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ai A meeting of the Executive Committee of the Federal Reserve Board with the Open Market Policy Conference was held on Yiednesday, 3-anuary 21, 1931, at 3:30 p. m. PRESM:T: ALSO PRESENT: Governor Meyer Mr. Hamlin Mr. Miller Er. Tames Er. McClelland, Assistant Secretary. Mr. Harrison, Chairman, and Messrs. Young, Hutt, Fancher, Seay, Black, McDougal, Martin, Geery, Jorthington, Talley and Calkins, members of the Open 'Market Policy Conference. Er. Burgess, Secretary, Open Market Policy Conference. Mr. Goldenweiser, Director, Division of Research and Statistics. Mr. Smead, Chief, Division of Bank Operations. Governor Harrison stated that the Open Market Policy Conference had been in session during the morning; and that he had reported upon his trip "road, following which the Conference reviewed domestic business and credit conditions, considered a preliminary report prepared by him as Chairman of the Conference and engaged in a general discussion as to what should be the open market policy of the System during ensuing weeks. He stated that there was no disagreement from the belief that in view of the Undue excess of credit prevailing in most of the important markets of the cotintry an opportunity is presented to dispose of some of the securities held in the open market account for the purpose of taking up some of the eZeoss caused by the return flow of currency and credit, the lack of demand tor new credit and Some gold imports. Le then read the preliminary Ille]norandum above referred to, stating that a copy will be forwarded to the 11() rd for its record after Some minor correction, and then the report of tho Conference, the latter also being subject to minor correction when the 1/21/31 -2- Minutes of the Conference meeting are finally aDproved. The report as silbmitted read as follows: "The Conference has considered the preliminary memorandum submitted by the Chairman and has reviewed business and credit conditions as they now appear. It is the sense of the Conference that in view of these conditions it should be the policy of the System to continue an easy money policy in the best interests of trade and commerce. It is the belief of the Conference, however, that the seasonal return flow of money and credit and other factors have tended during recent weeks to make for an undue excess of funds in the principal money centers. It is, therefore, the opinion of the Conference that in these circumstances it would be desirable to dispose of some of the System's holdings of Government securities as and when opportunity affords itself to do so without disturbance or any undue tightening of the money position. "It is understood that there shall be another meeting of the Conference as soon as or whenever conditions in the opinion of the Conference or the Federal Reserve Board justify a reconsideration of this policy." ci Be then referred to the fact that the directors of the Federal Reserve Bank of Mew York in view of the heavy excess of reserves in the market, at their meeting last Thursday, thought it well to avail themselves of the °PPortunity to dispose of some of the bank's own holdinc:s of Governments ed over the year-end and during; the disturbed bankinr.: situation Pl*ecedinrz that period. As a result of these sales he stated that excess serves were diminished temporarily, although last night they again 41110Unted to around 57,000,000. The situation, he stated, is most 11°14tile and affords an opportunity of disposing of securities without any 1/141.1e risk of tightening credit or disturbing the bond market. The New Y011 t bank, he stated, still has ,i125,000,000 of Governments to liquidate tz0M its own portfolio. nr. Miller submitted, and the Assistant Secretary read, a memorandum Wilich came to him this morning and which, he stated, is indicative of how "1east Some part of the public regards the present banking situation. 1/21/31 -3- There was a discussion of the banking situation, the excess reserves carried by member banks and the efforts of banks generally to place themselves in the most liquid condition possible. Also as to the steps which Mi0It be taken by Federal reserve banks at this time to prepare to handle any further bank disturbances in their respective districts. Governor Meyer referred to the policy of security sales recommended by the Committee as being one entirely proper under normal credit conditions but stressed the fact that at the present time the bank situation should be 4 major factor in the determination of policy. He pointed out that the bill holdings of the System amounting to approximately 1.135,000,000 constitute an automatic means of taking up surplus funds, whereas, should the System embark upon a policy of security sales, the action will be interpreted by 111 the public generally as a major reversal of Federal reserve policy. He also referred to the reluctance on the part of bankers to show bills payable and Pointed out that should a further banking situation arise the Federal 'eserve System would undoubtedly find it necessary to go back into the bond market and make purchases. Governor Harrison replied that it was not unlikely that the maturity %100,000,000 of bills held in the System account between now and the end "January might take up the surplus reserves, depending on the rapidity With which the balance of the emergency currency issued during November and 1)eeember comes back. He said that the disposition of the Conference as a Whole was not to do anything specific, but to give the Executive Committee 1% allthority to sell Government securities if an opportunity affords, to take Up any surplus, provided it can be done without any disturbance or undue tightening of the money situation. He stated that he personally would not r) 1/21/31 4.1 -4- be willing- to embark on any Government security sales unless the buying rate •clf his bank on bills is at the market, thereby enabling bills to come back to the Federal eserve System if the security sales should go too far. Governor Leyer replied that under ordinary conditions he would be in favor of-a policy leading to conversion of Governments in the System portfolio into acceptances or bills payable, increasing rediscounts as the demand for credit increases and raising the discount rate whenever it should appear desirable. He stated, however, that with the present difficult banking situation, he thought it inadvisable to go into an operation which would be interpreted as in the nature of contraction of credit when it is not Aecessary, and when the bill holdings would respond automatically to the needs or oversupply of credit for business. At about this time both Governor Harrison and 1dr. James left the Ineeting. . Other members of the Conference expressed the opinion that it would not be harmful to sell Government bonds as contemplated in their report if encl. when opportunity is afforded, and pointed out that under the report, if these sales had any adverse affect they would immediately be stopped. Others pointed out that sales from the open market account at this *Ile would place the System in better position to take on additional ()Irerament securities later if that should be found necessary to meet a banking situation. The meeting adjourned at 6:30 p. m. eegeeedd Assistant Secretary.
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