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— —— ——-— ^ — X—1——— Reproduced from the Unclassified I Declassified Holdings of the National Archives _____ d e c l a s s if ie d Authority E .G . U35fc, / £. 3 33, ~~€ V--^ / / CONFinSHTIAL yO11- MINUTES OF THE MEETING OF THE OPEN MARKET INVESTMENT COMMITOE HELD AT THE OFFICES <2? THE FE2ERAL RESERVE BOARD _____________ WASHINGTON, D. C ,. JANUARY 7....1929__________________ The m eetin g was c a l l e d t o o r d e r a t 1 0 :4 5 A , M. } fCA . #f ^ / The f o l l o w i n g w ere p resen t: G overn ors H a rriso n (C hairm an), F an ch er, H arding, McDougal, N o r r is and Seay Mr* B u rgess, A c tin g S e c r e ta r y # ^ I t was v o t e d t o i n v i t e G overn or Seay and G overn or C a lk in s, who were in W ashington on o th e r m a tte r s , t o a t t e n d th e m eetin g o f th e com m ittee and t o i n v i t e G overnor Young t o a t te n d a f t e r a p r e lim in a r y d is c u s s io n * The p r e lim in a r y memorandum on c r e d i t c o n d i t i o n s and th e r e p o r t o f th o s e c r e t a r y w ere read, and on m otion , a c c e p te d * •/ G overn or H a rriso n made a sta tem en t co n c e rn in g th e p o s i t i o n o f th e a cco u n ts o f fo r e ig n c o r r e s p o n d e n ts and th e e f f e c t s upon th e s e a c c o u n ts and upon b u s in e s s g e n e r a l l y of a c o n tin u e d p e r io d o f h ig h money r a t e s in th e U n ited S t a t e s , He i n d i c a te d th a t th e p r i n c i p a l im p orta n t banks o f i s s u e a b roa d , w ith th e e x c e p t io n o f Germany, have used la r g e amounts of t h e i r f o r e ig n b a la n c e s in s u s t a in in g t h e i r exi» ch an ges, and th a t the Bank of E ngland had l o s t l a r g e amounts o f g o l d a l s o , H oreover, in most of th e c o u n t r ie s of Europe th e re tu r n o f p r o d u c tio n and tr a d e t o more norm al volum e has c r e a t e d a demand f o r a d d i t io n a l c r e d i t and bank r e s e r v e s * Un$er t h e s e c o n d i t i o n s th e r e has a lr e a d y been some s t i f f e n i n g in money r a t e s a b ro a d and some i n c r e a s e s in th e d is c o u n t r a t e s o f banks of i s s u e . T h is movement i s l i k e l y t o go f u r t h e r i f money r a t e s c o n tin u e h ig h in t h i s c o u n t r y . m oreover, I t seems l i k e l y , t h a t Europe may r e q u ir e f u r t h e r amounts o f g o l d . A t t h i s p o in t G overn or C a lk in s e n t e r e d th e m eetin g (1 1 :0 7 A . M .) G overn or McDougal r a i s e d th e q u e s t io n w hether i t was d e s i r a b le f o r th e F e d e ra l r e s e r v e banks to make th e p r e s e n t ch a rge o f one e ig h th f o r t h e i r g u a ra n ty on b i l l s b ou g h t f o r th e a c c o u n t o f f o r e i g n c o r r e s p o n d e n t banks* G overn or H a rr is o n i n d i c a t e d th a t t h i s was a cu stom ary ch a rg e by banks i n t h i s c o u n tr y f o r t h i s s e r v ic e . "■"V*VO Reproduced from the Unclassified I Declassified Holdings of the National Archives d e c l a s s if ie d Authority E .6 . * \ r 2 and that i f fo r no other reason i t was d esira b le f o r the Federal reserve banks to conform to the p ra ctice in th is country so as not to compete u n fa ir ly with member banks. There ensued an inform al d iscu ssion of the general c r e d it situ a tio n and the methods which might be employed by the reserve banks to prevent fu rth er ex ce ss iv e increases in the volume of c r e d it, including a discu ssion of the year-end situ a tio n and the probable return flow of funds to p rin cip a l centers during January and February. The d iscu ssion included a lso a review of the methods em ployed by the reserve banks represented in dealing with member banks who were large or continuous borrow ers. I t appeared to be the general view of those present that interview s with member bankers, to secure th e ir cooperation in preventing excessive use of Federal reserve funds, were of great value, p a r tic u la r ly at th is time, as a means of making sure that the seasonal return flow of funds is employed in the re duction of b i l l s and s e c u r it ie s of the Federal Reserve System* The committee a ls o discussed the p o ssib le d e s ir a b ilit y of a sale of secur i t i e s as a means of preventing the stim ulation of fu rth er in creases in the volume of c r e d it in the f i r s t two months of the year. The committee then discussed the p o sitio n of the present Open Market Com m ittee in view, ( l ) of the f a c t that at the jo in t conference the represen tatives of a l l the banks in d ica te d a d esire f or the reorga n isation of the committee, and (Z ) of the form of the Federal Reserve Board1s disapproval of the recommendation adopted by the meeting of the committee in November. At 12:35 Governor Young was in v ite d to jo in -the m eeting. Governor Harrison summarized f o r Governor Young the discu ssion which had taken p la ce . Thereupon the members of the Committee discussed with Governor Young the status of the committee in d ica tin g some p o s s ib le embarrassment in acting when not con stitu ted in accordance with the wishes expressed by the jo in t con feren ce. Governor Young in d ica te d that the Board was s t i l l considering the recom mendations of the conference and that he hoped f o r a ctio n in the near fu tu re . Reproduced from the Unclassified I Declassified Holdings of the National Archives DECLASSIFIED Authority E .6 . U3Sfc 3 Concerning the question of the r e la tio n of the committee to the Federal Reserve Board, the question was ra ised whether as a matter of procedure the Board was prepared as in the past to approve in advance a p o lic y recommended by the corn-* m ittee, which would then be executed by the committee, or whether, as im plied in the Board’ s l e t t e r of November 27, 1928, the Board would only approve any purchase or sale of Government s e c u r itie s at the time i t was to be made* Governor Young considered various asp ects of th is question with the committee. There ensued a d iscu ssion of p o lic y as to the discount rates, a ction , d ire ct or the purchase or sale of Government s e c u r it ie s . Ihe meeting adj ourned a t 2 P* M, The committee re-convened at 3 P. M., there being present Governors Harrison, Fancher, Harding, McDougal, N orris, Calkins and Seay Mr. Burgess, Acting S ecretary. The d iscu ssion of general c r e d it p o lic y and p o ssib le open market opera tio n s was resumed. In view of the recen t continued tendency toward an increase in the volume of cre d it, the committee was of the opinion that the System should be prepared to s e ll up to §50,000,000 of Government s e c u r it ie s during January or February, i f the amount of member bank indebtedness in p rin cip a l c i t i e s should diminish to an amount where money rates become so easy as to stim ulate fu rth er in creases in the to ta l volume of c r e d it beyond that required f o r business purposes. I t was the sense of the committee, however, that there i s no occasion now to make a recommendation, e ith er as to the purchase or sale of Government s e c u r it ie s fo r System accoun t. A fte r fu rth er con sid eration of the matters discussed a t the morning session the committee expressed the view that i t would be h e lp fu l and d esirable to have some more d e fin it e understanding or d e fin itio n of i t s fu n c tio n s . In the past the Committee has f e l t , and has understood that the Board concurred in the view that i t was a reasonable and proper d iv is io n of au th ority and r e s p o n s ib ilit y that the committee should recommend p o lic ie s , that these p o li c i e s should then be approv ed or disapproved by the Federal Reserve Board and the p a rticip a tin g Federal reserve Reproduced from the Unclassified I Declassified Holdings of the National Archives d e c l a s s if ie d Authority E.6. l£J54> 4 banks, and that i f approved by the Board the committee should than have au thority, w ithin s p e c ifie d lim its , to take such a ction as may be appropriate to carry out the p o lic ie s so approved f o r account of a l l banks d esirin g to p a r tic ip a t e . I t was the opinion of the committee that a continuance of th is procedure would be d esira b le and would f a c i l i t a t e the committee’ s serving i t s most useful purpose, e s p e c ia lly i f the membership of the committee is enlarged to twelve as ( recommended by the jo in t conference la s t November, At 4:05 the committee met with the Federal Reserve Board, there being present in add ition to those noted above Governor Young, Messrs* P la tt, Hamlin, James, Cunningham, and Pole, Messrs. Goldenweiser, Eddy and McClelland. Copies of the prelim inary memorandum on c r e d it con d ition s were d i s t r i buted to those p resen t. Governor Harrison then made a statement reviewing the general cre d it situ a tio n and the p o sitio n of fo re ig n banks of issue, and summarizing the commit t e e 's d iscu ssion a t the morning se ss io n . He read to the meeting the prelim inary d ra ft of the minute which had been prepared to cover the com m ittee's views with regard to the p o ssib le sa le of s e c u r it ie s and the scope of the fu n ction s of the committee. There ensued a d iscu ssion concerning the general c r e d it situ a tio n , and p a r tic u la r ly the p rosp ective movement of funds during January and February. There was a lso an informal discu ssion concerning the p o s s i b i l i t i e s of broadening the b i l l market. Some members of the Board ra ised the question whether the sale of b i l l s from reserve bank p o r t fo lio s would a id in the d is tr ib u tio n of b ills . Representatives of the reserve banks present reported that in th e ir opinion there is an ample supply of b i l l s a v a ila b le a t a l l times f or in v estors without the n e ce s sity of s e llin g b i l l s from reserve bank p o r t f o l i o s .^ The meeting adjourned at 5:15 P, M* W. Randolph Burgess, A cting Secretary.
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