e g i s l a t i o n w o u l d be
ap pre ci a t e d .
W i t h be s t p e r s o n a l
regards ,
I am
Sincerely
>lAR K W. H A N N A F O R D
M e m b e r of C o n gr es s
Enclosure
99-331 0
77 - 2
14
O ctober 2 1 ,
1977
Honorable Mark W. Hannaford
U.S. House of Representatives
315 Cannon House Office Building
Washington, D.C.
20515
Dear Mark,
Thank you so much for your letter and the copy of
H.R. 9465.
Let me congratulate you on taking the initiative
to introduce this legislation which I think is needed.
As you ma y know, I voiced my objections to the dropping
of the detailed minutes of the Federal Open Market Committee
in the Spring of 1976.
The FOMC reconsidered their original
vote and still decided to discontinue the minutes.
I was
disappointed at that time and continue to hold my early view.
My view is that the members of the FOMC have a most important
responsibility, that of deciding on the appropriate monetary
policy, and that they should be more open about their views
on the course of the economy and the appropriate monetary
policy measures.
After all, their decisions affect the
entire nation in a fundamental manner and not all of them
have been appointed by the President^ and approved by the
Senate,
I support the thrust of your legislation and look
forward to your hearings.
I am not certain, however, that a
three year lag is necessary or appropriate and would like to
consider that issue more fully.
Wit h all best wishes,
Chairman M i t c h e l l . Certainly we thank you, Congressman Hanna
ford. The Chair would like to propose that we take the testimony from
Congressman Cavanaugh and then direct questions to you both, if your
time permits.
Mr. H a n n a f o r d . That is fine.
Chairman M i t c h e l l . Congressman Cavanaugh, we are delighted to
have you here. Let me comment again on your valiant effort in the
Banking Committee last year to get something done in this area that,
somehow or another was thwarted.
Welcome.
15
STATEMENT OF HON. JOHN J. CAVANAUGH, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEBRASKA
Mr. C a v a x a u g h . Thank you, Mr. Chairman, and thank you for your
support and encouragement at the full committee earlier in the year
and for this opportunity today.
Mr. Chairman, I am delighted to have this opportunity to testify
in support o f H.R. 9589, the Federal Reserve System Public Inform a
tion A ct o f 1977.
I am pleased that I was joined in the introduction o f this legislation
by the distinguished chairman o f this subcommittee who has always
aggressively sought and supported efforts to increase the involvement
o f the American people in the affairs and decisions o f their Govern
ment by an opening up o f the processes for inspection.
That is precisely what H .R. 9589 seeks to accomplish. I commend
the chairman for his strong support and personal commitment to this
principle which is evidenced by his bringing us here this morning.
I am also pleased that Congressman Bruce F. Vento and Congress
woman Mary Rose Oakar, who cannot be here this morning, are also
cosponsors o f H.R. 9589, and I am deeply appreciative o f their assist
ance in developing this legislation.
W e are also here this morning to consider H.R. 9465 which was in
troduced by our colleague, Mr. Hannaford, and which I am pleased to
have cosponsored along with the chairman o f this subcommittee, Mary
Rose Oakar, Bruce Vento, and others.
The purpose o f H .R. 9465 is to make statutory a requirement that
detailed minutes o f the Federal Open Market Committee meetings o f
the Federal Reserve Board be released to the general public 3 years
after the date o f the meetings to which they relate.
I was most distressed when I learned that through administrative
decision the regular transmittal o f such detailed minutes, which had
continued uninterrupted since the 1950’s, w^ere terminated by the Fed.
This is another example o f the obsession within the Federal Reserve
Board to guard its operations so closely that the Congress and the
American people are prohibited from debating and challenging the
Fed actions.
I firmly support the requirement that detailed minutes o f the F ed
eral Open Market Committee meetings be made public. I also support
strongly the reduction in the time lag, which has been 5 years, to 3
years after the date o f the meeting to which they relate.
I will confine the remainder o f my statement here today to a dis
cussion o f H .R. 9589, but I will be happy to respond to any questions
relating to H.R. 9465 at the appropriate time.
A llow me to describe for the subcommittee the history o f H.R.
9589, the Federal Reserve Svstem Public Information Act o f 1977.
It will not be totally unfamiliar to any o f you as we considered this
lamnia<?e,
amendment form, when the full Banking Committee met
to mark up H .R. 8094, the Federal Reserve Reform Act o f 1977, which
passed the House without a dissenting vote.
That legislation was in response to the revelations concerning the
F ed’s lobbying efforts in both the Congress and State governments,
the Fed’s role in encouraging private commercial bank loans to real
16
estate investment trusts and public utilities, conflict o f interest o f bank
board members, loans to Federal Reserve employees at below market
interest rates and what some believe to be the bestowing o f extravagant
retirement gifts for departing Fed employees.
Those are the broad categories o f activities that have been regularly
pursued within the Federal Reserve System and were still discernable
from the minutes o f the meetings o f the Boards o f Directors o f the 12
regional banks that Chairman Henry S. Reuss was able to obtain
earlier this year.
H eretofore the Congress was not aware o f such practices. H ad it
not been for Chairman Reuss’ diligence over a period o f almost a year
in negotiating with Chairman Burns for the acquisition o f these min
utes we would never have known what was happening within the
Federal Reserve System.
Mr. Chairman, I think it would be appropriate for the hearing
record on this legislation to include the full text out o f Chairman
Reuss’ opening statement o f July 18, 1977. I would also hope that you
would include in this hearing record the very fine statement which
Chairman Reuss made on the floor o f the House on Tuesday, May 24,
entitled “ W hat the Secret Minutes o f Federal Reserve Bank Meetings
Disclose.” (See app. I, p. 69). I f I may quote from that statement :
Mr. Speaker, for many years the House Banking Committee has taken seriously
its oversight responsibilities toward the Federal Reserve System and its 28,000
employees.
W e have tried everything from moral suasion to attempts .at complete audits
by the General Accounting Office. Our efforts, handicapped immeasurably by the
Federal Reserve’s all-encompassing claim of “independence,” have yielded only
sporadic results. W e have simply never been able to obtain full and complete
information about the various activities of the Federal Reserve System.
Recently, the committee has acquired minutes of the Boards of Directors
meetings of the 12 Federal Reserve Banks. These came to the committee after
the Federal Reserve Board Chairman Arthur F. Burns challenged some conclu
sions of the Banking Committee's August 1976 report raising serious questions
about, the 12 Reserve Banks and the potential for conflict of interest in the Boards
of Directors, which were dominated by banking and business interests . . .
In a series of letters, I asked the Fed to produce the minutes from the various
meetings of the Boards of the Federal Reserve Banks for three selected years,
1972, 1974, and 1975. As set forth in my letter to Dr. Burns of September 23,
1976. “These records are important to the oversight and legislative responsibilities
of the Committee.”
The amendment which I offered at the full committee, and which
we are considering as legislation here today, seeks to make permanent
this transmittal o f information so that the Congress will be able to
fulfill its oversight responsibilities.
Frankly, I was surprised that in light o f the revelations contained in
the minutes o f the regional bank meetings there was no provision in
H .R . 8094 to require the regular transmittal o f such minutes to the
committee.
Certainly, the minutes have already proved their value in terms o f
allowing the Congress, and the American people, to better understand
the way the Federal Reserve System operates on a day-to-day basis.
M y language provides for a 1-year delay between the date o f the
meeting and the transmittal to the Congress o f complete transcripts.
It would also provide for the release to the public, at the same time,
keeping in mind the sensitive nature o f some of the discussions con
tained in those minutes.
17
The transcripts released to the public would be complete except that
items pertaining to one, borrowing or prospective borrowing by indi
vidually named banks at the discount window, tw^o, transactions with
foreign central banks, three, Federal Reserve Board real estate plans
or negotiations in progress, four, individual personnel matters and
five, security measures at banks could be deleted.
Chairman Burns himself described those as “ highly sensitive items’7
in his letter to Chairman Reuss on November 16, 1976, shortly before
the Federal Reserve Board complied with the committee’s request for
copies o f the minutes.
The legislation also recognizes the sensitivity o f some o f the mate
rials that may be contained in the transcripts by providing for a 1year delay and that the appropriate committees o f the Congress shall
only make available that material which was deleted, in compliance
with the exception clause, from the transcripts made available to the
general public by a majority vote o f the committee.
This provision was included to insure that thorough consideration
and debate precedes the release by the committee o f any o f the mate
rial contained in the transcripts.
A fter what can only be considered to have been a technically im
precise and unorthodox procedure the Cavanaugh amendment was de
feated in the full committee on a vote o f 12 to 19.
I have referred several times thus far to the correspondence per
taining to the negotiations for the acquisition o f the Federal Reserve
Director’s minutes between Chairman Reuss and Chairman Burns.
I f you would like to include it in your hearing record, I have a copy
with me today.
The minutes which we have already received and reviewed demon
strate that the Congress must continue to receive these minutes on a
regular basis; unless we are prepared to rely solely upon media re
ports to fulfill our oversight responsibilities.
The Congressional Budget Office estimates that the production o f
144 verbatim transcripts per year, one each month for each o f the 12
regional banks, will cost as follows :
1978
1979
1980
1981
1982
_____________________________________ ___________________________ $35,000
-------------------------------- 37,000
---------------- -------------- 39,000
________________________________________
41,000
------------------------------------------------------ 43,000
Certainly this is a small price to pay when so great a benefit can
accrue.
Some o f the detractors o f this legislation may argue that the regional
banks are private corporations and as such should not be the subject
o f the requirements contained in my proposal. I wrould like to discuss
that with the committee in detail
When the regional banks were originally established their capital
stock w^as subscribed by its member banks. They are bankers’ banks.
The stock must be owned by member banks— and no one else— and
upon termination o f membership must, be returned to the regional
banks.
The argument, therefore, arises that as the Federal Government
cannot require the production o f minutes o f the Board o f D irector’s
meetings o f a private corporation it has no greater right to require
18
the production o f minutes o f the Board o f D irector’s meeting of the
regional banks o f the Federal Reserve System. In my view, however,
there is a fundamental difference between the two institutior s.
Certainly, General Motors is a private corporation, and even though
its decisions may have a resulting effect on our economy, their actions
are intended to make profits for stockholders.
That is not the case in the Federal Reserve System. The dividends
that are paid on the stock o f regional banks are determined by statute,
and any excess earnings by the regional banks go directly into the
U.S. Treasury. It should also be noted that the “ so-called” stock carries
no voting rights.
W hile the decisions o f private corporations are formulated to bene
fit its shareholders, hopefully the monetary policy decisions, which are
a major responsibility o f the Reserve banks, should not be formulated
to benefit just member banks but should conform with the objectives
o f the Employment A ct o f 1946, those being full employment and price
stability in our economy.
Another fundamental difference between the private corporations’
boards o f directors and the regional bank Boards o f Directors is that
the Government does not appoint members o f private corporations’
boards.
Three o f the nine members o f the regional Boards o f Directors are
appointed by the Federal Reserve Board in Washington. They all vote
on the discount rate which directly affects monetary policy.
They also participate in the election o f the president o f the Reserve
bank who sits on the Federal Open Market Committee which deter
mines our money supply through the buying and selling o f securities.
The president o f each regional bank, whose election is subject to con
firmation by the Federal Reserve Board, serves a 5-year term. I would
also like to point out that his salary and benefits are set bv his regional
bank Board o f Directors subject to approval o f the Board of
Governors.
Certainly, the Federal Government does not have approval power
over salaries and benefits, and the appointment o f the president of
private corporations.
In August o f last year, the Banking Committee issued a report en
titled “ Federal Reserve Directors : A Study o f Corporate and Bank
ing Influence.”
In his letter o f transmittal to the Congress, Chairman Reuss said:
I transmit herewith a staff study of the corporate, banking and trade associa
tion relationships of the directors of the twelve Federal Reserve Banks.
This committee has observed for many years the influence of private interests
over the essentially public responsibilities of the Federal Reserve System.
As the study makes clear, it is difficult to imagine a more narrowly based
Board of Directors for a public agency than has been gathered together for the
twelve banks of the Federal Reserve System.
The letter goes on to suggest th at:
The parochial nature of the Boards affects the public interest across a wide
area, ranging from monetary policy to bank regulation.
These are the directors, for example, who initially select presidents of ihe
twelve district banks— officials who serve on the Federal Open Market Commit
tee, determining the Nation's money supply and the level of economic activity.
The letter continues to describe the public nature of many o f the
activities o f the regional bank Boards o f Directors.
19
I would hope that Chairman Reuss’ entire letter can be entered into
the hearing record. (See app. I.)
I would also like to point out that the Federal Reserve A ct in e f
fect says that in time o f a national banking emergency, the Fed can
lend to any bank, and those decisions would be most likely be made
at the regional bank level, in secret, unless this legislation is adopted.
In passing it should be noted that while it took an act o f Congress to
give billions o f dollars to Newr Y ork City when it was in financial
straits, it took a simple act o f the Board o f Directors of the New York
regional bank to loan $1.75 billion to the Franklin National Bank
just before the bank went under. Without the minutes that Chairman
Reuss obtained from the committee, that giveaway would have re
mained secret for some time.
My proposal calls for the transmittal to the Congress o f unexpur
gated verbatim transcripts to be forwarded to the Congress.
I envision these to be similar in character to the transcripts which
are kept at congressional committee meetings. I believe that it is es
sential that statements and comments made at the Board o f Director’s
meetings be readily identifiable to directors or other participants in
those meetings.
Further, the transcripts will contain a listing o f how each director
voted on all issues on which votes were taken. I do not find that the
production o f verbatim transcripts o f committee meetings has inhibted
in any way my full and complete participation in those meetings. And
I do not think that any o f my colleagues have shied away or felt
intimidated because they were speaking on the record.
In conclusion, I would like to urge this subcommittee to approve the
Federal Reserve System Public Inform ation Act so that the Congress
will not be hamstrung in the fulfillment o f its obligation to oversee the
activities o f the Federal Reserve System.
It is particularly important that we vigorously pursue the over
sight o f the regional banks because the Board o f Governors is con
tinually delegating additional authorities to those banks; for example,
the Bank H olding Company Act Enforcement, the Merger Act, and
others.
Each time the Board o f Governors delegates additional powers, au
thority, and duties to the regional banks, the Congress’ ability to e f
fectively fulfill its oversight responsibilities will be further diluted.
I will be glad to respond to further questions o f the subcommittee
and again commend the chairman and my good colleague Congressman
Barnard for being here this morning and being so patient to listen to
this presentation.
Chairman M i t c h e l l . W e thank you very much for a very definitive,
detailed presentation.
The Chair would like to take up one or two housekeeping matters
first. I assume you would want unanimous consent, Congressman Hannaford and Congressman Cavanaugh, to have your full statements
entered into the record.
Mr. C a v a n a u g h . Yes.
Mr. H a n n a f o r d . Y es; and I would also ask unanimous consent to
submit Congressman Stephen L . Neal’s statement for the record. H e
planned to be here and fell victim to the weather and traffic.
Chairman M i t c h e l l . Withoi
/
[The statement o f Congressn: *• Statem ent
of
R e p r e s e n t a t iv e
» don.
>hen L. Neal follow s:]
> i l i i . _j y
L.
N eal
of
N orth
C a r o l in a
Mr. Chairman, I am pleased to have an opportunity to testify today on H.R.
9465, which reinstates the Federal O]*on Market Committee’s practice of taking
minutes of their meetings and pnnU>hing them in a detailed, edited form as
“Memoranda of Discussion” aft^r a *:..*ee-year lag.
As my colleagues will rec i11, ;h> VOMC terminated this practice on May 18,
1976, with the justification
.
the benffits deiived from (these memo
randa) did not justify their rc-jaiivoK higli cost, particularly in light of the
changes being made in the
r*-\ o*. V A ltn ou’ ii rLe monthly “policy record”
has been expanded, its expan it
.joes jk/i T' i th ' * *• 1 left by the lack of
detailed minutes. Specifically, {_*>f * • >41,*** *.. _■] '»•<
[}q record has been
kept linking individual parties] ,ll
<
,
jo FOMC policy discu sions, except for their fo/m*'] o >-.
s
ji m ■>
oncerned with this since
May 1976 and am pleased
II n. W85
to corr^ting fhal
situation.
On September 17, 1976, as the then-chairman of tin* Dot
\j ,rotary Policy
Subcommittee, I solicited the opinions of 122 p^* - >; - •
*he FOMC’s
May 18 decision to discontinue the maintenance an i jMoiiciuioii
1Meir detailed
memoranda of discussion. T h ose solicited included
*
- ors of the
Federal Reserve Board, form er Federal Reserve Brnk pre^ ’
<<;/rent Class
C directors and prom in ent business and academic mono’ .
•-■ - i n W e re
ceived 81 responses, ox which the vast majority were opp*
, th<- ‘ .'^continu
ation of the FO M C’s detailed minutes. (The final tabula^ ioi; w
opposed 15
in favor, 2 undecided and 9 no comment.)
Among the 55 individuals who opposed the FOMC’s May 18 decision, were six
former top-level officials of the Federal Reserve System: four former Board
Governors _ ( Sherman Maisel, 1965-1972; D ew ey Daane, 1963-1874; Jeffrey
Bucher, 1972—1976; and J. L. Robertson, 1952-1973) and two former presidents
of the Federal Reserve Bank of New York (Allan Sproul, 1941-1956; Alfred
Hayes, 1956-1975.) Governor Robertson served also as Vice-Chairman of the
Federal Reserve Board from 1966 to 1973, and Presidents Sproul and Hayes
served as Vice-Chairmen of the FOMC.
Through reading their letters, as well as the thoughtfully considered responses
ot the other respondents, it became clear to me that we should reinstate the
practice of keeping detailed minutes of FOMC meetings, and publish them after
a lag of no longer than three years. Now, in the remainder of my time, I want to
share with you some of the comments, suggestions and explanations I received
from the respondents to my letter. Needless to say, my summary of the responses
will not begin to capture their richness, which, incidentally, is the defect of all
“summary records.” My summary covers the following issues: the pros and cons
of attributable and disclosing individual rem arks; the importance of detailed
records to research; their value within the Federal Reserve itself; their im
portance to Congressional oversight; whether verbatim minutes are needed or
will detailed memoranda serve; the timing of disclosure; and finally, whether
the summary record should be made and published in addition to detailed
minutes.
a t t r ib u t io n a n d d is c l o s u r e of in d iv i d u a l r e m a r k s
One of the major questions wrhich was addressed in the correspondence is
whether the individual members of the FOMC should be held accountable for
their specific remarks in FOMC discussions. Stated otherwise, does preventing
the public from knowing who said what (except for dissents) make FOMC offi
cials unreasonably and improperly immune from public scrutiny and criticism?
The major argument made against disclosure is that the members would be
inhibited from openly expressing reservations, questioning a consensus view, or
suggesting an unusual alternative during their deliberations if they knew that
the record of their conversation would be made public. M IT Economics Professor
Robert M. Solow, who was then a member of the Board of Directors of the Boston
Federal Reserve Bank, made the point this w a y : “ I see no general reason why
members of the FOMC should not be responsible for what thev sav in those meet
ings. But I can easily imagine that publication and attribution of their remarks
21
might lead members of the FOMC to excessive blandness, and indeed to saying
what they think will sound good and safe rather than what they really think.”
Solow’s view was shared by several other respondents including former Coun
cil of Economics Adviser Chairman Raymond J. Saulnier, now a Columbia Eco
nomics Professor, and Lester V. Chandler, Emeritus Professor of Economics at
Princeton.
However, the majority of respondents disagreed. In discussing this question,
former Governor Robertson pointed out, qualified men prefer not to remain
anonymous ; and that as competent individuals, the members of the FOMC
. .
should be willing and anxious to stand on their records and be held responsible
for the way in which they play their respective roles.’’
Beryl Sprinkel, Executive Vice-President of the Harris Bank agreed. He
wrote :
. . in a position as responsible as that of a member of the FOMC, where
debates and voting patterns will strongly influence business conditions, I believe
that individuals should go on record with their arguments and beliefs. In this
way history can judge the influence and effectiveness of each member’s contribu
tions to subsequent economic performance.”
Former Governor Sherman Maisel provided another reason for attribution and
disclosure. He stated: “From my experience, I believe each member of the FOMC
prepares more carefully and makes more considered statements based on his
recognition that he and the others are on the record and will be judged in the
future on their individual contributions to the debate.”
Let me turn now to another argument against attribution of individual re
marks. This one was given by Robert H. Strotz, President of Northwestern
University, and then also a director of the Chicago Federal Reserve Bank. He
w rote: “ . . . deliberations are often calculated to achieve a consensus, frequently
through protracted discussion and a general spirit of compromise, until there is
unanimous agreement on what ought to be done.”
In his opinion, only the consensus is important, not the individual remarks and
controversy surrounding the final decision. This view was also expressed by
former Federal Reserve Board Chairman William McChesney Martin.
However, the majority of the respondents disagreed, stating as Richard
Timberlake d id :
. . 1 definitely agree that the opinions of individual members
of the FOMC should be publicly preserved— and for the same reasons that the
speeches of Members of Congress are printed . . . in the Congressional Record.”
In the same vein, Elmus Wicker, Chairman of the Economics Department at
Indiana University, stressed th a t: “Analysis of detailed documentation of FOMC
meetings is the only reliable way to discern why a particular action was under
taken or delayed; it is the only way to discern the extent and nature of the
knowledge underlying a particular policy action, and it is the only way to discern
the influence and role of particular decision makers. The intent of decision makers
is not a matter solely of interest to historians of monetary policy. W e cannot
evaluate monetary action independently of the intent of the*policy makers.”
John Kenneth Galbraith summarized the case for attribution ^and disclosure
as follow s: “The participants in the Federal Open Market Committee meetings
are highly paid men selected on the basis of their presumed qualifications. There
is not the slightest reason why their positions should not be known, and they
should not be held fully responsible for their comments. If somebody is undirected
and erratic in his conversation, there is no reason why he should be protected;
there is every reason why that should be known. There is no good reason why
full minutes should not be published and why the obligation should not be fully
on the Chairman to see that all discussion is on the record. Such minutes will
only be examined by people with a professional interest in the subject, and the
discussion will be much improved if it is known that it is subject to such con
sideration.”
IMPORTANCE TO RESEARCH
One of Chairman Burns’ main excuses for terminating the practice of taking
detailed minutes was that they were not used extensively. He stated: “I learned
from extensive inquiries that the memorandum of discussion was hardly being
used at all. . . . From the time we changed our procedure, the only criticism that
we had received . . . was from Chairman Reuss and Chairman Proxmire. . . . So
there cannot be great interest in this.”
I
learned that there is great interest, however. An argument that was fre
quently cited in support of reinstating detailed minutes was their importance for
22
research in monetary policy. Many economists and professors wrote to tell me
how useful they had found the detailed minutes in the past, and what a loss it
would be to their research efforts if they were terminated. Excerpts follow.
Columbia Economics Professor Phillips Cagan: “ I am of the opinion that
scholarly work dealing with the history of Federal Reserve actions would lose
much bv not having access to minutes which identify the speaker, as used to
be available after a five year’s delay. Chairman Burns discontinued such
minutes, saying that no one was making use of them. But such useful scholarly
work may occur many years later.”
New York University History Professor Yincent P. Carosso: *1 have round,
in my own work that summaries of Congressional hearings are no substitute for
the hearings themselves, which contain the exact words of the individual called
to testify.”
,
, ,
Nobel Laureate Milton Friedm an: “May I say first that you have touched a
very sensitive nerve in my particular case. When Anna Schwartz and I were
writing our Monetary History of the United States we were denied access to
the minutes of the Open Market Committee by the Federal Reserve System
at that time. Fortunately we managed for a considerable part of the period
to find a substitute in the form of papers which George Harrison, who for
a time was governor and then president of the Federal Reserve Bank of New
York, had deposited at Columbia University. But for the period prior to that
for which the Harrison Papers contained minutes and subsequent to his term
of office, wTe had to rely on much less satisfactory basic sources. Knowing that
this was the case, we sent an early draft of the manuscript of our book to
W illiam McChesney Martin at the Federal Reserve Board asking whether he
would have the experts at the Board go over our manuscript and give us their
assistance in detecting errors of fact or interpretation or in making suggestions
for improvement. . . . At no time did the Board offer to supplement the material
wre had gotten from the Harrison Papers or to correct any of the statements
wrhich we had made about other periods.”
Carnegie-Mellon Economist Allan H. M eltzer: “ I have read some part or
each of the volumes released to 1974 as part of my research on monetary policy.
The minutes have been extremely useful and have contributed a great deal to my
understanding. A book, containing the result of a decade of research, is now
nearing completion so I am hopeful that the benefits I recei\ed will be more
widely shared. It would be regrettable if students of economic policy lose this
valuable source of information on policy and the policy process.
“I cannot speak with any authority about the number of users, but the
number of users is not a matter of great importance at the moment. Scholarship
rarely proceeds as a mass effort.. . . ”
.
.
M IT Economics Professor Peter Tem in:
. . full disclosure is an aid to the
determination or approval of new members of public bodies. It provides informa
tion necessary to the analysis of specific policy decisions. And it provides the
material for historians who wish to study history in the hope of avoiding repeti
tion of its wTorst moments.”
INTERNAL
VALUE
The usefulness of detailed minutes for internal operational purposes was also
pointed out by several of the respondents. Former Governor Maisel pointed out
th at: “The specific record is helpful in preparing for future meetings. I f you
know you will have a record to review before the next meeting, you can listen
more completely to the debate and need not take complete notes on others’ points
of view. A review of others’ opinions is most helpful in preparation for future
meetings. Frequently I have found good points in the minutes I had missed in the
debate.”
.
, ^
_ ,
He also discussed the usefulness of detailed minutes in giving the Open Market
manager a better sense of the FOMC’s real wishes ’. “The minutes can ser^ e a
very ueful purpose in checking to see that the manager of the open market ac
count is properly carrying out the instructions of the Committee. The current
manager has been extremely assiduous in following instructions, and the min
utes must be useful to him in enabling him to check his own observations. Past
(and perhaps future) managers have been thought to have made policy because
their instructions were not clear enough. Good minutes make interpretations
more exact.’.’
23
Elmu:s Wicker described how in the 19'50’s Chairman Martin, “frequently at
tempted to identify a consensus, but the consensus was a flexible mandate which
permitted fairly wide discretion to the Account Manager. The FOMC expected
him to be guided by the complete record of the policy discussion and not simply
the policy directive in determining the range of variation of the ‘target’
objectives.”
Former Governor Dewey Daane stated: “ Often in my long career within the
Federal Reserve System, engaging in research projects at the Federal Reserve
Bank of Richmond, when I was Monetary Economist and later Director of Re
search there, or in collaborating with my Federal Reserve System colleagues on
System-wide research projects, there was often occasion to refer back to the
Memoranda of Discussion for a particular period or periods.”
Finally, Richard Selden, Chairman of the Economics Department of the Uni
versity 'of Virginia, pointed out that detailed minutes were valuable both for
preparing and
. . assuring the integrity of the annual report of the Board of
Governors.”
CONGRESSIONAL
OVERSIGHT
Another issue that was addressed in the correspondence related to Congress’
oversight responsibility for the Federal Reserve System. It wa pointed out that
the reduction of information provided by the Fed hampered Congress from doing
its job as effectively as it could if provided with detailed minutes. For example,
Donald Hodgman, Professor of Economics at the University of Illinois, w rote:
“As a general rule, the public should be in a position to review the decisions of
important public bodies such as the FOMC, the Congress, and its Committees,
federal and state agencies and the like. Such review is a curb on the arbitrary use
of power and a check 011 the information, expertise and judgment of those who
exercise it.”
Donald Hester, Economics Professor at the University of Wisconsin put it
strongly: “ I believe that no convincing case exists for preventing the public
from having full access to the deliberations of the FOMC. This is especially so
because that Committee is not subject to the discipline of the ballot box and be
cause a number of its members are not appointed by any elected official or sub
ject to Senate approval. The welfare of the public can be strongly affected by the
FOMC’s decisions; the public and its representatives must be informed about
the basis for the Committee’s actions and about what the group is within it that
is advocating specific positions.”
Former Governor Robertson agreed: “I f minutes of the meeting are not kept
and eventually made available, there would be no possible way for the Congress
or members of the public to appraise the contribution of any member of the
Committee to the formulation of monetary policy. Such appraisals are essential
to any study of how to improve the system___ ”
EDITED “ DISCUSSION
MEMORANDA”
OR VERBATIM
M INU TES
In my September 17 letter, I asked, not only if respondents felt detailed records
should be kept, but which form they thought was preferable: A reinstatement
of the detailed, edited memoranda of discussion, or verbatim transcripts. Over
whelmingly, they favored reinstating the Memoranda of Discussion (38 for
memoranda, 9 for verbatim minutes, 8 ambivalent between the tw o). Those prefering verbatim transcripts said that they would be more objective and free of
“selecting and summarizing.” However, the vast majority did not agree.
For example, George Bach from Stanford wrote: “The (memoranda of dis
cussion) permits each member to speak freely 011 highly technical and contro
versial matters in FOMC discussions, knowing that the summary statement re
leased can be edited to eliminate confidential and sensitive materials, or even
misstatements, while maintaining the substance of the member’s comments. And
the 5-year delay in release surely eliminates most of the danger of having FOMC
members talk ‘for the record.’ ”
Donald Kemmerer from the University of Illinois concurred: “I prefer the
(method) formerly used by the FOMC. The verbatim system.is murderous for
most people. Few of us speak as well as we write, certainly not as well as we
rewrite a sentence. The verbatim systems of keeping the minutes could stifle dis
cussion while all but the most articulate reflected on how to phrase their thought
of the moment so it would read well and be impressive. But the most articulate
individuals are not necessarily those with the most good sense.
24
Perhaps the most significant were the comments by two former Governors of
the Federal Reserve System. Sherman Maisel wrote : “ While maintaining detailed
memoranda of discussions is difficult and requires a high level of skill in the
staff. I do not believe the expenditures for this purpose are wasted. The memo
randa do .somewhat homogenize the final discussion. In contrast, verbatim records
may give incorrect feelings as to wliat actually occurred because statements can
be correct but carry incorrect information because they do not reflect tones Ox
voice and interruptions, and may have incorrect words which are correctly ig
nored by those in the meeting. I prefer the memoranda on the assumption the
Committee checks them to make certain they are accurate expression of views.”
Dewey Daane added th a t: “As I recall, we did try some sort of verbatim re
porting for a limited period and found that it was having an adverse effect on
discussion.”
TIM IN G OF PUBLICATION
Another issue on which I asked the respondents to comment was the appro
priate time lag after which the minutes should be released. Of those who com
mented on this question, 19 preferred 5 years or more, 5 preferred 3 to 5 years,
2 preferred 2 to 3 years, 4 preferred 2 years, 2 preferred 1 to 2 years, and 12 pre
ferred 1 year or less. The basic argument to shortening the lag was to increase
the accountability of the FOMC members and enable the public to evaluate their
policy more closelv. Alternatively, the arguments for keeping a longer lag w7ere
that this would prevent the FOMC members from feeling inhibited in their
policy discussions or from feeling political pressure or embarrassment for their
role in the process.
.
Generally, the answrers were in agreement with Donald Hester from the Uni
versity of Wisconsin, who commented that “ the timing of disclosure is a more
subtle problem.” Of the 45 who responded, however, 38 agreed that the lag
should fall between 1 and 5 years. A typical response was Paul Meyer’s from the
University of M aryland: “ It is difficult to make a strong case for any specific lag.
Nevertheless, I w ould suggest a tliree-year lag.”
ADDITIONAL VALUE OF THE SU M M A R Y RECORD
Until May 1976, the FOMC made and released relatively quickly a summary
record of its policy actions as wTell as keeping minutes and publishing detailed dis
cussion memoranda based on the minutes. In May 1976, the practice of keeping
minutes wras discontinued. I raised the question of whether a record of policy
action should be made and released, if minutes w ere kept and released. The vast
majority of respondents agreed that a summary record of policy action should
be k ep t; that it wTas extremely useful, but served a different function than the
memodanda of discussion and therefore should not be viewed as a substitute.
This viewT was well summarized by J. L. Robertson, formerly Vice-Chairman of
the Federal Reserve Board, who w rote: “ The expansion of the ‘record of policy
actions of the FOMC’ to include summaries of views expressed during the meet
ings represents an improvement, in that it enables interested members of the
public to get an idea, at least, of the points of view, taken into consideration in
formulating the Committee's deeisiones. But this is not an acceptable substitute
for detailed reports of the meetings, including the exact wTords used by each mem
ber of the Committee in expressing his point of view (except to the extent they
may be edited by the individual member for the sake of clarity and precision).
James Pierce, from University of California, Berkeley, agreed. “The decisions
made by the FOMC at its May 18 meeting concerning documentation w^ere two
sided. On the one hand, the FOMC decided to expand somewhat the content of its
‘record of policy action’ and to speed up release ol the ‘record.’ This decision was
desirable. On the other hand, the FOMC decided to discontinue its ‘memorandum
of discussion’ which contains full account of each FOMC meeting. . . . This second
decision wTas most unfortunate and more than offset the positive effects of the
decisions concerning the record of policy actions. The policy record does not con
tain sufficient information to allow it to substitute for the memoranda of dis
cussion.”
SU M M A R Y
Perhaps the best summary I can give my colleagues today is to quote former
Governor Jeffrey Buchers letter to me. He wrote: “Although I wTas not privy
to the deliberations which led to the FOM C’s decision to discontinue the memo
25
randa of discussion, I must say that, I share your concern that this change in
documentation may not have been a wise decision.
The decisions of the FOMC have a major impact on the American people.
Each member of the Committee, as any person in a position of public trust,
should be held accountable for his actions. . . .
“ In conclusion, had I been a member of the FOMC at its May 18, 1976, meeting,
I would have joined with Governor Coldwell in dissenting from the Committee’s
action to change the documentation of its meetings. I would have agreed with
him that ‘the benefits of the memorandum of discussion justified its retention.’ ”
Thank you for permitting me to share the results of my correspondence with
you this morning. I believe that a strong consensus can be drawn from re
spondents’ views in support of the provisions contained in H.R. 9465. I for one
am persuaded and intend to vote for the Hannaford bill.
Chairman M i t c h e l l , Does Congresswoman Oakar have a written
statement ?
Mr. C a v a n a u g h . Yes, Mr. Chairman, and I would ask unanimous
consent to enter the statement o f Congresswoman Mary Rose Oakar
into the record.
[The statement o f Congresswoman Oakar follow s:]
Statem ent
H o n . M a r y R ose O a k a r , a R e p r e s e n t a t iv e
C o n g r e ss F r o m t iie S t a t e of O h io
of
in
Mr. Chairman, I am pleased to testify in support of H.R. 9589, the Federal
Reserve System Public Information Act of 1977. I firmly believe that the regional
banks of the Federal Reserve System have for too long escaped vigorous congres
sional scruitiny and that, in fact, contributed to the atmosphere which resulted
in what I consider to be questionable activities by the Boards of Directors.
Without the efforts of Chairman Reuss, who successfully obtained copies of the
regional bank Board of Director’s minutes for 1972, 1974 and 1975, we might
never have known the extent of these conflicts of interest, improper lobbying,
and loans to Federal Reserve employees at below market interest rates. Certainly,
it is now- incumbent upon us to take the steps necessary to ensure that such
activities do not continue. That is why I firmly supported the Cavanaugh amend
ment when the full Banking Committee met to approve the Federal Reserve
Reform Act. I was disappointed that the amendment was defeated. The Chair
man’s cosponsorship of this bill has rekindled my hope that this language will
become law.
In House Report 95-559 which accompanied the Federal Reserve Reform Act
to the floor, Congressmen Cavanaugh, Veiito, and I submitted supplemental views
which specifically address the substance of the legislation before this subcom
mittee. Quoting from those view's :
“ The Minutes which Chairman Reuss has obtained for the Committee, al
though suffering from 904 deletions, clearly point out case after case where the
Fed has communicated its lobbying objectives to its member banks in an effort
to add substantially to their own lobbying efforts. Chairman Reuss, in his opening
statement on July 18tli when the full committee first met to consider this bill,
sa id : ‘The Federal Reserve System has been using bankers— who are deeply
beholden to the Fed because of the Fed's ability to give or withhold the discount
window loan, or to give or withhold such privileges as approval for a merger,
holding company acquisition, or an edge act office— to lobby on the Fed’s behalf
with legislators and other government officials.’ ”
I support this legislation because it is essential as a response to the revelations
to which I have alluded. W e need a procedure that insures the availability of
verbatim transcripts of the minutes of the meetings of the Boards of Directors
of the twelve regional banks. Again, quoting from our supplemental views :
‘‘Although the copies of the minutes that were provided by the Federal Reserve
Board were whittled with deletions, without the transcripts we never would
have known about the possibility of and the potential for conflict of interest
among Board Directors, questionable use of regulated institutions to accomplish
specific lobbying goals on legislation with which the Federal Reserve Board was
concerned, etc. Therefore, it is only prudent that the Congress should seek to
26
create a procedure which will allow' it to monitor the activities of the various
Boards of Directors on a continuing basis.”
Mr. Chairman, I would like to submit for your hearing record on this legisla
tion a complete text of the supplemental views.
The Federal Reserve Board, which has already accomplished a substantial
exemption from sunshine legislation may now be seeking additional exemptions.
In the Monday, October 17, 1977, issue of the American Banker an article ap
peared entitled, “Burns Asks Easing of Sunshine Law.” The lead paragraph reads
as follow s:
“ Federal Reserve Board Chairman Arthur Burns, declaring some of the re
quirements of the government in the Sunshine Act have inhibited discussion
among Board members, urged Congress to exempt discussion of legislative mat
ters from open meetings.*’
This should be taken by the Congress as a signal that the Board has not been
educated to the substantial benefits from openness in our system. Attempts such
as this to draw the wagons in a circle and protect decisions of the Board from
congressional oversight and public scrutiny must be met with renewed congres
sional commitment to the fulfillment of its substantial responsibilities. I would
like to submit for your record the complete text of the article which appeared
in the American Banker. (The article may be found at the end of the statement.)
In conclusion, I wholeheartedly support this legislation. The cost estimates
which we have received from the Congressional Budget Office verify that the
cost of compliance with this legislation is minimal when compared to the overall
benefits which will be realized. I think that the legislation provides substantial
safeguards against the disclosure of those sensitive areas that Chairman Burns
indicated in his letter to Chairman Reuss by providing that the majority vote
in the appropriate committee of the Congress will be required. I hope that this
subcommittee will report this bill and I look forward to supporting it in the full
committee and on the floor of the House.
I wish to thank the members of the subcommittee and the chairman for giving
me this opportunity to testify on this important legislation.
S u p p l e m e n t a l V i e w s t o H .R . 8094. F e d e r a l R e s e r v e R e f o r m A c t b y R e p r e s e n t
a t iv e s J o h n J. C a v a n a u g h . M a r y R ose O a k a r , a n d B r u c e F . V e n t o
The version of H.R. 8094, the Federal Reserve Reform Act, which has been
reported to the full House for consideration bears little relationship to the orig
inal bill that was introduced by the Chairman of our Committee last June. The
drafting and introduction of that bill which carries as its title, “ To promote the
accountability of the Federal Reserve System /’ was in response to the revelations
concerning the Fed's lobbying efforts in both the Congress and State govern
ments, the Fed’s role in encouraging private commercial bank loans to real estate
investment trusts and public utilities, conflict of interest of Bank Board members,
loans to Federal Reserve employees at below market interest rates and what some
believe to be the bestowing of extravagant retirement gifts on departing Fed
employees. Those are the broad categories of activities that have been regularly
pursued within the Federal Reserve System and were still discernible from the
minutes of the meetings of the Boards of Directors of the twelve Regional Banks
that Chairman Reuss was able to obtain earlier this year. Heretofore the Congress
was not aware of such practices. Had it not been for Chairman Reuss' diligence
over a period of almost a year in negotiating with Chairman Burns for the acquisi
tion of these minutes we would never have known wliat was happening within
the Federal Reserve System.
W e have two basic concerns about the legislation finally approved by the House
Banking, Finance and Urban Affairs Committee. The first is that the bill no
longer contains its once Section 4 which sought to prevent the Federal Reserve
System from using the banks of this nation as an integral part of its lobbying
activities not only to the Congress but to State legislatures as well. The minutes
which Chairman Reuss has obtained for the Committee, although suffering from
904 deletions, clearly point out case after case where the Fed has communicated
its lobbying objectives to its member banks in an effort to add substantially to
their own lobbying efforts. Chairman Reuss. in his opening statement on July 18
when the full Committe? first met to consider this bill, said, “The Federal Reserve
System has been using bankers— who are deeply beholden to the Fed because
27
of the Fed’s ability to give or withhold a discount window loan, or to give or
withhold such privileges as approval for a merger, holding company acquisition,
or an Edge Act office— to lobby on the Fed’s behalf with legislators and other
government officials/’ The provisions of the original Section 4 add the follow
ing language to Section 10 of the Federal Reserve Act, “No member of the Board
of Governors, director, officer, or employee of the Federal Reserve System may
communicate with any director, officer, or employee of any institution subject to
the regulatory authority of the Federal Reserve System to influence legislative
actions affecting the Federal Reserve System.’’ That is precisely the kind of lan
guage that is necessary to put an end to such abuses of independence. The amend
ment to delete Section 4 of the bill was narrowly agreed to by the Committee on
a vote of 19 to 17.
The second objection to the legislation is that it does not contain any mecha
nism or procedure for continuing to make a vailable to the Congress and the gen
eral public copies of verbatim transcripts of the minutes of the meetings of the
Boards of Directors of the twelve Regional Banks. Although the copies of the
minutes that were provided by the Federal Reserve Board were riddled with dele
tions, without the transcripts we never would have known about the possibility of
and the potential for conflict of interest among board directors, questionable use
of regulated institutions to accomplish specific lobbying goals on legislation with
which the Federal Reserve Board was concerned, etc. Therefore, it is only pru
dent that the Congress should seek to create a procedure which will allow it to
monitor the activities of rhe various Boards of Directors on a continuing basis.
Within the correspondence between Chairman Reuss and Arthur Burns that
preceded the transmittal of the minutes Mr. Reuss stated, “As I have stated to
you previously, these records are important to the oversight and legislative
responsibilities of the Committee and it is my intention to pursue every proper
and necessary means to obtain them.”
During the full Committee mark-up we supported an amendment offered by
Mr. Cavanaugh that would have provided the Committee with an opportunity to
have unexpurgated copies of the transcripts of the Boards of Directors meetings.
The amendment would have provided for a one year delay between the date
of the meeting and the transmittal to the Congress of complete transcripts. It
would also have provided for release to the public, at the same time, keeping in
mind the sensitive nature of some of the discussions contained in those minutes.
The amendment provided that the transcripts to be released to the public would
be complete except that items pertaining to ( 1 ) borrowing or perspective bor
rowing by individually named banks at the discount window, (2 ) transactions
with foreign central banks, (3) Federal Reserve Board real estate plans or nego
tiations in progress, (4) individual personnel matters and (5) security measures
at banks could be deleted. Arthur Burns himself described those areas as “highly
sensitive items’’ in his letter to Chairman Reuss on November 16, 1076, shortly
before the Federal Reserve Board complied with our request for copies of
the minutes.
In further recognizing Chairman Burns' difficulty over the sensitivity of some
of the material that may be contained in the transcripts, the amendment further
provided that the appropriate committees of the Congress shall only make avail
able that material which was deleted, in compliance with the exception clause,
from the transcripts made available to the general public by a majority vote
of the committee. This was included to insure that thorough consideration and
debate preceded the release by the Committee of any of the material contained
in the transcrips which it received but was deleted from the transcripts made
available generally. After what can only be considered to have been a technically
imprecise and unorthodox procedure the Cavanaugh amendment was defeated in
the Committee on a vote of 12 to 19.
Without these amendments the legislation will not correct the abuses that our
Committee has uncovered. As presently drafted this legislation will not signifi
cantly promote the accountability of the Federal Reserve System, insure that
the kinds of improper lobbying activities that have transpired will not continue,
preclude Board Directors who have a conflict of interest in a given situation
from voting on that situation nor will it provide the Congress with a continuing
monitoring procedure. This is not reform. This bill does not accomplish the worthy
aim of accountability of public officials. It does not further sunshine in govern
ment. In fact, it is little more than a shell with a glorified title.
28
[From the American Banker, October 17, 1977]
B urns
A sks
E a s in g
of
S u n s h in e
L aw
W a s h i n g t o n .— Federal Reserve Board chairman Arthur F. Burns, declaring
some of the requirements of the government in the Sunshine Act have inhibited
discussion among Board members, urged Congress to exempt discussion of legisla
tive matters from open meetings.
“The candor and spontaneous exchange that was previously present in Board
discussions has been diminished under the constraints of the Sunshine Act, he
said in a letter to Sen. Lawton Chiles, I)., Fla. Mr. Chiles, chairman of the
Federal spending practices and open government subcommittee of the Senate
Governmental Affairs Committee is planning oversight hearings on the act
within the next few weeks.
The act, which went into effect in March, requires most government agencies
run by boards or similar bodies to open their meetings to the public, a primary
exception being discussion of financial matters.
The Fed chairman especially critical of the requirement that legislative mat
ters, such as preparation of testimony, discussion of legislation and review of
the positions of other bank regulatory agencies, be discussed during public
meetings.
“ I am at times troubled by my own reluctance to voice in a wholly candid
matter some thoughts that I believe my colleagues are entitled to hear and
that the final action of the Board should reflect,” Mr. Burns wrote.
He urged the committee to exempt such matters from the open meeting re
quirements or permit the subjects to be discussed in closed session, subject only
to maintenance of minutes.
Under provisions of the act, which prohibit four or more Board members to
meet other than in accordance with its rules, the Board loses “virtually all oppor
tunity for informal, unrecorded exchange of views on highly sensitive issues, such
as those of a legislative nature,” he said.
A report issued last month by Common Cause cited the Federal Reserve as one
of the worst agencies in its misuse of the 10 exceptions under which meetings
can be closed. Common Cause said that 30 of 37 meetings held by the Fed between
March 12 and June 12 were closed to the public.
Before passage of the legislation Mr. Burns had been one of its most outspoken
critics and had sought to have the Board exempted.
Chairman M i t c h e l l . Y o u referred to correspondence between
Chairman Reuss and the Federal Reserve with reference to the nego
tiations that went on for a protracted period of time, and other corres
pondence. I think it would be beneficial to have those in the record,
and I would ask unanimous consent that they be submitted for the
record.
[The correspondence referred to may be found in app. I.]
Mr. B a r x a r d . Mr. Chairman, would you yield for a question?
Chairman M i t c h e l l . Certainly.
Mr. B a r x a r d . W ill the Fed testify regarding these b ills ?
Chairman M i t c h e l l . That was the next happy announcement that
I had to make. Tentatively we have scheduled Chairman Arthur F.
Burns to testify on both o f these bills on Thursday, November 17.
Though Congress has not yet determined whether or not it will be
in session at that time, it was difficult to arrange for any other time,
and that date is tentative. I f we can do it at a more propitious time,
we will try to, but that is the tentative date for hearing from the
Federal Reserve Board.
To both o f the witnesses, insofar as H.R. 9589 is concerned, I think.
Congressman Cavanaugh, you're asking for verbatim records.
Mr. C a v a x a u g h . Yes, Mr. Chairman.
Chairman M i t c i i e l l . And M r . Hannaford has suggested detailed
records. I suspect there is a difference between the two terms; am I
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right? I would like to know why you would object to a yerbatim
record being kept,
Mr. H a x x a f o r d . It’s been my experience and observation, Mr.
Chairman, that if you have so much sunlight that it strikes fear into
the. hearts o f the participants, you may have decisions being made in
private before the decision is made officially. I think if you have that
happening, it is really going to be an obstruction of the communication
that takes place. This legislation attempts to reinstate the F O M C ’s
earlier minutes which were detailed documents o f that body's proceed
ings. So edited but detailed minutes is what we suggest,
Chairman M i t c h e l l . H o w then do you respond to Congressman
Cavanaugh's position that we here in the Congress operate in the full
glare o f sunlight and o f spotlights? I share his opinion that there has
been no inhibition on the part o f any o f my colleagues to state their
positions clearly and effectively, knowing that they are speaking for
the record.
Mr. H a x x a f o r d . I agree with Mr. Cavanaugh that we in the Con
gress have not been inhibited by speaking for the record. W e are also
permitted to edit our remarks. Recommending detailed minutes of
FOM C meetings has stemmed from the desire to reinstate the former
memoranda o f discussion. In addition, as Congressman Neal's state
ment cites, the merits o f detailed and edited minutes o f FO M C meet
ings have been discussed by former Federal Reserve officials and by
several notable academicians.
Chairman M i t c h e l l . I f the Chair may observe, it seems to me that
under the rules o f the House, the editing o f any remarks can only be
done in terms o f syntax, grammar, and so forth. The rules prevent
and substantive changes in what a Member has said, isn’t that correct ?
W hile we might make sure we have a semicolon in place or that we
put the “ ed” to make the past tense on a verb. I don’t think we actu
ally change the substance o f anything that we have had to say.
Mr. H a x x a f o r d . W hat we have called for is what was previously
in the memoranda o f discussion. I would say that the nature o f the
Fed’s deliberations is not necessarily analogous to the nature o f con
gressional discussion, however.
But if you have the glaring lights focused on you, there is an incli
nation to have a “ meeting before the meeting.” A nd that is a hazard
that we have to face. The significance o f this discussion, o f course,
is that we should ultimately be provided a precise report o f what was
decided and who decides it. You used the word “ substantive” and I
think it should be a substantive report certainly o f what transpires.
Chairman M i t c h e l l . A ll right.
Mr. C avaxai gii . Mr. Chairman, if I just might offer some thoughts
on that, I think the fundamental argument against verbatim tran
scripts is that it does result in a lack o f candor. I would just submit,
and I think that this is probably a personal judgment upon all o f us
who make this judgment between substantive and detailed minutes
and verbatim minutes, that in my entire personal history in connec
tion with public affairs, in various bodies, there have been verbatim
records. When I first went to the Nebraska Legislature, where I
served for 4 years, it was experiencing its first year o f recording, that
is, by actual mechanical device— tape recordings— the entire session,
both committee meetings and floor debate.
99-331 0 - 7 7 - 3
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There was a great controversy as to whether or not to do that be
cause then you had not only a verbatim record, but an audio verbatim
record retaining the reflections in negotiations and passions and what
ever, and it was felt that would greatly inhibit free debate and
exercise.
The first year it did indeed have some restraining effect upon the
members o f that body. Thereafter, once they became accustomed and
used to it, I think that the free and open discussion that had pre
viously existed returned, and now exists in full bloom.
W e have in Douglas County, my primary county, the meetings o f
that county board o f supervisors which are kept verbatim and with
great benefit to— and after great controversy again, because it was
felt that since they review individual tax matters— they have the
authority to raise and lower the assessment on individual homes—
would be greatly inhibited and that they would be restrained in those
delicate matters.
A nd it simply has not happened.
I think probably the greatest testimony, though, that verbatim
transcripts do not inhibit candor is the recent experience with the
President o f the United States and his maintaining detailed and ver
batim transcripts o f all o f his transactions within the White House.
Clearly, the revelation o f those transcripts has indicated that the
maintenance o f that system in no way inhibited free and open discus
sion o f the public issues that were dealt with at the highest level of
the executive branch o f this Government; and so in none o f my ex
perience from the county board to the State legislature to the Presi
dency o f the United States have I found that detailed records of
transactions and the fulfillment o f the public responsibility have been
inhibited by the maintenance o f those systems.
Chairman M i t c h e l l . Thank you. The Chair does not want to push
the analogy between the Congress and the bodies with which we deal
in this legislation, but it is the Chair’s opinion that given the fierce
spirit o f independence and reform 011 the part o f most o f the Mem
bers o f the House, I don’t think many get-togethers before meetings
could take place without incurring the wrath o f a goodly number o f
us.
Also, I would feel that if, indeed, that situation should exist. Con
gressman Hannaford, where you have a meeting before the meeting o f
the FOM C, it would be the responsibility o f this subcommittee to dig
vigorously into that practice.
Mr. H a n n a f o r d . Yes, Mr. Chairman, it would be. I referred in
my testimony to “ hallway decisionmaking” which may influence what
is later said.
I think my colleague, Congressman Cavanaugh, made a very good
point— that the glaring sunlight, once you become accustomed to it,
becomes much more acceptable. I think that is very likely true in this
instance.
However, I wouldn’t want to see either one o f these important
pieces o f legislation hung up 011 this point.
'Sir. C a v a n a u g h . I w o u ld ju st con cu r w ith m y c o lle a g u e , th at I d o n 't
th in k th a t the issue o f v e r b a tim v ersu s d e ta iled sh o u ld be the t u r n in g
p o in t u p o n w h ic h th is le g is la tio n p r o g resse s o r fa ils.
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Certainly, I would feel that verbatim is not the essential aspect o f
this legislation, but that we have an accurate record o f what has
transpired.
Mr. H a n n a f o r d . I would say, Mr. Chairman, that H .R . 9465 is not
designed to erode the independence o f the Fed.
Certainly, H.R. 9465 is a modest bill. I f it is not appropriate, after
a 3-year lag, for purposes o f historic reflection, this subcommittee may
as well go out o f business.
Chairman M i t c h e l l . The Chair would just make one other comment
in this area and then I will go to another question. I focused in on the
semantics problems here, primarily because o f my concern over the
Fed’s continuing violation o f the monetary policy guidelines that it
offered to the Congress, and which we accepted.
The Fed has violated its own policy insofar as Mi and M 2 is
concerned.
Could we really get at the root o f those determinations by means o f
an accurate recording, as opposed to a verbatim recording.
Mr. I I a x x a f o r d . Mr. Chairman, I again call to your attention that
Congressman Neal’s testimony contains a discussion o f verbatim versus
detailed edited minutes at pages 9 and 10.
Chairman M i t c h e l l . Thank you. One last question from me for
now. I am about to tread on very dangerous ground by predicting what
the testimony o f the Chairman o f the Federal Reserve Board will be
when he appears before us on November 17 with respect to the release
time lag in both bills. The 3 years and the 1 year. M y suspicion is that
the Chairman would say, “ Oh, if we release it in less than 5 years with
reference to your bill, all kinds o f speculations will develop. One year
is totally inadequate in M r . Cavanaugh’s bill. It is inadequate because
o f the tremendous implications for all o f these decisions that are made,
and we will open up the door to speculators.”
I think you. in part, Mr. Hannaford, have indicated your response
to the re d necessit^y of a 3-year period, that nothing is violated.
Mr. Cavanaugh, on the 1 year-----Mr. C a v a x a u g i i . W ell, Mr. Chairman, I think fundamental response
to that argument is that we are talking about the 12 regional banks.
What we are primarily talking about is administrative procedure. We
are not talking about monetary policy, and we are not talking about
the establishment o f policies that directly impact the operation of
either the monetary system or the economic system in this country.
We are talking about how the administrative responsibilities o f the
Federal Reserve System are being carried out, and are they being
carried out in a manner that does not involve inside deals, conflicts o f
interest.
Those are the types o f improprieties that the establishment of, or
the system, would potentially lend itself to and. therefore, that the
Congress should have some opportunity, and the American people
should have some opportunity to observe in oversight.
W ell, in that context o f supervising or observing the implementation,
the^ administrative exercise o f the F ed’s responsibilities or o f the
regional banks’ responsibilities, we are not unraveling information
that has any prospective effect upon monetary policy or economic
policy in this country.
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A nd the legislation provides for in those instances when you might
have that potentiality, that sensitive matters not be released until some
future time.
So you have a protection beyond the 1 year for those instances in
which, indeed, there may be unusually sensitive matters that may arise
in the minutes. But the great bulk o f these minutes, as we have seen
from the minutes that have been released, deal with historical ad
ministrative procedures. How a particular regional bank dealt with a
past situation in an administrative capacity.
Chairman M i t c h e l l . Thank you. Congressman Barnard ?
Mr. B a r n a r d . Thank y o u , Mr. Chairman.
I have been considering a number o f questions for the witnesses.
Congressman Hannaford, what do you think the Congress would do
differently if we had the minutes, as you propose at this time ?
Mr. H a n n a f o r d . W ell, I have no way o f specificially answering that.
However, I would assume that our oversight functions would be aided
by complete records so that we could better assess the bases o f FO M C
decisions.
W e may also be better able to detect certain biases on the committee.
Mr. B a r n a r d . D o we have any reasons to think that Congress would
make any changes now because o f Fed decisions that were made 3 or 4
years ago ?
Mr. H a n n a f o r d . I am not sure that we do, but we do have to have
accountability. A nd we have to be able to know from a historic
perspective what happened before we can reach a judgment.
Chairman M i t c h e l l . W ould the gentleman yield ?
Mr. B a r n a r d . Yes.
Mr. H a n n a f o r d . Y ou know I believe in a good measure o f inde
pendence in the Fed, but I don’t believe in their beautification.
I f you have a 3-year lag in time to pass a judgment historically, it is
aw fully difficult to say from the perspective from which it stands what
might or might not be done.
But wre, as the responsible body to legislate in this field, wrould
certainly say that decisions might well be made that would lead to
legislative action. Such documentation may also prevent past mistakes
from recurring.
Chairman M i t c h e l l . Given the cyclical nature o f our economy over
the long run wrould it be beneficial to know on what basis monetary
policy decisions were made 3 or even 5 years ago, so that if the economy
got into a similar economic situation years later we could be well in
formed o f how it was handled in the past and perhaps be in a position
to give some suggestions to the Fed with regard to the recurring nature
o f the problem ?
Mr. B a r n a r d . Mr. Chairman, don’t y o u think the Fed already takes
these points into consideration ?
Chairman M i t c h e l l . Perhaps they do.
Mr. B a r n a r d . This is. after all, their responsibility.
Mr. H a n n a f o r d . Mr. Chairman, if I could respond to that.
Chairman M i t c h e l l . Yes.
Mr. H a n n a f o r d . W e think they do. We hope they do. W e would like
to see 3 years later what kind o f reflection was made in response to
those matters. We are not talking about this purely from a point o f
congressional oversight, either.
33
W e are talking about it with respect to academic analysis and public
accountability.
Mr. B a r n a r d . D o you think it would correct problems that definitely
in the cases when conditions change ?
I ask this question because I have had some experience as a member
o f financial committees which have made such judgments. A nd when
economic conditions change, some o f the judgments are wrong.
I don’t think the Fed believes it is exempt from making mistakes.
But the point is, what is going to develop from this legislation ?
Chairman M i t c i i e l l . W ould the gentleman yield again ?
Mr. B a r n a r d . Yes.
Chairman M i t c h e l l . Let me take another stab at it.
What is now transpiring with regard to monetary policy— the ex
ceeding o f the targets particularly for M x and M 2— is comparable to a
condition that happened in 1972. It is clear that the decisions made at
that time were directly related to the fact that we later slid into an
inflation-recession cycle in this country; not solely and exclusively
responsible for it, but certainly those decisions contributed to it.
Now, if we are aware o f the actual inputs which were then said— the
details o f the discussions— would then be in a better position to deal
with the Fed at the present juncture by saying, “ Look, here are the
thoughts o f your members in 1972. They predicted that if this mone
tary policy would be pursued, this would happen.”
W hile it is true we will not be able to direct the Fed to pursue a given
policy, I think there is a great advantage in having the history of a
situation comparable to a present one.
Do I make my point ?
Mr. H a n n a f o r d . Mr. Chairman, I have made reference to this in my
previous comments before the subcommittee. And that is that the in
quiry that was made to former Fed members by this subcommittee in
which former FOM C members responded, indicates that such docu
mentation would be helpful to them. I f it would be helpful to them, it
quite surely would be helpful to us in evaluating what happened. I
don’t see why anyone would object to such a reporting o f what hap
pened, and I think someone trying to be productive and trying to im
prove the process would always want to be able to reflect upon
history— including the members o f the Fed.
I don’t think really, as far as this legislation is concerned, that pre
dictions about Chairman Burns having very much opposition should
materialize. I don’t see any basis for objection, as long as we are look
ing into the crystal ball, Mr. Chairman. I can’t figure out why he would
object.
Mr. C a v a n a u g h . Mr. Chairman.
Mr. H a n n a f o r d . Unless he would like to have them sealed in a time
capsule to have them opened next century.
Chairman M i t c h e l l . I f you would hold for just a moment, Mr. Bar
nard has the floor and he wanted to pursue another question.
Mr. B a r n a r d . Mr. Cavanaugh, why have you not requested the
minutes o f the Directors’ meetings o f the Federal home loan bank?
Mr. C a v a n a u g h . W ell-----Mr. B a r n a r d . Y o u know they make decisions, too, having to do wTith
the savings and loan associations throughout this country.
Mr. C a v a n a u g h . That’s true.
34
Mr.
B arn ard .
W hy
w o u ld
they be exempt
to
inside deals and the
lik e ?
Mr. C a v a n a u g h . I must frankly admit, Mr. Barnard, I am not as
familiar, with the operations o f the Federal home loan bank and
their structure and operations, as I am with the Federal Reserve. I
suppose as a philosophical matter, I would have no objection to their
inclusion. I simply have not directed my efforts toward pursuing it,
Mr. B a r n a r d . The Federal Reserve banks, the regional banks, make
many decisions dealing with the daily operations of their respective
banks. W hy would Congress want to audit their decisions to buy com
puters, construct buildings, or things o f that kind ?
Mr. C a v a n a u g h . I think the question is, why should not a record
o f those important decisions exist in order that they might be
reviewed ?
Mr. B a r n a r d . W ell, I think they do exist, but what interest are they
to Congress ? W ould you read them ?
Mr. C a v a n a u g h . W ell, I think that the point should be that there
should be a reliable historical record o f the administration o f an en
tity as important as the 12 regional banks and their boards o f direc
tors and the basis upon which they make decisions. I suppose that is
true whether anyone reads them or not. I suppose as a fundamental
matter o f sound policy, there is no reason for this record not to exist,
in my mind. Even if Congress did not fulfill its proper responsibility,
which I would say should include a timely review of those activities.
Mr. B a r n a r d . D o you feel this way because you think that this is
an executive agency o f government ?
Mr. C a v a n a u g h . W ell, it is difficult to categorize the Fed.
Mr. B a r n a r d . Not really.
Mr. C a v a n a u g h . I don’t know if it is appropriate to categorize them
as an executive agency. I would categorize them as an agency of the
Federal Government, yes.
Mr. B a r n a r d . But because o f its structure wouldn’t you separate it
from a regular agency o f the Federal Government? It wasn’t struc
tured as an agency o f the executive branch.
Mr. C a v a n a u g h . I am not categorizing it in the Executive; you did.
Mr. B a r n a r d . The revisions sought in the bills under consideration
today call for nearly a reorganization o f the Federal Reserve System.
Mr. C a v a n a u g h . I don’t understand that.
Mr. B a r n a r d . A s I understand it, each Federal Reserve bank is an
incorporated institution with its own Board o f Directors. None of
whom are appointed by the Federal Government. These directors,
elected by their respective bank, are principally responsible for over
seeing all the activities o f their bank.
Mr. C a v a n a u g h . N o w . the point of congressional oversight, Mr.
Barnard, is not to interfere in the appropriate functions o f any agency
that is beinof reviewed. That would be true o f the Fed also. The point o f
oversight is to observe whether or not the particular agency or entity
is fulfilling the function for which it was created, in an appropriate
fashion.
What we are saying in this instance is. it is extremely difficult for
the Congress, in the pursuit o f its oversight obligations and responsi
bilities, to determine whether or not the 12 regional banks are indeed
35
functioning as they were intended to and as they were created to, the
purposes they were created to serve. So we are not attempting to, or
the Congress should not attempt to interfere in the proper function
ings o f the 12 Federal Reserve banks and that is not the end result or
goal o f this legislation.
But it is to determine whether or not there are instances in which it
acts outside its responsibilities or in conflict with its responsibilities.
In order to do that, you must have a record o f how it has conducted
its affairs. And certainly, again to analogize its Board o f Directors
with a private board o f directors, without that detailed record which
is kept bv private boards o f directors, there is no opportunity for the
stockholders, or, in this instance, the Congress who is analogous to the
stockholders, to review the activities o f its Directors. A nd that’s all we
are saying here.
Mr. B a r n a r d . The 12 Federal Reserve bank's Directors, which like
the 12 Federal Home Loan Bank Board Directors supervise and regu
late their respective financial institution. Thus it seems to me that your
legislation has singled out the Federal Reserve System. I do not un
derstand why your bill does not include the Federal Home Loan Bank
system.
Mr. C a v a n a u g h . I have no intention o f singling out the Fed. I iust
feel that a case has been made in this instance that the existing ability
to review is not adequate and that the record clearly demonstrates that.
W hether it is similarly deficient in regards to other agencies, you may
have a valid point. I simply say that I have not reviewed the adequacy
personally o f those other agencies and certainly I would be willing to
work with you in that pursuit if you were willing to go in that
direction.
Mr. B a r n a r d . I have no further Questions.
Mr. W e i n t r a u b [staff director]. Chairman Mitchell had to leave
for a few moments but will be bnck. He was called to the telephone by
President Carter. He has asked me to carry on at least for a little
while. He asked me also to raise a question pursuant to the discussion
on the possible value to the Congress o f detailed minutes o f the
F O M C ’s meetings.
The question lie asked me to raise concerns the confirmation process.
As we all know. Federal Reserve Board Governors are appointed for
14- years. Often a member, however, is appointed initially to fill an
unexpired term. Then, when that term expires, he is reappointed to
his own 14-year term. D o you think the Senate confirmation process
would benefit by having available the full minutes o f FO M C meet
ings, which would include attribution and disclosure o f individual
Board members7 remarks as they serve on the Open Market Commit
tee— in cases where they come up for reappointment ?
Mr. H a n n a f o r d . I would say that isn’t a paramount benefit in my
mind, but it certainly would be a benefit. You really don’t know the
benefit o f something until you have seen it and this is in some response
to my friend Mr. Barnard, until it is there you don’t know how help
ful it may be.
I draw your attention to mv reference to Dr. Friedman’s study o f
monetary policy and his need for thorough documentation. But cer
tainly as far as reappointino- someone is concerned and for as long a
period o f time as we are talking about, it should be quite beneficial.
36
Mr. W e i n t r a u b . Mr. Cavanaugh, would you care to address the
question ?
Mr. C a v a n a u g h . I think that relates back to Mr. Barnard’s previous
inquiry as to the whole value o f historical review o f FO M C decisions
and the processes o f those decisions. I think that the axiom, he who
wrould ignore the mistakes o f history is condemned to repeat them, is
particularly apt here because we may not even know the mistakes of
history unless w^e have some record existent by which we can review
it, Certainly, the qualifications o f an individual to serve on the Board
o f Governors or on the FOM C Committee should in some respects
relate to his demonstrated abilities. I f his demonstrated abilities
through historical record o f his performance are that his judgments
have been consistently faulty and deficient, certainly that is relevant
to whether or not he should be advanced or perpetuated.
I think that the whole point o f Mr. H annaford’s legislation is that
we at least have some opportunity and historical perspective to know
what has transpired and the reasons for what has transpired and who
is responsible.
A nd it seems to me that the only argument against this legislation
is one that I would characterize as arising almost from a view that the
FO M C is the personal prerogative o f the members o f that committee.
A nd Mr. Barnard, you raise the question, almost— we know that these
people are capable o f making mistakes. The only purpose o f requiring
them to maintain a record is that we can go back and pinpoint those
mistakes.
W ell, there is nothing wrong with that. Certainly they are entitled
to make those mistakes, they are required to, they are expected to. But
it shouldn’t be characterized in tho^e personal terms that this legisla
tion is then directed to expose them for those errors in judgment.
Certainly, they have the responsibility to be accountable for them.
I f they assume the responsibility o f making the judgment, they should
also assume the responsibility o f accounting for the judgments and
the bases upon which they made those judgments.
The only reason not to pass Mr. H annaford’s legislation is to say
that those individuals should not have that accountability and respon
sibility and I simply don’t understand that.
Mr. W e t n t r a u b . Mr. Hannaford.
Mr. H a n n a f o r d . I would again call to Mr. Barnard’s attention, Mr.
Neal’s statement which is rather rich in comment on the subject that
you have raised.
Mr. B a r n a r d . I think that access to the detailed verbatim minutes
o f each o f the 12 Federal Reserve bank meetings will provide little
if any insight into monetary policy, although minutes o f the Federal
Open Market Committee meetings might be helpful. I am keeping an
open mind on these bills, but I think they may be going to the extreme.
I think that the legislation being discussed today might have been
conceived as a result o f the unfortunate revelations in the New York
Fed’s minutes.
I f that was the case, I think it is unfortunate because I believe that
the New Y ork Federal Reserve bank practices are not indicative
o f all Federal Reserve Bank operations. The human tendency to over
react is understandable but hopefully one Congress can resist.
37
Mr. C a v a n a u g h . I commend my colleague for the distinction and
I think the distinction should be articulated for the record here today,
that there is a very clear difference in the judgment and justifications
for Mr. H annaford’s legislation and my own, and that I do not view as
resting upon a similar foundation.
Clearly, Mr. H annaford’s, I would have to concede, is the predomi
nant legislation. A clear and concise historical record o f the form ula
tion o f monetary policy is o f overpowering significance and importance
to a maintenance o f a record o f basically the administrative decisions
o f the 12 regional banks.
But I have attempted to make my case on my own, but on a com
pletely separate basis and I have no disagreement with my colleague
that there is a very large distinction between Mr. H annaford’s legisla
tion and my own.
Mr. W e i n t r a u b . I notice Mr. Hansen has arrived. W ould you care
to say anything, Mr. Hansen ?
Mr. H a n s e n . Let me just say, Mr. Hannaford, that as you know we
have a markup in another subcommittee going on right downstairs
and several other conflicting things and I apologize for not being here
to engage in colloquy and hear your testimony. I will read it and hope
fully be thoroughly conversant at the time we take up the bill in
subcommittee.
So I just wanted you gentlemen to understand that it wasn’t from
lack o f interest but from conflict o f schedule that I was not here. I
have no questions, I won’t interfere with your meeting or schedules.
Mr. H a n n a f o r d . Thank you very much.
Mr. W e i n t r a u b . Thank you. Chairman Mitchell has returned.
Chairman M i t c h e l l . Ladies and gentlemen, I don’t want to hold
you, but I wanted to raise one other question. W ith reference to I think
Congressman H annaford’s statement, should the comments o f staff
also be included in these records? I have some concern about that.
I don’t think that is generally the policy in the House or in our com
mittee meetings; is it? D o we ever take comments from staff and make
them a part o f the record ?
Mr. H a n n a f o r d . Mr. Chairman, it is simply a suggestion that
formal staff presentations be summarized to provide an accurate
record.
Mr. H a n s e n . Mr. Chairman, I think generally staff is heard through
various members as those members accept the suggestions and assist
ance o f the staff. I agree with you, I don’t think such a proposal is a
proper part o f the procedure. I would think it would be more in order
that any staff comments be confined to the normal channels.
Chairman M i t c h e l l . It may well be that staff comments in these
transcripts could cause problems. I would be hesitant to include those.
Mr. H a n s e n . I have heard o f fatherly love being that which en
courages occasional spanking, too, Mr. Chairman.
Chairman M i t c h e l l . Thank you very much, gentlemen. Again, my
apologies for holding you here.
[Whereupon, at 9 :55 a.m., the hearing was adjourned to reconvene
at 8 :30 a.m., Friday, Oct. 28,1977.]
MAINTAINING AND MAKING PUBLIC MINUTES OF
FEDERAL RESERVE MEETINGS
F R ID A Y , OCTOBER 28, 1977
S u b c o m m it t e e
C o m m it t e e
ox
ox
H o u s e of R e p r e s e n t a t i v e s ,
D o m e s t ic M o n e t a r y P o l i c y o f t h e
B a x k i x g , F i x a x c e a x d U r b a n - A f f a ir s ,
W ashington, D/J.
The subcommittee met at 8 :50 a.m. in room 2222 o f the Raybum House Office B uilding; Hon. Parren J. Mitchell (chairman o f
the subcommittee), presiding.
Present: Chairman Mitchell.
Chairman M i t c h e l l . Good morning. I apologize for being late. I
think the other members who planned to be here are probably in the
same predicament. I f you have been listening to the radio, you know
there are monumental traffic jams all around Washington, and that is
my sorry excuse, which I hope you will accept. M y apologies to my
colleague, Congressman Bruce F. Vento. I hope you can understand
the situation. W e do welcome you here this morning,
This morning the Subcommittee on Domestic Monetary Policy con
tinues its hearings, which we started yesterday, on H .R. 9465 and H.R.
9589, wThich provide for the maintenance of detailed minutes o f the
meetings of, respectively, the Federal Open Market Committee o f the
Federal Reserve System, and the boards o f directors o f the 12 Federal
Reserve Banks.
Our witness this morning is the Honorable Bruce F. Vento from
Minnesota, one o f our distinguished colie ages on the full House Com
mittee on Banking, Finance and Urban Affairs, and one who aggres
sively has sought to put some controls on the Federal Reserve System.
Mr. Vento, we welcome your appearance this morning, and we will
be delighted to hear from you.
STATEMENT OP HON. BRUCE P. VENTO, A REPRESENTATIVE IN
CONGRESS PROM THE STATE OP MINNESOTA
Mr. V e x t o . Thank you very much, Mr. Chairman, and I appreciate
very much your persistence in continuing the discussion and focus on
this particular problem, and it has been an issue and will continue to
be an issue, I feel, because o f the nature o f the subject matter and the
necessity to resolve it.
I am pleased to be here in support o f the two proposals, H .R. 9465
and H .R. 9589, o f which I am a coauthor, which, when enacted, will
(39)
40
do much to provide public access, albeit belatedly, to highly important
financial and monetary information generated in the Federal Reserve
System by the Boards o f Directors o f the Federal Reserve Banks and
the Federal Open Market Committee.
T o paraphrase Georges Clemenceau’s famous remark about war
being too serious a matter to be entrusted to the generals, I submit that
the monetary policy o f this country is much too crucial a matter to b°
allowed to be the secret, private preserve o f groups of obscure bankers.
Public exposure and disclosure will result in accountability and is th^
ultimate solution which provides adequate safeguards.
No one, I am sure, will argue the importance to the American econ
omy, and indeed, the world economy, o f the decisions now being made
anonymously in the quite board rooms o f the Fed. The orders to
manipulate billions o f dollars in the expansion and contraction of the
money supply and interest rates are quite literally matters o f life and
death to many industries and o f jobs or unemployment to countless
working people and their families.
M y colleagues, Congressman Cavanaugh and Congresswoman
Oakar, have already reviewed for you the impact o f the Federal R e
serve System operations, so I will not burden you with a reiteration.
Also, the full committee in oversight has reviewed and attempted to
assess these actions and their merits, pro and con.
The bills under consideration are really moderate— I would say
almost timid— in their approach to requiring the Federal Open M ar
ket Committee and the Bank directors to keep “ detailed minutes” and
“ verbatim transcripts” o f their meetings which shall be made public,
variously, after 3 years or after 1 year.
I f monetary policy is to serve as a useful economic tool, the people
in key Government, private, and academic positions should have ac
cess to information o f these Federal Reserve units’ decisions as quickly
as possible, without interfering with those decisions or being able un
justly to enrich themselves as the result o f having the information.
I have stressed the importance o f making full data available in a
timely fashion for monetary policy and economic considerations be
cause I believe these are o f primary importance.
But the public disclosure o f minutes can have a salutary effect. The
members o f this subcommittee need only recall the consequences o f
Chairman Reuss’s persistence in obtaining minutes of the Federal R e
serve Bank’s Board o f Directors. We learned, many o f us for the first
time, o f the F ed’s lobbying activities in Congress and the State govern
ments, o f its encouragement o f commercial bank loans to real estate
investment trusts and public utilities, the conflict o f interest o f bank
board members, payments for club memberships, loans to Federal
Reserve employees at unusually low interest rates, and extravagant
gifts to retiring officers and workers.
Some o f those, I think, admittedly would be appropriate functions.
I have no quarrel with low interest rates for employees, for instance, as
an example, if they are made public, if they are subject to public view.
I f it is an employee benefit, then let it be stated and be made public,
not something that is done in a quiet manner which is shielded from
public view and jealously guarded.
41
So, I think all o f these, if made public, the consequences would be
less onerous.
I want particularly to address myself to the revelation in the Reuss
expose that the Fed, in its role as regulatory authority in the banking
industry, has been orchestrating issues and applying pressures with
the aim o f affecting political behavior at State and national levels.
I do not find anywhere in the enabling legislation authority for the
Federal Reserve System to act as a trade association or to impose its
political viewpoints on fiduciary institutions which it regulates.
Federal statutes, in fact, prohibit the use o f appropriated funds
for lobbying purposes, but because o f the unique status o f the Federal
Reserve System, some have deemed that the law does not apply to the
Fed.
A t this time, I would like to commend to your attention my recently
introduced bill, H .R. 9649, which would require the Chairman o f the
Board o f Governors quarterly to provide to the House and Senate
Banking Committees written reports on each instance when the Board
o f Governors, the Federal Reserve Bank Directors, or the officers and
employees o f regulated institutions to influence legislative actions
affecting the Federal Reserve System.
Our country must be made aware o f the political activity and posi
tions o f the 12 Federal Reserve Boards o f Directors as well as the
Beard o f Governors.
The problem o f legislating a complete lobbying ban is difficult. It
would be my first choice, frankly, as it was with the main committee
in an amendment that lost. But the reporting procedure would assure
public exposure and accountability that doesn’t exist today.
I think Congress must make it possible for the Fed to provide a
complete record o f its lobbying role which would facilitate even better
understanding o f its political policies.
Ideally, I would like to see the subcommittee write a clean bill meld
ing H .R. 9465 and H .R. 9589 and including language from my bill,
H .R. 9649, which amends section 10 o f the Federal Reserve Act, the
sect on under consideration in these hearings.
The task we face in the subcommittee is a difficult one. I am aware,
as are the members o f the subcommittee, o f the important role that
the Federal Reserve System serves, created by Congress to provide a
statfe monetary policy.
The measures we have before us today embrace the initial goals en
visioned by Congress when it created the Fed. These proposals
recognize the need to m odify and clarify our intent to be certain that
the Federal Reserve System will remain free o f special interests and
subject to the same code o f conductjShat governs similar executive
agenceis.
Cerfainly, the subcommittee has an ambitious task in resolving the
issues raised, and I look forward to working with you as we move on
these proposals.
I thank you for inviting me to appear before you.
Chairman M i t c h e l l . I thank you for being here, and I thank you
again for waiting for me. Let me ask, do we have copies o f the testi
mony to be made available to all o f the other members o f the
subcommittee ?
42
Mr. V e n t o . I have presented adequate copies to your staff.
Chairman M i t c h e l l . W e will make sure that they get them. This
is exceedingly difficult for me, because you and I are tuned in on the
same wavelength, and as you know, I am fully supportive o f your
position.
Let me raise one or two issues. In conversation with Dr. Burns, he
indicated that the records show no gifts being made to retiring mem
bers o f the System, that there was a proposal to offer to one o f the
retirees $800, which was a result o f his accumulated travel and some
thing else— I don’t recall exactly what it was— that he had not drawn
down. The Board felt it would be wise to turn that money over to him
as a gift. I don’t recall— do you recall, beyond the $800, any other
indications o f gifts ?
Mr. V e x t o . W ell, Mr. Chairman, unfortunately, you raise the very
problem that is created by the lack o f information which we function
with today. I don’t feel that the meetings that we have are any substi
tute for the Federal Open Market Committee transcripts or meetings,
nor o f the Federal Reserve Board’s transcripts.
In other words, when we meet with Dr. Burns every 6 months on the
House side, I find it exceedingly difficult to accomplish very much.
A fter I sit, as a freshman member o f this subcommittee, for 4 or
5 hours waiting for my opportunity to question the Chairman o f the
Board o f Governors, it hardly is appropriate at that time within that
context to deal with questions such as this.
So, there very well may be misunderstandings that develop. A ll I
can do is rely upon the staff work and review the minutes in pointing
out that there were honorariums and other gifts that were given to
retiring members. Some o f those may be very appropriate. Maybe
someone that is an employee ought to receive a gold watch after work
ing for 50 years. I don’t contest that.
However, those gifts, those honorariums that are given at that
point, ought to be disclosed to the public. There is no conceivable
reason, in terms o f an impact on monetary policy, that it can have.
You know, no one would contest, I don’t believe, the independence
o f the Fed and the necessity to maintain that. I don't contest that
issue.
The question is, what type o f exposure or protection, if any, do they
need in order to maintain that independence? A nd I don’t think it
is necessarily the employee-employer relations which they have. They
have management responsibilities that are necessarily needed to be
protected.
What the argument breaks down to— and there may be just a mis
understanding in that particular respect, with regards to gifts— I
think the same thing with regard to the loans— that they are pro
viding loans at interest rates, as I indicated.
I don’t have anything against an employee benefit, just provided
that it is aboveboard and we all have an opportunity to understand and
relate to it.
Then, if the appropriate pressure is there, then the public outcry
will come, and the justification can be propounded and an appro
priate format exists.
The concerns we have are that these things be made public. I be
lieve the Fed, which is created by Congress, should not be operating
as a trade association to affect State legislative proposals, for instance,
I don't think that is appropriate.
This part is especially, o f course, o f importance to me.
Chairman M i t c h e l l . Thank you. Just one or two other quick
questions.
A number o f members o f the Banking Committee have discussed
informally with me that they have been the target— the specific
target— o f lobbying by the Federal Reserve. Have you ever been di
rectly lobbied? I f you don’t care to discuss it, that is fine.
Mr. V e n t o . Not to my knowledge. I never have been the subject
o f any type of pressure from them or from member banks that they
regulate, to my knowledge. I expect that those who are affected by
legislation that comes before a committee of Congress have a right to
communicate with us to share with us their expertise.
The concern that we have is that a regulatory agency not initiate
lobbying activity. The banks and those that are interested in that
legislation have adequate means through their associations and others:
I don’t think the Fed has to enact or encourage the information flow
through them as a regulatory agency. I strongly object to that par
ticular type o f activity.
I do recognize the problem in terms o f freedom o f speech and
opinion, but the problem I am concerned about is that they, and the
accusations that they form ally act in concert with the banks that
they regulate, attempt to be a force in terms o f influencing State
legislation as well as Federal— and while the instances o f that
may not be widespread, obviously we ought to try and clamp
down on it and make it public. And the legislation I propose
would simply say that they report on a 3-month basis. And in that
wav, I think, we would be able to move very positively. W e would not
be interfering with any freedom o f speech and with some o f the other
rights and privileges in that vein. The legislation I have proposed
doesn’t have a penalty in it, for instance. We might want to think
about that.
Second, it does not have any promulgation o f rules and regulations
power, and if it would be appropriate and it would help, we could
even give that power to the Federal Reserve System and let them do
this.
They have clone it, for instance, with the code o f ethics that exists.
And, incidentally, in the code o f ethics that they have propounded
in 1968— I have a copy o f that here; the staff provided us with those
at one point. But it’s very interesting to note the prohibition: It says
the employee shall, in this, pay close attention to the fact that there
are certain statutory provisions— let me just read it for you, Mr. Chair
man, because I think it is worth the record’s attention:
Each employee shall acquaint himself with each statute that relates to the
ethical and other conduct, while an employee of the Board, Particularly the
following statutes should be noted.
And it goes through a series o f these. xVnd the third one is the
prohibition against lobbying with appropriated funds. This is in their
employee responsibilities for conduct and ethics, and this is in 1968.
And, o f course, what we really need to do is say, look, if it isn’t
appropriated funds, if it is funds that are generated by the Federal
44
Reserve System, these are just as inappropriate as to use appropriated
funds.
So I think that those things need to be added, and I think if your
committee seriously would like to work on establishing a report from
the Fed with regards to lobbying activities, then the penalties should
be considered; the rules and regulations power, which I think they are
capable o f doing. This code o f ethics where we put a responsibility on
them is generally pretty fair.
Now, whether or not it is followed, that is a problem of oversight
and so forth.
But let us set down the policy. Let them set in motion rules and regs
which would take a lot o f the fear out o f this type of proposal for
them, and then we will get to reporting on that basis every 3 months.
I guess the worse thing that could happen, if none o f it is going on,
then the report would be very easy to compile, and there would be no
problem. I f, indeed, they are specifying it, we can look and determine
whether or not they are meeting the policy’s intent. That would be an
acceptable way, at least a good first step. I would like to see a complete
ban on it, but that might be more appropriate in light o f concerns that
have been raised by the release o f minutes. The minutes, the transcripts,
also, o f course, would serve this same purpose, but I think this is a
special problem and one that should be highlighted in terms o f their
role.
Therefore, the introduction o f my bill is not completely dependent
upon the transcript or the minutes legislation that you have before you
today.
Chairman M i t c h e l l . Thank you very much.
Y ou really have cleared up a problem that I have with reference to,
I believe, Mr. H annaford’s bill. Our colleague, Congressman Barnard,
raised the issue of, if Congress gets this information, what would we
do with it ? H ow would it really benefit the Congress ? But you make
reference to that with your bill. I f we can promulgate or draw up rules
and regulations and penalties, that answers his question, in addition
to the other ideas that were advanced yesterday as to how we could
make oversight more effective.
I thank you very much. I think we have got to put on our thinking
caps and come up with some system of penalties, rules, and regulations
perhaps being implemented by the Fed itself.
Mr. V e n t o . Mr. Chairman, if I could interject— it would be useful
to put the responsibility on them rather than trying to take it all
ourselves. W e see the quirk in the law regarding appropriated versus
nonappropriated funds. The Fed, generally, in terms of some o f the
legislation, is considered apart from the executive agencies and absent
from some o f the oversight that has been provided. W e have to come
back from time to time and try to reframe things as they fit appro
priately. I f you look at what^happened back in 1913— some o f the
conduct, some o f the activities were acceptable activities then. But
times have changed. The Fed has been excluded time and again to
maintain their independence in terms o f monetary policy, and that is
important.
But in terms o f oversight, feedback can be a lot better and we can do
better if we set down some policy for them to follow in terms o f this
45
particular issue that is more in line with public policy affecting the
executive agencies in the 1970's.
Chairman M i t c h e l l . Thank you.
Also, the Chair will certainly consider the possibility of melding all
:hree bills together. I think that is a good approach. A nd we will be
calling upon you for assistance in that.
I thank you very much for being here.
Our next scheduled hearing is November 17, at 9 o’clock, at which
time Dr. Arthur F. Burns is to be the witness on the legislation
before us.
Mr. Y e n t o . Thank you, Mr. Chairman.
Chairman M i t c h e l l . Thank you so much for being here and for
being patient with me and with my tardiness this morning.
The subcommittee stands adjourned.
[Whereupon, at 9 :15 a.m., the subcommittee adjourned to reconvene
at 9 a.m., on Thursday, November 17,1977.]
99-331 0 - 77 - 4
MAINTAINING AND MAKING PUBLIC MINUTES OF
FEDERAL RESERVE MEETINGS
TH URSDAY, NOVEMBER 17, 1977
S u b c o m m it t e e
C o m m it t e e
on
on
H o u s e of R e p r e s e n t a t i v e s ,
D o m e s t ic M o n e t a r y P o l i c y o f t h e ,
B a n k i n g , F i n a n c e a n d U r b a n A f f a ir s ,
,
Washington D.C.
The subcommittee met* at 9 :05 a.m. in room 2128 o f the Rayburn
House Office Building; Hon. Parren J. Mitchell (chairman o f the
subcommittee) presiding.
Present: Representatives Mitchell, Barnard, and Vento.
Chairman M i t c h e l l . The subcommittee hearing will come to order.
This morning the Subcommittee on Domestic Monetary Policy re
sumes its hearings on H.R. 9465 and H.R. 9589. These bills require
the Federal Open Market Committee and the Directors o f the Federal
Reserve banks to maintain detailed minutes o f all o f their meetings;
they also provide for public release o f these minutes after lags of
3 years and 1 year, respectively. Specifically, H.R. 9465 provides for
reinstatement o f the F O M C ‘s memoranda o f discussion based on
minutes o f its meetings, to be released for public use 3 years after the
meeting is held. H.R. 9589, the Federal Reserve Public Information
Act, requires the maintenance o f verbatim transcripts o f all meetings
o f the Boards o f Directors o f the 12 Federal banks, to be submitted to
the Congress after a 1-year lag.
These proposals are admittedly controversial. For years, the FOM C
kept minutes o f its meetings but did not release them to the public.
Minutes o f the meetings o f Boards o f Directors of Reserve banks have
never been published, although they have always been maintained.
The initial release o f the F O M C ’s discussion memoranda, in 1964, for
years prior to 1960, was made only after much pressure on the Federal
Reserve and much internal soul-searching. I am sure that the 1976
decision to terminate the keeping o f minutes by the FOM C was equally
difficult. Several significant events relating to the FO M C's disclosure
of its records occurred during the year preceding the decision to termi
nate keeping detailed records. These events, I feel, set the stage for
the introduction o f the proposed legislation we are exploring today.
First, in May 1975, a lawsuit was filed against the Federal Reserve
in order to obtain more timely release o f the F O M C ’s records o f policy
actions. Next, both the House iind Senate versions o f the Government
in the Sunshine A ct were introduced. Mounting concern over the
public’s right to know, and the scope o f the Freedom o f Information
A ct as it applies to executive agencies led, in total, to the introduction
(47)
48
o f 26 separate bills during the 94th Congress, providing for increased
openness and public disclosure o f the policymaking sessions of execu
tive agencies.
In the wake o f these spirited public and congressional actions, the
FO M C decided to broaden the scope o f its summary records o f policy
actions. But simultaneously, the committee decided to eliminate keep
ing minutes o f its meetings and later releasing memoranda o f dis
cussion based on these minutes, as had been its practice from 1964 until
then. May 1976. The justification given by the Federal Reserve- for this
sudden action was based on the committee’s judgm ent:
That the benefits derived from (the memoranda of discussion) did not justify
their relatively high cost . . . (and) from extensive inquiries, that the memoran
dum of discussion was hardly being used at all.
However, there are many o f us who feel that the benefits are clear,
unquestionable, widespread, and enduring. In particular, I want to
stress that the importance o f the memoranda cannot be measured by
the number o f persons who make direct use o f them. Research usually
builds, like an inverted pyramid, upon the seminal work of a few
scholars.
The statement o f former Federal Reserve Board Governor and Vice
Chairman J. L. Robertson, made in his letter to the subcommittee, re
flects what I consider to be the heart o f the argument for the resump
tion o f keeping and making public detailed FO M C minutes. He said
in p a rt:
In my view, the formulation of monetary policy by the Open Market Committee
is one of the most important factors influencing the economy. Hence it should
be mandatory that there be kept a detailed record (to be made available to the
Congress and the public after a lapse of appropriate time) . . .
Mr. Robertson continued:
If minutes of the meetings are not kept and eventually made available, there
would be no possible way for the Congress or members of the public to appraise
the contribution of any member of the Committee to the formulation of monetary
policy. Such appraisals are essential to any study of how to improve the
system . . .
Furthermore, Mr. Robertson claimed th a t:
Men competent to serve in these positions should be willing and anxious to
stand on their records and be held responsible for the way in which they play
their respective roles.
This statement embodies the essence and spirit o f the Government in
the Sunshine Act, as well as the public’s right and need to know the
rationale behind policy actions taken.
Whenever we address questions concerning Federal Reserve System
autonomy, we have to recognize that our proposals may be interpreted
in some quarters as attempts to politicize the Federal Reserve. This
could not be more untrue. On the contrary, our proposed changes are
directed toward making the System more responsive and accountable
to the Congress and the public while leaving it free to perform those
tasks which Congress has delegated it authority and responsibility to
perform. Specifically, recommending reinstatement o f detailed min
utes o f FO M C deliberations is directed toward maintaining a channel
to review monetary policy decisions, not toward interferring in mone
tary policy. Similarly, recommending that minutes be kept o f meetings
49
o f the Boards o f Directors o f Reserve banks, and released to the public
after an appropriate time lag, is intended only to help us oversee ad
ministrative decisions and procedures relating to the Federal Reserve
System’s handling o f the public's business for which it has been as
signed responsibility; for example, the redemption o f food stamps,
clearing checks, ancl the destruction o f older currency. It is not in
tended that Congress in any way manage or direct these activities.
Before we hear from Chairman Arthur F. Burns o f the Federal
Reserve Board, I want to make note of a study entitled “ Public A c
cess to Records o f Federal Open Market Committee Deliberations:
Evolution o f Policies Preceding the Decision to Terminate Mainten
ance of Detailed Records” which has been prepared for the subcom
mittee by Dr. Roger S. W hite o f the Library o f Congress Congres
sional Research Service. I f there is no objection, this study will be
appended to our hearing record. [See appendix II.]
In addition, we have with us today Prof. W alter W illiams of Tem
ple University who will not testify but will submit a statement for the
record.
[The statement o f Professor Williams fo llow s:]
Statem ent
of
P rof. W alte r
W il l ia m s , T em ple
U n iv e r s it y
Mr. Chairman and members of the Subcommittee, I am pleased to have been
asked to comment on H.R. 9465. This bill would reinstate the Federal Open
Market Committee’s practice of keeping minutes, called “Memoranda of Discus
sion,” of each of its meetings and releasing them to the public after an appro
priate time lag.
Such detailed records may be used only rarely, nonetheless they are an inval
uable research tool for economists, historians and others. Usually only one or
two scholars do the seminal research on a topic or question. Others build on their
efforts and work. The FOMC's May 1976 decision to discontinue the ‘‘Memoranda
of Discussion” will greatly constrain seminal research on the decision making
process in the conduct of monetary policy for the post May 1976 period. W e will
have to try to piece together what actually happened from personal memoirs
and the like. There is no need for such constraint. With an appropriate time lag
and other safeguards concerning possible sensitive material, the benefits of re
instating the ‘‘Memoranda of Discussion” would far outweigh the financial costs.
Finally, let me add that I agree wTith former Federal Reserve Board Governor
and Vice-Chairman J. L. Robertson in his remark that the members of the Open
Market Committee “. . . should be willing and anxious to stand on their records
and be held responsible for the way in which they plan their respective roles.”
Chairman M i t c h e l l . Chairman Burns, we welcome you again this
morning. I want to express publicly my appreciation for your accessi
bility to me. Since I have assumed the chairmanship of the subcommit
tee, I can’t recall a single time when I called you asking for some ad
vice or for some additional information, say, on monetary policy,
when you have not graciously complied with that request. I do pub
licly thank you. As always, it is a pleasure to have you before us.
STATEMENT OF HON. ARTHUR F. BURNS, CHAIRMAN, BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Dr. B u r n s . I wTant to thank you, Mr. Chairman, for your very kind
introduction. I am pleased to be here this morning to present the views
o f the Federal Reserve System on H.R. 9465 and IT.R. 9589. The first
o f these bills would require the Federal Open Market Committee to
50
maintain detailed minutes o f its meetings and to release those minutes
to the public 3 years after each meeting. The second bill would require
that verbatim transcripts be kept o f all meetings o f the boards o f di
rectors o f the 12 Federal Reserve banks. It provides further that the
transcripts are to be submitted to the “ appropriate committees o f the
Congress” without deletion, and to the general public with certain
permitted deletions, 1 year after the date of each such meeting.
Before presenting our specific views on these two proposals, I want
to comment on the ongoing trend toward public disclosure. Nowadays,
there appears to be great currency to the notion that public confidence
in our Government will be enhanced, and the quality o f decisionmaking
may itself be improved, by exposing to public scrutiny nearly every
detail o f the governmental decisionmaking process. W e do not share
this view.
There is, o f course, some value in allowing the public to witness
agency proceedings at firsthand. To the extent that the public’s un
familiarity with the workings o f the Government fosters distrust, cer
tainly we should all make an effort to help educate the public and to
dispel the fear that actions taken in informal or executive sessions may
somehow be tainted. But in our zeal to achieve this result through
sweeping disclosure, we run a grave risk o f sacrificing other important
values. Insufficient attention is being paid to the legitimate needs of
Government officials to deliberate on complex and sensitive matters o f
public importance without the constraints and inhibitions caused by
subjecting every phase o f the deliberative process to public observation.
A s a result, we are in danger o f losing one o f the most prized values of
a collegial body— namely, the opportunity to discuss and debate, to
exchange views, to explore ideas, to persuade and argue and cajole and
chide, without having to weigh the impact o f every spoken word on
the Congress or the general public.
H .R. 9589 would require verbatim transcription of all meetings o f
Reserve bank boards o f directors. In so doing, it would impose dis
abilities on bodies that at present are able to deliberate and discuss
their important duties without inhibition.
Indeed, this bill would require far more extensive disclosure by the
Reserve banks than present law requires of the Board of Governors
or, as far as I know, o f any Federal agency or instrumentality.
No demonstration has been made that either the Congress or the
public has any need for legislation o f such sweeping scope. Neither I
nor my colleagues can find benefits to the public in such a measure that
would even remotely offset its destructive effects on full and frank
discussion.
Our objections to this proposal were set forth in detail in a letter
that came before your parent committee in July o f this year, when the
same proposal was offered as an amendment to H.R. 8094, the Federal
Reserve Reform Act. I respectfully request. Mr. Chairman, that the
entire text o f that letter be inserted in the record.
Chairman M i t c i i e l l . W ithout objection, it will be inserted in the
record at this point.
[The letter referred to fo llo w s:]
51
C H A IR M A N O F T H E B O A R D O F G O V E R N O R S
FEDERAL R ES E R V E SYSTEM
W A S H IN G T O N . D . C . 2 0 5 5 1
July 27, 1977
The Honorable Les An Coin
House of Representatives
Washington, D. C.
Dear L es:
I understand that at this morning's meeting of the
Committee on Banking, Finance and Urban A ffairs, you
expressed interest in having the views of the Federal R eserve
on the Amendment offered by M r, Cavanaugh to H .R , 8094.
As you can appreciate, there has been very little opportunity
for our staff to analyze the Cavanaugh Amendment, and the
Com m ittee’ s schedule does not afford time to have this matter
considered by the entire Board of Governors. Perhaps m ore
important, there has been no opportunity at all for the boards
of directors of the Federal R eserve Banks to consider the
Cavanaugh Amendment or to provide the Committee with their
views on a matter that so directly affects their role in the
Federal Reserve System. I hope it will be useful to you, however,
to have my own personal views with respect to the proposed
Amendment.
A s I understand M r. CavanaughTs proposal, it would
require all of the Reserve Banks to keep verbatim transcripts
of a ll of their board m eetings. These transcripts would have
to be provided to "the appropriate Committees of the Congress1'
one year after each such meeting, without any deletions. The
transcripts would be required to be released simultaneously to
the public, but item s pertaining to five specific subject matters
could be deleted. However, a Committee could make the deleted
m aterial available to the public upon a majority vote of its m em b ers.
52
The Honorable Les AuCoin - Page 2.
F ir st, I must say that I know of no precedent for such a
sweeping law. There is to my knowledge no agency or instru
mentality of the United States Government that is required to
submit verbatim transcripts of its proceedings on a routine
basis to the Congress. Not even the Government in the Sunshine
A ct, which the Congress enacted after two years of extensive
deliberation, requires such broad disclosure.
Second, there has been no demonstration of a legislative
need either for the keeping of verbatim transcripts or for the
regular submission of such information to .the Congress.
M r. Cavanaugh has not suggested that such detailed disclosure
is necessary to enable the Congress to carry out any particular
legislative objectives. In the absence of a showing that such
information has a relationship to specific legislative concerns,
the Amendment is open to the charge that it is intended only to
facilitate "fishing expeditions" into Reserve Bank affairs.
Third, the Cavanaugh Amendment would impose a
staggering administrative burden on both the Congress and
the Federal R eserve. There are 12 Federal Reserve Banks,
which have a total of 25 branches, and the directors of each
bank and branch meet monthly or more frequently. Thus, at
a minimum, some 444 meetings would have to be transcribed
during a year. If committees of the boards, such as the
executive and audit com m ittees, were also included within
the requirements of the Amendment, hundreds of additional
meetings would have to be transcribed. The job of simply
reading these transcripts, not to mention correcting them
and reviewing them to determine which portions have to be
released, would be both expensive and time consuming.
Fourth, the Amendment would create a serious risk of
miwarranted public disclosure of highly sensitive information.
Even though some sensitive matters could in the first instance
be withheld from public release, a Congressional Committee,
by majority vote, could decide to release such m atters. Thus,
the Amendment seem s to contemplate the regular distribution
of unexpurgated transcripts to dozens of members of Congress
53
The Honorable Les AuCoin - Page 3.
and their staffs, followed by deliberation and voting upon the
public release of previously withheld portions. Under such
circumstances there is tremendous opportunity for unauthorized
disclosu res.
Fifth, the list of subject m atters that may initially be
withheld from public disclosure is entirely too narrow. For
example, the Amendment makes no provision for exclusion of
discussions relating to problem banks, to litigation or law yerclient communications, to trade secrets or privileged or con
fidential com m ercial or financial information furnished by
private individuals or firm s, to discount rate actions and other
monetary policy m atters, to bank and bank holding company
examination reports, to matters involving possible crim inal
charges against individuals, or to other discussions the dis
closure of which would constitute a clearly unwarranted invasion
of personal privacy. In this regard, I should point out that not
even the Government in the Sunshine Act requires federal admini
strative agencies to keep verbatim transcripts of discussions of
such m atters as bank examination reports, or of discussions the
disclosure of which could lead to market speculation or could
endanger the stability of a financial institution, or of discussions
of pending litigation. In all such cases the agency is permitted
to use detailed minutes in lieu of a verbatim transcript.
Sixth, by compelling the R eserve Banks to create verbatim
records of their deliberations, the Amendment could seriously
impair the ability of a R eserve Bank to defend itself in litigation,
since such transcripts might have to be produced in civil actions
against the Reserve Banks. The magnitude of this danger should
not be underestimated. In the case of the failure of Franklin
National Bank, for example, the directors of the New York Federal
R eserve Bank had a great many meetings to discuss the condition
of Franklin, the proposals that were being made for rescuing
Franklin, and the prospects for continued lending to Franklin by
the Federal R eserve. Obviously, given the serious consequences
of a failure of such a large bank, it was essential that these matters
be discussed by the directors freely and without any inhibitions.
54
The Honorable Les AuCoin - Page 4.
At the present tim e, all of the Federal banking agencies are
deeply involved in m assive civil litigation arising out of the
Franklin m atter. We are being required to turn over vol
uminous documents to our adversaries in these case s. Had
it been necessary for the Reserve Bank to keep a verbatim
txajnscript of its deliberations, with the possibility that such
transcripts might later have to be produced in litigation, I
can assure you that the ability of the Reserve Ba.nk to deal
with the questions it faced would have been seriously impaired.
Seventh, quite apart from the possibility th^t transcripts
may be used in litigation, the m ere fact that a transcript is made
would inevitably inhibit frank discussion- Could it reasonably be
expected, for example, that a Reserve Bank director would feel
free to speak critically of a member bank, or of the Reserve
Bank’ s own officers, or of a supplier of equipment or services
to the Reserve Bank, or, for that matter, of the Board of
G overnors, if he knew that his words would be preserved
forever and possibly released to the public?
In summary, I urge that the Committee not adopt the
Cavanaugh Amendment at this time, and that it defer action on
this subject not only until it has had a chance to hear from all
interested parties, but also until it has had an opportunity to
consider whether its legitimate objectives might not be satisfied
in some m ore constructive fashion.
In response to his request, I am providing a copy of this
letter to B ill Stanton.
Sincerely yours,
Arthur F . Burns
55
Dr. B u r n s . Let me now summarize the principal points made in
the July letter:
First, H.R. 9589 contemplates the regular distribution o f the entire
transcript o f Reserve bank board meetings to dozens o f Members of
Congress and their staffs. This would be followed by deliberation and
voting on the public release o f previously withheld portions o f the
transcripts. Under such procedures, there clearly would be a serious
risk o f unauthorized disclosure o f highly sensitive information in
volving banks, their customers, and security markets.
Second, even in the absence o f unauthorized disclosures, the bill
fails to provide for the withholding o f discussion o f problem banks,
litigation or lawyer-client communication, trade and financial data
furnished to the Reserve bank in confidence by private firms, disc-ountrate changes or other concerns o f monetary policy, possible criminal
charges or other enforcement action against individuals or financial
institutions, or other matters the disclosure o f which could adversely
affect markets or constitute an invasion o f personal privacy.
Third, by requiring the creation o f a verbatim record o f delibera
tions the bill could impair the ability o f a Reserve bank to take effec
tive action where civil litigation against the bank could be antici
pated. Since such transcripts might have to be produced in litigation,
directors would be seriously inhibited in discussing the strengths and
weaknesses o f various actions open to them.
Fourth, the administrative burden on both the Congress and the
Federal Reserve banks would be staggering. W ell over 400 board
meetings would have to be recorded each year; transcripts would have
to be made, reviewed, corrected, and duplicated by the banks; and
then the members and staffs o f various committees of the Congress
would have to screen the transcripts again in order to determine
whether additional material should be released.
Finally, and most important o f all, a transcript requirement would
have a stifling effect upon deliberations among Reserve bank directors
and upon the flow o f information within the Federal Reserve System.
Our directors are frequently a valuable source o f important inform a
tion about current economic and financial conditions in their own
businesses and communities. Furthermore, many o f them are skilled
and experienced managers, and their frank assessments of Reserve
bank procedures and personnel, as well as their recommendations for
improvement, have made a great contribution to the Federal Reserve
System. T o require these men and women to speak for a public record
when acting as Reserve bank directors— a burden they do not have
in their own board rooms and businesses— will tend to discourage free
discussion and in the long run will impair the Federal Reserve's ability
to attract outstanding individuals to serve as directors. As a conse
quence, the efficiency o f Reserve banks and the quality o f their serv
ices to commercial banks and the general public would probably
deteriorate.
As members o f this subcommittee know, the Federal Reserve has
tried to be constructively responsive to recent requests for information
about Board meetings o f the Federal Reserve banks. This information
was originally sought to determine whether the Federal Reserve is con
trolled by corporate and banking groups through their representation
56
on Federal Reserve bank directorates. To deal with this question, we
turned over to your parent committee last December a tremendous vol
ume o f Reserve bank Board minutes. Significantly, no evidence what
soever was brought forth from examination of the minutes to support
the claim originally advanced as the reason for a need to examine the
minutes. Instead, various unrelated charges were made against the
Federal Reserve System— based upon information selectively culled
from the minutes we had forwarded.
W e have carefully reviewed the excerpts cited as support for these
new claims, and I want to state categorically that the minutes do not
justify any o f the assertions o f impropriety that have been made. The
minutes do not establish unlawful or improper “ lobbying” : they do not
disclose Federal Reserve encouragement o f credit allocation; they do
not support the cruel attack made on the integrity o f one of our most
distinguished Reserve bank Directors; and they do not reveal mis
uses o f Reserve bank funds for gifts or loans.
Over the years, the Federal Reserve has furnished the Congress with
a vast amount of information about the operations of the Federal R e
serve System, and we will continue to do so in the future. We feel sure,
however, that the legitimate needs o f the Congress for information to
perform its oversight responsibilities can be met in a far more con
structive manner than that proposed by this bill, and we urge you not
to approve this proposal.
Let me now turn to H .R. 9465, which would require the Federal
Open Market Committee to maintain detailed minutes and to release
them to the public after 3 years. This bill is clearly motivated by ft con
cern for the interests o f scholars and others who may have occasion to
do historical research in the area o f monetary policy. This is a concern
with which many o f us, certainly I, have great sympathy. Even though
there is substantial expense involved in maintaining such minutes, and
the potential audience appears very small, a detailed record o f proceed
ings could on balance be useful, provided important needs o f the
FO M C were accommodated. Some background is necessary to put this
proposal in perspective.
F or many years the FOM C kept very lengthy minutes— referred to
as “ Memoranda of Discussion” — o f each o f its meetings. These mem
oranda, which often ran as much as 100 pages in length, set forth in
detail the views expressed by each member of the FO M C at each meet
ing, attributing those views to the member by name. The Memoranda
o f Discussion o f the FOM C meetings held in any one year were re
leased to the general public 5 years after the end o f that year. In the
F O M C ’s judgment, this policy o f delayed release gave strong assur
ance that the disclosure o f the memorandum would not affect security
markets and that it would not impair the willingness o f its members to
speak freely about sensitive matters o f current concern.
Last year the FO M C reexamined the practice o f keeping these very
detailed minutes o f its meetings, and at the same time reviewed its
practice o f releasing 45 days after each monthly meeting the much
shorter record o f policy actions— a record that reflects the committee’s
discussion o f the economic outlook and its deliberations on open market
policy. A fter much thought, the committee decided to reduce from 45
days to about 30 days the time for release o f the record o f policy ac
tions and to include in that record an expanded and more systematic
57
account o f the views expressed by its members. The new policy record
does not attribute individual opinions to committee members by name;
but the record always reports the votes o f the members by name and
their accountability is thus preserved. In connection with this new
practice, the committee decided to discontinue the detailed Memoranda
o f Discussion, recognizing the much more limited audience for this
document.
W hile the F O M C ’s new procedure affords the public much more in
formation on a current basis about policy actions than under prior
practice, it admittedly does not preserve a historical record as detailed
as that contained in the earlier Memoranda o f Discussion. H.R. 9465
would propose to remedy this by requiring, in effect, a return to the
earlier practice. In addition, it would require that the minutes be made
public 3 years after each meeting.
As I have indicated, we are sympathetic to the concerns that underlie
this proposal, and we are reluctant to oppose it. However, we believe
there are three shortcomings in the biU as it is presently drafted. First,
no provision is made for exclusion o f material that may be embarrass
ing to foreign governments or institutions. Second, 3 years is not a suffi
ciently long period to avoid the inhibiting effects that may derive from
the anticipated release o f the views expressed at FO M C meetings.
I f this proposal were to be adopted, we would strongly prefer a re
turn to the prior practice o f releasing the memorandums with a 5-year
lag. Third, and most important, the bill does not address the possi
bility that the FO M C might be compelled under the Freedom o f In
formation A ct to make public all or significant portions o f the memo
randum more promptly than the specified period, whether it be 3 or
5 years. In the absence o f express statutory protection against prema
ture disclosure o f the memorandum, we would feel compelled to object
to a proposal for returning to the practice o f keeping extensively de
tailed minutes o f FO M C meetings.
In closing, let me again assure the subcommittee that we will coop
erate fully with any reasonable requests for information necessary to
enable this or any other committee o f the Congress to perform its re
sponsibilities. However, since our day-to-day work, and that o f the 12
Federal Reserve banks, involves us in matters of the greatest sensitiv
ity, we urge this subcommittee not to approve any additional proposal
for public disclosure in the absence o f a strong showing of public
benefit.
Thank you, Mr. Chairman.
Chairman. M t t c i i e l l . Tha^k you very much, Chairman Burns, for
your very detailed and definitive statement.
W e are delighted to have Congressman Vento with us this morning.
Dr. Burns, in your testimony, you pointed out that the scrutiny o f
the minutes turned over to the subcommittee did not reveal “ any un
lawful and/or improper ‘lobbying’.” D id those minutes reveal any
lobbying effort at all? I think the issue becomes. Dr. Burns, whether
an instrumentality as powerful as the Reserve System should be en
gaged in any kind o f lobbying activity. Now, to the best o f your rec
ollection, did those minutes reveal lobbying activities?
Dr. B u r n s . Y o u know, the term “ lobbying” can be defined in many
different ways. Let me speak about my own activity. I have made it
58
a practice in connection with legislation to discuss my views and those
of the Federal Reserve Board very freely with Members of the Con
gress. M y experience is that they have found that congenial as a rule,
and I think, also helpful.
The minutes do disclose— and let me remind you that a mountain of
material covering some 500 Board meetings was turned over to the
committee— that at two or three meetings a comment was made by an
officer of a Federal Reserve bank expressing the hopes that the Direc
tors of that bank might interest themselves in this or that legislation.
I think that is an entirely legitimate— even desirable to activity for
those who are involved in the Federal Reserve System, and who know
its responsibilities. I f you call that lobbying, then there is evidence in
the minutes of two or three such instances of it in the course of several
hundred actual Board meetings.
Chairman M i t c h e l l . Thank you for your answer. It gets to be a
very ticklish question, the matter of lobbying. Certainly, I think it is
entirely proper and right for you, as the Chairman, to share your
views with Members of Congress in an attempt to persuade or dissuade
them from certain kinds of actions, precisely wThat you are doing this
morning. On the other hand, it becomes another question when the
various officers in the Federal Reserve System use the power of their
position to exert pressures on Members of Congress or on anyone else
in an attempt to persuade or dissuade them from certain kinds of
legislative action.
I am not. at all sure that I know the answer, and ns you pointed out,
there were only two instances of this type of lobbying. But because
the Federal Reserve System is a very powerful instrumentality in our
economic system, I think we must set up some rules with reference to
lobbying or to specific types of lobbying at the level where it takes
place below your position.
Dr. B u r n s . I am not aware of any instance where an officer of the
Federal Reserve has attempted to apply pressure on a Member of the
Congress. That is unthinkable to me; it would be presumptuous and
stupid and certainly improper.
On the other hand, when a president or a director of one of our
Federal Reserve banks— men who devote a great part of their energy
to the Federal Reserve System because of their concern about this
country and about our economy— when men with such responsibil
ities deem it proper to speak to their Congressmen. I for one can’t
see anything improper. On the contrary, my impression is that the
Members of Congress want to hear from their constituents, particu
larly from men with great responsibilities and great knowledge.
So, any charge of impropriety is something that I simply do not
understand.
Chairman M i t c h e l l . Perhaps we can get back to this.
I would like to put two other questions before turning to the other
members. I understand from vour testimony that apparently you
would support the Hannaford bill, H .R . 9465. if certain changes are
made; is that correct?
Dr. B u r n s . That is correct. Before this meeting I had a telephone
conversation with Congressman Hannaford, and I believe that he
and I and the subcommittee can work these matters out satisfactorily.
59
Chairman M i t c h e l l . That was specifically my request. Would you
have your staff link up with our staff to see what we can do in terms
of perfecting this particular piece of legislation ?
Dr. B u r n s . Yes, I would be very glad to do so, and I ’m sure that
we will be able to work out a harmonious result.
Chairman M i t c h e l l . M y last question. The Congress of the United
States, for the most part, has open hearings in committee and in sub
committee. Even our conferences now are open. I think those changes
have come about in the last 4 or 5 years primarily because most of
the Members of Congress realize that it is good to keep the public
totally informed.
You are arguing that the minutes of the F O M C should not be
released under certain conditions, no matter what the feeling of the
Congress is. Recently an appeals court at least that has acted on this
matter. The U.S. Court of Appeals for the District of Columbia
Circuit, in the Merrill case (No. 76-1379) concluded that the minutes
of the FO M C were not exempted from immediate public view by any
statute of law.
W hy should the Congress reverse this court decision ? Is it that the
court rendered that decision on bad law, or on unsubstantiated fact?
W hat I am saying, Dr. Burns, is we have a precedent, really two:
one, the actions of the Congress itself and second, the decision in the
M emll case. In the event that we should follow the advice given in
your testimony, we would not only reverse our own decision, but also
the court’s decision.
Dr. B u r n s . Mr. Chairman, I did not comment on the Merrill deci
sion in my testimony, but I would be very glad to discuss that decision
with you to the extent that I am able to clo so. There are legal questions
here that I am not qualified to discuss. You made some observations
about the Congress. As far as I know, caucuses are not open to the
public, nor are those deliberations recorded.
Chairman M i t c t i e l l . Yes. they are. Our Democratic caucus is now
open. W e vote immediately when we go into caucus to open it, and each
time we have voted to open the doors, and the galleries are filled.
Dr. B u r n s . Thank you for advising me.
I did not realize that the Merrill decision would come up at this
hearing, but I will be very glad to discuss it with you to the best of
my ability.
The M em ll decision, as I understand it, requires that the decisions
reached by the Federal Open Market Committee at monthly meetings
be announced promptly to the general public. That is the decision.
Whether or not it is a good decision of law is something on whi-Mi
I am not qualified to comment. Our attorneys, however, do plan to taice
whatever steps are necessary to have this decision reviewed. Whether
or not they will succeed is, again something upon which I have no
opinion, and I wouldn’t want to speculate on that issue.
Chairman M i t c t i e l l . I am sorry. Could you clarify that for m e ?
Your attorneys are planning an appeal of the Merrill decision; is
that correct ?
Dr. B u r n s . That is correct, yes.
60
I would welcome legislative relief o f the sort that the Court o f A p
peals suggested to us. I f you would like to have me discuss that, I
should be glad to do so.
Chairman M i t c h e l l . N o . My reason for citing the case was that ob
viously in your testimony you are saying that the minutes o f the
FOM C should not be released for public viewing.
Dr. B u r n s . N o , I am n ot.
Chairman M i t c h e l l , Except under certain circumstances, which you
stipulate.
Dr. B u r n s . N o . We may be getting a little confused here. There are
two documents that I discussed in my formal testimony. One is the
Memoranda o f Discussion, the subject of Mr. H annaford’s bill. As
you and I discussed the matter just a minute ago, there is no basic
disagreement on the principle underlying that bill, although there
are certain clarifying, corrective amendments that we would propose
and that I think we can work out with Mr. Hannaford and with you,
Mr. Chairman. There is a second document, which is not the subject
o f this hearing, namely, the policy record, which is now released ap
proximately 30 days after the FOM C has reached its decision with
regard to monetary policy for the month ahead. I commented on that
in my formal statement merely to set the Memoranda o f Discussion
in perspective.
Chairman M i t c h e l l . I understand exactly what you did. Perhaps
I did not make myself clear. What I was suggesting was that both the
courts and the Congress have set precedents which should give some
guidance as to how certain items under the Federal Reserve System
jurisdiction should be handled.
I have more questions on this subject. However, let me yield to Mr.
Barnard for now. I was a junior member and I know what it means to
sit and not be able to raise a question after traveling to come to a
hearing.
Congressman Barnard ?
Mr. B a r n a r d . Thank y o u , Mr. Chairman.
Dr. Burns, I, along with my colleagues, want to welcome you this
morning. Thank you for your cooperation on this controversial, al
though not new, legislation.
Dr. Burns, I would like to approach this legislation from the stand
point o f whether or not the Federal Reserve System is not a different
status than other agencies in regard to Government in the sunshine.
D o you think the Fed has a different structure that dictates a differ
ent posture?
Dr. B u r n s . As you know, the Federal Reserve System consists, on
the one hand, o f the Federal Reserve Board and, on the other, o f the
12 Federal Reserve banks with their branches and regional checkprocessing centers across the country. W ith respect to structure, the
Federal Reserve Board is, I think, similar to other boards and agen
cies and commissions o f the Federal Government. On the other hand
the Federal Reserve banks are quasi-private institutions; that is an
important structural difference.
Mr. B a r n a r d . I am sorry, I d id not hear th a t last statement.
Dr. B u r n s . I said that the fact that our Federal Reserve banks are
quasi-private institutions is an important structural difference.
61
Mr. B a r n a r d . D o y o u th in k th a t because o f th a t sta tu s, th e i m p o s i
tio n o f som e o f th is le g isla tio n is n o t a p p lic a b le ?
Dr. B u r n s . I think that the case could be argued that way.
I have put the accent, in my own thinking, on the fact that the matters dealt with by the Federal Reserve System are so sensitive that
special care needs to be taken. I have also tried to indicate that this
piece o f legislation, proposed to broaden disclosure for Federal R e
serve banks which are quasi-private institutions, would not apply to
any other Government agency. It is an extraordinary piece o f legisla
tion, to my mind. I f this is an attempt to broaden disclosure, why start
with our Federal Reserve banks?
Mr. B a r n a r d . In line with that, Dr. Burns, if this bill were enacted,
what other agencies do you think should be put into this same category ?
Dr. B u r n s . I think the list would be very long. But I see no purpose
in naming agencies and suggesting that they be faced with requirements
o f the very sort I am trying to argue should not be imposed upon the
Federal Reserve.
Mr. B a r n a r d . Since it appears to me that Congress just starting
with the Fed with this legislation. W e might as well we should antici
pate where wTe are going in the long run. As you have just indicated,
there is'a long list o f other agencies that will undoubtedly he brought
under the same umbrella. I am interested, Dr. Burns, in a little more
definitive treatment o f the destructive effects o f this bill, especially as
it adversely affects the marketplace.
W ould you please briefly elaborate?
Dr. B u r n s . Take, for example, a Board meeting o f one o f our Fed
eral Reserve banks. A problem with this or that member bank may
come up. It may be a managerial problem ; it may be a financial prob
lem. Anyone who knows anything about the world o f banking knows
howT terribly sensitive is any information— or any rumor— about the
competency o f management or the financial condition o f a bank. Dis
closure o f information or o f a conversation about a matter o f that
sort could injure not only the bank; it could injure a whole community.
And, in the case o f a large bank, it may have national or even inter
national repercussions.
The directors o f the Federal Reserve bank’s have to discharge their
duties; they have to say what they think, and what they say in the
course o f deliberation may be accurate or inaccurate. Y ou know, some
members o f the Board wTill be better informed than others; if an in
accurate statement is made, the facts wTill be sifted and some approxi
mation to the truth will gradually emerge. But to have every word
in the course o f such a discussion spread on the record could have very
serious, even disastrous, effects on banks or entire communities.
Mr. B a r n a r d . H ow would disclosure apply to the Federal Open
Market Committee ?
Dr. B u r n s . The Cavanaugh bill is restricted to the Reserve bank
boards.
Mr. B a r n a r d . I w a s sp e a k in g o f th e H annaford b ill.
Dr. B u r n s . The Hannaford bill, I think, carries an element o f p ro
tection, in that disclosure would be made onlv after several years had
elapsed. I hope to be able to persuade Mr. Hannaford and the mem
bers o f this committee that the lag should be 5 years rather than 3
years.
62
I should add that the Federal Open Market Committee deals with
monetary policy; that is its principal purpose and function. It does
not deal with individual banks, so the kind of problem I mentioned
does not arise in connection with discussions of the Federal Open
Market Committee.
Mr. B a r n a r d . I am interested in the discussion that the chairman
developed regarding, the case of Merrill v. Federal Open Market
Committee.
It appears from the decisions made by the courts up to this point,
that they are not in keeping with the present law affecting the Fed
eral Open Market Committee; is that right ?
Dr. B u r n s . The decisions are not in keeping with the present prac
tice of the Federal Open Market Committee. According to the Court
of Appeals, the decision is in keeping with the provisions of the
Freedom of Information Act.
Mr. B a r n a r d . And my last question. Dr. Burns, is in reference to
the Hannaford bill. I f we incorporated the provisions that you indi
cated on page 10 of your testimony, including the exemption of the
Federal Open Market Committee from the Freedom of Information
Act, do you think the Federal Reserve would accept this ?
Dr. B u r n s . The answer is clearly in the affirmative.
Mr. B a r n a r d . I have no further questions, Mr. Chairman.
Chairman M i t c h e l l . Congressman Vento.
Mr. V e n t o . Thank you, Mr. Chairman.
Dr. Burns, welcome to the subcommittee.
I have read your testimony very carefully, and I felt, strongly, as do
many of the members, about the openness issue and how it affects the
Federal Reserve. You make a great deal— on page 6— about the fact
that you did turn over certain minutes over a period of 3 years. But you
don’t say anything about the more than 900 sections that were deleted
from the minutes.
And, of course, I understood— when I coauthored, or sponsored
Representative Cavanaugh’s bill, on the verbatim transcripts, that it
was an idea, I think, that needed more work. W e hoped that this sub
committee would be able to do that, to wTork it out, and to get at some
of the concerns we had obviously, without destroying, the independ
ence of the Fed. And I don’t think anyone argues against the fact that
independence is necessary. But what about the 904 deletions that
occurred in the minutes that were submitted ?
You suggest that you made a complete open statement and then that
the committee was supposed to look at corporate interests. How can
you make an accurate judgment if you have 904 deletions from the
meetings ? How do I know that you did not delete the very points that
the staff people and the committee were seeking to learn ?
Dr. B u r n s . Let me answer your question.
I reached an understanding with Chairman Reuss of the parent
committee that certain items under several different categories would
be put in separate folders; the rest would be submitted to the chair
man. W e agreed that the chairman and I would go over the items that
were put in separate folders. So the chairman of your parent committee
had the opportunity to examine these items, and he took advantage of
that opportunity. He felt after his examination, that some 28 items
63
were improperly classified. In going over the evidence, I agreed with
him in some instances and in others I did not; that is where the matter
rests.
Mr. V e n t o . W ell, I have a good deal of confidence in our chairman,
Dr. Burns, but nevertheless, I believe that as a protection, that this
information should be open to Members of Congress; consequently, the
authorship of this bill and the continued support for it.
You know, in one instance you argue that other agencies aren’t
treated the same as the Fed. Do you think you are like other agencies?
Dr. B u r n s . I would like to think that in some respects we are better.
Mr. V e n t o . I would like to think that, too, but the way the Fed was
created, it makes it significantly unique.
Dr. B u r n s . It is unique precisely because it deals with such highly
sensitive matters. Members of the Congress ought to recognize that
fact, and I am sure you do------Mr. V e n t o . I do recognize the fact. I also recognize that we have
a responsibility as Members of Congress, even though a new Mem
ber— that I have a responsibility for oversight of this important
agency which in essence you have argued, and others have argued, is
independent from the administration and independent from the ex
ecutive branch and, therefore, the Congress that you are accountable
to. And so we ask— and we talk about the minutes. W h y do you main
tain minutes ? W hy are they maintained ?
Dr. B u r n s . Minutes are maintained because some questions may
arise at one meeting as to what happened, what was said, or what
was done at an earlier meeting. There should be a record for the agency
to clear up any such questions that may be asked. That is one basic
reason for maintaining minutes in any organization.
Mr. V e n t o . D o you think that Members of Congress should have
an opportunity in their oversight responsibility to look at those rec
ords anytime?
Dr. B u r n s . I think it would be very unwise for Members of the
Congress to undertake any such responsibility.
Mr. V e n t o . W ell, how are we supposed to exercise our responsi
bility in terms of oversight, to understand the process, the policies,
the evolution of policies that the Fed develops, if not by looking at all
of the details? How can I make a rational decision without looking
at those factors?
Do you think your appearance before these committees every 6
months or every 3 months between the Senate and the House does that
job?
Dr. B u r n s . Mr. Vento, it would be impossible for you or any Mem
ber to examine each and every detail of our operations— physically
impossible and intellectually impossible. I think that government is
based fundamentally— just as all life is— on trust.
You and your colleagues carry on certain conversations in the
corridor. The pubic doesn’t know about those conversations.
Mr. V e n t o . Are w e asking you to report on conversations in the
corridor ?
Dr. B u r n s , I think if the kind of legislation you are discussing
were enacted, there would be a temptation to do business outside of
boardrooms.
64
I would do everything in my power to prevent that. I don’t cir
cumvent the law ; f don’t play games. You know my attitude toward
certain parts o f the sunshine law and how hard I fought to achieve
certain amendments; I was partly successful. But I don’t think there
is another agency in this town that observes the sunshine law with
greater precision, with greater fidelity to the letter as well as the
spirit o f the law, than does the Federal Reserve.
Y ou can’t get away from the matter o f trust. Our whole Government
is based on trust. Our whole economy is based on trust.
Mr. Y e x t o . Dr. Burns, we are trying and I am trying to interject
that element back into it. I think there is a basic mistrust o f Govern
ment. T o some extent, I think I see in your remarks a mistrust o f
Congress. A ll we are asking for is some trust in terms o f the role.
W e have created the Fed. You are accountable to us. A nd we would
like you to have some confidence in our ability to be objective in terms
o f looking at various issues that might be present in the Federal R e
serve Board minutes that we are talking about here today.
Dr. B u r n s . Mr. Yento, I pointed out the consequences o f keeping
a verbatim transcript. I pointed those out truthfully, in detail, and
with conviction. I f you feel I am wrong, it is your business to legislate.
Mr. Y e n t o . W ell, one o f the things you also pointed out is on page 7
o f your statement. Y ou came back and said, there is a more constructive
manner to attain that particular end. W hat is the more constructive
manner ?
Maybe we don’t need a verbatim transcript. I don’t know if the
minutes that were kept and shared with this subcommittee were a
verbatim transcript. I doubt that they were.
Dr. B u r n s . N o ; they were not.
Mr. Y e n t o . And what is the more constructive manner that you are
proposing by which we meet that e n d ; by having you up here every
3 months and questioning you ?
Dr. B u r n s . Y o u could have me here every 3 days if you wanted to.
I have never turned down an invitation. Sometimes there are delays—
your chairman knows about that— but either I or another member
o f the Board will be here to answer questions. And I am available
outside o f formal boardroom s; I think you know that.
Mr. Y e n t o . I appreciate that.
Dr. B u r n s . I was very sorry I could not join you at luncheon
yesterday.
Mr. Y e n t o . Y es; I am sorry that you couldn’t, W e could have begun
this conversation. But I am very sincere about what we are trying
to do.
Dr. B u r n s . I know you are.
Mr. Y e n t o . I don’t appreciate, for instance, comments that were
initially made during full committee meeting saying that we were up
to some sort o f mischief with regard to the ideas that we had pursued.
I intend to see this legislation carried through and brought to some
conclusion.
One o f the things, Dr. Burns, that you commented on was that you
have in fact followed very closely the Sunshine Act, And one o f the
studies recently done by Common Cause on that issue, which, o f course,
as you know, is a public interest group, says that many o f the F ed’s
meetings are closed.
65
[The follow ing excerpt from the Common Cause study was sub
mitted for the record by Congressman V e n to:]
[Excerpts from “ Shadows Over the Sunshine Act,” a Common Cause study of Federal
agency compliance with the Government in the Sunshine Act of 1976. ( September 1977.) ]
Most agencies have not gone beyond the minimum requirements in order to
carry out the spirit of the legislation. Many agencies seem to be adapting to
the act but only grudgingly. They view the act as a procedural burden to be
circumvented when possible. They continue to conduct business as usual behind
closed doors.
The Federal Reserve Board is a prime example. Chairman Arthur Burns
fought vigorously in Congress to exempt the Board from the law. Although the
Board is covered by the act, the broad language of the exemptions dealing with
financial matters mean that as a practical matter few of the Board’s meetings
will be open to the public. In fact, of the 37 meetings held by the Fed, 30 were
entirely closed. The disproportionately large number of closed meetings are
justified by the Fed on the grounds that matters of a sensitive financial nature
were being considered by the Board as permitted by the act. But the fact that
the Board elected to close one of its meetings in order to consider a proposed
office furniture design as well as the Board’s building renovation project raises
serious questions about the Fed’s willingness to comply wTith the spirit and
meaning of the Sunshine Law (see 42 F.R. 21899).
Dr. B u r n s . Yes. they are, under law. And they should be.
Mr. V e n t o . S o that, in essence, you can follow it, but in follow ing
it you exclude the sharing or making some o f that information public.
Dr. B u r n s . I should say we do. And what would you have us do
when we have a problem bank to discuss ? Discuss it in public so there
wTould be a run on the bank and the stock exchange w^ould be rocked ?
Mr. V e n t o . One o f the provisions o f the legislation that you have
criticized is that the minutes come in 1 year after the fact and that all
o f the information be made available to Members o f Congress 1 year
after the meeting.
That certainly would not be an instantaneous run on the bank.
Obviously, it would provide us with the opportunity to see how you
dealt with a financial crisis that had occurred with regard to a bank.
D on’t you think that is important ? What is a reasonable delay ? And
then beyond that, in terms o f the exposure to the public, offer certain
exceptions. Y ou have made, in your statement as I can tell, you did
not take into consideration specific exceptions or offer other excep
tions. I have asked you about constructive changes that are to be made
in the bill, and I have not heard any suggestions to this point, and
I hope in the future that you will utilize the opportunity to make
constructive changes in this legislation.
Dr. B u r n s . D o you really want me to answer your questions?
Mr. V e n t o . Yes, I want you to answer my questions.
Dr. B u r n s . OK, let me take a little time, if the chairman will per
mit me.
First, as for the lag o f 1 y e a r: Y ou must understand that in the case
o f some problem banks, their difficulties may not be worked out for
several years. One year is an arbitrary period. Moreover, even if a
problem has been worked out in the course o f a year, the fact that the
bank had a serious problem may cast doubt on its reputation and on
its viability in the future. I think vou have got to keep that in mind.
A s for constructive suggestions, let me remind you that T have sug
gested oversight hearings o f a kind that have not yet been held by the
66
House Banking Committee. I have suggested an oversight hearing on
the condition of the banking system, The Senate, I am glad to say,
took up the suggestion; the House did not.
I suggested a hearing on Federal Reserve System operations and
expenditures. You know, our Reserve Bank boards deal primarily
with technical operations, such as the clearing of checks. I have sug
gested hearings on their operations. The Senate took me up on it and
will be holding another hearing early in the year; the House Banking
Committee did not take up my suggestion.
I have made a third suggestion for oversight hearings, with regard
to regulatory activities. Neither branch of the Congress has as yet
taken up the suggestion.
So I think I have put forward some helpful ideas, some of w^hich
have been adopted, others of which will be considered and perhaps
adopted in the future. And I will continue to work with you; I want
to most sincerely, and so do my colleagues.
Chairman M i t c h e l l . W ill the Chairman permit me to interrupt for
a point of clarification? I think it should be made clear that the mat
ters you have suggested and recommended for oversight hearings do
not fall within the province of this subcommittee. However, if the
other subcommittees are reluctant or unwilling, or would transfer
jurisdiction to us in this instance, I would be delighted to undertake
those hearings.
Dr. B urns . Mr. Chairman, you are most understanding and accom
modative. It is always a pleasure to come before your subcommittee
bocause you are so precise and so correct and so helpful. Thank you.
Mr. V e n t o . Mr. Chairman, just one other comment on the lobbying
question. This becomes a contentious point. The issue also was before
the full committee.
A s the chairman and other members know, we have another idea
floating around in the form of a bill that would require the Fed to
report on lobbying activities that are undertaken, that is covert ones.
I am not talking about the Chairman’s appearance before this sub
committee. Obviously we are aware of that and I think it is proper.
And I ’m not talking about the contacts with individual Congressmen.
W e are aware of that. But we are talking about the report that, in some
instances member units did, in fact, utilize their position as a means
of communicating their views to the banks or financial institutions that
they regulate. M y concern is that the Federal Reserve System and
member banks do not act as trade associations for the advocacy of is
sues, and that, in the event that they do, that that would be reported,
that the lobbving activities in this vein would be reported. I f it makes
it eacier, I think we could temper that bv having it implemented in
the Federal Reserve Svstem rules and regulations.
So. I was interested in trying to resolve that issue. I think a good
deal of the uneasiness that exists with regard to the closed meetings—
and I think we recognize the necessitv of having those closed for a
period of time— reallv gets back to that particular issue.
I don’t know if the Chairman is aware of that proposal and that
idea, but I was interested at this point to get his reaction to it.
Dr- B u r s t s . Let me sav. Mr. Vento, that I am aware— I think quite
fully aware— of the legislation that you have proposed. Your bill, if
67
you would permit me to say so, is based on a fundamental miscon
ception of how the Federal Reserve works.
W e operate under rules which I think are just as strict as those of
the Supreme Court. No member of the Federal Reserve Board will
talk to any banker about any application that he has before the Board,
or any application that he plans to have before the Board, or any
application that he is dreaming about putting before the Board.
W e will talk to bankers about the economy. W e will talk to bankers
about certain general principles of legislation, but never about indi
vidual banking applications. W hat bankers do in the wTay of com
municating with the Congress is their business. It is something that
we neither encourage nor discourage in any way.
As far as our Directors are concerned, that is something else again.
They are members of the Federal Reserve family who have responsi
bilities and deep concerns for the institutions which they serve; I have
already addressed that.
So, I think your bill is based on a misconception. I f asked about the
details of your bill, I w^ould be very glad to address those details at
any time that you or the chairman of this subcommittee would like to
have me do so.
Chairman M i t c h e l l . The Chair wants to raise one more question
and make one or two observations. For the first time in the many years
that you have appeared before the committee and that I have been
honored to be here to hear your testimony, I am a little upset by your
remarks. In your colloquy with Congressman Vento, you suggested
that the Members of Congress were perhaps not intellectually pre
pared to cope with the sophisticated details of those minutes. Perhaps
we are not. I, for one, do not feel any intellectual impairment, Dr.
Burns. I don’t think that would be a reason to preclude me from seeing
the minutes. Do you want to comment on that?
Dr. B u r n s . Thank you for giving me the opportunity. W hat I
meant was that it is difficult for me— and I think I am a fairly typical
specimen of mankind in this respect— to absorb a mountain of detail
intellectually, even if I devote all of my energies to that and that
alone.
Members of the Congress have to devote so much time to the prob
lems of their constituents, so much time to numerous pieces of legisla
tion passing through the Halls of Congress. W ith all their other duties,
it would be impossible to grasp intellectually— for me, at least, and
therefore I think also for most Members of the Congress— the maze of
detail that is represented in these minutes. I think the minutes we sub
mitted came to something like 5,000 pages.
That is all that I meant. I was talking simply about human frailty
and human fallibility.
Chairman M i t c h e l l . I thank you for your observation. A t least this
Member would like to test his intellectual ability to try to grasp the
significance, and therefore I would be pressing for that,
The other observation that I wanted to make, Chairman Burns, was
that America has changed significantly over the last 10 years. It has
changed in terms of openness; congressional reforms that have taken
place. It has changed, certainly, in terms of moving toward the con
cept of the public’s right to know. I assume you would not generally
68
oppose those changes. I think they are healthy for democracy. W hat we
are going to face is this: I f there is not legislation to deal with the is
sues discussed in these two bills this morning, there is no question but
that citizens’ groups and individual citizens are going to start going
to the courts, time and time again, to secure information that they think
they have the right to have. Isn’t it a far more logical approach to try
to do this through some legislation, with safeguards added on, than to
see this happen in a kind of piecemeal fashion by action through the
courts, time and time again ? That is going to happen, and you and 1
might as well face it.
Dr. B u r n s . W e are facing it.
The Board submitted minutes covering 3 years of bank Board meet
ings. Apart from a number of misrepresentations, nothing has come
out of your committee concerning these minutes. No member of the
committee has come forward with any evidence whatever that this
would help the Congress do its job. A few misrepresentations have been
made on the basis of those minutes; that is all the good or all the evil
that has come out of this exercise. Therefore my thought is, suppose we
did what you ask; what would you gain from it ?
I f you write legislation, you ought to demonstrate a need for it. There
are so many problems in this country; I just sit here and wonder why so
much fine talent, so much fine energy, should be expended on a piece of
legislation such as this, when this country faces major economic prob
lems that you and I ought to be struggling with and devoting our best
energies to.
That is my thinking. You may like it or not, but I have expressed
m yself; you have given me the opportunity to do so.
Chairman M i t c h e l l . I don’t particularly like it, but you and I still
remain friends. I don’t like it primarily because while we are wrestling
with the great problems of a sluggish economy, the problems of some
difficulties with monetary policy, the problems of energy, we ought to
bear in mind that every one of those problems ought to be kept in per
spective. Ultimately what the Congress is going to have to do is achieve
a tandem relationship between fiscal and monetary policy. I think that
access to what appears to be minute to some at this stage is necessary
for the development of that kind of policy somewhere down the line,
you may or may not agree, and I won’t ask you to comment. I will just
close by thanking you for being here, and again, I appreciate your co
operation, which has always been excellent.
Thank you very much.
Dr. B u r n s . Y o u are very kind. Thank you, Mr. Chairman.
Chairman M i t c h e l l . The subcommittee now stands adjourned.
[Whereupon, at 1 0 :15 a.m., the subcommittee was adjourned, sub
ject to the call of the Chair.]
A
ppendix
I
MAKING THE FEDERAL RESERVE SYSTEM MORE ACCOUNTABLE
O p e n i n g s t a t e m e n t b y H e n r y S. Reuss, C h a i r m a n o f
the. H o u s e C o m m i t t e e o n B a n k i n g , F i n a n c e a n d U r b a n
A f f a i r s , f o r h e a r i n g s o n H. R. 8094, a b i l l t o
p r o m o t e the a c c o u n t a b i l i t y of the F e d e r a l R e s e r v e
System,
1 0 : 0 0 a.m., M o n d a y , J u l y 18, 1977.
Congress,
has the p o wer
u n d e r Article. I, S e c t i o n
"to c o i n M o n e y ,
8 of t h e C o n s t i t u t i o n ,
r e g u l a t e the V a l u e
After much experience with panic
thereof” *
and depression,
Congress
u n d e r t h e F e d e r a l R e s e r v e A c t of 1 9 1 3 d e l e g a t e d t o t h e F e d e r a l
R e s e r v e S y s t e m the d a y - t o - d a y o p e r a t i o n s of i t s m o n e t a r y p o w e r ,
w i t h p a r t i c u l a r r e f e r e n c e t o the n e e d
for a " f l e x i b l e c u r r e n c y " .
W h e n w e s p e a k o f t h e i n d e p e n d e n c e of t h e F e d e r a l
we
s p e a k of it s
Reserve,
independence from the Executive Branch and not
from the Congress.
C ongress could h av e del e ga t ed
p o w e r to the E x e c u t i v e .
F e d e r a l Reserve,
its m o netary
It c h o s e i n s t e a d t o d e l e g a t e
whose Board members'
14-year
insulate them from Executive manipulation.
terms
it to the
effectively
Though the Executive
ga i n e d the asc e n d e n c y over the F e d e r a l Reserve d u r i n g W o r l d
War
II a n d for h a l f a d e c a d e t h e r e a f t e r ,
the Treasury
a n d th e Fed,
an d r e i n f o r c e d
the i n d e p e n d e n c e of
Executive.
the
195.1 A c c o r d b e t w e e n
n e g o t i a t e d b y t he C o n g r e s s ,
(6 9 )
the Federal
Reserve
reaffirmed
from the
70
For
t h e f i r s t h a l f c e n t u r y or so of its e x i s t e n c e ,
F e d e r a l R e s e r v e ca n h a r d l y b e said to h a v e b e e n
its m o n e t a r y poli c y .
Until
t h e late
p o l i c y w o r t h y o f th e n a me.
1920s,
Thereafter,
the
successful
in
there was no monetary
it w a s m o s t l y w r o n g - h e a d e d .
Excessively restrictive monetary policy helped b r i n g on the
d e p r e s s i o n o f 19 2 9 a n d s n u f f o u t th e b e g i n n i n g s o f r e c o v e r y in
1937.
D u r i n g t h e w a r ye a r s ,
a n d r i g h t u p u n t i l t h e a c c o r d o f 1951,
F ederal Reserve monetary policy was
Executive,
a n d e x c e s s i v e l y loose.
monetary policy was
excessively
dominated by the
During most o f
too restrictive,
t he 1950s,
and c o n t r i b u t e d
to the slow
g r o w t h of the decade.
In t h e l a s t 15 y e a r s ,
characterized by
monetary policy has be e n
s t o p s a n d starts.
in t h e V i e t n a m years of
a g a i n i n 1972 a n d 1973,
Too much n ew m o n e y was created
196 7 a n d 1968,
Then policy reversed and became
too frequently
helping to cause
too r e s t r i c t i v e .
inflation.
Overease revived
t o b e f o l l o w e d by t h e e x c e s s i v e r e s t r i c t i v e
n e s s of l a t e 1974 a n d e a r l y 1975.
T hen,
resolution
in M a r c h ,
1975,
Congress
e n a c t e d H.
months
of
Res.
133.
This
set u p q u a r t e r l y d i a l o g u e s b e t w e e n t h e F e d e r a l R e s e r v e
and the House and Senate Banking Committees,
Federal
Con.
Reserve's
stating its targets
for t h e m o n e y
cash and checking
worked very well
supply,
principally
accounts).
in t h e e n s u i n g
and
resulted
in t h e
for t h e f o l l o w i n g t w e l v e
(the p u b l i c ' s h o l d i n g s
By a n d larg e ,
two years.
this
p o l i c y has
71
T h e r e have been a t le a s t
two e x c e p t i o n s ,
r e la p se s in to s t o p -s t a r t p o l i c i e s .
due to un fortu nate
In June, 1 9 7 5 , u n n e c e ssa rily
u pset by the in crease in the money supply caused by the Fed eral
income ta x .re b a te *
the Fed put on the monetary b ra k e s, and
con trib u ted to the slow-down in recovery in the sumcer o f 1 9 7 5 .
A gain , in A p r i l, 1 9 7 7 , the Fed created an ex h orb ita n t amount o f
nex7 money, a t an annual r a te o f almost 20 p e rc e n t.
Then, on
some tw o-w rongs-can-m ake-a-right b a s i s , i t lowered th e c r e a tio n
o f new money to zero in Hay, 1977 , causing a w h olly unnecessary
in cre ase in the bank prime r a t e .
But I hope th ese were monetary a berration s from a s e n s ib le
new tren d.
I hope the Federal Reserve w i l l be a b le to resist
the tem ptation to jo i n what Business Week c a l l s
"t h e new
M e tte m ic h s " — the European cen tra l bankers - -
some o f whom
want to go back to the d isc r e d ite d operation o f fig h t in g
i n f la t i o n by so squeezing the money supply as to cause in creased
unemployment f
So fa r I have been d iscu ssin g the major a c t i v i t y o f the
Federal Reserve System — monetary p o lic y .
two other very important fu n ction s - -
But the Fed has
as p r in c ip a l reg u latory
agency fo r s t a t e member banks o f the Federal Reserve System,
and as s e r v ic e r o f the banking system through check c le a rin g
operation s and coin and currency tr a n s fe r s .
72
As
I have
serviceable
suggested,
agency
today
the F e d e r a l R e s e r v e
t h a n at
any
time
in
is a m o r e
its h i s t o r y .
I t s Chairman, Dr. Arthur Burns, i s an able and respected
le a d e r .
A l l the more reason , then, th at the a c c o u n ta b ility to
the p u b lic o f the Fed needs to be sharpened.
The f i v e
major p ro v isio n s o f H.R. 8094, now before u s , would attea p r
to sharpen th at a c c o u n ta b ility .
There fo llo w the f i v e pro vision s o f H .R .8094,
and the
reasons fo r them:
1.
Hake permanent the C on gressional-F ederal Reserve
D ialogue on Monetary P o li c y .
H .Con.Res. 1 3 3 , which au th orizes
the q u a rte rly d ia lo g u e, expired by i t s own terms a t the end o f
1 9 76 .
Chairman Burns continues to appear q u arte rly b efore the
House and Senate Banking Committees.
But these appearances
should be re g u la r ize d and made b u s in e s s lik e by s t a t u t e .
A
su ccessor chairman, fo r example, could r e fu se to engage in th e
d ia lo g u e, and Congress could p o in t to no law which was being
flo u t e d .
In t h e c o u r s e o f m a k i n g t h e d i a l o g u e an o n g o i n g p r o c e d u r e ,
two- i m p r o v e m e n t s
policy
is m e a n t
E m ployment Act
price
stability
are needed.
to
serve
o f 1946 —
-- n e e d s
That
Federal
Reserve monetary
the n a t i o n ’s g o a l s
c o n t a i n e d in t h e
fo r m a x i m u m e m p l o y m e n t , p r o d u c t i o n ,
to b e
explicitly
stated.
and
73
Secondly,
the Federal
Reserve
s h o u l d be r e q u i r e d
n o t o n l y c o n c e r n i n g its p r o p o s e d m o n e t a r y a g g r e g a t e s
e n s u i n g year,
matters —
a s H.
Con.
Res.
133 r e q u i r e s ,
antici pa t ed velocity,
but on
to testify
for the
three rela t e d
e s timated i n t e r e s t rates,
and
portfolio composition.
First,
t he velocity with which money changes hands has
p r o f o u n d e f f e c t o n t h e a m o u n t of n e w m o n e y t h a t w i l l
T h e b i ll,
therefore,
includes
a
be needed.
"anticipated monet a r y v e l o c i t y , ”
as a s u b j e c t o n w h i c h t h e F e d s h o u l d testif y .
Second,
as part of the overall
annual e c o n o m i c p r o g r a m of
b o t h t h e A d m i n i s t r a t i o n a n d th e F e d e r a l R e s e r v e ,
a t least' to m a k e an e s t i m a t e of t h e
particularly on business
levels of
loans and on
is n o t s u g g e s t e d t h a t a t a r g e t for
i t is n e c e s s a r y
interest rates —
long-term mortgages.
interest rat e s be
It
stated,
b u t m e r e l y a n e s t i m a t e o f e x p e c t e d rates.
Coordination of
fiscal and m o n e t a r y p o l i c y w o u l d be
g r e a t l y e n h a n c e d if g o v e r n m e n t e c o n o m i s t s o u t s i d e
the F ed u nder
s t o o d w h a t t h e F e d ’s i n t e r e s t r a t e a n t i c i p a t i o n s w e r e .
As the
people's representatives,
to
the Congress
k n o w t h e F e d ’s v i e w o f t h e c o u r s e o f
e n s u i n g year.
is a l s o e n t i t l e d
interest rates
for the
74
What
about the fear that public
revelation
interest rates would cause disruption
is h a r d to see.
Making
and reduces
in f i n a n c i a l m a r k e t s ?
This
such information a v a i l a b l e to all s i m p l y
r e m o v e s the advan t a g e t hat insiders
enjoy,
of anticipated
in financial markets now
speculation based on rumors and m i s i n formation
t h a t d o c a u s e i n s t a b i l i t y in t h e m a r k e t s .
It i s w o r t h n o t i n g
t h a t t h e F e d * s o f t e n - s t a t e d v i e w t h a t p r o m p t d i s c l o s u r e of
Federal Open Market Committee directives would cause disruption
in t h e m a r k e t h a s n o t p r o v e d true.
30 d a y s
in t h e t i m e F O M C d e c i s i o n s
d e s t a b i l i z i n g effect,
Finally,
T h e r e d u c t i o n f r o m 90 to
are kept se c r e t has had no
a n d i n fact a p p e a r s to h a v e b e e n b e n e f i c i a l .
the F e d e r a l Reserve ca n affect
i n t e r e s t r a t e s b y t h e c o m p o s i t i o n of
i n t e r e s t ra t e s .
equal
by
increas
the Fed can modestly
relative to
Proposed portfolio policy
securities,
to o n e - f o u r t h
For example,
i n g it s h o l d i n g s o f l o n g e r - t e r m s e c u r i t i e s ,
b r i n g down l o n g - t e r m i nterest rates
s t r u c t u r e of
its p o r t f o l i o o f
c u r r e n t l y v a l u e d a t c l o s e to $100 b i l l i o n ,
of t h e p r i v a t e l y - h e l d n a t i o n a l debt.
the
is,
short-term
therefore,
an
i m p o r t a n t p a r t o f t h e F e d e r a l R e s e r v e ’s q u a r t e r l y p r e s e n t a t i o n .
These b r o a d e n e d guidelines w o u l d avoid
the present total
c o n c e n t r a t i o n o n t h e m o e n t a r y a g g r e g a t e s al o n e .
Z.
Broaden the economic interest of Federal Reserve Bank
d ir e c to r s .
Under presen t law, the nine d ir e c t o r s o f each o f
the 12 Federal Reserve banks have unduly narrow backgrounds.
Commercial banks e l e c t s i x o f the nine
th re e c la s s A d ir e c t o r s ,
always bankers, as th e ir d ir e c t "r e p r e s e n t a t i v e s ,” and three
c la s s B d ir e c to r s from "commerce, a g r ic u ltu r e ,
in d u s t r ia l p u r su it” .
or some other
The three c la s s C d ir e c t o r s are chosen
by the Federal Reserve Board o f Governors, w ith nothing sa id
as to who they may b e .
As the Banking Committee s t a f f study —
"F e d e ra l Reserve
D ir e c t o r s : A Study o f Corporate and Banking In flu e n c e ” ,
August 1976
d is c lo s e d , th is has produced a rep resen ta tio n
g r o s s ly b an k er-o riented at the expense o f o th e r groups.
Furthermore, i t has r e su lte d in the v ir t u a l e x c lu sio n o f women,
b la c k s , and r e p r e se n ta tiv e s o f lab or unions and consumer
in t e r e s t o rg a n iz a tio n s.
H.R. 8094 would remedy the s itu a tio n w ith r e sp e c t to
d isc rim in a tio n by req u irin g that a l l d ir e c to r s - - A, B, and
C
be chosen ’ ’w ithout d iscrim in a tio n on the b a s is o f race,
creed , c o lo r , sex , or n ation a l o r i g i n " .
As to economic r e p r e se n ta tio n , the th ree c la s s A d ir e c to r s
would be l e f t as they are now - - bankers.
C lass B d ir e c to r s would be s p e c if i c a ll y designated " p u b l i c "
and broadened from the present "commerce, a g r ic u ltu r e , or some
o th er in d u s t r ia l p u r s u it" to "w ith due but not e x c lu siv e
c o n sid e ra tio n to the in te r e s ts o f a g r ic u ltu r e , commerce, in d u stry ,
s e r v ic e s , la b o r , and consumers".
While c la s s B d ir e c to r s are
e le c t e d by the member banks, they should be chosen from a
broader category than the ambiguous e x is tin g "commerce,
a g r ic u ltu r e , or some oth er in d u s tr ia l p u r s u i t ".
I t i s archaic
to con cen trate, fo r example, on "in d u s t r ia l p u r s u i t " , when
s e r v ic e in d u s trie s are s t e a d ily becoming more prominent than
the purely in d u s tr ia l p u rsu its -which were in everyon e’ s minds
in 1913 when the Federal Reserve Act was w r it te n .
"S e r v ic e s ,
la b o r , and consumers" are groups o f our c it iz e n r y whose economic
i n t e r e s t s e n t i t l e them to con sideration fo r s e a ts on the Federal
Reserve Bank Boards.
C lass C d ir e c to r s would be chosen, as now, by the Federal
Reserve Board o f Governors.
But instead o f no language as to
q u a li f i c a t io n , they would have the same q u a li f i c a t io n s as c la s s
B d ir e c t o r s :
they must represent the p u b lic , and "w ith due b u t
not e x c lu s iv e con sid e ratio n to the in te r e s ts o f a g r ic u ltu r e ,
commerce, in d u stry , s e r v ic e s , la b o r , and consum ers".
These f i r s t two p ro v isio n s o f H . R .
--
8094
the permanent
C ongressional Federal Reserve d i a l o g u e , and the broadening o f
the Federal Reserve Bank d ire c to rs - -
are
s u b s ta n tia lly
s im ila r to H .R. 1293 4, which passed the House by a v o te o f
2 7 9 -8 5 on May 1 0 , 19 7 6 .
Because o f the adjournment o f the
Senate in September, 1976, the b i l l did not reach a ctio n there.
3.
Require Senate confirm ation o f the Chairman o f the
Board o f Governors.
Under e x is tin g law, members o f the Federal
Reserve Board o f Governors, who serv e 14-y ea r term s, are su b je c t
to Senate con firm ation at the time o f th e ir appointm ent; one o f
the Board members i s designated by the P resid en t to serve as
Chairman f o r a 4 -y e a r term, but without Senate con firm ation .
Thus,- the P residen t can designate as Chairman someone who was
confirmed by the Senate some 13 years p r e v io u s ly , y e t the Senate
be pow erless to confirm the appointee to what was r e c e n tly
c a lle d the N a tio n ’ s *!Ro. 2 p o s i t i o n ".
The b i l l would make the
P resid e n t*s ch oice o f Chairman su b je c t to the a d vice and consent
o f the Senate.
The Federal Reserve r e c e n tly t o l d t h is
Committee th at i t has no o b je c tio n to t h is p r o v is io n .
4.
Prevent the F e d 's Using Banks as i t s L o b b y is ts .
The
F ederal Reserve System has been using bankers
who are deeply
beholden to the Fed because o f the F ed 's a b i l i t y
to give or
w ithhold a discount window lo a n , or to g iv e or w ithhold such
p r iv ile g e s as approval fo r a m erger, h old in g company a c q u is itio n ,
or an Edge Act o f f i c e - -
to lobby on the F e d 's b e h a lf with
l e g i s l a t o r s and other government o f f i c i a l s .
9 9 - 3 3 1 O - T(
For example, as revealed by the minutes of the Board
of D irectors of the Federal Reserve Bank of
Chicago tor May
1 9 7 4 # V i c e C h a i r m a n G e o r g e W. M i t c h e l l o f t h e F e d e r a l
23,
Reserve
B o a r d of G o v e r n o r s c om m e n t e d on the l o b b y i n g e f f o r t s of th e
F e d to k i l l the b i l l requiring a GAO audit:
Go vernor M i tchell also noted that the GAO
au d i t bi l l should come u p for v o t e n e x t w e e k
o n t he floor of the House, Reserve b a n k
d i r e c t o r s h a v e b e e n h e l p f u l in c o n t a c t i n g
C o n g r e s s m e n a nd h opefully the bill c a n be
a t l e a s t a m e n d e d t o r e s t r i c t t h e t y p e of a u d i t
if c h a n c e s f o r o u t r i g h t e l i m i n a t i o n l e s s e n .
C h i c a g o F e d e r a l R e s e r v e B a n k P r e s i d e n t R o b e r t P„ M a y o
a t t h e s a m e m e e t i n g c a l l e d for
continuing l o b b y i n g efforts:
Mr. M a y o c o m m e n t e d f u r t h e r o n t h e G A O a u d i t
b i l l , n o t i n g t h a t i t is H o u s e B i l l n u m b e r e d 1 0 2 6 5
a n d s h o u l d b e u p for c o n s i d e r a t i o n o n M a y 29.
Ke then requested each director to m a k e whatever
c a l l s s e e m n a t u r a l to h i m i n o r d e r t o e n c o u r a g e
support for the Federal Reserve position.
The Philadelphia Federal
for May
4 and May
18,
1972,
Reserve Bank,
d e s c r i b e d its u s e
in its m inutes
of priv a t e commercial
banks and the N e w Jersey Bankers Association against
bill w h i c h m i g h t h a v e a t t r a c t e d
independent ban k s
a New Jersey
away from
t h e Fed:
P r e s i d e n t Eastburn said there w a s a B ill in
t h e N e w J e r s e y A s s e m b l y to p e r m i t n o n m e m b e r s t o
k e e p u p t o 50 p e r c e n t o f t h e i r r e s e r v e s i n
g o v e r n m e n t securities.
He i n d i cated th a t this
B a n k h a d b e e n in t o u c h w i t h N e w J e r s e y b a n k e r s ,
the New Jersey Bankers Association a n d key legislators
t o e x p r e s s t h e f e e l i n g t h a t th e B i l l w o u l d b e
d i v i s i v e , i n e q u i t a b l e , a n d d i s r u p t i v e , a n d v;ould h a v e
a n a d v e r s e e f f e c t on m e m b e r s h i p .
H e reported that
the Bill had recently be e n sent b a c k to Committee.
Again,
t h e R i c h m o n d F e d e r a l R e s e r v e Ban k h a s a l s o b e e n a d e p t
a t u s i n g b a n k e r s as o f f i c i a l u n r e g i s t e r e d l o b b y i s t s
In O c t o b e r ,
Lawson,
1975,
for the Fed.
R i c h m o n d F e d e r a l R e s e r v e B a n k C h a i r m a n R o b e r t W.
in a s p e e c h t o t h e A m e r i c a n B a n k e r s A s s o c i a t i o n a t H o t
Springs, Virginia,
c o n g r a t u l a t e d the b a n k e r s f o r t h e i r g r e a t l o b b y
i ng a s s i s t t o t h e Fed.
C h a i r m a n L a w s o n ’s r e m a r k s w e r e
the subject
of a c o l l o q u y b e t w e e n m y s e l f and C h a i r m a n Art h u r B u r n s of the
F e d e r a l R e s e r v e B o a r d o f G o v e r n o r s at a h e a r i n g b e f o r e t h e S u b
committee on Financial
Institutions Supervision,
I n s urance of t h e C o m m i t t e e on Banking,
J a n u a r y 21,
Regulation and
Currency and H o u s i n g on
197 6:
C h a i r m a n Reus s .
L e t m e xiow g e t int o t h e a r e a o f
politics, which you brought up several times this
m o r n i n g i n c o n n e c t i o n w i t h th e a u d i t b i l l f o r t h e Fed.
O n O c t o b e r 1, 1975, th e A m e r i c a n B a n k e r c a r r i e d an i n t e r
e s t i n g s t o r y o n y o u r R e s e r v e B a n k c h a i r m a n in R i c h m o n d ,
R o b e r t L. L a w s o n .
The h e a d l i n e was, "Federal R e s erve Board O f f i c i a l Hails
B a n k R o l e in K i l l i n g G A O A u d i t o f th e Fed.*'
A n d t h e n it
w e n t o n t o d e s c r i b e h i s s p e e c h t o a b a n k e r s q r o u p , in w h i c h
h e said:
’’B a n k s p l a y e d a k e y r o l e in b l o c k i n q a C o n g r e s s i o n a l
a u d i t o f t h e F e d e r a l R e s e r v e Boar d .
The b a n k e r s in o ur
d i s t r i c t a n d e l s e w h e r e d i d a t r e m e n d o u s job in h e l p i n g to
d e f e a t t h e G A O b i ll.
It s h o w s w h a t can b e d o n e w h e n t h e
b a n k e r s o f t h e c o u n t r y g e t t o g e t h e r .”
M y q u e s t i o n is:
If y o u g e t t h e s u p p o r t o f t h e b a n k s o n
a n i s s u e w h i c h is o f g r e a t c o n c e r n to you , w h e t h e r C o n g r e s s
h a s th e r i g h t to a u d i t y o u r b o o k s or not, a r e t h e y n o t
l i k e l y t o e x p e c t in r e t u r n k i n d t r e a t m e n t f r o m y o u as a
regulator?
T h e y w o u l d n o t g e t it, of c o u r s e , b u t a r e t h e y
n o t l i k e l y to e x p e c t it?
Dr. B u r n s .
A s for Mr. L a w s o n ’s s t a t e m e n t , l e t m e m e r e l y
r e m i n d y o u that, as I i n d i c a t e d in my t e s t i m o n y , w e h a v e in
t h e S y s t e m 269 d i r e c t o r s , an d n e i t h e r I n o r t h e B o a r d c a n b e
r e s p o n s i b l e fo r w h a t i n d i v i d u a l d i r e c t o r s m a y o r m a y n o t say.
C h a i r m a n Reuss.
D i d n o t the F e d e r a l R e s e r v e p e o p l e ,
to you r knowledge, c o m municate w i t h the b a n k s ab o u t bank
lobbying against the audit bill?
Dr. B u rns.
I p l a y e d n o p a r t in thi s a c t i v i t y a t all,
n o t b e c a u s e I w o u l d c o n s i d e r it wr o n g , b u t b e c a u s e I d i d
n o t h a v e t h e time.
C h a i r m a n Re u s s .
M y q u e s t i o n was, w i t h r e s p e c t t o p e o p l e
a t the Fed, w a s th e r e not a little c o m m u n i c a t i o n there?
Dr. Bu rn s .
Yes.
T h a t is to say, t h e r e w a s s o m e c o m m u n i c a
t i o n b e t w e e n o u r v a r i o u s d i r e c t o r s , n o t w i t h b a n k e r s as
such, b u t w i t h b a n k e r s , j o u r n a l i s t s , b u s i n e s s p e o p l e .
I
d o not k n o w w h o m they contacted.
A n d t h a t , I t h i n k , is a n
e ntirely l e g itimate activity.
A f t e r all, d o n o t M e m b e r s
of Congress want to hear from their c onstituents?
It is j u s t as i m p r o p e r f o r th e F e d e r a l R e s e r v e
a regulated
i n d u s t r y a s its l o b b y i s t as it w o u l d
be
F e d e r a l P o w e r C o m m i s s i o n to e n l i s t e x e c u t i v e s o f
companies
it r e g u l a t e s
t o t h e FPC.
of course,
for,
say,
the
the oil and g a s
to l o b b y C o n g r e s s o n m a t t e r s
S u c h a c t i v i t i e s b y th e F e d e r a l P o w e r
b e c l e a r l y i l l e g a l u n d e r th e o v e r a l l
S y s t e m to u s e
of concern
Commission,, w o u l d ,
act
forbidding
lobbying by administrative agencies with money appro p r i a t e d by
the Congress
(18 U.S.
C o de,
1913).
f r o m t h i s s t a t u t e b e c a u s e its
S u c h u s e of t h e b a n k s
Accordingly,
Section
is t e c h n i c a l l y e x e m p t
funds are not a p p r o p r i a t e d by Congress.
for lobbying p u r p o s e s
4 o f K.R.
o f f i c e r s of the F e d e r a l
The Fed
Reserve
8094
forbids d i r e c t o r s
from getting b a n k s
i nst i t u t i o n s reg u l a t e d by the Fed to lobby for
the Fe d ' s behest.
s h o u l d cease.
or
or other
l e g i s l a t i o n at
5.
Prohibit Federal Reserve o f f i c e r s , employees,
directors
f r o m a c t i n g w h e r e the y h a v e a c o n f l i c t o f
U n d e r e x i s t i n g law,
employees and officers of
interest.
t h e U.
G o v e r n m e n t m a y n o t p a r t i c i p a t e in a n y m a t t e r b e f o r e
m e n t in w h i c h they or a m e m b e r of their
interest,
family or busi n e s s have a n
u n l e s s t h e r e is f i r s t a f u l l d i s c l o s u r e o f
substantial.
S.
the Govern
this
a n d a n o f f i c i a l w r i t t e n d e t e r m i n a t i o n b y an o f f i c i a l
i n t e r e s t is n o t
and
interest
t h a t thi s
T h e F e d is n o t c o v e r e d .
H.
R.
e x t e n d s t h i s p r o h i b i t i o n to F e d e r a l R e s e r v e B a n k o f f i c e r s ,
and directors.
8094
employees,
Th e m i n u t e s of Fede r a l Reserve B a n k m e e t i n g s
p r e v i o u s l y r e f e r r e d to contain instances of F e d e r a l
officials proceeding
Reserve
to exercise their authority d e s p i t e
a clear
c o n f l i c t of i n t e r e s t .
*******
The proposal
for an audit of the Fe d e r a l
Reserve System
c o n t a i n e d in a n e a r l i e r v e r s i o n o f t h e F e d e r a l R e s e r v e R e f o r m
A c t of 1977 h a s b e e n d r o p p e d b e c a u s e t h e H o u s e G o v e r n m e n t O p e r a t i o n s
C o m m i t t e e on J u n e
H.R.
2176.
28 r e p o r t e d a b i l l p r o v i d i n g
That bill provides
b u t of th e C o m p t r o l l e r of
for
s u c h a n a udit,
for a n a u d i t n o t o n l y o f t h e F e d
the Curren c y
and the F e d e r a l Depo s i t
Insurance Corporation.
T a k e n a l t o g ether,
this l e g i s l a t i o n wi l l m a k e t he F e d e r a l R e s e r v e
System more accountable.
As D e a n J o n a t h a n S w i f t said:
"Providence never
inte n d e d to m a k e the m a n a g e m e n t of p u b l i c a f f a i r s a m y s t e r y ,
c o m p r e h e n d e d o n l y by a fe w p e r s o n s of s u b l i m e g e n i u s . "
to be
FOR
TUESDAY,
May
5:3^
24, 19 7"
WHAT THE SECRET MINUTES OF FEDERAL RESERVE
BANKS MEETINGS DISCLOSE
S t a t e m e n t b y H e n r y S'. Reuss, C h a i r m a n of t h e H o u s e C o m m i t t e e o n
B a n k i n g , F i n a n c e and U r b a n A f f a i r s
MR.
REUSS.
Mr.
Spea k e r ,
for m a n y y e a r s t h e H o u s e B a n k i n g
C o m m i t t e e ha s t a k e n s e r i o u s l y its o v e r s i g h t r e s p o n s i b i l i t i e s t o w a r d
th e F e d e r a l R e s e r v e S y s t e m a n d its 28,000 em p l o y e e s .
W e h a v e t r i e d e v e r y t h i n g f r o m m o r a l s u a s i o n to a t t e m p t s at
complete audits by the General Accounting Office.
O u r efforts,
h a n d i c a p p e d i m m e a s u r a b l y by the F e d e r a l R e s e r v e ' s a l l - e n c o m p a s s i n g
c l a i m of
"independence",
have yielded only sporadic results.
h a v e s i m p l y n e v e r b e e n a b l e to o b t a i n full a n d c o m p l e t e
Vie
information
a b o u t t h e v a r i o u s a c t i v i t i e s of the F e d e r a l R e s e r v e System.
Recen t l y ,
th e C o m m i t t e e has a c q u i r e d m i n u t e s of the b o a r d s of
d i r e c t o r s m e e t i n g s of th e 12 F e d e r a l R e s e r v e B a nks.
th e C o m m i t t e e a f t e r F e d e r a l
T h e s e c a m e to
Reserve Board Chairman A r thur Burns
c h a l l e n g e d som e c o n c l u s i o n s of th e B a n k i n g C o m m i t t e e ’s A u g u s t ,
197 6
r e p o r t r a i s i n g s e r i o u s q u e s t i o n s a b o u t the 12 R e s e r v e B a n k s a nd
the potential
for c o n f l i c t s o f i n t e r e s t in t h e b o a r d s o f d i r e c t o r s ,
w h i c h are dominated by b anking and business
the report entitled,
interests.
"Federal Reserve Directors:
This was
A Study of
Corporate and B anking Influence."
In a s e r i e s o f l e t ters,
I a s k e d the F e d
to p r o d u c e t h e m i n u t e s
f r o m t h e v a r i o u s m e e t i n g s of the b o a r d s of t h e F e d e r a l
Reserve Banks
f o r t h r e e s e l e c t e d year s ,
f o r t h in
1972,
1974 and 197 5.
As
set
m y l e t t e r t o Dr.
Burns of September
23,
1976,
"Th e s e r e c o r d s are
i m p o r t a n t to t h e o v e r s i g h t a n d l e g i s l a t i v e r e s p o n s i b i l i t i e s of t h e
Committee."
W h a t these m i n u t e s reveal about the operations and attitudes
of t h e F e d e r a l R e s e r v e —
b y its r e g i o n a l b o a r d s of d i r e c t o r s a n d
t h e g o v e r n i n g b o a r d in W a s h i n g t o n —
is d i s t u r b i n g .
E v e n w i t h 904 d e l e t i o n s m a d e b y t h e Fed,
with
presumably dealing
" s e n s i t i v e " m a t t e r s s u c h as p e r s o n n e l d i s c u s s i o n s ,
delicate
t r a n s a c t i o n s o f f o r e i g n c e n t r a l banks,
or i t e m s d e a l i n g w i t h " B a n k
s ecur i t y ,
serious questions
t h e s e m i n u t e s r a i s e the m o s t
about
t h e u s e of p o w e r a n d m o n e y b y a p u b l i c agency.
The minutes
—
s h o w that:
W h e n legislation that would have subjected the Federal
R e s e r v e S y s t e m to c l o s e r
sideration,
B a nks,
s c r u t i n y by th e C o n g r e s s w a s u n d e r c o n
t h e F e d u s e d the b o a r d s of d i r e c t o r s of its R e s e r v e
with their business and financial constituency,
campaigns against the legislation —
go v ernment agencies.
a practice
in l o b b y i n g
forbidden other
T h e F e d h a s e x t e n d e d i t s l o b b y i n g to s t a t e
l e g i s l a t u r e s a s well.
—
T h e F e d h a s e n g a g e d in c l a n d e s t i n e a t t e m p t s
to e n c o u r a g e
c o m m e r c i a l b a n k s t o m a k e l o a n s to p a r t i c u l a r r e c i p i e n t s ,
real estate investment trusts and utilities,
C o n g r e s s t h a t it w a s d o i n g
—
It h a s p e r m i t t e d a d i r e c t o r w h o s e
while denying
to t h e
so.
i n t e r e s t e d p a r t y to v o t e on a m a t t e r
F r a n k l i n N a t i o n a l Bank.
namely
l a w f i r m r e p r e s e n t e d an
i n v o l v i n g t h e f a i l u r e of
—
It h a s m a d e s u b s i d i z e d loans t o its o w n e m p l o y e e s .
—
I t h a s p e r m i t t e d d i r e c t o r s of th e R e s e r v e B a n k s
to v o t e
t h e m s e l v e s $ 6 0 0 r e t i r e m e n t gifts.
A n y o n e o f t h e s e a c t i v i t i e s b y i t s e l f w o u l d b e c a u s e for
concern.
T a ken together,
accountability.
they form a pattern o f d isdain for p u bl i
They show a history of behind-the-scenes manipuls
tions to w a r d o f f legitimate investigations b y the Congress.
T h e F ederal Reserve has be e n granted a l a r g e m easure of
i n d e p e n d e n c e f r o m b o t h t h e e x e c u t i v e an d l e g i s l a t i v e b r a n c h e s .
T h i s i n d e p e n d e n c e is i n t e n d e d to s h i e l d the F e d f r o m p a s s i n g
p o l i t i c a l w i n d s in t h e c o n d u c t of m o n e t a r y p o l i c y .
It is r.ot
i n t e n d e d to r e l i e v e the F e d of a c c o untability to the public.
is n o t i n t e n d e d t o a u t h o r i z e a c t i v i t i e s in w h i c h o t h e r
a g e n c i e s w o u l d n o t d a r e engage.
official monkeyshines
It
cjcvernment
It is no t i n t e n d e d t o c l o a k
in a v e i l o f secrecy.
L o b b y i n g E f f o r t s in t h e U n i t e d S t a t e s C o n g r e s s
I n 19 7 4 a n d 197 5 t h e C o n g r e s s w a s the s u b j e c t o f a b a r r a g e o f
l o b b y i n g b y t h e c o m m e r c i a l b a n k s a g a i n s t tw o b i l l s a f f e c t i n g t h e
Federal Reserve —
both bills that have been b adly needed in the
p u b l i c int e r e s t .
O n e b i ll,
approved by the House Banking C o m m ittee on July
1975, w o u l d h a v e a u t h o r i z e d a n a u d i t o f t h e F e d e r a l
b y t h e G e n e r a l A c c o u n t i n g O f f ice.
Reserve System
The bill s p e c i f i c a l l y exempted
from the audit both monetary policy and foreign transactions.
10,
T h e r e is n o g o o d r e a s o n w h y t h e F e d s h o u l d b e e x e m p t f r o m t h e
k i n d of a u d i t t h a t is r o u t i n e l y m a d e of v i r t u a l l y e v e r y o t h e r a g e n c y
a n d d e p a r t m e n t o f the f e d e r a l g o v e r n m e n t *
The F e d handles t r ans
a c t i o n s w h i c h t o t a l at l e a s t $30 t r i l l i o n a y e a r .
is v a l u e d a t a b o u t $96 b i l l i o n ,
h e l d n a t i o n a l debt.
I ts p o r t f o l i o
e q u a l to 24 p e r c e n t of t h e p r i v a t e l y -
T h e F e d e r a l R e s e r v e S y s t e m is f r e e t o s p e n d t h e
n e a r l y $6 b i l l i o n it r e c e i v e s
in i n t e r e s t on t h e s e s e c u r i t i e s i n
v i r t u a l l y a n y w a y it c h o o s e s w i t h o u t b e i n g a c c o u n t a b l e t o any o n e .
T h e F e d a l s o is e n t r u s t e d w i t h m a j o r r e g u l a t o r y r e s p o n s i b i l i t y f o r
t h e c o m m e r c i a l b a n k i n g system.
For Congress to exercise
o v e r s e e the F e d e r a l R e s e r v e S y s t e m ,
its
s u c h an a u d i t
is c l e a r l y nee d e d .
T h e s e c o n d b i ll,
th e s o - c a l l e d
required generally that meetings
i n t h e S u n s h i n e " Act,
in w h i c h t h e p u b l i c
d e c i d e d be o p e n t o p u b l i c scrutiny.
substantial exemptions
'‘G o v e r n m e n t
i n t e r e s t is
The bill passed,
but with
f o r .the F e d e r a l R e s erve .
A r e a d i n g o f t h e m i n u t e s of t h e R e s e r v e B a n k b o a r d s of d i r e c t o r s
m e e t i n g s d e m o n s t r a t e s t h a t th e F e d has g o n e w e l l
beyond
o f p r o p r i e t y t o g e n e r a t e l o b b y i n g a g a i n s t t h e s e b i lls.
F e d e r a l R e s e r v e B o a r d in W a s h i n g t o n
V7ith t h e
s e r v i n g a s t h e c o m m a n d cen t e r ,
a well-orchestrated lobbying campaign was mounted,
u s i n g t he
m e m b e r s of th e b o a r d s of d i r e c t o r s as the p o i n t m e n .
indeed be valuable operators
the b ounds
in an y l o b b y i n g c a m p a i g n .
They would
The bankers
a n d b u s i n e s s m e n w h o m a k e u p t h e m a j o r i t y of t h e s e b o a r d s o f d i r e c t o r s
are men with powerful
t i e s i n t o the b o a r d r o o m s
t i o n s al l o v e r t h e c o u n t r y .
They also enjoy
of b a n k s a n d c o r p o r a
s t r o n g t i e s int o t h e
most powerful
trade associations.
see in t h e s e m i n u t e s ,
It is no w o n d e r ,
th a t such o r g a n i z a t i o n s as
from what we
the B u s i n e s s
R o u n d t a b l e a n d t h e A m e r i c a n B a n k e r s A s s o c i a t i o n g e a r e d u p for a n
a l l - o u t d.efense o f th e F e d e r a l Reserve.
L e t us l o o k at s o m e of t h e l o b b y i n g e f f o r t s
pieces of legislation,
O n F e b r u a r y 19,
against these two
as r e v e a l e d b y the d i r e c t o r s m e e t i n g s .
1974,
P r e s i d e n t F r a n k E. M o r r i s of t h e B o s t o n
F e d e r a l R e s e r v e B a n k c a l l e d o n his b o a r d of d i r e c t o r s to c o n t a c t
t h e M e m b e r s of C o n g r e s s to p r o m o t e the F e d e r a l
R e s e r v e ’s p o s i t i o n
on t h e G A O a u d i t bill.
T h e o f f i c i a l m i n u t e s of this m e e t i n g
R e s e r v e B a n k of B o s t o n Dire c t o r s *
minutes
state
(P.
95 of F e d e r a l
1972,
1974,
1975,
as
d e l i v e r e d to th e H o u s e B a n k i n g C o m m i t t e e ) :
"Mr. M o r r i s a l s o c a l l e d a t t e n t i o n t o t h e f a c t t h a t
H. R. 10265, w h i c h w o u l d p r o v i d e for a G.A. O . a u d i t of
th e F e d e r a l R e s e r v e S y s t e m h a d n o t d i e d in t he H o u s e
R u l e s C o m m i t t e e b u t w a s e x p e c t e d to r e a c h , t h e f l o o r o f
t h e H o u s e of R e p r e s e n t a t i v e s on or a b o u t M a r c h 5.
He
i n d i c a t e d t h a t th e S y s t e m ' s p o s i t i o n w a s t o s u p p o r t a n
a m e n d m e n t , to b e ^proposed by Rep. A s h l e y of Ohio, w h i ch
w o u l d l i m i t t h e s c o p e o f the a u d i t so as t o e x c l u d e m o n e t ary
p o l i c y a c t i o n s , b u t to c o n t i n u e to o p p o s e t h e b i ll, e v e n if
a m e nded, o n t h e f i n a l vote.
Th e d i r e c t o r s w e r e e n c o u r a g e d
t o let M e m b e r s o f t h e H o u s e k n o w their v i e w s o n t h e b i l l ."
.(Emphasis added) .
O n M a y 23,
1974,
G o v e r n o r G e o r g e W. M i t c h e l l ,
c h a i r m a n of t h e F e d e r a l
R e s e r v e B o a r d of G o v e r n o r s ,
t h e d i r e c t o r s m e e t i n g of the C h i c a g o F e d e r a l
d e s c r i p t i o n o f hi s r e m a r k s
m e e t i n g as follows:
then vice
a p p e a r e d at
R e s e r v e Bank.
A
is p r e s e n t e d in t h e m i n u t e s of t h a t
"R E M A R K S B Y G O V E R N O R M I T C H E L L ,
Chicago
(P.157,
M i n u t e s o f t h e B o a r d of D i r e c t o r s
F e d e r a l R e s e r v e B a n k of
for 1974,
as d e l i v e r e d
to t h e H o u s e B a n k i n g C o m m i t t e e ) :
G o v e r n o r M i t c h e l l a l s o n o t e d th a t the G A O a u d i t b i l l s h o u l d
c o m e u p f o r v o t e n e x t w e e k o n th e f l o o r o f t h e H o u s e .
Reserve
b a n k d i r e c t o r s h a v e b e e n h e l p f u l in c o n t a c t i n g C o n g r e s s m e n
a n d h o e p f u l l y t h e b i l l c a n b e at l e a s t a m e n d e d t o r e s t r i c t
t h e t y p e o f a u d i t i f c h a n c e s for o u t r i g h t e l i m i n a t i o n l e s s e n . "
Mr.
Bank,
R o b e r t P. M a y o ,
P r e s i d e n t of th e C h i c a g o F e d e r a l R e s e r v e
then called on the directors,
bankers and businessmen,
the G A O audit bill
w h o ar e p r i m a r i l y p r i v a t e
to c o n d u c t a l o b b y i n g c a m p a i g n a g a i n s t
(ibid):
"Mr. M a y o c o m m e n t e d f u r t h e r on th e G A O a u d i t bill,
n o t i n g t h a t it is H o u s e B i l l n u m b e r 1 0 2 6 5 a n d s h o u l d b e
u p f o r c o n s i d e r a t i o n o n M a y 29.
He then r e q u e s t e d each
d i r e c t o r to m a k e w h a t e v e r c a l l s s e e m n a t u r a l to h i m in
o r d e r to e n c o u r a g e s u p p o r t for th e F e d e r a l R e s e r v e p o s i
t i o n . A l t h o u g h b a s i c a l l y the S y s t e m w o u l d p r e f e r t o see
t h e e n t i r e b i l l d e f e a t e d b e c a u s e o f its m o n e t a r y p o l i c y
r e v i e w a s p e c t s , if t h a t is n o t p o s s i b l e t h e n t h e A s h l e y
a m e n d m e n t , r e s t r i c t i n g th e G A O to a f i n a n c i a l a u d i t is
f a v o r e d . " (Emphasis added).
Mr.
M a y o f o l l o w e d t h r o u g h o n his c a m p a i g n i n t h e J u n e 27
m e e t i n g b y t h a n k i n g t h e d i r e c t o r s w h o c o n t a c t e d M e m b e r s of
C o n g r e s s t o s e c u r e s u p p o r t fo r the F e d e r a l R e s e r v e p o s i t i o n .
T h e m i n u t e s o f t h i s m e e t i n g r e v e a l th e f o l l o w i n g
(ibid, P . 169)
"T h e G A O a u d i t b i l l r e c e n t l y p a s s e d t h e H o u s e of
R e p r e s e n t a t i v e s , b u t w a s l i m i t e d to a f i n a n c i a l
audit.
T h e r e is n o p r o s p e c t of S e n a t e a c t i o n t h i s session,
h o w e v e r , Mr. M a y o t h a n k e d t h o s e d i r e c t o r s w h o w e r e a b l e t o
c o n t a c t m e m b e r s o f C o n g r e s s to s e c u r e s u p p o r t f o r the
Federal Reserve position."
O n D e c e m b e r 18,
1975,
G o v e r n o r M i t c h e l l r e t u r n e d to t he C h i c a g o
F e d a n d c o m p l i m e n t e d t h e m on t h e i r l o b b y i n g p e r f o r m a n c e .
System remains
directors
s t r o n g a n d v i a b l e and
"The
support from Reserve Bank
in d e a l i n g w i t h C o n g r e s s has b e e n v e r y h e l p f u l , "
T h e B a n k i n g C o m m i t t e e ’s Aug u s t ,
d i r e c t o r s are.
Rg>vpr>fy---fhrpp of
R e s e r v e Banks,
a l m o s t 70 p e r cent,
or in t h e p a s t o f f i c e rs,
institutions.
shows who the
infj ^irpnt-nrs pf t h e F e d e r a l
a r e s h own to h a v e b e e n e i t h e r
then
d i r e c t o r s or e m p l o y e e s o f f i n a n c i a l
In m a n y cases,
w i t h c o m m e r c i a l banks,
1976 s t u d y
h e said.
n o t o n l y are t he d i r e c t o r s
connected
t h e y are al s o t o p o f f i c i a l s in b a n k l o b b i e s —
t h e A m e r i c a n B a n k e r s A s s o c i a t i o n and v a r i o u s
state banking
associations.
T h e . F e d w a s p r o u d of
unofficial,
c ha i r m a n ,
its s u c c e s s in e n l i s t i n g t he b a n k e r s as
unregistered lobbyists
R o b e r t W.
Law s o n ,
5,
1975,
l o b b y i n g a s s i s t to t h e Fed.
In a s p e e c h
in Hot S p r i n g s , V i r g i n i a on
L a w s o n c o n g r a t u l a t e d the b a n k e r s
e lsewhere did a tremendous
The Richmond Fed's
b r a g g e d a b o u t it p u b l i c l y .
to th e A m e r i c a n B a n k e r s A s s o c i a t i o n
October
for the Fed.
"The b a n k e r s
for t h e i r g r e a t
in o u r d i s t r i c t a n d
jo b in h e l p i n g to d e f e a t t h e G e n e r a l
A c c o u n t ing O f f i c e b i ll.."_h e said.
"It show s w h a t
can be done w h e n
th e b a n k e r s of t h e c o u n t r y g e t t o g ether."
W e h e a r d a b o u t t h a t r e m a r k in C o n g r e s s at t h e time,
W h a t w e h a v e n o t b e e n a b l e to d o c u ment,
m a d e available,
t h e F e d itself.
was
o f course.
until these minutes were
t h a t the c a m p a i g n w a s h e a v i l y o r c h e s t r a t e d b y
T h e p a t t e r n of o r g a n i z e d F e d
l o b b y i n g is a l s o s e e n
in
c o n n e c t i o n w i t h a t t e m p t s to g e t the F e d t o t a l l y e x e m p t e d f r o m t h e
"Government in the Sunshine"
bill.
O n D e c e m b e r 11,
1975,
the
C h i c a g o F e d ’s P r e s i d e n t M a y o r e p o r t e d to his d i r e c t o r s o n this
legislation.
A f t e r n o t i n g th e a l l e g e d c o n s e q u e n c e s o f o p e n i n g
d i r e c t o r s m e e t i n g s to the p u blic,
t i o n of - t h e l o b b y i n g effort,
V i c e President,
C h i c a g o Fed)
activities
he then d e s c r i b e d the o r g a n i z a
i n d i c a t i n g th a t W a r d J. L a r s o n
( S e nior
G e n e r a l C o u n s e l a n d S e c r e t a r y t o t he B o a r d of t h e
w o u l d follow up w ith each director on his lobbying
(Pp.
3 1 8 -319,
of the B o ard of D i r e ctors
F ederal Reserve Bank of Chicago,
for 1975,
Minutes
as d e l i v e r e d to t h e H o u s e
Banking C o m m i t t e e ) :
"Mr. M a y o r e p o r t e d t h a t a ' G o v e r n m e n t in S u n s h i n e *
b i l l h a s a l r e a d y p a s s e d the Senate, r e q u i r i n g a ll f e d e r a l
a g e n c i e s h e a d e d b y a b o d y of two or m o r e m e m b e r s a p p o i n t e d
b y t h e P r e s i d e n t to c o n d u c t b u s i n e s s at m e e t i n g s o p e n t o t h e
pub l i c .
E v e n in t h o s e i n s t a n c e s w h e r e a m a j o r i t y o f the
m e m b e r s v o t e to c l o s e the m e e t i n g a v e r b a t i m t r a n s c r i p t m u s t
b e m a d e a n d r e t a i n e d for at least two y e a r s .
" W h i l e t h i s b i l l d o e s n o t a p p e a r to a p p l y t o t h e
i n d i v i d u a l r e s e r v e banks, it d o e s a p p l y t o the B o a r d of
G o v e r n o r s a n d p o s s i b l y to the FOMC, (Federal O p e n M a r k e t
Co m m i t t e e ) a n d t h i s a p p l i c a t i o n c o n c e r n s u s d i r e c t l y as a
Sys t e m .
"A s i m i l a r bill, H. R. 11007, w i l l b e v o t e d u p o n soon
by the G o v e r n m e n t Opera t i o n s Committee o f the House.
We
w o ul d hope that the Federal Reserve Syst em could be totally
e x c l u d e d f r o m th e b i l l — -o r at l e a s t t h a t it b e e x e m p t - .
f r o m t h e r e q u i r e m e n t t h a t a v e r b a t i m t r a n s c r i p t be m a d e of
all c l o s e d m e e t i n g s .
"Keeping a v e r b a t i m transcript w o u l d c l e arly inhibit
d i s c u s s i o n an a c o u l d c m i s e m e m b e r s to s p e a k o n l y f o r thfe
r e c ord. J£hile s u c h a t r a n s c r i p t w o u l d b e s u b j e c t t o c o u r t
subpoencLr-^ v e n m o r e c r i t i c a l to the s y s t e m w o u l d b e the
scrut^riy o f the C o n g r e s s . As y o u can s e e t h i s l e g i s l a t i o n is
p a r t i c u l a r l y s e n s i t i v e w i t h _ x e g ^ r d t-o D o Q r d -~dx^cu¥sions o n
m o n e t a r y p o l i c y — aftd-i55nir~reaulatory m a t t e r s . (Emphasis added) .
"Mr. M a y o t h e n r e a d a list o f C o m m i t t e e m e m b e r s f r o m
this district.
H e asked each director to th i n k about
p o s s i b l e c o n t a c t s to e x p l a i n F e d e r a l R e s e r v e c o n c e r n and
i n d i c a t e d t h a t Mr. L a r s o n w o u l d b e in t o u c h w i t h e a c h
d i r e c t o r t o m o r r o w as a f o l l o w - u p ( E m p h a s i s added) .
T h e c o m p e l l i n g e v i d e n c e of e x t e n s i v e
of t h e F e d r a i s e s v e r y
s e r i o u s q u e stions.
a g e n c i e s to o r c h e s t r a t e l o b b y i n g c a m p a i g n s
l o b b y i n g on the part
A t t e m p t s by regulatory
a g a i n s t bills affect
i ng t h e i r a g e n c i e s
are i l l e g a l w h e n m o n e y a p p r o p r i a t e d b y the
Congress
S e c t i o n 1913 of T i t l e 18 of
is used.
t h e U nited States
C o d e p r o v i d e s as f o l lows:
"No p a r t of the m o n e y a p p r o p r i a t e d b y a n y e n a c t m e n t o f
C o n g r e s s shall, in t h e a b s e n c e o f e x p r e s s a u t h o r i z a t i o n
b y Con g r e s s , b e u s e d d i r e c t l y o r i n d i r e c t l y to p a y f o r a n y
p e r s o n a l s e rvice, a d v e r t i s e m e n t , t e l e gr a m , t e l e p h o n e , letter,
p r i n t e d o r w r i t t e n mat t e r , o r o t h e r d e v i c e , i n t e n d e d o r
d e s i g n e d t o i n f l u e n c e in a n y m a n n e r a M e m b e r of C o n g r e s s , t o
f a v o r o r o p p o s e , b y v o t e or othe r w i s e , a n y l e g i s l a t i o n or
appro p r i a t i o n by Congress, w h e ther b efore o r after the
i ntroduction of any bill or resolution p r o p o s i n g such legis
la t i o n o r a p p r o p r i a t i o n ; b u t this shall n o t p r e v e n t o f f i c e r s
o r a g e n c i e s f r o m c o m m u n i c a t i n g to M e m b e r s o f C o n g r e s s on t h e
r e q u e s t o f a n y M e m b e r o r to Congress, t h r o u g h t he p r o p e r
o f f i c i a l c h a n n e l s , r e q u e s t s for l e g i s l a t i o n o r a p p r o p r i a t i o n s
w h i c h t h e y d e e m n e c e s s a r y for t h e e f f i c i e n t c o n d u c t o f t h e
public business.
" W hoever, b e i n g an o f f i c e r o r e m p l o y e e of the U n i t e d
S t a t e s o r of a n y d e p a r t m e n t or a g e n c y t h e r e o f , v i o l a t e s o r
a t t e m p t s to v i o l a t e thi s section, shall b e f i n e d n o t m o r e
t h a n $500 o r i m p r i s o n e d n o t m o r e t h a n o n e y e a r , o r both; a n d
a f t e r n o t i c e a n d h e a r i n g b y the s u p e r i o r o f f i c e r v e s t e d w i t h
t h e p o w e r of r e m o v i n g him, shall be r e m o v e d f r o m o f f i c e o r
e m p l o y m e n t ."
T h e F e d is t e c h n i c a l l y e x e m p t f r o m this
f u n d s a r e n o t a p p r o p r i a t e d by C o n g r e s s .
s t a t u t e b e c a u s e its
But the
spirit which
p r o m p t e d t h e b a n o n o r g a n i z i n g l o b b y i n g by o f f i c i a l s of o t h e r
agencies
s h o u l d c e r t a i n l y b e o b s e r v e d in p r a c t i c e b y t h e F e d e r a l
R e s e r v e as well.
a gency.
T h e F e d e r a l Reser v e ,
a f t e r all,
It h o l d s g r e a t p o w e r o v e r f i n a n c i a l
is a r e g u l a t o r y
institutions.
extensive regulatory powers over bank holding companies
banks.
window.
It a p p r o v e s o r d i s a p p r o v e s l o a n s to b a n k s
It h a s
and member
from the discount
It a p p r o v e s t h e e s t a b l i s h m e n t of E d g e A c t c o r p o r a t i o n s ,
wh ich are international banking and holding companies
th e b a n k s h o l d i n t e r e s t in o v e r
D e s p i t e this,
Washington puts
through which
2,000 f o r e i g n f i n a n c i a l
institutions.
the prestigious Federal Re s e r v e Board
its m e m b e r s o n t h e road, v i s i t i n g
the R e s erve Banks
t o ^ e n c o u r a ge b a n k e r s a n d b u s i n e s s m e n s i t t i n g o n t h e B a n k b o a r d s
to b e c o m e i n v o l v e d in a m a s s i v e l o b b y i n g c a m p a i g n .
I a m dis t r e s s e d that Chairman Burns appare n t l y be l i e v e s that
it is "an e n t i r e l y l e g i t i m a t e a c t i v i t y "
for F e d e r a l R e s e r v e B a n k
di r ectors to c o mmunicate w ith
journalists,
people"
" b ankers,
and public
a b o u t l e g i s l a t i o n w h i c h t h e F e d d o e s n ' t like.
Bankers
a r e r e g u l a t e d b y th e F e d e r a l £ e & e f v e r aftv c o m m u n i c a t i o n
Fed about legislative lobbying has
impl i c i t
in i t t h e s u g g e s ^
tion that the regulators can give or withhold
s u p port.
The
followimf~colloqujTof January
favors
21,
( H earings b e f o r e t h e S u b c o m m i t t e e on F i n a n c i a l
Suprevision,
f r o m the
1975
in r e t u r n for
is i n s t r u c t i v e .
Institutions
R e g u l a t i o n a n d I n s u r a n c e o f th e C o m m i t t e e o n B a n k i n g ,
C u r r e n c y and Housing,
House of Representatives,
Ninety-Fourth
Congress, First and Second Sessions, P. 2006) :
" C H A I R M A N REUSS.
L e t m e n o w ge t into t h e a r e a of p o litics,
w h i c h y o u b r o u g h t u p s e v e r a l times this
m o r n i n g in c o n n e c t i o n w i t h t h e a u d i t
b i l l for the Fed.
O n O c t o b e r 1, 1975,
t h e A m e r i c a n B a n k e r c a r r i e d an i n t e r e s t i n g
s t o r y on y o u r R e s e r v e B a n k c h a i r m a n in
Ri c h m o n d , R o b e r t W. Lav/son.
T h e h e a d l i n e was, ' F e d e r a l R e s e r v e B o a r d
O f f i c i a l H a i l s B a n k R o l e i n K i l l i n g GAO
A u d i t of the Fed. 1 A n d t h e n it w e n t o n t o
d e s c r i b e hi s s p e e c h t o a b a n k e r s group, in
w h i c h he said:
'Banks p l a y e d a k e y r o l e i n b l o c k i n g a
Congressional audit of th e Federal Reserve
Board.
T h e b a n k e r s in o u r d i s t r i c t and
e l s e w h e r e d i d a t r e m e n d o u s job in hel p i n
to d e f e a t the GAO bill.
It shows w h a t c
be d o n e w h e n the b a n k e r s of the cou n t r y
get t o g e t h e r . '
M y q u e s t i o n is: If y o u g e t the s u pport of
the b a n k s on an is s u e w h i c h is of g r eat
c o n c e r n to you, w h e t h e r C o n g r e s s h a s the
r i g h t to a u d i t y o u r b o o k s o r not, a r e t h e y
n o t l i k e l y to e x p e c t i n r e t u r n k i n d t r e a t
m e n t f r o m y o u as a r e g u l a t o r ?
They would
n o t g e t it, of cou r s e , b u t a r e t h e y not
l i k e l y to e x p e c t it?
DR.
BURNS.
A s for Mr. L a w s o n ' s s t a t e m e n t , let m e
m e r e l y r e m i n d y o u that, a s I i n d i c a t e d in
m y test i m o n y , w e h a v e in t h e S y s t e m 269
d i r e c t o r s , and n e i t h e r I n o r t h e B o a r d
c an be responsible for w h a t individual
d i r e c t o r s m a y o r m a y n o t say.
C H A I R M A N REUSS.
D i d n o t the F e d e r a l R e s e r v e p e o p l e , to y o u r
k n o w l e d g e , c o m m u n i c a t e w i t h the b a n k s
a b o u t b a n k ^ l e b b y i h g agalnstr-^the^audit b i l l ?
DR.
I p l a y e d no p a r t in t h i s a c t i v i t y a t al3T>.
nox b e c a u s e I w o u l d c o n s i d e r it wrong, b u t \
b e c a u s e I di d not h a v e t h e time.
)
BURNS.
C H A I R M A N REUSS.
M y q u e s t i o n was, W i t h r e s p e c t to p e o p l e
at the Fed, w a s t h e r e n o t a l i t t l e c o m m u n i c a
tion there?
DR.
Yes.
T h a t is to say, t h e r e w a s som e
communication b e t w e e n our various directors,
n o t ^wiTtl^ b a n k e r s a s s ^ c h , b u t w i t h b a n k e r s ,
j o u r n a l i s t s . ^ s a n e s s peopleT T do n o t
kn o w w h o m they contacted.
A n d that, 1
think-,— i«=; an en t i r e l y 1
A f t e r all, d o n o t M e m b e r s of t h e C o n g r e s s
wa n t to hear from their constituents?
B U RNS.
T h i n k w h a t w o u l d h a p p e n if thfe F e d e r a l P o w e r C o m m i s s i o n
e n l i s t e d t h e e x e c u t i v e s o f th e oil an d gas c o m p a n i e s
it r e g u l a t e s
to l o b b y C o n g r e s s o n l e g i s l a t i o n of c o n c e r n t o t h e FPC.
w o uld be outraged.
A n d it w o u l d be c l e a r l y i l l e g a l .
It is a f i n e l i n e to d r a w b e t w e e n
of t h e c r i m i n a l
for lob b y i n g ,
the i n t e n t of t h i s s e c t i o n
code w h i c h prohibits the use of
appropriated funds
a n d th e F e d ' s u s e of f u n d s w h i c h w o u l d o t h e r w i s e
be paid into the F ederal Treasury.
taxpayers'
Congress
mo n e y .
In fact,
It is all,
in r e a l i t y ,
in o t h e r i n s t a n c e s t h e F e d
the
i t s e l f h as
argued that F ederal Reserve S y stem funds are in reality government
funds.
T h e O f f i c e o f M a n a g e m e n t an d B u d g e t r e c e n t l y i s s u e d
"Guidelines
said,
f o r R e d u c i n g P u b l i c R e p o r t i n g to F e d e r a l A g e n c i e s ” w h i c h
" F e d e r a l a g e n c i e s a r e n o t to e n g a g e in a n y d a t a c o l l e c t i o n
activities which are not
financed wholly by Federal
a l e t t e r to S e n a t o r L e e M e t c a l f ,
S u b c o mmittee on Reports,
s t ated:
funds.”
c h a i r m a n of t h e G o v e r n m e n t a l A f f a i r s
A c c o u n t i n g an d M a n a g e m e n t ,
Dr.
"We b e l i e v e t h a t S y s t e m fun d s m a y b e v i e w e d a s
f u n d s * * as d i s t i n g u i s h e d
f r o m p r i v a t e funds,
c o n t e x t o f t h e p r o v i s i o n o f th e O M B g u i d e l i n e
9 9 - 3 3 1 0 - 77 - 7
In
Burns
'federal
w i t h i n the limited
in question."
In o t h e r wo r d s ,
when
it s u its its purp o s e ,
the Fed claims
t h a t it is n o d i f f e r e n t f r o m o t h e r g o v e r n m e n t a g e n c i e s
simply
b e c a u s e its f u n d s a r e n o t a p p r o p r i a t e d .
Congress,
therefore,
s h o u l d r e m o v e this d i s t i n c t i o n b e t w e e n
t h e F e d a n d o t h e r a g e n c i e s b y a p p l y i n g to the F e d
the s a m e r e
strictions on lobbying that govern other agencies.
I.
Lobbying Efforts
in S t a t e G o v e r n m e n t s
L o b b y i n g e f f o r t s b y the F e d S y s t e m are n o t
U.
S.
Con g r e s s .
The Fed also organizes
c o n f i n e d t o the
l o b b y i n g a g a i n s t b i l l s it
o p p o s e s in s t a t e l e g i s l a t u r e s .
The minutes of the Philadelphia
F e d for M a y 4 an d M a y 18,
d e s c r i b e a l o b b y i n g e f f o r t in
1972,
N e w J e r s e y w h i c h i n v o l v e d e n l i s t i n g p r i v a t e c o m m e r c i a l b a n k s and
the N e w J e r s e y B a n k e r s A s s o c i a t i o n a g a i n s t a b i l l w h i c h m i g h t h a v e
attracted
i n d e p e n d e n t b a n k s a w a y f r o m the F e d
Reserve Bank of Philadelphia Board minutes —
(Pp.
1972,
57-58,
Federal
197 4 a n d 1975,
as d e l i v e r e d to the H o u s e B a n k i n g C o m m i t t e e ) :
" P r e s i d e n t E a s t b u r n sai d t h e r e w a s a B i l l i n t h e N e w
J e r s e y A s s e m b l y to p e r m i t n o n m e m b e r s t o k e e p u p to 50
p e r c e n t o f t h e i r r e s e r v e s in g o v e r n m e n t s e c u r i t i e s .
He
i n d i c a t e d t h a t t h i s B a n k h a d b e e n in t o u c h w i t h N e w Jers e y
ba n k e r s , t h e N e w J e r s e y B a n k e r s A s s o c i a t i o n a n d k e y l e g i s l a
t o r s to e x p r e s s t h e f e e l i n g t h a t the B i l l w o u l d b e d i v i s i v e ,
in e q u i t a b l e , an d d i s r u p t i v e , and w o u l d h a v e an a d v e r s e e f f e c t
on membership.
H e r e p o r t e d that the B i l l h a d r e c e n t l y b e e n
_____________ (name omi t t e d ) s a i d he
sen t b a c k to C o m m i t t e e .
w o u l d m e e t w i t h th e G o v e r n o r to d i s c u s s t-he Bill.",
A n d then two weeks
a follow-up report
later,
(ibid,
P.
the P h i l a d e l p h i a m i n u t e s c o n t a i n
62) :
"_________(name o m itted) r e p o r t e d t h a t t he p r o p o s e d
N e w Jersey- L e g i s l a t i o n , w h i c h w o u l d p e r m i t b a n k s t o i n v e s t
p a r t of t h eir reserves, h a d b e e n sent bac k to Committee.
He said h e h a d talked w i t h the Gove r n o r w h o will look into
the situation."
T h e p a t t e r n o f l o b b y i n g w i t h the U.
S. C o n g r e s s a g a i n s t t h e
G A O a u d i t b i l l a n d t h e S u n s h i n e A c t a p p e a r s to b e c a r r i e d t h r o u g h
by the r e g i o n a l b anks
Philadelphia minutes
and local bankers
for s t a t e l e g i s l a t i o n .
show,
T h e Bank,
as t h e
m o b i l i z e s th e s t a t e b a n k e r s a s s o c i a t i o n
in i t s l e g i s l a t i v e camp a i g n s .
T h e s k i m p i n e s s of t h e m i n u t e s a n d t h e o m i s s i o n of t h e n a m e
o f t h e c o n t a c t t o th e g o v e r n o r c o m p e l s the c o n c l u s i o n t h a t t h i s w a s
n o t a formal,
a b o v e - b o a r d e f f o r t to s t a t e th e F e d p o s i t i o n t h r o u g h
proper official channels.
This
secrecy,
regulation,
e s p e c i a l l y f o r an a g e n c y i n v o l v e d i n b a n k
is n o t i n k e e p i n g w i t h the s p i r i t o f
of g o v e r n m e n t a g e n c i e s .
t h e b a n k s it r e g u l a t e s ,
A f t e r all,
the F e d h a s
accountability
a half-Nelson on
a n d s h o u l d not b e in a p o s i t i o n o f i n t i m i d a t
ing t h e m into sup p o r t i n g the F e d p o s ition on legislation.
II.
F e d e r a l R e s e r v e H o l e in E n c o u r a g i n g P r i v a t e C o m m e r c i a l B a n k
L o a n s to R e a l E s t a t e I n v e s t m e n t T r u s t s a n d P u b l i c U t i l i t i e s
W h a t e v e r t h e p r o p r i e t y of the F e d e r a l
R e s erve a t t e mpting to
e n c o u r a g e c o m m e r c i a l b a n k l o a n s to p a r t i c u l a r r e c i p i e n t s ,
if it d o e s
so th e C o n g r e s s is c e r t a i n l y e n t i t l e d to k n o w a b o u t it.
D u r i n g h e a r i n g s of t h e S u b c o m m i t t e e on D o m e s t i c M o n e t a r y
P o l i c y o f th e H o u s e B a n k i n g C o m m i t t e e o n F e b r u a r y
a n a l l e g a t i o n b y A n d r e w B r i mmer,
R e s e r v e System,
6,
1975,
t h a t th e F e d w a s e n g a g i n g in e f f o r t s
loans to real estate investment trusts
to e n c o u r a g e
(REITs).
T h e f o l l o w i n g d a y w e q u e s t i o n e d Dr. A r t h u r B u r n s
al l e g a t i o n s .
a b o u t t h e n a t u r e of the d i f f i c u l t y . "
did not involve
"to f i n d o u t w h a t t h e y c o u l d
B u t he a d d e d
that
"The B o a r d
i t s e l f in a n y t h i n g that c o u l d r e m o t e l y be d e s c r i b e d
as c r e d i t a l l o c a t i o n . "
(Pp.
a b o u t these
H e a c k n o w l e d g e d tha t F e d o f f i c i a l s h a d t a l k e d w i t h
banks and real estate investment trusts
Neal
there w a s
for m e r G o v e r n o r o f t h e F e d e r a l
276-277,
The matter was
then p u r s u e d b y C o n g r e s s m a n
H e a r i n g s b e f o r e the S u b c o m m i t t e e o n D o m e s t i c
M o n e t a r y P o l i c y o f th e C o m m i t t e e on B a n king,
C u r r e n c y a n d Housing,
H o u s e of R e p r e s e n t a t i v e s ,
6,
"MR.
F e b r u a r y 4,
5, and
1975):
NEAL.
You are familiar Vith the testimony
Brimmer?
DR.
BURNS.
W e ll,
MR.
NEAL.
L e t m e ju s t r e a d y o u a c o u p l e of
B r i m m e r ' s t e s t i mony).
I a m learning about
of A n d r e w
it.
sentenes.
(Of
'As thi s c o m m i t t e e knows, w h i l e t he F e d e r a l R e s e r v e B o a r d
h a s b e e n s t r o n g l y o p p o s e d to any form a l s y s t e m of c r e d i t
a l l o c a t i o n b y c o m m e r c i a l banks, the B o a r d in f a c t h a s b e e n
d o i n g j u s t that.
L a s t y e a r the Board, p r i m a r i l y t h r o u g h the
R e s e r v e Ba n k s , t o o k an e x p l i c i t a n d a c t i v e r o l e in c o u n s e l i n g
c o m m e r c i a l b a n k § w i t h r e s p e c t to l o a n s to r e a l e s t a t e i n v e s t
m e n t t r u sts, a n d so o n . *
DR.
BURNS.
MR. N E A L .
T h a t is a s t r a n g e i n t e r p r e t a t i o n of w h a t t h e
F e d e r a l R e s e r v e did, a n d I a m s o r r y to say t h a t
it is inacc u r a t e .
We l l , I t h i n k th e b r o a d e r q u e s t i o n is —
the
c o n c e p t m e n t i o n e d is th a t c r e d i t is in f a c t b e i n g
a l l o c a t e d , a n d i t is e i t h e r b e i n g a l l o c a t e d by
t h e F e d e r a l R e s e r v e B o a r d or b y b a n k s o r i t is
g o i n g t o b e a l l o c a t e d b y t h e U. S. C o n g r e s s , a n d
I t h i n k w h a t w e a r e t r y i n g t o t a l k a b o u t is w h o
s h o u l d a l l o c a t e credit.
A n d u n l e s s y o u a r e s a y i n g t h a t i n f a c t c r e d i t is
not allocated, and only a free m a r k e t determines
w h e r e c r e d i t goes.
Is t h a t w h a t y o u a r e s a y i n g ?
DR.
BURNS.
I a m s a y i n g t h a t the F e d e r a l R e s e r v e S y s t e m h a s
n o t p l a y e d a n d s h o u l d no t p l a y a n y r o l e in t h e
d i r e c t a l l o c a t i o n of credit.
M y positionis that
the F e d e r a l R e s e r v e S y s t e m s h o u l d c o n t i n u e to
c o n c e r n i t s e l f w i t h the g e n e r a l c o n d i t i o n o f t h e
f i n a n c i a l system.
It s h o u l d n o t s eek t o d i r e c t
c r e d i t in t o o n e c h a n n e l or i n t o a n o ther.
This
h a s n e v e r b e e n its r e s p o n s i b i l i t y , a n d in m y
j u d g m e n t it w o u l d be a m i s t a k e t o a s s i g n t h a t
r e s p o n s i b i l i t y t o the B o a r d . "
It h o w a p p e a r s
from the minutes of several Federal
Reserve
B a n k s t h a t on th e s a m e d a y C h a i r m a n B u r n s a p p e a r e d b e f o r e o u r
Committee,
and de n i e d that the Federal R eserve S y s t e m was e n c o u r a g
i n g c o m m e r c i a l b a n k s to l o a n m o n e y to p a r t i c u l a r
recipients,
boards of directors of the San Francisco F ederal
R e s e r v e B a n k a nd
the
the N e w Yor k F e d e r a l Res e r v e Bank w e r e d i s c u s s i n g actions they had
t a k e n to e n c o u r a g e
utilities.
l o a n s to rea l e s t a t e i n v e s t m e n t t r u s t s a nd p u b l i c
98
F r o m th e S a n F r a n c i s c o F e d e r a l R e s e r v e B o a r d ,
meeting,
Meetings,
February
6,
19 7 5
(Pp.
226-227,
b o a r d of d i r e c t o r s
Minutes of Directors'
F e d e r a l R e s e r v e B a n k of S a n F r a n c i s c o ,
1975,
as d e l i v e r e d
to the House B anking C o m m i t t e e ) :
"It w a s n o t e d t h a t t h e n e x t t o p i c —
dis c u s s i o n of two
a r t i c l e s t h a t a p p e a r e d in t h e F e b r u a r y 1, 1 9 7 5 i s s u e o f
F o r b e s r e l a t i n g to the F e d e r a l R e s e r v e a n d t o the r e a l e s t a t e
investment trust industry —
h a d b e e n p l a c e d o n t h e a g e n d a at
t h e s u g g e s t i o n o f Mr. Dahl.
(The F o r b e s a r t i c l e c h a r g e d t h a t
e xtensive credit allocation efforts were be i n g conducted by
t h e F e d e r a l Reser v e . )
Mr. B a l l e s (Pre s i d e n t o f t he Bank) t hen
s u m m a r i z e d the l o w - k e y c o n t a c t s t h a t h a d b e e n m a d e a t t h e r e
q u e s t of t h e B o a r d of G o v e r n o r s to a f e w o f t he l a r g e r b a n k s
in th e T w e l f t h D i s t r i c t last fall to e n c o u r a g e c r e d i t a v a i l
a b i l i t y to r e a l e s t a t e i n v e s t m e n t trus t s a n d p u b l i c u t i l i t i e s
w i t h i n t h e l i m i t s of p r u d e n t c r e d i t j u d g m e n t , a n d h e n o t e d
t h e p r o p r i e t y of t h e r o l e of th e F e d e r a l R e s e r v e in t h e p r o
v i s i o n o f l i q u i d i t y to m a j o r s e g m e n t s of t h e eco n o m y .
He had
b e e n u n a w a r e o f t h e m a t t e r p r i o r to r e a d i n g t he a r t i c l e s ,
Mr. D a h l stated, w h i c h r a i s e d a q u e s t i o n as t o t h e s c o p e of
c o m m u n i c a t i o n s to t h e d i r e c t o r s c o n c e r n i n g F e d e r a l R e s e r v e
activities.
Mr. B a l l e s i n d i c a t e d that in c o n e n c t i o n w i t h
t h e s u b j e c t a c t i v i t y , it ha s b e e n d e c i d e d t h a t t h e S y s t e m
a p p r o a c h w o u l d b e h a n d l e d on a l o w - p r o f i l e , n e e d - t o - k n o w
basis, in v i e w o f the s e n s i t i v i t y of t h e f i n a n c i a l m a r k e t s
a t t h e t i m e a n d t h e d a m a g i n g e f f e c t t h e r e o n of r u m o r s t h a t
m i g h t a r i s e r e l a t i v e to a c t i o n s t a k e n b y t h e F e d e r a l R e s e r v e .
D u r i n g d i s c u s s i o n of the a l l e g a t i o n s c o n t a i n e d in t h e F o r b e s 1
a r t i c l e , C h a i r m a n W i l s o n i n d i c a t e d tha t h e s h a r e d Mr. D a h l ' s
v i e w p o i n t a n d P r e s i d e n t B a l l e s st a t e d t h a t h e w o u l d c o n v e y
t h e c o n c e r n of t h e d i r e c t o r s in this r e g a r d t o t h e B o a r d o f
Governors."
(Emphasis added).
F r o m the N e w Y o r k F e d e r a l R e s e r v e B a n k b o a r d of d i r e c t o r s
meeting,
February
6,
19 7 5
(P.
550, M i n u t e s of M e e t i n g s o f t h e
B o a r d of D i r e c t o r s of t h e F e d e r a l R e s e r v e B a n k o f N e w Y o r k ,
Pp.
513-752,
as d e l i v e r e d to the H o u s e B a n k i n g C o m m i t t e e ) :
1975,
"Mr. D e b s (First V i c e P r e s i d e n t )r e p o r t e d o n a m e e t i n g
h e a t t e n d e d a t t h e o f f i c e s of th e B o a r d o f G o v e r n o r s on
F e b r u a r y 4, 1975, to r e v i e w the g e n e r a l s i t u a t i o n in the
Real E s t a t e I nvestment Trust industry w i t h emphasis on the
role that the Federal Reserve Banks have pl a y e d w ith respect
to f a c i l i t a t i n g c o m m u n i c a t i o n s b e t w e e n i n d i v i d u a l r e a l e s t a t e
i n v e s t m e n t t r u s t s a n d i n d i v i d u a l b a n k s t h a t are m e m b e r s of
syndicates provi d i n g credit to such institutions.
He said
t h a t o v e r t h e p a s t s e v e r a l m o n t h s , th e o f f i c e r s o f this B a n k
had, f r o m t i m e t o time, c o n t a c t e d o n e or m o r e i n d i v i d u a l
c o m m e r c i a l b a n k s in a n e f f o r t to o p e n c h a n n e l s o f c o m m u n i c a
t i o n b e t w e e n s u c h b a n k s in r e s p e c t to t h e s t a t u s o f v a r i o u s
ma t t e r s re l a t i n g to credit arrangements for certain real e s t a t e
i n v e s t m e n t trusts.
He reviewed the circumstances under wh i c h
s u c h c o n t a c t s w e r e m a d e , a n d he sa i d t h a t i n all s u c h c a s e s
i n v o l v i n g t h i s Bank, t h e o b j e c t i v e of s u c h c o n t a c t s w a s to
insure that ad e q u a t e communi c a t i o n e x i sted b e t w e e n the p a r t i e s
concerned, recogn i z i n g that ultimate c r e d i t judgment with
respect to individual Trusts rested wi t h t h e management of
the banks contacted.
He c o m m e n t e d o n t h e c u r r e n t s i t u a t i o n
in t h e R e a l E s t a t e I n v e s t m e n t t r u s t i n d u s t r y , a n d h e suirmarize-d
the v i e w s o f t h e B o a r d o f G o v e r n o r s of t h e F e d e r a l R e s e r v e
S y s t e m in r e s p e c t t o t h i s m a t t e r as e x p r e s s e d d u r i n g a n e s t i n g
o n F e b r u a r y 4.
A discussion followed."
( E m p h a s i s added).
Apparently,
all t h e R e s e r v e B a n k s w e r e p l a y i n g t h i s game.
Why
w a s th e C o n g r e s s misled a b o u t t h e F e d ' s e f f o r t s a t c r e d i t a l l o c a
tion?
W h a t e v e r o n e ' s v i e w of t h e e f f o r t s b y t h e c e n t r a l b a n k to
influence the p l a c ement of commercial
loans to p a r t i c u l a r recipients,
c e r t a i n l y it is p o o r p u b l i c p o l i c y fo r t h i s p r a c t i c e
as a p r i v a t e m a t t e r b e t e e n t h e F e d a n d t h e b a n k s
c o ntrol.
are,
If s u c h a c t i v i t i e s
the Congress
a r e g o i n g on,
to be c o n d u c t e d
o v e r w h i c h it h a s
a n d i t is o b v i o u s t h e y
is e n t i t l e d to k n o w a b o u t it.
These are particularly relevant questions
i n v i e w o f the
m a s s i v e b u i l t - i n c o n f l i c t of i n t e r e s t t h a t e x i s t s at t h e r e g i o n a l
ba n k s ,
where
individuals w i t h close ties to the b a n k i n g
•dominate t h e b o a r d s of d i r e c t o r s .
industry
100
IV.
Mr.
G i l p a t r i c and Franklin National Bank
P o t e n t i a l c o n f l i c t s of i n t e r e s t are a b u n d a n t
of d i r e c t o r s o f t h e R e s e r v e Banks.
ar e b a n k e r s ,
and the other
institutions.
in t he b o a r d s
T h r e e of t h e d i r e c t o r s b y l a w
six o f t e n h a v e c l o s e t i e s to f i n a n c i a l
These potential conflicts.of i n terest are apparently
no t g u a r d e d a g a i n s t v e r y c a r e fully,
as is b r o u g h t o u t d r a m a t i c a l l y
b y th e f o l l o w i n g episode.
In 1974,
h e l d lengthy,
t h e b o a r d of d i r e c t o r s of the N e w Y o r k R e s e r v e B a n k
s e c r e t d e l i b e r a t i o n s on h o w to h a n d l e t h e c r i s i s
c a u s e d b y th e i m p e n d i n g b a n k r u p t c y of the F r a n k l i n N a t i o n a l Bank.
On October
7,
1974,
the d i r e c t o r s
d i s c u s s i n g t h e F r a n k l i n case.
of t h e N e w Y o r k F e d w e r e
The minutes
show
(P. 4 53, M i n u t e s
of M e e t i n g s of t h e B o a r d of D i r e c t o r s of t he F e d e r a l R e s e r v e B a n k
of N e w York,
1974,
Pp.
254-512,
as d e l i v e r e d t o t h e H o u s e B a n k i n g
Committee):
"Mr. D e b s (First V i c e P r e sident ) t h e n r e v i e w e d a n d
c o m m e n t e d o n t h e o v e r a l l p l a n wh e r e b y , in t h e e v e n t o f such
insolvency, the Federal Deposit Insurance Corpor a t i o n would
b e a p p o i n t e d R e c e i v e r , and w o u l d a c c e p t b i d s f r o m c e r t a i n
b a n k s for t h e a s s u m p t i o n of c e r t a i n l i a b i l i t i e s a n d ass e t s
o f F r a n k l i n N a t i o n a l Bank.
H e sa i d that, a s w a s r e p o r t e d to
t h e d i r e c t o r s e a r l i e r , the F e d e r a l D e p o s i t I n s u r a n c e C o r p o r a t i o n
p l a n a l s o c o n t e m p l a t e d an a g r e e m e n t b e t w e e n t h i s B a n k and
the Federal Deposit Insurance Corporation whereby the Federal
Deposit Insurance Corporation would assume Franklin National
B a n k ’s i n d e b t e d n e s s to this Bank, an d a s u b s t a n t i a l p a r t of
F r a n k l i n ' s a s s e t s w o u l d r e m a i n w i t h the F e d e r a l D e p o s i t
Insurance Corporation, w h i c h w o u l d l i q u i d a t e such assets and
u s e t h e p r o c e e d s of s u c h l i q u i d a t i o n to r e p a y t he a s s u m e d i n
d e b t e d n e s s to t h i s B a n k o v e r a t h r e e - y e a r p e r i o d .
In this
regard, h e r e f e r r e d to a n d c o m m e n t e d on t h e p r o p o s e d " A g r e e
m e n t o f a s s u m p t i o n o f I n d e b t e d n e s s " (#10261) b e t w e e n this B a n k
and the Federal Deposit Insurance Corporation.
101
“Mr. D e b s t h e n p r e s e n t e d th e o f f i c e r s ’ r e c o m m e n d a t i o n
t h a t t h e y b e a u t h o r i z e d to e n t e r i n t o t h e p r o p o s e d " A g r e e
m e n t o f A s s u m p t i o n of I n d e b t e d n e s s " (#10261) b e t w e e n t h i s B a n k
a n d t h e F e d e r a l D e p o s i t I n s u r a n c e C o r p o r a t i o n a nd h e r e q u e s t e d
t h e d i r e c t o r s * c o n c u r r e n c e in th e p r o p o s e d d r a f t l e t t e r to
t h e C o m p t r o l l e r (#10258).
"An e x t e n d e d d i s c u s s i o n f o llowed, d u r i n g w h i c h t h e d i r e c t o r s
e x p r e s s e d t h e i r c o n c u r r e n c e in t h e t e x t of t h e d r a f t l e t t e r t o
Mr. S m i t h ( C o m p t r o l l e r of th e C u r r e n c y ) , it b e i n g u n d e r s t o o d
t h a t s u c h l e t t e r w o u l d b e t r a n s m i t t e d to Mr. S m i t h i m m e d i a t e l y
f o l lowing the meeting.
" D u r i n g the c o u r s e of t h e d i s c u s s i o n , Mr. G i l p a t r i c
n o t e d t h a t th e la w f i r m o f C r a v a t h , S w a i n e a n d M o o r e , o f w h i c h
h e is a p a r t n e r , is c o u n s e l to the C h e m i c a l Bank, o n e o f t h e
p r o s p e c t i v e b i d ding banks under the Federal Deposit Insurance
C o r p o r a t i o n ' s p l a n d e s c r i b e d b y Mr. Debs.
Mr. G i l p a t r i c s a i d
t h a t h e p e r s o n a l l y h a d n o t p a r t i c i p a t e d in t h e r e n d e r i n g by
t h e f i r m o f a n y leg a l s e r v i c e s to C h e m i c a l B a n k a n d that, a f t e r
c o n s i d e r a t i o n , h e h a d c o n c l u d e d t h a t u n d e r t he c i r c u m s t a n c e s
t h e r e l a t i o n s h i p b e t w e e n the f i r m of C r a v a t h , S w a i n e a n d
M o o r e a n d th e C h e m i c a l B a n k w a s n o t g r o u n d s w h e r e b y h e shou l d
d i s q u a l i f y h i m s e l f f r o m v o t i n g as a d i r e c t o r of t h i s B a n k on
t h e m a t t e r s b e f o r e t h e d i r e c t o r s today.
The other directors
p r e s e n t said that they had also considered whether or not there
w e r e a n y g r o u n d s o n w h i c h t h e y s h ould d i s q u a l i f y t h e m s e l v e s
f r o m v o t i n g o n t h e s e m a t t e r s and t h e y i n d i c a t e d t h a t t h e y w e r e
s a t i s f i e d t h a t n o su c h g r o u n d s existed.
W h e r e u p o n , it w a s
d u l y a n d u n a n i m o u s l y V O T E D . ..."
T h e O c t o b e r 17,
1974 m i n u t e s
(ibid, P 458)
then r e p o r t that
the C o m p t r o l l e r h a d d e c l a r e d F r a n k l i n N a t i o n a l
insolvent on
October
in p a r t b a s e d on
8,
this Bank's
1974 a n d t h a t
"such declaration wa s
letter to the Comptroller"
in w h i c h t h e d i r e c t o r s of
the N e w Yo r k F e d had concurred.
Thus,
Mr.
Gilpartic voted on a resolution
o f h i s lajjtf f i r m w a s an i n t e r e s t e d party.
t h a t Mr.
in w h i c h a c l i e n t
It is n o t r e a s s u r i n g
G i l p a t r i c a n d t h e b o a r d of d i r e c t o r s ,
after reflecting
o n h i s a p p a r e n t c o n f l i c t o f i n t e r e s t as r e v e a l e d
decided that there was not sufficient grounds
in t h e m i n u t e s ,
for d i s q u a l i f i c a t i o n
f r o m v o t i n g o n t h e t e r m i n a t i o n of t h e F r a n k l i n N a t i o n a l B a n k loan.
102
L o a n s t o F e d e r a l R e s e r v e E m p l o y e e s at B e l o w - M a r k e t I n t e r e s t
According to the mintues of the Federal Reserve Bank of Kevr
York directors' meeting of July 17, 1975, page 646, and December
18, 1975, page 740, and internal operating bulletin nuiaber 4 of
June 4, 1976, the New York Federal Reserve Bank has a fund for
making small loans to employees.
For the period 1935-1975,
the employees at the New York Bank were charged a 3 percent ints r e s t
rate, while ordinary citizens were paying perhaps 12 or even 13
percent for short-term loans.
In 1975, with permission of the
Board of Governors, the interest rate on these loans was raised
to the discount rate, recently under 6 percent, w h i c h is below
the market rate of interest —
loans.
12 to 18 percent —
for personal
Officers of the New York Bank served on the Committee
on Confidential Loans to Employees, which is in charge of decidi ng
who gets the money.
In Cleveland, in 1974, loans were made at
the prime rate (8 to 11 percent then), except for "tuition"
loans which were interest-free.
The Fed has never informed Congress of the funds at all.
*
should the Banks be making low-interest loans to their employee:
out of funds that would otherwise be returned to the Treasury?
This is just one of the areas of the Fed's budget which calls f<
formal Congressional oversight.
103
VI. Largesse for Retiring Directors
The Board of Directors of the St. Louis Federal Reserve Bank
decided at their April 11, 1974 meeting to increase from $20
to $30 the amount to be spent for employee mementos as part
of the Bank1s employee re.cognition and appreciation program.
The
Christmas spirit took over, however, when the board of directors
considered retirement mementos for themselves.
The directors,
who serve only three-year terms, voted on June 6, 1974, to raise
the limit on their own retirement mementos for themselves from
$350 to $600, "recognizing that inflation precludes any lesser
amount from being feasible" (P. Ill, Federal Reserve Bank of
St. Louis, Minutes as delivered to the House Banking Committee) an ironic bit of monetary escalation in an agency which bills it
self as the naition's chief inflation-fighter.
No justification exists for Federal Reserve directors
to vote themselves any gifts at all out of the public*s funds.
104
II.
D e l e t i o n s and F a i l u r e to P r o v i d e
Di r e c t o r s ' M i n u t e s
Important
Details
M o s t of th e m i n u t e s of the d i r e c t o r s 1 m e e t i n g s
m o r e th a n an a n n o t a t e d a g e n d a w h e r e
important
in the
a re l i t t l e
t o p i c s are m e r e l y
r e c o r d e d as h a v i n g b e e n disc u s s e d .
Several examples
i l l u s t r a t e the lack o f d e t a i l s
in the
minutes.
After a murder
Richmond Federal
an d t h r e e r e l a t e d s h o o t i n g s i n s i d e the
R e s e r v e Bank,
there must h a v e been quite a
d i s c u s s i o n at the n e x t b o a r d of dire c t o r s '
th e m i n u t e s o f M a r c h
9,
meeting.
Hov/ever,
1972 at R i c h m o n d r e p o r t s i m p l y
F e d e r a l R e s e r v e B a n k of R i chmond,
B o ard of D i r e c t o r s ,
(P. 19,
1972,
1974,
a n d 1975 M i n u t e s as d e l i v e r e d to the Hou s e B a n k i n g C o m m i t t e e . ) :
"Mr. H e f l i n r e p o r t e d on the i n c i d e n t last T uesday,
w h e n o n e of the B a n k ls g u a r d s s h o t a n d w o u n d e d four
o t h e r m e m b e r s of ou r S e c u r i t y f orce, one fatally.
H e sai d t h a t the o t h e r t h ree h a d b e e n r e l e a s e d by
the h o s p i t a l . "
A f t e r a v i s i t b y G o v e r n o r P h i l i p E. C o l d w e l l t o the R i c h m o n d
B o a r d m e e t i n g on A p r i l
10,
su b j e c t s of h i s c o m m e n t s
1975,
(ibid,
the minutes reveal
P.
o n l y the
298.) :
"A f t e r b e i n g i n t r o d u c e d by C h a i r m a n Lawson, G o v e r n o r
C o l d w e l l c o m m e n t e d on t h r e e m a t t e r s of i m p o r t a n c e to
the F e d e r a l R e s e r v e System: (1) r e s p o n s e of the F e d e r a l
R e s e r v e S y s t e m to the C o n g r e s s i o n a l R e s o l u t i o n on the
c o n d u c t o f m o n e t a r y pol i c y , (2) s u p e r v i s i o n and r e g u l a
t i o n of b a n k s by the F e d e r a l R e s e r v e System, and (3) the
B o a r d of Govern o r s ' n e w l y form e d M e m b e r s h i p C o m m i t t e e .
A brief discussion followed Gover n o r Coldwell's remarks."
"The m e e t i n g r e c e s s e d at 11:00 a.m. and r e c o n v e n e d
a t 11 :^L5 a.m. "
105
The
’’m i n u t e s "
Governor Coldwell
acute,
a r e h a r d l y c o m p l e t e w i t h o u t a r e p o r t of w h a t
said a b o u t t h e s e subject s .
This omission
is
b u t n o t as e x t r e m e as the r e p o r t on w h a t G o v e r n o r C o l d v e l l
s a i d at th e K a n s a s C i t y b o a r d of d i r e c t o r s
F e d e r a l R e s e r v e B o a r d of K a n s a s City,
seven days
Minutes
1972,
later
(P.253,
1974, a n d
1375,
as d e l i v e r e d t o the H o u s e B a n k i n g C o m m i t t e e . ) :
"Chairman Person presented Governor Coldwell, who
spoke on probl e m s currently b e ing f a ced by the Board
o f G o v e r n o r s a n d the F e d e r a l R e s e r v e System.
T h e m e e t i n g , on p r o p e r mot i o n , a d j o u r n e d at 12 o ' c l o c k
n o o n ."
S u c h d e f i c i e n t r e p o r t s h e l p to in s u r e
m a t t e r s of s u b s t a n c e w i l l
e v e r be a v a i l a b l e ,
o f t h e s e b o a r d s w i l l be i n s u l a t e d
In a d d i t i o n to the
t h a t n o r e c o r d of
and that members
from public
lack of d e t a i l
accountability.
in m o s t
of t h e m i n u t e s ,
t he c o p i e s of the m i n u t e s w e r e c e i v e d c o n t a i n e d
The minutes
loo k
c r i t i c a l pages.
most-secret
904 d e l e t i o n s .
like a S w i s s cheese, w i t h d e l e t i o n s d o t t i n g t h e
It w a s as if the C o m m i t t e e h a d r e c e i v e d the
f i les of t h e CIA,
rather
tha n t h e
r e c o r d s of a p u b l i c
a g e n c y d e a l i n g w i t h e c o n o m i c policy.
Fuller d i s closure by the Fed should be required.
i n c l u d e a m o r e d e t a i l e d r e c o r d of m e e t i n g s ;
F e d e r a l R e s e r v e Banks,
There
t h e b u d g e t s of t h e
including salaries of th e employees a n d
g i f t s th e d i r e c t o r s g i v e th e m s e l v e s ;
d e t a i l s of c o n t r a c t s
and s u c h m a t t e r s
for i n s t a n c e
w h y onl y the Bank
p r e s i d e n t s ’ s a l a r i e s are m a d e p u b l i c and o t h e r
as c o m p l e t e
for r e m o d e l i n g and r e a l e s t a t e p u r c h a s e s .
is n o g o o d r e a son,
$ 2 0 , 0 0 0 a r e not.
This s h o u l d
Chairman Burns
said in a J u n e
salaries over
25,
1974,
letter
106
t o t h e l a t e C h a i r m a n W r i g h t Patman,
tha t p u b l i c k n o w l e d g e o f
t h e s e s a l a r i e s w o u l d s u b j e c t t h e s e e m p l o y e e s to t h e p o s s i b i l i t y
of robbery and kidnapping.
T h e r e is n o r e a s o n
t o keep the
salaries of F e d eral Re s e r v e employees and o f f i c e r s secret when
t h e s a l a r i e s o f a l l b r a n c h e s of th e f e d e r a l g o v e r n m e n t a r e put
in t h e p u b l i c record.
If t h e F e d e r a l R e s e r v e
t h e s a l a r i e s it p a y s t o its b a n k p r e s i d e n t s ,
s e e k s to j u s t i f y
such
as $ 9 5 , 0 0 0 to
t h e P r e s i d e n t o f t h e N e w Y o r k F e d e r a l R e s e r v e B a n k , w h y m u s t it
n o t a l s o b e c a l l e d u p o n to j u s t i f y t h e s a l a r i e s p a i d to o t h e r
o f f i c e r s o f t h e Ba n k ?
*********
T h e F e d e r a l R e s e r v e S y s t e m h a s e n g a g e d in a c t i v i t i e s w e l l
beyond wh a t
is a l l o w e d a n y g o v e r n m e n t ag e n c y ,
a nd which have been
k e p t s e c r e t f r o m t h e C o n g r e s s and the A m e r i c a n p u b l i c .
The revelations
f r o m e v e n t h e s e c e n s o r e d m i n u t e s g i v e clear
e v i d e n c e of t h e n e e d f o r a t h o r o u g h l o o k a t t h e o p e r a t i o n s o f
the F e d e r a l R e s e r v e System,
f r o m the B o a r d of G o v e r n o r s t o the
b o a r d s o f d i r e c t o r s o f t h e R e s e r v e Banks.
T h e H o u s e C o m m i t t e e o n Ba n k i n g ,
Finance and Urban Affairs
w i l l e n d e a v o r t o o b t a i n a full e x p l a n a t i o n o f t h e s e
f rom F e d officials.
activities
107
HENaY S. MUSti WIS.. CHAIRMAN
THOMAS L. ASHLEY. OHIO
WILLIAM S. MOORHEAD. PA.
1>£SNAND J. St GERMAIN. R.l.
HENRY B. GONZALEZ. TEX.
JOSEPH G. MINISH. N.J.
FRANK ANNUNZIO. ILL.
JAMES M. HANLEY. N.Y.
PARREN i. MITCHELL. MD,
WALTER E. FAUNTROY. O.C.
STEPHEN L. NEAU N.C.
JERRY M. PATTERSON. CALIF.
JAMES J. BLANCHARD. MICH.
CARROLL HUBBARD. JR.. KY.
JOHN J. LAFALCE. N.Y.
CLAOYS NOON SPELLMAN. MD.
LES AuCOIN. OREG.
PAUL E. TSONOAS. MAU.
BUTLER DERRICK. S.C,
MARK W. HANNAFORD, CAUF.
DAVID W. EVANS. IND.
CLIFFORD ALLEN, TENN.
NORMAN E. D*AMOURS. N.H.
STANLEY N. LUNOINC. N.Y..
HERMAN BADILLO. N.Y.
EDWARD W. PATTISON. N.Y.
JOHN J. CAVANAUON, NJcIms
MARY RCSK OAKAR. OHIO
JIM MATTOX, TEX.
BRUCE F. VENTO. MINN.
DOUG BARNARD. GA.
WES WATKINS. OKLA.
U.S. HOUSE OF REPRESENTATIVES
C O M M ITT E E ON B A N K IN G . FIN A NC E AND URBAN AFFAIRS
N in e ty -F if th C o n g r e s s
2 1 2 9 R a y b u r n H o u s e O f f i c e B u il d in g
W A S H I N G T O N . D .C .
20515
J. WILLIAM STANTON. OHIO
CARRY M OW *. MICH.
CHALMERS P. W YU t OHIO
JOHN H. HOUMCtOT, CAUF.
STEWART B. M4X1N>«Y. CONN.
CE3R»E HAMSEM. IDAHO
HENRY J- HYDE. RJ_
RICHARD KELLY. FLACHARLES E. CRA34LEY, IOWA
M'LUCENT FENWICK. « J .
JAMES A. S. LEACH, IOWA
NrwTON L STEERS, JR , MO.
THOMAS B. EVANS, JR., DEL.
BRUCX F. CAJVTO. N.Y.
HAROLD C. HOLLCNSCCK. N_L
May 19, 1977
MEMORANDUM
All Members, House Committed on Banking, Finance
and Urban Affairs
TO:
FROM:
Henry S. Reuss, Chairman
SUBJECT:
Federal Reserve Directors* Minutes
On May 18, 1977, you received a copy of my May 17, 1977,
letter to Chairman Burns.
I enclose here all the correspondence
pertaining to our negotiations for the receipt of the Federal
Reserve Directors’ Minutes:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
August 30, 1976, from Reuss to Burns
September 15, 1976, from Burns to Reuss
September 23, 1977, from Reuss to Burns
September 28, 1976, from Burns to Reuss
November 12, 1976, from Reuss to B u m s
November 16, 1976, from Burns to Reuss
November 17, 1976, from Reuss to Burns
December 20, 1976, from Burns to Reuss
December 21, 1976, from Reuss to B u m s
May 17, 1977* from Reuss.to Burns
May 19, 1977, from Burns to Reuss
May 19, 1977, from Reuss to Burns
As is evident, our oversight responsibility contained in
Rule X of the House Rules requires that we inform ourselves
about what the Federal Reserve Banks have been doing at their
official meetings.
108
U.S. HOUSE OF REPRESENTATIVES
C O M M IT T E E O N B A N K IN G . C U R R E N C Y A N D H O U S IN G
2129
N iN t r r y -F o u u r n C o n c r l s s
R a y h j h n H o u s e O f f i c e B u ild in g .
W A S H IN G T O N , D .C .
crutw I—HC»U. m .C.
August
• •■ M l. MU»»*»0. J*- - *'■
3« - J. Uajtaicc. M.r.
L>OTS » 0 0 “ v £ U M » N.
u * u cO '«. o » r o .
kUV t u o > * c * s . WAS*.
UTVCW DIBXiCK. S C.
H. MAYC5. »«Di> < W.
CAl.
30,
20515
HAM tTANtON. OHIO
■r
m .CK.
r. wvt»c, o h »o
h *ou3.ir» ot . CM»«r.
•HI *.
««*Cy.CO*M.
B COn u m . apiiz.
s c m u u c rx.
S D. CKAO.SOH. J*_. OHIO
V J. MVOC IUL_
^wo KOVY, r u .
u s e C»ASSICV. IOWA
-rex.-
1976
C_ D a *-»0<IA»VtY N. LU~OI«
H o n o r a b l e A r t h u r F. B u r n s
Chairman, B o a r d of G o v e r n o r s
Federal Reserve System
W a s h i n g t o n , D. C. 20551
De a r Mr.
Chairman:
T h a n k y o u v e r y m u c h for y o u r
r e p o r t on F e d e r a l R e s e r v e dire c t o r s .
a n a l y s i s o f our r e c e n t
I m u s t o n c e a g a i n d i s a g r e e w i t h y o u r c o n t e n t i o n that
the t a l e n t s n e e d e d for t h e s e b o a r d s o f d i r e c t o r s can c o m e o n l y
fr o m b a n k i n g and b i g business.I a m c o n v i n c e d tha t the r e
are m a n y a b l e p e o p l e in c o n s u m e r organiz a t i o n s , ' labor groups,
small far m i n g o p e r a t i o n s and small b u s i n e s s e n t e r p r i s e s w h o
could giv e c o m p e t e n t l e a d e r s h i p a n d c e r t a i n l y b r o a d e r p e r s p e c t i v e
to the F e d e r a l R e s e r v e S y s t e m .
I c a n n o t a c c e p t the idea that
t h ere h a v e b e e n n o w o m e n c a p a b l e o f m e e t i n g y o u r c r i t e r i a for
s e r v i c e on t h e b o a r d s o f d i r e c t o r s o f th e s e F e d e r a l R e s e r v e
banks.
I k n o w that y o u ar e a v e r y capa b l e , i m aginative,
and i n n o v a t i v e C h a i r m a n o f th e F e d e r a l R e s e r v e B o a r d and I am
co n f i d e n t "that on r e f l e c t i o n yo u w i l l see the v a l u e of i n c l u d i n g
a b r o a d s e g m e n t of the A m e r i c a n p u b l i c in the F e d e r a l R e s e r v e
S y s t e m and I t r u s t a n d h o p e that y o u w i l l u s e y o u r good o f f i c e
to start m o v i n g in this d i r e c t i o n w h e n t h e n e w directoris are
sele c t e d t h i s Fall.
109
Honorable A r t h u r F. Bur n s
Page T w o
A u g u s t 30, 1976
In the c o n c l u d i n g p a r a g r a p h of y o u r letter, you imply
that w h a t e v e r the m a k e - u p of the F e d e r a l R e s e r v e Ban k boards
of directors, it is the Board of G o v e r n o r s in V7ashington w h i c h
c o n trols the e n t i r e system.
In light of the F e d e r a l Reserve A ct
and the v a r i o u s r e g u l a t i o n s p r o m u l g a t e d b y the F e d e r a l Reserve
Board t h r o u g h the years, this c o n t e n t i o n is indeed interesting.
I d o thi n k it is i m p o rtant that w e p i n d o w n . t h i s
quest i o n a n d I w o u l d a s sume that m a n y of the d o c u m e n t s a n d
r ecords in these F e d e r a l Reserve banks, p a r t i c u l a r l y the minutes
of b o a r d mee t i n g s , w o u l d indicate the degr e e of i n f l u e n c e and
power e x e r c i s e d by e a c h b a n k ' s b o a r d of directors.
Therefore,
I am t a k i n g this o p p o r t u n i t y to ask that y ou a s s e m b l e front
each of the 12 F e d e r a l R e s e r v e b a n k s the m i n u t e s o f b o a r d
m e e t i n g s for the p a s t five years.
Since these q u e s t i o n s are
u n d e r a c t i v e consideration in the Congress, I h o p e t h a t y o u w ill
do e v e r y t h i n g p o s s i b l e to speed the tra n s m i s s i o n of these
m in u t e s to t h e Commit t e e .
http://fraser.stlouisfed.org/
9 9 -3 3 1 0 - 7 7 - 8
Federal Reserve Bank of St. Louis
Sincerely,
H e n r y S. R e u s s
Chairman
110
R
p j r r r {H E
V
^
B O A R D
O F
g o v e r n o r s
FEt^ETF&CL R E S E R V E S Y S T E M
W A S H IN G T O N , D. C . 2 0 5 5 1
SEP 211976
S e p te m b e r 1 5 ,
1976
n m t w ® i e o s mmiL
The Honorable Henry S. Reuss
Chairman,'Committee on Banking,
Currency and Housing
House of Representatives
Washington,. D.CV 21515
Dear Chairman Reuss:
I am responding to your August 30 letter in which you
requested minutes of Boards of Directors meetings at each Federal
Reserve Bank over the last five years.
Judging from your letter, you are still of the belief that
corporate and banking groups exercise more influence over monetary
policy than I know to be the case. However, the method that you
propose for seeking confirmation of your views --inspection of the
minutes of Boards of Directors meetings— will not attain the objective,
that you seek.
Your objective and my objective are exactly the same, namely,
to expand the representation on the Boards of Directors at Federal
Reserve Banka and branches. Any debate over the degree of power
exercised by the existing Boards can only divert us from the main
issue. You believe representation should be broadened. I, too,
believe that representation should be broadened. You want broader
representation because of what you believe to be undue influence of
the Federal Reserve by corporate and banking interests. We want broader
representation because of misunderstandings that have arisen and because
we believe broader representation is a good thing in and of itself.
Legislation passed by the House to increase the number of Class C
directors from three to six will provide an excellent opportunity to
do this.
Neither of us will reach our common goal, however, by
examining pages and pages of minutes of Boards of Directors meetings.
As X have mentioned to you on previous occasions, the only
real power that the Boards of Directors exercise in the field of
monetary policy is in the changes that they recommend in the discount
Ill
The Honprable Henry S. Reuss
rate, a procedure that is spelled out in the Federal Reserve Act.
These recommendations and their fate are already a m a t t e r of public
record* Although the Board values the judgment e x p r e s s e d by directors
in- their discount rate recommendations, the independent thinking
exercised by the Board of Governors is abundantly evident fron tha fact
that recommendations for changes have frequently been turned down.
These instances are spelled out. in the annual reports of the Board of
Governors. During 1975, for example* while the Board approved 4
recommended changes by Reserve Bank directors, we turned down their
requests oil 22.. occasions
I hope that these comments will be helpful to you in keeping
the role of Federal Reserve Directors in perspective. In any event,
your and our objectives are the same— broader public representation on
these Boards, and we must not let debate cloud our thinking on this
issue*
With kind regards,
Sincerely yours,
Arthur F. Burns
112
UONOU K. (m»V JOHNB> SUCU1VAN. MO.
THOMA!? I—ASHLEY, OHIO
h o o h h e a o ,t*A.
f‘. STFPMENS. JH..CA.
rERNAHD J. ST GERMAIN. R.l.
HENHY a. GONZALEZ. TEK.
JOSEPH G. M1NISH. N.J.
FRANK ANNUNIIO, ILL.
THOMAS M. REES.CAUF.
JAMES M. HANLEY. N.Y.
PAR REN J. MITCHELL, MO.
WALTER r_ FAUNTROY. D.C.
LINDY (MRS. HALE) BOGGS. LA.
STEPHEN t_ NEAL. N.C.
JERRY M. PATTERSON. CAUF.
JAMES *. BLANCHARD. MICH.
CARROLL. HUBBARD. JUL. KY.
JOHN 3. LAFALCE. K.Y.
GLADYS NOON SPELLMAN, MO.
IXS AUCOIN. OREO.
PAUL K.TSONGA3, HASI*
butler d e r r ic k , s -c .
PHILIP H. HAYCS. INEX.
MARX W. HANNAFORD. CAUP.
DAVIO W. EVANS. IND.
OJFFORD AUJEM. TENML
No rm a n c. o ’a m o u r s . h j l
STANLEY H. LUNDIN*. N.Y.
U.S. HOUSE OF REPRESENTATIVES
C O M M IT T E E O N B A N K IN G . C U R R EN C Y A N D H O U S IN G
N in e ty -f o u r th C o n g re ss
2 1 Z9 R a y b u r n H o u s e O f f i c e b u i l d i n g
W A S H I N G T O N , D .C .
20515
September 23,
1976
ALBERT *#. JOHKSON. PA_
J. WILLIAM STANTON. OHIO
CA«»Ry BHOWy. MICH.
CHALMERSP. WYLIt. CHlO
JOHN H. K O U »lU lt. CALIF.
STEWART B. W K SStY, CONN.
JOHN B. COSIAH. AR.-2.
CEOaC* V. HANSEN. IDAHO
RICHAHOT.SCm jU E . PA.
WHJJS t>. C^ACViOH. J«_. OHIO
He n ry j , hyde . n j_
RICHARD KEUl-Y. r m .
CHARLES EIGRASSLEY. IOWA
Mil 1.1CENTFTNX.CK. H J.
H o norable A r t h u r F. Burns
Chairman
B o a r d of Governors
Federal Reserve System
Washington, -D.C.
20551
Dear Mr. Chairman:
On A u gust 30 I requested that you produce the minutes
of the meetings of the boards of directors of the twelve
Federal Reserve Banks for the past five years.
I have not
i-h<=>Rf* dorarments and y o u r letter of September 15, whi c h
just received, in^'— i-^nr M 1M iii 1 , Vhat yipn nr" resisting
efforts to inspect the minutes.
As I have stated to you previously, these records are
important to the oversight and legislative responsibilities of
Committee, and it is m y intention to p u r s u e every proper
nd n e c essary means to obtain them.
^
— go
will 1 1 if" W
nj. I request that
your office assemble the minutes of the b o a r d of directors of
the twelve Federal Reserve Banks for the p ast five years, and
d e liver these documents to the Clerk of the Banking, Currency
and Housing Committee of the House of Representatives, Room 2128
Rayburn House Office Building, by 5 p.m. on October 15.
Sincerely,
j
Henry S. Reuss
Chairman
113
C H A IR M A N
O F TH E
BOARD
O F
G O VERNO RS
FEDERAL R ESER VE SYSTEM
W A S H IN G T O N , D . C . 2 0 5 5 1
September 28, 1976
The Honorable Henry S. Reuss
Chairman
Committee on Banking, Currency
and Housing.
House of Representatives
Washington, B.C. 20515
Dear Henry:
X want to acknowledge your letter of September 23, 1976
asking that the minutes of all meetings of the Boards of Directors
of the 12 Federal Reserve Banks .throughout the last five years be
made available to your staff. X know you would want me to give
careful consideration to this request, and I intend to do so since
there are many important questions to be weighed — among them the
role of Reserve Banks and their directorates, the confidentiality
of relationships with foreign and international bodies, and the
privacy of regulated institutions.
Nevertheless, I have asked the Board’s staff and the
Reserve Banks to examine all aspects of the proposed.release of
this material. The work will begin immediately. It may be that
after the staff review you and I should discuss appropriate ways
to achieve your objectives that are consistent with the Federal
Reserve System’s regulatory and statutory responsibilities.
Unfortunately, I am leaving tomorrow for the Inter
national Monetary Fund annual meeting in Manila. If you are
planning to attend we may have an opportunity to talk informally
during the trip, although I will not have the benefit of the
staff’s research and my colleagues’ views until I return just
after the middle of October. In view of my absence from the
country I cannot promise to meet your request by the fifteenth
of October, but I have done everything necessary to arrange a
resolution of the questions shortly thereafter.
Sincerely yours,
Arthur F. Burns
114
UEONiir; K- (***• rjHN ».) SULLIVAN, u
THqMAS L- A5MLCY. OHIO
V/ILLIAM n. MCORHCAt), PA.
ROiifcfTT C. STEPHENS. JR.. CA.
FERNAWD J. STCERMAW.R.t.
HCNUf B. CONIALCl. TEX.
JOSCfH G. MfNISH, W.J.
FRANK AHNUK2IO. ILL*
THOMAS M. REES, CAUr.
JAMES M. HANLEV, H.V.
fAHRXH J. MITCHELL, MO.
WALTER E. FAUNTWOf. D.C.
L1NOY (MRS. HALE) OOCCS, LA.
STEPHEN 1—NEAL. N.C.
JERRY M. PATTERSON. CALIF.
JAMES J. BLANCHARD, MICH.
CARROLL HUBBARO. J ft, KY.
JOHN J. LaFAJLCJC. N.Y.
GLADYS NOON SPELLMAN. MO.
IX S AOCOIN. OREO.
PAUL C. TSONOA3. MASL
BUTLER DERRICK^S.C,
PHILIP H. HAYES. IND.
MARK W. HANNAFORD. CALIF.
DAVID W. EVANS. IND,
/UEri
U.S. HOUSE OF REPRESENTATIVES
C O M M IT T E E
ON
B A N K IN G . C U R R E N C Y A N D H O U S IN G
N in e ty -F o u h th C o n g r e s s
2 12 9 r a y b u r n H o u se o w e s : b u ilo jn g
W A S H IN G T O N . D .C .
20515
November 12, 1976
J. W lliH H STANTON. OHIO
CARur m o w n . m*ch.
Ctt»LWtK»f«. WYLIC. o nto
JOMM »•. ^OOSJC-.OT. CALV.
■. MCKlMWCV. CONN.
GCOKCC V. HANSEN. IOAHO
RICMA««a T. SCHUtiC. rA.
WIUJ* t>. 6RAU>OH,jlt. OHIO
HENWJI. hvok . iul,
xichau d k *u .v . n_A.
CHARLES S. CfeASSUTY. IOWA
MILLICCNT rEXWICK. N J.
ROM^AWL.TEX.
211-12*7
Honorable Arthur F. Bums
Chairman, Board of Governors
Federal Reserve System
Washington, D.C. 20551
Dear Mr. Chairman:
I wrote you last August requesting the minutes of board meetings
of the twelve Federal Reserve Banks and, as you know, we have not
received these documents. I am hopeful that our meeting this morning
will serve to clear any roadblocks to the production of the minutes.
As you indicated, there are areas of "sensitivity" in some of
the minutes of the various Federal Reserve Banks, including delicate
transactions with foreign central banks, personnel actions, the
disclosure of which would unnecessarily embarrass innocent people,
and matters affecting the physical security against burglary and
robbery of the Reserve Banks.
In submitting these minutes to me, I am sure that you will
designate those areas which you feel are sensitive and the release
of which would serve no useful public purpose. I will review care
fully and give utmost consideration to your suggestions for such
deletions. In the event that there are instances where I do not
agre^ with your request for deletions, I will discuss these areas
with you further prior to making any of the minutes generally avail
able.
Your suggestion that we lighten the workload of copying five years
of minutes is well taken. In keeping with your suggestion on this
point, I am willing to agree to reduce my immediate request to the
years 1972, 1974 and 1975. Any additional years which we may need
can be discussed with you later.
115
Honorable Arthur F. Bums
Page 2
November 12, 1976
Since this request has been pending since August and since you
indicated in your letter of September 28 that your staff was making
arrangements for the production of the minutes, I trust that there
will be no inordinate delay in furnishing the minutes for these three
years.
Henry S. Reuss •
Chairman
116
C H A IR M A N O F T H E B O A R D O F G O V E R N O R S
OF tV
FEDERAL R ESER VE SYSTEM
W A S H IN G T O N , D. C . 2 0 5 5 1
November 16, 4 976
The Honorable Henry S . R euss
Chairman
Com m ittee on Banking, Currency and Housing
House o f Representatives
Washington, D. C.
Dear Henry:
In accordance with our conversation la st Friday, I
sh all advise the R eserve Bank Boards to send you the minutes
o f their m eetings.
A s you and I agreed at our m eeting, the following
highly sensitive item s w ill be omitted - - those pertaining
to borrowing or prospective borrowing by individually-named
banks at the discount window, those pertaining to transactions
with foreign central banks, and those pertaining to real estate
plans or negotiations in p ro cess. A lso , item s pertaining to
individual personnel m atters or to safety m easu res at the
banks w ill be put in a separate file, and you and I alone w ill
sit down and go over them.
Letrp*ers~ay once
am pleased that this
matterjhs£sbeen resolved and th p z I shall do what I can to
expjerrnte the delivery of the minutes for 1972, 1974, and
575.
■ti iiJLCti cly yours,
Arthur F . Burns
(P,$, Jour p n s i
.
S ' 'pgt r
mT~
117
HEN*Y S. FCUSS, WI3L. CHAlRMAtt
LfONO» K, (MHV JON* *.) SULLIVAN. MO.
THOMAS L. ASMtCY. OHIO
WILLIAM S, MOORMffAP. I*A.
FfC3-.«r C. STEPHENS. JX^ Gh.
rERSAHO J. STCiRMAlN, »„*.
WIKftY i?. COMZALEZ* TEX.
JOSEPH G. MINI3W. H.J*
FRANK ANSUNZIO, ILJU
THOMAS M. REES, CAUJT.
JAMES M. HAStE/, N.Y.
FARREJHJ. MITCHELL* MD.
WALTER E. FAUNTROY, O.C.
LWOy (SIRS. HALa) bocgs . la .
STfPHS.'* L. NEAU N-C.
JERRY M. PATTERSON. CAUF,
JAMES J. BLANCHARD. MICH.
CARKOtX HU2BA3D. JR.. KT.
JOHN J. LuTALCC. NYT.
CLA3YS NOON Si*EXXMAN. MD.
LEsAucom. o ass.
FAUUE. TSONOAS» MASS*.
BIjTUEH d er r ic k , s .c.
PHIUPH. HAYES. (MO.
MARK W. HANNA^O»D. CAUF.
DAVID 'ft. EVANS. INO.
CUFFOKO AU_EN. T E N *
NORMAN E. D’AMOURS, MJ*.
3TANUSY N. LUNDWt, H.Yt
U.S. HOUSE OF REPRESENTATIVES
C O M M IT T E E ON B A N K IN G . C U R R EN C Y A N D H O U SIN G
N in e t y - F o u r t h C o n g r e s s
2 1 2 9 R a y b u s n H o u s e O f f i c e B u il d i n g
W A S H IN G T O N , D .C .
20515
a i. be * t w. x m m x m , ^
x w j u j a m srAKrcw. cx-o
CARRY B*OWM. MICH.
CHALME*S »► vrrus. r>Hx>
JOHN H. RO<JSS«j©t. C »Ijt.
s te w a jtt 9. McKiK^iy. cassfc.
JOHN O. COMLAM. A»;2_
GEORGE V. HAM3M. tTJAMO
CCHAROT.SOCJCrE. *A.
f-A.
fCCHAROT.SOCJCrE.
WTUUI* D.CKAOKON.jl^CH’S
J. KYtrr.
RICHARD KSU.Y. R A .
CHARLES E. C M « u r . 1DW\
Mna.icE.vr F t w .c x . n j .
POM PAUL* TEX.
Honorable Ar t h u r F. Burns
Chairman
Board of Governors
Federal Reserve System
V7ashington, D.C.
20551
Dear Mr. Chairman:
Perhaps m y letter to you dated November 12, 1976 was
received after yo u had dictated your letter of November
16, 1976.
It is m y understanding and intent, as indicated
in the third paragraph of my November 12 letter, t o r e c eive
all of the minutes of the 12 Federal Reserve district banks,
unexpurgated; and you will indicate in each and every
instance, those items which you consider to be of a sensitive
nature.
To repeat, I will review and give c areful c onsidera
tion tp your suggestions for d e letions? and xn the e v ent"there
are instances where I do not agree with your request t o delete.
I wi l l discuss theise matters with you prior to making any
of the/ minutes generally available.
[
I appreciate your cooperation in this matter, and I am
pleased that you w i l l expedite delivery of the minutes for
the 12 regional banks for 1972, 1974, and 1975.
Sincerely,
Henry S. Reuss
Chairman
118
C H A IR M A N
OF THE
BOARD O F
GOVERNORS
FEDERAL R ESER VE SYSTEM
W A S H IN G T O N , D. C . 2 0 5 5 1
December 20, 1976
The Honorable Henry S* Reuss
Chairman
Committee on Banking, Currency
and Housing
House of Representatives
Washington, D. C. 20515
Dear Henry:
Pursuant to my understanding of our agreed position
derived from our meeting on November 12 and set forth in ny
letter to you of November 16, 1 requested the 12 Federal Reserve
Banks to prepare copies of the minutes of their Board of Directors’
meetings for the years that you selected. I must advise that in
requesting the Banks* preparation of the copies of minutes, which
are being transmitted herewith, I have gone further towards neeting
your request than many members of the Federal Reserve System
thought proper.
Please note the following:
1*
There have been deleted from the enclosed minutes
entries relating to borrowing or prospective bor
rowing at the discount window by individually naaied
banks, transactions with foreign central banks, and
real estate plans or negotiations in process. For
reasons that you and I carefully reviewed, matters
such as these could damage financial institutions or
otherwise cause injury to local interests or to our
national interest.
2.
References to sensitive personnel matters — in
most instances involving only removal of the names
or salaries — and references to highly confidential
matters relating to the security of the Reserve
Banks have also been deleted. However, these
deleted materials have been placed in respective
separate files, so that you and I can sit down and
go over these materials whenever you wish to do so;
these files are now in my office.
119
The H o n o r a b le H en ry S * Reuss
3*
In addition, there has been removed and placed in a
separate file a group of minute entries which we have
not previously discussed and which do not fall precisely
within the categories of items that we agreed would be
deleted. However,. I believe that such entries would
best be accorded treatment as described, in the preceding
paragraph* These entries, relatively few in total
number, are in part judgmental expressions reflecting
adversely on the performance or abilities of parties
outside the Reserve Banks, disclosure of which could
cause Irreparable professional damage or personal in
jury. Other entries concern completed real estate
purchase information, disclosure of which could
jeopardize the negotiating position of the Reserve
Banks in future real estate transactions.
4*
In transmitting the minutes, I do so on the essential
assumption that they will be examined and treated by
you and your staff on a completely confidential basis.
They reflect, as would the minutes of any corporate
board meetings, the directors* bona fide efforts to
fulfill their fiduciary obligations through the candid
exchange of views and through review of significant
corporate issues. You can appreciate that the public
disclosure of such matters may offer the potential
for misunderstanding and conjecture, and could sig
nificantly compromise a given boardTs relations with
the Board of Governors or its own officers and em
ployees, as well as injure the Reserve BankTs rela
tions with the financial institutions it regulates
and with sundry business and personal interests
within its district.
I most earnestly hope that you will accept my assurance
that I have done all that I properly could in present circumstances.
With kind regards,
Sincerely yours,
Arthur F. B u m s
Enclosures
120
HENRY'S, !»FUS3vWI5_CHAIRMAN
1 TfWr''-* ■ -'-$*IV. KM1 ».) 3UU-IVAN. MO.
THOMAS L. ASWt-EY. OHIO
WILLIAM S. MOORHIAO. PA.
ROi»>tr O. STEPHENS. -I*- OK.
FERMANO J. STCEW.MAIW. R.l.
h~nwy a. GO>rrALcr. nsx.
JOSEPH C. MINISrl. N.J.
FRANK AN.NUN2IO. *t-«—
THO.MA3 M. REES. CALIF.
Jam£3 m. h a n le y . n .v.
rAftSSN J. MITCHSU, MD.
V.-ACTZS» E.FAUNTROY. D,C.
LINOy (.MSS. HALE) BOGGS. LA.
ST£?HSN I.. NSA^. N.C.
js h h y m. p a tt£ «so n . c a u f .
JASVS3 J. ELANCHAr?3* MICK.
CAR»OU. HU33A3D. JR-.KY.
JOHN J. t_X?ALCZ, H.Y.
GLAOY3 NOOS S^llXMANs MO.
1X5 AuCaiH. Or»*S„
PAUL E.TSONOAS. MASS.
0U71XH MR3ICIC. S.C.
PHRJi* H. HAYES. INO,
MA»VCW . HA>W*A?OS O. CAU*.
DAVID W. EVANS, «NO.
CS.»«»03J> AU.EN. TEN!*
NO*MAM a, D*AMOU?A N.H.
STANLEY N. LUNOINS. N.V.
A!B£irr W. JOWfJO*. J-A.
J.WIUUAM STa^TO*. OMJO
CARRYBAOWM,MiCM.
U.S. HOUSE OF REPRESENTATIVES
C O M M IT T E E O N B A N K IN G , C U R R E N C Y A N D H O U S IN G
N in e ty -F o u rth c o n g r e s s
2 1 2 9 R a y b u r n H o u s e O f f ic e B u ild in g
W a s h in g t o n , d .c .
20515
CMALM£J*S r-. WYUI. 0*«J>
JOHN H. RW JJllST. O U T .
s tx w a h t z . m ck cis; r . cc*-*.
JOHN B. CONLAN. *»<=.
CIO B5S V. HASSW. !3 tH »
RICHAROT.SCm.-V2S. T-A.
V/UJLISC
hen * y j . h y b e . r <
ftiCHARD KFLLY.rLA.
CHARLES E-OI»ASS».nr. lo w *
v-:u . ic e n t f t h y *lck^ k _>.
R O N fA C W n X -
K W iO
December 2 1 r 1976
Honorable A r t h u r F. Burns
Chairman
Board of Governors
Federal Reserve S y stem
Washington, D.C.
2 0 5 51
— --- ■— ------------ ----
Dear A r t h u r > ^ ^
JPSfank y o u for y o u r letter of December 20 conveying t o
m £ <certain portions of the minutes of the' 12 Fed e r a l
^'Reserve Banks for the years 1972, 1974, and 1975.
.x
As I h a v e ‘"lnQii.tiLLfl, LliU Ihatter deleted, a n d referred
to in items 1 t h r ough 3, wi l l be the subject of further
discussion,
---- -— J
“
A s to item 4 of y o u r letter of December 20, "In t r a n s
m i tting the minutes, 1 do so on the essential a s s u m p t ion
t hat they w i i l be examined and treated by you a n d your
staff o n a completely confidential basis.", thi s comes as
n ews "to me.
We have asked for the minutes of t h e Federal
Reserve Banks, y o u w i l l recall, because of you r assertion
that what e v e r the mak e - u p of the Federal R e s e r v e boards of
directors,' it is the B o ard of Governors in V7ashington w h i c h
controls the entire system.
The suggestion th a t you are
giving us this ma t e r i a l "...on a completely c o n fidential
b a sis” is not contained in your letter to me of September 15,
1976, n o r that of September 28, 1976, nor that o f N o v e m b e r 16
1976.
Here, in short, is a fine "how de d o ” , a n d we m u s t
have a stimulating chat on the subject.
A f t e r my staff and I have analyzed the m a t e r i a l
s ubmitted to us, w e wi l l be in touch w ith you.
Best wi s h e s to you, Helen and family for a frui t f u l
ne w year.
Sincerely,
H o n o r a b l e A r t h u r F. B u rns
ChairmanB o a r d of G o v e r n o r s
Federal Reserve System
W a s h i n g t o n , D.C.. 20551
De a r C h a i r m a n Burns:
I h a v e n o w co m p l e t e d a revi e w of the v o l u m i n o u s n i n u t e s
of th e b o a r d s of. directors of the regional. He s e r v e Banks; f o r
t h e y e a r s 1972, 1374, a n d 1975, as s u ppli e d b y y o u o n D e c
e m b e r 20, 1976, p u r s u a n t to o u r e x c h a n g e o f c o r r e s pondence-w h i c h b e g a n A u g u s t 26, 1976.
T h e c o n t e n t s of t h e s e m i n u t e s raise s e r i o u s p u b l i c p o l i c y
q u estions.
(1)
T h e y show, f o r instance, an e x tensive p a t t e r n o f
l o b b y i n g o n t h e p a r t o f the F e deral Reserve S y s t e m a g a i n s t
tw o b i l l s % o n e w h i c h w o u l d h a v e required, a G e n e r a l A c c o u n t i n g
O f f i c e a u d i t of the F e d e r a l Reserve, another t h e "Government:
i n t h e Sunshine" Act*
T h e k i n d of lobbyi n g a c t i v i t i e s e v i
d e n c e d in th e m i n u t e s w o u l d be' a criminal v i o l a t i o n if c o nducted
b y an a g e n c y w h i c h rece i v e s appropriated funds.
T h e f a c t that,
the F e d ’s f u n d s do n o t come v i a Congressi o n a l a p p r o p r i a t i o n s
d o e s n o t e x c u s e the F e d fro m the spirit of the A c t w h i c h
g o v e r n s o t h e r agencies.
In reality, unus e d F e d e r a l R e s e r v e
funds are retu r n e d to the Treasury; therefore, l o b b y i n g
a c t i v i t i e s v/hich involve use of Federal R e serve funds a r e in
eff e c t c a r r i e d out at the taxpayers* expense.
A p a r t f r o m the
lav;, there is a serious question of propr i e t y w h e n t he Federal
R e s e r v e enl i s t s c o mmercial bankers, over whom, it h a s consider
able- r e g u l a t o r y power, to lobby against legis l a t i o n t h e F e d
does not like.
122
(2)
T h e m i n u t e s show that the F e d ’s lobbying activities
af f e c t e d eve n a bill be f o r e the Ne w Jersey state legislature.
(3)
It is a l s o seen from the m i nut e s that C o n g r e s s v a s
m i s l e d by t e stimony from. the Federal Res e r v e as to v.’hether t h e
F e d w a s en c o u r a g i n g b a nks to extend cr e d i t in 1974 and 1375 t o
r e a l e s t a t e i n vestment trusts and public u t i l i t i e s .
(4)
O t h e r quest i o n s raised, by the m i n u t e s i n v o l v e a possible
c o n f l i c t of i n t e r e s t o n th e part of a d i r e c t o r o f t h e New" Y o r k
~
E e d e r a l R e s e r v e B a n k i n c o n n e c t i o n w i t h t h e f a i l u r e of t h e Franklit*
na t i o n a l Bank; .t a x p a y e r subs i d i z e d loans- by; the- F e d e r a l R e s e r ^ a
B a nks to t h e i r o w n employees; and g e n ero u s r e t i r e m e n t nei^entos
the b o a r d s of direc t o r s v o t e d for themselves.
E v e n t h o u g h the m i n u t e s are very ske t c h y a n d c o n t a i n 904
deletions, t h e activities disclosed b y thent a r e d e e p l y d i s t u r b
ing.
Therefore# I find i t n e cessary tha t infomra.ti.on d i s c l o s e d
by these m i n u t e s b e m a d e public’ in p u r s u a n c e of t h i s Cczraittee*s
legislative responsibilityI n r e v i e w i n g t h e correspondence under: w h i c h t h e s e lainutes
w e r e m a d e a v a i l a b l e to t h e Committee, I n o t e y o u r a s s e r t i o n i n
your le t t e r of D e c e m b e r 20, 1976, that y o u a r e staking t h e minutes,
a vailable " o n t h e essen t i a l assumption t h a t t h e y w i l l b e t r e a t e d
b y y o u and, y o u r staff on a completely conflxdentiaJL b a s i s - ”
However, t h e r e h a d b e e n n o t h i n g in the c o r r e s p o n d e n c e t h a t
prece d e d d e l i v e r y of the s e minu t e s to t h ^ Cozzmittee t h a t just i f i e d
s uch an a s s u m p t i o n In my* l e t t e r t o y o u o f September 23^ following- earlier, c o r r e s
pondence in August, I n o t e d that you w e r e resisting: efforts t o
inspect t h e m i n utes, and a s k e d t h a t t h e s e r ecords* "important to
the o v ersight a n d legis l a t i v e responsibi l i t i e s o f t h e Co-strittee** >
be d e l i v e r e d t o t h e C o m m i t t e e b y 5:00 p.m.. o n O c t o b e r 15. V»e
later ag r e e d t o a r e v i e w o f the minutes f o r o n l y t h r e e s e l e c t e d
years, 1972, 1974, a n d 1975.
In our p e r s o n a l m e e t i n g o n
November 1 2 , 1976, w e also reached a g r e e m e n t t h a t c e r t a i n kinds o f
information c o u l d b e deleted. I summarized, this agrrees-ent in m y
letter to y o u o f t h e same d a y as follows*
"“A s y o u indicated,
there are areas of *sensitivity * in some of" the m i n u t e s o f t h e
various Fed e r a l Rese r v e Ban k s including t r a n s a c t i o n s vjhich w ou l d
unnecessarily emb a r r a s s innocent people, a n d n a t t e r s a f f e c t i n g
the security a g a i n s t b u r g l a r y and r o b ber y of the- F e d e r a l Reserve
Banks.
In submit t i n g these minutes to me, I a m s u r e t h a t y o u
will indicate t h o s e areas whi c h yo u feel are s e n s i t i v e and t he
release of w h i c h w o u l d serve no useful purpose.
I v;ill r e v i e w car e
fully and give u t m o s t consideration to y o u r s u g g e s t i o n s f or such
deletions.'1
The- letter continued: “In the event that there axe instances
where I do not agree vrith your request for deletions, x'wlll
discuss these areas with you further prior to making anv oi t>>»
minutes, generally available,**
~
“
There was no agreement to keep the information in the misn&tes
confidential, and. I plan to make the information public. If you
wish to come before the Committee within the next'week and exolaJLst
why the material in. the minutes, relating to these questionable
activities should not: b e made- publicy I would be happy to calx a
Committee meeting, preferably in public, but in secret if you
preferIn addition, I believe the matters, referred to above require
additional inquiry by the Congress. For that purpose, -please sirp^iTr
the Committee promptly the material which has been deleted froa
the minutes, except that pertaining strictly to safety measures.
private personnel matters excluding salaries, confidential trass—
actions with foreign central banks, or bank borrowing at ths dig.—
count window in cases where disclosure would jeopardize the
position of the bank. In addition, please send to the Committee
copies of the minutes of the directors* meetings for all twelve
Regional Banks for the years 19-71, 1973, and 1976, as well as
minutes Of Jihe Board of Governors* meetings for 1971 thorough. 197 o.
C H A IR M A N O F T H E B O A R D O F G O V E R N O R S
FEDERAL R ESER VE SYSTEM
W ASH IN G TO N , D. C . 2 0 5 5 1
May 19, 1977
The Honorable Henry S. Reuss
Chairman
Committee on Banking, Finance
and Urban Affairs
House of Representatives
Washington, D.C.
20515
Dear Mr, Chairman:
I am deeply concerned about the statement in y our letter
of May 17, 1977, that you plan to make public the copies of the
minutes of the 12 Federal Reserve Banks that I transmitted to the
House Committee on Banking, Finance and Urban Affairs on December 20,
1976. My transmittal letter made quite clear that the Board was
furnishing this material on the assumption that it w ould be treated
on a completely confidential basis. Whether or not you believe that
a s sumption to be justified, it was a critically important element
of our consent to provide access to these documents.
Y o u r letter
of December 21 suggested that w e have a "stimulating chat" on that
subject, but you neither rejected our assumption nor refused to
accept the documents on the basis on which they were tendered.
The minutes that we transmitted were, of course, furnished
to the Committee, as you requested.
I expect therefore that any
final decision with respect to public release of these documents
will be made by the Committee on Banking, Finance and U rban Affairs.
In reaching such a decision, I am confident that the Committee will
weigh carefully the long-range effects of its action.
A s I pointed
out in my letter to you of December 20, public disclosure of these
matters could significantly compromise relationships b e t w e e n the
Board of Governors and the Reserve Banks as well as relations
between the Reserve Banks and the institutions they regulate.
Finally, I must express my profound disappointment that
you have seen fit to issue a press release that unfairly casts doubt
upon the integrity of the Federal Reserve System,
The charges of
impropriety you have made are without substance.
With war m regards,
Sincerely yours,
Arthur F. Burns
HENRY S. REUSS. WIS.. CHWRMAH
THOMAS L. ASHLEY. OHIO
V/1LUAM S. MOOAHEAD. PA.
rEBNANO J. ST CEHMAIN. B.l.
HEKSV D. CONlAt-Er, TEX.
JOSE.PH 6. M1NISH. N J.
FRANK ANMUNIIO. ILL.
JAMES M. HANLEY. N.Y.
PASStM ,1. MITCHELL. MO.
WALTER E. FAUNTROY. D.C.
JER?»Y M. PATTERSON. CALIF.
JAMES J. BLANCHARD, MICH.
CARROLL HUBBARD. JR.. KY.
JOHN J. LAFALCE, N.Y.
GLADYS NOON SPELLMAN. MD.
LES AyCOIM. OREG.
PAUL E. TSONGA3. MASS.
BUTLER DERRICK. S.C.
MARK W. HANNAFORD, CAUF.
DAVID W. EVANS, INt>.
CUr FO RD ALLEN. TENN.
NORMAN E. D-AMOURS. N.H.
STANLEY N. LONDINE. N.Y.
HERMAN BADILLO. N.Y.
COWARD W. PATTISON, N.Y.
JOHN J. CAVANAUGH. NEBR.
MARY ROSE OAKAB, OHIO :
JIM MATTOX,TEX.
BRUCE F. VENTO, MINN.
COUG BARNARD. GA,
WES WATKINS. OKLA.
U.S. HOUSE OF REPRESENTATIVES
C O M M IT T E E ON B A N K IN G . F IN A NC E AND URBAN A F F A IR S
N in e ty -F ifth C o n g re s s
2 1 2 9 R a y b u r n H o u se O ff ic e B u ild in g
W A S H IN G T O N , D .C .
20515
». WILLIAM STA^r^OM JO
CARRY MOWK. M.CK
CKALMIR* f . WYL-r. CH'O
JOHN H. K 3USS«lOT. CAL^
STEWART ». M-KIVCTT. CONNL
CEOR3S HA-SSiN. 130*0
HENRY J. H r w , ILL.
PICHAH.1 KELLY. FLA.
CHARLES Z. G»«AssLEY. T3WA
m :llic e .v t
«i.j.
JAMES A. S. LEAC.-i. J
KTW70N L STEERS. -T=L. M3.
THOMAS a. EVASS.
raBRUCi r. CATV73. S.Y.
Harold r. hollexbsck . s j .
M a y 19, 1977
Honorable Arthur F. Burns
Chairman
Board of Governors
Federal Reserve System
Washington,D. C.
20551
Dear Dr. Burns:
Thank y o u for your letter of May 19, 1977.
As m y letter to you of December 21, 1976 m a k e s clear, the
minutes of the board of directors meetings w e r e never a c cepted
on the basis that they would be kept confidential.
As trans
mitted to me, the m inutes already contained 904 deletions of
material considered "sensitive."
Therefore, I intend to proceed as indicated in my letter to
you of M a y 17, 1977.
You are again invited , as stated in the
M a y 17 letter, to come before the Committee if y o u wis h and ex
plain w h y you believe the material (not including material set
forth in items 1, 2, and 3 of your December 20, 1976 letter to
me) should not be made public.
If you desire s u c h an opportunity,
w e will be happy to have you before us in Room 2128 Rayburn House
Office Building at 9:00 a.m. on Tuesday, May 24, 1977.
Because
of our Committee's rule requiring timely notice, I w o u l d appreciate
being advised by the close of business Friday o f your wishes so
that w e m a y meet the requirements of our rule.
9 9 -3 3 1 0 - 77 - 9
Sincerely,
Chairman
126
FEDERAL RESERVE DIRECTORS: A STUDY OF
CORPORATE AND BANKING INFLUENCE
STAFF REPORT FOR THE
COMMITTEE ON BANKING, CURRENCY AND HOUSING
HOUSE OF REPRESENTATIVES
94th Congress, Second Session
AUGUST 1976
The report has not been officially adopted by the Committee on Banking, Currency and Housing
and may not therefore necessarily reflect the views of its members
Printed for the use of the Committee on Banking, Currency and Housing
/
FOREWORD
A
ugust
6, 1976.
I transmit herewith a staff study of the corporate, banking and trade as
sociation relationships of the directors of the 12 Federal Reserve Banks.
This Committee has observed for many years the influence of private
interests over the essentially public responsibilities of the Federal Reserve
System.
As the study makes clear, it is difficult to imagine a more narrowly-based
board of directors for a public agency than has been gathered together for the
twelve banks of the Federal Reserve System.
Only two segments of American society— banking and big business— have
any substantial representation on the boards, and often even these become
merged through interlocking directorates.
The lack of diversity on the boards raises serious questions about the
quality of economic intelligence and opinion which the district banks pre
sumably feed into the Federal Reserve System and its monetary policy ma
chinery. And the heavy links to the banking community raise doubts about the
ability of the district boards to view bank and bank holding company regulatory
issues with objectivity.
The Commission on Money and Credit raised some significant questions
on these points in its 1961 report:
The agency-clientele relationship, between a Government agency and the business
concerns it both serves and regulates, is almost always, almost inevitably, close; and the more
so after it has matured for decades. There are public advantages in this: regulation can be
knowledgeable, its inconveniences can be minimized, personal working relationships can be
easy. But the hazards of too close a relationship are also well known; conflicts of interest
tempt individuals on either side of the public-private line to consult private advantage too
far; organized interests among the regulated may first infiltrate and then paralyze their public
regulators; even legitimate transactions and contacts risk misconstruction; parties on both
sides come to take too parochial a view o f the national interest . (Pp. 91-92, emphasis added.)
The potential for conflict of interest has markedly increased since 1961,
with the delegation of additional authority to the district Reserve Banks. The
1970 amendments to the Bank Holding Company Act, the Consumer Credit
Protection Act, the Equal Credit Opportunity Act and similar consumer
statutes, have given important new duties to the Federal Reserve System—
responsibilities which serve to highlight the shortcomings of the make-up of the
bank boards.
Despite these broadening roles, consumer and labor organizations have no
apparent representation anywhere in the system. In fact, many directors of the
Federal Reserve district banks are members of the United States Chamber of
Commerce, the National Association of Manufacturers, and local “ employers
associations” — groups with long histories of opposition to organized labor.
128
Small farmers are absent. Small business is barely visible. No women appear on
the district boards and only six among the branches. Systemwide—including
district and branch boards— only thirteen members from minority groups
appear.
The study raises a substantial question about the Federal Reserve’s oftrepeated claim of “ independence” . One might ask, independent from what?
Surely not banking or big business, if we are to judge from the massive inter
locks revealed by this analysis of the district boards.
The big business and banking dominance of the Federal Reserve System
cited in this report can be traced, in part, to the original Federal Reserve
Act, which gave member commercial banks the right to select two-thirds of
the directors of each district bank. But the Board of Governors in Washington
must share the responsibility for this imbalance. Th ey appoint the so-called
1‘public’ , members of the boards of each district bank, appointments which
have largely reflected the same narrow interests of the bank-elected members.
The parochial nature of the boards affects the public interest across a wide
area, ranging from monetary policy to bank regulation. These are the directors,
for example, who initially select the presidents of the 12 district banks—
officials who serve on the Federal Open M arket Committee, determining the
nation’s m oney supply and the level of economic activity. The selection of
these public officials, with such broad and essential policymaking powers,
should not be in the hands of boards of directors selected and dominated by
private banking and corporate interests.
The nation would be better served by making the Federal Reserve System
truly independent of big business and banking, freed of its built-in conflicts
of interest, and more open in its activities. For example:
• Voting membership on the Federal Open M arket Com mittee should be
restricted to officers appointed by the President of the United States.
• The three Class A directors, who by law must be bankers, should be
rohibited from participating in decisions bearing directly or indirectly on
ank or bank holding com pany regulatory matters.
• The business/agriculture representation on the board, which the Federal
Reserve A ct assigns to the three Class B directors of each bank, should be
broadened to include more small businessmen and fam ily farmers, minority
businesses, cooperative enterprises, and com m unity development entities.
• As this Committee proposed in the Federal Reserve Reform Act, which
passed the House in M ay, 1976, the “ public” category (Class C) should be
expanded from three to six members and women, minorities, agriculture,
conservation, labor, education and consumers should be given specific con
sideration thus preventing the present over-emphasis on representation b y big
business and banking.
• The process for nomination and election of the board members should
be reformed to lessen domination by trade associations and other narrowlybased groups. Consideration should be given to limiting the role of the com
mercial banks to the nomination and election of Class A directors, with all
other board members selected by the Presidentially-appointed Board of
Governors.
• M ore information should be made available to the Congress and the
public about the day-to-day activities and decision-making of the district
banks, including the econom ic intelligence input to the Board of Governors
and the Federal Open M arket Committee.
E
129
Until we have basic reforms, the Federal Reserve System will be handi
capped in carrying out its public responsibilities as an economic stabilization
and bank regulatory agency. The System’s mandate is too essential to the
nation’s welfare to leave so much of the machinery under the control of narrow
private interests. Concentration of economic and financial power in the United
States has gone too far. We should celebrate our Bicentennial by reversing the
trend away from Thomas Jefferson.
,
H e n r y S. R e u s s , Chairman
Banking Currency and Housing Committee
of the U.S. House of Representatives.
,
A p p e n d ix I I
THE LIBRARY OF CONGRESS
Congressional Research Service
WASHINGTON, D.C. 20540
PUBLIC ACCESS TO RECORDS OF FEDERAL OPEN MARKET COMMMITTEE DELIBERATIONS:
EVOLUTION OF POLICIES PRECEDING THE DECISION TO
TERMINATE MAINTENANCE OF DETAILED RECORDS
Prepared for the Subcommittee on Domestic Monetary Policy,
Committee on Banking, Finance and Urban Affairs,
United States House of Representatives
by
Roger S. White
Analyst in Money and Banking
Economics Division
May 16, 1977
132
TABLE OF CONTENTS
Page No.
Introduction
Informational role of FOMC minutes
Initial disclosure policies
V.
FOMC concerns about records of deliberations under
initial disclosure policies, 1936-1960 ...........
Reaching the decision to release the minutes, 19611964 .............................................
Summary
Appendix:
Selected FOMC deliberations about releasing the minutes
Excerpt from Minutes of the Federal Open Market Committee:
meeting held April 17, 1962 .............................
Excerpt from Minutes of the Federal Open Market Committee:
meeting held December 3, 1963 ...........................
133
PUBLIC ACCESS TO RECORDS OF FEDERAL OPE N MARKET COMMITTEE DELIBERATIONS:
EVOLUTION OF POLICIES PRECEDING THE DECIS I O N TO
TERMINATE MAINTENANCE OF DETAIL E D RECORDS
Introduction
The principal means by which the Federal Reserve System conducts
monetary policy is through its purchases and sales of open market securi
ties.
The Federal Open Market Committee (FOMC) is the organizational
body within the Federal Reserve System having responsibilities for formu
lating policies and issuing directives on open market transactions.
In
large measure, therefore, information about the activities of the FOMC
is critical for describing and analyzing monetary policy and the manner
in which policy is formulated.
This paper traces historical developments relating to FOMC policies
regarding public access to minutes of its proceedings.
Such public dis
closures has always been at the discretion of the FOMC which has had a
range of options available to it.
Specifically, the elements which com
prise FOMC disclosure practices through release of its minutes are the
nature of minutes maintained, their availability to the public and, if
they are made available, the timing of their release.
Detailed minutes or memoranda of discussion had been prepared in
conjunction with each FOMC meeting from 1936 through March 1976.
Most of
134
these records were released in 1965 when a newly adopted FOMC policy pro
vided for the release of minutes for meetings held through 1960 and for
the release of minutes for subsequent meetings with a five-year lag after
the calendar year in which minutes were taken. The first section of this
paper outlines the informational role of publicly accessible FOMC minutes
The remaining sections report developments regarding disclosure of FOMC
deliberations which preceded the decision in May 1976 to discontinue tak
ing detailed FOMC minutes.
Informational role of FOMC minutes.
Some perspective on the informational role of the public release
of FOMC minutes is gained by comparative references to reports on its
meetings which the FOMC makes publicly available in compliance with pro
visions of the Federal Reserve Act and by reference to FOMC practices
relating to such reports.
Section 10 of the Federal Reserve Act requires
the Board of Governors of the Federal Reserve System to submit an annual
report to Congress containing a complete record of actions taken relating
to open market operations, the voting records on open market policies
and the reasons underlying each action.
These public records on open
market meetings are commonly referred to as "records of policy actions".
135
Beginning with the record of policy actions for the meeting of May 18,
1976, the FOMC indicated that "the policy records would be expanded to
include more information concerning members' views on longer-run and cur-
iy
rent policy."
In their expanded form, these reports differ from FOMC
minutes in terms of the completeness of information conveyed.
The records
of policy actions, as currently prepared, present general summaries of
discussions whereas the more detailed minutes have reported the views of
individual discussants and also the identity of these discussants.
FOMC practices regarding the timing of public release of documents
is the basis for another distinguishing characteristic of its minutes as
an information source.
Since 1967, the FOMC has issued records of policy
actions more promptly than required by law.
Under current practice, they
are released about thirty days after each meeting and are published in
the Federal Reserve Bulletin.
FOMC minutes were not released to the pub
lic until 1965 at which time all minutes through 1960 were made available
and a policy was instituted for the release of subsequent minutes with
a five-year lag.
The last minutes which the FOMC recorded, those taken
for the meeting of March 1976, are scheduled to be released in January
1982.
After that date, no additional minutes will be available for re
lease unless the maintenance of detailed minutes is resumed.
1/
Record of Policy Actions of the Federal Open Market Committee: meet
ing held on May 18, 1976. Federal Reserve Bulletin, July 1976: 590591.
136
I.
Initial disclosure policies.
Formal procedures for directing open market operations were first
adopted in 1922, through actions taken within the Federal Reserve System
itself, with the creation of the Committee of Governors on Centralized
Execution of Purchases and Sales of Government Securities.
The name of
this policy-making body and its membership composition changed several
times before statutory provisions for an open market committee were intro
duced with the passage of the Banking Act of 1935.
The various open mar
ket committees which preceded the FOMC maintained abbreviated minutes
which were available for internal use only.
Beginning with its first
meeting on March 18, 1936, the FOMC maintained detailed, but not verbatim,
records of its deliberations which, for a number of years, were consid
ered confidential documents.
The initial policies of the FOMC regarding detailed records of
its proceedings were established at early meetings of this group and
remained essentially unchanged for about thirty years.
The Banking Act
of 1935, which established the FOMC with its current membership arrange
ment, influenced directly and indirectly the maintenance and disclosure
of information on FOMC deliberations and policy actions.
The Act stipu
lated the following requirements for maintaining records and filing re
ports to Congress:
137
The Board of Governors of the Federal Reserve System shall
keep a complete record of the action taken by the Board and
by the Federal Open Market Committee upon all questions of
policy relating to open-market operations and shall record
therein the votes taken in connection with the determination
of open-market policies and the reasons underlying the action
of the Board and the Committee in each instance. The Board
...shall include in its annual report to the Congress...a
copy of the records required to be kept under the provisions
of this paragraph. 1/
At its first meeting, in 1936, the FOMC adopted by-laws containing a pro
vision which specified the nature of information to be recorded in the
minutes of its meetings:
It shall be [the secretary's] duty to keep minutes of all
meetings of the Committee and a complete record of the ac
tion taken by the Committee upon all questions of policy
relating to open-market operations and [he] shall record
the votes taken in connection with the determination of
open-market policies and the underlying reasons assigned
therefore. 2/
This provision incorporated language which appeared in the reporting re
quirements section of the Banking Act of 1935 and contributed to the main
tenance of more detailed minutes than had been recorded for previous open
market committees, particularly with respect to elaborations on "under
lying reasons" for policy actions taken.
Another by-law provision on
disclosure of information limited the public release of information be
yond what was required by the Banking Act of 1935:
1/
12 U.S.C. 247a
2/
Minutes of the Federal Open Market Committee: meeting of March 18,
1936. [Washington, U.S. Board of Governors of the Federal Reserve
System] p. 4.
138
The proceedings, deliberations, discussions and actions of
the Committee, except as required by law and except as
authorized by the Committee, shall be strictly confidential,
and no information shall be released except as authorized by
the Committee and in the annual report required to be made
to Congress by section 10 of the Federal Reserve Act as
amended. Except as herein provided, no reports on the meet
ings of the Committee shall be made to any person or persons
whatsoever. 1]
V.
FOMC concerns about records of deliberations under initial disclo
sure policies, 1936-1960.
Following the adoption of its original by-laws, the FOMC gave ex
plicit attention to policies relating to its minutes on only a few occasions
before 1961.
In 1937, the FOMC considered the degree to which details
were to be recorded in minutes.
This action was taken in response to
the following suggestion which was advanced at the FOMC meeting of May 4,
1937:
...that whenever an agreement is reached or a position taken
by the Committee the agreement or action be expressed as a
formal motion or resolution and voted upon, so that it may
be so recorded in the minutes, and that individual statements
of opinion or position be omitted from the record, unless
the person making the statements requests that it be incorp
orated in the minutes in which case the authorship should
be shown. 2/
1/
Ibid., p. 3. The last sentence of this provision was later stricken,
it being considered "somewhat redundant" and "unnecessarily restric
tive." The elimination was not viewed as removing "the confidential
nature of the matters considered and acted on by the Committee.11
Minutes of the FOMC. September 9, 1938, p. 5.
2/
Minutes of the FOMC.
May 4, 1937, pp. 1-2.
A special committee within the FOMC was appointed during this meeting to
consider the following alternatives for recording minutes:
(1) whether the present form of minutes should be con
tinued, (2) whether the changes referred to above should
be made in the present form, (3) whether the minutes
should be prepared in a brief form which would state
only the actions taken with the votes thereon followed
by the reasons and any explanatory discussion that might
be necessary, and (4) whether a full stenographic report
should be made of the Committee's proceedings. 1_/
The third option, calling for the recording of the least amount of infor
mation, was consistent with statutory requirements for recording and ul
timately releasing information about FOMC proceedings.
At the meeting of
June 9, 1937, the special committee recommended a continuation of exist
ing practices for recording minutes.
No further action was taken.
In
the absence of any evidence that members of the FOMC were concerned about
ultimate public release of the minutes, it would appear that the decision
to maintain detailed records of its proceedings was based on judgments
concerning the value of such documents for uses within the Federal Re
serve System.
On several occasions the FOMC addressed questions about which Federal
Reserve System personnel should be granted access to its minutes.
Arrange
ments agreed upon for automatic access or for access on a need-to-know
1/
Ibid.
140
CRS - 8
basis resulted in selective dissemination of the minutes within the Federal
Reserve System.
y
Reports on FOMC discussions about internal access to
minutes reveal several points of information regarding the minutes.
The
minutes were considered important as internal briefing documents for those
with on-going responsibilities in the area of open market policy and for
those who, upon being charged with such responsibilities, needed background
on developments which had preceded their appointments.
The function of
the minutes as internal briefing documents was most clearly demonstrated
in the meeting of March 6, 1939 which went into recess with the under
standing that newly-appointed members of the FOMC "would read the minutes
[of specified meetings] during the evening and that the Committee would
reconvene tomorrow morning for further consideration of the open market
2/
policy to be adopted by the Committee."
It appears also that the minutes were subject to review by partici
pants at the meetings before they were made available to others within
the Federal Reserve System. On March 20, 1939, a motion approved by the
FOMC concerning internal access to the minutes included "the understanding
that the minutes would first be sent to the regular members of the Federal
y
Minutes of the FOMC. March 6, 1939, p. 8; March 20, 1939, pp
and March 2, 1955, pp. 37-39.
2/
Minutes of the FOMC.
March 6, 1939, pp. 8-9
Open Market Committee for review before being sent to [Federal Reserve
1/
Bank presidents not currently serving on the FOMC]."
In 1951, an incident arose which served as the basis for confirmation
by the FOMC of its concern about the confidentiality of its deliberations.
On February 7, 1951, the Wall Street Journal published an article contain
ing references to a discussion held at the FOMC meeting held the previous
2/
day.
FOMC reaction was in the form of an adopted motion that informa
tion leaks by a member would be sufficient cause for removal of the member
from the FOMC.
2/
Reaching the decision to release the minutes, 1961-1964.
During a three-year period from June 1961 through May 1964, the FOMC
engaged in intermittent discussions about instituting procedures for pub
lishing its minutes.
In May 1964, the FOMC adopted a proposal for the
public release of minutes for all meetings held prior to 1961 and for the
release of minutes for subsequent meetings with a five-year lag.
1/
Minutes of the FOMC.
2/
FRB members, bank presidents discuss interest rate feud.
Journal, February 7, 1951: 2.
3/
Minutes of the FOMC.
http://fraser.stlouisfed.org/
9 9 -3 3 1 0
Federal Reserve Bank of St. Louis
- 77 - 10
March 20, 1939, p. 2.
February 6-8, 1951, pp. 31-33.
Wall Street
142
The chronology of events surrounding FOMC discussions about pub
lication of its minutes suggest that two external developments were in
fluential in bringing this matter to the FOMC's attention and sustaining
its interest in it.
These were a series of congressional requests for FOMC
minutes and the publication of a scholarly treatise on U.S. monetary his
tory which was critical of Federal Reserve System monetary policy.
At hearings before the Joint Economic Committee in June 1961, Rep
resentative Wright Patman, Chairman of the committee, requested a copy
of the FOMC minutes for 1960 from William McChesney Martin, Chairman of the
1/
Board of Governors of the Federal Reserve System.
These minutes were
sent as requested following discussions at a series of FOMC meetings in
June and July of that year.
y
During these discussions, Chairman Martin
raised the idea of regularly publishing FOMC minutes in conjunction with
the release of the annual report of the Board of Governors.
2/
At the
\J
U.S. Congress. Joint Economic Committee. Review of Annual Report
of the Federal Reserve System for the Year 1960. Hearings 87th Con
gress, 1st session. June 1-2, 1961. Washington, U.S. Govt. Print.
Off., 1961. pp. 106-109.
2/
The 1960 minutes were sent to the Joint Economic Committee "on the
understanding that they will be treated as confidential." The ration
ale for requesting confidentiality was set forth in a transmittal letter
which appears in the Minutes for the meeting of July 11, 1961 on pages
68-71.
3/
Minutes of the FOMC.
June 6, 1961, p. 3°
143
conclusion of more extensive deliberations over the publication issue dur
ing the FOMC meeting of April 1962, the matter was tabled with the under
standing that all members would continue to study ways to present "to the
public the nature of the Federal Reserve System and the way this group op-
1/
erated."
Discussions about publication were revived briefly in August and
September 1962 when the FOMC received and reviewed galley proofs of a pro
posed Joint Economic Committee publication based on the FOMC minutes for
1/
1960 which had been made available to Representative Patman.
The next round of discussions took place over a year later, at the
close of 1963, and included consideration of providing assistance in the
writing of a history of the Federal Reserve System.
1/
Immediately pre
ceding these discussions, in November 1963, a major study of U.S. monetary
1/
Minutes of the FOMC. April 17, 1962, p. 98.
2/
Minutes of the FOMC. August 21, 1962, pp. 46-51; and September 11
1962, pp. 62-73.
3/
Minutes of the FOMC. December 3, 1963, pp. 54-76.
144
CRS -
history was published.
This study, by Milton Friedman and Anna Schwartz,
1/
contained sharp criticism of Federal Reserve System monetary policy.
In January 1964, the FOMC received another request for its minutes
from Representative Patman in his capacity as Chairman of the Subcommittee
2/
on Domestic Finance of the House Committee on Banking and Currency.
This request was discussed at each meeting of the FOMC through April 1964
at which time the request was denied.
The letter from the FOMC conveying
this message to the Congressman included the following indication that
publication of historical minutes was imminent:
To provide a broad historical perspective, the Federal Open
Market Committee and the Board of Governors have instructed
their staffs to explore means for making their records relat
ing to monetary policy decisions through the year 1960 avail
able for the use of scholars and other interested persons. It
is expected that procedures for accomplishing this end will
be decided upon shortly. 3/
1/
Friedman, Milton., and Anna Schwartz. A monetary history of the United
States, 1867-1960. Princeton, N.J., Princeton University Press, 1963.
860 p. The Federal Reserve System gained first hand information about
the nature of the Friedman and Schwartz book in 1962 when the authors
sent an early draft of their manuscript to Chairman Martin with a re
quest for assistance in detecting errors of fact or interpretation.
The only communication the authors received from the Federal Reserve
was an acknowledgement of receipt of the manuscript. Letter from Milton
Friedman, Professor of Economics, University of Chicago to the Honorable
Stephen L. Neal, Chairman, Subcommittee on Domestic Monetary Policy,
Committee on Banking, Currency and Housing, October 2, i976.
2/
U.S„ Congress House. Committee on Banking and Currency. Subcommittee
on Domestic Finance. The Federal Reserve System after Fifty Years.
Hearings. 88th Congress, 2d session. Volume 1. Washington, U.S. Govt.
Print. Off., 1964. pp. 54-59.
3/
Minutes of the FOMC.
April 14, 1964, p. 68
145
Procedures for public release of FOMC minutes were adopted without dis1/
cussion at the FOMC meeting of May 5, 1964 by unanimous vote.
In the FOMC deliberations which preceded the decision to publish,
a variety of opinions were voiced.
It appears that Chairman Martin was
a principal proponent of publication throughout these deliberations.
His
interest in public disclosure was reflected in his view that the broad
problem "involved clearly the matter of the Committee's responsibility
in the public interest and the best way to discharge that responsibil-
2/
ity."
He also cited the absence of an objective body of literature in
the public domain on the operations of the Federal Reserve System and
misunderstandings of the public about the manner in which policy decisions
were reached.
1/
In general, members of the FOMC endorsed Chairman Martin's view
that increased public disclosure was desirable.
Assistance in securing
an objective history of the Federal Reserve System and publication of
quarterly reviews of open market policies were suggested as alternatives
to or supplements to publication of the minutes.
A full range of views
1J
Minutes of the FOMC.
May 5, 1964, pp. 56-57.
2/
Minutes of the FOMC.
June 20, 1961, p. 39.
3/
Minutes of the FOMC. April 17, 1962, p. 96; September 11, 1962, p.
and December 3, 1963, pp. 54-55.
146
expressed on this issue is presented in the excerpts from minutes of tv
FOMC meetings which appear in the appendix to this paper.
Several concerns addressed at FOMC meetings by both critics and
supporters of publication were reflected in disclosure policies ultimately
adopted by the FOMC.
A major concern among members of the FOMC was the
timing of release and the perceived impact that such timing would have
on freedom of expression during meetings.
A summary of Governor George
Mitchell's views illustrates this concern:
The kind of record that would grow out of minutes where
there was a knowledge that they would be made public
after a lag might well look shallow at a later period.
This certainly would be the case if publication was to
be with a very short lag such as one year, and less so
as the lag became longer. 1/
Another concern was the treatment to be given to sensitive discussions
2/
about foreign exchange operations.
Expressed interest in these matters
helps to explain the nature of the final arrangements for release of the
1/
Minutes of the FOMC.
2/
Minutes of the FOMC April 17, 1962, pp. 87, 90 and 92. This topic
was discussed by the FOMC on another occasion in connection with ques
tions regarding the degree of detail to be recorded and the internal
distribution of preliminary drafts of minutes for meetings in which
foreign exchange operations were discussed. Minutes of the FOMC.
March 27, 1962, pp. 54-55. In its request for FOMC minutes in 1964,
the House Subcommittee on Domestic Finance also acknowledged the sensi
tivity of discussions relating to foreign exchange operations. The
Federal Reserve System after Fifty Years, pp. 57-58.
April 17, 1962, p. 94.
147
minutes which provided for a five-year lag and exclusion of portions of
the minutes, principally relating to foreign exchange operations, judged
to be sensitive.
Summary
Beyond certain basic reporting requirements stipulated in the Federal
Reserve Act, as amended in 1935, the FOMC exercises its own discretion
with respect to the nature of information recorded about its activities
and conditions under which public access to such information, if any, is
granted.
This paper presents historical developments relating to FOMC
policies and practices regarding a rather substantive form of public dis
closure, release of detailed minutes of its meetings.
FOMC staff prepared minutes or memoranda of discussions for each
FOMC meeting from 1936 until this practice was discontinued in May 1976.
These records include detailed documentation of discussions, identifying
participants in these discussions with the specific views they advanced.
The initial public disclosure policies of the FOMC restricted disclosure
to information the FOMC was required to release by law.
Under these poli
cies, which were reaffirmed on several occasions during their existence,
detailed minutes of FOMC meetings were maintained as confidential docu
ments.
Procedures for granting public access to the minutes were adopted
in 1964 after three years of periodic discussions in which consideration
148
of congressional requests for minutes and the needs of scholarly research
ers received considerable attention.
Records of some of the more extensive
FOMC discussions on the issue of public release of its minutes are repro
duced in the appendix to this paper.
The 1964 FOMC provisions included
a five-year lag for release of the minutes
With the termination of the
maintenance of detailed minutes of FOMC meetings in May 1976, access to
the final set of minutes available for public release w ill be granted in
1982.
149
appendix
Excerpt from Minutes of the Federal
held April 17, 1962. pages 85-99
m i
"
^
Committee:
m^ i n g
Chairman Martia referred to discussIona from time to time in the
past regarding the publication of minutes of Meetings of the Federal Open
Market Cowalttee, noting that the question had been brought up again by
reason of the fact that the ainutes covering all meetings held in calendar
year .19^0 had been furnished to Congressman Patmaa as Chairman of the Joint
Economic Coomlttee, that he understood they had been seen by a number of
persons, and that In the course of tine there would be published an analysis
of those minutes prepared by members of Mr. Pataan's staff.
The suggestion
150
k / n /62
had been made that It vould be desirable if the Committee's minutes were to
be published so as to permit all interested persons to review freely the
record of policy discussions and decisions.
He then called upon Mr. Balder-
ston for comment.
Mr. Balderston stated that he believed it desirable to make the
minutes of the Federal Open Market Committee available to scholars for the
decade of the 1950s.
Specifically, he would propose that they be published
i'or the period 1951 through i960 in the form approved by the Committee and
vithout additional interpretative comments.
He would include in the
published record the minutes of the meetings of the executive committee
for the period 1951 to June
1955 in which month that committee was abolished.
Mr. Balderston stated that he believed the Committee and the Federal Re
serve System were at a disadvantage in getting interested members of the
public to understand the goals of the Federal Reserve and how the System
aought to achieve them.
Sase of the System’s critics now had access to
Information not available to scholars generally.
His view was that
scholars, whether favorable or unfavorable to the 8ystem, should have
access to the minutes so that they could make an objective analysis on
the basis of the record.
In response to a question from Mr. Deming as
to whether this called for publication of the minutes, or whether they
could be made available in some other manner, Mr. Balderston said that
he was thinking of publication so that they would be available not only
*t the Federal Reserve Banks and at the Board's offices, but also in
college libraries.
In this way, teachers or students of finance or others
151
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vould have ready access to the*.
He also stated, in response to Mr.
Denlng's question as to whether he was proposing regular publication from
here on out, that he did have such publication in mind.
Nr. Balderston
vent on to say that this raised one of the critical points:
how much lag
there should be between the meeting covered by a given set of minutes and
their publication.
Re had thought earlier in terms of a lag of three to
five years, but the fact that the ninutes for i960 were now available
to a limited group outside the Comtittee complicated the use of such a
lag period.
Mr. Deming said that he vas not especially disturbed about making
available ninutes for a past period but that he vas disturbed about a
procedure that vould commit release of future minutes.
He vas thinking
of this particularly in terms of the foreign currency operations in vhich
the Committee had recently engaged.
Mr. Hayes stated that he granted the veight of some of the considera
tions that Mr. Balderston had brought up, particularly that making the
minutes available vould provide a record that vould permit a defense against
use of minutes out of context by those vho already had. access to them for
the year i960. Conceivably this could provide information that the
public should have and that might be useful in a number of vays.
On
the other hand, Mr. Hayes said that there were counter arguments, sone
of vhich related to a lag of time before release of the minutes and
some of vhich applied more or less permanently.
If published, there
should be sufficient lag to avoid the danger of anyone reading into the
picture a position taken by the Committee currently or possibly one that
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W/17/62
would be taken in the near future.
Also, if it were known that future
ainutes would be released, there was some risk of hurting the atmosphere
of discussion at Coanittee neetings through inhibiting frank expressions
of view.
Everyone at a Meeting should be free to take as frank a position
as he desired, Mr. Hayes said, and he should not be held to account too
strongly for views tentatively expressed.
While he could not see much
advantage to making the minutes available, he did not believe that Much
would be lost by doing so for the years 1959 and i960.
On the natter of giving adequate information on System operations,
Mr. Hayes said that he was quite concerned about the sense of inadequacy
felt by many persons in the System on this point.
He wondered whether
the Comlttee should not tackle a more frequent publication of the policy
record, perhaps quarterly, and whether it should not contemplate an article
in the Federal Reserve Bulletin at quarterly intervals similar to the
articles now published on a quarterly basis by the Bank of England.
Mr.
Hayes concluded his remarks with a statement that he was not enthusiastic
over publication of the Committee's minutes but, if the majority wished
to go ahead, he did not feel violently opposed to doing so.
Mr. Ellis stated that he was enthusiastically against making
the minutes of the Cosmd.ttee available to the public.
He questioned
whether they were of primary interest to monetary analysts.
These
persons already know a good deal about the policy actions.
From the
record of policy actions published annually they know the Comlttee's
position and the reasons for that position.
The minutes would add
153
U /17 /62
information on the performance of individuals, and he doubted that this
would be of interest to the monetary economists.
His conclusion vas
that the minutes would not be of substantial advantage to the true
monetary economist and he did not think the urge for access to the
minutes came from that source.
Those persons would much prefer more
timely analytical reports of actions of the Cooanittee.
Also, as Mr.
Hayes had aentioned, there was the undesirable effect on Conaaittee dis
cussions that could be anticipated in the event of a decision to publish
the minutes.
There would be a tendency for those at the meetings to
elaborate the statistical presentations and to compress discussion of
controversial matters, Mr. Ellis thought, which in many cases would
tend to distort the basic purposes of Committee discussions.
Once
the Conmlttee started publishing the minutes, it would be extremely
difficult to reverse the process.
There would also be a tendency to
yield to requests for making the minutes available on a more nearly
current baaiB.
If there were logic in publication of the Conaaittee's
minutes, then the same logic would lead to publishing minutes of other
actions on monetary policy such as on discount rates, reserve require
ments, margin requirements, and so on.
Mr. Ellis questioned that
publication of the minutes would offset the potential danger that he
thought would result--perhaps had already resuited--from access of
certain persons to the i960 minutes.
He suggested that the best defense
for the System against misuse of materials made available was either to
make a direct response to any reports requiring coaxment, or to Ignore the
154
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attacks.
On tbs question of sore information, Nr. Ellis said that he
thought the Ccanittee could more in that direction periiaps through
quarterly publication of the policy record, preparation of Bulletin
articles such as Nr. Hayes had mentioned, and provision of other informa
tion.
This procedure, in his opinion, would be more likely to provide
effectively for better public information.
Nr. Irons said that the comments by Hr. Ellis were quite conYinc *
ing.
On the other hand, while those objections might be valid, it still
seemed to him that if members of the Congress sought the minutes, the
Committee vas likely to make them available. The discussions of foreign
currency operations raised an additional problem, and he would look
upon those discussions as somewhat different from the minutes of the
regular Committee discussions.
If the minutes were to be made available
at all, he would lean toward their publication for interested persons
generally.
He would be happier if they were not made available, but if
the decision was to release them, his preference would be to make them
available for a period of perhaps the past ten years without resolving
now the question of what would be done in the future.
Nr. Swan expressed the view that a much better job of explaining
the System's position could be done through preparation of periodic
analytical material, perhaps on a quarterly basis, than by publishing
the Committee's minutes.
Such an article would necessarily be based
on policy record entries but would be in a different form.
He believed
that such periodic articles should be prepared regardless of what decision
155
V/17/62
is reached about publishing the Committee1s minutes.
As to publication,
he felt that the fact the Committee had made one year's minutes available
to a Congressman on a confidential basis did not necessarily call for
publishing the minutes over a ten-year period.
He did not think that the
Committee should be In a position of trying to hide anything, but what was
needed was perspective.
Por that reason, he would lean toward Nr. Balder-
ston's thought of a lag of three years or perhaps five years between the
time of a meeting and any publication of the minutes for the meeting.
Mr. Deming expressed views similar to those of Nr. Ellis.
Vhlle
he did not feel strongly, he was concerned that any action taken might
create problems for the future if it Implied publication with a short
lag interval.
He thoroughly agreed with the desirability of preparing
articles, perhaps at quarterly intervals, explaining the role of monetary
policy but, on balance, he would prefer not to publish the Committee's
minutes.
Nr. Scanlon stated that he, too, agreed with the views expressed
by Mr. Ellis and would prefer not to have a procedure adopted whereby
the minutes would be published regularly.
Mr. Clay's statement indicated agreement with the views expressed
by Mr. Ellis.
For one thing, a procedure for publishing the minutes
would bring about perhaps unconsciously a change in the nature of the
Open Market Committee's meetings.
Inevitably members would be conscious
of the record, and this would tend to Inhibit expressions of views and
testing of views with the freedom now practiced.
Mr. Clay felt that a
156
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much better Job of explaining Monetary policy could be done by prepara
tion of appropriate periodic articles than by publishing the Minutes.
Mr. Heflin felt strongly that tire Cosssittee should not adopt
a policy of publishing the minutes as such.
Little vould be accomplished
by such a procedure and if publication vere undertaken it probably vould
lead Only to further demsnds for additional Materials.
Mr. Mills stated that he vould favor publication of the Minutes
up through the year i960 and, after discovering the reception accorded
those Minutes, vould deal vlth the question of future publication.
His
feeling vas that responsible scholars vho had the Minutes at their
disposal vould, in their own Minds, be able to recreate the background
atmosphere in vhlch policy decisions vere reached.
He did not have mach
sympathy vlth the Idea of quarterly disseminations because they Inevitably
vould be slanted and biased to Justify decisions recently reached by the
Committee.
Mr. Robertson stated that the vlevs expressed by Mr. Mills vere
essentially the saa» as his.
He thought that the Cossslttee vould be
forced to issue something whether it vlshed to do so or not.
vould Insist on disclosure regarding Committee discussions.
Tbs Congress
In his
Jud^rat, the Comrtttee vould be In much better position if it took the
lead.
His preference vould be to make the minutes available hers in
Washington, perhaps at the Matlomal Archives, and at each Usserve Bank
rather than to pmbllsh sad distribute them generally.
course, be an appropriate lag.
Therm should, of
It vomld be preferable to have a longer
157
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lag than one year, but Just how Much was needed was a question.
The
■inutes for i960 haring been Made available, he could see no reason for
not Making them available for all prior years, since, for example, 1951.
Mr. Shepardson was inclined toward the issuance of a current *\amiry
report of open Market operations such as had been suggested by several
persons at this Meeting.
On the question of publication of the Minutes,
he felt that it would have been desirable if they could have been withheld.
However, those for i960 had already been Made available to a degree, and
other Interested persons ought to have an equal opportunity to study the
ssae Minutes.
This Might assist In promoting objective discussion of
Monetary policy, although that, of course, was a Matter that could not
be answered at this tlMe.
He definitely would favor a tlMe lag with
respect to publication of any other Minutes, and he would leave until a
later tlMe any decision as to what tlMe lag Might be applied in the future.
Despite what he had Just said, Mr. Shepardson expressed the hope that the
CoNMlttee could handle the difficult probleM of presenting the discussions
of Monetary policy through s o w Means other than publication of the Minute*.
Mr. King said that ha believed a decision to publish the Minutes
at this stage would be JUMping the gun.
He would wait to see what kind
of * report Might be Issued by the Congressional coKLttee that had avail
able the Minutes for i960 before deciding whether to publish or not.
If
forced to a decision at this tlMe, Mr. King would release the Minutes
for i960, hut his preference would be not to release even those Minutes
at present.
http://fraser.stlouisfed.org/
9 9 -3 3 1 0 - 7 7 - 1 1
Federal Reserve Bank of St. Louis
158
k / n /62
Mr. Mitchell said that the fundaaent&l problem went back to the
kind of record wanted for the Ccsamittee *a deliberations, and the question
whether publication of the minute* would result in a different record than
had been had In the past or than the Cootittee desired.
He felt that the
discussions in the Minutes of the CoaatLttee would not be as free as they
are at present if it were known that the minutes vould be published.
The
kind of record that vould grew out of minutes vhere there vas a knowledge
that they vould be made public after a lag night well look ahallov at a
later period.
This certainly vould be the case if publication vas to be
vlth a very short lag such as one year, and less so as the lag became
longer.
While he vould prefer not to publish the minutes, he vould be
inclined to make available at the Reserve Banks and some place such as the
Board's offices or elsevhere in Washington a file of the Minutes that
serious scholars could know were available for study and reference.
His
inclination vas not to deny students access if they had an honest interest
in the subject matter, but he did not think that this called for reproduc
ing and distributing videly sets of the Committee's minutes.
Mr. Pulton expressed vieva favorable to periodic (quarterly) re
ports of Committee discussions.
He did not believe that publication of
the Minutes vould serve any useful purpose.
Mr. Bopp said that as far as inhibitions on future discussions
vere concerned the Committee should remember that It could not now make a
final determination as to what vould be published in the future.
If it
vere decided not to publish at this time, the same question might still
159
U/17/62
cone up a year hence.
Thus, one could reason that the Committee would be
inhibited whether there was a decision today to publish or not to publish.
Re had a great personal sympathy with publication of the minutes back to
the origin of the Cosnittee.
In general, he felt that a tine lag of five
year prior to publication would be desirable.
Mr. Bryan said that publication of the ainutes should have a
minima time lag of five years and anything shorter would be dangerous
as inhibiting discussions of the Carnalttee. This would be particularly
true in view of the foreign currency operations recently engaged in.
It
was out of the question to talk about having two sets of minutes, one
that could be made public and the other that would not be available.
He
did not believe that the fact that the minutes for i960 had been made
available to the Congress called for publication by the Committee.
If
the Congress determined to make those minutes available, that was one
thing, but this need not be determinative for the Committee's action.
In the one case, the Congress would take the responsibility and in the
other the Committee would take the responsibility.
The fact that those
minutes might be released by the Congress should not frighten the
Committee into something that it might regret.
would be abdicating responsibility.
To take that course
Mr. Bryan said that he would favor
making the minutes available with a considerable lag of time, but not
otherwise.
Mr. Franci8 stated that the views expressed by Mr. Ellis repre
sented the position that he would take on this question.
160
V/17/62
Chairman Martin said that until there was a more unanimous
point of viev than had been indicated at this meeting it would be a
mistake to press the question of publication of the minutes to a vote.
Both sides of the question had been presented reasonably well today, and
as he had indicated earlier the vievs expressed by Mr. Ellis were
persuasive.
Chairman Martin vent on to emphasize that from his standpoint
there vere important considerations involved in this question.
Every
thing that Mr. Ellis had said was veil taken but, having spent a good
deal of time in various libraries recently, he vas convinced that there
vaa a great shortage of good material on the operations of the Federal
Reserve System.
Information on vhat the System had actually done vas
voefully lacking.
Various individuals formerly connected with the System
bad vritten things from tbeir particular points of viev, but this did not
meet the need for full Information to enable students and others to knov
vhat the Federal Reserve vas doing in order that they night write
objective analyses.
Chairman Martin said that he, personally, vould be opposed to a
quarterly analysis of Committee decisions on monetary policy of the sort
he understood several bad suggested around the table.
Such a reviev pre
pared vlthin the System for publication shortly after decisions vere
reached and vhile they still vere being put into effect could not avoid
being an apology for the CosHlttee's actions.
One result vould be to
make the position of the Chairman much more difficult than it now vas.
161
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Any such analysis of monetary policy could hardly be expected to be
objective or to reach the problem that the System had to deal with.
He
regretted that the institutional life of the System, which he believed to
be in danger, could not be put in a light that the public vould be able
to visualize, so as to see that intelligent and conscientious persons were
sitting around the table at frequent intervals analyzing the situation
and expressing different points of view as to what would be the most
suitable procedure to follow in carrying out the purposes of the Federal
Reserve System.
He believed that the minute record of these discussions,
even with sone defects, was impressive as indicating both an attitude and
a procedure whereby the System was attempting to render the decisions for
which it was responsible.
He did not believe that the System could put
out a quarterly report that would do what was needed.
Also, he had come
to the conclusion that quarterly publication of the record of policy
actions would not meet the need, and he felt that he had convinced a
former Chairman of the Senate Banking and Currency Committee that an
earlier proposal that the Canmittee publish its record of policy actions
at quarterly intervals would not be appropriate.
This was not a one-man
operation, nor a one-bank operation, but it was a group of Individuals
attempting to develop dispassionately a policy in the interest of the
whole economy.
It was this institutional problem that the System faced.
Even in the Congress relatively few members had an understanding of the
System or. the way it worked.
After further consents, Chairman Martin suggested that the
Committee continue to study the problem that had been discussed and
162
k / n /62
that at a future time It explore further the noant that might be taken
for dealing with this problem.
In his judgment it would be a mistake,
even if it were possible to arrive at a favorable vote for publication,
to take such action at this time.
The points made against publication
of the minutes seemed almost unanswerable, but there should be sone way
of presenting to the public the nature of the Federal Reserve System and
the way this group operated, the way.its meetings were conducted.
This
was a problem that all members of the Committee should continue to study.
Mr. Ellis commented that, in suggesting a quarterly article on
monetary policy or quarterly publication of the policy record, he had in
mind that this could be a vehicle for presenting to scholars and others a
current statement of actions taken by the Committee and that this would be
more useful to them than publication of the minutes.
Chairman Martin responded that the idea of a quarterly article on
monetary policy or quarterly publication of the policy record did not now
seem to him to be desirable.
It would be possible to give out some kind
of a statement every three months.
However, he did not think that
individual members of the Committee should be placed in the position of
having their votes on policy positions currently or very recently under
discussion made public.
He was against trying to conduct policy in a way
that would make spot news, and yet this was what would be sought with
frequent publication of the policy record.
In concluding this portion of the meeting, Chairman Martin stated
that in the absence of objection the question of publication of the minutes
of the Federal Open Market Committee would be tabled.
this procedure was indicated.
Vo objection to
163
CRS - i
Excerpt from Minutes of the Federal Open Market Committee:
held December 3, 1963. pages 54-76.
meeting
Chairman Martin then suggested that the Committee discuss pos
sible publication of its minutes for some past period.
He noted that
a memorandum on this subject from Messrs. Young ^nd Sherman, dated
September 28, 1963, had been distributed co the Committee.
He recog
nized there vere a great many conflicting points of view on this matter.
He would simply say at the outset that his own judgment had not changed;
he felt that if the Committee could find some suitable means of re
leasing the Minutes for 1951-1960 it would be a worthwhile way of
making public information on how the Committee operated.
He realized
that releasing these minutes could make seme problems for,the Comrcittee.
But the more he lived with this subject the more convinced he became
that a great many people misunderstood the nature and the conduct of
the Committees meetings.
Publicati- n of the minutes would not com
pletely dispol such misunderstanding, but it would give a better basis
for understanding than was now available In published materials.
He
doubted that the minutes could get much public attention— the general
public prob&bly would not be greatly interested.
But he felt It was
important to clarify the decision-making process of the Committee.
He
thought it should be made clear that consideration was given to many
164
12/3/63
factors affec ting monetary policy, and that this was not a one-man
operation, but that differing views were expressed and the decisions
taken were general decisions.
Making the minutes available seemed to
him the best way of giving Insight into the conduct of the meetings
and into the detailed nature of the views expressed.
The Chairman commented that the particular dates for which
minutes were released did not seem to be a vital matter.
The 1951-
1960 period he had mentioned was important in the Committeehistory
and embraced the Treasury-Federal Reserve Accord.
The year 1960 seemed
a good terminal point; the minutes for that year had already been made
available to the Joint Economic Committee.
Mr. Tlayes said that he was reluctant to differ because he
thought the Chairman had a better feel than he for the reality of the
demand for this kind of information.
But the more he had thought about
the subject the more he had tended to feel that the Committee would do
well not to £,ive the minutes out.
He was not quite sure why this was
the time at vhich the Committee should do so; nothing had happened to
suggest the ciesirabiLity of now changing past policy on the matter.
The Committee had given the 1960 minutes to a Congressional Committee,
but it also had objected to the publication of excerpts from these
minutes.
The point had been made that the public deserved more under
standing of Federal Reserve operations.
He recognized the truth of
this statement, but he was not, sure that publication of the minutes
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would be the most effective way of giving the desired understanding.
There were ol:her mechanisms; more frequent statements of the nature
of policy, to his mind, would be more enlightening than making the
minutes publj.c.
He did not think the minutes would add a great deal
to what, was already publicly known.
If the minutes were published, Mr, Hayes continued, he thought
it should be only with a considerable tims lag.
He was concerned that
if publication was once started there wov.ld be agitation for reducing
the la$; and a tendency to do so.- He thought there always would be
advocates fo:: the Committee’s releasing everything, including state
ments of actions on the day they were taken.
central bank could not operate that way.
But in his judgment a
It seemed to Hr, Hayes i:hat
the principles still held that Chairman Martin had outlined in his
letter to Hr, Patman of last year, in whifih the Chairman had explained
why th<! Committeefs internal deliberations were not matters of put lie
concern,
There were dangers of embarr 8§me?,t, Hr, Hayes said, in con
nection
with the Conroittee’s discussions vf dealings with central
banka abroad,
And there was the further question of whither the pos
sibility of publication ©I the minutes miuht inhibit discussion at
meetings, although he was not too concerned on fchis score because he
had confidence in the integrity of the people avound the table,
On
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balance, unless the Committee felt there was overwhelming political
pressure to make the minutes available, he leaned toward not publish
ing them.
Chaiiuian Martin said that he would like to emphasize that
there had beem no pressure on this subject.
The question of whether
this was an appropriate time to publish the minutes was within the
Committee!s discretion; no commitments had been made.
Mr. Ellis said that he agreed the Committee she
rather than
give mor<
less information to scholars. He was enthusiast!-.
!y in
favor cf making available more complete descriptions of p o licy , because
he thought there was a legitimate need for such descriptions by
scholars and others.
At the same time, he felt that scholars should
be provided with a complete rationale of the use of all policy instru
ments, including discount rate and reserve requirement changes as well
as oper. market operations.
Because he had this objective in mind, he
thought, the Committee would do itself a disservice if it released Open
Market Committee minutes.
A true scl.olar would be frustrated by
omissions from these.minutes of much of.the complete policy record.
Also, publication of some past minutes would place the Federal Reserve
on the defensive with respect to such questions as why not publish the
minutes on a current basis, and why not publish the minutes of the
Board of Governors concerning other aspects of monetary policy.
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Prospect of publication might also raise questions within the Com
mittee with respect to the amount of detail that should be included
in the minutes.
Hr. Ellis thought the Committee might be deceiving itself if
it felt it could win supporters for the System by this means.
The
record would still be incomplete* potential defenders of the System
were apt to ;jit back, and attackers would find more ammunition to use
against; the System.
In the long run, Mr. Ellis said, almost any written material
might appropriately become public information.
If the Committee
decided to publish the minutes he would urge a longer lag than 3
years.
He did not mean to be wholly negative on the issue; his intent
was to suggest that the Committee direct its efforts to the goal of
providing a nore complete rationale of System policy actions.
Mr. Mrons said that he had swung back and forth in his think
ing on this subject.
He believed tha Committee had to distinguish
between the .submission of minutes to Congress and their general pub
lication.
He suspected the Committee would have to submit its minutes
to Congress if the demand was pressed.
He thought there was a gradual
erosion in process with respect to supplying materials to critics.
Whatever they were given would leave them unhappy; if they were sup
plied with minutes after a 10-year lag they would want them with a
5-year lag, and so forth.
This gradual erosion of the central bank's
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position was going on in a lot of other areas and this should be
kept in mind.
If the Committee did publish the minutes, Mr. Irons continued,
they would not be a best seller.
The public generally was not in
terested in this sort of reading material, and the minutes would have
only limited use.
If both Congress and the general public were ex
cluded from consideration there would not be too many readers left,
except the group of academicians who like to pore through such material.
The question then was whether satisfaction of this group warranted
publication.
Even to a scholar the minutes would become pretty dull
after he had read them for a year or so.
Mr. Irons said he was not
being critical of the minutes, but those ):or successive meetings
inevitably involved a great deal of repetition.
Another problem was
that the minutes by no means reflected fully the work, thought, and
general preparation that lay behind them.
This raised the question
of whether supporting memoranda and other Committee materials should
be made publ:.cly available to give a complete picture.
Publication
of the minutes was a first step that could lead to requests for other
policy recorcs, such as the minutes of the meetings of the Federal
Reserve Bank directors regarding discount rate actions, those of the
Board of Governors regarding approval of such actions, and so forth.
Mr. Irons said that he realized that he was being pretty
negative in his conments, and he wondered if there were alternatives
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to the release of Committee minutes.
For example, would it be pos
sible to employ some capable person whose intellectual honesty was
unquestioned to author a set of volumes on the history of the Federal
Reserve System, giving him access to the minutes and other materials?
Choice of such a person would always be open to criticism, but the
possibility was worth giving some thought to.
If the Committee decided to release the minutes in some form
or other, Mr. Irons said, he would suggest doing so on a limited
basis.
Perhaps a copy or two could be put on the shelves of each
Federal Reserve Bank library for use: of scholars.
the 1951-1960 period would be excellent.
For such a purpose
It represented a 10-year
period from the date of the Accord, and the gap from 1960 to date
was good.
ever.
He did not think that this would solve the problem, how
The Committee undoubtedly would be criticized for not making
minutes for the last two years available.
Hr. Swan said that he was in substantial agreement with the
opinions already expressed.
He thought that reasonably current
explanations of policy and descriptions of the Committee's processes
and procedures were desirable goals, and he noted that some progress
towards them had already been made.
However, he doubted that publica
tion of the minutes would help to accomplish those ends.
It would
put the Committee on the defensive because the minutes would be used
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primarily by System critics*
more current release.
There vould be pressure for more and
In Mr. Swan's judgment 3-5 years was too short
a lag.
On the other hand, Mr. Swan said, nhere was a legitimate
question of whether such information was ever to be made available.
The System might want to face this question in terms of the possibil
ity of releasing Open Market Committee and perhaps Board minutes on
suitable occasions with a very long time lag.
Surely, Mr. Swan said,
after a period as long as 20 to 25 years such records Were strictly
historical documents.
It could thus be recognized that in due course
these materials would be made available to people with a legitimate
interest.
Tc go beyond such a procedure would create many more pro
blems than it would solve.
However, the Committee should be consider
ing doing something in terns of articles on a continuing basis.
Mr. Doming said that he had been thinking on the same lines
as Mr. Irons.
He felt that for a variety of reasons it would be wsll
to attenpt to get some assistance in writing a System history.
It
should be possible to work out a procedure that would provide an
objective set of histories and under which the System would be pro
tected against charges of self-interest.
Perhaps the professional
societies might be asked to select scholars for the work and founda
tions asked to provide funds.
The System could then make records
available to such scholars as were selected, up almost to a current
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date.
This would be a monumental and time-consuming task, Mr. Deming
said, but it might be broken down into separate economic, politics 1,
and social histories of the System.
With respect to the minutes of the Open Market Committee and
other policy-making bodies of the System, Mr. Deming continued, rather
than publication he would favor their deposit in various places after
a time lag of a decade or more; at the present time he would suggest
a cut-off at 1950.
He saw no reason for the System to make its records
generally available all over the United States, but their deposit in
Federal Reseive libraries would be appropriate.
On the other hand,
he would giv* scholars designated to write a history access to all
materials alv.ost up to the present.
He thought it was valid ta say
that, the grecit mass of people— including academicians--do not under
stand how the*. System functions but he also thought they would be
helped more by a series of histories than by such raw materials as
the minutes.
He had in mind very derailed histories, not works of
100 pages or so.
With respect to the distinction between making materials
available to the general public and to the Congress, Mr. Deming said,
he did not know whether the System was required to supply detailed
minutes of the Open Market Committee or the Board or other System
groups to Congress, but he hoped it was not, at least not without a
specific legislative change.
He thought the answer to this question
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was not: clear, and the Committee should resist such submission as
long as it possibly could on all the grounds that had already been
mentioned.
He felt it was not a negative approach for the System to
keep its current minutes reasonably confidential but to throw open
its records to scholars competent to write System history.
Hr. Scanlon said he fully agreed that a better understanding
was needed of the Committee's operations and problems.
He also shared
Hr. Irons' view that the questions of responding to Congressional re
quests for the minutes and of making them publicly available were
separate.
Unlike Hr. Deming, he thought the Committee had no choice
with rospect to meeting Congressional requests; it would have to make
the records available by some means if asked.
As to supplying in«*
formation to the public, Hr. Scanlon said, he doubted that the
minute*; as now prepared were a good vehicle for the purpose.
They
were incomplete in that they did not include the memoranda, the daily
wires, and a LI of the other materials that the Committee considered
in preparing to make its decisions.
redundant to readers.
They also would appear highly
He would hope for
information :o the public.
a better vehicle for getting
A history of the System might be useful,
or perhaps some kind of an annual report vith a time lag of about 5
years.
He would be willing to give a little on the time lag.
If a
decision were made to release the minutes to the public, he would
favor limiting the distribution of copies to Federal Reserve Bank
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libraries and National Archives.
He did not think it would be desir
able to spend a lot of money to make wide public distribution.
Mr. Clay expressed the view that publication of the minutes
as soon as 3 years after the meetings might well result in an un
conscious speaking for the record by participants and would change the
nature of th2 meetings in an undesirable way.
He did not consider the
minutes: a very good public relations document; it would be difficult
to get useful information from them regaiding the nature of Systenoperations.
He thought that the Chairman*s letter of last year tc
Hr. Patiman gave very good reasons for withholding the minutes.
This
letter* in fact, was a better public relations document than the
minutes, because it portrayed an organization capable of withstand
ing pressure.
Such an organization was desired by everyone, what
ever their policy views.
The Longer the time lag before publication, Hr. Clay continued,
the less effect there would be on the nature of the meetings; but also
the greater uould be the reduction i.-. the public relations value cf the
minutes.
If the Committee decided to publish the minutes, Hr. Clay
favored a United edition with a lag of at least 5 years.
He thought
publication would best be at a time when there was no outside pressure
for it.
The present was a good time, since there was no pressure on
the Committee now.
http://fraser.stlouisfed.org/
9 -3 3 1 0 - 77 Federal Reserve Bank 9of
St. Louis
12
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Hr. Wayne said that the Committee was a public body charged
with public responsibility, and accordingly, he thought that the
official records of its deliberation's were properly viewed as public
documents.
He was not considering the matter in terms of public
relations at all; as historical documents the minutes should be made
available to competent historians.
He wa? prepared to concede the
desirability of a time lag in publication, and recognized that there
would be pressure to reduce the lag.
Some might even argue that the
Committee should release its minutes on a current basis.
But he did
not believe this was the sort of thing the Committee was dealing with.
The question before the Committee was whether or not it could work
out soma method of making documents of historical value available to
competent historians with an appropriate time lag.
He thought the
Committee could rationalize the 10-year time period.
It seemed to
him that the minutes should be made available at the National Archives,
the repository for national historical documents.
He added that he
found iruch m<;rit in the suggestion ti at the Committee attempt to find
a competent historian to prepare a System history.
Hr. Wayne continued by remarking that he had recently reviewed
back minutes of the Committee and had not found them entirely dull from
the standpoint of economic history.
Nor had he found anything of which
the Committee need be ashamed; the minutes spoke of careful, competent
deliberations.
He believed they should be made available to competent
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scholars.
Microfilming was not expensive; microfilm copies might be
placed in th<> National Archives and in the libraries of*the Board, the
Federal Reserve Banks, and the greater universities.
As to the time lag, Hr. Wayne saic1, he thought it would take
very close to a 5-year lag if members were to avoid any tendency to
speak for th-3 record.
He also considered this lag appropriate in
light of the fact that the Administration changed every 4 years.
A
lag of 3 years seemed to him the minimum, and he would prefer 5 years.
Mr. Mills said that he agreed in every respect with the position
Chairman Martin had taken.
He thought the Committee should publish the
minutes; for the period 1951-60.
For those who were fearful of criticise
but at the same time would be willing to produce the minutes at the re
quest of Congress, he would point out that, the only occasions that Con
gress had to request the minutes stemmed Jirom criticisms of System
policy, so the Committee was just fosterir.g the criticism.
Publication
of the full minutes would, in his view, serve as an antidote to
criticism and would win adherents to offset the critics.
Mr. Robertson said he found himself in accord with Mr. Wayne.
The Federal Reserve System was a Governmental institution and a servant
of the public.
inspection.
As such, its records should be made available for public
He would prefer not to publish the minutes in book form,
but to make them available on a limited basis ir. Federal Reserve li
braries and at National Archives and in microfilm form at some univer
sities.
He also would make available the minutes of Board actions but
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only with a substantial time lag, because Board minutes often dealt
with specific institutions.
For minutes of the Open Market Committee,
a 5-10 year lag would be appropriate, and a 5 year lag probably vas
adequate.
Mr. Robertson said he had no objection to an extension of. the
"article" approach, but he considered it unwise for the Federal Reservi
to attempt to select a historian to write a hisrory from the System's
point of view.
It was difficult to learn enough about any individual
to know whether his ideas coincided with .:he System's viewpoints, and
in any event historians should be objective and write history as they
see it — rather than as we would direct or desire.
As to the spar-, of
the history, it would be desirable *:o start frcm the beginning of the
System and come up to whatever lag period the Committee decided vas
appropriate.
Mr. Shepardson said that as a public bccy the Committee’s
action:* were appropriate for the public rtcord after such time lapse
as migl £ be considered necessary.
But th^re was a question in his
mind a;> to whether the "records" necessarily included all the internal
documents used in arriving at a conclusion.
The idea of a quarterly
report had some merit, but he was doubtful whether public records
should necessarily include all of the internal discussion reflected
in the minutes.
For that reason, Mr. Shepardson said, he had not beer
particularly enthusiastic about publication of the minutes.
On the
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other hand, the point had been made that the Committee had been called
upon to submit the minutes to Congress.
Whether or not Congress could
appropriately demand the minutes might be a consideration.
He doubted
that it lacked th'e authority to do so, and if this view was correct it
provided an argument for making the minute;? available to other people
by placing fchem in a repository open to anyone interested.
Mr. Shepardson said that he was cynical enough to expect that
the greatest use of the minutes would be made by those who were trying
to pick out something for their own particular purposes.
both sides--c!ef enders and attackers--might do that.
People on
At least thero
would be an opportunity for those interested in defending the System
to do so, although he doubted that it: would work out that way.
He'
agreed with the suggestion that the System should try to get, through
arms-length selection, someone who would write an objective history-hopefully one that would be more readable c.nd more useful than the
minutes themselves.
Altogether, Mr. Shepardson said, while he did not generally
like th^ idea of putting out the Comir.ittee minutes as a public document-and he thought the minutes of the Board had to be considered along with
those of the Coramittee--perhaps it could not be avoided.
It might be
best done by making the minutes available at appropriate reference
centers.
As to the time lag, 5 years might be a good principle.
A
3-year lag was implied in the suggestion that the minutes be published
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for the 1951-60 period.
However, if the Committee should now decide
to publish the minutes for this period, another year probably would
pass before chey were ready for release.
In a final comment, Mr.
Shepardson said he agreed with Mr. Clay that if the Committee was
going to publish its minutes it would be better to do so when it was
not under pressure rather than act in response to pressure.
Mr. Mitchell said that if the: mattir came to a vote he would
not vote against making the minutes available.
Nevertheless, he
questioned whether this was the best course of action.
He thought
it a mistake to believe that the minutes could be confined to the
hands of objective, competent scholars, and he did not shrink partic
ularly from putting the minutes in the hards of hostile critics.
While he was prepared to release the minutes on any basis
agreeable to others, Mr. Mitchell continued, he thought publication
of past minutes would not meet the real isf.ue.
He had thought quite
a bit about .the matter and had come to the conclusion that it would
be desi able to make available a digest of the minutes every 3 months.
Such a digest was the real solution to the problem of telling people
what the Connr-.ittee was doing.
If it were veil and responsibly pre
pared it would conceal nothing of relevance; it would reflect the
different points of view expressed and the personalities of the various
participants.
It also would be a much more polished document than
were the minutes.
12/3/63
Hr. Hickman said he would go along with those who favored
publishing the minutes as a whole rather than attempting to have
them digested by an unbiased scholar.
Such a person would be dif
ficult to find; everyone had certain predilections and feelings in
these matters.
He recently had reviewed ihe record and thought it
a good document which spoke for itself.
In his judgment putting out
the minutes for 1951-60‘would not be a disservice to the System, and
would be preferable to having the so-calle.d unbiased work done.
If
the document was deposited in public libraries in microfilm form, it
would ;»ive the unbiased student some idea of how policy was formulated
in the System.
It would give him a feeling of democracy at work vith
all points of view represented; and would demonstrate that the Com
mittee was not a group of people representing the moneyed interest's.
Publication of minutes, Hr. Hickman continued, also would help
students focus on some of the real problems of monetary policy, such
as the problem of appropriate target variables.
Students would tend
to do i 2search on positive problems, and the Committee might get some
constructive help.
With respect to the time period to be covered, Mr.
Hickman favored publishing the minutes through the year 1960.
Hr. Bopp said that as one who had spent some 10 years doing
research on the System before entering it3 service he had great
sympathy with the proposal to publish the minutes.
At the same time,
he agreed with an observation contained in a memorandum that had been
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prepared for Mr. Deming, to the effect that bad books can be turned
out more quickly than good ones.
This led him to feel that it would
be desirable for the System to get foundation money to finance a
System history.
He recalled that the Rockefeller Foundation had once
provided funds for such a study, but the only product had been
Professor Chandler's book on Benjamin Strong.
Mr. Bopp thought it would be desirable to have a competent
scholar--pei'haps one selected by a committee of the American Economic
Association— write a System history.
If this could be done, he said,
he would make the minutes available subsequent to publication of the
history.
As to the time lag,- it seemed to him that it should be on
the order of a decade, although he realizfd that the whole character
of the Federil Open Market Committee was now changed and that policy
was no longer formulated as it was years ago.
In addition, it seemed
to him that i;he Committee had made significant progress in providing
information in such forms as the Bulletin .irticles by Mr. Coombs
describing the System's foreign currency operations and by Mr. Stone
reviewing opon market operations in 1962.
These were excellent works
and it would be desirable in the future to have similar reports on a
semiannual basis. Possibly the Committee could have a quarterly review
of policy published in the Bulletin with a 3-month lag.
He was
generally
in favor of publishing the minutes but he did have some concern about
the hazards of making them available to anyone; the initial reactions
were apt to be critical.
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Mr. Patterscn reported his belief that Mr. Bryan still sub
scribed to his statement of April 1962 in favor of publishing the
minutes with a time lag bf 5 years.
Mr, Shuford said that he concurred in the view that records
should be made publicly available insofar .is practicable, because
the Committee was a public institution.
there were limitations.
But it seemed to him that
For one, the effect of publication on the
nature of the meetings and on the nature oJ* the record had to be taken
into consideration.
tion would be.
There also was a question of how current publica
Thirdly, there were statutory provisions that the Com
mittee should consider with respect to the release of its records.
Although the Committee was a public body, Mr. Shuford said, he con
sidered the Chairman's letter to Mr. Patman a good statement on why
its minates should not be released.
He doubted that publication of
the minutes would accomplish the intended purpose or that it would
satisfy all tiose interested in the Committee's work.
As far as the
general public was concerned he thought there would be little interest
in, or public relations value to, the minutes.
As far as others were
concerned, the Committee would be faced with a problem of the lag; it
would be argued that if the records should be made available because
the Committee was a public body, they should be made available as soon
as possible.
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Mr. Shuford commented that he was lot disturbed by the con
tents of the minutes, which in his judgment reflected supportable
views.
But Lf they were published with any lag the Committee would
always be subjected to criticism by some wao would want something
more--more recent minutes, more materials on matters discussed in
executive session, perhaps verbatim transcripts.
Taking this step
would not answer all questions.
Reverting to the question of statutes, Mr. Shuford noted that
the Coiomitt^e had made much material available that was not required
by statute, and it could do the same with. Its minutes.
However, the
statute; did specify the means for the Committee to supply information
on its operations to the Congress and the public:
Report of thn Board of Governors.
through, the Annual
It: seemed preferable to him to
move through such channels rather than to take some other voluntary
action.
He liked Mr. Deming's suggestion for having System histories
prepared, and did not think the ends that would be served by such
histories would be accomplished by making the minutes available.
In
his judgment there was a considerable amount of similarity between
the Committee and other groups, such as the courts, that met in
executive session.
He noted that the courts published only their
decisions and regarded their deliberations as intramural.
Mr. Balderston said that, as he had observed in earlier dis
cussions of this matter, te thought it was unfortunate that when the
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Committee turned over its 1960 minutes to a Committee of Congress,
the latter Committee then hired a pair of scholars of its own choos
ing to prepare a digest.
He was happy that so far the Congressional
Committee had not published that digest.
He favored publishing the
minutes as suggested initially by the Chairman, for the reasons given
by Messrs. Vayne, Mills, and Robertson.
But he had been impressed
with the argument of Messrs. Deming and Bcpp that if the Committee
was to publish the minutes it should give a running start to a
scholar who, if not of the Committee's selection, would at least be
selected from a list that the Committee had approved.
On this plan,
an instructive document would be available to the public at about the time
the minutes were placed on the shelves of Federal Reserve Bank and
other selected libraries.
He suggested that the Committee act today,
first *:o authorize the Secretary to proceed with the reproduction of
a moderate number of copies of minutes for 1951-1960, inclusive, s.nd
secondly to implement Mr. Deming's suggestion.
He was not sure that
it was lecessary for the funds to come from a foundation but he agreed
that the selection of the scholar should not be made by the Federal
Reserve alone.
Mr. Balderston continued by observing that he was sensitive
to the fact that since 1960 the Committee had moved into new areas.
Specifically, Mr. Coombs' reports often referred to other nation's
problems.
While it was proper that this information should be revealed
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to the Committee, he would hope that if at some future time the
minutes for last year and this year were mide public all references
to other nations would be excluded.
Chairman Martin said that in his opinion the Committee had
had a useful discussion on the matter of publishing the minutes.
However, he did not think that putting the question to a vote at this
time would solve the problem.
He thought everyone ought to continue
to study the question; much depended on the particular methods of
releasing information that individuals had in mind.
He proposed that
the Comnittee request Messrs. Sherman and Young to make a summary of
today*s discussion on the basis of the minutes, and that the Committee
take up the natter again early in the: new year.
Mr. Swan noted that most of the dircussion had centered around
the minutes for 1951-1960.
If the Committee released these minutes; on
any basLs, he said, it immediately would be faced with legitimate
request:? for records going back to 1914.
Chairman Martin said that
this wat true, but he doubted that anyone would feel strongly that
information for the earlier years of the System should be withheld.
Mr. Shepardson suggested that the Committee ask the Secretary
to explore the possibility of obtaining the. services of a writer to
prepare a System history.
Mr. Hayes commented that this suggestion seemed to prejudge
the issue.
Ho did not feel there had been any agreement at this
meeting on a course of procedure.
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Ohaiiman Martin expressed the view that the Committee should
continue to explore the matter.
He noted that for years there had
been discussions of the possibility of having a System history pre
pared.
Al§o, the Committee previously had considered publication of
the minutes, and from time to time had beei under pressure to release
materials.
He considered the position taken in his letter to Mr.
Patman to be valid, and he thought that the. Committee could hold to
that position if it so chose'.
But in one way or another the Committee
had to come to grips with the fact that its decision-making process-which in his opinion was a good one--was not sufficiently understood.
This was the basic problem.
He did not think this sort of problem
should be resolved unless the Committee was virtually unanimous.
Accordingly, he would propose that the matter be held over for further
consideration.
Mr. Shepardson said that he had suggested some investigation
of the possibility of having a history written not with the idea of
action jut in order that a report could be presented for discussion
before a decision was taken on release of t:he minutes.
The Chairman concurred in the proposal that this question be
explored.
Mr. Young said that he could discuss the matter with the
Presidents of the two main foundations and with the President of the
American Economic Association.
A p p e n d ix I I I . — C o m p i l a t i o n o f O p i n i o n s R e c e iv e d F r o m P r o m i n e n t
B u s i n e s s L e a d e r s a n d E c o n o m i c P r o f e s s o r s o n H .R . 9465 a n d
H .R . 9589
A P P E N D I X 1.— R E I N S T A T E M E N T O F M E M O R A N D A O F D I S C U S S I O N
STANFORD UNIVERSITY
STANFORD. CALIFORNIA 94305
September 22, 1976
CENTER FOR RESEARCH IN ECONOMIC GROWTH
Encina Hall—4th Floor
Mr. Stephen N. Neal
U. S. House of Representatives
Subcommittee aiDomestic Monetary Policy
of the Committee on Banking, Currency
and Housing
Washington, D. C. 20515
Dear Mr. Neal:
In reply to your inquiry dates September 17, 1976, I would
say that I am in favor of more complete reporting of FOMC proceedings.
I believe it would be valuable to record the substance of the discussion
within FOMC and the arguments of particular participants should be
clearly identified. The pre-1976 system of reporting would appear to
atisfy this need.
The main value of such reporting is historical and analytical.
For this purpose, publication even after a long delay, as five years, is
adequate. On the other hand, current or virtually current publication
would be unfortunate. It would subject individual FOMC members to
political pressure which would prejudice the objectivity of their actions
and their discussion of desirable policy. A system which protects FOMC
members from such pressures is clearly in the public interest.
Sincerely yours,
Moses Abramovitz
Coe Professor of American
Economic History
188
<&trmtia9Sorld®wald
The Newspaper of the Midlands
HAROLOW. ANDERSEN
^ W<lr,d'l^eI?ld,Sq'itrert«
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11
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October
11 , 1976
President
Kres,aem
Omaha, Nebraska 68102
(402)444-1000
The Honorable Stephen L. Neal
Chairman
Subcommittee on Domestic Monetary Policy
of the Committee on Banking, Currency and Housing
U.S. House of Representatives
Washington, D.C. 20515
Dear Representative Neal:
In response to your letter of September 17, asking my views
concerning documentation for meetings of the Federal Open Market Committee
(FOMC) of the Federal Reserve System:
I see little purpose to be served by the practice of keeping
printed minutes or memoranda of members' comments together with the identity
of the individual speakers.
Most important, it seems to me, is the announcement of the results
of the discussions, supplemented by an accurate summary of the discussions
£nd the reasoning that led to the committee's decisions.
I understand that such an accurate summary is now being issued in
about 30 days after the committee meets.
Let me add that if there were statutory assurance that a "memorandum
of discussion," with specific statements attributed to specific committee
members, would be released only after five years, my views would be influenced
by that fact.
I would still question whether very many people would find this
five-year-old information interesting or useful, but I would see no reason not
to keep and release a "memorandum of discussion" under these circumstances.
Thank you for asking for my views.
them with you.
I appreciate the chance to share
Sincerely,
HWA:DK
/
/ C.
,
l L"'u
sJ
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Harold W. Andersen
U,
189
G r a d u a te S c h o o l o f B u s in e s s
S t a n f o r d U n i v e r s i t y . S t a n f o r d . C a l i f o r n i a ©4305
GEORGE L. BACH
September 28, 1976
Frank E. B uck P r o f e ss o r
o f
E c o n o m ic s a n d
P u b l ic P o l ic y
The Honorable Stephen L. Neal
Committee on Banking, Currency, and Housing
U.S. House of Representatives
Washington, D.C.
20515
Dear Representative Neal:
I am happy to respond to your letter of September 17, about
the issue of documentation for meetings of the Federal Open Market
Committee of the Federal Reserve System. In summary, I think that
continuation of the past practice of releasing minutes showing the
substance of individual member's comments after an extended period
(five years or so) is worth continuing, but I do not think the case
for doing so is an overwhelming one.
Presumably the FOMC's new policy, adopted on May 18, 1976,
reflects two concerns. First, I presume that the members are con
cerned that detailed documentation of the statements of each member
could easily inhibit free exchange of views among the members or lead
to talking "for the record." I think both of these are proper con
cerns, and they would seem to me overwhelming arguments against
release of verbatim conversations (on tapes or by other mechanical
means) if they were to be released shortly after each meeting. More
over, I would oppose the verbatim release even after a long time lag.
The existing system permits each member to speak freely on highly
technical and controversial matters in FOMC discussions, knowing that
the summary statement released can be edited to eliminate confidential
and sensitive materials, or even misstatements, while maintaining the
substance of the member's comments. And the 5 year delay in release
surely eliminates most of the danger of having FOMC members talk "for
the record."
Second, I presume the FOMC's new system is intended to expand
substantially the "records of policy actions" which are now released
30 days after each meeting. As they now stand, they are so brief as
to be not very helpful, and filling them out to include the main
arguments considered and the substance of the viewpoints expressed
9 9 -3 3 1 O - 77
190
will go some substantial distance toward achieving the goals that the
"extended minutes" are now intended to achieve. At the same time it will
release this information promptly. Thus, I think the FOMC's new pro
cedure is a very reasonable one and the one that achieves much of the
objective sought through the release of extended minutes after five
years
My own inclination would be to commend the FOMC for moving toward
an expanded statement on the monthly release of its deliberations, and
also to maintain the five year release of statements showing individual
positions.
It is clear that the FOMC is, and should be, accountable to the
American people through the Congress and its committees. The substan
tial movement in the last couple of years toward more complete Reserve
reporting seems to me to be working well, but it does not seem to me
an important objective that the "individual members of the FOMC be
held publicly accountable for their participation in FOMC deliberations."
The Board members are not eligible for reelection after a 14 year term,
and the notion of "checking up" on any individual member through the
minutes on the discussions of the FOMC does not seem to me an appropri
ate one. If verbatim minutes were to be used in anything like this way,
the cost in terms of inhibiting free discussion would far exceed the
advantages of having the verbatim minutes released soon, after the Commit
tee's meeting.
On the specific issue of the time delay that seems appropriate for
reports of FOMC meetings, I think the one-month delay for summary infor
mation is now about right as it is operating, and the usefulness of
these reports will be substantially increased under the FOMC's new
expanded release. I think the five year delay on individually identi
fied positions is about right, but I would see no real objection to
making it a couple of years shorter.
Respectfully,
G. L. Bach
GLB:mb
191
L IL L IC K M c H O S E
& CHARLES
ATTORNEYS AT LAW
611 WEST SIXTH STREET
LOS ANGELES, CALIFORNIA 90017
TELEPHONE (213) 620-9000
November 30, 1976
Stephen L. Neal, Chairman
U.S. House of Representatives
Subcommittee on Domestic
Monetary Policy of the
Committee on Baulking, Currency
and Housing
Ninety-Fourth Congress
Washington, D.C. 20515
Dear Chairman Neali
Thank you for your letter of September 17, 1976
soliciting my views concerning documentation for meetings
of the FOMC.
Although my return to the private sector early
this year has required that I turn my attention to matters
unrelated to monetary policy, I have maintained a continuing
interest in the area.
Although I was not privy to. the deliberations which
led to the F O M C ’s decision to discontinue the memoranda of
discussion, I must say that I share your concern that this
change in documentation may not have been a vise decision
My knowledge of the high quality of the FOMC staff would
lead me to be less concerned about the integrity of annual
reports and records of policy action as a result of this
change.
However, I would be inclined to share your views
respecting the loss of a public record by which Committee
members can be held accountable and the loss of a valuable
research tool by the economics profession.
As a non-economist, I will leave the discussion
of the research benefits of the memoranda of discussion
to others who are more knowledgable. On the other hand,
I will offer some of my own thoughts regarding the public
accountability aspect of the documentation change.
Speaking for the record can, of course, impede free
and candid discussion during the deliberations of a body
such as the FOMC. However, it was my observation that the
192
time delay in releasing the memoranda of discussion to the
public apparently removed that restraint on discussions
which took place during the FOMC meetings I attended from
1972 through 1975. Furthermore, during the time I participated
in these meetings I was aware that I, like the other Committee
members, would be given the opportunity to review and correct
a draft of each memorandum of discussion before it was recorded
in final form.
The knowledge that my views would be recorded for
future examination, and possible critical comment, gave me
added incentive to participate in deliberations and vote in
such a way that there could be no question on the part of either
my fellow Committee members or those who might review the
record in the future, as to my position. Frankly, I, for one,
feel I was less inhibited because I believed that the record
should be clear as to my views so that not only my colleagues,
but FOMC historians as well, would understand my true beliefs
and the reasons which supported my actions as a Committee member.
With regard to the two proposed measures to restore
full documentation of the FOMC deliberations, I would strongly
favor the second over the first. Notwithstanding my earlier
comments, I firmly believe that taping FOMC meetings and re
leasing verbatim records to the public would be detrimental
to open and candid deliberations by the Committee members.
Knowing that every word uttered would be recorded for posterity
could well dampen what are at times highly deliberative and
often emotionally charged meetings.
On the other hand, reinstatement of the former
practice of maintaining memoranda of discussion for all
meetings for release after a fixed period of time would, in
my view,, be a positive action. The decisions of the FOMC have
a major impact on the American people. Each member of the
Committee, as any person in a position of public trust, should
be held accountable for his actions. A record of his comments
during deliberations and his stand during debates leading to
Committee votes is, in my opinion, necessary to provide the
public with a reasonable basis to judge the manner in which
each member is fulfilling his responsibilities.
As for the period of delay before release of a rein
stated memorandum of discussion, I would suggest one year. This
would allow sufficient time for circumstances to change so
that the possibility of unsettling effects of statements would
be reduced to a minimum. As in the past, deliberations in
volving particularly sensitive matters could be deleted from
the memorandum prior to its being made available to the public.
In conclusion, had I been a member of the FOMC
at its May 18, 1976 meeting, I would have joined with Governor
Coldwell in dissenting from the Committee’s action to change
the documentation of its meetings. I would have agreed with
him that "the benefits of the memorandum of discussion
justified its retention."
I hope that my thoughts will be helpful to your
Committee in its deliberations in connection with this matter.
If I can be of any further assistance, please do not hesitate
to call upon me.
Sincerely,
Columbia
University in the City of New York | New York,N. Y.
10027
in te rn a tio n a l A ffa ir s B u ild in g
D E P A R T M E N T O F E C O N O M IC S
S e p t e m b e r 27,
1976
Mr. S t e p h e n L. Neal, C h a i r m a n
S u b c o m m i t t e e on D o m e s t i c Mo n e t a r y Policy
of the C o m m i t t e e on Banking, C u r r e n c y and Housing
U.S. H use of Representatives*
W a s h i n g t o n D.C. 2 0 5 1 5
D e a r Mr. Neal:
In reply to your l e tter of S e p t e m b e r 17th, it is my o p i n i o n t h a t
it w o u l d be a mistake to expect the F e d e r a l Reserve O p e n Market C o m
m i t t e e to engage in f r a n k an d useful discussio n s and yet h a v e the
m i n u t e s of such discussions, w i t h e a c h p e rson speaking i d e n tified,
m a d e public after a short period.
K n o w ledge that the minu t e s were
to be made public w o u l d re s t r a i n a n d change the nature of the d i s
cussion, and in my v i e w for the worse.
I do not b e l i e v e that it can be s h o w n that any immediate p u b l i c
b e n e f i t wou l d be g a ined by r e q u i r i n g that deta i l e d minutes b e p u b l i s h e d
s o o n after each meeting.
-However, I am of the opi n i o n that s c h o l a r l y w o r k d e a l i n g w i t h the
h i s t o r y of Federal R e s erve actions wou l d lose m u c h by not h a v i n g
access to minutes which identify the speaker, as used to be a v a i l
a b l e after a five y e a r ’s delay.
C h a i r m a n Burn s d i s c o n t i n u e d s u c h
m inutes, saying that no one was making use of them.
But s u c h u s e f u l
s c holarly w o r k piay occur many years later.
I hope that y o u w o u l d
e ncou r a g e the C h a i r m a n to reinstate tTRSSe*4m i n u t e s , available t o
scholars five years later, w h e t h e r t h e y ap p e a r to be u s e d at the
,moment or not.
I believe that five years is a fai r a n d desirable w a i t i n g p e r i o d .
I do not believe, and i n d e e d b e l ieve it w o u l d be most u n w i s e , to r e
q u i r e the F e d e r a l Reserve O p e n Market C o m m i t t e e to go b e y o n d that a n d
m ak e its d e t a i l e d minutes pu b l i c soon e r than that. The C o m m i t t e e may,
as a matter of policy, de c i d e to i n f o r m the p u b l i c about the d i r e c t i o n s
of m o n etary p o l i c y sooner, perhaps after each meeting.
But that is a
m a t t e r for the O p e n Market C o m m i t t e e itself to decide.
In the c a s e
of the Federal Reserve, the so - c a l l e d ’’Sunshin e A c t ” c a n c a u s e m u c h
mischief.
Phillip Cagan
Professor of
Eco n o m i c s
New York University
G ra d u a te School of A rts and Science
D e p a rtm en t of H istory
19 U niversity Place, R oom 400
N ew Y ork, N .Y . 10003
T elephone: (212) 598-2851
September 27, 1°'
Hon. Stephen L. Neal, Chairman
Subcommittee on Domestic Monetary Policy
Committee on Banking, Currency and Housing
U. S. House of Representatives
Washington, D.C. 20515
Dear Congressman Neal:
Your letter of September 17, 1976, arrived while I was out of the city on
a research trip, hence the delay in my reply.
As a student of the history of American finance, I believe that it is in
the best interests of scholarship and of the public to have available as much
evidence as possible to judge the bases upon which decisions were made.
This
applies as much to government agencies as it does to private companies.
Though
I have not used in my own work the minutes of the Federal Open Market Committee
(FOMC), it would seem that this is essential documentation for any careful,
objective analysis of the FOMC's deliberations and the reasons upon which d e
cisions were reached.
Summaries of views expressed at FOMC, though useful,
do not compensate for the absence in the record of the exact words of the^
participants.
1 have found in my own work that summaries of congressional)
hearings are no substitute for the hearings themselves, which contain ther'-'
exact words of the individuals, called to testify.
Unless there are compelling
reasons for discontinuing publication of the FOMC's printed minutes or memoranda,
my view would be to continue the practice as it has been followed in the past.
Like you, I believe it would be a mistake to remove the only primary source
containing the views expressed by the various members of the FOMC on issues
under discussion.
Without this evidence not only would scholars find it dif
ficult, if not impossible, to study and analyze the way in which monetary
policy was decided in the past, but the absence of such a record would also
deny contemporaries of the evidence necessary to learn the views of the FOMC's
current members.
M y first choice of the method to be used in restoring full documentation
of FOMC deliberations would be to arrange to keep a full, verbatim record.
This method not only provides the most complete record, but it also assures
that everyone's views will be reported exactly as-expressed.
Should it be
argued, as is sometimes done, that mechanical recording of discussions at
meetings inhibits free expression, then I would opt for the old practice
maintaining detailed memoranda of the discussions.
I need not tell you, Congress
man, that detailed .memoranda prepared by a third party, no matter how qualified,
never make up for the absence of the verbatim record.
Hon. Stephen L. Neal, Chairman
September 27, 1976
Page 2
As to the time lag between meetings and release of the record, I am
hesitant to make a recommendation because I do not have all the facts in
this case upon which to make a judgment. Since I lean on the side that
believes the government should make available as much of the record as
early as is possible and consistent with the public interest, I think that
the present five-year limitation for the release of FOMC minutes should be
the maximum period allowed before publication of these records.
I hope my views have been of some help to you.
Vincent P. Carosso
Kenan Professor of History
UNIVERSITY OF CALIFORNIA, LOS ANGELES
BERKELEY • DAVIS * IBV1NE • LOS ANGELES • RIVERSIDE • SAN DIEGO • SAN FRANCISCO
SANTA BARBARA • SANTA CRUZ
DEPARTMENT OF ECONOMICS
LOS ANGELES, CALIFORNIA
90024
December 9,1976
Dear Mr.
Neal:
I d o not have s t r o n g v i e w s on the q u e s t i o n of FOMC r e p o r t i n g r e q u i r e m e n t s .
I d o n ' t think m e m o r a n d a are likely to be of gre a t use to resear c h e r s ;
taped or trans c r i b e d v e r b a t i m repo r t s w o u l d s e e m to be p r e ferable.
As r e ports of this k ind w o u l d be v e r y e x p e n s i v e and of du b i o u s h i s t o r i c a l
v a l u e (if m e m b e r s k n e w they we r e on tape they w o u l d be u n l i k e l y to
say a n y t h i n g that m i g h t cause th e m trouble l a t e r ) ,h o w e v e r , I a m
i n clined to the v i e w that the r e s e a c h e r s of the future should be left
to their ow n d e v i c e s in this area.
At be s t they should ha v e a c cess
to m i n u t e s of the u s u a l kind, i.e., s e c r e t a r i a l reports that ind i c a t e
topics of d i s c u s s i o n b u t leave up in the air just w h o said w h a t and
so forth.
So I g uess I favor the second of the alt e r n a t i v e s m e n t i o n e d
in y our l e t t e r - - t h a t the F O M C r e i n s t a t e its former p r a c t i c e — tho u g h
I a m p e r s o n a l l y u n c o n v i n c e d that these serve any puppose other than
to provide a p l a t f o r m for w r i t e r s of e d i t o r i a l s on m o n e t a r y and f i scal
policy.
The m e m o r a n d a that I h ave read in the past i n d i cated n o t h i n g
to me e x c e p t that the U.S. e c o n o m y m i g h t w e l l operate more e f f e c t i v e l y
if the FOMC w e r e abolished.
Indeed, that w o u l d be my stro n g r e c o m m e n d a t i o n - and w e r e this done, the p r o b l e m of r e p o r t i n g wou l d beco m e moot.
Sincerely
R o b e r t W. Clow e r
Prof. o f E c o nomics
Commerce J- Dewey Daane
Union Bsnk ViceChairmanoftheBoard
December 13, 1976
The Honorable Stephen L. Neal, Chairman
Subcommittee on Domestic Monetary Policy
of the Committee on Banking, Currency & Housing
U.S. House of Representatives
Washington, D.C. 20515
Dear Chairman Neal:
In response to your letter of December 1, I regret that your
earlier letter apparently had not been forwarded to me so that
this is the first chance I have had to reply. I appreciate
very much the opportunity to comment because I think the issues
are exceedingly important.
Over the years, I have used the Memoranda of Discussion as
research material\and found them to be invaluable in this
connection.
in my long career within the Federal Reserve
System, engaging; in research projects at the Federal Reserve
Bank of Richmond,"when I was Monetary Economist and later Dir
ector of Research there, or in collaborating with my Federal
Reserve System colleagues on System-wide research projects, there
was often occasion to refer back to the Memoranda of Discussion
for a particular period or periods. More recently I have found
the Memoranda of Discussion a useful teaching tool as well in
my graduate course at Vanderbilt University in Monetary Problems
and Policies. I would very much hope that the Memoranda of
Discussion could be reinstated.
As a former Member of the Board of Governors of the Federal Reserve
System, however, I do not think mechanically reported verbatim
records would be desirable. I am afraid that they would tend to
inhibit and formalize what are very frank and direct discussions
and could serve to impede the sort of meaningful exchange of views
that leads to an appropriate consensus. As I recall, we did try
some sort of verbatim reporting for a limited period and found that
it was having an adverse effect on discussion.
Finally, you have asked for my views on the time lag between the
meetings and release of records. I personally feel that the
time lag is already too short and has been a factor contributing
to market gyrations, and consequently interest rate gyrations,
to the detriment of the economy with the only possible benefit
being to sophisticated investors.
Again, I am sorry that I did not see any earlier correspondence,
and I want to thank you for this chance to record my views.
Sincerely,
J O U R N A L OF M O N E Y , Q R E D IT , A N D g A N K I N G
WILLIAM G. DEWALD
Editor
Department of Economics
Ohio State University
October 13, 1976
The Honorable Stephen L. Neal, Chairman
Subcommittee on Domestic Monetary Policy
Comnittee on Banking, Currency and Housing
Washington, DC 20515
Dear Congressman Neal:
Thank you for asking me to comment on your proposals to restore full docu
mentation of Federal Open Market Committee Meetings. You're definitely on
the right track. You might be interested in a conversation I had on this
subject 15 years ago.
In 1962 I had occasion to talk with Federal Reserve Governor C. Canby
Balderston between sessions of a conference at the Federal Reserve Bar
of Chicago. Governor Balderston was about to retire from the Board oi
Governors. Fran the years I'd been privileged to read the Minutes of
Federal Open Market Committee, while in the employ of the Federal Reserve
Bank of Minneapolis, I thought very highly of the Governor's judgment.
In any event, I tried to make a case in talking with him for the Federal
Reserve releasing all of the underlying monetary policy documentation
precisely so that scholars could evaluate the process and interpret in
dividual contributions. I argued that it was unreasonable for the his
torical record of monetary policy to be so enpty and faceless in com
parison with the rich detail of individual contributions that were avail
able regarding the Supreme Court and the rest of the government. It
seemed to me that Federal Reserve Governors exercised such enormous
judgmental powers that the deliberative record would appropriately be
made public, presumably not irtmediately, but after five or ten years or
longer much like the release of sensitive state papers in the United
Kingdom.
Others may well have been making similar suggestions to Federal Reserve
officials inasmuch as in 1964 they began releasing Minutes of Open Market
Committee meetings after a delay of 3 months. Hie Minutes have been very
well received in the financial press; and have been used frequently by
scholars in appraising the monetary policy process. It would definitely
be a step back to bury the record of banking and monetary policy making
behind the walls of the Federal Reserve Banks and the Board of Governors
building in Washington. Hence, I strongly endorse your efforts to require
the Federal Reserve to reinstate its former practice.
1775 College Road
Columbus, Ohio 43210
614-422-7834
200
The Honorable Stephen L. Neal
October 13, 1976
Page 2
However, I'd not support the requirement that a verbatim record of FOMC
meetings be maintained. I've two objections.
First, the Minutes are not sufficiently detailed from the historical
viewpoint. It would be worthwhile if in addition to the POMS Minutes,
the professional papers and records of FOMC merrbers were released, but
only after several years' delay. One of the most fascinating sections
in Milton Friedman and knna Schwartz's Monetary History of the United
States involved detail from the private papers of Governor George Har
rison, which were independently made available to scholars. Could your
seoond proposal be modified to include ultimate release of all of the
letters, memorandums, minutes of meetings and the like that make up the
full record of Federal Reserve decision making?
Second, I think that deliberative bodies can function most efficiently if
individuals can express a viewpoint, hear another's view, exchange ideas,
and only then take a position for the record. The policy record need not
identify every sneeze, blink, or word to make it valuable in interpreting
what monetary authorities are about. Furthermore, I should think that
verbatim transcriptions of any meetings in Washington would be somewhat
suspect today.
All in all I heartily ccximend your efforts to keep the public record of
monetary policy making open. In that regard I hope Congress will be
able to make its monetary policy oversight authority permanent. House
Concurrent Resolution 133 hasn't achieved much political attention in
the campaign this year, but it is surely one of the solid contributions
of the current congress. Don't let it die.
Sincerely,
William G. Dewald
Professor of Economics
WGD/rjw
THE
UNIVERSITY
OF
CHICAGO
d e p a r t m e n t of e c o n o m i c s
1126 B A S T 5 9 T H S T R E E T
C H I C A G O • I L L I N O I S 60637
October 2, 1976
The Honorable Stephen L. Neal, Chairman
Subcommittee on Domestic Monetary Policy
Committee on Banking, Currency and Housing
U.S. House of Representatives
Washington, D.C. 20515
Dear Congressman Neal:
This is in reply to your letter of September 17, 1976 soliciting my views
concerning documentation for meetings of the Federal Open Market Committee
of the Federal Reserve System.
May I say first that you have touched a very sensitive nerve in my particular
case. When Anna Schwartz and I were writing our Monetary History of the United
States we were denied access to the minutes of the Open Market Committee by the
Federal Reserve System at that time. Fortunately we managed for a considerable
part of the period to find a substitute in the form of the papers which George
Harrison, who for a time was governor and then president of the Federal Reserve
Bank of New York, had deposited at Columbia University. But for the period
prior to that for which the Harrison Papers contained minutes and subsequent to
his term of office, we had to rely on much less satisfactory basic sources.
Knowing that this was the case, we sent an early draft of the manuscript of our
book to William McChesney Martin at the Federal Reserve Board asking whether he
would have the experts at the Board go over our manuscript and give us their
assistance in detecting errors of fact or interpretation or in making sugges
tions for improvement. Although we know that our manuscript was subjected to
intensive scrutiny within the Board and that several lengthy critiques of it
were prepared for the purposes of the Board, we never received from Chairman
Martin anything more than a polite acknowledgment of the receipt of the manu
script. At no time did the Board offer to supplement the material we had gotten
from the Harrison Papers or to correct any of the statements which we had made
about other periods.
The date on which the System decided to make the minutes available to the public
with a five-year lag is, in our opinion not coincidentally, closely related to
the publication of our book. Our book was published in 1963; the minutes were
released to the public in 1964. As you know, our book was highly critical of
the Federal Reserve. We have reason to believe that the Fed's major purpose in
making the minutes available was to provide ammunition for other scholars who
were at the time* working on the history of the Fed and were, or at least the Fed
The Honorable Stephen L. Neal
Page 2
so hoped, likely to be critical of our conclusions. Whatever the occasion
we were extremely pleased that the Federal Reserve had decided to make these
minutes available. There is no doubt that the lack of availability of similar
minutes in the future would be a major handicap for any scholar who seeks to
analyze the performance of the Federal Reserve System. Certainly the minutes
which we were able to obtain from George Harrison's files were of major value
to us and enabled us to give a much more satisfactory account, particularly of
the period of the Great Depression, than would otherwise have been possible.
I agree also with the comments in your letter that the elimination of such
documentation will make it more difficult to make the individual policy members
accountable. 1 presume that the major explanation for the Fed's actions are
the congressional actions, Freedom of Information Act and the more recent Sun
shine Act which render it more difficult for government agencies to maintain
confidential and secret information. I can sympathize with the System's reac
tion to those actions. At the same time I believe it represents an overreaction.
My own belief is that the purposes that can be served by documentation would be
served by either of the two measures you propose but that of the two the.pref
erable measure would be for the FOMC simply to reinstate its former practice of
maintaining detailed memoranda of discussion for all meetings for release after
a fixed period of time. With respect to the appropriate time lag, I believe
that five years is much longer than is either necessary or desirable. My-'Own
preference would be that these minutes should be released not more than (two )
years after the meetings.
Kay I say also that I have long been in favor of the immediate release of the
records of policy actions of the FOMC. I have recommended repeatedly in
testimony to Congress that the FOMC meetings be held on a Friday so that the
record of policy actions can be written and coordinated over the weekend and
checked with the participants and then released not later than Sunday night so
that no business days pass without this record being available. It is a great
improvement that the delay in the release of these minutes has been successfully
cut down until it is now only thirty days; that is far better than the six months
and longer periods during which they were held confidential before that, but
there is no reason why those thirty days should not be cut further.
Your committee will serve a valuable function if you succeed in getting the Fed
to keep a full documentation of FOMC meetings and in addition to shorten still
further the delay before the release of the records of policy actions.
Sincerely yours,
M
Professor of Economics
MF:gv
J o h n K e n n e t h G a l b r a it h
H a r v a r d U n iv e r s it y
C a m b r id g e
Massachusetts
September 27, 1976
Congressman Stephen L. Neal
Subcommittee on Domestic Monetary Policy
United States House of Representatives
Washington, D. C. 20515
Dear Congressman Neal:
I very much appreciate your thoughtful le tte r o f September 17.
The questions you raise are real and important.
It is obvious that
there cannot be advance knowledge of Federal Reserve decisions, as
is also the case of many actions of federal agencies.
Great effort
has long been taken, for example, to avoid any leakage of information
on prospective crop estimates.
The need to avoid thus rewarding
speculators is obvious.
None of this bears on the question of reporting of past action.
The effort at secrecy here has only one source:
That is the long
standing effort of those having to do with banking and central banking
to feel that they are above the procedures ordinarily required of
other individuals and agencies.
Nothing has been so assiduously
cultivated over so many years as the feeling that there is some
mystery associated with these matters which should not be revealed
after the fact to the public.
The participants in the Federal Open
Market Committee meetings are highly paid men selected on the basis
of their presumed qualifications.
There is not the slightest reason
why their positions should not be known, and they should not be held
fully responsible for their comments.
If somebody is undirected and
erratic in his conversation, there is no reason why he should be
protected; there is every reason why that should be known.
There is
no good reason why full minutes should not be published and why the
obligation should not be fully on the Chairman to see that all
discussion is on the record.
Such minutes will only be examined by
people with a professional interest in the subject, and the discussion
will be much improved if it is known that it is subject to such
consideration.
I strongly commend your efforts and urge that you not be subdued
by the extraordinary snow job to which I can guarantee you will be
subject on this matter.
JKG/adw
M1TH BARNEY, HARRIS UPHAM & CC
IN C O R P O R A T E D
1345 AVENUE OF THE AMERICAS
NEW YORK, N. Y. 10019
(212) 399-6000
October 4, 197*
Congressman Stephen L. Neal
Chairman
Subcommittee on Domestic Monetary
Policy of the Committee on Banking,
Currency and Housing
U .S . House of Representatives
Washington, D .C . 20515
Dear Congressman Neal:
I thank you for your interest in my views concerning documen
tation for meetings of the Federal Open Market Committee. I am happy
to respond both from my vantage point from an investment banking and
securities firm and based on my research work when I was in graduate
school and teaching at the University of California. In my work I made
considerable use of the documentation of FOMC meetings.
The Policy Record which offers some summary of meetings and
which has been released with a 3 0 -day delay is presently of limited value.
By the time it is released, virtually everyone who follows markets clo se
ly knows what the Committee's policy has been. Markets can sense policy
shifts very quickly. A s a research tool, it is of very limited usefulness
because it conveys so little of the happenings of the meetings. It is filled
with a review of the economy and policy over the past month, most of
which is available from published statistics. I think it fair to say that the
Record is more a justification of policy than an explanation of policy.
The memoranda of discussion, which I have always loosely called
the minutes, are much more enlightening and helpful. These still contain
vagueness and euphemisms, but we all like to,have our thoughts and re
marks summarized in the nicest possible way. The minutes do; however,
Congressman Stephen ^
October 4, 1976
page 2
give a much clearer flavor of what actually goes on, what really con
cerns the Committee and how it feels these concerns should be dealt
with. If one wished to get an idea of how an individual member con
tributed to or voted on an issue, the minutes or something more de
tailed would be required.
In order to learn how policy was actually considered formula
ted and executed, ,one would need documentation at least as extensive
as the minutes, not the Record. If the Manager of the System Open
Market Account did not attend the meetings and had only the Record to
work from I doubt that he would frequently engage in the actual opera
tions he does. For instance, the Record reveals that at the July 19 76
meeting the perm issible range for the Federal funds rate was widened
from 5 1 /4 - 5 3 /4 percent to 4 3 /4 - 5 3 /4 percent. The following
Record shows that at the August meeting the range was narrowed to
5 - 5 1/2 percent. Throughout this period the Federal funds rate was
held very close to 5 1 /4 percent, in spite of these shifts in the perm is
sible range. It seem s clear that the Manager was receiving additional
guidance which was not reported in the Record. (Parenthetically, it is
reasonable to suppose that some of this direction came in the daily
"Morning C a lls" between the Manager and some Committee members
and staff. I am not aware that any written record of these calls exists.
It certainly has not been made available to the public or to the Congress,
so far as I know.)
There is much policymaking which is not captured in the Record.
If we are to understand monetary policymaking and learn from its inevit
able occasional errors, we must have a record of how that policy was
made. Scholars have learned a great deal about Federal Reserve policy
making from studying the FOMC minutes from the Great Depression, and
the Federal Reserve is now benefiting from this knowledge. I would be
most upset if this type of knowledge and study were permanently precluded
for the future.
There are some important questions about how this information should
be made available* I understand that the FOMC is concerned over the costs
of keeping detailed minutes, although I would be surprized if these were
really substantial. If so, however, I would recommend that mechanical re
cordings of the proceedings be kept for scholars to listen to and copy a't
their expense. Either this or a verbatim written record of the proceedings
99-331 0 - 77 - 14
Congressman Stephen L. v
October 4, 1976
page 3
would be ideal. As a modestly less desirable alternative, the detailed
memoranda of discussion should be written and released. The Record
by itself is not enough.
The timing of the release of these memoranda is a large concern
to the FOMC, I believe. The Committee objects to immediate release,
and there have been some efforts to force this under the Freedom of
Information Act, I believe. I do not share the Committee's level of con
cern, but I would not object to allowing the release to be delayed, which
I conclude might require legislation. In my view, a 5-year delay is un
necessary. Having read virtually all the memoranda of discussion, I do
not see why they could not be released after one year.
I hope that my comments have been helpful. If I can be of further
assistance in this matter, I hope that you will call on m e.
Dr. William E. Gibson
Vice President - Director of Monetary
Affairs and Fixed-Income Policy
WEG/dgs
BANKOF a m
e r ic a
SAN FRANCISCO HEADQUARTERS
Cashier’s Division
Flow of Funds Management
Mr. Stephen L. Neal
Chairman
Subcommittee on Domestic Monetary Policy of the
Committee on Banking, Currency and Housing
U. S. House of’Representatives
Washington, D.C. 20515
Dear Mr. Chairman:
I am pleased to..respond to your letter of September 17th soliciting
views concerning documentation of FOMC meetings. I personally feel very
strongly that the Federal Reserve should not be allowed to unilaterally
decide to suspend meaningful documentation of its monetary policy delibe
rations. The FOMC memoranda of discussion have in the past provided a
rich source of information to the outside world of how and why the monetary
policymakers arrive at their decisions, a source that has been invaluable
to historians, macro economists, the news media, Fed watchers and I should
think Congressional oversight committees.
A separate, but related issue is that the public at large and Congress
in particular should be able to ascertain the accountability of the indivi
dual policymakers at the Federal Reserve.
The "record of policy action"
which apparently is to be a substitute for the minutes, totally fails in
this regard.
It is further inadequate in describing what happened during
policy meetings and upon what basis alternative and final decisions are
made.
Although the time lag for the release of these minutes/memoranda has
been in my view too long — a 5 year lag is not necessary; 1 month seems
more appropriate or however long it takes to get a corrected set of minutes
reviewed — still, at least the memoranda were made and released for later
review. Now, it no longer even exists.
Sadly, it appears that the FOMC suspension of keeping these very
important documents is now a fait accompli. , It is sad because this historic
decision was made without benefit of public discussion nor consideration
by the public.
The announcement was unobtrusive and very few persons were
even aware of the decision.
208
The issue here is not the independence of the Fed which some seem to
feel it is.
In m y opinion the independence of the Fed is essential for
implementation of effective national economic policy.
The economic good
of the nation should remain out of reach of short-sighted partisan politics.
But a balance to this power is needed, a balance that only Congress cafi,
and should provide.
Adequate documentation of the F e d ’s decision-making
process as well as individual contributions to this process is a very small,
but essential ingredient to providing some public review — some balance —
to this awesome institution’s power.
Surely the cost of maintaining these
records is miniscule in comparison to the F e d ’s budget or infintisimal in
comparison to the effects the Fed has on this country’s economic well being.
The public benefits are far too great to prevent the relatively small
expenditure for keeping these records.
I strongly urge that Congress require the FOMC to reinstate the earlier
Fed procedures.
A tape, unless transcribed and published,is a poor, though
better-than-none alternative.
It would be more more difficult for the
public or members of Congress to scrutinize Fed decisions, but not impossible,
as is the case under current procedures.
Sincerely*
Financial Information Coordinator
H A G :cpq
209
U N IV E R S IT Y o f PENNSYLVANIA
PHILADELPHIA 19174
The Wharton School
D ie t r ic ii H a l l / C C
R obert
Jack M . G uttentag
M orris P rofessor o f B a n kin g
S ept e m b e r 23,
1976
St e p h e n L. Neal, C h a i r m a n
U.S. H o u s e of R e p r e s e n t a t i v e s
Sub c o m m i t t e e o n D o m e s t i c M o n e t a r y Policv
Wa s h i n g t o n , D.C.
205 1 5
D e a r C o n g r e s s m a n Neal,
In reply to y o u r rec e n t letter, I w a s a w a r e that the r e c o r d of p o l i c y a c t i o n s
of the FOMC, w h i c h a r e n o w r e l e a s e d t h i r t y d ays a f t e r e a c h F O M C m e e t i n g , h a v e
b e e n e x p a n d e d to i n c l u d e s u m m a r y rev i e w s e x p r e s s e d d u r i n g the m e e t i n g s .
I was
n o t aware t hat e x t e n d e d m i n u t e s w h i c h r e c o r d e d t he i d e n t i t y of i n d i v i d u a l
s p e a k e r s a nd w h i c h h a v e b e e n r e l e a s e d fi v e y e a r s a f t e r t he e n d of t he y e a r to
w h i c h t hey apply, h a v e b e e n d i continued.
If t his is so I s t r o n g l y d i s a p p r o v e
s i n c e I agr e e w i t h y o u r c o m m e n t that " d e t a i l e d m i n u t e s m a y c o n t r i b u t e d i r e c t l y
to f r u i t f u l r e s e a r c h o n m o n e t a r y p o l i c y a n d the p r o c e s s e s of c o n d u c t i n g m o n e t a r y
policy.”
T h e r e is s o m e s u g g e s t i o n in y o u r letter, h o w e v e r , that t he d e t a i l e d m i n u t e s a lso
m i g h t b e r e l e a s e d a f t e r t h i r t y days, a n d this I b e l i e v e w o u l d b e m o s t u n f o r tunate.
If this w e r e the p r a c t i c e , c o m m i t t e e m e m b e r s w o u l d s p e a k o n l y f o r the r e c o r d at
fo r m a l m e e t i n g ^ a n d a n y re a l i n t e r c h a n g e b e t w e e n t h e m w o u l d ta k e p l a c e o n an
i n f o r m a l a n d ad h o c basi s .
Sincerely,
—
- C 5
Ja c k M. G u t t e n t a g
lcc
210
S^wruce’
S&rnericaA
oA ^ur ty(vr£ , oA C fy. 10020
O c t o b e r 28, 1°“
T h e H o n o r a b l e S t e p h e n L. Neal, C h a i r m a n
S u b c o m m i t t e e o n D o m e s t i c M o n e t a r y Po l i c y
C o m m i t t e e o n Banking, C u r r e n c y , a n d H o u s i n g
U. S. H o u s e of Re p r e s e n t a t i v e s
W a s h i n g t o n , D. C.
20515
Dear Mr.
Chairman:
T h a n k yo u for y our letter of S e p t e m b e r 17, asking about m y v i e w s
o n •'documentation '1 of m e e t i n g s of the F e d e r a l O p e n M a r k e t C o m m i t t e e of the
Federal R eserve System.
P l e a s e acce p t m y apologies for the delay in m y reply.
L e t m e note at the outset that m y c o m m e n t s at this t i m e ar e as a private citizen.
I retired in July 1975 f r o m the F e d e r a l R e s e r v e B a n k of N e w Y o r k , w h e r e I s e r v e d
a s president for nineteen years.
Y o u r letter raises, in m y m i n d ,
difficult questions a bout the p r o p e r
b a l a n c e b e t w e e n r e a s o n a b l y full a n d p r o m p t public disclosure of official deliberations
o n m o n e t a r y policy, a n d r e a s o n a b l e insulation of s u c h deliberations - so that the
participants in those policy discussions a r e not inhibited f r o m a full a n d f rank inter
c h a n g e of views, a n d so that p r e m a t u r e disclosure d o e s not interfere with the effec
tive i m p l e m e n t a t i o n of policy.
T h e rece n t c h a n g e s in d o c u m e n t a t i o n of F O M C m e e t
ings, m e n t i o n e d in y our letter, o c c u r r e d after I retired f r o m the F e d e r a l R e s e r v e
B a n k , a n d I m u s t confess that I h a v e not kept in as close touch with those d e v e l o p m e n t s
a s w h e n I w a s a F e d e r a l R e s e r v e official.
F r o m m y p r e s e n t v a n t a g e point, I h a v e S o m e w h a t m i x e d feelings a bout
the c h a n g e s that w e r e u n d e r t a k e n - discontinuance of the preparation of detailed m e m o
r a n d a of discussion, a n d at the s a m e t i m e the prepar a t i o n of m o r e i n f o r mative s u m
m a r i e s o r " r e c o r d s of policy action."
T h e detailed m e m o r a n d a of discus s i o n w e r e
m a d e available, as y o u note, only after a five y e a r lag, a n d this p r o b a b l y te n d e d to
limit the public interest in these records.
Yet, I w o u l d not h a v e f a v o r e d m u c h m o r e
rapid r e l e a s e of these detailed accounts, b e c a u s e of c o n c e r n that quick publication
could seriously inhibit the quality of discussion a n d possibly of d e c i s i o n - m a k i n g in
the F O M C m e e t i n g s .
T h e e n l a r g e d policy r e c o r d m a t e r i a l s n o w bei n g p r e p a r e d , w h i c h
I u n d e r s t a n d include brief s u m m a r i e s of the policy v i e w s e x p r e s s e d b y v a r i o u s individual
m e m b e r s (although without specific attribution b y n a m e ) , provide, I believe, a signifi
cantly m o r e useful public d o c u m e n t than the pr e v i o u s policy records.
I w o u l d tend to
h a v e s o m e m i s g i v i n g s about the brevity of the lag n o w e m p l o y e d - releasing the policy
r e c o r d s o nly about 30 da y s after the m e e t i n g to w h i c h they apply - but thus far I a m not
aware of any untoward consequences that haveresulted from this shortened lag.
A t the s a m e time, I h a v e s o m e real regrets about the discontinuation
of the p r e p a r a t i o n of detailed m e m o r a n d a of discussion.
A s m e n t i o n e d in y o u r letter,
these d o c u m e n t s c a n b e a valuable s o u r c e of i n f ormation for r e s e a r c h o n the policy
f o r m a t i o n p r ocess, a s well as providing for "accountability" of officials in F O M C
policy deliberations.
W h i l e the d e m a n d for these mate r i a l s has, as far as I k n o w ,
b e e n quite limited thus far, o n e should p e r h a p s not b e hasty in forgoing w h a t could
b e a m o r e w i d e l y u s e d s o u r c e m a t e r i a l in the future.
O n balance, w e i g h i n g the potential value of retaining the detailed
r e c o r d s of F O M C m e e t i n g s against the risk that e xcessively early disclosure could
tend to inhibit f r a n k discus s i o n a n d h e n c e i m p a c t a d v e r s e l y o n the quality of decision
m a k i n g , I a m inclined to favor the f o r m e r - the preparation a n d retention of detailed
r e c o r d s - p r o v i d e d that there could b e effective a s s u r a n c e of a r e a s o n a b l y lengthy
t i m e lag b e f o r e publication.
I should think that C o n g r e s s i o n a l action in support
of a suitable t i m e lag could b e quite helpful in e n s u r i n g that a n appropriate lag could
b e retained.
A s to the appropriate t i m e interval b e fore m a k i n g public the m e m o r a n d a
of discussion, the F e d e r a l R e s e r v e ' s past practice of using a five-year interval s e e m e d
r e a s o n a b l e to m e , although I d o not believe I w o u l d object strenuously to a s o m e w h a t
shorter lag - s a y thr e e years.
T o shorten the interval further than that, I believe,
w o u l d r u n s erious risks of inhibiting the discussion at F O M C
meet i n g s .
A s w a s done
with past publications of the m e m o r a n d a of discussion, there should b e a p r o c e d u r e
for editing out especially sensitive references,
usually relating to particular foreign
countries.
Y o u r letter also suggests, as a n alternative to preparation of m e m o r a n d a
of discussion, the possibility of requiring that the F O M C
maintain "mechanically reported
v e r b a t i m r e c o r d s of all m e e t i n g s for release to the public after a fixed period of time. "
I w o u l d not favor this a p p r o a c h , as I believe that a policy of m a k i n g s u c h r e c o r d s p u b
licly available w o u l d seriously h a m p e r the F O M C ' s policy discussions.
In m y experience,
the m e m o r a n d a of discu s s i o n p r e p a r e d b y the F O M C staff, w e r e faithful representations
of the full s u b s t a n c e of discussion, edited into a f o r m a t that w a s far m o r e useful to the
serious student of m o n e t a r y policy than a taping o r " r a w transcription" of v e r b a t i m
discussion.
I h o p e that these c o m m e n t s h a v e b e e n helpful to y o u a n d y o u r C o m m i t t e e .
Sincerely,
Alfred H a y e s
8214 Stone Trail Drive
Bethesda, Maryland 20034
September 30, 1976
The Honorable Stephen L. Neal, Chairman,
Subcommittee on Domestic Monetary Polioy
Committee on Banking, Currency and Housing
U* S. House of Representatives
Washington, D* C. 20515
Dear Congressman Neals
1 am responding to your letter of September 17 concerning
the extent to which information about FOMC meetings should be
made available to the public*
I strongly favor <*r»en forum* and
complete disclosure of government proceeding? excep. ia the rare
circumstance when the public interest can be shown to h ^periled*
Rill disclosure implies that the identity of persons
ing state
ments or upholding positions be revealed* Secrecy weak«-x«k the
understanding of the public and is a convenient refuge in which
incompetence often lurks* Sunshine is healthful!
1 believe that no convincing case exists for preventing
the public from having full access to the deliberations of the
FOMC* This is especially so because that Committee is not subject
to the discipline of the ballot box and because a number of its
members are not appointed by any elected official or subject to
Senate approval* The welfare of the public can be strongly
affected by the FOMC's decisions; the public and its representalives must be informed about the basis for the Committee's actions
and about what tlw-grqup, is vithiu jLt that .ije advocating specific
positions. Historians, political scientists, economists, the
press and ultimately the public will be able to make more informed
assessments of our government, its policies, and possible reforms
with disclosure*
The timing of disclosure is a more subtle problem* Suc
cessful discretionary policy depends in part on being able to
implement a strategy whioh smoothly achieves a goal* With immedi
ate disclosure of a new set of goals, it is possible that serious
and severe disruptions could be predipitated in financial markets*
For example, a sharp movement in some interest rate could cause a
bank or other financial institution to become insolvent* A better
tactical route to an objective is likely to be a series of small
gradual steps* Complete disclosure with a one-year lag surely
would not compromise the tactical mobility of the FOMC*
A second consideration in the timing of disclosure concerns
the nature -of decisionmaking by committee* When votes are close or
213
issues are closely contested, a policy stance may not prove to
be firm and committee discussion may produce much confusion in
the minds of the public and generate pressure from lobbyists*
It
is well known by social scientists that coalitions in committees
are fragile and that group decisions may be unfortunate in such
circumstances* Since the issues are complicated and provacative,
I think that a case can be made for temporarily suppressing the
release of individual views and specific strategies* Again,
however, a year seems more than enough time for dispassionate
consideration*
I therefore feel that the Board should continue its prac
tice of providing records of broad policy actions and summaries of
views with a lag of 30 days* In addition, 1 would favor having a
complete set of minutes including l) the identity of individuals
holding specific points of view and 2) tactical considerations
published with a lag of 12 months* The minutes might consist of
a transcript in which individuals were permitted to make minor
stylistic corrections or append clarifying statements as is the
case currently with testimony before Congressional committees*
I happen to favor the transcript approach*
In closing, I should note that such documentation does
not in and of itself insure full disclosure of factors which
undenlie decisions* The minutes, for example, aannot reveal
tacit agreements not to raise delicate issues or premeeting
agreements* Nevertheless, documentation is revealing in part for
what is omitted and serious gaps will be recognized*
I hope these remarks prove helpful in your deliberations*
Sincerely yours,
Professor of Economics
University of Wisconsin
(on leave of absence)
214
University of Illinois at Urban, i Champaign
DEPARTM EN T O F E C O N O M IC S ■ BO X 111, CO M M ERCE BU ILD IN G (W EST)
U R B A N A , IL L IN O IS 61801 • (217) 333-0120
September
The Honorable
Stephen
L.
24,
1976
Neal
Chairman
Subcommittee
Policy
on D o m e s t i c
of
the
Banking,
U.S.
House
Currency
D.C.
20515
Neal:
This
concerning
Federal
is
in
reply
the manner
Open Market
issue
including
individual
but
As
concerning
a
general
rule,
of
Congress,
and
Such
is m a d e p u b l i c .
the
desirability
and
disclosure
check on
the
it.
My
the public
important
its
17,
of
1976,
of
the
Your
letter
full
disclosure
a
specific
issue
to
fruitful
research
is
a curb
information,
chief
raises
concerning
impressed
the
of
in a p o s i t i o n
this
on
regard
me w i t h
the
becomes
dangers
is
to
review
the FOMC,
use
that
pressures
competence
democracy.
agencies
and-judgment
in v a r i o u s
process
as
and state
central banking
formation
such
arbitrary
expertise
in
studies
field w h e n
the
political
decisions.
My
on
concern
to
policy
federal
current
too v u l n e r a b l e
economic
should be
public bodies
Committees,
review
exercise
have
September
of m e e t i n g s
policy.
decisions
like.
of
content
T h e g e n e r a l i ssue lies o u t s i d e my p r o f e s s i o n a l
o u t s i d e m y i n t e r e s t a s a c o n c e r n e d c i t i z e n in a
not
the
letter
the
attribution
contribution made by
monetary
to y o u r
in w h i c h
Committee
a general
the
on
and Housing
of R e p r e s e n t a t i v e s
Washington,
D e a r Mr.
Monetary
Committee
in
of
of
power
the FOMC not
reaching
of w e s t e r n
for policy-making
too v u l n e r a b l e
the
and
a
those who
and of m o n e t a r y
countries
the
and
in
become
its
and
Europe
a
technical
to p a r t i s a n
political
pressures.
Precisely where
criteria
Absent
to
the
minutes
persuasive
preference
This
the
is
to
preference
argument
continue
assumes
deliberations
of
lobbying pressures
think monetary
hammered
out
a
to
delay
err
in
in
the heat
the
in p u b l i s h i n g
the n e w m o d e
old
policy
a matter
system
delay
full
to w h i c h
is
of
its
minutes.
these
judgment.
of
reporting,
to b u f f e r
political
now
it h a s
process.
great
my
disclosure.
members
improved when
too
of
in p u b l i c a t i o n
the p o l i t i c a l
direction
of
from contemporary
those
FOMC
applying
favoring
adequate
of
in
is
the
beyond
lies
the F O M C
the FOMC
I do n o t
better
the b a l a n c e
of
rather
It
than
and
are
subject.
to b e
is p r o b a b l y
too
short
The Honorable Stephen L. Neal
September 24, 1976
It Is my professional judgment that Individual attribu
tion of views expressed is of little or no consequence for economic
analysis. I doubt even the need for full reporting providing
decisions and objective considerations that were weighed in reaching
them are fairly summarized.
Sincerely yours,
Donald R. Hodgman
Professor of Economics
DRH:mcd
216
V
PITTSBURGH NRTIONRL BANK
5T H & W OOD
P IT T S B U R G H , PA . 1 5 2 2 2
J E R R Y L. J O R D A N
VICE PRESIDENT & CHIEF ECONOMIS T
October 21, 1976
The Honorable Stephen L. Neal
Chairman
U .S . House of Representatives
Subcommittee on Domestic Monetary Policy
o f the Committee on Banking, Currency and Housing
Ninety-Fourth Congress
Washington, D .C . 20515
Dear Congressman Neal:
I apologize for being slow in replying to your letter of September
17. I think you raise very important questions, and the effects of the
actions taken w ill be long lasting.
As an econom ist in the Federal Reserve for over eight years, I
found the "memoranda o f d iscu ssion " to be extremely useful. Even when
I attended the FOMC meetings I always reviewed the memoranda of previous
meetings as part of the preparation for the next meeting.
The President of the St. Louis Federal Reserve Bank was definitely
influenced in a very positive way by the existence of a permanent record
that-would-.eventually Be made public. It helped him and his staff to main
tain intellectual honesty, sometimes in the face of great pressure to bend.
He knew that even when his views fell on deaf ears in a meeting, consistent
analysis of the problem and recommendations of solutions would be in the
record to be viewed with historical perspective.
There is no doubt in my mind that the preparation, maintenance,
and eventual release of detailed minutes o f FOMC meetings contributes
greatly to the process of formulating and implementing monetary p olicy .
The records need not be verba turn, I think the previous procedure o f
.preparing an edited memoranda of discussion was desirable. The release
o f the record should be automatic after no more than the previous five years,
and I would favor a one or two year lag.
Concurrent Resolution 133 has contributed positively to monetary
policy in the past year, and it should be renewed and possibly made
permanent. Targets stated in terms of the growth of the monetary aggregates
are essential to reducing the inflationary trend, unemployment, and interest
r a te s.
217
The Honorable Stephen L. Neal
October 21, 1976
One final point, the "Record of Policy Actions" is released
after a thirty-day lag at present. Currently, the daily or weekly
"operating target” used by the FOMC is the Federal Funds rate — the
interest rate at which banks lend reserves to each other. I believe that
is undesirable and has contributed to erratic short-run fluctuations in
money growth. As an alternative, if the Fed used as an "operating
target" some reserve aggregate, such as the monetary base, short-run
control would be improved, and uncertainty in securities markets
related to Fed operations would be reduced. If immediate disclosure
of Fed targets were required ("Sunshine"), I believe the FOMC would
find it preferable to control the quantity of bank reserves rather than the
price of bank reserves.
Sincerely, ^ \
JLJ/lp
THE OHIO STATE UNIVERSITY
October 12, 1976
Honorable Stephen L. Neal
Chairman, Subcommittee on Domestic
Monetary Policy of the Committee
on Banking, Currency and Housing
U.S. House of Representatives
Washington, D.C. 20515
Dear Mr. Chairman:
Thanks very much for your letter of September 17, offering me the opportun
ity to express my opinion on the desirability of requiring the Fed to maintain a
careful record of FOMC deliberations.
Advantages of Formal Records
Such a record Miich has been maintained in the past) serves two main pur
poses. First, it allows FOMC members' individual contributions to specific
policy decisions to be identified. When the record is later made public, out
siders can determine what differences existed within the committee in the diag
nosis of policy problems, in understanding of how the economy functions, and in
recommended policy treatments. Second, reviewing such minutes provide FOMC
participants the opportunity to check how well their positions have been com
municated, and to set the misunderstandings straight. It should be recognized
that, with or without official minutes, FOMC participants and observers are
going to compile notes on these meetings for their own purposes. When official
minutes are not kept and circulated, there is less opportunity to discover and
reconcile misunderstandings.
Why Did the Fed Stop Documenting FOMC Debate?
For 40 years, the FOMC found memoranda of discussion sufficiently valuable
to compile regularly. One has to ask what change(s) in circumstances led Fed
officials to discontinue these memoranda in 1976. What difficulties do these
minutes raise for the Fed today that they did not raise previously? While I
can only speculate, I can point to three specific changes that together explain
the FOMC's decision to change its reporting pattern.
First, in compliance with the bargain struck with Congress in House Con
current Resolution No. 133 (March 4, 1975), the FOMC is revealing its policy
targets more fully than ever before. Specific FOMC targets for monetary aggre
gates are reported one-year forward in quarterly hearings before Congressional
219
Mr. Chairman
October 12, 1976
banking committees and the two-month targets for aggregates and the federal funds rate approved in each FOMC meeting are released to the newspapers after
a 30-day delay. This extensive information on the Fed's current intentions
exposes FOMC members--as a team--to the risk of heated (often partisan) crit
icism. It is natural (even if not inevitable) for team members to pull to
gether to protect each other fr*om Monday-morning quarterbacks. This tendency
is all the stronger when the team labors under the sort of siege mentality
induced by the Fed's perennial battle with Congressional critics. These
critics are always poking around for evidence that would let them build a
compelling case for curtailing Fed autonomy.
Second, federal agencies' internal records have become increasingly less
secure. Not only have Fed personnel leaked sensitive information to Congress
and the press, but unfavorable court decisions and recent legislation esta
blishing greater openness in government lead one to doubt that the System can
long control legal access to FOMC records. Previously, the Fed could be con
fident that it could hold back memoranda of discussion for a cooling-off
period of five years. This threat of sudden and unpredictable exposure of
sensitive information is apt to inhibit committee discussion unless countered
in some way. Less courageous FOMC participants would be reluctant to take
controversial stands during the formal meetings and all participants would see
advantages to shifting important confrontations to less formal gatherings.
Third, one must also mention the idiosyncrasies of FRB Chairman Arthur
Burns. As mentioned earlier, in the perennial battle to maintain its autonomy
the Fed seeks to minimize the production of ammunition for its critics. Far
more than his predecessors, Chairman Burns has stressed internally the desira
bility of Fed officials speaking with one voice. He very much prefers that
internal debate be kept internal. Not recording FOMC discussions enhances the
"deniability" of embarassing disputes by making it harder for outsiders to
document internal controversy. A less authoritarian chairman might place less
value on deniability.
Should Congress Require That FOMC Debates Be Documented?
Although Congress might well encourage the FOMC to record its delibera
tions, I see no advantage in trying to force them to do so. Such a require
ment admits too many loopholes to be foisted successfully on a hostile Fed.
The letter of the law can be met too easily by recourse to ambiguous phrasing
(a skill that Fed officials possess in abundance) and off-the-record discus
sions at critical junctures.
Ascertaining what individual FOMC members think is the wrong issue on
which to campaign for monetary-policy accountability. Personal accountability
may well impede both institutional accountability and monetary-policy per
formance. Making individual officials more closely accountable would distort
individual incentives toward self-protection and away from team performance.
It is no accident that more extensive disclosure of Fed policy intentions has
spawned simultaneous efforts to cover the tracks of individual responsibility.
However, so long as team accountability exists, one can expect members of the
team to deliver appropriate rewards and punishments to individual performers.
220
Mr. Chairman
October 12, 1976
For this reason, it is not important for outsiders to pin down which FOMC
members have been right and wrong or passive and dominant on different issues.
What is important is to establish what the FOMC as a whole is trying to do,
whether they succeed at it, and finally whether their efforts were wellconceived in the first place. ‘
Rather than focus on who is "running the store,"
I would prefer to see Congress devote its energy to persuading the Fed to
release up-to-date and better-focused information on the FOMC's short-term
targets and ultimate goals and on its view of policy trade-offs. Collecting
this kind of information can help us to improve both the economic understand
ing of the electorate and the Fed's policy performance. Collecting information
on individual contributions that the individuals would prefer to hold back
threatens to encourage bureaucratic deviousness and scapegoating.
Yours sincerely,
4* (S
Edward J. Kane
Everett D. Reese Professor of
Banking and Monetary Economics
EJK: lw
221
University cfTTlinois at Urban^Champaign
DEPARTMENT OF ECONOMICS • BOX 111, COMMERCE BUILDING (WEST) ■ URBANA, ILLINOIS 61801 • (217) 333-0120
1006 West Armory Avenue
Champaign,Illinoi s ,61820
September 24,1976
Hon. Stephen L. Neal,Chairman
Subcommittee on Domestic Monetary Policy of the
Committee on Banking,Currency and Housing
94th Congress of the United States
Washington,D.C.,20515
Dear Congressman Neal,
This is in reply to your letter of September 17 which reached me only yesterday.
You ask m y "expert opinion" regarding measures that should be taken to restore
full documentation of the Federal Open Market Committee’s (FOMC) deliberations and
the rationale of such measures. You suggest either (l) that FOMC keep mechanically
reported, verbatim records
of all meetings for release to the public after a fixed
period of time, or else (2 ) a resumption of F O M C ’s former practice of maintaining
detailed memoranda of the discussions at all meetings to be released after a fixed
period of time.
Records should be kept so that the FOMC members may refer to them. Any responsible
board wants a general record of its deliberations and decisions to settle subsequent
disagreements over what the group decided. These are also eventually of interest to
historians.
I prefer method # 2 of keeping the records, the one formerly used by the FOMC.
The verbatim system is murderous for most people. Few of us speak as well as we write,
certainly not as well as we rewrite a sentence. The verbatim system of keeping the
minutes could stifle discussion while all but the most articulate reflected on how to
phrase their thought of the moment so it would read well and be impressive. But the
most articulate individuals are not necessarily those with the most good sense.
There are decision making bodies whose discussions should generally be open to the
public, for example,legislatures much,but certainly not all the time, and there are
others in which the best results are obtained when the speakers' uppermost thought
is solving the problem at hand, not impressing a watching or reading audience. Indeed,
the desire to appear generous and to please our fellow men is so strong in many of
us,that it is more difficult to take an unpopular,although perhaps a more long-run
beneficial stand if there is an audience in the picture. To illustrate,there are times
when re commending higher interest rates is the better course. Yet advocates of higher
interest rates rarely win popular acclaim in the Bhort-run.
s-— -n. I think that the minutes-of the FQMC^should be kept confidential for at least
(fivgyears and I would prefer(^sevejh or eighty But after that they should become public
for'historians and.economists to analyze and argue over. It is possible to keep records
like these confidential for too long a time as well as for too short a period.
Sincerely,,
_0
^ ~
4'\
Donald L. Kemmerer
(Professor,Emeritus)
222
UNIVERSITY O F CALIFOR. .
’IA, LOS ANGELES
BERKELEY • DAVIS • IRVINE • LOS ANGELES • RIVERSIDE • SAN DIECO • SAN FRANCISCO
SANTA BARBARA • SANTA CRUZ
DEPARTMENT OF ECONOMICS
LOS ANCELES, CALIFORNIA
90 02 4
O c t o b e r U, 1 976
H o n o r a b l e S t e p h e n L. N e a l
Chairman
S u b c o m m i t t e e on D o m e s t i c M o n e t a r y P o l i c y
C o m m i t t e e o n Ban k i n g , C u r r e n c y
Housing
U n i t e d Stat e s H o u s e o f R e p r e s e n t a t i v e s
W a s h i n g t o n , D.C.
20515
D e a r Mr. Neal:
In a n s w e r t o y o u r i n q u i r y o f S e p t e m b e r 1 7 , I a m s t r o n g l y o f t h e o p i n i o n
t h a t t h e F e d e r a l O p e n M a r k e t C o m m i t t e e sh o u l d b e i n s t r u c t e d to r e s u m 6 its
p r e v i o u s p r a c t i c e s in t h e m a t t e r o f k e e p i n g e x t e n d e d m i n u t e s o f its m e e t i n g s .
M y r e a s o n s for h o l d i n g t h i s v i e v are b r o a d l y t h o s e d e s c r i b e d in y o u r l e tter.
A requirement that the FOMC maintain mechanically reported v erbatim
r e c o r d s o f its m e e t i n g s , o n t h e o t h e r han d , w o u l d b e w o r t h l e s s at b e s t .
Most
l i k e l y it w o u l d b e c o u n t e r p r o d u c t i v e .
T h e r e is no w a y t o e n s u r e t h a t a
p u b l i c s e rvant w h o d oes n ot w a n t t o go o n r e c o r d w i l l n o n e t h e l e s s b e o n
t h e record.
A n d e v e n t h e m o s t r e s p o n s i b l e o f o f f icials, f a ced w i t h t h e
p r o s p e c t o f h a v i n g h i s e v e r y s l i p - o f - t h e - t o n g u e recorded, m i g h t w e l l d e c i d e
t o g i v e h i s " r eal" i nput t o t h e p o l i c y - f o r m u l a t i o n pro c e s s b e f o r e t h e F O M C
m e e t s for its C o n g r e s s - d i c t a t e d r e c o r d i n g sessions.
If t h e o f f i c i a l F OMC
m e e t i n g s w e r e t o t u r n into st a g e d shows w h e r e inno c u o u s a r g u m e n t s f o r p r e
a g r e e d p o l i c i e s a re r e c i t e d no o ne w i l l b e a ny t h e w i s e r for h a v i n g a v e r b a t i m
record of the proceedings.
I suggest t h a t t h e C o m m i t t e e r e q u e s t of t h e F O M C t h a t it r e s u m e its
previous practice —
it should, one ho p e s , b e u n n e c e s s a r y to e x p l a i n t o FO M C
w h y its e a r l i e r p r a c t i c e w a s a g o o d o ne —
and, b e y o n d t hat, s i m p l y t r u s t t o
t h e m o r a l e o f t h e F e d e r a l R e s e r v e S y s t e m t o ensure th a t a m e a n i n g f u l , s u b s
t a n t i v e l y a c c u r a t e r e c o r d is i n d e e d pre s e r v e d .
Finally, I see no r e a s o n w h y o n e sh o u l d at t his ti m e t a m p e r w i t h t h e
p r e s e n t t i m e - l a g s in t h e r e l e a s e of, r e s p e c t i v e l y , " r ecords o f p o l i c y
a c t i o n s " a n d t h e full min u t e s .
223
THE
UNIVERSITY
DEPARTMENT
1126
BAST
CHICAGO
OF
CHICAGO
OF E C O N O M I C S
59 T H
STREET
• ILLINOIS
60637
September 21, 1976
Honorable Stephen L. Neal
Committee on Banking, Currency
and Housing
U.S., House of Representatives
Washington, D.C. 20515
Dear Sir:
This is in reply to your letter of September 17, concerning two
possible measures for requiring the FOMC to maintain and release
records of their meetings.
The strongest case in favor of measures of this sort is, I think,
the last one you mention:
the release of minutes will substantially
help researchers who are attempting to discover the implicit rules
which govern the way monetary policy reacts to the state of the
economy. Assuming FOMC decisions are not entirely capricious, such
rules must exist. Yet traditionally, the FOMC has been reluctant to
describe its behavior in these terms. This unfortunate practice
leaves the important task of spelling out exactly what monetary policy
is (that is, what rules are being implicitly followed) to economists
and others outside the Federal Reserve System. Any information re
leases, certainly including minutes of FOMC meetings, which help in
this task should be encouraged and, where possible, required.
Since the composition of the FOMC changes over time, one would expect
FOMC decision rules to change also. To trace this process, knowledge
of "who said what" is essential, and should be included in useful
minutes as well.
The individual accountability of FOMC members seems to me a less im
portant issue. The committee as a whole should certainly be open to
congressional review and public criticism, but I see no reason why in
dividual members should. Perhaps individuals could be identified in
the minutes by code letters rather than by name, at least while they
remain on the committee.
Sincerely yours,
Professor of Economics
224
N ATION AL BUREAU OF EC O N d M IC RESEARCH , IN C .
n iw v o k
204
CAMBRIDGE
NEW HAVEN
SERRA BOULEVARD, STANFORD, CALIFORNIA 94305
PALO ALTO
Sherman J. Maisel
Co-Director, NBER-West
W a sh in g to n
(415) 326-4928
September 27, 1°'
Chairman Stephen L. Neal
U. S. House of Representatives
Subcommittee on Domestic Monetary Policy of the
Committee on Banking, Currency and Housing
Ninety-Fourth Congress
Washington, D.C. 20515
D e a r C h airm an N e a l :
In reply to your letter of September 17, 1976 with respect to the minutes
of the FOMC, I note the following views.
The detailed memoranda serve several different functions, some of which
you have mentioned.
1.
From my experience, I believe each member of the FOMC prepares
more carefully and makes more considered statements based on
his recognition that he and the others are on the record and will
be judged in the future on their individual contributions to
the debate.
\
The specific record is helpful in preparing for future meetings.
If you know you will have a record to review before the next
meeting, you can listen more completely to the debate and need
not take complete notes on others' points of view.
A review of
others' opinions is most helpful in preparation for future meet
ings.
Frequently 1 have found good points in the minutes I
had missed in the debate.
3.
>.
The minutes can serve a very useful purpose in checking to see
that the manager of the open market account is properly carry
ing out the instructions of the Committee.
The current manager
has been extremely assiduous in following instructions, and the
minutes must be useful to hi m in enabling h im to check his own
observations.
Past (and perhaps future) managers have been
thought to have made policy because their instructions were not
clear enough.
Good minutes make interpretations more exact.
The minutes do serve a useful historical purpose.
For this pur
pose, they must include the statistical background of the meeting;
otherwise they are too difficult to interpret.
While maintaining detailed memoranda of discussions is difficult and requires
a high level of skill in the staff, I do not believe the expenditures for
225
September 27, 19
Chairman Stephen L. Neax
this purpose are wasted.
The memoranda do somewhat homogenize the final
discussion.
In contrast, verbatim records may give incorrect feelings as
to what actually occurred because statements can be correct but carry incor
rect information because they do not reflect tones of voice and interrup
tions, and may have incorrect words which are correctly ignored by those
in the meeting.
I prefer the memoranda on the assumption the Committee
checks them to make certain they are an accurate expression of views.
The question of timing is more difficult.
I believe, aid have so argued for
many years, that the policy directive with a brief explanation shduld be
made available at the close of the day on which the FOMC meets and adopts
it. While I recognize the strong opposing arguments, I believe delayed
release is advantageous to those groups actively engaged in t
’ing govern
ment securities and is disadvantageous to the general public
A trial period
of immediate release would be useful.
The timing of the release of the memoranda of discussion is more delicate.
They contain information which would be harmful if released immediately.
This includes information on foreign operations, exchange flows, problems
in the -economy, views of individuals, staff projections, etc. Knowledge
that this information would be released shortly would inhibit debate and
obtaining information.
It would lead to poorer FOMC decisions.
I would judge that a lapse of' two^ e a r s would be more than an adequate delay,
providing a limited number ofv€xcisions were allowed, as is now done with
respect to privileged foreign information.
It makes sense to issue a year
at a time, since this leads to fewer misinterpretations that could arise from
an examination of the minutes of a single meeting.
Sincerely,
226
UNIVERSITY OF CAL1KORNI;,, DAVIS
BERKELEY • DAVIS • IRVINE • LOS ANCELES • RIVERSIDE • SAN DIECO • SAN FRANCISCO
DEPARTM ENT OF ECONOMICS
!
j
DAVIS, CALIFORNIA
October
SANTA BARBARA • SANTA CRUZ
95616
6 , 1976
R e p r e s e n t a t i v e S t e p h e n L. Neal, C h a i r m a n
S u b c o m m i t t e e on D o m e s t i c M o n e t a r y P o l i c y
C o m m i t t e e on Banking, C u r r e n c y and H o u s i n g
Rayburn House Office Building
W a s h i n g t o n , DC 20215
D e a r R e p r e s e n t a t i v e Neal:
T h a n k y o u f o r y o u r letter r e g a r d i n g t he d o c u m e n t a t i o n o f F OMC meetings.
I b e l i e v e th a t d o c u m e n t a t i o n such as t h e p r e v i o u s l y p u b l i s h e d FOMC M i n u t e s is
des i r a b l e .
It is t r u e th a t t h e s e M i n u t e s a re p r o b a b l y n o t r ead b y v e r y m a n y
pe o p l e , but, all the same, it is impo r t a n t t hat t he i n f o r m a t i o n t h e y c o n t a i n
b e a v a ilable.
Furthe r m o r e , k n o w l e d g e t hat t he M i n u t e s w ill b e p u b l i s h e d s h o u l d
h e l p to r e m i n d F OMC p a r t i c i p a n t s o f the p u b l i c n a t u r e o f t h e i r posi t i o n .
It is
t h e r e f o r e d i s t u r b i n g that t he F e deral R e s e r v e has d e c i d e d to d i s c o n t i n u e t h e i r
p u b l i c a t i o n , a n d I a m gl a d t hat y o u r S u b c o m m i t t e e ha s t a k e n the m a t t e r up.
I h a v e h e a r d th a t th e re a s o n the F ed h as c e a s e d k e e p i n g FOMC M i n u t e s is
its f e a r t h a t a suit u n d e r rece n t l e g i s l a t i o n m i g h t f orce it to p u b l i s h t he
M i n u t e s s oon a f t e r a FOMC session.
N o t b e i n g a lawyer I cannot j u d g e h o w r e a l
i s t i c th i s fear is, b ut I r e s p e c t f u l l y s u g g e s t t hat i f this is inde e d t h e p r o b
lem, t h e r e l e v a n t l e g i s l a t i o n could be a m e n d e d to s p e c i f i c a l l y e x empt t h e FOMC
Mi n u t e s .
T h e q u e s t i o n n a t u r a l l y arises w h e t h e r p u b l i c a t i o n o f the M i n u t e s in the i r
p r e v i o u s f o r m is sufficient.
O n e p o s s i b i l i t y w o u l d b e to e l i m i n a t e t h e five
y e a r lag in t h e i r public a t i o n .
I b e l i e v e that t h e r e is m u c h to b e s a i d for
n o t p u b l i s h i n g t h e m immediately, th o u g h I s u s p e c t that
y e a r lag m i g h t
w e l l b e sufficient.
A n o t h e r q u e s t i o n a r i s e s fr o m the fact that th e M i n u t e s are
n o t a c t u a l l y m i n u t e s in th e n a r r o w s e n s e o f th e term, b ut a r e j ust s u m m a r i e s o f
t h e d i s c u ssion.
It m a y b e us e f u l to h a v e t he a c t u a l m i n u t e s p u b l i s h e d in p l a c e
o f t h e s e summar i e s , with, o f course, s o m e d e l e t i o n s t hat are n e c e s s a r y to avoid,
f o r example, t h e p u b l i c a t i o n o f r e m a r k s about f o r e i g n officials.
Y o u r l e t t e r ref e r s to u s i n g the M i n u t e s to h o l d Fede r a l R e s e r v e o f f i c i a l s
a c c o u n t a b l e for t h e i r sta t e m e n t s at F O M C meet i n g s .
T h i s r a ises a n u m b e r o f
problems.
First, s u c h a c c o u n t a b i l i t y wo u l d , a t ’best, b e v e r y limited.
It
w o u l d a p p l y o n l y to t h o s e Gove r n o r s w ho, h a v i n g s e r v e d o n l y a p a r t i a l term,
c o m e u p for r e a p p o i n t m e n t for a t e r m o f t h e i r own.
I sus p e c t t hat e ven for
g o v e r n o r s u p f or r e a p p o intment, p u b l i c a t i o n o f d e t a i l e d m i n u t e s w o u l d m a k e little
difference.
First, it is likely that C o n g r e s s w o u l d h a v e a t e n d e n c y to r e c o n f i r m
a g o v e r n o r w h o is a l r e a d y serving, and second, t he o p i n i o n s h e e x p r e s s e d thr e e o r
227
f ive y e a r s ago, a r e n ot as likely t o g e n e r a t e as f e rvent o p p o s i t i o n as do
o p i n i o n s e x p r e s s e d o n a current issue.
A n d e v e n i f t he o p i n i o n s p u b l i s h e d in the M i n u t e s w e r e to p l a y an i m p o r
t a n t r o l e at c o n f i r m a t i o n Hearings, it is f a r f r o m c l e a r that this w o u l d b e
d e s i rable.
In o n e way, it w o u l d i n c r e a s e t he c o ntrol d e m o c r a t i c a l l y e l e c t e d
o f f i c i a l s h a v e o v e r t he Federal Reserve, w h i c h I b e l i e v e is des i r a b l e , b u t in
a n o t h e r w a y it w o u l d d e c r e a s e such control.
It w o u l d p r o b a b l y r e s u l t in
p r e s s u r e on t h e P r e s i d e n t to appoint g o v e r n o r s to a full term, r a t h e r t h a n to
u n e x p i r e d terms, a n d this w a y w o u l d r e d u c e P r e s i d e n t i a l control o v e r t h e Fed.
In o t h e r w o r d s it w o u l d shift some p o w e r o v e r t he F ed f r o m t he P r e s i d e n t to
Congress.
R e g a r d l e s s o f w h e t h e r o r not this shi f t is desira b l e , t he u s e o f the
M i n u t e s in c o n f i r m a t i o n H e a r i n g s w o u l d h a v e t h r e e u n d e s i r a b l e effects.
One
is t hat it w o u l d r e d u c e th e pool o f q u a l i f i e d c a n d i d a t e s for the g o v e r n orships.
(And this m a y b e a s e rious p r o b l e m g i v e n t h e r e l a t i v e l y low s a l a r y p a i d to
gove r n o r s . )
Se c o n d , it w o u l d te n d to r e d u c e the h o n e s t y a nd f o r t h r i g h t n e s s
w i t h w h i c h F O M C m e m b e r s e x press t h e i r o p i n ions, a nd this w o u l d i n h i b i t ra t i o n a l
p o l i c y making.
Th i r d , it w o u l d p r o b a b l y m a k e foT g r e a t e r c o n f o r m i t y w i t h i n the
FOMC.
I s u s p e c t t h a t t h e r e is s o m e t h i n g to b e g a i n e d b y h a y i n g a w i d e s p e c t r u m
o f o p i n i o n r e p r e s e n t e d on the FOMC, e v e r y t h i n g f r o m e x t r e m e m o n e t a r i s m to e x
treme Keynesianism.
But t he u s e o f the M i n u t e s in c o n f i r m a t i o n H e a r i n g s w o u l d
t e n d to lead to t h e a p p o i n t m e n t o f g o v e r n o r s w h o s e v i e w s m i r r o r t he n a t i o n a l
c onse n s u s , r a t h e r t h a n o f g overnors w h o i n d i v i d u a l l y h o l d m o r e d i v e r s e p o i n t s
o f view.
Sincerely
Tho m a s Ma>v.
Professor of Economics
228
Claremont Men’s College
Bauer Center, Claremont, California 9171
Telephone (714)626-8511
Applied Financial Economics Center
m 11
D e c e m b e r 21,
1 976
H o n o r a b l e S t e p h e n L. Nea l , C h a i r m a n
U.S. H o u s e of R e p r e s e n t a t i v e s
Subcommittee on Domestic Monetary Policy
Ninety-Fourth Congress
W a s h i n g t o n , D.C. 20515
D e a r Mr. Neal:
I h a v e g i v e n m u c h t h o u g h t to y o u r q u e s t i o n s abo u t h o w m e e t i n g s of the F e d e r a l
O p e n M a r k e t C o m m i t t e e s h o u l d b e d o c u m e n t e d and reported.
As a researcher, I
h a v e f ound t he M i n u t e s e x t r e m e l y v a l u a b l e for h i s t o r i c a l s t u d i e s of t he
F e d e r a l R e s e r v e System.
A t t a c h e d is a r e c e n t s hort p a p e r for t h e J o u r n a l of
M o n e t a r y E c o n o m i c s w h i c h I b a s e d l a r g e l y o n the F O M C M i n u t e s f or 1959 a n d 1960.
I h a t e to t h i n k th a t f u t u r e sch o l a r s w i l l n o t h a v e c o m p a r a b l e s o u r c e m a t e r i a l
co v e r i n g FO M C m e e t i n g s a f t e r May,
1976.
But the i n t e r e s t s of f u t u r e s c h o l a r s ar e n o t the m o s t i m p o r t a n t c o n s i d e r a t i o n s
i n yo u r d e c i s i o n s r e g a r d i n g w h a t i n f o r m a t i o n to r e q u e s t f r o m t h e F e d e r a l R e serve.
T h e F O M C M i n u t e s a n d o t h e r r e p o r t s of the C ommittee, s u c h as t he R e c o r d of P o l i c y
Act i o n s , h a v e a m u c h m o r e i m m e d i a t e v a l u e to p e o p l e s u c h as y o u an d t he g e n e r a l
p u b l i c as g u i d e s to t he d e c i s i o n - m a k i n g p r o c e s s e s of the C o m m i t t e e .
The more we
k n o w a b o u t h o w F O M C d e c i s i o n s a r e made, t he b e t t e r w e c a n p r e d i c t F e d e r a l R e s e r v e
actions under various circumstances.
I s e e n o r e a s o n fo r k e e p i n g t his i n f o r m a
t i o n s e c r e t a t a n y time, for I b e l i e v e f i n a n c i a l m a r k e t s a nd th e g e n e r a l e c o n o m y
w o u l d p e r f o r m m o r e e f f i c i e n t l y if i n f o r m a t i o n o n c u r r e n t a n d p r o s p e c t i v e F e d e r a l
R e s e r v e p o l i c i e s w e r e m o r e r e a d i l y a v a ilable.
This is a n a r g u m e n t for p u b l i s h i n g
the R e c o r d of P o l i c y A c t i o n s a n d the P o l i c y D i r e c t i v e s i m m e d i a t e l y a f t e r e a c h
m e e t i n g of t h e C o m m i t t e e .
T h e p r o b l e m of th e M i n u t e s is m o r e c o m p licated.
The five-year lag
certainly
is e xcessive, i n v i e w of the g r e a t ch a n g e s i n F e d e r a l R e s e r v e p r o c e d u r e s that
h a v e t a k e n p l a c e in the l a s t f i v e years.
T h e shift tow a r d c o n t r o l l i n g t h e
.monetary a g g r e g a t e s s i n c e 19 7 0 is a r e v o l u t i o n a r y step.
It w o u l d b e e x t r e m e l y
h e l p f u l to r e a d the d i s c u s s i o n s w i t h i n th e C o m m i t t e e a nd the t e c h n i c a l p a p e r s
c o n s i d e r e d b y the C o m m i t t e e d u r i n g the t r a n s i t i o n to the c u r r e n t syst e m , w h i c h
in c i d e n t a l l y is s t i l l e volving.
I c a n u n d e r s t a n d w h y t he m e m b e r s of the C o m m i t t e e w o u l d p r e f e r n o t to h a v e the
M i n u t e s p u b l i s h e d s o o n a f t e r t he m e e t i n g s , b e c a u s e t he M i n u t e s I h a v e r e a d c e r
t a i n l y tend to t a r n i s h th e a u r a of i n f a l l i b i l i t y that a n o f f i c i a l b o d y w o u l d
like to main t a i n .
In y o u r letter, y o u m e n t i o n e d the d i f f i c u l t y of h o l d i n g i n d i v i d u a l m e m b e r s of
the F O M C to accou n t .
A l t h o u g h I f ind t he v i e w s of i n d i v i d u a l s i n t e r e s t i n g , I
d o n ' t t h i n k t hat h o l d i n g i n d i v i d u a l s to a c c o u n t is as i m p o r t a n t a p r o b l e m as
h o l d i n g the i n s t i t u t i o n to a c c o u n t for its actions.
T h e r e f o r e , a r e c o r d of the
d i s c u s s i o n t hat f a i r l y r e p o r t e d a ll the s u b s t a n t i a l i s s u e s a nd v i e w s as p r e sented,
b u t y e t d id n o t i d e n t i f y the i n d i v i d u a l s m a k i n g s t a t e ments,
c o u l d b e sat i s f a c t o r y .
T h e d i f f i c u l t y is that the F e d e r a l R e s e r v e ’s r e s p o n s i b i l i t i e s a r e so br o a d , so
d iffuse, and so p o o r l y d e f i n e d that it is e x t r e m e l y d i f f i c u l t to h o l d t h e F e d e r a l
R e s e r v e to a ccount.
P u r s u i n g m a n y o b j e c t i v e s simulta n e o u s l y , the m o n e t a r y a u t h
o r i t i e s a r e b o u n d to a c h i e v e o n e or m o r e of t h e m w h i l e m i s s i n g o n others.
W i t h so m a n y p r o b l e m s to d i s c u s s and w i t h so m a n y o p e r a t i o n s u n d e r w ay, it is n o t
s u r p r i s i n g t hat t h e m e m b e r s of the C o m m i t t e e w o u l d t a l k a b o u t th i n g s t h a t th e y
l a t e r o n w o u l d p r e f e r n o t to h a v e revealed.
I b e l i e v e t h e r e is s o m e t h i n g to the
a r g u m e n t that a f u l l t ape r e c o r d i n g w o u l d i n h i b i t m e m b e r s of the C o m m i t t e e in
e x p r e s s i n g their views.
T h a t w o u l d p e r h a p s d e p r i v e th e C o m m i t t e e of t h e i r b e s t
judg m e n t .
T h e r e is no w a y of r e a l l y h o l d i n g t h e m to a c c o u n t w i t h o u t h a v i n g the
C o n g r e s s lay d o w n m o r e e x p l i c i t rul e s for their guidance.
B y r u l e s for t h e
g u i d a n c e of the F e d e r a l Reser v e , I m e a n s o m e t h i n g l ike s p e c i f y i n g the r a t e of
g r o w t h of the m o n e y supply.
The Federal Reserve naturally opposes having any such
r u l e imposed.
T h e m o n e t a r y a u t h o r i t i e s w o u l d m u c h p r e f e r to h a v e f u l l d i s c r e t i o n ,
b u t the r u l e w o u l d m a k e t h e m a c c o u n t a b l e b e c a u s e it w o u l d m a k e it p o s s i b l e for
o u t s i d e r s to s ee a f t e r the f act w h e t h e r the F e d e r a l R e s e r v e h a d p e r f o r m e d .
The
F e d e r a l R e s e r v e ’s n e w p r a c t i c e of a n n o u n c i n g m o n e y g r o w t h t a r g e t s i n a d v a n c e is a
s tep in the r i g h t dir e c t i o n .
I t h i n k it w o u l d b e e n t i r e l y c o n s i s t e n t w i t h t his
p r a c t i c e to h a v e the p o l i c y r e c o r d of the O p e n M a r k e t C o m m i t t e e i s s u e d w i t h i n one',
d a y f o l l o w i n g a m e e t i n g of th e C ommittee.
I w a s p l e a s e d to s e e i n r e c e n t n e w s r e p o r t s that y o u h a v e p r o p o s e d h e a r i n g s o n
a m o n e y g r o w t h law.
I a g r e e w i t h y o u r s t a f f e c o n o m e t r i c s t u d y that a s t e a d y m o n e y - g r o w t h p o l i c y o v e r the p a s t 28 y e a r s w o u l d h a v e r e s u l t e d i n f ar l e s s i n s t a
b i l i t y i n i n c o m e s a n d p r i c e s t h a n d i d the d i s c r e t i o n a r y p o l i c i e s t he F e d e r a l
R e s e r v e a c t u a l l y applied.
Y o u r p r o p o s a l will, of course, m e e t g r e a t r e s i s t a n c e
f r o m b e l i e v e r s i n d i s c r e t i o n a r y p o l i c i e s i n s i d e the F e d a n d a m o n g a c a d e m i c
e con o m i s t s .
M a n y m e m b e r s o f t he f i n a n c i a l commu n i t y , w h o s h o u l d a p p r o v e it if
they u n d e r s t o o d it, w i l l a l s o p r o b a b l y b e a f r a i d the C o n g r e s s w o u l d m a n a g e
m o n e t a r y p o l i c y e v e n w o r s e t h a n the F e d h a s done.
Y o u r p o i n t t hat t he r u l e w o u l d
" d e p o l i t i c i z e " m o n e t a r y p o l i c y sh o u l d b e r e a s s u r i n g to them.
I h o p e that i n t h e s e h e a r i n g s y o u al s o w i l l d e a l w i t h the F e d ’s p r a c t i c e of u s i n g
F e d e r a l f u n d s - r a t e tar g e t s to c o n t r o l m o n e y growth.
A more inefficient and con
f u s i n g t e c h n i q u e c o u l d h a r d l y b e invented.
T o m e it is a c l a s s i c e x a m p l e of the
t e r r i b l e i n e r t i a of p o w e r f u l , s e l f - p e r p e t u a t i n g b u r e a u c r a c y .
The current tech
n i q u e s a r e o n l y s l i g h t l y i m p r o v e d f r o m the o n e s d e s c r i b e d i n m y a t t a c h e d paper.
W o u l d y o u p l e a s e se n d m e a c o p y of the s taff study?
Also, p l e a s e g i v e m y r e g a r d s
to D o c t o r W e i n t r a u b .
Y o u a r e f o r t u n a t e to h a v e s u c h a n able, d e d i c a t e d s t a f f
dire c t o r .
Y o u c a n cou n t o n h i m
n o t o n l y to h a v e g o o d j u d g m e n t
b u t to a p p l y the
h i g h e s t s c i e n t i fic s t a n d a r d s i n t r e a t i n g the e v i d e n c e c o n s i d e r e d b y y o u r c ommittee.
Carnegie-Mellon University
G raduate School of Industrial Adm inistration
Wiliiam Larimer Mellon, Founder
Schenley Park
Pittsburgh, Pennsylvania 15213
[412] 621-2600
Allan H. Meltzer
Maurice Falk Professor of
Economics and Social Science
October 12* 1976
Congressman Stephen L. Neal
U. S. House of Representatives
Subcommittee on Domestic Monetary Policy
Washington, D. C. 20515
Dear Congressman Neal:
Please excuse the delay in responding to your letter ot
September 17,
The records of the Federal Reserve have been an important
source of information on monetary policy, and they are important
for scholarship.
I regret very much the decision to stop releasing
the minutes of the Federal Open Market Committee.
I have read some part of each of the volumes released to
1974 as part of my research on monetary policy. The minutes have
been extremely useful and have contributed a great deal to my
understanding. A book, containing the result of a decade of
research, is now nearing completion so I am hopeful that the
benefits I received will be more widely shared.
It would be
regrettable if students of economic policy lose this valuable
source of information on policy and the policy process.
I cannot speak with any authority about the number of users,
but the number of users is not a matter of great importance at the
moment.
Scholarship rarely proceeds as a mass effort, and few would
choose to justify or withhold support for scholarship and research
based on the number of participants.
Scholarship is a public
enterprise in the fullest sense. The public benefit greatly exceeds
the cost of the activity or the gain to the scholar.
The chief benefit to be derived from the release of the Federal
Reserve minutes is improved monetary policy. The gain is large and,
I believe, greatly exceeds the cost of releasing the minutes.
I find no substantive issue in the question you raised about
the method of transcription, provided the minutes are edited after
231
Congressman Stephen L. Neal
October 12, 1976
Page 2
they have been reported. Participants should be given the privilege
of correcting grammar and clarifying the meaning of statements as
in the past.
In the past, the Federal Reserve has released the minutes
five years after the year to which the minutes apply. Delayed
release permits the members to speak with less fear that their
remarks will be misused. Past releases have not been abused to my
knowledge, so a five year delay appears to be an adequate and may
be an excessive delay. However, I would prefer to have the
minutes released after a five year delay than not released at all.
I welcome your interest in this matter, and I hope you will
pursue the matter until release is restored.
Sincerely yours,
AHM/jep
232
U N IV E R S IT Y O F M A R Y L A N D
C o llege
Pa r k
20742
DEPARTMENT OF ECONOMICS
October
8 , 1 976
T h e H o n o r a b l e S t e p h e n L. Neal, C h a i r m a n
Su b c o m m i t t e e o n D o m e s t i c M o n e t a r y P o l i c y
C o m m i t t e e o f Banking, C u r r ency, a n d H o u s i n g
U.S. H o u s e o f R e p r e s e n t a t i v e
Wa s h i n g t o n ,
D.C.
205 1 5
D e a r Sir:
P r o f e s s o r D u d l e y D i l l a r d , w h o c u r r e n t l y is a c t i n g p r o v o s t o f the
D i v i s i o n o f B e h a v i o r a l a n d Social Sciences, forw a r d e d to m e y o u r l e t t e r of
S e p t e m b e r 17, 1976, c o n c e r n i n g d o c u m e n t a t i o n for m e e t i n g s o f t h e F e d e r a l
O p e n M a r k e t C o m m i t t e e (FOMC) of the F e d e r a l R e s e r v e System.
I h i g h l y a g r e e w i t h y o u that the FOMC m a d e a mista k e ; t h e y s h ould
c o n t i n u e to p u b l i s h a d e t a i l e d m e m o r a n d a of d i s c u ssion.
T h e e x p a n d e d a nd
m o r e t i m e l y "rec o r d o f p o l i c y acti o n s of the F O M C " is a h e a l t h y s i g n b u t
not a s u b s t i t u t e f o r d e t a i l e d m e m o r a n d a of dis cussion.
I do n o t h a v e
s t r o n g f e e l i n g abo u t w h i c h o n e o f the two p r o p o s e d m e a s u r e s to r e s t o r e
full d o c u m e n t a t i o n is t he m o r e desirable.
O n balan c e , I w o u l d p r e f e r
r e i n s t a t e m e n t o f t he F O M C ' s former p r a c t i c e o f m a i n t a i n i n g d e t a i l e d
m e m o r a n d a o f d i s c u s s i o n o n the grounds that p r e v i o u s m e m o r a n d a w e r e s u f f i e n t l y compre h e n s i v e .
V e r b a t i m trans c r i p t s o f F O M C m e e t i n g s m i g h t b e so
l e n g t h y a s to d i s c o u r a g e a l l but the m o s t d e l i c a t e d f r o m l o o k i n g b e y o n d the
"r ecord o f p o l i c y a c t i o n s o f the FOMC".
Cl early, some l a g i n p u b l i s h i n g the m e m o r a n d a is d e s i r a b l e p a r t i c u l a r l y
b e c a u s e the F O M C d i s c u s s e s i n t e r n a t i o n a l d e v e lopments.
One would not want
an A m e r i c a n a g e n c y r e v e a l i n g f o reign plans.
It is d i f f i c u l t to m a k e a s t r o n g
c ase f or a n y s p e c i f i c lag.
Neverth e l e s s , I w o u l d s u g g e s t a ( ^ h r e e r y e a r lag.
One s h o u l d c o n s i d e r t h e p o s s i b i l i t y of i s s u i n g two m e m o r a n d a o f d i s cussion,
o ne m e m o r a n d u m c o v e r i n g d o m e s t i c p o l i c y o n l y c o u l d b e i s s u e d s i x m o n t h s
a f t e r a F O M C m e e t i n g a n d a separ a t e m e m o r a n d u m o n i n t e r n a t i o n a l e c o n o m i c
affa i r s i s s u e d t h r e e to f ive y ears latter.
I a m p l e a s e d to l e a r n o f yo u r e f f o r t s to r e s t o r e full d o c u m e n t a t i o n
o f F O M C m e e t i n g s a n d h o p e m y co m m e n t s are helpful.
Associate Professor
M assach u setts In s titu te o f T e c h n o lo g y
A lfre d P. S loa n S c h o o l o f M a n a g e m e n t
50 M e m o ria l D riv e
Cam b ridg e, Massachusetts, 02139
Franco M o d ig lian i
November /*
Institute Professor
Mr. S t e p h e n L. Ne a l
Chairman
U.S. H o u s e of R e p r e s e n t a t i v e s
S u b c o m m i t t e e o n D o m e s t i c M o n e t a r y Policy; oJfSfthe
C o m m i t t e e on Banking, C u r r e n c y a n d H o u s i n g
(
Wa s h i n g t o n , D. C.
20515
Dear M r . N e a l :
P r e s s u r e of w o r k a nd a p r o t r a c t e d a b s e n c e f r o m t his c o u n t r y
has p r e v e n t e d m e f r o m r e p l y i n g e a r l i e r to y o u r l e tter of S e p t e m b e r
17.
E v e n at this w riting, I d o n o t f eel that I h a v e h a d s u f f i c i e n t
t ime to g i v e y o u a c a r e f u l l y t h o u g h t - o u t p o s i t i o n o n t h e i s s u e s
y o u m e ntion.
However, I a m p r e p a r e d to s ay that I c o m p l e t e l y a g r e e w i t h
the p o i n t of v i e w e x p r e s s e d i n y o u r l e tter as to the v a l u e of
ex t e n s i v e d o c u m e n t a t i o n of F O M C meet i n g s , i n c l u d i n g i d e n t i f i c a t i o n
of the c o n t r i b u t i o n s of i n d i v i d u a l p a rticipants.
A c c o r d i n g l y , I w o u l d s t r o n g l y favor, at the v e r y least, a
r e t u r n to the p r a c t i c e s f o l l o w e d u n t i l M a r c h 1976.
I c a n a l s o see
some m e r i t s in y o u r ' a l t e r n a t i v e p r o p o s a l of m a i n t a i n i n g m e c h a n i c a l l y
r e p o r t e d v e r b a t i m r e c o r d s of t he m e e t ings.
Howev e r , I c a n a l s o see
some p o s s i b l e d r a w b a c k s in s u c h a p rocedure, e s p e c i a l l y i n t he d a n g e r
that su c h a p r o c e d u r e m i g h t c r a m p the f ree f l o w of ideas.
How e v e r ,
I w o u l d n o t b e p r e p a r e d to c o m e to a n y c o n c l u s i o n on this a l t e r n a t i v e
w i t h o u t h e a r i n g the v i e w s of t h o s e w h o h a v e b e e n p a r t i c i p a t i n g in the
F O M C meet i n g s .
A s for the p u b l i c a t i o n s , I h a v e long felt that the f i v e y e a r
ru l e w a s u n r e a s o n a b l y long.
I do n o t see w h y the l a g c o u l d n o t b e
cut s u b s t a n t i a l l y to p e r h a p s
years.
In c o n cluding, I w o u l d l i k e to say that a l t h o u g h the v i e w s
e x p r e s s e d a b o v e a r e tentative, I a m in fu l l s y m p a t h y w i t h t he th r u s t
of y o u r endeavor, a nd h o p e t h a t y o u w i l l p u r s u e it w i t h d e l i b e r a t e
speed.
S i n c e r e l y yours,
Franco Modigliani
234
UNIVERSITY O F CALIFORNIA, BERKELEY
BERKELEY • DAVIS • IRVINE • LOS ANGELES • RIVERSIDE • SAN DIEGO • SAN FRANCISCO
DEPARTMENT OF ECONOMICS
BERKELEY, CALIFORNIA
947?"
'Vto'ber lU, 197^
Mr. Stephen L. Heal, Chairman
Subcommittee on Domestic Monetary Policy
of the Committee on Banking, Currency & Hous
U. S. House of Representatives
Washington, D. C. 20515
Dear Steve:
I am sorry to have taken so long to respond to your letter of
September 17, hut I have only now been able to turn to corres
pondence following my move to Berkeley in September. I hope
this belated response will still be of some help to you in your
attempts to restore documentation for FOMC meetings.
The decisions made by the FOMC at its May 18 meeting concerning
documentation were two sided. On the one hand, the FOMC decided
to expand somewhat the content of its "record of policy action"
and to speed up release of the "record." This decision was
desirable. On the other hand, the FOMC decided to discontinue
its "memorandum of discussion" which contains full account of
each FOMC meeting. These memoranda were released five years
following the year in which a meeting was held. This second
decision was most unfortunate and more thfe offset the positive
effects of the decisions concerning the record of policy actions.
The policy record does not contain sufficient information to
allow it to substitute for the memoranda of discussion.
When I was on the staff of Federal Reserve Board, I attended FOMC
meetings for several years and made presentations to that body.
At those meetings, the participants, including FOMC members, were
acutely aware that their statements and comments were going on the
record. It is difficult to overstate the importance of having one's
views made available to public scrutiny. While the memoranda were
kept secret for five years, the FOMC members knew that eventually
history would be able to judge their actions. By dropping the
memoranda of discussion the American people have lost an important
means of monitoring and disciplining FOMC meetings.
235
We are told by the FOMC that its meetings must be held in complete
secrecy, and they are. Prior to its May 18 decision, the public
at least had the opportunity to learn— with a five year lag— why
decisions were made concerning the execution of monetary policy.
N o w w e are t o l d that t h e v e i l o f s e c r e c y w i l l n e v e r be lift e d , t h a t
th e " m i nutes" o f F O M C m e e t i n g w i l l n e v e r b e released.
T h i s is a
d e p lorable situation.
I wish to recommend in the strongest terms that the Congress require
the FOMC to reinstitute its memoranda of discussion. I believe that
these records would be sufficient to satisfy the public's and Congress'
"need to know" about FOMC decisions. I believe that the memoranda form
as used in the past would be superior to mechanical records taken ver
batim. Verbatim records would be adequate, however, if the FOMC cannot
bear the expense of producing the more polished memoranda. I do find it
hard to understand why the lavishly financed Fed should be concerned— as
they claim to be— about the minor expense of producing the memoranda of
discussion. This is an expense well worth incurring.
I have mixed feelings about making any. recommendations concerning a
speed up of release of the memoranda once they are reinstituted. On
the one hand, I believe that the public interest would be served by
requiring that the FOMC release the memoranda more quickly, say within
one year following each meeting. More timely release would heighten
public interest and would exert an important discipline on FOMC activity.
On the other hand, I fear that any attempt to speed up release of the
materials would be used by the Fed and other interests to oppose even
more strenuously the rebirth of the memoranda of discussion. I would
advise that at least initially the FOMC be allowed to release the
memoranda with the same five year lag.
I hope that my comments have been helpful aad that you are successful
in your efforts to prevent the Fed from retreating completely into the
dark and nondemocratic world of secrecy. Congress has a large stake in
what the Fed does, as do all citizens. It cannot be allowed to success
fully accomplish this arrogant act of removing one of the few links that
you and I have with its crucial decisions.
Sincerely,
236
Fritz Redlich
16 Chauncy Street
Cambridge, MA 02138
September
2k , 1976
Mr. Stephen L. Neal
Chairman
Committee on Banking, Currency and Housing
Subcommittee on Domestic Monetary Policy
U.S. House of Representatives
Washington, D.C. 20515
Dear Mr. Neal:
This is to acknowledge the receipt of your letter of September 17.
I entirely agree with you that the earlier, now abandoned, policy
of FOMC was, and would be, a good one, if the record is not made public
too early. If this is done, potential decision-makers may be kept
from being frank and on moot questions take the popular stand against
their better insight. I may add that the original policy is desirable
also to keep the historical record straight which is certainly of
great importance, and needed for further decision making. These
statements imply that I would recommend the reinstatement of the former
practice.
Sincerely yours,
237
p
Ell
B R O W
N
U N I 'V E R § I T Y
Providence, Rhode Island • 02912
m m
September 23, 1976
The Honorable Stephen L. Neal
U. S. House of Representatives
Subcommittee on Domestic Monetary Policy
of the Committee on Banking, Currency & Housing
Ninety-Fourth Congress
Washington, D.C.
20515
Dear Congressman Neal:
I am responding to your letter of September 17, 1976
concerning my views on the documentation of meetings of
the Federal Reserve Open Market Committee.
I strongly favor reinstatement of the former FOMC
practice of maintaining detailed minutes ("memoranda of
discussion"), provided that public release occurs with a
substantial lag.
I do not favor verbatim records.
Verbatim records work well in a formal hearing context,
but in a meeting with much open discussion it is often
difficult to make sense out of such records.
In a dis
cussion and debate oriented meeting much communication
takes the form of various intonations, pauses, and
gestures.
Accordingly, properly kept minutes are likely
to be more accurate than verbatim records.
The central issue, of course, involves the length
of the lag between the meeting and the release of the
minutes of the meeting.
In m y opinion, the "sunshine"
debates of the past few years have included too little
discussion of the distinction between actions taken by
government agencies and the policy discussions under
lying those actions.
Rigorous application of instant
(as opposed to delayed release) sunshine laws will in
evitably force many policy discussions into off-therecord formats.
The real policy arguments will occur
9 9 -3 3 1 0 - 77
16
238
in hallways and offices rather than in meeting rooms.
Hallway policy-making will, of course, never be elimi
nated, but it ought not to be encouraged.
To do so
would only reduce the attention paid to minority views.
A (five)-year delay in releasing minutes seems to me
to be sensible for the Federal Reserve and many other
governmental policy-making bodies as well.
That delay
is longer than a President's term of office and there
fore is long enough that an individual's discussion can
be put in a context largely free from day by day
political pressures.
Yet, a five year delay is short
enough that an individual can be held personably
accountable, and his career may be affected by disclosure
of his previous positions.
In constrast to my recommendation for delayed
release of policy deliberations, my recommendation is
for very rapid release of information on policy actions
so that some individuals do not have an extended period
of time in which to profit from inside information.
For
example, if the IRS interprets a new regulation in a
-particular way, then the information should be available
to everyone and not just to the particular taxpayer
whose case led to the interpretation; the same argument
obviously applies to most bank regulatory actions b y the
Federal Reserve.
In addition, it is almost inevitable
that knowledge of major policy decisions will filter out
of large bureaucracies; those who maintain friendships
w ith government policy-makers and administrators should
not receive important information first.
This problem
will be more important the longer the release lag b e
cause those with inside knowledge will have more time
to act on the basis of that knowledge.
Of course,
confidentiality of the names of the individuals affected
b y particular policy decisions--taxpayers and banks in
the examples above— should be maintained in many cases,
bu t I see no conflict in general between maintaining
such confidentiality and release of information fully
describing new regulations, interpretations, etc.
I realize that the distinction between policy de
liberations and policy actions cannot be drawn as
sharply as suggested above.
Nevertheless, I believe the
239
distinction has merit in guiding thinking about the
difficult issues involved.
In general, I feel that
the Federal Reserve in recent years has moved far in
the direction suggested b y my discussion.
When the
Fed engages in open market operations the open market
desk's requests for bids by securities dealers are
made in a matter of two minutes or so to all
the
dealers eligible to transact business with the desk.
The lag in releasing FOMC policy decisions has been
reduced to the absolute minimum consistent wit h the
Fed's current operating procedures which, from time
to time, call for adjustments in the narrow band
permitted for fluctuations in the Federal funds rate.
That quick release of FOMC minutes is impossible
is readily apparent from the fact that the FOMC is
necessarily in the business of forecasting market
pressures on interest rates and in debating the advisibility of introducing future policy changes
designed to move interest rates one wa y or the other.
Such discussions are essential if the Fed is to
maintain a long view.
Quick release of such information
would obviously generate market pressures changing
interest rates in anticipation of Fed policy changes,
amd it would then be impossible to distinguish these
anticipatory pressures from more fundamental market
pressures.
As an aside, it is clear that anticipatory pressures
on interest rates are significant even under current
arrangements as market participants try to guess what
the Fed will do.
This is one of several factors that
lead m any economists, including myself, to argue that
the Fed should not attempt to control interest rates
directly.
Fed policy intentions for money growth can
b e released promptly--as experience with the one-year
monetary targetting procedure under House Concurrent
Resolution 133 demonstrates--without generating market
disturbances.
With respect to the last paragraph on page 1 of
your letter, I do not believe that minutes are pa r t i
cularly important for maintaining the integrity of
annual reports and records of policy actions.
Because
the Policy Record is released quickly, in preparing the
240
Annual Report there is no opportunity to rewrite history
in a major w a y b y taking account of events occuring after
a particular FOMC meeting.
It should also be noted that
the Policy Record reports the vote of each voting FOMC
member on the current policy directive, and that a brief
explanation of a dissenter's vote is included in the
Policy Record.
Thus, an individual FOMC member's views
are described if the views are held strongly enough to
lead to a dissenting vote.
Prior to release of the
Policy Record FOMC members have an opportunity to review
the draft Record to see if their views are accurately,
even if anonymously, described.
Also with respect to your last paragraph on page 1,
I believe that minutes of a FOMC meeting are essentially
irrelevant in assuring that the Policy Record provides
an accurate summary.
There are substantial number of
people in a FOMC meeting and all of them have a sub
stantial amount of independence since their terms-of
office are fixed and they do not serve at the pleasure
of the President or of the Federal Reserve Board Chairman.
In m y opinion, there are simply too many independent
people involved to permit significant misreporting of a
FOMC meeting in the Policy Record.
Of course, some
matters m a y be omitted from the Policy Record altogether,
but given that some matters ought to be omitted (such
as interest rate forecasts), I see no way to maintain
long-run accountability unless delayed release of minutes
is permitted.
Finally, I am in full agreement with you
that maintenance of minutes is important for monetary
policy and historical research.
In summary, I support the second of the two alter
natives listed on page 2 of your letter, provided that
the release lag is substantial.
I favor minutes rather
than a verbatim record.
Finally, I feel strongly that
"instant sunshine" will be counter-productive; it will
increase the pressures that already exist for hallway
policy-making, will reduce rather than increase the
influence of those with minority views, and will not in
fact shed light on many of the arguments and individual
positions underlying policy decisions.
Sincerely,
William Poole
P r o f e s s o r o f E c o n o m ic s
WP/cm
241
F
ederal
R
eserve
Ba n k
R ic h m o n d , V ir g in ia
of
R
ic h m o n d
23261
October 14, 1976
Honorable Stephen L, Neal
U. S. House of Representatives
Subcommittee on Domestic Monetary Policy of the
Committee on Banking, Currency and Housing
Washington, D. C. 20515
Dear Chairman Neal:
I have your letter of September 17 and I am glad to comment on the questions
you have raised. Because of the scope and importance of the questions in
volved, I have taken the liberty of bringing this matter to the attention
of the members of our board, which accounts for my delay in responding
to your letter of the 17th of September.
First, let me note that I have never had an occasion to use the memoranda
^ ^‘scussion and I find that this is also the case with the other Richmond
tors. As you know, these memoranda were always published with a long
nd the detailed record of meetings held five or more years ago is not
y to be especially useful to Reserve Bank directors in the discharge
eir current duties. I assume here that you are aware that Reserve
baiw directors enjoy no special privileges with respect to access to any
FCMC documentation, which is accessible to us in precisely the same form
and on exactly the same time schedule as they are to the general public.
Most of us, however, read with interest the published record of policy action
of the FCMC. From our standpoint the expanded record which was introduced
last May and is now released with a 30- to 35-day lag is a very useful
{document. It is my opinion that this represents a significant improvement
over the record as it was published— incidentally, with a 45-day lag— prior
to last May. The new format, as you know, is far more complete and conveys
in considerable detail the substance of discussions and of the logic under
lying FCMC decisions. It also includes a useful compendium of recent trends
and developments in both domestic and international markets, with interpreta
tions of what these may imply for the future behavior of the economy. On
the whole it seems to me that the public at large is now receiving signifi
cantly more information on current monetary policy, and on a more timely
basis, than ever before. Moreover, since the votes of individual members
are included, the record of policy action as now published would appear
to provide quite strong indications of the positions of individual partici
pants in the FCMC discussions.
242
Honorable Stephen L. Ne-
October 14, 1976
After looking over some of the published memoranda of discussion, my impres
sion is that the question of the appropriate kinds of documentation of such
proceedings cannot be separated from the question of the timing of the release
of such documentation. I certainly agree that, from the standpoint of both
historical and technical research, it is highly desirable that a detailed
record of these proceedings be made public at some appropriate time. The
problem here is in the matter of timing. My major concern in this regard
is that too contemporaneous a release could seriously inhibit the kind of
free and frank interchange of opinion and analysis that is essential to
rational policy decisions. In my view, meaningful policy discussions
have to be directed toward promoting understanding of current and prospec
tive problems and toward the design of appropriate measures for solving
or avoiding problems. I see some risk that premature release of detailed
minutes of discussions could tend to promote posturing for the record and
detract from the quality of the dialogue and analysis that goes into policy
decisions.
Some of my colleagues on the Richmond board see some risk that premature
disclosure of detailed proceedings of the FOMC would give some market
professionals an undue advantage over other securities traders. I am not
in position to evaluate any such risk that may exist. Of greater concern
me is the possibility that too complete and too contemporaneous release
Hailed information on the FOMC’s discussions might prejudice the
ty of monetary authorities in this country to engage in constructive
rative measures with foreign central banks in the international
nges. It is also conceivable to me that domestic monetary and/or
bai ng situations of such a sensitive and confidential nature could
arise that premature disclosure of detailed proceedings of the FOMC
could produce harmful and, indeed, counterproductive results.
To summarize and reply to the specific questions you raise:
(1)1 see no useful purpose to be served by a requirement that
mechanically transcribed verbatim records be maintained of each FOMC
meeting. I am of the opinion that detailed minutes, recorded in the
conventional manner, would achieve the same objectives at lower cost.
While it is of paramount importance that the public be assured that
governmental agencies which possess unusual power and authority do
not abuse or misuse such authority and responsibility, it is my feeling
as a businessman that we must keep in mind the unusual burden placed upon
government agencies as well as private industry when reporting procedures
exceed the basic requirements needed for adequate control and overview
by appropriate agencies of the government.
(2) With regard to the requirement that the FOMC reinstate its
former practice of maintaining detailed memoranda of discussions in
the old format of all meetings for release after a fixed period of
time, it would seem desirable to me that this be done, provided the
243
Honorable Stephen L. Ner
October 14, 197f
time lag between meeting and public release is sufficient to minimize the
risk already mentioned. My own view is that it is not necessary or desir
able that tjjetime lag be as long as five years as in the past, but some
thing likertwo)or perhaps three years would be sufficient. I do not see
how a lag of's~Such duration would seriously diminish the usefulness of such
minutes in monetary policy research or in safeguarding the integrity of
annual reports. Also it seems to me that the published voting record of
individual FCMC members, coupled with the general powers of Congress over
the Federal Reserve, takes care of the accountability problem that you
mention.
244
0
RUTGERS
RUTGERS COLLEGE* D E P A R T M E N T O F E C O N O M IC S * N EW B R U N S W IC K * N EW JE R S E Y 0 8 9 0 3
December 7, 1976
Stephen L. Neal, Chairman
U.S. House of Representatives
Subcommittee on Domestic Monetary Policy of the
Committee on Banking, Currency and Housing
Ninety-fourth Congress
Washington, D. C. 20515
Dear Chairman Neal:
This letter is written in response to your letter of December 1,
concerning requirements that 1. the FOMC maintain verbatim records
and 2. the FOMC maintain detailed memoranda of its meetings.
My guess is that requiring the FOMC to maintain verbatim records
to be released shortly after the meetings will not have the intended
effect of revealing the thinking FOMC members. Instead it is likely
to make the discussion at FOMC meetings mere window dressing. The real
decision making process will move to less convenient, but unrecorded
quarters.
The requirement that the FOMC reinstate its former practice of main
taining detailed memoranda released after a long delay will have a sim
ilar, but less strong effect. But I believe that it is still worthwhile
having this policy renewed since it will be of some help to scholars in
studying the evolution of FOMC policy.
I think that a more important change would be to require the FOMC
from time to time, say quarterly, to publish its target for the rate of
growth of Federal Reserve Credit, and to explain the reasons for the
target chosen. This variable can be controlled by the Federal Reserve
System, and it seems to me, is the appropriate criterion by which to
judge Federal Reserve actions.
Sincerely yours
Hugh Rockoff
Associate Professor of Economics
Rutgers Col lege
245
LAW OFFIC ES
P IE R B O W E R & R O C K E F E L L E R
ST R E E T , N .W ., W ASH IN G TON , D. C.
(202) J47-IBOO
Of COUNSEL
J . L. ROBERTSON
October 1, 1976
The Honorable Stephen L. Neal
Chairman
Subcommittee on Domestic Monetary Policy
of the Committee on Banking, Currency
and Housing
United States House of Representatives
Washington, D. C. 20515
Dear Mr. Chairman:
I regret the delay in responding to your letter of
September 17, 1976. It arrived while I was out of the country.
You requested my views concerning the documentation
for meetings of the Federal Open Market Committee, in light
of the new procedures adopted by the Committee. I can reply
very succinctly.
The expansion of the "record of policy actions of
the FOMC" to include summaries of views expressed during the
meetings represents an improvement, in that it enables interested
members of the public to get an idea, at least, of the points
of view taken into consideration in formulating the Committee's
decisions. But this is not an acceptable substitute for
detailed reports of the meetings, including the exact words
used by each member of the Committee in expressing his point
of view (except to the extent they may be edited by the
individual member for the sake of clarity and precision).
In my view the fomulation of monetary policy by
the Open Market Committee is one of the most important factors
influencing the economy. Hence it should be mandatory that
there be kept a detailed record (to be made available to
the Congress and the public after the lapse^o^ appropriate
time — I would suggest experimenting with kneyyear instead of
five) of the role played by each member of the Committee.
246
B I ER B O W E R &
R O CKEFELLER
The Honorable Stephen L. Neal
October 1, 1976
If minutes of the meetings are not kept and eventually
made available, there would be no possible way for the Congress
or members of the public to appraise the contribution of
any member of the Committee to the formulation of policy. Such
appraisals are essential to any study of how to improve the
System — and, of course, such studies of governmental agencies
are essential in a democracy and an ever-changing world.
It would be helpful, too, in appraising the merits of proposed
new members to know something about the views and contributions
of existing members. And, of course, any decision by Congress
to eliminate Federal Reserve Bank Presidents from the Committee
should not be made without real knowledge, of the contribution
they have made in the Committee’s deliberations.
Furthermore, it is my considered opinion that it
will be,more and more difficult in the future to get qualified
men to serve as Governors and Presidents if they are obliged to
remain anonymous. Men competent to serve in these positions
should be willing and anxious to stand on their records and
be held responsible for the way in which they play their
respective roles.
Finally, whether the record of committee deliberations
is in the form of tapes or transcriptions of stenographic
notes, as was the case in earlier years, is a question of
mechanics for the technicians. But whatever method is used, the
record should be as complete and comprehensible as possible —
for the sake of the System itself and its principal participants,
as well as for the benefit of the Congress and the general public.
Sincerely,
247
UNIVERSITY O F VIRGINIA
JAMES WILSON DEPARTM ENT OF ECONOMICS
CHARLOTTESVILLE
22901
December 17, 1976
ROUSS HALL
Representative Stephen L. Neal
Chairman, Subcommittee on Domestic Monetary Policy
U. S. House of Representatives
Washington, D. C. 20515
Dear Representative Neal:
I a m indeed embarrassed to have delayed so long in responding to your
letter of September 17. The topic of your letter — the appropriate method of
documentation of F O M C meetings — is certainly an important one.
It is disturbing to me that the F O M C has terminated its former system of
summarizing discussions with identification of individual speakers. I concur
strongly in your judgment that such records are valuable both for future research
on monetary policy and for assuring the integrity of the annual report of the Board
of Governors.
The idea of taping the meetings and later producing a verbatim transcript
has its attractions. O n balance, however, I believe that it would be better
simply tc^resumejtha-old^sy_stem. I have had some experience with transcribing
discussions from tapes and I know that it is a costly process. Moreover, a
verbatim transcript is bound to be in very rough form — half-completed sentences,
irrelevant digressions, redundancies, grammatical errors, and so forth.
The only modification of the old system that I would suggest is more
prompt publication. Some delay does seem desirable to me; instantaneous
publication might result in lobbying activities of an unsavory sort, causing
F O M C members to be overly concerned with short-run political considerations.
However, I see no point in a delay of five years. As a compromise I suggest that
the record be published with q^two^year lag, in annual installments.
I applaud your inquiry into this important subject.
Sincerely,
Richard T. Selden
Chairman
RTS/mh
248
U N IV E R S IT Y O F K E N T U C K Y
L E X IN G T O N . K E N T U C K Y 4 0 5 0 6
December
-* OF THE PRESIDEN"
T h e H o n o r a b l e S t e p h e n L.
U.
10,
197^
Neal
S. H o u s e of R e p r e s e n t a t i v e s
Washington*
D.
C.
20515
D e a r C o n g r e s s m a n Neal:
T h a n k y o u f or y o u r letter of D e c e m b e r
m e n t a t i o n of F O M C
meetings.
letter is b a s e d u p o n m y
a m a t t e r of r e c o r d ,
M y
1 c o n c e r n i n g the q u e s t i o n of d o c u
d e l a y in r e s p o n d i n g to y o u r o r i g i n a l
r e l u c t a n c e to a s s u m e the r o l e of " e x p e r t " .
I h a v e n e v e r s e r v e d o n the F O M C
As
nor have I ever
a t t e n d e d a m e e t i n g of t h e g r o u p .
B e that a s it m a y ,
I a m h a p p y to p r o v i d e to y o u m y
questions y o u h a v e raised,
o w n o p i n i o n o n th e
f o r w h a t that o p i n i o n m a y b e w o r t h .
W h i l e I t h i n k y o u h a v e a l e g i t i m a t e c o n c e r n a b o u t accountability,
a n d a c c u r a c y of c i r c u m s t a n c e s d u r i n g p o l i c y - m a k i n g s e s s i o n s ,
c a u t i o n a g a i n s t too rigid a m e t h o d of d o c u m e n t a t i o n .
research,
I would
I, p e r s o n a l l y ,
would
o p p o s e the m a i n t e n a n c e of v e r b a t i m r e c o r d s b e c a u s e I b e l i e v e this p r a c t i c e
all t o o often e n d s in h a v i n g a chilling effect o n f r e e d i s c u s s i o n a n d e x p r e s
sion,
e s p e c i a l l y w h e n t h e topic u n d e r d i s c u s s i o n i n v o l v e s se n s i t i v e m a t t e r s
of pub l i c policy.
I f e a r that w e
d e p r i v e o u r s e l v e s of the o p p o r t u n i t y to h e a r
tentative o r e x p l o r a t o r y v i e w s in s u c h a situation.
If s o m e f o r m of d o c u m e n t a t i o n is to b e r e q u i r e d ,
eralized m e m o r a n d u m
case,
I do not see w h y a g e n
of d i s c u s s i o n c o u l d n o t s e r v e that p u r p o s e .
I n that
a r e a s o n a b l e t i m e lag should b e involved.
I d o h o p e t h e s e v i e w s w ill b e h e l p f u l to y o u a s y o u c o n s i d e r the d o c u m e n t a
tion q u e s t i o n .
Sincerely,
249
A llan
S proul
Kentfield, California
9 4 9 0 4
November 1, 1976.
Hon. Stephen L. Neal
U. S. House of Representatives
Washington, D. C. 20515.
Dear Mr. Neal:
Your letter of September 17, 1976; concerning
the documentation of meetings of the Federal Open Market
Committee of the Federal Reserve Ssytem, came while I
was in the hospital undergoing major surgery. Only now
am I making headway with an accumulation of correspon
dence whifeh piled, up during my illness and convalescence.
Briefly, my opinion based on my fifteen years
of service on the Federal Open Market Committee (1941 —
1956), when I was president of the Federal Reserve Bank
of New Yjnok, and my observance of the procedures and
reporting of similar meetings, is that it is a mistake
to believe that mechanically reported, verbatim records
ofl such meetings would contribute to the formulation
of open market policy or provide a means of properly
and accurately holding individual members of the Committee
accountable for the results achieved by such policies*
The Committee, in its work, is dealing with a
mass of information concerning domestic and international
economic developments, many interpretations of which are
possible and, with respect tp which, there is no obviously
right and clear couse of action in the field of monetary
policy. Its preliminary discussions are an exchange of
interpretations, views and ideas, a testing of hypoteses
and a thrust and parry of argument. As this discussiAon
leads up to final action, it is the vote on that action
which represents the considered opinion of the Committee
and its individual members on which it and they should
be judged. And it is on the ascertainable results of
such actions, taken over a period .of tijme, that the per
formance of the Committee as a whole should be rated*
In my opinion, the keeping of mechanically report
ed verbatim records of all meetings of the Federal Open
Market Committee for release to the public over any period
of time would impair, if not stifle, the quality of
250
A llan
S p ro u l
K entfield, C a lifo rn ia
9 4 9 0 4
preliminary discussion of policy by individual members
of the Committee (or drive it underground*), and would
detract from the essential requirements and the adequacy
of the public record of the Committee as a whole.
I can see merit, however, in the resumption of
the practice which was followed from 1936 to 1976, of
keeping memoranda of discussions of the Federal Open
Market Committee, and the substance of various members*
comments during the discussion, the ^record to be made
public after a period of years. I do^ihink this practice
inhibits the necessary freedom of discussion, and I
think that it has contributed in the past to fruitful
research in the field of monetary policy.
For a current and continuing check on the actions
of the Federal Open Market Committee, of course, there
are the procedures which the Congress has already esta
blished for frequent reports to the appropriate committees
of the Congress on all aspects of Federal Reserve opera
tions. These reports have a place in our governmental
processes although, at times,the results remind me of
the reponse of G-eprge Washington to the suggestion that
all discussions of the Constitutional Convention be
promptly made public. He said it would disturb public
repose with premature speculation.
Sincerely,
251
HARVARD UNIVERSITY
CHARLES WARREN CENTER for Studies in American History
R O B I N S O N H A L L , C A M B R I D G E , M A S S A C H U S E T T S O 2 13 8
October 12, 1976
Stephen L. Neal, Chairman
Subcommittee on Domestic Monetary Policy of the
Committee on Banking, Currency and Housing
U. S. House of Representatives
Washington, D. C. 21515
Dear Congressman Neal:
Thank you for your letter of September 17, asking my
opinion about documentation of FOMC meetings. I have £iven
this matter serious thought, and I think that you are correct
in your desire for full documentation.
As a general rule, full documentation of public bodies
is the best policy. There are many reasons for this
preference. Foremost among them is the issue of accountability
or responsiveness of the public bodies to the wishes of the
electorate. In addition, full disclosure is an aid to the
determination or approval of new members of public bodies. It
provides information necessary to the analysis of specific
policy decisions. And it provides the material for historians
who wish to study history in the hope of avoiding repetition
of its worst moments.
The general rule can be overcome in particular instances
by onerous costs of recording or keeping this information. I
do not know much about the internal workings of the FOMC, but
I cannot believe that these costs are large enough in this case
to warrant contravening the general rule. Quite the contrary,
since the FOMC is a small body which does not meet continuously,
the benefits of full disclosure appear to far outweigh the costs.
The benefits of a full record of the FOMC proceedings are
particularly great at the moment. Arthur Burns has become a
252
[p ag e 2 o f
2
uniquely powerful figure as Chairman of the Fed. It would
be healthy for the Fed and for aggregate economic policy
for disagreements within the Fed to be recorded and exposed.
This would both give the outside world a measure of the
extent of Burns* actual power and make it worthwhile for
other members of the FOMC to speak up and record
disagreements when they occur. Are there many views reflected
on the FOMC today? Or are all decisions unanimous? It
would be very useful to know.
Accordingly, I support strongly the first possible
measure you list, verbatim records of FOMC meetings. Failing
this, I think your second alternative, reinstatement of the
Fed's former practice of revealing a detailed memorandum
after a fixed length of time, is an extremely desirable step.
As a final point, you ask about the optimum delay in
publicizing the FOMC deliberations. Let me asks why have
any delay at all? I suggest that you pose this question to
Chairman Burns, with the intention of working to eliminate
the delay altogether if he cannot provide a convincing
argument for its retention. I personally do not see why the
Fed has to disguise its intervention in the bond market at
all
I hope these comments are useful in your deliberations
Yours truly,
Peter Temin
Professor of Economics, MIT
253
New Haven, Connecticut 06520
DEPARTMENT OF ECONOMICS
Cowles Foundation for Research in Economics
Box 2125, Yale Station
S e p t e m b e r 28,
1976
T h e H o n o r a b l e S t e p h e n L. N e a l
Ch a irman, S u b c o m m i t t e e on D o m e s t i c
Monetary Policy
U. S. H o u s e o f R e p r e s e n t a t i v e s
W a s h i n g t o n , D. C. 2 0 5 1 5
De a r C o n g r e s s m a n Neal:
I b e l i e v e it is im p o r t a n t that v i e w s e x p ressed b y i n
d i v i d u a l m e m b e r s of t h e F e d e r a l O p e n M a r k e t C o m m i t t e e b e c o m e
a v a i l a b l e to t h e public.
T his s h o u l d c e r t a i n l y b e t he c a s e w h e n
d i s s e n t i n g v o t e s occur, a nd the r e a s o n i n g of the d i s s e n t e r s s h o u l d
b e i n t h e " r e c o r d s of p o l i c y a c t i o n s . "
I a l s o t h i n k it w o u l d b e
v a l u a b l e in t h o s e rec o r d s to a t t r i b u t e to individual p a r t i c i p a n t s
t h e v i e w s e x p r e s s e d a n d s u m m a r i z e d i n t h e records.
I a m less s u r e of t h e d e s i r a b i l i t y of m a i n t a i n i n g e x t e n d e d
mi n u t e s f or p u b l i c a v a i l a b i l i t y a f t e r s o m e years, either b y v e r b a t i m
t r a n s c r i p t o r t a p e o r b y m e m o r a n d a of d i s c u ssion.
I w o u l d l i k e to
i n v e s t i g a t e this q u e s t i o n f u r t h e r b e f o r e e x p ressing a n o p inion.
9 9 -3 3 1 0 - 77 - 17
Sincerely,
James T o b i n
254
TNDIANA
UNIVERSITY
Department of Economics
BALLANTINE HALL
BLOOMINGTON,
INDIANA
September 29, 1976
47401
812-337-7808
Congressman Stephen L. Neal
Chairman
Subcommittee on Domestic Monetary Policy
of the Committee on Banking, Currency, and
Housing, Ninety-Fourth Congress
House of Representatives
Washington, D. C.
Dear Congressman Neal:
Thank you for the invitation to present my views concerning documentation
for meetings of the Federal Open Market Committee. I have devoted 13 years
to the study of Federal Reserve monetary policy. I was the principal con
sultant to the Federal Reserve Board on matters pertaining to historical
records during the period when the decision was made to make the FOMC
minutes available to the public. I would like to believe that I contributed
in a small way to bringing about that landmark decision.
I have read and studied carefully all of the minutes of the Federal Reserve
Board from 1913 to 1945 and the Federal Open Market Committee from 1922 to
1935 and from 1936 to 1960. I enclose a bibliography of my writings arising
out of my investigation of Federal Reserve Board and FOMC minutes and other
official records. I also enclose copies of my studies of FOMC policy during
1933, World War II, and more recently the 1950s. These studies say more
about the usefulness of FOMC documentation than anything that I can write in
a brief letter.
My comments refer solely to FOMC minutes prior to 1960. I have no direct
first-hand knowledge of the minutes after that date. Nevertheless, I have no
reason to suppose that any great change or changes were made in the way the
minutes were reported between 1960 and 1975.
Internal records of decision making serve a multiplicity of purposes, at least
two of which should be of interest to your committee. These records are of
operational significance inasmuch as they contribute to day-to-day decision
making. For example, during the 1950s the minutes served the Open Market
Account Manager, as his principal guide between periodic meetings of the FOMC.
255
Congressman Stephen L. Neal
Page two
September 29, 1976
The Manager’s use of the minutes for this purpose reflected Chairman William
McChesney Martin’s view of how committee policy should be made and how
policy should be interpreted. Martin frequently attempted to identify a
consensus, but the consensus was a flexible mandate which permitted fairly
wide discretion to the Account Manager. The FOMC expected him to be guided
by the complete record of the policy discussion and not simply the policy
directive in determining the range of variation of the "target" objectives.
Internal records also serve an equally important function of providing a
basis for holding policy makers accountable for their actions. A detailed
documentary account of official meetings identifies not only policy action
but also the policy viewpoints of the different decision makers. We can
identify the focal points of leadership and can discover how a consensus
policy emerges among a bewildering variety of individual points of view.
In short we can measure the effectiveness of committee action by assessing
the quality of leadership within the committee. Rarely in public statements
do we get the full measure of the FOMC Chairman and how he operates.
.Unfortunately we have not had full scale biographies of FOMC Chairmen (The
two most promising would be Marriner Eccles and McChesney Martin) . The
FOMC minutes are indispensible to such an effort. Very little is known
outside of the Federal Reserve System about the quality of Reserve administraition, a subject which in the past has been of little interest either to
economists or political scientists.
In sum a detailed documentary account of FOMC meetings is essential if we
are ever to achieve an understanding of how the Federal Reserve System
works, of its strengths and weaknesses as an administrative agency and of
gaining insight into how it might meaningfully be changed to improve its
performance.
It strikes me that there are two questions of the greatest significance
for the understanding of the behavior of Reserve officials:
1. What did the FOMC do and what were the economic
effects of its actions? and
2. What did the FOMC do and why did it do it?
A very abbreviated system of minutes can report FOMC policy action. Minute
taking has absolutely nothing to contribute to discerning the effects of
action undertaken. Since economists have a strong interest in identifying
the consequences of FOMC behavior, it is understandable why they have found
so little to interest them in the minutes.
But there is another question of at least equal importance and that is why
did FOMC officials behave as they did? The question of intent, the question
of motivation, cannot be discerned at all clearly from the public record.
Analysis of detailed documentation of FOMC meetings is the only reliable
way to discern why a particular action was undertaken or delayed; it is the
256
Congressman Stephen L. Neal
Page three
September 29, 1976
only way to discern the extent and nature of the knowledge underlying a
particular policy action; and it is the only way to discern the influence
and role of particular decision makers. The intent of decision makers is not
a matter solely of interest to historians of monetary policy. We cannot
evaluate monetary action independently of the intent of the policy makers.
The goal objectives of the FOMC are of crucial importance in assessing the
merits of policy action, yet the FOMC has refrained from revealing publicly
the weights they attach to the competing objectives. The minutes have
been our principal and only reliable guide to the discernment of the relative
significance of goal objectives. Recent econometric studies designed to
quantify and to assign weights to the various goal objectives are of limited
usefulness since they assume, but do not demonstrate, the priority of economic
stability objectives.
A compelling reason why there should be full documentation of meetings of
the FOMC is the unreliability of the speeches and other official policy
statements as guides to understanding the behavior of System officials.
Evidence drawn from the FOMC minutes has revealed discrepancies with that
drawn solely from public speeches and policy statements, especially about
the priority and specification of Reserve System objectives and the
appropriate "target" of monetary policy. I would like to quote what I have
written elsewhere about this matter; (Bibliography, item #8) "It is important
to understand, however, that the existence of these discrepancies does not
imply deliberate misrepresentation, deceit, or guile on the part of System
officials. I think that the explanation can be found partly in the complexity
of the monetary decision making process. Where the number of ultimate decision
makers is large, there is a problem of identifying a policy rationale accept
able to all. The public record, unlike the official record, represents an
attempt to synthesize divergent views, to discover a consensus, to find a
common denominator that will command the widest possible agreement among the
policy makers and at the same time appear convincing to the public. It so
happens that this thankless task is usually reserved for the professional
staff whose responsibility it is to aid in the preparation of material
for the public record. The staff must translate the views of the FOMC into
a defensible rationale eliminating the inconsistencies and logical confusion
that inevitably attend the deliberative process. The desire to produce a
consistent statement usually takes precedence over the desire to portray
the decision making process in its pristine state. There is also the ever
present possibility that rationalization of FOMC behavior represents more
accurately and completely the views of the staff rather than individual members
of the committee. The staff always shows more of a vested interest in policy
rationale than do the individual policy makers; its contact with academia is
257
Congressman Stephen L. Neal
Page four
September 29, 1976
closer. The vested interest of the policy maker, on the other hand, is
more likely to be previous policy decisions as well as a host of political
factors.
My examination of the FOMC minutes during the 50s has led me to conclude,
contrary to traditional interpretations, that the role of short-term
countercyclical considerations has been exaggerated. Statements to con
gressional committees by System spokesmen as well as statements contained
in official System publications all point to the significant role assigned
to price and employment stability. So pervasive is this interpretation
that its validity has been accepted almost without serious challenge. The
minutes in my opinion reveal a different story.
Another example of how the FOMC minutes have revealed a discrepancy between
the public and the official record is the World War II policy of fixing
a pattern of interest rates. Before the Federal Reserve made its wartime
records available to scholars, the view prevailed that the System relinquished
its independence by acquiescing to the Treasury’s desire to establish and
perpetuate a pattern of interest rates. The maintenance of a stable pattern
of rates was presumably a policy initiated by the Treasury and imposed on
a reluctant Federal Reserve. The truth turns out to be the reverse. The
official record discloses that the policy of establishing a pattern of rates
originated solely within the Reserve System, and the Treasury, only after
much argument and considerable delay, accepted it.
These two examples of how FOMC minutes can be used to illuminate the conduct
of monetary policy are not isolated and unrepresentative incidents. I could
easily multiply individual episodes if space permitted.
I wish to conclude by emphasizing that I deplore the recent decision of the
FOMC to discontinue the detailed summary of what happened at monthly meetings
of the committee. It is a giant step backward in the continuing effort to
increase public understanding of Federal Reserve behavior. The FOMC stands
to lose far more than it can hope to gain. I object to imposing any re
quirement that the FOMC maintain a mechanically repeated verbatim account
of all meetings. I believe the arrangements ought to be restored that pre
v a i l e d before the May 18, 1976 d e c i s i o n .
Sincerely,
Elmus R. Wicker
Chairman
Department of Economics
ERW/lp
258
Federal Reserve Monetary Policy 1917-1933, Random House, New York,
1966.
"Federal Reserve Monetary Policy 1922-33: A Reinterpretation,"
Journal of Political Economy, August, 1965.
The
"A Reconsideration of Federal Reserve Policy During the 1920-31
Depression," The Journal of Economic History, June, 1966.
"The World War II Policy of Fixing a Pattern of Interest Rates;"
The Journal of Finance, June., 1969.
"Brunner and Meltzer on Federal Reserve Monetary Policy During
the Great Depression," Canadian Journal of Economics, May,
1969.
"Roosevelt's 1933 Monetary Experiment,"
History, March, 1971.
The Journal of American
"Open Market Money Supply Strategy, 1952-56,"
Economics, February, 1974.
Quarterly Journal of
"Leaning Against the Wind: A Reconsideration of Monetary Policy in
the 1950s," Bloomington, Indiana, 1976 (mimeo)
259
DEPARTMENT OF ECONOMICS
DUKE UNIVERSITY
S e p t e m b e r 29,
19 7 6
T h e H o n o r a b l e S t e p h e n L. Neal, C h a i r m a n
Subcommittee o n Domestic Monetary Policy
C o m m i t t e e o n Banking, Currency, a nd H o u s i n g
U. S. H o u s e o f R e p r e s e n t a t i v e s
W a s h i n g t o n , D. C.
20505
D e a r Mr. Neal:
A s o n e o f the r e l a t i v e l y f e w sch o l a r s w h o h a v e m a d e e x t e n s i v e r e s e a r c h u s e
o f t he m i n u t e s o f t h e F e d e r a l O p e n M a r k e t C o m mittee, I a m h a p p y to r e s p o n d
to y o u r r e q u e s t f o r c o m m e n t o n the d e c i s i o n to d i s c o n t i n u e t he p r e p a r a t i o n
of s u c h " m e m o r a n d a o f d i s c u s s i o n , " w h i l e m a i n t a i n i n g a n o n y m i t y f o r p a r t i c u
la r m e m b e r s i n the e x p a n d e d s u m m a r y o f d i s c u s s i o n i n the " r e c o r d o f p o l i c y
a c t i o n s " p u b l i s h e d in the F e d e r a l R e s e r v e B u l l e t i n .
L e t m e p r e f a c e m y r e m a r k s w i t h some o b s e r v a t i o n s a b o u t the p r e o c c u p a t i o n
o f b u r e a u c r a t s , i n general, a n d c e n t r a l bankers, i n p a r t i c u l a r , f o r s e c r e
cy,
F o r t he p u b l i c to h a v e acc e s s to a d e t a i l e d a c c o u n t of t he o p i n i o n s
a,nd a c t i o n s o f a d e c i s i o n - m a k i n g b o d y is to in v i t e c r i t i c a l d i s c u s s i o n
a n d ju d g m e n t .
C e n t r a l b a n k e r s h a v e l o n g a d m i r e d the " h i d d e n h a n d " p h i l o s
op h y o f the B a n k o f England, w h i c h h o l d s that p o l i c y a c t i o n s a r e m o s t e f
f e c t i v e w h e n n o o n e k n o w s w h a t the c e n t r a l b a n k is doing.
O n l y s i n c e the
R a d c l i f f e C o m m i t t e e s t u d y in the l ate 1 9 5 0 * s h as a n y t h i n g r e a l l y b e e n k n o w n
h i s t o r i c a l l y a b o u t B a n k o f E n g l a n d a ctions; the B a n k h a s v i g o r o u s l y o p p o s e d
the d i s c l o s u r e o f a n y s i g n i f i c a n t information.
T he r e q u i r e m e n t s i n the F e d e r a l R e s e r v e A c t f or a n n u a l r e p o r t s to C o n g r e s s
w e r e i n t e n d e d to p r o v i d e w h a t L o r d K e y n e s o n c e e r r o n e o u s l y c a l l e d (in c o n
t rast to the B a n k o f Engla n d ) "the fu l l a nd e p l e n d i d p u b l i c i t y o f the
Fede r a l R e s e r v e S y s t e m o f the U n i t e d S t a t e s . "
U n a b l e c o m p l e t e l y to sup p r e s s
the r e l e a s e o f f i n a n c i a l statements a n d r e c o r d s of p o l i c y a c t i o n s , the F ed
er a l R e s e r v e h a d to f o l l o w a l t e r n a t i v e r o u t e s to s e crecy, a l l o f w h i c h c a m e
to lig h t in y o u r c o m m i t t e e ' s c e l e b r a t e d 1 964 h e a r i n g s o n T h e F e d e r a l R e s e r v e
S y s t e m A f t e r F i f t y Y e a r s . O n e w a s (and s t ill is) t he c o u c h i n g o f p u b l i c
s t a t e m e n t s i n t he h i g h - s o u n d i n g b u t a m b i g u o u s " F e d e r a l e s e " l a n guage.
Another
w a s the r e f u s a l to r e l e a s e FOMC m i n u t e s a n d to p r o v i d e o n l y b r i e f a n d h i g h l y
cry p t i c s u m m a r i e s i n the p u b l i s h e d " r e c o r d d f p o l i c y a c t i o n s . "
There was
c o n s i d e r a b l e i n d i g n a t i o n a m o n g Fede r a l R e s e r v e o f f i c i a l s w h e n the H A M L I N
p a p e r s a n d t h e H A R R I S O N papers, c o n t a i n i n g m i n u t e s of the p r e - W o r l d W a r II
period, w e r e l e f t to u n i v e r s i t y libraries.
260
The Honorable Stephen L. Neal, Chairman
September 29, 1976
Page 2
A s a re s u l t o f t h e 1 9 6 4 h earings, the FOMC r e l e n t e d a n d a g r e e d to r e l e a s e
the m i n u t e s w i t h a f i v e y e a r l ag a n d w i t h a s t i p u l a t i o n f or th e e d i t i n g
o f s e n s i t i v e m a t e r i a l b e g i n n i n g i n the I 9 6 0 1s.
A t the time, v a r i o u s
m e m b e r s w e r e c e r t a i n t hat p r i o r k n o w l e d g e of s u c h i m p e n d i n g r e l e a s e w o u l d
d r a s t i c a l l y a l t e r the c o n t e n t of the d iscussion; w h e t h e r this a c t u a l l y
h a p p e n e d h a s not, to m y k n o w ledge, b e e n studied.
W h e n I la s t w o r k e d for
the F e d e r a l R e s e r v e S y s t e m i n 1969-70, seve r a l e m p l o y e e s a s s e r t e d that
c o n s i d e r a b l e e d i t i n g o f the m i n u t e s w a s i n s t i t u t e d as l o n g as s i x m o n t h s
a f t e r the fact, in o r d e r to p u t the c o m m i t t e e ’s d e l i b e r a t i o n s i n a m o r e
f a v o r a b l e light.
A n o t h e r r o u t e to s e c r e c y is to a t t a i n t e m p o r a r y s e c r e c y b y t he d e l a y i n g
of p u b l i c a t i o n o f t he r e c o r d of p o l i c y actions.
Th e F O M C r e c o r d u s e d to
b e p u b l i s h e d o n l y i n the F e d e r a l R e s e r v e B o a r d A n n u a l Report, whi c h , as
C o n g r e s s P a t m a n n o t e d i n t he 1 964 hearings, h a d co m e to a p p e a r l a t e r an d
l a t e x in the f o l l o w i n g year.
A s t h e r e s u l t of p r e s s u r e f r o m y o u r commit t e e ,
t he F O M C b e g a n p u b l i s h i n g the r e c o r d of p o l i c y a c t i o n s i n t h e F e d e r a l R e
s e r v e B u l l e t i n w i t h a t h r e e m o n t h lag, w h i c h h as n o w b e e n r e d u c e d to a b o u t
o n e month, a n d e x p a n d e d the s u m m a r i e s of d i s c u s s i o n c o n t a i n e d therein.
I p e r s o n a l l y h a v e s p e n t m a n y h o u r s b e f o r e a m i c r o f i l m r e a d e r r e a d i n g the
FO M C minut e s .
A s y o u w e l l know, it is a d e v a s t a t i n g e x p e r i e n c e , w h i c h
co u l d l i t e r a l l y d r i v e o n e i n s a n e un l e s s p u r s u e d w i t h g r e a t care.
Since
t he r e o r g a n i z a t i o n o f the F O M C in 1955 (abolition o f its e x e c u t i v e c o m
m i t t e e a n d c o n v e n i n g of the w h o l e c o m m i t t e e e v e r y thr e e to four w e e k s ) ,
the m i n u t e s h a v e a v e r a g e d o v e r 1 , 0 0 0 typed p a g e s a n n u a l l y or n e a r l y 1 00
pages per meeting.
W h i l e far f r o m a v e r b a t i m
transcript, t h e m i n u t e s
h a v e i d e n t i f i e d e a c h s p e a k e r a n d s u m m a r i z e d the c o n t e n t of h i s r e marks.
A c h i e f o m i s s i o n i n the m i n u t e s h a s b e e n v a r i o u s s u b c o m m i t t e e r e p o r t s w h i c h
a r e ref e r r e d to b u t n o t included.
M y o w n u s e o f the m i n u t e s h a s b e e n chie f l y as a b a c k u p to a m b i g u i t i e s in
the record o f p o l i c y act i o n s .
In o ur stu d y of the e v o l u t i o n a n d i m p o r t a n c e
o f " e v e n h e e l ” c o n s i d e r a t i o n s i n 0O M C d irectives, w e f o u n d it n e c e s s a r y on
o c c a s i o n to go b a c k to the m i n u t e s of p a r t i c u l a r m e e t i n g s to f i n d o u t if
there h ad b e e n a n y d i s c u s s i o n of u p c o m i n g T r e a s u r y financ i n g s .
I n the l ate
1960s th e FOMC, u n d e r s e v e r e c r i t i c i s m for s p e n d i n g so m u c h t i m e i n su p
p o r t i n g T r e a s u r y r e f u n d i n g s a n d n e w c a s h financings, s t o p p e d m e n t i o n i n g
" e v e n h e e l s " in the r e c o r d of p o l i c y actions, e v e n t h o u g h f r o m v a r i o u s
s t a t i s t i c a l s e r i e s o n o p e n m a r k e t o p e r a t i o n s (we di d n o t t h e n h a v e the
m i n u t e s for th i s p e r i o d ) w e k n e w v e r y w e l l they w e r e s t i l l i n fa c t s u p
p o r t i n g T r e a s u r y fina n c i n g s .
It is s t i l l too e a r l y to a s s e s s the scope of the r e c e n t l y e n l a r g e d F O M C
record, b u t it a p p e a r s d o u b t f u l that its a u t h o r s w i l l p r o v i d e t h e k i n d of
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The Honorable Stephen L. Neal, Chairman
September 29, 1976
Page 3
d e t a i l o n e c o u l d a l w a y s fi n d in the m i nutes, w h o s e r e a d e r s w e r e a l w a y s
o n l y a d e d i c a t e d f e w w h o h a d to w a i t (for the p o s t - 1 9 5 5 p e r i o d ) s i x to
n i n e y e a r s to h a v e the c o p i e s in hand.
In contrast, t h e r e c o r d o f p o l i c y
a c t i o n s is o n d i s p l a y a m o n t h a f t e r the fa c t to the e n t i r e r e a d e r s h i p of
the F e d e r a l R e s e r v e B u l l e t i n a n d w i t h c o m p l e t e anonymity.
T h e M a y 18 r e
cord, i n w h i c h the p r o c e d u r a l c h a n g e w a s a nnounced, c o n t a i n s n o m o r e d i s
c u s s i o n o f the e v e n t s l e a d i n g to the d i r e c t i v e than h a d its p r e d e c e s s o r s
s ince 1964.
T h e J u n e 22 record, p u b l i s h e d in the Au g u s t , 19 7 6 F e d e r a l R e
se r v e B u l l e t i n (which, a s usual, a p p e a r e d a w e e k to t e n d a y s a f t e r the
start of the n e x t m o n t h ) , is, perhaps, f i f t y p e r c e n t l o n g e r t h a n u s u a l
(ten, as o p o s e d to a b o u t s e v e n p r i n t e d pages) a n d is t he e q u i v a l e n t of,
at most, 20 typ e d p a g e s or r o u g h l y a f i f t h the l e n g t h o f the m i n u t e s f or a
typi c a l m e e t i n g .
A f o u r t h (two a n d a h a l f pages) o f t he te x t is d e v o t e d to
summarizing, i n v e r y g e n e r a l terms, the d i s c u s s i o n at the m e e t i n g , w i t h m o s t
of the re s t of the v e r b i a g e s pent o n s t a f f p r e s e n t a t i o n s of d e s c r i p t i v e
statistics and proje c t i o n s 4
It w o u l d a p p e a r to m e that the a b a n d o n m e n t of the m i n u t e s ( " m e m o r a n d a of
disc u s s i o n " ) o n the g r o u n d s that " the b e n e f i t s d e r i v e d f r o m t h e m d i d n o t
j u s t i f y t h e i r r e l a t i v e l y h i g h c o s t " is a t h i n l y v e i l e d a t t e m p t b y the FO M C
to r e g a i n s o m e of t h e i r c o v e t e d p r e - 1 9 6 4 s e c r e c y a nd c o n s e q u e n t i n s u l a t i o n
f r o m p u b l i c s c r u tiny.
It is d i f f i c u l t to c o m p r e h e n d th e m e a n i n g o f " r e l a
ti vely h i g h c o s t " s o l e l y i n ter m s of the ti m e a nd r e s o u r c e s r e q u i r e d to
wirte, edit, a n d r e p r o d u c e the min u t e s ; on the o t h e r hand, " h i g h c o s t "
m a y also b e i n t e r p r e t e d i n ter m s of v u l n e r a b i l i t y to c r i t i c i s m .
The tech
nic a l cos t s o f p r o d u c i n g v e r b a t i m
t r a n s c r i p t s w o u l d p r o b a b l y b e less, b u t
I, as a scholar, s h u d d e r o v e r t he p r o s p e c t of h a v i n g to w a d e t h r o u g h s u b
s t a n t i a l l y g r e a t e r v e r b i a g e i n o r d e r to a t t a i n i n c r e m e n t a l l y s m a l l returns.
T h e t ask of g o i n g t h r o u g h the o ld m i n u t e s is so o n e r o u s t hat it is u s u a l l y
as s i g n e d to g r a d u a t e s t u d e n t s w o r k i n g o n d o c t o r a l d i s s e r t a t i o n s .
Seve r a l y e a r s ago I w r o t e a paper, " F e d e r a l R e s e r v e B e h a v i o r , " w h i c h s u r
v e y e d v i r t u a l l y e v e r y s t u d y of F O M C d e c i s i o n - m a k i n g u p to 1972; I e n c l o s e
a co p y of a r e c e n t r e p r i n t i n g of this p a p e r (the reprint, r a t h e r t h a n the
original, is e nclosed, s i n c e the b i b l i o g r a p h y for the a r t i c l e h a s b e e n ex
t r acted f r o m the b i b l i o g r a p h y for a n e n t i r e b o o k ) . B e s i d e s m y o w n work,
n o t e p a r t i c u l a r l y t he s t u d i e s b y B u e h l e r & F and (re f e r e n c e no. 23) a n d
H i n s h a w (refe r e n c e no. 24), w h i c h m a d e e x t e n s i v e u s e of the F O M C m i n u t e s
a n d w h i c h w o u l d h a v e b e e n i m p o s s i b l e to do w i t h o u t the d e t a i l o f t he o l d
minutes.
The w o r k o f y o u r c o m m i t t e e in the p a s t y e a r h a s al s o g o n e i n t o t h e m e t h o d s
of s e l e c t i o n a n d b a c k g r o u n d s o f F e d e r a l R e s e r v e B a n k dir e c t o r s , a n a r e a in
w h i c h Th o m a s Ha v r i l e s k y , D a v i d Schirm, a nd I h a v e d o n e r e s e arch.
An
inte
r e s t i n g q u estion, a s y e t u n e x p l o r e d so f ar as I know, c o n c e r n s the h i s t o r i c a l
a l l e g i a n c e s of F e d e r a l R e s e r v e B a n k p r e sidents, e l e c t e d (subject to B o a r d
262
The Honorable Stephen L. Neal, Chairman
September 29, 1976
Page 4
of Gove r n o r s a p p r o v a l ) b y the i r direc t o r s , in t he F O M C p o l i c y - m a k i n g
process.
To e x a m i n e s u c h a q u e s t i o n w o u l d r e q u i r e r e c o r d s c o m p a r a b l e
to the F O M C m i n u t e s . S t u d i e s o f the b e h a v i o r o f F e d e r a l R e s e r v e g o v e r n o r s
w o u l d h ave s i m i l a r r e q u i r ements.
L o n g a n d s h o r t v e r s i o n s of t h e r e c o r d
of p o l i c y a c t i o n s a t t r i b u t e to s p e c i f i c i n d i v i d u a l s o n l y the o u t c o m e o f
the fo r m a l v o t e o n t h e p o l i c y d i r ective, which, i n t he m i n d s of m a n y observ e r s ,
is l a r g e l y a formality.
To summarize, I s e e s u b s t a n t i a l b e n e f i t s a n d l i t t l e fi n a n c i a l c o s t s a s s o
ci a t e d w i t h r e t a i n i n g the p r a c t i c e of p r e p a r i n g a n d r e l e a s i n g the F O M C m e m
o r a n d a of d i s c u s s i o n .
In the past, the a c t u a l ti m e l a g h a s n o t b e e n the
a v o w e d f i v e y e a r s b u t s i x to n i n e y e a r s (one c o u l d sa v e a y e a r b y m a k i n g a
t r e k to the N a t i o n a l A r c h i v e s o r a F e d e r a l R e s e r v e office, b u t t h e t i m e re
q u i r e d for p e r u s a l m a k e s this i n c o n v e n i e n t ) . I s e e n o r e a s o n w h y t he m i n u t e s
c o u l d n o t b e r e l e a s e d aft e r aCfcJvrete y e a r lag, w i t h c o p i e s a v a i l a b l e f r o m the
N a t i o n a l A r c h i v e s a p p r o x i m a t e l y ^ T y e a r later.
It w o u l d n o t b e h a r d to j u s
t i f y e v e n s h o r t e r lags, b u t this w o u l d b e a c o m promise.
It is a p l e a s u r e to a s s i s t y o u i n y o u r d e l i b e r a t i o n s ,
m a r k s m a y b e o f use.
Sincerely,
W i l l i a m P. Y o h e
^
P r o f e s s o r of E c o n o m i c s
WPY/mm
Enclosure
and I hope these re
263
A P P E N D I X 2.—
VERBATIM MINUTES
Monash U. .versity
FACULTY OF ECONOMICS AND POLITICS
CLAYTON VICTORIA AUSTRALIA 3i«8
telep ho ne:
03541
ctn
18 t h O c tober,
te lec ram s: Monashuni Melbourne
t e le x : Motilib.
31729
1976.
R e p r e s e n t a t i v e S t e p h e n Neal, Chairman,
C o m m i t t e e o n Banking, C u r r e n c y and H o u s i n g ,
U.S. H o u s e o f Repr e s e n t a t i v e s ,
WA S H I N G T O N ,
D.C.,
20515.
D e a r Mr. Neal,
T h a n k y o u f or y o u r le t t e r o f S e p t e m b e r 17.
Having been out
o f t h e c o u n t r y s i n c e June, I w a s s u r p r i s e d a n d t r o u b l e d to d i s c o v e r
that t he F O M C is c u r r e n t l y m a s k i n g its de l i b e r a t i o n s .
T h e v e r b a t i m r e c o r d s of a l l F e d e r a l O p e n M a r k e t C o m m i t t e e
m e e t i n g s shou l d b e m e c h a n i c a l l y r e c o r d e d a n d r e l e a s e d t h i r t y d a y s later.
T h e v i e w s o f FO M C p a r t i c i p a n t s sh o u l d n o t b e i n s u l a t e d f r o m
o p e n c r i t i c a l inspection.
Scientific criticism of policy makers*
o p i n i o n s a n d o p e r a t i o n a l t h e o r i e s is t h e b e s t w a y to ins u r e t h e i r c o n
ti n u a l Improvement.
M o r e o v e r , n o t to o p e n part i c i p a n t s ' v i e w s to
pu b l i c i n s p e c t i o n is a r r a n t l y u n d e m o c r a t i c an d inc o n s i s t e n t w i t h t h e
ideal of f r e e d o m of information.
Fi nally, if t h e F O M C d e v i a t e s f r o m t he p r e - a n n o u n c e d m o n e y
s u p p l y g r o w t h r a n g e it w i l l b e c r u c i a l to t h e C h a i r m a n of the F e d e r a l
R e s e r v e Board, C o n g r e s s and t he p u b l i c to b e a b l e to t r a c e d o w n t h e
so u r c e o f the d e v iationV e r b a t i m r e c o r d s cou l d b e h e l p f u l in th i s
regard.
T h e i n a b i l i t y of t he F e d e r a l R e s e r v e to s u s t a i n s t a b l e r a t e s
o f m o n e y su p p l y g r o w t h h a s b e e n the m a j o r s y s t e m a t i c sou r c e o f p r o f o u n d
a n d d i s t u r b i n g s h ocks to
o u r e c o n o m y a n d t h e r e b y the c a u s e o f i n f l a t i o n
a n d recession.
If y o u w o u l d l i k e f u r t h e r d e t a i l e d comments,
to ca l l u p o n me.
Y o u r s truly,
!
V\ AAAU/>
Thomas Havrile^ky.
<
please feel free
264
MICHIGAN
STATE
UNIVERSITY
DEPARTMENT OF ECONOMICS . MARSHALL HALL
EAST LANSING • MICHIGAN • 48824
N o v e m b e r 1, 1 976
H o n o r a b l e S t e p h e n L. Neal, C h a i r m a n
Subcommittee on Domestic Monetary Policy
C o m m i t t e e on B a n k i n g , C u r r e n c y an d H o u s i n g
U. S. H o u s e of R e p r e s e n t a t i v e s
W a s h i n g t o n , D. C.
205 1 5
De a r C o n g r e s s m a n Neal:
T h a n k y o u for y o u r i n q u i r y c o n c e r n i n g m y v i e w s o n d o c u m e n t a t i o n
of the m e e t i n g s o f t he F e d e r a l O p e n M a r k e t C o m mittee.
Y o u r letter
i n d i c a t e s that y o u a re c o n c e r n e d a b o u t two s e p a r a t e i s s u e s 1 ) p u b l i c
a c c o u n t a b i l i t y of m e m b e r s of the F O M C an d 2) t h e a v a i l a b i l i t y of
i n f o r m a t i o n for r e s e a r c h o n m o n e t a r y p o l i c y .
T h e s e q u e s t i o n s are s i m i l a r ,
th o u g h in s o m e w a y s their i n f o r m a t i o n a l r e q u i r e m e n t s are distinct.
First, ray c o m m e n t s on the i s s u e of p u b l i c a c c o u n t a b i l i t y .
The
de l i b e r a t i o n s of the F O M C h a v e b e e n s p e c i f i c a l l y e x e m p t e d f r o m t h e r e c e n t l y
e n a c t e d l a w r e q u i r i n g f e d e r a l r e g u l a t o r y a g e n c i e s to h o l d o p e n p u b l i c
me e t i n g s .
For the FO M C to a b a n d o n its p r a c t i c e of c o n s t r u c t i n g m e m o r a n d a
of d i s c u s s i o n at this time s t r i k e s m e as a v i o l a t i o n of the spirit,
a l t h o u g h not the l e t t e r of this legis l a t i o n .
On t he o t h e r hand, it i s n o t
cle a r that the m e m o r a n d a of d i s c u s s i o n as they h a v e b e e n r e l e a s e d for th e
pe r i o d 1 9 3 6 - 7 0 a re a n y m o r e a c c e p t a b l e s u b s t i t u t e s for o p e n m e e t i n g s than
a r e the r e c o r d s of p o l i c y action.
T h e m e m o r a n d a of d i s c u s s i o n a re n o t
t r a n s c r i p t s of the p r o c e e d i n g s , b u t r a t h e r s u m m a r i e s of the re m a r k s of the
individual FOMC members.
A s s u c h they a re al s o s u b j e c t to a " s u b j e c t i v e
p r o c e s s of s e l e c t i n g a n d su m m a r i z i n g " .
T h e refore, it app e a r s to m e that
the iss u e of p u b l i c a c c o u n t a b i l i t y of th e F O M C can b e s a t i s f i e d i n t he
s p i r i t of the " s u n s h i n e law" o n l y b y taping and s u b s e q u e n t l y t r a n s c r i b i n g
the e n t i r e p r o c e e d i n g s .
G u i d e l i n e s can a n d s h o u l d b e d e v e l o p e d for
o m i t t i n g f r o m the p u b l i c l y a v a i l a b l e t r a n sactions, s e n s i t i v e m a t e r i a l s
i n v o l v i n g f o reign g o v e r n m e n t s or m a t e r i a l s w h i c h i n v o l v e the p r i v a c y of
i n d i v i d u a l s or i n d i v i d u a l b u s i n e s s e s a l o n g the lin e s of the g u i d e l i n e s
w h i c h h a v e b e e n u s e d i n t h e m e m o r a n d a of discussion.
The unedited tapes
a n d t r a n s c r i p t s s h o u l d b e d e p o s i t e d w i t h the N a t i o n a l A r c h i v e s for r e l e a s e
a f t e r a s u i t a b l y l o n g l e n g t h of t ime (say 50 years).
Se cond, m y c o m m e n t s o n t h e i s s u e o f r e s e a r c h o n m o n e t a r y p o l i c y .
T h e p r i m a r y r e q u i r e m e n t s of s u c h r e s e a r c h are: 1) i n f o r m a t i o n o n the
o b j e c t i v e of the F O M C i n u n d e r t a k i n g a p a r t i c u l a r p o l i c y action, 2) t h e
i n f o r m a t i o n w h i c h l e d the F O M C to c o n c l u d e that a p o l i c y a c t i o n w a s
wa r r a n t e d , an d 3) th e i n f o r m a t i o n w h i c h led the FO M C to c o n c l u d e that t he
p o l i c y a c t i o n u n d e r t a k e n m i g h t p r o d u c e d e s i r e d results.
T h e f i r s t of these t hree r e q u i r e m e n t s m i g h t b e m e t b y a " r e c o r d
of p o l i c y ac t i o n s " or a " m e m o r a n d a of d i s c u s s i o n " if they w e r e c o n s t r u c t e d
w i t h this go a l i n mind.
I t p r e s u m a b l y cou l d b e d e d u c e d or i n f e r r e d f r o m a
265
H o n o r a b l e S t e p h e n L. Neal, C h a i r m a n
Subcommittee on Domestic Monetary Policy
C o m m i t t e e o n Banki n g , C u r r e n c y a n d H o u s i n g
U. S. H o u s e o f R e p r e s e n t a t i v e s
W a s h i n g t o n , D. C.
20515
Page 2
t r a n s c r i p t of the p r o c e e d i n g s .
T h e s e c o n d a n d third r e q u i r e m e n t s p r o b a b l y
cannot b e c o m p l e t e l y s a t i s f i e d e v e n b y a tra n s c r i p t o f t h e p r o c e e d i n g s .
T h e s e r e q u i r e k n o w l e d g e of t he a n a l y s i s a nd f o r e c a s t s p r e p a r e d b y the s t a f f
of the F O M C for the d e l i b e r a t i o n s o f the c o m mittee.
A s an examp l e , con s i d e r a s i t u a t i o n i n w h i c h s o m e p o l i c y a c t i o n
of t h e F O M C is g e n e r a l l y agreed, i n r e t r o s p e c t , to h a v e b e e n i n a p p r o p r i a t e .
If the F O M C m e m b e r s a c t e d w i t h k n o w l e d g e of the l i k e l y o u t c o m e of the
poli c y , th e n t h e e x a m p l e c o u l d b e c i t e d as e v i d e n c e o f b a d p o l i c y maki n g .
Ho w e v e r , s u p p o s e that t he i n f o r m a t i o n a v a i l a b l e to the c o m m i t t e e s u g g e s t e d
that s o m e o t her, m o r e a p p r o p r i a t e , o u t c o m e of the p o l i c y a c t i o n w a s m o s t
l i kely.
T h e n t h e p o l i c y m a k e r s h a d i n c o m p l e t e a n d / o r e r r o n e o u s k n o w l e d g e of
the l i k e l y outco m e , a n d a c t e d i n a m a n n e r w h i c h w a s a p p r o p r i a t e to the
k n o w l e d g e w h i c h they h a d a v a i lable.
I n o r d e r to r e a c h c o n c l u s i o n s o n h o w
to c o n d u c t m o n e t a r y p o l i c y , it is i m p o r t a n t to d i s t i n g u i s h t h e s e t wo k i n d s
of s i t u a t i o n s .
F i n a l l y , w h a t i s the a p p r o p r i a t e time l a g o n t h e r e l e a s e of
information.
F o r p u r p o s e s of r e s e a r c h o n m o n e t a r y pol i c y , i m m e d i a t e
a v a i l a b i l i t y of i n f o r m a t i o n is n o t p a r t i c u l a r l y impor t a n t .
The present
fi v e y e a r l a g o n t h e p u b l i c a t i o n of the m e m o r a n d a of d i s c u s s i o n s e e m s
u n r e a s o n a b l y long, h o w e v e r , a l a g o f s a y / t w o } y e a r s w o u l d p r o b a b l y not.
h i n d e r a n y o n e ’s r e s e a r c h effort.
F o r t h e “i s s u e of p u b l i c a c c o u n t a b i l i t y ,
it is n e c e s s a r y that the i n f o r m a t i o n r e l e a s e d a c c u r a t e l y r e f l e c t the
d e c i s i o n m a k i n g pr o c e s s .
If the t r a n s c r i p t s a n d s u p p o r t i n g d o c u m e n t s m u s t
b e m a d e w i t h a v e r y s h o r t time lag, th e n there is t he d a n g e r that the
o f f i c i a l s e s s i o n s of the F O M C m a y b e c o m e o n l y f o r m a l i t i e s , w i t h a ll of the
i m p o r t a n t d i s c u s s i o n a nd d e c i s i o n m a k i n g r e l e g a t e d to i n f o r m a l m e e t i n g s or
c o n v e r s a t i o n s w h i c h are n e v e r recorded.
T o m i n i m i z e this p o s s i b i l i t y a
time l a g of o n e to two y e a r s w o u l d s e e m a p p r o p r i a t e .
I h o p e that the s e c o m m e n t s w o u l d b e us e f u l
to y o u r s u b
c o m m ittee.
R o b e r t H. R a s c h e
P r o f e s s o r of E c o n o m i c s
266
u t Td
THE UNIVERSITY OP TEXAS AT DALLAS
October 22, 1976
The Honorable Stephen L. Neal, Chairman
Subcommittee on Domestic Monetary Policy
of the Committee on Banking, Currency &
Housing
Washington, D.C. 20515
Dear Chairman Neal:
I am responding to your letter of September 17, 1976,
regarding my views concerning documentation for meetings of the
Federal Open Market Committee (FOMC) of the Federal Reserve
System, I have delayed my response to your letter because it
is difficult to treat these issues properly within the space of
a page or two. Yet I have not found the time to treat the sub
ject fully. Consequently, I am giving you my brief opinion,
and if your Committee would find a longer commentary helpful,
I shall be happy to send it on.
In a word, I think that extended and accurate minutes
of discussions at FOMC meetings should be kept and made public
There is only one
i on the staff of the
Research Department of the Federal Reserve Bank of St. Louis
minutes were sent in rough draft to members of the FOMC.
These minutes were then carefully edited by the-FOMC member,
usually with staff assistance, and returned to Washington.
The consequence was that FOMC minutes became a record of what,
with benefit of hindsight, members of the Committee wished
they had said and not what they actually did say. For this
reason, I think it imperative that verbafcija transcripts be
made on the basis of careful taping and Transcribing and that
they be unedited in any way.
I am of the further opinion that records of actions of
the FOMC, presently released 30 days after each meeting, should
be expanded and should record the views of members of the
Committee and of the seven presidents iti attendance who are not
members. They should also express the views of high-level
economists and other staff members who either speak or give
formal presentations at FOMC meetings.
Actually, I think it even more important that your
Committee ask for elucidation of the "targets" allegedly
aimed at in the execution of FOMC policy. The notion that the
central bank should aim at certain aggregate results, such as
A N E Q U A L O P P O R T U N IT Y / A F F IR M A T IV E A C T IO N E M P LO Y E R
B O X 68 6
R IC H A R D S O N . T E X A S 750 8 0
The Honorable Stephen L. Neal
Page 2
October 22, 1976
an announced rate of change of Mi, and"that at the same time It
should try to maintain specified levels of some rate of
interest, say the Federal Funds rate, is simply not defensible.
It was the attempt to achieve contradictory goals in the period
1965-1971 that started us on the inflationary course we have
since followed. Implicit in such a line of inquiry is a
thorough reexamination of Federal Reserve failure to use the
discount rate as a true money-market rate. Regulation A has got
to go. We cannot continue to tolerate the practice of bad
economics, bad finance, and bad central banking.
I would hope that your Committee and the appropriate
committee of the Senate would gather information on this
specific subject from people who not only think about the
problems but who have also had some work experience in financial
markets. I would be pleased to provide more specific views and
to discuss those views for your group examination. If you would
like to have my further extended opinion, please write or tele
phone me.
Yours sincerely
Ross M. Robertson
Professor of Finance
RMR/dtl
268
TEXAS
A&M
U N I V E R S IT Y
DEPARTMENT OF ECONOMICS
COL LE GE O F LIBERAL ARTS
C O L L E G E S T A T IO N . T E X A S
T elephone
713
845-7351
77843
October 8, 1976
Mr. Stephen L. Neal
Representative, North Carolina
Chairman, Subcommittee on
Domestic Monetary Policy
of the Committee on Banking,
Currency and Housing
Ninety-fourth Congress
Washington, D. C.
20515
Dear Congressman Neal:
This letter constitutes my reply to your letter of September 17 con
cerning my views on documentation of meetings of the Federal Open Market
Committee (FOMC) of the Federal Reserve System. I believe that it is of
the upmost importance that the Federal Reserve System be publically
accountable for its actions. On the other hand, it is equally important
that we maintain a Federal Reserve System that is independent of direct
short-run congressional control.
My own view is that the Federal Reserve should publish detailed
material relating to the discussions of tb.e FOMC. Such material should
be made available with a lag of at leastf*on& year and I believe more
on the order of two .years. The reason the relatively long lag in dis
closure of Federal Reserve policy is required rests in my belief that
monetary policy must remain independent of direct interference from the
legislative and executive branches of government.
This separation is necessary because both the legislative and execu
tive branches of government live and make decisions in the short-run.
The short-run impact of monetary policy, however, may be the complete
opposite of its long-run impact. Thus, policymaking with a short-run
goal may be disastrous in the long-run. For example, the road to a
reduction of interest rates in the long-run is to increase interest rates
in the short-run. The reason for this seeming contradiction is that the
largest component of current interest rates is the rate of inflation.
Reducing the rate of inflation requires a gradual decrease in the rate
of monetary expansion. Such a decrease may, however, increase interest
rates in the short-run. Thus, if short-run considerations dominate we
can never bring interest rates down to pre-1966 levels. Therefore,
difficult long term monetary policies cannot be accomplished without an
independent Federal Reserve system. An independent Federal Reserve
269
Mr. Stephen L. Neal
October 8, 1976
Page 2
system will not be possible if detailed material of FOMC discussions are
made available immediately after such discussions. As I indicated above,
I believe the minimal lag must be a year and even that is too short.
It is important, however, that the long-run policy decision rules of
the Federal Reserve be made available so that the Federal Reserve is
accountable for its actions. Otherwise no incentive will exist for the
system to alter its policymaking methods and goals to the changing nature
of the markets in which they operate and our knowledge of the workings
of the monetary system. I strongly believe that the recent more responsible
behavior of the Federal Reserve is due almost entirely to well founded
criticism by the professional community of the Federal Reserve's interest
rate target policy. To deprive this community of access to the underlying
reasons for Federal Reserve actions on the open market is to deny them
the ability to evaluate the actions of the Federal Reserve. To summarize
my point of view, I believe that the Federal Reserve must be allowed free
dom to conduct its policies on the one hand, but on the other, it must
be accountable to the public for the effect of these policies. This is
why I favor requiring the Federal Reserve to publish extensive if not
"verbatum" records of all FOMC meetings with a lag of preferably two years.
If I can be of any further assistance, please don't hesistate to
call on me.
Sincerely,
TRS/pb
http://fraser.stlouisfed.org/9 9 -3 3 1 0 Federal Reserve Bank of St. Louis
77 - 18
270
N A TIO N A L BUREAU OF EC O N O M IC RESEARCH , INC.
NEW YORK
CAMBRIDGE
PAIO AtTO
261 M AD ISO N AVENUE, NEW YORK, NEW YORK 10016
(212) 682-3190
WASHINGTON
CABLE: NABURECON, NEW YORK
December
The Honorable Stephen L. Neal, Chairman
Subcommittee*on Domestic Monetary Policy
Committee on Banking, Currency and Housing
U.S. House of Representatives
Washington, D.C.
20515
Dear Congressman Xeal:
Your letter of December 1 indicates that you did not receive my letter
of September 23 in response to your letter of September 17.
Let me briefly restate, with one amendment, what I wrote you earlier.
I now opt for a requirement that the FOMC maintain mechanically reported
verbatim records of all meetings.
In my earlier letter I assumed that the
practice of maintaining detailed Memoranda of Discussion for all meetings
had been essentially unchanged since the 1920's.
I have since learned that
beginning 1964, when the Fed decided to release documents of meetings five
years earlier, the detail in the Memoranda was substantially attenuated.
Accordingly, I now favor mechanically reported verbatim records of all
meetings, so that scholars will have available a complete record of the
formation of monetary policy.
With respect to the appropriate lag before release of the record to
the public, I would like to distinguish the delay for the release of the
record of policy actions, now approximating thirty days, from the delay for
the release of the full record.
The former delay should be eliminated.
I
endorse Professor Milton Friedman's suggestion that the FOMC meetings be
held on a Friday and the record of policy actions released not later than
the Sunday night following.
The delay for the release of the full record
should be shortened from the five-year period formerly in effect.
A twoor three-year delay at most should be adequate to protect the Federal Reserve
against premature disclosure of internal differences.
Anna J. Schwartz
AJS:jh
OFFICERS: Arthur F. Burns, Honorary Chairman; J. Wilson Newman, Chairman. Moses Abramovitz, Vice Chairman, John R. Meyer, President; Thomas D. Flynn, Treasurer, Har%ey
). McMains, Vice President-Executive Director: Victor R. Fuchs, Vice President, Edwin Kuh, Director. Computer Research Center, Douglas H. Eldridge. Executive Secrela-y;
Directors ot Research. Cary Fromm, Robert E. lipsey, Sherman J. Maisel, Ceoffrey H. Moore, Edward K. Smith
•
DIRECTORS AT LARGE: Atherton Bean, Andrew F.
Brimmer, Arthur F. Burns, Wallace J. Campbell, Erwin D. Canham, Emilio G. Collado, Solomon Fabricant, Frank L. Fernbach, Eugene P. Foley. Edward L. Ginnon.
David L. Grove, Walter W. Heller, Vivian W. Henderson, John R. Meyer, Geoffrey H. Moore, ). Wilson Newman, James J. O'Leary, Rudolph A. Oswald, Robert V.
Roosa, Eli Shapiro, Arnold M. Soloway, Lazare Teper, Theodore O. Yntema
•
DIRECTORS BY UNIVERSITY APPOINTMENT: Moses Abramovitz, Stanford;
Cardner Ackley, Michigan; Charles H. Berry, Princeton; Francis M. Boddy, Minnesota; Otto Eckstein, Harvard. Walter D. Fisher, Northwestern; R. A. Gordon, Cali
fornia. Berkeley; J. C. La Force, California, los Angeles; Robert J. Lampman, Wisconsin; Maurice W. Lee, North Carolina: Almarin Phillips, Pennsylvania, Llovd G.
Reynolds, Yale; Robert M. Solow, Massachusetts Institute of Technology; Henri Theil, Chicago, William S. Vickrey, Columbia
•
DIRECTORS BY APPOINT
MENT OF OTHER ORGANIZATIONS: Richard M. Bird, Canadian Economics Association; Eugene A. Birnbaum, American Management Association, Carl F. Christ,
American Economic Association; Thomas D. Flynn, American Institute of Certified Public Accountants; Nathaniel Goldfinger, AFL-CIO; Harold G. Halcrow, Ameri
can Agricultural Economics Association; Walter E. Hoadley, American Finance Association; Philip M. Klutjnick, Committee for economic Development, Paul
W. McCracken, American Statistical Association; Roy E. Moor, National Association of Business Economists; Douglass C. North, Economic History Association
THE
U N IV E R S IT Y O F G E O R G IA
C O L L E G E O F B U S IN E S S A D M IN IS T R A T IO N
A t h e n s . G e o r g ia 3 0602
D E P A R TM E N T O F
B A N K IN G A N D F I N A N C E
A d m in is t r a t io n
B U IL D IN G
b u s in e s s
September 23, 1976
Mr. Stephen L. Neal
Chairman
Subcommittee on Domestic Monetary Policy
of the Committee on Banking, Currency and Housing
U. S. House of Representatives
Washington, DC 20515
Dear M r . Neal:
Thank you for your interesting letter of inquiry about the publication of
FOMC minutes and memoranda.
Let me point out immediately that in my opinion numerous aspects of Fed
eral Reserve System operations should be changed or deleted entirely.
To answer your question first, however, I definitely agree that the
opinions of individual members of the FOMC should be publicly preserved —
and for the same reasons that the speeches of Members of Congress are
printed verbatim in the Congressional Record. I also agree that this
record of individual contributions is vital and necessary for research
in monetary policy. I think verbatim records (as is done for the House
and Senate debates) would be the most desirable.
I also think that the lag time allowed to make Federal Reserve System
decisions available to the public should be reduced to a maximum of
3frsdays. This business of keeping such records secret is the kind of
vCloak-and-dagger policy more appropriate to the time of Talleyrand and
Metternich than to democratic polity. If the policies, the Fed decides
upon are "good,” i.e., stabilizing, their foreknowledge will have a
stabilizing effect on expectations and thus complement the actual poli
cies. For this reason, policies are more likely to be "good."
Other aspects of Federal Reserve operations I would change are as follows:
1.
Abolish all discounting, rediscounting, or lending by
Federal Reserve Banks to any banks or other institutions,
public or private.
2.
Fix reserve requirements by statute and forever at some
level, say 14 percent, for all member banks regardless
of size or location.
272
Mr. Stephen L. Neal
Page 2
September 23, 1976
?.
Give the Fed a monetary rule as a target for policy.
This target should be fixed by Congress with the
understanding that the only target the Fed can hit is a
monetary growth target, and that it cannot by its own
actions achieve goals relating to employment, interest
rates, prices, imports, exports, or specific commodity
prices in the short run.
X might add that I have just read a copy of an address given by you to
the Graduate School of Banking at the University of Wisconsin last month.
I heartily endorse everything you have to say, especially the last para
graph, and I earnestly applaud the research you have done on the behavior
‘of money. Your results are very similar to some work of this sort I have
done myself.
I have only one additional comment to make and that is on unemployment.
In the first place, unemployment is not an economic phenomenon at this
time. It is a result of political acts by the federal government. The
two major sources of unemployment are the minimum wage laws and various
welfare subsidies, such as unemployment compensation. This thesis is
verified by the fact that the big "pockets” of unemployment occur in those
sectors where minimum wage laws and unemployment compensation are the most
virulent. To ask monetary policy to abate unemployment of this sort is
to seek the impossible.
J finished a study about a year ago on Federal Reserve policy between
1964 and 1974. It contains reference and documentation on many of the
points you raised in your address. My paper is to be published in the
next issue of Kredit und Kapital, a German monetary journal, but I
shall include a typed copy of the manuscript for your pleasure. If I
can be of any further service, please let me know.
Sincerely,
f? > c k L sd l
Richard H. Timberlake, Jr.
Professor
( 2 i,
'
273
CLARK WARBURTON
1 0 3 1 p in e H il l r o a d
M c L e a n . V ir o in ia * 2 2 1 0 1
jje ce nibe r 1 4 , 1 9 76
Honorable Stephen L. Ileal, Chairiuan
3ubco:mittee on Uomstie Lonetery policy
Co:nit tee on
Juirency and Lousing
C.
ilouse of representatives
Jashin^ton, J. C* £0515
Dear IS*. Heals
I regret :iy delay in replying to your letter of septeufosr
17, regarding docui.eritation of'Fedor&1 open :.&rhet Go:, xittee
meetings•
^ opinion regarding this iaatt3r is that there is real
uierit end usefulness in both the old add the ne*n procedures*
To be specific, I favor:
1. A requifcenent that the jpftiE juaintain mechanically
reported verb atia records of all meetings for release five,
or preferably/three, years after the end of each year.
^
^
2. Continuation of the current procedure of including
summaries of viev?s expressed at each JoVC meting in the
record of policy actions released 50 days later.
I am in full accord with the reasons given in your letter
for vDur concern ab:>ut such documentation and its release.
oincsrely yours
274
APPENDIX
3.-- M A I N T A I N I N G
EITHER
VERBATIM
M E M O R A N D A
OF
MINUTES
STEPHEN L. NEAL. N.C., CHAIRMAN
JOSEPH G. MINISH, NJ.
MARK W. HANNAFORD* CALIF.
JAMES J. BLANCHARD. MICH.
LEONOR K. (MRS. JOHN B.)
SULLIVAN. MO.
CLIFFORD ALLEN. TENN.
NORMAN E. DAMOURS. N.H.
OR
REINSTATING
JOHN B. CONLAN. ARIZ.
GEORGE HANSEN, IDAHO
WILLIS D. GRAOISON, JR., OHIO
U.S. HOUSE OF REPRESENTATIVES
SU B C OM M ITTEE ON DOM ESTIC M ONETARY POLICY
OF THE
C O M M ITTE E ON B A N K IN G . C U RRENCY AND HOUSING
N in e ty -f o u r th C o n g re s s
W A S H I N G T O N , D .C .
20515
December
1,
197(
Professor Armin Alchian
Depa r t m e n t of Economics
Un i v e r s i t y of C a lifornia
Los Angeles, CA
90024
Dear
Professor-Alchian:
As s t ated in m y p r e v i o u s le t t e r to you, the F e d ' s c h a n g e s
in d o c u m e n t i n g F O M C m e e t i n g s m ay s i g n i f i c a n t l y a f f e c t the p u b l i c
a c c o u n t a b i l i t y of FO M C members, the acc u r a c y of c i r c u m s t a n c e s
occurring during policymaking sessions, and the availability of
useful research material.
S p e c i f i c a l l y , y o u r e x p e r t o p i n i o n in
the following areas would be appreciated:
A r e q uirement that the F OMC maint a i n m e c h a n i c a l l y
r e p o r t e d v e r b a t i m records of all m e e t i n g s for
r e l e a s e t o t h e p u b l i c a f t e r a fji-x o d p e r i -o d o f t i m e
A r e q u i r e m e n t that the - F O M e - r e instate its for m e r
p r a c t i c e of m a i n t a i n i n g d e t a i l e d M e m o r a n d a of
D i s c ussion for all m e e tings for release
>^i-xe4-^ c r i o d o f -*fcima./ *
Your thoughts on the merits of recording FOMC meetings by
t a p i n g o r t r a n s c r i b i n g . / or. b y o t h e r m e t h o d s , i n a d d i t i o n to:
y o u r o p i n i o n w i t h r e s p e c t to t h e t i m e l ag "between m e e t i n g s a n d
t h e r e l e a s e o f w h a t e v e r r e c o r d y o u f e e l s h o u l d be. m a d e a n d
maintained would be helpful.
Currently, a majority of the indi
v i d u a l s c o n t a c t e d in S e p t e m b e r h a v e r e s p o n d e d ; a n d I h o p e y o u
w i l l a l s o g i v e m e a n o p p o r t u n i t y t o r e v i e w your, i d e a s o n t h i s
subject-i-^*
THE
DISCUSSION
o
yju-*
S T E P H E N L.
Chairman
6
0
^
-
275
UNIVERSITY OF CALIFORNIA, LOS ANGELES
B ER K E LE Y • DAVIS • IRVINE • LOS AN CELES • RIVERSIDE • SAN DIECO • SAN FRANCISCO
j
I
SANTA BARBARA • SANTA CRUZ
DEPARTMENT OF ECONOMICS
LOS ANCELES, CALIFORNIA
90024
September 30, 1976
The Honorable Stephen L. Neal
Subcommittee on Domestic Monetary Policy
U.S. House of Representatives
Washington, D.C. 20515
Sir:
Thank you for your letter of September 17th which has been forwarded
from Ohio State. I have no strong preference between verbatim records
and detailed memoranda of discussions for the FOMC meetings, but strongly
urge that one or the other be maintained and released. I see no valid
reason for delaying the release date of either beyond that for the
corresponding "records of policy actions of the FOMC."
I was glad to have been of assistance in this matter.
Very truly yours,
Michael R. Darby
Associate Professor
MRD:ks
Beryl W.SpWnkei
Executive V ic e Presid en t and Econom ist
HARRIS
BANK
September 29, 1976
Dear Representative Neal:
In response to your inquiry regarding the documenta
tion of Federal Open Market Committee meetings, I
wish to inform you that I share your concern about
discontinuing the detailed minutes of such meetings.
The ability to associate the views of individri ^
participants with the influence (or lack of in luence)
that those views have on policy can be invalual
in
trying to determine whether the success or failure
of monetary policies are due to the state of our
knowledge about such policies or to personality
characteristics of the participants.
Furthermore, in a position as responsible as that
of a member of the FOMC, where debates and voting
patterns will strongly influence business conditions,
I believe that individuals should go on record with
their arguments and beliefs.
In this way history
can judge the influence and effectiveness of each
member's contribution to subsequent economic perform
ance. Historical accountability for one's action
is more likely to make that action more responsible.
For these reasons I would favor either or both of the
suggestions you offer for obtaining detailed minutes
of the FOMC proceedings.
The rationale for waiting
five years to release these minutes appears to me a
reasonable period of time to permit individuals to
feel free to act with regard to their best intentions
while also minimizing the possible political pressure
that an earlier release date could invite.
As you know, there has been a great deal of progress
in releasing brief summaries of FOMC meetings.
I
have been pleased to see this development, but
Harris Trust and Savings Bank 111 West Monroe Street
Wholly owned subsidiary of Harris Bankcorp, Inc.
Chicago, Illinois 60690
HA RR IS Trust and Savings B A N K
Page 2.
continue to believe that there is no reasonable
justification for any delay at all.
I would
therefore urge that a summary of the FOMC's
action be released immediately so that market
participants have current knowledge o f •the
Federal Reserve Board's intended policy.
I
continue to believe that such knowledge would
help to stabilize short-term swings in financial
markets by elminating much of the mystery and
uncertainty that surrounds weekly action.
Sincerely,
The Honorable Stephen L. Neal
Chairman
Subcommittee on Domestic Monetary Policy
Committee on Banking, Currency and Housing
U.S. House of Representatives
Washington, D.C.
20515
278
UNIVERSITY OF CALIFORNIA, BERKELEY
SANTA BARBARA • SANTA CRUZ
B ER K E LE Y • DAVIS • IRVINE • LOS ANCELES » RIVERSIDE » SAN DIEGO • SAN FRANCISCO
BERKELEY, CALIFORNIA
DEPARTM ENT OF ECONOMICS
September
28,
94720
1976
C o n g r e s s m a n S t e p h e n L. N e a l , C h a i r m a n
U.S. H o u s e of R e p r e s e n t a t i v e s
Subcommittee on Domes t i c M o n e t a r y
P o l i c y of the
Committee on Banking, Currency,
and Hou s i n g
Ninety-Fourth Congress
W a s h i n g t o n , D.C..
20515
Dear
Congressman
Neal:
I s t r ongly support a r e q u i r e m e n t that the F e deral Ope n
M a r k e t C o m m i t t e e kee p a c c u r a t e and d e t a i l e d m i n u t e s of
their m e e t i n g s and that the views of i n d i v i d u a l m e m b e r s
of the C o m m i t t e e b e i d e n t i f i e d b y name.
Such a require
m e n t , as y o u s u g g e s t , w o u l d m a k e i n d i v i d u a l m e m b e r s
a c c o u n t a b l e for their positions.
P e r h a p s j u s t as i m p o r t a n t l y , a full and u n c e n s o r e d r e c o r d
of t h ese i m p o r t a n t p o l i c y m e e t i n g s w o u l d be of e n o r m o u s
h e l p to e c o n o m i s t s a n d e c o n o m i c h i s t o r i a n s i n a s s e s s i n g
the e f f e c t i v e n e s s of b o t h m o n e t a r y p o l i c y and the
i n s t i t u t i o n s e s t a b l i s h e d to f o r m u l a t e a n d i m p l e m e n t s u c h
policy.
Without such records, objective analysis would
be hindered.
R i c h a r d C. S u t c h
A s s ociate Profe s s o r and
Vice Chairman
D e p a r t m e n t of E c o n o m i c s
279
NORTH CAROLINA STATE UNIVERSITY
AT RALEIGH
SCHOOL OP AGRICULTURE AN D LIKE SCIENCES
„
SCHOOL O F LIBERAL AR TS
D epartm e n t of E conomic s and B usiness
Box 5368 Z ip 27607
September 29, 1976
Congressman Stephen L. Neal, Chairman
Subcommittee on Domestic Monetary Policy
Committee on Banking, Currency and Housing
U.S. House of Representatives
Washington, D.C.
20515
Dear Congressman Neal:
I have your letter of September 17, 1976, regarding full public
information and documentation of Federal Open Market Committee(FOMC)
deliberations.
As an economic historian specializing in monetary and banking
history, I share your concern about the discontinuation of printed
minutes of FOMC meetings. Indeed, I would go beyond your statement
to hold that "fruitful research on monetary policy and the processes of
conducting monetary policy" has already occurred on the basis of public
disclosure of FOMC minutes and is not merely something that we may hope
for in the future. Some form of record, either verbatim transcripts or the
detailed memoranda of the past, should surely be required for eventual
release.
On the matter of accountability, I believe that members of the
FOMC should be no more reluctant than any appointed or elected representatives
of the people to have their views identified with their names. The
problem that worries me is that if such information were to be released soon
after policy discussions and decisions take place, then such discussions
and decisions will be made "over lunch" or otherwise apart from the FOMC
meetings rather than at the meetings themselves. In that case, FOMC
minutes would be of a rather empty and rubber stampish nature. I believe
that the(fiv^-year time lag of the past would avoid this problem, although
it might BT'worth investigating whether a lag of this length has had
anything to do with the rather rapid turnover of Board membership in
recent years. Personally I doubt very much that it has had this effect.
As for policy decisions themselves, I see little reason
lag in their release to the public. The Fed's announcements
for twelve-month monetary growth are to be applauded in this
and I see no useful purpose in all the rumors, guessing, and
for any
of targets
connection,
investigations
280
IS
concerning what current Fed policyAwhich now occur after each FOMC meeting.
Monetary policy would be more effective if the decisions made at each
meeting were publicly announced immediately after the conclusion of
the meeting. Uncertainty concerning current Fed policy is uncalled for
and unnecessary.
The historical record of monetary policy under the Fed is not very
encouraging. Its long predilection for secrecy in policy matters has,
I believe, contributed to this record. Therefore, I urge that a complete
record of FOMC deliberations be kept for public release after four or
five years and that current policy decisions be released immediately.
Sincerely
Richard Sylla
Associate Professor
281
Southern Illinois
University at Carbondale
Carbondale, Illinois62901
Department of Economics
October 5> 1976
The Honorable Stephen L. Neal, Chairman
Subcommittee on Domestic Monetary Policy
Committee on Banking, Currency, and Housing
U.S. House of Representatives
Wasnington, D.C. 20515
Dear Mr. Neal:
As an economist with a particular interest in monetaiy
policy and monetaiy history, I fully share your concern about changes
in procedures of the Federal Open *fe,rket Committee. It is highly
desirable that individual members be held accountable for their positions.
It is also important that scholars be able, at some point, to identify
the elements of evidence, analysis, and personality which combine to
produce a particular direction in Federal Reserve policy. Either of the
policy proposals mentioned in your letter of September 17 would seem
adequate to the task. Itechanically recorded records are obviously more
complete and detailed, but may be more difficult to use. The five-year
lag in releasing the full minutes always seemed pretty long to me, and
I believe this period could be shortened without harm to the members of
the FOMC. Further, the likelihood of public scrutiny would, I believe,
hasten the trend to base policy primarily on the behavior of moaetaiy
aggregates, notably the monetary base, a trend which I strongly favor.
Sincerely,
Paul B. Trescott
Visiting Professor of Economics
282
B A N K o f AMERICA
SAN FR A N C IS C O HEA D QU AR TER S
Flow of Funds M anagem ent
September 28, 1976
The Honorable Stephen L. Neal
Chairman
U.S. House of Representatives
Subcommittee on Domestic
Monetary Policy of the
Committee on Banking, Currency & Housing
Ninety-fourth Congress
Washington, DC 20515
Dear Mr. Chairman:
Thank you for soliciting my views concerning the
documentation for the meetings of the Federal Open
Market Committee of the Federal Reserve System. I
favor recording the meetings in full detail. Further
more, I would favor making the record public with a
minimum of delay; 30 days would not be too soon in my
opinion. Full and timely disclosure of the policy
decisions of all governmental agencies is important.
Disclosure of the FMOC's decisions is doubly important
because of the great impact these decisions appear to
have on economic welfare and because of the independence
that has been granted to the Federal Reserve System.
Either of the measures that you suggest on page 2 of
your letter dated September 17, 1976, should provide
for adequate recording and disclosure.
jr
Senior Financial Consultant
A M E R IC A NA TIO N AL TR UST A N D SA VIN G S A S S O C IA T IO N • BANK O F A M E R IC A C EN TER • SAN FR A N C IS C O , C A L IF O R N IA 9 4 13 7
283
A PP E N D IX 4 .— SU PPO RT O F T H E FOM C D EC ISIO N
GEORGE H. ELAY
1008 West 63rd S treet
Kansas City, M issouri
January
The Honorable Stephen L . Neal
Chairman
Subcom m ittee on D om estic M onetary P o lir
U. S # House of Representatives
Washington, D. C #
20515
Dear Congressm an Neal:
This is in respon se to your request for my view s regarding
the appropriate re co rd that should be maintained by the F ederal
Open Market Com m ittee and the tim e lag for the re le a se o f that
inform ation to the general p u blic. I regret the delay in re
sponding to your e a r lie r request and hope that it has not caused
you o r your staff any inconvenience.
With regard to your questions concerning the need fo r a
verbatim transcript to be released following an appropriate tim e
lag, it is my judgment that such a re co rd would not se rv e any
useful purpose to either the C on gress o r to the pu blic. A s you
know, the Committee has in the past prepared a m em oranda o f
discu ssion which sets forth in som e detail discussion by the indi
vidual participants and w as relea sed to the public with a fiv e -y e a r
tim e la g . It is my im p ression that the mem oranda o f discu ssion
drew v ery little interest from even the historians and a ca d em icia n s.
I would be opposed to releasin g any verbatim re co rd o f any
FOMC meeting without an appropriate tim e lag o f at least three
years.
I hope these com m ents w ill be helpful to you and you r
colleagues in your considerations o f the F ederal Open M arket
C om m ittee.
284
N A T I O N A L C IT Y B A N G O R P O R A T IO N
T E N T H F LO O R NATIONAL. C I T Y B A N K B U IL D I N G
7 5 S O U T H FIF T H S T R E E T
M IN N E A P O L IS , M IN N E S O T A 5 5 4 0 2
TELE PH O N E: 0 1 2 /3 4 0 -3 1 8 3
September 23, 1976
Congressman Stephen L. Neal, Chairman
Subcommittee on Domestic Monetary
Policy of the
Committee on Banking, Currency
and Housing
Washington, D.C. 20515
Dear Mr. Chairman:
I have your letter of September 17, addressed to me
c/o Federal Reserve Bank of Minneapolis.
I am no
longer in the Federal Reserve System, having left
the Minneapolis Bank at the beginning of 1965 to go
to the Treasury for four years and since early 1969
have been in private banking in New York and Minneapolis.
Furthermore, I have not followed very closely the
procedural issues relating to the maintenance and
release of the FOMC minutes since the decision taken
in 1964 to release them after a five-year waiting
period. Nevertheless, I am happy to comment on the
points raised in your letter.
I should note first that I have always had serious
reservations about the usefulness of the detailed
minutes for fruitful research on monetary policy and
the processes of conducting such policy. Given the
facts that the records of policy actions of the
FOMC are released 30 days after each meeting and now
have been expanded to include summaries of views
expressed at the meetings together with the recorded
votes of the members, and, as I understand it, detailed
expression of the views of any member who dissents from
the majority, I think that students of monetary policy
and its formulation get a reasonably clear view of what
285
C o ng ressm an N e a l
S e p te m b e r
23,
1976
policy is and how it is formulated. Any serious student
of monetary policy formulation should know or have easy
access to materials or interviews with participants as
to procedures, and can be kept almost fully current on
substance. In my days in the System, there were all
sorts of meetings, some of which were almosL seminars,
which went into great detail with respect both to
procedures and substance, but the full record of policy
actions of the FOMC was released only in the Board's
Annual Report and, as noted, the full minutes were not
released at all until 1964 with the five-year waiting
period. Except for detailed historical research on the
position of any one member of the FOMC I see no parti
cular advantage for a student in getting a record five
years after a meeting.
Your point about the public accountability of the
individual members of the FOMC I regard as a different
and perhaps more serious point. But I must note again
that each member is identified as to his vote (now merely 30
days after that vote) and that any member who dissents
has his reasoning explicitly cited under the new procedure.
These individual positions also tend to be identifiable
via the many public speeches made by members of the
Board or by Reserve Bank presidents. From my own service
in the past I can say that summaries of the majority
position were, without any exception that I can remember,
completely fair. While certain members of the FOMC had
in my day (and, I suspect, this situation still holds)
greater facility than others in expressing positions the
conclusions they reached were not all that different, un
less, of course, there were actual dissents from the
majority view. These dissents now are made public much
sooner than they used to be. Thus I must conclude that
the public accountability factor really is being met
more fully under the new procedure than under the old.
I should make one final comment on this point. I assume,
that as it was in my day, the summary position of the
majority and any dissent, are reviewed at the meeting
when the vote is recorded and the subsequent statement
is reviewed before publication by all members of the FOMC.
9 9 -3 3 1 O - 77 - 1»
286
C o ng re ssm an
N eal
S e p te m b e r
23,
1976
Should any member have a serious difference with the
statement for publication he should, and I think does,
have the responsibility and the power to require such
rephrasing as he believes necessary.
Therefore, I have no reason to believe that either of
the two possible measures to restore full documentation
of FOMC deliberations would add anything substantial to
the present procedures for informing either students of
monetary policy or members of the Congress. That state
ment should not be taken to mean that I necessarily agree
with the substance of each policy action, nor that I would
necessarily oppose certain other procedural changes which
have been suggested relating to the formulation of
monetary policy.
But neither maintenance of verbatum
records released to the public after a period of time
or reinstitution of the old procedures would seem to
me to be productive.
Sincerely,
Frederick L. Deming
President
287
COMMITTEE FOR ECONOMIC DEVELOPMENT. 1700 K Street, N.W., Washington, D.C. 20006 • 202 2 9 6 **
T he H o n o r a b le S t e p h e n L . N e a l
C h airm an
S u b c o m m itte e o n D o m e s t i c M o n e ta r y P o l i c y o f t h e
C o m m itte e o n B a n k i n g , C u r r e n c y a n d H o u s in g
H o u se o f R e p r e s e n t a t i v e s
W a s h in g to n , D . C .
20515
D e a r C h a irm a n N e a l:
I h a v e t h o u g h t a t som e l e n g t h o f how b e s t t o r e s p o n d
t o y o u r l e t t e r o f S e p te m b e r 17 c o n c e r n i n g F e d e r a l O pen M a r k e t
C o m m itte e m i n u t e s .
L e t me b e b r i e f an d s t r a i g h t f o r w a r d .
I h a v e c o n c lu d e d
t h a t t h e s y s t e m r e c e n t l y i n t r o d u c e d b y t h e FOMC — e x p a n d e d
e x p l a n a t i o n o f FOMC a n a l y s i s an d a c t i o n s w i t h a b o u t a 3 0 - d a y
la g — i s p r o b a b ly t h e b e s t a ll- a r o u n d p r o c e d u r e f o r s e r v in g
th e p u b lic i n t e r e s t .
I had a ch a n c e t o v o t e f o r t h a t ch a n g e a t o n e s t a g e
w h i l e s t i l l a m em ber o f t h e FOMC.
I f e l t i t w as s u p e r io r
e i t h e r t o im m e d ia t e r e l e a s e o f v o t i n g i n f o r m a t i o n an d a n a l y s i s
o r a lo n g - d e la y e d r e l e a s e o f th e f u l l m in u t e s .
I b e l i e v e t h e f u l l m in u te s a r e m ore a t h e o r e t i c a l th a n
a p r a c t i c a l s o u r c e o f i n f o r m a t i o n o n t h e f u n c t i o n i n g o f t h e FOMC.
A s y o u c a n v e r i f y b y c h e c k i n g w i t h t h e A r c h i v e s , r e l a t i v e l y fe w
s c h o l a r s e v e r m ake u s e o f t h e h i s t o r i c a l m i n u t e s a l r e a d y m ad e
p u b lic .
W h ile i t i s f l a t t e r i n g f o r i n d i v i d u a l m em b ers t o h a v e
a l l t h e i r p e r s o n a l v i e w s p r e s e r v e d i n p r i n t ( a s m in e a r e ) , I h a v e
com e t o b e l i e v e t h a t i s n o t an e s s e n t i a l f e a t u r e o f g o o d FOMC
p ro ce d u re o r ste w a r d s h ip o f th e p u b lic i n t e r e s t .
U n lik e C o n g r e s s ,
t h e FOMC i s n o t a b o d y w h o s e m em b ers a r e i n d i v i d u a l s w i t h c o n s t i t
u e n t s t o whom e a c h s h o u l d b e a c c o u n t a b l e .
I t i s a grou p s o l e l y
r e s p o n s i b l e f o r r e a c h i n g t h e b e s t p o s s i b l e c o l l e c t i v e ju d g m e n t.
I n d i v i d u a l m em b ers o u g h t t o b e e n c o u r a g e d t o b u i l d to w a r d t h a t
o u tc o m e i n t h e i r r e m a r k s , an d n o t to w a r d a p e r s o n a l r e c o r d .
288
The Honorable Stephen L. N<*~'
October 13, 1976
Page 2
On t h o s e o c c a s i o n s w h en a m em ber d i f f e r s i m p o r t a n t l y fr o m t h e
c o l l e c t i v e ju d g m e n t o f h i s p e e r s , h e c a n an d s h o u l d r e g i s t e r
a d i s s e n t i n g v o t e , w i t h am e x p l a n a t i o n t h e r e f o r a p p e n d e d t o
th e r e l e v a n t p u b lis h e d r e c o r d o f p o l i c y a c t io n .
T h i s k in d o f r e c o r d , I b e l i e v e , i s a g o o d m e a n s f o r
h o ld in g t h e F e d e r a l R e s e r v e a c c o u n t a b le .
T h e p u b l i c an d t h e
C o n g r e s s h a v e p r o m p t a n d d e t a i l e d w e e k ly s t a t i s t i c s o n w h a t
t h e F e d e r a l R e s e r v e a c t u a l l y d i d a n d a n e x t e n s i v e m o n t h ly
e x p l a n a t i o n o f w hy i t d i d i t , w h e t h e r t h e r e w e r e d i f f e r e n c e s
o f e m p h a s is am ong i t s m em b ers a n d w ho i f a n y o n e f e l t s t r o n g l y
en ou gh t o d i s s e n t .
W ith p e r i o d i c F e d e r a l R e s e r v e t e s t i m o n y
b e fo r e th e C on gress t o e n r ic h t h i s r e c o r d a s n eed ed , I b e lie v e
th e p u b lic i n t e r e s t i s d u ly s e r v e d .
Y ou rs s in c e r e ly ,
R o b e r t C . H o l la n d
289
Broadcasting Corporation
1601 West Peachtree Street. N.E. •Atlanta, Georgia 30309 • (404) 897-7301
CliffordM
.Kirtland, J
r.
p,esident
October 1, 1976
The Honorable Stephen L. Neal
Chairman
Subcommittee on Domestic Monetary Policy
Committee on Banking, Currency and Housing
U. S. House of Representatives
Washington, D. C. 20515
Dear Congressman Neal:
I very much appreciate the opportunity to pass
along my views concerning documentation for the meetings
of the Federal Open Market Committee (FOMC) of the
Federal Reserve System as requested in ybur letter of
September 17, 1976, My personal opinion is that the
changes in the documentation represent an evolutionary
process and are worthwhile.
I have, for example, read carefully the "Record of
Policy Actions" of the Federal Open Market Committee
covering the meeting held on August 17, 1976 and released
on September 24, 1976. In that record the state of the
economy is well described and documented.
I also found it rather easy to understand the flavor
of discussions among the various members of the FOMC.
Since the process of making monetary policy is necessarily
subjective to a large degree, I don't believe I would be
any more enlightened by having the speaker at the meeting
individually identified.
It seems to me that it is very easy, in a case like
this, to have form take priority over substance.
Sub
stance to me means that the Committee works hard at its
task, has a broad understanding of up-to-the-minute
economic conditions and deliberates well.
I believe these
factors are in evidence under the new system of documen
tation.
As to individual accountability of FOMC members, I
fail to understand why this is necessary for the process
290
T he H o n o r a b le S t e p h e n
O c to b e r 1 , 1976
Page 2
L.
N eal
of making monetary policy. Frankly, I would like to be
bold enough to suggest the thinking along these lines
derives from the way Congress itself operates.
There
it is necessary and important that the constituency of
individual members of Congress are aware of the comments
and votes of the people they elect.
I see no direct
comparison with the Federal Reserve Open Market Committee
deliberations.
An accumulative compilation of the new documentation
over a period of time I should think would be totally
sufficient for the purpose of fruitful research on monetary
policy.
I think the most important point of all is that the
FOMC consist of persons who are thoroughly trained and
experienced and have a broad concept of both domestic
and international economics.
If we can assume that these
criteria are met, then it seems to me we should be willing
to place a degree of trust and confidence in these persons
without having to hold them individually accountable.
On the point of release of the "Record of Policy
Actions," I am in favor of as short of span as possible
between the meetings and release consistent with being
able to disseminate the total text on a broad basis so
that no particular group is favored by early receipt of
the information.
Thank you again for letting me have the opportunity
to furnish my opinions.
I am taking the liberty of send
ing a copy to Senator Proxmire as well.
Sincerely,
CliC'yord M. Kirtlancl, Jr
Deputy Chairman
Federal Reserve Bank of
Atlanta
/mn
cc:
Senator William Proxmire
291
F E D E R A L R E S E R V E BANK
OF DALLAS
JO H N
LA W REN CE
CHAIRMAN Or THE BOARD
December 13, 1976
• L A S ,T E X A S
Honorable Stephen L. Neal, Chairman
Subcommittee on Domestic Monetary Policy
U. S. House of Representatives
Washington, D.C. 20515
Dear Congressman Neal:
This refers to your December 1, 1976 letter regarding your questions
with respect to the records of the Federal Open Market Committee. Incidentally,
the letter refers to a prior letter which I am unable to locate and apparently did
not receive. I am pleased to relay to you my views on the Federal Reserve's
documentation of FOMC meetings.
I am opposed to any requirement that would have the FOMC maintain
a verbatim record of its meetings. Such a requirement would seriously inhibit
the flow of discussions in the meeting and thereby reduce substantially the in
formation available to the Committee in its deliberations. The problem would be
compounded by any additional requirement that such transcripts be released to
the public following a specified period of time. The effective performance of its
responsibilities by the FOMC depends to a large degree upon the candid, forth
right discussions of the participants. I think that there is very little doubt that
if these discussions were transcribed and subsequently released to the public,
the consequences would be to reduce the candid exchange of ideas, particularly
regarding sensitive issues in the international, the domestic credit market, and
the "problem" financial and nonfinancial institutions areas. Such requirements
would especially hamper the Federal Reserve's effectiveness in matters concern
ing foreign central banks and governments.
As to the question about the reinstatement of the Memoranda of Discus
sion and the time lag between FOMC meetings and public disclosure, I believe
the current procedure of releasing the policy actions several weeks after such
meetings and making a permanent record by publishing them in the Federal
Reserve Bulletin are satisfactory. These reports depict clearly and accurately
the FOMC's policy determinations and within a time frame that is timely, while
not creating the possibility that some people could capitalize upon the earlier
release of the information. Apparently the Memoranda of Discussion were less
informative and less useful documents than the current Record of Policy Action.
I am informed that there has been no significant resort to them by either students,
policymakers, or legislators, indicating the documents are of limited value.
75222
292
Congressman Neal
December 13, 1976
On balance, I believe the Committee is doing a better job of documenting
its meetings and policy than in prior years and that the current time frame for the
release of such documentation is serving the public's "need to know" without jeop
ardizing the policy process. I see no need for legislative change in this respect.
Sincerely yours,
293
WILLIAM McCHESNEY MARTIN
FLEMING BUILDING
800 S e v e n t e e n t h S t r e e t , N. W.
W a s h i n g t o n , D. C. 20 0 0 6
D ecem ber 13, 1976.
The Honorable Stephen L . N eal,
C hairm an,
Subcom m ittee on D om estic M onetary P o licy ,
Com m ittee on Banking, C urren cy and H ousing,
House of R ep rese n ta tiv es,
Washington, D . C .
205 1 5 .
D ear M r . C hairm an:
I apologize that I have not responded e a r lie r to your
letter of Septem ber 17, with resp ect to the F e d e ra l Open
M arket C o m m itte e's ("F O M C ") May 1976 decision to d isco n
tinue preparation of Mem oranda of D isc u ssio n .
In m y R etire
ment I a m away fr o m Washington a great deal and this
unfortunately prevented m y looking into the m atter and giving
you m y view s m ore prom ptly.
I now a lso have your nice
letter of D ecem b er 1.
You ex p ress concern over the action by the FO M C
and have identified two p ossible alternative actions that might
be adopted with re sp e c t to reco rd keeping procedu res of the
C o m m ittee. Th ese a re reinstitution of the M em oranda of
D isc u ssio n , with r elea se after an appropriate fixed period of
tim e or maintenance by the FO M C of m ech an ically reported
v erb atim r e c o r d s , with r e le a se of such reco rd s a fter an
appropriate fixed period o f tim e .
In the cou rse of selected studies and inquiries which
I undertook relative to your letter and the F O M C 's action , I
learned that Chairm an B urns, by letters dated July 2 6 , 1976,
w rote to Senator P rox m ire and Chairm an R eu ss on this m a tter,
explaining the rationale prompting the F O M C 's decision to
discontinue the Memoranda of D isc u ssio n .
Upon review ing
this co rresp o n d en ce, copies of which a re e n clo sed , I m u st
sa y that I concur generally in the F O M C 's action .
The Honorable Stephen L. Ne
A s you c o r r e c tly point out, Memoranda of D isc u ssio n
w ere prepared by the FO M C for approxim ately a fo r ty -y e a r
period (1 9 3 6 -1 9 7 6 ) and during m o st of that tim e w ere treated
str ic tly as internal docum ents. B ased upon m y p erso n a l e x p e r
ience as fo r m e r C hairm an of the F O M C , I can advise you that
their preparation w as exfcremly tim e-co n su m in g and c o s tly ,
p a rticu la rly in view of th eir lim ited use by the C om m ittee a fter
their completion*
A s fo r the use of these M em oranda by stu d
ents and h isto ria n s, I favored the ]? O M G 's decision s in o r about
1964 to r e le a se M em oranda of D iscu ssion for the y ea rs p r io r to
1960 to the National A r ch iv e s and its position that m ore current
M em oranda would be re le a se d on a fiv e -y e a r delay basxs.
I
hoped that public a c c e s s to the Memoranda woulo sued light on
the rationale underlying the F O M C 's d ecision -m a k in f :r o c e ss
and would serv e to rev ea l c le a r ly the responsible ar d ca refu l
approach taken by the F O M C with respect to a ll isa u e j before it.
It is m y understanding that, regrettably, few individuals m ade
use of FO M C M em oranda of D iscu ssio n when they w ere a v a il
a b le . I continue in the b e lie f that these aspects of the F O M C 's
d eliberative p r o c e ss should be conveyed to the public. H ow ever,
this is not to sa y that the FO M C should be precluded fr o m u se
of such reco rd s and docum ents a s m ay be adjudged the m o st
effective vehicle fo r achieving the aforestated o b jectiv es. T h u s,
it se e m s appropriate fo r the FO M C to discontinue the p r e p a r a
tion of the M em oranda should a m o re useful and tim e ly reportin g
m ech an ism be determ in ed.
This is the nature o f the new ly
expanded R ecord of P o lic y A c tio n s , which d isc u sse s a ll m a jo r
v iew s and facts co n sid ered by the C om m ittee. It would appear
to be an in form ative, tim e ly and c o st-e ffe c tiv e method of
achieving the C o m m itte e 's d isclo su re p u rp oses. The r e le a s e
of this expanded r e c o r d , coupled with Chairm an B u rn s' qu a rterly
m eetin gs with C o n g ress pursuant to Concurrent R esolution 133,
appears to be a m o re effective m eans of achieving public aw are n e ss of the FO M C p r o c e s s than the Memoranda of D isc u ssio n .
I would add two fin al co m m en ts. F i r s t , your concern
with r e sp e c t to the F O M C 's action is apparently p re m ise d upon
the b e lie f that discontinuation of the Memoranda of D isc u ssio n
w ill resu lt in the F O M C M em b ers being le s s accountable to the
public fo r their a ctio n s, since the view s of each M em ber a re
not individually reported in the R ecord of P olicy A c tio n s.
I
cannot agree with this assu m p tion .
The public accountability
295
The Honorable Stephen L. Neal
you seek is c le a r ly achieved through the recordation and pu blica
tion of each M e m b er's vote on final p o licy actions taken by the
C om m ittee.
The public is apprised of C om m ittee decision s by
m eans of the R ecords of P olicy A ction and has fu ll opportunity
to analyze and critic ize the actions taken. It is the adopted
policy actions that constitute m onetary p o lic y , not the tentatively
e x p r e sse d , perhaps later rescinded or m odified ex p ressio n s of
individual M em bers rendered prior to final vote. F O M C and
m e m b e r s ' policy actions for which accountability is warranted
is in fa ct achieved through issuance of the R ecord of P o licy
A c tio n s .
My second com m ent relates to your alternative
p r o p o sa l--th e m echanical reporting of v e rb a tim re c o r d s of
FO M C m eetin gs.
I believe that the F O M C M em ber m u st be
positioned to bring to each issu e before the FOM C fr e e and
uninhibited ex p ressio n s of experien ce, v ie w s, challenge or
question.
P resen tly , a M em ber of the C om m ittee is fre e to
p resen t a tentative view and later reco n sid er the validity of
such view in the light of other ex p ressio n s on the su bject.
F u rth er, each M em ber can and does challenge his a sso c ia te s
d ire ctly without fear of public confrontation or p o ssib le
em b a rra ssm e n t. In the course of foreign exchange d isc u ssio n s,
a M em ber of the FOMC can make known to his co lleagu es his
a s s e s s m e n t of reported or anticipated cu rren cy a ctio n s,
accom panied by what supporting inform ation he m ay h a v e -often of a highly confidential or sensitive nature. This can
p resen tly be done without fear of unintentional or unauthorized
d isclo su re of a maintained verbatim r e c o r d .
I anticipate that
this e ffectiv e , candid interchange of view s would be se v e r e ly
cu rtailed under your proposal.
I appreciate the opportunity to com m ent on these
is s u e s .
I think it important that the FO M C not be burdened
with a cum bersom e and wholly u nnecessary reco rd keeping
requ irem en t when, through its expanded R ecord of P o licy
A c tio n s , it is now apparently providing a reason ably m ore
fu ll and useful record for public study.
E n c lo su r e s
296
CONTINENTAL BANK
• 'CKITAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF CHICAGO • 231 SOUTH LA SALLE STREET, CHICAGO, ILLINOIS 60693
D e cem b e r 1 4 , 1 9 7 6
DONALD C. MILLER
VICE CHAIRMAN OF THE
BOARD OF DIRECTORS
T h e H o n o r a b le S t e p h e n L . N e a l
H ouse o f R e p r e s e n t a t iv e s
S u b c o m m itte e o n D o m e s t i c M o n e t a r y P o l i c y
o f t h e C o m m itte e o n B a n k in g , C u r r e n c y and H o u s in '
C an non H o u s e O f f i c e B u i l d i n g
W a s h in g t o n , D .C .
20515
D e a r M r. N e a l:
In lo o k in g a t th e a l t e r n a t i v e s s u g g e s te d b y you in y o u r l e t t e r c o n c e r n in g
c h a n g e s i n t h e w a y i n vrtiich t h e FOMC m e e t i n g s a r e r e p o r t e d t o t h e p u b l i c ,
I am c o n c e r n e d t h a t b o t h s u g g e s t i o n s w o u ld m ove u s i n a d i r e c t i o n w h ic h I
b e l i e v e w o u ld b e a g a i n s t t h e l o n g ru n p u b l i c i n t e r e s t .
In each c a s e , th e
p o s i t i o n s t a k e n b y t h e p a r t i c i p a n t s w o u ld b e i d e n t i f i e d b y n a m e.
I th in k
t h i s w o u ld b e a m i s t a k e .
F i r s t o f a l l , s u c h i d e n t i f i c a t i o n w o u ld i n h i b i t
th e m i n t h a t t h e y w o u ld p r o b a b l y e x e r c i s e g r e a t c a r e and c i r c u m s p e c t i o n i n
w h at th e y s a y .
O ne o f t h e v a l u e s o f t h e s e s e s s i o n s i s c e r t a i n l y t h e g i v e
an d t a k e o f t h e d i s c u s s i o n an d t h e p o s s i b i l i t y o f a i r i n g a l l v i e w s an d
p r e s e n t in g a l l p o s i t i o n s .
A n o th e r im p li c a t i o n o f th e s u g g e s te d r e q u ir e m e n ts
i s t h a t t h e y w o u ld p r o b a b l y l e a d to w a r d a m o r e p o l i t i c a l a p p r o a c h .
I t w o u ld
m ean t h a t t h e p a r t i c i p a n t s i n t h e m e e t i n g s w o u ld o p e n t h e m s e l v e s up t o
p o litic a l p ressu re.
I n s h o r t , t h e a l t e r n a t i v e s u g g e s t i o n s w o u ld m ove t h e
F e d e r a l R e s e r v e a s t e p aw ay fr o m t h e in d e p e n d e n c e o f t h o u g h t w h ic h i t w a s
e s t a b lis h e d to p r o v id e .
I t h i n k t h e p r e s e n t m e th o d o f r e l e a s i n g t h e i n f o r m a t i o n a f t e r a 35 d a y l a g
i s a b o u t a s s h o r t a tim e p e r io d a s i s f e a s i b l e s i n c e t h e c o m m itte e m e e ts
o n c e a m o n th .
I f t h e i n f o r m a t i o n w o u ld b e r e l e a s e d a n y s o o n e r , i t w o u ld
th e n r e v e a l w h at c u r r e n t p o l i c y w as a t t h a t tim e .
I th in k th e p r e s e n t
r e l e a s e o f d a t a g i v e s a l o t o f in f o r m a t io n i n a f o r t h r i g h t m a n n er, p r e s e n t s
d i v e r g e n t v i e w s , and g i v e s t h e r e a d e r a f l a v o r o f t h e d i s c u s s i o n .
T h is i s
a l l t h a t t h e p u b l i c an d t h e v a r i o u s m a r k e t p a r t i c i p a n t s n e e d .
,T he b a s i c p r o b le m i n v o l v e d i n t h i s m a t t e r i s t h a t o f a c h i e v i n g p u b l i c a c c o u n t
a b i l i t y o f t h e FOMC m em b ers v s . in d e p e n d e n c e o f a c t i o n .
I , f o r o n e , w o u ld
o p t fo r th e l a t t e r .
T h e F e d e r a l R e s e r v e i s a c r e a t u r e o f C o n g r e s s an d i s
r e s p o n s ib le to C o n g ress.
I b e l i e v e i t h a s e x e r c is e d t h i s r e s p o n s i b i l i t y w e ll
a n d , a s you know , r e p o r ts w ith r e g u la r it y t o C o n g r e ss.
In f a c t , I th in k th e
v a r io u s C o n g r e s s io n a l c o m m itte e s ' e f f o r t s t o q u e s t io n th e F e d e r a l R e s e r v e h a v e
a t tim e s b e e n o v e r d o n e .
G iv e n t h e a c c o u n t a b i l i t y t h a t t h e FOMC t h u s h a s t o
C o n g r e s s , I t h i n k f u r t h e r s t e p s s u c h a s s u g g e s t e d w o u ld e v e n t u a l l y e r o d e t h e
i m p o r t a n t in d e p e n d e n c e o f t h o u g h t and a c t i o n t h a t i t now h a s .
I w o u ld a s k
t h a t y o u l o o k a t t h e r e c o r d o f som e o f t h e o t h e r c e n t r a l b a n k s a r o u n d t h e
297
-
2-
T h e H o n o r a b le S t e p h e n L . N e a l
H ou se o f R e p r e s e n t a t iv e s
S u b c o m m itte e o n D o m e s t i c M o n e t a r y P o l i c y
o f t h e C o m m itte e o n B a n k i n g , C u r r e n c y an d H o u s in g
W a s h in g t o n , D .C .
20515
D e cem b e r 1^-
w o r ld a f t e r t h e y h a v e b e e n b r o u g h t m o r e c l o s e l y u n d e r t h e w in g o f t h e
tr e a s u r y o r e x e c u t i v e b ra n ch o f t h e i r g o v er n m en t.
In g e n e r a l, I b e l i e v e in
t h e s e p a r a t i o n o f p o w e r s , an d t h i s i s o n e s e p a r a t i o n t h a t h a s w o r k e d b u t
h a s s t i l l g i v e n C o n g r e s s t h e c h a n c e t o dem and a c c o u n t a b i l i t y w h en r e q u i r e d .
I h o p e t h e s e b r i e f t h o u g h t s w i l l b e o f som e v a l u e i n y o u r d e l i b e r a t i o n s .
S in c e r e ly ,
298
UNIVERSITY OF WASHINGTON
SEATTLE, WASHINGTON 98105
S e p t e m b e r 29,
1976
Department of Econotni
C o n g r e s s m a n S t e p h e n L. N e a l
Chairman, S u b c o m m i t t e e o n D o m e s t i c M o n e t a r y P o l i c y
of the C o m m i t t e e o n Banking, C u r r e n c y a n d
Housing
U.S. H o u s e of R e p r e s e n t a t i v e s
Washington,
D.C.
20515
D e a r C o n g r e s s m a n Nea l :
T h a n k y o u v e r y m u c h for y o u r l e t t e r of S e p t e m b e r 17 a s k i n g m e to
r e s p o n d to the q u e s t i o n o f s e crecy in F O M C meet i n g s .
I b e l i e v e that
it w o u l d be h a r m f u l to the d e c i s i o n p r o c e s s to r e q u i r e that v e r b a t i m
mi n u t e s o f th e m e e t i n g s b e p u b l i c l y a v a i l a b l e w i t h i n a s h o r t ti m e of
th e m e e t i n g s b e c a u s e I t h i n k it w o u l d m a k e p e o p l e r e l u c t a n t to e x p r e s s
the i r op i o n i o n s cand i d l y .
If an i n d i v i d u a l m e m b e r of the c o m m i t t e e does
n o t feel that h i s o p i o n i o n s a r e a d e q u a t e l y r e p r e s e n t e d in the s u m m a r y h e
d o e s h a v e the r i g h t to p u b l i s h tinder h i s n a m e a c o n s e n t i n g o p i n i o n w h i c h
a p p e a r s in all p u b l i s h e d accounts.
T h e r e f o r e I do n ot f eel that a r e q u i r e
me n t of c o m p u l s o r y c o m p l e t e mi n u t e s is r e a l l y n e c e s s a r y to i n s u r e t hat
d i s s e n t i n g m e m b e r s of t he co m m i t t e e h a v e a p u b l i c forum.
Fro m the viewpoint
of r e s e a r c h into the d e c i s i o n m a k i n g p r o c e s s in FO M C it w o u l d i n d e e d b e
i n t e r e s t i n g to h a v e v e r b a t i m m i n u t e s a v a i l a b l e b u t t h o s e m i n u t e s s h o u l d n o t
b e m a d e a v a i l a b l e f o r at least a (<3ecade> f o l l o w i n g t he a c t u a l m e e t i n g , in
m y opinion.
Than k s a g a i n for r e q u e s t i n g m y response.
S in c e r e ly
y o u rs,
C h a r l e s R. N e l s o n
^
P r o f e s s o r of E c o n o m i c s
D i r e ctor, I n s t i t u t e for E c o n o m i c R e s e a r c h
CRN/ch
cc:
299
UNIVERSITY OF CALIFORNIA, BERKELEY
B ER XE LE Y • DAVIS • IRVINE • LOS ANGELES • RIVERSIDE * SAN DIEGO • SAN FRANCISCO
SANTA BARBARA * SANTA CRUZ
350 Barrows Hall
Berkeley, California 94720
Schools of Business Administration
November 1
C h a i r m a n S t e p h e n L. Ne a l
S u b c o m m i t t e e on D o m e s t i c M o n e t a r y P o l i c y
of the C o m m i t t e e on Banking, C u r r e n c y and H o u s i r
U.S. H o u s e of R e p r e s e n t a t i v e s
W a s h i n g t o n , D.C. 20515
D ear C h a i r m a n Neal:
I n r e s p o n s e to y o u r le t t e r of S e p t e m b e r 17, 1976, I h a v e exa m i n e d so m e
of the m i n u t e s of the F OMC m e e t i n g s h e l d d u r i n g 1970 and s ome of the m o s t
r ecent " r e c o r d s of p o l i c y acti o n s . "
O n b a l a n c e , I do not thi n k t h e r e is
m u c h to b e g a i n e d by r e q u i r i n g eith e r a v e r b a t i m report or r e q u i r i n g the
d e t a i l e d m i n u t e s w h i c h w e r e p r e v i o u s l y p ublished.
A s y o u i n d i c a t e d in y o u r letter, the n e w p r o c e e d u r e w h i c h b e g a n w i t h the
March, 1976 m e e t i n g does p r o v i d e a s u m m a r y of the a l t e r n a t i v e v i e w s e x p r e s s e d
at e ach m e eting.
I do n o t see any r e a s o n for a t t r i b u t i n g t hese v i e w s to
in d i v i d u a l m e m b e r s in ord e r to m o n i t o r e c o n o m i c p o l i c y decisions.
In fact,
it seems p o s s i b l e that h a v i n g C o n g r e s s r e q u i r e s u c h a t t r i b u t i o n w o u l d
i nhi b i t the free e x p r e s s i o n of a l t e r n a t i v e v i e w p o i n t s at s uch meetings.
It is n ot cle a r to me h o w c o m m i t t e e m e m b e r s a re to be h e l d " p u b l i c a l l y
a c c o u n t a b l e " for their p a r t i c i p a t i o n in F O M C m eetings.
W i t h r e s p e c t to
the e c o n o m i c i deas they express, I t h i n k that m e m b e r s can be h e l d a c c o u n t a b l e
b y their v o t e s on the r e p o r t e d p o l i c y actions.
P e r h a p s the c o n c e r n a b o u t
a c c o u n t a b i l i t y i n v o l v e s the p o s s i b i l i t y of m e m b e r s d i s c u s s i n g and e n g a g i n g
i n p o l i c y a c t i o n s w h i c h a r e in their o w n s e l f -interest.
If this is a m a t t e r
of c o n c e r n to the C o n gress, a tamper- p r o o f , v e r b a t i m r e c o r d (with n o s e c r e t a r i a l
a c c i d e n t s w i t h f ootpedals, etc.)' w o u l d b e required.
A l t h o u g h it is n o t a t ype of r e s e a r c h in w h i c h I h a v e a n y expertise, I
c a n ima g i n e that so m e sch o l a r s (e.g. e c o n o m i c histor i a n s ) w o u l d find a
v e r b a t i m record of F O M C m e e t i n g s of c o n s i d e r a b l e interest.
Y o u asked a b o u t the a p p r o p r i a t e t ime lag b e t w e e n a m e e t i n g and the r e l e a s e
of the r e c o r d of that meeting.
I s u g g e s t that the FO M C sh o u l d r e l e a s e
a record_.e.£ p o l i c y a c t i o n ..on the d a y a f t e r ea c h meeting.
T h e r e does not
s e e m to b e a ny b e n e f i t for the s o c i e t y in g e n e r a l f r o m h o l d i n g this
i n f o r m a t i o n b a c k f r o m i n t e r e s t e d parties.
In fact, h o l d i n g it b a c k s eems
300
Chairman Neal
Page 2
11/12/76
to g e n e r a t e s u b s t a n t i a l u n c e r t a i n t y a nd m a y p r o v i d e e c o n o m i c a d v a n t a g e s
to t h o s e i n s t i t u t i o n s w h i c h d e a l d i r e c t l y w i t h the O p e n M a r k e t Desk.
S u c h a d v a n t a g e s m a y n o t b e r e a d i l y a v a i l a b l e to o t h e r p a r t i c i p a n t s in
f i n a n c i a l mar k e t s .
O n e m i g h t n o t e that t h ere is a s i m i l a r i t y b e t w e e n
i m m e d i a t e r e l e a s e of the F O M C p o l i c y r e c o r d a nd the i m m e d i a t e r e l e a s e
of D e p a r t m e n t of A g r i c u l t u r e crop reports.
Both have effects on investors
a n t i c i p a t i o n s r e g a r d i n g future prices.
While there are often strong
m a r k e t r e s p o n s e s to th e n e w i n f o r m a t i o n in cr o p r eports, t h e s e r e s p o n s e s
d o n ot a p p e a r to b e d e s t a b i l i z i n g in the c o m m o d i t y f u t u r e s ma r k e t s .
I
se e n o r e a s o n to b e l i e v e that pr o m p t a n n o u n c e m e n t of m o n e t a r y p o l i c y
d e c i s i o n s w o u l d b e d e s t a b i l i z i n g in m o n e y markets.
In
s u m m a r y , my s u g g e s t i o n s
are:
(1) If a u d i t o r s of g o v e r n m e n t p o l i c y - m a k i n g a n d p o l i c y - m a k e r s or r e s e a r c h
sc h o l a r s h a v e a n e e d to r e v i e w FO M C p o l i c y sessions, a t a m p e r - p r o o f v e r b a t i m
re p o r t h e l d i n a r c h i v e s w o u l d be needed.
I do n o t s e e a n y p u r p o s e for
p u b l i s h i n g s u c h a v e r b a t i m re p o r t and s i n c e su c h p u b l i c a t i o n w o u l d b e costly,
I w o u l d r e c o m m e n d a g a i n s t it.
(2) T h e r e d o e s n o t a p p e a r to b e a ny a d v a n t a g e to the d e t a i l e d m i n u t e s
(which a f t e r a l l c o u l d be edited) as c o m p a r e d to the c u r r e n t r e c o r d of
p o l i c y action.
(3) T h e r e c o r d of p o l i c y a c t i o n sh o u l d b e m a d e p u b l i c the d a y a f t e r t he
F O M C m e e t i n g w h i c h it covers.
301
R A Y M O N D
J.
S A U L N I E R
LEHMAN
BARNARD
COLLEGE.
NEW
YORK.
HALL
COLUMBIA
NEW
YORK
UNIVERSIT'
10027
September
Congressman
29
1976
Stephen L Neal
Chairman
Subcommittee
of
the
on Domestic
Committee
Washington DC
Dear
on
Monetary Policy
Banking,
Currency
and Housing
20515
Congre s s m a n Neal:
Responding
to your
d o c u mentation of
letter
conditions
of
September
Federal Open Market
more concerned with what
was
than with what
policy matters.
And
17
1976
soliciting my views
Committee meetings,
actually
happening
individual members
of
the Federal Reserve
System closely had
the
of
quantitative
only
impersonal,
the numbers
more
nothing
numbers,
but
up-to-date.
On
useful
than
provided
the whol e ,
from the Federal Reserve
but
improvements
All
could
possibilities
the
same,
in having
to
Bank of
shape
To
be made
and
had
to
say on
stable
if
those
their views
simply,
I would
be
satisfied with
are
find
and reasonably
including what
enough
I hope
I
on
it
available,
St Louis,
been
put
reasonably complete
now
the
credit
your
for m y
I
purposes,
committee will
en d .
the
intimate
to
data.
Indeed,
statistics
doubtless
that
I recognize
a more
they are
the
get
study
the words.
be more
on
always
and
the FOMC have
I believe money markets would
who watch
basis
I have
to m o n e t a r y
interest
and more
of
Congress,
personal
view
and
the
of what
financial
goes
community,
on within
Op e n Market Committee meetings.
S i n c e w e a r e t o h a v e s u c h r e p o r t s , it is
m y v i e w that they shou l d be s t r a i g h t f o r w a r d a c c o u n t s - p u b l i s h e d n o t less
than,
major
but n o t g r e a t l y m o r e than, t h i r t y d a y s a f t e r the fact - o f the c o m m i t t e e ' s
conclusions, w i t h identification of individual committee members only
where
their views
would
think that
by
some
type
available
of
depart
significantly
to r e q u i r e
electronic
to the
public,
f rom the
deliberations
apparatus,
would
of
with
seriously
indicated consensus.
the
the
committee
full
suppress
record
those
to
be
I
recorded
ultimately made
qualities
of
spontaneity,
openness, and readiness to probe whe r e facts are only dimly k nown and one's
o p i n i o n s a r e o n l y t e n t a t i v e l y f o r m u l a t e d , tha.t a r e e s s e n t i a l i n a f r a n k
and
deal
full
discussion of controversial
of what
goes
http://fraser.stlouisfed.org/
9 -3 3 1 0 - 77 Federal Reserve Bank9of
St. Louis
20
on
in comm i t t e e
technical
deliberations
questions.
must
be
Naturally,
a kind
of
a
good
"thinking
302
out
loud."
that would
I hope
feel
the
free
I v?ould r e g a r d
discourage
above
to
responds
inquire
Chairman Arthur
such
it
a
grave mistake
adequately
further.
F
as
to require
a
public
record
dialogue.
Burns
to
the
q u e stion y o u put
to me;
if not,
303
CHARLES J. S C A N L O N
7 6 7 FIFT H AVENUE
NEW YORK., N.Y. 1 0 0 2 2
October 6 , 1976
Honorable Stephen L. Neal, Chairman
Subcommittee on Domestic Monetary Policy
of the Committee on Banking, Currency
and Housing
U. S. House of Representatives
Washington, D. C. 20515
Dear Mr. Chairman:
Thank you for your letter dated September 17 requesting my opinions
regarding several proposals incident to the documentation of delib
erations at meetings of the Federal Open Market Committee. While
I appreciate the opportunity to express a view on these matters,
it has been almost seven years since I was an active member of the
FOMC and I recognize that both the climate and the participants
have changed.
In 1964, when the decision was made to release the minutes of the
FOMC for the first time, I was an active supporter of that move
although I thought the five-year lag was longer than the situation
required. I was not critical of this, however, because we were
breaking new ground and this seemed to me to be a step in the right
direction.
Subsequent to the FOMC taking that action, I was surprised and
disappointed that there was little evidence of public interest in
examining the records. I think we must remember that in 1964 we
did not have the preoccupation with disclosure that currently pre
vails. Nevertheless, it became increasingly clear that what
really mattered to scholars and interested parties was the timely
release of the policy actions taken by the FOMC and not the
historical discussions which led to the conclusions on monetary
policy.
As a result, I feel the gradual shortening of the release date on
records of policy actions to thirty days after each meeting is
desirable and is really far more important ’than whether or not there
are memoranda of discussion in the form suggested in your letter. As
304
October 6, 1976
Honorable Stephen L. Ne~
a matter of fact, it seems to me that the taping, transcribing,
etc. of FOMC meetings and the publication of such records would
eventually result in most participants speaking ,!for the record"
and I would regard this as being undesirable.
I cannot emphasize too strongly my feeling that policy determina
tion is more important than the views of one or two individual
members of the FOMC. After all, they all make speeches and if any
of them are in serious disagreement with the majority action it
will be a matter of public record in a very short time.
In summary, I am pleased with the new thirty-day release period
for an expanded record of policy actions and I am not concerned
with the discontinuance of the Memorandum of Discussion.
Sincerely
305
First National Bank in Dallas
H ARRY A. s h u f o r d
214
Post Office Box 6031, Dallas,Texas 75283 ( 214)744-8000
September 30, 1976
7 4 4 -8 6 6 8
The Honorable Stephen L. Neal
Chairman
Subcommittee on Domestic Monetary Policy
of the Committee on Banking, Currency
and Housing
U. S. House of Representatives
Washington, D. C.
20515
Dear M r. Neal:
I appreciate the invitation in your letter of September 17 to comment on
the documentation for meetings of the Federal Open Market Committee.
My delay in responding is due to my having been out of town.
Prelim inary to my comments, I should mention something which you
need to know, since it probably influences my views. I was with the
Federal Reserve Bank of Dallas from 1948 until 1962, when I left the
office of F irst Vice President to become President of the Federal Reserve
Bank of St. Louis. I resigned that position in 1966 to return to Dallas
in a senior management responsibility at the F irst National Bank in
D allas. I continue to have the greatest respect for the Federal Reserve
System and the dedicated effort it makes to contribute to our country's
welfare through exercising its responsibilities, especially in the area
of monetary policy.
As you know, this subject of documentation and the related one of disclosure
of the actions of the FOMC has been a subject of consideration and debate
for a good number of years. Most of the views expressed are certainly
in good faith but are influenced, no doubt, by what one regards to be the
purpose of the documentation and this, understandably, is influenced by
ones profession or business, i. e. , whether you are an officer of the Fed,
a member of Congress or other public office, an academician, a banker, etc.
But, you have asked for my view. I believe the most important matter is
the conclusion or policy reached by the FOMC as a committee and a brief,
but complete, statement of the basis for thstt policy. Even though there are
occasions when members of the committee differ, these differences are
subordinate to the final policy and the reasons supporting it. I do not
believe that the fact that a m em ber's views will be recorded and disclosed
bs>d-ary oi m
First International B an c sh ares. In
l/)t\
■ mi/
306
The Honorable Stephen L. Ne?
September 30, 1976
Page Two
will cause that person to be any more responsible. This is predicated
upon the assumption that the meetings of the committee will continue to
be closed to the general public. In addition, the keeping of detailed
minutes or "memoranda of discussion" requires more time and expense
(recording, reviewing, correcting) than is generally known and which,
in my view, is unnecessary. I admit that as a member of the committee,
I liked to see my comments in summary form recorded, but this was
due more to a bit of personal pleasure than of any m aterial benefit to
the formulation of policy.
As for research, I am not aware of any significant benefits that have
resulted since the materials have been released, and I fail to see how
they could be of much value in this respect. However, I am not an
economist or academician, and the minutes may have more value in this
respect than I realize.
I feel even more strongly that the FOMC should not maintain mechanically
reported verbatim records. In addition to the reasons given above in
connection with "sum m ary r e c o r d s," there are many matters involving
banks, international relationships, other countries, etc. which need to
be discussed fully and candidly - - and this would be impeded, if not
prevented, by a requirement for verbatim records.
I am pleased to furnish you my comments, and they are only mine, of
course, and in no way reflect the views of our bank or any of my associates.
Sincerely,
HAS:bh
307
NORTHWESTERN
E V A N S T O N
-----
UNIVERSITY
C H I C A G O
OFFICE OF THE PRESIDENT
EVANSTON, ILLINOIS
December 30, 1976
Honorable Stephen Neal
Chairman, Subcommittee on Domestic Monetary Policy
of the Committee on Banking, Currency and Housing
U. S. House of Representatives
Washington, D.- C. 20515
Dear Mr. Chairman:
I am responding to your letter of September 17 inquiring as to
my views regarding documentation for meetings of the Federal Open
Market Committee.
Since I have never served on this Committee, my views must be
regarded as tentative and based on only an indirect understanding of the
actual conduct of the meetings.
In my experience, there are two quite different types of
"deliberative assemblies. ” One is like the House of Representatives
and its various committees, or a City Council, or any essentially
"political" group where representatives are important and often partisan
spokesmen for defined constituencies having a number of conflicts of
interest. These assemblies tend to proceed fairly formally, adhering
with some care to rules of procedure. Their meetings are frequently
open and it seems quite appropriate that their debates be "on the record. "
The other kind of deliberative group is one that functions as a
team. This would characterize most corporate boards, the local garden
club, and my own administrative staff. Their deliberations are often
calculated to achieve a consensus, frequently through protracted discus
sion and a general spirit of compromise, until there is unanimous agree
ment on what ought to be done. Only occasionally will a dissenting vote
be recorded. Frequently in these deliberations, someone may play the
role of "devil’ s advocate, " and a wide range of alternatives might be
voiced and explored simply for discussion purposes. No one is repre
senting a particular constituency and so the "group dynamics" of this
process are rather different from those of the other kind of deliberative
assembly.
308
H o n o r a b le S te p he n N e al
D e c e m b e r 3 0 , 1976
For this latter type to function effectively, it seems to me
important that there be an element of privacy along with the spirit of
mutual cooperation. Once their deliberations are in a goldfish bowl,
people begin to grandstand, become fearful of exploring unusual and
’’unlikely” alternatives, and lose their quality of constructive interaction.
My own view, for what it is worth, is that the Federal Open
Market Committee ought to function in the manner of the second of these
two kinds of groups that I have described. I would be very fearful that
any extensive documentation of their meetings, such as a stenographic
record or tape recording, would be injurious to the proper functioning
of their deliberative process. Needless to say, this does not touch upon
the question of whether or when their conclusions should be made public.
Given the substantive issues with which they deal, I think that the past
practice has been to delay publication far too long and would myself
support the present practice of publishing their decisions within 45 days or even 30 days after each meeting. This publication might appropriately
include summaries of the views that members would like to have
recorded for public attention. Such summaries should not, in my judgment,
be so extensive, however, as to hinder or embarrass the participants in
the kind of free exploratiomd/views that only a private meeting can elicit.
I hope this is responsive to your questions, and only apologize for
the delay in my replying to you.
Sincerely,
President
309
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
D EPARTM EN T
September
Rep.
OF
E C O N O M IC S
27,
1976
S t e p h e n L.
Neal,
' • ‘ M BR ID GE, M ASSACHUSET"
Chairman
Subcommittee on Domestic Monetary Policy
Committee on Banking,
U.S.
House
Washington,
Currency
and Housing
of R e p r e s entatives
DC
20515
Dear Congressman Neal:
B e f o r e a n s w e r i n g y o u r le t t e r of S e p t e m b e r 17 ab o u t d o c u m e n t a t i o n
of F OMC m e e t i n g s , I s h o u l d te l l y o u that, i n a d d i t i o n to b e i n g a f u l l - t i m e
professor of economics at M.I.T., I a m also a m e m b e r of the Board of Di r e c t o r s
of the F e d e r a l R e s e r v e B a n k o f Boston.
I b e l i e v e that m y v i e w s a r e e x a c t l y
what they wo u l d be if I h ad n o connection w i t h the F ederal R e s erve s y s t e m
at
a ll.
Generally
detailed
made
of
public
specific
to b e
said
members
of
meetings.
after
on both
the FOMC
But
to
say
detailed
for
they
Perhaps
clear,
is
specific
be
issue.
sound
to
good
unknown
attribution.
including
Votes,
a
sample
that
for what
and
safe rather
for
of
for
say
an eye
to
are
things
reason why
in
those
attribution
and
of
their
they
Congress
appearance
to r e q u i r e
of
indeed
than what
even members
rather
to be
attribution
general
excessive blandness,
to
rather
fairly
individual m e m b e r s 1 remarks
should be
R o b e r t M.
the
they
and
recorded
Sincerely yours,
RMSjve
thing
There
I see no
compromise would be
however,
good
idea.
that p u b lication
the F O M C
a reasonable
is a
at FOMC m e e t i n g s
however,
responsible
is n o t
it
a good
Congressional Record with
documentation,
but without
of
it
less
imagine
think will
I believe
the
that
that
and decisions
individuals
not
easily
lead members
think.
substance.
of
should
I can
saying what
things
I am
to n a m e d
sides
I believe
discussion
30 days.
remarks
remarks might
really
speaiking,
documentation of
Solow
by name.
than
310
September 30, 1976
The Honorable Stephen L. Neal
Chairman
Subccnanittee on Domestic Monetary
Policy of the Committee on Banking,
Currency and Housing
U. S. House of Representatives
Washington, D. C-. 20515
Dear Chairman Neal:
This is in response to your letter of September 17, 1976, expressing
concern about the recent change in documentation for meetings of the
Federal Open Market Committee whereby the "memorandum of discussion'*
record was discontinued, and requesting my opinion on the merits of
taping, transcribing or otherwise detailing FGMC meetings.
As you may know, Chairman Burns discussed the discontinuance of the
memorandum of discussion in his letter dated July 26 to Congressman
Reuss, and I endorse the viev/s expressed by Chairman Burns in his
letter, a copy of which is enclosed for your ready reference.
As for the other alternative that you suggested, i.e., a mechanically
reported verbatim record, I believe such a record would be characterized
by the same disadvantages cited by Chairman Burns in his consents on
the memorandum of discussion.
Sincerely,
0. Meredith Wilson
Chairman of the Board
Enclosure
^
Masten.si
311
A PP E N D IX 5 .— FAVORING PU B L IC A CCO U N TA BILITY B U T O FFER IN G NO S P E C IF IC
A PPRO ACH
Fe d e r a l R e s e r v e Ba n k
P. o. B ox 4 4 2
of
S t. Lo u is
S t. L o u is, M is s o u r i 6 3 1 6 6
COWARD J. S C H N U C K
C H A IR M A N O F T H E
P. O. Box 929
Bridgeton, Missouri 63044
BOARD
September 29, 1976
Honorable Stephen L . Neal, Chairman
Committee on Banking, Currency and Housing
Subcommittee on Domestic Monetary Policy
U. S. House of Representatives
Washington, D. C. 20515
Dear Chairman Neal:
Thank you for your letter of September 17, 1976 concerning the
documentation of meetings of the Federal Open Market Committee.
Although I am the Chairman of the Board of Directors of a Federal
Reserve Bank, I have no direct contact with the FOMC. The
President of our Bank serves as a voting member of the F O M C
every third year, and is in regular attendance at the meetings
during the intervening years, but he does so pursuant to a statutory
mandate from the Congress and not as a representative of this
Bank. He neither reports nor answers for his actions to our Board
of Directors in this regard; therefore, I have no particular qualifi
cations which would entitle me to express an expert opinion on
the FOMC.
It does seem to me, however, that there is a difference between
holding members of the F O M C publicly accountable for their votes
and for their comments made during the course of discussion.
I hope that any solution to the problem you raise will give
consideration both to the public's right to know how government
is conducted and the value of a full and frank exchange of views
in the course of F O M C deliberations.
Sincerely, ,
312
Princeton University
departm ent
of
P R IN C E T O N , N E W
e c o n o m ic s
JERSEY
08540
October 19, 1°
The Honorable Stephen L. Neal, M.C.
Subcommittee on Domestic Monetary Policy
House of Representatives
U.S. Congress
Washington, D.C. 2 O5 I5
Dear Congressman Neal:
Your letter of September 17 , asking for my opinions
concerning documentation of meetings of the FOMC, was mis-sent
to Atlanta and has only now come to my attention. However, I
am glad to share my opinions on this subject with you.
I share with you the view that the FOMC and its members should
be held publicly responsible for their actions. This purpose is
served by publication of the decisions of the FOMC and recording
votes of its members, together with reasons for any dissents.
However, I strongly oppose any measures that would tend to limit
freedom of discussion within the FOMC and to cause members to
speak for the record rather than to put all points of view and
all aspects of the issues before the Committee. And the require
ment of a full transcript of proceedings, whether written or
mechanically recorded, would pose that danger. Under these
conditions, at least some members would be hesitant to express
unpopular views, to play the role of "devil’s advocate," and to
display their lack of understanding of some of the numerous and
complex issues involved--a 11 of which are useful in discussions
preceding the taking of decisions.
In short, I believe that the FOMC and its members should be
held accountable for their actions but that nothing should be
done that would limit the freedom and frankness of discussions
within the Committee.
Sincerely yours,
LVC/pjd
@FedFRASER