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
@FedFRASER