March 2, 1943 FOMC Minutes

FOMC minutes

certificates be allotted in full up to $100,000 and the balance on a percentage basis regardless of the source of the subscription. The reason for this suggestion, Chairman Eccles said, was that, as long as the present policy of maintaining a pattern of rates was continued, holders of certificates could realize a profit by selling the shorter term certificates and purchasing new issues as they were offered, and in his opinion there was no justification in these circumstances for offering certificates to the public in unlimited quantities. In this connection, he referred to the successful experience in Canada of sell ing bonds to the public rather than short-term securities, and he felt that the same policy should be adopted in the United States and that, if the April drive included a 2-1/2 and a 2 per cent bond, the Series E, F, and G war savings bonds, and the tax note, the investment needs of the public could be adequately met without offering during the drive a certificate which would mature within a year and which would add to the refunding problems of the Treasury in a period when the total offer ings of securities were being substantially increased. During Chairman Eccles' statement, Mr. Kennedy, Assistant Chief of the Government Securities Section, Division of Research and Statistics of the Board of Governors, joined the meeting. Mr. Sproul stated that the suggestion might be made to the Treasury that a 1-1/4 per cent note be offered during the drive in lieu of the 7/8 per cent certificate, pointed out that, if certificates were to be offered Mr. Piser at the end of the drive on an allotment basis for delivery on May 1, the offering would have to be announced several days before that date. In a

discussion of this point, the suggestion was made that the issue of cer tificates maturing on May 1 might be paid off and a new issue announced at the end of the April drive with payment on the subscriptions in May. All of these possibilities were discussed, and there was tenta tive agreement that a program along the lines suggested by Messrs. Eccles and Sproul should be proposed by the members of the executive committee when they meet with the Treasury this afternoon. The meeting then recessed and reconvened at 4:30 p.m. with the same attendance as at the beginning of the morning session except that Messrs. Dreibelbis, Rice, and Berntson were not present. Mr. Sproul made a statement substantially as follows: At the meeting of the Treasury today Under Secretary of the Treasury Bell, after reviewing the estimated need for funds over the next few months, stated that it was the present plan to raise $13,000,000,000 in the April financing drive, exclusive of savings bonds in the amount of 800,000,000, tax notes in the amount of $600,000,000, and Treasury bills in the amount of $800,000,000, or a total during the financing period of $15,200,000,000. There was a discussion of the question of the amount of excess reserves that should be maintained during the financing period, and Mr. Bell mentioned $2,500,000,000. Chairman Eccles stated as the view of the members of the Board and the Presidents that it would be undesirable to fix any figure of excess reserves to be maintained during the financing or for the System to make in that connection. He discussed the use of Treas any commitment excess reserves and the difficulty, as indicated by ury bills as during the December drive, of attempting to force the experience of excess reserves into the market as long as the any volume present bill program continued. to be offered dur to the types of securities With respect stated the reasons pre present drive, Chairman Eccles ing the certificate issues by us why it was believed viously discussed but should be used to to raise nonbank funds should not be used It was also stated that from banks between drives. obtain funds representatives that of the Federal Reserve it was the feeling should be a 2-1/2 and offered during the drive the securities

a 2 per cent bond and possibly a 1-1/4 per cent note. If because of the shortness of time for organization of the selling drive, and the large amount of funds to be raised, it was not possible to carry out this kind of a program in connection with the April drive, it should certainly be the policy in future drives not to offer certificates in unlimited amounts to the public. In connection with the timing of the offering, it was sug gested by the Federal Reserve representatives that the 2 per cent bond be offered at the beginning of the drive to banks and to others throughout the drive together with the 2-1/2 per cent bond the lowest denomination of which would be $100, and that these issues and the 1-1/4 per cent note, savings bonds, Series C tax notes, and $200,000,000 of new money each week from bills would provide all of the funds that would be needed, except that at the end of the drive a certificate might be offered for the purpose of obtaining such additional amount of funds as might be necessary to make the drive fully successful. Mr. Bell discussed the use of certificates in the last war and suggested that consideration be given to the possibility of adopt ing a similar procedure in connection with future financing. We again took the position that the sale of certificates to banks be tween drives and their refunding with the proceeds of bonds sold during drives, as in the last war, might be a way of meeting our suggestion that certificates should only be offered to banks be tween drives and that longer-term securities should be offered to investors other than banks during the drives. Chairman Eccles said that when the Secretary of the Treasury discussion of the amount of the conference there was a further joined and that it was stated that the to be raised curing the April drive funds felt that $15,000,000,000 was too members of the Board and the Presidents that should be set as was the maximum high a figure, that $14,000,000,000 or $13,000,000,000 was all end that some felt that $12,000,000,000 a goal, there would be some the understanding that be asked for, with that should Chairman Eccles said, did between drives. The Secretary, bank financing the members of the and requested that with this position not disagree March 9, at 11:00 Treasury on Tuesday, return to the executive committee discussion of the whole program. a.m. for a further

Thereupon the meeting adjourned. Secretary. Approved: