September 25, 1956 FOMC Minutes

FOMC minutes

anything to add to his earlier comments. Mr. Robertson said that he would like to withdraw his sug gested resolution as presented at the meeting on September 11 be cause he did not think the Committee should force the management of the account to accept a resolution of that type. Since the reso lution would not serve the purpose that he had had in mind in pro posing it, he would prefer to withdraw it and to suggest that the Committee take no action on the New York Bank's request for authority to engage in swaps in Treasury bills. Mr. Hayes said that discussions he had had with his staff regarding Mr. Robertson's proposed resolution had brought out the difficulties that would be created by making it necessary to have a complete go-around of all dealers every time the System contemplated engaging in a swap transaction. On the other hand, he thought that it would be quite feasible and desirable if the System needed some swaps to remind the market on a given day that it was interested in swaps and thus to "needle" the market to come to the Bank with what ever offerings it might have. He raised the question whether such procedure would go far enough to meet Mr. Robertson's suggestion. Mr. Robertson said that this would not go far enough to suit the purpose of enabling a dealer to him; it would be a device for and he did not think the the demands of one of his customers, meet be accomplishing what was contemplated by the original account would maturity pattern of the System's portfolio suggestion for changing the

at its initiative. Mr. Hayes said that his suggestion did not contemplate that such an announcement would be made every day but only if the System had a particular need for changing the maturity pattern of its hold ings. Even then the System would only make such swaps if it felt the need. He did not have in mind that the System account would formally notify everyone in the market of each need for swaps. In response to a question from Mr. Robertson as to why the latter procedure should not be followed, Messrs. Hayes and Rouse responded that such a procedure would not be desirable for the reasons stated in the memorandum distributed by Mr. Rouse under date of September 21, 1956, particularly because it would tend to distort the market. swaps along the lines proposed Mr. Erickson inquired whether period we are now of assistance in the York Bank would be by the New entering. would be of such authority probably Rouse said he thought Mr. crucial. He would say that it was he could not assistance although to be of assistance it would and thought have the authority like to out System policy. the Account in carrying the Manager of proposal thoroughly studied this that he had Vardaman said Mr. present time, swaps at the any form of could not support but that he the operation would facilitate that to do anything would like as he much

of the System account at the present. He added the comment that this view did not indicate a lack of confidence in the trading desk but was a matter of principle and that he felt to engage in swaps injected a feature into open market operations which should not be there, Chairman Martin said that in view of the differences of opinion it would seem best to pass the question for the present time. He would make the general observation, he said, that he felt more strongly than ever the inadequacies of the Government market at the present time, both as to dealers and as to bankers, and that in his opinion the Com mittee should go further into a study of every aspect of the market. He cited a comment by the chairman and president of a large bank recently who stated that he had no feeling of responsibility to the Government securities market whatsoever, a statement which he (Chairman Martin) felt indicated a lack of proper attitude on the part of a person in that position at a time when we were facing one of the most crucial Government securities offering in recent years. The fact that such an attitude existed, however, pointed up the necessity for the System's pursuing a review of the problems that it had been wrestling with and for recognizing that the techniques and the of the Treasury and of the money managers had not found a problems solution that was adequate. Mr. Rouse added a comment as to the attitude he understood had been shown at a recent meeting of a Committee of the New York Clearing appreciation of the problems described as lacking in House, which was

facing the Treasury and the System. Mr. Hayes said that this matter was very important and one he had in mind. The comments that Chairman Martin and Mr. Rouse had cited were not uniform, he said, and there were bankers who did have a sense of responsibility. Mr. Balderston inquired whether any additional authority with respect to repurchase agreements along the lines suggested by Mr. Robertson should be given at this meeting, and it was understood that in the event Mr. Rouse felt additional authority was needed he would bring the matter to the attention of the Committee. It was agreed unanimously that the next meeting of the Com mittee would be held at 10:00 o'clock on Tuesday, October 16, 1956. Thereupon the meeting adjourned. Secretary