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fomc | 1,980 | Are we going to be able to have a discussion about it next month, in substance, do you think? | 22 |
fomc | 1,980 | Oh, yes; that's our idea. | 8 |
fomc | 1,980 | The schedule will be that first it will go through the Reserve Bank economists together with the Board economists. | 20 |
fomc | 1,980 | Yes. | 2 |
fomc | 1,980 | Then the document is going to be modified to reflect the discussion and it will presumably have some recommendations, or differing recommendations, at that point. | 28 |
fomc | 1,980 | There are no recommendations in this document except implicitly. | 10 |
fomc | 1,980 | Right. So we will try to schedule a substantive discussion of this at the time of our meeting prior to the Board of Governors having to decide this. | 30 |
fomc | 1,980 | But it is important that we make a decision fairly soon, because if we are going to make a change, both Reserve Banks and commercial banks are going to have a lot of work to do. | 39 |
fomc | 1,980 | Yes. My problem with this in part is that whatever is nice conceptually, given all the other burdens put on the Reserve Banks--or all of us at this point--with the membership and the special program and the seasonal borrowing privilege and the operational problems, this may create [problems] for the banks on top of all... | 169 |
fomc | 1,980 | But if we were to do it, the logical date would be September 1 when we bring in all of these new institutions, If we are going to make a change, if we could make a decision next month, that would give us five months to prepare. | 53 |
fomc | 1,980 | I must say that is one view on the Board staff. We're going to have to get these techniques out now. They really are going to be tested. But it's going to be impossible to run on our current method after September 1st--with all the phase-in, phase-down, sideways movements, [vault cash] counting as reserves, and not cou... | 83 |
fomc | 1,980 | Mr. Axilrod doesn't fully share that view, I presume. | 14 |
fomc | 1,980 | I don't think we're going to be any worse off than we are now. | 15 |
fomc | 1,980 | We'll be no worse off to we'll be in an impossible [position]. And some people think there's no difference between those two. | 25 |
fomc | 1,980 | Well, at least we'll have better data. I think that will be a big step forward. | 19 |
fomc | 1,980 | [Unintelligible] then the assumption is interesting enough. Again, this may be a minority view. But the estimate of the nonmember banks is that the way we do it now will be better than if they were reporting daily for some indefinite period. | 52 |
fomc | 1,980 | I have to mention the credit unions. | 8 |
fomc | 1,980 | Could I raise a question on a different subject if we're through with this one? | 16 |
fomc | 1,980 | Sure. | 2 |
fomc | 1,980 | In view of the policy action taken today, based on the prospects for the economy and so forth, I'd raise a question as to what kind of posture we should be taking now that we're getting our first reports on our consultations with the big banks and big holding companies [regarding the voluntary credit restraint program ... | 210 |
fomc | 1,980 | I have a gut reaction, but let's see what Governor Schultz's gut reaction is first. | 18 |
fomc | 1,980 | That's pretty nice! My gut reaction is for now just to go ahead and get in their plans and talk to them. I'm not ready yet to give up too quickly on the first go-around. I'm perfectly willing to take the chance of looking a little foolish; I think we're going to look foolish no matter what we do. I don't think that's a... | 164 |
fomc | 1,980 | Well, it's a little early to judge that, I would think. And it's very hard to lay down any sense of rigidity about this. But as a matter of common sense, take your case. You have banks who probably are not unlike what we are finding in a lot of areas. You say [loans] are increasing at an annual rate of 12 or 12-1/2 per... | 94 |
fomc | 1,980 | That's an average. So presumably half of them are well above that. | 14 |
fomc | 1,980 | First of all, that's not a figure that's absolutely out of sight. And second, you say [that credit growth] is slowing down. It seems to me you should have a consultation with those banks, as Fred is suggesting. But you're not in a situation where you would jump up and down on the table or whatever and say they have to ... | 185 |
fomc | 1,980 | But it's a regional problem to some extent. | 9 |
fomc | 1,980 | Well, to the extent we have a regional problem--. I don't know if other people have a sense of this at this point. Well, here's a question: Suppose there is a 20 percent loan growth in a particular bank. Is that something we should stomp on? | 55 |
fomc | 1,980 | What is it? Is it non-priority loans? Is it take-over loans? That's another aspect of consultation. | 23 |
fomc | 1,980 | Well, it will be heavily loaded with oil and gas loans, almost inevitably. | 16 |
fomc | 1,980 | In the second respect. | 5 |
fomc | 1,980 | Real estate loans have been very strong also. | 9 |
fomc | 1,980 | But if you had a bank with 20 percent [loan growth] and it's not in a priority area, I think you have to be tougher on that bank than on a bank that's way below and consistent with the program. I don't think we can just say that the program [does not apply] for that banker when he comes in with a 20 percent figure. Tha... | 84 |
fomc | 1,980 | I'd look foolish. | 4 |
fomc | 1,980 | If our economic projections are correct, then we ought to be phasing out this program in about two months anyway. VICE CHAIRMAN SOLOMON(?). In New York only one commercial bank has come in over 9 percent. | 47 |
fomc | 1,980 | At an annual rate? That surprises me. Well, you have no problem. VICE CHAIRMAN SOLOMON(?). We do have a bit of a problem with three bank holding companies. But we're looking into the data one more time. | 49 |
fomc | 1,980 | I'd say this isn't the time to stomp on them the way we would if the economy were running away. MR. BAUGHMAN(?). Well, I've gotten what I asked for. | 37 |
fomc | 1,980 | Were there any other feelings on this, while we're on the subject? I was going to [bring this] up after lunch. | 26 |
fomc | 1,980 | I don't want this analogy to sound too strange, but I think credit controls are little like the Vietnam war. We need to decide earlier rather than later to declare that we've won and pull out. And it seems to me that we have a particularly difficult problem with some regional differences that in a way are discriminator... | 126 |
fomc | 1,980 | I think that's right to an extent, and nobody is going to be [happier than I] to get rid of [the program] when the time comes. It's just a question of when the time is [right] psychologically, which is difficult [to gauge]. But given the situation we're in now, as opposed to two months ago before we had the program, I'... | 120 |
fomc | 1,980 | Well, that's very helpful. | 6 |
fomc | 1,980 | It looks to me as if oil and gas loans ought to be priority items, too, if we can extend that priority list. MS.TEETERS. Not publicly. | 34 |
fomc | 1,980 | Hang in there, Nancy. | 6 |
fomc | 1,980 | Of course the problem, I suspect, is that many oil and gas people are not getting the loans that they wanted. But the language that we use to one bank-- | 34 |
fomc | 1,980 | I know. | 3 |
fomc | 1,980 | --has to be reasonably consistent with what we say to another bank. If a banker says "Gee, I talked to Bob Black and he told me I could draw all the oil I wanted in West Virginia" and then some other banker says "That's not the message I got from Willis Winn"-- | 59 |
fomc | 1,980 | [Unintelligible] in Cleveland. | 9 |
fomc | 1,980 | Remember, if that's a loan to an oil company, that doesn't mean that it's a loan for the purpose of drilling an oil well. It might be for some entirely different purpose. | 36 |
fomc | 1,980 | Like borrowing silver! | 4 |
fomc | 1,980 | That wasn't the kind I was talking about though, Chuck. | 12 |
fomc | 1,980 | By and large I think you can be tough on the qualitative guidelines [unintelligible] gas drilling, but I don't think you should be giving them any sense that this is an open season on takeover loans or silver loans or something like that. | 50 |
fomc | 1,980 | We'll regard this as a dance instruction. We'll tip-toe around it until it is demised. | 20 |
fomc | 1,980 | Any other comments on this program? | 7 |
fomc | 1,980 | Let's go to lunch! | 5 |
fomc | 1,980 | Let us proceed, ladies and gentlemen. We need to approve the minutes. | 15 |
fomc | 1,980 | So moved. | 3 |
fomc | 1,980 | Do we have a second? | 6 |
fomc | 1,980 | Second. | 2 |
fomc | 1,980 | Without objection, the minutes are approved. Foreign currency operations. | 12 |
fomc | 1,980 | [Statement--see Appendix.] | 6 |
fomc | 1,980 | Are there any questions? | 5 |
fomc | 1,980 | Scott, I was struck by your emphasis on the good cooperation we have had. That certainly has been true in many instances. But wouldn't you say that the whole episode of the rise of the dollar several months back and the [subsequent] decline was an instance of different rate intentions and different preferences for up o... | 190 |
fomc | 1,980 | That doesn't solve the question of [how] we reach agreement between the two central banks. | 18 |
fomc | 1,980 | What we would do, Tony, is to agree that the central bank that wants the bigger intervention prevails. If we are willing to put money on the line to hold the dollar up, the Bundesbank [operates] in Europe. It has to be done for our account, but they would do it. We would have to agree on a method of communicating with ... | 115 |
fomc | 1,980 | But that means we would have a mechanistic formula whereby whichever side is more anxious to hold the currency up prevails. Even though there are departures from time to time between the Bundesbank's thinking and ours, if the dollar were too strong by their standards, during that period of time there would be some dive... | 272 |
fomc | 1,980 | Well, I don't think that would be the result of what I suggest. But perhaps we should examine this--we can't debate it here--and see if we can make some progress with it. | 39 |
fomc | 1,980 | I have seriously considered putting in a double shift--that is, having people in the trading room at the Desk during the night hours when the European markets are open. We already monitor the Far Eastern markets, but there have been occasions when there was a slippage between the time operations ended in the Far East a... | 108 |
fomc | 1,980 | By worthwhile do you mean in terms of likely operations or in terms of a special emergency that might happen? | 21 |
fomc | 1,980 | [I'm talking about monitoring] operations and whatever feedback we might get from the European markets. We would be monitoring their intervention as well as what is going on in the market at the time. | 38 |
fomc | 1,980 | I don't know how much that would cost but it seems like a good idea to me because what [happens now], as we see, is that we sometimes wake up here and the dollar is down 1 percent and the Bundesbank has done nothing. And by that time it is too late to push the dollar back up. | 67 |
fomc | 1,980 | We can explore that more. There are some disadvantages. It will become known that the Fed is staying awake and is willing to intervene in the Far East markets. The key point is that it will be known that the Fed is willing to intervene in the Far East markets and is doing 24-hour intervention. A 24-hour monitoring may ... | 172 |
fomc | 1,980 | There is no one more reluctant than I am. A 24-hour day is unthinkable. | 20 |
fomc | 1,980 | I am a little surprised that you say there was equal intervention going up and coming down. I got the impression that there was massive intervention by the Germans and the Swiss when the dollar was rising and that they haven't done anything on the way down--and we've done relatively little. Is that right or wrong? | 61 |
fomc | 1,980 | They've done more on the way down in recent weeks as a result of these mutual concerns. They're afraid that the dollar will start declining and [the monetary authorities will] have to intervene and undercut their monetary policy, and they want to maintain a certain policy restraint. And we have this other risk that we ... | 88 |
fomc | 1,980 | But the amount of intervention since we started out is nowhere near what it was on the way up. | 20 |
fomc | 1,980 | Yes, I agree with you. They sat very heavily on the dollar when it was rising, and ferociously so. And they didn't help very much at first when the dollar began to decline. But again, in more recent weeks with this convergence of interests, they have been very helpful. We haven't had to intervene much, partly because o... | 177 |
fomc | 1,980 | Governor Teeters, it wasn't only the foreign central banks that were supporting their own currencies. We were intervening substantially to find the marks to cover the Treasury's intermediate-term debts. We may not even have done enough in that regard. So we, too, were trying to take advantage of the improving dollar av... | 82 |
fomc | 1,980 | We didn't show up in the market until the dollar was around 190. | 15 |
fomc | 1,980 | That is another aspect of this two-party system. We had different reserve objectives. We would have liked to pick up some more D-marks. The Bundesbank was very unwilling to lose dollars because they were running a current account deficit [and were] worried. Nevertheless, the Bundesbank sold a great many dollars and we ... | 125 |
fomc | 1,980 | Do we have a motion to ratify the foreign exchange transactions? | 13 |
fomc | 1,980 | So moved. | 3 |
fomc | 1,980 | Seconded. | 3 |
fomc | 1,980 | [Without] objection they are ratified. Do you have a recommendation, Mr. Pardee? | 20 |
fomc | 1,980 | Yes. The Swedish Riksbank has asked if the Federal Reserve would increase its swap line by $200 million to $500 million. You received last night two memoranda on the Swedish situation--one by me and one by Mr. Caprio of the Board's staff. As I indicated, the Swedish authorities expect a financing problem on the order o... | 529 |
fomc | 1,980 | What are your reactions? | 5 |
fomc | 1,980 | I support the recommendation. I spoke with the Swedish Governor when he called me and he emphasized that they would only be drawing [on the line] as bridge financing for periods of up to about two months. And if we approve Scott's recommendation, I think we should tell them not only that the increase is only for one ye... | 254 |
fomc | 1,980 | Are they making any arrangements with the Bundesbank or anybody else? | 13 |
fomc | 1,980 | Well, I asked them that. They have They do not have the ordinary kind of swap line with the Bundesbank. Scott, do you want to explain what that arrangement with the Bundesbank is? | 40 |
fomc | 1,980 | Well, I'm not fully clear myself [but] the Bundesbank does allow other central banks to accumulate marks up to a certain amount before they ask those banks to cash them. So, it is more of a facility on the reserve currency side. The Swedes are borrowing marks quite frequently and they might want to keep some of them fo... | 74 |
fomc | 1,980 | Do we have any other arrangements on our swap lines with a takeout arrangement similar to what you are suggesting? | 22 |
fomc | 1,980 | For most of them, each time a central bank wants to [draw on] a swap line we have some discussion as to what the conditions would be and what the period would be. Normally in the past, though, swap drawings have been made for six months or a year. This would be somewhat unusual. Our conditions would be tighter in that ... | 84 |
fomc | 1,980 | I do think we should have that very firmly set down. It could be done in two ways: Either we set down all the conditions when we take action now to raise the line; or we do what we sometimes have done in the past, which is to treat an existing line as a framework for discussion, not as a commitment on our part to lend.... | 231 |
fomc | 1,980 | What are the risks of not applying conditions to the swap line? Everybody seems to be in agreement. I don't know what--. Isn't Sweden a good credit risk? | 33 |
fomc | 1,980 | Yes, Sweden is a good credit risk. I think the only risk, if you want to use that word, is that it becomes awkward later on with other countries if we do apply conditions and they ask why we didn't apply them to Sweden. Our posture always has been, even if the country is a good risk, that we want to be in a position of... | 86 |
fomc | 1,980 | So long as they don't apply them to us. | 10 |
fomc | 1,980 | It's an asymmetrical relationship. We don't exactly play the IMF role, but it is true that in the case of some countries that are less creditworthy--take Mexico--we would want to know what their stabilization program was and what the policies intended to get them out of trouble were going to look like before we would l... | 190 |
fomc | 1,980 | They take the exchange risk, is that right? | 10 |
fomc | 1,980 | Yes. | 2 |
fomc | 1,980 | And the interest rate is the U.S. bill rate? And you are proposing 60 days? | 20 |
fomc | 1,980 | Roughly. | 4 |
fomc | 1,980 | Ninety days is so conventional. I don't much like saying 60 days. It sounds as if we have some particular problem with Sweden. I would think a 90-day maturity-- | 38 |
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