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CONGRESSIONAL
Sept. 24 through Oct. 31, 1982
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Federal Reserve Bank of St. Louis
411.110=00.10
Collection: Paul A. Volcker Papers
Call Number: MC279
Box 12
Preferred Citation: Congressional Correspondence, September 24-October 31, 1982; Paul A.
Volcker Papers, Box 12; Public Policy Papers, Department of Rare Books and Special Collections,
Princeton University Library
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
Congressional
Spet. 24-Oct. 31, 1982
..•••ofGovi'•.
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•
BOARD
OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
H- •
•
c..0"
RAL RE.•••
WASHINGTON,•D. C. 20551
October 28, 1982
PAUL A. VOLCKER
CHAIRMAN
The Honorable William V. Roth, Jr.
Chairman
Committee on Governmental Affairs
United States Senate
20510
Washington, D.C.
Dear Chairman Roth:
Pursuant to Section 236 of the Legislative Reorganization Act of 1970, the Board of Governors of the Federal Reserve
System submits this statement on recommendations contained in
the September 2, 1982, Report of the General Accounting Office
("GAO") entitled, "Bank Examination for Country Risk and International Lending."
The Board's general comments on the report are set
forth in its letter to the GAO of June 30, 1982. As noted in
that letter, the Board appreciates the effort devoted by the
GAO to analyze the country risk examination system and will
utilize the report in conducting its own ongoing review of this
relatively new system. The Board's comments on specific recommendations made by the GAO in the digest of the final report
are addressed below.
One recommendation is that the objectives of special
comments be more clearly communicated to bankers. The Board's
views concerning the function •of special comments are set forth
in the second •paragraph of its letter of June 30, 1982. These
views have been communicated to bankers at various times by
Federal Reserve
•staff and during examinations, when there is
discussion between examiners and bank managements concerning
the country risk exposures in the banks and the procedures used
to manage those risks. However, we do not now have a document
describing the country risk examination system and its objectives. The Board has instructed its staff to consult with the
other agencies with a view toward developing written material
that explains the procedures and objectives of the country risk
examination system.
The GAO makes specific recommendations
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Federal Reserve Bank of St. Louis
fill
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% The Honorable William V. Roth, Jr.
Page Two
the information that GAO recommends to be included in the
studies is already provided to the Committee through oral presentations by Treasury Department staff and by bank examiners
that have discussed country developments with bank managements.
There are several recommendations on improving the
presentation of country risk information in a bank's examination report. The Federal Reserve is currently reviewing its
instructions to examiners to increase the effectiveness of
country risk presentations in the examination report.
The final GAO recommendation is that "examiners
routinely follow-up on all outstanding recommendation/criticisms with notations in subsequent examination reports."
Examiners are instructed to follow-up on all recommendations
made at the previous examination. However, only those deficiencies that have not been corrected are noted a second time.
This is a policy applicable to bank examination in general, not
just to country risk. While this procedure produces a somewhat
different audit trail from that recommended by the GAO, it is
complete and it saves examiner time and agency money. No
change in this procedure is contemplated.
Sincerely,
MGM:NS:pjt
bcc: Mike Martinson
Mrs. Mallardi (2)
Identical letter also sent to Chairman Brooks.
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Federal Reserve Bank of St. Louis
BOARD
4r
'
OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
October 26, 1982
PAUL A. VOLCKER
CHAIRMAN
The Honorable Bill Alexander
House of Representatives
20515
Washington, D.C.
Dear Mr. Alexander:
Thank you for letting me know about the concerns of
Mr. John Logan of Blytheville, Arkansas regarding Regulation Z
(Truth in Lending). Mr. Logan believes that Regulation Z is
too complex, particularly the requirements for calculating the
annual percentage rate. In support he enclosed two pages from
Appendix J to Regulation Z containing equations and related
material.
In delegating rulemaking authority to the Board, Congress directed us to prescribe rules for calculating the annual
percentage rate. Appendix J contains the formulas for determining the annual percentage rate, which provides a standard
measure for the cost of a credit transaction for use by consumers in comparing various credit sources. Mr. Logan is
right--Appendix J is indeed quite technical and his response to
it is readily understandable. However, the appendix is not
I esigned for use directly by creditors in their day-to-day
operations. Rather, it is used extensively by commercial
manufacturers of calculation tools such as charts, tables and
calculators, which are in turn used by the great majority of
creditors. In other words, it is one part of the regulation
that Mr. Logan probably won't have to be concerned about.
Fortunately, those two pages are not representative of
the overall content of Regulation Z, as you can see from the
enclosed pamphlet. The regulation has been revised to implement the Congress' 1980 legislation to simplify Truth in
Lending. Every effort was made to ensure that it would be
easier to use and understand. The Official Staff Commentary on
Regulation Z is a new feature that was added to the regulatory
framework to provide further guidance to creditors on compliance. A copy of the commentary is enclosed, along with the
regulation, for your information.
Admittedly, Regulation Z is still a document that
requires considerable study in order to understand its
requirements; this is regrettably an inherent aspect of
regulation. The Board, however, does offer the personal assistance of its staff when creditors have specific questions about
the regulation's requirements. The staff does not have a
toll-free number on which they can be reached, but they are
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Federal Reserve Bank of St. Louis
The Honorable Bill Alexander
Page Two
I.
happy to respond to written or oral inquiries. Written
inquiries should be directed to the Division of Consumer and
Community Affairs, Federal Reserve Board, Washington, D.C.
20551. The staff may be reached by phone at (202) 452-3867 or
(202) 452-2412.
I hope this information is useful.
if I can be of further assistance.
Please let me know
Sincerely,
Enclosures
S/Paul A. Volcker
RS:CO:AFC:pjt (#V-234)
bcc: Ms. Silver
Mrs. Mallardi (2)
•••
am mamma.
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Federal Reserve Bank of St. Louis
L
Action assigned Mr. Garwood
t
201 CANNON HOUSE OFFICE BUILDING
WASHINGTON, D.C. 20515
(202) 225-4076
BILL ALEXANDER, M.C.
ARKANSAS
CHIEF DEPUTY MAJORITY WHIP
GArmip4os BUILDING. ROOM 211-A
615 ScArrN MAIN
JONESBORO, ARKANSAS 72401
(501) 972-4600
COMMITTEE ON
APPROPRIATIONS
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Federal Reserve Bank of St. Louis
Congre55 of the Unita' 'tate.
FEDERAL BUILDING, Room n2
BATESVILLE, ARKANSAS 72501
(501) 698-1761
September 28, 1982
L.42
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_—
Mr. Paul A. Volcker
Chairman
Federal Reserve System
20th St. & Constitution Ave., N.W.
Washington, D.C. 20551
Dear Mr. Chairman:
Enclosed please find a letter from a constituent of mine
expressing his
confusion over the attached pages from the Regulation Z,
Truth-in-lending
book.
Frankly, I must admit the two particular pages enclosed are
confusing.
Is there an instruction booklet or a toll-free number users
may call
for assistance. I would appreciate any help your staff might
offer
me on this matter.
With kindest regards, I am
Sincerely,
BILL ALEXANDER
Member of Congress
BA/mjt
Enclosure
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7.:•
"X+
rl' .1 L n
,
201 CA•dp•oft House' Orrocr 8LH L.:31w.
INASNiNGTON. D C. 20515
(202) 225-4076
BILL ALEXANDER. M.C.
ARK ANSAS
i'-1-11EF DEPUTY MAJORITY WHIP
GATNINGI BUILDING Ft00.0 211-A
615 Sim MAIN
JONESSORO. ARKANSAS 72401
(501) 972-4600
COMMITTEE ON
APPROPRIATIONS
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Federal Reserve Bank of St. Louis
Congt55 of tbr Einittb
tatt5
FEDERAL Butuptma Room 202
ARKANSAS 72501
(501) 698-1761
BATESVILLE.
September 28, 1982
Mr. John W. Logan
President
Logan Real Estate
P.O. Box 551
Blytheville, AR 72315
Dear Mr. Logan:
Thank you for your recent letter and the attached pages from the Regulation
Z, Truth-in-lending book. I agree with you, it's all greek to me. I have
written the Federal Reserve System asking whether there is an accompanying
booklet of instructions or a toll-free number users might call for
assistance. I will be back in touch when I receive a reply.
With kindest regards, I am
Sincerely,
BILL ALEXANDER
Member of Congress
BA/mjt
•
, •1:)!.E
(501)762-2033
LOGAN REAL ESTATE
520 Ctii:kasawna Avenue
LOCANBUIDNO
PostOffi:elBoxE61
BLATHEVILLE. ARKANSAS 72315
September 24, 1982
Representative Bill Alexander
201 Cannon House Office Bldg.
Washington, D. C. 20510
Dear Congressman Alexander:
I am enclosing a copy of paoes 60 and 61 of Regulation Z Truth-in-Lending
book printed by the Federal Reserve System. The total booklet consists of
88 pages of similar gobbledygook. I am sure that the Federal Government
in its infinite wisdom had good reason for protecting the consumer but for
the life of me, I cannot understand this regulation and I doubt if anyone
in your office or the consumer can understand it either.
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Federal Reserve Bank of St. Louis
I know there is a need for federal regulations in many businesses including
financial lending institutions but I think there should be some reason used
when these regulations are drawn up.
I challenge you to look over these two pages and after your examination, I
would ask you to contact the proper department and ask them to simplify
the instructions so that people other than Math majors and PHD's can
figure them out.
cerely
J hn W. Log
JWL/drb
Enc.
President
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Federal Reserve Bank of St. Louis
ApperidA J
Unit period
6 months. Unit periods
per year (w) = 2.
Advance, 7-15-78. Payment, 1-15-79
From 7-15-78 through 1-15-79 = 0 mos.
(t = I; f = 0)
Annual percentage rate
(1) = wt = .0880 = 8.80%.(Use
form 1 or 4.)
Example (iii): Single-advance, single-payment (term of more than one year but
less than two years, fraction measured in
exact months)
Amount advanced (A) = $1000. Payment (P) = $1135.19.
Unit period = 1 year. Unit periods per
year (w) = I.
Advance, 7-17-78. Payment, 1-17-80.
From 1-17-79 through 1-17-80 = 1 unit
period. (t = 1)
From 7-17-78 through 1-17-79 = 6 mos.
(f = 6/12)
Annual percentage rate
(I) = wi = .0876 = 8.76%.(Use
form 2 or 4.)
Regulation Z
i
j
p.-.
It is to be repaid by 24 payments of
$100 each. Payments are due every
four weeks beginninf 2-20-78. However, in those months in which two payments would be due, only the first of „
the two payments is made and the following payment is delayed by two
weeks to place it in the next month.
Unit period = 4 weeks. Unit periods per
year (w) = 52/4 = 13.
First series-of payments begins 26 days
after 1-25-78. (t 1 = 0; f1 = 26/28)
Second series of payments begins nine
unit periods plus two weeks after start
of first series. (t2 = 10; f2 = 12/28)
Third series of payments begins six unit
periods plus two weeks after start of
second series. (t3 = 16; f3 = 26/28)
Last series of payments begins six unit
periods plus two weeks after start of
third series. (t4 = 23; f4 = 12/28)
The general equation in paragraph
(b)(8) of this section can be written in
the special form:
Regulation Z
Appendix J
each beginning 9-15-78, plus a single
payment of $2000 on 3-15-79, plus
three more monthly payments of $750
each beginning 9-15-79, plus a final
payment of $1000 on 2-1-80.
Unit period = 1 month. Unit periods per
year (w) 12.
First series of payments begins six unit
periods plus 12 days after 3-3-78.
(t1 = 6; f1 = 12/30)
Second series of payments (single payment) occurs 12 unit periods plus 12
days after 3-3-78. (t2 = 12; f2 = 12/
30)
Third series of payments begins 18 unit
periods plus 12 days after 3-3-78.
= 18; f3 = 12/30)
Final payment occurs 22 unit periods
plus 29 days after 3-3-78. (t4 = 22;
f4 = 29/30)
The general equation in paragraph
(b)(8) of this section can be written in
the special form:
1000 a
7350 = (1+(12/30)00+06 +
Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Monthly
payment
Year
Monthly
payment
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
$383.67
383.13
382.54
381.90
381.20
380.43
379.60
378.68
377.69
376.60
375.42
374.13
372.72
371.18
369.50
$291.81
300.18
308.78
317.61
326.65
335.92
345.42
355.15'
365.12
375.33
385.76
385.42
385.03
384.62
384.17
Unit period = 1 month. Unit periods
per year (w) = 12.
From 5-1-78 through 6-1-78 = 1 unit period. (t = 1)
From 4-10-78 through 5-1-78 = 21 days.
(f= 21/30)
2135=
11+(26/28)i)
Example (iv): Single-advance, single-payment (term of exactly two years)
Amount advanced (A) = $1000. Payment (P) = S1240.
Unit period = 1 year. Unit periods per
year (w) = I.
Advance, 1-3-78. Payment, 1-3-80.
From 1-3-78 through 1-3-79 = 1 unit period. (t = 2; f 0)
Annual percentage rate
(1) = wi = .1136 = 11.36%. (Use
form 3 or 4.)
2000
(1+(12/30)0(1+012+
wo
(1+(12/28)1)(1+016 +
The general equation in paragraph
(b)(8) of this section can be written in
the special form:
750
(1+(12/30)0(1+0 18 +
100 a
61
(I Th(26/28)0(1+0" +
1000
(1+(29/30)i)(1-1-022
39,688.56 =
[291.81
a
1°° n
(1+(12/28)i)(1+i)2i
(1-$-(21/30)0(1+1)
308 78
18
'
3°°' 15 +
.4.024 +
(1
,,
0
(1 +
Annual percentage rate
(I) = wi = .1022 = 10.22%
•••+
Annual percentage rate
(I) = wi .1200 = 12.00%
Annual percentage rate
(I) = wi
(b) Complex single-advance transaction.
Example
payments
Example OW Skipped-payment loan plus
369.50 I
(1+)34g
Inft..
Mortgage with varying
.1
C10
QQ
4.
"t 1 nn 4.lA7Q
.0980 = 9.80%
(7) Multiple-advance transactions.
I.
•
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
October 25, 1982
PAUL A. VOLCKER
CHAIRMAN
The Honorable Walter E. Fauntroy
Chairman
Subcommittee on Domestic Monetary
Policy
Committee on Banking, Finance
and Urban Affairs
House of Representatives
Washington, D.C.
20515
Dear Walter:
I apologize for the delay in answering your letter
about possible Board action to discourage bank lending in
connection with corporate takeovers. The delay does not
reflect ambivalence on my part about whether the Federal
Reserve is now equipped to undertake the responsibilities you
suggest--I do not believe we are--or whether we should so equip
ourselves--I do not believe we should. But I do well understand your concern about the appearance (and in some instances
perhaps the reality) that considerations of efficiency, productivity, and technological improvement may be subsidiary, and
that some merger activities seem to leave companies in a
weakened, rather than strengthened, financial position.
To the extent those concerns are justified, the remedy
may ultimately lie only in fundamental changes in the attitudes
and incentives that drive our corporate managers--and, as
important, a more stable economic environment in which market
incentives reward productive and innovative activities more
clearly and fully than financial restructuring.
Trying to approach these problems by a government
agency making selective judgments about "good" and "bad"
mergers would seem to me virtually unworkable in its particulars and an unfortunate precedent for governmental credit
allocation more generally.
Your main concern, in directing your letter to me, is
the possibility that bank credit for takeover loans may reduce
the volume or increase the cost of credit for other purposes.
I recognize that in the short run, takeover loans can have some
impact on the distribution of credit, particularly if such
financing is focused heavily on a portion of the banking sector
already under pressure. However, I do not believe this to be
significant over a period of time because the funds raised by
takeover loan credits would normally be recycled back into the
financial system for reinvesting. Seen from the perspective of
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Federal Reserve Bank of St. Louis
The Honorable Walter E. Fauntroy
Page Two
the whole financial system, a corporate takeover would not
typically be a drain on savings; the seller of the stock who
has received funds that the buyer may have obtained by borrowing normally redeposits the funds with a financial intermediary or uses them to purchase other securities. These funds
are then available for other purposes.
Recent takeovers financed by credit have had the
effect, in the first instance, of retiring equity capital from
the economic system, and result in a more highly leveraged
financial structure with large ratios of relatively short-term
debt. That is not, to me, a desirable by-product, even if a
new "equilibrium" will be restored in time. But it is hard to
sustain a case that takeover loans reduce the total amount of
credit available for housing, business investment, agriculture,
and other needs. The availability of funds for these purposes
is limited by the total amount of savings in the economy.
The possible effects of large takeover financing on
the financial strength of the companies involved is a major
reason why banks should exercise sound prudential standards and
caution in evaluating these types of loans, and the apparent
speed with which some of this financing is arranged--or the
fact that very large amounts may be extended under preexisting
general commitments to lend--does sometimes raise questions in
my mind. Concerns in this area, however, seem to me better
handled through the supervisory process rather than through the
methods you have suggested.
I recognize that large corporate mergers and
acquisitions--especially those rapidly conceived and
implemented--have an appearance of unfairness in access to
credit. The question is whether that appearance can or should
be "controlled" without raising even more problems. In this
regard, I do not believe that regulatory control over bank
credit provides an appropriate approach. How much new credit,
in what form, is required to finance a particular merger would
not have any particular relation to the economic or social
value of a merger--and blocking one financing channel would
only open others, here or abroad. Even more fundamentally, the
Federal Reserve has little or no basis for blessing one merger
or discouraging another; indeed, there must be a presumption in
our system that willing buyers and sellers exercising their
business judgment will also serve the goals of efficiency and
productivity. Indeed, a consensus on the definition of what
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Federal Reserve Bank of St. Louis
The Honorable Walter E. Fauntroy
Page Three
constitutes a speculative loan would be extremely difficult to
achieve and it would soon be necessary to establish an elaborate administrative process with complex procedures for exceptions and dispensations--a process that would surely not
achieve our shared goal of a more productive economy.
We will, of course, continue to monitor developments
in this area in order to assure that such transactions do not
have an adverse effect upon the credit standards of banks and
upon the availability of credit generally. Beyond that, at the
risk of treading in areas beyond my expertise, the questions
seem to me to fall more logically in the areas of antitrust,
adequate disclosure, and appropriate time for evaluation and
"cooling-off.' At any rate, I appreciate your concerns in this
difficult area and wish that there were some simple and expeditious process for dealing with them.
Sincerely,
PAV:pjt (4V-211)
bcc: Mr. Bradfield
Mr. Schwartz
Mrs. Mallardi (2)
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Federal Reserve Bank of St. Louis
rFi
WAI,YER E. FAUNTROY, D.C.. CHAIRMAN
Action assigned Messrs. Bradfield and Ryan
for coordination of reply
PARRFF: J. MITCHELL. MD.
STEPHEN L. NEAL. 1.4.C.
091.10 111A04NARD. JR.. GA.
A ENRY S. REUSS. WIS.
"AMES J. BLANCHARD. MICH.
CARROLL HUBBARD, JR., KY.
SILL PATMAN. TEX.
GEORGE HANSEN, IDAHO
RON PAUL. TLX.
BILL McCOLLUM, FLA.
PILL LOWERY. CALIF.
ED WEBER. OHIO
JAMES K. COYNE. PA.
U.S. HOUSE OF REPRESENTATIVES
tUBCOMMITTEE ON DOMESTIC MONETARY POLICY
H2-170. ANNEX NO. 2
WASHINGTON. D.C. 205111
(202) 225-7315
OF THE
CONIMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
NINETY-SEVENTH CONGRESS
WASHINGTON. D.C. 20515
September 13, 1982
•••
The Honorable Paul A. Volcker
Chairman
Board of Governors
Federal Reserve System
20th & Constitution Avenue, N.W.
Washington, D. C. 20551
Dear Paul:
As you know, I have been long concerned about the large impact
which speculative lending for corporate takeovers has on economic activity.
Large amounts of credit are needed for these mergers, thus substantially
lowering the amount available for more productive uses. In addition,
such large loan extensions can have a disruptive effect on the credit
market as a whole. Firms subject to takeovers and those seeking to take
over other firms tend to become more concerned with short-term goals,
thereby neglecting long-term plans. This adversely affects our national
security interests, our long-term international competitive position,
and our strong and loyal workforce. Finally, these takeovers tend to
foster a concentration of power among fewer firms, with loss of competition
to the marketplace, and unforeseen consequences for inflation, employment,
and productivity.
The tender offer by Bendix for Martin-Marietta, the counteroffers by Martin -Marietta for Bendix, and the subsequent entry by United
Technologies seeking control and possible dismemberment of Bendix reflect
in a microcosm the problems I have noted. While this particular effort
has been well publicized recently, other takeovers have been just as
complicated. The takeover game continues to go on, with no end in
sight.
I am, therefore, requesting that the Board of Governors place on
its calendar for their next meeting proposals such as outlined below and
that they consider speedy implementation of a policy which would have a
direct and immediate effect on those companies which seek to take over
firms that do not need to be acquired for their survival and whose
takeover or acquisition would not contribute to either the enhancement
of productivity or the increase of employment.
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Federal Reserve Bank of St. Louis
Chairman Volcker
- 2 -
September 13, 1982
I have carefully reviewed existing regulations available to the
Board. I would propose that the Board consider some combination of the
following suggestions which, when used collectively, would diminish the
continued merger mania which seems to possess so many corporate managers.
Under Regulation "A," I would propose that banks which lend or
have lending agreements for speculative purposes be barred from the use
of the discount window for the duration of these agreements. For the
purpose of determining extensions of credit by a Federal Reserve Bank,
any loan made to an acquiring company in excess of the amount of funds
outstanding to the company 30 days prior to the SEC filing would be
considered to be made for a speculative takeover purpose.
Further, I would propose that banks which lend or have loan
provisions for speculative takeover purposes be considered to have
violated the provisions of Regulation "BB" setting forth the community
reinvestment standards, since such loans would constitute prima facie
evidence of an intent to neglect local credit needs. Such banks should
be denied, for a period of 5 years, applications for branches, other
facilities, mergers, and bank holding company status.
Additionally, I would propose that the stock of all companies
involved in a takeover attempt be immediately subjected to a margin
requirement substantially above that then in force. Such a provision
would tend to diminish the speculative fever associated with such companies
and it would discourage arbitrage. Furthermore, I would propose that,
irrespective of the form of collateral used to secure loans made to a
merging company, if the end use of the funds will be for acquisition of
the stock of another company, the loans should be treated as margin
loans secured by stock and then subjected to a margin requirement or
equivalent, equal to 100% or more.
Proper exercise of the authority under the Securities Act of 1934
and Regulations "G," "T," "U," and "X," can prevent and bar loans for
speculative takeover purposes and bar both the use of generally unregulated
credit and the use of foreign credit for such purposes.
While your use of these provisions may have an immediate impact
on the proposed Martin-Marietta, Bendix, United Technologies acquisition
battle, I must note that I have not discussed this matter with any of
these firms. I am, rather, quite displeased with the use of scarce
credit resources for any such nonproductive endeavor as this.
Accordingly, I would like your response as soon as possible. I
fully understand the difficulty of my requests to you and the Board and
the possible need for some exceptions. Nevertheless, I ask you to try
to assure that whenever scarce credit is used, it be applied to assure
that corporations survive, that employment be enhanced, and productivity
increased.
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Federal Reserve Bank of St. Louis
Sincerely yours,
Walter E. Fauntroy
Chairman
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Federal Reserve Bank of St. Louis
*of GO
•
BOARD OF GOVERNORS
OF THE
• 40
FEDERAL RESERVE SYSTEM
WASHINGTON, 0. C. 20551
61 •
.RALRE
October 22, 1982
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:
I appreciate your desire, expressed in
your October 6 letter, to be kept fully informed
regarding the System's proposal for changes in
Federal Reserve check collection services and fee
schedules.
You may be assured that I will keep
you informed of our progress in resolving the
issues associated with this proposal to improve
the payments mechanism through more rapid check
clearing.
Sin erely,
,H7
0/ Wald ette:fa xe
IDENTICAL LETTER e
0 SENATOR RIEGLE
LSM:CO:vcd (V-231)
bcc: Mr. Meeder
Mrs. Mallardi (2)
Mr. McEntee
sie 5
Action assigned Messrs. Corrigan and Allison
-0
JAKE DARN, UTAH, CHAIRMAN
JOHN TOWER. TEX.
JOHN HEINZ, PA.
WILLIAM L. ARMSTRONG, COLO.
RICHARD G. LUGAR. IND.
ALFONSE M. D AMATO, N.Y.
JOHN H. CHAFEE, R.I.
HARRISON "JACK" SCHMITT, N. MEX.
NICHOLAS F. BRADY, N.J.
DONALD W. RIEGLE, JR., MICH.
WILLIAM PROX MIRE. WIS.
ALAN CRANSTON. CALIF.
PAUL S. SARSANES, MD.
CHRISTOPHER J. DODD, CONN.
ALAN J. DIXON. ILL.
JIM SASSER. TENN.
M. DANNY WALL, STAFF DIRECTOR
ROBERT W. RUSSELL, MINORITY STAFF DIRECTOR
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Federal Reserve Bank of St. Louis
'ZICniteb Ziafez'Senate
COMMITTEE ON BANKING, HOUSING. AND
URBAN AFFAIRS
WASHINGTON. D.C.
20510
October 6, 1982 fE2/15
The Honorable Paul A. Volcker
Chairman
The Board of Governors of the
Federal Reserve System
20th & C Streets, NW
Room B2125
Washington, D.C. 20551
Dear Chairman Volcker:
We are writing to express our desire to be kept fully
apprised of developments regarding the Federal Reserve Board's
proposals for changes in its check processing and collection
procedures and pricing schedules.
Over the past several weeks our staffs have had numerous
meetings with industry representatives who are concerned about
some specific aspects of the Board's plans as well as the more
general implications for the Federal Reserve's competitive
role in the payments system. We have concluded that the proposed changes in deposit and presentment deadlines could have
inequitable competitive effects on correspondent banks, clearinghouses and private couriers, and we doubt that such effects
would be consistent with the mandate and objectives of the
Monetary Control Act of 1980. In addition, we are concerned
about the piecemeal nature of these proposals and believe that
all aspects of the Board's check collection plan, including
fee schedules and the plan for pricing or eliminating float,
should be laid out before any changes are implemented.
On September 27, 1982 our staffs met with Gerald Corrigan
of the Minneapolis Federal Reserve Bank to discuss the proposals and the Board's implementation plans. As a result of
that meeting, we are encouraged by the Board's sensitivity
to the possible. adverse implications of the check collection
proposals and by the Board's willingness to work out differences
with the affected institutions and organizations.
We understand that it will be at least six weeks before
the Board completes its analysis of comments on the "noon presentment" proposal. We also understand that the complete plan
for the Board's provision of check collection services will be
set forth before the major elements of the plan are implemented
and that there will be a delayed implementation. In view of
the mandate of the Monetary Control Act and the importance of
Honorable Paul A. Volcker
October 6, 1982
Page 2
this proposal to the future of the payments system, we urge
you to continue discussions with affected parties and formally
request you to keep us apprised of the progress you make toward
resolving the various issues that have been raised on this
matter.
Since ely,
I
C:1)
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Federal Reserve Bank of St. Louis
Jake Garn
Donald W. Riegle
GOVe;A:.
• 42-
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20 551
October 19, 1982
PAUL A. VOLCKER
CHAIRMAN
The Honorable Roger W. Jepsen
Vice Chairman
Joint Economic Committee
Washington, D.C.
20510
Dear Vice Chairman Jepsen:
Thank you for your letter posing several questions
regarding monetarism and the Federal Reserve's conduct of
monetary policy. As we agreed, in the interests of an orderly
process and to avoid unnecessary duplication of effort, I am
responding on behalf of my colleagues in the Federal Reserve to
whom you addressed your letter after consultation with them.
The enclosed reply represents the consensus of views, with the
exception of one member of the group who supplied alternative
outline replies to your questions 1 and 2, which are attached
at the end.
I would also like to take this opportunity to comment
on some very recent developments which have been the subject of
considerable speculation in the press and which bear on your
inquiry.
As you know, pursuant to the Full Employment and
Balanced Growth Act of 1978, the Federal Reserve establishes
and reports to the Congress annual target growth ranges for
several monetary and credit aggregates.
Last February the Federal Reserve established a target
range for each of the aggregates. In the course of the year, I
have had several occasions to comment on the relationship of
these target ranges to the financing needs of economic recovery
consistent with continued progress toward price stability and
on the need to take into account the behavior of several
monetary aggregates and other variables in assessing the course
of monetary policy. In restating the targets in July, I commented with some emphasis on developments in velocity and the
possibility of exceptional demands for liquidity in a period of
economic uncertainty and transition. I have indicated on a
number of occasions that the Federal Open Market Committee
would be satisfied with growth of the aggregates around the
upper end of their ranges and would tolerate for a time growth
at a faster pace if this appeared to be motivated by precautionary demands for money. In this regard, I would note
that the level of M1 for the last week in September was within
a few hundred million dollars of the level implied by growth
through the year at a 5-1/2 percent rate.
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Federal Reserve Bank of St. Louis
The Honorable Roger W. Jepsen
Page Two
At its last meeting, the FOMC was faced with the
almost certain expectation that the measurement of M1 over much
of the remainder of this year would be distorted first by the
passage of funds in maturing All Savers Certificates through M1
transactions accounts on their way to other investments and
later by the introduction of a new money market fund-type
account at depository institutions pursuant to the GarnSt Germain legislation. While the impact of the All-Savers
maturity should be transitory--a matter of a few weeks--the
introduction of a new deposit instrument is still more problematical in amount and timing (although the probability seems to
be that it will depress, not increase, M1 growth). In either
case, relying directly on M1 to build the "path" for the provision of reserves would give arbitrary results for the current
period. Hence, deemphasis for a period of time seemed the only
practical approach.
In view of all this, the Committee determined that for
an interim period, while these distortions work themselves out,
greater operational weight will be placed on M2 and lesser
weight on Ml. Obviously, we will glean what evidence we can
from the M1 data--for instance, if the early October bulge did
not subside, that would need to be taken into account in providing reserves, but we had no way of estimating in advance
just how large the bulge would be. Despite what the press has
reported, that is all there is to it with respect to Ml, just
an adjustment in operating procedures to take account of an
expected series of technical developments.
I have discussed these points at greater length in a
recent speech, excerpts of which I've enclosed for your information. This series of events, in my view, is a concrete
illustration of "the practical monetary-oriented targeting
approach pursued by the System," that I refer to in reply to
your question 3.
If I can provide any additional information on this
matter, please contact me.
Sincerely,
Enclosures
MP:NS:PAV:pjt (#V-177)
Mike Prell
Mrs. Mallardi (2)
(Encl. Excerpt from Informal Talk of Chrmn. to Business Council
At hot Springs, Va. 10/9/82)
bcc:
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Federal Reserve Bank of St. Louis
1.
What is "monetarism"?
I'm not aware of any generally accepted all-purpose
definition of the term.
As a practical matter, I believe it
would be fair to characterize it as referring to a view that
monetary policy should be framed solely or primarily in terms
of growth of certain money stock measures, which are presumed
to bear reasonably stable relationships to other key economic
variables, especially--over the medium or longer run--prices.
Monetarists often view relatively sustained acceleration versus
deceleration in money growth as a key factor explaining major
cyclical movements in the economy but emphasize that over time
monetary growth will be reflected in prices rather than output.
Within that general framework, "monetarists" may
differ in emphasis on particular measures of money, on the
length and nature of lags in effects on prices, on impacts on
the "real" economy, and on relationships between money and
interest rates.
Whether a particular analyst considers
himself, or is considered by others, to be "monetarist" often
depends upon judgments on these matters.
"Monetarism" is
tyS ically associated with those giving little or no weight to
factors bearing on the price level other than "money."
"Monetarism" is also often associated with emphasis on
techniques to control the money supply by controlling the
growth of some aggregate of reserves, rather than by attempting
to set the level of short-term interest rates.
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Federal Reserve Bank of St. Louis
2
2.
Are changes in the demand for money frequent enough,
large enough, and sufficiently long lasting to vitiate
the usefulness of "monetarist" monetary policy? What
about changes in real output?
Changes in the demand for money in relation to the
nation's income, unless of moderate dimension and quickly
reversed, would tend to vitiate the usefulness of what might be
called a "strict" monetarist approach--that is, one in which
the monetary authority sought to hold very precisely to a predetermined monetary growth path in both the short and long
run.
While there is some difference of professional opinion on
this matter, research done by economists inside and outside the
Federal Reserve System on the whole appears to confirm the
common impression that in the past decade, which has been
marked by major changes in financial institutions and cash
management practices, there have been appreciable shifts from
time to time in the public's demand for money to finance transactions or to hold for precautionary or liquidity reasons at
given levels of income and interest rates.
If ignored in the
implementation of policy, these shifts would lead to a policy
that was, depending on the direction of the shifts, either
"tighter" or "easier" than intended in terms of impact on the
real economy or prices.
One significant consequence of an
effort to enforce strictly predetermined money growth targets
in the face of appreciable shifts in money demand would be
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Federal Reserve Bank of St. Louis
3-
greater instability in interest rates.
However, as long as
there is sufficient flexibility in implementation of policy to
take account of ongoing changes in the public's attitude toward
money, monetary aggregates within a reasonable range can
provide a practicable long-run indicator of policy intent.
When the demand for money changes because of changes
in real output, adherence to a given monetary target path would
tend to result in cyclical variations in interest rates that
help to stabilize growth in economic activity.
Interest rates
would tend to rise as the pace of economic activity quickened
and to fall as it slowed.
In that respect, use of monetary
targets may represent a relatively efficacious approach to
stabilization policy when there may be unexpected shifts in the
public's demand for goods and services at given interest rate
levels.
An adjustment of monetary targets might be desirable,
however, when there are unanticipated "supply shocks" to the
economy, such as an OPEC oil embargo--but this is a complex
issue requiring attention to the particular circumstances.
More generally, if price responses to monetary growth
are long delayed and relatively weak, and output changes
pronounced and lasting, the case for strict application of
"monetarism" is weakened, at least unaccompanied by other
policies directed towards those problems.
Basic differences of
opinion on this score underlie much of the controversy about
"monetarism."
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Federal Reserve Bank of St. Louis
-4-
3.
Is it correct to say that the Federal Reserve has been
following a "monetarist" policy since October 1979?
The Federal Reserve has been focusing on the monetary
aggregates as intermediate targets for policy since the early
1970s; since 1975, Congressional directives have required that
the Board report objectives for monetary expansion.
The change
in October 1979 involved the means of implementing monetary
policy; greater reliance was placed on control of the reserve
base as the means of achieving desired monetary growth.
That
change was in a direction advocated by many "monetarists."
The change in operating technique should not, by itself, necessarily be viewed as "monetarist" in the strict terms
indicated earlier, however.
Such a judgment depends upon the
degree of flexibility with which monetary objectives are pursued, including efforts to take account of perceived shifts in
the public's attitude toward money.
In 1981, for example, the Federal Is
Market Com-
mittee, responding to indications that changes in cash management behavior were reducing the public's desired holdings of M1
at given levels of interest rates and GNP, lowered its sights
at midyear to the lower end of the target range initially set
for the year.
More recently, the System did not seek to
reverse immediately
late-1981,
early-1982 bulge in M1 that
•a
was concentrated in NOW accounts and s--med to be relatea
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Federal Reserve Bank of St. Louis
5-
largely to increased desires for liquidity on the part of the
public during a period of economic uncertainty.
Moreover, the
FOMC has indicated its desire, in light of developments in the
first half of the year, to see M1 grow at around the top end of
its 1982 growth range; it also has indicated its willingness to
tolerate movements above that range in the months ahead if
economic and financial developments suggest a persistence of
unusual precautionary demands for money.
This sort of flexibility--the willingness to look at
all of the available information and to alter the monetary
growth objectives in the light of current judgments--does not
accord with the usual views of "strict" monetarists, but it is
fundamental to the practical monetary-oriented targeting
approach pursued by the System.
As indicated, the change that actually occurred in
October 1979 was one involving the procedures employed in the
pursuit of monetary targets.
Up to that time the System
focused on short-term interest rates, influenced through open
market operations, as the day-to-day "operating target" for
policy.
We took action to raise or lower money market rates as
needed to encourage the public to alter its cash holdings to
the targeted level.
In late 1979 we decided instead to employ
nonborrowed reserves as the day-to-day operating target, and
let interest rates fluctuate on their own.
By focusing open
market operations more directly on the growth of reserves in
the banking system, we expected to attain a better control of
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Federal Reserve Bank of St. Louis
6
money growth over time.
Thus this change could be said to be
more "monetarist," but much depends on the manner and on the
kind and degree of judgment used in applying the control techniques.
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Federal Reserve Bank of St. Louis
7-
4.
Did implementation of the Credit Control Act in March 1980
interrupt the "monetarist" policy announced in October
1979, and how would you characterize Fed policy since that
time?
The public's reaction to the credit control program
was unexpectedly sharp.
The marked contraction in borrowing
after the program was instituted, and the resurgence in
borrowing as it was unwound, led to sizable fluctuations in
money balances and interest rates--first downward then upward.
While the credit control program contributed to short run variability in money, our aim over the period was to keep money
growth on track on average and over time.
Certainly the use of
explicit credit restraints was not, in itself, monetarist.
While the monetary aggregates were in fact thrown off course
for a period, those restraints in conception were considered
supplementary to, rather than inconsistent with, the techniques
announced in October 1979.
Thus, that episode is not appro-
priately viewed as an "interruption" in policy intentions with
respect to control of the monetary aggregates.
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Federal Reserve Bank of St. Louis
q%
-8-
5.
If not, then what change actually occurred in October 1979,
and how would you characterize Fed policy since that time?
As I noted above, in responding to question 3, what
occurred in October 1979 was a change in operating procedures
undertaken to improve monetary control.
I would say that our
policy has been, and remains, one of containing the growth of
money and credit to a rate consistent with reducing inflationary pressures in the economy and laying the groundwork for
a sustained, balanced economic expansion.
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Federal Reserve Bank of St. Louis
-9-
6.
How do you feel about moving toward a "price rule" for
monetary policy?
I interpret "price rule" to involve the price of goods
and services, rather than an interest rate or exchange rate.
I
think there is a good deal to be said in principle for placing
a focus on the general level of prices over time as an ultimate
guide for monetary policy.
Economists of many theoretical
persuasions would agree that, over the long run, the greatest
impact of money is on the price level.
The difficulty I see,
as a practical matter, is that this relationship may be a
long-term one, and that therefore current price movements-whether of broad price indexes, of limited "baskets" of
commodities, or even of single commodities like gold--may not
be uniquely useful as guides for policy in the short run.
We certainly pay close attention to price movements
and trends in assessing the impact and appropriateness of our
actions, and some of us believe clear articulation of price
stability as a basic long-run goal is helpful.
However, the
realities of the structure of the economy would make a rigid
short-run price rule a potentially counterproductive approach-one that might result in greater monetary and economic
instability.
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Federal Reserve Bank of St. Louis
%
e
-10-
7.
To what extent is monetary policy, as currently conducted
by the Fed, responsible for high interest rates, as opposed
to fiscal policy, and what policy changes, if any, should
the Fed make today in order to reduce interest rates?
Interest rates are determined by a complex interaction
of many forces, including monetary and fiscal policy, but
private behavior--including expectations of inflation--is often
critically important.
For instance, if at a time of strong
inflationary concerns and high credit demands the Federal
Reserve opened the monetary "tap" and poured reserves into the
banking system, any resultant lowering interest rates would
likely be short-lived.
Perceptions that the Federal Reserve
was abandoning anti-inflationary restraint would quickly lead
to renewed upward pressures on interest rates as people came to
expect more rapid price increases and acted accordingly,
increasing credit demands in the process and reducing savings.
Within the context of a longer-range policy of
restraining money growth to damp inflation, fiscal policy looms
large as a cause of high interest rates.
The Treasury, in
meeting the government's credit needs, must bid funds away from
potential private borrowers and this competition for a limited
pool of savings boosts interest rates above levels that would
otherwise prevail.
Moreover, intermediate- and long-term
yields tend to reflect investors' expectations of future credit
market pressures, so that the current prospect of large,
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Federal Reserve Bank of St. Louis
-11-
perhaps growing, federal budget deficits as the economy
recovers is a major factor holding rates in some sectors of the
markets higher than they otherwise would be.
At the same time,
the prospect of such large deficits and of sustained tensions
in credit markets causes some people to fear that at some point
the Federal Reserve will deviate from its course of restraint
and engage in an inflationary "monetization" of the debt, and
this also tends to maintain a substantial inflation premium in
long-term rates.
These responses may be damped in degree when the
economy is weak and inflation is perceived to be slowing.
With
more confidence in the medium- and longer-term price outlook,
and with private credit demands sluggish, increases in the
money supply might normally be associated, at least for a time,
with lower interest rates, and future Treasury borrowing might
then be a less acute concern.
In particular circumstances,
these potential reactions are a matter of judgment.
In any
event, lasting relief from high interest rates requires that
the Federal Reserve maintain a credible posture of antiinflationary restraint.
To the degree that is achieved,
greater flexibility in management of the money supply in the
short-run is possible, consistent with lower interest rates.
Meanwhile, the Congress and the Administration can help to
alleviate the pressures on rates by moving forward with their
efforts to restore fiscal balance.
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Federal Reserve Bank of St. Louis
V
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Federal Reserve Bank of St. Louis
Question 1:
"What is Monetarism?"
Several journal articles have attempted to summarize the
principal distinguishing scientific hypotheses that characterize
a monetarist view. Generally, these hypotheses concern the
effects of changes in money stock growth on economic performance.
Some central hypotheses for monetary policy in the U.S. are
detailed below.
(1) Monetarists emphasize that inflation is a monetary
phenomenon. An anti-inflation policy is inherently
one that sustains a relatively lower rate of growth
of narrow monetary aggregates.
(2) Monetarists emphasize that accelerations or
decelerations in money growth have relatively quick
impacts on aggregate demand, with their permanent
impact on inflation occurring with a longer lag.
As a result, accelerations or decelerations in
money growth are a key factor in cyclical movements
in output and employment.
(3)
Monetarists emphasize the direct link between
inflationary expectations and nominal interest
rates. Since inflation is largely determined by
the pace of monetary expansion, interest rates tend
to fluctuate in the same direction as the growth
rate of the money stock, rather than inversely.
(4) Monetarism also involves the study of money stock
control, since variations in money stock growth
have important effects on economic performance.
Such research tends toward the conclusion that
central bank procedures that control the money
stock directly (i.e., through manipulation of some
part or all of reserves or the money stock provided
by the central bank) rather than indirectly
(through influences on short-term interest rates)
are likely to be simpler, more successful, and
therefore more credible.
Question 2: "Are changes in the demand for money frequent enough,
large enough, and sufficiently long lasting to vitiate the usefulness of "monetarist" monetary policy? What about changes in
real output?"
The answer to this question should include the following
points:
(1) The evidence on the nature of money demand shifts
is not as conclusive as the response implies.
There is, in fact, evidence indicating that the
demand for money function has not been subjected to
large, frequent nor unforseen shifts during the
past few years. This evidence is found directly in
formal studies on the money demand relationship and
indirectly in studies that have shown the Ml-GNP
link to be reliable during the past few years.
I
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Federal Reserve Bank of St. Louis
(2) Although large, frequent, unforseen shifts in the
demand for money may cause problems under a
monetary aggregate targeting procedure, the
alternative--interest rate targeting--is not
necessarily preferrable. The relationship between
interest rates and economic activity may have
weakened at the same time.
(3) Instability in the money demand relationship, to
the extent it exists, is, in large part, the
outcome of a reaction to high rates of inflation,
interest rates and attempts by institutions to
circumvent restrictive regulations on interest rate
payments. A monetary targeting approach that
reduces future inflation also reduces future
interest rates and, consequently, the impetus to
innovate.
i4
ACTION ASSIGNED TO MR. KICHLINE
Congrez of tbe tiniteb
...kir
hi_
A!. REsE„:,„
tate5
JOINT ECONOMIC COMMITTEE
•
.1982 A IJC -6 PY
E: E2
(CREATED PURSUANT TO SEC. 5(1)OF PUBLIC LAW 304. 11TH CONGRESS)
WASHINGTON, D.C. 20510
August 5, 1982
RECEtVED
OFFICE or
THE Civiiizt.14.!
/
Mr. Paul Volcker
Chairman
Board of Governors
Federal Reserve System
Washington, D.C. 20551
Dear Chairman Volcker:
Recently, a number of commentators have suggested that monetary policy is
the principal factor keeping interest rates high. It has been further suggested
that this is due to the inherent weakness of the "quantity theory." It has been
said that if the quantity of money is fixed, then it stands to reason that inflation and interest rates will fluctuate based on changes in the demand for
money and the real output of the economy. Therefore, recent changes in the demand for money and in real output which have not been accommodated by faster
money growth are responsible for high interest rates.
These commentators have argued that the Federal Reserve's policy is essentially "monetarist' and that this "monetarist" policy is therefore largely responsible for high interest rates. They further argue for a "price rule,"
wherein the monetary authorities target the price level (or some proxy, such as
gold or a sensitive commodity index) rather than the quantity of money itself.
Such a policy, it is said, would cause interest rates to decline.
I would appreciate your comments on these propositions.
would appreciate your answers to the following questions:
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Federal Reserve Bank of St. Louis
In particular, I
1.
What is "monetarism"?
2.
Are changes in the demand for money frequent enough, large enough,
and sufficiently long lasting to vitiate the usefulness of "monetarist"
monetary policy? What about changes in real output?
3.
Is it correct to say that the Federal Reserve has been following a
"monetarist" policy since October 1979?
4.
Did implementation of the Credit Control Act in March 1980 interrupt
the "monetarist" policy announced in October 1979? If so, how and for
how long?
5.
If not, then what change actually occurred in October 1979, and how
would you characterize Fed policy since that time?
-
40
r
Mr. Paul Volcker
August 5, 1982
Page Two
6.
How do you feel about moving towards a "price rule" for monetary
policy?
F.
To what extent is monetary policy, as currently conducted by the Fed,
responsible for high interest rates, as opposed to fiscal policy, and
what policy changes, if any, should the Fed make today in order to
reduce interest rates?
I would appreciate your response to these questions in preparation for a
Joint Economic Committee report on the relationship between Federal Reserve
policy and high interest rates. Your cooperation is most appreciated.
Sincerely,
w
Roger
Jepsen, U
Vice Chairman
RWJ:bbs
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Federal Reserve Bank of St. Louis
e.)ctober 19, 1982
Mr. Jerry Lewis, Chairman
Task Force on Congressional
and Regulatory keforni
house Republican Research Committee
U.S. House of Representatives
Washington, D.C. 20515
Dear Chairman Leis:
Chairman Volcker has asked that I responci to your letter of September 22,
1982, seeking input from tile Federal Reserve ano others in preparing a legislative
agenda on regulatory reform for the 98th L-ongress. I have :rracie arrangements for our
staff to assist your Task Force.
I am enclosing a copy of our inost recent legislative recoitimenoations to
the Congress, which were include* in our 198I Annual Report. Of the seven
recommendations, those most directly relateo to relieving regulatory burciens are: (i)
amendment of the Monetary Control Act to extibyt depository institutions with less
than $5 million in deposits from reserve requirements or to exempt from reserve
requirements the first $2 million of deposits for all depository institutions, (2) a
variety of amendments to the Financial Institutions Regulatory and Interest kate
Control Act of 1978, in oraer to ease requirements that are unnecessarily burdensome,
to correct procedural problems, and to contribute to the efficient enforcement of the
Act, and (3) ainendcrient of section 23A of the Feaeral Reserve Act regarding
transactions with affiliates, to eliminate certain unnecessary complexities and restrictions. Legislation recently passeti by the congress substantially incluoes the above
recorsimendations.
In ads:talon, I am enclosing a copy of our initial report to the Congress
under the Financial Regulation Simplification Act of 1980, which suggests some
possibilities for reform. In particular, Part IV of that report contains suggested
approaches that the Congress might consider adopting to assist regulatory agencies in
minimizing burdens on regulated businesses.
Lair staff contact for your 'Task Force will be Barbara R. Lowrey,
Associate Secretary of the board, who inanages our Kegulatory Improvement Project.
her office telephone number is 452-3742.
Ill can personally be of further help in any way, please let me now.
Sincerely yours,
William ‘1,
Iles
Secretary of the boart;
DK/BL/cf t221
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Federal Reserve Bank of St. Louis
JERRY LEWIS. CALLF4
WAYNE GRISHAM,
CHAIRMAN
DANIEL
cAurCALJ.
LUNOREN,
F.
JUDO OWEGO. N.H.
1616 LONG WORTH RUT LDI NG
VICE CHAIRMAN
JAMES T.
iiir
N.C.
JOHN H. ROUSSELOT. CALIF.
TASK FORCE ON CONGRESSIONAL
AND REGULATORY REFORM
HOUSE REPUBLICAN RESEARCH COMMITTEE
U.S. HOUSE OF REPRESENTATIVES
WASHINGTON. D.C. 20515
(202) 225-0871
R. RORERT 0/0.IN, DIRECTOR
,
r•
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V.)
r•4, , • fri
;
September 22, 1982
Mr. Paul A. Volcker
Chairman
Federal Reserve System
Twentieth St. and Constitution Ave., NW
Washington, D.C. 20551
Dear Chairman Volcker:
The House Task Force on Congressional and Regulatory Reform appreciated
the opportunity to address you and the rest of the members of the Council of
Independent Regulatory Agencies. I have communicated to the other Members of
the House Task Force your willingness to contribute to our end of year
"legislative mandate" on regulatory reform for the 98th Congress. The Members
are most appreciative.
For this project we will be seeking input from a variety of sources
including academics, the Administration, congressional committees, industry, as
well as individual regulatory agencies. As was discussed, our Task Force
Director will call your office during the next week to contact your designated
assistant, who can work with us on this program. In general we are interested
in assessing the FTC's performance over the past two years, what successes were
legislative
ageny's
your
also
remain, and
what problems
or
achieved
recommendations for the 98th Congress.
I am enclosing several recent Task Force publications. Of course, we will
include you on our mailing list for all future papers. In addition, we hope to
arrange several meetings in the future among you, the Task Force and ranking
members of committees with oversight for some of the regulatory agencies. Such
an exchange on an informal basis promises to improve operations and understanding for all parties involved.
If the Task
Again, Chairman Volcker, thank you for your cooperation.
I look
Force can assist you in any way, please do not hesitate to call.
forward to hearing from you.
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Federal Reserve Bank of St. Louis
Sincerely,
0440
is
A
•
MPS.
House Re i ublican Research Committee
TELEPHONE NO. 202/225-0871
1616 LHOB, WASHINGTON, D.C. 20515 •
WILLIAM E. O'CONNELL, JR.
Executive Director
ROBERT H. MICHEL
Minorit) Leader
Ex-Officio
EDWARD R. MADIGAN
Chairman
August 16, 1982
TASK FORCE ON CONGRESSIONAL AND REGULATORY REFORM
Bob Okun
Director
Jerry Lewis
Chairman
A Fact Sheet on Regulatory Reform
The strength of our economy in the 1980's may well depend upon how willing
we are to reconsider our investment in federal government regulation. Certainly
some regulations are necessary and serve to protect the public. However, many
other regulations promulgated in the past, have proven to be costly, while they
Over the past decade government agencies
have offered few if any benefits.
have increased in cost and size and their regulations have forced higher
The direct costs of federal regulatory activities to the
consumer costs.
taxpayer have nearly tripled, from $2.8 billion in fiscal 1974 to $7.1 billion
for 1981. But the overall economic impact was far greater, estimated at $135
billion for this year by Murray Weidenbaum, former Chairman of the President's
Council of Economic Advisors.
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Regulatory reform remains one of the four pillars of this Administration's
The reform effort has proceeded steadily, behind
economic recovery program.
the scenes during the past eighteen months, but it has received little
The regulatory
publicity in relation to the budget and the tax program.
reviews to date will save more than $70 billion over the next decade, and' this
money will be available for more investment, increased productivity, and new
jobs. Other benefits of reducing the regulatory burden such as elimination - of
bureaucratic harassment, do not carry a price tag. As Vice President George
Bush said recently, all of these savings "will not jeopardize either the
environment or the safety of the workplace, but will lay the foundation for a
stronger economic recovery..." This fact sheet examines the Administration's
effort to reform regulation after a year and a half.
Early Actions
The Administration took early actions which signaled a major change in
Shortly after taking office, the President
federal regulatory activities.
issued Executive Order (E.0.) 12291 to ensure that individual regulations were
The E.O. required agencies to list
well-reasoned and economically sound.
alternatives--together with their benefits and costs--when publishing new
regulations for public comment. The principal responsibility for regulation
review resides with the Office of Management and Budget (OMB), under the
direction of the Presidential Task Force on Regulatory Relief, chaired by Vice
Furthermore, the President issued a 60 day freeze on 172
President Bush.
"midnight" regulations issued in the final week of the Carter Administration.
Subsequently, thirty-five of these "midnight" regulations were withdrawn.
Some Agency Budget and Employment Facts
The Reagan Administration has reversed the steady growth in both agency
budgets and employment that occurred during previous administrations. (By 1979,
well over $5 billion of taxpayers' revenues were spent to administer 57
regulatory agencies, employing more than 88,000 people). This administration's
dramatic redirection of federal regulation has helped to streamline activities
at the regulatory agencies. For example:
• Regulatory agencies will be approximately 10 percent smaller overall
for FY 1982 under the Reagan budget than they would have been under
President Carter's budget.
• During the 1970's, outlays of the 57 major federal regulatory agencies
increased nearly 240 percent (in constant dollars). Expenditures
increased by only 1 percent, in real terms, for 1981.
• The 1983 budget shows an intent -to continue the rollback as constant
dollar expenditures of these agencies are projected to decline by
one-sixth from 1981 to 1983.
As part of reforming the government's regulatory apparatus, there has been
a substantial decline in staffing at the major agencies.
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• Actual reductions in personnel in 1981 as compared to 1980 were four
percent overall, from 90,50Q in 1980 to 86,700. Even sharper cutbacks
are expected for 1983.
• The curtailment in social regulation staffing between 1980 and 1983 is
nearly 17 percent as compared to a 562% staffing increase form 1970 to
1979. This reigning-in is meant to force the bloated bureaucracies to
areas of
refocus their limited resources toward the truly important
3
regulation.
• Ten percent fewer positions are projected for 1983 than there were in
1980 in areas of traditional economic regulation (e.g. industry
specific activities such as airline and telephone service, along with
finance and banking). These reductions are consistent with the
Administration's goal of permitting the free market to operate with
as little federal intervention as possible.
Slowing the Flow of New Regulations
Comparison with levels of activity in earlier years clearly indicates that
the volume of new federal regulations declined markedly in 1981, and has
continued to decline during the first six months of 1982. The OMB review
process has placed the burden on agencies to document the impact of their major
regulations, and has screened out regulations with large potential costs and
smaller benefits. During this time period:
• The number of final regulations declined by 22% as compared to the last
year of the Carter Administration.
• The number of proposed rules declined by 34%--from a monthly average of
669 during the last year of the Carter Administration to 519 during the
first seventeen months of the Reagan Administration.
• The number of new regulations being issued were cut by one-half.
• The number of pages in the Federal Register decreased by one-third, as
compared with the last 18 months of the Carter Administration.
• The savings from withdrawl or revision of the regulatory programs
designated so far for review has been estimated at $9-11 billion in
private capital investment costs.
• Savings in recurring costs annually to the private sector have been at
least $6 billion.
Reduced Paperwork Burdens
When the Administration took office, Americans were spending one-and-ahalf billion hours a year filling out federal forms. This is a greater work
load than what the entire workforce of the auto industry puts in during one
year.
• The cost of paperwork for small business alone comes to $12 billion a
year.
• Under the provisions of the Paperwork Reduction Act, most federal forms
and record-keeping requirements must be approved by OMB.
• By the end of 1982, the one and - one-half billion hours of paperwork
will have been cut by 200 million hours. This is a 13% reduction from
the paperwork burdens that were in existence when President Reagan took
office. These man-hours no-longer wasted on filling out forms for the
federal government will be available to improve overall productivity.
Changes in Specific Existing Regulations
Many of the regulatory revisions update or eliminate antiquated rules, use
private markets rather than direct government controls to address the
in
flexibility
more
localities
and
states
give
problem,
regulatory
social
administering federally funded programs, and make regulations with large
costs and small social benefits less restrictive.
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Federal Reserve Bank of St. Louis
•
4
• The Reagan Administration so far has designated 111 existing regulatory
programs and paperwork requirements for high-priority agency review.
Special attention has been given to the problems facing small
businesses, state and local governments, in addition to regulations
with major economic impacts. The Administration has taken action on
approximately 70% of those programs.
Some of the notable
Regulatory Relief include:
reform
actions
announced
by
the
Task
Force
on
• USDA has revised forms to certify eligibility of food stamp recipients.
For example, family members in one household who previously had to file
separate forms can now use a single joint form. These changes resulted
in a reduction in annual paperwork burden of almost 2 million hours.
• The Department of Energy has relaxed federal requirements that
instructed local electric and natural gas utility companies to give
their residential customers an "energy audit" or inspections of their
homes or apartments for $15 or less. DOE required detailed state plans
and the high cost of inspections was reflected in rising utility bills.
The revisions give states the greatest possible flexibility in
overseeing the program, providing estimated annual savings to states
and utilities of $100-150 million.
• HHS has proposed to eliminate the requirement that most prescription
drugs be accompanied by a flyer explaining the drug's effects since the
regulations were an ineffective way to provide information to patients.
In place of the regulation, FDA is working with physician groups in a
program to improve the transmission of drug information to patients.
Several drug store chains have made available at their counters
compendia of drug-related information, so patients can be aware of any
drug side-effects before they use them. Removal of this regulation will
save pharmacies, drug suppliers and consumers between $20-100 million
annually.
actions
other
Federal agencies initiated
deregulatory effects. Some of these include:
resulting
in
significant
• The Department of Labor removed employment restrictions for homeworkers
in the knitted outerwear industry. The restrictions were imposed
forty years ago to prevent citizens from working in their homes for
less than the minimum wage. However, the rules curtailed employment
opportunities and earning power, and were no longer necessary to
safeguard the minimum wage.
• OSHA has proposed to drop a regulation that does not allow self-service
gasoline stations to offer locks on gas pumps (The locks permit
customers to fill-up without having to hold on to the pump.) The
regulation as it stands can- actually increase safety hazards because it
induces consumers to wedge open gas pump handles with their tank caps,
and can cause hand injuries in cold weather.
• The Department of Transportation has simplified regulations dating back
to the First Congress, which ships owners must follow to register their
ships. New rules are expected to save the industry $5 million annually
by greatly reducing the number and complexity of the forms and filing
requirements.
• Since President Reagan decontrolled domestic petroleum, the Department
of Energy has stopped collecting data no longer necessary for
regulatory purposes, and will collect only essential statistical data.
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5
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P.
These changes will save over 550 work-years which otherwise would have
been spent meeting federal requirements.
Other efforts to address burdensome federal regulations include:
• The Task Force on Regulatory Relief requested (through the Department
of Commerce) comments from industry leaders on the most onerous
regulations currently in force. A year ago, the Task Force published a
list of the so-called "Terrible Twenty" regulations.
• A number of Congressional offices have done mailouts to their
constituents soliciting burdensome regulations. The responses were then
passed along to the President's Task Force on Regulatory Relief.
Subsequently, the Task Force took actions that addressed many of the
specific concerns. For example, OSHA has proposed to exempt over
500,000 employers in various non-hazardous industries such as retail
trade, insurance and real estate, from having to fill out a log of
occupational injuries and illnesses--particularly since these
businesses have had historically few work-related injuries. In
addition, the IRS and Department of Labor have taken steps to simplify
ERISA regulations which govern pension plans. These overly complex
requirements have tended to discourage private sector pension plans.
Other Members have developed grass roots projects in their districts to
.
deal with regulatory problems of small businesses and other community members
• On August 4, 1982 the Task Force on Regulatory Relief published a
report summarizing the progress in reducing federal regulatory burdens
on state and local governments. Cost savings from changing regulations
that unduly constrain state and local decision-making and program
administration are $2.0-2.1 billion in annually recurring costs and
$4.1-6.1 billion in one-time capital investment costs.
Some Major Legislative Deregulatory Actions
Oil Decontrol
One of President Reagan's first acts in office was to accelerate the
of
removal of domestic oil price and allocation controls. To date, the lifting
oil
these regulations has promoted greater conservation of petroleum, decreased
While there was a
imports, and helped to revive domestic production.
the
short-term gasoline price increase, as the price of oil rose to reflect
free market value, gasoline prices dropped measurably, and have now stabilized.
That decline in the price of gasoline has been one of the major factors
contributing to the lower inflation rates.
Telecommunications
The Justice Department's anti-trust suit against AT&T, the world's largest
The proposed settlement is an
corporation, was 'settled in January, 1982.
field, but its
effort to introduce more competition into the telecommunications
District Court
full scope is unclear. The case is still pending in Federal
comprehensive
considering
been
has
recently
until
House
the
while
telecommunication legislation.
Justice
The same day on which the AT&T settlement was reached, the
suit had
Department dropped its anti-trust suit against IBM. The anti-trust
in the
become obsolete since technological advances and increased competition
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Federal Reserve Bank of St. Louis
6
data processing field had eroded much of IBM's alleged monopoly power.
Together, the IBM suit and the settlement of the AT&T case (regardless of its
outcome) promise to accelerate the worldwide "communications revolution".
Airline Transportation
Contrary to many critics of marketplace forces, airline deregulation *is
working well. Most importantly, carriers are changing their routes to provide
Most cities, including those in smaller communities, are
better service.
receiving improved service either through increased flights or more direct
service. Local service airlines have expanded their networks to compete with
the large airlines and have forced the big carriers to realign their routes.
In addition, fares are now more cost-based than before. Promotional fares
and reduced off-peak fares, for example, are commonplace. While fares in many
cases are higher than they were under regulation, the growth of new entrants
and the resulting competition has put downward pressure on costs and prices.
According to the Civil Aeronautics Board (CAB), fares are lower now than they
would have been had regulation continued.
The Regulatory Reform Bills
The Omnibus Regulatory Reform Bill now pending in Congress constitutes the
first major overhaul of the Administrative Procedure Act of 1946, the statute
that mandates specific methods for federal rulemaking. Among other provisions,
the Bill would require a discussion of both costs and benefits for major new
regulations (those with an economic impact of $100 million or more) and would
constrain the ability of the courts to defer to the agencies during judicial
review. On March 24,1982 the Senate passed by 94-0 the Regulatory Reform Act
(S.1080), which would affect the procedures of all regulatory agencies in the
The Senate bill contains a more broad version of the
federal government.
controversial legislative veto, which would enable Congress to turn down, by a
majority vote in both Houses, nearly all new regulations issued by agencies. No
presidential sign-off is needed for the veto. In addition, the Senate bill
requires stricter presidential supervision of the independent agencies than
does the House version, H.R.746. That House bill has a more strictly defined
legislative veto provision and exempts nineteen independent agencies from OMB's
regulatory oversight. With 251 co-sponsors, H.R.746 is awaiting floor action.
Conclusion
. Regulatory reform is one of the four cornerstones of the Administration's
economic recovery plan for a very good reason: Americans were fed-up with being
over regulated and there was a sense that the government was intruding into
many aspects of life where it had no business. It is generally recognized that
decreasing
and
costs
adding
by
inflation
fuels
regulation
excessive
productivity, slows growth in production and employment, and impedes innovation
and investment. During the past eighteen months, the Reagan Administration has
been working for the most part behind the scenes to change the direction of
federal regulation. Successful administrative reviews of specific regulations
now underscore the need for the Congress and the Administration to pinpoint
As President Reagan stated last
where statutory change is most needed.
February, "Not all of our regulatory problems can be solved satisfactorily
Existing
through more effective regulatory management and decision-making.
regulatory statutes too often preclude effective regulatory decisions..."
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louse Republican Research Committee
1616 LHOB, WASHINGTON, D.C. 20515
EDWARD R. MADIGAN
Chairman
•
TELEPHONE NO. 202/225-0871
WILLIAM E. O'CONNER. JR.
Executive Director
ROBERT H. MICHEL
Minorit) Leader
Ex-Officio
July 23, 1982
rm
Task Force on Congressional and Regulatory Refo
Jerry Lewis
Chairman
Bob Okun
Director
essions
The Federal Trade Commission (FTC) and the Prof
ous when anticompetitive
The problem of monopoly in America is most seri
State or Federal endorsements of
practices are sanctioned by government.
or other collusive activities can be
barriers to entry, price fixing agreements
Professional services have been
highly resistant to marketplace pressures.
the state level, and the FTC has
affected by such activities, particularly at
The
the competitive situation.
been increasing its involvement to improve
promote competition and freedom
Commission's goal regarding professionals is to
regulation. Indeed, in a recent
of choice as an alternative to "big-brother"
cases, Professor Ernest Gellhorn
article that is highly critical of many FTC
s professionals as making good
singled out the Commission's actions vis-a-vi
s.
economic sense and providing benefit to consumer
ets for professional services
Many economists have concluded that the mark
local regulation of the quality of
are not competitive. Certainly, state and
highly desirable, as is much of
health and other professional services is
of professionals undoubtedly
professional self-regulation. The vast majority
However, an
in their fields.
oppose harmful anticompetitive practices
government regulations control
extensive array of private restrictions and
little to do with , ethical
aspects of professional practice which have
effect on the market for
standards, but have a significant economic
r the
These include dictating not only who may ente
professional services.
red to the public, but also how
profession and what services may be offe
cts of their practices. This is
professionals may conduct the business aspe
which have received most of the
particularly true in the health professions,
increasing expenditures for health
attention because of the large and rapidly
less regulation can help to stem
care. Greater reliance on market forces and
these rising health care costs.
should not have scrutiny over
There is a strong case that the FTC
ists, lawyers and other groups. The
"quality of care" aspects of doctors, dent
ate organization to determine, for
FTC is neither a competent nor the appropri
physicians or other professional
example, the medical qualifications of
limited to the economic activities of
standards. The case for any FTC role is
boycotts or other restrictions on the
these groups such as price fixing, group
business aspects of professional practice.
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Federal Reserve Bank of St. Louis
-3-
well as government regulation,
Private restrictions on professionals, as
of
The FTC has built on a significant body
create costly inefficiencies.
types of professional regulation can
economic evidence indicating that certain
Restrictions by states on advertising
impose substantial costs on consumers.
estimated to cost consumers $134
the prices of prescription drugs have been
advertising of eyeglasses resulted in
million annually. Regulations restricting
for prescription eyewear.
consumers paying 25 to 40 percent more
ssing the costs and benefits of
Much more work remains to be done in asse
onal practice. A 1979 study by the
various types of restrictions on professi
d that regulations limiting the way
Commission's Bureau of Economics foun
tices increased prices by 17 percent
optometrists may organize their prac
service. Since such restrictions are
without increasing the quality of
($4 billion in annual sales) and
widespread in markets such as vision care
the economic loss to consumers is
dentistry ($14 billion spent annually),
Other studies have demonstrated that
likely to amount to billions of dollars.
obtaining needed services, which
higher prices prevent some consumers from
further injures the public welfare.
cted at health professionals. In
The FTC has adopted only one rule dire
manner to preempt state regulations
that rule the FTC acted in a deregulatory
eye doctors. The economic case against
that restricted truthful advertising by
and market statistics following the
these restrictions was overwhelming,
ngs for consumers.
Commission's action show substantial savi
professions increase consumer
Overall, the FTC activities regarding the
operate without interference from
welfare by permitting market forces to
me government regulation. If the
private collusive activity or burdenso
at the state level or trampled on
Commission's activities duplicated efforts
e would be reason for concern. This
states' legitimate prerogatives, then ther
power
Evidence suggests that the political
does not appear to be the case.
e level often protects themselves
professional associations wield at the stat
ce from state authorities.
from competition, with little or no resistan
competitive behavior undoubtedly
Professional groups seeking to restrict
However, the economic costs to
ic.
intend that their actions serve the publ
and the public benefits claimed from
consumers have been neglected too often,
substantiated. In its early period
restrictions on competition have not been
,
FTC exhibited some excessive rhetoric
of involvement in the professions, the
bases of professional regulation.
which failed to acknowledge the traditional
conspiracies. The Commission's more
The FTC displayed overblown fears of evil
gh.
d and careful economic analysis, thou
recent actions reflect a record of soun
of consumers through
improved the health and well-being
Such actions have
onal services, at lower cost.
wider availability of quality professi
Conclusion
Journal stated:
In a recent editorial,the Wall Street
the federal government out of
"In general, it's a good idea to keep
and
the FTC has meant more punitive
things. Generally, more power to
the Commission is on the side of the
unnecessary regulation. But this time
deregulation
purpose of (this)
And it bears repeating that the
markets.
(effort) is to let the market in..."
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Federal Reserve Bank of St. Louis
House lie ublican Research Committee
1616 LHOB, WASHINGTON, D.C. 20515
EDWARD R. MADIGAN
Chairman
•
TELEPHONE NO. 202/225-0871
WILLIAM E. O'CONNER, JR.
Executive Director
ROBERT H. MICHEL
Minorit) Leader
Ex-Officio
July 14, 1982
Reform
Task Force on Congressional and Regulatory
Jerry Lewis
Chairman
Bob Okun
Director
ion is Needed
The U.S. Maritime Industry: More Competit
time shipping proposals appear
The Administration's recently announced mari
petition approaches that have been
to depart dramatically from recent pro-com
allows increased
plan
s. The new
pursued in other transportation area
by permitting operators flying the
cartelization of the U.S. shipping industry
collectively, tree from anti-trust
U.S. flag, as well as foreign flags, to act
ely increased under the policy. Ship
scrutiny. Indirect subsidies are ettectiv
However, a second,
ct subsidies.*
operators would continue to receive dire
would come from permitting groups of
non-budgeted advantage tor U.S. carriers
their service.
them to set higher than competitive rates for
ng merchant marine is a vital
As President Reagan acknowledges, our stro
U.S. interests abroad." However,
"economic instrument for the support of
en the U.S. shipping industry can
increased cartelization in order to strength
rters, importers and consumers are
have serious economic consequences. Expo
etitive policies through higher
likely to bear the brunt of less comp
rnational shipping industry is now
transportation and product costs. The inte
a free market approach should be
increasingly competitive. More not less of
marine and to otter the public high
considered to ensure a viable U.S. merchant
price.
quality liner service at the lowest possible
Background
and cargo handling technology at
During a period of slow changes in ship
industry complained of excess shipping
the turn of the century, the shipping
s competed for inadequate supplies of
capacity and destructive rate wars as ship
ocean carriers needed to
Amid these cries, Congress reasoned that
cargo.
certain cooperative activities such as
organize collectively and to engage in
ility. Policymakers also concluded that
the setting of rates to ensure profitab
be regulated in order to protect the
this rate setting activity needed to
ed
Shipping Act,1916, as amended, restrict
public from abuse. Consequently, The
of ocean carriers known as conferences
the organizational structure of groups
engage.
and the activities in which they could
eight U.S steamship companies on
* In 1981, operating subsidies paid to
million. Outlays amounted to more
international routes ballooned to $417
ships in the U.S. international fleet.
than $2.53 million for each of the 165
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3
"introduction of new
intermodal transport
have eroded route-wid
vanced types of ships
to be a cl
and Baltic trades has
ort technologies and the associated development of
s." Such innovation and new forms- of competition
rol by closed conferences. The number of new, adoubled since 1977 in the European/Far East trades,
zation and competition from the Mediterranean
rgani
uslyconider
challanged this closed conference.
culty in
Competition in the liner trades is enhanced by the lack of diffi
There are several reasons for ease of entry into the
entering new trades.
market.
from
1. Capital costs are not an overriding factor that prohibit firms
New firms can charter technologically advanced
entering the liner trades.
al costs
e
I!iners on the open market. Some government guarantees also reduc capit
ot U.S. flag vessels.
into
Large ship size is not a requirement for viable entry
2.
liners which
available markets. Shipping companies continue to use small scale
New computer
[.X.
can confine service to a narrow range of ports and/or
independently owned
scheduling and cheap telephone communications can permit
sized ships.
and operated lines also to offer shippers a variety of ditterent
ient lines
3. Extended price cutting intended to bankrupt other effic
not enter
is not likely to succeed. Some small financially weak lines might
pted to raise
trades because of cut-throat pricing. Yet, once a 'predator' attem
w. In addiits prices, swift re-entry from other competing lines would follo
established
tion, it would be extremely costly for a 'predator' to undermine
liner companies.
-conference
In the last tour years, the number ot sophisticated and powerful non
As
ased 130%.
shipping lines entering international shipping has incre
nces of new
examples, a Europe to Middle East route reported 73 insta
cited 30 cases
competition from shipping companies and the U.K./Australia route
ing
In the European conference trades, total outsider shipp
of new entry.
competition will represent 30% of all business in 1982.
through rapid
Competition has soared because handling costs have decreased
of cargo shipments
technological change in communications and the introduction
can reduce, packing
in large standard-sized "containers." Container technology
by 400-800%. U.S.
costs by almost 40% and can increase tonnage loaded per hour
and over the years
flag operators pioneered the development ot containerization
ily. (In 1970, there
the intermodal vessel fleet in the U.S. has grown stead
three sophisticated
were 85 containerships, no barge carriers and only
By 1980, there were 107 containerships, 16
roll-on/roll-off (Ro/Ro) ships.
barge carriers and 20 Ro/Ro's).
liner companies and
Furthermore, Eastern bloc countries, independent
ht transportation maintain
improved transfer between land and sea modes of freig
t, both closed and open
constant pressure on conterence members. As a resul
discounts from established
conferences have responded to this competition with
rates.
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Federal Reserve Bank of St. Louis
5
ulate business and to work-ott excess
will be price wars initially to stim
s and
which includes scrapping of some ship
capacity. After this transition
ght
of trade should respond to adjusted frei
me
volu
the
nt,
stme
inve
new
less
w
competitive maritime industry can allo
rate levels. A de-cartelized, freely
of their resources and offer better
shipping lines the most efficient use
e
nt's counterproductive regulation. Sinc
service at lower cost without governme
ting exchange rates, they should also be
shippers have learned to deal with floa
Indeed, 65% of shippers
ght rates.
able to adjust to fluctuating frei
that open competition would lead to the
questioned in a recent survey, believed
ey indicate that rate levels were the
lowest liner rates. Results of the surv
deciding how to ship goods.
most important factor considered when
ional ocean commerce might lead to
Some argue that competition in internat
nation by foreign,state-owned-and-subdestructive rate wars and ultimate domi
nts
rtant to question what foreign governme
sidized fleets. However, it is impo
s
order to transport other nations' good
gain by subsidizing their carriers in
and
s are at least twice European costs*
at lower prices. Since U.S. crew cost
le that of foreign builders and take
U.S shipbuilding costs are nearly trip
the U.S should take advantage of this
about two years longer to build,
Soviet Union continues to carry less than
generosity. Just as importantly, the
rts(in part due to U.S sanctions against
5% of both U.S liner exports amd impo
r
) and Soviet shipping rates are no lowe
the Soviets for invading Afghanistan,
, the "Russian threat" to U.S national
than those of other independents. Thus
l power and
Rather than maximize their politica
security seem exaggerated.
rt
rnments pay their carriers in an effo
control through subsidies, foreign gove
the United States.
to bolster their merchant marine, as does
Recommendations
s to strengthen shipping cartels in
The United States should ignore plea
els
ive profits. Strengthened shipping cart
etit
comp
than
ter
grea
it
perm
to
r
orde
minimal
regulation by the FMC to provide
nt
rnme
gove
y
heav
ire
requ
d
woul
Instead, the U.S.
competitive practices.
protection tor consumers from nonnity to
U.S. trades, deny anti-trust immu
in
ces
eren
conf
it
perm
not
ld
shou
rely on the competitive forces of the
and
on
lati
regu
FMC
most
ve
remo
s,
operator
on
less costly oceanborne transportati
and
t
cien
effi
more
re
ensu
to
ace
marketpl
ect
time industry will no longer prot
mari
U.S.
the
of
tion
gula
Dere
service.
rish.
vative, cost conscious firms to flou
inno
it
perm
will
and
s
line
ent
fici
inef
Service, Inc., the only unsubsidized
d
-Lan
Sea
as
such
ers
lead
l
gica
Technolo
the
most number of flagships(47) and
the
had
1981
FY
in
r,
line
U.S. flag
In the liner trades, U.S. liner
.
ion)
mill
7
413.
($1,
nue
reve
s
gros
highest
import
share of the total U.S. export and
30%
a
y
atel
oxim
appr
have
s
anie
comp
can improve that position.
markets, and advances in technology
* As of April 1, 1981
Country
United States
Japan
West Germany
Sweden
Denmark
Korea
Ghana
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Federal Reserve Bank of St. Louis
Monthly Crew Costs
Master
$17,387
9,705
7,401
8,695
5,945
2,800
2,062
2nd Engineer
$8,212
3,920
4,174
4,813
2,899
905
1,610
Seamen
Able
$3,301
3,643
2,200
2,605
2,428
644
422
House kiiui1lican Research Committee
1616 LH013, WASIIINGTON, D.C. 20515 • TE1EF'110NE NO. 202/225-0871
ROBERT H. MICHEL
Minorit) Leader
Ex-Officio
EDWARD R. MADIGAN
Chairman
WILLIAM E. O'CONNER, JR.
Executive Director
1`,"iay 4, 1982
TASK FORCE ON
CONGRESSIONAL AND REGULATORY REFOPM
Jerry Lewis
Chairman
Bob Okun
Director
Oil Decontrol: A Deregulation Policy that is Working
The energy outlook for the United States has improved dramatically in the
past two years. At the close of the 1970's, U.S. oil and gas reserves and
production were dropping, energy consumption was rising, and this country
was heavily dependent on imported oil. Today, exploration and drilling for oil
and gas are at record highs. Production of oil has stabilized and even begun
to increase, reversing a 10-year decline. Energy consumption has been
reduced, oil imports have been slashed, and petroleum product prices have
fallen. Reducing oil imports has improved America's balance of trade, thus
strengthening the dollar and weakening inflation.
A major share of credit for these improvements is due to the decontrol of
domestic crude oil and petroleum products, along with world supply and demand
developments. In his February,1982 Economic Report to the Congress, President
Reagan commented on these advances arid added, "only skeptics of the free
market system are surprised by the results." _Indeed, oil decontrol has reversed
much of the counterproductive energy policies of the past decade and continues
to be a deregulation effort that is working.
History and Background
The prices of domestic crude oil and refined petroleum products were
subject to various federal controls from August 16, 1971 to January 28, 1981.
Those controls kept prices below what they otherwise would have been.
Controls began when President Nixon introduced what later became a
four-phase program to combat inflation. At first, most goods in the economy,
were subject to controls. Subsequently, controls were removed from other
segments of the economy, while those affecting petroleum were extended. The
Emergency Petroleum Allocation Act of 1973(EPAA) se.t up a two-tier system of
price controls. "Olc1" or "lower tier" oil prices were set at $5.25 a barrel,
while prices of "new" or "upper tier" oil were allowed to go to worldmarket
levels. Small "stripper" oil wells producing 10 barrels a day or less were
exempted from controls.
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Federal Reserve Bank of St. Louis
3
As reserves shrank, so did production. Oil output declined 11% during
the 1970's. In the lower 48 states, the year-to-year decline in the 1970's
amounted to about 300,000 barrels a day. Natural gas production dropped by
10 percent in the same years. Meanwhile, energy consumption continued to
increase. With less domestic oil available, Americans became ever more
dependent on foreign oil sources. In 1970, the United States used 14.7 million
barrels of oil a day and imported 23 percent of it. In 1979, the nation used
18.5 million barrels a day and imported 45 percent of it. Oil imports rose
during the decade from 3.4 million barrels a day to 8.4 million barrels a day.
Thus, at the end of the 1970's the outlook for U.S. oil and natural gas
appeared to be growing steadily worse. Many people were convinced that this
country would have to import ever larger amounts of oil to fill the gap between
rising energy consumption and declining oil and gas production.
The Rise of World Oil Prices
Because the United States and other industrial nations became more
dependent on imported oil during the 1970's, OPEC was able to keep raising its
prices. Other nations with oil to sell followed OPEC's lead.
The average cost of imported crude oil to U.S. refiners in 1970, including
transportation charges, was $2.96 a barrel. The cost jumped from about $4 a
barrel in 1973 to more than $12.50 a barrel in 1974. The Iranian revolution led
to another sudden major increase in 1979, and the price continued to rise. In
1980 the average cost was nearly $34 a barrel, and by February 1981 it was
$39. These price jumps were like excise tax increases that drove up world oil
prices, while at the same time reduced real economic growth because oil users
had less money to spend on other goods.
By contrast, domestic prices were held much lower. In 1980, the average
cost of acquiring a barrel of domestic crude oil was about $24. More than half
of the oil produced in the United States in 1980 was controlled at prices
ranging from about $6.50 to a little over $14 a barrel. Domestic oil price
controls continued to depress U.S. oil production,which tended to elevate the
world price of crude oil,along with consumer prices of gasoline, fuel oil and
other refined products. Controls on domestic crude oil prices also increased
U.S. consumption and confirmed America's reliance on more expensive and
politically unstable foreign oil supplies.
Oil Decontrol Turns the Tide
President Carter was criticized sharply for beginning the phased removal
of oil price control in June 1979. President Reagan received the same kind of
criticism for ending all price and allocation controls in January 1981. The
critics argued that decontrol would not increase U.S. oil production, would not
encourage energy conservation and would lead to much higher prices, thus •
harming consumers.
Experience to date has shown that the critics were wrong. Predictably,
consumers, as well as producers, have adjusted to freely changing oil prices
over the long term. Here are some developments in connection with the
decontrol of domestic oil and recent trends in world oil prices:
-- A ten year decline in U.S. oil production has been reversed.
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Federal Reserve Bank of St. Louis
•
4
,
16
5
-- Wells completed: A record total of about 78,450 wells were drilled in the
United States during 1981 in search of oil and natural gas. The number has
more than doubled since 1976 and has more than tripled since 1971. Drillers
completed more than twice as many oil wells in 1981 as gas wells. The number
of oil wells completed in 1981 increased by about 39 percent over the 1980
total,while gas wells increased by less than 14 percent.
• -- Crude oil price: Nations around the world are cutting their oil prices
because of the current oversupply. Some exporting countries have announced
two price cuts within a month, and Iran recently was reported to have reduced
prices three times during February.
U.S. oil producers also are reducing
their prices. In mid-February, The Oil Daily reported that domestic crude oil
prices had fallen to the lowest level since October 1979.
-- Product prices: Prices of gasoline and heating oil did not rise nearly as
much after decontrol as some opponents of decontrol had predicted. The
increases that did occur reflected, in large part, a December 1980 OPEC price
hike and higher costs of refining and delivering products. As crude oil prices
have come down, retail product prices also have fallen. For example, the
Bureau of Labor Statistics has reported that the average price of leaded
gasoline dropped by 6.7 cents a gallon from March 1981 through January 1982.
Since then, prices have continued to fall. The Oil and Gas Journal survey
showed a decline of nearly 9 cents a gallon in gasoline prices from March 1981
through mid-February 1982. Home heating oil was more than $1.10 a gallon on
New York spot markets a year ago; however, heating oil was available in April,
1982 on commodity futures markets, considered to be a reliable indicator of
price movements, for about 74 cents a gallon.
Conclusion
Gil decontrol appears to be providing consumers with a variety of benefits
that would not have been possible under continued controls. Of course, not all
of the benefits mentioned can be credited entirely to decontrol. For example,
the oversupply of oil on world markets has helped reduce prices. The economic
slowdown has reduced America's need for imported oil. But many of these
factors are interrelated. Clearly, more oil production and less consumption in
this country helped bring about the worldwide oversupply, which in turn led to
lower prices for petroleum products.
Many analysts have concluded that even after economic conditions improve
and the demand for petroleum begins to rise, this country's energy situation
will be more secure than it would have been under continued price controls.
Furthermore, many of the price-induced efficiencies and conservation measures
adopted by American homeowners, businesses and factories will continue to have
a long-range beneficial impact. Estimates are that nearly half of the fall in
energy demand is now built into peoples' attics, as well as cars' and companies'
capital equipment.
The February, 1982 Report of the Council of Economic Advisors contains
this statement about oil decontrol:
"The entitlements regulations provided artificial incentives to import
crude oil and residual fuel oil; the abolition of the regulatory framework has
removed that incentive. The end of artificially high oil import levels had a
favorable effect upon exchange rates, and thus upon the prices of foreign
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
PAUL A. VOLCKER
CHAIRMAN
October 19, 1982
The Honorable Berkley Bedell
House of Representatives
Washington, D. C. 20515
Door Mr. Bedell:
Recently I responded to your earlier letter concerning the
number of copies of applications filed with the Federal Reserve
System by bank holding company applicants. I indicated that, on the
basis of your calling the subject to my attention, I asked stnff to
review System policies regarding the number of copies of applications
filed with the System. I further indicated that when the review was
completed, the results would be shared with you.
As a result of our review, we plan to reduce the number of
copies of applications required, but the reduction is limited by
essential needs. The exact number of copies will depend on the type
of application, the charter status of the bank or nature of the company
to be acquired, and the organizational structure of the Reserve Bank
handling the application. As an illustration, applicants to the
Federal Reserve Bank of Chicago will be required generally to file
an original and six copies of an application to acquire an additional
state-chartered bank, for a total of seven, instead of the ten copies
referred to in your letter. Of the seven copies, one is used for
official record and public inspection purposes, two are required by
other regulatory agencies in order to carry out their responsibilities
to review and comment to the Board on the application, and four are
used by financial analysts, economists and lawyers at the Reserve Bank
and Board staff level to review, analyze and prepare recommendations
for System action on the application.
In the Federal Reserve System we are seeking to achieve two
major goals in our processing of applications. On the one hand, we are
committed to a fair and honest appraisal of the applications by various
functions at the Board and the Federal Reserve Banks staff levels prior
to presentation of the application for final action. At the same time,
we are equally committed to expeditious processing of all applications
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Federal Reserve Bank of St. Louis
The Honorable Berkley Bedell
- 2
submitted. We believe both of these objectives are supported by applicants.
To require below same minimal number of copies of applications would
effectively stymie one or the other objective. Too few copies means that
one function must wait to carry out its review until another function
completes its work and can pass on the copy of the application, therefore,
timeliness is difficult to achieve. The alternative of reducing the scope
of the review to fewer functions within the System, would run counter to
the effective administration of various relevant statutes.
Generally, it appears to us that the applicant is in the best
position from an efficiency point of view, to provide the required number
of copies. Nevertheless, I appreciate your reminding us of the necessity
to constantly monitor our procedures and remain alert to the possibility
that we are imposing burdens on applicants beyond that necessary to carry
out our responsibilities. I can assure you that we will continue to monitor
and review our requirements on a regular basis.
For your information, I am enclosing a copy of a letter addressed
to each of the Federal Reserve Banks setting forth the commitments made
during this review and reminding than of the need to minimize the paperwork burden an applicants commensurate with their ability to achieve
fairness and timeliness in the processing of applications.
Sincerely,
todJ
Enclosure
•
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
AD 82-35 (S'iR)
WASHINGTON, D. C. 20551
DIVISION OF NANKING
SUPERVISION AND REGULATION
October 15, 1982
TO THE OFFICERS IN CHARGE OF EXAMINATIONS, LEGAL, AND RESEARCH DEPAR
TMENTS
AT ALL FEDERAL RESERVE BANKS
Subject:
Number of copies of applications
Board staff recently conducted a survey of the number of copies
of applications that are used in the application process. This surve
y was
conducted in an effort to reduce the number of copies required, witho
ut
diminishing the effectiveness and timeliness of our analysis. Gener
ally,
copies of applications are required for use by other state and federal
regulatory agencies, as well as the Reserve Bank and Board. The surve
y
determined that while reductions may not be appropriate for copies suppl
ied
for the use of other agencies because of statutory review requiremen
ts,
certain reductions by Reserve Bank and Board staff could be accomplish
ed.
As part of this effort, Board staff will reduce by one the number of
copies
of applications that are processed for Board action applications. Reser
ve
Banks are requested to implement the reductions in the copies of appli
cations that they indicated were possible without affecting the timeliness
and adequacy of each Reserve Bank's review process. Please implement
these
reductions for all applications accepted after November 1, 1982. Enclosed
are revised pages for the Manual on Procedures for Processing Bank Holdi
ng
Company Applications that reflect the foregoing changes.
DIRECTOR
Enclosures
S
•
•• of GOlit •
R4
.
,•
-1
0•
BOARD OF GOVERNORS
OFTHF
FEDERAL RESERVE SYSTEM
WASHINGTON, O.C. 20551
faRALRo..
October 19, 1982
The Honorable Norman D. Dicks
House of Representatives
Washington, D. C. 20515
Dear Mr. Dicks:
Thank you for your letter of September 7 asking for
comment on correspondence you received from Mr. Roger Harpel
of Renton, Washington. Mr. Harpel refers to Article I, section 8, clause 5 of the United States Constitution, section 371
of Title 31 of the United States Code, and the Coinage Act of
1792 and asks a number of questions concerning the value of a
dollar.
As provided in the Coinage Act of 1792, this country's
earliest monetary statute, the "money of account" of the United
States is expressed in dollars or units of dollars. In this
connection, section 371 of Title 31 of the United States Code
specifically states that the money of account shall be in terms
of dollars. The dollar, therefore, is the standard unit of
value in our monetary system. Although the dollar has been
defined in the past in terms of gold or silver content, there
is no requirement that the monetary system of this country
consist of currency backed by gold or silver.
As Mr. Harpel notes in his letter, Article I, section 8, clause 5 of our Constitution gives Congress the power
to regulate the value of money. The Congress, in turn, has
delegated its monetary power to the Federal Reserve System
through the Federal Reserve Act of 1913 and subsequent
amendments.
The value of money relates to the goods and services
that it will purchase. Neither paper currency nor deposits
have value as commodities. Intrinsically, a dollar bill is
just a piece of paper. Deposits are merely book entries.
Coins do have some intrinsic value as metal, but typically
far less than their face amount.
The main factor which makes these instruments--checks,
paper money, and coins--acceptable at face value in payment of
all debts and for other monetary uses is the confidence people
have that they will be able to exchange such money for real
goods and services whenever they choose to do so. This is
partly a matter of law; currency has been designated "legal
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
The Honorable Norman D. Dicks
Page Two
tender" by the government, and paper currency is a liability of
the government. Deposits are liabilities of the commercial
banks. The banks stand ready to - convert such deposits into
currency or transfer their ownership at the request of depositors. Confidence in these forms of money also seems to be tied
in some way to the fact that assets exist on the books of the
government and the banks equal to the amount of money outstanding.
But the real source of money's value is neither its
commodity content nor what people think stands behind it. Money,
like anything else, derives its value from its scarcity in relation to its usefulness. Money's usefulness is its unique ability
to command other goods and services. In other words, money's
value can be measured only in terms of what it will buy; its
value varies inversely with the general level of prices.
Of course, it would be possible to establish a fixed
value for the dollar in terms of other currencies or other commodities, like gold or silver. However, historical experience
suggests that to do so severely limits the flexibility of
policy-makers to respond to economic shocks, and it thereby
risks serious dislocations in the economy. Moreover, the
transition to such an approach involves innumerable technical
difficulties--notably, in choosing the appropriate value of
the dollar. For these and other reasons, the United States
Gold Commission recently concluded that ". . . under present
circumstances, restoring the gold standard does not appear to
be a fruitful method for dealing with the continuing problem
of inflation."
Therefore, the value of the dollar is allowed to float.
The Federal Reserve, by influencing the supply of money, does
affect the value of the dollar. But the amount of goods and
services that the dollar can command is determined through complex interactions of supply and demand in many domestic and
foreign markets, a process which is inherently difficult to
predict. Moreover, the goal of price stability must be balanced
against other objectives set forth by Congress in the Employment
Act of 1946 and elsewhere--namely, general economic stability
and growth, a high level of employment, and reasonable balance
in transactions with foreign countries.
I understand and sympathize with the problems that
inflation has caused. The Federal Reserve, responding to the
mandate for a return to price stability, has committed itself
to reduce the rate of growth of the money supply as an essential element in the battle against inflation. Success in this
endeavor would be facilitated and hastened by continued efforts
to reduce federal spending and budget deficits and to eliminate
unnecessary or inefficient regulation.
•
The Honorable Norman D. Dicks
Page Three
Finally, Mr. Harpel's comments seem to indicate a belief
that a return to a hard money standard would prevent inflation.
Historically, this has not been true. Indeed, throughout most of
the 1800's, the United States was on some sort of gold standard.
Yet this standard did not prevent prices from fluctuating widely
even though the value of a dollar as measured in gold stayed
relatively stable. Further, since gold is a raw material that
has commercial, industrial, and decorative uses, the supply of
gold available for use in the economy as well as for these other
purposes also fluctuated, depending upon how much gold was being
discovered and processed from ore compared to the price the public was willing to pay to hold it or to use it. Several financial
panics occurred in the 1800's and early 1900's while we were
nominally on the gold standard. The country has not had such a
panic since we left that standard. One of the panics, in 1869,
was caused when two financiers attempted to corner the commercial
gold market. Thus, even when dollars are backed by gold and silver, private market forces may upset the stability in the
government-specified price between dollars and gold.
I hope this information is helpful.
if I can be of further assistance.
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Federal Reserve Bank of St. Louis
Please let me know
Sincerely,
Anthony F. Cole
Special Assistant to the Board
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Mrs. MallardiLegal Files (2)
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lcker, Chairman
The Honorable Paul Vo
d
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tution, NW
Twentieth and Consti
551
Washington, D.C. 20
Dear Mr. Chairman:
ger
my constituent, Mr. Ro
om
fr
er
tt
le
a
g
in
e and
I am enclos
ons concerning coinag
ti
es
qu
of
es
ri
se
a
Harpel, who has
value of money.
s
ers to these question
sw
an
th
wi
me
e
id
ov
I hope you will pr
th my constituent.
wi
e
ar
sh
n
ca
I
h
ic
wh
sistance.
Thank you for your as
Sincerely,
fiCA61.
NcRMAN D. DICKS
Member of Congress
NDD:gwp
Enclosure
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Federal Reserve Bank of St. Louis
•
Roger
Harpel
SEP 2 1982
August 29, 1982
s
of Representative
e
us
Ho
s
ck
Di
rm
Congressman No
20515
DC
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Dicks:
Dear Congressman
Washington,
s of
convince the member
to
rd
ha
so
g
in
rk
of O-5B.
Thank you for wo
o planes in place
rg
ca
7
74
ng
ei
Bo
in
Congress to buy
sted much treasure
wa
y
ad
re
al
s
ha
begin
Our great nation
didn't do right to
ed
he
ck
Lo
at
th
e
for
rebuilding a plan
debt be created
ch
mu
so
e
se
b
a shame to
u did the best jo
with. It is such
Yo
r.
ai
sp
de
t
n'
Please do
a smaller
inferior product.
tional defense for
na
r
ou
en
th
ng
you could to stre
er afford.
debt we could bett
7,
lates to an qugust
re
u
yo
g
in
it
wr
am
entagon
The reason that I
d on page Al, "P
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this
1982 Seattle Time
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Lockheed's prices
doing everything
is
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ogram has just ju
pr
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th
t
Bu
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ay
to explain this aw
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ates
of the United St
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all have the po
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,
ares that
reign
Constitution decl
ereof, and of fo
th
e
lu
va
e
th
regulate
Has
to...coin money,
and measures;".
s
ht
ig
we
of
rd
da
stan
t
coin, and fix the
ney to be differen
mo
of
e
lu
va
e
th
rve
d
the Federal Rese
Congress regulate
,.s
ha'
en
th
t,
no
today? If
these two
between 1980 and
the monEy between
of
e
lu
va
e
th
d
e
te
System regula
?gulating the valu
rc
is
o
wh
t,
no
ent? If
dates to be differ
ing regLAltcd?
is it even be
or
y
ne
mo
r
ou
of
ction 371
Code Titic 31 Se
es
at
St
ed
it
Un
at
I understand th
ure of the money
as
me
of
it
un
e
to be th
at a
declares the dollar
In the same way th
.
es
at
St
ed
it
Un
e
measures a
of account of th
quid, a dollar
li
of
ty
ti
an
qu
a
ates. Has
quart measures
of the United St
t
un
co
ac
of
y
ne
that
quantity of the mo
hts and measures
ig
we
of
rd
da
an
st
they
Congress fixed a
? If so, ho A are
is
ch
in
an
or
t
define what a quar
defined?
.ar
defined the doll,.
92
17
or
t
Ac
e
the Coinag
silver
I understand that
, n fine7less of
certi.:i
a
of
ht
ic
we
n
anged
as being a certai
llar quantity ch
do
a
of
on
ti
ni
substancle
coin. Has the defi
, what is now the
so
If
w?
no
d
an
at-Id
between that time
e United States
th
of
t
un
co
ac
e money of
antity
of a dollar of th
it? Is a dollar qu
of
ty
ti
an
qu
ar
ll
how much iF 1 do
by volume?
or is it now measured
ht
ig
we
by
ed
ur
as
me
'still
nation and
g the interests of our
in
rv
se
r
fo
n
ai
ag
u
yo
Thank
is that
nt. Our great republic
se
re
ep
'r
u
yo
at
th
e
at
the st
le. May God
men represent the peop
le
ab
en
wh
er
ng
ro
st
much
curiosity to
om to be just and the
sd
wi
e
th
th
wi
u
yo
s
es
bl
seek the truth.
Regards,
Roger Harper"
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
OF THE
4.•
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20 551
October 18, 1982
PAUL A. VOLCKER
CHAIRMAN
The Honorable Glenn M. Anderson
House of Representatives
Washington, D.C. 20515
Dear Mr. Anderson:
Thank you for your letter concerning your constituent's
"Mortgage Turnover Plan" to assist the housing industry. Under
this plan, banks and thrift institutions could collateralize
discount-window borrowing with older low-rate mortgages, thereby
obtaining loanable funds that would be earmarked for new mortgage loans to be made with interest rates of 13 percent or
below. The advances from the Federal Reserve would be repaid at
the same pace as the underlying collateral is amortized.
Such a plan would represent a substantial recasting of
the purpose of the discount window. Discount-window credit, now
available to thrift institutions as well as banks, is provided
primarily on a short-term basis as a source of temporary funds
to help individual depository institutions with large, unexpected deposit or portfolio adjustments. Somewhat longer-term
credit may be provided when institutions lacking ready access to
money markets need help in covering recurring seasonal needs for
funds, or on an extended credit basis in cases of a more protracted liquidity need.
The Federal Home Loan Bank System, of course, already
functions as a provider of longer-term funds to savings and loan
institutions. To that extent, it would appear redundant to
designate the Federal Reserve for a similar role. On the other
hand, the FHLB advances are generally made at some markup over
the FHLB System's own cost of raising funds, not at the sort of
preferential rate envisioned in your constituent's Mortgage
Turnover Plan. This aspect of the plan raises the general
question of the wisdom of subsidizing particular segments of the
credit markets.
The discount window is not intended to serve as a means
to achieve credit allocation, which it would become under the
"Mortgage Turnover Plan." In general, the Federal Reserve has
maintained that resources are deployed most efficiently and
equitably when credit markets are allowed to operate as freely
as possible. Our brief experience with selective credit
controls in the spring of 1980 demonstrated how difficult it is
to achieve fair treatment for all participants in the credit
markets, and the potential that exists for counterproductive
market distortions, when a central authority attempts to
allocate credit directly and in detail.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
The Fonorable Glenn M. Anderson
Page Two
I am acutely aware of the severe problems that high
interest rates create for the housing industry and other
interest-sensitive areas of the economy. But recent high
interest rates have in large part reflected the antic
ipation of
sizable government deficits and the adverse implications that
large deficits carry for inflation and interest rates in
future
periods. The Congress and the Administration took meaningful
action this summer to bring the structural component
of the
federal budget deficit under better control, although more
needs
to be done in this regard. The only enduring remedy
for high
interest rates in this situation is for the federal gover
nment
to continue deficit-reducing measures and for the Feder
al
Reserve to adhere to its anti-inflationary policy of moder
ation
in the overall growth of money and credit. As the funda
mental
long-range success of such policies has become recognized,
interest rates have moderated and over time seem likely to
moderate further, benefiting all sectors of the economy.
I hope you find these comments helpful.
Sincerely,
iJaul A. Vo!ch&
CAL:RMF:JLK:NS:vcd (V-181)
bcc:
Mr. Luckett
Mr. Fisher
Ms. Wing
Mrs. Mallardi (2)
GLENN M. ANDERSON
COMMITTEES:
32.o DISTRICT, CAUFORNIA
PUBLIC WORKS AND
TRANSPORTATION
• CHAIRMAN, AVIATION SUBCOMMITTEE
2410 RAYISURN HOUSE OFFICE ButuDo4G
WASHINGTON, D.C. 20515
TELEPHONE: (202) 225-6676
Congre55 of the tiniteb iptate5
WOLoNoBEAcHBout_EvArto
iboute ot RepresSentatibefS
(P.O. Box 2349)
90801
LONG BEACH, CALIFORNIA
TELEPHONE- (213) 548-2721
• MEMBER, SURFACE TRANSPORTATION
SUBCOM M ITTEE
• MEMBER, WATER RESOURCES
SUBCOMMITTEE
MERCHANT MARINE AND
FISHERIES
taassbington, MC. 20515
• MEMBER, FISHERIES AND WILDLIFE
CONSERVATION AND THE
ENV I RONM ET
N SUBCOM M ITTEE
August 9, 1982
• MEMBER, MERCANT
H
MARINE
SUBCOMMITTEE
• MEMBER, PANAMA CANAL
SUBCOMMITTEE
PLEASE ADDRESS REPLY TO MY:
1
0 WASHINGTON OFFICE
0 LONG BEACH OFFICE
I
• MEMBER, NATIONAL
TRANSPORTATION POLICY STUDY
COMMISSION
• MEMBER, PORT CAUCUS
• MEMBER, SHIPBUILDING CAUCUS
The Honorable Paul A. Volcker
Chairman, Board of Governors
Federal Reserve System
20th and C Streets, N.W.
Washington, D.C. 20551
Dear Chairman Volcker:
Mr. Al Valentine, of the National Gypsum Company, was
visiting my office recently and stated they had developed
a plan which they felt would be a great assist in getting
the construction industry moving again. As we have discussed
in previous correspondence, the slump in the housing industry
caused by high interest rates has had a highly deleterious
effect upon our economy in general. National Gypsum is one
of the major suppliers of building materials, and has a plant
located in my District.
I am enclosing a copy of the "Mortgage Turnover Plan".
As its primary thesis is to modify the Federal Reserve Act
to make home real estate mortgages eligible collateral for
loans at the Federal Reserve discount window, I would appreciate having your staff review it and give me their opinion
of its practicality from the financial viewpoint and its
potential to assist our housing industry.
With warmest personal regards,
arr
"4—
Verr sincerely,
aer
.
Lai
L.L.4
IDERSON
GLENN•M.
Member of Congress
cp
flf
t
L43
C.)
al
114.1
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
GIA/W4
Enclosure
THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS
Removal Notice
The item(s) identified below have been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.
Citation Information
Document Type: Research paper/proposal
Citations:
Number of Pages Removed: 7
National Gypsum Company. "Mortgage Turnover Plan: A Proposal to Revive Housing Activity
and the National Economy," 1982.
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
'gem
BOARD OF GOVERNORS
OF THE
S
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
PAUL A. VOLCKER
October 18, 1982
CHAIRMAN
The Honorable Stephen L. Neal
House of Representatives
Washington, D.C.
20515
Dear Mr. Neal:
Thank you for your telegram of October 8 asking about
recent press reports that the Federal Reserve has determined to
raise the 1982 growth target for Ml.
As you know, last February the Federal Reserve established a target range for each of the aggregates. In the
course of the year, I have had several occasions to comment on
the relationship of these targets to the financing needs of
economic recovery consistent with continued progress toward
price stability and on the need to take into account the
behavior of several monetary aggregates and other variables in
assessing the course of monetary policy. In restating the
targets in July, I commented with some emphasis on developments
in velocity and the possibility of exceptional demands for
liquidity in a period of economic uncertainty and transition.
I have indicated on a number of occasions that the Federal Open
Market Committee would be satisfied with growth of the aggregates around the upper end of their ranges and would tolerate
for a time growth at a faster pace if this appeared to be
motivated by precautionary demands for money. In this regard,
I would note that the level of M1 for the last week in September was within a few hundred million dollars of the level
implied by growth through the year at a 5-1/2 percent rate.
At its last meeting, the FOMC was faced with the
almost certain expectation that the measurement of M1 over much
of the remainder of this year would be distorted first by the
passage of funds in maturing All Savers Certificates through M1
transactions accounts on their way to other investments and
later by the introduction of a new money market fund-type
account at depository institutions pursuant to the GarnSt Germain legislation. While the impact of the All-Savers
maturity should be transitory--a matter of a few weeks--the
introduction of a new deposit instrument is still more problematical in amount and timing (although the probability seems to
be that it will depress, not increase, M1 growth). In either
case, relying directly on M1 to build the "path" for the provision of reserves would give arbitrary results for the current
period. Hence, deemphasis for a period of time seemed the only
practical approach.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Mh •
The Honorable Stephen L. Neal
Page Two
In view of all this, the Committee determined that for
an interim period, while these distortions work themselves out,
greater operational weight will be placed on M2 and lesser
weight on Ml. Obviously, we will glean what evidence we can
from the Ml data--for instance, if the early October bulge did
not subside, that would need to be taken into account in providing reserves, but we had no way of estimating in advance
just how large the bulge would be. Despite what the press has
reported, that is all there is to it with respect to Ml, just
an adjustment in operating procedures to take account of an
expected series of technical developments.
I have discussed these points at greater length in a
recent speech, excerpts of which I've enclosed for your information. I repeat there what I said in July--that, in certain
specified circumstances, we would tolerate above path growth in
the aggregates. In the circumstances, I did not, and do not,
consider any of the steps taken at the last meeting outside
either the substance or spirit of my reports to the Congress.
If I can provide any additional information on this matter,
please contact me.
Enclosure (Informal Talk to Buisness Council at Hot Springs,
Va. on 10/9/82)
cc:
Congressman Reuss
NS:PAV:pjt (41V-236)
Lcc: Mrs. Mallardi (2)
Oft
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Action assigned Mr. Axilrod
."5
t
MESSAGE: REC12
VOCT
WES BD DC
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MS THE HONORABLE PAUL A. VOLCKER
HORMAN. BOARD OF GOVERNORS
elipAL RESERVE SYSTEM
haBINGTON DC 20551
UNDERSTAND THE LAW. IT REQUIRES THAT YOU NOTIFY THE CONGRESS
U CHANGE THE TARGETS FOR MONEY GROWTH.
ARE MANY STORIES IN THE PRESS TO THE EFFECT THAT YOU HAVE
ACT DECIDED TO RAISE THE TARGETS FOR M-1 GROWTH. OR TO EXCEED
XISTING TARGETS WHICH. PRACTICALLY SPEAKING. AMOUNTS TO THE
THING.
USE OF THE STORIES, IT SEEMS APPROPRIATE THAT YOU INFORM US
ETHER OR NOT YOU INTEND TO STAY WITH THE EXISTING TARGETS, OR, IF
T TO INFORM US OF YOUR NEW PLANS.
ESPECTFULLY.
TEPHEN L. NEAL
. S. CONGRESSMAN
20 EST
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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STEPHEN L. NEAL
U. S. CONGRESSMAN
1720 EST
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ita)ipt,
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MS THE HONORABLE PAULONA. DCVOLCK
RMAN.
BOARD
OF
GOVER
NORS
AL
RESER
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SYSTEM
NGTON
:1E
DC
20551
S UNDERSTAND THE LAW. IT REOUIRES THAT YOU NOTIFY THE CONGRESS
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INFOR
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OR
NOT
YOU
INTEN
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TO
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TO INFOR
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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•
F:TDERAL RESERVE SYSTEM
I,,SHINGTON DC 20551
I U.NDERSTAND THE LAW, IT REUUIRES THAT In NOTIFY THE CONGRESS
IF YOU CHANGE THE TARGETS FOR MONEY GROWTH.
THERE ARE MANY STORIES iN THE PRESS FO THE EFFECT THAT YOU HIVE
3N FACT DECIDED TO RAISE IHE TARGETS FOP M-1 GROWTH. OR TO EXCEED
7HE EXISTING TARGETS WHICH. PRACTICALLY SPEAKING. AmOUNTS TO THE
tiAME THING.
,,
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DECAUSE OF IHE :fORIES,
WHETHER OR NGT YOU INTEND TO STAY WITH THE EXISTING IARGEIS. OR. IF
NOT, TO INFORM US OF YOUR NEW PLANS.
RESPECTFULLY,
STEPHEN L. NEAL
U. S. CONGRESSMAN
%72) EST
1729 EST
FED REE BD DC
N
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
*oft.oir•-
07
October 15, 1982
The Honorable Benjamin S. Rosenthal
Chairman
Subcommittee on Commerce, Consumer
and Monetary Affairs
Committee on Government Operations
House of Representatives
Washington, D.C.
20515
Dear Chairman Rosenthal:
Thank you for your letter of October 1, in which you
asked for our present timetable for Board consideration of
deleting Section 211.23(h)(3) of Regulation K. The Legal
Division, along with the Division of Supervision and Regulation, has begun preparing a number of technical amendments to
Board regulations in the international banking area for consideration by the Board. Among these technical changes is the
proposed deletion of Section 211.23(h)(3). The Board expects
to take action on these matters within the next month.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Sincerely,
NPJ:CO:AFC:pjt (#V- 227)
bcc: Nancy Jacklin
Legal Records (2)
Mrs. Mallardi (2)
/
41e
2
APP.
BENJAMIN S. ROSENTHAL. N.Y., CHAIRMAN
JR., MICH.
PA.
V.L.ATKINSON,
IGENECONYERS,
FSTEPHEN
N.C.
NEAL,
DOUG BARNARD,
JR.,N.Y.GA.
PETER
A.
PEYSER,
BARBARA B. KENNELLY, CONN.
Action assigne-1 Mr. Brar1tiel.-1; into copy to Mr. Dahl.
4.11.•
NINETY-SEVENTH CONGRESS
Concgre55 of tbe Einiteb
tatos
WILLJAMS,
OHIO
LYLIEDAUB,
NEBR.
HAL
F. CLINGER,
WILLIAMHILER.
JOHN
IMP. JR PA,
MAJORITY
—(202) 2-25-4407
jt)oufStotReprefSentatibeii
COMMERCE, CONSUMER, AND MONETARY AFFAIRS
SUBCOMMITTEE
OF THE
COMMITTEE ON GOVERNMENT OPERATIONS
RAYBURN HOUSE OFFICE BUILDING, ROOM 6-977
WASHINGTON,D.C. 20515
v1/1
'71
•-t
October 1, 1982
Hon. Paul A. Volcker
Chairman
Federal Reserve Board
Washington, D. C. 20551
Dear Mr. Chairman:
On June 30 I wrote to you requesting information on foreign banking organization reports to the Federal Reserve filed under Section 211.23(h) of the
Federal Reserve's Regulation K. I was particularly concerned at that time about
the meaning and consequences of the exemption currently provided in Section
211.23(h)(3) that appears to create an exception applicable to foreign governments.
Your response of August 12 provided copies of recent filings under this
section of Regulation K and extensive background material regarding the origin
and reasons for this section of Regulation K. Regarding the exemption applicable
to foreign governments, your letter stated the following:
"The foregoing provisions were first adopted as part of the
1971 amendments to Regulation Y implementing the provisions of
Section 4(c)(9) of the Bank Holding Company Act.
As the
enclosed staff memorandum indicates, there is no history
explaining the specific need for the exception (described in
(c) above) now contained in Section 211.23(h)(3) of Regulation
K. In practice, the exception does not appear to have been
utilized by any foreign banking organization.
Thus, the
provision appears to be unnecessary. Consequently, the Board
will consider deletion of Section 211.23(h)(3) from Regulation
K."
I am writing at this time to inquire as to what steps the Board has already
taken or will soon take to implement the intention stated above to "consider
deletion of Section 211.23(h)(3)." Please state your present timetable for the
various procedural steps for accomplishing this deletion.
Si,erely,
enjamin S. Rosenthal
Chairman
BSR:dtb
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
r"
r-
October 14, 1982
The Honorable Trent Lott
House of Representatives
Washington, D.C. 20515
Dear Mr. Lott:
We appreciate the opportunity to comment on the remarks
of Mr. John Mozingo, Jr., who sent you a copy of a letter he
wrote to the Internal Revenue Service. Mr. Mozingo seems to
link the IRS and the Federal Reserve. As you know, other than
as fiscal agents for the government, the System has no role in
matters of taxation.
I believe that implicit in Mr. Mozingo's letter is,
however, a general complaint regarding the state of the economy,
•
b
responsiility
to the System.
for which he may be attributing
As you know, the Federal Reserve has been attempting over the
S. st few
years to turn back a rising tide of inflation, which
reached dangerous proportions as this decade began. Unfortunately, this effort has not been painless, and financial pressures have been intensed by rising federal deficits.
However, we are seeing major progress on the inflation front and
interest rates have been trending downward -- aided by recent
deficit-reducing action by the Congress. I think there is every
reason to look forward to an improving economy in the year
ahead.
As regards loans to sovereign foreign borrowers, I can
well understand the reaction of many people to what seems the
more lenient treatment countries receive than is accorded consumers who are having difficulty meeting their debt obligations. This is a very complicated matter, but I would simply
note that, in many instances, the terms on which loans are
"rescheduled" involve -- especially when they are linked to the
International Monetary Fund assistance programs -- rather stringent plans for economic entrenchment.
I hope that these comments are useful.
know if I can be of further assistance.
Please let me
Sincerely,
MJP:JLK:pjt (#V-230)
bcc: Mike Prell
Jim Kichline
Mrs. Mallardi
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
(71snod)
R. Maloni
William R. Maloni
Special Assistant to the Board
p
Action assigned Mr. Kichline
SrRENT LOTT
51-1-i DISTRICT. Mississippi
2400 RAYBURN BUILDING
WASHINGTON, D.C. 20515
202-225-5772
REPUBLICAN WHIP
Congre55 of tbe aniteb
RULES COMMITTEE
ADMINISTRA
nvE ASSISTANT
TOM H. ANDERSON,
tea;
DI STRICT OFF I CES
GULFPORT, MISSISSIPPI 311501
601-864-7670
HATTIESBURG, MISSISSIPPI 311401
Aptige of Representatibes
JR.
Ulattington,
25
o CtOber°41
,51982
601-582-3246
LAUREL, MISSISSIPPI
39440
1101-646-1231
01,15
4'
Honorable Paul A. Volcker
Chairman
Federal Reserve System
20th and Constitution, NW
Washington, DC 20551
Dear Mr. Volcker:
I have recently received correspondence from Mr.
John C.
Mozingo, Jr., who contacted me regarding his feeling
that the Federal
Reserve Board manipulates the economy.
Enclosed for your information is a copy of this
correspondence, which details the nature of the problem.
I would
appreciate very much your providing information which
would be of
assistance in responding to this inquiry.
Thank you for your assistance in this matter.
With best regards, I am
Since
ly yours,
Trent Lott
TL/fom
Enclosure
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
October 13, 1982
The Honorable Jerry M. Patterson
House of Representatives
Washington, D. C. 20515
Dear Mr. Patterson:
In Chairman Volcker's absence, I want to
thank you for your letter of September 28 con
cerning
the application by Citicorp to acquire Fideli
ty
Federal Savings and Loan Association of Califo
rnia.
Although your letter was not received until Octobe
r 4,
subsequent to the Board's action on the applicati
on,
the concerns expressed in the letter were raised
by
other commenters on the application and were
considered
by the Board in reaching its decision. A copy
of the
Board's Order of September 28, 1982, approving Cit
icorp's
acquisition of Fidelity has previously been furnis
hed
to your office.
The Board appreciates the benefit of your
views on this matter.
Sincerely,
/s
Preston Martin
IDENTICAL LETTER SENT TO SENATOR ALAN CRANSTON
MAG:CO:vcd (V-229)
bcc:
Ms. Gadziala
Mr. Mattingly
Mrs. Mallardi'
Ms. P. O'Brien
Legal Files (2)
Action assigned Mr. Bradfield
JAKE GARN, UTAH, CHAIRMAN
JOHN TOWER, TEX.
JOHN HEINZ, PA.
• WILLIAM L. ARMSTRONG, COLO.
RICHARD G. LUGAR, IND.
ALrONSE M. D AMATO, N.Y.
CHAFEE, R.I.
ILEIN
HARRISON ''JACK" SCHMITT, N. MEX.
NICHOLAS F. BRADY, N.J.
DONALD W. RIEGLE, JR.. MICH.
WILLIAM PROXMIRE. WIS.
ALAN CRANSTON, CALIF.
PAUL S. SARBANES, MD.
CHRISTOPHER J. DODD, CONN.
ALAN J. DIXON. ILL.
JIM SASSER, TENN.
PA. DANNY WALL, STAFF DIRECTOR
ROBERT W. RUSSELL, MINORITY STAFF DIRECTOR
'ZICniteb Zicifez Zenate
COMMITTEE ON BANKING, HOUSING, AND
URBAN AFFAIRS
WASHINGTON. D.C. 20510
September 28, 1982
Honorable Paul Volker
Chairman
Federal Reserve Board
20th & Consitution Ave., N.W.
Washington, D.C. 20551
4.
Dear Paul:
This letter is in regard to the application of Citicorp
to acquire Fidelity Savings and Loan Association as a
non-banking subsidiary pursuant to 4(c)(8) of the Bank Holding
Company Act.
This application raises significant issues of facts that
should be fully explored by the Board before a final decision
is made on this application. Some of the issues involved are
addressed in S. 2879 as it passed the Senate Friday,
September 24th. Conference is expected shortly on this
legislation and final passage before the end of this week.
We feel that the issues raised by this acquisition are
best addressed by Congress, rather than a regulatory agency
acting on uncertain authority. Neither Congress nor the State
of California has approved interstate or interindustry mergers,
yet the Federal Home Loan Bank Board would have the Board of
Governors of the Federal Reserve do so under supposed emergency
condition.
It would appear that the decline in interest rates, and
the stabilization of Fidelity since the takeover, does not
support the arguments for swift emergency action on this
proposal. Additionally by the end of this Congress within a
week or so net worth guarantees will be available to handle
situations of this kind obviating the need for an emergency
breach of the public policy against interstate, interindustry
mergers.
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Federal Reserve Bank of St. Louis
1.
(LI
4
Honorable Paul Volker
September 28, 1982
Page 2
It is imperative that the Board exercise its full
responsibility to examine all issues of policy and fact
inherent in this proposed acquisition including a full
review and cost comparison of the bids rather than rely
on previous determinations made by the Federal Home Loan
Bank Board.
We urge that the Federal Reserve Board move cautiously
with full review and consider any new options that will be
available under S. 2879 before a decision is made on this
application.
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Federal Reserve Bank of St. Louis
Sincerely,
y M. Patterson
la1
Cran ton
.••• •
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GC)VP
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
•
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CF THE
s
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
t.„ •
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•
AAL RES;•'
•.,•
PAUL A. VOLCKER
October 8, 1982
CHAIRMAN
The Honorable Norman D. Shumway
House of Representatives
Washington, D. C. 20515
Dear Norm:
Thank you for your letter of September 24 regarding
the proposal by Citicorp to acquire Fidelity Federal Savings
and Loan Association of San Francisco, and suggesting that
formal hearings be held regarding that application. On
September 28, 1982, the Board determined that the public
interest factors associated with the application outweighed
any adverse effects and approved the application. A copy
of the Board's Order and the Appendix thereto approving the
application is enclosed.
,As indicated in its Order'in the case, the Board
made evry attempt to provide a full' opportunity for public
comment on the application, including ordering two informal
hearings in Washington, D. C., and San Francisco, California.
After carefully considering the comments and requests for a
formal hearing, the Board determined that to defer action
on the Citicorp application and hold such a hearing was
neither required nor appropriate under the Bank Holding
Company Act. The Board's Order contains a detailed discussion of the factors that led the Board to deny the
requests of a number of commenters for a formal hearing,
including the Board's finding that there were no material
facts in dispute regarding the application.
The Board appreciates your interest in this matter.
Sincerely,
SZlayi
Enclosure
MAG:CO:vcd (V-223)
bcc: Ms. Gadziala
G.C. Log #339
Legal Files (2)
Mrs. Mallardi (2),
'
6-11.
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•
Action assignei Mr.•Braifieli
ORM AN D. SHUMWAY
14114Di11.icr%Ckup-opmm
1228 LONGWORTH HOUSE OFFICE BUILDING
WASHINGTON, D.C. 20515
(202) 223-2511
COMM rTTEES:
COMMITTEE ON BANKING,
FINANCE, AND URBAN AFFAIRS
CHRISTOPHER C. SEEGER
ADM INISTRATIVE ASSISTANT
MERCHANT MARINE AND
FISHERIES
Congref‘l of tbe Einiteb
tate5
Pouge of Reprefientatibe5S
1045 NORTH EL DORADO, Room 5
STOCKTON, CALIFORNIA 95202
(209) 454-7612
Matbington,ID.C. 20515
LOIS SAHYOUN
DISTRICT COORDINATOR
SELECT COMMITTEE ON AGING
September 24, 1982
The Honorable Paul Volcker
Chairman
Federal Reserve Board
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551
Dear Paul:
00
-•
As you know, the proposed acquisition of Fidelity Savings and Loan AssocIAation by Citicorp has generated a great deal of controversy and confusion,
particularly in my home state of California.
Although the Fed has already held informal hearings on the Bank Board's
approval of this acquisition, the issues involved are of such importance
that formal hearings may well be warranted. Due to the improvement in
Fidelity's financial situation, the need for immediate action by the Fed
is not now apparent; Congress is expected to shortly pass the Garn bill,
which establishes specific guidelines for mergers and acquisitions of the
type being contemplated here.
I would therefore respectfully suggest that formal hearings be scheduled
to be held after Congress adjourns in October. Such hearings will provide
the opportunity of developing a formal record; all parties interested in
this precedent-setting case will, in this context, be certain that their
views are given adequate attention in the decision-making process.
With best personal regards,
Sincerely,
NORMAN D. SHUMWAY
Member of Congress
NDS: dp
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
RAL RE-S •
•... • •
October 8, 1982
PAUL A. VOLCKER
CHAIRMAN
The Honorable Bruce F. Vento
House of Representatives
Washington, D. C, 20515
Dear Mr. Vento:
Thank you for your letter of September 22 concerning
the application by Citicorp to acquire Fidelity Federal Savings
and Loan Association of San Francisco, San Francisco, California.
The Board, on September 28, 1982, after careful consideration of
all the relevant issues, including those discussed in your letter, conditionally approved this application. A copy of the
Board's Order, and the Appendix thereto, approving Citicorp's
application is enclosed.
Your letter expresses concern that the Board should
make its awn findings under the public benefits balancing test
of section 4(c)(8) of the Bank Holding Company Act ("BHC Act"),
regardless of any determination of the Federal Home Loan Bank
Board. In particular, you noted the competitive implications
of the proposal relating to the concentration of resources and
interstate expansion. As is explained in detail in the Board's
Order, the Board carefully assessed all relevant competitive
considerations and found that any potential adverse effects
would be offset by the substantial public benefits expected
through the restoration of Fidelity as an effective competitor.
To guard against the potential for unfair competition and other
adverse effects raised by the commenters, the Board placed
numerous restrictions on Fidelity's future expansion and interaffiliate transactions.
In acting on the application, the Board also carefully
considered requests that the Board await legislative action on
bills pending in Congress concerning the acquisition by bank
holding companies of failing thrifts, but concluded that a
deferral of action would be contrary to the public interest
in view of Fidelity's financial condition. The Board noted
in the Order that the FHLBB had advised the Board that the
basic concepts contained in the relevant bills were embodied
in the procedure by which the FSLIC decided to accept the
Citicorp bid. With regard to the request that the Board provide the House Committee on Banking, Finance and Urban Affairs
with its analysis of the Fidelity bids, the Board concluded
in its Order that such an evaluation is reserved to the FHLBB
and is not a proper issue for Board consideration under section 4(c)(8) of the BHC Act.
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Federal Reserve Bank of St. Louis
1
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Federal Reserve Bank of St. Louis
The Honorable Bruce F. Vento
Page Two
With regard to restrictions on Fidelity's transactions
with other banks, the Board did impose conditions that require
Fidelity to be operated as a separate, independent, profitoriented corporate entity and that prohibit Fidelity from being
operated in tandem with any Citicorp subsidiary. The Board
stated that these conditions were imposed to ensure that Fidelity
is "not utilized to further or enhance the activities of any
Citicorp subsidiary."
With regard to the Board's authority to permit bank
holding companies to acquire savings and loan associations, the
Board has consistently held that it did have such authority under
existing law to approve such an acquisition and in fact approved
several thrift acquisitions in Rhode Island and New Hampshire.
Over the past year, the Board has informed Congress that the
exigencies of a particular situation might require that the
Board approve a bank holding company acquisition of a thrift,
and earlier this year the Board did approve an acquisition in
such a situation involving a failing thrift. The Board's Order
contains a detailed discussion of the Board's practice in this
area.
•
The Board appreciates having the benefit of your
views.
Sincerely,
S/Paul A. Volcker
Enclosure
MAG:VM:vcd (V-220)
bcc:
Ms. Gadziala
Mr. Mattingly
Mr. Ryan
G.C. Log #332
Legal Files (2)
Mrs. Mallardi (2)-
HOUSE COMMITTEE ON
BANKING. FINANCE AND
URBAN AFFAIRS
BRUCE F. VENTO
*TN DISTRICT. MueasoTA
•
250 CANNON Heusi Orrict BUILDING
WARM mwrom, D.C. 20515
(202) 225-4631
Dtrrrucr Orims:
Room 150
Mums PmRsc PLACC
405 SiaLry STRErr
Sayer PAUL. H noicscrrA 115101
(612) 725-7724
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Federal Reserve Bank of St. Louis
HOUSE COMMITTEE ON
INTERIOR AND INSULAR AFFAIRS
Congrtcsss of Mc Uniteb &tato
jDouve ot ReprefSentatibtl
HOUSE SELECT COMMITTEE
ON AGING
Effassbingtott,;D.C. 20515
September 22, 1982
Chairman Paul A. Volcker
Board of Governors
Federal Reserve System
20th and Constitution Avenue, N. W.
Washington, D. C.. 20551
4
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As a member of the House Committee on Banking, Finance and Urban Aftairsa,
Feder
I am writing to register my concern over the issue of whether the
Reserve Board should approve the proposed acquisition of Fidelity Savings
and Loan of San Francisco by Citicorp of New York. In particular, I would
like to call your attention to the Board's obligation under Section 4 (C)
(8) of the Bank Holding Company Act of 1956, 12 USC §1843 (C) (8) which
requires it
(i)n determining whether a particular activity is a
proper incident to banking or managing or controlling
banks...(to)...consider whether its performance by an
affiliate of a holding company can reasonably be expected
to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency,
that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition,
conflicts of interest, or unsound banking practices.
of
That section requires the Board to make its own findings, regardless
particularly
any determination by the Federal Home Loan Bank Board. It is
important that the Board do so in this case because this could be the
financial
beginning of a very undesirable concentration in the banking and
institutions industry in this country. It would be a momentous first
nation's
decision to permit a bank holding company, and in particular the
state
second largest bank holding company, to obtain a foothold across
lines.
the legislation
I would recommend that you at least wait until we see what
a detailed
now pending before Congress will contain. Then you can make
in addition
finding as to whether the criteria that must be considered
complied with.
to price, such as the competitive situation, have been
MADE WITH RECYCLED FIBERS
THIS STATIONERY PRINTED ON PAPER
10
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
September 22, 1982
Chairman Paul Volcker
Page Two
known to my office and to the
In the meantime, the Board should make
s it to the conclusion that
Committee in general the analysis which lead
ral Savings and Loan Association
Citicorp's bid exceeds that of Fidelity Fede
med by the Federal Home Loan Bank
of Glendale, California, by the amount clai
been released by the Federal
Board. As of today this information has not
Home Loan Bank Board.
this acquisition, it should do so
However, should the Board decide to approve
is acquired by Citicorp, be
only upon the condition that Fidelity, once it
ates of Deposit from or in
absolutely prohibited from purchasing Certific
the United States which parany other way doing business with any bank in
large loans or in any other
ticipates with Citicorp in the syndication of
would indirectly benefit
way does business with Citicorp in a way that
Citicorp.
the fact that the Board has
I would also like to call your attention to
e of general language in
held on numerous occasions in the past, in spit
ority to the Board, that
the current law which appears to give this auth
policy questions which should
questions such as the one at hand are public
Reserve Board. Therefore,
be decided by Congress and not by the Federal
law, the Board should not now
pursuant to its own interpretation of the
authority to permit bank
take the position that it has always had the
association. To do so now
holding companies to acquire a savings and loan
past holdings.
would in effect constitute a reversal of its
ely
ce F. Vento
Member of Congress
BFV:mad
cc:
Lyle E. Gramley, Board Member
J. Charles Partee, Board Member
Emmett Rice, Board Member
Nancy Teeters, Board Member
Henry Wallich, Board Member
October 8, 1gR2
The Honorable Frank Annunzio
Chairman
Subcommittee on Consumer A'fairs
and Coinage
Committee on Banking, Finance
and Urban Affairs
House of Representatives
Washington, D.C.
Dear Chairman Annunzio:
Thank you for your letter of September 28 expressing
your views on the proper treatment of seller's points under the
Board's Truth in Lending Regulation Z. This has been one of
the most difficult consumer issues the float-a has faced in some
time. Although, as indicated by the enclosed Federal Register
document,.. the Board decided to leave tIle current rule in place
(by split vote), you can he confident that the Board had a
thorough and probing discussion of the issue--includinq the
factors raised in your letter. We were aided by many very good
public comments, including an unusually large number from consumers.
Although the course chosen by the malority of the
Board is not the one you favored, I can assure you that we
appreciate having your views. With the thought that you might
find it interesting, I have enclosed a cony of a memorandum
from our staff which summarizes the comments we received.
Sincerely,
5/Paul A. Vo!cket
Fnclosures (Memo dtd. 8/28/82 to Board of Governors from Division
of Consumer and Community Affairs)
GLG:CO:pjt (#V-225)
bcc: Mr. Garwood
Mrs. Mallardi (2)
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Federal Reserve Bank of St. Louis
._
Action assigned M.-ta.%.'rwbod; info copy to Governor Teeters
RON PAUL, TEX.
THOMAS B. EVANS. JR, D.
CHALMERS P. WYLIE. OHIO
GREGORY W. CARMAN, N.Y.
STANK ANNUNZIO. ILL.. CHAIRMAN
krERNAND J. ST GERMAIN. R.I.
HENRY B. GONZALEZ. TEX.
JOSEPH G. MINISH. N.J.
SILL PATMAN. TEX.
STENY H. HOVER. MD.
U.S. HOUSE OF REPRESENTATIVES
NINETY-SEVENTH CONGRESS
CURTIS A. PRINS.
STAF7 DIRECTOR
TELSPHOHS:
SUBCOMMITTEE ON CONSUMER AFFAIRS AND COINAGE
OF THE
Lt111-12S0
COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
ROOM 212 HOUSE OFFICE BUILDING ANNEX No. 1
WASHINGTON, D.C. 20515
September 28, 1982
Honorable Paul A. Volcker
Chairman
Board of Governors
Federal Reserve System
Washington, D.C. 20551
Re:
Docket No. R-0413
Dear Mr. Chairman:
I am writing in response to the Federal Reserve Board's request for comments
on possible changes in the treatment of seller's points under Truth in Lending
Regulation Z.
Revised Regulation Z, approved by the Board March 28, 1981, provides that seller's
points are excluded from the calculation of the finance charge and the annual percentage
rate that must be disclosed under the Truth in Lending Act. This rule changed the Board's
long-standing position under the original Truth in Lending Act that seller's points, when
passed along to the consumer through an increase in the selling price, were part of the
finance charge and must be disclosed (Board Interpretation 226.406, October 23, 1970).
The Board Interpretation further took the position that the inclusion of seller's points
is
in the finance charge would be a correct disclosure under Regulation Z. This position
now contained in Alternative One of the new proposal.
In the past two years, interest rates on home mortgages have been at record levels.
The high rates have had a severe impact on consumers. High mortgage rates have not only
priced consumers out of the housing market, but have also discouraged many consumers from
even shopping for homes.
In an
to provide
has had to
charged to
can easily
effort to attract buyers, many housing developers have arranged with lenders
for financing below the market rate. To obtain this financing, the developer
pay the lender a fee to compensate the lender for the lower interest rate
the consumer. These fees can be a significant expense to the developer and
rearh $10,000 or more per loan.
g
The developer in turn, recovers part or all of the fee from the consumer by increasin
the sales price of the home. Under the Board's original interpretation concerning the
treatment of seller's points, the amount of increase in the sale price would have to be
revealed as part of the finance charge and taken into account in calculating the annual
pass
percentage rate. Only those sellers who arranged below market financing and did not
the cost of it along to the consumer were able to truthfully advertise that the consumer
would get advantageous financing.
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Federal Reserve Bank of St. Louis
-2,!1,0,_ •
Honorable Paul A. Volcker
Page Two
Under the revised
below market financing
the cost. The Board's
financing and pass the
Board regulation,
without revealing
decision actually
hidden cost on to
however, all developers can offer so-called
that the consumers will actually have to bear
encourages sellers to arrange law interest
consumers.
ngton Post.
Consider the enclosed advertisement liana recent edition of The Washi
s will arrange
The seller offered a condominium at a cash price of $98,400 if the buyer
w' market financing"
their own financing. The advertisement then goes on to state that "belo
The advertisement
is available but that the price of the condominium is then $110,700.
years is available.*
prominently states that 12 1/2 percent financing for the first two
are as
According to the sales office of the developer the full terms of the offer
nt interest for
follows: 12 1/2 percent interest for the first two years, 13 1/2 perce
three years, with a
the next two years, and 15 1/2 percent interest for the following
demand feature at the end of seven years.
the annual percentage
Assuming 100 percent financing for the sake of simplicity, I had
the revised
rates calculated under the original and the revised Regulation Z. Under
l percentage rate would
Regulation Z, the amount financed would be $110,700 and the annua
e that he was getting
be 13.75 percent. A consumer being shown these figures would assum
below market financing.
rent story. In that
Calculations under the original Board interpretation tell a diffe
a prepaid finance charge
case, the amount financed would be $98,400, and there would be
and the credit sale
of $12,300 (the difference between the cash sale price of $98,400
16.37 percent. This
price of $110,700). The annual percentage rate would be a whopping
account the inflated
rate is the consumer's real cost of credit because it takes into
higher than the rate that
price due to the seller's points. It is 2.62 percentage points
ls clearly to the consumer
is required to be disclosed under revised Regulation Z. It revea
s.
that the financing is not "below market" as the advertisement claim
make informed credit
The Truth in Lending Act was passed in 1968 so consumers could
the findings and declaration
decisions. Section 102(a) of the Truth in Lending Act states
of purpose for the Act. In part the section states:
ced and
"The Congress finds that economic stabilization would be enhan
other
the competition among the various financial institutions and
gthened
firms engaged in the extension of consumer credit would be stren
ts from
by the informed use of credit. The informed use of credit resul
se of
an awareness of the cost thereof by consumers. It is the purpo
osure
this title [the Truth in Lending Act.] to insure a meaningful discl
readily
of credit terms so that the consumer will be able to compare more
."
terms available to him and avoid the uninformed use of credit . .
*
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
the advertising
I note that the advertisement violates several aspects of
to 12 1/2 percent
provisions under the Truth in Lending Act, as the reference
s.
financing is a "trigger term" that mandates additional disclosure
--suesinawake
Fanorable Paul A. Volcker
Page Three
The Board's revision of its original interpretation moved away from those goals.
We have seen how the exclusion of seller's points that are passed on to the consumer
has resulted in confusion and deception of the consumer who seeks the true cost of
credit. Financial institutions and others offering credit are placed at a competitive
disadvantage as a result of the misleading and deceptive annual percentage rates that
sellers can advertise as a result of the revised regulation. I urge the Board to
reinstate its original interpretation concerning the treatment of seller's points by
adopting Alternative One, and thereby restore accurate and meaningful disclosures to
the home finance business.
With every best wish,
Sincerely,
Frank Annunzio
Chairman
Enclosure
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Federal Reserve Bank of St. Louis
Removal Notice
The item(s) identified below have been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.
Citation Information
Document Type: Advertisement
Citations:
Number of Pages Removed: 1
"We Couldn't Improve Our Location..." Hyde Park Condominiums, undated.
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
October 6, 1982
The Honorable Carroll Hubbard
House of Representatives
Washington, D.C.
20515
Dear Carroll:
Thank you for your letter of September 15 recommending
Mr. Kenneth Henshaw for appointment as a possible Federal
Reserve Bank Director in our Eighth District. I will see that
Mr. Henshaw's name is added to our "pool" of potential directors, both here and at the District Bank.
As you know, we are very much interested in a diversity of background and variety of points of view among
directors of the Federal Reserve Banks and Branches and are
particularly aware of the need for directors who are knowledgeable about the agricultural sector. Mr. Henshaw's extensive
involvement in agricultural matters and organizations is impressive. The Board appreciates your bringing his qualifications
to our attention.
Sincerely,
RER:CO:NS:pjt (#V-215)
bcc:
Vice Chrmn. Martin
President Roos (w/copy of incoming)
Ruth Robinson
Ted Allison
•
Mrs. Mallardi .(2)„,
,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
IDENTICAL LETTER TO SEN. WENDELL H. FORD (4V-226)
Action assigned Mr. Allison; info copy to Vice Chairman Martin
AT LARGE MAJORITY WHIP
"CARROLL. HUBBARD
CONGRESSMAN
COMMITTEES I
1ST DISTRICT, KENTUCKY
2244 RAYBURN HOUSE OFFICE BUILDING
WAkHING. D.C. 20515
BANKING. FINANCE AND
URBAN AFFAIRS
Congreczoftbetiniteb
tate5
MERCHANT MARINE
AND FISHERIES
:0 (202)2253115
jbouiSe of Repretentatibet
as'bington, ID.C. 20515
CHAIRMAN. SUBCOMMITTEE ON
PANAMA CANAL/OUTER
CONTINENTAL-SHELF
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September 15, 1982
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•••••
•
•
Hon. Paul A. Volcker
Chairman
Board of Governors
Federal Reserve System
20th and Constitution Avenue, N.W.
20551
Washington, DC
Dear Paul:
I am writing today to request your support for Kenneth
Henshaw of Sturgis, Kentucky, as Director of the Federal
Reserve Bank for the Louisville District in Kentucky.
It is my understanding that Dr. James F. Thompson, a
professor at Murray State University in Murray, Kentucky,
is retiring as the Director and has recommended Kenneth
for the position. It is further my understanding that
Kenneth has the respect and support of his peers in Union
County and is the only individual of the three who will
be nominated who is from western Kentucky.
Enclosed is a copy of Kenneth's resume for your purusal.
I believe you will agree that Kenneth Henshaw is well
qualified for the position, and I trust that he will be given
every consideration.
Thank vov for your attention to this matter.
With best wishes for you, I am
Sincerely yours,
a
eti"
"
4
Carroll Hubbard
Member of Congress
CH:lmg
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
40
ji,
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: Resume
Citations:
Number of Pages Removed: 1
Resume, Kenneth Henshaw, 1982.
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
October 6, 1982
The Honorable Doug Barnard
House of Representatives
Washington, D.C.
20519
Dear Mr. Barnard:
Thank you for your letter of September 21, 1982, concerning proposed modifications to the Federal Reserve Bank
check collection services.
The Federal Reserve Banks have restructured their
interdistrict transportation system (ITS) in order to improve
the speed with which checks are collected. With the modifications to ITS, the Federal Reserve is proposing to accept checks
at later hours than they currently are accepted. In addition,
the Reserve Banks propose to establish 12:00 noon as the
uniform presentment time for checks drawn on Reserve city depository institutions and certain large institutions located
outside Reserve cities. The combination of these changes is
expected to increase the number of checks collected in one day,
thus improving availability for depository institutions and
their customers.
The comment period has lust ended. Our staff reports
a very large number of public comments from commercial banks,
savings and loan associations, credit unions, trade associations, consumer groups and members of the public.. It is too
soon to have even a preliminary assessment of these comments.
Once the comments have been analyzed and summarized by
the staff, the Board will carefully evaluate them in the
further consideration of this proposal. We appreciate the
efforts of all those who commented on this proposal.
The Federal Reserve System is committed to the full
implementation of the Monetary Control Act of 1980. We believe
our actions, including the essential elements of the current
proposal, will continue to demonstrate our commitment to the
spirit and intent of the Act.
We will advise you of the action taken on this proposal.
Sincerely,
ECMcL:LSM:CO:pjt (#V-219)
bcc:
Mr. McEntee
Mrs. Mallardi (2)
Mr. Meeder
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
444
Action assigned Mr. Allison
DOU
DISTRICT OFFICES:
STEPHENS FEDERAL BUILDING
ROOM 128, Box 3
ATHENS, GEORGIA 30601
(404) 546-2194
BARNARD, JR.
10TH DISTRICT, GEORGIA
COMMITTEES:
BANKING, FINANCE AND
URBAN AFFAIRS
GOVERNMENT OPERATIONS
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Come55 of tbe Ziniteb tate5
3[pm:it of 11epresSentatibe5
filacsbington, 30.C. 20515
407 TELFAIR STREET
P.O. Box 10123
AUGUSTA, GEORGIA 30903
(404) 724-0739
NEWTON COUNTY
EXECUTIVE OFFICE BUILDING
COVINGTON, GEORGIA 30209
(404) 787-2110
September 21, 1982
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Cr.
The Honorable Paul A. Volcker
Chairman of the. Board of Governors
Federal Reserve System
Twentieth Street and Constitution Avenue, NW
20551
Washington, D.C.
Dear Mr. Chairman:
The proposed changes in times and conditions for
As now
check clearances concerns me a great deal.
formulated, these proposals give a clear competitive
advantage to the Federal Reserve's check clearing
activities and courier service over those offered by
correspondent banks and private courier services.
While the entire issue of granting the Federal
Reserve a competitive imbalance over its commerical
rivals is very serious, I am especially concerned
with the effect the flexibile delivery schedules will
have on private dispatch services, including one that
is headquartered in my area, the Dispatch Courier Group.
Allowing Federal Reserve transportation services
later presentment deadlines than its private competitors
is both unfair and likely to have a severe impact on
If this proposal is approved
their future viability.
without including delivery schedules that are uniform
for both Federal Reserve Banks and private service providers in both price and time, many jobs will be unnecessarily lost as private dispatch services that are unable
to compete are forced out of business.
When I moved to include the provision in P.L. 96-221
which mandated that the Federal Reserve cut float, there
was no intention to allow it to price its services in such
a way that private competitors would be forced out of
I urge you to alter this proposal to allow equal
business.
conditions, times and pricing with private competitors
including private dispatch services.
Sincerely,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
October 6, 1982
The Honorable Lloyd Bentsen
United States Senator
912 Federal Building
Austin, Texas
78701
Dear Senator Bentsen:
Thank you for your letter of September 3 enclosing
correspondence from your constituent, Ms. Jill Ann Jones,
regarding employment with the Federal Reserve Bank of Dallas.
As a matter of operating policy, each Federal
Reserve Bank handles its own employment program. We have
forwarded a copy of your letter and Ms. Jones' correspondence
to the Federal Reserve Bank of Dallas. Therefore, Ms. Jones
may wish to contact:
Ms. Carla M. Warberg
Vice President
Federal Reserve Bank of Dallas
Dallas, Texas
75222
I hope this information is helpful to you.
let me know if I can be of further assistance.
Please
Sincerely,
William R. Maloni
Special Assistant to the Board
UNx
CWW:CO:pjt (#V-207)
bcc: Ms. Carla M. Warberg (FRB, Dallas; w/copy of incoming)
Mr. Wood
Mrs. Mallardig
Action assigned Mr. Shannon
ILLOYD BENTSEN
Ti XAS
COMMITTEES:
FINANCE
ENVIRONMENT AND PUBLIC WORKS
JOINT ECONOMIC
'Unita)Zfates Zenate
WASHINGTON, D.C.
SELECT COMMITTEE ON INTELLIGENCE
20510
September 3, 1982
Mr. Paul S. Volcker, Chairman
Federal Reserve System
Constitution Avenue between
20th and 21st Streets, N.W.
Washington, D.C. 20551
Dear Mr. Chairman:
I recently received the enclosed constituent inquiry, and I
would very much appreciate your providing me with any
pertinent information you might have regarding the matter.
Your kind assistance is greatly appreciated.
Sincerely,
ntsen
Encl
re
PLEASE REPLY TO:
912 Federal Building
Austin, Texas 78701
ATTN: Robert Block
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
r
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AUG 3
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
SEP
14P9
1 192
August 24, 1982
Senator Loyd Bentsen
1100 Commerce
Dallas, Texas 75202
Dear Senator Bentsen,
Upon graduation from Texas Tech University this December,
I would like to work for the Federal Reserve Board in
Dallas, Texas as a bank examiner.
If you would provide me with any information which might
enhance my possibilities of being hired by this prestigious
and honorable branch of the United States Government, I
would be eternally grateful.
Please direct any correspondence to:
Jill Ann Jones
4630 55th Street #237
79414
Lubbock, Texas
Thank you for your help in this matter.
Sincerely,
Jill Ann Jones
JAJ/jv
111/4
LLOYD BENTSEN
TEXAS
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
CON M ITT E ES:
FINANCE
ENVIRONMENT AND PUBLIC WORKS
JOINT ECONOMIC
'ZICnifeb ,...%tafez -.Senate
WASHINGTON. D.C.
SELECT COMMITTEE ON INTELLIGENCE
20510
October 8, 1982
Mr. Paul S. Volcker, Chairman
Federal Reserve System
Constitution Avenue between
20th and 21st Streets, N.W.
Washington, D.C. 20551
:',..
-.r.•
I am writing in reference to my inquiry to which I have
received no reply. I have enclosed a copy of my
constituent's letter for your reference.
Sincerely,
ntsen
Enclo ure
PLEASE REPLY TO:
912 Federal Building
Austin, Texas 78701
li
,
r...
:r!
Dear Mr. Chairman:
I would appreciate any information you can provide in
this regard.
my
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
AUG 30 10P9
sEp
1 1982
August 24, 1982
Senator Loyd Bentsen
1100 Commerce
Dallas, Texas 75202
Dear Senator Bentsen,
Upon graduation from Texas Tech University this December,
I would like to work for the Federal Reserve Board in
Dallas, Texas as a bank examiner.
If you would provide me with any information which might
enhance my possibilities of being hired by this prestigious
and honorable branch of the United States Government, I
would be eternally grateful.
Please direct any correspondence to:
Jill Ann Jones
4630 55th Street #237
Lubbock, Texas
79414
Thank you for your help in this matter.
Sincerely,
Jill Ann Jones
JAJ/jv
.....
f• GOvt •
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, 0. C. 20551
October 6, 1982
PAUL A. VOLCKER
CHAIRMAN
The Honorable Glenn English
Chairman
Subcommittee on Government Information
and Individual Rights
Committee on Government Operations
House of Representatives
Washington, D. C. 20515
Dear Chairman English:
Thank you for bringing to my attention Ms. Susan A.
Meyer's complaint about being charged for photocopies of
Federal Reserve documents she requests on behalf of her newsletters. I want to emphasize at the outset that the Federal
Reserve staff makes a very determined effort to provide
excellent service and cooperation not only to the press but to
all who exercise their rights under the Freedom of Information
Act to inspect or copy our records. We take our responsibilities under the Act seriously, and I think that attitude is
reflected in our good reputation in this area.
Federal Reserve regulations prescribe fees for search
and for photocopying work done on behalf of the public; but the
fees that are collected recover less than ten percent of the
estimated costs associated with Freedom of Information
requests. By this measure we subsidize requests to an extraordinarily generous degree.
Copying charges are waived chiefly in three situations. First, a great many releases, reports, and other agency
documents of current public interest are provided free to anyone requesting them. In addition, the Federal Reserve fills,
without charge, all orders involving fewer than 20 pages. For
larger requests the staff waives photocopy charges if it
determines that furnishing the information can be considered as
primarily benefiting the general public. As a matter of administration, we generally do not charge search fees in connection
with relatively routine requests.
Also as a matter of administration, we have not
closely scrutinized requests for waiver of fees by publications
whose information requests are relatively small and infrequent. On this basis, we have provided documents to Ms. Meyer
and her staff from time to time in the past without charge.
Recently, however, the question of their entitlement to such
waivers was raised by the staff when it appeared that
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
The Honorable Glenn English
Page Two
requests from that company were becoming more frequent and more
substantial. After review of a particular request, the staff
concluded that the records that were retrieved and copied in
that case could not be considered as primarily benefiting the
general public, but instead would chiefly benefit the commercial interests of a narrow and specialized clientele.
The Federal Reserve considers its fee waiver practices
liberal, but any public agency also has a duty to see that its
resources are devoted to public purposes. As the staff has
explained to Ms. Meyer, both in writing and in conversation,
the Federal Reserve is happy to examine each of her requests
and to consider seriously any information she provides about
possible benefits to the general public. We also would regard
favorably efforts she may make to tailor requests that minimize
costs to the Board. We are not, however, willing to waive automatically, as she wants us to do, all costs that this agency
incurs on her behalf.
Ms. Meyer's case is the first fee waiver denial that
has been formally contested by a publication before this
agency. For that reason, it received an exceptional amount of
staff time and attention. The decision does not represent a
change in policy, however. The list you requested of press
requests for the last year is enclosed, and you will see that,
in fact, it has been our practice to charge special interest
publications. In addition, a number of trade associations, law
firms, and consulting firms provide services like Ms. Meyer's
to similar clients, and they are expected to pay their costs.
We regard our fee practices as faithful to the law,
but I appreciate your calling complaints about our performance
in this area to my attention.
Sincerely,
Enclosure
JM:SLS:CO:WWW:pjt (#V-212)
bcc: Gov. Partee
Messrs. Siciliano, Wiles, McAfee, Coyne, Garwood
Ms. Arnold
Mrs. Mallardi (2)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Rh.
FEDERAL RESERVE BOARD
PRESS FREEDOM OF INFORMATION REQUESTS
July 1, 1981 - September 20, 1982
This list has been compiled principally from the log of the
Board's Freedom of Information Office. The log is maintained to enforce
compliance with statutory time limits, and therefore does not include requests
that are made in person at the office and filled immediately from supplies
on hand. Most of these unlogged over-the-counter requests involve current
public material, such as press releases and documents related to open Board
meetings, which are distributed without charge. It is not the Office's usual
practice to waive fees for other material delivered over the counter, except
when the requested material is under 20 pages. To the extent they could
be identified, unlogged orders by publications for materials exceeding 20
pages are included in this list, in addition to all logged orders, regardless
of size.
1981
Publication
July 1
EFT Report
July 23
St. Louis Post -Dispatch
July 27
Fortune
July 29
Commerce Clearing House
July 29
Amount
$
.
Remarks
4.20
8.00
36.20
.20 (waived)
under 20 pages
American Banker
1.30 (waived)
under 20 pages
July 29
Wall Street Letter
1.60 (waived)
under 20 pages
Aug. 5
Newsday
9.00
Aug. 10
Bank Focus Newsletter
Aug. 14
.80 (waived)
under 20 pages
American Banker
1.90 (waived)
under 20 pages
Aug. 18
Bank Letter
2.00
Aug. 18
Bureau of National Affairs
12.40
Sep. 25
Washington Financial Reports
15.20
Sep. 30
Capitol Reports
14.60
Oct. 13
International Banking News Service
2.20
Oct. 16
Capitol Reports
3.00
Oct. 19
Forbes ,
Dec. 2
Capitol Reports
27.10
Dec. 11
American Banker
11.40
Dec. 16
Casper Star Tribune
••
19.30 (waived)
press release
1982
Jan. 7
Capitol Reports
131.20
Jan. 20
Capitol Reports
10.00
Jan. 21
EFT Report
31.80
Jan. 21
Bureau of National Affairs
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
public interest
5.30
11•••
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1982
Publication
Amount
Remarks
Feb. 2
Washington Credit Letter
Feb. 5
Pace Communications
Feb. 3
Capitol Reports
Feb. 5
Publications
Feb. 16
Washington Post
7.70 (waived)
Feb. 17
EFT Report
3.70
Feb. 17
American Banker
5.60
Feb. 22
EFT Report
8.80
Mar. 2
American Banker
5.20 (waived)
public interest
Apr. 1
Telecommunications Report
5.70 (waived)
public interest
Apr. 2
Communications Daily
5.70 (waived)
public interest
Apr. 2
Financial Services Newsletter
5.70 (waived)
public interest
Apr. 5
Fairchild Publications
5.70 (waived)
public interest
Apr. 6
Prentice-Hall
Apr. 20
Bureau of National Affairs
9.90
Apr. 26
Bureau of National Affairs
15.20
Apr. 28
Market Timing Report
May 11
Bureau of National Affairs
12.70
May 12
Capitol Reports
14.20 (reduced)
May 25
Commerce Clearing House
13.80
May 25
Bureau of National Affairs
2.40
June 29
Capitol Reports
2.70
July 6
American Banker
13.40
July 6
American Banker
2.80
July 9
American Banker
2.60
Jul 19
Bureau of National Affairs
8.00
July 20
Bureau of National Affars
July 23
Commerce Clearing House
2.20
July 27
American Banker
3.40
July 28
Bureau of National Affairs
Aug. 6
New York Times
3.40
Aug. 13
American Banker
13.70
Aug. 16
San Antonio Express News
18.10
Aug. 30
PSI Publications
9.50
Sept. 8
Daily Bond Buyer
25.10
Sept. 14
New York Times
3.10
15.10
3.70
15.10
public interest
Board order
2.20
public interest
17.50
11.30
1.50 (waived)
under 20 pages
DIN
Action assigned Mr. Wiles
GLISI4, OKLA.. CHAIRMAN
I WE JLS.' N.Y.
4RY A.ShXMAN. CALIF.
N L BURTON, CAUF.
JOHN CONYERS, JR., MICH.
THOMAS N. KINDNESS, OHIO
JOHN N. ERLENDORN, ILL.
HIENDEU- BAILEY, MO.
NINETY-SEVENTH CONGRESS
225-3741
Congrews of tbe Elniteb 'tate
jijoucie of Repregentatiba
GOVERNMENT INFORMATION AND INDIVIDUAL RIGHTS
SUBCOMMITTEE
OF THE
COMMITTEE ON GOVERNMENT OPERATIONS
RAYBURN HOUSE OFFICE BUILDING, ROOM B-349-B-C
WASHINGTON, D.C. 20515
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September 8, 1982
The Honorable Paul A. Volcker
Chairman, Board of Governors
The Federal Reserve System
Federal Reserve Building
Washington, D.C. 20551
Dear Mr. Chairman:
Susan A. Meyer, the publisher of Capitol Reports, Inc.,
has written to me complaining of a recent change in Federal
Reserve policy with respect to fee waivers under the Freedom of
Information Act. Until recently, the Federal Reserve routinely
granted fee waivers to members of the press who used the FOIA
to obtain information. According to Ms. Meyer, there has apparently been a change of policy, and the Federal Reserve is now
denying fee waivers to at least some bona fide members of the
press.
I would appreciate it if you would explain to me what the
current policies of the Federal Reserve are with respect to fee
waivers for the press. I would also like to know if there have
been any recent changes in policy and, if there have, the reasons
for the changes. Finally, I would like a list of all FOIA
1
requests where fee waivers were denied members of the press in
the last year.
Let me make clear my own view that it was Congress' intent
that fee waivers should be granted liberally by agencies. It
was also Congress' intent that fee waivers should be granted as
a matter of course for FOIA reauests submitted by legitimate
press representatives. There is no more effective way to further
the Act's goals of informing the public of the operation of the
government than to allow the press maximum access to agency documents. Any significant deviations from the policy intended by
Congress will be the subject of scrutiny from this Subcommittee.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-2-
A. Volcker
The Honorable Viiu.
September 8, 1982
Thank you for your attention. I would like to have your
response within two weeks of the receipt of this letter. If
LIII
you or your staff have any questions, please contact Subcommittee counsel Robert Gellman.
Sincerely)
lenn
Chairm n
GLE:rg:kar
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ish
October 6, 1982
The Honorable William Proxmire
United States Senate
20510
Washington, D.C.
Dear Senator Proxmire:
Thank you for your letter of September 17 forwarding
correspondence you received from your constituent, Mr. Helge S.
Christensen, of the Wisconsin Independent Bank.
As you are aware, on August 4, 1982, the Federal
Reserve Board published for public comment a proposal to
improve the speed and efficiency of the nation's payments
mechanism by speeding up the collection of checks. More specifically, the Federal Reserve Banks have restructured their interdistrict transportation system (ITS) in order to improve the
speed with which checks are collected. With the modifications
to ITS, the Federal Reserve is proposing to accept checks at
later hours than they currently are accepted. In addition, the
Reserve Banks propose to establish 12:00 noon as the uniform
presentment time for checks drawn on Reserve city depository
institutions and certain large institutions located outside
Reserve cities. The combination of these chanoes is expected
to increase the number of checks collected in one day, thus
improving availability for depository institutions and their
customers.
The comment period has just ended. Our staff reports
a very large number of public comments from commercial banks,
savings and loan associations, credit unions, trade associations, consumer groups and members of the public. It is too
soon to have even a preliminary assessment of these comments.
Once the comments have been analyzed and summarized by
the staff, the Board will carefully evaluate them in the
further consideration of this proposal. We appreciate the
efforts of all those who commented on this proposal.
The Federal Reserve System is committed to the full
implementation of the Monetary Control Act of 1980. We believe
our actions, including the essential elements of the current
proposal, will continue to demonstrate our commitment to the
spirit and intent of the Act.
We will advise you of the action taken on this proposal.
Sincerely,
LSM:CO:pjt (#V-217)
bcc: Mr. Meeder
Mrs. Mallardi (2)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Sgaul A. Volckec
Action assign.e4 Mr. Allison; into copy to Vice Chairman Martin
JAKE OAR/4, UTAH, CHAIRMAN
JOHN TOVar''.., TEX.
JOHN HEINZ, PA.
.,,,WILLIAM I— ARMSTRONG, COLO.
RICHARD G. LUGO" RIO.
ALFONSE N. DAMATO, N.Y.
JOHN H. CHAFES, R.I.
HARRISON "JACK** SCHMITT, N. M.
NICHOLAS F. BRADY. N.J.
M. DANNY WAI.J„, STAFF DIRECTOR
110111EAT W. RUSSELL, MINORITY STAFF DIRECTOR
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
DONAL—D W. RIEGLE, JR, MICH.
WILLIAM PROXMIRE. WIS.
ALAN CRANSTON. C.ALJF.
PAUL S. SARS.041.S. MD.
CHRISTOPHER J. DODO, CONN.
ALAN J. DIXON, ILL.
JIM SASSER, TENN.
11Cnifeb Ziatez .Senate
COMMITTEE ON BANKING. HOUSING. AND
URBAN AFFAIRS
WASHINGTON. D.C. 10510
September 17, 1982
ttio
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Fr
4f711
The Honorable Paul Volcker
Chairman
Federal Reserve Board
20th and C Streets, N.W.
Washington, D.C. 20551
Dear Mr. Chairman:
I am forwarding to you a copy of a letter from a community
banker in my home state of Wisconsin in support of improved check
collection times and services.
I would appreciate your providing me with your comments so
that I may respond to Mr. Christensen.
sincerely,
lam
WP/ hg
enclosure
r'.x
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ry-4
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Wisconsin Indepa: g'griVA3r
30 West Mifflin
Box 2238
Madison, Wisconsin 53701
608-251-2001
September 8, 1982
Senator William Proxmire
5241 Dirksen Senate Office Building
Washington, D.C. 20510
Dear Senator:
ing the role of community banking
You and I have spoken before regard
and related subjects.
king is under pressure and needs
Currently, an ally of community ban
ss,
tem, responding to the will of Congre
direction. The Federal Reserve Sys
Control Act is proposing implementing
as established by the 1980 Monetary
being
services. In doing so, the Fed is
improved check collection times and
banking
deeper in the area of correspondent
accused by large banks of entering
d.
and litigation is being threatene
al to the check collection process
We regard the Federal Reserve as vit
Monetary
vice enhancement. Also, the 1980
ser
g
uin
tin
con
its
age
our
enc
and
colthe Fed to act to improve the check
n
upo
ent
umb
inc
it
e
mad
Act
l
tro
Con
improve efficiency.
lection process, reduce float and
it important that a government
During this comment period, we feel
e
eral Reserve Board of the 1980 mandat
Fed
the
ind
rem
e
tur
sta
r
you
of
der
lea
a.
efforts in the check collection are
's
Fed
the
age
our
enc
and
ss
gre
Con
of
Thank you.
Sincerely,
Helge S. Christensen
President
also
Secretary-Treasurer
Independent Bankers Association
of Wisconsin
me
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Member of Federal Deposit Insurance Corporation.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, 0. C. 20 551
October 1, 1982
PAUL A. VOLCKER
CHAIRMAN
The Honorable Benjamin S. Rosenthal
Chairman
Subcommittee on Commerce, Consumer
and Monetary Affairs
Committee on Government Operations
House of Representatives
Washington, D.C.
20515
Dear Chairman Rosenthal:
Your letter to me of September 2 requested that I provide a status report on the proposal of the Federal Financial
Institutions Examination Council that all insured commercial
banks be required to report quarterly to the federal banking
supervisory agencies the amounts of their past-due, non-accrual
and renegotiated "troubled" loans and lease financing receivables. The proposal, as originally submitted to the Office of
Management and Budget, called for this information to be
reported beginning with the Report of Condition for September 30, 1982, and for the information to be made available to
the public beginning with the Report for March 31, 1983.
(Inclusion of information on past-due loans in the quarterly
Report of Condition is a new requirement for state banks supervised by the FDIC and the Federal Reserve, but for several
years National banks have had to report to the Comptroller of
the Currency a somewhat similar schedule, which has not been
made available to the public.)
OMB disapproved the original proposal, but after some
discussion has subsequently approved the proposal with a one
quarter delay in implementation--i.e., reporting will begin
with the Report for December 31, 1982, and the information will
be made available to the public beginning with the Report for
June 30, 1983. This one quarter delay in implementation, which
is acceptable to the agencies, will provide banks more time to
prepare for the new requirements. There is also a change in
the substance of the public disclosure provision. The information on loans past due 30-89 days will not be disclosed but
all the other information--90 days past-due, non-accrual, and
renegotiated loans--will be made available to the public on
request. This meets the industry's most serious and persuasive
complaints about the dangers of possible public misinterpretation of the information and brings this disclosure into
closer conformity with SEC standards. A few changes were also
made in the details of the information to be reported in order
to ease the reporting burden on banks. The precise nature of
the information that will be collected is indicated in the
enclosed draft forms for the new schedule.
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Federal Reserve Bank of St. Louis
The Honorable Benjamin S. Rosenthal
Page Two
Given OMB final approval of the proposal, the question
of overriding OMB's decision, authority for which is given to
"independent regulatory" agencies in section 3507(c) of the
Paperwork Reduction Act of 1980, does not arise.
As there was some confusion in the press accounts, I
should also note that the Council proposal on past-due loans
wSs the first stage of a more comprehensive proposed revision
of the quarterly Reports of Condition and Income and the only
stage that has so far been submitted to OMB. The second stage
provides for (a) the adon of schedules on interest-rate
sensitivity and on contingent liabes and other off-balance
sheet items bearing on the condon of banks; (b) the quarterly reporting of income by smaller banks that now report on a
less frequent basis; and (c) the deletion of certain schedules
currently required. This second stage has been approved by the
Council for implementation with the Reports for March 31, 1983,
with a number of changes from the original proposal stemming
from the comment letters received and from further discussions
with the industry, and will shortly be submitted to OMB. The
third stage--involving both additions to and deletions of
reporting requirements, as well as a number of changes in the
structure of the reporting format—is scheduled Srmp e
aton with the Reports for March 31, 1984. Submission of the
third stage to OMB is a few months off. A version of the
entire package of proposals was distributed for public comment
earlier this summer and a large number of comments were
received from the banking industry and from others.
I hope that this information is useful.
know if I can be of further assistance.
Sincerely,
Wad rt. VO.ckec
Enclosures
SS:pjt (#V-204)
bcc: Stan Sigel
Mrs. Mallardi (2)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Please let me
FFTEC 021a—reporting form for banks with foreign
offices or Edge Act or Agreement subsidiaries
,
Na.
Supervisory Supplement 1:
Past Due, Nonaccrual, and Renegotiated Loans and Lease Financing Receivables
A
Past due
30 thru 89
days & still
accruing
Type of Loans and
Lease Financing
Receivables
1.
Past due 90
days or more
and still
accruing
Nonaccrual
Renegotia
"trouble
debt
In domestic offices
a.
b.
C.
d.
e.
Real estate
loans . . • . • • . •
XXX
XXX
XXX
XXX
Commercial and
industrial loans. • .
XXX
XXX
XXX
XXX
Loans to individuals
for household, family
and other personal
expenditures .
. •
XXX
XXX
XXX
XXX
Loans to finance
agricultural production and other
loans to farmers 1/.
XXX
XXX
XXX
XXX
All other loans and
all lease financing
receivables . . . .
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
2.
In foreign offices
3.
TOTAL (sum of items
la through le and 2). .
•
•
•
1/ To be reported separately only if agricultural loans in the domestic offices of
the bank exceed one percent of total loans. If less than one percent, include
in line e.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
4-
'
ITIEL: 021b—reporting form for banks with domestic offices
only and with total assets of $100 million or =re
Supervisory Supplement 1:
Past Due, Nonaccrual, and Renegotiated Loans and Lease Financing Receivables
A
Type of Loans and
Lease Financing
Receivables
Past due
30 thru 89
days and still
accruing
1.
Real estate loans . • •
2.
Commercial and
industrial loans
3.
4.
6.
•
Nonaccrual
Renegotia
"trouble
debt
•
Loans to individuals
for household, family
and other personal
expenditures • . • •
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
Loans to finance
agricultural production
and other loans to
farmers
, 5.
•
Past due 90
days or more
and still
accruing
t. •
All other loans and
lease financing
receivables . • . . . .
•
TOTAL (sum of items 1
thru 5)
\y TO be reported separately only if agricultural loans in the domestic offices of
the bank exceed one percent of total loans. If less than one percent, include
in line e,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
FFIEC 021c—reporting form for banks with domestic offices only
and total assets of less than $100 million
Supervisory Supplement 1:
Past Due, Nbnaccrual, and Renegotiated Loans and Lease Financing Receivables
A
Types of Loans and
Lease Financing
Receivables
Past due
30 thru 89
days and still
accruing
Past due 90
days or more
and still
accruing
1.
Real estate loans . • . •
XXX
XXX
2.
Commercial and
industrial loans
XXX
XXX
Loans to individuals for
household, family, and
other personal
expenditures
...
XXX
XXX
Loans to finance
agricultural production
and other loans to
farmers I/. .
XXX
XXX
All other loans and all
lease financing
receivables ..
XXX
XXX
TOTAL (sum of items 1
thru 5) . . . • . .
XXX
XXX
3.
• • . •
Nonaccrual
XXX
1/ To be reported separately only if agri
cultural loans in the domestic offices of
the bank exceed one percent of total loans.
If less than one percent, inclnatin line e.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Renegotia
"trouble(
debt
XXX
P,ENJ/,M/AK ROSENTHAL. N.Y., CHAIRMAN
JOHN CONYERS, JR., MICH.
EUGENE V. ATK I NSON, PA.
STEPHEN 1..„ NEAL, N.C.
DCMJL BARNARD, JR., GA.
PETER A. PEYSER. N.Y.
BARBARA B. KENNELLY, CONN.
_Action assignel IkedifiTve441"/
; info copy sent
GOV. Partee
NINETY-SEVENTH CONGRESS
Congroz of tbe tiniteb'11)tact
LYLE WILLIAMS, OHIO
NAL DAUB, NEBR.
WILLIAM F. CLINGL •
JOHN MILER, IND.
MAJORITY—(20.
jiptuseofileprezentatibez
COMMERCE, CONSUMER, AND MONETARY AFFAIRS
SUBCOMMITTEE
OF THE
COMMITTEE ON GOVERNMENT OPERATIONS
RAYBURN HOUSE OFFICE BUILDING. ROOM B-977
WASHINGTON. D.C. 20515
September 2, 1982
r,"1
c??
Hon. Paul A. Volcker
Chairman
Federal Reserve Board
Washington, D.C. 20551
Dear Mr. Chairman:
On Tuesday, August 31, the press reported that the Office of Management and
Budget had disapproved new reporting requirements, recommended by the Federal
Financial Institutions Examination Council, that would have resulted in the
collection and public disclosure of past due and rescheduled loans and other data
reflecting the condition of our nation's banking institutions.
These press
accounts indicated that the Federal Reserve Board and the FDIC possess authority
to override the OMB decision.
I am writing for your assessment of and a status report on this situation.
In providing the assessment and status report to the subcommittee, please include
answers to the following questions:
1.
2
a.
Describe the precise nature of the information that your agency would
obtain and/or publish under the Examination Council's proposal;
b.
To what extent, if any, does your agency presently receive or have easy
future access to this information?
a.
What specific impact, if any, will the OMB decision have on your plans
for gathering and making public this information?
b.
State your agency's present plans for going forward with the data
gathering and publication effort.
If you plan to implement the
Council's proposal, please state when. If you do not plan to do so,
set forth the reasons why.
A response by September 15 would be appreciated.
Si cerely
enjamin S. Rosenthal
Chairman
BSR:psb:v
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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BOARD
OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, 0. C. 20551
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••.••••
PAUL A. VOLCKER
September 30, 1982
CHAIRMAN
The Honorable Steny H. Hoyer
House of Representatives
Washington, D.C.
20515
Dear Mr. Hoyer:
Thank you for sending me a copy of the letter from
Louis Goldstein, Controller of the Treasury of the State
of
Maryland. I agree with you that he raises some important
issues regarding differences between federal and state
government budgeting problems. His comment that "high-lev
elemployment revenue estimates should be the basis for the
balanced federal budget" parallels, as I remember it, some
comments I made to you in our conversation.
When discussing the need for reducing the size of the
federal budget deficit, I try to stress the importance
of
differentiating between the cyclical component of the defi
cit
and the structural component. When deliberating on fisca
l
policy for long periods ahead, it is the latter which matte
rs
most. Indeed, the greatest concern now is that the struc
tural
deficit--that which would persist even after the econ
omy
returned to a satisfactory level--remains so large.
Unfortunately, there is no general agreement on precisely what level of economic activity to use.
Mr. Goldstein,
for example, stresses that the high-employment level
used for
federal fiscal policy decisions should be lower than the
current concept of full employment, which is around a 5 percent
unemployment rate. In the 1960s a lower unemployment rate
was
considered to be the proper figure. More recently, many
have
thought (along with Mr. Goldstein) that a level even high
er
than 5 percent--perhaps 6 or 6-1/2 percent--is more
appropriate. While not arbitrary, it appears that the
high-level unemployment figure is still not a neutral estimate
which remains fixed over time, and becomes in turn part
of the
political (as well as "scientific") debate.
Unfortunately, projections of federal receipts and
outlays, even at an agreed upon high-employment level,
would
contain considerable uncertainty. The state of the art
for
making forecasts remains such that the difference between
policy views and projections is frequently difficult to
discern.
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Federal Reserve Bank of St. Louis
The Honorable Steny H. Hoyer
Page Two
As you know, the Congress already receives estimates
of high-employment budget revenues and expenditures. The Congressional Budget Office provides these figures in their regular and special reports on Administration budget reouests. The
Bureau of Economic Analysis (in the Commerce Department) also
prepares such estimates. These estimates are not binding on
budget resolutions or on appropriations that must be set in
terms of actual expenditures. They do, however, provide an
alternative assessment of outlays and revenues, on a basis
similar to that suggested by Mr. Goldstein. They are independent of forecasts of actual unemployment and may be a useful
planning guide.
There, I think Mr. Goldstein is on the right track.
Of course, as we have discussed, the idea of creating an
independent board to estimate revenues also has some obvious
attractions. Powever, substantial Capability and expertise
already exist within Congress and the Fxecutive branch. Uence,
a basic framework for some type of agreement on economic projections of the structural deficit would appear to be already at
hand.
In summary, I agree with Mr. Goldstein's stress on the
need to consider structural revenues and to find ways in which
the government can improve the federal budgeting process. I
remain somewhat doubtful that an independent revenue board
would add significantly to Congressional budget deliberations.
In any event, the deficit is now large enough by any definition
that the need for decisive action to deal with the budget
dilemma should be evident without procedural reforms, although
this doesn't take away from the value of continued work on
procedures.
Sincerely,
AT:SL:JLK:NS:PAV:vcd (V-183)
bcc: Mr. Teplin
Ms. Lepper
Mr. Kichline
Mrs. Mallardi (2)-/
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Action assigned Mr. Kichline
Congrefs5 of Me tiniteb
tate5
jboulie of 1eprefentatibe5
COMMITTEES:
POST OFFICE AND CIVIL SERVICE
STEN Y H. HOVER
5TH Durnucr. MARYLAND
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
bautington,10.e. 20515
August 12, 1982
RANKING. FINANCE AND URBAN AFFAIRS
(
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I am enclosing herewith a copy of a letter that
I have received from Louis Goldstein, the Comptroller
of the Treasury of the State of Maryland. I thought
the letter was well done and makes some excellent points
with respect to the proposals for a Board of Revenue
Estimators and the definition of "revenues." I therefore
thought you would find it of interest. I would appreciate
any comments that you might have.
Sincerely yous,
/STENY H HOYER
MemberJf Congress
c-;
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Dear Chairwan Volcker:
SHH:lcin
re.
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—
......
,
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•
LOUIS L. GOLDSTEIN
COMPTROLLER OF THE TREASURY
STATE TREASURY BUILDING
P. 0. BOX 466
ANNAPOLIS. MARYLAND 21404
269-3801
August 5, 1982
Honorable Steny H. Hoyer
Member of Congress
House of Representatives
1513 Longworth House Office Building
Washington, D.C. 20515
Dear Steny:
This is
which proposes to
heartedly support
Maryland for many
in response to your request for my comments regarding HR6866,
establish a federal Board of Revenue Estimates. I wholethis concept, which as you know has worked extremely well in
years.
There are several problems arising from the basic differences in
federal and state budgeting environments which I wish to note. These differences may dictate a modification in the definition of revenues to be forecast
by the proposed Board.
First, as you are aware, federal budget policy goes beyond state
budget policy by addressing the need for countercyclical fiscal stimulus
and/or restraint. Thus, it is desirable that the federal budget run appropriate deficits during recessionary periods and appropriate surpluses during
peak periods of economic growth and full employment. Assuming the economy's
turning points between recessions and recoveries arE correctly forecast in the
revenue estimating process, constraining the federal budget to estimated
revenues would convert it into a pro-cyclical instrument whereby high budget
growth would accompany expansion periods and slow budget growth and/or budget
cutbacks would accompany recessionary periods.
Second, for numerous economic, geographic, sociologic and legal
reasons, the economy of a state is much more "open" than the U.S. economy.
This means that the economic impacts of internal occurances (e.g., building
a road in Maryland) tend to diffuse beyond state boundaries much more so than
beyond national borders. Conversely, the impacts of external occurances (e.g.,
building a road in Virginia) tend to be felt much more within a state than
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
My t•Isphon• numb•r is (301) -
269-3801
AN EQUAL OPPORTUNITY EMPLOYER
•
Honorable-Steny H. Hoyer
Page Two
August 5, 1982
within a nation. Put another way, the nation is more sensitive to "feedbacks"
than any of its component states. Thus, while revenues may be estimated
independently of expenditures in a state, the level of budgeted expenditures
must be considered in estimating federally-collected revenues due to the inherent
feedbacks between government expenditures, economic activity, the tax base and
revenues.
Third, the requirement for quarterly revisions -- while unavoidable in
today's complex and fast-changing economy -- will inevitably create problems in
the protracted federal budget process. While states generally adopt budgets
fairly quickly and as a complete package, the federal budget evolves in stages
throughout the fiscal year. This means that as many as three quarterly revisions
in revenue estimates could be prepared before the entire federal budget is
adopted. Significant changes in these revenue estimates (which are indeed likely
to occur) could wreak havoc in this process by discovering revenue windfalls or
shortfalls which may entail reopening those portions of the budget which had
already been enacted.
These problems may be overcome by changing the definition of revenues.
Instead of forecasting actual revenues (i.e., the amounts to be collected and
available for funding the budget), the Board should be charged with estimating
the actual and potential revenues associated with a reasonably high level of
employment. Such a level should not be the current concept of full employment,
but should be somewhat less, perhaps 6 percent to 7 percent unemployment. This
would provide the following advantages:
(1) It would allow the full range of federal countercyclical
policies (deficits in recessions and surpluses in boom periods)
to be used to alternatively stimulate or restrain national
economic growth;
(2) It would minimize the incremental impact of pending government spending policies on future economic growth, thereby
removing much of this uncertainty from the underlying forecast
assumptions;
(3) It should minimize the disruptive impact of fast-changing
economic scenarios on future revenue prospects, thereby minimizing the size of the revisions in revenue estimates (which
otherwise may wreak havoc on the budget process itself).
Ordinarily, the "high-level -employment" assumption should not
change significantly over the course of a year, and therefore
the resulting revenue estimates should remain relatively stable
On the other hand, the transition of the economy from recession
to recovery or recovery to recession can occur rather abruptly,
with significant implications for revenue prospects.
In summary, I believe that high-level -employment revenue estimates
should be the basis for the balanced federal budget instead of actual revenue
forecasts. This substitution would probably blunt most of the serious criticisms
of this approach.
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Federal Reserve Bank of St. Louis
•
Honorable-Steny H. Hoyer
Page Three
August 5, 1982
Again, I am wholeheartedly in support of a federal Board of Revenue
Estimates. I believe this concept would go far in restoring discipline to the
federal budgeting process, and I am glad you have introduced legislation to
implement it. If I can furnish additional information concerning this subject,
please let me know.
With kindest personal regards and best wishes, I remain
Cordial
yours,
Goldstein
Comptroller of the Treasury
LLG:RDR:doj
cc: Robert D. Rader
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
HOUSE OF REPRESENTATIVES
WASHINGTON, D. C. 20515
TOBY ROTH
WISCONSIN
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Federal Reserve Bank of St. Louis
September 29, 1982
Dear Mr. Chairman:
Thank you for taking time to meet with me
today. I greatly appreciated the chance to hear
your assessment of our economic problems and your
forecast for the future.
I was pleased to learn that we are in basic
agreement about the goals for our nation's economy.
You can be certain that I will keep your points
in mind while traveling in my District. As you
well know, many Americans are distressed by high
interest rates, yet they do not fully understand
all of the underlying economic problems that have
lead to the current high rates. Your assessment
was therefore particularly beneficial and will be
useful to me when talking about this issue with
my constituents.
Again, I want to thank you for meeting with
me. I look forward to working with you in the
future on other issues which are of mutual concern.
Since e
tti/
,
TOBY poTH
Memb'r of Congress
Hon. Paul A. Volcker
Chairman, Board of
Governors
Federal Reserve System
20th & Constitution, NW
Washington, D.C. 20551
4
September 29, 1982
The Honorable Benjamin S. Rosenthal
Chairman
Subcommittee on Commerce, Consumer
and Monetary Affairs
Committee on Covernment Operations
Washington, D.C.
20515
Dear Chairman Rosenthal:
In your letter to Chairman Volcker of September 28 you
asked for information in the possession of the Federal Reserve
identifying the individual majority controlled business interests of IRI, together with the nature of the business activity
of each and the size of each. In addition, you asked for all
information in the possession of the Federal Reserve regarlinq
the U.S. business activities of each of these business entities.
As to IRI's activities in the United States, we have
enclosed data on foreign investments in the United States compiled by the Commerce Department for 1977, 1978, and 1979 as
well as tables from IRI Annual Reports listing all controlled
companies. Additional information is contained in the most
recent IRI Annual Report, a copy of which is enclosed.
Sincerely,
(Signed) Donald 1. Winn
Donald J. Winn
Assistant to the Board
Enclosures
NJ:MB:pjt (#V-224)
bcc: Ms. Jacklin
Mr. Bradfield
Mrs. Mallardiv/
Legal Records (2)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Action assigned to Jacklin, Dahl, Gemmill
IBENJAM.‘5. ROSENTHAL. N.Y., CHAIRMAN
JOHN COP:YERS. JR.. MICH.
EUGEN'•/. ATKINSON, PA.
STEPre N L NEAL. N.C.
DOUG BARNARD, JR., GA.
PETER A. PEYSER, N.Y.
BARBARA B. KENNELLY, CONN.
LYLE WILLIAMS, OHIO
HAL DAUB, NEBR.
WILLIAM F. CLINGER, JR., PA,
JOHN HILER, IND.
NINETY-SEVENTH CONGRESS
Congre55 of the Uniteb gptatO
MAJORITY—(202)
Pottle of 1epre5entatibel
COMMERCE, CONSUMER, AND MONETARY AFFAIRS
SUBCOMMITTEE
OF THE
COMMITTEE ON GOVERNMENT OPERATIONS
RAYBURN HOUSE OFFICE BUILDING. ROOM B-377
WASHINGTON, D.C. 20515
-11
September 28, 1982
Hon. Paul A. Volcker
Chairman
Federal Reserve Board
Washington, D. C. 20551
Dear Mr. Chairman:
The Commerce, Consumer, and Monetary Affairs Subcommittee, in preparation
for its forthcoming hearing on September 30 on foreign investment in U.S. banks,
needs background information on the nature of the commercial business interests
with which the Long Island Trust has become indirectly affiliated through the
Italian Government holding company IRI. You have already supplied to the subcommittee the IRI organization chart that was attached as appendix 2 to the May 21,
1982, memorandum to the Board from the Division of Banking Supervision and
Regulation.
This chart does not provide any information, however, on the
U.S. activities of IRI's affiliates and subsidiaries, or on the sizes of the
affiliates and subsidiaries.
Please provide, therefore, at least 24 hours prior to the hearing, all
additional information in the possession of the Federal Reserve identifying the
individual majority controlled business interests of IRI, together with the
nature of the business activity of each and the size of each.
In addition,
please provide all information in the possession of the Federal Reserve regarding
the U.S. business activities of each of these business entities.
Si cerely,
amin
BSR:dtb
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Rosenthal
225-4407
4,
.•••Of GOvi'••.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, 0. C. 20551
PAUL A. VOLCKER
CHAIRMAN
September 29, 1982
The Honorable Robert J. Dole
Chairman
Subcommittee on Courts
Committee on the Judiciary
United States Senate
Washington, D.C.
20510
Dear Mr. Chairman:
I am writing to convey my views concerning proposed technical
amendments to the Bankruptcy Reform Act of 1978 ("Code") that I understand
will be considered by the Senate Judiciary Committee to exempt repurchase
transactions (repos") from the automatic stay provisions of the Code.
These amendments are being proposed because recent developments in the
repo market--including the bankruptcy of a dealer in this market--have
pointed up a number of legal inconsistencies concerning risks involved
in what had been thought to be a riskless transaction.
Repos are contractual agreements for the sale or loan of a
security which include a provision requiring the seller or lender to
take back the security at a fixed price plus, in many cases, an additional
sum representing a yield on the investment. They are especially attractive
to market participants because of their flexibility as to maturity and
the amount that may be invested. Repos are used by a wide range of
entities in addition to government securities dealers, including states,
municipalities and other public bodies, financial institutions, and
pension funds, to employ funds on a secure basis through temporary acquisitions
of various kinds of securities, including U.S. government and agency
securities, bankers' acceptances and CDs.
In addition, repos are a very important tool used in Federal
Reserve open market operations and in financing the national debt.
Therefore, because of this widespread use in very large amounts, it
is important that the repo market be protected from unnecessary disruption.
A recent decision of the Bankruptcy Court highlights the need
to review the structure of the rules affecting the treatment of repos
under the Code. In a proceeding arising out of the failure of LombardWall, Inc., the Bankruptcy Court in the Southern District of New York
held that the holder of securities subject to a repurchase agreement
was covered by the automatic stay of the Code, and that this holder
was precluded from closing out its position with the debtor.
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Federal Reserve Bank of St. Louis
4
•
The Honorable Robert J. Dole
-2-
This decision casts doubt, in a bankruptcy context, on the
liquidity and safety of repos. The decision not only subjected the
repo participant involved in that case to unanticipated liquidity pressures,
but it also exposed that participant to an increased risk of capital
loss because of potential changes in interest rates. If repos are subject
to the automatic stay in bankruptcy, the rippling effect of the potential
loss of liquidity or capital on market participants could generally
disrupt the repo market and cause an otherwise manageable and isolated
problem to become generalized.
The proposed technical amendments would resolve these legal
uncertainties by exempting repo transactions from the automatic stay
in bankruptcy. A similar approach was taken under legislation enacted
earlier this year which exempts stock brokers, security clearing agencies,
commodity brokers and forward contract merchants from the automatic
stay. These recent amendments, according to the House Report (NO. 97420), were intended to minimize the disruptive effects arising out of
the "insolvency of one commodity or security firm," and to prevent such
effects "from leading to the insolvency of other firms and possibly
threatening the collapse of the affected market."
The proposed legislation has the same objective but would
take a somewhat different approach. Instead of protecting certain classes
of market participants, it would exempt a particular class of transactions-the repo. Because of the uniqueness of this market, I believe this
is a reasonable approach.
The normal process in evaluating legislation of this kind
would involve a great deal more public discussion, including an opportunity
for the public to be heard at Congressional hearings, and I would usually
prefer that changes of the kind now under consideration follow this
route. I also believe that we should act in a manner that maintains
market discipline on participants to assure the creditworthiness of
the entities with which they deal.
On balance, I believe it is important to take the present
opportunity to enact legislation to clarify the rules applicable to
repos and to avoid what I believe to be major possibilities for disruption
in the repo market. However, in this context, I believe that it would
be preferable to draw the legislation in a relatively narrow manner
and to confine its application to the key repo markets in U.S. government
and agency securities, bankers' acceptances and certificates of deposits.
A technical amendment to the Code limited in this manner would, in my
view, be justified and should be enacted at the present time.
Sincerely,
firedlaffel
MB:mam
bcc;
Mr. Bradfield
Mrs. Mallardi (2) ,/
Legal Records (2)
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Federal Reserve Bank of St. Louis
•''of GOvi•.
'0
•i-
BOARD
••
OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
PAUL A. VOLCKER
September 27, 1982
CHAIRMAN
The Honorable Fernand J. St Germain
Chairman
Committee on Banking, Finance,
and Urban Affairs
House of Representatives
Washington, D. C. 20515
Dear Mr. Chairman:
I appreciate the opportunity to provide my views on S. 2879,
the Depository Institutions Amendments of 1982, a bill which was passed
by the Senate on September 24, 1982 and on which your Committee held
hearings on September 20 and 21, 1982.
The bill contains eight major parts encompassing the so-called
Regulator's Bill, capital assistance for depository institutions, expanded
powers for thrift institutions, amendments to the National Bank Act
and the Federal Credit Union Act, a limitation on the insurance activities
of banks, a miscellaneous title, as well as a title on alternative mortgage
transactions.
On October 29, 1981 I testified before the Senate Banking
Committee on a bill containing many of the same provisions. Because
the views I expressed then are still relevant to the new bill I have
included a copy of this testimony for inclusion in your record.
The comments that follow are guided by the criteria cited
in that testimony and are limited to the major provisions of the bill
that are of concern to the Federal Reserve. I would also like to note
that I have not had an opportunity to review in detail the changes made
in the bill on the Senate floor.
The Regulator's Bill
The Board has been a consistent strong supporter of the Regulator's
Bill. This legislation was conceived mainly as a vehicle for providing
a greater flexibility for the regulators to deal with the severe problems
currently facing thrift institutions. It is still vitally important
for that reason. Increased flexibility for the regulators to deal with
troubled depository institutions has become equally important in the
light of recent problems faced by certain banks. This long sought and
long delayed legislation should be enacted as soon as possible.
Capital Assistance
Title II, the capital assistance provision, enables the depository
institution insurance funds to develop a program calling for the issuance
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Federal Reserve Bank of St. Louis
The Honorable Fernand J. St Germain
Page Two
of capital instruments by depository institutions in exchange for notes
of the insurance agencies. These transactions are designed to bolster
net worth and partially offset the effects of financial losses. The
section carefully prescribes the circumstances under which institutions
are to be assisted in order to assure that assistance is provided only
to those institutions that have reasonable prospects of longer-term
viability.
Without a capital infusion program, the number of assisted
mergers and perhaps even liquidations would likely involve, in the end,
commitments by the insurance funds. We believe, looked at as a budgetary
matter or in terms of probable ultimate commitment of funds, capital
infusion in selected instances is likely to be substantially more economical
than other approaches. That result would be achieved by forestalling
the need for mergers or liquidations of institutions that can be viable
in the long run. At the same time, the bill should prevent the need
to merge or liquidate institutions that can stand on their own feet
over time, but would otherwise be required to be closed.
Together with the Regulator's Bill, the Federal Reserve supports
the capital assistance legislation and urges its prompt enactment; we
find the approach incorporated in S. 2879 substantially preferable to
the approach in the House passed bill. These two Titles, taken together,
meet one of my basic criteria for new legislation--the flexibility they
provide will provide the regulators with the authority that will assist
in maintaining a safe and sound banking system.
Increased Powers For Thrifts
Title III broadens the asset and liability powers of thrift
institutions by permitting Federal savings and loans to make commercial
loans to businesses and accept demand deposits from those that possess
a business connection with the institution. In addition, it also allows
overdrafts, larger limits for commercial real estate loans, leasing,
and the ability to carry out these and other activities through service
corporations.
Consistent with the criteria outlined in my testimony, I believe
it is important to maintain thrifts as specialized lenders with a focus
on meeting housing, community and smaller business needs. The scope
of the powers contained in this Title providing for commercial lending
in various forms is somewhat broader than necessary to meet what I envisage
as the desired purpose. It follows that in my view the powers provided
for in S. 2879 should not be considered as a first step toward still
broader commercial lending authorities, but as a sufficient (or more
than sufficient) grant of power necessary to round out their existing
housing finance authorities to allow them greater flexibility to manage
in a more complex financial environment and to offer more complete community
financial services.
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Federal Reserve Bank of St. Louis
The Honorable Fernand J. St Germain
Page Three
Thrifts, after passage of Title III, will continue to have
a separate, different, and in some important ways more flexible regulatory
environment. This arrangement can maintain any validity only so long
as thrifts perform a specialized role among depository institutions;
and it would be inconsistent with a safe and sound banking system to
create in the future a new variety of commercial banking institutions
with different powers and a separate regulatory structure. The bill,
as it stands, does not fully address these issues of branching, nonfinancial
ownership links, and the like reflected in my earlier testimony.
The Differential and Mandate to DIDC
Title III also speeds up the process of deregulation of interest
rate ceilings now being administered by the DIDC. It would, as amended
by a joint proposal of Senators Garn and Riegle, call for the elimination
of all interest rate differentials no later than January 1, 1984. This
proposal is fully consistent with the actions taken by the DIDC on its
most recently established new deposits to eliminate the differential
as interest rates decline. Now that the Treasury bill rate has declined
below 9 per cent the differential has been substantially eliminated
on the two most recently established by the DIDC.
The proposal also calls for the DIDC to create a new deposit
instrument, not subject to a differential, that would be "directly equivalent
to and competitive with" money market mutual funds. While the details
of the new instrument are not explicitly provided for, it is understood
that an initial minimum denomination of $5,000 is considered appropriate
and that a rate ceiling, if one is imposed, should be high enough to
enable depository institutions to compete effectively with alternatives
available in the market. To the extent the instrument can be used for
transactions purposes, considerations of competitive equity, financial
structure, and monetary control raise difficult questions with respect
to transaction account reserve requirements.
As you know, I have been concerned that changes in deposit
instrument characteristics that could result in substantial and accelerated
outflows of funds from low cost savings accounts would have major adverse
consequences for thrift and bank earnings and ultimately for the financial
system at a time of other economic pressures on earnings capacity and
capital positions of depository institutions. In our view, there is
a likelihood that any additional earnings obtained from attracting new
funds to a competitive instrument and investing them at a small spread
would be much more than offset by the effect of having to pay far more
for the funds now in savings accounts, much of which would surely shift
if a high yielding, high liquidity, low minimum balance instrument were
offered by banks and thrifts. This shifting would have been all the
more serious and disruptive in a high interest rate environment, but
its potential consequences would be less troubling and less significant
assuming a sustained decline in rates.
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Federal Reserve Bank of St. Louis
•
•
The Honorable Fernand J. St Germain
Page Four
The concern about shifting is also relevant with respect to
demand deposits, which currently may not be interest-bearing pursuant
to law. To the extent the new account contemplated by the bill has
transaction capability and universal eligibility, the incentives for
businesses to switch over, with further adverse effects on earnings,
are clear.
I am also concerned that the DIDC retain flexibility to take
into acount the effects of its actions on the financial structure as
well as on monetary policy. I am, for example, concerned about the
stabty of a financial structure which comes increasingly to rely
S n variable market rate financing on a demand basis, and I believe it
is appropriate for the DIDC to take such topics into consideration.
Moreover, the creation of a market rate transaction account is likely
to induce depositors to mix their transaction balances and investment
funds into one account. Such a mixing will make it much more difficult
to interpret movements in the monetary aggregates.
Thus--for all these reasons--if Congress should decide to
act in this area, we would prefer the legislative language which maintains
the greatest degree of flexibility for the DIDC.
In this context I would like to emphasize that I fully recognize
the dilemma faced by the banking industry--limited in the ability to
compete for consumer deposits at money market rates and restrained in
the geographic exercise of banking powers, while at the same time facing
competitors who are entirely free from these impediments. Some of these
restrictions have been necessary for reasons of public policy or are
inherent in the business of banking. But stating the dilemma is not
enough--solutions both administrative and legislative are required.
Carefully crafted legislative solutions addressing both the problems
of banks and of banks' unregulated competitors, and consistent with
the criteria outlined in my October testimony, are essential.
In that connection I would like to recall that legislative
action dealing with depository institution liabty powers only addresses
a part of the competitive problem. For example, money market funds,
in addition to freedom from interest rate cegs, are also not subject
to reserve requirements and other regulatory constraints on bank and
thrift powers. For reserve requirements in particular, not only competitive
equality but also the effective conduct of monetary policy argue that
all funds being used for transactions purposes be subject to similar
rules. We have previously asked Congress to grant the Federal Reserve
authority to impose reserve requirements on money fund shares with transactions -apabty; we again wish to request this legislative action.
In this sense we believe the bill reflects unfinished business on the
legislative agenda.
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Federal Reserve Bank of St. Louis
•
The Honorable Fernand J. St Germain
Page Five
Due on Sale
Title III contains provisions for federal preemption of state
laws relating to enforcement of due-on-sale clauses. In my testimony
in October 1981 a majority of the Board supported federal preemption
because of its importance to the health of depository institutions.
The subsequent Supreme Court decision allowing enforcement of due-onsale for federally chartered savings and loan associations creates an
unequal situation that emphasizes the desirability of a uniform rule
applicable to all depository institutions.
National and Member Bank Provisions
Title IV contains a variety of provisions affecting national
and member banks. The Board generally supports the provisions of this
Title. I would like, however, to comment separately on three of the
provisions.
Lending Limits
Section 401 of this Title increases the current 10 per cent
limit on loans to one borrower by national banks to 15 per cent of capital
and surplus. The Board continues to oppose this expanded lending limit
because of its focus on the importance of risk diversification and the
need for banks to increase their capital ratios. It seems all the more
inappropriate to take this step at a time when stresses on the economy
are exposing the dangers of loan concentrations.
The Board believes, however, that an increase to 15 per cent
to one borrower is appropriate where a bank is in a strong capital position.
Thus, banks that have a relatively high capital ratio of perhaps 7 or
8 per cent would be in a better position to assume greater risk. Such
a change would be especially relevant in rural areas where bank capital
ratios tend to be high and the requirement of larger sized loans to
individual borrowers relative to the absolute size of banks is more
prevelant.
I would have no objection to a specific and separate lending
limit of up to 10 per cent of capital and surplus as proposed in the
bill where the loan is secured, as provided in Section 401, "by readily
marketable collateral having a market value, as determined by reliable
and continuously available price quotations at least equal to the amount
of funds outstanding. . . ." The legislative history should be clear
that the Congress is referring to loans backed by strong and stable
collateral and that this provision will not, for example, expand the
scope for takeover luans granted against rapidly fluctuating stock
values.
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Federal Reserve Bank of St. Louis
The Honorable Fernand J. St Germain
Page Six
Bankers Acceptances
The Board supports an increase in the limit on the amount
of eligible bankers acceptances that may be issued by member banks.
In the interests of competitive equality, the Board recommends that
the proposal also be applied to nonmember banks just as it would be
applied to branches and agencies of foreign banks. Further, it should
be made clear that the Board could establish the appropriate terms and
conditions for determining what constitutes participations in eligible
acceptances.
Insurance Activities of Bank Holding Companies
Under the proposed legislation, bank holding companies would
be prohibited from providing insurance as a principal, agent, or broker.
I see no basis in the public interest to exclude or limit banks or any
other depository institutions from participation in this field. On
the contrary, in terms of increased competition and customer convenience,
depository institution participation is very much in the public interest.
I am aware of the concern expressed by some that banks, because
of their crucial position in financial dealings, have a major advantage
over other underwriters and sellers of insurance. However, the Board
now has the flexibility to authorize bank holding company entry into
the insurance business only if it is satisfied that the standards of
the Bank Holding Company Act, requiring the Board to prevent unfair
competition and avoid undue concentration of resources, are fulfilled.
This requirement presents fully adequate safeguards and, at this time,
allows the public the full benefits of an increased variety of insurance
services.
Finally, at a time when I am concerned, as I have described,
about the problems posed by the competitive limitations on banks, particularly as compared with unregulated financial entities, a new statutory
limitation on the activities of banking institutions seems to set a
most undesirable precedent.
Bank Service Corporations
I understand that an amendment introduced on the Senate floor
would increase the powers of bank service corporations, allowing them,
subject to state and federal branching restrictions, to offer all customers
the same services, other than deposit taking, that can be offered under
existing law by banks and by bank holding companies, subject to appropriate
regulatory approval. The Boar(3 has no objection to this proposal providing
a flexible vehicle for banks to offer services that are presently authorized.
However, the Board feels that it should be clear, and requests Congress
to make it clear, that this arrangement should not establish a precedent
for future decisions on the proper vehicle for the offering of any new
bank services that may be authorized by regulation or legislation.
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Federal Reserve Bank of St. Louis
The Honorable Fernand J. St Germain
Page Seven
Other Provisions
I have no comment on the amendments to the Federal Credit
Union Act contained in Title V, and we have no objection to the Title VI
amendments to Truth-in-Lending. Moreover, the Board endorses the proposal
to allow public funds to be eligible for NOW accounts.
On the other hand, three provisions of Title VII raise serious
questions of fairness. Section 435 and Section 705 extend an already
very prolonged delay in compliance with the basic rules separating banking
and commerce. Section 711 provides an exception to laws concerning
the phase-in of reserve requirements. I believe that these three provisions
should not be enacted since they would provide exemptions for selected
institutions from legislative requirements with which other banks have
long since complied.
I am also concerned about what is omitted--authority for depository
institutions to underwrite municipal revenue bonds and offer stock and
bond mutual funds. In the debate of form over substance and on the
scope of perceived competitive encroachments, I believe we have lost
an opportunity to allow banking institutions to offer services that
are fully consistent with safe and sound banking practices and with
positive public benefits in terms of increased competition and a broader
variety of products.
•
It is my hope that Congress will address these concerns and
the other issues I have raised in this letter at an early time.
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Federal Reserve Bank of St. Louis
Sincerely,
atge,e,
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
September 24, 1982
PAUL A. VOLCKER
CHAIRMAN
The Honorable Henry B. Gonzalez
House of Representatives
20515
Washington, D.C.
Dear Mr. Gonzalez:
Thank you for your letter of September 10 describing
the current circumstances faced by merchants in the border area
with Mexico because of Mexican exchange controls and the
rapidly changing value of the peso.
In your letter, you proposed that exchange facilities
be provided by the Federal Reserve and U.S. Treasury to aid
U.S. businessmen and their Mexican customers in the border area
who have traditionally transacted business in pesos. Even with
limitations on conversion to historic levels of bank peso acquisitions, it would be extremely difficult to determine whether
the pesos presented for conversion were acquired through bona
fide business transactions. Thus, the facility could become a
vehicle for the kind of currency speculation that already has
exacerbated some of the financial difficulties in the border
areas and would be, I am advised, of doubtful legality under
the Federal Reserve Act because, unlike the swap facilities
entered into by the Federal Reserve with foreign central banks,
the Federal Reserve would have no reasonable assurance of the
liquidity of the foreign currency balances it acquires. More
basically, in situations of fundamental imbalances, short term
and specific measures cannot substitute for the economic
policies that must be adopted.
The United States already has undertaken significant
efforts to seek to resolve the serious problems created by
Mexico's current financial situation. The Federal Reserve and
the Treasury have joined eleven other central banks, acting
through the Bank for International Settlements, in providing
substantial, immediate assistance to Mexico as a means of
allowing development of a sound economic adjustment program in
cooperation with the International Monetary Fund. Implementation of policies to stabilize the Mexican economy and its
currency is the key to a return to orderly trade relations
between our two countries, within the border areas and more
generally.
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Federal Reserve Bank of St. Louis
The Honorable Henry P. Gonzalez
Par12 Two
T fully share your concern about the
economic din boaLions caused by exico's current
problems and the particularly
severe impact on the border areas. rlut
I am convinced that a
solution of practical value must be
found within the framework
of our relationships with !lexico gen
erally, including common
agreement as to appropriate handli
ng of the border area with
respect to !!exican exchange contro
ls. As opportunities arise
in the next few days and weeks, I
believe this subject might
appropriately 1-.%t3 discussed in that lar
ger context; without that
background, I am doubtful that nct
ion alon7 the lines you
propose could he successful even in its
immediate purpose of
restorin7 more normal trade condition
s.
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Federal Reserve Bank of St. Louis
Sincerely,
S/Paul L Votc,I4
MB:NPJ:AFC:PAV:pjt (#V-213)
bcc: Mr. Bradfield
Ms. Jacklin
Mrs. Mallardi (2)
Legal Records (2)
.1. WILLIAM STANTON
11m DISTRICT, OHIO
DISTRICT OFFICES,
170 NORTH
Sr. CLAIR STREET
PAINESVILLE, OHIO 44077
PHONE AREA Coo. 216, 352-6167
2468 RAYBURN BUILDING
WASHINGTON, D.C. 20515
PHONE: AREA CODE 202. 225-5305
Congre55 of tbe Ziniteb
COMMITTEE ON
BANKING. FINANCE AND
URBAN AFFAIRS
3i)outie of ileprelentatibes4
MANTUA POST OFFICE
10748 NORTH MAIN STREET
MANTUA, OHIO 44255
PHONE. AREA CODE 216, 274-8444
eithusbington, 30.e. 20515
COMMITTEE ON
SMALL. BUSINESS
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Federal Reserve Bank of St. Louis
tater;
September 24, 1982
MEMORANDUM
TO:
Chairman Volcker
FROM:
J. William Stanton
RE:
National Commission on the Federal Reserve System
The following is a rough outline of the Commission referred to
in the September 14th memo (attached).
1.
Establishment of the Commission
The Commission is envisioned as an independent instrument
of the Federal Government.
Membership of the Commission (Obviously, the membership of
2.
the Commission is a key to its final report; thus you may wish
to closely review or restructure this provision.)
The Commission shall be comprised of 13 members appointed
as follows:
(a) The Chairman and Ranking Minority Members of the House
and Senate Banking Committees;
(b)
The Secretary of the Treasury;
(c)
The Chairman of the Council of Economic Advisers;
(d)
The Chairman of the Federal Reserve Board;
(e)
The President of the New York Federal Reserve Bank;
(f) Five persons from the private sector who shall be
selected by the President; the Chairman and Vice Chairman
from
of the Commission shall be selected by the President
among the five persons from the private sector.
•••
•
Memorandum
L.
- 2 -
September 24, 1982
Reports of the Commission
The Commission shall report to the President and Congress 18 months
after the date of enactment of this law.
4.
Expenses
The expenses of the Commission shall be taken from the operating
budget of the Board of Governors of the Federal Reserve System. (Alternatively,
it would be necessary to authorize and appropriate approximately $2.5 million.)
5. Functions of the Commission (This is another key 1ij1F1. We have
included numerous possible issues for the Commission to study, including
some regulatory matters. These should be refined and possibly limited.)
It is the purpose of this Commission to conduct a study of the policies,
procedures, and structure of the Federal Reserve System with respect to:
(a)
the formulation and implementation of monetary policy;
(b)
the supervision and examination of financial institutions;
(c) the provision of services provided by the System to financial
institutiSns;
(d) the relationship between the System, the Congress, and the
executive branch;
(e) the membership of the Board of Governors and the Federal Open
Market Committee;
(f)
the structure of the district reserve banks;
(g) the relationship of the Federal Reserve to other countries'
central banks;
(h) the relationship between the Federal Reserve System and the
S ther Federal financial supervisory agencies; and
(i) such other subjects the Commission deems appropriate to the
stuIy.
Attachment
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Federal Reserve Bank of St. Louis
>Iy
TOM TAUKE
24D DISTRICT, IOWA
CONGRESS OF THE UNITED STATES
4.44,
COMM ITTEES AND SUBCOM M ITTEES
ENERGY AND COMMERCE
FOSSIL AND SYNTHETIC FUELS
ENERGY CONSERVATION AND POWER
TELECOMMUNICATIONS, CONSUMER
PROTECTION, AND FINANCE
SELECT COMMITTEE ON AGING
HUMAN SERVICES
July 27, 1982
Mr. Paul A. Volcker
Chairman
Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551
Dear Mr. Chairman:
Last year, representatives of the Iowa Savings and Loan
League had the privilege of meeting with David Stockman to
discuss interest rates, the state of the economy, and other
issues of particular importance to the savings and loan
industry. This year, the Iowa Savings and Loan League is
deeply interested in arranging a similar meeting with you
to discuss these and other concerns.
Specifically, representatives of the Iowa Savings and
Loan League would like to meet with yrui_tiPxp in Washinaton
at your convenience for approximately thirty minutes. If
OS
e arranged7Y- would be deeply appreciative,
such a
and I am sure that the representatives of the Savings and Loan
a.
n.
..ague would greatly benefit f
Mb
Mk
esitIt
at Vichser
nformation about this request, plee, don't
r my Administrative Assistant, Mrs.
tact m
at 225-2911.
looking forward to your response, and I appreciat
your consideration of this request.
Best wishes.
Sinc
z
il
-
LoA
Tom Ta e
Member of Congress
Li-
TT: jw
COMMUNICATIONS SHOULD BE DIRECTED TO THE OFFICE INDICATED.
0 319 CANNON HOUSE OFFICE BUILDING
WASH!nicrom, D.C. 20515
(202)225-2911
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Federal Reserve Bank of St. Louis
0 698 CENrrreAL. AVEblUE
DUBUQUE, IOWA 52001
(319)557-7740
0 1756 FiRsT AVENUE, N.E.
CEDAR RAPIDS, IOWA 52402
(319) 366-8709
0 116 SOUTH SECOND STREE
C.1.0froN, IOWA 52732
(319)242-6180
(LI<
t
@FedFRASER