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The early years of the primary dealer system

Author

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  • Kenneth D. Garbade

Abstract

This paper presents a history of the primary dealer system from the late 1930s to the early 1950s. The paper focuses on two formal programs: the ?recognized? dealer program adopted by the Federal Reserve Bank of New York in 1939 and the ?qualified? dealer program adopted by the Federal Open Market Committee (FOMC) in 1944 and abandoned in 1953. Following his selection as Manager of the System Open Market Account (SOMA) in 1939, Robert Rouse formalized the New York Fed?s system of ?recognized? dealer counterparties. Although the Bank typically dealt with recognized dealers, it also did business from time to time with other dealers; neither the original informal system nor the successor formal system made a sharp distinction between the two. The focus of monetary policy changed from managing reserves to keeping interest rates low following the entry of the United States into World War II. To support the new focus, the FOMC replaced the New York Fed?s recognized dealer program with its own program of ?qualified? dealers. The new format limited transactions for the SOMA to qualified dealers and imposed a variety of restrictions on those dealers. Following the Treasury-Federal Reserve Accord of March 1951, the FOMC returned stewardship of the primary dealer system to the New York Fed, with instructions to develop a more open system that contemplated transactions with anyone ?actually engaged in the business of dealing in Government securities.?

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  • Kenneth D. Garbade, 2016. "The early years of the primary dealer system," Staff Reports 777, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:777
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    References listed on IDEAS

    as
    1. Garbade, Kenneth D., 2012. "Birth of a Market: The U.S. Treasury Securities Market from the Great War to the Great Depression," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262016370, April.
    2. Charls E. Walker, 1954. "Federal Reserve Policy and the Structure of Interest Rates on Government Securities," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 68(1), pages 19-42.
    3. Wicker, Elmus R, 1969. "The World War II Policy of Fixing a Pattern of Interest Rates," Journal of Finance, American Finance Association, vol. 24(3), pages 447-458, June.
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    Cited by:

    1. Kenneth D. Garbade, 2016. "Repurchase agreements as an instrument of monetary policy at the time of the Accord," Staff Reports 780, Federal Reserve Bank of New York.
    2. Andrew Bossie, 2020. "Monetary and fiscal interactions in the USA during the 1940s," Cliometrica, Springer;Cliometric Society (Association Francaise de Cliométrie), vol. 14(1), pages 61-103, January.

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    More about this item

    Keywords

    primary dealers; open market operations; System Open Market Account (SOMA);
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G2 - Financial Economics - - Financial Institutions and Services
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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