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Federal Reserve Bank of St. Louis
Collection: Paul A. Volcker Papers
Call Number: MC279
Box 9
Preferred Citation: Congressional Correspondence, 1979 October; Paul A. Volcker Papers, Box 9;
Public Policy Papers, Department of Rare Books and Special Collections, Princeton University
Library
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44.
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Federal Reserve Bank of St. Louis
BOARD OF r3OVERNORS
fig 1
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, 0. C. 20551
PAUL A. VOLCKER
CHAIRMAN
October 23, 1979
The Honorable Adlai E. Stevenson
United States Senate
Washington, D. C. 20510
Dear Senator Stevenson:
Your letter of October 22 requests our views on an amendment
to section 5169 of the Revised Statutes contained in section 412 of the
"Depository Institutions Deregulation Act of 1979," H. R. 4986, recently
reported by the Senate Banking Committee.
Last year, section 5169 of the Revised Statutes was amended
by section 1504 of the Federal Institutions Regulatory and Interest Rate
Control Act of 1978, to provide that a National Bank Association heretofore or hereafter chartered "is not illegally constituted solely because
its operations are or have been required by the Comptroller of the Currency to be limited to those of a trust company and activities related
thereto." Section 412 of H. R. 4986 would further amend this section
of the Revised Statutes to provide that such a nationally chartered
limited purpose trust company "shall be deemed an additional bank
within the contemplation of section 3 of the Bank Holding Company Act
of 1956."
Section 3(d) of the Bank Holding Company Act of 1956, as
amended, provides that a bank holding company may not acquire "any
additional bank located outside of the State in which the operations
of such bank holding company's banking subsidiaries were principally
conducted on the effective date of this amendment. . . ." However,
this interstate prohibition would not be applicable to a limited
purpose trust company because the Bank Holding Company Act now defines
a bank to be an institution that (1) accepts demand deposits, and
(2) engages in the business of making commercial loans.
Under the Bank Holding Company Act and Regulation Y issued
thereunder, a trust company is considered to be a nonbanking activity
and trust company activities are one of the activities determined by
the Board to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto.
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Federal Reserve Bank of St. Louis
The Honorable Adlai E. Stevenson
Page Two
The proposed amendment in section 412 of H. R. 4986 represents
an attempt to protect present providers of trust services from prospective
competition. In general, the Board has found that both de novo and
across State lines entry into authorized nonbanking activities add an
extra competitive dimension. Consequently, the limitations proposed in
section 412 have anticompetitive implications and, as such, threaten to
have an adverse impact on the public interest in the availability of
competitive sources of trust services.
Moreover, it should be noted that section 412 introduces a
distinction between Federally chartered and State chartered institutions
in the Bank Holding Company Act. Under the provisions of this amendment,
State chartered limited purpose trust organizations would not be subject
to the limitation on banks under section 3(d) of the Bank Holding Company
Act, but would continue to be subject to the nonbank provisions of that
Act.
I trust that these views will be helpful to you in your consideration of this amendment.
Sincerely,
ILLINOIS
AA I E. STEVENSON
•
iJCnifc Zfafez. Zertate
WASHINGTON. D.C. 20510
October 22, 1979
Mr. Paul A. Volcker, Chairman
Board of Governors
Federal Reserve System
Washington, D.C. 20551
OOMMITTEE
ON BANKING.
HOUSING
ANDSUBCOMMITTEE
URBAN
AFFAIRS
ON
INTERNATIONAL FINANCE (CHAIRMAN)
COMMITTEE
ON COMMERCE.
SCIENCE
AND
TRANSPORTATION
SUBCOMMITTEE
ON SCIENCE,
TECHNOLOGY
AND SPACE
(CHAIRMAN)
SELECT COMMITTEE
(CHAIRMAN)ON ETHICS
SELECTINTELLIGENCE
COMMITTEE ON
SUBCOMMITTEE
ONANDTHEQUALITY
COLLECTION.
PRODUCTION
INTELLIGENCE(CHAIRMAN)OF
DEMOCRATIC POLICY COMMITTEE
Dear Mr. Chairman:
The "Depository Institutions Deregulation Act of
1979," H.R. 4986, which was recently reported by the Senate
Banking Committee, contains a provision, Sec. 412, which
would result in an amendment to the Bank Holding Company
Act. As the Committee did not consider this issue during
hearings, I would appreciate having the views of the Board
on Sec. 412.
H.R. 4986 might come soon to the floor of the Senate,
and thus your earliest attention to this matter would be
appreciated.
Sincerely,
441A
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Federal Reserve Bank of St. Louis
October 23, 1979
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Federal Reserve Bank of St. Louis
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October 17, 1979
Honorable Paul A. Volcker, Chairman
Board of Governors
Federal Reserve System
Constitution Avenue between 20th and 21st Sts.
20551
Washington, D. C.
Dear Mr. Chairman:
The Subcommittee has scheduled a hearing on the
subject of the Federal Monetary Policy and how it will
affect availability of loans to small business, to commence at 9:00 a.m. on October 30 next, in Room 2359 of
the Raybu-llouse- Office - Buifding, Washington, D. C.
You are invited to appear before the Subcommittee
on that date to offer testimony on this important issue.
It would be appreciated if you would provide us with 50
copies of your prepared statement by October 25, 1979.
If any questions should arise in connection with
your appearance or testimony, please contact the Subcommittee Counsel.
With best wishes and kind regards,
Sincerely
HenryNowak
Chia rman
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Federal Reserve Bank of St. Louis
•
E3OARD OF EOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
PAUL A. VOLCKER
CHAIRMAN
October 22, 1979
The Honorable Jerry M. Patterson
House of Representatives
Washington, D. C. 20515
Dear Mr. Patterson:
Your September 12 letter requests the Board's views on the
concerns you have regarding the proposed blanket exemption from the
prohibitions of H. R. 2255 for bank holding companies with total assets
of $50 million or less and whether expansion by such exempt bank holding
companies and their subsidiaries would be subject to the public benefits
test of section 4(c)(8) of the Bank Holding Company Act ("Act") raised
during the mark-up session on H. R. 2255. The numbered paragraphs below
correspond to the specific questions you have asked.
(1) It is the Board's opinion that permitting an activity to
be engaged in by a bank holding company or its subsidiary solely because
of the asset size of the bank holding company is not relevant to a determination of whether an activity is closely related to banking within the
meaning of section 4(c)(8) of the Act. By employing such a standard
Congress would be abandoning some well established criteria that have
been developed over the years by the courts and have come to be recognized as appropriate for determining whether a nonbanking activity is
"closely related" to banking within the meaning of section 4(c)(8) of
the Act. (National Courier Association v. Board of Governors, 516 F.2d
1229, 1237 (D.C. Cir. 1975), and Alabama Association of Independent
Insurance Agents v. Board of Governors, 533 F.2d 224, 241 (5th Cir.
1976).) Furthermore, an institution's size alone is not a determinant
of the potential for abuse, but should be considered in the context of
the market in which the institution operates. For example, a bank
holding company of less than $10 million in assets might be the only
financial institution in a town and its ability to exert an unfair
competitive influence would be much greater than a $200 million institution located in a major metropolitan market.
(2) The $50 million exemption would permit such an organization
to engage in insurance activities otherwise not permissible to a bank
holding company with greater assets. Under such an exemption, insurance
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Federal Reserve Bank of St. Louis
S
•
The Honorable Jerry M. Patterson
Page Two
activities that could be engaged in would include the sale
of property
and casualty insurance and underwriting of such
insurance. The Board's
regulation, however, does not permit the underwriting of
property and
casualty insurance. Thus, there would be a broadening
of the permissible
product line of insurance for smaller companies beyond those
currently
permitted by the Board's regulation governing insurance activi
ties of
bank holding companies.
(3) The $3500 finance company transaction exemption could
have the effect, for example, of restricting finance companies as
an
alternative source of credit to borrowers seeking financing for new or
used car purchases, unless the lender is willing to forego the insurance
or directs the borrower to another source of insurance. It would certainly put a finance company subsidiary of a bank holding company at
a
competitive disadvantage since other finance companies and lenders are
not similarly restricted.
(4) For the same reasons as stated in paragraph three above,
the Board does not believe it would be useful or appropriate to base
the permissibility of insurance activities on some arbitrary loan amount.
(5) Enclosed for your consideration is the Appendix to Governor
Partee's testimony of October 17, 1979, before the Subcommittee on Financial
Institutions Supervision, Regulation and Insurance that sets forth in some
further detail the Board's views and its comments on the insurance provisions
of H. R. 2255, H. R. 2747 and H. R. 2856, as well as other provisions of
those bills.
Finally, your letter indicates concern that the public benefits
test in section 4(c)(8) of the Act might not be applicable to insurance
activities engaged in by bank holding companies of less than $50 million
in total assets. Based on the legislative history the Board believes
that section 4(c)(8) imposes a two-step test. Court decisions have confirmed that view. A proposed activity first must be determined by the
Board to be closely related to banking. If such a determination is made,
the activity may be engaged in, or the nonbanking company engaged in the
activity may be acquired, only if the Board finds that the public benefits
test of section 4(c)(8) is met. That is, the Board must find that the
likely benefits to the public that would result from a hank holding company engaging in the activity outweigh possible adverse effects that may
result therefrom. Thus, if the legislation as proposed is enacted, the
closely related criteria would be statutorily determined, but whether a
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Federal Reserve Bank of St. Louis
4
•
The Honorable Jerry M. Patterson
Page Three
specific proposal would meet the public benefits test of secti
on 4(c)(8)
would remain to be determined by the Board in connection with
individual
proposals.
Thank you for this opportunity to offer our views on these
matters and please do not hesitate to contact us furth
er.
Sincerely,
Sgami A. Mae/
Enclosure
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Federal Reserve Bank of St. Louis
a
October 22, 1979
the lionoroi
rnand J. t Germain
Chairmen
Subcommittee on Financial lnatitutions
Supervision, Regulation anJ instirsnce
Committee on BAnking, Finance and
Urban Affairs
House of Representatives
':nshington, b.C.
20515
aear Chairman St Germain:
Thank you for y .ur letter of .;eptember 14, 1979, reruestinc our
opinion on the impact of R.R. 2255, Qs amended, on relevant State law.
We understand that in particular you recuest comment on the $3,500
limitation of section 1(&) and section 2 of the bill.
The Board's Legal Division has considered the providdona of
d.R. 2255 in the context of the cueations posed during the :subcommittee
markup. It is the opinion of the Legal Division that the $3,500 limitation
of section 1(B) of the bill Applies only to the amount of insurance that
a bank holding company Amy provide pursuant to Federal law as principnl,
agent or broker in connection with an extension of credit by a finance
company subsidiary of the bank holding company. Under section 7 of the
&talk Molding Company Act, 12 U.S.C. 1 1846, the amount and kinds of
ineweeece that a bank holding company may provide may be further
restricted but not expended by State law. However, were section 2 of
the ammeded bill enacted, a State could enact legislation that might
emend the Amount and kinds of insurance 3 bank holding company may
provides
The restrictions of section 1(1) apply only to the insurance
provided in connection with rn extension of credit by a finance company
subsidiary of a bank holding company smd are distinct from any restrictions
on the landing authority of such s subsidiary, iihich restrictions to
date hive been imposed only by State and gas
.Pedevel law. Therefore,
the restrictions of section 1(3) would have no Impect upon the lending
authority of finance company subsidiaries of bank holding companies,
and would impact the leading activities of such subsidiaries only insofar
as customers of finance companies legally lending in excess of $3,500
may prefer to do business with companies able to make the loan tind sell
related insurance, that is, companies not affiliated with a bank holdin
g
company.
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Federal Reserve Bank of St. Louis
The lionornble Fernand J. bt Germain
Oage Two
b'ection 2 of the bill provides that the asendnint made by
section 1 shall not supersede existing State 1AWS amid *ball not be
effective in any bitate when such State enacts a leo contravening the
amendment mode by section I of the bill. The board's Legal Division
believes that, for the reasons discussed above, section 2 is unnecessary
to meet the concerns of bubcommittee misibers relating to restrictions on
lending authority. Further, we note that the effect of section 2 would
be to enable StAtes to nct to permit ineurnnce actives that would be
believe, however, that even in those inst:r.nces
prSted by section
in which State Puthorities enact legislation finding certain insurance
activities "closely related" to bPnking, the Board would still be reruired
to find those proposed activities 'closely related' to !pinking and to
apply the public benefits test under section 4(c)(8) of the Act. In
this regerd, the Board in the past has found certciin of the activities
,I.
prohfbited by section 1 to meet these two criteri,
If you have any further cmestions regarding these matters,
plcace do not hasit.nte to contact us.
Sincerely,
Saul Yolcket
RW:MEB:RM:DJW:pjt (#V-32)
bcc: Rich Whiting
Mike Bleier
Bob Mannion
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
OFT HE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 201;E3I
PAUL A. VOLCKER
CHAIRMAN
October 22, 1979
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:
I want to thank you for the support of our recent policy
initiatives expressed in your letter published by the Wall Street
Jcoirnal on October 11. I find such support most encouraging and
helpful as my colleagues and I seek to assure that monetary policy
will do all that it can to help bring inflation under control.
I have also given careful thought to the points made in
the earlier letter that you and members of your Subcommittee sent
me concerning long-term monetary objectives and their relation to
the economic objectives contained in the Humphrey-Hawkins Act. As
I see it, the thrust of your earlier remarks is directed at two
major points: first, that the rate of monetary growth should gradually but systematically be reduced to the perceived non-inflationary
rate of 3 percent by 1982; and, second, that the Federal Reserve
sl'ould commit itself to an explicit long-range target path of monetary growth along the lines set forth in your letter.
agree fully with the philosophy underlying your remarks.
My Federal Reserve colleagues and I are strongly committed to a policy
of establishing and maintaining a non-inflationary rate of monetary
expansion and we seek to achieve that goal in the most orderly and
expeditious fashion. In this fundamental sense, we share a common
viewpoint.
On reflection, I don't think we are far apart on the
approach to meeting this objective. But I am uneasy about establishing precise monetary targets over a multi-year time frame. In
my view the Federal Reserve needs the flexibility to respond to
situations as they arise--including the admittedly remote possibility that shifting expectations might permit a more prompt move
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Federal Reserve Bank of St. Louis
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The Honorable Parren J. Mitchell
Page Two
in the direction that we both see as appropriate. However, you should
not associate my reluctance to subscribe to specific long-term quantitative targets as being indicative of any doubt as to the merits of
the underlying policy objective. Our recent policy actions serve to
underscore the System's determination to achieve a non-inflationary
rate of monetary growth.
In seeking to meet our objective, your continued support
will be helpful and appreciated.
Sincerely,
S/Paul A. VolClig
3
PARREN J. MITCHELL. MD.. CHAIRMAN
STEXIN L. NEAL. N C.
NORMAN E. D'AMOURS. N.H.
•••
•
DOUG BARNARD r.A
JIM MATTOX. 11. •
JOHN J. CAVANAUGH. NELIR.
Assigned to A4r. Axilrod
•
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 5, 1979
The Honorable Paul Volcker
Chairman, Board of Governors of the
Federal Reserve System
Federal Reserve Building
Washington, D.C. 20551
Dear Mr. Volcker:
We appreciate having received courtesy copies of the letter you
sent on August 16, 1979 to the Honorable Henry S. Reuss, Chairman of
the House Banking COmittee. It is a pleasure and reassurance to know,
at the outset of your tenure at the Board of Governors, that you take
the monetary policy report of this Committee seriously, and that you
approach the report process as a constructive dialogue.
In the spirit of that dialogue, we want to point out to you that
at least one major recomendation in the Committee's monetary report
still has not been dealt with by the Federal Reserve, even in your
letter. That recommendation is that the Federal Reserve should set
goals, so that we can see clearly the path that will be
followed in attaining the overall economic goals of the HumphreyHawkins Act.
IL
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Federal Reserve Bank of St. Louis
Specifically, the last paragraph of the Committee's report of
July 27, 1979, said the following:
"Your committee agrees with the Federal Reserve that its
previously established growth ranges for the monetary aggregates
for 1979 are still appropriate. We are, however, disappointed
that the Federal Reserve has failed to set longer-term targets
for progressive deceleration in monetary growth, such as we
recommended in our report of March 12, 1979. Because, as your
committee stated in that earlier report, achievement of the
interim 1983 goals of the Humphrey-Hawkins Act (4 percent unemployment and 3 percent inflation) would be promoted by steady
deceleration in the average annual rate of monetary expansion
over the next 5 years, we renew our recommendation for the establishment of the long-tem targets we specified in the report
If March 12, 1979, as follows:
Hon. Paul Volcker
September 5, 1979
Recommended percent growth 4th quarter to 4th quarter M1 (adjusted)
1978-83
Percent
1978
7.6
1979
6.0
1980
5.0
1981
4.0
1982
3.0
1983
3.0
We note that the Federal Reserve's "tentative" ranges for 1980
growth in MI (adjusted for ATS accounts) would "permit" attainment of
our recammended rate of growth for that year, but it is disquieting
that the Federal Reserve has set its range for M1 (adjusted) such
that the mid-point is well above our recommendation. We would be
much happier if the Open Market Committee would set its short-term
targets with an explicit connection to a longer-term target path
which pramises achieve-nent of the Humphrey-Hawkins goals. If you
and your colleagues believe that the Committee's recommended 19791983 monetary growth path is wrong, certainly it should be explained
why you do and an alternative proposed.
Without an explicit longer-term monetary yLowth target path, and
an explicit and defensible connection of the shorter-term targets to
that path, we find it difficult to accept the Federal Reserve's position that it is, in its short-term operations, advancing toward the
achievement of the 4% unemployment and 3% inflation goals for 1983
specified by the Humphrey-Hawkins Act. We trust that the Board will
not again, in its next regular report, pass over this subject in
silence. More importantly, we hope that the Federal Reserve will be
able to report to us early in 1980 that it has conducted monetary
policy in a way that shows clear progress in attaining the goals of
Humphrey-Hawkins, whatever the short-term temptations may be to focus
on illusory short run interest rate targets.
Sincerely,
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
'rtober 18, 1979
Ihe honorable Elwood 14 liud" Hillis
ilsoOs of Representatives
Vaddmiton, D.C.
20515
Sow W. Hillis:
Think Feu for your letter of October 16 which contains the
elMetructive eeneetiom that I consider meeting regularly with House
mmilhers in a closed door situation to discuss surrent economic issues
Ma policies.
I do welcome the opportunity to soot informally with House
UMObers to discuss the eeemegy and in recast weeks have met with the
95th Caucus and the Sallaidlovisr and Marchiel Society.
I would be happy to meet with any group you wish to put
together.
Sincerely,
KAG:pjt
bcc:
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Mrs. Mallardi (2)
WAOODH.'13UD"HILLIS
WASHINGTON orrice!
5TH DISTRICT. INDIANA
2429 RAYBURN BUILDING
TcuEPHowl 202-225-5037
COMM TTEES:
HOUSE COMMITTEE ON
VETERANS' AFFAIRS
HOUSE ARMED SERVICES
COMMITTEE
Congre55 of die Einiteb
KOKOMO OFFICZI
518 NORTH MAIN STREET
tate5
TEL.41.14oNc,457-4411
ji)oti5e of 1tprefSentatibt5
ANDERSON OFFICE:
26 WEST 7m STREET
CHAIRMAN:
REPUBLICAN TASK FORCE
ON ENERGY AND ENVIRONMENT
TELEPHONE: 6/2-8023
Ulacsbingtort, n.C. 20515
MARION OFFICE,
October 16, 1979
220 MARION P.O. BUILDING
TELEPHONIC: 662-7227
--%
The Honorable Paul A. Volcker
Chairman
Board of Governors of the
Federal Reserve System
Twentieth Street and Constitution, N.W.
Washington, D.C. 20551
Dear Chairman Volcker:
More than any other single issue, inflation touches the
lives of every American. I am constantly asked by constituents to comment on the economy. Many times my constituents
are looking for reassurance that a major recession is not
forthcoming and that inflation will soon subside. On other
occasions, people just want to know why the economy is in
its present state.
Like all elected officials, I consider it a major part of my
job to help educate my constituents so that they may better
understand issues. However, since I do not serve on a
Congressional committee which directly ovei-sees or has
responsibility for economic policies, it is difficult to
understand all the complexities involved with economic
matters.
As the Chairman of the Federal Reserve, you are in a unique
position to assist in the tutelage of Members of Congress
such as myself. Unfortunately, there is seldom an opportunity for you to discuss candidly the policies of the
Federal Reserve with most Members. Therefore, I would like
to make a suggestion that I believe would prove beneficial
to all concerned.
If you or your designate would come to Capitol Hill on a
regular basis to meet with Members only in a closed door
situation to discuss current economic issues and policies,
believe you, the Members and their constituents, would all
profit. Similar meetings are often held by the State
Department for the purpose of discussing international
issues. I have found these meetings to be of value. While
I realize that your schedule is already full, I am convinced
that holding such meetings would be time well spent.
Since
ly
Elwood H. "Bud" Hillis
Member of Congress
H:s:v
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
October los 1979
The donors/4e Alen Crtestoa
United Sums* Solute
7;
, sehiastons v.C. 205i0
)1.!ir Al -et
Ulm* yes for your reosat Letter recommending M. limey
Spittoon As a member oft the loordse Conemeer Advisory Council.
thtlt
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Spittoons* coalificstione vitt
swede, full oonniderstion by the loord when it amber tbs 10011 eppoint.0
sill be be tee*
IMMO to the aismcil within the soot eesesel veabe*
Wilk pea ubee Ohs seleetioes awe mods.
Saterest ia
oppeesiesse receiving your resonmendatiom sled peer
essatume Sellideory
Shaver•Lys.
SZ Paul 6,1
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ALAN CRANSTON
CAL I FOR N IA
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WASHINGTON. D.C. 20510
October 5, 1979
Honorable Paul Volker
Federal Reserve System
Board of Governors
Washington, D.C. 20551
Dear Paul,
It's a pleasure to recommend a friend and fellow Californian,
Nancy Spillman, to serve on the Federal Reserve Board's
Consumer Advisory Council.
Nancy's background in consumer economics needs little
introduction -- she is among the better-known and respected
teachers, writers and lecturers in the field. Active in
a number of consumer-oriented groups, she has given
tremendous dedication and energy to the cause of educating
the American public on consumer affairs.
In my opinion, few professionals in consumerism and economics
have offered as much of themselves in the effort.
I believe Nancy Spillman could make a significant
contribution to the work of the Consumer Advisory Council,
and urge you give her qualifications your most serious
consideration and review. Enclosed are additional background materials pertinent in this regard.
Best wishes,
Enclosures
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Federal Reserve Bank of St. Louis
/Wpm
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The item(s) identified below have been removed in accordance with FRASER's policy on handling
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Citation Information
Document Type: Magazine article
Citations:
Number of Pages Removed: 7
Spillman, Nancy Z. "Bright Ideas for Consumer Educators." Previews, September 1979.
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
•
August 13, 1979 •
• Ms. Anne Geam
▪ Assistant Diir.ec,Lo'
VLvLion so Consw.ieft. A66ciLts
Bomei o6 Goveitnoits cy6 the Fedvt.aZ
Resutve
Wa.sh.ington, D.C. 20551
Vean M4. Ge.vLy:
Ms. Nancy Spi2Lr.an, Editot o ic ow%
Consul:1yr. Ethicati_on Fvuirn has ind
icated to me
...that she has been no mi.4tat2,1 .to
s env e. On the Feden.a.. Res
eiL
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Boaitri's Consurne,t
-Advizo-ty COLIACLZ. I 4upo-lt -this
nominat-Zon utithout ir.e4e,tvation.
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National Oleration of
Independent Business
•
August 15, 1979
Ms. Anne Geary, Assistant Director
Division of Consumer Affairs
Board of Governors of the Federal Reserve System
Washingtol, D.C. 20551
Dear Ms. Geary:
On behalf of the National Federatinn of Independent
Business, I wish to support Arthur H. Bronson's nomination of Miss Nancy Z. Spillman for a position on
the Federal Reserve Board's Consumer Advisory Council.
She has worked closely with NFIB's Education Department
this year and we are impressed with her overwhelming
dedication and varied experience in the fields of
economics and consumerism.
Miss Spillman's numerous achievements include serving
as the editor of the national newsletter CONSUMER EDUCATION
FORUM, the author of a monthly article of consumer tips for
the BRAILLE MIRROR, a member of the California State Attorney General's Subcommittee on Consumer Education and a
member of the Los Angeles Consumer Credit Counselors. These
responsibilities and additional experiences as a speaker,
author and educator about consumer affairs, convince me
that Nancy Spillman would undoubtedly make a significant
contribution to the Federal Reserve Board's Consumer Advisory
Council.
rIcerely ,
....••••••.•••"'
Wilson S. Johnson
President
WSJj_b a b
Home Office. 150 West 20th Avenue, San Mateo. cahfornia 94403 Te!ephone (415) 341- 7441 / Legist311ve Office. Washsngton. 0 C
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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11950 SAN VICENTE BOULEVARD. will 213 • LOS ANGELES, CA. 90049 •(213) 820-2478
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EXECIMYE COAACTIEE
C A MANN
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August 10, 1379
Ms. Anne Geary
Assistant Director
•
Division of Consumer Affairs
Board of Governors of the Federal Reserve System
Washington, D.C. 20551
Dear Ms. Geary:
Nancy Spillman, Director of the Center for Economic Education
and Associate Professor of Economics, informed us that she is
interested in serving on the Federal Reserve Board's Consumer
Advisory Council.
Miss Spillman has been an advocate of the Consumer Credit .
Industry for years and has been instrumental in the use and
distribution of credit educational material from the National
Consumer Finance Association. We have read many of her articles
and think they are outstanding.
We are honored in recommending her for the Council.
Sincerely,
C
.
C. A. Mann\
Executive Vice President
•
•
:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
MEMBER NATIONAL CONSUMER FINANCE ASSOCIATION
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
October 18, 1979
Dear Mac:
Thanks for your note. Actually I think
I better stop talking for a while -- but I do
hope what we are doing and what we are saying
will help to put a dent in inflationary
expectation.
Sincerely,
The Honorable Charles McC. Mathias, Jr.
00.4.4400
"
,
United States Senate
Washington, D. C. 20510
EGC:slw
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
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CIBLAIRLIKI
Dic C. MAsTELIAN 9
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BILLGRADISON
WASHINGTON OFFICE:
1ST DISTRICT, OHIO
1519 LONGWORTH HOUSE OFFICE BUILDING
RON ROBERTS
ADMINISTRATIVE ASSISTANT
TELEPtioNE:(202)225-3164
WASHINGTON, D.C.
Congre55 of tbe tiniteb
tate5
20515
DISTRICT OFFICE:
FEDERAL OFFICE BUILDING
550 MAIN STREET
31ou55e of RepreOntatibei4
CINCINNATI, OHIO
45202
TELEPHONE:(513)684-2456
eillai5bington, /le. 20515
October 17, 1979
The Honorable Paul A. Volcker
cc Chairman
--Federal Reserve Board
20th and C Streets, N.W.
20551
cDWashington, D.C.
cn
cn
--Dear Paul:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Just a note to thank you and Ken for taking time
from your busy schedules to visit with our SOS and C & M
breakfast group this morning.
It was one of the best meetings we've had, and I
hope you enjoyed the give-and-take as much as we did.
Best wishes.
Sincerely,
Bill Gradison
Representative in Congress
First District of Ohio
BG/t
THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
October-E. 13, 1179
lhe lisereable leery d# Reuss
etsfvems
mare se $eehimg, name
-,n41 Urbas Atfairs
4.111ect of aspresest*tives
,Aasitiliton„ i).C.
•Ar Chaireee
20515
161/34411
I em net eel, sympathetic vith the liege yes apowattair4 in your
letter of Ostsber 12 es the esibjest of lamed reserve eeeeeeciag, but
have *eked that plamnigg go forward oe the setter. Cegmerrent reserve
reeuirements wo1.1i be gore evasisteet with idhe systems* mew approash to
meestary polity eporatiase that plasma is weight ea reoervae. At the
signs cime, I ara sot canviemed that the twisting two esek lag barge
e*
deposits sod reenired reserves is an important complication in $chieving
reserve amid vegetal', targets over a period of thr4s to six months or so.
is all the cirommetamsee„ the lewd hee preferred to mointmin
Legmed reserve coatawigas at least for Who immediate future La the hope
matiorship praise see sees be resolved. Moro Ls little doobt that
emelt a Mew will he resisted by esity emelt- sad vedtoopsissd belle ler,
twee their otaelpeiet, Lesitimeta reeeeme,
In any vegeta me oral esmploto oor plow's' sad scoitline es the'
oe will be pusepsred to ass promptly should the $amod feel thAt peesese
apeiretbig preeediorsa raced a awe amenlasa
t meet them we
•
111.411.0
!CF:SHA:PA,:pjt (1PV-4) 4 #V-76)
bec:
hr. Ettin
Mt. Azilrod
Mrs. Millard! (2)
HENRY S. REUSS, WIS.. CHAIRMAN
THOMAS L. ASHLEY. OHIO
WILLIAM S. MOORHEAD, PA.
FERNAND J. ST GERMAIN, R.I.
HENRY B. GONZALEZ. TEX.
JOSEPH G. MINISH. N.J.
FRANK ANNUNZIO, ILL.
JAMES M. HANLEY. N.Y.
PARREN .1. MITCHELL. MD.
WALTER E. FAUNTROY, D.C.
STEPHEN L. NEAL. N C.
JERRY M. PATTERSON. CALIF.
JAMES J. BLANCHARD, MICH.
U.S. HOUSE OF REPRESENTATIVES
COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
NINETY-SIXTH CONGRESS
2129 RAYBURN HOUSE
OFFICE
JIM MATTOX, TEX.
BRUCE F. VENT°. MINN.
DOUG BARNARD. GA.
WES WATKINS, OKLA.
ROBERT GARCIA, N.Y.
MIKE LOWRY. WASH.
THOMAS B. EVANS. JR., DEL.
S. WILLIAM GREEN, N.Y.
RON PAUL, TEX.
ED BETHUNE, ARK.
NORMAN D. SHUMWAY, CALIF.
CARROLL A. CAMPBELL, JR., S.C.
DON RITTER. PA.
BUILDING
CARROLL HUBBARD. JR., KY.
JOHN J. LAFALCE, N.Y.
GLADYS NOON SPELLMAN, MD.
LES AuCOIN. OREG.
DAVID W. EVANS, IND.
NORMAN E. OAMOURS, N.H.
STANLEY N. LUNDINE. N.Y.
JOHN J. CAVANAUGH. NEBR.
MARY ROSE (DAKAR. OHIO
J. WILLIAM STANTON. OHIO
CHALMERS P. WYLIE. OHIO
STEWART B. McKINNEY. CONN.
GEORGE HANSEN, IDAHO
HENRY J. HYDE, ILL.
RICHARD KELLY, FLA.
JIM LEACH, IOWA
WASHINGTON, D.C. 20515
JON HINSON, MISS.
223-4247
October 12, 1979 A04
The Honorable Paul A. Volcker
Chairman
Board of Governors
Federal Reserve System
Washington, D. C.
Dear Chairman Volcker:
I believe it is essential for the operation of monetary policy
that the Federal Reserve adopt procedures which would facilitate your
new policy of directly controlling the monetary aggregates. Therefore,I recommend a return to the system of synchronous reserve requirements which the Federal Reserve used prior to September 1968.
I have suggested this change over the last three years, in the
enclosed letters dated May 10, 1977, July 12, 1977, July 21, 1977,
November 7, 1977, April 18, 1978, June 21, 1978, August 10, 1978 and
September 26, 1979. In addition I asked a distinguished panel of experts to give their views on lagged reserve requirements. As the enclosed material indicates they unanimously urged an end to lagged reserve requirements in order to facilitate monetary policy. The list
of economists noted in this correspondence who oppose the use of
lagged reserve requirements include present and former members of the
Federal Reserve's own staff.
Last year in testimony before this Committee on July 28, Chairman Miller said "in terms of operation it would be preferable to be
on a current basis". However he added the caveat that such a desirable change must wait the alleviation of the Federal Reserve's membership problems. Because lagged reserve requirements result in higher
than necessary interest rates, it would seem that our priorits would
warrant an immediate return to a system of synchronous reserve requirements.
Sincerely,
Henry S. Reuss
Chairman
rnr.lnr71.11--n-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
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May 10, 1977
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•••••
%Honorable Arthur F. Burns
-Chairman
• Board. of Governors
• Federal Reserve System
Washington, D.C. 20551.
-- •
•
pear.Chairman Burns:
•
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I am concerned about the recent jump in the feL2era1 funds
rate by 55 basis points from the week ending April 6 to the week:ending May 4. I would like to know why thc
eral funds
interest rate target. has apparently been raised to something
like 54 percent. •Is this part of an effort to offset the
bubble in the money supply (M1) which grew by 22.1 percent
.
In:April over March.
•
.•
•
"
, '-•
„
•
not be better. off with synchronous r(!:mrve re
• quirements so that when the Federal Reserve choo2c3 to offset'
'
previous increases in the money supply,' required reserves. would -not be stuck at .a previously determined high level?-Would'not a return to synchronous reserve requirements allow. .
the Federal Reserve to .follow a steadier course for its
federal funds interest ratetarget?
';
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
k
••
-I annrs-•ciate.anylight you can shed on.those
•
•
Sincerely,••
.
•
-•
Henry S. Reuss Chairman
:••• it!
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CHAIRMAN OF THE BOARD OF GOVERNORS
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FEDERAL RESERVE SYSTEM
WASHINGTON. D. C. 20551
•
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June 24, 1977 .
7
FIEN
RyS.
The Honorable Henry S. Reuss
Chairman
Committee on Banking, Finance
and Urban Affairs
House of Representatives
Washington, D. C. 20515
114.a
•
RECEIVED
JUN 2 7 1977
Dear Mr. Chairman:
nxui CiiR2E!ICY & 112S12 CC:1'41IHE
I am pleased to respond to your letter of May 10 and to your
related statement in the Congressional Record of May 26.
In your letter you expressed concern about the increase in the
Federal funds rate through the week ending May 4 and asked why the funds
rate target had apparently been raised. Your surmise -- that the rise
was related to the April upsurge in M-1 -- is essentially correct.
You also asked in your letter whether it was not the case that
a return to synchronous reserve accounting would allow the Federal
Reserve to follow a steadier course for its funds rate target. In your
Congressional Record statement you expressed the view that much of the
sharp April increase in M-1 could have been avoided if the Federal
Reserve had been using the pre-1963 technique of calculating requ4_red
reserves synchronously instead of on a lagged basis. You added that
"some additional percentage points of unnecessary M.-i growth could have
been avoided if the Fed had simply been a little more conservative in
the reserves it was creating through open market policy; only a marginal
increase in the Federal funds rate would have been necessary to achieve
this."
These statements seem to suggest that a return to synchronous
reserve accounting would greatly reduce the short-run variability of
both the money supply and the Federal funds rate. I do not believe this
is so. The considerations involved are technical and rather complex,
and I have asked my staff to set them down. Their memorandum, which
also discusses the developments of April and early May, is enclosed.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•••
•
Mb
•
•••
The Honorable Henry S. Reuss
Page two
I appreciate the opportunity to provide this information on
the important .questions you have raised. Please let me know if I can
give you further information regarding them.
Sincerely yours,
Arthur F. Burns
Enclosure
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•••
TO:
Chairman Burns
FROM:
Staff
DATE:
SUBJECT:
June 24, 1977
-- •
Questions raised by
Chairman Reuss
In a letter to you dated May 10, 1977, and in a statement.
•
in the Congressional Record for. May 26, Chairman Reuss comments on .
fluctuations in the Federal funds rate and M-1 during April and early
May and suggests that substantial reductions in the short-run variability of both the money supply and the Federal funds rate could be
achieved by a return to synchronous reserve accounting from the present
system of lagged reserve accounting.
the question of the implication
This memorandum first addresses
of lagged reserve accounting for short-
run variability in the money supply and the funds rate.
It then briefly
reviews the developments of April and early May.
Implications of lagged accounting,
Under the present system of lagged reserve accounting, reserve
requirements in the current week are based on the deposits outstanding
two weeks earlier.
Accordingly, open market operations in the current
week cannot affect required reserves in the current week.
However,
open market operations can affect the volume of nonborrowed reserves
in the current week.
By increasing nonborrowed reserves through
open market purchases, the Manager of the System Account can increase
the availability of free reserves to banks, which in turn would expand
the supply of Federal funds and tend to lower the rate at which
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
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•
••••••-
._
•.
•
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••
-2-
Federal funds are traded.
Conversely, open market sales would tend to
reduce both nonborrowed and free reserves, decrease the supply of Federal
funds, and increase the funds rate.
Hence, the Manager can limit
variations in the funds rate reasonably closely by undertaking open
market operations designed to counter developments that would others
wise influence it.
Under current operating procedures, the FOMC's instructions
to the Manager typically specify ranges for 2-month growth rates for M-1
and M-2--ranges that the Committee believes to be consistent with its
longer-run monetary growth objectives and ultimately its more fundamental economic goals--and a constraint on inter-meeting changes in
the Federal funds rate.
The Committee's directive usually calls (1)
for maintaining the funds rate near some particular level so long as
the 2-month growth rates for the aggregates appear to be near those
expected, and (2) for adjusting the funds rate within the specified
range if the 2-month growth raLes appear to be deviaLii.g significantly
from expectations.
In carrying out the directive, the Manager obviously
must pay close attention to the implications of incoming data on the
aggregates for likely monetary growth rates over the 2-month period.
One objective of this procedure is to insulate the monetary aggregates to the extent feasible from the effects of supply-related
disturbances.
These include movements.in noncontrolled factors affect-
ing nonborrowed reserves--such as float or Treasury deposits at the
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
-.•
•••••••.••••
The Honorable Henry S. Reuss--page 2.
January 27, 1978
This cost however is an important one because it means the Fed
has an increased tendency to accommodate bank led credit expansion
under LRA. A deposit created by a bank loan two weeks ago becomes
validated Ni-money if the Fed accommodates its creation by maintaining
stable money market rates in the face of increased loan demand. If
this is an effect of LRA, we would expect increased variability in the
monetary aggregates which brings us to conclusion (3) in the report.
According to (3) the variability of Ni and M2 growth rates "was not
affected by the introduction of lagged reserve accounting." Rather than
disputing the analysis of the numbers presented in the staff report we
offer, as prima facie evidence against this assertion, the following quote
from the November 1971 Federal Reserve Bulletin, p. 880:
Even when the revised data are examined, there is
compelling evidence to suggest a marked increase
in the variance of money supply and reserve
innovations which coincided with the adoption of
the amendment to Regulation D. (See Feige & McGrce
J.M.C.B. November 1977, p. 548).
With respect to the issue of the effects of LRA on the variability
of the Federal funds rate, our own research revealed a standard deviation
of weekly fund rate changes of .34 percentage points for the period 19611967 compared to .33 for the 1969-1975 period. We concluded that the
effects of LRA on funds rate volativity has not been substantial when
weekly changes are considered on a relative basis. While mean absolute
changes have increased, variations around the mean are about the same for
the pre- and post- LRA periods.
The Board's staff final three conclusions, (4) - (6), bear on the
compatibility of LRA with current operating procedures (i.e. setting a
funds rate through open market operations which is believed to be consistent with the desired monetary aggregate growth pattern). The conclusions reached are that 1) given current operating procedures it is a
matter of indifference whether we have contemporaneous or lagged reserve
accounting and 2) if a new operating procedure were adopted where reserves
rather than the funds rate were controlled on a day to day basis, then
lagged reserve accounting would be inferior to contemporaneous requirements
because it would undermine the money-reserve relationship. This latter
assertion is supported by the evidence presented on pp. 20-23 of the
report which shows a deterioration in the money-reserve relationship after
LRA was imposed. This is consistent with our finding in the JMCB article
(Nov. 1977) which found the contemporaneous money-reserve relation disappears
after the amendments to Regulation D were instituted.
Thus conclusion (6) minimizes the possible benefits to switching to
a reserve operating procedure and contemporaneous reserve requirements.
In addition a primary argument presented against such a policy is the increase
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
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Reserve Banks--and- changes in the amount of free reserves that banks
•
wish to hold. If open market operations have the effect of stabilizing the Federal funds rate, they will at the same time substantially
moderate--although not necessarily eliminate--the effects of supplyrelated disturbances on the monetary aggregates.
A second objective is to respond to sustained demand-related
disturbances in a manner that will set in motion corrective forces-i.e., forces tending to move growth of the aggregates back toward their
expected path.
-•
When, for example, incoming data for the aggregates sug-
gest that the 2-month growth rates are likely to be unduly high relative
to the Committee's expectations, the Manager will attempt to induce
•
whatever increase in the funds rate is consistent with the Committee's
instructions by an appropriate reduction in the rate of growth of nonborrowed reserves.
Other things equal, the increase in the cosc.. of
Federal funds would give banks an incentive to rely more on other
sources of funds, such as sales of Treasury bills, and to become more
conservative in their lending policies.
actions by banks
As a consequence of such
bank customers and other participants in financial
markets are given incentives to economize more on their holdings of
money.. Such reactions would tend to slow the growth in the aggregates.
Given these procedures and objectives, the choice between
lagged and synchronous reserve accounting is of relatively little
significance.
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Federal Reserve Bank of St. Louis
•
Whichever accounting system Is used, the incoming data
••••••
▪
•
.. •
•
S .
-4-
on the monetary aggregates--on which operating disclissions are based-would be available on the same timing; the Manager could attain his
objectives for the funds rate with about the same precision and speed
;
•
and the portfolio reactions of banks and others to a change in the
funds
rate would be much the same.
Accordingly, under current procedures a
return to synchronous accounting would not reduce the short-run variabilit
y
of either the monetary aggregates or the funds rate.
With respect to the
former, the average variability of monthly M-1 growth around trend was
about the same in the six years after lagged reserve accounting was intro
duced as in the preceding six years.
The average variability has been
somewhat higher in the two most recent years, but this could hardly be
attributed to lagged accounting.
Developments in April and early May
Under current procedures, open market operations undertaken to
damp demand-related fluctuations in the rates of growth of the monet
ary .
aggregates produce fluctuations in the Federal funds rate.
More generally,
efforts to reduce the variability of either monetary growth rates or of
the Federal funds rate can be expected to produce increased variability
in the other.
As indicated above, in his day-to-day operations the Manager
takes account of fluctuations in the incoming data on the aggre
gates.
Many of these fluctuations are transitory--they are "noise" rather than
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Federal Reserve Bank of St. Louis
•
-5-
indications of a systematic departure from desired monetary growth rates.
It is usually--although not invariably--difficult to distinguish between
noise and systematic tendencies in the data.
are costs in Mistaking one for the other.
At the same time, there
To react to what eventually
proves to have been only noise is to produce unnecessary, and therefore
undesirable, fluctuations in money market rates.
To delay reacting to
what eventually proves to have been the beginning of a systematic tendency
is to necessitate an ultimate reaction that is larger and more abrupt than
otherwise would have been necessary.
In order to reduce the risks of mistakes in either direction,
current operating procedures call for the Manager to follow a middle
course in carrying out the Committee's instructions.
He scales any
changes in objectives for the funds rate to the apparent strength of
the evidence that some systematic departure from desired monetary growth
rates is under way, and he stands ready to reverse course if necessary;
Among the factors he takes into account are the magnitude of the movements in the monetary data, their duration, and the indications, if any,
that they might partly or wholly reflect special factors of a nonpersistent kind.
The developments of April and early May are a case in point.
Data that became available immediately after the April FOMC meeting suggested that the money supply was growing rapidly in April.
However,
because there was some reason to think this pattern would not persist,
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Federal Reserve Bank of St. Louis
•
-6-
operating objectives wete not modified significantly.
By late April,
evidence had begun to accumulate that the money supply was growing
strongly relative to the Committee's expectations.
Accordingly, the
.Manager raised the objective for the funds rate gradually, to the
upper limit of the range the Committee had specified.
On May 6 the
Commlttee members voted to increase the upper limit somewhat, on the
understanding that the additional leeway would be used only if new
data
becoming available before the May meeting suggested that the aggregate
s
were strengthening significantly further.
Because such additional
strength did not develop in that period, the objective was not raised
-further.
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Federal Reserve Bank of St. Louis
J. WILLIAM STANTON. OHIO
GkRRY BROWN. MICH.
CHALMERS P. veruE. OHIO
JOHN H. ROU su.
-Lor. CALIF.
HENRY S. REUSS. VHS.. CHAIRMAN
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JAWS M. HANLEY. N Y.
PAPmEN J. MTCHILL MO.
WALTER F. 1AUNTROY. D.C.
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JERRY M. PATTTRSON. CALIF.
JAM. .1. SLANCH AHD. MICH.
CAio ROLL HUBRA40..1/... KY.
JOHN .1. LAIALCI7 N.Y.
GLADYS NOON SPEU_MAN. MO.
COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS
NINETY-FIFTH CoNCH-vESS
2129 RAYBURN HOUSE OFFICE E3UILDING
WASHINGTON, D.C. 20515
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PAUL E. TSoNGAs, MASS.
BUTLER DFRRICK. S.C.
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HENRY J. HYDE. ILL.
RCHARO KELLY. FLA.
CHARLES C. GRA‘SJ KY. IOWA
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JIM LEACH. IOWA
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HAROLD C. HoLLENEICX.
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July 12, 1977
MARK W.IIANNAFORD. C.AUF.
DAVID W. EVANS. IND.
CLIFFORD ALLEN. TE.- N
NORMAN
DIA OU RS. N.H.
STANLEY N. LUNOiN.5. N.Y.
HERMAN ItAtill.LO. N.Y.
EOWARD W. PAT Et soN. N.Y.
JOHN J. CAVANAUGH. NEBR.
MARY ROSE °AKAR. OHIO
JIM MATTOX. 1EX.
DRUCE F. VENT°. MINN.
DOUG BARNARD. GA.
WES WATKINS. OKLA.
Dr. Arthur F. Burns
Chairman
Board of Governors
Federal Reserve System
Washington, D.C. 20551
Dear Dr. Burns:
Thank you for your reply and accompanying staff report of
June 21, to my letter of May 10 questioning the desirability
of lagged vs. synchronous reserve requirements. I do not believe
that the staff report supports your position in favor of lagged
reserve requirements or adequately addresses the issues.
Stated simply thequestion is whether a return to synchronous
'would make it easier for the Fed to manage
reserve accounting
the money supply and interest rates so that we could, to a large
extent, avoid wild short-run fluctuations in the money supply
and interest rates such as occurred during April and May of this
year. I am sure you would agtee that the roller coaster behavior of the money supply during April and May was not a desirable episode for instilling confidence in the monetary management
of our economy nor was the sudden rise in the interest rates
during May anything but a signal to reduce spending and investment.
If the use of lagged reserve accounting helped to accentuate
this episode more than would have been necessary with synchronous
requirements, then it is high time to switch to synchronous accounting.
Your staff report bypasses the extensive literature and
empirical tests produced inside and outside the Federal Reserve
by experts who say again and again that lagged reserve accounting interferes with proper monetary management. Here are some
examples of views of reputable experts in this field which are
not addressed in your staff report.
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Federal Reserve Bank of St. Louis
;-;
Page Two
George G. Kaufman who is now John P. Rogers, Professor of
Banking and Finance at the University of Oregon and author of
the widely used book Money, the Financial System and Economic
Activity, formerly the Assistant Vie Presid-ent and Economist
at the Chicago Federal Reserve Bank, circulated a memorandum
on June 13, 1966,within the Federal Reserve System on the
proposed change to lagged reserve requirements (Memorandum
Federal Reserve Bank of Chicago, June 13, 1966, Subject: Report
of Ad Hoc Subcommittee on Reserve Proposals) in which he
declared "the lagged reserve scheme would result in a serious
deterioration of monetary control by the Federal Reserve". In
his letter to me or June 9, 1977, Professor Kaufman says "the
evidence to date has not caused me to change my analysis or
conclusions".
Albert E. Burger, Assistant Vice President of the Federal
Reserve Bank of St. Louis, has this to say about lagged reserve
requirements in his 1971 book, The Money Supply Process: "In the
sample period following the introduction of lagged—reserve
requirements there was considerably greater variability in the
excess reserve ratio, which introduced an additional element of
variability into the money supply process" (page 54). In
addition, Burger states "the evidence indicates that after
lagging, the Federal Reserve has been less able to accurately
determine the extent to which it should intervene in the money
market to prevent short-term pressures" (page 56).
Warren L. Coats, Jr., an economist at the International
Monetary Fund, published an article "Regulation D and the Vault
Cash Gain" in the June, 1973, issue of the Journal of Finance
(pages 601-607). Dr. Coats alleges from is study at the
Federal Reserve Bank of Chicago that under the lagged reserve
rules used by the Fed, banks are allowed to shift reserves
between vault cash and deposits at the Fed in such a way as "to
weaken the Federal Reserve's control over reserves, hence over
the money mechanism" (page 601). Coats's doctoral dissertation
at the University of Chicago, "The September, 1968, Changes in
Regulation D and their Implications for Monetary Control"
(June, 1972) presents a case against lagged reserve requirements.
R. Alton Gilbert, an economist at the Federal Reserve Bank
of St. Louis, published an article in the September-October,
1973, Financial Analyst Journal ("The Effects of Lagged Reserve
Requirements on the Reserve Adjustment Pressure on Banks") in
which he states: "The example of bank reserve management developed
in this article indicates that lagged reserve requirements tend
to increase variability of reserve adjustment pressure on the
individual bank -- the opposite of the intended result." Gilbert
goes on to say that "evidence from studies on monetary control
under lagged reserve requirements also indicates that the
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Federal Reserve Bank of St. Louis
a•••^m.
•
Page Three
variability of aggregate reserve adjustment pressure has been
larger under lagged reserve requirements than under coincident
reserve requirements. Thus, there is reason to believe that
the regime of lagged reserve requirements has failed in both
its objectives "to make management of reserves easier for
commercial banks" and make monetary management by the Fed more
efficient (page 42). Gilbert cites other studies which criticize lagged reserve requirements including one by Dr. Robert D.
Laurent, an economist at the Federal Reserve Bank of Chicago,
whose unpublished paper is called "Lagged Reserve Requirements
-- Are They Lagged in the Wrong Direction?"
William Poole, Professor of Economics at BrOwn University
and formerly senior economist at the Board of Governors and
Assistant Vice President at the Boston Federal Reserve Bank,
and Charles Lieberman, Assistant Professor of Economics at the
University of Maryland, have published in the Brookings Papers
on Economic Activity an article attacking lagged reserve re(rraprovfng Monetary Control", 1972, pages 293-317).
quirementETThey conclude, "In any event, the lagged requirements system
does not make reserve management any easier for the banks and
does tend to intensify money market instability" (page 312).
Nowhere am I able to find an economist who has investigated
reserve requirements who would say that control of the aggregates
is easier under lagged than synchronous reserve requirements.
The following statement in your staff study in no way contradicts
this position. "If open market operations have the effect of
stabilizing the Federal funds rate, they will at the same time
substantially moderate -- although not necessarily eliminate
the effects of supply related distrubances on the monetary
aggregates." The fact is that under lagged reserve requirements a reduction in the monetary aggregates requires that the
Federal Reserve allow the Federal funds rate to rise so that
the banks can contract their .loans and investments over a
longer and more delayed period than is necessary under synchronous
reserve requirements. The big "if" in the beginning of your
staff's statement makes the sentence true,but not responsive
to the widely held belief that supply related disturbances in
the monetary aggregates are more difficult to control and require
greater variability in the Federal funds rate than under a system
of synchronous reserve requirements.
Even for keeping the Federal funds rate on target without
reference to the target ranges for the aggregates you use,
lagged reserve requirements cause the Federal funds rate to
vary more than under synchronous reserve requirements. This is
because the demand for bank reserves in the current week is less
responsive to interest rates so that changes in the supply of
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Federal Reserve Bank of St. Louis
- • .
11. 1
4
111
Page Four
reserves cause a bigger movement in interest rates (the supply
curve shifts along a more inelastic demand curve). Professor
William Poole presents evidence on this point in his article
"Commercial Bank Reserve Management in a Stochastic Model:
Implications for Monetary Policy", Journal of Finance (December,
1968, especially his table on pages 88i89).
The following alleged reason for the Federal Reserve's
position on lagged reserve requirements was suggested by some
of the experts. Although there is little question that lagged
reserve requirements interfere with the conduct of monetary
policy, the Fed thinks a change to synchronous reserve requirements may have some slight negative effect on membership since
some banks may -- mistakenly -- view the lagged system as
desirable. I do not think that the country's monetary policy
should be jeopardized on such a pretext if, in fact, this is
a reason for the Fed's position.
I think the evidence is overwhelming. Lagged reserve requirements do hinder monetary management and the Fed should
immediately return to the system of synchronous reserve requirements used before September, 1968.
I think that the effect of reserve requirements on monetary
control is sufficiently important to warrant an answer which
directly addresses the literature cited above and the issues I
have raised. Could you supply me with such a response as soon
as possible so that we may study it before our July 26 h<iarings.
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Federal Reserve Bank of St. Louis
Sincerely,
'
1
Henry u Reuss
Chairman
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Federal Reserve Bank of St. Louis
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CHAIRMAN OF THE E1OARD OF GOVERNORS
AIMEliM MO
RAE
FEDERAL RESERVE SYSTEM
WASHINGTON. D. C. 20551
July 20, 1 t../14.71 rr,
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mu 2 1 1977
,
!SLISI:713 COL,':;IITTEE
The Honorable Henry S. Reuss, Chairman
Committee on Banking, Finance and Urban Affairs
U. S. House of Representatives
Washington, D. C. 20515
Dear Mr. Chairman:
I am pleased to reply to your letter of July 12 which deals
with the issue of lagged versus synchronous reserve accounting.
Our staff has studied this subject intensively on a number
of occasions in recent years. Their analysis has taken into
account the various issues raised in the scholarly studies which
you cite.
None of the evaluative work done by the Board's staff suggests
that lagged re sere accounting seriously impedes the management of
the monetary aggregates or contributes to disruptive money-market /
conditions.
. „
I have, however, asked our staff to update their earlier
studies and to make a new report to the Board. I shall see that their
evaluation is also madesavailable to you. It will not be possible,
however, to complete that work before this month's oversight
hearings.
With best regards,
Sincerely yours,
Arthur F. Burns
HENRY S. REUSS. %VIS.. CHAIRMAN
THOMAS L. ASHLEY. OHIO
'WILLIAM S. MOORHIAO. PA.
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WALTER E. FAUNTROY. D.C.
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COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS
JAMES J. CLANCHAT/D. MICH.
CARRoLL 14USHARD. JR.. KY.
JOHN J. LAF ALCC. N.Y.
GLADYS NOON
LES AuCOIN. OREG.
NINETY-F-IFTH CONGRESS
2129 RAVI-A./RN HOUSE OFFICE BUILDING
WASHINGTON. D.C. 20515
J. WILLIAM STANTON. OHIO
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JOHN F4. not/SSE LOT. CALIF.
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HENRY J. HYDE. ILLRICHARD KELLY. FLA.
CHARLES E. GRASSLEY. IOWA
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JAMES A. S. LEACH. lOwA
NEWTON I. STEFRS. JR.. MD.
THOMAS D. EVANS. JR.. DELDRUC E F. CAPUTO. KY.
HAROLD C. HOLLENDECK.
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PAUL E. TSONGAS. MASS.
DUTLER DERRICK. S.C.
MARK W. HANNAFORD. CALIF.
DAVID %V. rvANs. IND.
CLIFFORD ALLEN. TENN.
NORMAN E. D'AMOURS. N H.
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July 21, 1977
STANLEY
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N. LUNDINE, N.Y.
HERMAN TIAOILLO. N.Y.
E.D.VARD W. PATTISON. N.Y.
JOHN J. CAVANAUGH. NFEIR.
MARY POSE °AKAR. OHIO
JIM MAT TOX,TEX.
DRUCE F. VFNTO. MINN.
0OUG DAPNARD. C.A.
VvES WATKINS. OKLA.
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Federal Reserve Bank of St. Louis
Dr. Arthur F. Burns
Chairman
Board of Governors
Federal Reserve System
Washington, D. C. 20551
Dear Dr. Burns:
Thank you for responding to my letter of July 12 on
the subject of lagged reserve accounting which I believe
to be important for short-run monetary management.
In your response, you say "None of the evaluative work
done by the Board's staff suggests that lagged reserve accounting seriously impedes the management of the monetary
aggregates or contributes to disruptive money-market co
tions." (My emphasis.)
•
The list of experts I sent you, each of whom stated that
the system of lagged reserves seriously impedes monetary management, contained economists who have been or are now with
the Federal Reserve System, including the eminent staff of
the Board: George Kaufman, formerly Assistant Vice President
and Economist at the Chicago Federal Reserve Bank, William
Poole, formerly Senior Economist of the Board of Governors
anI Assistant Vice President of the Boston Federal Reserve
Bank, Albert E. Burger, Assistant Vice President of the Federal
Reserve Bank of St. Louis, and R. Alton Gilbert, Economist of
the Federal Reserve Bank of St. Louis. I would like to now
add Daniel E. Laufenberg, currently on the staff 5f the Board,
Dr. Arthur F. Burns
July 21, 1977
Page 2
who, I notice, has published a comment in the May 1976 issue
of the Journal of Money, Credit and Banking, which seriously
attacks the short-run policy implications of lagged reserve
requirements. In addition, Nobel Laureate, Milton Friedman's
testimony before the Senate Banking Committee (November 4, 1975)
"The most important single step at the moment in the regulations the Fed could take would be to eliminate its lagged
reserve requirements," should not be ignored.
Accordingly, I would appreciate your making available the
Board's staff studies on lagged reserve accounting, so that we
can have a full background for the position you are taking, and
an opportunity to obtain your views.
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Federal Reserve Bank of St. Louis
Sincerel
Henry S. Reuss
Chairman
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The Honorable Henry S. Reuss
Chairman
Committee on Banking, Finance
.and Urban Affairs
House of Representatives
Washington, D.C.
20515
OCT 11 1977
HENRY S. REUSS,
M.C.
0CT 1 1
BAUNC, raiTSCY
1977
LOUSilif; CONZIff
Dear Henry:
As I indicated in our earlier correspondence on lagged
reserve accounting, I asked the staff to make another study of this
question. A copy of their new study is enclosed.
The Board discussed the matter at length at two recent
meetings. The view of the Board, which is supported by the staff,
is that there.wou1d be no clear advantage in returning to contemporaneous reserve accounting.
a
I realize that you and some others have taken a different
position. It may therefore be useful for you and me, perhaps with
members of our staff, to sit down together and discuss the issues.
Please let me know when such a meeting would be. convenient.
With best regards,
Sincerely yours,
Arthur F. Burns
Enclosure
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November 7, 1977
WES WATKINS.OKLA.
Honorable Arthur Burns
Chairman
Board of Governors
Federal Reserve System
Washington, D. C.
Dear Dr. Burns:
One of the glaring problems confronting the American economy
today, as you know,. is the continuancc. of high interest rates,
even while the money supply has for the last six months run far
ahead of the top of your targets.
Instead of lower interest rates and increased invdstment,
the intended results of a rapid growth in the money supply, the
nation is experiencing a surge of corporate takeovers which does
nothing for jobs or economic growth.
using
rapid
hit a
1976,
Rather than invest in new plant and equipment, businesses are
available cash and credit to buy up other companies at a
clip. Preliminary data show that corporate takeovers will total of nearly 2,200 this, year, a 50 percent increase over
and the largest volume since 1973. .
One factor encouraging takeovers rather than investment is that
stock prices -- depressed by continuing high interest rates -often make it.more attractive for firms to buy out other companies
than to expand their own operations.
It would .be very useful if you could address yourself publicly
as soon as possible Lo what is happening to the money supply, why
the surge of money is not producing the intended result of lower
interest rates, and what the Fed's plans for dealing with the
situaLion are. A clear and complete explanation would go a long way
toward restoring confidence in the economy.
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Federal Reserve Bank of St. Louis
-2—
•
s why the surge in the. money
There appear to bc several reason
six months compared to the.
supply -- 9.2 percent over the past
is not producing lower interest
Fed's target of 4 -= 6.5 percent -rates.
are lending abroad at a
One is that the large U. S. banks
t report weekly to the
fierce pace. The 317 large banks tha
t of total U. S. banking assets,
Fed, banks which control 55 percen
ing the first six months of
increased domestic business loans dur
cent. For the same period,
1977 by an annual rate of only 7 per
loans to foreign business borrowers
sed
rea
inc
es
nch
bra
as
rse
ove
eir
.th
at an annual rate of 15.6 percent.
amount of U. S. bank
In dollars, there was an increase in the
ers, through overseas.
deposits lent to foreign business borrow
-- funds that would otherwise
branches, of approximately $5 billion
S. business.
have been available for lending to U.
nable funds, which was
Thus, the increase in the supply of loa
S., has lowered borrowing
spurred by fast money growth in the U.
U. S. businesses. This
costs for foreign businesses instead of
ut U. S. businesses in woild
simply helps foreign businesses underc
competition.
at home partly because
U. S. banks lend abroad instead of
erve requirements. Not
foreign branches are not subject to res
lend out a greater proporhaving to hold reserves, the banks can
e profit.
tion of their deposits and thus make mor
•
given the public,
The growth in the monetary supply has
international and domestic
especially the participants in the
t our central bank has lost
financial markets, the impression tha
tended to depress stock and
control of the money supply. This has
the U. S. dollar, leading
bond prices as well as the price of
fidence about the future of our
people to hold more cash as their con
re are four aspects of short-run
monetary policy is undermined, ' The
ined the Fed's ability to
monetary management which have underm
of which could be, in large part,
control the money supply, all four
ential that you also fully address
corrected. Therefore, it is ess
the Fed will rectify them.
these problems and publicly state how
These are:
According to experts inside
1. Lagged Reserve Requirements.
t of the money supply is
and outside the Fed, short-run managemen
requirements of the current
made more difficult by pegging reserve
r. Prior to September, 1968,
week to deposits held two weeks earlie
deposits during the current week.
reserve requirements were based on
reserve requirements would make
A return to the system of synchronous
t easier.
current short-run monetary managemen
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•
-3
• 2. Seasonal Adjustments. Seasonally adjusted figures on the
money supply are unreliable because the method of making the
seasonal adjustments distorts the money series by mixing in seasonals
with cyclical periodicities and altering the timing of the series.
Newer statistical teChniques for identifying and adjusting for
seasonal periodicities are available and should be used.
3. Discount Rate. Maintaining a discount rate below the
federal funds rate induces banks to borrow at the Fed's discount
window and re-lend in the money markets, adding to the money supply
and helping to defeat efforts to bring the money supply under
control. The difference between the discount rate and the federal
fund rate also amounts to a subsidy to the banks.
Increasing the discount rate to the level of the federal
funds rate would end the incentive to banks to borrow and re-lend.
4. Lack of Coordination. Some of the huge bubbles in the
money supply are the result of large outlays by the Treasury in
a short period of time, such as Social Security payments. These
payments should be determined in advance by the Fed so that offsetting actions can be taken in the money markets.
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will look forward to your explanation of these issues.
Sincerely,
a(2
Reuss
Henry
Chairman
HENRY S. REUSS. WIS.. CHAIRMAN
qiHOMAS L. ASHLEY. OHIO
MOORHI-:AD. PA.
.7EPNI1N:I.J. ST GERNIAIN, R.I.
HENRY C. GONZALEZ. TEX.
JOSEPH G. MINISH. N.J.
FRANK ANNUNZIO. ILL.
JAMES M. HANLEY. N.Y.
PARREN .1. MITCHELL. MD.
WALTF.R E. F AUN TROY. D.C.
STEPHEr4 L. NEAL. N.C.
JERRY M. PATTERSON. CALIF.
JAMES .1. BLANCHARD. MICH.
CARROLL HUBBARD. JR., KY.
JOHN J. LAFALCE.
GLADYS NOON SPELLMAN. MD.
LES AUCOIN. OREG.
PAUL E. TSONGAS. MASS.
BUTLER DERRICK. S.C.
MARK W. HANNAFORD. C.ALIP.
DAVID W. EVANS. IND.
CLIFFORD ALLEN. TENN.
NORMAN E. DAMOURS. N.H.
STANLEY N. LUNDINE. N.Y.
COWARD W. PATTISON. N.Y.
JOHN J. CAVANAUGH. NEBR.
MARY ROSE OAKAR, OHIO
JIM MATTOX. TEX.
BRUCE F. VENTO. MINN.
DOUG BARNARD, GA.
%NES WATK INS. OK LA..
ROBERT GARCIA. N.Y.
U.S. HOUSE OF REPRESENTATIVES
COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS
NINETY-FIFTH CONGRESS
2129
RAYBURN
HOUSE OFFICE
E3UILDING
WASHINGTON, D.C. 20515
J. WILLIAM STANTON. OHIO
CARRY DROWN. MICH.
CHALMERS P. WYLIE. OHIO
JOHN H. ROUSSELOT. CALIF.
STEWART D. McK INNEN% CONN.
GEORGE HANSEN. IDAHO
HENRY J. HYDE. ILLRICHARD KELLY. FLA.
CHARLES E. GRASSLEY. IOWA
MILLICENT FENWICK, N.J.
JIM LEACH. IOWA
NEWTON I. STEERS. JR.. MD.
'THOMAS D. EVANS. JR., DEL.
BRUCE F. CAPUTO. N.Y.
HAROLD C. HOLLENBECK.
S. WILLIAM GREEN, N.Y.
U5-4247
April 18, 1978
The Honorable G. William Miller
Chairman
Board of Governors
Federal Reserve System
Washington, D. C.
Dear Chairman Miller:
I want to commend you on your appointment of an esteemed
committee to study improvements in the seasonal adjustment procedures applied to the money supply data. This has been a subject in which I have been interested. It is one of the areas
of monetary management that certainly needs immediate attention.
After all, the 7.8% increase in the basic money supply for
1977 (4th quarter 1976 to 4th quarter 1977) exceeded by 20% the
maximum growth rate that the Federal Reserve announced it would
adhere to. This wide miss undoubtedly created great uncertainty,
especially in financial markets and on the international exchange,
about the Federal Reserve's ability to control the United States
money supply.
4IP
Another aspect of monetary control in which I have been
interested concerns the Federal Reserve's lagged reserve requirement regulations which require banks to calculate their reserves
on the basis of deposits held two weeks earlier. In testimony
before the Senate Banking Committee (November 4, 1975), economist Milton Friedman said "the most important single step at the
moment in the regulations the Fed could take would be to eliminate its lagged reserve requirements".
I have called the Federal Reserve's attention to Milton
Friedman's comments and to the comments of many other economists,
many of whom have been or are now with the Federal Reserve System. Their arguments have persuaded me that the Federal Reserve
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1•••••••••116 4.2
•
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Page
Two
The Honorable G. William Miller
April 18, 1978
should immediately drop lagged reserve requirements and return to
the system of synchronous reserve requirements used prior to September 1968.
The Federal Reserve replied to my request with a twenty-three
page report containing an analysis of the effects of lagged reserve
requirements (October 6, 1977).
I have asked some of the leading experts on this subject, who
are not now on the Federal Reserve staff, to analyze this report.
These experts are
Edgar L. Feige, Professor of Economics, University of
Wisconsin, with collaboration of Robert McGee;
William Poole, Professor or Economics, Brown University
and formerly Senior Economist at the Board of Governors and Assistant Vice-President at the Boston Federal Reserve Bank;
Dr. Warren L. Coats, Jr., whose doctoral dissertation
at the University of Chicago was entitled "The September 1968 Changes in Regulation D and Their Implications for Monetary Control", and who also has published "Regulation D and the Vault Cash Game" in the
Journal of Finance (June 1973). The latter. article purports to show how banks can double count their reserves under the lagged reserve requirement system;
George G. Kaufman, John B. Rogers Professor of Banking
and Finance, University of Oregon, formerly Assistant
Vice-President and Economist at the Chicago Federal
Reserve Bank.
•
I am forwarding copies of these experts' comments on lagged reserve
requirements to you so that the Federal. Reserve can have the benefit of their analyses.
I would also like to point out that a number of articles on
lagged reserve requirements have been written by economists on the
staff of the Board of Governors and the regional banks. You may
want to look at their articles also. These economists who have
been or are now with the Federal Reserve System include:
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Albert E. Burger, Assistant Vice President of the Federal Reserve Bank of St. Louis;
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alsekbialk
•
Page
•
Three
The Honorable G. William Miller
April 18, 1978'
R. Alton Gilbert, Economist of the Federal Reserve Bank
of St. Louis;
Daniel E. Laufenberg, the Board of Governors;
Dr. Robert D. Laurent, Economist at the Federal Reserve
Bank of Chicago.
I think the message from all of the economists I have listed
above indicates that lagged reserve requirements make it more difficult for the Federal Reserve to manage our country's money supply. I, therefore, support the return to the system of synchronous
reserve requirements used before September of 1968.
Sincerely,
Henry S. Reuss
Chairman
•
Enclosures
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(AM er.c3a12
of
I5CIIIIAL
DEPARTMENT OF ECONOMICS
SOCIAL SCI ENCE BUILDING
I 6,) OBSEFtv A TOR Y only I
MADISON 53706
January 27, 1978
The Honorable Henry S. Reuss
Chairman, Committee on Banking,
Finance and Urban Affairs
U.S. House of Representatives
2129 Rayburn House Office Building
Washington, D.C. 20515
Dear Chairman Reuss:
At the request of Robert Auerbach, my colleague Robert McGee and
I have enclosed our comments on the Federal Reserve Board Staff report
entitled, "Analysis of the Impact of Lagged Reserve Accounting."
The Board's staff report suggests that the sole positive effect of
the adoption of the lagged reserve accounting (LRA) convention has been
to reduce the net costs of reserve portfolio management for individual
banks. This non-quantified, but seemingly modest benefit, must be
weighed against the alleged problems which LRA has created for the
overall implementation of monetary policy and thus for the economy as
a whole. The report tends to either deny the existence of such problems
as to minimize their importance where they are empirically found to
exist. Thus the gist of the report is to advocate LRA on the basis of
the sole cited benefit, which the report implicitly concludes outweighs
the several disadvantages of LRA. In our view this conclusion is unwarranted on the basis of the analysis presented. A step by step analysis
of the conclusions, (1) - (6), presented on pp. 1-3 of the report will
shnw some of the problems with the report's conclusion that LRA should
be maintained.
Conclusion (1) juxtaposes ,the benefit of required reserve foreknowledge against the cost of unexpected excess reserve moments. The
increase in member bank borrowing and offsetting Open Market Operations
which these unexpected excess reserve movements necessitate implies money
market conditions are being smoothed by defensive open market operations
to offset this harmful consequence of LRA. As conclusion (2) admits,
this tendency for increased money market instability after 1968 has been
successfully eliminated by "enlarged defensive open market operations".
Since the desk manager eliminates the inconvenience brnks would otherwise
face from the LRA induced heightened volatility in the funds rate, it is.
no wonder that individual banks prefer LRA to CRA since it gives them the
definite advantage of more efficient reserve management at a cost borne
by the Fed.
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The University of Wisconsin is an Equal Opportunity Employer
The Honorable Henry S. Reuss--page 2.
January 27, 1978
This cost however is an important one because it means the Fed
has an increased tendency to accommodate bank led credit expansion
under LRA. A deposit created by a bank loan two weeks ago becomes
validated Ml-money if the Fed accommodates its creation by maintaining
stable money market rates in the face of increased loan demand. If
this is an effect of LRA, we would expect increased variability in the
monetary aggregates which brings us to conclusion (3) in the report.
According to (3) the variability of M1 and M2 growth rates "was not
affected by the introduction of lagged reserve accounting." Rather than
disputing the analysis of the numbers presented in the staff report we
offer, as prima facie evidence against this assertion, the following quote
from the November 1971 Federal Reserve Bulletin, p. 880:
Even when the revised data are examined, there is
compelling evidence to suggest a marked increase
in the variance of money supply and reserve
Innovations which coincided with the adoption of
the amendment to Regulation D. (See Feige & McGrce
J.M.C.B. November 1977, p. 548).
With respect to the issue of the effects of LRA on the variability
of the Federal funds rate, our own research revealed a standard deviation
of weekly fund rate changes of .34 percentage points for the period 19611967 compared to .33 for the 1969-1975 period. We concluded that the
effects of LRA on funds rate volativity has not been substantial when
weekly changes are considered on a relative basis. While mean absolute
changes have increased, variations around the mean are about the. same for
the pre- and post- LRA periods.
The Board's staff final three conclusions, (4) - (6), bear on the
compatibility of LRA with current operating procedures (i.e. setting a
funds rate through open market operations which is believed to be consistent with the desired monetary aggregate growth pattern). The conclusions reached are that 1) given current operating procedures it is a
matter of indifference whether we have contemporaneous or lagged reserve
accounting and 2) if a new operating procedure were adopted where reserves
rather than the funds rate were controlled on a day to day basis, then
lagged reserve accounting would be inferior to contemporaneous requirements
because it would undermine the money-reserve relationship. This latter
assertion is supported by the evidence presented on pp. 20-23 of the
report which shows a deterioration in the money-reserve relationship after
LRA was imposed. This is consistent with our finding in the JMCB article
(Nov. 1977) which found the contemporaneous money-reserve relation disappears
after the amendments to Regulation D were instituted.
Thus conclusion (6) minimizes the possible benefits to switching to
a reserve operating procedure and contemporaneous reserve requirements.
In addition a primary argument presented against such a policy is the increase
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*ON.
ea
The Honorable Henry S. Reuss--page 3.
January 27, 1978
in interest rate volatility which would result from using a reserve
control rather than a funds rate control procedure. Once a reserve
policy is regarded as unadviable it becomes largely a matter of in—
difference whether LRA or CRA is in force.
There are however arguments for a reserve operating procedure and
against the allegation that it would increase interest rate fluctuations.
Poole has argued persuasively, in "The Making of Monetary Policy: Des—
cription and Analysis" in the June 1975 issue of Economic Inquiry, that
a reserve operating procedure should be adopted. Similarly, Professor
Milton Friedman, in a "Statement on the Conduct of Monetary Policy" before
the House Co-almittee on Banking, Housing, and Urban Affairs on November 6,
1975, has argued that a reserve operating procedure rather than increasing
interest rate changes would actually decrease them:
The one serious objection to this procedure (con—
trolling the stock of money) that I have seen is
the contention that it would lead to more Vari—
ability in interest rates over short periods than
the present procedure. I have long believed that
it would have precisely the opposite effect except
possibly for very short periods measured in a few
days or perhaps several weeks. By delaying interest
rate adjustment, the present procedure permits
pressure to cumulate. I believe that it thereby
produces more erratic and unstable interest rates
and therefore more uncertainty than the alternative
procedure.
An additional benefit of the improved money control resulting from a
reserve control operating procedure would be reduced inflationary
expectations which many economists now realize are an important deter—
. Thus there is some consensus among
minant of interest rate changes,
economists that direct reserve control would result in tighter control
over the money supply.
In our own research, we estimated a simple dynamic money market model
including reserves, the money supply and the Federal funds rate for the 7
year period prior to LRA and the 7 year period after monetary aggregate
targets were adopted in early 1970. We examined two issues. First, we
analyzed the effect of LRA on the model, and secondly, we examined the
data for evidence of a shift from control of interest rates to control
of the money supply. While the early period model was consistent with
the view of a monetary policy operating procedure which maintained stable
interest rates by letting the money supply adapt to changes in money demand,
the latter period was consistent with elements of both money and funds rate
control policies.
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The Honorable Henry S. Reuss--page 4.
January 27, 1973
There is evidence that the Fed. now lets the funds rate adjust to
. We
bring money demand changes in line with the desired money supply:
also found evidence that reserves are being supplied to accommodate two
week prior changes in money. This is consistent with the Board's staff
report comment that defensive open market operations have increased as
a result of LRA to offset latent instabty in excess reserve and funds
rate movements. LRA appears to be interfering with the Fed's abty to
control the money supply because it necessitates increased defensive open
market operations aimed at stabzing interest rates which can only be
accomplished by sacrcing some degree of control over monetary aggregates.
In summary, while LRA appeared to be a sensible procedure in the period
of primary attention to money market conditions, it is inconsistent with a
regime of monetary aggregate control. The simple explanation for this
finding is that individual banks have a two week lead time in which to create
however much money the public wants at current interest rates (i.e. money
demand gets the jump on money supply). If interest rate targets to control
money are not moed as it becomes necessary,then periods of undesirable
money growth will either have to be tolerated or offset by appropriate open
market actions. The more uncertain the Fed is about the appropriate interest
rate target and the longer it allows the wrong funds rate target to persist,
the more drastic and potentially destabzing will be the corrective
IS netary policy.
Finally, regardless of whether or not LRA is abolished, the Federal
Reserve's ability to control the money supply is likely to be enhanced if
non-member banks are given sufficient incentives to join the System.
LRA is such an incentive. More useful incentives can and should be developed.
I hope these comments will be useful for your evaluation of current
policies and if I can be of any further help, please do not hesitate to
contact me.
Sincerely yours,
,
•
•
. Edgar L. Feige
Professor of Economics
/aw
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g
mrm. _ 0•In
(
BROWN
UNIV 1 RSITY
Providence, Rhode Island -02912
November 23, 1977
The Honorable Henry S. Reuss, Chairman
Committee on Banking, Finance and Urban Affairs
House of Representatives
Washington, D. C. 20515
Dear Congressman Reuss:
I am writing in response to your request for my
evaluation of the Federal Reserve's position on lagged
reserve requirements. Since this position is explained
fully in the Federal Reserve Board's Staff Study,
"Analysis of the Impact of Lagged Reserve Accounting"
(October 6, 1977), a copy of which you sent to me, I
will make frequent reference to this document.
In general, I have little quarrel with either the
theory or the evidence presented in the Staff Study.
However, the Staff Study contains several unsupported
and misleading statements and, more importantly, conclusions that do not follow from the theory and evidence
presented. In my view, the Staff Study actually
strengthens the case against lagged reserve accounting
("LRA" for short).
LRA under current operating procedures. For many
years the Federal Reserve's operating procedures have
involved tight control of .the federal funds rate on a
day-by-day basis. Given that the federal funds rate is
tightly controlled, the Staff Study correctly argues that,
"short run movements in the [monetary] aggregates are
largely demand determined. It is difficult to argue that
lagged reserve accounting has much relation to the public's
demand for money" (p. 14).
It is worth noting in passing that this argument, at
least to a very close first approximation, extends to all
aspects of the reserve requirements system, including not
only LRA but also reserve requirements differentials
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•••••••
- 2
between banks of different sizes and the complete lack of
Federal Reserve reserve requirements on non-member banks.
Thus, it is incdnsistent of the Federal Reserve to oppose
reform of LRA and at the same time to favor extension of
reserve requirements to non-member banks for monetary
control purposes.
What, then, are the advantages of LRA given the Federal
Reserve's current operating procedures? In the Record of
Policy Actions of the Board of Governors for April 23, 1968
the introduction of LRA (effective September 12, 1968) was
explained as follows:
The amendments were designed to facilitate
more efficient functioning of the reserve
mechanism. They did not represent any change
in Federal Reserve monetary policy, but were
expected to reduce uncertainties, for both
member banks and the Federal Reserve, as to the
amount of reserves required to be maintained
during the course of any reserve-computation
period. Adoption of the amendments was therefore expected to moderate some of the pressures
for reserve adjustments within the banking
system that occasionally develop near the
close of a reserve period and produce sharp
fluctuations in the availability of day-to-day
funds." (Board of Governors of the Federal
Reserve System, Annual Report 1968, p. 82.)
The Staff Study makes clear that LRA did not in fact
"facilitate more efficient sfunctioning of the reserve
mechanism." The Staff Study nicely documents the fact
that, "the volatility of money market conditions toward
the end of the statement week -- as measured by variations
in member bank borrowing, the Federal funds rate, and
open market operations -- showed a marked tendency to
increase immediately after the rule change." (Staff Study,
p. 8, emphasis added).
The cost of this increase in volitility was not borne
by the banking system alone, but also by the Federal Reserve
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_ 3
and, therefore, indirectly by American taxpayers. Because the
1968 changes made the money markets more volitilc the Federal
Reserve has fell compelled to engage in more extensive defensive
open market operations. "The Manager of the Trading Desk's
outright transactions as a percentage of total reserves remained
virtually unchanged, but the volume of matched sale-purchase
and repurchase agreements as a percentage of total reserves
doubled immediately following the rule change and remained in
the higher range through 1972." (Staff Study, p. 9, emphasis
added). The Staff Study provides no estimate of the cost of
the extra open market operations, but it is obvious that some
extra and completely unnecessary Federal Reserve costs were
generated by the rule change.
The Staff Study argues that two benefits were realized
from the rule change. The first is that, "the evidence
clearly suggests that in one important sense bank reserve
management has been more efficient under the-new rules. The
average value of member bank excess reserves declined from
$368 million in 1967 to $192 million by 1970. The improved
reserve management, however, probably results entirely from
the extension of the carryover privilege to include surpluses.
(Staff Study, p. 6, emphasis added.) I have no reason to
dispute the Staff's conclusion; indeed, I have on a number of
occasions argued for expanded carryover privileges. In any
event, the LRA part of the new rules was not responsible
for the claimed benefit.
The second claimed benefit is that LRA reduces bank costs
of reserve management. "A survey in 1975 of commercial bank
Directors of Reserve Banks, and branches suggested that...most
banks believed their reserve management was improved by lagged
aneous accounting
accounting and felt that a return to contempor.
would increase costs, mainly from additional staffing."
(Staff Study, p. 7). The evidence offered for this claim is
very weak. Commercial bank Directors of Federal Reserve Banks
and branches rather than bankers in general were surveyed. The
number of bankers surveyed could not have exceeded 50 or 60
out of some 5000 member banks, and bankers serving as Federal
Reserve DirecLors are unlikely to be a representative sample
of all bankers. Moreover, the Staff Study contains no tables
reporting survey responses to show that the bankers favoring LRA
were a large majority of those surveyed or that the bankers
felt very intensely about the issue. Finally, information
obtained from even a properly designed survey on this matter
must be regarded with suspicion because many bankers who
understand the impact of regulations on their individual banks
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Federal Reserve Bank of St. Louis
- 4 fail to understand the impact of regulations on the banking
system as a whole.
To summari-ze the Staff Study's analysis of LRA under
current Federal Reserve operating procedures, the only
advantage of LRA is that an unknown number of bankers
apparently feel that LRA reduces their costs of reserve
management. On the cost side of the ledger, the Staff Study
presents a well-documented case that LRA has led to some
combination of greater short-run interest rate instability
market operations. Finally, LRA
and larger defensive S.
has little or nothing to do with money stock control so long
as current operating procedures are maintained.
LRA under a reserves operating procedure. Along with
many other economists, I have advocated reform of the Federal
Reserve's operating procedures so that the Open Market Desk
would stabilize bank reserves rather than the federal funds
rate on a day-to-day basis. The arguments for this reform
go farebeyond the scope of this letter and,except to note
that reserves control can be expected to provide better
control over the monetary aggregates than is now possible,
will not be discussed here. However, there is widespread
agreement that if this reform were put in place, then it would
be highly desirable to substitute contemporaneous for lagged
reserve accounting.
If the Federal Reserve were to control bank reserves on
a day-to-day basis, then contemporaneous reserve accounting
would be desirable because the accuracy of money stock control
would be improved as compared to the LRA system. The Staff .
Study supports this argument. "Empirical evidence on the
linkage between monetary and reserve aggregates indicates a
closer -- though still relatively loose -- relationship before
the institution of lagged reserve accounting than after."
(Staff Study, p. 20). "If the Manager were instructed to
fScus on attaining a reserve aggregate target in his daily
operations, a return to contemporaneous accounting implies
less short-term variability of deposits and monetary
aggregates than would be the case with lagged accounting."
(Staff Study, p. 23).
The Staff Study also accepts the argument that under a
reserves operating policy LRA would generate larger interest
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Federal Reserve Bank of St. Louis
- 5
rate fluctuations than would contemporaneous reserve accounting.
"[Following a rise in deposits] ... under lagged reserve
accounting there is no change in bank demands for reserves and
no automatic pressure on money market rates for two weeks, thus
delaying this automatic offset. Moreover, because of the delay,
interest rates would have to rise to higher levels over time
to achieve a given average level of money over a particular
period." (Staff Study, p. 23).
To summarize the Staff Study's analysis of LRA under a
reserves operating policy, LRA would make both the money stock and
interest rates more volitile than would contemporaneous reserve
accounting. Set against these costs would be, presumably, the
alleged lower costs of bank reserve management discussed earlier.
However, although the Staff Study does not discuss this point,
my guess is that the authors of the Study would agree that the
banks' costs from the greater interest rate variability under
LRA as compared to contemporaneous reserve accounting would
not be offset by the computational ease of LRA.
General comments. The Staff Study includes several statements that are misleading with respect to the LRA issue. First,
the Study says that, "any reduced variability in the monetary
aggregates that may result from [a reserves] operating
procedure, when compared to the present one, would come at the
expense of unprecedented short-run variability in the funds
rate." (Staff Study, p. 23). This statement is misleading
because the issue at hand is LRA rather than a reserves
operating procedure. The Staff Study agrees that except for
possible benefits to banks flowing from easc of reserves
management under LRA, contemporaneous reserve accounting is
better under either the current Federal Reserve operating
procedures or a reserves operating procedure.
•
Second, the Staff Study gives the impression that the
proposal for a reserves operating procedure ought not to be
taken seriously. "Contemporaneous accounting would only be
advantageous under alternative operating procedures, for
example, one in which the [Federal Open Market] Committee
instructs the Manager to attempt to hold each week to some
predetermined target path for a reserve aggregate like
nonborrowed reserves -- letting the funds rate move freely.
All of the academic studies of the effects of lagged
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_
VA....••••
•
- 6 al
accounting on monetary control have examined such a hypothetic
case." (Staff Study, p. 19).
Regrettably, it is quite clear that the Federal Reserve
ng
has indeed regarded a reserves operating procedure as nothi
more than a "hypothetical case," not to be taken seriously.
This attitude has been unfortunate, but is now doubly so in
the light of a recent court decision whose implications for
this issue are not widely understood.
On November 10, 1977 the Federal Appeals Court in
Washington, D.C. ruled that under the federal Freedom of
Information Act the Federal Reserve is required to release
its decisions sooner than has been its recent practice. (See
the newspaper account in the November 11, 1977 Wall Street
Journal.) Moreover, it was reported in a New York Times
article on November 17, 1977 that the Solicitor General may not
seek a Supreme Court review of the Appeals Court decision.
Without expressing opinion one way or the other on this case,
I can merely note that the Federal Reserve may shortly be
required to release its decisions promptly, and that the
Federal Reserve ought to be examining with considerable urgency
the consequences of this requirement.
The most obvious consequence of earlier release of Federal
Reserve decisions is that one aspect of the Federal Reserve's
current operating procedures will have to be changed. The
Federal Open Market Committee will no longer be able to instruct
the Manager to change the federal funds rate in small steps
over a period of weeks because public release of such an
instruction will produce an immediate market reaction as market
participants attempt to realize the gains or avoid the losses
implied by announced interest rate changes.
The importance of earlier release of Federal Reserve decisions
should not be underestimated. The Federal Reserve will be
driven to changing the federal funds rate in discrete steps
immediately following Open Market Committee meetings, and one
of the main claims for the current operating procedures -- that
of smooth and "orderly" changes in money market interest rates -will no longer be valid. More importantly, however, earlier
release of Federal Reserve decisions is likely to lead the
Federal Rescive to change its interest rate targets less often
which will make the money stock even more unstable and procyclical
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Federal Reserve Bank of St. Louis
7
than it has been in the past.
rve
These problems could be handled if the Federal Rese
rm that is
were to adopt a reserves operating policy, a refo
rve has not,
desirable in any event. Since the Federal Rese
a
to the best of my knowledge, engaged in any planning for
ing
e
reserves operating procedure, I strongly urge the Hous Bank
a study
Committee to request that the Federal Reserve conduct
to determine what needs to be done if a reserves operating
procedure is to be adopted.
e
It should be clearly understood that the LRA issu is only
part of the much larger issue of how to structure Federal
Reserve regulations to ensure that a reserves operating
procedure functions as smoothly as possible. In a number of
places the Staff Study refers to the role of the current
operating procedures in preventing supply-side disturbances
from affecting the money stock, but what the Staff Study
does not mention is that many of these supply-side disturbances
are a direct result of the reserve requirement regulations,
such as LRA, the Federal Reserve has adopted. However, the
e
Staff Study shows that the Federal Reserve does recogniz
the importance of reserve requirement regulations in general.
a
"The introduction of graduated reserve requirements and
more complicated reserve structure in the 1970's may also
, but our
have weakened the short-run reserve-money relation
evidence so far suggests that lagged reserve accounting had
a stronger negative impact." (Staff Study, p. 21).
In closing, let me say that it is very encouraging that
es,
the Congress has become interested in monetary control issu
has
but I feel that it is unfortunate that this interest
extended to an issue as technical as LRA. I fully understand
that this situation arose because LRA is a well-defined and
specific issue and because academic experts have mentioned
this issue so often. But I am certain that most academics
would agree with me that LRA is only part of the much larger
issue of designing regulations better suited for monetary
control.
e
I suggest, accordingly, that the Banking Committe
a study of recomrequest the Federal Reserve to provide
assumption that a
mended regulatory changes based on the
be adopted. It is
, reserves operating procedure is to
assumption that
important that this study be based on the
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Federal Reserve Bank of St. Louis
•
•
8 -
a reserves operating procedure is to be adopted; only after the
completion of this study, and receipt of informed comment on it,
will be possible to judge the adequacy of the Federal Reserve's
position on the., relative merits of the money market and reserves
operating procedures against the background of the Federal
Reserve having actually investigated what a reserves procedure
would entail.
If I may be of any further assistance, please feel free
to call on me again.
Sincerely,
William Poole
Professor of Economics
WP/md
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Federal Reserve Bank of St. Louis
•
•
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
111
Arlington, Virginia
22202
November 7, 1977
The Honorable
Henry S. Reuss
Chairman, Committee on Banking,
Finance and Urban Affairs
U.S. House of Representatives
Washington, D.C. 20510
Dear Mr. Reuss:
It is my pleasure to respond to your Committee's request for
comments on "Analysis of the Impact of Lagged Reserve Accounting"
prepared by the staff of the Board of Governors of the Federal Reserve
System earlier this month. I do so as a student of U.S. monetary
policy and central banking and, in particular, of lagged reserve
accounting. I am acting in an entirely personal capacity, and request that the name of my current employer not be used in connection
with these comments.
Chairman Burns has carefully stated that "there would be no clear
advantage in returning to contemporaneous reserve accounting." In this
he is supported by the above-mentioned staff report. While Chairman
Burns is correct that the evidence has not yet clearly established the
advantage of a return to contemporaneous reserve accounting, it is
equally true that there is no evidence indicating net disadvantages to
such a return and a fairly strong theoretical case that there would
indeed be some important advantages.
The report itself maintains the high standards of scholarship I
have come to expect of the Board's staff. By and large, it is an updating of the analysis and statistics contained in my. doctoral dissertation written at the University of Chicago over five years ago. The
report does find, as had my dissertation, a significant loosening of
the relationship between reserves and deposits since the introduction
of lagged reserve accounting.
The staff's defense of the harmlessness of lagged reserve accounting rests on two propositions. First, the use of a federal funds rate
operating target makes reserves endogenous to demand-determined deposit
levels. In this setting, an increase in reserves that would lead to a
greater deposit expansion under lagged reserve accounting than under
concurrent reserve accounting cannot occur in the first place without
a shift in the demand for deposits or a Change in the federal funds
rate target. Second, in the most interesting empirical study of the
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
S
•
2
money supply control aspects of lagged reserve accounting I have seen
to date (John Judd's work for the Federal Reserve Bank of New York),
the estimated interest elasticity of deposit demand was found to be
smaller in the short run than the supply elasticity.
These interest rate estimates imply that, even with a reserve
aggregate operating target, lagged reserve accounting will not have
very significant practical consequences for monetary control, because
the tendency for deposits to rise in the face of an increase in reserves will be quickly dampened by a falling federal funds rate, while
the demand for deposits will be only insignificantly increased. As a
result, deposits will change only insignificantly in the very short run
and as it is changes in deposit levels that introduce the differing impact between lagged and contemporaneous reserve accounting, the empirical magnitude of the difference will itself be negligible. It is this
reasoning that leads to the conclusion that lagged reserve accounting
will not significantly affect the behavior of the federal funds rate,
even when the funds rate target must be adjusted in order to meet the
money supply target. It is precisely at such times, as for example when
maintaining the federal funds rate target leads to unexpectedly large
increases in reserves and deposits that must be reversed if money supply
objectives are to be net, that lagged reserve accounting potentially
gives the most trouble. But if the short-run elasticity of deposit demand is very small relative to the short-run elasticity of deposit supply, a very modest increase in the federal funds rate will reestablish
the desired money supply.
The staff's logic to this point is unassailable, but the evidence
underlying it is highly questionable. Judd's empirical results are
highly sensitive to at least two questionable assumptions. First is
his assumption that the use of the federal funds rate as an operating
target makes it totally exogenous in his estimated money demand function.
This means that none of the movements in federal funds rate are attributable to changes in the supply of money, while in fact the rate is allowed
to fluctuate within a narrow band. In a very preliminary reexamination
of Judd's generally praiseworthy work on this subject, colleague Iqbal
Zaidi of Princeton University and I have found that relaxing this assumption (by assuming that the Fed adjusts the federal funds rate, when actual
money growth rates deviate from the Fed's targeted rates) more than doubles
the elasticity of demand estimate over the one found by Judd. This increases the variation in deposits that can take place within a single week
and thereby increases the practical significance of the theoretically wellknown instability introduced by lagged reserve accounting.
We have yet to determine the sensitivity of these elasticities to
Judd's assumption that deposit supply is totally demand determined. In
our view, deposits do not expand in the first instance because the public
desires a higher level of deposits, but rather as the indirect consequence of the public's increased demand for loans. This introduces an
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Federal Reserve Bank of St. Louis
•
3
•
exogenous supply element in the determination of deposits. To the extent
that this view is valid, Judd's demand function, which only permits lagged
adjustment of deposits to changes in their demand, is misspecified and
most likely biases his estimated elasticity of demand downward. I regret
that our work is not further advanced at this point.
In conclusion, it is my view that the assertion of lagged reserve
accountings' harmlessness is based on a mistaken view of the money supply
process, which pictures it as wholly demand determined and of the highly
questionable statistical estimates that have resulted from models reflect—
ing this view. I am still inclined, subject to further investigation of
the evidence, to the view that lagged reserve accounting has significantly
increased the variations in the federal funds rate necessary to bring
monetary growth into line with the Federal Reserve's own targets whenever
such p-owth deviates from those targets. As a consequence of this and
the Federal Reserve's adherence to a federal funds rate operating target,
the money supply has become more difficult to control and has tended to
wander from its targeted levels by wider margins and over longer periods
of time with greater pressure on federal funds rates than would have been
experienced under concurrent reserve accounting.
Sincerely,
Warren L. Coats, Jr., Ph.D.
Economist
•
•
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
October 16, 1979
The Enorable Peal h. Tsongss
Chairman
Cananser Affairs Subcommittee
Committee on Sanking, Housing and
Urban Affairs
United States Senate
Washington, D.C. 20510
Dear Chairman Isotopes:
1 am pleased to enclose the attAtehed responses to the additional cuestions relryed by telephone subse,uset to your September 26
letter.
Should you or your staff have *my mutations regarding the
attached mammies, plese contact Jeamims Catalano, Review Examiner,
at (202) 452-3946.
Sincerely,
Eag4
Lnclosures
JC:smk (V-47)
bee: Jeanine Catalano
Mrs. Mallardi(2)
•
•
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
14.
•
What is your policy on the number of violations identified before
an institution is required to do its own file search?
When a violation is discovered using the statistical sampling
procedures, additional loan files are selected judgmentally to determine
the cause of the violation and the existence of a pattern.
In cases where
it is determined a pattern exists, such as a certain loan type or loans
made by a certain loan officer, file searches for those particular types of
transactions are required.
In cases involving isolated errors, where no
pattern is detected, banks are required to conduct a file search.
A..1.11116
ALM(
•
411
15.
;
V4IINARAMIRAWW6WAWIONNIVAAerAgiligeltMOMMMililliieirr
•
In how many cases has the Federal Reserve Board required institutions
to perform
file searches?
The response to this question will be included in the responses to your
letter dated October 5, 1979.
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Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
oNsam,...waimmussminaw.d.o.,.4101111IMA.,..
•
16.
•
In those cases were institutions have done file searches, what have
been the results?
How did the Federal Reserve Board verify the validity of
the results?
In comparing the actual reimbursements made after file searches
were conducted to estimates provided by examiners, we have noticed differences between the amounts reimbursed and the estimated dollars of overcharges.
In some cases, more than the estimate ,-1. amount was reimbursed;
in others, less.
Results of the file searches are ultimately verified by
spot testing by the examiner during the next examination.
As indicated in
our response to your earlier question 13, the Reserve Banks utilize followlip procedures such as telephone calls, letters and reviews of file search
procedures to ascertain completeness of State member bank corrective action.
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Federal Reserve Bank of St. Louis
400Ober 31, 197,
limteatb4
lbsordde Seajemds
atelimit
amineomittee em Csomeovel Gemommtr
mad lismotary Attaive
Committee oodeeememmatillpeontteme
lOsse of ilkopreseelietivas
Reiblepsee D.C. MU
Mem Chalemee Seeeethal:
As Amdieoted in or Letter te rem el diteber 18, I an pleased
to osselleiNi the report roomtved tram the fedemel Reserve SAlk of Cleveaossimatas the deerskins of o beak Aloft demo ea as 'Irish book
is
I believe pee 1411 find that import meltmeoplAnotory.
Smit vs beim if I globe se limither ostiblomme4
stassiroty*
V,PauI A Maw,
nelosore
CO:p t (IRV-78)
bcc: Jock ayes
Moose
BENJAMIN S. ROSENTHAL, N.Y.. CHAIRMAN
ROBEA'T. MATSUI CALIF.
EUGENE
ATKINSerY. PA.
FLRNAND J. ST GERIAPRIN. R.I.
." JOHN CONYERS. JR.. MICH.
ELLIOTT H. LEVITAS, GA.
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Federal Reserve Bank of St. Louis
Action assigned Jack Rya.
•
Congre55 of tbe Einiteb
tatt5
ii)otifse of 11epresSentatitieti
COMMERCE, CONSUMER, AND MONETARY AFFAIRS
SUBCOMMITTEE
OF THE
COMMITTEE ON GOVERNMENT OPERATIONS
RAYBURN HOUSE OFFICE BUILDING. ROOM B-377
WASHINGTON. D.C. 20515
October 15,1979
Hon. Paul A. Volcker
Chairman
Board of Governors
Federal Reserve System
Washington, D. C. 20551
Dear Mr. Chairman:
Enclosed is a copy of a letter I have received from a citizen who
is having trouble getting clearance of a bank draft drawn on an Irish
bank in pounds. A copy of the bank draft is also enclosed. On the surface
it would appear that Mr. O'Neill is not being fairly treated by the banking
system, and I am writing to request the assistance of the Federal Reserve
on this matter.
In particular, does Mr. O'Neill have a legitimate complaint? What
factors could reasonably be expected to cause this much delay in securing
clearance of such a bank draft?
Also, is there any assistance that the Federal Reserve can provide
to straighten out this situation for Mr. O'Neill?
Sincerely,
L-1
Benjamin S. Rosenthal
Chairman
I3SR:tv
Enclosures 2
LYLE WILLIAMS, OHIO
JIM JEFFRIES, KANS.
JOEL DECKARD,
NcuoRrry—(202) 225-4407
•
September 25,
1979
Representative Benjamin Rosenthal
Chairman Commerce Subcommittee of the
House Governmental Operation Committee
Room 2372 Rayburn House Office Building
Washington, D. C. 20515
Dear Sir:
It has recently come to my attention that your subcommittee is interested
in the delay in the check clearing process.
I am currently involved in a check clearing dilemma that I would like to
call to your attention.
On August 6, 1979 I received a check from a bank in Northern Ireland, payable
to me and denominated in pounds. I took this check to the foreign department
of the First National Bank of Cincinnati. They refused to handle it because
I did not have an account there. I then took the check to the Provident
Bank in Cincinnati where I do have an account. They agreed to accept the
check for collection and forwarded it to the Chemical Bank of New York on
which it was drawn. I em still waiting for this check to clear. The only
thing the Provident Bank tells me is that when the check clears they will
let me know.
I feel that I am the victim of some kind of a national and international
confidence game in which my money is being used by the banking system to buy
gold at my expense. In the meantime, the value of the pound has been falling
drastically against the dollar. The value of this check has fallen about
10% since it has entered the clearing process.
Any help your subcommittee can render the banking system in general, and to
me in particular, to cure this type of shenanigans will certainly be appreciated by all.
Very truly yours,
ank O'Neill
Enc.
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Federal Reserve Bank of St. Louis
Copy of check.
I
r
A
PA , TO THE
ORDER OF
THE
Sum
ALLIED IRISH BANKS LIMITED
8 High Street, Omagh, Co. Tyrone.
2_6_th___,Luly, 1975'..,_
Francis O'Neill Esq.,
OF Three thousand nine hundred and fifty one
£3,951.67
pounds sixty seven pence.
TO:
r
The Chemical Bank,
20 Pine Street,
L_New York.
Initials
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Federal Reserve Bank of St. Louis
-1
___J
FOR ALLIED IRISH BANKS LIMITED
2
i ''-ri-<-2h4"-e-K-e--/
/A4ANt.GE R
;
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
October 31, 197,
lhe M000soble Memo 6. Mouse
aseiholoose
Sebesmattee es Laitsmostiesel Ivelessi s
Joist Meemomic CommAttee
Whihisitos.S. es 20511
Ism ibex,
Thank you for your letter at Octeber 26 resat/Jig
the SMbeemmittee
latermetional lossimares field hiseries
Cir.,
La Mow York
fscusiss em the domestic sod intermatimeml
Amplicetieme of the federal Immorve's domotoey policies.
olessod to Wawa you that Osmesmor Mama 43.
lagaiLah will testify on behalf st the $ystas as ibeelber 3
at COO a.m. Govermir wattifth mill be e„..esopsodad by Scott
Peados.
tIM
SLEW A Volcker.
CO:vcd (#V-1(4)
bcc. Qom WailLh
Mr. Azilrod
Mr. Truman
Mrs. Nallardi (2)1/-
4
3 st..rTSEN. TEX., CHAIRMAN
, _LIAM PROXMIRE. WIS.
ABRAHAM RIBICOFF. CONN.
EDWARD M. KENNEDY, MASS.
GEORGE MC GOVERN. S. DAK.
S. SARBANES, MD.
JACOB K. JAVITS. N Y.
WILLIAM V. ROTH, JR.. DEL.
JAMES A. MC CLURE. 17AHO
ROGER W. JIPSEN, IOWA
•
Chairman will beecussing
with Governor Wallich.
Info
copies given Messrs.
Axilrod
gz Trum an
rAuL
JOHN M. ALBERTINE,
Co
(Cf
EXECUTIVE DIRECTOR
WASHINGTON. D.C. 20510
October 26, 1979
IPOMP."
Mr. Paul A. Volcker
Chairman
Board of Governors
Federal Reserve Board
Constitution Avenue
Washington, D.C. 20551
L
is
'.4t4sr
e.4tY:
CO
Dear Chairman Volcker:
On November 5, 1979, the Joint Economic Committee's
Subcommittee on International Economics will be holding a
field hearing in New York City focusing on the domestic and
international implications of the Federal Reserve's monetary
policies. As Cochairman of the Subcommittee, I would like
to extend at the request of Senator Jacob K. Javits an
tation to Mr. Scott Pardee, Vice President in the Foreign
Function of the Federal Reserve Bank of New York and Deputy
Manager of Foreign Operations of the System Open Market
Account, to testify before us at this hearing. The hearing
will begin at 9:00 a.m. in Room 305C, 26 Federal Plaza.
Mr. Pardee's intimate knowledge of foreign exchange
markets and his thorough understanding of both foreign and
domestic intervention operations make him a particularly
attractive witness. He could add immeasurably to our own
understanding of the international implications of recent
Federal Reserve policy initiatives.
I hope that you give leave to Mr. Pardee to testify
before us on November 5. I look forward to your early
reply.
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Federal Reserve Bank of St. Louis
Sincerely,
\
Henry S. Reuss
Cochairman
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Federal Reserve Bank of St. Louis
October 31, 1,79
The Honorable Welter D. Neddleeton
United States Senate
Washington, D. C. 2051C
Dear Senator Huddlestoo.
Thank you for your letter of October 22 req!Aesring our ':omments
on the inquiry from hr. Eduard L. Cawood regarding the fees charged to the
Bank of Maass by the Cinelenati Branch for the tate re.>orting of raceiots
of Federal tam devesits.
Treasury pc:Grimiest regmlations reouire that Federal Reserve
Banks1 as fiscal agents for the Treasury, hasp remittem4A oileton am**
a fee whenever their reports of Federal tax deposits 4108 met received at
the Reserve Basks by the mixt business day after the tomes are deposited.
The Treasury's regulations mho as distin-tiou regarding the MOOM by
which the reports are delivered; all reports mist be received by the
next business day. This eee-day renittan
reluirenent has generated a
,:onsidesable amount of onnent in the banking industry. If Mr. Caused
haa any additional ‘2ommeats or 'vestiges regarding this matter, we
sugeeet that he write to
Mr. Peal H. Taylor, Fiscal Assistant Secretary
Ue4ertment of the Treasury
1500 Peoneylvania Avenue, I. W.
Washiegtem, D. C. 20224
We contacted the Cincinnati Seemsh regarding an earlier inquiry
on Mr. Caueed's behalf aid were advised that an officer fres the BOOM*
has recently dis ussed with the Bank of Masten the various ways that
Fedora/ tax dalos't worts can be forwarded in order to insure timely
delivery. we were aloe advised by Cincinnati that the Bank of Harlan
has worked out an arrangement with the Antal Service whereby the Beek
will be able to submit its re.orts within the tine limits mad no longer
iwur late fees.
Sincerely,
S/Yagl A. Volcker
(DD:JPB:)vcd (#V-101)
bcc:
Mrs. Mallardi (2)
LTON
WALTeR D. H UDDES
heecr UCKY
•
a
Will be ladled by Congressional
ce
Liaison
•
N.
Cnit
SELECT COM M I TTEE ON
SMALL BUSINESS
WASHINGTON. D.C. 2C1510
/frt°
October 22, 1979
chairman Paul A. Volcker
Chairman
Federal Reserve Bank
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551
Dear Chairman Volcker:
Enclosed is a copy of a letter I have received from
Edward Cawood, Chairman of the Bank of Harlan in Harlan,
Kentucky.
Mr. Cawood complains of excessive charges to his
bank for receipt of taxes by the Cincinnati Federal
Reserve Bank beyond deadline dates. Mr. Cawood claims
these charges are extended unfairly because the checks
arrived late due to circumstances beyond their control.
pump-
I would appreciate your comments on Mr. Cawood's
complaints, and information on what, if anything,
is being done to alleviate the situation.
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Federal Reserve Bank of St. Louis
Thank you for your assistance in this matter.
Walter D. Huddleston
.•
•••
'
UCKY 4:H3I
1979
1.4._. wish to solic _ vur . 1:.
..-.,,..
t7.“.1
-Ind uncall(-::
-. .(..1
for ac: -.. ,,'
-, n
:.-.y
.-:: .•,'e years in the
...al ke!:- ,.rve F,ank, which in turn
Irii-c: - es
Lc) :he Tr, =v Dr.rirtm,..n -c.
..
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::-..:='
,
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--- 7,.--ink. :'
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dav as ey.7.„-c:ed;
;:rc :,-.-0-.-,c
:ve .
-' is cl..
eld t .-,.Y:-.s
)'.. in income, we
•fl. .- .o the Fedr2r,-;'.
:,...,:tal service or red
,es not arrive tl--e n( -
.-
._. c'
.:.
c:
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r•
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riP(I.
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ll
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cituatio:-., we liave tried Purolator service; but
tnC rL --- ttancc, still
ortir7es arr'.ed late. !.7oreover, the Purolator
.. - vice cha-Y-r:
to Cincinnari. This
.• ,„
is :oc,
o: the :
. o-ernt-r-nt's
t . ns.
'v:e_ have crAlc-d
Prsident of the 17(,(:•ral 2,2serve Rank. Yesterday the Fed finally arc.
,ed to cc.:- I-Pct th ir m.1-:e of $100,000.00,
on which they had assessed us S03.00. We had to call the President
of the hank, -Is in thr lowpr pc:1P1on the an5zwer was that there was nothing
4c;at
We nave,
charTed L'ne last tir-e ponihs :-Ii)proximarely $200.00,
$500.00 and S713.00 less S203.00 prrAised cr(,dit. It is outrageous
to think that our ovc.rnt:I.,!nt would chill7e us suTh a7:,ounts to collect
irs
t
S
We have callt.d the i:,!ntuckv l'inkers As
and he promsed to !ilk lo one of our Senators.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
and Mr. ..loicen,
aro c,ncloim7 Ycro.Y. conies of our .1u1v charycs.
•
Honorable Wde11 H. Ford
August 29, 1979
Page Two
to collect withwis'n&re possible th;t!.: we did not ave
l rs. We would
custm,,
taxric 12,_It feel conpelle2 t=o elp our
"rip off" by government.
appreciate ycv_ir help in corr-etins this
Best wishes to you.
Respectfully yours,
;
C
Edward L. Cawood
President
ELC:jy
Enclosure
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
October 30, 1979
lho lesorAble willies S. Moorhead
Mosso of Representative*
Vaskington, D.C.
20513
Door Bill:
1 appreciated your note of October 26 enclosing
the letter and ad frcm ruibiank.
These are difficult days and the support our
program is receiving is encouraging.
Sieserely,
WM A. Volc*
KAG:pjt (#V-99)
bcc: Mrs. Mallardi (2)60°'
•
WASHINGTON OFFICE.
BARBER B. CONABLE,JR.
237 CANNON HOUSE OFFICE BUILDING
NEW YORK, 35TH DISTRICT
WASHINGTON, D.C. 20515
COMMITTEES:
Cortgre
of tbe Ziniteb
tate5
(202) 225-3615
DISTRICT OFFICE:
WAYS AND MEANS
Aioule of ReprefientatibesS
311 FEDERAL OFFICE BUILDING
100 STATE STREET
ROCHESTER, NEW YORK
JOINT COMMIT-ME ON
iliadingtort, ri.e. 20515
(716) 263-3156
TAXATION
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Federal Reserve Bank of St. Louis
October 8, 1979
I
Honorable Paul A. Volcker
Chairman
Federal Reserve Board
Constitution Avenue & 20th Street, N.W.
Washington, D.C. 20551
Dear Paul:
I want to encourage you to do the sort of things that were
announced this weekend at the Fed. I know you'll get some flack
from it, but there are people here in Congress who believe a little
monetary courage is needed and who have great confidence in your
ability to do what's necessary.
I shall continue to be grateful for your willingness to take
on a thankless job at a difficult time and at what I am sure must
be a considerable personal sacrifice to you and your family.
Sincerely,
Barber B. Conable, Jr.
C/1
14614
WILLIAM S. MOORHEAD
PENNSYLVANIA
•
Congressional Liaison
response.
fice will-dr-aft
di
rs,
kNCE AND
'AIRS
14TH DISTRICT
WASHINGTON orricr.
2467 RAYBURN HOUSE OFFICE BuiLDING
WASHINGTON. 0 C.
Congres' of die lanittb
C()••.,r•I
MMITTIEI ON
ILIZATION
JOINT ECONOMIC COMMITTEE
20515
(202) 225-2301
31)ouge of 1kepres'entatibt5
CHAIRMAN. SUBCOMMITTEE ON
FISCAL AND INTERGOVERNMENTAL POUCY
tillaBbington, 33.C. 20515
GOVERNMENT OPERATIONS
MOLLIE D. COHEN
ADMINISTRATIVE ASSISTANT
PITTSBURGH OTPICE:
PENNSYLVANIA
2007 FEDERAL BUILDING
PITTSBURGH. PENNSYLVANIA 15222
REGIONAL WHIP
RI
PHONE: 644-2870
WILLIAM R. MALONI
NATHANIEL SHORE. ESQ.
SPECIAL ASSISTANT
PITTSBURGH ASSISTANT
October 26, 1979
t-'-vier
pOIN
Honorable Paul A. Volcker
Chairman, Board of Governors
Federal Reserve System
20th and Constitution, N.W.
Washington, D.C. 20551
Dear Paul:
I thought you might be interested in the enclosed
letter and ad published by Equibank of Pittsburgh,
Pennsylvania.
WWI"'
With best regards,
Sincerely,
T
!
K
WSM:plw
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS
.;"!
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Equibank N.A.
•••
.•
William E. Bierer
October 16, 1979
The Honorable William S. Moorhead
2207 Federal Building
Pittsburgh, Pennsylvania 15222
Dear Bill:
The inflation that has been eroding the foundation of our economy
for more than a decade has recently led the Federal Reserve to
tighten credit signif- icantly. The Federal Reserve action will
obviously require sme nacrifices, hut
think it was necessary
in view of the threat that inflation pones to the whole economy.
Knowing you share our concern about inflation, I thought you would
he interected in the enclosed ad describing our support of the
FedPtal Rr?stve, action. We are running this fnll-page public
service afl in local newspapers to heighten the awareness of the
general public ahout the dangers of inflation and the importance
of replenishing the nation's capital base.
Sincerely,
„• ,
I/
'tt
Removal Notice
The item(s) identified below have been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.
Citation Information
Document Type: Advertisement
Citations:
Number of Pages Removed: 2
Equibank. "Equibank Supports the Federal Reserve's Most Recent Decision in the Fight
Against Inflation." October 1979.
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Oatehor 30, 1979
itho Nanorabla Ulmer Chiles
cholroon
ashormnittre on Fadaral Speedies
Posatisee aed 0pee Gagesumeet
44amdttee.seChneelmestal Alletwe
Patted States Sewn:
Ilietutigtoe, D.C. 20510
Owe Cieinns adios:
Meek yen for yam latter of Oeteber 25 rocuerties the beard
to bastify at yeer Subeemmittwea iamb's es S. 1411, the Anpnroark
Aft of 1979.
sod Sodtaro
1 re plowed to Were pre that governor J. Charles PArtee
will appear on behalf of the awed emakeetiber 1 at 1000 4.18.
elleearely,
CO:pjt (fV-98)
bee:
Gov. Partite
Stan Sigel
Mrs. Nallardl (2).0'
Governor Partee will testify and /
is bein
epared
ABRAHAM RIOICOFF, CONN., CHAIRMAN
RY M. JACKSON, WASH.
10MAS F. EAGLETON, MO.
WTON CHILES. FLA.
b A IA NUNN, GA.
JOHN GLENN, OHIO
CHARLES H.
.1/icon x.
prFac
JAVITS,
WILLIAM V. ROTH, JR , DEL.
TED STEVENS, ALASKA
CHARLES MC C. MATHIAS. JR., MO.
JOHN C. DANFORTI.4, MO.
JIM SASSF_R, TENN.
DAVID PRYOR, ARK.
`WILLIAM
CA.RL LEVIN, MIC.H.
DAVID DURENBERGER. MINN.
RONALD A. CH1000
CHIEF COUNSEL AND STAFF DIRECTOR
S. COHEN. MAINE
RICHARD A. WEGMAN
CNIEF COUNSEL AND STAFF DIRECTOR
'ZCnifeb Zfatez Zertafe
COMMITTEE ON
GOVERNMENTAL AFFAIRS
SWICOMMITTEE ON FEDERAL SPENDING PRACTICES
AND OPEN GOVERNMENT
(202) 224-0211
WASHINGTON. D.C. 20510
October 25, 1979
•
•..
410
.
N41:4'
I
Mr. Paul A. Volcker
Chairman
Federal Reserve Board
20th and C Streets, N.W.
Washington, D.C.
20551
Dear Mr. Volcker:
The Senate Subcommittee on Federal Spending Practices and Open
Government of the Committee on Governmental Affairs will hold
a hearing on S. 1411, the Paperwork and Redtape Reduction Act
of 1979, on Thursday, November 1, 1979. The bill strengthens
and extends the reports clearance responsibilities of the
Office of Management and Budget.
I would like to invite you or your representative to testify
on this legislation. The hearing will begin at 10:00 a.m.
and will be held in Room 3302 Dirksen Senate Office Building.
It would be appreciated if you would deliver 50 copies of any
prepared statement you might have to the Subcommittee Office
by 5:00 p.m. the day before the hearing.
Should you have any questions regarding this hearing, Robert
Coakley of the Subcommittee Staff, will be available to assist
you. He may be reached at 224-0211 or in Room 44, 128 C
Street, N.E. I look forward to hearing your testimony on this
issue.
Si
rely
LAWTON kILES
BC: Mr. Jay Paul Brenneman
Congressional Liaison Office
-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
r
.•
'• ; r • ." •'Ix • .:
-• • -
•
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
October 30, 1979
The Honorable Norman E. D'Amours
House of Representatives
Washington, D. C. 20515
Dear Mr. D'Amours:
Thank you for your letter of October 24 concerning the
invitation from Mr. DeWitt to speak before the New Hampshie Business
and Industries Association. Because of a conflict in myachedule I
will be unable to attend the New Hampshire meeting.
Sincerely,
S/Paul k IlpidieL
cc:
Mrs. Mallardi
#92
JRC:tjf
•
D'AMOURS
WASHINGTON OFFICE 1503 LONGWORTH HOUSE OFFICE BUILDING
WASHINGTON, D C. 20515
RICT, NEW HAMPSHIRE
(202) 225-5456
STANDING COMMITTFF e;
BANK ING. FINANCE
AND URBAN AFFAIRS
Congre55 of tbe Unittb
MERCHANT MARINE AND
FISHERIES
tate5
3i)otifSe of 1lepreentatibe5
DISTRICT OFFICES
MANCHESTUR, NEW HAMPSHIRE 03105
720 NORRIS COTTON FEDERAL BUILJDING
275 CHESTNUT SIRE irr
(603) 668-6800
MEMDER—STEERING
AND POLICY
CO r4 M I TTEE
669-7011. EXT. 526
Z.Z.lasbingtoit, D.C. 20515
PORTSMOUTH, NEW HAMPSHIRE
03801
425 AND 426 FEDERAL BUILDING
80 DANIEL STREET
(603) 436-7720, Ex-r. 707
LACONIA, NEW HAMPSHIRE
03248
ZOO AND 223 FEDERAL BUILDING
1
719 MAIN STREET
(603) 52A-7185
October 24, 1979
Paul A. Volcker, Chairman
Federal Reserve Board
Federal Reserve Building
20th & Constitution Ave., N. W.
Washington, D. C.
20551
Dear Chairman Volcker:
I understand that Mr. Walter (Rink) DeWitt, President of the
New Hampshire Business and Industries Association (BIA), has been in
touch with Mr. Coyne of your office seeking your attendance on the evening of November 14th at the BIA's annual meeting in Bedford, New Hampshire.
The meeting will begin at 7:00 p. m. and your transportation
to and from Bedford can very conveniently be arranged by the BIA since
there is an airport within a few miles large enough to accommodate all
classes of commercial and private airplanes. The BIA will be happy to
arrange transportation to suit your schedule. It is estimated that 400
to 600 people will be in attendance.
I would like to ask you to please consider this as a personal
request from myself that you attend the November 14th meeting if such is
at all reconcilable with your busy schedule. I understand that Mr. DeWitt
has been seeking to obtain a reply for the past few weeks. I have also
spoken to Chairman Reuss of the House Banking Committee and he has asked
me to inform you that he joins me in making this request and would be
pleased to speak to you about it.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
a
Chairman Paul A. Volcker
October 24, 1979
I would be most appreciative if you would arrange to have my
office notified of whatever decision is reached in this matter prior to
contacting Mr. DeWitt.
Thanking you for your anticipated cooperation, I remain,
Very tr)Kyours,)
;
;;ZA7it—
orman E. D'Amours
Member of Congress
NED/sb
cc: Chairman Henry Reuss
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
October 30, 1979
The Honorable Henry S. Reuss
Chairman, Committee on Banking,
Finance and Urban Affairs
HouBe of Representatives
Washington, D. C. 20515
Dear Henry:
Thank you for your letter concerning an invitation to
tion on
speak to the New Hampshire Business and Industries Associa
Washington
November 14. Because of a conflicting commitment in
on that day I have been forced to regret the invitation.
Sincerely,
sgagl A. voickei
cc:
Mrs. Mallardi
#93
JRC:tjf
HENRVS. REUSS. WIS., CHAIRMAN
THCAAS L- ASHLEY. OHIO
WILLIAM S. MOORHEAD, PA.
°FERNAND J. ST GERMAIN. R.I.
HENRY B. GONZALEZ. TEX.
JOSEPH G. MINISH, NJ.
FRANK ANNUNZIO. ILL.
JAMESM. HANLEY, N.Y.
PARREN J. MITCHELL, MD.
WALTER E. FAUNTROY. D.C.
STEPHEN L. NEAL, N.C.
JERRY M. PATTERSON. CALIF.
JAMES J. BLANCHARD. MICH.
CARROU- HUBBARD, JR.. KY.
JOHN J. LAFALCE, N.Y.
GLADYS NOON SPE1J-MAN, MD.
LES AUCOIN. OREG.
DAVID W. EVANS, IND.
NORMAN E. D'AMOURS, N.H.
STANLEY N. LUNDINE. N.Y.
JOHN J. CAVANAUGH, NEBR.
MARY ROSE °AKAR. OHIO
JIM MATTOX. TEX.
BRUCE F. VENT°. MINN.
DOUG BARNARD. GA.
WES WATKINS. OKLA.
ROBERT GARCIA, N.Y.
MICHAEL LOWRY, WASH.
•
•
U.S. HOUSE OF REPRESENTATIVES
COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
NINETY-SIXTH CONGRESS
2129 RAYBURN HOUSE OFFICE BUILDING
WASHINGTON, D.C. 20515
223-4247
October 24, 1979
Paul A. Volcker, Chairman
Federal Reserve Board
Federal Reserve Building
20th and Constitution Avenue, N.W.
Washington, D.C.
20551
Dear Paul:
My colleague, Congressman Norman D'Amours,
spoke to me about the request of the invitation
which the New Hampshire Business and Industries
Association has extended to you to speak to their
annual meeting on November 14.
It would be greatly appreciated if your schedule
could be arranged so that you could accept this
invitation.
Sincerely,
Henry S. Reuss
Chairman
CC:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
J. WILLIAM STANTON. OHIO
CHALMERS P. WYLIE, OHIO
STEWART S. McKINNEY. CONN.
GEORGE HANSEN, IDAHO
HENRY J. HYDE, ILL
RICHARD KELLY, FLA.
JIM LEACH, IOWA
THOMAS B. EVANS. JR., DEL.
S. WILLIAM GREEN, N.Y.
RON PAUL, TEX.
ED BETHUNE. ARK.
NORMAN D. SHUMWAY, CALIF.
CARROLL A. CAMPBELL. JR, S.C.
DON RITTER, PA.
JON HINSON, MISS.
Congressman Norman D'Amours
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
October 26, 1979
Ilsecathal
Senjamin
The
Chefs**
Cannesee, Canmenst, and lbeetary
Affairs Smbesnmatese
Causittes
Goseiramit Open*low
isms se lispresseistasee
Ilestesst, thC. NMI
Saw Ilk. ahltiallelk,
Lair latter of iltbiber 143, 1 as pleased to
eastass tars follewtmg faillemettes yee reopessteds
Al faillasesd
(1) Copies the esnsmear eingialate ender the codes
listed in your letter se Anew 20, 1979,
hamdled by the Mew York Federal ilseswes iLlek
during 1973 and the Met two ~Sere of 1919
(to date, one complaint hee net been loceted-mme
will forward it as sonde gmesible);
0) A emelsed tabulation of the mowers es the
advertising pegs of the mosolmation checklists
for the last two anaminstione of state selber
bemhs Is theStato of Mew
(3)
A tabellifilli
the allegleraas
taw imliossitfaiss
est lie lest
page of Idle maeisstima
dr
two aggionstsup of State uses,bolls
Sem Irttsasises district; sed4
(4) A tabsistise of the total modbor it advertising
violatleme isvolving aegwisthes re ths Fair
dowsing hst, sad 11144pilatise Imeted in enaninatiampopperts for MS sae the first two
Tourtees si 1979 swheittod by dm Mow York
mme 1as Iftitavaisco Federal Seesaw hanks.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
The Mommemble lisejasta it. Seenshal
rev Tee
Iolorootima essordimi iftehlmites, DEC., is not smolosed
lame we do aot hews a Sesompo Salk is Wasablostos, D.C. as WIWO
direct eompliancia emooduation roopoosibilitias with rosjost to opy
basks located la the oistriat of Cologiaas
I imps thee dm assiAseadl will semplas the isformotima
106410sts46 If, bowsesi* yes se pour seeff Wes soy resetiomo. do
004 Imitate to 0011 Jrnomiso eSt4141110, kowtow lismitmer, at 4324966.
Ilassarsly
SLPati.1 A. Volau
Siodassims
DJ JC
4,1640
bee: Dims Mains
asiimo Catalano
s.Slallatidt(2)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Oeteber 18, 1979
The iitamorAble Seed.lab So ikalleStisal
Chairmen
Anhemetttee on Cammenee COmmener
sod Nenstary Affairs
Committee es Govermment Operetteme
N en ef amprgengathres
waShiseng, D.C. 21/515
Dear Chethilee Sessethal:
Ae pee unneete4 tm your letter
eselosimi the fellsmtnit
$eptember 24, 1979, I em
(1) Cerise se seigneur compl*tote east the cedes list&
is
r lettelr of
aSs 1979, heedied by the $ee treesisco
Selma Seesaw Seth Aisles MS and the first two gmerters of
ISM
(2) A tebelettes of the answers on the advertisime papa of
the illielosar ebeckliste tee the lest two egeminattems of State
seMbee heels in law lodh State.
eemplete year I-es-meet, I will forward the followies isforme.
tie* Is 11104II
11
ass retrieve its
(1) Copied, of esesemer semplsinte ender the cedes listed in
yeer letter of iffellet 20, 1979, heeded by the law Iferk Ye4sr4
Seems $eek dories MS sled the first tee mestere of 1979.
(2) A tWheletIon of the sone= ea the severtiaimi me of
the emeniaatise cheeklists for the last two elnelnatiost of State
sexiber balks in dee leo erimutface discriett.
(3) A takelatima el the total umsber
airertisiggi fotelattgas
of gegulatien
II Mit the Fair logibis Age sated In dMI111111111119*
ties reports fait 1971 sed the first waggoner* of 1979 eihmiseed
by the New Iamb end See Prwasieve Sedemel Seeseve Seeks.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
IS Vorsorablo
S. Resestatal
kW SP*
Nisehers of the Board's staff and the stsffs of these Reserve
Mods ere presently esmpiling this information. I will seed it to you
me ow as it is prapegad4
If yea er 'mew staff have Amp emestiome, please feel free to
sostast Amato Ottelose at 452-3946.
Sismomesiy.
Saul A Volsker
JC:pjt (#1
,
46)
bec: Jeanine Catalcmo
Mrs. Mallardi (2) ior
•
Mk.
BENJAMIN S. ROSENTHAL, N.Y.. CHAIRMAN
ROBERT T. MATSUI. CALIF.
EUGENE Y. ATKINSON. PA.
FEEINAND J. ST GERMAIN. RA.
JOHN CON CRS. JR., MICH.
ELLA01 T
LEVITAS. GA.
•
NINETY-SIXTH CONGRESS•
Congre of tbe Einittb -P4)tatei4
LYLE WILLIAMS, OHM
JIM JEFFRIES. KANS.
JOEL DIECXARO,
MAJORITY—(202) 225-4407
). oti5e of 1kepre5entatibefS
COMMERCE, CONSUMER, AND MONETARY AFFAIRS
SUBCOMMITTEE
COMMITTEE ON GOVERNMENT OPERATIONS
OF THE
RAYBURN HOUSE OFFICE BUILDING, ROOM 9-377
WASHINGTON,D.C. 20515
September 24, 1979
Hon. Paul A. Volcker
Chairman
Board of Governors
Federal Reserve System
Washington, D. C. 20551
•••••
Dear Mr. Chairman:
In response to your letter dated September 7, 1979, and so that we can complete
this hearing record on supervision of bank advertising practices, please send the
subcommittee:
1.
Actual complaints by the codes listed in our letter of August 20, 1979, for
Reserve Banks in New York, San Francisco and Washington, D.C., for 1978 and
the first two quarters of 1979.
2
The examination checklists for the last two examinations of State member banks
in New York State, San Franciso and Washington, D.C.
3.
A tabulation of the total number of violations in each region of Ql(a), Z9,
and FHA 3 for 1978 and the first two quarters of 1979 for Reserve Banks in
New York, San Francisco and Washington, D.C.
We request a letter for our hearing record as soon as possible with a timetable
for receiving these documents from you. After evaluating the documents, the subcommittee may request additional information to complete the record.
Thank you for your time and consideration.
Sipcerely,
\1.
•ILj r.
Benjamin S. Rosenthal
Chairman
BSR:tb
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Actil
assigned to Janet Hart
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
October 26, 1979
The Honorable ?sul E. %mega,
Chaim's"'
ee
Consumer Affairs Subcommitt
in
Committee on Backlog,
and Urban Affairs
United States Senate
Washington, D.C. 20510
Dore Mr. Chairman:
requested isfermatioe
s
ye
,
79
19
4,
r
be
to
Oc
of
er
In your lett
emt geidellase amd the
em
rc
fo
y
en
mc
ge
ra
te
in
I
on
ti
casseredes the Regula
y jurisdiction eemdmet file
or
is
rv
pe
su
r
ou
in
th
wi
sequiremost that bank
rsable violstleme.
asseehes to identify reimbu
(a) the number if file stawilses
Your initial reuest Is for:
; (c) the steps ashes
ts
im
le
mp
co
ic
if
ec
sp
e
th
)
(b
ordered by this agency;
the testituttems; asdf
by
d
me
ai
s
cl
or
ct
fa
st
co
the
by spur staff to verify
ted in accord/Imes with
ec
md
se
,
ct
fa
in
,
re
we
efi
rch
(d) Whether the file sea
by our igency.
the instructions supplied
t a honk to conduct a
es
-u
re
t
no
do
s
er
in
am
ex
T
Generally, OU
imbursable violations is
re
of
ce
ti
ac
pr
or
n
er
tt
pa
file search unless a
when a file search must be
en
Riv
.
le
mp
sa
an
lo
's
er
in
manifest in the exam
of loan in the bank's
pe
ty
at
th
to
d
te
mi
li
y
ll
initiated, it is usua
ttern or practice. Through
pa
e
th
n
ai
nt
co
to
d
un
fo
en
portfolio thst bee be
s out of 523 with relies.
si
ba
7
38
d
ke
as
ve
ha
&
sh
Sa
July 1979, the Aoserve
The banks are required to
.
hee
tel
ses
le
fi
e
ak
rt
ie
sm
view
bursable violatiemet.
e Reserve llamas which re
th
to
es
ch
or
sc
le
fi
e
th
repeat this results of
rted data. The Reserve
po
re
e
th
se
d
se
ba
ss
se
le
ab
during
the rosette for reesem
6 sample basis
ce
es
ch
ar
se
le
fi
e
th
of
s
nks have
Banks review the result
the extent to which the ba
e
in
rm
te
de
to
n
io
at
in
am
ex
ement
the meet
of cite calculated reimburs
ocy
ocu
adl
e
th
d
se
s
le
fi
reviewed their
ammegai.
ived very few specific
ce
re
ve
hn
s
ek
Se
e
rv
se
Ma
e
The Beard and th
. Those complaiets
es
ch
ar
se
le
fi
e
th
to
g
in
complaints free balks Object
on that it coats the
ti
en
et
ce
the
on
s
cu
fo
ne
that do mention tile *sardi
ree, but no specific
bu
im
re
to
an
th
ch
ar
se
le
balk more to cot the fi
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Ihe Honorable Paul E. Tomas
rep Tio
he. been supplied. This is me of the fasters that led the Board,
aed the other agencies, as the Federal Finemeial teetitutime Immemation
Commit, to ask for gmforestion en the direst and todireet coats ed
implementing the guidelime Le the recent proposal to amesd the snidelime. and for eennomh on maps laishich the guidelinae could he mended
to redoes edeinietrative beedise is finaaelAl institutions while siefar
taint estrum. to the ememer. A copy of that proposal, with a Isom
releses dated October 15, le Maimed.
dittit
Tee also as& Sir our respeme be a semesem4 node by mr. John
11. PeOkins, President of the Aviaries* Soder* Assoctattee in. letter
to its velbers ea how 21. 1979. Appeeestly, Mr. Perkime emote
that badmen' hove am& s SOMPeientiese dart to comply with Begeletlen zo
thAt violatiese were cited despite the hambere good faith efforts to
comply with their understood** of the law's vegeireeetts at the time the
loans were mole, but that the agencies, is implementing the guidelines,
retroactively Apply Chomped interpretations sod eneniments to loan tramactiesa. In our reeposee you ask for: (1) a Wain of the major reinburaable violations (in the order of their osigettade) cited by this egoism
aloes with the umber of basks cited for that type of violations; mod
(2) a statement of how the rules and interpretetime relating to ea&
practice may have been alesiod siege MC
As the Sserd he* stated previously, La Annual Reports to
Congress sod elsewhere, as believe that meet bankers have indeed made
a coneeteetiose effort to empty with the law, we believe that west of
the violatisme diseemeed hoot been technieal in nature and havs occurred
beeenee tire beak aleusisrmiesed the lawie meuiressato rather than because
it mode a sammelsos Mart **violate the law.
respease to Or• Perialto asserttsee sopardiag retroactive
application of chowed interpretations aid amemimemis, amd JAR roopmese
to item (2) of yew sequest, we offer the Is12a. Tb. Iftwes stat
has been emmerned abort this loose hot hes bees seible to fled es
instals* in which a Ass. is the law tepeolig nem stringent eenpliesse
re-unmeant* hes bees milemed with respect to promesiatieg tremeactioss.
It woad sot be thellmeres policy to mime* mew, more stringent remisemanta retroactively.
Mere have, of esowee, boos shows le ampslation Z since 1974.
It is our belief, hemmer, thee meet of the isterpretatiese of and changes
is Sagolation Z have mom is reepcose to legislative champ or to requests
lit elarifieettees of the law's roquifemed41 that were submitted by
creditors. In a substantial portion of those latter instants*, the
Interpretation or ameedient served to clarify the law's reomirenents at
the time rather thee cheesing thee. requiremmes. We believe that is
those cases Where 4 eiheheetive *hinge woe sods, partieularly with regard
to requirements relating OD the reisiborsoneet policies, the effect of the
ohms, ves to ease mommosny emplimme, wafter this eshleg empliance
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
The Honorable Paul I, Tsonsas
Pass Three
more stringent. For example, the 'minor irregularities" provision of
the regulation was amesded to simplify the annual percentage rate
calealetion for certain leans with irregular first payment periods.
In addition, the staff Lammed as official interpret4tion clarifying
that diselssures nmesseary to exclude credit life ineurnnee prOMAMMO
from the firms* Merge sem be nede separately from the °thee 'squired
disclosures. We believe that both of these interpretation's bed the
effect of simplifying, rather them increasing, Obe creditors sempilases
effect. We would, of course, wilk to be imissmed of any amemplos Nr.
Perkins may have of the types of actions he addressed.
Enclosed is a taibmieties that reopen& to (1), above. This
tabulation breaks down the ode" eatealaries of reimbursable violation
sod ranks each violation within the category by its relative brogue's,.
The noshes of banks holds, the type of violation Indicated by the gemeald
categories is also provided. The figures are based sa the 523 banks thot
had reimbursable violation as of July 31, 19791and severs the period from
March 1977 through July 1979.
I hope this informatics.' is of assietiese to you.
Sineerely,
Sikaml A. V9y.roi
Enclosures
TRB:sak (CV-64)
bcc: Mr. Burniston
Mrs. Mallardi(2) w/°'
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
0
Number of Banks with Reimbursable Violations By General Category*
Category
1.
2.
Understated APR
a)
failure to correctly treat prepaid
finance charges (e.g., /oints) in
APR.
b)
failure to include origination and
service fees in APR calculation.
c)
misapplication of the "minor ,
irregularities" provisions.
d)
disclosures based on 360/360 or
365/365 basis but customer
charged on 365/360 basis.
e)
failure to disclose the APR.
f)
misunderstanding of the
rounding provisions.
Number of Banks
368
Understated Finance Charge
155
a)
failure to correctly treat
prepaid finance charges in
finance charge disclosure.
b)
failure to include origination and
service fees in finance charge disclosure.
c) failure to include mortgage
guaranty insurance in the
finance charge.
3.
4.
Credit Life Violations
a)
failure to include the cost of
credit life insurance in the
finance charge when the optional
nature is not disclosed.
b)
failure to obtain the customer's
signature or disclose the cost
of optional insurance.
Non-Finance Charge Violations
a)
*
Based
-
70
2
disclosing actuarial method of
rebating unearned finance charges
but using Rule of 78's.
on
523 banks found to have reimbursable violations between March 1977
79.
•
WILLIAM PROXMIRE, WIS., CHAIRMAN
HARRISON A. WILLIAMS. JR., N.J.
ALAN CRANSTON. CALIF.
ADLAI E. STEVENSON, ILL.
ROBERT MORGAN, N.C.
DONALD W. RIEGLE, JR.. MICH.
PAUL S. SARSANES, MD.
DONALD W. STEWART, ALA.
PAUL E. TSONGAS, MASS.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
JAKE GARN, UTAH
JOHN TOWER. TEX.
JOHN HEINZ, PA.
WILLIAM L. ARMSTRONG. COLO.
NANCY LANDON KAMM/I/WM. KANS.
RICIIARU (a. LIJOA,P1, IND.
COMMITTEE. ON BANKING, HOUSING, AND
URBAN AFFAIRS
KENNETH A. MC LEAN, STAFF DIRECTOR
M. DANNY WALL, MINORITY STAFF DIRECTOR
MARY rmAncts
DE LA
'alCnifeb Ziatez -.Senate
AVA, CHIEF CLERK
WASHINGTON. D.C. 20510
October 4, 1979
The Honorable Paul A. Volcker
Chairman
Board of Governors of the
Federal Reserve System
Washington, D.C. 20037
4
64
Dear Chairman,
Recently there has been a considerable amount of discussion
concerning the requirement by various Federal Financial
Regulatory Agencies, under the uniform enforcement guidelines
for Truth -In-Lending, that financial institutions perform file
searches to locate reimbursable violations of Truth-In -Lending.
It is my understanding that the Federal Reserve Board has
received complaints from institutions under its supervision
which have conducted file searches under the uniform guidelines
It would be helpful to our understanding of this issue if your
staff could document the cases that have been brought to their
attention.
It would be particularly helpful if you would forward a statement
setting forth: a.) the number of file searches ordered by
your agency, b.) the specific complaints, c.) what steps have
been taken by your staff to verify the cost factors claimed by
the institutions, and d.) whether the file searches were, in
fact, conducted in accordance with the instructions supplied by
your agency.
l.
I would also appreciate your response to the following statement
by John H. Perkins, President of the American Bankers Association
in a letter to members of the association dated August 21, 1979:
"The point that must come first in any discussion of Truth In-Lending enforcement is this: bankers have conscientiously
tried to comply with the regulations. Virtually all of the
so-called violations in fact represented good faith compliance in past years with the rules which applied at that
time. As we all know, the rules and interpretations have
changed constantly and are continuing to change, yet we are
being judged on past practices on the basis of new interpretations which did not even exist at the time of the
transactions."
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Federal Reserve Bank of St. Louis
Would you please include in your response: a.) a listing of
the major reimbursable violations (in the order of their
magnitude) cited by your agency along with the number of banks
cited for that type of violation, and b.) a statement of how
the rules and interpretations relating to each practice may
have been altered since 1974.
assistance, it would be appreciated if this
forwarded by October 15.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
October 25,
The Memorable Morrison A. Wiiliams.
United States Seaate
liashiagten.
.51()
pear Senator Williams;
Meek yes for 31evr letter ot October J., re &mond
Ni. Marilyn E. SAtese_k as et amber of the board's enslaver
Adv I eery cateac i .
Tem nay be esseved thee MM. Seissekts qualifications
will melee full eseeiderature by the amid vitou ft metes the
INI asoeistemets to Cho i4;411‘ LI within the east several weak*.
We 14.1 be in Much with yes mhos the selections are weds.
The Meard appreciates seveiviog
mod your interest is the Censer? Nfirisory
rehotemendatLee
Sin *rely ,
S/Paui
4icket
cO:vcd (FV-87)
IDENTICAL LETTER 120 GONG. MILLICENT IMMUICIE (1:1-90)
bcc.
Mrs. Moller& (2) *.
e'
(w/coni
Geary
es of if'omiNg ltrs.)
An
WILLIAM PROXMIRE. WIS., CHAIRMAN
414ARRI SOH A. WILLIAMS, JR., N.J.
ALAN CRANSTON, C.ALIF.
orat_Ai E. STEVENSON, ILL.
ROBERT MORGAN, N.C.
DONALD W. RIEGLE, JR.. MICH.
PAUL S. SARBANES, MD.
DONALD W. STEWART. Al-A.
PAUL E. TSONGAS, MASS.
JAKE GARN, UTAH
JOHN TOWER, TEX.,
JOHN HEINZ, PA.
L. AR M STFt0 NG. COLO.
WI
NANCY I-ANOON KASSIESAUM, KANS.
RICHAJW G. LUGAJR.
'ZICrtiteb Zfakez ,T•ervate
COMMITTEE ON BANKING, HOUSING, AND
URBAN AFFAIRS
KENNETH A. MC LEAN. STAFF DIRECTOR
IA. DANNY WALL, MINORITY STAFF DIRECTOR
MARY 'FLANGES DK LA PAVA, CHIEF CLERK
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Federal Reserve Bank of St. Louis
frz
WASHINGTON. D.C. 20510
October 18, 1979
The Honorable Paul A. Volcker
Chairman
Board of Governors
Federal Reserve System
Washington, D. C. 20551
Dear Chairman Volcker:
Ms. Marilyn E. Schoeck of Milbu ,rn New Jersey has been
recommended to the Federal Reserve Board to serve as a member of
the Consumer Advisory Council. The purpose of this letter is to
endorse her nomination and urge her appointment.
I have met with Ms. Schoeck to discuss both her interest
in the Consumer Advisory Council as well as the contribution she
could make to its work. I am impressed that she can bring very
necessary perspectives to the Council as a result of her work in
New Jersey's second largest bank holding company.
EIMINEIP"
Many of the laws passed by the Congress in recent years
have been oriented toward the protection of the consumer in an
increasingly technologically-oriented financial marketplace.
Ms. Schoeck's experience would be most useful because of her
work with the various kinds of funds transfer devices now being
employed and deployed by financial institutions. She has firsthand famarity with the technical and business aspects of
serving consumer needs using technology. Moreover, she has been
actively coordinating her institutions compliance with all the
requirements imposed by the Congress and the regulators SSSotect consumers.
For the work of the Consumer Advisory Council to be useful to the Federal Reserve Board, it is essential to attract the
advice of individuals who are knowledgeable about the capabilities
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
The Honorable Paul A. Volcker
Chairman
Page 2
of new electronic consumer products and who are sensitive to
the needs of consumers. Nis. Schoeck has been actively performing this function for her employer and for the benefit of
the New Jersey Bankers' Association, the Electronic Fund Transfer
Association and other professional associations.
I urge you to consider her credentials carefully and
trust you will be equally impressed. Ms. Schoeck would be an
excellent appointment for you to make to the Consumer Advisory
Council.
cc.
Ms. Anne Geary
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
October 25, 1979
The Momeweble Rill chAppell
Meow of Congress
Deer Mk. fhappolls
en pleased to rempemd to your letter of ember 17 empordlee
a request frogs your emestitmeet, Mk. Lloyd A. Chi1/000e, for information
on the Federal Reserve system.
The Federal Reserve fpotemm-the nation's eastral bank—was
emoted by Mt of Cowes. on Messeher 23, 1913. The Systole:Us a
ppowsddal structure: at its hems its about 5,600 ember sommercial
UMW in the sdddle is ammtissmdde network of 12 Federal Reserve bombe
sed 25 breathes; mond, at the apes of the organisation, is a eseemposiber
Imerd of flemosers, with headquarters in Washington. D.C.
As provided for by law, the stock of the Federal Reserve Seiko
ts held entirely by semnareial banks that are sesibers of the Federal
Reserve System. Mowever, ownership of that stye': is in the nature of
an obligation illidiONt to modpership and does not carry *ith it the
attribetes of cameral end financial Interest ordinarily attached to
*to* sumership in corpse:otiose that ars operated for the purpose of main
a profit. The *mount of stock that seism bombe See required to own te
specified by tev. The stook soy not be sold or pledged as sesurity for
loans, and dividends are limited by law to Oft per SOW 1110! SOMMIS.
The Federal Reserve leaks are not emoted for a profit. Lath
year, in feet, they turn over Sebotantial sues of mammy directly to the
Me Treasury. As a result of earnings in 1978, popments to the U.S.
Ilicstery ememmeed to over $7 billion, as indicated in the enclosed press
lee.
To provide further background on the federal Reeefve System,
I amiemelosime a heektet entitled "The Federal 100011VO Syseemr•Perpeeee
amid Fematioes." Im addition, semloesd is a espy of the 1978 Amommimamm
of the Beard of GOMOVOICO. Bestowing on peee 383 is the financial state.
ant for the board, followed by detailed statement of condition tables
of the Federal Reserve Is
fey the year 1978.
I heps this information will be usefUl to Mr. Childress.
let me know if I can be of farther assistance.
Slocerely yours,
CO:pjt (FV-88)
bcc: Mts. Mallardi
(Signed) Donald 5. Winn
Donald J. Winn
sluplot c. to lD4,, 64.4
Aimee
i
EULL CHAPPELL
DISTRICT OFFICES:
411
4TH DISTRICT. FLORIDA
258 FEDERAL BUILDING
0C
-ALA. FLORIDA
42353 RAYBURN OFFICE BUILDING
WASHINGTON. D C.
20515
(202) 225-4035
32670
(904)629-0039
Congre55 of the aniteb gptate55
523 NORTH HALIFAX
DAYTONA BEACH. FLORIDA
COMMITTEE:
3i)otW of ikepraSentatibt5
APPROPRIATIONS
SUBCOMMITTEES:
8829 SAN JOSE BOULEVARD
Cliaitington, D.C. 20515
DEFENSE
32018
(904) 253-7632
JACKSONVILLE. FLORIDA
ENERGY AND wATER
DEVELOPMENT
32217
(904) 733-4288
DISTRICT OF COLUMBIA
October 17, 1979
'frit!
rm"-r-
Mr. Paul A. Volcker, Chairman
Board of Governors of the Federal Reserve System
Federal Reserve Building
Constitution Avenue Between 20th & 21st Sts.
Washington, D. C. 20551
Re: Federal Reserve System - Information-Lloyd A. Childress
Dear Mr. Volcker:
The attached communication is sent for your consideration. It
will be appreciated if you will please investigate the statements
contained therein and forward me the necessary information for
reply, returning the enclosed correspondence with your answer.
With best wishes, I am
ely
BI
CHAPP
Congress an
BC:rks
encl.
Po:
0 WASHINGTON
PLEASE RE
0 OCALA
(DND TO:
DAYTONA BEACH
JACKSONVILLE
-1
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
T
awri—ja.S.1.11;
•
REGISTERED REAL ESTATE BROKER
•
•
STROUT REALTY, Inc.
.'He.„
:
1
.40A•
ROUTE 92 EAST: ROUTE 5, BOX 1201
DE LAND, FLORIDA 32720
PHONE . (904) 734-7775
LLOYD A CHILDRESS
Associate
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
October 10, 1979
The Honorable Bill Chappell, Jr.
Dear Congressman Chappell:
I am very interested in the Federal Reserve System
and
would like to receive the following:
-
Copy of the operating statement
Structure of the System
Who owns the Federal Reserve Banks
The disposition of the profits of the Federal
Reserve System
An early rt1/ will be most appreciated. Thank
Yours t
ufy,
ild e s
LAC:fl
0
October 25. 1979
The Aonorable S. William Gress
douse of Representatives
:sshingLon, D. C. 20515
pear Mr. Green.
ihank you ter your letter of October 17 indicating your
support for the establishment of International Banking Facilities
within the c,ontinental :.inited States.
The 'Ward last considered this proposal at its meeting
of July 16, 1979. and decided to take no formal action at this
time. The Board found that several of the significant ?olicy and
legal issues raised by public commmmta and by the Board's staff
illeared to be related inextricably to anticipated legislative
and administrative initiatives. Some of those issues relate to
mandeory control. competitive advantages aajoyed by banks located
in Mew York, and legal attAtcts of implementing the ,Iriseael. The
Board requested its staff to continue work on the substaative
issues raised by the lroT)osal and to provide a report imtabout
six months.
I shall be glad to beep you informed of further devel&Agents in this matter.
Sincerely
VQ,Isiter
SZPaR
_
RFG:vcd (#1,-85)
bcc:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
0
Hrs. Hallardi
Messrs. Gamin, Schwartz, Simpson
Ns. Brawn
Mt. Truman (for Division Files)
•
S. WILLIAM GREEN
18m DISTRICT, N&;
.
.W YORK
•
•
WASHINGTON OFFICE:
1118 LONGWORTH HousE OrricE Sulupinto
WAstitntaror+, D.C. 20515
COMMITTEES:
(202) 225-2436
BANKING. FINANCE AND
URBAN AFFAIRS
Congre55 of tbe
suocomurrTrEsHovsING AND COMMUNITY DEVELOPMENT
ECONOMIC STABIUZATION
GENERAL OVERSIGHT AND RENEGOTIATION
SELECT COMMITTEE ON AGING
V.Aniteb
tate
NEW YORK OFFICES:
1628 SECOND AVENUE (84TH STREET)
NEW YORK, NEW YORK 10028
(212) 826-4468
ii)otisSe of teproSentatibesS
Ulagbington, ac. 20515
229 FiRsT AVENUE (1411-4 STREET)
NEw YORK, NEW YORK 10003
(212) 826-4466
,
!_,C)
October 17, 1979
The Honorable Paul A. Volcker
Chairman
Board of Governors of the Federal Reserve System
Washington, D. C. 20551
444-
:3
Dear Chairman Volcker:
As a Member of Congress from New York City who serves on the House
Banking, Finance and Urban Affairs Committee, I urge your support of the
proposal to permit the establishment of International Banking Facilities-or "free trade zones"--within the continental United States. These
Facilities, of course, would operate under reserve and interest rate provisions that would allow them to be fully competitive with international
banking in foreign cities.
As a past President of the New York Federal Reserve, you are, I know,
familiar with this issue and understand the need to keep U.S. financial
centers, particularly New York City, competitive with the other financial
centers of the world. The competitive position in the U.S. of the U.S.
banks has declined in the past ten years, and the "free trade zone" proposal
would tend to reverse this alarming competitive deterioration. This would
have many advantages for the United States. First, of course, a restoration
of U.S. financial center primacy should give the Fed greater ability to work
toward orderly economic growth and change. Second, the direct economic
benefits could be considerable. If the recent financial sector job growth
in London is any indication, the potential for job growth in the U.S. is
impressive--especially for New York City.
While New York stands to gain from implementation of this proposal,
other states will also gain. The proposal is not limited to New York. In
addition to setting up IBF's elsewhere, banks in other cities would be able
to participate in the New York IBF throuah such vehicles as Edge Act corporation subsidiaries.
I will not try to cover all of the points which are being argued in
support of the International Banking Facility proposal. Suffice it to say,
I am convinced that favorable action by the Board of Governors would be in
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS
'
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Honorable Paul A. Volcker
- 2 -
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October 17, 1979
the best interests- of the United States and of New York. Accordingly, I
respectfully urge that you permit the establishment of International Banking
Facilities, as proposed on a basis which would permit them to compete with
their overseas counterparts.
I await with interest decision of the Board on this most important
matter. Thank you for your courtesy and concern.
Siyic,rely,
S. William Green
Member of Congress
SWG:nhd
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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October 25, 1979
The Honorable Stanley N. Lundine
House of Representatives
Washington, D. C. 20515
Dear Mr. Lundine:
Thank you for your recent letter concerning the
bankers
convention in Olean, New York, on November 13.
We have arranged for Ron Gray, Senior Vice Pres
ident of
the Federal Reserve Bank of New York, to meet with
the group in
Olean on that date. Mr. Gray is familiar with west
ern New York,
having once been the head of our Buffalo Branch, and
I am sure
that the bankers will find his remarks informative.
With best regards.
Sincerely,
latil A. Vizisiset
cc:
Mrs. Mallardi
#77
JRC:tjf
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
.
.•
..410011064.-
mimmillibm.•••••••••111.•
•
STANLEY N. LUNDINE
39TH DISTRICT, NEW YORK
DISTRICT OFFICES:
Room 122, FEDERAL BUILDING
P.O. Box 908
JAMTITOWN, NI W YORK
COMMITTEE ON
Coltgre5 of tije itiniteb AtateEi
BANKING, FINANCE AND
URBAN AFFAIRS
jDotM of ileprci5entatilmS
COMMITTEE ON
14701
Ptiour• 716-484-0252
180 STATE STREET
ELMIRA, NEW YORK
14901
PHONE: 607-734-0302
Room 606, 101 N. UNION STREET
SCIENCE AND TECHNOLOGY
Ulimbington, AC. 20515
OLEAN, NEW YORK
14760
PHONE: 716-372-1818
SELECT COMMITTEE ON
AGING
430 CANNON BUILDING
WASHINGTON, D.C.
20515
/ I ,
PHONE: 202-225-3161
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Federal Reserve Bank of St. Louis
Friday, October 12, 1979
"."
Paul A. Volcker
Chairman
Federal Reserve Board
20th and C Streets, N.W.
Washington, D.C. 20551
Dear Mr. Volcker:
My Olean district office has contacted the Federal Reserve Board
to request a speaker for a banker's convention to be held in
my Western New York district, and Jay Brenneman, of your office,
has advised my office to forward that request in writing.
I am requesting that the Federal Reserve Board provide a
personable and knowledgeable speaker to the banker's meeting,
scheduled for Tuesday, November 13, at the Castle Restaurant in
Olean, New York. A brief, thirty-minute talk about a timely,
interesting topic of your choice, followed by a few minutes of
questions and answers, would be very welcome to the more than
100 bankers and guests attending the function.
1111111moir
!Jr--
I would ask that you provide my Olean district office manager,
Elisabeth Johnson, with the name of your speaker and a copy
of his curriculum vitae as soon as possible, so that she may
publicize the evening event. She will also be pleased to provide
you with travel information, and the bankers, of course, will
provide an escort for the event. Her FTS telephone number is
432-4232.
Thank you for your assistance in this matter. Please do not
hesitate to contact my office at any timo, if T may he of further
assistance to you in this or other matters.
wow
Stanley N. Lundine
Member of Congress
THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
fletsber 2S• 1979
The Sieermble MOM,lift Masi
Chateaus
imboomaittes wilboasaattewl Trade,
Sweetmeat sad Memetarry Patter
Committee as leaktegi rtmemee sad
Mau illaira
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lammidoer 13 at 9:10 soli.
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Siscorelle
S/Paul A. .Y1o;,,kes
CO:pit (141-66)
bec: Zr. Axilrod
Mrs. Mallardi (2) LS'''.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
octelnre 24* lin
ilbs Ilimmumbl• John Heins
Wad States Searkte
Illmiliesstasio D.C. 20310
isI, tliarmise Ss•s:
at imply to your letter of Ornallmir IS, 1
sulases a ow
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ami Mos Affairs*
Siteeerely,
Wail LVo!chet,
issloeure
4111110jt (11-111)
bos$ Mr. McNeill
illn. Mallard.. (2)'-'
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Oataber 26, 19710
The limeorobie wait= romembre
Chsimms
Committee ea Isakisms. Ileesimg
sad Itsbes Affair,
*sited lutes assess
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This is ilk may to yser toomest for mossost es 5. 11111, the
SIMPINNIM alrlsouNgist atilmillsedes Simplifiseties Mt of 1910."
The board hes emstatantly eeprimessd its sweet at the pesituel
Odd* sad goals of S. 15929 lo fast, as yaw basso the Demi is edspeed
ispoilstsry prosedesse timet pmeerany somilses te Ile bill's peopseeis,
auwever, soeirpties there preseisses, the board fosse ihat
ropilatisse *deem
Cattaiis exception* sellis issmessw• Idswitary
to sot fit into ea& a moissindi piessoloral frainiest besets* the public
intarsst sometimes re-wisre era mecums to be taws swiftly eel without
pilaw 'while Immoledits. lb doe soseleded dist the asseril presedures
seed set be applied to sitildkier group of omplattase shire somplissee
with se* precedents weld be ispreatioside, esisimeesty or smitrary to
Lila palls istoseet• Yee esesple. se eamemmied oismist period and
eltsmaatitso emy set be either pessible or
maw two esesidwatios
411106robla is the ems* ad (I) teshaleal or elsrifyieg —a,
(2) repuletisse destesed Is eliminate a lasphele or redoes a bards*
limes berthet delay weld souse esesseseary bare, (3) cspulatisss that
eseld retormalate a prepseall peorlseely leseed ter peblimt eawariat or
sseeletisas ashiset te ashort statutory deedlise.
it is soemmooded that S. 1392 bs memsdied50 weenstee the
toed for smith varietal** 11rss the gessest pa/Sy mmetiteed In the bill.
the lissrel will be happy Is emporste with yes sad yaw Committee is
Worts to ecitteut a kes beeleseeme rsodatarty amrissammitt•
plus (V-81)
ellitpjt/(per reiruest fr
comments on bill)
boat Mr. *Will
Mrs. liellardi (2)
linessely.
Via A. Volcket
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kction as signed to Neil Pete
and Charlie McNeill
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Federal Reserve Bank of St. Louis
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1•0•ElliT E. L'GNTHIZEw. co.,Er miN0.•ITY COUNSEL
October 15, 1979
CD
7-1
—4
Mr. Paul Volcker, Chairman
Federal Peserve Board of Governors
Constitution Avenue and
20th Street, NW
Washington, DC
Dear Mr. Chairman:
On July 27, 1979, I introduced, along with Senators Dole and Lugar,
5.1592, the Financial Regulation Simplification Act of 1979. The bill
is designed to assure the elimination of duplicative or conflicting regulations, and that regulations are clearly and simply expressed, and that
duplicative and conflicting regulations are eliminated or clarified.
On August 3, 1979, the Banking Committee officially requested ccur
ments by the Federal Reserve Board on this legislation. Thus far, there
has been no response.
I would, therefore, appreciate any efforts that can be made to
provide the Committee with comments in the near future. Thank you for
your consideration of this matter.
cerely,
hn Heinz
ted States Senate
JH/hsr
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Federal Reserve Bank of St. Louis
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NORTH CAROLINA
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
'Unita)Zfateo -Zonate
WASH I NGTON. D.C. 20510
19790CT 6
October 15, 1979
The Honorable Paul A. Volcker
Chairman
Board of Governors
Federal Reserve System
Constitution Avenue
Washington, D.C. 20551
Dear Mr. Chairman:
I have been remiss in not responding
earlier
to your thoughtful note of
far
September 19. I apologize for the delay.
I would be honored to meet with you
at your convenience. Also, L would like for
you to meet a splendid young associate of
mine, Howard Segermark, who is very knowledgeable
on the issues of mutual interest to you and me.
If he could sit in with us, it would be most
helpful to me.
Let me commend you on the courageous
positions you have taken. Nobody likes to
dish out unpopular medicine, but the country's
ailment demands that we do what is right though
it may be unpopular at the moment.
Sincerely,
1".i1.441;14#41°45
JESSE HELMS:pd
0111KAIRRe:N
111
It MITCHZLL, MO.. CHAIRMAN
• STEPHEN 1... NEAL, N C.
NORMAN E. C AMOURS, N.H.
DOUG BARNARD, GA.
MATTOX.
JOHN J. CAVANAUGH, NEBR.
GEORGE HANSEN IDAHO
RON PAUL.. TEX.
DON RITTER, PA.
U.S. HOUSE OF REPRESENTATIVES
245-7315
SUBCOM MITTEE ON DOMESTIC MONETARY POLICY
OF THE
COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
N INETY-SI XTH CONGRESS
WASHINGTON. D.C. 20515
October 9, 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 Novr 13,and 15, the Subcommittee on Domestic Monetary Po
and the SubitteeInternational Trade, Investment and Monetary Pol
will hold
overt hearings on "Monetary Policy -- Goals and Cond
for the
" Weld appreciate hearing your views on this subject
invite you
estif
November 13 at 9:30 a.m. in Room 2128 Rayburn H
Office Buil.
Ii
Although we do not want to limit your testimony in any way, we would
like to hear your assessment of the merits of two alternative monetary policy
strategies for the 1980's.
Strategy 1 places top priority on halting the decline in the value of
the dollar on the foreign exchange markets, and proposes to do so by keeping
mI ney
ght" at home and resisting speculative attacks against the dollar
abroad until the decline is halted. Under this strategy, in the months
immediately ahead, the Federal Reserve would raise the Federal funds rate
substantially above the current level. The purpose would be to raise U.S.
short term interest rates and slow U.S. money growth so as to provide
incentives for money managers around the world to buy dollars and IS
dollar denominated securities. Simultaneously, the Federal Reserve and the
Treasury would intervene vigorously on the foreign exchange markets, in
cooperation with other central banks, to combat any excessive fluctuations
in exchange rates that might arise from speculation against the dollar even
in the face of high interest rates. After the dollar had been stabilized,
O rimarily against the German mark, sufficiently IS to convince foreign
exchange traders that further precipitous declines would not be tolerated,
monetary policy could be gradually re-oriented toward the domestic goals
I f full employment and price level stability.
What risks would this strategy entail? Can such a policy succeed without
the cooperation of foreign central banks? That is, would our raising interest
rates not invite retaliation by foreign central banks, and hence a spiraling
upward of interest rates worldwide without noticeable effect on the foreign
exchange value of the dollar? Even assuming a policy of cooperation by foreign
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Federal Reserve Bank of St. Louis
I
'
The Honorable Paul A. Volcker
Page Two
October 9, 1979
central banks, would not maintaining the funds rate at a higher level than
currently prevails precipitate a sharp deceleration of money growth and
consequent recession? Would not fighting that recession, and even the
expectation of fighting it, again destabilize exchange rate markets?
Strategy 2 would ignore movements in interest rates and concentrate
instead on establishing and remaining on or near a long run disinflationary
monetary growth target path. (See, for example, the letter to you dated
September 5, signed by seven members of the Domestic Monetary Policy
Subconmdttee, and H.R. 5476, recently introduced by Mr. Neal. For your
convenience, these documents are enclosed.)
Can this strategy be followed independently of the monetary policies
pursued by other central banks? Would it help to promote achievement of
the 1983 Hawkins-Humphrey Act goals of 4 percent unemployment and 3 percent
inflation and at the same time to stabilize the value of the dollar on
foreign exchange markets? What risks does it involve? Should it be adhered
to in the face of increases in interest rates and unemployment? If the
strategy is not binding, how can we convince investors and traders around
the world that we are serious about reducing inflation and that the exchange
rate risk from holding dollar denominated assets will diminish?
Further in this regard, is there reason to believe that adhering to
an announced long run disinflationary monetary growth target path would
lead to higher interest rates and higher unemployment than would a policy
that accelerated money growth when interest rates and unemployment moved
higher? Would it not be wiser to hold fast to the announced monetary
growth target path even in the face of temporary increases in unemployment,
which could be dealt with by pinpointed fiscal policies?
Finally, we note that recently the Federal Reserve raised its discount
rate from 11 to 12 percent and at the same time announced that the Open
Market Committee will try to control monetary growth by metering the flow
of reserves instead of manipulating the Federal funds rate. The discount
rate rise would appear consistent with Strategy 1 while the change in
operating procedure seems consistent with Strategy 2. We would appreciate
your comments on the meanings of these recent changes in policy and tactics
by the Federal Reserve.
We look forward to hearing your views on these and other questions you
may want to address on November 13.
Sincerely,
Stephen L. Neal, M.C.
Chairman, Subcommittee on
International Trade, Investment
and Monetary Policy
PJMSLN/rwt
enclosures
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Federal Reserve Bank of St. Louis
•>:4
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Par en J. Mitchell, M.C.
Chairman, Subcommittee on
Domestic Monetary Policy
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Federal Reserve Bank of St. Louis
October 24, t9
1ht limeribie Lee 14 Immiltom
liege ei lopromemeettoso
11044sOmmo LC. MKS
Ow Mr. Illoolltaat
I am pleased te voOpeed is yew reeemg letter regarding &eery
Neetmaale eriticies est POdeoal Aeseres podia. Mg. Keats* mrSuss that
the fed ha* (*cased its etteetlee tee meeeelly am the moseeary AggempaSeedm
pevtieetarly x-1--Aed thet a Weed emits olommemse womb' provide o
bettor guide ter polity.
SpOMMIOSSMOmdit* have emmedmed this esemmost meeemtly. earner
this year while Ime still at the New 'fork iamb, 4 semdor offisiete
ALcherd
pebtioliod em orttele te ear euesterly emomeeie revise es
tkLa slibloct• More regestlY, o esserostas propmmod by the Saari *toff
wee sent to aseator Peeemdre in Teepees* to his reeeeet Air as analysis
if at. Seedhomm's eflomeet. I mmiemmiosiog topiee it these owe pieeee
Oar pet, omemdmecLome
ta brief, me believe that there to mmeit to be said kW MO011irbil
andit glom, Otto* they menest Oho treseeiletea of seeetary volley to
lhe Sesed it tho Poderel Some Miebse Committee dm oommdmo
deldit loretepmeets La memo lioati: tufted, the diets Mr. areloom ompleve
ate preftesd by the Somrd it Ommermere. lho Ammo As *ether some breed
cre4it aggptiote road he e better hatormattemo target few sesetary
policy, sad am this oe %eve seriess diedoes.
sevreletiom it tine
settee la see a seffteleat amodittem ter a peed torpot; omeh sometderip.
tiame 441 1.440.14g relatiosafte, timeliest@ emd crelity of data, sod
costrollebility are *rated. As ie imdAseted Is the staff resetoodem,
smite eggregatee opposer detteiset is thew 401.40.
The %devil lisserre will ~tem* is give easeful atteetiee to
the seat .it"dem it SOOdit ote it oesseeee its pellicles, and ear otaff
will emotton. to lanetissto the retatiomObOpe arool immegail Worths
credit flows, sod the psifinosim of the emommew. At Oho posomet time,
however, it vow imppoormapii• te sebardimote essetsr, esspesetea ro
credit mgregetes as IMOMOOmodieto Seepete ter pel117,
Sissevety.
14.v:WIA:011spjt (1FV-73)
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Mrs, Hallardi (2)
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LEEH.HAMILTON
9TH DISTRICT. INDIANA
•
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2/70 RAYOURN BUILDING
WASHINGTON. DC. 20515
Th_rn40.4r: (202) 225-5315
COMMITTEES:
INTERNATIONAL RELATIONS
CongreS5 of tbe Uniteb
JOINT ECONOMIC
tate5
31?olle of 3Aepreentatit3e55
Z.411assbington,31).C. 20515
STANDARDS OF OFFICIAL CONDUCT
October 11, 1979
DISTRICT orFicrs:
UNITED STATES POST OFFICE
COLUMBUS, INDIANA 47201
TELEPHONE.
WO
372-2571
TELEPHONE!(317) 269-6013
1201 EAST 10TH STREET
Jr_rr(Fesosrvw-L.
INDIANA
47130
Tp_Ersoeir1812) 288-3261
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P.9ox 269
AURORA.r1RDIANA 47001
TELEpHopm-r(512) 926-3535
Lrl
Honorable Paul A. Volcker, Chairman
Board of Governors of the Federal
Reserve System
Washington, D.C. 20551
Dear Mr. Chairman:
It was with great interest that I read Mt. Henry Kaufman's article, "ere
The Fed Has Gone Awry," in the October 7 edition of The New York Times. The
article contains a very basic criticism of current monetary policy. The criticism is, I think, one which must be addressed squarely.
The gist of Mr. Kaufman's critical view can be captured in a few of the
article's passages. To begin, Mr. Kaufman notes that the "issue is whether the
Federal Reserve Board, by focusing for the last five years upon a very narrow
statistical concept called the M-1 money supply, is using a monetary policy
target that is relevant to today's economic and monetary reality." Mr. Kaufman
himself takes sides on the issue a bit later when he says that the "failure of
monetary policy lies in the Federal Reserve limiting its target to the narrow
statistical concept of the money supply." Finally, Mr. Kaufman proceeds to tie
the "failure of monetary policy" to our economic problems in a predictable way,
remarking that the "real story behind our severely aggravated inflation is that
the growth of credit has been proliferating while the Federal Reserve has been
focusing on the M-1 and M-2 money supplies."
Inflation is the most serious problem on the nation's domestic agenda.
Consequently, the policies of government must be justified in detail if they
are alleged to contribute to inflation in a significant manner. I would deeply
appreciate your response to the criticism outlined above. A copy of Mr.
Kaufman's article is enclosed for your convenience. I ]ook forward to hearing
frop you at the earliest possible date.
With best wishes, I am
LIT H. HAMILTON, M.C.
enclosure
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
• Where the Fed
Has Gone Awry
By HENRY KAUFMAN
T Is incredible that there h !s been
virtually no general public discusor debate in financial circles
sion
-a
so far this year over the targets for
monctary policy that the Federal
Reserve has employed in its attempts
to foster orderly economic growth.
Something, after all, has gone wrong in
the monetary mechanism. Our economy is being buffeted by high rates of
Inflation and is engulfed by deep-rooted
fears of future economic instability.
The Federal Reserve itself has
recognized some of the problems in the
monetary targets it is now using and, in
fact, earlier this year said it would try
to improve their quality and effectiveness. Public comment was invited, but
the discussion so far has been remarkably subdued, even though the future
credibility and technical efficiency of
United States monetary policy are at
stake.
Dea.pite the apparent technicality of
the issue, what is involved can affect
every economic participant in the
country. The inflation rate of 11.5 percent for the past 12 months, as measured by the Consumer Price Index,
could double our price level again in the
next six years — that is, by 1985 — jilt
is not brought down. Prices have already doubled since 1969, with most of
the increase in the years since 1975.
Yet, there is no concrete assurance
that we will experience anything more
than temporary relief from inflation
because the cation has not reached that
point where the citizenry faces the sacrifices that may be unavoidable if Inflation is to be reduced substantially. On
the contrary, more and more economic
and financial decisions are being made
by Americans and foreigners who do
business with us on the assumption that
inflation is going to continue unabated.
The historical record is very clear that
this only intensifies inflation and
heightens the flight from money into
the materiality of land, goods and precious metals.
What is at issue is whether the Federal Reserve Board, by focusirg for the
last five years upon a very narrow
UrfINUFTTILDITIKVOSi b.vedgua.ausasrpu
smalasaudadliZCIUFT10111
POINT OF VIEW
statistical concept called the M-I
money supply, is using a monetary •
policy target that is relevant to today's
economic and monetary reality. Die
M-1 money supply consists of demand
deposits plus cash in circulation.
The existing approach of the Federal
Reserve, which was formally adopted
In 1974, depends upon the presumed:- •
linkages between interest-rate levels,
changes in the supply of money that are
generally implicit in changes in banking reserves, and ec • aomIc activity.
The assumed cause and effect sequence generally goes as follows:
Changes in banking reseryea and resultant changes in tha market's key interest rate (the Federal funds rare) together will influence changes In the'
money supply which,in turn, will affect
economic activity. This unalloyed
monetarism is not materially changed.
by the newer "practical monetarism,"
which holds that the relationship be
Continued on Page 14
•
off
POINT OF VIEW
ther Way to Count the Money Supply
'age /
ply and economic acways. What then has
monetary authorities
! explanation for the
• by calling attention
nd forces beyond their
;e contributed to the
. They cite an overly
c.a.tl policy of sizable
;lending that makes it
money supply growth
ailt, denying substan• private sector. They
aenous factors as the
;-producing nations to
• price of oil, and poor
road. Such exogenous
-ailed non-monetary
enot be denied, but
it really excuse poor
mance.
ieral belief that higher
primary cause of our
,ut foundation. In the
onsumer Price Index
percent. Eecluding
ts, the index has gone
state that the Fed4 to !cep money supesured by M-1, within
geted range. Statistiorrect observation, as
• below:
wth Targets
,th Rate
aet(%)
:-7/42
4 2-6 Y2
4-61/2
'2-4 Y2
ago. Today, credit markets find ways
to accommodate the inflationary process and, in fact, are helping to finance
inflation A decade ago, these markets
of dollars)
2.0
were part of the disciplinary force.
The Federal Reserve, had it been
sensitive to the ingenuity of the credit
markets and to the rapid growth of
While the Federal Reserve
debt, would have complemented its
has concentrated on
narrow target for money growth with a
restricting the narrowly
broadly based target for credit growth.
1.6
If it had done so, the Federal Reserve
dete ed money supply
would have perceived long ago that its
(M-1).
monetary and interest-rate policies
were incorrect, because they favored
borrowing and consumption instead of
savings and investment. During the
12
past six years, the inflation rate, as
measured by the Consumer Price
the growth of debt proxyIndex, exceeded on average the Fed-a broader measure
eral funds rate (the official target of
which includes credit—
monetary policy) by 112 hasis points.
This is in sharp contrast to the 1980-73
has paralled gross national
.8
period when the reverse was true, and
product.
the funds rate exceeded the inflation
rate on average by 170 basis points per
year. One need not be an economist to
conclude that it pays to borrow under
the interest rate policy that the Fede'ral
4
Reserve has pursued in recent years
Oil ERZI 1.=
M-1
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WO
Recognizing that the destiny of our
Cif
Ora MI ACM 1:02 NM
cam
economy
is entwined with the future efISO
Iry
co UM ISPJ 112E
fectiveness of monetary policy, it is
fair to ask: Will the Federal Reserve
continue
to operate within a statistical
L_ _
__1_
.1_
Jungle
gym
that allows it to play with
1909 '70
'71
'72
'73
'74
'75
'78
'78
'77
'79
small
blocks
of meney, or should it be
Source SairrIOn Brothers
held accountable for the management
of a highly innovative and at times destabilizing credit system that is now a
411111.113111ITICIIUMINIIMMI11111r1:2111111.:771.311111X.1.211711
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reality?
The monetarists, after admitting the
recent shortcomings of the money supply concept, generally favor patching it
by adding some of the recent innovations to the classical definition of
money. I would go much fanher and
urge that a monetary policy target
comprising the growth of total debt be
given equal weight. I propose that this
ticipation — namely, to know markets
The real story behind our severely
target consist of private domestic nonaggravated inflation is that the growth
financial holdings of credit market inand the chang. a emerging in them. The
of credit has been proliferating while
struments plus deposits and currency.
Feder al Reserve has persisted all these
the Federal Reserve has been focusing
This target, which I call the "debt
years in defining its money supply tarM-1
and
M-2
money
proxy,"
the
on
supplies.
totaled $2.2 trillion in outstandget along classical lines — currency,
Total credit market debt outstanding
ings at the end of 1978 and parallels
demand deposits, and, to some extent,
(obligations of households, business
closely nominal gross national product,
time deposits.
governments
and
as the chart shows.
in
talc
United
States)
Meanwhile, the economic particitotaled $720 billion at the end ni "'°, inIn the absence of a stirring debate on
pants in tins country, whose activities
creased
91
percent
by
targets of monetary policy, the
to
the
$1.4
trillion
the Federal Reserve is trying to influin
1970
and
by
monetarists
142
percent
to
$3.4
and established bureauctrillion in
ence, have changed their own concept
1978. For these years, the outstanding
racy may have their way. A patch will
of money by greatly expanding the
stock of money (M-1) rose from S144
probably be put on a failing concept.
definition. Consequently, their spendbillion
r..20
More than 100 years ago, the famous
to
billion,
an
increase
of 53
ing embraces many more variables
percent,
economist,
then
and
by
C4
John Stuart Mill, said:
percent
$361
to
than the Federal Reserve acknowl"The
billion.
Contributing
purchasing
to
massive
this
power of an individedges in its conduct of monetary policy.
ual
at
growth
any
moment
of
debt
has
among
been.
is not measured by
other
Business, households and even govthe
things,
money
the
removal
actually in his pocket,
of a variety of reernments, in the conduct of their ecostrictions on financial markets such as
whether we mean by money the
nomic alfairs, no longer distinguish beInterest-rate ceilings; the introduction
metals, or include bank notes. It contween money and credit. In many
of new financing teclmiques and credit
sists, first, of the money in his possestransactions, money and credit are ininstruments that permit new ways to • sion; secondly, of the money at his
distinguishable. Corporations believe
banker's, an ! ad other money due him
create credit and debt', the minimizathat they have ready access to money
and payable on demand; thirdly, of
tion of the risks of changes in interest
through the standby fee they pay for an
rates through the issuance of floating
whatever credit he happens to posunused line of credit. They judge their
interest-rate obligations, and the insess."
liquidity not by cash in the bank but
In our time, Milton Friedman said
creasing linkages with international
mainly by holdings of other liquid asthat money matters. The question is:
credit markets.
sets rind their borrowing capacity. Indi"What is money?"
When access to worldwide credit is
viduals exercise their credit cards as if
eesy, who needs the money that the
they were disbursing money. They
Federal Reserve is watching?
Henry Kaufman is a partner and
judge their liquidity in part by how
Credit markets today are the antithemember of the executive committee of
much they monetize the equity value of
sis of what they were a few decades
Saiomori Brothers.
their homes.
-$2.2
The G.N.P., Money and Creeit
(Ttiihons
tiitcaa
Rate(%)
5.8
7.9
7.2
4.5'
heugh, this is not the
it were, the solution
.ly simple. Even if the
within the guidelines,
tment would hardly
aficant impact on the
hat has gone wrong, 1
failure of menetary
Federal Reserve limitthe narrow statistical
Iney supply.
'oblem in these terms:
.fined money supply,
. posits and currency)
.1 and the broadly deapply, M-2, (demand
ey and time deposits)
a as 'ornpared with a
ational product of $2.3
n in the accompanying
aross national product
re rapidly than the
lefined as M-1. The
lain this growing gap
- nd G.N.P. by pointing
in money velocity —
e at which money is
nem and respent, in a
`le growth of velocity
t varies considerably
has really happened
Reserve has failed
niciple of market par-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
'Will the Fed continue to operate within
a statistical jungle gym that allows it to
play with small blocks of money?'
1,••• gm.
.1,41.
•
MUT ri•-IP'
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
a
Another Way to Count the Mc
_'ontinued from Page 1
tween money supply and economic activity works both ways. What then has
gene wrong? The monetary authorities
submit a partial explanation for the
inflation problem by calling attention
to many events and forces beyond their
control that have contributed to the
current malaise. They cite an overly
expansionary fiscal policy of sizable
Federal deficit spending that makes it
difficult to limit money supply growth
without, as a result, denying substantial funds to the private sector. They
point to such exogenous factors as the
decision of the oil-producing nations to
raise sharply the price of oil, and poor
crop harvests abroad. Such exogenous
forces and so-called non-monetary
developments cannot be denied, but
they also co not really excuse poor
monetary performance.
In fact, the general belief that higher
oil prices are the primary cause of our
inflation is without foundation. In the
past year, the Consumer Price Index
has risen 11.5 percent. Excluding
higher energy costs, the index has gone
up 9.4 percent.
The monetarists state that the Federal Reserve failed to keep money supply growth, as measured by M-I, within
the officially targeted range. Statistically, this is a correct observation, as
shown in the table below:
The G.N.P., Money and Creclit
(Trillions of dollars)
While the Federal Reserve
has concentrated on
restricting the narrowly
defircd money supply
(M-1),.
the growth of debt proxy-a broader measure
which includes credit-has paralled gross national
product
M 1
111111 In
ISM WO CO
=I Ea MI MN MR
'71
-I
1
'72
'73
M-1: Offlcal Growth Targets
Vs. Actual Growth Rate
Period
Target(%)
Rate(%)
4/75-4/76
4/764,177
4,177_4/78
4/78-4/79
4 Y2-71
/
2
41
/
2-6Y2
4-61
/
2
1 V2-4 Y2
5.8
7.9
7.2
4.5•
'Firct 8 rwroths ot 1979
Regrettably, theugh, this is not the
answer, for if it were, the solution
wculd be relatively simple. Even if the
Fed had stayed within the guidelines,
the small adjustment would hardly
have had a significant impact on the
inflation rate.
In assessing what has gone wrong, 1
believe that the failure of monetary
policy lies in the Federal Reserve limitir.g its target to the narrow statistical
concept of the money supply.
Think of the problem in these terms:
The narrowly defined money supply,
M-1, (demand deposits and currency)
totals $375 billion and the broadly defined money supply, M-2, (demand
deposits, currency and time deposits)
totals ”25 billion as •orrpared with a
nominal gross national product of $2.3
trillion. As shown in the accompanying
chart, nominal gross national product
has grown more rapidly than the
money supply defined as M-1. The
monetarists explain this growing gap
between money and G.N.P. by pointing
to the increase in money velocity —
that is, the rate at which money is
turned over, or spent and respent, in a
year. Hoy-ever, the growth of velocity
Is not steady, but varies considerably
over a business cycle.
Actually, what has really happened
Is that the Federal Reserve has failed
in the cardinal principle of market par.
'74
MI (XII WII
I
I
'75
'78
111.11 ISZ
'77
'78
Source Salmon Brc
alasualawstainssisisinevansomoseocziasarr.7
'Will the Fed continue to operate withii
a statistical jungle gym that allows it to
play with small blocks of money?'
12111:1111UnICIMUINIZIVENCIIIIKOSillia
ticipation — namely, to know markets
and the chang, 5 emerging in them. The
Federal Reserve has persisted all these
years in defining its money supply target along classical lines — currency,
demand deposits, and, to some extent,
time deposits.
Meanwhile, the economic participants in this country, whose activities
the Federal Reserve is trying to influence, have changed their own concept
of money by greatly expanding the
definition. Consequently, their spending embraces many more variables
than the Federal Reserve acknowledges in its conduct of monetary policy.
Business, households and even governments, in the conduct of their economic affairs, no longer distinguish between money and credit. In many
transactions, money and credit are indistinguishable. Corporations believe
that they have ready access to money
through the standby fee they pay for an
unused line of credit. They judge their
liquidity not by cash in the bank but
mainly by holdings of other liquid assets and their borrowing capacity. Individuals exercise their credit cards as if
they were disbursing money. They
judge their liquidity in part by how
much they monetize the equity value of
their homes.
Ir.•100r.
The real story behind our
aggravated inflation is that thr
of credit has been proliferath
the Federal Reserve has been
on the M-1 and M-2 money r
Total credit market debt out'
(obligations of households,
and governments in thc Unites'
totaled $720 billion at the end of
creased by 94 percent to $1.4 t:
1970 and by 142 percent to $3.4 t
1978. For these years, the out.
stock of money (M-1) rose fr
billion to $220 billion, an incree
percent, and then by 64 percent
billion. Contributing to this r
growth of debt has been, amo:
things, the removal of a variet.
strictions on financial markets
Interest-rate ceilings; the intr,
of new financing techniques an
instruments that permit new
create credit and debt, the m
tion of the risks of changes in
rates through the lesuance of
interest-rate obligations, and
creasing linkages with inter.
credit markets.
When acceses to worldwide c
easy, who needs the money t:
Federal Reserve is watching?
Credit markets today are the
sis of what they were a few
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Oertvber 24* 1979
ibe Memorable IlearT 1= Mosso
Meese et legmetemeeeitele
leahdestme, D.C. WM
swat Ur* Meese.
yor ler pour totter of Oetabor 9 regordibmill*. leery
easseer with the sesurney of the Mederol leesemele aeoht,
Maim se sold relmsvitcp
Ihr figures Le the Medowel Iserefees sookly asseolldeted
itetammet of seedielas tapereme the Imbue ad' 0.14 ositifiattes Jammed
to dee **yaws by Mho Ifseeeeri, et the boil welfseelee of 041.22 per
flee troy yomm46 OW. the fteemeee of Who taesearyse gold Is see
emidere, homeeme the sear& tetledee orlteg seism sed 'ether forme of
egiollesetoteleg eltays, the valuattire La appited wily to the has gold
041146114 a tiro sold stook. Th.., oltbeegb met .11 tho gold is te
delteery" Sere, the valeatIre et the geld Is ere overstated to the
Plodloral liosorsvo's AmMIOOMAI.
Is regard to Oa reed for ~ammo* eft LK. $162, I vederabeed
Shot mere thee belf the Treemavy geld stoat bee airsady hese immeeMerilmf
seder preeedomme oceepuble to the Glemeral hememerteg iffles, le a NSW
Ohm the tooreery hae bees seedeettag sines 1.74.
1 bppe thee these esemseits %all he easfel to per,
S/PaulA picitel
011k::MTOPIspjt (0
,
-70)
bcc: Mr. Timms
Mr. D. Aims
Mrs. Mallardi (2)
HENRY S. REUSS
COMMITTEES*
5TH DISTRICT. WISCONSIN
BANKING. FINANCE AND
URBAN AFFAIRS
CHAIRMAN
WASHINGTON OFF-IC[1
2413 RAYBURN HOUSE OFFICE BUILDING
WASHINGTON, D.C. 20515
PHONE: 202-225-3571
Congre55 of tije V.Initeb
SUBCOMMITTEE ON THE CITY
tate5
CHAIRMAN
JOINT ECONOM1C-COMMITTEE
3Doti55e of 1leprei4entatibes5
MILWAUKEE OFIICE)
FEDERAL BUILDING Room 400
517 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN
53202
Uictzbington, 13.C. 20515
INTERNATIONAL ECONOMICS SUBCOMMITTEE
CO-CHAIRSAAN
(
-
PHoricl 414-291-1331
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
October 9, 1979 /11
The Honorable Paul Volcker
Chairman
Federal Reserve System
Twentieth Street & Constitution Avenue, N.W.
Washington, D.C. 20551
Dear Paul:
My friend, Henry Banzhaf, of Milwaukee has written
to me in support of H.R. 3862, Congressman Ron Paul's
bill to authorize a full audit and inventory of United
States gold reserves. One of his arguments for passage
of the bill is that the Federal Reserve's weekly reports
on gold reserves are inaccurate. He states that the Fed
"does not take into account the large percentage (of
gold) which is in alloy less than the acceptable monetary
standard" and that, according to the Treasury Department,
"only about 18 million ozs. of the gold reserve are good
delivery gold".
I would welcome your comments on this.
Sincerely,
Henry S. Reuss
Member of Congress
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
October 24# 1979
Ile lienumbile Jerry X• PstU
Waft 01 ilsomesittatism
113sebtegtos, 0.c. Win
Ope,
OMMOMOMBS
Thad' yes ier roof lettor of *maim 1$4, roomette* the SivIrd es
sements m your proposed schstItute to RA. 2221 time meld, smog
(n t 00 link arldtas Cmpasy Aar ti
eleintalt 4(e)
sale tido**,
pnvvide that the medermitiog sod eels se some of credit-related
assidems, Ufa oni health inememes, as property mod easmity imeocoms
meellatmal **swims an aelession of credit by • emboa subsidiary
std
of a
Mesettettim *Um*/ relater lc b..&Las.
as
additise, yew psopees1 pcovides that barmen, heeertiht telestel
tameness offered by a book holdimg employ or Its sibeidiary la eseneetlem
with al asseraiss
MOM Mats 30 lips Mier the issurame hos bum
penthesed. prarrided e
ebsr osedittem me me.
limp Used believes Ohm government essolstim shoal* ham tbe
onset dlinseerios sompetitios, sed it is do baard's *pietas that it
4111~alPed sispstitios Ales is machmised boik Wain ommeamtes to
mew is metals immune astAwitice mar *esti*. 215.4(a)(9) ai
litgolatim 1. While MA. MS meld ambataalially redoes empetitim
beemes the beihtog sed Onemenee iniestrias, yews pummel could restore
ems of that empeeitim the UMW somphttomenesee* INT idePtie* opettee
225.4(a)(9). The Mord believes that Olegovendmal cirsumseripties of
epcnifie motia0440(6) astirity removes the tiseibilltY Peeedes he
messediag by rogmistises ohich is memeary
scomesdat* Ohomgamg
time sed oirematomm. la* est* that yeas peppeal, WOW bow the
oilbee of peesimiLes bock bolding eammise gni* Oneatille AS opine is
ourreesly permlosate tuemems settetties, sueh se **Me property
and memity immense ger the balk beidims *0e0eir eel its 04101111Aertme
sed could peewee& a eselhenk subeidiery at a boilt bolding asteitav ettte
actin as ogees is esesesties with onternsime of emit by affilisesi
balk mod menbank Mbetdieriee.
year proposal appears to endienine
the unismiitieg of property aod *emelty tocuresse by bask bolding
mossiest mod ue este ChM Oho Fourth Cirshitt Clew of Appeas IOW
the ileards• deesenietion thee oulh aatieity is me "closely raises**
Le
wiahas the ussolhe got aestista 4(a)(t) of the Act. maw
SOO F.241
(WM.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Ike
Paw Oft
Amy I. Pattioasa
Midi soaps* to asstisat 3 of 'vas bine oldalt road aid a
it Caws" hat ohs Swot Sark We
ilsettatt 13 to die 11sdit
sas the 414110$1111110 *Sea
,
tea woad olgainelia to a siva/toot disit
porla
r
rasiked am a bat* lo1411ft eastplay salbotiltary
tiodytas MO
oftiortas to tiro b.:weans? bola• 1.110 Med Issuiresso as do loot.
Umiak yse the
bans So esassadt as If imp
y to somas sot plasaa foal
islismaattea to samseasry,
isammikrt
S/Paul A, Volcku
11W1111011111spjt (#7.43)
bort Rich Whiting
Mtbs 1111aaar
Bah Ihmosiots
Mrs. lintiarni (2)
COMMITTEE ON
BANKING, FINANCE AND
URBAN AFFAIRS
SUBCOMMITTEES:
HOUSING
FINANCIAL INSTITUTIONS
INTERNATIONAL TRADE
•
JERRY M. PATTERSON
38TH DISTRICT OF CALIFORNIA
Congraq4 of the tiniteb 6tate5
oute of 11epresSentatibeZ
Mgtington, D.C. 20515
SUBCOMMITTEES:
NATIONAL PARKS
WATER AND POWER RESOURCES
PLEASE REPLY TO:
WASHINGTON OFFICE
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
VERLYN N. JENSEN
DISTRICT REPRESENTATIVE
DANIEL H. YOUNG
ADM INI STRATI VI ASSISTANT
COMMITTEE ON
INTERIOR AND
INSULAR AFFAIRS
o
o
HOME OFFICE:
October 18, 1979
FEDERAL OFFICE BUILDING
34 CIVIC Cem-rtie PLAZA, #921
SANTA A.CALIFORNIA 92701
TELEPHONE: (714) 835-3811
WASHINGTON OFFICE:
GREGORY W. SANDERS
ADM I NI STRATIVI ASSISTANT
NOV'S OF F1 EP ES MT ATI VMS
WASHINGTON, D.C. 20515
TarrtioNx., (202) 22.5-2985
HOME OFFICE
The Honorable Paul Volcker
Chairman
Board of Governors
Federal Reserve System
Washington, D.C. 20551
Dear Mr. Chairman:
ed substitute to H.R. 2255
Enclosed is a copy of my propos
titutions Subcommittee on
as reported by the Financial Ins
rd to comment on this proposal,
September 11th. I invite the Boa
Banking Committee next week.
which will be considered by the
With best personal regards,
Sincerely,
J P Y M. PATTERSON
U.s. Congressman
JMP/11n
Enclosures
PATTER040
AMENDMENT
IN THE NATURE OF A SUBSTITUTE
TO H. R. 2255
OFFERED BY MR. PATTERSON
Strike out all after the enacting clause and insert in
lieu thereof the following:
1
That this Act may be cited as the "Bank Holding Company
Act
2
Insurance Amendments of 1979".
3
SEC. 2.
Section 4(c)(8) of the Bank Holding Company Act
4
of 1956 (12 U.S.C. 1843(c)(8)) is amended by striking out
5
the period at the end of the first sentence and inserting in
6
lieu thereof the following:
7
subsection it is not closely related to banking or managing
8
or controlling banks for a bank holding company to provide
9
insurance as a principal, agent, or broker, except (A) where
", but for purposes of this
10
the insurance is limited to assuring repayment of the
11
outstanding balance due on a specific extension of credit by
12
a bank holding company or its subsidiary in the event of the
13
death or disability of the debtor; (B) in the case of a non-
14
bank subsidiary of a bank holding company, where the
15
insurance is also limited to insuring the collateral on a
16
specific extension of credit by such non-bank subsidiary in
17
the event of loss or damage to, or from the use of, any
18
property used as collateral on such extension of credit,
19
except that such non-bank subsidiary may only act as an
20
agent or broker; (C) that a bank holding company may conduct
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
PATTER040
2
1
any insurance agency activity in any place that (i) has a
2
population of not more than five thousand (as shown by the
3
last preceding decennial census), or (ii) the bank holding
4
company, after notice and opportunity for a hearing,
5
demonstrates has inadequate insurance agency facilities; (D)
6
any insurance agency activity that was lawfully engaged in
7
by (i) a bank holding company or any of its subsidiaries on
8
June 6, 1978, or (ii) a finance company which became a
9
subsidiary of a bank holding company through acquisition
10
during the period beginning on June 6, 1978, and ending on
11
June 6, 1979.".
12
SEC. 3.
The Bank Holding Company Act of 1956 (12 U.S.C.
13
1841 et seq.) is amended by adding at the end thereof the
14
following new section:
15
16
"INSURANCE RESTRICTIONS
"SEC. 13.
(a) With respect to any extension of credit
17
to any person by a bank holding company or any of its non-
18
bank subsidiaries, the bank holding company or non-bank
19
subsidiary involved may require such person to purchase
20
insurance coverage for loss or damage to, or from the use
21
of, the property used as collateral in such extension of
22
credit, except that, as a condition for such extension of
23
credit, such bank holding company or non-bank subsidiary
24
shall not require such person to purchase such insurance
25
from any source specified by such bank holding company or
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
PATTER040
•
•
3
1
2
non-bank subsidiary .
"(b) With respect to any extension of credit to any
3
person by a bank holding company or its non-bank
4
subsidiaries, no such bank holding company or non-bank
5
subsidiary may provide the insurance described in subsection
6
(a) as an agent or broker unless--
7
8
9
"(1) the contract incorporating such insurance
provides-"(A) that such person has the right to cancel
10
such insurance in any case in which, not later than
11
30 days after the date on which such insurance is
12
purchased, such person mails or delivers a notice to
13
such bank holding company or non-bank subsidiary and
14
such notice--
15
"(i) requests the cancellation of such
16
insurance as of the date on which such notice is
17
mailed or delivered to such bank holding company
18
or non-bank subsidiary;
19
"(ii) specifies the name and address of the
20
new source from which such person has secured
21
the insurance described in subsection (a); and
22
"(iii) demonstrates that the insurance
23
provided by such new source will take effect at
24
or before the time at which the coverage of the
25
existing insurance terminates;
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
PATTER040
•
•
4
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
"(B) that such cancellation no
tice shall
automatically take effect as lo
ng as such notice is
submitted pursuant to subparagra
ph (A) and the new
source of insurance specified pu
rsuant to
subparagraph (A)(ii) is licensed
by the State in
which such person resides to se
ll such insurance in
such State; and
"(C) that, after submitting a
notice, pursuant
to subparagraph (A), which sati
sfies the
requirements of subparagraph (B),
such person shall
receive a refund of all premiu
ms which have been
paid by such person for such insu
rance and of all
premiums which have been financed
by such person for
such insurance; and
"(2) at the time of such extens
ion of credit, such
person is given a written noti
ce which is not part of
any document involving such ex
tension of credit and
which contains a clear and cons
picious statement-"(A) that such insurance is bein
g purchased in
connection with an extension of
credit;
21
"(B) of the cost of such insuranc
e;
22
"(c)' detailing
23
24
25
the cancellation provisions of
paragraph (1); and
"(D) of the address to which any ca
ncellation
notice submitted pursuant to para
graph (1)(A) shall
PATTER040
.
c
.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
•
5
1
2
3
be mailed or delivered.".
SEC. 4._
This Act shall take effect ninety days after
the date of the enactment of this Act.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
October 23, 1979
The Menorable William Proxmire
Chairmen
Committee op Banking, Housing
and Urban Affairs
United States Senate
20510
Washington, D.C.
Deer Chairman Proxmire:
Thank you for your letter of October 18 which re-uests the
Board's views on an amendment which may be offered to H.R. 4986 which
would delete the reserve reruirement provisions of the bill to the
and
effect that the Board could only apply reserve reruirements to AT
NOV. accounts at member banks. The Board strongly opposes such an
amendment.
As you know, the Federal Reserve has been facing a
and vccelersting loss of sombers. This membership attrition
directly to the inecuitable reserve burden that member banks
carry. We have been actively seeking a legislative solution
problem for more than three years.
serious
is related
presently
to this
The amendment whieb nay be offered ',,mould aggravate the problem.
The bill which is under consideration by the U.S. Senate looks
tory
to authorise a new service for most of our nation's financial deposi
einstitutions. In turn, the amendment looks to impose a reserve reruir
be
ment burden on only a limited category of institutions which would
authorised to offer the ewe service--namely, banks that are members of
the Federal Reserve. If such an additional burden is imposed on member
banks only, the already considerable pressures to leave the Federal
Reserve System would be increased for many of our nation's benks.
I have a certain degree of sympathy for the argument made by
Senator Morgan that this reserve issue be settled in the context of
legislation which addresses n11 aspects of the Fed membership problem.
The Federal Reserve under three Chairmen has been seeking such legisperiod
lation, and vs will continue to seek it. However, in the interim
The Honorable Walk
Page Two
i'roxmire
the Congress should not adopt legislative mensurea which would only
exacerbate the serious membership problem we are facing which already
La eroding the precislon with which we can implement monetary policy
while creating serious competitive ineruities within the financial
system.
I hope that eb. Senate will not ndopt this amendment And
maintain the wording of this bill as reported out of the senate Banking
Committee which reouires that MOW accounts, share draft accounts and
ASS accounts at all depository institution's be subject to uniform
reierve requirements set by the Board of Governors of the Federal
Reserve. Ultimately, I cnntinue to hope that the reserve rer.uirement
grater can be settled in the context of bro-der legislation, but I
also trust the matter All not be further Aggravated by failure to keep
the reserve requirement provisiono of H.R. 4986.
Sincerely,
San'A. YONiilit
KAG:PAV:pjt (,V-82)
bcc: NNW Mrs. Mallardi (2)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
0
g4,
WILLIAM PIROXMIRE. WIS., CHAIRMAN
HAttlftlISON A. WILLIAMS. JR., NJ.
ALAN CRANSTON. CALIF.
LAI T
SON
E.144
N.c.
S0
. ILL.
i
TR
,
EV
Dd
GEN.
e
DONALD
PAUL S.
DONALD
PAUL E.
W. RIEGLE. JR.. MICH.
SARSANES. MD,
W. STEWART, ALA.
TSONG.AS. MASS.
411
JAKE GARN, UTAH
JOHN TOWER.'TEX.
JOHN HEINZ. PA.
WILLJAM L. ARM rneohro, COLO.
NANCY LANDON KASSEGAUM, KANS.
RICHARD G. LIMO" ND.
III
'11Cnifeti ,.tatez -.Senate
COMMITTEE ON BANKING, HOUSING, AND
URBAN AFFAIRS
KENNETH A. MC LEAN, STAFF DIRECTOR
N. DANNY WALL, MINORITY STAFF DIRECTOR
MARY FRANCES DC LA PAVA, CAMP' CLERK
WASHINGTON, D.C.
20510
4r/
October 18, 1979
The Honorable Paul A. Volcker
Chairman, Board of Governors of
the Federal Reserve System
Washington, D.C. 20551
IIIF
1174,1.
Dear Mr. Chairman:
The legislation recently approved by the Senate Banking
Committee (H.R. 4986) would authorize nationwide NOW accounts
(except for Federal savings and loans in California), share
drafts, and automatic transfer savings accounts. Title II of
the legislation authorizes the Federal Reserve to impose reserve
requirements on such accounts within a broad range. The authorization
would be for mandatory and uniform reserves on such accounts for all
depository institutions and reserves would be maintained in a form
consistent with the Board's past reserve requirement proposals to the
Congress.
I understand that an amendment will be offered on the Senate
floor to delete the reserve requirement provisions of the legislation,
so that the Board could only apply reserve requirements to NOW and ATS
accounts at member banks. I would like to know the Board's views on
eliminating the reserve requirements provision of H.R. 4986 for NOWs,
share drafts, and ATS accounts at nonmember banks and thrift institutions.
11111.0A...1
'Ince
eTiii!
w 1
Chairman
re
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.
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8 I DO 61.i61
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Federal Reserve Bank of St. Louis
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October 25, 1977
Congressman Henry S. Reuss, Chairman
Committee on Banking, Finance and Urban Affairs'
U.S. House of Representatives
B301C Rayburn House Office Building
Wasbington, D.C. 20515
Dear Congressman Reuss,
This is in response to your request through Mr. Robert Auerbach for
evaluation of the Board's October 6, 1977, report "Analysis of the
Impact of Lagged Reserve Accounting".
I have read the Board's report, and my principal conclusion is that
it is not addressed to the major question that I believed you asked, namely
"how has lagged reserve accounting affected the ability of the Fed to
achieve its target growth rates in monetary aggregates?" Instead, the report
primarily analyzes the effects of lagged reserves on variability in Fed
funds rates and in monetary aggregates. I have no major disagreements with
the report on these sections. I will comment on the report in the same
order as the conclusions are presented on pages 1 through 3.
1. I have no evidence on cost savings to banks from lagged reserve
accounting and will accept the results of the Board's survey, although it
appears to be rather casual. The effect on membership was one of the major
reasons for adopting lagged reseive accounting initially.
2. The effect of lagged reserves on the variability of Fed fund rates
is not relevant for dynamic monetary, control. The finding that the variability
increased after the introduction of lagged reserves is contrary to what was
predicted in the 1966 System Report (Black Report). The fact that "enlarged
defensive open market operators offset this tendency" raises the question of the
cost—benefit ration of such operations. Defensive operations are not free to
the economy, particularly when they reach $450 billion as they did in 1976.
Of course, all of this increase is not attributed to lagged reserves. A large
part reflects the change in. the management of Treasury balances. Nevertheless,
if lagged reserves require significantly higher defensive operations, this
cost should be considered.
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•
. Congressman Flenry S.
Page 2
October 25, 1977
•
3. Likewise, the effect of lagged reserves on the variability in Ni
and M2 is not directly relevant to the principal question.
4. I disagree that the "choice between lagged or contemporaneous
accounting is of relatively little significance" for the Fed's ability to
achieve its growth targets in M1 and M2 even under its current operating
procedures. Under concurrent reserve accounting (CR), the Fed can change,
say reduce, bank deposits (and thereby monetary aggregates) by selling
securities on the open market. This reduces bank reserves. Banks respond by
contracting deposits immediately to levels consistent with the available
reserves. Under lagged reserve accounting (LR), required reserves in a reserve
week are set to the dollar by depoits twe weeks earlier. They cannot be
changed by either the banks or the Fed. Thus, 1) in any reserve period banks
can change deposits without regard to reserves in the same period and 2) open
market sales cannot reduce either aggregate required reserves or aggregate
•
deposits in the same week. Open market sales will affect only the mix of reserves
between borrowed and unborrowed.
As long as the Fed accommodates changes in money demand or non-Fed
supply factors to maintain interest rates, CR and LR yield similar effects.
But what happens when the Fed wishes to resist changes in money demand?
Under CR, the Fed contracts reserves, and deposits follow. Deposits are now
supply determined. Under LR, reserves cannct be contracted in the same week
as the Fed must provide all the reserves that the bant.s require to support
their deposits of two weeks earlier, either through open market operations or
the discount window. The Fed can change deposits and thereby required
reserves from demand determined to supply determined cnly by signalling to the
banks that there will be a higher cost of reserves two weeks hence when the banks
need the reserves to satisfy thiS week's deposits and required reserves. As
the future cost of reserves increases, ceteris paribus, the banks will reduce
derrtsits now.
Thus, LR changes the cutting edge of dynamic monetary control from
open market operations tc discount management. A higher reserve cost in the
future may be signalled by either or both an increase in the nominal discount
rate or an increase in the effective rate through a more'restrictive discount
administration. Without this, deposits remain demand determined. (The reluctance
to signal a sufficiently high future cost of reserves can account for the more
rapid than target growth rate in monetary aggregates in recent periods.) If the
Fed is reluctant to use the discount mechanism to signal changes in costs, the
choice between CR and LR matters even under current operating procedures. LR
introduces a procyclical bias into monetary control. I enclose pages 533-34
from my textbook, Money, The Financial System and the Economy (second edition),
which expands on this argument.
5. I concur with this conclusion except for the statement that
would
result in "unprecedented shert-run variability in the funds rate." There is
at least some evidence that in the absence of Fed defensive operations, the
private sector will smooth out the shert-run interest rate volatility. Moreover,
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Federal Reserve Bank of St. Louis
CR
' Congressman Henry S. less
Page 3
October 25 , 1977
•
it appears that it currently requires an "unprecedented" volume of defensive
variability in the Fed funds rate.
operations to avoid
%.JtCLI
6. The study uses the wrong measure for gauging the effectiveness
of CR or LR for longer-run monetary control. Rather than variability in either
rates or aggregates, the relevant measure is variability in the difference
between the targeted and realized rates of monetary growth.
In sum, there is nothing in the Board's report to indicate that lagged
reserves have not weakened the Fed's ability to attain its target growth
rates in monetary aggregates.
e
eorge G. Kaufni n
CGK:sd
Enclosures
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•
S
LiOARO OF EOVERNORS
or THE
FEDERAL RESERVE SYSTEM
%VA5HIN:370N, 0. C. 20551
G. WILLIAM MILLER
CHAIRMAN
C7.)
I
-•
'
1;
:)
May 1, 1978
f
The Honorable Henry S. Reuss
Chairman
Committee on Banking, Finance
and Urban Affairs
House of Representatives
Washington, D. C. 20515
Dear Mr. Chairman:
Thank you for your letter of April 18 conveying
further views on lagged reserve accounting. By now, considerable work on the subject has been undertaken by our
staff and by economists more generally. The issues involved
appear to be clear, though judgments about the importance
of the whole question may well differ.
As you know, the Board has been carefully
reviewing actions that might be taken to mIke membership
in the Federal Reserve System less burdensome. As part
of this effort, the Board may also be in a position to reassess the desirabiliq of lagged reserve accounting.
Sincerely,
CHAIrrklAN
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The Honorable G. William Miller
Chairman
Board of Governors
Federal Reserve System
Washington, D. C.
Dear Mr. Chairman:
Thank you for your prompt replies on the subjectE;of doing away
with lagged reserve requirements and staggering the reserve settlement dates contained in your May 1 and June 16 letters.
In your May 1 letter you indicated that the Board may also be
in a position to reassemthe desirability of lagged reserve .accounting. Would you let Me know if this issue has been considered by the
Board and, if not, when it will be considered. I would also like
to be informed of the Members' views on this important issue of
monetary control.
•
In your June 16 letter you indicate that the subject of staggered
settlement dates has been much discussed over the years. Would you
send me all pertinent reports and studies that have been done since
the Federal Reserve received Milton Friedman's 1965 detailed Memorandum strongly supporting staggered reserve accounting. This will
be very useful to me and to the scholars I have consulted on this
issue. I would also like to be kept informed of the review that you
indicate in your June 16 letter your staff: will now undertake of
this issue. The cost of the massive chucning of the Federal Reserve
portfolio, to the tune of $1.2 trillion in 1977, as well as the effect of this churning on the obligation of the Federal l'Zscrve to
monitor the money supply as well as intece3t rates deserves immediate attention.
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L.
t.
NI1
411.91,1111,"t
•
Page
Two
The Pon. G. Wii1.iir.
June 21, 1978
111cr
I am deeply inLerested in anythim.; that can be done to improve
the Fecli=?ral Reserve's ability to brinci clown interest rates and bet—
ter control the money supply.
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Federal Reserve Bank of St. Louis
Sincerely,
S.
Henry S. Reuss
Chairman
CHAIRMAN
6 HE:PU.4Y S. P,USs.
THDMA5 A.. ASHLEY. OHIO
WILLIAm 5. MoORHAD. A.
FEStMAND ). sr GERmAiN. R.I.
HENRy D. GONZALEZ. TEX.
JOSE Pt-4 O. MINiSH. N.J.
FRANK ANNurtz.10. ILL.
JAm.Fs M. HANLEy.
PARREN J. MITCHELL. MD.
WALTER E. FAUN TrroY. D.C.
STEPHi.N L. NEAL. N.C.
JERRY M. PAT TRSoN. CALIF.
JAMES). DLANCHARD. MICH.
CARROLL HUE374A4O. JR, KY.
JOHN J. LAFALCE, N.Y.
GLADYS NOON SPELLM 544, MD.
LES AuCOIN. OPEC.
PAUL E. TSONCIAS. MASS.
DUTLE.R OFRRICK. S.C.
MARK W. HANNAFORO,CALIP.
DAVID W. EVANS, IND.
NORMAN E. D'AMOURS. N.H.
STANLEY N. LUN DINE. N.Y.
EDWARD W. PA -ION. N.Y.
JOHN J. CAVANAUGH. NEBR.
MARY ROSE:(DAKAR. OHIO
JIM MATTOX. TEX.
DRUCE F. VENT°, MINN.
DOUG BARNARD. GA.
WES WATKIN3. OKLA.
ROBERT GARCIA. N.Y.
USE OF REPRESENTATIVO
U.S.
COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
NINETY-FIFTH CONGRESS
2129 RAW3URN
HOUSE OFFICE
nUILDING
WASHINGTON, D.C. 20515
J. WILLIAM sTANI
OHIO '
GARY tiROwN. MICH.
CHALMERS P. WYLIE. OHIO
JOHN H. ROUSSE LOT. CALIF.
STEWART D. M:KINSY. CONN.
GEORGE HANSEN. IDAHO
HENRY J. HYDE. ILL.
RICHARD KELLY. FLA.
CHARLES C. GRAsSLEY. IOWA
MILLICENT FENWICK, N.J.
JIM LEACH. IOWA
NEWTON I. STEERS. JR.. MD.
THOMAS D. EVANS. JR.. DEL
BRUCE E. CAPUT°. N.Y.
HAROLD C. HoLLENsF.CK. N.J.
&WILLIAM GREEN. N.Y.
2.25-420
August 10, 1978
The Honorable G. William Miller
Chairman
Board of Governors .
Federal Reserve System
Washington, D. C.
Dear Chairman Miller:
Your testimony on July 27 and 28 contributed importantly to
the Committee's understanding of the Fed's current monetary policy
and to our deliberations on legislation to improve monetary control and resolve the membership problem. We have, as you know,
developed legislation, the Federal Reserve Act Amendments of 1978,
which resolves the membership problem and facilitates the Federal
Reserve's ability to conduct monetary policy.
I would like to call your attention to four problems related
to monetary control, and make one suggestion for improving the
Federal deficit, all of which I believe the Federal Reserve can
effectively deal with through regulatory provisions.
The first problem is the failure of the Federal Reserve to
present target ranges for M1 which it intends to live within.
This is an issue with which we are both concerned, because the
failure by the Federal Reserve for more than a year now to keep
M1 within its announced growth target range has had unfortunate
monetary effects, both at home and abroad. The Federal Reserve's
response that its current M1 target. range starts from a high .
base, and therefore is more realistic than it appears, in no way
alters the fact th,lt it is misleading. I recommend, as I have
before, that for the immediate future, the Fed fix its M1 limit
at a level consistent with our nation's goal of a healthy economy
and stable dollar, and then stick to it.
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111
The Honorable G. William Miller
August 10. 1978
Page Two
411
The second point concerns the elimination of lagged reserve
requirements and - the reinstitution of synchronous reserve requirements. I was cheered by your statement in our hearings on July 28
that "in terms of operation it would be preferable to be on a
current basis". You indicated that you would make the change to
synchronous reserve requirements "once we can alleviate some of
the membership problems." The proposed legislation, the Federal
Reserve Act Amendments of 1978, would do just that.
I want also to call to your attention the comments of President Morris of the Federal Reserve Bank of Boston at our hearings
on July 31, 1978, that he has been "an advocate of eliminating
the lagged reserve requirements. I think we ought to move ahead
in that."
The third problem is the Wednesday scramble in and out of
reserves as every member bank in the United States is forced by
Federal Reserve regulation to come up with the necessary reserve
requirement for the preceding week at the close of business on
Nednesday. In my June 21 letter to you on this subject, I asked
for all pertinent reports and studies that had been done on this
subject: since the Federal Reserve received Milton Friedman's 1965
detailed memorandum strongly supporting staggered reserve accounting. On July 11, you sent me a staff study dated December 9, 1975,
revised July 6, 1978, which seemed to indicate a problem with my
suggestion that we adopt a system of staggered settlement dates
so that 20 percent of the weekly reserve requirements could be
settled on each week day. William Poole, Professor of Economics
at Brown University, formerly a member of the staff of both the
Board of Governors and the Boston Federal Reserve Bank, and currently an advisor to the Federal Reserve, has analyzed your staff
study. His enclosed remarks conclude that rather than attacking
a system of staggered reserve settlement dates, your staff meniorandum actually "strengthens the case for such a system".
The fourth point concerns the discount rate. Currently,
changes in the discount rate can be and often are misinterpreted.
When other short term rates are falling, decreasing the discount
rate can be interpreted as a sign that the Fed is easing when in
fact it is only moving with the market. Vice versa, when other
short term rates are rising, increasing the discount rate can be
interpreted as a sign that the Fed is tightening when, again, -it
is only moving with the market. To make sure that changes in the
discount rate are unambiguous, and also to minimize arbitrage possibilities, you could tic the discount rate to the Treasury bill
rate, or the Federal funds rate or some index of short-term
1
4 or /
1
2 point above the formula rate -- except
rates -- perhaps /
in unusual circumstances when there is good reason to send the
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Federal Reserve Bank of St. Louis
•
The Honorable G. Wiiiiam Miller
August 10, 1978
Page Three
•
financial community an unambiguous signal that the thrust of monetary policy is. being changed. In those rare instances when a
nal was needed, the Board, responding to initiatives from the Reserve Banks, would set the discount rate at a rate other than the
one dictated by the formula, good for one week and renewable. If
set above, it would be a clear signal that policy was being tightened. If set below, it would signal that policy was being eased.
Needless to say, the Reserve Banks and Board would have to review
and determine whether circumstances dictated setting the discount
rate above or below the formula rate every week, even though the
occasions for departing from the formula rate would be rare. Review and determination of the discount rate would, I believe, be
far better focused under this procedure than presently.
My fifth point concerns the $1 billion plus surplus which is
sitting in the Federal Reserve's attic, covered with dust, and
serving no useful purpose. You have offered to dust off $575
lion Of the surplus and ship it over to the Treasury to offset part
of the cost of solving the membership problem. Actually, of course,
in a consolidated statement of government finances, the surplus
would not exist and it would not affect the real income of our
zens in any meaningful way whether it was a bookkeeping entry at
the Federal Reserve or at the Treasury. I do not think we should
obscure the cost of the various legislative proposals by encumbering the calculations with shifts in the surplus. The transfer of
the surplus to the Treasury will, however,. make our deficit look
smaller. Whatever psychic income this cosmetic benefit produces
is surely preferable to allowing the surplus to gather further dust.
Why not transfer the surplus in its entirety, at whatever rate
your comptroller is able to adjust his books?
Let me thank you for your thorough testimony during two long
days of hearings on July 27 and 28. Your comments have been very
helpful in our deliberations.
Sincerely,
[
Henry S. Reuss
Chairman
Enclosure
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I: 0 NNT N
1..J N I \ I
S I 'I'
Prot iderit c,
Isburd - 02912
July 25, 1978
The Ilcnorab]e Henry g. Reuss
Chairman
U. S. House of Representatives
Committee on Banking, Finance
and Urban Affairs
Ninety-Fifth Congress
2129 Rayburn House Office Building
Washington, DC 20515
Dear
Chairman Reuss:
I am replying to your letter of July 18, 1978, concerning the
memorandum by Daniel Laufenberg on staggered reserve settlement periods.
Overall, I believe that the Laufenberg memorandum provides some
insight into the economics of staggered reserve periods, and strengthens
the case for such a system. The table on page 2 of the memorandum illustrates very nicely why staggered reserve periods would not lead to an
effective evasion of monetary control. The increasing oscillations in
reserves that show up in this table clearly could not continue for very
many periods. In the middle of page 3 of his mmorandum, Laufenberg dismisses the argument that the gro:?ing oscillations could not continue.
His argument, hoever, is hardly convincing. For one thing, it is simply
not true that banks pay no attention to the behavior of the banking system as a whole. His argument reminds me somewhat of the argument for a
chain letter. A chain letter can continue so lonu as no one bothers to
exa;Ane
4-r2ic -itions, but in fact most people do nnderstand the implications of chain letters and they don't go very far. Similarly, banks
would surely understand the implications of the extreme oscillatory pattern shown on page 2 of the memorandum an3 would not permit that pattern
to go very far.
Another important reason that the oscillatory pattern could not go
very far is that banks lending federal funds pay attention to the credit
worthiness of the borrower. Thus, banks would not be able to borrow
the growing amounts shown in the table because other banks would refuse
to lend such large amounts. Each individual bank, knowing that the sup-r-ply of federal funds to it will be limited by the behavior of the lending
banks, would take some action to dispose of assets long before the
violent oscillations got very far along.
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Page 2
• July 25, 1978
The table on page 5 of the Laufenberg memorandum provides a simple
example of how staggered reserve poviods miOt work when banks undertake
to sell assets in order to adjust their reserve positions. The striking
thing about the table is that the change in deposits is spread over a
series of periods. -It should b2 emphasized that: with contemporaneous
reserve requirements and no staggering of reserve settlement periods,
the assumed decline of reserves of 10 in the first period would force
an immediate decline of 100 in deposits under the assumptions employed
in this example and assuming no Federal Reserve offsetting action. The
Laufenborg table, in contrast, shows that the decline in deposits comes
in a series of steps spread over time rathcr than all in one big swoop.
It is surprising, therefore, that Laufenberg utilizes this example as
indicating a potential problem with staggered reserve settlement periods.
The basis of Laufenberg's criticism of staggered settlement periods
comes from solving the difference equation at the top of page 7. This
equation is derived from the very simple assumptions which should be
regarded as being useful for illustrative purposes. But surely it is a
mistake to teike an example set up for illustrative purposes and then to
crank through its mathematical pr55.9rties without paying any attention
to how the model might: be slightly off. When the simple moael is solved
the problem is that the solution involvos indefinite oscillations in deposits, as emphasized by Laufenberg at the top of page 7.
The artificiality of this result:can be demonstrated very easily.
Suppoe we go back to the simple assLimption in the model at the top of
page 6 as written dosn in equation (2). Underlying equation (2) is the
notion that each bank would adju3t its asset sales in ordar to exactly
achieve its required reserve position, without making any allowance for
hoading excess reserves or any allo%Niance for possible borrowing irom the
Federal Reserve. Suppose equation (2) is written in a slightly altered
fSrm which I will call (2a).
•
(2a)
AP
t
)
= 1.99 (ER
+ .5 AD
t-1
t-1
Equation (2a) has the assumption that the bank covers practically all of
a reserve deficiency, borrowing just a little from the Fed; or uses a
reserve excess almost completely to purchase assets, but holds just a
little uninvested Lo provide an excess reserve cushion. All I bave done .
is to change the 2 in Laufenborg's equation (2) to 1.99 in my equation
(2a). If this substitution is made and the resulting model solved it
will be found that the system is still oscillatory blit it is damped. Thu
if equation (2a) rather than (2) were to discrib.2 bank behavior, then the
Laufenberg conclusion that deposits would increase, and then decrease,
and so on indefinitely would be changed and the correct conclusion would
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Federal Reserve Bank of St. Louis
•
•
Eenry S. Reur.s
pdoe 3
July 25, 1978
41;Dr:.
be that the oscillations would damp:q1 over time so that deposits would
converge to their lon-run equilibrium level.
The point of all this is not to say that equation (2a) is correct
and equation (2) is incorrect; rather, it is to cmphasiz.c that a model
of this type should be considered as illustrative and not as accurate
enoui that we would want to rely on its detailed mathematical properties.
My considered opinion is that the illustrative model has the correct implication that the response of deposits to a reserve distrubance would
•
over
spread
out
be
time to a greater extent than would the response Under
a conventional reserve system assuming that there is no Federal Reserve
intervention. But to read more into this simple model is a grave mistake.
There is no reason to believe that the actual behavior of the banking
system would ba anything other than very stable under staggered reserve
periods system.
Finally, even if the staggered reserve system has some tendencies
toward the instabilities identified by Lnufenb.erg -- and I want to emphasize that I do noL in fact believe that these instabilities exist -LnuCenberg's memorandum is seriously deficient in not ma'king a proper com
parison between the staggered reserve system and the present system. For
one thing, any reasonable simple illustrative model of the present lagged
reserve system will show much more violent in3Labilities under the same
assumptions that Laufenbarg has applied in his memorandum. Secondly, the
actual system cannot be analyzed in the context of the assumption that
the Federal Reserve never intervenes to smooth disturbances. The problem
with the present system is that it magnifies and amplifies disturbances
-- instead of damping them and spreading them out as staggc!red reserve
periods would do -- requiring tremendous amounts of Federal Reserve activity to smooth out the disturbances caused ly.), the carrent faulty regulations. Thus, the result of the present system, given the way the
Federal Reserve behaves, is to generate the large continuing procyclical
movements in the money stock that we have observed so often in the past
and have been observing in recent months.
I hope my analysis of the Laufenberg memorandum has not been excessively long, but it is not a simple matter to explain exactly where
Laufenberg's approach goes off base. Should you have any further
questions please feel free to call on me again.
Sincerely,
t
William Poole
Professor of Economics
WP:m3m
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fmNAND J. ST GE1ImAIN. R.I.
HENRY 11. GONZALEZ. TEX.
JosErtl G. P.it,JISH. NJ.
FRANK ANNUNzlo. ILL.
JAMS M. HANLEY. N.Y.
vARREN J. p.iirciiKLL.
WALTER E. FAuNrRoY. D.C.
STCPHEN L. PEAL. N.C.
.)!:11RY M. pATTERSON. CALIF.
JAMES J. oLANcilAclo. miCit.
CARRoLL HuDFIARD. -M.. KY.
JOHN J. LAFA,_cr. N.Y.
GLADYS NOON !.Pr LIMAN. MD.
ES AuCOIN. 074EG.
DAVID W. EVANS. IND.
NORMAN C. D'AMOURS. N.H.
STANLEY N. LUND'S:77. N.Y.
JOHN J. CAVANAUGH.
MARY ROSE. OAK AR. OHIO
JIM MATTOX. 7LX.
1JRUCE F. VF-NTO. M:NN.
DOUG DARNARO. GA.
OKLA.
WES WATK I Psi
ROBERT GARCIA. N.Y.
MIKE LOWRY. WASH.
U.SOOUSE OF REPRESENT-KT-10S
A0
COMMWEE ON BANKING, nNANCE AND Ulii3AN
NINETY-5IX TH CONC;HESS
2129 RAYBURN
Flour;E:
OFFICE BUILDING
WASHINGTON. D.C. 20515
RS
CLORGL HANSEN. IDAHO
IIENRY J. wear. ILL.
RICHARD KELLY. FLA.
JIM LEACH. IOWA
1110MAS 11. EVANS. JR.. CEL.
S. WILLIAM GREEN. N.Y.
IRON PAUL.VEX.
ED HETPIGNE. ARK.
NORMAN D. SHUMWAY. CALIF.
CARROLL A. CAMPBELL.JR.. S.C..
DON RITTER. rA.
JON HINSON. MISS.
225-4247
September 26, 1979
The Honorable Paul A. Volcker
Chairman
Board of Governors
Federal Reserve System
Washington, D. C.
Dear Chairman Volcker:
The recent increase in the discount rate to 11 percent and the
threat of even higher discount rates is in part a result of the method
by which the Federal Reserve regulates the required reserves of member
banks. The present system of lagged reserve requirements requires
sharp increases in the discount rate in order to slow deposit expansion. If the lagged reserve requirement system is ended and the sys.tem used until September, 1968 -- concurrent reserve requirements -was instituted the Federal Reserve would not nr.!ed such high discount
rates to bring the money supply under control.
Under lagged reserv2 requirements the Federal Reserve cannot slow
down money growth through open market operations without throwing the
member banks into deficient reserve positions which violate your regulations. The Fed is forced to control fast money. growth by raising
higher than would he necessary
the discount and Federal binds rates
under concurrent reserve requirements.
I am enclosing a recentsletter from Professor George G, Kaufman,
former Vice President of the Federal Reserve Bank of Chicago and currently the John B. Rogers Professor of Banking and Finance of the College of Business Administration at the University of Oregon. He emphasizes these points in relation to current Federal Reserve policy.
"The recent apparently unintended acceleration in monetary growth appears to me to be attributable in part to lagged reserves. Further
sharp increases in the discount rate will be needed to slow deposj.t
expansion if loan demand remains strong. This strategy appears less
desirable to me then a strategy of open market sales under concurrent
requirements "
I would hope that the Federal Reserve could immediately switch
to concurrent reserve requirements to avoid unnecessary increases in
the discount rate.
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Federal Reserve Bank of St. Louis
Sincerely,
Henry S. Reuss'
Chairman
• VI
Assigned to Ire Axilrod
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Federal Reserve Bank of St. Louis
.10
•
HENRY S. REUSS. WIS., CHAIRMAN
THOMAS L. ASHLEY, OHIO
WILLIAM S. MOORHEAD, PA.
FERNAND J. ST GERMAIN, R.I.
HENRY B. GONZALEZ, TEX.
JOSEPH G. MINISH, N.J.
FRANK ANNUNZIO, ILL.
ES M. HANLEY, N.Y.
JAMI I
PARREN J. MITCHELL, MD.
WALTER E. FAUNTROY, D.C.
STEPHEN L. NEAL, N.C.
JERRY M. PATTERSON. CALIF.
JAMES J. BLANCHARD, MICH.
CARROLL HUBBARD, JR., KY.
JOHN J. LAFALCE, N.Y.
GLADYS NOON SPELLMAN, MD.
LES AuCOIN, OREG.
DAVID W. EVANS, IND.
NORMAN E. D'AMOURS, N.H.
STANLEY N. LUNDINE, N.Y.
JOHN J. CAVANAUGH. NEBR.
MARY ROSE OAKAR, OHIO
JIM MATTOX, TEX.
BRUCE F. VENT°, MINN.
DOUG BARNARD, GA.
WES WATKINS, OKLA.
ROBERT GARCIA. N.Y.
MIKE LOWRY. WASH.
•
J. WILLIAM STANTON, OHIO
CHALMIRS P. WYLIE, OHIO
STEWART O. McKINNEY, CONN.
GEORGE HANSTN, IDAHO
HENRY J. HYDE, ILL.
U.S. HOUSE OF REPRESENIT-ATI VES
COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
NINETY-SIX T H CONGRESS
2129
RAYBURN HOUSE
OFFICE BUILDING
WASH I NGTON, D.C. 20515
RICHARD KELLY, FLA.
JIM LEACH, IOWA
THOMAS B. EVANS, JR., DEL.
S. WILLIAM GREEN, N.Y.
TroN PAUL, TEX.
D BETHUNE, ARK.
NORMAN D. SHUMWAY. CALIF.
CARROLL A. CAMPBELL, JR., S.C.
DON RITTER, PA.
JON HINSON, MISS.
225-4247
September 26, 1979
The Honorable Paul A. Volcker
Chairman
Board of Governors
Federal Reserve System
Washington, D. C.
Dear Chairman Volcker:
The recent increase in the discount rate to 11 percent and the
of even higher discount rates is in part a result of the method
by which the Federal Reserve regulates the required reserves of member
banks. The present system of lagged reserve requirements requires
sharp increases in the discount rate in order to slow deposit expansion. If the lagged reserve requirement system is ended and the system used until September, 1968 -- concurrent reserve requirements -was instituted the Federal Reserve would not need such high discount
rates to bring the money supply under control.
I
Under lagged reserve requirements the Federal Reserve cannot slow
down money growth through open market operations without throwing the
member banks into deficient reserve positions which violate your regulations. The Fed is forced to control fast money growth by raising
higher than would be necessary
the discount and Federal funds rates
under concurrent reserve requirements.
I am enclosing a recent letter from Professor George G. Kaufman,
former Vice President of the Federal Reserve Bank of Chicago and currently the John B. Rogers Professor of Banking and Finance of the College of Business Administration at the University of Oregon. He emphasizes these points in relation to current: Federal Reserve policy.
"The recent apparently unintended acceleration in monetary growth appears to me to be attributable in part to lagged reserves. Further
sharp increases in the discount rate will be needed to slow deposit
expansion if loan demand remains strong. This strategy appears less
desirable to me then a strategy of open market sales under concurrent
requirements."
I would hope that the Federal Reserve could immediately switch
to concurrent reserve requirements to avoid unnecessary increases in
the discount rate.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Sincerely,
Henry S. Reuss '
Chairman
•
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September 7, 1979
R
Congressman Henry S. Reuss
Chairman, Committee on Banking, Finance
and Urban Affairs
U.S. House of Representatives
B301C Rayburn House Office Building
Washington, D.C. 20515
CA V.1 V D
sEi" 1 )10
& Ultan Maly; Ctitt:i
Dear Congressman Reuss,
Two years ago you requested me to comment on the effectiveness
of lagged reserve requirements for Federal Reserve control of the
money supply. In my letter dated November 18, 1977, I argued that
lagged reserves impede the ability of the Fed to control the money
supply. This view was not accepted by the Federal Reserve, in particular by Chairman Burns. In case you may not have seen it, I enclose
a copy of an article entitled "Monetary Base Control" that is published in the June 1979 Quarterly Bulletin of the Bank of England. .
As in the U.S., reserve requirements in England are lagged. ,13,1-,t71'
to'
authors conclude that "changes in deposits must cause the
allow changes in bank reserves, and not vice versa, so that monetary
base movements can hardly either control, cause or even indicate'
future movements in bank deposits." They suggest that if control of
the monRy supply is to be the prime objective, concurrent or lead
reserve requirements should be imposed. The latter scheme was
recently proposed by Robert Laurent of the Federal Reserve Bank of
Chicago.
The recent apparently unintended acceleration in monetary growth
appears to me to be attributable in part to lagged reserves. Further
sharp increases in the discount rate will be needed to slow deposit
expansion if loan demand remains strong. This strategy appears less
desirable to me then a strategy of open market sales under concurrent
requirements.
ely,
/
/ /
7 eorgel C. Kaufman
CGK:sjd
Enclosure
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Federal Reserve Bank of St. Louis
an equal opportunity
irtnatille
ph rfoyer
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Citation Information
Document Type: Journal article
Citations:
Number of Pages Removed: 11
Foote, M.D.K.W., C.A.E. Goodhart, A.C. Hotson. "Monetary Base Control." Quarterly Bulletin
[Bank of England], June 1979.
Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
October 17, 1979
lhonoreblet all SWUM
Malted States Smote
lissidostes, *Ail
20310
4evitt $155tar Saissest
1 ma please& to reeplit to your annant letter rowdies' the
effects of higher interest voter eainf1timi. Oboe tbe oesionsess*
of our infletion problem, this cert•eiely La an *portant emotion.
It is, in fEct, not a new owe; one can find it discussed in the
esameede literature of tibs nineteenth century. I believe it fair to
Sly that the accumulated owidense—tbeeretical mid enpiricAl—poines
Osnmisobegly to the eentlysies that, while rising istoreet rages that
often accompany nometory restraint do stild teasels and place mos upward
preestlre as prises* tblos enact is small and Ornrridden by the estiinflationary tweet
sederation of esposate demond teseered by
hishee interest estee• I efthe just mention tee papers that hove
of
annmemed this speeifie topic:
T, Mimpheer, "The lateral* Cest-Pelib Gestersvessi,'
Pidevel Seeerve Besh of Richmond wisikageigo,
Jenmeryillibrenry, 19/9* pp. 340.
Se Seelig, "Nleie, ineseeet sates wad Cost-Push
InftAtion,'
Sepeelber, 191,
op. V34940i1.
ihis00,7 *Etta* comeltulas thPt the great Swedish assist !taut
Winbeell lopeewided the deftive critique'* of Obe tOOMPOOt goat push
doctrine* All* the Seel* article presents a detailed indostry-level
00010Matric evileetioe of tebeeset goat tep,cts on prises. The findings
of dbmee softer* are confirmed by other reeegrch so moll* iscludiaS
informal iovestigations by staff at ehs Beard of Gevegumes.
sigh interest rates and rapid leflotial met to be ours,
Mated 0141110.01110. 1s inn/Alan accelerates, leaders and harrowers
alas onticipste the effects of rising prime as tbm perchasing power
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Federal Reserve Bank of St. Louis
F
The
lorable Jim !;ai.iner
Page Two
of eventual loan repayments. The result is hither nominal rates of
interost. An attmee to overcome this tendency would re<uire faster
empansion of the mew supply, but SW* 8 policy on the port of the
ccntral beak mould very cuickly prove emmeerproductive as the flood
of Aditional dollars wolf lead to still treziter inflation and stronger
upward Fromm as toftestt rate*.
My colloquial, Ond I SI 11.1*Seard
oemoittvo to the difficulties caused by hift:rieftreet rates. We wry um& would like to
see 01 return to the
fat.* that prevailed in the lIlle mod early
19505. asalistioally. Weever, that cennot occur men isitettee is
brave& dome 41111 aGOWN Of inability is restored to the esememy.
belie's that do policies ve bees instituted, which -.re inefedind to
*chime the asedimisediecoties of useetary eMpeneion provide the beet
bops of lattaisieg thee geol. Of course, other gowerseants1 policies
also boo a port to plays eed is tbla regard the of
of the SOMOSO
Deft* Oesivittee to esistets flood discipline Are to be esomemied6
Sioseroly.
SiPaul A.liplcig
M.7.12:JUEspjt (#v-62)
bcc: Mt. Kiehl's*
me. Proll
Was. Mallardi (2)
.14
1011.
JIM SASSER
•
TENNESSEE
.Aissgned to Jim KiciOn e
•
CS:
TIONS
•T
GOVERNMENTAL S.FFAIRS
'Z'Ttlitcb Zfafez ,Senate
WASHINGTON. D.C. 20510
Lxr
October S, 1979
Vfr
Honorable Paul Volcker
Federal Reserve Board
Twentieth Street and
Constitution Ave. NW
Washington, D. C. 205S1
Dcar Mr. Chairman:
Interest rates in the United States have rcached
record highs at a time when the economy is clearly in
a recession. Given the lags which are required to
measure the extent of current restrictive policies and
the extent of tho economic decline in progress, I am
really concerned that our monetary situation has become
overly restrictive, and that a deep and prolonged
recession may already be unavoidable.
you know, inflation is still the principal
problem we face today. Thus a restrictive fiscal policy
is needed to
the inflationary effects of
•reduc
federal
deficit spending. However, excessively restrictive
monetary policy makes the task of fiscal discipline more
difficult as output decreases and unemployment rises.
If these policies are continued or extended, I do not
hold out much hope to the taxpayers of this country for
balancing
the budget in 1981 as I had hoped.
As•
fer'st-
A
You have recently announced your continuing
commitment to a policy which allows interest rates to
remain high, or go yet higher. I am disturbed by the
potential consequences this policy carries for American
working people. While I appreciate the need for concern
about the international financial situation, I am deeply
concerned about a policy which seeks to accomodate our
foreign currency competitors at the expense of our
own people. I do not think we should be allowing the
burden of international monctary deficiencies to be
carried on the backs of American farmers, small
businessmen, and taxpayers. If a new international
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
',1110•1•1111.
• •.
• •'
•
saw
•
•
Honorable Paul Volcker
October 5, 1979
Page Two
monetary system is needed to ease currency crises such
as the one we now face, is the government pursuing actions
to put one in place? What other options are available to
improve the stability of the dollar? I want to be
satisfied that this government is doing everything it can
to reduce pressures on the dollar before resorting to even
higher interest rates.
It seems to me that at some point, interest rates
add to inflation, and to the depreciation of our currency,
rather than to alleviate these problems. I believe we
have already reached that point. Yet there is no
measurement the government now makes which gives a
comprehensive assessment of how interest rates affect the
inflation rate. I fail to see how rational policies are
possible without these data. Getting a better grip on
the inflationary cost of rising interest rates will help
the government and the private financial sector to
determine the full consequences of our monetary policies.
OM•MaIN
,
Toward this end, I request that you look into two
aspects of this matter. First, what is the best estimate
of the effect of current market interest rates on today's
inflation?
Second, what is the feasibility of establishing a
new, comprehensive measure of the interest component in
the inflation rate? It would be appreciated if this
study addressed, but is not necessarily limited to, the
following questions:
1. What are the existing methods by which government
agencies measure interest costs in the economy?
2. What are the measureable ways in which interest
costs can be recorded?
3. Since rising interest rates add to household
and business costs, do they not add both to current
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Federal Reserve Bank of St. Louis
1
1."1111•=11.
t• •t • .• ""
•
•
•
Honorable Paul.Volckor
October S, 1979
Page Three
and to inflationary expectations which serve
to perpetuate high, and oven rising, inflation?
...
I would appreciate your careful consideration of
the questions I have raised, and look forward to your
response.
N
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
'rely,
Lirlm
J m Sasser
nited States Senator
L__
61r
. •ek.
s
• ,
• Ts
s• 4s.,40.74.-s-
g•'"
.
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Federal Reserve Bank of St. Louis
October 16, 1979
The Sannatable Timothy . ',Arch
Milhor of Coogrees
MIS Wont Colfax Avenue
Lakoused, Colorado 80213
Dear Mr. Wirth:
Thank yowl for your letter of October 1 regarding difficulty
Oademetered by your constituent, Mr. Joseph Cain, in obtaining a loan
from Capital Federal Sayings in Denver.
By statute, the board's primary supervisory jurisdiction is
limited to banks which ate members of the federal Reserve System.
Primary supervisory authority aver Federally chartered savings and
BAnk Board.
loan associations mooing with the Federal Rome
Accordingly, I am referring your refinost to that agency for reply.
Sincorely yours,
floripTA I. WI
ioneld J. Winn
.ipedal Assistant to the Board
cc:
Congressional Linison Office
Federal Home Loan Bank Board
CO:smk (#V-71)
Ma1lardi6MV
bcc:
TIMOTHY E. WIRTH
20 DISTRICT, COLORADO
•
WASHINGTON OFFICE:
312 CANNON HOUSE OFFICE
BUILDING
.1V
4:11
S..re
4
WASHINGTON, D.C. 20515
(202) 225-2161
COMMITTEES:
BUDGET
INTERSTATE AND FOREIGN
COM MERCE
SCIENCE AND TECHNOLOGY
CONGRESS OF THE UNITED STATES
DISTRICT OFFICE:
8648 WEST COLFAX AVENUE
LAKEWOOD. COLORADO 80215
HOUSE OF REPRESENTATIVES
(303) 214-5200
AIR FORCE ACADEMY BOARD
OF VISITORS
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Federal Reserve Bank of St. Louis
WASHINGTON, O.C. 20515
October 1, 1979
Mr. Paul Volcker, Chairman
Federal Reserve System
Board of Governors of the Federal Reserve System
Twentieth Street and Constitution Avenue Northwest
20551
Washington, D.C.
Dear Mr. Volcker:
A constituent, Mr. Joseph Cain, has contacted me complaining
that Federal banking regulations create difficulty in
obtaining loans for energy conservation.
Mr. Cain talked to Capital Federal Savings in Denver about
a loan to purchase storm windows for five rental units.
Capital Federal said banking regulations required separate
loans for each unit.
Since the loans cannot be combined into one large figure,
Mr. Cain would have to repay the loan over a much shorter term
A shorter term, of course, would mean higher monthly payments
and Mr. Cain said his cash flow will not allow him to meet
such high payments.
I would appreciate your attention to this matter and any
Please direct any correspondence
assistance you can offer.
to my Colorado District Office at 8648 West Colfax Avenue,
Lakewood, Colorado 80215.
With best wishes,
ncerely
s
tik
Timothy E. Wirth
TEW:scr
THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS
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Federal Reserve Bank of St. Louis
October 16, 1979
Ihe Semerable Paul P. Tesoro
Chairmen
Consumer ffairs Suboommittee
Connate. on Sashimi, Menstan
en4 Urban Affair,
United States Senate
Washington, D.C. 20510
Dees Chairman. tsemgae:
I so pleased to enclose the attached responses to poor
September 26, 1979 letter. I will fermerd the inguametiem poor
staff oubeetmently ra,-nestad As soon as possible.
any aseetions Mardi the
If pea or your staff he
attached response., please sontact Jeannine Clesions, Sorriow
fteminors at (202) 452-3960.
Sincerely,
Voicket
Attachments
=souk (#V-47)
bcc: Jeanine Catalano
Catherine Hallnrdi(2)
WILLIAM PROXMIRE, WIS., CHAIRMAN
HARRISON A. WILUAMS, JR., N.J.
Al. AN 4:RANSTON. CALIF.
STEVENSON, ILL.
. Al
I
.ERT MORGAI
, `,1
DONALD W. FULANI JR.,leicH.
r.
MJ. 116
PAUL S. SARII.
DONALD W. STEWART. ALA.
PAUL C. T RONDA S. MASS.
Action asMned Janet Hart
•
JAKE GARR, UTAH
JOHN TOWER. TEX.
JOHN HEINZ. PA.
WILLIAM L. ARMSTRONG. COLO.
NANCY LANDON KASSESAUM, KANS.
RICHARD G. LUGAR. IND.
KENNETH A. MC LEAN, STAFF DIRECTOR
M. DANNY WALL, MINORITY STAFF DIRECTOR
MARY MANCE.* DC LA PAVA, CHIEF CLERK
'Unitas Ziatez „Senate
COMMITTEE ON BANKING. HOUSING. AND
URBAN AFFAIRS
WASHINGTON. D.C. 20510
September 26, 1979
or?
The Honorable Paul A. Volcker
Chairman, Board of Governors of the
Federal Reserve System
Washington, D.C. 20037
Dear Chairman,
In order to prepare for the Consumer Affairs Subcommittee hearings on
October 16th and 17th, I would very much appreciate the following information from the Federal Reserve Board.
1.
What constituted a reimbursable Truth-In-Lending violation from
January 1969 to December 1978?
2.
From January 1969 through December 1978, how many violations of TruthIn-Lending were identified?
re-X
ionum-
a. substantive vs. technical
b. reimbursable vs. non reimbursable
c. by year
d. by region
3.
How many and what amount of reimbursements for Truth-In-Lending violations were made from January 1969 through December 1978: by year,
by region?
4.
How many reimbursable violations were identified but never pursued
during this period: by year, by region?
5.
On what date did the FRB implement the uniform guidelines:
examination, by enforcement?
by
6. How many financial institutions have been examined for Truth-In-Lending
by the FRB, since the uniform guidelines were implemented?
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Federal Reserve Bank of St. Louis
7.
What sampling technique did the FRB use?
74!
a. sample size
b. statistical or judgemental selection
c. universe (one month, one year or back to October 1974)
Did this vary by region, if so -- how?
• ;:4.,7-h*t
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8.
How many reimbursable violations, under the uniform guidelines (as of
August 1, 1979), are known to the FRB?
a.
b.
9.
10.
Fklit
the number of institutions having reimbursable violations, by
region
dollar amount of reimbursements, by region, if guidelines (as of
August 1, 1979) were enforced.
Of the total reimbursable violations identified (8 b above) how many
and what amounts have been reimbursed, by region?
Of total reimbursable violations found, as of August 1, 1979, what
percent were principally attributable to:
a. understated APR
b. understated finance charge
c. credit life insurance practices
d. late payment or prepayment penalty practices
11.
Of the possible reimbursement orders (as of August 1, 1979) how many
have been issued, by region?
12.
Of the reimbursement orders issued, how many have been completed?
13.
How does the FRB verify that complete reimbursement has been made?
'wow.
I would appreciate a response from the FRB by October 10th.
Sinc
Paul E. Tsongas, Chairman
Consumer Affairs Subcommittee
1
,
r
r•
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
October 16, 1979
the lemerehle Wiilien Prommire
Otairmom
Mommies,
Committee em
mod Urbino Affairs
United $team Semmes
Weehiestem. D. C. 2C510
eser chairmen ftemmire:
Ipmer letter of October 3, yeu tWLed up attemtien
to a roineoe,1ft editorial urgius that the 14idere1 aseerve
's policy
chow its operatAng roedurss. As you knem, the MOMC
toe disowned
actions of October 5 moved us in that direction aad
e on lhodsp.
the issue in detail before the Seoato Sulkies Committe
i trust that lay esneets before yotir Cenatttee beim &flavored the
questions raised is your leiter.
SincOrely,
agl- Voitch4
EMKAG:ved (#V-57)
bee:
Mt. Ettin
Mts. Mailardi (2) we-*
•
WILLIAM PROXMIRE. WIS., CHAIRM
HAFAISON A. WILLIAMS. JR., N.J.
ALAN CRANSTON. CALIF.
ADLAI E. STEVENSON. ILL.
POSERT MORGAN, N.C.
DONALD W. RIEGLE. JR., MICH.
PAUL S. SAMIANES. MD.
DONALD W. STEWART. ALA.
PAUL E. TIONGAS, MASS.
JAKE DARN.
JOHN TOWER,
JOHN HEINZ, PA.
WILLIAM L. ARMSTRONG, COLD.
SAUM, KANS.
NANCY LANDON
RICHARD 0. LUCUUR,
KENNETH A. MC LEAN. STAFF DIRECTOR
U. DANNY WALL. MINORITY STAFF DIRECTOR
PAVA, C3•4117 CLARK
MARY FRANCES
DC LA
/Z1Cnifeb Zfatess senate
COMMITTEE ON BANKING, HOUSING, AND
URBAN AFFAIRS
WASHINGTON. D.C. 20510
October 3, 1979
01
The Honorable Paul A. Volcker
Chairman, Board of Governors of the
Federal Reserve System
Washington, D.C. 20551
Dear Mr. Chairman:
Last Friday's issue of Business Week contained an editorial
critical of the Federal Reserve's monetary policy actions. I
call this to your attention not because I concur in the view
taken by the editorial. Rather, I think the editorial raises
some interesting issues that the Federal Reserve should address.
Therefore, I would like to have you or your staff comment on the
points raised which are as follows:
MOM
f.-;
First, the editorial suggests that the Fed can
set whatever rate of money growth it wants simply by
metering out reserves to support that amount of expansion and no more. Thus, what I take Business Week
to be suggesting is that the Fed change operating procedures and peg the rate of growth of bank reserves
rather than pegging interest rates.
Second, the editorial suggests that the Federal
Reserve cannot curb credit growth by raising interest
rates. In fact, raising interest rates are said to yield
perverse responses, sending business borrowers hurrying
to banks demanding credit at existing rates, and thereby forcing the Fed to supply additional reserves to the
banking system. The additional reserves, in turn, will
support more rapid money growth according to the editorial.
r;i4f4.
S.
Third, the editorial suggests that the Federal
Reserve's sole responsibility is to manage the money
supply, which is taken to mean growth of the narrowly
defined money supply, M-1. Further, the editorial
seems to take a very short-run view of how closely the
money stock should be controlled.
I am looking forward to reading your thoughts on the
-2
issues.
Sire
,/wiIti
Chairman
Enc.
WP:srl
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•-t ,
,
Removal Notice
The item(s) identified below have been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.
Citation Information
Document Type: Magazine article
Citations:
Number of Pages Removed: 1
"Why The Fed Has Failed." Businessweek, October 8, 1979.
Federal Reserve Bank of St. Louis
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BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D.C. 20551
PAUL A. VOLCKER
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
.• of COVE
BOARD OF GOVERNORS
7-;\., 0 •
\. 1° •
-0
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, DC.20551
•(P
o< \k.
(
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• •.
11?Ai.
• •••••
PAUL A vOLCK ER
CHAIRMAN
October 15, 1979
The Honorable Jim Mattox
House of Representatives
Washington, D.C. 20515
Dear Mr. Mattox:
Thank you for your letter of October 1, requesting the Board's
views on your amendment to H.R. 2255 that would authorize bank holding
companies to act as agent for the sale of property and casualty insurance
to their subsidiaries.
As part of its implementation of the 1970 Amendments to the
Bank Holding Company Act, the Board held an informal hearing on May 12,
1971 to consider the addition of certain insurance agency activities
to the "laundry list" of permissible nonbanking activities pursuant
to section 4(c)(8) of the Act. Numerous representatives of the insurance
and banking industries testified at this hearing. On August 10, 1971,
the Board announced its determination that certain insurance agency
activities were so closely related to banking as to be a proper incident
thereto. Among the types of insurance agency activities so authorized
by the Board was the sale by bank holding companies of "any insurance
for the holding company and its subsidiaries". 12 C.F.R.
§ 225.4(a)(9)(i).
Thereafter, the Board approved several applications by bank
holding companies to sell insurance, including property and casualty
for the holding company and its subsidiaries. In 1973, the Independent
Insurance Agents of America ("IIAA") (formerly, the National Association
of Insurance Agents) challenged the Board's approval of certain applications
of bank holding companies to engage in insurance agency activities.
Although these applications in part related to the sale of property and
casualty insurance to the bank holding company, IIAA challenged only those
portions of the application relating to the sale of property and casualty
insurance to borrowers from the bank holding company system and did not
challenge the sale of property and casualty insurance to the holding
company and its subsidiaries. Formal hearings before an Administrative
Law Judge were held regarding IIAA's protest to these applications. Upon
the conclusion of the hearings, the Administrative Law Judge, among other
things, recommended that bank holding companies be permitted to sell
insurance for themselves and their subsidiaries. The Board approved (with
certain modifications not relevant here) the recommended decision of the
Administrative Law Judge.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
The Honorable Jim Mattel
Page To
In 1974, IIAA requested the United States Court of Appeals
for the Fifth Circuit to review the Board's approval of thee* applications. Although IIAA did not contest the validity of the Board's
approval relating to the sale by the bank holding companies of insurance
for themselves and their ac
,
sidiaries. the Court on its own initiative
invalidated the Board's finding that the sale of insurance for the balk
holdiag company and the nonbanking edbsidiaries is "closely related" to
banking within the meaning of section 4(e)(8) of the A:t. A4e4m
#
AuzaalkaLgtategascams. v. Was.1.02,a, 533 F.2d 224
(5th Cir. 1976); reheerimi denied, 553 7.2d 729 (5th Cir. 1977);
wt.
JIBI1A, 435 U.S. 904 (1978). The court, however, affirmed the Board'e
findiag that the sale of itleurance for th&banking Aebsidiary of
a bank
holding company is closely related to bankint•
Thus, the Board's 1971 conclusion that the sale of insurance
for the bank holding company and its subsidiaries was an activity "close
ly
related" to banking was affirmed in part and rejected in part by the
Alebaust court. Prior to the court's partial reversal of the Board's
regulation, the Board found in its administration of the regulation that
the sale of insurance, including property and casualty to the bank holding
c‘napcny and its subsidiariea. resulted in the lowering of overall insurance
costs to the holding company system and, therefore, possible benefits to
the public,. Your proposed amendment to H.R. 2255 would restore the
opportunity for bank holding companies to provide such benefits.
If we eaa be of any further assistance, plense let us know.
Sincerely,
RW:smk (V-53)
bcc: Mr. Mannion
Mr. Bleier
Mr. Whiting
Mrs. Ma11ardi(2)-.'
-........sowasomme........1100111.111001
.
11Mbooftlimmo
CONGRESS OF THE UNITED STATES
HOUSE OF REPRESENTATIVES October
1, 1979
JIM MATTOX
5TH DISTRICT. TEXAS
Honorable Paul A. Volcker
Chairman
Board of Governors
Federal Reserve System
Twentieth Street and
Constitution Avenue
Washington, D.C.
20551
Dear Mr. Chairman:
Enclosed is a copy of an amendment I off
ered during consideration of
the bill H.R. 2255 by the House Committee
on Banking, Subcommittee on
Financial Institutions, Supervision, Reg
ulation, and Insurance.
As you know, H.R. 2255 addresses the sub
ject of the sale of insurance
by bank holding companies.
This amendment has been the source of muc
h discussion between myself,
the bill's prime sponsor, Congressman Jim
Hanley (D-NY), the Independent
Insurance Agents of America, and those in
bank holding companies whose
insurance activities do not fall within
the June 6, 1978 grandfather
date. It would be of interest to all of
these groups to have the opinion
of the Federal Reserve when further neg
otiations commence in the second
week in October. Therefore, I would app
reciate it if your legal staff
could provide us with some indication as
to whether the Federal Reserve
feels it would be wise to allow bank hol
ding companies to continue to act
as agent (only) in the sale of proper
ty and casualty insurance to their
subsidiaries.
I am available to you and your legal
division for any further information
or di ussion of this issue and look
forward to receiving the Fed's opinion.
Since -ly,
Nattox
d/V
diry
JM:cb
Enclosure
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
X
0
WASHINGTON OFFICE? 1127 LONG
WORTH HOUSE OFFICE BUILDING, WASHI
NGTON. D. C. 20515 (202) 225-2
231
DISTRICT OFFICEt 5200 EAST GRAND
AVENUE. SUITE 100. DALLAS. TEXAS
75223 (214) 767-2864
AMENEMENT TO RE OFFERED BY MR. MATTOX TO H.R. 2255
Page 2, line 9, after the word "or", insert a new subsection iii as follows:
"(iii) any insurance agency activity where the insurance is
limited to sales of fidelity and property and casualty insurance
on the personnel and assets of a bank holding company or its
subsidiaries, and group insurance that protects the bank holding
company and its subsidiaries;"
Redesignate succeeding subsections accordingly.
Report language to accompany this amendment is suggested to read: "Nothing
in this bill is meant to preclude Section 7 of the Bank Holding Company
Act (12 U.S.C. Sec. 1846)".
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Octuber 1311 1373
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ee.
so that the reseed, fee
persegiger 1272 have stergedy •bees destroyed
. Tke resew& that nee wallahs
Nei 1972 rafts.* oely daily temple of debits mad toodit
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t 10010,414101 MI- Meldwiles
emesiess mitt clue Cleesiond Yediwol Seemen
eive Seek sod their eppeeent leek
of ceoperatioe. SedegrAl $eeman wire monde,
opeomeere to en Aflame
are instructed to be sestimmilimmilevetidi
es
tteeeterte ever the tramping* peortiodiestp SmitouttlitalmuldesdaS tondo
immetwes news of
eke
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emehno the diepeeitios
et Who trenseeties.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Fable
She
Popo boo
rold S. bavrer
turther ssitistalete is this
It the fodgral MoOsne erne be it
oseteet either the Clievelead or
'otter, me. seuwia Sihosig Opel free to
lisherd Motes, (202) 452-3,27 it the
Detroit Mime dirootk, as
ywohimstiss.
!Mord a opeggies
Sisteerely
Saul A. bidet
:CO:pjt (#V-59)
hex: Mr. Asst.*
Mr. Wallace
fts. Mailardi (2) s''."
•
•
HAROLD S. SAWYER.
5m DISTRICT, MICHIGAN
WASHINGTON orncr:
508 CANNON HOUSE OrricE Elult_DING
WASHINGTON, 0 C. 20515
ADMINISTRATTVT ASSIsTAKTI
RUSSELL A. ROURKE
DISTRICT REPRESENTATIVIIi
Congre55 of tbe Ziniteb
JOHN R. WESTMAN
tate5
(202) 225-3831
DISTRICT OFT10Et
COMMITTEES:
JUDICIARY
VETERANS' AFFAIRS
jOoluSe of IleprOentatibefS
Zinassbington, ra.C. 20515
166 FEDERAL BUILDING
GRAND RAPIDS, MICHIGAN 49503
(616) 451-8383
SELECT COM M ITT I" Es:
ASSASSINATIONS
ETHICS
October 2, 1979
1
.1
-••••••..f
(..C3
CD
5
1=1
Mr. Paul A. Volcker
Chairman
Federal Reserve System
Twentieth Street and
Constitution Avenue NW
Washington, D.C. 20551
—4
-77
RE: George D. Baldwin
Dear Mr. Volcker:
-1?
01111.11•1111
I have been contacted by the above who has
encountered some difficulty in tracking down
a lost wire transfer between Cleveland, Ohio
and Grand Rapids, Michigan.
The route of the wire transfer was to be as
follows: from Cleveland Trust Company to
Cleveland Federal Reserve; from Cleveland
Federal Reserve to Detroit Federal Reserve;
from Detroit Federal Reserve to Michigan
National Bank in Grand Rapids.
go.
The wire transfer, in the amount of
left Cleveland Trust Co. December 12, 1972 at
2:39 p.m., destination: Michigan National Bank
.
account number
Cleveland Federal Reserve will acknowledge
only that they received the wire transfer from
Cleveland Trust Company. They have told Mr.
Baldwin that he must have a subpoena to obtain
any further information regarding the progress
of the wire transfer.
WIMMOM
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
I cannot understand why the Cleveland Federal
Reserve insists on impeding the progress on
this search and request your assistance in
tracking this down through Cleveland and
Detroit as the transfer was never received
by the bank in Grand Rapids.
PLEASE RESPOND TO: 0 WASHINGTON OFFICE
0 DISTRICT OFFICE
•• •
r
. P.
'.•
•
The timeliness of this matter is of the
essence, as the statute of limitations on
this expires in a little over a month.
Should the transfer be located, the money
should be deposited in account number
at Grand Valley National
Bank, Cascade Branch in Grand Rapids, as
Mr. Baldwin has closed his account at
Michigan National.
I look forward to hearing from you at your
earliest convenience.
Yours very truly,
•,.
Harold S. Sawyer
Member of Congress
lipmemou
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
HSS:kf
district office
•••..
•
•
•-
••••
GOve;
'
r/le •
0•
CHAIRMAN OF THE BOARD OF GOVERNORS
•C
.
m
FEDERAL RESERVE SYSTEM
• -4
WASHINGTON, D. C. 20551
•
4v;
c,t
4.11.
•
AL
••
• • • • ••
October 11, 1979
The Honorable Jacob K. Javits
United States Senate
Washington, D.C. 20510
Dear Jack:
Thank you for your letter of September 25 regarding U.S.
policy on gold sales.
The recent rapid rise in the price of gold has been a
disturbing development particularly as speculative interest in
gold has spread to other commodities. These developments are
symptomatic of the inflation problems all countries are facing.
It is important for domestic reasons as well as to restore
confidence in the dollar abroad that U.S. economic policy be
directed toward improving our economic performance, particulary
on inflation. This is the major objective of the Federal Reserve's
actions announced on October 6. Other multilateral actions, such
as the ones you mentioned in your letter, might also over time
contribute to increased international monetary stability, but the
principal responsibility for the dollar's international value lies
with the United States.
The U.S. gold sales program has two main objectives. First,
it is designed to reduce the U.S. trade deficit and to strengthen
the balance of payments. In this respect the program is supportive
of other efforts to maintain a sound and stable dollar. Second, the
program is designed to contribute to the reduction of gold's role
in the international monetary system--a goal that has been endorsed
by most other countries.
The U.S. gold sales program has been successful. In 1978 we
were a substantial net importer of gold; so far in 1979 we have
recorded net exports of gold. Profits from the Treasury's gold sales
have also contributed to the financing of the federal budget deficit.
The program is accepted by the market and, in most cases, is welcomed
by foreign monetary officials.
•
NY;
•
"fr*
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
'
..• 1:• —"T".1;
. :7r:;:fr:
-:77•
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Although all possibilities should be carefully evaluated, I
believe, under present circumstances, it would be unwise to suspend
U.S. gold sales. Such an action would probably add further uncertainty
to markets generally and contribute to increased speculation.
•
J.ACOB K. JAVITS
NEW YORK
•
COMMITTrES:
FOREIGN RELATIONS
HUMAN RESOURCES
GOVERNMENTAL AFFAIRS
?Anitcb ,..T3tatez Zertate
WASHINGTON, D.C.
20510
REGIONAL OFFICES:
Rmm511
110 EAST 45TH STREET
New Yortx, New YORK 10017
R00114 222
FEOTRAL OFFICE E3U1LDING
111 WEST HURON STREET
BurrALD, New Yam
14202
JOINT ECONOMIC
ROOA1 420
LEO W. O'Eimirm FEDERAL BUILDING
CUNTON Soumut
AusAny, Ncw Yon% 12207
EI
01,111111.-
September 25, 1979
Dear Paul:
I would like to express my growing
current policy of selling gold from our
sales, initially intended to strengthen
dollar by absorbing excess dollars from
be negating that objective by fueling a
stabilizing the dollar market.
concern regarding our country's
official gold stoCks. Gold
the international value of the
the world market, now appear to
rush to buy gold, which is de-
I believe that the present gold fever reflects a lack of confidence
by investors in the world's currencies, including the traditional confidence in the dollar. Restoring confidence in the international monetary
system will require in particular an improvement in the economic performance of the US, especially in the so-called fundamentals of inflation,
energy, and the balance of payments. In addition, we must move quickly
to deal with the structural problems facing the system by putting into
place the Substitution Account in the IMF and improving national supervision and Central Bank regulation of the Eurocurrency markets.
fm9.
These actions to stabilize the dollar will, however, not occur overnight, especially the Substitution Account, which will involve tough and
sensitive negotiations with our trading partners and may require a more
healthy international economic climate to be successful. In the immediate
futurS, therefore, the question of whether or not the Treasury should
continue to sell gold needs to be addressed. By my rough calculation,
the loss to the US TreAsury from gold sales since 1975 has been approximately 2 billion dollars; and, even as important as the dollar loss to
the US Treasury is the fact that the other industrialized nations apparently do not share our objective of demonetizing gold; and, as a
result, our gold sales may be exacerbating the present gold situation.
Therefore, it is a serious question whether we should not suspend our
gold sales until the gold and other commodity markets have once again
stabilized.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
assigned to Division of Interr -4-ional
Finance
00e
The Honorable Paul Volcker
Page 2
September 26, 1979
I will appreciate your considered attention to this matter, which is
of the highest national interest, at your earliest convenience.
With best wishes,
Sincer
J cob K. Javits, U.S.S.
The Honorable
Paul Volcker
Chairman
Board of Governors
Federal Reserve System
Federal Reserve Building
Roam B1225
20551
Washington, DC
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
,
467.
Oromilm-
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
October 10, 1,79
The Seastable
Rows of Sepreeeetatives
weddmistee, D.C. 20515
Dear We. legula:
Themik you for your Letter of October 9 reeemmemdiag Mr. Robert
Barone as a weber of the Soares Consumer iiisewy Cemesil.
You ee, be oesured thst Mr. Sereeles csolifitatioes viii
receive full cassidoratior by the Beard whoa it slakes the 191110 appointments to the Cooacil within the seat eeeleiel webs. ifie 'Ill bate
touch with yes vbes the selsettess are mode.
The Dowd appreciate* reeletvieg your reseemeedettos 884 your
faultiest Am the Commor Advisocy Coonstl.
itasevely,
N/Pafil /L
CO:pjt (PV-63)
bee: Anne Geary (w/copy of incoming)
Mrs. Mallardi (2)
ti;
RALPH REGULA
COMMITTEES:
16TH DISTRICT, OHIO
CANNON HOUSE OFFICE
APPROPRIATIONS
SUBCOMMITTEES'
BUILDING
WASHINGTON. D.C. 20515
(202) 225-3876
Congres'5 of tbe LIiiitcb.*tate5
DISTRICT OFFICES:
4150 BELDEN VILLAGE STREET NW.
CANTON, OHIO 44718
(216) 456-2869
ii)otW of 1rpre5entatibe5
Z.-aattinton, b.C. 20515
44691
(216) 264-3585
BUDGET
TASK FORCES:
DEFENSE AND INTERNATIONAL AFFAIRS
TAX POLICY
SELECT COMM I TTEE ON
AQUJG
201 EAST LIBERTY STREET
WOOSTER, OHIO
INTERIOR
MILITARY CONSTRUCTION
October 9, 1979
1
cr,
CD
—4
Honorable Paul Volcker, Chairman
Board of Governors of the Federal Reserve System
Washington, D.C. 20551
Dear Mr. Chairman:
I understand that Robert Barone, Vice President and General
Manager of the Diebold Company, has been nominated to the Consumer
Advisory Council of the Federal Reserve Board.
Prior to joining Diebold, Mr. Barone worked for National Cash
Register where he designed a comprehensive data system for the
retailing industry. For the past eight years, Mr. Barone has
worked for Diebold and has extensive experience with the automated teller machines.
The Diebold Company is the third largest manufacturer of automated teller machines. No other product has been as important
to consumers in changing the patterns of traditional banking
than the automated teller machine. It appears likely that the
trend toward electronic consumer banking will increase in the
years ahead.
I urge you to carefully consider Mr. BarNne for a position on
the Consumer Advisory Council.
Sin
rely,
Ralph Regula, M.C.
R:Wc
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Ozteber 10, 1979
Ohs eeersible Alen :Icanstorn
NStates Senate
Dotted
Weehlsobes, D. C. 20510
Mot Alan:
diac.ussed the
paring oix re,=eme meeting in your office
ovolvtaii Position of NM et tae major trade associations on the Fed
'vembersht74 legislation eed aa ep proposal for a su,'llemental reserve
requiremem on vniz:h inteTeet vould be paid.
The U. S. League has now come forward with their -meitiee
on this fIrw.losal which the ASA had previously su,liorted. I understand
that ion Guenther of my staff has already forwarded the formal alla
mositioe of the
osemessems stateneat to your staff. limcioeed Le
O. O. Leegve and a summery of this position.
I find the suort. of theme ewe major trade aseoriatioae
ler a legislative staetiofi en. oanassina a supplemental reserve
requirement highly en- ourag,ng.
Ls my judgment doe neseares ve anno.41 ed this weekend make
plempt Legislative aCtielli mere issostrativs *Aso* me beve levied a now
reserve tax on member bemks. In turn, it Ls our .ousidered judgment
that Congressional passage of legislative Yroviding for nationwAe
NOW sc.esuats—owhich, ve support—will exacerbate octr membership Drabtem Ln the critical period ahead.
I appreciate your
ontimied interest in this Netter.
Sincerely
SiPagl A. Ypichg.
Enclosure
KAG.v.d
bcc: Mrs. Mallardi
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
October lt,iL._L3ii
The Honorable William L. Armstrong
United States Senate
Washington, D. C. /0510
Wier Senator Armstrong:
Ohio is in response to the letter el 0 tober 4 seat jointly
by Senator Gam mad yourself, asking for the Seard's Assessment of
eiseher or not the restitution rowrisione ed 11. LO4 need op be emended
in light of our emperimmoswith the Troth te Undies enforcement guide,
limee. As you Omen* in rour letter) there ore a nmnber 0 differemmee
between the Amami's. of S. MS and the existing geidelimes. Meme
diffememese arise between S. 104 amid the ehmegee psepeeed
to the guidelines smdemeed by the Ihumainatissagescil, WW1 the Nome
today authorized to be relished for Public 010111011t.
While the leert recognizes these differing" Previelene, it
doss net believe that changes to S. iCti. axe neesegery. rho "nerd notes
:tive two years from do date of enactment.
that S. 108 became& effe,
thus, there should be amplie onYortunity in tha seemims owe years for
the blahs subject to the Seerd's jnrisdi_tion to develo,, compliance
,rogreme that eliminate patting er practi ea resulting in violations
invelviag reimbursement*. WO menu that s. lct will address problems
arising mmder fresh exenteettone conducted after the effective date *i
the legislation.
matter.
Oarn.
the Sward appreciate* the oportunity to comment en this
A substantively identical reply is being seat to Senator
Sincerely,
IDENTIC1L LETTER TO SENATOR GANN
JCK:JPB:vcd (#V-55)
bee: Mt. Kluckman
Mrs. Nallardi (2) -ow'''.
Vojcitt
•
WILLIAM PROXMIRE. WIS.. CHAIRMAN 0
•
JAKE GARN. UTAH
HARRISON A. WILLIAMS. JR.. NJ.
JOHN TOWER. TEX.
ALAN CRANSTON. CALIF.
JOHN HEINZ. PA.
ADLAI E. STEVENSON. ILL.
WILLIAM L. ARMSTRONG. COLD.
Ft0EIERT MORGAN. N.C.
NANCY LANCK*1 KA S ESAU M. KANS.
DONALD W. RIEGLE. JR.. MICH.
RICHARD G. LuaA.R, R.10.
PAUL S. SARBANES. MO.
DONALD W. STEWART. ALA.
PAUL E. YSONGAS. MASS.
KENNETH A. MC LEAN. STAFF DIRECTOR
M. DANNY WALL. MINORITY STAFF DIRECTOR
MARY rpturscits DC LA PAVA. CHIEF CLERK
/Zertifeb Ztatez -.Senate
COMMITTEE ON BANKING. HOUSING. AND
URBAN AFFAIRS
WASHINGTON. D.C. 20510
October 4, 1979
410
The Honorable Paul A. Volcker
Chairman, Board of Governors of the
Federal Reserve System
Washington, D.C. 20037
Dear Mr. Chairman:
ie
l
tt
Ct
:
As a result of the five financial institution regulatory
agencies' recent suspension of the Truth in Lending enforcement
guidelines pending a reassessment of some of the basic provisions
of those guidelines, we have become concerned about the restitution provisions in the Truth in Lending bill (S. 108) which
passed the Senate in May. Since the suspension evidences a
concern with proceeding under the current provisions of the
guidelines and since the parameters for restitution contained
in S. 108 are similar in many respects to those of the guidelines, we believe it is necessary to receive the views of the
agencies on the restitution provisions contained in the Truth
in Lending bill. We are interested in your assessment of the
impact that the enactment of S. 108 would have upon the reimbursement policies and practices of the agencies and whether or
not, in light of your experience, there is a need to amend the
restitution section (section 8) of the Truth in Lending bill.
t•
RIV
ipmemp—
In assessing the need for amendments to the restitution
provisions of the bill, we would appreciate it if you would
take into account the following issues:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
•
4, Whether or not the problems encountered by the
agencies under the guidelines and which resulted
in the suspension of those guidelines would also
be present if the agencies were operating under
provisions of law as are contained in S. 108.
Would the experience and problems be the same,
similar or different? Would the scope of the
problems which resulted in reconsideration of
the guidelines be greater, lesser or the same
if the agencies were operating under the specific
provisions of S. 108?
•
ii
",
C•40
.%1
94r.s0:*
0.
-°610
r
•
•
The Honorable Pali Volcker
October 4, 1979
Page 2
• The agencies are presently considering changes in the
enforcement guidelines with respect to the period for
retroactive enforcement, the APR tolerance and flexibility
of enforcement. What is the need for adjustments in these
areas and if the present restitution provisions of S. 108
become law what latitude would the agencies believe they
then have to make such adjustments?
• The agencies' guidelines presently provide for a number
of exceptions to the general reimbursement rules. Is
there a need for these exceptions and do you believe the
agencies would have the latitude to provide for such
exceptions under the provisions of S. 108? Please include
an assessment of at least the following special provisions:
isebb
'tapir
1. finance charge tolerance
2. special treatment for a total failure to disclose an APR
3. special treatment for certain violations involving credit
life insurance
4. no reimbursement for a failure to comply with section
226.4(a)(6) disclosures involving property insurance
S. no reimbursement for a failure to itemize charges under
section 226.4(b) of Regulation Z
(Note: presumably the violations listed in 3, 4 and S would
all be finance charge violations and therefore subject to
reimbursement under S. 108.)
Taking into account the above mentioned considerations, we would
appreciate your assessment of the need for amendments to the Truth in
Lending bill. Although your response will be very helpful in preparing
for the hearings to be held by the Consumer Affairs Subcommittee, we
are requesting a much earlier reply since the Truth in Lending provisions
are part of the Financial Institution Deregulation bill which will be
considered by the Senate very soon. Therefore, we would like to receive
your reply by October 10, 1979.
Thank you for your prompt attention, as your views will be very
important to our analysis of this issue.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Sincerely,
L
j
awl°
alL
William L. Armstrong
Jake
0.11.11111M—
.
•
•••••••••L,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
October 10, 1979
The IL movable Wee wackily*
demo of Sepreogematnse
liathloiteas DA. 2051.5
Dem
Wetktoss
teolosed are igerd staff rempson" Oe Obt speelfte oesstime
posed ts peer letter 00 lilheirosa Webs.!NW impteraier 20, Mt,
retattmg te the staging& seed by the Oggyd to settee esiess-bsok
Wadies eeopesy ftellatiMie As yes wiltsons gm de set eeletalo a
data base ee the attest golbges of ems shove esseptleme to the twelve
ppm debt retiremeet ported he* been noted. The ~were to sem of the
ONSti41110, therefere, ars based es the Mdri01011 god hgewledso of Seerd
and Omerve Bask staff.
I look feevard to sew mottos get Pride,/ amd was's' the wow*
Oudey to discuss this mates, possomolly with fn. If ym ow mine of
Mr stiff sash further Whimmettes owimos emproseetAgma egogania taw
assimemrs, ploas* call Jam I. "pm* Dirseter at the Soaves "Mlles of
asikals Seporstai4ei aped Mosolattge (492•2693).
ihrodortek 111. Sidraelsa
'Delmarva
in tpit (dv-43)
bcc: Gov. Schultz
Jack "yea
We. Mallavd1
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
October
The Seneroble Sill Archer
house of ilomieestatives
‘..asalAgLoct, S. C. 2(.515
Door Mt. Aveher;
Thank yew for ywar ittter of f,leptetiber 27 recommeadiag
elr. Robert r. Sakeeits as a member of the lewd's Gemmomer
Advisory Council.
You soy
wilt moietys full
19U. amoointnents
with you when the
be assured that Nt. Samovitz' qualifications
consfderetioe by ins Seard when it ashes the
to the Council this fall. we will be fill teu4.41
loaie tiens are .ed..
ihe Beard /wire tater receiviag your To Ameneedat &.lon
sad your interest In the (onsuwer Adviser, Cemeil.
Sin,7exely,
SLEW A. Volcker
CO.vcd (eV-6()
bcc:
)lrs. Maliardi (2).,
Anne Geary (w/coy of incoulms)
BILL ARCHER
wAsHINaToN orricEl
LONGWOR111
HOUSE OFFICE BUILDING
7n4 C•tritic-r. Toc
MEMBERs
.WAYS AND MEANS
COMMITTEE
ConartgE4 of tbe Einiteb -t,tatefi
19190CT -5
4.
5
Noust of Ikeprt1entatibefi
Illattington,3B.C. 20515
DISTRICT
DEVICE:
FEDERAL OFFICE
BUILDING
HouirroN, TexAs 77002
c,o
r•••.-
September 27, 1979
Dear Mr. Chairman:
It is my understanding that the Board of Governors of
the Federal Reserve System is currently searching for
qualified individuals to serve on the Consumer Advisory
Council. I would like to take this opportunity to
acquaint you with a person I believe is eminently
qualified for this appointment, Mr. Robert T. Sakowitz.
Bob Sakowitz is president of Sakowitz, Inc., a very
distinguished specialty department store chain based
in Houston, Texas. It has been my great pleasure and
privilege to know Bob for many years. Not only has he
reached the pinnacle of the retailing profession, he
has notably distinguished himself in the many public
service endeavors he has undertaken. I am convinced
that Bob will make many strong contributions in this
capacity both to the consumers of our nation, the
federal government and the retailing industry. In my
opinion, there is no finer person than Bob Sakowitz
for this important position and I give him my highest
recommendation.
V.4
11111=11r
Thank you very much for your consideration of Robert
Sakowitz and with best wishes, I am
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Bill Archer, M.C.
Honorable Paul A. Volcker
Chairman
Federal Reserve System
20th Street and Constitution Avenue, N. W.
Washington, D. C. 20551
THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS
• • • --••-r"
., •
Removal Notice
The item(s) identified below have been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to personally identifiable information.
Citation Information
Document Type: Resume
Citations:
Number of Pages Removed: 2
Resume, Robert Tobias Sakowitz, 1979.
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
October 9, 1979
Us Memorable Paul E. Tsongas
amatmen
emboommittee on Cosomoor Affairs
Committee on Bankimg, Missing
emd Urban Affairs
United States z>enate
Washington, D.C.
20510
Doer Colman Tsongas:
IMO you for your letter of October 4 mgardios the change
in this oshodoto Mir your Subcoomittoe's hearings on the review of
Truth in LOWM, SMISIMMOnt policies.
flovesser Nomey H. Teeters will be pleased to appose oo irobolf
of tile beard ea Outdoor 31.
Sincerely,
S/Paul A. Volcker
CO:pjt (#V-56)
bcc: Gov. Teeters (w/copy of incoming)
Janet Hart
Mrs. Mallardi (2) tr'''
WILLIAM PROXM IRE. WIS., CHAIRMAN
HARRISON A. WILIJAMS. JP!, 4.J.
ALAN CRANSTON. CoLJF.
ADI-Al E. STEVENSON, ILI-.
ROBERT MORGAN. N.C.
DONALD W. RIEGI-E. JR.. MICH.
PAUL S. SARBANES, MD.
DONALD W. STEWART, ALA.
E. TSONGAS, MASS.
JAKE GARN, LITA.H
JOHN TOWER, TEX.
JOHN HEINZ, PA.
WILLIAM L. AR M STRONG. ODLO.
NANCY LANDON KASSEBAUM, KANS.
RICHARD G. UJOAPI.
rAut.
tatez Zertafe
'JCnite
BANKING. HOUSING. AND
URBAN AFFAIRS
COMMITTEE ON
KENNETH A. MC LEAN, STAFF DIRECTOR
M. DANNY WALL, MINORITY STAFF DIRECTOR
MART FRANCES DC LA PAI/A. CHIEF CLERK
WASHINGTON. D.C. 20510
October 4, 1979
The Honorable Paul A. Volcker
Chairman
Board of Governors of the
Federal Reserve System
Washington, D.C. 20037
Dear Chairman,
I wish to advise you that the hearings by the Consumer
Affairs Subcommittee, originally scheduled for October 16th
and 17th, have been rescheduled for October 31st and
November 1st, 1979.
I wish to extend to you an invitation to testify on the
morning of October 31st. The hearings will be held in the
Senate Banking Committee hearing room.
Thank you for your cooperation.
Paul E. Tsongas, Chairman
Consumer Affairs Subcommittee
Enclosure
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
40,4
•
•.••••
•
WILLIAM PROX MIRE. WIS.. CHAIRMAN
HARRISON A. WILLIAMS, JR., NJ.
ALAN CRANSTON:dr-Ali F.
ADLAI K. STEVENSON. ILI-.
ROBERT MORGAN. N.C.
DONALD W. RIEGLE, JR., MICH.
PAUL S. SARBANES, MD.
DONALD W. STEWART, ALA.
PAUL C. TSONGAS. MASS.
JAKE GARN. UTAH
JOHN TOWER. TEX.
JOHN HEINZ. PA.
WILLIAM L. ARMSTRONG. COUD.
NANCY LANDON KASSEBAUM. KANS.
RICHARD G. LUGAR. 110.
KENNETH A. MC LEAK STAFF DIRECTOR
M. DANNY WALL-. MINORITY STAFF DIRECTOR
MARY FRANCES DC LA PAVA, CHIEF CLERK
'Aleniteb Ziatez Zonate
COMMITTEE ON BANKING, HOUSING, AND
URBAN AFFAIRS
WASHINGTON. D.C. 20510
•
i_ ..L'z.
GU1DFLINFS FOR WITNESSFS
1.
These guidelines apply to all hearings of the Senate
Committee on Banking, Housing and Urban Affairs, unless
otherwise indicated.
ic:Yrtz
.•
All hearings will begin at 10:00 A. N. in Room 5302,
Dirl:sen Office Building, unless otherwise indicated.
3.
Committee rules require that all witnesses submit at
least 100 copies of their written statements 48 hours
prior to their appearance. Sundays and holidays are
not to he included in determining this 48 -hour period.
Statements should he delivered to Room 5300, Dirksen
Office Building, Washington, D. C. 20.510. Strict
adherence to this rule is essential in order that
Committee members may review the statements before
the hearing, thus enabling the participants to more
thoroughly discuss the issues involved. Statements
will not he released to the news media prior to the
day of your testimony.
4.
Oral presentations must he limited to a brief summary
not to exceed 10 in
Your complete statement will
he printed in the hearing record.
5.
Please complete the attached card and hring it to
Room 5300 prior to the hearing. You will he given
copies of statements of those testifying with you at
that time.
Please supply the address to which you prefer
the reporter's transcript
delivered for your correction.
Kindly turn this card in at Room 5300 Dirksen
Office Building prior to
giving your testimony.
'ion is appreciated.
(Name)
(Organization)
(Business address)
(City and State)
(Phone)
(ZIP Code)
SENATE BANKING, DOUSING AND
URBAN Al:FAIRS COMMITTEE
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
36-54S—h
or°
•
74. e
.4
f r
"
1'1,5
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Ileossabls Walter F. Wiesisie
Presidest Se tbe United Staten Sommee
Weehlostee,LC.
20S10
Deer We. Iles PresIdeot:
As required by f 904(m)(4) of the Electronic Fuu4 Transfer
Act, ftblin Lew 91430, the Bossed of GovOTOOrs is pleased to **bolt
to the Cowan the essiseed peeposed regolstlee,
lead Imo adopted parttime of Resolatios t to impisseet
the Electrode Mae lhassfir het, sod Is repoblishles for public
essimeet other sootier* Seat segulaties. The euelemod 4041OOMMA
beta& the nest sod puipesed wegolstisee sod their afseeppraying
esessede tweet amobees•
sseeseekr,
SZPaul A. Volcker.
Soliesmo
11111DS:pjt
WM Lynne Barry
Mts. Mallardi (2)
Identical ltrs. sent to:
Speeher Wain; Chairmes Tsongse,
Peemmire, Memos, Ammemelo; senators
Gera aad Amostraag; Clog. Stanton sed
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
OLLober 5, 1979
The liemerabie ,Amorge Mee=
Mimes of Representatives
teehington. 0.c. 20515
Deer Mr. liesses
request for the views
ent
r
rec
you
to
nd
.Jo
res
to
d
ase
I am ple
mised amendment to H.M. 5037,
pro
r
you
ing
ern
con
ors
ern
Gov
et the Beard of
erve Chelenea. The amendIse
l
era
Fed
the
of
m
ter
the
which would affect
assure the President a wide
to
ed
emd
is
int
ed
aos
pro
e
ment that you hav
hout regard to the geseraphi,
wit
an,
irm
Cha
the
of
nt
tme
oin
choice in the app
erve Act.
ly contained in the Federal Res
ent
urr
are
t
tha
ons
cti
tri
res
to provide Urns President
ble
isa
adv
is
it
t
tha
es
iev
bel
The Beard
the
l Messes chairmen. Because of
era
Fed
a
ing
ect
esi
in
ty
ili
mib
fle
on the
t the Federal Meeerve Act places
tha
s
tie
ili
sib
pea
rep
nt
ica
nif
sig
ted to
t the President Ohaeld be permit
tha
ees
agr
rd
ime
the
an,
irm
cha
be
for the !xosititie and abewld not
soa
por
ble
ila
ava
et
his
the
select
. The 'Ward, therefore,
ion
ect
sel
in
the
ts
aln
stW
con
c
limited by geespephi
mit the
eral Seeerwe Act that would ner
Ped
the
to
ent
mdm
ame
ae
ts
oor
sup
ther the Federal Reserve
whe
to
ard
rew
t
hou
wit
an
irm
Cha
President to USW 41
ed on
is appointed already is represent
en
irm
Ch‘
the
ia
mh
am
fr
t
tri
dis
the Board.
about a possible technical
The Board is concerned, however,
amendment
the proposed amendment. This
of
ge
gua
lan
ft
dra
the
in
ect
def
cts be
least five Federal leserve distri
at
t
tha
e
uir
req
to
ear
app
ld
wou
present
times. This requirement could
all
at
rd
Boa
the
on
ed
ent
res
rep
Beard at a partiAllar
the
on
ies
anc
vac
l
era
sev
e
wer
difficulties if there
were
past year. ior enemole, if there
the
ing
dur
e
cas
the
was
as
e,
tim
were
the Chairman mad one other meiber
and
rd
Boa
the
en
ies
sec
vec
tee
on the
r distrLIts would be represented
fou
y
onl
ct,
tri
e
dis
sam
the
frem
ented.
nt that five districts be re res
eme
uir
req
the
to
ry
tra
con
s
Beard
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
The Honorable George limmes
Page Two
eee
Therefore, in order to a cemplish your objective, the Beard nrepe
. 6 241)
that the first paregralh of section 10 of the Act (12 U.S.C
be ehemded by eddies the underlieed 1magueSO:
"In selecting the members of the Seesd, mot sm. than
Omm of vibes then be selected from say see Pederel
Memerve district, Impilt that twjumig401Mmi mom wreaent
the MOW dliktri"'t LIMMUULAMIPALAI.AMMILEEJAE
c resident shall bilme is regard
served as chairefs, the ,
to a fair repreefttetion of the finaw-ial, agricultural,
Industrial and oommerAal interests, and gmegrephical
divisions of the elostry."
Sincerely
SLPaul Aliolk.kert
LSA:snk (011-41)
bcc: Mr. Petersen
kir. Adam
Mrs. Mal1ardi(2)
PARREN J. MI1CHEL L. MD.. CHAIPMAN
_
STEPHEN L. NEAL. N C
NORMAN E. D'AMOURS. N.H.
DOUG BARNARD, GA.
JIM MATTOX, TEX.
JOHN J. CAVANAUGI-4.
•
225-7315
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
-ion assigned NIr. Petersen
MORGE HANSEN IDAHO
'ON PAUL, TEX.
kON RITTER, PA.
U.S. HOUSE OF REPRESENTATIVES
SUBCOMMITTEE ON DOMESTIC MONETARY POLICY
OF THE
COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
NINETY-SIXTH CONGRESS
WASHINGTON, D.C. 20515
14
I
7,1
r T1
September 19, 1979
The Honorable Paul Volcker, Chairman
Board of Governors of the Federal Reserve System
Washington, D.C. 20551
Dear Mr. Volcker:
It is my intention to offer the enclosed amendment to the bill H.R.
5037, regarding the term of the Federal Reserve Chairman, when that
bill is marked up by ;he Conmittee on Banking, Finance and Urban
Affairs.
The intPnt of the amendment is to assure the President a wide choice
in his appointment of a Chairman, without regard to a geographic
constraint that is not properly relevant bo an office of completely
national significance and responsibility. At the same time, I have,
in consultation with other Members of the Subcommittee on Domestic
Monetary Policy, worked out the language of the amendment so that
there is still a guarantee of diversified regional outlooks on the
Board of Governors.
I can imagine in the future a situation in which the obviously right
choice for Chairman is obviously not from an "open" district, and
the Board of Governors and Open Market Corrraittee might be subject to
a nuisance suit challenging the legality of the appointment and the
valiS ity of votes taken, and so on. It is to prevent such a thing
that I believe we ought to take this opportunity to adopt this amendment.
I would greatly appreciate having the comments of the Board on this
amendment.
individual liberty,
GH:lcg
S.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
'Amendment Offered to H.R. 4997 5-0'1
by Mr. Hansen
Add the following new section:
Sec. 3 (a) The second sentence of the first paragraph of section
10 of the Federal Reserve Act (12 U.S.C. 241) is amended by striking
out the phrase "not more than one of whom shall be selected from any
one Federal Reserve District,".
(b) Insert the following new sentences immediately after
the second sentence of the first paragraph of Section 10 of the Federal
Reserve Act:
"Not fewer than five Federal Reserve districts shall be represented
at any one time and a particular district may be represented by two
members only if one is designated to serve as Chairman or has served
as Chairman of the Board."
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
F
OCT
4 1979
Tho emoormble teal go *sew
Chelemes
adoemittteo se Csoomeue Affairs
Clossittos me Smehims4 MiossiMS
mod Urban AMU,
United States Smote
Waskimgtes, D.C.
USW
Dear ateIrmo Tomos$
Thumb yes fee yew latter of September 16 lowitimi Cho Sewed
to testify before yew labeemoittaa at homeless to review the Trmohp
bemilemdftemihemeemet yealedoe of Who federal regulatory estharitiee.
lhe $end will be meOblo to testify at the bearies to be bead
as **tabor 16 homomoo tho Sediwal Open Iforket Committee is sehodeled he
meet ea iambi by. Somseer, fewetroor Swam Lilostese will hie pledged
to oppose se WW1 se the $oma smiftember 17.
SLPGI A. Volcker
CO:1qt (4PF-44)
bec: Gov. Teeters
Janet Mart (w/copy of isoomfog)
•
WILLIAM PROXMIRE, WIS., CHAIRMAN
•
AL
.
RtON A. WILLIAMS, JR., N.J.
JAKE GARN, UTAH
ALAN CRANSTON, CALIF.
JOHN TOWER, TEX.
ADLAI E. STEVENSON, ILL.
JOHN HEINZ, PA,
ROBERT MORGAN. NC.
WILLIAM L. ARMSTRONG, COLO.
fONALD W. RIEGLE. JR.. MICH.
NANCY LANDON KASSESAUM, KANS.
PAUL S. SARBANES, MD.
RICHARD G. LUGAR, ND.
DONALD W. STEWART, ALA.
'ZCnifeb Zialez Zenale
PAUL E. TSONGAS, MASS.
KENNETH A. MC LEAN. STAFF DIRECTOR
M. DANNY WALL, MINORITY STAFF DIRECTOR
MARY FRANCES DE LA PAVA, CHIEF CLERK
COMMITTEE ON BANKING. HOUSING. AND
URBAN AFFAIRS
WASHINGTON, D.C.
20510
September 14, 1979
The Honorable Paul A. Volcker
Chairman, Board of Governors of the
Federal Reserve System
Washington, D.C. 20037
Dear Chairman,
We have scheduled hearings on October 16th and 17th by the
Consumer Affairs Subcommittee of the Senate Banking Committee
to review the Truth -In -Lending enforcement policies of the
federal regulatory authorities.
1111111111111111111w-
.. •
I believe the testimony of a representative of the Federal
Reserve Board would be very helpful to the deliberations of
the subcommittee. On behalf of the Subcommittee, I wish to
extend to the Federal Reserve Board an invitation to testify
on the morning of October 16th. The hearings will be held in
the Senate Banking Committee hearing room.
Thank you for your cooperation.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
aul E. Tsongas, Chairman
Consumer Affairs Subcommittee
•
•••••
•••
•
'••
•
•':
4.4
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Seteher So 1"70
The liseereble *ems A. When
awe et hapreeeetittivee
theberetee• Lee MIS
Sear Sere &ohms
Ile& yea Ilse wee Weer et Illipbedoer 27 retailmildbe
Smiber es a esibee ea the 1111101011 Campane /sdriesty
Amileh
Tos amp be salOwled Illot Mee 4heberis emetifieetiese
eetelme 641 esealaseetame by the fieer. vlbie it aim the UM empeletanal Up the Careen Ibis MIL mevUl be in teeth WA yen Ass es
eideetisee ese wee.
Ile asegil eirmistatee reselorlis pow weemasedietane
Iseareet la the Maisemer bilitteary Ceeneil.
Siadwrely
S/Paut k VgIcAL
CO:p t 01-52
bee: Anne Geary (w/copy of latornisig)
Mrs. Mallard'. (2)1/
Mai
yew
THOMAS A. LUKEN
2D DISTRICT, OHIO
WASHINGTON OFFICE:
t
ROOM 1131
LONGWORTH HOUSE OFFICE BUILDING
WASHINGTON, D.C.
11
20515
(202) 225-2216
Congre5 of tije ZEIniteb *tate5
3i)ous5e of AeprefSentatib0
COMMITTEES•
SMALL BUSINESS
CHAIRMAN, SUBCOMMITTEE ON
ENERGY. ENVIRONMENT, SAFETY
AND RESEARCH
INTERSTATE AND FOREIGN
COM MERGE
SUBCOMMITTEE ON HEALTH
DISTRICT OFFICES:
3409 FEDERAL OFFICE BUILDING
CINCINNATI, OHIO
tillafsbington, /3.e. 20515
45202
(513) 684-2723
SUBCOMMITTEE ON COMMUNICATIONS
SUBCOMMITTEE ON
CONSUMER PROTECTION AND FINANCE
SELECT COMMITTEE ON AGING
MOBILE OFFICE
SUBCOMMITTEE ON
HEALTH AND LONG TERM CARE
September 27, 1979
Mr. Paul A. Volcker
Board of Governors of the Federal Reserve System
Federal Reserve Building
20 Constitution Avenue N.W.
Washington, D.C. 20551
Dear Mr. Volcker:
I am writing to endorse the appointment of Joseph M. Garber to a position
on the Consumer Advisory Council of the Federal Reserve Board. Mr. Garber's
credentials for such an appointment are impeccable.
As President of the Credit Bureau of Cincinnati, Inc. and First Vice
President of the Board of Associated Credit Bureaus, Joe Garber would
be as asset to the Board both as an adviser on the creditors prospective
on issues which come before the Board, as well as a consultant on compliance with the terms of the Consumer Credit Protection Act. Joe has
devoted his life to the credit industry both as an academic and a practicioner. He has achieved industry and civic stature through his work,
not only in the Midwest but on a national basis.
The Board would be well advise to give him their most serious consideration.
I would appreciate being kept advised on your deliberations on this matter
and hope that you see the wisdom of adding Joe Garber to the Consumer
Advisory Council.
Thanking y u in advance for your consideration in this matter.
Si
er
HOMAS A. LUKEN
Member-of-Congress
TAL/mjb
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Federal Reserve Bank of St. Louis
THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS
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Federal Reserve Bank of St. Louis
Datobor 3, 197,
Ile il,mormhle Dole liens
ilessi ofisprosestatives
Valblostsn. D.C. SOUS
len Ir. Dosses
Monk you for yaw letter of Siplablit 27 requsetimg
assumuse se logialaties What linld *stand Mer too addLtLlyears
the Seconher 31, Me diveetituro deadline in the Daok1sU1Gemeem.
Act for seafood.. required to divest eemtein meal estate interests.
In einsiderime this issue, I found that last year the Board addressed
a similar proposal and amposesed its censers What anab a missal scold
the general onsstion of the Seseelhey 31, 1,010 desaine sad
be leequitOblo to theme compoodee that bed *implied with that
deedlimee
=
Aalls I hoes nme hod the opportunity to consult With tho Arai
Booed, I can well ressesies the astute of their earlier ceeseeme, eed I
au Sure yes vemld oast ts
Whose commarso heft eseemet. I as SOk
La a position at this time to *valuate the howdehips Imposod on initoidmal
holding sompemlos in seeties the statutory desdalan. lisiewtholoso, in
compomeo to s similar inruiry brystambors of the Senate Dasides Committee,
I sespested as a possible approach • limited toomyclar extension of the
December M e 1410 deadline. The extension vinld be vented by the lewd
only it the board detesminni there mme a soapelliel semi proomatod for
an matsmeion and thee Wei folth efforts bathos. nub to mast the
mulattos statutory deadiAte4 It is sly mndsootsnetss that tho tomato
Soehims Committoe smitspassior 24 adopted Amish a provision as an amends
seat te S. 1347.
as
1 approcioes the opportunity you hove afforded ns to eat
propseal.
Sincerely,
0111011WM130aJw:pjt (Pv-40
bon Nike Blehkr
Sallardi (2),s's-
W4.1 A. Volcker
.IANKING, FINANCE AND
liFTEIAN AFFAIRS COMMIT T
Congtoz of tbe inniteb *tatez
DISTRICT OFFICE:
DI F. DOH At;MINVIT RA TION BIM DING
INDIANAPOLIS INTEIMAIIONAI AIRPORT
3i)ousSe of ikeprefSentatibeZ
GOVERNMENT OPERATIONS
INDIANAPOLIS. INDIANA
COMM ITTEE
TOLL FREE NUMBER:
7364
Oilacsbingtoti,10.C. 20515
SELECT COMMITTEE
ON AGING
OPERAToR.ENTERF,RisE
C/I
DAVE EVANS
STEERING COMMITTEE:
MIDWEST-NORTHEAST ECONOMIC
6TH DISTRICT, INDIANA
ADVANCEMENT COALITION
46241
TELEPHONE (317) 269-7364
Wm.
WASHINGTON OFFICE:
438 CANNON OFFICE BUILDING
WASHINGTON. D.C.
20515
TELEPHONE:(202) 225-2276
September 27, 1979
The Honorable Paul A. Volcker
Chairman
Board of Governors
Federal Reserve System
Washington, D.C. 20551
isms
Dear Chairman Volcker:
I am writing to inquire as to the Fed's position on proposed
legislation that would extend the present divestiture deadline in
the Bank Holding Company Act..
ilislort
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.
The House Banking Committee may shortly consider an amendment
which would extend the divestiture period for real estate interests
until December 31, 1982. I 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.
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.
Sin erely,
DAVE EVANS
Member of Congress
DE:gk
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
7
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Federal Reserve Bank of St. Louis
October 3, 1979
The Memorable AMMO J. Kitchell
Alarms*
SObeemmittee an DOMOOtit Monetary Policy
Comittee as Raeltin", risme* mid Urban Affairs
an.. of Repeeeestatives
Viehlastoe„ D.C. 20515
Nor Camino& 1114tsbal1:
los hems ailed Ahe mgo item ea R.I. 3037, the bill to establish
a fixed foemageer tenni* the Chaim, of the federal Reserve that meuld
empire on Jenneey 31 of the selealeir yew fallouts' the year during vbidi
a newly elected Meeehdest is imenverated. In the eirevastameits, I thempht
it appeepetate to esseelt with wr colleapee en the Semet,
In our dieeenelens eeneern was empeeeeed ever the problem of a
Iftert term" thet would be crested whenever a Chairmen resigned, died at
etherwise left office berfloe his four-year fined tent aspired. In oath
cirennetances, under the bill a aew Cbsirestainald be appointed to serve
only the remainder of the term. If the Use period went Alert, c:ualified
individuals etsht be reluctant to aesept oppedmemmet, at the actions of
an appointee ndsht be constrained by the meed tar *arty reappointment.
As we diecusaed, the problem' would be partially remedied if the
bill were ameaded so that the President could appoint a Chairmen to an
expeaded tem in the eveat that a vmeamey scours &rim' the last year of
the fined 1:0111. A meetly elected Presideot would then appoint a new
Chairmen te a term of up to ftve years (the remaimia" menthe of an usempired
tern plus a fall four-year teem) is the swat of a vesemcy at the time el
his Inauguration or duet." the first year of his terms
No really rderuate legislative solution for the peaks of a
vacancy late in • Presidentiel tern of offiee--peseibly he the heat of
a political campaign—seems peeeible. Nevever, similar eamtingenciee
could arise under mistime Legislation.
Your letter of Septelber 2$ states that yes plan to offer
emaldmemte to the lastelettem. Sea emamdmemt vemad peamilde for the
circumetenee diecribed Shove, that is, when a Immo sommes within
last pear of an unexpired t0014 The second amendment peeetdoe that
legislation vould not affect the length of the term of the Chairmen
is holding office at the time the bill is entcted.
two
the
the
Mho
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
abseireble Peewee J. Kitchell
Pose two
After considering Ohs "short torn" prates sad the *sandOogs*
pee poepoes, the Besse dew sot helium the proposal 'mold *pair the
essential tedopmedegoo
Ohs Federal leserve end somposte the eseehemeit
of a bill with the SMOMALMOte you plea to offer.
WW:PAV:pit (fV-51)
bcc: Mrs. Mallardi (2)
PARREN
MITCHELL. MO., CHAIRMAN
STEPHEN L. NEAL. N C.
NORMAN I.')AMOURS. N.H.
DOI% BARNARD. GA.
J:M mArTox, TEX.
JohN J CAVANAUGH, NrBI2
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GEORGE HANSEN IDAHO
RON PAUL TEX.
DON RITTER. PA.
U.S. HOUSE OF REPRESENTATIVES
215 MS
SUBCOMMITTEE ON DOMESTIC MONETARY POLICY
OF THE
COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
NINETY-SIXTH CONGRESS
WASHINGTON, D.C. 20515
September 28, 1979
The Honorable Paul A. Volcker
Chairman, Board of Governors
Federal Reserve System
20th and Constitution Avenue N.W.
Washington, D.C.
20551
Division will.
Mike Bleif-r in Legal
be
Dear Mr. Chairman:
Enclosed is a copy of H.R. 5037, a bill to provide for a four-year
term for the Chairman of the Federal Reserve Board to begin on January 31
of the year after a newly elected President takes office. Unexpired
portions of the term would be filled for only the unexpired portion.
This bill is identical to H.R. 4997 which the Subcommittee favorably
reported by a vote of six ayes to zero nays on July 24, 1979. It is my
hope that the full Committee will consider this legislation shortly
after the October district work period ends.
I plan to introduce two amendments when the Committee marks up
H.R. 5037. The first would provide for appointment of a Chairman to
both a full four-year term and the unexpired portion of a term if the
unexpired portion were less than one year. The second would amend
Section 2 of H.R. 5037 so that "any person who is the Chairman of the
Board of Governors of the Federal Reserve System immediately prior to
the date of enactment of this Act may continue in the office of Chairman
until the expiration of the four-year term for which he was appointed
and the immediately following term shall expire on the next January 31
of the first calendar year commencing after the calendar year during
which a Presidential term is scheduled to expire."
The first of the above amendments provides that in the event
Chairman resigns or dies within one year of the scheduled expiration
of his term as Chairman, a President will be able to assure his
replacement that he will serve as Chairman for more than one year.
The second makes certain that the legislation, as I originally intended,
will not reduce the term of whoever is serving as Chairman when the
bill is enacted.
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Federal Reserve Bank of St. Louis
0:. •.;
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The Honorable Paul A. Volcker
Page Two
September 28, 1979
I would like to have your opinion and that of the Board on the bill
to present to the full Committee when we take up H.R. 5037, hence I am
hopeful that you will forward in writing your opinion and that of the
Board as soon as possible.
Sincerely,
qcv .
41/A1
Parren J. Mitchell, M.C.
Chairman
PJM/rwjt
enclosure
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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96Th t CONGRESS
1ST SESSION
H.R.5037
To amend the Federal Reserve Act respecting the positions of chairman and vice
chairman of the Federal Reserve Board.
IN THE HOUSE OF REPRESENTATIVES
JULY 31, 1979
Mr. MITCHELL of Maryland (for himself, Mr. D'AmouRs, Mr. BARNARD, Mr.
MATTOX, and Mr. CAVANAUGH) introduced the following hill; which was
referred to the Committee on Banking, Finance and Urban Affairs
A BILL
To amend the Federal Reserve Act respecting the positions of
chairman and vice chairman of the Federal Reserve Board.
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Be it enacted by the Senate and House of Representa-
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2 lives of the United States of America in Congress
assembled,
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3 That (a) the second paragraph of section 10 of the Federal
4 Reserve Act (12 U.S.C. 242) is amended by striking out the
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5 third sentence and inserting in lieu thereof the following:
6 "The President shall appoint, by and with the advice
and
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7 consent of the Senate, one member of the Board to serv
e as
8 chairman. The chairman's term shall expire on January 31
of
9 the first calendar year beginning after the calendar year
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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1 during which the term of the President appointing him is
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2 scheduled to expire. In the event a chairman does not corn-
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3 plete his entire term, his successor shall be appointed to corn4 plete the unexpired portion of such term. The President also
5 shall appoint, by and with the advice and consent of the
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6 Senate, one member of the Board to serve as vice chairman
7 for a term of four years.".
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(b) The second paragraph of section 10 of the Federal
9 Reserve Act (12 U.S.C. 242) is amended by inserting the
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10 following before the sentence which prior to the amendment
_t.111 made by subsection (a) of this section was the fourth sentence
12 of such paragraph: "In the event of the unavailability of the
13 chairman or a vacancy in the office of the chairman, the vice
14 chairman shall have the power to act as chairman during
15 such unavailability or, in the event of a vacancy, pending the
16 appointment and qualification of such chairman's successor.
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17 Upon the expiration of the term of the office of the chairman
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18 or vice chairman, the chairman or vice chairman, as the case
19 may be, shall continue to serve in such capacity until his
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20 successor is appointed and has qualified.".
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SEC. 2. The amendments made by the first section of
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22 this Act shall take effect on the date of the enactment of this
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23 Act, except that the term, as chairman, of any person who is
24 serving as chairman on January 31, 1982, shall expire on
25 such date.
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https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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@FedFRASER