February 11, 1958 FOMC Minutes

FOMC minutes

thought that float fluctuations were wrecking open market policy, but it now could tentatively conclude that that was doubtful. At the same time, it could conclude that the volume and fluctuations in float were important and that further study might enable the System to do something about the problem . Mr. Robertson suggested that an appropriate action at this time would be for the Federal Open Market Committee to ask the Manager of the System Open Market Account to consider ways and means of increasing understanding of fluctuations in float by releasing daily figures and other information that could properly be given out. He also suggested that as a part of the immediate program the System might go on record today as agreeing that studies be continued with recommendations on the three basic questions as a view to developing the role of the Federal Reserve Banks in to operating matters, i.e., time schedules, and a review of check collection process, the the in float and a greater practices looking toward reduction operating practices in the System. uniformity in operating whether anyone present disagreed Chairman Martin inquired just made as a program that Mr. Robertson had with the suggestions indicated disagreement. none of those present moving ahead, and for would be considered that these suggestions Martin then stated Chairman this time on at Market Committee of the Open as the action as adopted that the Presidents' also be understood It would of float. the study that it would and this procedure with was in agreement Conference

arrange to have the appropriate committees proceed with the operat ing studies suggested. Mr. Leonard withdrew from the meeting at this point. Chairman Martin next referred to the report of the New York Clearing House Association distributed with Mr. Hayes' letter of October 22, 1957, and to a memorandum prepared by Messrs. Roelse, Rouse, Thomas, and Riefler and distributed under date of February 6, 195 on the Clearing House Study of Interrelations of the Money Market and the Government Securities Market. At Chairman Martin's request, Mr. Riefler commented on the report substantially as follows: The Clearing House Committee did not come to any con structive suggestions unless we accept the basic proposition that corporate financing of dealers through the negotiation of repurchase agreements by dealers with corporations repre sents a revision of the banking laws. The Clearing House study attacks this practice as illegal in that it in effect results in the creation of money by nonbanking institutions, that it provides a figure for payment of interest on demand deposits and that it represents a practice that is dangerous to the money system of this country. All of the study's constructive suggestions turn around acceptance of that proposition, a proposition which the Staff Committee was not to accept. The staff suggests to the Open Market willing the charges are so important and Committee, however, that a pre-eminent body that they should not be come from such It believes, therefore, that the Open dismissed offhand. may wish to commission the staff to make Market Committee the charges and to report back to an exhaustive study of the Committee at a later date. Staff Committee makes that suggestion, the Aside from two general observations on the Clearing House Study. market and the dealer it appears that the money First, is no crisis to along and that there mechanism is getting Second, there are two minor sug require overt action. which the staff Clearing House report made in the gestions

believes might be accepted, namely, (a) the establishment of a standing money market committee composed of representatives from the Federal Reserve Bank of New York and the Clearing House banks to meet two or three times a year to discuss technical problems and market practices against the broad background of public policy, and (b) the release of daily figures covering aggregate reserves, reserve requirements, and borrowings of New York Clearing House banks. In response to Chairman Martin's request, Mr. Rouse stated that Mr. Riefler had covered the matters in the report as he saw them. He and Mr. Hayes had discussed the question of having a committee such as the Clearing House report suggested and on the suggestion that daily figures be released he felt as did the other members of the Staff Committee that this could be done without any harm. Mr. Allen commented that he had some sympathy with the view of the Clearing House banks that it was not desirable for business corporations to be making funds available under repurchase agreements although his view was based on reasons other than those given in the Clearing House report. conclusion of a brief discussion of the report, ChairAt the man Martin suggested that the report of the Staff Committee be acmoment With the thought that further concepted and tabled for the sideration would be given later to what additional study should be made. as to whether this to Mr. Riefler's question In response included authority for the staff to make a study of the Clearing

House report, Chairman Martin stated after some discussion that he could see no harm in having the staff study the report further. Martin noted that the next meeting of the Federal Chairman Open Market Committee would be held at 10:00 a.m. on Tuesday, the meeting would conthe understanding that March 4, 1958, with on Wednesday, March 5. afternoon of that day and tinue during the the meeting adjourned. Thereupon Secretary