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https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis (..../ORkt •.-k k p I qgl C3-1" Collection: Paul A. Volcker Papers Call Number: MC279 Box 11 Preferred Citation: Congressional Correspondence, November-December 1981 [Folder 31; Paul A. Volcker Papers, Box 11; Public Policy Papers, Department of Rare Books and Special Collections, Princeton University Library Find it online: http://findingaids.princeton.edu/collections/MC279/c444 and https://fraser.sdouisfed.org/archival/5297 The digitization ofthis collection was made possible by the Federal Reserve Bank of St. Louis. From the collections of the Seeley G. Mudd Manuscript Library, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United States copyright law. By accessing this file, all users agree that their use falls within fair use as defined by the copyright law of the United States. 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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) firstname.lastname@example.org https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - • • Niz_cr, • *of GOvi•. R • BOARD OF GOVERNORS OF THE •co .c) FEDERAL RESERVE SYSTEM /2-,j • L., • • --k WASHINGTON, D. C. 20551 '„e‘ (Q. RA/ RE ••• • • • November 13, 1981 The Honorable William L. Dickinson House of Representatives Washington, D.C. 20515 Dear Mr. Dickinson: Thank you for your letter requesting information concerning the authority of the Board of Governors of the Federal Reserve System to regulate interest rates. While I believe that you are primarily concerned with interest rates on loans, I will also address the Board's former authority to establish rates of interest payable by member banks on deposits. In general, interest rates are determined by the demand for and supply of credit and the Federal Reserve does not set interest rates, other than the discount rate. The discount rate is the rate at which the Federal Reserve makes loans to depository institutions to meet temporary liquidity needs. Adjustments to the discount rate generally tend to follow rather than lead changes in market rates, and by statute (Section 14(d) of the Federal Reserve Act, 12 U.S.C. § 357) can be made without the prior approval of Congress. The Federal Reserve does, however, in the conduct of monetary policy affect interest rates indirectly through open market purchases and sales of securities. The purchase of securities for the Federal Reserve's portfolio has the effect, all other things being equal, of reducing market interest rates. This occurs because such purchases increase the availability of money in the marketplace. Of course, as a general matter, there are many factors that affect interest rates, with the Federal Reserve's open market operations being only one element. Indeed, since October 1979, when the System changed its operating procedures, the Federal Reserve has focused on maintaining a rate of growth in the monetary aggregates consistent with previously established monetary targets. Accordingly, the Board does not currently focus upon interest rates in the conduct of monetary policy. In addition, under the Credit Control Act, when the President determines that action is necessary or appropriate to prevent or control inflation generated by the excessive extension of credit, the Board may also be authorized by the President to regulate any and all extensions of credit, including the maximum https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ) • • The Honorable William L. Dickinson Page Two rates of interest that may be paid. This authority was invoked by the President and used by the Board in March 1980 to selectively control the extension of consumer credit by lenders. However, the Board did not at that time impose restrictions on the rates of interest lenders could charge. The Board's authority under the Credit Control Act was subsequently revoked by an Executive Order signed on July 3, 1980. I should note that, under P.L. 96-508, the Credit Control Act is to be repealed effective June 30, 1982, after which the Board will not possess authority to regulate interest rates directly. While the Board formerly had the authority to determine the rates of interest payable on time deposits at member banks, this authority was transferred by Congress to the Depository Institutions Deregulation Committee ("DIDC") last year. Until the Board's power was transferred to the DIDC, the Board was authorized to determine and regulate the maximum rates of interest that all national banks and state-chartered banks that are members of the Federal Reserve System are permitted to pay on time and savings deposits under Section 19(j) of the Federal Reserve Act (12 U.S.C. § 371(b)). Similar authority for setting the maximum rates payable by commercial banks that are federally insured nonmember banks and federally insured savings and loan associations was vested in the Federal Deposit Insurance Corporation ("FDIC") and the Federal Home Loan Bank Board ("FHLBB"), respectively. In response to the growing concern with the impact of rate ceilings on small savers, Congress passed the Depository Institutions Deregulation Act of 1980 (Title II of Public Law 96-221). This Act transferred to the DIDC the interest rate authority of the Federal Reserve Board (Section 19(j) of the Federal Reserve Act; 12 U.S.C. § 371(b)), the FDIC (Section 18(g) of the Federal Deposit Insurance Act; 12 U.S.C. § 1828(g)), and the FHLBB (Section 58(a) of the Federal Home Loan Act; 12 U.S.C. § 1425b(a)). The Act provides for a six-year phaseout of all interest rate controls by the DIDC. This Committee is composed of the Chairmen of the Federal Reserve, the FDIC, the FHLBB, and the National Credit Union Administration, the Secretary of the Treasury, and the Comptroller of the Currency. The latter member serves ex officio. The gradual phaseout will provide thrifts with an opportunity to adjust their lending portfolios to achieve earnings that will enable them to pay market rates of interest on all of their savings and time deposits and to adjust to an environment in which all institutions compete for funds on a fully competitive basis. At the end of the six-year phaseout period, all federal interest rate ceilings will be terminated. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • The Honorable William L. Dickinson Page Three I hope this information is helpful to you. let me know if I can be of further assistance. Sincerely, (Signed) Donald J. Winn Donald J. Winn Assistant to the Board JHJ:VVM:AFC:pjt (#V-244) bcc: G.C. Office (C-108) Mr. Schwartz (365) Legal Files (2) Mrs. Mallardi https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Please Action assigned Mr. B rad fifirl Vl.LLIAM L. DICKINSON WALTER J. BAMBERG FIELD pirroecitNTArivr 2NO DISTRICT. ALABAMA WASHINGTON OFFICE: 2406 RAYBURN HOUSE OFFICE BLS Lo:Nt3 PHorgr• AREA CODE (202) 225-2901 Congroz of or trinitcb WASHINGTON,0 C. 20515 2NBDISTRICTCOUNTIES: COFFEE CONECUH jr)ou5e of itpreiSentatitn5 MONTGOMERY. ALABAMA Zillaisbington, D.C. 20315 DALE August 31, 1981 GENEVA HENRY HOUSTON COVINGTON DOTHAN. ALABAMA 36303 g LI/L4 MONTGOMERY PIKE commiTyrri: ARMED SERVICES HOUSE ADMINISTRATION cr) Mr. Paul Volcker Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Washington, D. C. 20551 Dear Mr. Volcker: I would appreciate your advising me under what authority-statutory or otherwise--the Federal Reserve System Board of Governors regulates interest rates in the United States. Your cooperation in furnishing me this information at your earliest convenience would be appreciated. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 36104 FFDERAL BUILDING 100 WcsY Tway Srpercy PHONE, AREA Coor (205) 794-9680 .:N3H&W 13A141101-1/4 B uLLOCK B UTLER tate5 DISTRICT OFFICES: ROOM 301 FrorRAL. COURT BUILDING 15 LEE STREET PHONE: AREA COOE (205) 832-7292 With kindest regards, I am co ..; t -0 Cl rgn ' ▪ r" , FT—C.Z r•J .• -r—t (1) 1 • • 0 . .• • oF GOvtR•.. •0 4, • .* . (:)* Tr% *co .0 i. • -ri i-• -A . 4 1. , A.. *1-r, 4, , <4., ..'''' BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM .RALRES. •••••• WASHINGTON, D. C. 20SSI November 10, 1981 The Honorable Lloyd Bentsen United States Senator 912 Federal Building Austin, Texas 78701 Dear Senator Bentsen: Thank you for your letter of October 2 requesting comment on correspondence you received from Ms. Dorothy E. F. Caram. Ms. Caram expressed concern over a report of the possible consolidation of all the Federal Economic Institutions under one Board. I believe that Ms. Caram may be referring to the possibility of consolidating the five Federal depository institutions supervisory agencies. During the past several decades, there have been periodic discussions of consolidating the three Federal bank regulatory al,encies (the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Comptroller of the Currency). The most recent Congressional consideration of this issue occurred during February 1979, when hearings were held on a bank consolidation bill introduced by Senator Proxmire. The Federal Reserve testified in opposition to this bill. No Congressional action was taken on the bill during the Ninety-Sixth Congress. During the last several months, there have been press reports of possible proposals to consolidate some or all of the existing Federal bank and thrift regulatory agencies. So far, however, no bills to consolidare the agencies have been introduced in the Ninety-Seventh Congress, although legislation introduced by Senator Garn (S. 1721) does contain a proposal to merge the three Federal deposit insurance funds. In her letter, Ms. Caram seems to believe that the consolidation proposal would apply to thrift institutions, banks, credit unions and mortgage companies, and would resnit in a concentration of economic power in the United States in the hands of a few people. However, as discussed above, the consolidation proposals relate only to the regulatory agencies, not to individual financial institutions. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • ••••"' • The Honorable Lloy6 Bentsen Page Two In her letter, Ms. Caram also mentions a vacancy on the Federal Home Loan Bank Board (FHLBB). Since this is an area outside the Federal Reserve's jurisdiction, I have referred your letter to the FHLBB for further response. Please let me know if I can be of further assistance. Sincerely, J. Donald J. Winn Assistant to the Board cc: Congressional Liaison Office Federal Home Loan Bank Board SHT:AFC:CO:vcd W-290) bcc: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mr. Talley Mr. Ryan Mrs. MallardiZ -111k. Action assigned Mr. Ryan. COMMITTEES: l_l_ftVED BENTSEN FINANCE TEXAS https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ENVIRONMENT AND PUBLIC WORKS JOINT ECONOMIC 9,1Cnifeb Ztatez Zenate WASH I NGTON, D.C. 20510 October 2, 1981 „ A 0 Mr. Paul S. Volcker, Chairman Federal Reserve System Constitution Avenue between 20th and 21st Streets, N.W. Washington, D.C. 20551 ....t1 •••••1‘ ..........:.--) 4-"" ,------' ...-- 7. % Dear Mr. Chairman: I recently received the enclosed constituent inquiry concerning a vacancy on the Federal Home Loan Bank Board. I would very much appreciate your providing me with any pertinent information you might have regarding the matter. Your kind assistance is greatly appreciated. Sincerely, Lloy entsen Enclosure PLEASE REPLY TO: 912 Federal Building Austin, Texas 78701 ' -1, I.%..) ...;.......-. C, Cn, ...-^ c.,, #.:., -•••'" r‘..-, -1 rk`' . . 4. ' ,,-') 1 -, (.\....n ....--,... ..%',„, ... ...:' ---T: ''...0 • 4 DR. AND MRS.PEDRO C. CARAM 3106 ABERDEEN WAY HOUSTON, TEXAS 77025 - • 1 ."" r Septemb_er 8,1981 Senator Lloyd Bentsen, United States Senate Washington, D.C. 20510 Dear Senator Bentsen: I recently returned from the monthly meeting of the Federal Home Loan Bank of Little Rock Board of Directors, and was concerned by a report of the possible consolidation of all the Federal Economic_Institutions under one Board. This movement,that would concentrate all the economic power in the hands of a few people,is very frightening to me and to the other members of the Board. Not only would the thrift institutions cease to exist, but all the credit unions, mortgage companies, and banks would also be absorbed and changed from what we recognize today. Since our economic strength, through our system of free enterprize, has great bearing on the economy of the world, I wonder if foreign investors would then have greater voice on the economic life of our country and of the world as a whole? I strongly. urge you to work toward the perservation of our economic institutions as they exist today and which give so many the opportunity of sharing in our country's wealth. Also, I am aware that a position on the Federal Home Loan Bank Board is available. This Democratic vacancy would certainly be well filled by the appointment of a person such as Judge Alvis Vandygriff, who is presently Savings and Loan Commissioner for the State of Texas. Judge Vandygriff is a most knowledgeable and qualified candidate who has served many years in the Savings and Loan industry. I know that he would be a great addition to the Board in Washington,bringing expertise to the deliberations and actions of the Board. Sincerely, Dorothy E.F.Caram. Public Interest Director, Federal Home Loan Bank of Little Rock https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • FERMAN.; J. ST GERMAIN, R.I., CHAIRMAN HENRY S. REUSS, WIS. HENRY B. GONZALEZ, TEX. JOSEPH G. MINISH, N.J. FRANK ANNUNZIO, ILL. PARREN J. MITCHELL, MD. WALTER E. FAUNTROY, D.C. STEPHEN L. NEAL, N.C. JERRY M. PATTERSON, CALIF. JAMES J. BLANCHARD, MICH. CARROLL HUBBARD, JR., KY. JOHN J. LAFALCE, N.Y. DAVID W. EVANS, IND. NORMAN E. D'AMOURS. N.H. STANLEY N. LUNDINE. N.Y. MARY ROSE OAKAR, OHIO JIM MATTOX, TEX. BRUCE F. VENTO, MINN. DOUG BARNARD, JR., GA. ROBERT GARCIA. N.Y. MIKE LOWRY, WASH. CHARLES E. SCHUMER, N.Y. BARNEY FRANK, MASS. BILL PATMAN, TEX. WILLIAM J. COYNE, PA. STENY H. HOYER, MD. • • U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS NINETY-SEVENTH CONGRESS 2129 RAYBURN HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 September 28, 1981 J. WILLIAM STANTON, OHIO CHALMERS P. WYLIE, OHIO STEVVART B. McKINNEY, CONN. GEORGE HANSEN, IDAHO HENRY J. HYDE, ILL. JIM LEACH, IOWA THOMAS B. EvANS, JR., DEL. RON PAUL, TEX. ED BETHUNE, ARK. NORMAN D. SHUMWAY, CALIF. STAN PARRIS, VA. ED WEBER, OHIO BILL McCOLLUM, FLA. GREGORY W. CARMAN, N.Y. GEORGE C. WORTLEY, N.Y. MARGE ROUKEMA, N.J. BILL LOWERY, CALIF. JAMES K. COYNE, PA. DOUGLAS K. BEREUTER. NEBR. 2.25-42.47 Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: During October and November, the House Banking Committee will hold field hearings on the state of the economy. Chairman St Germain announced that these hearings "would attempt to draw a complete picture of economic conditions as they impact on workers, small businesses, farmers, consumers and other groups." I am writing to ask if the Federal Reserve would provide the Members of our Committee with background information on the local economy for each of the six cities and regions which we ' will visit. The respective Federal Reserve banks are in a perfect position to compile this information, which would be of great benefit to all Members of our Committee. So that Members will have an opportunity to review these background reports in a timely fashion, I would ask that this economic background material on the St. Paul-Minneapolis area be delivered sometime during the week of October 12 in preparation for our hearing on the 19th. If your staff has any questions about this material, please have them contact Mr. Greg Wilson or Dr. Godrey Briefs of my staff at 225-7502. Thank you for your assistance. 7— Sincert ours, William Stanton JWS/gwm https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • A 0 J...• GERMAIN. R.1,CHAIRMAN HENRY S. REUSS. WIS. HENRY B. GONZALEZ, TEX. NISEP1-1 MINISH. NJ. IriANK ANNUNZIO, ILL., 'PARREN J. MITCHELL, MD. WALTER E. FAUNTROY. D.C. STEPHEN L. NEAL, N.C. JERRY M. PATTERSON, CALIF. JAMES J. BLANCHARD, MICH. CARROLL HUBBARD. JR, KY. JOHN J. LAFALCE. N.Y. DAVID W. EVANS, INO. NORMAN E. ETAMOURS. N.H. STANLEY N. LUNDINE, N.Y. U.PHOUSE OF REPRESENTAtES COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS NINETY-SEVENTH CONGRESS 2129 RAYBURN HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 MARY ROSE OA KAR. OHIO JIM MATTOX. TEX. BRUCE F. VENT°. MINN. DOUG BARNARD. JR., GA. ROBERT GARCIA. N.Y. MIKE LOWRY, WASH. CHARLES E_ SCHUMER. N.Y. BAR N EY FR AN K. MASS. BILL PATMAN, TEX. WILL.IAM J. COYNE, PA. September 17, 1981 J. WILLIAM STANTON. OHIO CHALMERS P. WYLIE. OHIO STEWART 15. McKINNEY, CONN. GEORGE HANSEN. IDAHO HENRY J. HYDE. ILL. JIM LEACH, IOWA THOMAS B. EVANS,JR, DEL. RON PAUL,"rrY„ ED BETHUNE, ARK. NORMAN D. SHUMWAY.CALM STAN PARRIS. VA. ED WEBER. OHIO BILL MCCOLLUM, FLA. GREGORY W. C.ARMAN, N.Y. GEORGE C. WORTLEY. N.Y. MARGE ROUKEMA. N-1. BILL. LOWERY. GAUP'. JAMES K. COYNE, PA. DOUGLAS K. BEREUTER. NEBR. 7.23-42.47 Dr r-:• STENY H. HOYE.R. MO. ):00 A.M. londay, )ct. 19 ;t. Paul/ iinneapolis MEMO TO: All Members of the Committee on Banking, Finance and Urban Affairs FROM: Fernand J. St Germain, Chairman SUBJECT: Field Hearings on the Economy Field hearings on the economy will open at 9 A.M., Monday, October 19, in St. Paul-Minneapolis followed by hearings in: Seattle, Friday, November 6 Tucson, Saturday, November 7 • Chicago, Monday, November 9 Atlanta, Friday, November 13 Providence, Monday, November 23 The specific sites for each hearing, transportation plans, and other details will be released just as soon as preliminary advance staff work is completed. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis rERN•0111 J. FT PERMAIN. R.I., CHAIRMAN mrtt:s. I•ENRY B. GONZALEZ. TEX. JOSEPH G. MINISH. FRANK ANNUNZIO, ILL-. PARREN J. PAITCHEI MD. WALTER E. TAUNT ROY. D.C. STEPHEN L. NEAL. N.C. IER R Y M. PATTERSON. CALIF. JAMES J. BLANCHARD. MICH. CARROLL HUBBARD. JR.. KY. JOHN 1. LAFALCE. N.Y. DAViD W. EVANS. IND. YORMAN E. D'AMOURS. N.H. STANLEY N. LUNDINE. N.Y. NARY ROSE OAKAR. OHIO IIM MATTOX. TEX. TRUCE F. VENTO, MINN. ›OUG BARNARD, JR.. GA. i0EsERT GARCIA, N.Y. NIKE LOWRY. WASH. :NAPLES E. SCHUMER. N.Y. SARNEY FRANK, MASS. SILL PATMAN. TEX. VILLJAM J. COYNE. PA. i.--r-E4y H. HOVER. MD. • • wiu_IAN4 STANTON. OHIO CHALMERS P. WYLIE. °NIG STEWART Efl• MCKINNEY. CONN. GEORGE HANSEN. JOAN() PENRY J. HYDE. ILL JIM LEACH. DWA THOMAS H. EANS.JR, DEL, RD0 NE ON RamEm PA AU Nu L DNJEZ. E.s:mi.c.wit y. cAur. U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS NINETY-SEVENTH CONGRESS 2129 RAYBURN HOUSE OFFICE STAN PARRIS,‘. BUILDING G 8E DiR I-E L VG VN0 4E 8CRCCY R° . W L. "C)IC-M A1 A.1 Ai. N.y. 1A GEORGE C- WOFE:y .pt.y . MARGE ROUKEM64.2. BILL LOWERY. CAI. JAMES PC COYNE,, DOUGLAS ?C. BERL :R. NEBjt. 215—CLIZT WASHINGTON. D.C. 20515 FOR IMMEDIATE RELEASE: WASHINGTON,D.C., Sept. 10 -- Chairman Fernand J. St Germain announced today that the Banking, Finance and Urban Affairs Committee will conduct coast to coast grass roots hearings on the economy during October, November and December. Mr. St Germain said the Committee would attempt to draw a complete picture of economic conditions as they impact on workers, small businesses, farmers, consumers and other groups. "We have a great mass of rhetoric and aggregate economic data compiled by Federal agencies and various trade associations, but a shortage of information from the grass roots -- the people on the receiving end of. economic policies who must daily face the crush of high interest rates, shortages of credit, deteriorating public facilities, and the continuing ravages of inflation," Mr. St Germain said. Mr. St Germain said it was his intention to open the hearings to as many people as possible so that all aspects of the economic problems in local areas could be aired. "The Committee will be conducting long sessions, beginning early and running into the night and utilizing Saturdays and Sundays where necessary," the Chairman said. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4D (more) • -2- • The hearings will be held in Prov idence, Rhode Island; Atlant a, Georgia; Chicago, Illinois; Minneapo lis, Minnesota; Tucson, Arizon a; and Seattle, Washin gton. Dates for the hearings will be annnounced later. Mr. St Germain said the cities selected would provide the Co mmittee with information on problems in the different geographical re gions with varied economie s and characteristics. Mr. St Germain said the Committe e will analyze the testimony and data from the hearings and issue a report on the grass roots findings. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • November 9, 1981 The Honorable U. William Stanton House of Representatives 20515 Washington, D.C. Dear Bill: Thank you for your letter of October 28 concerning the dividend paid on Federal Reserve Bank stock. As you are aware, since the 6 percent dividend on Federal Reserve Bank stock is specified in the Federal Reserve Act (12 U.S.C. S 289), legislative action would be required to change the dividend. I can only agree it's outmoded, and something of a problem. However, in my judgment, a change of that type is likely to raise a host of other questions--which may or may not be equally good ideas. We have not planned any initiative at the moment, but may want to next year. I'd be delighted to hear any reactions you might have. Sincerely, CO:DJW:PAV:pjt (#V-318) bcc: Mike Bischoff (w/copy of incoming) Mrs. Mallardi (2) Cong. Liaison Office willOpare reply J. WI LLI AM STANTON DISTRICT OFFICES: 4111 170 NORTH ST. CLAIR STREET PAINESVILLE, OHIO 44077 PHONE: AREA COOE 216, 352-6167 11TH DISTRICT, OHIO 2466 RAYBURN BUILDING WASHINGTON, D.C. 20515 PHONE: AREA CODE 202, 225-5306 COM MITTEE ON BANKING. FINANCE AND URBAN AFFAIRS Congre55 of tbe Ifriniteb z-ztate5 MANTUA POST OFFICE 10748 NORTH MAIN STREET MANTUA, OHIO 44255 PHONE. AREA COOE 216, 274-8444 PousSe of 3aepresSentatibel Eillassbington, 3D.C. 20515 COMMITTEE ON SMALL BUSINESS October 28, 1981 Cre •• ,10)•••-j k 0 CD 0—) CD https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mr,. Paul A. Volcker, Chairman Federal Reserve System Washington, D. C. 20551 Dear Paul: Bill The enclosed correspondence from our mutual friend, Gradison, was brought to my attention today. We have all been very busy, but I was wondering if the members Board has some comment on changing the 6% interest that receive on their stockholdings. Best r gards, z? 4d WS:c lam Stanton • • BILL GRADISON DISTRiCT. OH10 uou WASHINGTOPil OFFICE: HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 1117 LONGWORTH ' TELEptioNE:Mon5-3164 RON ROBERTS ADMIN/STRATIVE ASSISTANT Congreo of tbe Eniteb elates DISTRICT OFFICE: FEDERAL OFFICE BUILDING 550 MAIN STREET CINCINNATI, OHIO 45202 TELEPHONE:(513)684-2456 Pousseot Aepreantatibet4 r/ Vaassbington, MC. 20515 OCT 22 1981 The Honorable J. William Stanton Ranking Republican Urban Affairs Comm. House Banking, Finance 2129 Rayburn House Office Building Washington, D.C. 20515 Dear Bill: mine, Joseph Enclosed is a letter from a constituent of t Bank. Mr. Rippe F. Rippe, Chairman of the Board of Providen member banks receive is concerned that the six percent interest is insufficient. I on their Federal Reserve stock holdings views on this issue would appreciate receiving the Committee's slation designed to modify and information on the status of legi this Federal Reserve Act provision. request. Thank you for your consideration of this Sincerely, ill Gradison Representative in Congress BG/sb Enclosure https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Provignt Bank rv6 • One East Fourth Street Cincinnati, Ohio 45202 513/579-2266 JOSEPH F. RIPPE Chairman of the Board Chief Executive Officer September 16, 1981 Honorable Willis D. Gradison United States House of Representatives 1117 Longworth House Office Building Washington, D. C. 20515 T. 0:-te AlPflf:;• 111 * Ui " 2)\- Dear Bill: The banking industry is facing some of the highest funds' costs and operating expenses in its history. In order to survive under these conditions and to earn a fair profit it is necessary for bankers to re-examine the asset side of their balance sheets to determine if the funds invested in all asset categories are being employed to their best advantage. Such an analysis of the statement of condition of a bank which belongs to the Federal Reserve System reveals a singular glaring asset category which in today's markets is not yielding an adequate rate of return. I refer to its investment in the stock of the Federal Reserve System. By Section 7 of the Federal Reserve Act (copy enclosed) member banks receive an annual dividend on their stock of six per cent (6%). In order to borrow money this nation's strongest corporations pay almost 3-1/2 times the rate that Fed members receive as dividends on their Federal Reserve stock. The Federal Reserve recently increased the charges it makes for services it renders to member banks. Many of these services were formerly free. We now pay interest on deposits of the central bank. These formerly earned no interest. At a time when competition for funds and deregulation are combining to run pp the cost of bank deposits, it seems to me that a six percent fixed return on this stock is unjust. I especially believe this when the Fed is able to pay all its expenses and dividends and still return to the U. S. Treasury over 90% of its annual revenues. Anything which you can do to investigate and correct this inequitable https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Honorable Willis D. Gradison September 16, 1981 Page 2 situation will (- 7irn for you the eternal gratitude of this country's bankers. Yours very truly, • C• 41 • 1,"1. • LJ- Joseph F. Rippe Chairman of the Board and Chief Executive Officer JFR/pd https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • .41' • rDtaA https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • SECTION 7. DivisioN OF EARNINGS 1. Dividends and surplus fund of reserve bant.s Sec. 7. After all necessary expenses of a Federal reserve bank shall have been paid or provided for, the stockholders shall be entitled to receive an annual dividend of 6 per centum on the paidin capital stock, which dividend shall be cumulative. After the aforesaid dividend claims have been fully met, the net earnings shall be paid into the surplus fund of the Federal reserve bank. of rU. S. C, title 12, scc. 210). As amended by Acts 163)1 Mar. 3, 1919 (40 Stat. 1314); June 16, 1933 (4S Stat. Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to personally identifiable information. Citation Information Document Type: Personal correspondence Citations: Number of Pages Removed: 1 Letter to Richard Bolling from Paul Volcker, November 6, 1981. Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org • •••4 , https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • November 5, 1981 The Honorable Jake Garn Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D. C. 20510 Dear Chairman Garn: 10. Thank you for your letter of November 2. I am pleased to enclose responses to the written questions in connection with the hearing held on October 29. I hope this information will be useful to your Comnittee. Please let me know if I can be of fur- ther assistance. Sincerely, \L,41_,au_t Enclosures • la. • If we do prop up the ailing thrift industry through the emergency powers, aren't we just begging for another "temporary" problem the next time we have a dip in the business cycle? The problems facing thrift institutions are much more related to inflation and its implications for high and unstable interest rates than to the business cycle in the ordinary sense. Assuming a reasonable degree of success in dealing with inflation, the problem, although plainly serious, will turn out to be largely transitional. But it is of course true that, after its current experience, the industry should not return to a position where it is so highly dependent upon a particular configuration of interest rates as in the past. The emergency powers in the Regulators' bill address the "temporary" or transition problem that thrifts and certain banks face while (1) they add higher yielding (and variable rate) assets to their portfolio as older assets are repaid and (2) public policies to reduce inflation--and hence interest rate--have a chance to work. During that transition, the bill will facilitate assistance to otherwise viable institutions and the acquisition by stronger institutions of those depositories who are unlikely to be able to return to viability in a reasonable period of time. The bill purports to do no more, but, obviously, the first priority must be to get through the transition period so there can be a long run. I believe, partly as a result of lending liberalization already enacted or new regulations, such as variable rate mortgages, thrifts are better placed today to deal flexibly with the future than when the present problems originated. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Of course, there has not been sufficient time for • • 2- most thrifts to effectively utilize the powers they have, and many thrifts in the past had not seen the need for using the flexibility they have. zation. We do not oppose still further liberali- On the other hand, we do not feel legislation stopping short of all the powers of S. 1720 is "begging" for another problem, nor would those powers be particularly relevant during the current transitional period. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • -3- lb. Why not permit thrifts to offer commercial loans to expand their earning potential? You fear that banks would change to thrift charters. Would you support the bill if we revised it to ensure that thrifts engaged in commercial lending were subject to the same intrastate branching and other restrictions as commercial banks? I believe that institutions offering essentially similar services should be subject to similar regulatory treatment, and, should thrifts be provided with the full range of asset and liability powers provided in S. 1720, intrastate and other highly significant restrictions should promptly be reviewed and revised to provide that equality. In some cases, that might imply more liberal treatment for banks in branching or other powers; in other cases, "commercial bank type" restrictions on thrifts. However, the question of thrifts having full commercial lending authority is broader than eliminating the regulatory advantages the proposed bill would provide to thrifts over banks with respect to branching, interest rate differentials, access to governmental credit and permissible activities of holding company affiliates. Basically, we are doubtful that full commercial lending powers would have much significance for thrifts' earnings potential over time; the market is already highly competitive, and earnings margins are probably at least as low as on traditional thrift lines of business. As I indicated in my testimony, the expansion of thrift powers will, in any event, do little to rectify their short-run earnings problems--and may exacerbate them to the extent that thrifts expand too rapidly into areas in which they lack the necessary management expertise. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • 4 • The issue, as we understand it, is rather flexibility; returns on very short-terin or floating rate commercial loans can be in line with fluctuations in market and short-term deposit rates. However, flexibility can be (and already has been) en- hanced in other ways that seem to us more consistent with a less abrupt change in the focus of the thrift industry, or, to put it another way, more consistent with their traditional role. Thus, I would favor granting thrifts broader consumer lending and consumer deposit taking powers, while confining commercial lending authority to that consistent with helping to meet the needs of local, small business. Such an evolutionary approach would keep their community orientation, and capitalize on existing management capabilities. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • -5- lc. On October 28, State Banking Commissioners appeared before us. Commissioner Mulligan (of Massachusetts) stated: "The current plight of the nation's thrift industry presents an evident and compelling legislative and regulatory lesson. Depository institutions should not be locked into narrow ranges of investment opportunities. Never again should financial institutions be legislated and regulated into an investment posture totally dependent upon a single economic scenario." Do you agree with that statement? Mutual savings banks in Massachusetts, which are not in the same troubled condition as mutuals in other areas, have had limited commercial lending powers since 1955 (greatly expanded in 1980). They have used such powers principally to round out their customer relationships and obtain some extra earnings, not to turn away from the traditional role in housing finance. In fact, they have only 1/2 percent of their aggregate assets in corporate loans. Do you agree that the added powers will enable thrifts to round out their customer relationships, thereby maintaining their competitive ability and earnings potential? I certainly would agree that thrift institutions should not be restricted by legislation or regulation to an investment posture which depends upon a "single economic scenario," namely, an upward sloping yield curve and substantial interest rate stability. However (as indicated in the previous answer), the increased asset powers granted under the Deregulation and Monetary Control Act together with the recent regulatory decisions allowing more flexibility in the use of adjustable rate mortgages, once they are fully utilized by the institutions, go a very considerable distance in providing the needed flexibility in the asset portfolio. In addition, recent DIDC actions, if adopted, would grant institutions additional flexibility in offering longer-term https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • -6 • deposits and hence allow institutions to better match the maturities on their assets and liabilities. As you have pointed out, Massachusetts' savings banks have had limited commercial lending powers for some time, which they have used primarily to round out customer relationships. This would not be inconsistent with the "family bank" approach I suggested. However, with only 1/2 percent of their portfolio in such assets, it is hardly conceivable that that commercial lending authority accounts for their less troubled situation today. Indeed, the main reasons these institutions remain more profitable than the average thrift institution are related to their unique position in their local markets and to their liability composition rather than to their asset powers. Massachusetts' MSBs have been able to maintain a higher proportion of low-rate passbook type deposits, and a lower proportion of market rate MMCs and other short term borrowings than the average thrift institution, consequently, Massachusetts' MSBs have lower net interest expenses than the average thrift. More- over, the average Massachusetts institution has a much lower proportion of its assets in mortgages and a much higher proportion in cash and securities than does the average thrift. combination This has reduced their overall exposure to interest rate risk and thus explains their superior earnings performance. The lesson plainly is a great deal depends on management and its perceptions of risk, and we cannot substitute law for good judgement. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • 7 2. In your testimony, you indicated your support of S. 1508 (Section 702 of S. 1720). As you are aware, the FDIC has suggested that the FDIC be given the authority to determine what deposits would be classified as international banking facility deposits and exempt from insurance assessments. Additionally, the FDIC suggests that a two-year sunset be placed on the exemption of IBF deposits from insurance assessments. In your opinion, should the FDIC or the Federal Reserve Board determine which deposits qualify as IBF deposits? Why? Wouldn't a two-year sunset prevent a parity between IBF deposits and deposits at overseas branches of United States banks? Likewise, wouldn't the sunset have a chilling effect on the establishment of IBF's by United States banks when the deposits may be subject to insurance assessments in two years? The Board believes that IBF deposits should be accorded the same treatment as deposits at foreign branches. Such treatment will insure that IBFs are able to compete with foreign branches on a fully competitive basis. In order to preserve this competitive position, consistent with the needs of monetary policy, we believe that it is desirable for the Bo rd alone to retain the authority to define what types of obligations qualify as IBF deposits. If another agency were to define an IBF deposit differently from that of the Board (or differently define them for insurance purposes), such action could create obvious problems for the operations of IBFs. However, I presume the regulatory authorities could reason- ably be expected to reach consistency if the FDIC formally could determine which deposits were free from insurance assessment (not which deposits were eligible for IBFs). We do not foreclose the possibility of the FDIC assessing both the IBF and foreign branch deposits at some time in the future. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis However, we are concerned that a two-year sunset on • • -8- the IBF deposit insurance exemption could adversely affect the willingness of institutions to establish IBFs since their benefits could be enjoyed fully only during that limited period. In order to accommodate the desire for a future overall review of the possibility of assessing foreign branch deposits and IBF deposits, we would recommend that the legislation not include a permanent exclusion for IBFs but be flexible enough to have whatever treatment is accorded foreign deposits at foreign branches. This would assure that, on appropriate review by the Congress of the broader question of assessments on foreign branch deposits, IBFs would receive the same treatment as foreign branch deposits. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • -9 3. Please comment on the Administration's proposal that securities activities of banks be conducted through subsidiaries of bank holding companies, rather than by the bank itself. What would be the impact of this approach on banks which are not part of holding companies, and on smaller institutions? As in the case of thrift powers, I would also prefer an evolutionary approach to banks' stock and bond mutual fund activities. Banks have, subject to regulation, operated commingled trust accounts in a manner consistent with public policy considerations. We believe they could be expected to operate commingled agency accounts, subject to relevant restrictions, particularly on advertising, similar to those now applicable to commingled trust accounts. In this way, the account management could be efficiently integrated with the existing trust department operations. This approach would give us experience with expanded bank securities powers in the light of the "Glass-Steagall" concerns, including potential conflicts of interest, concentration of resources, and safety and soundness. In my testimony, I urged that, if full mutual fund powers were given to banks and thrifts, those powers be exercised through a separate affiliate. My principal concerns were that a mutual fund offered directly by a bank, with aggressive sales effort, might become too closely associated by the public with the sponsoring bank so that poor performance by the former would erode confidence in the latter and that opportunities for conflict of interest or self-dealing might be less easily controlled. The dangers would also be reduced somewhat by forbidding use of the bank's name in the title of the mutual fund. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • -10- For municipal bond underwriting, an important advantage of the separate affiliate is that it creates more equal tax treatment for bank and nonbank market makers. However, I am inclined to the view that a separate affiliate would not be essential in the light of experience with underwriting general obligations. For instance, I doubt any significant increase in risk due to underwriting activities, and bank acquisition of the securities of any one issuer would be subject to the same limitations relative to capital that have been established to prevent undue risk concentration in lending. More importantly, a requirement to establish a separate affiliate could be a significant deterrent to market participation by many small- to medium-sized institutions, whose municipal underwriting activities are confined to a few local or regional issues each year. These institutions would face the expense and incon- venience of setting up the affiliate, capitalizing it separately, and adapting to a new set of regulators. If these costs are sufficient to deter them from securities activities, many small local governments could face a shrinkage in the number of dealers willing to underwrite general obligation issues as well as no increase in competition for revenue bonds. The current system for regulating bank participation in general obligation markets, in which bank regulators are responsible for oversight of the compliance of bank dealer departments with rules established by the Municipal Securities Rulemaking Board, has worked satisfactorily. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis In addition, I • -11- • support the rules suggested by the proposed legislation for protecting against conflicts of interest in transactions between an institution's underwriting activity and its trust department, investment portfolio, or other normal banking functions, and I would extend these rules to general obligations as well as revenue bonds. I believe they can be adequately enforced in the context of departments within institutions. The inequity of tax treatment remains a problem, and a separate affiliate offers some other regulatory advantages. While in this instance we do not believe they outweigh the disadvantages, particularly for smaller- and medium-sized banks, perhaps a distinction by bank size or activity could be developed as a workable compromise. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • -12- 4. • The Administration has recommended that authority to operate commingled a2ency accounts initially be provided to banks, but not to savings and loan associations, savings banks and credit unions. Do you believe that this is appropriate, or should comparable powers be given to all depository institutions at the same time? I favor all depository institutions with trust depart- ments being given the authority to offer commingled agency accounts for investments in longer-term securities, with the sare constraints on advertising and sales techniques and other protections. Congress gave trust powers to federally chartered savings and loan associations in the Monetary Control Act. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • -13- 5. • During the recent consideration of the so-called regulators bill by the House Banking Committee, a provision was added that requires the FDIC to provide greater indemnification to the FSLIC for any losses that occur involving a savings bank that has voluntarily converted to a Federal charter. Do you believe that this is appropriate action in light of present economic conditions and the state of the industry? We believe that it is appropriate for the FDIC to indemnify the FSLIC against losses that might be incurred as a result of the conversion of a mutual savings bank to Federal charter. We believe that as a matter of principle the FSLIC should be indemnified by the FDIC for losses occurring as a result of events that took place before a mutual savings bank converted to a Federal charter. It seems to us that the exact provisions for such an indemnification are best left to the insurance agencies and is not an area that we have any particular expertise to comment on. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • -14- 6. The thrift industry is having a difficult time coping with current economic conditions. Interest rates have reached record highs. Housing starts are down. Does the DIDC have any plans to reevaluate its removal of the ceiling on IRA accounts and does it plan to evaluate its overall deregulation strategy in light of general economic conditions? As you know, the DIDC has recently reconsidered its earlier decision to increase the passbook ceiling because of the current difficulties of thrifts. In addition, a large number of the members of the House Banking Committee have asked the DIDC to postpone removal of ceilings on IRA/Keogh accounts, scheduled to become effective December 1, at least until that Committee has reviewed the decision. My view at the time of the decision was that it is likely to increase the deposit flows of thrift institutions, should not substantially adverse the earnings position and is consistent with the responsibilities of the DIDC, even though I personally expressed some preference for a floating ceiling. I have undertaken to review the evidence anew, but, unless the new analysis suggests substantial difficulties not apparent earlier, I do not plan to ask for full DIDC reconsideration. I believe the entire strategy of DIDC must, by necessity, be subject to review in the light of developing market conditions. As I noted in my recent testimony before you, market developments require that we move as rapidly as possible to deregulate deposit rate ceilings consistent with the viability of thrifts. The latter problem is why the Federal Reserve opposed bank and thrift https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • -15- authority to operate money market mutual funclr3 at the present time; in the Board's view this would intensiry the pressure on thrift earnings and would be tantamount to complete elimination of deposit rate ceilings all at once. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis .r JAKE GARN, UTAH, CHAIRMAN JOHN '^OWER. TEX. JOHN HEINZ. PA. WILLIAM L. ARMSTRONG, COLO. RICHARD G. LUGAR, IND. ALFONSE M. D•AMATO, N.Y. JOHN H. CHAFEE. R.I. HARRISON SCHMITT. N. MEX. • HARRISON A. WILLIAMS, JR., N.J. WILLIAM PROXMIRE, WIS. ALAN CRANSTON, CALJF. DONALD W. RIEGLE, JR., MICH. PAUL S. SARBANES, MD. CHR I STOPHER J. DODD, CONN. ALAN J. DIXON. IU-. M. DANNY WALL, STAFF DIRECTOR HOWARD A. MENELL, MINORITY STAFF DIRECTOR AND COUNSEL https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Action assign.ed Mr. Ettin 'Unita)Zfatez -.Senate COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS WASHINGTON, D.C. 20510 November 2, 1981 The Honorable Paul A. Volcker Chairman of the Board of Governors of the Federal Reserve System Federal Reserve Building Washington, D. C. 20006 Dear Mr. Chairman: Your appearance during the Committee's recent hearings on financial institutions legislation was appreciated. Your prepared statement and oral testimony will be of assistance to the Committee as it continues its consideration of such legislation. In order to complete the hearing record, the Committee would appreciate your answers to the enclosed questions. To facilitate prompt printing of the hearing record, please submit your response by November 9, 1981. If you have any questions regarding the enclosure, please contact John Collins or Lamar Smith of the Committee staff at 202-224-7391. Sincerely ours, OAAA.d ake Garn Chairman JG:jcr enclosure • • CHAIRMAN VOLCKER 1. You view the emergency powers provisions as necessary to take care of "temporary" problems within the depository system. , The purpose of my bill is to combine the short-term solution which Congress is famous for, with long-term solutions. a. b. c. If we do prop up the ailing thrift industry through the emergency powers, aren't we just begging for another "temporary" problem the next time we have a dip in the business cycle? Why not permit thrifts to offer commercial loans to expand their earnings potential? You fear that banks would change to thrift charters. Would you support the bill if we revised it to ensure that thrifts engaged in commercial lending were subject to the same intrastate branching and other restrictions as commercial banks? oners appeared On October 28, State.Banking .CommissiMass achusetts) (of gan Mulli before us. Commissioner stated: "The current plight of the nation's thrift industry presents an evident and compelling legislative and regulatory lesson. Depository institutions should not s be locked into narrow ranges of investment opportunitie Never again should financial institutions be legislated and regulated into an investment posture totally dependent upon a single economic scenario." Do you agree with that statement? Mutual savings banks in Mass'achusetts, which are not in the same troubled condition as mutuals in other areas, have had limited commercial lending powers since 1955 (greatly expanded in 1980). They have used such powers principally to round out their customer relationships and obtain some extra earnings, not to turn away from the traditional 1/2 role in housing finance. In fact, they have only percent of their aggregate assets in corporate loans. Do you agree that the added powers will enable thrifts to round out their customer relationships, thereby main l? taining their competitive ability and earnings potentia 2. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis S. 1508 In your testimony, you indicated your support for has (Section 702 of S. 1720). As you are aware, the FDIC to determine suggested that the FDIC be given the authority ional banking what deposits would be classified as internat ssments. facility deposits and exempt from insurance asse sunset be Additionally, the FDIC suggests that a two-year . e • -2- , placed on the exemption of IBF deposits from insurance assessments. In your opinion, should the FDIC or the Federal Reserve Board determine which deposits qualify as IBF deposits? Why? Wouldn't a two-year sunset prevent a parity between IBF deposits and deposits at overseas branches of United States banks? Likewise, wouldn't the sunset have a chilling effect on the establishment of IBF's by United States banks when the deposits may be subject to insurance assessments in two years? 3. Please comment on the Administration's proposal that securities activities of banks be conducted through subsidiaries of bank holding companies, rather than by the bank itself. What would be the impact of this approach on banks which are not part of holding companies, and on smaller institutions? 4 The Administration has recommended that authority to operate commingled agency accounts initially be provided to banks, but not to savings and loan associations, savings banks and credit unions. Do you believe that this is appropriate, or should comparable powers be given to all depository institutions at the same time? 5. 6. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ators During the recent consideration of the so-called regul added bill by the House Banking Committee, a provision was to that requires the FDIC to provide greater idemnification the FSLIC for any losses that occur involving a savings bank that has voluntarily converted to a Federal charter. Do you believe that this is appropriate action in light of try? present economic conditions and the state of the indus The thrift industry is having a difficult time coping with current economic conditions. Interest rates have reached record highs. Housing starts are down. Does the DIDC have any plans to reevaluate its removal of the ceiling on IRA on accounts and does it plan to evaluate its overall deregulati strategy in light of general economic conditions? https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • BOARD OF BOVERNORS • of•,v, ()-ve.,u4v.ee,L v co5) OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20SSI • -A 411,! 4r44 '4- • •( • RAI. 12F.S . • • • • • .. • • • PAUL A. VOLCKER November 5, 1981 CHAIRMAN The Honorable Thomas A. Daschle House of Representatives Washington, D. C. 20515 Dear Mr. Daschle: Some time ago, you requested the Board of Governors' views on the appropriate deposit level for a permanent reserve exemption for small depository institutions. The Board has recently had the occasion to take a formal position on the matter, and I want to inform you of it. A bill recently introduced by Senator Garn (S. 1720) would exempt from reserve requirements institutions with total deposits of less than $5 million. Since such institutions currently hold less than 1 percent of total deposits at all depository institutions, subjecting these small institutions to reserve requirements contributes little to monetary control. Consequently, the Board would support this exemption in the light of the burden for small institutions. This approach has certain drawbacks. First, if deposits at an institution just below the cutoff grew sufficiently to put that institution just above the cutoff, all deposits would become subject to reserve requirements, thus making the marginal reserve requirement on the deposit increase quite high. Second, a reserve exemption for institutions with less than $5 million in total deposits may give them a competitive advantage relative to institutions above the cutoff. These disadvantages could be dealt with by an alternative method for reducing the reserve burden for smaller institutions. This approach would be to exempt from reserve requirements the first $2 million of reservable deposits of all institutions. Since the average institution with about $5 million in total deposits has about $2 million in reservable deposits, such a technique would give roughly the same benefit to these smaller institutions as would an exemption based on total deposits without creating the competitive inequities noted above. It would, however, result in somewhat larger costs in terms of revenue losses, since all institutions' reservable deposits would be reduced. If the reserve-free tranche were much higher than $2 million, questions might be raised about the implications for monetary control. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • The Honorable Thomas A. Daschle Page Two I should note that pending Congressional action, the Board has elected to continue the deferral of reporting and reserve requirements for institutions with less than $2 million in total deposits until May 1982. However, without legislation, the Board does not have the authority to make this deferral a permanent exemption. I hope you find these comments helpful. Sincerely, sgaul A. Volcker FJ:TDS:EE:DJW:PAV:cm (V-205) bcc: Mr. Jensen Mr. Simpson Mr. Ettin Mrs. Mallardi (2) Action assignd Mr. Ettin • • TOM DASCHLE r DI5'RICT. SOUTH DAKOTA DISTRICT OFFICES: 800 SOUTH CLIFF Box 1274 COMMITTErS AGRICULTURE VETLRANS. AFFAIRS 439 CANNON Orrirr BUILDING WA4.NGTON. D.C. 20515 ‘202) 225-2801 Sioux FALLS, SOUTH DAKOTA 57101 -111t4- (605)334-9596 Congrez5 of tbe Unita% *tate5 ToLL-FPrt 1-800-424-9094 310 SOUTH LINCOLN ABERDEEN. SOUTH DxxoTA 57401 (605) 225-8823 jOoluSe of Aeprefientatibt5 Ulacsbington, D.C. 20513 -71 srl July 13, 1981 I • FT, Cl= tr. Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 I • co r C_. r— rN3 :M " r Pl.< fnr"-• r's" 477 :s 777 •C.) rt • _ , •: Dear Chairman Volcker, During your tenure as Chairman of the Depository Institutions Deregulation Committee, the Committee on separate occa ssions deferred application of the reserve requirement for nonmember institutions with less than $2 million total deposits in orde r to lessen the burden on these institutions as well as Federal Rese rve Banks. In your letter to me dated May 7, 1981, concerning the most recent decision of the Committee to continue this deferral until Nove mber, 1981, you indicated your belief that consideration should be given to legislation which would provide a permanent statutor y exemption for these institutions as they hold only one-half of one perc ent of all deposits and application of the reserve requirement to these institutions would not appreciably improve monetary control. In this regard, Mr. Chairman, I'm writing to solicit your further views on a permanent exemption and the conduct of monetary policy. In general, at what deposit level do the burd ens of requirement compliance for depository institutions and Fede reserve ral Reserve Banks outweigh possible benefits for the conduct of monetary policy? More specifically, would the conduct of monetary policy be appreciably improved or hindered if a permanent exemption was provided for institutions with deposits of less than $5 million, less than $10 million, or less than $15 million? I appreciate receiving your previous opinion on the provisio n of a permanent exemption and I look forward to receivin g your further views on this matter. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Sin T m A mber o e gross r,0,,,.„ w4 :.. ••• • . .*o Of GON . 4, ... ."0 *P-SL/ , ,c (j. •0 .,,f,.. ,6 • :00„. .6 /11 i*,4444 • -r, .r .• BOARD OF GOVERNORS • kac)0.,,AL ( v 36a) OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 VI ;". .7. .. . 1... '• •• "- • •..RV.5 ••• PAUL A. VOLCKER November 5, 1981 CHAIRMAN The Honorable Dave Evans House of Representatives Washington, D. C. 20515 Dear Mr. Evans: Thank you for your letter of September 16, expressing your concern about the current level of interest rates. I am keenly aware of the uneven effects of monetary restraint and the painful adjustments that high interest rates impose. Housing construction is severely depressed, small businesses are being progressively squeezed, and the auto industry is in deep trouble. If the Federal Reserve could find a way to bring inflation under control without restraining money and credit growth, we would certainly use it. Unfortunately, I'm afraid we have to face the fact that no painless cure exists. To enjoy the benefits of a stable price level in years to come, one essential ingredient is discipline on monetary growth. I think you will agree that inflation has placed a severe burden on most Americans. Senior citizens and others who rely on fixed incomes have watched their savings shrink, and, in many cases, disappear entirely. First-time homebuyers have been priced out of the market by skyrocketing house prices Moreover, past experience indicates that inflation has retarded the growth of production, employment, and income. Therefore, it is imperative that the Federal Reserve remain firm in policies to restore greater price stability. And budgetary restraint would help a great deal on both the interest rate and price fronts. We are now seeing a little progress in the inflation battle; in the first nine months of 1981 the CPI rose 5.4 percent, a substantial improvement over the 8.3 percent in the same period last year. But we still have a long way to go, and if we let up now all the ground we have gained could be lost very quickly. Restraint on money and credit growth is not the equivalent of high interest rates -- in time, it is the route toward getting rates lower, and keeping them there. Long-term interest rates are still so high because many lenders expect double-digit inflation to continue: if we significantly expanded money and credit, we would fuel these expectations and raise rates on mortgages and long-term bonds. I would also observe that short-term interest rates are substantially -- 3 to 5 percent -- below their recent https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable Dave Evans Page Two peaks. The fact that those declines have not been full y reflected in the long-term markets is one gauge of the depth of inflationary and budgetary concerns in the credit markets. At this juncture, the Federal Reserve has very litt le choice but to avoid excessive monetary growth. We do so in the conviction that over time we will all be better off with a stable price level, and that progress in that dire ction is essential to sustained growth. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Sincerely, Wool A. Volckec SW:PKC:JSZ:PAV:cm (V-262) bcc: Mr. Clark Ms. Viatt Mrs. Wing Mrs. Mallardi (2) -7 assignei Mr. Kichline BANKING. FINANCE AND URBAN AFFAIRS COMMITTEE GOVERNMENT OPERATIONS COM M ITTEE • Congregfi of tbe Einiteb tateg Pou5e of ikepresSentatibefS SELECT COM M I TTEE DISTRICT OFFICE: 4TH FLOOR ADMINISTRATION BUILDING INDIANAPOLIS INTERNATIONAL AIRPORT INDIANAPOLIS. INDIANA 46241 TELEPHONE. 017) 269-7364 Ulacsbingtott, D.(C. 20515 TOLL FREE NU MBER: OPEFtATOR-ENTERPRISE 7364 DAVE: EVANS 438 CANNON OFFICE BUILDING WASHINGTON. D.C. 20515 ON AGING WASHINGTON OFFICE: STEERING COMMITTEE: MIDWEST-NORTHEAST ECONOMIC ADVANCEMENT COALITION 6TH DISTRICT, INDIANA TELEPHoNE.(202) 225-2276 September 16, 1981 t 1 IL' Mr. Paul A. Volcker Chairman Federal Reserve Building Constitution Avenue, NW Washington, D.C. 20551 Dear Mr. Volcker: I share the deep concern, if not alarm, of my colleagues, constituents, and fellow Americans about today's record breaking interest rates. I cannot urge you stongly enough to take immediate action to ease the disasterous effect these interest rates are having on the lives of -the American people. Our economy simply cannot withstand the prolonged imposition of interest rates exceeding 20%. Home sales, automobile purchases are at a virtaul standstill. Small businesses are trying to survive day to day in hopeof a healthier economic atmosphere in the future. Other businessses are under a severe contraction. This decline means lost jobs with little hope of new employment unless business is encouraged by more favorable interest rates. The Federal Reserve simply must respond to the appeal of the American people. We must work together to increase productivity provide new jobs, and reduce inflation. It is unfair to frustrate the dreams, threaten the livelihood, and darken the hopes of Americans by refusing to respond to their plea. S rely, DAVE EVANS Member of Congress DE/dr https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis DAN GLICKMAN FOURTH DISTRICT—KANSAS • • 1507 LONGWORTH BUILDING WASHINGTON, D.C. 20515 (202) 225-6216 COMMITTEES' U S. POST OFFICE AND COURT HOUSE AGRICULTURE Box 403—Room 224 JUDICIARY WICHITA, KANSAS SCIENCE AND TECHNOLOGY 67201 (316) 262-8396 CHAIRMAN: SURCOMMITTEE ON TRANSPORTATION, AVIATION AND MATERIALS CONGRESS OF TIM ITNIMI) STATES ADMINISTRATIVE ASSISTANT 407 WOLCOTT BUILDING 201 NORTH MAIN HOUSE OF REPRESENTATIVES WASHINGTON, D.C. 20515 MYRNE: ROE HUTCHINSON, KANSAS 67501 (316) 669-9011 SCOTT FLEMING LEGISLATIVE STAFF DI REcYOR November 3, 1981 Honorable Donald T. Regan Chairman, Depository Institutions Deregulation Committee 15th & Pennsylvania Avenue, N. W. Washington, D. C. 20220 Dear Secretary Regan: cr I have today written Chairman St. Germain of the House Banking Committee urging that he schedule hearings on implementation by the DIDC of the financial deregulation plan phase-in authorized by the last Congress. I did so both because of specific concerns that have been brought to my attention by officials of various financial institutions in my home state and because I am concerned that the statute we adopted failed to provide specific enough guidance as far as how that phase-in should proceed. Until such time as oversight hearings are arranged, I would urge you and the DIDC to reassess regulations now scheduled to go into effect and to consult with the Committee as further actions in that regard are planned. I would particularly note that I have heard from a number of officials with Kansas financial institutions about the potential impact on, in many cases, already weak financial institutions of regulations scheduled to become effective December 1 regarding IRA's and Keogh accounts, including a provision for a penalty-free rollover of those accounts to higher yielding accounts. It is my understanding that a group of representatives of the Kansas savings and loan industry met with DIDC staff during a recent visit to Washington. According to the Kansans present at that meeting, they felt that it had served as an enlightening experience for the DIDC representatives with regard to some of the problems they are facing. In light of that fact, it would seem prudent for the DIDC to review those regulations with an eye toward delaying their implementation or appropriate amendments thereto to take into account the financial realities facing all too many financial institutions today. A strong, viable financial community is absolutely essential if we are to get our economic house back in order. I urge the DIDC to consider the viability of the financial institutions as these regulatory changes are ph d in. est reg Da c man D5:sf cc: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis DIDC Membership THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS ' 11101 - • • 110b • of GOviii. .*. BOARD OF GOVERNORS 3(0 OF THE :6 0 •..m , •• • FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ••..••• November 3, 1981 The Honorable John F. Seiberling House of Representatives Washington, D. C. 20515 Dear Mr. Seiberling: This is in further response to your letter of August 7 requesting our views with respect to correspondence you received from Mr. Langdon P. Marvin, Jr. I regret the delay in responding to your letter, but, as indicated in our letter of August 19, Mr. Marvin's letter involved a matter of some complexity that required an investigation by the Federal Reserve Bank of New York. Mr. Marvin states that the Bank of New York, co-trustee of two trusts, has refused to supply information regarding the status of the trusts. He also states that the bank has been depleting the principal of the "marital" trust, designated "MVM Trust No. 1", even though the corpus of this trust was transferred to him by an appointment of the primary beneficiary, his mother, on September 16, 1980. The results of our inquiry are summarized below. The correspondence files of the Bank of New York (the "Bank") disclose that the Bank has not altogether ignored Mr. Marvin's requests for information. The Bank's files contain several letters from the Bank's counsel to Mr. Marvin's counsel. In the case of the residuary trust (MVM Trust No. 2), wherein the contingent interest of Mr. Marvin is not disputed by the Bank, the requested inforwation was supplied. The Bank has informed us that it does not believe that Mr. Marvin is a person interested in the corpus of the marital trust 041/M Trust No. 1) under the Surrogate's Court Procedure Act (SCPA) of New York. Consequently, the Bank believes it was acting properly in withholding information concerning this trust pursuant to its responsibility of maintaining the confidentiality of its relationship solely with interested persons. With reference to the power of appointwent that Mr. Marvin holds, the Bank has indicated that Mr. Marvin, or his attorney, will be https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable John Page Two Seiberlinr, • flab • furnishcd with the requested information as provided under Section 2309 of the SCPA upon a judicial determination that the power of appointment is valid. In this rer,ard, the Bank has indicated that: (a) prior to this complaint and a letter dated August 31, 1981, from Lawrence Weston Krieger, Esq., it had not been aware of the power of appointment; (b) since being made aware of the power of appointment, it has ceased to invade the corpus of MVN Trust No. 1 for the benefit of Mrs. Marvin; and (c) it is the Bank's intention to initiate an action in tbe Surrok,ate's Court of New York County requesting that the power of appointillent be set aside as invalid. The results of this action will, of course, determine Mr. Marvin's rights to the information requested. Mr. Marvin's right to compel the Bank as a fiduciary to disclose information about the marital trust is a question for judicial determination. In this regard, Section 2102 of the SCPA provides For proceedings for relief against a fiduciary to supply information concerning assets or affairs of an estat e relevant to thu interest of the petitioner. Further, SCPA Article 22, and more specifically Section 2205, covers the area of compulsory accounting of a fiduciary on a court's initiative , or on petition; and who may petition. This is not to say that Mr. rarvin is entitled to the information requested, but rather that procedures exist under the SCPA by which he and his attornev may file for judicial relief. The Fedcrill 1:eserve Bank of New York will continue to monitor the situation and will ensure that the Bank complies with its responsibilities after the proper determinations are made by the court. T hope this information is helpful. know if I can be nf Further assistance. Sincerely, (Signed) Donald J. Winn Donald J. Winn Assistant to the Board DRV:AFC:vcd (V-226) bcc: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Don Vinnedge Jack Ryan Mrs. Mallardi Please let me • • • https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis August 19, 1931 The honorable John F. Seiberling house of Representatives Washin6toa, D. C. 20515 Dear Mr. Seiberling: I am writini;.to acknowledge receipt of your letter of August 7 requestint; comment on correspondence from nr. Langdon P. Marvin, Jr. lir. /:arvin alle:1,es that The Bank of New York, co-trustee of two trusts in which he is an interested party, has refused to supply information regarding the status of the trusts. he also states that the bank has been deplctini; the principal of one of the trusts, and tnat the principal of this trust should be transferred to Ids control becduse of an appointLient made by his u.other pursuant to the terms of the trust instrument. We have requested the Federal Reserve Lank of New York to look into this matter, and I expect to have a response to you in the near future. Sincerely, (Signed) William R. Maloni William R. Maloni Special Assistant to the Board CRL:DRV CO:vcd (V-226) bcc : Chuck Lewellen Don Vinnedge Jack Ryan Nrs. Mallardi 4 / 1 4 .} - JOHN F. SEIBERLING WASHINGTON 14TH D'"RICT, OHIO • orricr• 1 2.25 LONGWORTH HOUSE OFTICE BOLDING TELXPHONE (202) 225-5231 t• c.ommtrtri- s! JUDICIARY INTI:RIOR AND INSULAR AFFAIRS Congre5.5 of tbr Unita'*tates' DISTRICT OFFICE. FEDERAL BUILDING AKRON, 011io 44308 TELEPHONE. (216) 375-5710 Pouge of lArprefSentatibeiS Viacsbington, 33.C. 20515 Er, , • A 1,1 r•-•• 1•. " "1 :•1% •:. 1 ilk .g• August 7, 1981 f's • -13 Hon. Paul A. Volcker Chairman, Board of Governors Federal Reserve System Constitution Ave. 6 21st St., N.W., Room 2046-B Washington, D.C. 20551 Dear Mr. Chairman: Enclosed is a letter to me dated July 31, 1981 from my friend and classmate, Langdon P. Marvin, Jr. If Mr. Marvin's assertions arc correct--and I have no reason to question them--then it seems to mc they raise serious questions about the Bahk of New York's attitude toward its obligation to provide information, as required by law concerning its administration of property held by it as a fiduciary. Apparently, it has wholly failed to do this despite repeated requests for such information by Mr. Marvin and by attorneys acting in his behalf. I have no basis, other than the documents enclosed with his letter, for evaluating Mr. Marvin's claim that the bank is improperly depleting the principal of a trust which it administers and which has been assigned to him by his mother. However, that issue appears to be entirely separate from the question of the bank's failure to supply him with the requested information or even to offer him an explanation for its failure to do so. I would appreciate anything you could do, within established policy, to ensure that the bank meets its obligations in that regard, including extending the minimum courtesies that anyone in Mr. Marvin's situation would seem to be entitled to. Sincerely, • ohn F. Seiberling Member of Congress /wjs Enclosures https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS i0 11 • • HARVARD UNIVERSITY _Kineet.40, _1(‘-isae.e44.,Z mre Lanqdon Parker Marvin, Jr. ch July 31, 1981 The Honorable John F. Seiberling House of Representatives 1225 Longworth Building Washinqton, D. C. Dear John: A very serious situation has arisen throughout the past year respecting my father's will, my mother's exercise of the appointment power under that will, and the obdurate obstructionism of the Bank of New York (Elliott Averett, Chairman , (212-5301784, 48 Wall Street, New York, New York, 10005) and its agents or attorneys. The most serious and relevant letters and documents are enclosed_ They indicate failure by the Bank of New York, in the better part of a year to provide information required by laws and regulations, and the continued depletio n of the fund appointed to me by the.Bank's paying out principal as well as income from my fund. I was told by a trust officer of the Bank that these letters have been "administratively lost", (emphasi s supplied) but ::;nwly dll of them, ond I atLach d file. In the co::e of Mr. Griffin's letter of October [7, 1980, he sent iwth on original and a photocopy at different times. Even without my mother's exercise of the appointment powe r, I have been and am entitled to the information requ ested on the assets and yield of what are known to the Bank of New York as "MVM Trust No. 1", "MVM Trust No. 2" etc., as bein g a person interested in the principal of those two trusts, and under 2309 of Surrogates Court Procedure Act of New York amon g other requirements the regular provision of such information to interested persons requesting it is made as a condition for the Bank's receiving commissions. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis As to the matter of the Bank depleting and paying out • • The Honorable John F. Seiberling -2- July 31, 1981 prIncii ,A1 irom "MVM Trust No. 1". Mrs. Marvin's appointment u! this Lund to her only son, dated September 16, 1980, is recorded with the Surrogates Court in New York City. All attempts to engage in a colloquy with the Bank of New York by myself and my friends and attorneys have been broken off by the Bank or its attorneys. It seems clear the appointment gave and gives me the corpus of this fund, and puts on me the responsibility to see my mother receives the income for her life. I have arranged with two suitable trust companies that she will receive the income every two weeks. Should my mother need capital, she of course can draw on her inter-vivos or personal trust, "r1VM Trust No. 3" (also located at the Bank of New York) , without the discretion of the Bank. She has (or should have) use of some rentals on the large property in Maine of which she is life tenant. She has other sources of capital and income which have (Ione unreported and untapped. So my mother has alternative sources for capital, alternative to the depletion of my fund by the Bank of New York. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Thank you for your attention to this matter. Sincerely, 4 Langdon Parker Marvin, Jr. • https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • October 17, 1983 Bank of New York Trust D2p3rtment 43 .-_street Nev., York, New York 1)005 'Dear Sirs: On behalf of 1.3ngdon Parker Mdrvin, Tr., a prospective beneficiary unler the will of his late father, I woull like to receive a statement of the assets anl estirnateJ yield, of the socallel "chillren's trust" (your Mary V. Marvin "Trust No. 2), of the so-callel "Marital ieduction" trust (your "Trust No. 1"), aril of the intervivos trust (your "Trust No. 3"). Very trulyyyours, WILLLk1v1 T. GRIFFIN WTC:JAG BCC: Mr. Langlon P. Marvin cio Mr. Friel • DUPU-MEMO • CARAVAIRC COMPANY INC . BROOKLYN N V 11232 : Iter;comark. tilaLe ellois;33c coir WILLIA".! T. GRIFFIN -77/ 9 TO . ac)„, , /trz--A 1 0 se 'NO Ccr https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis C_.ct ".1 / -zrtr r-- ••••, . lk0 C'?"b* • z . C\: /es r, ./\ ' \f ‘p /'—"s 1. • •••• • - WrINEIE:PC; WE LS. WALCm, EASI 44 3"f• S714t https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis CI Niw FROHENSTE:IN 'von Y March 12, 1981 4,;* Elliott Avery',,,Esq. Bank of New York 48 Wall Street New York, New York 10005 Re: Trusts u/w Langdon Parker Marvin Dear Mr. Avery: On behalf of Langdon Parker Marvin, Jr., a beneficiary under the will of his late father, I would appreciate keying the most recent readily available information on the present principal of the trusts which the bank has identified as Mary V. Marvin Trust No. 1 (Marital trust) Mary V. Martin Trust No. 2 (Children's trust) Mary V. Martin Trust No. 3 (Personal or inter vivos trust). Sincerely yours, Richard H. Wels RITW'rdj• https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • GUGGENHEIMER 8, UNTEF-?MYEr? 80 PINE. STREET, NEw YORK N Y 10005 cAtsLe ADones% NE*. YORK 1245270 r_Por•ic DIGer 4-2040 June 1, 1981 The Bank of New York 48 Wall Street New York, New York Re: Trust Under the Will of Langdon Parker Marvin Dear Sirs: I represent Langdon P. Marvin, Jr., a residual principal beneficiary under the will of Mr. Langdon Parker Marvin. I understand that the Bank of ::ew York is Trustee under that will. Mr. Marvin has not received any information with respect to the status of the trust for several years. Would you be good enough to send me a copy of the trust's most recent annual statement showing the principal assets on hand and income received. If you have any difficulty in complying with this request in the very near future, will you please'communicate with me. 2 uly yours, erv Georcl_ GM/ak linkin Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to personally identifiable information. Citation Information Document Type: Legal documents Citations: Number of Pages Removed: 16 Power of Appointment, Mary Vaughan Marvin, September 22, 1980. Last Will and Testament of Langdon Parker Marvin, May 21, 1954. Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org • •••• https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis .••••••.. BOARD OF GOVERNORS OF THE . •0 / • -n • -A • V's mr• • • 6, • ;'• " i•41->• `c,•:1``'. AL Rt`'‘. • • • •• • • • FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 205S1 November 3, 1981 PAUL A. VOLCKER CHAIRMAN 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: Thank you for your letter of November 2 requesting comment on a draft bill that would exempt time deposits of international banking facilities ("IBFs") from deposit insurance and assessments under the Federal Deposit Insurance Act. As you indicated, on October 29, I expressed the Board's general support for a substantially similar pKovision in S. 1720 before the Senate Committee on Banking, Housing and Urban Affairs. Before commenting on the specific provisions of the draft bill, I would like to reemphasize that the Board believes that the establishment of IBFs at United States banking offices will enhance the international competitive position of banking institutions located in the United States and, in addition, hopefully increase domestic employment in the financial sector of the economy. A basic premise to the Board's analysis of this issue is the fact that IBFs are intended to operate in a similar manner to offshore branches currently employed by institutions operating in the United States. A natural and logical consequence of this concept is to approach the treatment of IBF deposits as foreign deposits for purposes of both deposit insurance and insurance assessments. Under present law, deposits at foreign branches of U. S. banks are not now subject to insurance or insurance assessment. Accordingly, the Board believes that it is both appropriate and necessary that similar treatment should be accorded to IBF deposits. Should a compelling case be made in the future for the application of deposit insurance to overseas deposits of branches of U. S. banks, then it would follow that deposit insurance and insurance assessments should be applied to IBF deposits. • • The Honorable Fernand J. St Germain Page Two There also are two other considerations which play ed a significant role in the Board's analysis of the provisions of the draft bill which you enclosed, that is, the need for deposit insurance and tho competitive impact of insu rance assessments. On the first point, the minimum denomination of IBF deposits is $100,000, and in almost all case s would be expected to exceed the maxtmum level of deposit insurance. In addition, depositors with resources of this magnitude are not generally in the class that needs the protecti on of deposit insurance, but are more in the category of tho soph isticated investors able to protect their interests through know ledge of the marketplace. With respect to the second point, the internationa l financial marketplace is highly competitive and the imposition of insurance assessments on IBF deposits would put U. S. banks at a competitive disadvantage against their foreign counterparts who are not subject to this cost. The competitive environment WdS also one of the reasons for the Board's decision to exempt IBF deposits from reserve requirements. In this regard, the narrow margins in international financial markets make it all the more important to avoid putting U. S. banks at a competitive disadvantage by adding unnecessarily to their operatin g costs. Consequently, the Board believes it is both necessar y and desirable to exclude IBF deposits from deposit insurance and assessment. Powevor, the Board also believes it would be de:drable to draFt the proposed legislation to provide the some treatment for 1BF deposits that is established for foreign branch deposit': opd to not provide for a permanent exemption from deposit inst:c.ince for such deposits. This woul d allow for a continuing (valmation of the insurance treatment of deposits at foreign branch—: and Facilitate the submission of proposals for Congressiop:11 (.onsideration. I hepe will rind those comments useful in your consideration or ihis legislation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Sincerely, S/%ul PSP:vcd (V-320) bcc: Mr. Pilecki Mr. Bradfield Legal Records (2) Mrs. Mallardi (2)G// Vo;:.:(4.:( • FERNAND J. ST GERMAIN. R.I.. CHAIRMAN FRANK ANNUNZIO, ILL. CARROLL HUBBARD, JR.. KY. NORMI.0)E. D AMOURS, N.H. XVI MATTOX. TEX. eJOSEPH G. MINISH, N.J. DOUG BARNARD. JR., GA. JOHN J. L.AFALCE, N.Y. DAVID W. EVANS. IND. MARY ROSE OAKAR. OHIO BRUCE F. VENTO. MINN. ROBERT GARCIA. N.Y. CHARLES E. SCHUMER. N.Y. BILL PATMAN, TEX. • • U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON FINANCIAL INSTITUTIONS SUPERVISION, REGULATION AND INSURANCE CHALMERS P. WYLIE, OHIO GEOF2GE HANSEN, IDAHO JIM LEACH, IOWA EL) BETHUNE, ARK. STEWART B. MCKINNEY, CONN. NORMAN D. SHUMWAY. CALIF. ED WEBER OHIO BILL McCOLLUM, FLA. BILL LOWERY. CALIF. GEORGE C. WORTLEY, N.Y. OF THE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS N INETY-SEVENTH CONGRESS WASHINGTON, D.C. 20515 November 2, 1981 Honorable Paul Volcker Chairman Federal Reserve System Board of Governors Washington, D. C. 20551 Dear Mr. Chairman: The Subcommittee on Financial Institutions Supervision, Regulation and Insurance will hold hearings this coming Wednesday, November 4, on a bill to be introduced today, which if enacted, would exempt international banking facility deposits from FDIC insurance requirements. A copy of the draft bill is enclosed and as discussed by members of our respective staffs a written statement expressing the views of the Fed will be sufficient for the Committee's purposes. It is my understanding that in your appearance before the Senate Banking, Housing and Urban Affairs Committee that you expressed on that occasion the Board's support for Section 702 of S. 1720. Sincerely, Fernand J Chairman FJStG:gSj Enclosures https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SCHUME017 • • 97TH CONGRESS 1ST SESSION H. R. iq IN THE HOUSE OF REPRESENTATIVES Mr. SCHUMER introduced the following bill; which was referred to the Committee on A BILL To amend the Federal Deposit Insurance Act to clarify the treatment of international banking facility deposits for purposes of deposit insurance assessments. 1 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, SCHIUME017 rl• • • 2 1 2 3 4 5 6 7 SHORT TITLE SECTION 1. This Act may be cited as the "International Banking Facility Deposit Insurance Act". INTERNATIONAL BANKING FACILITY DEPOSITS SEC. 2. Section 3(1)(5) of the Federal Deposit Insurance Act (12 U.S.C. 1813(1)(5)) is amended to read as follows: "(5) such other obligations of a bank as the Board 8 of Directors, after consultation with the Comptroller of 9 the Currency and the Board of Governors of the Federal 10 Reserve System, shall find and prescribe by regulation 11 to be deposit liabilities by general usage, except that 12 the following shall not be a deposit for any of the 13 purposes of this Act or be included as part of the total 14 deposits or of an insured deposit: 15 "(A) any obligation of a bank which is payable 16 only at an office of such bank located outside of 17 the States of the United States, the District of 18 Columbia, Puerto Rico, Guam, American Samoa, and the 19 Virgin Islands; and 20 "(B) any international banking facility 21 deposit, including an international banking facility 22 time deposit, as such term is from time to time 23 defined by the Board of Governors of the Federal 24 Reserve System in Regulation D or any successor 25 regulation issued by the Boa-rd of Governors of the https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SCHUME017 • 4•••• 0.• • 3 • • ' 1 Federal Reserve System.". 2 3 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis EFFECTIVE DATE SEC. 3. The amendment made by section 2 shall take effect on the date of the enactment of this Act. "M:=CL1MM- •••••••.m.•••••••••••• • • # e-----"--' https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • fb GOV;'•. .***9 ..;/ 31-0, -. • ,.: '.,/ . *.t%' .. 44.- i'• BOARD OF GOVERNORS OF THE .. . • :2• FEDERAL RESERVE SYSTEM i-• WASHINGTON, O. C. 20551 ,-). / 1 4,. November 2, 1981 PAUL A. VOLCKER CHAIRMAN The Honorable Harold L. Volkmer House of Representatives Washington, D.C. 20515 Dear Mr. Volkmer: Thank you for your letter of October 7 concerning high interest rates. I understand and sympathize with your views about the detrimental effects of high interest rates on the economy, and particularly on the construction, real estate, and automobile industries and on farming. But I think that it is important to keep in mind that inflation and heavy government borrowing are major contributing factors to these high interest rates. If the Federal Reserve were to adopt an easier monetary policy to try to artificially reduce interest rates, the eventual result would be heightened inflation and inflationary expectations, leading to even higher interest rates. I would point out that although there is room for Ml-B to grow faster than recently and still remain within its target range, the broader M2 aggregate has been expanding at a pace near the top of its target range. Any move toward easier money, such as the reduction in reserve requirements which you suggest, would thus be likely to cause M2 growth to substantially exceed the prescribed target range..., This development would undoubtedly be widely interpreted as a capitulation in the fight against inflation. Rates of interest would accordingly be apt to rise sharply again despite the outpouring of newly created money. I am convinced that lasting relief from the high interest rates that are constraining economic activity can be assured only by curbing inflation, and the high interest rates and imbalances that it spawns, by remaining committed to a policy of gradually moderating the growth of money and credit. I believe that we now see some signs of progress in unwinding the inflationary spiral, and I remain hopeful that a consistent stance of monetary restraint, coupled with prudent fiscal policies, will assure a healthier economic environment for us all. I appreciate your giving me the benefit of your thoughts on these issues. Sincerely, AR:RMF:JSZ:RS:pjt bcc: Mr. Fisher (fV-294) mr. Kling Ms. Wing Mrs. Mallardi (2) • ction assignei Kichline HAROLD L. VOLKMER • 9TH CONGRESSIONAL DISTRICT MISSOURI 1007 LONGWORTH HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 (202) 225-2956 HOUSE COMMITTEE ON AGRICULTURE • DISTRICT OFFICES: LEE VIOREL DISTRICT ADMINISTRATOR ROOM 370 Congre55 of tbe ?Buffet! se;br.)tatel 3Doufse of RtprefSelltatibeZ FEDERAL BUILDING 63401 HANNIBAL, MISSOURI (314) 221-1200 535 RUE ST. FRANCOIS FLORISSANT, MISSOURI 63031 (314)837-1688 Warsbington,;DS:. 20515 200 N. 2ND STREET ST. CHARLES, MISSOURI 63301 (314) 723-1665 HOUSE COM MITTEE ON SCIENCE AND TECHNOLOGY October 7, 1981 122 BOURKE MACON, MISSOURI 63552 MINDY A. TRACHTENBERG (816) 385-5615 ADMINISTRATIVE ASSISTANT Mr. Paul A. Volcker, Chairman The Federal Reserve System Federal Reserve Building Constitution Avenue and 20th Street 20551 Washington, D. C. C. c- T"0 CD 1" cl - •-•N co Dear Paul: r•-• Home builders, realtors, and automobile dealers are in serious financial trouble bacause high interest rates have caused the cost of these itmes to reach all-time high rates. The demand for these items however has continued unabated and is building. This pent-up demand could be met by slightly increasing the money supply and an accompanying reduction in interest rates. _.••• •• Like many members of congress, my district's businesses and farmers have been severely strained by the shortage of money caused by the high interest rates and, many of the job-producing, tax-revenue producing operations are now on the verge of bankruptcy. To counter this likelihood and to allow a true recovery of the economy I urge you to review the tight-money policy the Federal Reserve Board has followed and increase the money supply to at least the upper level allowed by the Federal Reserve Board Policy, preferably by reducing the amount banks need to hold in reserve. I urge you to carefully consider this action as I believe it will help restore economic health to the ailing construction, real estate, and automobile industries. With best wishes, I am Sincerely yours, arold L. Volkmer Member of Congress HLV/dlm/am https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 0 • • • November 2, 1981 The Honorable Beryl Anthony, Jr. House of Representatives Washington, D.C. 20515 Dear Mr. Anthony: I am pleased to respond to your recent wire in which you urged reconsideration of decisions made by the Depository Institutions Deregulation Committee at its meeting on September 22. As you may know, I voted against this increase at the time it was first approved by the Committee. I am pleased to note that since you sent your wire the Committee reconsidered the issue and voted to postpone indefinitely the one-half percentage point increase in ceiling rates on passbook savings accounts that would have become effective on November 1, 1981. I want to assure you that I understand and agree with the concerns that prompted your wire, and I will keep them in mind at future meetings of the Committee. Sincerely, StPaLil A,igicia NB:RS:pjt (#V-304) bcc: Mr. Bernard Mrs. Mallardi (2) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Action assignel Mr. Bernarl 0 Vo *** MESSAGE REC18 *** FED RES BD DC 1-010485C289 10/16/81 150AR° u' Ismoci‘ 14 3:31 colatrIO-C14PrtW4 WU INFOMASTER ICS IPMWGWF WSH 01201 10-16 1156A EDT TUX 7108229235 FED RES BD DC 4-016729S289 10/16/81 ICS IPMMTZZ CSP DC 94 10-16 1055A EST 2022253772 TDMT WASHINGTON AIRMAN RPT DLY MGM, DLR PMSt.fAUL VOLCKER FEDERAL RESERVE BOARD NORTHWEST 20 AND CONSTITUTION AVE WASHINGTON DC 20551 TO DITIONS I STRONGLY URGE YOU CON IC NOM ECO T REN CUR OF IN LIGHT IDER ACTIONS TAKEN AT YOUR ONS REC AND ON ATI ENT LEM POSTPONE IMP THE HOUSING INDUSTRY IS IN THE C. DID THE OF G TIN MEE 22 SEPTEMBER OF AND IN THE FOURTH DISTRICT II WAR LD WOR CE SIN ION 22ND WORST CONDIT PE IN MEMORY. THE SEPTEMBER SHA ST WOR THE IN IS G SIN ARKANSAS HOU LOANS AND IN FACT MAY WELL AND S ING SAV P HEL TO G HIN WILL DECISION WILL NOT POSTPONEMENT OF YOUR ACTIONS E. FAC Y THE MS BLE PRO E EXACERBATE THE RESPONSIBILITIES AND EXAMIN GHT RSI OVE ITS SE RCI EXE ALLOW CONGRESS TO . IMPACT OF THESE DECISIONS THE POTENTIALLY DAMAGING CONGRESSMAN BERYL ANTHONY JR 4TH DISTRICT ARKANSAS G WASHINGTON DC 20515) (213 CANNON HOUSE OFFICE BLD G 213 CANNON HOUSE OFFICE BLD WASHINGTON DC 20515 1059 EST 1111 EST FED RES BD DC G DONE *** https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 November 2, 1981 PAUL A. VOLCKER CHAIRMAN The Honorable Jake Garn Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D. C. 20510 Dear Chairman Garn: As you know, we have been putting a good deal of effort into simplifying all of our regulations, including those which implement consumer protection statutes. Over the long run, the Congress may also be able to reduce the burden through statutory amendments. However, for now the major burdens are something we will have to live with. As a result, we have also been trying to identify other innovative ways to ease the burden of compliance One technique we are trying is the issuance of staff commentaries on certain regulations, which will centralize in one place the various separate staff interpretations and, to the extent we can present them in simple English, provide readily understandable answers to common questions raised by covered institutions. Enclosed for your information are two such efforts. The first is a commentary to Regulation E, which implements the Electronic Fund Transfer Act. Through structuring the commentary in the question-and-answer format, providing an index, and doing our best to write plainly and simply, we hope that we have taken a major step to ease compliance for those who genuinely want to understand and comply with the law, but who may have simply had difficulty with its complexity. The second staff commentary is on Regulation Z, which implements the Truth in Lending Act. We hope it will help alleviate the difficulties creditors have had in understanding their responsibilities under theAct and regulation. The commentary is designed to replace over 1,500 individual interpretations, and we hope it will be the sole vehicle for interpreting the regulation in the future. Both commentaries are rather formidable looking, which at first blush may seem odd given their intent. However, they reflect the inherent complexity of the underlying law, something https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • The Honorable Jake Garn Page Two which ultimately can be rectified only by Congressional action. Creditors have also impressed on us the importance of the commentaries being complete and detailed so that they can avoid some of the costs of implementation. The commentaries are official interpretations, and provide protection from civil liability for institutions acting in conformity with them. In both commentaries the staff has sought to provide interpretations that minimize compliance burdens, to the extont permitted by the Act and regulation, while not giving up important consumer protections. We have also tried, wherever possible, to set objective standards so that both financial institutions and their enforcement agencies can more easily determine whether, and how, the regulation applies to individual transactions. We would, of course, be pleased to brief you or your staff more thoroughly on the commentaries if you desire it. With regard to the Regulation Z commentary, I am very aware of your expression of concern about the coverage of real estate brokers under Truth in Lending when they arrange seller financing. This is a troublesome issue, and the Board has had a full discussion of it. As a result of that discussion, we decided to seek further public comment on the question. Since that time you have, of course, introduced S. 1720, which would resolve the issue legislatively. To assist you in your deliberations on the bill, we would be pleased to furnish you with the information we receive from the public during the comment period. Sincerely, Enclosures GG:RS:vcd (V-211) bcc: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mr. Garwood Mrs. Mallardi (2) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • August 19i 1981 The Honorable Jake Gart Chairman Committee on Banking, housing and Urban Affairs United States Senate Washington, D. G. 20510 Dear Chairman Garn: Thank you for your letter of July 24 concerning the treatment of real estate brokers as creditors under the Truth in Lending Act. We are in the process of looking into the concerns raised in your letter, and I expect to have a response to you in the next few weeks. Sincerely, Wad CO:vcd (V-211) bcc: Mr. Garwood Ms. Rechter 974 . 71/ ide toil : ) tion assigned Janet Hart LIT/ )0144 TC ..'"1. TIN. .. Orfti ti,l,r . L. ::,. rA .rd .;.i.,,,,,,,; ("LO. RICHAP:;.-41; IL• ';',. t 0", IN -,. Aurt‹,-, si, c ../.4A":". 1,1 y. JOHN H. CltArc '" P I. NAPIP•SCH SC't It.411T, N. mrx. PI PAPP'3C•••1 A. I. I•_I I ,'' . N J. Tt'ILLIAM PRCIX/••• • ALAN CRA.SIT,N. c_ • 't . r.or.AL, W. PILC".11". .Itt . MI, H. PA'11.. 3. rr.;7oAr.rn.' ,AL). CHI , 'f..1(-0-4rP J. 0 I. ,...'.) C c tl...1.4 J. OIXON. ILL. • 11Crtireb Ziatez Zenale COMMITTEE ON BANKING. HOUSING. AND A. MENI-LL, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis c!,cc-rog Ar••• ) - (.4,11t1nr L URBAN AFFAIRS WASHINGTON. D.C. 20510 19111 J111_ 2? r'`' ernrc.:, - July 24, 1981 - 7- 4—7/ The Honorable Paul A. Volcker Chairman Federal Reserve Board Federal Reserve Building Washington, D.C. 20551 Dear Mr. Chairman: Chi,..f among my long-term objectives, as you know, have been efforts to ease the regulatory burdens for both business and the consumer. I take pride in the passage last year of the amendments simplifying the Truth in Lending Act because it represents the culmination of years of hard work on the part of the Federal Reserve Board and the Congress. The improvements in the Act are numerous and, generally speaking, will serve to ease the burdens of this important law on both consumers and creditors. The Federal Reserve Board also has done an extremely commendable job in revising and simplifying Regulation Z within the constraints of the new Act. However, it has come to my attention that in the course of resolving the "multiple creditor" problem that arose under the original Act, we have imposed a new and extremely burdensome obligation upon real estate brokers. As a result of the new definition of "creditor", real estate brokers now are considered "arrangers of credit" and are obligated to provide all truth in lending disclosures whenever another otherwise qualified "creditor" is not involved in the transaction. This result was clearly not the focus of the Senate Banking Committee when we began the task of simplifying truth in lending in 1977, nor when we discussed the specific problem of "mutiple creditors". The affordability problems posed by today's high mortgage rates, when coupled with current limited mortgage credit availability, have forced the development of new mortgage financing techniques unanticipated by Congress during its revision of the Truth in Lending Act. "Creative financing", the generic term used to identify all such new mortgage financing techniques, was generally not utilized during the time period which culminated in the passage of the TIL Simplification Act in March of 1980. Today ?0 • • • https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Page two Chairman Volcker July 24, 1981 I undt.fstc:And that over 90 percent of the NATIONAL ASSOCIATION OF REALTORS members report using creative financing techniques at least to some extent and this usage is increasing. Current estimates indicate that over one half of all resale transactions now involve the use of some form of creative financing. The stark economics of the housing market now require that real estate brokers use creative financing techniques to provide favorable mortgage financing for their clients. In doing so, brokers will be forced under the new Regulation Z definition of "arranger of credit" to assume a burden which they are ill-prepared to perform. The average real estate firm, usually 6 to 10 brokers, does not now nor will it soon have the expertise to effectively provide the disclosure requirements of truth in lending. While brokers bring real estate expertise to the transaction, they are ill-equipped to provide creditor expertise, even in seller-financed transactions. The net result of the "arranger of credit" application to the real estate broker will not be more effective consumer protection; it will likely produce unavoidable compliance errors by real estate practitioners who should not be subject to truth in lending requirements. I encourage you to reconsider the treatment of real estate brokers as creditors under the Truth in Lending Act and to attempt to find a more effective and less burdensome solution to this problem prior to the April 1, 1982 effective date of these new provisions. Jake Garn Chairman JG/bce 4• .•••of GOvt•4,•.. o BOARD OF GOVERNORS • OF THE FEDERAL RESERVE SYSTEM 'co '0 •••••,, WASHINGTON, D. C. 205S1 ,... 1" r U PAUL A. VOLCKER November 2, 1981 f.S CHAIRMAN • ' • •..• The Honorable Dale Bumpers United States Senate 20510 Washington, D.C. Dear Dale: to your I appreciate the opportunity to respond made by the Depository thoughtful letter concerning decisions at its meeting on Institutions Deregulation Committee (DIDC) ut three of those September 22. You expressed concern abo of one-half percentage decisions, including the rate increase latter concern, and point on passbook savings. I share the st introduced and at voted against the increase both when fir know, the DIDC took the time it was reconsidered. As you may rease which would otheraction in recent days to rescind the inc wise have gone into effect on November 1. ount, I was With regard to the new IRA/Keogh acc or expansion in eligipersuaded by the argument that the maj large inflows of new bility voted by Congress will lead to on for such funds, IRA/Keogh funds and that the competiti and brokerage firms, including that from insurance companies s, I felt it was very will be strong. In the circumstance ons an instrument that important to give depository instituti compete effectively in will provide them the opportunity to suaded that IRA/Keogh a much enlarged market. I am also per source of funds that deposits provide a relatively stable of funds to the over time may enhance the availability housing industry. permits a With respect to the new formula which four-week moving average higher rate on six-month MMCs when a the latest auction result, on six-month Treasury bills exceeds improve the ability I would note that its purpose is again to with other institutions of depository institutions to compete , the alternative methods for these types of funds. Specifically l enable banks and of calculating MMC interest ceilings wil ve with money market thrift institutions to be more competiti cycle. mutual funds throughout the interest rate t to assure I can understand your concerns and I wan viable thrift industry you that I share your objectives for a be happy to discuss and a strong housing market. I would will in any event keep these matters further with you, and I DIDC meetings. your concerns firmly in mind at future Sincerely, ISZ rad a 4.1.) NB:RS:pjt (#V-310) bcc: Mr. Bernard https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis i ) Action assigned Mr. Bernard JAMES A. MC CLURE, IDAHO, CHAIRMAN MARK O. HATFIELD, OREG. LOWELL P. WEICKER, JR., CONN. PETE V. DOMENIC!, N. MEX. MALCOLM WALLOP, WYO. JOHN W. WARNER, VA. GORDON J. HUmPHREY, N.H. FRANK H. INURKOWSKI, ALASKA DON NICKLES, OKLA. JOHN P. EAST, N.C. JOHN HEINZ, PA. HENRY M. JACKSON, WA J. BENNETT JOHNSTON, LA. DALE BUMPERS, ARK. WENDELL H. FORD, KY. HOWARD M. METZENBAUM, OHIO SPARK M. MATSUNAGA, HAWAII JOHN MELCHER, MONT. PAUL E. TSONGAS, MASS. BILL BRADLEY, N.J. • 'ZICrtifeb ,Sfatez Zonate c73 CD COM M ITTEE ON ENERGY AND NATURAL RESOURCES MICHAEL D. HATHAWAY, STAFF DIRECTOR CHARLES A. TRAEtANDT, CHIEF COUNSEL DANIEL A. DREYFUS. STAFF DIRECTOR FOR THE MINORITY -A WASHINGTON, D.C. 20510 October 16, 1981 The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. 20551 Dear Paul: I am writing to express my deep concern over the action of the Depository Institutions Deregulation Committee on September 22, 1981, which increased the maximum interest rate payable on passbook savings by one-half percent, created a new IRA/Keogh account, and set up a new formula for setting money market certificate rates. Each of these decisions, unless reversed or delayed pending further consideration and study, is potentially devastating to many financial institutions, particularly savings and loan associations. When Congress passed the Depository Institutions Deregulation and Monetary Control Act last year, broad authority was given to your committee to increase gradually the maximum allowable interest rates and make other changes designed to provide investors with a better rate of return. The bill contained an important provision, however) which was designed to ensure that the financial well-being and stability of the financial institutions would be protected. Section 204(b) of the act states: "The Deregulation Committee shall work toward providing all depositors with a market rate of return on their savings with due regard for the safety and soundness of depository institutions." The September 22nd decisions by your committee will jeopardize the continued existence of many financial institutions in Arkansas and other states and will cost savings and loan associations millions of dollars. The increased rate on passbook savings will result in a $500 million drain on their resources next year. And, the decision to start a new four-week averaging formula for setting money market certificate rates will be almost as costly. Finally, although the exact cost of the new IRA/Keogh accounts cannot be determined, the fact that there https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • The Honorable Paul A. Volcker October 16, 1981 Page Two will be no interest limitation on them is enough to warrant further consideration. Many financial institutions simply cannot withstand these losses. Historically, the savings and loan associations have been important institutions in virtually every community in this country. They have provided the financing for millions of Americans to acquire one of the most important assets a family can own -- a home. I think you will agree that the continued viability of our savings and loan associations is of paramount importance and should be one of the top priorities on the domestic agenda. Without these instituations, millions of young persons in this country may never be able to buy a home and I'm afraid that your decisions will hasten their demise and not improve their financial situation so that they can continue to make housing loans. For all of these reasons, and because the savings and loan associations of this country have already suffered unprecedented losses, I request that you reverse these decisions or delay their implementation indefinitely so that their precise effect can be determined. Thank you for your consideration of this request. S. erely, Dale Bumpers DB:tcl https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis