FOMC Minutes

TWENTY-FOURTH ANNUAL REPORT

OF THE

BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

COVERING

OPERATIONS

FOR THE YEAR 1937

UNITED STATES OF AMERICA

WASHINGTON: 1938

214

ANNUAL

REPORT OF BOARD OF GOVERNORS

the absence of conditions not then foreseen, an increase in the System

portfolio would not be justified, that the executive committee should

continue to operate under authority granted by the Federal Open Market

Committee to replace maturing securities and to make shifts of securities

in the account with a view to preventing a disorderly market, and that

for that purpose additional authority should be granted to the executive

committee to make such shifts and replacements. It was the consensus

that it would be undesirable for the System to continue indefinitely to

increase the proportion of bonds held in the System account at as great

a rate as had taken place during the preceding week and that if it ap

peared that the prevention of a disorderly market would justify further

shifts in large amounts, beyond the limits set by the action referred to

above, it might become advisable to increase the aggregate amount of

securities held in the account in order to preserve a desirable ratio of

short to long-term securities in the account.

2. Authority to Increase or Decrease System Account.

By unanimous vote, the Committee authorized the exec

utive committee to arrange for an increase or decrease in

the amount of securities then in the System open market

account by not more than $250,000,000 in the event of an

emergency arising requiring such action before a meeting

of the Federal Open Market Committee could be held.

This action was taken in order to enable the executive committee to

act promptly in the event unforeseen circumstances should make action

desirable before another meeting of the full Committee, with the under

standing that in the absence of an emergency the executive committee

would act under the authority to replace maturing securities and to

make shifts in the account, that on the basis of the then existing situa

tion there was no necessity to resort to the authority to make increases

in the System portfolio, and that such action would be resorted to only

in the event of the development of new circumstances which, in the judg

ment of the executive committee, would make necessary an increase in

the portfolio.

MEETING ON APRIL 4, 1937

Members present: Mr. Eccles, Chairman; Mr. Harrison, Vice Chair

man; Mr. Broderick, Mr. Szymczak, Mr. McKee, Mr. Ransom, Mr.

Davis, Mr. Sinclair, Mr. McKinney, Mr. Martin, Mr. Peyton (alternate

for Mr. Day).

1. Authority to Increase or Decrease System Account.

It was moved that the following resolution be adopted:

"The Federal Open Market Committee directs the executive com

mittee to make such purchases or sales of United States Govern

ment securities, beginning April 5, 1937, as may be necessary with

a view to preserving an orderly market, but to make purchases of

not less than $25,000,000 during the week beginning April 5, 1937,

provided that the present aggregate amount of securities in the

System open market account shall not be increased or decreased by

more than $250,000,000 prior to the next meeting of the Federal

Open Market Committee. The character and maturities of the

FEDERAL RESERVE SYSTEM

215

securities acquired or sold shall be determined by the executive

committee in the light of current market developments."

A motion to amend the above resolution by striking out

the requirement that a minimum amount of securities be

purchased during the week beginning April 5, 1937, was

lost, Messrs. Harrison, Sinclair and Szymczak voting "aye"

and Messrs. Eccles, Broderick, McKee, Ransom, Davis,

McKinney, Martin and Peyton voting "no."

The original motion was then put by the chair and car

ried unanimously.

These motions were made following a review of business and credit

conditions, including the reserve position of member banks as it would

be influenced by the increase in reserve requirements which was to take

effect on May 1, 1937, the developments in the money market and bond

market, and particularly the continued weakness in the Government se

curities market, and a discussion of what, if any action should be taken

by the Federal Open Market Committee in the circumstances.

The resolution was adopted in order to enable the executive commit

tee to make open market purchases of United States Government secu

rities for the System account in such amounts and at such times as might

be desirable with a view (1) to exerting an influence toward orderly

conditions in the money market and (2) to facilitating the orderly ad

justment of member banks to the May 1 increase in reserve require

ments. The purpose of this resolution was in conformity with the

policy announced by the Board of Governors of the Federal Reserve

System in its statement on January 30, 1937, which declared, with refer

ence to the increase in reserve requirements, that by that action the

System would be placed in a position where such reduction or expansion

of member bank reserves as might be deemed to be in the public interest

might be effected through open market operations.

The rejection of the motion to amend the resolution was based upon

the opinion that a small amount of securities should be purchased dur

ing the week to demonstrate that the System was prepared to increase

the amount of securities held in the System account as a means of pre

venting a disorderly market over the period of the adjustment by mem

ber banks of their reserves to meet the May 1 increase in reserve

requirements.

2. Authority to Replace Maturing Securities and to Make Shifts of Securities

in the System Open Market Account.

By unanimous vote, the Committee instructed the exec

utive committee to direct the replacement of maturing

securities in the System open market account with other

Government securities and to make such shifts between

maturities in the account as may be necessary in the proper

administration. of the account, provided that the amount

of securities maturing within two years be maintained at

not less than $1,000,000,000 and that the amount of bonds

having maturities in excess of five years be not over $850,

000,000 nor less than $500,000,000.

This action was a continuation of similar authority granted to the

executive committee for the purpose of enabling the committee to re-

ANNUAL REPORT OF BOARD OF GOVERNORS

FEDERAL RESERVE SYSTEM

place maturing securities and to make shifts between maturities within

certain reasonable limitations. It was felt, however, that inasmuch as

the action authorizing the executive committee to increase the amount

of securities held in the account contemplated an immediate increase in

the account with a view to preserving an orderly market and facilitating

the adjustment of member banks to increased reserve requirements, it

would be advisable not to authorize the reduction of the amount of secu

rities held with maturities within two years to less than $1,000,000,000

(the amount of such securities held in the account at the time was in ex

cess of $1,100,000,000).

MEETING ON JUNE 9, 1937

MEETING ON MAY 5, 1937

Members present: Mr. Eccles, Chairman; Mr. Harrison, Vice Chair

man; Mr. Broderick, Mr. Szymczak, Mr. McKee, Mr. Ransom, Mr.

Davis, Mr. Sinclair, Mr. McKinney, Mr. Martin, Mr. Day.

1. Authority to Replace Maturing Securities and to Make Shifts of Securities

in the System Open Market Account.

By unanimous vote, the Committee instructed the ex

ecutive committee to direct the replacement of maturing

securities in the System open market account with other

Government securities and to make such shifts between

maturities in the account as may be necessary in the proper

administration of the account, provided that the amount

of securities maturing within two years be maintained at

not less than $1,000,000,000 and that the amount of bonds

having maturities in excess of five years be not over

$850,000,000 nor less than $500,000,000.

This action continued authority previously granted to the executive

committee to enable it to replace maturing securities and to make shifts

between maturities in the System account, including authority to in

crease or decrease the holdings of bonds with maturities in excess of five

years, within the specified limits, in order to meet changing market con

ditions and to improve the distribution of maturities in the account.

2. Authority to Increase or Decrease System Account.

By unanimous vote, the Committee directed the execu

tive committee to make purchases and sales (including

authority to allow maturities to run off) of United States

Government securities for the System open market ac

count to such extent as may be necessary before the ad

journment of the next meeting of the Federal Open Market

Committee, for the purpose of preventing disorderly market

conditions, provided that the aggregate amount of securi

ties held in the account be not increased to an amount

exceeding $2,680,000,000 nor decreased to an amount less

than $2,180,000,000; the kinds and maturities of the securi

ties acquired or sold to be determined in the light of

current market developments.

This action was taken in order that the executive committee might

continue to have authority to act promptly when conditions warranted

the purchase or sale of Government securities for the System open market

account for the purpose of preventing disorderly market conditions.

217

Members present: Mr. Eccles, Chairman; Mr. Harrison, Vice Chair

man; Mr. Broderick, Mr. Szymczak, Mr. McKee, Mr. Ransom, Mr.

Davis, Mr. Sinclair, Mr. McKinney, Mr. Martin, Mr. Day.

1. Authority to Replace Maturing Securities and to Make Shifts of Securities

in the System Open Market Account.

By unanimous vote, the Committee instructed the execu

tive committee to direct the replacement of maturing securi

ties in the System open market account with other Gov

ernment securities and to make such shifts between maturi

ties in the account as may be necessary in the proper

administration of the account, provided that the amount

of securities maturing within two years be maintained at

not less than $1,000,000,000 and that the amount of bonds

having maturities in excess of five years be not over

$850,000,000 nor less than $500,000,000.

It was agreed that the reasons for the authority granted to the execu

tive committee at the meeting on May 5, 1937, to replace maturing

securities and to make shifts between maturities in the System account

still applied and that, therefore, such authority should be renewed.

2. Authority to Increase or Decrease System Account.

By unanimous vote, the Committee directed the execu

tive committee to make purchases or sales (including au

thority to allow maturities, to run off without replace

ment) of United States Government securities for the

System open market account to such extent as may be

necessary before the adjournment of the next meeting of

the Federal Open Market Committee for the purpose of

preventing disorderly market conditions, provided that the

aggregate amount of securities held in the account be not

increased or decreased from the amount now held in the

account by more than $250,000,000; the kinds and maturi

ties of securities acquired or sold to be determined in the

light of current market developments.

The reason for this action was the same as that which prompted simi

lar action by the Committee at its meeting on May 5, 1937.

MEETING ON SEPTEMBER 12, 1937

Members present: Mr. Eccles, Chairman; Mr. Harrison, Vice Chair

man; Mr. Broderick, Mr. Szymczak, Mr: McKee, Mr. Ransom, Mr.

Davis, Mr. Sinclair, Mr. McKinney, Mr. Martin, Mr. Day.

1. Authority to Increase or Decrease System Account and Recommendation

that Treasury Be Requested to Desterilize $300,000,000 of Gold.

The following resolutions were adopted by unanimous

vote:

"RESOLVED, that, until the adjournment of the next meeting of the

Committee, the executive committee is authorized to direct the pur

chase in the open market from time to time of sufficient amounts of

Treasury bills or other short-term Treasury obligations to provide

funds to meet seasonal withdrawals of currency from the banks and