Full text of Statements and Speeches of Stephen Symmes Gardner : National Association of Federal Credit Unions, Ninth Annual Conference, Washington, D.C.

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N a t i o n a l A s s o c i a t i o n of
Ninth Annual ouiueicuuc
Washington, D. C.
Stephen S. Gardner
Vice Chairman, Federal Reserve
July 19,

I am delighted
to a d d r e s s

Board

1976

to b e h e r e a n d h a v e t h e

this fine a u d i e n c e .

opportunity

The NAFCU and I have

a l o n g w e l l in d e b a t e s b e f o r e C o n g r e s s

gotten

that concerned

ing the p o w e r s of F e d e r a l , in fact a l l , c r e d i t

extend-

unions.

W h i l e I u s e d to w o r r y a b o u t C r e d i t U n i o n s as a p r i v a t e
b a n k e r , now I have an account w i t h the F e d e r a l
Federal Credit Union.

T h i s i s n ' t the t y p i c a l

Reserve
conversion

of a former sinner; it's m o r e a commentary on how our
works.

O b v i o u s l y , banks and many other financial

tions compete with credit u n i o n s .
cannot overlook

But government

the 20,000 credit unions

instituregulators

that are a major

p a r t of the f i n a n c i a l s t r u c t u r e in this c o u n t r y for
of

system

millions

Americans.
Your conference committee originally asked me

j o i n in a p a n e l d i s c u s s i o n w i t h t h e N a t i o n a l C r e d i t
A d m i n i s t r a t o r a n d t h e C h a i r m a n o f the F e d e r a l H o m e
Bank Board.

T h e i r d e f e c t i o n is y o u r l o s s , b u t i n

sense it's perhaps a p p r o p r i a t e .
has

traditionally been viewed

Part of their

to

Union
Loan

another

responsibility

to b e a d v o c a c y o f t h e

industries

-2they r e p r e s e n t in this h i g h l y c o m p e t i t i v e e c o n o m y .

The

F e d e r a l R e s e r v e as t h e n a t i o n ' s m o n e t a r y a u t h o r i t y
central bank has not been comfortable

in a n

p o s i t i o n for any one p a r t of the n a t i o n ' s

and

advocacy

financial

a n d so I c a n t r y to e x p r e s s m y v i e w s o n r e g u l a t o r y
here w i t h , hopefully, objectivity and

industry,
trends

independence.

F i r s t , w e ' r e in a v e r y s e n s i t i v e p h a s e of
i m p o r t a n t recover)'- i n t h e e c o n o m i c c y c l e .
quicker recovery
possible.

guessed

T h e rate of i n f l a t i o n has b e e n cut m o r e
L i q u i d i t y of b u s i n e s s e s

institutions has improved and business
been atypically lower
of the c y c l e .
rising.

It's b e e n a

than m o s t observers w o u l d have

than m a n y e x p e c t e d .

and

rapidly

financial

credit demand

t h a n in p a s t r e c o v e r i e s

This has helped

has

at this

phase

to k e e p i n t e r e s t r a t e s

from

P e r s o n a l i n c o m e a n d c o n s u m e r s p e n d i n g s e e m to b e

proceeding

at a h e a l t h y p a c e .

The financial markets

recovered

to a d e g r e e a n d a r e a c c e p t i n g n e w i s s u e s .

perceived

i n f l a t i o n p r e m i u m in i n t e r e s t r a t e s h a s

narrowed.

an

But while

grudgingly rather
m o r e in c h a r a c t e r .

The

been

industrial production and GNP

m o v i n g u p , i n v e s t m e n t in c a p i t a l goods has risen
V
1*>
I f t k <-7

have

are

only

t h a n 1-eading the r e c o v e r y w h i c h w o u l d
M o r e i m p o r t a n t l y , the number of

u n e m p l o y e d , d e s p i t e a s i g n i f i c a n t d r o p , is

be

people

unacceptable.

T h e c o n s t r u c t i o n i n d u s t r y , i n c l u d i n g h o m e b u i l d i n g , is

-3still depressed.

The continuity of social programs

and

g o v e r n m e n t s e r v i c e s a n d t h e i r e x p a n s i o n is t h r e a t e n e d
the precarious

finances of m a n y state and local

by

governments.

T h u s , the s p e c t r e of the d a m a g e that could b e done b y
tinuing unmanageable

federal deficits haunts many

con-

people.

These latter problems w o u l d , h o p e f u l l y , be lessened by a
continued recovery

in t h e e c o n o m y a t t h e p r e s e n t

But that course may not be acceptable
issues will be key issues

the r e c o v e r y .
occurred

i n 19 76 w h e n

in a n a t i o n a l

I've been impressed with

rate.
economic

election.

the r a p i d p r o g r e s s

of

The conventional response has been that

it

t h a t w a y b e c a u s e w e w e n t so f a r d o w n so f a s t .

a n s w e r is so w h a t .

We had a sharp and severe recession

a l o t o f r e a s o n s a n d s o m e o f the m o s t b a s i c c a u s e s
not been corrected.

My

have

The energy problem has not been

n o r has the w o r k n e c e s s a r y

solved

to a s s u r e a s o l u t i o n r e a l l y

The slow g r o w t h of investment

in c a p i t a l g o o d s m e a n s

that foretells

inflation.

begun.

that

w e can a g a i n be i m p e r i l e d b y l i m i t e d c a p a c i t y in m a n y
industries, a situation

for

key

And

government deficits are still very large and can hardly

those
be

e x t i n g u i s h e d g i v e n the social s e n s i t i v i t i e s , w h i c h I s h a r e ,
of our p e o p l e .

In s u m m a r y , t h e q u i c k r e c o v e r y w a s a b l e s s i n g ,

b u t it leaves much
term.

to b e d e s i r e d in b o t h

the s h o r t a n d

long

-4I began with an economic analysis and
the campaign issue because
cannot move independently
soqiety for very l o n g .
experiences with

mentioned

the course of r e g u l a t o r y
f r o m the f o r c e s

that shape

As a result of our r e c e n t

the business

the g o v e r n m e n t and the p u b l i c w i l l c o n t i n u e
t i o n to the s a f e t y a n d s t r e n g t h o f f i n a n c i a l

operations of foreign banks

to

our

bitter

c y c l e , w e can expect

Capital adequacy, insider loans, loans

trends

that

to p a y

atten-

businesses.

affiliates,

in t h e U . S . , a n d o p e r a t i o n s

U.S. banks abroad will all receive attention
the C o n g r e s s , and the r e g u l a t o r s .

from the

B e c a u s e of the

of cities and the d i s a d v a n t a g e d , efforts

to e n c o u r a g e ,

discrimination

and redlining will be strictly enforced.

public,

plight

n o t a l l o c a t e , c r e d i t to h o u s i n g w i l l b e p r e s s e d b y
m e n t and statutes p r o h i b i t i n g

in

More

of

if

govern-

lending,
record-

keeping by business will become necessary, and more

intensive

supervision backed by stronger penalties w i l l be

required

of r e g u l a t o r s .

general

T h e s e trends w i l l b e true of the

consumer protection measures benefiting women and
elderly and ethnic groups

the

that society has slighted.

The

Fair Credit Reporting Act w i l l require standards and

norms

for d i s c l o s u r e on all types of c r e d i t t r a n s a c t i o n s .

The

holder-in-due-course rule published by
Commission

the F e d e r a l

Trade

is j u s t a n o t h e r e x a m p l e of t h e n e w c o n c e p t

a lender's role and responsibility

to s o c i e t y .

The

of

pressures

for b r o a d e n e d powers

to s a v i n g s b u s i n e s s e s

and

credit

unions while basically a legislative matter will

influence

r e g u l a t i o n of i n t e r e s t rate ceilings on s a v i n g s , and

the

regulations

check-

that govern

transaction balances

s u c h as

ing a c c o u n t s , share drafts and NOW a c c o u n t s .

Further,

m o n e t a r y a u t h o r i t i e s w i l l b e t r y i n g to s o r t o u t the
p r i a t e f o r m of r e v i s i o n of r e g u l a t i o n s
reserves

and laws

the

appro-

governing

for demand deposits wherever such accounts

are

permitted.
A m o n g all of these r e g u l a t o r y
you are more likely

those

that

to e n c o u n t e r in t h e s h o r t r u n a r e

consumer protection measures.

out for p u b l i c c o m m e n t .

the

T h e y a r e i n the l a w o r

r e g u l a t o r y p o w e r s of the agencies

I don't really want

trends

today.

Some proposals

S o m e w i l l b e in the n e x t f e w

to m a k e a s p e e c h a b o u t t h e s e

T h e Congress has s p o k e n , and

the r e g u l a t o r s

of i n t e r p r e t i n g or a d m i n i s t e r i n g

months.

issues.

a r e in the

process

the l a w t h r o u g h p u b l i c

i n g s , p a r t i c i p a t i o n i n c o u r t c a s e s in w h i c h

the

are

hear-

regulators'

a c t i o n s a r e b e i n g c h a l l e n g e d , a n d in a l l t h e o t h e r w a y s
federal regulation

evolves.

1 a m m o r e i n t e r e s t e d in t a l k i n g a b o u t the
t h a t a r e c o m i n g in t h e p o w e r s o f f i n a n c i a l
T h i s , I suspect,
unions anyway.

that

institutions.

is t h e k e y i s s u e t h a t i n t e r e s t s
I am not going

changes

credit:

to b e b o l d e n o u g h to

predict

-6e x a c t l y w h e n C o n g r e s s w i l l p a s s l e g i s l a t i o n s u c h as

the

F.I.A.

and

Y o u a r e g o i n g to h e a r f r o m e x p e r t l o b b y i s t s

observers

and from Congressmen

themselves

at this

conference.

T h e y w i l l b e a b e t t e r s o u r c e for such f o r e c a s t s .
l i k e to s y n t h e s i z e

s o m e o f the r e a s o n s

present opposition

to c h a n g e w i l l b e

I would

that I think

the

overcome.

L e t ' s s t a r t w i t h the p r e s s u r e of s t a t e l a w .
t e n d to t h i n k in W a s h i n g t o n
pervasive.
savings

We

t h a t F e d e r a l r e g u l a t i o n is

W e a r g u e i s s u e s s u c h as b r o a d e n e d p o w e r s

all

for

i n s t i t u t i o n s , b a n k s a n d c r e d i t u n i o n s as t h o u g h

h a d a common form of financial structure
50 s t a t e s . T h a t , o f c o u r s e , is u n t r u e .
have granted checking account powers
in some cases for m a n y y e a r s .
New York.

law

throughout

The northeast

to s a v i n g s

N e w J e r s e y is t h e n e x t c a n d i d a t e .

to

Savings

In R h o d e

most commercial banks are owned by savings

states

institutions,

The trend has spread

loans in T e x a s can g r a n t c o n s u m e r l o a n s .

we

and

Island,

institutions.

The r e g u l a t o r y a g e n c i e s . h a v e been p e t i t i o n e d by New

England

commercial banks

savings

to r e m o v e

the differential granted

institutions., u n d e r R e g u a l t i o n Q b e c a u s e

they b e l i e v e

savings b a n k s h a v e e s s e n t i a l parity of p o w e r s .
on about variable rate mortgages
the differences

the

I could

in C a l i f o r n i a , o r r e f e r

go
to

in b r a n c h a n d h o l d i n g c o m p a n y l a w s i n m a n y

s t a t e s , b u t t h e p o i n t is t h a t s t a t e l a w l e a d s o r l a g s

federal

-7law.

B u t i t is l a w a n d w e do n o t h a v e a s i m i l a r

s y s t e m in 50

states.

I t ' s n o t h a r d to t h i n k o f r e a s o n s
tion.

financial

f o r this

situa-

In a f r e e e c o n o m y , s o c i e t y ' s n e e d s m u s t b e m e t

institutional forms
seen great changes
services

that keep pace with change.
in t h e u s e a n d f o r m o f

in t h e l a s t 20 y e a r s .

transfers

We

differences

T h e p r o s p e c t of

electronic
further

in t h e w a y f i n a n c i a l

a r e u s e d b y a n d s o l d to t h e p u b l i c .

have

financial

displacing paper instruments portends

and more dramatic

by

services

The p r e s s u r e of

tech-

n o l o g i c a l c h a n g e is a n o t h e r c o m p e l l i n g r e a s o n w h y I w o u l d
n o t b e t on the status q u o .
You will hear

Congress

is a w a r e o f

this.

from EFTS experts on a Congressional

during your conference.

It is a l s o t r u e t h a t t h e i s s u e

even now spilling over into court cases and state
issues in the d i s p u t e o v e r w h e t h e r o f f - p r e m i s e
terminals
are credit

commission
is

legislative

customer

a r e b r a n c h e s o f b a n k s or n o t a n d w h e t h e r d e b i t
cards.
One of

the k e y r e a s o n s b r o a d e n e d powers h a v e

f a r e d b e t t e r , in the C o n g r e s s , o f c o u r s e , is t h e

not

opposition

o f t h o s e t h a t b e l i e v e t h a t t h e d i f f e r e n t i a l in R e g u l a t i o n
is e s s e n t i a l to h o u s i n g .
arguments
The

cards

t h a t Q is u n f a i r

This a r g u m e n t and

the

counter

to the s m a l l s a v e r a r e w e l l

t h r u s t o f the f i n a n c i a l r e f o r m m e a s u r e s

Q

that are

at

known.

-8-

i s s u e is to g r a n t p o w e r s

to s a v i n g s

institutions

which

w o u l d p e r m i t t h e m to c o m p e t e m o r e e f f e c t i v e l y a n d
the need for the price control p r o t e c t i o n

diminish

t h e y h a v e in Q .

W h e n I l o o k a t t h e s u c c e s s o f y o u r i n d u s t r y in w e a t h e r i n g
periods of h i g h i n t e r e s t r a t e s , I think
reform have a powerful argument.

the p r o p o n e n t s

Further, when 1 assess

the volume and strength of consumer interest
in o t h e r fields

I w o u l d h a v e to w a g e r a g a i n

arguments will be

legislation
t h a t the

and efficient system of financial institutions

in

B u t i t is a l s o t r u e t h a t b e c a u s e o f its
it is f r a c t i o n a t e d a n d

diverse
this
diversity

and perhaps

its s u c c e s s

to c h a n g e .

T h i s is f u r t h e r c o m p l i c a t e d b y the f a c t

financial institutions are among
industries

resistant

the m o s t h e a v i l y

in t h e U . S . , a n d , t h u s , c h a n g e m u s t b e

l a r g e l y b y the l e g i s l a t i v e p r o c e s s .

Y o u c a n a n d do w o r k

are beneficial

accomplished

for changes

I w a n t to c o n c l u d e b y

y o u to a l s o b e c o m e i n v o l v e d i n the w h o l e c l o t h o f
institutional reform.

regulated

t h e p u b l i c a n d in

industriously

to y o u r i n d u s t r y .

that

Credit unions have a

broad and responsive constituency among
Congress.

housing

overcome.

I think w e have a uniquely competitive,

country.

of

that
urging

financial

While you could have some success

p r e s s i n g f o r y o u r o w n p a r t i c u l a r o b j e c t i v e s , it is m y
ment you are much more likely

the

to a c h i e v e m o r e f l e x i b l e

in

assesspowers

-9if t h e h i g h l y c h a r g e d i s s u e s
affect savings
yourselves
benefit.

in i n s t i t u t i o n a l r e f o r m

institutions, commercial banks, and,

are r e s o l v e d in the n e x t y e a r for the
It's a p l e a s u r e

indeed,

public

to b e h e r e , a n d I w i l l b e

to t r y a n d a n s w e r a n y q u e s t i o n s y o u m a y h a v e .

that

Thank

happy
you.