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Reproduced from the Unclassified / Declassified Holdings of the National Archives


minutes of the meeting of t h e o pe n m ar ke t p ol ic y conference

WASHINGTON, D* C., May 21 and 22, 1930,
The meeting was called to order by Governor Young at 10:40 a# m.



The following were present:
From the Federal Reserve Board,
Governor Young and Messrs. Cunningham, Hamlin, James,
Miller, Platt, and Pole.
Frcm the Federal Reserve Board’s staff,
Messrs. Goldenweiser, McClelland and Staead.
From the Federal Reservo Banks,
Governors Harrison, Norris, Seay, Black, Fanchor, Geery,
Martin, Talley and Calkins, and Deputy Governors Burgess
and McKay.
Dr. Goldenweiser presented the facts as to the recent credit situation.
Governor Young asked the Conference to consider whether or not it was
desirable to hold a Governors Conference in the near future.
Governor Young reported informally on the discussion of the Federal
Advisory Council with, the Federal Reserve Beard on May 19.
Governor Young reported that the Open Market procedure as amended by the
meeting of Governors of the Reserve banks on March 25 had been submitted to all
the Reserve banks and t&at they had all indicated their willingness to participate
in accordance with the suggested procedure.

The New York bank had accompanied its

acceptance with a letter explaining its interpretation of tho proposed procedure.
A copy of this letter was distributed to the Governors and is attached herewith.
In view of the acceptance of the procedure by all Resorvo banks which was approved
by the Federal Reserve Board, Governor Young indicated that this meeting might be
regarded as tho first regular meeting of the Open Market Policy Conference.
Governor Young indicated that a number of suggestions had come informally


before the Federal Resorvo Board from various quarters, including the following:

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1. A sale of securities for the purpose of checking
speculation, improving bank earnings, and aiding the liquidation
of security loans,


2. A sale of $200,000,000 of Government securities to
bring about an adjustment of System earning assets so that re­
discounts might be approximately equal to the total of Government
securities and bankers acceptances held, this salo of securities
to be simultaneous with reductions in the discount rates of a
number of the Reserve banks.
3. One Reserve bank in order to increase its earnings was
considering the desirability of its buying for its own account
in the market $500,000 a month of Government securities,

4* A proposal to purchase Government securities and reduce
, / discount rates to secure a deliberate inflation of credit for the
benefit of business, particularly through the bond market,
5. To do nothing now but to be prepared to meet autumn
seasonal requirements for Federal reserve credit (computed at
between $350,000,000 and $400,000,000) by purchases of Government
securities and increases in bill holdings.
There followed a brief discussion of the implications of the findings of
the last meeting of Governors on March 25,

Governor Young indicated that he had

hesitated to vote favorably on the New York application for a three per cent
discount rate because of the position of Governors at that meeting on M&rch 25.
Governor Harrison indicated that the Now York Reserve bank ho was sure did not
want to be in a position of feeling that they were violating the spirit of the
findings of the Open Market Policy Conference in making a change in disccunt rate
following such a conference, particularly when a number of ?/eeks had elapsed after
the conference.

The decision as to discount rates he regarded as primarily the

responsibility of the boards of directors of tho rospective Reserve banks subject
to the review of tho Federal Reserve Board, and he did not believe the action of
the Open Market Policy Conference should be regarded as in any way restricting
freedom of action on discount rates,

A number of othor governors indicated their

agreement with Governor Harrison’s statement.

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At 11:45 the representatives of the Federal Reserve Board re'tired from
the meeting and the Open Market Policy Conference reconvened by itself.
The action taken in the organization of the Conference at the meeting pja.
March 25 was reaffirmed both as to the election of the representative of the Hew
York bank as chairman of the conference and as ex-officio chairman of the Executive
Ccouiittee, and as to the appointment for one year of an executive coe^ttee composed
of the representatives of Boston, Philadelphia, Cleveland, Chicago and New York

It was agreed that in following the principle of reasonable rotation in

the membership of the executive committee, there should be sufficient flexibility so
that the committee should not be made up altogether of new members and should be
fairly representative of different sections of the country and various interests*
Mr. Burgess was elected secretary of the conference for one year,
Mr. Harrison explained the considerations which had led to the calling of
the Co&f^rence indicating in particular that he desired an opportunity to report to
the othejp Governors concerning his recent trip abroad, and also that a full dis­
cussion of the credit situation seemed desirable prior to the beginning of the
vacation season.
Governor Harrison then gave a full Report of his trip ta Europe, of the
point of view with regard to the credit and business situation held by the heads of
bank* of issue of different countries, the developments with regard to the gold
position abroad, and with regard to the establishment of the Bank for International
Settlements and the extent of its relation to the banks of issue, and in particular
to the Federal Reserve System.
In the course of the discussion Governor Harrison emphasized the worldwide
nature of the recent price declines and business depression, and indicated the in*fluence of this world depression upon the position of the United States as reflected
In part by the fact that this country’s export trade for the first quarter of this
year was about 22 per cent less than in the like period of 19£9 and the import trade
was approximately 20 per cent less*

While the worldwide depression appeared in

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part to be due to an over-production of certain principal conmodities it also
appeared to reflect a shortage of working capital, and thus a restriction of pur­
chasing powerf. in a number of countries, and had been affected by the stringent
credit conditions prevailing last year in world money markets which in turn were in
part a reflection of the use of funds for speculation centering about the New York
security markets but worldwide in its scope*

The recovery of world trade appeared

in turn to be in no small degree dependent upon the restoration of purchasing power
through the medium of foreign borrowings in the New York money market, just as the
recovery of domestic trade appeared to be much dependent on the new financing for
domestic enterprise in the United States.
Before the adjournment of the morning meeting the Conference voted it to
be the sense of the meeting in response to the specific inquiry made by Governor
Young that in view of the full discussion of business and credit conditions had a.t
this meeting there was no need for holding the usual spring conference of governors*
The morning meeting adjourned at 1:15 p. m.
At 2:30 p. m. the Conference reconvened, all of the Reserve Bank repre­
sentatives being present except Governor Black who joined the meeting at about 3
p. m.

Governor Harrison continued his discussion of the European situation and its

relation to business and credit conditions in the United States.
There were distributed to the meeting and reviewed the preliminary memorandum of the Chairman, the Secretary’s report, and a copy of a letter of May 15
from Mr. Case to Governor Young giving the New York Reserve Bank’s interpretation
of the Open Market Policy prodeeure reviewed to March 25.
There was further extended discussion of the procedure of the Federal
Reserve System in its relationships with the Bank for International Settlements.
Those present indicated that they were in agreement with the policy and procedure
adopted by the directors of the Federal Reserve Bank of New York, first in passing
upon any question submitted to the New York bank by the Bank for International
Settlements, in accordance with the terms of the statutes of that institution,

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and second, in giving the Federal Reserve Board an opportunity to dissent frcm the
conclusions of the directors of the Federal Reserve Bank of New York as to any
major operations which might affect credit conditions in the country at large.
Those present further agreed that it would be impracticable to attempt to submit
questions of this sort to the other Federal reserve banks for their views*
35iere ensued a general discussion of the credit situation and the dif­
ferent proposals which had been made for Federal Reserve action, and there was
a discussion by different governors present both as to the degree of the severity
of business depression and the extent to which it would be wise for the Reserve
System to go in throwing its influence towards easy money and an abundant supply of

In the course of the discussion Governor Harrison reported that in a

number of recent weeks the Federal Reserve Board had failed to approve without
delay applications of the Federal Reserve Bank of New York for a lower raininum buy­
ing rate on bills, and that for considerable periods the New York bank had therefore
been without any downward flexibility in its bill buying rate as was the case at
that very time.

After discussion it was the sense of the governors present that

the minimum buying rate for purchases of bankers acceptances approved by the Federal
Reserve Board should always be at a point which will give flexibility in the bill
operations of the Federal reserve banks.
The discussion reverted to the question which had been raised by Governor
Young concerning the relationship between the findings of the Open Maifet Policy
Conference and discount rate action by the several Federal reserve banks, and the
following motion was adopted:
The conference voted to go on record that reconmendations as to the dis­
count rate of any Federal reserve bank or Federal reserve banks are not within its
proper province and that the directors of any Federal reserve bank must be free at
any time to change the discount rate of their bank subject only to the review and
determination of the Federal Reserve Board.

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The letter of May 15 from Mr. Case to Governor Young giving the New York
Reserve Bank’s interpretation of the Open Market Policy procedure, revised


March 25, was read, and it was generally agreed that this interpretation of the
procedure was not in anyway inconsistent with the sense of the meeting of March 25.
Governor Harrison reported that the Federal Reserve Bank of Kansas City
had requested the allotment of an additional amount of $10,000,000 of Government
securities in order that its volume of earning assets might be sufficient to assure
an amount of earnings adequate to cover expenses and dividends.

A discussion ensued

in the course of which it waa reported that a number of tho Reserve banks did not
at that time have sufficient earning assets to cover completely their expenses and
dividends, and that a redistribution of Government securities to one Beserve bank


without a full consideration of the requirements of all mi$it result in possible

It was, therefore, agreed that the figures for each Reserve bank should

be assembled as of the end of May with a view to determining the results of opera­
tions of the first five months with respect to earnings, expenses, and dividends,
and an estimate be then made of the probable results for the balance of the year on
the basis of which new ratios of allotments of securities micbt be determined and
necessary readjustments in the Open Market portfolio effected.


With regard to the suggestion of one of the Federal reserve banks, that


it be permitted to purchase government securities for the purpose of supplementing
its earnings, it was the sense of the conference that the supplementing of income
of a Federal reserve bank is not a proper reason for the purchase of governmeaarfr^s^
With regard to the policy to be pursued to meet fall credit requirements,
it was th© sense of the conference that, in view of the uncertainties as to credit
conditions, it is too early at this time to formulate definite plans as to the
means to be used to provide Federal reserve credit to meet autumn seasonal require­

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The meeting adjourned at 6:15 p. m.
The meeting reconvened at 10:00 ft. m. on the morning of May 22, there
being present»
Governors Harrison, Norris, Seay, Black, Fancher, Geery,
Martin, Talley and Calkins, and Deputy Governor McKay.
The action taken on the preceding day as it had been formulated in a
series of motions was reviewed and approved by those present.
After a further review of the credit position the following minute was
The Conference has considered a preliminary memo­
randum reviewing domestic business and credit conditions and
has discussed at length the present trends in world trade,
cormeree and comaodity prices. Particular consideration was
given to the rapidly declining volume of our export trade
and its probable relation to the decline in commodity prices
in this country.
It appears to the Conference that conditions in
business, agriculture and trade are still seriously depressed,
not only in this country but evidently throughout the r$st
of the world as well. It is the sense of the Conference
that these conditions merit continuous careful observation
by the Federal Reserve System in order that the System will
be prepared to act promptly in the event that conditions
further develop in such a way as to make action seem advis­
In the present circumstances, however, it does Inot)
appear to the Conference that any affirmative reconsnendation
as to Open Market operations is advisable iustljiqw. But "Tt
is the sense of the Conference that if the situation so de­
velops as to require an Open Market operation by the System
the members of the Conference will be prepared to reconvene
or else, if a meeting of the whole Conference is not prac­
ticable, to act promptly on recommendations of its Executive
At 11:00 a. m. the Conference met with the Feioral Reserve Board, there
being present, in addition to the above, the following:

Governor Young and Messrs. Cunningham, Hamlin, James, Miller
and Platt,
and Messrs. Goldenweiser, McClelland and Smead.

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The Chairman of the Conference reported on the action taken by the
Conference in the matter of its organization.

He also read to the meeting the

motions passed by the Conference with regard to

the spring Governors* Conference,
the minimum buying rate for bills,
the relation of action of the Conference
to discount rates,
the purchase of Government securities to
supplement earnings, and
the policy with respect to meeting autumn
credit requirements.

The minute with respect to business and credit conditions adopted by the
Conference was then read to the Federal Reserve Board and discussed fully.


advisability of the immediate purchase of Government securities was raised by a
member of the Federal Reserve Board, frcm the point of view of seeing to it that
the Reserve System did everything in its power to remove every possible restraint
of business as far as credit was concerned, and particularly as to the desirability
of an active bond market.

The query was also raised as to whether any formula

could be found for the desirable total amount of Federal reserve credit which
might be a guide for open market operations*
In commenting on the minute submitted by the Conference Governor Harrison
indicated that he believed the possible necessity for the purchase of Government
securities might become imminent at any time.

The meeting adjourned at 12:30 p. m.

¥/. Randolph Burgess,