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-  iq 0  Collection: Paul A. Volcker Papers Call Number: MC279  Box 10  Preferred Citation: Congressional Correspondence, May 1980; Paul A. Volcker Papers, Box 10; Public Policy Papers, Department of Rare Books and Special Collections, Princeton University Library Find it online: http://findingaids.princeton.edu/collections/MC279/c429 and https://fraser.sdouisfed.org/archival/5297 The digitization ofthis collection was made possible by the Federal Reserve Bank of St. 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. 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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   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  v., laL4=atior. &aid ..;:aaLiattce CIA C:vratioaz i.1014-=. 41 4,41i rcacat.o.tivt:u L.C. -;)41;  kr,oycr.  Maul. A 04 :Aar ,olar lotLc.r reuestin tn, ril 0.Q6lat.414c4) tLe kederal i“ exawaluirv;t current anti. tuturw ia transbc.rder dat4 Llows, In cairr; :in.j rxii.inai:A.1.1.tieg t the i'ederal uoJarv relies on dato jcn6raill Lui";4.ied by dollesitic uourc*-E.. '..r.;401res, ii.LorAtAtion in needtd from toreila ofiict;i5 t-Jf hamks. Tc 't;t: aot twoxionceJ 41a,. diificulty in receiviin t11., foxei.,,A% dAta ACC.408174' to carr, tit Aeaerve functiv_ ul;Al‘rlitandink, that t. It is ..)ux reutrictic.ns on traahL i4or%ler data flow oited ycAix latter %;tould Lave an im::act on iutarnational ochiwurcit ant; LraVIQ au acivcrse LAI;.r,ct on th6 aLiIit, oi Ct;ited L;tatee cooroAnicz to ooi4:tit over5eas. The Vezartment ol C;..iAmarcu, tlirougr. t.lse tiotial T.elecoutzwinications and lufor. 4e.:Ainiatration, cezter4tly .Ltudin,4 tho iu.i.a.ct much r4,:btriot,;.ons would Iro 4n iiit4axa‘itiorial commerce. Thu VedAtral mptpurvi; 4ill continue to 4,41aitor trantiorder data flow TroLlenA 41014 wo will av-krist iOU Ot difficulties we oweeriencso thAt ocluitrain 4ur Ability to fulfill our role.  ki:ra3Lsiarl:JFILi.jt (IV-142) Lcc: ;Ira. 4allardi (2)  ApocHARosoN pnrftr. ROBERT  N.C., CHAIRMAN  r.  OR!NAN, MASS. GLENN ENGLISH, OKLA.  crwito  W. IEVANS. IND. PETER H. KOSTMAYER, PA. Tro wrIss. N.Y.  ction assigned to Ted Truman6  O  THOMAS P4. KINDNESS, ONIC M. CALDVVELL BUTLER, VA JOHN N. ERLENDORN„ ILL.  NINETY-SIXTH CONGRESS 225-3741  Coligre55 of tbe Tiniteb 6tate5 30oufSe of ilepro:SentatibefS GOVERNMENT INFORMATION AND INDIVIDUAL RIGHTS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING, Room B-349-B-C WASHINGTON, D.C. 20515  April 8, 1980 Honorable Paul A. Volcker Chairman Federal Reserve Board 20th Street and Constitution Avenue, NW Washington, DC 20551 Dear Mr. Chairman: The Subcommittee on Government Information and Individual Rights, which I chair, began hearings on March 10 to examine the emerging trade, cultural, and individual rights problems in the area variously labeled transborder data flow, transnational information policy, or international data flow. The hearings are designed to provide the opportunity for representatives of the private sector and officials of the Executive Branch to begin a dialogue with the Congress to define the parameters of international data flow issues and assist in determining how -organizationally as well as substantively -- the United States should address these issues. The subcommittee requests your assistance in determining the scope of current and future problems in this area. We would appreciate (1) your candid assessment of the range and complexity of problems in this area which may affect the accomplishment of your agency's mission; (2) a description of any particular problems you have encountered; and (3) your views on existing and potential problems for American business enterprises, other U.S. private sector groups, and our national interests. The subcommittee also is interested in knowing what mandate your agency has to act in any aspect of this area, what actions you have taken to address these concerns, and what your views are on how the United States Government can effectively represent American interests and assist American business. The issues in international data flow arise from the growing availability and use of global data processing and communications networks. Clear advantages result from the employment of these modern technologies; but their use raises new and significant questions of public policy. Several members of the European Community, for example, recently enacted data protection laws to assure the privacy of individuals when personal data is transmitted outside a country. While real questions of individual rights exist, some of these laws may result in protectionist actions or be employed as tools to restrict the conduct of business by companies in the computer and communications industries.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  2  Honorable Paul A. Volcker April 8, 1980 These and other barriers -- such as the imposition of inconsistent standards for regulating the transmission and production of informatio n or the establishment of requirements to utilize goverment-controlled data communicat ions networks -threaten the overseas operations of American companies. The effects may be direct, through the loss of markets, or indirect, through hindering the use of efficient and cost-effective information and communications services. Such problems also could have a negative impact on the accomplishment of U.S. Goverment programs. The consequences of these kinds of restrictions will be felt in all sectors that employ data processing and communications technologies or that use services dependent upon these technologies, such as services offered by financial institutions or providers of data bases. The subcommittee hearings focus on the broad range of economic and national sovereignty concerns associated with the creation of barriers by foreign nations that inhibit the effective conduct of business by American enterprises or adversely affect the interests of U.S. citizens and the U.S. Government . The subcommittee will also address the question of how our goverment can respond most effectively to these problems and ensure that American interests are prote cted. We would appreciate your response by April 25, 1980, so that it will be available in a timely fashion for the subcommittee's deliberati ons. Should you have any questions or wish to discuss the subcommittee inqui ry, please contact Mr. Christopher Vizas of the subcommittee staff at (202 ) 225-3741.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Again, my thanks for your cooperation and assistance. Cordially,  Richardson Preye   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .1.41:s 11 198t":  iwus,ura! 4oha J. 1A.Incall 4ou;;o of Aot rwacnitdtivos da4;i:ifr,-Jton s 20315 1.0ear  LA.414C&A;  for your letter of Airil 28 re-jardinj corrazi.ondonoe you reoeivud from 1;.r. David aurloson, lative Chairmau of the Pomo kuildar4 AssociatioL of _;reater ¶taxik;tou  i believe eicloLoed lt.tter froLt r.;overrAor Parteo to to krouideut oi liozAoui1r Az.Lociation of crater i.uoxville is zolf-oxlanatory. / Lope that this io roavonsive to your inriuiry. 4iincerely,  „.4C171;;.. 1  uzt; (Ltr. dtd. 4/25/80) cjt (#V-183) ouc. nallardi (2)  *JOHN J. DUNCAN 2D DISTRICT. TENNESSEE  akngressional Liaison Office wild raft reply; Governor COMMITTEES: Wartee has responded to Mr. SIMPFp's letter.  WAYS AND MEANS  2458 RAYBURN HOUSE OFP ICE SUILDIN43 PHONE • (AREA CODE 202) 225-5435  Congre5q of ti)e Onitcb  tate5  JOINT COMMITTEE ON INTERNAL REVENUE TAXATION  COUNTIES: BLOUNT ,DELL ' CAM  ji)otifSe of 3aeprefSentatibefS  CLA I DOR NE K NOX  tillacsiiingion,  20515  LOUDON MCM INN MONROE SCOTT   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  April 28, 1980  UNION  IIonorable Paul Volcker Chairman Federal Reserve Board 21st Street and Constitution Avenue, N.W. Washington, D. C. 20551 Dear Mr. Chairman: Attached hereto is a self-explanatory communication I have received from my constituent, Mr. David Burleson, Legislative Chairman of the Home Builders Association of Greater Knoxville. I share Mr. Burleson's concern over the current plight of the housing industry and the recent remarks by Mr. Charles Partee on this subject. I shall appreciate your forwarding to me any available information concerning his inquiry. Sincerely,  OHN J 3UNCAN Member of Congress JJD/11 Enclosures  OX VIII ILDORS  •  home builders association  f  TEatET  noxviffg Joe Cannon Davis Executive Vice Presiciv Telephone 546-4665  221 CLARK STREET, N W KNOXVILLE, TENNESSEE 37921  OFFICERS Earl Sharp President R. W. Graf Vice President Tom Pannell Secretary Don W. Walker Treasurer  April 23, 1980  NATIONAL DIRECTORS M. L. Ranting. Jr. (Life) Max N. Burkhalter David T. Burleson (Life) Le Roy Cobble James F. Collier Robert L. Hankins E. K. Satterfield Earl Sharp Paul K Shirley (Life) Rufus H Smith. Jr. (Life) James A VVardley Jerry H Wood (Life)  The Honorable John J. Duncan U. S. House of Eepresentatives 2458 Rayburn House Office Building 20515 Washington, D. C.  Alternates D. K. Dossett R. W. Graf Joe E Graves Phillip W. Hamby Tom Pannell T. L. (Roy) Smith Don W. Walker  Dear John: Please find attached an article which appeared in the Knoxville News-Sentinel April 16, 1980. Also, a copy of a letter from our president expressing our feelings about the context of the article.  BOARD OF DIRECTORS Jerry W. Burke Jack Burleson Gary Cobble Le Roy Cobble James F. Collier R W. Edwards Joe E Graves Phillip W Hamby Jim Little John Loope Dell Morgan James Cecil Smith T L. (Roy) Smith James A. VVardley  We find this article deplorable. We would ask that you, on our behalf, express our feelings directly to Paul Volcker and request a reply either to yourself or to our Association directly.  ASSOCIATE ADVISORY BOARD Kenn Black Claudia Callahan Cordell Chaffin Gerald D. Daves William G Knight Floyd Lawless, Jr John F. Lyle Tom Stewart Larry C Vaughan Leonard Waring E. A. (Noonie) Whitaker PAST PRESIDENTS James A. VVardley — 1979 James F. Collier —'1978 Le Roy Cobble — 1977 Max N. Burkhalter — 1976 E. K. Satterfield — 1975 Max D. Baker — 1974 D. K. Dossett — 1973 Robert L. Hankins — 1972 Billie D Sams — 1971 David T. Burleson — 1970 • Joseph R. Keys — 1969 E. L. Heaton — 1968 W. C. Bruner — 1967 Brad Dean — 1966 Rufus H. Smith, Jr. — 1965 Jerry H. Wood — 1964 A E. Creswell — 1963 Paul K. Shirley — 1962 Howard B Cockrum — 1961 Jamas A Merrill — 1%0 Robert E. Weems — 1959 C. H. McSpadden — 1958 'Wm. W. Mullendore — 1957 Wade Keever — 1956 • John W. Card — 1955 Alex J. Harkness — 1954 Ralph Kinzalow — 1953 Martin L. Bartling, Jr. — 1951-52  We are sick and tired of many of the upper level bureaucrates taking "shots" at our industry because they have let inflation get out of hand. We solicit and will appreciate your action on behalf of our 860 members, their employees and families. Please advise of your position. Sincer  Doc# AIDE:  REC#  CATS: I PAI.,?A:  ••••.••••••••  David T. Burleson, chairman Legislative Committee  DTB/jjl  'Deceased  Enclosures  .'sgamck oclikti)m 7N5  TT ,  NATIONAL ASSOCIATION OF HOME BUILDERS  -Z:.!•uNirloy.?s,`:s   """"".41.1.1881111•111111111,11MMIIIINISPIIIIIRIPIllane. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  01{enthen  HOME BUILDERS ASSOCIATION OF TENNESSEE  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: Newspaper article Citations:  Number of Pages Removed: 1  Eskey, Kenneth. "Advice To Young: Stay Out Of Housing Market." Knoxville News-Sentinel, April 16, 1980.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  home builders association  of O  tzzatEz  oxuiLLE  221 CLARK STREET, NW. KNOXVILLE, TENNESSEE 37921  Joe Cannon Davis Executive Vice Presido Telephone 546-4665  OFFICERS Earl Sharp Pr esident R. W. Graf Vice President Tom Pannell Secretary Don W. Walker Treasurer NATIONAL DIRECTORS M. L. Bartling. Jr. (Life) Max N Burkhalter David T. Burleson (Life) Le Roy Cobble James F Collier Robert L. Hankins E. K. Satterfield Earl Sharp Paul K Shirley (Life) Rufus H Smith. Jr (Life) James A Wardley Jerry H. Wood (Life) Alternates D. K Dossett R. W. Graf Joe E Graves Phillip W Hamby Tom Pannell T. L. (Roy) Smith Don W. Walker BOARD OF DIRECTORS Jerry W. Burke Jack Burleson Gary Cobble Le Roy Cobble James F. Collier R. W. Edwards Joe E. Graves Phillip W. Hamby Jim Little John Loope Dell Morgan James Cecil Smith T. L. (Roy) Smith James A. Wardley ASSOCIATE ADVISORY BOARD Kenn Black Claudia Callahan Cordell Chaffin Gerald D Daves William G Knight Floyd I awless, Jr John F. Lyle Tom Stewart Larry C. Vaughan Leonard Waring E. A (Noonie) Whitaker PAST PRESIDENTS James A. Wardley — 1979 James F Collier — 4978 Le Roy Cobble — 1977 Max N. Burkhalter — 1976 E. K Satterfield — 1975 Max D. Baker — 1974 K Dossett — 1973 Robert L. Hankins — 1972 Billie D. Sams — 1971 David T Burleson — 1970 • Joseph R. Keys — 1969 E. L. Heaton — 1968 W. C. Bruner — 1967 Brad Dean — 1966 Rufus H. Smith, Jr. — 1965 Jerry H. Wood — 1964 A. E. Creswell — 1963 Paul K. Shirley — 1962 Howard B. Cockrum — 1961 James A Merritt —• 1960 Robert E Weems — 1959 C. H. McSpadden — 1958 Wm. W. Mullendore — 1957 Wade Keever — 1956 • John W. Card — 1955 Alex J. Harkness — 1954 Ralph Kinzalow — 1953 Martin L. Bartling, Jr — 1951-52  April 23, 1980  Mr. J. Charles Partee Board of Governors Federal Reserve System Federal Reserve Building Constitution Avenue Between 20th and 21st Streets Washington, D. C. 20551 Dear Mr. Partee: The attached article appeared in The Knoxville News Sentinel last Wednesday, April 16, 1980. First of all, our 860 members, their employees and their families are outraged that someone in your position would make such absurd, contemptible statements that will add tremendously to the current strain our industry is feeling. We are, in fact, taking the brunt of the punishment that is being issued by the federal government. Secondly, you are in error. True, interest rates will recede from current levels. However, as has been the case throughout the economic history of our country, as interest rates decrease, materials, labor and all other related items will show sharp increases inversely proportional to the interest rate decrease. This has always been the case and it will be no different this time.  • Deceased   •011111111r https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NATIONAL ASSOCIATION OF HOME BUILDERS  Aetrbeit  HOME BUILDERS ASSOCIATION OF TENNESSEE   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Partee Page Two April 23, 1980  If a buyer purchases a home today, even at the current high rate, he will pay substantially less for the actual product. The buyer may then wait for a decrease in interest rates and refinance his present loan and come out thousands of dollars ahead over the life of the mortgage. The simplicity of this process has obviously escaped you. We also strongly resent your reference to "fire sales" and "cut-rate prices". It is obvious that you would support potential buyers waiting until a builder has to sell a home at a loss due to the fact he has been saddled -- by the Fed -- with a 17% - 19% interest rate. It is this type of antibuilder sentiment we deplore. With the Federal government using our industry as a "sacrificial lamb" during this period of unprecedented interest rates the last thing we need is someone in your position telling young Americans that a new home is not currently a good investment -which, as previously stated, is not true. In conclusion, Mr. Partee, we find your attitude toward our industry despicable and intend to protest your actions and comments in the most fierce but effective manner we can. We request a reply to this communication. Sincerely,  Earl Sharp president ES/jjl Enclosure   ,•• https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • .c .•;of Goyiw •.  •  01016,4-k;  v-/VT)  BOARD OF GOVERNORF) OF THE  • -r,  FEDERAL RESERVE SYSTEM  :  •, A 19 .  . , ....7,  h • A. .  WAHINGT ON, D.C. 205, ,- 1 -  44.,.  • May 1, 1980  The Honorable Lloyd Bentsen United States Senator 912 Federal Building Austin, Texas 78701 Dear Senator Bentsen: Thank you for giving me the opportunity to respond to the inquiry of your constituent, Mr. Perry Thompson , Jr. regarding Federal Reserve revenues and expenditures. In 1979, Federal Reserve System earnings were approximately $10.3 billion. The two major components of the System's earnings were interest on holdings of U.S. gove rnment securities and discount loans extended by the Federal Reserve System to member banks, amounting to $10.1 billion and $141 million, respectively. The Federal Reserve receives no dues or other such payments from member banks. Federal Reserve expenditures are divided principall y among the following: current operating expenses for the Board and Federal Reserve Banks (i.e., salaries, posta ge, building maintenance, and depreciation, etc.), capital losses realized on sales of U.S. government securities and forei gn exchange operations, dividends paid to member banks, and return of the revenue surplus over these payments to the U.S. Treasury. In 1979, the first three items were $744 million, $141 mill ion, and $67 million, respectively. The Federal Reser ve made payments to the U.S. Treasury of approximately $9.3 bill ion. A more detailed breakdown of the Federal Reserve System's revenues and disbursements can be found at page 297 of the enclosed Federal Reserve's 1979 Annual Report. I hope these comments are useful to you. Sincerely yours,  Enclosure  Donald J. Winn Special Assistant to the Board  ction assigned Mr. Kichline  fi  LLOYD DENTSEN TEXAS  commiryrrs FINANCE ENVIRONMENT AND PUBLIC WORKS JOINT ECONOMIC  'NCnifcbfez;Zenale WASHINGTON. D C  20510  April 4, 1980  Chairman Federal Reserve System Constitution Avenue bewteen 20th and 21st Streets, N.W. Washington, D.C. 20551 Dear Chairman: I recently received the enclosed constituent inquiry, and I would very much appreciate your providing me with any pertinent information you might have regarding the matter. Your kind assistance is greatly appreciated. Sincerely,  PLEASE REPLY TO: 912 Federal Building Austin, Texas 78701 ATTN: Luis Escareno   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  V&   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  111 tirrrg 011qiityputt, Xi% TYttZ. 1FXAS  March 10, 1980  Honorable Lloyd Bentsen United States Senate Washington, D.C. 20510 Dear Senator Bentsen: Where is the money going for the increase in interest rates by the Federal Reserve Board? Please furnish me with a breakdown of increased revenue dues received by the Federal Reserve Board and the dispersion of these revenues. I would appreciate your attention to this matter. Very truly yours, BY: ef/Px•-/ Perry Thompson, Jr: PT/dh  TEL: AC.  r<  oav 7, lt?;11.)  .2t.evenson The VonoralAe Unitoe. Ftates Senate t5;sshinf-ton, D. C. 20510 Deer Adlai T sr replyino to your letter of h.nril 22 rerlardin:5 your hill to encourage the creation of eynort tradinvj cornanicr.  I al,ree fully that the United F-'tates neeils a stronc export sector. As you know, our export perorrlance in the rest several years has been 000a, with exports rf 1orr7anu.eacture1 roods risinc; by 20 percent in volume durin tat tie. Fundamental to continued orowth in our exports is a sharp reauction in the rate of inflation in this country. tivt r,arketinc. con siderations ars also il-portant. ini Copary Act (F. 2379) puts r4reat The xport emphasis (yr the reed for bank investment in tradinc- companies. As T understhnd it banks tre re,7arded as e source of expertise in international transnctions arid as a source of investrent larf77e/ bank ox• capital for tralinq company ventures. By rertise in a ranqe of aspects of international trade is now evailabir to bank customers am an adjunct to 0, trade financim7 that bark3 have traditionally supplied. '-,Then one turns tr barks cis a eource cf" vemture cepital. it is necessary to ask whether this scarce rescAirce -am9: to my re rot anl concern, Lrnk capital is becorAnc increasinrl.y srrce• sluld c conserved as surport .!iverteei to otYer liner of for bank 1endin2. or pemittw., to activity that !ay yielei national bvnegAts. T confess tt 7 ten to be conservative in such :,attcrs. !Aates banks with expertisr. in internationalL bankir nre clreivlv able to re investrentr in ur to 5 percent of the stock cc rtyport traeint: comranies throuch their parent holliw. companies. To ry knowIelf:t. there llama been few (if any) such investrlents to date. If it slIoulij prove necessfAry to expand the present scope for tiank invcatoente in trading r!or,panifs. I hope thtt aucll action could be token cautiously, subject to statutory lirlts awl reculatory restraints, perhers on 3   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Adlai E. Stevenson Page Two  case-by-case basis. It would be important to guard against significant involvement by banks that do not have the requisite exnerience i•n international finance. I be glad to discuss the response to those tL1Liri questions further if it would be helpful. I also understand that Governor Wallich is responding to a number of questions that you have raised in connection with .i his statement on S. 2379.  I  Sinerely,  /  4;ir e4 0/4.  /WI /fAA, j et,t  'IAZEI  pv ZturA 0-€ /411-aala eoZeg ae,e124e/1"  ,/°  h0-12-  /  May 2, 1980  T'ho Vonoritale  illiam Proxmire  tnairwar Comittee on r'ankin,7, qoueine an Urban Affairs Unitrit.ates nate Tastlin,c.ton, D. C 20510 near ClAtirman Proxmire T Arn replyin'7 to your letter of April 24 reouestin , my views on r. 2379, which would peruAt U. n. bankir- nreanizations to invest in expert trzlOine) coTTrsnies. T, too, 'eve reservations about an expansion of the scopo for hanks to invest in corTercial activities, end about the particular nrevisions of P. 2379 that would permit ouch an expension without sore form of srecial eversillt by 1-)ntk reeulatory ar!encies. The stateeent submitted 1..5v Cevernor wallich or this bill outlined a ntInV,er of concerns that the i4oard woul(1 have witl, any proposal that would breach the traditional separation of hnkinç and cormerce in United !Aates. it also e;:phasise4 the 1,-,InortPncc: attached by the ;leard to the rzintenance of hank capital positions that are adequate in relation to traditional hankine Activities. T fully share those concerns. in ry judwent, it would be pruaent te proceed cautiously and at a deliberate pace in operinl up new ereas of bank rctivity, especially at t.1-.e present tiro. 11): connaries are now rernitted to invest in ur to 5 percent of the shares of any comrany and cn do so without any rer,lulatery approval. To our knowledge, ti- ere are now few, ir ?Iny, ,..loNestic beta holdinr7 companies that have nry sue, investmentr ir trading compeniee in t1e United 'Antes. T an not in Pt nosition to say whether this is il-Oictive of a lsck. of irterest by banks ir export treinq companies or whether the level of ownership interest perritted to holline corpanies is too sriall to attract ! -. ank holekine company investnonts. if invest'nents in export traJin9 correpsnies bans.,3 and benit holding coppanies were to he suthorizee beyond the level currently perritted, I wcrlei stroncly favor requiring sore form of prior el:171roval. Tf that reeuirement were included, mere over, 1 ;elieve tlIat it would he very lesirable if the leeislation contmined rtatutory standares on 040-, reculatory decisions could   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  LI  4.1   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable William Proxmire Page Two  be based. For example, one might wish to have special rules regarding commodity trading. Our staff would be willing to work with Committee staff to develop such standards, Sins rely,  catteettoli Ott  ,y0t,  "tetr-  /Ad t6ted1iitt e /41 f?Itai.„1 op; a)-41_, W Azt.t,  WILLIAM PROXMIRE. WIS., CHAIRMAN HARRISON A. WILLIAMS, JR., N.J. ALAN CRANSTON, CALJF. ADLAI E. STEVENSON, ILL.. ROBERT MORGAN, NC. DONALD W. RIEGLE, JR., MICH.  JAKE GARN, UTAH JOHN TOWER, TEX. JOHN HEINZ, PA.  PAUL S. SARBANES, MD. DONALD W. STEWART, ALA.  RICHARD G. LUGAR, INID.  WILLIAM L. ARMSTRONG, COLO. NANCY LANDON KASSEBAUM, KANS.  Action assigned Mr. Gemmill  fliCuileb -.Stales -Senate  PAUL E. TSONGAS, MASS. KENNETH A. MC LEAN, STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR  COMMITTEE ON BANKING. HOUSING, AND URBAN AFFAIRS  MARY FRANCES DE LA PAVA, CHIEF CLERK  WASHINGTON, D.C. 20310  April 24, 1.980  The Honorable Paul Volcker Chairman Board of Governors of the Federal Reserve System Washington, D. C.  11ir 1  • 4,  Dear Mr. Chairman: It is possible that the sponsor's of S. 2379 will request a mark-up the week of May 5, 1980. I have serious reservations about the banking sections of the bill as I also have about the antitrust sections and the funding provisions. Governor Wallich's written testimony on S. 2379, recently, voices many of my concerns. Unfortunately, neither the Federal Reserve nor the Antitrust Division testified in person at the hearings recently on S. 2379. I hope that we can schedule more hearings on S. 2379 to develop a full record. However, if the sponsor's insist on a mark-up without hearings, I believe the Committee will be well served by the Federal Reserve's statement as to its position on S. 2379. Specifically, on the substantive banking issues, S. 2379 authorizes banking institutions to invest in and own Export Trading Companies either by themselves or in partnership with any variety of individual, commercial, manufacturing or construction organizations among others. Such Export Trading Companies would be permitted by statute to engage in any variety of business or commerce such as trading in commodities, shipping, air freight, insurance or construction projects such as airports or telephone companies. Tn my judgment, S. 2379 as drafted is a radical departure from the traditional separation enjoyed in the U. S. between finance and commerce. Mr. Wallich, in his statement outlined well the potential conflict -of-interests which might be faced if banks were permitted to engage in such  minsom   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  's  •; ;Is •••-•••  „. ,  r•so.  •  The Honorable Paul Volcker Page Two  activities. I would appreciate the advice of the Federal Reserve on whether it recommends that banking organizations be permitted to engage in the range of activities sanctioned by S. 2379. On the procedural issues, S. 2379 provides for a substantial revision in the existing prior approval statutory structure whereby the Federal Reserve rules on applications for nonbank activities prior to the applicant actually engaging in such activities. I am concerned that this procedural change in the administration of the banking statutes may operate in tandem with the substantive changes in S. 2379 and, as a result, alter the face of the banking industry without a serious review by the regulatory agencies charged with the safety and soundness of the financial system.  Frc-  Imam_  I am enclosing the most recent draft proposal revisions of S. 2379 by sponsors of the legislation which tighten to some extent the ability of banking organizations to engage in business and commerce without Federal Reserve approval. But, under the revisions, banking organizations could be permitted through Export Trade Companies to engage in banking and commerce; and significantly even with rulemaking authority lodged in the Federal Reserve the presumptions would run in favor of banking organizations engaging in commerce.  ‘k e.ts k 1:1414  imormar.-  Your views on the points raised herein will be most useful to the Committee if it should meet in mark-up on S. 2379 the week of May S. I thank you in advance for your cooperation with the work of this Committee. in  je1y,  laM P Chairman  xmi re AN.  WP:lmg  ••   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  16Vrad  *. tPerA4•• • •  kgt' . Si040"  • 4  4 •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .• .• Of Govi •  BOARD  OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. MSS'  PAUL A. VOLCKER CHAIRMAN  May 6, 1980  The Honorable James H. Quillen House of Representatives Washington, D.C. 20515 Dear Mr. Quillen: Thank you for your recent letter regarding the difficulties being faced by homebuilders and homebuyers. There is no doubt that conditions have deteriorated in recent months, in response to an acceleration of inflation and governmental policies designed to bring inflation under control. I also appreciate your sending samples of messages you have received from Tennessee builders who expressed their desire to have interest rates reduced and inflation brought under control. The Federal Reserve is cognizant of the special problems that high interest rates have created in mortgage, housing, and other markets. In designing the Special Credit Restraint Program announced March 14, the Board asked commercial banks to give priority to maintaining a reasonable flow of funds to small businesses, such as local builders, and to serving the liquidity needs of thrift institutions. The special deposit requirements applying to increases in consumer credit specifically excluded mortgage credit for the purchase or improvement of homes. Also, the requirements imposed on any further expansion in the assets of money market mutual funds should leave more funds available in local markets to help meet local credit demands, including those associated with housing. Furthermore, I have urged the banking community to make special efforts to accommodate the appropriate credit needs of small businesses, homebuilders, consumers, and farmers. Also, the Federal Reserve has long supported changes in regulatory processes that will make credit more readily available for housing during periods of high interest rates. Measures enhancing the ability of thrift institutions to compete for funds, such as the recently enacted legislation calling for deregulation of depository institutions (P.L. 96-221), are an important contribution in this regard. Given the short-term outlook for depressed real estate activity, the Congress itself may wish to consider special programs to aid housing through this difficult period. The benefits expected  'ioriorz-L  ir fror, special cosureas. lorwever. shoult‘ veiched cirrefully tt-44 likely costs. -evertheleas, soltttions d ,ne to aid t1744 to tIle core nf t roblerl t4n1 tiousin- ptarkets will not fscinr, these an, ; other sectors of te econory. The inflationary !Nrocews must be belted. Ag inflotion abates and inflationary expeetsticma Aissirnte. marli!et interest rPtes will rece4e, presures on =3epository institutions will sese, and t.}Ne supply of credit will Declines in )1..ar)ret rates ef interest in rent weeks are en ercourtine: fAn, endI hop* pross in 171rdin eolutictnst to the nation's oconolric problers will result in furter leclit:cs In the futEre. ;incorely. Sgaul A. Volcker  kibaldtxXVItxximixAltYxti(0 liStiMKtvcd (#1,-169) bec   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Kichline Mrs. Mallardi (2)  JAMS H. QUILLEN  Rwr DISTRICT. TENNESSEE  *ion assigned Mr. Kichline  WASHINGTON OFFICE:  •  R00OA 102 CANNON Housc OFFICE BUILDING WASHINGTON. D.C.  COM MITTEE5: RULES RANK I NO M EMBER  Congre55 of the Einiteb 4:170 tate5 31)oticse of 1leprefsentatiba4 Ziltizbington, D.C. 20515 April 24, 1980  C‘J   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Dear Mr. Chairman:  DISTRICT OFFICE: ROOM 157—FIRST FLOOR FEDERAL (POST OFFICE) BUILDING KINGSPORT. TENNESSEE  1  Accompanying this letter are several messages from homebuilders and frustrated potential homebuyers in Tennessee, who are unable to do business because of the high interest rates that now are in effect across the country. It might be beneficial for you to see first-hand some of the sentiments that prevail among the public, and read how these people feel about the policies of the Federal Reserve Board and their effects on the average small businessman and the average middle-income American worker. Like these writers, I would prefer to see these timber "letters" used for what they were intended -building homes and workplaces for enterprising Americans. The fact that they are being used in this way is a symptom of the economic disease that haunts us. The current asinine policy of high interest is contributing to the disease of inflation, not its cure. One does not control inflation by further increasing prices, and that is what high interest rates do. The time has come to call a halt to this backward thinking. You are on the verge of sending the economy into a death spiral from which it may take years for us to recover, even after you and your board members are replaced by more competent individuals. I urge you to now reassess these economically suicidal high interest policies, and turn them around. Lower interest rates will encourage investment, construction, expansion, and productivity. American workers can produce this country out of any economic woe that befalls us. All you have to do is give them the chance. Sincerely,  Mr. Paul A. Volker Chairman Board of Governors Federal Reserve System Twentieth Street and Constitution Avenue, N.W. Washington, D.C. 20551  20315  37662  4-;  1:J8J  Uonora le Zenjamin S. iit;sontLal Caairzlan Zul)committee on Commerce * Cot/sumer and ;:,onetax.ii ;41:airs Comzittee on t;overnment i4urations Aousu of Aeidlecontativev. 20S1t'41,:4Lin.iiton, D.C. bear C.3..ai=an Aosenthal. with rit!lard to your letter of 4).4xil 21, ntaff interin which you exii-reed concerml rardirm, a ixol,esod of the Truth in Lending Act. T,teit izetation of 1485ulation intcrrQtation, kC 0171 0 discu3L1.:s the disolouurca rofiuired in 4looelaolo' cortificaton, whie4 involvc counection tu loan ;,:y an i=titution of a 1,ortion of the rkinissuli dei:osit reuix.c.4 for xdonesj ;;..arA.et certificatcs. You futzwticn the need fox rirut. in Lendi.:1c; disc1ozura5 under these circumatances. AM writ4461  Truth in Londia.:4, Act and Lequlation Aa a -4encra1 consumer credit transaction. You ':,teto ' diacloeureL in car lloard uasutLorit, to exernt certain t,-pa n o: credit thckt tramitactione, uuch an lif in.lurance yolic:i loans, from Trut'', in Lendin9 disclowures. We would 11.0 to aL.',:asiss that the trciatr,14:nt ol o1ic loans ia ..)41taed on unofficial ataff letters and Jos.= not axev,_.tion from tLe rejulati(oh. The staff concluded re0,ruoent the tleat ia tLece tranactions uo crit was crtendGe.0 '.-ecause the 0.clic4 owner viaw si4;;.1y drawing on the accrucd caa valuo of 4„o1icy with no contractual obligation to rer,>ay that anount to thti nand, isizurance coLvan4. In loo;hole trancactions0 on t:e other ation custorAzr incurs a UeUt and enters into a contractual oblig aear to reeey that amount. Under ttAino cirmitatauces, it vould tLat cradit has been extondca. from Under EAction 105 of tht: Act, the Board ma; except find:4 tkast rtNulatin any clac.41 of cr4dit transactions if the Board vuri-oz4fIs that au exccItlon is "rmacezleary or ro:er to effectuate the or to t.#f teas title, to ixevent circmwt;ntiou or evaaion thereof, While tLe Loard Las never formally conLacilitate coaceliance. rs; sidered an exemption for this ti,re o1: transaction, it appea hell to t4st kroviding discloureu for these transactions does functioa of Trutt/ in carry out the essential credit . A.41 an alternative tcenterinq into the "locholo   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  7:4=.e liouraLle nztn;amin kuva Two  r.osenthal  tte4Isactioa iti thc; itaucitl inutitution, t custm-Jer could 1(.44$11 elaewhara o'AJtain tlita fuLda accesuAry to .:141;0 Uki: the ;10,00:i 1.2imuk amount for tnc oortificate. 741ithout dizclosure c,f ticat oz. Urns of tha lic4A1-4 ofirwmd y thu tutioL unkliAr the lbolo a customer iahi to com?arti crztdit sourceu would 4ivi deprivud of waseatinl information noccf3,ar.4 fvr tt. ur:.oz,e, In this context, th* Trut!, in Lendinl ditiolce.slures tar tf,fa o2 transaction describe4 in tl-a 8taff interrrotation ulveuld Le C;. t:i..;:aistance in carryimi out. the 1-.12X0Vati Of tlio Truth ia a ruciuftat for 02blic cexmlant was raocivoi r4Aarding FC-0171, tuut auspending tLa atfactivu data of the intor.x.atatical. ..3ur letter i1l14* troate4 as a pulJlic cmurleat AAd fully consider4lAi o alon9 with all f.lter ce,;rancrtit rt:tcoive.! on tho interi;,z‘tation. 14%, a„..ruciate hevin y;)ur viuvc ou thig mzIttior =se, \.411 1.et you know ea cowl ar.1 further sty:Lion in tak,w1. (.A4 Lroa4 t  nceroly,  ..:Z.J.Ters.jt (V-152) iJco; :-:argarct Stewart (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BINJAMIN S. ROSENTHAL, N.Y., CHAIRMAN ROBE. T T. MATSUI, CALIF. EUGENE V. ATKINSON, PA.  •  Action assigned Janet  il  LYLE WILLIAMS, OHIO JIM JEFFRIES, KANS. JOEL DECKARD. IND.  NINETY-SIXTH CONGRESS  FERNAND J. ST GERMAIN. R.I. p  rt  JOHN CONYERS, JR.. MICH. ELLIOTT H. LEVITAS, GA.  MAJORITY-(202) 225-4407  Congre  of the Eniteb fz)tatez  3Doufse of ileprtt‘tntatibei; COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE  COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING. ROOM B-377  WASHINGTON. D.C. 20313  April 21, 1980  Hon. Paul A. Volcker Chairman Federal Reserve Board Washington, D. C. 20551 Dear Mr. Chairman: I am writing to express my views on staff interpretation FC-0171 of Regulation Z, concerning the cost disclosures required in connection with the loan portion of "loophole" money market certificates. The essence of my comment is that Regulation Z disclosures for the loan portion of a loophole account serve no useful function; on the contrary, they may confuse bank customers and may add unnecessarily to the regulatory burden on banks. I would appreciate having the Board's reasoning behind the disclosure requirements that have been imposed. In a loophole account, the customer is not seeking a loan. He is not shopping for alternative sources of credit. The entire transaction, of which the loan is only a part, has as its purpose earning a return on a certain sum of the customer's and should receive meaningful disclosures money. The customer is interested about, the net return to him on his deposit balance from the complete transaction viewed as a whole. To isolate and require separate disclosures about the loan portion of this transaction is to draw attention to a component of the entire transaction that has no meaning by itself. For this reason, such disclosures appear to serve no useful function. Instead, they may confuse bank customers unnecessarily. In addition, the additional burden they impose on banks may discourage some banks from offering such accounts, in which case the disclosure requirement will have worked to the disadvantage of the people it is meant to help. In light of the need for regulatory simplification and avoidance of unnecessary regulatory burdens, I would suggest that the Board, in reviewing the staff interpretatfIIion in question, needs to determine   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  L.  what purpose is served from the point of view of the deposit customers in requiring separate cost disclosures in the loan portion of a loophole account,  • Hon. Paul A. Volcker  2  April 21, 1980  b  whether the Truth In Lending Act imposes an absolute requirement for disclosures in such transactions, without room for Board discretion, or whether the Board believes it has the authority under the Act to exempt those transactions from truth in lending disclosures if it finds an exemption to be justified (as I believe the Board has previously done for certain other specialized loan transactions, such as life insurance policy loans), and  c.  whether requiring truth in lending disclosures in such cases is consistent with or envisioned by the purpose of the Congress when it enacted Truth In Lending.  I would appreciate having the Board's reaction to this viewpoint. I also request that this letter be placed in the public comment file on interpretation FC-0171. Sincerely,  \\, Benjamin S. Rosenthal Chairi4an BSR:tb   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4latiora.dlu cAtox-ic at4t4k1 Sgrutts WasLiwition, z.C. 2Q510 1.046r Usnator I am vritia, iu rea,onae tQ our lettor of ; .Tril 211, concerning aortio dirficulties citad j%:. Herwan LcirdAl in obtaiuing a cradlt Lin4 under ti.to t'aderal IA:;sarvols 17,6orary casortga Credit PrGjraLa. We have contacted the tLiaseolis wslrve Dank Leadinci officer on this matter; ha inform4 44 tkutt 44 ,,F5 041110A creidit lino 4as 30W voila established for • Lerdaita bank Me Firzt Lotions" Sink ef .itchell, Sout); Vakota). The Lendinj aficextr w4.11 discuss the credit line arraniiement Lt zr,. Lera441 whan ho returAs tc t%c bank itter this w. Sincerel S/Paul A. Volcker  L.cc.  (1V-17D) k.itzer :r. /Lair ,allardi (2)  • Being handled by Congilliaison Office HERMAN E. TALMADGE. GA.. CHAIRMAN GEORGE MC GOVERN, 3. OAK. • WALTER D. HUDOLESTON, KY. RIOHARD 111. STONE. rut. PATRICK J. LE:HY, VT. EDWARD ZORINSKt. NEBR. JOHN MELCHER. MONT. DONAL D W. STEWART. ALA. DAVID 11. eRYOR. ARK.  JESSE HELMS, N.C. 1111, MILTON R. YOUNG, N. OAK. SOS DOLE, KANS. S. I. HAyAKAWA. CALIF. RICHARD O. LUGAR. IND. THAD COCHRAN, MISS. RUDY DOSCHWITI. MINN.  DAVID L. month% OKLA.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  "ZICI-tifeb Zfafez -.Senate  ROGER W. JEPSEN. IOWA  COM M ITTEE ON AGRICULTURE, NUTRITION. AND FORESTRY  WASHINGTON. D.C. 20510  April 28, 1980  Gentlemen: I am enclosing a letter and other documentation from Mr. Herman Lordal, President of the First National Bank, Mitchell, South Dakota. I have had a number of similar communications from banks in South Dakota about the problems outlined in Mr. Lerdal's letter. I would appreciate being advised on the difficulties cited by Mr. Lerdal. With every good wish, I am Sincerely, aigolltrlddA4460u.. ieorg( McGovern  Office of the Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551 Enclosure  S  ON  FIRST NATIONAL BANK  Serving the machett Crwrvnirify  crnre  1866  M tch(o' So,,th Dakota 57'301 (6051 996-6611  April 22, 1980  Senator George McGovern 2313 Dirksen Senate Office Bldg. Washington, D. C. 20515 Dear George, The combination of low prices, high interest rates and short supply of money is causing problems for rural South Dakotans both real and anticipated. I think the constant bombardment through the press of the economic factors that we are facing nationally coupled with the real factors which we face has meant that there has been more than an ordinary slowing down on the part of spending and investing on the part of rural South Dakotans. This past week, a great deal, at least State news, was devoted to news that the Federal Reserve was making money available in large quantities and at low interest rates has really caused some false hope for our farm population. Enclosed you will find copies of the material that I sent to Mr. Schultz of the Federal Reserve Board, as well as Mr. Mark Willes, President of the Ninth Federal Reserve District. I have repeatedly contacted Minneapolis Federal Reserve with regard to using the seasonal borrowing privilege. First Mitchell National Bank serves more than farm people and, therefore, we do not have the fluctuation which are necessary to qualify under the borrowing privilege segment of the regulations. I am not certain how banks in South Dakota could qualify under the regulations that now exist. It is my feeling that the regulations that had been written for all of the Federal Reserve Banks need modification at least for the ninth district and its my belief that there are other districts that are also dependent upon agriculture that could use similar type amendments to the regulation. We, at First Mitchell National, have always felt that we would attempt to provide credit to worthy borrowers. We cannot do that if we do not have the funds to lend. Our reserves at the Minneapolis Federal Reserve Bank average more than two million dollars daily. The opportunity to utilize, at least part of these reserves in the Mitchell community, would be of a great benefit, particularly at this time. Your  very truly, 7 1,1 / LV z  , Herman Lerdal President HL/kc Enclosures   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  _ 0 P 0 2  I  `,/  t  CJ Pc•  11  UrTHE  FEDERAL RESERVE SYSTEM ( J T 0N  -  I 11  ^  I .I -  •  i'AL  April 16, 1980  TO:  Chief Executive OfficPrs of All Comm“rcial Banks  RE:  Special Credit Restraint Program  As you know in meeting the guidelines for the growth in total bank credit of 6-9 per cent under the Special Credit Restraint Program banks are encouraaed to avoid the financing of corporate takeovers or morgers and the retirement of corporate stock except in those limited circumstances where such a loan may be justified in terms of production or Pconomic efficiency commensurate with the size of the loan. I wish to stress that the Board considers this policy to be applicable to the financing of formations of bank holding companies and acauisons of bank holdina companies, tanks and nonbank subsidiaries. Accordingly, hanks should take special measures to avoid loans for such purposes unless they meet the production or economic efficiency criteria. The Board expects that banks will carefully review and modify their lending policies to be consistent with the policies expressed in this letter and will examine their outstanding nonbinding commitments covering acquisition financing with a view to reducing or terminating such commitments consistent with the purposes of the Special Credit Restraint Program. I expect and appreciate your cooperation in this and all other  aspects of the Board's and the Administration's anti-inflation program.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  Frederick H. Schultz  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: Newspaper article Citations:  Number of Pages Removed: 1  Montgomery, Andy. "Fed Action Eases Farm Loan Crisis." 1980.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  •  1 IRS I NAI IONAL BANK  • 0,e  /Vac •)efr  Corrrnu-tity !ince 7886  Liqctlet South Dimo:a 57301 (635) 996 6611  April 22, 1980  Frederick H. Schultz Vice President Federal Reserve Board Federal Reserve Bank Washington, D. C. 20551  ••  Dear Mr. Schultz, I'm enclosing with this letter a copy of your letter of April 16th addressed to the Chief Executive Officer of All Commercial Banks and secondly, a copy of a front page story from the Sioux City Journal, Sioux City, Iowa of Friday, April 18, 1980. I have, this morning, visited with John Danforth, Chief Economist for the ninth Federal Reserve District in Minneapolis, as well as Mr. Ray Heulet, Federal Reserve Bank in Minneapolis. The purpose of my call to these men was to seek an explanation of the "multitude of press releases" relative to "cheap money" for farmers that had been on our radio and t.v. stations over the week-end. Mr. nanforth and Mr. Heulet have both informed me that the press releases misquoted Mr. Danforth. Mr. Heulet informed me that the rules and regulations for a farm oriented bank, like First Mitchell National Bank, were still in effect with no changes. I visited at the Federal Reserve Bank in Minneapolis in February of this year and had a most pleasant visit with the principals of the bank. The purpose of my call at that time was to make arrangements for my credit needs for the summer. The officers who I visited with reviewed the past history of the bank as well as my future needs and we found that the First Mitchell National Bank did not meet the requirements so that I could borrow under the seasonal borrowing privilege. A good share of our loans are to farmers; however, we also attempt to serve the small businessman needs as well as putting funds into installment loans and housing. The fact that we do assist segments of the borrowing community other than farmers, meant that we did not meet the criteria as setforth for use of the discount window; we do not have peaks and valleys in our loan account. The men at the bank did give me suggestions so that I might go to the Federal Reserve for assistance for short-term liquidity, but it was deemed impractical and impossible to net funds for the seasonal needs of our farm borrowers. I left the Fed and visited with officers of the Northwestern National Bank of Minneapolis and found that with tight money their requirements were quite rigid and were at rates that our farm borrowers would not pay. This paragraph gives you a bit of background with regard to the attempts that I have made to secure loan funds for the borrowing customers of our hank.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Frederick H. Schultz ril 22, 1980 Page 2  When one of our larger livestock dealers brought me the Sioux City paper indicating that funds were available through the Federal Reserve Banks and the same mail brought the "general mailing" letter over your signat ure with regard to "Special Credit Restraint Program", I felt asthough there was a conflict in the policy of the Federal Reserve. I would not mind the conflict if the regulations were such that my agricultural loan officers could qualify our borrowers for their needed funds. It is my hope that the Federal Reserve will review its present policies and consider establishing new policies which could make "going to the window" a practical manner for many of us whose customers need operating money. • There are a multitude of factors that have created the credit crunch for agriculture and I'm certain that you are aware of all of them. The purpose of my letter is to express the quandary which I feel, as manager of First Mitchell National Bank. It is my hope that those Fed Districts that are highly dependent upon on an agricultural economic base should receive consideratio ns that are necessary to maintain an adequate supply of funds for a sound agricultural business economy. Can the regulations be amended so those of us who need funds for our customers can qualify as borrowers? My reserves at the bank average about two million dollars. I would like the opportunity to provide some benefits to my customers through these "captive deposits". Yours  ery truly !  411 ( t .  Herman Lerdal President HL/kc Enclosures cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mark Willes, President Federal Reserve Bank Minneapolis, MN 55480   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  . . ,u.rximil J. .tc .4.ell CIA&dh.LM444 i.AlcoaiiiraltteQ. or; !,Queds,tic 24onetari Committwe on bankiL,. anl vxlhaut AtialrA iioulie of ;41ercieentativef, ki4,47644.ajton,t.C. 20515 C4aiman :-.1t4440112_ thankuu fox 2otar 'otter of 1%)ri1 29 invitin g am to tiit...;.4.1 on 70(J11 tLe -fiddi;rel l'ARGOZVft 4*.a1ernization ccil.A...tit.t  am looking foxard to a„cariv; l'efore : t our on .ay a at 10 30  S4tql  W:ljt (1-1861 Doc. .txilrod PetarYlen -ra. allardi (2)  al,  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 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.  •  STEWART B. MCKINNEY. CONN. GEORGE HANSEN. IDAHO  U.S. HOUSE OF REPRESENTATIVES  HENRY J. HYDE, ILL. RICHARD KELLY, FLA. JIM LEACH, IOWA  COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS  THOMAS B. EVANS. JR.. DEL. S. WILLIAM GREEN. N.Y. RON PAUL, TEX.  NINETY-SIXTH CONGRESS 2129 RAYBURN  HOUSE  OFFICE BUILDING  WASHINGTON, D.C. 20515  GLADYS NOON SPELLMAN. MO. LES AUCOIN. OREG. DAVID W. EVANS, IND. NORMAN E. D'AMOURS. N.H. STANLEY N. LUNDINE. N.Y. JOHN J. CAVANAUGH, NEBR.  J. WILLIAM STANTON, OHIO CHALMERS P. WYLIE, OHIO  ED BETHUNE. ARK. NORMAN D. SHUMWAY. CALIF. CARROLL A. CAMPBELL. JR.. S.C. DON RITTER. PA. JON HINSON. MISS. 225..4247  April 29, 1980  MARY ROSE °AKAR. OHIO JIM MATTOX. TEX. BRUCE F. VENT°. MINN.  .:a  DOUG BARNARD. GA. YVES WATKINS. OKLA. ROBERT GARCIA, N.Y. MIKE LOWRY, WASH.  r  Honorable Paul Volcker Chairman, Board of Governors Federal Reserve System Federal Reserve Building Constitution Avenue Washington, D.C. 20551  r CD  Dear Mr. Chairman: The Subcommittee is planning to hold hearings on H.R. 7001, a bill designed to restructure the Federal Reserve System. The dates scheduled for hearings are May 15, 22, and 29, 1980. As author of H.R. 7001, Congressman Henry Reuss has already asked for your written comments on the bill. In addition, however, we would be interested in having you testify before the Subcommittee on May 15 at 10:00 a.m. We have asked the Presidents of four Federal Reserve District Banks to testify on May 22, and the representatives of several trade associations to testify on May 29. We look forward to hearing your views on the various provisions of H.R. 7001.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  ---4 1ve0 ) ( 0 t >11 7 Par en J. Mitchell Chairman, Subcommittee on Domestic Monetary Policy  GAYLORD NELSON, WIS., CHAIRMAN  •  IP  SAM NUNN. GA.  LWELL O P. WEICKER. JR..  JOHN C. CULVER. IOWA  BOB PACKWOOD, OREG.  WALTER.D. HUDDLESTON, KY.  ORRIN G. HATCH, UTAH  DALF BUMPERS, ARK.  S. I. HAYAKAWA, CALIF.  RoBERT MORGAN, N.C.  HARRISON H. SCHMITT, N.M.  JAMES R. SASSER, TENN.  RUDY BOSCHWITZ, MINN.  DONALD W. STEWART. ALA.  LARRY PRESSLER, S. DAK.  N.  ?Jenifett Zfafez Zenate  MAX BAUCUS, MONT. CARL LEVIN, MICH.  SELECT COMMITTEE ON SMALL BUSINESS WASH I NGTON. D.C. 20510  WILLIAM B. CHERKASKY. EXECUTIVE DIRECTOR HERBERT L. SPIRA, CHIEF COUNSEL ROBERT J. DOTCHIN, MINORITY STAFF DIRECTOR  May 7, 1980  The Honorable Paul Volcker Chairman Board of Governors of The Federal Reserve System 20th and Constitution Avenue Washington, D.C. 20551  I ellr.;  Dear Mr. Volcker: May 11-17 is Small Business Week. On may 12, 1980 the Small Bustness Administration will be sponsoring a al business and the Innovation-Productivity Crisis. The Vital. nven preneurs; en ure Capitalists." Par ners: The panel will provide an opportunity for small business and government-otticials to share information, mutual concerns and ideas on this subject. The panel discussion will be held from 2:30-5:00 p.m., in the Presidential Room of the Capital Hilton Hotel. In my judgement, it is of utmost importance you oromi . e ke re resentative attend this f rum. As you know, innovation and pro uc ivi y are Iighly important issues in the Congress and the Administration. The Senate Small Business Committee held hearings and I have introduced legislation on these subjects. In addition to my responsibilities as Chairman of the Committee, the Senate Majority Leader, Robert Byrd, has asked me to chair a small business task force of ten Senators which is to a large degree responsible for overseeing implementation of the recommendations of the White House Conference on Small Business -- one of which is innovation. Establishing a dialogue is essential to implementation and government-small business cooperation. Therefore, in my view, the discussion on May 12 is an event of high priority. Participation by your office ought to receive very serious consideration. The panel discussion will be noted in the Congressional Record and will be reported in a Committee Print. This event will give you an opportunity to learn about the capabilities, problems, and issues faced by small business, and, in turn, will inform small business about the assistance your office can provide.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  May 7, 1980 Page 2  Could you inform Jody Anderson at 653-6072, at the Office of Advocacy, of the Small Business Administration, who will be attending from your office? ince rely,  GAYLORD NELSON Chairman GN/wbc   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  SILVIO  a  CONTE  HOUSE OF REPRESENTATIVES WASHINGTON FIRST DISTRICT MASSACHUSETTS  8 May 1980  Dear Chairman Volcker: I want to reconfirm your appearance as a speaker for the "Issues Symposium" I am hosting during the period 19-21 May 1980. I am delighted that you have accepted my invitation to speak to this important group of community and business leaders from my congressional district. As we discussed on the phone, I suggest that you talk to us for ten to fifteen minutes about present Federal Reserve System policy and future actions which might be taken to adjust the economy. The last part of your presentation will be taken up with questions from the audience. My staff has been in contact with yours concerning the details of this appearance. Should you need further information, please contact me. I am enclosing a copy of the most current schedule of events for your information. This schedule shows the times and location of your presentation. I am hosting a reception for this group on Tuesday evening, 20 May 1980 at 6:00 PM to 8:00 PM. I want to extend my warmes invitation to you to join us. I am anxiously looking forward to this exchange of ideas with you. With my very best wishes, I am  Cordially,  SOC:cvw Endl  IL 411# 0 0. CONTE ember of Congress (0 /  Honorable Paul A. Volcker Chairman of the Board of the Federal Reserve System 20th Street and Constitution Avenue N. W. Washington, D. C. 20551   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • SILVIO O. CONTE'S SYMPOSIUM FOR WESTERN MASSACHUSETTS MAYORS, SELECTMEN, CHAMBERS AND BUSINESSMEN May 19-21, 1980  Monday, 19 May 1980 Mornina  :  Afternoon  :  Arrive Washington, D.C.--check into hotels  1:00-2:00  Reaistration  2:00-2:30  John Sawhill. Deputy Secretary,. Department of Energy Room 2359 Rayburn House Office Ruildinn (RHOR)  2:30-3:00  Paul Volcker, Chairman, Federal Reserve Board Room 2359 RHOB  3:00-3:30  Bob Russell, Deputy Director, Council of Economic Advisers Room 2359 RHOR  3:30-4:00  State Department Representative.  4:00-4:30  •  . 4:30-5:00 . Evening  •  Room 2359 RHOR  G. William Miller, Secretary, U.S. Treasury Department Room 2359 RHOR Bill Cablel House of Representatives Liaison, White House Room 2359 RHOB Events prepared by the Chambers and individual parties.  Tuesday, 20 May 1980 Morning 8:00-9:00 :  Breakfast Meeting (coffee and donuts). Congressman Silvio O. Conte, Rankine Minority Member, House Appropriations Committee. Congressman Edward P. Boland, Chairman, HUD-Independent Agencies Subcommittee.of the House Appropriations Committee. Room 2359  9:00-10:00 :  Lieutenant General John S. Pustay, Assistant to Chairman of Joint Chiefs of Staff. Dr. Walter LeBirge, Deputy Undersecretary of Defense for Research and Development. Room 2350 RPOR   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Page 2  10:00-10:30:  Mortimer Downing, Assistant Secretary for Budget and Program, Department of Transportation. Flm 2359 RHOB BREAK  11:00-11:30:  Moon Landrieu, Secretary, Housina and Urban Development. Room 2359 RP "  11:30-12:00:  Vernon Weaver, Administrator, Small Business Administration. Room 2359 RHOB  12:00-1:30  Congressman Michel, Minority Whip, Republican Leadership Room 2172 RHOB  1:30-2:00 :  Congressman Conable, Senior Ranking Minority Member, Ways and Means Committee. Room 2359 RHOP  2:00-2:30 :  Congressman Erlenborn, 2nd Ranking Minority Member, House Education and Labor Committee. Room 2359 RHOB  2:30-4:00 :  Tour of Capitol  4:00-4:30  Barbara Blum, Deputy Administrator, Environmental Protection Agency. Room: 2159 RHOR  4:30-5:00  Michael Pertschuk, Chairman, Federal Trade Commission. Room: Room 2359 RPOP  Evenina • 6:00-8:00 .  Reception hosted by Congressman Silvio O. Conte for the Speaker, Senators, and select Members of the Massachusetts Congressional Deleaation, and others. (Cocktails and Hors d'Oeuvres) Room 2359 RHOB  Wednesday, 21 May  1980  Morning Free to sightsee and meet with others as the representatives desire-Congressman Conte's office will assist in arrangements. Afternoon Depart  SYMPOSIUM WESTERN MASSACHUSETTS MAYORS, SELECTMEN, CHAMBERS AND BUSINESSMEN Monday, 19 May 1980 Morning  :  Arrive Washington -- check into hotels.  Afternoon: 2:00-2:30:  Opening Remarks of Honorable Silvio 0. Conte. Presentation by Northeast-Midwest Congressional Coalition. Room 2359  2:30-3:00:  Paul Volcker Room 2359.  3:00-3:30:  Bob Russell, Deputy Director, Council of Economic Advisors, Room 2359.  3:30-4:00:  John Sawhill, Deputy Secretary, Department of Energy, Room 2359.  4:00-4:30:  G. William Miller, Secretary, U.S. Treasury Department, Room 2359.  Chairman, Federal Reserve Board,  4:30-5:00: Evening  :  FREE Tuesday, 20, May, 1980  Morning  :  8:00-9:00:  Breakfast: Congressman Silvio O. Conte, Ranking Minority Member, House Appropriations Committee. Congressman Edward P. Boland, Chairman, HUD-Independent Agencies Subcommittee, House Appropriations Committee. Room 2359.  9:00-10M: Lieutenant General John S. Pustay, Assistant to Chairman of Joint Chiefs of Staff. Room 2359 10:00-10:30:  Bill Beckham, Deputy Secretary, Department of Transportation. Room 2359 BREAK  11:00-11:30:  Moon Landrieu, Secretary, Housing and Urban Development Room 2359.  11:30-12:00:  Vernon Weaver, Administrator, Small Business Administration. Room 2359.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  SYMPOSIUM (CONT.)  12:00-1:30:  40  2  •  Luncheon speaker, Congressman Bob Michel, Minority Whip, Republican Leadership. Room 2172  1:30-2:00:  Congressman Barber Conable, Senior Ranking Minority Member, Ways and Means Committee. Room 2359  2:00-2:30:  Congressman John Erlenborn, Ranking Minority, Education & Labor Committee. Room 2359  2:30-4:00:  Tour of Capitol - Picture on steps of Capitol.  4:00-4:30:  Barbara Blum, Deputy Administrator, Environmental Protection Administration. Room 2359  4:30-5:00;  Michael Pertschuk, Chairman, Federal Trade Commission Room 2359  Evening  :  5:30-8:00:  Reception by Congressman Silvio 0. Conte for the Speaker, Senators, select members of the Massachusetts Congressional Delegation, and symposium participants. Wednesday, 21 May 1980  Morning  :  Free to sightsee and meet with others as the representatives desire -- Congressman Conte's office will assist in arrangements. Afternoon: DEPART.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  WJ:ATd1011-TLYCKE CHA‘IHE_Or COL1111 WA!-.HPiGITA TFIP fLIIIHT ROOH PC5fPVArIHNS.  John L Shea, Vicr Prrtnidvilt. Third h;ILional Bank 341 Apol:7ton Street. U1040 Holyoke,  William J. Crvrtn, Adm. Asst. Hulyoke W;ltrr Pnwer Canrd Strr!rt flolvnkn. PA 0lDe.0  Fitnyrn C. Dpychak, txr!c. Vice Pres. uf Commorr^ Hulyoke 69 Suffolk 5troot holynket, MA 01040  Cs..in.F. Connolly, Admininixator Piuvidence Hop t1 1233 Main Str7rt Hnlyuks, MA 01040  Aohext Gilbert, Vice: Ple!;ident Unwd I1u.urnco Arinnry 13:i Suffolk 5trrmt U1040 Holyoke, MA  Cy Gaulin, PrnGidmnt Hitchcock PrrEs, fitc. 78 Hitchcock htretat Holyokn, MA oluao  CzeluEniii, Sr., Pie!,lident runr.7.rnl 14b M.mple Street hul.yuke. :.1;\ 0!04N  Chnzle6 F. 1.1L;rphy, CPA _J6 Suffolk Strr!t! oimul Hulyuke, MA  John V_  1.1s: Jr.r;s Calle() PhaIwacv. Inc. ;- t:Cr7t :*A1 -IttwLun : (1107S !inutJ: Hadley,  Collen, PrnprietuL rhatrmaLy, Inc. 501 Ncu±nn Slizet _5c,uth H:trIlry, MA 010P, Atty. Richrd rnurt_Alesne, Frcsicivt‘t 01Ja Hclvokr, Dr!vriopment Corn. Nurth L;Ic*. Oirmil Hnivet,..e, MA  Partnrr Donnlci prnnn Oil Cumpany 54 crin! Straet yokc, MA 21040  Alemnr_IT- J. Pljar, Fj:ir In Eurnrnr -z r -1 T.1r- hfreel . 1104C.) Hul\.ekc, MA  Alxandcr J. riirir Wrrintluuo Terrazo Hnlyc-A, MA C10411  111-j/lisl.., City Trnelqrrpi.-Telecrem 121 kihittsw Farms 1omr4 tiolyckr; MA eiG40   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  In.  rfv SikeE, Actinci Mnnagetr Chaml .per of Commrrcr Ei St.re7't. knnriittla, WA 01W-1  I  •  •1  Friy:nrd P. Whitt! 15 DitterswrIrt int r,rontly, MA piti33  MrE, Edwrird P. White liji-Amr,iwnet Lane hienby. MA 01033  Wayne T. Boulais, Elec. Enginmrtr Hulyuke Water Power 1 Canal Street Hulyuke, MA DINO  Richard Donnevillr, Prpen./Treatl. All Star Dairy foods, Inc. 456 Ne+N•ton 5trcet Suoth Hadley, wi niwis ClizmbrIth WEDnoell, Pub. Aff. O. Wrtntpuel Air Force Base 439 [SC/PA Wrstnvel. AF, MA 01022 •  Norma Tin9n:11J, Vuhlic Rel. Ulfitel Vmnguerd Snvinyt.; Bunk 143 Chet:tnut Street Holypkr, MA 1J1040 Richard Bedard, Vice Pre.5ifinnt Gordon Ainsworth Assonintinn 20 5ua2i1o2f '..;trect south Deerfield, Mh  Donald S;)int—Picrrm Exec. V. Pt Chnmhmr nf ComItierce irnkl 20 federal Fitrtlei U1301 Grscnfic3n, MA  • Eur.ry, Predent De vid Piolleer Vnlley Bank 1 rederbl Street 01301 Greenfield, V.A  Peter- Elliott, Pres./Mgr. numunt Eurpcsration 289 Wells 5tret n1301 Greenfield, MA  of Adm. Greenfield Community 11031e9r 1 College Drive Di3i11 Greenfield, MA  Elanker, Presidrnt EsIEeck E7.nufnrturin9 Lompehy CPnr41 01376 Turnrre fnUr., MA  Chmrlets EmiLel, DEmn  Prenident Nmncy C2retr.nCierld Cultol;unitN, CollecC I Enlle9e D.vive f,rmrnfirlr'i, MA 01301 Gutkowski, Proprirtnr Wet-Afield Welding 6 Clinton Avenue 13113MS Westfield, V:A  buthnw:ki Westfield lenldinn 6 Cl....nton Avrmun Wr;tfielu, MA 01005  John 1,1r:7n, Froprietul prmornfitri P.eLesi!: Art7h Um 511 HIOH5 Westfield, MA  wilidm Chevalier, Szlles Mnr. DeLur.ated Vetc-IlE AiLh FOCC MA 010ti5  ;.;  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  VrEi.  1tct7  tteg  -  • _  .  •-"'"7  1  "-1••••111e. v.  -  3  -  Thomas gnndwin, Prnprietor Tire Outlet Meinlinn Drive Westfield, HA nme5  E. Erimplu Wnllnce, Assoc. Publit-,her Wellnrft Feriny 5mver/Westfield fvrnic)g Nrwe 64 Scilual Strnet Wentfield, gA 010ah  Biennon, Mgr. Residence Usw Inc:lend Tn)nphuns Compnily . 2?31 Aulthamptou Street U1040 Holyoke, MA  Ruyer Drurelle, Exmr_ Director Riverside Industrie!: 1 Cottaqe Strcet D1027 Easthomptun, MA  BUIOCT, PIDPIirtnr Camput: Shop 21 Enllege 5treet bnuth Hccilmst. MA oin75 (No 1-light)  DUrtnn   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  LEWIS Lnuu, Gent:rel Mamignr J.P. btevens Lampeny, Inc, 26 P:tynun Avnnue Lasthmthpton, RA 01 021 (Nn Flight) DUT-Enh Burgnr 24 Hampshire Strnet Falxvicw, KA (Nn Flight)  Mts  1111C•••••••••••••••••••  *LA  •r-  -  WITHnuT ELMO- nit ROOM RUnfiwATIONS  iitrm. Roy A. Scott Mr. Roy A. Scutt, Prnsident/Chirif Executiwt nificer Community Sdvings PrInk 200 Moir. Street Holyokn, MA 01040  Mr, 00uulds Engnbretson Mrs. Doullies fnliebretson, Administrrttive Secretary Community Sayinrjs Bnnk 21.10 Mein 5trnnt Holyoke, MA 01040  Mr. Benjnmin F. Perkins, Vice Presidnnt Wyatt, Inn, 1329-1 Northatv,pton 5fretilt Holyoke, Mk 01040 Alriermnn William McCdIthy, rnnnultant 9 View 5Irr.nt Hn)yoke, MA 111040   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CENTRAL BERKSHIRE CHAMBER  Mr. Dale Vander Voort President Arnold Print Works  Mr. Richard Quinn  Mr, Ronald Straube Director, Industrial Relations Arnold Print Works  Mr. Bart Barry Area Manager Western Massachusetts Electric Co.  Mr. E. John Reinke Vice President & Comptroller Arnold Print Works  Dr. Jonathan Daube President Berkshire Community College  Mr. Alan Narden Executive Director Berkshire County Development Commission  Senator Jack Fitzpatrick Massachusetts State Senator Berkshire County  Mr. Mickey Callahan President Callahan Outdoor Advertising  Mrs. Esther Quinn Vice President Robertson & Quinn Real Estate  Mrs. Jane Fitzpatrick Owner Red Lion Inn & Country Curtains  Mr. Robert Diodate Director, Industrial Relations Sprague Electric Company  Thelma Moss  CENTRAL BERKSHIRE CHAMBER  • •  Mr. Everett Stewart President McKinsey & Company  Mr. Jack Mullen President Mullen-Mayflower  Mr. Richard Jackson, Sr. Chairman of Board WBEC  Mr. Glenn Harvey GtA4lwac-1,11-4114-7 President Central Berkshire Chamber of Commerce  Mrs. Margaret Kuntz Ms. Debbie Donovan Owner Mr. Donald Kuntz Executive Vice President & Treasurer Berkshire County Savings Bank Mr. Del Virgilio President Virgilio Construction Co. Mr. Leo Mahoney President McCormack and Tool  Mr. Donald Graves Manager, Public Relations & Utility Operations Berkshire Gas Company  Ms. Janet Goldberg Commissioner Office of Community & Economic Development  Mr. Gary Vice President First kriculture Bank Mr. Richard Reinhart Manager, Public Relations & Utility Operations General Electric Company   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  wam•mm.-•  •  • •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NORTHAMPTON  Mr. Robert Saner President Kollmorgen  Mrs. Robert Saner  Mr. Peter De Rose Co-Owner Daily Hampshire Gazette  Mr. Bill Gardiner Physical Plant Smith College  Mr. Patrick Goggins Vice President Woodward & Gunnell  Mr. Richard Covell President Northampton Institute for Savings  Mr. S. Russel Kenzman President Nonotuck Savings  Mr. Walter Murphy Marketing Director Redevelopment Authority  Mr. James Tobey President Northampton Cooperative Bank  Mr. Charles Lyons President Frances P. Lyons Insurance Co.  Mr. Charles Gaudry Personnel Director VISTRON  Mr. Robert Patenaude President Florence Savings Bank  Mr. Paul Walker, Executive Director Greater Northampton Chamber of Commerce   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  tio It  ,/14frAfr. 04,15))300)-3-  Mr. . John Rein Vice es./Co roller Arnold Works, Inc. Colume . S et Ada s Massachusetts 01220 Mr. Dal Presiden Arnold P Adams  Van  Voort  Works, Inc. chusetts 01220  . Straube Mr. Rona Personnel anager Arnole'Prin Works ...A,e<ls, Massa husetts 01220  04t•  Mr. William Hefferman President A-B Dick Products Company 59 Interstate Drive West Springfield, Massachusetts  01089  Mr. David Townsend Traillease Corporation Box 386 Agawam, Massachusetts 01001 Mr. William Keeley Keeley International Trucks, Inc. 268 Park Street West Springfield, Massachusetts 01089 Mr. Robert Clark Tr -County Contractors' Supply Co. 149 Wayside Avenue West Springfield, Massachusetts 01089 Mr. Ted Reilly Alco Equipment Company 32 Century Agawam, Massachusetts 01001 Mr. Robert W. Townsend President Alco Equipment, Inc. P. 0. Box 386 Agawam, Massachusetts 01001 Mr. Bruce Crain Buxton, Inc. 265 Main Street Agawam, Massachusetts  01001  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  Mr. Benjamin B. Winer President, Hartwin Motor Sales, Inc. 39 Beacon Street Greenfield, Massachusetts Mr. Per Darsne EBTEC C poration 120 ShprSe ker Lane Apvam, Ma sachusetts  01301  ad/VI/C)/aj 01001  Mr. Ro aid P. Lal V.P. reasar Executi EBTEC Cor Box 465 Mas achusetts 01001 Agaw Mr. Allan T. Berger ) Vice President-Operations EBTEC Corporation T ( 120 Shoemaker Lane Box 465 Agawam, Massachusetts 01001 --Mr. Homer G. Perkins P Chairman of the Board Stanley Home Products, Inc. Westfield, Massachusetts 01085 Stephen C. Reville, Esquire Legal Department Stanley Home Products, Inc. Westfield, Massachusetts 01085 Mr. Laur-'ce S .erose EBTEC Corp P.O. B 65 Aga Massac usetts 01001 Dr. Eugene McMurtry Director \-1/, Cooperative Extension Service ( University of Massachusetts .__ Amherst, Massachusetts 01003  •  Ms. Cheryl A. Wiles Sales Manager Mohawk Orchard, Inc. Shelburne Falls, MA 01370 Mr. Marvin Peck Valley View Orchards, Inc. Peckville Road Shelburne, MA 01370 Mr. George Barker, Jr.  Mr. Walter Melnick Regional Administrator Berkshire Coop. Extemsion Service 1499 Memorial Drive West Springfield, MA 01089  Jf i/2LZikL  0_0 edvasill   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Pd  fj   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  190,0  Tte qonorable Lloyd "lemtson irltaim4n 'int 7eonomic comwittos. .4sti1 'on D. c. 20510 17yerr CAirMilan ;4ertson In Necoreance with arrim -,eentis that •;tfv,.: r  re with your Corittee. ftncloseA 1.4 a star!!  report coverin.fl firmrciz.1 develfvNents in t  first  quarter of lgSC, lincorely  SZN1A. Volcker  Yncloaure  Mr; vcd  cc.  hoc.  Joint rconoric Co.mnittee (illong with 30 copies of ltr. & rept.) Vice Mairrlan Bollinc Flinor Pachrach, Tor' .eve . Robertr (Fennte r,aul Nelson, Graber rorthup (ouse PoL '::eintraub (Domestic Mnnotriry Policy :'7,1bcrte, of reniole John Farmer (Vice rren, office) !Atka YurTo (ouse A7prons.) Ms !tIFIllardi   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  frorit vfAte'.1 -:titter ertAte Detr :Ite.tzr Cl-xrcc.t, #bout tit  fe:r your lgttsr of 1ttbi1ity csiteria fcr tliqs  24 Teeoritab-  Tprrerary :i*Asone.1 crectit i--rol4rav is ...est to a/sun', tle,gt 6-4411.4:r tnks witbrAzt dervms to oati*n41 teir, the ft.cessftry fun4s to nuance Atte sge*sr-* Itrigets cari sediOs of their raculex gv,411 t:warzeirs and aqricialturul cl3x less that 110V totwors. Meber i, aow!..evt.er Norks ch1,0t- 4 loon 40irosit ratio of f4 4llictr in deposits! =Ne-re,ettt or rore /tr. ;Letnerlolly elivible for tbe prot:frarr. these 1744144, Om, redert4 attservis is prevered to asteb credit Ur.. equal to 5 percoftt of the barik's total Ilsh )ors outstonlinv at the ti.a *f errlicatien, X. bark 7t4y Craw upwl ite lines to firehee 70 percert of tha ircroaso in loses thew the level rrevailin at tbe tioi.F.errowin,7 Larks arc expected to repay a proportiGnatt: share- of their borrowin,ls if tl-air lee* level them ciecl1ne4 Cl if deposits J7row in eitrvss of loans. World. Ri*serve rf,paid Owls tke lese-depesit credit is expected tp retie returrqs to ti.s xtatrt!.n .A.cIra, All borrowing-At myet , onths. hut credit may be nort/sally be rep.uid wit!;.in fW1 , ort4nevc" for znntl%or tl;rft. -z1=0-.e in special ciregrstances. '14  My staff irmwi Ytg th*t !mrlitral of the L.3407o bazko Tor-remry f".easenal Credit eeula itir."ear to qualify fort Reeerve weak dinfmtutt f;,'R'ricerok ritrorts 'however. rrr.-rn tt.e eimrottncirtent of tt7c now ,rot;-ratik vzs t•Itt teack, nt. ts.ocutiva s'cl.cor of everv to t--c/4 Ir%,Arias or arplicetiors /Ay, been rclnriqed from any Tia?%r,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Irterested stcula contact the Aeofer:v$e ;rz;ne.' tervir.c tbeir area (Portlerd for t*. nort)ern ! tf your ,-nit Lake City for the AoWitert belf) a4ditiorel infometion tbe prolsTre17. they Ilere at the r-.otokrl on 02-2,47. -r, ser, -y sincerely. S/Paul A4 Votcket  (SV 3,E5) Vorgirs. f;Ttitzer, Linleey. reir ,;s.ft 4o11e:re!! (2)  iirwer Nit 111 NNE II 101414S1•04  • • •)P•  Np14  L A  N IA p•ipt I  I•MFS A I  t  rr YF  MC CI UHT, IDA1 P. WE ICI. FR. IR.. L.  V (1(114iN1( I  IEL) t•IVENt.  ./,  1.4  S"ANII 1.4  •  11.4•slx 0. 14ATrIEl11. 0141 G  •••LJEIRIAIMPERS, ARM NE I I 4 I or,. I. y. A  Action assigned Mr. Ket  JACKSON. y. ASH., CHAIRMAN  114+AN.04o.rulOAMO  Aif TIE NR•t114 0+410 1.4•1'111 , 1•••• IIAWAJI  N  urx.  AcKA  14ENPr 1111 I A4 CR4 ()14 1 A. MALfot IA +'. AI I OP. +'.Y0  ?JCiik  I( • I, . 0 4()P4 414, 4(.AS, MASI  tn1c Zenctie commiT Try. ON  ell t_ PPO•'•L  ENERGY AND NATURAL RESOURC ES DANIEL A  onrrrug  0 MICHAEL HARVEY  S'Arwriv G. HicKOht.  vrAr• DirircTrot Ef4if  STAFF' DIRECTOR  COUNSEL  row  T1-111 MINORITY  WASHINGTON. D.C.  April 28  20510  1980  Mr. Paul A. Volker, Chairman Federal Reserve Board Room B-2046 Constitution Avenue between 20th & 21st, N.W. Washington, D.C. 20551 Dear Paul: 4'7  I applaud the intent of the recent announcement that the Federal Reserve Board will offer money at the current discount rate of 13 percent to banks that will lend money to farmers. While I am supportive of this step, I am compelled to raise several questions about this step on behalf of Idaho farmers who advise me that the conditions attached to this offer mean that Idaho will not receive much of this loan money. I have had several complaints that only one bank in Eastern Idaho, a major farming area, will be eligible to offer lower interest rate loans under this decision.  ,  -  I would deeply appreciate it if you could advise me of the details of the eligibility criteria and your assessment of what this will mean for the Idaho farm community. With best wishes, incerely  Frank Church  ••••   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  1.•  •  r •  •t 4  t ••‘.  •-•-•  pAtk •-.7 • .  =  ■IUMI/11.9P-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  mirwr  r...w,11P1.--  •  ray g, Igf.10  The ;,:f.:norle -;o4ar;! United !tates rtemete vftehintjton P. C. 2C7,10 rulv,nr The Tlortorable ,Tohr United IcJtete, '":1,spnato waebinr.ton "). C. 20S10 Dear  enator  etzQnr?kri4: CAvflr'  ThiAnIt you. for your letter c,f Arril :xenfitionel invitin47 rts. to vftrticirate in tt,e Ccm1, conference ertit1e3 -1-;.i.-J% Noon for the 177cono=ny e,-10 and Price Controlm Are 7-roprel Rer4odies receeeary?" Altourb T will be telstifyin7 høf Comittee on a EubcOmmittee of the ouse the riorniog of Vey 15, I will nmke every effort to stop by eo-7etime Aurine tEe afternor eession of your oonferenco. r tt  I look forwnrd  neein  S/Paul A. Volcker CO.vcd (Of 180) bee:  Mall:?rai (2)  yow.  S JOHN C. CULVER  ARMED SERVICES  IOWA  ENVIRONMENT AND PUBLIC WORKS JUDICIARY SELECT COMMITTEE ON SMALL BUSINESS  ?-jititcb Ziafez Zenctfe WASHINGTON. D.C.  20510  April 25, 1980  „Kb  Mr. Paul Volcker, Chairman Board of Governors of the Federal Reserve System Constitution Avenue between 20th & 21st Washington, D.C. 20551 Dear Mr. Volcker: We cordially invite you to participate in a congressional conference entitled "High Noon for the Economy: Proposed Remedies -- Are Wage and Price Controls Necessary?" This one-day forum is the first in an economic summit series initiated to explore comprehensive strategies to curb inflation, reduce unemployment and encourage real growth in the economy. It will be held on Thursday, May 15, 1980, in the Dirksen Senate Office Building (Room 6226) from 9 a.m. to 12:30 p.m. and from 2 p.m. to 3:30 p.m. The conference will bring members of Congress and the Administration into a round-table, spontaneous dialogue with leaders of industry, labor, agriculture, small business, state government, representatives of the investment community and nationally known economists. The purpose is purely informational -- to get the best in contrasting viewpoints on further steps that can be taken to deal with the nation's economic problems. The economic summit series is being planned by members of Congress in cooperation with the Fund for New Priorities in America, which has assisted in the organization of more than 35 major congressional conferences over the past 11 years. We hope you will join us in this important and timely forum on May 15. Please call David Thompson or Barbara Schmitz in Senator Culver's office for any additional information -(202)224-3744.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  OAJAA-uL, HOWARD  METZENBAUM  OHN C. CULVER  . 011,110uP  0   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •ionoraule Willlam Pruxra aix ...ozamittoe on baakin, aud UrLan Affairs United States Senate 20510 Washinvton, D.C. Lezir Bill. of -l our lettcr Thanks uu much for sending me a co to CQcrutar-j 11.11or and our staff's paper on the Chrysler financin t.lan. I havt! read that anallisis carefully, and 1 Aavth tNcit tuaterial availeas to me. do a rciat 5incerely,  L6C4.4t (#1.-175) iiallardi (2) bcc.  Action assigned Mr. CorrOn  WILLIAM PROXMIRE, WIS.. CHAIRMAN •  O.  WILUAMS. JR.. N.J. HARRISON ALAN CRANSTON, CALIF. DLAI C. st-rvErrsopr. ROBERT MORGAN, N.C. DONALD W. RIEGLE. JR., MICH. PAUL S. SAR BANES. MD. DONALD W. STEWART. ALA. PAUL E. TSONGAS. MASS.  JAKE GARN, UTAH JOHN TOWER. TEX. JOHN HEINZ. PA. WILLIAM L. ARMSTRONG. COLO. NANCY LANDON KAS RE DAUM. KANS. RICHARD 0. LUGAR, DID.  •  'AlCnifeti -.States senate COMMITTEE ON BANKING. HOUSING. ANb URBAN AFFAIRS  KENNETH A. MC LEAN. STAFF DIRECTOR M. DANNY WALL. MINORITY STAFF DIRECTOR MARY FRANCIS DC LA PAVA, CHIEF CUMK  WASHINGTON. D.C.  4  20510  April 25, 1980  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Paul: I am sending you a copy of a letter I have sent to Secretary Miller, as Chairman of the Chrysler Corporation Loan Guarantee Board, requesting that the Committee on Banking, Housing and Urban Affairs be kept fully informed of the status of negotiations with the Chrysler Corporation and the various other parties involved regarding the company's ability to qualify for the $1.5 billion in Federal loan guarantees authorized under P. L. 96-185. In addition, I am enclosing a copy of a memorandum prepared by Committee staff detailing certain concerns with respect to the financing plan submitted by the Chrysler Corporation on April 17, 1980, and whether or not it complies with the law. I feel certain that the Board is addressing some of these concerns in the course of its consideration of the Chrysler submissions. Nonetheless, I do feel that the Committee needs to be kept fully informed, in view of its responsiblity for overseeing the implementation of the Act.  V 04. 14 r74*.  Best regards. Sinçre1y,  (  •••  ' i Wi;) iiam Proxfflire Chairman Enclosure WP:ebl   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  _  i•••-•—•  -7-40 t  •  .•  *  :•  • -•  -  . *.•••• •  .. • .  ;* •• """  .  •  •  •  sow .  44.•  WILLIAM NIDE MIRE. WIS., CHAIR m AN MA PI I %LIM A. WILLIAMS. JR., M J. N AN NY oN. CALIF AA_ AM AD LA I E. STE v.• N SON. ILL. RODE' T %IOW:AN. N.C. DONALD W. PHEGLE. JR.. PAUL S. LAM ISAJ , IIL S. MD. DONALD W. UT LWART. ALA.  JAR I GUUIIN L/T AN JOHN TUWUR Tit MILIAtj, PA ▪ WILLIAM L. APIAlliTWONG.  COLO.  NANCY LANDON PAS Si ILAUM. KANS. RICMARD O. LUGAR, ND.  'ZICnifeb Zfafez -.Senate  PAUL C. 7SONGAS, MASS.  COMMITTEE ON BANKING. HOUSING. AND I R ECTOR E MNrni A. MC LEAN. ET A.P• M DANNY WALL, MI NoR ITY STAFF DIRECTOR MARY IRIU4CCS DS LA PAVA, CM'S/ CLERK   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  URBAN AFFAIRS WASHINGTON. D.C.  20510  April 25, 1980  The Honorable G. William Miller Chairman, Chrysler Corporation Loan Guarantee Board U. S. Department of the Treasury Washington, D.C. 20220 Dear Mr. Chairman: I understand that the Chrysler Corporation Loan Guarantee Board may reach a decision very soon on Chrysler's request for the $1.5 billion in Federal loan guarantees authorized under P. L. 96-185. The purpose of this letter is to request that the Committee on nuking, Housing and Urban Affairs be kept fully informed on a continuing basis of the status of discussions between the Board, Lni its representatives and staff, and the various parties involved in negotiating the financing and operating plans and other materials 1-,;uired for Chrysler to qualify for the Federal loan guarantees. Given the Committee's responsibility to oversee the implementation of the Loan Guarantee Act and to ensure that all of the conditions of the Act are met, I believe it is essential that we be kept apprised of all developments on an ongoing basis. As you know, the Act provides that the Loan Guarantee Board i7ust make a number of determinations before entering into commitments to guarantee loans to the Chrysler Corporation and that a written reFort setting forth each such determination and the reasons therefor m...st be transmitted to the appropriate committees of the Congress not less than 15 days prior to the issuance of any guarantee. This report should give a full and detailed justification of the Board's decision with respect to providing the Federal loan guarantees, whether positive or negative, along with an explanation of the retsons for making each of the required determinations. I expect that the Committees involved will scrutinize this rc..1:;rt and all supporting materials carefully, in order to assess Olcher all of the requirements of the Act have been met. It appears to me that the financing and operating plans submitted to the Board  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable G. William Miller April 25, 1980 Page Two  by the Chrysler Corporation on April 17, 1980, fail to meet these requirements in a number of respects. The attached memorandum prepared by Senate Banking Committee staff details the major concerns raised by the April 17 plans. I trust that these concerns are being addressed in the course of the Board's deliberations. I feel certain that you and the other members of the Loan Guarantee Board take very seriously the determinations you must make with respect to reasonable assurance of repayment of the guaranteed loans and the ability of Chrysler to continue as a going concern and remain viable after 1983 without any further Federal financial assistance. It is apparent to me that ensuring strict curipliance with the rest of the requirements of the Act is a threshold condition for making Such determinations. „---SipCere,1  f Chairman Lncicsure  •  • ...MMINIMmer   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  MEMORANDUM TO IHE CHAIRMAN FROM:  Banking Committee staff  SUBJECT:  Chrysler Corporation's April 17, 1980 Financing Plan  Questions have been raised regarding the flexibility of certain provisions of the Chrysler Corporation Loan Guarantee Act, particularly those delineating the requirements for non-Federally L=antecd financial assistance From persons with an existing economic stake in the health of the Corporation, such as financial institutions, suppliers, dealers, and State and local governments. These questions provoke serious concerns as to whether the financing plan submitted by Chrysler in support of its request for the Federal guarantees complies with either the letter or the intent of the law. Since subsections 4(b) and 4(c) of the Act, which detail the means of computing and allocating the required $1.43 billion in nonFederally guaranteed assistance, are taken virtually without amendment from the legislation reported out of the Banking Committee and passed by the Senate, the legislative history in the Senate would govern in interpreting and implementing the law. The language of the statute is quite explicit as to where flexibility does and does not lie, Subsection 4(c), setting out the list of the amounts of non-Federally guaranteed assistance to be expected from the various to interested parties and from other sources, authorizes the Board. "modify the amounts of assistance-required to be provided by any of   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  Page Two the categories referred to in this subsection" so long as the total of at least $1.43 billion in non-Federally guaranteed assistance remains the same (emphasis added).  It does not authorize the Board to waive  any of the specific requirements of the subsection, or to eliminate. any of the categories.  In other words, the dollar figures may be  shited around among the categories listed, but the specific intent c) - the Act may ilot be altered or disregarded. The Chrysler financing plan subndtted on April 17, 1980, proposes that the Board waive some of the requirements of Section 4 and abolish Certain categories of assistance altogether. This would appear to violate both the letter and intent of the law. The following paragradhs describe in more detail the concerns raised by specific elements of the April 17 Chrysler financing plan. The language of Section 4 makes it abundantly clear in several places that the $1.43 billion in non-Federally guaranteed assistance is to be in excess of commitments or concessions outstanding as of October 17, 1979; and it provides specifically that the contributions by the U. S.  and foreign banks, financial institutions, and  Wier creditors must be "in addition to the extension of the full principle amount of any loans committed to be made but not outstanding as of October 17, 1979." The Senate Banking Committee report on the legislation further states that this provision "is intended to mike it clear that the Committee expects there to be made available the full amount of the $567 million revolving credit committed to the Chrysler parent corporation prior to October 17, of which only 4fl3 million has been drawn down to date': Similar wording is included  -   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  Page Three in the section of the report dealing with the commitments of foreign creditors as of October 17. The purpose of this requirement was, of course, to make certain that all of the company's existing financing arrangements remained in place, so that the effect of the $1.43 billion in additional non-guaranteed financial assistance would not be dininished by the withdrawal of amounts previous])' committed. The April-17 Chrysler financing plan does not provide for the fulfillment of such prior lending commitments. According to the Loan Guarantee Board's Report to Congress for the period through March 31, 1980, failure to fulfill these commitments would reduce the amounts of financing actually available to the Corporation by a total of $245 million, which is a serious shortfall. Apparently, the U. S. banks have argued that the requirement that they make available the $159 million remaining under the revolving credit agreement does not have to be met because Chrysler was in default of certain covenants of that agreement on October 17. This argument has little merit. It 1.-as evident at the time the Act was passed that Chrysler was in default of certain prior credit commitments, and for that reason, section 4(a) includes a requirement  that existing creditors certify  t117t they will waive their rights with respect to such prior commitments, as a condition for the issuance of Federal guarantees. Clearly the other provisions of section 4 assumed such a waiver would be forthcoming. To say that prior credit commitments do not have to be fulfilled because Chrysler was in default of them on October 17 is t2.ntamount to asserting that Congress added that requirement while knowing that it was meaningless. This assertion is implausible.  V.  1.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Page Four In sum, there is no reasonable way to construe the statute as not requiring those prior credit commitments to be fulfilled in some explicit and satisfactory manner. Section 4(c) states that at least $500 million shall be provided from U. S. banks, financial institutions, and other creditors, of which $400 million shall be new loans or credits, and $100 million shall be conccss7ions with respect to outstanding debt of the Corporation. Along similar lines, it states that at least $150 million shall be provided by foreign banks, financial institutions, and other creditors. The Committee Report further states that concessions with respect to outstanding debt of the Corporation may "take the form of, but shall not be limited to, reductions in interest rates, lengthening of maturities, deferral of payments of principle and interest, or conversion of outstanding debt to equity." It is evident from the language of the statute that the amounts in these categories, i.e. new loans and concessions, can be modified by the Board. However, there is no authority provided to the Board to eliminate either of these categories. The financing plan proposed by Chrysler does not include any new loans from any of the financial institutions involved. This is a clear violation of the letter and the intent of the Act. The purpose of the requirement for new loans was twofold:  to ensure the commitment of additional financing  to the Corporation, and to elicit a separate and independent judgment by the private sector regarding the future financial prospects of the Company. The fact that Chrysler's private lenders have refused to   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Page Five commit to make any new loans to the Company, even as part of a total financing package involving Federal guarantees, has strong implications for the determination the Board must make as to whether the Company can continue as a going concern and remain viable after 1983 without additional Federal financial assistance. Subsection 4(c) contains requirements designed to inject additional equity or other capital into the company.  First, it provides that  $50 million be raised from the sale of additional equity securities. Second, it states that at least $50 million of the $180 million required to be provided by Chrysler dealers and suppliers must be in the form of "capital," which is defined to mean "sales of equity securites, any other transactions involving non-interest-bearing investments in the Corporation, or subordinated loans on which payment of principal and interest is deferred until after all guaranteed loans are repaid." Efforts were made both on the Senate floor and in conference to modify this latter requirement, by permitting payment of dividend on preferred stock issued to dealers and suppliers, but in each case such proposals were rejected. Thus it was clearly the intent of Congress to require that at least $100 million in additional equity or other capital be made part of any Chrysler financing plan. The April 17 Chrysler financing plan proposes that the Board waive the $100 million equity requirement altogether, while reducing the contribution of Chrysler's dealers and suppliers to purchases ) of .100 million in subordinated debentures at 12 percent interest. The justification given is that a public sale of stock is not practical at the present time and that it is difficult to obtain financial   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Page Six assistance from dealers and suppliers because of the current condition of the automobile industry. The Committee report on the bill recognized that public sales of equity securities might well be difficult and allowed specific latitude to satisfy this requirement through private placements to constituent groups or by other means.  It did not, however,  broach the possibility that either the $50 million equity sale requirement of the $50 millinn capital requirement for dealers and suppliers be eliminated altogether, and to do this without obtaining an equity contribution of at least the same magnitude from other sources would be a clear violation of the law. Sale of additional assets would not be an acceptable substitute for the equity requirement. This would not increase the net worth of the company and would reduce the amount of assets available as security for the guaranteed loans, while obtaining additional equity would have the opposite effect. There are also serious questions as to whether the April 17 Chrysler financing plan complies with the standards for computing the amount of assistance to be provided established under subsection 4(h). The intent of the latter subsection is that only real money contributions, conr-.essions or other elements which "actually and substantively contribute to meeting the Corporation's financing needs" -- be counted as part of the $1.43 billion in non-federally guaranteed assistance.  Moreover, in the case of persons with an  existing economic stake in the health of the Corporation, there should be a real and direct contribution or concession involved, not one in which the burden is in fact borne elsewhere.  •  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Page Seven It is dIubtful that all of the concessions by Chrysler's lenders presented in the financing plan meet the standards of section 4(b). The list includes not only actual non-recoverable interest concessions but also "deemed interest savings on those concessions  -- a phantom figure, to say the least.  The bulk of the  lenders' concessions comes in the form of notes to finance deferred interest and-deferred interest on those notes.  In addition to  being a rather indirect type of assistance, this heavy reliance on postponing present obligations raises serious questions about the potential viability of the company without additional Federal 'assistance after 1983, when the notes and the term loans start to come due. Another category open to question is asset sales, where the amount included in the April 17 plan -- while well in excess of the statutory requirement -- appears to inflate the value of some of the assets listed. Subsection 4(b) explicitly states that the amount of "cash to be obtained from the disposition of assets of the Corporation" shall be "based on a conservative estimate of the minimum value realizable in a sale, with reference to the potential circumstances surrounding such a sale." This provision was included  •  because it was recognized that Chrysler could well be facing a "distress sale" with respect to some of its assets and that therefore the actual amounts realized could be well below book value or appraisal value.  Nonetheless, these are the figures used in the proposed  Chrysler plan. The inclusion of $320 million for the sale of 51 percent equity of Chrysler Financial is particularly questionable, since the company has failed thus far to accomplish this sale for $320  •  dal  Page Eight million or any other stated figure.  Given that the company has had  the statute before it since December 21, 1979, it could reasonably be expected that there would be a more detailed list of potential asset sales made available, With a computation of cash to be obtained from each- such sale which more nearly meets the requirements of the Act. Finally, an item which raises some astonishment by its inclusion in the April 17 plan is $428 million attributed to "pension fund contribution deferral." Testimony at the Committee's hearings on the loan guarantee bill made it clear that this represents an additional risk incurred by the Federal government, through the Pension Benefit fuaranty Corporation, and not a contribution.orconcession by any of the interested parties. Thus it should be questioned why this amount was included in that portion of the financing plan which addresses the required $1.43 billion in non-Federally guaranteed assistance. •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  d.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ye;A:r corstituvrt rr !Aerre7,4,0.4tre, tt,t4 orri,z4( tooveAt$ cc,fittorir ta .4!Qr-rwIt envirutxont ct tttt tbc '44,c1A1 e;..arn to t.7.- 91 tigOrg-1 .servt., AN; AotAID wore ;oxtr .Altzt )rov linnourscAKI ir ,sirp , tts..staA,tslie 4_,Twtrs to =1.-tvitest roi,c1t. ti too .ne47!urt #1? tt14, mlnetia vzrm tO'id alarillatelvZ. t.:crrowoirs , AltreciNlly 0-.1n11 ;0.t,4”-tivo erft%Irre, ,7.ctkvs; 11J-Alok 4:14411 t-N.r.rirlwirro lvtlron. furs•-siv fv..11.1 0.40 tsrtr.s 7ttl c*rOltioes At thel viR.1-(1 t.. tortliir typ4as 47).!' lo.mtist fro te) tItIvars, it 5Actleaiar, 11cne to firi?,Atce sptcv.13t1vc. stponellt uctivitias. or trA.t-lar riK4sconmly totr4,c• .44$ervo lzstitato Jt:Nliitictl, the Fe4tre1 3, Arril doiticrred to 'help smell retry ovoronal r&it rocritm in lAm..2s of tatx èt ttAt 1iqui4ity preass, 'tArtka 'r1 *n4 is5riclatural ar*as. coluaitisps--rlsrticul,trly 104,se i nottwnr.I.Art ',4tIts may to. qrfttAto !=, .trdelr trjrro;:rv, ,w4b F4t1Aeral 'iY/gsitrve Ii i&tWiPtIVof I ttat cr04— • em!Alt thr, burincnstss en fAkt:.-1.— is to firaree ttle ortirrf v . lorm* are ir,tsallad 1,waer*.ily fcr onkr! wits. lens Clpt 114ted ftelless to centriq YAAelr !t%Aliton jtItepcialts, c-ejosinc. !or yintr eonv*nience ft milts .. t!14! 4n4‘ifies of t .11; se**onal tn-sullt proirgr; 141 wAe-!, ve federal ralw#rve. of cowrie PAN *-vt-f41-114pr • "-*-ft  mot land liroteti 49.4, seasonel   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1r,,nt rat7..e.  will '.Ao etIATAniedt-: to ill* tiostivitits throuv1 '-faligt;v4pet ivreclvt,r, e!tet lettriso14r'n. 11.* :i41.1,4r tl.ratiqt *14.0 tniecific 1‹.41,m tort,' cGsvrrin t1.0 ZintriLt,tiov ltenfUrt; ist.stitutie,Ims tNit aro ov14r 07 it!to It.1 emalificAtiono of VJoir pees . r wit% to 1.1 4 cullittermt -rcp.r)  :4ty fall  tt'te e-wnor of a t1.41  for wov1.1 stlec5  ctett matrtint tAr014% %iut".4.4rotr; (Aiwr jutn, •c 't, Nwevor. ta well its tlt-Ao firtarci‘l W tN* v-F -:art of t1141, vr. Ot's thAs irlrorticm wt1  SZPatgA. Volcker  4/17/Pn nress rolee.se  DY•LT.' my %fed ofv-172) 1,e.c  richline 71r. vohr carlein mrs. '41111ar4i (2)  eotICAll  Action assigned Mr. Kichline TRENT LOTT teTH DISTRIf."T  2400 RAYBURN DUILDINO WASHINGTON, 0 C. 20515 202-225-5772  MISSISSIPPI  comwriTrs RULES CHAIRMAN. REPUEILICAN RES.14^RCH CCM m ITTEE  Congrts5 of die Ziniteb *tatt  DISTRICT orricis GULP-PORT. MISSISSIPPI  ••  jPoti5e of 1kepre5entatibefS  ADMINISTRATIVE ASSISTANT TOM H  IICI-Sa2.32411 LAUREL. MISSISSIPPI  ANDERSON. JR.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  )1ISCI  IICI-1164 HATTIESSI/RO, MISSISSIPPI  Washington, D.C. 20515  11401  MAO  1/41-4411-1231  April 2'1, 1980 rr. Paul A. Volcker Chairman Federal fleserve System Federal Reserve Unildinf, , !7ashinrton, Dc 7nssi near  'airman:  T have recently received correspondence from Mr. J. C. catail, who contacted me repardinf, your recent proposal to make money available to small business and farmers. Enclosed for your information is a copy of this correspondence, which details the nature of the problem. I would appreciate very much Your providinn information which would he of assistance in respondine! to this innuiry. IP—  Thank volt for your assistance in this matter. "ith best rerards, 1. am Sincerely yours,  tJ  Trent Lott TL/t1 Enclosure  ••  •  ,  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  J. G. GATLIN DRILLING CO:1PANY Route One, Box 245 Shubuta, Mississippi (601) 687-6271  39360  April 17,1980  Congressman Trent Lott 2400 Rayburn Building Washington, D. C. 20515 i)ear Nr. Lott, This is with reference to our previous correspondence regarding my need to secure a loan from SBA. The banks in my area have advised me that at this time they are not in a position to help with a SBA guaranty loan. Also, with the present restrictions that have been placed on loans, it is impossible for the banks to help with even a direct loan. As I stated in my previous letter time is important. The seismic exploration for fossel fuels in Mississippi has greatly expanded in the past year and in order to keep this revenue in Eississippi, we will have to meet the needs with equipment and personal. If we cannot meet this demand these companies will look to ajoining I want to see our people states for their needs. employed and for lississippi to play an important part in gaining independence from foreign energy sources. I have learned from news telecasts that money for loans will be made available to farmers and small businesses through a federal program. As all other routes seem to be closed to me at this time, this could be the help I need. Any information you can give Again, time is important. me on this program will be greatly appreciated.  Your fellow Mississippian,  Gary Gatlin  J. G. GATLIfl DRILLING COMPANY  JGG/cwg   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ;.ay 9, 1930  The honorable Lc:Ivy Bella,on united States Zenate hazhinton, L.C. 2051t.; Lkiar Skinator 11‘111won; carefully rcad your lettor concerninr: the Cr.r4s1.er situation and I fully acpreciate Cie thrust of your reworks.1 and r.t. staff are lookilis at all asl,ecte of tl)e situation as it has ovolvee., including that manner in which the 41.43 billion in non-federall'i guaranteed financin nay be satiefiud. IL that counoction, I 61,21reciate having the benefit of yuur thoughts. U111/4 .  Sincerely,  EGCskjt (#V-184) bac; Nxs. i.allardi (2)  •  •••  EDMUf40 S.  musKir,  WARREN G. MAGNUSON. WASH. fRNFST f. HOLLINGS. S.C. LAWTON CHILLS. f LA. IOSCP14 R. 131DfN. JR.. or . J. BENNE TT JOHNSTON, LA. JIM SASSER, TENN. GARY HART, COLO. HOWARD M. METZENOAUM, 01•110 DONALD W. RIEGLE. JR.. MICH.  •  MAINE, CHAIRMAN  •  •  HENRY BELLMON, OKLA. PETE V. DOMFNICI. N. MEX. non t•AcKw000. OW G. WII I IAM L. ARM",71iONG. COLO. NANCY L. KASSFRAUM, KANS. RUDY DOSCHWITZ. MINN. ORRIN G. HATCH, UTAH LARRY PRESSLER. S. DAK.  DANIEL PATRICK MOYNIHAN, N.Y. JAMES EXON, NEBR.  .I.  ',Zenifeb -ifafez Zertale COM M I ITEE ON THE BUDGET WASHINGTON, D.C.  20510  JOHN T. MC EVOY. STAfF DIRFCTOR ROBERT S. BOND, MINORITY STAFF DIRECTOR  01.••••lampow. -  April 30, 1980 The Honorable Paul A. Volcker Member - Chrysler Loan Guarantee Board Federal Reserve System 20th Street and Constitution Ave., NW Washington, D.C. 20051 Dear Mr. Chairman: In view of the Chrysler Loan Guarantee Board meetings as this I would like to express to you my concern that the Chrysler "financial plan" may not adhere both to the statutory requirements and the spirit and intent of the Chrysler Loan Guarantee Act of 1979. The provisions of the Act, particularly Section 4, were carefully designed to assure both that the Chrysler Corporation had sufficient financial resources to return to solvency and that those groups which already have an economic interest in Chrysler's future share the Federal government's financial risk. Reports concerning the reluctance of these groups I. rticularly the commercial banks, to increase their financial investment in Chrysler are not very encouraging. In my view, the Act is very explicit in requiring that Chrysler must secure (a) new loans from U.S. and foreign I. nks, financial institutions, and other creditors; and (b) an extension of the full principal amount of any lI. ns committed to be made to Chrysler but not outstanding as of October 17, 1979. The Act further states that Chrysler must have reasonable prospect of remaining a viable corporation after I.  •r AIL ) r1 . 77.7  11111.01Pa.  I realize that the deliberations oun the Chrysler guarantees are exceedingly complex s•an tht the economic environment has served only to make the final decision of the Board more difficult. I also recognize that the Board can exercise some flexibility regarding the amounts of financial support due from the various identified sources. However, if loan gua rantees are extended based on a financial plan that clearly does not meet the conditions a nd WNW  ty ,  49teipt;i4btok:...."00 14*%`• P   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  :,.. ‘ VSCO. ,: elag/4 1 94t 7  -  s* ..**414111144/0  ;011. , % ." -ArA ' A  4..**  911.  I  g.  Letter to Paul A. Volcker Page Two 411 April 30, 1980  •  intent of the Act, it will be difficult to get Congress to approve funds for payment of principal and interest on loans guaranteed pursuant to that Act. Sincerely,  Henry Bellmon  HB:jb  IMAM.  IMMIrMakk •  •••  . ..4 .i . ....: 7.V". \ '-''  Cibrvi iikin ' •  •N  ' ir .f;if   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1 -.6. ' , "  7; •;‘,.  e  .  4. • '  •  r::,., -f '' —'  ..,4  .0.. _ , -.... ...  -• ..,  j'is,4,,,,tie).!•,:tk" :s...-  sC:jii 00.7: 1 "7": 4110 .." 1211041"6"101151 - 1' 141113010044. ... like,X).Ze  4:430.,,...:.  ,,,.....-1,.. .0,4..,:. i....,. .  .  _.r• lip  .. 0   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The ronorahle 1-,over,: 107;0 ouse of Rerreserstatives =.1141hirv7ton D. C. 7rS15 Nigiar  loit,110A  Thmnk you for givine, re tl.e (-7porturity to cr.mletnt Ti ar ;loare's consumer ereJit restrftint reulation luoqested that the re.ieral Reserve ronzi!ltr t14, arpropriate -,ent loans, in nei* of reetreints on unseeure4 Nrne i!.4-x view of national policy to encouraqe rwlidential enerz7 conservatism, Tte consumer credit ref4u1etion rerevitets an effr,rt rnaF1 .7oelr of t!:47 by the loocieral Reserve to help achieve the tnti-inflation proqrsm. reforc peGptir the re!t lative, the Rcstrd cerefully weigVte.1 the rotertia1 17-1,ect. the procoala, On various ssients of the economy and relative to ether nstietal priorities. The aoard recoqrtirei that a ..,irdansciele to relulation of this fteture mi4ht apc,ear unluly b, could sew' to run counter to other polity op3e. certai7 objective,. In¶e ourse ot identifyin which tyres of cre4it voulA be fuj:yt to re,;uintion. the ,r,414re eetermine4 that irnrovezment losnr , .2nsocure<3 bore 1.provrent ,ecure4 lq collateral other than the horv ttr a minls &spit. proceeds tter otAt t.1 woulA treetwl 6D coverell cre±Ut nc were ustO. The reclulatic41 is a te-r?ortry r!-easure, 4Pailned to help relimve current inflationPlry pressures. I can assure you tbat the Foard will not extenel it beyond tte titae neces. 1 1tion should the evit.lence . sary to achieve that result. Tr a6,. flett,srevr. in the porir+d a.ttaliad in41cate that the burdans impostwi on co era and creditors ;470 eispronnrtiorate to sny bene1 certainly woul,1 consider ficial' effect on the eel:merits the 7.car, t-41Akin,k, appropriitte ehanees ir the proram. tt preset. however, furthtr adjestmerts in the re<Ailation .1c not arrer *Ovisable. inncerely, IMF JIIK vcd (SV-376) bee. !fir_ Fistler vialine :14111ardi (2)  ji  HOWARD WOLPE  •  •  MICHIGAN 3PD DisTrucT  PLEASE RFPLY TO: O  116 CANNot4 Houst Ormz ButuDima WASHINGTON. O.C.  Congre55 of tbe Uniteb  suscommtTTrrs: INTERNATIONAL EcoNOmiC POLIcY AND TRADE AFRICA COMMITTEE ON SCIENCE AND TECHNOLOGY  tatecs  Si  142 N. KALAMAZOO MALL KALAMAZOO. M ICHIGAN  4IKX)7  (616) 385-0039  ji)oufSe of Ilepregentatibei O  tititusbington, 13.e. 20515  33 CAPITAL AvrNur N.E. BATTLI CREEK, M ICHIGAN  41)014  (616) 96245511 ExT. 6211  ISIJIISCOMMITTICSt  Nicogr 962-3401  ENERGY DEVELOPMF_NT AND APPLICATIONS ENERGY RESEARCH AND PRODUCTION  1  April 24, 1980  O  ToRAvtLINO Moett..g °Irma  Mr. Paul Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. 20551 Dear Chairman Volcker: My attention was recently drawn to one aspect of the recently promulgated credit controls that appear to run directly contrary to our stated national policy objective of encouraging residential energy conservation. I am referring, specifically, to the inclusion within the new credit control program of uncovered home improvement loans that are not made under FHA Title I. In many financial institutions within my district, this has meant virtually the total cessation of home improvement loans. The purpose of this letter is to request the reconsideration of this element of the new credit controls. Between inflation and high energy costs, most new housing construction is at a standstill. Yet, much of the nation's housing stock is energy obsolescent and in need of improvement. There is substantial evidence that a national residential insulation effort would significantly reduce our petroleum consumption. Credit policies should be rather than hindering, this effort. directed at encouraging, t 11t Thank you for your consideration of this request. response.  I look forward to your  Sincerely, e e f 111/  Hg^ARD WOLPE Member of Congress  HW/mwm   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  20515  (202) 225-5011  FAON COMMITTEE FOREIGN AFIRS  THIS STATIONERY PRINTED ON PAPER  MADE WITH RECYCLED FIBERS  ,  The Honorable J. william Stanton House of Representatives Washington, D. C. 20515 Dear Mr. :7,tanton: In view of your December 11 letter on the subject of "give away" items in connection with bank deposits, Chaim:n.1 Volcker has askea that I let you know that the Depository Institutions Deregulation Corviittee has issueri for coTment by June 9 m proposal to prohibit any premiums or cifts 0.ven by an institution upon the opening of a new account or an aadition to an existincj account. Enclosed. for your inCormation, is a copy of the Committee's rress relense. can rissurfz: you that tho CrImmittee would .)e. interested in any comments you or your constitvents riny wish to make on this proposal. Please let me know.if I can be of further assistance. Sincerely yours,  Donald J. Winn '-'necial Assistant to the Doard l'nclosure CO7DJW:vcd (4V-145 (1979)) cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Normand Bernard (w/copy of incoming) Mrs. Mallarait  .• 0f C.0i,/ • ,  ••  • *,-:ri •"..1,--  •.  •(sGe, v-mv FEDERAL RESERVE SYSTEM 11-)63)  •0 11 , -1. 1,3,. x , .  4 (‘-'•N • :t:•••-•44Ar.;-:•,:..\,:•;:• • —"I". *****;Cre-a:-. . ...-:‘ 4 -irrM 11.;, • -7,- • . .,'' — •  r1 ,71  A n0 7r  'N ASH IN  •.'..... ...-;(*.: ', - • • •/I)/ --1•'.fr`!- '-, C2-' • • • • . 1 aT '• • • • • . . • •'  rs r'`./ E • i:  n N (1 FR 5  GT 0 0i, 0 C. 20551  PAUL A. VOLCKER CHAIRMAN  May 12, 1980  The Honorable William Proxmire Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Proxmire: My letter to you of May 2 expressed certain reservations regarding S. 2379. Those reservations stem not from lack of sympathy with the purpose of this legislation in making export related services available to more firms in the U.S. Rather, we in the Federal Reserve have substantial questions about the degree to which banking organizations should be permitted to participate directly in, or even control, eport trading companies. In that connection, we feel strongly that the tradition of separation of banking and commerce hac served the country well. To assure that separation is mgintained,.!while permitting a degree of banking participation in support of export trading companies, I would suggest certain amendments to the proposed bill establishing substantive and procedural standards that are necessary with regard to bank involvement in such companies. Those recommendations, which I endorse, include the following elements: first, no banking organization would. be permitted to acquire more than 20 per cent of the voting stock of an export trading company or to control the company in any other manner; second, not more than 50 per cent of an export trading company's voting stock could be owned by any group of banking organizations; third, the aggregate investment by any banking organization would be limited to 5 per cent of its aggregate capital and surplus (25 per cent in the case of Edge and Agreement Corporations) in one or more export trading companies nor could a banking organization lend to an export trading company in an amount which, when combined with its investment, would exceed 10 per cent of the banking organization's capital and surplus; an export trading company would not be permitted to take positions in securities or commodities for speculative purposes; an arms length relationship would be maintained in any lending activity; and the name of the bank could not be used in the name of the export trading company.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  . c .P,  •  The Honorable Wi11110 Proxmire Page Two  Furthermore, we propose that any major commitment to investment in an export trading company --in excess, say, of $10 to $15 million--be specifically approved by the Board of Governors in advance. As this suggests, we believe that because of the risks that may attend export trading company activities and the lack of experience of U.S. banks and their regulators in dealing with such companies, it would not be prudent to permit banking organizations to exercise control over export trading companies at this time. For that reason, the Board of Governors cannot support the current version of S. 2379. The amendments that I am enclosing for the Committee's consideration have been discussed with your staff. We, of course, would be pleased to provide any further assistance. Si2Ferely,  Enclosure  MB:PAV:pjt (See V-168 & V-163 (to Stevenson)) bcc: Mike Bleier Mrs. Mallardi (2)  Identical letter to Sen. Stevenson   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  . ADLA1 E. STEVENSON , ILLINOIS  Actie as signed Mr. Gemmill  .  MMITTEE ON BANKING. HOUSING AND URBAN AFFAIRS  dâ   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  SUBCOMMITTEE ON INTERNATIONAL FINANCE (CHAIRMAN)  Wnifeb Zfalcz Zenate WASHINGTON, D.C.  20510  COMMITTEE ON COMMERCE. SCIENCE AND TRANSPORTATION SUBCOMMITTEE ON SCIENCE, TECHNOLOGY AND SPACE (CHAIRMAN)  April 22 1 1980 ...SELEC.X.-COIWWWUE.E.1111bULTULCS_ —(49F+.44+RMAN)—  SELECT COMMITTEE ON INTELLIGENCE  The Honorable Paul Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20551  SUBCOMMITTEE ON THE COLLECTION. PRODUCTION AND QUALITY OF INTELLIGENCE (CHAIRMAN)  DEMOCRATIC POLICY COMMITTEE  Dear Paul:  Em't 11.•••  You have recognized the need for structural measures to improve the competitive position of the United States in world trade. This is a subject that has occupied me for several years and produced a number of suggestions, including a recent proposal for U.S. trading companies. Trading companies, as a means of actively involving small, as well as large, businesses in world trade, are generating a good deal of interest. My legislation to encourage their creation (5.2379) has won the support of the Administration and shows signs of moving in this Congress. The principal difficulties with this legislation have involved antitrust and tax questions which are being worked out and the participation of banks in the ownership of trading companies. As you know, the trading companies of most foreign countries have bank participation. I think the participation of banks in U.S. trading companies is critical, but I have not been able to win a positive response from the Federal Reserve Board. I, therefore, enclose copies of a letter to Henry Wallich and a more recent letter to Phil Klutznick. The former raises a number of more or less philosophical questions about bank participation in trading companies, and the latter suggests a way of compromising some differences over the participation of banks. Basically, the proposal gives banks an opportunity to invest no more than 5% of their capital and surplus in 5% of the equity in a trading company without regulatory approval, an authority similar to the level of investment authority under the Bank Holding Company Act. Beyond that, bank participation would be subject to the approval of the regulatory agencies. Stu Eizenstat and Phil Klutznick may talk to you about this. They are as interested as I am in getting favorable action on this legislation. I would be most grateful if  P•4.6„,  P   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Paul Volcker Chairman, Board of Governors of the Federal Reserve System - 2 April 22, 1980  you could give the matter your personal attention. When you have had a chance to do so, perhaps you could give me a ring and we could discuss it. The Administration and I are eager to work out this question in a way that involves the cooperation and support of the Federal Reserve Board.  Eilmillikhr •  Many thanks for any attention you can give the matter. Since e y,  Enclosure  -  •  .  -  g". 't • %  c   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ft Cr•  •.  AND utaii•.. 4. r •.r4S  •  R .Jr•"IT 04 rrr.• Y.a. r •.••. ç (C.-ea III•rArd)  I T TF I  C C)  r) C  ?Pilo  4.C. it  ev.:-- r  syr.  l'••  C/N (  A PC) - I I  •Ak.f 14 Zir F.  &'• (  ••GT •..— S.  •re I AT ION !•  A  (C••• $.4&N)  ril 10, 1980 ST t T i. T  MNTIT ft I 04 ETHICS (c14 AINk! AN)  stI ( OMI1 Ti r  INIE IlUt•  ••"•'.  ON  '4:E  1111 ON THE Ent_t  rk  C  •.,"(  CTION.  OF  INTELLIGENCE (C,-.•'146+ 1,N)  DEMOCRAT IC POLICY COMMIT TEE  MY. Hcnry C. WAlich Board of Governors of the Federal Reserve S,ystem 20th 6 Constitution Avenue, N.W. Washington, D.C. 20F61 Dear !.1r. Wallich: Plank you for slihrlitting  statcment for the record of the  hearing on export trading co:ipsolics (S. 2379) held by the International r'n,mce SuhcQrnittee en  3, 1980.  In order to assist further the Congress in its action on S. 2379, I would appreciate yoir response as soon the at  11ct wines, incerclv,  Encloures  •  s possible to   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  r.", 1 For Mcnry  Rif( 1(l .1 of i;ovciimrs, lIC rt?./.Y1:11 Systeui Subc i t tee (11 lntcrnat iia1 Finance, e 1in1;ing t tee Hearing en Txport Trading L' .pAnies April 3, 1980  1.  in :..cur prepared state -fent, You indicate that U.S. bans can now provide, either directly or indirectly through their Fdge Corporations or Affiliates, a wide variety of services relating to exports.- YOn'F-ifiC;111V indicate that "Edge Corporations have wide lat itude upklyr t iw to provide advisory services related to exp.•rting." A.  Plc‘ase previa' : 'he record specific references to i :.visions of the i ,ulation K which authori:e the provision of such -..rtices in the Ihlited States. Would the pemit ;in 1 i:e Corporation to organize a susidiary in the U.S. to te solely in providing advisory and thel- services .:ncillary to exporting? Could you provide for the record a co7plete list, since of all board staff acticns on applications by Corporations to ...ni:.!ge in exp(rt rvices in the United States, including export advisory activities, ...A1.1ing activities and other activities falling .,Ithin the defiHtion of export trade s(r:i:ys in 5(a)(4) of S. Please ;:ly applications that • AY ha VC 1 Jt. • :! . if !lot fo ITia ily actedupon t itc'd rea ons for any wI tht11.11.‘.31  In our irep;ired st it - ent, you indicate that the "[E[Xtension of the investent pwers of 11.1n1Ning institutions to include co-:panies that ',•ay and so] 1 and services for their own account wozIld go far v iid tIles...‘ existing financial facilities [for E.!ge CorA.  In an Api!.ndix to the staterient of laros B. ft •f7Anl,ers' Association for Fore in Tradral P.:serve ruling wis cited in whiji the 7.'ard —•itted An Corp.rAtion to tAT,e a :Icn-controlling ::;terest in a c,771‘inaticn c\c'' As principal A:Ainst elf-ettint; txport orJers. -App;iTently, the F.oard felt it had authority to   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  S  •-)  t1R-at any change in its statutory pt this nil H., ii tatement ,•:oan that the Board exauthority. ceeded its Awl), ;it, (,r its traditional policies under the Ilge Act in a !, ;Jing this 1967 ruling? Has the Board (vtT ryp.2aled thi< Ii07 rtding? Doc.; the Board believe that it now ha< the Authority to permit an Fdge Corporati:Ar to acquire NT: eTrity interest in an export trading to goods against firm export c(,7p.any that tai.es t orders from abread? B.  rt,:w take titlo to large items of personal property in 7;0cl- leasing trAr-:Actions. Banks also often acquire r-_,wnership rights NS collateral security in acceptance and oter internatinal trade. financing transactions. Theren and of itself, is not the crucial fory, taking t it 1 mu i on risk. H :act, title is the most valuable form in an of .ccl Liter al set. .• • that a lender -- or in cAn have. In this regard, who is !- c.teyp,.)rt transact of a default, assuming a tutifonn ter pretected in r i;loss in each case -- a hank grantOn crt di, :by line of credit overseas, or an ing An unsecurLd -\Is for purposes of resale abroad? Fft taking title to  C.  'il endix to Mr. Sc,-7-,ers' statement, As hJicattLl in (,,!•grcss specificA:.....cent,—plated in 1)19 that Edge Cor*,!e aHilitY to ir.vest in foreign tradoratiens hould ! ••••• • 'arc! c'1(.1" approved any investrent in foreign trading companies, or in • in buying and selling 5;;---,,,is? are there between If so, hhat, if .:nv, difierence< in and blr,ing and selling goods •:s and si.211HDo not in fact the bank regulatory iities havt ',tter supervisory control when goods are 1:ht and soh! :::le• in the United States? •.  3.  '••  L.ngaged  In your state-lent you :,u*.,..cst that peritting U.S. banking organizations to imest in c.-Hnies that I)uy and sell goods raises conpa rat i on t•if hank ing frOTT1 COt..1•CC cerns t:71,1::•r the I, rig s t in the l'nited tates. Isn't it a fact, beheker, that the Board has per-,itted large :ALinse and other banks affiliated with tradir< that exiort to and i -Tort from the United ! rks, including specifically the acquisi• by the I ITig Yong and Shanghai Banking He YI,Iland could V.111 nrol' de a list of all ni at 1..n? In this rt • ii tiiti ct s of greater than !) 1)1ding   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  in a trading coripany or other ce;i-lcrcial or business enterprise that • intains facilities in the U.S. for the purpose of ]:-7porting to or exporting from the United States? Can you list all ,7ap-inee bank holding c-:panies affiliatyd through Keiretsu with trading coripanies? A.  Is the Boarkl tal the position flat it is accept;071e for U.S. banks to b. at Iii iated with trading companies t'::at export to but do jr ,• export from the United States? On '':at public policy grt., Pids does the I-',oard justify such a distinct iort? If t rad i r C ,:•ri any activities are as fraught w i th as rany problems as you suggest , then on w•hat basis did the hoard approve tbf.. trl,cover of .1arine Ntidland by !<,_ng and ShanL.•,hai 1H. '1; has an extensive interest in Ilutchir.srn Ltd.?  B.  isn't the 1.7;-..ard able to supervise the act ivit f a II. S. t ad Hg ny affiliate of a U.S. haaing I 'Tit than ‘1 fr 1 , n trading affiliate of a fi reign rq, f so, then w,,uldn't the Fcard hive • ..‘r: it ty 1" a 1 i:11Nexport trading cc. this bill C:an t • .7'.% has 01 Cl" the act ivit ies of and other tr- adH:..-., c•- •: oies affiliated t...ith U.S. banks tLri•- •, ,h c• *:.'y foreign 1-ink coripanies?  C.  Isn't it tr-ao •'"' "  ,ini:ations have always range of authorities in their Htercprit including in the United States, to c, Ind these groat :r : in cflt: ‘,1 -innL4Standing" !oir• • \ •.• , Cer-p.- rat if:11s free Iron the sta. .7..ter . •I Act? liasn' t the 7...-)ard iitted !':4i ti to y!1',:..1(..;C in securities act ivitics .11.!-..‘rd that aIJ 7,)o prohibited the Glass-Steall Act? didn't specifically ccnte:Tlate in §-1(01,13) of the Hnk :-T.iny Act that the "longstanding" : jlcs Of SYCt 1 of the rank !'olding Co7i1any Act .:pply to int,. nal actikities? •  Hu- r...--er‘ati,:,,ns about s. •-v aspects of S. 2379, I Lite t he ' to 1%o rk s it h nv staff in forrulat •„eet C:0 ives of the hill while ret,ii::,:nc safeg:rards. In this r(ard, I an cndleSing • h•-yt of guest I ns on 1-,-1 ion which I AID \J liiist rat i n and on which I horrid greatly appreciate t*e s views.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  3.  S.  In reading your list of Foard A()ncerns," I was ,- 111prised by the -11Lsion of the 'n-iLlyration of the rany prott.ctions included in S. :379. I Eelicve syction 5(c)(1) of S. 2379 protects pre..s of preferential lending you discuss in ;igAinst the tv;, .:.aragraphs (a) and (c) on pages 3 and 4 of your statement. The la:Iguage in section 5(c)(1) is, in part, virtually identical to the Foard proposed in section S(e) of the Internalanl,uage ti(nal p,in'King Act of 19-'8. 4ith 1('Lct. to "Tisk" concerns mentioned in paragraph (b) on ;,age 3 of yytir 'tate;-(ent, S. 2379 does not set up a ''mandatory'' :-odel of Ja;...inese trading con:panics. Section 5(e)(2) of S. 2379 viA- ificallv prevents a H.S. Eanking organi:ation fro,; investing Ovin I('", of its capital and surplus in any ETC, and section (f) gives the Board and nther agencies broad supervisory and reparting a;Writy. In alit ion, the banking agencies already have hr '.1 under other banking laws to ensure Aainst undue c( :cial risks. For exa:nple, the agen,:ies have !)1;i.1 cca-ze and deslst authority to i'revent unsound banking , actices. 4ith res;.,...ct to Your stAt. .1 concerns about capital adequacy, as ahc've, sectiyn T(e)(2) prevents a 1-anking organization ip‘n investing :I(.1•-e than 10; of its capital ;il!. surplus in one or condition of t•xport trading ccies. The present regulation which Links is laryelv a reHalt of archaic lal,s have banks, have prevented them from :.• - ,s S.:ate lines, and have 17paired their ability to : _ze with the growl:it: niL-ber of nonbank financial orrli7.1:::!: rcstrictions. ftc And foreign Links that oivrate with f-Ar n(q. LL.n able to grow at satisnet result is that' factrv : s, t:y ,:c Ic-ing rarket share at hone and abroad, ei i HAres ark: helow hock in many cases. They tas te:Apting L.,ndidates for takeo\ers by large foreign with extensive operations c\erseas, and the Fcard clds up 0 i T1 the a,-‘!uisitions because they provide "capital -trLrith" to the U.S. l'ank. By ipprovinv, cc- Tetitiveness, S. 23T9 will, in :he inng IL in, he a h...nefit to the financial condition of H.S. l'APINS. iT note a Hsconc.Ttion in the last paragraph of •. S. 237') does not ',repose that banks, Edge C,:rlank 1,01ding cc-iinies be pL17itted to engage di 2379 only auth:Iri:es 1v in c,s7771ercial export aLtivitirs k6 irt%C't in cc- panics that function .  I. in ii lv • -ur • •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  t•  pf.1- t t iri i es or wh i ch criF,age in expot t t y ;hie i‘ f• !.1.4 ;..nta ill 11'4; a ci.,ri.t)rate vei 1 in the case of such IL : f. :..• 11., pt cct ion ;ind adninist rat 1()11 rlich n..)re ef  I 'b.:ch.(  y  s  tIwse o!s-ei 1. it ions.  ADLAIL.! ,11%,'EN!.ON ILLINOIS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • ,-F)C11Cile WACIIIPJ(. TON. DC.  20510  April 17, 1980  corAmii 'ft C CNN rIANK ING. HOUSING AND uNE1 AN Al T AIRS guncommirrttOw INTrRNATiONAL riNANcE (cHA IRmAN)  COmmiT7 1 E ON COMMERCE . SciLNCE AND InANSI•O RTATION purCommITTTE ON RCIENCE., YTCHNOLOGY AND SPACE (CHA IRMAN)  sg,LACT__ccuLA444-T-2 QC -014-  C4-1416  (cmiktvrtoriVN)'SELECT  COMMITTEE ON INTELLIGENCE  The Honorable Philip M. Klutzn ick Secretary of Commerce Washington, D.C. 20230  SuRcomMITTEE ON iHc coLLEcTioN . PRODUCTION AND QUALITY or INirLLIGIENcE (cHAIRmAN)  DEMOCRATIC POLICY COMMITTEE  Dear Mr. Klutznick: I appreciate your statement of April 3, 1980 on S. 2379, the Export Trading Company Act of 1980 which expressed the Administration's gen eral support of this legislation. Your thoughtful tes timony, as well as that of Governor Wallich, has been valuable in a further consideration of the bill. In response to your suggestions to provide broad oversight authority over bank participation in export trading companies to the regulator y authorities, I enclose a revision of Section 5 which I believe strikes an appropriate balance between the need for effective bank participation and the need for app ropriate regulatory control of possible risks to inv esting banking organizations In addition to the proposed sta tutory language, I would like to explain briefl y the principal elements of the revised section. I.  Procedures for Rank Investment and Expansion of Export Trading Company Activities  In your statement, you recommend ed that all initial investments by banking organization s in any export trading company (ETC) should be subjec t to prior notification and approval of the banking agenci es, and that significant new lines of activity or a sub stantial increase in investment by the parent bank organi zation should require further agency approval. Under the revised section 5, ban king organizations are only permitted to make sma ll investments in ETCs without prior approval. National and sta te banks are given a   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Philip r. Klutznick Secretary of Commerce April 17, 1980 - 2 -  limit of no more than 5% of their capital and surplus in no more than 5% of the voting stock of an ETC. Banking organizations which do not accept deposits from the general public are given somewhat greater leew ay -- they can invest no more than 5% of their capital and surplus in less than 25% of the voting stock of an ETC without prior approval. All other banking organization investments must receive the prior specific approval of the appropriate bank regulatory agency. And even those minimal investments which can be made without prior approval must neve rtheless be promptly reported to the appropriate agen cy. This is, of course, a significant expansion of agen cy approval authority from the earliest section 5, which permitted investments in up to 50% of the equi ty of an ETC without prior approval. I do not think it would be productive to go below the limits suggeste d in this revision, because I believe permitting very small inve stments under simplified procedures will help attract many smaller banks into forming links with ETCs to benefit their local customers. The "no approval" limits suggeste d are, moreover, very similar to those now in other banking legislation and regulations. Concerning prior approval of additional investme nts and new activities, the revised section 5 requ ires a banking organization to provide its regulator with sixty days prior notice before it makes an additional inve stment or before the ETC engages in a new line of activity, incl uding the taking of title to goods. During the 60-d ay period, the agency may either disapprove or impose conditio ns on the new investment or activity. Tt seems to me that this not procedure reduces administrative burdens, yet gives the regulators ample opportunity to bloc k any unwise expansion of a bank's Involvement with a particul ar ETC. IT. Standards and Conditions for Approval Section 5 has been redrafted to parallel more clos ely the standards for approval of bank acquisit ions and investments that now apply under the Bank Merg er and Rank Holding Company Acts. Similarly, a ninety-da y period for decision on applications has also been provided to ensure against undue delays and disapproval by inac tion.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Philip M. Klutznick Secretary of Commerce April 17, 1980  - 3 -  The standards do include recognition of the export and other benefits to be derived from bank participat ion in EliCs, and it is made clear that applications shou ld be approved unless adverse ba nking factors outweigh such benefits. This ensures th e purpose of bank participat ion is encouraged, but not at any expense to the integr ity of our banking system . In response to your specif ic suggestions for giving the banking agencies broad discretion to limit a bank's financial exposure to an ET C, and to regulate the taking of title of goods and othe r activities, the revised sect ion permits the agencies to impo se conditions on investment s or activities on a case -bycase basis in order to limit a bank's financial exposu re in an ETC or to prevent conflicts of interest or unsafe or unsound banking prac tices It seems to me this au thority is sufficiently broad to protect against any abuses that might arise, including those connected with the taking of title. At the same time, to ensure such authority is used reasonably, the revised bill requires the agen cies, in imposing any conditio ns, to consider the scope of ba nk involvement in an ETC, and th e need for an ETC to be co mpetitive in world markets. For example, conditions appr opriate to a bank -controlled ETC, such as no ownership of manufacturing facilities or commercial concerns, may be inappropriate if applied to an ETC with only a minor (e.g. 10 percent) bank shareholde r. The regulators thus have clear authority to prevent unacceptable risks; they ca nnot, however, be so restrictive as to frustrate totally bank participation. I would note, further, that the revised se ction makes clear that the agencies have full supervis ory powers under the Financial Institutions Supervisory Act to ensure compliance with any conditions imposed. In conclusion, I believe the revised section 5 significantly expands the ba nk regulators' authority without discouraging hank participation. I would greatly appreciate it if I could ob tain the views of the Administration and the Federal Rese rve on this key provision of S.2379 as soon as possible. With best wishes, Sincerely,  •  S .   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  :;!-:c11ON 5 OF S. 2379 I;ANI-: PART I Cl PAT I ON IN EX PORT TRAD I NG COMPAN I ES  Strike sections 5(c)-(f) of S. 2379 beginning on line 23 race 8 and  on line 9 page ,12, and insert  in lieu thereof thp f(•11nwing: (OM  :iational or state bank may invest up  to 5 :),,r ,-,•;tum of its capital and surplus in Not  m(,)re 'han 5 per centum of the voting stock  or other yvi-nces of ownership of any export triding (:')ni:any without obtaining the prior approval  f the appropriate Federal banking  agency.  y lank holding company, bankers'  bank,  Act or Agreement Corporation may  invest  5 per centum of its capital and  surplus in less than 25 per centum of the voting  or other evidences of ownership  of any c::port trading company without obtaining the prior approval of the appropriate Federal .ncy, except that an Edge Act Corporation not':aged in banking, as defined by the 1;0 1 (1  vornors of the Federal Reserve System,  may, under authority of this paracranh, invest up to 25 per contum of its capital and surplus in any export trading coni,any without obtaining the  ,r- ior .  :'im•:;11 of the Doard.  Any Lanki:-.::   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -)  an  h.vestme:It urick.r  authority of this paragra-,,h shall pro7tly notify the appropriate Federal banking agency of such investment and shall file such reports on such investment as such agency may require. (2)  Any investment by a banking organization  in the voting stock or other evidences of ownership of any export trading company, which investment does not qualify under the preceding para..-,raph (1), shall only be made with the prior specific approval of the appropriate Fecieral banking agency. .(3)  If a banking organization proposes to  make any investment or engage in any activity includeS within the following two subparagraphs, it must give the appropriate Federal 1.-,ant:ing auency sixtiy days  - ior written notice before  it makes such investment or engages in such activity: (A) any additional investment. in an export trading company, the voting stock or other evidences of ownership of which were acquired with approval under the  i:..::- agraph (2); or  (13) the engagement by an export trading company, the voting stock or othcr evidences of ownership of which were   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  3  •  ac(:uirc.d with approval under the prf.ct.ding parac:raph (2), in any line of activity, including specifically the taking of title to goods, wares, merchandise or coi.inodities, if such activity was not disclosed in any prior application for approval. During the not  period provided under  this paragraph, the appropriate Federal banking w.lency may, by written notice, disapprove the plopw:ed inves 4 ment or activity under authority of subsection ((i)(1), or impose conditions on such investment or activity under authority of subsection (d)(2).  An additional invest-  :7nt or activity covered by this paragraph may he made or engaged in, as the case may be, prior to the expiration of the notification period if the appropriate Federal banking agency issues written notice of its intent not to disapprove. (4)  In the case of any notif,dcation or  HicAtion filed pursuant to the preceding laragraphs (2) or (3) of this  1.ibsection, the  appropriate Federal banking agency shall transmit a copy thereof to the Secretary of :--nmerce and afford the Secretary a reasonable   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  not to t.xy,  t  t hi / ty days, to present  the views of the D('IArtnf!nt of Coamerce on thr  application or notification.  In the  event of the failure of the appropriate Federal banking agency to act on any application for approval under paragraph (2) of this subsection within the ninety-day period which begins on the date the application has been accepted for processing by the appropriate Federal bank inc: ayency, the application shall be deemed to h:Ive been granted.  In the event  of the failure of the appropriate Federal banking agency either to disapprove or to impose conditions on any investment or activity subject to t.  :!- i(Ir notification requirements  ,rAgraph (3) of this subsection within the sixty-day period provided therein, such beginning on the date the notification has been received by the appropriate Federal litnking agency, such investment or activity may be 7,1cle or engaged in, as the case may be, any time after the expiration of such  (d) (1) not  In the case of every a::::lication or under subsections ( )(2) or (3)  of this section, the appropriate Federal   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  :‘,2ncy shall tae into consideration  financial and manacerial resources, compe_ ive situation, and future prospects of the banking organization and export trading company concerned, and the benefits of the proposal to United States exports, to small and mediumsi .zed United States business, industrial and acif- icultural concerns, and to improving United States competitiveness in world markets. api.ropriaf- e Fi.  The  banking agency may dis-  approve any ir...- stment or activity for which an application or notification has been filed under subsections (c)(2) or (c)(3) if it finds that the export and other benefits of the proposal are c]:11- ly nAtweighod in the public .._eest by adverse financial, managerial or other banking factor  asociated with the  iirticular investment or activity.  In weighing  the export and other benefits of a particular prOpnsal, the appropriate Federal banking agency shall give due consideration to the views of the Partment of Commerce furnished pursuant to !;1:,cction (c)(4).  Any disapproval order  issued under this s,7.c.ton r...:L-st contain a statement of the reasons for disapproval. (2)  In approvina any application submitted  ::der subsection (c)(2) or in determinino not   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  t  (1 1 (  or activity of  -which the alTropriate Federal Lanking agency was notified under subsection (c)(3), the appropriate Federal banking agency may impose such conditions which, under the circumstances of such case, are reasonably and appropriately necessary (A) to limit a banking organization's financial exposure to an export trading company, or (3) to prevent possible conflicts of interest or unsafe or unsound banking practices. (3)  In determining whether to impose any  condition under the preceding paragraph (2), or in imposing any such condition, the appropriate Federal banking agency must consider the L;i,le of the banking organization and export trading company involved, the degree of investment and other support to be provided by the banking oraanization to the export trading company, and the identity and financial strenath of any other investors in the export tradiny cc,:lipany.  The appropriate Federal  a:;pncy shall not impose any condition under this para7r:r .  unneces-  sarily disadvantages, restricts or limits an export trading company in competing in   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I  • in  vi ::q the purposes  of section 2 of this Act. (c) (1)  No ballking or(janization holding voting  stock or other evidences of ownership of any export trading company may extend credit or cause any affiliate to extend credit to any export trading company or to customers of such company on terms more favorable than those afforded similar borrowers in similar circumstances. (2)  Except a  :)rovided in subsection (c)(1)  for Edge Act Ci)rporations not engaged in banking, no  a!iking organization may, in the  a:.;gregate, i::vest in excess of 10 per centum of its cal_17  surplus in the stock or  evidences of ownership of one or more export trading cc:71pcs. f) (1)  Any party aggrieved by an order of an  appropriate Federal banking agency under this section may obtain a review of such order in the United Sates Court of Appeals within any circuit wherein such oraanization has its , pal place of business, or in the Court of Appeals for the Di!-;t1- ict of Columbia Circuit, by filing a notice of appeal in such court within thirty days from the date of such order,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  simultdusly sending a copy of such notice by registered or certified mail to the appropriate Federal banking agency.  The appro-  priate Federal banking agency shall promptly certify and file in such court the record upon which the disapproval was based.  The court  shall set aside any order found to be (A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; (3) contrary to constitutional right, power, privilege or i:imunity; (C) in excess of statujur-tion, authority, or limitations, or short of statutory right; or (D) not in accordance with the procedures required by this section. (1)  The appropriate Federal banking agencies  are authorized and empowered to issue such rules, regulations and orders, to require such reports, and to delegate such functions, as each of them may deem necessary in order to perform their respective duties and functions under this section and to administer and carry nut the provisions and purposes of this section and prevent evasions thereof.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • 9  (2)  In addition tT o any powers, rc;aedies,  or sanctions otherwise provided by law, compliance with the requirements imposed under this section may be enforced under section 8 of the Federal Deposit Insurance Act by any appropriate Federal banking agency defined in that Act.  EXECUTIVE COMMITTEE CO-CHAIRS Margaret M. Heckler Elizabeth Holtzman TREASURER Mary Rose Oakar  CAUCUS MEMBERS SENATE Nancy Kassebaum  Congresswomen's Caucus  Nancy Kassebaum Shirley Chisholm Barbara Mikulski Olympia Snowe ERA TASK FORCE Gladys Noon Spellman LEGISLATIVE PROGRAM TASK FORCE Patricia Schroeder  Tongreos of tile littiteb 0.tates 2471 iaagburn Nut!Mug louse of ittepresentatiues I: astlington, 19.T. 28515  OUTREACH TASK FORCE Mrs. Hale (Lindy) Boggs Ann Charnley Smith Executive Director  May 12, 1980  Tel. (202) 225-8790   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Paul Volcker Chairman Federal Reserve Board 20th and Constitution Avenues, N.W. Washington, D.C. 20551  HOUSE Lindy (Mrs. Hale) Boggs Marilyn Lloyd Bouquard Beverly Byron Shirley Chisholm Cardiss Collins Millicent Fenwick Geraldine Ferraro Margaret M. Heckler Marjorie S. Holt Elizabeth Holtzman Barbara Mikulski Mary Rose Oakar Patricia Schroeder Virginia Smith Olympia Snowe Gladys Noon Spellman  N.>  Dear Mr. Volcker: The members of the Congresswomen's Caucus have asked us to express their sincere appreciation for your observations on the effect of the new credit controls on women. Your comments helped us to better understand the role of the Federal Reserve in implementing credit control. We look forward to consulting with you further on the concerns of women seeking credit. Your suggestion for a study on the impact of the credit crunch on small businesses seems a timely idea in the light of the problems of women-owned businesses. We are most grateful to you for giving us your time and advice. Sincerely,  lizabeth Holtzman  Ma  Co-Chairs Congresswomen's Caucus  0.4111k-  t M. Heckler  • ........ ...',0ovcovt4;•.  • BOARD OF GOVERNORS OFTHE  FEDERAL RESF:RVE SYSTEM WASHINGTON, DC.20551  PAUL A. VOLCKER CHAIRMAN  May 12, 1980  The Honorable Jack Brooks Chairman Committee on Government Operations House of Representatives 20515 Washington, D. C. Re:  Report by the General Accounting Office entitled "The Federal Reserve Should Assure Compliance With The 1970 Bank Holding Company Act Amendments" (GGD-80-21)  Dear Chairman Brooks: On December 13, 1979, the Federal Reserve responded to the ess draft report of the General Accounting Office ("GAO") on the effectiven of the Federal Reserve's administration of the 10-year grandfather Act ("BHCA"). provisions of the 1970 Amendments to the Bank Holding Company points The Federal Reserve's response is basically applicable to the wishes made in the GAO's final report. The Federal Reserve, however, ts that to supplement its previous analysis with a report on developmen have occurred since the issuance of GAO's draft report. As a result of its voluntary program, the Federal Reserve concerning their has now received responses from all affected companies attached plans for compliance with the 1980 requirements. (Please see by the GAO table). Moreover, since September 30, 1979, the date used in full in its report, an additional 60 affected companies are now obligations, only compliance. Of the 253 remaining companies with 1980 million). 33 are large publicly-held companies (assets over $300 nonbanking concerns Generally, these companies originally had several making steady subject to the 1980 requirements, and they have been the Board's approval progress toward compliance by divesting or seeking ities. The bulk of to retain their nonbanking subsidiaries and activ small closelythe 253 remaining companies with 1980 obligations are companies typically held companies (assets under $300 million). These iance is not likely to have only one nonbank activity, and their compl dures. involve any lengthy divestiture or retention proce ) of the Monetary Finally, it should be noted that section 701(b enacted by Congress, amends Control Act of 1980 (P.L. 96-221), recently Board may extend the section 4(a)(2) of the BHCA to provide that the for the divestiture by a 1980 divestiture date to December 31, 1982, estate. From the plans bank holding company of interests in real   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  k  The Honorable Jack Brooks  -2-  submitted, it appears that many of the most difficult and complicated divestitures that remain involve real estate. Accordingly, the Federal Reserve has approved a policy statement that institutes procedures requiring affected bank holding companies to apply for this extension no later than July 1, 1980. Based on its assumption that the Federal Reserve's actions to date have been inadequate and its expectation that violations of the 1980 provisions may occur, in its final report the GAO recommends that the Federal Reserve take the following actions: Require bank holding companies to declare the method by which they will comply, that is, divestiture, retention, reorganization, or claim of exemption. Establish a mandatory filing date for retention applications and divestiture plans, to insure that full compliance is achieved by the deadline. Require companies filing a divestiture plan to adhere to the reporting requirements in the February 1977 Board policy statement on divestitures. With respect to the first recommended action, as noted the Federal Reserve has, through its voluntary program, obtained such declarations from all affected companies. In addition, in its recentlyadopted policy statement the Federal Reserve requires affected companies with 1980 obligations to file monthly progress reports on the actions they are taking to meet such obligations. With respect to the second recommended action, as noted above, compliance plans have been obtained from the vast majority of affected companies. Similarly, of those companies indicating plans to file retention applications, over one-third currently have applications in various stages of processing. In its December 13 response the Federal Reserve stated its belief that it lacks authority to shorten the Congressionally-mandated ten-year grandfather period. While section 5(b) of the BHCA authorizes the Federal Reserve to issue orders to prevent evasions of the BHCA, it is the Federal Reserve's judgment that it is still too early to ascertain whether such evasions will occur in particular instances. Notwithstanding procedural difficulties in enforcing such early compliance, the Federal Reserve is cognizant that time is running short, and in its policy statement the Federal Reserve established a program for the affected companies to ensure that they take action to comply promptly and to enable the Federal Reserve to monitor their progress.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Jack Brooks  3-  Finally, with reapect to the thiri recommencle4 action, as the Federal Reserve indicated in note 4 of its December 13 response, the quarterly reporting provisions of the Board's Fehruary 1977 policy statement on divestitures refer to Nvestitures mendated by FeCeral Reserve Order or 3 commitment, rather thnn 1980 obligations. In any event, the Federal Reserve has imposed even more stringent reporting provisions that are specifically applicable to companis with 1980 divestitures. Accordingly, the Federal Reserve continuos to believe that its administration of the 10-year grandfather provision has been reasonable, fair and effective. Sincerely,  Wald A, voickc Attachment ccs  Chairman Reuns  BMMasonsvab  5/9/80   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  FGOI/kw.. ( • j  BOARD OF  0.•  OF  'co •0  OVER NORS HE  FEDERAL RESERVE SYSTEM •  '-4 • 'S  WASHINGT0'1, O. C. 20551  k • ,_•4' •• RAL RES":-. • •..• •  PAUL A. VOLCKE R CHAIRMAN  May 12, 1980  The Honorable Abraham A. Ribicoff Chairman Committee on Governmental Affairs United States Senate 20510 Washington, D. C.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Re:  "The Report by the General Accounting Office entitled The 1970 Federal Reserve Should Assure Compliance With Bank Holding Company Act Amendments" (GGD-80-21)  Dear Chairman Ribicoff: onded to the On December 13, 1979, the Federal Reserve resp ce ("GAO") on the effectiveness draft report of the General Accounting Offi 10-year grandfather of the Federal Reserve's administration of the Holding Company Act ("BHCA"). provisions of the 1970 Amendments to the Bank applicable to the points The Federal Reserve's response is basically Reserve, however, wishes made in the GAO's final report. The Federal report on developments that to supplement its previous analysis with a draft report. have occurred since the issuance of GAO's Federal Reserve As a result of its voluntary program, the cted companies concerning their has now received responses from all affe ents. (Please see attached plans for compliance with the 1980 requirem 1979, the date used by the GAO table). Moreover, since September 30, companies are now in full in its report, an additional 60 affected anies with 1980 obligations, only compliance. Of the 253 remaining comp ets over $300 million). 33 are large publicly-held companies (ass had several nonbanking concerns Generally, these companies originally they have been making steady prosubject to the 1980 requirements, and or seeking the Board's approval gress toward compliance by divesting and activities. The bulk of to retain their nonbanking subsidiaries obligations are small closelythe 253 remaining companies with 1980 cally million). These companies typi held companies (assets under $300 to their compliance is not likely and , vity acti ank nonb one only have retention procedures. involve any lengthy divestiture or section 701(b) of the Monetary Finally, it should be noted that , amends recently enacted by Congress 21), 96-2 . (P.L 1980 of Act Control that the Board may extend the ide prov to BHCA the of (2) 4(a) section a 1982, for the divestiture by 31, mber Dece to date ure stit 1980 dive s real estate. From the plan in s rest inte of any comp ing bank hold  The Honorable Abraham A. Ribicoff  2  submitted, it appears that many of the most difficult and complicated divestitures that remain involve real estate. Accordingly, the Federal Reserve has approved a policy statement that institutes procedures requiring affected bank holding companies to apply for this extension no later than July 1, 1980. Based on its assumption that the Federal Reserve's actions to date have been inadequate and its expectation that violations of the 1980 provisions may occur, in its final report the GAO recommends that the Federal Reserve take the following actions: Require bank holding companies to declare the method by which they will comply, that is, divestiture, retention, reorganization, or claim of exemption. Establish a mandatory filing date for retention applications and divestiture plans, to insure that full compliance is achieved by the deadline. Require companies filing a divestiture plan to adhere to the reporting requirements in the February 1977 Board policy statement on divestitures. With respect to the first recommended action, as noted the Federal Reserve has, through its voluntary program, obtained such recentlydeclarations from all affected companies. In addition, in its companies adopted policy statement the Federal Reserve requires affected actions with 1980 obligations to file monthly progress reports on the they are taking to meet such obligations. With respect to the second recommended action, as noted above, ty of affected compliance plans have been obtained from the vast majori to file companies. Similarly, of those companies indicating plans applications in retention applications, over one-third currently have se the Federal various stages of processing. In its December 13 respon shorten the Reserve stated its belief that it lacks authority to . While section 5(b) Congressionally-mandated ten-year grandfather period orders to prevent of the BHCA authorizes the Federal Reserve to issue judgment that it is evasions of the BHCA, it is the Federal Reserve's will occur in still too early to ascertain whether such evasions difficulties in particular instances. Notwithstanding procedural e is cognizant that enforcing such early compliance, the Federal Reserv ent the Federal Reserve time is running short, and in its policy statem to ensure that they established a program for the affected companies the Federal Reserve to take action to comply promptly and to enable monitor their progress.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorahle Abraham A. Ribicoff  3  Finally, with respect to the third recommended action, as the Federal Reserve indicated in note 4 of Its December 13 response, the quarterly reporting provisions of the Board's February 1977 policy statement on diveatitures refer to divestitures mandatnd by Fecleral Reserve Order or a commitment, rsther than 1980 obligations. In any event, the Federal Re.serve has imposel even more stringent reporting provisions that are specifically applicable to companies with 1980 divestitures. Accordingly, the Federal Reserve continues to helieve that its administration of the 10-year grandfather provision hnn been reasonable, fair and effective. Sincerely,  Seagl_A. Wig Attachment cc: Chairman Proxmire  aMMasontvab 5/9/80  •   https://fraser.stlouisfed.org • tammonWsoloomprrn•-••-•••-. Federal Reserve Bank of St. Louis  lila Honorable Fernand J. St Germain Chairman ision, Financial Institutive. Ululation and Insuring* ttes Committee on Sankimle Its sad Urban Affairs Meuse of Representative* Wiskington, D. C. 20515 Dear Chairman St Germain: pleased to acknowledge on behalf of the Depository Institutions Deregulation Committee your letter of May 41. IOSO, in which you and Congressman Patterson expressed your casmormo about the ability of depository institutions to compete mitb maw market mutual funds and suggested a study of two alternatives that mould Toork toward competitive parity. I have asked the staff to undertake such a study. It will not be feasible for them to complete it in time for our June 2 meeting, but they will have it ready for consideration at the Committee's subsequent esatias in July. SO  Sincerely, Saagl A. bicker Paul A. Volcker Chairman NB:cak cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Ars. Mallardi (2)  •  • BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551  PAUL A. VOLCKER CHAIRMAN  May 13, 1980  The Honorable Matthew J. Rinaldo House of Representatives Washington, D. C. 20515 Dear Mr. Rinaldo: Thank you for your letter of May 5 transmitting correspondence which you received from Mr. Edmond V. Lawlor, Jr., regarding financial institutions offering "premiums or giveaways" to attract savers. At the first meeting of the Depository Institutions Deregulation Committee, comment was requested by June 9 on a proposal to prohibit any premiums or gifts given by an institution.upon thePopening of a new account or an addition to an existinI account. Enclosed is a copy of the press release issueI by the Committee. The Committee appreciates receiving Mr. Lawlor's views, and they have been set a part of the public record on this proposal. Sincerely,  Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  "4 IA/4/7/ " 74N1-6641.4t/  41 1 -7 t, &be4  te'^citea wete! e,u A pe'te (,)-( cer:  (7: "  C.ressional Liaison Office will MATTHEW J. RINALDO 12Th DISTRICT. NEW JERSEY i NGTON OFFICE: WP OFFICE BUILDING 1338 ily./4URN HOUSE  .'WASHINGTON,D.C.  20515  (202) 225-5361  DISTRICT OFFICE: 1961 MORRIS AvENuE UNIoN. NEAR JERSEY 070133  mmwrirttS  ftresponsgarRSTATE AND FOREIGN COMMERCE  Congre55 of tbe Einiteb tate5 3r)ou5Se of ileprOentatibui Wassbington, n.c. 20515  svac°MAUTTEES? T AND INVESTIGATIONS SIGH OVER NCE CONSUMER PROTECTION AND FINA SELECT COMMITTEE ON AGING SUDCOMMITTEE:  HUMAN SERVICES  (201)687-4235   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  May 5, 1980  r The Honorable Paul Volcke Chairman Board of Governors of the Federal Reserve System Washington, D.C. Dear Chairman Volcker: ed from a letter I recently receiv of py co a ing los enc am I Edmond V. Lawlor, Jr. a constituent of mine, Mr. o the e it if you would look int I would greatly appreciat respondence and respond cor 's lor Law Mr. in matter discussed ts will assist me in ugh tho r you ing eiv Rec to his concerns. letter. answering my constituent's look effort in this matter. I Thank you for your time and in the near future. you m fro g rin hea to d war for Sincerely yours,  MATTHEW J. RINALDO Member of Congress MJR:bwl Enclosure  • sr I • •. ;04,0 ; •••  E77-' .•  NEW JERSEY  SAVINGS LEAGUE Li  0 1 1980  J  50 Park Place • Newark, New Jersey 07102 •(201)622-1888  April 29, 1980 Honorable Matthew J. Rinaldo 2338 Rayburn HOB Washington, D. C. 20515 Dear Matt: The administration policy of fighting inflation with high interest rates is preventing the savings and loan ass ociations in New Jersey, and the res t of the nation, from fulfilling their role as the primary source of home financing. On behalf of all the saving s and loans of the State, we urge you to continue to support every effort to reduce federal spending and sup por t fiscal policies that will reduce the federal debt. Since this is the only long range solution to the proble m of inflation, we feel that extraordi nary efforts must be made to this end.  la=   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  There are a number of steps that can be taken by the regulatory authorities and the Congress which will pro vide for some important short-term relief to the problems of the saving s and loan industry which have been brought on by severe increases in int erest rates. We feel that these sho rtterm solutions will provide some relief to housing and that they will enable the savings and loans to stem the rap id rise in their cost of operations. The avoidance of additional costs and any reduction in the current cost of operations will enable our institutions to accelerate the return to a more normal level home mortgage lending act ivity. One of the serious drains on savings and loan earnings has been caused by a competitive race to attract sav ers by means of the offering of "premiums or giveaways". The amount that can be spent on premiums to be given to customers as a means of attracting their accounts is limited by regulation for all types of supervised instit utions. This includes savings and loans, savings banks and commercial banks. A copy of the regulation limiting the savings and loan premiums to $5.00 for each $1,000 account and $10 for eac h $10,000 account is enclosed. Recently, a great number of instituti ons of all types violated these regulations in their anxiety to hol d on to their savings accounts in the face of the unregulated competiti on of the money market funds. The giveaway programs of some institutions went far beyond the limitations of the regulations. Continued  Last month the supervisory authoriti es in Trenton and at the Federal Loan Bank of New York (the superviso Home ry agent for the Federal Savings and Loan Insurance Corporation) issued letters warning the institutions under their jurisdiction that the regula tions would be strictly enforced. The supervisory agents for the banks did the same thing. Enclosed are copies of the supervisory letters addres sed to the savings and loan associ ations in New Jersey. However, the practice of offering giveaway ite ms in violation of the regulation contin ues, as you can see from the enclos ed correspondence from the head of the United Sta tes Lea gue of Savings Associations to Federal Home Loan Bank Board Cha irm an Jay Jan is and the Comptroller of the Currency John Heimann. The New Jersey Savings League's Board of Governors adopted at its meeting on Friday, April 11th, stating that every effort a resolution made to convince the superviso ry authorities to take the approp should be riate action to either enforce the existing regulations or impose a temporary moratorium on giveaways until such time as a sensible solution to this pro blem can be arrived at. We, therefore, are urging you and the other members of the New Jersey delegation to contact the member s of the Deposit Institution Deregu lation Committee, shown on the enclosed list, and urge them to take the appropriate action to stop the flagrant vio lation of the regulations and req uire a return to normalcy in the manner in whi ch institutions compete for the savers funds. If allowed to continue, one can only conclude that the lar ger institutions such as City Bank in New York with their substantial resources will out compete the other institutions in the New Jersey-New York region and take far more than their normal share of the sav ing s mar ket. They are willing to do this because savings funds are a cheaper source of investmen t money for them than any of their traditional sources of these funds. Saving s dollars diverted from savings and loan associ ations will be taken out of the mortgage lending stream and thereby have a dev astating effect on the housin mar g ket and the myriad industries related to hou sing. —  Sincerely yours,  Edmond V. Lawlor, Jr.  President  Enclosures ma P.S.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Thanks again for the opport unity to visit with you and discuss some of the serious issues confro nting the savings and loans We very much appreciated of New Jersey. your awareness of the imp ossible problems generated by dividends/in terest withholding legislati on for account holders in savings and loa n associations about which we sent you a mailgram.  y 13, 1/7!fi'"  71:e T:onorable 1;ruce F. Vento  77euse of Representatives t:7ashinc:ston, D. C. 20315 Dear Mr. Vento. - even s.-7,nso oc I enn well understanil your concern can assure you I 1.3ve no rore About the Vunt matter. ahocR syrwethy tl,en you for their perfornnrce. Your letter :Io4.?s seem to rtD to misconstrue entirely the role of the Federal Reserve in this ratter. / aTr fittftchinc: Fiore/ testimony that I hope helrF elnrify tl-fq issues. In rartieulr the loan under discussion, which has Y:een privately ne7otited. eontains provisions to prevent durinv its life furttler speculative ventures Iy the vunts and relilted If teir specu, . parties. The '4-unts have- not cleared themselves ( live debts -- the loan restructures but does not clear those debts. $,-hile the position of the creditors and the I:unts woul 'rresulrably 1-44 atabilizetj - end that is vtly they freely e!ceided - tt-e 14unts cannot return to - business :bs to nerrotiate the loan usual" so low," as the debts nre outstanain: anl ineee..1 appear to hive been forced to 1iqui6ate soricf other a3sets to service their silver debts. The relieral Peserve Ilas not and will not. - underwrite the loans. Our enalysis suclgests this new loan should not sub stantially effect the national supply of cre.Oit at this point. because the new loon will replace exictint; debts (the earlier debts,of which we were unaware an they were increased could be construed as forialculAtive - althour,41 they larely appear to have been incurred to cover speculntive lenses or to avoid liquidation rather V-an to purchase silver). The prncticel anihmnfortunate situation we fnced was that, as a byproe.uct of tIlt: .....tint srecula tion end tbe consequent exposure of othcr institutions with wl-ieh they dealt, the stability 917 :certain financial institutions :trt war%ets wan threatened; he that threat materialized, it Is irno cent bystanders, including those dependent on t7- e orderly flow of ',nrIc credit, who wr,vld have paid part of the priecs.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  :c,‘ncrple *!ruc, *_ Vento rwo  iiich T neither approved nor aisapproved. The loan /ainst the renewed speculation you will c!4-,rtain rlore. fl3surAnf-2 it is consulnmated. (4r1 1) More ir'Tortetnt, for the future, is what c*tra be done to forestall another epi3ode of this kind. 'tre have turned our efforts in that direetion. r:inceroly,  %.01  -L'nelosurn  PAV,vcd (4V-145) bee.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. 7'R11ardi (2)  • 1.•  BRUCE F. VENTO  •  4TH DISTRICT, MINNESOTA  ••  SURCOMMITTEES•  230 CANNON AOUSE OTFICE BUILINNO •  Congrc55 of tbe Zthiteb  (202) 225-6631  HOUSE COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS  tate5  DISTRICT OFF ICE  3/)ouse of 1rprt.5rntattbefi  R00PA 150  ECONOMIC STABILIZATION CONSUMER AFFAIRS HOUSING AND COMMUNITY DEVELOPMENT  MEARS PARK PLACE 405 S'BLEY STREET SAINT PAUL, MINNESOTA  Wasbinton, D.C. 20513  55101  (612) 725-7724  HOUSE COMMITTEE ON INTERIOR AND INSULAR AFFAIRS SURCOMMITTEES, ENERGY AND THE ENVIRONMENT  May 5, 1980  41(  NATIONAL PARKS AND INSULAR AFFAIRS  Chairman Paul Volcker Federal Reserve System 20th Street and Constitution Ave., N.W. Washington, D.C. 20551 Dear Chairman Volcker: I was shocked to learn .of your approval of an estimated $1.1 billion loan to the Hunt brothers, Nelson and W. Herbert. The recent series of Congressional hearings in the Senate and the House leave no doubt about the central role of the Federal Reserve Board and you as chairman in accommodating, in fact assuring, this credit transaction. The country is now entering what appears to be a pronounced recession. As a result of the Fed's tight money policies and high interest rates, many sectors of the economy are suffering badly, most notably housing, agriculture and small business.. Given this situation, I find it absolutely incredulous that the Federal Reserve could approve a loan in excess of $1 billion solely to cover the speculative misdealings of two of the richest men in America. This loan is clearly contradictory to the Federal Reserve Board's policy of curbing speculative borrowing. It also diminishes the supply of capital that banks might otherwise make available to productive concerns. The Credit Control Act calls for the Fed to target credit relief to the depressed sectors of the economy. In my mind, the Fed could certainly find more appropriate "depressed sectors" than the Hunt brothers. It's one thing when the Hunts play the market but another when the Fede'ral Reserve Board does. It is incredible that the Chairman of the Federal Reserve Board would take action to reinforce the Hunt speculation which represents private controls over the market, for private gain. I would think that the public interest could have been better served by other than this extraordinary action. As I understand the Hunt brothers' current situation, they have already cleared themselves of most of their silver speculating debts. Am I then to believe that the Federal Reserve Board is approving this loan so that the Hunt brothers can return to "business as usual"? In my opinion, it is ethically wrong for the Federal Reserve Board to underwrite the Hunt brothers' damages. The Hunt brothers acted of their own volition in bringing about their failure. Now, they should be forced to finance their own debts by liquidating their assets and, if necessary, selling their vast oil and gas operations. Throughout the country, homebuilders, small businessmen and farmers are declaring bankruptcy and the Fed has taken only cosmetic action to bring on some relief. Indeed, approving a loan of this magnitude to two of the richest men in America stands as a slap in the face to those suffering under the Fed's tight money policies.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  6hairman Paul Volcker Page two May 5, 1980  •  Mr. Chairman, I strongly urge you to rescind your approval of the loan to the Hunt brothers. The United States should not be a country in which the rich are granted special privileges by the power of their purse. I have little sympathy for men who can bring the markets to the brink of disaster through their attempts to corner and control world silver markets. I look forward to your prompt reply.  ce F. Vento Member of Congress BFV/sr   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •••  c  • Ronorable rrank Churcli • ited States Senate 20510 inyton, D.C. ator Church: I can well undoniltand your coer out t!;cs. J:!unt , tter, I can as;,ure iou I 1Lave no v.t-lr,z; :2!vml-athy than you Zor fov4a:lee. loan under discussion, which has Leen i:rivatoly ntlattiA& contains provisions to L.,rovent durinc its life further aileculative ventures by the aunts and related parties. The hunts have not cleared thamuelves of their t;;:,eculative deLix--the'loan reatrut:tares but dociva, not "clear"' those doLts. While the position ok ti.a creditors and .t.;; ilunts would presume:Ay be sta1ilised-ireely decided to negotiate the loan—the 4nd t:.at ia why 1;uatc. cannot return to "businusu an usual" so long sa; the debts are outstanding, and indeed alfogar to have been forced to liquidate rvice their silver debts. some other assetv to Our analysis sugIentz this new loan should not walostantially affect the national auv,jy of credit at this point, because the new loan 4.111 rci,lace existing debts (Cie earlier de:)ts of which it were unaware as they were increased, could be construed as althouuh thay lar, ;ely appear to have been incurred to ccvar speculative lossez or to avoid liquidation rather than to Thu ractical and unfortunate situation we faced lurchazie ai1vr) was that, as a byiiroduct of Chu aunt speculation and thu conse(luent ooure or other inntitutions with which they dealt, the stability Qi certain financial inotitutiona and markets was threatened; had t.:at threat Inaterializod, it is innocent bystanders, includin9 t oze de.; Aszld%.brit on the orderly flow of bank credit, who would have jaid ,.)art of the rice. 'Lie loan, which I neither aroved nor disapproved, will contain ucclecuards against the renewed speculation you (and 1) a:.itiuminy it is consummated.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Vrauk Church Page Two  We are in the proceiss of comvleting a ?lore thorout]:h analysis of this financial aavects of this situation for thu Senate Bankinc Co=ittoe. Mat report 1.hould co:-Aleted in 4 few days and I will send a copy to you for your information. In the mcanwhilo, I am enclo5ing some testimony that I hol,c clarifies the Uuties. Aore imrortant for thc future, iz what can Le done to forestall another epizode of thi4; Lind. Wo ' -;ave turned our cffortl in that direction. z7iincerely, 1,1 A. VOcker  (Statement dad. 5/1/80.) Jt (0V-187) ;;A:c. Mallardi(2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  HENRY NI  Action assigned Mr4lorrigan  JACKSON, WASH., CHAIRMAN  F RANK CFittrFcti. ir •140  MARK 0 liAT•irt  J. "[NW" TT" JOHNSTON, LA, DALE BUMPERS, Any  LO.Ft L P  JAMES A. MC CI MEE V./PACKER  WENDEI FI T J0.4E4 A Dt..4NIN. N H  PETE V. DOMENIC!. N  FED#FARD M. Mr TEE NeAtIM. OHIO S”ARK U MATCONArlA, HAWAII  !Er NP Y Br LLIVION  .104N Mr PALK_ F  CONN. MEX.  TED STEVENS. Al ASK A Owl A.  MAI COLM WALLOP,  vivo  ' ' -/T11I106, ( S)Infez ,-,C3cnata/S  Ci-frP. MONT, TsoNc;.•S  COMMITTEE ON  MASS.  BILL fiPkIELET, N I.  ENERGY AND NATURAL RESOURCES  DANIEL A. DREyFUS  STAFF 01REcToR  WASHINGTON. D.C.  20510  D. MICHAEL HARVEY. Ctiiir COUNSEL STEVEN G. HICKOK, STAFF DIRECTOR ron THE MINORITY   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  May 2, 1980  Mr. Paul A. Volcker, Chairman Federal Reserve Board Room B-2046 Constitution Avenue between 20th & 21st, N.W. Washington, D.C. 20551 Dear Paul: I am deeply troubled by the reports concerning the massive line of credit, exceeding $1 billion dollars, being made available to the Hunt brothers. I am at a loss to understand why the restriction that credit not be extended for speculative purposes is being waived in this case. The Hunts are reported to hold billions of dollars worth of assets. If the Hunts have debts to pay, why cannot they satisfy those obligations out of their enormous wealth? They gambled and lost. At a time when farmers, small businessmen and potential homebuyers are denied credit, it strikes me as terribly unfair to allow this massive extension of credit to cover the speculation of the richest brothers in America. As the Board continues to monitor the Hunt credit negotiations, I respectfully request that the Board apply the same restrictions that the average American faces when seeking credit to cover speculative losses. To do other wise would be a travesty. The citizens of my state are suffering severe economic distress. On their behalf, I protest special credit arrangements for billionaire gamblers. Sincere  Frank Church  fa  "a •'  4ki 'e  ,iistr.z.':4t.itia-.)c,4417.4:klikar:-.7  akr.  •  may 13, 1980  The 1-,oncrable roman F. n'Amours rouse of Representatives Yashincton, n. C. 20515 near Mr. D'Aours. Punt 1 can well understand your concern about the you syrrathy tl-an —atter. 1 can ensure you I have no r4ore !tor their perfomance, letter floes si. 1.: to rre to :ftisconstrue the rols,T an attachirc some tter of the rf...loral Reserve in this ilelps clarify the issues. teistiFory that Ihc & 1-as It particulTtr, the lt-An Lirder discussion, will prevent Curim t t nrivately reootiated, contains provisions to the runts ann related its life further speculative Innturee by ves of their snecurerties. The !iunte Immo not cleareM tbeivsel not 'clear those Jetty. debts -- the loan restructures 1-.ut does the !hints would Aebts. vlAle the position of atk, creditors and ly lecieled presumably be stabilized -- zknd t-tat is why they free rn to 'business as to ne7otiate the lout - the ;unts cannot retu indeed arrear usu.al- so lowac the ,!ebts are outstandirq,aY tn to service to have been foreefl to licistidate soma otY,er asse their silver debts.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  sui7Our analysis su.;mests this row loan should not at this point. atartially affect the rational supply of credit (the earlier because the new loan will replace exisitir. debts d, could debts, of which we woro unrwire ae they vere increase Appear to be construed as 'sreculativ/t, • e1thow7Y they lareaely to avoid have been incurreN1 to cover opeculative losses or .e at in this lirTuidation ratcr than to purchzxse silver). Lcr4c as or will undermine li5ht, Iczl.n't beltevft that the situation 1for the fact or credit riastreint 7,ro,;:rar. Indeed were it not in a position of that nrovrar7, we proAbly would rot have been piNrt to insist or the prohibitions on speculation that will of the loan ft,7reeront.  ,•• , 711.7 , • . 4.1[Wq.11/  ..b1e 'Inrrrm The 7-:nrorP,  'urr  Thp rracticrA and unfortunate, situation we faced was ti-st, as a byproduct of the r'unt speculation ane the consequent exposure of othcr institutions with which toy dealt, the sta. 5ility of certain financial institntions and markets wms threat1 ystanOers, had tbmt t17treat reteriali,,cel, it iP innocent : incluelinfj those dependent on the orderly flow of t4Ink credit, nert of the rrice. who would Ilave Tbe loim, which T niter approvea nor eisapproved, will, as noted above, contein safee.7uards a..inst the renewed p1or, ssumino it is consummated. speculation you (anAl I) More irmortant, for the cliture, is what can be on to forestall another episode c.f this ':ir2=';. ve have turned our efforts in that direction.  S/Paul A, VDIckac  rrrclosure.:  PAV-vcd (#V-190) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi (2)  NORM D AMOURS 1!,PDISTRICT, NEW HAMPSIIIRC  •  Action as signed Mr. C  g an.--infgAsc,pcpy jpoc, Jack Ryan 1503 LONGWORTH HOUSE OFFICT BUILDING WASHINGTON, D.0 20515 (202) 225-5456  STANDING COMMITTETS:  BAN WING, FINANCE AND URBAN AFFAIRS  Congre55 of tlie iiiittb*tatefs  MERCHANT MARINE AND FISHERIES  3i)oluSe of ReprefSentatibeg  MEMBER—STEERING AND POLICY COMM ITTEE  tillatbington, AC. 20315  April 28, 1980  DISTRICT OFFICES MANCHESTER, NEW HAMPSHIRE 03103 720 NORRIS COTTON FEDERAL BUILDING 275 CHESTNUT STREET (603) 665-6500 669-7011. Ex-r. 526 PORTSMOUTH, NEW HAMPSHIRE  03901 425 AND 426 FEDERAL BUILDING 10 DANIEL STREET (603) 436-7720. Ex-r. 707  1-AcoN8*. NEVI HAMPSHIRE 03246 200 AND 223 FEDERAL BUILDING 719 MAIN STREET (603) 524-7185  Hon. Paul A. Volcker Chairman Board of Governors Federal Reserve System 20th Street & Constitution Avenue, N.W. Washington, D.C. 20551  111..4kr  Dear Chairman Volcker: I have been deeply distressed by recent reports that the Fed has given its approval to $800 million in loans by maj6r banks to Nelson and W. Herbert Hunt to finance their losses in the silver market. At a time when millions of small businessmen, realtors and homebuil.ders are in desperate straights because of the tight money supply and high interest rates, it is unconscionable to approve this kind of unproductive lending activity.  Osimep.-  Worst of all, this incident will seriously undermine the Fed's credit control program, and in turn the Administration's anti-inflation initiatives. It sends the worst possible signals to the American people: speculation is ok, and rich speculators receive preferential treatment over hard-working, productive businessmen. I sincerely hope that the Fed will reconsider c its position and issue a strong statement disapproving all lending for commodity speculation. Sincere  /  Iforman E. D'Amours Member of Congress NED/mr   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •••••••••••,...-  • 0.10. ‘t•• 1* I • 1  a•  gar. •  4It  41•••••=11E,  • •  •1  ..  14,  4,At ior  latt4tr in wIzli:14 4 14 urIc the a•nt to t:1;n conJuir credit  AA .4,ou isardicatee the Doard La,l; received a 1,etitiorl  reviutl eui,i/art A of the credlt restraint requlation, ir).1,1431114nLe0 '44-4- the, rsoard on :ziarch 14. TIAJ oton sookt to aliand $ 229.6 e dealin with chew)* in torriz, by i-ersiitt»n..; credit4.r4 to request tLat cuutcpwsxli notify them of refusal to acme:A the new tams. ,totl 4ire conaerna-d &Lout the affect *f au,cth a procodure or. cououmart vottztially LuzAject to ttiesc uLicl: the i'etition addrealces NAA lAvea the au:;ject of willesk,read concern on the part of creditoro and coa suwera. In ordur to resolve the man'y :Aueatiens retjardinll isviewentation otthe 114erd will aaneiaer tk,114 7otition at a nesting scheduled for 21. Ot COUZA0, tht ry*ard. dikcizion to coluidor this i_otition formally dooa. Aot tioard will necessarily adopt tLa provotial. novi:vor, we 1Jeliove tLat further olexificativu of t411; mottzx is essential in %ardor tw carry vut the 4oala ot cr4,41it rei:traint ::rolran with diseocatiog to crcaitor;i and consumers. we undarstand ;four concerns regarding the luixact 00AA,UMMAX4 of an-i further ci.aLliAs in this area, Your views on this wetter will La fully conAidered 1.efore any firuil deci*ieJn is reached. ,k.i4eaciatcl. c,ttr takiny the time to 4.!;41-c V:en. with us. %Ik,S:.7281/1jt OV-1W1) JeCi i4/4• Stewart ;413. :4AUlardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  aAncereli, Waal A. gicla  FRANK ANNUNZIO, ILL.. CHAIRMAN I  GLADYS NOON SPELLMAN. MD. BRUCE F. VENTO, MINN. WALTER E FAUNTROY, D.C.  •  Action assigned Janet Hail THOMAS S. EVANS. JR.. DEL. CHALMERS P. WYLIE. OHIO DON RITTER. PA.  U.S. HOUSE OF REPRESENTATIVES  PARRE..4 J. MITCHELL. MD.  CURTIS A. PRINS, STAFF DIRECTOR  NINETY-SIXTH CONGRESS  SUBCOMMITTEE ON CONSUMER AFFAIRS TELEPHONE: 225-9181  OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS ROOM 212 HOUSE OFFICE BUILDING ANNEX  WASHINGTON, D.C. 20515  May 1, 1980  Honorable Paul A. Volcker Chairman Federal Reserve Board 20th Street & Constitution Avenue, N.W. Washington, D.C. 20551  CTI  Dear Mr. Chairman: I was shocked to read in the April 25 edition of the American Banker that the Federal Reserve Board staff was actively considering the proposal by the American Bankers Association to change the Board's regulation governing retroactive application of changes in open end credit terms. The ABA proposal would completely subvert a primary purpose of the Board's regulation: providing consumers a meaningful opportunity to reject application of new credit terms to their previous purchases. a.  Under.the current Board regulation a consumer has the option of preventing retroactive application of new credit terms to his old balance by discontinuing use of his credit card until the old balance is paid off or accepting the new terms by continuing to use his credit account. In contrast, the ABA proposal would require a consumer within 30 days of notice of a change in credit terms, to provide the creditor with a formal notice that the consumer rejects the retroactive application of new credit terms to his old balance. This proposal would force on a consumer retroactive application of new credit terms even if he cut up his card and never used it again. Also, if a creditor did not send the notice and then applied the new credit terms retroactively, it would be hard, if not impossible, for the consumer to prove that the notice had never been sent. The ABA proposal would place a tremendous burden on consumers. Not only would a consumer have to affirmatively notify his creditor, but do so in a manner that met all of the criteria of the "formal notice" required in the ABA proposal. Consequently, some creditors might invalidate consumer notices on technical grounds. In its testimony before the House Banking Subcommittee on Consumer Affairs on April 23, the ABA made a representation that some creditors and processors would have "great difficulty" in complying with the Board's regulations. I believe that this representation is so self-serving that it should not be accepted at face value by the Board or its staff.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ft  • Honorable Paul A. Volcker May 1, 1980 Page Two  I believe the ABA proposal would force virtually all consumers to accept the clearly unconscionable retroactive application of new credit terms to previous purchases. Consequently, I urge the Board most strongly to reject the ABA proposal.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  With every best wish, Sincerely,  Frank Annunzio Chairman  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1C, 1:.100 -  Vie actilorale TroAat 1tt  A  .6.;.t,  .Ak-,  reAl?onl to ,'our raur tLtnt  ,.to  i4.4 tram one of  ri1. letttlr rear-.1 r. W. Rzrvey  . ;-urt c7)rrc-ct t%at t eiritt Aexerve aiud an estimate cif ne“ currency rAe,Itt from each PeAtral keeerve Bank sash a;vitts. 7..celyt3 - use a t„%ree year awgrafpl, 7:'3t they adjut ta aVer.tf.00 u!.cn vvete tSty IiVc i11Afit;ct the actuol naeda for !Iva currcencv in the ruturo, iAatance, if Lan1:. are inatellinr,; mAny nco autotralorA the 11404#0(VO crvicthq th* aroa ulqht order more new curr‘-ncy than ucual. tcaret ta;-or revekvin.; the AMMO 54Akti IketiOne **V and anAlycse4 tt:e rvu:21.0r. discusses the nombers with the Tr*atur:i i andte evol.o40: a Yederal Reserve Printing Order whie., is suUmittkd to the Troaaury for 0-14. !I'ler-ing yitar, currency i t, ttc feperve ganks fro's. the Treamur4, tut the curronc usaZ tc,J 1;lest needv of all lAtnkr, aot just Vederel Yeaorve 4e4n1)T_r: ..p4Art'h4t. eaderal r,osr.rve 5anks eestil currency to Aot-r,enhyrf, eald alike, althouh nowbelal)er inetitutiono ,rtfer t. thelt. cilt6Tourp a eoreiessifsedent sietaber LaalL. 3ant.finot Lorrow currenty fro-, the Mserve Bayliss ratur, they ;44.i. for it throu c.:;crfsAtin to their rseetve alsoomate beeld at e:e ,-ntdaral Aeterve A* an example, sul--;-ose a bank whic- We call rirt t4tiona1 Bank boaa tAaa taiiliaa dollar reserve account at tho New orloars Yederal Keeerve office, rivet Notional wmts acme extra ourrencv besamse smolt of tile companies basking et TIrot national are going; to Lave larqs +=eh payro114 te) smet fr Vie next few dayo and Firzt gatiottal doesn't have encl.'s* currenc7 in its vault. virst National contacts the New Orlaanz office and orders thro* Allima dollar* in currency, The rederal Posmrve Bank debite rirst latiamel's reserve account by ttree vial= dollars and send6 the aarreno to rirnt Natiozel az reKuostod. Xo borrowink; ir irvelved.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •-•  iflvtra14 r:rent  71.'  137f:6 fl2 41.0 in rAw ti t-4,1 a irer.at. clarremc L.;,otal Aote4 ,rinted tt 7Tt.lta:4-ur .(!, 74-orn out eurranc 4314 to acmt iMvtirttary )1: :Avg .3710 aadsd in t2-P; otLar niwt t..411!: of fallettm. 1M-13,7 Uc i72 1T;)71 43 1,73-1:5,9 5i11, 174$'7 ii t1Uon. IT'7 15n 74 billioni 1977-4;';,3 Aril 117S $11.3 1 11.1u1, tLio V,ogo *atm: woro 4204 to ar,et t zolloy tb t old in the forft of CA00. in its .1*,tt irvle formulation l cons!,4ts of danand devosits agsd curzenc-f it% cireulation AA4 te v!rorortion OtG tita ofiblic hold% kn e:ockl,n acoountt az conto,...1 tc currancy ithifta over timft. tuft imstancet in 1160, tere on* dollar of Giru3*tj:t curriancy tor ovary '4 of csekin: account dollarse17 teria witis 4** dollar of atIrrime: : fox ioveri ;2.0 in cbeckin.;J accounts. Nior16 in 1174 ,t,re.t:(...rrla4:1 to !Iola more POA* it form of turrets/al:: and t%trofGrt thtzt '.,Wors1 Reserve had to 17AVV ZAVS0 notes priite-1. :A viev of 2 a.4; Nunt's tnterott in curronc clAllcJi4; a Ifrooltlet entit1*4 U.S. Currolt :4114:% 7rovidoa a ce. _tiAtv de3crition or our aurranc:i Cincereli yours *  (Signed) Donald j, W1nr Ponald .7. win* Sveolal Assi*tant to VI* 304e  F.CO:iAt (4V-1G) CC;X. Kai;) • Mallardi Yr. Wallace  A  TRENT LOTT  Action assigned Bill Wallace.  - 14 DISTRICT. Mi1CcIT'P.  2400 RAyRusoN EN/L(3114G WASWINGTON, 0 C. 2031  5  202-225-5772 PULES A- 14,11R`.4 AN. FIENITILIC AN RCH CCM %11 IT  Conuc.5.5 of tin tiliniteb *tate5  A•AVNIINISTRATivE ASSISTAN T TOM H ANDE RSOP 4. JR   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ji)oti5e of lArprimitattinq  oisriucr orricts GUL.rr.ORT. MISVSSIPPI r1-044-'1'0 HATTIITSSUPIGI MISSISSIPPI 1:1-182 12111 LAUREL. MISSISSITIrl  Z.Z.lasbington, D.C. 20313  •  4:14411-1131  r;!,0 , .  Chairr-;in roderal rer;orve !'-stnol rnderal reserve Yastiin7ton,  (r:  rt'cyiv ., -(A- ronuco :Hrvey Hurt, Jr., who contacted me rer.ardinr nuestions on how the Feeeral Reserve System functions. flnclosc, ! for your information ig a ropy of this correspondence, Yhich details the nature of the nrohlen. I vould Jnprociate very rych you r proyidim- information which would he nf ;nrr 1r1nrin to t/iir inquiry.  TI,anr vop for vpur aFF listance ip t 1ii5 ro - 1 (1'z, T a!) incor,  t t  TL/1+ Enclosure  rrittnr.  )31:I  W. HARVEY HURT,JR. MI  April 16, 1980  wiR  Congressman Trent Lott Washington, D. C. Dear Trent:  Re: Tel call to Buddy B-ynum  As we understand it, the Federal Reserve Board asks each of the regional Federal Reserve Banks how much money they need each spring, using a 3-year average. Based on this information the Treasury has this much currency printed up and sent to these banks for them to use for the needs of banks that are members of the Federal Reserve System. These banks borrow this money from the Federal Reserve, paying interest as demanded by the Board. This same money can be used to furnish money needed by the government , secured by various forms of government securities such as Treasury Bills, etc. , and dr awing interest at a rate higher than is required by the government of the banks (member). We would like to know if the above is correct. We also would like to know how much money was printed up during the last fiscal year and handled this way, and how much was printed in this manner over say the last 10 years. We are not interested in receiving voluminous dissertations on how the Fed was formed , amendments, additions, as might be found in editions of the Congressional Record or other detailed and complex publications. Hence, a simplification would be appreciated. 4   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Thanking you for the trouble we are putting you to, and with best wishes I am yours sincerely, )Ha  Hurt, Jr.  14, 1980  114111cralt, 141nj.u4n (JU CobAmaro4t a.ad ;1444414/14, 4fiaira cor.ztittAke f.041 ‘t4;vernmatit 0,urationz; 4Quse el .:Nei raisentative;u 20515 waaatin.4ton, L:eas CLairmaA l'toseuthal. ri1. 32 iA I am roli4144axi to yOUX letter of te Couvresaional iou invite conoent on a rrt ixisparel atm/larch aervice commerxigui the legislative :zistor-i of the nutuwau4Ing ir.ruhibitiena of the beak melding CQweArij Act. Taur letter gl4o rco.;inesta that the aoard provide baeksimouatd information on the legislative hiatory of the exemptions frio tLe rsonLankinli eroiabitions atforded torei;n corporationo. brief In rezpouse to your rat I um kmelosinli dcsi ,,rovi and otaii samoraa4um that revieloo te CX.; rejort further 4etai3 on the deLibertitioils tat led to t14 inclusion ot these oxitenrtious in thu .1;ct. IL viclw of CI* title cozstraints luvolved, the usiu-aoraIldum £3 riot ieree6nted az a oomi•xenansive treatment or the leijitIative hist4r7 of the examotions.• remain hillins t of course, to asgiut tne Sutecommittee with alq 4ter v;ulautluaa it 4444.: tve ck;i3Ackerniw, this tovic*   ••••• •• •s https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Zincere1i t §NytYpiaet  Znclosure X4iJNIt ($V-161) bac; gathloan O'Day Jic4 McAfee Nallardi (2)60  -   https://fraser.stlouisfed.org 4 Federal Reserve Bank of St. Louis  STAFF MEMORANDUM ON QUESTIONS BY HON. BENJAMIN S. ROSENTHAL RELATING TO THE LEGISLATIVE HISTORY OF SECTIONS 2(h) AND 4(c)(9) OF THE BANK HOLDING COMPANY ACT In connection with hearings to be held by the Comne rce, Consumer, and Monetary Affairs Subcommittee of the House Committee on Government Operations, Chairman Benjamin S. Rosenthal has asked the Board to review a report of the Congressional Research Servi ce entitled "Legislative History of the Nonbanking Prohibitions of the 3ank Holding Company Act," to respond to particular questions relat ing to the background of exemptions provided to foreign corporations in sections 2(h) and 4(c)(9) of that Act, and to supply further backg round information regarding these exemptions. A major thrust of Chairman Rosenthal's inquiry is that exemptions under section 4(c)(9) of the Act were intended to be limited to investments only by bank holding companies "principally engaged in the banking business outside the United States."  The staff believes that suggestion  reflects a misreading of the legislative history; we have found no proposal in the legislative history that the provision be so restricted and the Board did not recommend such a limitation. After preliminary review in the limited time available, the Board's staff is satisfied that the focus and direction of the report Chairman Rosenthal has submitted are generally accurate, but the report omits some illuminating detail and, because it is only a brief overview of the development of selected exemptions, the report draws some conclusions that could be misleading.  In reviewing materials bearing on  the questions raised, staff notes that there is available a more comprehensive study of the legislative history of the Act's coverage of foreign corporations.  Lichtenstein, "Foreign Participation in United   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2-  States Banking:  Regulatory Myths and Realities," 15 B.C. Indus. & Corn.  L. Rev. 879 (1974).  While the article expresses some personal opinion  and indulges in conjecture with which the Board or others involved in the development of these exemptions may disagree, it addresses the areas of Chairman Rosenthal's interest and inquiry in particul ar detail, and a copy is attached for his information. The article addresses Chairman Rosenthal's first and third questions, regarding the origin of section 2(h) in 1966 and the meaning of "principally engaged in the banking business outs ide the United States," beginning on page 917.  It confirms the Congressional Research Service's  conclusion that there is little legislative hist ory clarifying these questions, and at this time the staff has not found other sources contradicting that conclusion.  The article suggests, however, that the limi-  tation of the exemption to bank holding companies "pri ncipally engaged in the banking business outside the United States" may have been inserted only to prevent domestic banks from evading all restriction on their purely overseas investments rather than intentio nally to distinguish between foreign banks and other foreign corporat ions. Chairman Rosenthal's second question, the staff beli eves, arises from a misinterpretation in the report of sect ion 4(c)(9) and of Chairman Burns' testimony in 1970.  The report states on page 14  that "the exemption was amended to permit ownership of foreign companies 'the greater part of whose business is conducted outside the United States,'" and the analysis that follows treats section 4(c)(9) as if it were an exemption for the ownership by bank holdi ng companies, wherever   https://fraser.stlouisfed.org 4 Federal Reserve Bank of St. Louis  -3-  located, of foreign companies.  This is incorrect.  Section 4(c)(9)  is clearly an exemption for the ownership, within limits to be prescribed by the Board, la. foreign bank holding companies of companies and activities of any description, wherever located. In that light, section 4(c)(9), as enacted, is not similar to section 4(c)(9) of S.1664.  The latter provision, relating to ac-  quisitions of foreign banks rather than acquisitions by foreign bank holding companies, would not have conferred a new exemption, but was intended to curtail overly broad exemptions found in the origin al act. Section 25 of the Federal Reserve Act requires member banks to secure the Board's approval to invest in foreign banks and prescr ibes capital investment limitations.  The first paragraph of Chairman Burns' testi-  mony quoted on page 16 of the report relates to this narrow questi on, the possibility that existing exemptions might allow domestic banks to evade the restrictions of section 25 of the Federal Reserv e Act by use of separate affiliated corporations; it does not concern the legislative proposal that culminated in section 4(c)(9) of the Act. In the balance of the quoted testimony Chairman Burns endorsed "provisions of the House-passed bill [H.R. 6778] authorizing the Board to grant exemptions."  That bill included not only the provision that  (with a minor change) became section 4(c)(9), permitting the Board upon proper findings to exempt any investment or activity of foreign bank holding companies, but also provisions permitting the Board to exempt from the act's coverage altogether companies whose only bankin g subsidiaries were foreign and conducted most of their business abroad or were domestic but chiefly engaged in activities related to foreig n commerce.  None of these provisions of the House bill purported to restri ct   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -4-  the availability of the exemptions to companies principall y engaged in banking outside the United States.11 From that background, it is reasonably clear that in offering the Board's views on the provisions of the House bill, Chair man Burns was not arguing that those provisions were too broad nor was he rec()amending a restriction not suggested by the provisions he endor sed. Instead, he was giving the clearest examples of situations in which an inflexible application of the existing law, which did make special provision for bank holding companies "principally engaged in the banking business outside the United States," could lead to an unnecessar y interference with foreign business and invite retailiati on againstt, domestic banks, situations in which the Board could most reasonably be expected to exercise at once authority under those provisions if it were granted. The staff notes that it has recently received a separate report prepared by the Congressional Research Service that discusses in greater depth the procedural requirements of section 4(c)(9) of the Act, and the staff expects to complete to forward to you its analy sis of that report in the near future.  Attachment  1/ Neither were the exemptions proposed in S.1664 restricted to bank holding companies principally engaged in banking outsi de the United States. So far as the staff has been able to deter mine from a review of available materials to date, no one was suggesting such a restriction.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  16, 14/P7  ni/r.orltr Car1t0.4 L. ?c.rec :Jaited Ztates :4, ,opotti wahirt ton, D.C. 2*510 Deat SionatOC kOtC114 .  Illaak you lox yuur letter of ;41ril it r*-Ardiri:T t, ;10=eLuil4inqo induatrv. Ubilo aan < te fiscal end redulat r4:Atglia3 14woaals mole by the XlItaoiu t‘ore tuildore Vas autorit-i of the rederal Leterve, ti overall ,c,acl%Ivle ututet acoreetJ orattent to Alich mort9a7,4 an4 Loul„itA'; market uzder „rosaurt, Ms tedAtal "Asufervvo ahares oonoarns *bout the rob4ev1.1; eucouutured by mortgaige lez4erose rtome buyers; builders, aad otctr% ulth United financing alteornativas. In dosilning Creglit %ftstraint 1 ro4orar4 announced on t'eralt i4, the t4t Loara (Luker! oozumereiel banks to sAire Iric,rity to mainteininl• reasonable availieJility of fwd a to Imall lAragift42,,let, suet ot 14;cs1 builders, and to Iservicag tho liuidity nitec'4( pf thrift institutions. The srocial 4e-k.etiit rer:virwomtm 14pr1ying to increaztai In coa4umer credit specificolly exclude4 mortgage cireait. for tLe vurollese or iwevenent 4emes. In additioni the fieviel de7,:osit moiirimanto 1odom any tureAr exranssiOn ti the aslete of aot,ey mAVIAA TAltaal funds *hould 2.151,p curb tU4 elLit't of asivin, 1eavin4 zo,Orig funds aveilst4e in local aarketc to holp uqmpt 1oce1 credit daLuands t includln t'aose astioc,lut444 with ticousir.la rurthernzre. the Federal Nweerve lc44n1 ,u,;;Aorted toqulatory clAst3es that will mks cre4it more re4dt1,11 avai2i4Aiti for Louaim during neriod$ of hiIta interest r4t44. realcures Attnilanoli-v•j the atviliti of Clrift indtitutiens coi4„.ete ter 7un4a, ouch es the recently *flouted leqialation dorelulation of dtvository inttitutione, aro iiortoat contritlation4; in this rcitiarc). recott weel;s 3 fseveral ott'!er t-,-,2er4, of reliftr for Liuilders tavo wao.4%ed. elthoufft they will ol.,viwmly tztke 4(414# t11:4-f tO relietA,64 fully in mortgaie ziart corditicnt agd in 4ctiviti. Coat of cooatructiou rOtt !;ftve r:Azi 1A4c41ities as short-term imter64t ratem •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  The Honorable Charles H. Percy Page Two  dropped noticeably; costs of long-term residential mortgage credit also appear to have reversed their earlier upward trend. Effective April 18, the Department of Housing and Urban Development amended its policy to allow builders to obtain FHA-insured permanent mortgage financing upon completion of a house, thus easing the burden of carrying unsold inventory with highercost construction financing. In the realm of legislative action, on April 22 the Senate passed a bill (S. 2177) that would revise and broaden the types of emergency financial assistance available to home buyers. Measures designed to aid the mortgage and housing markets, however, do not go to the core of the problem facing these and other sectors of the economy. The inflationary process itself must be halted. To do so within the limits of our economic and financial resources requires a coordinated approach by business, government, and consumers alike. The anti-inflation measures announced recently by President Carter, including fiscal restraint and tax changes that increase productivity, comprise a major step in that regard. The proposals by the Illinois home builders also alluded to the supervisory treatment of loans to borrowers experiencing financial problems as a result of current conditions in the home building industry. Pursuant to the Federal Reserve's supervisory responsibilities, standard examination procedures require full consideration of all relevant factors when reviewing loan portfolios. Chief among these considerations are the underlying value of collateral, the ability of borrrowers to resolve their difficulties, and the effects of general economic and financial conditions. These procedures enable the Federal Reserve to make an accurate assessment of the financial condition of individual banks while remaining sensitive to the difficulties of particular borrowers and economic sectors. Within the bounds of prudent banking practice, the supervisory oversight process does not preclude the management of a financial institution from devising appropriate strategies, such as renegotiating terms of certain loans or granting interest rate concessions, that will enable borrowers to work out their problems in a manner consistent with the interests of the lending institutions. The concerns raised by the Illinois home builders are similar to those presented in a recent meeting with representatives of the National Association of Home Builders. The NAHB   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The au 3a Cuticles 4* rarcy Tase three  requested that the beak resicIstory agencies take step* to enacts that anastinere are aware of the torrent conditions facing the kens building induetn. This natter ha* befmrt rstereed to the federal r164810iA1 Inatitntions Council since it relates to the supervision of thrift inetitntisas as well as sonnercial banks* 2 Uhonlid point set that ;(lay action taker with respect to this matter weeld have to oalzAtsis the inteltitl of the exeninntian process and ensure tho sbility to promote the aafetl and soundness of the financial instStutionst indestn, Sift igNI A. Voit.hor  aixACIOW4ot (0-158) Loa; Ns, natter Ns, Corwin 1Nr. Spillonkothen tIrs. Mallardi  Action assigned Mr. Kichline •  CHARLES H. PERCY I LLI NOI$  9.1Crtifeb ,Slafez „Serrate WASHINGTON. D.C. 20510  April 16, 1980  Honorable Paul Volcker Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Washington, D.C. 20551 Dear Paul: On March 26, I met with a concerned group of Illinois homebuilders who very effectively brought to my attention the critical state of their businesses. At that time, we discussed several options for relief, primarily legislative in nature. ,4  4  eT.:11 1.74  The need to maintain strict budgetary restraints makes the passage of legislative remedies uncertain at this time. Because the Illinois homebuilders consider current economic conditions an imminent danger to the viability and even survival of their industry, I asked them to consider and suggest alternatives to legislation that could be implemented quickly and without significant budgetary impact. Subsequent to that March 26 meeting, representatives of the homebuilders met with my staff and presented a package of tax and regulatory proposals they feel can bring some immediate relief. A copy of these proposals is enclosed and I urge you to give them careful consideration. While not all of the proposals pertain to the regulatory authority of the Federal Reserve, I felt it would be helpful to you to view them within the context of the homebuilders' overall plan. I would appreciate anything you can do to help and I look forward to your reply With w  Charles H. Percy United States Senator CHP:bh enclosures   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  L.  •  r  Discussion Draft March 27, 1980 HOUSING AND HOME OWNERSHIP EMERGENCY CREDIT ACT OF 1980  WHEREAS, the nation's housing industry, homeowners, realtors, and  housing-oriented financial institutions by mid -March 1980 faced  a National Housing Emergency with new and existing home sales already  off -bore than 30 percent in many areas and national starts already far  I.low 1.6 mon, plummeting further to start rates lower than any  post-World War II year; and  WHEREAS, this National Housing Emergency is caused by federal monetary  .  . policies directed against inflation but resulting in both short-term  (development and construction loans) and long-term (mortgage) credit :  costs which so far exceed previous record levels as to create a major  creIit disaster for housing, the only national industry which is directly  dependent upon both short term and long term credit; and  WHEREAS, this housing credit disaster has already made it impossible  for mons of Americans to buy and sell their most important single  asset, their home, and threatens to freeze housing sales for many  months causing untold individual hardship to mons of American  homeowners; and   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  WHEREAS, not only Savings and Loa ns and Mutual Savings Banks but also many commercial banks heavily eng aged in land development and construction lending are threatened by the National Housing Emergency with broad -spread and potentially crippl ing losses; and WHEREAS, the combination of shortterm rates more than 50 percen t above • historical records plus the collap se of mortgage financing at aff ordable rates threatens to bankrupt a major number of the efficient sma ll housing firms which produce the majority of American housing, cost over $100 billion in lost econom ic activity, eliminate 1 1/2 millio n man years of employment, cut federa l and state government revenues  by nearly $6.8 billion, and so crippl e the entire industry  as to  guarantee high additional inflation ary costs connected with its postcrisis reorganization; and  WHEREAS, governmental economic statis tics have been so delayed and distorted that they have failed to predict the National Housing Emergency, to detect that it has alr eady been in effect for many months, and to report that major areas of the country are already housing disaster areas where sales activity has been down over 40 percent from the 1977, 1978, and 1979 activity levels for as long as 12 months  •  . •.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -3eowners, homebuilders, with concomitant immediate hardships for hom titutions. realtors and housing oriented financial ins t housing and homeowners do not NOW, THEREFORE, IN ORDER TO ensure tha policies designed to fight inflabear the full brunt of the monetary Housing Emergency; and tions but currently causing a National  .•  truction of the most productive IN ORDER TO prevent the virtual des g it to absorb not just a normal housing industry in the world by forcin • percent but a loss of over 30 cyclical downturn of 15 percent to 25 cent of its markets while at percent and in some areas up to 70 per h short term rates to finance the same time paying unpredictably hig entories at rates allowing only frozen land development and house inv ied small businessmen: one outcome for many highly qualif  bankruptcy,  and nation's financial institutions the to ts cos h hig the id avo TO ER IN ORD l Savings and Loan Insurance Company and heavy new burdens on the Federa y systems, and and Federal Deposit Insurance Compan inst a total freeze of their major IN ORDER TO cushion homeowners aga nation continues the critical battle the ile -wh ehom r hei --t et ass gle sin  against inflation; and   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  S  -4  IN ORDER TO guard against an artificial devaluation in residential  real estate with its concomitant threat of major economic dislocation  in any major area of the nation; and  FINALLY, IN ORDER TO enable the housing industry to meet thie 41.  Natiohal Housing Emergency without incurring major new federal govern-  mental expenditures through (A) adjusting regulatory constraints on  housing oriented financial institutions, (B) focusing federal •••  efforts on the critical housing disaster areas, and (C) encouraging the  immediate development of promising new inflation sensitive mortgage  instruments;   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  S 5-  NOW THEREFORE BE IT ENACTED, 1) that Congress hereby declares that  there is currently a National Housing Emergency, which is herein defined  as that period when national housing starts on a four -month moving  average basis drop below 1.6 million units on an annualized basis.  The Secretary of }lousing and Urban Development (the Secretary) shall  hereafter make a timely finding of when the National Housing Emergency  shall terminate, namely when the four-month moving average of starts  drops below 1.6 million units on an annualized basis, and shall further  make a timely finding of when a National Housing Emergency  may once  again recommence, such designation and proclamation to be made on a  timely basis to avoid the unnecessary dislocation presently occurring  because of statistical reports which due to their nature have not provided  early warning of significant dislocation already occuring in the housing  and home ownership areas.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  •  -6-  2) "Housing Related Loans" are defined for the purposes herein  as loans secured directly or indirectly by real estate and made for  the purpose of acquiring, holding, developing or constructing impiove-  ments(on real estate zoned or approved for residential housing. 40'  3) "Home Ownership Loans" are defined for the purposes herein  as first mortgage loans  secured by owner-occupied residential real  estate obtained for the purpose of purchasing said real estate.  4)  During the National Housing Emergency, housing-oriented  financial institutions, including all commercial banks, savings and  loan associations, and mutual savings banks, shall be allowed to  defer federal income taxation on all income including amortized ori-  gination  fees derived from Housing Related Loans for 3 years from  the date of accrual provided such Housing Related Loans  are renegotiate(  to bear interest rates including amortized loan fees not in excess of  2 percent over the base period prime rate, being that prime rate  in effect during the 3 years 1977, 1978 and 1979 at the five largest  American commercial banks, and further provided such renegotiated loans  provide for deferral of all interest payments until conventional mortgap  rates, being those  rates established on 80 percent first mortgage loan!  ''‘Imm111•11ffi   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -7-  on a four-week moving average at the FHLMC auctions, decline below  13 percent or 2 years, whichever shall first occur.  5) That all housing oriented financial institutions be allowed  to amortize loan origination fees on newly originated Home Ownershi p  Loans during the National Housing Emergency on a four year holding  basis in recognition of the generally shorter holding periods, such  high interest Home Ownership Loans  are statistically expected.to  remalm outstanding.  6) That the Federal Home Loan Bank Board, the Federal Reserve  Board, the  Controller of the Currency, and other Federal agencies  be commended on the steps which they have already taken to create new  regulatory flexibility for  housing oriented financial institutions  allowing them to accomodate to the National Housing Emergency and arg here-  by urged to continue their progress towards updating their regulatory  framework to meet the changed economic conditions which have produced  the National !lousing Emergency.  7) The Secretary of Housing and Urban Development is hereby  requested to report quarterly to the Congress on the impact of the  National Housing Emergency on housing starts, construction industry  •  -8-  111  •  employment, and housing industry business failures, provide a  quarterly recommendation on the need to reactivate the Emergency Home  ,,,,,Purcbase_-Assistance Act;,and -finally... report whether a 10.. pprcent...or. great c  decline in housingvaluesin any significant housing market within the  __United States. hasoccured. !I . ment be Develop requested 8) That the Secretary of Housing and Urban  .   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ttr  tpare—retommen-dati-ortsrforN-further-_aegislat ion and.'regulatbry--ecribia's•-  that could be taken to ....ameliorate the National Housing Emergency  'h.rid'rep'ort thert'on t  13kongress'wIthin three months of the' date -hereof:"  9) The Secretary of Housing and Urban Development (the Secretary)  is directed  to immediately designate as Housing DisaSter Areas those.  StandardMetropolitan Statistical Areas (SMSAs).or states_or portions -  of states not within SMSAs where any such area has experienced new  _  home starts for a period of 4 months at an annualized rate of less than 60 percent of the 1977, 1978, and 1979 "base'period," using such -  available data to make the designation as construction permits issued  and such other data as the Secretary determines relevant to a speedy areas ' designation of appropriate areas, and to designate additional such as they develop and meet the above designatory criteria on a timely basis.  -9-  10) The kHLBB and the FHLMC be requested to develop iran;ediately a program (  low interest loan guarantees whereby Housing Related loans and interest  accured thereon in Housing Disaster Areas are guaranteed for so long as  the National Housing Emergency continues so. long as the Housing Lender  fixes the interest rate at the base period prime, and agrees to defer  or interest payments until mortgagt,T,ates_decline below 13 percent •(. -  •  •  2"years, 'whichever shallfirst occur.  -  • I•  -  —11) The FHLMC' is authorized to make directly Housing Related Loans  not to exceed $500,000 to any one borrower in Housing Disaster Areas  1.7 , ' "*"'  7  hert-there is - a -showing that such loans can not be obtained from:con-  ra,  ventional sources due to the National Housing Emergency, such loans to  •  es •...v....  f'iiefetatthbase-peri-o-d  rate .and_provide for -interest.  deferral until mortgage rates decline below 13 percent or 2 years,  __whichever shall.first_odcur, and:beolely for the.purpose.of repaying  outstanding Housing Related Loans and interest accured thereon. _ event that. Brookeranston funds are released to cope In.the --12)  with the National Housing Emergency, the Secretary of Housing and Urban  ---   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Development shall develop allocation formulas producing -the result -that  Housing Disaster Areas shall receive allocations equivalent to three  -  •  -1I-  •  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -the allocations.they Would -have received had they not been severely  enough depressed so as to qualify for Housing Disaster Area designation.  —13)-The `THILBBP it- tot:mended'. on-its foresight and urged to complete .-, 7-  the development of the recently proposed Renegotiated Rate Mortgage and  introduce it .a -soon as -15-6§sible 1 With appropriate safeguards to allow 1 consumers to choose between this promising new mortgage, conventional  fixed payment mortgages,,and the equalli promising- conventional graduated  payment mortgages.  14) The FHLBB also is hereby requested to perfect both the conventional  graduated payment mortgage and the recently proposed Renegotiated Rate  Ilus GPM or Combination Mortgage and rapidly introduce these mortgages,  which are designed to allow American fames to avoid an inflationary  lock-out, as alternative choices.  15) The-FHLBB, together with FHLMC and GNMA, be directed to develop  secondary markets in the RRM, GPM, and Combination Mortgages to provide  S.. ximum meaningful acceptance of these alternative mortgages and so  I rovide homebuyers during the National Housing Emergency with the  S0 aximum range of choice necessary for  IS to cope with the Emergency.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  16)  In order to stimulate housing inventory demand, a purchaser of a  new principal residence shall qualify for a tax credit of 5% of the purchase  price of such residence, up to a maximum deduction of $4,000 on a joint  return provided that the original use of the new principal residence  commences with the taxpayer; the new principal residence is a single frily  detached, single family attached, or condominium upon which construction  began before April 1, 1980; acquired and occupied by the taxpayer after  April 1, 1980 but before January 1, 1982 which, if not built by the tax-  payer, was acquired under a firm contract to purchase entered into by the  taxpayer before January 1, 1981.  In areas designated Housing Disaster  Areas, in order to further stimulate housing demand through the resale of  existing homes, the foregoing tax credit up to a maximum deduction of  $2,000 on a joint return shall be allowed where the new principal resiI-  • not meeting the above criteria, is located in a Housing Disaster Area  and there is adequate certification that the seller of the new principal  residence to the taxpayer purchases within 6 months a new primary residence  meeting the a55ve criteria.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  ErycLoSURG-  DRAFT TALKING PAPER FOR  DISCUSSIONS WITH CHAIRMAN AND STA FF OF  FHLBB  1) The extremely sharp decline in national starts rates being caused by current monetary conditions can bes t be characterized as a Nation al Housing Emergency.  NATO now projects annual housin g starts on a quarterly  basis, to drop as low as 875,000 units-or 58 percent below the 1978 fou rth quarter peak.  Single family starts are projected to decline even more  dramatically to about 500,000 or 67 percent below the approximately 1.5 million starts experienced in 1977/7 8.  2) This Emergency is believed to requir e major new efforts to allow housing oriented financial instituti ons and home builders to carry housin g land and inventory through the emerge ncy period.  3) NAHB is approaching FRB officials, the Comptroller of the Currency, as well as you at FHLBB to share som e ideas and solicit your assistance in developing new regulatory policy for this new emergency situation. NABS. is also attempting to develop a "Housi ng and Home Ownership Emergency Credit Act of 1980" which would serve as a vehicle for providing appropriate   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  agencies with needed legislative authority to accomplish the emergency regulatory changes.  4) Our efforts are in the preliminary stage, but several areas  of potential relief suggest themselves and possibly will lead to or augment similar efforts being undertaken by your staff.  5) The first is a suggestion that a new classification system be developed allowing your institutions to avoid the onerous .conse quences of current troubled loan scheduling.  Basically, many residential land  development and construction and inventory financing loans do not fall into current categories because they are not "troubled" in the conven-  tional sense but rather represent valid projects properly undertaken  but frozen almost completely because of the current monetary climate associated with the national inflation fight.  6) You are probably already reviewing this problem, but our sugges-  tion would be that we assist you in developing criteria defining housing  related loans which are not "troubled" but merely in a holding pattern.  7) Once properly  and restrictively defined, our suggestion would  be that institutions by regulation be given special flexibility to re-  negotiate, defer, or even abate interest for the duration of the National housing Emergency to allow normal workouts to be facilitated.  6  •  • •  -3-  8) A particularly desirable flexibility would be to allow your institutions to issue loans or renegotiate loans where by interest is paid only at the end of the 12 month or longer term.  Currently,  our impression is that interest deferrals over 6 month s are not allowed.  9) A second major proposal would be the definition of a new asset classification of "inventory construction loans."  We have re-  commended that the FRB consider allowing banks to provide transi tion financing to home builders during the National Housing Emergency at permanent financing rates on loans secured by completed inventory  housing.  This would allow home builders to rent the unsold homes, .  possibly with options to buy clauses, until the housing market improves . at which point conventional mortgages would be obtained and sales  finalized.  10)  Another broad area of possible relief could be to allow  your_ins.titutions_to take loan ,origination points to income on con-  ventional mortgages made at the current Emergency high mortgage rates  ,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  more.quickly.oa_the theory-that, statistically speaking, such-mortgages -  should have appreciably shorter holding periods than the 8 to 10 year   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  -4  •  sharply enhance mortgage yields allowing lower nominal rates and hence .  lower monthly payments.  Home builders normally pay the majority of  origination points, so home buyers would be significantly assisted in purchasing despite the housing emergency conditions .  11) NAM has furnished you its comments on the RRM proposal.  We continue to believe  that the conventional GPM as well  as the combination mortgage (theRRM/GPM)  are Additional important alternative :mortgage formats which in today 's  emergency climate should receive rapid development and promulgati on.  Of course, we stand by to assist you in whatever way possible in  educating secondary market participants in these new mortgage forma ts.  12) In connection with the RRM, it occurs to us that it in effect  is appreciably more liquid than a conventional mortgage.  be possible for such new mortgages  Would it  to be weighted in some fashion,  perhaps at 50 percent, and included towards a S&Ls liquidity reserve  requirement?  13) We of course welcome the recent reductions in liquidity reserve  requirements.  Of course, NAHB joins you in realizing that this will  not produce directly any new funds for conventional end loans.  The central question is whether there is some additional modification  of liquidity reserve requirements, equity requirements, or other  constraints which might entice your institutions).back into  the conventional mortgage markets at somewhat lower than current,  illusory p . market rates.  14)  S  Obviously the above new approahces are all ii...; .1 by the  underlying reality that existing credit relationships have been  shattered by simultaneous and unforeseen short term and long term  credit cost peaks.  Home builders face such financial losses that  they can no longer absorb them alone.  tutions face similar problems.  NAHB recognizes your insti-  We are ready to support modcations  Sf the foregoing or any additional ideas which can facilitate the  workable borrower lender compromises which must be quickly found if our  •I V  %. ••  16.4.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -inutual-losses are not to be  154 j3  Thank you for your consideration.  a  •n  pl.. 7  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  cLo5UR  March 27, 1980  DRAFT TALKING PAPER FOR  . DISCUSSIONS WITH FEDERAL RESERVE BOARD OFFIC1ALS  1) To expand and augment upon March 24, 1980 letter to Chairman  Volcker, herewith are some additional suggestions for regulatory  amendments which offer some hope of ameliorating the current, severe _ national housing emergency.  2)  NAHB hopes that the following ideas can be added to the  on-going FRB review to assist in developing the short term administra-  tive modifications immediately necessary if a viable housing industry  is to continue while longer term solutions are developed.  NAHB is  currently attempting to develop a "Housing and Home Ownership Emergency  Credit Act of 1980" to provide legislative authority as required to  augment short term steps and facilitate further regulatory change.  3) Housing related loans by commercial banks are those secured  directly or indirectly by real estate collateral and made for the  purpose of developing or constructing improvements upon residential  zoned or approved real estate.  In the national housing emergency, we  believe it would be appropriate for such housing. related loans to be  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2-  •  exempted from many if not all of the restrictive reserve requirements  currently being implemented as anti-inflation measures.  ment would obviously allow commercial banks greater  Such treat-  rate and renego-  tiation freedom to restructure housing related loans to allow basical-  ly good loans to weather the current incredible interest peaks.  4) Home ownership loans, defined as first mortgages to owners  of owner-occupied residences, might also be exempted from some or all  of the existing or new reserve requirements.  While the FHLBB is  attempting to develop alternative mortgage instruments, the immediate  national housing emergency essentially will have to be weathered with  conventional fixed-payment 25 to 30 year loans.  Such loans are no  longer affordable and hence current home owners are in effect locked  into their existing homes.  While this may be desirable to some extent  in the current credit policy climate, the almost total national lock-  in that currently exists is clearly an undesirable extreme condition.  Bence the advisability through reserve requirement modifications of  allowing somewhat more realistic albeit still historically high, mort-  gage rates to develop.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  -3-  •  5) We have already mentioned the approach of modifying loan  classifications to permit greater workout leeway to your regulated  institutions.  One specific area of highly desirable flexibility  would be allowing Interest payments to accrue for periods long  enough to allow developers to wait out the temporarily frozen housing market and then sell and deliver sufficient units to meet continuing  accruals.  A 24 month period suggests itself as an appropriate inter-  est payment deferral period which banks should be allowed the freedom  to adopt.  6)  One provision of our proposed Housing and Home Ownership  Emergency Credit Act of 1980 would allow housing related financial  institutions to defer federal income taxation of interest upon re-  negotiated housing related loans for three years so long as such loans  provide caps on interest rates plus interest payment deferral for 2  years or the return of 13 percent conventional mortgages, whichever  should first occur.  We would like your comments on this provision.  7) Obviously, we are very eager to assist you in the development  of parallel thoughts should you believe this desirable.  Joint efforts  appear mandated by the severity of the current situation. Thank you for your consideration.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1iHIlroxmiriy! Ch,eoirAri  Cor,nitte4t or 79111,.inc.cui end UrbIlm Affairs Unite43 - tatest f'enate t,pfthins.7.tort1 C. 05ir Chairnen T/rclYivire Thank Tim for ynur lettrr ryr your Coittee's overrif-bt 'necrirt: 4°1 CorToration Lotal Cunrotntee  11  r-•-9r-2 1.r-  lookinc: forware to arTvar1n- 1.eforg- yovr I Cc. ,-.itteo on May 20 at. 2.30 Yincerely, SLF'auIA. Yokket  CO.vcd (V-214) bccmr. Corri-jan Mrs_ Yallardi (2)%/-  •  •  0  WILLIAM PROXMIRE, W11., CHAIRMAN  HARB'SON A. WILLIAMS, JR., N.J. ALAN CRANSTON, CALIF. STEVENSON, ILL. ADLAI FtOBERT MORGAN, N.C. E, JR., MICH. DONALD Y;  JAKE GARIN!, UTAH  JOHN TOWER, TEX. JOHN HEINZ, PA. WILLIAM L. ARMSTRONG, COLO. NANCY LANDON KAS.I.F1,AUM, KANS. RICHARD G. LUGAR, IND.  PAUL S. SARBANES, MD. DOHALD W STEWART. ALA. PAUL E. TSONGAS, MASS.  t--  rZCTriteb Ztafez ,Senctfe  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  May 13, 1980  The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: The Camnittee on Banking, Housing and Urban Affairs will hold an oversight hearing on the Chrysler Corporation Loan Guarantee Act. You are invited to appear and testify on Tuesday, May 20, 1980. The hearing will begin at 10:00 A.M. in Room 5302-75f-the- Dirk-§a-Saate Office Building. The purpose of the hearing is to examine the report transmitted to the Committee by the Chrysler Corporation Loan Guarantee Board in connection with its approval of a commitment to provide up to $1.5 billiSn in Federal guarantees to Chrysler and to determine whether all Sf the requirements of the Act have been met. A copy of the Guidelines for Witnesses is enclosed. Please note that 25 copies of your statement should be forwarded to the Conunittee at least 48 hours prior to your appearance, and 75 additional copies should be available on the day of the hearing. If you have any further questions OT comments, please contact Elinor Bachrach of the Committee staff at 2\02-224-7391. Best regards.  Enclosure  WP:ebl   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1111111•..-  •  •  WILLIAM PROXMIRE, WIS., CHAIRMAN HARRISON A. WILLIAMS, JR., N.J. ALAN CRANSTON, CALIF. ADLAI E. STEVENSON. ILL. ROBERT DONALD PAUL S. DONA, r  MAFIGAN, N.C. - MICH. W. RS.F.erLE",-YR. SARLANES, MD.  JAKE GARN, UTAH JOHN TOWER. TEX, JOHN HEINZ, PA.  WILLIAM L. ARMSTRONG, COLO. NANCY LANDON KASSFBAUM, KANS. RICHARD G. LUGAR, !NO.  W. STEWART, ALA. PAUL E. TSONGAS, MASS.  'Unita ,•5tafez Zertale COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS  KENNETH A. MC LEAN, STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANCES DE LA PAVA, CHIEF CLERK  WASHINGTON, D.C.  20510  -  GUIDELINES FOR WITNESSES  1.  These guidelines apply to all hearings of the Senate Committee on Banking, Housing and Urban Affairs, unless otherwise indicated.  2.  All hearings will begin at 10 a.m. in Room 5302, Dirksen Senate 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 Senate Office Building, Washington, D.C. 20510. 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 i'ssues involved. Statements will not be released to the news media prior to the day of your testimony.  4.  3.  11111•1111r*  Oral presentations must be limited to a brief summary Your complete statement will not to exceed 10 in be printed in the hearing record. Please complete the attached card and bring it to Room 5300 prior to the hearing. You will be given copies or statements of those testifying with you at  the reporter's transcript Please supply the address to which you prefer delivered for your correction. Dirksen Office Building prior to Kindly turn this card in at Room 5300 giving your testimony.  ion is appreciated.  (Name)  (Organization)  (Phone)  (Business address)  111.111MIE.-  (City and State)  (ZIP Code)  AFFAIRS COMMITTEE SENATE RANKING.. HOUSING AND URBAN   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  30-545-h  GPO  17(1  1980  iichoraLat: . Pro;ziltire Chairman Coli....uittee Elan;dng, Lousing and Ural Affairs  urd Lea L;tatc.-s E,cnato v;a.sliiilsitoil, D.C. 20510  Dt2.ar Ca.ircnrrox-ntire: I aia :1:encliw..; you, in rc!3ronzo to your o.:.:rlior lette rs, an 4Interillz P,crort on the ?inancial Acts of the Silvcr .ar%et Iiituation in :Larl\r 1n'0." I thin]: tLat interim ner,ort fully and fairly rc:lcctz the infonaation available to us at thiL; kiLwevar, in coeration with otlxr agencics, are continuinT; to look at a nu;:abc.r of other azi- t-_:cto of Vic: situation includinti the fundarl:Lental juotion cr.: what can ';.)Q done to rxeve nt t:x.. occur. rcnce of thi InII;ay hind of evont in the Lutur e. One of th,:t conclusion of our inveL;tiation to date is that we can find no evitlence to i- uggost that Lank credit wa* ulbed in a. :1i';,nifical:t way L the ilunt interoFAG to finance the accuiition and maintonanee of tl:tir mazive t;ilve r ro:Ation durincl the k - erioC. in hich ailvcr 1..ricc1L; Ir.ore 2owover, it is ver:i. clear tat ;-..ricu of filver Lroke nhar-21y lower in late Junuary and tIlun ayain in arch, the nuntt; incurred oliationz well in excc.; of 1.5 billion, a zubstantial fraction of which wk.re financet."1, either directly or indirectly , 1Jy. dwzleotic kank credit. iU)out $DCO iuii1io of such ob1ir;atio n3 arc till out5tanding today de:itc the fact that the Kuntz; av2arently have had to liuidatc or d15i:sose of a considera'Lle auount of iilver and ccrt,::.in othcr aL:seto to i. teet olJli ationo. Thoi obli(jationL; that ur ti11outtandin7 are Cie debt liCiledulod toL retructured virtue of the highly publicized credit line of f1.1 Li11on hicl i .ti11 being ncqotiated a ,jrouv of docztic anta foreign Lank and the Elint intere;zt3. in that reciard, tno Interirl noort alzo nakcs it clear that this croait facility wa f.rc,ely initiated ana ner_Jotic2to d Loy tht Ilunt intereoL; and to iecau:3EJ each of the .42,arties  Or   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  lio.nuraLle revz.)  ' :3 : .4 •  •  ,50.(11 •  Utrkt ..   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  : -roxi.dro  felt that the ;?roectiv ,77: arremement vould strcnjthn their rer-ctIve .ine.fa 'iudr,mentg and the. credit jud.:JmerAts h.ir and, tiloir:; alone. , , , and the role of j t%A.t the rcdcra T.c4crve wac IL:Ate(' to clicusoion aimed at insurins, that tho loan would iwt i anj waye ticd in a way that would i.icaculation. At tici an zatir;ficd that a(!euate zafc.,;uards to that effact, which are referred to in a :Jeneral way in thc Intcrir, eport, will ne a iart of any final 'loan ar.;roc.-.1c,:nt. And, if al;d.whcn the credt fucility is eon;Aunl.:iated,I ii,i]. x:rovidc -eu 'iti viorc katailod infornation in that reyzird. Wu will ciu nforr:.cd af rctvicw arc.ian,Ilyziz or thi3  to the statu:: or our furthr  Lirxercl,  Sgagl k kisker  L,licluouru  EGC:pjt bcc; nro. 1,4al1ardi (2)  WILLIAM PROXMIRE. WIS.. CHAIRMAN HARRISON A. WILLIAMS, JR., NJ. ALAN CRANSTON, CALIF. ADLAI E. STEVENSON, ILL.. ROFERT monGAP4, N.C. DONALD W. RiFGLE, JR.. PAUL'S. SARRANES. MD. DONALD W. STEWART. ALA. PAUL E. TSONGAS, MASS.  •  JAKE GARN, UTAH JOHN TOWER. TEX. JOHN HEINZ, PA. WILLIAM L., ARMSTRONG, COLO. NANCY LANDON KASSFRAUM, KANS. RICHARD 0. LUGAR. IND.  Action assigned to Mreorrigan and Jack Ryan  /Unita)Zfatez Zenate  KENNETH A. MC LEAN, STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANCIS DE LA PAVA, CHIEF CLERK  COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS WASHINGTON. D.C.  20510  April 25, 1980  /  The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20551  1110016.•  Dear Mr. Chairman: This letter is a follow-up to my letter of April 17, 1980 to you and the other bank regulators in which I requested information relating to loans made by banks to Nelson Bunker Hunt, his associates, or brokerage houses involved with the Hunts, for the purchase of silver or silver futures contracts or in support of such purchases. This letter is prompted by the reports of a new line of bank credit of $800 million or more that major banks are establishing for the Hunts. My previous letter requested a list of the banks making the loans to the Hunts or the brokerage houses and the amount of the loans outstanding during March 1980. It now appears to me that more detailed information would be desirable both because of the complexity of the situation and the additional public interest in the events that transpired. Therefore, I would appreciate your assistance in getting the following information and any other information that you think is relevant to the recent events in the silver markets and the aftermath thereto:  (1) The names of the banks making loans, directly or indirectly, for the purchase of silver or silver futures contracts or to support such purchases to Nelson Bunker Hunt, his family or associates, the amount of the loans outstanding, the rate of interest being charged, the collateral placed in support of the loans, and the amount of loans made to each of the banks by any Federal Reserve bank discount window, and the discount rate charged. This information should be supplied on a weekly average basis for each week beginning with the week of January 14, 1980;  r- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •''  ' ".* • S• 04,t  S •  The Honorable Paul A. Volcker Prril 25, 1980 Page Two  (2) The names of the banks making loans to the Bache Group, Sons, Curtis, S. G. Edwards Paine Webber Jackson and any other brokerage house that you may know had outstanding loans to the Hunts for the purchase of silver or silver futures contracts or in support of such purchases, the total amount of loans outstanding to those brokerage houses, the amount of those loans that supported silver purchases, the rate3 of interest being charged on those loans,&the collateral placed in support of the loans. This information should be supplied on a weekly average basis for each week, beginning with the week of January 14, 1980. In addition, for those banks that are not included in (1) above, the amount of loans made to the banks in this list made by any Federal Reserve bank discount window and the rate charged for the loan; (3) The names of the banks that are participating in the new line of credit to the Hunts which was reported to be $800 million in total, the share of each bank in that line of credit, the collateral to support the loans when and if made, the amount of the commitment fee, and the interest rate to be applied to any loans. This information should be applied as soon as possible. Further, over the life of the credit line periodic reports should be supplied to the committee showing the used and unused portion, the rate of interest being paid on the used portion, the use of the discount window by the banks extending the credit and the discount rate being paid by those banks. As you are no doubt aware there is also concern among the Committcc members about the implementation of the Voluntary Special Credit Restraint Program and how these loans to the Hunts fit into that prwam. The loans being made to support the silver purchases, and to support an orderly transition during the aftermath of problems in that Aarket would appear to be at odds with the Federal Reserve's credit restraint program. Moreover, funds diverted for those loans ar unavailable for lending to small businesses, farmers, and the housing industry. It is incumbant upon the banks and the Federal Rescrve to make sure that every effort is made to maintain the availability of funds to those groups without access to other forms o;' financing. The banks in question here should be monitored very   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  szyt  • ; • iheieVE  I. •  -44,14,0110  S •  The Honorable Paul A. Volcker April 25, 1980 Page Three  closely to assure compliance with that objective. I expect the committee to be kept informed of the compliance with the credit restraint program by each of the banks in question. Your help in getting this information to the committee as quickly as possible is greatly appreciated. We plan to have hearings in May on this issue, but the availability of the information within a week or so would provide members of the committee with answers to questions they may have about this unfortunate series of events. By copy of this letter I am making a similar request for information to the Comptroller of the Currency and the Chairman of the Federal Deposit Insurance Corporation. I think it would be best if the coordination of this effort be handled by the Federal Reserve Board.  cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable John G. Heimann Comptroller of the Currency The Honorable Irvine H. Sprague Chairman, Federal Deposit Insurance Corp.  •  •  0  .••.  7.9-teti•.:*" 8;•314404. 441114 E.•-•—•• ' •  '  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  140 19U  The UunoraLle iUia roxmire Chairr..an Cok..aittee on Banking, Louil-t aud 6rbau Affairs United Statea focnate washiniiton, D.C. 20510 Dear Ciairman Proxmire I as: 4endinc :dou, in reupeuee to -.(41..tr earlier letters, az *Interim Aeport on the :inancial A2ct14 of the Silver Narket 3itu4tion in Larl 1930. I thinl. that Interi.L.4 :;B:ort fu13 and fairly reflects the information available to us at thiz However, we, in cooieratien with other ageneiec, are continuing to look at a numLer of otl,er asiects of ttle situation includin9 tl;k4 fundamental Itiz3tion of what can ixt done to :xcvent the occurreIxe of this unlir,y kind of *W141t in the future. One of the wajor couclusions of our inveativation to aat:44- ikA that we can find no evidence to suggest that 1an1;. credit u4icd in a significant wa y the Bunt inture.As to finance tioL, aci„uitsition and tLaintenance of their nassive silver position durin ti o rariod in i&ici si1v wero riainu. However, ric it 1.4 veri clear that when the l_rioe of ulIver 'broke sLarply lower in late Januar.., and then avain in .larch, the nunta incurre6 dliiiations well in eatc045 of ?1.5 billion, a sul:pstantial fracti.:.)n of 4icLwuru financed, eith‘t directly or indirectlyi by dowiei;tic „dank credit. About SJOG udllion of zuc oliligatione arcstill outatandin,3 today dlte tle fact that C.e aunts apparently have luld to lispidata or dis;oe of a considerable amount of ailver and certain other a4i7,-etz to mc;t olaiaations. T:kohie obli‘Ationu that are still outatanding are the dei,t1.= x,eetluled to be rtructured ley virtue of the Ughly publicised credit line of $1.1 uhtch i still beim!. negotiated IJ:k a •roul, of dol...eztic and foreilin 1..ankti and the Hunt interett14. In that reard, the Interim nefort also ;liakes it cliz.ar that ' credit facility was freell initiated and neejotiat4d / 1 2 thu awit interests and the banks--re4unat'ay xkecause each cf lartif  aonorablo  iUhia  Proware  felt that the ercective arramiement would stronjten their rel..0Active i.uraineuLi judvwents am!. the credit .ludweut ars theirs and tileirL alone. ;!1: role and the role of thc l'udtaal Loserve igra,, limited to dizcLuazion aimed at insurin-; tLat til‘ loan would not in an way uacd in u way that would 1ore aieeculation. At this joint, Iran zativfied that adev.ate aafciusres to t,sat effect, ulach arc seforred to in a Teueral way in tLolrtrL ci,ort, will he a i:art of ani' final loan at$roameLt. And, if ,a,:'#d wen tho credit facility is consumatiod, I will :rovidc dt'ou with or detailed information in Ltlat reard, rurvia  We tAI1 c'ti informed au to the statuf.; of our furt:..A..r and analio of this Eituation. Lincerely, Yokket  bcc;   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  nrs.L.dlarcii (2) vr  WILLIAM PROXMIRE. WIS., CHAIRMAN  #  HARRISON A. WILLIAMS. JR., N.J. ALAN CRANSTON. CALIF.  JOHN TOWER, TEX.  ADLAI E  STEVENSON. ILLROBERT MOI :AN. N C.  JOHN He':ha. PA.  DONALD ,e.  NANCY I...A NOON KA3 S F  RIEGLE.JR.. 1.41CH.  PAIR  4.. SARBANE1. MD. DOttALD.W. STEWART, ALA.  JAKE CIARN, UTAH  III  Action assigned to JallORyan  WILLIAM L. ARMSTRONG. COLO.  r! A um. (AN S.  RICHARD O. LUGAR, 540.  'ZCniteb ,T3fatez ,Toenate  PAUL E. TSONG.A.S. MASS. KENNETH A. MC LEAN, STAFF DIRECTOR M. DANNY WALL.. MINORITY  IRECTOR  MARY PRANCES DC LA PAVA, CHIEF CLERK  COMMITTEE ON BANKING, HOUSING. AND URBAN AFFAIRS WASHINGTON. D.C.  20510  April 17, 1980 The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman:  5  The Banking Committee is reviewing the adequacy of regulations dealing with the commodity futures trading and the possible need to restrict credit that is used for commodity speculation. This review is partially motivated by the recent wide fluctuation in commodity prices, especially in silver, and the possibility that such fluctuation could spill over into the financial markets. We are also concerned with the proliferation of futures contracts in financial assets, especially Treasury obligations. In our review of the fluctuations in silver prices, in both cash and futures markets, it appears that a substantial amount of hank credit was being utilized to finance positions in silver. It appears that some of these loans were made directly to parties holding positions in silver and some loans were made to securities firms that in turn made loans to their customers. I would appreciate your assistance in getting information about the banks involved in these transactions. In particular I would like to have a list of the state membe r banks that made loans, directly or indirectly, for the purchase of silver or silver futures contracts to Nelson Bunker Hunt, his family or associates, and the amount of such loans outstanding during March 1980. I would also like to have the names of the state member banks with loans outstanding to the Bache Group, Paine Webber Jackson Curtis, A. G. Edwards Fl Sons, and any other brokerage house that you may know had extended credit to the Hunt's for the purchase of silver or silver futures, and the total amount of loans made to those houses during March 1980 and whether or not the loans were made to support silver contracts.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .  April 17, 1980 Page Two  The Committee is planning to hold hearings on this issue in May. Therefore, I would appreciate your reply to this request. I have made a similar request of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation.  01.111111..-  Sincer  ire Chairman WP:srl   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  i.  tr"  ;for.  •••••••—   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  111 1e)SfN  The Honorable Uenry S. itev Chairwan Cwmittepa on Benkinel, and Urban Ufaira Houce of Reirewecntativem Waahirgton, 20515 1.e,74.7 Chairman r,euge: As I 1,romiectd you, I am encloeitr cur 'Interirn cloport t.1.0 financial aarecte of the recent Tfurt silver arl. tIon. Thin entire natter wall an unhapi.,. one in which sore major :inancial institutiona and the financial naekets Tenerally were tosted. It apreare that thc storw has t:-cen weathered without any 1::ormanent daLtale to those raarkets or instituteme. nut, I think it ia clear that we must turn our attention to an analysis; of what car and should be done, in law or resulation, to prevent a similar occurrence in the future. That is nreciaely what we, in cooperation with other agenciee, are doing and I will keer, you informed as to the status of those. effortr. Sincorely,  SZPaul A. voicket EncloAure  MC;rjt (#V-166) bcc. irs. nallardi (2)1/  I r11, 11V:I. ftruts, v1&. CHAIRMAN cip4AB L. AS KLEY. 01410 W11.1.1A/4 LMoOR HEAD,PA. WINAND .1. sr a ER MAIN, M.I. H ENRY L GONZAt ry roc.  )oarr).4 a. MINI8)4, P-RANK ANNIJTCLIO, ILL. JAMES M. KARLA-Y. N.Y. r AR REM .1. M ITCH Ell., MO. WA.LYER PAU NTROY. D.C. 6TE7,141:14 L. NEAL. N.C. /TDIURY U. PATTY:RS.0N. CALIF'. JAP4E111.11LANCXARD. bAICK GARR OLL. HU8AMD,.1111... KY. JOHN LArm.rx, FLY. LArrrs NOON arELI.A4AN. MD. Uri ALPCOIP1. oRDG. DAVID W.IYAR1, IND. Haft MAN I. rf AM OU MtKLEY N. LUND I HZ. N.Y. JOHN 1. CAVANAUGH. NEW% MARY Rose DAKAR. OHIO nm MATTOX. rrx. Pt R UCEP. VENT°, 041/04. 0000 SARKARD., !Arcs wATKIKa.0KLA.. ROBERT QARCUL N.Y. MICHAEL LOWRY. WASK  U.S. HOUSE OF' REPRESENTATIVES COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-Six-n.4 CONOFtESS 2129 RAYBURN Houst Orricz BuiLorma  WASHINGTON, D.C. 20515 •  NEWS RELEASE  2. WILLIAM STANTOK, OHIO CHALMERS P. WYLIE. OHIO STEWA.PPY I. McKIPocrr. COHN. 0[OR C KAN5t14. OAJ4Ø KENNY J. KYDE, ILL IUC:HARD KELLY rt.A. /114 LEACH. IOWA Mood-As a.(VANS,/IL. DC. 11. WILLIAM ORDEN. N.Y. PON PAUL.11DC. IALTNVIrt, ARK. NORMAN D. 8FIUMWAY. CALM C.ARR-OU_ A. cAmps DL., J/t.. 0014 RrTTER. PA. )0.4 HIRION, htlgs• VS.CtA7  FOR MEDIATE RELEASE THURSDAY, APRIL 24, 1980  REUSS CHALLENGES FEDERAL RESERVE ALLOCATION OF BANK CREDIT TO BAIL OUT SILVER SPECULATORS Chairman Henry S. Reuss of the House Committee on Banking, Finance and Urban Affairs today sent the attached telegram to the Federal Reserve Board:   A https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  FIJ-11 • " .„ .  .11'rc-?;fit' :— ::-.i.:.r-,7,:k'i/147.,-;.,s1 -1,.t,,.F4 .(?'•,-..,••'=;... :?.: : - ,-";',`7'''''Ors .,---•—• '4, :(-..,..?2:t..-! --1 ,p(-)e;i; , - .›..---?-ii.5': ...' = 7-kr . ---" '-  '... ' •  Ni .D :'  -  S 0 m  WIRE NO.  ion tz:t-.7.1,13r-qt--,0:---:::,-01,14-_--  • *WU  -' 4 ! 4:1 1 .4.' 4 .1'‘ P1'.  c  .1.•.. i.7 .7  ir. 7j  r.••-)p';:4 , ";-z-,...:-If i-ri.  0 PEG 0 PRESS 0 CO DE 0OVT ROUTING INDICATOR (PHONE OR TWXTTLX NO.)  0 INTER 0 INTL 0 INTRA 0 CAN 0 ALASKA 0 MEX  0 PMS 0 FON 0 INT  ,-f"-  :Ar.;."-\-.t,!,, .!i!,!`"=--Ir T'ef:';* ---:. 45fs7;4* -t;4‘.4 r ray4.40; ' 5.-:;',7,)•-s'-' !:-.1 1-  0 FR 0 NL 0 LT  0 TWX 0 TLX 0 ICS  BR. ID.  0 CPA 0 NPR 0 POM  %-il''.-- 4r<1.'• s.,-c.-.44, ,*-,--,, e-,i.s.i..,-1-,, a,-:-N,i  POINT OF OhIGIN  •c-,;1 ; • -,'. %\-f . i e  -- •  IA  „..,  WORD CNT.  FILE TIME  DATE  '  4/24/8) ,  0 COLLECT  ' <=  0 RPDLRS  .  NAME TO  DLY INSTR. •  BOARD OF GOVERNORS  - **  j,r1;  0 DLR 0 CC DLR CC  •  .  •  •  Federal Reserve Sys o  •  .  i  STREET ADDRESS • CITY, STATE, ZIP OR COUNTRY  Washington  D. C.  (E0A)  1. According to press accounts, the Federal Reserve at a meeting with America's major banks and Nelson Bunker Hunt at Boca Raton, Florida on Saturday, March 29, approved bank loans by major banks of $800 million to the Hunt Brothers to repay brokers' loans made to the Hunts in order to enable them to corner the silver market. 2. The $800 million bank loans appear to be in clear violation of the Federal Reserve's directive of September, 1979, repeated as part of the • President's credit control measure of March 19, 1980, against bank lending for commodity speculation. . 3. On March 20, 1980, I formally requested that the Federal 'Reserve keep the Congressional Banking Committees currently informed on activities by each of the nation's major banks in financing commodity speculation. The Federal Reserve has so far refused to supply this information. . 4. Now the Congressional Banking Committees are informed of what went on at the secret meeting in Boca Raton on March 29, but by enterprising reporters rather than by the monetary authorities of whom the information' was requested. 5. I vigorously disapprove of the Federal Reserve's March 29 action in allocating credit to bail out the brokers who participated in the silver speculation scheme. The evidence indicates that major banks had earlier aided the.Hunts' attempt to corner silver through loans laundered by the Bache Brokerage. Then after the silver bubble burst on March 27, comes this additional $800 million credit allocation. , 6. Such credit allocations -- in favor of speculation -- are particularly unfair at a time when the nation's homebuiling industry is in a<arijuas. sr) ISM  SIGNATURE  COL  SENDER'S NAME  /  STREET ADDRESS  •  . . /  C:TY,STATE, ZIP  (EOM) / 0 PD 0 COLLECT 001P .-..-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  TEL. OR ACCT. NO.  I  C,IVA  nRc?d7  / OPER. / 0 OTC SIGN. 0 MPU  -  0 WUX 0 FAX  / <-7-RATING CODE .  AGENCY . I.D. ) <= I  •  •  •  •  ._ f.E.'-'• T . ..) , --- ^: ix os- •• •-.- ,..,.;,; ,r.-i.....— - .-1.7' t . . it..7-% "...'", : :::-. . C%..._*s......;. i e.., , .c ...... '.24 ,.-_,,m,;° 0,",--''. - A t"....;:."- r.t;t• .-. ;... 'N . 41 -7) : 15 .....7n V.:7-t,••1`,4•. ..!:".Q.C.."'"--• ;..: . rtl:::t vt745, 4 J1 :. .,' :.•r..:...__4-•,.:"...--4-:;( .,g1 • i"" ‘`.`'r $ ; ".N1 '% `0•• • • 31 0 :1 le L-1 :‘...-2,:r .-t.....:<.•_.;_ft..,71 z•:."`..- ..7,..'t..,-; .-, r..r,-....'‹: 4"..... r- i'.14 -..11, •`•:- 4.t,174 0 4 ,./..:0 •  , .:W1"25: 4 ' •.. i I r  S 0 M  WIRE NO.  .  0 INTER 0 INTL 0 INTRA 0 CAN 0 ALASKA 0 MEX  0 PMS 0 FON DINT  OR. ID.  DREG 0 PRESS 0 CODE  0 DPR 0 NPR 0 POM  0 FR 0 NL 0 LT  WORD CNT.  DATE  FILE TIME <7:  ROUTING INDICATOR (PHONE OR TWX/TLX NO.)  0 TWX 0 TLX 0 IC-S  POINT OF ORIGIN  1  r° 4":‘'• '- ,-- i•  '''''," : *'-''Lli.. 'll.4511:t•L'.4--"i:*C'sVI (" r' ??.4 4" 'eV> t.'-;.°- c-i-?, __-• , • -A1-s--Ad.li>". -0.:_&.t.t )r, , - ..-1,,IPP-1act:?.?.:SIV.Vi liti--. ''"'-I.•-f• ''e,L, ,C. -- •  hi ~woo .  • f.'"C .t4 I-s:  _  0 COLLECT '  -  0 RPDLRS  .  NAME TO  _ •  • ,  DLY INSTR.  0 DLR0 CC DLR 0 CC  . •  •  -  <=1  .  STREET ADDRESS <77 " CITY, STATE, ZIP OR COUNTRY i  .  _  (E0A)<=  Page 2  .  situation through lack of credit. Within the last few days the Administration has given the housing industry a $135 million crumb in the form of unexpended Section 235 appropriations. This compares poorly with the $800 million credit allocation just made to the brokers participating in the Hunt scheme. 7. Those who participated in the Boca Raton meeting are quoted as defending their action on the ground that without the $800 million bank credit, brokerages might have failed. I would like to see the evidence of this. More, wouldn't it be a salutary thing if a broker or two who was involved in betraying the country's anti-inflation program were allowed to fail, as an example to others? . 8. The March 14 credit control program has .been seriously compromised by the March 29 action. How can a small bank in good conscience be asked to hold its loans within the guidelines on bank lending, and to avoid speculative loans, when the monetary authorities collaborate with the big banks in this kind of proscribed conduct? . 9. The House Banking Committee intends to exploreat in depth hearings the Federal Reserve's participation in the March 29 meeting. Until then, I request that the Federal Reserve not engage in further Boca Raton-type operations without prior consultation on a bi-partisan basis, with the Congressional Banking Committees, ,  SIGNATURE  SENDER'S NAME  Henry S. Reuss ,_ Chairman . House Committee on Banking, Finance and UrbaEAfTtitg)s , COL • /  STREET ADDRESS  /  CITY, STATE, ZIP  (EOM) /<=  o  0 COLLECT OTR (OTHER) O   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  TEL. OR ACCT. NO.  OPER./ O OTC SIGN. O MPU O TEL  o WUX O FAX O TLX  RATING CODE  AGENCY I.D.  )<   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  19, 1980  T'iRonoralao Johz C. Culver .- ;nitea State Senete 20510 WaaLiw)ton, Z.C. S9.1;nater Culver. I ean1u11 aprociate nr under:,itzune! your concerns itout t recw.lt chain of avents fjrcniim: out of the affairs of the uit related to the silver market aneI can assure you that I have no tuora sllapatY% for 'their situation than you have. / think you are also aware, through our respective staffs, that we have been woxkinq on an 4Interita teort on the financial asl-ecta of the episode which I am rleage to qrclose for your inforllation. 1 ilelievtl that the "Intori Per,ert makee it very clear that the loan in luvstion was negotiated entirely ty wrivate partic4 in a framew0r1( in wtich both tbe.creditors and the debtors perceived that the nrovp.ective credit facility would strengthen their re*._pective positions. neither I, nor anyone in the rederal neservo or the vernnleut nor* rIcnerally, initiated, Iuided or alTroved the credit facility--ui.ich is still beinct nevotiated. As indicattad in the "Interim reeport' ny sole concern has been to ensure that the credit facility was structured in such a as to present furtlx,r s•oculation and to ensure that ttle Hunts' remaininfl ailver ul e licuidated in an orderly fal3hion. At this tiral, anif. as indicated in tlAt "interim wort." T. am satisfied that the loan aqrear.ent will provide adequate assurances on both of theao counts. P,,2)1, we will be in a pOsition to monitor events in t!lose regards over the cominr,7 weeks and monthz. I have reviet(ed the ::ueations submitted vitb 'our letter and I believu most of the are answered in the Naterials which I am forwardinf) to you. The possible exceptions, an .1 see it, are -aueations 9 through 13 which, in the context of tlic actual chain of event, take on a somewhat different meanir17. than ia inw-lied in the fluentiono themselves.  The Uonoratle John C. Culver Pale Two  nor* srecifically, and as the "Interim rerore indicates, virtually all of ele loans in question were made in rehruary and ,4rc!. and at the time the Federal Reserve waz unaware of the fact . that they wore bein9 alade. In the normal course of events, loans would come to our attention only in an ox-post fashion via the hank exzx:ination ?rocess. In retrozt/ect, the volume of loans involvee. iz kluch that they may have had some marqinal impact on the cost and availability of credit t-iere enerally. Even new, however, I am not in a position to luantify any such effects but the timins and magnitude of the loans leagas pue to the eor. elusion that an.y *uch effects were nlic,Tht. naving said that, I an not sure that / can be equally as zan„-mine &bout the direct 4E4 indirect effecta on inflation and interetA rates arisinl froa the 41enern1 outburst of conmodity :peculation In 1971 and early 1980. IntIocld, that ::.mrt! fNnernlized phonoLlenon—including Mantu- eenonstratos all too vividly tho role 1.-1aa4i in it h7 the kinds of distortionb and exceuse associated with unctlecked inflation. *inia !taw Also asked if thczo natters were discussed  pith anyone in ti:e txecutive Office of the President. The direct answer on ny art ig 'no,* but the situation was discud With Secretary 1 iller and Deputy Secretary Carsvell of the Troaaury as well os ot!tern in government. Thus, it is traits possible that officials in the rxacutive f”r.fice of the Presieent were aware of the events.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  atter was an I share your view that thil'/ entir unhapry one in which caonlie tbajor financinl institutiont% and the financial markets generally were tasted. It ar7,ears that the storm :las Leen weathered without any vernanent danal:o to thoue markets or inatitutima. rut, I thin' it ill clear that we must turn our attention to an analyclu of what can and should be done, 4 ;rovent a einilar occurrence in the futv, La lav or re,Tulation, to -' That is :‘riocio17 what we, in cooperation with other atlenciee, are doing anZ X will keap you infortalt: aa to the status of Choee efforts. sincerely, SZPagl A. liogim Enclosure ECCspjt (I1V-167) boa: Mrs. nallardi  JOHN C. CULVER  Action assigned Mr. Corrig.  IOWA  ARMED SERVICES ENVIRONMENT AND PUBLIC WORKS JUDICIARY SELECT COMMITTEE ON SMALL BUSINESS  9-.1Cnifeb Ztafez  6  WASHINGTON. DC.  20510  April 24, 1980  The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System 20th & Constitution Avenue NW Washington, D.C. 20551 Dear Mr. Chairman: An article on the front page of today's Washington Post indicates that the Federal Reserve Board and several of the leading banks in the country met privately in Boca Raton, Florida to make an unprecedentedly large loan to the Hunt family interests in order to cover their speculation in the silver market. The story, if true, is particularly disturbing in that special efforts of this nature would be made to support the speculation of two billionaire brothers while small businessmen and farmers have been unable to obtain capital for productive ventures or for planting crops because of the restrictions which have been imposed on credit. These alleged actions are directly contrary to both the stated policies of the Federal Reserve and President Carter's credit control program of March 14, 1980. While I can appreciate the concern of the Federal Reserve Board and its member banks in preventing a financial panic which could have resulted from the decline in the silver market, it would appear that the primary beneficiaries of the reported $800 million loan are the Hunt brothers who are able to retain their holdings and have the opportunity to recoup the losses incurred as a result of their speculation.  ••••••••••---  1,  • •  •  Following my testimony in opposition to a candidate for the Federal Reserve Board, the Board last week finally demonstrated responsiveness to the agricultural credit crisis in our state by opening the discount window to small rural banks. However, the allegation that assistance being directed to two billionaire brothers   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  imt.•  ‘••••I•1111••  ••••  THE HONORABLE PAUL A. VOLCKER APRIL 24, 1980 PAGE TWO  almost equalled the total commitment to all small rural banks, if true, reflects insensitivity to the backbone of America's economy, its small businesses and farms. The reports of the actions by the Fed and its member banks raise numerous questions about the nature of the transaction and the restrictions, if any, which may have been placed on the Hunts regarding future speculative actions. I believe it is essential that the Congress and the public have the benefit of your thinking on the effect of granting this line of credit, as well as the potential effect of not granting it.  Laas•.—  I have included with my letter several questions regarding the nature of the Hunt loan to which I would appreciate an early response. It is particularly disturbing that this incident occurred at a time when small businessmen, homebuilders and farmers were unable to obtain necessary assistance to avoid going under, in part as a result of the Federal Reserve Board's tight money policy. The approval of a loan to finance the speculation of billionaire special interests, if true, only underscores the need for greater diversity in the representation of geographical and agricultural interests. The Boca Raton meeting and the resulting loans carry all of the characteristics of a policy which favors rich special interests at the expense of the great majority of other Americans. Sincerely,  OHN C. CULVER JCC:jhd Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Pft.;•-•  Sr-4.; /iv+ • .•  ••  .6  YIN*  1.  Did you or any member of the Board of Governors of the Federal Reserve System participate in a meeting or meetings with representatives of the banking industry to discuss bank loans to the financially troubled Hunt family or to businesses or corporations owned by the Hunt family?  2.  Did such discussions occur at a meeting of the Reserve Bankers Association?  3.  Did any staff of the Federal Reserve Board participate in any such meetings?  4.  Where and when did these meetings occur?  5.  At whose suggestions did these meetings take place, Federal Reserve staff, broker4ige houses, bankers, or the Hunt family? Please provide the names of people attending the meetings and the interest they represented.  7.  Were the loans discussed at these meetings considered to be speculative in nature?  8.  Was the money used for these loans borrowed from the Federal Reserve's discount window?  9.  At the time of the meeting, was it your judgment that such massive loans would have an effect on national interest rates?  10.  Is it your judgment that they have had any such effect?  11.  At the time of the meeting, was it your judgment that such massive loans would have an effect on the availability of credit to other borrowers?  12.  In your judgment, has it had such an effect?  13.  Did any commitments maae at these meetings delay the Fed's decision to discount the loan rate to small banks so that the small banks could reloan the money to small businesses and farmers?  14.  Were appropriate interest rates for the speculative loans discussed at the meetings? What interest rates were discussed? What were the actual interest rates of the loan commitments?  • 15.  Were any conditions to be placed on the loans discussed at the meetings? What conditions were discussed? What conditions were placed on the loans?  16.  Were any conditions to be placed on the loans which would inhibit future silver spec2ulation discussed at the meeting?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  17.  Did you discuss; this issue or these loans with anyone in the Exocutive Office of the President?  it:..  On March 14th and 15th when you announced the Federal ReserVe's program to make credit available to small business and farmers, did you anticipate the need to divert such a huge amount of capital to the speculative market?  19.  Did the Hunt family have sufficient collateral to back up their speculative purchases without the bank loans discussed at the meetings? Why wasn't any collateral available used up before any speculative loans were secured?  20.  e p ro id e Poleaan co mm tme n t  21.  Were the loan commitments extended to the Hunt family directly, or to one of their corporate holdings? To whom were the commitments made? Did the Placid Oil Company receive any of these loan commitments?  22.  Of the $800 million line of credit reportedly extended to the Hunts, how much has been obligated? To whom have these payments been made? Will the entire $800 million be necessary to meet the obligations to the various parties involved? What assurance has the Board received that this line of credit will not be used for any other personal or corporate Hunt interests?  23.  How many banks were involved in the loan commitments to the Hunt family?  24.  Did any meetings which did occu comply with the conditions of the Sunshine Act, P.L. 94-409?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 16.  t of athoe b nk s i n vo lv n the each b an  in on t rmibuted  .the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Uc rable Dohald w. Stewart CLairman ttee on Mricultural nesearo and Centeral Levislation Committee on Agriculture, Ntltrition and Forestry United States Senate Washincton, D.C. 20510 Dear Chairman Stewart. In lix,Lt or your .', .i.)corvnittae,'.1 tecont hearinf : . on the Hunt-ailver situation, 1. thout you ',vould e intornbted in bovi the enclosed Intttrim 7:0T:ort- on tha financial aL;-octl; of that 4ituation, I think the rel-cort iiihelr to clarify mme of tile factual incues that arose in your hearings,  Az the  "Interin report' indicates, we have not; turnoa much of or :Ittention to the r,ore 1.)aslc questions at to 1-t1 the whole aituation arose in the fir4A inztnnce an what done to ilrevent a similar proLlan in the future. We vill keep you inforned. Cincerely 0 Sgag.I Yggnia Enclosure EGC:pjt bcc: Mrs. nallardi (2)  IC   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Kcnora3.1t1 Jin Chair Steisw4ttate on InterT,overm7ntal  RelationA Comlittao on 'rovern.zenttl United States Zenate 20S10 waabinton, D.C. Dear Chairman Sa,hiser: 1 can fully approciato and unlorstand your concerns about the recent chain of events srowin.! out of the affairs of the Runts related to tho cilver marYet and I can assure you that I have no more sympathy for their situation than you have. I think you also know, through our respective staffs, that wo have been workinq on an *Interim Report on the financial aspects of the episode which I am pleasea to enclose for your information. Leliovo that the "Interim noport" sakes it vcry clear that the loan in question was ne:jotiated entirely lyy private parties in a framework in which t-oth the creditors awl the debtors perceived that the Trospective crelit facility would strengthen their respective rositions. Neither I, nor anyone in the Federal Reserve or C.:,e goverment mere genctrally, initiated, guided or apvroved the cr(lit facility —which is nert^ still beinu negotiated. As indicated in the /nterilin wy sole concern has been to ensure tLat the credit facility wax structured in 5uch a vay as to :sent furtIler speculation arse to ensure tIlat t;le Runts remaining silver would he licluidated in an orderly fashion. rtt this time, and ay indiort," I am satisfied that the loan cated in the 'Intori agreeent will provide adetluate ansurances on both of these counts. .7'ind, we will o in a no*ition to monitor events in thcao regards over the coming weoM1 and nonthv. share jour view that thlin entire L,atter was an unhappy one in whicI\ sone mapr financial institutions and the financial markets generally were tcsted. It arpearf that the storm has lAten wcatianned without an, :isrmanent damage to   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The honorable j Pave 17,640  Zacaer  those markets or inotitution%. Dut, I thin it ig clear t'Aett we IvaLA turn our attention to an analysis of thilat can anAhuti be aona, in law or rolulation* to prevent a mimilar occurrence in tho future. That in Irociuely what we, in cooperation with othor agencies, are doin:; andI will keep vou inrorned as to the statuz of those efforts.  Wale A. Nos Enclaf4urc EGC:rjt (0V-173) bcc: Nrs.  ABRAHAM RISICOFP. CONN HENRY M. JACKSON, WASH. THOMAS r. EAGL ETON. MO. LAWTON CHILES, rLA. SAM NUNN, GA. JOHN GLENN. OHIO JIM SASSER, TENN. DAVID PRYOR, ARK. CARL LEVIN, MICH.  Action assigned Mr. CorrOn with infosu . c pczy to Mr. Ryan  CHAIRMAN  CHARLES H. PERCY. ILL. JACOB K. JAVITS, N.Y. WILLIAM V. ROTH. JR.. DEL.. TED STEVI-NS, ALASKA CHARLES MC C. MATHIAS, JR., MD. JOHN C. DANIORTH, MO. WILLIAM 5. COMM MAIN( DAVID CAJPIENSERGER. MINN.  PlICHARD A. WICIMAN CHIEF COUNSEL AKIO STAFF DIRECTOR  JIM SASSIER, TENN... CHAIRMAN LAWTON CHILES. Pi-A. JOHN GLENN. OHIO SAM NUNN, OA.  WILLIAM V. ROTH, JR.. DEL. DAVID DUREANDIERGER, MINN. JOHN C. DANFORTH. MO. JOHN  CALJ-AHAN ST wry DIRECTOR  'AlCrtifeb ,Sfafez ,Senafe COMMITTEE ON GOVERNMENTAL AFFAIRS SUBCOMMITTEE ON INTERGOVERNMENTAL RELATIONS (202) 224-4713  ,  WASHINGTON. D.C. 20310  April 24, 1980 Chairman Paul A. Volcker The Board of Governors of the Federal Reserve System 20th and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Chairman Volcker: It has recently been reported that with your personal concurrence, loans totalling over $800 million have and will be made to the Hunt family to allow them to cushion their financial losses in their recent speculative effort to corner the silver market. I am most disturbed by the fact that the nation's financial community has seen fit to extend the Hunt family this staggering amount of credit while daily farmers, homebuilders, and small businessmen are going out of business because of high interest rates. I would appreciate a full and complete report on the events that led up to your approval of this extension of credit to the Hunt family together with an explanation of the authority on which you relied to approve these loan commitments to the Hunt family. Finally, I would appreciate your explanation of why this commitment occurred in light of the Federal Reserve Board admonition of March 14 to member banks to stop making loans to speculative business ventures. This nation is in an unparalleled credit squeeze, and I think that all those that are being denied credit deserve a full explanation of this most unusual action in approving this massive loan to the Hunt family.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I await your immediate response to this inquiry. With best regards, I am /ncerely  im ass hairman, Subcommittee on Intergovernmental Relations  1,  /   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  :1A  V, 17)8(2  The Foswr.5.!:-le 7-armn w. ttc11 CLairrairs 513Lcouittao &A Doue‘tic CoLusittee c4a Bstlkinc•rinance and Crt?an Alfairt4 of lit*rosentatives Ite,shlrAir2tonf LC, 20515 Lear Cheirnan Kitchell: Thank you for your Uttar of 74vil 2S invitinl the iloard to rartic1pat4 your SuboommittatOo lioaringa on Crodlt Neods. of tnner-City ttinority Cornuaties. ..overncr :547;ard oa Thtiry j  Teetecs? will aprttar on le ;- .aif ,f J at 10;CO a.a4 Cincorelvi, SgaulA.Voickbt  CO;pjt (fV-182) bcc: C,ov, Tecten. hr Zoir  fARREN J. MITCHEL L. MD., CHAIRMAN STEPHEN L. NEAL. N C. NORMAN E. OAMOURS. NH. DOUG BARNARD, GA. „. JIM MATTOX, TEX. JOHN J. CAVANAUGH. NEBR. 225 7315  GEORGE HANSEN IDAHO RON PAUL, TEX. DON 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  April 28, 1980  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: On April 17, the Federal Reserve Board announced "a temporary seasonal credit program that is designed to help small banks under liquidity pressures meet the credit needs of their communities." Under this program, which implements provisions of the "Monetary Control Act of 1980," the discount facilities of the Federal Reserve Banks will be made available to "small" banks --member and non-member-- to enable and encourage them "to meet the ordinary continuing or seasonal needs of their established local customers, taking account of the special needs of small business, farmers and others." However, access to the System's discount facilities would be "generally limited to banks with deposits of less than $100 million." Further, to qualify for assistance, a bank would have to have a loan-gross deposit ratio of 68 percent. Unfortunately, the announced limitations make it virtually certain that innercity minority communities will not be helped by the program. In particular, innercity minority communities generally are serviced by branches of banks with deposits far in excess of $100 million. And small banks that service inner-city minority communities, including minority owned banks, generally have loan-gross deposit ratios far below 68 percent. I am sure that you will agree that ways must be found to assure that the continuing and seasonal credit needs of minority communities are met. The "ways" need not, and in my opinion should not be limited to Federal Reserve actions. However, the Federal Reserve definitely has a role to play. Moreover, the Federal Reserve can provide constructive advice on what might be done by other government agencies and the private sector. To bring the issue into view and to explore ways of getting the job done, the Subcommittee on Domestic Monetary Policy will hold hearings on "Meeting the Credit Needs of Inner-City Minority Communities" beginning next month. The first day of these hearings is scheduled for May 20. We would greatly appreciate receiving the Board's views on the matter on that day either from you, or if your schedule does not permit, from Vice-Chairman Schultz or any other Governor you may wish to delegate to present the Board's views. I am especially anxious to hear how the Board's "more permanent guidelines" for operating the System's discount facilities, which are to be put in place by July 1, will amend the temporary program announced on April 17 so that inner-city minority communities can   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -..  •  The Honorable Paul A. Vo4106r Page Two Avid] 28, 1980 benefit fully from the "Monetary Control Act of 1980."  The hearings will begin at 9:30 A.M. and will be held in Room 2128 Rayburn House Office Building. I would appreciate your early consideration of this request and look forward to receiving the Board's views. Sincerely, bi(./ if/ e/e// 04-r-a41 ( Pa ren J. Mitchell, Chairman Subcommittee on Domestic Monetary Policy PJM/rw:jb   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  '  4  .4j..  —04 7V..1rXwit.  i.C.  Cs  2f), 1S80  4,inisgh  20!".1:-  iAzar .r. Thank you for -l our letter of April 21, forwardinv from Lowenteiti, atIndler, Broe.in, Kohl; Fier and a lett Soylan, attorneye on 1;e1malf of shank looatdC in your rlistriet. Thc..., letter reuested that the Board conatrue ?:onetary Control Act of 1.90 to ;lean that any bank that filed its wit &revel application before July 1, 17 ill be deemod a nonmember I'mTh for purposes of tha transition provicione of the ;set. On Ayril 23, 1980, tho Doar3 adopted a re-rulation inter,reting the tranzition yroviziona of the Yoonetar7 Control Act. The interpretation provides that a State member ban will 'alb treated e a nonmeatier bank if it Federal reserve Bank received notice of the Jecimion of the ben;,is board of director* to withdraw from semberahil,- 1;rior to July 1; 1979. Tbe Federal .orerve Dftvli or Wow York marts that the amlication to withdraw by the it Compan of :=ev :ort-ey was roceived on varch 30, 1979. Therefore, that bank will be treated as a non-member for purro4es (If the transition croviaions of the -f,onetary Control Act. Sincerely,  J:IL,.CO:pjt (IV-162) bcc: Jim Brundy Nrc. 1:a1lardi (2)  •  JO-glEPH,G. MINISH, N.J.. CHAIRMAN  * Action assigned Mr. Axilrod  •  HENRY B. GONZALEZ. TEX. FRANK ANNUNZIO. ILL. • CARROLL HUBBARD. JR.. KY. PARREN J. MITCHELL. MO. STEPHEN L. NEAL. N.C. DOUG BARNARD. GA. WALTER E. FAUNTROY, D.C. DOB LOFTUS, STAFF DIRECTOR   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CARROLL A. CAMPBELL. JR.. S.C. JON HINSON. MISS.  U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON GENERAL OVERSIGHT AND RENEGOTIATION OF THE  Trt_rrt4op4t 225 2828  S. WILLIAM GREEN. N.Y. RON PAUL, TEX.  COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS NINETY-SIXTH CONGRESS  WASHINGTON, D.C.  20515  it/61-  April 21, 1980  Honorable Paul Volcker Chairman, Board of Governors Federal Reserve System 20th Street and Constitution Ave N W Washington, D. C. 20551  Dear Mr. Chairman:  I would appreciate your comments and advice with regard to the attached letter I have received from a constituent. With kindest personal regards, I am  Sincerely,  eph G. Minish Nairman  •  • ...Sr.  • •••  I• •  .r • ••  ••  LOWENSTEIN, SANDLER, BROCHIN. KOHL, FISHER  ••••••••.‘ro•N•11.1116/111046•SA Aria  BOYLAN  A PROFESSIONAL CORPORATION  ALAN V LOWENSTEIN RICHARD H SANDLER HURRY 0 BROCHIN BENEDtcr m KOHL  744 BROAD STREET NEWARK, N. J. 07102  ARNOLD FISHER JOSEPH LEv00, STEINBERG  TELEPHONE 201 6:4 4600  JOSEPH H. rINNIN THEODORE V. WELLS. JR. DAVID B Avi000P  RICHARD ID wILK,NSON ALAN wOVSANIKER  MARTIN P. GOODMAN  PHILIP ROSENBACH  JOHN D. SCHUPPER STEPHEN N. 0ERMER WILLIAM T. KNO*  RONALD H JANIS LEE HILLES wERTHEIM  GERALD K ROvKTIN ROBIN A. ROLFE  MATTHEW P. BOYLAN BRUCE 0 SHOULSON JOHN R. M.cKAT 2^0  KENNETH J SLUTS' MAUREEN E. GARDE DAVID L. HARRIS MARY K. SANDERSON  nz  MICHAEL L. RODBURG ALLEN B. LEVITHAN P . BARRY STIGER  FREDA L. WOLFSON  GREGORY B. REILLY ROGER A LOWENSTEIN DAVID W. HILLS pi:TER H. EHRENBERG   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  A.+•.....4.2S•SW.• •  REFER TO FILE NO.  April 10, 1980 The Honorable Joseph G. Minish 2162 Rayburn Building 20515 Washington, D. C. Dear Congressman Minish: We represent The Trust Company of New Jersey which is seriously affected by the impact of the Depository Institutions Deregulation and Monetary Control Act of 1980 in regard to the reserve requirements specified in Title I which is designated the Monetary Control Act of 1980. The Trust Company is a New Jersey bank which filed its application to withdraw from the Federal Reserve System on March 30, 1979, but the withdrawal did not become effective until January 21, 1980. Non-member banks of the Federal Reserve System, as you know, are required to maintain reserves on an increasingly graduated basis over eight years, but subparagraph (D)(1) of the definitions provisions relating to reserve requirements states that "Any bank which was a member bank on July 1, 1979, and which withdraws from membership in the Federal Reserve System during the period beginning on July 1, 1979, and ending on the day before the date of the enactment" of the ,w law "shall maintain res,!rvos beginning on ncL. such date of enactment in an amount equal to the amount of reserves it would have been required to maintain if it had been a member bank on such date of enactment." There are approximately forty-five banks in the United States, of which perhaps thirty are quite small, which withdrew from the Federal Reserve System after July 1, 1979. They feel strongly prejudiced by the fact that they do not have the benefit of a graduated requirement for increasing  A•   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Joseph G. Minish  April 10, 1980 Page 2  their reserves in the same fashion as do banks which previously withdrew from the Federal Reserve System or which were never part of the Federal Reserve System prior to July 1, 1979. In the case of The Trust Company of New Jersey, it is extremely important that it have the benefit of the graduated reserve requirement in order that its capital structure can be strengthened in the period immediately ahead. I believe that the Board of Governors of the Federal Reserve System is preparing regulations to implement the Monetary Control Act of 1980 in regard to reserve requirements and is concerned that there be no attack in the courts on the statutory provision which singles out for special unfavorable treatment banks which withdrew from Federal Reserve System membership during a matter of months before the enactment of the new law. Such regulations could construe the statute to mean that any bank which filed its withdrawal application before July 1, 1979 shall not be deemed under the provisions of subparagraph (D)(i) of the new act. This is certainly an appropriate construction in view of the fact that there must be a six-month waiting period following the filing of an application for withdrawal from Federal Reserve membership before such withdrawal can become effective. Furthermore, the statutory language with reference to "any bank . . . which withdraws from membership" probably could be construed to mean any bank which files its application for withdrawal from membership. We understand that there is a probability that the Federal Reserve Board will so construe the statute in its new regulations. The Trust Company of New Jersey would greatly appreciate your communicating directly with Chairman Paul A. Volcker to urge that the new regulations so construe the statute and thereby avoid arbitrary and adverse discrimination against forty-five banks. To do so would have no measurable impact upon the Federal Reserve's ability to control the monetary supply. Sincorely, / AVL:ldl  (/   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ex.,44 t.et 411°..sed to us‘ one jut-4444 of gal:Ira:, eroduotiou trW,N.7t,tLi rtcoX ?zld reduoo ban, 44,11.1edit. Icudiri oaciL L.4at =aunt of t..1:tt rodisc-tiDio 411 t1:.a oancwArotiol:. or it aslxouJ fn faryi 47, 4artsuatie4 to Incr%ace 04114 the 7odora1 nesorve toarl if; t,letht‘tic, the Laaio *Irjective of thi.:;. ;rizq, cit,a.1, 40 believa that 4ffor4-1 to direct tha flov of oxotat to !.-articulAr mactort shoulk, Ieassally Ita avt. and that suet; wicouragements that arQ -loomed neesseary thould be structured to rely to the Ireat*-(=teat ;, 4tatible oa the basket ',;lechatil. kooins with t. Ci L' 1 the Board ostab1iche4 in 1173 4 ueagonal Ai$1:10nnt ;:g;Trty4111 ,r1vilevoi throwp tLx. 474-141.1 rural Ninke cert iktair tunda in ridioo-:,mition of thOt Itaited scceas to nati*v31 mow z4rgeta. Zia 'Waste smasonal borrowial iiLttywas .mazted last Aosth k42.! a tavst;horavi ropa*.onal (=cat ..rotman aa a X4244-“MAO .Loth to the sevoraXii4ity1%ratumr5a %lain") exl-Atri tlacod ;zy '41as. : 7 rural tzaak..% and t4 recent lecitilatiQn ttroadanin4.2 ACOV44 to the 1,edsral lower,* dizovent window, 'rho letaaa of this rot.,:04 ere coutaiteil Le the itnclot4od 7ve1UL release 4af tii:;4.;.1 17. Throult these 1.-roirakt.t.. 1-ankg cAn atain sdditional financirl in order te satiety the. le,Iltizato credit *Awl& of farmers. The -;Iala nustiosto4y y*ur conatituont also presents i.-21444mt tior :tortot,t4 control. within tbo ...Kmuularies 1 speclrf^-. ttAo Voard has 'let romerve requirstkents for Ln varimig of 0",-At-tIsm3t 4n1 r.-lasmg:v of IP,anks at levels that  tn..1?Lo izto agssount tf ncfaa te) trixrcihs (trol avivr , Ireyvth of tlAe rt4netst7 4iggro9etv. T:At coti.itnuc.;: in t!. 3o. rotjtirtic jr,estly aids& in toil al.lort rult lients. Your cotiztitInt's rorowilai I*440,4 introeucel rlactvation3 , a& in rer;uired reuarvcs that uould alf7rewatia the alrfy, tatA of acUiervinl tlAo mosetect 'south rates &mired' rodera1 Open liarkot CorAittote. We these essissata will vrove useful to iou. c1in,* recent staff ana17isi, of conditions at rural am also whict 10U ay find el interest• Sincerely, Wall A.ifolcke  EAC104=e04  ! Conditionu one rat= financial Trends (Rural ZamLinc) by )manuel melichar ate,. 3/27/1 0.)  EX4rFNeK.LW:41LX.pjt (V-171) bcc, lUalingt ix. -cKelvey r.%elichAr 'allardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action assigned Mr. Kichline RitHARD A. GEPHARDT 3o DISTRICT, MISSOURI  •  •  WAYS AND MEANS COMMITTEE BUDGET COMMITTEE   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CONGRESS OF THE UNITED STATES HOUSE OF REPRESENTATIVES WASHINGTON, D.C. 20515  WASHINGTON orricr. 218 CANNON HOUSE OFFICE BUILDING WASHINGTON. D.C. 20515 PHONE:(202) 225-2671  DISTRICT OFFICE' 3470 HAMPTON AVE NUE ST. LOUIS, MISSOURI  April 24, 1980  Hon. Paul Volcker Chairman, Board of Governors Federal Reserve System Federal Reserve Building Constitition Ave. between 20th & 21st Sts. Washington, D. C. 20551 Dear Mr. Chairman: I am writing to request your views on a plan submitted to me by a constituent that proposes making loans available to farmers at realistic and affordable rates. Specifically, this plan proposes that each bank use 50% of its reserve base as loanable funds to farmers for 1980 operating expenses incurred by planting row crops or by purchasing livestock and fattening them for sale in the Fall of 1980. The farmer would ensure, by affidavit, that the money loaned to him will be used strictly for 1980 operating capital either for row crops or livestock. The interest rate charged on these loans would range between 10% and 11-1/2%. Subsequently, the banks would then be obligated to bring their reserve back to its normal level by or before January 15, 1981 (provided that loanable funds were made available by May 1, 1980). The reason for delaying the reserve requirement for the banks is to allow the farmer sufficient time to sell his products, and also to permit those farmers wishing to hold their grain and take their profits in another year to do so. Any comments that you could provide me regarding the viability of this proposal would be most appreciated. I look forward to hearing from you in the near future. Yours very truly, / Achard A. Gephardt RAG:wof  63139  PHout.(314) 351-5100  Thc Honorabie De Jones Chairman Subcommittee on Conaervation and Credit Comnittoo On Aoriculture iiouse of !Representative:: t.hinton, D.C. 20515 LK= Chairman Joneu: •  Thank you for your letter of :Ix] 8 invitinr; the Board to tostif: :, before your Su%oommittee on the ade,:uaoy of existinq aueority to rociulata owxnodity futuro:T trad ing. am looking: forward to ar!)earinlf on , Sincerely,  CO;DJW;pjt (tV-201) bcc4 Mr. Corrigan allardi (2)  L-•   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  . 21 at  (t.IoNrs. TENN., CHAIRMAN TOM  HARKIN, IOWA  Don Winn will be discussing with Chairman Volcker ander. Corrigan  •  JFIotY HUCKABY, LA. DAN GLICKMAN, KANS. KENT HANCP. TEX. GEORGE E. DROWN JR., CALIF. FREDERICK W. RICHMOND. N.Y. ALVIN BALMS, WIS. BIRKLEY ororLL. IOWA GLENN ENGLI514, OKLA. LEON E. PANETTA. CALIF. TOM DASCHLE, S. OAK.  30oti5e of 1Arpre5entatibe5 Committee on 2gtitulture *ubconunittce on Conurbation nub errint  THOMAS S. roLry. wAsti., EX OFFICIO MEMBER  ROBERT A. CASHDOLLAR,  loom 1301, 1Lonqtnortii if,/ouse Office it!ilbing  EDWARD R. MADIGAN, ILL., RANKING MINORITY MEMBER JAMES M. JEFFORDS, VT. RICHARD KELLY, FLA. E. THOMAS COLEMAN, MO. RON MARLENEE, MONT. -LARRY J. HOPKINS, KY. WILLIAM C. WAMPLER, VA., EX OFFICIO MEMBER  ROBERT M. ROR. CHIEF COUNSEL JOHN E. HOGAN, COUNSEL  Wasbington. D.C. 20315  STAFF CONSULTANT  May 8, 1980  Chairman Paul A. Volcker Board of Governors of the Federal Reserve System Federal Reserve Building Constitution Avenue between 20th and 21st Streets 20551 Washington, D. C. Dear Chairman Volcker: Recent incidents in the silver market have focused attention on whether or not the Federal Government has sufficient authority to adequately regulate commodity futures trading. Since the Subcommittee on - Conservation and Credit has legislative jurisdiction over the Commodity Exchange Act and the Commodity Futures Trading Commission, I have scheduled public hearings on May 21 and 22 to e in—order. discuss whether or not amendments to the Act woul Due to the interest of the Federal Reserve System in futures trading, your personal involvement in the silver situation, and since the Futures Trading Act of 1978 required the Commodity Futures Trading Commission to coordinate with the Federal Reserve System on areas of mutual interest, I would appreciate STou testifying before the Subcommittee on these important issues. Your comments and responses to questions will be extremely valuable to the Subcommittee Members. Robert Cashdollar, Subcommittee Staff Consultant, will be responsible for arrangements and will answer any questions you have. Attached for your information is the announcement of the hearings.  Ed Jones Chairma EJ:bcj Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Tomas S. Foley, Wash. • Chairman  •  William C. Wampler, Va. Ranking Minority Member  aloe COMMITTEE ON AGRICULTURE U.S. HOUSE OF REPRESENTATIVES Room 1301, Longworth House Office Building For further Information: Bernard Brenner, Washington, D.C. 20515 Press Secretary, (202) 225-2171  FOR IMMEDIATE RELEASE FRIDAY, APRIL 25, 1980 WASHINGTON -- Pep. TY Jones, P-Tenn., Chairman of the House Agriculture subcommittee on Conservation and Credit, today scheduled two days of public hearings in May on whether existing law gives the Commodity Futures Trading Commission adequate authority to regulate futures trading, and on whether amendments to the Commodity rxchange Act are needed t9 better protect the public interest. The hearings will be held on ray 21 and 22 in Poom 1302 Longworth House Office Building in Washington, P.C. 'When Congress reauthorized the CFTC in 1978, everyone felt the agency had enough authority to competently and fairly regulate futures trading. However, market problems with the ?!arch, 1979, wheat contract and more recently with the tradina of silver futures indicate a need for a serious review of the situation," Jones said. Jones announced that the subcommittee will specifically explore the question of whether the CFTC should be given standby authority to set margin ]-equirements on futures contracts -- authority which now is held by commodity exchanges. Testimony at the hearings will also be invited on other regulatory matters including speculative position limits, the adequacy of self-regulation by the futures industry and exchanges, possible conflicts of interest between segments of the industry and their stockholders or members, and the CFTC's responsibility to prevent market emergency situations. "Vhat is needed is an objective look at the powers currently provided for CFTC under the existing Commodity Fxchange Act and the manner in which these powers are used, Jones said. Both government and industry witnesses will be asked to testify so the subcommittee can get a broad range of views, he added. Jones noted that the subcommittee and the parent House Aariculture Committee have legislative jurisdiction over the Commodity rxchange Act which covers all trading in commodity futures. Persons wishing to testify at the hearing should notify r ,s. Chris Abram at 202/225-2171. In compliance with House Agriculture Committee rules, witnesses are asked to furnish 75 copies of their prepared statements two working days in advance of the hearing for review by nembers and staff of the subcommittee. The statements should be mailed or delivered to the Aqriculture Committee office, 1301 Longworth House Office Building, T.lashington, D.C. 20515 to the attention of Ms. Abram.  Yfi   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •0  • T1  •• • GOVE • •  Ri • 0 .4* rr  BOARD OF GOVERNORS nr IHE  FEDERAL RESERVE SYSTEM 1  Ft •  - ?.f5  WASHINGTON. D. C. 805r0  •  •Odt, • • ''AL 12E5 • • •.. • •  May 20, 1980  The Honorable William J. Hughes House of Representatives Washington, D. C. 20515 . Dear Mr. Hughes: Thank you for your letter of May 15 requesting comment on correspondence you received from Ms. Henrietta Rascher. Ms. Rascher is concerned about recent actions by the Federal Reserve Board imposing a special deposit liability on money market funds. Ms. Rascher is referring to the Board's Credit Restraint Regulations, 12 C.F.R. Part 229 (Subpart B), issued on March 14, 1980, and amended on March 28. These regulations were adopted pursuant to Executive Order 12201 issued by President Carter under the authority of the Credit Control Act of 1969 (Pub. L. 91-151, 12 U.S.C. 55 1901-09). The Executive Order authorized the Board to regulate and control short-term credit extended by financial intermediaries. The President and the Board determined that these previously unregulated financial intermediaries, generally known as money market mutual funds, have been the vehicles for a substantial increase in extensions of short-term credit. Typically, these money market mutual funds sell shares to the general public and invest the money raised in short-term instruments such as commercial paper, certificates of deposit, and repurchase agreements. The increase in the size of the mutual fund industry (approximately $60 billion at year-end 1979) made it imperative that any effort to fight inflation through credit controls include controls on the credit extended by these funds. The Board's regulations generally provide that a fund that is primarily engaged in the extension of short-term credit must place 15 percent of any increases in covered credit in a non-interest bearing special deposit held by the Federal Reserve System. The increase in covered credit is measured against a base of covered credit held on March 14, 1980, for the particular fund. This special deposit liability is adjusted weekly as the amount of covered credit extended by a fund goes up or down. The direct result of this requirement is to limit the amount of new credit that most funds can extend. The regulation also has had the effect of decreasing   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  The Honorable William J. Hughes Page Two  the rate of return to fund investors in some circumstances, thus making some funds less attractive. It should be noted, however, that even those investors who are affected by these regulations continue to earn rates of return higher than are available in most other investments. As you know, inflation robs every saver of a good part of the earnings on any investment or savings account. For this reason, the Board's anti-inflation actions, which are designed to bring the inflation rate down over time, will benefit savers in the long run. As the rate of inflation declines, a smaller part of the yield on investments will be eaten up by increases in the price level and it will become more attractive to save and to invest. I hope this information is helpful to you. let me know if I can be of further assistance. Sincerely yours,  (Signed) Donald J. Winn Donald J. Winn Special Assistant to the Board  Please  WILLIAM J. HUGHES 1.13PDISTIKT.  Cong. Liaison Office will draft repityc-... House Orrict  BUILCING  WASHINGTON, D C. 225-6S7 COMMITTEE ON THE JUDICIARY COMMITTEE ON MERCHANT MARINE AND FISHERIES  Cotigre55 ot tfie Ziniteb *tate5 3Dousse of Ikrpressentatiint4  SELECT COMMITTEE ON AGING   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Ulastingtort. 1D.C. 20315  May 15,  opire,cr orricts 2923 Aioyit Avyttm ATIIUNSIC CIS?. NISI JIIISIY 06401 (6C9) 346-1141 427 LOINS kits11/1 Voin.AND, Nt• Raw 06360 (609) 696.1269 ISI NOUN EIIMSDWAT P.0 Box 20 POMSYILLI. Nur Jtisci 06070 (600 676-1333  Hon. Paul Volcker Chairman Federal Reserve Board Constitution Ave. between 20th & 21st Sts. Washington, D.C. 20551 Dear Chairman Volcker: I have taken the liberty of forwarding a letter which I received from my constituent, Ms. Henrietta Rascher of Surf City, New Jersey. Ms. Rascher is concerned about the Board's decision to impose a special deposit requirement for money market mutual funds. I would appreciate your comments on the questions which Ms. Rascher has raised in her letter, and any additional'information on the decision to impose-this requirement. Thank you for your assistance in this matter. With kind personal regards. Sincer  William . Hug es Member Of Congress WJH:am   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  April 11, 1980 Governors Federal Reserve System Washington, D.C. 20000 Gentlemen: Once again the middle income person has been thwarted in an effort to keep up with inflation. People investing amounts of $10,000 and over can obtain interest rates in excess of 15% for short term investments. Anyone with less than this amount is penalized. At last, these small investors had an opportunity in money maiket funds to earn a higher rate and still be liquid. Now the Board of Governors of the Federal Reserve system, on March 14, 1980, decided co end that opportunity. It appears to me that, if I invest $1,000, $150 of this amount will S e sent to the Federal Reserwl Bank and be deposited at no interest leaving only $85,0 which can be invested by the fund to earn income. This appears to me to be confiscatory. What will be done with this money? Will it be returned? 11.  Constantly, the older Americans are reminded that they should not depend an Social Security for their retirement income but should save in anticipation of this time. I would appreciate learning how it is possible to IS this when money saved loses value when the inflation rate is more than twice the interest it can earn in a bank or savings and loan. Now, when the opportunity came to earn a little better return, the Federal Reserve says no. I strongly urge that a change be made in this regulation. It seems odd to me that noting was said of this regulation until after it was passed and, apparantly, there is no redress to the Federal Reserve Board. Very truly yours, ..  , • ,,,  • . , , - ..•„, i Henrietta M. Rascher '. , • .! ‘'.',?  CC:  Senator Bill Bradley Senator Harrison A. Williams, Jr. Congressman William J. Hughes  L  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • E3DARD OF .3C_JVERNDR() OF TH  FEDERAL RESERVE SYSTEM WArAlING1 ON. MC-  May 20, 1980  The Honorable G. William Whitehurst House of Representatives Washington, D. C. 20515 Dear Mr. Whitehurst: Thank you for your letter of April 15 requestincl comment on correspondence you received from Lieutenant Commander Andrew J. Anton. Lieutenant Commander Anton is concerned about recent actions by the Federal Reserve Board imposing a special deposit liability on money market funds. Lieutenant Commander Anton is referrincJ to the Board's Credit Restraint Regulations, 12 C.F.R. Part 229 (Subpart B), issued on March 14, 1980, and amended on March 28. These - regulations were adopted pursuant to Executive Order 12201 issued by President Carter under the authority of the Credit Control Act of 1969 (Pub. L. 91-151, 1901-09). The Executive Order authorized the Board to regulate and control short-term credit extended by financial intermediaries. The President and the Board determined that these previously unregulated financial intermediarieFgenerally known as money market mutual funds, have been the vehicles for a substantial increase in extensions of shortterm credit. Typically, these money market mutual funds sell shares to the general public and invest the money raised in short-term instruments such as commercial paper, certificates of deposit, and repurchase agreements. The increase in the size of the mutual fund industry (approximately $60 billion at year-end 1979) made it imperative that any effort to fight inflation through credit controls include controls on the credit extended by these funds. The Board's regulations generally provide that a fund that is primarily engaged in the extension of shortterm credit must place 15 percent of any increases in covered credit in a non-interest bearing special deposit held by the Federal Reserve System. The increase in covered credit is measur(N1 against a hase of rove/m(1 crn(lit- held nn March 14, 1980, for the particular fund. This special deposit liability is adjusted weekly as the amount of covered credit extended by a fund goes up or down. The direct result of this requirement is to limit the amount of new credit that most funds can extend. The regulation also has had the effect of decreasing  LI   https://fraser.stlouisfed.org • 'L. Federal Reserve Bank of St. Louis  The Honorable G. William Whitehurst Page Two  the rate of return to fund investors in some circumstances, thus making some funds less attractive. It should be noted, however, that even those investors who are affected by these regulatiS ns continue to earn rates of return higher than are available in most other investments. As you know, inflation robs every saver of a good part of the earnings on any investment or savings account. For this reason, the Board's anti-inflation actions, which are designed te bring the inflation rate down over time, will benefit savers in the long run. As the rate of inflation declines, a smaller part of the yield on investments will be eaten up by increases in the price level and it will become more attractive to save and to invest. I hope this information is helpful to you. let me know if I can be of further assistance.  Please  Sincerely yours,  (Signed) Donald J. Winn Donald J. Winn Special Assistant to the Board  •  G. WILLIAM WHITCHURST 2ND 01,.tFucr. viNGINo4  Action assignedik. Petersen INA:NINGT0N orrict• 2427  CompArTTir ARMED SERVICES  Congrus5 of tbe  SIMI-06464176f rS MILITARY INSTALLATION S AND ACILITIEs  PERMANENT SELECT COM MITT EE ON INT LLLIGENCE  tates'  CHARLES H FiTzPATRICK ADMINISTRATIVE ASSISTANT  CONSTITIONT STRVICII  815  Zilusbington,33.e. 20515  orriCIES  BUILDING  VIRGINIA 23510 (804) 441-3340  VERENA C. WAssERMAN ricr thA•NAGEN  PROGRAM AND BUE1GET AUTHORIZATION  R0064 1501. ProARRoNc ONE VIRGINIA RFACH. VIRGINIA 23462 (304) 490-2393  OVERSIGHT U.S DELEGATE TO NORTH ATLANTIC ASSE MEILY   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Fel-ARAL  NORrOLX  stincommITTErs  SLANclIF I44 !MYLES orroct •A•NAGER  April 15, 1980  The Honorable Paul A. Volcke r Chairman Federal Reserve System 21st Street and Constitution Avenue WashinOon, D. C. 20551 Chairman:  Attached is a copy of a letter which I have received from a constituent, 1,C DR Andrew J. Anton of Virginia Reach, Virginia, concer ning a recent ruling by the FLderal Reserve. I would appreciate it very much if you would provide me with you r comments on this matter. Thank you fur your assistance. Sincerely,  0"514/6  2si,„.  G. WILLIAM WHITEHURST GWW:111. Attaclp:lent  C. 20515  (202) 22S-421S  ,loti5e of 1Arpre5entatibriS  RESEARCH AND DEVELOPM ENT  Dear  RAretiAN 134.11L0IN0  WASHINGT0N, D  2, 1 .,  4  .  A  ......  'Vr/ - • _ --a  •  / ,  / .'  .._....,  --,-A.d-- rr?' "'/1 • PI--;1/- 77. -. •,.,  .  , .  _.  -EY>,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  r-t;-  •  ' 1  . 01  " -0'  -/  •  4,,  11  V  V'  V  I:  • ---  ---/ n-,--  . 1. /.  - -V ,1-7--vi %0 . 7-e.' /  -,--  -a -42?(-s--fr)--t-ig  / ....-• 41777  /  •  7  .  r  4  --11 ?---0-  ,--1„r  X-. ...vr„.... /,..i>._—_,...,-  ir 4--fr)1,-r17....:V-,7-4Z ---$7• , r-f  -r.f."1,-)-774,  .  r  "''.' , l rrihic ,-.›7 --vrri  - _..(); ,-r-,-7-1  77-vi-V  /.  (1 1 s‘%•'. - II' •  3 ?II v.",—‘  ' -1":427-,.. v'V.  _r,76,,,!- I  •.'' r-r-..o-k-/h ,;---41 cr-4,:,  .,...,-„,•?...ji.i  -, _:.,,r. --,z,2--!1,--,-,,,4,-,-.1 : rdfe;p6V  47-dir .-4-K -r, /1--(1,4,,  tl'?/  a--4t  i  f  1•4--  .. 10 . Kn .-- 1›-T7  /kr,l'-'r•V  // - y-i. 1 i 77--r . ,•ry( --,-r -g- ri---q-_-?-r-- pl--) .viii --7-,2--  _  •  (2 rirri l /2  •  _7  11e C/7:  •  P -)•,11 Q1/ --'  7••• --c -4 -  - -t,  •  •  4 .  -0 vi ) ) .4 j  .4  " 4  -14-  \--, / 72-4t/'.. -kA 0- --i----C.)--r /.  A  .a  •  / i  ertailteel /It;  't  ,14-1-4-1--.‹i / A/ .J.1.11.A,e7.21 .., .,-.4../... .  2 4  /  1 •  _i i  i  - 4— • ; / 2e1   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  A  /  •/  •  '1•./-1-1-cte-< -0-;(  7 ,  CL  /11-  (t111-;  4114 Ar  ' • ;, 7  / 4 •  /  i  •  1  1-/)••/:  •/ •  A  •,  ,  1/(1• )  a-er-41-7 6A--114-  • • 4..II I•   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •••• ••••••••••••••••  • •• • •• of GOvt •. 0 . 0 • , 60  BOARD OF GOVERNORS Ilip  FEDERAL REEERVE 5 YST EM  • •  WAr,14IND TON. 0. r..  'AL RO" • • • ..• • •  May 20, 1980  The Honorable Robert S. Walker House of Representatives Washington, D. C. 20515 Dear Mr. Walker: Thank you for your letter of April 11 requesting comment on correspondence you received from Stephen D. Lockey, III, M.D. Dr. Lockey is concerned about recent actions by the Federal Reserve Board imposing a special deposit liability on money market funds. Dr. Lockey is referring to the Board's Credit Restraint Regulations, 12 C.F.R. Part 229 (Subpart P), issued on March 14, 1980, and amended on March 28. These regulations were adopted pursuant to Executive Order 12201 issued by President Carter under the authority of the Credit Control Act of 1969 (Pub. L. 91-151, 12 U.S.C. §§ 1901-09). The 7xecutive Order authorized the Board to regulate and control short-term credit extended by financial intermediaries. The President and the Board determined that these previously unregulated financial intermediaries, generally known as money market mutual funds, have been the vehicles for a substantial increase in extension of short-term credit. Typically, these money market mutual funds sell shares to the general public and invest the money raised in short-term instruments such as commercial paper, certificates of deposit, and repurchase agreements. The increase in the size of the mutual fund industry (approximately $60 billion at year-end 1979) made it imperative that any effort to fight inflation through credit controls include controls on the credit extended by these funds. The Board's regulations generally providr that a fund that is primarily engaged in the extension of short-term credit must place 15 percent of any increases in covered credit in a non-interest bearing special deposit held by the Federal Reserve System. The increase in covered credit is measured against a base of covered credit held on March 14. 1980, for the particular fund. This special deposit liability is adjusted weekly as the amount of covered credit extended by a fund goes up or down. The direct result of this requirement is to limit the amount of new credit that most funds can extend. The regulation also has had the effect of decreasing the rate of return   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Robert S. Walker Page Two  to fund investors in some circumstances, thus making some funds less attractive. It should be noted, however, that even those investors who are affected by these regulations continue to earn rates of return higher than are available in most other investments. As you know, inflation robs every saver of a good part of the earnings on any investment or savings account. For this reason, the Board's anti-inflation actions, which are designed to bring the inflation rate down over time, will benefit savers in the long run. As the rate of inflation declines, a smaller part of the yield on investments will be eaten up by increases in the price level and it will become more attractive to save and to invest. I hope this information is helpful to you. let me know if I can be of further assistance. Sincerely yours, (Signed) Donald 1. Winn Donald J. 1:3inn Special Assistant to the Board  Please  Action assigned to Legal Division FlOBERT S. WALKER  STAFF IN CHARGE.  16744 DISTRICT. PENNSYLVANIA  TH OMAS R. BLANK WASHINGTON OFFICE  COHNAITTEES GOVERNMENT OPERATIONS SCIENCE AND TECHNOLOGY   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Congregg of the aniteb f.tate  GEOR GE W. JACKON S DTRICT IS OFFICE S  jOotti5c of ileprefsentatibo .i7.1asbington, D.C. 20515 April 11, 1980  tkr? ;tel  Mr. Paul Volcker Chairman Federal Reserve Board 21st and Constitution Avenue, N.W. 20551 Washington, D.C. Dear Mr. Volcker: I am enclosing a copy of a letter I have received from one of my constituents, Stephen D. Lockey, III, M.D. As you will note, Dr. Lockey raises a number of salient issues concerning recent actions taken by the Federal Reserve Board. I would appreciate your comments and look forward to hearing from you. 1 Cordially, .7/4 Robert S. Walker  a S.  AllIGY IMMUNOLOGY ASSOCIATES. LTD(' CO NORTH WEST END AvENUE. LANCASTER. PA. 17603 ALLERGIST STErHEN D I OCKEY. III. M.D.  TELEPHONE 717-393-1303  April 1, 1980  Congressman Robert Walker House of Representatives Congress of the United States Washington, D.C. 20515 Dear Congressman Walker, I would like to protest the recent decision by the Federal Reserve to require that money market funds apply 15% of their assets in a non-interest bearing account. Money market funds have been one of the few ways the small investor could take advantage of higher interest rates. Until the federal government decides that some attention should be paid to the small investor in regard to bank savings deposits and savings and loan deposits, I object strongly to the fact that once again the average American is being penalized. It's quite clear that the middle class of America receives no distinct advantages from their position, although whenever any crisis occurs, it is the middle class that is requested and required to come forth with either the funds or the manpower to correct the crisis. It is time that the Congress of the United States takes an attitude to protect the diminishing middle class and to, in fact, accelerate its growth. I, of course, have always been happy with your approach on fiscal matters, and I fully suspect that writing you concerning this matter is greeting open ears. I did, however, want to express my opinion. Sincerely, N. Stephen D. Locke y SDLIII:paf   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • •  •  dr.  BOARD OF '3OVERNORS 11r1111  •co •0 • -ri • -A ..1' •..4,  •;.; Lu P- • ,-.)• (-).•  FEDERAL RESERVE SYSTEM  RAl. RES • •..• • -  WA5HINGTON.O.L.  May 20, 1980  The Honorable James L. Oberstar House of Representatives Washington, D. C. 20515 Dear Mr. Oberstar: Thank you for your letter of May 13 requesting comment on correspondence you received from Mr. Martin Meger. Mr. Meger is concerned about recent actions by the Federal Reserve Board imposing a special deposit liability on money market funds. Mr. Meger is referring to the Board's Credit Restraint Regulations, 12 C.F.R. Part 229 (Subpart B), issued on March 14, 1980, and amended on March 28. These regulations were adopted pursuant to Executive Order 12201 issued by President Carter under the authority of the Credit Control Act of 1969 (Pub. L. 91-151, 12 U.S.C. §5 1901-09). The Executive Order authorized the Board to regulate and control short-term credit extended by financial intermediaries. The President and the Board determined that these previously unregulated financial intermediaries, generally known as money market mutual funds, have been the vehicles for a substantial increase in extensions of short-term credit. Typically, these money market mutual funds sell shares to the general public and invest the money raised in short-term instruments such as commercial paper, certificates of deposit, and repurchase agreements. The increase in the size of the mutual fund industry (approximately $60 billion at year-end 1979) made it imperative that any effort to fight inflation through credit controls include controls on the credit extended by these funds. The Board's regulations generally provide that a fund that is primarily engaged in the extension of short-term credit must place 15 percent of any increases in covered credit in a non-interest bearing special deposit held by the Federal Reserve System. The increase in covered credit is measured against a base of covered credit held on March 14, 1980, for the particular fund. This special deposit liability is adjusted weekly as the amount of covered credit extended by a fund goes up or down. The direct result of this requirement is to limit the amount of new credit that most funds can extend. The regulation also has had the effect of decreasing  • The Honorable James L. Oberstar Page Two  the rate of return to fund investors in some circumstances, thus making some funds less attractive. It should be noted, however, that even those investors who are affected by these regulations continue to earn rates of return higher than are available in most other investments. As you know, inflation robs every saver of a good part of the earnings on any investment or savings account. For this reason, the Board's anti-inflation actions, which are designed to bring the inflation rate down over time, will benefit savers in the long run. As the rate of inflation declines, a smaller part of the yield on investments will be eaten up by increases in the price level and it will become more attractive to save and to invest. I hope this information is helpful to you. let me know if I can be of further assistance. Sincerely yours,  (Signed) Donald J. Winn Donald J. Winn Special Assistant to the Board  Please  * Response will be prepared by iingressional Liaison Office 8m DISTRICT, MINNESOTA  WASHINGTON OFFICE 323 CANNON HOUSE OFFICE BUILDING  COMMITTEES:  WASHINGTON, D.C. 20515 (202) 225-6211  JAMES L. OBERSTAR  PUBLIC WORKS AND TRANSHORTATION  Congre5 of tie inniteb 5;)tatec  MERCHANT MARINE AND FISHERIES  DISTRICT OFFICES:  231 FEDERAL BUILDING DULUTH, MINNESOTA 55802 (218) 727-7474  Pousse of ReprefSentatibto ieusbington, ae. 20515  203 ANOKA COUNTY COURTHOUSE 325 EAST MAIN STREET ANOKA, MINNESOTA 55303 (612) 421-8862  May 13, 1980  Mr. Paul Volcker Chairman Board of Governors Federal Reserve System 20th Street & Constitution Avenue, N.W. Washington, D.C. 20551 Dear Chairman Volcker: Just a brief note to accompany the enclosed correspondence from Mr. Martin Meger of Carlton, Minnesota, who expresses concern over Federal Reserve credit control policies, and particularly the 15% non-interest bearing Reserve requirement. I would appreciate your efforts to review Mr. Meger's concerns and prepare an appropriate report to address these concerns. With best wishes. Sincerely,  es L. Oberstar, M.C.  JLO/kcn Enclosure  { Pr-40‘.,At_i' 4SWerAlt.' 1 • Y. '• . ' .1.•• 4ki."..'.‘•14e4i7P-co 104 vc.‘'• • 5 'er : 444 " ••• ' ••• • .4-",• v. ‘, . . •  4.  -  -  •  •  AMOY  ..„  ••  1n  1  .1-1K9•1P-z;  • I-)  R)  2 71  o  rfr-x-P10-2/2P73/ 7la'  p 7'O (  r  .1  .  ) ? 1/'  ) 2  j  )  )  y  ?7 )  -  • '  \• d  ••• •)•• )2/;  •  4 of. • %.  7771? -  • -.  - ).7--)77/  /  /)--z-k---22  f?  • ,  0/, 57 -  4  _  -1)•?  1-4.1_.  -7-2  A (:  .7 1:> ,  -7"-^  32. ( 7) .  wt•. .."4",- •f-  1• ••• 'a r .. •  ••  ? " . T;ir?"-"-;  -).77.1  Y  ..-?--72  .  .1 • 'I  e //  /  t"-2d  Le  •  22-73-P L.(.•  •2'3 " 4 ? , 1-1Z-9-1.--421-  '•z2) ) ( •  7  /--•;% -;90-42.--a---7  W....  -1  7  ,  7-2 4.47;7 (of  9/2  , ill:;V rI f f  Viy.$)  —  r  ••  •••  !‘ • a.  —•  • 1  s.  t  •  • • .  /.  10" • 4 • •1  `Z. (  /y  6.7.•  0  -2  -2.  ti i  a.I e'" e.-/ e  t ---0' • 7  ,, t t/.. Z  •  0 ci 74-Le, Le-e. , (2_•ty  •/) .  ) .c"1  e .  4. ,I  t .e •  cLi_c_..‹.)  ) A (It  /)  J  44-  / .41 \ ( L )  c-e 1-4  ,'.  0  ic)  /2  e e  /  t,,e  •444 . 4  e )  e  71  e_ ;z7  /1- 4  e- 72'e_er-71  Ze)  C2  p6'-et_eA_ 7-71  t/  erj-Le.  / C.,- •  e..„1(L. i•-e--7er-Z.-ee pjLe /  'I  7-1-e-e-4(  4  z  14 •  „ •  1444  trlOitaf  . 0, AP.1/4   • https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  . .„„ , 1,  •  A , 4 s * , * e$  •  •%4  •  a  " •  •••1/  •  , •, •  444(4`t  ,  , it  '*•  ,  l•  •• • • f GOIrt ••  BOARD OF GOVERNORS OF THF  FEDERAL RESERVE SYSTEM  \J -  WA13HINBION. D.C. at3''H  May 20, 1980  The Honorable Robin Beard House of Representatives Washington, D. C. 20515 Dear Mr. Beard: Thank you for your letter of May 8 requesting comment on correspondence you received from Mr. and Mrs. Doug Anderson. Mr. and Mrs. Anderson are concerned about recent actions by the Federal Reserve Board imposing a special deposit liability on money market funds. Mr. and Mrs. Anderson are referring to the Board's Credit Restraint Regulations, 12 C.F.R. Part 229 (Subpart B), issued on March 14, 1980, and amended on March 28. These regulations were adopted pursuant to Executive Order 12201 issued by President Carter under the authority of the Credit Control Act of 1969 (Pub. L. 91-151, 12 U.S.C. §§ 1901-09). The Executive Order authorized the Board to regulate and control short-term credit extended by financial intermediaries. The President and the Board determined that these previously unregulated financial intermediaries, generally known as money market mutual funds, have been the vehicles for a substantial increase in extensions of short-term credit. Typically, these money market mutual funds sell shares to the general public and invest the money raised in short-term instruments such as commercial paper, certificates of deposit, and repurchase agreements. The increase in the size of the mutual fund industry (approximately $60 billion at year-end 1979) made it imperative that any effort to fight inflation through credit controls include controls on the credit extended by these funds. The Board's regulations generally provide that a fund that is primarily engaged in the extension of short-term credit must place 15 percent of any increases in covered credit in a non-interest bearing special deposit held by the Federal Reserve System. The increase in covered credit is measured against a base of covered credit held on March 14, 1980, for the particular fund. This special deposit liability is adjusted weekly as the amount of covered credit extended by a fund goes up or down. The direct result of this requirement is to limit the amount of new credit that most funds can extend. The regulation also has had the effect of decreasing  The Honorable Pobin Beard Page Two  the rate of return to fund investors in some circumstances, thus making some funds less attractive. It should be noted, however, that even those investors who are affected by these regulations continue to earn rates of return higher than are available in most other investments. As you know, inflation robs every saver of a good part of the earnings on any investment or savings account. For this reason, the Board's anti-inflation actions, which are designed to bring the inflation rate down over time, will benefit savers in the long run. As the rate of inflation declines, a smaller part of the yield on investments will be eaten up by increases in the price level and it will become more attractive to save and to invest. I hope this information is helpful to you. let me know if I can be of further assistance. Sincerely yours,  Oigned) Donald J. VT: Donald J. Winn Special Assistant to the Board  Please  I .  DIST micT orricts• 5575 PC,PLAR  ROBIN BEARD DISTRICT. ITNNiSSTE  6TI4  Surre 815 Mckirmis, Tcsit, assur  WASHINGTON OFFICE: 229 CAP.NoN Housr Orricr WA4INGTONI, 0 C  Congres'5 of tbe 'Uniteb  tattg  22 pueLic SQUARE  BUILDING  20515  (202) 2.25-2811  38117  (901) 767-4652  COL UMBIA. Tr•mrssrc (615) 388-2133  3i,otige of iepre5entatibtq Ulagbingtott, D.C. 20315  May 8, 1980  Mr Paul Volker Chairman Federal Reserve System Federal Reserve Building Washington, D. C. 20.551 Dear Mr. Volker: of I am writing in behAlf of Mr. and Mrs. Doug Anderson Hampshire, Tennessee who have contacted mc regarding their concern about the credit control regulations which are applicable to encertain registered investment companies. I believe that the their closed lettcr from the Andersons is self-explanatory as to questions about...these credit control regulations. I would appreciate it if you would give these coniments serious consideration and give mc a full report on this action in by the Federal Reserve System. Thank you for your attention this request. With warm regards. Sincerely,  Robin Beard, M. RB/sj Enclosure  •  38401  •  ii  •  •4111   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  May  6, 1980  The Honorable Robin L. Beard, Jr. House of Representative Offices Cannon House Building Washington, DC 20515 Dear Congressman Beard, We are going increasingly ccncern over the encroachment of governmerit into the areas in which the little and middle man lives. Two recent rulings have a severely detrimental impact upon the investment options of the person of modest means. First, there have been restrictions on transactions involving gold mining stocks. As yet we have been unable to trace the source of the ruling, but it is probably the Securities and Exchange Commission. Basically it seems that the ruling sets a limitation in the fonm of a minimum amount that must achieved to make a purchase of some stocks. We have heard that the minimum buy must be at least $1000 and possibly $5000. The purpose allegedly, to protect the small purchaser of stocks from speculations. Actually it prevents him from dealing in the stocks which promise to be highly profitabje in the not too distant future. Seochd, on March 14, 1980, the Board of Governors of the Federal Resei-ve System announced the adoption of "credit control regulations" applicable to certain registered investment osmpanies, including the newly formed money market funds. You may not realize but these money market funds were established for the investor who lacked the $10,000 or so to deal in Treasury Bills and other high interest money market instruments. Most of us just do not have that amount of cash available to provide us access to the higher interest rates. The Federal Reserve enacted reff,ulations 15% of their total which require such investment companies to deposit abo assets in non-interest reserve accounts in Federal Reserve Banks. One would question, first of all, the validity of a any requirement for a reserve in virng of the extremely low risk 2f the investments of the money market funds which often inalude substantial investment in money market cercates and Treasury Bills. Secondly, one would question the requirement that the reserve be retained in a non-interest bearing account in a Federal Reserve Bank. It is unbelievable that rational men would require a private business, especially an investment company, to keep fund idle in a non-interest bearing account of any type. The makes no business sense at all; unless, the Federal Reserve Banks are in such dire needs of funds that they must compel private businesses to lend them money at no interest. Gongressman Beard, it would be greatly appreciated if you could trace the source of the first problem for us and that you would exert the requisite effort to have both ruling changed. It is very important that we of modest means not have our investment opportunities limited by government action, even thougb many may think it in our best interest. We are willing to take the risks without interference. etfully,  Mr. & Mrs. Doug Anderson  ROBIN F3EARD eqt4 Olg.TRICT.  TENNESSrr  Art  Response will be drafted Congressional Liaison 1111.1 ce  DISTRICT OFFICES: 5575 POPL A R SUITE 815 MEMPHIS. TENNESSIE  TO  30117  (901) 767-4652 WASFIINC.TON OFFICE  Congto55 of tfie "Einiteb *tate5  22  229 CANNON How.; Orr tc F 6301 DING WAHINGTON.0 C  20515  (22) 2,26,2611  ji)ou5e of 3ArproSentatibtg Washington, D.C. 20313  Punic  SQUARE  CI:MUM/31A. TENNI'SCI E  38401  (615) 388-2133  oci  May 8, 1980  Mr Paul Volker Chairman Federal Reserve System Federal Reserve Building Washington, D. C. 2u51 Dear Mr. Volker: I am writing in behalf of Mr. and Mrs. Doug Anderson of Hampshire, Tennessee who hNve contacted mc regarding their concern about the credit control regulations which are applicable to encertain registered investment companies. I believe that the closed letter from the Andersons is self-explanatory as to their questions about theso credit control regulations.  11111111111m"-  I would appreciate it if you would give those comments serious consideration and give me a Cull report on this action by the Federal Reserve System. Thank you for your attention in this request. With wann regards. Sincere Y,  Robin Beard, M. C. RB/sj Enclosure  1•••  O.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  May 6, 1980 The Honorable Robin L. Heard, Jr. House of Representative Offices Cannon House Building Washington, DC 20515 Dear Congressman Beard, We are going increasingly ccncern over the encroachment of governmint into the areas in which the little and middle man lives. Two recent rulings have a severely detrimental impact upon the investment options of the person of modest means. First, there have been restrictions on transactions involving gold mining stocks. As yet we have been unable to trace the source of the ruling, but it is probably the Securities and Exchange Commission. Basically it seems that the ruling sets a limitation in the fOrIM of a minimum amount that must achieved to make a purchase of some stocks. We have heard that the minimum buy must be at least $1000 and possibly $5000. The purpose is, allegedly, to protect the small purchaser of stocks from speculations. Actually it prevents him from dealing in the stocks which promise to be highly profitable in the not too distant future. Seochd, on March 14, 1980, the Board of Governor-9 of the Federal Rese-rve 3ystem announced the adoption of "credit control regulations" applicable to certain registered investment companies, including the newly formed money market funds. You may not realize it, but these money market funds were established for the investor who lacked the $10,000 or so to deal in Treasury Bills and other high interest money market instruments. Most or us just do not have that amount of cash available to provide us access to the higher interest rates. The Federal Reserve enacted re,,:ulations which require such investment companies to deposit about 15% of their total assets in non-interest reserve accounts in Federal Reserve Banks. One would question, first of all, the validity of a any requirement for a reserve in virng of the extremely low risk of the investments of the money market funds which often inalude substantial investment in money market certificates and Treasury Bills. Secondly, one would question the requirement that the reserve be retaincl in a non-interest bearing account in a Federal Reserve Bank. It is unbelievable that rational men would require a private business, especially an investment company, to keep fund idle in a non-interest bearing account of any type. The makes no business sense at all; unless, the Federal Reserve Banks are in such dire needs of funds that they must compel private businesses to lend them money at no interest. Congressman Beard, it would be greatly appreciated if you could trace the source of the first problem for us and that you would exert the requisite effort to have both ruling changed. It is very important that we of modest means not have our investment opportunities limited by government action, even though many may think it in our best interest. We are willing to take the risks without interference. etfully  Mr. & Mrs. Doug Anderson  19RO  7%iatsurAfla re Vonorable !luited rA:ates senate C. 20510 -7)rsin?ton, 'scrIntor  atsunalo-  ! Arrll 30 7.4%is is in responst, to ',our letter c14 1:uestiny the 7'oard to consielor a waiver of reserve requireronts for the r:Ank of cnolulu. As you nre awere, ..7tate ctrtereel, non-norier derository institutions that were en(le(led in business in nawaii on Auust 1 0 1978, will be exent frnr Feeral restrve requirer)ents %ander the recently enacted onetery Control Act of 19P0 (Title 7 of P.L. 96.221) until Janunry 1, 11S6, nt which tio they will commence a phase-in of reservo requirement7 over ar oiglit-year period. Meer bankre ref::ardless of locntion. includtnv national bRnks and bnnkn thlt withdraw frame: rerber&ir. however, will be sujefet to a four-year phase-own to the new rovide in the onetary Control levels of reserve requirement Act. You stz4.te that these provisionr will pince the rink of icn.olulu at a competitive disalvantace to nonnerAners and sublect such bank to mevere hareshir. The Federal Reserve recomizes that t1.1 0Asparate trvint of Tlenher banks and nonlY4t,r-ber depository institutions in .eo,ii under the Monetary Ccntrol Act may place such !v-17er lar.lcs at a competitive disecIvante‘7e. 14owevelr, the f;oara d000 not appear to hmve the flexibility under tile legislation to 41rant the type of relief remiestei. Consequently, it Rppears thzt the reerlire!nents for membow UmIca coull only be chan4;e4 throuvh Conf7ressiona1 action. A.ncerely, PP.WHII:vcd (ffW-208) bccl Mr. Will1pce Mr. Petersen Mr. r;chwartz Mr. Pilecki Mrs. Mallardi (2)..0°  Wm!A, Volad  I  Ir  •  ,SPARK M.MIATSUNAGA HAWAII  WASHINGTON OFFICE: 352 RussELL BUILDING  •  Action assigned Mr. Walla, CHIEF DEPUTY MAJORITY WHIP  9.1Cnifeb ,Sfafez --Senate  CHAIRMAN. SUOCOMMiTTEE ON TOURISM AND SUGAR COMMITTEE ON FINANCE  WASHINGTON. D.C. 20510  mryomom  WASHINGTON. D.C. 20510  HONOLULU OFFICE:  COMMITTEE ON ENERGY AND NATURAL NESOURCES  3104 PRINcr KUHIO HONOLULU, HAWAII  96850  April 30, 1980  COM MI+TEE ON VETERANS' AFFAIRS  z • Mr. Paul Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: I have recently received a letter from a constituent, Michael N. Tanaka, Senior Vice President of the Bank of Honolulu, which until recently was a nationally chartered bank. Mr. Tanaka expressed grave concern over the ability of his bank to compete with other financial institutions, particularly savings and loan associations, in offering consumer checking accounts under the Financial Institutions Deregulation and Monetary Control Act of 1980. The Bank of Honolulu is one of the smaller banks in . the State of Hawaii. As a former nationally chartered bank, it must maintain a higher reserve requirement than larger state -chartered banks. The bank's disadvantage will be further exacerbated in competing with savings and loan associations for consumer checking accounts. As you know, the 1980 legislation imposes a three percent reserve requirement on nonmember financial institutions, whereas the Bank of Honolulu as a former member institution must maintain an 11.75 percent reserve requirement. Consequently, Mr. Tanaka has requested the Board of Governors to accelerate the phase -down of current reserve requirements imposed on member and former member banks. In the alternative, he seeks an immediate 25 percent reduction of current reserve requirements as provided under the 1980 legislation. The 1980 legislation intended to place all financial institutions on equal footing in competing for consumer checking accounts. The 1980 legislation also recognized the unique financial structure of the State of Hawaii and other non -continental areas. I strongly urge you to exercise the administrative authority established in the 1980 legislation  •  Mr. Paul Volcker April 30, 1980 Page Two to insure the competitive equality of all financial institutions in the State of Hawaii, as in the case of Bank of Honolulu. I would appreciate learning your response to thes e concerns so that I might better answer my cons tituent. Aloha and best wishes. Sincerely,  Spark Matsunaga U.S. Senator  •  tt!•  ;- •  f•  •  •  3  ;  • ,  A  •  •  •  •  -"•• • • 4.-  .  •  -  5/15jg oj (• • •  Cong. Liaison Office will draft reply JAMES C. CLEVELAND  WA‘HiNaToim OrricT, RAYWURN HOUSE OFFICE BUILDING WASHINGTON. D C. 20515  21.3 DISTRICT, NEW HAMPSHIRE  CDMMITTTES I PUBLIC WORKS AND TRANSPORTATION  TEL.. 225-5206  Congres's' of tbe LIiutcb*tateg  HOUSE ADMINISTRATION SELECT COMMITTEE ON CONGRESSIONAL OPERATIONS  3i)ouse of ikepre5entatitn5 61.11gbington, D.C. 20315  DISTRICT OFFICES: 316 FEDERAL BUILDING 55 PLEASANT STREET CONCORD, NEW HAMPSHIRE  23 TEMPLE STREET NASHUA, NEW HAMPSHIRE  May 15, 1980  TEL.' 643-4525  Mr. Paul A. Volcker Chairman Federal Reserve Board 20th Street & Constitution Avenue, N. W. Washington, D. C. 20551 Dear Mr. Volcker: Enclosed is a copy of a letter from the New England Fuel Institute regarding recent credit regulations issued by the Federal Reserve Board. This letter raises some valid points regarding an adverse impact of the regulations on home energy conservation measures. It is my opinion that this matter warrants close attention and I would appreciate your comments regarding this situation.  les C. lc.e an ember of Congress  JCC:hsh Enclosure  03301  TEL.: 228-0315  03060  •  •  •  fOnd 11/E_LAY Enj  9LZ gni.litutE  20 SUMMER STREET • P.O. BOX 888 • WATERTOWN, MASSACHUSETTS 02172 • (617) 924-1000 • Telex: NEFI-WTN 922-401  May 6, 1980  \(.0)  oo CA,E`JElikNO ‘GE, 00 C,00(1.V4lp.\\g2..s -9A. A Honorable James C. Cleveland House of Representatives 20515 Washington, D.C. Dear Jim: Enclosed is a copy of a letter that the New England Fuel Institute recently sent to the Federal Reserve Board concerning an adverse -- and, we are certain -- unintended impact that the Board's recent credit regulations are having on home energy conservation measures. Under a program encouraged by the National Energy Conservation Policy Act of 1978, our members have been assisting consumers in cutting heating costs by installing new, more energy-efficient oil heaters and burners in their homes. New England These new units provide fuel savings of 10-40%. banking institutions which, until now, have been financing these installations, have informed our members that conservation loans can no longer be made because of the Federal Reserve Board's new restrictions on credit. A fair reading of the Board's regulations makes clear that loans of this type were never meant to be subject Loans for home improvements, purto credit restrictions. chases of appliances, and utility services are generally exHowever, the regulations do empted from the Board's rules. not specify whether energy conservation loans fall within these exemptions. This lack of clarity in the regulations is frustrating a clear national energy policy, established by Congress, of encouraging home energy conservation measures.  t‘ •  May 6, 1980 Page 2  I would greatly appreciate any support that you could give to our efforts to convince the Board to rectify this matter as soon as possible. Thank you very much. Sincerely,  Charles H. Burkhardt Executive Vice President  Robert E. Mannion, Esq. April 24, 1980 Page 2  Because of the size of the initial investment required, bank loans are the only means for many consumers to proceed Until now, area with these energy-saving home improvements. banks have provided such financing. But they have stopped making these loans because of the Federal Reserve Board's new credit restrictions. 2.  Federal Reserve Board Regulations  There are a number of grounds under which these loans might be considered "uncovered credit", not subject to the special reserve requirement. However, the Board's regulations and explanatory materials do not provide a conclusive answer. First, the loans are "home improvement loans", which are generally exempted from thei reserve requirements. See page However, 1 of the Board's Press Release of March 14, 1980. another part of the Board's regulations suggest that only home improvement loans covered by a mortgage qualify for such an exemption. 45 Fed. Reg. 17928 (1980). Loans for energy conservation are not treated as mortgages because of the expense of recording them pursuant to local property laws. Second, the proceeds of the conservation loans are being used "to finance the purchase of household goods such as furniture and appliances", a category of credit which is generally exempted from the new requirements. See the March 14 Press ReleaseHowever, the regulations appear to restrict the exemption to those purch.ases where a security interest is taken in the goods purchased. 45 Fed. Reg. 17929 (1980). This is impractical in the case of a fixture like a boiler or burner and may, in any event, conflict with an existing mortgage. Third, the loans are being "extended for utilities.. services" and may be exempt on that basis. See the May 14 Press Release at p. 5. However, the regulations imply that the exemption applies only where the credit is extended by the The loans utilities themselves. 45 Fed. Reg. 17929 (1980). in question are extended by the bank because an individual fuel oil dealer does not have the resources or the risk -spreading capability to make loans of this size and nature. A fair reading of the Board's regulations indicates that loans of"this type were never intended to be subject to •In fact, loans which are the special reserve requirement.  Robert E. Mann, Esq. April 24, 1980 Page 3  •  practically identical in character and in effect on the economy The Board are specifically exempted from the Board's program. should move to correct this situation, both for reasons of equity and for the compelling public policy reasons outlined below. 3.  Public Policy Considerations  It is scarcely necessary to state that energy copserWhat is vation is a matter of highest national priority. significant for present purposes is that residential energy conservation has, by law, been established as a cornerstone of the nation's energy policy. In enacting the National Energy Conservation Policy Act ("NECPA"), Congress found that: all sectors of our Nation's economy must begin immediately to significantly reduce the demand for nonrenewable energy resources such as oil and natural gas by implementing and maintaining effective conservation measures for the efficient use of these and other energy sources. To Pub.L. 95-619, 5102(a)(3), 95th Cong., 2d Sess. (1978). implement this finding, Congress required states to draw up and implement residential energy conservation plans.1/ Under those plans, utilities are to conduct residential energy audits inform consumers of available conservation measures and possible savings from implementing them, and provide for installation of energy-saving equipment.2/ States can make home heating oil dealers, who volunteer for these programs, subject to substantially the same requirements.3/ Significantly, the plans have to provide a mechanism by which the utility or home heating oil dealer offers to "arrange for a lender to make a loan to such residential customers to finance the purchase and installation costs of suggested measures...."4/ It is precisely these types of loans which are now threatened by the Board's new regulations.  1/  NECPA 5212, 42 U.S.C. 58213.  2/  NECPA 55213, 215; 42 U.S.C. 558214, 8216.  3/  NECPA 55212(c)(3), 214, 217; 42 U.S.C. 558213(c)(3), 8215, 8217.  4/  NECPA 55215(b)(1)(C), 217(a)(2)(D); 42 U.S.C. 558216(b)(1)(C), 8217(a)(2)(D).  •  Robert E. Manikin, Esq. April 24, 1980 Page 4  •  The Energy Tax Act of 1978, Pub.L. No. 95-618, is also indicative of the central role Congress assigned to residential energy conservation in overall energy policy. The Act provides for a tax credit of up to $300 for "qualified energy conservation expenditures" by homeowners. 26 U.S.C. §44C. Specifically included as qualifying expenditures deserving of this tax credit are ...furnace replacement burner[s] designed to achieve a reduction in the amount of fuel consumed as a result of increased combustion efficiency.... 26 U.S.C. §44C(c) (4)(A)(i) In his March 14, 1980, address pursuant to which the Board's credit restrictions were imposed, President Carter repeated his call for "unrelenting efforts for conservation", pursuant to a plan whose "aim is to involve every level of government, business, labor -- in fact, every single citizen -- in conserving American energy." It would be ironic indeed if the Board's regulations were interpreted in such a way as to work directly at cross purposes with this goal. But they are being so interpreted in at least some quarters. The Board and its staff have an affirmative obligation to correct the situation. 4.  Recommendation  NEFI accordingly requests that the Board or its staff promptly issue a question-and-answer, or other interpretive ruling, that makes clear that bank loans for energy conservation purposes, under the circumstances described above, are not "covered credit" and are therefore not subject to the Board's special deposit requirement. Sincerely,  Charles H. Burkhardt Executive Vice President •••  22, r.180  *am twucaalole william L. :al:Intro:lc iwn1te4 States nate 2c510 L.C. rton  Zeck: 6enator  XL=troni  This ia in real.onas to sour lotter of umich 6 regardins corrouvmdunce from one of y4-.iux cazItituents, r. toven K. •.1t of the Sank of liou14er, Boulder, Colorado. Scaleis latter concurns a crodit Elan offered Lis 10-02 hjaa ;erovidia4 Cor a 25 'ascent int4,1rest rebate to 4240,44U..16X if the con3umer metc the : 7 ayment of the loan cvutmlit. 4Z.BG4loy statou; that, accordinc to Liiuleral Deserve toteff, the .liu i. krohibited ourrttnt law and '4Auut Ipe continued. These appears to be sou* 41sunderztandin7 of what the zt.,cloral Aeseave Sank of UAW'S Citi Lila said r1.1. A - rdin5 the banit's Loan 4.1a.a. The Saard's staff tan discw1Lo6 the 7.41tter with the Iani..az* City staff, and has also reviewed tl.itt corrooLotmdence betweer ix. bosioy and Ismael. City. ot tiePcaerva Lank of lansark citl. and the Board's staff agree that tor L no prohibition alainst a bank's offering eessupers a rel.:ate of intereut. It L necessary, howevor, for the 1Janh to take t:le interest m/s** into account in making' its Trutt. in LendiDg diaoloeurepa. That isi, the Lank r4uut &lases.* dizo1o3ureo on the assumlAion tLat tlie consumer uill in fact Mak.ttiti a7mnt4 and thurez;, 4uallf:i for the rvipate, u1Atior lo would zir t to diaclose tcl the cau:tot7,er tLat late 7,aitaeut oi an4 iliAtalaent will result in the forfeiture of te reLate to wLicLt cuatoaes would otatcrwiso be entitled. So low; ae thtio 1.ank cot.3ies with tLAese and any other related dincloaure ropluiremont4„ it will Le in coorliance with Awiulatioa Z in ;,41kInvly the ro-tes availaLle to its customers. hove tLis inforwation uill be helpful to you. If the utelf C4A 4.41 of asulatance to Ix. Bosle.y o ilcaze let us know. DEISIVit (IV-79) boo: Dolores Smith nrs. mallardi  Wag!A, VoLckc  •  BENJAMIN 11. ROSENTHAL, N.Y., CHAIRMAN ROBERT T. MATSUI. CALIF. EUGENE V. ATKINSON. PA. FERNAND J. ST GERmAtN.  LYLE WILL/AMS. OHIO JIM JErrpurs, KAN., JOEL DECKARD, IND.  N INETY-SIXTH CONGRESS  I.  JOHN CONYERS. JR.. MICH.  E of the Ziniteb Congre5‘  ELLIOTT H. LEVITAS. GA.  MAJORITY —(202)  225-4407  tate  3E)oufSe of ilepreEientatibecS COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE  COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING. ROOM B-377 WASHINGTON.  20515  March 10, 1980  Hon. Paul A. Volcker Chairman Federal Reserve Board Washington, D. C. 20551 Dear Mr. Chairman: The Commerce, Consumer, and Monetary Affairs Subcommittee has been concerned for some time with the adequacy of the consumer safeguards to guarantee fair treatment to the consumer who takes out a variable rate or rollover mortgage at a bank or thrift institution. Most recently, it has come to the subcoimnittee's attention that many questions have been raised concerning the adequacy of the consumer safeguards included by the Home Loan Bank Board in the proposed regulations for renegotiable rate mortgages (RRMs) at savings and loan associations. Finally, the subcommittee has some concern that no federal consumer safeguards have yet been established for variable rate, rollover, and renegotiable rate loans issued by commercial banks and savings banks. In order to examine further the issues of consumer safeguards for these new mortgage instruments, the Commerce, Consumer, and Monetary Affairs Subcommittee will holding hearings March 26 and 27. I am writing to request the testimony of the Federal Reserve at these hearings on March 27 at 10 AM.  !'  The three main topics on which I am requesting the Federal Reserve to testify are (1) truth in lending disclosures on variable-rate and related mortgage instruments, (2) the role of the Federal Reserve in regulating unfair and deceptive trade practices and its applicability to variable rate and related mortgage instruments, and (3) the use of an index to limit rate changes on individual loans. I am also requesting the views and plans of the Board on certain other aspects of consumer protections for these instruments. More specifically, the Federal Reserve's statement should cover the following questions: 1.  Truth in Lending: a.  What special truth in lending disclosure problems arise in the case of variable-rate and renegotiable rate mortgages, and how does the Federal Reserve handle these problems under Regulation Z?  Hon. Paul A. Volcker  2.  3.  2  March 10, 1980  b.  Do the disclosure requirements of the Federal Home Loan Bank Board in the existing regulations for variable-rate mortgages and the proposed regulations for renegotiable rate mortgages meet the truth in lending requirements?  c.  If not, does this lack of conformity, with the consequent need for a supplemental truth in lending disclosure, create any potential problems, such as creating confusion for borrowers or causing an unnecessary paperwork burden on lenders?  d.  Does the Federal Reserve have any concern that lack of conformity in the disclosures might impede effective truth in lending enforc ement by increasing unnecessarily the burden on the compliance examiners?  e.  What efforts is the Federal Reserve makinn to ensure that its concerns are known to the Bank Board and to achieve the most effective truth in lending disclosures in the case of variable rate and renegotiable rate mortgage instruments?  Unfair/deceptive trade practices: a.  Does the Federal Reserve's authority under the FTC Improvement Act of 1975 to regulate unfair and deceptive practices at banks provide a possible legal basis for imposing minimum consumer protection restrictions on the terms of variable rate, renegotiable rate, and rollover mortgages issued by banks (including savings banks)?  b.  Does this authority of the Federal Reserve extend to such loans issued by savings and loan associations?  c.  Has the Federal Reserve any plans to regulate the terms of such mortgages issued by banks under either this or any other authority? If so, please describe these plans.  d.  To what standards would variable rate and renegotiable rate mortgages have to adhere in order not be in violation of the Federal Reserve's general standards for fairness and lack of deception?  Rate changes: a.  What are the views of the Board on whether it would be acceptable for banks to issue variable rate or renegotiable rate mortgages whose rate changes were not pegged to any index but whose contract terms permitted the renewal rate to be set at the individual lender's "then-current market rate of interest on similar loans?"  b.  In the Board's judgment, might it frustrate the Truth In Lending Act objective of meaningful cost disclosure for comparison shopping if rollover or renegotiable rate mortgages are issued having contract terms that permit the lender to set the renewal rate, at the time of renewal, at whatever rate is that individual lender's "then-current market rate of interest on similar loans?"  Hon. Paul A. Volcker  c.  4  3  March 10, 1980  Might it be an unfair trade practice for a commercial or savings bank to issue a renegotiable rate mortgage having contract terms that permit the lender to set the renewal rate, at the time of renewal, at whatever rate is that individual lender's "then-current market rate of interest on similar loans"?  Monitoring: What are the plans or present programs of the Federal Reserve to monitor the market for variable rate and related mortgage instruments, including monitoring the pattern of contract terms, interest rates, costs and fees, consumer acceptability and complaints, and aggregate lending flows or portfolio investments in such instruments?  The rules of the Government Operations Committee, as you know, require that prepared statements be available at the subcommittee office 24 hours in advance of the hearing. I shall look forward to hearing the Federal Reserve's testimony. S(n icerely,  Beni min S. Rosenthal Cha lrman BSR:tb  -WWWWWWWW--, - - • .W7 1 .1 . 0 1111M11.  3.41, ‘,  Thu honorable John JosulA: ,,oakley Cuairman Subcommittee on u1 of the House coicimittee on Itules liouse of Re:eresentatives wushilvAcia, D.C. 2D515 QAr Cuairman  oakLc  The aoard of Governor%. of the Vtderal 1:eservo 5yLtam weicomeu the opportunity to review and commoilt vn ,our Cucommattoe ;rint on the "Estab1ishm4nt of Procedures for Confjrc6sioual 4,Alview of Aojency nules" which contains an analyis of ttc issueu xaised by the litv.iislative veto Irt,qA)sais and a diacuseicn of a ;..ro4 ose4 alternative—the eutablishltient of a Select Columittee on A(ev ulatory Affairs. The Board ;;Larea your concernc that differinv oLjnctives of 64vora1 aAncies Llay sometimeu 1.tet%1 to cunflicto in re3u1ations; that at otA.cr times, in some Federal re;ulations, ;:rovisions vay dui.licate end ovarlal each other i and that Veileral regulations .4oittetialot, imo:a..i - e a needlessly hmavi knir4on on t*cth the regulated CLA4i t.te ,W)lic in ral. For thew° reasona we have supporteC oLjectivs of varicAia; e6unaet" legislative prwosals. Your re-eort aluo ;ro,erly notes that the Congress must bear its share of the resiionsibility for iroliferatins Federal re%iulations. 'it, believe that Congress could olay an is-portent role in dealing with t!,e ,rolAis connected the rule-ellnrj activities of the a,w4oiev). We have isuAriested that it would Le dcsiraiJle as a vmeral rractice for Conjruasional committees to revi4w regulations issued under le.lislatiou they have aporo;orod to determine if the relator re.iuiremants and reaultirq lAirdenu art2 # iu fact/ justified by the 1-rrob1ems cured or btlnefits derived zc ia.o new roiuigements. , the creation of a opruanent TLe draft reiort kirok:ook. select cowmittce of VA, House to Le known as the Coanittee on .4e,„ulatory :dfairs ("Select CoLlmittae"). Each agency would ie reuirad to lauJmit to the Select c.tx.inittee the text of each newl4 ieroi)osed or romul..jateii ahc:f rule to,jother with a 'Mato-went of the statuter or constitutional authority for it, the  •  The Honorable John Joseph %oalT.sley Pa4e  &chedule under which the agency :roporos to act, to-;ttheor with any ot:4,e4 reasonably oLtainal.le infomation. T 1oct Conmittee z.a, undertake an invcntigation of any such arlex%cy rule on its own initiative, at th* request of any member or r;rour, of menLers or at the re-.uet of any standing committee t)sving tantia1jurisdiction over the sullject mattor. Vle Select CoLlmittee may then rer.ort to the now* and, if appropriate, recom zend a joint resolution tl4tt would repeal or rrevent the promulgatiom of tia rule, prevcnt :rac: rule from takinrj effect; or 'ecstieno, frusicand or tei-inate sucf-, rule's effectivenes. tr;* Board recovnizes the seriuRness of the ixol.,let:i3 addressed, we have serioutJ reservations alcut the practicalit, of such a Conqressional review procedure. /t is noted froits your report that over 7,500 rules ad regulations yore i.roKulgated in 1579. It a-,7ears tt;at the handlinc of finch a volume of resulationh woull wiw;:t tl:e abilities of any single Congressional coranittoe. The ioard gvunoztt, therefore, eAtt serious consideration 1;e ,iven to kr+rov*ment in overziqht croceduros by the various cotittoc viuç 1jialat.iv urisdiction over the regulatory agoncies, aided the reforms in regalatory rrocedurea that have Lc..en ar.loptA or are currently beinc considered by tho Conross. etstz:!:!1-10, Title VIII of the nepository Institutions Leregulation and ol-xttary Control Act of 1980, (P.L. 04-221) adovted a *rinancial f!oulatiot Simplification :rct of 3.9110. .!4ons, the nitTlirementu imposed are directions to avoid conflicts, duFlications and inconnistencies betoen regulations issued by the federal Financial ;ulatoory Agencle and to obtain timely partici2ation and connent other Federal agencies, approrriate state and local agencies aud financiAl imatitutioms and consumera. In addition. regulatory refra-.77,1 Ails such as 11.7. 3263, S. 262 anl S. 2147 now under active con6ideration el. Congress would furnitib zuch ;AJrce ;44oio;rowld analysis of regulations and rore information alJout overlap and Ouplication in rederal regulations. With thiz new body of information, Coavreasional oversimht could 1.;e made 4ore effective, I am 1.1eased to have had the oTportunity to suhnit these comments and bole they will .,olroful in the furtL=Tr consideration of your reoort. :Ancereli e.:D.TH:pjt (W-177) bcc. rcUeill :1rs. (2)6/  Wag A. Vo!cifec  A SUBCOMMITTEE ON RULES OF THE HOUS . f  JOHN JOSEPH MOAKLEY, MASS., CHAIRMAN CHR/STOVHER .1. DODD, CONN. ANTHONY C. OFILENSON, CALIF. MARTIN FROST, T1 X.  do  JOHN B. ANDERSON. ILL. ROBERT E. BAUMAN, MD.  JOHN J. DOOLING, COUNSEL DON WOLFENSBERGER. MINORITY COUNSEL  NINETY-SIXTH CONGRESS COMMITTEE ON RULES RICHARD  3Pouge of 1lepre5entatibeg Committee on iltileg taaftington, ID.C. 20515  soiLim0.  CHAIRMAN  SUBCOMMITTEE OFFICK  H-I52 THE CAPITOL (202) 225-9091  April 21, 1980  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve Board 20th Street & Constitution Avenue, NW Washington, D.C. 20551 Dear Mr. Chairman: Enclosed is a copy of our subcommittee print on the "Establishment of Procedures for Congressional Review of Agency Rules" which contains an analysis of the issues raised by the legislative veto and a discussion of our proposed alternative - the establishment of a Select Committee on Regulatory Affairs. The Select Committee would have broad jurisdiction over the rulemaking activities of the federal government and thus would provide Congress with a mechanism to conduct the type of oversight which its compartmentalized committee system now precludes. Our proposal would have an important effect on the rulemaking activities of your agency. I would appreciate your comments and suggestions on the discussion and recommendations contained in our subcommittee print. It is my hope that the Committee on Rules will take action on this issue in the near future and I am therefore requesting that you send your comments and suggestions to me by May 10th. Sincerely,  JOHN  JOS PH MOAKLEY ( "Subcommittee Chairman JJM:mp Enclosure  " 11PO  Lonoralac Benjamin Ci.) ixnan 1.cov,mittee on Comnerce, Comalner ane. .,410notary Arfirn Cov.mittee on :;overmtont t)r-crations Lousi.e of :-(4741rostemtatives Wauhintoni D.C. 2051S 1t,,car Chairnan In liuLt of your ,731A;coiarAitteelft; recent hearinq on the Hunt-tlilver situation, I toutxht you would be interested in havinf; tLe enclocea -Interim Port' on the financial aspects of that situation. T thinh the retort ;41.11 !-telp clarify some of tha factual ir.f.aulk; that arof:;e in your tlearin5s. As the 'InteriLa NIvort indicates, wn 11.nre wuch of our attention to the more baric flieotionn as whole aituation arolilo in the first instance nnd what done to 7,-revent a zir-IiIar prob1en in the future, we OU inforuetl. Sincerely, SLFaul A. Vol  nclosuro EGC:DAJW.pjt  Mrs. Mallardi (2)‘/  now turned to how the ml5ht .Je) will keep  !'ay 22/  laeo  The UonoraLle Parr J. '7itcho11 Chaiman 1;ubcomittee on Dor.estic I ronetary You c Coroimittee on Banking., Finance and Urban .tifairs :icutle of 7ereFentatives wain5ton, IC. 20515 Lear C:'4irraan  itchell  As %ir. discuased at the hearing or te rederal reserve :ooZernization ,Nct," I an' encloaing our °Interiri Report° on the financial aspects of V:c; rccent nunt-rilver mart situation. Tia3 entir atter was an unhappy one in wIlict some major financial institatiom; and the financial elartcts generally were tested. It a;Taars that the storm hae been weathered without any ;Jernianent damage to those markets or institutions. tut, 1 think it ic clear that we mult turn our attention to an analysia of v.hat can and should Le clone / in 1i or re5u1ation, to privent a c.dsAlar occurrence in the future. That iv vreciaely what we, in cocz,eration it other agenciez, are doinc,; an I will keer efforts. you informed as to the statue; of to  Sty_aill A. Yolci4  Zncloaurs EGC.DJW;pjt bcc. Mrs. Mallardi(2)  !ay 22, rne  The HonoralAe :Daniel P. :L"yniharl United Stater.; Senate Wabhinejton, L.C. 20510 Lear Pat: l`ollowinq our discussion at lunch 1-eaterday, I an enclosincl our "Interim Yeport" on tt.e financial aspects of the recent Hunt-silver market !;ituation. Thin ntire -tatter was an unhapry one in which sone oajor financial institutions and tIto financial markets -morally were tested. It appearz that th torrr as been wentretd without an :orr.tanent dama7* to those markets or institutions. But, I think it .4,1; clear that we rut turn our attPntion to an analysie cf uhat can and ahould he done: in law cr ro,-ulation, to prevent a eit.ilar occurrence in the future. Sincerel Sflaml A. vviaer  Enclosure CCC:WW:Eit bcc; Ers. Yallardi (2)t/  .1-  22, 1S30  The 1;onoral)1e ran Church United States Senate 20510 vachinqton D.C. Dear ScInator Church: 13, I em ti our 'Interim Report'" OA t:A3 financial anE2ects L'endin, of tLorecent nunt-Eilver .1'larket situation. Aa I z%romiaed you in my letter or  This entire matter %Ian an unhappy one in which rom major financial imtitutions and the financial tiartets generally wore. tested. It alTears tt'at the rstor: baa !en 1.teathered without any ,ermanent damacje to those 41,arkets or institutions. rut, thini. it is clear that we mat turn our attention to an analyia of what can and ahould be done, ir4 Law or regulation, to prevent a itikalar occurrence in the futum. Tbst ir precisely what we, in cool:.eration with other atiencies, are loincj and I vill keep you ivforned as to the status of thou efforts. Sincerely,  VILIIAX4Ac  Lnc/ouure tOC:DJWrjt  icc  (liaeg IV-187)  •:iallardi (2.)%  •  13*  3.  • Ziostosaktabe Aar Lizt Trout Mourne Of Xoprosantutivez Weshialitca, D.C. 20:01fh Dear lz.its Frost, L appreciate /104 2i.bpar‘, our ci:›nctxn rv,:hardir.4 rtlicuAt aitlieulties ilZacting Cae Lvtor vt4dc1c indwatv„ aa tAxiro4z( in ,vur latt‘r of Lay 1. It 1,4 tl!lat invunt(,zr7t ctitztrol .,Lariafactvirers aud ditalerzi receut fInancLaI ZweelialtTxthta 4 azdt 4 .a4 t144$ Boactilt; anti.•inflatxon ,-croiirams 4,i11 11611,,. to alleviate the iero;44$670a balmy tacoft1 ti;441, iliJukAry. Witr t.te Actor vehicle Industry, Atte?* halite ()win takea to seducte *44:44;4111,1D stock* $iaatt Last summer. These reductions Lr invwitioriaa wavii bvino accrwiald.ished largekt in the facto of weal **Lau, ja(a.LiCe d while tloori.leasani °eats oor vehicle rooe until iald-aytil, dealer?, ..44.4re aucczaaful in containlat,f total finance 04axiea. wuri1-4 Cos laat *swami. weell.zi, the altuatien how befe4 luxtilor ei4vAd "at. 4hort-torm il.terest ratea. ai,rociaL4 joux ;41ar.1t an:t now car aed trueloaus from la:* tk: ,-oroulot loau ,rv4tA: ram,:,;**. The ?deral aeaarve does riot loclieve it ai:ixoh,riate At tLiii tii,A) to opecificall4 eivat ank i.urtIcul4r type of loan. Ipecit.u4 c•f the importance laalutaiaind the aoutcol over tLo ';rowti4 a crodite nowever, oaazizotent wit4 th* overall fork of t:;.0 1.%-ecia1 Credit Is'XO'irtiaa, the /Ward !tad 4alcragod oommerciia beck& to g riO4416J tO e.ai71talai44 a ro*b1 flo of fuhda to con. ario4I1L1 . assinasses, this includet auto dealers srith cxydit iXiof t.'1.$ tellIloo or Iftos. It pacespavi then, leadinv to larlux 4.1.40.440e4 '401114 baNet to L. reduced in order to 6000RMLawW itiCrt:4:4e10 iu COMAIMOX dad iloor;lanniztv loaa and rtill nt4tin %Jr1t11 of all looms within the 'imidelince. 4xco,uvivc ialation canoot vorcr time, of couree, unliasi; imeloa 4A0o:341VQ 4041:afitliOU in sew az crdLt. Thao azio 14:1 Lrusit of iedoral 14:4040rIhrt peliay rimmai 4iod at maintc.4.4n, ;14a,rette tjvotiel la aii.dreA,,ate wooarle and crcalt The prok.  off S  The Honorable Martin Frost Page Two  of assuring a moderate rate of growth in money and credit so as to fight inflation is obviously not easy or painless. We are now seeing signs that inflation and inflationary pressures are easing, credit demands weakening, and interest rates are declining from their recent levels. Ultimately this will increase consumer income, restore purchasing power, and help revive the auto industry. Sin erely,  , %idea )01- wihn ek--  plAta'i riA,4t 10.JAP- ) rew  /uiete I  av,g (44aA  fri/  A  24Tvi 0161-reIeT, Tr/A6  0 1238 LoNc.v.nsm4 HOUSE Orricr WASHINGTON. D C.  Action assigned Mrtichline  •  MAFRTIN FROST  DISTRICT orrIctiii DALLAS. TEXAS '75208 0 OAK CLIFF BANK TOwER, ROOM 1319 400 SOUTH ZANG BoULEVAPO  rb.--tLoiNch  20515  (202) 225-3605  RULES COMMITTEE  Congrt55 of the Ziniteb gptate55 3t)oti5e of tepre5entatibc5  (214) 941-6032 GRAND PRAIRIE. TEXAS  75050 211 Wisr MAIN, ROOM 106 (214) 262-1503  ARLINGTON.TEXAS 76011 C] 611 RYAN PLAZA DRIVE, Room 717 (B17) 265-7759  ZiilaBbington,13.C. 20313  is  PLEASE PErLY TO OFFICE CHECKED  May 1, 1980 Paul Volcker, Chairman Federal Reserve Board 20th and Constitution Avenue, NW Washington, D.C. 20551 Dear Mr. Chdirman: As you know, the new car and truck industry is now suffering from a set of circumstances which, if not corrected, could result in permanent damage to this industry and could also jeopardize the nation's chances for making a speedy recovery from present economic conditions. In Texas, the slowdown of new car and truck sales is particularly acute. High interest rates and a restrictive state usury law have combined with the Federal Reserve Board's loan growth limitation to rapidly deplete the funds available for dealer floorplanning and consumer loans for automobile purchases. While car and truck financing was exempted from the recently imposed reserve.requirements na to ease the impact of high interest rates, the loan growth restrictions have dramatically reduced the funds available for automobile financing. Financial institutions must be given an incentive to finance both consumer and floorplanning loans. If not, I see little possibility fS r relief for these small business concerns. In light of these circumstances, I would like to propose the following suggestion for your consideration. I would propose that the current policy of limiting overall loans to a growth rate of 6°,; to 9% be adjusted, so as to exempt new car and truck loans. This would serve several purposes.' One, it would free up money that is now critically needed for automotive financing without jeopardizing business and industry loan sources. It would do so without flooding the market with so much money so as to detract from overall Federal Reserve Board objectives. And, by reversing the clearly dangerous situation in which auto and truck dealerships now find themselves, this policy would do much to improve our chances for saving our small business dealer. This is obviously only one of several possible approaches to this problem. I would urge you to carefully consider all possibilities, as the recovery of this industry is far too important to the nation as a whole to ignore a possible solution to its dilemma. Your consideration of this suggestion would be most sincerely appreciated. Sincerely,  Martin Frost MF/bm  1.1ay 23, 1980  Dear Senator Cranston: I very much regretted to learn of the untimely death of your son, Robin.  I want  to express my sympathy to you and the members of your family at this time of sorrow. Sincerely,  The Honorable Alan Cranston United States Senate Washington, D.C. 20510  JE:mrk  WILLIAM PROXMIRE, WIS.. CHAIRMAN HARRISON A. WILLIAMS. JR.. NJ. JAKE GARN, UTAH ALAN CRANSTON, CALIF. JOHN TOWER, TEX. ADLAI E. STEVENSON. ILL.. JOHN HEINZ, PA. ROBERT MORGAN. N.C. WILLIAM L. ARMSTRONG, COLO. DONALD W. RIEGLE, JR.. MICH. NANCY LANDON KA SSESAUM, KANS. PAUL S. SARSANES, MD. RICHARD G. LUGAR, IND. DONALD W. STEW ART. ALA. GEORGE J. M rrcHEL.L. MAINE KENNETH A. MC LEAN. STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANCES DE LA PAVA, CHIEF CLERK  'alCnifeb Ztafes Zerrafe COMMITTEE ON BANKING, HOUS ING, AND URBAN AFFAIRS  WASHINGTON, D.C. 20510  May 23, 1980 Chairman Paul A. Volcker Depository Institutions Deregulation Committee 20th and C Streets, N.W. Washington, D.C. 20551 Dear Mr. Chairman: It has been reported that the Depository Ins titutions Deregulation Committee will consider the advisability of eli minating the rate differential on money market certificates which otherw ise will be restored when Treasury bill rates fall below 9 percent. Any decision on the differential will have to strike a delicate balance betwee n preserving the financial stability of financial institutions, maintaini ng credit flows for housing, agriculture, and small business, and providing equity for savers. A judgment on this issue requires access to detail ed information on the current condition of financial institutions and on the recent credit market developments. For these reasons, Congress lef t the issue of the differential on accounts created after December 10, 197 5 to be decided by the Deregulation Committee. For example, in passing the Depository Instituti ons Deregulation and Monetary Control Act of 1980, Congress could hav e amended P.L. 94-200 to require the differential be maintained on all categories of accounts and not just those in effect on December 10, 1975. Congress chose not to do so. It is obvious, therefore, that Congress int ended to vest discretionary authority on post-December 10, 1975 accounts wit h the Deregulation Committee. Hopefully, the Deregulation Committee will carefully assess the impact of restoring or eliminating the differential bef ore making its decision. I believe the Congress clearly intended that the Der egulation Committee exercise its best judgment on such matters. I have taken no position on this issue; instead, I urge the Deregulation Commit tee to decide the issue strictly on its merits without reference to outside -pr ssure.  I am r xmir Chairman  :3 •  r  2iust !xciaoricolo aerkley bodell ;.0arls! cf s*ntetivem 14:ton, 7$,C. 20S1S •,41.Ar  tiar4140:.,  Thin. Y4u tox 4ivial me the 0;,,:e..iwrtunit:;, to comment .n teztai leiltionsl of ItOM: tiOnStitutint. John Ralther o 10:out the 7.c,fax1Pok oonamwer rostroint rgN'ulatizg, Walther ;:rotx.),:na that ooDtrolil :eat aot dewmpayment •cut for trai  NIE.kriot of crodit-flaarce4 onseumer Itemo. ID sm-AAeisisvd to:.41 fliroct costral of csoiit tams, Mr. WaltLer's idea Is siRilar to t!_4 43,;.1%htch takan tword credit restraint duels, the roman 0.4r.  4  tePoard on :larch 14 iL:7,11/Ettanted a eon *subs credit rectraint relulation %/Lich *squires creditors to del-omit uith the Aodcrs1 Z'AMO7VV or aoonnt et-:;12o1 to IS 7ercelett et incm le certai+, t,i-e6 of eossumer credit cluding credit swards* cheek coedit overdraft plass, unsecured rersonal loans, and secured credit where the proceeds art not %I:ice to finance the oollateral, The regulation le dooi-f-Aeld to ease the inflationary i,rossureo to vItich alsocas croftit :rowth eontribates. As >o  While the Uoard +anticipated that many cr44ttort- vt:1114 decide to impose oars strincent credit terns in xesr.?, revlation, the Seised 4e1iberetel refrained Iron tvel measure. directly. In the Beard's view, its spyroett, ':AnYviA6z creditors wits comeiderabla incentivo to restrairl qrtwt% of covered tyoss al credit z.t, tho sate time, the rluilation 4ivos creditors; floxiLilitx to tailor reatralriu-; actiont to t]molir own otierstioas an4 to the need* of their cw5tamerf The oliecial dopcoit rev:slimmest& and the volnatAry  c4Iling for restraint OA 1e4iw3 at banks are learl extraordinavi moa4lurela, If continued for aivi Ion 7ttyzio Aluld dii4r1144 siorual parkat procassas: an4 V,ktretc  The Honorable Page Two  S Berkley  • Bedell  are certainly not a substitute for the general instruments of monetary and fiscal policy. In recent weeks, demands for money and credit have declined and interest rates have dropped substantially. I am hopeful that these developments, along with progress in fighting inflation, will permit a removal of credit control measures in the not too distant future. Sincerely,  r  / xe. ;2t1  Atevdtg A evad dtv (/ •••  ve„  BERKLEY BEDELL 6TH DISTRICT, IOWA  •  Action assigned Mr. Kilkine  COMMITTEES: AGRICULTURE SUBCOMMITTEES: Z• v ii  LIVESTOCK AND GRAINS FAMILY FARMS, RURAL DEVELOPMENT AND SitcIAL STUDIES CoNBERVATIoN AND CREDIT SMALL BUSINESS  (202) 225-5476  Congre55 of tfic Unita!6tate5 jOott5e of 1ktpre5entatibei4 Z/lasbinqtait, 13.C. 20M5  SUBCOMMITTEES: ANTITRUST AND RESTRAINT OF TRADE ACTIVITIES AFFECTING SMALL BUSINESS  WASHINGTON OFTICEt 405 CANNON HOUSE OFFICE BUILDI: WASHINGTON, D.C. 20515  DISTRICT OFFICES: 479 FEDERAL BUILDING FORT DODGE. IOWA 50501 (515) 573-7169 318 FEDERAL BUILDING SIOUX CITY, IOWA (712) 252-4164  May 2, 1980  3  Mr. Paul Volcker ( Chairman Federal Reserve Board Twentieth Street and Constitution Avenue N.W. Washington, D.C. 20551  4  Dear Paul: I am enclosing a copy of a letter from a constituent of mine, Mr. John Walther, who has several suggestions in regard to credit controls. I would appreciate your reviewing his letter and responding to his concerns. Thank you very much for your attention to this request. With best personal regards, I am Sincerely,  Berkley BEIdell Member of Congress BB/gh  51101  EXT. 281  ..11==111111/.  . 16  k',14  -  a  /  RENWICK SAVINGS BANK INDEPENDENT COMMUNITY BANK • RENWICK, IOWA 50577 • 515-824-3251  Berkley Bedell 316 Cannon House Office Bid. Washington, D. C. 20515  April 16, 1980  Berkley: 441406WWWW, Sorry I had to leave the Humboldt meeting early last Frida Wanted to talk to you about Credit Controls. The President has stated that they would not use credit controls as a means of slowing down inflation. (Our economy is too dynamic to ever stop inflation or get it back to the 3% area of the 50's.) Anyway in your discussion you spoke about the need of personal savings and ways to get people to save. The $200.00 tax free on the interest earned will help but IRS will destory that in a ruling to get financial institutions to withhold taxes on interest and dividends.* That will defeat SAVINGS! Credit Controls on Consumer items from T. V.'s to Houses could be set by the Federal Reserve. A board of regulators composed of Consumers and Businessmen could set the amount of down payment needed to buy the items. Down payment requirements,„ on each item would solve ourEavings problem as people would have 4 to go back to saving in order to reach the goal of purchasing the item. Controls would allow interest rates to come down to an area where people can live with them. Those people with the . down payments can continue to purchase the items they want. Money could flow to areas of need. Farmers could get money to plant crops and purchase feeder livestock. Consumer purchases; of manufactured goods and housing would start. Then perhaps we could get underway to reaching a level growing economy. This sounds too simple but I think it is the only fair way to solve our credit crunch problems. Perhaps you could visit with Volker about it. I would be interested in hearing what he has to say.  SifIcerely,  4j .:01-in Walther *Enclosure: Letter From American Bankers Association. JW:lh  rt,11  The t:.onora..)le Iroxmire Chairwan CGoLlittee on Isankighl , and Urliun Affairs United States 3*InAte uasLiwiton, D. C. 20510 L:(14ar Chairman Pro3mire. Thank you for 4oux lettfar of 20 xel;ardin Lux hearin.is on s. 2704, a bill to the Federal A icIserve Act to authorize the '64o•ard of c.v!?nnors of the k‘kleral Ueserve ster: to establish rar;in requir*1:sents tor transetiona in finwleial instrumerts. eaa lookinrj lorward to allearinj at IM CO VAIrsday, kon !la-4. 29. rincoraly.  s/paul  (#V-229) bee:,  hr. Corrigan nr. 6trub1e nra. Eallardi (2)  Wicket  WILLIAM PROXMIRE. WI. HARRISON A. WILLJAMS. JR., N.J. ALAN CRANSTON, CALIF. ILL. T ADLA1 E. SEVENSON, ROBERT MORGAN. N.C. DONALD W. RIEGLE. JR., MICH. PAUL ' S. SARSANES, MD. DONALD W. STEWART. ALA. PALL E. TSIONGAS, MASS.  IRMAN  JAX UTAH JOHN WER. TEX. JOHN HEINZ, PA. W/LLIAM L. ARMSTRONG. COLO. NANCY LANDON KASSIRAUM. KANS. RICHARD G. LUGAR. IND.  KENNETH A. MC LEAN, STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANCES DE LA PAVA, CHIEF CLJLRK  • 'ZiCnifeb ..Sfafez -.Senate COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS WASHINGTON, D.C. 20510  May 20, 1980  /1  11  11==3 Chairman Paul A. Volcker Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman:  This will confirm our invitation to you to testify before the Committee on the recent developments in the silver market and on the adequacy of our system for regulating aspects of trading in certain financial instruments including foreign exchange, Treasury obligations, government guaranteed securities, gold or silver.  1111111111111 . 111111  The Committee will explore the effects of excessive commodities speculation on the Nation's banking system and credit markets. The hearings will also address legislation I have introduced to authorize the Board of Governors of the Federal Reserve System to prescribe deposit requirements and regulate credit which may be extended in connection with the purchase or sale of certain financial instruments. A com7 of 2704 is enclosed for your information. hearings will begin at 10:00 a.m. in Room 5302, Dirksen Senate Office Building on Thursday, May 29, 1980. Because of the large numS er of witnesses scheduled to appear, I am asking that oral presentations be held to a maximum of 10 minutes. Written statements will, of course, be included in full in the hearings record. Committee rules require that you submit at least 100 copies of your written testimony which should be made available no less than 48 hours prior to your appearance. Earlier submission of testimony will, of course, be most welcome. Copies of your statement should be delivered to the attention of Howard Menell of the Committee staff, #5300, Dirksen Senate Office Building, Washington, D.C. 20510. If you have any questions concerning the hearing, please IS not hesitate to contact Mr. Menell at 202/224-7391.  Enclosure  •  2A144,`,,;• 71...C; i  II  Hr. ('ONGIMSS 21) SESSION  S.2704  To slur the Fcderal Reserve Act to authorize the Board of Governors of the Fed( ial ltn!enT System to establish margin requirements for transactions in financial instruments. miumnprimaymomm.  IN THE SENATE OF THE UNITED STATES MAY 14 (legislative day, JANUARY 3), 1980 Mr. PROXMIRE introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs  •  A BILL To mend the Federal Reserve Act to authorize the Board of Govelnws of the Federal Reserve System to establish margin requirements for transactions in financial instruments. 1  Be it enacted by the Senate and House of Representa-  2 tires of the United States of America in Congress assembled, 3 That the Federal Reserve Act is amended by inserting after 4 section 23A the following:  .4404  •  2  4  1  "MARGIN REQUIREMENTS FOR TRANSACTIONS IN  2  FINANCIAL INSTRUMENTS  "Svc. 23B. (a) To prevent excessive speculation with  111  4 substantial adverse effects on the Nation's banking system, 5 credit markets, or economy, the Board of Governors shall 6 prescribe regulations applicable to transactions involving the 7 purchase or sale of any financial instrument or any futures 111111.11111. . 11 . 10 11M1.1 -  8 contract involving a financial instrument. Such regulations 9 shall be limited to the following:  1111111.111111111MBIONMER  10  "(1) the regulation of the terms, conditions, and  11  amounts of credit (including the specification of the  12  type of collateral which may be furnished) which may  -13  be extended directly or indirectly for the purpose of ac-  14  quiring a financial instrument or meeting any minimum  15  deposit required in connection with a futures contract  16  involving a financial instrument; and  17  "(2) a requirement for the furnishing and mainte-  18  nance of a minimum deposit (including the specification  19  of the type of deposit) in connection with the purchase  20  or sale of a futures contract involving a financial in-  21  strurnent.  22 Such regulations may contain such exemptions, exceptions, 23 and classifications, by types of financial instruments or other24 wise, as the Board determines to be appropriate.  1  "(b) To ensure the continued efficiency and integrity of  ° the .market for financial instruments and, in general, to moni3 tor the functioning of the markets for such instruments4  "(1) every person subject to any regulation issued  5  pursuant to subsection (a) FIall furnish the Board with such reports as the Board slut!! prescribe as neeessarv and appropriate. The Board may require. such. reports  8  to contain (A) information relating to the size, composi-  9  tion, and sources of financing of positions in such in-  10  struments, profits from the trading of such instruments,  11  and the number and characteristics of transactions in  - 12  such instruments, and (B) any other information related  13  to the trading of such instruments; and  14  "(t?) every department or agency of the Federal  15  Government collectirg or compiling information which  16  the Board may reiluire pursuant to laragraph (1) of  17  this subsection or exercising jurisdiction ovcr persons  18  referred to in such paragraph shalt consult and cooper-  19  ate with the .Board and make available to it such infer-  20  illation as the Board may request.  21  "(e) Wherever it appears to the Board that any person  22 subject to any regulation issued pursuant to subsection (a) of 23 this section, is engaged or is about to engage in an act or 24 practice constituting a violation of any provision of this se-c25 tion or the rules or regulations thereunder.. the. Board may in  4 1  its discretion brin•g an action in the proper district court of  •  2 the United States, the United States District Court for the 3 District of Columbia, or the United States courts of any terri4 tory or other place subject to the jurisdiction of the United  5 States, to enjoin such act or practice, and upon a. proper 6 showing a permanent or temporary' injunction or restraining  ' = 1  7 order shall be granted without bond. The Board may transmit 8 such evidence as may be available concerning such act or 9 practice as may constitute a violation of any provision of this 10 title or the rules or regulations thereunder to the Attorney'  1111111111111 . . 111 . 1  11 General, who may, in his discretion, institute the necessary 12 criminal proceedings under this title.  Board may dele•gate its functions and authori1.1 tics under this section to any department, agency, or instru15 mentality of the United States Government as it deems appropriate. person who makes or receives an extension.of  18 cr( (lit. or who arranges for the purchase or sale of a futures 19 contract, in violation of any regulation issued pursuant to  20 subsection (a) shall be fined not to exceed $100,000 or, in the 21 case of a willf1.1. violation, shall be fined not to exceed 22 $100,000 or imprisoned for not to exceed five yca.rs, or both. used in this section—  ancial instrument' means any ..,)  c-!rren(y, any security' or other evidence of indebted-  •  5 1  ness not subject to the provisions of section 7 of the  9  Securities Exchange Act of 1934, gold bullion, silver  3  bullion, bulk gold coins, bulk silver coins, or any other  4  article, contract, or right which the Board detennilles  Is  has monetary characteristics or is a store of value, but  6  such term does not include any agricultural commodity;  7  and  8  "(2) the term 'futures contract' means a contract  9  for the future delivery of any financial instrument  10  v,thich is traded on any contract market  11  entity locatediiithe United States.". .16  0  •  Or Similar  WILLIAM PROXMIRE, WIS., CHAIR MAN HARRISON A. WILLIAMS, JR., NJ. JAKE GARN, UTAH ALAN CRANSTON, CAUF. JOHN TOWER, TEX. ADLAI E. STEVENSON, ILL. JOHN HEINZ. PA. ROBERT MORGAN, N.C. WILLIAM L. ARMSTRONG, COLO. DONALD W. RIEGLE, JR., MICH. NANCY LANDON KA SSEOAUM. KANS. PAUL. S. SARSANES„ MO. RICHARD G. LUGAR, IND. DONALD W. STEWART, ALA. GEORGE J. MITCHELL., MAINE KENNETH A. MC LEAN. STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANCES DE LA PAVA, CHIEF CLERK  'ZCnifeti ,Zfafez Zertaie COMMITTEE ON BANKING. HOUS ING.AND URBAN AFFAIRS WASHINGTON, D.C. 20510  May 23, 1980 Chairman Paul A. Volcker Depository Institutions Deregulation Commit tee 20th and C Streets, N.W. Washington, D.C. 20551 Dear Mr. Chairman: It has been reported that the Depository Ins titutions Deregulation Committee will consider the advisability of eli tial on money market certificates which otherw minating the rate differenise will be restored when Treasury bill rates fall below 9 percent. Any decision on the differential will have to strike a delicate balance bet ween preserving the financial stability of financial institutions, maintaini ng credit flows for housing, agriculture, and small business, and providing equity for savers. A judgment on this issue requires access to detail ed information on the current condition of financial institutions and on the recent credit market developments. For these reasons, Congress lef t the issue of the differential on accounts created after December 10, 1975 to be decided by the Deregulation Committee. For example, in passing the Depository Instituti ons Deregulation and Monetary Control Act of 1980, Congress could have amended P.L. 94-200 to require the differential be maintained on all categories of accounts and not just those in effect on December 10, 197 5. Congress chose not to do so. It is obvious, therefore, that Congress int ended to vest discretionary authority on post-December 10, 1975 accounts wit h the Deregulation Committee. Hopefully, the Deregulation Committee will carefu lly assess the impact of restoring or eliminating the differential bef ore making its decision. I believe the Congress clearly intended that the Deregulation Committee exercise its best judgment on such matters. I have taken no position on this issue; instead, I urge the Deregulation Com mittee to decide the issue strictly on its merits without refere nce to outside_pressure. Si cerell  am Chairman  xmire  DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE CHAIRMAN CONNELL  COMPTROLLER HEIMANN  CHAIRMAN JANIS  SECRETARY MILLER  CHAIRMAN SPRAGUE  CHAIRMAN VOLCKER  May 23, 1980  The Honorable William Proxmire Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D. C. 20510 The Honorable Jake Garn United States Senate Washington, D. C. 20510 Dear Chairman Proxmire and Senator Garn: Thank you for your letter concerning the question of opening the DIDC meeting tO the public when it considers the differential on the money market certificate. I fear there has been a considerable amount of confusion about this matter reflecting the intense interest of some groups on the differential question. The fact is that the last meeting of the Committee considered, in a preliminary and rather speculative way, a series of questions about the management of interest rate ceilings in the period ahead. While the differential question arose as part of that discussion, it was entirely in that larger context. There was no question in my mind at the time that public discussion of possible changes in interest rate ceilings in the context of hypothetical market scenarios, and the impact of market and ceiling changes on earnings, exposure to adverse deposit flows, and the ability of particular institutions to service loans for housing and small business and agriculture, could have contributed to misunderstanding and speculative market reactions, including about monetary policy itself. Those possible reactions clearly could have been disruptive to both markets and institutional behavior. I sincerely doubt that such a result would have been in the public interest. I am assured by counsel that, given the type of discussion contemplated, there was no doubt that closing the meeting met the provisions of the Government in the Sunshine Act, which, as I understand it, was expressly designed to recognize the kind of situation we faced. Of course, any decision to close a meeting, or any portion of a meeting, must be made by a majority vote of the Committee members.  1  Chairman Proxmire and Senator Garn  -2-  I recognize the public interest in open meetings and I have no reservation about opening meetings, or portions thereof, including a meeting, or portion of a meeting, concentrating on reaching a decision on the differential itself, where the discussions are not likely to have an adverse impact on the stability of financial markets or particular groups of institutions. In this regard, I would be pleased to bring your concerns to the attention of the other members of the Committee. Sincerely,  •  May 27 r 1980  oreI.- 11e Inivar:1 rennedy United Ctatec Senstc Washinciton, L.C. 20510 Dear Cenator Kennedy: Thank you for your letter of tery 15 concernirvj a letter u received from the 1,:e ncland ruel Institute regarding the 3tatur;( under thu Board's ocrivumer credit restraint reulation, Of certain Lank loans made for tner cen2ervation jurorAoz. .. The board'a La,lal Division ha, advitied lAirLhardt that bank financing arranucid Ly fuel oil distriLutore for the 0=4„;ae aad installation Of more enersy efficiont heating urolt:; it the tind of credit the board intended to exell7t and wc,414 not oonatitute 'covered credit under tIto Iloard'i.; conuumer credit restraint re-julation. For your information, I Lave enclozed a coill of the Lefioal Division's res:)onse to Uurkliardt. Also, when the Loard modified the Special Credit Roatraint Program on :iay 22, it informed the Chief tameutive Officer of all cwnercial 1..e.4ke that this progrur, is net desi9ned to exert ret;traint on onergy conservation credit. aiTrociato your interest in this tter. let Lie know if I can 1.e of further assistance.  Pleat)  Sincerely,  SLPUI Volcker  Lneltyg;urta  (Ltr. dtd. 5/15/C0 to nr. Burkhardt from Mr. Mannion.)  COtpjt (#V-224) bcc: lirs. islallardi (2)  ECAN4NRD M. KENNEDY M ASS A CI-11J5r. T  ?..1Cnitcb ,Stalez ,Senate WASHINGTON. D.C. 20510  May 15, 1980  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: I recently received the attached letter from the New .England Fuel Institute indicating that the Federal Reserve Board's consumer credit restrictions will make it more difficult for consumers to install energy efficient heating units that are financed through bank loans. If this is in fact what the Federal Reserve Board's recent regulations have done, I believe it is a serious mistake. Increased residential energy conservation has the potential of saving over a million and a half barrels per day in the next decade. It is absolutery counterproductive from either an economic . . or an energy policy point of view to make such loans harder to obtain. Would you please advise me as soon as possible whether the Fuel Institute has correctly interpreted the regulations and if they have, I urge you to expeditiously change the regulations so that our national policy of increasing energy conservation is not undercut by policies of the Federal Reserve Board.  Enclosure cc:  Charles H. Burkhardt New England Fuel Institute  Immum-  •  r k Ear  rinauiz  70 SlIF.'$.1ER SIREET • P.O. BOX 886 • WATERTOWN, MASSACHUSET TS 02172 • (617) 924-1000 • Telex: NEFI-WTN 922-401  May 6, 1980  CJV  Honorable Edward M. Kennedy United States Senate Washington, D.C. 20510 Dear Ted: Enclosed is a copy of a letter that the New England . Fuel Institute recently sent to the Federal Reserve BOard concerning zn adverse -- and, we are certain -- unintended impact that, the Boad's recent credit regulations are having on home energy . conservation measures. Under a program encouraged by the National Energy Conservation Policy Act of 1978, our members have been assisting consumers in cutting heating costs by installing new, more energy-efficient oil heaters and burners in their homes. These new units provide fuel savings of 10-40%. New England banking institutions which, until now, have been financing these installations, have informed our members that conservation loans can no longer be made because of the Federal ResPrve Board's new restrictions on credit. A fair reading of the Board's regulations makes clear that loans of this type were never meant to be subject Loans for home improvements, purto credit restrictions. chases of appliances, and utility services are generally exHowcver, the regulations do empted from the Board's rules. not specify whether energy conservation loans fall within these exemptions. This lack of clarity in the regulations is frustrating a clear national energy policy, established by Congress, of encouraging home energy conservation measures.  6, 1980 rage 2  I would greatly appreciate any support that you could give to our efforts to convince the Board to rectify this rratter as soon as possible. Thank you very much. Sincerely,  e4.  -  Charles H. Burkhardt Executive Vice President  •  r -7  11  I \--)  C:i2.-Cya-/2Lt  11.4 . 1 c 11/2-iii-fULE,  !=t)MvE R STREET • P.O. BOX 888 • WATERTOWN, MASSACHUSETTS 02172 • (617) 924-1000 • Telex: NEF1-WTN 922-401  April 24, 1980  Robert E. Mannion, Esq. Deputy General Counsel Federal Reserve Board Washington, D.C. 20551 Dear Mr. Mannion: We are writina to bring your attention to a potentially serious problem created by the Federal Reserve Board's consumer credit restrictions published on March 19, 1980. Consumers in our area have been retrofitting their heating systems with new, more energy-efficient units and financing these improvements with bank loans. We have just been advised that the banks believe that such loans may be "covered credit" uner. the Fed'eral Feserve Board's credit restraint program. Accordingly, the banks are no longer making these loans available, and these important energy conservation measures have been brought substantially to a halt. We do not believe that the Board intended its regulations to restrict credit for energy-saving capital improvements. Accordingly, we urge that the regulations be clarified, by an appropriate question-and-answer or interpretive ruling, to exclude such expenditures from "covered credit". 1.  Nature of the Transactions in Question  Over the past several years fuel oil distributors have undertaken to help consumers to cut heating bills by installing new, more efficient home heating units and arranging for bank financing of the transaction. Typically, the new equipment consists of a new oil burner and/or a new boiler. The new equipment and its installation generally costs from $1,000 to $3,000 and can be expected to provide fuel savings of 10-40% or higher. There is a great demand for these new units.  Sc.  24, 1980 ce 2  Because of the size of the initial investment required, bank loans are the only means for many consumers to proceed with these energy-saving home improvements. Until now, area banks have provided such financing. But they have stopped making these loans be. ,cause of the Federal Reserve Board's new credit restrictions. 2.  Federal Reserve Board Reaulations  •  There are a number of grounds under which these loans might be considered "uncovered credit", not subject to the special reserve reauirement. However, the Board's regulations and explanatory materials do not provide a conclusive answer. First, the loans are "home improvement loans", which are generally exempted from the reserve requirements. See page 1 of the Board's Press Release of March 14, 1980. However, another part of the Board's regulations suggest that only home improvement loans covered by a mortgage qualify for such an exemption. 45 Fed. Reg. 17928 (1980). Loans for energy conservation are not treated as mortgages because of the expense of recording them pursuant to local property laws. - Second, the proceeds of the conservation loans are being used "to finance the purchase of household goods such as furniture and appliances", a category of credit which is generally exempted from the new requirements. See the March 14 Press Release at p. 1. However, the regulations appear to restrict the exemption to those purchases where a security interest is taken in the goods purchased. 45 Fed. Reg. 17929 (1980). This is impractical in the case of a fixture like a boiler or burner and may, in any event, conflict with an existing mortgage. Third, the loans are being "extended for utilities... services" and may be exempt on that basis. See the May 14 Press 72.else 7 at p. 5. However, the regulations imply that the exemption applir-s only where the credit is extended by the utilities themselves. 45 Fed. Reg. 17929 (1980). The loans in question are extended by the bank because an individual fuel oil dealer does not have the resources or the risk-spreading capability to make loans of this size and nature. A fair reading of the Board's regulations indicates that loans of this type were never intended to be subject to the special reserve requirement. In fact, loans which are  !,!:-Alion,  7_bert E. 24, 19E-:0  •  in cha:- Icter and in effect on the eccnomy , x,- : =/^m the FsoJIrd's procram. The Board Fhould m-2ve to ccrr-cL situation, both for reasons of eauity and for the co: pelling public policy reasons outlined 17elow. 3.  Public Policy Considerations  It is scarcely necessary to state that energy corlservation is a matter of highest national priority. What is significant for present purposes is that residential energy conservation has, by law, been established as a cornerstone of the nation's energy policy. In enacting the National Energy Conservation Policy Act ("NECPA"), Con,gress found that: all sectors of our Nation's economy must begin immediately to significantly reduce the demand for nonrenewable energy resources such as oil and natural cas by implementing and maintaining effective conservation measures for the efficient pse of these and other energy sources. Pub.L.'95-619, 5102(a)(3), 95th Cong., 2d Sess. (1978). To implement this finding, Congress required states to draw up SUnder and implement residential energy conservation plans.1/ plans, uties are to conduct residential energy audits inform consumers of available conservation measures and possible savings from implementing them, and provide for installation of energy-saving equipment.2/ States can make home heating oil dealers, who volunteer for these programs, subject to substantially the sz:me requirements.3/ Significantly, the plans have to provide a mechanism by which the utility or home heating oil dealer offers to "arrange for a lender to make a loan to such r.:,sidential customers to finance the purchase and installation costs of sucgested measures...."4/ It is precisely these types of loans which are now threatened by the Board's new regulations. -  1/  NECPA 5212, 42 U.S.C. 58213.  2/  NECPA 55213, 215; 42 U.S.C. 558214, 8216.  3/  NECPA §5212(c)(3), 214, 217; 42 U.S.C. 558213(c)(3), 8215, 8217.  4/  NECPA 55215(b)(1)(C), 217(a)(2)(D); 42 U.S.C. S58216(b)(1)(C),  7  6  r.  • Esq.  E.  •  A,-_sr 4 1 24, 1980 Page 4  The Energy Tax Act of 1978, Pub.L. No. 95-618, is also indicative of the central role Congress assigned to residential energy conservation in overall energy policy. The Act provides for a tax credit of up to $300 for "qualified energy conservation expenditures" by homeowners. 26 U.S.C. §44C. Specifically included as qualifying expenditures deserving of this tax credit are ,..furnace replacement burner[s] designed to achieve a reduction in the amount of fuel consumed as a result of increased combustion efficiency.... 26 U.S.C. §44C(c) (4)(A)(i) In his March 14, 1980, address pursuant to which the 3oard's credit restrictions were imposed, President Carter repeated his call for "unrelenting efforts for conservation", pursuant to a plan whose "aim is to involve every level of government, business, labor -- in fact, every single citizen -- in conserving American energy." It would be ironic indeed if the Board's regulations were interpreted in such a way as to work directly at cross purposes with this goal. But they are' being so 'interpreted in at least some quarters. The Board and its staff have an affirmative obligation to correct the situation. 4.  Recommendation  NEFI accordingly requests that the Board or its staff promptly issue a question-and-answer, or other interpretive ruling, that makes clear that bank loans for energy conservation purposes, under the circumstances described above, are not "covered credit" and are therefore not subject to the Board's special deposit requirement. Sincerely,  Charles H. Burkhardt Executive Vice President  •••  nay 27, 1980  TLc. Aosorable Stewart B. v.oKinmal HoWie of Representatives wasLinviton, D.C. 20515 boas Stu: Thank you for your letter of ray 16 concernin7 a letter you received from the Uew England Vuol Institute rerjardin the status, under the Board's coneurlor credit restraint ruquiation, of certain bank loans =ado for energy conservation cur-eases, Vie Loard's Lelal Division has advised Lr. Burkhardt that bank finanain9 arramiod by fu41 oil distriLutors for the purchase and installation of mcre energy efficient heating unite i4 the kind of credit the Board intended to exemrt and woul4 aot constitute °covered credit* under the Board's consumer credit restraint resulation. ror your information, I have enclosed a cozy of the Losal ',Aviation's response to Llr. Burkhardt. Also, wilen the Board modified the Special Credit nestraint Ilrogram on Nay 22, it informed the Chief Executive Officer of all coomercial banks that this :›rocsram not desiuned to exert restraint on energy convervation credit. airlireciate t.e supvort that you have exi.re4cled for Federal Reserve policies, and I look forward to working with you and your colleagues in findin; solutions to our nation's economic Sinccroly, Sh kat  enclosure  (Ltr. dtd. 5/15/80 to ;Ir. Burkhardt from nr. nannion.)  CO:pjt (11V-219) Lcc: Eras. nallardi (2) •  •  •  STEWART B. McKINNEY itru DISTRICT. CONNECTICUT  •  106 CANNON HousE OrncE•BUILCINO  DISTRICT orrtccs• FEDERAL BUILDING LAFAYETTE BOULEVARD BRIDGEPORT. CommrctictrY  Congre5s' of tije Viniteb *tatc5  COMMITTEES BANKING. FINANCE AND Ur-7BAN AFFAIRS DISTRICT OF COLUMBIA  jOoti5e of ilepre5entatiincS  TELEPHONE:(202) 225-5541  Zilastington, 13.e. 20515  06604  TELEPHONE: (203) 579-5870 500 SummEn ST•erET STAMFORD. CONNECTICUT  06901  TEL.r.mcir•E: (203) 357-8277 NORWALK. CONNECTIC UT 6 TEL.rrtioNE, (203) 866-469  May 16, 1980  4-v1(7\ The Honorable Paul Volcker Chairman, Board of Governors of the Federal Reserve System 21st Street and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Paul: Attached is a copy of a letter sent to the Board by the New England Fuel Institute. This special problem for New England banks that was created by the recent credit restrictions is clearly stated. As an ardent supporter of energy conservation measures, I strongly endorse this requested clarification of the Board's intent. I am surE that the credit actions announced in March were not intended to restrict. or otherwise interfere with loans used for energy-saving capital improvqments. I believe this to be more than a regional problem and I hope that this apparent oversight can be promptly corrected. Also, I want to assure you of my continuing support for the outstanding job that you are doing in the face of heavy crcism. We can make a lasting impact on inflation if you get same help from the Administration and Congress. Keep it up !  McKinney, M.C.  SBM:dsk  Attachrnenis tc41-  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  •  1111 C:::"  t  r7 42nd 1 111 -.124  gLIFf  ,21-11L/LS ,1 1  • Telex.: NEFI-WTN 922-401 20 SUMMER STREET • P.O. BOX 888 • WATERTOWN, MASSACHUSETTS 02172 • (617) 924-1000  April 24, 1980  Robert E. Mannion, Esq. Deputy General Counsel Federal Reserve Board Washington, D.C. 20551 Dear Mr. Mannion: We are writing to bring your attention to a potentially serious problem created by the Federal Reserve Board's consumer credit restrictions published on March 19, 1980. Consumers in our area have been retrofitting their heating systems with new, more energy-efficient units and financing We have just been advised these impr.ovements with bank loans. that the banks believe that such loans may be "covered credit" under the Federal Reserve Board's credit restraint program. Accordingly, the banks are no longer making these loans available, and these important energy conservation measures have been brought substantially to a halt. We do not believe that the Board intended its regulations to restrict credit for energy-saving capital improvements. Accordingly, we urge that the regulations be clarified, by an appropriate question-and-answer or interpretive ruling, to exclude such expenditures from -covered credit". 1.  Nature of the Transactions in Question  Over the past several years fuel oil distributors have underta3<en to help consumers to cut heating bills by installing new, more efficient home heating units and arranging for bank financing of the transaction. Typically, the new equipment consists of a new oil burner and/or a new boiler. The new equipment and its installation generally costs from $1,000 to $3,000 and can be expected to provide fuel savings of 10-40% or higher. There is a great demand for these new units.  •  Robert E. .!:innion,-Esq. April 24, 1980 Page 2  •  l investment required, Because of the size of the initia many consumers to proceed bank loans are the only means for ements. Until now, area with these energy-saving home improv . But they have stopped banks have provided such financing Federal Reserve Board's new making these loans because of the credit restrictions. 2.  Federal Reserve Board Reaulations  er which these loans There are a number of grounds und ", not subject to the might be considered "uncovered credit r, the Board's regulations eve How nt. eme uir req e erv l res cia spe e a conclusive answer. and explanatory materials do not provid nt loans", which First, the loans are "home improveme e requirements. See page are generally exempted from the reserv March 14, 1980. However, 1 of the Board's Press Release of tions suggest that only home another part of the Board's regula ge qualify for such an tga mor a by d ere cov ns loa nt eme rov imp . Loans for energy conser80) (19 28 179 . Reg . Fed 45 . ion exempt e of the expense of aus bec ges tga mor as d ate tre not vation are perty laws. recording them pursuant to local pro vation loans are being Second, the proceeds of the conser sehold goods such as furniused "to finance the purchase of hou credit which is generally ture and appliances", a category of . See the March 14 Press exempted from the new requirements ns appear to restrict tio ula reg the r, eve How 1. p. at e Releas re a security interest is the exemption to those purchases whe . 17929 (1980). This Reg . Fed 45 . sed cha pur ds goo the taken in e like a boiler or burner is impractical in the case of a fixtur an existing mortgage. and may, in any event, conflict with for utilities.. Third, the loans are being "extended is. See the May 14 services" and may be exempt on that bas that the However, the regulations imply Press Release at p. 5. dit is extended by the exemption applies only where the cre loans 45 Fed. Reg. 17929 (1980). The utilities themselves. k because an individual ban the by ed end ext are on sti que in or the risk -spreadces our res the e hav not s doe ler dea fuel oil e and nature. ing capability to make loans of this siz ulations indicates A fair reading of the Board's reg intended to be subject to that loans of this type were never In fact, loans which are the special reserve requirement.  ••• ; 7cbe-t E. Y:anni110 1 Fsq. April 24, 1980 Page 3  •  practically identical in character and in effect on the economy are specifically exempted from the Board's program. The Board should move to correct this situat ion, both for reasons of equity and for the compelling public policy reasons outlined below. 3.  Public Policy Considerations  It is scarcely necessary to state that energy conservation is a matter of highest nat ional priority. What is significant for present purposes is that residential energy conservation has, by law, been est ablished as a cornerstone of the nation's energy policy. In enacting the National Energy Conservation Policy Act ("NECPA"), Congress found that: all sectors of our Nation's eco nomy must begin immediately to significantl y reduce the demand for nonrenewable ene rgy resources such as oil and natural gas by implementing and maintaining eff ective conservation measures for the eff icient uSe of these and other energy sou rces. Pub.L. 95-619, 5102(a)(3), 95th Cong., 2d Sess. (1978). To implement this finding, Congress required states to draw up and implement residential energy conservation plans.1/ Under those plans, utilities are to con duct residential energy audits, inform consumers of available con servation measures and possible savings from implementing them, and provide for installation of energy-saving equipment.2/ States can make home heating oil dealers, who volunteer for the se programs, subject to substantially the same requirements .3/ Significantly, the plans have to provide a mechanism by which the utility or home heating oil dealer offers to "ar range for a lender to make a loan to such residential customers to finance the purchase and installation costs of suggested measures...."4/ It is precisely these types of loans which are now threatened by the Board's new regulations.  1/  NECPA 5212, 42 U.S.C. 58213.  2/  NECPA 55213, 215; 42 U.S.C. 558214 , 8216.  3/  NECPA §5212(c)(3), 214, 217; 42 U.S.C. 558213(c)(3), 8215, 8217.  4/  NECPA S5215(b)(1)(C), 217(a)(2) (D); 42 U.S.C. 558216(b)(1)(C), 8217(a)(2)(D).  •4.  LLber April 24, 1980 Page 4  •  Esc.  The Energy Tax Act of 1978, Pub.L. No. 95-618, is also indicative of the central role Congress assigned to residential energy conservation in overall energy policy. The Act provides for a tax credit of up to $300 for "qualified energy conservation expenditures" by homeowners. 26 U.S.C. §44C. Specifically included as qualifying expenditures deserving of this tax credit are ...furnace replacement burner[s] designed to achieve a reduction in the amount of fuel consumed as a result of increased combustion efficiency.... 26 U.S.C. §44C(c) (4)(A)(i) In his March 14, 1980, address pursuant to which the Board's credit restrictions were imposed, President Carter on", repeated his call for "unrelenting efforts for conservati pursuant to a plan whose "aim is to involve every level of government, business, labor -- in fact, every single citizen -- in conserving American energy." It would be ironic indeed if the. Board's. regulations were interpreted in such a way as to work.directly at cross purposes with this goal. But they are being so interpreted in at least some quarters. The Board and its staff have an affirmative obligation to correct the situation. 4.  Recommendation  NEFI accordingly requests that the Board or its staff promptly issue a question-and-answer, or other interpretive ruling, that makes clear that bank loans for energy conservation purposes, under the circumstances described above, are not "covered credit" and are therefore not subject to the Board's special deposit requirement. Sincerely,  Charles H. Burkhardt Executive Vice President  :lay 27, 1980  The Honorable Dill Archer HMCO of Representatives !!,thington, D. C. :10515 Dear Hr. Archer: The letter that you forwarded from Ur. Raymond Hill, Chairman of the Board nne President of Alinland Savings Association fits been referred to my office. In his letter, Mr. Hill urges thn retention of the interest rate differential between blnkc end other depository institutions, a matter that not: falls under the jurisdiction of the Depository Instituticia Deregulation Coriaittee Tbe Committee is actively engaged in a broad review of the competitivo availability of funds to depository institutions and relatod questions. The interest rata differential is included in that review. I will see to it that copies of Hr. Hill's correspondence are made available to all the momb3rs of the DIDC in addition to those he has already contacted. I mm sure they will appreciate having his views. Sincerely,  Normand Bernard Executive Secretary  BILLA-RCHER 7m DtSTRICT, TEXAS  WASHINGTON orrIcir, LONG WORTH Nous( Orrica  BUILDING  MEMBER: WAYS AND MEANS COMMITTEE  CongreS5 of tbe iiiitcbaqate5  DISTRICT OFFICE, iREDIERAL OFFICE Buit_oiNo Hourrom, TiExAs  77002  3Dotts5e of ilepref4entatibefS Eaagliington, D.C. 20515 May 19, 1980  Ono of my constituents, Mr. Raymond Hill, sent the attached letter to me today by telecopier and asked that I forward a copy to you as quickly as possible. I will appreciate your giving his comments every possible consideration.  11 t. _Bill Arcier Member of Congress  054  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  Amormommmi.,-;:r" -  6.4460,-  •  •  .t (4.v(yeiv( I ,?Z‘N.r (J."  %Id Al. AW1 -ecift•CtIt t**),J•t+  .-?Ptultql Pi/ft• , 1 itTir2"11:, Ott*:11•NalTyNki.. . 91•44014  r)ltly,t  The 19th 06 Pay, 191:0  VeWt SiA: Mlintno4. SavinoA Aweiativn iothiAty-two (32) yea, a. (Ltd «,.01 the Anme owneAtchip (oA bevetiteut 117) yew:4. 7E the tatst 6evcn (7) mmth it ha6 been unabfe to compete 6avingt, at Aate4 at Oh betow yid& 06 it6 rinktgafte toan4; and Maintand 16 ww(A4hip lat4 tra.t noch o6 the Pluit ot bcventeen (17) ye/1U hiv.d tabo4. capt"...tat .&4 flow diAtilet6inilly tog% OttA hope to kukvive tick in dcceloS ikavinpA at Autzonabte AAte4.  •  OA  1cdcitat-bootoulbig4 nnd 006ticiate ITendin9 Wic4e4, not ba474? compotion, have IgAtitatty *4kt/toyed ouA hopett to 4uAvive. 1uAlhe, i, the puWe ItcuL been daibellately taupht, thAough ()WNW pntici: emanating 6hom iMtd•hington, to tyvipbte and to Abandon tAaditionrtt kibitz o6 tht. We have been ra6hed -into habit s t46.t QAC eACeinpty dan9enous<n oltdeA to Aati40 the neivta&te.6 of C014kitmehA egffd 01? te demand hipheA inve4vilent yidd?. m-ztch t)e Antez bejsilg mid b!! even the mo6t Aeekte46 o( bwoweht. 4uc1l 44 OW, kdC401 goveto141ieii4 and it.% 4evCAnt a4encie4. 1 ag veity tamUirlh with the A66aillz 0( d COortitciar bank the kamc 4i2e.a4, Alintand SaviA96. The bad i.t% coming 2.0, 4etioli) on it4 tIAZe.t4. (Saving6 nAtocon4 Amety win cUmAch 116 one prAccnt (lig And noW ahe eApeltiencins to44c.6.) The bank 14 one (;66eVatat with the zanie o4oi1en.6hip and they all have banficA vietdt, in the Xtvo peAcent (2t) 0A 94ettte) 'Lange. The contl aust bcts1kmatt ktni!,6 and 4. 1 matt utving4 n4.60C).0-irmA thi4 time 06 di4toeatif1i cout:d not be gAeateAs The bankA have 60.01 nanced and c441trd MIA Patgio in6tAtionally uncic4. the baton 06 ou'l ‘edenet fioveAnment Odz tilt! pat 4evehat yeau, And, theif nAe atm, itA wieOci,t boletitia4ie4 tYthe. 4hoht teim SN,t, ZG be it tshoutd be CteaA thnt no tlanheA i's corn04,4416te iA 4.ttch a Ante. They aft know that any bokAnukvt pagimg MPA." than ten:Petteent ;In) annunftv in .inteAet ak wea1! a4 the !Meat wto6Cipate holtit4WZA in WAbhinp.(no and, thenetme, velly tibety to de6autt, The Ge4m1nA And SAtitq. uondeA ugly cannot tenku tht4 ziopte tezbon. itanirrfri tif1 1 4: Wipe ye e. :(4 tike.ty tp vote 6m ijrcimbent any ixy Ahaltinfl hezponbibitily /OA the. ptatIll ell dC4Palea011 06 04L4 economy 009AeAck OA the pa6t 4evCAAt MAL stme 4cItchinf3 et ctimax q which the itecela inteP iezi he eXCe46e4 have been a simMem. You might be Abte to 6ave batwing, Vic  16,(..t.-  . ••• 14 • • .  ,"  80,Cntal- .; ' SI :4•••.Jost $1411.r6 •  •`A"-"I'tVloWni-  .-4re..1)11.1. v;•.."":"'• l• 1 040411  •“1", '  •-  4.•sat4‘ ,11, Willa 'NI-N .%  4 Mgallisernb44••4.•  du •••  .  • 't•  •  •  s• • t ;,..t  •  '  •4 ,  • PAGE. Ttck).  •' ilabi-t rl .1.114iK.1. and the 430.‘.1-6,414 iilau$S4 ff hi a covikiiation 06 'rneri4•4"..r,ctlidinil A el e II tioil oi tile 4a.t.e dif,tem.cntiat, and !foci [idiocitti lby. V0114 in ittifri e 4<% do 1.0 IC.C7.,ft nrht be A thp.Vatbre, evrst ...,though tirtia vciid.c.t.6 Inv tilt! Itezpome.;.ibtity intt owl demiAr• •i cin any ttiv2, <It R &INN'(.' X cq cAtutke4 att miginatiiiti .i» uiztt-.Ivantout it4ot4(4,1) ibenplitz and votet. (.16 A. tkat- peApe.ttint.i.no tmdef Peattite in ictizdorn, tily God ,400 eapeA to pos.icAn and too 4tow .to :*; • pow Up 413 t tigic .C•0119*. CIA A in .i-lb fat t(lo it-ee.nt elloill!.. to contiocint heaUtij. And mlii .t lir exPcaVve wtdeiti..tand that ,the to p-t 4('c :: ptibt-ke sti41t nr4 17tcp>atte aim :readeithir, i.44 iv dezh iite t,nn eftae,iia sd2ic.hi couiiql andtnanc '..4.the intewbitl_f ot , in'.Ahr4e titottbred tinttz. ... . ...• .. . cZaOzintrtnd ..3..ivincp. /t4tir) .. , A; cr.'„t:Oot.riott,. 1 zhoutrt add that! those pt tun!' othe4.;‘,16244.41.t. beprir-, tet.4...t.ieA din 14me titgl'...11 , Arm ti • ..6(10.i.atieniAs... (tie toie able. .to Arty that' v bell( rit, cmotip oil &Intl'. .,' -ilf;tvade/i4 irt.ive. Mgt. to1,6e (tile the. ti-gceitilit•r. paid ioit t1ii.4 c-Hut; authoki-ti-e4 tett 4:6 WC isihititd not havi! bee» 4P 4nteA. i...e.sted ..in )1,01 citictcktrivAz' uketaAe., a4. tlitugh the eithAent rscAi. “x16 ittar. int.t.rad P6 yoitil OA Ouh Cogene4c.Siontit and AdintnAtAn. ..;:.t.itle teat.:0,6. (Ve- ri..ite.A.ed, and have jkAZ„ci a .6e.veae 'nice ii.i:: t041' ;.1nfriniA44.- i. Mk. JoIlLe‘..., 1 api.vnit,iate tpail clitn4t4- And tho4e.:.oiS 1,1.q. 7:. .:1•tclicheii tri A corn tile tAltkliii-43.tion zpietit. of6 and 46 CAI.CA 45. r410fuc01: tifif,k 42 tOhais_-. iiicktend rq ca4eAZao -it! con6anotian. ..t:hoi<vveil IlestLie and.!(:,ight yowt irleett, ur,ry be, -the,g- (vie 40 ritte and .;, ile ilat.irstr: bealiti ti tAtioe ciztitie,touf-,ahoi found. The kyazgr(r»,!. . kuh6aeit • bust tiv iltre(tt 1)%witict.(t)c gittnt juzt (,C.:W(1 kie 4fax 4::., ._ • k.:::1,e 44C-14PIL:4-delitli. 7 Ountert, b:zdpc.tie:do it(titelt. arrd betCalli(Med now (1r.. -441;.ilg. ;. 214,1 rCoree: •?„Vu aft tkit bnow, .t hi, lic.t(fwzi bcA 3t v•A y and ( hoitt..(ng 1.:Ptctue Ite.r.11 the Stu.i.i.r,g4 and Loan ind4tAy diActitti ....1. 'i...(znd pia sti/:•on ctiA4tquen44,Aftli. !-. • .t... • .*.e: you 604 youh attelii.i011 atcd. eunceAn. . . 11)1d  •  1.....4tAt gigth .  61 . t IA i  .5  1 : .r  1 ‘• I' ...-.  .  .  ..  ? * 3. • 0 •;4 • •'  ,z...‘'..;! •.. • , . .• f:I.,,•, ..:.3..-!, .! ii• • ;.,.•, • 1 -. am • •  IL ...• x  7 •T  , ... • ...t.,..-- . .,•• r...% ;11.i-LT e • .4  ./  •  1;  , . •  •  .• *I'  .•  LA '  T litOtb  , .  I. 4.  .-  :  i..r :• . t.  -;  t. %TA's( Y,Aciti,t,': •:rilio(m •i 1  •.....  ?..  ...:Ai ‘, .: . •  •  I  ;r.,  • .v. -  1  • I it •  ‘  •'4 '.  3 ,..  ':-f I.t Ka Ifire: 16  • • I ,I t • •  ..(i. IQ 7/1/  )  4.1..v1.41 1 Vic E/ .. . :td .v-•ftt l'Ar4.40.244 .. .„ :!.:f i .‘•cri SeitoloA froftd.gi'lltAen • i.• Coilii4`.,6171.:111 aff.l'atn AhcheA, 111 4thaiA )71.111-.14 : :.  4  •• 0.•  11. Srika4ite •Chai/aftm, • r:pic Pa, 550 12th 1.1.).21)Unte)ii; D.C. 20429  thin, Lifote.fice CtrOft.att CJ1Jtr4r. KClik '1:. • 1776 G; Stmet, C.. f0456 • biashivqtri), P .  •. •  ,4. • *.  • 6t  1:  •  '  )•....`  211., 114r  v. plepa.t.V. .4,3on oi RcyruaQntutives C, 2051S  ,4,01.o..KAUAT -JUS4  4JAJ, tor ,omx lett*r Gf *;.47 ,L.114 roceiNud froxi one oiOX CC tttUZ%t v-irt and !ercl.art Corvttration  7 concernin.4 comontb; t, C. Coleosn :-lec‘ecv  tIA3 oxprutafee oonctrn nl ,out tPicact wJr. will 1.zkv,A on the eun4 Tran.lier Act and iloulatian ,a21).Jnv ii!dustrl ane flr con4giszerA. !,74 rictw41 that althow`% the conaumorx4, it ruiree financial twat. tci ;tct i tutions two 14ake 4;:oLt11 cl,on‘.;cs in ett.i.,44Int cind *potations snd &ta uash whether t:42 -soard Aeversly ra.m,er t&liwifeloir4vnt of \Aveucial consideratit to MAI effecte cited in Mr. MoCehee's tte adie I action is nob; contemplateC lettor, and whether 4Sly :Acrd :u ref:laved hi eie Act to analse and conrieer t. the iff4i.lowntin-,s resulation and to t.1'4 L1) .:Ita,:crt:Atat* tO tl'et toxtent crActicatle that tt,* canal:oiler ,roteetionft :osed re,ulatjon outwtAvb the contlispos costs incr concu=ors and financial inttitutiens. Please he assured tlat the 4i.Aard A.ad* a comclus effort in it ruicritin3 to imose only those r‘quirmionts that .;v.erc neewsuary. 1.70 11.ectronic /und Transfer cases the Roard Act is Lairl-i camicrutftaJiw., Lsx,cfsve.X, and in l'.41.d no ct:cice !Alt to Zollow the otatutory requirements. In fact, aeni vi the reuirs4ent.r4 tat iinancial institutions find matt itTurdeasostc ar.7 drawn 4irectly t;_roi- the statute. (This Lis the auto ) are discussed belo%#.) Vr. ;'A2C:e1tee 1 %tic) with the ilAints raised iA lialted instances does the roculation go beyond the Act's ztandatcs, For tLis reason, the iicerd doer not contemplate v,roviding ,sition to 1-,rovid4) major relief throne (or, in4eed, :.:einu in 4 io afot, teanical 34.1wtmcnts c;atralloti in Cle r(Nuistiomi althou •  Me Ile:morale J, Min/lath 711cLialsn kat.tiz Tw,.?  ! for two ;-,rovi510114% whir-.10ustic:nt the zce, certain ifclr-vicel, Lc: uwilsoiii1 rezult in the tzatrination custo: reAt14 availiaLlct; at autaated ttAltr !zacine4f; to u:,ont1,1-i statiment vont iv a ricuirvY&tut t%4t, arg aurih , ,A wtoa* Liere 1:4at4 cltctronic transfors cut wimottuta Oven mouth, Li:. bank lita Lraditionally A4vAt stategoutb auvin,;in account cust*:r &>& a ,I;artorl tt‘ tc mind state Liam% would 114117Q monthly .t and rculation te trazIa:::cr ;nitiat4d to or from these 44c to tlawo cluttc, AT;i,. dtu!; not .;:tac a need for more coulltz At An account curt1TrAfr, A4,4.* ir tc414m lavit.4 aent i1 i ttutt ruiret-ort coArms from stet_ tlunt!1; statements tc. 90‘ oi V'te :4;t4 e‘ al#,net account that , ucut ;*o*x an.; c:16(44..,„ t4vin, or ot: tc al acccued o1actronicaL112. rn7ic loratc:I cle IA account tha.t can Laccc.ana: at an tItexc is electronic activiti. If Iwo 41t,ctronic tzaneifitr occur. Y.tatement kla; a cele t tt int.titutiou ne! mit ;send a oontlil itlarterl iita.alit still scne, a stataNcnt .ut lomat "iM, Act csvc:i4tez 4 1imit44 excoiAlon frout t14% .4.4t-cat2nt r.c.:171iripeort tor accowitts that can r(y, accessed' t.• tzor tranafwrz to the account 1;.;e troLiclly nonpeasbook act4: curiti !JtirQ1.1 C.4e.ositn). ior Au .,,oci41, thtt ua1ii ivr CA.z. aNction. a Lank !gay t;ontinuo to i 7 AccQunti,i tht c7itlartex1.4 statc.Laontz.. FQZ boa zaki: inatoud ui:datta the ::,,anlit'AW4- -Aitco gte cwAmor vrosents 0,41r4.1,7;11i tr4c1.;.* tose it for ul!datiwi. uori InIc second re;4uirement t!-4t CVLictOM 4 xAez:je tor tr 4n4 .-,ercantizt concern, paimcnts tc thirdiarties (smcf 41-4 ut ahd reculati cQmi.Anies) that are initiated dt re,iturtt tLt4 payees be i4entifie0 1.):1 nanie on the periodic 1-chlito, would , , acoordir tc stateriAontv. rirat *al Aerct.iant4; h40.#4 to rul:lace its existin equietlt in order to 4;P:I:1; with 141 lanatic tc do 441 1; 7lasioatIt 10, thito re tuirtzsat, and date OP gitict the rei.exixotAnt (400s intr! ';;02ctiou 906 of the Act requires identiCicatiovt of the Uaird ,art. to or trcl& uhoa funds are trausferre0 tc. e ;iven %tatement that 4,)a. the, terlzipAl xvocii:t 4:1d on tba  :.iaitoto.14, J. 1..e11014thL:jCfl  Thlrc.a  rt:Llectz tho trannler• tlso, statuttrv it kroof of ia:irg.lente Liecticn 54:it(f) inelieet441 tat an tnat if docuwitntation requirad umlor the Act umgr to z.mot::4,nr elcctronic lund trenstor vabs zack by the conu rirt acic. i_xotA tlInt t3tut. Woommentation c 1de ction to thk tza,11.34-.tz VAZ aedc. Tte Pomx4 414 adoket am exc rioic Vut act tiatiou rt. 4taribrkiat tor termin41 reeeiytn rovidcid ir caiset: utiezu the nar:E ef the &f tC ii ;caiirAne coLsuAor in a form W:Alt tf-; ..?.uttipted ttI1t ,40'fan. the meta—. - A;24,0c X4UCt71-41$ 1z tho 4alc.44, fox E to i;a:t a z;.etikic. ar:,cunt anel '..,ropvides the lArAruclt the intc tsq,e valten inaertino:0 a i4A-xg.:,ent tLe: 1.4141e rk,a11-4 :.4.1,* tUiti inforaatisotn vain I.e1A.lifu1 to jou. 4incurol -  7 Pa ul  DoS;CO;vcd (V -2O3) D. :;mith Jr5. hallardi (2)  A. Volcker  •  -9111111111 J I  Action assigned Janet Hart  KENNETH ROBINSON 7m DISTRICT. VIRGINIA  111  •  orricts IN THE 7TH DISTRICT: 112 N. CAMERON STREET (P.O. BOX 714) WINCHESTER, VIRGINIA 22601  COMMITTEES: APrROPR IATIONS INTELLIGENCE  WASHINGTON OFFICE: 2233 RAYBURN HOUSE Orrtcr. BUILDING TELErmomr.(202)225-6551  Tla-cro•owc (703) 667-0990  Congrt55 of tbe Uniteb *tate5 PotifSe  100 Couw-r SQUARE ANNEX (P.O. Box 136) CHARLOTTESVILLE. VIRGINIA 22902  of 1keprefSentatibt5  TruzrHoNc:(801) 293-2106 SUITT 303, 901 PaiNcEss Ap•mia SrwrrT (P.O. Box 336)  1.Z.last ington, 33.e. 20315  PREDERICKSOURG, VIRGINIA  22401 TCLEPSIONti (703) 373-0536  1,6 May 7, 1980  Honorable Paul A. Volker Chairman, Board of Governors The Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: The enclosed is indicative of comments I am receiving from concerned bankers regarding the regulations recently proposed pursuant to authority granted the Board under the Electronic Funds Transfer Act. I am interested in knowing whether the effects on both industry and consumer -cited in Mr. McGehee's letter have been given specific consideration by•the Board, and whether any remedial action might be anticipated from the Board's standpoint. Your early reply will be greatly appreciated. With every good wish, I am Sincerely  ours,  eth Robinson  PLEASE REPLY TO WASHINGTON UNLESS INDICATED:  C] WINCHESTER  Ci CHARLOTTESVILLE  0 FREDERICKSBURG  •  I  :  April 21, 1980  The Honorable J. Kenneth Robinson 2233 RaybArn House Office Building Washington, D.C. 20515 Dear Ken: For so:;c tire now I have been speaking out against the buricnsane regulation of the banking industry which emanates from Washington. I can think of no better example of -Irinecessary and costly regulation than the Electronic Funds Transfer Act and Regulation E, which will bec.73me effective on Ila,7 10. The Act purports to be a "Bill of Rights" for consumers v,lo utilize electronic payments systems. I fear, however, that in its efforts to "protect" the consumer Congress has strapped the providers of EFT services with such costly requirements that the developient of EFT may be severely hampered. I question whether such a result is in the best interest of the consumer. In th2-case of First & Merchants, May 10 will witness the disabling of seven of the.eleven services currently available at our automated teller machines. (ATMs). This action is a direct response to two requirements of the Act. The Act requires that a monthly savings account statement be mailed to every depositor whose account has been affected by EFT activity in a given month. F&M, like most banks, has traditionally sent auarterly savings statements to its custanc3rs. The quarterly cycle is appropriate given the less frequent activity which a savings account experiences-as compared with a checking account. Moreover, our customers have acpted the quarterly cycle without complaint. We do not currently have the systems capability to convert our savings accounts to a monthly statement cycle. Estimates of the cost of conversion approximate $140,000, with recurring annual costs, based on today's cost fiaures, of at least $237,000 covering equipment, personnel, printing and postaue. We consider these costs to be excessive. Accordingly, until we are able to justify the expenditure of funds to convert our entire savings accounts lase to a monthly cycle, we cannot permit ATM transfers to or from savinas accounts. This conversion cannot take place prior to January 1, 1981, the effective date of the NCV Account bill recently enacted by COngress, and L' m only 'or that portion of our r-Avings account customers %..11) are wdlling to -.itch tr ir savings over to a NOW a,;count. However, since a '11.1 account is really only attractive to a saver w:o carries a reasonable 1-1.11,1flce, the small saver will continue to face the problems created by the Act.  •  e".  • The Honorable J. Kenneth Robillson Page 2 April 21, 1980  If we saw a compelling need for a monthly statement cycle, our concerns night be reduced. However, we do not see that need. Quarterly savings statements have served our customers well for years. There is nothing unique in the ATM environment which would call for more frequent statements. Our experience shows that our customers do not utilize ATMs for savings-related transactions any more frequently than they utilize the services of branch personnel. A second requirement of the PL:t which 1,o2 cannot currently satisfy is the requirement that China party payees of electronic transfers be identified on the periodic statement. The difficulty with this requirement is that only the most sophisticated equipment and software can perform the function. As a practical matter, in order to comply with the law, many banks, including F&M, will be forced to replace existing ATMs and support systems with newer equipment at an enornous cost if they wish to continue to offer "bill payment" services at their ATMs. Since it is impossible to accomplish this feat by August 10, 1980 (the effective date of this requirement, recently extended from May 10 by the Federal Reserve Board), F&M and many other banks will be forced to terminate these services. The provisions referied to above are but two of a number of provisions in the Act which are ill-conceived. There is obviously something amiss when an Act of CongregS forces banks to discontinue popular and convenient banking services.- In the case of the EFT Act, Congress has attempted to establish rules for a payments system without due regard for the impact on the institutions currently providing the services, and without due regard for the impact on institutions poised to enter the market. Furthermore, Congress has written detailed, arbitrary and burdensome rules without the benefit of a record drawn from experience with the system. EFT is in its infancy. I think it likely that it will remain in the developmental stage for quite some time as a result of this legislation. If F&M provides an example of the industry's response to the legislation, existing EFT services will be curtailed. it follows that potential entrants into the market will think twice before incurring the additional costs related to this law. In conclusion, I encourage the Congress to examine the impact of the EFT Act on the banking industry and its customers and to correct those provisions of the Act which clearly burden the industry at this point in the development of EFT. At least we should delay the effective date of May 10 until another look can be taken at this onerous and restrictive leclislation that will hurt the consumer more than it will protect him. In my judgment the public interest would be beSt served by allowing the use of the ATMs in their present mode rather tin denying the public the use of these machines to conduct certain transactions. I am, of course, at your disposal to discuss any of these issues and I wpuld encourage you or your staff to call on me for any further assistance. Your  /  very trul  /„ / C. COleman McGehee  SILVIO 0. CONTE FIRST DISTRICT, MASSACHUSETTS  •  •  WASHINGTON ADDRESS: 2300 RAYBURN OFFICE BUILDING WASHINGTON, D.C. 20515 PHONE: 202-225-5335  COMMITTEE ON APPROPRIATIONS RANKING MINORITY MEMBER SUBCOMMITTEES: TRANSPORTATION  Congre5$s of tbe Einiteb .1-z)tato  LABOR-HEW LEGISLATIVE Ex OFFICIO MEMBER OF ALL SUBCOMMITTEES  jDoluse of ReprOentatibeg  DISTRICT OFFICES: FEDERAL BUILDING 78 CENTER STREET ARTERIAL PHONE: 413-442-0946  Ellarsbington, rte. 20515 Rmw1205  COMMITTEE ON SMALL BUSINESS SUBCOMMITTEE ON ENERGY, ENVIRONMENT, SAFETY, AND RESEARCH  POST OFFICE BUILDING 650 DWIGHT STREET HOLYOKE, MASSACHUSETTS  MIGRATORY BIRD CONSERVATION COMMISSION BOARD OF REGENTS SMITHSONIAN INSTITUTION  PHONE: 413-532-7010  29 May 1980  Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System 20th Street and Constitution Ave., N.W. Washington, D.C. 20551 Dear Chairman Volcker: I want to thank you so much for the very informative and interesting talk you gave to my constituents on May 19th. The community and business leaders of Western Massachusetts that attended this "Issues Symposium" took a great deal back with them from your presentation. I can assure you that your incisive commentary was the subject of conversation for the remainder of the conference. I was most impressed by the ease and simplicity with which you discussed some of our nation's most complex and difficult economic issues. This symposium was an outstanding success and I want to thank you again for the time and effort you gave in making it so. With my very best wishes, I am Cordially yours,  _ ili0 °4" vo . Conte Member of Congress 67/ SOC:cwh  01201  PITTSFIELD, MASSACHUSETTS  01040  May 30, 1980  The .-lonorable Norman E. D'Amours ilouse of !epresentatives Washington, n.c. 20515 Dear Mr. fI'Amours: This letter is in response to your letter dated Jay 9, 1980, urging the heads of the federal financial supervisory afi.encies to request the Financial Institutions Examination Council not to adopt the Justice Department's interpretation regarding transfers of Infor-nation to law enforcement agencies under the Right to Financial Privacy Act. I an pleased to report that Governor Partee, the Roard's representative on the Council, successfully persuaded the Council not to adopt the Justice Department position. Instead, the Council members decided to forego adoption of a uniform procedure for use by the five agencies when making these referrals. The Council recommended that In lieu of uniformity, each agency should be guided by its r;eneral Counsel as to the referral procedure it would use. \ir. (obert Lawrence, Executive Secretary of the Council, has informed our staff that the Council will be reporting directly to you about this action. As you may know, the Board's staff rejected the Justice 't)epartment opinion regarding the criminal referrals. Instead, the noard's staff transmitted instructions to System member hanks that they should refer these matters directly, and include the FBI case number assigned to a particular -natter when reporting to the Ieser ve Bank that the particular referral had been made. In those rare instances where a member bank fails to make the referral, the ?eserve Bank will refer the ( customer notice that the matter to the proper authorities and will give the ban' referral has been made. This method also eliminates the former practice of a Reserve Rank duplicating a member bank's referral of information concerning an alleged violation of law to federal law enforcement authorities. I believe that the practice described above complies fully with the financial privacy law and shields our employees from unintentionally making unlawful referrals. Please let me know If I may he of further assistance. CO:sep  Sincerely,  VOkilet Identical letter sent to each of the following: The Honorable Jerry A. T'atterson The Honorable John J. Cavanaugh The Honorable iarry 4. Goldwater, jr. The Honorable James J. Blanchard The Honorable Stewart B. McKinney The Honorable Les AuCoin The Honorable James M. Hanley The Honorable John H. Rousselot The Honorable Parren J. Mitchell The Honorable Fernand J. St Germain  The Honorable Stanley N. Lundine The Honorable Henry S. Reuss  The Honorable Jim liattox The Honorable Fortney H.(Pete) Stark  Actionesigned Mr. Petersen  Congre55 of tije Viniteb *tatos jPotts'e of Ilepregentatibei IZIasOiligtott, J.Q. 20315 May 9, 1980  Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Chairman Volcker: As you know, several Members of Congress recently wrote to the FDIC regai-ding the Justice Department's interpretation of the Right to Financial Privacy Act's inter-agency transfer of information procedures. In that correspondence, we expressed our disagreement with the Department's interpretaRecently, the GAO's report on the tion in some detail. implementation of the Act supported the view expressed in our letter of February 26, 1980, that the Act requires agencies which transfer customer records to notify the customer with,in 14 days. We understand that because the various financial institution regulatory agencies have differing views on this matter they have asked the Financial Institutions Examination Council to resolve the question. The aim of this effort is designed to produce a uniform position on this important issue. While we agree that uniformity on such matters is desirable, we would be most distressed if the Exalnination Council decided to adopt the Justice Department's position. Since this position is not supported by either the Act or its legislative history, we do not believe that agencies now following the Act faithfully should change their procedures. To the contrary, any agency which is following the nowdiscredited Justice Department interpretation should stop doing so and conform its procedures to the Act. We understand that some agencies may find following the procedures of the Act difficult. If this is so, the proper avenue is to seek an amendment in the Congress, rather than to simply ignore the law. The Department of Justice specifically agreed to the language of section 1112 of the Act before it was offered to the House.  !NINEPIN.  • Honorable Paul A. Volcker May 8, 1980 Page 2  We hope, and trust, that you will make every effort to ensure that the Financial Institutions Examination Council will decide to adopt a policy on this issue that is consistent with the Right to Financial Privacy Act and its specific legislative history. Sincerely,  Honorab  1  I norqt-IA lams le uamls 0. _Hanley  John J. Cavanau  -  j  /Honorable Norman E. D'Amours  Honorabl6 Fernand J. St Germain  -1‘,4•1/ 1  ifs,et) Jerry M. Patterson  Honorable Parren J. Mitchell  / , -  z. ,,Ho /  I ltAl'-1/  ,e,  James J  ard  Honorab e Stanley N. L ndine it./Vs.11  Honorable tarry  Goldwater, Jr.  Honorable Jim Mattox (7  Honor  AuCoin  Honorable Stewart 1  Hon  McKinney  onorable John H. Rousselot  le Henry S. Reuss  t/t Honorable Fortney H. (Pete) Sta.'  V- a3o  May 30, 190  The Yonorable 9111 Poyer Fouso of Representatives WAshincton, D. C. 21515 Dear Mr. Royer: As you may ima9ine, the referenc#z to me in the article enclosed with your letter about the last buzz saws is a total fabrication. The fact is that I have not been to the Vest Coast for months, and had no etins of the kind described at that tire. Nor does the article in any way reflect rry views. don't know hew to catch up with this kinJ of irresponsibility. It of course, wrote to suet a correction, fruitlessly. Sincerely,  Copy tot Mr. Ray F. Galli, Jr. Mr. r..an Dorfran  BILL ROYER  DISTRICT OFFICES•  11TH DISTRICT, CALIFORNIA  BAY  2121  WnsHINGTON OFFICE.  1022  LONGWORTH  HOUSE OFFICE  WASHINGTON.  "  DC.  20515  PLAZA  SAN MATZO. CALIFORNIA  BUILDING  (202) 225-3531  VIEW  SOUTH EL CAMINO REAL.  (415) 349-1978  Congro5 of tbe Unita'6tate5  COMMITTEFS.  DALY  PUBLIC WORKS AND TRANSPCRTATION SCIENCE AND TECHNOLOGY  3i)otte of ikepreiqntatibefS  CITY CITY  HALL  90TH AND SULLIVAN DALY  Wagbington,  CITY.  94015  (415) 992-4500 EXT. 205  20315  1/  Mr. Paul Volcker, Chairman Federal Reserve System Twentieth Street & Constitution Avenue NW Washington, D.C. 20551 Dear Chairman Volcker: Attached hereto is a letter and newspaper article which I have received from a constituent of mine who is a home builder. As indicated by the letter and the newspaper article, you are quoted as saying you won't be satisfied "until the last buzz saw is silenced." Well, sir, you have been successful at least as to one of my constituents. Enclosed please find a "buzz saw" which your policies have silenced as far as he is concerned. I am appalled that you are attempting to "fight the war on inflation" on the backs of the building industry. At a time when the housing needs of our country are so acute, it is unconscionable in my opinion that you should single out this one industry for your unseemly policies. I ask that you cease these policies and that instead you take all actions necessary to restore the housing industry to the vigorous condition required in order to provide our citizens with the shelter they so desperately need. I would be pleased to know your early response to my concerns. Yours very truly,  BILL ROYER Member of Congress  Enclosures  AVEPAJE  CALIFORNIA  May 20, 1980  BR/cr  SUITE 410 94403  •  Gaul Builders, lir  •  License No. 367326 778  EL  CAMINO  REAL  •  SAN  CARLOS, CALIFORNIA  9 4 0 70  •  5 9 2 - 6 90 4  5 May 1980  h  u  ha  Congressman Bill Royer 1022 Longworth House Office Building Washington, D. C. 20515 Dear Congressman Royer; It was a pleasure meeting you for lunch at the Holiday Inn last week. I appreciate your taking the time to meet with us and talk about our problems. As I mentioned, I was upset at an article I read which quoted the Federal Reserve Board Chairman Paul Volcker as saying that "he wouldn't be satisfied until the last buzz saw was silenced". You requested that I send you a copy of this article. I am enclosing herewith said article which appeared in the San Francisco Sunday Examiner on April 20, 1980. Our industry has been greatly affected by this unwarranted tightening of credit. As has been pointed out, inflation has not been or will not be controlled by tightening of the home mortgage market. In fact, this action has caused an increase—in the last Consumer Pricing Index. The index was higher in March due primarily to higher mortgage interest??? I am enclsoing herewith a skill saw blade which has been affectively silenced, you might pass this on to Chairman Volcker so that he might, at last, be satisfied. Vexy—ri7}7ours  / Ra , f F. Galli, Jr. esident GALLI BUILDERS, INC. cag Enclosure  GALLI BUILT MEANS BETTER BUILT  •  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: Newspaper article Citations:  Number of Pages Removed: 1  Dorfman, Dan. "The Shifting Home Market." San Francisco Sunday Examiner, April 20, 1980.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  .:1s 1 3C, 3.980  norable Joseth e. Addabbo Representatives Jouse 4ssh1nt,ton, D. C. 20515 Zearr. Addabbo: Thank you Lor your %al, 20 letter regardin9 a 2-..ovision in tle Eroard's consumer areoit restraint regulation that 1lows credit card issuers to increaele interest rates %.,n conJumers oxistinc 17a1ances. The i„rovision to which you reier ..roviridas a form rule for creditore to follow in chan4ing certain terns in their revolvinj credit accounts and 30-day credit accounts. (Mile credit card issuers would s among those su1)jact to Clio rule, it slso ail-lies to other creditors ofietin those tj.cez of accounts.) The hoard was concerned that the variet oi State 141106 and contract provisions addressinci e;gimjes in terse might not yrovide sufficient Lxotection to consumers or adequate cuidence to creditors 4estkik; to curl) their credit growth in accordance wit!! the rei;ulaticn. The Board toelioved that the awendment rerresented ooncerns of ;.4..-etil crai tl-e Lost alternative in reaolvin,,, tarz and conzuwerti l hileencoura0.11 credit restraint. I certainly understand clur concern re4:ardinc te iNact of the rule on consumar;7., tut -tould like to z.oint out that the Zoard's avendmont in Nany ca;!eri :jives eonsumPrs an okticn that would not lAa availalae unticr either State law or their credit cvntracts. That oil.ion allows cuutomers to remi ciutk.tandin Lalanees under ttle old ter; if they do not use tneir accounto After tYe effective date caf • ol-an9e, The in.Conlkation cAthered L, ti:e Board's staff indicates that only tour ;.:,tates currentli txohibit apialcation cas..„..iec in term to existing lAalances, while the remainder eW,er e:resal „;ermit thcse eham9ea or are silent on the iasue. lera '.t.ate law is silent, ths result is %lenerally ioverned !,-y the contract between the commoat and the creditor. W42, under6Land tt.at contracts 9enerall allow chanjes in terms to be akylied to outstandin talances.  .g  :e  icvi  4;otseill  r.tt  , A- - 41•••••  Thus, our ecti4n does net ailevr to alter oznt :^tate laws roviti=ls In ti-.11; rtlard, or coat tetljn arociato itcrtaitt issue.  tho tic to aarc your  Sinceroly, WWII& vo.a  171,vcd (fV-226) -cc,  le.4„. Otawart iir.mallardi (2)  AOSCPH P. ADDA13130 7m DIsT., NEW Yaw  PEIH_T TO. 2254  RAvitintH Nou3E Orrice WA GHING/DN.  D.C.  BUILDINO  20515  Action assigned Janet Hart  i  •  Congreo of tije Ziniteb ::-.)tate0  COM m ITTEE ON APPROPRIATIONS SUBCOMMITTEES!  (202) 225-3461  jitiouge of tepregentatibeg  CHAIRMAN, DEFENsE  TREASURY-POST OFT-ICE Od It.rTARY CONSTRUCTION  DisTwicT orrICE!  96-11 101sT Avuovir  Crzorot PARK, Ncw YoleK  ADMINISTRATIVE ASSISTAPEE DICK SEELM EVER  11416  alassbington, AC. 20515  COMMITTEE ON SMALL BUSINESS  May 20, 190  Mr. Paul Volcker Chairman Board of Governors of the Federal Reserve System 20th Street & Constitution Ave. Washington, D.C. 20551  N.W.  Dear Chairman Volcker: I am addressing myself to you with reference to the Federal Reserve Board's recent ruling that banks and other companies which issue credit cards are allowed to increase interest rates on a customer's existing- credit balance. This matter has been brought to my attention by a third party and I am writing to express my own concern as well as to urge the Board's reconsideration of this ruling. While the need to restrain consumer credit in order to fight inflation is great, it seems unfair to permit interest rates to be raised on a customer's prior purchases -- those made on the assumption that the existing rate of interest would be maintained. Reconciling fairness to consumers with anti-inflation initiatives should involve a distinction between past and future credit transactions. Consumers are entitled to the kind of warning that will enable them to make intelligent credit decisions. I hope that you will take this recommendation under consideration as I am most concerned with the unfair disadvantage to the consumer which the new rules present. I would greatly appreciate your comments on this matter. Thank you very much for whatever consideration you may render this issue. I will be awaiting your response. With best regards, I am cerely yours,  JOSEPH P. JPA:jfo  3(3,  Tbe gematabie 0.1Liam Proxmire ,', ,aug4Attee on Sankinq, Routimc aud Urban Altair's L:nitcd t:tatert i.anats 'azaw,ton0 L. C. 20310 Lc:4r Chaiman V,iat is in rou;-or.co to ..cur letter ol n re.caardin the documeLt tctxtivcd s our Com:Litt** from Mr. Ceore A. 14stvlik of U. '',:suiultantc. In this documeat Mr. ravli) ru,Luaats sirecial trtataont unles! tLe: lc/del:al reserve .i!:ocial Credit Pustraint 'Irorat./ fQr 1.ask loaAs to a client of tt4t commltint..1 rims, with wUich he is eiR:;ociated. Fe bacen this requoxt on the tact that nuo.t7 loans ore uno, ,/, to finasc the jurcL4Q of es.;.tliza.ent whio is t%en loamd to farmerfl. Iou Ilnow, the toard tan encouraged LeaYs to 6,11/tain aormal len4in activity to !xlrrowers. includinci anta 'Alzinemses, with limited accetz to altcraativc: source of firtancir, j. t the *am time, a !=eink lcan xtnier L VAC :gNe4 likely to exceed t!-xl oc:nt 114-ait ti14t L the -3co‘.,.iran guidelinms is exolcto1 to cut lAlich ito lendin.; to lar;!or businesses. a.vlikve, client 1.4 neither a Lamer nor a nonfarm mall Lubiness, ratter, it is a gulA4diar:i of one of the 300 largest cori:orations int countri, A. O. 1tb Corl.oration. As !kr. 124vlik describos thci 1,orro4ng ard leasint: arrarionts A. &tzlitt 3.4arveistoro. ?reducto r Tsto. r a tlanuC4cturor oi farta etuivrAent, estlisLed a new Icarin9 jdjx (ristorc) a ooulac oL 'tra Throug T.gristere, a ideatneraiv in wU.ch A. O. . ,Nith larA an 80 tcr.rcemt interest LuyfJ 1.1,;zont 4.roru ie.. O. LniCt :Airvostore, finanoim,i these intra-coL44:ony ;,urcha.toos lavjokt with hank credit. The i4rtneruhiL leaaes the eTklittlont to farm*rti and re:=ayt its Lank loans out of the iirocciedL; oi ther farmer5* leas* rayment.  •  ..J; r cf O. iltith ;:irvA,littoxf:; is c.oncrxned tat, in t!!* aln?Ince eateti;),a, Aink covilancc t;i0a ay rtrain V,e vfAume 1ir Credit leutraint 10.1.1oin - Jartner;t1-41, cre4it avalialao tc t no ju:.:tiLicatic.n flaw accordin:. Any ql,eclal It; fact, Own trout=-cnt to this kind of lealtainr,Aetivit. cloao rc1ationc.1* to a major L.corioratho ancing t116. it oLviout, acoloso to other pourceo of fin tionz / t'40 ts“:repriate xottraint on loam; to tho rartnerahil. ma. inut q ior an4i of its I,Anto 0A-o4tt Loan ,drowtt is ;.ressin ala thu 9 ,,ercont liitztion. 'useful to you.  I 1,44,.:c C1m4v-ct covat'..erite.  .r.,0 Jr/cc:v.117, SZ  WS:JPBOlvod (tV206) bcc  Mu. Stockwell zsrs. Mallared (2)  •  WILLIAM PROXMIRE. WIS.. CHAIRMAN HARRION A. WILLIAMS. JR.. NJ. ALAN CRANSTON, CALIF. ADLAI E. STEVENSON. ILL. IRE:GMAT MORGAN, N.C. DONALD W. RI F.GLE, JR., MICH. AUL S. SAR BANE S, MD.  Action assigned Mr. Kee  JAKE GARN, UTAH JOHN TOWER, TEX. JOHN HEINZ. PA. WILLIAM L. ARMSTRONG. COLD. NANCY LANDON KA SSEDAUM. KANS. RICHARD 0. LUDIAR. ND.  DONALD W. STEIN/4AT, ALA. PAUL E. T IPONGA S. MASS. KENNETH A. MC LEAN. STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY PRANCES DE LA PAVA. CHIEF CLERK  111Cnifeb Zfafez -.Senate COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS WASHINGTON. D.C. 20510 May 6, 1980  The Honorable Paul Volcker Chairman Federal Reserve System Washington, D. C. Dear Mr. Chairman: The Committee has received the enclosed document concerning the Federal Reserve Credit Restraint Program from Mr. George A. Pavlik. I am forwarding the material to you for your appropriate consideration. Sincerely,  m ro Chairman  11 11  WP:lmg cc:  Mr. George A. Pvalik  ire  , ', , *• , ••.-4elex 'thelt  ..4„..4.4uulautszattanktz.uman.st.ilituAtturran u0-arn,..ets, iebilelnurisrirk • it misiemmetrahkiiirrer  t A4 , 1,  ., -.m...r.asatianno-Troarove.  •  ••• ve  U. S. CONSULTANTS Marring • Legistoriqn • Public Mations • International Affairs WILLIK:: J. SCI-IERLE Preside=  GEORGE A. rAVLIK, Attorney Associate ReteaTch Consultant Washington, D. C. ION. WILLIAM H. HARBOR A3Sociace Co* nsultant  201 Massachusetts Ave. N. E.. - # 317 WASHINGTON, D. C. 20002 Telephone: (202) 543-0289 HENDERSON,IOWA 51541 Telephone:(712) 825-3141  PROF. MING T. LEE &raw Vice Pm:. - international Affairs  April 25, 1980  U. S. Consultants, of which former Congressman William J. Scherle (Ia.) is President, has as a client A. 0.Smith Harvestore Products, Inc., Box 395 Arlington Heights, Illinois 60006. A. 0.Smith Harvestore manufactures farm equipment, principally Harvestore grain and fodder handling and storage systems and Slurrystore manure handling and stora4;e systems. This equipment has been increasingly popular with farmers throughout the United States for many reasons, including reduced costs, labor-savint;, conservation of energy, reduction of waste and, in the case of Slurrystore, prevention of pollution. Methane produced from manure stored in Slurrystores is a practical alternate energy source, and the saving and recycling of manure through Slurrystore systems restores fertility to fields which otherwise would have to depend on commercial fertilizers m.nufactured and transported at considerable .'energy cost. The Administra'aon encourages on-farm storage of crain„ An increasing number of farmers utilize Harvestore systems/in connection with on-fr-trm production of alcohol from bio-mass as an alternate source of energy. About 21 years ago, A. 0. Smith Harvestore ba-an a leasing operation, managed by a new subsidiary, Agristore, Milwaukee, Wisconsin. Farmers were having increasing difficulty in raising capital for their farming eq11ir7-_-mt and olwlralion needs. A par':;,0rs',Ip(c%A.C.Snith i'20 Steiner) through the Agris Lore management company purchases the Harvestore or Slurrystore equipment and leases it to farmers. The partners ptovided about 25% of the capital used in making these purchases and borrowed about 7.5% of the total capital from vatous commercial banks, using the leases collateral, usirg the p-toceedf, From thJ leases to repay the debt. The leasing arrangeqient has become increasingly popular to farmers, and sales to the partnership for leasing to farmers accounted for some 20% of A,O.Smith Harvestore Products Inc. production in 1979. Some $ 70 million in equipment is now under lease. Harvestore expected the leasing operation to continue to grow rapidly in 1980 and in future years, envisaging perhaps another $ 60 to $ 80 million in equipment being leased this year. A. 0. Smith Harvestore Products Inc. is seriously concerned that the credit restraint regulations and guidelines issued by the Board of the Federal Reserve System on March 14, 1980 and since may result in critical curtailment of the leasing program, reflected in drastic cuts in sales and production, through the inhibition those regulations and guidelines place upon the ability of the leasing-partnership to obtain capital by borrowing from commercial banks, It would appear consistent with the Administration's  avowed policy of jilting availability of credit to agriculture and with its objectives of encouraging conservation of energy, expanding production of alternate energy resources, control of pollution, increasing on-farm storage capacity, and increasing net income to farmers, for relief to be provided in this situation, perhaps through exemption from the 6 to 9 per cent credlL increase guir3nline for capitalization of such leasing operations. Your efforts on behalf of obtaining appropriate relief would be most sincerely appreciated, by A. 0.Smith Harvestore Products, Inc., by Aaristore r by A, 0, Smith, by their stockholders and employees, by Harvestore and Sinrrystore dealers, and by farmers interested in lea-sing equipment. Respectfully submitted,  George A. Pavlik Associate Research Consultant U. S. Consultants  ••  7  '  ,  •  -• •.,  The A.:onoraLla JotAovit 14,icr 1-,ouse of Pepresentatives Wa4hintliton, D. C. 20515 LVAX  Mr. 7isher,  Thank .iou tor your letter expressinct con cern azout the currunt aituation at thrift institutions to two aegkjestionti los alleviatinli these ins and my reaction titutiort.,' can &sour* you that we at the rederal t;.(1, afficulties caused savinvA and loan Reserve er, associatio, rr,cci-st levels of iaterest rates. It is a aituation onit.z:z QeJw;tantly and one which we have dis cussed extensivellwith to either tcderal mlulatorz who have renonsibilities this area. V ic crobleu faced by these institutions, ir as you know, is that isin; interest rates increase their cozt of obtainins funds much more than their returns on assets, a lar9‘ ?ortion of whic!-. arc older losr i.ldin nortgages. Fr( CAE olkreective, I think tle recant declin es in rotes E' cttnncoura0.n4 and should in tine reliev e much of the rcnt intenu oarnin-is 1;ressures on ttrift s. run, tlae cyclical e%aracter of thrift earnin Ov*r the lontoor gs will ,Atcome 1( pronowuat ith ttic increased use of alt ernative mortgage inutruwhose raturw3ziLo fluctuatc with the lev el of market ratety. The oz:pertunity to sell lov-yieldin oGr (:)verLisient wculd, of courae, i'rovidc uomc i:cfnedi t,,;acit4 ate rcn.. . many ingtitutionv and Letter k:onition t1;:.1It 'u.V1 !ort-tex ratec once a9ain rise raiidly. '4o.wever, I 4M concorrwd aout the budgetar4 iLlact of tliv7i 1..rogr6v: and tr,i:rocedent it wtA110. set. It would recuire sultitAntial outlan, taxi-ayer:. aLsorldnii the losses ritresented the Olifz;verm Eten tt warket andLook r&Iu*s oi. tlickse at;. outla tles capeci411:i ill-Advised at a ti4;A, wilen IA:6;'At laear,ortant to our efforts to cuer, rorccvvvr,  The Honorable Joseph L. Fisher Page Two  the government bought low-yielding assets of thrifts, others with similar problems would also seek federal aid. These might include industries with outmoded productive capacity as well as financial institutions. I might note that the Depository Institutions Deregulation and Monetary Control Act mandates an interagency study of what can be done about the imbalance between thrift asset and liability portfolios. The approach you put forward is being considered in this study, and I would expect that the analysis there will help to clarify the issues. With respect to money market mutual funds, our concerns about their ability to divert credit from its traditional channels led us--under the Credit Control Act of 1969--to impose a special marginal reserve requirement on the growth in their assets. We have recently reduced this requirement along with relaxation of other special measures imposed on March 14, given slackening of credit demands, lower interest rates, and some strengthening of flows to thrift institutions. Nonetheless, there remain serious questions about the impact of these funds on the distribution of credit and about competitive equity between the funds and depository institutions. These considerations, of course, must be weighed against the obvious convenience and returns they offer savers. In general, I remain concerned about the present regulatory status of money market funds and believe that the matter deserves the attention of the Congress and appropriate federal agencies. I appreciate the opportunity to comment on these ideas. Sincerely, /7)  iQ (4ti a /  1 0[ ,.- 1 1  (",`",( .(4't“.  ,  1,  /)t0( al,,,,iit p  ii,-  f. el I tilitielti,it Ali  IftieU'af  ,  _ ttet,,,c(  ra  .11/, . • ,*(( ti 11/ Lt.t_  ,  4 A  •Action assigned Mr. Kichlie  JOSEPH L. FISHER  WASHINGTON OFFICE: 223 CANNON HOUSE OFFICE BUILDING  !OTH DISTRICT. VIRGINIA  WASHINGTON, D.C.  20515  TELEPHONE:(202) 225-5136  COMMITTEE ON WAYS AND MEANS SUBCOMMITTEE ON TRADE  Congre55nI tbe Unita' gptatc5  SUBCOMMITTEE ON SOCIAL SECURITY  ji)ow5e of 11epretentatiinE4  JOHN L. NORMAN EXECUTIVE ASSISTANT • 450 WEST BROAD STREET Room 416  Eillazbington, n.e. 20315  SELECT COMMITTEE ON COMMITTEES  May  8, 1980  FALLS CHURCH, VIRGINIA  22046  TELEPHONE:(703) 534-2888 •  • ENVIRONMENTAL STUDY CONFERENCE CHAIRMAN  19 EAST MARKET STREET LEESBURG, VIRGINIA TELEPHOREI  22075  C703) 777-5859  Mr. Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System Twentieth Street and Constitution Avenue, N.W. Washington, D.C. 20551  st  Dear Chairman Volcker: CT)  One of the central elements of the current anti-inflation policy is a tight monetary policy and stringent credit restraints. This has caused significant increases in interest rates which, although they appear to have peaked and are falling, are still at historically high levels. I have recently met with a group of officials from savings and loan associations which are located in my congressional district. Although the Federal Reserve Board does not directly regulate the savings and loan industry, the Board's actions in controlling monetary policy have a substantial effect on this industry. The soaring prime interest rate, the high yields on money market instruments and Treasury offerings have caused increased costs and disintermediation within the savings and loan industry. Coupled with the decline in new mortgage loans and the substantial portfolio of low yielding, older, outstanding loans, the associations have experienced a severe squeeze on profit margins. Although the recently enacted Depository Institutions Deregulation and Monetary Control Act will ultimtely provide the banking industry with additional flexbility to compete for funds, it will not provide immediate relief to the crucial situation that many of these associations face at the present time. During my meeting with officials of the savings and loan associations, two suggestions were made on which I would appreciate the reaction of the Federal Reserve Board. The first recommendation was to establish a Federal agency which would buy a portion of the low yield mortgages issued by the savings and loan institutions during earlier years. This would provide an influx of additional funds as well as increase the profit margin for the institutions. Such a proposal might be implemented by an existing agency, perhaps the Federal Home Loan Mortgage Corporation, or by the creation of a new agency specifically designed for this purpose. I have written to Chairman Janis of the Federal Home Loan Bank Board and to Chairman Reuss of the House Banking Committee requesting their comments on this proposal.  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  • •  • Chairman Paul A. Volcker May 15, 1980 Page: 2  The second recommendation concerns money market funds. Many investment c&panies and brokerage houses are presently offering money market funds in direct competition with financial institutions. While the banks and savings and loan associations are presently regulated, these other organizations remain virtually unregulated on these fund offerings. The officials of the savings and loan industry have suggested that all entities which offer money market investments be subject to the same rules and regulations. I have requested comments from the Securities and Exchange Commission on this proposal also. I look forward to your comments about these two recommendations, primarily as they would affect the monetary and other anti-inflation programs administered by the Federal Reserve System. Sincerely,  Joseph L. Fisher Member of Congress JLF/afe  1960  Proxmire The HoncraLle ilU Citairaian Committae on bazkin, Howling and Urban Affair. United States Senate hashincjton, D.C. 20510 (nP:lri:,n Proxmire, ..e ou for ,our letter of Itai 19 concerning your C4Aamittee,4i Le,lrine; into CAr effects of the narcotics zomity i.outh riorida. 1Janka I aL. 4:1,eased to inform you that John E. Ryan, Director, DivIsioa of Bankinci Superviaion and Reguiation, will a..vaar on 'behalf of the Board on June 6 at 10.00 owl. Sincerely,  KIN  CO:rjt (1122) bcc. Jack nyan  1  Ma  r, 1W)  The Honorable Howard M. Metzenbaum Committee on the Budget Ifnited States Senate Washington. D.C. 2051r) Dear Senator metzenbaum: In reference to your letter of May 16 and Chairman Volcker's reply of May 22. I am pleased to inform you that thcf nopository Institutions Dereoulation Committee at its meetina late yesterday considered the question that you had raised and decided to extPnd the period for coments on its Proposal to ban premiums from June 16 to July Sincerely,  Normand Bernard Fxecutive Secretary  1B:tb D-273  May 30, 1980  lits Honorable V.Cason *sited States sante vashington, D. C. SRO Dew Senitor Cannon: The* you for your letter of Nay 10 with which you amassed !Spies of mailarsms you have received cosserning a proposal to ban the offering of premiums or gifts by depository institutions. I will be plowed to bring copies of this correspondence to the attention of the neibers of the Depository Institutions Dilation Committee for their coneideration prior to a final decision en this matter. Sinceroly,  Normand lennOtel Executive Secretary NB:cak D-697 CC:  Mrs. Mallardi (1) Mr. Winn (1)  •  HOWARD W. CANNON NEVADA  COMMITTEES: 111,1 MERCE,SCIENCE, AND TRANSPORTATION, CHAIRMAN ARMED SERVICES  'ZCnifeb Ztatcz Zenate WASHINGTON, D.C.  RULES AND ADMINISTRATION  20510  May 20, 1980 Wow-  92 Mr. Normand R.V. Bernard, Executive Secretary Depository Institutions De-Regulation Committee Federal Reserve Building 20th and Constitution Avenue, N.W. Washington, D. C. 20551  r  Dear Mr. Bernard: Enclosed please find a copy of Mailgrams I have received relative to the proposed DIDC regulations banning the offering of premiums or gifts by financial institutions. I trust these comments will be taken into consideration prior to a final decision concerning the proposed regulations. With best wishes, I am Sincerely,  ,1/1,!)?4,14  /1_444w  /' HOWARD W. CANNON  HWC/CCsa Enclosures  ti"  1==1 I  KAL.NEY PANLIIN SERVICES  90 P(Ahl •  ii I Li  AvFP04  HAut;pAucE,  NY  117014.  •••••••••••••0111..•4,0  ••• MO . ..., •  .444411 2-•:".•  _  -s  •• •••••••  40,qtrp,,p7  Li -0232014137-055 05/17/80 TAX NJ KANNEY HAUP ASHB 02 HAUPPUG, NY MAY 16, 1980  HON HOWARD A, CANNON SENATE OFFICE BLDG WASHINGTON, DC 20510  TO ALL mEvBERS OF THE SENATE OF THE UNITE D STATES  IN ITSIRST mEETING ON TUESDAY, MAY 6, 1980, THE NEWLY CREA TED DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE PROPO SED A BAN ON ALL PREmIUM PROmOTIONS FOR ALL FINANCIAL INSTITUTIONS AND HAS GIVEN L',LY A ThIkTY DAY PERIOD FOR "PUBLIC COMMENT", THIS UNCONSC1ONA.LbE ACTION HAS BEEN TAKEN IN DIRECT CONTRAVENTION TO THE EXPRESS WISHES OF CONGRESS AS EXPRE SSED IN HR 49861 CONGRESS IN HR Q986 (NOA PL 96-.221) PROVIDES THAT EACH MEMBER REPORTS RECOmmENDATIONS FOR MEASURES WHICH WOULD ENCOURAGE SAVINGS, PROVIDE FOR THE EQUITABLE TREAT MENT OF SMALL SAVERS, AND ENSURE A STEADY AND ADEQUATE FLOw OF FUNDS TO THRIFT INSTITUTIONS AND HOUSING MARKET, THIS ACTION OF THE DIDC *ILL UNNECESSARILY AND WITHOUT ARGUMENTI 1,  DISCOuRAGE SAVINGS OF ALL KINDS,  2, DISPRoPoRTIoNATELY EFFECT SMALL SAVERS, WHO, UNDER HIS pRicP0SAL AOULD NOA LOSE THE ONLY INCENTIVE THEY HAVE HAD TO SAVE SmALL O'OUNTS OF THEIR DISCRETIONARY INCOME IN DEPOSITORY INSTITUTIONS, 3, FURTHER THE SLOA OF FUNDS TO AN ALREADY CRIPPLIED MOUSI NG INDUSTRY, U,  DES1R- OY VIRTUALLY OVERNIGHT AN ESTABLISHE D 30 YEAR OLD INDUSTRY p, r ico. IS C -4;4C7E;IZED BY SMALL, INDEPENDENT, AND HIGHLY COmFETITVE 5uSINESsESEmIum P;040TIoN IS CLEARLY HELPFUL AND EFFE CTIVE HEN THE FINANCIAL INSTITUTION CHOOSES TO EMPLOY IT, THEY HAVE THE OBVIOL'S RIGHT TO USE IT CR NOT, CRITICS OF BANK PREMIUMS SUCH AS CHLIRPAN SPRAGUE OF THE F,D,I,C, CALL PREMI UMS CONSUMER "RIP OFFS" AND CLAIM THAT BANKS i%OULD PAY MORE INTEREST IF THEY DID NOT USE PREImS, TwIS IS NOT TRUE, BANKS AHO OFFER PREvIUmS PAY THE MAXIMUM INTEREST AND OFFER GIFTS AS AN ADDITIONAL INCENTIVE, THE, COST OF THESE GIFTS ARE BORNE OUT OF BANKS • , • • •  - • .1  r:  rt  C  "• •  I  •  •  C".  •  . AGE 2  •  m-111 .•  L$1111!1-iv P41, 1,71.42.1.1 •  /•res.  • .....  •••  71  -  *,, tA .  41k-a.  ----"'S  -  ADVERTISING AND PROMOTION BUD GETS, UNDERSTANDING THAT THE MER E ANNOUNCEMENT OF THIS PROPOSED BAN HAS CAUSED AN IMMEDIATE AND DAmAGING EFFECT THROUGH THE CANCELLATION OF ORDERS FOR MILLIONS OF DOLLARS OF MERCHANDISE WITH THE RESULT THAT JOBS HAVE ALREADY BEEN LOST, AE URGE THAT YOU CONTACT THE MEMBERS OF THE DIDC TO STRONGLY VOICE YOUR OPPOSITION TO THI S PROPOSED REGULATION, THANK you FOR YOUR HELP, SINCERELY NEIL J, KANNEY KANNEy MARKETING SERVICES 90 PLANT AVENUE HAUPPAUGE, NY 11787 Tx 510 227 6620 08:11 EST 4GmCOmP MGM 0/6  ,•  P4;4 . 4.  L 'IlinN  tiFiSnC e  TvAit  NEwTOP'\, PA INC Nor  16940  u  i4U  •  14.  ty, eN  J.  4W c41U4 4M *r Oa,; . 4 r. r :/k1.44  •••  . 4‘(:7; r  ••••  I;v1. 0N *4 1.457 •tsf..o, 4tri  r -11b ,  1-00/1P3L1 A136-55 05/15/P0 TAY AYDALTON NTow wsHA 01 NEWTON, PA, MAY hi, 19P0  a  ›l•  HON wOWARO W. CANON SENATE OFFICE 9LOG w AsHiNGTON, DC 20510  -MO  • TO ALL "E"9c9S OF THE CONGPESS OF THE UNITED STATES OF AmERICA  •  IPST ,ErTING, ON TUESDAY mAY 6, 1PPO, THE NEWLY CREATED IN ITS DEvCcITI,RY I 4\.STITPTIONS rEPEGULATION COmmITTEE PROPOSED A SAN ON ALL PREmTUm PPomPTIONS FOR ALL FINANCIAL ImSTITUTIONS• AND H As GIVEN 09LY A THIRTY rAY PERIOD FOP "PUBLIC COuHENTe n THIS UNCOSCICNA..BLE ACTION' HAS BEEN TAKEN IN DIRECT CONTRAVENTION TO THE rXPPFSS WISHES OF CONGRESS AS EXPRESSED IN HP u986. "AN ACT TO FACILITATE THE IPPLEPJENTATION OF mONETARY POLICY, TO PRoviDE FOP fl-q- CRANIAL ELImINATION OF ALL LIMITATIONS ON THE P ATES OF INTEPEST hkICH APE PAYABLE ON DEPOSITS..." CCN::0 FSS STATES IV LQ66 )(NOW PL 96-221) THAT wEAcH mEmPER (OF THE DIDC) SHALL SEPARATELY REPORT TO CW%GRESS (AND) EACH 'EPEP REPORT SHALL CONTAIN...RECOYmENDATIONS FOP vEASPDES WHICH WOULD ENCOURAGE SAVINGS, PROVIDE FOR THE EOUITLBLE TREATmENT OF SuALL SAVES, AND ENSURE A STEADY AND ADACUATE FLOw OF FUNDS TO THRIFT INSTITUTIONS AND THE HOUSING mAPKET." PL 96-221 SEC 206 P (2.)  410  • T -TS FFST ACTION OF THE DIDC KILL UNNECESSARILY AND WITHOUT LNit 1. CISCOUPAr,E SAvINC:S OF ALL KINDS, AND ,... 41 2. OIE:=;09ORTICNATELY EFFECT suALL SAVERS, WHO, HAVE NOT YET PECEIVED ANY BENEFIT FROM PL 96-221'S PHASEOUT OF ...''..t Ak 0 e.n wHO UNOFP THIS °RN:TS:IL WOULD NOW LOSE THE ONLY tNW F.ENEFIT AND INCENTIvE THEY '-'AVE HAD SINCE 1966 TO SAVE S"ALL A"OUNTS OF THFIP DISCPESSIONARY /KCOmE IN 7,E=CSITCzN INSTITuTICNS, AND, .- CP 3 FLT HER SLOw THE FLCw OF FUNDS TO AN ALREADY CRIPPLED .". 14-:.'?-r4 ,4. 41, H OUSING INDUSTPY, AND. . • •.4, p i 4. . DESTROY VIP TUALLY OVERNIGHT AND ESTABLISHED INDUSTRY .._C,4? : )14_4.:.. A"ICH IS CARACTE RIIEC BY S"ALL, INDEPENDENT, AND HIGH rd H v: . CC"PETITIvE PUSINEFSES. AND, .• • ' — . .•• .)4.-.. as' ADD TO :NEP.*PLO 1 Y"ENT, AND, '. --.' RAF ;;., -,... t. FuEL INFLAT/PN •  .,1 .i t ,•  co  ;•r. '',.) r;,1 ',1.•..•  E : E , - '...,E  -':•E. F •:.'P. V. I- T ,;'4  11. .  -  . ,  V , x „• ..,• .1!),0  .i 1: $ i .r tir;:0',IS TOR • FrE r rt40!:E NUMBERS.  .  •  .NC  1 ig -U 11 U  r.-;-;;'.n  -„uwiLisu '  r  • •• ••  A.•  •. .;•  of .1; ,..• • 14 t',17„„t•  ' 1•  - -  - -  M="F  ALL 0,04CESSARY AND IN DIRECT CONTRAVENTION TO THE WISHES OF COKGPESS oHO STATED THAT! "REGULATIONS SHOULD ACHIEVE LEGISLATIVE GOALS EFFECTIVELY AND EFFICIENTLY PLq6-221. SEC 802  4  ”ANY pq-GULATION ISSUED BY THE FEDERAL REGULATORY  AGENCIES SHALL, TO THE MAXIMUM EXTENT PRACTICABLE, IKSURE TwAT-  )  (1.) THE 'F- ED FOR AND PURPOSE OF SUCH PEGULATION IS ESTABLISHEn CLEARLY, "EANING FUL ALTERNATIVES TO THE (2.) PROmULC:ATION OF SUCH REGULATIONS ARE CONSIDERED BEFORE SUCH REGULATION /S  ISSUED? (3.) TIMELY phRTICIPATION AND COMmENT BY FFrERAL AGENCIES, APPROPRIATE STATE AND LOCAL INSTITUTIONS, FINANCIAL TtN)sTITuTIoNs, AND CONSUMERS ARE AVAILABLE PL96-22I •  cL ,. NoT EppktsizE sTRrc.LY ENOUGH THAT  o CP  ) 0  THIRTY DAYS FOR CO'dmr'4 T ON THIS Cnr,PLIcATEP ISSUE DOES NOT ALLOW FOR THE CONGRESSIONAL ,161-ATE OF "TIk4,ELY PARTICIPATION." THE ACTION OF THE DIDC Tkis PRoDosAL IS AT BEST MISGUIDED, BUT WHEN THEY  IN  sPRLTTTT,.G  ALLOw ONLY THIRTY DAYS FOP CO ENT BEFORE DESTROYING AN INDUSTRY 1 4 ED THAT THIS IS THE STATE OF AFFAIRS WITH A COMMITTEE I 04 sTLIN / CEATED FY OUR PEPRESEK1ATIVES IN CONGPESS. IF THIS IS A HINT OF THINC.S TO CO"E FROM THE DIDC I AM EXTREMELY APPREHENSIVE ABOUT Ti-,E ABUSE Cc Pt. cf....221 AND HOw IT MAY IN THE FUTURE BE USED TO HtPm THE SvALL SAVER WHOM IT IS SUPPOSED, TO PROTECT, THE HOUSIt:G IDUSTRY 104ICH IT IS SUPPOSED TO AID. •%E PESPECTFOLLY cNIEST THAT AN EXTENSION OF AT LEAST RC) (K.INTY) DAYS BE GreNTED PEFORE ANY ACTION CAN BE TAKEN ON THESE RROROSALS SO THAT HIS MATTER uAY BE CAREFULLY EVALUATED AND TI"ELY PI;TTCIPATION ALLOP.ED FOR ALL CONCERNED PARTIES. WE THANic you FOR YOUR CONSIDERATION IN THIS MATTER OF EXTREME UPC:E,'CY TO US.  FL :r t.CF m. r.`ALTC. PRFSIrENT UALTN ASSOC,, INC. 11 PENNS TRAIL  KEhTOPN, PEYNA. 18g40 215-0!‘e-5^51 TiNY * 51(1 6022Q?  SENATOR HIWARD CATMON  MAY 1 5 1980 LiEd U-16  WASHINGTON, D.C. 20510  oei35 EST  •  • •  •  May ID, 19/30  The Honorable Henry S. Reuss U.S. House of Representatives Washington, D.C. 20515 Dear Mr. Reuss: Thank you for your letter of May 21 in which you endorsed requests from a number of your constituents who urged an extension of the period for comments on the mwsposal to ban the use of premiws by depository institutions. At its meeting late yesterday afternoon, the Committee considered this matter, and I am pleased to report that the period for receivino comments has been extended from June ls to July 16. Sincerely,  normand Bernard Executive Secretary NB:tb D-696  Aft  HENRY S. REUSS 5rw4 DIcTRICT. WISCONSIN  COMMITTEES: •  410  BANKING. FINANCE AND URBAN AFFAIRS  WASHINGTON OFFICE:  CHAIRMAN  2413 RAfeuRN Houcr Orricr BUILDING WASHINGTON. D C. 20515  SUBCOMMITTEE ON THE CITY  PHONC: 202-225-3571  Congt05 of tbe Zinittb 'tate.  CHAIRMAN JOINT ECONOMIC COMMITTEE  MILWAUXEE OFFICE: Fr OCRAL BUILDING ROOM 400 517 EAST WISCONSIN AVFNUC MILWAUKEE, WISCONSIN  53202  3Dotige of liepresentatitnEs  INTERNATIONAL ECONOMICS SUSCOMMITTCC Co-CHAIRMAN  Ulasbington, 3.C. 20315  FIN0Nr:C4-291-13M  May 20, 1980  Norman R. V. Bernard Executive Secretary Depository Institutions Deregulation Committee Federal Reserve Building 20th Street and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Mr. Bernard: I write on behalf of several constituents, who have expressed to me their concern about the Committee's May 16, 1980, Federal Register proposal to curtail financial institutions from giving gifts or premiums to depositors. They oppose the proposal, and intend to submit formal comments to the Committee. However, they specifically argue at this time that the Committee approve at least a 30-day extension of the period for public comment, so that all affected firms and persons can be notified about the proposal and have time to prepare substantial comments about it, particularly adverse economic consequences which would result from its implementation. I believe that the request for an extension is a reasonable one, and I would appreciate hearing from you about it. Sincerely,  Henry S. Reuss Member of Congress  May 30, 1980  The Honorable William Proxmire Chairman Committee on Banking, Wusing, and Urban Affairs United States Senate Washington, D. C. 20510 Deer Mr. Chairman: Thank you for your themibtful letter of May 73 concerning interest rate differentials betweem basks amd thrifts. The decisions of the Depository Institutions Deregulation Committee earlier this weJr. were indeed fashioned, after extended 4eliberations by the Corn.. mittee, "to strike a delicate balance between preserving the finant cial stability of financial institutions, mamtaining credit flows for housing, agriculture, and small business, amd providing equity for savers." Only time will tell us whether we Iwo succeeded in that objective, but my colleagues and I on the Committee will be watching developmemts very carefully and we will make Whatever adjustments may appear desirable in light of evelving economic and financial conditions. Your support of our efforts is deeply appreciated. Sincerely,  Paul A. Volcker Chairman NB:cak D-694 cc:  Mrs. Mallardi (2) Mr. Winn (1)  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. SARBANES, MD. DONALD W. STEWART, ALA. GEORGE J. MITCHELL, MAINE  •  JAKE GARN, UTAH JOHN TOWER, TEX. • JOHN HEINZ, PA. WILLIAM L. ARMSTRONG, COLO. NANCY LANDON KASSEBAUM, KANS. RICHARD G. LUGAR, IND.  KENNETH A. MC LEAN, STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANCES DE LA PAVA, CHIEF CLERK  'ZICrtifeb Zfafez Zertate COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS WASHINGTON. D.C. 20510  May 23, 1980 Chairman Paul A. Volcker Depository Institutions Deregulation Conunittee 20th and C Streets, N.W. Washington, D.C. 20551 Dear Mr. Chairman: It has been reported that the Depository Institutions Deregulation Committee will consider the advisability of eliminating the rate differential on money market certificates which otherwise will be restored when Treasury bill rates fall below 9 percent. Any decision on the differential will have to strike a delicate balance between preserving the financial stability of financial institutions, maintaining credit flows for housing, agriculture, and small business, and providing equity for savers. A judgment on this issue requires access to detailed information on the current condition of financial institutions and on the recent credit market developments. For these reasons, Congress left the issue of the differential on accounts created after December 10, 1975 to be decided by the Deregulation Committee. For example, in passing the Depository Institutions Deregulation and Monetary Control Act of 1980, Congress could have amended P.L. 94-200 to require the differential be maintained on all categories of accounts and not just those in effect on December 10, 1975. Congress chose not to do so. It is obvious, therefore, that Congress intended to vest discretionary authority on post-December 10, 1975 accounts with the Deregulation Committee. Hopefully, the Deregulation Committee will carefully assess the impact of restoring or eliminating the differential before making its decision. I believe the Congress clearly intended that the Deregulation Committee exercise its best judgment on such matters. I have taken no position on this issue; instead, I urge the Deregulation Committee to decide the issue strictly on its merits without reference to oqtside_pr ssure. Siscerel  a  111 am' .xmire Chairman  Nay 30, 1980  2he &movable Willie* R. Ratchford Mosoe of 1epresentatillee Veebiagton, D. C. 20515 Dear Mr. Ratchford: Thank you for your letter of May 20 with which you enclosed a copy of correipeadames you received from Hr. Robert J. Aoftwors, regarding the propeeel to bon premiums offered tr7 depository institutions. I hove onoomod to bring Mr. Andrews letter to the attention of all the oombors of the Depository Institutions Deregulation Como. mittee and want to assure you his views will be considered before a decision is reached on this issue. Sincerely,  Normand Bernard Executive Secretary  NB:cak D-695 CC:  Mrs. Mallardi (1) Mr. Winn (1)  WILLIAM R. RATCHFORD PivirliDisTRICT,Conmccricur  WASHINGTON OFFICE: 437 CANNON HOUSE OFFICE BUILDING PHONE (202) 225-3822  COMM ITTEES:  EDUCATION AND LABOR HOUSE ADMINISTRATION  CongreEcE4 of tfit Zirtiftb 'tatt.  SELECT COMMITTEE ON AGING  3Dotw of IkepreOntatibe5 littadington,;IC. 20515 May 20, 1980  DISTRICT OFFICES: 135 GRAND STREET WATERBURY, CONNECTICUT 06701 (203) 573-1418 DANBURY OFFICE PARK 57 NORTH STREET DANBURY, CONNECTICUT 06810 (203) 748-3332  a  Mr. Normand R.V. Bernard Executive Secretary Depository Institutions De-Regulation Committee Federal Reserve Building 20th and Constitution Avenue, N.W. Washington, D.C. 20551  qf  Dear Mr. Bernard: I am writing regarding a letter I recently received from Mr. Robert J. Andrews, President of the Creative Financial Concepts, Inc. in Milldale, Connecticut concerning his opposition to the proposed regulations regarding financial institutions offering gifts to depositors. I understand that the Depository Institutions De-Regulation Committee is presently taking public comment on the recent proPosal which would ban the offering of premiums or gifts by financial institutions. Mr. Andrews has expressed his opposition to this proposal and I would appreciate your considering his thoughts on this issue. For your interest and information, I am enclosing a copy of the letter I received from Mr. Andrews. If I can be of any further assistance before I hear from you on this subject, please do not hesitate to write or call me. With best wishes, Sincerely,  William R. Ratchford Member of Congress 5th District, Connecticut  WRR/glk Enclosure  THIS STATIONERY PRINTED ON t ;PER MADE WITH RECYCLED FIBERS  ,e, ianctal Hu  1i ,  '"r• 1 1f 4 eipo Apar* Vi1'01t)!I'y  P.Icq  Roa(1. P 0 Boy S69 •  Con rie-c tow!,%ail • 393)• az' 4w,”  May 8, 1980  ord liam Ratchf l i W e l b a r o The Hon es presentativ House of Re ding Office Buil e s u o H n o n 437 Can D.C. 20510 Washington, chford: Dear Mr. Rat  ons Deregulation i t u t i t s n I itory tors f the Depos o g n i l Bank regula t a e r e e m d e t F s , r 0 i 8 f 9 6, 1 ing At the red from offer uesday, May r T a b n e o b d s l n e o h i stitut Committee nd thrift in a s k n a b t a ts. proposed th ract deposi t t a o t s m u remi gifts and p ar to ier this ye l r a e s s e r g n by Co Banks and stablished t e a h s t a w t s e e e r t e t t of in e This commi the amount n o s he committe t t n i , a e r v t o s m e t r s r t i ts f phase ou tors. In i i s o p e d y a p thrifts may ts. se, restrain e h t d e n e t h g ti ated , is dedic . c n I , s t p e c on ive Financial C e v i t a e r with incent C s , n y o n i a t p u m t o i c t s Our this l in e approves ng financia e i t d t i i v m o m r o p c o s t i f th solely eposits. I d t c a r sixty days. t t n a i h o t t i w s s m s a e r sin prog be out of bu d l u o c e w , proposal n rly restrai i a f n u l l i w hich ts. gulations w ract deposi e t r t a o t o d t e s s o m p u premi We are op from using s n o i t u t i t ns financial i -41 :  rmation For your info 1)  2)  ct e to attra l c i h e v n e v o pr e the most Premiums ar deposits. cial r one finan o f s n a e m t rtan her. ide an impo v o r p s f from anot m l u e i s m t i Pre e t a ous. The ifferenti r d e m o u t n n e o r i a t u ublic instit d by the p e rams u r c c a s t i entive prog c n i The benef m o r f ing time ales result During this . y t i n u m increased s m co er jobs in the t seems rath i d e , d t e n e e n m y o e l t nemp crea increased u d n a ulti-billion n m o i a s s e l c l e i r k f o nt to ur governme o r o f s u o r ludic stry. dollar indu  r  1.1.1U!.! ...!,:•;ER TOP rPE:  THE NAT ION 4/40GRAM IN / 13  I.  3)  The major reason for this proposed regulation is the problems created by the so-called "Bring A Friend" programs in the New York City area. The Federal regulators have proposed to limit "finders fees" to cash instead of gifts and to count cash gifts as part of the interest paid on the deposit. We are in favor of the elimination of "Bring A Friend" programs but are unequivocably opposed to the total elimination of gifts and premiums.  4  Incentive programs result in increased savings. During a time of excessively high inflation, the public should be encouraged to save. Savings create monies that have long-term effects on the economy of our country. At this moment, our country needs all the help it can get in order to encourage stabilization.  5  Prohibiting premiums in one outlet seems to be a viblation of our constitutional rights and our free enterprise system. The prohibition of premiums in the financial market will significantly affect the sales volume of many manufacturing companies supplying the products for premiums and consequently the employment of these firms.  This is only a brief synopsis of the position we take regarding regulations prohibiting premiums in the banking industry. Many of the suppliers of premium products sold nationally are from the State of Connecticut, and it would adversely affect the employment of this State. We urge your support in this matter as the livelihood of our company is completely at stake, as well as that of many other Connecticut based operations. Thank you for your consideration. Sincerely, CREATIVE FINANCIAL CONCEPTS, INC. /  Robert J. Andrews President RJA/pg encl.
Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102