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A meeting of the Federal Reserve Board with the Governors of Pedera1 reserve banks was held in Washington on Thursday, October 12, 1933, at 12:20 p.m. PRESENT: Governor Black Mr. Hamlin Mr. James Mr. Thomas Mr. Szymczak Mr. O'Connor Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary ALSO PRESENT: Messrs. Young, Harrison, Norris, Fancher, Martin, Geery, Hamilton, McKinney and Calkins, Governors of Federal reserve banks. Messrs. Peple and McKay, Deputy Governors of Federal reserve banks. Mr. Johns, Acting Governor of the Federal Reserve Bank of Atlanta. Mr. Strater, Secretary of Governors' Conference. Governor Calkins, as Chairman of the Governors' Conference, l'ePorted that action had been taken by the Conference at its meetings as follows: r 92 of customTopic II-D. Elimination from Treasury Circula ers' paper as acceptable war loan collateral. Voted that the that this class Conference recommend to the Treasury Department for war loan deposits. of Paper be made ineligible as collateral loans. Voted, Topic III-A. Extension of provision for 10(b) to recommend that the provisions of section 10(b) of the Federal after March 4, Reserve Act, as amended, be extended for one year 1933, under the discretionary power granted to the President of the United States. r drafts. Topic IV-A. Federal reserve exchange and transfe and that the ed abolish drafts be Voted, that the use of transfer further consideration use of exchange drafts be continued pending at a later conference. subscriptions for inTopic IV-C. Policy involved in handling termediate credit baiik debentures referred to in Governor 10/12/33 -2- Lorgenthau's letter of September 26, 1933. Conference requested Governor Fancher to obtain the views of the Treasury Department with regard to Governor Llorgenthau's request, and, as a result of Governor Fancher's conference with Under Secretary of the Treasury Acheson, the latter suggested that a committee be appointed representative of the Federal reserve banks and the Treasury Department for the formulation of a report on the matter. In accordance with Mr. Acheson's suggestion, the Governors' Conference had appointed Governor Norris and Deputy Governor Burgess as members of the committee. Topic IV-E-1. Reimbursement for fiscal agency expenses. Topic IV-G. Reimbursement by Treasury for extraordinary expenses incurred during and immediately after bArk holiday. Topic IV-H. Reimbursement for gold abrasion. Governors Faucher, Martin and McKinney were appointed a committee to discuss these topics with the Board and the Treasury Department and report to the Individual governors or to a subsequent Governors' Conference. Topic V-A. Policy regarding issuance of Federal reserve bank notes. Voted that the Federal reserve banks which have not brought the amount of their circulation of Federal reserve bank notos up to approximately one tenth of their Federal reserve note circulation Should proceed to do so as soon as possible. The Conference also decided to recommend to the Federal Reserve Board the reconstituting of the committee on branch, group and Chain banking for the purpose of amending the report previously submitted by the committee in the light of events -which have transpired since the report was prepared, and with the view that the amended report would be submitted to the Federal reserve banks and eventually published. Upon being advised by the Pension Committee of the Governors' Conference that its funds were practically exhausted, the Conference voted that the Committee be authorized to expend not to exceed 05,000 in the completion of its work. With regard to the question which was discussed by the Conference at the request of the Federal Reserve Board, as to whether employees who have been in the service of a Federal reserve bank for a long period and whose services are discontinued, should be continued on the payrolls of the bank at nominal salaries or on leave of absence without pay in order that they may have the benefit of any pension plan which may be adopted by the Federal reserve bank 111 the near future, the Conference voted that Federal reserve banks may, with the approval of the Federal Reserve Board, continue of'leers or employees of the banks on their payrolls with or without 10/12/33 -3- compensation, depending on the circumstances, in order that they may not be removed from the banks' rosters and thereby become ineligible for pensions. The Conference also referred to the large number of applications for membership in the hands of the Federal reserve agents and the Board and voted that the Federal reserve banks should cooperate in every way possible with the Federal reserve agents and the Federal Reserve Board in expediting the handling of such applications. Governor Harrison, as Chairman of the Federal Open Llarket Com44ttee, then stated that at the meeting of the Colmnittee on October 10, 1933, it was voted that, subject to the approval of the Federal Reserve Board, the authority granted to the executive committee at the meeting Qf the Open Narket Policy Conference on „April 22, 1933, to purchase up to $1,000,000,000 of Government securities be continued and reaffirmed for the unused portion of the authority. Governor Harrison stated that the resolution was adopted unani111°u5ly by the Federal Open Market Committee and that imirediately thereafter the executive committee of the Federal Open Market Committee met 4.14d authorized the purchase of 46,000,000 of Government securities durillf, the current statement week, which meant that the securities had to be PUrchased not later than Wednesday, October 11, 1933, and, not having had an opportunity to submit the resolution to the Federal Reserve Board for approval, a purchase of the authorized amount was consummated under the Previous authority granted to the executive committee. Governor Harrison also stated that, in discussing the resolution it aPpeared to be the opinion of all of the members of the Federal Open -et Committee that, from the standpoint of present banking conditions 339 10/12/33 al°11e, there was little or no reason for further purchases of Government "clarities, in view of which it was felt that it would be advisable for the executive committee gradually to reduce purchases as soon as, and to the extent that, it is possible to do so without any adverse effect on the C°7erlaraent's recovery program. The Committee recognized, Governor Harrison stated, that unforeseen developments might arise which might change the views °f the Comrlittee and that, therefore, the executive committee should be free, 13eadirle another meeting of the Federal Open Market Committee, to use its full di8oretion in the light of conditions as they develop. At meetings subsequent to the adoption of the resolution above referred to, Governor Harrison stated, the Federal Open Market Committee con"ered at length the question of putting in its minutes a more extended rec°11 of its views with regard to open market operations, and, with that thcht in mind and for the purpose of giving the Board the views of the C°T1I'1 ittee• a memorandum had been prepared and approved by the committee for Presentation. to the Board. Governor Harrison then read the memorandum, which /148 in the following form: "MEMORANDUM OF OPEN MART POLICY "In their participation in the extensive open market Program which the Reserve System has conducted for a number of Months past, the Federal Reserve banks have been actuated by their desire to contribute to the fullest extent within their Power to the national recovery effort. In furtherance of that desire, and as a result of our observation of the open market °Peration, we believe that we may render a helpful service by recording our present views. "The System's holdings of government securities now 4m0unt to the unprecedented sum of $2,274,000,000, more than ten percent of the Federal debt. Excess reserves of member banks are now nearly $800,000,000, member bank indebtedness to 10/12/33 _5- 310 "the Reserve banks has been reduced to the smallest figure since August, 1917, ana short-time money rates have been forced down to the lowest level in our history. When to these facts it is added that the volume of currency outstanding is $5,595,000,000, far in excess of that outstanding in 1929, and that bank reserves are greater than at any previous time in our history, it would seem that our monetary problem today is not so much one of correcting a deficiency in the supply of basic money, whether by Federal Reserve credit or by government currency, as of achieving an effective use and turnover of the already existing supply. "Open market operations, as a means of stimulating business recovery, are ordinarily designed to force banking funds, first, into the short-time money mArket, and subsequently, as short-time rates are lowered, into the intermediate and long-time capital markets. In the present instance, it seems clear that neither of these major purposes is yet accomplished. "As to short-term credit, there are still grave obstacles both for borrowers and for lenders. Many business concerns, whose worth has been diminished by the unprecedented shrinkage in values and by several years of unprofitable operation, have been either unable or afraid to draw upon the available credit supply. At the same time many of the banks, partly by reason of their former unfortunate to the experiences and partly by reason of new uncertainties incident Bankthe of inauguration of the deposit insurance and other features extreme of in Act of 1933, have felt it necessary to pursue a policy Reserve System's liquidity. The result is that, notwithstanding the bard,. reOpen market purchases and the consequent large increase in y virtuall been have banks member serves, loans and investments of today less are deposits demand stationary for four months, and net of deposits than at the end of May. In addition, some $4,000,000,000 banks. ed remain locked up in closed or unlicens volume of short"Not only has there been no expansion in the longer uses into funds of term bank credit, but the desired pressure of conlack by blocked be in the capital goods industries seems to with resnty uncertai and dollar fidence in the future position of the imies liabilit the by pect to monetary policy in general, and also The 1933. of Act the Banking posed by the Securities Act of 1933 and with coupled and ; stagnant capital issues market remains completely in business from March to recovery the that this is the further fact so short a period, revealed August, though unprecedented for extent in lagging of the capital a serious lack of balance in the pronounced over 60 per cent of presgoods industries, which are responsible for also, that during mention, ent unemployment. It is worthy of special market lost bond the n the recent recurrence of inflationary agitatio g bond declinin a March. The bearing of one-third of its advance since reviving and upon the prospect for market upon the condition of banks rethrough the long-time money market the capital goods industries quires no elaboration. 10/12/33 -6- "In our judgment, these conditions indicate that the effectiveness of open market operations, in so far as banking and, credit factors are concerned, will depend in large measure Upon the early adoption of a broader program, designed to strengthen confidence and to encourage the flow of credit, both short-time and long-time, into uses which make for a well-balanced and enduring recovery." Governor Black raised the question as to whether the memorandum was to be understood as being confidential between the Federal Open Market Committee and the Board, and Governor Harrison stated that it was understood bY the members of the Committee that it was to be treated as strictly confidential by them, and that, while the Committee would have no objection to Ile submission of the memorandum to the Secretary of the Treasury or to the P/iesident of the United States, if the Board decided such action would be J-u4, it was otherwise to be held in strict confidence. Governor Black stated that the Board would give careful consideration to all the matters covered by the actions taken by the Governors' Conference and the Federal Open Market Committee as reported to the Board. Thereupon the meeting adjourned. 66;0-4, Apv. 1,,oved: Secretary.
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