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280 A meeting of the Federal Reserve Board was held in the office of the Pederal Reserve Board on Thursday, March 21, 1929 at 11:00 a.m. PRESENT: Governor Young Mr. Platt Mr. Hamlin Yr. Miller Mr. James Mr. Cunningham Mr. Noell, Asst. Secretary Mr. McClelland, Asst. Secretary The minutes of the meeting of the Federal Reserve Board held on Larch 20th were read and approved. Telegram dated Larch 20th from the Chairman of the Federal Reserve Balk Of St, Louis, advising that the board of directors at a meeting on that date n° change in the bank's existing schedule of rates of discount and purchase, Without objection, noted with approval. Memorandum dated March 21st from the Division of Bank Operations, transIllitting statements of expenditures by the Federal aeserve banks for education41 and welfare work, etc. during the month of February and for the two months' Period ending February 28th. Ordered circulated. The Secretary then presented and read the following telegram dated March 20th r rcin the Chairman of the Federal Reserve Bank of San Francisco: "Answering telegram nineteenth separate conferences have been held with presidents of banks which have been practically continuous borrowers aid the question of rediscounts thoroughly discussed with the understanding that they were to be gradually reduced. We did not expect much reduction to be made until after tax assessment day and income tax payment now both passed. Rediscounts in district February fifth eighty two million reserve ratio sixty three point seven. March fifth tax assessment 281 3/21/29 _9- "day reiiscounts one hundred one million reserve sixty point four. Larch eleventh one hundred four million reserve sixty point five. Larch nineteenth sixty eizht million reserve seventy point seven. Ue have reason to believe that further reductions will be prompt. All parties claim continuous rediscounting due to over-purchase of bonds and certifigates and that decline in value prohibits sale except at considerable loss. Each officer offered to sell wad assume loss should we request it. 'le did not desire to assume this responsibility and told them that we considered it possible for them to adjust Without sale. :/e know of no banks in this district that are lending on call in New York or outside of this district which are persistent borrowers. Your telegram and this answer will be presented to our board of directors at meeting tomorrow.' the discussion of the above telegram, the Governor was called from the room to bonier with the secretary of the Treasury. Upon his return, he l'ePOrted to the Board that a day or two ago Governor Harrison of the Federal k3serlrie Bank of New York advised him over the telephone that Acting Chairman '4(3°118Y oi that bank, whom it is understood has been opposed to such action, 4°11 feels that the rate should be increased and that the action should be tlIkell Promptly. Governor Harrison suggested that Lr. Woolley and he might eolma to Washington for a discussion with the members of the Board and inquiry W68 rn u acle as to whether their visit should be prior or subseouent to the meeting ' °t th6 board of directors of the bank today. The Governor stated that he thought -uld be better for them to come to Washington tomorrow after the matter had been alscussed by the airectcrs oi the bank, and arrangements were made accord, He stated that this morning, however, Governor Harrison again called hit a 4C1 advised that as market rates on acceptances have gone up and it will be tleeessary for the Federal Reserve bank to adjust its buying rates, he 711" have to recommend Cu increase in rate to his directors at their meettoaay. his own He stated tnat Governor Harrison advised that disregarding 3/21/29 -3- Pcsition, the condition of the security markets and the possible effect the rate change might have on those markets, it is felt that the rate structure i8 so upset in Hew York that the Federal Aeserve bank can not longer main]t3 present rate. The Governor stated that he informed Governor Harrison that he would advise the Board, which will -be prepared to consider any action whichhis directors may take. The Governor also stated that he discussed the matter with the Secretary of the Treasury, who advised that as far as the De1)arttlent was concerned he did not care what action was taken. He stated that While he would prefer not to do so, if the Board wished, he would join the rilaeting this afternoon and if an increase in rate is submitted by the New York cUreotors, he would vote against its approval by the Board at this time. A discussion of the proposed increase in bill rates ensued, and in44117 was made of the Governor as to whether he has been able, in accordance With the request made Of him recently, to arrange any change in procedure by.whi 'ch Proposed bill rates would be submitted to the Board for approval In a of their being made effective. 41(iI The Governor stated that when he was last 14 New York he discussed the matter, particularly with Deputy Governor 4azei - who is in charge of bill operations, who advised him that in ordinary -8 he believed the bank could operate if it were authorized to adjust the 111 rate within one-half of one percent under the discount rate of the bank, )014 th, at at the present time with the bill market so uncertain he did not feel that anYthing could be done except to follow the market rates. The Governor suggested that, in his opinion, it would be most dealrabl -a to have a conference between the members of the Board and the direct- Q 6aLY!..) 3/21/29 -4- Of the Federal Reserve Bank of New York for a full exchange of views rethe present situation, which, he believed, should take place in New York a$ the directors of that bank, being engaged in their own businesses, night not be able conveniently to come to Washington. ' Mr. Hamlin moved that the Governor endeavor to arrange to have a committee, at least, of the directors of the Federal Reserve Bank of New York, come to Washington at their convenience for a conference with the Board. Mr. Platt. moved, as an amendment, that a committee of the Board, consisting of the Governor, Mr. Miller and Mr. Hamlin, and such other members as may care to, go to New York for a meeting with the directors of the Federal Reserve bank. Yr. Miller moved, as a substitute, that the Governor Advise Governor Harrison that during the discussion today there was some expression that probably matters would clarify themselves if the members of the Board and directors of the Federal Reserve Bank of New York got into contact with one another, and ask that he submit the matter to his directors and ascertain whether they have any suggestion to make. Mr. Miller's substitute motion being put by the Chair was carried, Mr. Cunningham voting "no". Mr. Cunningham stated that he has no objection to a conference at any time with the directors of the New York bank or of any Federal Reserve bank, but that he feels in view of the circumstances and the suggestion which was submitted by the New York bank for discussion, which is an increase in the discount rate, the conference should be held in ;iashington. Telegram dated March 21st from the Deputy Governor of the Federal Reserve klalk Of this mornNew York, advising that following advances in market rates 14R, thA es was made effective -- new schedule 01 rates for rurchases of acceptanc 3/21/29 -5- at that bank today, as follows: Bankers Lcceptances: 1 to 45 days 46 to 90 days 91 to 120 days 121 to 180 days Repurchase Trade Acceptances - 5 1/42; 5 3/8/; 5l/2 5 5/8,; 5 1/47; 5 1/2 Noted, with approval, Mr. James voting "no". Telegram dated March 21st from the Governor of the Federal Reserve Bank °t Boston, advising of the establishment of the schedule of rates for Fures Of acceptances made effective today at the Federal Reserve Bank of 41I York, as set out above. Noted with approval, Mr. James voting "no". Telegram dated March 21st from the Chairman of the Federal Reserve Of Chicago, advising of the establishment today of the following sched111e el rates for purchases of bankers acceptances: 1 46 91 121 to to to to 45 days 90 days 120 days 180 days 5 5 5 5 1/4'4 3/8,; 1/2f; 5/8/:, Noted with approval, Mr. James voting "no". The Governor then left the room and communicated with Governor Harrison °t thA - Federal Reserve Bank of New York, whom he advised of the motion adopted 1).Y the Board. Upon his return, he stated that Governor Harrison would be glad t ° DIt the matter up to the directors of his bank at their meeting this after114011 ' 4* H6 stated that Governor Harrison referred further to the recommendation ACi 3/23129 -6- for an increase in rate which he will make to his directors, stressing the feet that large New York City member banks appear to be in favor of an inease as they are finding it increasingly difficult, in the face of the " Present rate, to continue their cooperation with the Federal Reserve bank ill dealing with the credit situation. The Governor stated that Governor Harrison admitted that the only phase of the matter is that it would enable the member banks to charge their customers a higher rate. At 1:00 p.m. the meeting recessed, and reconvened at 3:30 p.m., the same members being present as attended the morning session and also Mr. Pole, The Governor reported a telephone conversation with Governor lia rrison of the Federal Reserve Bank of New York, who stated that the idea 01' a conference with the Board appeals to the directors of his bank, who now in session and who have asked Acting Chairman Woolley and Governor Rerrison to meet with the Board in Washington as soon as convenient. He lee stated that the directors would welcome any members of the Board who may 61re to come to New York for a meeting there. Governor Young reported, however, that because of the increase t4 the bank's schedule of rates for purchases of acceptances which was neces- " 17 today, and the general firming of rates, with evidence of further in(*eases, as well as for other reasons which have previously been connunicated thrcYugh him to the Board by Governor Harrison, the directors of the New York balmhave voted to establish a rediscount rate of 6i; on all classes of paper Of al1 maturities subject to review and determination by the Board, with the 386 ' 3/21/29 -7- Understanding, however, that their action is predicated upon approval or disapproval by the Federal Reserve Board today. The Governor also reported. that Mr. Woolley would be glad to discuss with any members of the Board over the telephone the reasons why it is felt that action is.necessary today. Mr. Hamlin moved "That the Federal Reserve Bank of New York be advised that the Federal Reserve Board has received the advice that the directors of that bank have established a rediscount rate of six per cent, with the understanding, however, that their action is predicated upon approval or disapproval by the Federal Reserve Board today, and that the Board disapproves the action of the New York directors, and has determined that the rate of the bank be five per cent." Mr. Platt moved, as substitute for Mr. Hamlin's motion "That the rate of 6; established by the directors of the Federal Reserve Bank of New York on all classes of paper of all maturities be approved, effective tomorrow, March 22nd." kfter discussion, Mr. Platt's substitute motion was put by the Chair and lost, Yr. Platt voting "aye". Mr. Hamlin's original motion was then put by the Chair and carried, Mr. Platt voting "no". The Governor stated that he voted "aye", not because he is opposed to an increase in rate at this time, but solely to support the position of the majority of the Board. Ur. OunninP;ham stated that his position on the motion just adopted, Illlarding the action of the directors of the Federal Reserve Bank of New YOrir 13 explained in part in a resolution which he submitted, reading as to.lows F , rc 3/21/29 -8_. "Whereas, on Larch 7th, 1929, Counsel reported to the Federal Reserve Board on the subject 'Power of the Board to enforce principles regarding the proper use of credit facilities of the Federal Reserve System laid down in the Board's letter of February 2nd, 1929'; and Whereas, quoting the language of paragraphs two (2) and three (3) on page three (3) of said report, as follows: '(2) The Board could, if it deems it advisable, prescribe a regulation forbidding any Federal reserve bank to rediscount any paper for, make any loan or advance to, or purchase any bills of exchange, bankers' acceptances, or government, State, or municipal securities (under repurchase at the agreements or otherwise) from, any member bank which in dealers or brokers to ding outstan time: (1) Has loans has (2) or ies; securit ent investm stocks, bonds or other ding unreasonably large amounts of speculative loans outstan to customers secured by stocks, bonds, or other investment are to be securities, or the proceeds of which have been or used for the purpose of carrying or trading in stocks, bonds, or other investment securities. '(3) The Board has ample power to enforce such a regulation by suspending or removing from office the officers and s it.' airectors of any Federal Reserve bank which violate reTherefore, Be It Resolved that the counsel is hereby Board quested to prepare and submit to the Federal Reserve 2or its approval, a regulation providing in substance the Federal following: That except with the permission of the not less of vote tive affirma an upon granted Reserve Board than five (5) members of said Board, no Federal Reserve or Bank is permitted to rediscount for or make any loan acadvance to, or purchase any bills of exchange, bankers ies securit ceptances, or government, State or municipal member (under repurchase agreement or otherwise) for any or brokers bank which at the time has loans outstanding to or ies securit dealers in stocks, bonds, or other investment doutstan loans has unreasonably large amounts of speculative ent investm other or ing to dustomers secured by stocks, bonds or are to be securities or the proceeds of which have been stocks, bonds, in used for the purpose of carrying or trading or other investment securities." Although Lr. Cunningham did not request immediate action on the above resolution, inaswith much as it merely directs counsel to proceed subbe to ion the preparation of a form of regulat ration, the mitted to the Board later for conside Governor Young resolution was,upon motion,adopted, voting "no". c.) 3/21/29 -9_ Mr. Miller then left the meeting to talk over the telephone with Director Woolley of the Federal Aeserve Bank of New York, and upon his return advised a the Board that Yr. Woolley will be in : - /ashington tomorrow morning for conference* Telegram dated :::arch 21st from the Chairman of the Federal Heserve Bank of Richmond, advising of the establishment today of the following schedule of rates for purchases of bankers acceptances: 1 46 91 121 to to to to 45 days 90 days 120 days 180 days - i . 5 3/8/0 5l/2 5 5/8/? 5 3/4/0 Noted with approval, Mr. James voting "no". Telegram dated March 21st from the Governor of the Federal Reserve Bank of St. Louis, advising of the establishment today of the following schedIlla of rates for purchases of bankers acceptances: 1 46 91 121 to to to to 45 aays 90 days 120 days 180 days 51/4' 53/8 5 1/2% 5 5/8 Noted with approval, Mr. James ng "no". meeting adjourned at 4:05 p.m. N/Aie 44roved: Assistant Secretary. vernor.
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