October 25, 1955 FOMC Minutes

FOMC minutes

1955 and, by the spring of 1956, there would be a freer flow of mortgage money. By then, a good volume of mortgage money could be expected to be available. Mr. Shepardson referred to Mr. Leedy's comment and to a state ment he had heard in the Midwest last week that there would be a very material school-building program within the next year or so which would tend to offset any shrinkage in residential construction. Mr. Sproul said that there seemed to be a growing attitude in building industry that any amount of funds should be forth the residential of building that had been stimulated by coming to support a growing volume in diverting more and more of the mort the easy terms. This was resulting having it go to institutions which mainly gage credit to banks rather than loan associations, savings banks, savings, such as savings and accumulated and insurance companies. Robertson comment on a memorandum, Martin asked that Mr. Chairman on defense planning for the under date of September 29, 1955, prepared Federal Open Market Committee. memorandum were distrib that copies of the Mr. Robertson stated of October 4 and at the meeting with the understanding uted in accordance one from Mr. Irons, who received thus far was that the only suggestion might be designated Reserve Banks whether all Federal raised the question indicated why, on Committee. Mr. Robertson agents for the as alternate of this year, it center in June the test at the relocation the basis of

would seem preferable not to designate all Federal Reserve Banks as agents. Mr. Robertson also said in response to a question from Mr. Earhart that the suggestion for training individuals contained in his memorandum would apply to individuals at Federal Reserve Bank branches as well as at head offices. Mr. Sproul made a statement substantially as follows: The following comments are suggested to me by Governor Robertson's helpful memorandum on emergency planning. 1. All Federal Reserve Bank planning is now going forward on the basis of no Federal Reserve Bank or branch being able to carry on its functions in its usual location. This means setting up of relocation centers and I see no reason why we should plan for the conduct of open market operations on a different basis in case of an emergency. Market Committee planning must re 2. Federal Reserve Open late to with monetary and credit having to do (a) operations policy, responsibility for having to do with our (b) operations securities market, and the Government immediate needs of having to do with the (c) operations the United States Treasury. is concerned, outright and credit policy 3. So far as monetary to supplement member bank may have to be made purchases borrowing. be authorized to make Federal Reserve Banks might (a) All of Government securities. purchases from holders direct be authorized to make Reserve Banks might (b) Some Federal Account either direct for System Open Market purchases Government securi or through the commercial banks from ties market, if functioning. or might be disorganized securities market 4. The Government wish to provide a and we might temporarily non-existent conditions in the market. market or prevent disorderly be met by direct might have to Treasury needs 5. Immediate purchases from the Treasury. make it possible be needed to will Advance authorities 6. (a) be carried out. operations to for these selected re at the have to be personnel (b) There will open market opera centers to handle whatever location Reserve Banks. by individual Federal tions are undertaken

(c) Location of the System Open Market Account. The probable location of a Government securities market, if functioning, the fact that a large part of the Government securities that ordinarily pass through the market are held by banks in New York City, and the possible availability of experienced personnel suggests the primary location of the System Open Mar ket Account at the relocation center of the Federal Reserve Bank of New York. Supplementary facilities might be located at one or two other relocation centers of Federal Reserve Banks and if New York's relocation center is not able to function, available members of its staff might be moved to one of the other reloca tion centers. 7. In order to develop specific arrangements drawing on Governor Robertson's memorandum and these comments I think it would be desirable to appoint a subcommittee to be assisted by informed staff members, Chairman Martin noted that under a previous action by the Commit tee he was authorized to appoint a committee for the purpose of studying defense planning for the Federal Open Market Committee and said that, in the absence of objection, he would proceed to appoint such a committee No objection to this procedure was indicated. Chairman Martin stated that another letter had been received from Congressman Wright Patman under date of October 17, 1955, in which Mr. Patman inquired as to the Board's views regarding provisions of the to treat capital losses on securities Revenue Code which permit banks Internal income. Mr. Patman had inquired whether as fully deductible from ordinary this provision of the Internal Revenue Code conflicted with Board policy, restrain excessive expansion when policy sought to for example in a period request, copies of the letter were of bank credit. At Chairman Martin's

he would be glad to receive any sugges distributed, and he stated that regarding the answer to be made to Mr. Patman. tions meting of the Committee would There was agreement that the next be set for 10:45 a.m. on Wednesday, November 16, 1955. Thereupon the meeting adjourned. Assistant Secretary