October 13, 1959 FOMC Minutes

FOMC minutes

which the Committee would not want to express a view today, and that, if desired, the matter could be brought up later. In this connection, Chairman Martin commented that the whole program was something on which the Committee must be working con tinuously and that he solicited the Committee's continuing interest in the development of the program. The problem involved a difficult and time-consuming process and there were many questions in the area of developing adequate data. It was his suggestion that each Com mittee member send any thoughts to Mr. Young and keep in constant touch with the problem because it was one with which the Comittee would have to work for a long time to come. He did not think the Committee could take a vote on each issue but he believed it important for the System to move forward in this field, particularly since questions in this area would undoubtedly arise during the next session of Congress. said it was his understanding that the term Mr. Shepardson experimental basis" meant that Mr. Young and his associates "on an basis and that indications of would go forward on an experimental for collection of statistics assent with the program Committee proceed on that basis. for him to constituted authorization of disagreement with the understanding There was no indication added that the experimental and Mr. Young as stated by Mr. Shepardson, be in cooperation with the Desk. steps would

Mr. Larkin suggested that there would have to be some exploration of this program with the dealers to call to their attention any change in the manner of receiving and processing the figures in question, which currently are supplied to the Federal Reserve Bank of New York strictly on a voluntary and confidential basis. Mr. Young next turned to the section of the September memorandum relating to margin requirements on Government securities. The first suggestion was for the preparation and negotiation of a joint bank supervisory statement relating to minimum margins and other credit standards which banks ought to adhere to in extending credits to others than Government security dealers or banks on Government security collateral, including repurchase arrangements, reverse repurchases, and forward delivery contracts. Supervisory authorities joining in such a statement should include the Board of Governors, the Comptroller of the Currency, the Federal Deposit National Association of Supervisors Corporation, and the Insurance of State Banks. said, it would developed, Mr. Young a statement were If such to find some the staff memorandum, indicated in desirable, as seem for and treasurers, corporation presidents it to way of publicizing Com and Exchange by the Securities through distribution example, to also be desirable It would listed corporations. to all mission

send a letter to the New York Stock Exchange requesting review by the Exchange of its flat 5 per cent margin rule on Government securities, especially the consistency of this rule with margins that might be recommended in the joint supervisory statement, and the Treasury should explore the feasibility of administrative margins on subscriptions to refunding bond offerings as well as those presently applied on new cash offerings. Mr. Young suggested that some member of the Open Market Com mittee might be designated to explore in detail the possible scope of such a joint supervisory statement and the problems in getting it negotiated. Mr. Robertson said he was in sympathy with the idea, but that he would emphasize the use of the word "negotiate." The plan was not without its difficulties, and the supervisory authorities might be somewhat reluctant to announce standards they could not enforce. Mr. Young agreed that this would amount to moral suasion. Adherence could not be enforced but the statement might do some good. stated that he would prefer to leave this Chairman Martin asked whether the Committee would be agreeable item this morning and of the Committee for the purpose the Chair appointing some member to referred to by Mr. Young. procedure was heard. No objection to this the September 28 the suggestion in Mr. Young then mentioned and possible establishment by memorandum relating to consideration

the Open Market Committee of financial statement standards to be required of dealers obtaining repurchase accommodation from the New York Reserve Bank. Standards, the memorandum suggested, should provide for full disclosure of contingent liabilities on repurchase account. The memorandum pointed out that margin standards applicable to bank repurchase arrangements with others than dealers and banks would be covered by the joint supervisory statement referred to earlier. Chairman Martin suggested that the discussion terminate at in the memorandum for since this item and the suggestion this point, Government security dealers would exploration of an organization of the view that the discussion today require some time. He expressed the staff to move forward. sufficient ground for had covered suggestion that the agreement with the Chairman's There was held over for discussion memorandum be items in the staff remaining at another meeting. Open Market of the Federal the next meeting was agreed that It November 4, 1959. 10:00 a.m. on Wednesday, would be held at Committee Secretary