The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
The attached minutes of the meeting of the
Board of Governors of the Federal Reserve System
on March 29, 1960, which you have previously initialed,
have been amended at the request of Governor Robertson
to revise his remarks on pages
6 and 8.
If you approve these minutes, as amended, please
initial below.
Chairman Martin
Governor Szymczak
Governor Mills
Minutes for march 29, 1960
To:
Members of the Board
From: Office of the Secretary
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial below.
If you were present at the meeting, your initials will
Indicate approval of the minutes. If you were not present,
your initials will indicate only that you have seen the
minutes.
Chin. Martin
Gov. Szymczak
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Minutes of the Board of Governors of the Federal Reserve System
on Tuesday, March 29, 1960.
PRESENT: Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 10:00 a.m.
Martin, Chairman
Balderston, Vice Chairman
Szymczak
Mills
Robertson
Shepardson
King 1/
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Discount rates.
Sherman, Secretary
Thomas, Adviser to the Board
Young, Adviser to the Board
Noyes, Director, Division of Research and
Statistics
Farrell, Director, Division of Bank Operations
Hexter, Assistant General Counsel
Brill, Associate Adviser, Division of Research
and Statistics
Conkling, Assistant Director, Division of
Bank Operations
Landry, Assistant to the Secretary
The establishment without change by the Federal
Reserve Bank of Atlanta on March 28, 1960, of the rates on discounts
and advances in its existing schedule was approved unanimously, with
the understanding that appropriate advice would be sent to that Bank.
Item circulated to the Board.
The following item, which had
been circulated to the members of the Board and a copy of which is attached to these minutes as Item No. 1, was approved unanimously:
Letter to David B. McCalmont, Lancaster,
Pennsylvania, regarding his doctoral dissertation on the redistribution of gold
reserves among Federal Reserve Banks.
1/ Withdrew from the meeting at the point indicated in the minutes.
-2-
3/29/60
Messrs. Harris, Coordinator, Office of Defense Planning, and
Koch, Adviser, Division of Research and Statistics, entered the room
at this point.
Executive Order regarding emergency banking powers.
There had
29,
been distributed a memorandum from the Legal Division dated February
1960, regarding a request from the Budget Bureau on December 7, 1959,
for views regarding a draft of proposed Executive Order, submitted by
the Treasury Department, under which all powers possessed by the President
with respect to banking and financial transactions would be delegated
to the Secretary
Of the Treasury.
On January 11, 1960, the Board tenta-
tively approved a draft of reply opposing approval of the Executive
Order in the form submitted, on the ground that its failure to state
that it would become effective only in the event of an emergency would
give rise to serious questions as to its legality and in any case would
result in confusion and misunderstanding.
Chairman Martin recalled the understanding at the January 11
he would
'Meeting that before sending the letter to the Budget Bureau
discuss it with Under Secretary of the Treasury Scribner.
As a result,
Mr. Scribner had sent a letter dated February 18, 1960, indicating
that the Treasury still believed that the proposed Executive Order should
ot refer to a war emergency because (1) it might suggest that the inter, doubt
:
Aational situation is graver than it is and (2) it would cas°A the Treasury's current authority.
His letter suggested that if a
3/29/60
-3-
compromise could not be agreed upon to avoid these effects, the proposed
Order be placed in the President's "black bag" as a standby Order to
be issued in the event of an emergency.
The Chairman said that he
had talked with Mr. Scribner a number of times regarding this question
and that he was now disposed to send the letter to the Budget Bureau
opposing approval of the Executive Order in the form submitted by the
Treasury since there appeared to be no advantage in further discussion
with the Treasury on this score.
Mr. Harris commented that the proposed reply to the Budget Bureau
vas substantially the same as the letter tentatively approved by the
Board on January 11.
The question had been thoroughly discussed with
Treasury officials and they were completely conversant with the Board's
view. The Treasury had expressed its views to the Budget Bureau, Mr.
Harris said, and he could see no reason why the Board's views should
not now be sent to the Budget Bureau, which had requested them.
Unanimous approval was then given to the letter to the Budget
Bureau opposing approval of the Executive Order in the form submitted.
Secretary's Note: Subsequent to the meeting,
suggestions for revision of the wording of
the letter were made and its transmission was
deferred pending further consideration by the
Board.
Mr. Harris withdrew from the meeting and Mr. Molony, Assistant
to the Board, entered the room at this point.
f
-4-
3/29/60
Stock market developments.
Before this meeting there had been
distributed a memorandum dated March 16, 1960, from Mr. Noyes attaching
a study dated March 15, 1960, from Mrs. Ulrey, Economist, Division of
Research and Statistics, regarding recent stock market developments.
This memorandum indicated that since the end of 1959 stock prices had
declined about 10 per cent, with the decline during January being persistent, carrying the Standard and Poorts 500 stock price index to a
level 11 per cent below the market peak of early August 1959.
The
sharp fall in prices had operated to raise the average yield on common
stock to 3-1/2 per cent for the first time since October 1958.
So far
as stock market credit was concerned, by the end of February customer
credit had declined about 10 per cent from the record high of
$4.8
billion in April 1959, with the absolute decline divided equally
between debit balances at brokers and bank loans to customers other
than brokers and dealers.
However, the rate of decline had been more
rapid for bank loans, bringing this series back to the level of early
1958.
There followed a general discussion of the material presented
in the memorandum and its relation to margin requirements.
Maximum interest rates under Regulation Q.
Chairman Martin
said he was not convinced that any change was called for in the maximum
interest rates payable on time and savings deposits under Regulation Q,
Payment of Interest on Deposits.
On the other hand, he noted that any
3/29/60
-5-
decision along this line depended on what the Board thought the economy
was going to do in the next several months and the judgment it had
regarding the relationship of these rates to saving and whether a change
'would encourage saving.
There followed a general discussion of the subject during Which
various views were expressed by Board members as to the need for action
oho way or the other regarding existing maximum rates and what, if any,
Change might be appropriate.
At the conclusion of the discussion it
Ws understood that the subject would be taken up again at a subsequent
meeting of the Board, perhaps sometime in April.
Mr. Fauver, Assistant to the Board, entered the room during the
foregoing discussion and at the conclusion withdrew, along with Mr. Conkling.
Requirement of margins on loans backed by Government securities.
Robertson report
Chairman Martin said that he would like to have Governor
Oh developments in connection with the proposal for requiring margins
On loans against Government securities or issuance of a supervisory
.
statement with respect to speculation in Covarnment securities
field.
sonally had blown hot and cold on any proposal in this
He per-
The
Secretary of the Treasury had indicated an active interest in the matter,
to review what
however, and he felt it would be desirable for the Board
had taken place.
to
Governor Robertson said that there had been further attempts
y
'‘/°rk out arrangements among the three Federal bank supervisor agencies
-6-
3/29/60
with regard to implementing the proposal made in the joint Federal
Reserve-Treasury study of the Government securities market of last July
to prevent speculation in that market by requiring margins on loans
secured by marketable Government securities.
Under date of March 8,
1960, he asked Comptroller of the Currency Gidney and Chairman Wolcott
Of the Federal Deposit Insurance Corporation for comments on a draft of
letter from the supervisory agencies to their District Chief Examiners
On this subject.
Comments had been received from Mr. Gidney, who agreed
With the principle that in general at least a 5 per cent margin should be
required but that the margin could be lower against short-term obligations, should be "adequate" in the event of Treasury refundings, and
should be maintained at an "adequate" level regardless of the form of
the loan. The Comptroller's Office suggested that the exemption of
Government securities dealers from the margin requirement should be
based on the additional reason that they were reporting their borrowings
and positions to the New York Reserve Bank.
Governor Robertson went on to say that the Federal Deposit Insurance Corporation agreed with his position that this approach to the problem
--through bank supervision--was wrong, since it involved the use of the
bank supervisory agencies for regulation outside the proper scope of superIriaory activities and called for analysis of bank assets on a basis other
than soundness. The Corporation's Mr. Greensides had indicated, however,
that if it was the firm position of the Treasury that this approach should
be followed, the Corporation 'would cooperate.
Governor Robertson added
3/29/60
-7-
that even though the Comptroller's Office was willing to go along with
the described proposal, Mr. Gidney would do so reluctantly and only
because the Treasury desired that the action be taken.
Chairman Martin questioned whether the distinction between bank
supervision and economic policies could be sharply drawn.
As he saw it,
the crux of the matter was the possibility that more harm than good was
being done by not establishing margins on loans against marketable Treasury
securities, and he referred to the speculative excesses in the Government
securities market during the summer of 1958.
He recognized that the Board
did not possess statutory authority to impose margins on loans backed by
Governments, but an the other hand he questioned whether it was desirable
to proceed on the present basis of requiring no margins and asserting that
the banking system was not endangered thereby.
Mr. Young noted that it was possible to make a case for requiring
zargins on loans against marketable Treasury issues since the possibility
°f Undue speculation in the Government securities market would continue
to arise whenever the posture of monetary policy shifted.
He suggested
the following possible remedies: (1) legislation giving the Board the
Power to impose margin requirements on loans collateraled by Treasury
iewues; (2) a joint statement issued by the three bank supervisory authorities
to be published and circularized; and (3) introduction by
the Treasury of margin requirements on subscriptions in connection with
both its cash and refunding operations.
With respect to the first pos-
"ibility, Mr. Young said he foresaw difficulties in the area of public
relations should higher margins be imposed at any time when the economy
3/29/60
-8-
Vas weakening.
With respect to the second suggestion, he believed that
it was proper for supervisory authorities to emphasize the importance to
banks of scrutinizing loans carefully, including those backed by Government securities, since bank supervision to him implied prevention of
unstabilizing influences in the economy and undue speculation in Treasury
issues could adversely affect banking.
So far as the third possibility
vaS concerned, a cash margin of possibly 20 per cent to accompany all subscriptions to new Treasury offerings, either on a cash or refunding basis,
would, in combination with a joint statement by the bank supervisory authorities, stand a good chance of being substantially effective.
However, this
would not prevent speculation on a cash basis, as occurred in the summer
Of 1955.
Governor Robertson said that an instruction to national bank
examiners to scrutinize loans backed by Government securities would be
desirable.
This position, however, differed from a proposal to impose mar-
on loans backed by such securities.
He saw merit in exercising moral
sUasion through efforts of the Treasury and the Federal Reserve as a means
Of contributing to the smooth functioning of the market for Government
Becurities, but he did not believe the imposition of margin requirements
by supervisory authorities was the proper Approach.
New refunding method proposed by the Treasury, Governor Balder'°n remarked that although the Treasury hoped that the next edition of
the examiners' compendium of the Comptroller of the Currency would in*Ude a reference to standards to be observed regarding checking loans
-9-
3/29/60
against Governments, the Treasury's principal proposal along this line
at present followed a different path.
He had spoken on the telephone
this morning with the Under Secretary.
From him he learned that, in
order to inhibit speculation in maturing securities given the exchange
of "rights"
Privilege ("rights") during Treasury refundings, the value
e to
would be eliminated by permitting the general public to subscrib
with no preferential
refunding issues on either a cash or exchange basis,
allotments to be made.
However, the Federal Reserve would be permitted
to "roll over" its holdings of maturing securities by receiving a 100
Per cent allotment to be paid for in cash or by maturing securities,
along with Government trust accounts, individual subscriptions up to
some small amount, and perhaps pension funds of State and local governments.
that the
Governor Balderston also indicated his understanding
would impose
Treasury does not plan to ask Congress for legislation that
es. Rather,
margin requirements on loans secured by Government securiti
It believes the equivalent of a cash margin requirement can be imposed
administratively by writing to the larger commercial banks requesting
that they not make loans on Treasury securities except on adequate
.
Margins (inapplicable to Government securities dealers)
The Secretary
rs of large
(If the Treasury also contemplated writing to the treasure
repurchase assistance on
corporations requesting that they not extend
Government securities.
3/29/60
-10Governor Balderston went on to say that his understanding was
that the Treasury was prepared to consider this program seriously in a
unilateral way, although it would prefer to have the approval of the
Federal Reserve.
He also said that the Treasurys announcement this
coming Thursday evening of the terns of its April cash borrowing might
refer both to margin requirements and to its plan to eliminate "rights"
values.
The refunding procedure that the Treasury was considering was
similar to a proposal made in a letter from the Treasury dated October 1,
1958, when it suggested doing its refinancing on a cash basis with less
than full allotments to be made to subscribers who could tender either cash
or maturing securities in payment.
However, the Federal Reserve would be
given a special exchange offer at the same time with the privilege of
full allotment.
Because of the strong conviction of the Open Market Com-
mittee, expressed in a letter to the Treasury dated October 21, 1958,
that it would be inadvisable to distinguish in any way between the treatIllent given to securities held by the Federal Reserve Banks and those held
by other investors, the Treasury made an alternative proposal on October 24,
1958, whereby preferential allotments in full would be made to all subscribers, including the Federal Reserve, who tendered maturing securities in
PaYment of their subscriptions.
In conclusion, Governor Balderston said
the Treasury would like to have the Board's reaction to the proposal as
tO bank examination standards relating to loans on Governments and the
'
1411 allotment procedure for the Federal Reserve during Treasury financing.
3/29/60
_fl..
Governor King stated that it was necessary for him to leave the
meeting to keep another appointment.
However, he agreed with Governor
Robertsonts view that imposing margin requirements by regulation to be
administered by the supervisory agencies vas not the proper method of
meeting the problem of overextension of credit on Government securities.
He did not believe that a Government agency should use authority given to
it for one purpose to do something that it was not clearly authorized to do.
Governor King then 'withdrew from the meeting as did Mr. Brill.
Governor Szymczak inquired whether the $5 billion maximum limit
On direct borrowing by the Treasury from the Federal Reserve would Appear
to serve as a restriction to operations pursuant to the current Treasury
Proposal, and Mr. Hexter replied that in 1958 the Legal Division had expressed
the view that this limitation would not be a restriction, on the basis that
such Treasury financing would represent an exchange offering to the Federal
Reserve and thus 'would not involve a direct "purchase" of securities from
the Treasury.
Governor Mills expressed concern that there might be public misunderstanding of any Treasury announcement of such a change in its financing
Procedures.
the
On the other hand, he was resigned to following through on
proposal for a joint statement by the three supervisory agencies.
Following an indication by the Chairman that the way was still
°Pen for the Board to decline to participate in any such joint statement,
17a8 understood that Messrs. Young and Hexter would attempt to get from
the Treasury a written statement regarding the proposal described by
C°vernor Balderston and report back to the Board.
-12-
3/29/60
maprice and credit infor-Government securities market historical
tion.
the Joint Economic Committee
Mr. Young recalled that last summer
information to be supplied by
requested historical price and credit
dential basis and that an
Government securities dealers on a confi
these data in the form of index
arrangement was worked out to provide
by concealing the actual data.
numbers, with 1951-57 as the base, there
Committee for
The Commission on Money and Credit established by the
of this report.
Economic Development had now requested a copy
Should
would be
the Board accede to this request, the staff of the Commission
as the staff of
under the same restrictions regarding use of the data
or
the Joint Committee, namely, restriction against direct quotation
direct use of the figures in any documentation.
nor Szymczak
Unanimous approval was given to a suggestion by Gover
the New York
that this request be granted provided President Hayes of
, and Leedy, the other
Reserve Bank and Presidents Bopp, Fulton, Bryan
Open Market Committee,
Reserve Bank Presidents currently serving on the
tion.
were informed of this development and interposed no objec
The meeting then adjourned.
Secretary's Note: Pursuant to the recommenda
e
priat
appro
tions contained in memoranda from
individuals concerned, Governor Robertson,
Shepardson,
acting in the absence of Governor
Board the actoday approved on behalf of the
following
ceptance of the resignations of the
:
staff
's
Board
persons on the
118.
3/29/60
Virginia G. Krenzke, Editorial Clerk, Division of
Research and Statistics, effective March 25, 1960.
Margaret S. Bonner, Stenographer, Legal Division, effective April 1, 1960.
1 SI;
BOARD OF GOVERNORS
OF THE
4400itop:94.
'TAO
FEDERAL RESERVE SYSTEM
‘1
:
Item No. 1
3/29/60
WASHINGTON 25, D. C.
ADORCIIII °maim. CORRCIIPONOCNOC
TD THIC 00ARO
March 29, 1960
Mr. David B. McCalmont,
546 W. James Street,
Lancaster, Pennsylvania.
Dear Mr. McCalmont:
In accordance with the request in your letter of
August 12, 1957, the Board of Governors authorized access to
unpublished information -for use in your dissertation
"Redistribution of Gold Reserves Among Federal Reserve Banks."
The Board's staff has gone to unusual lengths to seek
out and make available to you technical material on this subject
because it was interested in obtaining a compilation, review,
and analysis of all the data in its possession that are relevant
to the technical nature of your dissertation. It is pleased
with the meticulous way in which these aspects have been covered.
The Board granted your request for access to
unpublished information with the understanding that the action
was not to be considered a precedent and that each such request
would be examined on its merits.
You will understand that neither the Board nor any of
its staff can take any responsibility for the general conclusions
of your study.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
@FedFRASER