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)9?0 Collection: Paul A. Volcker Papers Call Number: MC279 Box 10 Preferred Citation: Congressional Correspondence, August 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/c432 and https://fraser.stlouisfed.org/archival/5297 The digitizadon ofthis collection was made possible by the Federal Reserve Bank of Sr. Louis. From the collections of the Seeley G. Mudd Manuscript Library, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United States copyright law. By accessing this file, all users agree that their use falls within fair use as defined by the copyright law of the United States. They further agree to request permission of the Princeton University Library (and pay any fees, if applicable) if they plan to publish, broadcast, or otherwise disseminate this material. 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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 :kugust 1/ 1111C Ths ilonoreac Mary Boma Oakar al,M00 a F.evraseatativaa Waalaingtm* D.C. 201111 Daum Mo. Oskar; Thank you ter your letter of July 28 ressmomding Pichard Embn aa a somber of the Board's Commas" Advisory Council. I ors assess you that nr. /whit's qualifisatiosa will reccive tull consi4eratioa when the Board mhos as 1981 ar;o1ntmoutu t the Council* The Board akpreciates reoeivilki ymur reeommemadaUm and your interfast in tlio Consumer PAvioory Council* Sincerely / Wald A Volcket COsplt (FK 520) bac: Las Marie Bray (4/ .59py of inco:aing) Mrs. Mallardi (2) Utstust It MO The honorable Bruce r. rouse et Repreeente.tive3 Washington D. C. 20S15 Dear r. Vent*. Thank you ger yeas xeeeat letter express/al comers or tbe malt imereeoes *everted for the second quarter by 444:1At large books that tieftelited twos relatively hillot lending rat‘il. You elms indicated comers that smell haulm night net be akae to share squall in the FroCit geisha realised 4 larva. tante. Seem& quarter earnings—sods pedals to dime only tAy hiM1.ss esspeelimeeve grew* rapidly from tl,e first .are quertur in some easels, lawmorail imoderstoly in ethers, and declined in a few. Snell- amid nedisa-sise bash* geserallT Neve net yet made their eersiuge OWL bet they toe are empeete4 to show nixed result*. /,14:!,,L1maisb of the earnings petters is attributable to changes in not interest Jamas from the first to the sweend rimesters, ems of tibo 1.1.4fit growth dewing Le seeped learter cane fros eapitel geinu rasultinq from the *herr declines in rorket interest rates, The large bank* euperiencinq isoprovemeuts in net interest earadnige during the seemed quarter'are those able to reissue a large velum* of their outatundin:, liaAlities at lower interest rates while maintaining mere staLility in their asset returns. Other benhei able to reissue only a relatively small portion of their liabilities during the seeond quarter, would net have snari eased the rapid eeet 401nosses implied by the drop is market yields sons small basks also are likely to have emperienced isproved ust interest earnings duriee the *scone. quarter, ?hese bevinq relatively glued interest retsras aid replosis, Naturist; 1440.4-eoet lie/Joint's: with 10014 costly fwd o Tom likely to ha,* ,;sined. On the other heed, small beaks with a relatively terse volume of *meson market certificates* havdeq SeTteiber and Oeteber ..aturitiee axe unlikely to have realized seeos4 quarter net intericA inocluesLns theme liabilities were issued at a fixed rate asrinthe period of very high market rates of interest. 11;* lionorablia Dreads 1. Vento as 2 The Vapid and sizable ineresses La aerket Interest rate Lest fall as& winter had remelted in *mines pressures se some s barks boomss sermal relatiemObips between eargissa l retmeas OD their **sets sad marginal sesta of theta tend* Tib beams disterted• Witl the subsequent deep in macItet interest rates during the seemed quartaro 14.ofit oppertmnities as fee maw Woks* In woe eases. extraordinary gains have &permed to the sem, iastitutiems that earlier felt the meet 1,-reassere. smell se %Woe with beluga) sheets west typified by timed-rate, Ismer-term eseeta finessed by aborttow liabilities. nowever, these aseseel seine 1iety will prove te,vorarys with the of mere mermal Irate relationstkips is iess to mespeti poessereo. lbe Federal *emery. is emmait is immeris, betb sempetitive balsas* betwesa smell sad Zaige beaks art assess tu reasonably priced eredit for bemebeyers, _Iubesismimms, and dormers. The resent high p!of its repo by SOW be, however, de met appeer is Ladieate that themrted eblestLves aro tbseatemedie I bap. these eemmeats prove esetal to Sincere34, S/Paul A.INIceig MOVUS401.1t4tn (V-297) beet Mt. richline mr. Lindsey Ozvez Mi6 iiallardi (2) roe. *ion assigned to Mr. Kichline• BRCE2r.VENTO ifTH D,STRICT. HOUSE COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS 230 C 14.•0•4 HOur Orrtcr (202) 225-fAll SUBCOMMITTEES Congre55 of tlic Ziniteb tatc5 DISIOVCY OF 31)ott.5e of IkepresSentatibt5 5..) 16,4 rAIRS P•POC PL•Cr 4•Sti.ryS•wrT PAL,I . Z.Zasfiington, SS101 ECONOMIC STABILIZATION CONSUMER AFFAIRS HOUSING AND COMMUNITY DEVELOPMENT HOUSE COMMITTEE ON D.C. 20515 INTERIOR AND INSULAR AFFAIRS (6,2) 725-n24 SVOCOMMITTEES. ENERGY AND THE ENVIRONMENT NATIONAL PARKS AND INSULAR AFFAIRS July 17, 1980 Mr. Paul A. Volcker Chairman Federal Reserve System 20th Street & Constitution Ave., N.W. Washington, D.C. 20551 Dear Mr. Chairman: The second quarter financial statements have been released for many of our nation's banks. A cursory glance at these statements indicates that many of the largest banks and bank holding companies are realizing second quarterly profits. There is unanimity among financial analysts that the primary cause for these increased profits is a result of the lag between the rapidly falling cost of money to financial institutions and the more slowly decreasing interest rates charged by banks. While it is indeed crucial that we have healthy financial institutions, the second quarter earnings of many banks go far beyond what can reasonably be termed healthy. Additionally, the largest increase in profits seems to be accruing to the largest commercial banks. If we are going to pursue a policy of eliminating the differences between financial institutions and at the same time encourage competition, we must not allow further concentration of economic power. I urge that the Federal Reserve Board examine the second quarter earnings and report to Congress on possible federal action to reduce the potential for windfall profits. It is indeed ironic that while small business, agriculture and housing are being strangled because of high interest rates, the largest banks seem to be making tremendous profits by lending less. I appreciate your consideration of my request. Silberely, / I ArtCe F. Vento Member of Congress ,Zt BFV/sr THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS r...,"„ ,. \,_ _ ,_„•. ::-Y-.:-.--V)N\q).• • --; LeA..., eu-.. • - ,s:F.• .p 4s:. r.. Pr' 1!--; . - vo BOARD OF GOVERNORS CF THr FEDERAL RESERVE SYSTEM WASH.NGT0N, D. C. 20551 • r- ,;;k1,1 ; 1 !,,,..,-- •,-) . • •••• '+<„••,.....- •-•,,41. — .4, . .•('‘<"),' -;'.4•' • ...,.NP • •' • ii/IL R ',s • • '• • .. • • • PAUL A. VOLCKER August 4, 1980 CHAIRMAN The Honorable James M. Collins, M.C. House of Representatives Washington, D. C. 20515 Dear Mr. Collins: I am pleased to respond to your request for comment on a letter you received from your constituent, Robert L. Boyd, President, First City Bank in Farmers Branch, Texas. Mr. Boyd indicates that several Texas savings and loan associations have begun offering NOW accounts prior to the December 31, 1930 effective date of the NOW account authority of Public Law 96-221. As you arc aware, depository institutions outside New England, New York, and New Jersey are not permitted to pay interest on an account that permits the depositor to draw drafts, checks, or other negotiable instruments. Under Public Law 96-221, this prohibition will be removed effective December 31, 1980. It is my understanding that the accounts being offered by savings and loans in Texas are noninterest bearing transaction accounts, which State-chartered thrifts are permitted to offer under State law. There is no indication that interest is being paid on these accounts in violation of Federal law. In addition, the Federal Home Loan Bank Board recently expanded the powers of Federally chartered savings and loan associations by permitting these institutions to offer accounts upon which nonnegotiable instruments may be drawn by depositors. While interest is paid on funds in these accounts', there is no violation of Federal law since the instruments drawn by depositors are not negotiable. Competition among all depository institutions is intensifying in anticipation of the NOW account authority. I expect that thrifts and banks will continue to compete vigorously for retail deposits within the current regulatory structure prior Lo and after the December 31 effective date for NOWs. This, of course, will result in additional competition and an increase in Lhe number of alternatives available to consumers, which will be beneficial in the long run. Sincerely, SiPaAl A. McheL BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 PAUL A. VOLCKER • FR AL It•S • •..• • CHAIRMAN August 4, 1980 The Honorable Alan Cranston United States Senate Washington, D.C. 20510 Dear Senator Cranston: I hasten to sign this letter transmitting to you replies to the questions you raised in a letter to me on June 30. I very much regret the delay in response, which I find can only be accounted for by mis-routing within the office of the Board of Governors of material sent to me in my capacity as Chairman of the DIDC. You may be assured that our procedures have been straightened out, but this assurance hardly can correct the lapse in this instance. Sincerely yours, la ( " 01 414f4Z ir66U( 5-• (21 0 Witga VlifiA" Enclosure arke C1114:t444/ r#4111 At* P014 f144 //ie 1. With respect to the directives of P.L. 96-221 for gradual and orderly deregulation, how well prepared were the various depository institutions for the changes ordered to be implemented less than two weeks after their promulgation on May 28? The DIDC actions taken on May 28 were not primarily designed as a part of the deregulation process, but rather to facilitate larger credit flows by depository institutions to specific credit markets--viz. for mortgage, agriculture, and small business credit. Adjustment in ceiling rates have traditionally been effective when announced; otherwise the public will refrain from acquiring deposits until the new ceilings become effective, thus disrupting deposit and credit flows. The Committee was aware of the administrative burdens faced by institutions in implementing the new ceilings rapidly, but felt that the need for the institutions to remain competitive in order to expand credit flows in specific credit markets outweighed these potential burdens. As you know, under both the new and old ceilings, the actual ceiling in any event needs to be changed at frequent intervals. -2 • 2. Could you explain the need for such an urgent action by the DIDC on these rates (in view of the fact that market rates were declining at the time)? 8. Why was it necessary for the Committee to take its May 28 action on rates "as soon as possible", and why did you consider the use of public notice and public comment period "contrary to the public interest"? Floating ceiling deposits had been virtually the only source of growth of deposits subject to rate cengs since mid -1978. The ceil- ingson such deposits are tied to the yields on Treasury secures of comparable matures. Treasury security yields not only are generally below those on competitive investments, but also decline more rapidly than other rates as interest rates fall. Thus, the environment of declin- ing rates made it propitious and desirable for the Committee to act to imS rove the competitive position of the depository institutions. More- over, you will recall there was considerable uncertainty in the banking and thrift industries about the nature of any changes to be made, and prolongation of that uncertainty seemed undesirable. • -33. What projections, estimates, staff reports, or other data did the DIDC base its decisions for the May 28 action? (Please submit all available data for review to the Senate Financial Institutions Subcommittee.) The DIDC staff provided the Committee with judgmental estimates from simulations of deposit flows and earnings at depository institutions under various interest rate assumptions. In general these results showed that deposit and credit flows would be enhanced, while earnings would not be significantly affected by the DIDC's actions, assuming interest rates remained near their current levels. likely to increase). (In some scenarios, earnings seemed The earnings estimates of course reflected an assumption of profitable employment of enhanced deposit inflows. memoranda have been made available to you. Copies of staff 4. How far in advance of the May 28 meeting were these reports, data, et cetera distributed to the members of the DIDC? The issues that prompted the May 28 actions were first discussed by the Conmdttee at its May 6 meeting. DIDC staff was directed to prepare an analysis of a number of issues, including the possible re-emergence of the differential on the MMC and the competitive position of depository institutions relative to nondeposit market alternatives. The Committee met in closed session on May 20 and May 23 to discuss the interest rate outlook and review staff reports. -55. Was consideration given to the short term, as well as long term implications of the DIDC's actions of May 28 upon the availability of housing credit? If so, please explain what issues were discussed and the reasons for your actions on removing the differential. Please submit whatever reports or justifications led you to conclade that removal of the differential on the money market certificate was in the best interests of housing. 9. Explain how your new interest rate structure will help financial institutions compete with money market mutual funds? 10. Please explain how the Comnittee's actions will help savings institutions better serve the nation's housing needs? How will these interest rate changes generate new mortgage funds for housing? The primary objective of the May 28 action, increasing the maximum allowable ceiling rates aa MMCs and SSCs relative to Treasury yields, was to improve the competitive position of all depository institutions relative to their nondepository competitors, such as Treasury securities and money market mutual funds. Savings and loan associations, mutual savings banks, and smaller commercial banks--which are major lenders to housing, agriculture, and small business--were under liquidity pressure and were finding it increasingly difficult to compete with alternative market instruments. By allowing depository institutions the flexibility to offer higher returns, these changes should facilitate larger deposit inflows and a further extension of credit to the markets served by these institutions. The DIDC left that 1/4 percent differential intact for 30-month savings certificates. Those longer-term deposits are considered more consistent with the longer-term nature of thrift institutions' portfolios, providing a more solid base and incentive for mortgage lending. The DIDC, in establishing the new rate ceilings, also faced the prospect that the decline in interest rates would re-introduce a differential -6 on MMCs. Small commercial banks, which are signcant lenders not only in the mortgage market, but also to agriculture and small business, and which increasingly came to depend on MMCs as a source of funds in the year prior to teIIDC actions, could have faced substantial deposit attrition and subsequent pressure on their abty to extend credit if the differential re-emerged for a sustained period. In light of this, while permitting the differential to reappear generally at levels of rates prevag in recent months, the DIDC also permitted commercial banks temporarily to re-issue maturing MMC deposits to the same holder at a rate equal to the thrift ceiling. Moreover, the minimum deposit ceng established made no allowance for a differential, mainly on the basis that should these minimums be effective, all institutions would be in a relatively favorable position. Taking these competitive factors into account, the DIDC concluded that the May 28 actions, on balance, would induce a greater flow of funds into institution active in the residential mortgage market at rates consistent with profitable lending and lower mortgage rates than those then prevailing. To be sure, the decision on the differential could have been tilted further toward thrift institutions, but only by jeopardizing the flows of funds to smaller banks, hard pressed for liquidity, who were servicing the agricultural and small business (including car dealers and their customers),as well as home financing,markets. • • -7- 6. Would you give the Committee your definition of "market rate" that was used in setting the interest rates on the money market certificate and 30-month certificate. The floating ceilings on the 6- and 30-month deposits are linked to the rate on the 6-month Treasury bill and the 2-1/2 year Treasury constant maturity yield, respectively. These Treasury rates provide a practical basis for determining the ceiling on these two types of deposits. As indicated above, Treasury yields tend to be lower than other rates available to savers. 8- 7. Should the Congress establish a procedure for notice and opportunity to override the recommendations of the DIDC? I do not believe that such a formal notice and override procedure is necessary or desirable in the light of the elements of greater uncertainty that would be created. -911. Your explanatory statement indicates that part of your consideration in stabilizing certificate funds in banks was to assure that funds would be available for agricultural and small business loans, this reasoning appears to be dictated by monetary policy considerations and not by the legislative dictates of P.L. 96-221. Would you explain why this action was taken in the confines of DIDC as opposed to through Federal Reserve's credit policies. Since small commercial banks--which are major lenders in agricultural and small business credit markets--had relied to such a great extent on MMCs to finance their loans, actions on MMC ceiling rates, which could only be accomplished by tha DIDC, seemed required. Monetary policy actions to address this problem cannot generally differentiate among particular sectors of the credit markets, and a general increase in the money supply and total credit flows must take account of the general inflationary environment. I might add that the Federal Reserve did make special dis- count window credit available to these small institutions to assist in financing agricultural credit. -10- 12. Did the DIDC consider extending the differential to banks that had a large portfolio of mortgages, agricultural and business loans? If not, why not? No such proposal was formally presented to the Committee. Staff discussions, however, did consider the matter, and pointed to administrative difficulties of establishing and policing deposit rate differentials based on portfolio distributions. mean that In some markets, for example, such a rule would some large commercial banks, with access to the money market, might have no differential on small time deposits vis-a-vis small thrifts with no access to other sources of deposits. Such thrifts might then find themselves placed at a severe competitive disadvantage. We would, of course, also had highly anomalous competitive situations, with side-by-side banking offices offering different rates to their customers. -11- 13. P.L. 96-221 charged you with the task of acting in the interest of the small saver and other consumers, would you explain how your action on interest rates and increased withdrawal penalties meet this criteria under P.L. 96-221. Obviously, the increase in ceiling rates is to the benefit of small savers. However, there is considerable evidence that as interest rates rise, savers often withdraw their deposit funds prior to the contractual maturity, frequently redepositing the funds at the same institution. When interest rates are low lenders then become unwilling to readily commit new deposit inflows to long-term loans such as mortgages. A balancing of consumer benefits with the need to increase credit flows to mortgages, agriculture, and small businesses, thus suggested the desirability of having depositors share some of the interest rate risk that had been borne mainly by the depository institutions. The modification of the early withdrawal penalty rule only increased the depositors' cost of withdrawal in the first few months of the deposit's life and left the cost of withdrawal later virtually unaffected. Early withdrawal rules in the event of death or incapacity were not changed. -12- 14. Explain the reason for the Committee establishing minimum interest rate floors on the money market certificates and 30-month certificates above declining market rates? The minimum ceilings --not deposit rate floors--were set initially at levels near or below ceiling rates prevailing at the time the May 28 actions were taken. The anticipation of the Committee was that if Treasury security rates continued to fall, the minimum ceilings would insure the competitiveness of the depository institutions. As noted, Treasury yields tend to decline more rapidly than the yields or other instruments as interest rates fall. A minimum ceiling would thus better assure the ability of depository institutions to attract deposits at a time when their earnings pressures were easing. It would also permit the institutions to experiment with setting their own rates as a precursor to ultimate deregulation; indeed, if rates continued to decline--or remained at low levels--one would expect the institutions to begin to pay below ceiling rates. -13- -4 15. 111 How does this new complex infrastructure of interest rates reflect the Congressional mandate of P.L. 96-221 for the DIDC to move toward deregulation? What other more simple options were considered by the DIDC? The maior objective of the actions was not to move the ceiling rates toward deregulation. However, the actions IS seem consistent with small progress toward the objective of deregulation in the light of the added flexibility provided institutions as indicated in answez3to question 14 and other questions above. Other actions--such as raising fixed ceilings on all accounts--were considered as possibly bringing too much earnings pressure on institutions in the current environment with no more effective results in terms of flows. -14- 16. Your interest rate actions would seem to cause more funds to leave the regulated financial institutions for the money market funds because the average employee of a financial institution will not be able to explain these rates to customers and this kind of confusion will cause consumers to go to the more simple money market fund. From a marketing standpoint, financial institutions should be able to answer the question from a customer, "Can I get higher rates elsewhere?" What information are you providing to institutions to help them address these kinds of questions? With increased depositor awareness of alternative yields, the offering rate is the most important variable used in marketing financial assets to the public. The May 28 actions of the DIDC permit depository institutions to post a more competitive rate. The depositor (or the bank teller) need not be concerned with any added complexity in the rate formula because the institutions can continue to advertise in the same way as before by stating the nominal and effective interest rates for each type of deposit. When a depositor approaches a depository institution, the only difference apparent to him should be the increased yield he can receive now versus what he could have received under the old schedule. •Plow 11')A4ht-4 • BOARD OF GOVERNORS OFTHE FEDERAL RESERVE SYSTEM WASHINGTON. D.C. 20551 August 5, 1980 Mr. Donald Tucker Professional Staff Member Subcommittee on Commerce, Consumer and Monetary Affairs Committee on Government Operations House of Representatives 20515 Washington, D.C. Dear Don: In further response to Chairman Rosenthal's letter of July 25 and Chairman Volcker's reply of August 4 concerning the Federal Reserve member banks entitled to vote for Class A and B directors, the information from the following remaining four Districts is enclosed: District District District District 1 2 6 10 - Boston New York Atlanta Kansas City Please let me know if we can be of further assistance. Sincerely yours, Jay P. Brenneman Special Assistant to the Board Enclosure (Se."- IP II- 305) Luguzt 4, 1980 The Menareble Benjamin S. Aosonthal 4habemem Cannewee, Cennumer and ttonetary Affaira asibeennittee 441 the Committee on Sevegnment Operations Mouse of inprosentativos Viabingtono D. C. 20515 Deer Chaision Samantha's Monk you for your letter of July 25, 194ft reuestinil . : (a) listing of all rederal Pmeerve Member Desks entitled to vot4 or Class A and D directors of the Yederel ionserve Banks and coriee ot all provisional of low and all ~rent regulations joverning such matters. we are enclosim it districts of the fo11owin9 L:wamher bank lists, tlot ot,.er four districts; will be dispatohed to you in a few &vb. m St. Louie District 3 rhiladelphie niLtrfet Dittrict 4 Cleveland District 9 - Minneapolis District 5 1-ic%mond District 11 - ralias District 7 - Chicago tistrict 12 - San Tranoistoo All of the statutory provisions regardini Pederel Seetrve bank directors are contained in section 4 of the rodent' Reserve Act. Cci-ies of theee statutor-2 irovisions are enclosed. In addition, enclosed Are all items' that are of a regulatory nature eeneerninc; Pcdaral Reaerve Dank director*. Thar* aro toe such items. rirot is a voluntary lieme tr) Conduct for Direetors that tits board adol)ted in PeLirustry, 19711. The second item is the lioard's regulaand Reirponeibilitiew tion entitled Seeerve bank Director* (12 CF7 264a) that was pro1u1gate4 for the purpose of Assurins that directors fulfill their fiduciary responmibilities in a manner cor;siptent with the Feek4ral Pezerve .Act. Please lot me Enou if I car b.* of further assistance. Zincerely, S/Paul!GA Enclosure Pt.`1.011"‘ V305 bcc: Mr. Wallace, Mrs. Mallardi (2) 11,1JAMiN S. ROSENTHAL, N.Y., CHA,RMAN RORER ,T MATSUI, CAL IF. EUGENE. V ATKINSON, RA. FERNAND J. ST GERMAIN, RI. r • NINETY-SIXTH CONGRESS • LYLE WILLIAMS, OHIO JIM JEFFRIES, KANS. JOEL DECKARD, NO. JOHIS CONYERS. in., MICH. r.;_t_tor-r P1 LEVITAS. GA. tAAJoarre—(202) 225-4407 Coligre5E; of the liniteb gotate5 3botifSe of 11epra‘entatitie COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE ? OF THE 0 COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING, ROOM 8-377 WASHINGTON, D.C. 20515 July 25, 1980 Hon. Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. 20551 Dear Mr. Chairman: I am writing to request a listing of all Federal Reserve member banks entitled to one vote for class A and class B directors of the Federal Reserve Banks. The banks should be grouped by Federal Reserve district. Furthermore, within each district the banks should be grouped according to the size classes within which they fall for voting purposes in the election of Reserve Bank directors. Any member banks not entitled to a separate vote should not be listed. In addition, please provide copies of all provisions of law and all current regulations governing (a) the composition and selection of Federal Reserve Bank boards of directors and (b) the powers of each Federal Reserve Bank board of directors for (i) selecting the president and senior officers of the Reserve Bank and (ii) other purposes. This material is needed urgently, and I would appreciate an expedited response. Sin erely, Benjamin S. Rosenthal Chairman BSR:tv Ione ,onoxable Adlai 2. ::,,tevension unItee. *Asti,* :Aanute •A.zhi.tui tioak, D. C, 2051( L'LX'enetoir L.tevkAlson cooentini,; on 1.14 LA,C17t Tratiln7 Cny Act of 271S) I have, 3nve,1ocoatdcns,tY ronvrv* tiolla 4-out 1,roviaict)a that )uld er4;,11: !.:tain / oranisations to cxercite contxcl over f.341,rt tradinj coi„..4nie5. It continues to ;,e mi view thet ovAnisstionb a4o1.112! not ,t-nerally be ;trziatted to control ex;r44xt traii coztt;- anic.; ln vin,w of t,-,e lx,licit co,-2t4tA.ol4ts of ':,ank reaciurctsu, tb. incrga5et risk ti'att accoui.,an, control and the nee._! to toaintain the line 4,4A1.,ecr, and octane:0e. latter to 5ion of auly 23 indicated, tAowever, there ocrtaln sieecial circualetszces in wktc the risks associate(' 4.ith bank control of an el:kort tradln ctoian:y uculd outwol;cte4 in this 1zltc intoreat by the salutstrj• *float te trading comvany uould have in iisoi“otin,ziU.s. eorts. Ttis situation niiiht extzt i4Lon rticu3,ar 3codz and 'services current14 riot !4,ein4 offortio in inte‘r,ational trade could 141 yhavinc access to exliertiLe cf L&nk ascisted altort tradins; cockan.j. Further, if the exy:osurc,t of the tradinc; coman,y (and itg banl. covipany ole,ner) is reaaomale in relation to its activitien, !tt zay Jr. ths ublic intercrit to crEit control of the ta;?ort tradin ceztijaay. The critical east:tent In any case involvini control is the need for tar). invcallImant in the orsianiaation and cfmttinu*a o ration Qf such an ex,c;:t tradin4,i comi'4ny. This condition could be :.3rat wbuni tor exszu.je, r t - ! United slice, vvecialisse rureose or tsmiorari riaturc of tlie i. :ro;,osed new exrort facility :.akes it unlikely that it could attract C740 fineneiLl • ert reJos:aas and kvelmiltd of forvti%in tkiitut colav,itent y bank control. TT.4 cpirt of 11-411 ouct rsh.plizes a high dr tticatinarcl v•nowlec. in the areut; ot 1.Aark*tinc e docurlentar rpont, In order for A nItirt orianinatior tc cuLtrol An c3(c-,rt trit cuiseany, it sAmt tCi tJia ccztor.ri t.ir,:7;x : i crtict that Is esaerttiLa to tLis succw‘srul ooiration of V..ct cx,c:rt traini comi.artl. I 4ould ex,s.Atet further tat the need fwr continc.7. invoIvemant /41141 Le demonstrable on an oncoi:n A&r Ist,e orooralao Adlai 1'z...a 2 . ;:tevesseon One. isstie kahic 14tve not addressed 5.r4viously in tile context of the ‘ontzel icsuo is wLether, in thooe cases where ttoc, e‘i.ort tradint41 cettliAny is to 1-e controlled by a banking ovounisation, it i6 .vreralao tat c'anersb4 reaide in V.,e ben). or in the 1.:onk, holdin,4 cevqao.!, Iria issue was dizcuesed at the Cotc.'.ittee's hisarinoi aeveral weeks Ago. Liscitin-; control lint; interests to tank 13tiç coal,aslies iet/uld '08 consistent with the ;eneral scheme of federal tantin.; laws lebich remire$ ttlst abatkankimi; factivIties xLcrc L cor4 orate a•ttitl r;o40.rate frot; the bank. hltiol tnia ai_k.sToac eould Larmonie,n1,1 Ath CODCOrhs, aLout breachitli tt'tt lino t.etween bankin4 and There i a ttriialant C;at all inve!stents, including e7ese A:.lou AO ieruent of tl'-la. eAiort tradin%; comian) . *a stock, should zea,tricted to ikat.k. co1.4A 3nies. 'Aowever, a good case can e tiade that A aaaive vl.aority lt.vostANsnta of a ;.uxvly financial r.ature anti with reduc4k,d risk to Cl.sit investtor a.ould t.e permitted tor .4.11)41; as %/oil az tank boldin4; cot,74,anies. t*xmittinu 1:arth' control *f ex;cArrt tradiN cosvanlos Ll, .)ext) there is a c1e4r neitie l I Lelieve the rurleozes of 27lti can be accoc411ohed. it..t the aativ tine, the concern!. 4atvtl ex.rrec.4ed an to Lank exkoeure would Ye cati4sted 1llowin.4 tL ankreoilatorl a vencies to review critically any t„"rokosal in iit 6: t:'c, rielft involved. If n. 271$ were amendeti to i/ermit iZk lit ootvan contrcl in those livAteil circsaktanees, I would te krepared to aut,;lort tUs legitlation. Sinocrolf , VOICkidi tra (Soo V-259) ••• bk:c. Mr. Cev.4mi11 Urs. Mallardi (2) %/-- V-30, ' i2ItuAti‘2 z illtktrativtt jitt.13eral 7:ror t at, un„tortuaAtal whZ 411 too Lrikuontl-;. arises in ettertlptv; La'i4eiteLt sitetuterr 4.;61,4,ned to ftlletiit ittte con.xumv,r, recielltiou,s el:fortis to i&ct ntki neconvcr under the stAtutet cat revilt la rt.oslationu vhil* ;iroteictim: tbe iozity ol an4 iL'an trhiOP OtheX14,, in thiac. t. ctic.In takon tt. t7i4 rceivat of the bank's efforU to corcieru' to : , :t-ulAtion. .11;:T! ILItentA • LlectrcAic 1.und Transter ct. (Aher ttit rsoquites that gine:acid:a institutions 1!(7:rills: TJerviccn : :rovide custowAre with documentatiotl of trenuicru. ifinaterial institutions havo ttAt choice or met0A-A a notice of reteirt of a 1..reacthorised, electronic credit (atuca t>ø direst 4okos1t of Zooi41 Sslcurity benefit) or of 1Ln cuatomerl * telephone wiar tat thei' can call to verity 10Aither e deposit of futdy. • 1.1sen rtmeived thu rot eons ittetitctiene. includilv; • Lcsex AanX, tnt oendirl of a notice eacO1 time is apperently w,orw too:1bl* t!*,411 rearoadiD to televone calls from costumers. Althouie ttAirre is no ixoYlibition atjainrt otarn9 !or tran4fikra ao long :14 diacloJuiree sr* ve avt stir! tlemd that uould 'fAt 1.:;oze4 for direct deriositk. tirect de4,-oeit, liku the electronic fund trenufer of M4131 OthiLT trans. actions t is cheetircr in the tonei run than 1.avelinc the mare, t acticn check, urileratal ttat t3ser rata Lan roletively eirect da:evait custcmer4 i Lolwavor: et4 t?'.e torq The Honorable Joseph G. Minish Page 2 may not realize economies of scale sufficient to offset the added costs imposed by the Act and regulation. Other insti tutions that have communicated with our staff from time to time have all indicated that they do not impose a charge. I hope that Mrs. Seltzer's parents may be able to locate one of these banks in their area. This is the first instance that has come to our attention in which a charge is being imposed for direct deposits. I should add that many financial institutions believe that the Act and the resulting regulation impose an undue compliance burden on institutions which, but for their participation in the federal recurring payments program, would not be subject to Regulation E. I hope this information will be helpful to you. can be of further assistance, please let me know. Sincerely, /lite iCea:t d teo4e, fi‘? If I JOSEPH, G. MINISH, N.J., CHAIRMAN S. WILLIAM GREEN, N.Y. RON PAUL, TEX. HENRY B. GONZALEZ. TEX. FRANK ANNUNZIO, ILL. "CARROLL HUBBARD, JR., KY. PARREN J. MITCHELL, MD. STEPHEN L. NEAL. N.C. DOUG DARNARD, GA. WALTER E. FAUNTROY, D C. BOB LOFTUS, STAFF DIRECTOR CARROLL A. CAMPBELL, JR., S.C. JON HINSON. MISS. U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON GENERAL OVERSIGHT AND RENEGOTIATION OF THE TELFrHoNr 225 2828 COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-SIXTH CONGRESS WASHINGTON, D.C. 20515 July 15, 1980 1 The Honorable Paul Volcker Chairman Federal Reserve System Board of Governors 20th and Constitution N W Washington, D. C. 02551 Dear Mr. Chairman: I have received the enclosed correspondence from a constituent and would appreciate your advice and comments. With kindest personal regards, I am Sincerely, Jos ph G. Minish Chairman 4 6 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis June 30, 1900 Josh Einish ,Uj 1.ain oireet Orange, N.J. Dear Congressman 1-linish: My parents, Anna and Eorris Tes sman, are residents of Degnan Eouse in West Orange. 'Since they are 84 and 83 years of ace, and frequently unable to get to a bank, we urged them to have their social security checks sent directl,,- to the bank and credited to their checking account. They did this las t fall. Last month, they received the enclosed letter from the Essex Bank. You will not e that by having their social security checks sent directly to the bank, my parents are being chars.ed :;36.00 per ::ear. The checks are received at the beginning of the mon th and the banks have use of the money, int erest free, until such time as checks are drawn against it. In checking with Social Sec urity, I learned that at least two banks in the area, The Esse;;,- and Midlantic Banks, are chargi ng their customers for direct social securi ty check deposits. I am certain this w. -is not the intention of Congress and believe that you, as a member of the house Banking Com m— ittee, will be interested in this inform ation. Sincerely yours, .'":1 ‘ -j (Nrs. Mcdton Seltzer) • EX BANIti • THE • 44 • 255 Prosc:ecr Adenue 217 ".1a,n StrFor 731 5610 5 Ceet•O A .enup 731 5905 1Nr_•st O?ar A Complete SeriIce BanK 731 5)0 New Jersey 07052 ki.ay 10, 197) Dear Customer: Effective May 10, 1930, the Essex Bank, as part of PeTilltion E of the Reserve System, dealing with ELECTRONIC FUND TPA,.sr;Ds, will be reauired to disclose to you any transfer of funds from a third party 'or credit to your account. A third party may include the Social Security Administration, Veterans Adminstration, etc. If you have arranged to have direct deposits made to your account at least once every 60 days from the same person or company we will let you know that your deposit has been made within two husiness days after the date the transfer occured. Our business days are Vonday through Priday. Holidays are not included. Where your deposit is being credited to a checking account, you will receive a rectipt for that particular deposit. Where your deposit is beine credited to a savings account, you will receive a receipt and when you bring your passbook to us, we will record any Electronic Deposits that were made to your account since the last time your passbook was updated. If we do not complete a transfer to your account on tire or ip the correct amount according to our agreement with you, we will be liatle for your losses or damages. However, we will not be liable if there are circumstances beyond our control such as fire or flood that prevent the transfer, or despite reasonable precautions that we have taken. Under this new regulation, we will disclose Information tc third parties about your account where It is necessary for completing transfers or in order to verify the existence of your account to a third party or in order to comply with government agency or court orders. Accordingly, due to the Increased costs In order to comply with this new regulation, we regrettably must charge your account SI.50 for e3ch transfer. Ir case of errors or questions about your electronic transfers write to us at 255 Prospect Avenue, West Orange, N.J. 07052, or call us at 201-731-5030. If you think your receipt or statement is wrong or if you need more information about a transfer being made on your behalf, we must hear from you within 60 days after we sent you the first statement on which the error or problem If you call, we will require that - you send us your complaint or occured. question in writing within 10 business days. Your correspondence should indicate your name and account number and the dollar amount of the suspected error. Please describe the error as clearly as possible or why you need more information. will investigate your complaint and will correct any error promptly. If we take more than 10 business days for this investieation, we will credit your account for the amount suspected to be in error, so th.lt ycu will have use of the money during the time It takes us to complete our investigation. Very truly yours, Steven Handler Compliance Officer SH/ds ••••••• • •• ••^ I, IV ••••• • . •••••••••••••••••••••• •11111..... Auiptutt 5, 1140 The ReaoraLlt A.ord rigatcon lhoirman ,4slact Comaittce on ..;:211 Lusiaess Vnite4 States :rt. r.ato :ioshiniiton, P. (.„ 2051f: Ofkag CL44460AL .,u41.44,011, Ti:4t41 Ttouk you tor your lettur conceerrin -r. ctifff 'urf. Chairman and Presidant of :ita :gitt 7.Zuatrifla. haa a eolvy of the loan wertla4,.alnt letwverl ;Iv* larsr.4 iknd Norteki Ise. an4 revieloc.2 it Anil tte clxclImatabc*Jurroundin the loon. ,t) ive lcorne4 tlat tLe tt2 tho Icon ,sroerent cok.tAittad to the loan 07ior to *y r.ctocr letter ar.;:, tiAute 4xre iLaic;ations tLat tl,at Lf-cen linftcr: J. October 23 liltter Cctoer. tht firnt eviphosisod take over corAssurictation LI-Jat talevertheloss, a :tucstio.n re.s.ains in tit" &Lind as to kvl.\ the bankz hltd not been sensitive to tt.4 relevance of t';lit ce;13.xitcent to eaxlior *Omonitions about finaneift purely fin4wcial tn4 cpecul* tiv4 LctivitIcontrihute to economic perfomance. Ia a4t ccinnvction e I Jave noted Cie 1.1aviaion in the Isw. a4re4.4444t'eke 1,gocated4 of thof ttill Lao ubed to aci.juire au ur.identifitk toruot. If tliu 'tevitt wa2 41s, -; unlynown to the lonaNrc, it iv difficult to tee hw elonld cbtow tlat transactiv= tliat vonld contrilAtte tQ the *CO210-1" tale 11;Aon WAti vriorvanco. The 4encral re,,uoist ;:or restraint in this type of , .- er 23 it $3AA wialttodly less exi.l.icit leaaIn, an4 :ARit.Are Q0to. tlo&ii not, of courut, nave tt.e, lorce of rwolartioA, ttowevratr, loan roisee a ,,ucation as to whiptQr t:z.m.s mia .;o4.struod or di4remirded C.41 *f tt.a Ffic.%10. Nmarlerf,4 a this ar411. I haw. tte ittoarve liresidonts Gat1ord neloc,a 2 thr banks involwt;a, officia1.4 .t1;14 to. diaculL.1.(z tranzectIon and tipe nature of m; concerns atout t ccizi c*rtain th4t the 4eed for 000k:er^tion in mue, tfforts is ualdtszitc>oci. ;iaccrel'y, Seaul A.VcAckey; /tn (t-( 313) Lcc: kirs. aallardi (2) Action assigned Karl Scheld GAYLORD NELSON. Low ru... P. wrickrpt, JR. A. SAM °ALF. fl HUODLELTON, ?CV. mrins, ARK. . Doe PACKwOOD. Oro. , uLVER, IOWA • v.ALTritt CHAIRMAN • oRwim O. HATCH. LITAH S. I. HAYAxAwA, CALI,. R0P.ERT moRGAN. NC. HARRISON H. SCHIRITT, N.M. JAM! •R ASsER, TErIN. Ri'DY IROSCHwITZ, MINN. DOPIALC) e. STEW ART, ALA. LARRY PRESSLER, S. DAK. MAX sfit.frcuS, MONT. CARL LEVIN, MICH. ?JCnifeb Zfafez Zenctfe SELECT COMMITTEE ON SMALL BUSINESS WASHINGTON. D.C. 20510 WILLIAM B. CHERKASKY, EXECUTIVE DIRECTOR HERVERT L. SPIRA, CHIEF COUNSEL 11100SSIT J. UOTCHtN. 141NOJUTY STAFF DI CCTOII July 24, 19L0 p.r. Paul Volcker Chairman board of Governors Federal Reserve System Washington, D.C. 20551 Dear Mr. Volcker: 1-r. Stewart Tisdale, Chairman and President of Sta-kite Industries, Milwaukee, Wis., has brought to my attention a loan agreement between five large banks and Nortek, Incorporated, in the amount of $40 million. The purpose of the loan is to provide capital for the purchase of outstanding equity securities; the purchase of assets for the purpose of a merger; and, to pay fees and expenses related to the acquisition process. This loan agreement is dated October 25, 1979, just 2 weeks after your letter to large member banks of October 10, 1979, in which you stated: "This is not the time to finance activities that have little to do with the performance of the American economy". Your letter of October 23 to all member banks also made this point: ...credits for extraordinary transactions would be viewed as questionable by the board. Examples would include loans...tor corporate takeovers that simply substitute one source of financing for another and do not clearly promise improvement in economic pertorrance". As Chairman of the Senate Small Business Committee, I am always concerned when a larger company simply absorbs a smaller company in which no immediate economic justification is apparent. Small and independent business is the heart and soul of our free enterprise system, and it is essential to the well-being of our economy that federal policies not undermine the fundamental . principle of free enterprise. Although the President has recently announced the removal at federal credit restraints, I am wondering what action may be taken by the Federal Reserve regarding the Nortek loan agreement 6 Paul Volcker July 24, 1980 Page 2 specifically or the use of cr dit by th overs, generally. Fed for hostile tr-.<, Your early comments on t appreciated. ould be greatly matter 1 ALO(D NELSON lairman GN/dz itsepats.111111 Ile lbroomohboldobool 0. berme Ihrose of liolomoostatives Ibiabeargtos. D. C. 20515 Dew 11Ir. lioroee I ess plowed to Award, Um. Carel Aso Soy. oohs tho palate move more mike, as loll as emalftrage rood of the third recipient of the ameelibur I dare your belief that this omord mill of the Use cestribemboo federal employees a Mill Level of sehteeemet. the loord of Gevereore of the 1adoos1 lisoerve Spots. MOW he hommt to participate La the progroe, but at the precast tibiae we do opt herro ausy goodostleme for poor fourth amid. Wow Amok. for poortabog tho apportoolty for so to participate is yaws essiellest progna. Stossesty, S/PaL& Mcker cc: ...Catherine Mallardi (2) Barbara Pilla Congressional Liaison OSD-M BiP/JMD:dbm - 3c"/ H• tU E3ARNE 7 MA RrLA COmmITT E- Action assigned Mx, Denkler • • )N FOREIGN AF AIMS 0.64.A.'• UROPF AND THE wpm E E•ST INTERNATIONAL ECONOMIC POLICY AND TRADE 1 COMMITTEE ON THE JUDICIARY A OMMiT TI IMMIGRATION REFuGEES AND INTFRNATIoNAL LAW Congre55 of die aniteb *tatt5 ji)ouse of 1Aepresentattbr5 lasbington, D.C3 2031:- July 21, 1980 ADMINISTRATIVE LAW AND GOVERNMENTAL RELATIONS COMMITTEE ON THE DISTRICT OF COLUMBIA JUDICIARY MANPOWER 43 AND EDUCATION Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Volcker: On this third presentation of the Excalibur Award for superior government service, I am happy to announce that Mrs. Carrol Ann Roy of the Veterans Administration was the honored recipient, June 27, 1980, in the U.S. Capitol. Mrs. Roy was cited for developing home care and vacation programs -- emulated as models throughout the nation -- to benefit chronically ill kidney patients who must forever be dependent on lengthy hemodialysis treatments for their survival. Her dedication and hard work have enabled these persons to retain jobs, go to school, and carry out their daily routines while keeping their involvement in the community intact. Mrs. Roy's innovations have meant a "higher quality of life" for these patients, while freeing hospital personnel and facilities for the care of others. This September, I plan to present a fourth Excalibur Award to another outstanding federal civilian or military worker. And I encourage you to continue to submit timely and noteworthy nominations to my office for the consideration of the Selection Committee, which is an independent body of eight leaders in government, education, business, law, science, psychology, and medicine. Past nominations, however, will continue to be reconsidered for all future awards. You may be interested to know that the tiny, energyand cost-saving invention of our first Excalibur Award •-•••••• • .• • p)A . tah. 4h % tt 1•1•••••••••••••• Honorable Paul A. Volcker 1page 2 July 21, 1980 JAN recipient, Frank Nola, NASA Marshall Space Flight Center, Alabama, may soon play a focal role in our government's own efforts to cut power consumption in federal buildings. Our second recipient, Udo Fisher of the Alaskan Air Command, continues to teach life-saving techniques and rescue people in this country's Arctic regions. Through this program, I am learning much about the scope of our people's imagination, integrity, courage, and achievements; and it is a story that I want to share with the American public. So I am counting on our cooperative efforts to recognize men and women of valour who serve their fellow citizens with honor and thoughtfulness. Wilmams rgam •i. I look forward to your nominations and comments on our unheralded -- though laudable -- civil servants. Sincerely, Michael D. Barnes MDB/so r. 4 ••+• • •• . * • • BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM -ri • WASHINGTON, D. C. 20551 PAUL A. VOLCKER RA L RES • •..• • CHAIRMAN August 6, 1980 The Honorable Lloyd Bentsen Chairman Joint Economic Committee Washington, D. C. 20510 Dear Chairman Bentsen: In accordance with arrangements that have been made with your Committee, enclosed is a staff report covering financial developments in the second quarter of 1980. Sin rely, /'f /f Enclosure • illk d of Governors of the deral Reserve System Staff Report August 6, 1980 DOMESTIC FINANCIAL DEVELOPMENTS IN THE SECOND QUARTER OF 1980 Interest rates reached record levels in early spring, and then fell steeply over the course of the second quarter. On balance, short-term rates declined an unprecedented 7 to 10 percentage points, reaching their lowest levels of the past two years in June, while long-term security yields retraced the increases recorded early in the year. The plunge in interest rates prin- cipally reflected an abrupt diminution of demands for money and credit associated with the developing contraction in economic activity and with borrower response to the credit restraint actions taken by the Federal Reserve in March. Also contributing to the decline in rates were an apparent reduction of inflationary expectations in the light of the growing slack in the economy, the smaller increases registered by major price indexes in the second quarter, and the weakness of the narrow money stock measures relative to the Federal Reserve's announced ranges for 1980. Downward adjustments in administered rates, including the commercial bank prime rate and home mortgage rates, lagged well behind the drop in market yields over most of the second quarter. The fall in market rates of interest came to a halt near the end of the quarter; yields on both short- and long-term securities retraced a small portion of their earlier declines in Late June and July. A growing federal deficit and discussions of a possible tax cut contributed to the view that market rates might have attained cyclical lows. Nonetheless, the prime rate continued to move downward in July, further narrowing the exceptionally wide gap that had existed relative to market rates over the preceding months. The narrow monetary aggregates, M-1A and M-111, dropped sharply in April, and despite progressive strengthening in May and June, contracted for • • Interest rates Percent per annum 20 LONG -TERM SHORT-TERM 18 Federal funds 16 Conventional mortgages-,,... HUD 14 12 Commercial paper 90-to 119-day 10 Aaa utility bonds New issues Treasury bills 3-month U.S. government bonds 'Federal Reserve discount rate 1977 1978 1979 1980 Monthly averages except for Federal Reserve discount rate and conventional mortgages (based on quotations for one day each month). Yields: U.S. Treasury bills, market yields on three-month issues; prime commercial paper, dealer offering rates; conventional mortgages, rates on first mortgages in primary markets, unweighted and rounded to nearest 5 basis points, from U.S. Department of Housing and Urban Development; Aaa utility bonds, 3 1977 1978 State and local government bonds 1 1979 1980 weighted averages of new publicly offered bonds rated Aaa, Aa, and A by Moody's Investors Service and adjusted to Aaa basis, U.S. government bonds, market yields adjusted to 20-year constant maturity by U.S. Treasury; stale and local government bonds (20 issues, mixed quality), Bond Buyer. -2- the quarter as a whole. The decline in these aggregates was greater than would be expected on the basis of the historical relationship among money, interest rates, and income. At the end of the quarter, M-1A and M-1B were below levels consistent with the growth ranges adopted by the Federal Open Market Committee (FOMC) for the fourth quarter of 1979 to the fourth quarter of 1980. In contrast, M-2 and M-3 by June were within the ranges set by the FOMC, as growth of the nontransaction components of the broader aggregates over the quarter was somewhat above the first quarter pace. Net funds raised in credit markets by domestic nonfinancial sectors of the economy totaled only $195 billion at a seasonally adjusted annual rate in the second quarter, roughly half the pace of the first three months of the year. Households, faced with declining real incomes, heavy debt burdens, and more stringent credit terms, curtailed borrowing in both the home mortgage and consumer credit markets. Nonfinancial businesses also reduced their credit demands substantially, as large runoffs in commercial bank loans and smaller commercial mortgage borrowing were only partly offset by stepped-up issuance of commercial paper and bond financing. U.S. Treasury borrowing was little changed from the first quarter pace on a seasonally adjusted basis, while state and local government credit market financing picked up in response to lower long-term rates. The actions taken by the Federal Reserve on March 14, some of which were under the authority of the Credit Control Act, contributed to the slower pace of credit growth in the second quarter. As incoming data indicated that excessive use of credit was no longer contributing to inflation, the Board began a phase-out of the program, relaxing various provisions in May and ending the program entirely in July. -3- Monetary Aggregates and Bank Credit M-1A declined at a record annual rate near 4 percent in the second quarter. With nominal gross national product (GNP) showing almost no change, the decline in M-1A translated into a 4-1/4 percent increase in its velocity. Such an increase in velocity, occurring as it did in the face of the extraordinary drop in interest rates, indicates that the public's demand for transactions balances was exceptionally weak in the second quarter. The surge in interest rates early in the year may have triggered greater-than-usual efforts by the public to economize on non-interest-bearing assets; episodes of apparent weakness in the demand for money also followed sharp interest rate increases in 1974 and 1978. The reduction in M-1A in the second quarter also may have reflected the surge in debt repayments, especially bank loans, and a speedup in the collection of individual tax payments by the Treasury in the second half of April. As a result of the latter event, the balances built up to cover tax payment checks were drawn down unusually quickly. The second-quarter decline in M-1B was somewhat less than in M-1A, owing to continued rapid expansion of negotiable order of withdrawal (NOW) accounts and accounts subject to automatic transfer services (ATS) at commercial banks. M-2 growth slowed only moderately, to a 5-1/4 percent pace, in the second quarter, with slightly faster expansion in the nontransaction portion offsetting in part the reduction in M-1B. The growth rate of small-denomination time deposits accelerated from its already rapid pace, boosted by increased inflows to the variable-ceiling, 2-1/2 year and over small saver certificates (SSCs) and by a reduced pace of outflows from fixed-ceiling accounts. The strong expansion in SSCs largely reflected desires of investors to lock in their higher yields. The six-month money market certificates (MMCs), meanwhile, 1 CHANGES IN SELECTED MONETARY AGGREGATES (Based on seasonally adjusted data unless otherwise noted, in percent) Item 2 Member bank reserves Total Nonborrowed 3 Monetary base 4 Concepts of money M -IA M-1B M-2 M-3 1979 Q3 1980 1977 1978 1979 5.0 2.9 8.2 6.6 6.7 9.2 2.9 .7 7.7 -3.3 -7.4 5.0 5.3 7.3 9.5 12.3 6.2 9.5 4.3 3.3 7.6 1.2 7.8 5.3 7.7 8.1 11.5 12.6 7.4 8.2 8.4 11.3 5.0 7.6 8.9 9.8 7.2 10.4 10.2 9.3 7.8 9.6 10.7 10.8 4.5 5.0 7.1 9.1 4.8 5.9 7.2 7.7 -3.9 -2.4 5.4 5.7 Q2 Q4 41 Q2 Nontransaction components of M-2 Total (14-2 minus M-1B) Small time deposits Savings deposits 5 Money market mutual fund shares Overnight RPs and overnight Eurodollar deposits5 12.8 15.1 9.8 5.9 8.5 16.2 -.5 163.9 9.4 23.1 -12.0 324.2 10.2 20.0 -10.1 204.1 11.1 14.7 -1.2 166.2 7.8 25.8 -21.6 120.0 7.7 18.3 -21.1 151.9 8.1 24.9 -25.3 82.7 42.5 25.4 17.2 58.5 11.3 -33.1 -7.5 -70.5 Memo (change in billions Managed liabilities at Large time deposits, Nondeposit funds Net due to foreign Other6 27.8 19.2 8.6 -3.8 12.4 73.5 50.4 23.1 6.6 16.5 59.7 19.6 40.1 25.2 15.0 13.4 -4.2 17.6 11.9 5.7 17.9 2.4 15.5 8.9 6.6 8.6 10.7 -2.1 .1 -2.1 10.6 6.4 -4.1 5.9 4 -2:3 6.4 -10 8:4 -1.6 -0.2 3.3 1.5 -.9 5.0 -4.0 1.6 -1.6 of dollars) commercial banks gross related institutions U.S. government deposits at commercial banks • • 1. Changes are calculated from the average amounts outstanding in each quarter. 2. Annual rates of change in reserve measures have been adjusted for regulatory changes in reserve requirements. 3. Consists of total reserves (member bank reserve balances in the current week plus vault cash held two weeks earlier), currency in circulation (currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of commercial banks), and vault cash of nonmember banks. 4. M-1A is currency plus private demand deposits net of deposits due to foreign commercial banks and official institutions. M -1B is M-1A plus other checkable deposits (NOW accounts, accounts subject to ATS, credit union share draft balances, and demand deposits at mutual savings banks). M-2 is M-1B plus overnight RPs issued by commercial banks, overnight Eurodollar deposits held by U.S. nonbank residents at Caribbean branches of U.S. banks, money market mutual fund shares, and savings and small time deposits at all depositary institutions. M-3 is M-2 plus large time deposits at all depositary institutions and term RPs issued by commercial banks and savings and loan associations. For more information on the redefined monetary aggregates, see the February 1980 Federal Reserve Bulletin, pp. 97-114. 5. Not seasonally adjusted. 6. Consists of borrowings from other than commercial banks through federal funds purchased and securities sold under repurchase agreements, plus loans sold to affiliates, loans sold under repurchase agreements, and other borrowings. -4- expanded rapidly in April, but then declined in May and June for the first time since their introduction in mid-1978; on a quarterly average basis, growth of MMCs remained near the first-quarter pace. In early June--following an action by the Depository Institutions Deregulation Committee (DIDC) that raised maximum rates payable on the two variable-ceiling accounts relative to Treasury yields--ceiling rates on both MMCs and SSCs exceeded yields available on market instruments.1 The reduced spread of market yields over regulatory ceilings at depository institutions, perhaps coupled with a desire of the public to acquire highly liquid assets in view of uncertainties about economic prospects and future interest rate movements, produced a progressive strengthening of flows to savings accounts over the second quarter. Outflows from savings accounts were extremely large during April, but were much reduced in May and reversed in June at both banks and thrift institutions; the rise in total savings deposits in June was the first since July 1979. Nevertheless, on a quarterly aver- age basis, savings deposits fell somewhat more rapidly than in the preceding three months. Inflows to money market mutual funds (MMMFs) continued strong, though at a slower rate than in the first quarter. Early in the second quarter, expan- sion of MMMF assets halted temporarily, as the managements of most funds restricted or suspended sales to new depositors in response to the special deposit requirement announced by the Federal Reserve in mid-March. By late April, however, after the Federal Reserve had modified the special deposit 1. The DIDC, created by the Depository Institutions Deregulation and Monetary Control Act of 1980, has been directed to provide for the orderly phaseout of the interest rate ceilings on time and savings deposits during the six-year period beginning March 31, 1980. The new ceiling rate structure for MMCs and SSCs is reported in the Federal Reserve Bulletin, statistical table 1.16, "Maximum Interest Rates Payable." -5- requirements and many MMMFs had formulated techniques to enable them to accept new deposits, the rapid growth of MMMFs resumed. Yields on MMMF shares remained above those on most other short-term market obligations over much of the quarter, increasing their attractiveness to investors. Despite a substantial increase in nonborrowed reserves supplied through open market operations, expansion of total member bank reserves slowed in the second quarter as banks, given weakness in reservable deposits, repaid borrowings at the Federal Reserve discount window. The special surcharge of 3 percentage points on frequent borrowing by large member banks at the discount window, introduced in mid-March, was removed in early May, and the basic discount rate was lowered 1 percentage point late in May and again in June. Never- theless, by June the discount rate, at 11 percent, was well above the federal funds rate and adjustment borrowing fell to frictional levels. In late July, the discount rate was lowered to 10 percent, an action designed to bring the rate into closer alignment with short-term market interest rates. Bank credit declined at a 4-1/2 percent annual rate between March and June, following an 11-1/2 percent increase over the preceding three months. A record drop in loans more than offset additions to bank holdings of securities. Reductions in business and consumer loans led the decline, while real estate loans were virtually flat following brisk expansion in the first quarter. The falloff in loans--evident at both large and small banks--reflected the reduced demands for credit as economic activity weakened. In addition, tighter lending policies adopted by most banks--a trend encouraged by the Federal Reserve's special credit restraint program--further curtailed credit growth. In particu- lar, sluggish downward adjustments in the prime lending rate encouraged many business firms to shift their credit demands from banks to other markets where borrowing rates were more attractive. Components of bank credit Major categories of bank loans Change, billions of dollars 4 BUSINESS 16 0 12 4 8 8 OTHER SECURFFIES 4 0 40 TOTAL LOANS 4 8 - 32 REAL ESTATE - 24 - 16 12 8 HRH 4 CONSUMER 8 4 0 4 8 NONBANK FINANCIAL 4 - 16 il^ 24 Q2 Q3 1979 Q4 Q1 Q2 1980 Q2 Q3 1979 Q4 Q1 Q2 1980 Seasonally adjusted. Total loans and business loans are adjusted for transfers between banks and their holding companics, affiliates, subsidiaries, or foreign branches. 0 4 • -6- With the sharp decline in bank credit, banks were able to reduce their reliance on managed liabilities. Eurodollar borrowings dropped $8-112 billion and other nondeposit liabilities fell $l-l/4 billion. Although net sales of large time deposits totaled $5-3/4 billion on average for the quarter, near the pace in the first three months of 1980, such deposits also began to contract late in the spring. Business Finance Total funds raised by nonfinancial businesses in debt and equity markets dropped markedly in the second quarter. Although the cash needs of nonfinancial corporations remained substantial as profits weakened further and increased inventory accumulation largely offset declines in fixed investment outlays, firms financed a large portion of these needs through reductions in financial assets. Most notably, after accumulating a large volume of liquid assets in the first quarter, when they evidently increased their borrowing in anticipation of credit controls, firms drew upon those holdings in the second quarter. A major portion of the borrowing by businesses to fill the remaining financing gap was concentrated in the bond market, with firms taking advantage of lower bond rates in many cases for the purpose of restructuring balance sheets. Business loans at banks, meanwhile, contracted sharply, as the lagging adjustment in the prime rate made alternative sources of credit, including commercial paper issuance, relatively more attractive to firms. The comparatively high cost of bank credit in the second quarter was the result in part of the increased cost of funds to banks associated with special reserve requirements imposed in March, coupled with bankers' concerns about meeting the loan growth guidelines of the special credit restraint program. In May, the spread between the prime rate and the rate on commercial BUSINESS LOANS AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT (Seasonally adjusted annual rates of change, in percent)' Short- and intermediate-term business credit3 Period Business loans at banks2 1973 1974.. 1975 1976 1977 1978 1979 21.8 19.3 -3.8 1.3 10.5 16.3 17.5 21.5 23.5 -4.0 4.4 13.6 18.3 20.0 1979-Q1 Q2 Q3 Q4 20.5 16.6 22.7 6.0 20.8 20.1 27.4 6.4 1980-Q1 Q2 16.4 -7.9 22.0 4.1 1. Growth rates calculated between last months of period. 2. Based on monthly averages of Wednesday data for domestically chartered banks and an average of current and previous monthend data for foreign-related institutions. Adjusted for outstanding amounts of loans sold to affiliates. Includes holdings of bankers acceptances. 3. Short- and intermediate-term business credit is business loans at commercial banks plus nonfinancial commercial paper plus finance company loans to businesses and bankers acceptances outstanding outside banks. Commercial paper is a prorated average of Wednesday data. Finance company loans and bankers acceptances outstanding are averages of current and previous month-end data. 7- paper widened to an unprecedented 7-1/2 percentage points; although the spread narrowed to about 3 percentage points in June, it still remained large by torical standards. A survey of banks in May indicated that a substantial por- tion of short-term business loan extensions were being made at rates below prime--especially for loans of short maturity at money center banks. Even so, the average effective rate on business loans in early May was still well above the commercial paper rate. As a result, many firms shifted their short-term financing to the commercial paper market; net issuance of commercial paper surged to a record level in May and continued to expand rapidly in June. Yields on corporate bonds, like other market rates, declined sharply in the second quarter from their record levels near the end of the first quarter. The Federal Reserve index of yields on recently issued Aaa-rated utility bonds fell from more than 14 percent in late March to near 11 percent in late June. Spreads between yields on Aaa-rated and lower-rated bonds, which widened substantially further in April, narrowed somewhat in May and June, but they still remained historically large. As long-term interest rates fell, the volume of corporate bond financing ballooned, with the funds in many cases being used to repay bank debt. Public offerings of new security issues totaled a record $67 billion seasonally adjusted annual rate in the second quarter, with both nonfinancial and financial concerns contributing to the surge. The increased bond issuance by financial corporations mainly reflected the heavy pace of intermediate- and long-term offerings by finance companies. Among nonfinancial corporations, all of the increase was accounted for by industrial companies; issuance by utties remained at about the firstquarter pace. The proportion of new bonds issued by nonfinancial firms with GROSS OFFERINGS OF NEW SECURITY ISSUES (Seasonally adjusted annual rates, in billions of dollars) Q4 Ql e Q2 1980 Type of security Q2 1979 Q3 Domestic corporate Bonds Publicly offered Privately offered 58 50 35 15 56 39 26 13 47 35 25 10 63 44 23 21 91 78 67 11 8 17 12 19 13 7 9 5 2 6 42 44 47 33 58 Stocks Foreign State and local government e. Estimated. -8-- maturities of 10 years or over rose appreciably in May and June, as investors were more receptive to such long-term securities than they had been in the first quarter when inflationary fears had been intense. Although public offerings of bonds by higher-rated (Aa or above) corporations were especially heavy during the second quarter, an increased volume of lower-rated issues also was marketed. These latter issues offset to some extent the apparently reduced flow of credit in the private placement market, a major source of funds for lower-rated borrowers. Stock prices rose substantially in the second quarter. The major composite indexes of stock prices advanced 13 to 26 percent, as investors apparently gave more weight to declines in interest rates than to prospects of lower earnings associated with the contraction in economic activity. The American Stock Exchange index continued to post the largest percentage rise, reflecting the greater relative importance of oil and natural gas industry shares on this exchange. Stock prices continued their upward movement in early July, with most indexes surpassing record highs reached earlier in the year. Owing to the increase in the major stock price indexes, conventional measures of price-earnings ratios edged up a bit, but they continued to be historically low. Following a record volume in the first quarter, equity issuance fell back in the second period to near the 1979 pace. Reductions in stock prices late in the first quarter apparently discouraged equity issues in April, and the greatly increased attractiveness of debt financing resulting from declining bond yields during the quarter also may have damped demands for equity funds. -9- Government Finance Gross bond issuance by state and local governments increased sharply In the second quarter, to a record $58 billion seasonally adjusted annual rate. The volume of tax-exempt bonds continued to be bolstered by increased offerings of single-family housing revenue bonds. In addition, total financing needs of state and local units were enlarged owing to slower growth of revenues. A num- ber of bond issues that had been postponed early in the year because of high interest rates generally or because rates rose above statutory ceilings for some governmental units, were brought to market in the second quarter when yields dropped. The Bond Buyer index of yields on general obligation bonds fell substantially in the second quarter reaching its lowest level this year in May. Subsequently, the index edged back up to near 8 percent in mid-July, but was still almost 1-1/2 percentage points below its peak reached early in the second quarter. The backup in rates since the middle of the second quarter has been relatively greater for tax-exempt yields than for yields on corporate bonds, reflecting in part the record volume of tax-exempt issues coupled with some falloff in the demands for such bonds by property-casualty insurance companies. Net cash borrowing by the Treasury amounted to about $5-1/2 billion (not seasonally adjusted) in the second quarter, a period in which large tax receipts usually reduce Treasury financing needs. With the combined federal budget--including off-budget agencies--moving to a slight surplus position, the Treasury was able to increase its operating cash balance over the quarter; however, the increase was much smaller than in the same quarter of the preceding year. All the Treasury's financing needs in the second quarter were met by FEDERAL GOVERNMENT BaRROWING AND CASH BALANCE (Not seasonally adjusted, in billions of dollars) 1978 Item Treasury financing Budget surplus, or deficit(-) Off-budget deficitl New cash borrowings or repayments(-) Other means of financing3 Change in cash balance Federally sponsored credit agencies, net cash borrowings4 1979 Q1 Q3 44 -8.1 -3.1 -23.8 15.1 1.0 4.9 15.3 2.6 -6.1 2 10.6 4.2 -8.6 6.1 5.2 6.3 -20.4 -3.0 1980 Q4IiQ2 Q2 43 21.4 -5.2 -4.4 -4.2 -24.6 -.9 -27.1 -3.8 8.2 -4.4 -4.6 12.4 9.8 6.7 18.9 -1.7 -8.3 19.1 4.1 -7.7 5.4 -3.1 5.9 5.5 4.7 7.3 8.6 • 5.6e 1. Includes outlays of the Pension Benefit Guaranty Corporation, Postal Service Fund, Rural Electrification and Telephone Revolving Fund, Rural Telephone Bank, Housing for the Elderly or Handicapped Fund, and Federal Financing Bank. All data have been adjusted to reflect the return of the Export-Import Bank to the unified budget. 2. Includes $2.6 bon of borrowing from the Federal Reserve on March 31, which was repaid April 4 following enactment of a new debt-ceiling bill. 3. Checks issued less checks paid, accrued items, and other transactions. 4. Includes debt of the Federal Home Loan Mortgage Corporation, Federal Home Loan Banks, Federal Land Banks, Federal Intermediate Credit Banks, Banks for Cooperatives, and Federal National Mortgage Association. e. Estimated. • -10- sales of marketable securities. Total marketable debt outstanding increased approximately $10 billion, reflecting a $16 billion increase in the stock of coupon issues that was partly offset by a $6 billion decline in Treasury bills. Nonmarketable debt outstanding, meanwhile, decreased $4-1/2 billion during the quarter, with savings bond redemptions, as in the previous quarter, accounting for more than half of the decline. The runoff of savings bonds appeared to slow somewhat in June, however, as the differential between market rates and yields on such instruments narrowed. Net borrowing by federally sponsored credit agencies totaled slightly more than $5-1/2 billion (not seasonally adjusted) in the second quarter, below the record volume of the previous quarter. ing was concentrated in April. Almost all of the net agency borrow- During the remainder of the quarter, the major housing agencies reduced their indebtedness, as the weakness in demand for home mortgage credit and the increase in deposit flows greatly reduced the demand for advances from Federal Home Loan Banks and as deliveries of mortgages to the Federal National Mortgage Association (FNMA) slowed. Mortgage and Consumer Finance Activity in mortgage markets contracted sharply in the second quarter. Faced with weak deposit inflows and pressures on earnings margins, depository institutions became very restrictive in their mortgage lending. In April, average interest rates on new commitments for conventional home mortgages at savings and loan associations rose to more than 16 percent; moreover, nonrate loan terms and lending standards became more stringent. On the demand side, many would-be homebuyers that satisfied eligibility criteria required by lenders were deterred by high interest costs and more stringent terms. Already burdened with heavy debt, consumers were increasingly NET CHANGE IN MORTGAGE DEBT OUTSTANDING (Seasonally adjusted annual rates, in billions of dollars) 1979 Mortgage Debt e 1980 Ql Q2 Ql Q2 Q3 Q4 156 118 38 164 118 47 161 115 46 150 114 36 144 104 40 74 46 28 30 45 6 11 12 14 5 33 30 51 4 11 7 19 4 38 34 44 4 14 3 24 5 33 32 34 2 15 10 27 3 27 27 25 2 16 12 18 3 41 6 —1 * 13 9 17 3 27 By type of debt Total Residential Otherl By type of holder Commercial banks Savings and loans Mutual savings banks Life insurance companies FNMA and GNMA GNMA mortgage pools FHLMC and FHLMC pools Other2 1. Includes commercial and other nonresidential as well as farm properties. 2. Includes mortgage companies, real estate investment trusts, state and local credit agencies, state and local retirement funds, noninsured pension funds, credit unions, Farmers Home Administration and Farmers Home pools, Federal Land Banks, Federal Housing Administration, Veterans Administration, and individuals. e--Partially estimated. *--Less than $0.5 billion. -11- reluctant to take on the additional high monthly house payments, especially as real income declined and indications of a steep recession in activity became apparent. Businesses, likewise, reduced their use of mortgage credit in association with cutbacks in commercial construction activity. Consequently, net mortgage lending by commercial banks, savings and loan associations, and mutual savings banks came to a virtual standstill in the second quarter. A considerable amount of mortgage funds was made avail- able by state and local government housing authorities, as they expanded the issuance of tax-exempt bonds for the purchase of residential mortgages at below-market interest rates. However, in contrast with the last cyclical downturn, federal and related agencies operating in the secondary market provided only modest support to the mortgage market. Federal programs that would provide for purchases of home mortgages at below-market rates by Government National Mortgage Association (GNMA) have not been used in the current recession as they were in the last; also pricing of purchase commitments by the Federal National Mortgage Association has not been particularly aggressive owing in part to earnings problems experienced during earlier quarters, and sales of mortgages to FNMA based on purchase commitments made previously fell off in the second quarter as market interest rates declined. Rather than selling to FNMA, mortgage companies sold most of the FHA/VA mortgages they had originated by issuing passthrough securities that were guaranteed by GNMA. By the end of the second quarter, there were indications that mortgage market conditions were improving. The decline in short-term market inter- est rates over the quarter helped to reduce cost pressures at thrift institutions, while enhancing deposit flows. As loan demands weakened and deposit flows began to pick up, home mortgage rates were lowered. At S&Ls, the average -12- interest rate on new commitments for conventional home mortgages fell to near 12-1/4 percent in July, more than 4 percentage points below the peak in April. Although mortgage commitment activity remained quite weak in April and May, both new and outstanding commitments at S&Ls increased sharply in June. Consumer installment credit outstanding contracted at an average annual rate of 10-1/2 percent in the April-May period, the first drop since May 1975 and the largest reduction in the postwar era. Substantial declines in both closed-end and revolving credit occurred, as consumers curtailed expenditures and credit use in the face of declining real incomes and worsening employment prospects. Credit tightening measures by lenders after imposi- tion of the March credit control package contributed to the reduction in credit use. The contraction in consumer credit was most pronounced at commer- cial banks and credit unions. TT • ••• of GOVt• •• BOARD OF GOVERNORS o • •cs •0 • --t ,it• • OF THE FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20551 PAUL A. VOLCKER CHAIRMAN August 6, 1980 The Honorable Spark Matsunaga United States Senate Washington, D. C. 20510 Dear Senator Matsunaga: Thank you for your letter of May 21 concerning correspondence you received from Mr. Michael N. Tanaka of the Bank of Honolulu. Mr. Tanaka's request was that consideration be given to an exemption of the Bank of Honolulu from reserve requirements. His letter states, among other things, that the Bank is disadvantaged because of its status as a member of the Federal Reserve System which precludes it from being able to use its "due from banks" and "cash items in process of collection" in order to satisfy reserve requirements. If it were a non-member bank, Hawaiian State regulations apparently would permit the Bank to use these assets for reserv e requirement purposes. Under current provisions of the Federal Reserve Act, member banks are permitted to deduct demand balances due from other banks and cash items in the process of collection from total demand deposits before reserve requirements are computed (12 U.S.C. 465). These deductions are permitted in order to avoid double reserves against the same deposits. Accordingly, member banks do have the ability to reduce reserve requirements through the use of due froms and cash items in the process of collection. This practice will continue to be permitted under the Monetary Control Act of 1980 (P.L. 96-221) as implemented by the Board's Regulation D. As you are aware, that Act requires all member and non-member depository institutions to maintain reserve requirements and is designed to facilitate the conduct of monetary policy and provide competitive equality among all depository institutions. Accordingly, all institutions subject to the Act will be accorded equal treatment and will be able to utilize their due from and CIPC deductions, although they must maintain such reserves in the form of vault cash or in balances held with the Federal Reserve. With respect to the recommendations that member banks in Hawaii be treated for reserve requirement purposes like non-member banks, we believe that this is not authorized under the Act and . 111 The Honorable Spar : Matsunaga l'Ige Two would be regarded as incons istent with the intent of Congress in enacting the phase-in provis ions of the Monetary Co ntrol Act. Consequently, we believe that a modification of the re quirements as requested for member banks should best be accomplish ed by Congressional action. Sincerely, SiDal& Volckef WHW:GTS:DJU:vcd (V-236) bcc: Mr. Wallace Mr. Schwartz Mrs. Mallardi (2)1/ August 6, 1980 The Honorable Jake Gain United States Senate Washington, D.C. 20510 Dear Senator Gain: This is a copy of a letter I have sent to you and a number of your colleagues in response to a joint letter dated June 17. AS you know, I have written to you also in response to a separate letter you sent me on June 26. Sincerely, PAV:ccm •• • • OV GOt/tWA: • ,P • • • • • • • • • •.. "10,1'1V BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM VIASHINGTCN, O. C. 20 551 PAUL A. VOLCKER CHAIRMAN August 6, 1980 The Honorable Daniel K. Akaka House of Representatives Washington, D. C. 20515 Dear Mr. Akaka: I am pleased to respond to your rec ent letter concerning the application of reserv e requirements under the Monetary Control Act of 1980 to the Bank of Honolulu. The phase-in provision of the Act applicable to nonmember depository institutions (§ 19(b)(8)( A)) provides for an eight-year phase-in of reserve requir oments for those institutions that were not member ban ks on July 1, 1979. In addition, the provision relating to the phase-in for Hawaii states that it applies only to State-chartered depository institutions that were not member banks on August 1, 1978 (§ 19(b)(8)(E)). Section 19(b)(8)(D)(i) provides that a member bank that becomes a nonmember after Jul y 1, 1979, is required to maintain reserves as a member bank. In view of the language of these provisions, and consistent with Congressional intent, we believe that the Board does not possess the authority to apply the pha se-in provisions to the Bank of Honolulu, since it left the Federal Reserve on April 1, 1980, which is after the dat e of enactment of the Monetary Control Act. While we understand your concern with the bank's situation, we believe that the provis ions of the Act do not provide us with the ability to pro vide the relief requested. Sincerely, GTS:vcd (#359) bcc: Mr. Schwartz Mr. Wallace Mrs. Mallardi August 7 1S100 The MemoraLlo nonjanin 1. leesolhal ChaLemea Soheemoittee ern COomoomm4 Ceseemer mod Monetary Affairs Comoittse so OslosomooMOVerstAame Zoom of Usprseeetetimes Illashiogtool D.C. 201115 Dear Chairman yesentilal: X em :4eomed to resvend to your letter of .7=0 27: 1980* with 1641,40t to a Ipleetim rained wits. coverror uallich during his ts.tiaamy Wore your Subcommittee* That Tacation as restated in yOmx 2at1, is wiry did the Seard# as a condition to its approval tar Citibank to increase its ownership interest in 0rin11ays Sank to 49 pimiento require that Crindlays cease to engage in a broad range of soefinancial activitiee abroad. In response to your recuesti ye have enclowed staff monoranda and Doerd minutes pertaining to this aattmr* In aoccrileame with long stamding policy, confiefential financial intommotion to filen esonsination reports ar4 other zources and *tan: recomendntione hese bees da1ete0 frcer t:10 docusAorgts* key nany yew* the Board ha 1e31eue4 e-ft policy of not allowing 08.5* 1.,anking orcauisations ter Oblige in nonfinanoiel activities abroad* That policy is Iseoaded in thit country's tradition of neintaininq a separation between benT(ing and commeree* It also grown cut of the principal statutee gewerning the intim national operations of V.B. beaks that the Semi haw bees qiven the reepeoeibility to administer--namly, seeticoe 2% aod 25(a) of the Voo.orel Uoser's Ast and 4()(13) of tLe Des& Molding Company Act. Thooe stntetes providcl nutlwrity for U.S. boOkio, etilohniukticomil to sagas° in a wider can5-c of activities *breed than ace permitted at how in order to *Noble then to compete effectively in furnishinq international bashing amid financial servisee in the tertherance of Meese has ineiseed that this eesntryie torsi," eionorse, foreign em;osidiaxies of ammber books, lidge Corporations, and honk holding esopeoles ceeliee their activities to theme of a financial nature* ftheidiarioe for this ramose have beem defino41 as crimpenies in 14441b Mae then 50 percent se the VOW* shares axe held or other companies in tibia there is a smaller oweerOhip isterest but there ere other iodisation, of eeetool, This policy evoIsed over a nether of years and it neeld sat botipoosibis to deteemano all the lewd aeotiovs at tool-Ad' SAWS disesmaed, The Honorable Benjamin S. Rosenthal Page Too when Citibank applied to the Soard to increase its ownership interest in Grindley* to 49 lercent, it was determined that Citibank would be Ln a posn to control flrindlays. 7n keering with the policy just outlined, the Board conditioned its approval Sf the additional inveataxnt on Grindlaye confining its activities to those of an Edge Corporation—that is, to those of a financial nature—and to divesting its interests in nonfinancial companies within five years. The nonfinancial activitiee conducted by those coKanies included manufacturing, retailing, printing, engineering, real estate development ant: g.anagement, shipping, breeding and sale of livestock, acting as timber brokers and processors, and electrical contractors. KLen the noard revised its Regulation I, wbich governg tLe international ol4rations of V.S. bankin.) organisation:3, it sl/ecified the activities to whicil foreign subsidiaries must confine theielves. TiAi list of remiasible activities is contained in &ection 211.5(d) of that regulation. If you Lave further (.4uestions regarding this setter, Valli of the Doard*a staff (452-2726). please contact Frederick Sincerely, rdlli A. Volcker Enclosures FD:JPBapjt (11V-277) Lcc: Mr. Dahl Yr. Hurley Mr. Lynn Ms. J. Johnson Hrs. ‘Lallardi CNJAMIN S. ROSENTHAL, N.Y., CHAIRMAN Action assigned Jack Ryan RODER4 T. MATSUI, CALIF. 01O1C.FNE V..ATKINSON, PA. NINETY-SIXTH CONGRESS FERNAND .1. ST GERMAIN. R.I. JOHN CONYERS. JR., MICH. ELLIOTT H. LEVITAS, GA. Congre. of tbe'Unita 111 LYLE WILLIAMS. OHIO JIM JEFFRIES, KANS. JOEL DECKARO. IND. mAioncry--(202) 225-4407 tateS 3i)oti5e of 1ArprOentatitie5 COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING. ROOM B-377 WASHINGTON. D.C. 20515 June 27, 1980 Hon. Paul A. Volcker Chairman Federal Reserve Board Washington, D. C. 20551 Dear Mr. Chairman: In his testimony before the Commerce, Consumer and Monetary Affairs Subcommittee on June 25, Governor Wallich was not prepared to respond from his immediate knowledge to a question about the Grindlay's case in 1975. I am writing to request (a) a statement for the record to supplement Governor Wallich's testimony on the question I posed about the Grindlay's case, (b) the dates of relevant Board meetings, and (c) copies of relevant supporting documents. The question is restated as follows: Why did the Board find it necessary to insist in 1975 that Grindlay's, a British hank, divest or cease engaging in a broad range of nonfinancial activities abroad, when there existed clear statutory authority, presumably under section 4(c)(13) of the Bank Holding Company Act, to exempt these overseas activities from the nonbanking prohibitions of section 4? What was the policy reasoning behind this decision and any regulations on which this decision was based? Please attach to your response the following additional material: a. the date or dates of all Board meetings at which the Grindlay's case was discussed; b. copies of all staff memoranda to the Board about that case; c. the date or dates of all Board meetings at which there was discussion of the regulations on which the Grindlay's decision was later based (this includes Board meetings to discuss proposals for public comment as well as final regulations); the date or dates of all Board meetings (if different from the dates identified above) at which there was discussion of the implementation of section 4(c)(13) of the Bank Holding Company Act; Hon. Paul A. Volcker ( 2 June 27, 1980 e. copies of all staff memoranda to the Board for the Board meetings identified above in connection with (a) proposed or final regulations on which the Grindlay's decision was later based and/or (b) the implementation of section 4(c)(13) of the Bank Holding Company Act; and f. minutes, verbatim transcripts, and tape recordings of all Board meetings identified in the answers to questions a., c., and d. above. Please provide the requested Friday, July 18. explanation and supplementary materials by Sin erely, Benj 'min S. Rosenthal Chai rfran BSR:tb August 7, 1980 The nonorable J. Eenneth Robinson House of Representatives Waahington, D.C. 20S15 Dear ]r. Robinsont writing in further respemee to your letter of Juno 1$ re,iuestin44 comment on correspondemee you reeeived from r4r. Earley Ghowalter. As a result of a hank reword/Awing error, mr. Showalter had maintained employee preferred interest rates on his credit card account with United Virginia Bank. After an *udit of account records, United Virginia corrected the error an! notified 1.r. 5howa1ter of the change in terms. Mr. Showalter is concerned that United Virginia's maiployees eve given redeoed interest sates on VISA accounts when eiaployees in other industries, such as the /usurer:cc industry, cannot be given special rates. At the refsest of the Feder-31 R4001,0 2140 of nichnond, United Virginia provided the folloving beekgreend information, as well aa information specifically related to Mr. nowalter's personal nituation. AM The grantinq of redwood rate* on bank card transactions to qualifying employees as part of an employee benefit program is a matter of bank policy. Vemever, there are limitations imposed by the rederal Reserve System On atate member brinks AO to when such rates may be offered. The Beard's Mcgulation 0 prohibits extensions of credit by a meuber bank to its executive officers (those who participate in major policy making decisions of the bank) unless it is model en substantially the same terms, including interest rates and collateral, as those provalling for comparable transactions by the bank with the public at large, This prohibition does not apply to persons who are not emeoutive officers, directors or principal atockholders. Accordint; to the bank, United Virginia emiloyees and non-executive offices* were gives preferred rate when the hank first introduced BankAmericard (nims VISA) in 1961 in orftr to give the card wider exposure and eneOnMege staff support for tho new 0110.1114144 United Virginia also made the preferred rate available to non-executive officers and employees of its correspondent tankr. Bowevert United Virginia indicated that it found it difficult to maiatain accurate records of enployaes who left those banks. Con sequently, it discontiMMOd the praetice of offering preferred rates except to its owe employees. /ha eoaerabla Jo tannath Vobinaen Page Twe boomeding to United Virginia, Yr, Showalter, who was ed by owe of United Virginia's correspondent banks, had emp been &beak card et the preferrod rote. Ns. Shewalter's preformed rate statue chanced wIlon he left that employment, rutin; ea *edit et its VISA accounts, United Virginia discovered this ohmage* status and made the adjustnent te hie rate, Dated Virgins policy of offorin7 preferred rates en bank card accounts to nen-executive officers and employees dose not awear to violate say federal law. in addon, United Virl7inia puttee that, axoept for the honk cord benefit, there ia no benefit of any kiad to any etwloyae who seeks to borrow. from the bank. za know if Lope this infornntion in helful to vela. uay be of further assistanctl. Please let Sincerely youra, Nintd) lay P. Brennemart Jay P. Breememea Special 4ssistant to the Simard RF:CO:pjt (IV-260) bcc: Robin Penner nrs, Mallardi V- Auguct 74, 1960 Konorable Benjanan S. l'osenthal Chairman Subcortraitte,a on Cosnorce, Conaumor and 71onetary Affairc Comittee on Cowriz-znt Operations Uhouse o2 Roprecantativcs Washington, D.C. 20515 t)ear Chairman .P.os5ntha1: .Thank you for your lottor of June 27 rG7cuestin5 thnt your Subcommittee 1:c: keiyt illi:ored on a continuincj baoi;; of all ai,plications recoived by tho Irancrve witem from forcicjn organization for aroval under the Lank EoMing Company Act (BHCA) to purchase U.S. I.)anks or other oxicting banking operations. TheLoard rtf ii11 provide to the Subcommittee on a cluartcr1y basis a lit of pcmdinr.i aDI:aications by foreicjn oranizations under the INCA. 1;nc1osed Lc a listing of such applicationo ao of July 3, 1900. In accordanco with your rcquect; we will alzo rovie kczoodiato notification to the Subcommittee of ouch avylications where the acquired orgaaization has asaeto in =coos of O;500 Sincerely, " u! Enclosure HS:CO:pjt (0V-276) bcc: nr. Schiffman Mr. Dahl Mr. Ryan Mrs. Mallardi (2) Action as signei lack Ryan BENJAMIN S. ROSEIYTHAL. N.Y., CHAIRMAN ROBERT T. MATSUI. CALIF. EUGENE V. ATKINSON, PA. FERNAND J. ST GERMAIN. R.I. JOHN CONYERS, JR., MICH. ELLIOTT H. LE:VITAS, GA. • • NINETY-SI \ TH CONGRESS LYLE WILLIAMS, OHIO JIM JEFFRIES. KANS. JOEL DECKARD, IND. • Congre of the Ziniteb *tato MAJORITY-(202) 225-4407 3i)otifSe of 1kepre5entatibe5 COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING. ROOM B-377 WASHINGTON, D.C. 20515 June 27, 1986 Hon. Paul A. Volcker Chairman Federal Reserve Board Washington, D. C. 20551 Dear Mr. Chairman: I am writing to request that the Commerce, Consumer, and Monetary Affairs Subcommittee be kept informed on a continuing basis of all applications received by the Federal Reserve from foreign corporations or other foreign entities for approval under the Bank Holding Company Act to purchase U.S. banks or other existing banking operations. In the event of any such applications where the U.S. bank or banking operation to be acquired has in excess of $500 million of assets, please provide immediate notification. Sincerely, BenjamhS. Rosenthal Chairm BSR:tb • FRANK :HOMPSON, JR.. REPRESENTATIVE FROM NE0/ .1rnsu, CHAIRMAN CLAIBORNE PELL, SLNAToR FROM Rmot ISLAND. VICE CHAIRMAJI AUGUSTUS F HAwKINS. REPRESENTATIVT FROM CALIFORNIA WILLIAM L DICKINSON. REPRESENTATIVE FROM ALAJAMA HOWARD W. CANNON. SENATOR FROM NEVADA MARK O. HATFIELD, SENATOR FROM OREGON GORDON ANDREW McKAY. STAFF DIRECTOR AND GENERAL COUNSEL • • WASHIKTOPI, DC. 20310 Pmamr. 224-5241 Congrezg of the liniteb tate5 joint Committee on Printing FAYE M. PADGETT, DEPUTY STAFF DIRECTOR August 8, 1980 TO: HEADS OF ALL FEDERAL DEPARTMENTS AND AGENCIES AND CENTRAL PRINTING AND PUBLICATIONS MANAGEMENT PERSONNEL FROM: Honorable Augustus F. Hawkins Acting Chairman SUBJECT: PROPOSED CHANGES TO JOINT COMMITTEE ON PRINTING REGULATIONS The Joint Committee on Printing is considering issuing certain changes to our Government Printing and Binding Regulations (Number 24, dated April, 1977). Before any formal action is taken by the Committee, however, I invite you to submit your comments on the proposed changes. The attached excerpt from the August 1, 1980, Congressional Record (Volume 126, Number 122) provides the full text of the proposed changes. The Joint Committee expects these changes to contribute to more effective and efficient control of printing and copying costs throughout the Federal government. Each Federal department and agency is requested to submit its comments on the proposed changes in writing before the close of business Wednesday, September 3, 1980. An appropriate response is expected. Please address your response to the Acting Chairman, Joint Committee on Printing, S-151, The Capitol, Washington, D. C., 20510. Attachment Commmuftem 5-151, U.S.CAract. H 7024 O NGRESSIONAL RECORD HOU00 August 1, 1980 Mr. HAWKINS. Mr. Speaker, on be- publications management organizations more effective and efficient control of half of the Joint Committee on Printing in the Federal Government for their printing and copying costs throughout I offer for publication in the RECORD pro- comments. the Federal Government. posed interim changes to the committee's These interim regulations redefine the All Federal officials and other inPrinting and Binding Regulations No. 24, central printing and publications man- terested parties are encouraged to subdated April 1977. The purpose of this agement organizations' authority in the mit comments regarding the proposed notice is to solicit comments on the pro- control of printing and copying activi- interim rer:ilations before ci.s of busiposed changes from as wide an audience ties. They also reiterate the definition ness September 3, 1980. (:uniments as possible before any formal action is established by the Joint Committee on should be addressed to the acting chairtaken by the committee. February 15, 1979, covering electronic man, Joint Committee on Printing, In addition to publication in the REC- printing systems dedicated to printing S-151, the Capitol, Washington, D.C., ORD, Mr. Speaker, I further plan to dis- processes but utilizing computer technol- 20510. tribute copies of the proposed changes ogy. It is expected these changes will The full text of the interim regulations to the appropriate central printing and contribute significantly in establishing are as follows: NEW PARAGRAPH 1-4. Electronic Printing.—As used in these regulations, electronic printing describes printing produced by or for the Federal Government through the use of any electronic printing system or integrated printing system. Such systems may include two or more items of equipment, whether or not such equipment is listed in Title II of these regulations. Such a system may be based on the intended use or functional capabilities for performing composition, with or without platemaking, the reproduction of an image, and sorting/collating of printed pages. NEW PARAGRAPH 1-5. Electronic Printing Systems.—Electronic printing systems, integrated printing systems or any individual component thereof dedicated to printing processes, but utilizing computer technology, requires written approval of the Joint Committee on Printing before acquisition. This requirement shall be complied with regardless of how such equipment is used or how it is classified py the General Services Administration (Federal Supply Services). Reporting requirements and production utilization constraints may be specified by the Joint Committee on Printing as part of the authorization process. DELETE THIS PARAGRAPH REVISED PARAGRAPH 2-1. Duplicating/Copying.—The term "duplicating/copying" as used in these regulations means that material produced by use of (a) equipment listed in column 2 of the equipment tables and (b) duplicating equipment employing the lithographic process; and automatic copy-processing or copier-duplicating machines employing electrostatic, thermal, or other copying processes; Provided, That work exceeding 5,000 production units of any one page, and work exceeding 25,000 production units in the aggregate of multiple pages, shall not be done without prior authority of: (a) the Central Printing and Publications Management Organization as provided in paragraph 30 of these regulations; or (b) the Joint Committee on Printing. 2-1. Copying.—The term "copying" as used in these regulations means that material produced by or for a federal department or agency by use of automatic copy-processing or copier-duplicating equipment employing electrostatic, thermal or other copying processes with a rated speed of 39 copies or less per minute. NEW PARAGRAPH 4-4. Printing Facility.—The term "printing facility" as used in these regulations tneans any federally owned or federally controlled facility producing printing by use of a) equipment listed in column 2 of the equipment tables, and (b) automatic copyprocessing or copy-duplicating machines employing electrostatic, thermal or other copying processes with a rated speed of 40 copies or more per minute. A printing facility shall not be operated for any Federal Government department or agency by a commercial contractor without prior written authorization by the Joint Committee on Printing. NEW PARAGRAPH 4-5. Printing facilities and equipment owned or operated wholly or in part by the Government or at Government expense shall not produce more than 100 copies of any end product irrespective of the total number of pages or more than 3,000 production units of any single sheet without prior written authorization by (a) the Central Printing and Publications Management Organization (CPPMO) described in paragraph 30 of these regulations or (b) the Joint Committee on Printing. DELETE THIS PARAGRAPH NEW PARAGRAPH REPLACING 2-2 2-2. A report shall be forwarded to the Committee not later than 30 days after the close of each quarter, listing individual jobs by title, quantity (pages and copies), date, and where done, which exceed either the 5,000 or 25,000 production units. 4-6. A report shall be forwarded to the Joint Committee on Printing through the department's Central Printing and Publications Management Organization (CPPMO) not later than January 31, April 30, July 31, and October 31, covering tht previous three months' activity listing the title, quantity (pages and copies), date and where done, for each job that exceeded either the 100 copies of any end product or the 3,000 production units of a single sheet accomplished in each printing facility. • • DELETE THIS PARAGRAPH REVISED PARAGRAPH 30. Central Printing and Publications Management Organization.— Heads of departments shall maintain under their direct supervision a central printing and publications management organization with responsibility for the conduct of a coordinated program controlling the development, production, procurement or distribution of materials through the utilization of conventional printing and binding methods or through the utilization of multiple copy microform methods. The central printing and publications management organization also will maintain responsibility and control of duplicating equipment and automatic copy -processing or copier-duplicating machines, as identified in column 2 of the equipment tables. 30. Central Printing and Publications Management Organization (CPPMO). Heads of Federal departments and agencies shall maintain under their direct supervision a Central Printing and Publications Management Organization (CPPMO) responsible for: (a) Conducting a cost effective, coordinated program controlling all materials developed, produced, procured or distil bil ted by the department or agency throueh the utilization of prii, ti c,J binding, and microform methods as defined in these regulations. (b) Controlling the department's printing plants, printing facilities and equipment. (c) Assuring the most efficient and cost effective performance of printing and copying services and the non-utilization of copying equipment for production of printing. (d) Monitoring the preparation, review and timely submission of all required reports. DELETE THIS PARAGRAPH REVISED PARAGRAPH 35-3. A requirement for a contractor to duplicate less than 5,000 units of only one page, or less than 25,000 units in the aggregate of multiple pages for the use of a department or agency, will not be deemed to be printing primarily or substantially for a department or agency. For the purpose of this paragraph, such pages / 4 inches. may not exceed a maximum image size of 10% by 141 35-3. A contractor may produce up to 3,000 units of only one sheet or 100 copies of any end product irrespective of the total number of pages for a Federal department or agency without the written authorization of the Joint Committee. For the purpose of this paragraph, pages or sheets may not exceed a maximum image size 1 4 inches. of 103 / 4 by 14 / DELETE THIS PARAGRAPH REVISED PARAGRAPH 35-4. A requirement for a contractor to produce or procure less than 250 duplicates from original microform, as defined in paragraph 7-2, will not be deemed to be printing primarily or substantially for a department or agency. 35-4. A contractor may produce or procure up to 250 duplicates from an original microform as defined in paragraph 7-2 for a Federal department or agency without the written authorization of the Joint Committee. PAGE 7-DELETE FOOTNOTE PAGE 7-REVISED FOOTNOTE I Not authorized for use in connection with duplicating/copying as )Not authorized for use by printing facilities or in connection with copying as defined in paragraphs 2-1 and 4-4. defined in paragraph 2. PAGE 8-DELETE FOOTNOTE Acquisition of tandem or two unit perfecting presses by nonprinting facilities shall be reported to the Joint Committee on Printing within 30 days. PAGE 8-REVISED FOOTNOTE 1 Acquisition of tandem or two unit perfecting presses by all facilities shall be reported to the Joint Committee on Printing within 30 days. DELETE THIS PARAGRAPH REVISED PARAGRAPH 36-3. A requirement for a grantee to duplicate less than 5,000 units of only one page, or less than 25,000 units in the aggregate of multiple pages of his findings for the use of a department or agency will not be deemed to be printing primarily or substantially for a department or agency. For the purpose of this paragraph, such pages may not exceed a maximum image size of 10% 4 inches. by 141/ 36-3. A grantee may produce up to 3,000 units of only one sheet or 100 copies of any end product for a Federal department or agency without the written authorization of the Joint Committee. For the purpose of this paragraph pages or sheets may not exceed a 1 4 inches. maximum image size of 103/4 by 14 / DELETE THIS PARAGRAPH REVISED PARAGRAPH 36-4. A requirement for a grantee to produce or procure less than 250 duplicates from original microform, as defined in paragraph 7-2, will not be deemed to be printing primarily or substantially for a department or agency. 36-4. A grantee may produce up to 250 duplicates from an original microform as defined in paragraph 7-2 for a Federal department or agency without the written authorization of the Joint Committee. DELETE THIS PARAGRAPH REVISED PARAGRAPH 47. Printing Facilities of Federal Prison Industries, Inc.—These 47. Printing Plants of Federal Prison Industries, Inc.—These plants facilities may be used for the production of unclassified printing. may be used only for the production of unclassified printing. Printing services are available at the following three locations and Printing services are available at the following three locations may be used by sending a purchase order direct to any one of and may be used by sending a purchase order direct to any one of them: them • c/o Warden; Federal Correctional Institution c/o Warden; Federal Correctional Institution Lompoc, Calif. 93426. Lompoc, Calif. 93426. c/o Warden; U.S. Penitentiary c/o Warden; U.S. Penitentiary Marion, Ill. 62959. Marion, Ill. 62959. c/o Warden; Federal Correctional Institution c/o Warden; Federal Correctional Institution Sandstone, Minn. 55072. Sandstone, Minn. 55072. Where the form of purchase order contains the Convict Labor clause Where the purchase order contains the Convict Labor Clause that that clause should be deleted. clause should be deleted. • • AU9USt 11, 1980 The Ronorable Donald W. Biele, Jr. United States Sente 20513 taahinvton, D.C. LeAr Senator i4ies;1c.. Thank ycu for your letter of Jull. 23 commenting an t's.e board's kroioaed xovision of ;a1ulation D in view of the 'onctsry frog; Control Act of 1980. We have received numerouu commenta of depository institutions concerning tl.e :,roT\osed definitions of the5;e tran4action account and noni4przona1 tire deposits. !an-y comments 1%ave indicated concerne siLdlar to those expressed in your latter. On Tue4ay to lio?.rd tot)k final action on Regulaticln r. As part of this action s the Boart! ado;ted rereral sisnificsnt nonpersonal c;Ancres to the definitions of tranmmction account and r time de:ositu 1.-asod, in part, U;on the cowtentt received. !'nde the roculaticn s savinvs account 'ould not e regarded as trans gaue actiou accounts merely because they are we for monthly mort -,e ! loan or inaurance puriosos. Similarly, accounts would not regarded as transection accounts Laerely because they perrait in eL-Aersonc-.4 withdrawals through institutions in other cities. account addition, an account uould not to rec;arCed as a trannaction phone if it 1,ernzittad tbe depositor to make no more than three tele permitted or preuutLorized transfers to third parties. ;kccounts that n more than thre such trensters %4c/u1d be rec4ardy4 as transactio purr,osez accounts. Tt'e Board belic.vcs that for monetary control t:as treatment is avi ropriate in order to draw a distinction invfistbetween accounts %wed for transactions and tl‘oae uged for Iry t'e ;Amts. It I.= anticil-ated that tte exemptionv :erovided re4u3ation will cover aul:stazItially all of the occasional or out ittre-;uent transfer* tnat are engaged in Uy dal:oitorr, with transfer unduly comclicating monetary i-olicy or disrupting exiatin(i arrangementu. You also asked that the Board carefully consider tle Board definition of the term 'nolversonal time deposits.q The sits, has determined that IWEsolh der-osits are personal time depo persona: %Lich are not subject to re.serVe roluiretients. Similarly, Tht,, nolwral:lo Uonald W. :tiev;10) Jr ra.zie 17,0 trust de;:(tnitz,; in ..4hic% the entire L eneficial interest is held by ill e re-:;arded as peroonal time Uposits. nowever, irUviJual fur dc wid not -for-profit institutions would be regarded an noni-,ervcin41 tiilte deposits siuce such funds are !raintained by depositors that aro not natural z.er2onm. We believr that tho .onetar:i Cc:ntrol Xct does uot Lrovide us with the abllity to re,,;ard thece deositors as natural persons. • conceru with the inequity of to jr tor 7:xgzLt7a" !:Ainks and nonr.alLor depository inztitutions. The phaJo-in krovisiom of the Act werc carefully considered by t%e conc;reszi after weighin the effoct6 of rezerve ret;uirenemts on monLers, nonmercLers and on Treaaury revonues. 14hile a favtor ary contml Le infor noamemLers nal 14e dcaraLle for .monet i:.ur;ozies e we think that tho. current ,47- rovisions are workable. WAI also ex re I Lope that this has been rk:s,:.ontive to •jour concerns. SincerGly o Wau1 A. Mak uTS:pjt (417-308) Lcc: Gil Schwartz Legal :Records (2) Mrs. fallardi (2)t/ z A WILLIAM PROXMIRE. WIS., CHAIRMAN HARRISI)N A WILLIAMS, JR.. N.J. ALAN CRANSTON, CALIF. • AOL•I r STEVENSON. ILL. ROBERT MORGAN. N.C. DONAI n w wrc,Lr, JR., MICH, PAUL S. SARBANES. M D. JAKE GARN, UTAH )04N TOWER. TEX. • JOHN HEINZ. PA. WILLIAM L. ARMSTRONG. COLO. NANCY LANDON K ASSEDAUM. KANS 0 RICHARD G. LUGAR, IND. DON ‘LD W STEWART. ALA. GEORGE J. MITr..."r", MAINE J KENNETH A. MC LEAN STAFF DIRECTOR M. DANNY WALL. MINORITY STAFF DIRECTOR MARY FRANCES DE LA PAVA, CHIEF CLERK / Z Crtifc6 "e5 - fafez Zeizate COMMITTEE ON BANKING. HOUSING, AND URBAN AFFAIRS WASHINGTON. D.C. 20510 July 23, 1980 The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Twentieth and Constitution Avenue, N.W. Washington, D. C. 20551 Dear Chairman Volcker: I would like to take this opportunity to comment on the proposed changes in the Federal Reserve System's reserve requirements as outlined in the Federal Register on June 9, 1980. My main concern is with Regulation "D" and the manner in which the Federal Reserve has defined "Transaction Accounts" and "Nonpersonal Time Deposits". As I understand it, the proposed rule provides for reserve levels of 8% to 14% against "Transaction Accounts", and 0% to 9% reserve levels against "Nonpersonal Time Deposit" accounts. I gather that the following accounts are included under the definition of "Transaction Accounts" and are currently yielding 5-1/2% at most savings and loan associations throughout the country: 1) pre-authorized monthly payment on mortgage loans and/or hazard insurance premiums that are deducted automatically from a regular savings account; 2) emergency cash transactions allowed under the Federal Home Loan Bank Board's Traveler's Convenience Withdrawal regulation; 3) payment to a third party through an automatic teller machine, such as utility bills; and 4) telephone bill paying to a third party and telephone transactions between a commercial bank and a savings and loan association. I am deeply concerned that if 12% reserves are implemented against these accounts, many of these services will be dropped, the rate of return to the customer will be lowered, or substantial fees will be charged by savings and loan associations to cover the increased costs of doing business resulting from the reserve requirement. Since many of these accounts are being used as the consumers' primary savings accounts and pre-authorized transfers are performed strictly as a customer convenience, I believe that the adverse effects resulting from the proposed changes would be counterproductive. • The Honorable Paul A. Volcker July 23, 1980 Page Two The Federal Reserve Board's definition of "Nonpersonal Time Deposits" also concerns me. It is my understanding that the following types of accounts are covered under the definition: 1) Retirement Accounts, such as IRA and Keogh; 2) Personal Revocable Trust Accounts taken out by depositors primarily to gain increased insurance of accounts; 3) Public Unit Accounts such as city and county funds, school district funds, special assessment funds, etc.; 4) not-for-profit organizations such as churches and charitable organizations; and 5) for profit business and partnership accounts. IRA, Keogh and other personal trust accounts are generally conceded to be for the benefit of an individual. Therefore, I do not believe that they should be included as Nonpersonal Time Deposits. Of the list above, only the last seems to me to have a logical basis for inclusion in "Nonpersonal Time Deposits". If I am correct in my understanding that the purpose of reserves is twofold: to protect against unusual withdrawal activity and to afford the Federal Reserve better tools for controlling and monitoring movement of the monetary aggregates, then I question the reasoning behind requiring reserves on IRA or Keogh accounts or other types of personal trust accounts. Finally, I am bothered by the seeming inequity under the proposed regulation of phasing in savings and loan associations over eight years and phasing banks down over three and one half years. I appreciate this opportunity to comment on the proposed changes to Regulation "D" and look forward to hearing from you shortly regarding your deliberations on these issues. Sincerely, nald W. Rie • war G0Vt/i: • .• BOARD OF GOVERNORS •co OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 .&AL RES. • •..• • PAUL A. VOLCKER CHAIRMAN August 8, 1980 The Honorable John Heinz United States Senate Washington, D.C. 20510 Dear Senator Heinz: Thank you for your recent let ter concerning the provision of the Depository Ins titutions Deregulation and Monetary Control Act of 1980 ("Act") that deals with the Federa l preemption of interest ceilings on bus iness and agricultural lo ans. You ask what the Federal Reserve's experience has been with thi s statute and whether it believes th at Congress should provide for rulemaking authority under this stat ute. As you know, the Act provid es in Title V, Part B that fo business and agricultural r loans of $25,000 or more, in te re st may be charged at a rate of 5 per cent in excess of the discou nt ra te, including any surcharge, on 90-day commercial paper in ef fe ct at the Federal Reserve Bank in the Federal Reserve Dist ri ct wh ere the lender is located. State usury laws providing for low er lim its on such loans are specifica lly preempted by the Act dur ing the 3 years unless overridde next n by a State. The Federal Reserve has had very few inquiries from financial institutions and others regarding this provis ion of the Act. The handful of inquir ies that the Board has receiv ed pertain to the application of the sta tute to the particular circum stances of loan transactions affected by the Act. The unresolved issues in such questions involve the degree to which State laws ap ply, and the Federal Reserve has indicated that the advice of lo cal counsel should be sought on these matters since rulemakin g authority was not provided to any Fe deral agency. Recently the Senate passed S. 2719, the Housing and Community Development Act of 1980, which in sections 327 and 328 contains definitions of aff ected loan transactions and cl arifies other provisions of the st atute. Nevertheless, even if this bill were to be enacted, it is our view that rulemaking aut hority could prove beneficial to partie s involved in business and agricultural loan transactions by provid ing for a uniform applicati on of congressional intent nationwide. This would minimize the pote ntial for The noral.,le John licinz rao Two differin, judicial or admini4trative rulini relativist to the a;pli cation of the . ,rovisico Lcinf: landed down from state to state. Wc .4.ould4 of couroe, aece;.t a rul6ma3lrov function if Congress deteminet; it ar7rwiriste to lodeje authority with the reasral If Convronsional mction i roed, it would also be ira-A.e for the Congress to con4idor the use of a rata ether t..i7aal the, Acsorve discount rate as a Wtailq fez' determiniug ?e1C:eral twur.; ceiling. This rate stould be one more closely ri3.atu4 to iAaret rates, such ao tLe rate on U.V. 'government !Jonas, ratilur than an advAinistered rate. Our ttaff would !4) vleaned to work with yOUX tai1 in developing an ac: , ,ropriecto standard. LSA:4311i4)jt (0/-256) bcc Lee Aaams Legal Records (2) .tr. (2)=-0°.. WILLIAM PROXMIRE. W ;., CHAIRMAN HARRI!, ':N A. %.ILLIAMS, JR., N.J. ALAN CRAN&TON, CALIF. ADLAJ E. STEVENSON, ILL. ROBERT M , RGAN, N.C. DONALD W .tIEGLE. JR., MICH. PAUL S. S • WANES, MO. DONAL.) W. STAWART, ALA. PAUL. E. TCONGAS, JAKE C.ARN, UTAH JOH, 'TOWER, TEX. HEINZ, PA. W:L:.t nIA L. ARMST120, COLO. NANCY LANDON KASSEBAUM. KANS. RI .7.1. ArtO G. LUGAR, /ND. KENNETH A. MC LEAN. STAFF DIRECTOR M. DANNY WALL. MINORITY r-TAFF DIRECTOR MARY FRANLES DE LA PM/A, CHIEF CLERK Action assigned Mr. Otersen ?Anil. I)Zifix{e9.; mate GOMMI :TEE ON BANKING. HOUSING, AND . URBAN AFFAIRS WASHINGTON, D.C. 20510 June 11, 1980 Honorable Paul Volcker Chairman Federal Reserve Board 20th and Constitution Avenue, NW Washington, DC 20551 Dear Mr. Chairman: Since the enactment of the Depository Institutions Deregulation and Monetary Control Act (Public Law 96-221) on March 31, I have received several inquiries about the coverage of Title V, Part B, concerning the preemption of business and agricultural loan ceilings. I understand that my Senate colleagues have also received many interpretive questions about Part B. While an effort is being made in the Senate to clarify certain of the usury preemption provisions in Public Law 96-221, I believe that consideration should also be given to assigning rulemaking responsibili ty under Part B to a Federal agency. The Federal Home Loan Bank Board was provided with rulemaking authority under the mortgage preemption provisions of Title V, Part A, but no such authority was provided to any agency under Part B. In view of the Federal Reserve's role as the nation-'s central bank, with extensive responsibility and expertise regarding monetary policy , credit availability, and the supervision of banking organization s, I would appreciate your opinion of the capability of the Federal Reserve to assume, if designated, the rulemaking authority under Part D. I wuuld also appreciate receiving information about any experience the Federal Reserve has had thus far under Part B, including the number and types of inquir ies it has received and interpretations or guidance it has issued. Sincerely, 4 ( ' 1 Heir6' United States Se ate JH/hbw August 44 1590 The LonoraLle John J. Lain ice Bosse of Meproaantativc6, 20515 Washington, D.C. beim JotutI Thank you for year letter of July 23, requesting a list of nonbenkimg activities in ubich bank halals.; oempsniee r et!3er financial institutione Lays saftequit7 interest. Accompanying this letter are the folaowing documents, tho contents of 'which are further explained balow, 1. coo:uter rrint-out of t'--de norJbanking suLsidiarion of Lat.& holdinq corvpaniez aocordin,- to reslatra tIon nu-.11.er: 2. alphabetical liuting cf Larl :1 1)1d1rl cor.klarder4 with associated rewistratic.n mr,!-Jer; 3- Musk 30.144V Conli4P;_Ael.tY 4. lila& of those domestic nonbanking aativitieo that the board has found to he perniosible and irg4Aornissib3.e for bank boldin,.: companies. un4 Me board, as you know, has statutory responsibility te-zr tit ‘activitieu of all bank holding comraniec. Flovever, it doer. not %aye statutory reaossaiLility for the activities e)f auc other rinancial institutions au savirr.:% and loan a&sociationa or their parent holding cowpacties, which are requlated at ti-e Federal 1ev6I1 toderal :c.ocle Loan 7.1a.t.K toard. In additiovi nonibientinr; activitio3 of cowaarcial Iser.Xv are regulated either by the Coaptroller oi tke Currency in thz case; af nationally Chartered banhs or the individual Itatcs Itt the case of state chartered Lank*. Qtcourae, the Federal Pesarve Syc,tem does have Servisoy ity, resi7on4ibilitiesi •inaluding oranination responsibil for those state *Lactated tanks that are romberu of the Federal R‘.'.;crevit Zyate=, The ooNputer print-out (ltoz ti) Is )talied mien data fileJ by bank holding OCEAVIIIMOS as part of their annual reports to tnt board end in currant throucA Juno 30, 19SO. Tha bank holdin5 cooreanieA are lipted in numerical orOcr of tlr;eir registration Alma" Mc honorable John Paqe Two Lariat:se nu.11bers wbich ware generally assisped according to rederal Tccerve ;;istrict azd date of registration. To assist you in lacatins artioular Lank holding colin.,anies* we aro alao etclouing an alihakAttical listisq of banking holding ccmanies (item 1.1)% The cowuter Terint-out of the nonbanking vUhsfaiario9 identifiea each activity kly either an alphanurAoric code for activitieo that the board time previously determined by regulatirm to be iosaerally ilaminsible for Wink Uolding conpanies or a nuwerical SI( (Ztandard Industrial Classification) code for lrandfathered or otherwise exempted activities. The activAtise corrospondin to thee codes are flofined in the pi!*,y1.4.14,K epri,c7aNcl,cit4y,.:::4z.1*44. (item f3), a oopy of tihiott is enclosed. The enclosed 114ti., of nonbankinq activities (item $4) provide some inuicLt into tle nature of them* nonbanking activities 1.,rQviotw,14 considered by the loard. The elimerirticals are aU,reviated and tLo. activities typisally have boon ltulted further by the actual uordinq of the board's Regulation I sni it accompanying interpretation..$, Ttrouqh statutorily mandated ,;randfather rights or other ozettions, soNe Lank heldinq companies 4o engage in activitier cweoC those normally pemisailAA for similar organiLeyondt sations. Therofore, when reviewing the foro4:oing documents, note Mbeold o taken that uooe subsidiaries are enouaginl in activities not specifically aroved j the board. bops that this information will 7.>,x. ume ul to you% aaak i [with handwritten note from Chairman Volcker: "P.S. I am enclosing some correspondence on the Export Trading Company question." (Letters to Sen. Stevenson dated 7/23/80 & 3/5/80)] Lnclouurer m171,CO:JP.Bildt (IV- 302) Lcc: Mr. Suzsan P,yan :kallardi (2)/ JOHN J. LAFALCE 36n4 ni-TRICT, NEW YORK COM M ITTFT ON BANKING. FINANCE AND CRUAN Alt-FAIRS fiOMmITTEE ON SMALL BUSINESS 223 CANNON BUILDING WAsKINGToN, D.C. 20515 (202) 225-3231 411 Coitgro of Mc LIititeb6tate5 poiw of ilepreantatiing FEDERAL BUILDING Burr4Lo. NEW YORK (716) 846-4056 14202 CHAIRMAN: St/MO*0411M ON GrNERAL OVEIC,ICAIT Einagffingtort, ae. 20515 July 23, 1980 MAIN POST Orrice BUILDING NIAGARA FALLS. New Yomx 14302 (716) 284-9976 Honorable Paul A. Volcker Chairman Federal Reserve Board 20th Street & Constitution Avenue, N.W. Washington, D.C. 20551 Dear Paul: A number of bills have been introduced, in order to facilitate the establishment of viable U.S. export trading companies. Most of these bills contain provisions which would allow for equity participation by financial institutions in these export trading companies. In order to gain a clearer historical perspective on the question of those provisions, I would like a complete list of those instances when financial institutions, or bank holding companies, may have an equity position in a non-banking company or entity. Therefore, I request that you provide such a list for those financial institutions under your jurisdiction, in order that I might better assess what might well be precedents for permitting equity participation in export trading companies by financial institutions. Thank you for your anticipated cooperation in this matter. Sincerely, JOHN J LaFALCE Mem er of Congress JJL:TN •co _ 0V• 1,0vt '•. 0.• BOARD OF GOVERNOR'-_-2 OF THE FEDERAL RESERVE SYSTEM T • WASHINGTON, D. E. 20551 RAL RF. • • .. • • PAUL A. VOLCKER CHAIRMAN August 8, 1980 The Honorable Frank Annunzio Chairman Subcommittee on Consumer Affairs Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman Annunzio: Thank you for your July 31 letter in which you comment on the Board's proposed revision of Regulation Z. Your major concern is that the proposed alternate shopping disclosures would take the place of the individual transactional disclosures currently required by the regulation. You believe that consumers would be harmed if the alternate shopping disclosure proposal were adopted withou t change. The Board is concerned about the problem in ensuring that consumers receive credit shopping information in a timely and meaningful manner so that they can make informed credit decisions. One obstacle to achieving the Truth in Lending Act's objective of promot ing credit shopping has been the fact that disclosures are delivered so late in the shopping process. The Board proposed the alternate shopping disclosures as one possible solution to the general problem of how to provide credit information at a time and in a format that would be most useful to consumers who want to shop for credit. It was offered in the hope that public comment would help us decide if the idea has merit and how it could be improved. Certainly the specific mechanics of any such provision--were the Board to adopt it--would have to be refined to ensure that adequate consumer protections existed. The Board has received several hundred comments on the proposed regulation, and many of them have discussed the alternate shopping disclosures. During the revision process, the Board will \ The Honorable Fr. Annunzio Page Two consider all the sugg ested changes offere d by the commentors cluding those set fort , inh in your letter. I appreciate your ta king the time to pe on how to improve the rsonally comment proposal. Please let me know if I can be further assistance. of Sincerely, DR:vcd (#V-316) bcc: Denise Rechter Mrs. Mallardi (2) ' ion FRANK ANNUNZIO. ILL., CHAIRMAN GLADYS NOON srELL MAN, MD. rtnucr r. VENTO. MINN. WALTER r FAUNTROY. D C. PARREN J. MITCHELL. MD. CURTIS A rrthqs. STAFF DIIVTOR • TELEPIIONE: 225-9181 assigned to Janet Hart • THOMAS fl. EVANS, JR., DEL. CHALMERS P. WYLIE, OHIO DON RITTER, PA. U.S. HOUSE OF REPRESENTATIVES NINETY-SIXTH CONGRESS SUBCOMMITTEE ON CONSUMER AFFAIRS OF THE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS ROOM 212 HOUSE OFFICE BUILDING ANNEX WASHINGTON, D.C. 20515 July 31, 1980 Honorable Paul A. Volcker Chairman Federal Reserve Board 20th Street & Constitution Avenue, N.W. Washington, D.C. 20551 Regulation Z - Docket tiR-0288 Dear Mr. Chairman: I have reviewed the Board's proposed revision of Regulation Z. I was shocked to read this proposal. The summary of the Board's action states that the proposed revision of Regulation Z is "necessitated" by adoption of the Truth in Lending Simplification and Reform Act. Yet, rather than limiting itself to implementing the new amendments, the Board is proposing profound changes to Regulation Z that are in no way required or mandated by the Truth in Lending Simplification and Reform Act. Most of these changes will harm consumers. Illustrations of the unauthorized changes are changes that would permit alternate shopping disclosures in place of the individual consumer credit transaction disclosures expressly required by the Truth in Lending Act, changes that would weaken protections in the Fair Credit Billing Act, changes that would weaken a consumer's right to rescission and changes to make Regulation Z parallel Regulation E. I firmly believe the Board should confine itself in its rulewriting to issuing regulations that are strictly limited to what is required to clarify unclear provisions in the Truth in Lending Simplification and Reform Act. The proposal that will result in the most harm to consumers is that alternate shopping disclosures be authorized in lieu of accurate individual consumer credit transaction disclosures. The Truth in Lending Act is unequivocally clear in its mandate that a consumer receive an individual disclosure of the terms of his consumer transaction before the credit is extended. The original Truth in Lending Act is absolutely clear on this point and the Truth in Lending Simplification and Reform Act is equally clear in retaining this requirement of individual transaction disclosures. Honorable Paul A July 31, 1980 Page Two • VollPer • The Board's staff proposed alternate shopping disclosures previously, in 1979, so Congress was aware of this concept and chose to reject it as part of the new law. Surely, if Congress had wanted to permit alternate shopping disclosures it would, in its wisdom, have provided for them. I believe the Board is clearly overstepping its authority in proposing alternate shopping disclosures. I further believe that alternate shopping disclosures will result in circumvention of the law, in inaccurate and misleading disclosures, and in unfair competition between creditors providing accurate individual disclosures and those providing alternate shopping disclosures. The alternate shopping disclosures will make it hard to prove whether or not a consumer was ever provided with a disclosure statement. The alternate shopping disclosures will make enforcement of the law in terms of whether a disclosure is provided or in terms of whether the disclosure meets the requirements of the law, virtually impossible. If, for the sake of argument, the Board is determined to go ahead and authorize the alternate shopping disclosures, I would recommend that such disclosures be dated on the front page and that a creditor be required to physically attach the alternate shopping disclosure to the contract between the consumer and creditor. I would appreciate the Board's careful consideration of my comments. With every best wish, Sincerely, Frank Annunzio Chairman - 6 August 8, 1980 ebe SamorabLe Semjasin S. Rosenthal Chaitman isbasissittee on Cammerce, Consigner aid Nonetary Affairs Cwemittee es Onveruneet Operations Swine of Sepresiratatives 2OSI3 Weehington r D.C. Dear Chairmaz hosonthals Thank yea fee your letter concerning the applicetiam of Segulation Q to inactive savings eeeemmte on which interest accruals have beam suppended by a bank. In year letter, you state that bombs frequently make a lump sum "catch-ye interest payment whom as inactive savings account is later reactivated or claimed by a depositor. You question whether such a payment would violate ceiling rate limitations. lbe amerension of the accruel at interest on an inactive sewings account presumably is done for the administrative ease or oonveniemee of the bank. Ouch oaten, however, deem not change the nature of the amount, which continues to be classified JS a savings aocount. Accordingly, a lump sum interest payment in the situation you have described would not be regarded as a violation of Regulation Q ceiling rate limitations so long as the amommt of interest paid or credited to the account does mot emseed the 111111dalli permissible amount of Interest that could have been credited during the time the accrual of interest was suspended W the beak. With reference to the tax implications of the situation in which a financial institution doss not reverse the interest suspension whea ea inactive account is escheated to the State, Segulation Q is not regarded as an instrument of tax policy. Comaegeently, the Regulation does not require OR accrual method of accounting emit institutions are permitted to use amy method of paying interest authorized under State law. Of course, in the event ma institution dices not reverse an interest Tbe Monorable Senjamin S. Rosenthal .2. sespeamtes prior to transferring fends to a State, the Institutionls earsimes would be higter telt:suss it does not have an interest expense dedestios and, as a result, its taxes may be higher. Sincerely, SteulA VoLau GTS:APC:bbo 8/8/80 • Action assigned Mr. Petersen BENJA041•N S. ROSENTHAL. N.Y. CHAIRMAN ROBERT' MATSUI, CAL LYLE WILLIAMS, OHIO JIM JEFFRIES, KANS. r. JOEL OFCKARD, IN. [UNC V. ATKNSON, PA EERNANO .1. ST GERMAIN, JOHN CONY(RS R i. NINETY-SIXTH CONGRESS JR , MICH. ELLiOTT H. LEVITAS. 0 A. • MAJORITY -(2O) 225-4407 Congrc5s of the Ziniteb 3i)ouge of 3Arpre5entatiinq COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCON1MITTEE OF THE /74 COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING. ROOM E1-377 WASHINGTON. D.C. 20515 July 21, 1980 Hon. Paul A. Volcker Chairman Federal Reserve Board Washington, D. C. 20551 Dear Mr. Chairman: I am writing to request an interpretation on the application of Regulation Q to inactive savings accounts on which interest payments are suspended by the bank and then later reinstated in a lump sum. The Commerce, Consumer, and Monetary Affairs Subcommittee has been investigating for some months the handling of inactive and dormant savings accounts by banks. One of the frequent bank practices identified in the subcommittee's investigation is the suspension or discontinuance of interest accruals on savings accounts after a certain period of inactivity. When this is done, no interest is reported to the IRS and no form Form 1099s are sent to the owners of the accounts. Then when a depositor later reactivates or claims such an account on which interest accruals have been suspended, the bank commonly adds to the account the interest that would have been due if the interest accruals had never been discontinued in the first place. On the other hand, if the account is never reactivated or claimed, and if it is ultimately turned over to state authorities under applicable state unclaimed property laws, the interest suspension is not reversed; the lost interest is not reinstated to the account. The interest suspension appears, therefore, to be a substantive and meaningful suspension, both because it is not reversed when the funds are turned over to the state and also because IRS tax reports are not filed. under these circumstances, is this bank practice of suspending interest accruals and then making a lump sum "catch-up" interest payment when the account is reactivated or claimed permissible under the interest rate ceilings of Regulation Q? Please provide an interpretation of how the deposit rate ceilings apply in this situation. Sincdrely, Benjamin S. Rosenthjaj__ Chairrian BSR:tb — • • •• • • CAI BOARD OF GOVERNORSOFTHE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 16' 7 • • • ... • PAUL A. VOLCKER CHAIRMAN August 8, 1980 The Honorable Paul S. Sarbanes United States Senate Washington, D. C. 20510 Dear Senator Sarbanes: This is in response to your letter concerning the attempted take-over of McCormick and Company by Sandoz, Ltd., a Swiss based conglomerate. You have referred specifically to the Board's voluntary Special Credit Restraint Program and the bearing it may have had on this take-over attempt. I understand that the initial attempt was not successful. The Board has been concerned for some time now about the use of bank credit to support purposes that are for purely financial or speculative purposes and which cannot be justified in terms of increased productivity and efficiency. In October 1979 banks were requested to refrain from extending such credit; last March, the voluntary Special Credit Restraint Program formalized this request by incorporating it into the Program guidelines. However, in view of a changed economic climate, the Board concluded that the specific conditions requiring the extraordinary measures of the credit restraint programs, including the Special Credit Restraint Program, are no longer present. Thus, the qualitative guidelines that were included as part of the Special Credit Restraint Program are no longer appropriate. In the specific case of a Sandoz attempt to take over McCormick, Sandoz may receive financing from an American bank or finance company, a U. S. branch or agency of a foreign bank, or from a foreign bank. The Special Credit Restraint Program applied to U. S. banks, bank holding companies, finance companies, and U. S. branches and agencies of foreign banks. Central banks of the leading industrial nations were requested to encourage the banks under their jurisdiction to limit their loans to U. S. residents in line with the objectives of the Special Credit Restraint Program. The program was not designed to limit loan transactions between foreign banks and foreign corporations, since the Board does not have direct authority over these institution's matters. In fact, as was noted in the Interim Report by the Board's staff on the credit restraint programs, potential foreign take-avers raised seriou s questions of the appropriateness of loans to finance defensive takeovers. Had the Program been prolonged, such questions would have necessitated difficult and potentially arbitrary decisions on the part The Honorable Paul S. Sarbanes -2- of the Board and its staff. For these reasons, the Board could not have intervened to prevent Sandoz from obtaining financing from a foreign bank, even while the Special Credit Restraint Program was in effect. I hope that this explanation of the program is useful to you. Sincerely, cir/f 4(0,(14.4ete /461Lp/ 776)c ,...m.- 42/1-ted4e ur,w 4a-0,7 e '4 , Caar-a0(611 4ca/t , ctri ca agx6 go'L7rix 4PAULS SARDANES "lion assigned to Gil Schwartz• MARYLAND ?-.1Crtifeb 'Zfafez Zertafe • WASHINGTON. D.C. 20510 May 2, 1980 Paul A. Volcker Chairman Board of Governors of the Federal Reserve System 20th Street and Constitution Avenue, NW Washington, D.C. 20551 Dear Chairman Volcker: On April 18 last I addressed a short letter to Gilbert Schwartz, General Counsel of the Federal Reserve Board and enclosed materials bearing on the continuing efforts of Sandoz, Ltd. to acquire McCormick and Company in Baltimore, Maryland. Among the materials were a series of documents familiar to you, since they were prepared by the Federal Reserve Board and the other federal agencies with responsibilities for carrying out effectively the anti-inflationary credit restraint programs announced on March 14. They are consistent with and accuratley reflect the statements you have made in your testimony before the Senate Banking Committee to the effect that especially wn the guidelines of the credit restraint programs the Federal Reserve opposes the use of credit for takeovefs and other non-productive actions and will seek actively to disourage banks from lending for such purposes. Where foreign banks mirjht be involved, as would seem likely in the Sandoz-McCormick case, you have stated to the Committee that you have discussed this matter with the central bankers of other nations. In a case bearing important similares to the Sandoz-McCormick case, the tender offer of Grand Metropolitan a British conglomerate, for the U.S. Liggett Group Incorporated, Grand Metropolitan is now reported to have been successful in obtaining the major share of the necessary financing from Brsh banking sources. This development clearly has important implications for the McCormick Conuany, which in its determination to remain an independent and productive United States corporation, has heretofore resisted and rejected offers from Sandoz. It is incumbent on you, Mr. Chairman, as architect and guardian of a credit restraint program designed to restrict whenever possible the non-productive uses of credit and in general to strengthen the American economy, to make vigorous representations to discourage takeover actions of this kind, and I urgently request you to do so. With best regards, Since e y, a S. Sarbanes United States Senator PSS/jdt • 30AR0 OF GOVERNORS OF THE • " 7F2 FEDERAL RESERVE SYSTEM WASHINGTON, DC. 20561 PAUL A. VOLCKER CHAIRMAN August 8, 1980 The Honorable Charles McC. Mathias United States Senate Washington, D. C. 20510 Dear Senator Mathias: This is in response to your letter concerning the attempted take-over of McCormick and Company by Sandoz, Ltd., a Swiss based conglomerate. You have referred specifically to the Board's voluntary Special Credit Restraint Program and the bearing it may have had on this take-over attempt. I understand that the initial attempt was not successful. The Board has been concerned for some time now about the use of bank credit to support purposes that are for purely financial or speculative purposes and which cannot be justified in terms of increased productivity and efficiency. In October 1979 banks were requested to refrain from extending such credit; last March, the voluntary Special Credit Restraint Program formalized this request by incorporating it into the Program guidelines. However, in view of a. changed econom ic climate, the Board concluded that the specific conditions requiring the extraordinary measures of the credit restraint programs, including the Special Credit Restraint Program, are no longer present. Thus, the qualitative guidelines that were included as part of the Special Credit Restraint Program are no longer appropriate. In the specific case of a Sandoz attempt to take over McCormick, Sandoz may receive financing from an American bank or finance compan y, a U. S. branch or agency of a foreign bank, or from a foreign bank. The Special Credit Restraint Program applied to U. S. banks, bank holdin g companies, finance companies, and U. S. branches and agencies of foreig n banks. Central banks of the leading industrial nations were requested to encourage the banks under their jurisdiction to limit their loans to U. S. residents in line with the objectives of the Special Credit Restraint Program. The program was not designed to limit loan transactions between foreign banks and foreign corporations, since the Board does not have direct authority over these institution's matters. In fact, as was noted in the Interim Report by the Board's staff on the credit restraint programs, potential foreign take-overs raised serious questions of the appropriateness of loans to finance defensive takeovers. Had the Program been prolonged, such questions would have necessitated difficult and potentially arbitrary decisions on the part ki The Honorable Charles McC. Mathias -2- of the Board and its staff. For these reasons, the Board could not have intervened to prevent Sandoz from obtaining financing from a foreign bank, even while the Special Credit Restraint Program was in effect. I hope that this explanation of the program is useful to you. Sincerely, atze62aia",(-, u4x- t eitalatir AtifffellM (/-e cnufemli pUAI atlAg‘i, duz-a// T-; Aiali,(= et?-u4 rT4 ction assigned Gil Schwartz • So, EDWARD SA. KENNEDY. U. 'DS , CHAIRMAN BIRCH STROM KA.v1.1. IND ROOF PT C BYRD. W. VA. JOSEPH R. IEV.,FN. JR.. DEL. joHN C. CULyER. towA HOWARD M INETZENSAI /HI OHIO PAUL LAXALT. NEV OR NIN G 14 , 0fIf HT HATCH. UTAH poi,. KANS. PATRICK ALAN K. SimeSON. Wy0. LE ANY VT. SUBCOMMITTEE ON CRIMINAL JUSTICE JOSEPH R. "UDEN. JR., CHAIRMAN EDWARD M. KENNEDY CHARLES MC C JOHN C. CULVF.R THAD COCHRAN MATHIAS. JR.. FAD THAD COCHRAN. MISS. . • THURMOND, S.C. CHARLE S MC C DENNIS 01 CONCINI. ARIZ. 11.4Ay o DENNIS DE CONCINI PAUL LAX ALT PATRICK ORRIN G. HATCH J. LEAHY mARK BALK...US, MONT. HOWELL HI FLIP& MATHIAS. JR. H. GITENsTFIN CHIEF COLJNSEL. AND STAFF DIRECTOR ALA. STEPHEN BREYER, CHIEF COUNSEL ?.,Cnifeb COMMITTEE ON THE JUDICIARY WASHINGTON. D.C. 20510 May 30, 1960 Yc/ Mr. Paul Volcker Chairman of the Board Federal Reserve System 20th and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Mr. Chairman: McCormick and Co., one of Maryland's oldest and most distinguished business enterprises, has recently been subject to a series of acquisition efforts by Sandoz Limited, an international, Swiss-based conglomerate. As you know, the President's Special Credit Restraint Program attempts to discourage mergers, particularly those by foreign interests using foreign assets. I would be grateful if you would review the enclosed memorandum, which outlines possible areas of conflict with the President's guidelines, and let me know if any follow-up action is contemplated. With best wishes, Sincerely, Charles McC. Mathias, Jr. United States Senator CM:roj Enclosure MEMORANDUM April 1, 1980 On March 14, 1980, President Carter announced a broad, three-fold program designed to reduce inflationary forces in the United States economy consisting of a Special Credit Restraint Program, a Consumer Credit Restraint Program and a Managed Liability Special Deposit Program. This Memorandum discusses the potential impact of the Special Credit Restraint Program upon further efforts by Sandoz Limited ("Sandoz"), a large Swiss-based international conglomerate with significant business in the United States, to take over McCormick & Co., Incorporated ("McCormick") of Hunt Valley, Maryland, the last independently owned and managed specialty food company in the United States with national and significant regional distribution. I. In announcing the voluntary Special Credit Restraint Program, the Federal Reserve Board issued a press release in which it summarized five monetary and credit actions. The first of the five actions was: A voluntary Special Credit Restraint "1. Program that will apply to all domestic commercial banks, bank holding companies, business credit extended by finance companies, and credit extended to U.S. residents by the U.S. agencies and branches of The _parents of foreign banks. _ and affiliates those foreign banks are urged to cooperate 3n I 2. similarly restricting their_ lending to U.S. companies. Special effort will be made to maintain credit for farmers and small businessmen." [emphasis add(.d] (March 14, 1980, Federal Reserve System, Release, p. 1) The Board went on to say that "banks are encouraged particularly:" * * * To discourage financing of corporate _takeovers or mergers and the retirement of corporate stock, except in those limited instances in which there is a clear justification in terms of production or economic efficiency commensurate with the size of the loan." [emphasis added] (Release, p. 3) In further describing the Program, the Board said: "Foreign banks will be asked to respect the substance and spirit of the guidelines in their loans to U.S. borrowers or loans designed to support U.S. activity." (Release, p. 4) In the full text of the Special Credit Restraint Program, under the Statement of Purpose for the Program, the Federal Reserve Board stated the following: "The purpose of the Special Credit Restraint Program is to encourage lenders and borrowers, in their individual credit decisions, to take specific account of the overall aims and quantitative objectives of the Federal Reserve in restraining growth in money and credit generally. The guidelines set forth are consistent with the continuing interest of the Federal Reserve and individual institutions to:" * * * -- Avoid tfse of available credit resources to uses of funds, _ _ 1.12port essentially speculative including _ _ _ _ _ _ voluntary buildup of inventories by _ 3. businesses beyond operating needs or to as takeovers or finance transactions such . mergers that can reasonably be postponed that d6 not contribute to economic efficiency or productivity, or may be financed from other sources of funds." [emphasis added] (Program, p. 2) In the fall of 1979, The Wall Street Journal reported (October 15, 1979) that actions by the Federal Reserve Board r announced on October 6, 1979 would "cool off" the "hot merge market" of the past two years, but went on to state that the companies with cash resources would probably be looking for bargains in a declining stock market and that "foreign companies able to obtain financing abroad, particularly in Europe, are likely to continue bidding for U.S. concerns." The March 14, 1980 Program goes further than the y October, 1979 action and states a clear U.S. national polic to use every jurisdictional means to discourage the use of credit either within the U.S. or abroad to finance corporate takeovers in the United States. It should be noted that there is a wide debate laws occurring concerning the proper scope and impact of state le which are claimed to make it more difficult to mount hosti tender offers, and many are claiming that the Williams Act, , preempts administered by the Securities and Exchange Commission the and displaces these laws to the extent that they inhibit holders capacity of persons to initiate and bring to share takeover offers. Notwithstanding the position of the Securites cized and Exchange Commission in this matter, in a widely publi • ••• 4. Chairman speech given on January 17, 1980, Harold M. Williams, of the Securities and Exchange Commission, expressed serious reservations about the takeover phenomenon and its impact both on the nation's economy and on stockholders of U.S. companies. Emphasizing the same concerns echoed in the Special Credit Restraint Program, Chairman Williams observed: "In the last five years, I would estimate that $100 billion of corporate cash resources-resources which could have been devoted to new production and employment opportunities--have been diverted to rearranging the ownership of existing corporate assets through tenders alone. These are resources that do not flow back as new capacity, improvements in production, innovation, new products or new jobs." While the general posture of the Securities and d Exchange Commission has, as compared to state statutes, tende to favor the facilitating of tender offers, it is obvious that Chairman Williams is raising the same overall and more important questions of national policy involved in the credit program. On March 7, 1980 it was reported in the press that Sandoz had made a proposal to acquire the approximately mick 11.4 million shares of voting and nonvoting stock of McCor for $37 per share, or a total of $421.8 million in cash. On d March 17, 1980, the Board of Directors of McCormick deliberate at a meeting and, on the basis of its analysis and investment a banking and legal advice, rejected the Sandoz proposal for "cash merger" at $37 per McCormick share. Sandoz has made 5. public statements indicating its continuing interest and securities professionals, possibly on the basis of rumors which may be traced to Swiss sources, have indicated a belief that Sandoz will make a further move, perhaps by way of a tender offer. According to press reports, in 1979 Sandoz had worldwide sales of approximately $2.52 billion and net income of approximately $98.2 million. It owns a number of U.S. sub- sidiaries, including one that now owns approximately 4.8% of McCormick's nonvoting Common Stock. Notwithstanding the large z resources of Sandoz, it is virtually certain that if Sando were to initiate a merger, hostile tender offer or other proon posed transaction to acquire McCormick at a price of $420 milli or more, it would be utilizing bank credit sources and those to a sources would be directly or indirectly providing credit United States corporation, in dollars. Under the Special Credit conRestraint Program, such a transaction would be directly e trary to the terms of the Program if the foreign credit sourc had any agency or branch domiciled in the United States. As stated in the Program: "Affiliates abroad of banks operating in the U.S. are expected to respect the substance and spirit of the guidelines in their loans to U.S. borrowers or loans otherwise designed to support U.S. activity." (Program, P. 3) Under these circumstances, we believe it would be al appropriate and in the national interest for those government 'Se 6. authorities in the United States concerned with the effectiveness and enforcement of the Special Credit Restraint Program, including the Federal Reserve Board and the U. S. Treasury Department, to make it known to the proper governmental authorities in Switzerland and to Sandoz that the direct or indirect provision of credit by Swiss or other foreign banking sources for the purpose of a U. S. affiliate of Sandoz taking over McCormick would violate both the substance and spirit of the Program. L. P. Scrigqins D. H. Miller Piper & Marbury LPS:lw Ittu,Iuzt II, The Bonorable :L1 Ullr;,tan Ctairman Ccu:dmittee on WAys and :e4tp, LIA:Juatt ;;44:4:4atatative.;, 2051r, wexehin4ton, L.C. Dear Al, Thank you for lour .otter of %usust 1 concerliinq the 1 definition of. the tertz nonper4onal t.tt claloaltu for reaerve re.luireucalt ..12r1.oecte under the gonetp.r. c!mtrol Act of 1980• Last Tuttedayi the -Board ador.ted in final form the reuerv* requirezent refjulations. After oonoideration of the issuoa raised by aziAying reGerve requirements to deterred oom. kensation aceouuts in the form of IRA or Reach accounts or nersion fund tile de-ecliitze the :ioard determined that auob funcia zhould Le troattd ao ieravonal tirAo dates/ter emitart from the renerve ret.ulremettu or t!,e Act, any ninds held ty fidu ciarite in uhioh tie entire beneficial iLterest ig held 'y individualx wvuld be personal time dept-Jvita. On .14;thalf of the Board, tbank :/ou for your comments thia 1-,L;lttor, GT.S.DJVLAt (tv- 31C) Gil ScLwarts crs. allardi (2) Leual Pccords (2) • BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20 551 PAUL A. VOLCKER CHAIRMAN August 11, 1980 The Honorable Henry S. Reuss Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515 Dear Henry; Thank you for your letter of July 31 concerning contemporaneous reserve accounting. Last Tuesday, the Boar d took up the issue of returning to contemporaneous reserve accou nting in connection with its final action on Regulation D. After reviewing the comments received from the public on this issu e, and after weighing the benefits against the burdens imposed on depo sitory institutions, the Board concluded that it was dispo sed toward adopting contemporaneous reserve accounting in 1981. The Board plans to discuss the operational aspects with deposito ry institutions to insure that the implementation of contemporane ous reserve accounting can proceed smoothly. Sincerely, it // i a 404&6245/ it, aNa 446-Y4 ceQ‘/I it CPPeu/4144:6"'4" riu, . . Ai . /4/ .• of GOvtii,•4, • .• '4'.' 'll .• o •• -,, .*4 ..,,,,4, , BOARD OF GOVERNORS • OF THE FEDERAL RESERVE SYSTEM , '''•'. .•0• eiAL. --e<Rt-S , -,.'''j— .• • WASHINGTON, 0. C. 20551 ••....•• PAUL A. VOLCKER CHAIRMAN August 11, 1980 The Honorable Adlai E. Stevenson United States Senate Washington, D.C. 20510 Dear Senator Stevenson: In my letter of August 5 to you on the Export Tradin Company Act of 1980 (S. 2718 g ), I suggested the crit eria for exemption from the basic pr esumption against bank co ntrol. The enclosed draft amendments to S. 2718 are consistent with my views. In the enclosed amendmen ts, there is no reference the procedure requiring to sixty day notification be fo re a ba nking organization engages thro ugh an export trading comp an y in "any line of activity, includin g specifically the taking of title to goods, wares, merchandis e, or commodities, if such activity was not disclosed in any prio r application for approval." The exclusion of this provisio n from the enclosed amendm ents does not reflect a lack of concern for expansion of export tradin g company activities without prior Fe deral banking agency notice or approval, but rather a belief that the Board and the other Federa l banking agencies would be able to limit such expansion through their authority to impose condit ions with respect to applicatio ns filed .by banking organizations investing $10,000,000 or more in an export trading company. In this way the appropriate Federal ba nking agency could determine on a case-by-case basis what type of expansion of activity would require prior notification or ap proval, and would avoid the proble m of having to determine the st atutory meaning of "line of activi ty." Sincerely, Agg_h_apicker Enclosure JK:KS:pjt (see 4V-259) bcc: Jim Keller Karl Scheld Gov. Wallich Mr. Gemmill Mr. Petersen Mr. Ryan Mr. Hurley Mrs. Mallardi (2) * Amendment Offered by Sen. To S. 2718 Page 9, strike lines 19 to 25; strike pages 10 to 15; and page 16 strike lines 1 to 9; and substitute the following: (b) Notwithstanding any prohibition, restriction, limita- tion, condition or requirement of any other law, a banking organization, subject to the limitations of subsection (c) and the procedures of this subsection, may invest directly and indirectly in the aggregate, up to 5 per centum of its consolidated capital and surplus (25 per centum in the case of an Edge Corporation or Agreement Corporation not engaged in banking) in the voting stock or other evidence of ownership of one or more export trading companies. A banking or- ganization may: (1) invest directly or indirectly up to an aggregate amount of $10,000,000 in one or more export trading companies without the prior approval of the appropriate Federal banking agency; (2) invest directly or indirectly in excess of an aggregate amount of $10,000,000 in one or more export trading companies only with the prior approval of the appropriate Federal banking agency. Any banking organization which makes an investment under authority of (1) above shall promptly notify the appropriate Federal banking agency of such investment and shall file reports on such investment as such agency may require. 411 111 -2- (c) The following limitations apply to export trading companies whose shares are held by one or more banking organizations and to the banking organizations holding such shares: (1) except as provided in subsection (d), no banking organization may acquire 20 per centum or more of the voting stock or otherwise control an export trading company; (2) except as provided in subsection (d), no banking organization may acquire voting stock of an export trading company if such acquisition would result in 50 per centum or more of the voting stock of the export trading company being owned by banking organizations; (3) neither an export trading company nor a banking organization that owns its shares shall make any representation that the export trading company and the banking organization are affiliated. For this purpose, the name of such export trading company shall not be similar in any respect to that of a banking organization that owns its shares; (4) the total historical cost of the direct and indirect investments by a banking organization in an export trading company combined with extensions of credit by the banking organization and its direct and indirect subsidiaries shall not exceed 10 per centum of the banking organization's capital and surplus; • -3(5) a banking organization that owns any voting stock of an export trading company shall divest such stock if the export trading company takes a position in commo dities or commodities contracts other than as may be necessary in the course of its export business; (6) no banking organization holding voting stock or other evidences of ownership of any export trading company may extend credit or cause any affiliate to extend credi t to any export trading company or to customers of such company on terms more favorable than those afforded similar borrowers in similar circumstances, and such extension of credit shall not involve more than the normal risk of repayment or present other unfavorabl e features. (d)(1) With the prior approval of the Board of Governors a bank holding company may acquire 20 per centum or more or otherwise control an export trading company; (2) With the prior approval of the Board of Governors, a bank holding company may acquire voting stock of an export trading company if such acquisition would resul t in 50 per centum or more of the voting stock of the export trading company being owned by banking organ izations; (3) the Board of Governors shall not approve an application under this subsection unless it determines on the basis of the record that: -4(i) the export trading company will limit its acti vities to exporting or facilitating the exportation of specific goods or services which would not be exported to any significant extent without the involvement of an export trading company; (ii) investment by a bank holding company in excess of the limitations in subsection (c) is clearly necessary in order for the export trading company to export or facilitate the export of goods or services; (iii) the export trading company will limit its activiti es to a level consistent with the need for mini mizing the financial risk of the investing bank hold ing company and maintaining a separation between banking and commerce, as determined by the Board. (4) The Board, upon receiving an application under this subsection, shall provide a copy to the appropri ate Federal banking agency of the subsidiary banks of the bank holding company and shall request the comm ents of that agency. (e)(1) In the case of every application under this section, the appropriate Federal banking agency shall take into consideration the financial and managerial resources, competitive situation, and future prospects of the banking organiza tion and export trading company concerned, and the benefits of the proposal to United States business, industrial and agri cultural concerns, -5- and to improving the competitiveness of United States exports in world markets. The appropriate Federal banking agency may not approve any investment for which an application has been filed under this section unless it finds that there are significant export benefits and that such bene fits clearly outweigh in the public interest any adverse fina ncial, managerial, competitive, or other banking factors associat ed with the particular investment. Any disapproval order issued under this section must contain a statement of the reas ons for disapproval. (2) In approving any application submitted under this section the appropriate Federal banking agen cy may impose such conditions which in the circumstances of the application it may deem necessary (A) to limit a banking organization's financial exposure to an export trading company, or (B) to prevent possible conflicts of inte rest or unsafe or unsound banking practices. (3) In determining whether to impose any conditio n under the preceding paragraph (2), or in imposing such condition, the appropriate Federal banking agency must give due consideration to the size of the banking orga nization and export trading company involved, the degree of investment and other support to be provided by the bank ing organization to the export trading company and the iden tity and financial strength of any other investors in the expo rt trading company. The appropriate Federal banking agency shal l • . • • -6-- not impose any conditions which unnecessarily disadvanta ge, restrict or limit export trading companies in competing in world markets or in achieving the purposes of section 102 of this Act. On page 17, line 19 "(e)(1)" should be changed to "(f)(1)" . and on page 18, line 12 "(f)(1)" should be changed to "(9)(1)". 4. ... .,c)0 GOVeR.• . ' . • co .. '0 • -1, ..--1 4, •• O• ,r, . 2• 1-- • ,,) • BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. E. 20SSI RAUL A. VOLCKER CHAIRMAN August 11, 1980 The Honorable Geraldine A. Ferraro House of Representatives Washington, D.C. 20515 Dear Ms. Ferraro: Thank you for your letter of June 24, in which you express concern that the Equal Credit Opportunity Act results in discrimination against women who seek individual credit in their birth-given surname. The difficulty, as you note, is that a woman may lack credit references in that name. To qualify for credit, a woman may have to rely on her spouse's assets and credit rating--which in turn could perpetuate her lack of a separate identity and pose problems in the event of widowhood or divorce. The Board was aware of the problems you describe when it issued Regulation B, implementing the ECOA. Several provisions in the regulation are specifically designed to help married women develop credit references of their own. First, creditors that furnish credit information about their customers to credit bureaus or to other creditors, are required to designate joint accounts in the names of both spouses. This rule applies to any account on which a spouse is an authorized user or co-obligor. In the past, creditors reported the information only in the husband's name. Second, the regulation gives applicants the right to before the creditor as much relevant credit information as possible. In addition to the joint accounts mentioned above, for example, an applicant can also rely on other accounts--even if they are in the husband's name alone--provided she can demonstrate that the accounts reflect her creditworthiness. I: Creditors have some rights, in turn, regarding information they may seek in order to make a credit decision. For example, a creditor is entitled to information about any account on which an applicant is contractually liable. This would include accounts held jointly with the spouse or with another persS n. In addition, in order to obtain relevant credit bureau reports, the creditor may also ask about other names in which the applicant has previously received credit. A creditor may not, however, request or consider any information about the husband's separate accounts when a woman applies for individual credit. Uouora5le Geraldine A. Ferraro Zsle Ti,ro You exl.rams concern that Levity/ to rrovide infornation aLout joiAt account zaal Iva* difficulties for a woman whose LuCL.and LAS: !isisn a or credit risk. The Board recognised when it Issued the rei.frulatica that Leven eases could mast. The regulation therefcre pruvides that if the applicant can sllov that an unfavorable record dools not accurately reflect on !ler credit-. worthiness, she Ls entitlatd to offer such infoimation to the creditor and to have it considered. The enclosed Faaphlet dencrilses wonen'n rit.v under the Ecival Credit Ovvortunit Act and Peefulation if woold like extra covies for any of your constituent4.- ve will to ixovide thev.. 1 hoot thin information is ):elrful to no, know if: we can Le of furthsr assistance. Sincerely, Paill A. Apo., Enclosure Mi:D9S:COspit (V-285) San rabbitt Dolores Zwith t4rs. Mallardi (2) u. Pletvon Int Action assigned Janet Hart O GERALDINE A. FERRAR YORK NEW ICT. DISTR 0 9TH . WASHINGTON OFFICE: INO 1725 LONGWORT14 HOUSE Orricr BUILD 20515 . D.C. WASHINGTON • COMMITTEES PUBLIC WORKS AND TRANSPORTATION Coitgrez5 of tfic Elititcb ptatc5 surc.Immi 5 • ,7/ACE TRANSPORTATION WATER RESOURCES AVIATION POST OFFICE 3Poti5e of 1kepre5entatiinZ (202) 225-3965 DISTRICT OFFICE 65-31 GRANO AVENUE MASPETH. Nrw YORK 11376 (212) 456-6601 Z.Z.lasijington, p.C. 20515 AND CIVIL SERVICE SuecOmmITTEES, CENSUS AND POPULATION CES POSTAL OPERATIONS AND SERVI June 24, 1980 AGING SELECT COMMITTEE ON Hon. Paul A. Volcker Chairman Board of Governors of the Federal Reserve System ion Ave., N.W. Twentieth Street and Constitut 20551 Washington, D.C. Dear Mr. Volcker, led mc to believe thi.kt A recent personal experience has , as applied, results in the Equal Credit Opportunity Act of women. discrimination against a class many women choose to use Following divorce or widowhood, retain their maiden names for their maiden names, while others dual As they attempt to obtain indivi professional reasons. t they are unable to do so tha d fin en wom se the of y man , credit ets and credit ratings as a without using their spouses' ass ividual credit worthiness. measure of determining their ind en entering the workforce, and With an increasing number of wom am concerned that the law, or a steadily rising divorce rate, I ds of these women or allow nee the t mee not s doe on, ati its applic worthiness. ividual credit ind ir the of n tio lua eva te ura for an acc Eastern Airlines credit In my own case, I applied for an professionally and as the I use my maiden name, Ferraro, card. applied for it under that name. I me, by ely sol d use be to was card ts I hold under that name, I listed as references the accoun d, a checking account with the car s res Exp an ric Ame an ing lud inc at Arms, and a share draft nt gea Ser ves ati ent res Rep of se Hou I do, however, have dit Union. Cre l ona ssi gre Con the h wit t oun acc my husband under the names credit established jointly with Mr. and Mrs. John A. Zaccaro. 1‘ lication on the basis of Eastern Airlines rejected my app had t I trust tha references. an insufficient number of credit I would have readily obtained o, car Zac n Joh . Mrs as d lie I app of my Nonetheless, because of the use credit from Eastern. As you are well aware, ortunity. opp s thi ied den was I e, nam maiden dit references in my file, cre of ber num the and exp to in order credit under the name of for ng lyi app ue tin con to e hav I would ors wou,ld reject those It is likely that other credit Ferraro. The practical Eastern did. applications for the same reasons 2 • e ffect would be to preclude me from establishing the requisite n umber of individual credit references. After speaking with a number of women about this problem, I find that I am far from alone in being disc riminated against by this "Catch 22." Women choosing to use their maiden names following a divorce are in the same situation. Perhaps their husbands were poor credit risks and they arc reluctant to list previously held jointaccounts, or they wish not to list those references for other equally valid reasons. In any event, they w ill be summarily denied individual credit for refusal to make available information regarding previous joint cred it references I would appreciate knowing of your thoughts on this matter. I trust that Eastern acted within the letter of the Equal Credit Opportunity Act and Regulation 11, though I have my doub ts about the conformance of those actions to the spirit of that law and regulations promulgated pursuant to it. I appreciate your attention to this matter and look forw ard to hearing from you in the near future. With best wishes. ra Line A. Ferraro ember of Congress GAF/ds Aurfust 11, iO The lionoralile oward if. Baker, Jr. U:Iited States Senate !hashincIton, D.C. 2051C Lear senator Ba .4: Thank 1-Gu for your letter of July 9 regardin correalrondence from c*ne of your conatituents, r. Tt.cmas t. Tuck / Senior Vice President o Cit.. an4 County Dank of rnoz County, "Knoxville. Tennessee. lettar concerns the !TardentT, imposed uTon iustitution;, financial the Floctronic rund Trannfer lot and tIc Board's heraiulation inplmionts the Act. Tuck believes that the ditAclosurem reuired by the Act and requlntion have caused confuSion and concern aumi the customers of hin 5ark. In him view, CA" value of the leliolation is far coutweicl..ed y elet costs incurred by institution.* in o=plyinq. You asY wheithiar dtivr-oltlitorrs' trans actions could era to eafuardo y less turlensone means than the 114esent reclulation. The Board Ilharez your concern tat tho costs of re701:At1ctn %:.ay in some cases out4eish the benefit') to cessumerm and financial inatitutiona, varticularly in a develoiing area of financial scrvic:, auc:1 at electroric fund transfers. Congress wee auare of this 7m LleeA WIADA it 1:azisoki. the I1 legislation and provided thot the Ncletre,, when 07Glaul.;atin; re-3alations and in its annual rcrc)rtv to (N-Inurers, aLold addre:;s the eZfectil of the Act and reejuintion on financial institutions and cormumers. Plea be assured that t oar viii wouitor cart:full/ the ict of the requlation i Loth in term! of conuunior ixr)tection asul cost:7, of compliance, and will Yeer Conlrear inkormed. With respect to tt‘e disclof:ures, the Act is exrlicit in its requirezent that certain dircloures coacernial the ErT zorvices be given too covsumers igho arran7c to ,sive such services. Tn addition, the Act re.iuires tLat to disclosures also be 3iven to consumers V140 WOra already receiving these services when t law Trai; LoAorahle 14,viard kce Tuo 4Lscol„kat offectivQ on nay 10 t 1,1n. It r:1 4 oltrri V.ott an c.,4ine in thcouta rticular retairee.tntl') voulAl tqw#1 to !e. a 1iz1at1ve Ploase Let tie know if we Can be fq 'A.T.tewriftl SLPO &Wicker LBB CO:'At (v29].) bet:: Lynne Barr nrs. MaIlardi (2) HOWARD H. BAKER. JR. TENNESSEE To net Hart for handling. 0 • ?Artifeb ,Sfafez -.Senate to\ WASHINGTON. D.C. 20510 2°1 July 9, 1980 Honorable Paul Volcker Chairman, Federal Reserve Board 20th and Constitution, N.W. Washington, D.C. 20551 Dear Mr. Chairman: I have enclosed a letter and enclosures from my constituent, Mr. Thomas E. Tuck, concerning the Electronic Funds Transfer Act. I would appreciate your reviewing his comments and materials with a view to finding a less burdensome means of safeguarding depositors' transactions. I look forward to hearing from you on this matter soon. Sincer ly, ward H. Baker, Jr. HHBJr:ade Enclosures • • • ) 4- s 1 or f l — I oso JUN IC 1.11 II: 12 CI X (_01.." Pr' June 13, 1980 Howard H. Baker, Jr. 4123 Dirksen Senate Office Building Washington, D. C. 20510 Dear Senator Baker, The Electronic Funds Transfer Act, Title IX of the Consumer Credit Protection Act became effective May 10, 1980. I have enclosed for your review three items of interest ion concerning this regulation. A copy of our Councel's Opin of the Letter outlining compliance with the act, a draft l partirequired disclosure for any participants or potentia and the cipants in an electronic funds transfer account, omers of printed disclosure that was mailed to 17,000 cust each customer C & C Bank of Knox County and will be given to opening a new account from this time forward. erent The transactions covered are processed in diff of automatic departments. Due to this multi-faceted handling we can debits and credits the most specific information telephone print on the disclosure is the main switchboard do I quesnumber and the central office address. Not only such as this, tion the practical application of a regulation umer protecbut also the actual need for this type of cons nfusion_and tion. The disclosures have th115..lax—caused-co concern amongour cusE6E-6-fs. all legisI would ask you to examine not only this but what is lation to determine its value to the ideology of this facilibest for the greatest number. Do laws such as they tate the betterment of life for our citizens or do commerce simply add to the already overburdened wheels of which must support this great nation? Respectfully, CITY & COUNTY BANK OF KNOX COUNTY Thomas E. Tuck Senior Vice President TET/dh Enclosures F r.1 •F.E • PCNST 01rICE A C (315-637-5.4":.!0 7911 • t.NOXVILLE TENNESSEE 37q01 • PHONE KNO/VILLF 'TEN7 . 1 4 FLOOR UNI7 E.7; t.1•AE;:-!CAN. KNOYVILt.E TENNLeSEE 37c4 2o TELEmwONE '615 54e•:.. ,94e CLIN7C.P4 c - cLE": TENNESSEE 3-7.i TEL:;"..TNE e!S 457-C7.SE. 'ETS! 546-6416 LAr.OLLETTE jIllell9cys at Ci.r.'t C•i•ZzGE L ricYG 0.• r r.t2ENCLI.JR. urC•.Cu: G'ClatAC: r cswur'N; rt-icrE //1- MONA WILSON 7Q0LIT•AAN PICENCL": P: 7 •N r °C tie SOLiT6.. TENNESSEE AvENUE t•rCLLE — E_ 'TENNESSEE .17'66 TELEP,40NE .E0S. S6Z-273S. RNOXV/LLE eIS' 971.2504 c lr.r•-':N A. MCSELEY giC,ENOUR Er=LICE C FOx S "ICmAr, v•it.C.-iEETEc wtc.r S - LP-Et. w•L'..sh••• A =E[vre E MEMOR ANDUM May 28. 1980 TO: Heads of Retainer Banks and Compliance Office.rs FROM: J. Michael Winchester RE: Pre-Authorized Electronic Funds Transfers under P,eg-ulation E Our File No. 8036K On May le. 1980. Title IX of the Consumer Credit Protection Act known 25 the Electronic Funds Transfer Act became effective. The terms and Ici.c,:isions of the Act can be found in 12 C.F.R. §20,.) et seq . An "electronic funds transfer" is any transfer of funds that is initiated through an electronic terminal , te.lephone or computer mag-netic tape for the purpose of ordering or authorizing a financial institution to debit or credit an account. This term also includes direct deposits or withdrawals of funds from accounts. This memo will focus on such direc:t deposits and/or withdrawals from accounts . A "pre-3uthorized electronic fund transfer" is defined in 12 C.F.R . . 2(j) as an electronic fund transfer authorized in advance to recur at substantially refzular intervals. If these pre-authorized transfers to or from a customer's account recur at least once every sixty (60) days financial institution which maintains the account or accounts affected must comply Icith certain provisions of Regulation E. Therefore , direct deposits by social security recipients or regular debits to pay insurance premiums wS uld , in my opinion be considered "pre-authorized electronic funds transfers" as defined in Regulation E . a• If a financial institution permits a customer's account to be credited by a pre-au thorize.d electronic fund transfer from the same payor at least once • 1,• , l'1:1 • • _ evi_ry (jxty (CO) dvs, the financial institution must establish one of three ;,rocedures to notify the customer that such a deposit WaS or was not made. The following methods of notice to the customer whose account is ;--iffeoted by a pre-authorized electronic fund transfer are found in 12 C.F.R. §205.10: (1) The financial institution shall transmit oral or written notice to the consumer within two business days after the transfer, that the transfer has occurred: or (2) The institution shall transmit oral or written notice to the consumer, within two business days after the day on which the transfer was scheduled to occur, that the transfer did not occur: or (3) The institution shall provide a readily aN.-ailable telephone line that the customer may call to obtain whether or not the transfer occurred. and shall disclose the_ telephone on a separate written _ . _ _• _ number _ disclosure_ ana _ perioaic statements. Alternatives (1) and (2) above may be difficult, if not impossible, to comply with because of the costs of monitoring and implementing such notice requirements. Therefore. alternative (3) has been the most widely accepted method of complying with this provision of Regulation E. I have enclosed herein a draft of an Agreement and Disclosure Statement for Pre-Authorized Transfers which will require additional information from your particular financial institution to complete the disclosure. The financial, legal and operational problems of complying with Regulation E may become quite burdensome until the banking community becomes more familiar with its requirements. However, it is abundantly clear at this point that compliance with Reg. E may be difficult with existing equipment in many particulars. I have been working closely with officials at United American Service Corp. in an attempt to bring all retainer banks into compliance with Reg. E insofar as pre-authorized electronic transfers are concerned. The legal fees for these efforts are considered properly chargeable to the respective retainers for each bank, but certain expenses may have to be incurred by your financial institution to comply with Reg. E. such as printing or mailing costs. Since it appears to be operationally impossible to ascertain which account or accounts received or transacted pre-authorized electronic funds transfers, several financial institutions have decided to send a disclosure statement to all account 'noiders with additional language directing each customer to ignore the disclosure if he or she does not have direct deposits or automatic debits made from his or her accounts. This procedure seems to be the only practical way to insure disclosure to all the proper depositors. If your Bank provides a telephone line for customers to call to ascertain whether or not a certain electronic fund transfer occurred, this telephone number must be disclosed in the initial disclosure and on each 28. lrj80 Page 3 periodic (monthly) statement. Financial institutions are also required to credit or debit an account with a pre-authorized transfer as of the day the funds are received. Pre -authorized electronic funds transfers should be dist inguished from automatic transfer services such as "paychek" or other automatic transfers .from !. savings to checking accounts. Since tran sfers pursuant to "paychek" and other automatic transfer agreements are initiated by checks or similar paper instruments, such transfers are not considered "electronic funds transfers" pursuant to 12 C.F.R. §205.2(g). If there are any questions concerning this distinction, please contact. me immediat ely. The provisions of Reg. E call for disclosure of the information in the attached draft to all custe,mers with accounts effected by electronic payments or debits on or before June 9, 1980. Nest banks in Tennessee. and elsewhere, will not be able to comply with this requirement unless mass maili enclosed disclosure is made to each customer immediately. ngs of the However, some banks are choosing to mail these disclosures to all savi ngs and checking account holders in the monthly checking account stat emen savings account statements in June to reduce mailing costts and quarterly s and expenses. I would, of course, advise immediate disclosures to such customers if possible, but in no event should you delay beyond June in providing the above-mentioned information. To further reduce costs of compliance, each financial insti tution may opt to fill-in the •information necessary to complete the enclosed disclosure and stuff their own checking and savings account statements with a form during June. You may photocopy these forms Y ourself (after reduction of printsize or retyping to reduce number of pages) or order inserts from Helen Brower at Printinc; Services. Inc., P. 0. Box 102. Maynarcivilie, Tennezse 37S07 (telephcne number is (615) 922-0222). 7.ls. Brower will have the basic form ready to print after You provide her with the particular information to complete the disclosure (your mailing addr ess and telephone numbers). New account holders should be provided with these disc losures at the time of opening their accounts. The above-mentioned inserts would be convenient for these situations, but handing a photocop y of the form to each new customer will be just as effective. Also, this disclosure should be mailed or otherwise given to each customer with accounts effected by pre-authori2ed transfers at least once each calendar year. If you are unable to ascertain the accounts which are effected by pre-aut.hc,ri:-.eci electronic transfers, then these disclosures shou ld be sent tc, all account holders (checking and savings). Of cour se, if your Bank does not permit direct deposit of salary, wages, or gove rnmental benefits or the automatic payment of insurance premiums. etc. , and if no other electronic transfer services are now available, then you need not worry with these disclosures. Please contact me if there are any questions. File No. 8036K 6/2/80 PRE-AiTi .AND DISCLOSURE STATEM ENT FOR ELEC.7TR-0.!C1C ----iUNDS - TR-AN SFEnS If you ina;ntain savings, or other deposit accounts with the Bank which rec,_:ive direct deposits of salary, wages, governmental benefits, and/or other regularly (a t least every sixty (60) da ys from the same payor) occurring payments, or , if automatic withdrawals to pay insurance premiums , utility bills. etc. , are ma de on such a regular basi s, you should read this agreement carefully. If yo u do not maintain deposit accounts at the Bank subject to direct deposits or automatic payments, yo u may wish to retain this statement in the even t such services are desire d in the future. The purpose of this disclosure statement is to advise you of your rights and obligations pursuant to th e Electronic Funds Tran sfer Act, which is part of the Consumer Credit Protection Act (15 U.S.C. §1601 et seq.). 1. TYPES OF AVAILABLE TR ANSFERS. The Bank agre es to honor electronic payments and deposits if the electronic payments and deposits are properly presented through the Automated Cl earing house system, or if they are properly pres ented by a third party pa yor with whom we have an agreement to honor th em, provided that (a) in the case of an el ectronic payment (such as, an insurance premium or utility bill), you have enough collected fu nds in your deposit account to cover the paym ent, and (b) in the case of an ele ctronic deposit (such as, from your employer or a governmental agency), we receive sufficient fu nds to cover the deposit from the third party payor. 2. FREQUENCY AND AMOUNT OF TRANSFERS. The Bank does not limit the frequency or dol lar amount of the electronic pa yments or deposits which you may authcrize it to ma-:e. Automatic transfers from a savings account to a checking account are not covered by this ;•.;reement and Disclosure Statement. gio S. SERVICE CHARGES. At the present time, there is no charge or fee for electronic deposits made to any deposit account at the Bank. Electronic payments are subject to the following charges: (a) Transfers from checking accounts: (b) Transfers from savings accounts: 4. DOCUMENTATION OF TRANSFERS. You will get monthly account statements showing details of transfers made in a particular month. If there are no transfers in a particular month, you will get a statement at least quarterly. [Insert at Bank's option: If you maintain a deposit account at the Bdnk which requires possession of a passbook, the Bank will record any electronic deposits made to such an account since your.last presentation of the passbook if you request such entries to be made. 5. VERIFICATION OF TRANSFERS. If you have arranged to have direct deposits made to your account at least once each sixty (60) days from the same person, company, or governmental agency, you may call the Bank at (615) made. to verify whether or not a deposit has been For your protection, we will ask for identification about your account. This section does not apply, however, if the third party payor making the electronic deposits tells you everytime an electronic deposit is sent. el _ • S. DA Mrinday through Friday. 7. DISCLOSURE. The Bank's business days are Legal holidays are not included. ADDRESS AND TELEPHONE NUMBER . If you believe that_ an unauthorized transfer has occurred or may occur from or to your account(s), you should P.M e diately or write contact the Bank at (615) (Bank's Address) 8. LIABILITY DISCLOSURE. Your reg-ular monthly or quarterly statemrint will provide you with details concerning electronic funds trz-ulsf.:rs to and from your account(s). If your statement shows unauthorized transfers or transfers that you did not make, you should notify the Bank. AT ONCE using- the phone number and/or address disclosed above. You must notify the Bank no later than sixty (60) after you were sent the FIRST STATEMENT on which the problem or error appeared. If you do not notify the Bank lecithin sixty (60) days, after the statement was mailed to you , you may not g-et back any money you lost after the close of the sixty (6C',) day period and before notice was 2-,iven to the Bank if the Bank establishes that it could haN.7e prevented the unauthorized electronic transfers if you had notified it within that time. If you do notify the Bank within sixty (60) days of the FIRST STATEMENT on which the problem' or error appeared, your liability will be $50.00 or the arnount of unauthorized electronic fund transfers that appeared on the periodic statement during the sixty (60) day period, whichever amount is smaller. If a good reason (such as a lon ig trip or a hospital stay) kept you from notifying- the Bank of unauthorized transfers , the Bank will extend the above-mentioned time period. If applicable state law or another agreement between you and the -3- 1.-:.,ser liability and greater protections for you, then such iions shall apply instead of those mentioned above. EEROP, RESOLUTION. 9. If you think your statement is wrong or you need more information about a transfer listed on the statement, you should direct your inquiries to the Bank by calling (615) or (Bank's Address) v- 7iting the Bank at You must notify the Bank no later than sixty (60) days after you were sent the FinsT STATEMENT on which the problem or error appeared. You must: (a) tell us your name and the account number(s) which are involved. (b) describe the error or the transfer that you are unsure about, and explain as clearly as you can why you believe it is in error or why you need more information. (c) tell us the dollar amount of the suspected error. I: you notify the Bank orally, the Bank may require that you send your complaint or question in writing within ten (10) business days to the address disclosed above. The Bank will tell you the results of its investigation within ten (10) business days after your notice and will correct any error promptly. If the Bank needs mores time, however, it may take up to forty-five (45) days to investigate your complaint or question. If the Bank decides to do this, it will recredit your account within ten (10) business days for the amount you think is in error so that you will have the full use of the funds during the time it takes the Bank to complete its investigation. If the Bank requests that you put your -4- • ' if the •I'd'ank does not receive it within f_ion in writi:Ig ter. 00) 1.12,sin(•ss days, the Bank may not recreciit your account. If :Ile decides that there was no error, it will send a written explanatic,:-. within three (3) business days after it finishes its investigation. You :::ay ask for copies of the documentation used in the investigation. 10. LIABILITY FOR FAILURE TO MAKE TRANSFERS. If the Bank does not complete a transfer to or from your account(s) on time or in the accordin.c.,- to its Ag-reement with you. the Bank will be correct liable for your losses or damages. Ichich you should be aware of. However, there are some exceptions The Bank v.-ill not be liable, for instance, (a) if , throug-h no fault of the Bank, you IS not have enough funds in your account(s) to make the transfer. (b) if the funds in your account(s) are subject to legal process or other encumbrance restricting the electronic payment or deposit. (c) if circumstances beyond the Bank's control (such as fire or flood) prevent the electronic payment or deposit from being completed uespite reasonable cautions that were taken by the Bank. (d) any other exceptions stated in the Bank's Deposit Agreement(s) with you. 11. PROCEDURE TO STOP PAYMPNT. If you have an agreement to make reg-ular payments out of one or more of your deposit accounts at the Bank, you can stop any of these payments by calling the Bank at (615) (Bank's Address) or by writing to in time for the Bank to receive your request three (3) business days or more befcre the payment is scheduled to be made. The Bank will charge you $ order vou request. -5- for each stop-payment A C'c 12. DISCLOSURE. (a) The Bank will disclose information to third parties about 'our account or the transfers you make: (1) Where it is necessary for completing transfers. or (2) In order to verify the existence and condition of your account for a third party payor, or (3) In order to comply with government agency or court orders, or (4) If you give the Bank your written permission. (b) The Right to Financial Privacy Act of 1978 gives you certain rights regarding release of your financial records to representatives or agencies of the Federal government. Except for requests exempted from the Act, you have the right to receive notice of a government request of your financial records and to challenge the request. 13. APPLICABLE LAWS AND OTHER AGREEMENTS. Your deposit account(s) at the Bank may also be governed by other agreements between you and the Bank and by the rules and regulations of the relevant federal regulatory agencies. In the event of conflicts between this Agreement and Disclosure Statement and other deposit account agreements at the Bank, this Agreement will control. Any questions will be decided by the laws of the State of Tennessee. 14. MISCELLANEOUS PROVISIONS. The Bank reserves the right to amend this Agreement from time to time upon at least twenty-one (21) days notice before a change is effective, if such change would result in increased fees or charges, increased liability for you, fewer types of available electronic: funds transfers, or stricter limitations on the frequency -6 or dollar amount, , of transfers. All notices. sent by the Bank will be effective when mailed or dehver(-c3 to your last. known address as it a-Dears on the Bank's records. In the case of joint accounts, notice to or from one account holder will be effective for all the account holders. If it becomes necessary for the Bank to file a lawsuit to collect what you owe the Bank, you agree to pay the Bank's reasonable expenses, including attorney's fees. -7- • 5. VI All ICAT to have it o'cI di ;ir OF TRANSFERS. It v i h.e.c arao ged isits made to your acco i 1 at lea i•isch sixty 1601 st once (tivs from the same per soil, compan y, or .r;r•ncy, you may call the Bank at 637-9220 to verify (615) ‘..hether or not a deposit has been For your poor made. rtion, wevidl as k for identifica your at count. This tion about section does not apply, however, if third party pa“lr the making the elec tr on e.ery•lirei ic deposits tells yo e5•ctionic deposi u t is sent. 6. BUSINESS ri,,vs are m orvia DAY DISCI.OSURE. The Bank 's business v t h,nug h r r ,d av. Legal ho ii lidays are not 7. ADDRESS AND TELEPHON E NUMBER. If that an una.rthori you 7ed transfer has occur from or to occurred or may your account(s), yo u should immediatel contact the Bank y at (615) 637 9220 or wr ite City Ri County Bank of Knox County Post Office Box 21 11 Knoxville, Tenn essee 37901 8. LIABILITY DI SCI °SURE. Your regular monthly quarterly statem or ent will provide yo u with details conc electronic funds erning transfers to and from your acco If your statemen unt(s). t shows unauthor ized transfers or that you did not transfers make, you should notify the Bank ONCE using the AT phone number an d/or address disclo above. You must no sed tify the Bank no lat er than sixty (6 days after you ‘..ere 0) sent the FIRST STAT the problem or error EMENT on which ;•ppeared. If you do not notify the Ba within sixty (60) da nk ys after the statem ent was mailed to you may not get ba you, ck any money yo u lost after the clos the sixty (60) day e of period and befo re notice was given Bank if the Bank to the establishes that it could have prev the unauthorized ented electronic transfer s if you had noti within that time fied it . If you do noti fy the Bank within (60) days of the FI sixty RST STATEMENT on which the proble or error appeared yo m , ur liability will be S50.00 or the am of unauthorized ount electronic fund tr ansfers that appe on the periodic ared statement during the sixty (60) day whichever amount period, is smaller. If a go od reason (such as trip or a hospital a long stay) kept you fr om notifying the Ba unauthorized tra nk of nsfers, the Bank will extend the mentioned time aboveperiod. If applic able state law or agreement betwee another n you and the Ba nk imposes lesser lia and greater prot bility ections for you, then such provisio apply instead of th ns shall ose mentioned ab ove. 9. ERROR RESO LUTION. If you think your statem is wrong or if you need more ent information abou listed on the stat t a transfer ement, you should direct your inquirie the Bank by calling s to (615) 637-9220 or writing the Bank at %• City & County Rank of Knox County P.O. Box 2111, Kn oxville, TN 3790 1 Attention: Automa tic Funds Processing You must notify the Bank no later th an Sixty 160) da You were sent the FI ys RST STATEMENT lem or error appe on which the pi• ared. You must: (a) tell us your na me and the accoun are involved. t number(s) whi (b)describe the err or or the transfer about, and expl that you are unsl: ain as clearly as you can why you is in error or wh believe y you need more in formation. (c) tell us the dollar amount of the suspected erro If you notify th e Bank orally, th that you send e Bank may requ ir your complaint or qu estion in writing wi ten (10) business thi days to the address Bank will tell disclosed above. Th you the results of its investigation wi (10) business da thin 1,• ys after your noti ce and will corr error promptly. ect an If the Bank ne eds more time, ho it may take up wever to forty-five (45) days to investigate complaint or ques you tion. If the Bank decides to do this, it recredit your ac v. ' count within ten (10) business days fo amount you think r is in error so that you will have the full of the funds during us, the time it takes the Bank to convic its investigation. If the Bank requ t. ests that you pu complaint or ques t you. tion in writing an d if the Bank does receive it within no• ten (10) business days, the Bank ma recredit your ac y no: count. If the Bank de cides that there wa s no error, it will se a written explanat m! ion within thre e (3) business days finishes its inve after it stigation. You ma y ask for copies of documentation us the ed in the investigat ion. 10. LIABILITY FOR FAILURE TO MAKE TRANSFER If the Bank do es not complete S. a transfer to or fr account(s) on time om your or in the correc t amount accordin its Agreement wi g to th you, the Bank will be liable for losses or damage your s. However, there are some exceptions you should be aw which are of. The Bank will not be liable, instance, for (a) if, throug h no fault of th e Bank, you dr:loo enough funds in t have your account(s) to make the transfer. (b) if the funds in your account( s) are subject to legal process or other encumbrance restri cting the electronic ment or deposit. pay(c) if circumstan ces beyond the Ba fire or flood) pr nk's control (such event the electronic as payment or deposi being completed t from despite reasonable cautions that were by the Bank. taken (d)any other ex ceptions stated in Agreement(s) with the Bank's Deposi t you. • • • • 11. PROCEDURE 10 STEW PAYMENT. If yoi have an alrei,in,:nt to reai..• regular payments out of J•ie or more of your d, posit accounts at the Bank, you can stop any of these payrrents by calling the Bank at (615) 637 9220 or by writing to City & County Bank of Knox County Post Office Box 2111 Knoxville, Tennessee 37901 ,ri 1,:T for the Bank to receive your request three (31 bus. , r..s days or more before the payment is scheduled to be r;,,,:te. The Bank will charge you S5.00 for each stoppayinent or you request. 12. ACCOUNT INFORMATION DISCLOSURE. (a) The Bank will disclose information to third parties about your account or the transfers you make: (1) Where it is necessary for completing transfers, or (2)1n order to verify the existence and condition of your account for a third party payor, or (3) In order to comply with government agency or court orders, or (4) If you give the Bank your written permission. (b) The Right to Financial Privacy Act of 1978 gives you certain rights regarding release of your financial records to representatives or agencies of the Federal government. Except for requests exempted from the Act, you have the right to receive notice of a government request of your financial records arid to challenoe the request. 13. APPLICABLE LAWS AND OTHER AGREEMENTS. Your deposit account(s) at the Bank may also be governed by other agreements between you and the Bank and by the rules and regulations of the relevant federal regulatory agencies. In the event of conflicts between this Agreement and Disclosure Stateroent and other deposit account agreements at the Bank, this Agreement will control. Any questions will be decided by the laws of the State of Tennessee. 14. MISCELLANEOUS PROVISIONS. The Bank reserves the right to amend this Agreement from time to time upon at least twenty-one (21) days notice before a change is effective, if such change would result in increased fees or charges, increased liability for you, fewer types of available electronic funds transfers, or stricter limitations on the frequency or dollar amounts of transfers. All notices sent by the Bank will be effective when mailed or delivered to your last known address as it appears on the Bank's records. In the case of joint accounts, notice to or from one account holder will be effective for all the account holders. If it becomes neces• sary for the Bank to file a lawsuit to collect what you owe the Bank, you agree to pay the Bank's reasonable expenses, PSI-5031(680) including attorney's fees. ,s •A 1 -0. :plc City & County Rank of Knox County AGREEMENT AND DISCLOSURE STATEMENT FOR PRE•AUTHORIZED ELECTRONIC FUND TRANSFERS If you maintain checking, savings, or other deptr accounts with City & County Bank of Knox County (h, iriafter referred to as -Bank"), which receive direct depoc of salary, wages, governmental benefits, and/or other ren larly (at least every sixty (60) days from the same payo occurring pit o mints, or, if automatic withdrawals to I' insurance premiums, utility bills, etc., are made on such regular basis, you should read this agreement carefully you do not maintain deposit accounts at the Bank subject • direct deposits or automatic payments, you may wish retain this statement in the event such services are des in the future. The purpose of this disclosure statement i. advise you of your rights and obligations pursuant to Electronic Funds Transfer Act, which is part of the Cu sumer Credit Protection Act (15 U.S C. §1601 et sen 1. TYPES OF AVAILABLE TRANSFERS. The Be. agrees to honor electronic payments anti deposits if ti electronic payments and deposits are properly present, through the Automated Clearing House system, or if l' are properly presented by a third party payor with 1,vhore . have an agreement to honor them, provided that (a) in the case of an electronic payment (such as . insurance premium or utilit bill), you have enough collec• funds in your deposit account to cover the payment, a (W in the case of an electronic deposit (such as fn your employer or a governmental agency), we receive sii' cient funds to cover the deposit from the third party pa. 2. FREQUENCY AND AMOUNT OF TRANSFER The Bank does not limit the frequency or dollar amount the electronic payments or deposits which you may autho• it to make. Automatic transfers from a savings account lc checking account are not covered by this Agreement a Disclosure Statement. 3. SERVICE CHARGES. At the present time, there is i charge or fee for electronic deposits made to or elect', payments made from any deposit account at the B. 4. DOCUMENTATION OF TRANSFERS. You will monthly account statements showing details of trans', made in a particular month. If there are no transfers e particular month, you will get a statement at least quarter: If you maintain a deposit account at the Bank which requii possession of a passbook, the Bank will record any electre , deposits made to such an account since your last presenta• of the passbook if you request such entries to be rn - Nugutft 11. 1980 lionoraLle Alai; Craton Unitec States .*:cont,te W4shiaton, D. C. 2051 f2ear St4latur Cruulator. in x...;oru.ca tc; mm i.leaPJee. our r-Jcent letter f sut4zitto..1 by elf: to enclosc rvsl.rasck. to tho Anerian Lcomic Council rc itirCib, .olici*c of thfl redral Reserve irivard. kleazo .At )tncsit 4 At' CQD cf Lurtl.mr aooistance. Idnoeruly. Waal A. Volcker CO.vcd 1-1C4 1 A V '. cl 14/0 41/ ( llardi (2) 1../ ••••• • August 11, 1980 Response to Question The ability of workers to achieve gains in real income and improved living standards is, over the long haul, dependent on the performance of labor productivity. I believe that the experience of recent years does indicate that inflation can inhi bit the process of productivity expansion, for example, by discouraging capital formation. It is certainly true that inflation cannot proceed for long without the nourishment of excessive monetary grow th. Thus, looking back over the period mentioned, it is undoubte dly true that if the growth of money had been substantially less, the general level of prices would now be lower than it is. One must appreciate, however, the entire process that generates inflationary pres sures in the economy--including the roles of fiscal policy, of other governmental policies, and of private wages and price decisions. Given the struc- ture of our economy and the goals the nation esta blished long ago with respect to the maintenance of high levels of outp ut and employment, what we have seen over the years is a tendency for mone tary policy (and fiscal policy) to accommodate at least in some degree underlying inflationary pressures. In retrospect, this pattern has had unfortunate effe cts. It has, among other things, made it even more diff icult to slow inflation, owing to the growing expectation that governmental policy would ultimately accommodate wage and price increases in order to avoid any temporary weakness in economic activity. The Federal Reserve has now indicated that it is embarked on a long-range policy of moderating -2- monetary expansion toward a pace consistent with price stabi lity. It is our belief that, by announcing such an intention and givin g it credibility by our performance, we will be able to contribute to an ending of the inflationary psychology that has become do deeply embedded in our economy. This would facilitate a movement toward a healthy economic climate without undue disruption of busin ess activity. Response to Question 2: The Depository Institutions Deregulation and Monetary Control Act of 1980 will lead to a substantial decline in requi red reserves. The Federal Reserve will absorb the excess reserves by selling government securities from its portfolio. Such an action will ensure that there is no impulse to monetary expansion--that is, the effect of the lower reserve requirement ratios will be offset by a reduction in the available supply of nonborrowed reserves. The action will have no impact on the general level of interest rates and should not interfere with any financing activities of the Treasury. The System's action in this circumstance will be based on the same fundamental objective as guides other reserve suppl ying or absorbing operations, namely, the attainment of growth rates of money and credit consistent with progress toward price stability and sustainable economic growth. I do not believe that an amendment to 3 the Monetary Control Act is necessary to ensure responsible behavior by the Federal Reserve. Furthermore, given the complexity of the phasing in of the new reserve requirements as well as the need to cope with day-to-day changes in factors affecting reserve supplies, it might be very difficult to write into law a specific guideline for open market operations that would not run the risk of interfering with the orderly implementation of monetary policy. Response to Question 3: First, in simple terms, an increase in reserves supports only a proportional increase in reservable liabilities--that is, it is. inappropriate to apply a reserve multiplier to the percentage (as opposed to dollar) increase in reserves. Further complications, however, in relating growth in reserves to growth in money are the impact of changes in reserve requirements, the different reserve requirement ratios applying to various types of bank liabilities, and the fact that some parts of the money stock--such as currency-are not subject to reserve requirements. These facts are taken into consideration by the Federal Reserve when it determines what amount of reserves it should provide to the banking system in seeking to achieve particular rates of monetary expansion. Under the circum- stances, it is necessary to look directly at the monetary aggregates rather than at reserves in gauging the System's performance in monetary control. 4 Response to Question 4: The Monetary Control Act did broaden somewhat the range of assets that can be used to back the issuance of Federal Reserve notes; it also eliminated the previous requirement that Feder al Reserve notes held in the vaults of Federal Reserve Banks be collateralized. These changes were made to ensure that the Federal Reserve would be able to continue to supply the currency neede d by the public in connection with the normal conduct of business. The range of permissible assets does not include any stock--listed or over-the-counter. In any event, in contrast to a private creditor, the Federal Reserve can suffer neither bankruptcy nor a liquidity problem. Moreover, ultimately the soundness of the U. S. dollar does not depend on the precise nature of the assets held by the Federal Reserve but on the ability of the Federal Reserve to maintain the dollar's worth as a store of value and a medium of exchange--which in turn depends on the avoidance of runaway inflation. Response to Question 5: It is not at all uncommon for businesses other than banks to have on hand less cash than would be needed to repay all debt obligations that might be redeemed in any particular period of time. They may rely on the possibility of liquidating financial assets they are holding or of borrowing from other sources. Commercial banks have similar options, including that of turning to the Feder al Reserve discount window should they experience liquidity problems. -5 • This system allows the banks to perform the useful function of acting as an intermediary between savers who wish to hold their wealth in assets of the types banks create (such as deposits) and borrowers who cannot as readily or as economically obta in funds in the open market. •• GO Vtli • • BOARD 0;z1k. OF GOVERNOR'3 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 • io •AAL. • •..• • PAUL A. VOLCKER CHAIRMAN August 12, 1980 The Honorable Benjamin S. Rosenthal Chairman Subcommittee on Commerce, Consumer and Monetary Affairs Committee on Government Operations House of Representatives Washington, D. C. 20515 Dear Chairman Rosenthal: Thank you for your letter expressing add itional views on the proposed reporting requirements con tained in the Annual Report of Foreign Bank Holding Companies, For eign Banks, and Foreign Parent Companies (Form F.R. Y-7), and the Rep ort of Intercompany Transactions for Foreign Bank Holding Companies and Their U.S. Bank Subsidiaries (Form F.R. Y-8f). As you know, the proposals were issued by the Board in fulfilling its responsibili ties under the Bank Holding Company Act of 1956 and the Internati onal Banking Act of 1978. As you recognize, the proposed reporting requirements of the F.R. Y-7 were designed to obtain suf ficient information to assess the foreign organization's abilit y to serve as a continuing source of strength to its U.S. banking operations and to ensure that the foreign banking organization's act ivities are being conducted in accordance with applicable U.S. laws and regulations. The second proposal, the F.R. Y-8f, was designed to detect potentially unsafe and unsound banking practices with respec t to transactions between a foreign banking organization and its U.S. subsidiary bank. Your questions essentially go to the point of whether the proposed forms are adequate to meet the object ive. I have directed the staff to look at eac h of your questions and proposals carefully so that I may have all the analysis before the Board when it takes up these que stions in the near future. In this area, as so many others, we need to balance our requirements against the burdens placed on the reporting institution. We do need, and have a right to, the information legitimately necessary for effective surveillance. We don't want to go beyond that. The Honorable Benjallk S. Rosenthal Page Two In my own thinking, the need for information may well increase as the size of the operation in the U.S. becomes larger. We appreciate your interest and concern on these matt ers, and I will inform you of our decisions as they are made. Sincerely, ;gall A.hick SL:PAV:vcd (#V-279) bcc: Steve Lovette Fred Dahl Jack Ryan Mrs. Mallardi. (2) Action assigned Mr. Jack Ryan BENJAMIN S. ROSENTHAL, N.Y., CNAIRMAN • lERT T. MATSUI. CALIF. EUGENE V. ATKINSON. PA. FERNAND J. ST GERMAIN, RA. J01.4 CONY. JR., MICH. ELLIOTT H. LEVITAS, GA. LYLE WILLIAMS, OHIO JIM JEFFRIES. KANS. JOEL DECKARD, IND. NINETY-SIXTH CONGRESS Congre55 of tfic Ziniteb *tato mAmRiry-(202) 225-4407 30oti5e of iktpregentatiba‘ COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE I3UILDING. ROOM B-377 WASHINGTON, D.C. 20515 June 30, 1980 Hon. Paul A. Volcker Chairman Federal Reserve Board Washington, D. C. 20551 Dear Mr. Chairman: On the basis of the Commerce, Consumer and Monetary Affairs Subcommittee's investigation and recent hearing on the nonbanking activities of the Hongkong and Shanghai Banking Corporation, I am writing to express my strong reservations about certain details of the Board's proposed Annual Report of Foreign Bank Holding Companies (Form F.R. Y-7), and the Board's proposed Report of Intercompany Transactions for Foreign Bank Holding Companies and Their U.S. Bank Subsidiaries (Form F.R. Y-80. The respective docket numbers for these two proposals are R-0256 and R-0257. The essence of my or affiliated entities requirements, that any excluded controlled or sequently the reports, comments is that certain important classes of controlled will not be identified or covered by the proposed report transactions a U.S. bank subsidiary may have with these affiliated entities will not be reported, and that conas proposed, will have inadequate coverage. Report Item 6 (Outside Ownership) of the proposed annual report (Y-7) requires a report of the "number and percentage of ownership of the voting securities of any company organized under the laws of the United States or a foreign country in which the ownership, control, or power to vote is 25 percent or more." This requirement appears inadequate for the following reasons: 1. It does not clearly require identification of the name of the company in which shares are held. 2 It does not require identification of any company in which the aggregate ownership held by all officers, directors, and principal shareholders of the reporting organization exceeds 25 percent, if no single individual controls as much as 25 percent of the shares, although control of such a company could clearly be exercised by an insider group of the reporting organization under such circumstances. z Hon. Paul A. Volcker 3. 2 June 30, 1980 It does not recognize the potential to exercise control which exists when a single insider or a group of insiders has unconditional contractual rights to obtain ownership of voting securities (e.g., through exercise of stock options, warrants, or conversion rights on debt securities or loans). The Report of Intercompany Transactions (Y-8f) will provide information on intercompany transactions involving the U.S. banking subsidiaries of the foreign bank holding company and "all other bank holding company members as this term is defined in the report." The proposal then defines "other bank holding company members" to include "all direct and indirect subsidiaries through the first three tiers of that BHC's subsidiaries of these banks." (emphasis added) This proposed definition appears inadequate for the following reasons: 4. The three-tier limitation is arbitrary and holding companies to secure exemption from through the creation of subsidiary holding to place their operating subsidiaries more the parent. will permit foreign bank this reporting requirement company layers, if necessary, than three tiers down from 5 The Hongkong and Shanghai Banking Corporation, for example, identified in testimony before the Commerce, Consumer and Monetary Affairs Subcommittee the following major subsidiaries that lie more than three tiers down in the holding company structure of their organization: EuroConcord Finance B.V., Cathay Pacific Airways Ltd., World Financial Ltd., World Maritime Ltd., World Shipping and Investment Co. Ltd., and Marine Midland Overseas Corp. In addition, it appears from the list of subsidiaries supplied to the subcommittee by the Hongkong and Shanghai Bank that the following additional subsidiaries whose size is unknown to the subcommittee also lie more than three tiers down: Regent Investment Holdings (shipping), Arthur Weller Holdings (insurance), Gibbs Bright Co. (timber, wood products, hardware, insurance, patent rights, security systems, and general traders), Arthur Weller Holdings (insurance), and Sirius Insurance Co. 6. The language of the definition of "other bank holding company members" is unclear because the limitation of the definition to "subsidiaries of these banks" (emphasis added) suggests the possibility that the reporting requirement may exempt transactions with holding company subsidiaries that are not subsidiaries of any bank. 7. This report requirement, as proposed, would not require any reporting of transactions between the U.S. banking subsidiaries and any companies controlled by the "insiders" (officers, directors, and principal shareholders) of the bank holding company, even though loans to or other transactions with such companies controlled by insiders as individuals would appear to deserve the same scrutiny and caution as transactions with companies controlled by the holding company itself. • ,4-ion. Paul A. Volcker 3 June 30, 1980 If the Board should decide not to expand the coverage of the Y-7 and Y-8f reporting requirements to correct the deficiencies I have identified, I would appreciate a letter of explanation giving the Board's reason for not doing so. Sincerely;' Benjam'n S. Rosenthal Chairman BSR:tb August 12, 1980 The Honorable Gunn McKay House of Representatives Washington, D. C. 20515 Dear Mr. McKay: Thank you for your August 8 letter inviting me to be the keynote speaker at the Estate Planning and Property Freedom Day at the University of Utah on October 2. As much as I would like to be with you and your associates on that day, I an forced by my calendar to send regrets. I must remain in Washington that week for the annual meeting of the International Uonetary Fund and World Bank, and have a commitment for dinner the evening of October 2 with the Board of Directors of the Bankers Association for Foreign Trade. Please extend my best wishes to the University for a successful program. Sincerely, cc: Mrs. Mallardi #376 JRC:tjf I • GUNN McKAY 1ST DISTRICT. UTAH 2209 RAYBURN BUILDING WASHINGTON. D.C. 20515 202-225-0453 APPROPRIATIONS COMMITTEE CHAIRMAN MILITARY CONSTRUCTION SUBCOMMITTEE INTERIOR SUBCOMMITTEE DISTRICT OF COLUMBIA SUBCOMMITTEE Congre,55 of tbe tiniteb iptatt5 1017 FEDERAL BUILDING 324 25TH STREET OGDEN, UTAH 84401 801-626-3816 jboult of ikepresSentatibel 1160SOUTHSTATE Ulatbington, 13.C. 20515 OREM, UTAH 84057 SUITE 160 801-226-0592 TOLL FREE NUMBER 1-800-662-2530 August 8, 1980 Mr. Paul Volker Chairman, Federal Reserve 20th Street and Constitution, N.W. Washington, D.C. 20551 Dear Chairman Volker: I am pleased to invite you to be the keynote speaker at the Estate Planning and Property Freedom Day to be held in Salt Lake City at the University of Utah campus on Qtober 2 in the early afternoon. An audience of l,50027tT0 people is expected to attend. I would be delighted if you could accept this invitation and urge you to give it every consideration. Gunn McKay Member of Congress GM/dh L 1 Ilr'uNt 12/ 1')3C The Hoserablo itobert •1:Aorgoan Qnited State* Senate 201,10 Waa,l.n9ton6 t.C. Veer Seraitor ,tilor2an. Zuring the toarlrq on :aguat 5 you rt,v." 4:ova trtat / fusaleh illii0Xleation on norte,„;at lonainq t; taercia1 beaks. ror your intorftation o I an 'Jawed' to enclose hoarihc a copy of the mateltial I am furnial- ing for the row4rd. Sincerely, W444dA- Volcker losrre rf0=VPICO: jt SA01440...4 cc Daiik, !like Prell Norman Dernar.1 :7rs. Lallardi (2)1--r°. Insert page 44 (A 111 ust 5 hearing before Senate Bankin g) Chairman Volcker subsequently sub mitted the following information for the record: Commercial banks held $253 billio n in total mortgage • assets and $163 billion in reside ntial mortgages at mid-1980, accounting for 18 and 16 percent, respectively, of the aggregate amounts outstanding. In addition, banks held more than $5 billion of federally guaranteed mortgage passthrough securities representing shares in pools of FHA/VA and con ventional residential mortgages. During the 1977-79 period, banks added more than $90 billion to their total mortgage ass ets and nearly $65 billion to their residential mortgages, and accounted for about one-fifth of the total net flows of these types of credit (tables 1 and 2). The commercial bank share of net mor tgage lending typically declines in periods of cyclically high int erest rates, as do the shares provided by other types of depository institutions. During the first half of this year, however, the com mercial bank portion of mortgage lending held up much better than the market shares of the nonbank thrift institutions. Among commercial banks, smaller institutions tend to allocate a greater portion of the ir resources to the mortgage mar ket. At commercial banks with assets of under $500 million, mortgage loans constituted almost 25 per cent of outstanding loans and invest ments as of December 31, 1979; thi s compares with 17 percent at lar ge commercial banks (table 3). Add itionally, almost 27 percent of the smaller commercial banks had rat ios of mortgages to loans and invest ments that were 30 percent or hig her, while the comparable figure for large banks was about 14 per cent (table 4). S • TABLE 1 NET FLOWS OF MORTGAGE CREDIT BY TYPE OF INSTITUTION (Billions of dollars) 1 All 1 Period 1 institutions 1 1 Thrift institutions All 1 1 !Commercial 1 other 1 Total 1 S&Ls 1 MSBs 1 banks private 1 1 1 1 institutions Federal and related agencies Federally related mortgage pools Total Mortgage Credit 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980-H1 32.8 52.3 77.0 79.9 60.5 57.2 87.0 134.0 149.2 158.0 109.0 12.0 27.9 37.5 32.2 19.8 31.8 49.0 64.7 58.7 47.0 13.0 10.2 24.0 32.0 26.5 17.6 29.5 44.9 58.2 52.2 43.2 12.0 1.8 3.9 5.5 5.7 2.2 2.3 4.1 6.5 6.5 3.8 1.0 2.5 9.2 16.8 19.8 12.8 3.8 14.3 27.4 35.0 31.5 16.5 11.0 7.2 14.5 17.7 10.5 2.7 8.1 18.1 25.4 36.0 37.8 5.7 3.2 3.3 6.6 11.6 8.6 -0.1 3.3 11.8 15.4 22.4 1.6 4.8 4.9 3.6 5.8 10.3 15.7 20.5 18.3 28.1 19.3 5.3 2.7 2.5 4.8 9.2 5.8 -2.4 0.3 8.7 9.9 15.3 1.2 4.2 4.3 3.2 5.2 9.9 14.7 19.7 17.1 25.4 17.6 Residential Mortgage 'Credit 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980-H1 Note: 22.9 40.6 56.6 55.3 40.2 41.4 67.3 107.3 115.4 116.3 75.0 10.5 23.9 32.4 27.3 16.3 26.6 43.4 59.7 54.9 43.1 12.3 9.2 20.9 28.3 23.3 14.9 24.9 40.2 54.0 49.5 40.0 11.5 1.3 3.0 4.1 4.0 1.4 1.7 3.2 5.7 5.4 3.1 0.8 1.0 6.4 10.8 12.1 7.2 0.4 8.9 19.8 23.5 20.3 10.5 4.9 3.4 6.6 7.9 2.3 -1.3 2.7 7.8 11.2 17.6 19.3 Data for 1980-111 are partially estimated and expressed at seasonally adjusted annual rates. • TABLE 2 SHARES OF NET FLOl4S OF MORTGAGE CREDIT BY TYPE OF INSTITUTION (Percent) 1 All 1 Period 1 institutions 1 1 Thrift institutions 1 1 1 1 Total 1 S&Ls 1 MSBs 1 1 1 I 'Commercial 1 banks 1 All 1 1 Federal 1 other 1 and 1 private 1 related 1 institutions 1 agencies 1 Federally 1 related 1 mortgage 1 pools Total Mortgage Credit 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980-111 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 36.6 53.3 48.7 40.3 32.7 55.6 56.3 48.3 39.3 29.7 11.9 31.1 45.9 41.6 33.2 29.1 51.6 51.6 43.4 35.0 27.3 11.0 5.5 7.4 7.1 7.1 3.6 4.0 4.7 4.9 4.3 2.4 .9 7.6 17.6 21.8 24.8 21.2 6.7 16.4 20.4 23.5 20.0 15.1 33.5 13.8 18.8 22.1 17.4 4.7 9.3 13.5 17.0 22.8 34.7 17.4 6.1 4.3 8.3 19.1 15.0 -0.1 2.5 7.9 9.7 20.6 4.9 9.2 6.4 4.5 9.6 18.0 18.1 15.3 12.3 17.8 17.7 21.4 8.4 11.7 14.3 5.7 -3.1 4.0 7.3 9.7 15.1 25.7 23.1 6.6 4.4 8.7 22.9 14.0 -3.5 0.3 7.5 8.5 20.4 5.2 10.3 7.6 5.8 12.9 23.9 21.8 18.3 14.8 21.8 23.5 Residential Mortgage Credit 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980-H1 Note: 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 45.9 58.9 57.2 49.3 40.6 64.2 64.5 55.6 47.6 37.1 16.4 40.2 51.5 50.0 42.1 37.1 60.1 59.7 50.3 42.9 34.4 15.3 5.7 7.4 7.2 7.2 3.5 4.1 4.8 5.3 4.7 2.7 1.1 4.4 15.8 19.1 21.9 17.9 1.0 13.2 18.5 20.4 17.5 14.0 Data for 1980-111 are partially estimated and expressed at seasonally adjusted annual rates. • TABLE 3 MORTGAGE ASSETS AT DEPOSITORY INSTITUTIONS December 1979 Total Mortgages Percent of Outstanding Loans & ($ billions) Investments Commercial banks Assets of ($ millions) Under 50 50 - 99 100 - 499 500 and over All banks Savings & loan associations Mutual savings banks Residential Percent of Outstanding Loans & ($ billions) Investments / Otherl Percent of . Outstanding Loans & ($ billions) Investments 45.5 27.6 50.4 121.8 23 25 23 17 27.7 16.1 28.4 71.7 14 14 13 10 17.8 11.5 21.9 50.1 9 11 10 7 245.2 20 143.9 12 107.3 8 475.8 83 394.4 69 81.4 14 98.9 62 64.7 41 34.2 21 1/ For commercial banks, includes all construction loans secure d by real estate, amounting to about $30 billion. According to HUD, nearly half of the construction loans held by all commercial banks are secured by residential real estate, but information on the property-type distribution of construction loans is not available for the bank size groups shown in the table. • • • • TABLE 4 DISTRIBUTION OF COMMERCIAL BANKS BY ASSET SIZE AND RATIO OF MORTGAGE LOANS TO TOTAL LOANS AND INVESTMENTS (Percent) • • Asset Size (S millions) 1% to 9% Less than 50 50 - 99 100 - 499 500 or more 23.1 7.4 9.2 18.9 28.8 26.5 25.9 36.9 24.9 35.5 35.9 29.9 15.8 22.7 22.5 12.5 7.5 7.9 6.5 1.7 All banks 19.9 28.4 27.2 17.2 7.3 Percent of conuaercial banks with ratios of mortgage loans to total loans and investments of: 107. to 19% 207, to 29% 307, to 392. 407 or more • • • 4111 11 (1/, Pr) (r); ,1)../1" P /1(11) • FEDERAL RESERVE SYSTEM WASHINGTON, 13. C. 20551 PAU L VOLI: C HAI FiMAN August 13, 1980 The Honorable George McGovern United States Senate Washington, D. C. 20510 Dear Senator McGovern: Thank you for your letter of July 25 requesting comment on concerns raised by Mr. Robert C. Franzen, President of the Day County Bank, about the Board's Regulation E. Mr. Franzen believes that Regulation E is an example of unnecessary and burdensome banking regulation. He feels that small country banks are especially penalized. In his letter, Mr. Franzen refers to a news clipping discussing one bank's experience with disclosures required by Regulation E. As reported in the news clipping, the bank claimed that printing and mailing the disclosure pamphlet was a waste of money, and that it had evidence that few of its customers read the pamphlet. Let me assure you that I share Mr. Franzen's views about the need to cut down on unnecessary regulation, and that I sympathize with the problem that bankers have in keeping up with all the regulatory material that crosses their desks. The Board attempted, in the process of considering and adopting Regulation E, to minimize compliance burdens to the extent possible while carrying out the Congressional mandate to issue regulations under the Electronic Fund Transfer Act. The EFT Act is fairly comprehensive, however, and many of the requirements that financial institutions find burdensome were expressly mandated by the statute. In the case of disclosures, the Act requires that certain be provided to c who have signed up for an EFT uch as preauthorized deposits or automated teller machine To facilitate compliance with this requirement, the .mdel disclosure clauses that financial institutions in drafting their own disclosure statements. (A Regulaphlet is enclosed. The model disclosure clauses appear 3-26. Tilt! provi:iions are contained in an hat starts on page 13.) ed I With regard to the disclosure pamphlet mentioned in the ncws clipping that Mr. Franzen forwarded to you, the Board's staff .i0WIMPOWAW.Afli:VIV.."16 . ,The Honorable George McGovern Page Two has seen a copy of that pamphlet and informs me that much of the material is not required by Regulation E but was added by the bank for other purposes. Hence, the bank's experience, as reported, may not be a representative example of consumer difficulty in absorbing information required by the regulation. I hope this information is helpful. I can be of further assistance. Please let me know if Sincerely, / 7) Enclosure lebq •••• *ion assigned Janet Hart • HIRMAN E. TALMADGIE, GA.. CHAIRMAN • JEsc kirt_ms, N.C. MIL;rON R. YOUNG, N. OAK. Govrn4. S. OAK. WALTC/4 D. 14110^LICSTON. KY. RICHARD B. siovr. rt.A. PATRICK J. LrAHY. VT. r:ANA,4 :I )RINSKY. Po- OR. BOO 001.1E. KANS. AA. CALI/. S. I. •• RILHARD G. LUGAR. IND. JOHN,.•• • •-.-irry. MONT. r,WINALD W. STEWART. ALA. THAO COCHRAN. MISC. RUDY DOSCHWITZ. MINN. Grog IfM DAVID H. PRYOR DAVID L ARK. ROGER W. JEPSEN. IOWA sortEN, OKLA. ?Anitcb Zfalcz Zetrafe COMMITTEE ON FORESTRY AGRICULTURE. NUTRITION. AND WASHINGTON. D.C. 20510 July 25, 1930 Gentlemen: I am enclosing a letter from Mr. Robert C. Franzen, President of the Day County Bank, Webster, South Dakota, with which he encloses a copy of a 11CWS article relative to "Regulation E". I would appreciate being advised on this matter. Quite frankly, Mr. Franzen's comments - in view of the article - make a good deal of sense. With every good wish, I am Sincerely, quiftleitt, cGovern Office of the Chairman Federal Reserve Board Federal Reserve Building Washington, D. C. 20551 Enclosures • e6W9li crRa/ld C "ITT. 57/Fillrls C Yeiteeea ( tait % t ) • II d-72/I Phone (605) 345•3342 July 22, 1980 The Honorable Senator George McGovern 2313 Dirksen Senate Office Building Washington, DC 20510 Dear Senator McGovern: !he enclosed copy of the news clipping from Sunday's Aberdeen American News says so much that I wanted to enclose it for your reading. It points up so well the problem that banks are facing these days. We as country bankers, are beside ourselves with increased work load and expense to accommodate the never ending new banking legislation, most of which is unnecessary. It is becoming evident that, particularly the small country bank, is being forced to look for relief by sale or merger. When this takes place, the consumer that this type of legislation is supposed to protect will pay dearly. I pass this information and comments on to you in the spirit of grave concern. Today I have written to Senator William Proxmire and Representative Henry Reuss, who chair their respective banking committees, expressing my discouragement. Sincerely, yet-sfzi / 4 , Robert C. Franzen President RCF:pn Enclosure 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 "Bank Wins $1,000 Bet." Aberdeen American News, July 20, 1980. Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org August. 15, 1980 The Honorable Lawton chiles United States Senate Washiinton, L.C. 20510 r,car Senator Criles. 'our Jul:, 9 letter to te.r. renneth Guenther concernins one of ,our conEtituents, Er. tennis K. ird, hat juat been Lrought to my attention. Apparently as a result of staff changes the letter has been misdirected. X ft sorry for the delay in appreciate the concerns that ;Tempted tir. Bird to write to 4 ou The silver episode has generated a creet deal of 02:)1ic interest and a nunher of vuggertions for modifying the reulatory ctructure. ApirolTiately, the Congress and the agencies involved have been worYing in a careful and deliberate nanner to deterxine the causes of the events of last sz,ring and the chances, it any, that may be necessary to prevent a recurrence of si!,Alar events in the future. As you are aware, the Commodity Futures Trading Commission, at the request of Congress, has established a joint working grout with the federal Reserve, the Treasury and the Securities end Exchange Commission to analyse the events during the ftrio41 of September 1979 throuch March 1980. This group is reviewing a eeries of issues relating to the regulation of the financial futures markett, and certain sectors of the oonimodities markets. At this point, and until we and the other agencies corclete the 6tu4iee nolo in ixocess, it is difficult te provide en informed view as to the specific need for chanses in the level or structure oC regulations related to these mar)eta. Uscently, I wrote to senator rroxmire for the ,,url,ose of uidating him on the work being demi hare in this area. A copy of that letter is enclosed an4 will hol,efully ixovide iou with a view of our progress and arproech. Sincerely, Way!& birjfic Encleeure VIA le C)krst 4465) KS:pjt bcc: Mrs. Mallardi (2) Ak& -11110°) • S BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. L. 205E31 PAUL A. VOLCKER CHAIRMAN August 18, 1980 The Honorable Robert J. Lagomarsino House of Representatives Washington, D. C. 20515 Dear Mr. Lagomarsino: Thank you for your letter of July 22 on behalf of your constituent, Mr. Don Brydges, who has encountered difficulty when attempting to cash his social security checks at banks where he does not maintain an account. The Board's legal staff has informed me that there are no Federal laws or regulations that require banks to cash socia l security checks free of charge. In 1972, a bill was introduced in Congress that would have required Federally-insured banks to cash, free of charge, any check drawn upon the Treasury of the Unite d States; but that bill was never reported out of committee. One of the main problems that came to light in the hearings was the difficulty banks have in guarding against fraudulent identification. In such cases the bank and not the government bears the loss. Although the Board of Governors has broad supervisory and regulatory powers over banks that are members of the Feder al Reserve System, a bank's check cashing policy has generally been regarded as a matter of internal operating procedures, and a bank is free to establish its own policies regarding the circu mstances under which it will cash checks. The Board's staff is aware that many banks have adopted a policy of cashing checks only for customers who maintain an account with the bank. This policy is based on economic grounds since substantial costs are incur red in providing check cashing services and there is little incen tive for a bank to provide this service to nondepositors. Furth ermore, in recent years banks have been experiencing a growing problem in cashing checks, especially checks that are presented for payment by nondepositors. Banks have frequently encountere d instances where checks that were cashed for nondepositors of the bank are returned to the bank unpaid. When the bank attempts to recoup the funds from the person for whom the check was cashed, it discovers that the person is unable to be found or is otherwise unable to reimburse the bank. In order to avoid losses resulting - - The Honorable Robert.. Lagomarsino Page Two • from such transactions, many banks have found it necessary to establish a policy of cashing checks only for depositors. This practice insures that the bank will be able to locate the depositor in the event that a check he or she has cashed is retur ned to the bank unpaid. The risk situation is similar for banks cashing government checks for nondeposiLors and, because of this, legis lation requiring banks to cash government checks for nonde positors would probably not be equitable. In order to offer free cash ing of government checks, the bank would have to absorb the routine handling costs and losses associated with improper paym ent, or pass them on to its customers, because there are no arrangements for the government to reimburse the financial inst itutions for their added expenses. I hope this information is helpful to you. Sincerely, S/Patil A. Vaciec (DLR):CO:vcd (#V-311) bcc: Mrs. Mallardi (2) Will be handled by Congressional Liaison Office COMMITTEE ON FOREIGN AFFAIRS ROBERT J. LAGOMARSINC 19TH DISTRICT. CALIFORNIA • • 1117 LONGWORTH BUILDING WASHINGTON. D C. 20515 202-225-3601 Congre55 of the Uniteb -•,SSISTANT REGIONAL WHIP FOR' IGN F'CLICY TASK FORCE CHAIRMAN 3i)oti5e of 1lepreentattin5 lilladjinton, D.C. 20313 tate5 suricoMINITTrES INTERNATIONAL ECONOMIC POLICY AND TRADE RANKING MINORITY Mumnro INTER-AMERICAN AFFAIRS COMMITTEE ON INTERIOR AND INSULAR AFFAIRS StIOCOMMITIFTS: PACIFIC AFFAIRS RANKING MINORITY MrkinrR 1c180 NATIONAL PARKS AND INSULAR AFFAIRS OVERSIGHT AND SPECIAL IN G.William Miller, Chairman Federal Reserve System 20th and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Mr. Miller: One of my constituents, Mr. Don Brydges, has been having trouble cashing his Social Security checks. Apparently many banks will not cash the checks unless the holder has an account with the bank, while others charge a fee of $1.00. Mr. Brydges feels this is totally unnecessary and that it is a poor reflection on U.S. Government credibility. I would appreciate your position on the matt . Sincerely, ` b° 0 LA‘GZIMARn,i64/ in nber of „Congr'ess feyu VV:414 . "•-.41,-, RJ1,/elk THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIE3ERS • •••o coti •. •0 R4,• •••3• .._-0/ • O▪ PId- • k fig ! • E3CARD OF 57VERNORS FEDERAL RESERVE SYSTEM /1•2 • WASHINGTON, O. C. 20551 <<, RAL • •..• • • PAUL A. VOLCKER CHAIRMAN August 18, 1980 The Honorable Gus Yatron House of Representatives Washington, D. C, 20515 Dear Mr. Yatron: Thank you for your letter of August 8, 1980, enclosing correspondence from Mr. Wilson D. McElhinny, President of Hamilton Bank, Lancaster, Pennsylvania . Under the Monetary Contro l Act of 1980 (P.L. 96-221), member banks that left the Federal Reserve before July 1, 1979, were req uired to post full member ban k required reserves beginning April 1, 1980. In recognition of the potential disruptions this requirement could have upon the more tha n 30 former member banks affected by the requirement, the Board delaye d this implementation date until Aug ust 28, 1980. Last week, the Board considered Whether to grant an additional delay of the dat e on which former member banks such as Hamilton Bank must begin mainta ining reserves as required by the Monetary Control Act of 198 0. After a full consideration of the impact a further delay would have upon all affected parties, includ ing upon the U. S. Treasury, the Board determined that it would be inconsistent with the purpos es of the Act and Congressional int ent to delay this date any fur ther for former members. As a result, former member banks, which already have had five months to plan for res erve requirements, will be required to maintain reserves beginning August 28. I regret the Boa rd was unable to act favorably on you r constituent's request. Sincerely, Wail A.Volcker ME:GTS:vcd (V-325) bcc: Mr. Schwartz Ms. Egginton Legal Records (2) Mrs. Mallardi (2) Aeon assigned Mr. Petersen GUS YATRON 6TH DISTRICT, PENNSYLVANIA MEMBER: • BERKS, SCHUYLKILL, NORTHUMBERLAND COMMITTEE ON FOREIGN AFFAIRS COUNTIES _- p. - 2311 A IIIRN Hour OFFICE BUILDING Congre55 of tlys Einiteb gptate5 SUBCOMMITTEE ON ASIAN AND PACIFIC AFFAIRS PotifSe of ilepresSentatibe5 SUBCOMMITTEE ON - HINGTON. D C. VI A , PHonse: 20515 202-225-5546 CHAIRMAN: INTER-AMERICAN AFFAIRS Waisbington, D.C. 20515 DITRICT OFFICES: /COMMITTEE ON POST OFFICE AM'RICAN BANK BUILDING, PoTTsviLLE 645 PrmN STREET, READING AND CIVIL SERVICE UNION NATIONAL BANK. MT. CAnmai., SUBCOMMITTEE ON CIVIL SERVICE August 8, 1980 SUBCOMMITTEE ON CENSUS AND POPULATION The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Room B-2220 20th and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Chairman Volcker: I am contacting you on behalf of Mr. Wilson D.McElhinny, Chairman and President of the Hamilton Bank, Lancaster, Pennsylvania. Enclosed is the self-explanatory correspondence which I received from Mr. McElhinny. His request for fair and even-handed treatment seems entirely reasonable to me, and I would be grateful for your prompt and favorable consideration of this matter. Please be assured that any information and assistance that you provide to me will be deeply and sincerely appreciated. With kind regards, Sin rel GUS YATRO Member of ongress GY/sgb Enclosure /V • tiAiVa.TON BAN% Lt(miD. MH INY chain-waft sold Pris:Ndisat korth Woe* Strait Post offkiAl BOA abiGii Lancoritt, Piewbryf wank' 1 711154 2srl..150o August 7, 1980 The Bonorable Gus ratron 645 Penn Street Reading, PA 19603 Dear Gus; We have been advised by staff of the Federal Reserve Bank of Philadelphia Ulat the Board of Govornore of the Federal Reserve System, at it neeting August 5, 1980 approved provisions of Re43ulation D implementing portions of the DQpository Institutions Deregulation and Monetary Control Act of 1980 (the "Act") which will require Hamilton Bank (and other hanks which left the Fed system after July 1, 1979) to post full reserves (the same as meRber banks) on or about September 1; but will postpone the posting of any, reserves by other non-me mber institutions until the forepart of November. Clearly, the Fed has the discretion under the Act to postpone the posting of reserves by namilton Wink until Noveaber, just as for other non-meaber institutions. The fact that it has not acted to postpone the effective data for banks which left Fed after July 1, 1979 penalises Hamilton Bank and other such banks. This is a bitter pill to take, because (1) not only did Congreas penalize those banks which left the Fed after July 1, 1979 by requiring them to post the same reserves as members bank a, but (2) Fed is now penalizing those same banks which "stuck it out for so many years as meaber banks and then, upon leavin g Fed alter July 1, 1979, provided an impetus for Congressional action to solve Pod's "rembmrship problem". The amount of sterile reserves which Hamilton Uank will have to naintain at Fed under the Act will approximate $46 million. We ask for fair, even-handed treatmmnt from the Fed by the postponeme nt of the effective date for posting of reserves by banks which left Fed after July 1, 1979 to coincide with the initial posting of reservea by other nonrme mber institutions. Your personal contact with Chairman Volcker on our behalf to obtain redress of this inequity is urgently requested. We understand that the staff will be finalizing Regulation D for publication within the next few days. No would appreciate hearing froa you concerning the resul ts of your oontact with Chairman Volcker. Vinoerely you, WIDMsje • p. HAM2.10A1 BANK WILSON a WELHINNY CWWmummodPmiiideat ICC harda Omuta krort Past Offkis Box 3950 Unman,Peroffyivania 17004 C)2014600 August 7, 1980 • The Honorable Gus ratron 645 Penn Street Reading, PA 19603 Dear Gus: We have been advised by staff of the Federal Reserve Bank of Philadelphia that the Board of Governors of the Federal Reserve System, at it meeting August 5, 1980 approved provisions of Regulation D implementing portions of the Depository Institutions Deregulation and !lonetary Control Act of 1980 (the *Act') which will require Hamilton Bank (and other banks which Left the Fed system attar July 1, 1979) to post full reserves (the same as member banks) on or about September 1, joell will postpone the posting of any, reserves by other non-member institutions until the forepart of November. Clearly, the Fed has the discretion under the Act to postpone the posting of to by Hamilton Bank until November, just as for other non-member institutions. The fact that it has not acted to postpone the effective date for banks which left Fed after July 1, 1979 penalizes Hamilton Bank and other such banks. This is a bitter pill to take, because (1) not only did Congress penalize those banks which left the Ped after July 1, 1979 by requiring them to post the same reserves as members banks, but (2) Fed is now penalizing those same banks which °stuck it out' for so many years as member banks and then, upon leaving Fed after July 1, 1979, provided an impetus for Congressional action to solve Fed's 'nembersbip problem'. The amount of sterile reserves which Hamilton Bank will have to maintain at Fed under the Act will approximate $46 million. We ask for fair, even-handed treatment from the Fed by the postponement of the effective date for posting of reserves by banks which left Fed after July 1, 1979 to coincide with the initial posting of reserves by other non-member institutions. Your personal contact with Chairman Volcker on our behalf to obtain redress of this inequity is urgently requested. We understand that the staff will be fina1izing Regulation D for publication within the next few days. 41 We would appreciate hearing from you concerning the resulte of your oontect with Chairman Volcker. Vinoarely youre, WDtisje //71/4 AucAlst 18, 1980 lememehle Mamie •suloa rassehamm united Stets* Semete washington, DIA% 20510 Dear manays ea writing Le to your letter of Aril 23 expreseinq your asses= the irApeat of Pelulation E on the rzT °patetismo of Ciemsroe Salk sod Trost in Topeka, Rama Your oenatitment. Nee. Pager, objects to a provision of Megulation,. iaiammemting the Itleetresio rend Transfer Act, which rpaquires that teeniest receipts eemteleaseique identification of the consumer's ascounto wheals*** than ome asssumt of the same type con be accessed by tiLa same *FT eard# Tbe automated talker madhine OTO eriftee ting in ComMereie bank permits 414MISOMMSE to sasses any shockopera ing or savings mom* hold at the beak. The eelmeer elects which amount to ammo* by seems of asses* ssrs listed on the videceaseen at the AIR. The receipts aew in use Idsatifr only the twpe of aseeent (oheeking or savings)i but do sot differentiate snowy several accounts of the some tyi.e. The letter say" that os1isscs with this pee-. vision of Reculation t would involve itassis repregrameimme and hardware mheasea to the L'aikes hams, amd thet the way alterative to auch shows is. reduetLe. LK AT 'rvices. There has hose a delay Le eesworin,y your letter so that the Doard steal esiald investigate the ;-rf)blen raised by yeer eaa stitment. The staff bee contacted the bank and the or stanufacturere *1 AIM*, including the emegoey that vanufacturee thonacelinas Mese 1-7 Commerce Dank, Viebeld• It appears from their contest* that tieholei is the only manufesteres with this particular complies.. problem, Clat it affe040 35 financial inatItutione, and that it would sleet approximately $1,000 Air institution to reprogram the enistimg mashimes to bring them late sempliaass with the regulation. The rexjulatien is slier in ita requiremeet that ealik amount be uniquely identified Wham sesess to multiple amounts of the some type is possible at es abliti• The legislative history of the het ampere to seprort that inter?retation of the statute, The hoard, RonoraLle Lancy Landon 74k44icloauc-i rilv)c, Two Lowever, i*0 concerned about the cozts in.,:urre0 financial institu tion4 in their Itagulation comrliance effcrts i /tnd the staff is iriteudinc to .ake r*clumendationr cormerninf; thiis ic.,zue to the Bo vithin the near future. It at,:;learn that anli cl7ancle 'would involvr an amendment to the regulation. will IAA ksow the outoomf, or the l'*oard'5 as our cormideration of this osttor i-rocoeds. Sincerely, Sgaul A, Voldn LB.B.DAMpjt (W-198) Lcc; Lynne Barr nra. Ilallardi (2),/ EDMUND S. MUSKIE, MAINE, CHAIRMAN WARREN G. MAGNUSON, WASH. ERNEST F. HOLLINGS, S.C. LAWTON CHILES, FLA. JOSEF'', R. PIDEN, JR., DEL. .1. BENNETT JOHNSTON, LA. JIM SASSEFT. TENN. 'GARY HART, COLO. HOWARD M. ME FZEN3AUM. OHIO HENRY BELLMON, OKLA. PETE V. DOMENIC', N. MEX. BOB PACKWOOD, OREG. WILLIAM L. ARMSTRONG, COLO. NANCY LANDON KASSE RAUH, KANS. RUDY DOSCHWITZ, MINN. ORRIN G. HATCH, UTAH 'ZICrtiteb Zfatez Zertate LARRY PRESSLER, S. OAK. DONALD W. RIEGLE, JR., MICH. DANIEL PATRICK MOYNIHAN, N.Y. COMMITTEE ON THE BUDGET .1. JAMES EXON, NEBR. WASHINGTON, D.C. 20510 JOHN T. MC EVOY, STAFF DIRECTOR ROBERT S. BOYD, MINORITY STAFF DIRECTOR April 23, 1980 • Mr. Paul A. Volcker Chairman of the Board Federal Reserve System 20th and Constitution Washington, D.C. 20551 41 OP r 7 .0 -4 Dear Paul: As you can see from the enclosed letter, one of my constituents feels that one particular provision of Regulation E, if literally applied, would have certain unintended consequences for his institution, and the range of services which he can offer his customers. To me, his arguments make sense. I would appreciate it if you could have your staff look into his concern, and provide me with your assessment of his position. Warmest regards, Nancy Landon Kassebaum United States Senator CO mmerce Bank and Trust April 11, 1980 The Honorable Nancy Landon Kassebaum 304 Russell Senate Office Building Washing-ton , D.0. 20510 Dear Senator Kassebaum: I am enclosing a -photocopy of Section 205.9 of Regulation E (Electronic Fund Transfer). This regulation was written in accordance with Title IX of the Consumer Protection Act. Paragraph 3 is giving us particular problem. I have marked that section and the accompanying footnote in red for your convenience. Customers of our bank who have a card to enable them to use our automatid teller machine have the choice of doing business with - any account that they have in our Bank. Many of our customers have more than one checking account, and/or more than one savings account. This particular section of the regulation says that if you do business at our automatic teller machine with one of your accounts, we have to tell you on the receipt which checking account or which savings account you did business with on that particular transaction. At first glance this seems very reasonable. In operation it is.t-nost Sifficult. I'Ve began offering automatic teller machines in the Topeka area in June, 1976. The automated teller machine we purchased was • chosen because of its ability to offer our customers the highest level of service of any of ale machines available. This included offering our customers the option of accessing any savings and/or any checking account held with our Bank. In 1976 the machines did not have the capability of uniquely identifying these various accounts. The customer can identify which account he wants to 31st and SO. TOPEK A AVE TELEPHONE: / TOPEKA, 913 MEMBER K ANSAS 2 67 —012 3 FDIC 6 6611 -sr • • April 11, 1980 Page Two The Honorable Nancy Landon Kassebaum do business with by means of the account numbers being listed for him on the videoscreen of the unit. His receipt tells him that he has made a withdrawal from checking, deposit to savings, etc. These transactions are then detailed for the customer on his periodic statement for that account. We have tried and tried, but can find no way to comply with this section of Regulation E without extensive, expensive reprogramming and replacement of some existing hardware. Our only realistic alternative in complying with this regulation is to tell our customers that they may access only one checking and only one savings account when they use our automatic teller machines. In other words, we are telling our customers that we must reduce the level of services available to them through our automatic teller machines. Also, that they may no longer have a service which they have enjoyed for the past four years. We cannot believe that this was the intent of Congress in passing the act, nor the intention of the Federal Reserve Board in writing this regulation. We are asking you to use whatever influeLice you might have to defer enforcement of this one particular section of this act until further study can be done and it can be affirmed by the Federal Reserve or rejected. We simply do not believe that our customers want to be protected by Congress to the point that they have to give up banking services that they have used and enjoyed. Again, we would appreciate any help that you might be able to give us on this matter. ncerely, r y E. F hairman if the Board 913) 295 04.0 jv o Enc. 0 • • REGULATION E § 205.7 ver a nouce financial institution may mail or deli wing notice that is substantially similar to theNfollo uired by on or with each periodic statement req § 205.9( b): or question in . we ask you to put your complaint hin 10 business writing and we do not receive it wit account. days, we may not recredit your no error, we will If we decide that there was within 3 business send you a written explanation n You may ask days after we finish our investigatio we used in our for copies of the documents that investigation. ounts in exist(b) Timing of disclosures for acc ncial institution shall ence on May 10, 1980. A fina the information remail or deliver to the consumer tion on or before quired by paragraph (a) of this sec periodic statement June 9. 19S0, or with the first 205.9(b) after May 10. 1980. required by t that is open whichever is earlier. for any accoun on May 10. 1980. and ic fund transfers (I) From or to which electron 0; were made prior to May 10. 198 tract for such (2) With respect to which a con n a consumer and transfers was entered into betwee a financial institution; or was issued to a (3) For which an access des ice consumer. IN CASE OF ERRORS OR QUESTIONS ABOUT YOUR ELECTRONIC TRANSFERS Telephone us at (insert telephone number) Of Wnte us at (insert address) ent or is soon as you can, if you think your statem receipt is wrong or if you need morr We about A (11/IsfCr on the statement or receipt we r must hear from you no later than 60 days afte r or sent you the FIRST statement on which the erro problem appeared. ber (if (I) Tell us your name and account num RMS; SECTION 205.8—CHANGE IN TE ERROR RESOLUTION NOTIC'E l institution shall . (a) Change in terms. A financia to the consumer at mail or deliver a- written notice ive date of any least 21 days before the effect uired to be dischange in a term or condition req nge would result closed under § 205.7(a) if the cha reased liability for in increased fees or charges. inc lable electronic the consumer, fewer types of avai on the frequenfund transfers, or stncter limitations s. Prior notice need cy or dollar amounts of transfer nge in terms not be gisen where an immediate cha restore the or in or conditions is necessary to mainta sfer system or sccunty of an electronic fund tran is to be made account. Howeser. if such a change shall provide permanent. the financial institution sumer on or written notice of the change to the con c statement with the next regularly scheduled penodi jeopardor within 30 days, unless disclosure would t ize the security of the system or accoun each account (b) Error resolution notice. For sfers can be from or to which electronic fund tran l or deliver to made, a financial institution shall mai endar year. the the consumer, at least once each cal Alternatively, a notice set forth in § 205.7(a)(10). any) transfer you are (2) Descnbe the error or the udearly as you can unsure about, and explain as r or why you need why you believe there is an erro more information. of the suspected (3) Tell us the dollar amount MOT plaint and will corWC will investigate your com take more than 10 rect any error promptly. If we will recrcdit your business day to do this, we is in error, so that account for the amount you think during the time it you will have use of the money stigation. takes us to complete our inve NTATION OF SECTION 205.9—DOCUME TRANSFERS minals. At the time (a) Receipts at electronic ter is initiated at an an electronic fund transfer er. the financial inelectronic terminal by A consuM to the consumer a stitution shall make ati.ailahle: that clearly sets written receipt of the transfer(s) as applicable: forth the following information, sfer. A charge for (1) The amount of the tran this amount if the the transfer may be included in by a person other terminal is owned or operated ding the consumer's than the financial institution hol the charge is disaccount, provided the amount of E for a third party. A financial institution may arrangeipt available. rece such JS a merchant, to make the —186— • 4 205 9 f the amount o e h t n i ded ,. be inclu TION E A y L a U m G e E g r *R that cha ited or de d e r t c a s r a o w ansfer sted on transfer te the tr a a sign po d n o e h d T n ) unt. a (ii f the receipt r's acco e e m h u t the type o d s e n t d o a n n i c o t a i d r n e e i e h s f t s o re n r l a c bited to funds we consume pe of tr h y e c t al. h i n t h i e w m e h r t T e m a t d (iii) the or fro calendar e unt(s) to h o t c c f a o s (2) The e ' the conthe typ consumer y d b n . a d e r e r e t r a f a e s i f n t s nd ans d. that fer ini the tra which fu transferre type o location ch trans a " e e , h t g r n or from o , i F l k o a (3) The ) c (iv che termin n (such wal from s accoun ectronic t ntificatio a l ' e n r e d r e d i e h m m t n y n u i a a a s w p n f t eni " co sumer a , that id ng." or eipt or, uch as d c i s e e k s r c r u , e o d e f h e s h c r a t r d on er) w gs to be use transfe ns of appeared nal numb om savin ons may escriptio i r d i m n t f i r p e g i t r r n r e c a i f r s l w s o e i o e foll "tran ese d re sim as a cod gs. — 'Th e of the t s that a n f n t i a o n v r u a d o d s c n e c a r a m a nd h fro tification umber a uch as s tion: or from n s a c ( g o o n t s o l t i t d n s s u r r u ' l e o o nal acc reet transf s, inc ounts) the termi checking if the st e addres awal acc o s d h r t e e d T t d h n t o t ) o i C i i A m w t o ( c ) fun er of y be ion) or counts mber ma iable ord uch as share ac nal locat ere t u i h o m n w g r e e e s n t e l h e e t f h ( o (s lained fies t ntry;' street accounts ly identi reign cou y are exp e o e u f h q t i r n f o savings i u e spet e y a alon used onl ame for a es y, and st i t n f i e i c b d t n e , e t n d y p o i a e i t c m y inintersec erally ac inancial t uniquel f n a ceipt. h e s e t e g ' r h r t e A e e d m f h ) o u o t c (B on ity, ranch he cons umber or h as a b irport), c e c a ransfer, t h u t t s n e e ( a (4) A n t h a n t i r o t o i g i t n iati to in nter, cific loca umer init vice used pping ce e o d h . s s s a e the cons c , c n y,' or ace stitutio , or the a n countr whose pl ) g s t i ( a a e t r r y n a o t u p f i o t y c r n o ac the e ibed b owns and state name of rm prescr r which at o e o f h l a T d a e n t n ) i a i m C c ( r transfer. o ( e il t location ncial inst minal is ) of the a r n n e i o t n f i o t i e c e t h e (5) The h a t s c t ss ch as and dentifi f this of busine minal (su d or an i s), city, (l)(iv) o r e e ) e t c b a t i ( i v t r e h i e h n p s i t a r r g es was ods o or operat e transfer number). ler of go m l o e l r s a f n e i h m r t r o which th m e r t party to to or fro tution' o code or ntry.' d u y r a t o i r c h s a d t a p e n s g y h u d i n c r a (su fore was ay be any thi name of state or transfer a code m name of e . h ; t t e d p e i h f (6) The r e I T r c ) e e ' f l r . v ( on the ansferred are trans c termina r i e t s n r d o e e n r h r t u T e c f v w o e e r l s p nds whom t an e the me is ned el whom fu identify nsumer a if the na is explai o o . c y t t i l c e t p i h p f p n t i i a , o e r c t y t y e b onl the r oes no e and he elec initiated used on e the cod rm that t irernenj d s d u o a u q f l e v c r a n e i n s i d i l o l Th rner pt. ent sha and a c the cOnsu the recei or he statem n t o o t , e y t t t n a r u c a 's videLl by y i p o third any acc onsumer third part nnot dupl c r a e o c , h F e e t l h d a . f t a n s o i m t m ter temen an be (s) of the name ssued. odic sta number ransfers c e t t a t e d s n h ment is i u a e T f t (b) Peri r a e c t ) v i s i n 2 l o e e ( r d h t hich t ch elec mail or an (s) for w n which from whi ion .;hall t t i t n u u t e o i l t c c s c y n a c i al e le rrn,rtatI a ter i h r t c t o n s I h a a s n al e i l r f if o t e a d y th thl pnr. , but omitte each mon occurred The e rn y hein," lid tau 4...1 t s a . a u d h e r r d e r a. ipate•) n f ment for u a s c a tran s oc d p r t. ity he f a t h d e . n h a r u T h e f • f e ' s c d if l n i C b a a if no tr electron Ulf CoprI M try the sy ue Rl AW tn.a y be urn'fle t as applica g t , d n g e e n M m i a e A r t s a o r t l U U mu l s i n r occum de the fo isitInt 01 the tune try INC cd by the (imam tAl quarterly e v u f l s e c n h n a t i r t l l d t sha Ifl per at ti tm s.; fun statemen Mt Ice, Atcrrnirta!t o.rd ix ° or by the system h electron < a c r o n F r e (1) transfe all the t viding the,Vale mc n alit SidIC. ck fer. If a y s n o c a r e t h t e e h h t g t tutton pr pates) are located i of by t n ctunn o n nt i u t a o i m t i a i n f i e stateme it rtic o a h p t e n m g (i) The it i i n t i l d . e a i 5 , at th termin footnote l institution prov than one location 6 See as added ectronic l , e n ia by e o n i t a c e f charge w s his the financ terminals at mor ectronic terminals or o t t f a I f r o e ' ) p I o ( r h (a) its el ction perates owner o paragrap %ns or o be the location of or (B) of this se h o t i w e c ) descri (iv)(A accordan s y be) shall paragraphs (b)(l) a m e p ird panic h y t t y f e f o m i t a n e s e s d u . i e 5 er he footnote titution need not ts, or similar pap n ount of t the accounts must b c c c a e S e n ' o at a than al ins , draf vice, A financi appear on checks nsumer's account 'If more a single access de • s o i by mes e c ) of th accessed entified v.hoe na s deposited to th ( raph (b)(I uments g a r a d i p t y n y l e b unique instrum required ying doc minal. formation ided on accompan accompanying n i tronic ter e c h e T l e n ' v o o r r p ay be tement o section m ained on the sta l Codes exp are acceptable. s t n e docum -187- Auquat vid ryor The Chairzan Subcomaittee oa Civil :;44rviegs and Conezal Serviceis Committee on c‘avermentat Affair* United Etatoe L'ran4te ,; 2(151, WaslUnA;tion, n.C. Deax CLairuien FryoK4,u-:;urt 5 conoerninr7 the Thank 4ou Zor ;cur letter of , use of consultants asairtinl in the review of icideral Tefterve rociu1ations4 The board of :Aitivernort has engaged *ray ono ccnsultant and one *tett ammociate for mantic:leo related in our reviev of rwlulationa. Details concerning these enoesenevte are shown in tLe oucloDures If xemLers of your ;taff need further ausistanco Cr ttart they c.a, contact Ur. John W. clarification rei;ardin,r; ti; Stark Of:flay/ of the Coratroller, taleplonc nuner 452-3397. Cincerel,„ S‘DiAIA. YRISOK ,LAclotaurt INS.IiirCO.iiit (V-324) iJoci Mr. Stark Pr. ,ulrenin :lullardi (2) via Name: Ralph Rohner Contract Number: Amount: 3741 $3,050 Statement of Work: To develop a method for integrating fair credit billing and electronic fund transfer requirements. FR Regulation: Deliverables: Name: Regulation E and Z. Draft legislation language David D. Kulig Staff Associate Amount: 1978 appointment $10,395 1979 appointment $37,236 1980 appointment not to exceed $31,790 Assignment: Under Board supervision provides assistance in coordinating the review of Federal Reserve Regulations • .Ar ion assigned Mr. Dnnkler ABRAHAM RIBICOFF, CONN., CHAIRMAN HENRY P.4. JACK CON. WASH. TV/OMAS F. fAaLETON. MO. LAWTON C,4 I-CS. FLA. SAM N.AIN. CA. JOHN 3LENN, OHIO JIj15.A5 r FR. TENN. CHARLES MC C. MATHIAS, JR., MD. JOHN C. DANFORTH, MO. DAVID PRYOR. ARK. CARL LEVIN, MICH. WILLIAM 8. COHEN, MAINE DAVID DURENBERGER, MINN. CHARLES H. PERCY, ILL. JACOB K. JAVITS, N.Y. WILLIAM V. ROTH. JR.. DEL. TED STEVENS. ALASKA RICHARD A. WEGMAN CHIEF COUNSEL AND STAFF DIRECTOR • SUBCOMMITTEE: DAVID PRYOR, ARK., CHAIRMAN JIM SASSER, TENN. TED STEVENS, ALASKA JOHN KNOX WALKUP CHIEF COUNSEL AND STAFF DIRECTOR ?artifeb Ztafez Zertafe COMMITTEE ON GOVERNMENTAL AFFAIRS SUBCOMMITTEE ON CIVIL SERVICE AND GENERAL SERVICES WASHINGTON. D.C. 10510 August 5, 1980 Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System 20th and Constitution Avenue, N.W. Washington, D. C. 20551 Dear Mr. Volcker: The Regulatory Council has published a list of "Important Regulations Scheduled for Agency Review" (Federal Register, Vol. 45, No. 106, Friday, May 30, 1980, Page 37166). For the Federal Reserve System the following regulations are listed: TITLE OF REGULATION CITATION EST. DATE OF REVIEW FRS Regulation B-Equal Credit 12 CFR 202 Credit Opportunity 4/79 to 9/80 FRS Regulation D - Reserves of Member Banks 5/80 to 8/80 12 CFR 204 FRS Regulation F - Securities 12 CFR 206 of State Members 12/79 to 8/80 FRS Regulation G - Securities Credit by Persons Other Than Banks, Brokers or Dealers 6/79 to 12/80 12 CFR 207 FRS Regulation J - Collection 12 CFR 210 of Checks and Other Items and Transfer of Funds 6/79 to 6/80 FRS Regulation K - Interna12 CFR 211 national Banking Operations 3/80 to 7/80 FRS Regulation T - Credit by Brokers and Dealers 12 CFR 220 6/79 to 12/80 FRS Regulation U - Credit by 12 CFR 221 Banks for the Purpose of Purchasing or Carrying Margin Stocks 6/79 to 12/80 •%:.• w• ay'grirlffrrilb *tr.. • rar a/a/I • Paul A. Volcker, Chairman Page Two August 5, 1980 FRS Regulation X - Rules Governing Borrowers Who Obtain Securities Credit 12 CFR 221 6/79 to 12/80 FRS Regulation Y - Bank Holding Companies 12 CFR 225 9/78 to 12/80 FRS Regulation Z - Truth in Lending 12 CFR 226 9/79 to 1/81 During the past year, my Subcommittee on Civil Service and General Services staff has been investigating the federal government's use of consultant services with particular emphasis on the performance of duties which are of a policy-making or managerial nature. The investigation has uncovered instances where contractor support (whether classified as consultant or not) has contributed to the planning, preparation or drafting of regulations. To supplement the information now available, I would like to request your assistance in obtaining answers to the following questions for each regulation listed above: 1. Have any contracts been awarded in conjunction with this agency review process? 2. For each such contract awarded, please submit the contractor's name, contract identification number, amount of contract award, statement of work, and list of deliverables to be provided by the contractor pursuant to the contract terms. I appreciate your assistance in this matter and would hope that the information could be made available to my staff within three weeks. Should you have any questions concerning this request, please contact Doug McDaniel at 224-4551. • DP/dmd 4 44 4,4 • . •, 0 /•-• .4 .0 • -n rX77 BOARD OF GOVERNORS • OF THE FEDERAL RESERVE SYSTEM ••.,,,•... ,.-:'.,. •.'(e,•-•M.' ••••• RAL RES. ••• F.. WASHINGTON, O. C. 20551 • PAUL A. VOLCKER CHAIRMAN August 19, 1980 The Honorable Robert S. Walker House of Representati ves Washington, D.C. 20515 Dear Mr. Walker: Thank you for your le tter of August 15, 19 correspondence from Mr 80, enclosing . Wilson D. McElhinn y, President of Hamilt Bank, Lancaster, Pe on nnsylvania. Under th e Monetary Control Act of 1980 (P.L. 96-221), member banks that le ft the Federal Reserve fore July 1, 1979, bewere required to post full member bank requir reserves beginning Ap ed ril 1, 1980. In re cognition of the potent disruptions this requ ial irement could have up on the more than 30 fo member banks affect rmer ed by the requiremen t, the Board delayed th implementation date un is til August 28, 1980. Last week, the Board considered whether to grant an addition al delay of the date on former member banks su which ch as Hamilton Bank must begin maintainin reserves as required g by the Monetary Co ntrol Act of 1980. Af full consideration ter a of the impact a furt her delay would have up all affected parties, on including upon the U. S. Treasury, the Boar determined that it wo d uld be inconsistent with the purposes of Act and Congressiona the l intent to delay th is date any further fo former members. r As a result, former member banks, which al five months to plan fo ready have had r reserve requiremen ts, will be required maintain reserves be to ginning August 28. I regret the Board was able to act favorably unon your constituent's request. Sincerely, S/Paul A. Mari (ME:GTS):CO:pjt (4V-332) bcc: Mrs. Mallardi (2)- — ROBERT S. WALKER STAFF IN CHARGE: 16TH DISTRICT. PENNSYLVANIA • TtIOMAS R. BLANK WASHINGTON OFFICE • COMMITTEES. GOVERNMENT OPERATIONS • SCrENCE AND TECHNOLOGY GEORGE W. JACKSON DISTRICT OFFICES Congre55 of tfic Uititcb.6tate5 A)ouge of Repre5entatibei4 IZIazbington, D.C. 20515 August 15, 1980 3 The Honorable Paul A. Volcker Chairman Federal Reserve System Twentieth Street and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Chairman Volcker: I am writing on behalf of my constituent, Wilson D. McElhinny, Chairman and President of Hamilton Bank in Lancaster, Pennsylvania. As you will note from the enclosed copy of correspondence, Hamilton Bank will be severely impacted as a result of the approv al of provisions of Regulation D which will require banks which left the Federal Reserve System after July 1, 1979, to post full reserves on September 1, 1980. I share the concerns expressed by Mr. McElhinny and would like to take this opportunity to respectfully request your reconsideration. My review of this situation leads me to believe that the most equitable solution would be the postponement of the effective date for posting of reserves by banks which left the Federal Reserve System after July 1, 1979, to coincide with the initial posting of reserv es by other non-member institutions. I would be very grateful for your serious consideration of this proposal as well as your advice about the final determination. Your assistance will be greatly appreciated and I look forward to hearing from you in this regard at your earliest convenience. Cordially, le /41 / // /., Robert S. Walker mm Encl. • HAMILTON BANK WILSON D. McELHINNY Chairman and President 100 North Queen Street Post Office Box 3959 Lancaster, Pennsylvania 17604 (717) 291-3500 August 7, 1980 The Honorable Robert S. Walker 1028 Longworth House Office Building Washington, D. C. 20515 Dear Bob: We have been advised by staff of the Federal Reserve Bank of Philadelphia that the Board of Governors of the Federal Reserve System, at its meeting August 5, 1980 approved provisions of Regulation D implementing portions of the Depository Institutions Deregulation and Monetary Control Act of 1980 (the "Act") which will require Hamilton Bank (and other banks which left the Fed system after July 1, 1979) to post full reserves (the same as member banks) on or about September 1; but will postpone the posting of any reserves by other non-member institutions until the forepart of November. Clearly, the Fed has the discretion under the Act to postpone the posting of reserves by Hamilton Bank until November, just as for other non-member institutions. The fact that it has not acted to postpone the effective date for banks which left Fed after July 1, 1979 penalizes Hamilton Bank and other such banks. This is a bitter pill to take, because (1) not only did Congress penalize those banks which left the Fed after July 1, 1979 by requiring them to post the same reserves as members banks, but (2) Fed is now penalizing those same banks which "stuck it out" for so many years as member banks and then, upon leaving Fed after July 1, 1979, provided an impetus for Congressional action to solve Fed's "membership problem". The amount of sterile reserves which Hamilton Bank will have to maintain at Fed under the Act will approximate $46 million. We ask for fair, even-handed treatment from the Fed by the postponement of the effective date for posting of reserves by banks which left Fed after July 1, 1979 to coincide with the initial posting of reserves by other non-member institutions. Your personal contact with Chairman Volcker on our behalf to obtain redress of this inequity is urgently requested. We understand that the staff will be finalizing Regulation D for publication within the next few days. We would appreciate hearing from you concerning the results of your contact with Chairman Volcker. Sincerely yours, WDM:je FICArri 71; --,cvcPNoPs FEDERAL RESERVE SYSTEM ....A514m6ouP4,0.c. 20551 PAUL A. VOLCKER CHAIRMAN August 20, 1980 The Honorable Robert J. Lagomarsino House of Representatives Washington, D.C. 20515 Dear Mr. Lagomarsino: Thank you for your letter requesting commen t on an inquiry you received from Mr. Robert Weri ck. Mr. Werick questions the propriety of a bank imposing a service charge on his son, who is in the Navy, for cashing a government check; and feels that such a banking practice is especially unfair to military personnel. The Board's legal staff has informed me that there are no Federal laws or regulations that requ ire banks to cash government checks free of charge. In 1972, a bill was introduced in Congress that would have required Federally-ins ured banks to cash, free of charge, any check drawn upon the Treasury of the United States; but that bill was never reported out of committee. One of the main problems that came to light in the hearings was the difficulty banks have in guarding against fraudulent identification. In such cases the bank and not the government bears the loss. Although the Board of Governors has broa d supervisory and regulatory powers over banks that are members of the Federal Reserve System, a bank's check cashing poli cy has generally been regarded as a matter of internal operatin g procedures, and a bank is free to establish its own policies rega rding the circumstances under which it will cash checks. The Board's staff is aware that many banks have adopted a policy of cash ing checks only for customers who maintain an account with the bank. This policy is based on economic grounds since substant ial costs are incurred in providing check cashing services and ther e is little incentive for a bank to provide this service to nondepos itors. Furthermore, in recent years banks have been experiencing a growing problem in cashing checks, especially checks that are presented for payment by nondepositors. Banks have frequent ly encountered instances where checks that were cashed for nond epositors of the bank are returned to the bank unpaid. When the bank attempts to recoup the funds from the person for whom the check was cashed, it discovers that the person is unable to be found or is otherwise unable to reimburse the bank. In order to avoi d losses resulting from such • • The Honorable Robert J. Lagomarsino sVage Two transactions, many banks have found it necessary to establish a policy of cashing checks only for depositors. This pract ice insures that the bank will be able to locate the depositor in the event that a check he or she has cashed is returned to the bank unpaid. The risk situation is similar for banks cashing government checks for nondepositors and, because of this, legis lation requiring banks to cash government checks for nondepositors would probably not be equitable. In order to offer free cashing of government checks, the bank would have to absorb the routi ne handling costs and losses associated with improper payment, or pass them on to its customers, because there are no arrangemen ts for the government to reimburse the financial institutions for their added expenses. Inasmuch as bank service charges are determined and assessed by a bank based on individual bank policy, a provi sion that exempts military personnel or any particular group of people from certain charges would be a matter for determination by each respective bank. I hope this information is helpful to you. Sincerely, §Leaml A. Voicim. (DLR:)KAC:CO:pjt (#V-300) bcc: Ms. Casey Mrs. Mallardi (2) (./-. ROBERT J. LAGOMARSINO 194H DISTRICT. CALIFORNIA 1117 LONGWORTH BUILDING WAF,P.'NGTON. D.C. 20515 202-225-3601 J ction assigned Janet Hart i • • Congre5.5 of tbe Ziniteb aptateg ASSISTANT REGIONAL WHIP FOREIGN POLICY TASK FORCE CHAIRMAN jipti5e of 1epre5entatibei4 Ulagbington, D.C. 20515 COMMITTEE ON FOREIGN AFFAIRS suncommITTEI:s: INTERNATIONAL rcoNomic POLICY AND TRADE RANKING MINORITY MrMBER INTER-AMERICAN AFFAIRS COMMITTEE ON INTERIOR AND INSULAR AFFAIRS SUSCOM Adl TTt 11- s: PACIFIC AFFAIRS RANKING MiNoisirir ME0ARICR July 17, 1980 Mr. Paul A. Volker, Chairman Federal Reserve System 20th Street and Constitution Washington D.C. 20551 NATIONAL PARKS AND INSULAR AFFAIRS OVERSIGHT AND SPECIAL INVESTIGATIONS N.W. Dear Mr. Volker: Enclosed is a memorandum from my district office on behalf of my constituent, Robert Werick. As the memorandum states, Mr. Werick's son, enlisted in the U.S. Navy, attempted to cash a Federal Reserve Check and was charged $1.00 for this. I would appreciate it if you could comment on this pratice. S cerely, ROBERT J. Member of MARS INO gress RJL/lmv enc. THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS OPTIONAL FORM NO. 10 JUL.T 1973 EDITION C";4 'PAIR 141 CFflI 101-11.E1 UNITED STATES GOVEOMENT • emorandum •P!! TO Congressman R. J. Lagomarsino DATE: 1 7 19r*r 14 July 1980 4 „.r. FROM Robert Werick, SUBJECT: Cashing Federal Reserve Checks at Banks https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mr. Werick's son is in U.S. Navy in San Diego. His son went to the Crocker National Bank in Lompoc where Mr. Werick has a checking account and does his banking to cash rand the Check Reserve Federal His son had an bank charged him $1.00 to do so. Mr. Werick was very upset. He felt that banks should cash checks from the Federal Reserve-especially since his son is serving his country. He wants to know if there is a law to protect our servicemen from this charge or if there is something the Congressman can do about it? rito;..• Buy U.S. Savings Bonds Regularly on the Payroll Savings Plan I BOARD OF '.-2EVERNORS c'J FEDERAL RESERVE SYSTEM WASHINGT, i.C. 2OSSI PAUL A. VOLCKER CHAIRMAN August 20, 1980 The Honorable Henry J. Nowak Chairman Subcommittee on Access to Equity Capital and Business Opportunities Committee on Small Business House of Representatives Washington, D. C. 20515 Dedr Chairman Nowak: Thank you for your letter of August 11 requesting information concerning the use of the Federal Reserve's temporary seasonal credit program. A statistical summa ry of the credit arrangements provided by the program is enclosed. As shown in the table, a total of 129 banks have enrolled in the program, with aggregate credit lines of $113 million. These banks are primarily in the Midwest, with the Chicago, Minneapolis, and Kansas City Federal Reserve Districts accounting for most of the total. The typical bank enrolled in the program had total deposits of $25 million and a loanto-deposit ratio of 78 per cent. Only five banks have actually borrowed against their credit lines, with aggregate borrowings totaling $1.5 milli on. The average amount borrowed was $298,000. Only two banks have borrowed since mid-May and none is currently borrowing under the program. This relatively low level of borrowing activity can be explained by the sharp drop in the Federal funds rate relative to the discount rate shortly after the program was announced on April 17. The Federal funds rate is approximat ely equal to the interest rate that small banks pay on borrowings from their correspondent banks, while the discount rate is the interest rate applied to borrowings under the temporary seaso nal credit program. Although the average Federal funds rate was well above the discount rate for the first two weeks of the progr am, the time taken to establish a credit line effectively prevented any borrowings during the brief period that this rate advantage The Honorable L:enrt J . Nowz_ Page Two prevailed. since April 30, the Federal funds rate has been consistently below the dis count rate, often by substa ntial amounts, thus providing rel atively little incentive for banks to borrow from the Federal Reserve. Even though actual takedowns on the credit lines have been limited, the lin es have been valuable in providing an assured source of back-u p credit to the banks that negotiate d them. If your staff desires add itional information on this matter, they may contact 1.1r . John Spitzer here at the Board on (202) 452-3791. Sincerely, Seat A. Yolcket Enclosure JS:TFB:JLK:vcd (#V-328) bcc: Mr. Kichline Mr. Brady Mr. Spitzer Mrs. Mallardi (2) • • • Table 1 TEMPORARY SEASONAL CREDIT PROGRAM (as of August 18, 1980) CREDIT LINES ESTABLISHED BY DISTRICT District Number of Banks Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Totals 1 Aggregate Credit Line By District (Millions) $ •5 Bank Size Ave. Total Deposits, Approximate, Millions $ Loan-toDeposit Ratio (7) 16 80% ••••• •••• ••••= ..•• .10 am& MEIN, 65 12 16 32 1 2 129 64.2 23.7 3.5 19.2 1.0 .8 $112.9 24.5 55-60 12-15 23.4 27 11 1/ $ 24.7— 80 73 71 80 80 75 1/ 78 BORROWINGS Bank Size Loan-to(Total Deposits, Deposit Ratio Millions) (%) District Chicago $ 20 St. Louis Kansas City San Francisco Ave. 80% 29 7 22 12 71 78 28 76 $ 18.0 77% 1/ Approximate average for the column. 2/ Statement week of loan. Credit Amount Line Borrowed (Thousands) (Thousands) 800 1,000 250 850 450 400 200 200 250 340 100 670 298 Date 5/1-5/15 5/15-5/17 5/14 2/ 5/7 27 6/25-T/29 5/28-6/10 Actilissignel to Pete Keit.; info cop. V. C. Schultz HENRY J. NOWAK, J. WILLIAM STANTON, OHIO N.Y. TOBY ROTH, WIS. CHAIRMAN LYLE WILLIAMS, OHIO TOM STEER, OKLA. PARREN J. MITCHELL, MD. , 1 :-EDERICK W. RICHMOND, N.Y. BERKLEY BEDELL, IOWA DAVID E. FRANASIAK Prtiteti tatez P01153e zf/cae).Trezetttztlities Committee on ,Smatl pusintez SUBCOM M ITT EE COUNSEL 202-225-7797 CLAUDE LEACH. LA. HAROLDLARONSON,JR. c utiriammittee on &l:Arrresfo 'Lluitg Capital zinb Pusiurss Opportunitire P-363 pagburri PIJUS3C Office la11intrni,p.a. MINORITY suncommirrEE COUNSEL 202- .! 4:41 puilbing 20515 August 11, 1980 Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System Constitution Avenue between 20th and 21st Streets Washington, D. C. 20551 Dear Mr. Volcker: On April 17, 1980, the Federal Reserve Board announced a "temporary seasonal credit" program designed to "help small banks under liquidity pressures meet the credit needs of their communities." The program was geared to banks with less than $100 million in deposits. Seasonal credit was to be granted to finance increases in loans by banks operating within the qualitative guidelines of the Federal Reserve Board's Special Credit Restraint Program. Additionally, the program was to give "special attention to the normal financing needs of farmers and small business." The Subcommittee on Access to Equity Capital and Business Opportunities, which I chair, held a series of hearings on the cost and availability of credit to small business. We are in the process of completing our investigation and would appreciate your providing us with information regarding the April 17th program, as follows: 1. How many banks established lines of credit under the program, and what were their relative asset sizes and geographic locations? 2. What was the total amount of credit established under the program? 3. How many banks borrowed against their lines of credit under this program, and what was the total dollar amount? What were their relative asset sizes and geographic distribution? Sincerely,c . //41itt.tU Henry Ji Nowak Chairman • Akl\NA0 '—f\ VQ-CLA4A 1 BOARD OF LUVERNORS nr FEDERAL REL:RVE SYSTEM WASHING -1"j' ._,. C. 20551 PAUL_ A. VOLCKER CHAIRMAN August 20, 1980 The Honorable John To wer United States Senate Washington, D.C. 20510 Dear Senator Tower: Thank you for your le tter of August 12 requ views of the Board of esting the Governors on S. 2800, a bill to provide fo full insurance for de r posits of public fund s in insured banks, thrift institutions, and credit unions, wh ich was reported as part of H.R. 2255 on Ju ly 31, 1980, by the Senate Committee on Banking, Housing and Urban Affairs. Federal deposit insura nce was established ne ago for the purpose of arly 50 years protecting the small saver and to maintain the confidence of in dividuals in financial institutions. A guid principle in establishi ing ng this protection wa s that the Federal government should do no more than is necess ary so as to avoid undue Federal interven tion in our financial markets. The Board has opposed in the pa st and continues to op pose full Federal depo insurance of public fu sit nds primarily becaus e, in the view of a majority of the Board, there is a potential of increased involvement of government in banking that could re su lt and because of the po from full insurance tential adverse effect of the proposal on the market for government obligations. A majority of the Boar d believes that fully public deposits has po insuring tential danger for weak en ing the banking system. Granting such coverage could lead at a later time to extension of full insu rance coverage to othe r gr oups of depositors on grounds of equity. If there are compelling reasons for providing full Federal deposit insurance to go ve rn mental entities, then weaker or more vulnerable depositors wo ul d argue with equal or greater force that their deposits should be similarly covered. The pressure to widen this coverage could be irresistible. That course of action coul d weaken incentives fo r go od management in our financial institut ions. As these instit ut ions are weakened, the case for more gove rnment surveillance an d direction becomes stronger. The Board believes that any such extension of deposit insurance consequently could lead to an incr ease in government involvement in banking and substantially redu ce the efficiency of banking markets in al locating credit. In th is regard, the discipline imposed on fina ncial institutions by their large customers, including governmental depositors, is an impo rtant factor in maintaining the soundn ess of the financial system. The Honorable John Towe r Page Two We note that governme ntal bodies typically deposits by requiring protect their pledges of government al securities, and all have the option to do so. As of year-end 19 79 , domestic offices of insured commercial banks held total gove rn me ntal (Federal, State, and local) deposits of $86 billion. A subs ta ntial portion of thes funds are secured by pl e edges of U.S. govern me nt and agency securiti Full insurance of depo es. sits of public entiti es would free a correspondingly large amount of pledged government securities. As a result, demand for go vernment securities wo uld weaken and borrowing costs of governmental units, both State and Federal, would rise. We are not aware of any commensurate bene vis-a-vis these costs fits to be derived of fully insuring thes e deposits. Consequently, the Board is of the opinion that, on balanc e, th e public interest would not be well se rved by affording full Fe deral deposit insurance to governmental funds. Sincerely, Siyagt A,jiow PSP:JCP:PAV:GLG:pjt (#V-33 1) bcc: Mr. Pilecki Mr. Prell Mr. Boltz Mr. Schwartz Mr. Garwood Mrs. Mallardi (2) on assigned Paul Pilecki in Lel; Secy's Office has WILLIAM PROXMIRE. WIS., CHAIRMAN HARRION A. WILLIAMS, JR., N.J. ALAN CRANSTON, CALIF. ADLAI E STEVENSON. ROBERT MORGAN, N.C. DONALD W. RIEGLE, JR., MICH. PAUL S. R BA N E S, MD. DONALD W. STEWART. ALA. „„,GEORGE J. MITCHELL, MAINE Ae JAKE GARN, UTAH JOHN TOWER, TEX. JOHN HEINZ, PA. WILLIAM L. ARMSTRONG, COLO. NANCY LANDON KASSEBAUM, KANS. RICHARD G. LUGAR, IND. been notified that this will h to be circulated to the Board ASAP per Chairman's request. ?JCI-tito0 ,T•fatez Zenctte 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 August 12, 1980 Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Washington, D. C. 20551 Dear Chairman Volcker: On July 31, 1980, the Senate Committee on Banking, Housing, and Urban Affairs ordered to be reported H. R. 2255. As an amendment to that bill, the Committee adopted the provisions of S. 2800, a bill to provide for full insurance for deposits of public funds in insured banks, thrift institutions, and credit unions. It is expected that this bill will be reported during the week of August 18, 1980, and could be considered at any time thereafter. Prior to floor consideration, it would be useful to have the views of the Federal Reserve Board on this proposal. Consequently, I should appreciate your sending me your views on this matter at the earliest possible time. Thank you very much for your help. Sincerely. •-•""ft. John Tower JT:tbf V- 3 3 - • BOARD OF 30VERNORS Or Tlr" FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 PAUL A. VOLCKER CHAIRMAN August 20, 1980 The Honorable William Proxmire Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Proxmire: I am responding to your letter requesting a draft amendment to S. 2718, the Export Trading Company Act of 1980, to permit bank holding companies under special circumstances to have a controlling interest in export trading companies while maintaining a general policy that banking organizations should not ordinarily be permitted to control export trading companies. The principal difference between the bill reported by the Senate Banking Committee and the recommendations contained in my letter of May 12 is that the bill permits U.S. banks to acquire controlling interests in export trading companies. The issue of control is of course an important one. The recommendations in my letter of May 12 would help keep risks to banks at manageable levels provided that the banks had non-controlling investments. It continues to be my view that banking organizations should not generally be permitted to control export trading companies in view of the implicit commitments of bank resources, the increased financial risk that accompany control and the need to maintain the line between banking and commerce. The issue of permitting banks to extend their area of operations arises, as you know, in many contexts other than export trading companies. Control often carries an implicit commitment by a bank to place the full resources of the institution behind its subsidiary. In many institutions this is a matter of corporate policy, and it is recognized in the market place. As your Committee report notes, a banking organization is more likely to become involved in the management and operation of an export trading company if it has a controlling interest in that company. Although a bank may judge that it can operate an international commercial banking business more efficiently and safely through controlling investments in affiliates, control and the involvement in management in a nonbanking business would increase the potential financial risk to the owning banks, and might also increase the likelihood of conflicts of interest. This consideration lies behind the recommendation that as a norm bank ownership interest be limited to less than 20 percent. • The Honorable William Proxmire Page Two The Export Trading Company Act seeks to limit these risks by providing that controlling investments by banks be subject to prior approval and to certain statutory safeguards. My concern about the provisions of S. 2718 that are designed to give supervisors powers to step in and prevent unsafe practices is that it would involve the supervisors to a substantial degre e in decisions regarding operations of export trading companies. Bank supervisors are not able to anticipate all future eventualities in acting on applications and are unlikely to be able to supervise the operations of export trading companies sufficiently closely to ensure that risks to banks could be avoided, when those risks are magnified by bank control and involvement in management . Finally, I should note that the sort of detailed super vision of export trading company operations that might be necessary under S. 2718 would be contrary to the philosophy adopt ed by the Board in its recent amendments of Regulation K, which sought to reduce the need for detailed supervisory review and regulation of international bank operations. The control issue goes to the heart of concerns that have been long standing in legislation and policy. Apart from its significance in this case, it also would be an important precedent in other areas. Consequently, I continue to feel that legis lation in this area should be consistent with the basic presu mption that a line be maintained between banking and commerce. In my personal opinion, that concept could perhaps reasonably be bent to recognize some special circumstances that might arise in which limit ed purpose (and presumably limited in size) export trading companies might be permitted, upon application to bank regulators, to be contr olled by a bank. That would accommodate situations where an ETC desig ned for certain specialized purposes (i.e., for particular proje cts or rather specialized trade and financing problems) might not be established without the possibility of strong bank sponsorshi p. I do not conceive of such an "exemption" from the basic presumption against control being extended to large, general or multiple purpose, export trading companies that would be capable of standing on their own feet without bank sponsorship--ab le to attract and retain necessary management and expertise and, indee d, ready to do business with competing banks. However, there may indeed be certain special circumstan ces in which the risks associated with bank control of an export trading company would be outweighed in the public interest by the salutary effect the trading company would have in promoting U.S. exports. This situation might exist when particular goods and servi ces currently not being offered in international trade could be marketed •• .The Honorable William Proxmire Page Three by having access to the expertise of a bank assisted expor t trading company. Further, if the exposure of the trading company (and its bank holding company owner) is reasonable in relation to its activities, it may be in the public interest to permit control of the export trading company. The critical element in any case involving control is the need for bank involvement in the organizati on and continued operation of such an export trading company. This condition could be met when, for example, the limited size, specialized purpose or temporary nature of the proposed new export facil ity makes it unlikely that it could attract the financial manag ement, expert resources and knowledge of foreign markets without the commitment implied by bank control. The export of many produ cts requires a high degree of sophistication and specialized knowl edge in the areas of marketing, documentary requirements, finan cing, etc. In order for a banking organization to control an export tradi ng company, it must bring to the enterprise already existing expertise that is essential to the successful operation of the expor t trading company. I would expect further that the need for continued bank involvement would be demonstrable on an ongoing basis. One issue which I have not addressed previously in the context of the control issue is whether, in those cases where the export trading company is to be controlled by a banking organization, it is preferable that ownership reside in the bank or in the bank holding company. This issue was discussed at the Committee's hearings several weeks ago. Limiting controlling interests to bank holding companies would be consistent with the general scheme of Federal banking laws which requires that nonbanking activities be performed by a corporate entity separate from the bank. Also, this approach would be more harmonious with concerns about breaching the line between banking and commerce. There is an argument that all investments, including those below 20 percent of the export trading company's stock, should be restricted to bank holding companies. However, a good case can be made that passive minority investments of a purely financial nature and with reduced risk to the investor should be permitted for banks as well as bank holding companies. The enclosed draft amendments to S. 2718 are consistent with the views expressed in the foregoing paragraphs. As a footnote, I would mention that there is no reference in the amendments to a procedure requiring sixty day notification before a banking organ ization engages through an export trading company in "any line of activity, including specifically the taking of title to goods, wares, merchandise, or commodities, if such activity was not disclosed in any prior application for approval." The exclusion of this provision from the enclosed amendments does not reflect a lack .The Honorable William Proxmire Page Four of concern for expansion of export trading company activities without prior Federal banking agency notice or approval, but rather a belief that the Board and the other Federal banking agencies would be able to limit such expansion through their authority to impose conditions with respect to applications filed by banking organizations investing $10,000,000 or more in an export trading company. In this way the appropriate Federal banking agency could determine on a case-by-case basis what type of expansion of activity would require prior notification or approval, and would avoid the problem of having to determine the statutory meaning of "line of activity." By permitting bank control of export trading companies only where there is a clear need, I believe the purposes of S. 2718 can be accomplished. At the same time, the concerns I have expressed as to bank exposure would be mitigated by allowing the bank regulatory agencies to review critically any proposal in light of the risks involved. If S. 2718 were amended to permit bank holding company control in these limited circumstances, I would be prepared to support this legislation. Sincerely, Sgaiil A, V*keg Enclosure Amendment Offerd by Sen. To S. 2718 Page 9, strike lines 19 to 25; strike pages 10 to 15; and page 16 strike lines 1 to 9; and substitute the following: (b) Notwithstanding any prohibition, restriction, limita- tion, condition or requirement of any other law, a banki ng organization, subject to the limitations of subsection (c) and the procedures of this subsection, may invest direc tly and indirectly in the aggregate, up to 5 per centum of its consolidated capital and surplus (25 per centum in the case of an Edge Corporation or Agreement Corporation not engaged in banking) in the voting stock or other evidence of ownership of one or more export trading companies. A banking or- ganization may: (1) invest directly or indirectly up to an aggregate amount of $10,000,000 in one or more export tradi ng companies without the prior approval of the appropriat e Federal banking agency; (2) invest directly or indirectly in excess of an aggregate amount of $10,000,000 in one or more export tradi ng companies only with the prior approval of the appro priate Federal banking agency. Any banking organization which makes an investment under authority of (1) above shall promptly notify the appro priate Federal banking agency of such investment and shall file reports on such investment as such agency may requi re. -2(c) The following limitations apply to exp ort trading companies whose shares are held by one or more banking organizations and to the banking organizations holdin g such shares: (1) except as provided in subsection (d), no banking organization may acquire 20 per centum or more of the voting stock or otherwise control an export trading company; (2) except as provided in subsection (d), no banking organization may acquire voting sto ck of an export trading company if such acquisition would res ult in 50 per centum or more of the voting stock of the export trading company being owned by banking organization s; (3) neither an export trading company nor a banking organization that owns its shares sha ll make any representation that the export trading com pany and the banking organization are affiliated. For this purpose, the name of such export trading company shall not be similar in any respect to that of a banking organi zation that owns its shares; (4) the total historical cost of the direct and indirect investments by a banking organization in an export trading company combined with extensions of cre dit by the banking organization and its direct and ind irect subsidiaries shall not exceed 10 per centum of the banking organization's capital and surplus; -3(5) a banking organization that owns any voting stock of an export trading company shall divest such stoc k if the export trading company takes a position in commodities or commodities contracts other than as may be nece ssary in the course of its export business; (6) no banking organization holding voting stock or other evidences of ownership of any export trading comp any may extend credit or cause any affiliate to extend cred it to any export trading company or to customers of such company on terms more favorable than those afforded similar borrowers in similar circumstances, and such extension of credit shall not involve more than the normal risk of repayment or present other unfavora ble features. (d)(1) With the prior approval of the Board of Governors a bank holding company may acquire 20 per centum or more or otherwise control an export trading company; (2) With the prior approval of the Board of Governors, a bank holding company may acquire voting stock of an export trading company if such acquisition would result in 50 per centum or more of the voting stock of the export trading company being owned by banking organizations; (3) the Board of Governors shall not approve an applicat ion under this subsection unless it determines on the basis of the record that: -4(i) the export trading company will limit its activities to exporting or facilitating the exportation of specific goods or services which would not be exported to any significant extent without the involvement of an export trading company; (ii) investment by a bank holding company in excess of the limitations in subsection (c) is clearly necessary in order for the export trading company to export or facilitate the export of goods or services; (iii) the export trading company will limit its activities to a level consistent with the need for minimizing the financial risk of the investing bank holding company and maintaining a separation between banking and commerce, as determined by the Board. (4) The Board, upon receiving an application under this subsection, shall provide a copy to the appropriate Federal banking agency of the subsidiary banks of the bank holding company and shall request the comments of that agency. (e)(1) In the case of every application under this section, the appropriate Federal banking agency shall take into consi deration the financial and managerial resources, competitive situation, and future prospects of the banking organization and expor t trading company concerned, and the benefits of the propo sal to United States business, industrial and agricultural concerns, • -5 - and to improving the competitiveness of United States exports in world markets. The appropriate Federal banking agency may not approve any investment for which an appl ication has been filed under this section unless it finds that there are significant export benefits and that such benefits clearly outweigh in the public interest any adverse fina ncial, managerial, competitive, or other banking factors associated with the particular investment. Any disapproval order issued under this section must contain a statement of the reasons for disapproval. (2) In approving any application submitted under this section the appropriate Federal banking agency may impose such conditions which in the circumstances of the application it may deem 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 such cond ition, the appropriate Federal banking agency must give due consideration to the size of the banking organiza tion and export trading company involved, the degree of inve stment and other support to be provided by the banking orga nization to the export trading company and the identity and financial strength of any other investors in the export tradi ng company. The appropriate Federal banking agency shall .1. not impose any conditions which unnece ssarily disadvantage, restrict or limit export trading compan ies in competing in world markets or in achieving the purposes of section 102 of this Act. On page 17, line 19 "(e)(1)" should be changed to "(f)(1)" . and on page 18, line 12 "(f)(1)" should be changed to "(9)(1)". WILLIAM PROXMIRE HARRISON A. WILLIAMS. JR., N.J. ALAN CRANSTON. CALIF. ADLAI F. STEVENSON, ILL POBEI/T tiORGAN. N C. DONALD W. IVE.GLIE. JR., MICH. PAWNS. SARSIANES. MD. DONAIIID W Sri WART, ALA. GEORGE J. MITCHELL, MAINE WIS., CHAIRMAN • • JAKE CARP'S, UTAH JOHN TOWER, TEX. JOHN HEINZ. PA. WILLIAM L. ARM STRONG COLO. NANCY LANDON KASS!' nALIM. KANS. RICHARD G. LUGAR, IND. KENNETH A MC LEAN. STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANCES DE LA PAVA, CHIEF CLERK ?JCI-litcb Zfctles COMMITTEE ON BANKING. HOUSING, AND URBAN AFFAIRS WASHINGTON, D.C. 20510 August 19, 1980 The Honorable Paul Volcker Chairman Federal Reserve System Washington, D. C. Dear Mr. Chairman: I understand that the Federal Reserve has drafted an amendment which under certain, special circumstances would permit bank holding company control of export trading companies while retaining the Federal Reserve's position prohibiting control of export trading companies by banking organizations. I would appreciate your forwarding a copy of this amendment to me along with an explanation of its terms so that I may consider introducing the amendment in the Senate. S,incereily, 0/ l 11 lam I/ Chairman WP:lmg 41, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 PAUL A. VOLCKER CHAIRMAN August 21, 1980 The Honorable Gaylord Nelson Chairman Select Committee on Small Business United States Senate Washington, D. C. 20510 Dear Chairman Nelson: Thank you for your July 31 letter, in which you convey the concerns of some banks about the paperwork implication under Truth in Lending. Let me assure you that I share your concerns about reducing unnecessary regulatory paperwork, and about the burden imposed, especially on small banks, by the continuing need to keep up with numerous regulations. In fact, in 1978 the Board initiated its Regulatory Improvement Project in order to reexamine all Federal Reserve regulations. This project includes analyzing the costs and benefits of the regulations and redrafting them in simple language. Regulation Z, which implements the Truth in Lending Act, is one of the regulations being reviewed by the Regulatory Improvement Project. Under the Truth in Lending Simplification and Reform Act, which was passed on March 31 of this year, the Board must adopt a revised Regulation Z by April 1, 1981. (That Act was signed into law as Title VI of Public Law 96-221, the Depository Institutions Deregulation and Monetary Control Act of 1980.) A proposed revision of Regulation Z implementing the Act was published for comment on May 5, 1980 (45 FR 29702). Simplification and clarification of disclosure rules are primary objectives of the new Act and the proposed regulation. For example, in the proposed revision of Regulation Z the disclosure requirements are grouped together according to the type of credit involved, so that creditors need not search through the entire regulation for relevant provisions. The regulation also eliminates 12 of the 24 disclosures currently required for installment loans. Moreover, the regulation includes model forms and clauses which, when properly used, will protect creditors from civil liability. The Honorable Gard No Page Two ;()n Finally, under the new legislation, amendments may be made only once a year; this should substantially alleviate th e problem of monitoring changes. The Board is mindful of the importance of balanc compliance burdens with ing the consumer protection s pr ov ided by its regulations.. In trying to strike an acceptable ba la nc e in the revised Regulation 2, the Board has attempted to mi ni mi ze compliance burdens to the exte nt possible while carryi ng ou t the Congressional mandate to issue implementing regula ti on s the Truth in Lending Ac under t. The Act is very comp re he ns iv e, however, and many of the requirements that banks fi nd bu rd ensome are expressly mandated by the statute. The Board appreciates ha ving your views. Sincerely, SLPaul A. Magi SW:ME:vcd (V-326) bcc: Ms. Werthan Ms. English Gov. Teeters Mrs. Mallardi (2) • SAM "ANN. GAYLORD NELSON. WIS., CHAIRMAN • ROO PACKWOOD, ourc. WA, TER D. HUDDI GSTON. KY. ORRIN G. HATCH, UTAH DILLE PI'MPEPS, ARK. S. I. HAYAKA.VA. CALIF. ROCEIJT MO.APa HARRISON H. SCHMITT. N.M. R Janet Ha LOWELL P. WEICKER, JR., CONN. A. JOHN C. CULVER. IOWA JAM( o Action assigned NC, SASSER. TENN. DONALD W. STEWART. ALA. PRiDY roscHwirz, MINN. LARRY PRE SSLER. S. OAK. MAX EIAL'f-US, MONT. CARL L EVIN, MICH. ?Jrni1e6 Zfatez Zertafe SELECT COMMITTEE ON SMALL BUSINESS WASHINGTON. D.C. 20510 WILLIAM I CI-4ERKASKy. txrCuTIVE DIRECTOR HEN. 1.1 L. SPIR.A. CHIEF COUNSLL 111011MRT J. C.POTCHIN. MINORITY STAFF DIRECTOR July 31, 1980 Honorable Paul A. Volcker Chairman Federal Reserve Board 20th Street Constitution Ave., N.W. Washington, D. C. 20051 Dear Mr. Chairman: Enclosed please find a copy of the form used by Wisconsin Banks to comply with requiremcnts of the Federal Truth in Lending Act. Federal paperwork requirements are one of the biggest problems facing small business. It seems that we could reduce the cost of complying with the Act by simplifying its accompanying regulations and reducing the paperwork it creates. We understand that the Federal Reserve Board has a primary responsibility in administering the Act. We urge the Board to begin a review of its regulations and reporting requirements which help c force the law. We believe the reduction of unneces ry i nerwork will benefit the businessman and the onsuinc through lowering the cost's of business and itimatel consumer prices Thank you for your promp matter. I NELSON irman GN:tcd Enc. - 1 x ..•_ i --- i ,. A* 1 •.• .1•..r '.. ' 's g^.- ',• t .r4 Act) hy t` P W'S' O rs Sin Ccvlsu i aA •.. • ",.. A , or (h) a Note dated 19 • i 110, i •(0. • I "Cuctomer", whe:ner one or miee) pu•suant to either (al a ( r,ryinlitnient lere. ., 19 I "the Nolen 'n +red \ ("Creditor - re by -.41:he 4i,ri ...,)g ir.ipr-' 1. loan s ",-)1.)1i E.S : ., • 1 I ( - A(i E_ l 0t• N D '!.. 1".1 I .!, • ott• 'I 1. 5 Proceeds to Customer Being Financed Paid in Cash and Not Financed 2. Plus any other arno..ints financed (a) Recording Fees 0 (b) Title Exam or Insurance LI (c) Appraisal checked in the column to the left, the figure given Is estimated and • may be subject tr change) L3 (If Id) Survey . (e) Document Preparation Paid to Third Person . (f) Credit Report months (g) Property Insurance for estimated term of See Line 15 months (h) Liability Insurance for estimated term of 0 (i) Credit Life Insurance See Line 16 (j) Credit A Er S Insurance 0 Total Itemized Charges Being Financed 3. Loan Proceeds to Customer plus Charges Being Financed (1 + 2) O 2. U 3. L.? 4 $ [1 5. $ 4. Prepaid Finance Charge (a) Loan administration fee . (Not refundable under sec. 138 051, Wis. Stets , not to exceed 2% of line 3 for construction loans and 1% of line 3 for any other loan) (b) Fees to be imposed by secondary market purchaser (Not refundable under sec 138 051, Wis. Stats., if sold on the secondary mortgage market) lc) Loan or origination fee (d) Prepaid interest to 19 _ le) Prepaid mortgage guaranty insurance premium for months ..... (f) Seller's points passed on directly or indirectly to Customer I I Refundable $ I 1 Refundable $ Li Refundable $ . I 1 Refundable S r : Refundable $ (g) V Total Prepaid Finance Charge 5. Amount Financed (3 minus 4) 6. FINANCE CHARGE (Accrues from (a) Interest at date of Note or 13 °If, per annum (Always disclose stated rare of tnteiest even for purchase money first mortgage loans) (b) Prepaid Finance Charge (line 4) $ lc) Mortgage guaranty insurance not prepaid for balance of term of Note $ ____ Total FINANCE CHARGE •7. Total of Payments (5 4- 6) . 8 ANNUAL PERCENTAGE RATE (APR)(use lines Sand 6 and tables) ID 6 $ 0 7. $ LI 8. „ Reg. Z sec. 226.8(13)(8) and if the J If checked here, APR may change during term of loan (Describe index, conditions, limitations, manner of payment and give examples See is for first lien residential mortgage loan, see secs. 138.053 and 138.055, Wis Slats.) on only the amounts advanced and is payable beginnin,, 9 (a) Construction Loan Payment Schedule • Interest is computed from the date of each advance __ month thereafter until 30 days before the due date of the firs 19 _, (estimated) and on the same day of each _ .month thereafter _ _ and on the sarn day of each (b) Installment Payment Schedule. Beginning _ then PL US a ._ (estimated) and th. • (estimated). The loan is repayable as shown in (b), (c) or Id) belt...v.. total interest during construction will be $ equal payment(s) of $ 19 (estimated) advances will be payment shown in (b), (c) or (d) below. The date of the first of _ equal payment(s) of $ final payment 'final balloon payment of $ then _ due on _ _ conditions........ E If checked here and if the mortgage loan is riot in default. Cus:omer may but need not refinance the balloon payment on these _ equal payment(s) -.646^4s.W 6 6.4.-ftia..."01#404W114,..4610.0011.0.461660,64,-ill . • o 4* 6 .11 411 -4•••••••••••••• ••••••••.... • • • • • 1.1•••... •116...:ow •••••••••• • (monthly/quarterly/semi-annual/annual) 1 Payments do not include interest. Interest is payable 7_ with the principal installments, or C3 in , the first such interest payment being $ 19 _ _ installments. commencing Payments do not include mortgage guaranty insurance premiums. They are payable r and the last being _ with the principal installments, or :1 in 19 (monthly/quarterly/semi-annual/annual) installments, commencing and the , the first such payment being $ last being S is due on (c) Single Payment Schedule: _ _. 19 _ Payment includes principal and interest (monthly'quarterly/semi-annual.'annual) installments, commencing _ Li Payment includes principal only and interest is payable in _ for each _ for each day period and S (d) Demand Payment Schedule for each day period. S day period, S day period. installments, 1 Principal and interest is payable on demand. F! Until demand, interest is payable in (monthly/quarterly/semi annual/annual) 19 _ commencing _ 10. for each . Such payments are S 19 Delinquency Charge. % per year until paid, and, except as provided in The Note bears interest after maturity, whether occurring through lapse of time or acceleration, at the default rate of _ delinquency charge computed at the paragraph 12 below, if an installment owed under the Note is not paid on or before the 10th day after its due date, Creditor may collect a and if collected, interest ac 34, per year on the unpaid amount of the installment from the due date until paid or until maturity of the Note, whichever is earlier, _ rate of crued on the unpaid installment, if any, after the installment due date will not be collected. the Note as provided in the Note or mor Acceleration. Upon default as described in the Note or mortgage securing the Note. Creditor may demand immediate payment of is paid in full or judgment is ob tgage. Notwithstanding acceleration, finance charges shall continue to accrue or to be earned at the default rate disclosed above until the Note 11. tamed, whichever occurs first. Prepayment Penalty. imdays (not to exceed 30) prior to its due date shall include interest to the due date of the installment and no delinquency charge will be Any installment paid within _ posed on that installment. C Other prepayment penalty (describe): 12. to the nearest scheduled inRefund of Finance Charge. Upon prepayment in full, unearned finance charge, if any, will be refunded according to the Rule of 78 computed the finance charge earned comstallment due date if the Note is precornputed and payable in regular equal installments; otherwise by subtracting from the finance charge paid, which are indicated as refundable, if any, puted at the rate and by the method contracted for, except that unearned prepaid finance charges disclosed at 4 (a) through (g) and paid such prepaid finance charges earned charges finance and at (b) if the loan is not sold in the secondary mortgage market, will be refunded by subtracting from such prepaid charges will not be refunded. No refund determined by the ratio of full months elapsed as of prepayment date to full months scheduled to repay the Note. Other prepaid finance if total refunds are less than $1.00 Security. The Note is or will be secured by a real estate mortgage dated 14 19 _ , to the Creditor on property located at leases, issues and profits, awards and more specifically described in the mortgage document together with all privileges, hereditaments, easements and appurtenances, rents, assigns to the Creditor proceeds of inand payments made as result of the exercise of right of eminent domain and existing and fixture improvements and fixtures Mortgagor mortgage and loaned by Creditor to the by secured be to agreed surance required by the mortgage with respect to the property. The mortgage also secures any additional sums is subject to the Wisconsin Consumer Act mortgagor, to mortgagor and another or to another guaranteed or endorsed by mortgagor except (1) credit the granting of which to the Act. ("Act") or (2), if the Note is subject to the Act, credit in an original amount of $1000 or less the granting of which is subject Code secur:.y interest in property, an Commercial Uniform a of case the The Note is also secured by a security interest (a) of the type and in the property described below, lb) in described below is farm pro. assignment of proceeds and premium refunds of all insurance required by the security agreement with respect to the property,(c) if the property with any such property ("Collateral"). SUBducts or farm equipment, all property of the same type or kind hereafter acquired by Customer, and (d) in all rights in connection OWING BY THE CREDITOR TO ANY TIME ANY AT MONEY JECT TO APPLICABLE LAW, THE CREDITOR MAY APPLY AGAINST ANY CREDIT BALANCE OR OTHER libilities of any Customer to C. clitor and CUSTOMER ANY AMOUNT OWING ON THE NOTE. All Collateral includes proceeds and products, and secures all debts, ooligations Customer, to any Customer and another, or to arising Out of credit previously granted, credit contemporaneously granted and credit granted in the future by Creditor to any hereof, the Creditor disclaims as security for another guaranteed or endorsed by any Customer to the extent not prohibited by the Wisconsin Consumer Act By its acceptance the Note any security interest it holds on the date of the Note in property not referred to herein. Description of Collateral Interest Type _ Security _ . of Uniform Commercial Code Security Interest J Assignment : Lien on other Real Estate 15. 16 LI See attachment(s) for description of Collateral. (Use ONLY if space provided is insufficient.) FROM OR Property and Liability Insurance. CUSTOMER MAY CHOOSE THE PERSON THROUGH WHOM SUCH INSURANCE IS OBTAINED. IF OBTAINED ABOVE. (h) 2 and 2(g) ON LINES APPEARS INSURANCE THE COST OF IF FINANCED. SUCH THROUGH CREDITOR OR 17. Acknowledgement of Receipt. Receipt of a CREDIT LIFE AND CREDIT ACCIDENT Et SICKNESS INSURANCE ARE NOT REQUIRED BY completed copy of this statement and any atCREDITOR. Any Customer who signs immediately below desires the insurance described for the cost(s) and term(s) shown below and on lines 2(i) and 2(j) above for the term of the Note (or which.". ' s D • months, tachments referred to above is acknowledged. 19 Credit A.;,-.dent Et Sickness Insurance oared BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20551 RAL RV.S" • • .. • • PAUL A. VOLCKER CHAIRMAN August 22, 1980 The Honorable Henry S. Reuss Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman Reuss: Thank you for your letter of July 29 requesti ng an analysis of the issues raised in a letter you rece ived from Mr. William M. Logan of Cleveland Heights, Ohio. Mr. Logan opened an account with Union Commerce Bank on September 15, 1975 , that was automatically renewable and closed the acccount on July 7, 1980. At the time of closing the account, Mr. Logan was assessed an early withdrawal penalty by the bank. Mr. Logan believes that he held the account open for a period extending well beyond the original maturity and can therefore see no reason for the appl ication of the penalty in this case. According to the analysis of the Board's staff, it appears that the account Mr. Logan opened was a time deposit which required the depositor to leave the money on depo sit for 10 full calendar quarters. Since Mr. Logan deposited his money on September 15, 1975, it appears that the original maturity of the account was March 31, 1978. The passbook also notes that if the deposit is not withdrawn within 10 days of maturity, the account woul d be automatically renewed for the same period as the original maturity . Therefore, by leaving his funds on deposit for more than 10 days following the March 31, 1978 maturity, Mr. Logan, in effect, elec ted to renew his deposit for another 10 calendar quarters; in this case, the account would have matured on September 30, 1980. Henc e, Mr. Logan's action to close the account on July 7, 1980, cons tituted an early withdrawal subject to the interest penalty imposed by the Board's Regulation Q (12 CFR Part 217). Under Regulation Q, deposit contracts that were ente red into prior to July 1, 1979, are subject to a minimum early withdrawal penalty determined by reducing the interest paid on the funds withdrawn o The Honorable Henry Page Two Reuss to the regular savings rate and by forfeiting three months' interest at that rate. According to Ms. Sally McCl enchan of Union Commerce Bank, this was the penalty that had been impo sed on Mr. Logan. She believes that Mr. Logan was misinformed when told that the six months' forfeiture penalty was applied. In any even t, the bank did have the option of applying such a penalty to Mr. Logan's account. Effective July 1, 1979, Regulation Q was amended to provide for a new, generally less. severe early withdrawal penalty: a forfeiture of six months' interest for a time deposit with a maturity of more than one year.. The regulations allow a bank, with the depositor's consent, to apply the new, generally less severe penalty to time deposits that were in existence prior to July 1, 1979. Therefor e, so long as Mr. Logan consented to the application of the new rate, Union Commerce could have applied the six-month forfeiture penalty if it so desired. In closing, Mr. Logan cites what he consider s the unfairness of the early withdrawal penalty rule; he believes that banking laws should benefit both banks and consumer s and he does not see any way in which this rule benefits the cons umer. The early withdrawal penalty was not imposed to provide any advantag es to banks vis-a-vis consumers, but to safeguard the stability of our banking system. The rule is intended to discourage requests for earl y withdrawals in recognition of the general practice of financial inst itutions to use funds obtained through the issuance of long-term time deposits for immediate or long-term investments. Uncertainty rega rding the possible withdrawal of large amounts of funds from a bank or other financial institution before the agreed-upon maturity date coul d seriously disrupt an institution's loan and investment programs by requiring the liquidation of assets at a loss in order to raise fund s to meet the large numbers of unexpected withdrawals. If such a practice became widespread, it could have substantial adverse effects on the stability of the nation's banking system. I hope these comments are helpful. I can be of further assistance. Please let me know if Sincerely, S/Paul A. Yo!cliet. JA:vcd (#315) bcc: Mr. Jos. Alexander Mr. Paul Pilecki Mr. Mannion Mrs. Mallardi (2) n lib g * HEN"Y S. REUSS. WIS., CHAIRMAN THOMAS L. ASHLEY, OHIO WILLIAm S. MOORHEAD, PA. FERNAND J. ST GERMAIN, R.I. HENRY B. GONZALEZ, TEX. Jorrmi G. MINISH. N.J. FRANK ANNUNZIO. ILL. Action assigned Mr. Petersen • • U.S. HOUSE OF REPRESENTATIVES GEORGE HANSEN, IDAHO HENRY J. HYDE, ILL. RICHARD KELLY. FLA. COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS, JIM LEACH. IOWA THOMAS B. EVANS. JR DEL. S. WILLIAM GREEN, N.Y. JAMES %A. HANLEY. N.Y. PARR' N J. MITCHELL. M. WALTER E. FAUr4TROY, D.C. STUTHi N L. NEAL. N.C. JERRY im RON PAUL, TEX. ED BETHUNE. ARK. NORMAN D. SHUMWAY, CALIF. NINETY-SIXTH CONGRESS rATTERSON. JAMES J. 131. ANCHAPD, MICH. CARR°. L HuEIBARD. JR.. KY. JOHN J. L ArALCE. N.Y. J. WILLIAM STANTON, OHIO CHALMERS P. WYLIE, OHIO STEWART B. McKINNEY. CONN. 2129 RAYBURN HOUSE OFFICE BUILDING WASHINGTON, D.C. CARROLL A. CAMPBELL. JR.. S.C. DON RITTER. PA. 20515 JON HINSON, MISS. GLADYS NOON SPELL MAN. MD. LES AuCOIN, OREG. 225-4120 DAVID W. EVANS, IND. NORMAN E. D'AMOURS. N.H. STANLEY N. LUNDINE. N.Y. JOHN .1. CAVANAUGH, NEBR. MARY ROSE OAKAR, OHIO JIM MATTOX, TEX. BRUCE F. VENTO, MINN. DOUG BARNARD. GA. WES WATKINS, OKLA. July 29, 1980 ROBERT GARCIA, N.Y. MIKE LOWRY. WASH. The Honorable Paul A. Volcker Chairman Depository Institutions Deregulation Committee c/o Board of Governors Federal Reserve System Washington, D. C. Dear Mr. Chairman: I would appreciate your analysis and response to the questions raised in the enclosed letter from Mr. Logan. Sincerely, A S • Henry S.1 Reuss Chairman Enclosure • 411 k William M. Logan July 25, 1980 R Ms. Sally McClenehan Union Commerce Bank 917 Euclid Avenue Cleveland, Ohio 44115 ECEIVED .111I 28 1980 C2nAing, finance & Ms. McClenehan: Urban Affairs emit!tee I have a complaint concerning the Blue Ribbon Passbook Account I have had with Union Commerce since September 15, 1975. The Account No. was This account was closed on July 7, 1980, which was well beyond the ten full calendar quarters required for completion of the passbook requirement, and it was closed on July 7 which, according to the information in the front of my passbook, was within the ten days following the onset of a quarter requirement for termination of the account without penalty. Despite meeting what I had considered to be the requirements as outlined in the book, I was still penalized significantly at the time of termination of the account. I was informed by the young lady terminating the account that a Regulation Q prohibited Union Commerce from extending the interest earned during the last two quarters (six months), and therefore this amount of interest was to be deducted from the amount paid to me. I cannot see any reason for any penalty being applied to this withdrawal. However, the severity of the penalty makes me wonder what advantage Regulation Q could possibly have to the bank customer. Most laws that are passed regarding banking procedures are supposed to have some benefit to both the banking establishment and the banking consumer. I can readily see the advantage of this type of a regulation to the bank. In my particular case, they had my money, during a highly inflationary interest period, completely free of charge for over 6 months. However, I fail to see any advantage this regulation extends to the bank customer • and by copy_of_this_letter to the Congressional representative _in_my district, I am asking for a response from those responsible for this law, explaining the extreme penalty and—the lopside-d—hihefits of Regblation Q. I would ask you to please review the circumstances surrounding the withdrawal of the account mentioned to determine if, in fact, this penalty was proper. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Very truly yours, ‘ William M. Logan • •4 •• •7 UP iTY G• POSIT VAT t - _- • I • 13,,i r pi par, l e I 1-ivr ASIC ALLY ;ENE WAPitt TIME DE POSITS A •••1.• NICE IOUNT NUMMI .“ ./519 /7e-71 e• fel •• /_.'c-r. -T-0 J21E 1 4- ....•• al ••1. .. •••I • CAEINDA, /3,ierfC•• 2 Ir=c,-:1 ' Logan 7"ade1on E Of ACCOUNT L 01 t11.61.43- .1t1 hih--72. CA /3,s0 /6.0 9./g s'el -re e".A..5( 1.27/27-#443-, - EIOS\30,t). 'i; To ONES 1;:Al This account is subject to the rules amd regulal;ont sinveln;n9 PREMIUM Bit N Passbook Deposits, a copy of which was delivered to the depositor • Sf5it,q5/,/ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -t'/Or ime of opening this account. withdrav. This passbook must be presented with every deposit and every s such requirement is waived by the Bank. r J Kindly i‘ 1.t..1 Q1 \-) t —1 ."..... --.' "•- ddress for our records. UNION COMMERCE BANK Member federal Deposit Insurance Corporation ..s -,,' r4 i_•Y L Cb-' : c 4 r.... .--.., •,.., 'N.) .....i'f.„.... I. tvr %.:•'•* e.• Z._ .<'•• • \ * t-.. •";... CZ) , ' notify us of any change of • •• — — • —. • • • \V. PREMIUM BLUE- RILIEON Each deposit to this account not \i‘filh-' drawn at maturity or within 'con days _ thereafter, shall be z;ut.onitiknilyin continuously ronov,*.d or ih time elected by ail(1lr Tor. 11-1Z, initial deposit, at thz?1•;:i'tt iz)1 Z•1;!WI l in efict or such rx.->fiDti ,6 'to ru Union Commerce Bank • Di 4 a• It - .• .• of GOvi •.. 'I P• • .•e•co '6\ N-. 1 • -J. ,,,ii it • •.,c, BOARD OF GOVERNORS -,.. o oeW\ •• 0 -„ • • OF THE FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551 . 40,1tiar. PAUL A. VOLCKER CHAIRMAN August 22, 1980 The Honorable Carl Levin United States Senate Washington, D. C. 20510 Dear Senator Levin: I well understand the concerns expressed in your letter of August 6 and that of your constituent, Mr. Samuel B. Sherer, regarding the impact of money market mutual funds. There can be no doubt that the money fund s are having a significant impact on financial flows thro ugh our economy. Because they offer a combination of grea t liquidity (including immediate access through wire transfers and checks) and the opportunity to participate in the yield on a diversified portfolio of market instruments, they have drawn a substantial volume of funds that might otherwise have been placed in deposits or securities. Of course, these monies are channeled back into deposits and securities, but in the proc ess it is indeed likely that smaller depository institutions are adversely impacted in terms of the cost or availability of lend able funds. Savers clearly benefit from their access to this new financial instrument, but the greater national integration of the money markets has exposed many institutions to greater pres sures that have been especially difficult to cope with at a time when accelerated inflation has pushed interest rates to historic highs. And, as those institutions are impacted, borrower s, including particularly homebuyers dependent on local institut ions, feel the effects. As you and Mr. Sherer note, the money fund s do have some characteristics of banking institutions , but don't carry many of the regulatory burdens of those institut ions. I think it is important to recognize that they also are dissimilar in significant ways. They do not originate loans and obta in the non-interest income associated with such activity; perhaps more crucial, they do not offer their shareholders a liability that is insured or that carries a fixed yield. Obviousl y, there is a broad spectrum of financial intermediaries whose asse ts and liabilities are in some ways similar to and in other ways different from those of commercial banks and thrift institutions . • The Honorable Carl Levi n Page Two The question of which intermediaries should be subject to reserve requirements, or other "banking type" regulations is thus a difficult one. My colleagues at the Bo ard and I are monitoring closely the developing role of the money market funds, both as issuers of liabilities that co nstitute nearmonies and as invest ors. I have puzzled fo r a long time over whether some changes in the regulatory area are really justified. As you know, the Boar d does not now posses s the power to impose reserve requirements on money market funds. We have not felt it appropriate to make a le gislative recommendation in the light of all the confli cting considerations. One consideration in that respect is that the pace of financial innovations is very ra pid, and attempts to sh elter established depository institutio ns from the pressures of the marketplace can be costly, ineffe ctive, or both. At th e same time, I think my comments imply I am far from comfortabl e with the existing disparities in regula tory treatment, and wi ll continue to observe developments closely. Sincerely yours, MJP:DJW:vcd (#V-321) bcc: Mike Prell Mrs. Mallardi (2) Oction assigned Mr. Ettin CARLLEVIN MICFoGAN • 'ZICrtifeb Zfatez Zenate WASHINGTON. D.C. 20510 August 6, 1980 Mr. Paul A. Volcker Chairman Board of Governors Federal Reserve System Constitution Avenue and Twentieth Washington, D.C. 20551 i/ Ida.4 %,• •... . rjOk • Dear Mr. Volcker: 1110•••••••••._ A recent constituent letter questioned the Federal Reserve's regulation of Money Market Funds. As you know, temporary reserve requirements on Money Market Funds expired July 28, 1980. Does the Federal Reserve Board intend to institute permanent reserve and liquidity regulations for these funds? Money Market Funds are now operating essentially the same as bank and savings and loan associations. In the interest of equity, should Money Market Funds be allowed an unfair competitive advantage over thrifts and smaller banks by exempting this institution from the Federal Reserve Board's reserve regulations? Enclosed is a copy of the constituent's letter. I would appreciate your interest and willingness to explain the Board's position on this matter. Sincerely, Carl Levin CL/r Enclosure • • 1 FF.!YITIAL .!-W illGS 511 WOODWARD AVENUE DETROIT, MICHIGAN 48226 TELEPHONE (313) 961-7600 July 16, 1980 Senator Carl Levin 1860 McNamara Building 477 Michigan Avenue Detroit, Michigan 48226 Dear Senator Levin: At a recent Michigan Savings & Loan luncheon at the Recess Club in Detroit you asked that I reduce to letter a question we had all discussed in connection with Money Market Funds. As you know, these Money Market Funds, by accepting deposits at interest and honoring third party drafts against these deposits, are operating substantially the same as a bank or savings association offering checking accounts and NOW accounts. Money Market Funds offer this service free of regulatory reserve and liquidity requirements such as we must operate under. The Federal Reserve chairman has apparently indicated he has no intention of trying to impose bank and savings and loan type restrictions over these Money Market Funds. We are wondering the basis for his position in this matter. Philosophically it's inconsistent. It may be a jurisdictional consideration, recognizing that the Money Market Fund industry would pragmatically accept a modest short-term reserve requirement imposed under the Credit Control Act but would not acquiesce to anything stronger or more permanent. Whatever the reason, these Funds, operating as unregulated banks, do enjoy an unfair competitive advantage in this area at the expense of the thrifts and smaller banks since a good portion of Money Market Fund deposits are invested in large bank CD's. We appreciate your interest and willingness to find out the background for this position. I personally enjoyed having the opportunity to discuss with you this issue and other issues of concern to our industry last Friday. Very truly yours, „ 51 , c- -'Sarnue1 B. Sherer President SBS:mh tY cc: Mr. Don Wall Michigan Savings & Loan League • • • .• .•,,, of Govt4,4 ••.. •• c• ,z-,,,,,,0, -....ge,..• -, • • •,•:, ,,,.. •, , , L . , 7 , .2 • • ,, •0 • -A 4i EMARO OF -20VERNORS 3: • FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 •:7^0 \. "-.)4; • ERA L 11V- S • • • • .. • • PAUL A. VOLCKER CHAIRMAN August 22, 1980 The Honorable Henry S. Reuss Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman Reuss: I have read your August 5 letter in which you discuss portions of the report on monetary policy of the House Committee on Banking, Finance and Urban Affairs that relate to speculative and takeover loans and in which you also raise some questions about the possible acquisition of the Koehring Company by Amca International Corporation. The staff here has been looking into the Amca International situation, and they tell me that they still do not have all of the information necessary to answer your specific questions. In particular, we do not know at this time if the borrowing is expected to occur under an existing credit line or if a specific credit has been arranged. The timing of the commitment and the take-down and other provisions of the loan are also not known. I expect to have the information soon so that I can respond to you. As to the general issue of acquisition or takeover loans, I understand the nature of the concerns expressed in your letter and in your Committee's report. As recent experience indicates, there are exceptional circumstances under which it may be appropriate to discourage particular types of lending such as acquisition loans that do not promise improvement in economic performance. The actions taken by the Federal Reserve late last year and early this year as a result of unusual credit market developments appear to be consistent with the views expressed in your Committee's report on the role that the Federal Reserve should have in such periods. "This Committee does not favor the use of direct credit controls, and we recognize that primary responsibility for lending decisions The Honorable Hey S. Reuss Page Two must remain with the decentral ized, competitive American banking system. Nevert heless, there are times--such as October, 1979-when the Federal Reserve must establish guidel ines to encourage lending in the national intere st and to discourage speculative and purely financial loans. When these times arrive the Federal Reserve should take effective instea d of ineffective action. Adequate reporting req uirements should accompany such action to permit objective evaluation of its success." As you have indicated, "it is not always easy to distinguish productive from speculati ve and takeover loans." Conseq uently, any procedures developed in tho se unusual periods to discourag e such lending cannot be expected to operate with precision. In tha t context, the results of our action s earlier this year appear to have been consistent with the achiev ement of the objective to dis courage speculative lending. On an ongoing basis, I can app reciate your Committee's concern about "lending to produc tivity-enhancing capital invest ment, small business, housin g, consumers and farmers." We share those concerns. More specifica lly, we have been exploring wha t steps might be taken by the Federal Reserve (and other ban k regulators) to help insure that we have better and more timely information at our disposal in regard to the behavior of banks in financ ing speculative activity. Such an approach should provide us wit h earlier indications of emergi ng problems of a general nat ure that potentially may result in dis tortions of normal credit flo ws. At the same time, as we have discussed before, we do not want to be put in a position of making, as a matter of course, dis tinctions among types of loans that in fact cannot be accuratel y distinguished in practice in ter ms of economic impact, or to int erfere with normal competitive processes when that intrusion can not be clearly justified. Sincerely, S/ Pai4 KAS:PAV:vcd (#V-319) bcc: Mr. Scheld Mr. Ryan Mrs. Mallardi (2) HENRY S. REUSS • 5TH DIrTR'CT. WISCONSIN Action alined Karl Scheld and inforrnatiecopy sent to Jack Ryan WAnIIINGTON OFFICE. 2413 RAYTI0F/N HOUSE- OFFICE BUILDING WASVONGTON,0 C. 20515 PHoNr 2u2-225-3571 COMMITTEES: BANKING. FINANCE AND URBAN AFFAIRS CHAIRMAN SUBCOMMITTEE ON THE CITY Congrc55 of tije Unita!*tato CHAIRMAN JOINT ECONOMIC COMMITTEE IHILWAVYFE OTF ICE: Fm,PAL Elu,L otp.c. Roo ki 400 517 rA',T WICCONSIN AVTNUE M WISCONCI*4 53202 30ousSe of 1IeprOentatibe5 INTERNATIONAL ECONOMICS SUBCOMMITTEC CO-CHAIRMAN Zilazbington, Ile. 20315 PHoNr: 414-291-1331 August 5, 1980 Mr. Paul A. Volcker Chairman Federal Reserve Board 20th and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Mr. Chairman: On June 26, 1980, I wrote you concerning a $40 million loan agreement made by five large banks to enable Nortek, Inc., a Rhode Island conglomerate, to take over Sta-Rite, a Milwaukeebased manufacturer. I called your attention to the Federal Reserve Board letter of October, 1979, to major banks requesting them not to make loans for corporate takeovers that simply substitute one source of financing for another and do not clearly promise improvement in economic performance." You replied by letter of July 22, 1980, conceding that the bank loan "raises a question as to whether the banks consciously misconstrued or disregarded the spirit of the Federal Reserve's efforts", and adding that you had asked bank presidents "to discuss this loan with top officials of the banks involved, emphasizing the nature of my concerns about the transactioi, -an3 making certain that the need for cooperation in such effort,:, is understood.' Meanwhile, on August 4, 1980, the House Committee on Banking, Finance, and Urban Affairs, in its statutory report on monetary policy, has renewed its view that "adequate restraint of speculative and purely financial lending is necessary". The report called attention to the Federal Reserve's "laudable" policy statement of last October: "that banks should concentrate their lending on small businesses, consumers, home buyers, farmers and productive capital investment, while avoiding loans for commodity, gold and foreign exchange speculation and for purely financial activities such as stock buy-backs and corporate takeovers. But despite these good intentions, the Federal Reserve and the Administration could not secure adequate voluntary compliance with the request. The evidence on this has been laid out in the hearing record. As Chairman Volcker stated in his • Mr. Paul A. Volcker August 5, 1980 Page 2 testimony before the Committee describing the situation before March, 1980: 'Speculation was rife.' We recognize that it is not always easy to distinguish productive from speculative and takeover loans. However, the majority of the nation's banks did respond positively to the Federal Reserve's call for restraint in lending for speculative and purely financial purposes. This record of general compliance makes all the more necessary a policy that will effectively deter the handful of banks who financed the bulk of speculative loans in early 1980." I now call your attention to another bank-financed takeover attempt of a Milwaukee-based corporation. Amca International Corporation of Hanover, New Hampshire, a subsidiary of Montrealbased Dominion Bridge Company, part of the Canadian Pacific group, has just offered $37 a share (they are currently quoted at $24) for Milwaukee's 73-year-old Koehring Company, a manufacturer of hydraulic cranes, excavators, and other construction and extraction equipment. The Company is in no way distressed; in fact, its profit performance has improved every year over the last four years. The Company has planned to build a new manufacturing plant in the metropolitan Milwaukee area to employ 1200 to 2000 people. If the takeover occurs, the new plant will be in jeopardy, as will the existence of the Milwaukee headquarters. According to the acquiring corporation, the $140 million required for the acquisition will be financed from $100 million of retained earnings, and with $40 million -- the same amount as in the Sta-Rite takeover attempt -- from bank credit. Our Banking Committee August 4 report requests that the Federal Reserve "discourage speculation and purely financial loans", and asks that the Federal Reserve "take effective instead of ineffective action. Adequate reporting requirements should reflect such action ...". I shall appreciate your answer to the following questions with respect to the Canadian Pacific takeover: 1. What, if anything, does the proposed Canadian Pacific takeover of Koehring contribute to the performance:pf the American Economy? /I / I / :1 V • Mr. Paul A. Vo1411r August 5, 1930 Page 3 2. What will be its effect on the economy of metropolitan Milwaukee? 3. Does the $40 million bank loan violate the Federal Reserve's explicit injunctions of October, 1979? 4. What action is the Federal Reserve taking? Sincerely, Henry S. Reuss Member of Congress 111 FEDE BOARD OF GOVERNORS Or TIIE • RAL RESERVE SYSTEM WASHINGTON, D. C. 20551 PAUL A. VOLCKER CHAIRMAN August 22, 1980 The Honorable Jim Leac h House of Representative s Washington, D. C. 20 515 Dear Jim: I have hesitated for too long in answering yo about money market fund ur inquiry s for one reason: I frankly am not comfortable that I have an adequate answer to th e concerns you express. As a starting point, I certainly agree with tion that the money fu your observands have attracted de posits from both banks and thrifts. In a pe riod of high interest rates, investors obviou have found the yield sly and liquidity charac teristics of the funds be superior to deposi to ts for many purposes-a disparity that reflec to a substantial exte ts nt the more restrictiv e regulations faced by banks and thrifts. As you also suggest, th e diversion of deposi funds probably has ha ts to money d its greatest impact on the availability of credit at smaller inst itutions, such as thos e often prominent in rural areas. This di stortion of credit flow s was especially seriou when financial condit s ions generally were un der extraordinary strain and it led to the Marc , h 14 actions imposing a special deposit requirement on growth in money fund assets. Th e requirement was removed only after the pressures in financial markets had eased substantially and cred it increasingly was av ailable to a wide variety of borrowers at lower interest rate s. The relaxation of thes e immediate difficulti course, does not sign es, of al any change in the fu nd am en positions of money fund tal competitive s and depository inst itutions. A number of factors constrain th e ability of banks and thrifts to compete with money funds. Reco gnizing the particular problem of ceiling rates, the Depository Institutions Deregula tion Committee moved to raise permissible ra tes a bit on certain time deposits relative to market interest ra tes, as a first step in the Congressionally mandated process of ph asing out these ceilin gs. But there are obvious limitations on the extent to which th at can be an answer in the near term, give n the existing assets and earnings of the The Honorable Jimipach Page Two institutions. Even wh en the "deregulatory" process is completed, depository institutions still will operate un der much more pervasive regulations th an money funds, includ ing reserve requirements on transactions and nonpersonal time accounts. There is, of course, another side of the st tially offsetting the ory. Parregulatory disadvanta ges are insurance on deposits and the abil ity of depository in stitutions to offer customers a wide vari ety of services in one location. I have been surprised recently with the rapid growth in passbook savings accounts at both banks and thrift institutio ns even though money fund rates are well ov er yields on these ac counts. More broadly, from the savings and co nsumer standpoint, mo ney market funds are attractive and effi cient; they contribu te to both consumer satisfaction and the national interest in savings. Nevertheless, savers have become extremely even small changes in sensitive to the relative advantag es of holding differ assets. In the still ent uncertain financial en vironment we face, a substantial diversio n of flows from depo sitory institutions money funds could re to cur, and, indeed, ex cept for the past few the money funds have weeks, remained in a relative ly strong competitiv position. e Given the urgent ne ed to encourage savi channeled into invest ngs that can be ment, it would obvi ously be preferable redress competitive to imbalances by removi ng restrictions on ba and thrifts when poss nks ible rather than to impose limits on mone funds. But given th y e restraints on prog ress in that direct am left with the na ion, I gging concern that th e situation is unba Imposing an interest lanced. rate ceiling, a la Re g. Q, seems neither sirable nor feasible de. One approach towa rd balance might be in effect, force a ch to, oice between reserve requirements or conduc only a "non-transacti ting on account" business . But that would be substantial departure a from the traditions of mutual fund regula tion. Moreover, we ne ed to balance the ne eds of consumers and savers. In sum, I have no legi slative proposal now believe the situation --but I do bears watching. And I wo uld be delighted to explore your own th inking further. Sincerely, DK:JLK:PAV:pjt bcc: (#V-306) Mr. Kichline Mr. Kohn Mrs. Mallardi (2) 7 /2, ,/-7 At Action a O ned Mr. Kichline commirms, JI M LEACH isr BANKING, FINANCE AND URBAN AFFAIRS ,P.CT, IOWA POST OFFICE AND CIVIL SERVICE CONGRESS OF THE UNITED STATES July 24, ITin The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve 21st Street and Constitution Ave. NW Washington, DC 20551 Dear Mr. Chairman: During the Banking Committee hearing yesterday T briefly raised the problem of insuring equitable competition between financial institutions and money market mutual funds. The current advantages enjoyed by money funds have caused massive deposits to be shifted from banks and savings nnd loans into near-bank operations. The money fund development would appear to be particularly damaging to cnall, rural financial institutions, compared to money-center ones, and consequently to the overall rural economy. T would be appreciative of any thoughts you might have on this problem and if you could indicate whether the Federal Reserve intends to utilize its authority and/or recommend legislation to establish competitive equality between financial institutions and money funds. Thank you for your consideration. Sincerely, Jim ,ach Member of Congress OFFICES: 1406 LoNnworrn4 HOU1E OFFICE BUILDING WASHINGTON, D.C. 20515 (202) 225-6576 306 F AND IVI BANK BUILDING THIRD AND JEFFERSON STRErTE BuRLINGTON, IOWA 52601 (319) 752-4584 322 WEST THIRD STRF LT 52801 DAVENPORT, IOWA (319) 326-1 84 1 OW- 102 S. CLINTON STREET ROOM 505 IOWA CITY, IOWA 52240 (319) 351-0062 • • ‘;,, : c34:viiv .c; : •• ..... .01 P--":• • BOARD OF C3OVERNORS S .'• •0 Or THE FE.DERAL RESERVE SYSTEM [igg WASHINGTON, 0. C. 20551 •‘RAL • •.. • • PAUL A. VOLCKER CHAIRMAN August 22, 1980 The Honorable William Lehman House of Representatives Washington, D. C. 20515 Dear Mr. Lehman: Thank you for your letter of August 4 regarding an inquiry received from your constituent, Mrs . Doris Joseph, concerning her recent purchase of a Treasury bill through the Miami Branch of the Federal Reserve Bank of Atlanta. Mrs. Joseph stated in her letter to you that a typographical error made by Miami Branch person nel when they issued her discount check had delayed postal delivery of that check. To prevent any delays when her redemption check is issued next January, Mrs. Jos eph asked if she could pay to have the check sent certified mail. Please assure Mrs. Joseph that this will not be necessary. The Treasury Department will be establishing Mrs. Joseph's Treasury bill boo kentry account within the next few weeks. Once this is accomplished , Mrs. Joseph will receive a book-e ntry statement of account reflec ting all important data relevant to her purchase. She should review this statement carefully and notify the Treasury Department immediately of any errors, because this inf ormation will be used by the Tre asury Department to generate her redemp tion check. Treasury personnel stated that the redemption check will be dated January 22, 1981, and will be mailed from the Was hington Disbursing Office on January 20. Mrs. Joseph should receive it on January 22 or 23. We regret any inconvenience that Mrs. Joseph may have experienced as a result of the del ayed receipt of her discount check. You may assure her that pro cedures in the Miami Branch are being changed to insure that in the future typographical errors such as this one will be detected prior to mailing. Please let me know if I can be of further assistance. Sincerel Siyaui NAMES DAD:CO:vcd (#V-330) bcc: Ms. DeCorleto Mrs. Mallardi (2) cc: Frank J. Craven, Jr. Vice President and Manager, Miami Branch WILLIAM LEHMAN 13TH [ThsTRIcT, FLORIDA Action as.ned Mr. Wallace. • COMM ITTE r! WASHINGTON Orr Met 2440 RAYBURN HOUSE Orme BUILDING WASHINGTON. D C. 20513 (202) 223-4211 APPROPR IATIONS - Congre55 of Elie Mtittb 'tate. DISTRICT orricr • SUECOMMITTEE ON 2020 NE. 163o STArcr NORTH MIAMI BC ACM. FLowinA 3Dou5e of 1epre5entatibei4 fORF ,GN OPFRATIONS 33162 (305) 945-7516 SUOCOMMITTrE ON Ulaitington, D.C. 20315 TRANSPORTATION PLEASE REPLY TO DISTRICT OFFICE 0 August 4, 1980 Mr. G. William Miller, Chairman Federal Reserve System Federal Reserve Building Constitution Avenue between 20th 21st Streets Washington, D. C. 20551 r-10 Dear Mr. Miller: RE: Doris Joseph The attached communication from our constituent, Mrs. Doris Joseph, is sent for your consideration. I would very much appreciate your looking into the situation described by our constituent and advising me of your action in this case. Thank you for your cooperation and assistance in this matter. With best wishes, I am erely, 0 AM IEHMI1 Member of Congress WL/ajt Enclosure THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS • • ••• "4 *0 AUGT.;11 1, 100,1 C‘ •ii t1Ji IItiiI i.4ACi, , 1,01(IDA 162 SIR Ai:..,UNT UN JULY 19TH, 1n21, I BROUGIIT A CH1..;CK, IN CHECK CAEE Fu: N.A L- iE CUT TO THE FED.I:P.AL li 3IVE BANK CF IIAI. TiiIS A SAVINGS ACCOUNT. THE 1- .-EiaNSULA FEDERAL SAVINGS AND LOAN WHERE I CARRY INFORMED ME THAT T.1 IS McCOUNTE WHO WRCHE UP T HE FORM OF EURCHASE, ADDRHSs CN T INTli:REST ON THIS TREASURY BILL WOULD BE MAILED TO NY 2nTH OF Ti I DID NCT R7C-EI1TE NY CiE,CK BY q.‘frE 7'/“Til OF JULY. h1:1) NuTki NIAEI T kACH i a-)T 01;"2ICE EUJIII I CALL._,D VT Tt.,DERALR1i ui Y ()N.':: DAY Rk • • Bp'.11( T:il•T IT T AK C IT Ca_LK NORTil NI/6.11 P,EAC it • L.,!..)*T OFFICE) AND 1.,11 LO.;T 11 THE NAIL. TOLD NE TAT ICALLED TriE EP.I.N 1 0.(T11 01:FICE A:ID A MRS. G4tLE : WAS NOT AN 1...'RP.OR T..IS `i UN TR.Ani',R A ON UT D 1 17,D TuE II"' • T')Ais. i: 0,7 I. AI CLEFT,, WHO TY ICE: YOUi: IX. FY EAIT.:..D TO NF, UUi,ll 11;, C...u•CK 111.'d THE TER IS CuRR UdN Ati"1 11; • 1.13 Tit CCE, 30 TO Y I I.:00'7 OF :1 ; , 017 (4I 1.1 PFi 1J', AND EP,. I. . A GOOD DY:AL C7 NAIL,:LTrx diT ME :37'r.:PAT. .G TO !.'ild) NY CiCK • THI:; ERROR CAT-7)7D Iii LOPNIUG .1 JIGHTS, OF NIANI AND INOUIRED A. TC WHY WhEN I CALLED TLIE FEDERAL RE6ERVE BAN neCCUNTE rUT "KATHY" ON TIE I hAVE NOT RECEIVED MY CHECK, MISS =-.7) - 77 • SG I !..117) U.' Ii) TO EE - "I DO fl(T itYT , A L i* rm ( AGE 'Y I 1?LACui4U ".1kiEN Ur 1.1 • • D iR THAT AI60 I • ii TOO WilAT UE D(.:1•,`,..: ()ST .D KATHY CLT,L.'..,D 1..F. ON JULY 71 AND AGAIN DRIVE TiiF, uni4 LI. , D T.11..c,.‘ ;I; ii TOLD I , C;iLCK TO 'LC, UP LY C.11":1,CK., IT WA:3 TOO LAI IN NY lh YEAi. OLD CAR,AND C. ) TO DRIVE TIEE 11.111: DAY S VT.; B 2,EN L..D DAY (Till', EAIL IT IN A WINDOW T.:Mr:L0T-7, Ei;CLU11,1) I5 A CO: Y OF TH1., CiLCK. THEY TiORIGINAL ORDER FORE BEFC,iii ON RE ;.;IGNATU NY 1'11T AG..:IN TO HAD I 0131,D HAND NE NY TziT.', 17X I. i OU J ANU HY I NO.,1 I AN CCUCRUED AL') T WHAT DATE IN C.i.:CK TO THT: 3.! 11;G TO EAIL C:i1CK. A.-11305 I SO TH.."k1"..''Li15 K OF WA:JILLIJC:i ON , D.C.,TO AY T RLSE.UVE 1C.,C77,ET MILED CUT17.L.,D 0.*•;.•CP: WILL I:U L 11".L.,, iC. Dill 101 BECAUE NY 01.iiTiiALLLOGIG1', .!:,YES 111i:OHI•ii,D https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis , 0" v, Nu 110G ,R .1)7, II: I WIF 411 I.r 111 • ATilAT THEY uNIA' GLT .;ORE. HE ALSO INSTRUCTrO ME TO CALL hIM , EVTN IF IT IS 3 A , IF I GET BOTH PAIN AND BLURRED VISION, THAT I CALL AN ALBULANCE AND RUSH TO lARK1,1AY GENERAL HOSPITAL, AND If WILL TE -AITFTG IGR 1.1E. }'OR THAT Ri!;ASON I IUT MY SUN'S NANE, ALCNG WITH MIZE, ON TIE TREA._;URY BILL AND MI LANK ACCOUNT NY SON LIV:..S IN WESTERN YENESYJNANIA. HE IS YEARS OLD AND AN iirian AND ItuNORABLE FLA.N. HE IS MY ONE AND ONLY OFFS.;-- RING, ALONG ..1ITH HIS THREE DAUGliTERS AND GRANDCHILD. I DO tafi.' BURDEN HIM WITH NY PROBLErS UNLESS I CAN NO LONGER HELP MYSELF. NY SON'S FATtiER PASSED AWAY SIX YEARS LATER I MARRIED WHO PASSED AWAY IN MIAM IN . THE ENCLOSED COPY OF THE CHECK DID NOT HAVE THE INKED "T" ON IT UNTIL KATHY INKED IT IN BEFORE GIVING NE THE CHECK. PLEASE SEE WHAT YOU CAN DO ABOUT LETTING rE KNOW WHEN I AM TO MAIL TL1EE THE COST OF NAILING ar„lefiA"b FLAIL, WrIEN IT LATUR.:LS IN JANUARY. TilANK YOU IN ADVANCE FOR YuUR HELP IN THIS MATTER. SINCERELY, P.S. ENCLOSED IS COI/ OF THE FORM I SIGNED JULY lq, 10'11 WHEN I PURCHA13ED THIS TREASURY BILL. I BELIEVE THE DUE DATE IS 1 /2'' 1°1. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis or Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to personally identifiable information. Citation Information Document Type: Bank transactions Citations: Number of Pages Removed: 3 Records of purchase of Treasury bills, Doris Joseph, July 1980. Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org AuAjust 22 1! The HonoraLle Uerbvrt L. tiarris II !louse of Pepresentativtas :aahint,ton, D. C. 2Cf.:15 Dear ?,4r. “arris. - e rucei,t of your Letter of arg writin to aonowledij Aujuzt 13 reueb. tin:, an invetitition of ths bar:Clink: of direct dekosit of .oci4,11 Security ci.eo*.s by SuburLan :::avins and Lr'an. -4410 the lioard of t:cvq!rnors has sole rosponvibiiity reulatione. to 1.1:44emont tht '21ectronic Fund Lox writin-j Transfer Lt (Title XX z)f PulJlic Law 9S-630), its eniorcenent of the statute is 1ifte. to State welatier 1.enks. 11=e rodoral iione Loan bank L?,oard as priLlary euiervisory authority over ccordinI iederally chartered sevinst And loan amsociations. I am referring /our recuest to that agncy for re..1y. Sgaul A. Volcker CC: Con-jres3iona1 Liaison Federal Loil.c Loan Lank I:oard CO:vcd (#V 334) bcc; Mrs. ilallardi (2) HERBERT E. HARRIS II II)1 114 LONG WORTH 1-4 GUS It Orrtcr nvit..orma PTH (JISTRICT, V,R,;INIA WASHINGTON. 0 C. 20SI5 TELEPHONE. (202) 2Z5-4376 Congrc55 of tbe Ziniteb tate5 cHPIsropHER J. SPANOS ADMINISTRATIVE ASSISTANT 3r)otifSe of ArproSentatibesS August 13, 1980 Mr. Paul Volcker, Chairman Federal Reserve Board of Governors 20th Street and Constitution Avenue N.W. Washington, D.C. 20551 isAMMO Dear Mr. Volcker: ‘ ,2 144 46 .1.- A short while ago a matter was brought to my attention that I would like you to investigate. As you know, millions of senior citizens have their Social Security checks mailed directly to their banks. This is obviously a great convenience to many people who do not have adequate transportation. Federal Reserve Regulation 1/12 CFR 205.10, effective May 10, 1980, gives financial institutions three options to choose from in terms of notifying a depositor whether or not their Social Security check has, in fact, been received. The institution may 1) Provide written or oral notice that the check has not been received: or 2) Provide written or oral notice that the check has been received: 3) Provide a telephone number for the depositor to call to ascertain whether or not the check has been received and deposited. I have been informed that a Savings and Loan in the 8th congressional district, Suburban Savings and Loan, has decided to pursue option #3. However, in Virginia apparently when a person calls that telephone number they are not told directly whether or not their specific check has been received. Rather, the person is only informed if all the Social Security checks have arrived (apparently, the checks arrive in bulk at the same time). Therefore, the person cannot determine if his or her specific check has been deposited. I believe that this practice, besides being of grent inconvenience to senior citizens, may be violative of the spirit of_the recent regulations. Please look into this matter and inform me of hr egults of your investigation. V HEH:rfp THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS irk4. 111111114momm. • BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20551 PAUL A. VOLCKER CHAIRMAN August 22, 1980 The Honorable Benjamin S. Rosent hal Chairman Subcommittee on Commerce, Consum er and Monetary Affairs Committee on Government Operations House of Representatives Washington, D. C. 20515 Dear Chairman Rosenthal: Thank you for your letter of Aug ust 13, 1980, asking for the Board's views on participa tion of foreign-owned banks in the election of directors of Federal Reserve Banks. In responding to this question, it is useful to consider the various functions of the directors. The directors fulfill a very important role in overseeing the operations of the Reserve Banks. They also pro vide advice on developments affecting the economies of their region, and initiate recommendations to change discount rates in their districts. Under the provisions of the Federal Reserv e Act, however, the Board of Governors is ultimately responsib le for all operations of the Reserve Banks, including approv al of their budgets. The Board also reviews and approves rec ommended changes in discount rat es, and has the authority to initiate such changes in any district. Furthermore, the selection of the President and First Vice President of a Reserve Bank is sub ject to review and approval by the Board. Thus, given the Boa rd's authority to exercise general supervision over the Res erve Banks, it is in a position to assure that decisions ref lect the best interests of the nation. As your letter indicates, the num ber of banks that are foreign-owned constitutes a small, though growing, minority of member banks that are eligible to vote for Federal Reserve Bank directors. At present, the number of votes that foreign-owned banks have in the election of Res erve Bank directors is not out of proportion to their bankin g presence. In addition, it has been the experience of the Federal Reserve that the present extent of foreign participation has provided no evidence of problems of a supervisory nature . Nor have the banks involved The Honorable Be Page Two mm S. Rosenthal or the communities they serve been harm ed as a result. Th ence to date is that e experiin many cases the ba nks, and presumably communities, have be their nefited from the chan ge of ownership in weakened banks have be that en strengthened by infusions of capital by the management re and sources of the foreig n banks. It would appear at this time th not at there is any reas onable basis for deny these institutions, ing to the extent they are otherwise eligib right to participate in le, the the elections of Re serve Bank directors. I would point out th ese directors are Am ericans involved in American institutions. running The Board is aware of the potential proble arise with foreign ba ms that could nking operations in th is of increasing foreign country. The prospe involvement in instit ct utions that are as vi and central to the U. ta S. economy as commer l cial banks raises a ber of complex questi numons, and among them is the role such bank should have with re s spect to the Nation 's central bank. The will continue to give Board these problems seri ous attention and sh we sense any serious ould emerging problems wi th respect to direct or otherwise, we woul ors d of course take su ch steps as necessar including legislativ y e proposals. Finally, I would no te that the Federal mended legislation Reserve has recomto Congress that wo uld increase the numb Class C directors fr er of om 3 to 5, so that the size of the boar be expanded to 11. ds would The purpose of the proposal is to prov additional representa ide tion of various back grounds and interest on the boards of di s rectors in accordance with one of the obje of the Federal Rese ctives rve Reform Act of 19 77. Since Class C are appointed by th directors e Board of Governor s rather than electe member banks, the d by legislation would al so have the effect creasing the percen of detage of directors on the boards elected by banks. the I hope these comments are helpful to you an Subcommittee. d your Sincerely, /(t'e-(('' K/•/27 / HW:LA:PAV:pjt bcc: (#V-329) Hugh White Lee Adams Mrs. Mallardi (2) ( it RINiA• MIN S. ROSENTHAL. N.Y.. CHAIRMAN ROISTITT T. MATCH!, CALIF. Actie assigned Bill Wallace; inforron copy sent to Lee Adams in Wal tUrr.ENE V. ATKINcON, PA. FEHNAND J. ST GERmAIN. R.I. ▪OHM NINETY—IXTH CONGRESS LYLE WILLIAMS, OHIO JIM JET, RIES, KANS. JOEL DECKARO. INO. ONVTRS. JR.. MICH. MAJ0RITY —(202) E-LIOTT H. LEVITAS. GA. Congtt55 of the Uniteb *tate5 A. 3i)oticSe of 1:epreentatibeZ COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING. ROOM B-377 WASHINGTON. D.C. August 13, 19s1) 20515 225-4407 3 Hon. raul A. "olcker Chairman Roard of Coyernors Federal reserve System Tashington, D.C. 20551 near chairman Volcker: It has recently come to the attention of the Commerce. Consumer, and Monetary Affairs Subcommittee that (a) the voting system hy which class A and class B directors are elected to the boards of directors of the twelve district Federal Reserve Ranks operates to give a considerable voting influence to the largest foreign-owned banks in the New York and San Francisco districts, and (h) in the N'ew York district, foreign owned banks already have three of the six votes necessary to control the election of two of the nine directors of the Federal Reserve Bank of New York. ‘larine idland, European-American, and Republic, which are foreign owned, are among the eleven New York hanks that are grouped together in the largest of the three size classes for purposes of electing directors to the New York Fed. Likewise, in the San Francisco district, two foreign-owned hanks (I lnion Bank and the Bank of California) are among the twenty banks that are grouped together to elect two of the nine directors to the Federal Reserve Bank of San Francisco. The Crocker bank is also in this group of twenty, and hence three of the twenty will be foreign owned when(-rocker is taken over by the Midland Rank. Civen the particular importance of the New York Federal Reserve Bank in the Federal reserve System, including the permanent voting role of its president (who is chosen by the board of directors) on the Federal npen Market Committee that sets monetary policy, the present voting power of the largest foreign owned banks in New York raises very serious questions about the continued independence of the Federal Reserve System from foreign influence. Consequently. I am writing to reauest banks to vote in your views on the appropriateness of permitting foreign owned J.SI the election of Federal eserve Bank directors. • f Furthermore. please indicate whether the Board of Governors would support a leeislative amendment to restrict the power to vote in the election of Reserve Bank directors to I '.s. owned member banks. cerely. N Ren amin S. Ro..enthal C'h irman fISP:th Li AA ruot) . %.INA r 4 aix.46,„ A V-300) oralle t;14)t1n 74ihinf,tor14 :).C" 20515 to t14.1: 7/CAA yOUL litttfar 01 Aw41440t 18 xeco=x,mulin_ JacutrAy& Jc:frir 4E a LIA4ox: of the Loard's Comm.:nor itIvir: Council, In Cairmf.at VOlCrOr'a IC'E I-?etat call atimuxQ you tl:at La. Jeifries' will Kcceive Lull contad*:ratior; 40hen the :1::Ard malccg 414.ointxcents to thti ;o4rd ail.rk,,ciatcra artr.1 I ciur intervat in tbe Crautt.c,r AdviGotf /S/ Ann 1,arie Lray (w/copi of incoptin ..11.jmr #640 10 I GLENN ENGLISH orypi sTnic T. OKLAHOMA j 6 • • 104 CANNON HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 (202) 225-5565 AGRICULTURE COMMITTEE 410 MAPLE STREET NeLMON, OKLAHOMA GOVERNMENT OPERATIONS COMMITTEE 73099 (405) 354-8638 AGRICULTURAL CENTER BUILDING OSU CAMPUS SELECT COMMIT TEE ON NARCOTICS ABUSE AND CONTROL STILLWATER, OKLAHOMA 74074 (405) 377-2824 CONGRESS OF THE UNITED STATES HOUSE OF REPRESENTATIVES WASHINGTON, D.C. 20515 FEDERAL BUILDING ENID, OKLAHOMA August 18, 1980 Hon. Paul Volcker, Chairman Board of Governors Federal Reserve System 20th and Constitution, N.W. Washington, D.C. 20551 Dear Mr. Chairman: It is my understanding that the Board is seeking nominations of qualified individuals for appointment to the Consumer Credit Advisory Council. I would like to take this opportunity to urge you consider to Jacquolyn Jeffries, who currently serves as General Counsel of the Oklahoma Department of Consumer Credit, for possible appointment to one of the eight vacancies. Ms. Jeffries, who is a constituent of mine, has extensive experience in consumer financial regulation, and has been active in implementing both state and federal legislation in this area. I hope that you will give her name every consideration when making appointments to the Council. GLE/srt 73701 (405) 2.33-9224 AA.° MAA0,44, E30ARD OF EDVERNORS OFIHE • .2 • t4.1 • 1-• FEDERAL RESERVE SYSTEM WASHINGTON,0 C. 20651 PAUL A VOLCK EP CHAi R MAN August 22, 1980 The Honorable Henry S. Reuss Chairman, Committee on Banking, Finance and Urban Affairs U.S. House of Representatives Washington, D. C. 20515 Dear Chairman Reuss: I was troubled by your August 19, 1980 press release on the General Accounting Office's (GAO) recent report regarding the Federal Reserve System's use of internal auditing. The Federal Reserve System maintains one of the largest internal auditing capabilities in the U.S. Government both on an absolute gcale and relative to the size of our budget and staff. This is not mentioned in the GAO report but is the reason why the GAO recmmnendations cited in your press release do not concern, directly and indirectly, operations representing more than 81 per cent of the System's $900 million budget. GAO's criticisms are directed not at whether the remaining operations are audited, which they are, or the results of such audits, but only at the specific methods employed. There is no unanimous agreement in the auditing profession regarding such methods. Indeed, the Board's external auditors have the responsibility to review our overall audit program but have not challenged our current methods. Therefore, the GAO recommendations, in their proper perspective, are relatively insubstantial. The Board addressed the basis for its current internal auditing methods in its May 7, 1980, response to the draft of the GAO report. The Board also indicated certain actions that it planned to take to improve its current methods in view of GAO's several observations. These and additional actions have already been taken or are in the process of being implemented; these actions will be fully detailed in our response to Congress on the GAO recommendations, which the Board is required to submit by October 7, 1980. As a supplement to the Board's May 7, 1980, response to the draft GAO report, you may be interested in the enclosed correspondence that arose out of several statements on the Federal Reserve's use of internal auditing The Honorable Henry S. Reuss 2 made by Comptroller General Elmer Staats during his May 21, 1980, testimony before the Senate Committee on Banking, Housing and Urban Affairs. I hope that this letter and the Board's forthcoming response to Congress will clarify this matter and place these issues in their proper perspective. Sin)erely, 167( Enclosures - (411-47z4i, 4 ........ ..-00vGovt4;• BOARD OF GOVERNORS . .• co OF THE • Ill • FEDERAL RESERVE SYSTEM WASHINGTON 0. 44Q • • 4•R•4 L ‘• • • • •....• • FREDERICK H. SCHULTZ VICE CHAIRMAN August 27, 1980 The Honorable Andy Jacobs, Jr. House of Representatives Washington, D.C. 20515 Dear Mr. Jacobs: In Chairman Volcker's absence, I want to thank you for your letter of July 25 requesting comment on a letter you received from one of your constituents objecting to an increase in the membership fee on American Express credit accounts. It appears that your constituent does not obje ct to a membership fee per se, but considers the rate of the new increase inflationary. I can certainly understand your constituent' s concern. While the Board's general goals of achi eving restrained growth in money and credit aggregates are clos ely related to its concern with reducing inflationary pressures in the economy, the Federal Reserve has deliberately refrained from directly requiring the imposition of particular credit terms. The decision whether to charge a membership fee and the amount of the fee depends on applicable state law rather than on fede ral regulations and is also influenced, of course, by competit ive market conditions. Some creditors have instituted membership fees and other charges in connection with the Boar d's consumer credit restraint program. I would note, howe ver, that the Board's regulations under this program have not requ ired particular changes in credit terms, including the impo sition of membership fees. Instead, credit controls were inte nded to provide creditors with the incentive to restrain credit growth and, at the same time, give them some flexibility in the means used to achieve that restraint. Because of improved econ omic conditions, the Board is terminating the credit restrain t program. We appreciate your constituent's views and hope that this letter will be useful to you, Please let me know if I can be of further assistance. Sincerely, Is1 Frederick H, Schultz • Action assigned Janet Hart 4 • HOUSE OF REPIABOTATIVES WASHINGTON.. C. 20515 ANDY JACOBS a... ISI 4 I---.-- July 25, 1980 • •' • 1: • It A • Y ?kr, /*Lac ; .41,. e ii• ." *"..• • Mr. Paul A. Volcker Chairman Federal Reserve Board Washington, D.C. 20551 -•.. 15 .... •% - ..• . •'''."' , . ...• , i ,1 •• s.• v ,...,••••••.. tOs.' :v. . 1.- -. ..•,‘:.‘. • ••'" . "' .... . .3•••• .e • ,• ' 11 ' • A •.. i1, .Or .., ..3.-•• ..V 4 . 4.' ; -:' .1‘ • vi 1 . .. ....40:*..."1.-4, •_ 1 ... • Ne t ' tg:. • • 4. ••• •• - ' • - ." .... . Dear Mr, Volcker: • . •• • .. •.•....•-; .. • „, . V' ... ,• - .. •fir -..,• „*..... Ai.' 4, 3., ••••:..74 ,,,,-;-....4. • . • • • ..... F• . Enclosed is a letter from one of my constituents which questions an American Express price rise. I was wondering if yoll-MI comment. Si re •••••• to 14 • . .• -• . • DY, JACOBS, JR. AJ/pc • ., • . •r ,• t THIS PAPER MADE WITH RECYCLED FIBERS •••• N. .•• , At:6mo" , - •• • • p• • 0..0 • • • , • • • •••.•• """•". • . ...• • ,ilk• ••• •• • .k.• J• • ..g. ••• • • . A j. . • • •. W "' • • •., • 111•-- • 2 4980 July 16, 1980 Honorable Andrew Jacobs, Jr. 1533 Longworth House Office Building 20515 Washington, D.C. Dear Andy: Your record in fighting inflation is certainly admired by many of us back here in Indianapolis. Could you help with another inflationary rise in the marketplace? I could American Express has increased their annual fee 40%. understand a 5 or possibly 10% increase, but 40% is certainly outrageous. Any help that you could give in having them decrease their inflationary increase from $25 to $35 for card membership this uItsIt This does represent a 40% year would be appreciated. over the previous year. Thank you for this help. With best personal regards, I remain Sincerely yours, 46 a • of COvt • • i? • .• 0 (lie 3Vg) BOARD OF GOVERNORS CIF THE FEDERAL RESERVE SYSTEM • • • leh.v, ThzatiA,A&A. . •.1(6' WASHINGTON ii[ii z • 4'. &AL RES • • •..• • FREDERICK H. SCHULTZ VICE CHAIRMAN August 28, 1980 The Honorable John J. Rhodes Minority Leader House of Representatives Washington, D.C. 20515 Dear Mr. Rhodes: In Chairman Volcker's absenc e, I want to thank you for recommending Mr. Willia m G. Wilcox as a member of the Board's Consumer Adviso ry Council. I can assure you that Mr. Wil cox's qualifications will receive full consideratio n when the Board makes the 1981 appointments to the Cou ncil. The Board appreciates receiv ing your recommendation and your interest in the Con sumer Advisory Council. Sincerely, s) Frederick H. Schultz bcc: Gov. Schultz An Marie Bray (w/copy of incoming) Mrs. Mallardi CO:jmr (#342) JOHN J. RHODES 1ST DISTRICT. ARIZONA 2 1 1 0 RAYBURN HOUSE OFFICE BUILDING WA.',HiNGYON, D.C. 20515 FREDERICK K. ALDERSON H-232. THt CAPITOL WASHINGTON. D.C. 20515 JOSEPH H. MACAULAY Office of the libilority baba HYDE H MURRAY CLARA POSEY Unita, Stqatez if)ouge of 3ArpregcntatiLit5 GERALD LIPSON Wacsbington. I.CT 20515 August 22, 1980 The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System Washington, D. C. 20551 Dear Mr. Chairman: It is my understanding that a vacancy currently exists on the Consumer Advisory Council of the Federal Reserve Board. I would like to recommend that Mr. William G. Wilcox of 2064 Mountain View Road, Nogales, Arizona 85261 , be considered for such appointment. Mr. Wilcox recently retired as an executive of the Valley National Bank of Arizona, in charge of the Nogal es area. He has lived for 50 years in the Southwest and has been active in service groups and community affairs throughout that period. His career in branch banking has spanned 40 years , and he is known throughout the area as a specialist in the field of consumer credit. He is particularly knowledgeable as to the consumer problems of our Mexican—American citiz ens, with whom he has had wide contact, and in dealing with the financing of agriculture and cattle operations throughout the area. Any consideration you may be able to give this recommendation will be appreciated. Yours sincerel John /5. Rhodes, M. C. Minority Leader JR:jmc ••• GOt/t/i • -01A-0 • MAUA-viC 0 ( 3 qv • BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WAS, /?A L RE-5- • • • • • • •• FREDERicos H. SCHULTZ VICE CHAIRMAN August 29, 1980 The Honorable Bob Stump House of Representatives Washington, D.C. 20515 Dear Mr. Stump: In Chairman Volcker's absenc e, I want to thank you for recommending Mr. Willia m G. Wilcox as a member of the Board's Consumer Adviso ry Council. I can assure you that Mr. Wilcox's qualifications will receive full consideratio n when the Board makes the 1981 appointments to the Cou ncil. The Board appreciates receiv ing your recommendation and your interest in the Consum er Advisory Council. Sincerely, c J' /7 ( Frederick H. Schultz BOB STUMP • ction assignei Cong. Liaison fice ARMED SERVICES COM M ITTEE !ID D.STRICT, APIIZON.A SUBCOMMITTEES? 211 CANNON HOUSE OFFICE BUILDING WASHINGTON. D.C. 20515 (202) 225-4576 DISTRICT orricz, t001 FEDERAL BUILDING FlICHENIX, ARIZONA 85025 (602) 261-6923 COligrt55 of tijc iitttcb_tatt5 PROCUREMENT AND NUCLEAR SYSTEMS NATO 30ott5e of 3ArpreUntatiing Z..ziatsbington, TIC. 20515 August 25, 1980 Mr. Paul A. Volker Chairman Federal Reserve Board 20th Street & Constitution Ave., N.W. Uashington, D.C. 20551 Dear Mr. Chairman: It is my understanding that Mr. William G. Wilcox, of Nogales, Arizona has been nominated to fill a vacancy on the Consumer Advisory Council. I believe that Mr. Wilcox would be an excellent choice, and an asset to the Council and the Board. Bill's 40 year experience in the banking community give him a practical and workable knowledge of financial activities. As important, Bill spent the last 25 years at the Valley National Bank Branch Office in Nogales, Arizona, a border community. His work in community affairs and with consumers on both sides of the border would be valuable to the Council and their work with the Board. • ,r.jk T. r Your favorable consideration of this matter is appreciated. Sincerely, v.* BOB STUMP Member of Congress BS:ld •
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