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-4   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Collection: Paul A. Volcker Papers Call Number: MC279  Box 9  Preferred Citation: Congressional Correspondence, 1979 October; Paul A. Volcker Papers, Box 9; Public Policy Papers, Department of Rare Books and Special Collections, Princeton University Library Find it online: http://findingaids.princeton.edu/collections/MC279/c301 and https://fraser.stlouisfed.org/archival/5297  The digitizadon ofthis collection was made possible by the Federal Reserve Bank of Sr. Louis. From the collections of the Seeley G. Mudd Manuscript Library, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United States copyright law. By accessing this file, all users agree that their use falls within fair use as defined by the copyright law of the United States. They further agree to request permission of the Princeton University Library (and pay any fees, if applicable) if they plan to publish, broadcast, or otherwise disseminate this material. This includes all forms of electronic distribution.  Copyright The copyright law of the United States (Tide 17, United States Code) governs the making of photocopies or other reproductions of copyrighted material. Under certain conditions specified in the law, libraries and archives are authorized to furnish a photocopy or other reproduction. One of these specified conditions is that the photocopy or other reproduction is not to be "used for any purpose other than private study, scholarship or research." If a user makes a request for, or later uses, a photocopy or other reproduction for purposes not permitted as fair use under the copyright law of the United States, that user may be liable for copyright infringement.  Policy on Digitized Collections Digitized collections are made accessible for research purposes. Princeton University has indicated what it knows about the copyrights and rights of privacy, publicity or trademark in its finding aids. However, due to the nature of archival collections, it is not always possible to identify this information. Princeton University is eager to hear from any rights owners, so that it may provide accurate information. When a rights issue needs to be addressed, upon request Princeton University will remove the material from public view while it reviews the claim. Inquiries about this material can be directed to: Seeley G. Mudd Manuscript Library 65 Olden Street Princeton, NJ 08540 609-258-6345 609-258-3385 (fax) mudd@princeton.edu   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  44.  Paul A. Volcker  0/  ge*Ypit-eoloagif‘e  4,-/ 0/4/AA€ c/a/4 a 0)(, zWeø  vettui Ge(   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  teitiadtplad tleg44641 r4tIetzegieeir ‘zteLt-oik 14 — efra*11-444 • awl / /  •-•  _-•  CA')  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF r3OVERNORS  fig 1  OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20551  PAUL A. VOLCKER CHAIRMAN  October 23, 1979  The Honorable Adlai E. Stevenson United States Senate Washington, D. C. 20510 Dear Senator Stevenson: Your letter of October 22 requests our views on an amendment to section 5169 of the Revised Statutes contained in section 412 of the "Depository Institutions Deregulation Act of 1979," H. R. 4986, recently reported by the Senate Banking Committee. Last year, section 5169 of the Revised Statutes was amended by section 1504 of the Federal Institutions Regulatory and Interest Rate Control Act of 1978, to provide that a National Bank Association heretofore or hereafter chartered "is not illegally constituted solely because its operations are or have been required by the Comptroller of the Currency to be limited to those of a trust company and activities related thereto." Section 412 of H. R. 4986 would further amend this section of the Revised Statutes to provide that such a nationally chartered limited purpose trust company "shall be deemed an additional bank within the contemplation of section 3 of the Bank Holding Company Act of 1956." Section 3(d) of the Bank Holding Company Act of 1956, as amended, provides that a bank holding company may not acquire "any additional bank located outside of the State in which the operations of such bank holding company's banking subsidiaries were principally conducted on the effective date of this amendment. . . ." However, this interstate prohibition would not be applicable to a limited purpose trust company because the Bank Holding Company Act now defines a bank to be an institution that (1) accepts demand deposits, and (2) engages in the business of making commercial loans. Under the Bank Holding Company Act and Regulation Y issued thereunder, a trust company is considered to be a nonbanking activity and trust company activities are one of the activities determined by the Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Adlai E. Stevenson Page Two  The proposed amendment in section 412 of H. R. 4986 represents an attempt to protect present providers of trust services from prospective competition. In general, the Board has found that both de novo and across State lines entry into authorized nonbanking activities add an extra competitive dimension. Consequently, the limitations proposed in section 412 have anticompetitive implications and, as such, threaten to have an adverse impact on the public interest in the availability of competitive sources of trust services. Moreover, it should be noted that section 412 introduces a distinction between Federally chartered and State chartered institutions in the Bank Holding Company Act. Under the provisions of this amendment, State chartered limited purpose trust organizations would not be subject to the limitation on banks under section 3(d) of the Bank Holding Company Act, but would continue to be subject to the nonbank provisions of that Act. I trust that these views will be helpful to you in your consideration of this amendment. Sincerely,  ILLINOIS  AA I E. STEVENSON  • iJCnifc Zfafez. Zertate  WASHINGTON. D.C. 20510  October 22, 1979  Mr. Paul A. Volcker, Chairman Board of Governors Federal Reserve System Washington, D.C. 20551  OOMMITTEE ON BANKING. HOUSING ANDSUBCOMMITTEE URBAN AFFAIRS ON INTERNATIONAL FINANCE (CHAIRMAN) COMMITTEE ON COMMERCE. SCIENCE AND TRANSPORTATION SUBCOMMITTEE ON SCIENCE, TECHNOLOGY AND SPACE (CHAIRMAN) SELECT COMMITTEE (CHAIRMAN)ON ETHICS SELECTINTELLIGENCE COMMITTEE ON SUBCOMMITTEE ONANDTHEQUALITY COLLECTION. PRODUCTION INTELLIGENCE(CHAIRMAN)OF DEMOCRATIC POLICY COMMITTEE  Dear Mr. Chairman: The "Depository Institutions Deregulation Act of 1979," H.R. 4986, which was recently reported by the Senate Banking Committee, contains a provision, Sec. 412, which would result in an amendment to the Bank Holding Company Act. As the Committee did not consider this issue during hearings, I would appreciate having the views of the Board on Sec. 412. H.R. 4986 might come soon to the floor of the Senate, and thus your earliest attention to this matter would be appreciated. Sincerely,  441A '  t  ••••••• •  ,1 1 1 1 S,  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  _  •  •  - •.  1 Y'•>.  . -  -  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 23, 1979  Ilsomeable *wry J. Niews Odoessatitie es Aomori to 1,.uity Capital Posississ Oripseissittas Caustatee ea *NM Sotlbw. asipasestatotivas Issioe Wasibiostass B.c. 20SI5 De4r  Cbmicome Meweks  Thumb re Sof yew Letts*. ef Otte.' 17 iawit/11 the Soord to testify belles yew Stibeemmittse at beertips to oessider the mon business tweet sitividist Vidiseel Seseews emeststy patsy satins. Sebelts will be pleased be appear asederislt ea Wealf Utas Ilsome se iliSarer 30. "tea  1.0.1n14g  JP'S:pit (017.0110 bcc: Gov. Moults  3/Paul A.Vaditti  Llsamer Nrs. *Mara (2)  S.  HENRY J. NOWAK,  N.Y.  J. WILLIAM STANTON, OHIO TOBY ROTH, WIS.  CHAIRMAN ' I  LYLE WILLIAMS, OHIO  TOM STEED, OKLA. PARREN J  MITCHELL, MD  tztire  FREDERICK VV. RICHMOND. N.Y. BERKLEY BEDELL, IOWA CLAUDE LEACH. LA.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  of  Connnittre an 5:mall linsinrus Z . S...uticonunittretzt cAcress to y.Liuitu (Capital mu) plIZilICS39 Opportunities A3-363  t1til1ur-11  DAVID C. YIRANASIAX  eprrzirriatiurz  SL/111COMMITTEIC COUNSEL  202-225-7797  PtOLO L. ARONSON, JR. MINORITY SUSCOMMITTIM CO;04111:1. 202-215-4$41  3-101163c Offirc puithing  Pashington, p.c. 20515  77J  7:3  October 17, 1979  Honorable Paul A. Volcker, Chairman Board of Governors Federal Reserve System Constitution Avenue between 20th and 21st Sts. 20551 Washington, D. C. Dear Mr. Chairman: The Subcommittee has scheduled a hearing on the subject of the Federal Monetary Policy and how it will affect availability of loans to small business, to commence at 9:00 a.m. on October 30 next, in Room 2359 of the Raybu-llouse- Office - Buifding, Washington, D. C. You are invited to appear before the Subcommittee on that date to offer testimony on this important issue. It would be appreciated if you would provide us with 50 copies of your prepared statement by October 25, 1979. If any questions should arise in connection with your appearance or testimony, please contact the Subcommittee Counsel. With best wishes and kind regards, Sincerely  HenryNowak Chia rman   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • E3OARD OF EOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551  PAUL A. VOLCKER CHAIRMAN  October 22, 1979  The Honorable Jerry M. Patterson House of Representatives Washington, D. C. 20515 Dear Mr. Patterson: Your September 12 letter requests the Board's views on the concerns you have regarding the proposed blanket exemption from the prohibitions of H. R. 2255 for bank holding companies with total assets of $50 million or less and whether expansion by such exempt bank holding companies and their subsidiaries would be subject to the public benefits test of section 4(c)(8) of the Bank Holding Company Act ("Act") raised during the mark-up session on H. R. 2255. The numbered paragraphs below correspond to the specific questions you have asked. (1) It is the Board's opinion that permitting an activity to be engaged in by a bank holding company or its subsidiary solely because of the asset size of the bank holding company is not relevant to a determination of whether an activity is closely related to banking within the meaning of section 4(c)(8) of the Act. By employing such a standard Congress would be abandoning some well established criteria that have been developed over the years by the courts and have come to be recognized as appropriate for determining whether a nonbanking activity is "closely related" to banking within the meaning of section 4(c)(8) of the Act. (National Courier Association v. Board of Governors, 516 F.2d 1229, 1237 (D.C. Cir. 1975), and Alabama Association of Independent Insurance Agents v. Board of Governors, 533 F.2d 224, 241 (5th Cir. 1976).) Furthermore, an institution's size alone is not a determinant of the potential for abuse, but should be considered in the context of the market in which the institution operates. For example, a bank holding company of less than $10 million in assets might be the only financial institution in a town and its ability to exert an unfair competitive influence would be much greater than a $200 million institution located in a major metropolitan market. (2) The $50 million exemption would permit such an organization to engage in insurance activities otherwise not permissible to a bank holding company with greater assets. Under such an exemption, insurance  -•   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  S  •  The Honorable Jerry M. Patterson Page Two  activities that could be engaged in would include the sale of property and casualty insurance and underwriting of such insurance. The Board's regulation, however, does not permit the underwriting of property and casualty insurance. Thus, there would be a broadening of the permissible product line of insurance for smaller companies beyond those currently permitted by the Board's regulation governing insurance activi ties of bank holding companies. (3) The $3500 finance company transaction exemption could have the effect, for example, of restricting finance companies as an alternative source of credit to borrowers seeking financing for new or used car purchases, unless the lender is willing to forego the insurance or directs the borrower to another source of insurance. It would certainly put a finance company subsidiary of a bank holding company at a competitive disadvantage since other finance companies and lenders are not similarly restricted. (4) For the same reasons as stated in paragraph three above, the Board does not believe it would be useful or appropriate to base the permissibility of insurance activities on some arbitrary loan amount. (5) Enclosed for your consideration is the Appendix to Governor Partee's testimony of October 17, 1979, before the Subcommittee on Financial Institutions Supervision, Regulation and Insurance that sets forth in some further detail the Board's views and its comments on the insurance provisions of H. R. 2255, H. R. 2747 and H. R. 2856, as well as other provisions of those bills. Finally, your letter indicates concern that the public benefits test in section 4(c)(8) of the Act might not be applicable to insurance activities engaged in by bank holding companies of less than $50 million in total assets. Based on the legislative history the Board believes that section 4(c)(8) imposes a two-step test. Court decisions have confirmed that view. A proposed activity first must be determined by the Board to be closely related to banking. If such a determination is made, the activity may be engaged in, or the nonbanking company engaged in the activity may be acquired, only if the Board finds that the public benefits test of section 4(c)(8) is met. That is, the Board must find that the likely benefits to the public that would result from a hank holding company engaging in the activity outweigh possible adverse effects that may result therefrom. Thus, if the legislation as proposed is enacted, the closely related criteria would be statutorily determined, but whether a  EMMEN 14N6AMMftWOMMAMMM4mbiAtIMW!.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4  • The Honorable Jerry M. Patterson Page Three  specific proposal would meet the public benefits test of secti on 4(c)(8) would remain to be determined by the Board in connection with individual proposals. Thank you for this opportunity to offer our views on these matters and please do not hesitate to contact us furth er. Sincerely,  Sgami A. Mae/  Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  a  October 22, 1979 the lionoroi rnand J. t Germain Chairmen Subcommittee on Financial lnatitutions Supervision, Regulation anJ instirsnce Committee on BAnking, Finance and Urban Affairs House of Representatives ':nshington, b.C. 20515 aear Chairman St Germain: Thank you for y .ur letter of .;eptember 14, 1979, reruestinc our opinion on the impact of R.R. 2255, Qs amended, on relevant State law. We understand that in particular you recuest comment on the $3,500 limitation of section 1(&) and section 2 of the bill. The Board's Legal Division has considered the providdona of d.R. 2255 in the context of the cueations posed during the :subcommittee markup. It is the opinion of the Legal Division that the $3,500 limitation of section 1(B) of the bill Applies only to the amount of insurance that a bank holding company Amy provide pursuant to Federal law as principnl, agent or broker in connection with an extension of credit by a finance company subsidiary of the bank holding company. Under section 7 of the &talk Molding Company Act, 12 U.S.C. 1 1846, the amount and kinds of ineweeece that a bank holding company may provide may be further restricted but not expended by State law. However, were section 2 of the ammeded bill enacted, a State could enact legislation that might emend the Amount and kinds of insurance 3 bank holding company may provides The restrictions of section 1(1) apply only to the insurance provided in connection with rn extension of credit by a finance company subsidiary of a bank holding company smd are distinct from any restrictions on the landing authority of such s subsidiary, iihich restrictions to date hive been imposed only by State and gas .Pedevel law. Therefore, the restrictions of section 1(3) would have no Impect upon the lending authority of finance company subsidiaries of bank holding companies, and would impact the leading activities of such subsidiaries only insofar as customers of finance companies legally lending in excess of $3,500 may prefer to do business with companies able to make the loan tind sell related insurance, that is, companies not affiliated with a bank holdin g company.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The lionornble Fernand J. bt Germain Oage Two  b'ection 2 of the bill provides that the asendnint made by section 1 shall not supersede existing State 1AWS amid *ball not be effective in any bitate when such State enacts a leo contravening the amendment mode by section I of the bill. The board's Legal Division believes that, for the reasons discussed above, section 2 is unnecessary to meet the concerns of bubcommittee misibers relating to restrictions on lending authority. Further, we note that the effect of section 2 would be to enable StAtes to nct to permit ineurnnce actives that would be believe, however, that even in those inst:r.nces prSted by section in which State Puthorities enact legislation finding certain insurance activities "closely related" to bPnking, the Board would still be reruired to find those proposed activities 'closely related' to !pinking and to apply the public benefits test under section 4(c)(8) of the Act. In this regerd, the Board in the past has found certciin of the activities ,I. prohfbited by section 1 to meet these two criteri, If you have any further cmestions regarding these matters, plcace do not hasit.nte to contact us. Sincerely,  Saul Yolcket RW:MEB:RM:DJW:pjt (#V-32) bcc: Rich Whiting Mike Bleier Bob Mannion Hrs. Mallardi (2) L.,-  1111111Maisiieg Valor. MU- ..ifA.% 4.419ii,Stitifear  . 11   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OFT HE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 201;E3I  PAUL A. VOLCKER CHAIRMAN  October 22, 1979  The Honorable Parren J. Mitchell Chairman Subcommittee on Domestic Monetary Policy Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman Mitchell: I want to thank you for the support of our recent policy initiatives expressed in your letter published by the Wall Street Jcoirnal on October 11. I find such support most encouraging and helpful as my colleagues and I seek to assure that monetary policy will do all that it can to help bring inflation under control. I have also given careful thought to the points made in the earlier letter that you and members of your Subcommittee sent me concerning long-term monetary objectives and their relation to the economic objectives contained in the Humphrey-Hawkins Act. As I see it, the thrust of your earlier remarks is directed at two major points: first, that the rate of monetary growth should gradually but systematically be reduced to the perceived non-inflationary rate of 3 percent by 1982; and, second, that the Federal Reserve sl'ould commit itself to an explicit long-range target path of monetary growth along the lines set forth in your letter. agree fully with the philosophy underlying your remarks. My Federal Reserve colleagues and I are strongly committed to a policy of establishing and maintaining a non-inflationary rate of monetary expansion and we seek to achieve that goal in the most orderly and expeditious fashion. In this fundamental sense, we share a common viewpoint. On reflection, I don't think we are far apart on the approach to meeting this objective. But I am uneasy about establishing precise monetary targets over a multi-year time frame. In my view the Federal Reserve needs the flexibility to respond to situations as they arise--including the admittedly remote possibility that shifting expectations might permit a more prompt move  •  aalaba   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  411Nat  k•ohba,C.t. Whilmoilhrowilligtifahliiidakttel.011011111&* mai?  •  •  The Honorable Parren J. Mitchell Page Two  in the direction that we both see as appropriate. However, you should not associate my reluctance to subscribe to specific long-term quantitative targets as being indicative of any doubt as to the merits of the underlying policy objective. Our recent policy actions serve to underscore the System's determination to achieve a non-inflationary rate of monetary growth. In seeking to meet our objective, your continued support will be helpful and appreciated. Sincerely, S/Paul A. VolClig  3  PARREN J. MITCHELL. MD.. CHAIRMAN STEXIN L. NEAL. N C. NORMAN E. D'AMOURS. N.H.  •••  •  DOUG BARNARD r.A JIM MATTOX. 11. • JOHN J. CAVANAUGH. NELIR.  Assigned to A4r. Axilrod  •  U.S. HOUSE OF REPRESENTATIVES  225-7315  SUBCOMMITTEE ON DOMESTIC MONETARY POLICY OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-SIXTH  CONGRESS  WASHINGTON, D.C. 20515  September 5, 1979  The Honorable Paul Volcker Chairman, Board of Governors of the Federal Reserve System Federal Reserve Building Washington, D.C. 20551 Dear Mr. Volcker: We appreciate having received courtesy copies of the letter you sent on August 16, 1979 to the Honorable Henry S. Reuss, Chairman of the House Banking COmittee. It is a pleasure and reassurance to know, at the outset of your tenure at the Board of Governors, that you take the monetary policy report of this Committee seriously, and that you approach the report process as a constructive dialogue. In the spirit of that dialogue, we want to point out to you that at least one major recomendation in the Committee's monetary report still has not been dealt with by the Federal Reserve, even in your letter. That recommendation is that the Federal Reserve should set goals, so that we can see clearly the path that will be followed in attaining the overall economic goals of the HumphreyHawkins Act.  IL   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Specifically, the last paragraph of the Committee's report of July 27, 1979, said the following: "Your committee agrees with the Federal Reserve that its previously established growth ranges for the monetary aggregates for 1979 are still appropriate. We are, however, disappointed that the Federal Reserve has failed to set longer-term targets for progressive deceleration in monetary growth, such as we recommended in our report of March 12, 1979. Because, as your committee stated in that earlier report, achievement of the interim 1983 goals of the Humphrey-Hawkins Act (4 percent unemployment and 3 percent inflation) would be promoted by steady deceleration in the average annual rate of monetary expansion over the next 5 years, we renew our recommendation for the establishment of the long-tem targets we specified in the report If March 12, 1979, as follows:  Hon. Paul Volcker  September 5, 1979  Recommended percent growth 4th quarter to 4th quarter M1 (adjusted) 1978-83 Percent 1978 7.6 1979 6.0 1980 5.0 1981 4.0 1982 3.0 1983 3.0 We note that the Federal Reserve's "tentative" ranges for 1980 growth in MI (adjusted for ATS accounts) would "permit" attainment of our recammended rate of growth for that year, but it is disquieting that the Federal Reserve has set its range for M1 (adjusted) such that the mid-point is well above our recommendation. We would be much happier if the Open Market Committee would set its short-term targets with an explicit connection to a longer-term target path which pramises achieve-nent of the Humphrey-Hawkins goals. If you and your colleagues believe that the Committee's recommended 19791983 monetary growth path is wrong, certainly it should be explained why you do and an alternative proposed. Without an explicit longer-term monetary yLowth target path, and an explicit and defensible connection of the shorter-term targets to that path, we find it difficult to accept the Federal Reserve's position that it is, in its short-term operations, advancing toward the achievement of the 4% unemployment and 3% inflation goals for 1983 specified by the Humphrey-Hawkins Act. We trust that the Board will not again, in its next regular report, pass over this subject in silence. More importantly, we hope that the Federal Reserve will be able to report to us early in 1980 that it has conducted monetary policy in a way that shows clear progress in attaining the goals of Humphrey-Hawkins, whatever the short-term temptations may be to focus on illusory short run interest rate targets. Sincerely,  47:rct  1  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ,1/0 (-0".  424,44,,a,4_,A  t,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  'rtober 18, 1979  Ihe honorable Elwood 14 liud" Hillis ilsoOs of Representatives Vaddmiton, D.C. 20515 Sow W. Hillis: Think Feu for your letter of October 16 which contains the elMetructive eeneetiom that I consider meeting regularly with House mmilhers in a closed door situation to discuss surrent economic issues Ma policies. I do welcome the opportunity to soot informally with House UMObers to discuss the eeemegy and in recast weeks have met with the 95th Caucus and the Sallaidlovisr and Marchiel Society. I would be happy to meet with any group you wish to put  together. Sincerely,  KAG:pjt bcc:  (itv-ao)  Mrs. Mallardi (2)  WAOODH.'13UD"HILLIS  WASHINGTON orrice!  5TH DISTRICT. INDIANA  2429 RAYBURN BUILDING TcuEPHowl 202-225-5037  COMM TTEES: HOUSE COMMITTEE ON VETERANS' AFFAIRS HOUSE ARMED SERVICES COMMITTEE  Congre55 of die Einiteb  KOKOMO OFFICZI 518 NORTH MAIN STREET  tate5  TEL.41.14oNc,457-4411  ji)oti5e of 1tprefSentatibt5  ANDERSON OFFICE: 26 WEST 7m STREET  CHAIRMAN: REPUBLICAN TASK FORCE ON ENERGY AND ENVIRONMENT  TELEPHONE: 6/2-8023  Ulacsbingtort, n.C. 20515  MARION OFFICE,  October 16, 1979  220 MARION P.O. BUILDING TELEPHONIC: 662-7227  --%  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Twentieth Street and Constitution, N.W. Washington, D.C. 20551 Dear Chairman Volcker: More than any other single issue, inflation touches the lives of every American. I am constantly asked by constituents to comment on the economy. Many times my constituents are looking for reassurance that a major recession is not forthcoming and that inflation will soon subside. On other occasions, people just want to know why the economy is in its present state. Like all elected officials, I consider it a major part of my job to help educate my constituents so that they may better understand issues. However, since I do not serve on a Congressional committee which directly ovei-sees or has responsibility for economic policies, it is difficult to understand all the complexities involved with economic matters. As the Chairman of the Federal Reserve, you are in a unique position to assist in the tutelage of Members of Congress such as myself. Unfortunately, there is seldom an opportunity for you to discuss candidly the policies of the Federal Reserve with most Members. Therefore, I would like to make a suggestion that I believe would prove beneficial to all concerned. If you or your designate would come to Capitol Hill on a regular basis to meet with Members only in a closed door situation to discuss current economic issues and policies, believe you, the Members and their constituents, would all profit. Similar meetings are often held by the State Department for the purpose of discussing international issues. I have found these meetings to be of value. While I realize that your schedule is already full, I am convinced that holding such meetings would be time well spent. Since  ly  Elwood H. "Bud" Hillis Member of Congress H:s:v   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October los 1979  The donors/4e Alen Crtestoa United Sums* Solute 7; , sehiastons v.C. 205i0 )1.!ir Al -et Ulm* yes for your reosat Letter recommending M. limey Spittoon As a member oft the loordse Conemeer Advisory Council. thtlt onn emoure Spittoons* coalificstione vitt swede, full oonniderstion by the loord when it amber tbs 10011 eppoint.0 sill be be tee* IMMO to the aismcil within the soot eesesel veabe* Wilk pea ubee Ohs seleetioes awe mods.  Saterest ia  oppeesiesse receiving your resonmendatiom sled peer essatume Sellideory Shaver•Lys.  SZ Paul 6,1 -  Obpjt OV.41) beet Mrs. Mellerdi (2)  ALAN CRANSTON CAL I FOR N IA  • ')./Cnifeb ,Sfafez ,,T3enate WASHINGTON. D.C. 20510  October 5, 1979  Honorable Paul Volker Federal Reserve System Board of Governors Washington, D.C. 20551 Dear Paul, It's a pleasure to recommend a friend and fellow Californian, Nancy Spillman, to serve on the Federal Reserve Board's Consumer Advisory Council. Nancy's background in consumer economics needs little introduction -- she is among the better-known and respected teachers, writers and lecturers in the field. Active in a number of consumer-oriented groups, she has given tremendous dedication and energy to the cause of educating the American public on consumer affairs. In my opinion, few professionals in consumerism and economics have offered as much of themselves in the effort. I believe Nancy Spillman could make a significant contribution to the work of the Consumer Advisory Council, and urge you give her qualifications your most serious consideration and review. Enclosed are additional background materials pertinent in this regard. Best wishes,  Enclosures   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  /Wpm  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Magazine article Citations:  Number of Pages Removed: 7  Spillman, Nancy Z. "Bright Ideas for Consumer Educators." Previews, September 1979.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  •  August 13, 1979 • • Ms. Anne Geam ▪ Assistant Diir.ec,Lo' VLvLion so Consw.ieft. A66ciLts Bomei o6 Goveitnoits cy6 the Fedvt.aZ Resutve Wa.sh.ington, D.C. 20551 Vean M4. Ge.vLy: Ms. Nancy Spi2Lr.an, Editot o ic ow% Consul:1yr. Ethicati_on Fvuirn has ind icated to me ...that she has been no mi.4tat2,1 .to s env e. On the Feden.a.. Res eiL ve. Boaitri's Consurne,t -Advizo-ty COLIACLZ. I 4upo-lt -this nominat-Zon utithout ir.e4e,tvation. .•. •••••.' In add,i,t,i.on to he.x svtvice. to -the kneitican Counc,i2 on Consurzt Intvtests, . $).2. 4227'411 ha.S:  • •...••••  Au-no:Led a text, Consuneir.s: A Pe,tso nat PtczYtit-CitC1 Readvt (2) Reviexed a 4ubs-ttn,t,L.a2 quant, U4 06 COn.S Urn. educat-Lon ite5Of.L'ECe4 (3) Been a. menbvt o the CaZo tna State AttoAney Geneiuze.'4 Subcommittee on Cons= yr_ Eduatti.o n (1 )  (4)  • .. ; •• •• ••7.  Been authox o ti a monthty cotumn , "Conzume& Coknek" Sok the Bluzitte t•Liivr.ot. -•••  I have wo:th_ed u.Li,dr. Ms. SpLar'nan have. jound hut to be a co:npeten -since 4he bec_arne Edito,t o ou.t Fvuun. I vtc1ow, and cormated pio6essio I6 hut lionization to the Adviso t, cctt na2. ,ty Council. Ls accepted, I an ceA. tai..n that the Soa,•Ed wV-Z be deZi..ghted with heA pto6eAssii..mai invotvement. you.ts,  Met J. Zetenak . -- Executi.ve Vilt.c, eton. .•  ... : .) ...• .  I . ••  . . . . 1 ri ' ; . 7P  • f•  r /..•  '  11.7••• •• .I  • ••.•  •••••  •  •• a • •••  • ••  •-•  ••14.:•• • •• •  •  -  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •••  • ,..  '  •  ' •..1= •. 1.. •  .  -  ,,..•..  •  d  •• r  ‘ .40.. . 4  • 1 •••• • ••  •  • , ,e4 •.I. 1... 4— • -...... .....-•. ,.: '' ."...•••• 4.•4 • • a l• -  ••  ;  1.1. •  ! *•  -  ••  • •• ••  •••d• ••  ..,  •  ,••• •  .  •.  y 7•s  ,  rt . , .:: '-••• • '.• , -,r.. ..: ••-.r.e •-, .•,' !14-:::::•••:.•:; es;...'5', '••01 .. .it.".,  • l• 4.*:••• .•• •••• •  • •  " t • . • r. •  •  • v.  • •••••;-•:.  .  •  *  -• 7 47 4• • •  •  ; :1% „ -.7 ."..  "•••".. •••• •  .  .  '•  National Oleration of Independent Business  •  August 15, 1979  Ms. Anne Geary, Assistant Director Division of Consumer Affairs Board of Governors of the Federal Reserve System Washingtol, D.C. 20551 Dear Ms. Geary: On behalf of the National Federatinn of Independent Business, I wish to support Arthur H. Bronson's nomination of Miss Nancy Z. Spillman for a position on the Federal Reserve Board's Consumer Advisory Council. She has worked closely with NFIB's Education Department this year and we are impressed with her overwhelming dedication and varied experience in the fields of economics and consumerism. Miss Spillman's numerous achievements include serving as the editor of the national newsletter CONSUMER EDUCATION FORUM, the author of a monthly article of consumer tips for the BRAILLE MIRROR, a member of the California State Attorney General's Subcommittee on Consumer Education and a member of the Los Angeles Consumer Credit Counselors. These responsibilities and additional experiences as a speaker, author and educator about consumer affairs, convince me that Nancy Spillman would undoubtedly make a significant contribution to the Federal Reserve Board's Consumer Advisory Council. rIcerely , ....••••••.•••"'  Wilson S. Johnson President WSJj_b a b  Home Office. 150 West 20th Avenue, San Mateo. cahfornia 94403 Te!ephone (415) 341- 7441 / Legist311ve Office. Washsngton. 0 C  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  erze,Siutia -eacirt cutd  r,"it.ctefee fird4oria.tecate  11950 SAN VICENTE BOULEVARD. will 213 • LOS ANGELES, CA. 90049 •(213) 820-2478  B(NNETT L WOLF psesiciNT ROBERT 0 INNiS SOILM•ENN 1KE PIE SO(nti  E B SMITH 14011THEINvICE 0IESCENT  W. K. JOHNS:)N ROVAir  W M ROOF TREASUIEI  OLEN I KULL CHALRAAN EXECIMYE COAACTIEE  C A MANN ixicurvE YKE PRESIDENT  August 10, 1379 Ms. Anne Geary Assistant Director • Division of Consumer Affairs Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Ms. Geary: Nancy Spillman, Director of the Center for Economic Education and Associate Professor of Economics, informed us that she is interested in serving on the Federal Reserve Board's Consumer Advisory Council. Miss Spillman has been an advocate of the Consumer Credit . Industry for years and has been instrumental in the use and distribution of credit educational material from the National Consumer Finance Association. We have read many of her articles and think they are outstanding. We are honored in recommending her for the Council. Sincerely, C . C. A. Mann\ Executive Vice President  • •  :   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  MEMBER NATIONAL CONSUMER FINANCE ASSOCIATION   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  October 18, 1979  Dear Mac: Thanks for your note. Actually I think I better stop talking for a while -- but I do hope what we are doing and what we are saying will help to put a dent in inflationary expectation. Sincerely,  The Honorable Charles McC. Mathias, Jr. 00.4.4400 " , United States Senate Washington, D. C. 20510  EGC:slw   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • • CIBLAIRLIKI  Dic C. MAsTELIAN 9  JAZ.  e_z_e&,-,  -7  1  ael , 7  ii  3  a.<  7  )  BILLGRADISON  WASHINGTON OFFICE:  1ST DISTRICT, OHIO  1519 LONGWORTH HOUSE OFFICE BUILDING  RON ROBERTS ADMINISTRATIVE ASSISTANT  TELEPtioNE:(202)225-3164  WASHINGTON, D.C.  Congre55 of tbe tiniteb  tate5  20515  DISTRICT OFFICE: FEDERAL OFFICE BUILDING 550 MAIN STREET  31ou55e of RepreOntatibei4  CINCINNATI, OHIO  45202  TELEPHONE:(513)684-2456  eillai5bington, /le. 20515 October 17, 1979 The Honorable Paul A. Volcker cc Chairman --Federal Reserve Board 20th and C Streets, N.W. 20551 cDWashington, D.C. cn cn  --Dear Paul:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Just a note to thank you and Ken for taking time from your busy schedules to visit with our SOS and C & M breakfast group this morning. It was one of the best meetings we've had, and I hope you enjoyed the give-and-take as much as we did. Best wishes. Sincerely,  Bill Gradison Representative in Congress First District of Ohio BG/t  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October-E. 13, 1179  lhe lisereable leery d# Reuss etsfvems mare se $eehimg, name -,n41 Urbas Atfairs 4.111ect of aspresest*tives  ,Aasitiliton„ i).C. •Ar Chaireee  20515  161/34411  I em net eel, sympathetic vith the liege yes apowattair4 in your letter of Ostsber 12 es the esibjest of lamed reserve eeeeeeciag, but have *eked that plamnigg go forward oe the setter. Cegmerrent reserve reeuirements wo1.1i be gore evasisteet with idhe systems* mew approash to meestary polity eporatiase that plasma is weight ea reoervae. At the signs cime, I ara sot canviemed that the twisting two esek lag barge e* deposits sod reenired reserves is an important complication in $chieving reserve amid vegetal', targets over a period of thr4s to six months or so. is all the cirommetamsee„ the lewd hee preferred to mointmin Legmed reserve coatawigas at least for Who immediate future La the hope matiorship praise see sees be resolved. Moro Ls little doobt that emelt a Mew will he resisted by esity emelt- sad vedtoopsissd belle ler, twee their otaelpeiet, Lesitimeta reeeeme, In any vegeta me oral esmploto oor plow's' sad scoitline es the' oe will be pusepsred to ass promptly should the $amod feel thAt peesese apeiretbig preeediorsa raced a awe amenlasa t meet them we •  111.411.0  !CF:SHA:PA,:pjt (1PV-4) 4 #V-76) bec:  hr. Ettin Mt. Azilrod Mrs. Millard! (2)  HENRY S. REUSS, WIS.. CHAIRMAN THOMAS L. ASHLEY. OHIO WILLIAM S. MOORHEAD, PA. FERNAND J. ST GERMAIN, R.I. HENRY B. GONZALEZ. TEX. JOSEPH G. MINISH. N.J. FRANK ANNUNZIO, ILL. JAMES M. HANLEY. N.Y. PARREN .1. MITCHELL. MD. WALTER E. FAUNTROY, D.C. STEPHEN L. NEAL. N C. JERRY M. PATTERSON. CALIF. JAMES J. BLANCHARD, MICH.  U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-SIXTH CONGRESS 2129 RAYBURN HOUSE  OFFICE  JIM MATTOX, TEX. BRUCE F. VENT°. MINN. DOUG BARNARD. GA. WES WATKINS, OKLA. ROBERT GARCIA, N.Y. MIKE LOWRY. WASH.  THOMAS B. EVANS. JR., DEL. S. WILLIAM GREEN, N.Y. RON PAUL, TEX. ED BETHUNE, ARK. NORMAN D. SHUMWAY, CALIF. CARROLL A. CAMPBELL, JR., S.C. DON RITTER. PA.  BUILDING  CARROLL HUBBARD. JR., KY. JOHN J. LAFALCE, N.Y. GLADYS NOON SPELLMAN, MD. LES AuCOIN. OREG. DAVID W. EVANS, IND. NORMAN E. OAMOURS, N.H. STANLEY N. LUNDINE. N.Y. JOHN J. CAVANAUGH. NEBR. MARY ROSE (DAKAR. OHIO  J. WILLIAM STANTON. OHIO CHALMERS P. WYLIE. OHIO STEWART B. McKINNEY. CONN. GEORGE HANSEN, IDAHO HENRY J. HYDE, ILL. RICHARD KELLY, FLA. JIM LEACH, IOWA  WASHINGTON, D.C. 20515  JON HINSON, MISS. 223-4247  October 12, 1979 A04  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. Dear Chairman Volcker: I believe it is essential for the operation of monetary policy that the Federal Reserve adopt procedures which would facilitate your new policy of directly controlling the monetary aggregates. Therefore,I recommend a return to the system of synchronous reserve requirements which the Federal Reserve used prior to September 1968. I have suggested this change over the last three years, in the enclosed letters dated May 10, 1977, July 12, 1977, July 21, 1977, November 7, 1977, April 18, 1978, June 21, 1978, August 10, 1978 and September 26, 1979. In addition I asked a distinguished panel of experts to give their views on lagged reserve requirements. As the enclosed material indicates they unanimously urged an end to lagged reserve requirements in order to facilitate monetary policy. The list of economists noted in this correspondence who oppose the use of lagged reserve requirements include present and former members of the Federal Reserve's own staff. Last year in testimony before this Committee on July 28, Chairman Miller said "in terms of operation it would be preferable to be on a current basis". However he added the caveat that such a desirable change must wait the alleviation of the Federal Reserve's membership problems. Because lagged reserve requirements result in higher than necessary interest rates, it would seem that our priorits would warrant an immediate return to a system of synchronous reserve requirements.  Sincerely,  Henry S. Reuss Chairman rnr.lnr71.11--n-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • • -.1• ••• ••••• • •' • -1'10  •7. 1 4.  • ••• .• • .  .4.  -' ••••• • ••.1 '• • :••  t  •  ••  ••  .  May 10, 1977  -  .4. A-•  .•  .  -•  • •-  •  s  •••••.  .  '  • 1• •.  "• .• '  .  •  •••••  %Honorable Arthur F. Burns -Chairman • Board. of Governors • Federal Reserve System Washington, D.C. 20551.  -- •  •  pear.Chairman Burns:  •  •  -  •  .•  1. •. *, •• ••  •  .  .. .  ••  7  .  ••  s"." Sf •  I am concerned about the recent jump in the feL2era1 funds rate by 55 basis points from the week ending April 6 to the week:ending May 4. I would like to know why thc eral funds interest rate target. has apparently been raised to something like 54 percent. •Is this part of an effort to offset the bubble in the money supply (M1) which grew by 22.1 percent . In:April over March. • .• • " , '-• „ • not be better. off with synchronous r(!:mrve re • quirements so that when the Federal Reserve choo2c3 to offset' ' previous increases in the money supply,' required reserves. would -not be stuck at .a previously determined high level?-Would'not a return to synchronous reserve requirements allow. . the Federal Reserve to .follow a steadier course for its federal funds interest ratetarget? ';   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  k  ••  -I annrs-•ciate.anylight you can shed on.those • •  Sincerely,••  . •  -•  Henry S. Reuss Chairman  :••• it!  '• •-••• • •• EC*  ••• '••••  • •  •  As 4  -4  •••t 1..4 ,  •  •  ..... .•00f  CHAIRMAN OF THE BOARD OF GOVERNORS  •c  .. • --"• --""1 • •  / 1 4 •  FEDERAL RESERVE SYSTEM WASHINGTON. D. C. 20551  • V• • •• Q4LRE- .••  4.•  June 24, 1977 .  7  FIEN RyS.  The Honorable Henry S. Reuss Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515  114.a •  RECEIVED JUN 2 7 1977  Dear Mr. Chairman:  nxui CiiR2E!ICY & 112S12 CC:1'41IHE  I am pleased to respond to your letter of May 10 and to your related statement in the Congressional Record of May 26. In your letter you expressed concern about the increase in the Federal funds rate through the week ending May 4 and asked why the funds rate target had apparently been raised. Your surmise -- that the rise was related to the April upsurge in M-1 -- is essentially correct. You also asked in your letter whether it was not the case that a return to synchronous reserve accounting would allow the Federal Reserve to follow a steadier course for its funds rate target. In your Congressional Record statement you expressed the view that much of the sharp April increase in M-1 could have been avoided if the Federal Reserve had been using the pre-1963 technique of calculating requ4_red reserves synchronously instead of on a lagged basis. You added that "some additional percentage points of unnecessary M.-i growth could have been avoided if the Fed had simply been a little more conservative in the reserves it was creating through open market policy; only a marginal increase in the Federal funds rate would have been necessary to achieve this." These statements seem to suggest that a return to synchronous reserve accounting would greatly reduce the short-run variability of both the money supply and the Federal funds rate. I do not believe this is so. The considerations involved are technical and rather complex, and I have asked my staff to set them down. Their memorandum, which also discusses the developments of April and early May, is enclosed.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ••• •  Mb  •  •••  The Honorable Henry S. Reuss  Page two  I appreciate the opportunity to provide this information on the important .questions you have raised. Please let me know if I can give you further information regarding them. Sincerely yours,  Arthur F. Burns Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •••  TO:  Chairman Burns  FROM:  Staff  DATE: SUBJECT:  June 24, 1977  -- •  Questions raised by Chairman Reuss  In a letter to you dated May 10, 1977, and in a statement. • in the Congressional Record for. May 26, Chairman Reuss comments on . fluctuations in the Federal funds rate and M-1 during April and early May and suggests that substantial reductions in the short-run variability of both the money supply and the Federal funds rate could be achieved by a return to synchronous reserve accounting from the present system of lagged reserve accounting. the question of the implication  This memorandum first addresses  of lagged reserve accounting for short-  run variability in the money supply and the funds rate.  It then briefly  reviews the developments of April and early May. Implications of lagged accounting, Under the present system of lagged reserve accounting, reserve requirements in the current week are based on the deposits outstanding two weeks earlier.  Accordingly, open market operations in the current  week cannot affect required reserves in the current week.  However,  open market operations can affect the volume of nonborrowed reserves in the current week.  By increasing nonborrowed reserves through  open market purchases, the Manager of the System Account can increase the availability of free reserves to banks, which in turn would expand the supply of Federal funds and tend to lower the rate at which   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  -  •  ••••••-  ._  •.  •  . k . ••  -2-  Federal funds are traded.  Conversely, open market sales would tend to  reduce both nonborrowed and free reserves, decrease the supply of Federal funds, and increase the funds rate.  Hence, the Manager can limit  variations in the funds rate reasonably closely by undertaking open market operations designed to counter developments that would others wise influence it. Under current operating procedures, the FOMC's instructions to the Manager typically specify ranges for 2-month growth rates for M-1 and M-2--ranges that the Committee believes to be consistent with its longer-run monetary growth objectives and ultimately its more fundamental economic goals--and a constraint on inter-meeting changes in the Federal funds rate.  The Committee's directive usually calls (1)  for maintaining the funds rate near some particular level so long as the 2-month growth rates for the aggregates appear to be near those expected, and (2) for adjusting the funds rate within the specified range if the 2-month growth raLes appear to be deviaLii.g significantly from expectations.  In carrying out the directive, the Manager obviously  must pay close attention to the implications of incoming data on the aggregates for likely monetary growth rates over the 2-month period. One objective of this procedure is to insulate the monetary aggregates to the extent feasible from the effects of supply-related disturbances.  These include movements.in noncontrolled factors affect-  ing nonborrowed reserves--such as float or Treasury deposits at the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  -.•  •••••••.••••  The Honorable Henry S. Reuss--page 2.  January 27, 1978  This cost however is an important one because it means the Fed has an increased tendency to accommodate bank led credit expansion under LRA. A deposit created by a bank loan two weeks ago becomes validated Ni-money if the Fed accommodates its creation by maintaining stable money market rates in the face of increased loan demand. If this is an effect of LRA, we would expect increased variability in the monetary aggregates which brings us to conclusion (3) in the report. According to (3) the variability of Ni and M2 growth rates "was not affected by the introduction of lagged reserve accounting." Rather than disputing the analysis of the numbers presented in the staff report we offer, as prima facie evidence against this assertion, the following quote from the November 1971 Federal Reserve Bulletin, p. 880: Even when the revised data are examined, there is compelling evidence to suggest a marked increase in the variance of money supply and reserve innovations which coincided with the adoption of the amendment to Regulation D. (See Feige & McGrce J.M.C.B. November 1977, p. 548). With respect to the issue of the effects of LRA on the variability of the Federal funds rate, our own research revealed a standard deviation of weekly fund rate changes of .34 percentage points for the period 19611967 compared to .33 for the 1969-1975 period. We concluded that the effects of LRA on funds rate volativity has not been substantial when weekly changes are considered on a relative basis. While mean absolute changes have increased, variations around the mean are about the same for the pre- and post- LRA periods. The Board's staff final three conclusions, (4) - (6), bear on the compatibility of LRA with current operating procedures (i.e. setting a funds rate through open market operations which is believed to be consistent with the desired monetary aggregate growth pattern). The conclusions reached are that 1) given current operating procedures it is a matter of indifference whether we have contemporaneous or lagged reserve accounting and 2) if a new operating procedure were adopted where reserves rather than the funds rate were controlled on a day to day basis, then lagged reserve accounting would be inferior to contemporaneous requirements because it would undermine the money-reserve relationship. This latter assertion is supported by the evidence presented on pp. 20-23 of the report which shows a deterioration in the money-reserve relationship after LRA was imposed. This is consistent with our finding in the JMCB article (Nov. 1977) which found the contemporaneous money-reserve relation disappears after the amendments to Regulation D were instituted. Thus conclusion (6) minimizes the possible benefits to switching to a reserve operating procedure and contemporaneous reserve requirements. In addition a primary argument presented against such a policy is the increase   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  ••  •  Reserve Banks--and- changes in the amount of free reserves that banks • wish to hold. If open market operations have the effect of stabilizing the Federal funds rate, they will at the same time substantially moderate--although not necessarily eliminate--the effects of supplyrelated disturbances on the monetary aggregates. A second objective is to respond to sustained demand-related disturbances in a manner that will set in motion corrective forces-i.e., forces tending to move growth of the aggregates back toward their expected path.  -• When, for example, incoming data for the aggregates sug-  gest that the 2-month growth rates are likely to be unduly high relative to the Committee's expectations, the Manager will attempt to induce • whatever increase in the funds rate is consistent with the Committee's instructions by an appropriate reduction in the rate of growth of nonborrowed reserves.  Other things equal, the increase in the cosc.. of  Federal funds would give banks an incentive to rely more on other sources of funds, such as sales of Treasury bills, and to become more conservative in their lending policies. actions by banks  As a consequence of such  bank customers and other participants in financial  markets are given incentives to economize more on their holdings of money.. Such reactions would tend to slow the growth in the aggregates. Given these procedures and objectives, the choice between lagged and synchronous reserve accounting is of relatively little significance.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  Whichever accounting system Is used, the incoming data  ••••••  ▪  • .. •  •  S . -4-  on the monetary aggregates--on which operating disclissions are based-would be available on the same timing; the Manager could attain his objectives for the funds rate with about the same precision and speed ; • and the portfolio reactions of banks and others to a change in the funds rate would be much the same.  Accordingly, under current procedures a  return to synchronous accounting would not reduce the short-run variabilit y of either the monetary aggregates or the funds rate.  With respect to the  former, the average variability of monthly M-1 growth around trend was about the same in the six years after lagged reserve accounting was intro duced as in the preceding six years.  The average variability has been  somewhat higher in the two most recent years, but this could hardly be attributed to lagged accounting. Developments in April and early May Under current procedures, open market operations undertaken to damp demand-related fluctuations in the rates of growth of the monet ary . aggregates produce fluctuations in the Federal funds rate.  More generally,  efforts to reduce the variability of either monetary growth rates or of the Federal funds rate can be expected to produce increased variability in the other. As indicated above, in his day-to-day operations the Manager takes account of fluctuations in the incoming data on the aggre gates. Many of these fluctuations are transitory--they are "noise" rather than   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  -5-  indications of a systematic departure from desired monetary growth rates. It is usually--although not invariably--difficult to distinguish between noise and systematic tendencies in the data. are costs in Mistaking one for the other.  At the same time, there  To react to what eventually  proves to have been only noise is to produce unnecessary, and therefore undesirable, fluctuations in money market rates.  To delay reacting to  what eventually proves to have been the beginning of a systematic tendency is to necessitate an ultimate reaction that is larger and more abrupt than otherwise would have been necessary. In order to reduce the risks of mistakes in either direction, current operating procedures call for the Manager to follow a middle course in carrying out the Committee's instructions.  He scales any  changes in objectives for the funds rate to the apparent strength of the evidence that some systematic departure from desired monetary growth rates is under way, and he stands ready to reverse course if necessary; Among the factors he takes into account are the magnitude of the movements in the monetary data, their duration, and the indications, if any, that they might partly or wholly reflect special factors of a nonpersistent kind. The developments of April and early May are a case in point. Data that became available immediately after the April FOMC meeting suggested that the money supply was growing rapidly in April.  However,  because there was some reason to think this pattern would not persist,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • -6-  operating objectives wete not modified significantly.  By late April,  evidence had begun to accumulate that the money supply was growing strongly relative to the Committee's expectations.  Accordingly, the  .Manager raised the objective for the funds rate gradually, to the upper limit of the range the Committee had specified.  On May 6 the  Commlttee members voted to increase the upper limit somewhat, on the understanding that the additional leeway would be used only if new data becoming available before the May meeting suggested that the aggregate s were strengthening significantly further.  Because such additional  strength did not develop in that period, the objective was not raised -further.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  J. WILLIAM STANTON. OHIO GkRRY BROWN. MICH. CHALMERS P. veruE. OHIO JOHN H. ROU su. -Lor. CALIF.  HENRY S. REUSS. VHS.. CHAIRMAN 111JMASL Al.HLEY.OHIO m ft.,lr.AD.PA. FERNAND J. sr C.:CW.410N. R.1.  HENRY D. CON:ALEX. TEX. JOst RH G. MINISH. N.J.  U.S. HOUSE OF REPRESENTATIVES  FRANK ANNUNZ/0.  JAWS M. HANLEY. N Y. PAPmEN J. MTCHILL MO. WALTER F. 1AUNTROY. D.C. STEPHi N L NFAL. N C. JERRY M. PATTTRSON. CALIF. JAM. .1. SLANCH AHD. MICH. CAio ROLL HUBRA40..1/... KY. JOHN .1. LAIALCI7 N.Y. GLADYS NOON SPEU_MAN. MO.  COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS NINETY-FIFTH CoNCH-vESS 2129 RAYBURN HOUSE OFFICE E3UILDING  WASHINGTON, D.C. 20515  t.Es AA/COIN.()RFC. PAUL E. TSoNGAs, MASS. BUTLER DFRRICK. S.C.  STEWART IL N4cRiNNEY. CONN. GEORGE HANsEN. IDAHO HENRY J. HYDE. ILL. RCHARO KELLY. FLA. CHARLES C. GRA‘SJ KY. IOWA ILLICE NT FINwICK,. N.J. JIM LEACH. IOWA NE-W-7ON I. STEERS. JR..P.40. THoNi AS /1. EV ASS. JR_ Ott... BRUCEF. C-APAJTO. N.Y.  HAROLD C. HoLLENEICX. zz3...4.737  July 12, 1977  MARK W.IIANNAFORD. C.AUF. DAVID W. EVANS. IND. CLIFFORD ALLEN. TE.- N  NORMAN DIA OU RS. N.H. STANLEY N. LUNOiN.5. N.Y. HERMAN ItAtill.LO. N.Y. EOWARD W. PAT Et soN. N.Y. JOHN J. CAVANAUGH. NEBR. MARY ROSE °AKAR. OHIO JIM MATTOX. 1EX. DRUCE F. VENT°. MINN. DOUG BARNARD. GA. WES WATKINS. OKLA.  Dr. Arthur F. Burns Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Dr. Burns: Thank you for your reply and accompanying staff report of June 21, to my letter of May 10 questioning the desirability of lagged vs. synchronous reserve requirements. I do not believe that the staff report supports your position in favor of lagged reserve requirements or adequately addresses the issues. Stated simply thequestion is whether a return to synchronous 'would make it easier for the Fed to manage reserve accounting the money supply and interest rates so that we could, to a large extent, avoid wild short-run fluctuations in the money supply and interest rates such as occurred during April and May of this year. I am sure you would agtee that the roller coaster behavior of the money supply during April and May was not a desirable episode for instilling confidence in the monetary management of our economy nor was the sudden rise in the interest rates during May anything but a signal to reduce spending and investment. If the use of lagged reserve accounting helped to accentuate this episode more than would have been necessary with synchronous requirements, then it is high time to switch to synchronous accounting. Your staff report bypasses the extensive literature and empirical tests produced inside and outside the Federal Reserve by experts who say again and again that lagged reserve accounting interferes with proper monetary management. Here are some examples of views of reputable experts in this field which are not addressed in your staff report.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ;-;  Page Two  George G. Kaufman who is now John P. Rogers, Professor of Banking and Finance at the University of Oregon and author of the widely used book Money, the Financial System and Economic Activity, formerly the Assistant Vie Presid-ent and Economist at the Chicago Federal Reserve Bank, circulated a memorandum on June 13, 1966,within the Federal Reserve System on the proposed change to lagged reserve requirements (Memorandum Federal Reserve Bank of Chicago, June 13, 1966, Subject: Report of Ad Hoc Subcommittee on Reserve Proposals) in which he declared "the lagged reserve scheme would result in a serious deterioration of monetary control by the Federal Reserve". In his letter to me or June 9, 1977, Professor Kaufman says "the evidence to date has not caused me to change my analysis or conclusions". Albert E. Burger, Assistant Vice President of the Federal Reserve Bank of St. Louis, has this to say about lagged reserve requirements in his 1971 book, The Money Supply Process: "In the sample period following the introduction of lagged—reserve requirements there was considerably greater variability in the excess reserve ratio, which introduced an additional element of variability into the money supply process" (page 54). In addition, Burger states "the evidence indicates that after lagging, the Federal Reserve has been less able to accurately determine the extent to which it should intervene in the money market to prevent short-term pressures" (page 56). Warren L. Coats, Jr., an economist at the International Monetary Fund, published an article "Regulation D and the Vault Cash Gain" in the June, 1973, issue of the Journal of Finance (pages 601-607). Dr. Coats alleges from is study at the Federal Reserve Bank of Chicago that under the lagged reserve rules used by the Fed, banks are allowed to shift reserves between vault cash and deposits at the Fed in such a way as "to weaken the Federal Reserve's control over reserves, hence over the money mechanism" (page 601). Coats's doctoral dissertation at the University of Chicago, "The September, 1968, Changes in Regulation D and their Implications for Monetary Control" (June, 1972) presents a case against lagged reserve requirements. R. Alton Gilbert, an economist at the Federal Reserve Bank of St. Louis, published an article in the September-October, 1973, Financial Analyst Journal ("The Effects of Lagged Reserve Requirements on the Reserve Adjustment Pressure on Banks") in which he states: "The example of bank reserve management developed in this article indicates that lagged reserve requirements tend to increase variability of reserve adjustment pressure on the individual bank -- the opposite of the intended result." Gilbert goes on to say that "evidence from studies on monetary control under lagged reserve requirements also indicates that the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  a•••^m.  •  Page Three variability of aggregate reserve adjustment pressure has been larger under lagged reserve requirements than under coincident reserve requirements. Thus, there is reason to believe that the regime of lagged reserve requirements has failed in both its objectives "to make management of reserves easier for commercial banks" and make monetary management by the Fed more efficient (page 42). Gilbert cites other studies which criticize lagged reserve requirements including one by Dr. Robert D. Laurent, an economist at the Federal Reserve Bank of Chicago, whose unpublished paper is called "Lagged Reserve Requirements -- Are They Lagged in the Wrong Direction?" William Poole, Professor of Economics at BrOwn University and formerly senior economist at the Board of Governors and Assistant Vice President at the Boston Federal Reserve Bank, and Charles Lieberman, Assistant Professor of Economics at the University of Maryland, have published in the Brookings Papers on Economic Activity an article attacking lagged reserve re(rraprovfng Monetary Control", 1972, pages 293-317). quirementETThey conclude, "In any event, the lagged requirements system does not make reserve management any easier for the banks and does tend to intensify money market instability" (page 312). Nowhere am I able to find an economist who has investigated reserve requirements who would say that control of the aggregates is easier under lagged than synchronous reserve requirements. The following statement in your staff study in no way contradicts this position. "If open market operations have the effect of stabilizing the Federal funds rate, they will at the same time substantially moderate -- although not necessarily eliminate the effects of supply related distrubances on the monetary aggregates." The fact is that under lagged reserve requirements a reduction in the monetary aggregates requires that the Federal Reserve allow the Federal funds rate to rise so that the banks can contract their .loans and investments over a longer and more delayed period than is necessary under synchronous reserve requirements. The big "if" in the beginning of your staff's statement makes the sentence true,but not responsive to the widely held belief that supply related disturbances in the monetary aggregates are more difficult to control and require greater variability in the Federal funds rate than under a system of synchronous reserve requirements. Even for keeping the Federal funds rate on target without reference to the target ranges for the aggregates you use, lagged reserve requirements cause the Federal funds rate to vary more than under synchronous reserve requirements. This is because the demand for bank reserves in the current week is less responsive to interest rates so that changes in the supply of   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  - • . 11. 1 4 111  Page Four  reserves cause a bigger movement in interest rates (the supply curve shifts along a more inelastic demand curve). Professor William Poole presents evidence on this point in his article "Commercial Bank Reserve Management in a Stochastic Model: Implications for Monetary Policy", Journal of Finance (December, 1968, especially his table on pages 88i89). The following alleged reason for the Federal Reserve's position on lagged reserve requirements was suggested by some of the experts. Although there is little question that lagged reserve requirements interfere with the conduct of monetary policy, the Fed thinks a change to synchronous reserve requirements may have some slight negative effect on membership since some banks may -- mistakenly -- view the lagged system as desirable. I do not think that the country's monetary policy should be jeopardized on such a pretext if, in fact, this is a reason for the Fed's position. I think the evidence is overwhelming. Lagged reserve requirements do hinder monetary management and the Fed should immediately return to the system of synchronous reserve requirements used before September, 1968. I think that the effect of reserve requirements on monetary control is sufficiently important to warrant an answer which directly addresses the literature cited above and the issues I have raised. Could you supply me with such a response as soon as possible so that we may study it before our July 26 h<iarings.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  ' 1 Henry u Reuss Chairman   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  :lam.gm  =1"AINPUTAIlbEadialr 414.•••••• 411100  ••••••••••...-..  CHAIRMAN OF THE E1OARD OF GOVERNORS  AIMEliM MO  RAE  FEDERAL RESERVE SYSTEM WASHINGTON. D. C. 20551  July 20, 1 t../14.71 rr, 91..4:410,  CEIVED mu 2 1 1977 , !SLISI:713 COL,':;IITTEE  The Honorable Henry S. Reuss, Chairman Committee on Banking, Finance and Urban Affairs U. S. House of Representatives Washington, D. C. 20515 Dear Mr. Chairman: I am pleased to reply to your letter of July 12 which deals with the issue of lagged versus synchronous reserve accounting. Our staff has studied this subject intensively on a number of occasions in recent years. Their analysis has taken into account the various issues raised in the scholarly studies which you cite. None of the evaluative work done by the Board's staff suggests that lagged re sere accounting seriously impedes the management of the monetary aggregates or contributes to disruptive money-market / conditions. . „ I have, however, asked our staff to update their earlier studies and to make a new report to the Board. I shall see that their evaluation is also madesavailable to you. It will not be possible, however, to complete that work before this month's oversight hearings. With best regards, Sincerely yours,  Arthur F. Burns  HENRY S. REUSS. %VIS.. CHAIRMAN THOMAS L. ASHLEY. OHIO 'WILLIAM S. MOORHIAO. PA. 1 ii F FRNAND J. ST GFRPAAiN. R.I. HENRY  •  •  GoNZALEZ, TEX.  U.S. HOUSE OF REPRESENTATIVES  JOSf:Pfl G. MINISH. N.J. FRANK ANNUNZio. ILL. /IAN' LY. N.Y. rAwirt4 J. MITEHLLL. WALTER E. FAUNTROY. D.C. L.• NrAL. N C. ST Jruri V' M. PATTI RSON. CALIF. JAmi'S  COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS  JAMES J. CLANCHAT/D. MICH. CARRoLL 14USHARD. JR.. KY. JOHN J. LAF ALCC. N.Y. GLADYS NOON LES AuCOIN. OREG.  NINETY-F-IFTH CONGRESS 2129 RAVI-A./RN HOUSE OFFICE BUILDING  WASHINGTON. D.C. 20515  J. WILLIAM STANTON. OHIO GARFt Y DROWN. MICH. c•IALma-mci P. WYLIE. OHIO JOHN F4. not/SSE LOT. CALIF. STEwART M:KINNrY. coN.. CF.ORGE HANsEN. IDAHO HENRY J. HYDE. ILLRICHARD KELLY. FLA. CHARLES E. GRASSLEY. IOWA miLucEsir FENwICK. N.J. JAMES A. S. LEACH. lOwA NEWTON I. STEFRS. JR.. MD. THOMAS D. EVANS. JR.. DELDRUC E F. CAPUTO. KY. HAROLD C. HOLLENDECK.  W31.  PAUL E. TSONGAS. MASS. DUTLER DERRICK. S.C. MARK W. HANNAFORD. CALIF. DAVID %V. rvANs. IND. CLIFFORD ALLEN. TENN. NORMAN E. D'AMOURS. N H.  22S-4247  July 21, 1977  STANLEY LLI  N. LUNDINE, N.Y. HERMAN TIAOILLO. N.Y. E.D.VARD W. PATTISON. N.Y. JOHN J. CAVANAUGH. NFEIR. MARY POSE °AKAR. OHIO JIM MAT TOX,TEX. DRUCE F. VFNTO. MINN.  0OUG DAPNARD. C.A. VvES WATKINS. OKLA.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Dr. Arthur F. Burns Chairman Board of Governors Federal Reserve System Washington, D. C. 20551  Dear Dr. Burns: Thank you for responding to my letter of July 12 on the subject of lagged reserve accounting which I believe to be important for short-run monetary management. In your response, you say "None of the evaluative work done by the Board's staff suggests that lagged reserve accounting seriously impedes the management of the monetary aggregates or contributes to disruptive money-market co tions." (My emphasis.) •  The list of experts I sent you, each of whom stated that the system of lagged reserves seriously impedes monetary management, contained economists who have been or are now with the Federal Reserve System, including the eminent staff of the Board: George Kaufman, formerly Assistant Vice President and Economist at the Chicago Federal Reserve Bank, William Poole, formerly Senior Economist of the Board of Governors anI Assistant Vice President of the Boston Federal Reserve Bank, Albert E. Burger, Assistant Vice President of the Federal Reserve Bank of St. Louis, and R. Alton Gilbert, Economist of the Federal Reserve Bank of St. Louis. I would like to now add Daniel E. Laufenberg, currently on the staff 5f the Board,  Dr. Arthur F. Burns July 21, 1977 Page 2  who, I notice, has published a comment in the May 1976 issue of the Journal of Money, Credit and Banking, which seriously attacks the short-run policy implications of lagged reserve requirements. In addition, Nobel Laureate, Milton Friedman's testimony before the Senate Banking Committee (November 4, 1975) "The most important single step at the moment in the regulations the Fed could take would be to eliminate its lagged reserve requirements," should not be ignored. Accordingly, I would appreciate your making available the Board's staff studies on lagged reserve accounting, so that we can have a full background for the position you are taking, and an opportunity to obtain your views.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerel  Henry S. Reuss Chairman  I.  ..=111111. 0 11  6 : 41".4 4  ".  •  •  • of Cove •. ' 42  CHAIRMAN OF THE BOARD OF GOVERNORS • C; ?).  -  FEDERAL RESERVE SYSTEM t‘Iltrt, 7 •  —  vv1"v  0„06.to  WASHINGTON. D. C. 20551  Z;VED  October 7, 1977  1, I..  • `,  0310303.8 The Honorable Henry S. Reuss Chairman Committee on Banking, Finance .and Urban Affairs House of Representatives Washington, D.C. 20515  OCT 11 1977 HENRY S. REUSS, M.C.  0CT 1 1 BAUNC, raiTSCY  1977  LOUSilif; CONZIff  Dear Henry: As I indicated in our earlier correspondence on lagged reserve accounting, I asked the staff to make another study of this question. A copy of their new study is enclosed. The Board discussed the matter at length at two recent meetings. The view of the Board, which is supported by the staff, is that there.wou1d be no clear advantage in returning to contemporaneous reserve accounting. a I realize that you and some others have taken a different position. It may therefore be useful for you and me, perhaps with members of our staff, to sit down together and discuss the issues. Please let me know when such a meeting would be. convenient. With best regards, Sincerely yours,  Arthur F. Burns Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  MIM  .ripppetroll.11110 .11mINIPP. GEF4mAIN. fr.'. ERNAN7 J. r/T.N;(y. D. r.cNzALE7. TEX. JoSE:•H G. FRANK ANNUNZIO. ILL JAM( sM. NANLEY. N.Y. PARAFN ./. MITCHELL. M). WALIEFI C. FAUNTR0Y„ D.C. L //FAL. N.C. JERRY m. rArrEctSON. cALip. JAmr.r. J. ULANCHARu. MICH. CARROLL 1lUtiriAnn..//4.. KY.  U.  HOUSE OF REPRESENTA  ES  COMWTEE ON BANKING, FINANCE AND URBAN A FAIRS  JOHN). LArALEE. N.Y. CLADyr. NooN seELLmAN. MD. LEs AuCOIN. cmrc. rAt.n. E. TSONGA-I. MASS. BUTLER DERRICK. S.C. MARK W. HAN9AF0HD. CALIF. DAVID W. EvANS,IND. CLIFFORD ALLEN. NORMAN F. D'AmOURS. STANLF.Y 14. LUNDINE. IHERmAN DADILLO. N.Y. EDWARD W. PATTI SON. N.Y. JOHN J. CAVANAUGH. NZAR. MARY POSZ °AKAR. OHlo .111, 4 MATTOX. TEX. BRUCE F. VENTO„ MINN. DOUG BARNAnn. GA.  NtNrY.flrT,I  2129 RAYMJFIN (OUSE  CONGRESS' OFFICE  DUILOING  WASHINGTON, D.C. 20515  r r _ rrf OHIO JoIIN H. ROUSSELOT. CALIF. STErvARY n. /.1:1< CON/4. GEORSE HANSEN. IDAHO WNW.). NYC-Z. ILL. • HARO KELLY. FLA. CHARtES E. GM ASsLEY.IOWA ILL/ZeINT rrw.vtCK. JIM LEACM. IOWA VEW-roN1 I. STEPS. JR, M O. 11/1O,AA5 U. [ -VASS. JR., DELbat./CC r. CAPUTO. N.Y. ROLE)C. HOI-LLNDECK.H.J. 223- Ala  November 7, 1977  WES WATKINS.OKLA.  Honorable Arthur Burns Chairman Board of Governors Federal Reserve System Washington, D. C. Dear Dr. Burns: One of the glaring problems confronting the American economy today, as you know,. is the continuancc. of high interest rates, even while the money supply has for the last six months run far ahead of the top of your targets. Instead of lower interest rates and increased invdstment, the intended results of a rapid growth in the money supply, the nation is experiencing a surge of corporate takeovers which does nothing for jobs or economic growth.  using rapid hit a 1976,  Rather than invest in new plant and equipment, businesses are available cash and credit to buy up other companies at a clip. Preliminary data show that corporate takeovers will total of nearly 2,200 this, year, a 50 percent increase over and the largest volume since 1973. .  One factor encouraging takeovers rather than investment is that stock prices -- depressed by continuing high interest rates -often make it.more attractive for firms to buy out other companies than to expand their own operations. It would .be very useful if you could address yourself publicly as soon as possible Lo what is happening to the money supply, why the surge of money is not producing the intended result of lower interest rates, and what the Fed's plans for dealing with the situaLion are. A clear and complete explanation would go a long way toward restoring confidence in the economy.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2— • s why the surge in the. money There appear to bc several reason six months compared to the. supply -- 9.2 percent over the past is not producing lower interest Fed's target of 4 -= 6.5 percent -rates. are lending abroad at a One is that the large U. S. banks t report weekly to the fierce pace. The 317 large banks tha t of total U. S. banking assets, Fed, banks which control 55 percen ing the first six months of increased domestic business loans dur cent. For the same period, 1977 by an annual rate of only 7 per loans to foreign business borrowers sed rea inc es nch bra as rse ove eir .th at an annual rate of 15.6 percent. amount of U. S. bank In dollars, there was an increase in the ers, through overseas. deposits lent to foreign business borrow -- funds that would otherwise branches, of approximately $5 billion S. business. have been available for lending to U. nable funds, which was Thus, the increase in the supply of loa S., has lowered borrowing spurred by fast money growth in the U. U. S. businesses. This costs for foreign businesses instead of ut U. S. businesses in woild simply helps foreign businesses underc competition. at home partly because U. S. banks lend abroad instead of erve requirements. Not foreign branches are not subject to res lend out a greater proporhaving to hold reserves, the banks can e profit. tion of their deposits and thus make mor • given the public, The growth in the monetary supply has international and domestic especially the participants in the t our central bank has lost financial markets, the impression tha tended to depress stock and control of the money supply. This has the U. S. dollar, leading bond prices as well as the price of fidence about the future of our people to hold more cash as their con re are four aspects of short-run monetary policy is undermined, ' The ined the Fed's ability to monetary management which have underm of which could be, in large part, control the money supply, all four ential that you also fully address corrected. Therefore, it is ess the Fed will rectify them. these problems and publicly state how These are: According to experts inside 1. Lagged Reserve Requirements. t of the money supply is and outside the Fed, short-run managemen requirements of the current made more difficult by pegging reserve r. Prior to September, 1968, week to deposits held two weeks earlie deposits during the current week. reserve requirements were based on reserve requirements would make A return to the system of synchronous t easier. current short-run monetary managemen   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  -3  • 2. Seasonal Adjustments. Seasonally adjusted figures on the money supply are unreliable because the method of making the seasonal adjustments distorts the money series by mixing in seasonals with cyclical periodicities and altering the timing of the series. Newer statistical teChniques for identifying and adjusting for seasonal periodicities are available and should be used. 3. Discount Rate. Maintaining a discount rate below the federal funds rate induces banks to borrow at the Fed's discount window and re-lend in the money markets, adding to the money supply and helping to defeat efforts to bring the money supply under control. The difference between the discount rate and the federal fund rate also amounts to a subsidy to the banks. Increasing the discount rate to the level of the federal funds rate would end the incentive to banks to borrow and re-lend. 4. Lack of Coordination. Some of the huge bubbles in the money supply are the result of large outlays by the Treasury in a short period of time, such as Social Security payments. These payments should be determined in advance by the Fed so that offsetting actions can be taken in the money markets.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  will look forward to your explanation of these issues. Sincerely, a(2 Reuss Henry Chairman  HENRY S. REUSS. WIS.. CHAIRMAN qiHOMAS L. ASHLEY. OHIO MOORHI-:AD. PA. .7EPNI1N:I.J. ST GERNIAIN, R.I. HENRY C. GONZALEZ. TEX. JOSEPH G. MINISH. N.J. FRANK ANNUNZIO. ILL. JAMES M. HANLEY. N.Y. PARREN .1. MITCHELL. MD. WALTF.R E. F AUN TROY. D.C. STEPHEr4 L. NEAL. N.C. JERRY M. PATTERSON. CALIF. JAMES .1. BLANCHARD. MICH. CARROLL HUBBARD. JR., KY. JOHN J. LAFALCE. GLADYS NOON SPELLMAN. MD. LES AUCOIN. OREG. PAUL E. TSONGAS. MASS. BUTLER DERRICK. S.C. MARK W. HANNAFORD. C.ALIP. DAVID W. EVANS. IND. CLIFFORD ALLEN. TENN. NORMAN E. DAMOURS. N.H. STANLEY N. LUNDINE. N.Y. COWARD W. PATTISON. N.Y. JOHN J. CAVANAUGH. NEBR. MARY ROSE OAKAR, OHIO JIM MATTOX. TEX. BRUCE F. VENTO. MINN. DOUG BARNARD, GA. %NES WATK INS. OK LA.. ROBERT GARCIA. N.Y.  U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS NINETY-FIFTH CONGRESS 2129  RAYBURN  HOUSE OFFICE  E3UILDING  WASHINGTON, D.C. 20515  J. WILLIAM STANTON. OHIO CARRY DROWN. MICH. CHALMERS P. WYLIE. OHIO JOHN H. ROUSSELOT. CALIF. STEWART D. McK INNEN% CONN. GEORGE HANSEN. IDAHO HENRY J. HYDE. ILLRICHARD KELLY. FLA. CHARLES E. GRASSLEY. IOWA MILLICENT FENWICK, N.J. JIM LEACH. IOWA NEWTON I. STEERS. JR.. MD. 'THOMAS D. EVANS. JR., DEL. BRUCE F. CAPUTO. N.Y. HAROLD C. HOLLENBECK. S. WILLIAM GREEN, N.Y. U5-4247  April 18, 1978  The Honorable G. William Miller Chairman Board of Governors Federal Reserve System Washington, D. C. Dear Chairman Miller: I want to commend you on your appointment of an esteemed committee to study improvements in the seasonal adjustment procedures applied to the money supply data. This has been a subject in which I have been interested. It is one of the areas of monetary management that certainly needs immediate attention. After all, the 7.8% increase in the basic money supply for 1977 (4th quarter 1976 to 4th quarter 1977) exceeded by 20% the maximum growth rate that the Federal Reserve announced it would adhere to. This wide miss undoubtedly created great uncertainty, especially in financial markets and on the international exchange, about the Federal Reserve's ability to control the United States money supply. 4IP  Another aspect of monetary control in which I have been interested concerns the Federal Reserve's lagged reserve requirement regulations which require banks to calculate their reserves on the basis of deposits held two weeks earlier. In testimony before the Senate Banking Committee (November 4, 1975), economist Milton Friedman said "the most important single step at the moment in the regulations the Fed could take would be to eliminate its lagged reserve requirements". I have called the Federal Reserve's attention to Milton Friedman's comments and to the comments of many other economists, many of whom have been or are now with the Federal Reserve System. Their arguments have persuaded me that the Federal Reserve   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1•••••••••116 4.2  •  • ••  •  Page  Two  The Honorable G. William Miller April 18, 1978  should immediately drop lagged reserve requirements and return to the system of synchronous reserve requirements used prior to September 1968. The Federal Reserve replied to my request with a twenty-three page report containing an analysis of the effects of lagged reserve requirements (October 6, 1977). I have asked some of the leading experts on this subject, who are not now on the Federal Reserve staff, to analyze this report. These experts are Edgar L. Feige, Professor of Economics, University of Wisconsin, with collaboration of Robert McGee; William Poole, Professor or Economics, Brown University and formerly Senior Economist at the Board of Governors and Assistant Vice-President at the Boston Federal Reserve Bank; Dr. Warren L. Coats, Jr., whose doctoral dissertation at the University of Chicago was entitled "The September 1968 Changes in Regulation D and Their Implications for Monetary Control", and who also has published "Regulation D and the Vault Cash Game" in the Journal of Finance (June 1973). The latter. article purports to show how banks can double count their reserves under the lagged reserve requirement system; George G. Kaufman, John B. Rogers Professor of Banking and Finance, University of Oregon, formerly Assistant Vice-President and Economist at the Chicago Federal Reserve Bank. •  I am forwarding copies of these experts' comments on lagged reserve requirements to you so that the Federal. Reserve can have the benefit of their analyses. I would also like to point out that a number of articles on lagged reserve requirements have been written by economists on the staff of the Board of Governors and the regional banks. You may want to look at their articles also. These economists who have been or are now with the Federal Reserve System include:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Albert E. Burger, Assistant Vice President of the Federal Reserve Bank of St. Louis;  airldift06166.41."-- '-'4.0.AJAMMMWONMOIMMMIN.  alsekbialk  • Page  •  Three  The Honorable G. William Miller April 18, 1978'  R. Alton Gilbert, Economist of the Federal Reserve Bank of St. Louis; Daniel E. Laufenberg, the Board of Governors; Dr. Robert D. Laurent, Economist at the Federal Reserve Bank of Chicago. I think the message from all of the economists I have listed above indicates that lagged reserve requirements make it more difficult for the Federal Reserve to manage our country's money supply. I, therefore, support the return to the system of synchronous reserve requirements used before September of 1968.  Sincerely,  Henry S. Reuss Chairman  •  Enclosures   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (AM er.c3a12  of  I5CIIIIAL  DEPARTMENT OF ECONOMICS SOCIAL SCI ENCE BUILDING I 6,) OBSEFtv A TOR Y only I  MADISON 53706  January 27, 1978  The Honorable Henry S. Reuss Chairman, Committee on Banking, Finance and Urban Affairs U.S. House of Representatives 2129 Rayburn House Office Building Washington, D.C. 20515 Dear Chairman Reuss: At the request of Robert Auerbach, my colleague Robert McGee and I have enclosed our comments on the Federal Reserve Board Staff report entitled, "Analysis of the Impact of Lagged Reserve Accounting." The Board's staff report suggests that the sole positive effect of the adoption of the lagged reserve accounting (LRA) convention has been to reduce the net costs of reserve portfolio management for individual banks. This non-quantified, but seemingly modest benefit, must be weighed against the alleged problems which LRA has created for the overall implementation of monetary policy and thus for the economy as a whole. The report tends to either deny the existence of such problems as to minimize their importance where they are empirically found to exist. Thus the gist of the report is to advocate LRA on the basis of the sole cited benefit, which the report implicitly concludes outweighs the several disadvantages of LRA. In our view this conclusion is unwarranted on the basis of the analysis presented. A step by step analysis of the conclusions, (1) - (6), presented on pp. 1-3 of the report will shnw some of the problems with the report's conclusion that LRA should be maintained. Conclusion (1) juxtaposes ,the benefit of required reserve foreknowledge against the cost of unexpected excess reserve moments. The increase in member bank borrowing and offsetting Open Market Operations which these unexpected excess reserve movements necessitate implies money market conditions are being smoothed by defensive open market operations to offset this harmful consequence of LRA. As conclusion (2) admits, this tendency for increased money market instability after 1968 has been successfully eliminated by "enlarged defensive open market operations". Since the desk manager eliminates the inconvenience brnks would otherwise face from the LRA induced heightened volatility in the funds rate, it is. no wonder that individual banks prefer LRA to CRA since it gives them the definite advantage of more efficient reserve management at a cost borne by the Fed.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The University of Wisconsin is an Equal Opportunity Employer  The Honorable Henry S. Reuss--page 2.  January 27, 1978  This cost however is an important one because it means the Fed has an increased tendency to accommodate bank led credit expansion under LRA. A deposit created by a bank loan two weeks ago becomes validated Ml-money if the Fed accommodates its creation by maintaining stable money market rates in the face of increased loan demand. If this is an effect of LRA, we would expect increased variability in the monetary aggregates which brings us to conclusion (3) in the report. According to (3) the variability of M1 and M2 growth rates "was not affected by the introduction of lagged reserve accounting." Rather than disputing the analysis of the numbers presented in the staff report we offer, as prima facie evidence against this assertion, the following quote from the November 1971 Federal Reserve Bulletin, p. 880: Even when the revised data are examined, there is compelling evidence to suggest a marked increase in the variance of money supply and reserve Innovations which coincided with the adoption of the amendment to Regulation D. (See Feige & McGrce J.M.C.B. November 1977, p. 548). With respect to the issue of the effects of LRA on the variability of the Federal funds rate, our own research revealed a standard deviation of weekly fund rate changes of .34 percentage points for the period 19611967 compared to .33 for the 1969-1975 period. We concluded that the effects of LRA on funds rate volativity has not been substantial when weekly changes are considered on a relative basis. While mean absolute changes have increased, variations around the mean are about the. same for the pre- and post- LRA periods. The Board's staff final three conclusions, (4) - (6), bear on the compatibility of LRA with current operating procedures (i.e. setting a funds rate through open market operations which is believed to be consistent with the desired monetary aggregate growth pattern). The conclusions reached are that 1) given current operating procedures it is a matter of indifference whether we have contemporaneous or lagged reserve accounting and 2) if a new operating procedure were adopted where reserves rather than the funds rate were controlled on a day to day basis, then lagged reserve accounting would be inferior to contemporaneous requirements because it would undermine the money-reserve relationship. This latter assertion is supported by the evidence presented on pp. 20-23 of the report which shows a deterioration in the money-reserve relationship after LRA was imposed. This is consistent with our finding in the JMCB article (Nov. 1977) which found the contemporaneous money-reserve relation disappears after the amendments to Regulation D were instituted. Thus conclusion (6) minimizes the possible benefits to switching to a reserve operating procedure and contemporaneous reserve requirements. In addition a primary argument presented against such a policy is the increase   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  *ON.  ea The Honorable Henry S. Reuss--page 3.  January 27, 1978  in interest rate volatility which would result from using a reserve control rather than a funds rate control procedure. Once a reserve policy is regarded as unadviable it becomes largely a matter of in— difference whether LRA or CRA is in force. There are however arguments for a reserve operating procedure and against the allegation that it would increase interest rate fluctuations. Poole has argued persuasively, in "The Making of Monetary Policy: Des— cription and Analysis" in the June 1975 issue of Economic Inquiry, that a reserve operating procedure should be adopted. Similarly, Professor Milton Friedman, in a "Statement on the Conduct of Monetary Policy" before the House Co-almittee on Banking, Housing, and Urban Affairs on November 6, 1975, has argued that a reserve operating procedure rather than increasing interest rate changes would actually decrease them: The one serious objection to this procedure (con— trolling the stock of money) that I have seen is the contention that it would lead to more Vari— ability in interest rates over short periods than the present procedure. I have long believed that it would have precisely the opposite effect except possibly for very short periods measured in a few days or perhaps several weeks. By delaying interest rate adjustment, the present procedure permits pressure to cumulate. I believe that it thereby produces more erratic and unstable interest rates and therefore more uncertainty than the alternative procedure. An additional benefit of the improved money control resulting from a reserve control operating procedure would be reduced inflationary expectations which many economists now realize are an important deter— . Thus there is some consensus among minant of interest rate changes, economists that direct reserve control would result in tighter control over the money supply. In our own research, we estimated a simple dynamic money market model including reserves, the money supply and the Federal funds rate for the 7 year period prior to LRA and the 7 year period after monetary aggregate targets were adopted in early 1970. We examined two issues. First, we analyzed the effect of LRA on the model, and secondly, we examined the data for evidence of a shift from control of interest rates to control of the money supply. While the early period model was consistent with the view of a monetary policy operating procedure which maintained stable interest rates by letting the money supply adapt to changes in money demand, the latter period was consistent with elements of both money and funds rate control policies.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Henry S. Reuss--page 4.  January 27, 1973  There is evidence that the Fed. now lets the funds rate adjust to . We bring money demand changes in line with the desired money supply: also found evidence that reserves are being supplied to accommodate two week prior changes in money. This is consistent with the Board's staff report comment that defensive open market operations have increased as a result of LRA to offset latent instabty in excess reserve and funds rate movements. LRA appears to be interfering with the Fed's abty to control the money supply because it necessitates increased defensive open market operations aimed at stabzing interest rates which can only be accomplished by sacrcing some degree of control over monetary aggregates. In summary, while LRA appeared to be a sensible procedure in the period of primary attention to money market conditions, it is inconsistent with a regime of monetary aggregate control. The simple explanation for this finding is that individual banks have a two week lead time in which to create however much money the public wants at current interest rates (i.e. money demand gets the jump on money supply). If interest rate targets to control money are not moed as it becomes necessary,then periods of undesirable money growth will either have to be tolerated or offset by appropriate open market actions. The more uncertain the Fed is about the appropriate interest rate target and the longer it allows the wrong funds rate target to persist, the more drastic and potentially destabzing will be the corrective IS netary policy. Finally, regardless of whether or not LRA is abolished, the Federal Reserve's ability to control the money supply is likely to be enhanced if non-member banks are given sufficient incentives to join the System. LRA is such an incentive. More useful incentives can and should be developed. I hope these comments will be useful for your evaluation of current policies and if I can be of any further help, please do not hesitate to contact me. Sincerely yours, , • •  . Edgar L. Feige Professor of Economics /aw   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  g  mrm. _ 0•In  (  BROWN  UNIV 1 RSITY  Providence, Rhode Island -02912  November 23, 1977  The Honorable Henry S. Reuss, Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Congressman Reuss: I am writing in response to your request for my evaluation of the Federal Reserve's position on lagged reserve requirements. Since this position is explained fully in the Federal Reserve Board's Staff Study, "Analysis of the Impact of Lagged Reserve Accounting" (October 6, 1977), a copy of which you sent to me, I will make frequent reference to this document. In general, I have little quarrel with either the theory or the evidence presented in the Staff Study. However, the Staff Study contains several unsupported and misleading statements and, more importantly, conclusions that do not follow from the theory and evidence presented. In my view, the Staff Study actually strengthens the case against lagged reserve accounting ("LRA" for short). LRA under current operating procedures. For many years the Federal Reserve's operating procedures have involved tight control of .the federal funds rate on a day-by-day basis. Given that the federal funds rate is tightly controlled, the Staff Study correctly argues that, "short run movements in the [monetary] aggregates are largely demand determined. It is difficult to argue that lagged reserve accounting has much relation to the public's demand for money" (p. 14). It is worth noting in passing that this argument, at least to a very close first approximation, extends to all aspects of the reserve requirements system, including not only LRA but also reserve requirements differentials   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •••••••  - 2 between banks of different sizes and the complete lack of Federal Reserve reserve requirements on non-member banks. Thus, it is incdnsistent of the Federal Reserve to oppose reform of LRA and at the same time to favor extension of reserve requirements to non-member banks for monetary control purposes. What, then, are the advantages of LRA given the Federal Reserve's current operating procedures? In the Record of Policy Actions of the Board of Governors for April 23, 1968 the introduction of LRA (effective September 12, 1968) was explained as follows: The amendments were designed to facilitate more efficient functioning of the reserve mechanism. They did not represent any change in Federal Reserve monetary policy, but were expected to reduce uncertainties, for both member banks and the Federal Reserve, as to the amount of reserves required to be maintained during the course of any reserve-computation period. Adoption of the amendments was therefore expected to moderate some of the pressures for reserve adjustments within the banking system that occasionally develop near the close of a reserve period and produce sharp fluctuations in the availability of day-to-day funds." (Board of Governors of the Federal Reserve System, Annual Report 1968, p. 82.) The Staff Study makes clear that LRA did not in fact "facilitate more efficient sfunctioning of the reserve mechanism." The Staff Study nicely documents the fact that, "the volatility of money market conditions toward the end of the statement week -- as measured by variations in member bank borrowing, the Federal funds rate, and open market operations -- showed a marked tendency to increase immediately after the rule change." (Staff Study, p. 8, emphasis added). The cost of this increase in volitility was not borne by the banking system alone, but also by the Federal Reserve   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  _ 3 and, therefore, indirectly by American taxpayers. Because the 1968 changes made the money markets more volitilc the Federal Reserve has fell compelled to engage in more extensive defensive open market operations. "The Manager of the Trading Desk's outright transactions as a percentage of total reserves remained virtually unchanged, but the volume of matched sale-purchase and repurchase agreements as a percentage of total reserves doubled immediately following the rule change and remained in the higher range through 1972." (Staff Study, p. 9, emphasis added). The Staff Study provides no estimate of the cost of the extra open market operations, but it is obvious that some extra and completely unnecessary Federal Reserve costs were generated by the rule change. The Staff Study argues that two benefits were realized from the rule change. The first is that, "the evidence clearly suggests that in one important sense bank reserve management has been more efficient under the-new rules. The average value of member bank excess reserves declined from $368 million in 1967 to $192 million by 1970. The improved reserve management, however, probably results entirely from the extension of the carryover privilege to include surpluses. (Staff Study, p. 6, emphasis added.) I have no reason to dispute the Staff's conclusion; indeed, I have on a number of occasions argued for expanded carryover privileges. In any event, the LRA part of the new rules was not responsible for the claimed benefit. The second claimed benefit is that LRA reduces bank costs of reserve management. "A survey in 1975 of commercial bank Directors of Reserve Banks, and branches suggested that...most banks believed their reserve management was improved by lagged aneous accounting accounting and felt that a return to contempor. would increase costs, mainly from additional staffing." (Staff Study, p. 7). The evidence offered for this claim is very weak. Commercial bank Directors of Federal Reserve Banks and branches rather than bankers in general were surveyed. The number of bankers surveyed could not have exceeded 50 or 60 out of some 5000 member banks, and bankers serving as Federal Reserve DirecLors are unlikely to be a representative sample of all bankers. Moreover, the Staff Study contains no tables reporting survey responses to show that the bankers favoring LRA were a large majority of those surveyed or that the bankers felt very intensely about the issue. Finally, information obtained from even a properly designed survey on this matter must be regarded with suspicion because many bankers who understand the impact of regulations on their individual banks   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  - 4 fail to understand the impact of regulations on the banking system as a whole. To summari-ze the Staff Study's analysis of LRA under current Federal Reserve operating procedures, the only advantage of LRA is that an unknown number of bankers apparently feel that LRA reduces their costs of reserve management. On the cost side of the ledger, the Staff Study presents a well-documented case that LRA has led to some combination of greater short-run interest rate instability market operations. Finally, LRA and larger defensive S. has little or nothing to do with money stock control so long as current operating procedures are maintained. LRA under a reserves operating procedure. Along with many other economists, I have advocated reform of the Federal Reserve's operating procedures so that the Open Market Desk would stabilize bank reserves rather than the federal funds rate on a day-to-day basis. The arguments for this reform go farebeyond the scope of this letter and,except to note that reserves control can be expected to provide better control over the monetary aggregates than is now possible, will not be discussed here. However, there is widespread agreement that if this reform were put in place, then it would be highly desirable to substitute contemporaneous for lagged reserve accounting. If the Federal Reserve were to control bank reserves on a day-to-day basis, then contemporaneous reserve accounting would be desirable because the accuracy of money stock control would be improved as compared to the LRA system. The Staff . Study supports this argument. "Empirical evidence on the linkage between monetary and reserve aggregates indicates a closer -- though still relatively loose -- relationship before the institution of lagged reserve accounting than after." (Staff Study, p. 20). "If the Manager were instructed to fScus on attaining a reserve aggregate target in his daily operations, a return to contemporaneous accounting implies less short-term variability of deposits and monetary aggregates than would be the case with lagged accounting." (Staff Study, p. 23). The Staff Study also accepts the argument that under a reserves operating policy LRA would generate larger interest   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  - 5 rate fluctuations than would contemporaneous reserve accounting. "[Following a rise in deposits] ... under lagged reserve accounting there is no change in bank demands for reserves and no automatic pressure on money market rates for two weeks, thus delaying this automatic offset. Moreover, because of the delay, interest rates would have to rise to higher levels over time to achieve a given average level of money over a particular period." (Staff Study, p. 23). To summarize the Staff Study's analysis of LRA under a reserves operating policy, LRA would make both the money stock and interest rates more volitile than would contemporaneous reserve accounting. Set against these costs would be, presumably, the alleged lower costs of bank reserve management discussed earlier. However, although the Staff Study does not discuss this point, my guess is that the authors of the Study would agree that the banks' costs from the greater interest rate variability under LRA as compared to contemporaneous reserve accounting would not be offset by the computational ease of LRA. General comments. The Staff Study includes several statements that are misleading with respect to the LRA issue. First, the Study says that, "any reduced variability in the monetary aggregates that may result from [a reserves] operating procedure, when compared to the present one, would come at the expense of unprecedented short-run variability in the funds rate." (Staff Study, p. 23). This statement is misleading because the issue at hand is LRA rather than a reserves operating procedure. The Staff Study agrees that except for possible benefits to banks flowing from easc of reserves management under LRA, contemporaneous reserve accounting is better under either the current Federal Reserve operating procedures or a reserves operating procedure. •  Second, the Staff Study gives the impression that the proposal for a reserves operating procedure ought not to be taken seriously. "Contemporaneous accounting would only be advantageous under alternative operating procedures, for example, one in which the [Federal Open Market] Committee instructs the Manager to attempt to hold each week to some predetermined target path for a reserve aggregate like nonborrowed reserves -- letting the funds rate move freely. All of the academic studies of the effects of lagged   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  _  VA....••••  •  - 6 al accounting on monetary control have examined such a hypothetic case." (Staff Study, p. 19). Regrettably, it is quite clear that the Federal Reserve ng has indeed regarded a reserves operating procedure as nothi more than a "hypothetical case," not to be taken seriously. This attitude has been unfortunate, but is now doubly so in the light of a recent court decision whose implications for this issue are not widely understood. On November 10, 1977 the Federal Appeals Court in Washington, D.C. ruled that under the federal Freedom of Information Act the Federal Reserve is required to release its decisions sooner than has been its recent practice. (See the newspaper account in the November 11, 1977 Wall Street Journal.) Moreover, it was reported in a New York Times article on November 17, 1977 that the Solicitor General may not seek a Supreme Court review of the Appeals Court decision. Without expressing opinion one way or the other on this case, I can merely note that the Federal Reserve may shortly be required to release its decisions promptly, and that the Federal Reserve ought to be examining with considerable urgency the consequences of this requirement. The most obvious consequence of earlier release of Federal Reserve decisions is that one aspect of the Federal Reserve's current operating procedures will have to be changed. The Federal Open Market Committee will no longer be able to instruct the Manager to change the federal funds rate in small steps over a period of weeks because public release of such an instruction will produce an immediate market reaction as market participants attempt to realize the gains or avoid the losses implied by announced interest rate changes. The importance of earlier release of Federal Reserve decisions should not be underestimated. The Federal Reserve will be driven to changing the federal funds rate in discrete steps immediately following Open Market Committee meetings, and one of the main claims for the current operating procedures -- that of smooth and "orderly" changes in money market interest rates -will no longer be valid. More importantly, however, earlier release of Federal Reserve decisions is likely to lead the Federal Rescive to change its interest rate targets less often which will make the money stock even more unstable and procyclical   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  7 than it has been in the past. rve These problems could be handled if the Federal Rese rm that is were to adopt a reserves operating policy, a refo rve has not, desirable in any event. Since the Federal Rese a to the best of my knowledge, engaged in any planning for ing e reserves operating procedure, I strongly urge the Hous Bank a study Committee to request that the Federal Reserve conduct to determine what needs to be done if a reserves operating procedure is to be adopted. e It should be clearly understood that the LRA issu is only part of the much larger issue of how to structure Federal Reserve regulations to ensure that a reserves operating procedure functions as smoothly as possible. In a number of places the Staff Study refers to the role of the current operating procedures in preventing supply-side disturbances from affecting the money stock, but what the Staff Study does not mention is that many of these supply-side disturbances are a direct result of the reserve requirement regulations, such as LRA, the Federal Reserve has adopted. However, the e Staff Study shows that the Federal Reserve does recogniz the importance of reserve requirement regulations in general. a "The introduction of graduated reserve requirements and more complicated reserve structure in the 1970's may also , but our have weakened the short-run reserve-money relation evidence so far suggests that lagged reserve accounting had a stronger negative impact." (Staff Study, p. 21). In closing, let me say that it is very encouraging that es, the Congress has become interested in monetary control issu has but I feel that it is unfortunate that this interest extended to an issue as technical as LRA. I fully understand that this situation arose because LRA is a well-defined and specific issue and because academic experts have mentioned this issue so often. But I am certain that most academics would agree with me that LRA is only part of the much larger issue of designing regulations better suited for monetary control. e I suggest, accordingly, that the Banking Committe a study of recomrequest the Federal Reserve to provide assumption that a mended regulatory changes based on the be adopted. It is , reserves operating procedure is to assumption that important that this study be based on the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • 8 -  a reserves operating procedure is to be adopted; only after the completion of this study, and receipt of informed comment on it, will be possible to judge the adequacy of the Federal Reserve's position on the., relative merits of the money market and reserves operating procedures against the background of the Federal Reserve having actually investigated what a reserves procedure would entail. If I may be of any further assistance, please feel free to call on me again. Sincerely,  William Poole Professor of Economics  WP/md   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  111 Arlington, Virginia  22202  November 7, 1977  The Honorable Henry S. Reuss Chairman, Committee on Banking, Finance and Urban Affairs U.S. House of Representatives Washington, D.C. 20510 Dear Mr. Reuss: It is my pleasure to respond to your Committee's request for comments on "Analysis of the Impact of Lagged Reserve Accounting" prepared by the staff of the Board of Governors of the Federal Reserve System earlier this month. I do so as a student of U.S. monetary policy and central banking and, in particular, of lagged reserve accounting. I am acting in an entirely personal capacity, and request that the name of my current employer not be used in connection with these comments. Chairman Burns has carefully stated that "there would be no clear advantage in returning to contemporaneous reserve accounting." In this he is supported by the above-mentioned staff report. While Chairman Burns is correct that the evidence has not yet clearly established the advantage of a return to contemporaneous reserve accounting, it is equally true that there is no evidence indicating net disadvantages to such a return and a fairly strong theoretical case that there would indeed be some important advantages. The report itself maintains the high standards of scholarship I have come to expect of the Board's staff. By and large, it is an updating of the analysis and statistics contained in my. doctoral dissertation written at the University of Chicago over five years ago. The report does find, as had my dissertation, a significant loosening of the relationship between reserves and deposits since the introduction of lagged reserve accounting. The staff's defense of the harmlessness of lagged reserve accounting rests on two propositions. First, the use of a federal funds rate operating target makes reserves endogenous to demand-determined deposit levels. In this setting, an increase in reserves that would lead to a greater deposit expansion under lagged reserve accounting than under concurrent reserve accounting cannot occur in the first place without a shift in the demand for deposits or a Change in the federal funds rate target. Second, in the most interesting empirical study of the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  S  • 2  money supply control aspects of lagged reserve accounting I have seen to date (John Judd's work for the Federal Reserve Bank of New York), the estimated interest elasticity of deposit demand was found to be smaller in the short run than the supply elasticity. These interest rate estimates imply that, even with a reserve aggregate operating target, lagged reserve accounting will not have very significant practical consequences for monetary control, because the tendency for deposits to rise in the face of an increase in reserves will be quickly dampened by a falling federal funds rate, while the demand for deposits will be only insignificantly increased. As a result, deposits will change only insignificantly in the very short run and as it is changes in deposit levels that introduce the differing impact between lagged and contemporaneous reserve accounting, the empirical magnitude of the difference will itself be negligible. It is this reasoning that leads to the conclusion that lagged reserve accounting will not significantly affect the behavior of the federal funds rate, even when the funds rate target must be adjusted in order to meet the money supply target. It is precisely at such times, as for example when maintaining the federal funds rate target leads to unexpectedly large increases in reserves and deposits that must be reversed if money supply objectives are to be net, that lagged reserve accounting potentially gives the most trouble. But if the short-run elasticity of deposit demand is very small relative to the short-run elasticity of deposit supply, a very modest increase in the federal funds rate will reestablish the desired money supply. The staff's logic to this point is unassailable, but the evidence underlying it is highly questionable. Judd's empirical results are highly sensitive to at least two questionable assumptions. First is his assumption that the use of the federal funds rate as an operating target makes it totally exogenous in his estimated money demand function. This means that none of the movements in federal funds rate are attributable to changes in the supply of money, while in fact the rate is allowed to fluctuate within a narrow band. In a very preliminary reexamination of Judd's generally praiseworthy work on this subject, colleague Iqbal Zaidi of Princeton University and I have found that relaxing this assumption (by assuming that the Fed adjusts the federal funds rate, when actual money growth rates deviate from the Fed's targeted rates) more than doubles the elasticity of demand estimate over the one found by Judd. This increases the variation in deposits that can take place within a single week and thereby increases the practical significance of the theoretically wellknown instability introduced by lagged reserve accounting. We have yet to determine the sensitivity of these elasticities to Judd's assumption that deposit supply is totally demand determined. In our view, deposits do not expand in the first instance because the public desires a higher level of deposits, but rather as the indirect consequence of the public's increased demand for loans. This introduces an   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  3  •  exogenous supply element in the determination of deposits. To the extent that this view is valid, Judd's demand function, which only permits lagged adjustment of deposits to changes in their demand, is misspecified and most likely biases his estimated elasticity of demand downward. I regret that our work is not further advanced at this point. In conclusion, it is my view that the assertion of lagged reserve accountings' harmlessness is based on a mistaken view of the money supply process, which pictures it as wholly demand determined and of the highly questionable statistical estimates that have resulted from models reflect— ing this view. I am still inclined, subject to further investigation of the evidence, to the view that lagged reserve accounting has significantly increased the variations in the federal funds rate necessary to bring monetary growth into line with the Federal Reserve's own targets whenever such p-owth deviates from those targets. As a consequence of this and the Federal Reserve's adherence to a federal funds rate operating target, the money supply has become more difficult to control and has tended to wander from its targeted levels by wider margins and over longer periods of time with greater pressure on federal funds rates than would have been experienced under concurrent reserve accounting. Sincerely,  Warren L. Coats, Jr., Ph.D. Economist  •  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  October 16, 1979  The Enorable Peal h. Tsongss Chairman Cananser Affairs Subcommittee Committee on Sanking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Isotopes: 1 am pleased to enclose the attAtehed responses to the additional cuestions relryed by telephone subse,uset to your September 26 letter. Should you or your staff have *my mutations regarding the attached mammies, plese contact Jeamims Catalano, Review Examiner, at (202) 452-3946. Sincerely,  Eag4 Lnclosures JC:smk (V-47) bee: Jeanine Catalano Mrs. Mallardi(2)  •  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  14.  •  What is your policy on the number of violations identified before  an institution is required to do its own file search?  When a violation is discovered using the statistical sampling procedures, additional loan files are selected judgmentally to determine the cause of the violation and the existence of a pattern.  In cases where  it is determined a pattern exists, such as a certain loan type or loans made by a certain loan officer, file searches for those particular types of transactions are required.  In cases involving isolated errors, where no  pattern is detected, banks are required to conduct a file search.  A..1.11116  ALM(  •  411  15.  ; V4IINARAMIRAWW6WAWIONNIVAAerAgiligeltMOMMMililliieirr  •  In how many cases has the Federal Reserve Board required institutions  to perform  file searches?  The response to this question will be included in the responses to your letter dated October 5, 1979.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  oNsam,...waimmussminaw.d.o.,.4101111IMA.,..  • 16.  •  In those cases were institutions have done file searches, what have  been the results?  How did the Federal Reserve Board verify the validity of  the results?  In comparing the actual reimbursements made after file searches were conducted to estimates provided by examiners, we have noticed differences between the amounts reimbursed and the estimated dollars of overcharges.  In some cases, more than the estimate ,-1. amount was reimbursed;  in others, less.  Results of the file searches are ultimately verified by  spot testing by the examiner during the next examination.  As indicated in  our response to your earlier question 13, the Reserve Banks utilize followlip procedures such as telephone calls, letters and reviews of file search procedures to ascertain completeness of State member bank corrective action.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  400Ober 31, 197,  limteatb4 lbsordde Seajemds atelimit amineomittee em Csomeovel Gemommtr mad lismotary Attaive Committee oodeeememmatillpeontteme lOsse of ilkopreseelietivas Reiblepsee D.C. MU Mem Chalemee Seeeethal: As Amdieoted in or Letter te rem el diteber 18, I an pleased to osselleiNi the report roomtved tram the fedemel Reserve SAlk of Cleveaossimatas the deerskins of o beak Aloft demo ea as 'Irish book is I believe pee 1411 find that import meltmeoplAnotory. Smit vs beim if I globe se limither ostiblomme4 stassiroty*  V,PauI A Maw,  nelosore CO:p t (IRV-78) bcc: Jock ayes  Moose  BENJAMIN S. ROSENTHAL, N.Y.. CHAIRMAN ROBEA'T. MATSUI CALIF. EUGENE ATKINSerY. PA. FLRNAND J. ST GERIAPRIN. R.I. ." JOHN CONYERS. JR.. MICH. ELLIOTT H. LEVITAS, GA.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action assigned Jack Rya.  • Congre55 of tbe Einiteb  tatt5  ii)otifse of 11epresSentatitieti COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE  COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING. ROOM B-377 WASHINGTON. D.C. 20515  October 15,1979  Hon. Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. 20551 Dear Mr. Chairman: Enclosed is a copy of a letter I have received from a citizen who is having trouble getting clearance of a bank draft drawn on an Irish bank in pounds. A copy of the bank draft is also enclosed. On the surface it would appear that Mr. O'Neill is not being fairly treated by the banking system, and I am writing to request the assistance of the Federal Reserve on this matter. In particular, does Mr. O'Neill have a legitimate complaint? What factors could reasonably be expected to cause this much delay in securing clearance of such a bank draft? Also, is there any assistance that the Federal Reserve can provide to straighten out this situation for Mr. O'Neill? Sincerely, L-1 Benjamin S. Rosenthal Chairman I3SR:tv Enclosures 2  LYLE WILLIAMS, OHIO JIM JEFFRIES, KANS. JOEL DECKARD,  NcuoRrry—(202) 225-4407  • September 25,  1979  Representative Benjamin Rosenthal Chairman Commerce Subcommittee of the House Governmental Operation Committee Room 2372 Rayburn House Office Building Washington, D. C. 20515 Dear Sir: It has recently come to my attention that your subcommittee is interested in the delay in the check clearing process. I am currently involved in a check clearing dilemma that I would like to call to your attention. On August 6, 1979 I received a check from a bank in Northern Ireland, payable to me and denominated in pounds. I took this check to the foreign department of the First National Bank of Cincinnati. They refused to handle it because I did not have an account there. I then took the check to the Provident Bank in Cincinnati where I do have an account. They agreed to accept the check for collection and forwarded it to the Chemical Bank of New York on which it was drawn. I em still waiting for this check to clear. The only thing the Provident Bank tells me is that when the check clears they will let me know. I feel that I am the victim of some kind of a national and international confidence game in which my money is being used by the banking system to buy gold at my expense. In the meantime, the value of the pound has been falling drastically against the dollar. The value of this check has fallen about 10% since it has entered the clearing process. Any help your subcommittee can render the banking system in general, and to me in particular, to cure this type of shenanigans will certainly be appreciated by all. Very truly yours,  ank O'Neill Enc.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Copy of check.  I  r  A PA , TO THE ORDER OF  THE  Sum  ALLIED IRISH BANKS LIMITED 8 High Street, Omagh, Co. Tyrone.  2_6_th___,Luly, 1975'..,_  Francis O'Neill Esq.,  OF Three thousand nine hundred and fifty one  £3,951.67 pounds sixty seven pence. TO:  r The Chemical Bank, 20 Pine Street, L_New York.  Initials   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -1  ___J  FOR ALLIED IRISH BANKS LIMITED  2 i ''-ri-<-2h4"-e-K-e--/ /A4ANt.GE R  ;   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 31, 197,  lhe M000soble Memo 6. Mouse aseiholoose Sebesmattee es Laitsmostiesel Ivelessi s Joist Meemomic CommAttee Whihisitos.S. es 20511 Ism ibex, Thank you for your letter at Octeber 26 resat/Jig the SMbeemmittee latermetional lossimares field hiseries Cir., La Mow York fscusiss em the domestic sod intermatimeml Amplicetieme of the federal Immorve's domotoey policies. olessod to Wawa you that Osmesmor Mama 43. lagaiLah will testify on behalf st the $ystas as ibeelber 3 at COO a.m. Govermir wattifth mill be e„..esopsodad by Scott Peados. tIM  SLEW A Volcker.  CO:vcd (#V-1(4) bcc. Qom WailLh Mr. Azilrod Mr. Truman Mrs. Nallardi (2)1/-  4  3 st..rTSEN. TEX., CHAIRMAN  , _LIAM PROXMIRE. WIS. ABRAHAM RIBICOFF. CONN. EDWARD M. KENNEDY, MASS. GEORGE MC GOVERN. S. DAK. S. SARBANES, MD. JACOB K. JAVITS. N Y. WILLIAM V. ROTH, JR.. DEL. JAMES A. MC CLURE. 17AHO ROGER W. JIPSEN, IOWA  •  Chairman will beecussing with Governor Wallich. Info copies given Messrs. Axilrod gz Trum an  rAuL  JOHN M. ALBERTINE,  Co (Cf  EXECUTIVE DIRECTOR  WASHINGTON. D.C. 20510  October 26, 1979 IPOMP."  Mr. Paul A. Volcker Chairman Board of Governors Federal Reserve Board Constitution Avenue Washington, D.C. 20551  L  is '.4t4sr e.4tY: CO  Dear Chairman Volcker: On November 5, 1979, the Joint Economic Committee's Subcommittee on International Economics will be holding a field hearing in New York City focusing on the domestic and international implications of the Federal Reserve's monetary policies. As Cochairman of the Subcommittee, I would like to extend at the request of Senator Jacob K. Javits an tation to Mr. Scott Pardee, Vice President in the Foreign Function of the Federal Reserve Bank of New York and Deputy Manager of Foreign Operations of the System Open Market Account, to testify before us at this hearing. The hearing will begin at 9:00 a.m. in Room 305C, 26 Federal Plaza. Mr. Pardee's intimate knowledge of foreign exchange markets and his thorough understanding of both foreign and domestic intervention operations make him a particularly attractive witness. He could add immeasurably to our own understanding of the international implications of recent Federal Reserve policy initiatives. I hope that you give leave to Mr. Pardee to testify before us on November 5. I look forward to your early reply.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  \  Henry S. Reuss Cochairman   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 31, 1,79  The Honorable Welter D. Neddleeton United States Senate Washington, D. C. 2051C Dear Senator Huddlestoo. Thank you for your letter of October 22 req!Aesring our ':omments on the inquiry from hr. Eduard L. Cawood regarding the fees charged to the Bank of Maass by the Cinelenati Branch for the tate re.>orting of raceiots of Federal tam devesits. Treasury pc:Grimiest regmlations reouire that Federal Reserve Banks1 as fiscal agents for the Treasury, hasp remittem4A oileton am** a fee whenever their reports of Federal tax deposits 4108 met received at the Reserve Basks by the mixt business day after the tomes are deposited. The Treasury's regulations mho as distin-tiou regarding the MOOM by which the reports are delivered; all reports mist be received by the next business day. This eee-day renittan reluirenent has generated a ,:onsidesable amount of onnent in the banking industry. If Mr. Caused haa any additional ‘2ommeats or 'vestiges regarding this matter, we sugeeet that he write to Mr. Peal H. Taylor, Fiscal Assistant Secretary Ue4ertment of the Treasury 1500 Peoneylvania Avenue, I. W. Washiegtem, D. C. 20224 We contacted the Cincinnati Seemsh regarding an earlier inquiry on Mr. Caueed's behalf aid were advised that an officer fres the BOOM* has recently dis ussed with the Bank of Masten the various ways that Fedora/ tax dalos't worts can be forwarded in order to insure timely delivery. we were aloe advised by Cincinnati that the Bank of Harlan has worked out an arrangement with the Antal Service whereby the Beek will be able to submit its re.orts within the tine limits mad no longer iwur late fees. Sincerely,  S/Yagl A. Volcker (DD:JPB:)vcd (#V-101) bcc:  Mrs. Mallardi (2)  LTON WALTeR D. H UDDES heecr UCKY  •  a  Will be ladled by Congressional ce Liaison  •  N.  Cnit SELECT COM M I TTEE ON SMALL BUSINESS  WASHINGTON. D.C. 2C1510  /frt°  October 22, 1979  chairman Paul A. Volcker Chairman Federal Reserve Bank 20th Street and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Chairman Volcker: Enclosed is a copy of a letter I have received from Edward Cawood, Chairman of the Bank of Harlan in Harlan, Kentucky. Mr. Cawood complains of excessive charges to his bank for receipt of taxes by the Cincinnati Federal Reserve Bank beyond deadline dates. Mr. Cawood claims these charges are extended unfairly because the checks arrived late due to circumstances beyond their control.  pump-  I would appreciate your comments on Mr. Cawood's complaints, and information on what, if anything, is being done to alleviate the situation.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Thank you for your assistance in this matter.  Walter D. Huddleston  .•  •••  '  UCKY 4:H3I  1979  1.4._. wish to solic _ vur . 1:. ..-.,,.. t7.“.1 -Ind uncall(-:: -. .(..1 for ac: -.. ,,' -, n :.-.y .-:: .•,'e years in the ...al ke!:- ,.rve F,ank, which in turn Irii-c: - es Lc) :he Tr, =v Dr.rirtm,..n -c. ..  1  :r5-,.  ::-..:='  ,  ..Crl '..'r  n:  •  .•••  •  •  ,,  *r-.-:  1.,.. .., -.1(.? C-c. v ....c :•-,1 r::-Ici.:;:1;:it Cr J:.. •:‘c. i!-. the ::.c: --- 7,.--ink. :' ,0 1 -' r-• dav as ey.7.„-c:ed; ;:rc :,-.-0-.-,c :ve . -' is cl..  eld t .-,.Y:-.s )'.. in income, we •fl. .- .o the Fedr2r,-;'. :,...,:tal service or red ,es not arrive tl--e n( -  .-  ._. c' .:. c:  I'  r•  , :i : riP(I.  . •.;- I ll  .  'I .  .-.,  .1.  % • . .  : ('..!G  -  I  •:• r: S '.:  •7-1 C  cituatio:-., we liave tried Purolator service; but tnC rL --- ttancc, still ortir7es arr'.ed late. !.7oreover, the Purolator .. - vice cha-Y-r: to Cincinnari. This .• ,„ is :oc, o: the : . o-ernt-r-nt's t . ns. 'v:e_ have crAlc-d Prsident of the 17(,(:•ral 2,2serve Rank. Yesterday the Fed finally arc. ,ed to cc.:- I-Pct th ir m.1-:e of $100,000.00, on which they had assessed us S03.00. We had to call the President of the hank, -Is in thr lowpr pc:1P1on the an5zwer was that there was nothing 4c;at We nave, charTed L'ne last tir-e ponihs :-Ii)proximarely $200.00, $500.00 and S713.00 less S203.00 prrAised cr(,dit. It is outrageous to think that our ovc.rnt:I.,!nt would chill7e us suTh a7:,ounts to collect irs  t  S  We have callt.d the i:,!ntuckv l'inkers As and he promsed to !ilk lo one of our Senators.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  and Mr. ..loicen,  aro c,ncloim7 Ycro.Y. conies of our .1u1v charycs.  •  Honorable Wde11 H. Ford August 29, 1979 Page Two to collect withwis'n&re possible th;t!.: we did not ave l rs. We would custm,, taxric 12,_It feel conpelle2 t=o elp our "rip off" by government. appreciate ycv_ir help in corr-etins this Best wishes to you. Respectfully yours, ; C  Edward L. Cawood President ELC:jy Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  C  •/  i.Y  —  rt9  •  . 1 4 .  f s o  ,  1  ht  Lr•  T  -  p.i_ I n.  1. 1  .I  •  s• I  y  1  -  V:"  Li: LL.:-.  T;•- t  L  1 I  `i ij  ••  ;  It-. /  : •.  ,  :  t.  I  ; L  _  C • 1 .. -re  ;/..°  L —t/t ..s t.r  t•  C.  k  ;•  L it .1  . c.  t* t/I  t 1/,  ,-..  „ v.1.  1  .L.  4, •  I_ A  (' Lt• It_  IL 1AL ..o  7 0--(/;.:•  r  t  La  9CA.JU c  ;);  -  '  L•Yr..• a', ;  i I .L  rL. ; r 1._ , 't Ji t. 1 L.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I I f.  t.. 1-; -•  L.S L. .1"  F -;  t- "  1t ;"" A .  t.;  :  L . •,;:  I  •  L  _  •  ;  /  (.•  •• •  M  .1  1 1`  jf•   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 30, 1979  lho lesorAble willies S. Moorhead Mosso of Representative* Vaskington, D.C.  20513  Door Bill: 1 appreciated your note of October 26 enclosing the letter and ad frcm ruibiank. These are difficult days and the support our program is receiving is encouraging. Sieserely,  WM A. Volc*  KAG:pjt (#V-99) bcc: Mrs. Mallardi (2)60°'  • WASHINGTON OFFICE.  BARBER B. CONABLE,JR.  237 CANNON HOUSE OFFICE BUILDING  NEW YORK, 35TH DISTRICT  WASHINGTON, D.C. 20515 COMMITTEES:  Cortgre  of tbe Ziniteb  tate5  (202) 225-3615 DISTRICT OFFICE:  WAYS AND MEANS  Aioule of ReprefientatibesS  311 FEDERAL OFFICE BUILDING 100 STATE STREET ROCHESTER, NEW YORK  JOINT COMMIT-ME ON  iliadingtort, ri.e. 20515  (716) 263-3156  TAXATION   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 8, 1979  I  Honorable Paul A. Volcker Chairman Federal Reserve Board Constitution Avenue & 20th Street, N.W. Washington, D.C. 20551 Dear Paul: I want to encourage you to do the sort of things that were announced this weekend at the Fed. I know you'll get some flack from it, but there are people here in Congress who believe a little monetary courage is needed and who have great confidence in your ability to do what's necessary. I shall continue to be grateful for your willingness to take on a thankless job at a difficult time and at what I am sure must be a considerable personal sacrifice to you and your family. Sincerely,  Barber B. Conable, Jr. C/1  14614  WILLIAM S. MOORHEAD PENNSYLVANIA  •  Congressional Liaison response.  fice will-dr-aft  di  rs, kNCE AND 'AIRS  14TH DISTRICT WASHINGTON orricr. 2467 RAYBURN HOUSE OFFICE BuiLDING WASHINGTON. 0 C.  Congres' of die lanittb  C()••.,r•I  MMITTIEI ON ILIZATION  JOINT ECONOMIC COMMITTEE  20515  (202) 225-2301  31)ouge of 1kepres'entatibt5  CHAIRMAN. SUBCOMMITTEE ON FISCAL AND INTERGOVERNMENTAL POUCY  tillaBbington, 33.C. 20515  GOVERNMENT OPERATIONS  MOLLIE D. COHEN ADMINISTRATIVE ASSISTANT PITTSBURGH OTPICE:  PENNSYLVANIA  2007 FEDERAL BUILDING PITTSBURGH. PENNSYLVANIA 15222  REGIONAL WHIP  RI  PHONE: 644-2870 WILLIAM R. MALONI NATHANIEL SHORE. ESQ.  SPECIAL ASSISTANT  PITTSBURGH ASSISTANT  October 26, 1979  t-'-vier pOIN  Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th and Constitution, N.W. Washington, D.C. 20551 Dear Paul: I thought you might be interested in the enclosed letter and ad published by Equibank of Pittsburgh, Pennsylvania.  WWI"'  With best regards, Sincerely,  T ! K  WSM:plw   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  .;"!   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Equibank N.A. ••• .•  William E. Bierer  October 16, 1979  The Honorable William S. Moorhead 2207 Federal Building Pittsburgh, Pennsylvania 15222 Dear Bill: The inflation that has been eroding the foundation of our economy for more than a decade has recently led the Federal Reserve to tighten credit signif- icantly. The Federal Reserve action will obviously require sme nacrifices, hut think it was necessary in view of the threat that inflation pones to the whole economy. Knowing you share our concern about inflation, I thought you would he interected in the enclosed ad describing our support of the FedPtal Rr?stve, action. We are running this fnll-page public service afl in local newspapers to heighten the awareness of the general public ahout the dangers of inflation and the importance of replenishing the nation's capital base. Sincerely,  „• , I/  'tt  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Advertisement Citations:  Number of Pages Removed: 2  Equibank. "Equibank Supports the Federal Reserve's Most Recent Decision in the Fight Against Inflation." October 1979.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Oatehor 30, 1979  itho Nanorabla Ulmer Chiles cholroon ashormnittre on Fadaral Speedies Posatisee aed 0pee Gagesumeet 44amdttee.seChneelmestal Alletwe Patted States Sewn: Ilietutigtoe, D.C. 20510 Owe Cieinns adios: Meek yen for yam latter of Oeteber 25 rocuerties the beard to bastify at yeer Subeemmittwea iamb's es S. 1411, the Anpnroark Aft of 1979. sod Sodtaro 1 re plowed to Were pre that governor J. Charles PArtee will appear on behalf of the awed emakeetiber 1 at 1000 4.18. elleearely,  CO:pjt (fV-98) bee:  Gov. Partite  Stan Sigel Mrs. Nallardl (2).0'  Governor Partee will testify and / is bein epared  ABRAHAM RIOICOFF, CONN., CHAIRMAN RY M. JACKSON, WASH. 10MAS F. EAGLETON, MO. WTON CHILES. FLA. b A IA NUNN, GA. JOHN GLENN, OHIO  CHARLES H.  .1/icon x.  prFac  JAVITS,  WILLIAM V. ROTH, JR , DEL. TED STEVENS, ALASKA CHARLES MC C. MATHIAS. JR., MO. JOHN C. DANFORTI.4, MO.  JIM SASSF_R, TENN. DAVID PRYOR, ARK.  `WILLIAM  CA.RL LEVIN, MIC.H.  DAVID DURENBERGER. MINN.  RONALD A. CH1000 CHIEF COUNSEL AND STAFF DIRECTOR  S. COHEN. MAINE  RICHARD A. WEGMAN CNIEF COUNSEL AND STAFF DIRECTOR  'ZCnifeb Zfatez Zertafe COMMITTEE ON GOVERNMENTAL AFFAIRS SWICOMMITTEE ON FEDERAL SPENDING PRACTICES AND OPEN GOVERNMENT (202) 224-0211  WASHINGTON. D.C. 20510 October 25, 1979  •  •..  410 . N41:4'  I  Mr. Paul A. Volcker  Chairman Federal Reserve Board 20th and C Streets, N.W. Washington, D.C. 20551 Dear Mr. Volcker: The Senate Subcommittee on Federal Spending Practices and Open Government of the Committee on Governmental Affairs will hold a hearing on S. 1411, the Paperwork and Redtape Reduction Act of 1979, on Thursday, November 1, 1979. The bill strengthens and extends the reports clearance responsibilities of the Office of Management and Budget. I would like to invite you or your representative to testify on this legislation. The hearing will begin at 10:00 a.m. and will be held in Room 3302 Dirksen Senate Office Building. It would be appreciated if you would deliver 50 copies of any prepared statement you might have to the Subcommittee Office by 5:00 p.m. the day before the hearing. Should you have any questions regarding this hearing, Robert Coakley of the Subcommittee Staff, will be available to assist you. He may be reached at 224-0211 or in Room 44, 128 C Street, N.E. I look forward to hearing your testimony on this issue. Si  rely  LAWTON kILES BC: Mr. Jay Paul Brenneman Congressional Liaison Office  -   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  r  .•  '• ; r • ." •'Ix • .: -• • -  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 30, 1979  The Honorable Norman E. D'Amours House of Representatives Washington, D. C. 20515 Dear Mr. D'Amours: Thank you for your letter of October 24 concerning the invitation from Mr. DeWitt to speak before the New Hampshie Business and Industries Association. Because of a conflict in myachedule I will be unable to attend the New Hampshire meeting. Sincerely,  S/Paul k IlpidieL  cc:  Mrs. Mallardi  #92 JRC:tjf  •  D'AMOURS  WASHINGTON OFFICE 1503 LONGWORTH HOUSE OFFICE BUILDING WASHINGTON, D C. 20515  RICT, NEW HAMPSHIRE  (202) 225-5456  STANDING COMMITTFF e; BANK ING. FINANCE AND URBAN AFFAIRS  Congre55 of tbe Unittb  MERCHANT MARINE AND FISHERIES  tate5  3i)otifSe of 1lepreentatibe5  DISTRICT OFFICES MANCHESTUR, NEW HAMPSHIRE 03105 720 NORRIS COTTON FEDERAL BUILJDING 275 CHESTNUT SIRE irr (603) 668-6800  MEMDER—STEERING AND POLICY CO r4 M I TTEE  669-7011. EXT. 526  Z.Z.lasbingtoit, D.C. 20515  PORTSMOUTH, NEW HAMPSHIRE  03801  425 AND 426 FEDERAL BUILDING 80 DANIEL STREET (603) 436-7720, Ex-r. 707 LACONIA, NEW HAMPSHIRE  03248  ZOO AND 223 FEDERAL BUILDING  1  719 MAIN STREET (603) 52A-7185  October 24, 1979  Paul A. Volcker, Chairman Federal Reserve Board Federal Reserve Building 20th & Constitution Ave., N. W. Washington, D. C. 20551 Dear Chairman Volcker: I understand that Mr. Walter (Rink) DeWitt, President of the New Hampshire Business and Industries Association (BIA), has been in touch with Mr. Coyne of your office seeking your attendance on the evening of November 14th at the BIA's annual meeting in Bedford, New Hampshire. The meeting will begin at 7:00 p. m. and your transportation to and from Bedford can very conveniently be arranged by the BIA since there is an airport within a few miles large enough to accommodate all classes of commercial and private airplanes. The BIA will be happy to arrange transportation to suit your schedule. It is estimated that 400 to 600 people will be in attendance. I would like to ask you to please consider this as a personal request from myself that you attend the November 14th meeting if such is at all reconcilable with your busy schedule. I understand that Mr. DeWitt has been seeking to obtain a reply for the past few weeks. I have also spoken to Chairman Reuss of the House Banking Committee and he has asked me to inform you that he joins me in making this request and would be pleased to speak to you about it.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  a Chairman Paul A. Volcker  October 24, 1979  I would be most appreciative if you would arrange to have my office notified of whatever decision is reached in this matter prior to contacting Mr. DeWitt. Thanking you for your anticipated cooperation, I remain, Very tr)Kyours,) ; ;;ZA7it— orman E. D'Amours Member of Congress NED/sb cc: Chairman Henry Reuss   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 30, 1979  The Honorable Henry S. Reuss Chairman, Committee on Banking, Finance and Urban Affairs HouBe of Representatives Washington, D. C. 20515 Dear Henry: Thank you for your letter concerning an invitation to tion on speak to the New Hampshire Business and Industries Associa Washington November 14. Because of a conflicting commitment in on that day I have been forced to regret the invitation. Sincerely,  sgagl A. voickei  cc:  Mrs. Mallardi #93  JRC:tjf  HENRVS. REUSS. WIS., CHAIRMAN THCAAS L- ASHLEY. OHIO WILLIAM S. MOORHEAD, PA. °FERNAND J. ST GERMAIN. R.I. HENRY B. GONZALEZ. TEX. JOSEPH G. MINISH, NJ. FRANK ANNUNZIO. ILL. JAMESM. HANLEY, N.Y. PARREN J. MITCHELL, MD. WALTER E. FAUNTROY. D.C. STEPHEN L. NEAL, N.C. JERRY M. PATTERSON. CALIF. JAMES J. BLANCHARD. MICH. CARROU- HUBBARD, JR.. KY. JOHN J. LAFALCE, N.Y. GLADYS NOON SPE1J-MAN, MD. LES AUCOIN. OREG. DAVID W. EVANS, IND. NORMAN E. D'AMOURS, N.H. STANLEY N. LUNDINE. N.Y. JOHN J. CAVANAUGH, NEBR. MARY ROSE °AKAR. OHIO JIM MATTOX. TEX. BRUCE F. VENT°. MINN. DOUG BARNARD. GA. WES WATKINS. OKLA. ROBERT GARCIA, N.Y. MICHAEL LOWRY, WASH.  •  •  U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-SIXTH CONGRESS 2129 RAYBURN HOUSE OFFICE BUILDING  WASHINGTON, D.C. 20515  223-4247  October 24, 1979  Paul A. Volcker, Chairman Federal Reserve Board Federal Reserve Building 20th and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Paul: My colleague, Congressman Norman D'Amours, spoke to me about the request of the invitation which the New Hampshire Business and Industries Association has extended to you to speak to their annual meeting on November 14. It would be greatly appreciated if your schedule could be arranged so that you could accept this invitation. Sincerely,  Henry S. Reuss Chairman  CC:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  J. WILLIAM STANTON. OHIO CHALMERS P. WYLIE, OHIO STEWART S. McKINNEY. CONN. GEORGE HANSEN, IDAHO HENRY J. HYDE, ILL RICHARD KELLY, FLA. JIM LEACH, IOWA THOMAS B. EVANS. JR., DEL. S. WILLIAM GREEN, N.Y. RON PAUL, TEX. ED BETHUNE. ARK. NORMAN D. SHUMWAY, CALIF. CARROLL A. CAMPBELL. JR, S.C. DON RITTER, PA. JON HINSON, MISS.  Congressman Norman D'Amours   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 26, 1979  Ilsecathal Senjamin The Chefs** Cannesee, Canmenst, and lbeetary Affairs Smbesnmatese Causittes Goseiramit Open*low isms se lispresseistasee Ilestesst, thC. NMI Saw Ilk. ahltiallelk,  Lair latter of iltbiber 143, 1 as pleased to eastass tars follewtmg faillemettes yee reopessteds Al faillasesd  (1) Copies the esnsmear eingialate ender the codes listed in your letter se Anew 20, 1979, hamdled by the Mew York Federal ilseswes iLlek during 1973 and the Met two ~Sere of 1919 (to date, one complaint hee net been loceted-mme will forward it as sonde gmesible); 0) A emelsed tabulation of the mowers es the advertising pegs of the mosolmation checklists for the last two anaminstione of state selber bemhs Is theStato of Mew  (3)  A tabellifilli  the allegleraas  taw imliossitfaiss  est lie lest page of Idle maeisstima dr two aggionstsup of State uses,bolls Sem Irttsasises district; sed4 (4) A tabsistise of the total modbor it advertising violatleme isvolving aegwisthes re ths Fair dowsing hst, sad 11144pilatise Imeted in enaninatiampopperts for MS sae the first two Tourtees si 1979 swheittod by dm Mow York mme 1as Iftitavaisco Federal Seesaw hanks.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Mommemble lisejasta it. Seenshal rev Tee  Iolorootima essordimi iftehlmites, DEC., is not smolosed lame we do aot hews a Sesompo Salk is Wasablostos, D.C. as WIWO direct eompliancia emooduation roopoosibilitias with rosjost to opy basks located la the oistriat of Cologiaas I imps thee dm assiAseadl will semplas the isformotima 106410sts46 If, bowsesi* yes se pour seeff Wes soy resetiomo. do 004 Imitate to 0011 Jrnomiso eSt4141110, kowtow lismitmer, at 4324966. Ilassarsly SLPati.1 A. Volau  Siodassims DJ JC 4,1640 bee: Dims Mains asiimo Catalano s.Slallatidt(2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Oeteber 18, 1979 The iitamorAble Seed.lab So ikalleStisal Chairmen Anhemetttee on Cammenee COmmener sod Nenstary Affairs Committee es Govermment Operetteme N en ef amprgengathres waShiseng, D.C. 21/515 Dear Chethilee Sessethal: Ae pee unneete4 tm your letter eselosimi the fellsmtnit  $eptember 24, 1979, I em  (1) Cerise se seigneur compl*tote east the cedes list& is r lettelr of aSs 1979, heedied by the $ee treesisco Selma Seesaw Seth Aisles MS and the first two gmerters of ISM (2) A tebelettes of the answers on the advertisime papa of the illielosar ebeckliste tee the lest two egeminattems of State  seMbee heels in law lodh State. eemplete year I-es-meet, I will forward the followies isforme. tie* Is 11104II  11  ass retrieve its  (1) Copied, of esesemer semplsinte ender the cedes listed in yeer letter of iffellet 20, 1979, heeded by the law Iferk Ye4sr4 Seems $eek dories MS sled the first tee mestere of 1979. (2) A tWheletIon of the sone= ea the severtiaimi me of the emeniaatise cheeklists for the last two elnelnatiost of State sexiber balks in dee leo erimutface discriett. (3) A takelatima el the total umsber airertisiggi fotelattgas of gegulatien II Mit the Fair logibis Age sated In dMI111111111119* ties reports fait 1971 sed the first waggoner* of 1979 eihmiseed by the New Iamb end See Prwasieve Sedemel Seeseve Seeks.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  IS Vorsorablo  S. Resestatal  kW SP*  Nisehers of the Board's staff and the stsffs of these Reserve Mods ere presently esmpiling this information. I will seed it to you me ow as it is prapegad4 If yea er 'mew staff have Amp emestiome, please feel free to sostast Amato Ottelose at 452-3946. Sismomesiy. Saul A Volsker  JC:pjt (#1 , 46) bec: Jeanine Catalcmo Mrs. Mallardi (2) ior  •  Mk.  BENJAMIN S. ROSENTHAL, N.Y.. CHAIRMAN ROBERT T. MATSUI. CALIF. EUGENE Y. ATKINSON. PA. FEEINAND J. ST GERMAIN. RA. JOHN CON CRS. JR., MICH. ELLA01 T LEVITAS. GA.  •  NINETY-SIXTH CONGRESS• Congre of tbe Einittb -P4)tatei4  LYLE WILLIAMS, OHM JIM JEFFRIES. KANS. JOEL DIECXARO,  MAJORITY—(202) 225-4407  ). oti5e of 1kepre5entatibefS  COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE COMMITTEE ON GOVERNMENT OPERATIONS OF THE  RAYBURN HOUSE OFFICE BUILDING, ROOM 9-377 WASHINGTON,D.C. 20515  September 24, 1979  Hon. Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. 20551  •••••  Dear Mr. Chairman: In response to your letter dated September 7, 1979, and so that we can complete this hearing record on supervision of bank advertising practices, please send the subcommittee: 1.  Actual complaints by the codes listed in our letter of August 20, 1979, for Reserve Banks in New York, San Francisco and Washington, D.C., for 1978 and the first two quarters of 1979.  2  The examination checklists for the last two examinations of State member banks in New York State, San Franciso and Washington, D.C.  3.  A tabulation of the total number of violations in each region of Ql(a), Z9, and FHA 3 for 1978 and the first two quarters of 1979 for Reserve Banks in New York, San Francisco and Washington, D.C.  We request a letter for our hearing record as soon as possible with a timetable for receiving these documents from you. After evaluating the documents, the subcommittee may request additional information to complete the record. Thank you for your time and consideration. Sipcerely, \1. •ILj r. Benjamin S. Rosenthal Chairman BSR:tb   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Actil  assigned to Janet Hart   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 26, 1979  The Honorable ?sul E. %mega, Chaim's"' ee Consumer Affairs Subcommitt in Committee on Backlog, and Urban Affairs United States Senate Washington, D.C. 20510 Dore Mr. Chairman: requested isfermatioe s ye , 79 19 4, r be to Oc of er In your lett emt geidellase amd the em rc fo y en mc ge ra te in I on ti casseredes the Regula y jurisdiction eemdmet file or is rv pe su r ou in th wi sequiremost that bank rsable violstleme. asseehes to identify reimbu (a) the number if file stawilses Your initial reuest Is for: ; (c) the steps ashes ts im le mp co ic if ec sp e th ) (b ordered by this agency; the testituttems; asdf by d me ai s cl or ct fa st co the by spur staff to verify ted in accord/Imes with ec md se , ct fa in , re we efi rch (d) Whether the file sea by our igency. the instructions supplied t a honk to conduct a es -u re t no do s er in am ex T Generally, OU imbursable violations is re of ce ti ac pr or n er tt pa file search unless a when a file search must be en Riv . le mp sa an lo 's er in manifest in the exam of loan in the bank's pe ty at th to d te mi li y ll initiated, it is usua ttern or practice. Through pa e th n ai nt co to d un fo en portfolio thst bee be s out of 523 with relies. si ba 7 38 d ke as ve ha & sh Sa July 1979, the Aoserve The banks are required to . hee tel ses le fi e ak rt ie sm view bursable violatiemet. e Reserve llamas which re th to es ch or sc le fi e th repeat this results of rted data. The Reserve po re e th se d se ba ss se le ab during the rosette for reesem 6 sample basis ce es ch ar se le fi e th of s nks have Banks review the result the extent to which the ba e in rm te de to n io at in am ex ement the meet of cite calculated reimburs ocy ocu adl e th d se s le fi reviewed their ammegai. ived very few specific ce re ve hn s ek Se e rv se Ma e The Beard and th . Those complaiets es ch ar se le fi e th to g in complaints free balks Object on that it coats the ti en et ce the on s cu fo ne that do mention tile *sardi ree, but no specific bu im re to an th ch ar se le balk more to cot the fi   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Ihe Honorable Paul E. Tomas rep Tio  he. been supplied. This is me of the fasters that led the Board, aed the other agencies, as the Federal Finemeial teetitutime Immemation Commit, to ask for gmforestion en the direst and todireet coats ed implementing the guidelime Le the recent proposal to amesd the snidelime. and for eennomh on maps laishich the guidelinae could he mended to redoes edeinietrative beedise is finaaelAl institutions while siefar taint estrum. to the ememer. A copy of that proposal, with a Isom releses dated October 15, le Maimed. dittit  Tee also as& Sir our respeme be a semesem4 node by mr. John 11. PeOkins, President of the Aviaries* Soder* Assoctattee in. letter to its velbers ea how 21. 1979. Appeeestly, Mr. Perkime emote that badmen' hove am& s SOMPeientiese dart to comply with Begeletlen zo thAt violatiese were cited despite the hambere good faith efforts to comply with their understood** of the law's vegeireeetts at the time the loans were mole, but that the agencies, is implementing the guidelines, retroactively Apply Chomped interpretations sod eneniments to loan tramactiesa. In our reeposee you ask for: (1) a Wain of the major reinburaable violations (in the order of their osigettade) cited by this egoism aloes with the umber of basks cited for that type of violations; mod (2) a statement of how the rules and interpretetime relating to ea& practice may have been alesiod siege MC As the Sserd he* stated previously, La Annual Reports to Congress sod elsewhere, as believe that meet bankers have indeed made a coneeteetiose effort to empty with the law, we believe that west of the violatisme diseemeed hoot been technieal in nature and havs occurred beeenee tire beak aleusisrmiesed the lawie meuiressato rather than because it mode a sammelsos Mart **violate the law. respease to Or• Perialto asserttsee sopardiag retroactive application of chowed interpretations aid amemimemis, amd JAR roopmese to item (2) of yew sequest, we offer the Is12a. Tb. Iftwes stat has been emmerned abort this loose hot hes bees seible to fled es instals* in which a Ass. is the law tepeolig nem stringent eenpliesse re-unmeant* hes bees milemed with respect to promesiatieg tremeactioss. It woad sot be thellmeres policy to mime* mew, more stringent remisemanta retroactively. Mere have, of esowee, boos shows le ampslation Z since 1974. It is our belief, hemmer, thee meet of the isterpretatiese of and changes is Sagolation Z have mom is reepcose to legislative champ or to requests lit elarifieettees of the law's roquifemed41 that were submitted by creditors. In a substantial portion of those latter instants*, the Interpretation or ameedient served to clarify the law's reomirenents at the time rather thee cheesing thee. requiremmes. We believe that is those cases Where 4 eiheheetive *hinge woe sods, partieularly with regard to requirements relating OD the reisiborsoneet policies, the effect of the ohms, ves to ease mommosny emplimme, wafter this eshleg empliance   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Paul I, Tsonsas Pass Three  more stringent. For example, the 'minor irregularities" provision of the regulation was amesded to simplify the annual percentage rate calealetion for certain leans with irregular first payment periods. In addition, the staff Lammed as official interpret4tion clarifying that diselssures nmesseary to exclude credit life ineurnnee prOMAMMO from the firms* Merge sem be nede separately from the °thee 'squired disclosures. We believe that both of these interpretation's bed the effect of simplifying, rather them increasing, Obe creditors sempilases effect. We would, of course, wilk to be imissmed of any amemplos Nr. Perkins may have of the types of actions he addressed. Enclosed is a taibmieties that reopen& to (1), above. This tabulation breaks down the ode" eatealaries of reimbursable violation sod ranks each violation within the category by its relative brogue's,. The noshes of banks holds, the type of violation Indicated by the gemeald categories is also provided. The figures are based sa the 523 banks thot had reimbursable violation as of July 31, 19791and severs the period from March 1977 through July 1979. I hope this informatics.' is of assietiese to you. Sineerely, Sikaml A. V9y.roi  Enclosures TRB:sak (CV-64) bcc: Mr. Burniston Mrs. Mallardi(2) w/°'   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  0  Number of Banks with Reimbursable Violations By General Category* Category 1.  2.  Understated APR a)  failure to correctly treat prepaid finance charges (e.g., /oints) in APR.  b)  failure to include origination and service fees in APR calculation.  c)  misapplication of the "minor , irregularities" provisions.  d)  disclosures based on 360/360 or 365/365 basis but customer charged on 365/360 basis.  e)  failure to disclose the APR.  f)  misunderstanding of the rounding provisions.  Number of Banks 368  Understated Finance Charge 155 a)  failure to correctly treat prepaid finance charges in finance charge disclosure.  b)  failure to include origination and service fees in finance charge disclosure.  c) failure to include mortgage guaranty insurance in the finance charge. 3.  4.  Credit Life Violations a)  failure to include the cost of credit life insurance in the finance charge when the optional nature is not disclosed.  b)  failure to obtain the customer's signature or disclose the cost of optional insurance.  Non-Finance Charge Violations a)  *  Based -  70  2  disclosing actuarial method of rebating unearned finance charges but using Rule of 78's.  on  523 banks found to have reimbursable violations between March 1977 79.  • WILLIAM PROXMIRE, WIS., CHAIRMAN HARRISON A. WILLIAMS. JR., N.J. ALAN CRANSTON. CALIF. ADLAI E. STEVENSON, ILL. ROBERT MORGAN, N.C. DONALD W. RIEGLE, JR.. MICH. PAUL S. SARSANES, MD. DONALD W. STEWART, ALA. PAUL E. TSONGAS, MASS.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  JAKE GARN, UTAH JOHN TOWER. TEX. JOHN HEINZ, PA. WILLIAM L. ARMSTRONG. COLO. NANCY LANDON KAMM/I/WM. KANS. RICIIARU (a. LIJOA,P1, IND.  COMMITTEE. ON BANKING, HOUSING, AND URBAN AFFAIRS  KENNETH A. MC LEAN, STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR  MARY rmAncts  DE LA  'alCnifeb Ziatez -.Senate  AVA, CHIEF CLERK  WASHINGTON. D.C. 20510  October 4, 1979  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20037  4 64  Dear Chairman, Recently there has been a considerable amount of discussion concerning the requirement by various Federal Financial Regulatory Agencies, under the uniform enforcement guidelines for Truth -In-Lending, that financial institutions perform file searches to locate reimbursable violations of Truth-In -Lending. It is my understanding that the Federal Reserve Board has received complaints from institutions under its supervision which have conducted file searches under the uniform guidelines It would be helpful to our understanding of this issue if your staff could document the cases that have been brought to their attention. It would be particularly helpful if you would forward a statement setting forth: a.) the number of file searches ordered by your agency, b.) the specific complaints, c.) what steps have been taken by your staff to verify the cost factors claimed by the institutions, and d.) whether the file searches were, in fact, conducted in accordance with the instructions supplied by your agency. l.  I would also appreciate your response to the following statement by John H. Perkins, President of the American Bankers Association in a letter to members of the association dated August 21, 1979: "The point that must come first in any discussion of Truth In-Lending enforcement is this: bankers have conscientiously tried to comply with the regulations. Virtually all of the so-called violations in fact represented good faith compliance in past years with the rules which applied at that time. As we all know, the rules and interpretations have changed constantly and are continuing to change, yet we are being judged on past practices on the basis of new interpretations which did not even exist at the time of the transactions."   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Would you please include in your response: a.) a listing of the major reimbursable violations (in the order of their magnitude) cited by your agency along with the number of banks cited for that type of violation, and b.) a statement of how the rules and interpretations relating to each practice may have been altered since 1974. assistance, it would be appreciated if this forwarded by October 15.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 25,  The Memorable Morrison A. Wiiliams. United States Seaate liashiagten. .51() pear Senator Williams;  Meek yes for 31evr letter ot October J., re &mond Ni. Marilyn E. SAtese_k as et amber of the board's enslaver Adv I eery cateac i . Tem nay be esseved thee MM. Seissekts qualifications will melee full eseeiderature by the amid vitou ft metes the INI asoeistemets to Cho i4;411‘ LI within the east several weak*. We 14.1 be in Much with yes mhos the selections are weds. The Meard appreciates seveiviog mod your interest is the Censer? Nfirisory  rehotemendatLee  Sin *rely , S/Paui  4icket  cO:vcd (FV-87) IDENTICAL LETTER 120 GONG. MILLICENT IMMUICIE (1:1-90) bcc.  Mrs. Moller& (2) *. e' (w/coni Geary es of if'omiNg ltrs.) An  WILLIAM PROXMIRE. WIS., CHAIRMAN 414ARRI SOH A. WILLIAMS, JR., N.J. ALAN CRANSTON, C.ALIF. orat_Ai E. STEVENSON, ILL. ROBERT MORGAN, N.C. DONALD W. RIEGLE, JR.. MICH. PAUL S. SARBANES, MD. DONALD W. STEWART. Al-A. PAUL E. TSONGAS, MASS.  JAKE GARN, UTAH JOHN TOWER, TEX., JOHN HEINZ, PA. L. AR M STFt0 NG. COLO. WI NANCY I-ANOON KASSIESAUM, KANS. RICHAJW G. LUGAJR.  'ZICrtiteb Zfakez ,T•ervate COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS  KENNETH A. MC LEAN. STAFF DIRECTOR IA. DANNY WALL, MINORITY STAFF DIRECTOR MARY 'FLANGES DK LA PAVA, CHIEF CLERK   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  frz  WASHINGTON. D.C. 20510  October 18, 1979  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. 20551 Dear Chairman Volcker: Ms. Marilyn E. Schoeck of Milbu ,rn New Jersey has been recommended to the Federal Reserve Board to serve as a member of the Consumer Advisory Council. The purpose of this letter is to endorse her nomination and urge her appointment. I have met with Ms. Schoeck to discuss both her interest in the Consumer Advisory Council as well as the contribution she could make to its work. I am impressed that she can bring very necessary perspectives to the Council as a result of her work in New Jersey's second largest bank holding company.  EIMINEIP"  Many of the laws passed by the Congress in recent years have been oriented toward the protection of the consumer in an increasingly technologically-oriented financial marketplace. Ms. Schoeck's experience would be most useful because of her work with the various kinds of funds transfer devices now being employed and deployed by financial institutions. She has firsthand famarity with the technical and business aspects of serving consumer needs using technology. Moreover, she has been actively coordinating her institutions compliance with all the requirements imposed by the Congress and the regulators SSSotect consumers. For the work of the Consumer Advisory Council to be useful to the Federal Reserve Board, it is essential to attract the advice of individuals who are knowledgeable about the capabilities •T ; • 414 " 4retje •  '  7,vor, •  •  gN.  Y'  • v:IC't 1,  •••   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Paul A. Volcker Chairman Page 2  of new electronic consumer products and who are sensitive to the needs of consumers. Nis. Schoeck has been actively performing this function for her employer and for the benefit of the New Jersey Bankers' Association, the Electronic Fund Transfer Association and other professional associations. I urge you to consider her credentials carefully and trust you will be equally impressed. Ms. Schoeck would be an excellent appointment for you to make to the Consumer Advisory Council.  cc.  Ms. Anne Geary  ; -  ft 0, 1•••••. 44 .4  Nhis  — ••• •!..t „ ,  . g  •  •44  ".  '*".; • ••  .4-. Ire•  .  ,,•••"  •-•• rak-4, 11,  S • .-ir te. J  • b4tegyo.7...   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 25, 1979  The Momeweble Rill chAppell Meow of Congress  Deer Mk. fhappolls en pleased to rempemd to your letter of ember 17 empordlee a request frogs your emestitmeet, Mk. Lloyd A. Chi1/000e, for information on the Federal Reserve system. The Federal Reserve fpotemm-the nation's eastral bank—was emoted by Mt of Cowes. on Messeher 23, 1913. The Systole:Us a ppowsddal structure: at its hems its about 5,600 ember sommercial UMW in the sdddle is ammtissmdde network of 12 Federal Reserve bombe sed 25 breathes; mond, at the apes of the organisation, is a eseemposiber Imerd of flemosers, with headquarters in Washington. D.C. As provided for by law, the stock of the Federal Reserve Seiko ts held entirely by semnareial banks that are sesibers of the Federal Reserve System. Mowever, ownership of that stye': is in the nature of an obligation illidiONt to modpership and does not carry *ith it the attribetes of cameral end financial Interest ordinarily attached to *to* sumership in corpse:otiose that ars operated for the purpose of main a profit. The *mount of stock that seism bombe See required to own te specified by tev. The stook soy not be sold or pledged as sesurity for loans, and dividends are limited by law to Oft per SOW 1110! SOMMIS. The Federal Reserve leaks are not emoted for a profit. Lath year, in feet, they turn over Sebotantial sues of mammy directly to the Me Treasury. As a result of earnings in 1978, popments to the U.S. Ilicstery ememmeed to over $7 billion, as indicated in the enclosed press lee. To provide further background on the federal Reeefve System, I amiemelosime a heektet entitled "The Federal 100011VO Syseemr•Perpeeee amid Fematioes." Im addition, semloesd is a espy of the 1978 Amommimamm of the Beard of GOMOVOICO. Bestowing on peee 383 is the financial state. ant for the board, followed by detailed statement of condition tables of the Federal Reserve Is fey the year 1978. I heps this information will be usefUl to Mr. Childress. let me know if I can be of farther assistance. Slocerely yours, CO:pjt (FV-88) bcc: Mts. Mallardi  (Signed) Donald 5. Winn Donald J. Winn  sluplot c. to lD4,, 64.4  Aimee  i EULL CHAPPELL  DISTRICT OFFICES:  411  4TH DISTRICT. FLORIDA  258 FEDERAL BUILDING 0C -ALA. FLORIDA  42353 RAYBURN OFFICE BUILDING WASHINGTON. D C.  20515  (202) 225-4035  32670  (904)629-0039  Congre55 of the aniteb gptate55  523 NORTH HALIFAX DAYTONA BEACH. FLORIDA  COMMITTEE:  3i)otW of ikepraSentatibt5  APPROPRIATIONS SUBCOMMITTEES:  8829 SAN JOSE BOULEVARD  Cliaitington, D.C. 20515  DEFENSE  32018  (904) 253-7632  JACKSONVILLE. FLORIDA  ENERGY AND wATER DEVELOPMENT  32217  (904) 733-4288  DISTRICT OF COLUMBIA  October 17, 1979  'frit!  rm"-r-  Mr. Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Constitution Avenue Between 20th & 21st Sts. Washington, D. C. 20551 Re: Federal Reserve System - Information-Lloyd A. Childress Dear Mr. Volcker: The attached communication is sent for your consideration. It will be appreciated if you will please investigate the statements contained therein and forward me the necessary information for reply, returning the enclosed correspondence with your answer. With best wishes, I am ely  BI CHAPP Congress an  BC:rks encl.  Po: 0 WASHINGTON  PLEASE RE 0 OCALA  (DND TO: DAYTONA BEACH  JACKSONVILLE  -1   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  T  awri—ja.S.1.11;  • REGISTERED REAL ESTATE BROKER • •  STROUT REALTY, Inc.  .'He.„  : 1  .40A• ROUTE 92 EAST: ROUTE 5, BOX 1201 DE LAND, FLORIDA 32720 PHONE . (904) 734-7775  LLOYD A CHILDRESS Associate   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 10, 1979  The Honorable Bill Chappell, Jr.  Dear Congressman Chappell: I am very interested in the Federal Reserve System and would like to receive the following: -  Copy of the operating statement Structure of the System Who owns the Federal Reserve Banks The disposition of the profits of the Federal Reserve System  An early rt1/ will be most appreciated. Thank Yours t  ufy,  ild e s LAC:fl  0  October 25. 1979  The Aonorable S. William Gress douse of Representatives :sshingLon, D. C. 20515 pear Mr. Green. ihank you ter your letter of October 17 indicating your support for the establishment of International Banking Facilities within the c,ontinental :.inited States. The 'Ward last considered this proposal at its meeting of July 16, 1979. and decided to take no formal action at this time. The Board found that several of the significant ?olicy and legal issues raised by public commmmta and by the Board's staff illeared to be related inextricably to anticipated legislative and administrative initiatives. Some of those issues relate to mandeory control. competitive advantages aajoyed by banks located in Mew York, and legal attAtcts of implementing the ,Iriseael. The Board requested its staff to continue work on the substaative issues raised by the lroT)osal and to provide a report imtabout six months. I shall be glad to beep you informed of further devel&Agents in this matter. Sincerely  VQ,Isiter SZPaR _ RFG:vcd (#1,-85) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  0  Hrs. Hallardi Messrs. Gamin, Schwartz, Simpson Ns. Brawn Mt. Truman (for Division Files)  •  S. WILLIAM GREEN 18m DISTRICT, N&; . .W YORK  •  •  WASHINGTON OFFICE: 1118 LONGWORTH HousE OrricE Sulupinto WAstitntaror+, D.C. 20515  COMMITTEES:  (202) 225-2436  BANKING. FINANCE AND URBAN AFFAIRS  Congre55 of tbe  suocomurrTrEsHovsING AND COMMUNITY DEVELOPMENT ECONOMIC STABIUZATION GENERAL OVERSIGHT AND RENEGOTIATION SELECT COMMITTEE ON AGING  V.Aniteb  tate  NEW YORK OFFICES: 1628 SECOND AVENUE (84TH STREET) NEW YORK, NEW YORK 10028 (212) 826-4468  ii)otisSe of teproSentatibesS Ulagbington, ac. 20515  229 FiRsT AVENUE (1411-4 STREET) NEw YORK, NEW YORK 10003 (212) 826-4466 , !_,C)  October 17, 1979  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D. C. 20551  444-  :3  Dear Chairman Volcker: As a Member of Congress from New York City who serves on the House Banking, Finance and Urban Affairs Committee, I urge your support of the proposal to permit the establishment of International Banking Facilities-or "free trade zones"--within the continental United States. These Facilities, of course, would operate under reserve and interest rate provisions that would allow them to be fully competitive with international banking in foreign cities. As a past President of the New York Federal Reserve, you are, I know, familiar with this issue and understand the need to keep U.S. financial centers, particularly New York City, competitive with the other financial centers of the world. The competitive position in the U.S. of the U.S. banks has declined in the past ten years, and the "free trade zone" proposal would tend to reverse this alarming competitive deterioration. This would have many advantages for the United States. First, of course, a restoration of U.S. financial center primacy should give the Fed greater ability to work toward orderly economic growth and change. Second, the direct economic benefits could be considerable. If the recent financial sector job growth in London is any indication, the potential for job growth in the U.S. is impressive--especially for New York City. While New York stands to gain from implementation of this proposal, other states will also gain. The proposal is not limited to New York. In addition to setting up IBF's elsewhere, banks in other cities would be able to participate in the New York IBF throuah such vehicles as Edge Act corporation subsidiaries. I will not try to cover all of the points which are being argued in support of the International Banking Facility proposal. Suffice it to say, I am convinced that favorable action by the Board of Governors would be in   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  '  .  4;T7.t.-1-,•1:,: . '  „  e ••  7---  r-  ;-  Honorable Paul A. Volcker  - 2 -  I L  October 17, 1979  the best interests- of the United States and of New York. Accordingly, I respectfully urge that you permit the establishment of International Banking Facilities, as proposed on a basis which would permit them to compete with their overseas counterparts. I await with interest decision of the Board on this most important matter. Thank you for your courtesy and concern. Siyic,rely,  S. William Green Member of Congress SWG:nhd   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  . ,  '  •  •• •  : 4 ‘P•  •  ... .•  .  .11 .1.1` e .06  „C 7"-  .")  October 25, 1979  The Honorable Stanley N. Lundine House of Representatives Washington, D. C. 20515 Dear Mr. Lundine: Thank you for your recent letter concerning the bankers convention in Olean, New York, on November 13. We have arranged for Ron Gray, Senior Vice Pres ident of the Federal Reserve Bank of New York, to meet with the group in Olean on that date. Mr. Gray is familiar with west ern New York, having once been the head of our Buffalo Branch, and I am sure that the bankers will find his remarks informative. With best regards. Sincerely,  latil A. Vizisiset  cc:  Mrs. Mallardi #77  JRC:tjf   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .  .•  ..410011064.-  mimmillibm.•••••••••111.•  •  STANLEY N. LUNDINE 39TH DISTRICT, NEW YORK  DISTRICT OFFICES: Room 122, FEDERAL BUILDING P.O. Box 908 JAMTITOWN, NI W YORK  COMMITTEE ON  Coltgre5 of tije itiniteb AtateEi  BANKING, FINANCE AND URBAN AFFAIRS  jDotM of ileprci5entatilmS COMMITTEE ON  14701  Ptiour• 716-484-0252 180 STATE STREET ELMIRA, NEW YORK  14901  PHONE: 607-734-0302 Room 606, 101 N. UNION STREET  SCIENCE AND TECHNOLOGY  Ulimbington, AC. 20515  OLEAN, NEW YORK  14760  PHONE: 716-372-1818 SELECT COMMITTEE ON AGING  430 CANNON BUILDING WASHINGTON, D.C.  20515 / I ,  PHONE: 202-225-3161   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Friday, October 12, 1979  "."  Paul A. Volcker Chairman Federal Reserve Board 20th and C Streets, N.W. Washington, D.C. 20551  Dear Mr. Volcker: My Olean district office has contacted the Federal Reserve Board to request a speaker for a banker's convention to be held in my Western New York district, and Jay Brenneman, of your office, has advised my office to forward that request in writing. I am requesting that the Federal Reserve Board provide a personable and knowledgeable speaker to the banker's meeting, scheduled for Tuesday, November 13, at the Castle Restaurant in Olean, New York. A brief, thirty-minute talk about a timely, interesting topic of your choice, followed by a few minutes of questions and answers, would be very welcome to the more than 100 bankers and guests attending the function.  1111111moir  !Jr--  I would ask that you provide my Olean district office manager, Elisabeth Johnson, with the name of your speaker and a copy of his curriculum vitae as soon as possible, so that she may publicize the evening event. She will also be pleased to provide you with travel information, and the bankers, of course, will provide an escort for the event. Her FTS telephone number is 432-4232. Thank you for your assistance in this matter. Please do not hesitate to contact my office at any timo, if T may he of further assistance to you in this or other matters.  wow  Stanley N. Lundine Member of Congress THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  fletsber 2S• 1979 The Sieermble MOM,lift Masi Chateaus imboomaittes wilboasaattewl Trade, Sweetmeat sad Memetarry Patter Committee as leaktegi rtmemee sad Mau illaira Sams II illegessetattrar iguidsese,D.C. 20.13 The llsomemige ParmaJ. littabell Chaterra Stihomealttes oa Sameette Sismutery MU, dimmAttas Os 11010114 fimmOD 10011iffitirli &eft og hepeeseetsttose  D.C.20513 Saw Chetamas Med am* attchettli Mesh pas Sett gum sow* leritatima to at Wow. yaw "Iirpoirmry Pattcy--Costs avid Ihimarmattees at suramplOt Isaidase Csadlast for do 1111114040" Leektes forward to appearime at this Mot 11. . 1 1411 OS lammidoer 13 at 9:10 soli. AM  Siscorelle S/Paul A. .Y1o;,,kes  CO:pit (141-66) bec: Zr. Axilrod Mrs. Mallardi (2) LS'''.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  octelnre 24* lin  ilbs Ilimmumbl• John Heins Wad States Searkte Illmiliesstasio D.C. 20310  isI, tliarmise Ss•s: at imply to your letter of Ornallmir IS, 1  sulases a ow  411111 011111114  Oa Semi's: views se s. 1592 as todmiltted to dm  Snot* flimittims ea  ami Mos Affairs* Siteeerely, Wail LVo!chet,  issloeure 4111110jt (11-111) bos$ Mr. McNeill illn. Mallard.. (2)'-'   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Oataber 26, 19710  The limeorobie wait= romembre Chsimms Committee ea Isakisms. Ileesimg sad Itsbes Affair, *sited lutes assess i4414116110011. C11WU Sear  Gin WOO  litialetaatt  This is ilk may to yser toomest for mossost es 5. 11111, the SIMPINNIM alrlsouNgist atilmillsedes Simplifiseties Mt of 1910." The board hes emstatantly eeprimessd its sweet at the pesituel Odd* sad goals of S. 15929 lo fast, as yaw basso the Demi is edspeed ispoilstsry prosedesse timet pmeerany somilses te Ile bill's peopseeis, auwever, soeirpties there preseisses, the board fosse ihat ropilatisse *deem Cattaiis exception* sellis issmessw• Idswitary to sot fit into ea& a moissindi piessoloral frainiest besets* the public intarsst sometimes re-wisre era mecums to be taws swiftly eel without pilaw 'while Immoledits. lb doe soseleded dist the asseril presedures seed set be applied to sitildkier group of omplattase shire somplissee with se* precedents weld be ispreatioside, esisimeesty or smitrary to Lila palls istoseet• Yee esesple. se eamemmied oismist period and eltsmaatitso emy set be either pessible or maw two esesidwatios 411106robla is the ems* ad (I) teshaleal or elsrifyieg —a, (2) repuletisse destesed Is eliminate a lasphele or redoes a bards* limes berthet delay weld souse esesseseary bare, (3) cspulatisss that eseld retormalate a prepseall peorlseely leseed ter peblimt eawariat or sseeletisas ashiset te ashort statutory deedlise. it is soemmooded that S. 1392 bs memsdied50 weenstee the toed for smith varietal** 11rss the gessest pa/Sy mmetiteed In the bill. the lissrel will be happy Is emporste with yes sad yaw Committee is Worts to ecitteut a kes beeleseeme rsodatarty amrissammitt• plus (V-81) ellitpjt/(per reiruest fr comments on bill) boat Mr. *Will Mrs. liellardi (2)  linessely.  Via A. Volcket  - . kction as signed to Neil Pete and Charlie McNeill 04  I   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  en  "RWAIN  • A leLv.Cf LL Nf *WAN f •  TALM•D"..E  EN•1146A•N  LO•CS. LA GA  BOP, T I  rLr.K •NI  AUUAWAM ...P.COrr. CONN.  pion ••(,/,...-•no. ow!  HAIRRy F  WILLIAM V  ByaD, Jo  V•  GsAyLo•D  JOHN C  MIKE GRAVI'L. AL ••••.o. A  JOHN 0.4  LLOYD PrINTS(N, TI I  N  SPA. w  sA•T•.uNAc.A, HanAll  D ANIt I PA1UICk UOVNIHAN  JR  OIL  •  Bowl' N  WALLOP.  DAVID DUNI NW'PIGI N. MINN.  u•LA.  COM MITTEE ON FINANCE WASHINGTON. D.C.  DILL BRADLEY, N I.  s.apCuArLSyr.Pa  Zettate  III . PA  1640.4y  MAI R•uCtJS O AVD L  cuAri it  JONN 04/'NZ  MAL COLM  N T.  0,01. 04  D•No ONT.' ‘10  20510  SArvr.ccyoN  1•0•ElliT E. L'GNTHIZEw. co.,Er miN0.•ITY COUNSEL  October 15, 1979 CD 7-1 —4  Mr. Paul Volcker, Chairman Federal Peserve Board of Governors Constitution Avenue and 20th Street, NW Washington, DC Dear Mr. Chairman: On July 27, 1979, I introduced, along with Senators Dole and Lugar, 5.1592, the Financial Regulation Simplification Act of 1979. The bill is designed to assure the elimination of duplicative or conflicting regulations, and that regulations are clearly and simply expressed, and that duplicative and conflicting regulations are eliminated or clarified. On August 3, 1979, the Banking Committee officially requested ccur ments by the Federal Reserve Board on this legislation. Thus far, there has been no response. I would, therefore, appreciate any efforts that can be made to provide the Committee with comments in the near future. Thank you for your consideration of this matter. cerely,  hn Heinz ted States Senate JH/hsr   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -111• • •  OREN,  •  •-• •  v• •  0.4 ,N.:•• • •••  MM.."  . •  - •e  „• •-•.„.••  -7 • '`....;••zw  JESSE HELMS  •  NORTH CAROLINA   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  'Unita)Zfateo -Zonate WASH I NGTON. D.C. 20510  19790CT 6  October 15, 1979  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Constitution Avenue Washington, D.C. 20551 Dear Mr. Chairman: I have been remiss in not responding earlier to your thoughtful note of far September 19. I apologize for the delay. I would be honored to meet with you at your convenience. Also, L would like for you to meet a splendid young associate of mine, Howard Segermark, who is very knowledgeable on the issues of mutual interest to you and me. If he could sit in with us, it would be most helpful to me. Let me commend you on the courageous positions you have taken. Nobody likes to dish out unpopular medicine, but the country's ailment demands that we do what is right though it may be unpopular at the moment. Sincerely,  1".i1.441;14#41°45  JESSE HELMS:pd  0111KAIRRe:N  111  It MITCHZLL, MO.. CHAIRMAN  • STEPHEN 1... NEAL, N C. NORMAN E. C AMOURS, N.H. DOUG BARNARD, GA. MATTOX. JOHN J. CAVANAUGH, NEBR.  GEORGE HANSEN IDAHO RON PAUL.. TEX. DON RITTER, PA.  U.S. HOUSE OF REPRESENTATIVES  245-7315  SUBCOM MITTEE ON DOMESTIC MONETARY POLICY OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS N INETY-SI XTH CONGRESS  WASHINGTON. D.C. 20515  October 9, 1979  The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th and Constitution Avenue N.W. Washington, D.C. 20551 Dear Mr. Chairman: On Novr 13,and 15, the Subcommittee on Domestic Monetary Po and the SubitteeInternational Trade, Investment and Monetary Pol will hold overt hearings on "Monetary Policy -- Goals and Cond for the " Weld appreciate hearing your views on this subject invite you estif November 13 at 9:30 a.m. in Room 2128 Rayburn H Office Buil.  Ii  Although we do not want to limit your testimony in any way, we would like to hear your assessment of the merits of two alternative monetary policy strategies for the 1980's. Strategy 1 places top priority on halting the decline in the value of the dollar on the foreign exchange markets, and proposes to do so by keeping mI ney ght" at home and resisting speculative attacks against the dollar abroad until the decline is halted. Under this strategy, in the months immediately ahead, the Federal Reserve would raise the Federal funds rate substantially above the current level. The purpose would be to raise U.S. short term interest rates and slow U.S. money growth so as to provide incentives for money managers around the world to buy dollars and IS dollar denominated securities. Simultaneously, the Federal Reserve and the Treasury would intervene vigorously on the foreign exchange markets, in cooperation with other central banks, to combat any excessive fluctuations in exchange rates that might arise from speculation against the dollar even in the face of high interest rates. After the dollar had been stabilized, O rimarily against the German mark, sufficiently IS to convince foreign exchange traders that further precipitous declines would not be tolerated, monetary policy could be gradually re-oriented toward the domestic goals I f full employment and price level stability. What risks would this strategy entail? Can such a policy succeed without the cooperation of foreign central banks? That is, would our raising interest rates not invite retaliation by foreign central banks, and hence a spiraling upward of interest rates worldwide without noticeable effect on the foreign exchange value of the dollar? Even assuming a policy of cooperation by foreign  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I ' The Honorable Paul A. Volcker Page Two October 9, 1979 central banks, would not maintaining the funds rate at a higher level than currently prevails precipitate a sharp deceleration of money growth and consequent recession? Would not fighting that recession, and even the expectation of fighting it, again destabilize exchange rate markets? Strategy 2 would ignore movements in interest rates and concentrate instead on establishing and remaining on or near a long run disinflationary monetary growth target path. (See, for example, the letter to you dated September 5, signed by seven members of the Domestic Monetary Policy Subconmdttee, and H.R. 5476, recently introduced by Mr. Neal. For your convenience, these documents are enclosed.) Can this strategy be followed independently of the monetary policies pursued by other central banks? Would it help to promote achievement of the 1983 Hawkins-Humphrey Act goals of 4 percent unemployment and 3 percent inflation and at the same time to stabilize the value of the dollar on foreign exchange markets? What risks does it involve? Should it be adhered to in the face of increases in interest rates and unemployment? If the strategy is not binding, how can we convince investors and traders around the world that we are serious about reducing inflation and that the exchange rate risk from holding dollar denominated assets will diminish? Further in this regard, is there reason to believe that adhering to an announced long run disinflationary monetary growth target path would lead to higher interest rates and higher unemployment than would a policy that accelerated money growth when interest rates and unemployment moved higher? Would it not be wiser to hold fast to the announced monetary growth target path even in the face of temporary increases in unemployment, which could be dealt with by pinpointed fiscal policies? Finally, we note that recently the Federal Reserve raised its discount rate from 11 to 12 percent and at the same time announced that the Open Market Committee will try to control monetary growth by metering the flow of reserves instead of manipulating the Federal funds rate. The discount rate rise would appear consistent with Strategy 1 while the change in operating procedure seems consistent with Strategy 2. We would appreciate your comments on the meanings of these recent changes in policy and tactics by the Federal Reserve. We look forward to hearing your views on these and other questions you may want to address on November 13. Sincerely,  Stephen L. Neal, M.C. Chairman, Subcommittee on International Trade, Investment and Monetary Policy PJMSLN/rwt enclosures  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •>:4 - / k‘,4(/ Par en J. Mitchell, M.C. Chairman, Subcommittee on Domestic Monetary Policy   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 24, t9  1ht limeribie Lee 14 Immiltom liege ei lopromemeettoso 11044sOmmo LC. MKS Ow Mr. Illoolltaat I am pleased te voOpeed is yew reeemg letter regarding &eery Neetmaale eriticies est POdeoal Aeseres podia. Mg. Keats* mrSuss that the fed ha* (*cased its etteetlee tee meeeelly am the moseeary AggempaSeedm pevtieetarly x-1--Aed thet a Weed emits olommemse womb' provide o bettor guide ter polity. SpOMMIOSSMOmdit* have emmedmed this esemmost meeemtly. earner this year while Ime still at the New 'fork iamb, 4 semdor offisiete ALcherd pebtioliod em orttele te ear euesterly emomeeie revise es tkLa slibloct• More regestlY, o esserostas propmmod by the Saari *toff wee sent to aseator Peeemdre in Teepees* to his reeeeet Air as analysis if at. Seedhomm's eflomeet. I mmiemmiosiog topiee it these owe pieeee Oar pet, omemdmecLome ta brief, me believe that there to mmeit to be said kW MO011irbil andit glom, Otto* they menest Oho treseeiletea of seeetary volley to lhe Sesed it tho Poderel Some Miebse Committee dm oommdmo deldit loretepmeets La memo lioati: tufted, the diets Mr. areloom ompleve ate preftesd by the Somrd it Ommermere. lho Ammo As *ether some breed cre4it aggptiote road he e better hatormattemo target few sesetary policy, sad am this oe %eve seriess diedoes. sevreletiom it tine settee la see a seffteleat amodittem ter a peed torpot; omeh sometderip. tiame 441 1.440.14g relatiosafte, timeliest@ emd crelity of data, sod costrollebility are *rated. As ie imdAseted Is the staff resetoodem, smite eggregatee opposer detteiset is thew 401.40. The %devil lisserre will ~tem* is give easeful atteetiee to the seat .it"dem it SOOdit ote it oesseeee its pellicles, and ear otaff will emotton. to lanetissto the retatiomObOpe arool immegail Worths credit flows, sod the psifinosim of the emommew. At Oho posomet time, however, it vow imppoormapii• te sebardimote essetsr, esspesetea ro credit mgregetes as IMOMOOmodieto Seepete ter pel117, Sissevety.  14.v:WIA:011spjt (1FV-73) bcc: Messrs. Mitred Si ?roll Mrs, Hallardi (2) JI  -  9  %  .  S/Paul A. Vol.cket .  -  a..  01  0•  if  LEEH.HAMILTON 9TH DISTRICT. INDIANA  •  •  2/70 RAYOURN BUILDING WASHINGTON. DC. 20515 Th_rn40.4r: (202) 225-5315  COMMITTEES:  INTERNATIONAL RELATIONS  CongreS5 of tbe Uniteb  JOINT ECONOMIC  tate5  31?olle of 3Aepreentatit3e55 Z.411assbington,31).C. 20515  STANDARDS OF OFFICIAL CONDUCT  October 11, 1979  DISTRICT orFicrs: UNITED STATES POST OFFICE COLUMBUS, INDIANA 47201 TELEPHONE.  WO  372-2571  TELEPHONE!(317) 269-6013 1201 EAST 10TH STREET Jr_rr(Fesosrvw-L.  INDIANA  47130  Tp_Ersoeir1812) 288-3261 -r=" P.9ox 269 AURORA.r1RDIANA 47001 TELEpHopm-r(512) 926-3535  Lrl  Honorable Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman:  It was with great interest that I read Mt. Henry Kaufman's article, "ere The Fed Has Gone Awry," in the October 7 edition of The New York Times. The article contains a very basic criticism of current monetary policy. The criticism is, I think, one which must be addressed squarely. The gist of Mr. Kaufman's critical view can be captured in a few of the article's passages. To begin, Mr. Kaufman notes that the "issue is whether the Federal Reserve Board, by focusing for the last five years upon a very narrow statistical concept called the M-1 money supply, is using a monetary policy target that is relevant to today's economic and monetary reality." Mr. Kaufman himself takes sides on the issue a bit later when he says that the "failure of monetary policy lies in the Federal Reserve limiting its target to the narrow statistical concept of the money supply." Finally, Mr. Kaufman proceeds to tie the "failure of monetary policy" to our economic problems in a predictable way, remarking that the "real story behind our severely aggravated inflation is that the growth of credit has been proliferating while the Federal Reserve has been focusing on the M-1 and M-2 money supplies." Inflation is the most serious problem on the nation's domestic agenda. Consequently, the policies of government must be justified in detail if they are alleged to contribute to inflation in a significant manner. I would deeply appreciate your response to the criticism outlined above. A copy of Mr. Kaufman's article is enclosed for your convenience. I ]ook forward to hearing frop you at the earliest possible date. With best wishes, I am  LIT H. HAMILTON, M.C.  enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • Where the Fed Has Gone Awry By HENRY KAUFMAN T Is incredible that there h !s been virtually no general public discusor debate in financial circles sion -a so far this year over the targets for monctary policy that the Federal Reserve has employed in its attempts to foster orderly economic growth. Something, after all, has gone wrong in the monetary mechanism. Our economy is being buffeted by high rates of Inflation and is engulfed by deep-rooted fears of future economic instability. The Federal Reserve itself has recognized some of the problems in the monetary targets it is now using and, in fact, earlier this year said it would try to improve their quality and effectiveness. Public comment was invited, but the discussion so far has been remarkably subdued, even though the future credibility and technical efficiency of United States monetary policy are at stake. Dea.pite the apparent technicality of the issue, what is involved can affect every economic participant in the country. The inflation rate of 11.5 percent for the past 12 months, as measured by the Consumer Price Index, could double our price level again in the next six years — that is, by 1985 — jilt is not brought down. Prices have already doubled since 1969, with most of the increase in the years since 1975. Yet, there is no concrete assurance that we will experience anything more than temporary relief from inflation because the cation has not reached that point where the citizenry faces the sacrifices that may be unavoidable if Inflation is to be reduced substantially. On  the contrary, more and more economic and financial decisions are being made by Americans and foreigners who do business with us on the assumption that inflation is going to continue unabated. The historical record is very clear that this only intensifies inflation and heightens the flight from money into the materiality of land, goods and precious metals. What is at issue is whether the Federal Reserve Board, by focusirg for the last five years upon a very narrow UrfINUFTTILDITIKVOSi b.vedgua.ausasrpu  smalasaudadliZCIUFT10111  POINT OF VIEW statistical concept called the M-I money supply, is using a monetary • policy target that is relevant to today's economic and monetary reality. Die M-1 money supply consists of demand deposits plus cash in circulation. The existing approach of the Federal Reserve, which was formally adopted In 1974, depends upon the presumed:- • linkages between interest-rate levels, changes in the supply of money that are generally implicit in changes in banking reserves, and ec • aomIc activity. The assumed cause and effect sequence generally goes as follows: Changes in banking reseryea and resultant changes in tha market's key interest rate (the Federal funds rare) together will influence changes In the' money supply which,in turn, will affect economic activity. This unalloyed monetarism is not materially changed. by the newer "practical monetarism," which holds that the relationship be Continued on Page 14 •  off  POINT OF VIEW  ther Way to Count the Money Supply 'age / ply and economic acways. What then has monetary authorities ! explanation for the • by calling attention nd forces beyond their ;e contributed to the . They cite an overly c.a.tl policy of sizable ;lending that makes it money supply growth ailt, denying substan• private sector. They aenous factors as the ;-producing nations to • price of oil, and poor road. Such exogenous -ailed non-monetary enot be denied, but it really excuse poor mance. ieral belief that higher primary cause of our ,ut foundation. In the onsumer Price Index percent. Eecluding ts, the index has gone state that the Fed4 to !cep money supesured by M-1, within geted range. Statistiorrect observation, as • below: wth Targets ,th Rate aet(%) :-7/42 4 2-6 Y2 4-61/2 '2-4 Y2  ago. Today, credit markets find ways to accommodate the inflationary process and, in fact, are helping to finance inflation A decade ago, these markets of dollars) 2.0 were part of the disciplinary force. The Federal Reserve, had it been sensitive to the ingenuity of the credit markets and to the rapid growth of While the Federal Reserve debt, would have complemented its has concentrated on narrow target for money growth with a restricting the narrowly broadly based target for credit growth. 1.6 If it had done so, the Federal Reserve dete ed money supply would have perceived long ago that its (M-1). monetary and interest-rate policies were incorrect, because they favored borrowing and consumption instead of savings and investment. During the 12 past six years, the inflation rate, as measured by the Consumer Price the growth of debt proxyIndex, exceeded on average the Fed-a broader measure eral funds rate (the official target of which includes credit— monetary policy) by 112 hasis points. This is in sharp contrast to the 1980-73 has paralled gross national .8 period when the reverse was true, and product. the funds rate exceeded the inflation rate on average by 170 basis points per year. One need not be an economist to conclude that it pays to borrow under the interest rate policy that the Fede'ral 4 Reserve has pursued in recent years Oil ERZI 1.= M-1 CIO WO Recognizing that the destiny of our Cif Ora MI ACM 1:02 NM cam economy is entwined with the future efISO Iry co UM ISPJ 112E fectiveness of monetary policy, it is fair to ask: Will the Federal Reserve continue to operate within a statistical L_ _ __1_ .1_ Jungle gym that allows it to play with 1909 '70 '71 '72 '73 '74 '75 '78 '78 '77 '79 small blocks of meney, or should it be Source SairrIOn Brothers held accountable for the management of a highly innovative and at times destabilizing credit system that is now a 411111.113111ITICIIUMINIIMMI11111r1:2111111.:771.311111X.1.211711 ..7 . 0 -,....fr , ' reality? The monetarists, after admitting the recent shortcomings of the money supply concept, generally favor patching it by adding some of the recent innovations to the classical definition of money. I would go much fanher and urge that a monetary policy target comprising the growth of total debt be given equal weight. I propose that this ticipation — namely, to know markets The real story behind our severely target consist of private domestic nonaggravated inflation is that the growth financial holdings of credit market inand the chang. a emerging in them. The of credit has been proliferating while struments plus deposits and currency. Feder al Reserve has persisted all these the Federal Reserve has been focusing This target, which I call the "debt years in defining its money supply tarM-1 and M-2 money proxy," the on supplies. totaled $2.2 trillion in outstandget along classical lines — currency, Total credit market debt outstanding ings at the end of 1978 and parallels demand deposits, and, to some extent, (obligations of households, business closely nominal gross national product, time deposits. governments and as the chart shows. in talc United States) Meanwhile, the economic particitotaled $720 billion at the end ni "'°, inIn the absence of a stirring debate on pants in tins country, whose activities creased 91 percent by targets of monetary policy, the to the $1.4 trillion the Federal Reserve is trying to influin 1970 and by monetarists 142 percent to $3.4 and established bureauctrillion in ence, have changed their own concept 1978. For these years, the outstanding racy may have their way. A patch will of money by greatly expanding the stock of money (M-1) rose from S144 probably be put on a failing concept. definition. Consequently, their spendbillion r..20 More than 100 years ago, the famous to billion, an increase of 53 ing embraces many more variables percent, economist, then and by C4 John Stuart Mill, said: percent $361 to than the Federal Reserve acknowl"The billion. Contributing purchasing to massive this power of an individedges in its conduct of monetary policy. ual at growth any moment of debt has among been. is not measured by other Business, households and even govthe things, money the removal actually in his pocket, of a variety of reernments, in the conduct of their ecostrictions on financial markets such as whether we mean by money the nomic alfairs, no longer distinguish beInterest-rate ceilings; the introduction metals, or include bank notes. It contween money and credit. In many of new financing teclmiques and credit sists, first, of the money in his possestransactions, money and credit are ininstruments that permit new ways to • sion; secondly, of the money at his distinguishable. Corporations believe banker's, an ! ad other money due him create credit and debt', the minimizathat they have ready access to money and payable on demand; thirdly, of tion of the risks of changes in interest through the standby fee they pay for an rates through the issuance of floating whatever credit he happens to posunused line of credit. They judge their interest-rate obligations, and the insess." liquidity not by cash in the bank but In our time, Milton Friedman said creasing linkages with international mainly by holdings of other liquid asthat money matters. The question is: credit markets. sets rind their borrowing capacity. Indi"What is money?" When access to worldwide credit is viduals exercise their credit cards as if eesy, who needs the money that the they were disbursing money. They Federal Reserve is watching? Henry Kaufman is a partner and judge their liquidity in part by how Credit markets today are the antithemember of the executive committee of much they monetize the equity value of sis of what they were a few decades Saiomori Brothers. their homes. -$2.2  The G.N.P., Money and Creeit (Ttiihons  tiitcaa  Rate(%) 5.8 7.9 7.2 4.5'  heugh, this is not the it were, the solution .ly simple. Even if the within the guidelines, tment would hardly aficant impact on the hat has gone wrong, 1 failure of menetary Federal Reserve limitthe narrow statistical Iney supply. 'oblem in these terms: .fined money supply, . posits and currency) .1 and the broadly deapply, M-2, (demand ey and time deposits) a as 'ornpared with a ational product of $2.3 n in the accompanying aross national product re rapidly than the lefined as M-1. The lain this growing gap - nd G.N.P. by pointing in money velocity — e at which money is nem and respent, in a `le growth of velocity t varies considerably has really happened Reserve has failed niciple of market par-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  'Will the Fed continue to operate within a statistical jungle gym that allows it to play with small blocks of money?'  1,••• gm. .1,41.  •  MUT ri•-IP'   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  a  Another Way to Count the Mc _'ontinued from Page 1 tween money supply and economic activity works both ways. What then has gene wrong? The monetary authorities submit a partial explanation for the inflation problem by calling attention to many events and forces beyond their control that have contributed to the current malaise. They cite an overly expansionary fiscal policy of sizable Federal deficit spending that makes it difficult to limit money supply growth without, as a result, denying substantial funds to the private sector. They point to such exogenous factors as the decision of the oil-producing nations to raise sharply the price of oil, and poor crop harvests abroad. Such exogenous forces and so-called non-monetary developments cannot be denied, but they also co not really excuse poor monetary performance. In fact, the general belief that higher oil prices are the primary cause of our inflation is without foundation. In the past year, the Consumer Price Index has risen 11.5 percent. Excluding higher energy costs, the index has gone up 9.4 percent. The monetarists state that the Federal Reserve failed to keep money supply growth, as measured by M-I, within the officially targeted range. Statistically, this is a correct observation, as shown in the table below:  The G.N.P., Money and Creclit (Trillions of dollars)  While the Federal Reserve has concentrated on restricting the narrowly defircd money supply (M-1),.  the growth of debt proxy-a broader measure which includes credit-has paralled gross national product  M 1 111111 In ISM WO CO  =I Ea MI MN MR  '71  -I  1  '72  '73  M-1: Offlcal Growth Targets Vs. Actual Growth Rate Period  Target(%)  Rate(%)  4/75-4/76 4/764,177 4,177_4/78 4/78-4/79  4 Y2-71 / 2 41 / 2-6Y2 4-61 / 2 1 V2-4 Y2  5.8 7.9 7.2 4.5•  'Firct 8 rwroths ot 1979 Regrettably, theugh, this is not the answer, for if it were, the solution wculd be relatively simple. Even if the Fed had stayed within the guidelines, the small adjustment would hardly have had a significant impact on the inflation rate. In assessing what has gone wrong, 1 believe that the failure of monetary policy lies in the Federal Reserve limitir.g its target to the narrow statistical concept of the money supply. Think of the problem in these terms: The narrowly defined money supply, M-1, (demand deposits and currency) totals $375 billion and the broadly defined money supply, M-2, (demand deposits, currency and time deposits) totals ”25 billion as •orrpared with a nominal gross national product of $2.3 trillion. As shown in the accompanying chart, nominal gross national product has grown more rapidly than the money supply defined as M-1. The monetarists explain this growing gap between money and G.N.P. by pointing to the increase in money velocity — that is, the rate at which money is turned over, or spent and respent, in a year. Hoy-ever, the growth of velocity Is not steady, but varies considerably over a business cycle. Actually, what has really happened Is that the Federal Reserve has failed in the cardinal principle of market par.  '74  MI (XII WII  I  I  '75  '78  111.11 ISZ  '77 '78 Source Salmon Brc  alasualawstainssisisinevansomoseocziasarr.7  'Will the Fed continue to operate withii a statistical jungle gym that allows it to play with small blocks of money?' 12111:1111UnICIMUINIZIVENCIIIIKOSillia  ticipation — namely, to know markets and the chang, 5 emerging in them. The Federal Reserve has persisted all these years in defining its money supply target along classical lines — currency, demand deposits, and, to some extent, time deposits. Meanwhile, the economic participants in this country, whose activities the Federal Reserve is trying to influence, have changed their own concept of money by greatly expanding the definition. Consequently, their spending embraces many more variables than the Federal Reserve acknowledges in its conduct of monetary policy. Business, households and even governments, in the conduct of their economic affairs, no longer distinguish between money and credit. In many transactions, money and credit are indistinguishable. Corporations believe that they have ready access to money through the standby fee they pay for an unused line of credit. They judge their liquidity not by cash in the bank but mainly by holdings of other liquid assets and their borrowing capacity. Individuals exercise their credit cards as if they were disbursing money. They judge their liquidity in part by how much they monetize the equity value of their homes.  Ir.•100r.  The real story behind our aggravated inflation is that thr of credit has been proliferath the Federal Reserve has been on the M-1 and M-2 money r Total credit market debt out' (obligations of households, and governments in thc Unites' totaled $720 billion at the end of creased by 94 percent to $1.4 t: 1970 and by 142 percent to $3.4 t 1978. For these years, the out. stock of money (M-1) rose fr billion to $220 billion, an incree percent, and then by 64 percent billion. Contributing to this r growth of debt has been, amo: things, the removal of a variet. strictions on financial markets Interest-rate ceilings; the intr, of new financing techniques an instruments that permit new create credit and debt, the m tion of the risks of changes in rates through the lesuance of interest-rate obligations, and creasing linkages with inter. credit markets. When acceses to worldwide c easy, who needs the money t: Federal Reserve is watching? Credit markets today are the sis of what they were a few   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Oertvber 24* 1979  ibe Memorable IlearT 1= Mosso Meese et legmetemeeeitele leahdestme, D.C. WM swat Ur* Meese. yor ler pour totter of Oetabor 9 regordibmill*. leery easseer with the sesurney of the Mederol leesemele aeoht, Maim se sold relmsvitcp  Ihr figures Le the Medowel Iserefees sookly asseolldeted itetammet of seedielas tapereme the Imbue ad' 0.14 ositifiattes Jammed to dee **yaws by Mho Ifseeeeri, et the boil welfseelee of 041.22 per flee troy yomm46 OW. the fteemeee of Who taesearyse gold Is see emidere, homeeme the sear& tetledee orlteg seism sed 'ether forme of egiollesetoteleg eltays, the valuattire La appited wily to the has gold 041146114 a tiro sold stook. Th.., oltbeegb met .11 tho gold is te delteery" Sere, the valeatIre et the geld Is ere overstated to the Plodloral liosorsvo's AmMIOOMAI. Is regard to Oa reed for ~ammo* eft LK. $162, I vederabeed  Shot mere thee belf the Treemavy geld stoat bee airsady hese immeeMerilmf seder preeedomme oceepuble to the Glemeral hememerteg iffles, le a NSW Ohm the tooreery hae bees seedeettag sines 1.74. 1 bppe thee these esemseits %all he easfel to per, S/PaulA picitel  011k::MTOPIspjt (0 , -70) bcc: Mr. Timms Mr. D. Aims Mrs. Mallardi (2)  HENRY S. REUSS  COMMITTEES*  5TH DISTRICT. WISCONSIN  BANKING. FINANCE AND URBAN AFFAIRS CHAIRMAN  WASHINGTON OFF-IC[1 2413 RAYBURN HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 PHONE: 202-225-3571  Congre55 of tije V.Initeb  SUBCOMMITTEE ON THE CITY  tate5  CHAIRMAN JOINT ECONOM1C-COMMITTEE  3Doti55e of 1leprei4entatibes5  MILWAUKEE OFIICE) FEDERAL BUILDING Room 400 517 EAST WISCONSIN AVENUE MILWAUKEE, WISCONSIN  53202  Uictzbington, 13.C. 20515  INTERNATIONAL ECONOMICS SUBCOMMITTEE CO-CHAIRSAAN  (  -  PHoricl 414-291-1331   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 9, 1979 /11  The Honorable Paul Volcker Chairman Federal Reserve System Twentieth Street & Constitution Avenue, N.W. Washington, D.C. 20551 Dear Paul: My friend, Henry Banzhaf, of Milwaukee has written to me in support of H.R. 3862, Congressman Ron Paul's bill to authorize a full audit and inventory of United States gold reserves. One of his arguments for passage of the bill is that the Federal Reserve's weekly reports on gold reserves are inaccurate. He states that the Fed "does not take into account the large percentage (of gold) which is in alloy less than the acceptable monetary standard" and that, according to the Treasury Department, "only about 18 million ozs. of the gold reserve are good delivery gold". I would welcome your comments on this. Sincerely,  Henry S. Reuss Member of Congress   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 24# 1979  Ile lienumbile Jerry X• PstU Waft 01 ilsomesittatism 113sebtegtos, 0.c. Win Ope,  OMMOMOMBS  Thad' yes ier roof lettor of *maim 1$4, roomette* the SivIrd es sements m your proposed schstItute to RA. 2221 time meld, smog (n t 00 link arldtas Cmpasy Aar ti eleintalt 4(e) sale tido**, pnvvide that the medermitiog sod eels se some of credit-related assidems, Ufa oni health inememes, as property mod easmity imeocoms meellatmal **swims an aelession of credit by • emboa subsidiary std of a Mesettettim *Um*/ relater lc b..&Las. as additise, yew psopees1 pcovides that barmen, heeertiht telestel tameness offered by a book holdimg employ or Its sibeidiary la eseneetlem with al asseraiss MOM Mats 30 lips Mier the issurame hos bum penthesed. prarrided e ebsr osedittem me me. limp Used believes Ohm government essolstim shoal* ham tbe onset dlinseerios sompetitios, sed it is do baard's *pietas that it 4111~alPed sispstitios Ales is machmised boik Wain ommeamtes to mew is metals immune astAwitice mar *esti*. 215.4(a)(9) ai litgolatim 1. While MA. MS meld ambataalially redoes empetitim beemes the beihtog sed Onemenee iniestrias, yews pummel could restore ems of that empeeitim the UMW somphttomenesee* INT idePtie* opettee 225.4(a)(9). The Mord believes that Olegovendmal cirsumseripties of epcnifie motia0440(6) astirity removes the tiseibilltY Peeedes he messediag by rogmistises ohich is memeary scomesdat* Ohomgamg time sed oirematomm. la* est* that yeas peppeal, WOW bow the oilbee of peesimiLes bock bolding eammise gni* Oneatille AS opine is ourreesly permlosate tuemems settetties, sueh se **Me property and memity immense ger the balk beidims *0e0eir eel its 04101111Aertme sed could peewee& a eselhenk subeidiery at a boilt bolding asteitav ettte actin as ogees is esesesties with onternsime of emit by affilisesi balk mod menbank Mbetdieriee. year proposal appears to endienine the unismiitieg of property aod *emelty tocuresse by bask bolding mossiest mod ue este ChM Oho Fourth Cirshitt Clew of Appeas IOW the ileards• deesenietion thee oulh aatieity is me "closely raises** Le wiahas the ussolhe got aestista 4(a)(t) of the Act. maw SOO F.241 (WM.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Ike Paw Oft  Amy I. Pattioasa  Midi soaps* to asstisat 3 of 'vas bine oldalt road aid a it Caws" hat ohs Swot Sark We ilsettatt 13 to die 11sdit sas the 414110$1111110 *Sea , tea woad olgainelia to a siva/toot disit porla r rasiked am a bat* lo1411ft eastplay salbotiltary tiodytas MO oftiortas to tiro b.:weans? bola• 1.110 Med Issuiresso as do loot. Umiak yse the bans So esassadt as If imp  y to somas sot plasaa foal islismaattea to samseasry, isammikrt S/Paul A, Volcku  11W1111011111spjt (#7.43) bort Rich Whiting Mtbs 1111aaar Bah Ihmosiots Mrs. lintiarni (2)  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS SUBCOMMITTEES: HOUSING FINANCIAL INSTITUTIONS INTERNATIONAL TRADE  •  JERRY M. PATTERSON 38TH DISTRICT OF CALIFORNIA  Congraq4 of the tiniteb 6tate5 oute of 11epresSentatibeZ Mgtington, D.C. 20515  SUBCOMMITTEES: NATIONAL PARKS WATER AND POWER RESOURCES PLEASE REPLY TO: WASHINGTON OFFICE   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  VERLYN N. JENSEN DISTRICT REPRESENTATIVE DANIEL H. YOUNG ADM INI STRATI VI ASSISTANT  COMMITTEE ON INTERIOR AND INSULAR AFFAIRS  o o  HOME OFFICE:  October 18, 1979  FEDERAL OFFICE BUILDING 34 CIVIC Cem-rtie PLAZA, #921 SANTA A.CALIFORNIA 92701 TELEPHONE: (714) 835-3811 WASHINGTON OFFICE: GREGORY W. SANDERS ADM I NI STRATIVI ASSISTANT NOV'S OF F1 EP ES MT ATI VMS WASHINGTON, D.C. 20515 TarrtioNx., (202) 22.5-2985  HOME OFFICE  The Honorable Paul Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: ed substitute to H.R. 2255 Enclosed is a copy of my propos titutions Subcommittee on as reported by the Financial Ins rd to comment on this proposal, September 11th. I invite the Boa Banking Committee next week. which will be considered by the With best personal regards, Sincerely,  J P Y M. PATTERSON U.s. Congressman  JMP/11n Enclosures  PATTER040  AMENDMENT  IN THE NATURE OF A SUBSTITUTE  TO H. R. 2255 OFFERED BY MR. PATTERSON  Strike out all after the enacting clause and insert in lieu thereof the following:  1  That this Act may be cited as the "Bank Holding Company Act  2  Insurance Amendments of 1979".  3  SEC. 2.  Section 4(c)(8) of the Bank Holding Company Act  4  of 1956 (12 U.S.C. 1843(c)(8)) is amended by striking out  5  the period at the end of the first sentence and inserting in  6  lieu thereof the following:  7  subsection it is not closely related to banking or managing  8  or controlling banks for a bank holding company to provide  9  insurance as a principal, agent, or broker, except (A) where  ", but for purposes of this  10  the insurance is limited to assuring repayment of the  11  outstanding balance due on a specific extension of credit by  12  a bank holding company or its subsidiary in the event of the  13  death or disability of the debtor; (B) in the case of a non-  14  bank subsidiary of a bank holding company, where the  15  insurance is also limited to insuring the collateral on a  16  specific extension of credit by such non-bank subsidiary in  17  the event of loss or damage to, or from the use of, any  18  property used as collateral on such extension of credit,  19  except that such non-bank subsidiary may only act as an  20  agent or broker; (C) that a bank holding company may conduct   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  PATTER040  2 1  any insurance agency activity in any place that (i) has a  2  population of not more than five thousand (as shown by the  3  last preceding decennial census), or (ii) the bank holding  4  company, after notice and opportunity for a hearing,  5  demonstrates has inadequate insurance agency facilities; (D)  6  any insurance agency activity that was lawfully engaged in  7  by (i) a bank holding company or any of its subsidiaries on  8  June 6, 1978, or (ii) a finance company which became a  9  subsidiary of a bank holding company through acquisition  10  during the period beginning on June 6, 1978, and ending on  11  June 6, 1979.".  12  SEC. 3.  The Bank Holding Company Act of 1956 (12 U.S.C.  13  1841 et seq.) is amended by adding at the end thereof the  14  following new section:  15  16  "INSURANCE RESTRICTIONS  "SEC. 13.  (a) With respect to any extension of credit  17  to any person by a bank holding company or any of its non-  18  bank subsidiaries, the bank holding company or non-bank  19  subsidiary involved may require such person to purchase  20  insurance coverage for loss or damage to, or from the use  21  of, the property used as collateral in such extension of  22  credit, except that, as a condition for such extension of  23  credit, such bank holding company or non-bank subsidiary  24  shall not require such person to purchase such insurance  25  from any source specified by such bank holding company or   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  PATTER040  •  • 3 1 2  non-bank subsidiary . "(b) With respect to any extension of credit to any  3  person by a bank holding company or its non-bank  4  subsidiaries, no such bank holding company or non-bank  5  subsidiary may provide the insurance described in subsection  6  (a) as an agent or broker unless--  7 8 9  "(1) the contract incorporating such insurance provides-"(A) that such person has the right to cancel  10  such insurance in any case in which, not later than  11  30 days after the date on which such insurance is  12  purchased, such person mails or delivers a notice to  13  such bank holding company or non-bank subsidiary and  14  such notice--  15  "(i) requests the cancellation of such  16  insurance as of the date on which such notice is  17  mailed or delivered to such bank holding company  18  or non-bank subsidiary;  19  "(ii) specifies the name and address of the  20  new source from which such person has secured  21  the insurance described in subsection (a); and  22  "(iii) demonstrates that the insurance  23  provided by such new source will take effect at  24  or before the time at which the coverage of the  25  existing insurance terminates;   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  PATTER040  •  • 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20  "(B) that such cancellation no tice shall automatically take effect as lo ng as such notice is submitted pursuant to subparagra ph (A) and the new source of insurance specified pu rsuant to subparagraph (A)(ii) is licensed by the State in which such person resides to se ll such insurance in such State; and "(C) that, after submitting a notice, pursuant to subparagraph (A), which sati sfies the requirements of subparagraph (B), such person shall receive a refund of all premiu ms which have been paid by such person for such insu rance and of all premiums which have been financed by such person for such insurance; and "(2) at the time of such extens ion of credit, such person is given a written noti ce which is not part of any document involving such ex tension of credit and which contains a clear and cons picious statement-"(A) that such insurance is bein g purchased in connection with an extension of credit;  21  "(B) of the cost of such insuranc e;  22  "(c)' detailing  23 24 25  the cancellation provisions of  paragraph (1); and "(D) of the address to which any ca ncellation notice submitted pursuant to para graph (1)(A) shall  PATTER040 . c  .   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • 5  1 2 3  be mailed or delivered.". SEC. 4._  This Act shall take effect ninety days after  the date of the enactment of this Act.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 23, 1979  The Menorable William Proxmire Chairmen Committee op Banking, Housing and Urban Affairs United States Senate 20510 Washington, D.C. Deer Chairman Proxmire: Thank you for your letter of October 18 which re-uests the Board's views on an amendment which may be offered to H.R. 4986 which would delete the reserve reruirement provisions of the bill to the and effect that the Board could only apply reserve reruirements to AT NOV. accounts at member banks. The Board strongly opposes such an amendment. As you know, the Federal Reserve has been facing a and vccelersting loss of sombers. This membership attrition directly to the inecuitable reserve burden that member banks carry. We have been actively seeking a legislative solution problem for more than three years.  serious is related presently to this  The amendment whieb nay be offered ',,mould aggravate the problem.  The bill which is under consideration by the U.S. Senate looks tory to authorise a new service for most of our nation's financial deposi  einstitutions. In turn, the amendment looks to impose a reserve reruir be ment burden on only a limited category of institutions which would authorised to offer the ewe service--namely, banks that are members of the Federal Reserve. If such an additional burden is imposed on member banks only, the already considerable pressures to leave the Federal Reserve System would be increased for many of our nation's benks. I have a certain degree of sympathy for the argument made by Senator Morgan that this reserve issue be settled in the context of legislation which addresses n11 aspects of the Fed membership problem. The Federal Reserve under three Chairmen has been seeking such legisperiod lation, and vs will continue to seek it. However, in the interim  The Honorable Walk Page Two  i'roxmire  the Congress should not adopt legislative mensurea which would only exacerbate the serious membership problem we are facing which already La eroding the precislon with which we can implement monetary policy while creating serious competitive ineruities within the financial system. I hope that eb. Senate will not ndopt this amendment And maintain the wording of this bill as reported out of the senate Banking Committee which reouires that MOW accounts, share draft accounts and ASS accounts at all depository institution's be subject to uniform reierve requirements set by the Board of Governors of the Federal Reserve. Ultimately, I cnntinue to hope that the reserve rer.uirement grater can be settled in the context of bro-der legislation, but I also trust the matter All not be further Aggravated by failure to keep the reserve requirement provisiono of H.R. 4986. Sincerely,  San'A. YONiilit  KAG:PAV:pjt (,V-82) bcc: NNW Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  0  g4, WILLIAM PIROXMIRE. WIS., CHAIRMAN HAttlftlISON A. WILLIAMS. JR., NJ. ALAN CRANSTON. CALIF. LAI T SON E.144 N.c. S0 . ILL. i TR , EV Dd GEN.  e  DONALD PAUL S. DONALD PAUL E.  W. RIEGLE. JR.. MICH. SARSANES. MD, W. STEWART, ALA. TSONG.AS. MASS.  411  JAKE GARN, UTAH JOHN TOWER.'TEX. JOHN HEINZ. PA. WILLJAM L. ARM rneohro, COLO. NANCY LANDON KASSEGAUM, KANS. RICHARD G. LIMO" ND.  III '11Cnifeti ,.tatez -.Senate COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS  KENNETH A. MC LEAN, STAFF DIRECTOR N. DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANCES DC LA PAVA, CAMP' CLERK  WASHINGTON, D.C.  20510  4r/  October 18, 1979  The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20551  IIIF 1174,1.  Dear Mr. Chairman: The legislation recently approved by the Senate Banking Committee (H.R. 4986) would authorize nationwide NOW accounts (except for Federal savings and loans in California), share drafts, and automatic transfer savings accounts. Title II of the legislation authorizes the Federal Reserve to impose reserve requirements on such accounts within a broad range. The authorization would be for mandatory and uniform reserves on such accounts for all depository institutions and reserves would be maintained in a form consistent with the Board's past reserve requirement proposals to the Congress. I understand that an amendment will be offered on the Senate floor to delete the reserve requirement provisions of the legislation, so that the Board could only apply reserve requirements to NOW and ATS accounts at member banks. I would like to know the Board's views on eliminating the reserve requirements provision of H.R. 4986 for NOWs, share drafts, and ATS accounts at nonmember banks and thrift institutions.  11111.0A...1  'Ince eTiii! w 1 Chairman  re  WP:srl  .t. .  •••6  8 I DO 61.i61  MMMMm.  .-J11. •=1•   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  -  •  ,,- • • „.. , •••••••t.,alb  ••••,•:- •••• , 3 • •- •  4 '  •• 4 • 7 . •  •  2  4, :•  •  •  •4111  -•""  •  •  •  •  i  -  -  • •i  littsine... A dininist ration  •  ..r, , •••••"livA  - .. 1:1)GFIRS PkofisSOR  • r•  1.7  •-•  I.  sof  '1N k I Nt; .% NO El 'V •NCE  • w I  •  "1 I „ —.- •7 , -  •'  .-  Ey.;  I-:  OIt 1:(: ON 97403  '1 , * . " 1%,  ••-• •  Iv phi  C I) de 50 ,0 446. 30 II  • (A.  October 25, 1977  Congressman Henry S. Reuss, Chairman Committee on Banking, Finance and Urban Affairs' U.S. House of Representatives B301C Rayburn House Office Building Wasbington, D.C. 20515 Dear Congressman Reuss, This is in response to your request through Mr. Robert Auerbach for evaluation of the Board's October 6, 1977, report "Analysis of the Impact of Lagged Reserve Accounting". I have read the Board's report, and my principal conclusion is that it is not addressed to the major question that I believed you asked, namely "how has lagged reserve accounting affected the ability of the Fed to achieve its target growth rates in monetary aggregates?" Instead, the report primarily analyzes the effects of lagged reserves on variability in Fed funds rates and in monetary aggregates. I have no major disagreements with the report on these sections. I will comment on the report in the same order as the conclusions are presented on pages 1 through 3. 1. I have no evidence on cost savings to banks from lagged reserve accounting and will accept the results of the Board's survey, although it appears to be rather casual. The effect on membership was one of the major reasons for adopting lagged reseive accounting initially. 2. The effect of lagged reserves on the variability of Fed fund rates is not relevant for dynamic monetary, control. The finding that the variability increased after the introduction of lagged reserves is contrary to what was predicted in the 1966 System Report (Black Report). The fact that "enlarged defensive open market operators offset this tendency" raises the question of the cost—benefit ration of such operations. Defensive operations are not free to the economy, particularly when they reach $450 billion as they did in 1976. Of course, all of this increase is not attributed to lagged reserves. A large part reflects the change in. the management of Treasury balances. Nevertheless, if lagged reserves require significantly higher defensive operations, this cost should be considered.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  . Congressman Flenry S. Page 2 October 25, 1977  •  3. Likewise, the effect of lagged reserves on the variability in Ni and M2 is not directly relevant to the principal question. 4. I disagree that the "choice between lagged or contemporaneous accounting is of relatively little significance" for the Fed's ability to achieve its growth targets in M1 and M2 even under its current operating procedures. Under concurrent reserve accounting (CR), the Fed can change, say reduce, bank deposits (and thereby monetary aggregates) by selling securities on the open market. This reduces bank reserves. Banks respond by contracting deposits immediately to levels consistent with the available reserves. Under lagged reserve accounting (LR), required reserves in a reserve week are set to the dollar by depoits twe weeks earlier. They cannot be changed by either the banks or the Fed. Thus, 1) in any reserve period banks can change deposits without regard to reserves in the same period and 2) open market sales cannot reduce either aggregate required reserves or aggregate • deposits in the same week. Open market sales will affect only the mix of reserves between borrowed and unborrowed. As long as the Fed accommodates changes in money demand or non-Fed supply factors to maintain interest rates, CR and LR yield similar effects. But what happens when the Fed wishes to resist changes in money demand? Under CR, the Fed contracts reserves, and deposits follow. Deposits are now supply determined. Under LR, reserves cannct be contracted in the same week as the Fed must provide all the reserves that the bant.s require to support their deposits of two weeks earlier, either through open market operations or the discount window. The Fed can change deposits and thereby required reserves from demand determined to supply determined cnly by signalling to the banks that there will be a higher cost of reserves two weeks hence when the banks need the reserves to satisfy thiS week's deposits and required reserves. As the future cost of reserves increases, ceteris paribus, the banks will reduce derrtsits now. Thus, LR changes the cutting edge of dynamic monetary control from open market operations tc discount management. A higher reserve cost in the future may be signalled by either or both an increase in the nominal discount rate or an increase in the effective rate through a more'restrictive discount administration. Without this, deposits remain demand determined. (The reluctance to signal a sufficiently high future cost of reserves can account for the more rapid than target growth rate in monetary aggregates in recent periods.) If the Fed is reluctant to use the discount mechanism to signal changes in costs, the choice between CR and LR matters even under current operating procedures. LR introduces a procyclical bias into monetary control. I enclose pages 533-34 from my textbook, Money, The Financial System and the Economy (second edition), which expands on this argument. 5. I concur with this conclusion except for the statement that would result in "unprecedented shert-run variability in the funds rate." There is at least some evidence that in the absence of Fed defensive operations, the private sector will smooth out the shert-run interest rate volatility. Moreover,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CR  ' Congressman Henry S. less Page 3 October 25 , 1977  •  it appears that it currently requires an "unprecedented" volume of defensive variability in the Fed funds rate. operations to avoid %.JtCLI  6. The study uses the wrong measure for gauging the effectiveness of CR or LR for longer-run monetary control. Rather than variability in either rates or aggregates, the relevant measure is variability in the difference between the targeted and realized rates of monetary growth. In sum, there is nothing in the Board's report to indicate that lagged reserves have not weakened the Fed's ability to attain its target growth rates in monetary aggregates.  e eorge G. Kaufni n CGK:sd Enclosures   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  S LiOARO OF EOVERNORS or THE  FEDERAL RESERVE SYSTEM %VA5HIN:370N, 0. C. 20551  G. WILLIAM MILLER CHAIRMAN  C7.)  I  -• '  1;  :)  May 1, 1978  f  The Honorable Henry S. Reuss Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Mr. Chairman: Thank you for your letter of April 18 conveying further views on lagged reserve accounting. By now, considerable work on the subject has been undertaken by our staff and by economists more generally. The issues involved appear to be clear, though judgments about the importance of the whole question may well differ. As you know, the Board has been carefully reviewing actions that might be taken to mIke membership in the Federal Reserve System less burdensome. As part of this effort, the Board may also be in a position to reassess the desirabiliq of lagged reserve accounting. Sincerely,  CHAIrrklAN • tiOr.a A4 L. AS1 40..E Y. Wit LIAM 5. F.1904F1:-. AD. PA. FII1NA:40 J. Sr cc:r1.-4A1P1. 0.1. Fri:Hay 0 c"..-)N:AL, ... 1r x. JusLPII C.. MPiIc1 N J. PIiA J:<ANNI/Nzr, .. ILL. Pi Y. J. NI, TCrn_LL. MD. WM.nrc V AU Ii. D.C. STI.f•Ni Ni L. r: C. Jzirrty p.i. Fv. r •,:•M. CALIF. JAML'..; J. Co. 1.11CFI. PAr/kc  7.4  CAIN7:,..rL L. 0". rt• JOIN  LAO  • U.S. HOUSE OF REPIENTATIVES COM%!irTi.i: ON BANKING. FI:;.:!;C= NINETY-FIFTH Cr'  21  liAN AFFAIRS - .  P AY ErjilN  V/ASI-IINGTON, D.C. :•:61 .- ) •_‘..•4As4.  .1 !Alt LIAM NTANTOY.4. OHIO C.A;NrY n.rowN. to:cH. CI at WYLIE. OHICF JoHNic. IIOUS.5ELOY. CALIF. Sri WAy 0. McKim:41y. coNN. ilANsLn. IDAHO N'IY J. HYDE. 0.1. Ftic..!:A 1tO N.LILY. FLA. CI I AP. ..IS E. GRASSLEY. 10.mA m'LLIZVNT F IN:WICK. N.J. JIM LIZNEll. IOWA fon I. STEC 05. JR.. MD. 1w:1:AA'SII. rvAu.S., • DNA.. •  I. LA — UTO. UP C. HOLLENUECK. N.J.  L'S A•JC_r_V!1. PAUL L. 1".0N -. OU ;LEFF MA/o<  r's-.•!47  •  .1. C. i/ANn 4.rr• 1D. CALIF.  ELIFF0*-rD  r.N. NoNs•AN F. u A•Aovir:. N STsov_LY N. F.. N.Y.  June 21, 19/1  tIERNIAN rAJILQ. P. V. rov AHD JOHN J. CAvArsAUGH. NE 014. MANY Ho:: OAKAM. 0F110 JIM MATTOX. 71.X. IDRUCI F. Vi:N TO. MINN. DOUG I'AFfNAIrLr. CA. WLS WATK 1 /45. OKLA.  The Honorable G. William Miller Chairman Board of Governors Federal Reserve System Washington, D. C. Dear Mr. Chairman: Thank you for your prompt replies on the subjectE;of doing away with lagged reserve requirements and staggering the reserve settlement dates contained in your May 1 and June 16 letters. In your May 1 letter you indicated that the Board may also be in a position to reassemthe desirability of lagged reserve .accounting. Would you let Me know if this issue has been considered by the Board and, if not, when it will be considered. I would also like to be informed of the Members' views on this important issue of monetary control. •  In your June 16 letter you indicate that the subject of staggered settlement dates has been much discussed over the years. Would you send me all pertinent reports and studies that have been done since the Federal Reserve received Milton Friedman's 1965 detailed Memorandum strongly supporting staggered reserve accounting. This will be very useful to me and to the scholars I have consulted on this issue. I would also like to be kept informed of the review that you indicate in your June 16 letter your staff: will now undertake of this issue. The cost of the massive chucning of the Federal Reserve portfolio, to the tune of $1.2 trillion in 1977, as well as the effect of this churning on the obligation of the Federal l'Zscrve to monitor the money supply as well as intece3t rates deserves immediate attention.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  L. t.  NI1 411.91,1111,"t  • Page  Two  The Pon. G. Wii1.iir. June 21, 1978  111cr  I am deeply inLerested in anythim.; that can be done to improve the Fecli=?ral Reserve's ability to brinci clown interest rates and bet— ter control the money supply.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely, S. Henry S. Reuss Chairman  CHAIRMAN 6 HE:PU.4Y S. P,USs. THDMA5 A.. ASHLEY. OHIO WILLIAm 5. MoORHAD. A. FEStMAND ). sr GERmAiN. R.I. HENRy D. GONZALEZ. TEX. JOSE Pt-4 O. MINiSH. N.J. FRANK ANNurtz.10. ILL. JAm.Fs M. HANLEy. PARREN J. MITCHELL. MD. WALTER E. FAUN TrroY. D.C. STEPHi.N L. NEAL. N.C. JERRY M. PAT TRSoN. CALIF. JAMES). DLANCHARD. MICH. CARROLL HUE374A4O. JR, KY. JOHN J. LAFALCE, N.Y. GLADYS NOON SPELLM 544, MD. LES AuCOIN. OPEC. PAUL E. TSONCIAS. MASS. DUTLE.R OFRRICK. S.C. MARK W. HANNAFORO,CALIP. DAVID W. EVANS, IND. NORMAN E. D'AMOURS. N.H. STANLEY N. LUN DINE. N.Y. EDWARD W. PA -ION. N.Y. JOHN J. CAVANAUGH. NEBR. MARY ROSE:(DAKAR. OHIO JIM MATTOX. TEX. DRUCE F. VENT°, MINN. DOUG BARNARD. GA. WES WATKIN3. OKLA. ROBERT GARCIA. N.Y.  USE OF REPRESENTATIVO  U.S.  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-FIFTH CONGRESS 2129 RAW3URN  HOUSE OFFICE  nUILDING  WASHINGTON, D.C. 20515  J. WILLIAM sTANI OHIO ' GARY tiROwN. MICH. CHALMERS P. WYLIE. OHIO JOHN H. ROUSSE LOT. CALIF. STEWART D. M:KINSY. CONN. GEORGE HANSEN. IDAHO HENRY J. HYDE. ILL. RICHARD KELLY. FLA. CHARLES C. GRAsSLEY. IOWA MILLICENT FENWICK, N.J. JIM LEACH. IOWA NEWTON I. STEERS. JR.. MD. THOMAS D. EVANS. JR.. DEL BRUCE E. CAPUT°. N.Y. HAROLD C. HoLLENsF.CK. N.J. &WILLIAM GREEN. N.Y. 2.25-420  August 10, 1978  The Honorable G. William Miller Chairman Board of Governors . Federal Reserve System Washington, D. C. Dear Chairman Miller: Your testimony on July 27 and 28 contributed importantly to the Committee's understanding of the Fed's current monetary policy and to our deliberations on legislation to improve monetary control and resolve the membership problem. We have, as you know, developed legislation, the Federal Reserve Act Amendments of 1978, which resolves the membership problem and facilitates the Federal Reserve's ability to conduct monetary policy. I would like to call your attention to four problems related to monetary control, and make one suggestion for improving the Federal deficit, all of which I believe the Federal Reserve can effectively deal with through regulatory provisions. The first problem is the failure of the Federal Reserve to present target ranges for M1 which it intends to live within. This is an issue with which we are both concerned, because the failure by the Federal Reserve for more than a year now to keep M1 within its announced growth target range has had unfortunate monetary effects, both at home and abroad. The Federal Reserve's response that its current M1 target. range starts from a high . base, and therefore is more realistic than it appears, in no way alters the fact th,lt it is misleading. I recommend, as I have before, that for the immediate future, the Fed fix its M1 limit at a level consistent with our nation's goal of a healthy economy and stable dollar, and then stick to it.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  111  The Honorable G. William Miller August 10. 1978 Page Two  411  The second point concerns the elimination of lagged reserve requirements and - the reinstitution of synchronous reserve requirements. I was cheered by your statement in our hearings on July 28 that "in terms of operation it would be preferable to be on a current basis". You indicated that you would make the change to synchronous reserve requirements "once we can alleviate some of the membership problems." The proposed legislation, the Federal Reserve Act Amendments of 1978, would do just that. I want also to call to your attention the comments of President Morris of the Federal Reserve Bank of Boston at our hearings on July 31, 1978, that he has been "an advocate of eliminating the lagged reserve requirements. I think we ought to move ahead in that." The third problem is the Wednesday scramble in and out of reserves as every member bank in the United States is forced by Federal Reserve regulation to come up with the necessary reserve requirement for the preceding week at the close of business on Nednesday. In my June 21 letter to you on this subject, I asked for all pertinent reports and studies that had been done on this subject: since the Federal Reserve received Milton Friedman's 1965 detailed memorandum strongly supporting staggered reserve accounting. On July 11, you sent me a staff study dated December 9, 1975, revised July 6, 1978, which seemed to indicate a problem with my suggestion that we adopt a system of staggered settlement dates so that 20 percent of the weekly reserve requirements could be settled on each week day. William Poole, Professor of Economics at Brown University, formerly a member of the staff of both the Board of Governors and the Boston Federal Reserve Bank, and currently an advisor to the Federal Reserve, has analyzed your staff study. His enclosed remarks conclude that rather than attacking a system of staggered reserve settlement dates, your staff meniorandum actually "strengthens the case for such a system". The fourth point concerns the discount rate. Currently, changes in the discount rate can be and often are misinterpreted. When other short term rates are falling, decreasing the discount rate can be interpreted as a sign that the Fed is easing when in fact it is only moving with the market. Vice versa, when other short term rates are rising, increasing the discount rate can be interpreted as a sign that the Fed is tightening when, again, -it is only moving with the market. To make sure that changes in the discount rate are unambiguous, and also to minimize arbitrage possibilities, you could tic the discount rate to the Treasury bill rate, or the Federal funds rate or some index of short-term 1 4 or / 1 2 point above the formula rate -- except rates -- perhaps / in unusual circumstances when there is good reason to send the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  The Honorable G. Wiiiiam Miller August 10, 1978 Page Three  •  financial community an unambiguous signal that the thrust of monetary policy is. being changed. In those rare instances when a nal was needed, the Board, responding to initiatives from the Reserve Banks, would set the discount rate at a rate other than the one dictated by the formula, good for one week and renewable. If set above, it would be a clear signal that policy was being tightened. If set below, it would signal that policy was being eased. Needless to say, the Reserve Banks and Board would have to review and determine whether circumstances dictated setting the discount rate above or below the formula rate every week, even though the occasions for departing from the formula rate would be rare. Review and determination of the discount rate would, I believe, be far better focused under this procedure than presently. My fifth point concerns the $1 billion plus surplus which is sitting in the Federal Reserve's attic, covered with dust, and serving no useful purpose. You have offered to dust off $575 lion Of the surplus and ship it over to the Treasury to offset part of the cost of solving the membership problem. Actually, of course, in a consolidated statement of government finances, the surplus would not exist and it would not affect the real income of our zens in any meaningful way whether it was a bookkeeping entry at the Federal Reserve or at the Treasury. I do not think we should obscure the cost of the various legislative proposals by encumbering the calculations with shifts in the surplus. The transfer of the surplus to the Treasury will, however,. make our deficit look smaller. Whatever psychic income this cosmetic benefit produces is surely preferable to allowing the surplus to gather further dust. Why not transfer the surplus in its entirety, at whatever rate your comptroller is able to adjust his books? Let me thank you for your thorough testimony during two long days of hearings on July 27 and 28. Your comments have been very helpful in our deliberations.  Sincerely,  [ Henry S. Reuss Chairman  Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I: 0 NNT N  1..J N I \ I  S I 'I'  Prot iderit c,  Isburd - 02912  July 25, 1978 The Ilcnorab]e Henry g. Reuss Chairman U. S. House of Representatives Committee on Banking, Finance and Urban Affairs Ninety-Fifth Congress 2129 Rayburn House Office Building Washington, DC 20515 Dear  Chairman Reuss:  I am replying to your letter of July 18, 1978, concerning the memorandum by Daniel Laufenberg on staggered reserve settlement periods. Overall, I believe that the Laufenberg memorandum provides some insight into the economics of staggered reserve periods, and strengthens the case for such a system. The table on page 2 of the memorandum illustrates very nicely why staggered reserve periods would not lead to an effective evasion of monetary control. The increasing oscillations in reserves that show up in this table clearly could not continue for very many periods. In the middle of page 3 of his mmorandum, Laufenberg dismisses the argument that the gro:?ing oscillations could not continue. His argument, hoever, is hardly convincing. For one thing, it is simply not true that banks pay no attention to the behavior of the banking system as a whole. His argument reminds me somewhat of the argument for a chain letter. A chain letter can continue so lonu as no one bothers to exa;Ane 4-r2ic -itions, but in fact most people do nnderstand the implications of chain letters and they don't go very far. Similarly, banks would surely understand the implications of the extreme oscillatory pattern shown on page 2 of the memorandum an3 would not permit that pattern to go very far. Another important reason that the oscillatory pattern could not go very far is that banks lending federal funds pay attention to the credit worthiness of the borrower. Thus, banks would not be able to borrow the growing amounts shown in the table because other banks would refuse to lend such large amounts. Each individual bank, knowing that the sup-r-ply of federal funds to it will be limited by the behavior of the lending banks, would take some action to dispose of assets long before the violent oscillations got very far along.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Page 2 • July 25, 1978 The table on page 5 of the Laufenberg memorandum provides a simple example of how staggered reserve poviods miOt work when banks undertake to sell assets in order to adjust their reserve positions. The striking thing about the table is that the change in deposits is spread over a series of periods. -It should b2 emphasized that: with contemporaneous reserve requirements and no staggering of reserve settlement periods, the assumed decline of reserves of 10 in the first period would force an immediate decline of 100 in deposits under the assumptions employed in this example and assuming no Federal Reserve offsetting action. The Laufenborg table, in contrast, shows that the decline in deposits comes in a series of steps spread over time rathcr than all in one big swoop. It is surprising, therefore, that Laufenberg utilizes this example as indicating a potential problem with staggered reserve settlement periods. The basis of Laufenberg's criticism of staggered settlement periods comes from solving the difference equation at the top of page 7. This equation is derived from the very simple assumptions which should be regarded as being useful for illustrative purposes. But surely it is a mistake to teike an example set up for illustrative purposes and then to crank through its mathematical pr55.9rties without paying any attention to how the model might: be slightly off. When the simple moael is solved the problem is that the solution involvos indefinite oscillations in deposits, as emphasized by Laufenberg at the top of page 7. The artificiality of this result:can be demonstrated very easily. Suppoe we go back to the simple assLimption in the model at the top of page 6 as written dosn in equation (2). Underlying equation (2) is the notion that each bank would adju3t its asset sales in ordar to exactly achieve its required reserve position, without making any allowance for hoading excess reserves or any allo%Niance for possible borrowing irom the Federal Reserve. Suppose equation (2) is written in a slightly altered fSrm which I will call (2a). •  (2a)  AP  t  ) = 1.99 (ER + .5 AD t-1 t-1  Equation (2a) has the assumption that the bank covers practically all of a reserve deficiency, borrowing just a little from the Fed; or uses a reserve excess almost completely to purchase assets, but holds just a little uninvested Lo provide an excess reserve cushion. All I bave done . is to change the 2 in Laufenborg's equation (2) to 1.99 in my equation (2a). If this substitution is made and the resulting model solved it will be found that the system is still oscillatory blit it is damped. Thu if equation (2a) rather than (2) were to discrib.2 bank behavior, then the Laufenberg conclusion that deposits would increase, and then decrease, and so on indefinitely would be changed and the correct conclusion would   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  Eenry S. Reur.s pdoe 3 July 25, 1978 41;Dr:.  be that the oscillations would damp:q1 over time so that deposits would converge to their lon-run equilibrium level. The point of all this is not to say that equation (2a) is correct and equation (2) is incorrect; rather, it is to cmphasiz.c that a model of this type should be considered as illustrative and not as accurate enoui that we would want to rely on its detailed mathematical properties. My considered opinion is that the illustrative model has the correct implication that the response of deposits to a reserve distrubance would • over spread out be time to a greater extent than would the response Under a conventional reserve system assuming that there is no Federal Reserve intervention. But to read more into this simple model is a grave mistake. There is no reason to believe that the actual behavior of the banking system would ba anything other than very stable under staggered reserve periods system. Finally, even if the staggered reserve system has some tendencies toward the instabilities identified by Lnufenb.erg -- and I want to emphasize that I do noL in fact believe that these instabilities exist -LnuCenberg's memorandum is seriously deficient in not ma'king a proper com parison between the staggered reserve system and the present system. For one thing, any reasonable simple illustrative model of the present lagged reserve system will show much more violent in3Labilities under the same assumptions that Laufenbarg has applied in his memorandum. Secondly, the actual system cannot be analyzed in the context of the assumption that the Federal Reserve never intervenes to smooth disturbances. The problem with the present system is that it magnifies and amplifies disturbances -- instead of damping them and spreading them out as staggc!red reserve periods would do -- requiring tremendous amounts of Federal Reserve activity to smooth out the disturbances caused ly.), the carrent faulty regulations. Thus, the result of the present system, given the way the Federal Reserve behaves, is to generate the large continuing procyclical movements in the money stock that we have observed so often in the past and have been observing in recent months. I hope my analysis of the Laufenberg memorandum has not been excessively long, but it is not a simple matter to explain exactly where Laufenberg's approach goes off base. Should you have any further questions please feel free to call on me again. Sincerely, t  William Poole Professor of Economics WP:m3m   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  fmNAND J. ST GE1ImAIN. R.I. HENRY 11. GONZALEZ. TEX. JosErtl G. P.it,JISH. NJ. FRANK ANNUNzlo. ILL. JAMS M. HANLEY. N.Y. vARREN J. p.iirciiKLL. WALTER E. FAuNrRoY. D.C. STCPHEN L. PEAL. N.C. .)!:11RY M. pATTERSON. CALIF. JAMES J. oLANcilAclo. miCit. CARRoLL HuDFIARD. -M.. KY. JOHN J. LAFA,_cr. N.Y. GLADYS NOON !.Pr LIMAN. MD. ES AuCOIN. 074EG. DAVID W. EVANS. IND. NORMAN C. D'AMOURS. N.H. STANLEY N. LUND'S:77. N.Y. JOHN J. CAVANAUGH. MARY ROSE. OAK AR. OHIO JIM MATTOX. 7LX. 1JRUCE F. VF-NTO. M:NN. DOUG DARNARO. GA. OKLA. WES WATK I Psi ROBERT GARCIA. N.Y. MIKE LOWRY. WASH.  U.SOOUSE OF REPRESENT-KT-10S A0 COMMWEE ON BANKING, nNANCE AND Ulii3AN NINETY-5IX TH CONC;HESS 2129 RAYBURN  Flour;E:  OFFICE BUILDING  WASHINGTON. D.C. 20515  RS  CLORGL HANSEN. IDAHO IIENRY J. wear. ILL. RICHARD KELLY. FLA. JIM LEACH. IOWA 1110MAS 11. EVANS. JR.. CEL. S. WILLIAM GREEN. N.Y. IRON PAUL.VEX. ED HETPIGNE. ARK. NORMAN D. SHUMWAY. CALIF. CARROLL A. CAMPBELL.JR.. S.C.. DON RITTER. rA. JON HINSON. MISS.  225-4247  September 26, 1979  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. Dear Chairman Volcker: The recent increase in the discount rate to 11 percent and the threat of even higher discount rates is in part a result of the method by which the Federal Reserve regulates the required reserves of member banks. The present system of lagged reserve requirements requires sharp increases in the discount rate in order to slow deposit expansion. If the lagged reserve requirement system is ended and the sys.tem used until September, 1968 -- concurrent reserve requirements -was instituted the Federal Reserve would not nr.!ed such high discount rates to bring the money supply under control. Under lagged reserv2 requirements the Federal Reserve cannot slow down money growth through open market operations without throwing the member banks into deficient reserve positions which violate your regulations. The Fed is forced to control fast money. growth by raising higher than would he necessary the discount and Federal binds rates under concurrent reserve requirements. I am enclosing a recentsletter from Professor George G, Kaufman, former Vice President of the Federal Reserve Bank of Chicago and currently the John B. Rogers Professor of Banking and Finance of the College of Business Administration at the University of Oregon. He emphasizes these points in relation to current Federal Reserve policy. "The recent apparently unintended acceleration in monetary growth appears to me to be attributable in part to lagged reserves. Further sharp increases in the discount rate will be needed to slow deposj.t expansion if loan demand remains strong. This strategy appears less desirable to me then a strategy of open market sales under concurrent requirements " I would hope that the Federal Reserve could immediately switch to concurrent reserve requirements to avoid unnecessary increases in the discount rate.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely, Henry S. Reuss' Chairman • VI  Assigned to Ire Axilrod   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .10 •  HENRY S. REUSS. WIS., CHAIRMAN THOMAS L. ASHLEY, OHIO WILLIAM S. MOORHEAD, PA. FERNAND J. ST GERMAIN, R.I. HENRY B. GONZALEZ, TEX. JOSEPH G. MINISH, N.J. FRANK ANNUNZIO, ILL. ES M. HANLEY, N.Y. JAMI I PARREN J. MITCHELL, MD. WALTER E. FAUNTROY, D.C. STEPHEN L. NEAL, N.C. JERRY M. PATTERSON. CALIF. JAMES J. BLANCHARD, MICH. CARROLL HUBBARD, JR., KY. JOHN J. LAFALCE, N.Y. GLADYS NOON SPELLMAN, MD. LES AuCOIN, OREG. DAVID W. EVANS, IND. NORMAN E. D'AMOURS, N.H. STANLEY N. LUNDINE, N.Y. JOHN J. CAVANAUGH. NEBR. MARY ROSE OAKAR, OHIO JIM MATTOX, TEX. BRUCE F. VENT°, MINN. DOUG BARNARD, GA. WES WATKINS, OKLA. ROBERT GARCIA. N.Y. MIKE LOWRY. WASH.  •  J. WILLIAM STANTON, OHIO CHALMIRS P. WYLIE, OHIO STEWART O. McKINNEY, CONN. GEORGE HANSTN, IDAHO HENRY J. HYDE, ILL.  U.S. HOUSE OF REPRESENIT-ATI VES COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-SIX T H CONGRESS 2129  RAYBURN HOUSE  OFFICE BUILDING  WASH I NGTON, D.C. 20515  RICHARD KELLY, FLA. JIM LEACH, IOWA THOMAS B. EVANS, JR., DEL. S. WILLIAM GREEN, N.Y. TroN PAUL, TEX. D BETHUNE, ARK. NORMAN D. SHUMWAY. CALIF. CARROLL A. CAMPBELL, JR., S.C. DON RITTER, PA. JON HINSON, MISS. 225-4247  September 26, 1979  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. Dear Chairman Volcker: The recent increase in the discount rate to 11 percent and the of even higher discount rates is in part a result of the method by which the Federal Reserve regulates the required reserves of member banks. The present system of lagged reserve requirements requires sharp increases in the discount rate in order to slow deposit expansion. If the lagged reserve requirement system is ended and the system used until September, 1968 -- concurrent reserve requirements -was instituted the Federal Reserve would not need such high discount rates to bring the money supply under control.  I  Under lagged reserve requirements the Federal Reserve cannot slow down money growth through open market operations without throwing the member banks into deficient reserve positions which violate your regulations. The Fed is forced to control fast money growth by raising higher than would be necessary the discount and Federal funds rates under concurrent reserve requirements.  I am enclosing a recent letter from Professor George G. Kaufman, former Vice President of the Federal Reserve Bank of Chicago and currently the John B. Rogers Professor of Banking and Finance of the College of Business Administration at the University of Oregon. He emphasizes these points in relation to current: Federal Reserve policy. "The recent apparently unintended acceleration in monetary growth appears to me to be attributable in part to lagged reserves. Further sharp increases in the discount rate will be needed to slow deposit expansion if loan demand remains strong. This strategy appears less desirable to me then a strategy of open market sales under concurrent requirements." I would hope that the Federal Reserve could immediately switch to concurrent reserve requirements to avoid unnecessary increases in the discount rate.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely, Henry S. Reuss ' Chairman  •  • johtv  1';40.1•• •••:  (if  i:1:1:( _  ••‘• to.• Con,:•• UNIVI-.1:IFY 01 oRF(,ON qi-101 503/6M-.33! September 7, 1979  R  Congressman Henry S. Reuss Chairman, Committee on Banking, Finance and Urban Affairs U.S. House of Representatives B301C Rayburn House Office Building Washington, D.C. 20515  CA V.1 V D sEi" 1 )10 & Ultan Maly; Ctitt:i  Dear Congressman Reuss, Two years ago you requested me to comment on the effectiveness of lagged reserve requirements for Federal Reserve control of the money supply. In my letter dated November 18, 1977, I argued that lagged reserves impede the ability of the Fed to control the money supply. This view was not accepted by the Federal Reserve, in particular by Chairman Burns. In case you may not have seen it, I enclose a copy of an article entitled "Monetary Base Control" that is published in the June 1979 Quarterly Bulletin of the Bank of England. . As in the U.S., reserve requirements in England are lagged. ,13,1-,t71' to' authors conclude that "changes in deposits must cause the allow changes in bank reserves, and not vice versa, so that monetary base movements can hardly either control, cause or even indicate' future movements in bank deposits." They suggest that if control of the monRy supply is to be the prime objective, concurrent or lead reserve requirements should be imposed. The latter scheme was recently proposed by Robert Laurent of the Federal Reserve Bank of Chicago. The recent apparently unintended acceleration in monetary growth appears to me to be attributable in part to lagged reserves. Further sharp increases in the discount rate will be needed to slow deposit expansion if loan demand remains strong. This strategy appears less desirable to me then a strategy of open market sales under concurrent requirements. ely,  /  / /  7 eorgel C. Kaufman CGK:sjd Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  an equal opportunity  irtnatille  ph rfoyer  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Journal article Citations:  Number of Pages Removed: 11  Foote, M.D.K.W., C.A.E. Goodhart, A.C. Hotson. "Monetary Base Control." Quarterly Bulletin [Bank of England], June 1979.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 17, 1979  lhonoreblet all SWUM Malted States Smote lissidostes, *Ail 20310 4evitt $155tar Saissest 1 ma please& to reeplit to your annant letter rowdies' the effects of higher interest voter eainf1timi. Oboe tbe oesionsess* of our infletion problem, this cert•eiely La an *portant emotion. It is, in fEct, not a new owe; one can find it discussed in the esameede literature of tibs nineteenth century. I believe it fair to Sly that the accumulated owidense—tbeeretical mid enpiricAl—poines Osnmisobegly to the eentlysies that, while rising istoreet rages that often accompany nometory restraint do stild teasels and place mos upward preestlre as prises* tblos enact is small and Ornrridden by the estiinflationary tweet sederation of esposate demond teseered by hishee interest estee• I efthe just mention tee papers that hove  of  annmemed this speeifie topic: T, Mimpheer, "The lateral* Cest-Pelib Gestersvessi,' Pidevel Seeerve Besh of Richmond wisikageigo, Jenmeryillibrenry, 19/9* pp. 340.  Se Seelig, "Nleie, ineseeet sates wad Cost-Push InftAtion,' Sepeelber, 191, op. V34940i1. ihis00,7 *Etta* comeltulas thPt the great Swedish assist !taut Winbeell lopeewided the deftive critique'* of Obe tOOMPOOt goat push doctrine* All* the Seel* article presents a detailed indostry-level 00010Matric evileetioe of tebeeset goat tep,cts on prises. The findings of dbmee softer* are confirmed by other reeegrch so moll* iscludiaS informal iovestigations by staff at ehs Beard of Gevegumes.  sigh interest rates and rapid leflotial met to be ours, Mated 0141110.01110. 1s inn/Alan accelerates, leaders and harrowers alas onticipste the effects of rising prime as tbm perchasing power   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  F  The lorable Jim !;ai.iner Page Two  of eventual loan repayments. The result is hither nominal rates of interost. An attmee to overcome this tendency would re<uire faster empansion of the mew supply, but SW* 8 policy on the port of the ccntral beak mould very cuickly prove emmeerproductive as the flood of Aditional dollars wolf lead to still treziter inflation and stronger upward Fromm as toftestt rate*. My colloquial, Ond I SI 11.1*Seard oemoittvo to the difficulties caused by hift:rieftreet rates. We wry um& would like to see 01 return to the fat.* that prevailed in the lIlle mod early 19505. asalistioally. Weever, that cennot occur men isitettee is brave& dome 41111 aGOWN Of inability is restored to the esememy. belie's that do policies ve bees instituted, which -.re inefedind to *chime the asedimisediecoties of useetary eMpeneion provide the beet bops of lattaisieg thee geol. Of course, other gowerseants1 policies also boo a port to plays eed is tbla regard the of of the SOMOSO Deft* Oesivittee to esistets flood discipline Are to be esomemied6 Sioseroly. SiPaul A.liplcig  M.7.12:JUEspjt (#v-62) bcc: Mt. Kiehl's* me. Proll Was. Mallardi (2)  .14  1011.  JIM SASSER  •  TENNESSEE  .Aissgned to Jim KiciOn e  •  CS: TIONS •T GOVERNMENTAL S.FFAIRS  'Z'Ttlitcb Zfafez ,Senate WASHINGTON. D.C. 20510  Lxr  October S, 1979  Vfr Honorable Paul Volcker Federal Reserve Board Twentieth Street and Constitution Ave. NW Washington, D. C. 205S1 Dcar Mr. Chairman: Interest rates in the United States have rcached record highs at a time when the economy is clearly in a recession. Given the lags which are required to measure the extent of current restrictive policies and the extent of tho economic decline in progress, I am really concerned that our monetary situation has become overly restrictive, and that a deep and prolonged recession may already be unavoidable. you know, inflation is still the principal problem we face today. Thus a restrictive fiscal policy is needed to the inflationary effects of •reduc federal deficit spending. However, excessively restrictive monetary policy makes the task of fiscal discipline more difficult as output decreases and unemployment rises. If these policies are continued or extended, I do not hold out much hope to the taxpayers of this country for balancing the budget in 1981 as I had hoped. As•  fer'st-  A  You have recently announced your continuing commitment to a policy which allows interest rates to remain high, or go yet higher. I am disturbed by the potential consequences this policy carries for American working people. While I appreciate the need for concern about the international financial situation, I am deeply concerned about a policy which seeks to accomodate our foreign currency competitors at the expense of our own people. I do not think we should be allowing the burden of international monctary deficiencies to be carried on the backs of American farmers, small businessmen, and taxpayers. If a new international   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ',1110•1•1111.  • •. • •'  • saw  •  •  Honorable Paul Volcker October 5, 1979 Page Two  monetary system is needed to ease currency crises such as the one we now face, is the government pursuing actions to put one in place? What other options are available to improve the stability of the dollar? I want to be satisfied that this government is doing everything it can to reduce pressures on the dollar before resorting to even higher interest rates. It seems to me that at some point, interest rates add to inflation, and to the depreciation of our currency, rather than to alleviate these problems. I believe we have already reached that point. Yet there is no measurement the government now makes which gives a comprehensive assessment of how interest rates affect the inflation rate. I fail to see how rational policies are possible without these data. Getting a better grip on the inflationary cost of rising interest rates will help the government and the private financial sector to determine the full consequences of our monetary policies.  OM•MaIN ,  Toward this end, I request that you look into two aspects of this matter. First, what is the best estimate of the effect of current market interest rates on today's inflation? Second, what is the feasibility of establishing a new, comprehensive measure of the interest component in the inflation rate? It would be appreciated if this study addressed, but is not necessarily limited to, the following questions: 1. What are the existing methods by which government agencies measure interest costs in the economy? 2. What are the measureable ways in which interest costs can be recorded? 3. Since rising interest rates add to household and business costs, do they not add both to current   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1  1."1111•=11.  t• •t • .• ""  •  •  • Honorable Paul.Volckor October S, 1979 Page Three  and to inflationary expectations which serve to perpetuate high, and oven rising, inflation?  ...  I would appreciate your careful consideration of the questions I have raised, and look forward to your response. N   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  'rely,  Lirlm  J m Sasser nited States Senator  L__ 61r  . •ek.  s • ,  • Ts  s• 4s.,40.74.-s-  g•'"  .   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 16, 1979  The Sannatable Timothy . ',Arch Milhor of Coogrees MIS Wont Colfax Avenue Lakoused, Colorado 80213 Dear Mr. Wirth: Thank yowl for your letter of October 1 regarding difficulty Oademetered by your constituent, Mr. Joseph Cain, in obtaining a loan from Capital Federal Sayings in Denver. By statute, the board's primary supervisory jurisdiction is limited to banks which ate members of the federal Reserve System. Primary supervisory authority aver Federally chartered savings and  BAnk Board. loan associations mooing with the Federal Rome Accordingly, I am referring your refinost to that agency for reply. Sincorely yours, floripTA I. WI ioneld J. Winn .ipedal Assistant to the Board cc:  Congressional Linison Office Federal Home Loan Bank Board  CO:smk (#V-71) Ma1lardi6MV bcc:  TIMOTHY E. WIRTH 20 DISTRICT, COLORADO  •  WASHINGTON OFFICE: 312 CANNON HOUSE OFFICE BUILDING  .1V 4:11 S..re 4  WASHINGTON, D.C. 20515 (202) 225-2161  COMMITTEES:  BUDGET INTERSTATE AND FOREIGN COM MERCE SCIENCE AND TECHNOLOGY  CONGRESS OF THE UNITED STATES  DISTRICT OFFICE: 8648 WEST COLFAX AVENUE LAKEWOOD. COLORADO 80215  HOUSE OF REPRESENTATIVES  (303) 214-5200  AIR FORCE ACADEMY BOARD OF VISITORS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  WASHINGTON, O.C. 20515  October 1, 1979  Mr. Paul Volcker, Chairman Federal Reserve System Board of Governors of the Federal Reserve System Twentieth Street and Constitution Avenue Northwest 20551 Washington, D.C. Dear Mr. Volcker: A constituent, Mr. Joseph Cain, has contacted me complaining that Federal banking regulations create difficulty in obtaining loans for energy conservation. Mr. Cain talked to Capital Federal Savings in Denver about a loan to purchase storm windows for five rental units. Capital Federal said banking regulations required separate loans for each unit. Since the loans cannot be combined into one large figure, Mr. Cain would have to repay the loan over a much shorter term A shorter term, of course, would mean higher monthly payments and Mr. Cain said his cash flow will not allow him to meet such high payments. I would appreciate your attention to this matter and any Please direct any correspondence assistance you can offer. to my Colorado District Office at 8648 West Colfax Avenue, Lakewood, Colorado 80215. With best wishes, ncerely  s  tik Timothy E. Wirth TEW:scr  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 16, 1979  Ihe Semerable Paul P. Tesoro Chairmen Consumer ffairs Suboommittee Connate. on Sashimi, Menstan en4 Urban Affair, United States Senate Washington, D.C. 20510 Dees Chairman. tsemgae: I so pleased to enclose the attached responses to poor September 26, 1979 letter. I will fermerd the inguametiem poor staff oubeetmently ra,-nestad As soon as possible. any aseetions Mardi the If pea or your staff he attached response., please sontact Jeannine Clesions, Sorriow fteminors at (202) 452-3960. Sincerely, Voicket  Attachments =souk (#V-47) bcc: Jeanine Catalano Catherine Hallnrdi(2)  WILLIAM PROXMIRE, WIS., CHAIRMAN HARRISON A. WILUAMS, JR., N.J. Al. AN 4:RANSTON. CALIF. STEVENSON, ILL. . Al I .ERT MORGAI , `,1 DONALD W. FULANI JR.,leicH.  r.  MJ. 116 PAUL S. SARII. DONALD W. STEWART. ALA. PAUL C. T RONDA S. MASS.  Action asMned Janet Hart  •  JAKE GARR, UTAH JOHN TOWER. TEX. JOHN HEINZ. PA. WILLIAM L. ARMSTRONG. COLO. NANCY LANDON KASSESAUM, KANS. RICHARD G. LUGAR. IND.  KENNETH A. MC LEAN, STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY MANCE.* DC LA PAVA, CHIEF CLERK  'Unitas Ziatez „Senate COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS WASHINGTON. D.C. 20510  September 26, 1979  or?  The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20037 Dear Chairman,  In order to prepare for the Consumer Affairs Subcommittee hearings on October 16th and 17th, I would very much appreciate the following information from the Federal Reserve Board. 1.  What constituted a reimbursable Truth-In-Lending violation from January 1969 to December 1978?  2.  From January 1969 through December 1978, how many violations of TruthIn-Lending were identified?  re-X  ionum-  a. substantive vs. technical b. reimbursable vs. non reimbursable c. by year d. by region 3.  How many and what amount of reimbursements for Truth-In-Lending violations were made from January 1969 through December 1978: by year, by region?  4.  How many reimbursable violations were identified but never pursued during this period: by year, by region?  5.  On what date did the FRB implement the uniform guidelines: examination, by enforcement?  by  6. How many financial institutions have been examined for Truth-In-Lending by the FRB, since the uniform guidelines were implemented?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  7.  What sampling technique did the FRB use?  74!  a. sample size b. statistical or judgemental selection c. universe (one month, one year or back to October 1974) Did this vary by region, if so -- how?  • ;:4.,7-h*t  • Z:-.:0:-A*,41.4;.,•4.--,".  I'maw.  • 2 mk 8.  How many reimbursable violations, under the uniform guidelines (as of August 1, 1979), are known to the FRB? a. b.  9.  10.  Fklit  the number of institutions having reimbursable violations, by region dollar amount of reimbursements, by region, if guidelines (as of August 1, 1979) were enforced.  Of the total reimbursable violations identified (8 b above) how many and what amounts have been reimbursed, by region? Of total reimbursable violations found, as of August 1, 1979, what percent were principally attributable to: a. understated APR b. understated finance charge c. credit life insurance practices d. late payment or prepayment penalty practices  11.  Of the possible reimbursement orders (as of August 1, 1979) how many have been issued, by region?  12.  Of the reimbursement orders issued, how many have been completed?  13.  How does the FRB verify that complete reimbursement has been made?  'wow.  I would appreciate a response from the FRB by October 10th. Sinc  Paul E. Tsongas, Chairman Consumer Affairs Subcommittee  1 ,  r  r•   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •' • .• r ,r`s  s  '  .3;,r .7..„ • . :.:50•?  el •  •  • *a  •  -•  •  • •••  "  •  ••••  h. 7,1 4, reN•s .  ALA .   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 16, 1979  the lemerehle Wiilien Prommire Otairmom Mommies, Committee em mod Urbino Affairs United $team Semmes Weehiestem. D. C. 2C510 eser chairmen ftemmire: Ipmer letter of October 3, yeu tWLed up attemtien to a roineoe,1ft editorial urgius that the 14idere1 aseerve 's policy chow its operatAng roedurss. As you knem, the MOMC toe disowned actions of October 5 moved us in that direction aad e on lhodsp. the issue in detail before the Seoato Sulkies Committe i trust that lay esneets before yotir Cenatttee beim &flavored the questions raised is your leiter. SincOrely,  agl- Voitch4  EMKAG:ved (#V-57) bee:  Mt. Ettin Mts. Mailardi (2) we-*  •  WILLIAM PROXMIRE. WIS., CHAIRM HAFAISON A. WILLIAMS. JR., N.J. ALAN CRANSTON. CALIF. ADLAI E. STEVENSON. ILL. POSERT MORGAN, N.C. DONALD W. RIEGLE. JR., MICH. PAUL S. SAMIANES. MD. DONALD W. STEWART. ALA. PAUL E. TIONGAS, MASS.  JAKE DARN. JOHN TOWER, JOHN HEINZ, PA. WILLIAM L. ARMSTRONG, COLD. SAUM, KANS. NANCY LANDON RICHARD 0. LUCUUR,  KENNETH A. MC LEAN. STAFF DIRECTOR U. DANNY WALL. MINORITY STAFF DIRECTOR PAVA, C3•4117 CLARK MARY FRANCES  DC LA  /Z1Cnifeb Zfatess senate COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS WASHINGTON. D.C. 20510  October 3, 1979 01 The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: Last Friday's issue of Business Week contained an editorial critical of the Federal Reserve's monetary policy actions. I call this to your attention not because I concur in the view taken by the editorial. Rather, I think the editorial raises some interesting issues that the Federal Reserve should address. Therefore, I would like to have you or your staff comment on the points raised which are as follows:  MOM f.-;  First, the editorial suggests that the Fed can set whatever rate of money growth it wants simply by metering out reserves to support that amount of expansion and no more. Thus, what I take Business Week to be suggesting is that the Fed change operating procedures and peg the rate of growth of bank reserves rather than pegging interest rates. Second, the editorial suggests that the Federal Reserve cannot curb credit growth by raising interest rates. In fact, raising interest rates are said to yield perverse responses, sending business borrowers hurrying to banks demanding credit at existing rates, and thereby forcing the Fed to supply additional reserves to the banking system. The additional reserves, in turn, will support more rapid money growth according to the editorial.  r;i4f4.  S.  Third, the editorial suggests that the Federal Reserve's sole responsibility is to manage the money supply, which is taken to mean growth of the narrowly defined money supply, M-1. Further, the editorial seems to take a very short-run view of how closely the money stock should be controlled. I am looking forward to reading your thoughts on the -2 issues. Sire  ,/wiIti Chairman Enc. WP:srl   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •-t ,  ,  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Magazine article Citations:  Number of Pages Removed: 1  "Why The Fed Has Failed." Businessweek, October 8, 1979.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D.C. 20551  PAUL A. 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( <6 • •. 11?Ai. • •••••  PAUL A vOLCK ER CHAIRMAN  October 15, 1979  The Honorable Jim Mattox House of Representatives Washington, D.C. 20515 Dear Mr. Mattox: Thank you for your letter of October 1, requesting the Board's views on your amendment to H.R. 2255 that would authorize bank holding companies to act as agent for the sale of property and casualty insurance to their subsidiaries. As part of its implementation of the 1970 Amendments to the Bank Holding Company Act, the Board held an informal hearing on May 12, 1971 to consider the addition of certain insurance agency activities to the "laundry list" of permissible nonbanking activities pursuant to section 4(c)(8) of the Act. Numerous representatives of the insurance and banking industries testified at this hearing. On August 10, 1971, the Board announced its determination that certain insurance agency activities were so closely related to banking as to be a proper incident thereto. Among the types of insurance agency activities so authorized by the Board was the sale by bank holding companies of "any insurance for the holding company and its subsidiaries". 12 C.F.R. § 225.4(a)(9)(i). Thereafter, the Board approved several applications by bank holding companies to sell insurance, including property and casualty for the holding company and its subsidiaries. In 1973, the Independent Insurance Agents of America ("IIAA") (formerly, the National Association of Insurance Agents) challenged the Board's approval of certain applications of bank holding companies to engage in insurance agency activities. Although these applications in part related to the sale of property and casualty insurance to the bank holding company, IIAA challenged only those portions of the application relating to the sale of property and casualty insurance to borrowers from the bank holding company system and did not challenge the sale of property and casualty insurance to the holding company and its subsidiaries. Formal hearings before an Administrative Law Judge were held regarding IIAA's protest to these applications. Upon the conclusion of the hearings, the Administrative Law Judge, among other things, recommended that bank holding companies be permitted to sell insurance for themselves and their subsidiaries. The Board approved (with certain modifications not relevant here) the recommended decision of the Administrative Law Judge.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  The Honorable Jim Mattel Page To  In 1974, IIAA requested the United States Court of Appeals for the Fifth Circuit to review the Board's approval of thee* applications. Although IIAA did not contest the validity of the Board's approval relating to the sale by the bank holding companies of insurance for themselves and their ac , sidiaries. the Court on its own initiative invalidated the Board's finding that the sale of insurance for the balk holdiag company and the nonbanking edbsidiaries is "closely related" to banking within the meaning of section 4(e)(8) of the A:t. A4e4m # AuzaalkaLgtategascams. v. Was.1.02,a, 533 F.2d 224 (5th Cir. 1976); reheerimi denied, 553 7.2d 729 (5th Cir. 1977); wt. JIBI1A, 435 U.S. 904 (1978). The court, however, affirmed the Board'e findiag that the sale of itleurance for th&banking Aebsidiary of a bank holding company is closely related to bankint• Thus, the Board's 1971 conclusion that the sale of insurance for the bank holding company and its subsidiaries was an activity "close ly related" to banking was affirmed in part and rejected in part by the Alebaust court. Prior to the court's partial reversal of the Board's regulation, the Board found in its administration of the regulation that the sale of insurance, including property and casualty to the bank holding c‘napcny and its subsidiariea. resulted in the lowering of overall insurance costs to the holding company system and, therefore, possible benefits to the public,. Your proposed amendment to H.R. 2255 would restore the opportunity for bank holding companies to provide such benefits. If we eaa be of any further assistance, plense let us know. Sincerely,  RW:smk (V-53) bcc: Mr. Mannion Mr. Bleier Mr. Whiting Mrs. Ma11ardi(2)-.'  -........sowasomme........1100111.111001 . 11Mbooftlimmo  CONGRESS OF THE UNITED STATES HOUSE OF REPRESENTATIVES October  1, 1979  JIM MATTOX 5TH DISTRICT. TEXAS  Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Twentieth Street and Constitution Avenue Washington, D.C. 20551 Dear Mr. Chairman: Enclosed is a copy of an amendment I off ered during consideration of the bill H.R. 2255 by the House Committee on Banking, Subcommittee on Financial Institutions, Supervision, Reg ulation, and Insurance. As you know, H.R. 2255 addresses the sub ject of the sale of insurance by bank holding companies. This amendment has been the source of muc h discussion between myself, the bill's prime sponsor, Congressman Jim Hanley (D-NY), the Independent Insurance Agents of America, and those in bank holding companies whose insurance activities do not fall within the June 6, 1978 grandfather date. It would be of interest to all of these groups to have the opinion of the Federal Reserve when further neg otiations commence in the second week in October. Therefore, I would app reciate it if your legal staff could provide us with some indication as to whether the Federal Reserve feels it would be wise to allow bank hol ding companies to continue to act as agent (only) in the sale of proper ty and casualty insurance to their subsidiaries. I am available to you and your legal division for any further information or di ussion of this issue and look forward to receiving the Fed's opinion. Since -ly,  Nattox  d/V  diry  JM:cb Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  X 0  WASHINGTON OFFICE? 1127 LONG WORTH HOUSE OFFICE BUILDING, WASHI NGTON. D. C. 20515 (202) 225-2 231 DISTRICT OFFICEt 5200 EAST GRAND AVENUE. SUITE 100. DALLAS. TEXAS 75223 (214) 767-2864  AMENEMENT TO RE OFFERED BY MR. MATTOX TO H.R. 2255  Page 2, line 9, after the word "or", insert a new subsection iii as follows: "(iii) any insurance agency activity where the insurance is limited to sales of fidelity and property and casualty insurance on the personnel and assets of a bank holding company or its subsidiaries, and group insurance that protects the bank holding company and its subsidiaries;" Redesignate succeeding subsections accordingly.  Report language to accompany this amendment is suggested to read: "Nothing in this bill is meant to preclude Section 7 of the Bank Holding Company Act (12 U.S.C. Sec. 1846)".   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Octuber 1311 1373  The Semewebbt BeraLd S. dmmgme Ilmibew of Compere ldd tederal Sundials Stied *apLs1 1cb1 4911611 Mese  fiimeyeri  Meek reo for yew team SmaWbe SeAdmim, 111, Deldwia of 411011Nalbillai diffie r 2 as What of Sleeps 14 mity Lreekims dsm trembler af awed* them* ledges& lemmioe ibmilitikes bowsaw Cle velomd„ Ohio. aid Grand sapide„ 11,6646maw Beard loud, has esseemeed the Modesei Seeee's Sah a involved mod byre eemetrest thee Mew Seadite's treesSee vas meet by the Clewelmed Cempem, es Oseelher AI, 1,72, as inatested to yemr letters It is acted by he Cieveteed Sederld Seems Usk and ierreeded te the uetweit Iliffoe via ems Culpeper, ftsimia, facility wicUim eimoree of reesivilli it trem Cieveland Mist. ihe Detroit Cities emly ret sise detailed seserde of oemmeeetimme they hese peesoosed ter 6 visr ee. so that the reseed, fee persegiger 1272 have stergedy •bees destroyed . Tke resew& that nee wallahs Nei 1972 rafts.* oely daily temple of debits mad toodit s Swim* mambos beak, and not f04io1dme1 tramosettomi. ammote r, limos is me mime •e mir inquiry or eseeselis6 Afievegmasimo 114101161 Urn dimwits tibia time period that memid tedleses morehemen slI ty to haediSms this See& treader. 114 ales imesetigated sirs com t 10010,414101 MI- Meldwiles emesiess mitt clue Cleesiond Yediwol Seemen eive Seek sod their eppeeent leek of ceoperatioe. SedegrAl $eeman wire monde, opeomeere to en Aflame are instructed to be sestimmilimmilevetidi es tteeeterte ever the tramping* peortiodiestp SmitouttlitalmuldesdaS tondo immetwes news of eke imiteirlaelso oessmegt eneberro tort dense amemme s it s. It is certainly met the Pmdmmal gmemmies imMetiee Me sbetrmet yaw eitattat in trackims dm* tremmectlimme we bums immememed4 Seneeew, 'mg egatim me to tato Mob Semele toe sesweity emit Wow proesetbso ter etrtvo to ertimp ell the tremsestiemi kir ASA In see esepsesibiss mei pest of that peetoe tioo met robsesies deasibed heOmmentSma to ladlivillsala over the traipses. The mond preeednes Sir ale tppe ef Lateiry is bet bie hook to work Ittlat Ohs Miderat aseerve to det the isitsideel to reemerge emehno the diepeeitios et Who trenseeties.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Fable She Popo boo  rold S. bavrer  turther ssitistalete is this It the fodgral MoOsne erne be it oseteet either the Clievelead or 'otter, me. seuwia Sihosig Opel free to lisherd Motes, (202) 452-3,27 it the Detroit Mime dirootk, as ywohimstiss. !Mord a opeggies Sisteerely  Saul A. bidet  :CO:pjt (#V-59) hex: Mr. Asst.* Mr. Wallace fts. Mailardi (2) s''."  •  •  HAROLD S. SAWYER. 5m DISTRICT, MICHIGAN  WASHINGTON orncr: 508 CANNON HOUSE OrricE Elult_DING WASHINGTON, 0 C. 20515  ADMINISTRATTVT ASSIsTAKTI RUSSELL A. ROURKE  DISTRICT REPRESENTATIVIIi  Congre55 of tbe Ziniteb  JOHN R. WESTMAN  tate5  (202) 225-3831  DISTRICT OFT10Et  COMMITTEES: JUDICIARY VETERANS' AFFAIRS  jOoluSe of IleprOentatibefS Zinassbington, ra.C. 20515  166 FEDERAL BUILDING GRAND RAPIDS, MICHIGAN 49503 (616) 451-8383  SELECT COM M ITT I" Es: ASSASSINATIONS ETHICS  October 2, 1979 1  .1  -••••••..f (..C3  CD  5  1=1  Mr. Paul A. Volcker Chairman Federal Reserve System Twentieth Street and Constitution Avenue NW Washington, D.C. 20551  —4  -77  RE: George D. Baldwin Dear Mr. Volcker: -1?  01111.11•1111  I have been contacted by the above who has encountered some difficulty in tracking down a lost wire transfer between Cleveland, Ohio and Grand Rapids, Michigan. The route of the wire transfer was to be as follows: from Cleveland Trust Company to Cleveland Federal Reserve; from Cleveland Federal Reserve to Detroit Federal Reserve; from Detroit Federal Reserve to Michigan National Bank in Grand Rapids.  go.  The wire transfer, in the amount of left Cleveland Trust Co. December 12, 1972 at 2:39 p.m., destination: Michigan National Bank . account number Cleveland Federal Reserve will acknowledge only that they received the wire transfer from Cleveland Trust Company. They have told Mr. Baldwin that he must have a subpoena to obtain any further information regarding the progress of the wire transfer.  WIMMOM   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I cannot understand why the Cleveland Federal Reserve insists on impeding the progress on this search and request your assistance in tracking this down through Cleveland and Detroit as the transfer was never received by the bank in Grand Rapids.  PLEASE RESPOND TO: 0 WASHINGTON OFFICE  0 DISTRICT OFFICE  •• •  r  . P.  '.•  •  The timeliness of this matter is of the essence, as the statute of limitations on this expires in a little over a month. Should the transfer be located, the money should be deposited in account number at Grand Valley National Bank, Cascade Branch in Grand Rapids, as Mr. Baldwin has closed his account at Michigan National. I look forward to hearing from you at your earliest convenience. Yours very truly,  •,.  Harold S. Sawyer Member of Congress  lipmemou   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  HSS:kf district office  •••..  •  •  •-  •••• GOve;  ' r/le • 0• CHAIRMAN OF THE BOARD OF GOVERNORS •C . m  FEDERAL RESERVE SYSTEM  • -4  WASHINGTON, D. C. 20551 •  4v; c,t 4.11. • AL •• • • • • ••  October 11, 1979 The Honorable Jacob K. Javits United States Senate Washington, D.C. 20510 Dear Jack: Thank you for your letter of September 25 regarding U.S. policy on gold sales. The recent rapid rise in the price of gold has been a disturbing development particularly as speculative interest in gold has spread to other commodities. These developments are symptomatic of the inflation problems all countries are facing. It is important for domestic reasons as well as to restore confidence in the dollar abroad that U.S. economic policy be directed toward improving our economic performance, particulary on inflation. This is the major objective of the Federal Reserve's actions announced on October 6. Other multilateral actions, such as the ones you mentioned in your letter, might also over time contribute to increased international monetary stability, but the principal responsibility for the dollar's international value lies with the United States. The U.S. gold sales program has two main objectives. First, it is designed to reduce the U.S. trade deficit and to strengthen the balance of payments. In this respect the program is supportive of other efforts to maintain a sound and stable dollar. Second, the program is designed to contribute to the reduction of gold's role in the international monetary system--a goal that has been endorsed by most other countries. The U.S. gold sales program has been successful. In 1978 we were a substantial net importer of gold; so far in 1979 we have recorded net exports of gold. Profits from the Treasury's gold sales have also contributed to the financing of the federal budget deficit. The program is accepted by the market and, in most cases, is welcomed by foreign monetary officials.  •  NY;  •  "fr*   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  '  ..• 1:• —"T".1;  . :7r:;:fr:  -:77•   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Although all possibilities should be carefully evaluated, I believe, under present circumstances, it would be unwise to suspend U.S. gold sales. Such an action would probably add further uncertainty to markets generally and contribute to increased speculation.  •  J.ACOB K. JAVITS NEW YORK  •  COMMITTrES: FOREIGN RELATIONS HUMAN RESOURCES GOVERNMENTAL AFFAIRS  ?Anitcb ,..T3tatez Zertate WASHINGTON, D.C.  20510  REGIONAL OFFICES: Rmm511 110 EAST 45TH STREET New Yortx, New YORK 10017 R00114 222 FEOTRAL OFFICE E3U1LDING 111 WEST HURON STREET BurrALD, New Yam  14202  JOINT ECONOMIC  ROOA1 420 LEO W. O'Eimirm FEDERAL BUILDING CUNTON Soumut AusAny, Ncw Yon% 12207  EI  01,111111.-  September 25, 1979  Dear Paul: I would like to express my growing current policy of selling gold from our sales, initially intended to strengthen dollar by absorbing excess dollars from be negating that objective by fueling a stabilizing the dollar market.  concern regarding our country's official gold stoCks. Gold the international value of the the world market, now appear to rush to buy gold, which is de-  I believe that the present gold fever reflects a lack of confidence by investors in the world's currencies, including the traditional confidence in the dollar. Restoring confidence in the international monetary system will require in particular an improvement in the economic performance of the US, especially in the so-called fundamentals of inflation, energy, and the balance of payments. In addition, we must move quickly to deal with the structural problems facing the system by putting into place the Substitution Account in the IMF and improving national supervision and Central Bank regulation of the Eurocurrency markets. fm9.  These actions to stabilize the dollar will, however, not occur overnight, especially the Substitution Account, which will involve tough and sensitive negotiations with our trading partners and may require a more healthy international economic climate to be successful. In the immediate futurS, therefore, the question of whether or not the Treasury should continue to sell gold needs to be addressed. By my rough calculation, the loss to the US TreAsury from gold sales since 1975 has been approximately 2 billion dollars; and, even as important as the dollar loss to the US Treasury is the fact that the other industrialized nations apparently do not share our objective of demonetizing gold; and, as a result, our gold sales may be exacerbating the present gold situation. Therefore, it is a serious question whether we should not suspend our gold sales until the gold and other commodity markets have once again stabilized.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  assigned to Division of Interr -4-ional Finance  00e  The Honorable Paul Volcker Page 2 September 26, 1979  I will appreciate your considered attention to this matter, which is of the highest national interest, at your earliest convenience. With best wishes, Sincer  J cob K. Javits, U.S.S.  The Honorable Paul Volcker Chairman Board of Governors Federal Reserve System Federal Reserve Building Roam B1225 20551 Washington, DC   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  , 467.  Oromilm-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 10, 1,79  The Seastable Rows of Sepreeeetatives weddmistee, D.C. 20515 Dear We. legula: Themik you for your Letter of October 9 reeemmemdiag Mr. Robert Barone as a weber of the Soares Consumer iiisewy Cemesil. You ee, be oesured thst Mr. Sereeles csolifitatioes viii receive full cassidoratior by the Beard whoa it slakes the 191110 appointments to the Cooacil within the seat eeeleiel webs. ifie 'Ill bate touch with yes vbes the selsettess are mode. The Dowd appreciate* reeletvieg your reseemeedettos 884 your faultiest Am the Commor Advisocy Coonstl. itasevely, N/Pafil /L  CO:pjt (PV-63) bee: Anne Geary (w/copy of incoming) Mrs. Mallardi (2)  ti;  RALPH REGULA  COMMITTEES:  16TH DISTRICT, OHIO  CANNON HOUSE OFFICE  APPROPRIATIONS SUBCOMMITTEES'  BUILDING  WASHINGTON. D.C. 20515 (202) 225-3876  Congres'5 of tbe LIiiitcb.*tate5  DISTRICT OFFICES: 4150 BELDEN VILLAGE STREET NW. CANTON, OHIO 44718 (216) 456-2869  ii)otW of 1rpre5entatibe5 Z.-aattinton, b.C. 20515  44691  (216) 264-3585  BUDGET TASK FORCES: DEFENSE AND INTERNATIONAL AFFAIRS TAX POLICY  SELECT COMM I TTEE ON AQUJG  201 EAST LIBERTY STREET WOOSTER, OHIO  INTERIOR MILITARY CONSTRUCTION  October 9, 1979 1  cr, CD —4  Honorable Paul Volcker, Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: I understand that Robert Barone, Vice President and General Manager of the Diebold Company, has been nominated to the Consumer Advisory Council of the Federal Reserve Board. Prior to joining Diebold, Mr. Barone worked for National Cash Register where he designed a comprehensive data system for the retailing industry. For the past eight years, Mr. Barone has worked for Diebold and has extensive experience with the automated teller machines. The Diebold Company is the third largest manufacturer of automated teller machines. No other product has been as important to consumers in changing the patterns of traditional banking than the automated teller machine. It appears likely that the trend toward electronic consumer banking will increase in the years ahead. I urge you to carefully consider Mr. BarNne for a position on the Consumer Advisory Council. Sin  rely,  Ralph Regula, M.C. R:Wc   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Ozteber 10, 1979  Ohs eeersible Alen :Icanstorn NStates Senate Dotted Weehlsobes, D. C. 20510 Mot Alan: diac.ussed the paring oix re,=eme meeting in your office ovolvtaii Position of NM et tae major trade associations on the Fed 'vembersht74 legislation eed aa ep proposal for a su,'llemental reserve requiremem on vniz:h inteTeet vould be paid. The U. S. League has now come forward with their -meitiee on this fIrw.losal which the ASA had previously su,liorted. I understand that ion Guenther of my staff has already forwarded the formal alla mositioe of the osemessems stateneat to your staff. limcioeed Le O. O. Leegve and a summery of this position. I find the suort. of theme ewe major trade aseoriatioae ler a legislative staetiofi en. oanassina a supplemental reserve requirement highly en- ourag,ng. Ls my judgment doe neseares ve anno.41 ed this weekend make plempt Legislative aCtielli mere issostrativs *Aso* me beve levied a now reserve tax on member bemks. In turn, it Ls our .ousidered judgment that Congressional passage of legislative Yroviding for nationwAe NOW sc.esuats—owhich, ve support—will exacerbate octr membership Drabtem Ln the critical period ahead. I appreciate your  ontimied interest in this Netter. Sincerely  SiPagl A. Ypichg.  Enclosure  KAG.v.d bcc: Mrs. Mallardi   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October lt,iL._L3ii  The Honorable William L. Armstrong United States Senate Washington, D. C. /0510 Wier Senator Armstrong: Ohio is in response to the letter el 0 tober 4 seat jointly by Senator Gam mad yourself, asking for the Seard's Assessment of eiseher or not the restitution rowrisione ed 11. LO4 need op be emended in light of our emperimmoswith the Troth te Undies enforcement guide, limee. As you Omen* in rour letter) there ore a nmnber 0 differemmee between the Amami's. of S. MS and the existing geidelimes. Meme diffememese arise between S. 104 amid the ehmegee psepeeed to the guidelines smdemeed by the Ihumainatissagescil, WW1 the Nome today authorized to be relished for Public 010111011t. While the leert recognizes these differing" Previelene, it doss net believe that changes to S. iCti. axe neesegery. rho "nerd notes :tive two years from do date of enactment. that S. 108 became& effe, thus, there should be amplie onYortunity in tha seemims owe years for the blahs subject to the Seerd's jnrisdi_tion to develo,, compliance ,rogreme that eliminate patting er practi ea resulting in violations invelviag reimbursement*. WO menu that s. lct will address problems arising mmder fresh exenteettone conducted after the effective date *i the legislation.  matter. Oarn.  the Sward appreciate* the oportunity to comment en this A substantively identical reply is being seat to Senator Sincerely,  IDENTIC1L LETTER TO SENATOR GANN JCK:JPB:vcd (#V-55) bee: Mt. Kluckman Mrs. Nallardi (2) -ow'''.  Vojcitt  • WILLIAM PROXMIRE. WIS.. CHAIRMAN 0 • JAKE GARN. UTAH HARRISON A. WILLIAMS. JR.. NJ. JOHN TOWER. TEX. ALAN CRANSTON. CALIF. JOHN HEINZ. PA. ADLAI E. STEVENSON. ILL. WILLIAM L. ARMSTRONG. COLD. Ft0EIERT MORGAN. N.C. NANCY LANCK*1 KA S ESAU M. KANS. DONALD W. RIEGLE. JR.. MICH. RICHARD G. LuaA.R, R.10. PAUL S. SARBANES. MO. DONALD W. STEWART. ALA. PAUL E. YSONGAS. MASS. KENNETH A. MC LEAN. STAFF DIRECTOR M. DANNY WALL. MINORITY STAFF DIRECTOR MARY rpturscits DC LA PAVA. CHIEF CLERK  /Zertifeb Ztatez -.Senate COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS  WASHINGTON. D.C. 20510  October 4, 1979  410  The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20037 Dear Mr. Chairman:  ie l tt Ct :  As a result of the five financial institution regulatory agencies' recent suspension of the Truth in Lending enforcement guidelines pending a reassessment of some of the basic provisions of those guidelines, we have become concerned about the restitution provisions in the Truth in Lending bill (S. 108) which passed the Senate in May. Since the suspension evidences a concern with proceeding under the current provisions of the guidelines and since the parameters for restitution contained in S. 108 are similar in many respects to those of the guidelines, we believe it is necessary to receive the views of the agencies on the restitution provisions contained in the Truth in Lending bill. We are interested in your assessment of the impact that the enactment of S. 108 would have upon the reimbursement policies and practices of the agencies and whether or not, in light of your experience, there is a need to amend the restitution section (section 8) of the Truth in Lending bill.  t• RIV ipmemp—  In assessing the need for amendments to the restitution provisions of the bill, we would appreciate it if you would take into account the following issues:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  4, Whether or not the problems encountered by the agencies under the guidelines and which resulted in the suspension of those guidelines would also be present if the agencies were operating under provisions of law as are contained in S. 108. Would the experience and problems be the same, similar or different? Would the scope of the problems which resulted in reconsideration of the guidelines be greater, lesser or the same if the agencies were operating under the specific provisions of S. 108?  •  ii ", C•40 .%1 94r.s0:* 0.  -°610  r  •  •  The Honorable Pali Volcker October 4, 1979 Page 2  • The agencies are presently considering changes in the enforcement guidelines with respect to the period for retroactive enforcement, the APR tolerance and flexibility of enforcement. What is the need for adjustments in these areas and if the present restitution provisions of S. 108 become law what latitude would the agencies believe they then have to make such adjustments? • The agencies' guidelines presently provide for a number of exceptions to the general reimbursement rules. Is there a need for these exceptions and do you believe the agencies would have the latitude to provide for such exceptions under the provisions of S. 108? Please include an assessment of at least the following special provisions:  isebb 'tapir  1. finance charge tolerance 2. special treatment for a total failure to disclose an APR 3. special treatment for certain violations involving credit life insurance 4. no reimbursement for a failure to comply with section 226.4(a)(6) disclosures involving property insurance S. no reimbursement for a failure to itemize charges under section 226.4(b) of Regulation Z (Note: presumably the violations listed in 3, 4 and S would all be finance charge violations and therefore subject to reimbursement under S. 108.) Taking into account the above mentioned considerations, we would appreciate your assessment of the need for amendments to the Truth in Lending bill. Although your response will be very helpful in preparing for the hearings to be held by the Consumer Affairs Subcommittee, we are requesting a much earlier reply since the Truth in Lending provisions are part of the Financial Institution Deregulation bill which will be considered by the Senate very soon. Therefore, we would like to receive your reply by October 10, 1979. Thank you for your prompt attention, as your views will be very important to our analysis of this issue.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  L j awl° alL William L. Armstrong  Jake  0.11.11111M— .  •  •••••••••L,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 10, 1979  The IL movable Wee wackily* demo of Sepreogematnse liathloiteas DA. 2051.5 Dem  Wetktoss  teolosed are igerd staff rempson" Oe Obt speelfte oesstime posed ts peer letter 00 lilheirosa Webs.!NW impteraier 20, Mt, retattmg te the staging& seed by the Oggyd to settee esiess-bsok Wadies eeopesy ftellatiMie As yes wiltsons gm de set eeletalo a data base ee the attest golbges of ems shove esseptleme to the twelve ppm debt retiremeet ported he* been noted. The ~were to sem of the ONSti41110, therefere, ars based es the Mdri01011 god hgewledso of Seerd and Omerve Bask staff. I look feevard to sew mottos get Pride,/ amd was's' the wow* Oudey to discuss this mates, possomolly with fn. If ym ow mine of Mr stiff sash further Whimmettes owimos emproseetAgma egogania taw assimemrs, ploas* call Jam I. "pm* Dirseter at the Soaves "Mlles of asikals Seporstai4ei aped Mosolattge (492•2693).  ihrodortek 111. Sidraelsa 'Delmarva in tpit (dv-43) bcc: Gov. Schultz Jack "yea We. Mallavd1   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October  The Seneroble Sill Archer house of ilomieestatives ‘..asalAgLoct, S. C. 2(.515 Door Mt. Aveher; Thank yew for ywar ittter of f,leptetiber 27 recommeadiag elr. Robert r. Sakeeits as a member of the lewd's Gemmomer Advisory Council. You soy wilt moietys full 19U. amoointnents with you when the  be assured that Nt. Samovitz' qualifications consfderetioe by ins Seard when it ashes the to the Council this fall. we will be fill teu4.41 loaie tiens are .ed..  ihe Beard /wire tater receiviag your To Ameneedat &.lon sad your interest In the (onsuwer Adviser, Cemeil. Sin,7exely, SLEW A. Volcker  CO.vcd (eV-6() bcc:  )lrs. Maliardi (2)., Anne Geary (w/coy of incoulms)  BILL ARCHER  wAsHINaToN orricEl LONGWOR111 HOUSE OFFICE BUILDING  7n4 C•tritic-r. Toc  MEMBERs .WAYS AND MEANS COMMITTEE  ConartgE4 of tbe Einiteb -t,tatefi 19190CT -5  4.  5  Noust of Ikeprt1entatibefi  Illattington,3B.C. 20515  DISTRICT  DEVICE:  FEDERAL OFFICE  BUILDING  HouirroN, TexAs 77002  c,o r•••.-  September 27, 1979  Dear Mr. Chairman: It is my understanding that the Board of Governors of the Federal Reserve System is currently searching for qualified individuals to serve on the Consumer Advisory Council. I would like to take this opportunity to acquaint you with a person I believe is eminently qualified for this appointment, Mr. Robert T. Sakowitz. Bob Sakowitz is president of Sakowitz, Inc., a very distinguished specialty department store chain based in Houston, Texas. It has been my great pleasure and privilege to know Bob for many years. Not only has he reached the pinnacle of the retailing profession, he has notably distinguished himself in the many public service endeavors he has undertaken. I am convinced that Bob will make many strong contributions in this capacity both to the consumers of our nation, the federal government and the retailing industry. In my opinion, there is no finer person than Bob Sakowitz for this important position and I give him my highest recommendation.  V.4 11111=11r  Thank you very much for your consideration of Robert Sakowitz and with best wishes, I am   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Bill Archer, M.C. Honorable Paul A. Volcker Chairman Federal Reserve System 20th Street and Constitution Avenue, N. W. Washington, D. C. 20551  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  • • • --••-r"  ., •  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to personally identifiable information.  Citation Information Document Type: Resume Citations:  Number of Pages Removed: 2  Resume, Robert Tobias Sakowitz, 1979.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 9, 1979  Us Memorable Paul E. Tsongas amatmen emboommittee on Cosomoor Affairs Committee on Bankimg, Missing emd Urban Affairs United States z>enate Washington, D.C. 20510 Doer Colman Tsongas: IMO you for your letter of October 4 mgardios the change in this oshodoto Mir your Subcoomittoe's hearings on the review of Truth in LOWM, SMISIMMOnt policies. flovesser Nomey H. Teeters will be pleased to appose oo irobolf of tile beard ea Outdoor 31. Sincerely, S/Paul A. Volcker  CO:pjt (#V-56) bcc: Gov. Teeters (w/copy of incoming) Janet Hart Mrs. Mallardi (2) tr'''  WILLIAM PROXM IRE. WIS., CHAIRMAN HARRISON A. WILIJAMS. JP!, 4.J. ALAN CRANSTON. CoLJF. ADI-Al E. STEVENSON, ILI-. ROBERT MORGAN. N.C. DONALD W. RIEGI-E. JR.. MICH. PAUL S. SARBANES, MD. DONALD W. STEWART, ALA. E. TSONGAS, MASS.  JAKE GARN, LITA.H JOHN TOWER, TEX. JOHN HEINZ, PA. WILLIAM L. AR M STRONG. ODLO. NANCY LANDON KASSEBAUM, KANS. RICHARD G. UJOAPI.  rAut.  tatez Zertafe  'JCnite  BANKING. HOUSING. AND URBAN AFFAIRS  COMMITTEE ON KENNETH A. MC LEAN, STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MART FRANCES DC LA PAI/A. CHIEF CLERK  WASHINGTON. D.C. 20510  October 4, 1979  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20037 Dear Chairman, I wish to advise you that the hearings by the Consumer Affairs Subcommittee, originally scheduled for October 16th and 17th, have been rescheduled for October 31st and November 1st, 1979. I wish to extend to you an invitation to testify on the morning of October 31st. The hearings will be held in the Senate Banking Committee hearing room. Thank you for your cooperation.  Paul E. Tsongas, Chairman Consumer Affairs Subcommittee Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  40,4  •  •.••••  •  WILLIAM PROX MIRE. WIS.. CHAIRMAN HARRISON A. WILLIAMS, JR., NJ. ALAN CRANSTON:dr-Ali F. ADLAI K. STEVENSON. ILI-. ROBERT MORGAN. N.C. DONALD W. RIEGLE, JR., MICH. PAUL S. SARBANES, MD. DONALD W. STEWART, ALA. PAUL C. TSONGAS. MASS.  JAKE GARN. UTAH JOHN TOWER. TEX. JOHN HEINZ. PA. WILLIAM L. ARMSTRONG. COUD. NANCY LANDON KASSEBAUM. KANS. RICHARD G. LUGAR. 110.  KENNETH A. MC LEAK STAFF DIRECTOR M. DANNY WALL-. MINORITY STAFF DIRECTOR MARY FRANCES DC LA PAVA, CHIEF CLERK  'Aleniteb Ziatez Zonate COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS  WASHINGTON. D.C. 20510  •  i_ ..L'z.  GU1DFLINFS FOR WITNESSFS  1.  These guidelines apply to all hearings of the Senate Committee on Banking, Housing and Urban Affairs, unless otherwise indicated. ic:Yrtz  .•  All hearings will begin at 10:00 A. N. in Room 5302, Dirl:sen Office Building, unless otherwise indicated.  3.  Committee rules require that all witnesses submit at least 100 copies of their written statements 48 hours prior to their appearance. Sundays and holidays are not to he included in determining this 48 -hour period. Statements should he delivered to Room 5300, Dirksen Office Building, Washington, D. C. 20.510. Strict adherence to this rule is essential in order that Committee members may review the statements before the hearing, thus enabling the participants to more thoroughly discuss the issues involved. Statements will not he released to the news media prior to the day of your testimony.  4.  Oral presentations must he limited to a brief summary not to exceed 10 in Your complete statement will he printed in the hearing record.  5.  Please complete the attached card and hring it to Room 5300 prior to the hearing. You will he given copies of statements of those testifying with you at that time.  Please supply the address to which you prefer the reporter's transcript delivered for your correction. Kindly turn this card in at Room 5300 Dirksen Office Building prior to giving your testimony.  'ion is appreciated.  (Name)  (Organization)  (Business address)  (City and State)  (Phone)  (ZIP Code)  SENATE BANKING, DOUSING AND URBAN Al:FAIRS COMMITTEE   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  36-54S—h  or°  • 74. e  .4  f r "  1'1,5   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Ileossabls Walter F. Wiesisie Presidest Se tbe United Staten Sommee  Weehlostee,LC.  20S10  Deer We. Iles PresIdeot: As required by f 904(m)(4) of the Electronic Fuu4 Transfer Act, ftblin Lew 91430, the Bossed of GovOTOOrs is pleased to **bolt to the Cowan the essiseed peeposed regolstlee,  lead Imo adopted parttime of Resolatios t to impisseet the Electrode Mae lhassfir het, sod Is repoblishles for public essimeet other sootier* Seat segulaties. The euelemod 4041OOMMA beta& the nest sod puipesed wegolstisee sod their afseeppraying esessede tweet amobees• sseeseekr, SZPaul A. Volcker.  Soliesmo 11111DS:pjt WM Lynne Barry Mts. Mallardi (2)  Identical ltrs. sent to: Speeher Wain; Chairmes Tsongse,  Peemmire, Memos, Ammemelo; senators Gera aad Amostraag; Clog. Stanton sed   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  OLLober 5, 1979  The liemerabie ,Amorge Mee= Mimes of Representatives teehington. 0.c. 20515 Deer Mr. liesses request for the views ent r rec you to nd .Jo res to d ase I am ple mised amendment to H.M. 5037, pro r you ing ern con ors ern Gov et the Beard of erve Chelenea. The amendIse l era Fed the of m ter the which would affect assure the President a wide to ed emd is int ed aos pro e ment that you hav hout regard to the geseraphi, wit an, irm Cha the of nt tme oin choice in the app erve Act. ly contained in the Federal Res ent urr are t tha ons cti tri res to provide Urns President ble isa adv is it t tha es iev bel The Beard the l Messes chairmen. Because of era Fed a ing ect esi in ty ili mib fle on the t the Federal Meeerve Act places tha s tie ili sib pea rep nt ica nif sig ted to t the President Ohaeld be permit tha ees agr rd ime the an, irm cha be for the !xosititie and abewld not soa por ble ila ava et his the select . The 'Ward, therefore, ion ect sel in the ts aln stW con c limited by geespephi mit the eral Seeerwe Act that would ner Ped the to ent mdm ame ae ts oor sup ther the Federal Reserve whe to ard rew t hou wit an irm Cha President to USW 41 ed on is appointed already is represent en irm Ch‘ the ia mh am fr t tri dis the Board. about a possible technical The Board is concerned, however, amendment the proposed amendment. This of ge gua lan ft dra the in ect def cts be least five Federal leserve distri at t tha e uir req to ear app ld wou present times. This requirement could all at rd Boa the on ed ent res rep Beard at a partiAllar the on ies anc vac l era sev e wer difficulties if there were past year. ior enemole, if there the ing dur e cas the was as e, tim were the Chairman mad one other meiber and rd Boa the en ies sec vec tee on the r distrLIts would be represented fou y onl ct, tri e dis sam the frem ented. nt that five districts be re res eme uir req the to ry tra con s Beard   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable George limmes Page Two eee Therefore, in order to a cemplish your objective, the Beard nrepe . 6 241) that the first paregralh of section 10 of the Act (12 U.S.C be ehemded by eddies the underlieed 1magueSO: "In selecting the members of the Seesd, mot sm. than Omm of vibes then be selected from say see Pederel Memerve district, Impilt that twjumig401Mmi mom wreaent the MOW dliktri"'t LIMMUULAMIPALAI.AMMILEEJAE c resident shall bilme is regard served as chairefs, the , to a fair repreefttetion of the finaw-ial, agricultural, Industrial and oommerAal interests, and gmegrephical divisions of the elostry." Sincerely SLPaul Aliolk.kert LSA:snk (011-41) bcc: Mr. Petersen kir. Adam Mrs. Mal1ardi(2)  PARREN J. MI1CHEL L. MD.. CHAIPMAN _ STEPHEN L. NEAL. N C NORMAN E. D'AMOURS. N.H. DOUG BARNARD, GA. JIM MATTOX, TEX. JOHN J. CAVANAUGI-4. • 225-7315   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  -ion assigned NIr. Petersen  MORGE HANSEN IDAHO 'ON PAUL, TEX. kON RITTER, PA.  U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON DOMESTIC MONETARY POLICY OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS  NINETY-SIXTH CONGRESS WASHINGTON, D.C. 20515  14 I 7,1  r T1  September 19, 1979  The Honorable Paul Volcker, Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Volcker: It is my intention to offer the enclosed amendment to the bill H.R. 5037, regarding the term of the Federal Reserve Chairman, when that bill is marked up by ;he Conmittee on Banking, Finance and Urban Affairs. The intPnt of the amendment is to assure the President a wide choice in his appointment of a Chairman, without regard to a geographic constraint that is not properly relevant bo an office of completely national significance and responsibility. At the same time, I have, in consultation with other Members of the Subcommittee on Domestic Monetary Policy, worked out the language of the amendment so that there is still a guarantee of diversified regional outlooks on the Board of Governors. I can imagine in the future a situation in which the obviously right choice for Chairman is obviously not from an "open" district, and the Board of Governors and Open Market Corrraittee might be subject to a nuisance suit challenging the legality of the appointment and the valiS ity of votes taken, and so on. It is to prevent such a thing that I believe we ought to take this opportunity to adopt this amendment. I would greatly appreciate having the comments of the Board on this amendment. individual liberty,  GH:lcg  S.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  'Amendment Offered to H.R. 4997 5-0'1 by Mr. Hansen  Add the following new section: Sec. 3 (a) The second sentence of the first paragraph of section 10 of the Federal Reserve Act (12 U.S.C. 241) is amended by striking out the phrase "not more than one of whom shall be selected from any one Federal Reserve District,". (b) Insert the following new sentences immediately after the second sentence of the first paragraph of Section 10 of the Federal Reserve Act: "Not fewer than five Federal Reserve districts shall be represented at any one time and a particular district may be represented by two members only if one is designated to serve as Chairman or has served as Chairman of the Board."   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  F  OCT  4 1979  Tho emoormble teal go *sew Chelemes adoemittteo se Csoomeue Affairs Clossittos me Smehims4 MiossiMS mod Urban AMU, United States Smote Waskimgtes, D.C. USW  Dear ateIrmo Tomos$ Thumb yes fee yew latter of September 16 lowitimi Cho Sewed to testify before yew labeemoittaa at homeless to review the Trmohp bemilemdftemihemeemet yealedoe of Who federal regulatory estharitiee. lhe $end will be meOblo to testify at the bearies to be bead as **tabor 16 homomoo tho Sediwal Open Iforket Committee is sehodeled he meet ea iambi by. Somseer, fewetroor Swam Lilostese will hie pledged to oppose se WW1 se the $oma smiftember 17.  SLPGI A. Volcker  CO:1qt (4PF-44) bec: Gov. Teeters Janet Mart (w/copy of isoomfog)  •  WILLIAM PROXMIRE, WIS., CHAIRMAN •  AL . RtON A. WILLIAMS, JR., N.J.  JAKE GARN, UTAH  ALAN CRANSTON, CALIF.  JOHN TOWER, TEX.  ADLAI E. STEVENSON, ILL.  JOHN HEINZ, PA,  ROBERT MORGAN. NC.  WILLIAM L. ARMSTRONG, COLO.  fONALD W. RIEGLE. JR.. MICH.  NANCY LANDON KASSESAUM, KANS.  PAUL S. SARBANES, MD.  RICHARD G. LUGAR, ND.  DONALD W. STEWART, ALA.  'ZCnifeb Zialez Zenale  PAUL E. TSONGAS, MASS. KENNETH A. MC LEAN. STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANCES DE LA PAVA, CHIEF CLERK  COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS WASHINGTON, D.C.  20510  September 14, 1979  The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20037 Dear Chairman, We have scheduled hearings on October 16th and 17th by the Consumer Affairs Subcommittee of the Senate Banking Committee to review the Truth -In -Lending enforcement policies of the federal regulatory authorities.  1111111111111111111w-  .. •  I believe the testimony of a representative of the Federal Reserve Board would be very helpful to the deliberations of the subcommittee. On behalf of the Subcommittee, I wish to extend to the Federal Reserve Board an invitation to testify on the morning of October 16th. The hearings will be held in the Senate Banking Committee hearing room. Thank you for your cooperation.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  aul E. Tsongas, Chairman Consumer Affairs Subcommittee  •  •••••  •••  •  '••  •  •':  4.4   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Seteher So 1"70  The liseereble *ems A. When awe et hapreeeetittivee theberetee• Lee MIS Sear Sere &ohms Ile& yea Ilse wee Weer et Illipbedoer 27 retailmildbe Smiber es a esibee ea the 1111101011 Campane /sdriesty Amileh Tos amp be salOwled Illot Mee 4heberis emetifieetiese eetelme 641 esealaseetame by the fieer. vlbie it aim the UM empeletanal Up the Careen Ibis MIL mevUl be in teeth WA yen Ass es eideetisee ese wee. Ile asegil eirmistatee reselorlis pow weemasedietane Iseareet la the Maisemer bilitteary Ceeneil. Siadwrely S/Paut k VgIcAL  CO:p t 01-52 bee: Anne Geary (w/copy of latornisig) Mrs. Mallard'. (2)1/  Mai  yew  THOMAS A. LUKEN 2D DISTRICT, OHIO  WASHINGTON OFFICE:  t  ROOM 1131 LONGWORTH HOUSE OFFICE BUILDING WASHINGTON, D.C.  11  20515  (202) 225-2216  Congre5 of tije ZEIniteb *tate5 3i)ous5e of AeprefSentatib0  COMMITTEES• SMALL BUSINESS CHAIRMAN, SUBCOMMITTEE ON ENERGY. ENVIRONMENT, SAFETY AND RESEARCH INTERSTATE AND FOREIGN COM MERGE SUBCOMMITTEE ON HEALTH  DISTRICT OFFICES: 3409 FEDERAL OFFICE BUILDING CINCINNATI, OHIO  tillafsbington, /3.e. 20515  45202  (513) 684-2723  SUBCOMMITTEE ON COMMUNICATIONS SUBCOMMITTEE ON CONSUMER PROTECTION AND FINANCE SELECT COMMITTEE ON AGING  MOBILE OFFICE SUBCOMMITTEE ON HEALTH AND LONG TERM CARE  September 27, 1979  Mr. Paul A. Volcker Board of Governors of the Federal Reserve System Federal Reserve Building 20 Constitution Avenue N.W. Washington, D.C. 20551 Dear Mr. Volcker: I am writing to endorse the appointment of Joseph M. Garber to a position on the Consumer Advisory Council of the Federal Reserve Board. Mr. Garber's credentials for such an appointment are impeccable. As President of the Credit Bureau of Cincinnati, Inc. and First Vice President of the Board of Associated Credit Bureaus, Joe Garber would be as asset to the Board both as an adviser on the creditors prospective on issues which come before the Board, as well as a consultant on compliance with the terms of the Consumer Credit Protection Act. Joe has devoted his life to the credit industry both as an academic and a practicioner. He has achieved industry and civic stature through his work, not only in the Midwest but on a national basis. The Board would be well advise to give him their most serious consideration. I would appreciate being kept advised on your deliberations on this matter and hope that you see the wisdom of adding Joe Garber to the Consumer Advisory Council. Thanking y u in advance for your consideration in this matter. Si  er  HOMAS A. LUKEN Member-of-Congress TAL/mjb   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Datobor 3, 197,  Ile il,mormhle Dole liens ilessi ofisprosestatives Valblostsn. D.C. SOUS  len Ir. Dosses Monk you for yaw letter of Siplablit 27 requsetimg assumuse se logialaties What linld *stand Mer too addLtLlyears the Seconher 31, Me diveetituro deadline in the Daok1sU1Gemeem. Act for seafood.. required to divest eemtein meal estate interests. In einsiderime this issue, I found that last year the Board addressed a similar proposal and amposesed its censers What anab a missal scold the general onsstion of the Seseelhey 31, 1,010 desaine sad be leequitOblo to theme compoodee that bed *implied with that deedlimee  =  Aalls I hoes nme hod the opportunity to consult With tho Arai Booed, I can well ressesies the astute of their earlier ceeseeme, eed I au Sure yes vemld oast ts Whose commarso heft eseemet. I as SOk La a position at this time to *valuate the howdehips Imposod on initoidmal holding sompemlos in seeties the statutory desdalan. lisiewtholoso, in compomeo to s similar inruiry brystambors of the Senate Dasides Committee, I sespested as a possible approach • limited toomyclar extension of the December M e 1410 deadline. The extension vinld be vented by the lewd only it the board detesminni there mme a soapelliel semi proomatod for an matsmeion and thee Wei folth efforts bathos. nub to mast the mulattos statutory deadiAte4 It is sly mndsootsnetss that tho tomato Soehims Committoe smitspassior 24 adopted Amish a provision as an amends seat te S. 1347.  as  1 approcioes the opportunity you hove afforded ns to eat propseal.  Sincerely, 0111011WM130aJw:pjt (Pv-40 bon Nike Blehkr Sallardi (2),s's-  W4.1 A. Volcker  .IANKING, FINANCE AND liFTEIAN AFFAIRS COMMIT T  Congtoz of tbe inniteb *tatez  DISTRICT OFFICE: DI F. DOH At;MINVIT RA TION BIM DING INDIANAPOLIS INTEIMAIIONAI AIRPORT  3i)ousSe of ikeprefSentatibeZ  GOVERNMENT OPERATIONS  INDIANAPOLIS. INDIANA  COMM ITTEE  TOLL FREE NUMBER: 7364  Oilacsbingtoti,10.C. 20515  SELECT COMMITTEE ON AGING  OPERAToR.ENTERF,RisE  C/I  DAVE EVANS  STEERING COMMITTEE: MIDWEST-NORTHEAST ECONOMIC  6TH DISTRICT, INDIANA  ADVANCEMENT COALITION  46241  TELEPHONE (317) 269-7364  Wm.  WASHINGTON OFFICE: 438 CANNON OFFICE BUILDING WASHINGTON. D.C.  20515  TELEPHONE:(202) 225-2276  September 27, 1979 The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551  isms  Dear Chairman Volcker: I am writing to inquire as to the Fed's position on proposed legislation that would extend the present divestiture deadline in the Bank Holding Company Act.. ilislort  As you know, Section 4 of the Bank Holding Company Act of 1970 required bank holding companies to divest themselves of non-banking related interests by December 31, 1980. Prior to the 1970 law, a number of bank holding companies lawfully acquired interests in real estate for investment or development. While the ten-year period was considered by Congress to be ample time, a severe real estate recession has intervened during this period and has made the task of timely divestiture of real estate holdings exceedingly difficult. The House Banking Committee may shortly consider an amendment which would extend the divestiture period for real estate interests until December 31, 1982. I understand that the application of this provision would be limited to relatively few instances where the holding companies would have to sell properties at prices substantially below fair value owing to the approach of the current deadline. The extension is strictly limited to real estate interests, and cannot be used for further development. Because of the unique impact of the recession on real estate, I do not believe the extension could be viewed as a precedent for extending the divestiture period for any other activities not "closely related" to banking. Sin erely, DAVE EVANS Member of Congress DE:gk   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  7  boom   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  October 3, 1979 The Memorable AMMO J. Kitchell Alarms* SObeemmittee an DOMOOtit Monetary Policy Comittee as Raeltin", risme* mid Urban Affairs an.. of Repeeeestatives Viehlastoe„ D.C. 20515 Nor Camino& 1114tsbal1: los hems ailed Ahe mgo item ea R.I. 3037, the bill to establish a fixed foemageer tenni* the Chaim, of the federal Reserve that meuld empire on Jenneey 31 of the selealeir yew fallouts' the year during vbidi a newly elected Meeehdest is imenverated. In the eirevastameits, I thempht it appeepetate to esseelt with wr colleapee en the Semet, In our dieeenelens eeneern was empeeeeed ever the problem of a Iftert term" thet would be crested whenever a Chairmen resigned, died at etherwise left office berfloe his four-year fined tent aspired. In oath cirennetances, under the bill a aew Cbsirestainald be appointed to serve only the remainder of the term. If the Use period went Alert, c:ualified individuals etsht be reluctant to aesept oppedmemmet, at the actions of an appointee ndsht be constrained by the meed tar *arty reappointment. As we diecusaed, the problem' would be partially remedied if the bill were ameaded so that the President could appoint a Chairmen to an expeaded tem in the eveat that a vmeamey scours &rim' the last year of the fined 1:0111. A meetly elected Presideot would then appoint a new Chairmen te a term of up to ftve years (the remaimia" menthe of an usempired tern plus a fall four-year teem) is the swat of a vesemcy at the time el his Inauguration or duet." the first year of his terms No really rderuate legislative solution for the peaks of a vacancy late in • Presidentiel tern of offiee--peseibly he the heat of a political campaign—seems peeeible. Nevever, similar eamtingenciee could arise under mistime Legislation. Your letter of Septelber 2$ states that yes plan to offer emaldmemte to the lastelettem. Sea emamdmemt vemad peamilde for the circumetenee diecribed Shove, that is, when a Immo sommes within last pear of an unexpired t0014 The second amendment peeetdoe that legislation vould not affect the length of the term of the Chairmen is holding office at the time the bill is entcted.  two the the Mho   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  abseireble Peewee J. Kitchell Pose two  After considering Ohs "short torn" prates sad the *sandOogs*  pee poepoes, the Besse dew sot helium the proposal 'mold *pair the essential tedopmedegoo Ohs Federal leserve end somposte the eseehemeit of a bill with the SMOMALMOte you plea to offer.  WW:PAV:pit (fV-51) bcc: Mrs. Mallardi (2)  PARREN  MITCHELL. MO., CHAIRMAN  STEPHEN L. NEAL. N C. NORMAN I.')AMOURS. N.H. DOI% BARNARD. GA. J:M mArTox, TEX. JohN J CAVANAUGH, NrBI2  •  •  oe  GEORGE HANSEN IDAHO RON PAUL TEX. DON RITTER. PA.  U.S. HOUSE OF REPRESENTATIVES  215 MS  SUBCOMMITTEE ON DOMESTIC MONETARY POLICY OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-SIXTH CONGRESS  WASHINGTON, D.C. 20515  September 28, 1979  The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th and Constitution Avenue N.W. Washington, D.C. 20551  Division will. Mike Bleif-r in Legal be  Dear Mr. Chairman: Enclosed is a copy of H.R. 5037, a bill to provide for a four-year term for the Chairman of the Federal Reserve Board to begin on January 31 of the year after a newly elected President takes office. Unexpired portions of the term would be filled for only the unexpired portion. This bill is identical to H.R. 4997 which the Subcommittee favorably reported by a vote of six ayes to zero nays on July 24, 1979. It is my hope that the full Committee will consider this legislation shortly after the October district work period ends. I plan to introduce two amendments when the Committee marks up H.R. 5037. The first would provide for appointment of a Chairman to both a full four-year term and the unexpired portion of a term if the unexpired portion were less than one year. The second would amend Section 2 of H.R. 5037 so that "any person who is the Chairman of the Board of Governors of the Federal Reserve System immediately prior to the date of enactment of this Act may continue in the office of Chairman until the expiration of the four-year term for which he was appointed and the immediately following term shall expire on the next January 31 of the first calendar year commencing after the calendar year during which a Presidential term is scheduled to expire." The first of the above amendments provides that in the event Chairman resigns or dies within one year of the scheduled expiration of his term as Chairman, a President will be able to assure his replacement that he will serve as Chairman for more than one year. The second makes certain that the legislation, as I originally intended, will not reduce the term of whoever is serving as Chairman when the bill is enacted.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  0:. •.;  • The Honorable Paul A. Volcker Page Two September 28, 1979 I would like to have your opinion and that of the Board on the bill to present to the full Committee when we take up H.R. 5037, hence I am hopeful that you will forward in writing your opinion and that of the Board as soon as possible. Sincerely,  qcv .  41/A1  Parren J. Mitchell, M.C. Chairman PJM/rwjt enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • 100111191111111S C. ;.••`;',k-s•  96Th t CONGRESS 1ST SESSION  H.R.5037  To amend the Federal Reserve Act respecting the positions of chairman and vice chairman of the Federal Reserve Board.  IN THE HOUSE OF REPRESENTATIVES JULY 31, 1979 Mr. MITCHELL of Maryland (for himself, Mr. D'AmouRs, Mr. BARNARD, Mr. MATTOX, and Mr. CAVANAUGH) introduced the following hill; which was referred to the Committee on Banking, Finance and Urban Affairs  A BILL To amend the Federal Reserve Act respecting the positions of chairman and vice chairman of the Federal Reserve Board.  • .•  •  g  00, 111•••••••Mommli.... • 11110  posemenowiliP.-  1.6  *4-  • •-• • i."5..•.'•%"••°:111 ,..i ., 'N,_ • 7.  •  red:  e  iimmommommewommolow•• •  •  • ••••••  al  p.  1  Be it enacted by the Senate and House of Representa-  ' 11  '  r .  "A '  • 7. % r • .1 • ▪ •  •  I •  •  2 lives of the United States of America in Congress assembled,  -  3 That (a) the second paragraph of section 10 of the Federal 4 Reserve Act (12 U.S.C. 242) is amended by striking out the  •."'• ••• .  ,  • 41.  •.  5 third sentence and inserting in lieu thereof the following: 6 "The President shall appoint, by and with the advice and  , •-•••••  7 consent of the Senate, one member of the Board to serv e as 8 chairman. The chairman's term shall expire on January 31 of 9 the first calendar year beginning after the calendar year   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  _  ;•••••• .e  ;.1"   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1 S  2 1 during which the term of the President appointing him is %else  2 scheduled to expire. In the event a chairman does not corn-  kkeital  3 plete his entire term, his successor shall be appointed to corn4 plete the unexpired portion of such term. The President also 5 shall appoint, by and with the advice and consent of the 111. .,... "" r„ 111111w  6 Senate, one member of the Board to serve as vice chairman 7 for a term of four years.". 8  (b) The second paragraph of section 10 of the Federal  9 Reserve Act (12 U.S.C. 242) is amended by inserting the  •  -•  "'",*  10 following before the sentence which prior to the amendment _t.111 made by subsection (a) of this section was the fourth sentence 12 of such paragraph: "In the event of the unavailability of the 13 chairman or a vacancy in the office of the chairman, the vice 14 chairman shall have the power to act as chairman during 15 such unavailability or, in the event of a vacancy, pending the 16 appointment and qualification of such chairman's successor.  0 -I:, • .• 4,  17 Upon the expiration of the term of the office of the chairman  ,--•  18 or vice chairman, the chairman or vice chairman, as the case 19 may be, shall continue to serve in such capacity until his  ., , • "  •  r •  "*.rOlt  20 successor is appointed and has qualified.".  1•411V•  #4 1 • 4 0 1. >  xy---••:;0•1 • r I% • ,‘„,.;  21  SEC. 2. The amendments made by the first section of  /IV to.  •••4▪ 6▪ .  22 this Act shall take effect on the date of the enactment of this 4" .41r•••-V-4 "  23 Act, except that the term, as chairman, of any person who is 24 serving as chairman on January 31, 1982, shall expire on 25 such date. 0 •4 •4.1.;   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  eMlibot  1971  Ilse Seeattabile teseest J. itt Gairmite Cheirees fisitiesaritt•41 ow rilammilal hotitetieer Seesevistese liesprestioe est leeetteese Gesitsee ee SeeWs. ritiMOS slid lisbe• AMU. lima ad Ilepremetatiseee eigliketes, *A4 MIS Sem illietrees  111411111111114  gres for par letter of flasellmre tarlittes die 11461141 WNW et yew Ilidbeerautteesee beertes ea• melloar et balk Waft italipeor ULU tegielatioe peseititiles1 IS eallew.. %true vesesee Medic. Sommer J. alkorles tone* eat le abrand twit is behalf et tie Seeed WOO aye. ee SoltelsorU. $timprraly, SAN  091pjt (0144 boos Gov. Porto* Wir. &Lobito* Itoombet* Wm. 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