August 18, 1959 FOMC Minutes

FOMC minutes

Mr. Mangels said he would be surprised and disappointed if any Twelfth District banks were included in those making observa tions to the Treasury. Only on rare occasions did the San Francisco Bank talk to a member bank about its borrowing program, and then only with regard to the cause of the borrowing, the possible duration, and plans to relieve the need for continuous borrowing. On the other hand, there had been occasions when larger banks were encouraged to subscribe to new Treasury issues that might not otherwise have had a full degree of success, even though some of those banks may have been continuous borrowers. Mr. Mangels expressed concurrence in Mr. Holland's conclusions but said that two points occurred to him. First, as the memorandum implied, a program to provide for reserve needs as a basis for underwriting operations of judicious size was based on projections of what seemed reasonable in the way of required of differences in the method of preparing the reserves. Because Board's projection of reserve needs as compared with that of the the matter might call for some further New York Bank, this phase of question of opening the discount window discussion. Secondly, the underwriting needs would again raise the ques specifically to meet dealers, either to Government securities tion of making advances by assuring banks New York Bank or indirectly directly from the ability to discount. Heretofore, to the dealers of their lending proceeding in that had concluded against the Open Market Committee direction.

Mr. Deming said that he had no disagreement with Mr. Holland's memorandum, which reflected generally the manner in which the Minneapolis Bank had been operating. With respect to the larger banks in the Ninth District, he said that if they borrowed to buy new issues and liquidated the indebtedness within a reasonable time, the Reserve Bank said nothing. If the member bank continued to borrow and to carry the securities, the Reserve Bank was likely to say something, and in essence this was what Mr. Holland's memorandum contemplated. Mr. Allen said that his experience, which included rather close contact with larger underwriting banks, bore out what had been said previously at this meeting. The substance of the matter was that banks tended to go into a financing when they felt they were going to make some money. Otherwise, they stayed out. Mr. Allen raised the question whether too much importance was not being attached to this matter, although he realized it was necessary to make an answer to the Treasury. There seemed to be general agree ment with Mr. Holland's conclusions, and they appeared to reflect the manner of administration of the discount window throughout the System. In the course of further discussion, Chairman Martin sug concern to the System if bankers that it was properly of gested The problem could not be comments to the Treasury. were making trouble. He also lead to serious eventually it might ignored, for

noted that in any organization, including the Federal Reserve System, there was likely to be a natural inclination to feel that the organiza tion was right. Therefore, it seemed necessary to go through the kind of review that had been prompted by the Treasury's questions. What ever the facts might be, this was business with which the System must concern itself in order to be able to supply the proper answers. Continuing the discussion, Mr. Wayne expressed concurrence in Mr. Holland's memorandum. He thought it would be hazardous if System people began to think in terms of treating Treasury needs as an exception to the principles governing appropriate and inappropriate use of the discount window. In his opinion, the most appropriate way to provide reserves in connection with Treasury financings was to operate through the Desk. By that process, the reserves reached banks that were really underwriting banks. In the Fifth District, there were no banks that were truly underwriting banks. Mr. Bryan said that the Atlanta Bank refrained from making to member banks about borrowing before or after a representations he could not believe any complaint was Treasury financing and that the Sixth District was concerned. He supported justified as far as that had already been stated, the Holland memorandum for reasons in what Mr. Treiber said. This including one that was implicit could distinguish between assisting the involved asking how one to a new to permit subscription providing reserves Treasury through allowing a bank to hold the Treasury by issue and assisting

investments already in its portfolio. There were banks that could be helped, and the Treasury thus helped also, merely by letting them keep their current portfolio. Messrs. Fulton and Bopp both indicated that they agreed with the Holland memorandum. In conclusion, the Chairman responded to a question by indicating that he would like to consider further, in the light of this discussion, the possibility of speaking to the Under Secretary of the Treasury with regard to his attending a meeting of the Open Market Committee for additional consideration of the matter. It was agreed that the next meeting of the Federal Open be held at 10:00 a.m. on Tuesday, Septem Market Committee would ber 1, 1959. The meeting then adjourned. Secretary