November 27, 1956 FOMC Minutes

FOMC minutes

bankers' acceptances outstanding as shown in the most recent acceptance survey con ducted by the Federal Reserve Bank of New York. On this action Mr. Robertson voted "no." Mr. Allen, although not a member of the Committee, indicated that he would not favor the foregoing action. Secretary's note: The resolution ap proved at the meeting on March 6, 1956, as changed by the foregoing action, reads as follows: The Federal Open Market Committee hereby authorizes the Federal Reserve Bank of New York for its own account to buy from and sell to acceptance dealers, at market rates of dis count, prime bankers' acceptances of the kinds designated in the regulations of the Federal Open Market Committee, at such times and in such amounts as may be advisable and consistent with the general credit policies and instructions of the Federal Open Market Committee, provided that the aggregate amount of such bankers' acceptances held at any one time by the Federal Reserve Bank of New York shall not exceed $50 million and provided further, that such holdings shall not be more than 10 per cent of the total of bankers' acceptances outstanding as shown in the most recent acceptance survey conducted by the Federal Reserve Bank of New York. The Federal Open Market Committee further authorizes the Federal Reserve Bank of New York to enter into repurchase with nonbank dealers in bankers' acceptances cover agreements bankers' acceptances of the kinds designated in the ing prime regulations of the Federal Open Market Committee, subject to the same conditions on which the Federal Reserve Bank of New may hereafter be authorized from time to time York is now or the Federal Open Market Committee to enter into repurchase by United States Government securities, agreements covering bankers' acceptances at that the maturities of such except such repurchase agreements shall the time of entering into and except that in the event of the not exceed six months,

failure of the seller to repurchase, such acceptances shall continue to be held by the Federal Reserve Bank or shall be sold in the open market. Such repurchase agreements shall be at the same rate as that applicable, at the time of entering into such agreements, to re purchase agreements covering United States Government securities. Chairman Martin noted that the next meeting of the Committee was scheduled for 10:00 a.m. on Monday, December 10, 1956. Chairman Martin stated that the members of the Board of Governors would like to have the Presidents of the Federal Reserve Banks comment concerning the maximum permissible rates of interest payable on time and savings deposits, as fixed by the Board of Governors in Regulation of Interest on Deposits. He noted that this matter had been Q, Payment discussed on a number of occasions over a period of time and stated that, requests being received for a change in the limit, it would in view of assist the Board if each of the Presidents would express his view con be permitted under the regulation. A cerning the rates that should summary of their conclusions follows: in its recommendation to the Mr. Hayes said that of Governors, the New York Bank had initially Board to 2-3/4 per cent on time deposits recommended going of 90 days or more and had recommended with a maturity on the rate for savings deposits. The no change a differential of 1/4 per assumption had been that deposit rate and the savings cent between the time not be particularly significant. deposit rate would said that he had con however, Mr. Hayes Subsequently, market rates of interest that in view of rising cluded on both savings deposits prefer that the rates he would to 3 per cent, time deposits be increased and longer-term of shorter-term time some related modification with

deposit rates. In his opinion such action would be justified in the light of current market rates of in terest and in view of the fact that these rates had not been changed in 20 years. Mr. Johns stated that he would support the views expressed by Mr. Hayes. Mr. Bryan said that he was strongly in favor of going to 3 per cent as a permissive maximum rate on both time and savings deposits. Mr. Williams noted that there was strong opposition in the Third District, especially in the outlying areas, to an increase in the maximum permissive rate. His personal posi tion was that he was sensitive to the problem that had been presented by the New York banks and he indicated that some increase in the maximum rates might be called for. Mr. Fulton was opposed to any increase in the maximum permissible rate on either time or savings deposits, feel ing that it would encourage banks to reach for high-yield investments with possibly catastrophic results. Mr. Leach stated that, while he previously had been opposed to an increase in the maximum permissible rate under Regulation Q and while most bankers would be opposed to an increase, if he were a member of the Board of Governors he would vote to increase the rate above the present 2-1/2 per cent ceiling on both time and savings deposits. Mr. Leedy said that while an increase in the maximum would be unpopular with banks he could not see that the bankers' attitude should be controlling. Basically, he felt the Board should not be in the business of attempt ing to regulate rates on time deposits and he said it that they be regulated in was particularly undesirable the law and Regulation Q. He could the detail required by however, for continuing the not see any justification, maximum rate of 2-1/2 per cent that had been fixed in the whole structure of interest rates was 1936 when completely different from what it is now. Mr. Allen said that the bankers in the Seventh Dis were opposed to an increase in the maximum permissible trict

rate, that the directors of the Detroit Branch of the Chicago Bank yesterday adopted a resolution opposing an increase in the rate, and that he personally would not favor an upward movement in the rate until more banks had gotten closer to the existing 2-1/2 per cent maximum permitted and had shown that they could live with the expense implied by such a rate. Mr. Powell said he would not be opposed to increasing the maximum permissible rate on time and savings deposits to 3 per cent, believing that to be a natural rate and the sort of rate that people feel that they should receive on long-term savings. Banks were making good profits and all other interest rates had risen to what he felt was a more normal level than had existed for many years. Since the banks could afford to pay more on savings, he would support 3 per cent rate at this time. a Mr. Mangels said that the bankers in the Twelfth District would not favor an increase in the maximum rate. His personal view would support an increase in the maximum rate permitted on time deposits up to six months' maturity along the lines suggested in the question presented to the Presidents' Con ference in September, but he would not favor an increase in the over-all ceilings under Regulation Q. Mr. Irons would support an increase in the maximum rate deposits. He would on both time and savings to 3 per cent of an increase in the rate on time deposits not be in favor without a corresponding increase in the rate on savings deposits. Erickson stated that he would now favor an increase Mr. maximum permissible rate on both time and savings in the deposits. the meeting adjourned. Thereupon Secretary