May 3, 1960 FOMC Minutes

FOMC minutes

There being no further comments, it was agreed unanimously that a letter in the form of the revised draft distributed under date of April 26, 1960, as modified to take into account the suggestions of Mr. Treiber, should be sent to the Under Secretary of the Treasury in reply to his letter of April 13, 1960. Secretary's Note: The letter sent over the signature of Chairman Martin to the Under Secretary on May 6, 1960, pursuant to this action was as follows: Your letter of April 13, 1960, requests the views of the Federal Open Market Committee on an enclosed circular under which refunding securities would be offered for either cash or maturing securities, but no special subscription privilege would attach to maturing securities. In the event of over-subscription, there would be allotments. Your letter also states that you contemplate that subscriptions from the Federal Reserve System, Government investment accounts, and all subscriptions up to a minimum amount would be allotted in full. In subsequent oral discussions you indicated that it is the intention of the Treasury to allot in full all subscriptions, irrespective of the amount, made by certain other subscribers who would constitute a substantial group, includ ing, for example, State and local governments, foreign governments, foreign central banks, international institutions, and publicly administered pension funds. Presumably the Treasury circular would state that all sub scriptions by such a group would be allotted in full; it seems to the Committee that it is important that the market be so informed in order to be able to evaluate the offering and the prospects of allotments to others. The question arises whether, under such a refunding offer, of the refunding securities in the Federal Reserve acquisitions for the maturing securities would be "acquired directly exchange within the purview of section 14(b) of from the United States" Reserve Act, which provides that "the aggregate the Federal directly from the United ... of obligations* acquired amount the twelve Federal Re at any one time by States which is held shall not exceed $5,000,000,000." serve banks was presented by the A substantially similar proposal Committee's consideration in early October 1958. Treasury for the 1958, the Committee took the position In a letter dated October 21, Banks pursuant to such a refunding that acquisitions by the Reserve from the a direct acquisition would not constitute arrangement within the meaning of section 14(b). United States amount of ... obligations * Should read:

Although the Committee's letter did not so state, the Committee strongly questioned the advisability of a debt management move that would distinguish in any way between the securities held by the Federal Reserve Banks and the securities held by other investors, and with your letter of October 24, 1958, you suggested a modified proposal under which there would be no difference in any respect in the treatment accorded the Federal Reserve System as compared with any other investor. To that proposal, the Committee responded that it had concluded that acquisitions by the Reserve Banks pursuant to such a refunding would not be subject to the $5 billion limit stated in section 14(b) of the Federal Reserve Act and that, subject, of course, to usual questions regarding monetary and credit policy and the terms eventually set for the refunding security, the Federal Reserve Banks would be prepared to consider refunding some or all of their maturing securities under such a proposal. The Committee has reiewed the proposal in your letter of April 13, 1960, as modified by your oral statement referred to above, and has concluded that, like the arrangements proposed in October of by the Federal Reserve Banks pursuant to such a 1958, acquisitions refunding would not be subject to the $5 billion limit stated in section 14(b) of the Federal Reserve Act. Furthermore, since it is contemplated that a substantial group of other investors would be on the same basis as the Federal Reserve Banks, eligible to refund first proposal made in 1958 would not seem to the objection to the the circular would contain an appropriate apply. (It is assumed that statement regarding the subscriptions to be allotted in full.) monetary and credit to usual questions regarding Accordingly, subject refunding security, the eventually set for the policy and the terms refunding some or be prepared to consider Reserve Banks would Federal all of their maturing securities under such a proposal. meeting of the Federal Open Market It was agreed that the next Committee would be held on Tuesday, May 24, 1960. the Chairman, Mr. Young commented on develop At the request of on the Government securi the statistical program ments in connection with was moving ahead satisfactorily that the program ties market. He reported with the dealers, and of schedules and relations in terms of the planning on May 20, 1960. dealers to begin reporting to request the it was intended G. Lanston and Co.) arisen. One dealer (Aubrey one problem had However,

had raised questions about the access of the Desk to the individual dealer reports that were to be submitted to the newly-organized Market Statistics Department of the New York Reserve Bank. These questions having been raised, it seemed desirable to advise the dealer candidly as to the pertinent provisions of the plan. Therefore, it was stated that the individual dealer reports would not usually be available to the Desk, but that (1) in the extension of repurchase agreements the Desk could call for and obtain from the Market Statistics Department certain figures that would be helpful from the standpoint of the extension of credit, (2) in the event of the declaration of a disorderly market the Manager of the Account would have full access to individual dealer reports until the situation was corrected, (3) to provide against con tingencies the Desk could seek permission from the President of the Federal Reserve Bank of New York to have access to dealer reports, and be granted in certain circumstances. A fourth such permission could provision of the plan, namely, that the Treasury might request compila dealer reports that would be helpful in appraising tions of individual not been mentioned to over a past period, had underwriting experience the dealer because that provision was not pertinent to his inquiry. expressed the view that the dealer later Young went on to say Mr. that the firm would was good and the statistical program that by and large for access of the view of the provision but that in be glad to cooperate, the dealer had in the event of contingencies to dealer reports Desk would have in that respect, was done unless something and, reservations

to decline to participate in the program. However, the dealer suggested exploration of a possible compromise with those concerned, namely, that this dealer and other dealers would be informed promptly on each occasion in which contingency access was granted. If such assurance were given, the dealer indicated that his firm would go along with the program. Mr. Young added that the Treasury and the New York Reserve Bank had been kept informed of developments. It was indicated that efforts would be continued to work out a solution to the problem that Mr. Young had described. The Chairman then referred to comments at the April 12 Committee meeting regarding the likelihood of hearings by a Subcommittee of the House Banking and Currency Committee on one of several bills pertaining the Federal Reserve System that had been introduced by Congressman to development, reported to the Reserve Bank Patman, and to the subsequent change of plans under which the Subcommittee Presidents, concerning a would relate to a different bill, had indicated that the hearings Chairman stated that by Mr. Patman. The R. 8516), also introduced (H. as additional information regarding the Presidents would be kept advised the hearings became available. The meeting then adjourned. Secretary