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Reproduced from the Unclassified / Declassified Holdings of the National Archives




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WASHINGTON, D. C., APRIL 29, 1951.
The meeting convened at 8:30 o»clock, there being present the followings
Governors Young*, Fancher, Seay, Black, Geery,
McDougal, Martin, Talley, Calkins,
and Harrison, Chairman*
Deputy Governor Worthington*
The chairman presented the secretary’s report of open market operations
since the last meeting of the conference on January 21, 1931.

After considera­

tion, it was
VOTED that the report be received and placed on file.
The chairman then stated that the attached report of the chairaian of
the conference, which had previously been read during the meeting of the governors’
conference, was before the open market policy conference for consideration.
There was a long discussion of the report by the various members of the
conference with particular reference to the present gold trends and the possibility
of making the gold standard work more effectively.

It was pointed ait that in

view of the present favorable trade balance of the United States, amounting in re~
cent years to about $500,000,000 a year, the only way in v&ich that trade balance
could now be paid for was by the shipment of gold since the foreign bond market in
this country was practically closed to any new issues.

As indicated in the report

of the chairman, this country has received over #400,000,000 of gold in the last
fiftean months.

This gold,, however, has not in any way reflected itself in tha


expansion of member bank loans and investments but rather has been utilized to re­
duce the amount of Federal reserve earning assets*

To that extent it may be said

that the noxmal effects of the import of this volume of gold have been nullified*

*7 j



3 3 3 ,~C


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The question which was discussed by the conference was whether there was any ap­
propriate way in which the Federal Reserve System could take action in order that
any further gold imports will have their normal and natural effect upon the loans
and investments of member


Governor Harrison pointed out that this was one of the reasons which had
prompted the

Federal Reserve Bank of New York in recent weeks to reduce its bill

mates, hoping that by that action it would be possible to maintain or even in­
crease the System’s bill portfolio in spite of the fact that gold is still coming
into the country.

He said that to have done nothing with the bill rates would

very likely have resulted in a rapid diminution of the bill portfolio of the system
as gold came in, not only thereby nullifying gold imports but liquidating the
System*s earning assets by a substitution of gold, of which we already have a

Governor Harrison then said that it was the purpose of the New York

bank, if necessary, to reduce its bill rate as low as one per cent in the hope of
accomplishing its

objectives of maintaining or even increasing the b ill portfolio

in the face of gold imports;

that it was likely that next week or the following

week he vjould recommend a reduction in the discount rate.

The chief purpose of

this program was, he stated, not only to tend to reduce the amount of gold imports
or to make those imports that actually take place more effective, but also, by its
effect upon the short time money market, ultimately to make credit, of which there
is now plenty, especially in the big centers, more active and more widely distribut­

It was felt that this policy sooner or later would necessarily, because of

its effect upon the short time money rates, encourage banks and depositors in banks,
in spite of their present liquidity, to employ their money, n&ich now is becoming
relatively so unprofitable.

More specificallyr he said that he hoped that this

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policy might encourage the New York Clearing House banks further to reduce interest
rates on deposits.
Win this connection, it seemed to be the general sentiment of the conference that one of the difficulties with the banking situation today is the con­
sequence of the competition of banks throughout the country for increasing deposits
at unjustifiably higji rates of interest, and that any action which might encourage
a more general reduction in those interest rates could not but be helpful to the
banking situation as a whole.

Governor Harrison then said that if the policy

which the New York bank has adopted is to become completely effective it requires
System cooperation both in the matter of rates and in the matter of open market
purchases of government securities for with bill rates as low as they are, in the
event that the System’s bill portfolio runs off, even after rates may have been
reduced to one per cent, the only effective instrument which the System has left
to aid in maintaining the total volume of its credit outstanding is the purchase of
government securities.

He, therefore, recommended that the conference authorize

the executive committee of the conference, if and when it appears to them necessary
or advisable, to purchase up to $100,000,000 of government securities.

In making

this recommendation, he pointed out that it was not/the intention to purchase
government securities immediately but rather to attempt to carry out the policy,
first, through bill rates., second, through the reduction in disc cunt rate, and then,
if necessary, to resort to the purchase of government securities.^
^Governor Meyer was then invited to join the conference, and each member
of the conference, in turn, discussed this proposal*
Vi Governor Norris was of the opinion that the proposed policy might not
accomplish any great amount of goodj

that the System was in a strong position;

that there was little or no danger of speculation;

that he saw no probability of

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any bad results from the policy;

and that in those circumstances he was ready to

participate in the policy and to contribute by recommending a reduction in the
Philadelphia bank rate to three per cent.

His chief misgiving about the adoption

of the policy was the danger of a slowness in the reversal of the policy when that
might become necessary.

This was a danger to which all the members of the con­

ference referred and which Governor Meyer stated he did not believe would be ex­
istent in the present circumstances, especially in view of the fact that the country
would look upon a reversal of the policy as an evidence that the turn had come in
the business depression.
(^Governor Young stated that they are even now following the New York re­
ductions in bill rates and in the past have followed in the reduction of discount

that he believes it is important to have harmony in the System;

and that

if New York reduces its discount rate to 1 1/2 per cent, he will recommend the
same rate in Boston.

He believes that it is inadvisable to buy more government

securities at the moment but that even so he would, of course, be willing to buy
government securities at the present time from any member bank that needed accommo­
dation in that fashion.

He felt that while the program might be right or wrong,

the only thing to do, in view of all the circumstances discussed by the conference,
is to go through with it,
\vGovernor Fancher stated that the economic situation throughout the world
has seriously changed in the past year and is perhaps more serious than ever;
gold flow is most important;
program designed to check it.


and he said that he was willing to go along with any
He also agreed that the System can lend its efforts

to make money so cheap as to put it to work.

He stated that it was probable that

Cleveland would not reduce its discount rate but that the System cannot afford to
go along drifting in this extreme situation, and that he was, therefore, in favor

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of the recommended program.
(<Govern or Seay stated that he had no great degree of confidence that the
proposed policy will accomplish anything very definite or that business recovery
is dependent upon any further ease in credit.

He intimated that it was possible

that a further easing program might be construed as a move in the wrong direction
and as a policy of desperation.

He did feel, however, that any move that would

force banks to reduce rates which they pay on deposits is a most important one, and
that if the proposed program fafls in accomplishing that, the program itself would

He stated that if New York reduces its rate to 1 1/2 per cent, he would

recommend a reduction in tho Richmond rate to thrae per cent*

He felt, therefore,

that while the program may or may not accomplish good, it would probably have very
little risks attached to it, and that as far as possible the Richmond bank would
follow the program.
^Governor Black stated that, in his opinion, the present situation is
extreme and that it was important that we do something;

that there were only three

courses before the Systems

(1) that it should follow a policy of further pressure

by going up in its rates,

(2) that we should maintain the status quo, or (3) that

we should make further ease.

H& hopes and believes that the program recommended by

Governor Harrison will be effective, at least in part;
the gold which we have more useful;

that it would tend to make

and that it would tend to drive some short

time money to work, which is what the situation now needs.

He questions whether


the Clearing House banks in New York will further reducejtheir rates, but that
even so that should not deter us in the adoption of the program, which he is pre­
pared to follow.

He said that the Atlanta bank would follow on bill rate reduc­

tions but is not sure what the bank would do about discount rate, but that he is
determined to have the Atlanta bank follow the program as far as it can.

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(Governor McDougal stated that the gold problem, as discussed by the
conference, is an impressive one and should be corrected, if possible;
is the big question before us.

that that

The banking situation is also an outstanding

and that while he thinks money rates are now cheap enough and does not

see how cheaper rates will stimulate business, nevertheless it may serve to move
gold elsewhere.

In his judgment, there is no danger in the stock market but fears

that low or lower rates may lead banks to take imprudent steps.

He was not in

favor of buying governments at the moment but that if lower discount rates were
established in the Eastern districts, Chicago would probably have to follow,
lvGovemor Martin said that there is no historical precedent for the present
situation, and that it would, therefore, be difficult to predict the results of the
proposed policy.

He saw some objections to it but, on the whole, the majority of

reasons were in favor of it.

What objections there are he felt could be overcome

if we were prepared to go quickly enough to reversal.

He was in favor of trying

the experiment and said that St. Louis would follow with reductions in the bill
rates and probably with the discount rate.
IVGovernor Geary was somewhat at a loss to foresee the precise results of
the proposed policy but was willing to give it a fair trial at this time and was
willing to vote for it.
^Governor Talley stated that he still has confidence that gold will finally
express itself.

It always has in' the past sooner or later, and he said we are now

at a practical minimum of discounts and have only #180,000^000 of bills to be

If gold cones beyond that point, it will certainly express itself in the

country’s credit structure.

The proposed program would

bring this

event nearer.

He also agreed that the policy would tend to shove short time funds outside of New
York, though probably not into remote country districts.

In his judgment, there

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was some question whether it ?/ould be desirable to have the New York banks reduce
their interest rates further;

that it was more desirable, in his mind, for thpse

banks to send money abroad into short caanercial credits.

While somewhat appre­

hensive about attempting the policy, he saw little anmunition loft, and he was in
favor of trying it.
((Deputy Governor Worthington said that while the Kansas City bank has felt
for some time that money rates have been too low and that there would be no revival
in business until rates

go up, nevertheless he sees no objection to the program

and that it was necessary, in his judgment, now to make some effort to overcame
present difficulties.

He sees no harm and possible good in the program and that

Kansas City would always cooperate with any plan approved by the conference.
\VGovernor Calkins said that he agreed with the desirability of harmo­
nious action in the System but questioned how harmonious it would be unless a
program is agreed to without reluctance*

He is somewhat skeptical of the pro­

posed program because of the fact that the present situation was so lacking in
precedents that it is not possible to compare it with the past.


conditions are largely psychological and causes of it go away back to the war at

He disagrees with the theory that small reductions in bill rates and

discount rates would stimulate credit or that it is possible to make the gold
standard work in any orthodox fashion when two nations have most of the gold*
He referred to the fact that the Federal Reserve System has already contributed
in a large measure to the mobility of credit because of the telegraphic transfer
system, and that indeed this system contributed largely to the inflation during
1928 and 1929.

The big question, in his mind, is whether we would be prepared

to correct or reverse tho policy if it proves to be wrong, but that San Francisco
will be prepared to follow and participate in the program, even though not with
the wholehearted acquiescence which he thinks so advisable*

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^Governors Moyer and Harrison then said that they did not have any
fixed certainty of the outcome of the procedure but that it was one in which
wc had little* if any* volition since it would be forced upon us by the
present gold movement sooner or later, in any event.
liAfter further general discussion and upon recommendation of Governor
Harrison, the conference

that pending another meeting of the conference, as soon as

that may be deemed necessary by the Federal Reserve Board or the members of
the conference, the executive committee of the conference should be author­
ized, if and when it appears to them necessary or advisable, to purchase up
to $100,000,000 of government securities*^