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Collection: Paul A. Volcker Papers
Call Number: MC279
Box 27
Preferred Citation: Federal Reserve Bank: Cleveland, 1980-1985; Paul A. Volcker Papers, Box 27;
Public Policy Papers, Department of Rare Books and Special Collections, Princeton University
Library
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GS424
FEDERAL RESERVE BANK OF CLEVELAND
;e6--Z
a
TO: L7
,Ze-Stei
10-e44-),
-60
1
4 V-0
-.e-.2--c
DATE
Ire:e'(- 7 .irs--
FROM: KAREN N. HORN
(
.
r:i4
reHtMAroSE'L;i7NOPIII
KA-REH
.n --
• t
APR 15
51; AP
Fr
OF el.,
April 12, 1985
Firmire,
L
Savings Bank
Federal Reserve Bank
of Cleveland
P.O. Box 6387
44101
Cleveland, OH
Attention:
Re:
Karen Horne
President
Heritage Savings Bank
Dear President Horne:
The Heritage Savings Bank, formerly of the Ohio Guarantee
Fund,.has just passed through a very difficult time but has now
been accepted for Federal Insurance. During this time we have
been audited by the Federal Reserve Bank of Cleveland, FDIC and
the Federal Home Loan Bank.
During these processes it was obvious that the Federal
Reserve Bank was the leader, knew what it wanted to establish,
and wanted to proceed as quickly as possible to reach its
objectives.
The Heritage Savings Bank wants to thank, Paul Volcker,
Chairman of the Federal Reserve Bank for his quick analysis of
the Ohio situation, and specifically for leading in cutting red
tape and time limits, to allow those innocent and qualified
institutions to become federally insured without disastrous loss
of customers.
The Heritage Savings Bank Board of Directors was amazed at
how quickly we obtained insurance coverage and believe it was
specifically because of the Federal Reserve Bank and its Chairman
Paul Volcker, that this occurred.
Copies:
Mr. Hendricks; Mr. Adams, Mr. Davis
Chairman Volckery/
Mr. Piskos
3316 Glenmore Avenue • Cincinnati, Ohio 45211 • Telephone: 481-2481
•
c:
A- yr I(
Savings Bank
April 12, 1985
Page 2.
We want to personally thank you for your involvement and
concern and further want to compliment you on your excellent
staff. James Piskos is an extremely talented examiner and
handler of people. The Federal Reserve is fortunate to have a
man of his ability on its team.
We trust You will understand that the Heritage Savings Bank
is deeply appreciative of the Federal Reserve Bank and its
handling of this complete problem.
Respectfully submitted,
.
I
William T. S effiel
Heritage Savings B
, resident
WTS:mw
CC:
U.S.
U.S.
U.S.
U.S.
U.S.
Senator John Glenn
Senator Howard Metzenbaum
Representative Willis D. Gradison, Jr.
Representative Thomas A. Luken
Representative Thomas N. Kindness
3316 Glenmore Avenue • Cincinnati. Ohio 45211 • Telephone: 481-2481
Or'
FEDERAL RESERVE BANK
OF CI,N71.-A_NTID
05
-u
,
KAREN N. HORN
CLEVELAND.OHIO 44101
PRESIDENT
AREA CODE 216-579-2113
February 27, 1985
Mr. William M. Isaac, Chairman
Federal Deposit Insurance Corporation
550 Seventeenth Street, N.W.
Washington, D. C. 20429
Dear Bill:
I received your February 12 letter regarding our recent examiners
conference and was sorry to hear of the strong personal distress and
disappointment that it caused you. I am also sorry to have to say that I
believe your distress was probably unnecessary, inasmuch as it appears to me
that you have misinterpreted the remarks attributed to Dr. Leslie P.
Anderson. While it is never possible to undo the past, I hope I can
convince you of this and relieve any remaining discomfort you may have
concerning this matter.
First, a word about the conference in question. Each year in January
or early February we bring our examiners in from the field for a week of
meetings and presentations on current topics of interest to the examination
staff. The meetings are private, intended exclusively to benefit our
examiners, and attended only by our staff. We work very hard to obtain
speakers who are highly regarded in their fields, and this year felt
fortunate to present a distinguished array that included Commodore Grace
Hopper of the United States Navy, John G. McCoy, chairman of the executive
committee of the Banc One Corporation, Governor Martha R. Seger, and
Dr. Leslie P. Anderson, professor of banking and finance at the University
of Tennessee. Dr. Anderson is a well-known authority in this field, having
formerly been director of the A.B.A.'s Resident Schools and associate
director of the Stonier School of Banking at Rutgers University. He is
currently the co-director of, and teaches extensively in, the Business of
Banking School sponsored by the Operations and Automation Division of the
A.B.A.
Dr. Anderson was asked to speak about the research he has done on the
rise and fall of the Butcher empire, a subject which several of my staff had
recently heard him address at a conference in Chicago. Dr. Anderson spoke
to our examiners for about three hours. He devoted the bulk of his time to
Mr. William M. Isaac
-2-
February 27, 1985
describinc in detail how the Butchers assembled and then misused their
financial organization. Only a small portion of his presentation covered
the supervision of the organization by the banking agencies and, almost as
an afterthought, Dr. Anderson mentioned that as part of the many interesting
and ironic threads that run throughout this story, were the personal and
business relationships that the Butchers attempted to cultivate with
prominent individuals, naming among others your former employer in
Louisville. Dr. Anderson assumed that this in turn led the Butchers to
support your appointment to the F.D.I.C. It is our staff's recollection
that Dr. Anderson was careful to state that this did not appear to affect
your judgment in any way while the supervisory process was ongoing nor did
he draw any inferences from this. Although Dr. Anderson did make a few
critical statements about the amount of time it took both the Tennessee and
F.D.I.C. examiners to discover the abuses in the banks, these statements
were questioned by our examiners who, drawing upon their own experiences,
indicated tc Dr. Anderson that such observations could be perhaps naive or
reasonable mainly in hindsight. Our examiners further stated that to the
extent these points were valid, they applied more significantly to the
directors and outside auditors of the Butcher banks.
In sum, we were quite pleased with Dr. Anderson's presentation, anc:
while we might quarrel with several of his observations, nevertheless
believed his remarks to be informative, thoughtful and balanced. I am
unable to reconcile my understanding of his address with the
characterization contained in your letter. I sincerely recret, nonetheless,
the obvious pain this unfortunate misunderstanding has caused you. I hope
this explantation statisfactorily resolves this matter, as I would not want
to in any way undermine the excellent relationship that I believe this
Reserve Bank has with the F.D.I.C. Indeed, while it might appear somewhat
incongruous here, I would like to take this opportunity to express my
pleasure and appreciation to you for the excellent regional directors in
Columbus that you have given us to work with during my tenure, beginning
with Sandra Waldrop through the current director, Jerald Adams. I could not
ask for more professional people with whom to work.
Please do not hesitate to get in touch if I can be of further
assistance.
Sincerely,
Karen N. Horn
President
Copies:
Chairman Volcker
Governor Seger
FEDERAL DEPOSIT INSURANCE CORPORATION, Wdshington, DC. 20429
OFFICE OF THE CHAIRMAN
February 12, 1985
rn
co
• ....__.
I
•
Ms. Karen N. Horn, President
Federal Reserve Bank of Cleveland
Post Office Box 6387
Cleveland, Ohio 44101
Dear Karen:
I was distressed to learn that at a recent conference sponsored by
the Federal Reserve Bank of Cleveland, a Professor Anderson asserted
that the FDIC did not get on top of the problems at UAB because I was
politically beholden to the Butchers and somehow interfered with the
supervisory process. Not only is such an assertion completely baseless,
it is highly offensive and even slanderous.
I am disappointed that the Federal Reserve Bank of Cleveland did not
exercise more care in its selection of program participants, and I
am equally disappointed that once Professor Anderson made his remarks
no one from the Reserve Bank intervened to challenge his wild accusations.
I am not sure that anything can be done at this point to right this
wrong, but I did want to express in the strongest possible terms my
concern.
Sincerely,
William M
Chairman
cc:
//i5cc:
Mr. Anderson
Honorable Paul A. Volcker
Isaac
February 27, 1984
Mrs. Karen N. Horn
President
Federal Reserve Bank
of Cleveland
Cleveland, Ohio 44101
Dear Karen:
I appreciate your thoughtful letter
on the problem of "small bank" contact.
We will explore some options.
Sincerely,
PAV:ccm
#328
FEDERAIL RESERVE BANK
CLEV ELAN-13
KAREN N. HORN
CLEVELAND,OHIO 44101
PRESIDENT
AREA CODE 216-579-2113
February 21, 1984
Mr. Paul A. Volcker, Chairman
Board of Governors of the
Federal Reserve System
Washington, D.C. 20551
Dear Paul:
I would like to bring an issue which concerns me to your attention. The
issue involves the Federal Advisory Council and a feeling of exclusion that
may be developing among the smaller banks in Ohio and probably elsewhere as
well.
A growing number of smaller bankers question the
Advisory Council, made up of large banks, to provide
and concerns. The small banks are also sensitive to
the FAC meetings and fully aware of the existence of
at the Board of Governors.
ability of a Federal
input on their problems
the confidentiality of
a Thrift Advisory Council
One suggested remedy for this would be to seek small bank membership in
the Federal Advisory Council as it is presently constituted. I do not believe
this would be a productive avenue because it would dilute the effectiveness of
the Council. It would, moreover, in my view, not be very effective in bringing the concerns of smaller banks to the attention of the Board of Governors.
In addressing these concerns, I wonder if it might be useful for the Board of
Governors to consider the formation of a Federal Advisory Council for small
banks. Such an action would severely crowd the already-busy calendar there at
the Board. However, the ability of the smaller banks to voice their concerns
directly would make smaller financial institutions believe that they had more
direct input into our decisions. I, for one, believe that result may be important enough to warrant some costs.
In closing, I would add that this issue may come up at the March meetings
of the IBAA.
Sincerely,
•
•F
Karen N. Horn
our address will be
Willis and Lois Winn
nfield Farm Winnfield Farm Winnfield Farm Winnfield Farm Winnfield Farm Winnfield Farm Winnfield
After May 1, 1982,
BOARD OF GOVERNORS
fEOERAL 111.1it.A.X, RESEIZVEAwl(
1982 PPR 1 6 AM 9PZI cLENTELAND
WILLIS J.WINN
PRESIDENT
RECEIVED
OFFICE Or THE CHAIRMAN
April 13, 1982
Mr. Paul A. Volcker, Chairman
Board of Governors of the
Federal Reserve System
Washington, D. C. 20551
Dear Paul:
Your worry about the national debt pales in
comparison to my concerns about my personal
indebtedness to you and your associates. Moreover, I see little hope of closing the gap short
of congressional action or my role as an unpaid
consultant at unbelievable rates.
I have many pleasant memories of my Fed
experiences and the plaque from the Governors
which will be placed on my den wall will provide
a constant reminder of my friends and their continuing struggle to find answers to the monetary
puzzle.
As an outsider, you can be assured I will
continue to follow both policy and structural
developments with the keenest interest. I am
most appreciative of the ceremoney at the Board
last month as well as your participation in the
hoopla in Cleveland. These were above and beyond
the call of duty.
My family joins me in expressing our gratitude
for your role in these ceremonial occasions--and
my son is husbanding his cigar band_or the
business editor of the S. F. Chronicle.
10-a-4.-)
\4
FE.DE RAI. RESERVE BANK
OF CLEVELAND
F7?Frr-
WILLIS J. WINN
Jailuary 28, 1982
PRESIDENT
Mr. Paul A. Volcker, Chairman
Board of Governors of the
Federal Reserve System
20551
Washington, D. C.
Dear Paul:
Over the past few months I've sensed a rapidly growing
dissatisfaction in the financial community with respect to
I am
some of the Federal Reserve supervisory activities.
While
problems.
these
of
aware
well
are
you
that
confident
a certain amount of tension is inherent in any regulatory
effort, I believe this problem currently exceeds normal
I am especially concerned with an
ranges of tolerance.
issue or two which has arisen in our enforcement of the proAs you know,
visions of the Community Reinvestment Act.
the Fourth District has experienced a large number of
It may well be that experience has
protests under the CRA.
made me overly sensitive, but I believe that our procedures
and actions under the CRA have become a special concern to
the banks in the Fourth District.
The inherent nature of our current protest process all
First, there is some
but insures unsatisfactory results.
considerable difference between our periodic examinations
of banks and the intense scrutiny and analysis which follows
In some instances I have observed banks with
a protest.
questionable CRA records make unrealistic promises and
Other
commitments to community groups to avoid protests.
institutions, often with better CRA records, have chosen to
Needless
resist this type of pressure, and endure a protest.
to say, the reward for a good CRA record, and a responsible
response to irresponsible community pressure, is lengthy
delay under our procedures and an orchestrated barrage of
I'm bothered by the terms one might
unfavorable publicity.
use to describe what some banks have done to avoid falling
Overall, the situation
into an extended regulatory process.
is not one which promotes equity among banks or respect for
the regulatory process.
A great deal of work and
System procedures in handling
experience here in Cleveland,
improvements have been made.
effort has gone into improving
Based on our
CRA procedures.
I believe that significant
Our first protest, in 1979,
Mr. Paul A. Volcker
-2-
January 28, 1982
took ten months to dispose of, while for our most recent one
Obviously
the processing time was reduced to five months.
am
especially
I
t.
improvemen
for
there is still room
troubled by what I consider to be either an inability or an
unwillingness to decide early in the process that a protest
is without merit, even when the record strongly suggests
In my view, this problem is highlighted
that is the case.
a protested application by the First
of
by our handling
The Protestant made
Corporation.
Cincinnati
National
record and lending
CRA
the
against
allegations
numerous
The applicant, aware
activities of the applicant's lead bank.
of the delays associated with previous CRA protests, chose to
establish its record and responded to the protest in a most
comprehensive manner within ten days of being informed of the
I would note that only one month earlier the bank's
protest.
CRA and consumer affairs activities had received a rating of
"1" and a management commendation from the National Bank
Throughout the protest the applicant displayed a
examiner.
very constructive attitude in its dealings with the Protestant
and Reserve Bank personnel.
At the conclusion of an extensive analysis of the entire
range of issues raised in the protest, it was determined that
Protestant's allegations were not supported by the facts. As
a result, the application was returned to delegated status
and the order approving the application was issued by the
Yet the total processing time for this appliCleveland Bank.
cation consumed almost five months and expended most of the
ninety-one day statutory period allowed after the complete
Despite the extra effort and
record had been assembled.
considerable expense committed by the applicant to respond
swiftly to this protest, we were unable to reward it with a
decision much more rapidly than the maximum permitted by law.
What concerns me is if situations of this sort continue to
occur, I will be able to offer the banks in this District
little encouragement that prompt efforts on their part in CRA
protests will yield any faster results from the Federal
Reserve.
I fully appreciate the need for a careful evaluation and
Once a
a thorough response to allegations in a CRA protest.
protest has been determined to have substance, it may be very
difficult to shorten the time required to deal thoroughly with
But I would urge that the Board, through its
the issues.
Committee on Consumer Affairs, explore possibilities for
further expediting our decision making process generally.
As the attached chronology of our recent case indicates,
there are several steps in the process here in Cleveland and
In addition,
there at the Board, which might be speeded up.
Mr. Paul A. Volcker
January 28, 1982
-3-
I would urge that the Board Committee on Consumer Affairs
attempt to formulate some rules or guidelines to enable a
window through which protests can escape and be handled
more expeditiously without grinding through the whole
process, if and as soon as it can reasonably be determined
Such a step
that they are without merit or substance.
e decisions.
questionabl
of
risks
greater
entail
might well
lengthy
from
reaction
adverse
that
however,
urge,
I would
a change
mandates
protests
ive
nonsubstant
in
handling
delay
in our procedures.
A glance
I realize how difficult a task this will be.
illustrates
clearly
issue
at
case
the
of
at the chronology
The protest document in this
the extent of the difficulty.
raised were serious, and
issues
the
case was well written,
ly, response by the
Consequent
lengthy.
the documentation
by both the Cleveland
analysis
and
charges,
applicant to the
The
substance.
assess
to
needed
were
staff
and the Board
but
25
November
until
completed
not
was
analysis
Cleveland
not
was
protest
the
that
believing
for
there was a basis
It may rightly be argued that
substantive by October 20.
for dismissing the protest.
basis
adequate
yet
this was not
the procedures, forcing
in
step
formal
a
of
The existence
have resulted in more
well
might
however,
such a decision,
each protest is
Obviously,
date.
earlier
an
at
n
informatio
these might be
instances
several
In
unique.
to some degree
in the
early
very
window
escape
the
opening
for
a basis
window
the
case,
recent
our
as
such
others,
In
process.
process.
the
through
midway
useful
been
might have
I'm really concerned, Paul, that this may be building
up to the same type of reaction that led Congress to impose
I'm not
the ninety-one day BHC statutory rule in 1970.
which led
delays
processing
the
to
but
rule
the
to
opposed
If we do not clean up our act someone
to its existence.
As you know, I believe that a transelse will do it for us.
fer of the regulatory responsibility from the Fed would
seriously harm our ability to perform some of our other
For it is our regulatory role that yields us
functions.
with the ability to influence bank performance and behavior
and to influence the future character of the financial
structure.
Sincerely,.
Wilyis J. Winn
Pi.esident
.---•
Attachment
Against the Application of
Chronology of CRA Protest
Corporation to Acquire
First National Cincinnati
Hamilton, Hamilton, Ohio
The Second National Bank of
1981
August 5
August 27
onal Cincinnati
Y-2 Application of First Nati
ire The Second
acqu
Corporation (Applicant) to
d at the FRB
file
is
National Bank of Hamilton
of Cleveland.
for processing.
Y-2 Application is accepted
September 8
Cincinnati ReinCRA protest is filed by the
.
ant)
test
vestment Project (Pro
September 15*
issues concluded
Preliminary discussions of
es was required.
issu
that fuller analysis of
September 23
protest is filed by
Extensive response to CRA
Applicant.
October 5
Comment period expired.
October 20
October 26
November 6
the Cincinnati Branch
Private meeting is held at
een representatives
of the FRB of Cleveland betw
the FRB of Cleveland.
and
nt
of Applicant, Protesta
al information is sent
Letter requesting addition
eland.
to Applicant by FRB of Clev
letter of October 26
Applicant's response to our
(This was the
d.
is sent to FRB of Clevelan
the record).
into
final submission entered
November 25
um analyzing the
Research Department memorand
d.
Boar
protest is sent to the
December 15
Bank and Board
Package containing Research
l Division.
Lega
the
memoranda is sent to
December 30
ting of Board order
Internal target date for draf
by the Legal Division.
January 20
the Legal Division
Receipt of draft order from
of the Board.
January 21
Cleveland FRB of
Notification of order by the
d parties.
the ruling to concerne
*Approximate date
March 12, 198?
r. Willis J. Winn, President
Federal Peserve Rank of Cleveland
umepoombisswv-os.we
P.O. Rox 6387
Cleveland, (Thin 44101
Dear 'i1 us:
Thank you for your recent letter expressing concern over the
System's effectiveness in the timely handling of protested applications
generally, and in particular, a recent application by First National
Cincinnati Corporation. As you know, I share your concern about the
importance of timely processing of all applications, including those that
are protested on the basis of Community Reinvestment Act considerations.
In December 1Q80, largely in response to the experience gained
in processing CA protested apnlications in the Fourth District, the Board
adopted new procedures to he used in the processing of all protested applications. The new procedures were specifically designed to enable the System
to evaluate the substance of a protest and, where 14arranted, proceed on a
shorter processing schedule more in line with the merits of the application.
At the sane tine, it was intended that the proceileres would provide
mechanism that would assure protestants as well as applicants fair and
consistent treatment.
The First National Cincinnati case was the! first application where
the new procedures cane into play. Because of this, Roard Legal staff believed
it necessary to proceed carefully in drafting the order in order to avoid
challenge by the protestant. As a result, processing of that application took
longer than anticipated by the new procedure.
As an indication that the new procedures offer opportunity for
considerable progress in these types of cases, the Systen has since processed
at least two similarly protested cases where the protests were found to he
non-substantive, within a much shorter tine period.
Notwithstanding our efforts in this area, I an fully supportive of
your sugoestion to Attempt further iliprIvenentS in our processinn procedures.
Because of the coordination responsibilities assigned to the Division of
Banking Supervision and Regulation in the Processing of applications, I
have asked the Division to undertake a review of the Procedure now in effect
1
9.
Mr. Ij lii S J. oirn
additional changes are necessary or
in light of our experience to see if
in conjunction with
desirable. The Division will conduct this review
riate Reserve Bank
approp
and
nns
staff of other interested Board Oivisi
Personnel.
Sincerely,
PAUL
OEV:go
Log it191
•
1
1 1 )1 I?Al.
( )1
1
1:!-;
1,1 VF:
BA NK
( I .I.:v 1.:I.AN I)
WILLIS...: WINN
January 28, 1982
Mr. Paul A. Volcker, Chairman
Board of Governors of the
Federal Reserve System
Washington, D. C.
20551
Dear Paul:
Over the past few months I've sensed a rapidly growing
dissatisfaction in the financial community with respect to
some of the Federal Reserve supervisory activities.
I am
confident that you are well aware of these problems.
While
a certain amount of tension is inherent in any regulatory
effort, I believe this problem currently exceeds normal
ranges of tolerance.
I am especially concerned with an
issue or two which has arisen in our enforcement of the provisions of the Community Reinvestment Act.
As you know,
the Fourth District has experienced a large number of
protests under the CRA.
It may well be that experience has
made me overly sensitive, but I believe that our procedures
and actions under the CRA have become a special concern to
the banks in the Fourth District.
The inherent nature of our current protest process all
but insures unsatisfactory results.
First, there is some
considerable difference between our periodic examinations
of banks and the intense scrutiny and analysis which follows
a protest.
In some instances I have observed banks with
questionable CRA records make unrealistic promises and
commitments to community groups to avoid protests.
Other
institutions, often with better CRA records, have chosen to
resist this type of pressure, and endure a protest.
Needless
to say, the reward for a good CRA record, and a responsible
response to irresponsible community pressure, is lengthy
delay under our procedures and an orchestrated barrage of
unfavorable publicity.
I'm bothered by the terms one might
use to describe what some banks have done to avoid falling
into an extended regulatory process.
Overall, the situation
is not one which promotes equity among banks or respect for
the regulatory process.
A great deal of work and
System procedures in handling
experience here in Cleveland,
improvements have been made.
effort has gone into improving
Based on our
CRA procedures.
I believe that significant
Our first protest, in 1979,
Log 1To.
Date Ack
Date Out
C6 •
c."
Mr. Paul A. Volcker
-2-
January 28, 1982
took ten months to dispose of, while for our most recent one
Obviously
the processing time was reduced to five months.
there is still room for improvement.
I am especially
troubled by what I consider to be either an inability or an
unwillingness to decide early in the process that a protest
is without merit, even when the record strongly suggests
that is the case.
In my view, this problem is highlighted
our
handling
of
a
protested application by the First
by
National Cincinnati Corporation.
The Protestant made
numerous allegations against the CRA record and lending
activities of the applicant's lead bank.
The applicant, aware
of the delays associated with previous CRA protests, chose to
establish its record and responded to the protest in a most
comprehensive manner within ten days of being informed of the
protest.
I would note that only one month earlier the bank's
CRA and consumer affairs actives had received a rating of
and a management commendation from the National Bank
examiner.
Throughout the protest the applicant displayed a
very constructive attitude in its dealings with the Protestant
and Reserve Bank personnel.
At the conclusion of an extensive analysis of the entire
range of issues raised in the protest, it was determined that
Protestant's allegations were not supported by the facts. As
a result, the application was returned to delegated status
and the order approving the application was issued by the
Cleveland Bank.
Yet the total processing time for this application consumed almost five months and expended most of the
ninety-one day statutory period allowed after the complete
record had been assembled.
Despite the extra effort and
considerable expense committed by the applicant to respond
swiftly to this protest, we were unable to reward it with a
decision much more rapidly than the maximum permitted by law.
What concerns me is if situations of this sort continue to
occur, I will be able to offer the banks in this District
little encouragement that prompt efforts on their part in CRA
protests will yield any faster results from the Federal
Reserve.
I fully appreciate the need for a careful evaluation and
a thorough response to allegations in a CRA protest.
Once a
protest has been determined to have substance, it may be very
difficult to shorten the time required to deal thoroughly with
the issues.
But I would urge that the Board, through its
Committee on Consumer Affairs, explore possibilities for
further expediting our decision making process generally.
As the attached chronology of our recent case indicates,
there are several steps in the process here in Cleveland and
there at the Board, which might be speeded up.
In addition,
Mr. Paul A. Volcker
January 28, 1982
-3-
I would urge that the Board Committee on Consumer Affairs
attempt to formulate some rules or guidelines to enable a
window through which protests can escape and be handled
more expeditiously without grinding through the whole
process, if and as soon as it can reasonably be determined
Such a step
that they are without merit or substance.
might well entail greater risks of questionable decisions.
I would urge, however, that adverse reaction from lengthy
delay in handling nonsubstantive protests mandates a change
in our procedures.
I realize how difficult a task this will be.
A glance
at the chronology of the case at issue clearly illustrates
the extent of the difficulty.
The protest document in this
case was well written, the issues raised were serious, and
the documentation lengthy.
Consequently, response by the
applicant to the charges, and analysis by both the Cleveland
and the Board staff were needed to assess substance.
The
Cleveland analysis was not completed until November 25 but
there was a basis for believing that the protest was not
substantive by October 20.
It may rightly be argued that
this was not yet adequate basis for dismissing the protest.
The existence of a formal step in the procedures, forcing
such a decision, however, might well have resulted in more
information at an earlier date.
Obviously, each protest is
to some degree unique.
In several instances these might be
a basis for opening the escape window very early in the
process.
In others, such as our recent case, the window
might have been useful midway through the process.
I'm really concerned, Paul, that this may be building
up to the same type of reaction that led Congress to impose
the ninety-one day BHC statutory rule in 1970.
I'm not
opposed to the rule but to the processing delays which led
to its existence.
If we do not clean up our act someone
else will do it for us.
As you know, I believe that a trans
fer of the regulatory responsibility from the Fed would
seriously harm our ability to perform some of our other
functions.
For it is our regulatory role that yields us
with the ability to influence bank performance and behavior
and to influence the future character of the financial
structure.
Sincerely,
,
Willis J. Winn
President
Attachment
11.
Chronology of CRA Protest Against the Application of
First National Cincinnati Corporation
to Acquire
The Second National Bank of Hamilton, Hamilton, Ohio
1981
August 5
Y-2 Application of First National Cincinnati
Corporation (Applicant) to acquire The Second
National Bank of Hamilton is filed at the FRB
of Cleveland.
August 27
Y-2 Application is accepted for processing.
September 8
CRA protest is filed by the Cincinnati Reinvestment Project (Protestant).
September 15*
Preliminary discussions of issues concluded
that fuller analysis of issues was required.
September 23
Extensive response to CRA protest is filed by
Applicant.
October 5
Comment period expired.
October 20
Private meeting is held at the Cincinnati Branch
of the FRB of Cleveland between representatives
of Applicant, Protestant and the FRB of Cleveland.
October 26
Letter requesting additional information is sent
to Applicant by FRB of Cleveland.
November 6
Applicant's response to our letter of October
is sent to FRB of Cleveland.
(This was the
final submission entered into the record).
November 25
Research Department memorandum analyzing the
protest is sent to the Board.
December 15
Package containing Research Bank and Board
memoranda is sent to the Legal Division.
December
Internal target date for drafting of Board order
by the Legal Division.
3@
January 20
Receipt of draft order from the Legal Division
of the Board.
January 21
Notification of order by the Cleveland FRB of
the ruling to concerned parties.
*Approximate date
26
Firr HAL Ri sriivrBANK
CLEVANDOF
WILLIS J. WINN
PR
NT
TO:
October 28, 1981
Federal Open Market Committee
I realize there are many differences of opinion
on the issues involved in a contemporaneous reserve
accounting mechanism.
interesting.
I found the attached paper
It provides few final answers, but
in the spirit of contributing to the discussion, I
thought you might find it interesting als
Wi lis J. Winn
Attachment
Federal Reserve Bank of Cleveland
Research Department
To:
Mr. Willis J. Winn
From:
William T. Gavin
Date:
October 26, 1981
Subject: Issues Regarding Reserve Accounting Regulations
I.
Introduction and Recommendations
Several different proposals to change reserve requirement regulations recently have circulated in the System.
Rather than making
another proposal, this memo discusses two issues which the Research
staff at Cleveland sees as central to reserve accounting reform.
first issue is the length of the maintenance period.
The
Intra-monthly
volatility of the money stock suggests that a longer reserve period is
desirable because four weeks or a month seems to be the minimum time
period in which to obtain a reliable measure of the money supply.
The
second issue concerns staggered reserve maintenance periods and its
effect on financial markets.
Special cases can be developed in which
destabilizing speculation occurs in the federal funds market under a
staggered regime.
However, a more general case, including the concepts
of efficient financial markets and risk-averse profit-maximizing banks
suggests that staggering reserve settlement days may offer an effective
means of dampening volatility in interest rates while simplifying
monetary control procedures.
II.
The Length of the Reserve Settlement Period
Theoretical Considerations.
There is no reason to make the re-
serve settlement period shorter than the average payments cycle.
Con-
sider one household which is paid bi-weekly, with income deposited in
October 26, 1981
- 2 -
Willis J. Winn
a transactions account on the first day.
Suppose the demand deposit
balance falls in a random way throughout the period until it reaches
zero on the last day.
For this example also assume there is no currency.
If the economy were made up of households identical to this one and all
firms have sophisticated cash management programs, then a one-week
aggregate measuring the money stock would generally overstate the underlying equilibrium money stock in the first week and understate it in the
second week.
If the central bank were to set weekly targets for the
money supply based on a long-run equilibrium value, seasonal adjustment
would be necessary in order to supply reserves in a bi-weekly cycle that
mimicked the average payments cycle.
If the weekly seasonal factors were predictable there would be no
problem.
But if the seasonal factors changed in an unpredictable way,
then institutions would be induced to intermediate the repeated discrepancies between the demand for reserves, derived from the deposit
cycle, and the supply of reserves implied by the error-prone "targeting"
cycle.
Therefore, whether the central bank should adopt a weekly reserve
maintenance period when the average payments cycle is longer than a week
depends on how confidently the weekly seasonal adjustment factors can be
predicted.
As this simple example suggests, it is important for short frequency
seasonal adjustment factors to be predictable when the reserve accounting
period is shorter than the average payment cycle.
If the seasonal factors
are in error, the Federal Reserve will be forcing markets to adjust to
an incorrect supply of reserves.
One way to avoid the possibility of
costly "targeting" errors is to lengthen the reserve accounting period
to the minimum predictable average payments cycle.
'Willis J. Winn
- 3 -
October 26, 1981
How long is the minimum predictable average payments cycle?
Two
weeks, as suggested in the policy group's proposal; monthly, as suggested
in the Morgan Guaranty proposal; or perhaps some other length.
The
pattern of the seasonal factors for 1981 suggests that payment cycles are
interwoven at all measured frequencies, weekly, monthly, quarterly, and
annual.
Another consideration is relevant to choosing the appropriate length
of the accounting period.
The period chosen should be consistent with
the time frame appropriate for close monetary control.
Research within
the Federal Reserve System clearly allows us to reject money control
within the week for both operational and theoretical considerations.*
The point here is not to review the issues revolving around the temporal
framework for monetary control; it is to emphasize that almost no one
argues that the money supply should be closely controlled in a period
shorter than one month.**
While there still would be a chance of
"targeting" errors if reserves were controlled on a monthly basis the
errors probably would be much smaller than with a weekly control period
because empirical evidence gives us more confidence in the stability of
monthly seasonal factors than in the weekly factors.
Empirical Evidence.
Evidence presented in the Federal Reserve Staff
Study, New Monetary Control Procedures, combined with the weekly seasonal
adjustment factors published in the H.6 release on May 1, 1981 suggests
that the aggregate average payments period is more accurately represented by the month rather than by the week.
For example, see Axilrod and Lindsey (1981), p. 248 and the papers by David
Lindsey, et al, and David Pierce in Vol. II of the Federal Reserve Staff Study.
Even Karl Brunner (1973), pp. 530-31 explicitly argues that the appropriate
time frame for targeting the money supply exceeds one month.
**
There are exceptions of course. First, there are those willing to make radical
institutional changes such as those suggested by Robert Laurent (1981). Second,
there are those who see the need for close week-to-week control solely as a
method of getting longer run control.
Willis J. Winn
October 26, 1981
- 4 -
Some evidence can be found in measures of variation in the monetary
aggregates shown in Charts 3, 4, 6, and 8 of the paper by David Lindsey
and others in Volume II of the Federal Reserve Staff Study.
Even after
seasonal adjustment the variability in weekly aggregates is several times
greater than that found in monthly aggregates.
The charts are reproduced
in Appendix A for your convenience.
A second source of evidence can be found in the seasonal adjustment
factors published annually in the H.6 release.
The size of the adjustments
within a month suggests not only that the System sees an intra-monthly
pattern, but that it is often quite large and to some extent predictable.
The uncertainty surrounding the seasonal factor is discussed in a memo to
the FOMC dated January 21, 1981 from Messrs. Ettin and Lindsey on the
subject of publishing weekly seasonally adjusted monetary aggregates.
Table 3 on page 5 of that memo showing the size of seasonal factor revisions is reproduced in the Appendix (A-5).
The authors state that the
annual revisions in weekly seasonal adjustment factors are much larger
than the revisions in monthly factors leading them to suggest "...that
the weekly seasonally adjusted monetary aggregates are highly volatile,
difficult to interpret, and potentially misleading.
Most observers have
suggested that the minimum interval over which the seasonally adjusted
money figures supply meaningful information about the underlying trend
of money growth is at least a month, and probably longer" (p.7).
Two obstacles have stood in the way of moving to a monthly reserve
accounting period.
One is the desire to update information weekly.
But
there is no reason why weekly reporting could not be maintained with
monthly reserve accounting.
The other is a fear that the banking system
as a whole will accumulate larger aggregate errors if the reserve accounting period is lengthened.
These larger errors would require larger
October 26, 1981
- 5 -
Willis J. Winn
interest rate variation and/or less control over monthly total reserves.
Staggering reserve maintenance periods within the month has been
suggested as a remedy for the second issue.
III.
Staggered Reserve Accounting
Staggered reserve maintenance periods would factate monetary
control and increase the individual bank's ability to absorb short-run
transitory financial shocks.
The fear of large errors accumulating over
a monthly reserve accounting period can be overcome if the accounting
periods are staggered in a system of four-week reserve periods with one
S.rter of the depository institutions settling each week.
The Federal
Reserve could continue to collect weekly data and, in fact, could even
continue to have a two-week lag between the deposit calculation and reserve maintenance periods.
The length of the lag between reporting and
maintag reserves will affect the elasticity of the total reserve
S.mand curve.
The longer the lag, the more inelastic the demand curve.
Staggered reserve periods would simplify monetary control procedures;
staggering would also not diminish, and perhaps improve monetary control
over time periods longer than a week.
The policy group's proposal cites
the Trepeda-Lindsey paper (1979) as evidence that staggered reserve periods would lessen monetary control and possibly induce destabilizing
speculation by banks in the federal funds market.
Trepeda-Lindsey Paper.
The paper by Trepeda-Lindsey (1979) offers
five reasons for rejecting staggered reserve maintenance periods.
The
first three reasons (pages 2-3) apply under the federal funds targeting
regime and therefore are not relevant to current proposals.
The fifth
reason is the unequal treatment of banks under a five-day staggering
with weekly maintenance periods; again, not relevant to current proposals.
Willis J. Winn
October 26, 1981
- 6
Therefore, the applicable criticism is in (4) pages 3-4.
it is that staggering could impair monetary control.
Simply stated,
First, they say
that the adjustment process will change and that staggering reserve
periods will diminish the predictability of the response of monetary
aggregates to a policy-induced change in nonborrowed reserves.
Second,
they present a simple model of staggering in which speculation by banks
leads to oscillations in bank deposits in response to a policy-induced
change in reserves.
Monetary Control.
To analyze the effect that staggering reserve
periods will have on the impact of monetary policy, it is important to
identify which impacts are desired and which are incidental.
It is
likely that short-term security markets will not "move" in response to
policy as they do in a non-staggered regime, but it is argued here that
the reaction to policy in the short-term security market today is an
over-reaction made necessary by the inability of banks to adjust assets
other than short-term securities on short notice:
The impact of monetary
policy on bank lending will not necessarily be delayed under a staggered
regime.
To see why this is so, imagine that each individual bank seeks a
fairly stable ratio of short-term securities to loans and that it is
more costly for a bank to change its lending plans in a few days than
it is for it to change its holdings of securities.
If banks are in a
non-staggered reserve maintenance system with contemporaneous reserve
accounting; a shortage of reserves in the aggregate would force banks
to sell short-term securities to the non-bank public and cause yields on
securities to rise relative to loan rates.
In following periods a bank
would reduce loans and buy back some of the securities.
But if banks
faced staggered settlement days, there would be no need for some of the
7 -
Willis J. Winn
October 26, 1981
trading in the short-term securities because settling banks could
trade reserves with non -settling banks.
Yields on securities would
not have to rise relative to yields on loans.
The needless turnover
in securities markets and the associated interest rate movement may
not be necessary to achieve an immediate impact for monetary policy.
As this simple example suggests, an immediate impact of monetary policy
on loan markets could be achieved without "churning" by banks in security
markets if reserve maintenance periods were staggered among banks.
Staggering reserve maintenance periods would perform much the
same role that the discount window serves today in moderating short-run
volatility of interest rates in securities markets.
However, with
staggered reserves, the reserve-targeting process would no longer be
complicated by an erratic or unreliable linkage between changes in
borrowed reserves, money market interest rates, and money growth.
Staggered settlement days would allow the Federal Reserve to end
most adjustment lending at the discount window.
Only if a bank had
special problems that prevented access to the inter-bank market would
the Federal Reserve still be the source of reserve adjustment credit.
Seasonal and extended credit facilities would not have to change in
any way.
The removal of the discount window from the control mecha-
nismwould enable the Federal Reserve to set attainable targets for
total reserves.
The Model.
The model which implies that staggering will lead to
oscillations and an uncertain adjustment to policy is described in the
appendix to the Trepeda-Lindsey paper.
This model does not take account
of changes in relative interest rates and transactions in the federal
funds market.
To quote:
When they are included, the oscillations may disappear.
"Several factors, including federal funds transactions
-
October 26, 1981
- 8 -
Willis J. Winn
and interest rate movements, could make the response of deposits to a
policy-induced change in nonborrowed reserves as stable under SRA
(staggered reserve accounting) as under CRA (common reserve accounting).
Nevertheless, SRA would make the time path of deposits after a policy
change more heavily dependent on bank's chosen methods of adjustment,
which might be difficult to predict" (p. A-21).
IV.
Staggering and Destabilizing Speculation
Others have also suggested that banks in a staggered regime may
react to erroneous information in a way that leads to destabilizing
speculation in the federal funds market.
This legitimate concern arises
because exogeneous Federal Reserve operations and unpredictable changes
in other factors supplying reserves are important elements in the federal
funds market.
Incorrect interpretation of Fed operations and other
factors may lead banks to act in a way that will move the money supply
away from the desired target and set up unavoidable fluctuations in
interest rates.
Several factors suggest that this is an unlikely scenario.
The
first is that in a monthly reserve maintenance period one day's error in
other factors supplying reserves is much less significant than in a
weekly maintenance period.
Second, the Federal Reserve would be operat-
ing with a total reserve target which may decrease uncertainty about
Federal Reserve operations.
Third, banks would suffer losses if they
behaved in a destabilizing way.
Concern about destabilizing speculation
diminishes as financial markets are more efficient and as individual
banks are more risk-averse.
Finally, the Federal Reserve has many options
available to protect against this undesirable speculation, including fuller
disclosure of
aggregate target information, temporarily imposing minimum
- 9 -
Willis J. Winn
October 26, 1981
daily reserve requirements, and enforcing a wide "collar" on the funds
rate.
And, if all else fails, the discount window is always available
for special situations, perhaps at a penalty rate to put a limit on the
size of possible fluctuations.
Destabilizing speculation is a possibility under a staggered
regime, but so too is stabilizing speculation.
Such speculation would
increase the responsiveness of the money supply to deviations from target
and would smooth the variability in the short-term cost of funds.
It
simply is not clear why rational profit maximizing bank behavior would
be more likely to produce destabilizing rather than stabilizing speculation.
V.
Conclusion
The demand for money is more likely to be stable over a period longer
than a week.
Weekly variations in money demand are a source of uncer-
tainty and error in our current operating regime.
Expanding the reserve
accounting period to a four-week period would average out much of that
variation, while staggering reserve settlement days will make it possible
for the banking system to dampen even more of it.
Staggering over a per-
iod as long as four weeks has the advantage of broadening the range of
assets that can be adjusted because a bank can revise its lending plans
as well as its security portfolio.
If banks adjust a wider range of
assets, monetary policy can have a broader and more direct impact on the
economy.
The money market has evolved partly to help banks adjust re-
serves within the weekly settlement period.
To some extent this market
(and the costs associated with it) exists because banks now must make
adjustments within such short time constraints.
Willis. J. Winn
- 10 -
October 26, 1981
Criticism of staggering has centered around "loss of control" of
the money supply in the short run.
Contemporaneous reserve accounting
without staggering would also face this criticism because the discount
window and carryover will allow leakages of reserves.
The criticism is
only understandable if close week-to-week control over the money supply
is the policy objective.
It is not relevant unless one is willing to
adopt an institutional structure that rigidly ties total reserves to
the targeted monetary aggregate.
-
References
1.
Axilrod, S.H., and Lindsey, D.E., 1981.
tation of Monetary Policy:
Analytical Foundation of the New Approach.
AER Vol 71, number 2 (May 1981).
2.
Brunner, K. 1973.
process.
Federal Resevre Implemen-
246-52.
A diagrammatic exposition of the money supply
Scheizerische Zeitschrift fOr Volkswirtshaft and Statistik,
Dec., 481-533.
3.
Laurent, R.D., Reserve Requirements, Deposit Insurance, and Monetary .
Control.
4.
JMCB, Vol XIII, No. 3 (August 1981), 314-24.
Trepeda, W. and Lindsey, D.E.
Accounting Periods"
"The Reuss Proposal to Stagger Reserve
Federal Reserve Board, Division of Research and
Statistics, April 25, 1979, Mimeo.
ANNUALIZM GROWIl I HMIS Or M-111
A-1
Appendix A
STANDARD DE.VIATICNS
Implied Original Seasonala
PERCENT
•
100
80
60
WEILl<LY
40
30
20
lo
a
6
4
3
OLIAIITE1ILY
2
•
I
1
1972
SOURCE:
1
I
1974
1
1
1976
FISCAL YEAICS
1
1
1978
1
1
1980
New Operating Procedures,
David Lindsey and Others. Monetary Control Experience Under the
Procedures, February 1981.
in Federal Reserve Staff Study: Vol II. New Monetary Control
OIART 4
A-2
ANNUALIZM GROWIII RATES OF M-2
STANDAltD DLVIATIUNS
Implied Original Seasonals
PHICH/P
1
I
I
1
I
1
I
40.0
1
1.•••••••••
30.0
20.0
10.0
8.0
610
HOMILY
4.0
3.0
2.0
,CtlARTEIILY
1.0
.6
.4
197'2
1974
1976
1978
1980
(BART 6
A- 3
ANNUALIZED GROWIII RATES OF TOTAL RMERVES
STANDARD DLVIATTotis
Implied Original Seasonala
WEEKLY
QUARTIMLY
11
IT/2
LI1
1974
1976
I
•
tll
197ti
JJ4::
1980
http://fraser.stlouisfed.org/
••
Federal Reserve Bank of St. Louis
A-4
CHART 8
M-113 TOVAL RESERVE MULTIPLI
STANDARD DLVIATIONS
Divined Original Seasonala
PERCENr
400.0 •
200.0
WEEKLY
100.0
••••••••-4
••••••••••
60.0
40.0
20.0
manila
10.0
6.0
4.0
QuARTLT1LY
2.0
1.0
.6
.4
19/4
1972
- ,•t .••I
•
114,, .1%. 66
P.-170
:.1. YEAle,
1978
1980
A-5
Table 3
Comparison of Week-to-Week Changes in Seasonally Adjusted M-1
After Successing to Annual Seasonal Factor Revisions
Average
Absolute
Largest
Change
Week-toWeek-toWeek
Week
Change
(Bus, of Dollars)
Originally published
during year 1976
Number
Changes of
$1.0 Billion
or More
Number
Changes of
$2.0 Billion
or More
Number of
Consecutive
Week-to-Week
Changes of
Opposite Sign
1.3
5.2
15
6
24
1.1
0.5
0.5
4.4
2.8
2.7
13
1
4
8
1
1
30
16
13
1.4
5.3
20
7
34
0.5
0.5
3.0
2.1
8
6
1
1
16
10
1.5
5.9
17
12
25
0.9
4.0
14
5
21
Originally published
during year 1979
1.5
7.1
20
8
34
M-IA originally
published during
year 1980
1.9
9.7
18
10
31
1976 data after seasonal revision in:
1977
1978
1979
Originally published
during year 1977
1977 data after seasonal revision in:
1978
1979
Originally published
during year 1978
1978 data after seasonal revision in
1979
BOARD OF GOVCRNORS
or The
Sou ree
FEDERAL RESERVE SYSTEM
Office Correspondence
To
Federal Open Market Committee
Messrs. Ettin and Lindsey
Fromfor FRASER
Digitized
Mae January 21, 1981
Subject: Publications of Weekly Seasonally
Adjusted Monetary Aggregates Data
March 25, 1981
Mr. Willis J. Winn
President
Federal Reserve Bank of Cleveland
Cleveland, Ohio 44101
Dear Willis:
As you are probably aware, we have now published figures
(in a footnote to the attached H.6 release of March 13) that will enable
the public to compute an "adjusted" measure of the narrow money supply
for the months of January and February. This is pretty much in line
with the second suggestion in your recent letter. We intend to continue making the information needed for the adjusted series available on
a monthly basis.
We will no doubt have the opportunity to explain the basis for
the adjustment in the natural course, perhaps in our mid-year HumphreyHawkins report. I would have some doubt about a special Bulletin
article for that purpose.
Sincerely,
Attachment
#711
SHA/pjd
11.
Fl . 1)1 :i:\1.I -;1",1?V1.:
( )1' ( • 1.I.\
1.‘Nli
N I)
MArch
. Volcker, Chairman
Mr. iaul
P()ard of (:(,vernors of the
Federal Peserve System
Washington, D. C.
20551
5, 1981
7//
Fear Paul:
In discussing the 1981 money target ranges, I have become
troubled by the difficulty which the public is having in
interpreting both the target ranges and the actual money
statistics as we release them ,Ind the suspicion people seem to
ho:1 alut our motives and actions.
Obviously, the basic difficulty s._ers from the deposit shifts occasioned by the introduction of ::OW accounts.
The shifts cause uncertaintv in the mind
of the public regarding both the consistency of our 1961 ranges
past target ranges and the consistency of the actual
published money numbers with those ranges.
Much of this uncertainty is inevitable, but it seems to
me that we might reduce it somewhat by providing, on a regular
basis, additional information that would be
useful to the public
in interpreting both the money supply data and its relation to
our taret ranges.
There are several possible approaches which
we might consider.
(1)
We cou1 ,1 release two sets of money data weekly in the
H.6 release.
One would be the existing actual data
for M-1A
and other checkables; the second
would be adjusted 1-IA and M -1B data.
There are two
difficulties with this.
One is that our adjustment
does not change weekly; it probably is superfluous
to report adjusted weekly data as long as the adjustment Lasis is known.
I would be hesitant about this
approach because it might unduly dignify the weekly
money statistics.
Weekly release of two sets of
money data might reinforce rather than de-emphasize
the importance of weekly money numbers.
(2)
We could release a monthly figure giving the actual
and the adjusted money figures when data for the month
become available.
This would have the advantage of
de-emphasizing weekly numbers and of more closely
coinciding with the changes which we will be making
in our adjustment factor over the course of the year.
"L.
Tail?
A. Volcker
-2-
March 5, 1981
['ne might argu ,r, that release of adjusted money numbers
ray draw too much attention to the adjustment, which
is by necessity tenuous, based as it might be ori
qualitative information.
My own feeling is that the
public will come to recognize this anyway, and, we
would better avert future criticism by providing the
information and explaining our procedures.
(3)
Instead of providing the actual and adjusted data,
and an explanation of the adjustment factor and
changes in it, on a regular monthly basis, we might
incorporate this information in the Policy Record.
This might help us avoid publishing adjusted money
data but my own guess is that we will eventually be
forced to provide it anyway.
The FOMC is scheduled
to meet eight times in 1981, and I believe that using
the Record as the vehicle would leave the public in
the dark longer than is desirable.
Consequently, I
would prefer to see a monthly series of adjusted data
published on a normal basis.
(4)
A fourth possibility is to provide periodic announcements of changes in the adjustment at the time the
System makes the change.
This would not dignify the
tenuous adjustment assumption by actually publishing
adjusted data.
Nor would it delay provision of
information to the public.
The announcement could be
contained in a footnote in the 11.6 release which
would be unchanged from week to week unless the System
changed its adjustment assumption, in which case the
footnote would change.
The announcements of changes in the basis for the adjustment would, however, draw attention to the change and prompt
suspicion
that the change was being made to justify policy.
Consequently, it seems to me that the second avenue,
incorporating the adjustments in a regular monthly release,
along with both the actual and adjusted M-1A and M -1B figures
might be the best approach to build more confidence in us and
in the interpretation of the money supply statistics and
monetary policy objectives of the Federal Reserve.
This approach
would be forthcoming and it would serve to diminish future
criticism of monetary policy.
In addition, I believe it would also be useful to explain
fully the basis for the adjustment--perhaps in a bulletin
article during the year.
Actual data measuring the deposit
. Paul A. Volcker
-3-
March 5, 1981
shifts will never be available.
Some will undoubtedly qr.,t:
the aa , ..=ont with skepticism and seek other inform
ation to
confirm that the adjustment is being used to increase
or to
decrease M-1A or M-1B growth by assertion rather than by
action.
I fear that there will be ample grounds for the critic
s of
monetary policy over the next couple of years.
One way to
minimize suspicion and skepticism is to be as open as possib
le
about the adjustments, the procedures and the basis for
the
adjustment.
Sincerely,
,
Willis J. Winn
President
FEDERAL RESERVE BANE.
(TF CLIEN- 1-VN
ROBERT D. DUGGAN
PITTSBURGH, PA. 15230
SENIOR VICE PRESIDEN,
AREA CODE 412•261.7806
October 14, 1980
To:
All Staff Members
In the last few days, I have heard many false rumors circulating
throughout the Bank and I would like to take the time to respond to
them FACTUALLY.
When the Union aets in, they'll be able to get me more money!
AFGE cannot bargain for wages for the Federal employees it
represents and it cannot bargain for wages for employees of
the Federal Reserve Bank. The "Policy on Unionization and
Collective Bargaining for the Federal Reserve Banks", Section
269.5(b) states, "A Bank, through appropriate officials, shall
have the obligation to meet at reasonable times with representatives of a recognized labor organization to negotiate
with respect to personnel policy and practices and matters
affecting general working conditions, but not with respect
to such areas of discretion and policy as the purposes and
functions of the Bank, the compensation of and hours worked
by emT2,1ovees of the Bank, its budget, its retirement system
or any life, health or accident insurance, its organization
and assignment of personnel and of work to a particular
job, or the technology of performing its work." While it
will be the Bank's policy to continue ensuring that its
employees are paid fairly, it is also important to understand that the Bank must and will adhere to the Policy which
prohibits negotiations of wages, hours, and benefits with any
labor organization.
When the Union aets in, it will change the law which prohibits
negotiation on wages.
AFGE has been in existence and representing Federal employees
since 1932. Executive Order 10988, upon which the Federal
Reserve Bank policy is based, was written in 1962 and AFGE
has not been successful in obtaining the right to negotiate
wages for over 600,000 Federal employees it represents. While
this has obviously been a goal of AFGE, Carl K. Sadler, who
recently ran a strong race for AFGE's presidency said "the
fit
To:
All Employees
October 14, 1980
Union leadership has lost its clout on Capitol Hill and sold
out to the administration". Your supervisor has a copy of the
"Washington-Post" article in which Mr. Sadler is quoted.
It is imortant to remember that the Union can promise anything,
but only the Bank can guarantee improvements in wages, hours, and
working conditions.
Sincerely,
Robert D. Duggan
Removal Notice
The item(s) identified below have been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.
Citation Information
Document Type: Newspaper article
Citations:
Number of Pages Removed: 1
Causey, Mike. "The Federal Diary: AFGE Candidates All Oppose Carter." Washington Post,
August 27, 1980.
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
PITTS131.73-2C;H B1:2-NNC H
FEDE RAE RESERVE BA NK
OF C
PITTSBURGH. PA
DUGGAN
ROBERT D.
stNioP Vic( PREStDENT
15230
AREA CODE 4i2-261-7806
October 22, 1980
To:
All Staff Members
be decided later, but
Recently, the union has stated that AFGE local union dues will
not sure if that
am
I
that most locals have decided on $4.00 to $5.00 per pay period.
"tax" is a maximum
figure includes the National "per capita tax" or not, but the National
period means that
pay
of $5.65 per month. Just using a conservative figure of $5.00 per
it would cost a member at the Bank $130 per year of after-tax dollars.
their
have had several employees ask recently Precisely what AFGE would do with
obtained from
money if they were to -loin the union. To help answer that question 1 have
you an idea how
the Federal Government AFGE's 1979 financial report. This report gives
your dues and assessment money may be spent.
collected and
The followinc are some specific examples of how the millions were
spent:
Collected:
Spent:
$10,429,027
77,679
7,102,363
1,840,987
87,604
-
Dues and fees taken from employee paychecks
Assessments
Salaries and Expenses for AFGE employees
Office and Administrative expense
Organizing grants to locals
NOTHING: Your supervisor
How much did AFGE spend on behalf of individual members?
yourself where the
for
see
to
it
review
please
has a copy of AFGE's Annual Report -money was spent.
by
I think it is important to remember that the union is a business and it survives
are:
mind
to
come
that
questions
collection of dues, fees, and assessments. Some
-
What is the union's interest in the Bank?
Are the dues going to increase? how much?
What am I getting in return for my money?
How much control do I have over how my money is spent?
, but perhaps
I don't have the necessary information to respond to the above questions
accomhave
we
believe
the union representative can provide the answers. I strongly
continue
can
we
plished a lot by recognizing our problems and resolving them. I hope
our management team can
working together without an outside third party because I believe
to You.
do a better job of representing your interests and at no additonal cost
Sincere145
Robert D. Duggan
Phone: (412) 562-2400
United Steelwo.rkers of America
4:::44Z.,,..
A F17.-Oy
Lloyd McBride
H, PA. 15222
FIVE GATEWAY C
.
In!ernational Presucent
•
.
M1 ;itaitli-litin4177:
Lii
7
November 10, 1980
TO ALL EMPLOYEES OF THE FEDERAL RESERVE BANK IN PITTSBURGH, PA.:
*7-
I have been advised that the Federal Reserve Bank, Pittsburgh Branch,
has launched an anti-union campaign in an effort to dissuade bank employees from
voting for the American Federation of Government Employees. Further, I have
been informed that the bank is utilizing the services of Modern Management, Inc.,
for counseling in its campaign to prevent a majority vote for the union.
I am dismayed to learn of the Federal Reserve Pittsburgh Branch's
anti-union strategies, particularly the use of Modern Management, an organization
known widely for its denegation and misrepresentation of unions. A casual
analysis of the letters you have received from Robert D. Duggan reveals a single
theme: he and others of management want to dissuade you from exercising your
legal right to have an effective voice in the development of the terms of your
own employment.
American workers have the right and the compelling need to join
together as a union in the interest of their mutual well-being. And these
rights are not to be impeded by the interference of management nor the sly
innuendo of professional union busters.
I urge each of you to vote for the AFGE on November 13. It is an
excellent union with a long history of responsible, effective leadership. The
union will be of valuable service to you. Otherwise, management would not be
trying to control the way you vote. Vote to help one another. Vote union.
Sincerely yours,
President
United Steelworkers of America
Director, Federal Reserve
Bank of Cleveland
11.
FEDEIZA L. RI:SE IZN-1-: BA.N K
ov
I
November 12, 1980
To:
All Staff Members
I have reviewed the letter recently distributed by AFGE, which
was signed by Lloyd McBride, President of the United Steelworkers of
America, and one of nine directors of the Federal Reserve Bank of
Cleveland. I want to emphasize to vou that Mr. McBride's personal
point of view on unionization is not shared by the rest of the Board
of Directors, or the management of the Cleveland Bank. It is our
position that the best way for employees and management to solve
Problems is to openly communicate and resolve differences without the
interference of a third party.
I was additionally surprised to see where Mr. McBride's letter
implies he only recently became aware of the Bank's decision to seek
outside assistance. On February 14, 1960, the Board, along with Mr.
McBride, had an opportunity to review the process of communication to
be utilized during AFGE's unionization effort, which included the
hiring of Modern Management Methods and Reed Smith Shaw & McClay.
The Board's conclusion was that it was in the employees best interest
to receive factual information from the Bank about the union issue,
which would help employees make an informed choice. The Board is
very supportive of Pittsburgh's management team in supplying you with
these facts.
I want to ensure you we are committed to treating our employees
fairly and equitably, and we dc not feel a union is necessary. I do
hope you vote Thursday or Friday, and I do hope you vote NO!
Sincerely,
,
L^
„
:V
1
Robert E. Kirby
Chairman
Board of Directors
Federal Reserve Bank of Cleveland
AMERICAN
POSTAL
Pittsburgh Metro Area Postal Workers Union
AFL-CIO
400 RENSHAW BUILDING • 217 NINTH STREET
PITTSBURGH, PA 15222
Phone 281-1518
14
November 12, 1980
TO ALL EMPLOYEES OF THE FEDERAL RESERVE BANK IN PITTSBURGH, PENNSYLVANIA
We in the Pittsburgh Metro Area Postal Workers Union have been following your
organizing efforts with great interest.
We have offered the use of our office to your AFGE Organizing Committee throughout the campaign, and weekly meetings were held there.
As fellow public sector employees, we have followed your progress in attempting
to organize the Pittsburgh Branch of the Federal Reserve Bank.
We are also aware that management of the Federal Reserve Pittsburgh Branch has
used every trick in the book to stop you from joining a labor Union, because
it is in their best interest to have a Union-free work place.
I urge each of you to vote for AFGE on November 13 and 14, 1980.
cellent Union with a long history of service to its members.
It is an ex-
It is also fitting that the first Federal Reserve Bank in the nation to vote
in favor of Union representation should be here in Pittsburgh, a city with great
Union history.
Remember, join in the struggle for decent wages and human rights by voting for
AFGE on November 13 and 14, 1980.
ose
xecu
JPA/jas
P. nthony
ve Vice President
PITT'S13IT FtG11 B RANCH
FEDERAL RESERVE BANK
oi
C
LANID
ROBERT D. DUGGAN
P I TTS
010
L.1 fri4-H , Pfre<4.6.
.
l.:)6
4
AREA. Cocre412-2evie
SENIOR VICE PRESIDENT
111
November 13, 1980
CO
%r)
7.17,0
"Z• C")
cv,
To:
All Staff Members
As you prepare to vote in the election this evening and Friday,
and we begin to wind down from one of the most hectic periods of my
working life, I would like to thank each of you for taking so much
time to listen and read the information which you have received.
I'm sure we all realize that neither the Bank nor the union can
promise to solve all of your concerns and problems. However, if the
Bank wins the election and you are not satisfied with the way things
go over the next year, you have the right to bring back any union.
I can assure you that none of the management people want to endure
this experience again and that the lessons learned this year will
help us to be more effective in recognizing and resolving problems
throughout the Bank.
There is no question we have problems, but we have made progress without an outside party. I want to continue to work together -- not as adversaries -- but by cooperating with each other
to solve existing and future concerns.
Thanks again for your time and patience!
Sincerely,
Robert D. Duggan
Removal Notice
The item(s) identified below have been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.
Citation Information
Document Type: Newspaper article
Citations:
Number of Pages Removed: 1
Moody, John P. "Fed Employees Begin Voting on Unionization." Pittsburgh Post-Gazette,
November 14, 1980.
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
@FedFRASER