January 12, 1960 FOMC Minutes

FOMC minutes

Chairman Martin commented that the report had not come out with all of the answers but that the program, which resulted from negotiation with the Treasury and the Desk, appeared on the whole to be one that should be carried forward. The Chairman then stated that he would like to have the views of Messrs. Hayes and Rouse. Mr. Hayes said he agreed that Mr. Young had done a splendid job, in cooperation with the Treasury and the staffs of the Board and the New York Bank, On the whole, the proposed program was a constructive and needed one. The only part on which he had serious doubts involved the question whether it was wise to cut off the Desk from information on individual dealer data. He had felt generally that the more the Desk knew, the more effective a job it could do. Recognizing differences of viewpoint on this phase of the matter, he suggested that the program be given a fair trial. He added that he and the Desk and everyone else at the New York Bank would be willing to give it a fair trial. Mr. Rouse agreed that the report represented an excellent a statement so that However, he wished to make job in most ways. of view on the matter before it his point Committee might have the Mr. Rouse then read had just made reference. to which Mr. Hayes the following statement: I would like to a few comments that There are just with this program. It certainly make in connection in the development of informa constitutes a major step the public interest is deeply tion in an area where reaches a point where When the program involved. in the Government data covering activity publication of

securities market becomes a reality, it should make for a more informed public and may even lead to a better public understanding of the relationship between monetary policy and the market. This information program is the most urgent of the suggestions that developed out of the Treasury-Federal Reserve Study. However, the program contains unnecessary restrictions on the availability of data to the Management of the System Open Market Account. Up to this time, the data on the operations of individual dealer firms has been available to the Management and this information has been helpful to it in making a general appraisal of the market and in dis charging its responsibilities to the Committee. I wish to point out that under this new program the Manager is denied access to individual dealer data except under particular conditions, and that only information on the aggregate of dealer operations would be available to him. Ordinarily, these aggregate data would be sufficient to form an over-all appraisal of market conditions. Yet there are, and have been, many occasions when it has been necessary to go beyond the data covering all dealers as a group and to review the operations of individual dealers for the purpose of interpret ing and evaluating the significance of the aggregative data. Dealer operations in terms of both the aggregate and of individual dealer firms also have an important bearing on Treasury financing--before, during, and after. To deprive the Committee and the Secretary of the Treasury and their staffs of any of the information collected from dealers on a regular basis is an unnecessary limitation on the use of the data. The people in authority having a public responsibility have an obligation to be as well informed as market. This means getting to know the possible about the and it would embrace an understanding of whole market dealer performance through behavior patterns and individual contact with dealers and the data continuous day-to-day data on operations of operations. The covering their dealer firms is particularly important--indeed, individual the repurchase agreement it is essential--in administering Reserve Bank of New York. arrangements at the Federal makes special allowance information program While the new on individual dealers of certain data for the availability of repurchase agreements, it in connection with the use the total information enough. In effect, does not go far has been avail operations that individual dealer covering be sharply reduced many years will the Manager for able to information will even though that under this program, we like it dealers. Whether be collected from continue to is a personalized market securities or not the Government

market. That is, it is a market in which a number of highly individualistic personalities play a crucial part, and it is this characteristic that prompts this comment on my part. I hope the time will arrive when the market will be large enough so that no one or two personalities at any one time can dominate it. When that time comes the use of aggregate figures may be sufficient. If the Committee concludes that individual dealer data should be denied the Desk on a trial basis, we will of course do our best to operate effectively under the proposed limitation. In my experience the current information available on the financial standing of dealer firms has been adequate. I question the need, as set forth in the proposal, for obtaining formal income statements from dealers and I also have reservations concerning the need for balance sheet information as often as four times a year. I have one final comment to make. It has to do with the protection of the confidentiality of individual dealer positions and the need for an appropriate time lag between current dealer reports and their date of publication, even in aggregate form. The paper submitted to the Committee covers this point, but I would like to emphasize here for the benefit of the group that will carry out your instruc tions the importance of having an adequate time lag between current dealer operations and their release for public consumption. Some of my comments have been covered in greater detail in a paper on this subject prepared in November of last year Reserve Bank of New York, primarily as an by the Federal aide memoire for Mr. Young's group. If any of you would be that paper, I would be glad to interested in receiving forward copies. that Mr. Young's group continue I would like to suggest looking to recommendations to the Federal Open its work, and the Treasury arising out of the addi Market Committee by their Study and also some of tional matters uncovered were raised. These latter points the technical points that for example, extending maturity of securities include, agreement, reverse Federal Reserve repurchase eligible for of System securities to agreements, lending repurchase of dealings with swaps, and the confidentiality dealers, of these suggestions While most Reserve System. the Federal the direction of operations at related to the are primarily an interest for the Treasury as this Committee, they hold the market for for primarily responsible in that it is well its own securities.

Chairman Martin suggested that Mr. Rouse send to all of the Committee members and other Presidents, without specific request, the paper of the New York Bank to which he had referred. The Chair man then proposed that the Committee adopt the program suggested by the planning group and review it some time in the course of the next three months. No objections to this proposal were heard, and the Chairman said that the matter would proceed on the basis he had suggested. then the next meeting of the Federal Open Market It was agreed that January 26, 1960, at 10:00 am. Committee would be held on Tuesday, The meeting then adjourned. Secretary