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CoY\0reS5;oh a Sticritet, kr https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - Collection: Paul A. Volcker Papers Call Number: MC279 Box 9 Preferred Citation: Congressional Correspondence, 1979 September; Paul A. Volcker Papers, Box 9; Public Policy Papers, Department of Rare Books and Special Collections, Princeton University Library Find it online: http://findingaids.princeton.edu/collections/MC279/c300 and https://fraser.sdouisfed.org/archival/5297 The digitization ofthis collection was made possible by the Federal Reserve Bank of St. Louis. From the collections of the Seeley G. Mudd Manuscript Library, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United States copyright law. By accessing this file, all users agree that their use falls within fair use as defined by the copyright law of the United States. 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Ryan For your information. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis September 18 g OARD OF GOVERNORS • OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 DIVISION OF BANKING SUPERVISION AND REGULATION September 18, 1979 The Honorable Wes Watkins U. S. House of Representatives Washington, D. C. 20515 Dear Congressman Watkins: This is in response to your letter to me dated August 30, 1979, in which you expressed the view that the Board's policy on one-bank holding company acquisition debt is not responsive to the problems and needs of prospective owners of small banks. I wish to assure you that this policy is not designed to restrict the growth in the number of one-bank holding companies or endanger their existence, but rather is intended to insure that one-bank holding companies are sound banking institutions. In setting standards, the Board has recognized that public benefits can be derived from local ownership of small banks through one-bank holding companies. Indeed, in 1972, the Board liberalized its debt retirement policy for the expressed purpose of facilitating the transfer of ownership in small banks. The Board has also recognized, however, that there is a trade-off between social cost of the social benefits of promoting local ownership in small banks and the policy allowing small banks to be weakened through excessive leverage. The present best serve attempts to balance these conflicting benefits and costs in such a way as to the public interest. I understand that the purpose of your bill, H.R. 4004, is to relieve the pressures placed on small banks, which have to retire the acquisition debt of their parent companies, by allowing acquisition debt to be retired over a 25 year period. We are also concerned about the pressures placed on small banks as a result of parent company debt servicing requirements. While on the surface it would appear that a lengthening of the debt retirement period beyond the 12 year limit would relieve the financial burden on these banks, I am concerned that a relaxation of the current policy would have the opposite effect. I believe that a longer retirement period would, over time, encourage potential one-bank holding company applicants to incur more indebtedness than would https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ••••• • The Honorable Wes Watkins U. S. House of Representatives -2 otherwise be the case. If applicants do in fact strive to borrow as much debt as they can service from their expected earnings flow, most if not all of the benefits that one might expect from a liberalization of the 12 year policy would be offset. In short, small banks would end up not only supporting higher levels of debt, but with annual debt servicing burdens that are little, if any, reduced. Moreover, I think there is considerable danger that a longer retirement period and the expected attendant increase in debt levels would reduce the capacity of bank holding companies to provide financial assistance to subsidiary banks should the need arise. As a general rule, a reduction in the level of acquisition debt leads to a corresponding increase in the parent company's borrowing capacity. The present debt retirement policy is designed to insure that one-bank holding companies will restore their capacity over a reasonable period of time to take on new debt so that they will be in a better position to cope with unanticipated emergencies. A longer retirement period would probably also cause the purchase price of the typical small bank to rise because more potential buyers would be in a position to acquire the bank. As Mr. Forrest Jones has correctly noted, small independent banks are currently being sold for one and one-half to two times book value. These prices are well above those being paid for medium and large size banks. Should the prices paid for small banks rise further, there is a danger that the buyers would not realize an adequate return on their investments. The higher prices would, of course, benefit potential sellers of small banks at the expense of potential buyers. But the public interest would suffer if over-reaching and the attendant build up in debt resulted in the weakening of many of the Nation's smaller banks. My experience with one-bank holding companies indicates that high levels of parent company acquisition debt can cause serious problems for a holding company's subsidiary bank. The debt servicing burden associated with acquisition debt generally forces the subsidiary bank to increase its dividend payout ratio. This, in turn, may lead to a decline in the bank's capital ratios. When debt servicing burdens become excessive, management often attempts to increase the bank's earnings by taking greater risks, despite the fact that declining capital ratios should prompt management to reduce risks. I am concerned, therefore, about any action that would permit substantial increases in debt levels of holding companies. In regard to the point raised in your letter about those banks whose earnings do not grow fast in a rising interest rate environment and who need a longer repayment period, it should be mentioned that the Board has allowed holding companies https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • The Honorable Wes Watkins U. S. House of Representatives -3 to retire their acquisition debt over a longer period than 12 years where exigent circumstances develop during the debt retirement period. This flexibility in the administration of the amortization policy has enabled the Board to accommodate the needs of banks that encounter earnings problems. I am sympathetic to the concerns expressed in your letter and recognize that this is a complex issue on which there are differing opinions and assessments as to the probable effect of changes in the rules. It should be noted that the views expressed above are mine or those of others in the Board's Division of Banking Supervision and Regulation; the Board itself will soon be re-examining its policies on one-bank holding company formations in connection with consideration of the bank holding company bills now pending in the Congress. Sincerely, ? /r 0 / John E. Ry n Director JER:gb https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • COIAMITTEES: WE WATKINS 3RD DISTRICT, OKLAHOMA BANKING, FINANCE AND URBAN AFFAIRS (202) 225-4565 MAJORITY ZONE WHIP CONGRESS OF THE UNITED STATES CHAIRMAN CONGRESSIONAL RURAL CAUCUS https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis HOUSE OF REPRESENTATIVES SCIENCE AND TECHNOLOGY SELECT COMMITTEE ON AGING WASHINGTON, D.C. 20515 August 30, 1979 Mr. John E. Ryan Director Division of Banking, Supervision and Regulation Federal Reserve System Washington, D.C. 20551 Dear Mr. Ryan: Mr. Forrest Jones sent me a copy of your letter concerning the Board's Committee on Bank Supervision and Regulation decision regarding the on the retirement of acquisition debt incurred in the formation of one-bank holding companies. I was disappointed to learn the Committee felt this policy did not need to be changed. I Title VIII of FIRA alone necessitates a re-examination of the repayment schedules for bank stock loans. Since preferential rates are no longer allowable, higher interest rates are having to be incurred. These increased debt servg costs have been creating burdens on banks that need to have their repayments stretched out over a longer period of time. Also, your letter states that, ... the earnings of small banks generally grow at a faster pace in a rising interest rate environment than when rates are stable or declining." The term "generally" does not take into account the poon of those banks whose earnings are not growing as fast as some and who need a longer repayment schedule. It would appear that you are not trying to help these banks improve their situations. You are placing these banks in jeopardy and the Fed will have to take full responsibility when these banks run into difficulties. Your action continues to weaken the Federal Reserve's position in the eyes of this country's banks by your lack of responsiveness to their needs and problems. It is no wonder so many are withdrawing from the System. OKLAHOMA DISTRICT OFFICES: 203 POST OFFICE BUILDING DUNCAN, OKLAHOMA 73533 (405) 252-1434 232 POST OFFICE BUILDING ADA, OKLAHomA 74920 (405) 436-1590 118 FEDERAL BUILDING MCALESTER, OKLAHOMA (918) 423-5951 74501 z August 30, 1979 Mr. John E. Ryan Page Two Hopefully, we can work together to improve this situation. I hope you will reconsider your decision and try to be helpful to this group of people in the banking industry. I have also brought this issue to the attention of the Board of Governors for their consideration. Thank you for your time and attention to this matter. Sincerely, .••• Member of Congress it cc: ",74,Ti4M10 Digitized• for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Forrest Jones Joe Gilliland The Hon. Fernand St Germain https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis .eptosobas 17, IWO Iho lisesroblo PtioI &teas Reuss ill Illeipmeasestisas lithilwas. WI: MIS *as Pegs r, f teesamads• !beak sus ihot osoollas soa espy of: Mos al Ow Wpm eamittesses Task roma ea babatrisa. Ufa la ante ecia slS,asupalimielis age way reeposiale near* sal appr with a ow. row illiaightfaleass *a prariklias Coastase 1ast ireek mei took aajoral apposalks beim Ow SOM. hmormil to ueridos with you siamostoisto SZPaLil A. Wag Mipit (#v27) bee: Mr. Ilchline Mrs. Mollardi (7) Assigned t.) Mr. Kichline COMMITTEES: BUDGET TASK FORCE ON IP MUCATION AND LABOR CHAIRMAN, SUBCOMMITTEE ON SELECT EDUCATION Congre WASHINGTON OFFICE: 227 CANNON HOUSE OFFICE BUILDING WASHINGTON. D.C. 20515 (202)225-5201 of the Unita tatet4 DISTRICT OFFICES: 107 GLENNIEW !DRIVE CARBONDALE. ILLINOIS 62901 (618)457-4171 )ou5t of RepresSentatibeZ COMMISSION ON SECURITY AND COOPERATION IN EUROPE https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Watbington, 3.e. 20515 212 WEST MAIN STREET WEST FRANKFORT, ILLINOIS 62896 (610-932-2560 September 7, 1979 The Honorable Paul Volcker Chairman Federal Reserve Board Washington, D.C. 20551 Dear Mr. Chairman: We met briefly at the reception following your swearing in at the White House. If you have not seen the Summary of Recommendations of our Task Force on Inflation, I thought you would be interested. We want to be of service to you in any way we can. I look forward to workig with you. Cirdially Paul Sim U. S. Co gressman PS/vc THIS STATIONERY PRINTED ON PAPER MAD WITH RECYCLED FIBERS 7-1-1 August 6, 1979 Summary of Recommendations Task Force on Inflation of the House Committee on Budget Rep. Rep. Rep. Rep. Rep. Rep. Rep. Rep. Rep. Rep. Paul Simon, Chairman Robert Giaimo, ex officio Jim Wright, ex officio Jim Mattox James Jones Stephen Solarz Richard Gephardt Bill Nelson Bud Shuster Eldon Rudd (Thiz zet 06 /Lecommendationz 6oteows two monthz o6 hea/Lingz by the Tazia FoAce. A compZete itepoAt, with a detaiZed anatyzi4 and Aationa.te 60/1. the Aecommendationz and a tiLanscAipt o6 the heaAingz, witZ be z o pubti6hed in Septembek. It wiLe inaude dizzenting view6 duaZ membeit. o6 the Tak FoAce on zpeci6ic /Lecommendationz.) NOTE TO HOUSE AND SENATE MEMBERS (This summary of recommendations is an unofficial publication of the Task Force, released by oral agreement of a majority of the iTI Force members. The complete report to be issued i•n September, with majority and minority views, will .be the official report of the Task Force on Inflation.) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis GENERAL INTRODUCTCY STATEMENT The economic aim of the Nation should be full employment, a gradually rising living standard, and close to no inflation. The goals cannot be achieved this year or next, but they are achievable. They will not, however, be reached without courage on the part of the Administration and Congress, and sacrifice on the part of the American people. Inflation is caused in part by all segments of our economy trying to "get ahead" of price rises, such as,the OPEC price increase, or to increase their income faster than real output. As CBO Director Alice M. Rivlin has written: "Any program to deal with inflation is basically a program for distributing the necessary short-term reductions in real income. This is so whether it is made explicit or not. If traditional macroeconomic techniques are used, the unemployed bear the cost of adjustment. If the ICC were abolished, the trucker would bear the cost; eliminate farm price supports, the farmer is hurt; eliminate the minimum wage, some poor people are hurt; maintain Regulation Q, the small saver is hurt; eliminate indexing Social Security payments, the elderly are hurt; impose direct wage controls, the steelworker is hurt." These recommendations are an attempt to provide answers which are realistic, which impose the sacrifices which must be made, in a reasonably equitable manner. To the extent that the Nation seeks comfortable, easy answers to the inflation problem, to that extent we pursue illusory goals which will escape us. To those who also look for one single answer to inflation, recommendations offer no solace, for the assault on inflaI must be on a variety of fronts simultaneously. tion https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis A few statistics provide background for our recommendations: --So far in 1979, inflation, as measured by the consumer price index, has averaged 13.6%. --Since 1973 inflation has been averagin111year. --From 1955 to 1965 inflation averaged 1ear. --Of the projected 1979 federal indebted839 billion, $303 billion will have been accumulated in p. 2 the last five years. There are times when deficits are necessary and desirable, but we will soon mark only one year out of twenty when the budget has been in balance, a record which is economically indefensible. And while it is true that our indebtedness compared to Gross National Product is not as high as it was in the peak year of 1958, it is also true that our national debt is 38.2% •of our GNP •compared to 22.3% for Japan, and 13.8% in West Germany, and the latter two figures are artificially high compared to ours because their federal governments assume many of the obligations which state and local governments. assume in our system. --An increasing percentage of our tax dollar is going for interest rather than goods and services. In Fiscal Year 1980 the cost of interest on federal indebtedness will be $58 billion, or about 11% of the federal outlay. --Even a 7% rate of inflation (which now looks good) would mean a doubling of prices in 10 years, quadrupling in 20 years, and approximately an eight-fold increase in 30 years. An extension of a 7% inflation rate would mean that in 30 years, today's dollar would be worth 13 cents and today's $8,000 car would cost $61,000. But more important than these grim figures, today's much nS.vernment will look untalked about "lack of confidence believably good compared with what would emerge if such inflation continues. Unless inflation is brought under control to a much greater degree than is now the - case—and soon--our free system of government will be drastically altered, almost certainly for the worse. Democracy as an institution is threatened when there is persistent run-away inflation for a number of years, the case of Germany more than four decades ago the most tragic and extreme example. Today we should learn that history lesson, not when it is too late. The attached 40 recommendations form the outline of an assault on inflation. They represent the views of the majority of the Budget Committee's Task Force on Inflation, though additional opinions are expected to be filed before the report is printed and formally submitted. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis p. 3 The report is the result of staff research, consultations, and testimony from 81 witnesses i•n 13 days of hearings. The Task Force is under no illusions that these recommendations will be accepted en masse. But we intend to follow through and will report to the Budget Committee and to the House where action has been taken and where it has not been taken. We will make our first report the latter part of September, or early October. Fiscal and Monetary Recommendations The public perceives fiscal and monetary policies as the sole cause of inflation. They do form a significant portion of the cause but a variety of other factors are also important, OPEC price increases and crop failures being two examples. But the major focus of inflation control is properly on fiscal and monetary policy, and that policy could more effectively restrain inflation if the following recommendations were considered and/or actions taken: 1. Recognize the Relationship Between Deficits and Monetary Policy While there is an immediate, limited direct impact on inflation through federal deficits, we must recognize that the major impact of yearly deficits is long-range and indirect--long-range in the accumulated impact of deficits and indirect in that the financing of the large deficits and accumulated debts pressures the Federal Reserve Board sometimes to adopt monetary policies which accomodate loose fiscal policies. Almost any period selected illustrates the problem. From 1952 to 1961 we averaged a $2.2 billidn yearlydeficit, the money stock grew 1.8% and we had about a 2% inflation rate. From 1961 to 1974 we averaged an annual increase in indebtedness of $8.2 billion, money grew at an average of 4.1%, interest rates were • to higher, and inflation rose to an average of 4.3%. From 1969 1974 the government debt grew an average of $10.8 billion per year, money stock increased an average of 6.1% annually, interest rates went higher and inflation averaged just under 6%. If we fail to recognize the fundamental, practical relationship between fiscal and monetary policy (even though in theory there is no connection), we will never deal effectively with the inflation phenomenon. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • p. 4 That does not mean that deficits should always be avoided. There are times when deficits are unavoidable without working great injustices. A look at the total economy is essential in determining fiscal policy. But to continue the present policies of regular deficits--even when the economy is functioning reasonably well--metes out the punishment of inflation, often on those who can afford it least. 2. Carefully Pace Fiscal, Monetary Reforms Movement to sounder fiscal and monetary policies must be accomplished gradually and steadily, assuming the general state of the Nation's economy permits this. A sudden shift to a balanced budget in Fiscal Year 1980, for example, would cause major dislocations. In view of the latest economic news it appears unlikely that a balanced budget can be accomplished in Fiscal Year 1981. If possible Fiscal Year 1980 deficits should be below those of 1979, those of 1981 below those of 1980. A gradual reduction in the federal deficit--eliminating it in FY 1982--and a reduction of federal borrowing in the private money market should permit the Federal Reserve Board to adopt a policy of gradual lessening of growth in money supply, moving in a few years to a steady policy of money growth. But this can happen only if policies such as those advocated in point 4 of this section are accepted, for the American public will not--and should not--accept a reduction of inflation with all of the sacrces being made by the least fortunate nSur society. 3. Avoid Tax Cuts Unless there is further significant deterioration in the economy, Congress and the Administration should avoid tax cuts unti/ the budget is balanced, attractive as tax cuts are politically. The nation would have been much better served had the last tax cut gone into reducing the deficit. If unemployment rises, the economy will be better served by targeted, specific employment assistance than more costly and less efficient tax cuts. In addition to the inflationary problems of a tax cut, its design as a stimulus is not likely to take effect until some time after January 1, .1980, and by that time the economy may be on the way to recovery. An exception to this "no tax cut" policy might be a program of Real Wage Insurance, if one re-emerges from the Administration. The Task Force neither endorses nor opposes such a program because w5 do n5t know what may be proposed. But https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis p. 5 if such a program is accepted, the cost should be borne by a portion of the windfall profits tax, or some other modification of the present tax law, rather than by a revenue loss. If Congress and the Administration insist on a tax cut, a reduction in Social Security taxes is less inflationary than most other forms of tax reductions. When federal revenues are sufficient so that taxes can be cut--or when inflationary tax loopholes now in the law are closed, such as capital gains taxes on land speculation--then the tax cuts which should be considered include: (a) An increase in the accelerated depreciation write-off. The revenue loss could be partially recouped by phasing out certain tax instruments which have proven inefficient. • (b) A decrease in the capital gains tax only on common stocks. The equity market clearly must be improved. Corporate equities as a percentage of the total assets of the average household today are less than half the percentage they were a decade ago. Many industries which need capital cannot get it through the equity market, the concrete industry being one of many such examples. (c) A variation of the above: lower capital gains taxes on high technology stocks. (d) Greater encouragement to savings. The greatest encouragement to savings, both in thrift and insurance institutions, would be to halt inflation. But a tax incentive might also be helpful. Our individual rate of savings is currently 5.3%, compared to roughly 12.3% in West Germany and 22.2% in Japan. We assume that in order to balance such a long-range antiinflation tax program other tax cuts would be provided for fairness But the function of this Task Force is to deal with the inflation problem. 4. Recognize the Jobs-Monetary Policy Tie We must gradually devise a system for a government guarantee of jobs, when jobs cannot be provided in the private sector. Unless that guarantee is provided, pressures will mount regularly for deficit-creating tax cuts or "temporary" jobs programs--and these result in pressures on the Federal Reserve's monetary policy. It is no historic accident that generally since World War II the years https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis A p• 6 in which we have had high employment we had low inflation. This is not to suggest the opposite of the Phillips Curve economic theory, but rather that if we do not gradually build into our budgets a flexible job guarantee mechanism, the pressures for deficits will inevitably mount, and that ultimately will have its impact on monetary policy. Some years ago Dr. Arthur Burns called for an end to "involuntary unemployment" in this nation, and properly so, for a sound monetary policy is unlikely to emerge in this nation without a sound jobs program. A good illustration is the position of the Chairman of the Subcommittee on Domestic Monetary Policy, who reports he is reluctant to report a measure on monetary policy which he believes is needed because of its possible impact on employment. While that personification of the problem is rare, the dilemma faced by Congress and the executive branch is real. We are not suggesting that public employment is a desirable substitute for high-productive jobs in the private sector, but that public employment is a more desirable public policy alternative than no employment. Unemployment must be recognized as a permanent phenomenon which will not completely disappear, and stands as a threat to sound monetary policy. 5. Give the President Stand-by Authority to Create Jobs In most countries the executive branch has greater flexibility in dealing with temporary dips in the economy. At least until a long-range jobs policy (as outlined in Point 4) is realized, a stand-by authority to create jobs in areas of high unemployment is desirable. The counter-cyclical program now pending in Congress can ity should help, though additional programs with greater flexibil service jobs be devised. The President should have some public in times programs "on the shelf" which he can utilize quickly machinery of Congress when unemployment is rising. The legislative to deal effectively is often too awkward and slow and imprecise flexible executive and swiftly with problems which may develop. A than it has been in response will be more important in the future monetary situation may lessen the past because the international has to provide a quick the flexibility the Federal Reserve Board recognize that in the nations stimulus to the economy. We should successfully than we are, which are dealing with inflation more chief executives have additional both their central banks and their part this grows out of a much different power on economic policy. In ntary system of government. banking system and the parliame https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis P• 7 6. Examine Defense Expenditures The sizable national expenditures on defense makes budget balancing difficult, and causes a skewing of research efforts. In 1977, the United States spent 6.1% of its GNP on defense, West Germany 3.6%, Japan 0.9%, France 3.7%, Norway 3.2%, Denmark 2.6%, Switzerland 2.1%, the United Kingdom 5.0%, Belgium 3.1%, and the Netherlands 3.5%. Three of those nations now have a per capita GNP higher than the and Japan is within 7% of the U.S. And none of those four countries has a rate of inflation as high as the United States. Germany's is 3.8%, Japan 2.6%, Switzerland 1.8%, and Sweden 6.1%. On at least one recent occasion the Soviets have suggested willingness to pursue joint budget reductions in defense. The problem is one of measurement, as well as verification, but independent of SALT II this poslity should be pursued. An informal agreement at one time between our two nations did result in a temporary reduction in defense expenditures. It would be healthy for both nations if it happened again. I And if that is not possible, we must reexamine our defense aims and see if some of our friends cannot shoulder a larger share of the financial burden. The present pattern of much higher expe tures on defense by the United States than other nations grew out of a time when the United States was a huge economic giant compared to others. While we still play a dominant economic role, others now have strong economies also. In the final analysis, there is a trade-off between producing defense goods and other goods. A reduction in defense expenditures will permit greater expansion of capital investment in non-defense sectors and/or of consumer goods production. Either will reduce inflationary pressures. Ultimately, if we don't want high inflation rates, we face a choice of accepting one of these three: 1. 2. 3. Higher taxes; High unemployment; Reduced defense expenditures. We are notsuggesting that the nation's economy cannot stand the present--or higher--defense expenditures. But we do suggest that if that is the choice, then we must be aware that we must have higher taxes, assuming neither high unemployment or high inflation is an acceptable alternative. We can ill afford to long pretend that we can avoj:d this difficult choice. By "avoiding" the choice, we choose high inflation. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis P• 8 7. Strengthen the Federal Reserve Board H.R. 7--recently passed by the House--would appear to be a minimal step in that direction. An increasing percentage of the nation's money should fall under the direct influence of the Federal Reserve System. At the present time a decreasing percentage money operations is under the influence of the Federal Reserve. In addition, because of the scattered nature of our banking system some closer survey of the current monetary scene (including consumer credit) appears desirable. We are pleased that the House has recently passed a bill (H.R. 7) which authorizes the Federal Reserve IIIbtain weekly money supply information from non-member depository institutions. We further urge that the Committee on Banking, Finance and Urban Affairs consider the possibility of also authorizing the Federal Reserve to collect data on consumer credit and other credit variables on a weekly basis. 8. Keep Credit Allocation Authority Efforts to take away the powers of the President and the Federal Reserve Board for credit allocation should be resisted. Use of credit controls should be rare, and then their use should be selective and temporary; but when certain sections of the economy become overheated their use should be considered. Their imS.ct is much swifter than the use of broader monetary powers. Monetary power can slow down the economy generally. Credit controls, however, can be used to quickly slow down an isolated segment of the economy which is overheated. 9. Use Informal Federal Reserve Role The Federal Reserve Board should, from time to time, consider making general requests of savings institutions to slightly restrict credit. This is not unprecedented and not without some impact, however limited. 10. Avoid Further Indexation Indexation of taxes or federal programs to the CPI is in and of itself inflationary. While we recognize that indexation of Social Security, for example, is an accepted and legitimate protection for our retired citizens, we believe that a review of other programs now indexed by the appropriate committees is desirable. Further inI- xation either in the public or private sector should be avoided. Indexation is inflation feeding upon itself. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • P• 9 Recommended Wage and Price Actions While there are dangers in dealing with wage/price problems, there are greater dangers in not dealing with them, assuming some wisdom and prudence is exercised. We suggest: 1. Avoid Stand-by Wage and Price Controls at This Time Other means of bringing inflation under control suggested in this report should be utilized. However, when we are past the present period of high inflation it would be desirable to grant the President continuing wage and price authority. Simply having the stand-by authority makes his "jawboning" and other efforts at inflation control more effective and there may be emergencies in the future when, for short periods of time, the President should use wage and price controls. The historic record--contrary to public myth --suggests that on at least two occasions wage and price controls served the nation well. 2. Reduce Oil Dependence While the astronomical 37% increase in energy costs for the first six months of 1979 is not likely to continue at that level, energy costs probably will continue to rise. Programs to diminish the use of petroleum products should be promoted. This should include: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis (a) Conservation programs. There ought to be specific attainable goals, e.g., insulating all homes in the nation in the next seven years. If all homes in the nation were insulated there would be a saving of $3.8 billion during the coming winter alone. There would also be a sizable reduction in oil imports. The Nation has yet to learn the lessons of conservation. It is not necessary to spend our way out of the energy dilemma. (b) Purchasing authority. The Secretary of Energy has testified that if a national corporation to purchase oil from other nations were given adequate authority, some price savings could be achieved. This should be given serious consideration by the appropriate committees. (c) Substitute fuels. Efforts to encourage use of coal rather than oil has the double impact of being less expensive and reducing oil imports. Actions to promote coal, and carefully planned actions to promote solar energy and synthetic fuels are likely to discourage further escalation of imported crude. III.and 3. Strengthen Wage-Price Guidelines Programs price guidelines program t as been more effective than iseived. d be clarified, and the the roposes a Real Wage Insurance sld.be ered. The Task Force does nottnd t the Administration might lt n. 4. II Avoid Inflationary Example The U. S. Government should not be an inflationary pricesetter, yet too often we are. As one minor example, the cost of postage has been rising much more rapidly than the Consumer Price Index. Federal agencies which regulate rates should, for the most part, confi•ne those rate increases to actual inflation costs or less. 5. Strengthen Exports Loss of exports weakens the dollar, and every depreciation of the dollar is inflationary. A one percentage point reduction in the international value of the dollar adds between 0.1 and 0.15 percentage points to the inflation rate. In 1978 the United States remained the world's largest exporter--but just barely. West Germany was only $600 million behind the United States. But when you rank the top 15 exporters (in total sales) for 1978 on a per capita I.sis you get a much different picture: Country Saudi Arabia Belgium Switzerland Netherlands Sweden Denmark Germany Canada Austria France United Kingdom Italy Japan Taiwan United States Per Capita 1978 Exports $4,736.84 4,573.17 3,751.99 3,583.69 2,870.93 2,328.77 2,322.89 2,020.24 1,624.50 1,483.00 1,283.80 986.46 852.02 741.82 655.19 These statistics tell a story. U. S. business and government continue to ignore the foreign market more than they should. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis And the educational community within the nation has not recognized this new era. We remain the only industrial nation which does not require foreign language training by our students. We are not adequately studying languages and cultures of other countries, and as a result we are not getting to know our customers. Not surprisingly, we do not sell as well as • we should. And that adds to our inflation problems. 6. • Resist Protectionism Protectionist sentiment in Congress, while understandable, can lead to actions which are inflationary. They should be resisted. If additional legislation is needed to protect both workers and industries adversely impacted by foreign goods, that legislation should be produced. What clearly is needed is a little greater foresight by both business and the government for situations which marginal industries face. If there were more planning of the right kind, the protectionist clamor would subside. 7. Promote Competition Competition forces prices down, but too often there is no competition. The increasing concentration of corporate power presents a major dilemma to the nation. Rep. Morris Udall's bill would set up a special committee of the House to study this matter and deserves prompt attention. There is historic precedent for this. In the 1930's the Temporary National Economic Committee was established to study and analyze competition and price behavior. Members of the House and Senate and executive branch served on under the chairmanship of Sen. Joseph O'Mahoney of Wyoming. We must again face this. Instead of spending money on new ideas and on research, too many corporations spend their money acquiring already exng firms. When demand diminishes, the theory prices drop. In some sections of our economy, that continues to work; in others it does not. We need to reexamine the structure of the American economy and reassess public policy toward economic concentration. Incentives for smaller businesses and for greater freedom in the economy should be examined. 8. Enact A Youth Differential Most nations have a youth differential as part of their minimum wage law. It has not resulted in substitution for older workers in thes'e nations, as the opponents claim it would here, but has placed those less attractive to employers in jobs. Perhaps a limitation in numbers per employer, restricting the https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • . 6 p. 12 benefits to new workers only or an initial experiment in several states would make it more palatable. From the inflation point of view, it would diminish labor costs slightly and make productive a segment of our economy which, to a large extent, is not now productive. 9. Rely More on "Target Pricing" in Agriculture The Department of Agriculture and the Committees on Agriculture of both houses should carefully examine the possibility of greater use of target prices, rather than present programs, to protect the family farm and also the consumer. The examination should include products not traditionally covered by target prices, such as dairy products. Less reliance should be placed on loan programs. Set-asides cost the nation both in lost productivity and approximately $600 million annually in federal funds. Sugar legislation often has been an example of an inflationary response to a domestic need. There are inflationary and non-inflationary means of dealing with agricultural problems. We should choose the latter. 10. Urge Citizen Involvement The President and Congress should encourage citizen involvement in the fight against inflation, and food is a good example where that is possible. Price buying should be encouraged. Alternative product purchasing should be stressed, so that if beef is too high, there should be encouragement to shift to pork or poultry or fish. The President could urge Americans to plant gardens. This would reduce prices, increase nutritional intake, and give people a sense that they are doing something personally to fight inflation. The President and Congress should make the public increasingly aware that the fight against inflation is not a battle which is fought in Washington alone, but also in every village and hamlet in the nation. 11. Change Trucking Regulations Trucking regulations which force empty hauls and escalate the price of food should be eliminated and/or modified. 12. Tie State Revenue Sharing to Sales Tax Reduction State revenue sharing comes up for reauthorization soon. If it is reauthorized, consideration should be given to tying state revenue sharing to a reduction in, or the elimination of, the sales tax on food or other items in those states which have such taxes. This would result in a direct reduction of food costs. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis p. 13 13. Avoid Interest-Increasing Legislation Congress should avoid legislative changes which cause increased interest rates. Of the 9.2% inflation rate of 1978, approximately one-ninth can be arithmetically attributed to the increase in interest rates. An example of this type of legislation is found in proposals to take the limitation off of the amounts thrift institutions can pay to savings depositors. While in theory perhaps desirable, the net result is greater payment to the depositor, a greater charge to the borrower--and more inflation. 14. Avoid Excessive State Bonded Indebtedness Ask state governments to finance their projects as much as possible without issuing bonds. , Local governments clearly have no option but to issue bonds. But state governments do have an option and too many are creating substantial unnecessary deficits (though they do not call them deficits). Those deficits cause problems in the private money market, just as federal deficits do. Federal deficits can occasionally be justified because the economy needs that particular stimulant. State bond issues are rarely caused by that type of economic motivation and can make private sector financing more difficult. 15. Act to Reduce Health Care Costs Health care costs present a complex dilemma to the Congress and to the Administration. Where possible answers to reduce escalation are proposed --and there are several proposals including the Administration's Hospital Cost Containment legislation--they should be seriously considered. 16. Reduce Housing Costs Housing constitutes one of the major expenditures by our citizens. It is also a major inflationary item, in part because it has become a good hedge against inflation. If inflation is reduced, interest will decline with it, causing a major reduction in the cost of new housing. We recommend; https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis (a) The President or the Secretary of Housing and Urban Development should send a letter to the governors of the states and perhaps to the mayors and county officials of the more populous areas urging a simplification of building codes, work -rule standards and other regulations in order to reduce -housing construction costs. (b) Caution must be exercised as the housing stimulus portion of the federal budget is determined. For several S p. 14 years there will continue to be increased demand for single family homes, and if the supply does not keep up with this growing demand the result will be more inflation in housing. (c) Additional timber cutting can be authorized on U.S. forest lands without harm to the forests and without violating good forest land management principles. This would reduce the price of lumber. Productivity Recommendations It has been estimated that if productivity goes up one percent, the inflation rate will come down one percent. But the productivity figures for the United States in recent years are not encouraging. Tax changes to encourage productivity are discussed . in the Fiscal and Monetary Recommendations portion of this report se Most policies to improve pr:ductivity (as most answers to decrea inflation) are long-range, though there are some immediate steps which can be taken. The Task Force recommends: 1. Approach Productivity on an Industry by Industry Basis ry The President should ask that, on an industry by indust to examine basis, committees of management and labor be established the differwhat can be done to stimulate production. For example, t that some ences in coal productivity within that industry sugges others might companies and areas have mastered techniques which well follow. 2. Move Aggressively on the Regulation Problem is exaggerated, While much of the complaint about regulation produced by some regulathere are significant inflationary pressures Regulatory Council tions and regulatory actions. We urge the Force chaired by Rep. established by President Carter and the Task ive conclusions can be David Obey to pursue this area. Some tentat drawn: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis do so, (a) Where they are not already required to enefit proposed regulations should include a cost/b study. (b) Too many regulations are too detailed, too cumbersome, lacking in common sense, and totally uncoordinated. If those who draw the regulations do not have knowledge of a specific industry or area affected, that knowledge should be required before the regulation is drawn. .• • • roblem with regulations is as much their as their proliferation. There is too much industries do not modernize because t know how permanent a regulation may be agency may come along with totally j requirements. There must be greater iII;f expectations. : (d) Another major problem with regulations is the time factor. Needless and costly delays are experienced over and over. The President's Regulatory Council should ask for an executive order with specific time limitations on approval or disapproval by regulatory agencies. Except for complex issues, all regulatory bodies ought to provide answers within 60 to 90 days, sooner in many instances. Simply speeding up the present process would reduce the inflationary impact of regulatory bodies. (e) State and local governments are often as guilty of regulatory excesses as is the federal government. A letter from the President or Dr. Alfred Kahn to the governors explaining the inflationary impact of excessive red tape and urging a prompt review by them might prove helpful. The Administration and congressional oversight committees must bring order into the regulatory process. And where regulations needlessly increase costs (such as in trucking of food) then changes should be made as swiftly as possible. 3. Examine Unemployment Compensation The National Commission on Unemployment Compensation (headed by former HEW Secretary Wilbur Cohen) which is examining unemployment compensation should take into consideration its impact on productivity How can we provide protection for the person seeking work If we provide a guarantee of without discouraging productivity? a job to all citizens, can we partially compensate for that by reducing the length of coverage of unemployment compensation? 4 Study Japan's/ Germany's Labor/Management Relations The Administration should conduct--through the Departments of Labor and Commerce--an evaluation of labor/management relations in Japan and West Germany. Our institutions have not undergone any fundamental change in decades, but conditions have changed. Our https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis .0- p. 16 slipping productivity is not an historic inevitability. Closer working relationships between labor and management are achievable and are desirable. 5. Encourage Research Training Studies on productivity by Edward Dennison of Brookings Institution suggest that greater encouragement to research and development should be provided. His study also shows that while there have been many negatives in the U.S. productivity picture, improved training for technical skills has been a major plus and should be encouraged. Procedural Recommendations 1. Move Into Multi-Year Budgeting Multi-year budgeting including plans for new programs, lessening or expansion of present programs, and tax cuts or increases, should be expanded so that the economic future can be more systematically approached. Government by impulse is no longer an affordable luxury. It is not possible for the Budget Committees alone to do multi-year budgeting; the cooperation of all committees would be required. 2. Bring Off-Budget Items Onto the Budget Adequate monitoring and control of federal borrowing in the private money market is simply not possible without that. Major entities created by the federal government can create their own deficits without any voice from either the executive or the legislative branches. Greater control is needed for effective fiscal policy. 3. Correct Housing Error in CPI The housing provisions of the Consumer Price Index should be more accurately gauged. The present method of calculation creates an artificially high housing cost, which is then geared into all indexation figures, used by the federal government and private sector contracts. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis p. 17 By calculating housing on the basis of new housing costs, an unrealistically high figure is produced. Of the 9.2% total inflation of 1978, the figure is actually about 1.4% higher than it should have been, or about one-seventh too high. Unfortunately that artificially high price is now a cause of further inflation because of indexation. This change in calculating the Consumer Price Index can be corrected by administrative action; no statutory change is needed. 4. Correct the Coffee CPI Because of a change in weighing the price of coffee in the Consumer Price Index, there is a slight artificially high factor in food. As a CB0 paper notes: "From the freeze in Brazil in mid-1975 to June 1977 coffee prices in the CPI rose by over 150 per cent. The relative importance of coffee as of December 1977 in the old CPI was 1.02 per cent. Thus the coffee price runup can be said to have added something over 1 per cent to the inflation rate in this period. Now enter the new CPI simultaneous with a recovery of Brazilian coffee supplies. In the new CPI coffee prices have declined--so far by 15 per cent--however, the relative importance for coffee in the new CPI is only 0.24--less than 1/4 of the previous weight. Even if coffee prices decline all the way back to 1975 prices the CPI price index will be permanently higher as a result of the weight change brought about in the revision." This should be corrected. Again, it has a multiplying impact because of indexation. 5. Issue Regular Inflation "Report Cards" Dr. Arthur Okun has suggested that the Congressional Budget Office (or the General Accounting Office) should be asked to "issue a quarterly report that identifies all actions and proposals by the President and by Congress that would either raise or lower the price level." While, the suggestion to evaluate all proposals is unworkable, some type of quarterly or monthly score-card on actions taken or pending would be helpful and is recommended to CBO. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • p. 18 6. Move With Visible Boldness A major inflationary factor today is what some call "the psychology of inflation". If that is to be broken, whatever inflation program emerges from the Administration and Congress must be presented in terms dramatic enough to convince people that something really is being done. Unless the image of action But speeches will not be enough. is combined with the substance of action the "psychology of inflation" will not be broken. Solid action taken in such a way that people understand and know what is happening is the medicine our ailing economy needs. ************ L https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis geoloihar 17, 197111 Watkine The ilemetebbe soft a iipmeastiviets C, 2031s wisiwalsese. imar Wx, wetting: sa respimillas Se the Vetter yos at es to sad to ether seatieve of the as ohateledas the irederel Ilktiesose vettey ea die U dlibt laktnrtild in do feeimetiesi aI see-heek tottzt at holding le OM Utter. yen elbrold diet yen tom dislhopertialaa appointed to Ware the* Saab Ommittile sal Isestatles telt diet the pailicy did NM Mei tit be slierisad am! oti Mod o letter froi tit* illpee at tha Ilsiges *tail to Mr. TerTest, Joao of Oklahoma city. &Loup of MI kolionsid theta ha areeipomee to a request by alaheme Waken, Moo, owe sobasteek a eaviao at &IA retionsant illaisitids tar eme-benk heidies cespeey formitions. It is its, 'ivy immiftwesedime that the Besolte(4111Matt40 444 rovlows stuff', solaysio immik sameeett eimaettried with its competes/0os, It shollif be moods howeree* that We muse hes eat bus die very saw Artuzic the awed *specto reviewed by do Deeed. to ammo this aid *hey Wises related to beak heldiais siaspoiles th ,..naoctiest with ammodissetise of bLUe that on mow pionams ta the 011141 OPIUM, yen an be neeseed that the consoles. vital alleet Moat atIt Aire .440MILIAMmedblorettera to thus settees imaluding the pelletal soisedi jaw Seeller. incorfolY 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Jlat icd (ft-21) heel Beard likmdbere itr• arm illelleardi (2) A* • • WES WATKINS 3no DISTRICT, OKLAHOMA (201.) 225-4565 • MAJORITY ZONE WHIP COMMITTEES: BANKING, FINANCE AND URBAN AFFAIRS CONGRESS OF THE UNITED STATES CHAIRMAN CONGRESSIONAL RURAL HOUSE OF REPRESENTATIVES CAUCUS SCIENCE AND TECHNOLOGY SELECT COM MITTEE ON AGING WASHINGTON. D.C. 20515 - August 30, 1979 • Mr. Paul Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: Recently I received a copy of a letter from Mr. John E. Ryan to Mr. Forrest Jones of Oklahoma City, Oklahoma, concerning the Board's Committee on Bank Supervision and Regulation decision regarding the policy on the retirement of acquisition debt incurred in the formation of one-bank holding companies. I was disappointed to learn the Committee felt this policy did not need to be changed. Title VIII of FIRA alone necessitates a re-examination of the repayment schedules for bank stock loans. Since preferential rates are no longer allowable, higher interest rates are having to be incurred. These increased debt servicing costs have been creating burdens on banks that need to have their repayments stretched out over a longer period of time. Mr. Ryan's letter also states that, ... the earnings of small banks I - nerally grow at a faster pace in a rising interest rate environment thIn when rates are stable or declining." The term "generally" does not take into account the position of those banks whose earnings are not growing as fast as some and who need a longer repayment schedule. It would appear that you are not trying to help these banks improve their situations. You are placing these banks in jeopardy and the Fed will have to take full responsibility when these banks run into .ifficulties, : 10 •. - 7*C" !NA„:.ii••••••••• Your action continues to weaken the Federal Reserve's position in the eyes of this country's banks by your lack of responsiveness to their needs and problems. It is no wonder so many are withdrawing from the System. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis %Or 4471' OKLAHOMA DISTRICT OFF ICES: 232 POST OFFICE BUILDING ADA, OKLAHOMA 74820 (405) 436-1980 203 POST OFFICE BUILDING uric A rq. OKLAHOMA 73533 (405) 252-1434 118 FEDERAL BUILDING 74501 MCALESTER, OKLAHOMA (918) 423-5951 0•0111•1•11111111111•11•MMIS. • ••• • •• ” 1_7177.4KfAi4.407:::7;a:-#.1:;44illAta. ,• dna* • 4 . August 30, 1979 Mr. Volcker Page Two Hopefully, we can work together to improve this situation. I hope you will reconsider the Committee's decision and try to be helpful to this group of people in the banking industry. Thank you for your time and attention to this matter. Sincerely, Member of Congress it https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis .11* Isegur-- t - .. • . e... • • https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis September 14, 1979 The Honorable John C. Culver Chairman Subcommittee on Administrative Practice and Procedure Committee on the Judiciary United States Senate Washington, D.C. 20510 Dear Chairman Culver: This is in reply to your letter of August 31, 1979, relating to the board's actions in connection with Executive Order 12044. In respell,* to your request, I am enclosing A copy of letter of January 10, 1979, sent to the President by former Chairman Miller referring to the Board's "Statement of policy regarding expanded relemaking preeedures" that is intended to comply fully with the spirit of Executive Order 12044. A copy of that statement of policy issued in a press release of January 15, 1979, is also soelosed. The Board had earlier undertaken a program to review all of its regulations and related interpretations and rules to determine whether they need modernization or can be otherwise improved. This program was announced in a press release of June 8, 1978, cop, enclosed. Pursuant to this review program, the Board has revoked two of its regulations, Regulation E (Purchase of Warrants), and Regulation S (Bank Service Arraegements). It also decided not to take any action to amend RegulatiacCvhich impUments the Home Mortgage Disclosure Act that expire* in June 1980, unless extended by the Congress. These actions were announced in the enclosed press releasso of Novembor 9, 1978, aid arch 5, 1979. The Board's reviev program has also resulted in a simplification of Regulation V (Loan Guarantees for Defense ftoduction) announced in the enclosed press release of February 12, 1979. The Board has also revised and reissued Regulation 0 (Loons to Executive https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The H‘norable John C. Culver Page Two Ofglisars, Directors and Principal Shareholders of Member Banks) semeenced in a press release of March 6, 1979, copy enclosed, and as set forth in the enclosed press release of June 14, 1979, revised Regulation K (International Slinking Operations) and consolidated into the revised Regulation K previsions of other regulations dealing with foreign operations of U.S. beaks (Regulation M) and foreign investments by bank holding companies (Regulation Y). in addition, the Board has also revised and reissued Regulation L (Management Official Interlocks) as announced by the enclosed press release of July 18, 1979. If you desire any further information about the Board's continuing regulatory review project, please let me know. Sincerely, SZPaul A. Wier Paul A. Volcker Enclosures CRK:pjt (itV-23) bcc: Mr. McNeill Mr. Petersen in Mr. Puckett Mrs. Mallerdi II. ....e Assigned to Mess. Peterson gz McNeill https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • EDWARD M. KENNEDY. MASS., CHAIR INDit ROBERT C. BYRD,..b.V. VA. JOSEPH R. BIDEN. JR.. DEL. JOHN C. CULVER, IOWA STROM THURMOND. S.C. CHARLES MC C. MATHIAS, JR., MD. PAUL LAXALT. NEV. HOWAR -, M. METZENBAUM, OHIO DENNIS DECONCINI, ARIZ. ROBE Rr DOLE. KANS. THAD COCHRAN, MISS. PATR CK LEAHY, VT. MAX BAUCUS, MONT. ALAN K. SIMPSON, WYO. SUBCOMMITTEE ON ADMINISTRATIVE PRACTICE AND PROCEDURE JOHN C. CULVER, CHAIRMAN ORRIN G. HATCH. UTAH HOWELL. HEFLIN, ALA. PATRICK J. LEAHY JOSFPH R. BiDEN, JR. PAUL LAXALT ROBERT DOLE HOWARD M. METZENBAUM BIRCH BATH CHARLES MCC. MATHIAS, JR. THAD CPC+,RAN JAMES N. DAVIDSON CHIEF COUNSEL AND STAFF DIRECTOR STEPHEN BREYER. CHIEF couNsFL RICHARD H. GROGAN. JR., STAFF DIRECTOR Cnifeb falcz Zenctie Err $4z. COMMITTEE ON THE JUDICIARY WASHINGTON, D.C. 20510 August 31, 1979 The Honorable Paul Volcker Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551 L5L Dear Mr. Chairman: The Senate Subcommittee on Administrative Practice and Procedure is presently considering the major regulatory reform legislation which has been offered in the 96th Congress. This includes Senate bills S. 262 (Ribicoff), S. 299 (Culver), S. 755 (Administration), S. 1291 (Kennedy) / and S. 104 (Schmitt). Many of the provisions in these bills are based upon similar portions of Executive Order 12044, issued by President Carter on March 23, 1978. Clearly, the experience of agencies under that order is of great interest to the Subcommittee. Therefore, I request that you forward to the Subcommittee copies of any reports which your agency has sent to the Office of Management and Budget concerning implementation of Executive Order 12044. I understand that at least two such reports have already been prepared this year. Any supplemental comments you may wish to make concerning your experience under the Executive Order would also be most useful. Please send this material to the Subcommittee on or before September 14. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis f., (c • The Honorable Paul Volcker Page Two August 31, 1979 To supplement your reports, the Subcommittee staff would benefit from a meeting with members of your staff familiar with the Executive Order implementation in your agency. Jim Davidson, Subcommittee Chief Counsel, will contact your office soon to make the necessary arrangements. Thank you for your assistance. Sincerely, HN C. CULVER Chairman .7" . ; JCC/rn https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis September 13, 1979 The Hcnorable Fortney H. Stark, Jr. House of Representatives Washington, D.C. 20515 Dear Pete: your Thank you for string 00 the opportunity to raopomd to titute for S.R. 3712 recuest for comment on Repamemstative Miore's subs certain interest which for tax purposes would seclude fres gross imams 0000 savings by *armed on savings. This pripmes1 attengts to L000 at most raising the after-tax rate of weturn on Mill. 000000t8 depositary institutions. is The expect of the proposal 00 total houeebold savings of total household likely to be email. First of all, the sensitivity Studies in savings to cheeps in interest rotes is open to question. tissue is this ores have arrived at conflicting conclusions, and the e, afterstill unresolved. But even if savings are interest sensitiv l portion of total tax rates of return mould be raised for only a smal is relasavings. The inazissam amount of interest that can be excluded as mmw tively small, sod Mho exclusion would apply to existing as well matimas mould deposits. This mamas that individuals already earning the osal; to these have no incentive to save additional smeents under the prop those savers the exclusion merely mould represent a tax cut. Om for ible am peas individuals earning Ion this $100 in eligible interests s's* increased.o. incentive to save would deetnish over time as deposit bale tional which could occur with shifts of existing assets or through addi savings directed to ardimps accounts. The pempesied amoselmast in general does sot sees to be a particate saving. 11000000,, ularly coot-effective vay to encourage increased priv the remelting larger WOW if aggregate savings vere increased, fiammoims urce* Which might Moral budget deficit would absorb some of theft reso enlarged budget deficit bove bees available for privete investment. The n. This is itself would toed to emmeathate the problem of inflatio aesamgenying and the particularly disturbing, because it is inflation ettractiveemss of high market interest rvtee which have reduced the savings accounts at depositary institutions. n of I hope these eammastm will be useful in the comsideratio Representative Miereso peopsoal• FF:DK:JLK:pjt (#V-20) bcc: Mr. Kichline Psdk• Sincerely, Wald Ai. VOiet 1 a. F.01NEY H. (PETE) STARK 41-1-1 DISTRICT, CAUFORNIA COMMITTEES. WAYS AND MEANS DISTRICT OF COLUMBIA SELECT NARCOTICS CONGRESS OF THE UNITED STATES HOUSE OF REPRESENTATIVES WASHINGTON, D.C. 20515 ,--) —4 Lo t •1 :I --1 C) rn er- C:-...;-) :— .. • August 26, 1979 rl c.:, c..-3 - 7...:. • ", r•J •.0 -.•• - _) Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System Twentieth Street and -Constitution Avenue Washington, D.C. 2055 co Dear Mr. Chai When the Committ e on Ways and Means reported out HR 3712, which set certain limitations on the use of mortgage subsidy bonds, it recommended to the Rules Committee that a substitute to be offered by Congressman Moore be in order when the House considers the bill. The Moore substitute would exclude from gross income for income tax purposes the first $100 of interest earned from a savings account and prohibit the use of tax -exempt bonds for single family housing. mmm. I would appreciate your views on the Moore substitute. Do you consider it an effective means for increasing the total amount of savings? If indeed it does result in more savings will it, therefore, also result in additional investment in new plant and equipment - and consequently an increase in labor productivity? ' What will the effect of this kind of tax cut be on the rate of inflation? Sinc F.. nark, ney . Stark, Jr. Member of Congress FHS/eg https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ei * e THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS • •• vove ;.1"14' r • VI 96TH CONGRESS 1ST SESSION H.R.3712 To amend section 103 of the Internal Revenue Code of 1954 to provide that the interest on mortgage subsidy bonds will not be exempt from Federal income tax. IN THE HOUSE OF REPRESENTATIVES APRIL 25, 1979 Mr. ULLMAN (for himself, Mr. REUSS, Mr. ASHLEY, Mr. CONABLE, and Mr. STANTON) introduced the following bill; which was referred to the Committee on Ways and Means A BILL To amend section 103 of the Internal Revenue Code of 1954 to provide that the interest on mortgage subsidy bonds will not be exempt from Federal income tax. 1 Be it enacted by the Senate and House of Representa- 2 tives of the United States of America in Congress assembled, 3 4 SECTION 1. MORTGAGE SUBSIDY BONDS. Section 103 of the Internal Revenue Code of 1954 (re- 5 lating to interest on certain governmental obligations) is 6 amended by redesignating subsection (g) as subsection (h) and 7 by inserting after subsection (f) the following new subsection: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 1 "(g) MORTGAGE SUBSIDY BONDS.- 2 "(1) IN GENERAL.—Except as provided in para- 3 graph (3), any mortgage subsidy bond shall be treated 4 as an obligation not described in subsection (a) (1) or 5 (2). 6 "(2) MORTGAGE SUBSIDY BOND DEFINED.—For 7 purposes of this subsection, the term 'mortgage subsidy 8 bond' means any obligation which is issued as part of 9 an issue all or a significant portion of the proceeds of 10 which are to be used directly or indirectly for mort- 11 gages on (or other owner-financing of) owner-occupied 12 residences. 13 14 "(3) EXCEPTION.—Paragraph (1) shall not apply to any obligation- 15 "(A) which is issued as part of an issue sub- 16 stantially all the proceeds of which are to be used 17 to provide residences for veterans, and 18 "(B) the payment of the principal or interest 19 on which is secured by the general obligation of 20 any State, territory, or possession of the United 21 States, or the District of Columbia." https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • 3 1 SEC. 2. INDUSTRIAL DEVELOPMENT BONDS FOR HOUSING 2 PURPOSES LIMITED TO LOW OR MODERATE 3 INCOME RENTAL HOUSING. 4 Subparagraph (A) of paragraph (4) of section 103(b) of 5 the Internal Revenue Code of 1954 (relating to industrial 6 development bonds) is amended to read as follows: 7 "(A) projects for low or moderate income 8 rental housing which meets the requirements of 9 section 167(k)(3)(B),". 10 11 SEC. 3. EFFECTIVE DATE. (a) GENERAL RULE.—Except as provided in subsection 12 (b), the amendments made by this Act shall apply to obliga13 tions issued after April 24, 1979. 14 (b) EXCEPT FOR CERTAIN BINDING AGREEMENTS. 15 The amendments made by this Act shall not apply to obliga16 tions issued before May 25, 1979, pursuant to a binding writ17 ten agreement to sell such obligations entered into before 18 April 25, 1979. 0 1 Action's been assigned to Jim Kichline. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis loptothint 12, 1979 Stoades ismosbio alstimmi lismalso as lookits. Motes as4 Woes tasty* %WWI Ototoo ken* Vaslapis. D*4* 20510 Rim ablifilleS Pronatisot Time yes lbw poor lector of Septabar 4 Lewitt* the otoolior Wiest 30aid te testify sit your Casteteetto Wort* lotus to demi vith the ergot coottasod ormotas ef nadoetelhip in the redaral laiserva Spites en csmotosy oastrot mad wolotod ismisoo• Aa yes hem. 1 tt sob."art Imporesat doot a losiolottat solettso to Silo peoblos bat ammoisi g000pely sod *41110Mlikgr Wt.4,11, Usk Shoosod to toottertog ataisoleire Past A* %Win CO:KhOrpjt (i1V-24) Asibrod bec: Nks. Nallardi (2) WILLIAM PROXMIRE. WIS.. CHAIRM 1 HARRISON A. WILLIAMS, JR., N.J. ALAN CRANSTON, CAUF. AOLAI E. STEVENSON. ILL. ROBERT MORGAN, N.C. DONALD W. RIEGLE, JR., MICH. PAUL S. SARBANES. MD. DONALD W. STEWART, ALA. PAUL E. TBONGAS, MASS. JAKE GARN, JOHN TOWER, T JOHN HEINZ, PA. WILLIAM L. ARMSTRONG, COLO. NANCY LANDON KASSEBAUM, KANS. D. RICHARD G. LUGAR. KENNETH A. MC LEAN, STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANCES DE LA PAVA„ CHIEF CLERK ')Anifeb Zfaiez senate COMMITTEE ON BANKING, HOUSING. AND URBAN AFFAIRS WASHINGTON. D.C. 20510 September 4, 1979 The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: The Committee on Banking, Housing, and Urban Affairs has scheduled two days of hearings on September 26 and 27, 1979 to consider legislation to deal with the effect of continued erosion of membership in the Federal Reserve System on monetary control and related issues. The Committee has before it several pieces of legislation including H.R. 7 which was approved by the House of Representativeq in July, S. 85, and S. 353. In addition I plan to offer new legislation in the form of an amendment to S. 85. The Committee would like to hear your views on Wednesday, September 26, 1979 at 10:00 A.M. in Room 5300 of the Dirksen Senate Office Building. Your testimony should consider H.R. 7 and my amendment to S. 85, but you may also comment on other approaches to the issues involved. I am enclosing copies of H.R. 7, my proposed amendment to S. 85, S. 85, and S. 353. Should you have any questions about the hearings you may contact Steve Roberts, Chief Economist for the Committee, at 224-7391. Enclosures WP:srl https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Anommononimml.• AIM https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis September 11, 1979 'he Honorable Glenn English The United States House of Representatives Room 109, Cannon House Office Building Washington, D. C. 20515 Dear Mr. English: Thanks for your note encouraging me to agree to address the Independent Bankers Association of Oklahoma on October 30. know I would benefit from the opportunity, but unfortunately pressures on my schedule are such that I just will not be able to squeeze in a trip to Oklahoma at that time. Accordingly, I had to turn down the invitation. Best wishes, and sorry things didn't work out well. Sincerely, Paul A. Volcker KO:sz +Ma ••••4 109 CANNON HOUSE OrFICE BUILDING WASHINGTON, D.C• 20515 (202) 225-5565 At GLENN ENGLISH 6TH DISTRICT, OKLAHOMA AGRICULTURE COM M TTEE 410 M APLE STREET YUKON, OKLAHOMA 73099 GOVERN M ENT OPERATIONS COM M ITTEE (405) 354-8638 AGRICULTURE CENTER BUILDING OSU CAMPUS STILLWATER, OKLAHOMA 74074 SELECT COM M ITTEE ON NARCOTICS ABUSE AND CONTROL (405) 377-2824 CONGFLESS OF THE UNITED STATES FEDERAL BUILDING ENID, OKLAHOMA 73701 HOUSE OF REPRESENTATIVES WASHINGTON, D.C. 20515 (405) 233-9224 September 4, 1979 The Honorable Paul Volker Chairman Board of Governors Federal Reserve System Federal Reserve Building Consti-tution Ave. between 20th & 2Ist Streets Washington, D.C. 20551 cf) Dear Mr. Chairman: I understand you have received an invitation to a•ttend and speak at the 6th Annual Convention of The Independent Bankers Association of Oklahoma, October 30th, at the Williams Plaza Hotel in Tulsa, Oklahoma. I would very much appreciate your giving this invitation every consideration when finalizing your October schedule. Thank you very much for your attention to this request. Sincerely, GLE/tp https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis co.) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis September 11, 1979 The Honorable David L. Boren United States Senate Room 440, Russell Building Washington, D. C. 20510 Dear Senator Boren: Thanks for your letter seconding Mr. McKeown's letter inviting me to address the Independent Bankers Association of Oklahoma on October 30. While I know I would benefit from the opportunity to exchange views with the Independent Bankers, pressures on my schedule are such that I just will not be able to squeeze in a trip to Oklahoma at that time. Accordingly, I had to turn down the invitation. Best wishes. Sincerely, Paul A. Volcker KO:sz DAVID BOREN OKLAHOMA • • CHAIRMAN,SUBCOMMITTEE UNEMPLOYMENT AND RELATED PROBLEMS WASHINGTON OFFICE: 440 RUSSELL BUILDING WAsmiNIGToN,D.C.20510 COMMITTEE ON FINANCE '11Crtiteb Ztatez -.Senate STATE OFFICES: 621 NORTH ROBINSON, SUITE 350 OKLAHOMA CITY, OKLAHOMA 73102 ROBERT S. KERR BUILDING 440 SOUTH HOUSTON WASHINGTON, D.0 20510 MEMBER: COM METTEE Olk,GRICULTURE, NUTRITION ADM FORESTRY C.) August 31, 1979 TULSA, OKLAHOMA 74127 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis cd1 rn al CD CID The Honorable Paul Volcker Chairman Board of Governors Federal Reserve System Twentieth St. & Constitution Ave. Washington, D.C. 20551 NW Dear Mr. Chairman: Mr. James P. McKeown, Executive Manager of the Independent Bankers Association of Oklahoma, tells me that he has invited you to address the association on on the opening day of its Sixth Annual Convention at the Williams Plaza Hotel in Tulsa on October 30. I am pleased to join the association in its invitation. We would be honored to have you visit our great state. Sincerely, David L. Boren United States Senator DLB/mah https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis August 28, 1979 Mr. James P. McKeown Executive Manager The Independent Bankers Association of Oklahoma 6400 N. Classen Blvd. - Suite 302 Oklahoma City, Oklahoma 73116 Dear Mr. McKeown: I very much appreciate your invitation to address the of Oklahoma Annual Convention of the Independent Bankers Association at the end of October. permit it. Unfortunately, my schedule simply will not opporBut, I want to assure you that I look forward to the of the tunity of an early exchange of views with representatives Independent Bankers Associations. Sincercly, Paul A. Volcker EGC:mhw #1781 ,ciD • 1111A • The INDEPENDENT BANKERS ASSOCIA1191)iillr• of Oklahoma r" 7 r August 17, 1979 The Honorable Paul Volker Chairman, Board of Governors Federal Reserve System 20th and Constitution Avenue NW Washington, D. C. 20515 Dear Mr. Volker: Our 6th Annual Convention of The Independent Bankers Association of 0717O7n=re="t773re-wrr"-r3Ist aE the ‘ -alliams Plaza Hotel-iiirulsa, Oklahoma.' . 4114$4,04111.14E 4444111011148.111114,44 This is an invitation for you to address our tion in the will be held at opening sess-7p" = I a.m ber wouldTe addressing You approximately 200 Chief Executive from IITtcers of banks throughout Oklahoma. A current national economic overview, would be appropriate for our program. We look forward to hearing from you and receiving your remarks during our meeting. Sincerely, Jaiiies P. McKeown Executive Manager Accept Regret JPM/ld 6100 N. Classeu !Md.• Suite 302 • Oklahoma Cit. Okla. • 73116 • Ph. 105.840.4416 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4 Th-xiso CHAIRMAN OF THE BOARD OF GOVERNORS FEDERAL RESERVE S STEM WASH1NGTON,D.C. 20551 SEP 10 1979 The Honorable Charles H. Percy United States Senate Washington, D. C. 20510 Dear Senator Percy: This is in further response to your letter of July 20 to Chairman Miller requesting comments on S. 1380, the "Securities Protection Act of 1979." The Board supports the objective of securing effective enforcement against fraudulent securities transactions. However, a detailed assessment of measures needed for effective criminal enforcement in the area is more properly the province of law enforcement authorities. Therefore, we would defer to the Justice Department's views in this matter. We appreciate your giving us an opportunity to review S. 1380. As you suggested, we will also communicate with Senator Biden on this subject. J Sincerely, fa4 ; Paul A. Volcker cc: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Senator Joseph R. Biden, Jr. , . •--66 e' %co • • .1. ';r. .. ..b. . . •.4.1 ••••I. ' • . ••••• !Ir • v. it• a• • • 411..e • • or.- W.-1pr-4, C• •lo.t.,%.6 • •.• 'AO r"• et:. 1•r: •'• r• • • it, • ••• 01 . 4•4 .• • gir4:• 11 0- #01i.d.4.41,p11. r. ' 4.. r• yt • • oF•GOv- • CHAIRMAN OF THE BOARD OF GOVERNORS FEDERAL RESERVE SYSTEM WASHINGTON. D. C. 20551 September 10, 1979 The Honorable Joseph R. Biden, Jr. United States Senate Washington, D. C. 20510 Dear Senator Biden: The Board has received a request from Senator Percy for comments on S. 1380, the "Securities Protection Act of 1979." In requesting comments, Senator Percy indicated your interest in this measure, and for that reason I am sending you a copy of my response to his letter. rir Sincerely, S/Faul Paul A. Volcker Enclosure https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis rr-ar t•''.-• . . • •• ••-•.0 • .• ••.. -4, .• t ."`• P. • • • Ai% 94 • ••-• 4.4. .4 , " t • A ..,.. • r• ..,,...... .:' • % [till • •‘Ok. •• C CHAIRMAN OF THE BOARD OF GOVERNORS (...... . - w. . tv; 111 ....... .•o . of coy('• i?,1,•• • 9- ./.." V /Z.•• FEDERAL RESERVE SYSTEM N WASHINGTON. O. C. 20551 4-4-t 9: 4 .• I. RE-5`• • ' i P bt,4 September 10, 1979 The Honorable Charles H. Percy United States Senate Washington, D. C. 20510 Dear Senator Percy: This is in further response to your letter of July 20 to Chairman Miller requesting comments on S. 1380, the "Securities Protection Act of 1979." The Board supports the objective of securing effective enforcement against fraudulent securities transactions. However, a detailed assessment of measures needed for effective criminal enforcement in the area is more properly the province of law enforcement authorities. Therefore, we would defer to the Justice Department's views in this matter. We appreciate your giving us an opportunity to review S. 1380. As you suggested, we will also communicate with Senator Biden on this subject. norr..0 Paul A. Volcker ' •.. C$40 1" th.,.• . , .r..., cc: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ....4 • .11 Senator Joseph R. Biden, Jr. .,::•••‘.• r.k..b-. ' 04 he._. • .:!• 1.-:/.L. til). ,.1 1 • • -••••*;•• • 'C' • s • ra-•\, , - • :•••?, h;• ...:"••!• 24 ;ir0.44A, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis CM 7,a2 SP ri" / 7 1979 The Sensoraw. 4.ipenjasuia S. tosenthal Chstruse Cesseerce, Consl.wer, aad ';.ouetary Affairs Subcormittes of the Committee on wovernment Operations Rayburn- Howse Office SuildinE Wash/Aston, D.C. 20515 Near Mr. Chat/ram:4 4311 forwarding a copy of A staff report that responds to the questions presented in your latter of Auguut 14, 1979 . The testi— F.ony to be presented by Lrovernorltice before yuur Subcommitt ee on Septeober 12 will be sent to you on rionday. In connection with the requests detailed in your subsequet.t letter of August 20, 1974, we have sent the material you aed for, eith the exception of the last three items. (other item, regardint staff work in response to the 1973 Survey of Selected Sank Practices, is discussed in the enclosed staff report.) The collection and propsration of the data necessary to respond in full to the last three item would impose a substantial drain on oar time and resourcea, and those of the Reserve Sank*. or. importantly one of these items calls for actual examination report workpepers. In view of these considerations I would like to propose that we aeni you simple iaformetion regar ding these !tens which I an confident will provide a satisfactory basis for your Subcommittee's work. Specifically we are prepared to supply: (1) Tht actual couplaints under tho co,Apleint codes lioted received by the Philadelyhia and San Francisco Xeserve tanks durin g 1978 and the first two qyartere of 1979. Rather; than furnish data for all the lanks, we are prepared to aupply datu for two. 'At would prepared to uubstitutO any two Zastka you selectod, if you wish s different simple. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The :ionorahle 71enjamia S. r.osenthal 2 -- (2) A tabuletion of the information reerding advertisir4 violations contained on the examination report checklists for the most current examinations of State meeker hanks in New York State and the Atlanta :VSA. Instead of checklists for the last two examinations of State acmber banks in New York State and in the five SASAs of Washington, D.C., Chicago, San Francisco, Los Arles, and Atlanta, we would be prepared to substitute tabulations of information found on the checklists for the nest recent examinations of Ztate member banks in New York State and in one SMSA. We would be prepared to substitute a different SilSA for Atlanta, if you preferred. (3) A tabulation of the advertiallw violations under Re4lation and the Fair itousinii Act found by examiners in the Dallas and it. Louie Federal Reserve Districts durink the last examination of State member banks on these districts. Our automated system has the capacity to generate a System-wide tabulation oaly for the Regulation I advertising violations. This tabulation was previously sent to your staff. Specific advertising violations of Reijulation Q and the lair Fousia& Act can only be retrieved manually. Instead of a System-wide tabulation of violations found in all State saember banks for 1978 aid the first two quarters of 1979, we would be prepared to substitute a tabulation of violations found in the most recent examination of state members in two Reserve districts. We would be prepared to subatitute any two districts you selected, if you wish a differeat sample. Sincerely, SLeaml A, Voicker Paul A. Volcker .Encloaure DSS;bc 9-7-79 REMJAMIN S. ROSENTHAL, N.Y., CHAIRMAN nob...RT T. MATSUI, CALIF. t...JGENE V. ATKINSON, FA. FERNAND J. ST GERMAIN, R.I. JOHN CONYERS. JR., MICH. ELLIOTT H. LEVITAS. GA. LYLE WILLIAMS, OHIO JIM JEFFRIES, KANS. JOEL DECKARD, IND. NINETY-SIXIH CONGRESS Congre5 of Hie Elniteb btatez MAJORITY—(202) 225-4407 30otit4e of 1eprelentatitm5 COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING, ROOM B-377 WASHINGTON, D.C. 20515 August 20, 1979 Hon. Paul A. Volcker Chairman Board of Governors Federal Reserve Systems Washington, D. C. 20551 Dear Mr. Chairman: In connection with our hearings on the supervision of bank advertising practices, the subcommittee met with Janet Hart, Director of the Division of Consumer Affairs on August 13, 1979. The Federal Reserve has agreed to furnish within a week the following documents: 1. The Federal Reserve quarterly reports on the types and amounts of advertising complaints for 1978 and the first two quarters of 1979. 2. The annual report required under the FTC Improvements Act for the year 1976 (dated March 15, 1977). 3. A statement of purpose from the Task Force reviewing and revising the computer codes for advertising complaints. 4 The circular and any other written instructions to member banks encouraging use of the pamphlet, "How to File a Consumer Credit Complaint." 5 A copy of the staff memo defining or explaining the Federal Reserve concept of "unfair or deceptive acts and practices" (from the FTC Improvements Act). 6 The sample tabulation of responses to the three advertising questions on the examination report - Ql(a), Z9, and FHA3; a statement to the effect that these three questions are not tabulated or compiled on a regular basis; and, the list of those questions which are compiled and tabulated regularly. 7. A list with the number of member banks in each region. In addition, the following two items are to be supplied to the subcommittee if possible: 1. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Staff draft work on proposals and recommendations in response to the 1978 Survey of Selected Bank Practices. yr, BOARD OF GOVERNORS OF THE FEDERA1VERVE SYSTEM Date To: From: 8/ 21 Catherine CAROL O'BRIEN () Per Conversation ( ) For comments and suggestions () For your information ( ) Phone me re attached This has been assigned to Janet Hart for response. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ( )OVER 2 Hon. Paul A. Volcker 2. August 20, 1979 A description of total assets of member banks including a breakdown by deposit functions (checking, regular passbook savings, time deposits). If this information is not available, please provide a short explanation or direct the subcommittee to a more appropriate source. The following items were also requested informally but no agreement was reached at the staff level. Therefore, I specifically request from you in order to carry out the oversight duties of this subcommittee these Federal Reserve documents: 1 The actual complaints received by the Federal Reserve for 1978 and 1979 (first two quarters) which have been compiled for the Consumer Complaint Control Procedure under the following code categories: D 010100 010300 010400 010501 010502 Q 010000 011300 011400 011700 030100 030200 030300 030400 030500 050100 020100 020200 020300 040000 060000 070000 080100 080200 2. The examination checklists for the last two examinations of member banks in the New York State, and the metropolitan regions of Washington, D.C., Chicago, San Francisco, Los Angeles and Atlanta. 3. A tabulation of the total number of violations found by examiners for 1978 and the first two quarters of 1979 under: a. Q 1(a), "Advertising of Interest on Deposits" b. Z 9, "Does the advertising comply with the requirements of the regulation?" c. FHA 3 "Statement of nondiscriminatory practices in all advertising" If you have any questions as to the specific information requested by the subcommittee, please contact Barbara Timmer, co nsel to the subcommittee. Since ely, Benjamin S. Rosenthal Chaiirman BSR:tb https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis liseember 1479 Sas*. fillibeas Illattrama Salioseasiltase sa aisesildim flaustetas SI Ways ad IWO* iiaslea et Ilisprossatattiped Wasidastea, D.C. MU *saw Cbstam ftiMosass Think 74110 bat year WNWii laitsst 24 twists* the bust to Owl* at year isibaiaataaseS1 *wigs as do lits's aspart se Ow sadamitaaal etsitargys Camitiftfile 011111140ast1ses booms asallisas oil aso aispetive staffs, flisesaaat ampi. lasilas. Writ la betimill of do leard ea lersdiw •fterimese esperidmig 1114 A,yolchet Pug A. Ilagallor COOPittpjt (0147) bee; Grir. 'Uttar* amilrod Ilkt• !Lek Porter Nallarcti (2) 6- sr.o.. GIBBONS, FLA., CHAIR MAN SUBCOMMITTEE ON OVERSIGHT • J. 3. PICKLE, TEX. HAROLD FORD, TENN. ANDY JACOBS, JR., IND. ED JUNK INS, GA. GEC (CM) HEFTEL. HAWAII BILL GRADISON. OHIO W. HENSON MOOR E, LA. JOHN J. DUNCAN. TENN. EX OFFICIO. Al.. ULLMAN. OREG. BARBER B. CONABLE, JR.. N.Y. • NINETY-SIXTH CONGRESS AL ULLMAN. OREG.. CHAIRMAN COMMITTEE ON WAYS AND MEANS COMMITTEE ON WAYS AND MEANS U.S. HOUSE OF REPRESENTATIVES WASHINGTON, D.C. 20515 JOHN M. MARTIN. JR.. CHIEF COUNSEL J. P. BAKER, ASSISTANT CHIEF COUNSEL JOHN K. MEAGHER. MINORITY COUNSEL SU BCO M 164 I TTEE STAFF PAMELA PECARICH, STAFF DIRECTOR SUBCOMMITTEE ON OVERSIGHT August 24, 1979 Honorable Paul Volker Chairman of the Board of Governors Federal Reserve System 20th & Constitution Avenue Washington, D.C. 20551 71 •• Dear Mr. Volker: The Ways and Means Oversight Subcommittee plans to hold a series of hearings, beginning in early September, on the IRS's long-awaited report on the underground economy. As Chairman of the Subcommittee, I would like to request that you or your representative be prepared to present testimony at our first hearing in September. The report, I am informed, will be available for your examination by the end of this month. My staff will make arrangements for you to receive a copy of it as soon as possible. Ow- Since the substance of the IRS report is not yet public, it is not possible at this time to specify all of the issues that the Oversight Subcommittee would like your agency to address at our hearing. My staff will clarify our concerns for you once the report has been released. However, on the basis of our present infolmation about this report, we have identified the following initial areas of inquiry which we would like the FRB to address. First, I am informed that Mr. Dick Porter on your staff has assisted the IRS in developing a response to the claim that relatively large amounts of currency in circulation indicate the existence of a significant underground economy. Since the Federal Reserve gathers the statistics on currency in circulation and demand deposits that have been used to calculate the size of the underground economy, the Oversight Subcommittee would especially like to know whether you think these data are reliable and consistent enough to be used for that purpose. Second, we would like to get the opinion of the Federal Reserve as to whether this phenomenon of large and increasing amounts of currency in circulation should be attributed to underground activity, or whether there are other equally plausible explanations. To assist us in understanding the sectorial approach used by the IRS as opposed to https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis , Ploy" • Honorable Paul Aker Page 2 the currency-based methodology used by Peter Guttman, among others, to estimate the size of the underground economy, we would also appreciate receiving your views on the relative merits of these different approaches. Finally, any observations you might wish to offer on the implications of a large underground economy for monetary policy and other economic planning and stabilizing devices would be welcome. I suspect the IRS report will confirm my suspicion that there is an underground economy in this country exceeding $100 billion annually. The amount of tax revenue lost because of failure to report income to the IRS is very substantial and the implications of such a large underground economy for economic planning could be equally important. Your assistance in our efforts to understand and cope with this phenomenon are most appreciated. We will be in contact with your office as quickly as possible in regard to details about this hearing. If you have any questions, please contact Pamela Pecarich, Staff Director of the Oversight Subcommittee, or Mark Wincek or Toby Cozart of the Subcommittee staff at 22575522. Sinc ely, S M. ons, Chairman Subcommittee on Oversight CC: Stephen Axilrod Staff Director for Monetary Policy SMG:tcv 7 „ pro. • 4.• • • • , ....;„;• all •."4 • • ri•t-" '• https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis L ; . https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1479 allpliaborr The IssarablaIliga Pitamair* astirNis r' " -h 11 pidielking. *rid Mom AMMON istiod *Mimi Swum* Witaildaites. DbC, :11510 Dew Ciptimans Prestadres toopoaroo to poor Utter Ittto411 istipsse 17. la whisk poi rolseitsii aortal.* inforastios. val oftio Flawed te the stibeirialo show ou tho oomikosit list, U yin bow goestions ressidti$ doss materialleo please 4* soot beldame to ***wait iset• Slassrely SZP_aii.1 Nate' Mid hi, Widist selosures JC:COlopjt OV.41) bcc: SWIM Catalano Meow Mallardi (2) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • -* Material requested August 17, 1979 Request No. File Contents 1. A copy of the Board's current examination manual and procedures relating to implementation of fair mortgage lending laws and regulations. A Compliance Handbook Division of Consumer Affairs 2. Copies of examiner training materials. Case studies and answers; handouts 3. Copies of any relevant additional instructions or circulars issued for guidance of examiners. Consumer Affairs letter; September 1979 issue of Newsletter 4. A description indicating the organization and structure of the Board's nondiscrimination examiner training. Press release dated February 8, 1979; Basic consumer affairs schedule 5. A description of the career path for fair lending examiners. A description of the Board's system for classifying and monitoring the number and nature of violations or patterns of violations, as discovered by examiners, of fair mortgage lending laws and regulations. Narrative on current report capacity 7. Information indicating the number and type of violations or patterns of violations discovered by examiners, and the number and type of supervisory actions taken. Narrative and tabulation of violations found in 1978 and first half of 1979 8. A description of the Board's current procedures for investigating complaints of discrimination in mortgage lending. A Part II, Section 5 of Compliance Handbook S 9. 10. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 • Copies of documents summarizing the number and nature of complaints actually filed, and the length of time it takes to dispose of complaints and the nature of dispositions. Excerpts from report, Complaints Handled by Total System Organization charts, for the Board and the Reserve Banks showing the location of all positions having functions relating to nondiscrimination policy, examination or supervision, and copies of job descriptions for such positions. Organization charts and job descriptions • • WILLIAM PROXMIRE. WIS.. CHAIRMAN HAFAISON A. WILLIAMS, JR., NJ. ALAN CRANSTON, CALIF. ADLAI E. STEVENSON, ILL. RCBERT MORGAN, N.C. JAKE GAR N, UTAH JOHN TOWER, TEX. JOHN HEINZ, PA. DONALD W. RIEGLE, JR., MICA. WILLIAM L. ARMSTRONG, COLD. NANCY LANDON KASSEILAUM, KANS. PAUL S. SARBANES, MD. RICHARD G. LUGAR, IND. DONALD W. STEWART, ALA. '11Cnifeb Zialez Zonate PAUL E. TSONGAS, MASS. c.om m rrrEE ON BANKING, HOUSING, AND KENNETH A. MC LEAN, STAFF DIRECTOR M. DANNY WALL. MINORITY STAFF DIRECTOR MARY FRANCES DE LA PAVA, CHIEF CLERK https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis URBAN AFFAIRS WASHINGTON. D.C. 20510 August 17, 1979 The Honorable Paul Volcker Chairman Board of Governors of the Federal Reserve System 20th and Constitution, NW Washington, DC 20551 Dear Mr. Volcker: The Banking Committee is planning, later this year, to hold an oversight hearing on the implementation and enforcement by the Federal financial regulatory agencies of fair mortgage lending laws and regulations. The hearing will focus on a broad range of issues including, among others, redlining, implementation of the "effects test," approaches to detection of illegal prescreening, and the status of data collection and analysis plans. To assist the Committee in preparing for the hearing, I am requesting via this letter a number of relevant background documents. In order to minimize the Board's burden and to speed the process of obtaining these materials, this request is being structured at this time so as to avoid the need for the Board or its staff to compile new information. Since we are only requesting available information, we would very much appreciate receiving these materials with a rapid turnaround, hopefully within two weeks or sooner if feasible. In order to help focus the Board's testimony at the hearing, we anticipate that we will submit some substantive questions to you several weeks in advance of the hearing. The materials requested are as follows: a copy of the Board's current examination 1) manual and procedures relating to implementation of fair mortgage lending laws and regulations (relevant laws and regulations would include, for example, the Fair Housing Act, Section 527 of the National Housing Act, and ECOA and Regulation B); T." https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • The Honorable Paul Volcker August 17, 1979 Page 2 2) copies of examiner training materials; copies of any relevant additional instructions 3) or circulars issued for guidance of examiners; a description, if available, indicating the 4) organization and structure of the Board's nondiscrimination examiner training program (e.g., the time allotted to civil rights training; how examiners are selected to participate; the number of examiners trained in the course of a year; who supervises the training); 5) a description, if available, of the career path for fair lending examiners; 6) a description, if available, of the Board's system for classifying and monitoring the number and nature of violations or patterns of violations, as discovered by examiners, of fair mortgage lending laws and regulations; available information indicating the number 7) and type of such violations or patterns of violations discovered by examiners, and the number and type of supervisory actions taken; a description, if available, of the Board's 8) current procedures for investigating complaints of discrimination in mortgage lending; copies of documents, if available, summarizing 9) the number and nature of complaints actually filed, and summarizing the length of time it takes to dispose of complaints and the nature of dispositions; organization charts, if available, for the 10) Board and the Reserve Banks showing the location of all positions having functions relating to nondiscrimination policy, examination or supervision, and copies of job descriptions for such positions; _ https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable Paul Volcker August 17, 1979 Page 3 any additional documents that you believe 11) would assist the Committee in its inquiry. The Committee looks forward to receiving the information. I thank you in advance for your cooperation. er f' AEl i am 'roxmire Chairman WP:srdj https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis September 5; 1979 The Siderable Adlai E. Stevenson chaitwes Subtommittos on Ipternatiesal Fifteace Coazilttee on banking, Mousing sod Urban Affairs United States Seeete lieleitston, D. -. 20510 Dear Mr. Chairman: IWIesied is a copy of a report on foreign exche000 o?orations by tie ?Maury and the Federal Reserve covering the period has 11111bioery through July 1979. The re,ort will be printed in the September issue of the Federal Reserve Bulletin. It is being released to the /Items for uee In tomorrow morning's news,lamsrs. Sincerely, tgalli A,it_olcitet Paul A. volt:Ur Enclosure Identical letters to Sen. Heinz (ranking minority member of Senate Bkg. SubLmte. on International Finance) •limn. Neal (House Bkg. Subcmte. on International frade, Investment and Nonetary Roliz-y) and Cong. Jim Leach (ranking min. member) Ranking minority members--Sen. Javits (JEC) Son. Garn (Senate Bk.) Cong. Stanton kHouse Bkg.) JRC:vcd bcc: are. Mallardi (2).0." https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1979 September Vews aseeiehle LIAO Reetele chairmen Joint. giemeeic Committee geehdeatile, 1114 C. 20310 Berm alleiteee; intisesi is a copy of a re,Inst en tempts" metemse operations by the TreSSury and thos Federal Meeerve covering; report will the Petted fees Pebetten through July t979. he Jyx.toted in the Sepfeiefor Leese of the rederai liseerve Delletish It • beim leismeed to the invise for meeis 0110.11.111,sth&millappepore. Ceptee at dee feeeet are also beim sent to the Chaim." of other tnaseestsd Camitteos. Additional .07ies are oaeleeedfr the ulee st modiess and staff at your committee* Sincerely S/Paul A. Vhe Paul A. Volcker teclesures (30 .47,epies) Ldenti -al letters to: JRColcd bc.Mks. Mellardi chaismea ftemeire (20 espies) chatters ems (50 copies) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis timber 4, 1979 The Nameable Henry B. t;onzalas Hems* of Sepreseetativas C, 20515 Iftehingtes, Dear Henry!: Nippy thanks for your letter of August 31. Your expression eg II UT me is very much appreciated. tioald aajey sittins down with you over brashieft to discuss the bawd Jesus, yee raise in your letter IOC Le turn yes could brings. up 0* date on how you ?risseatly Wei the Ins. 11, nessiary mill call your office tie gala them arrassamsais. with warn pesessal issiords. 4! 4i1 KEA Nal A. Vol6ker CO:KAG:vcd (#V-22) bee: Mrs. Maltardi (2) .2 IL HENRY B. GONZALEZ OW OA ITTEICSo 20TH DISTRICT. TEXAS SMALL BUSINESS 2252 RAYBURN HOUSE OFFICE BUILDING ANTI-TRUST, AND R ESTRAI NT OF TRADE ACTIVITIES AFFECTING SMALL BUSINESS SUlICOM M ITTIESt • WASHINGTON, D.C. 20515 202-225-3236 HOME orricr: 0-121 FEDERAL BUILDING 727 E. DURANGO STREET SAN AN-roNio. TEXAS 78206 Congre55 of the Uniteb tate5 34ourse of ileprecsentatibesi GENEmm.. OVERSIGHT AND MiNowrry Ern's:Rpm:66 BANKING. FINANCE AND URBAN AFFAIRS arsbington, ri.e. 20515 SUBCOM MI/TEES: 512-229-6199 HOUSING AND COMMUNITY DEVELOPMENT ZONE WHIP: IHrERNATioNm. CIEvELDPIA ENT I HST mrrIONS CHAIRMAN. TEXAS DEMOCRATIC DELEGATION Housz August 31, 1979 AND FINANCE IMAJORfTY WHIP ORGANIZATION https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis GENERAL OVERSIGHT AND RENEGOTIATION -r! rr• • FILE REF- A22/r Mr. Paul Volcker, Chairman Federal Reserve Board Washington, D. C. 20551 Dear Paul: I am genuinely pleased that you have become chairman of the Federal Reserve Board. No one in the country has the depth of experience that you have acquired at the Treasury, and as president of the Federal Reserve Bank of New York. No one is better equipped than you are to perceive the economic and monetary problems of this country and of the industrial world at large. Given the fact that the Federal Reserve Board conducts its business as a collegial body, and given that you have not selected your colleagues, I realize that some time must elapse before you could exercise strong leadership, at least in matters of fundamental policy change. Yet I believe that fundamental policy change is in order, and that the need for it is urgent. The money supply, as measured by Ml, is showing no growth. This, of course; is reflected in the level of interest rates, with the prime now being at 121 / 4 per cent. At the same time there is no sign that inflation is moderating, even though the economy is weakening steadily. Current policy is leading simply to a repetition of economic stagnation accompanied by immense inflation; it is a condition that the British dubbed stagflation, and that others have called the English Disease. But regardless of its name, the condition is neither sound nor tolerable. ; 41* • https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mr. Paul Volcker August 31, 1979 Page 2 Rising interest rates signal a decline in employment; they signal a fall in housing production; they signal an increased Federal deficit, as countercyclical budget forces come into play. None of these things will result in a stronger or better economy, or a better off people. None will do anything except further impoverish people who are already struggling to keep jobs, to keep a roof over their heads, to pay an immense burden of debt, to stay off welfare. What is needed is a new direction in policy. On the fundamental level, what is needed is new monetary arrangements. The system of floating currencies that has been in effect for the past seven years has not arrested inflation, has not redressed trade balances, and has not controlled disorder in the world monetary markets. On the contrary, it has been part and parcel of the whole dismal scene, a contributor to world problems. On the domestic level what is needed is a new understanding of economic reality. The tight money, high interest policies currently in effect are not part of any solution; they are part of the problem. High interest rates do nothing for anybody except for the bankers who profit by them. To make usury legal, to encourage its growth, to make it universal, is not an economic policy at all, but the mere abandonment of responsibility. We have seen time and again in the past decade that strangling the economy does not arrest inflation. We have seen time and again that throwing people out of work does not produce sound growth in the months and years ahead. We have seen time and again that the kind of policies that the Fed has resorted to this year, and in the past decade, has only multiplied and exacerbated social problems of every description. • *Ws • https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mr. Paul Volcker August 31, 1979 Page 3 There is an opportunity now for new direction, for new leadership, for new prosperity. You are in a unique position to provide the leadership that the nation and indeed the world needs. You have an opportunity to lead the Federal Reserve away from the ruinous policies it now follows. I hope that you will use it. With every good wish, I remain $incerely yours, Henry B. Go zalez Member of Congress https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Se-Aelber 241, 1979 VW Witticism' ampumatstives th C. 20515 The 41001161.41 Swage er ilatkieel I ea rampoodtmg to your letter &mad sa-#tenber 20 rogemiiig the Mulord ts roma deliberations calizarsaas its pelletal ea tits debt retiremeat lorted ter ammowbaah WWI* amopeedem, lea attacked a isarkee se 3,-scifie ipmemptimeae1ii.ij eiriadeelly vita die limpatdsa avidelewe in time adataiatratImai Sttwee somminers. Staff la weeeatly pasperuwi temmemeem ta dose gmeatieme deg amiietta to kayo dies completed early aeat usek. Nth reopen le year comaerm that the Illeard, during its eleaeat coneiderattee st peeitas Wadies coopomy Logislation, did apt aoneider the !Notate mimed by soverai hasimee aad by pato it should be netad thato as Ls sommtimee the came* tbeemsi discussiaa at the Seer* eastias did sot *mash lipase'. at the yaw teems imecolied. Meuever, orioles of poor latter mod theme of is comoorsiag this) sohjact ours distributed prior te Seed eiettemi teen dm Sellid Members for their ososideeetiee. Vs appreciate yew 01111110411M a ft Settar and would emar seSt Mott If pas wish, samesse of the aserdes eleter staff win be aide emellable to meet math you amdfor odor tateseated partime to diens* the wetter is anoter detail. Vine Chetamsa Schulte cead be 0 . 101 041 to origemes *ask e asetlas it rem Wait, stowaway. SiEzsul Jtit:vcd (OP-45) Jack'pm Mrs. Nallardi (2)t/ c./ Valcker MAJORITY ZONE WHIP 4111 • WES WATKINS 3Pto DISTRICT, OKLAHOMA (202) 225-4565 CONGRESS OF THE UNITED STATES CHAIRMAN CONGRESSIONAL RURAL CAUCUS HOUSE OF REPRESENTTIVEtS COMM TTTrES: BANKING. FINANCE AND URBAN AFFAIRS SCIENCE AND TECHNOLOGY SELECT COMMITTEE ON AGING WASHINGTON, D.C. 20515 September 20, 1979 ecs Mr. Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: Yesterday, I learned that the Board has reviewed the issue raised by H.R. 4004, as you indicated it would in your letter of September 17, 1979. Although neither I nor my staff attended the September 19 Board meeting, it was reported to me that the staff was instructed to draft testimony in opposition to my bill. As was further reported to me, the prime concerns of the Board appeared to completely disregard the points that I raised in my letter. In particular, I was concerned about statements that bankers escaped liability when they used a holding company to pay the loan, that bankers would acquire more debt than they have in the past and that the Board has had problems with minority shareholders being adversely affected in one-bank holding company acquisition situations. More importantly, I was surprised that there were no discussions regarding some of the points that several bankers and I had made to your staff. These included the effects of FIRICA, the fact that interest rates for bank stock loans ar''e as high as 11 3/4''', as opposed to as low as 41,( when the 12 year guideline was first established, and the fact that inflation has worked to increase the value of banks since 1972. Of course, all of these factors will go to raise the debt load which in turn requires a longer amortization schedule than that which was in effect in 1972. I am enclosing a series of questions to which I would appreciate a response before the House goes out on Friday, September 28., since I feel these points were not fully discussed during the Board meeting. Your assistance in this regard will be deeply appreciated. Thank you for your time and attention to this matter. incerely, Utt;Ak4/ WES WATKINS Member of Congress https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis OKLAHOMA DISTRICT OFFICES: 232 POST OFFICE BUILDING ADA, OKLAHOMA 74820 (405)436-1980 203POSTOFTmEBwupmc DUNCAN, OKLAHOMA 73533 (405) 252-1434 79" 118 FEDERAL BUILDING MCALESTER, OKLAHOMA 74501 (918) 423-5951 1.14 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis AO STIONS FOR THE FED RELATIR TO H.R. 4004 A. With respect to the Fed's policy limiting the acquisition debt schedule for one-bank holding companies to a maximum twelve year payout: 1. Has the Fed ever had to modify the debt retirement schedule of a registered one-bank holding company to permit the retirement of the acquisition debt over a longer period than stated in the original application? 2. If such extensions of the debt retirement period have been granted what is the basis on which such extensions were justified? a. Maintenance of acceptable capital ratios? b. Slippage in capital ratios of the bank . . subsidiary due to the failure of the rate of equity growth to match the rate of growth of asset expansion? c. Other factors? 3. If the basic factor responsible for the Fed's extension of the debt retirement period was the decline in capital ratios of bank subsidiaries of small onebank holding companies, how frequently has this problem been encountered? https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4. In the light of the Fed's payout policy would it not favor one-bank holding company applicants who acquiesced in the 12 year amortization schedule with the knowledge that it would not be likely to live with the schedule but could, after Fed approval, obtain a modification lengthening the payout period? a. Wouldn't this policy also have the effect of encouraging one-bank holding company applicants to make a less forthright factual submission? 13. To what extent is the Fed's policy on retirement of onebank holding company acquisition debt predicated on assumptions that inflation will continue to increase bank earnings under conditions of perpetually rising interest rates? 1. Does the Fed assume that for the foreseeable future inflation will persist and push up interest rates with the effect that the yields on the earning assets of small banks will increase earnings faster than then cost of funds? If so, is it realistic to predicate, over the long term, its twelve year payout policy on such assumpstions? • • • • 3- • https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2. Is the Fed's policy on one-bank holding company debt retirement based on the view that liberalization, of its present policy is not necessary to improve the transferability of small banks and if so what does it base this view on? 3. What evidence does the Fed have that liberalization of its debt retirement policy would cause one-bank holding companies to incur more indebtedness than would be necessary. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis I Septembor 27, 1979 Tao Menorable Pool Simon Mine. of aeposeestatfwea lailantoft, D.C. 2013 bier Yr, Stases pas ier peer Uttar of Sepeember 10, in which you conues Surnett of Iberia City, Illinois, veva* the eseeseest reseediegs ilesedee peepesed fOV1Sion Of aillgatiOn Z (Truth is boodles). It. Sermatt is cOMMireed sleet the eemplemity of the proposed revisions ta the eseuieseeste fee eelemistise slid disclosure' spreporela are 40/ the anal perces/ow rots. Tem a needetad by the truth is Leading Act itself smiladmMOher the esememde *pima of smell shows ha been adecnately eslibed *safest the potential emesemer bessfit to be derived free thee, the annual peteeetess rate is desismed to provide a standard endieve of the cost of a coedit treasaetiee *IA COOSUMOTS caw use in eemperies various credit sememee. Ihseauee fi its value in serrYissist the eseeetial ereditolhoispie gametten of Waft MR Lindell, the mrissi pineetals rate May as wiandi sis the single met important disclosers meedisted by the Act. ceagreee divested- the Sword, as ten et ite rulemekimg rupee.. eibilities, to prescribe melee for determents. asid disclosing the esimml pereestese rats. In prepeeies Chase wevisiens, the Beard wee aeutely swede of the potential seamen& impost as emediteme of champs in the vesuIatios„ In feet, is its reset for is lit is this peepeeel, the extent to Aids these Sowed specifically solicited teftenstien as aemediesete would require chamois is media& pmemedisses amd eslenlatioe teols.Ioan einem yen thin the herds* elm* Amos ern he cm. sideeed by the lewd in sableg its fled &aisles as this preposel. serryies est its weepeesSillities seder the Truth in Landfill' Act, the Soned *oohs to Impose only thee* seeeisements 'whisk ere essential to Mall the emmeemer pentecttes seals aelleeisted by COMWSS in the Act. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis lima assayable Pool SIMI* PAW Um ihomeatt voters is reflestad primarily 4111111fp1iesity to eititab lea fermatas for Oleo propsoad rerrielas ter asseloammt I, Sbielk ossta io imileed cult* diftoaimiss Who•osmait pointala. sets. Ws materialealopoemsdable. Solimagel aed MIN Reniatitss atopomma to it to emsdily t dostemod It mot1. emphesimede bowsaw. that Smogftwast I toas s. *sem, directly tor visa by 4140416001 tis *eft dopmeemiry operIttiomlatis a ow& It is stet ostosofoilly by OSsommd.al memadtaamore of calea good by tire mesh oo *arts, tables arid omisalioliore* *WA are to tuft in ./ay way peat majority of seeditows* Mao, those Obasiao aro sot tatosdod to lecreese the compliant* tordes ea foroditsro. to you. I bops thee Me laforesties will be of assistants us knew. If yew have feral. owastioass plasse do mot hesitate to let siaterfaly, SZEAlil A.lipAche/ milsot OFV-28) low Margaret litewart Mrs. Mallard' (2) WASHINGTON OFFICE: PAUL SPION COMM I TTE ES 227 CANNON House OFFICE BUILDING WASHINGTON, D.C. 20515 (202)225-5201 24m DISTRICT, :LLINK:IIS BUDGET CHAIRMAN, TASK FORCE ON INFLATION • EDUCATION AND LABOR CHAIRMAN, SUBCOMMITTEE ON SELECT EDUCATION DISTRICT OFFICES: Congrot4 of die inniteb Atato 3ipufse of 3aepre5entatib0 107 GLENVIEW DRIVE CARBONDALE, ILLINOIS 62901 (618) 457-4171 nicusbington, ae. 20515 A 212 WEST MAIN STREET WEST FRANKFORT, ILLINOIS 62896 (618)932-2.560 September 10, 1979 T COMMISSION ON SECURITY AND COOPERATION IN EUROPE 7 •-• Mr. Paul Volker, Chairman Board of Governors of the Federal Reserve System Constitution Avenue, 20th and 21st Streets 20551 Washington, D. C. Dear Mr. Chairman: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Recently, I received a letter from Mr. Bruce Burnett, raising concerns regarding excessive regulation in the calculation and disclosure of Annual Percentage Rates. According to Mr. Burnett these rates are excessive in their mathematical measurement and would be counterproductive in informing the consumer about borrowing. I would appreciate learning whether these proposed rules are in response r to statutory requirements or are under the discretion of the board, whethe economic considerations for compliance were considered in issuing these regulations, and what specific example of improved consumer notification would occur from these revisions. Further, I would appreciate your review of Mr. Burnett's concerns in this matter. Cordi 1 (/Paul Simon U. S. Congressman PS/jhd ED FIBERS ON PAPER MADE WITH RECYCL THIS STATIONERY PRINTED https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis eptecher 27, DP, deaMaibike Clitikerst atiwas lowea lisildimpie. LA. ISM aser isasmour Notts vagasstiag if paw Utter al Isiesem The* psa tiassl yam Ceiglietes Issedatasa that utstaid smesad law Imo Corigegg istU Ilia* dowdliao t* dia Deesiber 31$ 1N •demist seradia Ast tete eimpsatie* simplime It lted la 4118011.fati1s title lissaa, I Ism'aws Ian pi* 1411*1i * idiatiter ainpiest imital1110111011 tist SiMeink apt aim. p.ss.1amid di* Dassilmwfl. INS deibillire mai Ingeii tits aiii0S4 aft* be 'Aiwatiollik ts *MO sampalao dise had sompliod ttthst dIsadtlas. Mils I lona ast had Oho 4appertsaity to ~At wish this tun Ilasstio I east ws11 fteassibmi die mem sit *sir *mita. 0011111111411.. lad I our* yea'mid *we to sdhs daft assworas Saes sassats I in sot bas*Was ihrsard ea ladialikui taa psoisias at this tins to ovslaate UM.aasposito ia alittlass olaiwassy desellits• dos asassa liwicias Saw wintifts pwar loam. I sawisstail to slim atelosa so * pasolbia sosiolk * Mead tvaasess aseassliaa illsealber 31 11011, dosilliem Ile solawsioa mad bs ellsiese Iff 111111 Ikaita olly if tlis SIMMS 41114101.1iii OM use * sampollias sass peasamead 1st sa aszosolas sad *sot owl Stith *tam liod bona sags to awe else sitiattas stseetory desdilissii. it is XII ealsemessift *et Os Saw* awadamat ea * aiss ComilStes skis mak imisread au*•aoraolisdaa as I. 1.317. I sigeosists the anosillowelir pm ism sfilmise as Se awmase this prapssal. 4eaul A. Wilda dtE14:ME1 sti./W spjt (IFV-43) bass Niko Bleier ars. itallardi (2) Action assigned to Neal Petersen https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis CLAIBORNE PELL, R I., CHAIRMAN 0 MARK 0 HATFIELD. ORE 0 HOWAR:j W. CANNON, NEV. HOWARD H. BAKER, JR.. TI NN ROBERT C. BYRD. W. VA. HARRISON A WILLIAMS. JR.. NJ. wENDELL H. FORD KY. OE1Nt5 DE CONCINI, JOHN TOWER. TEX. RICHARD S. SCHWCIXTR. ARIZ. WILLIAM MC WHORTER COCHRANE. STAFF DIRECTOR CHESTER H. SMITH, CHIEF COUNSEL r;11C1-lite MARTIN U. GOLD, MINORITY STAFF DIRECTOR-COUNSEL COMMITTEE ON Zeliate c 71- 70 1 qs- •••• I ..: RULES AND ADMINISTRATION WASHINGTON. D.C. 20510 r September 21, 1979 The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Chairman Volcker: I am writing to express my interest and support for proposed legislation that would extend the present divestiture deadline in the Bank Holding Company Act. When this legislation is introduced, I expect to cosponsor it and do what I can to further its enactment. As you know, Section 4 of the Bank Holding Company Act of 1970 required bank holding companies to divest themselves of non-banking related interests by December 31, 1980. Prior to the 1970 law, a number of bank holding companies lawfully acquired interests in real estate for investment or development. While the ten-year period was considered by Congress to be ample time, a severe real estate recession has intervened during this period and has made the task of timely divestiture of real estate holdings exceedingly difficult. Clearly, the severity and duration of the real estate recession could not have been anticipated by Congress in 1970. I understand that the Senate Banking Committee may shortly consider an amendment to S. 1334, which would extend the divestiture period for real estate interests until December 31, 1982. I further understand that the application of this provision would be limited to relatively few instances where the holding companies would have to sell properties at prices substantially below fair value owing to the approach of the current deadline. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis In my view, the proposed legislation makes good sense r • • The Honorable Paul A. Volcker Page 2 September 21, 1979 and should be enacted. The extension is strictly limited to real estate interests, and cannot be used for further development. Because of the unique impact of the recession on real estate, I do not believe the extension could be viewed as a precedent for extending the divestiture period for any other activities not "closely related" to banking. I would be very interested in your view of the proposed two year extension of the divestiture deadline. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Warm regards. Sincerely, Claiborne Pell https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis September 26, 1,7, The lesssible Wtflt Prommtra essAsmos Cismileiso as geshisg, Miestes ahem' Metro SmiInd Stales Someto 114114086044 444. 20510 abet dilmsismes rressimi Mho* pee Air peer sees et Mertelber 1$ forwardiog Uttar Iliblet E. Sam of alto UR Ammo Melee is lateroatedis isioning any seed teeth ie 4sedems diselesere forme thet adobe be dosigeed by the Soord, as* lastik Sams asks eireeber printer* will be provided, sepredeettee peeedeo eneettos of boo Widle the Sow* as sot yet sessidesed model forms leosid be prostdnd to die public, we /Appreciate the aompotios hzseesemeedattee will oseteinly be sometdeved spode by Mr. 1aas gassing the production wed distribution of soda forma. Sin080017, Ea A. Vold./ EM:pjt (IfV-40) bcc: Filen !island Hrs. MnlIardi (2) Action ai41110fied Neal Butler WILLIAM PROXMIRE, WIS., CHAIRMAN ••• HARP:N A. WILLIAMS, JR., N.J. JAKE GARN. UTAH• C.RANIFT04.4. CALIF.JOHN TOWER. TEX. AULAI E. STEVENSON, ILL JOHN HEINZ, PA. ROBERT fAORG.A.1„ N.C. WILLIAM L. ARMSTRONG. COLO. DONALD W. RIEGLE. JR.. MICH. NANCY LANDON KASSEBAUM. KANS. • PAUL S. SARBANES. MD. D. RICHARD G. LUGAR. DONALD W. STEWART, ALA. PAUL. E. TSONGAS, MASS. KENNETH A. MC LEAN. STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANCES DE LA PAVA, CHIEF CLERK ••111.11, /Zeniteb Zfafez Zenate COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS WASHINGTON. D.C. 20510 If r,kt. N September 18, 1979 The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20037 Dear Chairman, I have enclosed a copy of a letter from a constituent who wishes to know whether the Federal Reserve Board may be willing to provide reproduction proofs to printers of the model forms to be developed under S. 108. If your staff has given any consideration to this point, I would appreciate it if you would inform Mr. Nelson. Best wishes, fri •• ' Chairman Enclosure https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Tax Form/ Nelco 0. BC';... 1015 • i7j-iEEN BAY. WI3. 54305 414 --• 432-0689 August 13, 1979 Senator William Proxmire U.S. Senate Washington, D.C. 20510 Dear Senator Proxmire: I understand that Senate bill 108 would require the Federal Reserve Board to design forms for truth-in-lenging disclosures. Our company prints technical legal forms--principally tax forms, although we also offer real estate forms in Wisconsin and soon expect to offer forms designed by the Wisconsin Banker's Association. We would be interested in printing these forms designed by the Federal Reserve Board. Can you tell me whether the Federal Reserve Board itself would print these or whether the printing would be left to private companies? I visualize that the Federal Reserve Board would merely design the forms and offer reproduction proofs to printers for a small fee, as . the Internal Revenue Service offers reproduction proofs of the tax forms. We will appreciate any information you can giw us about these forms. Very truly yours, E ylfzei&or-i-v Robert E. Nelson REN:clm https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis , r. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis September 26, 1979 tbe Miemorebte Sem ellul limeee of Rapresent.,tives IllebAngtos., D.C. 20515 DeIN r. remls Themik yes for your letter of September 16 rermesting views ea the peepseed repeal of 12 U.S.C. 248(n), which grants the Secretary of Treasury authority to call in gold from private holders. 1 have no objection to the proposal. Simearely„ SLPaill -AA:pit (#V-36) bcc: Don Adams Mrs. Mallardi (2) Vgjoi_p - • RON PAUL 22ND 1:3;STRICT, TEXAS • DISTRICT OFFICES 1110 NASA ROAD 1 SUITE 406 HOUSTON. TEXAS WASkIINGTON or FICE 77056 (713) 333-2566 Room11 -14 Lot4Gwor•wi HOUSE OFFICE DUILOING WASVIINGToN, c 20515 Congre5,5 of die Uniteb *tate5 (202) 22.5-5051 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis HOUSTON CONGRESSIONAL HOT LINE (713) 237-1550 . ?ottsSe of ikepreMItatillesS 101 OYSTER CREEK DRIVE Ulatbington, ID.C. 20315 LAKE JACKSON, TEXAS 77566 (713) 297-3961 (713) 393-1695 LAKE JACKSON CONGRESSIONAL HOT LINE (713) 297-0202 September 18, 1979 OWL. Mr. Paul Vblcker Chairman: Board of Governors Federal Reserve System 20th and Constitution N.W. 20551 Washington, D.C. Dear Mr. Volcher: r The Domestic Monetary Policy Subcommttee i of the House Banking Committee has scheduled a hearing on a bill I introduced, H.R. 2658, on October 15. A copy of the bill is enclosed for your iIformation. 0011111411ir •Chairmn letter of •January As you may know, Miller, in a 8, 1979, to Senator Jesse Helms indicated that he had "no objection" to the repeal of 12 U.S.C. 248(n). In view of the upcoming could you state your position on'the bill in a letter to me? Thank you very much. I I Sincerely, Ron Paul Member of Congress RP/jr Morro. enclosure - 411Or- 96TH CONGRESS 1ST SESSION • H• • 2658 To amend the Federal Reserve Act to terminate the authority of the Secretary of the Treasury to require the delivery of gold to the Treasurer of the United States, which shall be known as the Gold Ownership Act of 1979. IN THE IIOUSE OF REPRESENTATIVES '10 •da . 15 •4 • • -v4r•I " iZe,A L MARCH 6, 1979 Mr. PAUL introduced the following bill; which was referred to the Committee on Banking, Finance and Urban Affairs ri. r A BILL Kociz(4.**iiia To amend the Federal Reserve Act to terminate the authority of the Secretary of the Treasury to require the delivery of gold to the Treasurer of the United States, which shall be known as the Gold Ownership Act of 1979. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 7:. 1 jsif414•'.0•# ••Niov•k•Arifr Be it enacted by the Senate and House of Representa- 2 lives of the United States of America in Congress assembled, .• oa: r. • ' •.1‘. •101 •, 1, • 3 That section 11(n) of the Federal Reserve Act (12 U.S.C. •:. • 4 248(n)) is repealed. I—E 0 % https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis September 26. 1979 immerible Parrett J. Miteholl Chatomm Siboommittee as Demeetic liestary Policy Committee on gaik1116 Finale* and Urban Affairs Mime of Sepresestativei Vasblistem, D.C. 20513 .Jear Chalemos Mitchell: Thank you for your letter of Soptsiber 19 rezuestint views as the proposed repeal of 12 U.S.C. 248(s), illth grants the Secretory of Treasury authority to call in gold from primate holders. The Deerd of Governors has no objection to the progoOal. Sincerely. Sgagl k.uJhe DA:pjt (0V-31) bcc: Don Adana Mrs, MallArdl (2) to.-' https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ,=L PARREN J. MITCHELL. MD.. "HAIR MAN STEPHEN. NEAL, NC. NORMAN E. D'AMOURS, N.H. liFUG BARNARD, GA. JIM MATTOX, TEX. JOHN J. CAVANAUC,H, NEOR • • GEORGE I-4ANSEN IDAHO RON PAUL, TEX. DON RITTER, PA. U.S. HOUSE OF REPRESENTATIVES 225-7315 SUBCOMMITTEE ON DOMESTIC MONETARY POLICY OF THE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-SIXTH CONGRESS WASHINGTON, D.C. 20515 September 19, 1979 The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th and Constitution Avenue N.W. Washington, D.C. 20551 Dear Mr. Chairman: On October 15, 1979, my Subcommittee will be holding a hearing on H.R. 2658 (and H.R. 1853 which is identical). This legislation would repeal section 11(n) of the Federal Reserve Act (12 U.S.C. 248(n)). We would appreciate it if you would provide the Subcommittee with a letter expressing the views of the Board of Governors on this legislation prior to the hearing date. Sincerely, ParT n Chairman PJM/cmjt https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mitc e , M.C. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis September 25, 1979 The Nemershie fOrmeed J. St Jernsie Libelous alibeetwittatl as Finemclal lestitntione Supleroisien, aseulatien and lesumesso Committee on Denkiag, names mid Ithem Affairs Mimes of Sepraseetatives OnshAmsten, O. C. 20515 Mar VAP., Cbeirmee: think you for the olortueity to ommtest on M. K. USG, the proposed villepositeey hastittmloos A:.t 01 197,1." As yew hove essed„ the subject amittOr tot Title* 1, II sled III wee +=Weed is the finmeclat Institution* Megslatery Act of 1976, R. I. 1347l 95th Cemeoess, ae rot.iattod by the COmmittee on Denkiallo Finance aed Jrban Affairs, the ehenges node In Title I do set appear to be such as to recut= Beard comsat eseept that it should be eogod at sec-ties 112, iatooded to make nationally chartered trust segmedmorn time subject to the isearetate prohibitions of the Beak Melding anspeny At, weld hews as anticompetitive effe-t in the prevision of trUile services. lisemever, it wenid appear to be discriminatory agaiest Letiesal hanks since pmeemeibly aStste-icbartered Ilaitad truet eegsalsettee membi mat be subject to tne sane prohibitions. The Iserd bee consistently empreeeed its eupport of the speerol policy aed wale se rifle LI', Yinancial Issolatia* Stmoliftoaten. As you emdeabtedly knew, the Deord has adapted regulatory procedures that meegorm with the policy enunciated Ls this title. Mewever, adepties them poseedures, tbe Sosad tweed that certain asioeptLess wee* moseeeery• ilemetarypsity angulatiess ohms do out fit isle sash a gmeeral paseedurel framework became the public toblowest somirimee regoires such actions to be Whoa swiftly mod without prier plblic knowled006 m else cenalided that the someral procedure, mood est be applied to another Mom" of 10011WAtteacp For arlamPtiof as soteaded oesmeat period sad eatteeelve consideration of alternatives gily sot be either poseible or deeireble in the see of (1) teehnieel https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The lhaeroble Itinerast 3, St tletwela awe Um or ciorifYiell alsaillestig• (2) teeslattame deetsmed elaallaisate a leerhot* or rafts, a berdsu sphere further aim meld $ave* emas-seaary heats (3) regglattees that multi referaulate a nranomel peselemely lowed for publio asement, or (4) mulattoes subjoct to a Ant statutory iseillioe. It is ra-aamacted that Utile LII los ememeed to re.agalsts the need for such euthecioed variations fees the ipmesal policy outlined in that titlo. The liaami wilt be hop," to teangeraealeildi you in efforts to *Alio." a leas baimimmana repietery eertimerimitio eisoomalyp S‘Paul A. VOICIN ved (#11-32) bac: W. McNeill Mts. Mallard'. (2) 7 e Action assigned to Messrs. Mannion, Eisenbeis and Puckett for coordination of response https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis r-iRNAND J. ST GERMAIN, R.I.. CHAIRMAN FRANK ANNurrno, JAMES M. HANLEY, N.Y. CARROLL HUBBARD, JR., KY. JERRY M. PATTERSON. CALIF. THOMAS L. ASHLEY. OHIO NORMAN E. °AMOURS. N.H. JOHN J. CAVANAUGH, NEBR. JIM MATTOX. TEX. JOSEPH G. MINISH, N.J. WALTER E. FAUNTROY, D.C. DOUG BARNARD, GA. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON FINANCIAL INSTITUTIONS SUPERVISION, REGULATION AND INSURANCE OF THE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS CHALMERS P. WYLIE. OHIO HENRY J. HYDE, ILL. GEORGE HANSEN. IDAHO JIM LEACH, IOWA CARROLL A. CAMPBELL. ED BETHUNE, ARK. -1/ NINETY-SIXTH CONGRESS WASHINGTON, D.C. 20515 September 14, 1979 Honorable Paul Volcker Chairman, Board of Governors Federal Reserve System 20th & Constitution Ave., N. W. Washington, D. C. 20551 Dear Mr. Chairman: As per previous discussions between our respective staffs, I am enclosing a copy of H.R. 5280, introduced today. In addition, I have enclosed a copy of the hearing schedule through the month of October. You will note that should H.R. 5280 achieve a broad consensus of support, which I anticipate, we hope to schedule the bill for mark-up on September 27, enabling the full Committee to act immediately after the Columbus Day District Work Period. In addition I am enclosing excerpts from Tuesday's mark-up on H.R. 2255 as well as a copy of the Committee Print reflecting the action taken by the Subcommittee. I request a written opinion from the Federal Reserve Board on the question posed by Congressmen Annunzio and Patterson on the impact of the Barnard substitute on relevant state law. Your response to the question raised will, of course, be helpful in our continuing deliberations at the full Committee as to the impact of Section 2 which conceivably could be considerably broader than its sponsor, Congressman Hansen, intended. The Subcommittee has also been furnished a copy of Congressman Patterson's letter to you raising certain questions on H.R. 2255 as amended by the Subcommittee and I wish to assure you that your response will be circulated to all members of the Subcommittee if received prior to the scheduling of mark-up by the full Committee. Inasmuch as the Federal Reserve Board has expressed itself in the 95th Congress generally in support of the subject matter of Titles I, II and III of H.R. 5280 and, I assume, will have no objection to the savings and loan provisions of Title IV, a written statement from the Board will be satisfactory. Sincerely, • ernand J. Chairman FJStG:gSj Enclosures t Germain • V 4 , 9601.CONGRESS • (Original signature of Member) S 1st _ SESSION IN THE HOUSE OF REPRESENTATIVES Mr. St Germain introduced the following bill; which was referred to the Committee on A (Insert title of bill here) To amend the National Bank Act to provide for financial regulation simplification increase home mortgage financing, and for other purposes. to 1 2 Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, A 6That this Act may be cited as "The Depository Institutions Act of 1979". • TITLE I—AMNDMENTS TO THE NATIONAL BANIUNG LAWS SEC. 101. Section 5137 of the Revised. Statutes (12 U.S.C. 29)is amended— - 7 .....WoorpperlirWRIIMPSW"..T1W1110,....,MoTS 0 IPLITIT:Irre .it . 1, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis — 4,..e.4 ..„ • •••*••••••••••••••••illy. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2 (1) by inserting before the period at the end of the last paragraph thereof the following: "except as otherwise provided in this statute"; and (2) by adding at the end thereof the following new paragraph: "For real estate in the possession of a national banking association on June 30, 1979, upon application by the association, the Comptroller of the Currency may approve the possession of any such real estate by such association for a period longer than five years, but not to exceed an additional five years, if (1) the association has made a good faith attempt to comply with the fiveyear period or (2) disposial within the five-year period would be detrimental to the association. Upon a showing of clearly extenuating circumstances and a highly probable detriment to the association and subject to such conditions and limitations as the Comptroller of the Currency may prescribe, such association may expend such funds for the development and improvement of such real estate as are reasonably calculated to enable such association to recover its total investment.". SEC. 102. The first sentence of subsection (a) of section 302 of the Act entitled "An Act to provide relief in the existing national emergency in banking, and for other purposes", approved March 9, 1933 (12 U.S.C. 51b), is amended by striking oiTe "at a rate not exceeding 6 per centum per annum".9 SEC. 103. The third sentence of section 345 of the Banking Act of 1935(12 U.S.C. 51b-1) is amended by strik- , LA* 3 1 bag out aliplitaimo "at a rate not exceeding 6 per centum per 2 annum".11°. 3 SEC. 104.. - of the Act of September 28, 1962 4 (76 Stat. 668; 12 U.S.C. 92a), is amended by adding at the 5 end thereof the following new subsection: 6 "(k) In addition to the authority conferred by other law, 7 if, in the opinion of the Comptroller of the Currency, a na8 tional banking association is unlawfully or unsoundly exercis9 ing, or has unlawfully or unsoundly exercised, or has failed 10 for a period of five consecutive years to exercise, the powers 11 granted by this section or otherwise fails or has failed to 12 comply with the requirements contained therein, the Comp13 troller may issue and serve upon the association a notice of 14 intent to revoke the authority of the association to exercise 15 the powers granted by this section. The notice shall contain a 16 statement of the facts constituting the alleged unlawful or 17 unsound exercise of powers, or failure to exercise powers, or 18 failure to comply, and shall fix a time and place at which a 19 hearing will be held to determine whether an order revoking 20 authority to exercise such powers should issue against the 21 association. Such hearing shall be conducted in accordance 22 with the provisions of subsection (h) of section 8 of the Fed23 eral Deposit Insurance Act (12 U.S.C. 1818), as amended, 24 and subject to judicial review as therein provided, and shall 25 be fixed for a date not earlier than thirty days nor later than • MilrIC•• https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis .:"PrXiirikwmp .„ 4 4 1 sixty days after service of such notice unless an earlier or 2 later date is set by the Comptroller at the request of any 3 association so served. Unless the association so served shall 4 appear at the hearing by a duly authorized representative, it 5 shall be deemed to have consented to the issuance of the 6 revocation order. In the event of such consent, or if upon the 7 record made at any such hearing, the Comptroller shall find 8 that any allegation specified in the notice of charges has been 9 established, the Comptroller may issue and serve upon the 10 association an order prohibiting it from accepting any new or 11 additional trust accounts and revoking authority to exercise 12 any and all powers granted by this section, except that such 13 order shall permit the association to continue to service all 14 previously accepted trust accounts pending their expeditious 15 divestiture or termination. A revocation order shall become 16 effective not earlier than the expiration of thirty days after 17 service of such order upon the association so served (except 18 in the case of a revocation order issued upon consent, which 19 shall become effective at the time specified therein), and shall 20 remain effective and enforceable, except to such extent as it 21 is stayed, modified, terminated, or set aside by action of the 22 Comptroller or a reviewing court.". 23 SEC. 105. Section 4 of the Act of March 9, 1933 (48 24 Stat. 2; 12 U.S.C. 95), is amended- -7rogirfal,""Pcwwwwtmwawfwawarsur, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis p:-amvirmiorm...5gurzeropirf - • https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 5 (1) by redesignating "SEC. 4." as "SEc. 4. (a)": 1 2 3 and (2) by adding a new subsection (b) to read as fol- 4 lows: 5 "(b) In the event of natural calamity, riot, insurrection, 6 war, or other emergency conditions occurring in any State 7 whether caused by acts of nature or of man, the Comptroller 8 of the Currency may designate by proclamation any day a 9 legal holiday for the national banking associations located in 10 that State. In the event that the emergency conditions affect 11 only part of a State, the Comptroller of the Currency may 12 designate the part so affected and may proclaim a legal holi13 day for the national banking associations located in that af14 fected part. In the event that a State or a State official au15 thorized by law designates any day as a legal holiday for 16 either emergency or ceremonial reasons for all banks char17 tered by that State to do business within that State, that ing 18 same day shall be a legal holiday for all national bank ss e 19 associations chartered to do business within that Stat unle order 20 the Comptroller of the Currency shall by written State 21 permit all national banking associations located in that term 22 to remain open. For the purposes of this subsection the 23 'State' includes any State, the District of Columbia, the itory, dependency, 24 Commonwealth of Puerto Rico, or any terr 25 or insular possession of the United States.". . ...4)4••••' , **1 "" 4"•••MhoonnoP' • '2.1fi6a 1!".?.•• " • • •'- • • , `;"fr-s-4 ;v2,•Cf4'71%-t".',•'' . •• .1 .43.01/ • as.:1 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 6 SEC. 106. The second sentence of subsection CO of sec- 2 tion 2 of the Act of August 17, 1950 (64 Stat. 456; 12 3 U.S.C. 214a), is amended by striking out the word "unani4 mous" and inserting in lieu thereof the word "majority". 5 SEC. 107. Chapter 9 of title VII of the Revised Stat- 6 utes (12 U.S.C. 1 et seq.) is amended by inserting kaniefflate7 ly following section 327 a new section 327A to read as fol8 lows: 9 "SEc. 327A. The Comptroller of the Currency naay 5el- 10 egate any powers vested in the office by law.". 11 SEC. 108. Chapter 4 of title of the Revised Stat- 12 utes (12 U.S.C. 21 et seq.) is anaended by insertingiimmed 13 ately following section 5239 a new section 5239A to read as 14 follows: 15 "SEc. 5239A. Except to the extent that authority to 16 issue such rules and regulations has been expressly and ex17 elusively granted to another regulatory agency, the Comp18 troller of the Currency is authorized to prescribe rules and 19 re,c;ulations to carry out the responsibilities of the office.". 20 SEC. 109. (a) Section 5240 of the Revised Statutes (12 21 U.S.C. 481) is amended by striking out the first two sen22 tences and insertin•g in lieu thereof the following: "The 23 Comptroller of the Currency, with the approval of the Secre24 tary of the Treasury, shall appoint examiners who shall ex- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Miii.morahd..06411.1•40." 7 1 amine every national bank as often as the Comptroller shall 2 deem necessary.". 3 (b) Section 5240 of the Revised Statutes (12 U.S.C. 4 481) is amended by adding at the end thereof the following 5 new sentence: "The Comptroller of the Currency, upon the 6 request of the Board of Governors of the Federal Reserve 7 System, is authorized to assign examiners appointed under 8 this section to examine foreign operations of State member 9 banks.". 10 SEC. 110. The second sentence of section 5146 of the 11 Revised Statutes (12 U.S.C. 72) is amended to read as fol12 lows: "Every director must own in his or her own right 13 either (1) shares of the capital stock of the association of 14 which he or she is a director the aggregate par value of 15 which is not less than $1,000, or (2) an equivalent interest, 16 as determined by the Comptroller of the Currency, in any 17 company which has control over such association within the 18 meaning of section 2 of the Bank Holding Company Act of 19 1956 (12 U.S.C. 1841), unless the capital of the bank does 20 not exceed $25,000, in which case every director must own 21 in his or her own right either (1) shares of such capital stock 22 the aggregate par value of which is not less than $500, or (2) 23 an equivalent interest, as determined by the Comptroller of 24 the Currency, in any company which has control over such https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 8 association within the meaning of section 2 of the Bank Holding CompanyActof 1956 (12 U.S.C. 1841).". Sec. 111. Section 5136 of the Revised Statutes (12 U.S.C. 24(7)) is amended by inserting before the period at the end thereof the following: ":Provided further, That, notwithstanding any other provision of this paragraph, the association may purchase for its own account shares of stock of a bank insured by the Federal Deposit Insurance Corporation if the stock of such bank is owned exclusively by other banks and if such bank is engaged exclusively in providing banking services for other banks and their officers, directors, or employees, but in no event shall the total amount of such stock held by the association exceed at any time 10 per centum of its capital stock and paid in and unimpaired surplus, and in no event shall the pruchase of such stock result in the association's acquiring more than 5 per centum of any class of voting securities of such bank.% Sec. 112. Section 5169 of the Revised Statutes (12 U.S.C. 27) is amended by adding at the end thereof the following new sentence: "Notwithstanding the provisions of the prec ding sentence, a national bank association the operations of which are limited as provided in the preceding sentence shall be deemed an additional bank within the 0 • title. this of 1842(d) contemplation of section TITLE TERMINATION OF NATIONAL BANS CLOSED RECEIVERSELEP FUND PURPOSE SEC. 201. The purpose of this title is to terminate the closed receivership fund by https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9 1 (a) providing final notice of availability of liquidat- 2 ing dividends to creditors of national banks closed on 3 or before January 22, 1934; 4 (b) barring rights of creditors to collect liquidating 5 dividends from the Comptroller after a reasonable 6 period of time following such final notice; and 7 (0) refunding to the Comptroller the principal 8 amount of such fund and any income earned thereon. DEFINITIONS 9 10 SEC. 202. (a) The term "closed receivership fund" 11 means the aggregation of undisbursed liquidating dividends 12 from national banks closed on or before January 22, 1934, 13 held by the Comptroller in his capacity as successor to re14 ceivers of those banks. 15 (b) The term "Comptroller" means the Comptroller of 16 the Currency. 17 (c) The term "claimant" means a depositor or other 18 creditor who asserts a claim against a closed national bank 19 for a liquidating dividend. 20 21 (d) The term "liquidating dividend" means an amount of money in the closed receivership fund determined by a re- 22 ceiver of a closed national bank or by the Comptroller to be 23 owed by that bank to a depositor or other creditor. • ' matilakelaialeaMekallidgeffillaoL4 , • https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 10 1 2 TERMINATION OF CLOSED RECEIVERS= FUND SEC. 203.(a) The Comptroller shall publish notice once 3 a week for four weeks in the Federal Register that all rights 4 of depositors and other creditors to collect liquidating dividends from the closed receivership fund shall be barred after 6 twelve months following the date of last publication of such 7 notice. 8 (b) The Comptroller shall pay the principal amount of a 9 liquidating dividend, exclusive of any income earned thereon, 10 to a claimant, if the claimant applies to collect within twelve 11 months following the last date notice is published. 12 (c) If a creditor shall fail to apply to collect a liquidating 13 dividend within twelve months after the last date notice is 14 published, all rights of the claimant against the closed receiv15 ership fund with respect to the liquidating dividend shall be 16 barred. 17 (d) The principal amount of any liquidating dividends (i) 18 for which claims have not been asserted within twelve 19 months following the last date notice is published or (ii) for 20 which the Comptroller has determined a valid claim has not 21 been submitted shall, together with any income earned on 22 liquidating dividends and other moneys, if any, remaining in 23 the closed receivership fund, be covered into the general 24 funds of the Comptroller of the Currency. 0 at-Sicow AIMbadUlk....14-4.. aaduasedierb,...ftwas& TITLE III -- FINANCIAL REGULATION SIMPLIFICATION Sec. 301. This)11 may be cited as "The Financial Regulation Simplification Act of 1979". Findings Sec. 302. The Congress finds that many regulations issued by the Board of Governors of the Federal Reserve System, the Board of Directors of the Federal Deposit Insurance Corporation, the Comptroller of the Currency, the Board of Directors of the Federal Home Loan Bank Board, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis •r T https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis /2- 1 and the Board of the National Credit Union Administration 2 (hereinafter referred to as the "Federal financial regulatory 3 agencies") often impose costly, duplicative, and. unnecessary 4 burdens on both financial institutions and consumers. Regula5 tions should be simple and clearly written. Regulations 6 should. achieve legislative goals effectively and. efficiently. 7 Regulations should not impose unnecessary costs and paper8 work burdens on the economy, on financial institutions, or on 9 consumers. POLICY 10 11 SEC. -142Thegulations issued by the Federal financial 12 regulatory agencies shall insure that13 14 (1) the need for and purpose of the regulation are established clearly; 15 (2) meaningful alternatives to the promulgation of 16 regulations are considered before any regulation is 17 issued; 18 (3) compliance costs, paperwork, and other bur- 19 dens on the financial institutions, consumers, and 20 public are minimized; 21 (4) conflicts, duplication, and inconsistencies be- 22 tween the regulations iss-aeil by the Federal financial 23 regulatory agencies are to be avoided to the extent 24 possible taking into account differences in statutory re- 25 sponsibilities, the classes of financial institutions' reg-u- • • 'w.vidVbegilliViems.... Ai*. • /3 — .• https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1 lation and methods of implementation of statutory or 2 policy objectives; 3 (5) timely participation and comment by other 4 Federal agencies, appropriate State and local agencies, 5 financial institutions, and consumers are available; and 6 (6) regulations issued shall be as simple and clear- 7 ly written as possible and understandable by those who 8 are subject to the rules. REVIEW OF EXISTING REGULATIONS 9 10 SEC. 4e The Federal financial regulatory agencies 11 shall establish a program which assures periodic review of 12 existing regulations to determine whether those regulations 13 achieve the policy goals in section 102. Those regulations 14 which are not in keeping with the policy goals shall be re15 vised accordingly. REPORTING 16 17 SEC.--W.D Not later than six months after the effective 18 date of this title and in subsequent annual reports, each Fed19 eral financial regulatory agency shall submit a report of its 20 progress in implementing this title to the Committee on 21 Banking, Finance and Urban Affairs of the House of Repre22 sentatives and the Committee on Banking, Housing, and 23 Urban Affairs of the Senate. TERMINATION DATE 24 25 SEC. Unless extended, this title expires five years 26 after its effective date. ' , „- 7..-41110:40.11- •":i..!!• • . ""e'Afia— .0 —14-TITLE IV -- INCREASING HOME MORTGAGE FINANCING Sec. 401. The third sentence of section 403(b) of the National Housing Act (12 U.S.C. 1726(b)) is amended by striking out "5 per centum" and inserting in lieu thereof "4 per centum". Sec. 402. Paragraph (1)(B) of section 5(c) of the Home Owner's Loan Act of 1933 (12 U.S.C. 1464(c)) is amended by striking out "$60,000" and inserting in lieu thereof "$75,000". Sec. 403. Section 6(c)(2)(ii) of the Federal Home Loan Bank Act (12 U.S.C. 1426(i)(2)(ii)) is amended by striking out "twelve" and inserting in lieu thereof "twenty". Sec. 404. (a)'Section 10 of the Federal Home Loan Bank Act (12 U.S.C. 1430) is amended -(1) by striking out the first two sentences of subsection (b); (2) by amending subsection (a) to read as follows: II(a) Each Federal Home Loan Bank is authorized to make secured advances to its members using such residential home mortgages and obligations of or guaranteed by the United States Government as the Bank Board may prescribe.". ffew4r.a.rnhetrogyr.vey..s........................1,.,-- c ...rIkv.0.114.0"..e.rwr... .. , ......, e"-^",,,,,,..., , vilninftiot.--Nr-r+^.-r.. .00.^'W .:0 " "."...TV , W" ,,, PC. , .4!MMIrr„lptliprigill71,1011,FrOlirt 01 7. 711irreallOMVP77 Digitized " for FRASER https://fraser.stlouisfed.org 16, Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Sopeelher 24, 1979 The Honorable Bob Delo United States Senate weehington, D.C. 20510 Deer Senator Doles Ummig pre for your resent letters reeuosting comment on corresponding* yes seestred from likr. Lorry D. liassola of the Marion National Salkisliarion, lassee. Mr. Loomis tome regarding ealieeememt for eorreettss violation of rho Truth in 'annalist. While the lewd of 00,0TA4419 hie sole ream, sibility for preperiii vegulstions to ispiesent the Truth is Undies Alits its enforcement of the stalest* is limited to State melber bombe. Aitken. all national banks ate elliben of the Federal leserve Spites, primary supervisory authority and enerrcoment of the Truth in Wefts regulations rests with the Comptroller of the Currency. Accordingly, I am referring your reruest to that enemy for reply. Sinsorely yours. (Signed) Donald J. Winn Donald J. Wimm Special Assistant to She lamed bcc: Congressional Liaison Office of the Comptroller of the Currency CO:pjt (#1.7-34) bcc: Mrs. Mallardil e. • BOB DOLE KANSAS https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis COMMITTEES: AGRICULTURE. NUTRITION, AND FORESTRY FINANCE JUDICIARY Cnifeb Zfafez Zenate LID WASHINGTON. D.C. 20510 LA September 3, 1979 Mr. Paul Volcker, Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear M). Volcker: I am enclosing a letter from Larry D. Loomis of the Marion National Bank in Marion, Kans;as regarding enforcement for correcting violations of the Truth in Lending Act and Federal Reserve Regulation Z. Mr. Loomis fights a problem not uncommon in the small banks of Kansas. wow- Would appreciate your consideration of these types of problems. Thank you for your assistance. Sincerely, Cm; ;VI \ B B DOLE United States S nate BD:rmd •••• • !,• E3r7 :3 COLE STANDING COMMITTEES: • KANSAS 4 •GRICULTURE. NUTRITION. AND FORESTRY FINANCE JUDICIARY 'ZICnifeb Zfafez Zenate WASHINGTON. D.C. 20510 September 17, 1979 c: cr) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mr. Paul Volcker, Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Mr. Volcker: Am enclosing a copy of Mr. Larry Loomis' letter regarding .enforcement for correcting violations of the Truth in Lending Act and Federal Reserve Regulation Z which was omitted from my September 3 letter to you. Again, thank you in advance for your consideration of these problems. Sincerely, BOB DOL United IC;i States cl S nate BD:rmd Enc. ri 4 ,• 7 . 1• • THE MARION NATIONAL BANK MARION. KANSAS LARRY D. LOOMIS VICE-rt4t SID(PiT August 20, 1979 Mr. John Burt Regional Administrator Tenth National Bank Region 911 Main Street, Suite 2616 Kansas City, MO 64105 Subject: Enforcement Policy for Correcting Violations of the Truth in Lending Act and Federal Reserve Regu lation Z Dear Mr. Burt: Mr. John Rogers, Acting Regional Administrato r, stated in his letter dated June 12, 1979, that Marion National Bank must report by August 24, 1979, the date which we anticipate identifi ng and reimbursing overcharges to affected consumers. He is cert ainly correct in recognizing that in complying with the adopted Enforcement Policy the administrative burden will be great to financial institutions. As our loans are not on computer, we do not have a daily record of the specific terms of new loans. We do main tain a daily listing of new loans which includes the loan number, cust omer, and amount. Consequently, to comply with the Enforcement Policy of examining all loans made within two years before the date of the exam ination in which the violations were detected, we must search our micr ofilm for a copy of each new loan made since January 24, 1976 . I estimate at least six months will be required to complete this search. We also believe that the search is unne cessary and will be time consuming and expensive. During the examinat ion the Consumer Examiner only found a few instalment loans that had incorrect APR . disclosures. The violations were not made willfull y, were not part of a consistent pattern, and definitely did not resu lt from gross negligence. He did not mention in his written report that the APR errors were both overstated and understated. He also did not state that the total dollar amount of overcharge woul d probably amount, at most, to only a few dollars. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis S Mr. John Burt Regional Administrator Page 2 The guidelines adopted by the financial regulatory agencies for the enforcement of the requirements cf the Truth in Lending Act were probably discussed at length before adoption. Perhaps they were needed for some financial institutions that willfully violated the disclosure requirements. However, for our Bank, and for the vast majority of other financial institutions, I belie ve that the adopted guidelines are a classic example of gover nment bureaucratic overkill. Sincerely, MARION NATIONAL BANK Larry 0. Loomis Vice President and Compliance Officer /11 Copies to: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Honorable Robert Dole, United States Senate Honorable Nancy Kassebaum, United States Senate Congressman Dan Glickman, United States House of Repre sentatives Kansas Bankers Association Cs ITIDN. ANC, V https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis September 21, 1979 The imerable Peel Simon Moues of Represeetatives Washington, D.C. 20515 Dear Mr. Simon: aeries the bearing on !;eptember 5 you ref/vested that furnish an suslysis of the T‘lita Resources, inc. artiele. For your information, I as pleased to enclose a copy of the material I formiobed to the Committee for the record. Sincerely, SZPaul A. VOckst Sitelooure CO:pjt bcc: Mr. Lichetne Mrs. Mellardi (2)t. 9/21/79 Insert page 63 (Houllpfudget Committee hearing Septell, 5, 1979) Chairman Volcker subsequently submitted the following information for inclusion in the record of the hearing: According to an article by Otto Eckstein in the July 1979 DRI Review, these are two elements to the "supply recession." 1. Last winter, the economy "ran out of productive resources" and reached a point where further increases in output could not be attained without sizable increases in prices. DRI attributes this to the slowdown in productivity over the last five years, the sharp increase in the price of energy, and an inadequacy of basic industrial capacity. 2. In addition to the underlying capacity constraints, there was a series of "supply difficulties" in the first half of 1979--the harsh weather last winter, the Teamsters' strike in April, and the cutback in Iranian oil production--that disrupted normal markets to create a drop in the real volume of spending. I would like to comment on this view and then offer a version of my own. By late 1978, the economy was finishing its fourth year of expansion with real GNP in the last half of 1978 advancing at a 4-1/2 percent annual rate--considerably faster than the rate of growth of potential GNP. Conse- quently, by last winter there was little margin of excess capacity in the economy and signs of tightness in both labor and product markets as well as possible bottlenecks in some industries were beginning to emerge. The Federal Reserve's index of capacity utilization in manufacturing rose 4.7 percentage points over the four quarters ending in the first quarter of 1979 to 86.7 percent--well above the long-run average of 83 percent. The overall operating rate and utilization measures for primary processing and materials production were below their 1973 levels last winter, but utilization rates for some advanced processing industries did reach their 1973 highs. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis In the labor -2market, unemployment rates for many skilled worker groups were at or near the levels reached in 1972 when labor markets were beginning to tighten noticeably. Moreover, many firms reportedly were finding it increasingly difficult to fill certain job vacancies at prevailing wage rates. Other supply-side indicators suggested that although aggregate activity in the first part of the year was just beginning to take on the attributes of a supply-constrained economy, the economy was still short of the supply disruptions that occurred in 1973-74. For example, the index of commodities in short supply compiled by the National Association of Purchasing Management peaked in the spring at a level well below its 1973 high, and a similar pattern was evident in the series on vendor performance. Furthermore, there was no indication of per- vasive and sustained hoarding of commodities. While industrial materials spot prices briefly surged upward in the first quarter of the year suggesting some speculative activity, many of these spot prices moved down substantially in the second quarter. At the same time, data on materials inventories showed no unusual runup in stocks. Of course, sustained expansion of aggregate demand at the pace seen in 1978 would have led to serious and widespread supply constraints and a further aggravation of inflation pressures. It is my view, however, that supply-side factors last winter did not dictate that a recession was inevitable; the economy could have continued expanding at a moderate pace without bumping into supply limitations or causing an acceleration of inflation. Indeed, this was one of the objectives of monetary policy as indicated in the Board's February report to Congress. The temporary supply shocks noted by Dr. Eckstein--the harsh weather and strike activity--did disrupt economic activity this year. But in large part the economy was pushed from a slow-growth path to a contraction in activity as https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis , -3a consequence of the sharp rise in the price of energy this year and the disruptions in gasoline supplies. The unavailability of gasoline had a sharp damp- ing effect on activity in the second quarter, and uncertainty about future supplies appears to be affecting consumer attitudes and activity --especially demand for automobiles and related commodities. In addition, the increases in the price of imported oil since last December have extracted nearly $20 billion (annual rate) of purchasing power from the U.S. economy. The burst in inflation associated with the higher oil prices, as well as regulatory changes that increased gasoline refiners' profit margins, have contributed greatly to the acceleration of inflation this year. Reflecting the pickup in inflation rates, real personal income has fallen at an estimated 3-1/4 percent annual rate since December. At the same time, expectations of consumers, business, and our trading partners about future inflation have become more pessimistic. Consequently, consumer spending has been retarded, businesses reportedly are planning to scale back their capital outlays, and the value of the dollar in foreign exchange markets has been adversely affected. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis September :I, 197, t141 Bonoiable John aelns . Un.ted States Benet. Wash:figton, D. C. 20510 01a4 Senator Manx: requesting ny Thant yoe for your lettec of Septemer 17, , ng that ear Lagar are conside4 , otanneats on legislation that you and Senat mber 31, 11410 diveatlture woule, extend for two adCtional years the Dece rampones ,equAred to daaillino is the Bane Balding Company Act ft oonsicsoring this 4sue, dIvefit ceztais real estate interests. In similar pLoposal a:141 expresse fknd that last year the board addressed a en the 9enera1 question of its conoern that such a proposal geoid reop *WM be isequitsole to thoe evImpaso. sod Llas dead 11110 , :31 bst Dom eta IId with that &Wailes. that aad ult w..1.ft the tuil Mile I :lave not aad the importunity to cons r eazlier efIliCArAS, ancl Boards I can well recognize the nattere of thei into amoOont. I as not .0,1 a pco; I an sure Toe w7i.11 want to take them on individual ;lc) at this time to ',valuate the ha7Cships ispoesd MevertlIelesz, I wax, crimpanies is Matta, the statutory 4eadliael. extension of the A possible approach s limited twoi-yea suggest d be vantevi 4y the Ward December 31, 1)841 deadline. The =tension woul ng ease presented for only if the Board deternined there was si rappelli made Wallet the an extension and that good faith efforts bad be eztat;.ng statutwy deadline. to comment I appreciate the opportunity you have aftocded me on this proposal. SZPaul A. Volcker Paul A. Voloxor 3LP:RM:14E8:114 9/21/79 V-33 1- 37 Identical leLter to Senator !Alger RICHALO G. LUGAR '!DIANA COMMITTEES: 411111R!CULTURE, NUTRITION, AND FORESTRY 5107 EtIAKSEN OFFICE BUILDING WASHINGTON, D.C. 20510 BANKING, HOUSING, AND URBAN AFFAIRS FOREIGN RELATIONS 'ZICnifeb Zfafez Zerrafe SELECT COMMITTEE ON INTELLIGENCE INDIANA OFFICE: 46 EAST OHIO STarcr, ROOM 447 INDIAN.APOUS, INDIANA 46204 WASHINGTON, D.C. 20510 September 19, 1979 4r1) ) LCD —4 CV , ) rFl - The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 N3 CD Ow* • • r- IVO Dear Chairman Volcker: Senator John Heinz and I recently sent to you a letter concerning legislation which would extend until December 31, 1982 to present divestiture deadline in the Bank Holding Company Act in limited cases. A copy of the draft amendment, however, was inadvertently omitted from the mailing. Enclosed please find another copy of our September 17, 1979 correspondence, as well as a copy of the draft amendment. Sincerely * Ur"' c14/ ocie." Richard G. Lug RGL:jw Enclosures • •••40 '114k https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • % RICHARD G. LUGAR COM MITTEESs INDIANA AGRICULTURE. NUTRITION. AND FORESTRY BANKING. HOUSING. AND URBAN AFFAIRS 6107 DINKsrm Orruct RottriNG WA/mow:210N. D.C. 20510 ?,TnifciiZenate FOREIGN RELATIONS SELECT COMMITTEE ON INTELLIGENCE INDIANA Of TICE' 16 EAST ONIO STREET. Room 447 INow.u.pous, INDIANA 46204 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis WASHINGTON. D.C. 20510 September 17, 1979 The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Chairman Volcker: We are considering legislation that would extend until December 31, 1982 the present divestiture deadline of December 31, 1980 in the Bank Holding Company Act in limited cases in which companies hold investments in real estate interests. Under Sec. 4(a)(2) of the Bank Holding Company Act as amended in 1970, certain companies which became bank holding companies by virtue of that Act were required to divest activities, or the shares of any company engaged in activities not determined to be permissible for bank holding companies under the "closely related" test of Sec. 4(c)(8) of that Act. The date for final divestiture was set at December 31, 1980. Prior to the enactment of the 1970 Amendments a number of bank holding companies had lawfully, acquired interests in real estate for investment or development. These investments were entirely lawful until the 1970 Amendments and, in fact, it was not until 1972 that the Federal Reserve Board ruled that real estate development was not a proper "closely related" activity. The ten-year period for divestiture was considered by Congress to be ample time and the Federal Reserve has been diligent, and properly so, in giving bank holding companies notice that they should begin the process before December 31, 1980. However, a severe real estate recession has intervened during this period and has made the task of timely divestiture of some real estate holdings on an orderly and businesslike basis a difficult if not impossible task. The severity and duration of this real estate recession could not have been anticipated at the time of the 1970 Amendments. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable Paul A. Volcker September 17, 1979 Page Two The legislation we are considering, which coul d take the form of an amendment to S. 1334, a housekeeping bill introduced at the request of the Comptroller of the Currency, would provide relief for bank holding companie s by extending the divestiture period for real estate interests, but only until December 31, 1982. It is expected that such an extension would permit a bank holding company to arrange an orderly and businesslike divestiture of those inte rests. In our judgment, the application of this provisio n would be limited to a relatively few instances. This possible amendment is strictly limited to real estate interests and should not serve as precedent for exte nding the divestiture period for any other interests or activities not "closely related" to banking. The affected real estate activities could not be expanded during the exte nsion and, obviously, no new nonpermissible real estate activiti es could be undertaken. We would appreciate receiving your comments on this matter. Sincerely, kin Heinz III Richard G. Luga • mp* POSSIBLE LEGISLATION Amendment to S. 1334 On page 2, after line 17, insert the following new subsection and renumber subsequent sections accordingly: "Sec. 102. Section 4 of the Bank Holding Company Act is amended by adding at the end of paragraph (a) the following: 'Notwithstanding any other provision of this Act, the period ending December 31, 1980, referred to in paragraph (2) above, is extended to December 31, 1982, but only for the divestiture by a bank holding company of real estate or interests in real estate lawfully acquired for investment or development.tft https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • RICHARD G. LUGAR • INDIANA lilt '117,^iitHSEN OPTICS BUILDING WASHINGTON. D.C. 20510 BANKING. HOUSING. AND URBAN AFFAIRS /Z1CTlife FOREIGN RELATIONS fafez Zenctic., INDIANA OFFICto 46 EAST Omio STA•rr. Room 447 StammAmu*. INDIANA 46204 COMMITTEES: AGRICULTURE. NUTRITION. AND FORESTRY WASHINGTON, 0.9.111r,. SELECT COMMITTEE ON INTELLIGENCE c) . September 17‘; 1979 The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Chairman Volcker: We are considering legislation that would extend until December 31, 1982 the present divestiture deadline of December 31, 1980 in the Bank Holding Company Act in limited cases in which companies hold investments in real estate interests. Under Sec. 4(a)(2) of the Bank Holding Company Act as amended in 1970, certain companies which became bank holding companies by virtue of that Act were required to divest activities, or the shares of any company engaged in activities • not determined to be permissible for bank holding companies under the "closely related" test of Sec. 4(c)(8) of that Act. The date for final divestiture was set at December 31, 1980. susomP Prior to the enactment of the 1970 Amendments a number of bank holding companies had lawfully acquired interests in real estate for investment or development. These investments were entirely lawful until the 1970 Amendments and, in fact, it was not until 1972 that the Federal Reserve Board ruled that real estate development was not a proper "closely related" activity. The ten-year period for divestiture was considered by Congress to be ample time and the Federal Reserve has been diligent, and properly so, in giving bank holding companies notice that they should begin the process before December 31, 1980. However, a severe real estate recession has intervened during this period and has made the task of timely divestiture of some real estate holdings on an orderly and businesslike basis a difficult if not impossible task. The severity and duration of this real estate recession could not have been anticipated at the time of the 1970 Amendments. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • 6 • The Honorable t$fstII. A. LIfii September 17, 1979 Page Two • f4.-‘elvAt 0 1; The legislation we are considering, which could take the form of an amendment to S. 1334, a housekeeping bill introduced at the request of the Comptroller of the Currency, would provide relief for bank holding companies by extending the divestiture period for real estate interests, but only until December 31, 1982. It is expected that such an extension would permit a bank holding company to arrange an orderly and businesslike divestiture of those interests. In our judgment, the application of this provision would II to a relatively few instances. mendment is strictly limited to real estate hould not serve as precedent for extending period foi any other interests or activities lated" to banking. The affected real estate d not be expanded during the extension and, ew nonpermissible real estate activities aken. III We would appreciate receiving your comments on this matter. Sincerely, Cilt44,4 9 01). hn Heinz, 1iI https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Richard G. Luga https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The honorable William Prommire Cloareen Committee on Baskiag, illowsimg emd Urbea Affairs Milted States Senate 1100hiogten, D. 2031(1 Meer Chairman Pamire lbw* you for your Lotter of 4,$)emalber savuosting my sommemes as am amemdmemt to S. 1347 which is betemded to be offered by Seater Cremate* which would atom! until Jame 15, 19t1, rho existing assalatise framework thile animi the Moral Seeerve. is ,onsultatiom with the ether rmswiaLory agamcies, to mom interest rote Lentos, 'as fast es it Ls esesonicelly feasible toward osrket lemmas. Whoa Gevermer Mites testified Wore the Sabeemmitteo on Ylancial Institutions as Jim 27, he imdicated that the Nerd strongly &Appalled the priaciplee mmdmOyims each of the major pisions of S. 1347. 'pacifically. Osseemer ?artas straggly empoorted the Amass eue if depeeit rate cent*. provided that the regulatory agencies were Oils to reepeed flexibly to circumstances created by the transition to a oeiliag-free environment. As yen indicate La your letter, yes had previously coneuited with merneemolomin doeodatorY ismiu0641 which mould provide more flexibility, mei apauesed this language. Clearly, the ameadmemt yew have forwarded Is met cemsistent with the 'Amities ef the board as gewermer Parte* we further question whether it is to tamed the existing Meguletion 0 framework which the emd of 19CC at this time. aisoorsiy, SAGI:vcd (#V-311) bac: Mrs. Mallardi (2) to me tor comment set forward by pot premature is in place until HOUSE OF REPRESENTATIIVO; PE 24 ri 9: 31 WASHINGTON, D. C. 20515 RON PAUL 22ND DISTRICT, TEXAS September 19, 1979 Dr. Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System Twentieth Street & Constitution Avenue Washington, D. C. 20551 Dear Dr. Volcker: Thank you for the opportunity to have breakfast with you this morning. It was a most informative and enjoyable meeting. Sincerely, Ron Paul Member of Congress RP/lr https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis September 19, 1979 Dear Senator Helms: I have read your recent letter and its enclosure in which you raise a number of substantive and impo rtant points. I would like the opportunity to discuss thes e issues with you on an informal basis. rerhaps you coul d call as with a view toward coming over to the Board for lunch in the near future. Sincerely, SZPaul A. VhL The Honorable Jesse Helms United states Senate Washington, D. C. 20510 EGC:slw Cong. #26 .,ipEl-"ZLMS JEF NC:44..H CAROLINA https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • 9.1Cnifeb Zfalez Zenale ,04,r!sF1 WASHINGTON, D.C. 20510 September 6, 1979 r The Honorable Paul Volcker Chairman Federal Reserve Board Federal Reserve Building Constitution Avenue Washington, DC 20551 1111111•11••••• Dear Mr. Volcker: During the course of Senate consideration of your nomination to be Chairman of the Federal Reserve Board, I made the enclosed comments. 1111111%.s. I enclose a copy for your reference; and if you have any comments on the points I raised, I would be glad to receive them. I wish you every success in your efforts. To reiterate one of my closing observations, please be assured that I'll do what I can to generate support for your actions when you are leading the Board away from excessive money supply growth rates. With best wishes, I am Sincerely, JESSE HELMS:hmh Enclosure vow— Oh UnitocI States of America • • 0:ongressional Record PROCEEDINGS AND DEBATES OF THE 0 y6th CONGELESS, FIRST SESSION • Vol. 125 WASHINGTON, THURSDAY, AUGUST 2, 1979 Na. 109 Senate Mr. HELMS. Mr. President, the nomination of Paul Volcker t6 be Chairman of the Federei Reserve. Board is being hastened through the Senate or "expedited," to use the accepted'Idiom. I shall not oppose his confirmation, but I think Mr. Volcker's nomination deserves somewhat more consideration. The nomination of a Chairman of the Federal Reserve Board is one of the most important a President can make. To let this nomination breeze through the Senate does not give the Senate or the American people enough time to discuss the important issues that should be aired when such an appointment is made. But, Mr. President, I will vote for the Volcker nomination because I think it Is. probably the best we coul,c1 have hoped for, at this time, and undtx the existing circumstanees. I am left, however, with a number of questions concerning the job Mr. Volcker will do. For example, his role in the collapse of the Bretton Woods system in 1971. Was Mr. Volcker a leader in the effort to dimssociate the dollar from gold? Or did he counsel restraint? It will be noted, Mr. President, that after the fateful August 15, 1971, when the President closed the gold window, the United States plunged headlong into the worst period of inflation we have ever seen. Mr. President, it was no coincidence that inflation followed our closing the gold window. The American people need to know whether it was just coincidence that the United States broke away from gold when Mr. Volcker was Under Secretary of the Treasury. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis And, how about Mr. Volcker's present attitudes toward money supply and interest. Does he believe, as the run-ofKeynesians do, that interest rates are the best way to gage money supply growth? D<xs he think that high interest rates are a result of inordinate money supply growth; or that somehow, inilation can be cured by artificially holding down short-term interest rates by pumping up the money supply. If so, he is sadly mistaken. An added, important question Is whether Mr. Volcker believes in the importance of supply side effects of Federal a:tion.s. Traditional Keynesians feel that demand ma.nagement is the key to governing economic performance, but stagflation has proven the falacy of that theory. What are Mr. Volcker's views on the supply side fiscalists who are making such important contributions to economies today? And what are Mr. Volcker's views on the chaotic international monetary system? Does he think that in the long run, we should move Coward a system of fixed exchange rates, or does he think that the world will have to live with the undisciplined system of "floats" and "snakes" that presently pass for a global monetary system? I would like to know, too, Mr. President, how much does Mr. Volcker share In the antigold phobia of most Washington bureaucrats. If he has as much experience in the international arena as I understand he has, then I am sure he knows that the United States is the Nation leading the Eight against. the discipline of gold in world monetary systems. He knows. I am sure, that more 11357-53 • ard more people around the plact ere eat will provide for stable price levels queAioning the wisdom al the- abandonhome and a reliable currency abroad. ment of gold. Mr. President, I ask unanimous conFinally, Mr. I:resident., I W.:111d Mee tz). semt, that an editorial from, Tuesday's know another thing which Is probably Wad'. Street Journal be printed at this even not known by Mr. Tv'-olekee hixneeell. jp)int in the 1.1.1cote. There being no olijection, the editorial While Mr. Volcker's staff at the Federal Reserve Board could neobably come up was erdered to be printed in the RECORD, with some nice, sznoth answers to the az follow:3: DOLLAII DILX3LICA QUestiartS I haTe ',.rxseel, I de net imow if Paul Volcker is tekirig charge of the Fed at anyone could come up with the enswer to tIme when the dollar faces difficulties, the next qtlee.iTen: How much will the oeuglet election yee.r re":!.ect his judgment on. is ae it in between exchange rate weak. and political fe.ars of domestic recession. money supply? 711 other words, when ilecord. ing to the policy model that prevails those decizIons on money reapply em difWe.sble,gton, teenting the one problem ficult to make, how ?much will he be ',omens the other. And so we do not envy tempted to err on the side of etere7-money 11.r. Veleir.cr as he Karts out vrith the dollar inflation, bee:arm it is ea eleellen yeee,r. Ii?. the woods. The 'Frey Veeshington .seee it, unemployMr. Preside:at, our coU.eagnes who ment and rice=eion are bad for the reelecserve on the. Barletme Committee, have had at least tvo metinge on Mr. tion oil' incumbent.% and. tight money and Volcker's- nomination,anti they :luxe rec- high Lriterent rates are bad for employment. the other hand, easy money and low real ommended his conlIsmatlan without On interect rates are bad far the exchange value objection. I roxpect highly that commit- c the dellmr. So far the Fed has buying tee and its distinguished ebetiseeeen, Sen- time., allowing the discount ratebeen to lag the ator PEW:MU:Z. I will ateppert th.2 expected rate of inflation while buying dollen to support the exchange rata. The Fed, confirmation. But, I will follcw •cloy tho.l. work of ref courte, can't continue for long pumping this experineed end te.eleeated neen. Faul out dolleas at home peed buying them be:0c foreigit exchange merketa. The Fed knows A Volcker. I LU sure I will be joined c truat, and Ls on this tack because it in that effort by many membees of the can't fIrtel the way out of the woods with Banking Cornmittee and riarle othcr the pent pelicy model. • Members of the Senate. The ternei jr That Meanfi subetan.tial dangers ahead. tern of this Nation is failing. lt is failing Freed with ie eizable increase in the discoun miserably to ee.rve 9,s a moneee system rate or intervening to slow a slide in thet should. The Federal Reeereee 3.3ce,rd, muet dollar, the temptation will be mat to find v41•ier lining in an "orderly" depreciation. take much of tb.e blame. There b just no of the dollar. Out erill-ixot the rationale that such thing P.f3 inSie,tion withenit MOM*" sceys failing dollar Is ultimately strengthsupply creation in exccee efc the reel becauz3e it increnees exports and regrowth in the economy, ard the Fed duces imports, thus firming the dollar while creates money. providing additiorvel demand to help lead The U.S. dollar is no lonFer a Etantirxd the economy out of a recessio n. of value. The U.S.. dollar is no longer tat We doubt the dollar could survive the adequate measteee of value. It serves serious problems in this approach. Inflachiefly as a medium of e.xcleange. The tion results from imbalance between the deInflation of the dollar is t1).e greatest reend for goods and their supply. Dollar decause of economic cilsruptien in the free valuation worsens the imbalance. On the deworld. Worldwide in.flation, in large part =avid side. devaluation initially lowers the price of U.S. goods to foreigners. But it also caused by the United States, threatens ralme tho dollar value of foreign currencies. the institutions of every free or partially.. thus increasing the global money supply. The free society in the world. U.S. price level would come under pressure The responsibilities Mr. Volcker faces as this increase in global money flows into are awesome. I•hope he will know that U.S. goods and as Americans themselves he has at least one ally in this Meinber move into U.S. goods as a result of the of the U.S. Senate whenever bee =wee, to higber priced importe. On the supply side, the energy shock, the try to make the dollar a sound unlit curory burden, inflated marginal tax rency. .We must lieve a money restem regulat mere and the underdepreciation of fixed https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • assets are all operaling ea a brake on MI production. The additional denuued for U.8 goods caused by dollar devaluation togethet with the factors reterciing cutput would push up the domeetie price leeel, restoring the ratio betv2een the pile= of domestic and foreign goods upset by devaluation. The end result would be a lower doller emehreege value and s higher domestic prtce !eye!. The higher price level wotUz lutensify the downward prezsure az the of.chtenge value of the dollar. And bv repelling /.1 .neer1cans into even higher merielnel tax bracketz, it would further tighten the tar, brake on production. Dollar devaluation,then, women!:stagEatIon. This is why it Le necezaery for the Fed to bring the money supply under control, and It can't do that e.s long as it is tiling to finetune interest rates. The Fed altould leave interest rates to tile market end focus on eliminating buret; and contractions in the money supply. A etable monetary policy will not cause a recession, and the dose of certainty it would impart would. do a lot for Investment. Policymakers are going to have a hard time getting the dollar out of the wooda unless they change their policy model and learn to attack ctagflation from the supply side. By this we don't mean . wage, price, credit, and exchange controls; we mean a nerxierate and steady growth in money and a reduction in the tax and regulatory burdens. In the present fiscal and regulatory environment, Increased demand calls forth Nigher prices. The economy can only produce its way out of stagflation. end it can't do that =Jen Washing= adjuste the incentive structure. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • -611 • MIKE SYNAR 2ND DISTRICT, OKLAHOMA CongresZ of tbe Einiteb iiptate0 li)ousze of 3eproentatibet4 Wazijingtort, 73.C. 20315 October 9, 1974/65 Dear Chairman Volker: Mr. James P. McKeown, Executive Manager for the Independent Bankers Association of Oklahoma has brought to my attention an invitation that he has extended to you to speak at their 6th Annual Convention on October 30, 1979. I know that your schedule is a very busy one, but I hope you will make every effort to attend this meeting. Any consideration you can give this matter will be appreciated. Warm personal regards and best wishes. Sincerely, The Honorable Paul Volker Chairman Board of Governors Federal Reserve System 20th and Constitution, N.W. Room 3046 Washington, D. C. 20551 MS/ss THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Septombew 18, 1979 the Sessrebbs awry Metteesso Mom at Visposseseetioes liteohingloo, SA. MSS afar mr. ftttersoos Thmok ime ter year lotto, of September 12 with seopeet to issielotleo risoomtly app000d by the fimeaciel Institutions Sebeemmittee to restrict tmereemmil eponey. settrities of bask holdalls eempeelos sell their eiheldiarles. The loord eppreelotee the epportmeity to offer coomooto MA ma pion to hoes them to pee be the seer future. $tanomay, ugAL_ 0D:DAlsemk (V-29) cc: Sr. Ilkmation Risenbeia Mrs. alellerdi (2) 1- • • Action assigned to Messrs. Mannion and Eisenbeis https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 'COMMITTEE ON BANKING, FINANCE AND I IRBAN AFFAIRS • JERRY M. PATTERSON 38TH DISTRICT Or CALIFORNIA SUBCOMMITTEES: HOUSING FINANCIAL INSTITUTIONS Congrt5 of Hie Uniteb tate5 INTERNATIONAL TRADE COMMITTEE ON INTERIOR AND INSULAR AFFAIRS SUBCOM M ITT EES: DANIEL H. YOUNG ADMINISTRATIVE ASSISTANT FEDERAL OFFICE BUILDING 34 Civic CENTER PLAZA, *921 Potite of Reprezentatibt5 tilassbington, D.C. 20315 SANTA ANA, CALI VCRNIA 92701 TELEPHONE:010835-38n 111...••••• WASHINGTON OFFICE: GREGORY W. SANDERS ADMINISTRATIVE ASSISTANT NATIONAL PARKS WATER AND POWER RESOURCES HOME OFF:CE: VERLYN N. JENSEN DISTRICT REPRESENTATIVE September 12, 1979 PLEASE REPLY TO: 0 WASHINGTON OFFICE 0 HOME OFFICE HOUSE OF REPRESENTATIVES WASHINGTON, D.C. 20515 TELEPHOMP.: (202) 225-2965 The Honorable Paul Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: Yesterday the Banking, Finance and Urban Affairs Committee's Financial Institutions Subcommittee reported legislation to restrict insurance agency activities of bank holding companies and their subsidiaries. During the markup session, I raised several concerns regarding the blanket exemption from the prohibitions of the bill for bank holding companies having total assets of $50 million or less. It seems to me that those exempt bank holding companies and their subsidiaries could expand into a broad range of insurance agency activities and possibly escape public interest review by the Federal Reserve Board. I would appreciate the Board's comments on: Digitized for• FRASER * https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1 The approach taken by this legislation to declare permissible certain activities based upon the asset size of the institution. 2. How the $50 million exemption may, in fact, be counterproductive to the espoused goal to restrict the insurance activities of bank holding companies. 3. The permissibility of credit property and casualty insurance activities by finance company subsidiaries of bank holding companies for extensions of credit of not more than $3500. 4. Revising language on the cap to enable different ceilings based upon the purpose of the extension of credit; i.e. $3500 would preclude bank holding company finance company subsidiaries (1) acquired subsequent to the date of enactment, (2) not exempted, or (3) not grandfathered by the bill from continuing to offer property and casualty insurance on mobile home loans. The average mobile home loan is in the range of $12,000 - $18,000. More recently, new singlewide mobile homes have been selling for at least $20,000. ••••Ji. • • The Honorable Paul Volker Page 2 September 12, 1979 It concerns me that many low- to moderate-income households purchasing mobile homes as an alternative to expensive conventional housing may be unable to obtain adequate credit property and casualty insurance and/or suffer undue inconveniences and hardships under the legislation as adopted by the Subcommittee. 5. Other inconsistencies in the legislation that the Board believes merit the consideration of the Banking Committee. I appreciate your attention to these questions. I.• ; Cordially, Y M. PATTERSON Congressman JMP/11n https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis J 'I anwor• https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis DOARO OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D C 20551 September 18, 1979 PAUL A VOLCKER CHAIRMAN The Honorable Parren J. Mitchell Chairman Subcommittee on Domestic Monetary Policy Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman Mitchell: You have asked for my views on H.R. 5037, the bill to establish a fixed four-year term for the Chairman of the Federal Reserve that would expire on January 31 of the calendar year following the year during which a newly elected President is inaugurated. In the circumstances, I thought it appropriate to consult with my colleagues on the Board. In our discussion, concern was expressed over the problem of a "short term" that would be created whenever a Chairman resigned, died or otherwise left office before his four-year fixed term expired. In such circumstances, under the bill a new Chairman would be appointed to serve only the remainder of the term. If the time period were short, qualified individuals might be reluctant to accept appointment, or the actions of an appointee might be constrained by the need for early reappointment. As we discussed, the problem would be partially remedied if the bill were amended so that the President could appoint a Chairman to an expanded term in the event that a vacancy occurs during the last year of the fixed term. A recently elected President would then appoint a new Chairman to a term of up to five years (the remaining months of an unexpired term plus a full four-year term) in the event of a vacancy at the time of his inauguration or during the first year of his term. No really adequate legislative solution for the problem of a vacancy late in a Presidential term of office--possibly in the heat of a political campaign--seems possible. However, similar contingencies could arise under existing legislation. After considering these aspects, Board members generally would have no objection to the enactment of an amended bill providing a four-year term for the Federal Reserve Chairman expiring one year after a Presidential inauguration, but with the possibility of an extended term of up to five years in the event of a vacancy in the last year of the term. I share that view. Sincerely, Wag(It1 Volcket https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Saptasher 18, 1979 lielnerable Pima Aseees10 fteireen Sabecanttec en Consumer Affairs ittee on 144111, finance sod 110bas Affair* ammo o1 hoposoostatives 11146410104 Sem Chatraria Amenato: Meek yew Mit peer Letter it Saptedber 14 imvitimi the liend to testify belies poor Sobesamatee at oversight hoortoso &mien B. katbares dollar. IPS 1 emplaned le designees 111c. itUham 11. Wellase, leaf Streator Aer Mord Sooseis look Aottotttos, to Mow 00114101f of t Send et limpeolbor 25 at ilt30 aom. sionvoly, r- CO:144:stak (#1-31) cc: Dill Wallace (with copy of teeming) LA jr THOMAS O. EVANS, J R., DEL. CHALMERS P. WYLIE. OHIO DON RITTER, PA. FRANK ANNUNZIO, ILL., CHAIRMAN GLADYS NOON SPELLMAN, MD. BRUCE F. VENT°, MINN. WALTER E. FAUN TR OY, D.C. PARREN J. MITCHELL, MD. U.S. HOUSE OF REPRESENTATIVES CURTIS A. PRINS. STAFF DIRECTOR r, NINETY-SIXTH CONGRESS SUBCOMMITTEE ON CONSUMER AFFAIW TELEPHONE: 225-9181 \ OF THE COMMITTEE ON BANKING. FINANCE AND URBAN,AFFAIRS ROOM 212 HOUSE OFFICE BUILDING ANNEX WASH I NGTON. D.C. 20515 September 14, 1979 ir\ Honorable Paul A. Volcker Chairman Federal Reserve Board 20th Street 8 Constitution Avenue, NW Washington, DC 20551 Dear Mr. Chairman: The House Banking, Finance, and Urban Affairs Subcommittee on Consumer Affairs plans to hold oversight hearings o n September 25 and 26, 1979, on the Susan B. Anthony dollar and Bureau of the Mint opera tions. ebe. I wish to invite you to appear before the Subcommittee on September 25 at 9:30 AM. The hearings will be held in Room 2128 Rayburn House Office Building. Your presentation should be limited to ten minutes; however, your written statement for the record may be of any length. The Subcommittee requires a minimum of 50 copies of the prepared statement at least 48 hours prior to your scheduled appearance. The statement should be delivered to the Subcommittee office, Room 212, Annex #1, 300 New Jersey Avenue, SE. If you have any questions, please contact Curtis Prins, Staff Director of the Subcommittee on Consumer Affairs at (202) 225-9181. With every best wish, Sincerely, Frank Annunzio Chairman Enclosure https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis c