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http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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 Find it online: http://findingaids.princeton.edu/collections/MC279/c179 and https://fraser.stlouisfed.org/archival/5297  The digitization ofthis collection was made possible by the Federal Reserve Bank of St. Louis. From the collections of the Seeley G. Mudd Manuscript Library, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United States copyright law. By accessing this file, all users agree that their use falls within fair use as defined by the copyright law of the United States. 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Mudd Manuscript Library 65 Olden Street Princeton, NJ 08540 609-258-6345 609-258-3385 (fax) mudd@princeton.edu   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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--   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  FROM: KAREN N. HORN  ( .   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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:   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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:   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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:   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  Mr. Anderson Honorable Paul A. Volcker  Isaac   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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.   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  Sincerely,  •  •F  Karen N. Horn   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  our address will be Willis and Lois Winn   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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.   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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.   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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.   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  •  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.   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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,   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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.   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  '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.  http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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.  http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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.   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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:   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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.   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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.   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  -  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.   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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:   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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.•••••••••   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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  http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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 http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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.   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  (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   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  . 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.   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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.   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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.   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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!   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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!   http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis  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
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