View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Collection: Paul A. Volcker Papers Call Number: MC279  Box 11  Preferred Citation: Congressional Correspondence, March-April 1981 [Folder 2]; Paul A. Volcker Papers, Box 11; Public Policy Papers, Department of Rare Books and Special Collections, Princeton University Library Find it online: http://fmdingaids.princeton.edu/collections/MC279/c436 and https://fraser.stlouisfed.orearchival/5297 The digitization ofthis collection was made possible by the Federal Reserve Bank of St. Louis. From the collections of the Seeley G. Mudd Manuscript Library, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United States copyright law. By accessing this file, all users agree that their use falls within fair use as defined by the copyright law of the United States. They further agree to request permission of the Princeton University Library (and pay any fees, if applicable) if they plan to publish, broadcast, or otherwise disseminate this material. This includes all forms of electronic distribution. Copyright The copyright law of the United States (Title 17, United States Code) governs the making of photocopies or other reproductions of copyrighted material. Under certain conditions specified in the law, libraries and archives are authorized to furnish a photocopy or other reproduction. One of these specified conditions is that the photocopy or other reproduction is not to be "used for any purpose other than private study, scholarship or research." If a user makes a request for, or later uses, a photocopy or other reproduction for purposes not permitted as fair use under the copyright law of the United States, that user may be liable for copyright infringement. Policy on Digitized Collections Digitized collections are made accessible for research purposes. Princeton University has indicated what it knows about the copyrights and rights of privacy, publicity or trademark in its finding aids. However, due to the nature of archival collections, it is not always possible to identify this information. Princeton University is eager to hear from any rights owners, so that it may provide accurate information. When a rights issue needs to be addressed, upon request Princeton University will remove the material from public view while it reviews the claim. Inquiries about this material can be directed to: Seeley G. Mudd Manuscript Library 65 Olden Street Princeton, NJ 08540 609-258-6345 609-258-3385 (fax) mudd@princeton.edu   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  PPP  Action assigned Mr. Petersen NORM D'AMOURS  DISTRICT orrtcrs• MANCHESTER. NEW HAMPSHIRE 03105 720 Notertis COTTON FEDERAL BUILDING  1ST DISTRICT. Nrw HAMPSHIRL  sTANDINr. commurTrt BANKING. FINANCE AND URBAN AFFAIRS MERCHANT MARINE AND FISHERIES  Congregg of tbe laniteb  tatt5  Pouge of ikepresentatitieg Eiastington, 33.e. 20515  275 CHESTNUT STIR( ET (603) 668-6Et00 (603) 666-7528 Poorrsuotrru. NEW HANIPCUIRE 03801 425 AND 426 FEDERAL BUILDING 80 DANIEL STREET (603) 431-8749 (603) 436-7720. EXT. 707  WASHINGTON OFFICE1503 Loftawoorni House Orricr BUILDING WASHINGTop4. D.C. 2051S  February 27, 1981  (202) 225-5458  /  4)*  4 1.  LACONIA. NEW HAMPSHIRE 03246 200 AND 223 FEDERAL BUILDING 719 MAIN STREET (803) 524-7185  Honorable Paul Volcker Chairman Board of Governors Federal Reserve Board 20th Street & Constitution Avenue, N.W. Washington, D.C. 20551 Dear Chairman Volcker: It has come to my attention that under the Federal Reserve's current interpretation of Section 2(a)(2) of Public Law 93-100 (12 USC 1832(a)(2)) local school boards and educational institutions are permitted to have NOW accounts while municipalities and other governmental units are not permitted to have NOW accounts. I frankly cannot see anv logical public policy goal which is advanced by this distinction. I would appreciate receiving the Board's analysis of the merits of extending NOW account coverage to units of state and local government, and also to extending coverage to include any Section 501(c)(3) non-profit organizations which is not currently eligible for a NOW account. Given the existing language in Section 2(a)(2) which authorizes NOW accounts for organizations which are operated "primarily for religious, philanthropic, charitable, educational, or other similar purposes and which is not operated for profit" (emphasis added), I would also appreciate your analysis of whether or not such an expansion could be accomplished by regulation. Sincerldy,  al/AY\N rman E. D'Amours Hember of Congress NED/mr   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  PIMP.  1.'1arch 24, 1981  The Honorable Fernand J. St Germain Chairman Committee on Banking, Finance ana Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman St Germain: Thank you for your letter of T'arch 13 forwarding correspondence from Congressman Floyd D. Spence and his constituent, Thomas L. Taylor, concerning the rescrvability of deferred compensation accounts under Regulation D. These accounts are maintained and controlled by employers in accordance with IRS requirements. Because of this, Regulation D currently requires that these funds be regarded as nonpersonal time deposits, subject to a 3 per cent reserve requirewent. I have asl:ed the Board's staff to review this matter and present to the Board its recommendations for a possible amendment to hegulation D. As you requested, I will be pleased to inform Congressman Spence and nr. Taylor when the Board reaches a decision on this matter. Sincerely,  CO:vcd (V-88) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Gil Schwartz (w/copy of incoming) Mrs. Mallardi (2)  Action assigned Mr. Petersen • r-,M  IOW  '  vokstit•,:roki Orr', V'  ED'.111;%1 ION Arin L ADOR  1518 LONGWORTH 1-4o.,sr Ovrict  202-225-2271  FORr IGN AFT AIRS  1ST  D • Twirl.,  soTA  CONGRESSMA  r,) - UNTIF  El/kr  HOUSE OF REPRESENTATIVES  A •  FILL  ,r.r  C.(,, qq 4 LIV )1.)'  ARLEN ERDAHL  111.171RICT orrtcrs  704 MadwourriT DANK  33 E  612-725-7716  ULM   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  WrIvT-AoRTH Avr••••)r  W F ST ST. PAWL, 14.1'WO  March 10, 1981  7Li  Paul A. Volcker Chairman Federal Reserve Board 20th and Constitution, N.W. Washington, D.C. 20551 Dear Mr. Chairman: Enclosed is a letter I have received from the City Administrator of the City of Mahtomedi, Minnesota. He indicates that present regulations prevent municipalities from establishing "NOW" accounts. Would you please review this matter to determine whether the exclusion of municipalities was intended or was an oversight. Naturally, the municipalities are interested in being given this opportunity to establish such an account, so it would be most appreciated if this matter could be reviewed promptly. With best regards,  Sil erel  ARLEN ERDAHL Member of Congress  AE:kms Enclosure  S5901  507-288-2.3R4  WASHINGTON, D.C. 20515  IA'Ap+SliA VvAfo.i•.,;TON VVINONA  ntriouvri  ROCHF ST I PI, M NNT COT•  TA  551i fi  •••r• ••• ,  j  „e•-•••. ,  L.;  •  -  •  4 .  ;,(10!;;•  February 27, 1981 Representative Arlen Erdahl 33 Wentworth Avenue West St. Paul, Minn. 55118 Dear Representative Erdahl: Recently, the City of Mahtomedi discus sed with its auditor the possibility of establishing a "NOW" account to handle its checking transactions. After researching the such an account, the City found fro possibility of establishing m information received from the Federal Reserve Bank of Minneapol is that Section 303 of the Depositary Institutions Deregulat ion and Monetary Control Act of 1980 was being interpreted to exc lude participation by local governments in "NOW" accounts. In reviewing the list of organizations determined to be eligible by the Federal Reserve for "NOW" accounts, it seems illogical tha t local housing authorities, school districts and redevelopmen t authorities are eligible organizations when local government units are exempt. Given today's demand by taxpayers for efficient operation of government, the ability of cities to obtain additional investment earnings through this vehicle seems approp riate to explore. If possible, could you or your staff explore this situation further to determine whether the exclusion of local government is consistent with the intent of the legislation. If thi s problem cannot be rcctificd through an administrative change in the regulations, a minor modificaLion In tne Act would be of significant benefit to local government. Thank you for your assistance in this matter. If you have any questions regarding the City's concer n, please feel free to contact me. Sincerely, r; . David Pokorne City Administrator DP:je   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1 *torch 31. 1361  iota V. ;.)o*nici kJaited ,4i.euete :,:aelair.-1,tcz. D.C. ;fas14 .4:4444:46  1.4.4r .yonatos  1.0004.41,44:1:  Ou .;.41.alt a the taesibiitts of th* i400rd. I watt to 14141 IAJIX yciAr letter* ot Novell 24 e:A.i-roosimg your sulort Jos the 44)44ieletion oi XI Puelele Stote Lank of 4akatuela, kitty sexice. to becAlloe * onip-besa tovItan,) convaay.  Qs  t'c.iur letters 4avo been made a part 04 the roc vt11 bo tc# e4visv you wifmis itip-yliAmt10411, end 4.4-ard r444:L4es • destsies. Sincerely (Signed) Donald 1. Wing D‘mal4 J. oinn Assiatant to the isoara  CO4lejt (0V-1Q7) toccs ,slian Swoot mitchell Nxs, Mallordi  1   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ..••••..  .• .•  ••0 -,,  covt • BOARD OF GOVERNORS  4 •  4k, N • S ' •  OF THE  FEDERAL RESERVE SYSTEM  1L • •,,AL • • • •RE, • •.  WASHINGTON, D. C. 20551  March 31, 1981  PAUL A. VOLCKER CHAIRMAN  The Honorable John C. Danforth Chairman Subcommittee on Federal Expenditures, Research and Rules Committee on Governmental Affairs United States Senate 20510 Washington, D.C. Dear Mt. Chairman: In accordance with the requirements of the Government in the Sunshine Act, I am pleased to submit the Board's fourth Annual Report covering the implementation of its administrative responsibilities under the Act during calendar year 1980. Sincerely, StPaul A. Volcket  Enclosure  , a -4v  Sias. Niklidavw. (,4  Iiimatical Latta* late0 writ tO  Preakiellt• at. the amals aspromeatativas Sceakor of the Amos  Clann. 4,141.1.s' Jub. an Gov't. DAD. and ittgirts a Ammo Gicorit• Qom.  March 31, 1931 Anflerson The Honorable nlenn Pons(' of Representative': Iffashiniton, r. C. 20r)lc roar Yr. Anderson: Thant you for your letter of "arch 17 on hehalf nf your constituent, "r. Par r'aito, who has been unahle to secure uncirculated 'F7 nntes in his area. I shnuld point out that, despitn encyuragenent hy the federal Reservn System ty utili7e the 2 note, the nublic has not, by and larle, liven it wirlospread usale, awl therefore com!lercial banks ray nnt keep surrly on hand for their nwn day-to-day business. Corrvercial hanks can ohtain the ? notes frem. the Federal Peserve Panks and will nrdinarily be willinq to place sufficient rum!)er of requests an order for therl if thpy receinvn howevrr, are not able fron their customers. TIM Peserve to Irant requests !,v privatn individuals for currency and coin. If "r. raito wishes tP (Main uncirculated t2 he should contact bank.s in his locale tn see if they would place an orf!er for such notes with the nearest Federal Peserve !lank office. This is the procedure that nrople with ntrnisnatic interests nenerelly follow. A convercial Lant in the San redro area would direct its request to the Los Anleles rrinch of the ,an rranciscn. federal Reserve rant, of " Sincerely, S/Paul A. Volcker,  RBSese/DJW:red #V-84 bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. App Hr. Sese Mr. Allison  Cong. Liaison Office will draft response FERNAND J. ST GERMAIN, R.I., CHAIRMAN H" ▪ - N▪ RY S. REUSS. WIS. HENRY B. GONZALEZ, TEX. JOSEPH G. MINISH, FRANK ANNUNZIO. ILL_ PARRFN J. MITCHELL_ MD. WALTER E. FAUNTROY. D.C. STEPHEN L. NEAL, N.C. JERRY M. PATTERSON, cAur. JAMES J. BLANCHARD, MICH. CARROLL HUBBARD, JR., KY. JOHN J. LAFALCE, N.Y. GLADYS NOON SPELLMAN, MD. DAVID W. EVANS, IND. NORMAN E. D•AMOURS. N.H. STANLEY N. LUNDINE. N.Y.  J. WILLIAM STAAtTON, OHIO CHALMERS P. WYLIE% 01410 STEWART 8. MCKINNEY. CONN  U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-SEVENTH CONGRESS  2129  RAYBURN HOUSE OFFICE BUILDING  WASHINGTON, D.C. 20515  MARY ROSE OAKAR, OHIO JIM MATTOX. TEX. BRUCE F. VENTO, MINN. DOUG BARNARD, JR., GA. ROBERT GARCIA. N.Y. MIKE LOWRY. WASH.  March 13, 1981  NORMAN D. SHUMWAY. CAL IF. JON HINSON. MISS. STAN PARRIS. VA. ED WI DER. OHIO BILL MCCOLLUM. FLA. GREGORY W. CARMAN, N  WILLJAM J. COYNE,PA.  The Honorable Paul Volcker Chairman, Board of Governors Federal Reserve System Washington, D. C. Dear Chairman Volcker: Please find enclosed correspondence I recently received from Congressman Floyd D. Spence and his constituent, Mr. Thomas L. Taylor, Vice President of Security Federal Savings and Loan Association, regarding Federal Reserve Regulation D. I understand that the issues raised by Mr. Taylor are under review by the Federal Reserve; I would appreciate it if you would inform Congressman Spence and Mr. Taylor of the results of this review. Sincerely,  Fetin nd J. \St Germain Chaitman  Enclosure  v.  GEORGE C. WORTLEY. N.Y. MARGE ROUKEMA. N -J. BILL LOWERY. cAur. JAMES K. COYNE. PA. 22S- 4247  CHARLES E. SCHUMER, N.Y. BARNEY FRANK, MASS. DILL PATMAN, TEX.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  GEORGE HANSEN. IDAHO HENRY J. HYDE. ILL_ JIM LEACH. IOVVA THOMAS B EVANS. JR., DEL. RON PAUL. TEX. ED BETHUNE, ARK.  AYYDSPENCE oista,c., SOOTS"' C A A.r  coAAMITTEES:  A.A  .411. AR 1-'10 SERVICES ST ANDARDS OF  or•.cc 2.351 R•viionv 1.-4 0Q 4c OrriCt  Ant  A  C.04 2C2. :ZS-2452  Congres's of tirie Ziniteb  ets741.st cs,rt"i swum  F t T.) r sa•L nolt_DING, Ft CO *A 1449  te3s  A sSt  OFFICIAL CONDUCT  STINEET  CAPIOL1.4.11 29201 AREA CODE FQ3. 7C5-5671  c coiner • c  A Li.  •Ur B•••it or0  )oti5e of 3A-girt5tntatibe5 Ma5bington, .((.7".. 20515  [Au.  P•t.h._  Amt.". Coot  LExi.G.Tcoi Co it •••C t 4•.••41  W. A- — Al.— COOK  ANO 372 ST. 0 *J4O ilrug•G  C•t...040•/%4  A.D.41.41  vc Assic.y•wrr  STPECT. NE.  C•n'OLIN• 229113 603. 536-4641  -sosiAly" sANDERS  January 29, 1981  OITTlitCY IRCTRESILXTATIVE  t, c it/ 8.° Ii•• /7/2„;„. Honorable Fernand St. Germain, Cha irman Committee on Banking, Finance and Urban Affairs 2129 Rayburn Building Washington, D.C. 20515  1 7)  FEE3 1 2 1981  4961  a:A8,7  4,.44,8.  Dear Mr. Chairman: Enclosed is a copy of a letter from Mr. Thomas L. Taylor of the Security Federal Savings and Loan Associati on, Columbia, South Carolina concerning Federal Reserve Regula tion "D" and its effect on Internal Revenue Code Section 457'Deferred Compensation Accounts. His letter is self-explanatory. I am pleased to bring Mr. Taylor's comments to your attention and hope that they will receive your carefu l and serious consideration. I would welcome any comments which would be hel pful in responding further to my constituent. With best wishes, I am  FDS/cq   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1 •  SECURITY FEDERAL SAVINGS AND LOAN ASSOCIAT!ON P. O. Box 11629 • Columbia, South Carolina 29211 • (803) 771-8750  January 13, 1981  The Honorable Floyd D. Spence House Office Building Washington, D. C. 20515 Dear Mr. Spence: The Federal Reserve Regulation "D" is written in such 2 manner that Internal Revenue Code Section 457 Deferred Compensation Accounts are considered "non-personal" accounts and would require that we maintain reserves on these deposits. Deferred Compensation Plans are established pursuant to Section 457 of the Internal Revenue Code. In order to meet Internal Revenue requirements, these plans were set up to maintain employer's control over the funds in a technical sense, while allowing them to function in the same manner as Individual Retirement Accounts and Corporate Retirement Plans. Since these plans are intended to be long term savings arrangements, we can see no reason for them to be treated differently from other funds placed on deposit for the purpose of providing retirement benefits for the participant. To classify these arrangements as "non-personal", thus requiring reserves, it places savings and loans and banks in an untenable position in competing for long term savings arrangements. Any assistance that you can give us in having Federal Reserve Regulation "D" changed would be most appreciated. Very truly yours, /7 /1/// 'ftlomas L. 'Tay". Vice President TLT/ac   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1PH   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  . •co  of  BOARD OF GOVERNORS OF THE  '  •0  • -n  FEDERAL RESERVE SYSTEM WASHINGTON, D. E. 20551  •  PAUL A. VOLCKER CHAIRMAN  March 24, 1981  The Honorable Jake Garn Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D. C. 20510 Dear Chairman Garn: The concerns and questions raised in the recent letter from you and Senator Proxmire about weekly money supply data have been discussed and debated by the Federal Reserve Board, the Federal Open Market Committee, and the staff for some time. The issues are extremely important and strong arguments--other than Freedom of Information Act implications--can be made for and against publication of weekly data. There is nearly unanimous agreement by all observers that weekly money statistics are extremely erratic and therefore poor indicators of underlying trends. While monthly data can often deviate considerably from such trends, the weekly observations are particularly "noisy". Week-to-week changes are quite large and recent estimates indicate that the "noise" element--attributable to the random nature of money flows and difficulties in seasonal adjustment--accounts for plus or minus $3.3 billion in weekly change two-thirds of the time. Such a large erratic element appears intrinsic to money behavior, rather than implying poor underlying statistics. In 1980, weekly M-1A and M-1B statistics revised on average only about $300 million between the first published and "final" data several weeks later, though in twelve weeks, revisions were larger than $500 million, and the largest single revision was $1.6 billion. The great preponderance of active market participants are by now aware of the highly volatile nature of the weekly series. Publication has had that educational advantage, and the data to be used with a certain caution. However, from time to time overreactions have occurred.  ••••   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Jake Garn Page 2  As a result of concerns about the reaction to and significance of weekly figures, the Federal Reserve has considered possible revisions to its current publication schedule or to its method of presentation. One option might be to delay weekly publication an additional seven days to incorporate more data--an important issue with additional reporters under the Monetary Control Act. This could reduce revisions to the weekly statistics. On the other hand, this option would increase the risk of inadvertent leaks and would increase the interval over which market participants might react to guesses and rumors of money stock changes, based in part on fragmentary data such as may be available in the weekly figures from large banks on deposits and loans. Even if no greater volatility in interest rates occurred over the unpublished interval, lagged publication of a more accurate, but still differ ent than expected, change in weekly money might simply postpone the market reaction. In any event, weekly revisions are usually small, as noted above, relative to the underlying volatility of the series. Another option might be to publish seasonally unadjusted money data in order to reduce the "importance" of the statistics. Our concern here is that market participants would then create their own seasonally adjusted series. The availability of a large number of conflicting series would only heighten market confusion, and might inevitably lead to questions to the Federal Reserve about what it considers to be the normal seasonal" change in a particular week if what might seem to be an unusual change occurs in a seasonally unadjusted figure. Another approach might be to publish data only monthly--as is now done, because of data reporting problems, with M-2 and M-3--and/or to publish weekly, but only a moving average series of weeks. Under the monthly approach, market participants would still try to estimate weekly series from bank balance sheets and clearing house data, and the market could be swept by rumors and guesses on movements in the money supply . And they would also probably attempt to glean the weekly number from a moving average series. In any event when a monthly figure was finall y published, deviations from market expectations could cause yet furthe r changes in interest rates as the new information was incorporated into market expectations. I might note that this has not been a significant problem with monthly publication of M-2 and M-3. A relatively small portion of these aggregates are supported by reserves, and they have played a less important role in the day-to-day targeting process than M-1. In general, there is considerable merit to the view that weekly data as such convey little information and that weekly season al adjustments are subject to substantial uncertainty. However, the Board is not certain at present that the public interest would necessarily be better served if any of the alternatives noted above were adopted. While no one can be sure of their judgment in this respect, it does  i..   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Jake Garn Page 3  , seem possible that volatility of money market conditions could be encouraged by misinterpretation of fragmentary data as well as by the continued availability of the present weekly data. We will, of course, continue to review the money supply publication schedule, taking account of the constraints imposed by the Freedom of Information Act. To aid in our assessment of the value of weekly money supply data, we plan to ask for public comment on the desirability of continuing the weekly series, or of shifting to the opti ons noted above. Our decision will be taken in the light of those comments . Should Freedom of Information Act requirements present difficulties in the light of the appropriate course, we will consult with you further. I appreciate your interest in these question s. to all of us.  They are of concern  Sinc rely,  &)  Identical letter also sent to Senator Prox mire.  4  FRANK ANNUNZIO, ILI— CHAIRMAN GLApYS NOON SPELLMAN, MD. FERNAND J. ST GERMAIN. R.I. HENRY R. GONZALEZ. TEX. JOSEPH G. MINISI-4. N.J. / BILL PATMAN, TEX.  Tei Allison will be testifying  THOMAS B. EVANS. J Ft, DEL. CHALMERS P. WYLIE. 01410 GEORGE C. WORTLEY. N.Y. GREGORY W. CARMAN. N.Y.  U.S. HOUSE OF REPRESENTATIVES N INETY-SEVENTH CONGRESS  CURTIS A. PRINS, STAFF DIRECTOR  SUBCOMMITTEE ON CONSUMER AFFAIRS AND COINAGE OF THE  TrLzrHoNt: 2.25-9 I el  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS ROOM 212 HOUSE OFFICE BUILDING ANNEX No.  WASHINGTON, D.C. 20515  March 17, 1981  Honorable Paul A. Volcker Chairman Federal Reserve Board 20th Street & Constitution Avenue, N.W. Washington, D.C. 20551 Dear Mr. Chairman: The House Banking, Finance and Urban Affairs Subcommittee on Consumer Affairs and Coinage plans to hold hearings on Tuesday, March 31, 1981, on the Treasury Department proposal to manufacture copper-plated zinc one cent coins. I wish to invite you or your designate to appear before the Subcommittee on Tuesday, March 31, 1981, at 9:30 a.m. The hearings will be held in Room 2222 Rayburn House Office Building. Your presentation should be limited to ten minutes; however, your written statement for the record may be of any length. The Subcommittee requires a minimum of 50 copies of the prepared statement at least 48_ hours prior to your scheduled appearance. The statements should be delivered to the Subcommittee office, Room 212, 300 New Jersey Avenue, S.E. If you have any questions, please contact Curtis Prins, Staff Director of the Subcommittee on Consumer Affairs and Coinage at (202) 225-9181.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  With every best wish, Sincerely,  Frank Annunzio Chairman  MANUEL LUJAN. JR. 1ST DISTRICT. Nrw Prirxico  Response will be preparei by Cong. Liaison Office after iiscussions with Legal Division  WA SHINGTON orricir, 1323 Lrows woPrrm Dui Lot NO (202) 225-6316  comr.rtrrrrs• INTERIOR  ANC) INSULAR  Ai- FAIRS  SCIENCE AND TECHNOLOGY  Congre5,5 of tbc Ziniteb Rptatc5  DISTRICT OFFICES. Auiptrourfroi•ir, Nrw Mrxico (505) 766-2538  31)otust of ik epre5entatibe5  SANTA  Ft. MEXICO (505) 988-.6521  Viagbington, D.C. 20515 March 18, 1981  The Fionorable Paul A. Volcker, Chairman Board of Governors Federal Reserve System Washington, D. C. 20551  Dear Mr. Chairman,  It has come to my attention that the El Pueblo State Bank of Espanola, New Mexico has applied for a one-bank-holding company through the Federal Reserve Bank.  It is my understanding that the approval of such an application would strengthen the Bank's capital base, encourage and enable expansion of current operations, create competition and will provide better service for the citizens in the area.  I would like to take this opportunity to personally express my support for this application and I would like to be kept advised of the status of this application.  Sincerely,  .z - Manuel Lujan, Jr. ML/nck   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •••444. 4  4444.444 , •  March 23, 1981  The Honorable Frank Annunzio Chairman Subcommittee on Consumer Affairs and Coinage Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman Annunzio: Thank you for your letter of March 17 inviting the Board to appear before your Subcommittee on the Treasury Department proposal to manufacture copper-plated zinc one-cent coins. I am pleased to designate Mr. Theodore E. Staff Allison, Director for Federal Reserve Bank Activities, to appear on behalf of the Board on Tuesday, Narch 31. Sincerely, S/Paul A. Voicku  CO:vcd (#V-87) bcc:  Mr. Allison Mrs. Mallardi (2)  4LENN M. ANDERSON  .Action assignei Mr. Allison  COMMITTEES:  320 DISTRICT, CALIFORNIA  PUBLIC WORKS AND TRANSPORTATION 2410 RAYBURN HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 TELEPHONE: (202) 225-6676  • CHAIRMAN, AVIATION SUBCOMMITTEE  Congre55 of tbe Winiteb  300 LONG BEACH BOULEVARD (P.O. Box 2349) LONG BEACH, CALIEORNIA 90801 TELEPHONE: (213) 548-2721  3DottiSe of Ilepreckntatibef5 Eitiatbington, D.C. 20515 March 12, 1981  SUBCOM M ITTEE • MEMBER, WATER RESOURCES SUBCOMMITTEE  MERCHANT MARINE AND FISHERIES • MEMBER, FISHERIES AND WILDLIFE CONSERVATION AND THE ENVIRONMENT SUBCOMMITTEE • MEMBER, MERCHANT MARINE SUBCOMMITTEE • MEMBER, PANAMA CANAL SUBCOMMITTEE  PLEASE ADDRESS REPLY TO MY: 0 WASHINGTON OFFICE IR LONG BEACH OFFICE   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • MEMBER, SURFACE TRANSPORTATION  • MEMBER, NATIONAL TRANSPORTATION POLICY STUDY COMMISSION • MEMBER, PORT CAUCUS • MEMBER, SHIPBUILDING CAUCUS  Paul A. Volcker, Chairman vederal Reserve System 20th Street and Constitution Avenue, N.W. Washington, D.0 20051 Dear Mr. Volcker:  This letter is in behalf of my constituent, Mr. Dan Gaito , 946 West 7th Street, San Pedro, California, 90731. r 1111'11.0.0"  Mr. Gaito informs our office that he is in the B2 F.D.C . BZJ4C Club, and states that he has not been able to secure uncirculated $2.00 bills. It will be appreciated if you will inform us of the regulations and policy for issuance of uncirculated curre ncy. Thank you for your ass  tance to this matter. Sin ,rely, mem— CLE ANDERSON Memb r of Congress  GMA/lms  r  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYC LED FIBERS  BOARD OF GOVERNORS oF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  March 31, 1981  PAUL A. VOLCKER CHAIRMAN  The Honorable Stephen L. Neal House of Representatives Washington, D.C. 20515 Dear Mr. Neal: Thank you for your letter of March 13, requesting comments on a legislative proposal to increa se the limits that exist on the issuance of eligible bankers' acceptanc es by member banks. :The Board has recently reviewed the gen eral issue of limitations on bankers' acceptances in the context of a proposal received from the New York Clearing House. The Board recognizes that the current aggregate limitation on the issuance of eligible ban kers' acceptances places some member banks at a competitive disadv antage vis-a-vis nonmember commercial banks and United States bra nches and agencies of foreign banks. In this regard, the princi pal disadvantage to member banks is that nonmember banks and branches and agencies could use such instruments as a domestic reserve-f ree source of funds that is not constrained by statutory or regula tory limits. In 1973, when the Board subjected ineligible bankers' acceptances of member banks to reserve requirements, it was not con sidered necessary to subject eligible acceptances to reserve requir ements because of the statutory limit that existed for issuing this type of managed liability. This approach was adopted in recogn ition of the traditional distinctions between eligible and inelig ible acceptances and the role that eligible acceptances play in financing domestic and international trade. In view of the fact that nonmember banks and branches and agencies are now subject to Fed eral reserve requirements and also have access to the discount window on the same basis as member banks, the Board believes that a sta tutory limitation on eligible bankers' acceptances should also be applied to such institutions. This will assure that the ability of these institutions to issue eligible acceptances currently free from reserve requirements will not grow without restraint and wil l not interfere with the needs of monetary policy. At the same tim e, the Board recognizes the need for an increase in the ability of member banks to issue eligible acceptances in order to compet e on an equal basis.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Stephen L. Neal Page Two  Accordingly, the Board would support legi slation to raise the aggregate limitation on the creation of eligible bankers' acceptances contained in paragraph 7 of section 13 of the Federal Reserve Act (12 U.S.C. 372) and to extend such limitation to nonmember commercial banks and to U.S. branches and agencies of foreign banks. However, in view of the fact that funds raised through the issuance of eligible bankers' acceptances described therein currently are exempt from reserve requ irements, we believe that an immediate increase to 150 per cent of unimpaired capi.tal and surplus for all institutions, and, with permission of the Federal Reserve, to 200 per cent of capital and surplus, would be appropriate. We believe that it is impo rtant to retain the present requirement that Board permission be obtained by institutions desiring to issue acceptances up to the higher limit in order to preserve the confidence of market part icipants. Therefore, the Federal Reserve should be authorized to pres cribe certain standards, including minimum capital requirements , general condition, and level of exposure to risk that an institution must meet in order to issue eligible acceptances up to the proposed 200 per cent maximum. Of course, any legi slation on this issue should not restrict the ability of the Board to impose reserve requirements on eligible acceptances at some future time if the needs of monetary policy required it. We have enclosed draft legislation that would accomplish these obje ctives. Since eligible bankers' acceptances are currently a reserve-free source of funds to institutions subject to Regulation D, the Board is reluctant to expand sign ificantly this vehicle, which in many respects is the equivalent of raising funds through the issuance of reservable managed liabilit ies. However, the approach of extending the limitation to all depository institutions and expanding the limitation modestly will afford competitive relief to member banks without adversely affe cting monetary policy. In view of this, we believe that all elig ible acceptances--secured and unsecured--should continue to be subject to the aggregate limitation. We also believe that it is desirabl e to preserve the existing documentation requirements in order to assure that these acceptances are in fact issued in conn ection with current transactions. You also ask whether expanded bankers' acce ptance authority could contribute to increasing exports by midd le market U.S. companies. As of December 31, 1980, approximatel y 25 per cent of outstanding bankers' acceptances were issued in connection with export transactions. There is no evidence to suggest that expanded acceptance authority would alter that ratio in the future. Moreover, those banks that serve the middle mark et, i.e., the larger   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ":' •  •••  The Honorable Stephen L. Neal Page Three  regional banks, are not currently under pressure with respect to their aggregate limits. Thus, it seems sufficient amounts of acceptance financing should be ava ilable to medium-sized companies at present. The continuation of U.S. trade growth in excess of the rate of growth of bank capital and surplus could possibly lead to a situation where a smaller per centage of U.S. trade would be financed with acceptances of U.S. member banks if a binding limitation continued on issuance of eligible acceptances. The consequences for such trade of a binding limitation would seem to be serious only if alternati ve sources of financing were more costly. However, because there are numerous competitive financing alternatives to bankers' acceptanc es, the impact on trade of the present limitation on eligible acceptances is likely to be quite insignificant. I appreciate the opportunity to offer the Board's views on this issue. Please let me kno w if I can be of further assistanc e. Sincerely,  VjW:L= Enclosure  PSP:GTS:RS:ECE:pjt (V-82) bcc: Mr. Ettin Mr. Gemmill Mr. Eisenbeis Mr. Schwartz Mr. Pilecki Mrs. Mallardi (2) Legal Records (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the seventh paragraph of section 13 of the Federal Reserve Act (12 U.S.C. 372) is hereby amended to read as follows: "Any depository institution, as defined in section 19(b)(1)(A), and any Federal or State branch or agency of a foreign bank subject to reserve requirements under section 7 of the International Banking Act of 1978, may accept drafts or bills of exchange drawn upon it having not more than six months' sight to run, exclusive of days of grace, which grow out of transactions involving the importation or exportation of goods; or which grow out of transactions involving the domestic shipment of goods provided shipping documents conveying or securing title are attached at the time of acceptance; or which are secured at the time of acceptance by a warehouse receipt or other such document conveying or securing title covering readily marketable staples.  No such institution  shall accept such bills to an amount equal at any time in the aggregate to more than one hundred-fifty per cent of its paid-up capital stock and surplus or its equivalent in the case of a United States branch or agency of a foreign bank, as defined by the Board of Governors of the Federal Reserve System.  The Board, under such conditions as it  may prescribe, may authorize, by regulation or order, any depository institution or United States branch or agency of a foreign bank that is subject to reserve requirements to accept such bills to an amount not exceeding at any time in the aggregate two hundred per cent of its paid-up and unimpaired capital stock and surplus or its equivalent in the case of a United States branch or agency of a foreign bank.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  No  A  .  . . - 2 _  institution described above shall accept, whether in a foreign or domestic transaction, for any one person, partnership, corporation, association or other entity to an amount equal at any time in the aggregate to more than ten per cent of its paid-up and unimpaired capital stock and surplus, unless the institution is secured either by attached documents or by some other actual security growing out of the same transaction as the acceptance.  In order to effectuate the purposes of this paragraph,  the Board may define any of the terms used herein, and, for institutions that do not have capital or capital stock, it shall define an equivalent measure to which the limitations contained in this paragraph shall apply." Description of provision.  This amendment provides for the extension  of the limitation on "eligible" bankers' acceptances to  all depository  institutions and to virtually all United States branches and agencies of foreign banks.  The existing statutory aggregate limit is increased  immediately to 150 per cent of capital stock and surplus from 50 per cent of capital stock and surplus.  The discretionary limit for issuance  of bankers' acceptances, i.e. a higher aggregate limit that requires individual approval by the Board, is increased from 100 per cent of capital stock and surplus to 200 per cent of capital stock and surplus. The Board is granted authority to define an equivalent of capital stock and surplus for those institutions that do not have a capital base and for United States branches and agencies of foreign banks and other terms used in the paragraph.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .Action assigne4 Mr. Petersen JOHN MELCHER MONTANA  'AlCnitcb Ztatez -.Senate March 13, 1981  Chairman Paul Volcker Federal Reserve Board Constitution Avenue N.W. Washington, D.C. 20551 Dear Chairman Volcker: I have received a request from Mr. Bernard Grimmer of Billings, Montana for a copy of the regulations that govern the transfer of funds from commercial banks to savings and loan associations. Mr. Grimmer receives a monthly check for his disability from the Veterans Administration. This check is automatically deposited in a bank in Missoula, Montana. Mr. Grimmer has had difficulty getting these funds transferred to a savings and loan in Billings and he doesn't understand why. I would appreciate it if you could send the relevant regulations directly to hime at this address: Bernard Grimmer Eagle Hotel Billings, Montana 59101 Thank you, Sincerely,  1123 DIRKSEN BUILDING  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  WASHINGTON, D.C. 20510  (202) 224-2644  --  A  by   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •• • • of CON* .•  •(1.1 .  :c;  BOARD OF GOVERNORS  el„  OFTHE  ••  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  PAUL A. VOLCKER  '•eitAL Rts'•' •••..•••  CHAIRMAN  March 24, 1981  The Honorable Jake Garn Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D. C. 20510 Dear Chairman Garn: The concerns and questions raised in the recent letter from you and Senator Proxmire about weekly money supply data have been discussed and debated by the Federal Reserve Board, the Federal Open Market Committee, and the staff for some time. The issues are extremely important and strong arguments—other than Freedom of Information Act implications--can be made for and against publication of weekly data. There is nearly unanimous agreement by all observers that weekly money statistics are extremely erratic and therefore poor indicators of underlying trends. While monthly data can often deviate considerably from such trends, the weekly observations are particularly .. • .. noisy . Week-to-week changes are quite large and recent estimates indicate that the "noise" element--attributable to the random nature of money flows and difficulties in seasonal adjustment--accounts for plus or minus $3.3 billion in weekly change two-thirds of the time. Such a large erratic element appears intrinsic to money behavior, rather than implying poor underlying statistics. In 1980, weekly M-1A and M-1B statistics revised on average only about $300 million between the first published and "final" data several weeks later, though in twelve weeks, revisions were larger than $500 million, and the largest single revision was $1.6 billion. The great preponderance of active market participants are by now aware of the highly volatile nature of the weekly series. Publication has had that educational advantage, and the data to be used with a certain caution. However, from time to time overreactions have occurred.  •  The Honorable Jake Garn Page 2  As a result of concerns about the rea ction to and significance of weekly figures, the Federal Reserve has considered possible revisions to its current publication schedule or to its method of presentation. One option might be to delay weekly pub lication an additional seven days to incorporate more data--an important issue with additional reporters under the Monetary Control Act. Thi s could reduce revisions to the weekly statistics. On the other hand, this option would increase the risk of inadvertent leaks and would inc rease the interval over which market participants might react to gue sses and rumors of money stock changes, based in part on fragmentary data such as may be available in the weekly figures from large banks on deposits and loans. Even if no greater volatility in interest rates occurred over the unpublished interval, lagged publication of a more accurate, but still different than expected, change in weekly money might simply postpone the market reaction. In any event, weekly revisi ons are usually small, as noted above, relative to the underlying vol atility of the series. Another option might be to publish sea sonally unadjusted money data in order to reduce the "importance" of the statistics. Our concern here is that market participants woul d then create their own seasonally adjusted series. The availability of a large number of conflicting series would only heighten market con fusion, and might inevitably lead to questions to the Federal Reserve about what it considers to be the "normal seasonal" change in a partic ular week if what might seem to be an unusual change occurs in a seasonall y unadjusted figure. Another approach might be to publish dat a only monthly--as is now done, because of data reporting problems, with M-2 and M-3--and/or to publish weekly, but only a moving ave rage series of weeks. Under the monthly approach, market participants would still try to estimate weekly series from bank balance sheets and cle aring house data, and the market could be swept by rumors and guesses on movements in the money supply. And they would also probably attempt to glean the weekly number from a moving average series. In any event when a monthly figure was finally published, deviations from market exp ectations could.cause yet further changes in interest rates as the new information was incorporated into market expectations. I might note tha t this has not been a significant problem with monthly publication of M-2 and M-3. A relatively small portion of these aggregates are suppor ted by reserves, and they have played a less important role in the day —to—day targeting process than M-1. In general, there is considerable merit to the view that weekly data as such convey little inf ormation and that weekly seasonal adjustments are subject to substantial uncertainty. However, the Board is not certain at present that the public interest would necessarily be better served if any of the altern atives noted above were adopted. While no one can be sure of their jud gment in this respect, it does •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  vra  a   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Jake Garn Page 3  seem possible that volatility of money market cond itions could be encouraged by misinterpretation of fragmentary data as well as by the continued availability of the present weekly data. We will, of course, continue to review the money supply publication schedule, taking account of the constraints imposed by the Freedom of Information Act. To aid in our assessment of the valu e of weekly money supply data, we plan to ask for public comment on the desirability of continuing the weekly series, or of shifting to the options noted above. Our decision will be taken in the light of those comments. Should Freedom of Information Act requirements present difficulties in the ligh t of the appropriate course, we will consult with you further. I appreciate your interest in these questions. to all of us. Sinc rely,  (el/a /  Identical letter also sent to Senator Proxmire.  They are of concern  Action assigned Mr. Ettin  CongrooftbeiLluiteb tate5 jiioucSe of AepresSentatiboS STEVE NEAL 5TH DISTRICT, NORTH CAROLINA  The Honorable Paul A. Volcker Chairman Federal Reserve Board of Governors 20th Street and Constitution Avenue Washington, D. C. 20551  • 1.  got  Dear Mr. Chairman: Several banks have recently brought to my attention a problem posed by the statutory ceiling imposed on eligible bankers acceptances. I am now considering introducing legislation to increase this ceiling, and it would be extremely helpful to me to know your view of this problem. As you know, the current law as amended in 1915 establishe s a ceiling equal to 50 per cent of a bank's unimpaired capital and surplus, with authority for the Federal Reserve Board to increase a bank's ceiling to 100 per cent of such amount. It is my understanding that the Board has granted the 100 per cent ceiling to all major banks and that many banks across the country are 'up against the 100 per cent ceiling and, hence, are placed at a competitive disadvantage to foreign bank branches and nonmember banks. Also, since 1915 the role U. S. banks have played in international trade financing has increased great ly.  s .  My proposal would maintain a ceiling on acceptances and preserve the Board's role in regulating that ceiling. It would increase the ceiling to 200 per cent and give the board authority to increase it further to 300 per cent. I would envision the process whereby a bank's ceiling is increased from 200 per cent to 300 per cent as being more than a pro forma approval process. It should entail a vigorous review of the bank's financial position. As chairman of the House Banking Subcommittee on International Trade, I am particularly interested in the possibility that expanded bankers acceptance authority could be used to expand American exports by middle market U. S. companies. Some bankers have told me that they would like to attract new customers to bankers acceptance financing, but are unable to do so because their banks have already reached the 100 per cent ceiling. Bankers acceptance financing can provide middle marke t companies with trade financing at rates competitive with commercial WASHINGTON OFFICE: 2463 RAYBURN HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 PHONE:(202) 225-2071   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  March 13, 1981  HOME OFFICE: DISTRICT MOBILE OFFICE, TRAVELS THE DISTRICT TO SERVE YOU  421 FEDERAL BUILDING WINSTON-SALEM, NORTH CAROLINA  27101  PHONE:(919) 761-3125  4WE__  ,The Honorable Paul A. Volcker Page Two  paper, a source of financing only available to larger corporations. 04A  Bankers also have complained to me about the discrimination that exists between eligible domestic and international bankers acceptances. I would like to know the Board's view of a possible proposal to eliminate the shipping document requirement on eligible domestic bankers acceptances. I would appreciate it if the Board could give me its view at the earliest possible date.  IImiiri. r 10%,...• F '.• . 111.: "FP te.,* •  r  . i. '.';' ,  Best  shes,  H N L. EAL S. Congressman  of•*'•  11•11m.  LN:bc   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • • • 0 .* 41-  • GOVE- •  BOARD OF GOVERNORS cir T I, E  . (r• • co 44,' :A ,00,  -: •••,-; , 3 i- • ,/,,,• ...s. .e.‘tillilliU  FEDERAL RESERVE SYSTEM  • -4  WASHINGTON, D. C. 20551  <4,. fIt'•-..4•4_ • RAL RES.•'  PAUL A. VOLCKER CHAIRMAN  March 30, 1981  The Honorable Mack Mattingly United States Senate Washington, D. C. 20510 Dear Senator Mattingly: I am pleased to respond to your request for comment on a letter you received from your constitutent, Mr. Russell Ivie, President, Bank of Dahlonega, Dahlonega, Georgia, concerning NOW account eligibility requirements. As you are aware, the purpose of the Consumer Checking Account Equit y Act of 1980 is to permit depository institutions throu ghout the nation to offer NOW accounts by extending NOW account authority beyond New England, New York, and New Jerse y. The statutory language adopted by Congress parallels the regulations previously adopted by the Board and the FDIC concerning NOW account eligibility. Based upon this statutory background, the Board's staff prepared a compilation of the numerous determinations previously made by the Board concerning what entities are operated primarily for educational and charitable purposes. I have enclosed a copy of this announcement for your information. Entities such as independen t school districts, charities, and religious organizations have always been eligible to maintain NOW accounts. The Board has now asked the staff to review this matter in order to deter mine whether the NOW account eligibility list should be modif ied. Consideration of the staff recommendations is scheduled for April 8. I will be pleased to keep you advised of the Board's actions in this matter. Sincerely,  S/Paui Enclosure  (10/20/80 press release)  GTS:RS:mal (V-58) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Schwartz Mrs. Mallardi (2) v// G.C. Log #92 Legal Records (2)  VOcket  March 30, 1981  The Honorable Fernand J. St Germain Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman St Germain: The Federal Reserve's 1981 Monetary Policy Repott to the Congress, which I testified about on February 26, included the economic forecasts of the members of the Federal Open Market Committee for the current year. Even though the precise form of the new Administration's economic program had not been released when these forecasts were made, the members of the Federal Open Market Committee made tax and spending cut assumptions that were very close to the program as finally announced. I understand that your Committee would now like me to poll the Federal Reserve Governors and Reserve Bank Presidents again to find if their forecast has changed since the President's program was released. In my view that would not be productive. The Administration's program is not sufficiently different from the tax and spending assumptions used by the Federal Open Market Committee members to result in a significant difference in economic forecasts. It is true that in the time since the Federal Open Market Committee members made their forecats, the economy has performed more strongly than most economists had expected, and some members might change their forecast on that basis. However, I believe strongly that it is unwise to revise forecasts on the basis of just a couple of months new information. In any event we will be looking at this issue again for our mid-year report to Congress, and by that time it might well be desirable to make some revisions to the forecast. Sincerely,  Sifay'  RS:vcd bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi (2)  March 30, 1981  The Honorable Jack Brooks Chairman Committee on Governmint Operations House of Representatives Washington, D. C. 20515 Dear Chairman Brooks: Thant, you for tho opportunity to review and comment on the January 23, 1981, General Accounting Office (GAO) report WIND-81-27) entitled, "Disappointing Progress in Improving Systems for Resolving Billions in Audit Findings." The Federal Reserve System was not part of the original GAO Atudy resulting in the January 23, 1981, report and therefore is not mentioned in the body of the report. Hovever, the GAO undertook an eirtensive revielv of the Federal Reserve System's use of internal auditing and issued its final report on August 8, 1980, (GGD-80-59). The Board commented on the final report on October 7, 1980, in accordance with Section 236 of the Legislative Reovganization Act of 1970.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  In its August 8, 1980, report, the GAO made two recommendations regarding the follow-up of audit findings in the Federal Reserve. Since that time, both recommendations have bcen implemented by the Board. With regard to the audit of the Federal Reserve Banks, the Board's reporting and follow-up procedures were recently enhanced to incorporate the GAO's follow-up recommendation. A specific reference has been incorporated in the Audit Standards and Levels of Audit Attention for Federal Reserve Banks" documenting follow-up responeibilities for all Board operational reviews. The Board's audit review group will continue to evaluate this area during its reviews and report on any deficiencies. With regard to the GAO's recommendations dealing with operational reviews at the Board, the Board has since hired a full-time manager for its operational reviev program and has charged the program with the responsibility to follow up on all of its reviews.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Jack Brooks  -2-  ting With these recent actions, the Board feels that its repor with the intent and follow-up procedures and practices are in compliance lines as well as and spirit of the Office of Management and Budget guide ssional organizations. those of the General Accounting Office and other profe Sincerely,  Sflaul A. Vol_cliet  cc:  Governor Schultz Governor Gramley Mr. Winn Ms. Wolfe (2)i Ms. Wells  PAVolcker:ETMulrenin:mdg  v-ss  March 30, 1981  rhe Honorable Charles H. Percy Chairman Committee on Governmental Affairs United States Senate Washington, D. C. 20510 Dear Chairman Percy: This letter concerns tho January 23, 1981, General Accounting Office (GAO) report OMEKD-81-27) entitled, "Disappointing Progr,ss in Improving Systeme for Resolving Billions in Audit Findings." rhis -eport contains recommendations to Federal agencies in general and therefore requires comment in accordance with Section 236 of the Legislative Reorganization Act of 1970. The Federal Reserve System uas not part of the original GAO study resulting in the January 23, 1981, report and therefore is not mentioned in the body of the report. However, the CAO undertook an elztensive review of the Federal Reserve System's use of internal auditing and issued its final report on August 8, 1980, ODaD-80-59). The Board commented on the final report on October 7, 1980, in accordance with Section 236 of the Legislative Reorganization Act of 1970. In its August 8, 1980, report, the GAO made two recommendations regarding the follow-up of audit findings in the Federal Reserve. Since that time, both recommendations have been implemented by the Board. With regard to the audit of the Federal Reserve Banks, the Board's reporting and follow-up procedures were recently enhanced to incorporate the GAO's follow-up recommendation. A specific reference has been incorporated in the "Audit Standards and Levels of Audit Attention for Federal Reserve B.Alks" documenting follow-up responsibilities for all Board operational reviews. The Board's audit review group will continue to evaluate this area during its reviews and report on any deficiencies. With regard to the GAO's recommendations dealing with operational reviews at the Board, the Board has since hired a full-time manager for its operational review program and has charged the program vith the responsibility to follow up on all of its reviews.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Charles H. Percy  -2  With these recent actions, thP Board feels that its reporting and follow-up procedures and practices are in compliance with the intent and spirit of the Office of Management and Budget guidelines as Idell as those of the General Accounting Office and nther professional organizations. Sincerely,  5ibui Wel  cc:  Governor Schultz Governor Gramley Mr. Winn / Ms. Wolfe (2), Ma. Wells  PAVolcker:ETMulrenin:mdg   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  . N  z  A;::)  F;  FEDERAL REF_=::RVE SYSTEM  PA ...i L  A.  L  r=  -.A'  March 27, 1981  The ilon(Jrble Findley iiou,c of leprescntaLives 'a,hington, D. C. 20515 De,.r Mr. Iindley: TL,Ink you for your recent letter asking for my coi:s..ent on the cnclosed letter you received fro::; your constitutent, Mr. Louis Bellatti, expressing his concern Lbout the high rates el interest and their effects on small  I understand the feelings that Mr. Bc1latti has VOLCCU, and hopc that monetary, fiscal, and other government policieJ ::oon will help in makin noticeable progress in reducing inflation. The rapid inflation that wo are experiencing, in fact, is the underlying cause of high rates of interest, and only through gaining control of inflationary forces can we look forwzard to sustainod lowering of int:ere:A rates. In that regard, the best thing we can do to encourage entrepreneurship is to bring inflation under control. The appropriate role for the Federal Reserve under thL::,c circustancos is to continuo to pursue a policy of ..estrdint. To change patterns of behavior within our econoEiy that have. been grounded on the assumption of continued inflation will inevitably require a substantial on-going - effort. Curtailed public spending, along with disciplined monetary policy, will obviously entail risks and . strains- for particular groups and for the economy as a whole in the short run. Both such policies seem to mc essential, however, in order to achieve the basis for lower interest rates, and sustained and vigorous growth in general economic activity, over the longer term. vicv:-; on :iuch matters are discu:-;sed in greatcr detail in Lhe enclo:-.;ed copy of rly recknit te:3Limony before the liou:e Lt_ce on tc.lys and Ncans. I hope that you will find these comments and materials responsive to Mr. Bellatti', concerns. Sincerely, Enclosures LWing/JSZeisel:mal (#V-92) bcc: Mr. Kichline Ms. Wing Mrs. Mallardi (2)  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sgaml A. Vol_cket  Action assignecl Mr. Xichtine Room 211'1, RAYBURN WASNINGTON,  et.IILDINCI  PAUL F INDLEY  20515  20TR Dist fiicr, 1LLtNois  C.  (202) 225-5271  AGRICULTURE  ToLL FREE 800-252-8517   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Congrt55 of the *tatefs Amuck of teproSentatibe5 Massbington, 33.e. 20515 March 19, 1981  Mr. Paul A. Volcker, Chairman Federal Reserve System Twentieth Street F4 Constitution Avenue, N.W. Washington, D.C. 20551 Dear Mr. Volcker: Enclosed is a lettor from Louis Dellatti, who as you will see is very concerned about high interest rates. I hope you will find some way to respond to this concern.  Sincerej.v, .„ •  / C / c. Paul FindleN 6 Representative in Congress Enclosure  COM M!TM ! FORFIGN AFFAIRS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  L s M P . 92 53 6  i .  ..•  9  ,  •-r 1  :,1 ,3   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  . I. food , fibec, Pm].  wr:11.th 1 ;110-  4.-INA •-•  -r•r-+  nr+e-•i.,1 Irc  T  r)'1  -  p  1, •  » ; ••  1110t1(  r  , )11c ( .1 r  •  I  _! t- /  A tri  1-  +bp  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Advertisement Citations:  Number of Pages Removed: 2  Bellatti, Louis. "Information Relative to Bellatti's Developed Certified Soybeans..." Undated.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  •  '. _ •.  r   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ,-  .  )'  :  • J.  2 .  Action assigned Mr. Richline JAltr GAPthi. UTAH  CHAIRMAI4  JOHN TOWER, TFX.  HAPIPIISON A. WILL IAMS. JR , N.J.  JOHN HEINZ. PA.  WILLIAM PROXMIRE. WIS. ALAN CRANSTON, CALIF.  WILLIAM L. ARMSTRONG. COLO. RICHARD G. LUGAR. IND. Al FONCI M  DONALD W. RIFGLI, MICH. PAUL S. SARRANF1. MD.  0 AMATO. N.Y.  1OAIN H. CHAF FF  IR I.  HARRISON SCHMITT. N  cHRISTOPHER J. DOOD, CONN. MEX.  •L AN J. 01YON, ILL.  Ai. DANNY WALL, HOWARD A. NEWELL. MINOFIITY  THRICTOR  PalCnitcb ,!:41alcz Zenate COM  M ITTEE ON BANK ING. HOUSING. AND  IRECTOR AND COUNSEL  URBAN AFFAIRS WASHINGTON. D.C.  20510  March 16, 1981  4  1 Cr  •  1'4 4  L )A/ The Honorable Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Washington, D. C. 20551 Dear Mr. Chairman: The Banking Corranittee appreciated your appearing before it on February 25 to present the Federal Reserve's monetary policy report. In order to complete the Committee's hearing record, your responses to the following questions would be appreciated:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1.  Much of economic policy to this day is based upon an idea of Irving Fischer known as the equation of exchange. This simply suggests that if one multiplies the quantity of money by the velocity of that money, the product will be equal to the product of the number of transactions in the economy multiplied by the average price of each transaction. This equation has been used to "show" that if velocity is stable (and it was suggested that it was), and if we arc near full employment so that the number of transactions does not increase greatly, then an increase in the quantity of money will lead to higher prices and vice versa. This was used to prescribe monetary policy for some time. Is there any validity to this equation in today's world? Is velocity stable, or at least predictable? If the concept here is no longer valid, is there any way to justify activist monetary policy, especially in a world in which we have trouble even deciding how much money there is?  2.  The Reagan tax program purports to have as its purpose increasing savings. Wouldn't it serve that purpose better to have less income tax cuts and more exclusion of taxable interest on savings? It would seem that such a policy would better increase capital formation.  3.  Mr. Greenspan was quoted by Mr. Hobart Rowen recently as saying that if thrift institutions were given massive loan aid the resultant inflation rate would double from 10 to 201 with interest rates going sky high.  O•  The Honorable Paul A. Volcker Mhrch 16, 1981   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Page Two  W. Greenspan raised a basic question therefore about the economy in relation to the stability of the financial system. Mhy we have your comments? 4. We heard W. Stockman say recently that if the Reagan program is adopted intact there would be a dramatic change in interest rates to the 8 or 9", range within a very short period of time. Do you agree or disagree with Mr. Stockman? S.  During your confirmation hearing, you expressed some concern over the threat to the Fed's ability to actually control the growth of the money supply posed by the innovativeness of financial markets which has resulted in the creation of forms of money or near money springing up which are outside of your direct control. These innovations, combined with the uncertainty over NOW accounts, make me wonder if your concern is greater or less than it was 18 months ago?  6.  During the last several weeks MI-A has shown a marked decline, while Ml-B has grown at a moderate rate. Presumably this behavior is due to NOW accounts that were authorized nationwide as of January 1. Has the growth of NOW accounts been consistent with the Board's expectations, and has the shift of funds been from demand deposits and savings in the proportions expected? Would you say that the week-to-week changes on Ml-A and MI-B remain useful indicators of Federal Reserve policy or would you caution the public against watching them? And, would there be any benefit in changing the way the MI-A and MI-B data are published--perhaps publishing them as monthly averages as is done with M2 and M3, or only on a non-seasonally adjusted basis, or only in component deposits not aggregated?  7.  The discount rate has been at 13% since December 1980. During that time the prime lending rate has been as high as 20 3/8% and is now 19. Borrowing has been averaging $1.7 billion per day. This implies a high subsidy being given to borrowing banks --perhaps $200-$300 million at an annual rate. Can this subsidy be justified? Given the recent strong desire by the electorate to let the free market work in this economy, why not have the discount rate  1 p   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Paul A. Volcker March 16, 1981  Page Three  be at or above the rate paid for similar funds in the market place rather than at the ad hoc discretion of the Federal Reserve? 8.  An interesting column by James Lebhenz in the WASHINGTON POST on Sunday, February 22, 1981, indicates that short-term interest rates have declined by 500 basis points, but longterm Treasury rates have increased by 125 basis points. Last April, a 500 basis point decline on short-rates produced a 174 basis point decline in long rates. Why the difference? Why have long-term rates increased rather than declined? What does this indicate about inflationary expectations and the possibility of future economic growth?  9.  Some are very concerned over the apparent tremendous growth in banks' loan commitments over the past few months. How much impact would such an increase in commitments have?  10.  In the past, you have recognized "the challenge of restoring employment, growth and productivity while at the same time visibly reducing inflation." An important goal of the Humphrey-Hawkins Act -- The Full Employment and Balanced Growth Act of 1978 -- is to reduce unemployment. Unemployment in Michigan is currently at 13.7%. Employment has not been restored or unemployment reduced in the seventh largest State in the country. In your opinion, what specific steps should be taken -- which are not currently being taken -- to reduce unemployment?  11.  Has the Federal Reserve done any studies on the effect of high interest rates on different regions of the country? For example, is there any difference between the effect of high interest rates in the State of Michigan -- which is a large industrial State -- and say a predominantly tural, agricultural State? What is the difference?  Your cooperation in providing the Committee with your additional views is appreciated. urs, Sincerely  Jake Garn Chairman JG*JCrm  1   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 27, 1981  The Honorable Thomas F. Eagleton United States Senate Washington, D. C. 20510 Dear Tom: Appreciate the note -- you never know. Sincerely,  PAV:ccm   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20E51  March 25, 1981  PAUL A. VOLCKER CHAIRMAN  The Honorable John Melcher United States Senate Washington, D. C. 20510 Dear Senator Melcher: Thank you for your letter of March 13 requesting that a copy of regulations pertaining to the transfer of funds from a bank to a savings and loan association be sent to Mr. Bernard Grimmer of Billings, Montana. You indicated that Mr. Grimmer had his disability benefit check from the Veterans Administration deposited automatically in his bank in Missoula, Montana, and was experiencing difficulty in having these funds transferred to a savings and loan in Billings. There are no Federal regulations that directly regul ate the transfer of funds from a bank to a savings and loan association. Several Federal regulations may apply, however, should the bank wish to transfer these funds through an elect ronic funds transfer system to the savings and loan associatio n. The Board's Regulation E (12 CFR § 205), issued pursuant to Section 904 of the Electronic Fund Transfer Act, establishe s consumer protections for individuals using electronic money transfer services at financial institutions, In addition, if the transfer of funds was to be sent by the bank through the Federal Reserve's wire transfer network, the Board's Regulation J (12 CFR § 210) would govern the rights and liabilities of the Federal Reserve Bank as between the commercial bank and the savings and loan association. Since the nature of Mr. Grimmer's difficulty was not identified in your letter, I am unable to provide any speci fic information on how he might resolve his problem. We are sending directly to Mr. Grimmer copies of the two Federal Reserve regulations identified above and a booklet describing the consumer protections of the Electronic Fund Transfer Act, and we are indicating to him that he may contact us for more informatio n   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable John relcher Page Two  should this more general informati on not answer his questions. We would recommend, however, tha t Mr. Grimmer contact his local office of the Veterans Administrati on directly for information --on how to redesiynate the saving s and loan association as the depository for his veteran's ben efits. Sincerely,  S/Paul A. Volcitei  LSA:GTS:vcd (V-85) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Lee Adams Gil Schwartz G.C. Log #314 Legal Records (2) Mrs. Mallardi (2)  • -•.•••••••••••••1.1•••  -r  March 25, 1981  nr. Bernard Grimmer Eagle Hotel Billings, Montana 59101 Dear Mr. Grimmer: At Senator nelcher's request, Chairman Volcker has asked that I send you copies of two Federal Peserve regulations that apply to electronic fund transfers, and a copy of the Board publi cation that discusses consumer protections and the Electronic Fund Transfer Act. Senator 1Celcher indicated that you were exper iencing difficulty in transferring funds from your bank to a savings and loan association, and that you wished copies of any relevant regulations. While there are no general regulations that govern transfers of funds between banks and savings and loan assoc iations, Regulation E establishes consumer protections for such transfers if they are made electronically. Also, if the transfer was made over the Federal Reserve wire transfer network, Subpart B of Regulation J would provide rules for the bank and savings and loan association to follow. As the precise nature of your difficulty was not identified in Senator Melchcr's letter, we are unable to provide you with any specific advice on how to resolve your problem. Thus, after reviewing the enclosed material, you may wish to write to the Board directly in more detail about the problem you are havin. Please direct such an inquiry to Ms. Janet Hart, thc Director of the Board's Division of Consumer and Community Affairs. Or you may wish to contact your local office of the Veterans Administration directly in order to designate your savings and loan association as the depository for your veteran's benefits. Sincerely, LSA:GTS:vcd (V-85) bcc: Lee Adams Gil Schwartz G.C. Log #314 Legal Records (2) Mrs. Mallardi (2) Enclosures cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Senator reicher  (Signed) Donald J. Wird Donald J. Winn Assistant to the Board  JAKY: GARN, UTAH, CHAIRMAN AyHN TOWER. TFX JOHN HEINZ. PA. WILLIAM L. ARMSTR ONG. COLO RICHARD G. LUGAR. WO. At roNcr M 0 AMA TO, N Y. JOHN H CHAFE.- At I. HARRISON SCHMiTT. N. MEx  HARRISON A. WIL LIAMS. JR ., 14.). WILLIAM PROXImiaf . WIS. ALAN CRANSTON. CALIF. DONALD W. RIFOLF . JR., MICH. PAUL S. SARRANES. MD. CHRiSTOPHIFR DODD, CONN. ALAN J. DIXON. ILL.  m. DANNY  WALL , STAFF DIRFCT OR Nr .v.•PO A. MFNELL . MINORITY srArr oiRrc-ro  rt AND c.ouNsci.  /Aion assigned Wpowliae‘mididgb. 4°..°4°41°.#  ifeb „Stalcz Zenctie COMMITTEE ON EIANKING. HOUSIN G. AND URBAN AFFAIRS WASHINGTON. D.C  . 20510  March 19, 1981  . 7/,' Cxzt Up  1: ' ;' le°  ;-'11  1zs :17 ( . 3c..3  The Honorable Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System Washington, D. C. 2055 1  CD  •••-•4 Z,11 , 411e  r., ay! e.• _< L. „ AL:  I"  Dear Mr. Chairman: I have enclosed a copy of a letter I received of the Village Bank of from tho President Elm Grove, Wisconsin. I would appreciate your reviewing this matter with your views as to and providing me the appropriateness an d legality of using th term "checking accoun e t" to describe a NOW account. Your assistance is gr eatly appreciated. Sincerely  ours,  (14 1 11 Jake Garn Chairman JG:jcr Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (1  Phone (414) 784-8600  -: ••---ro •  jjank of Tim cgrove Elrn Grove WI 53122  (-)rove Road II•—  •  •la 141% /..4.••••11 4.••  • N....•11 ••••  so4,  ••  41  ,•••••  AMIN ie.":  •  .•**us.  •  411.0 Y..—  I  January 8, 1981  United States Senator Jake Garn 5241 New Senate Office Building Washington, D. C.  Dear Senator Garn, Over the last couple of weeks I've raised a question to a num— ber of people and haven't really had a straioht answer, or for that matter even an attempt at one, and thought that perhaps with how active you have been in the evolution effecting banking you could help me out. With the recent change in N. O. W. accounts permitting withdrawals to be made from interest bearing savings accounts has come a tre— mendous amount of advertising from the savings and loans which talks about being able to pay interest on checking accounts. Isn't this advertising false and misleading? Has there been any suit initiated which would preclude savings and loans from en— gaging in advertising Negotiable Orders of Withdrawal on checking accounts instead of on savings accounts? Isn't it in fact ille— gal for savings and loans to offer "checking account" service? Thank you for your attention to this matter. Sincerely . ;/  1 G Sterner President  AGS/mak   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  i•  /AA  /  •••••  , • -1. r -  1---"  r /4,. 'I. • . -"r.  Phone (414) 784-8600  :  .  CV  Ilage 3ank of cElm cgrove 1 :r r•  GrrA,e • • -••••••   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ••• a  •••• ••••14 ••11.6  • • •J  is,  • • 1 .4/011•.• II • .•. ••• •••• •• •••• ••• •• •..•{....••••1.1.11.  ...1••••1  ••  ••••‘.. •  January 16, 1981  Bryan K. Koontz Executive Directcr Wisconsin Bankers Association 16 North Carroll Street Madison, Wisconsin  Dear Mr. Koontz, Enclosed is a copy of an ad that typifies some of the improper advertising that is being permitted to continue in this market place. It is improper in at least the following ways: 1) The savings and loan indicates to the reader of this ad that they can "BANK" at this savinos and loan. 2) They indicate to the reader that they offer a "CHECKING ACCOUNT". My understanding of the law is that effective December 31, 1980 the savings . and loans were permitted to beein to pay interest on savinos accounts that permit— ted withdrawals under the Necptiable Crder of Uithdrawal (N.O.U.). My understanding of the new regulations makes no provision for the savings and loans to offer "CHECKING ACCOUNTS". Since before December 31, 1980 when the savings and loans first beoan advertising I have brought this question up to a number of people in responsible positions that I expected would respond, and to date haven't. It's very odd that I have had no feedback to date. Please let me know what movement is afoot to correct these sit— uations. Thank you.  -Al GA, Sterner President  AGS/mak  CC: James E. Halvorson Thomas E. Pederson Sen. Willi3m Proxmire Sen. Jake Garn Rep. James Sensenbrenner Rep. Henry Reuss Hal Kuehl Georoe Slater Al Simpson Jack Puelicher Roger Anderson  11.11S1••  lye‘  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Advertisement Citations:  Number of Pages Removed: 1  Great Midwest Savings. "5 1/4% Interest--The Checking Account That Gives You Back More Than A Statement." 1981.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  , •  .  - •  224.01 MISCELLANEOUS BANKING PROVISIONS •  CHAPTER 224 MISCELLANEOUS BANKING PROVISIONS •  224 01 :24 02.  • :   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  224 03 224 0!  Dcfinitiuns banking defined Banking unla..ful, withnut charter. penalty Municipality not preferred creditor  224 0(%  2:4 07  odcht% Ninth (or h.tnI officers and ernplo.cs  Chek‘totic3r •1 pa r  TABLE REPRIVTED IV PART 224.01 Definitions. As used in chs 22() 124 (1) Unless thc context requires otherwise. the term "bank- means anv banking institution incorporated under thc laws of t his state (2) The term -mutual sits ings bank- means any corporation organized pursuant to the laws of this state for the organization of savings banks and savings societies (3) The term "lawful money- means all forms of money issued bs or under the authoritv of the .United States as a circulating medium. and includes any form of certificate declared to be lawful money b.s ans law of the United States. 224.02 Banking, defined. The soliciting. receiving. or accepting of money or its equi% alcnt on deposit as a regular business by anv person. copartnership. association. or corporation, shall be deemed to bc doing a banking business. ‘A het her such deposit is made subject to check or is evidenced by a certificate of deposit. a pass book. a note. a receipt. or other w riting. provided that nothing herein shall apply to or ir.iclude money left w ith an agent. pending investment in real estate or securities for or on account of his principal. Provided. how ever. that if money so left with an agent for investment shall not be kept in a separate trust fund or irthc agent receiving n such money shall mingle same w tth his property, whether with or without the consent of the principal, or shall make an agreement to pay any certain rate of interest thereon, or any agreement to pay interest thereon other than an agreement to account for thc actual income which may. be derived from such money while held pending investment, the per.son receiving such money shall be deemed to be in the banking business. Junior achoernent b.ink ouid be J bJnking bucinec Jnd ‘iolJies 2:4 03 62 Any Gcn 254  224.03 Banking, unlawful, without charperson. ter; penalty. NI1.111 be unIJ lid for copartnership, association, or corporation todo banking business without hasing bccn regularly organized and chartered as a national bank. J  state bank, a mutual NaYinr. bank. or a trust company bank Any person or persons violating ;in% of provusion% of this section. either individually or as an interested partv in an% copart nership. a.m.( IA I ion. or corporation shall gtolts ol a misdemeanor and on cons iction hereof shall bc lincd in a Num not Icss than S300 nor more th.in SI .000, or by imprisonment in thc nor mOrc than n count jall not Ic one sear, or h‘ both such linc and imprisonment preferred not 224.05 Municipality creditor. II ans bank. banking institution or thc state of trust company. being indebted city. tow n counts. Wisconsin. or indebted to ans or other municipalits therein, for deposits made or indebtedness inLurred after April 23. 1899, becomes insolvent or bankrupt, the state. county. city. tow n or other municipalits shall not be a preferred credttor and shall have no preference or priority of claim whatever over any other creditor or creditors thereof. but a just and fair distribution of thc propertv of such bank. banking institution or trust company. and of the proceeds thereof. shall be made among thc creditors thereof pro rata. according to the amount of their respective claims Nothing herein contained shall in ans manner affect thc provisions of law as theY existed on said date providing for the payment of unpaid taxes and assessments. laborer's claims. expenses of assignment and execution of the trust. 224.06 Fidelity bonds for bank officers A.a condition precedent to and employes. qualification or entrs upon the discharge of his duties. every person appointed or elected to any position requiring the receipt. pay ment or custods of mk.ines or other personal property ncd bv a bank or in its custody or control as collateral or otherwise. shall give a bond in some responsible corpor.ite sure! company. licensed to do business in this slate. In Ntit:11.1110111.11C \UM :1%111C difeilur  Nil.) II  Anti .1 prrOvc In hell  of indi‘'dual bonds the commissioner nias accept a schedule or blanket bond which covers 12'77 75   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -1 .  5L,fa4  J:  1 G)  r. 11:  • ;  •  •  SELECTED CHARACTERISTICS OF SHORT-TERM COZTtERCIAL AND INDUSTRIAL LOANS MADE BY OTHER THAN 48 LARGE BAZ,TKS  1980 Aug. 4-8  Nov. 3-8  1961 Fcb. 9-7  1977  1978  1979  1980  May 5-10  Percent of gross loan extensions made at rates below prime  4.3  11.2  26.4  18.9  27.1  16.4  16.3  23._  Spread between prime rate and weighted average rate on loans made below prime (basis points)  132  140  172  218  266  137  213  309  81  37  23  43  45  66  36  53  42  37  39  AO  37  Average loan size ($ 1,000) rLde below prime 1 cans made  nr  above prime  Average maturity (:::onths) 1 -  •  42  41  ,  loans made below prime  2.5  2.9  3.7  3.5  4.3  3.2  2.9  2.8  loans made at or above prime  3.4  3.1  3.1  3.3  3.4  3.7  3.0  3. 7  Source: Note: 1.  Survey of Terms of Bank Lending. Beginning August 1979, calculations are based on prime rates reported by banks; calculations fOr earlier periods employ the prevailing prime rate. Annual numbers are averages of quarterly surveys. Average maturities are weighted by loan volumes exclusive of loans with no stated maturity (demand loans).   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 1981  SELECTED CH2.AACTEBISTICS SHOR.1-51MN tC:241:RCIAL AND INDUSTRIAL LOANS MADE BY 48 L,\RGE BANKS  Percent of gross loan extentions made at rates beL:w prime Spread between prime rate and weighted average rate on loans made below prime (basis points)  1980 Aug. 4-8  Nov. 3-8  1981 Feb. 2-7  1977  1978  1979  1980  May 5-10  10.2  16.4  32.9  47.1  53.3  64.7  20.3  71.5  87  81  100  206  419  212  65  181  1127  746  674  1934  1067  4683  898  2811  156  1.73  221  312  205  223  593  248  1.7  1.4  1."1  1.0  1.2  .7  1.2  .7  3.4  3.5  3.0  3.4  3.2  1.9  2.,  Average loan size ($1,000) loans made below prime loans made at or above prime , ,1 Averz.ge maturity (mcntns) loans made below prime loans made at or above prime  Source: Note: 1.  Survey of :erns of Bank Lendir12. Beginninz,,- August 1979, calculations are based on prime rates reported by banks; calculations for earlier periods employ the prevailing prime rate. Annual numbers are averages of quarter ly surveys. Average maturities are weighted by loan volumes exclusive of loans with no stated maturity (demand lrans).   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 1981  February 24, 1981 t- • • , ..ta...71.;K:  '  •••,,'• .• . •-•  The Honorable Fernand J. St Germain Chairman 'Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Dear Chairman St Germain: Thank you for your recent letter requesting the results of the February Survey of Short-TeTm Business Lencling Rates Below the Prime Rate. I assure you I will forward the -survey as prorptly as possible. However, a substantial amount of staff.timc, is necessary to edit and complete the analysi's of approximately 20,000 loans reported. And, while I am aware of tht need for expeditiousness and the work you are involved in at this time, it will be around the middle of Mar0.before tbe necessary editing and analysis can be completed. Sincerely,  LW:JLK:AFC:vcd (V-46) bcc:  Mr. Simpson (for follow-up) Mr. Kichline Ms. Wing Mr. Brady Mrs. Mallardi (2)  •  •  Bob Plotkin will testify JAKE  GARIN, VTAH. CHAIIRMAN  JOHN TOWER. TEX. JOHN HEINZ PA.  HARRISON A. WILLIAMS. WILLIAM PROXMIRE WIS. ALAN CRANSTON. cAur,  N.J.  WILLIAM L ARMSTRONG, COLO. PtICHARD G. LUGAR. IND. ALFONSE M. D AMATO. N Y. JOHN H. CHAP' E R I.  DONAL D W RIEGLE, JR., MICH. PAUL S. SARSANICS, mn. CHRISTOP/4,111 J. DODD CONN.  HARRISON SCHMITT, SI. MEX.  ALAN J. oixo«. ILL.  M. DANNY WALL, HOWARD A. ME.NELL. 'MINORITY  DIRECTOR 'RECTOR ANO COUNSEL  PZCnifcb Ziatez Zertafe COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS WASHINGTON. D.C.  March 24  20510  1981  1140  -▪r)  ru ca  rso rn  zsn  Honorable Paul A. Volcker Chairman, Federal Reserve Board 20th El Constitution Avenue Washington, D.C. 20551  —  ZE  M4  —'qq "  MI X NIP  7:31  ' i. gr k a )  rtl C.1%  X/ •• )110. C.)  -4  C.) ;41  Dear Chairman Volcker: As chairman of the Subcommittee on Securities, I am writing to confirm the Subcommittee's invitation to the Federal Reserve Board to tesitfy on S.289 at our hearing on March 31, 1981. The hearing will be held in Room 5302 of the Dirksen Senate Office Building, beginning at 9:30 a.m. A copy of S.289 is enclosed for your reference. The rules of the Banking Committee require all witnesses to submit at least seventy-five (75) copies of written statements at least 24 hours prior to the hearing. Therefore, we would appreciate your delivering at least 75 copies of your statement to the Committee's office not later than 9:30 a.m. on March 30, 1981. Strict adherence to this rule is essential. In addition, the enclosed card should be completed and returned before the hearing. While your complete statement will be printed in the hearing record, the length of oral presentations will be limited at the hearing. I appreciate your willingness to give the Subcommittee the benefit of your views on S.289, and I look forward to your testimony.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  6(2 Alfonse M. Chairman  D'Amato  Subcommittee on Securities  •OP • • o• f GOV •• •co  .•  •,, •  ‘ '1111 1i „,1 • c•'‘ .4 1111  it •  12.•  BOARD OF GOVERNORS or THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  March 24, 1981  PAUL A. VOLCKER CHAIRMAN  The Honorable Norman E. D'Amours House of Representatives Washington, D. C. 20515 Dear Mr. D'Amours: Thank you for your recent letter concerning the availability of NOW accounts to governmental units. As you are aware, the Consumer Checking Account Equity Act of 1980 (P.L. 96-221) provides that depository institutions may offer interest-bearing checking accounts to individuals and nonprofit organizations organized primarily for religious, philanthropic, charitable, educational, and other similar purposes. The objective of the Consumer Checking Account Equity Act of 1980 is to permit depository institutions throughout the nation to offer NOW accounts by extending NOW account authority beyond New England, New York, and New Jersey. The statutory language adopted by Congress parallels the regulations previously adopted by the Board and the Federal Deposit Insurance Corporation concerning NOW account eligibility. Based upon this statutory background, the Board's staff prepared a compilation of the numerous determinations previously made by the Board concerning what entities are operated primarily for educatjonal and charitable purposes. I have enclosed a copy of this announcement for your information. Separately constituted governmental entities such as school districts and educational institutions have always been eligible for NOW accounts since they are operated primarily for educational purposes. However, State and local governmental bodies have never been regarded as eligible for NOW accounts since they are organized primarily for governmental purposes. The Board's staff has been asked to prepare a comprehensive study of the NOW account eligibility criteria in order to provide greater consistency among the categories   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Norman B. D'Amours Page Two  of eligible depositors. This study will include possiYle extonsion of NOW account eligibility generally to all Section 501(c)(3) non-profit organizations. We anticipate that the Board will be considering staff recommendations within the next few weeks. I would be happy to keep you advi, ;ed of this matter. Sincere1y,  Enclosure  (10/20/80 press release)  GTS:vcd (#V-61) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi (2) Mr. Schwartz G.C. Log # 96 Legal Records (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  MbIslciNAL  L -Qo  April 1, 1981  The lionorable Earrison Schmitt United States Lenate Washington, D.C. 20510 Dear Sunator Schmitt: After consideration of all comments reeeivod, the - oard today denied the application of El Pueblo Ilancorporab tion, Espanola, New Mexico, to become a bank holding company Ly acquiring El Pueblo State Bank, Espanola, New Mexico. A copy of the order, which summarizeo the rea:;ons for the denial, is enclosed for your information. Sincerely, (Signed) Donald L Winn Donald J. Winn Assistant to the i;oard Enclosure (p.r. dtd. 4/1/81) CO:AFC:pjt (#182) Identical letters also sent to Cong. Lujan Sen. Domenic  'pi)  PETE V. DOMENICI NEW MEXICO  Identical letter received by each member of the Board; Don Winn will acknowledge receipt of letters on behalf of Board members  •  ?Inifeb ,5:31afcfp „Senale WASHINGTON. D.C. 20510  March 26, 1981  A  The Honorable Paul A. Volcker, Chairman Federal Reserve Board of Governors 20th Street and Constitution Ave., N.W. Washington D.C. 20551 Dear Mr. Volcker: The El Pueblo State Bank, Espanola, New Mexico, has pending before the Federal Reserve Board of Governors a one-bank holding company application. The applicants are a reputable New Mexico bank which enjoys high standing in the community. The granting of the application will have important business and community meaning to the bank and the city of Espanola. I support the application and am confident the Federal Reserve will give it due consideration. cerel  ete V. Domenici United States Senator PVD:asaj   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  t, 1-•  •  rt.]. 1, 1941  140 ilont)rat)le  (Kika)  a Car.c.it  ors A4riculturo of Rtprek;entativcs Q.C.  ‘..4.3.4ittee  lAat.r Cairait.ri 1.4e la (iaratt. Thank y(A.1 tor your lett4r concerniny tr.* timely coo; ;,,Itstion ur tsws report 01 th4 Futureb Trading Comission, ccioeoL4Atlots witL tno Feer41 Reserve and other agencies, on sAlvor 4.arkwt k;uriL'„ late 1979 and early 1980. A Atslly uL...oratarsu y(;alr igterout in the silver market incie ent aut.s a_;reciate ttot tsecci ior Iror,k.t co.,plztiQc of the repor t. stAsfr the CiTC ti44 j.krepartaa a %.:rtft of t.se Itagu,t it to tl.ts Federal Rfaserve staff for their coxents. - *.xosct to rk:son,..; to the Cilie very thortly and from our itr. 64,ectivis shu.L. L)u, possible to meet the jun* 1 cioadline. ; .4isure yc-u tl.,zst this i:.atter has ay ette4tion a4id that adequatc cusrcea will tJtvoted to cotuplete our raspi.:Alitiots in this effort. rIcerely. S/Paul A, Volcker it6.1%S:pjt sJcc. Mrs. Nallertli (2) Identical letters alb° zc, ./It to.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Chrmn. Lezs Jones, Cong. Wampler & Jaffor‘is.  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  April 1, 1981  PAUL A. VOLCKER CHAIRMAN  The Honorable Arlen Erdahl House of Representatives Washington, D. C. 20515 Dear Mr. Erdahl: Thank you for your letter of March 10 requesting comment on an inquiry from the Cit y Administrator of Mahtomedi, Minnesota, concerning the eligibili ty criteria for NOW accounts. As you are aware, until December 31, 1980, only depository institutions in New England, New York, and New Jersey could offer NOW accounts. The Consumer Checking Acc ount Equity Act of 1980 provides that beginning December 31, depository institutions throughout the nation may offer NOW accounts to individuals and nonprofit organizations operated pri marily for religious, educational, charitable, philanthropi c and other similar purposes. In enacting this statute to extend the benefits of NOW accounts nationwide, Congress chose the language that had previously been adopted by the Federa l Reserve and the Federal Deposit Insurance Corporation concer ning the types of depositors already eligible to maintain NOW acc ounts. The regulations of the agencies have always permitted certain governmental entities such as housing authorities and sch ool districts to maintain NOW accounts since such governmental ent ities are separately constituted and are operated primarily for edu cational, charitable or philanthropic purposes. However, entities such as municipal governments and other public units that perform general governmental duties have never been permitted to mainta in NOW accounts since they are operated primarily for govern mental purposes, which is not included in the statutory list of permissible purposes. The Board recognizes that the curren t NOW account eligibility list can result in app arent inconsistencies between the types of organizations that may maintain NOW accounts. As a result, the Board has asked the staff to review this matter in order to determine whether the NOW account eligibility standards should be modified. Consid eration of the staff recommendations is scheduled for Apr il 8. I will be pleased to keep you advise d of the Board's actions in this matter. Sincerely, GTS:AFC:vcd (V-74) bcc: Mr. Schwartz G.C. Log #109 Legal Records (2) Mrs. Mallardi (2)  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Wajil A. Volcket,  GREAGORY W. CARMAN 3o DISTRICT, NEW YORK  Action as signei Mr. Ettin &JARS OF COVEIZNORS CJ. THE • RESEnVE •,S1':;Tf.)1  Coitgre5 of Or Unita( *tatrsPou5e of r-NeprefSentatibeZ /Ziobington, D.C. 20313  1981 MAR IO AN 9: 27 RECEIVE; OFFICE OF THE CHAIRMAN  101  1T'l" .1 1  The Honorable Paul A. Volcker, Chairman Federal Reserve 20th Street and Constitution Ave., N.W. Washincton, D.C. 20051 Pear  Chairman:  Ileasc to advised thnt —nny of the thrift institutions in ry district and indeed tIxouchout New York rtate have indicated to ne throu7h their repres,litatives that they are concerned about short tern- li'luidity problems. Tt is my understandinr, that rqny money r-Irket certificates win become due in Airil. Tills may rrecipitate very serious cash reserve r ,rollers for thP thrift institutions. I would alTreciate if you wouli advise ry office about, clans and proeeduren the Federal Peserve has in place and ready ror impleLentntion to reet these serious protlems.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Ycur prort attention to thin latter , -;111 ,1  rre%t  7e.;rectfully  egor  . Carman - f ConFress  arprecint.l.  April 3, 1981  The Honorable Cleve Benedi ct Member of Congress 116 North Court Street Lewisburg, West Virginia 24 901 Dear Mr. Benedict: Thank you for your letter of March 25 requesting comment on correspondence you receiv ed from Mr. Jack Masella. Mr. Masella had corresponded previously with the Board concerning th e return of checks unpaid drawn on th e Chemical Bank. For your information, enclosed is a copy of a lett er sent to Mr. Masella. As indicated in the letter to Mr. Masella, the Federal Reserve Bank of New York's extensive review of this matt er disclosed no evidence that the actions and policies of Chem ical Bank violated any laws or re gulations within the jurisdic tion of the Federal Reserve. matter.  I regret that we cannot be of more assistance in this Sincerely, (Signed) Donald Donald J. Winn Assistant to the Board  Enclosure OhIA/ CO: vcd (V-104) bcc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. Mallardi  CLEVE BENEDICT 20 DISTRICT, WEST VIRGII.AA HOUSE COMMITTEE ON ENERGY AND COMMERCE  Will be handled by Cong. Liaison Office; we've had previous correspondence from constituent  Congre  of tlit Einiteb  tato  ,)oticSe of ikepreZentatibr5 _ :  L 3/4"C7  • J  •: 4-11 Z.:  PLEASE RESPOND TO:  P.O. Box 884 MArrrif.81.110, WEIIT VIRGINIA 25401 SO4-263-4679  LAi  L Lt. La- t CD C.)  X IC cp  4t.  LA I  '7) .x4  Z6505  •  ( _1  4  Disr,'icr orricEsi P.O. Box 47 MORGANTOWN, WEST VIRGINIA 304-292-3005  116 NORTH COURT STREET LEWISBURG, WEST VIRGINIA 241X1 804-6,M-6026  Causbington, 3:3.C. 20515  ,T  WASHINGTON OFFICEt 1229 Lour:WORTH BUILDING Taa..zr,.0w 202-225-4331  Honorable Cleve Benedict 116 N. Court Street Lewisburg, W.Va. 24901  Cr8   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 25, 1981  Mr. Paul A. Volcker, Chairman, Board of Governors Federal Reserve System 20th Street and Constitution Avenue N.W. Washington, D.C. 20551  Dear Mr. Volcker: Enclosed is a copy of the letter which I recently received from a constituent Mr. Jack Masella concerning the difficulties which he is presently experiencing. I would appreciate you checking into this situation and advising me of any comments which you may have in this regard. Thank you for your attention to this matter. If I can be of any assistance to you, please do not hesitate to contact me. Kind regards,  ez.....e.„4-1 Cleve Benedict Member of Congress CKB:jlw  • .;-' •  SU II 3  2-22 c__/  79-A _9  cut,,,,,  7-7?c,JL,<_  .  a)  /0/ /cf7e  ,-/  9 _9 -77-2  j-  0  c,2 a_  777c„,_c.-4 , 4z_ cr  t -t--Z72/  LA/  . CAt  dt-ti  4  js0  if2Z  d  vz--  7-1_0.47 d  4/  47  4 C et/Z  )  (_  c,/  tid  A  )  ,‘")A  ‘&:z-44/ 17 (.? 72-24 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  leP/  1  f  6,  0-dalt rWa-t  1-c=44g - 1/2   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Git-cA  C_Zt„,(.c_j  c/t.  3) F7  f\_e_ 6-1 p  r) -71d-4  c(,<,tcz,c5 " _c/ e446: ese-c  p  64,7  r  de-77 r2-(174.  CZ‘i-7  .  (;_  "LAI  (. 1  /Je.,  9 ."))  _c,c-/ ct  c7L__  -;(  ,RO2__ .  k  jaeC  c,c1ct_  6_1? "  ,  X4_a/ )  r  .r/er /21,  t_<:&" 6-/ 71-1 k_z-(1-  /-t<A1 L(V ekt-  t-12-Hi  .  tri-L" -2_  3  /3  /27 /-  e=4 -7  ( c.„,  73-t,  ,  I-6/Z/ ,  -9  . 1-(/ cT_,  __--2__e__._._c/ -)-,...,_ ,_ -6.....&2.,__ - c.„-",„4...„._...,i_ 1,2,, ,:,_ ev-,e_„__ -/s,et_asc.(y-c,..2__ il.,,_„._ a__,_d 64 ,cx_f__‘,J (k.„ c,. 2_ _ e„..._ 7  a t i . " . _ , 4 . , t _ c.L..,Lat..dt,.\_cd7--)/ItA.ti_t, 440,I., ./c.,a.__,2__. ___(.s._,(r_ c._ . ._, _ 7 t _ 4 _i_6‘‘_t__ r?A_e_„6c-L,_c_ d AJ,,.r__/1_,.:_„,(/,1_ _>.,1_q_) ?-& . 1 ) / 1 _ 4 _ 2 , ) (ia_J4,z/ C...--&-Cvi__  ec<,,A,c,e_ e_1_,:,_-. 2 Li_ , (I _i i, i aL -- . ca-t_t_.„--t1 I ??te, y vt..4f__  cL.a / rf—  F e-  L  i  ts-~1  ( AJs  .  c--c/ S/.,( (ar,)-)  792, .  Ot_,L7,4 3  Ve._  C.-  ,  s-s?-50vo () /4-,,,, kz_W M_ c_:,-2-_  3? ' `yr  ‘t,Lt.,-  /7C-.  ,I z___  d ,,,d,<___ E--Lk_ t., il__. -7-7-1 (,‘. tzt_ -e.._„,__ L t\i Lt__ /)6,,. &‘,/(,<„ (4 c--461_ / -e-4q4 (:&__ Ly /(/ x__. &I, :_,,.. _d_i- so,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (.4_A.,, 2 - 2  71---L-iill  Zi ti-  /L-(-  • •  -   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  7-74, 1  in e__  a(  LL.  6`-)6-4•-•  cuy  . .1  cra--AZ--  G/  7 1 &  cJ2p(Af  C\_  \/‘,LL-  .7-1A  a/2 -  9/- S- 3r6  avxdtd tic R. a c„,o/ J2-y ,t-i (c)-1,)-) '7i/- r000 a-%-1/-*  47/&c,„. 7 (AU  -e._G/ .2. a., 0  (1/.e..1  67 -  a 5  G,trt-  C/ /  4%/".k-  /1. 41 1 /  .. • mo.  ,  S -e-at_  74Ctr ,Cet/‘zki,5 (4„iLJ )  k‘:1_ c4y/t_c:/  e4f- vtdd  4A4-  C/Le_11-t._ •.•,  64_  11,t)-t-‘f-  f7   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  tt„_&/ _t—  Aa_tp  t'4  C(y  e)'  ••••••••  41/  •  • •  .4. •  it. • • %•14.1.. ‘.1 . '; •  c  NINETY.SEVENTH  comomrss  Jomm o. oinGELL., MtCH., CHAIRMAN JAMES H. SCHEUEPt. N.Y. RICHARD L. OTTINGI R. N..... HENRY A. WAXN.A.N. TIMOTHy e• IA IRTH, COLO• PHIUP R. SHARP, IND. JAMES J. FLORIO. N.J. ANTHONY Toe. , morrErT. CONN. JIM SANTINI. wry. EDWARD J. MARKEY. MASS. THOMAII A. LUKEN. 0•110 DOUG N ALGREN. PA. ALBERT GORE. JR., TENN. RARRARA A. IMIKULSKI, 1/.40. RONALD M. MOTTL, ONIO PHIL GRAMM. TEX. AL SWIFT. WASH. MICKEY LELAND, TEX. INCH.A RD C. SHELBY. ALA. C.ARDISS COLLINNII. ILL. 11.411(r SYNAPI. OKLA.  JAMES T. BROYHILL, N.C. CI-Artt NCE J. DROWN. OHIO JAMF S M. COLLINS. TEX. NORMAN r. LENT. N Y. EDWARD R. MADiGAN. ILL. CARLOS J. MOORHEAD, CALIF. MATTHEW J. PRIMAL DO, N.J. M•RC L. MARKS. PA. TOM CORCORAN, ILL. GARY A. LEE. N.Y. WILLIAM E. DAWN- MEYER, CALIF'. SOO WHITTAKER. KANS. THOMAS J. TAUKII, IOWA DON RITTER, PA. HAROLD ROGERS. KY. CLEVE IIENIDICT. W. VA.  BOARD 0,7 , :OvERNOF6 CF ihE  jDoust of lepre5entatibet.- P41. 11EsEi,:iE SYST2'. Committre on energp anb anunetitp3i npR _2 nil /0: 49 oorn 2123, Ilapburn ibouse Offire Nuabing WaZbint011, rle.  20515  GFTICE 07:ClilEVRAIRMAN  DANIEL PI. COATS. IND. THOMAS J. SLILEY. JR.. VA.  March 31, 1981  W. J..•11ILLY •• TAUZIN, LA. PION WYDEN, ORIG. RALPH P4. liALL, TEX. FRANI( M. POTTER, J Pt. CHIEF COUNSEL AtiD IFT AT IILCTO   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  /y  TO:  Office of Management and Budget Securities and Exchange Commission Federal Reserve Board  FROM:  JOHN D. DINGELL CHAIRMAN  Your views are requested on the enclosed bill, H. R. 2879, to amend the Securities Exchange Act of 1934 to provide uniform margin requirements in transactions involving the acquisition of securities of certain United States corporations by foreign persons where such acquisition is financed by a foreign lender. The Subcommittee on Telecommunications, Consumer Protection, and Finance will hold a second day of hearings (April 2, 1981) on similar legislation. Accordingly, your expeditious attention to this request and your reply in triplicate will be appreciated.  JDD:jmcl Enclosures  4%1  OA •cse•Z%Pit;dr\ •  „7„ifi„T .„„)N H .R.2879  11111.amomEn••••-  0 11111111 . Fill1.  To amend the Securities Exchange Act of 19:34 to provide uniform margin requirements in transactions involving the acquisition of securities of certain United States corporations by foreign persons where such acquisition is financed by a foreign lender.  174 :;C:kweik,  F°4'  •  ti".".ft."1".""m"  IN TIIE HOUSE OF REPRESENTATIVES Mikitrii 26, 1981  Mr. COLLINS Of Texas introduced the following hill; which was referred to the Committee on Energy and Commerce  A BILL  te-'••• , Ott.' • Pt-,„ JO' 7- -.PHIP..."-^  To amend the Securities Exchange Act of 1934 to provide uniform margin requirements in transactions involving the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  acquisition of securities of certain United States corporations by foreign persons where such acquisition is financed by a foreign lender. 1  Be it enacted by the Senate and House of Representa-  -• ill •  r : , :s  P  2 lives of the United States of America in Congress assembled, 3 That (a) Section 7(f) of the Securities Exchange Act of 4 (15  5 6  1934  U.S.C. 78g(1)) is amended(1) by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively; and  • ••••••1. •  tr.  ••••••4  0 kr,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  2 1  (2) by inserting after parngraph (1) the following-  .)  new paragraph:  3  "(2)(A) It is unlawful for  71r " i.-7!%,..3,i;".1.7. 4 .  alIV  person not subject to para-  ., „0? e Vkt?.)ve  4 graph (1) of this subsection to obtain, receive, or use the 5 proceeds of a loan or other extension of credit from  :111V  6 lender (without regard to whether the lender's office or place 7 of business is in a State or the transaction occurred in whole  IN  8 or in part within a State) for the purpose of (i) purchasing or 9 carrying United States securities, or (ii) purchasing or carry10 ing within the United States of any other securities, if under 11 this section or rules and regulations prescribed thereunder, 12 the loan or other credit transaction is prohibited or would he 13 prohibited if it had been made or the transaction had other14 wise occurred in a lender's office or other place of business in 15 a State. 16  "(B) Any United States person injured or threatened  17 with injury by reason of a violation of this paragraph and any  eism;  •  •  M.  •  0-*  i-0., • ••,• • 4,41.• %oft 1111.ip  --- • .  .  18 person whose securities are being purchased or carried may 19 bring an action in the appropriate district court of the United 20 States, or in the appropriate United States court of any terri-  '  r. •  ..• • •  . "  . ••••4•''' " ••••....1• : .7` •. •  91 tory or other place subject to the jurisdiction of the United  ;-:•%  o  %4. • . -Of ••0  ••••••,;•••:-..-  •  22 States, to recover damages for such injury or to enjoin such a 23 violation.". dts.  *  .081 • '• p-'...4••••••••••• •••1...•k  24  (b) Paragraph (4) of section 7(f) of the Securities Ex-  25 change Act of 1934, as redesignated by subsection (a) of this  11.1t. 2$79--ih  :3 1 section, is amended hy striking out "United States persons or 2 foreign persons controlled by a United States person" and 3 inserting in lieu thereof "persons". 4  SEC. 2. The amendments made by this Act take effect  5 on March  , 1981, and the provisions of paragraph (2) of  6 section 7(f) of the Securities Exchange Act of 1934, as so 7 amended, shall apply to any purchase of securities occurring  OsiAmatilirmiaamoI , 74*: ; : *  r -4,,,rif•  8 on or after such date and to the carrying of such securities on 9 or after such date, if the loan or extension of credit therefor 10 originated on or after such date or if the loan proceeds used 11 to purchase or carry such securities were disbursed on or  t.• 1%1* "".• ' tr.•  12 after such date.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  0  • tkvt:c4.  r  .001PP" .  AP, •  Ati *P-  '  ‘111`  „,nicoNcREss H R • • 2879 ST SESSION  To amend the Securities Exchange Act of 193.1 to provide uniform nnirgin requirements in transactions involving the acquisition of securities of certain United States corporations by foreign persons where such acquisition is financed by a foreign lender.  11 "-ii-"C '  !”r  ill•••••••••111•••••••••—.-•  IN THE HOUSE OF REPRESENTATIVES NIAlwii 26, 1981 Mr. COLLINS of Texas introduced the following hill; which was referred to the Committee on Energy and Commerce  • 4,  44 4  , a. •  OILYS ", •  A BILL To amend the Securities Exchange Act of 19:34 to provide uniform margin requirements in transactions involving the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  acquisition of securities of certain United States corporations by foreign persons where such acquisition is financed by a foreign lender. 1  ft•  ...  '. Nii,  ' c al. :,'•  vs.— ,i;  ,  :s -4 . 1.— - 44:0:ih.- , IL.  •  • ...•  •  '  • • •  Be it enacted by the Senate and House of Represenia••  2 tires of the United States of Anzerica in Congress assembled, r.  3 That (a) Section 7(f) of the Securities Exchange Act of 1934 4 (15 U.S.C. 78g(0) is amended5 6  ciwiL 14114...r" ,•!••• ;PA" •  (1) by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively; and   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  '401111111•111111•  9 1 .) 3  (2) bv inserting after paragraph (1) the following- •-• •  new 'wag-mph:  s,  "(2)(A) It is unlawful for anv person not subject to para-  ppi.1011.10MINIMINIPPIN,M•  4 graph (1) of this subsection to obtain, receive, or use the  3 proceeds of a loan or other extension of credit from  :111V  6 lender (without regard to whether the lender's office or place  immiNhmaillemwYr ;:.:! **1 ***;'‘' Wt .. .4.  7 of business is in tt State or the transaction occurred in whole 8 or in part within a State) for the purpose of (i) purchasing or  9 carrying United States securities, or (ii) purchasing or carry10 ing within the United States of any other securities, if under 11 this section or rules and regulations prescribed thereunder, 12 the loan or other credit transaction is prohibited or would be 13 prohibited 11 it had been made or the transaction had other14 wise occurred in a lender's office or other place of business in  13 a State. 16  "(B) Any United States person injured or threatened  17 with injury by reason of a violation of this paragraph and any  • .1 „  4.  18 person whose securities are being purchased or carried may 19 bring an action in the appropriate district court of the United  14-  s,  j•-• • •  •  *. "••  20 States, or in the appropriate United States court of any terri-  1. •  •'  21 tory or other place subject to the jurisdiction of the United  22 States, to recover damages for such injury or to enjoin such a  .4. • ..0.”0*---71.:—.0%."--7  23 violation.". 24  `  (b) Paragraph (4) of section 7(f) of the Securities Ex-  25 change Act of 1934, as redesignated by subsection (a) of this  II.R. 2),79—ih f`—•  1 section, is amended by striking out "United States persons or 2 foreign persons controlled by a United States person" and 3 inserting in lieu thereof "persons". 4  Six. 2. The amendments made by this Act take effect  5 on March  , 1981, and the provisions of paragraph (2) of  6 section 7(f) of the Securities Exchange Act of 1934, as so  -  -  •;  Aliktnv, -Tr -• •  7 amended, shall apply to any purchase of securities occurring 8 on or after such date and to the carrying of such securities on 9 or after such date, if the loan or extension of credit therefor 10 originated on or after such date or if the loan proceeds used 11 to purchase or carry such securities were disbursed on or 12 after such date.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  0  7,›; r 7 7** I iiii‘.. 4Ai‘  111.4,  4°7 .10  , r•  r  •  1,1••• t e• n; • ••••zv0.4, .• •xp • ••;,• . - •eN.,. •  '6 •  16177 ' •r  1111110.11...."0".! 0°-  I  ftic 97Tti CONG ESS 1ST SESSION  H.R.2879  To amend the Securities Exchange Act of 193.1 to provide uniform marg-in requirements in transactions involving the acquisition of securities of certain United States corporations by foreign persons where such acquisition is financed hv a foreign lender.  6:.;1*C74 pi apr . /r/.:  IN THE HOUSE OF REPRESENTATIVES MAiwii 26, 1981  Air. COLLINS of Texas introduced the following hill: which was referred to the Committee on Energy and Commerce  A BILL  _ • r<-0e*pliimmiliiimmimp. • •  474 ( 4.ta  To amend the Securities Exchange Act of 1934 to provide uniform margin requirements in transactions involving the acquisition of securities of certain United States corporations by foreign persons where such acquisition is financed   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  P.  ipmesqpitismapammapassfm.••  ; -  .  r. 11. .  by a foreign lender. 1  Be it enacted by the Senate and House of Representa; •ss_ •  tives of the United States of America in Congress assenibled, 3 That (a) Section 7(f) of the Securities Exchange Act of 1934  .• It' • -• •  1 4 IP-• /  ..•...‘••  logo  4  5 6  (15 U.S.C. 78g(0) is amended(1) by redesignating paragraphs (2) and (:3) as paragraphs (:3) and (4), respectively; and  IMMEN111.111•1111IMMIIIIIP.•   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •)  1 s) 3  (2) bv inserting after paragraph (i thc following; !yr  new paragraph:  &reit'  "(2)(As) It is unlawful for any person not subject to para-  111011110•MaggallIIIMiaffm.-  4 graph (1) of this subsection to obtain, receive, or use the 5 proceeds of a loan or other extension of credit from any 6 lender (without regard to whether the lender's office or place  inlilimoolmien1111101.1111.100 ,  7 of business is in a State or the transaction occurred in whole 8 or in part within a State) for the purpose of (i) purchasing or 9 carrying United States securities, or (ii) purchasing or carry10 ing within the United States of any other securities, if under 11 this section or rules and regulations prescribed thereunder, -  12 the loan or other credit transaction is prohibited or would be 13 prohibited if it had been made or the transaction had other14 wise occurred in a lender's office or other place of business in  ril  l••=y•mo••••••.....  .  15 a State. •-ct.'  16  "(B) Any United States person injured or threatened  17 with injury by reason of a violation of this paragraph and any  isiawak<Isirvis+-• •  18 person whose securities are being purchased or carried may 19 bring an action in the appropriate district court of the United 20 States, or in the appropriate United States court of any terri21 tory or other place subject to the jurisdiction of the United  "ow"  •••  22 States, to recover damages for such injury or to enjoin such a 23 violation.". 24  (b) Paragraph (4) of section 7(f) of the Securities Ex-  9r change Act of 1934, as redesignated .o by subsection (a) of this  H.R. 2)479—ill  •  .1"  3 1 section, is amended by striking out "United States persons or  II,•  , I  ••je4ip•  2 foreign persons controlled by a United States person" :Ind  .14  :3 inserting in lieu thereof "persons". 4  SEc. 2. The amendments made by this Act take effect  5 on March  , 1981, and the provisions of paragraph (2) of  6 section 7(f) of the Securities Exchange Act of 1934, as so •at.  7 amended, shall apply to any purchase of securities occurring 8 on or after such date and to the carrying of such securities on 9 or after such date, if the loan or extension of credit therefor 10 originated on or after such date or if the loan proceeds used 11 to purchase or carry such securities were disbursed on or 12 after such date.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  0 • 6;4,44x4,02.1 s  iTida-‘1;4  t.• tt.  -  1.:4 .0  4.11: `as ''"'",.t  ..•••.'"  (4. t:  ,  •#  ,  14 . 44 1 0 Z4 r....ffc:  runmoimmoirm.•••••-  2g79—ih  Congressional Research Service The Library of Congress Washington. D.C. 20540  September 8, 1980  TO  :  The Honorable S. William Green Attention: Nancy Hunt  FROM  :  Dr. William Jackson Analyst in Money and Banking Economics Division  SUBJECT  :  Effects of a Government Program to Supplement Savings by Targeted Income Groups  Introduction  You have asked for an assessment of German savings incentive plans as they might be applied in the United States.  The assessment of the potential impact  of one such bonus program in America presented below is tentative, and is presented primarily on a conceptual basis.  It is not possible to provide a reliable  quantitative analysis because of data limitations, primarily the lack of knowledge of the savin. behavior o  :rou s of households classified by their income  levels. For the purposes of analysis, we have drawn on elements of the German plans, largely those of the Savings Premium program, as were outlined in our memorandum to you of July 30, 1980.  These elements include a bonus paid by  the Federal Government on selected forms of savings up to a certain amount , held for a specified time by individuals and married couples in targete income d classes.  We are also attaching supplementary materials including:  -- a description of selected existing American programs that encourage individual savings by providing tax incentives (Appendix A)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CRS-2  -- a CRS Report that includes a survey of the impact of changes in rates of return on the volume of aggregate personal savings in the economy (Attachment 1) -- Internal Revenue Service Statistics of Income that provide the most current data on the distribution of income (Attachment 2).  Dimensions of a Savings Bonus Plan  The effects of specific proposals to supplement savings cannot be deter— mined without knowledge of the measures themselves, and especially of the psychology of saving. 1/  Nonetheless, several assumptions based on the German  measures may allow the approximation of the dimensions of a hypothetical American savings plan. To start, let the Government credit earmarked savings limited to $500 per savings unit yearly with a 14 percent tax—free bonus.  Savings units eligible  to receive the bonus are individual tax return filers with adjusted gross income below $15,000 and jointly filing married couples with adjusted gross incomes below $30,000--who may earmark $1,000 of savings. 2/ savings must be held for six years.  To qualify for the bonus,  As is indicated in Attachement 2 (pp. 13,  16) there were 39.21 million individual and 36.76 million joint returns in these  1/ The last time that U.S. saving rates classed by income were surveyed was 1-9-63. Virtually all consumer analysts have relied on the results of that survey, despite the many socioeconomic changes in the years since then. The 1963 figures showed that the saving rate rose with family income, especially when family size was held constant. Projector, Dorothy S., et al. Survey of Changes in Family Finances. Washington, Board of Governors of the Federal Reserve System, 1968. p. 9. 2/ The corresponding German values, computed using a foreign exchange rate of 1.79 DM = $1.00, are $447 of savings for individuals earning up to $13,407 of taxable income, and generally twice these amounts for married cou— ples. As is indicated in Attachment 2, adjusted gross income is a value from which deductions and exemptions are subtracted to arrive at taxable income.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CRS-3  income classes filed for 1978.  (Income recipients with limited means and whose  earnings are so low that the37 need not file Federal tax returns are unlikely to have significant savings.)  Based on 1978 data, if all eligible income units  in a given year were to set aside the maximum permissible sums either from existing savings or current income, the Government credits on the resulting $56.37 billion of covered savings would be $7.89 billion. It is unlikely that 100 percent participation in the plan would occur even if the rate of bonus were to far exceed 14 percent.  Many retirees receive  low taxable incomes, but have financial assets and other income such as pensions and Social Security.  If their prospective consumption period is short, they  may not wish to shift existing savings to a program requiring retention for as long as six years, unless their intention is to build estates for their heirs. Very low-income persons without significant financial assets or income from trusts or pensions frequently find it hard to maintain subsistence standards of living and often are not able to accumulate savings.  Even moderate-income  households may exhibit life-cycle patterns or personal preferences favoring spending that make them borrowers rather than savers. A more realistic upper-bound assumption thus might be that 40 percent of eligible participants would set aside the maximum amount eligible for bonuses, distributed proportionally among single and joint tax filers.  (In a survey  taken in 1969, before eligibility criteria for German savings bonus plans had been restricted, 39 percent of that nation's households participated in supplemented savings programs.) 3/  If so, then $22.55 billion in the special accounts  would require credits from the Treasury of $3.16 billion.  3/ Byrne, William J. Fiscal Incentives for Household Saving. tional Monetary Fund Staff Papers, July 1976, p. 473.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Interna-  CRS-4  et.  Other figures can be substituted into calculations of this nature, by varying assumptions of incdme eligibility cutoffs, participation rates, maximum supplemented savings, and rates of bonus.  As another hypothetical example, if  eligibility for such a program were limited to income units filing tax returns showing adjusted gross income of less than $15,000 without regard to marital status--or otherwise restricted to a maximum 55.67 million savings units who could set aside $500 yearly--then a 40 percent participation rate would result in the Treasury's annual credits falling in half to $1.56 billion.  Effects of a Supplemented Savings Plan  According to Attachment 1 (pp. 51-59), the impact of increasing rates of return available to savers for the savings of the economy may be indeterminate. 4/ This finding, together with lack of knowledge of the savings behavior of groups of households classified by their income levels, makes it impossible to know to what extent the program outlined would attract new savings as contrasted with funds shifted from other forms of savings.  Impacts in addition to that  on aggregate savings are discussed below.  Financial Market Impacts  The impact of choices made by participants and the Government as to what fiduciary institutions would receive supplemented funds is somewhat clearer. Funds would flow into various investment vehicles of fiduciary institutions according to the assessment of returns and risks by savers. (A later section shows  4/ Inflation complicates the analysis of this--as well as almost any socioeconomic--relationship. See Wachtel, Paul. Inflation and the Saving Behavior of Households: A Survey. New York, New York University, Graduate School of Business Administration, June 1979. Salomon Brothers Center for the Study of Financial Institutions Working Paper No. 172, pp. 12-15.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CRS-5  the sensitivity of time and savings deposits to changes in rates of return available at depository fibancial institutions, for example.)  Differences in  returns might result from competition among classes of institutions offering accounts eligible for bonuses; they would presumably pay some return independent of the bonuses.  Bonus rates could also be set by the Government, varying across  classes of eligible fiduciary institutions based on social criteria for the priorities of end-uses of the funds.  There would be both quantity effects,  as savings flows to eligible accounts would increase and diversion of funds would occur away from ineligible forms of savings, and maturity effects, as fiduciaries would seek to match the payment periods of their new assets and liabilities somewhat.  By analogy with the German experience, the following  classes of institutions could receive supplemented savings. If targeted savings were to flow into savings and loan associations and mutual savings banks, then housing would be greatly stimulated.  (The deposit  of $500 by 100 account holders can fund the average-sized mortgage extended by savings and loan associations.)  If funds were to flow into commercial banks  then the banks might increase their investments in "term" loans to prime businesses, private and government bonds, and commercial and residential mortgages. The proportion of short-term consumer and business loans in bank portfolios could then fall.  Life insurance companies, already the fiduciaries for long-  term funds, would tend to invest supplemented savings in much the same vehicles as they do now:  the investments mentioned for banks plus common stock and real  estate to a certain extent.  If credit unions were to receive such funds, they  might increase their currently negligible mortgage lending. If savers were to invest their special deposits in the debt or equity of corporations, then the savings would flow directly into business investment, bypassing the intermediation of financial institutions.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The risk to employees  CRS-6  of investing in the obligations of their employers suggests that mutual funds-perhaps limited to the purcliase of securities newly issued for the purpose of acquiring capital assets--might represent a preferred industrial investment option for supplemented savings.  (Mutual funds are eligible investments for  many individuals' tax-sheltered savings, as are described in a later section.)  Impacts on the Economy at Large  The tendency for household savings and financial assets to be shifted toward longer-maturity holdings could have important implications for capital investment.  As was indicated above, the fiduciaries for the special accounts  would probably invest the funds covered in the program in long-matilrity assets themselves.  Even if these fiduciaries would receive only inflows of funds  entirely diverted from ineligible savings vehicles, this maturity effect would tend to stimulate long-payoff-period fixed investment (perhaps including residential investment). In particular, financing by long-term obligations allows businesses to undertake longer-term or "riskier" projects than can be safely funded by an equal volume of short-term debt since longer-dated liabilities do not require early repayment or "rollover" and generallx carry fixed interest costs.  Increas-  ing the availability of six-year funds thus could stimulate capital spending-perhaps more on machinery and equipment than on very-long-lived buildings. 5/  5/ Hendershott, Patric H. Understanding Capital Markets, Volume I: A Flow-of-Funds Financial Model. Lexington, Mass., Lexington Books, 1977. pp. 97-115. His findings have been summarized as: "...long-term or permanent uses of funds (for example, plant and equipment) are financed with long-term security issues; while short-term or temporary uses of funds (for example, for inventories) are financed by short-term borrowing or by selling off financial assets." Sametz, Arnold W. Financing the Business Sector, 1976-1985. In Sametz, Arnold W., and Paul Wachtel, eds. Understanding Capital Markets, Volume II: The Financial Environment and the Flow of Funds in the Next Decade. Lexington, Mass., Lexington Books, 1977. p. 130.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CRS-7  To the extent that longer-term investment would thus be increased, the composition of GNP might shift awa5T from consumption, a development that many observers believe would boost economic growth and dampen inflation over the long run, if not immediately.  The perceived improvement in the (lower) dependence of business  on short-term financing would also tend to raise financial confidence and provide some incentive to bear the risk of capital investing. 6/  Also, if national  income were to respond more to an injection of investment than to an equal amount of consumption over the long term (a matter for empirical verification), then the resulting higher output would encourage further investment and higher saving itself.  Additional Effects on the Government Budget  Supplementing savings would also affect the Federal budget in ways going beyond the direct credits from the Treasury discussed earlier.  For example,  if national income were to grow, the net cost of supplemented savings would fall as tax collections increased.  Some other factors for which the dollar  value of impact cannot be determined are considered below. Without taking into account any feedback effects, financing the bonuses would increase the Federal deficit and Treasury borrowing, a factor that by itself raises interest rates and thus Government borrowing costs somewhat. 7/  6/ Much of the debate concerning any "capital shortage" centers around such psychological incentives or disincentives to invest, with many observers viewing the ratio of long to short-dated corporate debt (as well as the ratio of equity to debt of all kinds) as indicators of business financial health and determinants of willingness to invest. A recent example is: Kaufman, Henry, James McKeon, and David Foster. Restoring Corporate Balance Sheets: An Urgent Challenge. New York, Salomon Brothers, July 21, 1980. 21 p. 7/ Jackson, William. Federal Deficits, Inflation, and Monetary Growth: Can They Predict Interest Rates? Federal Reserve Bank of Richmond, Economic Review, September-October 1976, pp. 13-25.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  r  CRS-8  t  If the plan were to increase savings by more than the associated deficit plus investment-oriented borrowiftg directly attributable to it, then Treasury borrowing costs might decline.  Government borrowing rates might also decline if  financial markets were to view the plan as anti-inflationary in nature.  If  market participants were more concerned over the nominal cost to the Treasury of the bonuses, the reverse could occur. The tax receipts of the Government could change if the interest rate and financial flow adjustments across classes of fiduciary institutions described above were to occur.  For example, tax collections from individuals would be  affected by a shift of savings from instruments whose yields are fully taxable to covered savings which earn the tax-free bonus and a lower taxable yield. Any change in total personal savings would also be unlikely to leave tax collections from individuals unchanged.  Meanwhile, the changes in flows of funds  through fiduciary institutions and yields that they would receive and pay would alter their taxable incomes.  This development, combined with variations in the  tax brackets of fiduciary institutions--which vary from zero for credit unions and most mutual funds up to high nonfinancial corporate rates--would alter the taxes received from the business sector.  If we can be of further assistance, please let us know on 287-7593.  Attachments: 1.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Gravelle, Jane G. The Capital Cost Recovery System and the Corporate Income Tax. Washington, 1979. 163 p. CRS Report No. 79-230 E. U.S. Department of the Treasury. Internal Revenue Service. 1978 Statistics of Income, Preliminary. Individual Income Tax Returns. Washington, U.S. Govt. Print. Off., 1980. 52 p. .  CRS-9  ECONOMETRIC ANALYSIS OF THE INTEREST SENSITIVITY OF TIME AND SAVINGS DEPOSITS AT DEPOSITORY INSTITUTIONS*  The purpose of this Section is to provide a quantitative estimate of the extent to which variations in interest rates paid on time and savings deposits influence changes in these deposits.  Since depository institutions are not  homogeneous, it may be useful to examine differences in responsiveness that exist across classes of institutions.  By examining the responsiveness of each  class individually, we may establish whether analogous responses exist for all classes of these institutions. For simplicity only, it is assumed that time and savings deposits at depository institutions are directly related to (a) the own rate of interest paid on these deposits, (b) the previous period's level of deposits, (c) the yield differential between the own rate paid on the deposits and the rate of interest paid on competing instruments, and (d) the level of disposable personal income. 1/ Under the simplifying assumptions, the functional form for time and savings deposits at depository institutions is represented by the following equation:  SDic =f(INT , SPREAD , SD t  , YD )  (1)  * Prepared by Everson W. Hull, Specialist in Macroeconomics, Economics Division. These estimates are based on the preliminary results of a forthcoming CRS study that examines the interest sensitivity of savings deposits at depository institutions. 1/ The analysis below excludes quantities of and rates for time certificates of deposit for $100,000 or more at large weekly reporting banks. All variables analyzed are those in the U.S. Model data base maintained by Data Resources, Inc.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CRS-10  In this equation, SD = time and savings deposits at depository institutions (billions of ' dollars) = the rate of interest paid on time and savings deposits  INT  SPREAD, = the rate of interest paid on relevant time and savings deposits less the open market rate of interest on a competing instrument SD -1 YD  = the previous period's level of time and savings deposits (billions of dollars)  = personal disposable income (billions of dollars)  The four major types of depository institutions under consideration are commercial banks, savings and loan associations, mutual savings banks, and credit unions.  For each of the types of institutions an equation is estimated  that attempts to show the quantitative importance of the variables considered. The underlying theory that lends support to the choice of the variables selected for examination follows.  The quantities supplied of time and savings  deposits at depository institutions, like the quantities supplied of any other commodity or service, are fundamentally determined by the own price (i.e. the own rate of interest paid on the supply of deposits).  Other factors are impor—  tant in determining these deposits; however, these serve only as shift para— meters that alter the horizontal position of the supply curve but not its slope. One of the most important of these shift parameters is the price offered for substitute instruments that are available to the prospective depositor.  The  rate paid on a competing instrument relative to the own rate paid on deposits by the depository institutions is a critical consideration.  In this study,  this differential is measured by the own rate of interest on these time and savings deposits less the average market yield on U.S. Government 3 to 5 year bonds.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CRS-11 t  ... complicated by the The choice of a representative competing instrument is as well as the several numerous options for investment available to depositors tutions. deposit options that are offered at deposit insti are considered good The yield on U.S. Government 3 to 5 year bonds, which ly volatile and tends substitutes for time and savings deposits, is sufficient rates reasonably well. to reflect general movements in open market interest comparison to the repreThe 3 to 5 year Government bond_rate offers a useful representative rate is sentative rate for time and savings deposits where the time and savings deposits. defined as the average weighted yield on the relevant the yield SPREAD The crucial hypothesis of the above analysis is that if likely to occur at is positive, an increase in time and savings deposits is depository institutions.  The greater the yield SPREAD, other things equal, the  an increase in more likely it becomes that the institutions will experience net inflows.  ive, the Conversely, when the yield SPREAD is falling and/or negat  ts or savings shares prospective investor has less incentive to seek time deposi are relatively higher. than to buy, say, U.S. Government securities whose rates conditions, monetary The source of the problem is that under inflationary rates. policy has frequently become restrictive driving up interest deposits. rates rise at a faster rate, and often exceed, yields on  Open market Under these  directly in highercircumstances, individuals withdraw their savings to invest yielding market instruments. We may review recent behavior of the SPREAD variable.  It appears to have  a direct relationship to changes in time and savings deposits.  Table Al and  nts in the SPREAD Charts Al to A4 show a high degree of association between moveme variable and changes in deposit growth.  Moreover, since 1966 the differential  competing open market between interest rates paid by depository institutions and   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  PERCENTAGE INCREASE IN NUL4D TIME AND SAVINGS DEPOSITS AT COMMERCIAL BANKS AND YIELD SPREADS, 1961 TO 1979 20  800 •••I  P  15  700 600 B 500  E  10  Mal  A  .400 300  A 200  Deposits  100  A - —100 - —200 S  Spread*  - —300 —10  i 1960  1111_11111111111111  1965  1970  1975  non-CD *Average rate paid on Atime and savings deposits at Commercial Banks less average yield on 3 to 5 year U.S. Government bonds. Data Source: Figures accessed from the files of Data Resources, Inc.  400 1980   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  PERCENTAGE INCREASE IN DEPOSITS AT SAVINGS AND LOAN ASSOCIATIONS AND YIELD SPREADS, 1961 TO 1979 800  20  700  •••  600 B  11•••  P E R C E N T Fi G E  15  500  A S  10  . 400 I  Deposits  ...  •••••I  300 S 200 P  MN  100 0 I  C H A N G E  N awl  —100  —200 S  Spread*  —300  —1 0  I  1960  1  1  Ill  1965  1  1  1  1  T  1  1970  1  1  1  I  I  1  I  1975  insured Savings and Loans by d pai e rat st ere int ive *Average effect ds. to 5 year U.S. Government bon 3 on ld yie ket mar e rag ave less s of Data Resources, Inc. Data Source: Figures accessed from the file  I  I  '—400 1980   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  AL SAVINGS BANKS , TU MU AT TS SI PO DE IN SE EA CR IN GE TA EN RC PE AND YIELD SPREADS, 1961 TO 1979 .1 800  20 Low  P E R C E N T A G E C H A N G E  700  . 15 10 . 5 _ . 0  awl  600 8 A  inn  500 S  IMO  wil  . 400 I 300 S  . 200  n P ET, 1.-.1 - ' 100 0 4-  Deposits  e  1 N  -1 -100  T  MM.  -200 S  Nw.  -5  1..•  FMB  -300  Spread* FWD  111111  ••••  -le  1960  '  11111111  1965  1970  1111  1975  -400 1980  Mutual Savings Banks at ts osi dep s ing sav all *Average interest rate on 5 year U.S. Government bonds. to 3 on ld yie e rag ave s les .  .  Data Source: Fi  res accessed from the files of Data Resources, Inc.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4 PERCENTAGE INCREASE IN DEPOSITS AT CREDIT UNIONS AND YIELD SPREADS, 1961 TO 1979 808  20  700 P  600 B  15  500 E  400  10  300 A  200 Deposits  100 0  A  - —100 - —200 S Spread* - —300  —10  19160  1  I 1965  I  I 1970  tilt  t  till  1975  s shares at credit unions ing sav on d pai e rat st ere int Wiverage effective 5 year U.S. Government bonds. to 3 on ld yie ket mar e rag ave less files of Data Resources, Inc. Data Source: Figures accessed from the  —400 1980  P•  .1  . •  CRS-16 .  TABLE Al.  Year  Percentage Increase in Time and Savings Deposits and Yield Differentials, 1961 to 1979.  Deposits  Spread  Deposits  Spread  d/  c/  b/  a/  Credit Unions  Mutual Savings Banks  Savings and Loan Associations  Commercial Banks  Deposits  Spread  Deposits  Spread  1961 1962 1963 1964 1965  11.8 12.6 12.6 9.9 13.5  -0.93 -0.06 -0.15 -0.37 -0.42  14.1 13.4 14.2 12.2 9.6  0.26 0.47 0.40 0.13 0.06  5.1 6.5 8.2 8.9 8.4  -0.09 0.22 0.20 -0.00 -0.11  12.8 12.8 12.8 14.0 13.1  1.10 1.21 1.06 0.77 0.63  1966 1967 1968 1969 1970  12.2 12.5 11.1 7.1 4.5  -1.09 -0.90 -1.44 -2.64 -2.62  5.5 7.0 6.8 5.0 4.0  -0.65 -0.39 -0.98 -2.14 -2.17  5.6 8.0 8.0 5.7 4.4  -0.76 -0.39 -0.93 -2.10 -2.34  10.9 9.7 10.8 11.5 11.9  -0.22 -0.03 -0.63 -1.73 -1.89  1971 1972 1973 1974 1975  17.1 14.1 11.7 11.2 10.6  -1.09 -1.11 -1.88 -2.41 -2.12  16.8 18.6 13.8 7.8 13.2  -0.52 -0.47 -1.36 -1.83 -1.41  11.8 13.3 8.6 3.1 7.6  -0.70 -0.63 -1.48 -2.10 -1.76  16.9 17.9 16.7 11.9 17.1  -0.52 -0.31 -1.17 -1.76 -1.48  1976 1977 1978 1979  13.6 13.2 9.2 9.9  -1.44 -1.32 -2.66 -3.23  17.3 16.3 12.3 10.8  -0.66 -0.44 -1.67 -2.39  11.2 10.1 7.2 4.5  -1.01 -0.81 -2.17 -3.17  18.3 18.6 18.1 8.6  -0.83 -0.51 -1.88 -2.95  a/ _  Average rate paid on non-CD time and savings deposits at commercial banks less average yield on 3 to 5 year U.S. Government bonds.  b/ _  Average effective interest rate paid by insured savings and loans less average yield on 3 to 5 year U.S. Government bonds.  c/ ____  Average interest rate on savings deposits at mutual savings banks less average yield on 3 to 5 year U.S. Government bonds.  d/ ___.  Average effective interest rate paid on savings shares at credit unions less average yield on 3 to 5 year U.S. Government bonds.  Data source:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Figures accessed from the files of Data Resources, Inc.  .  %  CRS-17  0  instruments has been persistently in favor of the open market instruments. any nominal interest rates achieved record high During -1979, for example, m. levels that resulted also in record high yield differentials.  During the same  year growth rates for these time and savings deposits also approached record low levels.  (See Table Al.)  In addition to the SPREAD  variable, the other shift parameters that  influence the supply of these deposits are the previous period's deposits and the level of disposable personal income YD . SD t-1  We may consider these  two variables as having an effect on the "climate" for deposits.  The previous  period's deposits capture some of the inertia in the system and the overall level of activity within markets for deposits. disposable income YD  By contrast, the level of  attempts to reflect the performance of the economy at  large and the effect of changes in income on the propensity to save.  ESTIMATION TECHNIQUES  To estimate the quantitative impact of the hypothesized determinants of these deposits, the own rate of interest paid on them by depository institutions (INTt), the yield differential between the own rate and that of a competing instrument (SPREADc ), the previous period's level of savings deposits (SDt _i ) and the level of personal disposable income (YDr) were regressed on the levels of deposits (SDI ). The method of ordinary least squares is applied to a log—linear form of the functional formulation presented in Equation 1. 2/  In addition, because  2/ The necessarily technical terms used in the text are explained in: Kane, Edward J. Economic Statistics and Econometrics. New York, Harper, 1968, 437 p., and Murphy, James L. Introductory Econometrics. Homewood, Ill., Irwin, 1973, 511 p. The general reader may proceed to the section headed "Empirical Results" without losing the results of the analysis.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CRS-18  c  prior lagged values of the SPREAD variable are likely to exert a significant though diminishing effect on the level of deposits, a polynomial distributed lag formulation (constrained at the far end) was used for this variable in an attempt to improve the statistical fit.  This approach reduces substantially  the problems of multicollinearity frequently encountered in an equation in which .  there are several lagged explanatory variables. However, serious estimation problems exist if the error term :,.._follows , a first-order Markov scheme with a parametern . ./  U. -f, 4.(,t, - i „  71  This situation is likely to occur when dealing with financial variables, particularly interest rates and deposits which are typically serially dependent. As a consequence residuals obtained from these equations may be highly correlated between successive disturbances.  Projections based on such a formulation would  tend to show unduly large sampling variances that lead to sequences of over or under-prediction. Examination of Durbin Watson statistics showed evidence of serially correlated error terms when the straightforward least squares estimation procedure was applied.  Thus for each equation an appropriate first or second order auto-  regressive scheme is applied for transforming the variables.  Table 2 reports  the final equations adopted with appropriate transformations.  EMPIRICAL RESULTS  For the sample periods considered, the elasticity of deposits with respect to a change in the rate of interest is small, and on average, about 0.03 across intermediaries.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Thus, on average, each 1 percentage point rise in the own rate  No,  •  TABLE 2.  Ordinary Least Squares Equations for Savings Deposits at Depository Institutions.  Commercial Banks (period 1956:II to 1980:II) t _ i )+ 0.159 ln(YDt) + tat:SPREAD t ln(SDt) si -0.409 + 0.037 ln(INTt) + 0.878 in(SD A-.0 i (0.044) (0.036) (0.116) (0.015) z Tit,A 'A. - 0.012 a t-2 si 0.000 a 0.003 1_ a t •. 0.009 t-i (0.002) ASO (0.000) (0.001) (0.001) /4) si 0.632 ) (0.095)  -2 R  D.W. i• 1.97  Savings and Loan Associations  S.E. is 0.006  0.99  (period 1957:II to 1980:II)  3 + 0.106 ln(YDt) +L;r-A SPREAD ln(SDt) si -0.315 + 0.072 ln(INTt) + 0.909 in(SDt _ i ) i.o (0.023) (0.024) (0.071) (0.057) at  0.005 (0.001)  a t _ i is 0.005 (0.001)  a f-2  a t-3 is -0.000 (0.001)  0.002 (0.001)  la  -2  I % /  1.036 (0.106)  4-1. - -0.298 ) (0.107)  is 0.99  R  D.W. - 1.99  E-i t A: is 0.012 (0.002)  S.E. - 2.004  Mutual Savings Banks (period 1957:II to 1980:II)  3  0.188 ln(YDt) +Ext, SPREAD ln(SDt) si -0.385 + 0.074 ln(INTt)+ 0.780 ln(SDIt _ i )+ (0.060) 4-0 (0.074) (0.121) (0.047) a t -. 0.006 (0.001) JO is 0.789 (0.093)  a t _, i• 0.003 (0.001)  a t -2  0.002 (0.001) -z R  D.W. is 2.46  a t-3  is 0.99  0.001 (0.001) S.E.  it t, is 0.012 11 (0.003) .4..o 0.005  Credit Unions (period 1960:II to 1980:II) 3  ln(YDt) +Ect.t_,SPREAD ln(SDt) si -0.559 - 0.060 ln(INTt)+ 0.938 ln(SDt _ i )+ 0.132 =0 (0.080) (0.048) (0.390) (0.066) a t is 0.006 (0.001)  /)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  P  0.715 (0.095)  a t-i is 0.003  a  t-2  (0.001)  D.W. is 2.16  0.001 (0.001)  a  0.99  0.000 (0.002)  t - A-  iso  S.E. is 0.006  is 0.010 (0.003)  gain in of interest at financial institutions is associated with a modest deposits of only 0.03 percent.  Deposits at savings and loan associations and  respect to a mutual savings banks each show elasticities of about 0.07 with banks have change in the own rate of interest on deposits, while commercial an elasticity of about 0.04. For credit unions, the elasticity of savings shares with respect to a change in the rate of interest is negative. significant in a statistical sense.  However, this relationship is not  It is entirely possible that for another  sample period this relationship would have the expected positive sign, though not necessarily significant. More important than the own rate of interest, however, is the difference between this rate and that of rates paid on competing investments. appears to be a very important determinant of the deposits.  The SPREAD  Not only is the  SPREAD of the current period a significant determinant of these deposits; but declining the yield SPREAD of previous periods also exerts an important though influence on the deposits. The positive coefficients associated with the SPREAD variable are highly significant and lend support to the hypothesis that 3 to 5 year U.S. Government bonds are effective competitors for time and savings deposits.  Not only is the  SPREAD of the current quarter significant, but the SPREAD of the past quarters also exerts a significant though declining influence on the level of these deposits.  Thus the competitive position of depository institutions as reflected  in the own rate of interest versus rates paid on alternative open market investments over the past two quarters exerts a powerful influence on the current period's level of deposits.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CRS-21 •  During the current quarter a 100 basis point increase in the yield differ— ential tends on average to.raise deposits at depository institutions by about $1.9 billion, ceteris paribus.  Similarly, a 100 basis point increase in the  yield differential for the previous period's yield differential, SPREAD z-1 , is associated on average with an increase in these deposits during the current quarter of $1.5 billion.  The SPREAD  tends to be associated with a rise in  the deposits during the current quarter of $1.1 billion. Across classes of institutions, the aggregate contribution of current and past yield differentials to explaining changes in deposits appears to be quite similar.  For example, an increase of 100 basis points in the current  period's yield differential at commercial banks is associated with an increase in the bank deposits of $2.46 billion.  Other institutions show an average  increase of only $1.65 billion for the same increase in yield differential. By contrast, a 100 basis point increase in the previous period's yield differ— ential tends to be associated with an increase in deposits at savings and loan associations of $1.65 billion.  For other classes of institutions, the average  increase in deposits is $1.35 billion for a 100 basis point increase in the previous period's yield differential. In general, the remaining variables--the previous periods' level of deposits and the current level of personal disposable income--both conform to expectations. The coefficients for the previous quarter's deposits are larger and close to 0.9 for commercial banks, savings and loan associations, and credit unions.  For  mutual savings banks the regression coefficient for the previous period's level of deposits is 0.8.  This variable, which serves as a proxy for activity at  depository institutions, performs well and contributes by significantly improving the goodness of fit.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CRS-22 •  4  Also noteworthy is the performance of disposable personal income which is used here as a proxy measure of general economic conditions.  This measure is  significant at the 5 percent confidence level in each of the equations with the exception of that for credit unions.  CONCLUSION  In this analysis we sought to conduct an econometric investigation into the interest sensitivity of time and savings deposits at depository institutions. The statistical and economic significance of the results lend support to the hypothesis that increases in interest rates paid by depository institutions lead to higher time and savings deposits at these institutions.  The results do  not indicate a tendency for any one class of institution to benefit relatively more than others from a given interest rate increase. Depositors appear to be very sensitive to competing rates paid on other forms of investments.  In this context the partial effect of the own rate of  interest appears to be small.  Notwithstanding, the relative difference between  the own rate and its substitute appears to exert a significant influence on changes in these deposits. The coefficient of determination for each equation is large, suggesting that the hypothesized variables, taken together, may be a possible explanation of nearly all of the observed variation in these deposits.  After the appli-  cation of an appropriate autoregression transformation of the residuals, all of the equations pass the Durbin Watson test. are considered to be consistent.  dc/nd/afl   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Thus the estimates reported  • 4 D  APPENDIX A.  SELECTED AMERICAN INCENTIVES TO SAVE*  This Nation has provided some incentives to- save that are channeled through the private sector.  For example, Congress has sought to encourage higher rates  of return on small savers' deposits (P.L.96-221), and has granted tax exemptions for small amounts of interest and dividends (P.L.96-223).  It has also provided,  through laws affecting the Internal Revenue Code, for employment-related taxprivileged long-term savings plans.  Selected plans are described below.  Employee Savings, Thrift, and Stock Ownership Plans  Individual corporations have instituted tax-favored savings plans that resemble in many ways the German Wealth Formation by Employees program prior to 1970. 1/  In most of these plans, employees typically contribute up to 6  percent of their salaries on a voluntary basis to special accounts.  Employers  add a bonus, often half of employee payments up to a limited percentage of salary, to these funds.  The employers deduct their payments as a business  expense, while the employees pay no taxes on their bonuses or the total earnings of the funds until they actually receive the payments.  Many plans are  invested in company stock--often the sole form of corporate contributions-while others offer participants a choice of investment media (stock, mutual funds, or Government securities) for at least the employee contributions. Rather stringent "vesting" criteria, plus penalties for early withdrawals, make these plans long-term accumulation vehicles. 2/  * Prepared by William Jackson, Analyst in Money and Banking, Economics Division. 1/  Byrne, pp. 471-472.  2/ This paragraph is based on: Bankers Trust Company, Bankers Trust 1977 Study of Employee Savings and Thrift Plans, New York, 1977. p. 9-37.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  P •oi  I  and the Tax In a related vein, the Tax Reduction Act of 1975 (P.L. 94-12) Ownership Reform Act of 1976 (P.L. 94-455) provide for "Tax Reduction Act Stock Plans," which are the equivalent of employer-paid thrift plans.  Corporations  can claim an that purchase capital assets eligible for investment tax credits of stock extra credit of one percentage point, if they contribute that value to their TRASOP.  The TRASOPs hold the stock for the benefit of employees, who  must usually wait seven or more years to receive the stock.  Beginning in 1977,  corporations can claim an additional one-half percentage point investment tax and credit, if they also contribute this amount of their stock to their TRASOPs employees match this extra payment.  Thus, the Federal Government pays for the  employer contributions and employees ultimately receive free and sometimes halfprice stock, plus dividends (if any) earned during the seven years. 3/ Theoretically, most employees of sponsoring corporations can benefit from such employer generosity.  In practice, many plans make effective returns to  employees depend on such factors as total compensation, minimum service periods for qualification, and length of service thereafter, thereby ensuring that most of their payments are received by higher-income long-term employees.  In contrast  to their favorable treatment of executive and managerial personnel, the plans thus provide low absolute benefits to many workers of low incomes, especially those in job categories categorized by "turnover." 4/  Data published in 1977  suggest that these plans and TRASOPs are rather popular among employees eligible  3/ This paragraph is based on Bankers Trust Company, p. 38, and Henle, Peter and Jane G. Gravelle. Employee Stock Ownership Plans, Including Recent Legislation and Selected References. Washington, 1977. CRS Report No. 77-189E. p. 27-28.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis (  4/  Henle and Gravelle, p. 10-12, 18-21.  SO I  .1 to participate in them.  The degree of participation in them increases with the  rewards offered by their corporate sponsors. 5/  Tax-Deductible Saving for Retirement  Self-employed individuals and workers not covered under standard "qualified" retirement plans may deduct specified sums from their taxable incomes, to be set aside in trusteed retirement funds whose principal and earnings are not taxed until then.  The Internal Revenue Code encourages the deduction of up to 15 per-  cent of earned income or a maximum of $1,500 (Individual Retirement Accounts) or $7,500 (Self-Employed Retirement or "Keogh" Plans) yearly this way. 6/  Because  5/ "About half the plans in the Study. . . have an enrollment of over 70 percent of eligible employees. The median participation rate is 72 percent in the Study. . . the median rate of participation of those plans which are more liberal. . . is generally higher than the median rate of those plans which have more restictive provisions: Median Plan Provision Participation Rate Company contributions 25% or less 50% 100% or more  52% 73% 86%  Vesting Class system vesting Membership vesting Immediate vesting  70% 75% 82%  Investment of contributions No employee choice Some employee choice  67% 72%  Investment options Company stock only 1 or 2 other funds 3 or more other funds  67% 70% 81%  Bankers Trust Company, p. 14-15.  The data include several TRASOPs.  6/ Commerce Clearing House, Inc. 1979. p. 206-212.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1980 U.S. Master Tax Guide.  Chicago,  CRS-26 • Oa  ..) 6.  tax, and the expenses of the sharply progressive structure of the Federal income are most attractive to of administering such accounts, these tax deductions also more likely to work for high-bracket income-earners; such individuals are themselves than the population at large.  Consequently, in 1978, 71 percent of  ts and 92 percent of the the amounts contributed to Individual Retirement Accoun units whose amounts contributed to Keogh Plans were set aside by taxpaying 1.68 and 0.54 adjusted gross income exceeded $20,000; these units represented percent of total returns filed, repectively. 7/  7/ Computed from: U.S. Department of the Treasury. 1978 Statistics of Income, Preliminary. Individual Income Tax Returns. Washington, U.S. Gov. Print. Off., 1980. p. 22, 25.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis
Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102