September 18, 1939 FOMC Minutes

FOMC minutes

not going to support the market might produce a feeling of uncertainty that would deter buying. Chairman Eccles stated that as he got the general view of the presidents it was one of approval of the action of the executive com mittee up to date, broadly speaking, and that the fact that the System had purchased about $450,000,000 of securities up to this time in cushioning the market was not considered by the majority of those present to have been excessive. Consideration was given to the resolution containing author ity to the executive committee to effect transactions in the System open market account and a draft of a revised resolution which had been prepared during the discussion was read, as follows: That the executive committee be directed until other wise directed by the Federal Open Market Committee to ar range for such transactions for the System open market account (including purchases, sales, exchanges, replace ment of maturing securities, and letting maturities run off without replacement) as in its judgment from time to time may be necessary for the purpose of exercising an influence toward maintaining orderly market conditions; provided that the aggregate amount of securities held in the account at the close of this date shall not be in creased nor decreased by more than $500,000,000. Mr. Leach raised the question whether the above resolution would be interpreted as a mandate to the executive committee to spend $500,000,000 or anything like that amount. It was unanimously agreed not be so interpreted and that the amount that the resolution should it was spent would depend on cir spent and the rapidity with which cumstances as they developed.

At the conclusion of the discussion, upon motion duly made and seconded, the resolution set forth above was adopted by unanimous vote. Reference was then made to the report of examination of the System open market account as of the close of business on June 17, 1939, which was submitted by Federal Reserve Examiner Koppang under date of September 7, 1939, in accordance with the request made by the Federal Open Market Committee at its last meeting. A copy of the report had been sent to each member of the Federal Open Market Committee by Mr. Morrill on September 11, 1939. Reference was made to the last paragraph of the report which called attention to the fact that, while the designation of Mr. Sproul as Manager of the Sys tem Open Market Account had been approved by the Federal Open Market Committee, approval did not appear to have been obtained for the designation of Mr. Rounds as alternate for Mr, Sproul. At the conclusion of a discussion dur ing which the opinion was expressed that there was no necessity for the approval of the appointment of an alternate for Mr. Sproul, it was voted unanimously to accept file the report without further action. and had been raised as to Eccles stated that a question Chairman of the decision for making an announcement procedure and the time the Reserve banks that the recently by the Board and the Federal reached Reserve banks advances by Federal with respect to announced policy Government obligations security of banks on the member and nonmember to

includes Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal Land Banks and Banks for Cooperatives and suggested that this matter be discussed at this time. In this connection he stated that an inquiry had been received from the Financial Adviser of the Federal Home Loan Bank Board as to the application of the policy to Federal Home Loan Banks and that the Board was under necessity of making some reply to that communication. During the discussion some of the pres idents stated that they had already advised some of the banks in question in their districts that the policy applied to them. Chairman Eccles reviewed again the reasons for the application of the policy to the Governmental banking institutions. It was suggested that the Board reply to the letter received from the Federal Home Loan Bank Board by stating in effect that the term nonmember bank as used in the Board's announcement includes Federal Home Loan Banks, with the understanding that, if inquiries are received as to other institutions of the classes mentioned, replies would be made in a similar manner, and that if inquiry be made by them at the Federal Reserve banks they the policy applied to them. would be advised that At the conclusion of the discussion the Board of Governors the members of matter should be handled agreed that the in accordance with the foregoing sugges tions. of the it was the intention reported that Chairman Eccles bills of Treasury week's maturities to let this committee executive off without replacement. run

Thereupon the meeting adjourned. Approved: Chairman.