March 1, 1950 FOMC Minutes

FOMC minutes

standing at the meetings on August 5, 1949, and December 13, 1949, that further study would be given to the matter. Mr. Sproul suggested that the Committee authorize the System Research Committee on Banking and Credit Policy to give further study to the principles and practices of a flexible monetary policy with a view to submitting other reports to the Federal Open Market Committee on important aspects of this study, and that it be understood that the members of the Federal Open Market Committee and the Presidents of the Reserve Banks who were not members of the Committee would read the revised memorandum furnished them at this meeting and send any suggestions they might have to the Secretary of the Committee. Upon motion duly made and seconded, and by unanimous vote, this suggestion was approved. Reference was made to a memorandum dated February 23, 1950, with respect to whether Treasury savings bonds should be made eligible as collateral for bank loans. Copies of the memorandum had been sent to the members of the Committee before this meeting and a copy has been placed in the files of the Federal Open Market Committee. the question had been discussed at the Mr. Davis stated that February 27, 1950, and that it was the Presidents' Conference on the Presidents that such bonds should not be made majority view of eligible.

In a discussion of reasons for and against such action, Mr. C. S. Young stated that many banks were, in effect, holding such bonds as collateral for loans and that he felt it would be desirable for the Treasury to recognize this practice by authorizing it, that it would avoid sales of bonds by owners to get funds for temporary purposes, and that it might aid the sale of savings bonds by the Treasury. Mr. Thomas stated that he understood from Mr. Bartelt, Fiscal Assistant Secretary of the Treasury, that the Treasury would not favor such action at this time. Question was raised whether some action should be taken with to the reporting by bank examiners of cases in which savings respect as collateral for loans, but no con bonds are, in effect, pledged clusions were reached. ensuing discussion it was the consensus that no During the time to recommend to the Treasury action should be taken at this which prohibit the acceptance in the existing regulations any change collateral for loans. of savings bonds as report dated February was then made to the progress Reference on the problem on debt management from the ad hoc committee 24, 1950, had been sent to each a copy of which of savings bonds refunding, a copy of which has this meeting and of the Committee before member Committee. It Federal Open Market the files of the been placed in at the Fiscal Agency was to be discussed that this matter was stated

Conference called by the Treasury to meet in April 1950, at which time primary consideration was to be given to the operating problems that will be involved as savings bonds mature, and the suggestion had been made that there might also be discussion, in the light of the operating problems involved, of the policy that might be followed with respect to inducements to reinvest the proceeds of maturing bonds in new savings bonds. In this connection, Mr. Davis stated that the operating officers of the Federal Reserve Banks who attend the fiscal agency conferences have no responsibility for policy on fiscal agency matters, but that since the Federal Reserve Bank of San Francisco was acting as host for the forthcoming conference, the Presidents' Conference had asked President Earhart to represent the Presidents in any discussions involving questions of policy. it was understood that further dis Under the circumstances, Open Market Committee of the refunding of cussion by the Federal until a later meeting of maturing savings bonds would be postponed the Committee. the part the Federal discussion of was also an informal There in future savings bond might be expected to play Reserve Banks be any change in the existing and whether there should campaigns Reserve Banks sponsoring respect to the Federal understanding with in connection with such campaigns. the costs of dinners, etc., and paying

of the Presidents of the Federal Reserve Banks It was the consensus that there should be no change in the existing understanding, and that this would not prevent, for example, a Bank from providing a luncheon with a discussion meeting to which a State chairman in connection to invite some of his key workers. wishes agreed that the next meeting of the It was tentatively during the week beginning June 12, 1950. Committee would be held Thereupon the meeting adjourned. Secretary. Approved: Vice Chairman.