April 12, 1960 FOMC Minutes

FOMC minutes

better technique to indicate generally that a swap was involved than to attempt to confine a whole swap transaction to any one dealer. Mr. Rouse, who had returned to the meeting during the foregoing discussion, commented that the volume of business through the Desk, including open market transactions, foreign account transactions, and Treasury account business, is so large and continuous that the Desk has a good knowledge of its markets. Accordingly, if a dealer were to propose a swap transaction, the Desk would generally be in a position to effect the swap or to execute one side of the transaction with such dealer and the other side with another dealer, without further checking of prices. However, there would be times when the Desk would need to check further to ascertain whether a proposal was in line with the market. Chairman Martin then suggested that the Committee act on the namely, to authorize the Management of the basis that had been outlined; $150 million of the one-year bills maturing Account to acquire up to meeting, either through now and the next Committee July 15, 1960, between that the matter with the understanding swaps or outright purchases, at the next meeting of the Committee. would be called up again for review proceeding on that he would vote against Robertson stated that Mr. that he had read indicated in the memorandum basis, for the reasons pertaining to swap transactions. he would be indicated that of the Committee No other member had been suggested. on the basis that opposed to proceeding

Chairman Martin then referred to the letter that had been addressed to him by a group of Senators under date of March 12, 1960, which contained suggestions for change in some of the Federal Reserve operating procedures, and to the draft of proposed reply that had been distributed to the Reserve Bank Presidents under date of April 8, 1960. He inquired whether any of the members of the Committee or other Presidents had comments on the draft of reply. Mr. Leedy referred to that portion of the draft reply relating to the prevention of undue speculation in Government securities, particularly the part having to do with the possible issuance of a supervisory instruction to Federal bank examiners in terms that prudent and sound bank lending practice calls for appropriate margins in the case of all loans to nondealer borrowers against Government securities as collateral. Mr. Leedy pointed out that the Federal Reserve Banks loan at par on United States Government securities tendered as collateral for advances to member all of the Federal bank supervisory agencies permit banks banks and that to carry Government securities at par regardless under their supervision value. In these circumstances, he questioned whether the approach of market draft reply to which he had referred would cited in the portion of the practices and would be effective. be consistent with these discussion of this point, during which Chairman There followed some Mr. Leedy referred had possible approach to which Martin said that the by the Board and the other Federal bank supervisory been discussed at length (the Comptroller that one of the supervisors agencies. It was understood

of the Currency) intended to go ahead with such an instruction to examiner regardless of what the other agencies did. Mr. Young pointed out that the suggestion was not new, having been one of those advanced in the course of last year's Treasury-Federal Reserve study of the Government securities market. Chairman Martin then commented that the points brought out by Mr. Leedy were worthy of consideration. Mr. Treiber suggested that the group of Senators appeared to be urging massive purchases of longer-term Government securities by the Federal Reserve and that pertinent portions of the draft reply might be reviewed in that light. There followed comments on whether massive purchases of longer term securities appeared to be envisaged by the Senators, from which it seemed that there might be doubt as to what scale of open market operations in securities other than bills the group of Senators may have had in mind. In response to a question by the Chairman, Mr. Treiber said he had no the proposed letter in relation to the specific language to suggest for that the point would and the Chairman indicated point he had mentioned, be borne in mind. that the proposed reply represented a Mr. Mills commented therefore, no one person might be completely compromise of many views and, his own thinking, following which with the reply in the light of satisfied nature that of an editorial that he had a suggestion Mr. Deming indicated staff for consideration. pass along to the Board's he would

It was agreed that the next meeting of the Federal Open Market Committee would be held on Wednesday, May , 1960, at 10:00 a.m. Secretary's Note: In the light of subse quent developments, the members of the Committee and the other Presidents were polled by telegram and it was decided to hold the next meeting on Tuesday, May Chairman Martin stated, as a matter of information, that repre sentatives of the Federal Reserve System, including a certain number of Reserve Bank Chairmen and Reserve Bank Presidents, might be called upon to appear at hearings before a Subcommittee of the House Banking and Currency Committee in connection with one of several bills introduced by 2790, which would call for a change in Congressman Patman, probably H.R. of Governors, abolishment of the Federal the number of members of the Board and transfer of the Committee's functions to the Open Market Committee, he said, but it did not appear Board. No date had yet been announced, commence until after Easter. that any such hearings would Secretary's Note: It was learned subse quently that hearings probably would be 8516, also introduced held instead on H.R. Congressman Patman, which would provide by of the stock of the Federal for retirement Banks and purportedly would make Reserve any insured bank eligible for System membership. The meeting then adjourned. Secretary