July 8, 1958 FOMC Minutes

FOMC minutes

Mr. Mills said that he agreed completely with Mr. Allen's reasoning. He sensed that the Committee might drift into another position from which extrication might be difficult due to the New York Bank's having built up a portfolio of acceptances for open market purposes rather than to foster the acceptance market as such. Reports submitted by the New York Bank had indicated repeated in ability to fill orders from foreign accounts for bankers' acceptances, which puzzled him as to why a portfolio or acceptances was being developed in the face of an investor demand for their acquisition. However, market conditions are now unsettled, and as bankers' acceptances are a vehicle for open market conduct that works on the edge of the total securities market, the System must be prepared, if needed, to render assistance to the acceptance market. Such being the case, he felt that the limit for acceptance purchases should be temporarily raised to $75 million as an emergency measure. Mr. Allen said that he had no quarrel with Mr. Mills' state ment. However, he hoped that the New York Bank would meet requests for acceptances because that seemed necessary to build up the ac ceptance market. Mr. Hayes commented that the New York Bank could get out of He stated that there was very easily within a few weeks. acceptances objectives of fostering a between the two nothing irreconcilable operations in a and conducting acceptance wider acceptance market Open Market Account. in the System with activity manner consistent

-4b On the point of helping the acceptance market, he suggested that it was of assistance over a period of time for the New York Bank to be in that market, and that the Bank was properly using the acceptance authority as a money market instrument. The fact that customers occasionally were unable to obtain all the acceptances they wanted did not mean to him that the Reserve Bank should get out of the market. If it was going to be in the market, it should be a more or less reliable factor. Sometimes, he pointed out, foreign correspondents want to sell acceptances but the New York Bank should not be prepared necessarily to take them; rather, it should be a steady and encouraging factor in the market. said he was inclined to feel, as he had Mr. Robertson business in this field at all. before, that the System had no he understood that the purpose When the matter came up previously, interest in this area would be to show an of purchasing acceptances acceptance market actively in the and to participate of financing, This, he said, was different thing. to him to be an entirely seemed the New York that what any indication he had seen first time the holdings consistent increase acceptance to do was to Bank was trying could see and he securities, of Government holdings with increased He sug of holdings. two types between the at all no relationship might to $75 million of the limitation moving up that a gested and he market, the acceptance of control in substantial result

saw no merit in it. The trend, he said, should have been in the other direction, using $50 million not as a target but as a ceiling. It was his view that holdings of the New York Bank should be reduced and that competitive factors should be allowed to determine the extent of acceptance financing. Mr. Hayes said he differed strongly from the view that holdings of 5 per cent represented control of the market. Holdings of $50 million, he pointed out, represented a much larger share of the acceptance market when the existing authority was given than it represented now. Chairman Martin said he had not changed his own view that the System should be friendly to the acceptance market. He would like to see that market promoted and developed in any way possible. In view of the differing opinions expressed during this discussion, over for another meeting of the he suggested that the topic be held and there was agreement with this suggestion. Committee, at the beginning of this meeting There had been distributed Martin by Congressman to Chairman of a letter addressed copies Mr. Patman referred 1958, in which of July 2, under date Wright Patman in the each transaction him showing furnished the record previously to 1951 to the from March the period Account during Open Market System covering record be furnished that a similar 1956 and requested end of noted that Mr. Patman year the calendar during transactions

in a letter dated January 7, 1958, Chairman Martin had stated that the Open Market Committee felt that it should withhold such informa tion until after the Board's Annual Report for the year 1957 had been issued, but offered to supply the data thereafter. Following a brief discussion, it was agreed that the informa tion should be prepared and transmitted to Congressman Patman pursuant to his request. At the suggestion of Chairman Martin, Mr. Riefler, who had recently returned from England, commented informally on the new liquidity control system announced in the House of Commons last week. Under this relaxation of the British Government's credit control policy, banks would not have to restrict the total level of their advances to any given figure after the end of this month. However, of total advances would be retained by normal monetary control arrangement under which the Bank of measures, reinforced by a new the liquidity ratio of the would, if necessary, restrict England banking system by calling for special deposits. meeting of the Federal Open It was agreed that the next 1958, at 1000 a.m. on Tuesday, July 29, would be held Market Committee Thereupon, the meeting adjourned. Secretary