May 25, 1936 FOMC Minutes

FOMC minutes

The Chairman stated that the suggestion had been made that it would be desirable to make some shifts in maturities from short-term to long-term obligations with a view to improving the earning position of the Federal reserve banks, and, in this connection, it was pointed out that in March the amount of bonds in the System portfolio had been increased by $50,000,000. Reference was also made to the probability that Treasury financing in June and September would provide for conver sions of maturing securities into bonds and that it might be desirable to take advantage of these opportunities to make further shifts into bonds. President Harrison expressed the view that the time to exercise such authority would be when it would serve not only the purpose of increasing earnings but when such purchases would be more appropriate from the point of view of market conditions and the interests of the reserve banks. It was agreed that an important aspect of the question was one of timing of the purchases of bonds. Mr. Williams suggested that in view of the fact that the desir ability of increasing the System's bond holdings might depend on whether or not it was likely that these bonds would have to be sold before matur ity the question what course should be followed in this matter might de pend upon the policy of the Board of Governors with reference to changes in reserve requirements. was indicated that the executive committee A general agreement should have such authority as may be necessary in the proper administra System account to enable it to replace maturing securities tion of the in maturities to meet changing market conditions, that and to make shifts

5/25/36 -l2 in that connection it would be desirable to increase the authority of the committee to make shifts from short to long term securities, and that the question of the timing of such shifts should be left to the judgment of the executive committee. Messrs. McKee and Hamilton indicated that they would favor increasing the bond portfolio to the extent of $50,000,000 or $75,000,000 in connection with the next Treasury financing. At the conclusion of the discussion, upon motion duly made and seconded and by unanimous vote, the Committee instructed the executive committee to direct the replacement of maturing securities in the System open market 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 $500,000,000. It was also agreed that the executive committee should have authority to buy or sell (which would include authority to allow matur ities to run off) securities for the System open market account within reasonable limits in order that the committee might be in a position to act promptly if circumstances not now foreseen should make such action desirable before another meeting of the full committee. Accordingly, upon motion duly made and seconded, and by unanimous vote, the Committee authorized the executive committee, subject to or written approval by a majority of telegraphic members of the Federal Open Market Committee, the the purchase or sale of Government to direct securities for the System open arket account up to an aggregate amount of $250,000,000

It was pointed out that as a matter of practical operation until June 15, 1936, when the Government securities held in the individual in vestment accounts of Federal reserve banks are transferred to the System open market account, it would be necessary for the banks to replace maturing securities in such accounts and to make such shifts of securi ties held as may be desirable in the proper administration of the accounts. Accordingly, upon motion duly made and seconded, and by unanimous vote, authority was granted, until June 15, 1936, to each Federal reserve bank holding Government securities in its individual investment account to replace maturing securities in such account and, with the approval of the executive committee, to make shifts between the maturities in such account, provided that no change in the total amount of Govern ment securities held by such Federal reserve bank shall be effected by such transactions. Reference was made to the action taken at the last meeting cov ering the replacement of bills payable in foreign currencies and it was agreed that the authority granted the Federal Reserve Bank of New York should be continued in order properly to maintain the investments of balances held with foreign central banks, including the Bank for Inter national Settlements. Upon motion duly made and seconded, and by unani mous vote, the Committee authorized the Federal Reserve Bank of New York to direct the purchase of bills payable in foreign currencies in such amount as may be necessary to replace maturing bills now held for the account of Federal reserve banks by foreign central banks, includ ing the Bank for International Settlements. It was agreed, however, that the Bank might permit the payment bills without replacement thereof to of such maturing extent as it might find advisable in the interest such of the Federal reserve banks. to the extent to which a question as Harrison raised President the Presidents of the Federal reserve banks who are members of the Federal

Open Market Committee might report to the directors of their respective banks, and to the other Presidents, actions taken by the Federal Open Market Committee. After discussion, it was agreed that the Secretary of the Federal Open Market Committee should prepare ten tative drafts of excerpts of the minutes of this meeting setting forth the actions taken by the Committee relating to the formula for the allotment of securities in the Sys tem portfolio to the individual Federal reserve banks, the transfer of individual holdings of Federal reserve banks to the System account, the authority of individual Federal reserve banks to replace maturing securities and make shifts in securities in individual investment accounts until June 15, 1936, the authority granted to each Federal reserve bank to make temporary purchases of Government securities under resale agreements for periods not exceeding fifteen days, and the discontinuance by Federal reserve banks of purchases for their own investment accounts of Government securities pending their sale for the account of member or nonmember banks, so that such excerpts might be made available to the Presidents of the Federal reserve banks during their conference tomorrow, with the understanding that each President would be authorized to report such actions in confidence to the board of directors of his bank. that the Secretary of the Federal Open Mr. Broderick suggested future meetings of the Com be permitted to bring into Market Committee of the Board of Governors Carpenter, Assistant Secretary mittee Mr. S. R, of assisting the Secre System, for the purpose of the Federal Reserve of the Federal Open Market the record of the proceedings tary in making Committee. seconded and by unani duly made and Upon motion suggestion was approved. mous vote, Mr. Broderick's Thereupon the meeting adjourned. Secretary. Approved: Chairman.