March 19, 1936 FOMC Minutes: Full Text
A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in ashington on Thursday, March 19, 1936, at 10:45 a. m. PRESENT: Mr. Eccles Mr. Broderick Mr. Szymcak Mr. McKee Mr. Ransom Mr. Harrison Mr. Fleming Mr. McKinney Mr. Hamilton Mr. Morrill, Secretary Mr. Wyatt, General Counsel There was some further discussion of the proposed regulation of the Federal Open Market Committee with regard to open market operations of the Federal reserve banks. At the conclusion of the discussion, upon motion duly made and seconded, and by unanimous vote, a regulation was approved and adopted in the following form: "SECTION 1. "Pursuant to the authority conferred upon it by section 12A of the Federal Reserve Act, as amended, the Federal Open Market Committee prescribes the following regulations relating to the open-market transactions of the Federal Reserve banks. "The Federal Open Market Committee expressly reserves the right to alter, amend, or repeal this regulation in whole or in part at any time. "SECTION 2. DEFINITIONS - The term 'Government securi "(a) Government securities. ties' shall include bonds, notes, certificates of indebtedness, and other obligations of the United States, Treasury bills, as to principal and including obligations fully guaranteed interest by the United States.
"(b) Obligations - The term 'obligations' shall include all bankers' acceptances, bills of exchange, cable transfers, bonds, notes, warrants, debentures, and other obligations, in cluding Government securities, which Federal Reserve banks are authorized by law to purchase in the open market. "(c) System open market account. - The term 'system open market account' applies to Government securities and other ob ligations heretofore or hereafter purchased in accordance with open market policies adopted by the Committee and held for the account of the Federal Reserve banks. "(d) Committee - The term 'Committee' shall mean the Fed eral Open Market Committee. "(e) Executive committee. - The term 'Executive Committee' shall mean the executive committee of the Federal Open Market Committee. "SECTION 3. GOVERNING PRINCIPLES "By the terms of section 12A of the Federal Reserve Act, as amended, the time, character, and volume of all purchases and sales in the open market by Federal Reserve banks shall be gov erned with a view to accommodating commerce and business and with regard to their bearing upon the general credit situation of the country. "SECTION 4. FEDERAL OPEN MARKET COMMITTEE "(a) Functions. - The Committee shall consider the needs of commerce, industry and agriculture, the general credit situa tion of the country, and other matters having a bearing thereon and consider, adopt, and transmit to the several Federal Reserve banks, regulations and directions with respect to the open-market operations of such banks under section 14 of the Federal Reserve Act. System Open Market Account. - The Com "(b) Participation in time to time shall determine the principles which mittee from among the several Federal Reserve shall govern the allocation and other obligations held in the banks of Government securities System Open Market Account, with a view to meeting the changing needs of the Federal Reserve banks. "SECTION 5. EXECUTIVE COMMITTEE at its first meeting - The Committee, "(a) Organization select from its own calendar year, shall March 1 in each after of five members. committee consisting members an executive
"(b) Functions. - It shall be the duty of the Executive Committee: "1. To direct the execution of transactions in the open market in accordance with the open-market policies adopted by the Federal Open Market Committee; "2. To allocate the Government securities and other obligations held in the System Open Market Account among the several Federal Reserve banks in accordance with the principles determined by the Federal Open Market Com mittee; "3. To keep the members of the Federal Open Market Committee informed of all transactions executed under the direction of the Federal Open Market Committee and of all allocations and reallocations of Government securities and other obligations held in the System Open Market Ac count; and "4. To perform such other functions and duties in connection with open-market operations as may be assigned to it from time to time by the Federal Open Market Com mittee. "SECTION 6. CONDUCT OF OPEN MARKET OPERATIONS "Each Federal Reserve bank shall engage in open-market op erations under section 14 of the Federal Reserve Act only in ac cordance with this regulation and the directions issued by the Committee from time to time, and no Federal Reserve bank shall decline to engage in open-market operations as directed by the Committee. "Transactions for the System Open Market Account shall be executed by a Federal Reserve bank selected by the Committee. Fach Federal Reserve bank shall make available to the Federal Reserve bank selected by the Committee such funds as may be necessary to conduct and effectuate such transactions. PURCHASES AND SALES OF GOVERNMENT SECURITIES "SECTION 7. shall purchase or sell Government "No Federal Reserve bank granted by the Committee pursuant to authority securities except by the Com open market policy adopted accordance with an or in mittee and in effect at the time. reserves the right, in its discretion, to "The Committee now held or here Government securities the sale of any require bank or to re Federal Reserve by an individual after purchased transferred into the System Open quire that such securities be as the Com with such directions Account in accordance Market mittee may make.
"SECTION 8. OTHER OPEN MARKET OPERATIONS "Subject to directions of the Committee and the following conditions, each Federal Reserve bank may engage in open-market operations other than the purchase or sale of Government securi ties: "(1) All such transactions shall be reported daily to the Secretary of the Committee on the day they take place. "(2) Only acceptances and bills of exchange which are of the kinds made eligible for purchase under the pro visions of Regulation B of the Board of Governors of the Federal Reserve System may be purchased and the rates of discount shall be established in accordance with the pro visions of section 14(d) of the Federal Reserve Act: Pro vided, further, That no obligations payable in foreign currency shall be purchased except in accordance with directions of the Committee. "(3) Only bills, notes, revenue bonds and warrants of States, counties, districts, political subdivisions or municipalities which are of the kinds made eligible for purchase under the provisions of Regulation E of the Board of Governors of the Federal Reserve System may be purchased. "(4) No Federal Reserve bank shall engage in the purchase or sale of cable transfers for its own account except in accordance with the directions of the Committee; Provided, That Federal Reserve banks may purchase and sell cable transfers through the Habana agency in accordance or regulations of the Board of Govern with the resolutions Federal Reserve System governing the operations ors of the of such agency." section 7 of the regulation and President Harrison referred to form in which the section had been stated that, while he felt that the regulation, he had expected for the purposes of the adopted was proper a proposal that authority consider and act upon the Committee would that any Federal which, in an emergency, Committee under granted by the be when necessary to Government securities bank might purchase reserve specific banking institutions in a situation involving afford relief of the Federal Open obtaining the consent district, or, after in its
arket Committee, might purchase or sell Government securities for its o, account, all such purchases and sales to be reported promptly to the Federal Open Market Committee and its executive committee. President Harrison moved that the question of granting such authority be taken up for action at this meeting. Mr. Harrison's motion was seconded by Mr. McKee. After discussion of questions as to the necessity for taking action at this meeting and as to when and in what circumstances situations might arise prior to the next meeting of the Committee which would necessitate such authority in the meantime, the motion was put by the Chair and lost, Messrs. Eccles, Szymczak, Fleming, McKinney, and Hamilton voting "no" for the reason that they felt that the matter required further study and they, therefore, favored deferring ac tion on the matter until the next meeting of the Committee. Messrs. McKee and Ransom stated that their votes were not to be understood as favorable to the granting of the authority as proposed but were solely in order that the subject might be brought up for discussion at this time. to the fact that the Federal Open Market Chairman Eccles referred of the executive committee. not selected the members Committee had motions duly made and seconded, and Upon Messrs. Eccles, Szymczak, by unanimous votes Fleming were selected as Ransom, Harrison and of the executive committee. members and seconded, and by Upon motions duly made selected Messrs. votes, the Committee unanimous as alternates to Morrison, and McKee Broderick, absence of Mr. named, in the in the order serve, and Messrs. or Mr. Ransom, Mr. Szymczak, Eccles, as alternates were selected and McKinney Hamilton absence of named, in the in the order to serve, Mr. Harrison or Mr. Fleming. for the Committee, Economist E. A. Goldenweiser, this point Mr. At
and Mr. W. R. Burgess, Vice President of the Federal Reserve Bank of New York, joined the meeting. Upon motion duly made and seconded, and by unanimous vote, the open market operations that had taken place from March 1, 1936, to date were taken up for consideration. Thereupon, Mr. Burgess submitted a written report of open market operations from March 1 to March 16, 1936, inclusive, and called atten tion to various features of the report and exhibits attached thereto which he discussed briefly. He called particular attention to the formula (the ratio of expenses, dividends and charge offs of each bank to the total for all banks) upon the basis of which holdings of Govern ment securities had been allocated to the various Federal reserve banks and to a possible substitute for that formula as set out in the exhibit "H" attached to the report, pointing out that departures from the exist ing formula had been necessary as shown by actual holdings of the re reserve banks. During the course of the discussion it spective Federal was understood that Mr. Burgess would supplement his written report so as to bring it down to date. Upon motion duly made and seconded, the agreed, by unanimous vote, to con Committee pending further consideration tinue in effect, the Committee, the formula adopted and action by Market Committee as consti by the Federal Open 1, 1936, and the practice tuted prior to March respect to authority, with under its followed Federal reserve banks allotments to the various securities held in the System open of Government request the executive account, and to market and submit at consider the matter committee to
the next meeting of the full Committee a recom mendation as to whether this formula should be retained and, if not, what formula should be adopted. It was understood that this action included authority on the part of the executive committee to continue to make readjustments in the holdings among the individual Federal reserve banks in accord ance with the practice which was followed under the formula and authority of the Federal Open Market Committee as constituted prior to March 1, Upon motion duly made and seconded, it was unanimously agreed that the Secretary of the Com mittee should send to each member of the Committee a copy of the minutes of each meeting of the Committee and of the executive committee, and also that he should furnish to members of the official staff of the full committee and the executive committee copies of such minutes, with the exception that copies of minutes of executive sessions of the Committee and executive committee should be sent only to members of the Committee. In this connection, it was understood that the Secretary should follow the practice which had pre vailed in connection with the proceedings of the former Federal Open Market Committee of furnishing each member of the Committee in attendance upon a Open Market Committee or meeting of the Federal with a preliminary draft of the executive committee minutes of such meeting for the purpose of enabling as may be desirable in him to suggest such changes to final approval of interest of accuracy prior the minutes at the next meeting. the duly made and seconded, and by Upon motion ratified all trans vote, the Committee unanimous open market account, and actions for the System Federal by individual market transactions all open accounts, which for their individual reserve banks March 1 to the period from taken place during had transactions thus inclusive; the March 19, 1936, for the Government securities which involve ratified set forth in reports market account being System open Open Market of the Federal the Secretary filed with of the Federal Burgess by Vice President Committee
Reserve Bank of New York and the other transactions thus ratified being set forth in reports made by the individual Federal reserve banks to the Board of Governors of the Federal Reserve System. The meeting recessed and reconvened at 2:50 p. m., with the same attendance as at the morning session, including Messrs. Goldenweiser and Burgess. Upon motion duly made and seconded, it was unanimously agreed to invite Mr. Elliott Thurston, Special Assistant to the Chairman of the Board of Governors of the Federal Reserve System, to attend this meeting. In accordance with this action, Mr. Thurston joined the meeting at this point. Upon the suggestion of Chairman Eccles, Mr. Goldenweiser made a brief resume of the general business and credit situation. He stated that so far as business was concerned there had been a slight recession from the high point of December. In this connection, he pointed out that practice in the automobile industry new models had been under a change in put out earlier than had been customary, with the result that the index than was actually true if due figures indicated a greater recession added that the general tone of were made for this change. He allowance about the same as in December, but that very business seemed to be there had been some improvement. He suggested that building recently that should be watched single item was the most important construction was recovering, but rather slowly. at this time, and that building commercial loans no growth in there had been also stated that He
of banks and little growth in security loans although there had been an increase in recent months in the amount of investments by banks, chiefly in Government securities, and a corresponding growth in deposits. He stated further that adjusted demand deposits were higher than at any time in the history of the country but that total bank deposits, including Government deposits and time and savings deposits, but excluding inter bank deposits, were still substantially below the peak. In answer to a question he stated that the deposits of mutual savings banks were not included in this comparison. He commented that, although deposits were approaching the peak, industrial activity was still from 20% to 25% be low the peak, and that excess reserves had decreased to about $2,400,000,000 as the result of recent Treasury financing operations. He stated that gold imports had ceased, and that the best information available indicated that they were not likely to be large within the next apparently there would be no material increase in ex few months so that thought, however, that there would cess reserves from that source. He as the Treasury expended its a gradual increase in excess reserves, be several weeks, to somewhere around in the course of the next funds, not above that amount. but probably $3,000,000,000, to be given to the of the instructions During a discussion of the System open with regard to the administration executive committee Committee, it was meeting of the full pending another market account as may be necessary have such authority the committee should agreed that
in the proper administration of the System account to enable it to re place maturing securities and to make shifts in maturities to meet changing market conditions. It was also agreed that the executive committee should have some limited authority for shifts in the account from shorter maturities to Government bonds. Accordingly, upon motion duly made and seconded the committee, by unanimous vote, instructed the executive committee to direct the replacement of maturing securities in the System account with other Government securities and to make such shifts between maturities in the account as may be necessary in the proper administration of the account, provided that the amount of securities maturing within two years be maintained at not less than $1,000,000,000 and that the amount of bonds be not over It was understood that the $350,000,000. authority granted to the executive committee would continue only until by the above action of the Federal Open Market the next meeting Committee. present that the execu of the members It was also the consensus or sell (which would include have authority to buy tive committee should for the System open to run off) securities authority to allow maturities in order that the limits as to amount, within reasonable market account circumstances not act promptly if in a position to Committee might be before a further meeting make such action desirable now foreseen should of the full Committee.. made and motion duly upon Accordingly, committee, by unanimous seconded the executive or to telegraphic subject was authorized, vote, members of of the by a majority written approval direct the to Market Committee, Federal Open the
purchase or sale of Government securities for the System open market account up to an aggregate amount of $250,000,000. Upon motion duly made and seconded, authority was granted, by unanimous vote, to each individual Federal reserve bank holding Government securities in its own portfolio to replace maturing securities in such account, and, with the approval of the executive committee, to make shifts between maturi ties in the account, provided that no change in the total amount of Government securities held by the Federal reserve bank was effected by such trans actions. It was pointed out that the authority granted to the Federal re serve banks by the action last referred to above corresponded to that granted to the executive committee in connection with the administration of the System open market account and was necessary for the same reasons. President Harrison pointed out that in the past Regulation "M" covering open market operations by the Federal reserve banks had pro no obligations payable in foreign currencies shall be purchased vided that of the Federal Reserve Board. He said that the Fed without the consent had held for the account of Bank of New York for many years eral Reserve banks certain balances, particularly in the Bank of the Federal reserve Settlements, and the Bank of France; England, the Bank for International had been invested to some balances held with these banks and that the these circumstances authority He pointed out that in extent in bills. Federal reserve banks to enable the be granted by the Committee should to replace as in foreign currencies which are payable to purchase bills the account of banks for by foreign central bills now held they mature the
the Federal reserve banks so as to maintain the existing portfolio. He also pointed out that the balances originally held in the Bank of England, the Bank of France and the Bank for International Settlements had been greatly reduced and stated that he believed that in the course of time the amount held in the account with the Bank for International Settlements could be substantially further reduced. In accordance with President Harrison's suggestion, upon motion duly made and seconded, the Committee, by unanimous vote, authorized the Federal Reserve Bank of New York to direct the purchase of bills payable in foreign currencies in such amounts as may be necessary to replace maturing bills now held for the account of Federal reserve banks by foreign central banks, including the Bank for International Settlements, President Harrison pointed out that the regulation adopted by the Federal Open Market Committee requires the executive committee to Committee informed of all transactions executed under the keep the full of the full Committee and stated that it had been the practice direction in the past to send to all Federal reserve banks weekly reports of opera tions in the System open market account. After a discussion it was agreed as the of the meeting that the existing practice sense should be continued without in this regard change. as the sense of the It was also agreed member of the Federal Open meeting that any the Federal re Committee representing Market of re have the privilege serve banks should of the banks the boards of directors porting to that a meeting of participating in his election held, that the Committee Committee had been the and by-laws, and that had adopted regulations
the Committee had selected the organization which had been set up. It was agreed that there should be no report of the discussions or the positions taken by the individual members of the Committee in such discussions. It was also understood that a copy of the by-laws would be sent by the Secretary to the president of each Federal reserve bank with the advice that the by-laws might be read at the next meeting of the board of directors of the bank subject to an understanding on the part of the directors that they should be treated as confidential. The Committee noted the receipt of a letter dated March 12 to the Committee from President Hamilton of the Federal Reserve Bank of Kansas City in regard to certain purchases of Government Federal Land Bank of Omaha securities from the agreements and instructed the under repurchase copies to all members of the Secretary to furnish the matter on the program Committee and to place at the next meeting. for consideration It was agreed as the sense of the meeting the Federal Open Market the next meeting of that on April 50, with the Committee should be held not prevent the that this would understanding of an earlier meeting. calling the meeting adjourned. Thereupon Secretary. Approved:
Also: Record of Policy Actions·Minutes of the Executive Committee, March 19, 1936