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The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies. Federal Reserve Bank of St. Louis  , -0  1  Collection: Paul A. Volcker Papers Call Number: MC279  Box 9  Preferred Citation: Congressional Correspondence, 1979 November; Paul A. Volcker Papers, Box 9; Public Policy Papers, Department of Rare Books and Special Collections, Princeton University Library Find it online: and The digitization ofthis collection was made possible by the Federal Reserve Bank of St. Louis. From the collections of the Seeley G. Mudd Manuscript Library, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United States copyright law. By accessing this file, all users agree that their use falls within fair use as defined by the copyright law of the United States. 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Policy on Digitized Collections Digitized collections are made accessible for research purposes. Princeton University has indicated what it knows about the copyrights and rights of privacy, publicity or trademark in its finding aids. However, due to the nature of archival collections, it is not always possible to identify this . information. Princeton University is eager to hear from any rights owners, so that it may provide accurate information. When a rights issue needs to be addressed, upon request Princeton University will remove the material from public view while it reviews the claim. Inquiries about this material can be directed to: Seeley G. Mudd Manuscript Library 65 Olden Street Princeton, NJ 08540 609-258-6345 609-258-3385 (fax) mudda, Federal Reserve Bank of St. Louis Federal Reserve Bank of St. Louis  401  asinWier 7, 1,79  rbe Iftmeemble Lloyd besteem  Liaisons Joist Meemenic Committee Viehimston, D. C. 20510  noir Clairton liontona: Jn acomwdence with mrommomments that have been mode with your Committee, enclosed is a staff re,tort .overing financial developments in the third quarter of 1979. Sincerely,  Wail, A. Volcker  Enclosure MS:vcd Joint Economic :;ommittee (along with 30 copies of ltr. and re-lort) Vice Chairman Bolling Elinor Bachrarli, fony Cluff, Steve Roberts (Senate Banking) Paul Nelson, Graham Northup (House Banking) Bob Weintraub (Domestic Monetary ?olicy Subcmte. of House Bkg.) John Farmer (/13 Mondale's office) Mike Hugo (House Approps.)  • ...••••• Vt4:4; •  c . 0  BOARD OF GOVERNORS  G  OF THE  0 •  •0  •  • -n • 1,  14 ‘  FEDERAL RESERVE SYSTEM WASHINGTON, a C. 20651  ▪• ji c.)  :=7NEwito• •••.••• /i',41.Res • Federal Reserve Bank of St. Louis  PAUL A. VOLCKER CHAIRMAN  November 7, 1979  The Honorable Lloyd Bentsen Chairman Joint Economic Committee Washington, D. C. 20510 Dear Chairman Bentsen: In accordance with arrangements that have been made with your Committee, enclosed is a staff report covering financial developments in the third quarter of 1979. Sinyrerely,  ,Q•da Enclosure Federal Reserve Bank of St. Louis  It  ard of Governors of the Federal Reserve System Staff Report November 7, 1979  DOMESTIC FINANCIAL DEVELOPMENTS IN THE THIRD QUARTER OF 1979  Growth in the major monetary aggregates increased further during the third quarter.  The narrowly defined money stock (4-1) expanded at an  annual rate of 9-1/2 percent, up from 7-1/2 percent in the second quarter, in part reflecting increased transaction needs associated with a rebound in economic activity.  Along with the strength in M-1, increased inflows of  interest-bearing deposits at banks and thrift institutions contributed to more rapid growth in the broader aggregates (N-2 and M-3).  As the quarter  ended, M-3 was near the low end and M-1 and M-2 at the upper end of the ranges consistent with the growth objectives set by the Federal Open Market Commit tee (FOMC) for the period from the fourth quarter of 1978 to the fourth quarter of 1979. Seeking to moderate the rapid growth of the monetary aggregates in an environment of intense inflationary pressures, the Federal Reserve allowed the rate on federal funds to increase about 1-1/4 percentage points over the quarter.  In addition, the System raised the discount rate 1/2 per-  centage point in each month of the quarter to a record 11 percent by midSeptember.  Most short-term rates rose over the quarter as much as or more  than the federal funds rate.  Long-term rates rose somewhat less, generally  between 1/2 and 1 percentage point.  By the end of the quarter, long-term  rates were at or above the recent cyclical highs registered in the spring of this year. Total credit flows to nonfinancial sectors of the U.S. economy are estimated to have remained strong in the third quarter, at a pace somewhat  •  •  Interest rates Percent per annum SHORT-TERM  LONG-TERM - 12  Commercial paper  Conventional mortgages  90-119 day  HUD  -10  Aaa utility New issue  Federal funds Treasury bills  U.S.government  8  3-month  6  State and local government  F.R. discount rate -4 1977  1978  1979  1977  1978  1979  Monthly averages except for Federal Reserve discount rate and conventional mortgages (based on quotations for one day each month). Yields: U.S. Treasury bills, market yields on three-month issues; prime commercial paper, dealer offering rates; conventional mortgages, rates on first mortgages in primary markets, unweighted and rounded to nearest 5 basis points, from Department of Housing and Urban Development; Aaa utility bonds, weighted averages of new publicly offered bonds rated Aaa, Aa, and A by Moody's Investors Service and adjusteu to Aaa basis; U.S. government bonds, market yields adjusted to 20-year constant maturity by U.S. Treasury; state and local government bonds (20 issues, mixed quality), Bond Buyer. Federal Reserve Bank of St. Louis  • Federal Reserve Bank of St. Louis  -2-  above that in the first half.  Businesses increased their borrowing in short-  and intermediate-term markets, issuing a record quarterly volume of commercial paper and borrowing sizable amounts from commercial banks.  A slowing  in the growth of consumer installment credit reduced the net flow of loan funds to the household sector, although home mortgage borrowing continued at a pace close to that in the first half of the year.  On a seasonally  adjusted basis, net borrowing by the federal government picked up moderately in the third quarter from the greatly reduced rate in the first half of 1979. As the third quarter drew to a close, monetary growth proceeded at a fast pace, and prospects of continued high inflation led to increased speculative activities in financial, foreign exchange, and commodity markets.  In response to these developments, the Federal Reserve Board on  October 6 announced additional restrictive actions.  The discount rate was  increased a full percentage point, and a reserve requirement was established for larger member banks against net increases in managed liabilities--defined as certificates of deposit (CDs) issued in denominations of $100,000 or more with maturities of less than one year, Eurodollar borrowings, security repurchase agreements, and federal funds borrowings from nonmember institutions--above a base-period level.  Similar requirements were imposed on  branches and agencies of foreign banks.  Also, the FOMC announced its inten-  tion to alter its operating techniques by putting greater emphasis on controlling the supp , y of bank reserves and less on targeting the federal funds rate in attempting to achieve its stated objectives for monetary growth. Following the announcement, the federal funds rate fluctuated over a wide range, and on average remained substantially above the levels prevailing  • Federal Reserve Bank of St. Louis  • -3  beforL these actions.  In late October, short-term interest rates stood  between 2 and 2-1/2 percentage points above their levels of October 5; long-term rates were up about 1 percentage point.  This rise in rates was  accompanied by increases in yield spreads between higher- and lower-rated securities.  Stock prices moved sharply lower, and by late October most  major stock price indexes were back down to levels near those prevailing at the end of the second quarter, reversing gains of 7 to 12 percent between June and September. Monetary Aggregates and Bank Credit The acceleration in M-1 brought its rate of growth for the third quarter to a record 9-1/2 percent.  The pickup in M-1 growth reflected in  part a greater need for transaction balances, associated with the stronger pace of nominal expenditures, and occurred despite the increased incentive to economize on such balances arising from rapid increases in interest rates. About one-third of the increase from the second-quarter growth rate is attributable to a diminution in the rate at which funds were shifted out of demand deposits and into savings accounts eligible for automatic transfer service (ATS) and negotiable order of withdrawal (NOW) accounts in New York State; such shifts are estimated to have reduced M-1 growth about 1-1/2 percentage points in the second quarter and 3/4 of a percentage point in the third. Growth in the interest-bearing component of M-2 quickened considerab'y in the third quarter from the already increased pace of the previous three months.  This expansion, along with an acceleration in M-1, boosted  growth in M-2 to an annual rate of 12 percent in the third quarter, the fastest pace in almost three years.  Savings deposits grew at a rate of 5-1/2  • / CHANGES IN SELECTED MONETARY AGGREGATES! Seasonally adjusted annual rates of change, in percent  1976 Member bank reservesTotal Nonborrowed 3/ Monetary base-  1977  Q1  1979 Q2  Q3  1978  1978 Q3  Q4  .6 .8 6.7  5.3 3.0 8.3  6.6 6.7 9.1  8.6 6.6 9.3  2.3 4.6 8.4  -2.9 -3.3 5.7  -4.9 -8.8 4.0  6.0 7.9 9.7  4/ Concepts of moneyM-1 M-2 M-3  5.8 10.9 12.7  7.9 9.8 11.7  7.2 8.4 9.3  7.9 9.8 10.3  4.1 7.6 9.3  -2.1 1.8 4.7  7.6 8.6 7.9  9.6 12.0 10.5  Time and savings deposits at commercial banks--total (excluding large negotiable CDs) Savings Other time -5/ Small time plus total savings  15.0 25.0 7.5 19.2  11.2 11.1 11.4 10.5  9.4 2.2 15.6 5.9  11.0 2.9 17.9 6.9  10.2 .2 18.2 7.0  4.5 -9.6 15.6 2.2  9.3 -3.1 18.5 15.1  13.5 5.5 19.2 15.9  .6./ Deposits at thrift institutions  15.6  14.5  10.6  11.1  11.6  8.8  6.8  8.6  -19.0 -.8 16.4 10,2 11.5 -1.2  8.0 10.8 14.5 8.7 12.4 -3.8  23.1 21.0 17.9 23.1 16.5 6.6  2.6 6.3 5.4 5.6 2.7 2.8  5.5 5.6 6.9 7.5 3.7 3.9  7.0 3.6 7.5 9.1 4.8 4.3  -10.3 -3.3 17.2 17.4 5.6 11.7  Memo (Change in billions of dollars, seasonally adjusted) Large negotiable CDs at large banks All other large time deposits/ Small time deposits Nondeposit funds Domestic../ Net due to foreign related institutions  0  -4.0 1.2 13.8 Ai 16.8W 5.9 11.0  1/ Changes are calculated from the average amounts outstanding in each quarLer. 2/ Annual rates of change in reserve measures have been adjusted for changes in reserve requirements. 3/ Includes total reserves (member bank reserve balances in the current week plus vault cash held two weeks earlier), currency in circulation (currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of commercial banks), and vault cash of nonmember banks. 4/ m-1 is currency plus private demand deposits adjusted. M-2 is M-1 plus bank time and savings deposits other than large negotiable CDs. (Large CDs are those in denominations of $100,000 or more.) M-3 is M-2 plus deposits at mutual savings banks and savings and loan associations and credit union shares. 5/ Interest-bearing deposits subject to Regulation Q. 6/ Savings and loan associations, mutual savings banks and credit unions. 77 Total large time deposits less negotiable CDs at weekly reporting banks. 8/ Domestic sources include borrowings by banks from other than commercial banks in the form of federal funds purchased and securities sold under agreements to repurchase, plus other liabilities for borrowed money, loans sold to affiliates, loan RPs, and other minor items. Federal Reserve Bank of St. Louis  •  -4  percent, following net outflows during the two previous quarters.  The growth  in savings deposits occurred despite a further substantial widening in the spread between market interest rates and the ceiling rate on savings deposits. The maximum rate payable on these deposits was increased 1/4 percentage point effective July 1; however, increases in short-term interest rates were well in excess of this adjustment.  The composition of small time deposits, on  the other hand, appears to have been very sensitive to changes in relative yields.  Small time deposits exclusive of 6-month money market certificates  (MMCs) declined $3.2 billion, as market (and MMC) rates rose relative to Federal Reserve Bank of St. Louis  fixed ceiling rates. Net issuance of MMCs, the yield on which is tied to the 6-month Treasury bill rate, tota'ed $17 billion at commercial banks during the quarter. Following the mid-March regulatory change that eliminated the ceiling rate advantage of 1/4 percentage point on MMCs issued by thrift institutions (for a 6-month bill rate above 9 percent), commercial banks received more than one-half of new flows into this market in the second and third quarters, well above the average one-third share of the preceding three quarters.  Other  short-term instruments bearing market yields also expanded rapidly in the third quarter; in particular, net purchases of shares in money market mutual funds were slightly in excess of the rapid second-quarter pace, while noncompetitive tenders at 3- and 6-month Treasury bill auctions rose substantially. Mainly due to increased issuance of MMCs and large certificates of deposit (CDs), deposit inflows to thrift institutions picked up modestly in the third quarter, after having slowed in the previous period.  M-3  •  -5-  increased at a pace of 10-1/2 percent, substantially faster than in the first two quarters of the year.  Owing to the success of commercial banks in increas-  ing their share of net MMC sales since March, growth of M-2 was more rapid than that of M-3 in the second and third quarters, reversing the pattern that had prevailed since 1975. Growth in commercial bank credit in the third quarter was well above the pace of the first half.  Loans extended to businesses grew at an  unusually rapid rate, in excess of 20 percent at an annual rate.  Real estate  loans showed greater strength as well; by contrast, consumer loan growth slowed to about two-thirds of the somewhat reduced second-quarter pace.  Growth  in investments also rose in the third quarter, exceeding that of any recent quarter, as banks continued to acquire both Treasury and other securities. Despite the rapid growth of total deposits, banks' use of managed liabilities in the third quarter increased further, mainly through enlarged net borrowings from foreign branches and purchaL,es of federal funds.  Euro-  dollar deposits continued to be a less expensive source of funds to U.S.  banks than domestically issued CDs; banks ran off large time deposits on S. ance in the third quarter, but less so than in the second.  The rapid  growth in borrowed funds in the third quarter brought the proportion of total assets financed with these managed liabties near the peak reached in 1974. Business Finance Total funds raised by businesses in financial markets remained substantial in the third quarter, declining only moderately from the strong second-quarter pace.  External financing needs of nonfinancial corporations  continued large, although they decreased somewhat as capital expenditures Federal Reserve Bank of St. Louis Federal Reserve Bank of St. Louis  Components of bank credit  Major categories of bank loans  Change, billions of dollars TREASURY SECURITIES  BUSINESS  4 0  II  4  oTHER SECURITIES  8 4  HI  REAL ESTATE MINIM 811/MM  - TOTAL LOANS  32 CONSUMER  24  16  Ill NONBANK HNANCIAL  4 0 1  Q3  Q4  1978  Q1  Q2  1979  Q3  Q3  Q4  1978  Q  Q2  Q3  1979  Seasonally adjusted. Total loans and business loans adjusted for transfer between banks and their Ii olding companies, affiliates, subsidiaries, or foreign branches. Federal Reserve Bank of St. Louis  • BUSINESS LOANS AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT IF, adjusted annual rate of change, in percent  Period 1975--Q1 Q2 Q3 Q4  Business loans at banks!'  Short- and intermediate-term business credit2/  1.9  1976--Q1 Q2 Q3 Q4  3.6 10.0  5.3 10.4  1977--Q1 Q2 Q3 Q4  9.9 6.9 10.3 13.3  12.6 11.3 11.4 14.3  1978--Q1 Q2 Q3 Q4  18.0 16.7 12.7 14.2  16.6 17.2 11.8 16.3  1979--Q1 I .  20.4 17.1 22.2  20.6 20.0 24.0  Q3 1/  0.5  Based on prorated monthly averages of Wednesday data for domestically chartered banks and an average of current and previous month-end data for foreign-related institutions. Adjusted for outstanding amounts of loans sold to affiliates. 2/ Short- and intermediate-term business credit is business loans at commercial banks plus nonfinancial commercial paper and finance company lS.ns to businesses, measured from end-of -quarter tS end -of -quarter. Commercial paper reflects prorated averages of Wednesday data and finance company loans reflect averages of current and previous mS nth-end S. e-- Estimated Federal Reserve Bank of St. Louis  -6-  edged down while internal fund flows increased.  The moderate decline in  capital expenditures was attributable to a slowing of inventory accumulation from the rapid pace evident in the second quarter.  The reduction in credit  requirements in the third quarter was reflected in a decrease in business borrowing in bond markets, as many nonfinancial corporations avoided issuing long-term debt at near-record yields.  At the same time, firms continued to  borrow heavily in short- and intermediate-term markets.  The increased use  of short-term financing has resulted in a marked rise since mid-1976 in the ratio of short-term to long-term debt outstanding for nonfinancial corporations.  At the end of the third quarter, this ratio reached an all-time  high of about 38 percent, well above the previous peak recorded in 1974. The rapid growth in short-term credit in the third quarter reflected an acceleration in the pace of business borrowing from all major sources of short-term funds.  Commercial paper issuance by nonfinancial firms increased  further from the record annual rate recorded in the second quarter.  Growth  in finance company loans to businesses also rose appreciably in the JulySeptember period, and as noted earlier, the pace of business borrowing from banks surged. The increased demand for business loans at banks occurred despite a cumulative rise of 2 percentage points in the prime rate during the JulySeptember period.  As banks responded to sharply increasing market yields,  the prime rate was raised in successive steps to a record 13-1/2 percent at the end of the quarter.  (After the Federal Reserve's policy actions in early  October, the prime rate was increased further to 15-1/4 percent.)  In addi-  tion, data available for large banks indicate that nonprice loan terms and Federal Reserve Bank of St. Louis  Nonfinancial corporations Ratio of short-term to long-term market debt' Percent 40  35  30  1973  1975  1977  1979  I Based on flow of funds data. 1979 Q3 estimated. Seasonally adjusted.  Treasury yield curves and deposit rate ceilings l'ercent per annum 11 10  September 28, 1979 %re ••• •km. eft  ••• eft  9  %  June 27, 1979 Ceilings at commercial banks  8  Ceilings at S&L's  7 6  1111_1_111  1  2  3  4 5 6 Years to maturity  7  'I 0  8  * Maximum yield on "rtioney market" time deposits at coniniercial banks and thrift institutions for September 28, 1979. Data reflect annual effective yields. Ceiling rates are yields derived from continuous compounding of the nominal ceiling rates. Market yield data are on an investment yield basis. Federal Reserve Bank of St. Louis  7-  standards of creditworthiness tightened somewhat over the third quarter. Large banks did, however, continue to report a substantial volume of belowprime lending in the third period, which may reflect in part intense competition to supply the short-term financing needs of the largest corporations. As in the second quarter, growth of business loans at large banks exceeded that at small banks, a reversal of the trend that had prevailed since the beginning of the economic recovery in 1975. Public offerings of bonds by nonfinancial corporations declined in the third quarter, largely because of a relatively low level of bond issuance by public utilities in the first two months of the period.  The  volume of public offerings by industrial companies picked up moderately as the quarter progressed, probably reflecting firmer expectations that longterm rates were unlikely to decline substantially in the near future.  Finan-  cial concerns markedly reduced their issuance of intermediate- and long-term bonds during the quarter, which helped to reduce total public offerings of corporate issues in the July-September period to the low level of the first quarter.  Bond and note offerings by financial companies accounted for about  40 percent of total public offerings in the first half of 1979, but since midyear they have represented less than 30 percent of the total. Private bond placements, which typically serve as a source of funds for smaller and lower-rated firms, are estimated to have declined further in the third quarter from the relatively high levels maintained in recent years. Available data suggest also that bond commitments outstanding at life insurance companies recently reached their lowest level in four years.  Life  insurance companies, the principal source of private placement money, have Federal Reserve Bank of St. Louis  GROSS OFFERINGS OF NEW SECURITY ISSUES Seasonally adjusted annual rates, in billions of dollars  1978 Type of security Corporate Bonds Publicly offered Privately placed Stocks Foreign State & local government r/ Revised. pi Preliminary.  r/  1979 r Q2/—  Q3  Q4  54  42  47  55  49  42 23 19 12  30 18 12 12  39 17 22 8  48 35 16 7  39 27 11  6  5  4  5  8  53  1/ 48  39  41  43  432/  10 Federal Reserve Bank of St. Louis  S -8-  allocated a larger fraction of their investable funds to higher -yielding mortgage instruments in recent quarters. Yieds on corporate bonds increased more than one-half of a percentage point over the third quarter to their highest levels since October 1974. Following the Federal Reserve's policy actions in early October, bond yields jumped an additional 75 to 125 basis points by month-end.  The recent upward  movement in corporate bond yields has been accompanied by a widening of rate spreads between corporate and Treasury obligations and between lower- and higher -rated corporate issues.  A similar increase in risk premiums occurred  in the commercial paper market.  These increases likely reflect concerns  about the impact of tighter credit market conditions on borrowers, especially in light of the deteriorated liquidity positions of many firms. All major indexes of stock prices rose substantially between June and September.  The American Stock Exchange composite index and the National  Association of Securities Dealers' index of over-the-counter stock prices ended the third quarter at record highs, while most major price indexes of securities listed on the New York Stock Exchange were near their highest levels since early 1973.  The American Stock Exchange index continued to post  the largest percentage rise, again reflecting the greater relative importance of oil and natural gas industry shares on this exchange.  The third quarter  gains were retraced in October, however, as the tightening of financial market conditions increased concerns about the continuing strength of economic activity and corporate earnings.  In addition, the sharp rise in interest  rates in October encouraged margin account investors to reduce their borrowings.  -9  Owing to the increases in the major stock-price indexes in the July -September period, conventional measures of price-earnings ratios edged up a bit in the third quarter, although they continued to be torically low.  The volume of stock issues remained relatively small, pri-  marily because of the still high cost of equity capital.  Although public  utilities continued to account for a majority of common and preferred stock offerings, several larger industrial concerns also marketed new equity issues. Government Finance Gross bond issuance by state and local governments edged up slightly in the third quarter, on a seasonally adjusted basis.  Offerings continued to  be bolstered by bonds issued to finance housing, almost 80 percent of which were for single-family mortgages.  These bonds were among those postponed  ear!ier in the year when federal legislation was introduced to curtail home mortgage financing by local authorities.  Although the Congress has yet to  act, issuers responded to indications that the final legislation will exempt from any new restrictions the issues that had been postponed earlier. Interest rates on state and local obligations rose appreciably in the third quarter.  The Bond Buyer index of yields on general obligation  bonds, at 6.6 percent at the end of September, was more than 40 basis points above its level at midyear. further to 7.3 percent.  By the end of October, this index has increased  The ratio of tax-exempt to corporate bond yields  edged up a bit in the third quarter from the record low level in June and increased further in October. Net Treasury borrowing amounted to just under $12-1/2 billion in the third quarter, not seasonally adjusted, following a paydown of IS Federal Reserve Bank of St. Louis  in  FEDERAL GOVERNMENT BORROWING AND CASH BALANCE Not seasonally adjusted, in billions of dollars  1978  1977 Item Treasury financing Budget surplus, or deficit(-) Off -budget deficit 1/ New cash borrowings, or repayments(-) ../-1/ Other means of financing Change in cash balance Federally sponsored credit agencies, net cash borrowings 1/  2/ 3/  4/ 5/  Q4  Q3  Qi  1979  Q2  43  Q4  -28.8 -1.3  -25.3 -3.7  14.0 -2.2  -8.1 -3.1  -23.8 -.1  19.5 .4 2,8  20.7 2.6 -6.8  20.8 2.8 -5.9  2.5 -3.2 11.1  15.1 1.0 4.9  15.2 2.6 -6.1  1.8  2.0  4.5  6.5  6.1  5.2  -12.2 -4.9  2./  Q1  -20.4 -3.0 3/ 10.64.2 -8.6  6.3  Q2  43  21.4 -5.2  -4.40 -4.2  -4.6 -1.8 9.8  12.4 2.9 6.7  5.5  4.7  Includes outlays of the Pension Benefit Guaranty Corporation, Postal Service Fund, Rural Electrification and 'Telephone Revolving Fund, Rural Telephone Bank, Housing for the Elderly or Handicapped Fund, and Federal Financing Bank. All data have been adjusted to reflect the return of the Export-Import Bank to the unified budget. Includes $2.5 billion of borrowing from the Federal Reserve on September 30, which was repaid October 4 following enactment of a new debt-ceiling bill. Includes $2.6 billion of borrowing from the Federal Reserve on March 31, which was repaid April 4 following enactment of a new debt-ceiling bill. Checks issued less checks paid, accrued items, and other transactions. Includes debt of the Federal Home Loan Mortgage Corporation, Federal Home Loan Banks, Federal Land Banks, Federal Intermediate Credit Banks, Banks for Cooperatives, and Federal National Mortgage Association (including discount notes and securities guaranteed by the Government National Mortgage Association). Federal Reserve Bank of St. Louis  111  -10-  the previous period.  With a combined federal deficit--including off-budget  agencies--of about $8-1/2 billion, the Treasury was able to bring its operating cash balance to an unusually high level at the end of the third quarter in anticipation of large financing needs in the fourth quarter. Issuance of nonmarketable Treasury obligations in the third quarter was the largest so far this year.  The pickup was largely attributable to  a substantial volume of acquisitions by foreign official accounts with the proceeds from dollar-support operations in international exchange markets. In contrast, the foreign central banks had redeemed an appreciable volume of such securities in the first half of the year. In the open market, the Treasury relied primarily on coupon securities to meet its financing requirements, although the outstanding supply of Treasury bills was increased somewhat.  As with nonmarketable issues, a sub-  stantial volume of marketable securities were purchased for foreign accounts in the third quarter, in contrast to a net paydown in the preceding two periods. Late in the third quarter, Treasury debt operations were affected by the constraint of the national debt ceiling, which was scheduled to fall to its permanent level of $400 billion at the end of the quarter.  The Treasury  postponed a bill auction and two note auctions scheduled for late September before the debt ceiling was raised to $879 billion on September 28.  The  three postponed auctions were held in early October. Federally sponsored credit agencies raised $4.7 billion in the third quarter, not seasonally adjusted.  While substantial, this volume was down  somewhat from the pace of the preceding quarter and reflected a large decline in funds raised by the Federal National Mortgage Association (FNMA). Federal Reserve Bank of St. Louis  FNMA Federal Reserve Bank of St. Louis  -11-  borrowed only $0.2 billion, down from $2.0 bon in the second quarter. Mortgage purchases by FNMA slowed significantly in the third quarter, and were financed in part by drawing down liquidity.  The Federal Home Loan  Banks borrowed $2.1 bon in the July-September period, while the Farm Credit System borrowed $2.4 bon. Yields on Treasury securities increased over the third quarter and in October, along with yields on private debt securities.  Interest rate  increases between July and September were less pronounced for Treasury bills than for private short-term instruments, however, partly reflecting heavy purchases by foreign official accounts and the Federal Reserve System. Mortgage and Consumer Credit The growth in mortgage debt moderated only a little in the third quarter, following the strong second quarter rebound.  Mortgage credit flows  have been relatively well maintained in recent months, owing primarily to increased lending by commercial banks and life insurance companies.  Moreover,  mortgage revenue bond programs of state and local governments, which offer below-market interest rates to quaed borrowers, have continued to account for considerable origination activity in same locaes, and issuance of IS rtgage passthrough securities guaranteed by the Government National Mortgage Association (GNMA) increased to record levels in the third quarter.  The  decline in mortgage lending was concentrated in the residential sector and reflected primarily reduced lending by savings and loan associations and to a lesser extent mutual savings banks, as well as decreased purchases of government-underwritten loans by FNMA.  Outstanding commitments to acquire  new mortgages by savings and loan associations edged up a bit over the third I uarter, due to a slower rate of mortgage takedowns at these institutions. Federal Reserve Bank of St. Louis  NET CHANGE IN MORTGAGE DEBT OUTSTANDING Seasonally adjusted annual rates, in billions of dollars  1978  1979  Q3—  14—  41—  Q2—  Q3—  154 116 38  161 125 36  153 115 38  157 118 39  154 113 41  39 48 7 10 9 41  36 52 6 12 9 46  33 43 6 10 11 50  32 51 5 11 8 50  34 43 3 13 4 57  •  By type of debt: Total Residential Otherl/ By type of holder: Commercial banks Savings and loans Mutual savings banks Life insurance companies FNMA and GNMA Other2/ 1/ 2/  r/ e/  Includes commercial and other nonresidential as well as farm properties. Includes mortgage pools backing securities guaranteed by the Government National Mortgage Association, Federal Home Loan Mortgage Corporation, or Farmers Home Administration, some of which may have been purchased by the institutions shown separately. Revised. Partially estimated.  • Federal Reserve Bank of St. Louis  -12-  The decline in net mortgage lending at savings and loan associations in the third quarter may have been in lagged response to the reduced pace of deposit growth in the preceding quarter.  Moreover, field reports  suggest that there was some slackening in residential loan demand, owing to the rise in mortgage interest rates this year and general economic uncertainty.  Savings and loan associations decreased their borrowing (seasonally  adjusted) from Federal Home Loan Banks and instead relied more heavily on such alternative sources of funds as security repurchase agreements, mortgage-backed bonds, and commercial paper issuance.  Associations increased  their holdings of liquid assets, thereby raising their average liquidity-measured as the ratio of cash and liquid assets to the sum of short-term borrowings and deposits--from 8.8 percent, seasonally adjusted, at the end of the second quarter to just over 9 percent at the end of the third. The cost of mortgage financing continued to increase over the third quarter.  The average of interest rates on new commitments for 80 percent,  30-year conventional home mortgages at sampled savings and loan associations rose 25 basis points in the July-September period to a new high of 11.35 percent at the end of the quarter.  In October, further substantial increases  in mortgage yields as well as continued tightening of nonprice lending terms accompanied the rise in other interest rates.  As market rates moved to higher  levels, several states either raised or removed usury ceilings on conventional home loans.  Even so, usury ceilings in a number of states appear to be  restricting the supply of mortgage credit.  Moreover, ornations of home  mS rtgages insured by the Federal Housing Administration or guaranteed by the Veterans Administration reportedly were hindered by the below-market ceiling Federal Reserve Bank of St. Louis  -13-  rate of 10 percent on such government-underwritten loans.  The Department  of Housing and Urban Development and the Veterans Administration raised the maximum rate to 10-1/2 percent in late September, and to 11-1/2 percent in late October. Consumer installment credit outstanding is estimated to have expanded at a 10 percent annual rate in the third quarter.  This expansion  represents a substantial moderation from the 15 percent rate of advance in the first half of 1979 and the 19 percent rate in 1978.  A further decline  in the growth of automobile installment credit--a major component of the total--and a marked deceleration in expansion of bank revolving credit contributed to the slowing in the third quarter.  Credit extensions have weak-  ened relative to household expenditures, in recent months, perhaps reflecting less accommodative financing by lenders as well as an increased hesitancy on the part of consumers to incur further debt in an atmosphere of economic uncertainty. Federal Reserve Bank of St. Louis  November 6, 1979  lhe lissesble James C. Gorman ftwoe of Representatives lheelkington, D.C. 20313 INN* Mx. Carman: Thank you for your letter of Seveiher 1 recommeeding Mr. Robort Vilkimeoe as a member of the SoArd's Couftwer Advisory Council. You may be assured that Mr. Wilkinson's rualifisations will timely* full semideration by the Iloard whom it amiss the 1980 appointmeets to the Cogswell within the meet say/era mesihe. We gill be in touch with yen when the selestioss mmmukb. pew resemmodition and your interest in the CeemeeNne adNiamry Gemmell. The Saud appweeisese raceii  Stmeerely, Saul A. VP_Idiet  CO:pjt (#V-106) bcc:  Anne Geary (w/copy of incoming) Mrs. Mallardi (2) %.00"  WASHINGTON OFFICE: 221  3AYBURN Housr OFFICE BUILDING  JAMP5C.C7ORMAN 21ST DISTRICT CALIFORNIA  202-225-5811  DISTRICT OFFICE. 14545 FRIAR STREET  te)(°  ROBERT C. RUBEN  VAN NUTS. CALIFORNIA  Congre55 of tbe aniteb *tato  ADMINISTRATIVE ASSISTANT  WAYS AND MEANS COMMITTEE  30oti5e of 1epretntatitie55  SMALL BUSINESS COMMITTEE  /Dazbington, D.C. 20515  91411  213-787-1776 IRENE SLATER FIELD DEPUTY SARAH ETHEREDGE FIELD REPRESENTATIVE NELDA BARRETT CASE WORKER  •  •-•  tpv7  somm..  November 1, 1979  Mr. Paul A. Volker Chairman, Federal Reserve Board Twentieth Street & Constitution Ave., N.W. Washington, D. C. 20551 Dear Mr. Volker: This letter is in strong recommendation of Mr. Robert Wilkinson for an appointment to the Advisory Board of the Federal Reserve Board's regional office in San Francisco, California. Mr. Wilkinson and I have known each other for over 25 years, both professionally and socially. Bob Wilkinson has been in local government as a Los Angeles City Councilman for the past 16 years where he served as Chairman of the Finance, Public Works and Police and Fire Committees. Prior to his councilman's duties, Mr. Wilkinson served for eight and one-half years on the Los Angeles Harbor Commission. He also held a seat on the State Solid Waste Commission for four years. In private life, Bob Wilkinson was a licensed real estate broker for 32 years and an insurance agent for some 20 years. Mr. Wilkinson has served his community and the State of California with complete devotion and integrity. His personal commitment to providing outstanding service to his constituents as well as to all his fellow citizens is beyond reproach. It has been my pleasure to have worked with Bob Wilkinson and to observe the performance of this truly dedicated public official. I am pleased to recomme,pci'Mr. Wilkinson, and do so without reservation. Federal Reserve Bank of St. Louis  7  z / JAMES C. CORMAN ' Member of Congress  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS 11•••••••••••  r yet, •  '.. Federal Reserve Bank of St. Louis  november 6, 1,79  The Sonorehle Minima Prosaire Chairman Committee on Banking, Do4Riac and Orhan Affairs United States Senate Ilmekington, D. C. 20510 Dear Chairmen Proxmire: We uneerstand that Senator Mogi' Moy propose as amendment to S. SS to provile to Presidential appoiatierat and Senate confirmation of presidents at the Federal itemerve Soaks fu, possibly, only Senate sonfirmation of meth appointments by the boarAe of Aireotors at the 'Moral lbeeerve Soots. Alternatively, Senator Riegle may peopeee am amendment which wes14 prohibit Reserve Dank presidents or first vice presidents who are Members or alternate members of the Peoftral Open Martet Comarittee from votimg in that cepmeity pending further COmgressions i eonsideration of legislation which would eshject these positiome to Presidential appointmeat and Senate eenfirmatiss. I strongly wow adoption of any such amendments' It would be extremely disruptive of the effective coadmet of memetory policy in this critical petio4 to disenfranchise Deeerve Sank members of the 1e4eral °pea market Committee. The provisions MI the Federal Reserve Act which establish anA goers the eperetteno of the Federal Open Market Committee contemplate the full emit active participatioa and vote of Deeerve Dank momhese in the form:1st/es of the metioess mometsry policy. such an emeadment umula place in legislative limbo, po34inq uncortain further COmgeeeeional review, this carefully oonetruated legislative framework governimg the Cemmittmes ow:aloes, and %maid crests great uncertainty in tae,mallsema and international financial markets as to the Mut* course of the conduct of monetary policy. On the broaCer issue of whether the appointments of Deserve Dank 7re:tide:its should be subject to menet:: onnfirmation or to Presid ential appointment subject to Senate contirmatiom the Doard has previously expire:toed its view that such prisons would inject an atmosphere of partisanship into the formulatiem of monetary policy. Onless Reserve Sank preaddents anA first viola presidents wore appoteted sad confirmed by the Senate for tetras similar to the 14-year tern of noerd members  The Monorable William Premaire  -2-  it would be very difficult to insulate such officials from transitory political considerations in the performance of their duties. This would have a very undesirable effect upon the necessary independence of the Federal Reserve System in the performance of its monetary policy responsibilities. Furthermore, aubjeeting appointment of Reserve Sank presidents to any such appointment sad sonfirmatton peocess would weaken anC perhaps nullify the ability of the Seard of Governors to fulfill its statutory responsibility of exercising guidance and supervision over the Feder al Reeerve Banks. Under ;elegant lav a Reserve Sank prevident may be removed by the Board of Governors if the individual tioes not manage his bank satisfactorily. There would be many practical as sell as legal difficulti es for the Board to remove a Presidential appointee er an appointee confi rmed by the Senate. The probable effect of these restraints wonle be to exempt these positions from the aupervieery controls sad guidance devel oped at the Word over the years, thereby pmeeibly limiting the impcovemen ts in productivity that the Reaw:ve Banks hem been steatilly achieving in henialeg their responsibilttiea in connection with the operation of the mationia payments system and in carrying out their fiscal functions on behalf of the Treasury. I would also note that while the Reserve Bank boards initially appoint Reserve Sank presidents and first vice presidents such appoi ntments are subject to review and approval by the Board of Governors the membe rs of wtlich, of course, are appointed by the President subject to Senat e confirmation. I believe these procedures have worked well in practice and strike an appropriate bale between Reserve Sank independence and Board oversight over itesf!rva Bank operations. In closing, I meat stress that, whatever one's initial views on the issues presented by theme proposed amendmemts, they veell result in profound changes in tht torislation and implementation of monetary policy. They should not itds considered eihtout the benefit of ostensive hearings before the Congress where all of the ramifications of times proposal, mild be fully eirplored. Sincerely, S/Paul Ph VoIckez  WLPinan 11/6/79 Federal Reserve Bank of St. Louis Federal Reserve Bank of St. Louis  •  •  CA,/  •. ••  C'Ot't  BOARD OF GOVERNORS OF THE  Alt •••' • - a  FEDERAL RESERVE SYSTEM WASHINGTON, D C  44v: • C.) . •• ePAL K. • • •..• • •  20551  PAUL A  VOLCKER  CHAIRMAN  November 6, 1979  The Honorable William Proxmire Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D. C. 20510 Dear Mr. Chairman: The Board of Governors appreciates your willingness to procee d with the Senate Banking Committee's markup of Amendment Number 398 to S. 85 and S. 353. It is our understanding that when the revised S. 85 is consid ered you will offer a series of amendments which will have the effect of applying a 3 percent reserve requirement on transactions accounts of $10 million or less and applying an initial 3 percent reserve requirement on non-personal time accounts in excess of $10 million. The reserve requirement on transactions accounts in excess of $10 million would be set initia lly at 12 percent with a range of 11-13 percent and the permissible range for reserve requirements on non -personal time accounts over $10 million would be 0-12 percent. I further understand that you will be offering some technical amendments suggested by the Board. The Board strongly supports the package of amendments you will be offering to the revised S. 85 and urges their adoption. This legisl ation, as appropriately amended, will be a giant step toward provid ing the tools the Federal Reserve needs for the effective conduct of moneta ry policy over the years ahead. As you know, we continue to be concerned about the reserve base coverage in the pending legislation. Even under the revised S. 85, as amended, commercial bank balances at Federal Reserve Banks would be reduced to about $15 billion. This level represents a ratio of reserves to deposits for commercial banks alone of around 1-1/2 percent--near the lowest of any major industrial country in the world. Such a rate is uncomfortably low, especially considering the need for a stable relationship between reserves and deposits, the huge volume of clearings that go through Federa l Reserve Banks every day, and the large and erratic fluctuations occuring in Federal Reserve Bank of St. Louis  The Honorable William Proxmire Page Two  factors affecting reserves, such as uncontrollab le changes in float and currency in circulation. These factors, superimp osed on a relatively small reserve base, could make it very difficul t to manage reserves in a manner to hit a given monetary target. To meet this problem we additionally are supp orting a simple amendment which would add legislative authorit y for the Federal Reserve to call for supplementary balances from all depository institutions on a standby basis. This authority would not be used unless the Federal Reserve found that monetary policy could not be effectively implemented with the reserve balances required under other provisions of the monetary improvement legislation. I would like to reiterate strongly that our support of this supplemental reserve requirement in no way detracts from our support of S. 85 as you plan to amend it. The basic reserve base coverage in that bill should not be diluted. The supplemental, in turn, should not be viewed as a substitute to that basic reserve base coverage. I view it as an "insurance policy" in the event the basic reserve base in practice proves too low, and dilution of the basic requ irement could only compound the problem. Consequently, I hope any amendmen ts having that effect can be resisted. The Board appreciates your asking our views on the bill and your amendments which will be before the Committee tomo rrow. Sincerely, Federal Reserve Bank of St. Louis  •  Iftweibes S. 1979  liellesareble Mingrd M4 Metsechoum 11040ed States SMOst. ONIMMItios, 0.0. 20510 Sim isastor lietaeoirenst Week yen Ter yese letter of October 8 requeeties essnmet es the eurelesed Letter fres Mr. Jerry 1.4 Sewn of itirtImed„ Ohio. Mr. lessen reales question, ei passible illegal et entethimal *otiose es the pert of credit card issuers. is postteular, M. Servs rue/mimeo the practises of gateau card Loaners in calculaties *ad billies fiestes shasiss. 1. is farther immersed with whet he perceives to be dhlipmers1 leek of ossfeesi m ea the pert of card holders of the actual nethede of ealculsting and isosebei esti eharpes. Mit. Semmes letter does not iodise his portieulsr aismeticS he detail. It oppeers, hewspor, that he is senseraed east e credit mei system is which flames dbelles ere ispessed for a eine period prier to the customer's roseipt of the periodic stetsmest and that, is sons some, in 418mpstime Mheee names 44~1111 the creditor tikes sew tressostione for tibia the cmeteuer had mot been pseviesely billed into aegemos. There mre II oysters for senpoties flosses simples es credit eerd plies is emisteese. Woolly this will Coeur vide, time* plage ulna the ensemmer fells to pay die MAK outstaatise Wow &ries the OSOWASSO hints' period by the des Amts. Sommer, State ifia ellctrols the gifted of esepotige Ileemes gheapes. 6iace le de set hese the details of Mr. Set's situation and de net believe it appropriate for se to interpret Ohio law, we sem* stee defiaitive essiser to the lapel ruostios he raises. es believe that the Truth is landigg Age addressee Mr. bersen's oeseed point esecernint essesner ewerseees. The pompom 10 the Tim* in Lesding itist is to requirs diselosure of the 0010110 mad *seditious of the credit offered is order to promote the istmeasi see of *milt by .cousumers. To that mid, cartels disclosures are required, both initially (before the omega is used) sled periodleally, for the type et credit Hr. Zeroes has. tee easuple, initial dleeleCures are refteired reperding the sosditiase under thigh finalise /bargee or may other ohesses Noy he imposed, the method el diesesiniss the belongs ea Ala a finesse cheep soy be imposed, tles isethed of determining the amismt of flames Cherie, esd as explaseties of the time period, if air, sable whisk say credit nay be paid without isourrtes • fiseggs dines, Is addition, periodie stetesests are required that sostaim dissleseires Aida peserelly restate seep of the /*Mel diselseurso asd that aloe SiMitain additional diseleiteres volatile to tamer *cages that been tames plow en the accimgc, for caseple, if the basest oscribish tisanes Merges wary be Deposed la detsemdmed without first dedeatill 411 credits durige the ballast cyciee Met Sept ad the sweet of estb emits suet be disclosed ea the pertedie eheenest. Federal Reserve Bank of St. Louis  •  The aomproblo lisoar4 K. Ilatoothosa Paso letio  All of the proseribed disclosures its !squired to be sods is • clear, weasiegful usquosee ea a fors which the smotemsr mey routs. This La all totandod to assure that esesumers are tdad with the tsforestion sessessry to understand their credit streagemrate, have the misses to eour. pars various credit plass, sad will be silo to oak* isiorsed decisious is the use of credit. Mr. Urges esy Iola to rrwtww the disclosure isforestion be received from the sOOditor. If be believes the creditor failed to provide the mosessery diocliftess, he should provide as utak the ewe of the card famor, details of bis sitsstioS, mut woples of amp partisan dioalaaura, statement. tie will plisse the Islormatim is aka Wok of the appropriate ammo for prsopt satires. The coastline of the legality of the ottimodi seed to Loose (intsse sharps, houover, remiss as Issue of &tote low sad weld have to be powesse asserdisely. I hope this isdoeuetion is baleful to yes. 1141100 soutsut us U any further assietssee proves socessary. Siscorety yosso,  t  o-  ';n14.)  -  Uossld J. Visa Speeisl Assistant to the Seard Ilasiosor. LIST:CO:Djlispit (#V-68) bee: Ms. Casey Mrs. Millardi  HOWARD M. METZENBAUM  COMMITTEES  OHIO  ENERGY AND NATURAL RESOURCES  A Federal Reserve Bank of St. Louis  JUDICIARY  rZCnifeb Ztafez Zenale  SUBCOM MITTEE ON ANTITRUST AND MONOPOLY, CHAIRMAN  WASHINGTON, D.C. 20510 HUMAN RESOURCES  October 8, 1979  BUDGET5  cD  Federal Peserve System Board of Governors 20th and Constitution Ave., N.W. Washington, D.C. 20551 Dear Chairman: Because of the desire of this office to he responsive to all inquiries and communications, your consideration of the attached is requested. Your findings and views, in duplicate form, along with the return of the enclosure, will be appreciated. Plea7e address the envelope of your reply to the attention of 1% assistant, Rachel Sotsky. Ver  sincerely yours,  Howard M. Metzenbaum United States Senator IIMM/rr Enclosure  • •  September 17, 1979  Senator Howard M. Metzenbaum Senate Office Building Washington, D. C. 20510 Dear Senator Metzenbaum: This letter is to object to the Method of calculating finance charges on credit cards. What is unknown by most customers is that the percent rate is multiplied by not only the past due balance but also by the new charges that have not as yet been received by the customer. In other words, a person is billed for the finance charges on a statement that they have neither seen nor had a chance to pay. I do not know if this practice is illegal or unethical but I am certain that most credit card holders are unaware of the actual methods of calculation as programmed into a computor. Can you be of amy help in changing this "rip off". Sincerely,  erry . BergernLj 8152 Chardon Rd. RD'/5 Kirtland, Ohio 44094 JLB:aab Federal Reserve Bank of St. Louis Federal Reserve Bank of St. Louis  November 7, 1979  Ponorahle Willis* Proxeire Cl‘airnan, r,ome!ittee en vankialt, 000sins and 9rhan Affairs nniteti States gowns Nsehineton, %C. losle leer Chairnan Proxmire: Your letter of Ictot,er ?ts raiseti severe' questiors about the recent reporting errors in eeney sueply statistics. I am :lad to take this opportueity to provi4e an explenstioa of the error, an indication of corrective steps wm have taken, and to appraise the costs on financial markets. The recent large error in the reported money supply statistics has keen en onfortenate and regrettable source of confusion, particularly coetne as It did so shortly after the Federal Reserve hat! IntroAnced new technique* in open market operatioe*. Recites, of the confusion, / would like to stress first that the errors kad nothing at all to ic vith the measures ameeenevi on October 6. Moreover, subsequent onerations under the woven would not have been significaattv different If the correct figures ha4 bees kimono at all times. When the presrae was aeopted am netoher 6, the lest rlohlised nartiel exts at Illted were for the week of September 26. In ;late were available for the week of OctoSer 3. These partial, nnpuhlished firnres seee.eete4 that money supply night decline a little froo the preceding week, hut these preliminary data ere given very little weieht different movenent from sere coeplets data. in for they often display the event, the more complete data for the baakine systen for the week of October 3, which became availeble to le on October in and 11 (and were first puhltshed on October 11), indicated that the meney supply expende4 by $2 hillion. A lerle expansion was sustained for that week, despite the sehequent downward revision of $701 million in hanufactorers laoover deposit figures, partly becsuse of other revisions made on October le. Federal Reserve Bank of St. Louis  The monorable William Prololire .2. • published on The figures for the week of October 10, first $2.8 hillion; it was these ncto4tr la, showed a large fnrther increase of arily reflecting a data that on Attober 25 were revised &amply, prim facturers Ianover. On that billion error in the figures reported by Manu October 3 was sleo latter date, the money snrply for the week ended g errors for that reviset! down by $700 million as a result of reportin unced, In his statement bank. On netober 29, Vice Chairman Schultz anno tnrers lianover had before the 4ouse Ranking Committee, that ‘!anufac y supply for the wee- ended indicated that its data included in the mone V:10, million. On Nover 1, nainly nctober 17 might he revised down over, the money supply for the reflecting revision's from anufectorers Ilan ward by $700 million. week ended Actoher 17 was, in fact, revised down figures reported for the Nowever, despite the downward revisions in the of the nonty supply weeks of October 3, in, and 17, tbe average level Septenber level in the remained high--running substantially above the first half of October. period the Consequently, it seems evident that during that face of our efforts demand for money had reNtined relatively strong in 'money risrket coneitione to Malt the supply of reserves. As a result, supply of nonborrowed tighteneJ, as banks bid actively for the limited and also increased reserves provided through open market operations The revisions in the noney their horrowinr from this discount window. level of oonhorroved reserves supply figures had virtually no impnct on the et through open market the Federal reserve was providing to the nark rnined essentially by operations in this period. That level had been dete in desired growth in the calculations of the reserve net% needed to atta year as * whole, not by ronetary aprregates over the final quarter of the isolated week or two. novenents in the money supply data for an ants and The board has elwavs stressed that market particip ly money supply data. others should not give undue attention to week cially under current That obviouslv needs to he un.!.erscored agalwe.-espe rate limits, the nrovision circumstances when, within Nroad federal funds aggregate objectives Is of reserves consistent with longer—run nonetary oach would, if anything, the focus of day—to—day policy. Our now appr money stock variations than maks operations even less sensitive to weekly our former aeproach. Federal Reserve Bank of St. Louis  The Ponorehle tt11t —1.  Proenire  vlith reqsr3 to the possible effects on financiel markets of the noway sueply revisions, it should be clear frogs the preceding chrono/ogy that the 4snefecturers Ranover error could not have had an influence on the sharp Interest rate rise anti drop In stock prices that insedistely follomed announcement of the progran when the markets opened on October 9. The particularly large error sea for the week ending October 10, but those figures were not first qublished until Thuredev, October 18. !lien the figures for October 3 were not published until October 11. The subsequent s700 million error in that figure, related to )1anufacturers Rollover, was largely offset by other revisions in the data for that week and was not so large in itself am to he outside the range of erior revision, of the weekly data. Any influence the reporting error nieht have had on financial nartets would be eubeteeent to October lg. It Is trne that the Dow Jones Indumtrial Averaee declined about 15 ooints on the following day and interest rates rose sharply. Powever, at net time the federal funds rate also rose to the 15 percent area In reflection of the gathering constraint on nonherrowed reserves, a constraint that wee needed because nonhorrowed reserves and other reserve neasureseetotal reserves sad the nonetary base-hse heen running high In the first half of the month relative to the path nee4w1 to slow growth in noney supply over the fourth quarter. It is most difficult, if not inpossible, in eveluatine financial narket condition* to separate the inpect of the money supply announcement from pressures being generated by strong demands for credit, noney, and bank reserves relative to supply. It night he noted, In that respect, that the stock market dii not show any significant recovery immediately after the motley supply figures were corrected on )cteher 25, mi might have been expected if the erroneous figures had been e significant but 14entifiable negative inflneeee4 See sensitive interest rates did decline after the revision, though not by as much as they bad risen a week earlier, and part of that decline was suhseenently reversed despite the Aowmottrd revisions in the data for the week eneed October 17 is our remoter publication on /ovembee 1. Thee, over the period it seems clear that markets, fundamentally, have been reacting to basic economic forces. burinr this period, incoming date an prices as yet showed no abatensat in the rate of inflation, surprisingly strong data on economic activity was published in the course of letoher, and the Federal Reserve policy of restraint on bank reserves relative to demand placed pressure on nosey earket interest rates. The source of the errors woo a change in internal procederes 4,seufacturers eeitociated with the iptrnduction of a new co/teeter system at ! rienover !tank om letoher 1. As a result of this change, their report of Federal Reserve Bank of St. Louis  The Honorable Willies Proxmire -4.  daily depositor—date that eventually enters the =oney supply statistics-was later deternined to he inaccurate, principelly because of misclassifications wiong deposit categories. These errors vere not picked up by the rootine daily screening vrocedures at the Federal Iteserye Sank of Raw York primarily because the gaily deposits data of nanufecturers Hanover, as a large and active 'clesrine hank, are ordinerily highly volatile. Powever, Federal Reserve staff hegan checking with the het* on aspects of their data flow as sarly es ctober 12, in eerticular the weekly report from the hank showine denand depesits due to foreign banks for the week ending October 10. At that tine, the Sauir *filmed the accuracy of the unpublished figure that they had reported on deoand deposits due to foreign hanks. Perly on October 18, nationwl0e data for all weekly renorting hanks became availahle, and these data contained as unusually large Increase in denan0 deposits At, to foreign banks in Vow York City for the week of October 10. That morninR staff again checked with Manufacturers Renover, since that bank reported the hulk of the increase. The bank at this point indtcated that deposits due to foreign banks should be revised downward by about SI billion, a chan7e that had the effect of reducine our calculation of the motley supple for the October In sleek to he published that afternoon. The bank was then asked if their other data estoriae the roney suftV1v--that La, t11;. daily eposit reports that are the basic building Sleeks of the money supply series--were correct. As indicated, these data had passed our edit checks, but the error in the revert on foreign deposits led the staff to make a further inquiry. The bank said the daily deposits were correct. In the light of that assurance, the national figures for the week endine October 10 were published on the afterr.cee of October 1*, after adjusting for the $1 billion error found In foreign depositn. The indicated increase In the stoney supply--$2.8 billion--was sizable even after the $1 billion adjuetment, but clearly not "inpossible Urge in lirht of the eometimes erratic nature of the series. Staff nevertheless continued their investigation of the 'fanufacturers Fanover statistics and subsequently discovered inconeistenclos In the data reported on two different forms that coold not be reconciled. After this discrepancy was brought to the bank's attention, the Sank on Monday, October 22, indicated a large revision sight be necessary for the meek of October 10. On Wednesday, October 24, the staff received reasonably certain data indicating large doweverd revisions. After further verification, the revised figures were promptly eehllshed in the eoney nupply release leaned Thursday, r'ctoher 25. !Airing the following weekend a further $800 %illicit* rodeten in the data for the weak ending Octoher 17 was reported to us, and as I have noted, this possible change was announced early onday r4orning, OctoSer 29. Federal Reserve Bank of St. Louis  The ,ionorable William Proxmire .5.  To ensure that there is no repeat of such large ane unfortunate reporting errors, we are reviewing—aan4 indeed have already made interim chooses in--our procedures for editing incoming data. These changes will un4oubtealy involve bizher costa at the Reaerve %auks and member Slinks. The amount nf contact between staffs of Reserve !tanks and member banks will Increase, and I wou14 anticipate a considershly treater *mount of reverification of ilat* that will in the end prove to be accurate. 1 mint roint out that, despite these efforts, no data flow systeri curs 1.e entirely aafe fron human error, and that in Cut short-run the Fee,eral eserve can do no mare than ask ban- m to carefully recheck data that appear unusual. In this re;erd, I should note that 4anufacturers qanover—which has employed outsiefe auditors to recheck their ista--has advised the Federal Reserve that sons further revisions in their October data, thoueht at this tine to be minor, may soon he forthcoming. Such revisions, if they materialize, will he orowptly reflected in the publiehee data. I fully appreciate your concern over this matter, which I share. I trust this letter clarifies the questions Involved. Sincerely,  S/Faul  SBA/ECE/FS/DB:kt #V-97  INidsteL  Actiofis signed to Mr. Axilrod  •  S  WILLIAM PROXMIRE, WIS., CHAIRM HARRISON A. WILLIAMS. JR., N.J. JAKE °ARM, GT ALAN CRANSTON, CALIF. JOHN TOWER, TICK, ADLAI F. IITEVENKON. ILL JOHN HUIVZ. PA. RCBER MORGAN, NC. WILLIAM L. ARMSTRONG, COLD. DONALD W. RITGLE, JR , MICH. NANCY LANDON KASSERAUM, KANS. PAUL S. SARBANES. MO. RICHARD O. LUGAR, IND. DONALD W STEWART, ALA. PAUL E. TSONGAS, MASS. KENNETH A. MC LEAN. STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANCES DE LA PAVA, CJHIEF CLERK Federal Reserve Bank of St. Louis  N  'ZICrtiteb Zfaiez --Senate 't't COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS WASHINGTON. D.C. 20510  October 26, 1979  NW-  'the Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D. C. 20551  f  rit  Dear Mr. Chairman: I am writing to you to express my shock and concern with the announcement last night that a $3.7 billion error had been made in estimating the basic money supply for the first two weeks in October. I would like you to provide the Committee with a thorough explanation for this error, an indication of the steps that will be taken to avoid such errors in the future, and the Board's assessment of the costs of this error on the financial markets.  ":••• .  The magnitude of this error is a serious problem. However, the more serious factor is that the error occurred during a period when the financial markets were adjusting to strong monetary measures imposed by the Board to restrict the growth of money and credit. There is little doubt that the previously announced large increase in the money stock was interpreted to signify the need for further restraint which translated into unsettled market conditions, and possibly into very large losses for some in the money and stock markets.  0444..  S.  When you appeared before the Banking Committee on October 15, 1979 to discuss the Fed's changes in policy, we had a discussion of the appropriate indicator to monetary policy now that the Federal funds rate was to fluctuate more widely. Your response was that observers of policy should watch the money supply numbers recognizing that there could be some fluctuations. 'hen pressed about other indicators, such as bank reserves and credit, you said 'Well, you can look  &rims. s•s  • •ro  .1 ..  v.  •  ••  lhe Honorable Paul A. Volcker Page 2  at that, IS but I would suggest that the principal means by which you can follow the effects of our policy arc through analysis of the various monetary measures." If it is still your view that the money supply data are the principal indicators of monetary policy, the Federal Reserve must take steps to make sure that the money supply data released each week are accurate. Large errors such as those that lead to the revisions announced yesterday, cannot be tolerated. I would appreciate your prompt atten this matter.  •  Sincer  I 1 Pro Chairman  'Lbw  WP/sr PingliP""  , Mad.  MEER- Federal Reserve Bank of St. Louis  er,1" •• '• .••:;,•‘• Federal Reserve Bank of St. Louis  November 5, 1979  The Honorable Richard T. Schulze Rouse of Representatives Washington, D. C. 20515 Dear tr. Schulze: I appreciate your invitation to speak at the breakfast you are sponsoring for the 5th District Advisory League on December 15. I regret to say, however, that my schedule for December has already filled up to the point where I must decline your invitation. You have my best wishes for a successful meeting. Sincerely,  cc:  Mrs. Mallardi #74  JRC:tjf  RICHARD T. SCHULZE - 5m DISTRICT. PENNSYLVANIA  •  •  Congre55ofthe ji)Ottlit  WAYS AND MEANS COMMITTEE  nitfi) tate5  of Repreoentatibeo a Elittobington, /D.C. 20515 October 12, 1979  4  11 The Honorable Paul A. Volcker Chairman Federal Reserve Board Federal Reserve Building Constitution Avenue, N.W. Washington, D.C. 20551 Dear Mr. Chairman:  Each year I sponsor a breakfast in my district for the 5th District Advisory League. The League, which is a bipartisan group of businessmen and women, is invited free of charge to hear a speaker address the pressing issues of the day. I would like to invite you to be our speaker for the breakfast to be held on December 15, 1979. Your remarks would be geared to a subject of your choice, and hopefully you would speak for about 20 minutes followed by some questions from the audience. Past speakers have found the Advisory League a stimulating forum mainly because of the makeup of the group which represents not only a cross section of the 5th District, but of America. Generally those in attendance number around 100 to 150 persons. This year the event will be held at 8:00 A.M. at the Treadway Inn in West Chester, Pennsylvania. I cannot offer you would be covered. an honorarium, heAgTer all or youT wcii-u.11Since West Chester is only a 2-1/2 hour drive from Washington, D.C., we would be pleased to make arrangements to have you driven to the Treadway Inn in West Chester the evening before the breakfast meeting. Naturally your transportation arrangements back to Washington would be make in accordance with your schedule and convenience. I sincerely hope that you can accept this invitation and join us for what I know will be a rewarding experience for everyone. I look forward to hearing from you in the near future. Sincerely O  01  RICHARD T. SCHULZ Member of Congress RTS:WM PLEASE RESPOND- TO:  El 432 CANNON HOUSE OFFICE BUILDING  El 2 EAST LANCASTER AVENUE  WASHINGTON, D.C. 20515  PAOLI, PENNSYLVANIA 19301 800-362-5652 (roti_ FREE)  (202) 225-5761 Federal Reserve Bank of St. Louis  215-648-0555  •  •  RICHARD T. SCHULZE p.TH DITRICT, PENNSYLVANIA  WAYS AND MEANS COM M ITTEE  •  Congre55  tbe Uniteb 6.L)tate5  iintize of iirpresentatibefs mUlazijington,ae. 20515 October 12, 1979 1:4007f34 rINIIIMR"•  The Honorable Paul A. Volcker Chairman Federal •Reserve Board Federal Reserve Building Constitution Avenue, N.W. Washington, D.C. 20551  (fl  1'14 4._  i ,  6' b L.) , 6'  Dear  a  Each year I sponsor a breakfast in my district for the 5th District Advisory League. The League, which is a bipartisan group of businessmen and women, is invited free of charge to hear a speaker address the pressing issues of the Clsk_ I. I would like to invite you to be our speaker for the breakfast to be held on December 15, 1979.  _  .a..ara4.sahwus  Your remarks would •be geared to a subject of your choice, /17/ •speak for about 20 minutes followed and hopefully you would by some questions from the •audience. Past speakers have found p •mainly because of the the Advisory League a stimulating forum makeup of the group which represents not only •a cross section of the 5th District, but of America. Generally those in attendance number around 100 to 150 persons. This year the event will be held at 8:00 A.M. at the Treadway Inn in West Chester, Pennsylvania. I cannot offer you an honorarium, however all of your expenses would be covered. Since West Chester is only a 2-1/2 hour drive from Washington, D.C., we would be pleased to make arrangements to have you driven to the Treadway Inn in West Chester the evening before the breakfast meeting. Naturally your transportation arrangements back to Washington would be make in accordance with your schedule and convenience.  11111111111"  fej  I sincerely hope that you can accept this invitation and join us for what I know will be a rewarding experience for everyone. I look forward to hearing from you in the near future. Sincerelyia  01.  " 144 0  Ps%  RICHARD T. SCHULZ Member of Congress RTS:1WM PLEASE RESPOND- TO:  ri 432 CANNON HOUSE OFT10E BUILDING WASHINGTON, D.C. 20515  PAOLI, PENNSYLVANIA 19301 FREE)  800-362-5652 (iou_  (202) 225-5761 Federal Reserve Bank of St. Louis  11 2 EAST LANCASTER AVENUE 215-648-0555  -  RICHARD T SCHULZE 5m DIE, RICT, PENNSYLVANIA  •  •  Congrt55 at die if)0115C  WAYS AND MEANS COMMITTEE  niteb *tato  of r,cprevntatibess.Ulaisbington, D.C. 20515 October 12, 1979  4  r="3  f1 The Honorable Paul A. Volcker Chairman Federal Reserve Board Federal Reserve Building Constitution Avenue, N.W. 20551 Washington, D.C.  '  (A)  Dear Mr. Chairman: Each year I sponsor a breakfast in my district for the 5th District Advisory League. The League, which is a bipartisan group of businessmen and women, is invited free of charge to hear a speaker address the pressing issues of the day. I would like to invite you to be our speaker for the breakfast to be held on December 15, 1979. mommomani,  Your remarks would be geared to a subject of your choice, and hopefully you would speak for about 20 minutes followed by some questions from the audience. Past speakers have found the Advisory League a stimulating forum mainly because of the makeup of the group which represents not only a cross section of the 5th District, but of America. Generally those in attendance number around 100 to 150 persons.  ere, irS** 111.11111111P,  This year the event will be held at 8:00 A.M. at the Treadway Inn in West Chester, Pennsylvania. I cannot offer you an honorarium, however all of your expenses would be covered. Since West Chester is only a 2-1/2 hour drive from Washington, D.C., we would be pleased to make arrangements to have you driven to the Treadway Inn in West Chester the evening before the breakfast meeting. Naturally your transportation arrangements back to Washington would be make in accordance with your schedule and convenience. I sincerely hope that you can accept this invitation and join us for what I know will be a rewarding experience for everyone. I look forward to hearing from you in the near future. Sincerely  /t r  A10.04  RICHARD T. SCHULZE Member of Congress RTS:iwm PLEASE RESPOND- TO:  El 432 CANNON HOUSE OFFICE BUILDING WASHINGTON. D.C. 20515 (202) 22.5-5761 Federal Reserve Bank of St. Louis  •  LI 2 EAST LANCASTER AVENUE PAOLI. PENNSYLVANIA 19301 800-362-5652 (Tou_ FREE) 215-648-0555 Federal Reserve Bank of St. Louis  levesber 2, l979  The Mesestibla Sibect S. Vetiver Moses ef Meoweeentattese lineblaston. D. C. 20915 Meer Mt. Welker. ties *sommest QU amok yes ger yea better eC W:teber 34 swee T. VI. Mbiedith, eke esthe esclieeed letter free your t:onstituent. Nr. must pay for bomb pleseme eeneeen about the intermit robin his Elva  teems of the rapid The levet of Loidnest rates is largely * result lle Oro muneriacing, mei diesply embedded ex,octotte Tat, of .nflaties remmeet, interest rota chat ?ri as will cautious te clieb. In this envi isees are string, *re high became depends for credit to flame-41e perA being cAmeseeetof white Iseders are reluctant to osteed credit without ive t reperment. for the cieciialag value of the dollars they will rees  peeseuree tespeworily Are Pectoral Seeerwe mould altercate iatmweet rate Savh a peticy heaver, by *oaring reserves taco the beaktmg system. intessify tnflattemeey foram. Label& the redare allesrrs aulA t vow and credit. bee tattoo a weber of steps to antrot the sissidis er interest rates tn the Althea. these stomp my have rest tad La biSh its recast milessive neer Wan, only by reklu,:ieg nenatary growth free that he. gripped -70 an the :inflation and the inflationary miry:.holes, nary empectatiess oil." be damped. au‘h a reduction in inflatio domomenmilownsmest in is a ielmeary ?recondition for any i.otecosc rates. ate taitiall4 Mesas* the federal Reserve's actions oper be greeter on Chem them* the banking system, their effwt cod ding smell bust beelesets that are depeedemt On beak aredit—iaglu MOW urging then esseee. Fec this rollina‘ 1 have 'written aember r bliebed to sive nertx4.taier sttentia to the Needs at thei este ness earettem, WAStOMOTO for feeds to maintain seemal busi 3iscOrely  IA  Zavleaure  DC.ILK:vcd (#V-96) tonr: Mrs. Millardt (2).---  Voost  *r•  R('313ERT S. WALKER 16TH DISTRICT. PENNSYLVANIA  •  Actiowssigned Jim Kichline THOMAS R. BLANK WASHINGTON OFFICE  COMMITTEES GOVERNMENT OPERATIONS SCIENCE AND TECHNOLOGY  Congreg5oftbedniteb*tate5  GEORGE W. JACKSON DISTRICT OFFICES  3i)ottsq of iIepre5entatibefS Z3liarsbington, D.C.  20515  October 24, 1979 404  Mr. Paul Volcker Chairman Federal Reserve System 12th Street and Constitution Avenue, N.W. Washington, D.C. 20551 C.)  Dear Chairman Volcker: Enclosed please find a copy of a letter from a small businessman in my district concerning the effects of the recent rapid rise in interest rates on his business. In addition, I have received other communications and comments from my constituents concerning the hardships imposed by these interest rates. While I understand that you are attempting to battle inflation, I thought that you would be interested in the enclosed views because they constitute the other side of the coin and bring home the effects of your action. I would be very pleased if you would review the enclosed correspondence and provide me with your views and comments so that I may appropriately respond to my constituents. 'AP  Thank you very much for your attention to this matter and I will be looking forward to hearing from you.  V.  10-4 ,  r re.  00.0 1  1100. ; ‘(  121114%. Enc. Federal Reserve Bank of St. Louis  1 60016. p ; e  -  vir:!  r • -- •44  -  .  St.@  .  -  CONESTOGA TRANSPORTATION COMPANY 825 EAST CHES1NUT STREET • LANCASTER. PA. 17604 717— 397-8186  October 11, 1979  Congressman Robert Walker 50 N. Duke Ftrcet nca strr, Pa. 17602 Dear Mr. Walker: The enclosed letter is self—explanatory.  Is there any help that  can be given to a small business and aid us to say alive?  Very sincerely yours, gab—  --- T. W. Meredith President TWM/jr Federal Reserve Bank of St. Louis  •  CONESTOPA TRANSPORTATIO0 COMPANY 825 EAST CHESTNUT ST`.EET • LANCASTER PA  17604  717-397-0186  October 11, 1979  Mr. David Keim National Central rank 100 N. Queen Street Lancaster, Pa. 17603 Dear Dave, The constant changing upwards of interest rates is stafting to get -completely unreasonable, A smnll company such as ours cnn ill afford the constant spiral that is mandated by these tremendous increases. fully aware that this is not your fault or desire and for that - etter will bc sent to reason, while I am writing you, a copy of this l Congressman Robert Walker. am  We are a small company that -lust rely on ban..< credit for capital expenditures, and must or rather, should have some reasonable assurance that the capital we borrow is within our ability to :)sy. We operate under a fixd rate establishe2 thru the Public Utility Commission and Interstate Commerce Commission. Tc get an increase, we must go thru 8 long book working process that takes approximately ninety days to be effective nni at the same time, we cannot go in every other month for this increase. I am fully aware that banks must have proper. security for loans. I am happy to tell you that the equipment you are securing has gone up In value by a minimum of 20% to I do not think it is unreasonable that our gow,rnment and financial institutes should be looking for means to support small businesses, as we do -give employment, pay taxes and make vital contrihitions to our society. We cannot be progressive without a means of additional capital at reasonable rtes. Our company is in the business of transporting people and with the energy situation today, we should he encouraged rather that hindered from progressing. Where in today's market can anyone be trnnspnrted for three cents a mile 2er trip. This year has been a fantastic year. It started with Three Vile Island, the Amish polio scare and then the energy crunch. All three has a seriouB impact on our company. In dollars, it amounted to 3100,00D. Federal Reserve Bank of St. Louis  I am appealling to you to request a rer!qctinn in our rate over prime from 4% to 3% or less. I sincerely appreciate your past services anl cooperation that you rendered to us. When I think of the millions or lollars that we haye passed thru your bank, I l'eel that we have made a contribution to your growth as well as the success that you have helped make our cfmpany. Our relationship goes back from forty to fifty yenrs. I am aware that without the bank we would not hqve enjoyed the success that we have, and I fdel we have in some small measure contributed to yours. Thanking you in advance for any consideration that you might be able to afford us.  Wit.'" kindest personal regards,  T. W. Merelith President TWM/ r c.c. Federal Reserve Bank of St. Louis  Rol'ert '4a1ker Wilson McElhinny Federal Reserve Bank of St. Louis  0  Illoollier 2, 1,79  The Ilsoorsblo Sow, tip limo Claims Cosamitlao ea lloakias, Plasoiso soil Ihrbso Affairs Limo of Soprosootativos Waildostoo, D.C. MU Dew Cliatiers lisieses I emeeepeedleg te dm proposal im your October 16 letter in whit& yes eseemesed a emu approsels to Federal Reserve diseenst rate policy. Your plea links the dimmest rate at nhieb a particular meeher bank can borrow free the Federal Swerve to the level el the bank's eon prime rata and appeers to be deeieeed chiefly te intrediee greater dewsward !legibility in the conseeciel bask prime rote Ninon, as namy paegiet, the egoism peeks vier into recession. UMW that reed their pries rote eseld thee empeet to obtain a lower role mm BOWS begiemed !roe the federal Seseeve; eemoseneetly, their borrowing rote veeld be lower then the rate 460alied *am sedoetr banks vith higher prime rates. These are a seiber of problems with peer prepesel. First, it eseld mot be node efSpettve without a change in legislation. An eseedusst to Section 10(b) of Obs federal Reserve Act (edepeed by Cespees in 1974) ashes it possible ter mormembew bask boldiss 1-4 fosialy nortgogoo to USO theses collateral ter berreslag tree the Fedeeel Reserve 'at the lowest diseamet rate." For taiga Teems, it would be impossible ler Federal Reserve to require aelbers with higher prime mese Se pay a hilirn, dismount Is rate, so lets as those nmeheee could offer 14 deedly gefloseps as collateral fee their berried*. Seemed, the Federal Segegve Act states that in admiulaterieg their operations Federal itsrame $ado should treat mesiber bombs ie aembeteep tially erTual menner. For the reasons &vetoed in the east paragraph, it Le possible that administration of the dimmest rate on the bests of an individual baik's prime rate could be rem/tried as teeoesistent with this ergs' treatment staimbrd. If pug grevegol were adopted, Ohs leek of evidence es actual bona gage structures guild mete it eessediegly difficult to prevent boas fres eatable altukfis to Ise fOtO discount credit, wee ghee the" did net Federal Reserve Bank of St. Louis  k,iseribie Maury S. Meese hes UP  mobs correspomitme redaction, in their average teem chars... $am bask Seem rate structure. are both amplest and mnpibliehed„ reflect a wets" ad ether footers mesh as asepeasetins balminess and are subject be trammel* adjustment, the federal Ieserve could mem be sure whether an ommemmeed eedtistion te a beek's prime wets also repremembed a levertmg of it. memomps  leeteliewees.  Tor emempies a stve. bunk eseld aneinmee a lower prime rate in order to take edeeteeSe of the reoulties lemer diem's& rats, but at the same thee it oemid omiatautially redoes the *Aare of its loon feeds being allotted at prime. Oa the Leone it elide at Imes abeve prise, the level of charges could them be keereneed se avenge so that its tots' interest sharps were set appreetibly *fleeted. while meet Wahl meld prObably reject swab bdisolaw as net beim' sendietve to geed lampmmo emetemer relations, the Pideval Leaseve astild est identify the Owe beim that did Shame this seuree without plaeims ao emereue and eeetly reporting bowies ea all beaks. Finally. 1 believe you are seasserettes the importance of the link between our dismount rate and the book prtse rate diaries periods of emenende &eine. When assessing the inpertanee of this link, it is helpful te resell the beets pewee of borrowing thet embers amens* throb the redewel loserve dismount wieder. most emeh credit is seconded on • strictly temperary basis to sestet umbers in adjusting to umengosted developments-either is deemed, for Loam (including calls ea credit lines), or in short. falls of deposit flews. Vhemienek reserve drains Is create a seed for temporary berrowias. the Moe bates accommodated are enpected **make early reperiont, them.ehetever edjustmeats may be ended in their sweet" end liabilities. thenber book seeds fee *wok temporary Federal leeerve *gallstones mmas of oemrse, greatest in period* When eredit demand. are *trees, genelei Veterve eveilahility is beteg conetraimed, amd interest rates are ristmel• Swims period" of epsliael slack, em the other Immalt beaks tied market bode mew. readily evenable at reamed Tease. As a reewlt, any outstanding irmdit boles edvemeed to WSW by the Federal Reserve Ls likely to be mistily Jerold, mere or leee iedepeedent of the prevent's relatienahiP between the dimmet rate amd ether money meMitet rates. with fee& free private eaatees increeeimsly available at rafted mots, *ad with semeral denim& Ser tease bundles to slaelhen, basks gene wader competitive pressure to redoes their ewe Loan rates as well. Thremsk this process, forces in private esthete SWIM imereesingly strew downward pressure on the prime rate. with needs let Merl, " Reserve credit deeppins to eesligible level*, the influeeee el the ddaemint rate on the prime rate is ntninal. Federal Reserve Bank of St. Louis  basurablo Set raw ars.  14 samas  poticy in WM vtlL an-totally tido essount Svow it Obi *Maw 6 neestary praimms. wo pressea. isemests sad seggasidess ta We ore MOWN IOW 0,Plisto of discovt  Simsewsly,  WICOWigOlk PMK:pjt (#V-79) bcc: Hr. lair Mrs. Miallardi  Olt  HENRY S. REUSS. WIS.. CHAIRMAN THOMAS L. ASHLEY. OHIO WILLIAM S. MOORHEAD, PA. FERNAND J. ST GERMAIN. W.I. HENRY B. GONZA.L Ed., TEX. JOSEPH G. MINISH, N.J. FRANK ANN6NZio. ILL. JA1,4 r-S M. HANLEY, N.Y. PAeREN J. MITCHELL, MD. WALTER E. FAUNTROY. D.C. STEPHEN L. NEAL, N C. JERRY M. PA1TERSON. CALIF. JAMES J. BLANCHARD, MICH.  • J. WILLIAM STANTON. OHIO CHALMERS P. WYLIE. OHIO STEWART B. McKINNEY. CONN.  U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-SIXTH CONGRESS 2129 RAYBURN HOUSE OFFICE BUILDING  CARROLL 1-4UBBARD, JR.. KY. JOHN J. LAFALCE. N.Y. GLADYS NOON SPELLMAN, MD. LES AvCOIN, 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 MAT FOX. TEX. BRUCE F. VENTO, MINN. DOUG BARNARD. GA. WES WATKINS. OKLA. ROBERT GARCIA, N.Y. MIKE LOWRY, WASH.  WASHINGTON, D.C. 20515  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. 2.25-420  October 16, 1979  171  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. Dear Chairman Volcker: The Federal Reserve's actions of Saturday, October 6 were constructive. They conveyed a well-timed, impressive signal abroad. As in late October, 1973, there was a clear need for a "show of force" to quell speculation and rising instability on the international currency and commodity markets. In this the Federal Reserve has apparently succeeded. So far, the Federal Reserve has also avoided boxing itself rigidly into any one monetary policy posture for the indefinite future. This is most important. Conditions change, sometimes with astonishing speed. Yesterday, we needed to deliver a sharp reminder of our determination to defeat inflation to the world markets. Today, I believe, we need to return to a steady policy of moderate monetary and fiscal restraint, coupled with a broad-based program to remedy structuraLills, that can alone eliminate the sources of inflation that have become embedded in our economy over the years. It is foolhardy to believe that this deliverance can be effected overnight, by some mystical transformation in the "state of inflationary expectations." Such a transformation was attempted by policy-makers who brought on the recession of 1974-75 -- and it did not occur. We need instead to get back on the track of investment, innovation, reconstruction and steady growth that can pull us out of stagflation over the long haul. The jettisoning of the rigged interest rate approach to monetary policy, and a shift of emphasis to monetary targets, is something that we of the Banking Committee have long urged. In my view, we need the lowest structure of interest rates that is consistent with your moderate monetary targets. That structure can best be achieved in free competition among lending institutions. If free competition is permitted, the interest rate structure that emerges will be the Federal Reserve Bank of St. Louis  •  .The Honorable Paul A. Volcker October 16, 1979 Page  Two  one, consistent with the monetary targets, that will yield the maximum investment, and the maximum gain in productivity, and therefore the maximum contribution to lower inflation in the future. But existing Federal Reserve policy includes a vestige from the pre-October 6 past, which not only flies in the face of the post-October 6 monetary order, but also in the face of what I believe to be an imperative national objective: Get That Prime Rate Down! I refer to the discount rate, still as firmly fixed by the Federal Reserve after October 6 as before. Federal Reserve pegging of the discount rate is, as of ten days ago, anachronistic. It is simply inconsistent with the new spirit of monetary policy, a throwback to the discarded Federal Funds fetishism of yore. Moreover, pegging the discount rate can have pernicious consequences when, as many predict, the economy does peak over into recession. Under such circumstances stability of the monetary aggregates will demand a reasonably rapid adjustment of interest rates; a fixed discount rate will impede such adjustment. The Federal Reserve will in effect be providing the banks with a price floor -- a virtual Gary Dinner for bankers. This will be satisfactory for bank profits but dreadful for everyone else. Propping up interest rates in the face of collapsing demand is as bad for the economy as holding them down in an inflationary explosion. Until now, the existence of an administered discount rate, however unimportant in relation to aggregate credit flows, had some utility as a clear signal of the Federal Reserve Board's intentions. Time and use have, however, conspired to give this "signal" of policy a life of its own. In particular, foreign exchange markets have come to use the discount rate as a litmus test of the Board's intentions to support the international dollar. But these markets apparently do not look at the level of the discount rate, but only at the time elapsed since the last time it was raised. This is a very unhealthy development: it commits the Board to regular reassertions of the true faith. The result is to put interest rates generally on an endless escalator since, clearly, the discount rate cannot rise without concomitant openmarket operations to keep other rates roughly in line. The danger, again, is that when the economy slows and credit demands peak out, the discount rate will serve as a floor to all interest rates, riveted into place by fear of a run on the dollar. Such conditions could greatly exacerbate recession. The cure is to act now, and release the discount rate from its present short leash. The Federal Reserve should disassociate itself from movements in the discount rate, by tying it in some predete rmined Federal Reserve Bank of St. Louis  • -The Honorable Paul A. Volcker October 16, 1979 Page  Three  relationship to the borrower's prime rate. This would promote bank competition, since lenders with lower prime rates could take advantage of lower interest rates on their own borrowings, and would therefore not suffer a squeeze on their margins relative to their higherpriced neighbors. The details of the linkage -- whether a fixed ratio, or a fixed differential between discount and prime, or some other relationship -- can be left safely to the technical experts. What is important is that action come quickly, before events force the issue. Federal Reserve Bank of St. Louis  I look forward to your response.  Sin  Henry S. Reuss Chairman Federal Reserve Bank of St. Louis  -vet 1, 1979  The Honorable Sulpha L. Neal U.S. use of Ilapraammtatives Washington, D.C. 20515 Dear Mt. Neel: I want to thadt Ton fee your recent letter concerning tbe meretary policy actions Whom on October 6. I appreciate your confidence sed support. It is particularly reassuring in these dtfflr emit time to bow that our policies and objectlins are understood sod soppeetod by Coogressional leaders. Your letter suggests that the Memel funds rote should he permitted to fluctuate frtely rather this semetrained, evem if to a broad range. Since the pregraamo adopted, the Irederel funds rate has in fact fluctuated in a wary WI* mud the 'sew operational procedures will probably emetime to be sosocistod with quite large fluctuations in that rate. isomer. I de met believe that it would serve any useful purpose to alloy Os foods rate to fluctuate without limit. The matieee cestral beak must be Sellative to conditions in credit morbato„ and if markets are to booties In an effective and orderly oesoor, oorbist participants need a sense that day-today mosey mericat rates will met, in the short-rum, rise or fall without limit. The difficult adjusts by the market to the WAN' funds rate limits in the per proems would aims to attest tle 001.  Iles dammods  IPS  rewire modsat rigidly  am addition, funds rate limits allow for the uncertainties about the path of money and credit MOM WOW time. Am temporarily bilge, or decline, a tomb rate limit leald a dispoo of Mccommodation to theta goings. This *ems emly sines there Mona little to be "Amid from attempting to force•poomostameimed vorek-temiseek. OT even esoebritow Federal Reserve Bank of St. Louis  The lismorsble stapbon L. Vial .2.  math, path of maw sad crcdit topmeloa Os sawasar if the evolving posters of fluctuation in atidit mot amaoy daamad touggeste  llestbar•  Osse asatn, thanks for yam support. Sincerely., SLPaul A. Volchel  Pad A.'older  RCEttin:kt #V-67  REN J. MITCHEI L., MD.. C!{AIRMAN PAF, STEPHEN L. NEAL. N C. NORMAN E. DA MOORS. N.H. r3OUG BARNARD. GA. JIM MATTOX, TEX. JOHN J. CAVANAUGH. NEBR. 225-7315  GEORGE HANSEN IDAHO RON PAUL, TEX. DON RITTER, PA.  U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON DOMESTIC MONETARY POLICY OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIR NINETY-SIXTH CONGRESS  WASHINGTON, D.C. 20515  October 10, 1979  The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th and Constitution Avenue N.W. Washington, D.C. 20551 Dear Chairman Volcker: I want to express my strong support of the monetary policy changes which you announced last Saturday. I especially am pleased and encouraged by the decision of the Federal Open Market Committee to switch its focus in managing the nation's money supply from the federal funds rate to the reserve base. In years past, it seems to me, the Federal Reserve was unable to achieve its monetary growth targets precisely because purchases and sales of securities by the New York Reserve Bank, on behalf of all Reserve Banks, were programmed to respond to pressures on the federal funds rate. In response to upward pressures on the funds and other interest rates, pressures that accompany inflation, securities were bought thereby supplying reserves to banks, accelerating money growth and accommodating inflation. In response to downward pressures, the Fed either sold securities or stood-by passively even in the face of declines in money growth that were sharp enough to cause recessions. Clearly, the federal funds rate must be allowed to fluctuate freely if we are to gain control over the growth of the monetary aggregates. I commend your decision to place "greater emphasis in day-to-day operat ions on the supply of bank reserves and less emphasis on confining short-term fluctuations in the federal funds rate." The evidence is overwhelming that money growth must be reduced to about one-third the recent rate to reduce inflation to the interim 1983 goal of 3 percent. The evidence also is overwhelming that this must be done both slowly and surely; slowly to guard against recession and surely to make the policy believable. In this regard, wouldn't it be constructive for you to spell out a long term monetary growth plan aimed at achieving a significant reduction in inflation by 1983 while at the same time guardi ng against recession? Federal Reserve Bank of St. Louis  The Honorable Paul A. Volcker Page Two October 10, 1979 I am confident that by increasing the supply of reserves via open market purchases when money growth is under the target plan, and diminishing the supply of reserves when it is above target, monetary growth can be controlled. In turn, appropriate control of monetary growth will reduce inflation and promote full employment. Thus, it would appear useful also to dispel all doubts about your resolve to control money growth in the months and years ahead. In this regard, a lingering doubt remains because of the caveat in your press release indicating that the funds rate would not be allowed to fluctuate freely, but rather changes in the funds rate would still be contained, albeit "within broad limits." Your comments on this would be most appreciated. My warmest regards, sincere congratulations and best wishes.  S ephen L eal Member of Congress SLN/rdt Federal Reserve Bank of St. Louis  •• ofGovt.•. . • Q ?,1,• ;  •  •••••••  .**0 • . •0 • -n  • Federal Reserve Bank of St. Louis  BOARD OF r3OVERNORS OF THE  .  •,%.•";•.• ., w ,  FEDERAL RESERVE SYSTEM  4[111 „.  WASHINGTON, D. C. 20651  PAUL A  VOLCKER  • • •..• • • CHAIRMAN  November 1, 1979  The Honorable William Proxmire Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear Chairman Proxmire: Thank you for asking for my views on an amendment which Senator Tsongas may offer on the SeAtte floor which proposes to reduce the reserve requirement on ATS accounts, NOW accounts and share draft accounts from the 3-22 range to a 3-7 range and provide that such reserve requirements would be maintained at 3 percent until such accounts are offered by a majority of the states and equal 20 percentum of the aggregate dollar deposits of transaction accounts held by all depository institutions. I strongly oppose this amendment. The amendment would have the effect of establishing nationwide a privileged category of transaction accounts carrying a very low reserve requirement for an indefinite period of time. By generalizing the New England situation on a nationwide basis, this could undermine monetary control and raise serious questions as to whether transaction accounts will be covered by appropriate reserve requirements on an equitable basis as part of monetary improvement legislation or otherwise. We are sensitive to the situation in New England and are willing to review appropriate transitional arrangements so that New England's financial institutions are not unduly burdened. One such transitional arrangement that has been discussed and which I could support would hold reserve requirements behind NOW accounts at an exceptionally low level until such accounts equal 10 percent of the aggregate dollar amount of transaction deposits held by all depository institutions. In turn, a reserve requirement range of 3-10 or consistent with proposed monetary improvement legislation would be acceptable. Si cerely,  aezt  / 1  MEM Federal Reserve Bank of St. Louis  November 28, 1979  The Honorable Strom Thurmond United States Senate Washington, D. C. 20510 Dear Senator Thurmond: Thank you for your recent letter concerning the 25th anniversary convention of the Young Bankers Division of the South Carolina Bankers Association. Although the invitation was intriguing, I was forced to send my regrets because of a crowded speaking schedule that is already shaping up for next February and March. With best regards. Sincerely,  cc:  Mrs. Mallardi #108  JRC:tjf  411  EDWARD M. KENNEDY. MASS., CHAIRMAN BIRCH BAYH, IND.  STROM THURMOND, S.C.  ROBERT C. BYRD, W. VA.  CHARLES MC C. MATHIAS, JR., MD.  JOSEPH R. EIDEN.DEL.  PAUL LAXALT, NEV.  JOHN C. CULVER, IOWA  ORRIN G. HATCH, UTAH  HWAARr 10. METZENBAUM, OHIO  ROBERT DOLE, KANS.  DENNIS DE CONCINI, ARIZ.  THAD COCHRAN, MISS.  .PATRICK J. LEAHY, VT  ?..1Crtiteb Ziatez „Tamale  ALAN K. SIMPSON, WYO.  MAX BAUCUS, MONT.  COMMITTEE ON THE JUDICIARY  40WELL HEFLIN, ALA. STEPHEN BREYER, CHIEF COUNSEL  WASHINGTON.  RICHARD H. GROGAN, JR., STAFF DIRECTOR  D.C. 20510  November 6, 1979  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. 20551 Dear Chairman Vblcker:  w  yohanoottpu he be dsk Anv oeo e Y s dDdiveretaaiorrssetsio hycteeof pii i at. I nuwagl Bleaall nddi inctl tao h able i vethat y pt. hatshettsnohraectti aa o o hntfh Hilsoetohnuuoon He bkkeeetI orsland  Although I know that your schedule is extremely busy, I hope that you will have an opportunity to come to the Palmetto State. The people of South Carolina would welcome an opportunity to discuss current issues with you. Thank you for your consideration of this invitation, and with kindest regards and best wishes, Sincerely,  $trLeyyv., Strom Thurmond ST/o Federal Reserve Bank of St. Louis Federal Reserve Bank of St. Louis  November 28, 1979  The Honorable Ernest F. Hollings United States Senate Washington, D. C. 20510 Dear Senator Hollings: Thank you for your recent letter concerning the 25th anniversary convention of the Young Bankers Division of the South Carolina Bankers Association. Although the invitation was intriguing, I was forced to send my regrets because of a crowded speaking schedule that is already shaping up for next February and March. With best regards. Sincerely,  cc:  Mrs. Mallardi #105  JRC:tjf  F  ERNEST F. HOLLINGS  CCMWTTEES: APPROPRIATIONS STATE, JUSTICE, COMMERCE, AND THE JUDICIARY: CHAIRMAN DEFENSE LABOR, HEALTH, EDUCATION AND WELFARE ENERGY AND WATER DEVELOPMENT INTERIOR  SOUTH CAROLINA •••  OFFICES:  306 FEDERAL BUILDING COLUMBIA, SOUTH CAROLINA 29201 W3-765-5731  "Zertileti Zfafez Zencife 115 SENATE OFFICE BUII ILDING  103 FEDERAL BUILDING SPARTANBURG, SOUTH CAROLINA 803-585-3702  WASHINGTON. D.C. 20510 202-224-6121  242 FEDERAL BUILDING GREENVILLE, SOUTH CAROLINA 29603 803-233-5366 112 CUSTOM HOUSE 200 EAST BAY STREET CHARLESTON, SOUTH CAROLI NA 803-724-4525  BUDGET DEFENSE: CHAIRMAN  29301  COM MERCE. SCIENCE. AND TRANSPORTATION COMMUNICATIONS: CHAIRMAN SURFACE TRANSPORTATION ScIENCE, TECHNOLOGY, AND SPACE  October 30, 1979  DEMOCRATIC POLICY COMMITTEE 29401 OFFICE OF TECHNOLOGY ASSESSMENT NATIONAL OCEAN POLICY STUDY  233 FEDERAL BUILDING FLORENCE, SOUTH CAROLINA 29503 803-662-8135  -121  Honorable Paul Vblcker Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Washington, DC 20551  P7  dbao0: 0°)111  Dear Mr. Chairman: It is my underst g that you have been contacted by Mr. Henry S. Laffitt relative to the 25th Anniversary convention of the Young Bankers Division of the South Carolina Bankers Association. This meeting is to be held on March 21 and 22, 1980 at Palmetto Dunes on Hilton Head Island. The South Carolina Young Bankers group is a dynamic one and has excellent leadership. I know your presence at their convention would insure its success and I would appreciate your taking a close look at this request. With warm regards, I am relyz z "4,:_zr,  , EFH/kk Federal Reserve Bank of St. Louis  Hollings  LLD  ErfNEST F. HOLLINGS  COMMITTEES, 11111/PPROPRIATIONS  SOUTH CAROLINA .• ornc rs: 306 FEDERAL BUILDING COLUMBIA, SOUTH CAROLINA  29201  ?jnifcb Zfafe,:, Zenafe  803-765-5731 115 SENATE OFFICE BUILDING 103 FEDERAL BUILDING SPARTANBURG, SOUTH CAROLINA  WASHINGTON, DC. 20510  DEFENSE: CHAIRMAN  202-224-6121  242 FEDERAL DUILDING GREENVILLE, SOUTH CAROUNA 29603 803-233-5366  October 30, 1979  COMMUNICATIONS: CHAIRMAN SURFACE TRANSPORTATION SCIENCE, TECHNOLOGY, AND SPACE  112CusTomHousc  DEMOCRATIC POLICY COMMITTEE 29401 OFFICE OF TECHNOLOGY ASSESSMENT NATIONAL OCEAN POLICY STUDY  233 FEDERAL BUILDING FLORENCE, SOUTH CAROLINA  " oLT PH  COMMERCE. SCIENCE. AND TRANSPORTATION  200 EAST DAY STREET CHARLESTON, SOUTH CAROLINA 803-724-4525  LA noR, HEALTH, EDUCATION AND W ELF ARE ENERGY AND WATER DEVELOPMENT INTERIOR BUDGET  29301  803-585-3702  STATE, JUSTICE, COMMERCE. AND THE JUDICIARY, CHAIRMAN DEFENSE  29503  803-662-8135  Honorable Paul Volcker Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Washington, DC 20551 Dear Mr. Chairman:  //jAwA  6"  It is my understal]0¶ng that you have been contacted by Mr. Henry S. Laffittterelative to the 25th Anniversary convention of the Young Bankers Division of the South Carolina Bankers Association. This meeting is to be held on March 21,and 22, 1980 at Palmetto Dunes on Hilton Head Island. The South Carolina Young Bankers group is a dynamic one and has excellent leadership. I know your presence at their convention would insure its success and I would appreciate your taking a close look at this request. With warm regards, I am rely4/22iic,Le Jr •  . Hollings EFI-1/kk Federal Reserve Bank of St. Louis  •or Federal Reserve Bank of St. Louis  lb-Pr 26, 1979  lisasesbieUlan 7Sessits Chatrasa Cassitiss ea legithsg, ilessiss asd lobos Affairs Mated States lielelt* DA. MO Jeer chairs.*  PINIamiros  Is response to pour letter et llgegairer LS, vs sne arasishiss Cassittes es Illesighs. busts" sal Miss Affairs Iota statitstioal Act* at Chrysler's bank siodit arraggssmats is eight agseitiell etatee mei legalities slaialt buss liktysier aparatierei Ths Chris's, rimmsdai fliggres masa, is past, the revelving APPIsolgt with 193 LA. Mat awe $03S.4 sillies mkt& ssistimar with ggigglor Mak limas, repreauga a total el $/#4160 ailliss of gliart-ters essaltsosliS too elaryslez flasigial. Ms flange stipssy aloe bag mosmots with loft to sell *Missals sad retail sesetvleiss is ths admit $743 sillies. la addition, Chrysler risassial tam MO leass Ins bin** sad $699 Forodellar lean essalisgats. data asslodis credits to Chrysler rismagialle foreign soisidieries. Ilba Chrysler Corporattses figgres lathais, la port. bask esslit totalities assaistiag of ft revolving credit astesomot with CS. bees for 4367 sillies, other reviler liar of .116 silligne tons fiagesings el amediegiat leas .4' .4 Ole sillian. hilabit possemem by stAte MI6 411111111Mpoiitoo arse, Chirysiorto total ommattwooto, oftetsolims Wilsons sue somisi bask Home as of .4 limplier 14. A coiesitser of the setstamilts igississ .4  sass *ids the stalls tetal ressals ths Maw eassgattetias et Isms in mist cities via sporstisag sodt as asigreit. 1114611111.01111. 1 St. losis, Vilaingtos Ono salsas eq. Pee igareess, Cheraw esto• sigisillsg lams•littreit 01011.11 salitati) INPOIMNIS for MLA of the 1.11114.8 babas" ail 412.5.3  eabibit LI aisle III* IraAleieSibilP Of ***Resift *WV Mae coif* 416Messial sal ibsikelitikl lame. and ebb poloporties assainted for bi 412116 awes relation te dm toad simestie  at mob lira. Federal Reserve Bank of St. Louis  lisastabla LtlL as iht•  Irremets  lase that the states of Sew York, Illinois, end Midst's* ascoaat for the lawn pespertton of Chrysler lassie relative to sack Locality's commercial gadostrial loam sumusidess. Alas ktgkitalsod in Eshibit 11 is Nis York's seise role ha the fememeimBifthrysler Coresratioles and earyslor Yiesmstales befeeptmea. It I sea be of  orgr Imethst essietAnce  to yeti, please let as know.  Sincerely,  Sikil A. Vo!ciset  Enclosures JR:pjt (PV-112) bcc: Jack *yen Bill Taylor Mrs. Mallardi (2)  EXHIBIT 1 LOANS TO CHRYSLER BY STATE AND METROPOLITAN AREA ($ in millions)  Chrysler Corporation State  New York  •  Illinois Michigan Ohio Indiana Missouri Alabama  Chrysler Financial  Total  Commitment (1)  Outstanding (2)  Unused (3)  Commitment (4)  Outstanding (5)  Unused (6)  $ 275.8  207.8  68.0  965.4  662.2  303.2  1,241.2  870.0  371.2  74.2  57.6  16.6  222.6  153.5  69.1  296.8  211.1  85.7  34.5  25.4  9.1  151.8  99.9  51.9  186.3  125.3  61.0  19.0  14.1  4.9  57.6  41.2  16.4  76.6  55.3  21.3  9.9  7.4  2.5  17.5  15.4  2.1  27.4  22.8  4.6  10.6  7.7  2.9  14.3  12.4  1.9  24.9  20.1  4.8  0.6  0.5  0.1  1.6  1.5  0.1  -  0.5  0.4  0.1  Commitment (7)  Outstanding (8)  Unused (9)  1.0  1.0  0.5  0.4  0.1  32.0 1.0  23.0 1.0  9.0  136.9 8.7 0.3  85.5 8.6 0.3  51.4 0.1  168.9 9.7 0.3  08.5 9.6 0.3  60.4 0.1  Indiana Indianapolis Kokomo  7.8 0.6  5.6 0.4  2.2 0.2  12.1  10.4  1.7  19.9 0.6  16.0 0.4  1.9 0.2  Missouri St. Louis  9.6  6.9  2.7  12.0  10.4  1.6  21.6  17.3  4.3  1.0 1.0  0.9 0.7  0.1 0.3  2.0 1.6 1.3  1.7 1.4 1.3  0.3 0.2  3.0 2.6 1.3  2.6 2.1 1.3  0.4 0.5  2.0  1.4  0.6  2.0  1.7  0.3  4.0  3.1  0.9  2.0  2.0  2.0  2.0  0.5  0.4  Delaware  Metropolitan Area  • Federal Reserve Bank of St. Louis  Michigan Detroit Lansing Ann Arbor  Ohio Dayton To Akron New York Syracuse Illinois Rockford Delaware Wilmington  0.5  0.4  0.1  0.1  • EXHIBIT II CHRYSLER OUTSTANDING LOANS RELATIVE TO COMMERCIAL & INDUSTRIAL LOANS AND TOTAL CORPORATION LOANS By tate and Metropolitan Area  State  New York Illinois Michigan Ohio Indiana Missouri Alabama Delaware  State Total Commercial & Industrial Loans . ($ in millions (1) $57,050.6 24.381.9 6,943.3 7,547.3 3,648.9 4,615.4. 2,485.8 284.3  Outstanding Loans As Z of Total Commercial & Industrial Loans Chrysler Corp. (2)  Chrysler Finl. (3)  0.47. 0.2 0.4 0.1 0.2 0.2 0.1  Chrysler Total (4)  As % of Corporation Total* Chrysler Corp. (5)  Chrysler Finl. (6)  1.1  1.5  42.7  47.5  0.7  0.9  11.8  11.0  1.! ,  1.8  5.2  7.2  0.5  0.7  2.9  3.0  0.4  0.6  1.5  1.1  0.2  0.4  1.6  0.9  NM  0.1  0.2  NM  0.1  0.1  -  2.6 2.3 0.2  4.7 0.2  1.4 0.8  1.1 0.1  0.7  0.7  1.4  0.7  0.1  Metropolitan Area Michgan Detroit Lansing Ann Arbor  4,229.4 416.3 147.7  0.6 0.2  2.0 2.1 0.2  Indiana Indianapolis Kokomo  1,129.3 48.0  0.5 0.8  0.9  Missouri St. Louis  2,546.5  0.3  0.4  ONO  6.1' 0.5 NM  Ohio Dayton Toledo Akron  439.1 518.1 322.4  0.2 0.1  0.4 0.3 0.4  0.6 0.4 0.4  0.2 0.1  0.1 0.1. 0.1  New York Syracuse  157.0  0.9  1.1  2.0  0. 3  0.1  Illinois Rockford De lAware Wilmington Federal Reserve Bank of St. Louis  266.4  25C.7  0.8  0.2  0.8  0.2  *  0.1  0.1  Outstanding Loans: Chrysler Corp. S 487 million Chrysler Financial 1,394 million  WILLIAM PROXMIRE, WIS., CHAIRMAN NARRISOIA.A. WIUJAME, JR., NJ. Pif.AN CRANSTON, CALIF. • ADIJU E. STEVENSON. ILL. ROBERT MORGAN, N.C. DONALD W. RIEGLE, JR., MICH. PAUL S. EARRANES. MD. DONALD W. STEWART. ALA. PAUL E. TSONGAS, MASS.  •  11110  JAKE GLARN. UTAH JOHN TOWER, TEX. JOHN HEINZ, PA. WILLIAM L. ARMSTRONG, COLO. NANCY LANDON KASSEBAUM, KANS. RICHARD G. LUGAR, IND.  'Alerviteb ,Stafez Zenate COMMITTEE ON BANKING. HOUSING, AND URBAN AFFAIRS  KENNETH A. MC LEAN, STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANCES DE LA PAVA, CHIEF CLERK  WASHINGTON, D.C. 20510  November 13, 1979 The Honorable Paul Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: As you know, the Committee is about to begin consideration of the Administration's proposal for Federal support for the Chrysler Corporation. The Administration's proposal would require contributions from all those who have a financial stake in the health of Chrysler. In this regard I would like to have the Board supply the Committee with an analysis of the contribution being made by commercial banks located in the several states where Chrysler facilities are located. According to information we have obtained from the Treasury Department, those states are: Michigan, Indiana, Ohio, Missouri, Illinois, Delaware, New York, and Alabama. This analysis should include the following information on a state-by-state basis: (1) loans outstanding to Chrysler Corporation; (2) loans outstanding to Chrysler Financial Corporation; (3) total commercial and industrial loans; (4) loans to Chrysler Corporation as a percentage of the total Chrysler loans; (5) loans to Chrysler Financial as a percentage of total Chrysler Financial loans; (6) total outstanding unused loan commitments to Chrysler Corporation; and (7) total outstanding unused loan commitments to Chrysler Financial.  rir  It would also be helpful if similar information could be obtained for those banks located within the particular metropolitan areas or counties where there are Chrysler facilities. I am enclosing a copy of Table 7 of Secretary Miller's statement to the House Banking Committee which shows which metropolitan areas or counties would be involved. I would appreciate this inform4tion as soon as pos ible. .Sincere  14 liam lo ///2/ Chairman /  Enclosure WP:srl  k"4".. •••,;  A Federal Reserve Bank of St. Louis  • e:  • v",•  st J..:  ••••  •  •  •  "•• r ••••  •••  •••N•••  •-•••  #•.•  kl.  41010.6441116411161040..  :  Nammeweitur.iirairewommed  arab: +ay,.401116.6664.4.4er...... ate k  ,  - 55 Table 7 Chrysler Employment in Motor Vehicle Operations September 1979  Metropolitan area or county  State  Chrysler employment  Change from May  Chrysler employment as percent of May labor force  Michigan  Ann Arbor Detroit Lansing  1,158 41,909 13  -118 -9,767 -639  0.8 2.0 0.0  Indiana  2,930 Indianapolis 5,055 Kokomo (Howard County) 293 Michigan City (La Porte County) 2,167 New Castle (Henry County)  -1,112 -1,709  . 0!_5_  -2  0.6  -440  8.8  Dayton Fostoria* Sandusky (Erie County) Toledo Akron Lima  1,491 505 232  -435 -147 -112  0.4 0.5 0.6  1,870 3,532 320  -519 -216 -27  0.5 1.2 0.3  Missouri  St. Louis  7,313  -1,587  0.7  Illinois  Rockford  5,104  28  3.8  Delaware  Wilmington  4,646  169  1.9  New York  Syracuse  3,438  -241  1.1  Alabama  Huntsvi!le  1,691  -50  1.2  Ohio  .i  * Falls in Seneca, Hancock, and Wood Counties. SOURCE:  Chrysler Corporation Federal Reserve Bank of St. Louis  11/7/79  Ty  k ,  k  1  J'' 1 • 4•  .. Federal Reserve Bank of St. Louis  Promear iliva IVA  e la r = serie Ilatorab lieges oi Iladdastos, S.C. Saws Wes lapis, lido is la sesperia to yam letter alt ibeemlbet ley impeeweina rleseall and the Ma* tile ball year opposition mai that at the Ilash to a pooped seellia. the ilasea te appeleass or the Seesottios al a back Ceepaesides, heateet appikleatias by ilaritase SdIsgeempep• by tie *torte el the Sem* oat *a Mord Viasemeis,Is illeseste Saab ea ihiamee. oat yes *as bo ainseedi Not post wive *ad tiro lame of your amettimaste will be 011141.11117 eillabilleed by the $OMA is Me tied doolotos es Ohio peopassl• I appetaietie yea Ihresaist sad esinees mai rem Waft this was asasatits 40 Ms matter* ties to sive .44. the lemelit flimeeseity. S/Paiil A. Voisin'  111111b.1111:ot 4.111-124) bees Hr. Wirsaice um Clear*" Unit (a/copy of incostai) tiro. libillardi (2)bo'  tit Tr' ,Titi;r!i;if N1-..7.;7fit:f  : • •-`77 rr :rkr*** • 77,73,;,  1/1  :  Jf.14-ir  `?-  -  ' • 144 !.• - •  •42tair  LES ASPIN 1 rr DisTsucr. WISCONSIN  140101E OFFIC Fs: 603 MAIN STREET RACINE, WISCONSIN 53403 414-632-4446  • 442 C.m.icte4 BuiLoir40  r).c.  -  20515  Congrefit( of the Winiteb 'tate  202-225-3031  210 DODGE ST wra-r 53545 60B-752-9074  JANEsie mut, WISCONSIN  PotuSe of iktpreantatibefS filicusbington, 3.1C. 20515 November 16,  1979  Honorable Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: I am writing to you today to formally express my concern over the application to the Federal Reserve by the Heritage Racine Corporation, a Racine, Wisconsin company to create a bank holding company. Approval of that application would establish the largest banking organization in the metropolitan Racine area. After some careful thinking, I believe that the approval of the application would have a significant and adverse impact on the competitive structure of the local banking market. I am also aware of the protest letter filed by the Bank of Elmwood and the North Side Bank, both of Racine, in opposition to the Heritage Racine Corp. application. Their protest raises serious competition and banking questions which are not addressed in the Heritage Racine application. Given the prima facie probability of significant adverse effects on the competitive structure of the local banking market -- to the detriment of the consumers -- and in light of the serious substantive questions raised by the North Side Bank and the Bank of Elmwood, I respectfully request that, before a final decision is made by the Federal Reserve on the Heritage Racine application, the following actions be taken to properly inform that decision:  ' Federal Reserve Bank of St. Louis  1.  A full field investigation covering all the relevant issues raised by the Heritage Racine application by the Federal Reserve Board be conducted.  2.  An opinion be requested from the Federal Trade Commission. Though I understand they have no jurisdiction in such matters they have been known to render opinion on request; and,  •....1••••••,......11".•  .401111..1b. VEND-  • Federal Reserve Bank of St. Louis  Honorable Paul A. Volcker November 16, 1979 Page 2 3.  Any additional independent official opinions as may be necessar y to determine the desirability of the Herita Racine application's approval.  I would be most grateful to you for yo assuring that these actions occur so that of the local level market.  personal interv tion may safeguard the integrity  If I can be of any assistance or answ r any additional please don't hesitate to call me directly. the interim to hearing from you in the near term.  stions ook forward  •  s s in mber of Co :cress LA/gcw cc:  Don E. Kline  r- Federal Reserve Bank of St. Louis  November 26, 1979  The Honorable Thome P. O'Neill, Jr. The Speaker House of Representatives Washington, D. C. 20515 Dear Mr. Speaker: Thank you for your letter concerning the meeting of the Massachusetts Association of Realtors in mid-December. Because of conflicts in my schedule I was forced to send my regrets to the Association. With kind regards. Sincerely,  cc:  Mrs. Mallardi #117  JRC:tjf Federal Reserve Bank of St. Louis  Tile SinnImes -1.tuntts X.aust Xteprrsentatilits pashingtort, p..c[. 211515  31.s.  14 November 1979  Mr. Paul A. Volcker Chairman Federal Reserve System 20th & Constitution Avenue, N. W. Washington, D. C. 20551 Dear Mr. Chairman: I am writing in behalf of the Massachusetts Association of Realtors who have extended you an invitation to be keynote speaker at their seminar on "Financing the American Home in the 1980's", to be held in Boston in mid -December. I would personally appreciate your consideration of their invitation and hope that your schedule will permit you to accept. With best wishes, Sincerely,  Thomas P. O'Neill, Jr. The Speaker Federal Reserve Bank of St. Louis  NOV 2 ,  1979  The Noeorable Millicent reemiek Moose 04 Represeetativias weabiestm e D.C. 20515 aear ms. remwtiks Us Board teder ammenneed its selections foe membership on She Carnomme eilkelsetty Cammrsil, **abscised by Public Lew 94-239. 104 liessoet Beilly-Attwesse uhempem reeommended for eppointmeet, mine arms these selected to the Commeil. for your inieseetise, enclosed is a paces release ammeuncing Obs Soares salacticee, Iheely 400 pewee', were reassradied hit sedwiw... sidlp sod the Seerd mee *weed at the lumber of highly qualified indlw vises woe uses eibeitted for considecotion. We wry smelt srptintate yam int...vest is the Cameil and amok you for racommeeding Saillyeibstiosh. 5iseere17,  !'nclosurc CO:pjt bcc: Mrs. Mallardi (I) Federal Reserve Bank of St. Louis  Tie douerable Richard G. Wear Usited ststes SleasIte Weehtestoe, D.C. 20510 Dear Sauter Loser: lbs Seerd today essommied its eolectioes for meolbership ea thin Comonmew Advisory Commeilo entbortsed by Nilotic Lev 94439, 1110. Peter b. Sehellie, Ada yes ressmnsedsd for appoints:eat, vele swim Owe selected to the Commal. Pm your hiamMmistimm, ometeeed is a prose release ammentins loomed's the sialikettemi4 Vbsely 400 penes* were ressummoded fee nenbership mid the Simard mos plowing at the wew ef highly re:anted Ladividuals obese some were embodtted for sesigeorotioa. wo very sloth oppreciete your fatereet is the CouseLl and thank you for reeoemeadieg Miro lichellie. Sienarely, S/Paul A.1114det  nelosure CO:pjt A bcc: Mrs. Mallard' (2)  I  • Federal Reserve Bank of St. Louis  November 21, 1979  Ike Memorable Paul L. Tsongas Chairman SUbcommittee on Consumer Affairs Committee on Banking, Housing Rnd Urban Affairs United States Senate 20510 Washington, D.C. Dear Chairman Tsongas: Thank you for your letter of November 14 inviting the hoard to testify at your Subcommittee's hearing on S. 2002, a bill to amend the Columnar Credit i'rotection Act to prohibit the use of the 'Rule of Ws" in the computation of the rebate of unearned interest in preconputed consumer credit transactions with terms greater than thirty-six months. Governer Nancy H. Teeters will appeer on behalf of the Board on Deeenber 11 at 10:00 a.m. Sincerely, S/Paul A. Volcker CO:pjt (ItV-115) bcc: Mrs. Mallardi (2)  •  essIMIN.=.  •  WILLIAM PROXMIRE, WIS.. CHM HARRISON A. WILLIAMS, JR.. N.J. ALAN CRANSTON. CALIF. ADLAI W. STEVENSON. ILL. RONIERT MORGAN, N.C. DONALD W. RIEGLE. JR., MICH. PAUL S. SARRANIES. MO. DONALD W. STEWART. ALA. PAUL E. TSONGAS. MASS.  JAXC GARN, JOHN TOWER. . JOHN HEINZ. PA. WILLIAM L. ARMSTRONG. COLO. NANCY LANDON KASSICRAUM. KANS. RICHARD G. LUGAR. NO.  KENNETH A. MC LEAN. rrrrr DIRECTOR M. DANNY WALL. MINORITY MARY FRANCES DC LA PAVA. CHIEF CLERK  InCCTOIR  'Alertiteb --Stales -.Senate COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS WASHINGTON. D.C.  20510  November 14, 1979  /1(  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551  3  Cr)  Dear Mr. Chairman: I have scheduled hearings by the Consumer Affairs Subcommittee of the Senate Banking, Housing and Urban Affairs Committee on the 10th and 11th of December to review a legislative proposal, which I have introduced to restrict the use of the "Rule of 78". A copy of the bill is enclosed. As the Chairman of the Subcommittee, I wish to invite the testimony of your agency before the Subcommittee regarding your opinion of this proposal on December 11th. The hearing on December 10th will begin at 9:30 a.m. in Room 5302, Dirkson Office Building. The hearing on December 11th will begin at 10:00 a.m. If you have any questions concerning the hearings, please contact the Subcommittee Counsel, John Quinn, at 202/224-7391. I look forward to your contribution to our discussion of this proposal. Best wishes.  Paul E. Tsongas, Chairman Consumer Affairs Subcommittee  •  • '‘..• • Federal Reserve Bank of St. Louis  , .•  .4.•  •,  •• •  1.• • ••....M:t I  jJk.  k  •  1111  WILLIAM PROXMIRE, WIS., CHAI  HARRISON A. WILLIAMS, JR.. NJ. ALAN C.RANSTON. C.AU F. ADLAI E. STEVENSON, ILL. ROBERT MORGAN. N.C. DONALD W. RIEGLE, JR., MICH. PAUL S. SARRANES, MO. DONALD W. STEWART. ALA. PAUL C. TSONGAS, MASS.  JAKE GAAN, 0 /OHM TOWER, X. JOHN HEINZ, PA. WILLIAM L— ARMSTRONG, COLO. NANCY LANDON KASSFILAUM, KANS. RICHARD G. LUGAR. IND.  'ZCI-tifeb ,Stafez --Senate COMMITTEE ON BANKING. HOUSING. AND  KENNETH A. MC LEAN, !RECTOR M. DANNY WALL. MINORITY STAFF DIRECTOR MARY FRANCCS DC LA PAYA, CHIEF CLERK  URBAN AFFAIRS WASHINGTON, D.C. 20510  GUIDFLINFS FOR WIINFSSI—;  1.  These guidelines apply to all hearings of the Senate Committee on Banking, Housing and Urban. Affairs, unless otherwise indicated.  2.  All hearings will begin at 10:00 A.M. in Room 5302, Dirksen Office Building, unless otherwise indicated  3.  Committee rules require that all witnesses suhmit at I east 100 copies of their written statements 18 Iwurs 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, Washinttton, D. C. 20510. Strict adherence to this rule is essential in order that Committee members may review the statements before the hearing, thus enahling the participant to more thoroughly discuss the issues in Statements will not he released to the news media prior to the day of your testimony.  1.  Oral presentations must he limited to a hrief summary not to exceed 10 in Your complete statement will he printed in the hearing record.  5.  Please complete the attached card and bring it to Room 5300 prior to the hearing. You will be given copies of statements of those testifying with you at that time.  Li  ion is appreciated.  Please supply the address to 1%hich you prefer the reporter's transcript delivered for your correction. Kindly turn this card in at IZoom :):1110 Dirkrn Office Building prior to giving your testimony.  (Name)  ...  (Organization)  (Business addresi)  (City and Statc) MEN ATEfl  llor$I Na; ANII l'131:1N  (Phone)  (ZIP Code) AFTA1114 CONI‘IITI11.7 716-545—h  •  !al Federal Reserve Bank of St. Louis  GPO  •••  .•  •j•*.  Z•  • -1 ••  •k  .•  •  .  .r •-• •  , •••e„ . -*••y.  •*.tt.i.:.64;1.14:-,.." 47.4  • 96th COGS 1st Session  S.  TN  SNATE OF THE UNITED STATES  Mr. jsogais  introduced the following hill; which was read twice and leferred to the Committee cu  A Pin  To amend the Consumr Credit Protection Act tc prohibit the use of the "Rule of 78's" in the computation cf the rebate cf unearned interest in precomputed consumer credit transactions with terms greater than 36 months.  re it enacted by the Senate and Pcuse of Representatives  1  ii.! :Itqs of Auprica in Congress 27,eub1pd.1. That  2  pf the United  3  (a) chapter 1 of title 1 of the Consumer Credit Frotectior  14  Act is amend,?d by adding at the end thereof the following:  5  "S 116.  Rebate of unearned interest  "(a) if a consumnr rrerays in fun a consumer credit  6 7  transaction, the creditor or any assignee shall);rorptly  8  refund any unearn?d portion cf the firance charge toceter  9  with any undrnrld pcution of the insurance preriur, except  10  t11;lt a refund of a finance charge or an insurance premium cf  11  less than $1 need not 1)2 [rade. "(b) For the purpose of calculating the refund of the  12 13  unedrned portion of the fit;aroc charge or unecirned insurarC  14  premiums required by this section for any precoTputed  15  conf:umer creltt 1  16  its tr!rws over a period of rerc than 36 months or for any  17  (.1,cr tIan:;aclion If the partier: so agrce, the or Federal Reserve Bank of St. Louis  action which is reravablr, according to  cr  .• 1 '• •  c(.!;:utr, thr.. r;.fund 1:asr:d on a reth()d wric  1 •  : 1:  at  1  1  th °  l-s.cri .in  cr-171!:fer as the ;.!ctuarial  fr,r:'7 1 !tinn71 of th , Poird. Th  •t-'•  4  o!:editor raY c.:ollY(7 t or rrztain a  5  :37.50 if rovided forstate  O  relating to the 1.ranacticn.  iniuur olrge not exceeding and Ly the cortract  7  "(c) Within 5 days cf receipt cf an oral or written  8  request from a consu:Per for the disclosure of the amount due  O  on any precoTo.Dutf. I consurr credit doccunt, the creditor cr  10  assignee shall provide thc, conuFer with a staterent of the  11  arrount due after dc,duction of the finAroe charge and  12  insurance premiums recuired by this section. If the  13  customer's request is oral, the state:rent nay be oral. If the  14  custcmer'!3 requcfst is written, the statement shall be  15  written. A conf--,ur is ertitled to be provided one !;tat_ement  15  each year without oh=lrgr.. The creditor Fay itupose a  17  reasonable fne to cover the cost of providing any additioral  18  statement requested, and the charge fcr any additional  19  statement shall he ddscicf:ed tc the  CCPSUNPF  prior to  furnishing such :;tatennt. 21 22 23  "(d)  For  the pucucse cf this :.ecticn-7  '%(1) a rrep:-Iyirnt includ,E,s a voluntary prepayment by the consumer, .any refinancing, corF- clidation, or rwritinp of the transaction, or acceleration of the ohliqation to repay indettedn2;;s; and  26  "(2) tte terr 'actuarial Enthcd' 'leans the method cf allocating payment!: rade on a debt between the arount finaced and the firaroe char-ge pursuant to which a payrent is applied first tc the accumulated finance ch,irge and any rerTairder ir subtracted from, cr  ny  31  d fi;:iency Is arid.:,d to, the trApaid halance of the arourt  32  financed. The P.odrd Fay adopt rules further defining the  33  term and puerribAno its :ipplication.".  34  (5) 11,c Federal Reserve Bank of St. Louis  tp!,le of :-- rcticnr of tit- lc T of the Con!=umor  1IV  . 1 ;  1 Federal Reserve Bank of St. Louis  r . ;  ;  •  •  cre;1.1 t Pr ctecl icn Pct.  drfc_inc at thc erc: therecf  c!!  the 1. ,-.)11(y.,:.;)(1 111).  airr.n-,:led  ni  " Federal Reserve Bank of St. Louis  November 21„ 1979  The likonerable lienaid h. Nottl asses of lie,)reseatativos leteltitigtes, D. C. 20515 Dear Mt. MOW.: I home geed peer recent lector (-Amorala. memetary policy very tarefully and 1 can madorstand year concerts. mod, I command your efforts to ensure that a diecivf,lined fiscal policy is broueht to beer .4.n the fight *Wait inflation. •itrtaialy. I would be the first to agree that monetary policy :Amain win the battle by itself. As to the !monodist. situation, / belbsee our current policy must be evaluated in the comtsat of evemts leadtmg up to our derision of October 6. In brief, theme circumetamcee were highlighted by an at:celoratioa in taflatiem end telationery expectatimme which in tarn was prompting umemstainable increments in spendimg by consumers ad businesses is an effort to ovoid future price incresees; a burst of speculative activity in the gold, commodity sod foreign enchauge usrkete remesed downward orOgitarel an the dollar in foreign sachem.s markets; and rates of growth in meow mad t.redit far in swim of our 1979 targets and far in eneese of the growth in money that is .omflatibie with noninflationary grow* Am the economy. If this combinative of events was ,,ermi4ted to peretet, the results would have bean stii. higher inflation. still Weber interest rates, and a deeper amd leaser adjustmost in ....emomic activity then had been widely anticipated umny menthe prier to our 0 tabor 6 actions. in these circometantAms, the need for forceful attion by the Federal lestrve seemed clear. Those actions, whi h you are familiar with, hod three portmery Objectives. first, to heck the buret of speculative activity in the geld, commodity end foreign ex. homes markets; seemed, to moderate the growth of mosey mod ;:redit La such a way to enhance the prospects that the Federal isoorve would hit its previo,4sly announced targets for the growth in messy during 1979; third, over a somewhat longer time frame, to moderate the rate of inflation. Melatire to the first two of theee objectives, there Federal Reserve Bank of St. Louis  L he Memorable Menald ILMatt Page les  are some very tentative signs that we have had at least a measure of success. Meal beeleevemente on the price frost, of ::oures, *mould not be appereat for mem, months. In a Jogger perwsletivel, the underlying rationale for our a4.t1ons lies in a simple fact--eoe desemented by centuries of oxperiOBee--nasOly, 4loc-eoslive growth in memey results in em, easive inflation. And) with varying lags, interest rates will imevitabty 110,111 higher in lieekatep with aucceesively higher rates of inflation. Thus, for t979 and beyond establishing and hitting targets for moderate rates of arowth La money are as essential pre-condition to lower inflation and lower interest rates. For many yeers, the Federal Swerve had attempted to control  the gems, supply by controlling ehert-term interest rates mod thereby the demand for mew balsams. Mowever, ie re eat years, testituttemal mad merhet forces hem, reedered the relationship bemires the level se Interest rates and the dimmed der mosey lose precis* and thereby conpiemised our Ability to hit meow supply tareets. Ageism* this backgreunC an hepartent *Lemma in OUT Geteber 6 a.:tteles wee a cheese in evir operating piemeduree for owatrolltmg the mew supply. This chew eetelled plicile greater emphasis em the supply id reeervos available to supPeat deposits in the beahieg system. le turn, this entailed lees direct control ever interest rates in the *hart rms. Wale* of this, market fore, did work to LA, V11660 interest rates La the weeks immediateiy followiag our October 6 settee. Mire recently, the upward pressure on rates has abated and there is some real he90 that moderation in the &emend for credit in the woke of oisr 0.:Seber 6 actions will permit a roduttion in rates in the set too distant future. t4rtainly that Scenario mould be compatible with a framework iu which the growth of softy is umder contort* the domed, for credit are seduced in part because of the long anticioated adjustmeet La evangelic activity but else become the engird of Laflatteeary empectations has been checked. I cameot epeculacc as to preciosity whee interest rates will may decisively lover. •that will deposed Simperteetly on smehet forTse es they relle-t dove 0-.monts in economic activity and in Laflat4Jon. And, I theeld emphasise that 7rospective inflation Metes will be significantly tafluemced by OASC oil &cisterns in the very near tete. All of this, I believe, points to the moceesity mad appropriateness Od Our MAIM a,,tione. 'tat, it dose met diminish the legitimacy ad your eameeree-4Whi.h I very much sheme--about the hoses Federal Reserve Bank of St. Louis  rhe lienerable %weld•riottl age Area  ertainly I Ss Sissitive to the costs of the ad ustment ;3rocess. credit needs of the mortgage markets. ehe meell husimees community and the consumer in the current circumstemsee. 2 hese stressed Chits point in my recent letters be the bombing community and le all of INV 00aversetions with releasentatives of the Making industry. 2 have bees encouraged by Cho eeirit end the aUhotiage of the messes the bookies comoinity as it seeks to meet Chao redit eseds--ie memo lastmmees at ,Ireferred vete levels. I, like you, look forward to the day ninon we tten boos Ummer tntereat rates nce only becauae that situation will fester the orderly distribution of Iredit throughout the ovvnomy sad reduce the hardships of which you write. But. more fuedsmentaliy, that environment will mean that we have bed a real measure Se success In a,hieving a tootle/ redu ties in the rats of inflaties, The stabs* ere largo indeed, and there are risks on alt sides. But, in mv judgment, the greatest near-tecet mud lomger-term risks would have been to allow the circumstances that emerged in Cho .1 ete summer to go unamoked. Thus, by moving aggressively to stem those smosisss, I believe ve hove brought the day of lower interest rates end orderly econsmac expansion sewer rather than later. Out, as we peso thro4gh this immediate sod difLiult period, we oust remain firm is eur .omnitment to achieve sod maintain noninfletlamery e.onomic and fieemcial coadAtions Chat are compatible with orderly aceeemIc 3routh over ths long hau:. You and your .-onsag es In the Osegesse have an important role to play in that effort and I ook feeseed to mocking with you toward this objective. 3Locerely, S4Pa41 A. Yo,Isket  IGC:vcd (#V-95) bee.:  Mrs. Mallardi (2) Mr. Corrigan Mr. Kichline  1-4  •  •  Actillassignei Jim Kichline _s  ROMALD M. MOTTL  SUBURBAN CAUC--  23RD DISTRICT, OHIO  FOUNDER AND CO--CHAIRMAN  WASHINGTON OTT10E: 1232 LONGWORTH HOUSE OFTICE ButUDINCI TELEPHONE: (202) 225-5731  Congre55 of tbe ZEiniteb g:ptettess  2951 FEDERAL OFFICE BUILDING CLEVELAND, OHIO 44199  COMMITTEES. VETERANS' AFFAIRS SUBCOMMITTEES, SPECIAL INVESTIGATIONS (CHAIRMAN) MEDICAL FACILITIES AND BENEFITS  DISTRICT OFFICES:  INTERSTATE AND FOREIGN COMMERCE SUBCOM U ITTE ES OVERSIGHT AND INVESTIGATIONS COMMUNICATIONS  Tri_ErrioNE: (216) 522-4382  3i)ou5e of 1Iepreentatibt5 Ulasiiington, D.C. 20315 October 25, 1979  ( /0  14812 Dr-rRorr AVEMJE, 0207 LAKEWOOD, OHIO 44107 TELEPHONE: (216) 522-7152 5393 PEARL ROAD PARMA, OHIO 44129 TELEPHONE1 (216) 888-3636  Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System Washington, D.C. Dear Mr. Chairman:  7  Yesterday the distinguished Majority Leader of the House, the Honorable Jim Wright, voiced in a floor speech a concern that I and many others in Congress share toward the Board's policy of letting interest rates skyrocket. The immediate results of the policy prime interest rate and a plunge in that this time the Board has simply single-handedly wring inflation out the human cost.  have been a record 15 percent the stock market, and I fear gone too far in trying to of the economy regardless of  At the very least, the human cost includes the unaffordability of mortgage money for families, assuming money is even available. Even more serious would be a sustained business slow-down, with accompanying high unemployment. I, for one, am working for a balanced federal budget and temporary wage and price controls, a combination that I believe will provide immediate as well as long-term relief from inflation's ravages. Certainly a moderately restrained monetary policy pursued by the Board can be complementary to the anti-inflation effort. But to seemingly abandon the effort to keep interest rates within a reasonable range is to issue, as Majority Leader Wright said, "an open invitation to economic disaster." I hope that my comments, as well as those by Majority Leader Wright, will prompt a reconsideration of the Board's ill-conceived policy toward interest rates. Sincerely,  RONALD M. MOTTL Member of Congress RMN/gw Federal Reserve Bank of St. Louis  e^ t-pe! emeir—  • 11 9590 graduate of Northwestern University and was ordained at the Jewish Theological Seminary of America, which awarded him a master's degree in Hebrew literature and a doctor of divinity degree. Rabbi Goldstine has a long history of involve:nent in the concerns of southern California, serving as an officer of the Western States region of the Rabbinical Association and as a member of the executive committee of Southern California Board of Rabbis. The 20th District of California is fortunate to have the rabbi as a vigorous contributing member of the community. May we, as Members of this Congress, have the strength and understanding of this man to not only speak of peace, but truly take an active role in the creation of peace. As we begin the day's session, I am proud on behalf of all the Members of the House to welcome Rabbi Goldstine and his charming wife Bella to our midst.  r  AN OPEN INVITATION TO ECONOMIC DISASTER (Mr. WRIGHT asked and was given permission to address the House for 1 minute and to revise and extend his rem arks.) Mr. WRIGHT. Mr. Speaker, New York banks today announced they are raising the prime interest rate to an unprecedented 15 percent—the highest in American history. This is the result of a misbegotten policy of the Felleral Resserve_Roa.rd. In my opinion it is an open invitation to economic disaster. The Eederal___Reserve seems to think that raising interest rites is an effective way to curb inflation. That. I submit, is like pouring gasoline on the fire. The two elements which have run ahead of and paced the rise in the cost of living are the cost of energy and the cost of money. For the past 6 months we have watched the inflation rate follow the intcrest rate up and up. High interest rates are clearly price inflationary, not deflationary. They have become, quite clearly, one of the principle causes of the inflation. But they do run the serious risk of stalling out the economy, creating rising unemployment to exacerbate the ills of rising prices. That is exactly what they did in the early 1970's. High interest is the proven formula for creating both inflation and recession in the same economy. High interest rates always have cruelly hurt the poor and moderate-income Americans. People with money always have had an advantage over people without money. The interest rate is the precise measure of the degree of that advantage which a society is willing to tolerate and institutionalize. The skyrocketing interest rate already this year has made it impossible for literally millions of American families to afford a home. Since the first of this year, the in- Federal Reserve Bank of St. Louis  40  GRESSI01•:AL RECORD-HOUSE crease in inter, ;t alone has added some $41,000 to the ultimate cast of paying for a $50,000 home on a 30-year molt gage. It has added $115 a month to the payments a young family would have to make to purchase such a home. That is a $115 monthly hidden hand in the pocket. It robs that young family of that much of its income while giving nothing whatever in return. Since the first of this year, the skyrocketing interest rate has added $4 billion to the annual cast of servicing the national debt. That is $4 billion more the American people will have to pay in taxes, and for which we will get exactly nothing. In the early 1950's, President Harry Truman ordered the Federal Reserve to disgorge itself of an ill-gotten—friferest rate increase which it had ordered. The Federal Reserve did so. It is time, and at kind of leadership ir -rith again.  October 24, 1979  But in America's homes. the people are angry because the ripoff continues. Angry because tilts week the oil companies are again warning of another mysterious shortage. They are angry because the real shortage is a shortage of courage on Capitol Hill, a shortage of courage in the House of Representatives where we cannot find a majority of Members to stand up to the self-interested oil companies on behalf of the American consumer. Yes, It was a good quarter for Exxon. But a tragic day for the American people.  C  THE PARADE OF BIG OIL PROFITS: A SAD TIME FOR THE AMERICAN PEOPLE (Mr. HARRIS asked and was given permission to address the House for 1 minute and to revise and extend his remarks.) Mr. HARRIS. Mr. Speaker, the international oil companies have begun to reveal their third-quarter earnings. The parade of profits Ls led by the largest oil company, Exxon. Exxon's profits in the third quarter soared 118 percent over the same period last year. In dollar terms, Exxon earned $1.14 billion in thellast 3 months. "It, was a good quarter," commented Exxon Comptroller Ulysses Grange. No. it was not. It was not a good quarter for the millions of American consumers who are paying for Exxon's $1.14 billion profit. It was not a good quarter for the elderly who began to take deliveries on Exxon home heating oil, which now costs around 99 cents a gallon. It was not a good quarter for families of limited income who have no idea how they will pay for these skyrocketing energy prices. It was not a good quarter for the American people who continue to be victimized by these international profiteers. And it was not a good quarter for Congress. Because we had the opportunity to stop this ripoff and we did not do it. We had the opportunity to reimpose controls on petroleum prices and we failed. The oil lobbyists railroaded the American people once again. But it was a good quarter for Exxon. Of course, Exxon is not the only international oil company to have a "good quarter." Arco's profits were up 45 percent. Amoco's rase 49 percent. And today the parade of profits will continue as the other oil companies unveil their earnings. The American people are suffering under double-digit inflation and tripledigit oil profits. It is almost pornographic. Presumably it is a happy day in the high building that house the oil executives. There is backslapping and congratulations in the stately board rooms.  PERMISSION FOR SUBCOMMITTEE ON ECONOMIC STABILIZATION OF COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS TO MEET TODAY AND FRIDAY. OCTOBER 26, 1979, WHILE HOUSE IS IN SESSION Mr. BLANCHARD. Mr. Speaker, I ask unanimous consent that the Subcommittee on Economic Stabilization of the Committee on Banking. Finance and Urban Affairs be permitted to sit today and Friday, October 26, 1979, past 10 am., in order to conduct hearings on the Chrysler Corp.'s financial situation. The SPEAKER. Is there objection to the request of the gentleman from Michigan? Mr. ROUSSELOT. Mr. Speaker, reserving the right to object, can the gentleman from Michigan (Mr. BLANCHARD) assure the House that this is for hearings only and that there would be no markup of any bill? Mr. BLANCHARD. If the gentleman will yield, there will be absolutely no markup yet. Mr. ROUSSELOT. Mr. Speaker, during those days of hearings, there will be no markup of any bill? Mr. BLANCHARD. Mr. Speaker, there will be no markup. We have consulted with minority members of the Committee on Banking, Finance and Urban Affairs on this matter. Mr. ROUSSELOT. I appreciate the gentleman's comments, and I withdraw my reservation of objection. The SPEAKER. Is there objection to the request of the gentleman from Michigan (Mr. BLANCHARD)? There was no objection. PERMISSION FOR COMM IT!LE ON POST OFFICE AND CIVIL SERVICE TO SIT TODAY WHILE HOUSE IS IN SESSION Mr. HANLEY. Mr. Speaker, I ask unanimous consent that the Committee on Post Office and Civil Service be permitted to sit today while the House is in session. The SPEAKER. Is there objection to the request of the gentleman from New, York? Mr. ROUSSELOT. Mr. Speaker, re-. serving the right to object, would the gen tleman from New York (Mr. HANLEY) assure the House there would be no markup? Mr. HANLEY. Mr. Speaker, I cannot give the gentleman that assurance. I do not believe we have a problem. I do not Federal Reserve Bank of St. Louis  lieeeber 21, 197,  Vemeive the Nomemehle Choiseul& comelitteue es Noekles, Neeeles ad Orbs* Affairs NOMA States Seesto 20$10 leatmetoo„ Seer tbefewe Promotive: ibeeli leo foe pm tome of November 5, seelomeles seemsoemdemme fres Me. fowls et dam iamb ot Mooed mai Ng, Sorefibash fig affirwoml tho Sera Side Seek COMOSTUIM$ peepesal eoribbs$ tho to oppllestles ite ASO of the fereetlee el • beds halftime emopeey. yews eoeststueets refer mom Mei by Meettego imam Cerpow•ttes, Nosiee, wleeemeie„ ead le belies pmemeeme4 by the stiffs of the Board aed the Vederel Aseerve es* of Chimes. Tee swabs assured thet the vtows of yew mesetiteeste wl.11 MO amemfultly eilletielrei by the breed In Its f tact deelotem se thia prepeeml• 1 ImprosiAto vela interest sod osemees oaf your tales the ties to sive us- the beeeflt of the 'tame of yew oseetitmeate ea ails MettOT.  slaseroly, Saa41A. Mau  21114ablot (0,-114) bees Vie. esestos Weepy of mmeemlas) Sib CU:soles Uelt Weary et immeeded) We. Mellardi (2)  •  •  WILLIAM PROXMIRE, WIS.. CHAIRMAN  •  r  SPRIZSON A. WILIJAMS, JR., NJ. ALAN CR ANSTON. CJUJr. ADLAI E. STEVENSON. ILL. ROMIERT MORGAN, NC. DONALD W. RIEGLE, JR. MICH. PAUL S. SARISANES, MD. DONALD W. STEWART, ALA.  JAKE BARN, UTAH JOHN TOWER. TEX. JOHN HEINZ, PA. WILLIAM L. ARMSTRONG, COLO. NANCY LANDON KASSERAUM. KANS. RICHARD 0. LUGAR, 140.  'AlCuife  iafez Zonate  rAut. E. TSON0AS, MASS. KENNETH A. MC LEAN. STAFF DIRECTOR M. DANNY WALL., MINOR I TY STAFF DIRECTOR MARY FRANCES DE LA PAVA. cmiEr CLERK Federal Reserve Bank of St. Louis  COMMITTEE ON BANKING, HOUSING,, AiND URBAN AFFAIRS •  r  36  WASHINGTON. D.C. 20510  November 5, 1979  13,Cds;'  The Honorable Paul A. Volcker Chairman Federal Reserve System Washington, D. C.  Ork/41 : :  Dear Mr. Chairman: I am enclosing a letter dated October 16, 1979 from the Bank of Elmwood, Racine, Wisconsin raising antitrust questions in respect to a pending bank acquisition. I would appreciate your careful consideration of the matter raised and your comments so that I may respond to the Bank of Elmwood.  6 0 1i ta.  WP:lmg Enclosure  7 . . V . .• •  14r• . •  re  ••• •alboujr4"..•nk  -4 . .• •  -  ••••••••••rammulle....  4•  PHONE ( 414) 554-5321  2704 LAIHROP AVENUE - FRACINE. WISCONSIN 53405  679 OCT  22 /111 la 47  Bank of Elmwood  JESS S. LEVIN Presidert & Chief Executive Officer  October 16, 1979  Senator William Proxmire 5241 Dirksen Washington, D. C. 20510 Dear Senator Proxmire: As we have previously discussed with you and_members// of_your_staff,_ Samuel C. Johnson's proposed banking acquistion, which has just been filed with the Federal Reserve Bank of Chicago, is of considerable importance to the commercial banking community in Racine, Wisconsin and to the customers they serve. The metropolitan Racine banking community has in recent years become a highly concentrated one, the four largest banks controlling 727 of the market. This is due in substantial part to the previous acquisti on of a series of three banks by Samuel C. Johnson and his family, who also control S. C. Johnson and Company, the privately owned industrial complex centered here in Racine. Mr. Johnson now proposes to acquire the Racine County National Bank, and to affiliate that bank with his three other banks through a holding company. If this acquisition is consummated, all present competition between the banks now owned by S. C. Johnson and the Racine County National Bank would be immediately eliminated and the combined Johnson banks would thereby become the largest banking organization in this community, substantially furthering the degree of existing concentration. We oppose this new anticompetitive proposal because we believe that it will substantially lessen competition among commercial banking institutions in the area to the severe detriment of the customers they serve. In our opinion, the acquisition would clearly violate the antitrust standards previously applied by the Federal Reserve Board and the Justice Department's merger guidelines. Approval of the transaction by the Federal Reserve Federal Reserve Bank of St. Louis  •  •  •  PHONE_  I 414) 55.1-5321 - 2104 LA1HROP AVENUE • RACINE. WISCONSIN 53405  Bank of Elmwood  P.2 Board would moreover constitute tacit approval of an intimate relationship between commercial banks and an industrial company in what may be prior and continuing violations of the Bank Holding Company Act through the direct control of the management of the banks by officers and directors of S. C. Johnson and Company. These persons constitute an absolute majority of two of the three Johnson banks. The Federal Reserve Board is requesting written comments on this proposal from the interested public including other area banks as well as the Department of Justice. This is too important a matter to be decided solely on the basis of written submissions. Particularly because S. C. Johnson and Company is a privately owned company with little information regarding its activities available in the public domain, we believe that both the Federal Reserve Board and the Department of Justice should send their investigative staffs into the field to inquire into the competitive impact of this proposed acquisition, and the Federal Reserve Board's investigative staff should also inquire into the commercial banking/industrial company relationship. In addition, we believe that a public hearing is necessary in order to extract through investigative and formal process all of the relevant facts and to air those results publicly, before the Federal Reserve Board makes its decision. For all these reasons, we ask you to write letters to both the Federal Reserve Board and the Justice Department urging them to direct their respective staffs to conduct such field investigations, and that you further urge the Federal Reserve Board to convene a public hearing on this proposal. Without such a hearing, the interested public may never have a fair opportunity to present their arguments based on a complete record available to all concerned. Our counsel in this matter, Bell, Boyd, Lloyd, Haddad & Burns, 1775 Pensylvania Avenue, N.W., Washington, D.C. 20006, is available to provide you with any additional information which you may Federal Reserve Bank of St. Louis  1_,  • t•••( ••••.t_  • 414  HHOP AVENUE - RACINE. WISCONSIN 53405 55Z -532I • 2704 LA1  Bank of Elmwood )  P. 3 desire and Mr. John C. Christie, Jr. of that office is ready to meet with you and members of your staff at your convenience. Thank you for your assistance in this matter. ere15 ?  ess S. Levin, President & Chief Executive Officer BANK OF ELMWOOD 2704 Lathrop Avenue Racine, Wisconsin 53405  Robert Gertenbach, President NORTH SIDE BANK 1700 Milwaukee Avenue Racine, Wisconsin 53402 JSL/RG:tak Federal Reserve Bank of St. Louis Federal Reserve Bank of St. Louis  November 19, 1.979  The Honorable William Proxmire .;11airman Committee on Banking. Housing and Urban Affairs United States Senate Washington, O. C. 2U510 Dear Chairman ').roxmire I am pleased to resoond to your letter of October 24 regarding nr. Michael J. Larson's concern for the condition of currency recently received by his bank and apparently others in the Madison, Wisconsin area. i am also en"losing a check to Mr. Larson for the five $1 notes he sent along to demonstrate his point. ihe Federal Reserve Ls aware of the general deterioration in the quality of circulating currency and is actively taking steps to resolve the sitation. the Federal Reserve has established a curren.y quality task forr-e which is oresently researching the extent of the 'rob Lea and ;ireparing concrete gAdelines for improving quality. It is beieved that the decline in quality was caused in part by a chaage in Federal Reserve sorting methods instituted in 1975. Although the (harige was very cost effe:tive, it has not permitted as distinctive a sort between fit and unfit notes as the former method. The machines used in the manual process adopted in 1975 are now being rc:Ilaced by newly-developed high-speed currency oroceasing equipment which automatt:ally performs a comprehensive fitness inspection of each individual note cycled through the machine. Those notes which are excessively soiled, taped, stapled, punctured, or otherwise mutilated are automatically destroyed during the verification process. Newly printed currency is then issued in their 7Iae. We believe this new process will be coat efficient and will reestablish and maintain a onsistently high quality in our circulating currency. Two of these machines, incidentally, are due to be installed soon in the ilinneapolis Reserve Bank which serves the ktadison area. They should be fully operationat shortly after the first of the year. Federal Reserve Bank of St. Louis  The Honorable William Proxmire Page Two  • It should also be recognized that the rate of quality improve,ment is dependent upon the ability of the Bureau of Engraving and Printing „to produce new notes to replace those which will be retired. Since the Bureau's capacity is strictly limited, it will take several years to bring the general quality of circulating currency up to a desirable level. I appreciate Mr. Larson's as well as your own concern for the quality of circulating currency and assure you that the Federal Reserve Is making every effort to rectify the current quality problem. Sincerely,  cog&-xEnclosure  111111LVIIII37110C:vcd (#V'94) bee: Nis Wasp Wir• Wallace NWO. Moller& (2) 6../'"  A  Action assigned  WILLIAM PROXMIRE, WIS., CHAIRMAN HARRISON A. WILLIAMS, JR., N.J. ALAN CRANSTON, C.AUF. ADLAI F:. STEVENSON, ILL. ROBERT PA PAN, N.C. DONALD W. RIEGLE, JR., MICH. PAUL S. SARBANES, MD. # DONALD W. STEWART, ALA.  JAKE DARN, UTAH JOHN TOWER, TEX.  III  JOHN HEINZ, PA WILLIAM L. ARM STRONG. COLO. NANCY LANDON KASSEISAUM. KANS. RICHARD G. LUGAR,  O.  ill Wallace  'ZICniteb Ztatez Zertafe  PAUL E. TSONGAS, MASS. KENNETH A. MC LEAN, STAFF DIRECTOR IRECTOR U. DANNY WALL.. MINORITY MARY FRANCES DC LA PAVA, CHIEF CLERK  COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS  !PPM  WASHINGTON. D.C. 20510  i;yk,147.4  (:;4•44-ki  October 24, 1979  P-41644- :5,  Chairman Paul A. Volcker Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: I want to call your attention to the enclosed Federal Reserve Notes sent to me by Michael J. Larson, who heads the Security Marine Bank of Madison. These shabby specimens were recently sent to the bank in a currency delivery and Mr. Larson, understandably, cannot understand why they were not destroyed long before now. Apparently, the Marine Bank as well as other banks in the area have noticed a significant decline in the quality of currency received from the Fed. I had heard rumors that some of the Federal Reserve Banks were cutting costs in the currency area but this is stretching the issue a bit, don't you agree? I advised Mr. Larson that I would call the matter to your immediate attention and that you would take whatever action was necessary.  •  raiser-  gek+/ p;At'IA'  With every good wish, I remain Sincerel  WP:mm Enclosure  Willi m Pr xmire Chairman killmssamm-  '"fe=  •  .'• Federal Reserve Bank of St. Louis  • •.  -  • l' .  •  .  T  .• • .0-  -"pd  • r. .  EUNOODH."BUD"HILLIS STH DISTRICT. IN:.)1ANA  WASHINGTON OFFICE?  111  2429 RAYBURN BUILDING TELEPHONE: 202-225-5037  COMWTTEES,  KOKOMO OFFICE:  HOUSE COMMITTEE ON VETERANS' AFFAIRS  Congt55 of tbe Unita( fgate5  HOUSE ARMED SERVICES  ?'otle of ilrprOentatibe  COMMITTEE CHAIRMAN: REPUBLICAN TASK FORCE ON ENERGY AND LNVIRONMENT  518 NORTH MAIN STREET TELEPHONE: 457-4411 ANDERSON OFFICE: 26 WEST 7TH STREET TELEPHONE: 642-8023  Z.I1a5bington, ae. 20515 MARION OFFICE: 220 MARION P.O. BUILDING TELEPHONE: 662-7227  October 31, 1979  Mr. Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th & Constitution Avenue Washington, D. C. 20551  _  Dear Mr. Volcker: Thank you very much for your letter of October 18th. I was very happy to learn that you would be available to meet informally with some House Members to discuss the economy. I would like to invite you to meet with the Wednesday Group on November 7th if this would be possible. While the attendance varies, this is a group of approximately 15 to 20 moderate Republican Members who meet in H-323 of the Capitol every Wednesday. We would appreciate it if you could come at 0 p.m. and discuss the current status of economic issues facing our country at this time. If this date is not satisfactory, let us know and we will try to schedule another time in the very near future. As you probably know, the House schedule is rather uncertain at this time. Please have your office call Barbara at 225-5037 as to whether this fits into your schedule. Thanks for your thoughtful attention to this invitation and with warm best wishes, I remain Sincerely, mr  Elwood H. "Bud" Hillis Member of Congress H/m Federal Reserve Bank of St. Louis  •••  U  111  0  ?  1' ,,• 0  BOARD OF GOVERNORS  ti  OFTHE .•  •0  • -n  FEDERAL RESERVE SYSTEM  • •rrrrrr/•••  WASHINGTON. D.C. 20551  ▪ • 44,.•  November 21, 1979  The Honorable John Glenn U.S. Senate Washington, D.C. 20510 Dear Senator Glenn: The Board of Governors today announced the 1980 appointments for membership on its Consumer Advisory Council. Knowing of your interest, I am enclosing a press release that lists those appointed to the Council. Nearly 400 persons were recommended for membership and the Board had to make its selections so that a broad range of perspectives on the consumer credit area would be represented on the Council. In additi on, the Board looked for individuals from every region of the count ry to ensure geographical balance on the Council. Needless to say, there were many outstanding nominees who were not appointed. Mr. Robert P. Baron e, whom you recommended, was not one of the final selections in the diffic ult process of choosing among a large number of highly qualified persons. The Board appreciates your interest in the Council and would be pleased to have your future recommendations. Sincerely yours,  Jay P. Brenneman Special Assistant to the Board  • '`"t:'• ".:.• '  0, Federal Reserve Bank of St. Louis  • -7t  tv.  .• .10f GOI/r4 ;•  7.' • Tr I !MINIf .12 AL. 400....Mot 46. s • ' '' . 4. r  ;.,• 11;•.:.i -I, Federal Reserve Bank of St. Louis  Mivember 111, lt7, The Memorable Paul a. Tempe Chairmen Subcommittee eml Cemeemer Affairs Committee as isehimgo Missing aid Urban Affairs United States Semite wsahlegton, D.C. 20510 -ear Chairmen Isonges: With respect to your reouest for indernettes relating to the Mule of 18s in your latter of Msveiber 6, the Beard has as statistical data directly relatipg to the insidemme of prepepsemt of commoner loans. The enclosed statistical releases preride SONO Somest information on overage finesse rates. loan slog, sod morose eemgract maturity for vrious types of coasumer Leese at firm. eemposies„ as well as average "sleet comnme" finance rates at sennereial basks for looms of specified maturity. The finance company statistics indicate that maturity and loae gradual trend sine have increased in recent years, mod continuation of ti this directiee night be empeeted is the future. Finance rates at all types of creditor, hers generally imeroesed to some extent in recent nestbs, but statutory rate ceilings in many states ney prevent signaleast upward adjustments in finance rate*. The Board's eggregste consumer credit statistics, latch cover amounts of debt eutstauding, volume of mew credit extemded, and volume of **Latin dObt liquidated, peralt a roogh approximation of effective maturity as various types of COOlumer loses. The *sassed table shows for several complements of consumer credit the estimated average look life, which, compered with costract maturities, provides soups iodisation of the extent to Oath prepayment might occur for those loan categories. Sincerely,  Enclosures (E.10, E.12, r:.4) CALOAMI:JUipjt (I-109) IDJW: bcc: Messrs. Luckett, Fishier, Kichline Mrs. Mallardi (2)  •••••••••••••Mi•••••••••••••  •••••••• , ••••••••••••••••••••••••••••111•••••••••••••••••••••  •  •  WILLIAM PROXMIRE, WIS.. CHAIRMAN HARRISON A. WILLIAM.' JR.. NJ. ALAN CRANSTON, CALIF. ADLAI E. STEVENSON, I ROBERT MORG/ I. N.C. DONALD W Rippe JR.. Cu. rakut.. S. SARISANL S. MD. .00,I.ALD W. STEWART, ALA. PAUL. E. TSONGAS, MASS.  JAKE GARN, UTAH JOHN TOWER, TEX. JOHN HEINZ, PA. WILLIAM L. ARMSTRONG, COILO. NANCY LANDON KASSESAUI4. KANS. RICHARD G. LUGAR,  KENNETH A. MC LEAN, STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANCES DS LA PAVA., CHIEF CLERK  '11Cniteb Ziatez senate COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS WASHINGTON. D.C. 20510  November 6, 1979  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551  •••• to'  Dear Mr. Chairman: In a few days, I shall introduce legislation designed to eliminate the "Rule of 78's" as a method of calculating unearned interest in precomputed consumer loans where the borrower prepays (finances or consolidates) the loan. The evidence is clear that in longer term consumer loans, the Rule of 78's permits the lender to exact an unconscionable and hidden interest penalty from the borrower.  1111111515111111P••  1  As the Chairman of the Consumer Affairs Subcommittee of the Banking, Housing and Urban Affairs Committee, I intend to hold hearings on this measure December 10 11, 1979.  •  The assistance of the Reserve Board in providing information to the Subcommittee concerning this practice, would be appreciated. I wish to request the following information from the Reserve Board: Federal Reserve Bank of St. Louis  1.  Statistical data, including functional cost analysis, developed or acquired by the Board relating to the incidence of prepayment (consolidation or refinancing) of consumer loans by class and term of loan (auto, home improvement, second mortgage, etc.);  2.  Statistical data developed or acquired by the Board indicating the, anticipated growth in loan size, length of term and rate of interest for the various types of consumer credit transactions which may be subject to the rebate of unearned interest in accordance with the Rule of 78's.  '•  •  Am•••••••••••  •  ess' ••••  ./  • •  .• •. ••  .  •••  4  OA. Federal Reserve Bank of St. Louis  •  •  I would appreciate this information by November 23, 1979. In addition, I would request the Board's participatio n during the course of our hearings in December. •  If your staff has any questions concerning this request, please contact Subcommittee Counsel, J hn Quinn at 224-7391. SinCe  ":4111  1Y  Paul E. Tsongas, lairman Consumer Affairs Subcommittee  • --  -  611111166.  •  -  . •  .•  •  ••••,.  4.  -••.* ' Federal Reserve Bank of St. Louis  November 16, 1979  The liesurrablie Citerlats it. isonaatt Osseo of liaprosontathms illosidestaav D.C. 20315 Omit et. leemett: appreciate tallying the opportunity to comment on the recent letter from your caostituest, Mr. Earl S. Poitevent. Hr. Poltovent is eseserned about the effect of high interest rotes on inflation and the latereatlestal veles of the dollar. I  twain with the source,* of inflation is oostral to tho demestle and totormatiosal ebloottvos of the United Statist. Asses the any pethitime sesentated with high rates of inflation is thee bib interest rates send re melt, as leaders a-waive compensatioN in the hem of on inflationary proems for the deproolating real value, of the Woe. Seeest Federal. Nosoevo actions offer the presto. that with more effective cootrol over the growth of the areetary aggregates and Web credit, inflation pressures ems be bettsr eemehered solar the left we. SoVer the abort run, however, slower rates of allietary and credit oapmeston are likely to be aossupanied by a natural tendeNcy for interest rates, at bloat short-tern rafts, to rime higher own otbseariee. Nigher interest rates, hossisr, servo Weanteeny to nedorate inflation by discouraging the eee d credit for lass prodostive anpoaditures. In contrast, se attempt by the Fedora! MBOOTWO to hold deem interest rime would be shoetwlimed mid Largely self-defooties, aims* swab a policy woad eely lead to a *ere rapid Inereaso in unney and credit and ultimately highs, is/lotion. We have recently soon doer *widins. of the pervasive (anyosee of ianatios and Inflationary espostations IS the value of the dollar intorsationellY• gftea the dollar's central position In the intarmatiosal financial system, we mot recogNiaa tbst ISO Mitered value Is particularly sossittve to pereeptiose sad oupeatatious Oast our esseemde policy. Cemeeimeatly, eer ability to deal with inflation is essential to improve Isseftterm stability of the dollar. Regarding Mr. Poitsiestia observations concerning the balsam PePommally it is rfolimPut to note that last year Nearly $18 billion woe rosatood by U.S. rooldsets from foreigs residents ia interest sod other theme peymeats, whielk equalled the emewat se paid out. Income foss U.S. direct investing*, abroad eecomemeed for more than $25 billion of receipts, which far emeeeded the $4 billion we paid out to foreigners. Federal Reserve Bank of St. Louis  The lissambie Cheeses I. Immmett Psi* Ns  e* leither the federal UMW'S mer tbe Ifees member WNW ness s ged by iamb sarily profit by high interest rates. The interest rates eber g additiemel deposit OR lease are mainly infteeneed by the wefts of Obtaleim eased merhedly. and menposposit funds to Lend, which hove reeemily iner less figThe tweet of the dismount rate em bank lemdlms rates is mmcb a (dimwit Wisest. siege nembor bemblberrowimg free Federal Seeerve'federal leoorao Widow rowing a anal beetles of their liabilities. The world*, earnings of Mee est profit fres bilk imberest rates, eine the red to the Treasury. the Federal beeervo are, es a matter el seneSse trenefor eesed free Federal Imeeree mete. ableb MI. PoiSeeelt SOO sheet. imer R comeists almost WO billies in 1960 to MO billies today. 1bds SOPOIOIO 04, sad is entirely of isareesed beldame of U.S. $0,M5OMMO* 000Utit1 Reserve's ral primarily the eemetterpert as the sweets aide of the fede the peb1is. belmmee sheet if eppession of desired carremey holdings by theeld haste' the The 'avast actions takes by the federal Reserve  itiene cam be day *hes ishereat raise can destine fad mere stable esed Sa folisissial des messed to eeedit and eapital marhata, thee grevidIM . thee* (settees senewed and sestaleed amnesic growth. la the meantime y and credit ere met intended to, and will met, sot off the supply of nose Ismg•term to the aeemmmly. Failure to deal with imitation meld carry these actions. risks that far outwit& she abertmters soots adeeelated with Simamprely. SgaulA Vol_cliet WS01.010:JK:pjt (V-100) bee: Mr. Kiehline Mr. Lindsey Mr. Smith Mrs. Mallardi (2)  Action assigned to Jim Kichline '_ES E. BENNETT . CHAF m EMBER I  :Y CANT  3D DISTRICT. FLORIDA THOMAS J. MILLER ARMED SERVICES COMMITTEE CHAIRMAN OF SEAPOWER SUBCOMMITTEE  Congrofs of Hie Ziniteb fitatuJ  LEGISLATIVE ASSISTANT  3ipti5Se of ikepreantatibefi  SHARON H. SIEGEL  JACKSONVILLE OEFICE: 352 FEDLRAL BUILDING 32202  LAURA M. BISHOP SARAH J. SCOTT  Waisbingtott, 33.C. 20515  TELEPHONE 904-791-2587  CHERYL L. WRIGHT TERI A. WOLF  October 29, 1979  JOHN W. POLLARD, JR. BRENDA DONALDSON Federal Reserve Bank of St. Louis  1 0 (  PATRICIA A. CAHILL SECRETARIES  Honorable Paul A. Volcker Chairman, Federal Reserve Board Room B 2046 20th Street and Constitution Avenue NW Washington, D.C. 20551  Dear Mr. Chairman: I received the enclosed October 20 letter from Mr. Poitevent, an outstanding man in my home community and I would appreciate any observations that you might be able to make with regard to the things that he has said. I am not enough of an expert in the handling of money to know what the solutions may be.  aumr-  With kindest regards, I am Sincerely, J!,/ Charles E. Bennett  -  CEB:js cc: Honorable Frederick H. Schultz w/enclosure  ker.  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS Federal Reserve Bank of St. Louis  Earl S. Poitevent, Jr.  October 20, 1979  The Honorable Charles E. Bennett 2107 Rayburn Building Washington, D.C. 20515 Re: U. S. Federal Reserve Inflation Policy Dear Charlie: There is an old saying, nSusine you hire men and you hire money." How in the world the Federal Reserve can fight inflation by making money more expensive defies reasonable deduction. If it is true, then theCIO is remiss (if not unpatriotic) in nI t demanding 15g-20% wage increases to fight inflation. Of all people, Jimmy Carter should know high interest rates create inflation. After all, he used to borrow two to three million dollars a year to conduct his business. How much would the price of peanuts have to be raised to accommodate 10% additional interest costs? However, the damage to the home front of high interest rates is possibly surpassed by the long term damage to the dollars' international value. It is estimated there is now, or soon will be, seven hundred billion dollars overseas. We are expected to borrow this money back at approximately the rediscount rate, or some 120. So we pay out some sementy billion in interest to further debase the dollar. Our balance of trade deficit 9nd foreign aid debases it even further. If this trend is not reversed there will be two trillion IIllars overseas in less than ten years. Now what would happen if the rediscount rate lowered to 5%? The foreign money lenders would yell bloody murder. The dollar would temporarily dip against the foreign currencies, our manufacturers could modernize their plants/ and balance of trade would develop in our favor. Our trading partners would suffer some temporary disruption to their economies. They  I Federal Reserve Bank of St. Louis  •  would probably have to resort to deficit spending to shore up their economies. Their currencies would ultimately be somewhat debased. Our dollar would be strengthened. The Arabs would stop buying gold and raising oil prices. Who profits by high interest rates? The Federal Reserve does by its manipulation of the federal bond market. The Fed's member banks do by using the rediscount rate as a basis for loaning out their money (legal usury). The foreign lenders do. Who gets hurt? The general public from grocery and auto buyers to home buyers --- also, the Federal Reserve Banks chief competitors (the Savings and Loan Associations). It is certainly hoped that you and your colleagues can put a rein on the Fed's unbridled power to put the economy of this country on its knees at the whim of a few unelected officials espousing esoteric views. After all good times and their accompanying side effects --- low unemployment, good state revenue, et cetera --- ain't all that bad --- unless you happen to be a masochist, an international money lender, or a trading partner who is used to getting the better bargain. This country sorely needs a stable economic period of several years with reasonable interest rates and sufficient monies to conduct manufacturing, trade, and to rebuild the efficiency of our plants. The Federal Reserve Boards' activists policies preclude this. So why not abolish the Federal Reserve Board --- not the Federal Reserve --- and let Congress set the rediscount rate and the bank reserve rate. That's about all the Board does and Congress already sets Income Tax rates, Social Security rates, et cetera. Believe me, it is not all that complicated. If the rates were set fairly, they could easily last 20 years to everyones advantage. Your views on the above would be appreciated and it would be germaine and interesting to know what Federal Reserve Bank of St. Louis  •  the assets cf the Fed are now and what they were 20 years ago and where the money came from. I remain, Sincerely, el- 1-Earl S. Foitevent, Jr.  P. S. I might add that a 5%rediscount rate would make the prime about 7% and the average loan about 8%.  ESP:map Federal Reserve Bank of St. Louis  november 15, 197f  a.isompoibie milejsmais 1.Meeestbel Chairmen linbassmatime ou f.omm.r..e, Cememser„ shed Miestary Affairs assmittee Government 41peeetleme Mess of Impresentatives Weahiegeso, I. C. 26515  I--r Cheirmes liseentnat. es writing ts respeneet. yo.4r regnant ter annual portedic reports se the Federal Meserms System's comeamer complaint gessiosip Itcb yeas, ea March IS. the Beerd submits es anst.ial repeat te comitnes nm its activity ist discharging it. respeeetbilittea ander wiles lo(f) of the Federel Trade Camelesian WOOOMment Act. These responsibilities are: (I) to idostify unfair or deceptive practices oesesed la by basks end to adept regulation probibitieg sucb practices; (2) to receive and title appreforiste action apse oemplaints divested agaleetSt*ts ralimr INtilm4 mad (I) us 10910 Sertais Ofteptieme to ;),rameigata Wegutetimme ollirsibla to heir that are sibeteetially similar to ribIee prwribed by time redoral leads commissies (m), vitals GO days after the FTC's rules take silent. le,ause the Ilseed views the complain& peseedhre envisioned by the Azt as am osesatial aspiwt of ear impalatim amtbority, a portion of emA prOVAOMO memmal septum hem discussed the Seeree activity to fatal), its consumer eesplatet tnastleamed, 011110pt for the first ammuel amplalets received by the report. bee tecluded a statistical review Federal Menerva System. *See revises tabeiste the ember of -emplaints received by statutory or segmleter, object &reale and tabulate their disposittes by moiler of cease completed aed somber of ipses pendia at yeer-sed. k t.apy of the Memel tepert for 197$ (dated Herds IS, I') is en lased for year refemeace. The informal., for the emmal romort is obtained from data generated by our autemoted tefermsties system, watch serves as a mochaotos for idastifyiAs comemer problems, especially rwurreat lirab1ams, Federal Reserve Bank of St. Louis  the Memorable Menjamie S. Mesemthel meg* Ti*  tabuistod by statues ow sespIatioa. Additieselly, this data Moe supports reports from the leard's computerised sensory of mina tea data. two Although the systems sre 8/41kmirate ised distinct, tepther tbsy •moue* for analysis aa4 cenparison of the types of oememner eampleints with the hied of violatteee arc infractions detected by a rammer Weirs •S US onasinatton. We csesider this too of irtMOMMatiOa a vital adjus..t to our overall senpliseee ~as sad, for Ohis reams, it is LoAertant to us te COatigu•S to sempile indeenettee cencessies ooneumer oalaplainta by statutory end rcealatory Whisolt matters. le compile and report iatorsettee by the breed categories you request would esquire either ostensive modifications to ewe momeemer csmeisint data prwassime system, do motestieLiy costly cheese in teens of dollars aed benefit reduction, or nesual development of the (nforneties, whlah mould tepees a sibstiontial drain se tine sod resources away familia* vernal censemer eemplaint -processing duties. The enclosed serrative sad statisticei sopplemenes are tbo moult of sec affect te prowtdo seme of the infeemeetem yew requeet for osisedor year Mk. WO Moo been unable to develop a standard test et nisaificasse eseardime the mether of beaks having obaseselly hish conpietist frequencies. Be light of the ceesideratimme aposseed Awe. we Willi con:tidal. 'Sur raglan for additiseal information ghee roe...ft the Seerd's eut,Are Amoral Sopotto as Section If). I hole Yes find the isfsmstiss vs are solosittias useful. I regret its delay. which los caused largely by the Sep:t that nest of the statistical intotoottos hod to be ouseally developed. Sincerely,  MOolosowoo XACtied (401m214) bcc:  Mrs. Mallardi (2) Hs. OMIT Federal Reserve Bank of St. Louis  llevember 14, 1979  The Denorable Jab* Cero Dotted Stetee Senate %whines*, D.C. 2D510 Dear Senator Cams Monk yes der year givember S letter vievadiag tbe ileord'a deeisies to neighs as ameolamot Os its Truth in londell flemistissi ghat peovides as oseeptima to the thatemidey to itsgmeff ported for sash advosee wader au opeemend credit plea sec -ipet by ip comesserse bens. As yea le-Ao in yaw lettes, it tkrt. sometime that Whe doeisiee lime mode Is revoke that eneedoest, the Seer! .mabers present nmeminonaly agreed that aoasomere oven to have the (*ties to obtain apaorend credit limes moored by their bore. It is tbe Seevee vise tbet fengress Shoald (militate the offering of those limes Of credit by modifying the %meth la Leading Ames vevoiestas rale so se set to rt-oire • ammegiagseff period for eel* seporete after* ender the line. we resemr Mee that the Cosposee adept the lampose la Title V of R.I. 4946 that sedifiso the right of asseisstaa as it seletes tap apeepead credit. ye believe thet the low sheold net diesenrege the availability opasreed orodit avowed by a home tor hoeleally three ramose. First, it would provide oessomews with a oemomedast moms of swims the tfluity La their bow if they "Mod to de so ha amber to meet their pereefted credit seeds. One a lime wee established, a eamemer could draw fade se seeded without hafts to ssimelt voltipla amsdit appliostlame sad await approval 'sorb on. teased, opeopead 'soda sotossd by a home is peteatially leee ampeasive for commomors to vii* UMIS or forme of credit, ror smailes. a oneeseer Who desired feeds to poly fir a envies of home improvoreats or to pay adoeatiesel eaposses for a Wald or eves to meet beettM4 test bills ever the whaler eseld draw agateet the Iles as Suede were seeded, rather then havieg to borrow more thee %MS eurreotly amenseary in order to meet future empemees or having repeatedly to renames the debt te Obtain additional messy. Obtsleing loot the Seeds seeded at amp givee time mold rodeos the Seta flames 'home papobla as the dibt. The 44110111MOW essid farthittallaisfae the oat of dr await by peytmg sere Oben the romulatil oidentilluiest ea the lime. Ohms vedette' nem Federal Reserve Bank of St. Louis  III Illseeseblo 111/* Wao  a awe  vsplety the Wawa egellest *bleb the flames dews* an sempultad4 le addisise, aseedtt lies esemeed by a bete oestd be asibjeet to Sewer same& posseelege trete bosom of the aoseeritysad meld amid the esserrieg eettleseet SONO seseelated with a eerie, of soseadasoresses Seams. Fleatly, , we medemeteed that rolacteety ifew eseammore emessiee *sir simbe of roseieetee ineeessetlem with eleeeememd teases aatioes• ml.sesseele Shot peewidieg a eselimeoll period for 4046 advisees vein ae epseramd evedit plea aeameed by a hams pettortriti MMa to iteseemase the efiesims of these plow without map peeetioal boolefit to emmeemese. Seised, as I meetiomed previsomay, diseemeogies the offset/4i of three piste appears to deprive cowman WI as attrimettis fiamestas altoreettie. Nevem sawbed tee the peat two awl a half years witb yam mei pew em41aagese se the Ti_tte Salkieg Committee to simplify the Tregb lissilies law, we hepe the* do effort to mama * bill will saes be sessesefel. We see aomelmeed that steplifteatfae sill benefit bomb ese. sews* and madame, without seimoies the esseatlel peeteettsse elOhs Amt. rise** 1st seelaseees.  kavor  either 1 sr the staff sea be et tattlitss SiUMN1141. SiPaui Vol_cket  111CPOJW:pjt (FV-107) bec: Coy. Teeters lob Plow s. Mallardi Oh/  WILLIAM PROXMIRE, WIS., CFIAIRMAN HARRISON A. WILLIAMS. JR., NJ. ALAN CRANSTON. GAUP. ApLAI C. STEVENSON. ILL.. 4FICSERT MORGAN. N.C. DONALD W. RIEGLE, JR., MICH. PAUL S. SARIMANES, MD. DONALD W. STEWART, ALA. PAUL. E. TSONGAS, MASS. Federal Reserve Bank of St. Louis  JAKE UTAH JOHN • TEX. JOHN , PA. WILLIAM L. ARM STRONG. COLO. NANCY LANDON KASSERAUM, KANS. RICHARD G. UJGAR, O.  • 134 Cnifeb Zfatez Zonate  KENNETH A. MC LEAN, STAFF DIRECTOR M. DANNY WALL, MINORITY STAPP DIRECTOR MARY TRANCES DE LA PAVA, CHIEF CLARK  COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS WASHINGTON. D.C. 20510  November 5, 1979  The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: At a meeting of the Board of Governors of the Federal Reserve System on September 19, 1979, the Board voted to revoke an earlier amendment to Regulation 7. that provided an exception to the three day right of rescission requirement for advances under open end credit arrangements secured by consumers' residences. It is my understanding, however, that the Board also voted to proceed with a strong recommendation to the Congress that we legislatively provide for such an exception. Since the Truth in Lending Simplification bill, which again passed the Senate last week as part of the Depository Institutions Deregulation Act (H.R. 4986), contains an exception for advances under a preexisting open end credit plan, I am interested in knowing if the Board did vote to make such a recommendation and what were the reasons for that decision. Thank you for responding to this inquiry. Sincerely,  JG:bck Federal Reserve Bank of St. Louis  lioveriber U. 1979  amembla Jry.alma hatinst Plasioe allialeatille as. fats Affairs awes if Illepsweentatives lisekliessoi. D. C. 2i4313 ilter Cileionsa ammo: an resilemeliog to the !attar yen mil lir. Stsmtsm seat me as ibmidier 9 rsqusetimg Asagestime veasSieml =cost sod ticespac;t1re withdosals from 'rod.110611101.0• The Illeileed WOAD movide tilde letesmotAam6 rablo I todicatee diet over the 4-1/2 years sliding on Jar 30, irnt dent XX, books wick Seta deposito of $11.4 billies hem witiehmwe fres alidasal asosrvsglelliereht,. The rata of 11Piti1631111111111 hos sweetmeats, as islicatod by the fate that the tombola. if tilromale in 1,7* was mere 41.1611 ttie agieldelme Is 1.973 mod 1976. Wens the laK.Idence of vtLsdifilseelre to ham oedemas4 la the fisilt half of lino I think aket this siteetles refloat* the de.,Lsion of sone beaks it Ls fair to to hold off as vft1 Is die hope that muliseship Isstalatiss would be forth:anise is his Osweems this yaw. AO to the fattaco, vs oat aortal. that the rate of attrition I.sesdberoki, will 024411411iiitt tordier, alias* we caste* be 'MtLe. el OS the rate awl !amiss of vitewals diet MIN oc44se asset tam palest swetwelat if logiCationi. fiessome, vs Wm Mee able to obtotz Owe insight in this ineittise by taking the Mem! beinove Itteho to WW1& vo with lists of amidier beaks that hem islicatod they were plawaing or .-ameidlering withileamei a legislation ware sot pawed. This infornatiott. ski .14 was Arevidod to yen sierlior ea Alm iaL Willis Li •111.101111111111i in Tablas 2 enid 3. tsdilma indicate, about 275 mem banks with deeesits MN ot $2.3 billion have spreseadi their latartiour Sr weitadirest is outitelostiy fLem teems that at word their odeSpests for withdrawal et Federal Reserve Bank of St. Louis  The Memorable Wary 1.Meares Pose Us  eits tirsholble.'. Avediss 300 beaks wit $41 Wiles is deas "sestede" s. lbws, in we oneiderins wIthibasel la ensethet Less definitive term have the suragets. sees SS heir with mom thee $70 billies t4 deposits m* at given us sems teditiaties of their Lomat to withhars in the abea irsmele, Aed, I woad mete that this stoup at peeepective ulth fair repreeemritttae in *hart, cantreet to the serlier saporiew-e. tealudee a diew, the Fedesul lieserve's at mastivoly law beaks. If all these basin vieb 14 he reduced fume mew'1i ormst*Sol a the maim cooperage of the slijhely sere the* 7G moat at meeest to 63 merles& we camas* be sure as to ber rapidly these wttherwels will eeselot be sure that these emeorialIse. Perla-Ns sere to the Wet, sai is the beekisig industry will set be otAers. Wee& tayetitL eepectattee is that goy omellid picks, is die rate WINS'lot they mrs• withet withdrawals would 11001011111144 gulAskly sea that the *stoat rate at a petted digarsla will enceed thee emseested by sur inisrmal mow over withdrawal the at time. In that seerastiew we have had indications Oltwould ey peel* of aeme of the larger inetitutteme included ha the swev r their major competitor* to Wove the Foleval Reserve Is ordo 610 Proleger tasty competitive posittse. Table 4 provides se estimate of the bees la freeway seratiemee is esalbsewittl *AMOS *et wield waft fsem the eseleteeties of actual leases ed in err seam lOOS ad the ulthdowal of all at the maw bode herettfi mom lawresips as this eseumptisa, sod utiles the 6-1/2 pewee* sate at alatisas Le the as the rod's portfolio that hes boos used ler similar eele would assmax to about *met. OM Mess leas ie Psderal Moores revennesoffsets, the ast revenue $2611 sillies per year. Adjwsted for looms tee . On the bests of IOW to the Treasury would be $12, million per memo ii-1/2 the current recurs ea the Federal Asservels ,ortfella ef about perateet, the grass sad set siewsws less would be $373 *Mimi eat respettiwely. as these outlasts* of the bete he toseeery Twosomes, as large *grecs, do met reflect esechwe =pea WI Che pubLem6 Mort is, three oriels* fres the Me hoes a further implicit less is litemenry revenues sits hes Met that in sweet yews the grew& is aseuemberlimk depo tweeds/ that of matimarbasho. Is a semoideesble diteroo. thisonetito the onwe rapid essialhas atergiedber be dieseits ate be towed in their ttss disedweees. *commies to amber beds 4. to the deposits. ceetinme lier Weer ales raises the weettes as to *ether a her washowe substantial weds* at neohertylidd be Amastrued es a hart Federal Reserve Bank of St. Louis  the isseroble Sear, S. Meese OW genre  of the U.S. Control Doak mad time dollar. There hes always boon dot daesse. set *44 to por-eptlea but in reality. iba acceleration of withdesusts slew Sae tine suggested by war survey is bound to raise maw geortiose Am eve ability to ak-t fort;111y amid floothly In ell iseseesebio situstioes. The re eat a-)0/141, cat.on mergisai roam ropiteneste se the .-mmesed liabilitiae" of amesber bombe Is CAM to loin. The acti41111 lailereotty discriminate %atom oesber basks, aid as the be.. of eembetelmip &tones, the an* //Attie* implication become still orro taildblitiaig, and vs-ild be sow as mush by observers at hoe out ebseimii• reshape mere sor'ess Mid isetaase would be the 410110S4111 IA the mom base and coverless of busks needled to nos 4:Astral sow the seem aoly ever time. As I hews se14 ea wag immeseliene, these is a selet uhere the oreebse of the smebershis bees will result to acute symbiosis Is, the csashict of desestic osestary policy. Ws Mee siet ret goe hod diet vein. de met vest to reach that print. That Is why I loolieve that i la won to delve the praise mew radar thee la a eeelialed mod "erisie4 'atomAlm that oisht anew is the hum of e sibealeatal smosterattea is withdropets Sava essibmeht›, epormli.imee you* sestimulas *Hem Se ma toward • peempt, equitable sad effective soluties to she sembershia sseblas. Simmeerely, S/?au I.Vqc-liet  itaelsesame IIMITICAL  =us TO COW. J. WILIAM MUM  24C:PQ:vcd (#V-110) bee: kir. . Corrisms NT. Quick Mrs, likillandi (2) igess..  Table 1 WITHDRAWALS FROM THE FEDERAL RESERVE SYSTEM, 1975-1979  0-100  Bank Size (Total Deposits, $ millions) 100-500 500-1,000 1,000+ All  1975  Number of Banks Total Deposits 1/  38 1,028.7  4 492.5  42 1,521.2  1976  Number of Banks Total Deposits 1/  40 1,403.0  6 1,359.2  46 2,762.2  1977  Number of Banks Total Deposits 1/  54 1,410.1  14 3,527.5  1 502.2  69 5,439.8  1978  Number of Banks Total Deposits 1/  87 2,604.1  11 2,861.5  1 840.5  99 6,306.1  1979 2/  Number of Banks Total Deposits 1/  35 1,074.8  6 1,274.9  Total  Number of Banks Total Deposits  254 7,520.7  41 9,515.6  1/ 2/ Federal Reserve Bank of St. Louis  $ millions; based on December 1978 data. Data through June 1979.  41 2,349.7 2 1,342.7  297 18,379.0  Table 2 ATTRITION STATUS October 1979  District 1 Members Number of Banks Total Deposits ($ millions) Certain or Probable Withdrawal Allumber of Banks Imirotal Deposits (S millions) Considering Withdrawal Number of Banks Total Deposits ($ millions)  2  3  176 21,880  236 152,080  225 29,573  30 3,192  19 3,521  68 12,726  45 4,544  49 6,828  48 10,050 Federal Reserve Bank of St. Louis  10  11  12  399 24,791  510 22,664  797 36,609  704 50,785  138 128,980  5,483 721,367  40 2,888  40 2,377  8 131  13 300  21 547  7 183  273 28,516  26 1,784  10 324  4 86  23 1,176  27 1,275  9 4,726  301 41,085  5  6  409 52,511  389 43,263  590 54,166  910 104,064  7 2,012  14 639  3 4,567  16 843  41 4,882  Deposits based on June 1979 data where possible and December 1978 data otherwise.  •  9  8  4  System  Table 3 ATTRITION STATUS October 1979  0- 100  Bank Size (Total deposits, $ millions) 100 - 500 500 - 1000  1000 +  Certain or Probable Withdrawal Number of Banks  • Federal Reserve Bank of St. Louis  Total Deposits ($ millions)  193  63  8  3  7,258  11,807  5,282  4,168  229  60  4  8  8,310  11,487  2,127  16,875  Considering Withdrawal Number of Banks Total Depos 4 ts ($ millions)  Deposits based on June 1979 data where possible and December 1978 data otherwise. Federal Reserve Bank of St. Louis  Table 4 ESTIMATED LOSS OF TREASURY REVENUE ($ millions) Withdrawals 1975-79 Total Depositsil $ 18379 2 x Average Member Bank Reserve Ratio—'.05 = Reserves Lost 3/ x Interest on Portfolio.—  x  = Loss of Fed Reven9 x Tax Offset Factor  x  = Loss of Treasury Revenue  $  919 .065 60 .45 27  Future Withdrawals Total Depos1t91/2/ x Average Member Bank Reserve Ratio—  $ 69601 .05 x  = Reserves Lost 3/ x Interest on Portfolia—  3480 .065 226  = Loss of Fed Reveni9 x Tax Offset Factor±/ = Loss of Treasury Revenue Total Loss of Treasury Revenue  1/  2/ 3/ 4/  .45 $  102  $  129  Based on June 1979 deposit data where available and December 1978 data otherwise. Reserves lost calculated on December 1977 deposit data would be 94 percent of figures listed in table. Ratio of total reserves at Federal Reserve Banks to total member bank deposits, first six months of 1979. Average rate of return on Federal Reserve portfolio, full year, 1977. Assumes the average marginal tax rate against banks is 35 percent and an additional 20 percent in tax revenue is collected from dividends. Thus, of each dollar reduction in System payment, an estimated 55 cents is returned to the Treasury through higher taxes and 45 cents is lost.  ".11.3111102  4."4wimwas".""*"..."*"."... •  •  HENRY S. REUSS. WIS., CHAIRMAN THOMAS L. ASHLEY, OHIO WILLIAM S. MOORHEAD, PA. 9ERMAIN, R.I. . FERNAND J. ST HENRY B. GONZALEZ. TEX. JOSEPH G. MINISH, N.J. FRANK ANNUNZIO. ILL. JAMES M. HANLEY. N.Y. PARREN J. MITCHELL, mo. WALTER E. FAUNTROY, D.C. STEPHEN L. NEAL. N.C. JERRY M. PATTERSON, CALIF.  11101MOMPIIIMMIlammoomfthimmirANa",----  •  •  U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS  JAMES J. BLANCHARD, MICH. CARROLL HUBBARD, JR., KY. JOHN .1 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.  NINETY-SIXTH CONGRESS 2129  RAYBURN  HOUSE QFFICE  BUILDING  WASHINGTON, D.C. 20515  November 9, 1979  •  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 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.  (10  US-41247  BRUCE F. VENTO, M:NN. DOUG BARNARD, GA. WES WATKINS, OKLA. ROBERT GARCIA, N.Y. MIKE LOWRY, WASH.  Honorable Paul Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. Dear Paul: As the legislative year draws to a conclusion we become increasingly concerned over the lack of reaching a legislative conclusion on the Fed Membership question. Our concern is a result of so many witnesses who testified last summer to the fact that numerous financial institutions, perhaps in the hundreds, were withholding a decision to withdraw from the Fed till they see if legislative relief was not forthcoming later this year. In this regard, I wonder if you could inform us of the number of inquiries for applications that the Fed has received this year, the total number of withdrawals in the last four years, and your best estimate as to the eventual number of withdrawals if no legislative action is taken on the Fed membership question this year. We are not concerned with names of financial institutions that might be involved, but the aggregate number of institutions, and what would be the total amount of withdrawals from the Fed. It would also be helpful if you could give us an idea of what the loss would be to the U.S. Treasury if you combine the number of banks who have left in the last four years with banks that you estimate will be leaving or are currently thinking of leaving. There have been observations made that if there is a continued, substantial exodus of members from the Federal Reserve System, it could be construed abroad as a further weakness of the U.S. central bank and We would appreciate your comments on this. the dollar. Federal Reserve Bank of St. Louis MN.  I  2  Your prompt reply to these questions would be appreciated as we would like to distribute this information to our colleagues in the other body before adjournment next Friday. Federal Reserve Bank of St. Louis  Sincerely, / Henry S. Reuss Chairman  J. William Stanton Ranking Minority Member
Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102