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392
A meoting of the Federal lieserve Board was held in the office of the
Governor on Thursday, May 12, 1927 at 10:45 a.m.
PRESENT:
PRESENT ALSO:
The Chairman
Governor Crissinger
Mr. Platt
Mr. Hamlin
Mr. Miller
Mr. James
Mr. Cunninjiam
Mr. McIntosh
Mr. Eddy, Secretary
Mr. McClelland, Asst. Secretary
Governors Strong, Harding, Norris, Fancher and
McDougal, Members of the Open Market Investment Committee.
Mr. Harrison, Secretary of the Open Market
Investment Committee.
Mr. Goldenweiser, Director of the Division of
Research and Statistics.
The Chairman of the Committee submitted, for the information of the
°41
'
cl, a memorandum relative to recent oren market policy, covering the
general credit
situation and recent transactions resulting from large parell4aes Of gold.
He also presented the recommendations of the Open Market
illveetment Committee, stating that the recommendations had been submitted
to Me Governors' Conference now in session and received the unanimous ap131'°val of the Governors of all twelve Federal deserve banks.
The recom-
?netliations of the Committee were as follows:
"The Open Market Committee, after considering the attached memorandum, and after discussion with the Federal Reserve Board, submits
the following recommendations of policy for the period ending August
1 next:
(1) That no further sales of system securities be made in
order to offset arrivals of gold from abroad now known or anticipated.
(2) That it shall be the policy of the committee between now
and. August 1 next, gradually to acquire, if possible to do so without
undue effect upon the money market, sufficient additional short-time
government obligations to bring the total of the committee's investment account up to :,;250,000,000. In interpreting the expression
293
5/3.2/27
-2-
"undue effect upon the money market," the committee would expect to
keep in mind any changes which mi4it occur in the general level of
money rates, as well as the extent to which these purchases might
effect a reduction in the amount of borrowings by member banks.
While this policy is not directed towards bringing about a
reduction in discount rates by any Federal reserve bank, nor is that
immediately anticipated, it is recognized that some lowering of market rates for money might nevertheless justify such a reduction later
in the year, especially at the principal financial centers. The
reoommendation in paragraph two is also made after consideration of
the fact that somewhat lower interest rates ordinarily operate to
check gold Imports; in fact, that was one of the effects of purchases
Of securities made in 1924.
The committee further expects to continue studies of those
methods set out in the preliminary memorandum by which increases in
the System's portfolio might be brought about without increasing the
amount of Federal reserve credit in the market. It expects to discuss with the Treasury Department those methods with which the
Treasury is concerned, and requests that the Federal Reserve Board
give consideration to those particular items, such as reserves on
time deposits, which relate to the regulations of the Federal Reserve
Board."
Governor Criss Inger called attention to the fact that the Board, under
the
Jaal)
ression that the Federal Advisory Council would meet here tomorrow,
requested the Council to make a careful review of the open market
'c)licY of the Federal Reserve System since the organization of the Open
L54rket Committee and to give the Board the benefit of its views and to sub414 4AY recommendations that may seem desirable with regard to changes in
the
method or objectives of open market policy. The Governor stated that
the Pederal Advisory Council would not
meet until next Friday, May 20th, and
se cillently would not be able to discuss the matter as contemplated jointly
V h
It- the Board and the Open Market Investment Committee.
Governor Strong, Chairman of the Committee, called attention to the
that the preliminary memorandum presented to the Board shows the present
(311clitin
Of
affairs and requested that consideration be given to that mam-
394
5/12/27
-3-
"
anclum in connection with cons idera.tion of the Committee's recommendations.
Thereupon ensued a detailed discussion as to the present Open Market
situation
and the desirability of increasing the System's portfolio of governinellt securities, as recommended by the Committee, and of methods whereby sach
all ircrease could be accomplished without disturbing the money market.
Mr. Miller expressed his °Anion that the recommendation of the
acmoraittee for an increase in the investznent account up to ,;
r 250,000,000 was
in the right direction but that
the most important question concerned the
13110per time at which to make purchases.
Governor Strong stated that the purpose of the Committee was to
4reei with the Board upon the policy which would extend, under existing
c°/1clitions, until August 1st, and having done so that it would seem to be
the
responsibility of the Committee to put the policy into execution, keepthe Board informed daily of all transactions.
Mere followed a discussion as to the possibility of future irri13°Ilts of gold and the effect of such imports upon the money market, in conWith a policy of the Federal .:eserve System which itself might re11t
in adding to the present supply of money.
Governor Strong expressed the opinion that the policy contemplated
iii the
Committee's recommendations walla not result in any increase in
?tlicieral ,ieservo credit in the money market, but would be offset by reductions
rza
Inber banks' borrowings from the Federal deserve Bank of New York or in
the bill
holdings of the System.
1,:r. Hamlin then moved that the Board approve the recommendations of the Open Market Investment Committee, as above
quoted.
5/12/27
Mr. Miller moved, as a substitute for .Mr. Hamlin's
motion, that the recornendations of the Open Market Investment Committee be received by the 7oard and made
special order of business for a date to be fixed by the
Governor after conference with the Chairman of the Board.
4 general discussion then ensued as to the present method of executing
°Pen market policy,
touching upon the relative responsibility of the Board
414 the
Committee.
Following thiA discussion, Mr. Miller's substitute
motion was pat by the Chair and carried, the members voting
as follows:
Governor Crissinger, uaye"
Mr. Platt, "aye"
Mr. Hamlin, "aye"
Mr. Cunninjiam, "aye"
Er. McIntosh, "eve"
The Chnirman, "no"
Mr. Hamlin, "no"
Mr. James, "no"
I
rae Chairman of the Board and the Members of the Open Market Investment
Cc44ittee then left the meeting and Governor Crissinger took the Chair.
G{3vernor Calkins of the Federal Reserve Bank of San Francisco was then
itivited into the
meetin,7 and he discussedwith the members of the Board in
clet4ils on the basis of developments befo/e he left San Francisco and advices
l'eeeived by him from
the Federal Reserve Bank of San Francisco since he has
been in
1/It k
Ashington, the condition of the Pacific Southwest Trust and Savings
Of Los
Anp;eles in the light of certain transactions disclosed by a re-
2e4t examination of the bank, which were the subject of a letter addressed
t° thG Board by the Federal Reserve Agent
at San Francisco under date of
Ai)"1 27th.
He reviewed the recent transactions so far as he was acquainted
Witla theM and expressed the ooinion that exclusive of any losses which mi.ght
396
5/12/27
accrue to the bank through these transactions, its entire undivided profits
and surplus accounts would be wiped out and its capital slightly impaired
48 the result of worthless and doubtful assets taken in the regular course
°f business.
He stated that no ore could at this time foretell the results
°I the recent transactions, and expressed the opinion that it would be most
aeeirable to subject the bank promptly to another thorough examination.
Governor Calkins than left the room and the Board recessed at 1:00
The Board reconvened at 2:30 p.m., all members being present who
attended the morning session with the exception of the Chairman and Ur.
14eIntosh,
The Governor referred to the statement made by Governor Strong at
the 'eating of the Board on ',lay 5th to the effect that the Federal Reserve
Ballk 4/f New York was endeavoring to purchase from the Bank of France certain
°10ivA11ch the
Bank of France was withdrawing from the Bank of England and
"a sold to
and intended to ship to the American Exchange Irving Trust
CcIllaPa4y of New York City, which, if purchased, the Federal Reserve Bank of
Ilew York intended to have earmarked and held for it by the Bank of England.
e Governor stated that he had been advised by Governor Strong that the
aola
ala question, totaling :4;59,548,000 had been puxchased by the New York
had been earmark.ed and was being held by the Bank of England, and
that
at the 'Jonference of Govrnors of the Federal reserve banks now in
Sees
°11 in Washington it had been voted unanimously that all Federal reserve
batjts
Participate in the purchase and that said gold be not counted as part
(3 the banks' ,
old reserves.
9(T‘I
)
0a.f
-6
The Governor stated that he had also been advised that the participation
was to be made effective as of May 11th, azxi recommended that in the
Board's
PUblished statement showing the condition of the twelve Federal reserve
banks,
the gold in question be reported ar:ainst the caption, "Gold Held. Abroad",
itttediately
preceding the item "Due from Foreign Banks", and that the published
411a1Yeis accompanying the statement contain the following brief cw.ment in
regard thereto:
"During the week the Federal lieserve Bank of New York purchased, abroad 459,548,000 of gold, the purchase being participated in by all Federal reserve banks. This gold is now held
earmarked by ore of the foreim corresrondents of the New York
bank and is shmrn in the statement against a new item 'Gold
held abroad."
After a detailed discussion, M. Miller moved that the
Board reaffirm the position taken at the meeting on January
28, 1921 that Federal deserve banks should not regard as
part of their reserves gold earmarked in foreign countries.
Mr. Miller's motion beinF put by the Ohair
carried.
VAS
Mr. James then moved that the Board approve the recommendations of the Governor as to the method of reporting
In the Board's weekly statement the gold now held earmarked
oy the Bank of England, and as to the comment concer,ing
the purchase of the gold to be made in the publishefanalysis
accompanying the weekly statement.
Mr.
James' motion being put by the Chair
carried.
0, ..1 .7.
The meeting adjourned at 3:00
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