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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  Collection: Paul A. Volcker Papers Call Number: MC279  Box 10  Preferred Citation: Congressional Correspondence, February 1980; Paul A. Volcker Papers, Box 10; 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. They further agree to request permission of the Princeton University Library (and pay any fees, if applicable) if they plan to publish, broadcast, or otherwise disseminate this material. This includes all forms of electronic distribution. Copyright The copyright law of the United States (Title 17, United States Code) governs the making of photocopies or other reproductions of copyrighted material. Under certain conditions specified in the law, libraries and archives are authorized to furnish a photocopy or other reproduction. One of these specified conditions is that the photocopy or other reproduction is not to be "used for any purpose other than private study, scholarship or research." If a user makes a request for, or later uses, a photocopy or other reproduction for purposes not permitted as fair use under the copyright law of the United States, that user may be liable for copyright infringement. 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) Federal Reserve Bank of St. Louis Federal Reserve Bank of St. Louis  FEB 2 9 N80  The Honorable Thomas P. O'Neill, Jr. Speaker of the Mouse of Representatives Washinqton, D.C. 20515 Dear Mr. Speaker: In accordance with the requirements of the Freedom of Information Act, I am pleased to submit the Poard's Annual Report covering the implementation of its administrative responsibilities under the Act during calendar year 1079. Sincerely,  Enclosure  Sneaker of the House of Representatives Received by RLA:smk Federal Reserve Bank of St. Louis  FIR  2 9 1980  The !tonorable Walter Mondale President of the U.S. Senate Washington, D.C. 29510 Dear Mr. Vice President:  In accordance with the requirements of the Freedom of Information Act, I am pleased to suhmit the Board's Annual Report covering the implementation of its administrative resnonsibilities under the Act durinq calendar year 1979. Sincerely, (signed) Paul A. Volcker  Enclosure President of the U.S. Senate, received by RLA:smk  ^ Federal Reserve Bank of St. Louis  FEB  S 1980  The Honorable Richardson Preyer Chairman Subcommittee on Government Information and Individual Rights Committee on Government Operations House of Representatives Washington, D.C. 20515 Dear Mr. Chairman: In accordance with the requirements of the freedom of Information Act, I an pleased to submit the Eoard's Annual Report coverino the implementation of its administrative resnonsihilities under the Act durinn calendar year 1q7g. Sincerely, (signed) Paul A. VCler  Enclosuro RLA:smk Federal Reserve Bank of St. Louis  /—,  FEB 29 !No  The Honorable John C. Culver Chairman Subcommittee on Administrative Practice and Procedure Committee on Judiciary U.S. Senate Washington, D.C. 20510 Dear Mr. Chairman: In accordance with the requirements of the Freedom of Information Act, I am Pleased to submit the Nmrd's Annual Report covering the implementation of its a4min1strat1ve responsibilities under the Act during calendar year 1979. Sincerely, (signeu)  Enclosure RLA:smk  A. r,,:c:r Federal Reserve Bank of St. Louis  February 29, 1980  The Honorable John Glenn United States Senate Washington, D. C. 20510 Dear Senator Glenn: Thank you for your recent letter regarding a luncheon that the Society for Advancement of Management at Miami University will be hosting in Washington on April 11. As much as I would like to accommodate your request to address the Society, my schedule has filled up to the point where I am unable to make additional commitments and must send my regrets. With kind regards. Sincerely,  cc:  Mrs. Mallardi #42  JRC:tjf  ABRAHAM RIBICOFF, CONN., CHAIRMAN  •  HENRY M. JACKSON, WASH. EDMUND S. MUSKIE. MAINE THOMAS F. EAGLETON, MO. LAWTON CHILES, FLA. SAM NUNN, GA. JOHN GLENN,,RHIO  CHARLES H. PERCY, ILL. JACOB K. JAVITS, N.Y. WILLIAM V. ROTH, JR., DEL. TED STEVENS, ALASKA CHARLES MC C. MATHIAS, JR., MD. JOHN C. DANFORTH, MO.  JIM SASSER, TENN. MUR.EL HUMPHREY, MINN.  H. JOHN HEINZ III, PA.  RICHARD A. WEGMAN CHIEF COUNSEL AND STAFF DIRECTOR Federal Reserve Bank of St. Louis  • 111Cniteb Ziatez Zerrate COM M ITTEE ON GOVERNMENTAL AFFAIRS WASH IINGTON. D.C. 20510  February 7, 1980  Mr. Paul Volker Chairman, Board of Governors The Federal Reserve 20th & Constitution Ave. N.W. Washington, D.C. 20051 Dear Mr. Volker: • of the Society Thomas B. Raterman, President for Advancement of Management, Miami University chapter, Oxford, Ohio, has been in touch with me regarding a luncheon the Society will be hosting in room G-221, Dirksen Senate Office Building on Friday, April 11, 1980 at 12:00 noon.  The forty members attending the luncheon would be honored to have you speak on a subject of your choosing, and I would recommend this as a mutually enjoyable and informative event if your schedule will permit. I would be most appreciative if you would be in touch with me at an early date regarding the possibility of your addressing this fine group. Best regards. Sincerely,  ohn Glen United States Senator  JG:g Federal Reserve Bank of St. Louis  February 29, 19t4  The Menerible Cheirmes Subseenittee en the Comatitutloo Committee se the Judiciary :.;nited State* Senate lwashiagtoa, D. C. 20510 Dear Chairmen Beyh. / am pleased to rely to your recent Lotter in uhleh you asked the Federal Reserve to study the fiscal end budgetary Impact of S. J. Mae. 126, a iturgesed Constitutional mamedemet for a balanced budget. Let as beitin by emphasising ey egreenent that there is a seed to achieve better discipline over this budget proeess. A budget surplus has bens realised enly esce La the pest two &elides, amd federal outlays as a pert:entege of 0111, have increased free 18.3% is 1960 to a projected 22.41 in 1960. It is ny belief that. If us are Ss brims about eased to inflatima aed create as environemet is +which priests eseinprise can thrives the growth a federal outlays met be slimmed amillbeesght into better baleare with revenues is the years ahead. As described to peer Letter s S. J. lee. 126 mould tvrovide for eater fiscal discillige by *Main two restrictions en the budget-niking 11.000es: (I) budgeted es74editures usnld not be pemaitted to exceed recei,te melees this arevisiee Imre euarridasa by a threw-fifths vete of the Congress; aged (2) the ratio of recakii,ts to national. inc-ere UMW Mt be permitted to emceed the ratio recorded La the immediately preceding year, unless the Ceessess were to enact a las soeurridies Obis restriction. Your Letter segmeeted am analysis of the ausediesmt udder aseumptioas that: (1) the Congress dime mot override either restrictisw end (2) the Congress abides by the balanced budget restrictien but net neoemeerily by ebe restriction an growth el recei,te. A review of tee emporium of avast perm *meets that the restrictions is the ammedment could hems a eelbetemetel effe.t on the tours* St budgetary -401Ley. As oam be soma is the ereleeed table the ratio of receipts to national innema has tended to ewe, spurned during the past two decades. nee averse* retie ia the 1960's use ennedderebly below that in Federal Reserve Bank of St. Louis  ino Mememibla !Birth Mph Pees lve  the 1970's, sad the flown ior 1919Imult swindled only emee--Lu 190 when reveauss woes boosted by on /MONO tax surcharge to help finance Vietnamrelated ospenditures dorVag s period of very rebuilt eggrogato ilsmend„ A 10000ipts restrictive Moly would have required significamt ton cues to the at few years as revitemes were :sisal by the interactios of inflation aold the pullepossivo tau structure. The tiblo also indlostse ghat outlays as a percent of metionsl hew" imam treaded wowed, The speeding retie Plumped in t,7whoa the engsesr wee in recession& sad f La a1 polio, was aimed at prnmotilog wevvvery. Memethslass, the rattle failed to roturo to earlier levels to the latter yews of the 1970's—eyes duriag the Vistas, Nor period. The rsistrictisss imposed by the prooesd Constitutional amendment petbably would have Lod to lever spesdieg is this retest ported, comtributine thereto' to restraint of inflationary forces. 'kite it appears fairly eAser that the two restrictions would have prima beneficial *atm' the pest few years, they night at time hove bindeved efforts by the Cemeinse to 0-suet's instability in the scomomy them the use of fiscal 5olicy. For example, the tax cuts and empesditure in.:ream that wore enacted to ammetor the recessive to 1973 would have been ruled out. May ales mould have :Invested the passage of the surtax that was used to curb tallstiomery densmd ta 1969. Adheres', to the tm, seetrletlose would also teed to blunt the smOometic stsbilialos influence that the bud,* curremtly exerts am seeMale activity. isommes of the progressive same, of our income tax system, ton tovonu0O tend be rise tastier thee retiomal incomes aPOINOMB thee tondo automatically to curb taflatiesmindmoed increases in momdasil harems. The restriction on receipts, of einees, would require the Oesseese to omit tax rotes La seek steeettese, in eider to hold the ratio of tan rocerits to national Lemons to the vette setallehed in the pesoedles year. Under the peepeeed Smemeseet, a pielesel SOK 4.ut of Aso* *11 billion would be reeedised to 1.W to held the retie of ineeme ton LtabilLtY to eatimmel 1Z13.. at the some bowel as it Ins in 1979. In my view, a tax :Alt of thie awaited* weld tend to esimaiabate our taflatismory priblema. the autonomic esmdemof of the budeet to reduce the seomrity of recoemism mould also be seriously curtailed by the restriettons. Whom mooloal imams declines, fedeeel receipts deep even more rapidly (Was beam* of she pseeprossive federal tox emotes.). In roopsess to such a development, adkemenoe to the balamcod budget restriction would reedme the Lameress to lestelete a similar outback ill emparilituree. aid this would reisforme the elletrectiemery 4ressure" Le the sorommy. 2he kAingreee Federal Reserve Bank of St. Louis  liseseible birch ileyh Sege these  mould* of *surge, miniimies the requited deeliati la emtlays by raising ben rum segast tis offim to of laseill tem praegbrama ivity, bee die tee wad ail ego aesesectiesery ›rassuSee• pobrorames 'Ascii as wasilddri boommee aapeaditures im a ammber sena cempemeatien, rend te rise automatically in a tilleesiiiaas the peepeeed beftlet yestrictiemewoold place * gnat deal of pftemsmpe es the owe sees tillellallge bouillon embegerleamsemek ae defame psecneemeet—dwries iscessedo demeamie, the diricit end fewemme reetrictieMe eeold me a consommes* tied to distort prioritise within the budget eed peohspe CrOlte 'start., sue imefficiemodee ie the mere ceesrelteble paegreme. In addition, taking the automatic stabilizing influence* out ele the budget would naturally place a sreater burden on discretionary Policy, mhichs me I mated above. would beam mere tilthtly restrained em the fiscAl aide. The reouit would be to ,resee pressurise for wester reties** on the use of eametary policy for seshiliesties put-moose. Stab env net be desirable. ft a, eme-eided Acy?roech Se stabilisation eight in este clronnelleMeee Wed to greater ',Utility io esedit meohet eenditiese sed enuid left it ewe difficult to deal sieulteemasly wIth deneetic end ineerentienst ecommmic rebleme. Impala MOS IMO MOW axe* a eibilem&ty ta the poopened amemdOeisrees, la aetemottiqi to emt belemiled receipt emd outlay essol6 IMPOSSel woad bees Wiese ite deliberetimeeesivery prelimimery eetimate • oeitienal income for *he pylinedie" year eel es a projection for the eabjest to inibeteetist eras emd frog...lent 4011Ami Year. both •e wash SePtaLeom It Le net clear free the pympeeed amalimemt *ether the Congress aniee *eft the eeseempie perWald be requtetd OP Mine Its hedipt leOlinee did met ceoseepemd with the tomeseet geed to prolamin the budget. Smelt important netters Awl& I would thinks be clarified bedews the amenbent Ls ?mooed on. en coneerned the' Ceogreas would bm Over tbie bow inw tempted to circumvent the restrictions by piscine ewe activities off bedsit sed by creating NM federal Loma soseensee end tem expenditure psespems. A;orteialy, snit a development mestad be imdasimahle aadimewd Seelemely undermine the settle budget psesseet t' cf the imendmeet noise L1pWI P eJ th flu*Wee by the tietelotion agaimet deficits assumption thee osmoses thisineessimes the peabet met by the restricting) ea the meosdpes6 Illemeive nature of the tan structure mead pewit emeedpee tel apes fester To,r letter aloe reeneete a Federal Reserve Bank of St. Louis  The semsemble Birch asytt Pegs 'Our  them national lacons* and she. the haieet meld tamd to retain eons et ite avammetie alebiltmeWheidatmeatesietise &rime inflotterary Partadt• Sens weetseima ON oupsairnatele soma would still be oraeliaad br the than. fifths vote requilied to MOM a deficit. samertoot tho rootrictisio es Woe policy sialbsistail la S. J. Ass. 136 egad mil mart a csosidesible *itlisenco on haigetsry policy amd amid semememt e ms of newel disciptioe. Minewer, allatata viaeletial Pelb&ene mast be cometdomed* le pedals et economic inctohilirf, the rearietieme, if strictly adhered to, vole impose rigidities sa the badgeeepy oeceso that vould dinialak the West's Pilleatinl fax es‘ting is s etebilising inflames en tho soimiray. The PISPINes1 also meld Wad to distention. and ioatfinisacies La irtIs1evia4 Wen prieritteol clauld pia.* groom +aphasia en eametary policy es a etairtlisatian policy dorice. sad meld swam.a diversion of Isaac ectirities into off-hodoot program. Marto sweessod these COMMOKUO about SWpwispi1 eadaa the essemptises diet eat air both of its rostrictioall IMO not 14tt imo goo am to ow that in view this prigeola to seadeeable to sato ipihers. specilleally beeeee. it does teem the Oempless it eon flexibility to Ojai* to AMMO* circumstance.. eta this flexibility is taloa tote amesumt, it Slabs 011111 thet et die mem of the reepseel are regilasessee Aira theeemittrehe veto of Oustee. to aieborille abody* La deficit (elehar thee die siersent simple eatierily) aid ere the Coupes* to Oahe sposiel mai empLicit ens alisaItdeasame a builfet Lathigh reaeleta (ted pairs outlays) we easeseed to rise loner aisasitieeel Jame& lielh of these sepal* of the paspeeed SMINiallat dasaela. aseetie .1001laiethes. 21 ohs Opopeat dem Moony eamobab that additives' restrictt*m. es die Win peasee amok so dome entlised La this pespesal is. desirabls. emeild eaggen that they be first tried out hy imoompseetims them in th. coesseesSatel hatipt preeree• A Wimple atop fa this diwestion maw tho pease* body* pewee, al.* be to requital that say cenoomient budget reeelvtiaa biseiving a beim defirit rapist a disee-fadmr majority vete. As Saplicitintaila target ratios of volapes eed aftlaatitturea to CUP se astiamel team oase could be omit, tecorometed late currant Woe poesioftrec. le this ow, umforaseelik padil uld be tiessifiad 1011.1“ the mere paatemed aid lees esatly verseeall soap of snood's* the Ceenitatiom is tabs.. elletotias us 6141110.1 00011016 As at abeelmos netampity if hmiletise is to be beinght endow AoldaSINSit and asiszteamme Federal Reserve Bank of St. Louis  The Nemerible Birch boob Pep nos  Lseuld hope that unduly ri4id--and perhaps uasustaingible—rulaa ess be avoided. Semeers am recent hIstoc, Ems imemosialaY 0101004 the wiediel el erpterlag MIMI ler intredicing sweater discipline tees the budgetary presses. •:ontrol.  Illasserely. Wail A. Mae&  Luc Leetar• Wit:JP'  ;PM:wed (#7-19)  bcc: Mr. Kichline Mr. ?rail Mt. Fralick Ht. tam Mrs. Mallard' (2)1/  1•11  Relationship of Federal Receipts and Outlays to National Income  Fiscal year  Receipts as a percentage of national income  Outlays as a percentage of national income  Budget surplus or deficit(-) as a percentage of national income  1960 22.8 22.7 .07 1961 22.9-.82 1962 22.5 23.1 -1.60 1963 22.7 23.7 -1.02 1964 22.5 23.7 -1.18 196521.9 -.30 1966 22.0 22.6 -.64 196724.8 -1.36 1963 22.5 26.2 -3.69 196924.8 .43 1970 24.7 25.0 -.36 1971 22.99 1972 23.2 25.8 -2.60 1973 23.0 24.5 -1.47 1974 24.0 24.4 -.43 197528.0 -3.89 1976 28.3 1977 24.2 27.2 -3.04 1978 24.1 27.0 -2.93 1979 24.8 26.2 Federal Reserve Bank of St. Louis  Average ratios 1960--1964 1965--1969 1970-1974 1975-1979  22.7 23.0 23.6 24.1  23.4 24.1 25.1 27.3  -.90 -1.10 -1.53 -3.29  Action ass copie DigitizedInfo for FRASER  l Federal Reserve Bank of St. Louis  ned to Mr. Kichline o Messrs. Allison gi Denkler  411e  rDwApo U. KENNEDY. MASS.. CHAIRMAN giRcH  IND.  RoRERT C. Ryon", W. VA. JOSEPH R RIPEN. JR DEL. JOHN C. CuLvER. tow A HOWARD U. mET1ENEIAuM. OHIO DENNIS DE CONctNi. ARIZ. PATRICK J. LEAHy. VT. MAX RAUCUS. MONT.  sTRou THup.opm. S.C.  SUBCOM M I TTEE. BIRCH BAyH. NO.. CHAIRMAN HOWARD M. METZENSAuM, OHIO DENNIS DE CoNCINI. ARIZ. HOWELL HEFLIN. ALA.  CHARLES MC C MATHIAs. JR., MD. p•LiL. LATALT. NEV. ORRIN G. HATCH. UTAH RoRERT DOLE. KANS.  ORRIN O. HATCH, UTAH STROM THuRmoND, S.C. ALAN K. SimpSON. wy0.  KEVIN 0. FALEY. CHIEF COUNSEL AND EXECUTIVE DIRECTOR MARY K. JOLLY. STAFF DIRECTOR AND COUNSEL  THAD COCHRAN. MISS. ALAN K. SIMpSON. Wyo.  MARCIA ATCHESON, GENERAL COUNSEL  HOWELL HEFLIN. ALA. STEPHEN pRryER CHIEF COUNSEL AND STAFF DIRECTOR  NIB "t's•  ?.16-ti1eb Zfafez Zenale COMMITTEE ON THE JUDICIARY SUBCOMMITTEE ON THE CONSTITUTION WASHINGTON. DC. 20510  January 18, 1980  _)  Mr. Paul A. Volcker Chairman, Federal Reserve System 20th St. and Constitution Avenue, N.W. Washington, DC 20551 Dear Mr. Volcker: As you are probably aware, the Subcomittee on the Constitution, which I chair, passed S. J. Res. 126, a proposed Constitutional amendment for a balanced federal budget on December 19, 1979, with Senator Metzenbaum and myself dissenting. The circumstances surrounding the passage of this bill were somewhat unique, in that the proponents of a constitutional amendment could not agree upon any one of the 20 proposals that were referred to the Subcommittee for investigation and had been the subject of six days of hearings. Instead S.J. Res. 126 was drafted and brought to the Subcommittee's attention only two days before the scheduled markup. In light of this situation, it was difficult for the Subcommittee to consider the actual impact of this legislation upon the federal budget and spending procedures as well as the potential constitutional impact. Therefore, I am making a formal request that the Federal Reserve undertake a study of the fiscal and budgetary impact of this proposed constitutional amendment.  * oak,  if  S.J. Res. 126 provides that the Congress cannot adopt a budget in which expenditures exceed receipts unless three-fifths of each House approve such a budget by a roll call vote. It also provides that receipts in any year shall not exceed the proportion of the National Income which they accounted for in the prior year unless a law is enacted to that effect.  •  I would appreciate your undertaking a study under two separate assumptions: (1) that the Congress does not choose to invoke either override provision, and (2) that the Congress chooses not to invoke the override procedure for the balanced budget provision, but does pass a law each year to override the revenue limitation. Federal Reserve Bank of St. Louis  _  ,":  •  —  4..  *••-•  • "  "  , . . V•A•  r•-• •; •wr.-  - 16. • •.  ,'  iireiraro.  r• - • r."!•  • 4.  11.1  •  •  A  2 I anticipate action in the Judiciary Committee on this legislation within the next several weeks and would appreciate this request being expedited if at all possible. Thank you for your consideration and cooperation in this matter. I look forward to hearing from you. Federal Reserve Bank of St. Louis  Sincerely,  Birch Bayh Chairman  •  .  , •  r "'s • .  I1 ".•  c *iv " — IRP1e. • 14•'.11.4r.• •-• • 1.•  •  " •-•  #1* ...;;." •  .  .0111#'  .  14 1 4)It' . Federal Reserve Bank of St. Louis  rehavery 214 1000  The Ihmserehle %may Leedom lameloome Statos Saaste %abloom, 2.C. 20S10 or demator iteembsamis Meek you for yew Uttar of Memory 29 camereies the lemes proposed poticy a teems* asistios to the smasommt Of the ftmosiei tsetse. is the formates of small 000mbialk Waft oiloosides. Tm feywaded correopmdoese ea this tom* from MN liaberd S. fats„ Geseral Cisme' for the lelted Eames Souk it Trost, Simms lidos tee, Leases, Idle believes that the peopmed *card policy will mho it more difficult for lindtwiAcals to boy sod sell small boobs. Mr. gate** remake amuse* that he soy set hoes hemmers of mistisi rale* to this moo that hem he oppiled aims 1970 Ohm the Comptess smoded the $eek Meldios Compeer Act stale, Sash reopmethillum to the federal issesse. The Domes mama propessi mud* the ataaderda employed. It me dessisped at the segmet daoolborOf bashers sod is Lebteded to .as the peeseer rifrximemeeta ter melee the Walk heldies / as a vehic/41 for the transfer of eseerSktp of smell sommelty le Lacelmi the proposal, the Soord hellem4 that thaws raiwielem geoid samppileh this esel sod, at the moo time, met the safety wed Seeedieee eemeidetetlime seitsimeed is the 0solc %idles Clopeey Act.  =7  stosoiroly, PA.VokK JEI:WW:pjt (#V-35) bcc: Mr. Ryan Mrs. Mallardi (2)  Action assigned Mr. Ryan Federal Reserve Bank of St. Louis  ,  •  HOWARD W. C.ANNON, NEV.. CHAIRMAN WARREN 0. MAGNUSON, WASH.  BOB PACKWOOD. DREG.  RUSSELL B. LONG, LA.  BARRY GOLDWATER, ARIZ.  IRNIST I. HOLLINGS. S.C. DANIEL K. INOUYE, HAWAII  HARRISON H. SCHMITT, N. MEE, JOHN C. DANICRTH. MO.  ADL.AI E. STEVENSON. ILL.  NANCY LANDON KASCESIALM11. KANS.  411  WENDELL H. FORD, KY.  I_ARRE PRE:St CR, S. OAK.  DONALD W. R!EGLE. JR., MICH.  JOHN W. WARNER, SA,  *IR  'iCnUcZtafez Zenctfe  .1. JAMES EKON. NE SR.  COMMITTEE ON COMMERCE, SCIENCE,  HOWELL HETLIH. ALA.  AND TRANSPORTATION AUBREY L. SARVIS. STAFF DIRECTOR AND  cHlEr couNsEL WASHINGTON,  EDWIN K. HALL. GENERAL COUNSEL MALCOLM SA. S. STERRETT, MINORITY  D.C. 20510  IRECTOR  fey-t+gtt  January 29, 1980  Mr. Paul A. Volcker, Chairman Federal Reserve Board of Governors 20th and Constitution Washington, D.C. 20036 • Ti  Dear Paul: Enclosed you will find copies of some correspondence which I have received from the General Counsel of the United Kansas Bank and Trust. This correspondence expresses concern over a proposed policy statement which the Board has circulated relating to the assessment of financial factors in the formation of small one-bank holding companies. I note that the Board maintains that the statement is being proposed "in the interest of helping to maintain the safety and soundness of the banking system and, in particular, of small community banks . . . and facilitate local ownership of these banks".  Ilmour  Mr. Katz indicates that he believes the proposed policy statement will have just exactly the opposite effect. I hope that the Board will give his concerns careful consideration in the formulation of a final policy statement., and I would be interested in your response to the concerns which Mr. Katz delineates. Warmest regards,  Lire,  Nancy Landon Kassebaum United States Senator  rs.  2.11161.4.06. . ,44;•  .  L., , Federal Reserve Bank of St. Louis  •  ..."7 • _  • • ••  •  '  . 7e • •••' • .  ' 7' A ‘.0,4,)}4.0r. A..r F- F0 :• ••Fo• VF •••• • ••• .1 •  t.• 11,  .  .•vp. ••••  • r•  • ••1'  r-  Jt"  • •-•.-• • •  • •  fai jr .•  •••.  C... • - -•••, '  1.1.;  iir.tiv.„;.:* Federal Reserve Bank of St. Louis  I  •  • ri p_ •  L  n  .-74."--t• . %.  !\!K  ' E  -7.))  [127-ti NJ...Pi  1  - I 7.-7. I  r  January 3, 1980  The Honorable Nancy Landon Kassebaum United States Senate 304 Russell Senate Office Building 1:ashington, D. C. 20510 Pear Senator  ,assehaum:  Enclosed is another morass of regulations that are being fostered upon banks. As you knew, Kansas is a one-bank holding company state, and we are facing extreme limitation at the state level, as well as at the federal level. The purpose of the regulation is to somehow control the way hanks are purchased by individuals in the state. The result is that an individual who is less thin a vultimi11i6naire will never be able to get into Lank ownership. I know of no other businesses whereby the Government is now detailing exactly how one purchases it. It is obvious that the Govern:wit is trying to eliminate the mall Lank and bring in the huge holding cuTanies, and squceie out the snall banker. The Federal Reserve will only c Wier large Hill< controls all of Unitcd Missouri f:r sAisfied th(2 Vmks in the Midwest. How do we step this legislation by regulation? Sincerely,  Richard R. atz General Courr,e1 Pr,K:vT(1 rnr.1 )—;re  1  •  . 7  •••  A' : Ar '  1 :If (-  : 1  7  I"  )1  0!- t 7!.It sr  S'" In t7. i ,- ., r -lc r. or h,li)11.z- to - • 7,.! , i,. O.,. 5.,.r.., t;.• s ,.• of". t..7!- 1. •,,'...i ,., • s•,.•:,,t:,..-1 o.1-1, in p.',.!- L ic,0.-r, or s,-;111 cc,••• •.......qty t),•.:,'• --, ) r,.• -..••• 1 1 0'; t') i' * ,',•• • t-1•,-. t t....•1 r,.! .1, i 1 i t_ y of cr,1:-: 111, of s,t•-•`. irl. !'' .' ; ,-• ' r ;. 7 i r 1 -.. !1 c.•7; i 1, or t 11- ..,. 1, ....!'•--, , CI. I', 1•.: , 1 , P•..; : •.• • 1' f , 7 1 '''' '1 1'. C * C. .! p,,liuy st-" P . as:-.....,,-;!:,,. li• i .' f . '0; in t7,- fo • ,r. i0:1 of st..71.1 on.--b , • lioldir.r,.., co!•-. .:,.::i... .. -DATE:  Cor7...nt7, m!!-t ho reciv;'d on or he fort' January 31, 1980.  AD SS: Theo! ,rt E. SoLl.t.tdry, Ir1 of Govetn -)rs of the Fecirral Roserve 1.:-1.1.iPcton, D.C. 20551. All materials submitted should inr-lude the Dockot her R-0265. FOR FURTHER INFOP.!:ATION: Ja—s I. Garner, Division of Banking Supervision and Regulation (20.1 -452-2A15), Bo,inl Governors of the Federal Reserve Syste7,, W.1 - ro, D.C. 20551.  or  POLICY OF THE BOARD OF GOVERNORS FOR ASSESSING THE THF. FOMATION OF SMALL PURSUANT TO THE BANK  STATFMENT OF THE FEDERAL RESERVE SYSTEM FINANCIAL FACTORS IN ONE-BANK HOLDING COMPANIES HOLDING COMPANY ACT  In acting on applications filed under the Bank Holding Company Act, the Board has adopted, and continues to follow, the cardinal principle that bank holding companies should serve as a source of strength for their subsidiacy banks. When bank holding companies incur debt and rely upon the earnins of their subsidiary banks as the means of repaying such debt, a question arises as to the probable effect upon the financial condition of the company and its subsidiary bank or banks. Incurring debt under these circumstances is of particular concern when the debt proceeds are used for acTlisitions rather than for internal purposes such as meeting the capital needs of a subsidiary bank. The Board believes that a high level of acquisition debt impairs the ability of a bank holding company to come to the aid of its subsidiary bank in times of need and in some cases the servicing requirements on such Federal Reserve Bank of St. Louis Federal Reserve Bank of St. Louis  , the '•  f •  t 1  h f,)rC' ;•  4'  ;4'  :  I  t  b '"..  11  :  the 1', • -f  11.i; r, ••. ttl the 0 1 C'• ' :;.t ar' the r• t' .. • • prt r, the n 0 r C re• ; ItlOP : 1 , C. ., 11,-; pe,Iftt,d the for 1t_i-:1 or s; 1.1 one cw i. Iii d, bt livels hiFhor th ,n w-ull h, p'.': ittel 1 i r r ApprovIl of th,'se h F-,iv (.n the conlitic.n that the smAl1 ono -bank h C t? if. CI, ability to seLvice the acquisftin deLt witheit tI • c . 1 or t' subsidi ,-1 bap', an!, furtl-sr, ti t .'1. 7 1ity to p of stt , u,:;, fll thoir a rtlatively shi-t pezi'ld of tit  un-trip• to Sr.' to th. pri!",7cp1 .- . In tbi''' i: it . p 0 i,i or er " • ,.,i1, - le, 0 t: .r.-• ,'.1' c ,-1. , :• :4, ( 1 1 ' II 1 N - ( • ., ••!! fo! t , u it.. , .* (' i 1,1', i" • .. f, -• '.::, .,, ., th. FA , .-1 h ,: 1,, :,1 ;.r..d the on .I > ti, .,1 fr.' , w'r- and th- cri' 1,! it applies uh.n cyn-;idering small oue-ba:,!-- holdine, co-piny for:-Jtru, . To thP:.- ends, it proposes certain revisions in its procedures and st, ,,1 .rds do:.cribed belo,...-. I' •  •  C  I„  .  Th, p: criteria shift tho focu:: from debt repayl'ont contained in existint; criteria to the relationship between debt and equity at the parent holding co! pnny. The holding corpany would have the option of improving the relatiorrhip of debt to equity by either repaying the principal amount of its debt or through the retention of earnings. Under these procedures, 11, -ly orFo,li:!.ed small one-hatk holding companies would be expected to r.2d.lco tb r(1,-,tionhip of their to equity over a reasonable period of time to a level comi,arable to that maintained by many large and multibank holding co-vanies. In general, this policy is intended to apply only to one -bank holding companies that do not have significlnt leveraged nonbank activities and whose subsidiary bank wuuld have total assets of approximately $1u0 million or less at the time the application is filed. The proposed criteria are as follows: General •  In evaluating applications filed pursuant to Section 3(a)(1) of the Bank Holding Company Act, as amended, where the applicant intends to incur debt to finance the acquisition of a -small bank, the Board wi11 take into account a full range of financial and other information, including the recent trend and stability of earnings of the bank; the past and prospective growth of the bank; the quality of the bank's assets; the ability of the applicant to meet debt servicing requirements without placing an undue strain on the bank's resources; and the record and competency of management of the applicant and the bank. In addition, the Board will use the following criteria in assessing acquisition debt: Federal Reserve Bank of St. Louis  (!) 11,)1 exco#.0. 75 perc.Int of  .  f t  Cle  to  rk•,!.  d bt I„ost de-onstrate us' lo ents to , :ii of th- Bo -d th-t any d(bt setvicin,:; rerp t) rly be sn')j, ,-.t world not cause the bank's bib t' b , ' h )1d;-to fall heloY 8.0 percent cio./ing the to ro,-. cil or F1 C - pftil isi r nr ib. iqITtf.ri.Af c )1) ' f)llo • i Ill, all ' ld to- .15 CI s, Iles. p-t: or! d Idio ,t.1 r ,! 1,.n .1) ,1:-  1 r ,11 or 0, s !! 11 -o o 21i, ot to., decline to 30 perco poly's ratio of dcbt to uluity would that t!i- h ,l n of the acquisition. cent within 1? yell:. after consu7-11tio , means as used in the ratio of debt to equity tet,) "debt" ten1 borrowinss which arise out of any borro.-ol fur's (ex. lo.iv. of shorth have h' en or are to be us -d for current troo.;!ctioin;, the proccods of whic the es issued by, or obligations of, current transactions), and any securiti equivalent of long-term debt. holding corpany that are the functional n/ ity, means as usod in the ratio of debt to equ — v", uit "eq tern The bank holding company adjusted to the totql stoct- holders' equity of the of odwill" (i.e., the excess of cost reflect the p,riodic a. rti:!ation of "go able the amounts assigned to identifi any acquired comnany over the sum of d) in accordance with generally assets acquired less liabilities assume rmining the total amount of stockaccepted accounting principles. In dete should account for its investments any comp g din hol bank the , ity equ s' holder the equity method of accounting. in the cot=on stock of subsidiaries by  1/  projected financial statements The applicant will be required to submit holding company (parent only) covering the 12-year period for the bank ncial statements may be condensed and the bank to be acquired. Such fina balance sheet and income state• but should identify principal groups of ment items. as equity if, by its terms, Redeemable preferred stock will be treated o of debt to equity at the it is not redeemable until after the rati would remain at 30 percent or holding company is below 30 percent and preferred stock is redeemable less subsequent to the redemption. If the be treated as the functional under other conditions, it will normally t is convertible into comnon equivalent of debt. Preferred stock tha treated as equity. stock of the holding company will be  •• Federal Reserve Bank of St. Louis  (,%) .1'; •  t  ;  Thep.;  •  rf (;- • 7  dy!.* tn r  corpor,-, to to pny Jty ria'Ao Is tvlow 30 percent.  A Ff.::lez ..fe'  13, 19;c...  re E. A1li5;c::,ry of th- P.,71:A! Federal Reserve Bank of St. Louis  •  .•• o  •  GOVtii,•  /11  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  •cp w• f•-•  • A\, •• v0p •'--• • -/i•AL . • • ..• • •  WASHINGTON,0.C. 20551  cn•  February 28, 1980  Mr. John E. Quinn Assistant Counsel Subcommittee on Consumer Affairs Committee on Banking, Housing and Urban Affairs United States Senate Washington, D.C. 20510 Dear John: In response to Chairman Tsongas' letter of February 15 to Chairman Volcker, I am pleased to enclose the documents relating to consumer complaints and inquiries regarding informational privacy concerns received over the past four years by the Board's Division of Consumer and Community Affairs. In accordance with our policy, personal identification has been deleted to preserve the privacy of the consumers and finpncial institutions involved. Please let me know if I can be of further assistance. Sincerely yours,  (Signed) Donald 1. Win!, Donald J. Winn Special Assistant to the Board Enclosure  Assigned to Jiiiit Hart. • Federal Reserve Bank of St. Louis  •  t Wfairmei •• -a  •  Ali  •  •  ANI  mom..  •  WILLIAM PROXMIRE, WIS., CHAIRMAN HARRISON A. WILLIAMS, JR.. NJ.  JAKE GARN, UTAH  ALAN CRANSTON, CALIF.  JOHN TOWER, TEX.  ADLAI E. STEVENSON, ILL ROBERT MORGAN, NC. DONALD W. RIEGLE, JR., MICH.  JOHN HEINZ, PA.  PAUL S. SARBANES. MD. DONALD W. STEWART, ALA.  WILLIAM L. ARMSTRONG, COLD. NANCY LANDON KASSEBAUM, KANS. RICHARD G. LUGAR, IND.  PAUL E. TSONGAS, MASS. KENNETH A. MC LEAN, STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY PRANCES DC LA PAVA, CHIEF CLERK  /11Cnifeb Ztalez Zenale COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS WASHINGTON, D.C. 20510  February 15, 1980  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve Board Constitution Avenue 20th and 21st Washington, D.C. 20551  IIBMmt&-  Dear Mr. Chairman: As you know, the Consumer Affairs Subcommittee of the Senate Banking, Housing and Urban Affairs Committee has scheduled a series of hearings to review S. 1928 -- The Fair Financial Information Practices Act. I believe our review of any informational over the past  ret sr:s.4  study of this issue would benefit from a citizen complaints or inquiries relating to privacy concerns which have been received four years by the Federal Reserve Board. ilArr" • 0010,,  Would you please provide access to whatever documents you may have in this area, as well as any industry comments received by the Federal Reserve Board, to Subcommittee Counsel, John Quinn, as soon as possible. Thank you for your assistance.  1.  Pau] U. Tsongas, Chairman Consumer Affairs Subcommittee  " lilt . W!*.d  061 : 7 hpe : s. ;  -..."1"r7"...."1"" -  "JP  . Federal Reserve Bank of St. Louis  '  • ----715rAgrt.rlIT7.7  7:Tit  .;kre,--tirr.41._•rirryw Federal Reserve Bank of St. Louis  February 28, 1930  The Honorable Walter Mondale President of the U.S. Senate Washington, D.C. 20510 Dear Mr. Vice President: In accordance with the requirements of the Freedom of Information Act, as amended in 1974 by Public Law 93-502, I am submitting the Annual Report of the Federal Open Market Committee of the Federal Reserve Syster covering the implementation of its adninistrative responsibilities under the Act during the calendar year 1979. Sincerely,  Enclosure NB:tb Identical letters to: The Honorable Richardson Preyer, Chairman Subcommittee on Government Information and Individual Rights Committee on Government Operations House of Representatives The Honorable Thomas P. O'Neill, Jr. Speaker of the House of Reps. Washincton, D.C. 20515  The Honorable John C. Culver,Chair. 5ubconnittee on Adminis.Pract.and Comm.on Judiciary, U.S.Senatc Federal Reserve Bank of St. Louis  C.  February 27, 19,40  Tbe 4onorable Ed aethune ._. House of tepresentatives Washington, D.C. 20515 Dear "r. nethune: In your recent /fitter you asked for our comments on proposed lep,islation regarding the preemption of state usury ceilings. This proposal would sllow certain lenders to charge interest at a maximum rate equal to the State ceiling or the Federal Reserve diecount rate plus 1 percentage point, whichever is higher. The Moard has long been concerned about the adverse impact that usury ceilings can /14110 on the availability of funds in local credit markets. Uhen nominal market rates are high, as at present, usury ceilings typically distort credit flows by inducing lenders to channel funds into assets or gecr,raphic areas less affected by ceilinAs. Nonprice lending terms in restrained merkets may be tightened severely to compensate for the relntively low nominal. interest rates that can be charged, and credit may become totslly unavailable except to the root highly qualified borrowers* Your letter caphasizes the goal of equalising compeon nrJon?! natioual banks and other financial institutions. The apard shares the view that, in principle, similarly situated lenders should operate in similar regulatory environments. The bill would achieve partial competitive equality, inasmuch as the provisions now applicable to national banks would be extended to all federally insured state-chartered commercial and mutual savings banks, federally insured branches of foreign banks, federally insured savings and loan associations, federally insured state-chartered credit unions, certain mortgage bankers, and small business investment eI companies. ilowever, various other lenders not covered by would remain without relief, including federal credit unions, some mor4A;e bankers, and all life insurance companies. The proposed bill would peg tho maximum permissible lendin4 rate at 1 percentage point above the discount Tete on 90-day coumercial paper prevailing in the Fedora/ Reserve district in which a lending institution is located. The aoard recognises that this formulation has applied to national hanks since 1933. Neverthelese, we have strong reservatious about it, and I would like to invite your further reflection upon the advisability of indexing loan rate ceilings to the discount rate. Federal Reserve Bank of St. Louis  The flonorahle Ed Bethune Page 2  The Felerel Reserve discount rate Is a short-term rate: by comparison, many of the credit t4arkets targeted by the proposed bill involve tong-term lending, such as hone mortgage loans. It is unusual for longer-tern rates across credit categories to be patterned in such way that a 1 percentage point mark-up over the discount rate would provide euch practical relief from usury ceilings in all markets. Moreover, the discount rate is an adninistered rate and may not always closely reflect levels or movements even of short-term market rates. In general, we feel it unwise to single out a tool of monetary policy for a purpose, such as indexing, not directly related to the policy issues associated with the use of that tool. We suggest as an alternative that outright removal of celliNis he considered; or if a ceiling is to he maintained, that a market rate of eedium or long maturity be used as A reference rate, and that a mark-up be established to allow a wider degree of rate flexibility in the targeted credit markets. We believe that the proposed legislation supporte the intent of H.R. 4986 to the extent that it would help financial institutions to earn sore market-oriented rates of return on their loan portfolios. With 4 Phase-out of deposit interest rate ceilings, depository institutions will be paying market-determined rates on their liabilities. Thus, it is important for them to earn market rates of return on their assets. While the !Ward feels that corrective action at the State level would he the nost desirable way to redress the counterproductive effects of State usury laws, we support the permanent preemption of State usury ceilings, if otates are given the authority to reimpose such ceiling throngh legislation or otber action. Such an approach would provide adequate preservation of atate authority to regulate lending practices. I appreciate the opportunity to present the Board's views on this matter. Sincerely,  SLP4_41 A. VoickeL Paul A. Volcker  SSA/GTS/ECE:kt #71  iouse of ?Represen1atitles4A11..  Z?Ifivg..-W "2,e "  e rt/  *"id‘426 Federal Reserve Bank of St. Louis Federal Reserve Bank of St. Louis  411 CongEr55 of the Ziniteb 5tatcg R)ottqe of itpres'entatibecS  madjinqion,  .(e. 20315  February 26, 1980  Honorable Irvine Sprague Chairman Federal Deposit Insurance Corporation Washington, D.C. 20429 Re:  Dear Chairman Sprague: The undersigned Members of Congress are writing with regard to proposed amendments to the FDIC's regulations which are intended to conform them to the transfer of information requirements of the Right to Financial Privacy Act. Though we agree that the FDIC's regulations should be amended to conform to the Act, we believe the proposed amendments do not accomplish this purpose in at least one key respect. The amendment to section 309.6(c)(4) provides, in part: "(i) Reports of apparent criminal irregularities pertaining to suspected violations of law which affect the safety or soundness of a bank may be disclosed to a federal prosecuting or investigatory authority without giving notice and certification as set out in Section 309.6(c)(4)(iv)(B) even if they contain information derived from customer financial records Provided that the contents of the report are not so detailed as to substitute for access to the records themselves." This provision is based, according to a footnote, on a letter dated July 17, 1979, to Chairman Sprague from then Deputy Attorney General Benjamin K. Civiletti setting forth the kind of information which would be transferred without notice and certification under the kind of procedure set forth in proposed regulations. That letter cited an opinion of the Justice Department's Office of Legal Counsel which stated that there was implicit authority to transfer financial information notwithstanding section 1112 of the Right to Financial Privacy Act. We Federal Reserve Bank of St. Louis  Honorable Irvine Sprague February 26, 1980 Page 2  believe this opinion, and therefore the FDIC's proposed regulation, does not accurately reflect the intent of Congress in enacting the Right to Financial Privacy Act. The most significant interagency transfer provisions of the Act can be found in section 1112. That section permits transfer of financial records obtained pursuant to the Act if the transferring agency certifies that there is reason to believe the records are relevant to a legitimate law enforcement inquiry within the receiving agency's jurisdiction. It further requires that the customer whose financial records are transferred be notified within fourteen days, unless a court finds that notice would result in serious consequences, spelled out in section 1109 of the Act. We trust that your internal procedures are such that the receiving law enforcement agency is given the benefit of the full fourteen day post notification period to determine if they wish to seek a delay of that not This language was added on the Floor of the House by an amendment offered by Representatives Goldwater and McKinney to replace a previous version of section 1112. That version, as reported by the Banking Committee, permitted interagency transfers of information only where speifically authorized by statute. However, the version approved by the Banking Committee specifically authorized supervisory agencies to transfer information to law enforcement agencies. Rather than attempting to make explicit statutory authorization for each instance where the Congress believed interagency transfer was appropriate, the House adopted the Goldwater-McKinney language to provide a relatively simple method for inter-agency transfer, while still providing some measure of privacy protection. This language was approved by the Justice Department, as noted in the Office of Legal Counsel's opinion. This amendment was designed to cover all instances of interagency transfer of financial records, unless provided otherwise in the Act. The Act does not provide such an exception as the FDIC regulations attempt to create. The proposed exception appears to flow from a section of the OLC opinion which suggests that: Notwithstanding section 1112, then, the supervisory agencies have implicit authority to inform the proper law enforcement agency that their inspection of customer records shows that an individual may have violated a criminal statute governing the management of financial institutions which they regulate." Federal Reserve Bank of St. Louis  •  Honorable Irv/Il Sprague February 26, 1980 Page 3  This interpretation is based on the argument that: ...It would be anomalous to conclude that a statute which was intended on the whole to strengthen the regulation of financial institutions was also intended to deprive the regulators of one of their oldest and strongest weapons for dealing with the most serious cases of management abuse. We agree with this latter statement, but the Right to Financial Privacy Act does not deprive the regulators of this law enforcement tool. The Act does not prohibit inter-agency transfer. Clearly, where a regulator finds a case, such as management abuses at financial institutions, financial records relating to it can, and should, be turned over to the law enforcement authorities with jurisdiction over such matters. Such a transfer is well within the certification requirement of section 1112. The only other requirement of that section is that the transferring agency notify the customer of the transfer, within fourteen days. Thus, the Office of Legal Counsel's opinion, and the proposed FDIC regulation which is based on it, are founded on a misreading of the Right to Financial Privacy Act. Since the Act does not deprive the regulators of any significant authority, there is no need to find an implicit exception to the Act. For the reasons stated above, therefore, we believe the FDIC should amend its proposed regulations to reflect the intent of Congress in this instance. -;) Sincerely, / / ,c) Honor  7, In J. Cavanaugh  Honorable (art B. /1  cKinney  / Honorit e Fortney H. (Pete) Stark  Honorable Bprry M./Goldwater, Jr.  Honorable John  Rousselot  e Federal Reserve Bank of St. Louis  rsisfessail Nit URA  illosseabis IfObtot Je 14401.0cOiell aloe*adIrsprocautafxso  Vaablostaat fiet, O. 203 low lito lessassalso  aim ram  pia ark ha leasant• at a possoosc try ors if pas oolor. ootatso At. lama 'fan NON, ION Pa IRA aispoase oop it,,tas the swarasit spawn at beskies la tetolk fradossi aembar balbs are segatand to bold ealactiaili if Otis diosolat as searipos ettk amo dam moan* asowlosmasta ass an avast no WO porceot at esits. ger y4,4 re-oste limor  10116446  foilotel. ta caavios oat filto assatasy pat*, oliopandMitt os$ fasooteta coulbar Mak weefoorso veto MUM a.$11 for issataity amnia is faMseas ostiote thaw sosta• so ditosa tie failsoil lisososs WPM Skz-401111a it SOO likiittelloilk0 bream ossorsis oaf tbo ssellissy oswargatoe isdlor Morita it gamismio iremosic. zit tasliamally ossopidned dot Intimidea owl cattalo elm the tomear ria if 'it to occommilited 11, araaratas assaffaud tiratit• Idacaravan'. to as las Vat t4 imam dia c4a. 111111.16 t Asset lasores spates tbsa maw a spasm oi .stat papions allasnos• Sodas the s/rialvt tiattleast rasowle apstaa. a mirliais bp Os collosat bassiss if eactuttiosisas asos asst eraistly sorialso to ao apanslaa consescial be ilassolas oval los a saltiela at be laciness lbs bait maims asfafei fais tat isms aeibes #1111.1601111116 ilwasetais struts so Illoado actqattal bp Ohs aollows of soc-arlit-los ase dissietial la bads ski II *A dors lame oat a hoottoe it Owns fo.opm-sbas levelos sot sapdad to be kotil as ornolosses. 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OM *OEM sit pleittlibly Aly $i*INIM* en flartiltttes for a tall maim smah yetis boas towd offor tastitut corsolit simal4 Stinfiktart ta *tam imikits bat batiore ass a its, 1 110114, 41111101011111 . 1 soisom maw oboe eat issitiodo eitastas erateel lissome war the eattime. atm** se ammo asi forsdlit•  Slastieety VFW k 111444  atILL;„ILL:Trod (0-43) beat  T. Die* a. I. Liable, J. 1.. UJhLL Mrs. Nallawn (2)1,0  COMMITTEE ON FOREIGN AFFAIRS  • ROBERT J. LAGOMARSINO 19TH DISTRICT,  CALIFORNIA  S(JBCOMMITTEES:  114'7 LoNGworr-TH Butt..nING WASHINGTON, D.C. 20515 202-225-3601 ASSISTANT REGICNAL WHIP FOREIGN Federal Reserve Bank of St. Louis  o' try TASK FORCE CHAfRMAN -  Congre  of tbe triniteb  INTERNATIONAL rcoNsowc POLICY AND TRADE RArakiNG MINORITY MEMBER  tateE‘  INTER-AMERICAN AFFAIRS  ji1)ou5e of Ikepre5entatibefi  COMMITTEE ON INTERIOR AND INSULAR AFFAIRS  Washington, 33.4t. 20515  WiscommITTrrs: PACIFIC AFFAIRS RANKING MINORITY MEMBER NATIONAL PARKS AND INSULAR AFFAIRS  February 8, 1980  OVERSIGHT AND SPECIAL INVESTIGATIONS  The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Mr. Volcker: Enclosed is a self-explanatory letter from my constituent, Mr. Loren Van Wyk, concerning his views on the Fractional Reserve Banking. As you will note, Mr. Wyk has written an extensive report of his research on the subject. I would appreciate your consideration of Mr. Wyk's arguments, and your comments. Thank you for your assistance.  RJL:jco Enclosure  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  • '  January 24, 1150 ... ••6  I  .  ...., •,, N.. •  . •..-.,-.1..i. :; •t• i 14 j.'4,110-  -.. - ... ,....., ,.., t., , 4 ....—e'Nk,-....,,V.':f„1. .. ',. . C ..':' * •k,:'' .-Ig. "V  . 1, i i .)• t i ?"1(it , -.1;.- : .". Irs'4 Ls.A.,›4.44._ -.1 ' tt. ••• --4., ;.._. ...i.k1 0,-....i,..1 . . e .... •4. • , 1:, ., #-,, .4t..` 4. , . • • • •• ,stajr,..6,.f...  :i ) , s. )  lonti res;lran obert Ln,o mars in° Ilou'.-.)e of Reprelentatives -••• —7—II e...-' 7:ashington, D. C. • - .• 1. k • ,• • .,,, ;4. ":,174 ) Dear C onz reb sman =Lac- omarsino: 4 "  '-f )..t' el 16.,"? ** N F,r* or., ,. _4;4 2, .f, /Nit t' ib •et • A  , • , •• 11.  • o  ,  Please accept nv belated thanks for your generous help with inv ende:Nors to get to the roo-',, of thli)roblem of Fractional Reseive and to discover if it is or is not a serious evil.  Tke  enclosed paper rorre:ients the present state of my understanding of he problem, and ccelusj Oil  I,  tkaL  fruit of co,-iLinued research and reflection. Its ractional Reserve ranking is indeed ;_ln evil of  incalculable i!:iz,ortailce. or a member  1 wculd very much appreciate it if you  you !- ..,;:aisf could road and consider it.  Let me einlv.).size acain Ry gratitude for your i)revious help, and :rocre',1:7 v.hich I  (.:;g:tbicd me to mike in u2de./.1.3Landidg this problem.  you would 11(21p mc tAaiil to obtain expert criticism of iy statement of the problem, I believe that both of us might be in a position to accurvtely aess its impact on the general welfare, and have the basis for an infer:lied opinion on whether reform is need'fand, if so, what general :Fe  :7hould. take.  If you should determine that this is.:uo is one t:Int should be 2:_ti.ried Federal Reserve Bank of St. Louis  in nongres:.;  id before the public, I would like to offer my  •  • Federal Reserve Bank of St. Louis  erv r! es to you as preblerl.  n un aid a!:;;;.: stan  Ci suns ta:ic  nt; full 1,1:::e o  rniS one  es ;i.t pre:icnt to be such as to enable  me to do ;:o indefinitely, and indecd it • is, so I unders Land, an ancieni tradition in the Enr;liF.).1:- spel:infr, world, that a person of indopendk:nt LIcan3 should devote himoeif to the public ser;ic e. Thank you v cry much.  nc orcly  ;11 z  e  ti  11  V:: , 1  ras.:c  a:1'11 __  . lualtity Theory of Money has ben much praised and raich blamed, 1) The . but for the pun oses of the r-esent essay the following somewhat related statement, which all will ace to, will suflice:  every u!lit of money  (every dollar, for example) represents an equal claim on the real resoun3es of the nation, and those who hold a greater proportion of the money sun:Ay have a proportionately greater claim.  2) Liflation may be  to u,_; from microeconomics, one from macroeconomics, a.-id  one of on  d to rcd:sirbutc the nation's wealth in three ways:  from what may be called "e r.acke rbarrel economics." The name chosen for  the last is meant to succ,est that the effect in question is so obviorns in to , little 1.‘restige a:d hence little attention.  character  effect results Irom the last that differc:it  The rise at (11...,.(;_• j• , t -% an t/1 C  rates.  A, the rrice of what he sells  ice of what he buys, while the orposite happens for  • from people like 3 to people like A. Lra.IsLer cf wealth  resulting  This effect  - also has, of e3ursc, hotliiilk; to do with inflation ler se, since it o:;curt, during dcflaticn 4)  The  redit  •-•  nd 7,.}.en the aggregate -n-ice level is stable. orlic e::: cc t  .  _  s the transfer of wealth fro:3 debtors to  is the only one of the three which uniquely occurs during  an inflation.  5) The "crackerar2.-el economic" eifect is the transfer of purchasing rower from those who hold previously existing money to those who own newly Federal Reserve Bank of St. Louis  . C.,'  L.C.f._  .. -  r> •  .  L  0J..-  • .  i'ir;t, has nothinc,  rdle  "?'.:  of the mov e:Jent  , .  the Quantity Th'i -  since all dol I a:-.2  .1  f  n  •  •  4 •- • '  n  on arising .f."rom  i  ti:;  o do with in-  if the owners  Y.()  of existing mony ale not 1,-art by the c 1-uati on of new ::ioney, 1. c., if th(3 does not decline, the  purchasing ,pov:(;r of thei  pro ortionately in this good luch.  created money siiaI  of the newly The change in the  distribution of purchasing power resulting from the creation of new Lioneu er•  independentlof r]ovement in the price level.  6) It is however very uSul  o brinL in the --oblem of  'Italian. here,  , I would stajest, verify that the hardshii s whi.cli  because inquiry  people blair:e on "11—  ion" are in fact the result of the transfer of  tl.e owners of axis Ling money to -the ov,ners of new  puicnasing1, - ower  money.  7) The .T dlvi ding CaSh  inc caont of the money sur ly (taking here I:1,  plus  c  Federal  money  nc  in circulation, 2) money created by the is dr2:-;o::,itcd  ter  ,  ont pu-"—o,-;es 9 r•  L. .  :arts: 1) money created by the  into th  dc o:L  :Federal  at el;  sy,:.-3-tem can be .3t be uiade ...stood by  e  -3...  I  k  (;:.  coking accounts (here vie deliber-  the problem of ti:Le der.osits) and  I.ivately owned member banks of -C e I edern.1 Reserve  System.  8) first, considering the first two components together as money created by the Yederal 7esenre when it buys a  reasury .1111:  The act of buying-  this bill, while infl.t.l.onar:;, is also in a certain sense neutral since the Federal Government reduces its debt by the amount of the Treasury bill. Federal Reserve Bank of St. Louis  • LE; Liocicy  Lie  c-f.1 cc Led Lo  (i.00 1  • • I  1  en u), r.11  all Lhint.,:s  uneLy  are c  1  (-1  be.ile.1- ..itted by tile rCJCtiOn oi' the  debt of .the  taxes  D) :Let us say that 1/3 of this Lio.icy is def,osited in chcci:nr.:; r.:!.onent oi Inc  creates the  This  .4 •  inc  supply: demand deposits vLich represent actual jctano  the bank wir.:_ch ci  lalec as  and  t as vaul  Lioney  of  e:;fin d 1 n_b_i 11 t2- of  cc''onent exists on two levels: as n. Tis e\  in the 'rank".  ac:'ants.  cash or  ucco,..tilt  which soy;es as the basic) of de; o it c rcati on.  13  evely dollar det.osited and added  Let us sa,„7  as  or rese-ve ac'Jount, ",  "loa:Jinc, ust -•)d ev  ion Lc  01  :r.cnaJ  7Gte  he en1-cner:ed  (the Federal Reserve Bank of St. Louis  .10  r.laLn,  fly r'c  ..y the aclual .  s  I  _  o.;nL  ,c.  acdually much  - ion  -  he  only uar,1  •.•0  t--  _•  E.-'11..1111 for .irLer—  three1,1  "  1 th  n  ic one do-2_17,r of deT.7.and  of  1:y1-cc e3s of  t11:1-.0:1:*11  cre:ition of de:.- 1and Cie• osts  •-•- • C•  o v?.1.11t cash  •-• ••  three co:Anon cnts of t:.e  ‘r%  'it  o__ the  1):  r•t J  C I  feu'e,  :N  C. s  rf  or/  tl-Nc2rv e  I" 4  r -  v  f  1,  I.  4C.J r-kz..4 -5  /IQ,...) (fey-. c  Cev  / 1 4(  E-t  kvco  key  •  S  • .  •  11' :.▪:  r  '•-•• '  ▪  1  '  noL  -  D.u0v C  e  de::.aad -. _  dc;,  _ C.; r  •  •••  ••• 0  C -  l• Cd  1  cry  C  Lo •,  uc  •  r,aLLc ifO.l Lac ielidc  c  iles°  CO3iLS over arid  •••  Led L„„-,  _  .L  • rt  Lie e  _  - •  It  i,oiot1 of -L,..e  -- 6- :1c  C::.L .;t  : -..Lva Le r"  • 41.  1 .)E.2...1:: 1  dolla  tLmjC.1  1101;  OCI  LI.  edcral  the  Tare..  r  •  •  •  4O,  •  r. I ••••)  0 T• I ••e  ,  mid le,ad it  )  C  .'011  .•,'cos I o  '11_1  tend in o  .  ,  L iv e •  o  rket  u  o t le  L  t. ace t erras  LUZ:  1. 1 4.;  C  f i-c.;rn Lae t the to you,  i1oJvcr I choose, .‘„:id thus c,s.r.lon Ls- *  0:7 it - ion to uc t1e Lioncy in t:-:e  ,•••' • • •••.;  •  Lat e.:..cst as the one o  •-•••  - • -  2  net,  o  •  Lo 1id the :Ion ey -L o  ,  i; 11 27.;  o:;..e Leie  or1.:1±n1:  o  - -•  0  C  1::ce t  •-•  L.:. en L.'  of  ▪A  c• T  „  1.i0S  p.roduc-  • r  o 1.-r( es ac  cn your  ,  •- ..:sr•_=  -ince I am coml-,etini...;•  I".0t  C 2,1 n..1 0 C  LE;  •  oOr —neo-de  A  ei:i  2L  triose ;.".0  sad*/ n.  •  '_ (-3 L. et.) s••  .Llie 1  -  •  •  .•., “Ww••••  r ;•  u  t, )-,c o Federal Reserve Bank of St. Louis  cicLccj one  to r:;yeif.  -  ii  roe ‘,7-1th us:  :L• or 'nay  .]e  ry.lo!_tti L  7...,1.1t of  o to  Cf ecrz,.1  •  Le:  c  :don ey ecival to 1/D of.  it in such  e co:nnle-  •I  r is 'ro ct!o. -ttc1y  he  1.13CLI  d  i  e(.1  01(.13. ou.;1:" Inc  1,1011 Cy;  ViCi'Ll C  ::_;  . C.  J -  .I_  -  "  t1€Uli.1,  ....-  bct  co.:  •  total  •"  :iisubjec-'t  to deceptive uses. ed :zoney  to the Ltn.unlent t:iat .aewly  ••  ...e banks which create it and to which it must be  by  :2esz on it, is to sy, "Li I rent you r:•(,! fishing  e!7.11-1  repaid, L.7..-1.6 pole, ....ILO owns 'L.:IC  1ishiIL,p02..C9"  The boirrowi:IL: of f'..ulds irom a bank inbut the liability assuLled by the bank  volve:, an  thoaz;h it represents a  bears no inT,e2est, of it will, with  WO roe-tkian-av ezac,e  luck and  1.o:Lse to  :CV  On  rse-than-av ex-4;c raanczement,  :.:any years after the borrower has fully  be  -  •  or ob jecti  nc  m  lLcres  it oe_•;  pays interest and -cri_lcii;a1: the 1.3 :rower -  It over .the years created be, that bankers, liavi:-; the yearly incre:r.ent of the :;ioney sup: lzy• (since  -c,i1c1„-•  ant-  Taid bon  very little of the .-:rincipall on a debt of the  •  12)  de ...".?.11dy  fcr ther_l and is repayable to t:Iera) must by now  so L- ucia.  sla- r that thd_ r yearly tribute from holders of  of e;:lotinL,  extracted mainly from themselves.  hut this objection  azno2cs the fact that bank owners (as orosed to banks themselves) are as as anyone to buy r,00ds -- to "move in and out of money" as they see r:  ibute of non-bankers to ban'..-_ers is paid, in a sense, cn  a rot. inL basis, as over  he years and in fact over the centuries, non-  ":.i.ove in :,.nd cut of money": the tribute is collected by the bankers forq of vtlin.tcver they buy with their nevay created money (once it has been rel:, ',;() them) and the bulk of it is yearly stored in many e t es of non-;one-y, thus protecting the bankowners' their  o;,L1  jcraLioL13.  is analysis  rowinc wealth from  assumes, of course, a prudence in  the - bL7..ikf'.f..s' use of their uniquely privileL;ed poition equal to that Federal Reserve Bank of St. Louis  UCCe:G%.1';" tO  VC oL ina1y  created • t and to 1-,,resently  1••••  -- leculate as to the ey.iste:lce of socio-rsychical even spil'itual nece3siti, '....hereby some mechanism cf this kind tends to evolve in  socicLy •  and  4 ouscure and 32,-7,ar(;.n tly trivial u • •,, device  L:rerlt wealth  owr are chanelled :Lit° the hcnds of a very few, who tcn use :It  est1ich an o::.- .lir)reoent a:I(i co1.2.-uLt influence, and  auCVe  Lo co.lce%1 or  '  failiug. in that, to defend, the obscure device which seifves as the uasis of  Eft their  power.  15)  dErn2.7;e mr.y be halted (the ritinL; of seems in general to be a rroolematic thine : ), a considc....f.:.t_Loi.i  :.ay 11-vr' fdro:.,ted the framers of our constitution to for'. id c:•:-i:ost-racto is, as I believe and invite correction, the follovii.AL:  The lede-al  .eL;e-rve should increase reserve reouirements for demand de!,c:.tis to l) i.e.  or every dollar vi.-..Lch some de ...3osi to r has the  :ithc.i  notice, there should be a dellor of vault  noncyto r.:ect the ban.'s  on.  the -,-.e...5er,7e accounts of member cash,  o  Cazth  or re,;errve account  it should s  Inc  aizs by an amount  e  a.- aed to vault  enable them to meet these new reserve requirements.  This latter  step is a mere matteof bookkeeping, since the rederal 7?ese.rc-v- e has the leCal T-.0'.7er  to create money r::ore or le:75 as it sees fit.  be ta'- en in tile more ".eSen- C  '::ill then  c- ees  UP-11:3 1 creation of  or  eV C:1  ::toubleci (to understate ir  o7,7.1 money.  hinis  O::C  Thus a:;;:umin;-;  current rolici es as to the rate of increase of  C.  ) by the  wf_she:3 to he no.1  covern7.:ent securii.ies.  his  ubstantially to reduce the rate of crowth of the 7ationa1 -)cbt  r0.:UCe  it, and is ;•erilar,s the most important mechan.f=. wherci.v  the 1ulic at 1-trce will dirco ily benefit from the cila:1 Federal Reserve Bank of St. Louis  St  area of time deposits.  v.111 ciou-Lle its ryarchr3ses of will tend  Or- OUZ  fi::u tha't the Inc re:Icit to the mon cy cu-' ly ..hich it y ear  lonL.- er its  "--  •  of course be a.;:;u...ed to Lje 3ubt1tia1. v7 1. bC  oriL:ii  — .)4 02  13 a • acno:aenon who.;c ('••  3 f'f"..:  c ou I d  -C.  oo of Federal Reserve Bank of St. Louis  ito .rt Ids  -1 47  •  vs-1  ''he :-:iust of nec e33ity er- cadnot be ov 1-.3tated.  do 1.1:..1..:11o '.:-;e the "Decline  headJ have w,1.31.,j, •:;:?.cLed, LL1d the -o:::'n trivial ca_13c3  a 1a3 titiL 1e3o  ifl hu:,:an ez.;  LI  ic 3.  t, 3erve a3 a salu tar] Federal Reserve Bank of St. Louis  febaerey IS, 19411D  a.ilesettiolkle Mee ermine* Wiled Stites Some ihallifteltas, D.C.  Va  seer Setator Cimeeteet glee& yes tor was Uttar of Peloseerty sebeitte4 jallatly PM. 11006141, Care ea& besmear Tome vesseales the Seafooles eatikaa to vomelps, As of am* $it nay the Um* la Lesiaft amedesat eteethe es emeepties to tee thiese4IY setalcirellt asealarmiet dee edimmeee es& paretwat to epeeileed Hem et media eamital by beesesaies beaus• 7 aoessilatee with yetitfeeo reeestly seseleveil by die llemedt, yes air.reemeading Illat the eallestlyre dote of die Ilomere est** the faessiasea be &LAW poen fleet lhasiesatesat settee ea ILLS 1. A. pens lanseeelp dot Ileglelettoo woad. la pead,t credit glass iboeellosped aidet the Ilessee analesat. Ilbo p.tttlm,lieseeber lath year stataamedettoes 411 be prey eaterd to the Soma ehiertlyt tad gee soy be aleiged they will be One etrialal estableratileak ileer4 oppr*elatee iresellielas your views es dila maw. I INS SOW.s lamrty of seadlais esbeteettvely tdemateei seciperees to Iheeetare fleta eed Sawn* isterely  OM I)102111 Kelp t 0,40 INK* am. %imams dr. Allisost 11** Sart dr. %tier *Mardi 0)kr lettere nee seat us tweetore Gore and Tow.  •  V. ILI IAM PROXMIRr, WIS , CHAIRMAN HARRISON  A.  Wit  IAMS. JR., N.J.  ALAN CRANSTON, CAt IF. ADLAI r  STrI/E- NF.ON, ILL.  JAKF GARN. UTAH JOHN TOWER H. .1014N  Tr X PA.  pont Pi MORGAN. N C. DONAl D W. nir.GLr. or.. MICH.  WILLIAM L. ARMSTRONG COI O. NANCY LANDON KASsE nikuM. KANS.  rikt,L.  RICHARD G. LUGAR. IND.  S. SARRANFS. MD.  DONALD W. STEWART, ALA.  ,Senate  1..1Cnife  PAUL S. TSONGAS, MASS,  COM MI 1 KENNETH A. MC. LFAN. STAF F DIRECTOR M. DANNY WALL, MINORITY SIAF F DIRECTOR MARy F RANGES Dr LA PAVA,  CLI- RK  EE ON BANK ING. T-IOUSING. AND URBAN AFFAIRS  WASHINGTON. D.C. 20510  February 19, 1980  / I  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: Last September the Board of Governors of the Fedeiral Reserve System voted to revoke an earlier amendment to Regulation Z which exempted advances under open end credit arrangements fram the three day right of rescission requirement. That revocation will become effective March 31, 1980. Since we expect that the Congress will authorize such credit plans in the near future, we believe that it would be prudent for the Board to extend the effective date of the revocatin o order. This year the Senate again passed the Truth in Lending Simplification bill which contains an exception from the right of rescission for advances under open end accounts. The provisions of that bill are presently contained in Title V of the Depository Institutions Deregulation Act (H.R. 4986), which is expected to be the subject of a Conference Committee meeting on March 4, 1980. We cannot assure you that the open end rescissionprovision or even the Truth in Lending provisions will be agreed upon by the Conference Committee in early March, however, we do have the staternent of the House Conferees from late last year accepting such open end credit arrangements for a three year trial period. Therefore, we believe there is a very good likelihood that open end lines of credit secured by residences will be authorized during this Congress. When the IS.. voted to revoke the amendment last fall, it also recommended that Congress adopt the language presently contained in Title V of H.R. 4986. We are in the process of trying to achieve that objective. Therefore we believe that forcing the few institutions that presently operate such programs to phase out those plans would be doing a disservice to those institutions and their customers. Closing down such plans and then starting them up again once Congress gives its authorization would be both costly and confusing to consumers. In addition, the impact of such an extension is minimal nIht of the limited number of institutions offering such programs and the fact that no new plans can be IS. expanded during that period. offered nor existing Federal Reserve Bank of St. Louis  The Honorable Paul A. Volcker  -2-  February 19, 1980  encourage you to extend the March 31 effective date for the Board's order of revocation, and we will continue to do all that we can to see that the Truth in Lending Act is simplified in the near future and that the authorization for such open end credit arrangements is part of that package. Sincerely,  Jake Garn  ohn Tower  cc: Federal Reserve Bank of St. Louis  Governor Nancy H. Teeters Theodore E. Allison Janet 0. Hart Nathaniel Butler Federal Reserve Bank of St. Louis  ftersery 25, 19400  limo lieserebie amass a.limartay lima of tepoemantetivas Vashimston, D.C. 2030 ewe Ss. ffemossaps TWA pee for pommr Utter ii isbarmey II rowdies the Beeed'e steSee to revalue, as ad litedt 31, MO, the Tuft1aWeft * ammoimmot meeting an ameeptien ee the three-Noisy seetiormedi roondenewat few ailimas se node geeneent to epon-emd Una ef credit eeemned by begessers. home. I* seesedemme with petition, mesently reeeteed ky the Beard, yee eve reemenamdimg thee the *Mattes diets of lhe setiu roviklog the amendment be &loped peedimg flea Compeeetemel arab= on H.R. 491116, Am yem ludhenin. thet Ingiobalom geoid, is feet, peemdt *milt pisms developed mad,' the Beetre amendment. Tha witless, together with yogi reasenendetions, will be presented to tbe lewd Ohartly, sod yee airy be seemed they will b* stem careful cassiderstiemis The Board appreciates eseetwing your views as this wetter. Sineerely. S/Paul A. VOckec  MVE:JM:CO:pjt (#V-0) bee: Ihmeeis E1tab Mrs. liellardi (2)  NO6 E/MAN D. SHUMWAY •  1228 LONGWORTH HOUSE OFFICE BUILDING WASHINGTON, O.C. 20515  14Tii DISTRICT, CALIFORNIA  (202) 225-2511 COMMITTEES: COMMITTEE CN BANKING. FINANCE. AND URBAN AFFAIRS  CHRISTOPHER C. SEEGER ADMINI WE ASSISTANT  Congre55 of tbe Ziniteb *tate5  SELECT COMMITTEE ON AGING  1045 Nonni EL DORADO. ROOM 3  30oti5e of 1kepre5entatilit,  STOCKTON. CALIFORNIA  95202  (209) 484.7612  .2.1azijington, D.C. 20515  MARK A. Dr./kJ 'ERO DISTRICT RIEPERSFNTATIVR  4#<  8 February 1980  • 1  The Honorable Paul A. Volker Chairman, Board of Governors of the Federal Reserve System 20th and Constitution Avenues Washington, D. C. 20551 Re:  Right of Rescission, Docket No. R-0202 Request for Delay of Effective Date  Dear Mr. Chairman: I am writing to you to request that the Federal Reserve Board consider extending the March 31, 1980 termination date for exempting the three-day cooling-off period for advances under preexisting open-end lines of credit secured by a borrower's home. I understand that three California financial institutions, Security Pacific National Bank, Crocker National Bank and State Savings and Loan Association, have written to you and the Board requesting that the Board take such action. State Savings is headquartered in my district, and Security Pacific and Crocker Bank maintain offices there. An extension of the date is appropriate because the Senate has passed H.R. 4986, which would permit such advances, and the House conferees for H.R. 4986 have offered an amendment that would remove the three-day cooling-off period for a three-year trial period to determine if such credit arrangements are beneficial to both consumers and business. Because Congress is actively working on amending the Truth-in-Lending Act to allow such open-end credit, at least for a three-year trial period, an extension of the March 31, 1980 termination date would allow Congress to act on the amendment. I believe, under the circumstances, that an extension of the termination date until August 31, 1980 would be both reasonable and appropriate. Sincerely, C NORMAN D. SHUMWAY Member of Congress NDS/cch Federal Reserve Bank of St. Louis Federal Reserve Bank of St. Louis  /Whew/a 25. libbc  Th. 11rageble abort t. walker Maws ad Marseeentetiges 110164m00016 16 C. 2015 new  itnIkerel  yam *  Nth year *totem at Paousa 7, poky emotioeed • lector Aimt to faelgage at ths beeed it the Cambarlasil amity fileek. Ng. Nara graggesed kir •Assoisa shoe the azamipiatitilas emigeved by holm Oat me on tiothers it tho Mood lloodorvo  8,441.6. member Weft see at a atoodirootoile beasmes they must held etestie, cosseasnieg engorge Wawa, at tenletel Mosergo Simko. This bards, sd wraborohvp has led to is accotaratims tweed of withdrawals Rigs the ilgotoo by erabor beaks. Mhos a estiseal beak or a state am/bar beak withdraw. ft is onemAgeed by the ewe beak ewperwissrs to beLd tto esesswea is trams Ors peimptdo tormiams. an 'my onsograed stwa this attrition it ailikowoht, sod gra wapliestieme ti oat emote for monetary petioy. The balances bold at Messrs* bake bpmember hobs are the fuieree whist wkdob mortar, seetrol is esneteWt. 4ttsittee fro* umberaltip tothsor Shot foto:rms. It dw.srosses the onetietakatity it ths gimpy randy wecess aid dietabillaes the retatienehO betimes meseges wigs red outset end the meow etwibt,yra hem, the momit Mss Los anted lest yews to *sal oriek this peehlam. As pissed by the Mewee. 16 14 Imouti &trews Obe enroll owe Modes Wow by bunko arniatos Pellorai reserve segairememso. Lt brake. dowits Ike rseuced bmedge, nestiams to orltheirts from the Mime Messes* Systole as that redoes' reserve mequiremeat esmerage of total book deassits tails below a oertais them 116 IL 7 would rsolaire aI UMW taelitutlees. 4t .r members it met. toiled* Podersa reserro requireammts. *tithes* i am cescsised that I. 1. 7 rap mot pregide as admires legal of reserwo belamese et.* *MA the redesel. Messrge 40,010StO emestary noliwy, 16 1. 7 ts rerateective suit esserd diadigg as eirgeetive sad dopittoblo essolmtAgns AS  mosiotary inowrov0000t boo tvostatty had Imarliss Urgislatiat sad iarthor satiate till iiipeatadl shoostip. I truss t that the Federal Reserve Bank of St. Louis  The :4eiseeehte MOO Teo  liebert sIleihor  UmOntetive orwees t11 product* aeatucee that tat Web 4116011MO the *meses eitItcy tm emagef.t seeetery ?optic, ead awe toward eompetttive 4041malitY for *11. 441MOSsay igatituttOMI6 UMW euevert le thte mettemwe otli be meetly *p10011141014. A oimigip fit gip 01t*alliff Woos the iteseto at asasatery improvement toodelattme le ear Leeedl. 1 abet be , ,,teskeei to maims mg qesettime pee mg bow* Statorely, Sdatit  eaclestaire  SCILJNI:061WInd (#1,-,e) bee;  lir, !Luta Ur, Is. Mallerdt (it)  lagGlet  Action assigned Mr. /rod Federal Reserve Bank of St. Louis  •  RODER:r S. WAER LK r6TH DISTRICT. PENNSYL VANIA  STAFF IN CHARGE: THOMAS R. BLANK WASHINGTON OFFICE  COINIMITTEES• GEORGE W. JA CKSON GOVERNMENT OPERATIONS SCIENCE AND TECHNOLOGY Federal Reserve Bank of St. Louis  Congrog of die Einitrb gptateE‘  DISTRICT OF rES IC  3Dotuie of 11epre5entatitiO filagbington, D.C. 20315  5 February 7, 1980  ,  Paul A. Volcker Chairman Federal Reserve System 12th Street and Constitution Avenue, N.W. Washington, D.C. 20551  CD  Dear Chairman Volcker: Enclosed please find a copy of a letter I have received from my constituent, Mr. John Witmer, Chairman of the Board, of the CCNB Bank, N.A. As you will note, Mr. Witmer is concerned about earnings on reserves and feels that the earnings between state banks and members banks of the Federal Reserve are inequitable. I would appreciate receiving any available information concerning policy reforms contemplated by the Federal Reserve System with regard to the allowance of earnings on cash balances at the Federal Reserve. Your assistance in this matter will be greatly appreciated and I look forward to hearing from you. .6  Robert S. Walker tm Enc.  •  •  JOHN L. WITMER  ::r. :tobert 6. .alker, I.. C. Lon,-worth Office Building iia„,hincton, Do Co 20515  Jan. 24,198u  JAN 28 1&8U  Federal reserve  Dear Conrressman Walker: During our oank board meeting this morning the matter of the Federal Reserve ystem was discussed becau se of the withdrawal of National Central and Equivank from the system. I know you are familiar with the mat,er since it was in the Hose last year but defeated in the Jenat e. Frankly I believe that the„er must oe and will be resolved for tne protection of all J.ember oanks. you well know, 1.0 ixe6ent system is not equitaole wnen re,er ves are considered ai L. state oanks have a decided advantae whicn coes them proud wnen adaitional earnings on re.,erves consiciered. .e need help in i7etting the matter resolved, earn:i.c s cn ca.,h oalances at the Fed, and eventua.dy 1 feel all banks will be unuer cotrol and Fed wila mana_ .e the Ooney for the i.7ove rn ent. ,our nelp aria infence to Let tne matter into hirh Fear at the you give U5 :,,me help? Federal Reserve Bank of St. Louis  6ingere1y,7 —  ow—  .;:e need ashington level.  1  •  ABRAHAM PHOICOFF, COIN.. CHAIRM • HENRY  H. JAC.KSON, WASH. THOMAS F. ILAGLETON, MO.  LA ATOM CHILES. FLA. SAM „poHN JIM  SASSER, TT NN. H. PRYOR, ARK,  CARL L_EVIN, MICH. Federal Reserve Bank of St. Louis  JACOB K. JAVITS, WILLIAM V. ROTH, JR., DEL. TED STEVENS, ALASKA CHARLES MC C. MATHIAS, JR , MD.  HUHN, GA. OHIO GLEN  DAVID  CHARLES H. PER  JOHN C. DANFORTH, MO. WILLIAM B. COHEN, MAINE DAV:0 DURENBERGER, MINN.  'alCnifeb Zfatess Zonate  RICHARD A. WEGMAN CHIEF COUNSEL AND STAFF DIRECTOR  COMMITTEE ON GOVERNMENTAL AFFAIRS WASHINGTON, D.C. 20510  February 21, 1980  . f"  1  CD  Mr. Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: I have your February 7th letter regarding the conference at Harvard on U.S. competitiveness on April 25-16 and . regret that you will be out of the country at that time Your personal note at the bottom that you would like to have someone attend is well taken. If another member of the Board of Governors is able to attend we would • For your use in _ nvitation. --lease to re describing the conference to a col e.ague I attach a copy of our joint letter of January 11th to you.  Sincerely,  Abe Ribicoff  Enclosure  it Lfi. 3  CHAIRMAN ABRAHAM PISICOPP. CONN.. H. JAcitsnft, WASH. . .5 P. IIASILITOwl, MO. OH  (HLt5  rt.A.  MUNN. QA. - INC.LEHH.  OHIO  SAsern. ..3Av1D H. PRYOR. ARK. CARL t_rval.t. MICH.  CHABLIS H. JACO, K. JAViTS, N.Y. WILL.JAM  •  V. BOTH, JR.. DC  YID STEN/INS, ALASKA CHABLIS MC C. MATIMAS, JR.. MO. /OHM C. DAN,DPI TH. MO. WILLIAM S. CONCH. MAINE DAVID OURIIHAUPICIIR. MINN_  'ZICnifeti Zfafez Zenate  RICHARD A. WtOMAN CHIEF COUNSEL AND STAFF DIRICTOR  COMMITTEE ON GOVERNMENTAL AFFAIRS WASHINGTON. D.C.  20510  January 11, 1980  Mr. Paul A. Volcker • Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: Of all the problems confronting America in the 1980s, one the decline of our competitive position in the world is of the most fundamental. To address this important issue the Senate Subcommittee for International Trade, The New York Stock Exchange, and Harvard University are jointly the organizing a unique conference. We expect to welcome to so conference about 100 business leaders and a dozen or labor, representatives from: Congress, the Executive branch, The conference will be the universities, and the media. ation held at Harvard University on April 25-26, your particip a will be an important contribution to making this meeting valuable experience. After a morning plenary session devoted to the general shops problems of competitiveness, we will divide into six work The to examine some of the major aspects of the problem. cover workshops, consisting of not more than 25 people, will ent; the topics: international trade; research and developm incentives; government regulations; taxation and investment oyment government-business relationships; and productivity, empl ay and standard of living. Each workshop will meet Frid afternoon and continue in a Saturday morning session. A prominent authority will prepare a brief paper for about each group, outlining the major issues, what we know . the topic, and even more important--what we do not know the Harvard University under the direction of the Deans from Business Faculty of Arts and Sciences, Kennedy School, and the serve School, is drawing together appropriate specialists to as resource people. Federal Reserve Bank of St. Louis  P  ...•1.1=.111.M••• , 1,411  As sponsors of this conference, we are confident that widespread review and deliberation of the questions affecting the competitive position of the U.S. by government, academia, and the private sector will lead to long sought conclusions about the desirable direction of American policies. In our opinion there is no more important question facing our country during this political year than: Can the U.S. Remain Competitive? We welcome your participation and contribution to this important and unique conference. Enclosed is a response form and self addressed, stamped envelope to Professor Ezra Vogel at Harvard, Executive Secretary to the conference planning committee. Please return this form at your earliest convenience. Sincerely,  Abraham A. Ribi United States Senate  Enclosures Federal Reserve Bank of St. Louis  Henry Rosovsky Dean, Faculty of Arts & Sciences Harvard University  William M. Batten Chairman New York Stock Exchange Federal Reserve Bank of St. Louis  February 7, 1980  The Honorable Abraham A. Ribicoff United States Senate Washington, D. C. 20510 Dear Senator Ribicoff: Thank you for your recent letter inviting my participation in the conference on the competitive position of the United States to be conducted at Harvard University on April 25-26. Unfortunately, I have a long-standing commitment that will take me out of the country at that time and I must send my regrets. I appreciate your sending the invitation, however. With kind regards. Sincerely, Wag'A. Vo!cket  cc:  Mrs. Mallardi #12  JRC:tjf  AI  . A BRAHAM RIBICOFF CoNNECT'CLIT  •  •RMAN.COMMiTTEr ON GOVERNMENTAL AFFAIRS COMMITTEE ON FINANCE Cr4AIRMAN  an  •ItincommirTFr ON INTERNATIONAL TRADF JOINT rc 0.401641C COMMITTEE JOINT commirrir op/ TAXATION crt i CT COMMITTEE ON rTo-iicS  ?-1Cn1eb VV A SHINGTON. D C  Zenate 20510  January 11, 1980  The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th Street & Constitution Avenue, NW Washington, DC 2n551 Dear Mr. Volcker: Of all the problems confronting America in the 1980s, the decline of our competitive position in the world is one of the most fundamental. To address this important issue the Senate Subcommittee for International Trade, The New York Stock Exchange, and Harvard University are jointly organizing a unique conference. We expect to welcome to the conference about 100 business leaders and a dozen or so representatives from: Congress, the Executive branch, labor, the universities, and the media. The conference will be held at Harvard University on April 257264,your participation will be an important contributiorr—r"6— making this meeting a valuable experience. After a morning plenary session devoted to the general • six workshops problems of competitiveness, we will divide into •major to examine some of •the aspects of the problem. The workshops, consisting of •not more •than 25 people, will cover • development; the topics: international trade; research and government regulations; taxation and investment incentives; government-business relationships; and productivity, employment and standard of living. Each workshop will meet Friday afternoon and continue in a Saturday morning session. A prominent authority will prepare a brief paper for each group, outlining the major issues, what we know about the topic, and even more important--what we do not know. Harvard University under the direction of the Deans from the Faculty of Arts and Sciences, Kennedy School, and the Business School, is I as .rople. Federal Reserve Bank of St. Louis  ••••  •  ••  As sponsors of this conference, we are confident that widespread review and deliberation of the questions affecting the competitive position of the U.S. by government, academia, and the private sector will lead to long sought conclusions about the desirable direction of American policies. In our opinion there is no more important question facing our country during this political year than: Can the U.S. Remain Competitive? We welcome your participation and contribution to this important and unique conference. Enclosed is a response form and self addressed, stamped envelope to Professor Ezra Vogel at Harvard, Executive Secretary to the conference planning committee. Please return this form by January 21, 1980. 4 "''•••••••••••••I•1••••••••  .......... ..  Sincerely,  1 Henry Rosovsky Dean, Faculty of Arts & Sciences Harvard University  Abraham A. Ribico United States Senate  William M. Batten Chairman New York Stock Exchange  Enclosures Federal Reserve Bank of St. Louis  ••••  ^-,  • .4,  ,  15.  !  •  RESPONSE FORM "CAN '1 HE U.S. REMAIN COMPETITIVE?" A conference jointly sponsored by the Senate Subcommittee on International Trade, the New York Stock Exchange, and Harvard University. Friday, April 25, 9am-6:30pm, and Saturday, April 26, Sam-2pm, at Harvard University, Faculty Club, 20 Quincy Street, Ca:nbridge, Massachusetts. For further information on conference goals, contact these members of the Conference Planning Committee: John M. Albertine Executive Director Joint Economic C,,limittee (202) 224-5171  John Bowles, IV Vice President Kidder, Peabody & Co. (212) 747-2584  Donald L. Calvin Executive Vice President New York Stock Exchange (212) 623-6900  Arthur H. House Administrative Assistant to Senator Abraham A. Ribicoff (202) 224-2823  Philip J. Friedman President Garth, Friedman & Morris (212) 935-9195  Ezra Vogel Professor Harvard University (617) 495-4046  A block of rooms has been reserved at the Hyatt Regency Cambridge. Please mail the enclosed hotel reservation card or call the Hyatt direct at 6174921234, be sure to mention this conference. Transportation will be provided from the Hyatt to the Faculty Club. Confirmation of your registration, your workshop assignment and background paper, along with the final program for both days will be sent to you at least two weeks prior to the conference. A special admini,,trative office for this conference is being set up at Harvard on January 18. If you have any questions about conference participation, call Mrs. Anna Laura Rosow, Special Conference Assistant at (617) 495-3189 after January 18, 1980.  PLEASE DETACH AND RETURN BY JANUARY 21, 1980 TO: Professor Ezra Vogel, Harvard University, Archibald Cary Coolidge Hall, 1737 Cambridge Street, Cambridge, Massachusetts 02138, return envelope enclosed. NAME(S) TITLE(S) ORGANIZATION PHONE 1. I plan to attend the conference  Yes  No  2. My spouse will attend the conference dinner on Friday April 25th  Yes  No  3. I would like to participate in the workshop on (in order of preference): a) International Trade b) Research and Development c) Government Rezulations Federal Reserve Bank of St. Louis  d) Taxation and Investment Incentives e) Government-Business Relations f) Productivity, Employment and Standard of Living Federal Reserve Bank of St. Louis  Pilbrassay 20.  The ilsativible boalawa Mom Impreseesettees illedidolaus, a. C. 205L5 lisart Mr* lisairsex es pleased a, teeeeni te yea Wets elbieb pee velpumeseil IL Its eaI. I.4112110 credit amessetet us at ISM"  relberszy I la prepesed  affitiesie lassess taintimad ea di* siiikjoat ishisna 41railit eacttias leas Illeuesler at beerfast assite led 11, deo seam ikelipc Cleinittive * talk Awe en die iiediget Pes seme• Nee eteteseet. le *gab tbe Seemod as elbeie aseeerriel. eifeemmeil admit tbe eieseiepreat of tipsousi erimissi assilasions les letieurpeet les eral seepseas• Mlle the einite et esseate sedlei eelU YON 01111.6601•••••th as Me dimiellies et tespeeelbatilty ermeses eimusleteee— eriedotedly will be alistiftelLaIlhe seam fle 411111.1111116 WW1 fddoikt• I believe NM eke Wok dime ad tile bill vastair aidesesse the Posibiess iifiel is saween0 Tertems• teetiv emp• t lope dee tbe Clegivems et.11 sine yea MIL art ether Perereeed lepieLaties iet was sire eeribeet getellbla oeasidemairee• Stassesty3 Sjyaul A,Volcka  P:JUL JIPS  (401-41)  bac: Ur. PIM! NT. &Wallas Isa.mellanii (2)  ED BETHUNE 2ND DISTRICT, ARKANSAS  • Congraz of tbe Ziniteb  • tateE;  AmuEse of AepreWitatibecS WASHINGTON OFFICE: 1330 LONGWORTH HOUSE OFFICE BUILDING WASHINGTON, D.C. 20515 (202) 225-2506  Zina5bington, 33.e. 20315  DISTRICT OFFICE: 1527 FEDERAL BuiLoING 700 WEST CAPITOL LITTLE ROCK, ARKANSAS 72201 (501) 378-5941  February 8, 1980  . r-  )1 ( The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System Constitution and 20th Streets, N.W. Washington, D.C. 20551 Dear Chairman Volcker: Enclosed you will find a copy of H.R. 6241, the Federal Credit Restraint Act of 1980, which I introduced on January 22, 1980. The purpose of the bill is to amend the Congressional Budget Act of 1974 to establish procedures for setting targets and ceilings for loans and loan guarantees under Federal credit programs.  row  My intent is to provide for the systematic review of Federal loans and loan guarantees before this form of Federal assistance expands any further. My bill differs from the other credit control measures that have been introduced in that H.R. 6241 would give the Banking Committee shared jurisdiction over federal credit programs to: 1) analyze the nature of the risk of federal credit programs; 2) set universal terms, definitions, default policies, and to add overall consistency in government credit policy; and 3) determine the impact of individual credit devices and overall credit on our national financial structure. Your comments on this legislation would be deeply appreciated. Thank you very much for your assistance. Sincerely,  Ed Bethune Member of Congress EB:vj Enclosures: Federal Reserve Bank of St. Louis  H.R. 6241 Extension of Remarks  .  •.  "4 -,,, " 4\ *eV'11,ve4  • ..."(0,12:.)r-41.c,'...L  4,10. -iNe  Ift“.._'"'°4 ;eic:::071) . •" . .es.: 7 9 P,  •-  ' •7 --41A-Asiker. ti• ik.  1 4;jaset1 - 11.1 -  •  I  FEDERAL  •  citEDur nEsTRAINT ACT  110:1. ED BETHUNE Or Afi!:ANSCS IN 111E 110t/SE OF P,EPEESENTAT1VES  Tursafc y, Jciziary 22, 1980 • 0 Mr. Bl..:TIIUNE. Mr. Speaker. I am introdueing today a bill to impose controls over Federal credit activities-Federal lone7 and loan guarantees. My 1,01, the ti.deral Credit Restraint Act of 1980, c.arrd,ts of two parts: Part I, to impose en annual ceiling on Federal ere:lit; and part II, to make %; ay - for ttahter tsste. and controls on individunl credit -aere.7ns. Tee re is a. idespread nen ement on the n«.:1 'ar cr edit controls. Prior to the recent and largest ever loan guarant tion to assist Chrysler, the White 011.113, the Federal Resetae, the Congressional Budget Office, the House Banking Subcommittee on Fecnomic Stabilization. economist Man Greenspan. and our esteemed chairman of the House Budget Committee, ikri Glalsr0, all expressed concern over the 1?.ck of control and uncle Istanding of Federal credit procrams. A tight i ning up of credit proernms is imperatke as this lareely un!Azown, but tniehty sector of the Gcai-unment till is [-Jos !rig more tapidly than nny other feann of rot ernine nt tee,i,Sance. 0UtSt 7 r,L; (*It dit (!!?,*.b :1) percent next yi nee:or- Chu; to CO. and reach a level of almest $-100 Despite this increasing activity, Congress has no systematic method for reviewing total el edit activity, end no way of knowihg how effeetive these programs are, or how they are affecting the economy. Mr. Speaker, I was astounded lest month when Con,!eas pushed throneh a $1.5 billion Federal loan guarantee program for Chrysler. How many more proerams like _this where the Federal Co% einment assumes full risk quickly become law of default w it bout a clear understanding of its effects on our economy? I hope none. by I have introduced this That is bill, and that is w hy I will be watching out for new initiatives like the one for Chrysler, Where the risk is not pooled among borrowers. As you may zecall, on December 13 when we were debating the rule for the Chrysler bill, I described the difference among the three types of loan guarantees, and how the newest kind of loan guarantees tqi laree, single borrowers—like Chrysler—is the riskiest as experienced a thousandfold increase since 1960. Imagine the multibillion-dollar economic havoc in say 1990, if the Chrysler loan program defaulted along with a couple of oth,i r major programs. Yet, I am told that the Federal Got( 7r.m(ilt has no idea at this moment how many ptoerams are in default, or how many are nearing depaCe of f;rov,th in fault. If the. pr c this off-budget credit sector keeps up Federal Reserve Bank of St. Louis  without proper control, the U.S. economy could be severely hemp/ red. Unlike direct Federal loans, loan guarantees are off-budget. It is only until one defaults rind the Government must "pay up," that it is recognized in budget outlays. Since Federal loan guarantees skirt the budget procens, they are a less painful form of Federal assistrInCe. Consequently, they have been growing by leaps and hounds. The Federal Government's reckless deficit spending v it bin the budLet process is an atrocity. However, the off-budget approaeh for credit Is an even more insidlens time bomb that ne«ls teview, control and proper application. As I have indicated, 0MB is concerned about this problem. For the first time, th:s year, 0!.r.B is including . recommended ceilings for credit pro- ' grams in the President's budget messaee. This is a clear signal to Congress and the American people that the buret( n now lies with the legislative branch. The first part of my bill incorporates Federal credit actkities into the congressional budget process, requiring Congress to set targets and ceilings for the gross amount of direct loans rind loan guarantees w hitch the Federal Government may make or enter into during each fiscal year, beginning fiscal year :981. My bill will piggyback Federal el(.61 targets and ceilings required by the Congressional Budget Act of 1974 whieh iedablishes first and second concurrent budget resolutions. Further.' this legislation would cheek back door spending by subjecting all Federal credit programs to the annual approprint ions process. The earond portion of the Federal Credit Restraint Act of 1980 would amend the ITouse Rules to give the House Banking Committee an opportunity to establish controls on individual credit programs. A recent study on Federal credit by Peat, Marwick Mitchell & Co., confirmed that present inconsistencies in Federal loan and loan guarantee programs create uncertainty in the extent of potential or actual U.S. liability. This is caused by a number of factors, including a variance among agencies on definities of credit terms. For example, one agency might consider a Joan in default if it is one week past due, whereas it may be months before other agencies know that a loan is no longer in current repament status. My bill would give the Banking Committee concurre nt jurisdiction over authorization bills containing credit programs. Tighter controls like credit tests, default reserves, and greater incentives for pH% ate lending could reduce Government liability. A greater uniformity and a tightening of tests over the multitude of credit programs is needed to develop prudent lending policies. Passage of this legislation could put the credit cart where it rightly belongs—behind the horse. There simply must be a systematic review of Federal  • loans and loan guarantees before this form of Federal assistance expands further. , Your support for this legislation is essential. For your information, I am submitting a section-by-section description of my bill: THE Fa EAR fa, Car NT RFSTRAINT ACT OF 1980 Title I piggybacks provisions for setting targets rind ceilings for direct and guaranteed loans establishing In the first and second concurrent budget resolutions required by the Congressional Budget Act of 1974. Section 101 amends sections 291(a) rind 301(c) to include direct and guaranteed loans Into the budget targets required in the first eoneurrent rta,olution. It also requires that the standing committees include in ; their reports to the Iludeet Committee their views and estirnates on credit programs, as well as direct expenditures. This section also requires the Banking Committees to Include their recommendation for overall credit levels. Section 102 requires a joint explanatory statement accompanying a conference report to include targets for credits levels, as are required for budget authority and outlays. It also requires the Appropriations Committees to subdivide their allocations among their subcommittees. as they presently subdivide their allocations of budget authority and outlays. Section 103 amends section 307 to add to the summary report a compariaon of the Committee's recommendations on proas obligations on direct loans and total commitments to guarantee loan principal to the levels set forth in the concurrent budget resolution. Section 104 expands C130 tudeet scorekeeping responsihilities (an up to-date tabulation of limitations on gross lending and new commitments compared nith targets In the budget resolutions). Section 105 requires that action on bills containing credit limitations take place not later than 7 days after Labor Day, as is required of all bills providing new budget authority. Si ction 106 requires the Budget Committee to report in a second resolution any revisions to the budget expenditure aggregates in the first resolution, and make necessary revisions in limits on direct loans and new commitments for guaranteed loan principal. Section 107 states that legislation that breaches the ceiling would be subject to a point of order, as are outlays now. Section 111 sets up a two-stage process for loan guarantee authority. Requires that AUthorizations for guarante-e authority shall be effective for a fiscal year, only as approved In advance in appropriation acts. Section 112 amends section 402 of the Congressional Budget Act to make the May 15th deadline for reporting authorizing bil7s, effective also for bills authorizing loan guarantees. Section 121 Adds to the Declaration of Purposes section of the Budget Act, a definition of direct loans, and declares the purpose is to control direct lending and loan guarantees. Title II. Amends the Budget and Accountlog Act of 1921 to require necessary'data on federal credit programs from the President.. Title HT. Amends the House Rules to give the Banking Committees jurisdiction over direct loans, loan insurance, and loan guarantees from or by the Federal Government or another Federal entity. Title IV. Establishes October 1, 1980 as the effective date for titles I and II. Title HI would become effective on January 3, 1981.• Federal Reserve Bank of St. Louis  9G•ru CON( 11 11,1.,S8 91) SESSION  L R.6241  To ;Inip!)(1 the Congri..--ion:t1 iini!get Art of 197.1 to -t31)1is11 procedures for setting targrtg cilingq, in the congression:11 budget process, for loans ;Ind loan giEtrantres under IidraI ercdit programs, and for other purposes.  IN TIIE I I OUSE OF RE PR ESENTATI V ES .T.ANiTARY 22, 1980 11r. iirr111•NE iffirmluccd tlic following bill; which was referred to the Committee On Rides  A BILL 'Po amend the Congressional Budget Act of 1974 to establish procedures for setting targets and ceilings, in the congressional budget process, for loans and loan guarantees under Fedei,11 credit programs, and for other purposes. 1  Be it (mooed by the Senate and House of Representa-  2 lives of the United States of America in Congress assembled, 3 4  SIIORT TITLE SECTION  I.  This Act may be cited as the "Federal  5 Credit Restraint Act of 1980'. Federal Reserve Bank of St. Louis  2 FINDINGS AND PriumsE  1 2  (a) The Congress hereby finds and declares  SEC.  3 that -4 5  (1) Federal loans and loan guarantees are becoming an increasingly in  means of providing Gov-  eminent services, Nvith the estitonte(1  1)111111C of new  7  Federal loans and loan guarantees in 1980 being 30  8  percent higher than the corresponding volume in 1978  9  (resulting in an estimated total of $391,400,000,000 in  10  such loans and loan guarantees outstanding by the be-  ll  g-inning of 1981); (2)  1Iil( phi 05 for WITH and gnaranteed loans  1:3  tinder indi\ idual Federal credit programs NIT reviewed  14  each year, there is no systematic mechanism in either  15  the Congress or the executive branch for reviewing the  16  volume of total Federal credit activity, and therefore  17  no systematic way of considering the resource alloca-  18  lion effects of Federal loans and loan guarantees or the  19  reasonableness of the total volume; and  20  (3) if the Federal Government is to allocate its  21  credit resources efficiently and coordionte that alloca-  22  lion with its fiscal policy and direct expenditures, it  `)!I  must exercise control over Federal credit activities as  24  it does over direct spending activities. Federal Reserve Bank of St. Louis  3 1  00 It is therefore declared to be the policy of the Con-  2 gress and the purpose of this Act to provide a statutory basis 3 for a Federal credit program control system by establishing procedures \\ ithin the congressional budget process to set 5 targets and ceilings for the gross amount of direct loans which the Federal (;overnment may make, and the gross amount of loan guarantees which the Federal Government 8 untv enter into, during each fiscal year. 9  TI T LE I  A M EN DM ENTS TO CONG H ESS I ONAL BUDGET ACT OF 1974  11  PA la A —Am EN DM ENTs DIRECTLY AFFECTING THE  12  Com;RESSION AL MIDGET PROCESS  1:3  SEC. 101. (a) Section 301(a) of the Congressional  11 Budget. Act. of 1974 is amended15 16 17 18 19 20  (1) by striking out "and" after the semicolon at the end of paragraph (6); (2) by redesignating paragraphs ((3) and (7) as Paragraphs (8) and (9), respectively; and (3) by inserting after paragraph (5) the following new paragraphs:  91  "(6) the appropriate level of total gross obliga-  22  tions for the principal amount of direct loans and the  93  appropriate level of total commitments to guarantee  24  loan principal; Federal Reserve Bank of St. Louis  1  "(7) an estimate Of gross obligations for the prin-  2  cipal amount of direct loans and an estimate of coin-  3  mitments to guarantee loan principal for each major  4  funct•mnal category, based on allocations of the appro-  5  priate level of total gross obligations for the principal amount of direct loans and the appropriate level of  7  total commitments to guarantee loan principal;".  8  (h)(1) Section 301(c)(2) of such Act is amended by sink-  9 jug Out ", and budget outlays resulting therefrom," and in10 scrting in lieu thereof "and budget outlays resulting there11 from, and of the total amounts of gross obligations for the 12 principal amount of direct loans and commitments to guaran1:3 tee loan principal,". 14  (2) Section 301(c) of such Act is further amended by  15 inserting after "1946." the following new sentence: "The 16 Committee on Banking, Finance and Urban Affairs of the 17 House of Representatives and the Committee on Banking, 18 !lousing, and Urban Affairs of the Senate shall each also 19 submit to the Committee on the Budget of its House its rec2.0 ommendations as to the appropriate level of total gross obli21 gat ions for the principal amount of direct loans and the 22 appropriate level of total commitments to guarantee loan 23 principal.". Sic. 102. (a) Section 302(a) of the Congressional 25 Budget Act of 1974 is amended— Federal Reserve Bank of St. Louis  • 1 2 3 4  (1) by inscriing "and the appropriate .levels of total gross obligations for the pri ncipal amount of direct loans and total commitments to guarantee loan principal" after "total new budget authority"; and (2) by inserting "or authorizing such obligations and  (b) Section 302()) of such Act is am ended-  8  (1) by striking out "and" after the semicolon at the end of paragraph (1);  10 11 12 13 14 15 16  18 19 '20 21 22  after "such 11Cw budget authority".  7  9  17  (1)111111itinents"  (2) by redesignating paragraph (2) as paragraph (3); and (3) by inserting after paragr aph (1) the following new pa ragra ph: "(2) the Committee on Approp riations of each House shall also, after consulting with the. Committee on Appropriations of the other }lo use, subdi\ ide among its subcommittees the allocation of gross obligations for the principal amount of direct loans and of committo guarantee loan principal alloca ted to it in the joint explanatory statement acco mpanying the conference report on such concurrent res olution; and'.  SF,c. 103. Section 307 of the Congre ssional Budget Act 23 of 1974 is amended by insert ing ", and the appropriate levels 24 of total gross obligations for the principal amount of direct Federal Reserve Bank of St. Louis  m nts to guarantee loan principal," );iiN and uf total comm ite 1( 2 after "new budget authority". SEr. 101. (a) Section 308(a)(1) of the Congressional  1 5  I' It Act of 1974 is amended--  (1) by striking (Hit "and" after the semicolon at the cud of subparagraph (13); and (2) by adding. after suhparagraph (C)!he following  8 9  um subparagraph:  "(I)) how the limitations on gross obligations fur 1 lir princip;t1 ;) mount of direct loans and on  11  commitments to guaranhT loan principal provided •m that hill or resolution compare with the gross  1:3  oldigations for ihe principal amount Of direct loans  14  and commitments to guarantee loan principal set  15  forth in the most recently agreed to concurrent  16  resolution on the budget for such fiscal year and  17  the reports submitted under section 302; and".  18 19  90 21  22 23 24  (1)) Section 308(b) of such Act is amended-  (1) by striking out "and" after the semicolon at the end of paragraph (3); (2) by strildng out the period at the end of paragraph (4) and inserting in lieu thereof "; and"; and  (3) by adding after paragraph (4) the following new paragraph: Federal Reserve Bank of St. Louis  7 1  "(5) an up to-date tabulation comparing the gross  9  obligations for the principal amount of direct loans and the cmllmitments to guarantee  ion 11  principal for such  or resolutions on which the Congress  4  fiscal year •I0  5  has completed action to the gross obligations for the  hilk  principal amount of direct loans and the commitments to guarantee loans set forth in the most recently 8  agreed to concurrent resolution on the budget for such  9  fiscal year and the reports submitted under section  10  302.". SEr. 105. (a) Section 309 of the Congressional Budget  12 Act Of 1974 is amended by inserting- "or providing limitations 13 on gross obligations for the principal amount of direct loans 14 or on commitments to guarantee loan principal for such fiscal 15 year, after "such year, where it first appears in paragraph 16 (I). 17  (h)(1) The heading of section 309 of such Act is amend-  18 ed by striking 19 20 21 22  out "AND CERTAIN NEW SPENDING  and inserting in lieu thereof ", LIMITING  (JRI-  DIRECT LOANS  OR LOAN GUARANTEE COMMITMENTS, OR PROVIDING CERNEW SPENDING AUTHORITY".  (2) The table of contents of the Congressional Budget  23 and Impoundment Control Act of 1974 is amended (in the 24 item relating to section 309) by striking out "and certain new 25 spending authority" and inserting in lieu thereof ", limiting Federal Reserve Bank of St. Louis  8 ts, or providing 1 direct loans or loan guarantee commitmen 2 certain new spending authority". 3  l Budget SEC. 106. Section 310(a) of the Congressiona  I Act Of 1974 is amended-5  (1) by striking out "or" after the semicolon at the end of paragraph (3);  7  agraph (2) by redesignating paragraph (4) as par  8  " and d (5) and (in such paragraph) striking out "an (3)  9  •mserting in lieu thereof "(3), and (4)''; and ing (3) by inserting after paragraph (3) the follow new paragraph:  19 13 14  i"(1) specify the total amount by \\hich gross obl ns or coing-ations for the principal amount of direct loa nged mu t ments to guarantee loan principal are to be cha omand direct the committees having jurisdiction to rec  16  mend such change; or".  17  ssional Six. 107. (a) Section 311(a) of the Congre  18 Budget Act of 1974 is amended19  on (1) by inserting "increasing the limitations  21  of ditotal gross oldigations for the principal amount loan rect loans or on total commitments to guarantee  22  during principal for such fiscal year," after "effective  23  aph such fiscal year," in the matter preceding paragr  24  (1); and  20 Federal Reserve Bank of St. Louis  9 (2) bv inerting. "N\ oidd cause the appropriate  1 9  level of gross obligations fur the principal amount of di-  3  rect loans or of conimitments to guarantee loan principal set forth in such concurrent resolution to be exceedcd," after "exceeded," in the matter following paragraph (3).  7  (b)(1) The heading of section 311 of such Act is amend-  8 ed by inserting ", LOAN AND LOAN GUARANTEE COMMIT9 :\tENTS," after "SPENDING AUTHORITY". 10  (2) The table of contents of the Congressional Budget  11 and Impoundment Control Act of 1974 is amended (in the 12 item relating to section 311) by inserting ", loans and loan 13 guarantee commitments," after "spending authority". 14  PART B—AppyrioNAL BUDGET ACT AMENDMENTS To  15  ImPRovE FISCAL PROCEDURES  16  SEC. 111. (a) Title IV of the Congressional Budget Act  17 is amended by adding at the end thereof the following new 18 section: 19  "LEGISLATION PROVIDING AUTHORITY TO GUARANTEE  90  THE REPAYMENT OF INDEBTEDNESS  21  ''S c. 405. It shall not he in order in either the Ifouse  22 of Representatives or the Senate to consider any bill or reso23 iii lion \\Hell provides, extends, or enlarges authority to in94 sure or guarantee the repayment of indebtedness incurred by 25 another person or government (or any amendment which pro-  apluAuJud ,‘‘a u Jut.‘‘olloj 0111 (1.) ticluAtut;(1 Jouu 2uplosti! .cq puu `.(9) tidlli2u.iu(1 S U (c1)  :5tu.luu.5!sopai hcq (g) `.(t) 1idui.5tuud Jo pua ottl  11  u0io31t1os 0(11 niju „puu„  .5tu.v1s .cq (I)  pJpuJtuu s! iv;I Jo pv[0.11(100 ittimiptitm(Ittli pm;  juuo!ssalfluoj alp jo g uop.),)s • igt -;ms  SINRIVINNIV  ,LOV .17:1:)(1111 S110'..INIVTIHJSIIV-,9  vd  •„`Jua.c tu.)sLI U Job, Jaw; lt`Jua.0 juJstj U Joj 1u0tuuJ0A0.5 JO uosJad Jattiouu  pamotu El  ssaupaigaptu Jo,).1 0111 JO 0(11[11:J1:11.i-1 JO o.muinsur alp  01  i02ptiu,Ouop otii Jo (u)goi, uo!).),)s •g II•;):4  11  SO7.IJOI[1111: tpl1111 JO„ iELi l.EJSUL cq popuJum s! tr GI Jo pv  •„•ssati -paplapto JO 1t1Jto.Cuti,).; atl; aaltout:oll o;  •cot  Joy!‘old  :mop 6 Joiiutu 0111 jo pua 0111  A‘ou 211TA‘0lioj Dili AI owl 01  jU  2u!ppu .(q popuatuu s! fLGI Jo lay tolluoa luompuno(luil put; puoissaifluop 01(1 Jo slualuo.) Jo °Nu)  9 •,,*s).)V  uotiuudo.ul(Iu 111 .)uu.\pu 111 popiAold on: su siunotuu 11.ffis „Pi 01 s!  iv.)su .citt: Joj  Ul JO ivaixa iNns oi .Clue  Atimpnv ti,ms imp spt ‘0.1(I osp sluatupuatutt JO 'UM 111[OSJJ `11!(1  1[0115 Sia1Ui11.) JO `Sp(1,)1X,1 `Sdpl..\ 1  11113  OT Federal Reserve Bank of St. Louis Federal Reserve Bank of St. Louis  11 1  "(5) to provide for the congressional determination  2  each year of the appropriate level of gross obligations  3  for the principal amount of direct loans and Of co1li111it-  4  ments to guarantee loan principal; and".  5  SFr. 1'22. Section 3 of the Congressional Budget and Impoundment Control Act of 1974 is amended by adding at  7 the end thereof the following new paragraph: 8  "(G) The term 'direct loan' means a disbursement  9  of funds by the United States or any officer or agency  10  thereof (not in exchange for goods or services) under a  11  contract \\Itich requires the repayment of such funds  19  with or \\ ithout •inierest, and in  13  14  fiddit ion  •includes--  "(A) direct p:irlicipatimi in a loan made and  held hy another person or government;  15  "(B) the purchase (Ifirough secondary market  16  operations) of a loan made by another person or  17  government; and "(C) the acquisition of a federally guaranteed  19  loan made by another person or government, as  20  collateral or in satisfaction of default or other  21  guarantee claims.".  22  T1 ILE 1I—A1ENWI ENTS TO BUDGET AND  23  ACCOUNTING ACT  94  SEC. 201. Section 201(d) of the Budget and Accounting  25 Act, 1921 (31 U.S.C. 11((1)), is amended by striking out Federal Reserve Bank of St. Louis  12 1 "items enumerated in section :301(a)(1)-(5)" and inserting in 2 lieu thereof "items enumerated in section 301(a)(1)-(7)". 3  SEC. 202. Section 201(a) of the Budget and Accounting  4 Act, 1921 (31 U.S.C. 11(a)), is amended — 5 6 7  (1) bv striking out "and" after the semicolon at the end of paragraph (12); (2) by striking out the period at the end of paragraph (13) and inserting in lieu thereof "; and"; and  9 10  (3) by adding after paragraph (13) the following new paragraph:  11  "(14) all essential facts regarding direct lending  19  by the Government, and guarantees bv the Govern-  13  ment of the repayment of •indebtedness incurred by an-  14  other person or government.".  15 16  TITLE 111-- A MEN DM ENT TO 110 USE RU LES SEC. 301. Clause 1(d) of rule X of the Rules of the  17 House of Representatives is amended by adding at the end 18 the following, new subparagraph: 19  "(9) Direct loans, loan insurance, and loan guar-  20  antees from or by the Federal Government or another  21  Federal entity.".  22 23  TITLE 1V—EFFECTIVE DATE SEC. 401. (a) The amendments made by titles I and II  24 of this Act shall be effective with respect to fiscal years be25 ginning on and after October 1, 1980. Federal Reserve Bank of St. Louis  •  • 13  title Ill of this Act shall be by de ma t. en dm en am he ) 'P (b 1 on January 3, 1981. 2 effeet•INT, immediately before noon 0 Federal Reserve Bank of St. Louis  February 20, 1980  The lomorable S. willies Green House of Representatives Washington, D. C. 20515 Dear Mr. Green:  Thank you for your letter supporting the invitation to bpeak at the annual luncheon of the Citizens Housing sod Planni ng Council of New York. Unfortunately, ny schedule has already become overcrowded during that period and I have been forced to send my regrets to the Council. I appreciated receiving the invitation and your letter, however. With kind regards. Sincerely,  Wag(A. biGavt  cc:  Mrs. Mallardi,./// #47  JRC:tjf  •  WILLIAM GREEN  WASHINGTON OFFICE.  ..1 8TH DISTRICT, NEW YORK  1111,ii  18 LONGWORTH HOUSE OFFICE BUILDING WASHINGTON. D.C.  20515  (202) 225-2436  COMMITTEVS: BANKING, FINANCE AND URBAN AF FAIRS  Congre55 of tfie Uniteb cfptatt5  NEW YORK OFFICES 1628 SrcoNo AVENUE (84TH 'SERIE T)  31)otige of Ikepre5entatibefS  SUBCOMMITTEES:  Nrw YORK. NEW YORK  1002.8  (212) 8213-4468  HOUSING AND COMMUNITY DEVEL.OFMENT rcoNomtc STABILIZATION GENERAL OVERSIGHT AND RENEGOTIA TION  6/las.bington, 73.e. 20315  229 FIRST AVENUE (14TH STRir-r) NEW YORK. NEW  YORK  10003  (212) 826-4468 SELECT COMMITTEE ON AGING  February 13, 1980  tri  The Honorable Paul A. Volcker, Chairman Board of Governors, Federal Reserve System 20th Street and Constitution Avenue, N.W. Washington, DC 20551 Dear Mr. Chairman:  I am writing you on behalf of the Citizens Housing and Planning Council of New York, which has invited you to be the speaker at its annual luncheon on May 22 at the New York Hilton. As a former member of the Council's board of directors, I want to assure you that the Council encompasses a broad range of citizens active on behalf of good housing and sound urban planning in the New York metropolitan area. Its annual luncheon is always well attended by civic leaders who share these concerns. The luncheon would be an excellent forum for an expression of your views on the relationship of the Federal Reserve System to housing and urban finance, and I urge you, if you can, to accept the invitation.  Pcit William Green Member of Congress SWG:pek Federal Reserve Bank of St. Louis  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  ;  •:  ./ • ••  - •  -`f,e'Set • Federal Reserve Bank of St. Louis  Plibessa I,, 19$0  The liseselhis Smug Berner& Jr. apnea Beofesestatives lleihiegtee, a. c. 211615 Sot Doug,. I ea pleased to sibmit the eepelseed material in re000010 , peme ilequesc at Amen 1 fer infonention es *he reports that the Pedeemt alserve Seerd requillos to he filed with it by fienaciel lesti tuttene 'oder its seT.ervislem, The oeterial tenludee a list's* at emeh reverts aed a copy of eesik ime:vort Seen. The list Shoot in addable' ti the mow end asses of as refvert, it. fregneepy, must files said the osiber of theme filing. Ls cases *here the other federal basking supervisory agencies collect the Mastics' or similar 1161110mts foam instituttess wider their reepective jurisdictions, the type amd swam el respendestO shwa refer esly to theme sepertins to the Pedesei iMeerve. to ell ouch asses, however tediesttea is given that ether softies have siotler seqpi reeemts. While tbe enclosed list end eemple deem mover the required reports specified La your totter, it should be eeted that we are ales involved is a number of other revert activities thee Es met ;Arne within the teems of your reclApst and that ewe cemmegeent4 met ieclu ded la the present Notarial. These other it acAtvittes include, (a) re-orta require4 by 'thew seemcies (plainly the Treasury) but Jella..-ted Careegb the Mona Seeerve System; (h) Beard seperts thee are net rsquirsd but eviteltsd as a velmatary baste; (c) application forms to be used by these requesting sons actin's by the Beard, e.s., epplieat on for aelberiktp; (d) registration, tstaisocims. and aseplisere statements required to be filed as the occeriense of certain eVOUtS. Federal Reserve Bank of St. Louis  limoriblit Mu Barnard, Jr. POMO TM  (o) r000rdbooplas rogulronomeo conpitancs notices, and 'Obits netke requirements that do not involve any filing of reports with the Federal Maserve; (f) examisation report lormo, sibtob axe not filed by the financial institution but are wed by the examiners La the easninatien nroceee.  (a) reports that  are non-re-urreut, Such 80  those colisetod  only ono*. I bops Out you find the material ef mama ems La yew study. Lf there is oar ether vey that we can he oil osolorenno So yew, plasm lot no know. Sincerely, S/Paul A. Volcket  Eucloeurea  SJS:JPS:ved (40V-16) bcc  Mrs. Mallard! (2) Mr. Sigeloil Janet colomo Federal Reserve Bank of St. Louis  January 22, 1980  Illeassable are lbareard, Jr. Ilisse of isforeaseitathes Illambiastes, OA. 11519 gem Mow Ikea yes for year letter of January 7 requesties mops* siI of fiessetal testitetimmO  Shot the Yederel Reserve requires emir supervielon.  114 will bow Oft imilgertion to you in the very loser futvx*. Staesroly,  CO:pjt (#Y-16) bcc: Stan Sigel (for follow-up) Mts. Hallardi (2) Federal Reserve Bank of St. Louis  DOUG BilRNARD, JR. TH DISTRICT, GEORGIA  • -  •  COM'AITTEES: BANKING. FINANCE AND URBAN AFFAIRS  Congre55 of tbe Unita' 51)tate5  SMALL BUSINESS  NEW FEDERAL BUILDING Room 114 816 WALKER STREET  3i)ous5e of 11epreentatibe5 ZZIas'bington, 33.e. 20515  January 7, 1980  DISTRICT OFFICES: STEPHENS FEDERAL BUILDING Room In P.O.Box687 ATHENS, GEORGIA 30603 (404) 546-2194  P.O. Box 10123 AUGUSTA, GEORGIA 30903 (404) 724-0739  EVE  NEWTON COUNTY EXECUTIVE OFFICE BUILDING COviNoToN, GEORGIA 30209 (404)787-2110  /d4lb  The Honorable Paul Volcker Chairman of the Board of Governors Federal Reserve System Twentieth Street and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Mr. Chairman: I am in the process of studying the amount of paperwork required of financial institutions by various regulators in the federal government. In connection with this, please send me physical copies of every form and report that your office requires of financial institutions under your supervision, along with how often the report is required, and which types of banks are required to file the report if it is not universally required.  (  This is a fairly massive request, but I would appreciate you giving it your attention, so that I may proceed with my study. I would also be grateful for any other materials that you feel would assist me in my effort. •  I appreciate you taking the trouble to honor this request, and look forward to working with you in this new year. Si  •••••••  rely,  6tF  (4 B  nard, Jr.  DBJr./dj Federal Reserve Bank of St. Louis  •  ' .  . c  Atu  .L‘  1-44.10.1., Federal Reserve Bank of St. Louis  robreary 1,,  400  ?he Vemerearne'Mae Iftetedea Chokes* Cite eines ee ileaktamh est'dee /Ma BMW States fleeete Itaebleetes• D.C. 20S10 Deer Chez,all Presa he 3 , ,arel to" Cevernere et the !Word asseeve *rates to eleesed to to form gird te Tee W. 14 alletarv Pena, espert tet thie Comm, pursuant  Beetles lee of the fell Itapleyseet *ad Silleeeed -Grrywtto ket of 19711. Illsearelys  SW A. Maw  Loveketstip  OJ W reit ThtifTtr.AL LAI/1MS WM? TO tS., Attatqw, 1.4.1W beet  rs.  attareff 12) Federal Reserve Bank of St. Louis  • The Honorable William Proxmire Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D. C. 20510 Dear Chairman Proxmire: The Honorable Jake Garn United States Senate Washington, D. C. 20510 Dear Senator Cam: The Honorable Russell B. Long Chairman Committee on Finance United States Senate Washington, D. C. 20510 Dear Chairman Long: The Honorable Robert Dole United States Senate Washington, D. C. 20510 Dear Senator Dole: The Honorable Robert C. Byrd Majority Leader United States Senate Washington, D. C. 20510 Dear Senator Byrd: The Honorable Edmund S. Muskie Chairman Committee on the Budget United States Senate Washington, D. C. 20510 Dear Chairman Muskie: The Honorable Henry Bellmon United States Senate Washington, D. C. 20510 Dear Senator Bellmon: The Honorable Lloyd Bentsen Chairman Joint Economic Committee Washington, D. C. 20510 Dear Chairman Bentsen:  • The Honorable Edward M. Kennedy United States Senate Washington, D. C. 20510 Dear Senator Kennedy: The Honorable George S. McGovern United States Senate Washington, D. C. 20510 Dear Senator McGovern: The Honorable James McClure United States Senate Washington, D. C. 20510 Dear Senator McClure: The Honorable Roger Jepsen United States Senate Washington, D. C. 20510 Dear Senator Jepsen: The Honorable William V. Roth, Jr. United States Senate Washington, D. C. 20510 Dear Senator Roth: The Honorable Warren G. Magnuson President Pro Tempore United States Senate Washington, D. C. 20510 Dear Senator Magnuson: The Honorable Alan Cranston Majority Whip United States Senate Washington, D. C. 20510 Dear Senator Cranston: The Honorable Howard H. Baker Minority Leader United States Senate Washington, D. C. 20510 Dear Senator Baker: The Honorable Ted Stevens Minority Whip United States Senate Washington, D. C. 20510 Dear Senator Stevens: Additional members of Senate Bkg. Cmte. (12)  The Honorable Jacob K. Javits United States Senate Washington, D. C. 20510 Dear Senator Javits: Federal Reserve Bank of St. Louis  The Honorable Henry S. Reuss Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman Reuss: The Honorable J. William Stanton House of Representatives Washington, D. C. 20515 Dear Mr. Stanton: The Honorable Jim Wright Majority Leader House of Representatives Washington, D. C. 20515 Dear Mr. Wright: The Honorable John Brademas Majority Whip House of Representatives Washington, D. C. 20515 Dear Mr. Brademas: The Honorable John Rhodes Minority Leader House of Representatives Washington, D. C. 20515 Dear Mr. Rhodes: The Honorable Robert H. Michel Minority Whip House of Representatives Washington, D. C. 20515 Dear Mr. Michel: The Honorable Robert N. Giaimo Chairman Committee on the Budget House of Representatives Washington, D. C. 20515 Dear Chairman Giaimo: The Honorable Delbert L. Latta House of Representatives Washington, D. C. 20515 Dear Mr. Latta:  The Honorable Parren J. Mitchell Chairman Subcommittee on Domestic MonetarY Po1i6y Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D. C. 20515 Dear Chairman Mitchell: The Honorable Paul M. Simon Chairman Task Force on Inflation Committee on the Budget House of Representatives Washington, D. C. 20515 Dear Chairman Simon: The Honorable Thomas L. Ashley Chairman Task Force on Economic Policy, Projections and Productivity Committee on the Budget House of Representatives Washington, D. C. 20515 Dear Chairman Ashley: The Honorable Barber B. Conable House of Representatives Washington, D. C. 20515 Dear Mr. Conable: The Honorable Richard Bolling Chairman Committee on Rules House of Representatives Washington, D. C. 20515 Dear Chairman Bolling: The Honorable Al Ullman Chairman Committee on Ways and Means House of Representatives Washington, D. C. 20515 Dear Chairman Ullman: The Honorable John H. Rousselot House of Representatives Washington, D. C. 20515 Dear Mr. Rousselot: Federal Reserve Bank of St. Louis  • (House) - 2 The Honorable Clarence J. Btown House of Representatives Washington, D. C. 20515 Dear Mr. Brown: The Honorable Margaret M. Heckler House of Representatives Washington, D. C. 20515 Dear Ms. Heckler: The Honorable Lee H. Hamilton House of Representatives Washington, D. C. 20515 Dear Mr. Hamilton: The Honorable Gillis W. Long House •of Representatives Washington, D. C. 20515 Dear Mr. Long: The Honorable Benjamin S. Rosenthal Chairman Subcommittee on Commerce, Consumer and Monetary Affairs Committee on Government Operations House of Representatives Washington, D. C. 20515 Dear Chairman Rosenthal:  . . LS  Action assignel to Jim BI-1y Federal Reserve Bank of St. Louis  •/  IPS  •  WILLIAM PROXMIRE, WIS., CHAIRMAN A. WILLIAMS, JR., NJ. . HARRISON ALAN CRANSTON, CALIF. A.OLAI L. STEVENSON, ILL ROBERT MORGAN, I•.C. DONALD W. RIEGLE JR., MICH. PAUL S. SARBANES, MO. DONALD W. STEWART, ALA.  JAKE GARN, UTAH JOHN TOWER. TEX. JOHN HEINZ, PA. WILLIAM L. ARM STRONG. COLO. NANCY LANDON KASSEBAUM, KANS. RICHARD G. LUGAR, ND.  /Zirtifeb Zfatez Zertale  PAUL E. TSONGAS, MASS. KENNETH A. MC LEAN. STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANCES DE LA PAYA, CHIEF CLERK  COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS WASHINGTON, D.C.  20510  .._.„.:  February 19, 1980  .•  L.‘"40  Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Washington, D. C. 20551 Dear Mr. Chairman: As you know, at the conclusion of the Federal Reserve Membership hearings on February 4, 1980, Chairman Proxmire mentioned that I had further questions to be submitted to you. Attached please find the additional questions. Please provide the answers to these questions and return them to me so that I can have them incorporated into the hearing record. Thanks very much for your assistance. Sincerely,  JT:tbf Enclosure  '111111111••• Federal Reserve Bank of St. Louis  .••  a/. Federal Reserve Bank of St. Louis  ADDITIONAL QUESTIONS FOR CHAIRMAN VOLCKER ON FEDERAL RESERVE MEMBERSHIP HEARINGS HELD ON FEBRUARY 4, 1980  1.  On pace six of your statement you state that the Fed needs  about $20 billion in reserve balances (in 1977 terms) to effectively conduct monetary policy. provides this.  S. 353, with or without the supplemental,  S. 85, as modified, does not.  Would you suggest  supplemental reserve authority if S. 85, as modified, is made the vehicle for legislation by the Committee?  2.  You object to the unanimous vote and the  4 year sunset  How would you change  provisions of the supplemental amendment. this to make it more acceptable to you?  3.  How can you justify the paying of interest on supplemental  reserves but not paying interest on basic reserves?  Would you  accept supplemental reserves without the requirement of having to pay interest on them?  By my calculations, given the mid-range  of reserve ratios in S. 353, if interest of  6 1/2% were paid on  basic reserves, but no interest was paid on supplemental reserves, the total cost would be approximately $200 million, which would be acceptable to the Administration.  4. On page fourteen you state that reserve requirements should be imposed on short-term non-personal accounts. include short-term personal accounts as well?  Why don't you What is the preferred  category of accounts upon which reserves should be placed? short-term accounts? term?  Personal short-term?  Lit.44  All  Non-personal short-  Please explain your reasoning.  ' Nu,  A  •  .10;40rAkt  7 . "  S  Mir  2  Additional Questions for Chairman Volcker, continued.  5.  On page fourteen you state that financial institutions should  remain free to choose a State or Federal charter and membership in the Federal Reserve System.  If all depository institutions  are required to keep reserves at the Fed, wouldn't they all ii•••■•••••••••  become members?  Why wouldn't they become members if they have  to pay the price of maintaining reserves at the Fed without interest being paid on them?  L. 6.  The supplemental amendment would be implemented upon a finding  that an emergency exists and the Fed cannot conduct monetary policy without supplemental reserves.  What kind of emergency  could you foresee which would require such a finding?  111.1•••••••• Federal Reserve Bank of St. Louis  •  -2••••.... 0 1,,, Udie: ;e - 4 ., •,,. •' .•  pon•••• Federal Reserve Bank of St. Louis  February 190 196C  The Neeerebte Welter r. Mindiale President ef the LWOW States Senate Weehieston o D. C. 20510 Deer As. Vt  President -  The Beard is pleased to sii.hnit its Monetary volley leoort to the Oftworess pursusat to the Pail limpliereset sed Selaeced Growth Act el 197S. Stecerely.  Incleaure  President of the U. S. Senate received President of the U. S. Senate by D3W:ved bcc:  Mts. Mallardi Federal Reserve Bank of St. Louis  eebruery 19, 19ek  fhe Honorable Bob Eckhardt Chairmen im&emaittee on Overstiht and Investimstions Committee 00 interstate and ForeLa Caamarce abuse of alloffeeentativ** liaabiestaeto D. C. 20415  Omer Chairmen lickberdt As nromised In my letters of Jemmy 21 sad fthavery 1,  4 ma plowed Oa trielose the Board's iftestery Pettey aspen ta the Composs powessat to the F& 1.  limptipmat and lielamea diewth  As* at 19716 SincorMay 4 L&10.ovid  *so Wows  WW:vcd  bcc;  Mrs. Hillardi (2) Federal Reserve Bank of St. Louis  February L, NO  Senormiblo Somme P. O'Neill, Jr. Speeher of the ammo of Sepressiestivee WOMMIMOMes, D. C. 26515 Boor Ilt. $poiler; Tbe Soard is *tossed to submit its Nemiamay melte" evert  o dbe Compose purst.4ect to the 71111 Seplaymeet eed  Sattwed Orowth Act of 1978. Sincerely, Weill A. Max  Lui.7.osuro  sp•okor of  the Hesse of Representative received  Speaker of the House of Re, Iresentatives by  D.R4:Ircd bcc:  Hrs. Mallardf (2) Federal Reserve Bank of St. Louis  February 19, MO  The Honorable Jacob N. Jewits United States Senate Washington, b. C. 20310 Dear Jack: You have asked for my views on the importance of the legislat ioe currently before Congress to approve • 50 percent increase in the U.S. quota in the International Monetary Fund. Prompt passage of this legislation is in the interest of the United States as well as in the broader interest of a emoothly functioning international fina ncial system. An increase in the resources available to the INF at this tire is essential if the Fund is to continue to ploy a central role in destiny with the unprecedented scale of payments imbalanc es that its members are facing. The United States is the largest member of the IMF, end it cannot function effectively without commenourste U.S. part icipaioe in its financial operations. Active 0.11. participation in the IMF is in our national interest. The United States benefits directly frost a financially strong IMF because we may want to drew on the Fund in the future, as we did in 197$ as part of the November 1 peckage. In an environm ent of increased International financial strains and increased sensitivity of the U.S. economy to such developmeets, the United States also benefits from the IMF's efforts to cope cooperatively with such strains. In addition, present approval by Congress of the legislation incr essing the U.S. quota in the /MY would underline U.S. support for an open inte rnational financial system and for the key role of the International mone tary Fund in fostering the mmooth operation of that system. In recent years, an increising *ember of countries -both industrial and developing countries -- have fouled it necessary to drew on the resources of the IMF to help finance payments imbalances. The Food has played a critical part in assisting its members in dealing with their paym ents difficulties not only by looking financial resources available but also, and perhaps rare importantly, by using its influence to encourage its members to adopt appropriate and timely adjustment measures to attain more sustainable external positions.  -2  In view of the adverse impact of the higher oil prices on the erternal positions of many countries, the demand for balancwef-poymoats financing in coming years eay well increase drseaticslly. Yoreover, with the introduction of new IMF facilities and changes in operating procedures, access by members to the Fund's general resourcee has increased considerably and appropriately from the earlier more under Which cumulative drawings often were limited to 100 percept of Quota. The IMF should be in a position to meet such increased cells on its resource., and the proposed increase in IMF quotas would broaden the financial base of the Fund and help it to do so. The Food's resources heve experienced s considerable erosion in relotion to the growth of the world economy over the peat 10-15 years. Since a further quota increase is not envisioned for another five years, the proposed 30 percent increase in quotas barely would maintain the current size of the Fund's resources in relation to the expected growth of world trade end reserves in the period ahead. Given the. expected greater payments imbalances doess member countries in the coming rare than were anticipated at the time the quota increase was negotiated, the preposed quota increase is the minimum that would be required to meet the enlarged prospective needs. The IF has a good record in contributing to the international adjustment process. An encouraging development in recent years has been the increased willingness of • nurber of countries to accept IMF-arranned stabilizetioe programs as a condition for obtaining Fund credits. At present, some 20 countries are operating tbeir economies with IMF credit errangementi that are conditioned upon their adherence to policy performance criteria. The Fund's leverage in continuing to encourage its members to introduce necessary adjustment actions in conjunction with drawings on DIF credit facilities will he heavily dependent on the Fund possessing sufficient resources to provide such credits. The International Mooetary Fund is often viewed as an aid institution -- making long-term development loans. This is a uistaken view: the IMF provides short-term balance-of-payments financing assistance to all its members, developed as well as developing. When it provides financial assistance, it Joust have a reasonable assurance that the associated ediustwent programs will he successful. The INF is often criticized from this perspective as well -- for being too harsh in its policy advice. It is true that IMF-sponsored stabilization programs often require substantial economic retrenchment by borrowing countries, Involving at times considerable political and social costs for such countries. Restrictive adjustment measures in meet instances, however, are necessary in order to correct the underlying imbalances that have Led to the need for balence-of-paymemts aosistanee in the first place. Some of the difficulties associated with such stabilisation protease could be eased if resort to the hod some earlier, before the situation had woreemed to the point where drastic action is required. Rewever, in order to Lodged sorobers to come to the IMF, the Food's resources must be ample, and the terms of conditional credits must he otherwise attractive. Federal Reserve Bank of St. Louis  - 3International credit markete have played an important role in recent years in channelling funds from countries in surplus to countries in deficit, and we have every reason to expect that these markets will continue to play a major intermediary role in providing credits to finance external deficits in the period ahead. Powever, not all countries are able to borrow readily in these markets. Given the expected increased demands for halancei-of—payments financing as well as the large external indebtedness that many countries already have with commercial banks, the IMF should he in a position to meet a larger proportion of the immediate financing needs of its members in the coming years than it has assumed recently. A strengthening of the Fund's financial position by the increase in members' quotas would increase the likelihood that mom countries would be willing to core under the Fund's conditional—lending umbrella. This, in turn, would help sustain the pace of private hank lending to such countries. At the same time, the increased cent/city of the Fund to finance payments imbalances of its members should not in any way relieve private lenders and borrowers from responsibility for servicinp, outstanding loans or reduce the care of lenders and borrowers in deciding or new commitments. In sum, in light of th0 serious problems that the international economy is facing, it is essential that we equip ourselves adequately to meet the challenger+ that these problems pose. We obviously will have to work on a number of fronts sinultaneously, particularly pursuing sound economic policies, adopting effe$!tive energy policies, improving inter— national cooperation and consultations, and strengthening international institutions such as the International Monetary Fund. Enlarging the financial capacity of the Fund at this tine by putting in place the proposed increase in flu quotas will contribute importantly to the ability of the Fund to play a constructive role in helping its members to cope with the balance—of—payments difficulties that they face and, thereby, benefit both the United States and the international financial system. T. hope that the Congress shares these views, and that it will give prompt approval to the legislation increasing the P.S. quota in the Internatinal Monetary Fund. Sincerely,  bcc:  Mrs. Mallardi (2) Governor Wallich Messrs. Winn Siegman Truman IF Division File  C.J. Siegman/E.M. Truman:ncs Federal Reserve Bank of St. Louis  • Federal Reserve Bank of St. Louis  Assigned to Steve Axil.  4 p.  •  •  WILLIAM PROXMIRE. WIS.. CHAIRMAN a HARRHI.ON A. WILLIAMS. JR., N.J. JAKE GARN. UTAH ALAN CPANISTON. CALIF.  JOHN TOWER. TEX,  ACLAI E. STEVENSON. ILL.  JOHN HEINZ, PA.  11 1  ROBERT MORGAN. NC.  WILLIAM L. ARMSTRONG, COLO,  DONALD W. RIEGLE, JR.. MICH. PAUL S. SARSANES, MD.  NANCY LANDON KASS( BAUM, KANS. RICHARD G. LUGAR, IND.  DONALD W. STEWART, ALA.  p.  'ZICnifeb Ztafez -.Senate  PAUL E. TiONGAS, MASS.  COMMITTEE ON BANKING, HOUSING. AND URBAN AFFAIRS  KENNETH A. MC LEAN. STAFF CIRECTOR IA  DANNY WALL. MINORITY STAFF DIRECTOR  MARY FRANCES DE LA PAVA, CHIEF CLERK  WASHINGTON. D.C.  20510  February 15, 1980  The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20551  : 1ido1110dik ' :011  Dear Mr. Chairman: At the Committee's hearings on February 4 on the Federal Reserve membership issue, we had a short colloquy on the cost estimates produced by the Federal Reserve staff and by the Congressional Budget Office (CBO). Following the hearing there has been contact between Committee staff and your staff and also between your staff, CBO staff, and Treasury staff. The major differences between the Federal Reserve staff estimates and CBO estimates probably are due to differences in assumptions that have been made rather than the "sophistication" of the estimates. In preparing cost estimates of pieces of legislation, CBO staff rely on the requirements of the legislation or public commitments by the agency, in this case the Board, to take certain actions for reasons other than those dictated by the legislation. CBO staff does not try to guess how particular provisions may be interpreted by an agency a priori. In certain cases, judgments must be made and in those cases historical experience is used as a guide. In the case of estimates of future revenue impact, CBO also draws upon its macro-economic projections and five-year budget projections. A number of important differences exist between Board staff assumptions and CBO staff assumptions which have been the subject of the recent discussions. They are as follows: 1. Pricing of Federal Reserve Services. Board staff has assumed that pricing of services would begin upon enactment of the legislation. However, each piece of legislation being considered requires a pricing schedule to be published for comment before pricing begins and S. 85 then has a twelve-month delay before pricing must begin. CBO uses the times specified in the various pieces of legislation in its cost estimates. As far as we know there has been no public Federal Reserve Bank of St. Louis  _  .47  .-v. .•.  sr 1 f. e.  Nap/•  - •  • -  • -04;  ../"TeAL,  The Honorable Paul A. Volcker February 15, 1980 Page Two Federal Reserve Bank of St. Louis  decision made by the Board to begin to price Fed services immediately upon enactment of membership legislation. Thus, the assumption used by Board staff is unrealistic and, short of a Board commitment to price immediately, inaccurate. The Board staff estimate would tend to reduce the cost estimates S the various bills because of this. 2. Pricing of Federal Reserve Float. The Board staff cost estimates assume a float level as of year-end 1977 ($3.8 billion) and that float will grow at the rate of 6% per year thereafter. Recently the Board made a policy decision to reduce float to $4.0 billion by the end of January 1980 and to $3.0 billion after that. That decision and supporting Board staff memos did not mention the membership legislation as a reason for the Board's decision. Thus, the assumptions used by Board staff may be inconsistent with Board policy. The Board staff estimates would tend to reduce the cost of the estimates of the various bills because of this. 3. Interest Rate Assumptions. In the preparation of revenue impact of the various pieces of membership legislation for L9Wto 1985, the CB0 assumes interest rates that are derived from its five-year budget estimates and macro-economic forecasts. These interest rate assumptions are higher (above 8 percent) than the 6.5 percent interest rate that has been assumed by the Board for both year-end 1977 and for all future years. The Board staff treatment is inconsistent with current experience and with IS Treasury and OMB budget assumptions. The Board staff estimates would tend to seriously understate the cost estimates for the various bills because of this. 4. Deposit Growth. In this area both Board staff and CBO use historical- experience to estimate future deposit growth, and growth rates should be similar. However, they are not very close. I understand that the reasons for different growth rates are now being explored further. Neither CB0 nor the Board staff have included in their estimates nationwide NOW accounts, sharedrafts, or ATS, although it may be appropriate to do so. While it is not certain what effect the NOW, ATS, share draft assumptions would have on the cost estimates, the assumptions for all the deposit growth projections should be re-examined.  _ c  .  •  .•  i •••• -T _  46 •  .  ' . J • •  *v• • .Mkt k: ...‘v  n• 4.  k " it Put, '7' •• ',.. ;pc '•  "•• 441.• 47C-At 1 4, 40; ?. 2.: • fr • '  Piwww  MEM  POONOOW  •  The Honorable Paul A. Volcker February 15, 1980 Page Three  5. Tax Affect. Board staff, Treasury, and CB0 each have different estimates of the tax-offset factor to bc used to calculate the not Treasury revenue affect of the various bills. The IS uses 55 percent, the Treasury uses 35 percent initially with increases overtime to 45 percent, and I. uses 30 percent. There may be no way to reconcile differences between the Board and IS on the tax-offset assumptions. However, the factors used by the tax analysis division of the Treasury would seem to be those that the Board staff should consider as appropriate. The Committee staff has asked the staffs of the Board, Treasury, and CB0 to re-examine all of the assumptions being used to estimate the 1980 to 1985 costs of the various Fed membership bills, and to provide the latest assumptions to us along with the rationale for those assumptions. Once those assumptions have been reviewed, I would like to have your staff recompute the annual cost calculations for H.R. 7, revised S. 85, modified S. 85, and S. 353, 1980 through 198S. Similarly, I would like to have the underlying estimates of reserve balances at the Federal Reserve banks annually through 1985. Since wc arc going back to conference on H.R. 4986 on March 4, 1980, I would like these estimates by Friday, February 22. By copy this letter I am making the same request of the Treasury and the CBO. In this regard, I understand that the Board staff has agreed to calculate the cost estimates on your computer system for the Congressional Budget Office using the CB0 assumptions.  IS  I would like to thank you in advance for your continued cooperation, and that of your staff, in this important effort.  WP:srl cc:  The Honorable G. William Miller Secretary of the Treasury The Honorable Alice Rivlin Director, Congressional Budget Office  rh 17 . 01,  • Federal Reserve Bank of St. Louis  7 *.z '...4-- •-, lir • — ,....„ 1...•  . .. .. . . s .. , •tbr .1 ..• ' ...„.• . P....s.,,,,,tv....• ? A . . -- Aver - • ?.- 1.n...a. • ... 4,_.} -..s•-•• - -,,,.7vs .. ' 71- , •Nze;.-70,,,,,iv ''.it...-. 411,1•0 .-....: 7 -•. .. ,- -1,4 owls,. :,..-•,- ••!...z.; ,..s:, .ct-'0. r.• , - +10.‘i•-•.t.t „et.-. ft,..."... ,...•F•1,2 rie . "..t..-- ""torolir,'4.414r•-•1;4,SiTX :  "r,.,.......„,•...____,  thy.: - . _. .f i' Viit,..;---- . . Federal Reserve Bank of St. Louis  arbaragr  The ilresseble Yank itasseede dieleate eihastailseee se itrassmes sdeadis Ostabtele ow Nokias, /lido* ad Sam Addeire Nivea at hesesessaithare WOO411101a, alk GO Jitins Lees Opetassa Asearsie ihailk yam hot yew latest Mae at the Iteeedee Itapletiee a,  Jestesey 115 ineliwitias the siile‘tlse  onclooe • Amoy of do tiara agog adapted by the weed* twistasettas she aseeldeiss olesidelest ad Oa /OIL. 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Theme him saillasso ma sr tiaras item. arriame Wee asiempt le this liaised amid tett tot volle arnosamkos to rep Ili la Misaal• ales ea whither anderly saatiease akomor• weeltd be eseeesear• IWO A wig eikkzTlet  auchrial•  eilososoly 11111043114101.1pc4 Moll) bats Ns* Matto Me Oath No. delorillt (2) Iladoimos  O  ction assignei to Janet Hart• Federal Reserve Bank of St. Louis  46.  FRA IX ANNUNZIO, ILL., CHAIRMAN GLADYS NOON SPELL MAN. MD. BRUCE F. VENT°. MINN. WALTER E. FAUNTROY, D.C. PARREN J. MITCHELL. MD.  THOMAS 13 EVANS, JR.. DEL. CHALMERS P. WYLIE, OHIO DON RITTER, PA.  U.S. HOUSE OF REPRESENTATIVES  CURT S A. PRINS. STAFF DIRECTOR  NINETY-SIXTH CONGRESS  SUBCOMMITTEE ON CONSUMER AFFAIRS  TELEPHONE: 225-9181  OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS ROOMZUVIOUSEOUK:EBUILDINGANNEX  WASHINGTON. D.C. 20515  January 18, 1980  P‘,5  Honorable Paul A. Volcker Chairman Federal Reserve Board 20th Street & Constitution Avenue, N.W. Washington, D.C. 20551 Dear Chairman Volcker: It has come to my attention that the Board may delay the May 10, 1980, effective date of Regulation E or some of its provisions. I feel quite strongly that a delay of any kind should not be permitted. The Electronic Fund Transfer Act provides a long, 18-month interval before the law goes into effect. Eighteen months is a longer effective date delay than provided in any other consumer credit protection legislation. This is more than ample time for regulations to be drafted and for financial institutions to be prepared to comply with the law and implementing regulations. Financial institutions have been aware of the law's requirements since November, 1978. It is my understanding that the final regulations will be issued in the near future by the Board. So, financial institutions now will have several months to prepare to be in compliance with Regulation E. Consequently, I see absolutely no justification for delaying the effective date of Regulation E or any of its provisions. • Delay may cause serious harm to consumers around the country. Delay may also result in confusion or harm to financial institutions because the law itself will go into effect on May 10, 1980, even if the effective date of Regulation E is delayed. I urge the Board most emphatically to have all of Regulation E go into effect on May 10, 1980, as Congress so clearly intended. With every best wish, Sincerely,  Frank Annunzio Chairman cc: Federal Reserve Bank of St. Louis  Board of Governors  AOP11  nos Otasarebta Lillie* a. 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LAsitisi ar•  Sm. itstillargt CI) 4.7  41.111 IMO Federal Reserve Bank of St. Louis  E:LLIOTT H. LEVITAS 4TH DISTRICT, GcoRGIA  PUBLIC WORKS AND TRANSPORTATION COMMITTEE  WASHINGTON OFFICE: 329 CANNON HOUSE OFFICE BUILDING  CHAIRMAN. PUBLIC BUILDINGS AND GPOUNDS  SUVICOMMITTEES.  WASHINGTON, 0 C.  20515  (202) 225-4272  OFFICE' TRINITY PLACE DECATUR, GEORGIA 30030 HOME  Congre55 of die Zlititeb tate5 31)oti5e of lepreMitatibe5  141 EAST  (404) 377-1717  AVIATION OVERSIGHT AND REVIEW  GOVERNMENT OPERATIONS COMMITTEE  Ulazbington, 73.C. 20515  iatt  SUBCOMMITTEES: COMMERCE, CONSUMER AND MONETARY AFFAIRS LEGISLATION AND NATIONAL SECURITY  MOMLE OFFICE:  mormop-  TRAVELS THE DISTRICT SERVING You  January 24  1980  The Honorable Paul A Volcker Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Constitution Avenue Washington, D.C. 20551  -  Dear Chairman Volcker: I have recently been involved in discussions with some of my constituents on the subject of inflation. Some of them claim that inflation is solely the result of our money policies -- or that the money supply is inflation. They sometimes relate it to the federal deficit. Since it is my position that the definition and causes of inflation are much more complex, I would appreciate your ideas on the subject. L  I am enclosing an article which several of my constituents have sent me which also defines inflation as an increase in the money supply. I would appreciate your comments.  04k,  With all best wishes, I am Very  k:-14 p,  ruly louis,  'Mut de PS .  ELLIOTT H. LEVITAS Member of Congress  U  EHL:pbg Enclosure  : C.4r UMW&  ieWl / 1 4 " : 4 r444 ` immomw  • L.  r•  Aik? Federal Reserve Bank of St. Louis  ,  11' ; 1m.  ••  . •ty  •  P.  -  ior.  •la " "•:‘ • •  •  • • !`  ,-k-na::22 . 4  -• -  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Magazine article Citations:  Number of Pages Removed: 4  Bennett, Ralph Kinney. "What Really Causes Inflation?" Reader's Digest, January 1979.  Federal Reserve Bank of St. Louis  BILL ARCHER 7TH DISTRICT, TEXAS  •  •  WASHINGTON OFFICE: LONG WORTH HOUSE OFFICE BUILDING  MEMBER: WAYS AND MEANS COMMITTEE Federal Reserve Bank of St. Louis  16-z tan( Conartsz of tbe tiniteb' 31)oufSe of 3aepre5entatibei4  DISTRICT OFFICE: FEDERAL OFFICE BUILDING HOUSTON, TEXAS 77002  Vlactington, 3ID.C. 20515 February 1, 1980  Dear Mr. Chairman: Each year that I've served in Congress, I've had the privilege of sponsoring an intern program which I feel is very special. One junior student from each of the high schools in my Congressional district in Houston is brought to Washington, D. C. for a week of in-depth study of the workings of our federal government. Students are selected on the basis of scholastic achievement, school and civic activities. This Student Intern Program has met with great success in its nine year existence -- primarily because our governmental leaders and other influential individuals have shown a willingness to share their thoughts and insights with these young high school representatives. The purpose of my letter is to ask if you would be able to spend a short time with the students, at a time and place convenient to you. The students will be visiting Washington in two groups of fifteen each on consecutive weeks in March. Meetings for our first group of students will be scheduled between MaLg11_12tb,and 21st, and the second group on March 24th -.21th, I know that an opportrIETTY to visit with you would mean a great deal to the young men and women in either or both of the groups, if your busy schedule would permit. It has been my hope that the program would help the students to better understand that their government is accessible to them -- and to make them feel a greater sense of participation in our democratic process. I would very much appreciate your asking a member of your staff to call Donna Steele in my office (225-2571) to let us know if you'll be able to participate in the program. Thanks very much for your consideration, and with best wishes, I am  Honorable Paul A. Volcker Federal Reserve System 20th and Constitution, N.W. Washington, D.C. 20051  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS Federal Reserve Bank of St. Louis  February 12, 19$0  The Xemorable MAbert MO Ciable Cbmirmau Comolttoo on the Sodget loom of Seproseutattves lisidestoo, D.C. 2015 Dom Cboirmau Claims Monk you for your lotto:. at hessery 4 inviting me to testify balsas yam Committee im prapsraties ler the Ikaljet Resolution for fissal year 1981. I am looking forsogi to sipparrims  No* S at 930  Siosswely, SZI*1 A. Voicket  CO:pjt (rif-39) Inc: Mr. Ktchline Mrs. Mallardi (2)e./  a.1111. Federal Reserve Bank of St. Louis  • *Ng a.  ROBERT N. GIAII.40, COP01. CHAIRMAN  NINETY-SIXTH CONGRESS  JIM yinscom. TEX. THOMAS L. ASHLEY, OHIO LOUIS STOKES, OHIO ELIZABETH HOLTZMAN. N.Y.  DELBERT L. LATTA, OHIO JAMES T. BROYHILL, N.C.  BAR•Kw U.  DAVID R. OBEY. WIS. PAUL. SIMON, ILL. NORMAN Y. MIHETA, CALIF. JIM MATTOX, TeX. JAMES R. JONES, OKLA.  iDoutie of Atpre5sentatibeZ COMMITTEE ON THE BUDGET  STEPHEN J. 1.0LARZ, N.Y. WILLIAM M. BRODHEAD, MICH. Ti/.49T1Iy C. WIRTH, COLO. LEON C. PANETT A, CALIF. RICHARD A. GEPHARDT, MO. BILL NELSON. FLA.  CoNAOL E. JR., Pd MARJORiE S. HoL.T, MO. RALPH S. REGULA. OHIO 1KJD SHUSTER. PA, BILL FRENZEL. %OW/. (LOON RUDD. ARIZ.  JAMES IL HEDLUND, MINORITY STAFF DIRECTOR  Wassbingtoli, D.C. 20515  WILLIAM H. GRAY III, PA.  MACE DROIDE, EXECUTIVE DIRECTOR  February 4, 1980  n5-7200  Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System Washington, D. C. 20551 Dear Mr. Chairman: This is to confirm our invitation to you to testify at a House Budget Committee hearing on March 5. The delayed arrival of the recession, the unexpectedly high ifirrifro-rr rate, the repercussions from energy and other international tensions add complications to a difficult budget year. The Committee will therefore eagerly anticipate a discussion of current monetary policy and the international monetary situation. We hope your presentation will include answers to the following questions which we feel are of special importance to Committee Members in their future deliberations on the budget: Federal Reserve Bank of St. Louis  (1) The stability of the dollar depends on world confidence in the U. S., particularly its ability to handle its energy and inflation problems. What is the current state of world opinion concerning the U. S.'s willingness to come to grips with these issues? Do you expect further runs on the dollar, and if so what defense would the U. S. have to prevent further deterioration in its value? (2) The domestic interest rate must be kept high to protect the dollar. Will other countries react by raising their interest rates also, postponing a decline in interest rates here? What would be the repercussions on the U. S. economy?  (3)  What forces are behind the skyrocketing price of commodities, including gold? Is gold speculation a threat to the U. S. monetary system and to the foreign exchange markets? Are any actions by the U. S. necessary?  (4) How will the huge OPEC surpluses be recycled? What effect will they have on the U. S. banking and monetary system?  (5)  Many third world countries are already heavily in debt but will need to borrow much more to finance their energy needs. Does this pose any problems for the U. S. banking system?  e  •,  a.  29  The hearing will take place at 9:30 a.m. in Room 210 of the Cannon House Office Building on Wednesday, March 5. We ask witnesses to send 100 copies of their statement in advance to distribute to the press. It would also be very helpful if we could have a copy of your statement a day or two before the hearing because Committee Members wish to prepare in advance for the discussion. I look forward to your testimony. Sincerely yours,  ROBERT N. GIAIMO Chairman RNG:nwc Federal Reserve Bank of St. Louis Federal Reserve Bank of St. Louis  February 12  Ihe liaseamble Wilma Pniaire Chatvast Casaittime  aillikklio arsellas  aid ifebeadas tJalord lismote . 11101a• 14 C. NSW . 11 111  Veer chouras Ireinaimei 1huh pin dor pow totter me hillotweety  lawitiss  laserd to iimmorify Won yaw Conattoolo katawitoop Iasi*tat tea to ai Omni  Smitiers vat *pram  ilme  Staeliime hats  so Maw yew Oft ilimiser am" IL balholf dthe NNW OS Fahlwasny  M 10.010 *sta. Siaeoraty Sikaul A. Volcker  CO:vtd (ft-44) ; Gov. 'motor. Bob tows my* HalIardi (2)  1 114(  WILL.IAM PROXMIRE. WIS., CHAIRMAN  •  HARRISON A. WILLIAMS. JR., N.J. ALAN CRANSTON. CALIF. EVENSON, ILI-. ADLAI E.  JAKE GARN, UTA JOHN TOWER, T JOHN HEINZ, PA.  MORGAN, N.C. ROEF ,IALD W. RIEGLE, JR PAUL S. SARBANES,  WILLIAM L. ARMSTRONG. COLO. NANCY LANDON KASSESAUM. KANS. RICHARD G. LJJGAR. IND.  MICH.  DONALD W. STEWART, ALA. rAuL C. TSCNGAS, MASS.  'AlCnifeb Zialez Zenate :.iiii  KENNETH A. MC LEAH. STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MAllY FRANCES DE LA PAVA. CHIEF CLERK  ON BANKING. HOUSING, AND URBAN AFFAIRS  WASHINGTON. D.C.  20510  February 11, 1980  Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th Street and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Chairman Volcker: This letter will confirm the appearance of you or your designee on February 19, 1980 before the Senate Committee on Banking, Housing and Urban Affairs to testify at hearings on legislation to renew the Home Mortgage Disclosure Act.  "IN Federal Reserve Bank of St. Louis  The Committee is interested •'4'Pr recommendations, and the basis of your recommendations, regarding legislation to renew HMDA. Among the issues which .11 may want to address are: 1. Should HMDA be made a permanent statute? 2. Should depository institutions covered by HMDA disclose information in accordance with a common reporting period, such as on a calendar year basis? 3. Should the legislation call upon the Board of Governors of the Federal Reserve System to develop and prescribe a standard format for HMDA disclosures? 4. Should the legislation call upon the Federal financial regulatory agencies to make arrangements for a central depository in each SMSA for disclosure statements for all depository institutions which are required to disclose under HMDA (or which have been exempted by the Board of Governors under Section 306(b) of the Act), and which have a home office or branch office in the particular SMSA? 5. Should the legislation call upon the Federal financial regulatory agencies to compile each year, for each SMSA, aggregate data by census tract, for all depository institutions which are required to disclose under HMDA  (.1  • -• .r`  • "".„  -•'•  •  r  • , ,•  •  • •. 0- •  • •:k..e.,••  •hr.  :Akor:  • ••••••.,:-..*-15-r . .tc.4.,..t):.-7..  ‘;  ;Ab‘..0,46,firs41  '  ..•;•• • . 4 ; it ;  • S  •  • Honorable Paul A. Volcker Page two  (or which have been exempted pursuant to Section 306(b))? This compilation could also involve production of tables indicating, for each SMSA and the United States as a whole, aggregate lending patterns for various categories of census tracts grouped according to location, age of housing stock, income level and racial characteristics. The legislation might specify that the data be compiled by the Federal Financial Institutions Examination Council. One possibility would be for the Board of Governors of the Federal Reserve System to provide staff and data processing resources to enable the Council to compile and make public such data. Federal Reserve Bank of St. Louis  The hearing will be held in room 5302, Dirksen Senate Office Building, Washington, D.C. In accordance with rules of the Committee, we request that you limit your initial oral presentation to no more than ten minutes. Rules of the Committee also require that you submit seventy-five copies of your written testimony at least 48 hours in advance of your appearance. Please deliver these copies to the attention of Mr. Steven Rohde, 5228 Dirksen Senate Office Building, Washington, D.C. If you have any questions, you may call Mr. Rohde at 224-9211. The Committee greatly looks forward to your appearance on February 19.  Chairman  WP:srj Federal Reserve Bank of St. Louis  February 11, 19410  The liemersble Willies Pronstire Vetted States Semite Weshiegtes, D.C. 20310 DOM SillOter  Premmdre:  hearings held by the Joint Nennenic Committee you asked why time disesseft rote has eat bees sore flexible sines the °saber 6 policy shiftwi-in 'anteater, why It was not raised whes member boa& borreuime surged sled semer merket conditions tighenned further in the latter pert of OctOher. At the mem*  The sharp dee be somber beak betroths in the test bolt of  Oetober occurred beemmee the dimmed ter resteries to meet empeeded required reserves of banbs—refleetiee Moog deposit esd sew gremehre4semeseded the messmes ef TOOOTVO4 belle supplied WhmemOteres market sporetisie. The need to riles the disesset rate seder eel* edeemmetessee depends in large pert on whether er set adjustments bilmeits sod the pebtle thee will bring growth im total reserves sod mew beak toward POW targets ere sees to be In presses. Growth ie deposits bed bees portieelsglY stray* im the first half of October. Sesame of Lieeed reserve seemestimg-.with required reserves based OR deposits two weeks earlieromehe eeseepseyies eepessimm  is dewed for reserves wes set reflected in eelheee esti" the last half of the emeth. At that time, basks had me dm** bet to find bode meedea to nest the largo rise is reakeirefi reigns* that were given by earlier deposit levels. Stnee these reserves maim met being supplied threw. MOO. merkot operatic's,, thebsaking opts, had to find the reserves either threes* an iserease laborsaving it the dismount window or by ***mime emmeeo reserves. In practise, bombs beep Mese* reserves seer minimal levels, so that the seeded mmeeelee older the cisemmstseees immorally hove tabs obtained by om imerease MAIM bask bowman". In the seceed half of OctOber sober Wok bereiswing rose to seemed 43 billion free about #1-1/2 billies at seitemostb. At the Rees tame, the federal fusds rote sad other short-teem rater rose further, with the Smeas rote reedits* a high of around 13-3/8 percent (om s weekly  memo basis). This floe in borrow/Log would have assured, gives lipped geserve oseeseties, whother or not the dimmest rate bad boon raised OMNI its 12 persona level. Sedge simply had MI'Woo emeept to borrow to obtain the remelved remeelee gesersted bp earlier deposit espeasies, Federal Reserve Bank of St. Louis  Ihe Ilisissbie William Preentre ine  given the lied te4 reserve supply Idissugh apes mertuet speratiees. If the dismount rate hod bees treimsseed elder Ohs eireuestantes, there weld love lase virtually se 'hippo kainaawims et thet time, belt then-term meahet IMMOtest rates would hoes visas ewes farther• Thorofare, the declaims sheet *MOW et rise in the disgorge wee* was seeded for the nest pert hipped es vhssiber added apverd presesre stiehart-ters rates, hopead thou duet veto also* in train, *aro Astirshim. An important factor in that dosisise aas evaluation of the reepseee a basks to the praisers as their reserve positions sad of owing behavior of the saw supply. Sines shertiotenmeneetat rates vase rialtos furthers it seemed clear that the banking system we* oak** admar a4je.s that would probably ctzain sow growth, thee* adder, to their bowlswile t goat overgat 'squired 'mums. limes adiostweets task forms, each as tightsabet Immdiag torus aid esiliel eawaritim $ thee mem memerntimg epward istenest rats passim's* and that mould tend to Mess deposit pewsk. Is feat, In the tatter pest et Ostabore sesey gpisettli weakened seneiderebly mad the allemeary patea owed bask Oult VW target track act by the f0MC at the Octet' 6 meeting. Thee, as thsr rise in the Messes' rote seemed smesseery• sod warikett bask bereselpis as well se shist•easss sesket teetotal "sees sakessesstly deellasd as dewed dor saw sad bask seesaw weed, 1 realise that stress argmnemte hry. hese seds for mere fletalc ass of the disesemt rata as a sometery polity inetremeat, sr, is the other hand, for tytms the rate to nethert rats.. Oar meet enper14eSs Smsgaste to me the complexity of the Iseass iewelvad. The valsOine tows, owe heft *valuated in it seepeakepshe staff study thJt is INA. way of the wile' tionahip %IMMO INV SOW SIM emtket operating posse's's* and ske asmimpo mist of the Mamma idMse sad dismount rats. trust these esmasses help to clarify policy estaideretiona effecting recent discount palsy. As you auggeoted, a copy of this letter is also being aant to CoolpiesPm loess. Stneerely, tliAspjt bec: Mk. Arilrod Mrs. Mallardi (2)%0'.*  Vo', Federal Reserve Bank of St. Louis  reinreary 11, 1000  TheHOmerable aenry S. Reuse Ouse of Representatives Mishinston, O. C. 2015  NW. Reuss: As premised at the hearing on February I, I an plamped to swim* a copy of my letter to Senator Proxmire regarding the dis.ount rate. Sincerely,  asslosre 03:ved bcc:  Mrs. Aallardi (2) Federal Reserve Bank of St. Louis  robwosny 11. 1100  Ole laroisoble arirotion WOW dimdassa eammilleso on Gemostametoll Meals MAW SteenSaiebb iliellidostose La* 20310 1110* aistense Laical Uwe you for poir Wear ad Jimmorya eNdiags dots Osilommi tor major *todailideue sad 41brostmes of Weft oinisalsotions llealigvised by dm egikarg hoseilie. I SO 01111111101141 a staff illmeltardisa ad Urix* of relairant IOW marts 'tot a sootvo to raw ret. trait tido tatimmottaswill bo helpful fa tho volt of Yoor Slusliodyt Waal A. Vole  lisidloges $111101spjt (FV•29) beet Mr. UM, Or. Nom Ms. )(Mardi (2) akaskallime Lualudin Staff moseasdlas 411016 PAM 'staff lisranmainiOS Os Public Idositification of Major ilbasolkobleso sod lotarlookise ititarootorMap at Financial Institutions within Os Jurisdiction& of the Wind Issorysi" roma F-S; Foss PA it-6; awl payee astitiall *Sauk Molding Cagosmios gait CAsmistsmtioa of liaidis and Iriamotal amumessi by Gleams aid NW. lissibsisa  •  ABRAHAM RIBICOFF, CONN., CHAIRMAN  HENRY M. JACKSON, WASH. THOMAS F. EAGLETON, MO.  ••• .  •  CHARLES H. PERCY, ILL. JACOB K. JAVITS, N.Y. WILLIAM  WTON CHILES, FLA.  ▪  V. ROTH, JR., DE  TED STEVENS. ALASKA CHARLES MC C. MATHIAS. JR., MD.  SAM NUNN, GA. JOHN GLLNN, OHIO JIM SASSER, TENN. DAVID H. PRYOR, ARK.  JOHN C. DANFORTH. MO. WILLIAm S. COHEN. MAINE DAVID DURENBERGER, MINN.  CAFtL LEVIN, MICH.  'ZJC•nifeb ,Sfates Zeuctie  RICHARD A. WEDMAN  COM M I TTEE ON  CHIEF COUNSEL AND STAFF DIRECTOR  GOVERNMENTAL AFFAIRS WASH I NGTON. D.C. 20510  January 25, 1980  IIIMMIM•Mo*  The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System Washington, D. C. 20551 Dear Mr. Chairman: The Committee has presently underway a project to update and expand the studies on corporate disclosure conducted by the late Senator Lee Metcalf and his staff of the Subcommittee on Reports, Accounting and Management (Senate Document 95-99, Voting Rights In Major Corporations, Committee on Governmental Affairs, 1978; Senate Document 95-107, Interlocking Directorates Among Major Corporations, Committee on Governmental Affairs, 1978).  k * ol  This project includes a survey of federal regulatory agencies as to the extent to which they now obtain for public identification the major shareholders and interlocking directorships for companies within their jurisdiction. More specifically, we request that you furnish us with a brief description of your agency's requirements, rules or regulations for obtaining the following information: 1.  Each of the twenty or more largest shareholders of the company, including the amount and class of the shares in which (a) the holder has the power to vote, and (b) the holder has investment cretion.  2.  The name of each director of the company and any other directorships held by each such director, including his (her) p cipal occupation and company affiliation.  •  •  ••• *. Federal Reserve Bank of St. Louis  •—•  •  4:41P-4.14 " 1410:&":4"''Korot  :.".•  ••••7-1.."  Where the agency relies on the public reporting of another agency (such as the SEC) for any of the above information in sIwn offices lieu of requiring it (or making it available) at please identify such information, the other agency which reports and what directions are given to the public for obtaining the information elsewhere.  • -0.-••• e  \  '  -  31"*•^0% .:4711 4  • • *  4,6  •  ction as signei to Jack Ryan •  o Federal Reserve Bank of St. Louis  The Honorable Paul A. Volcker  January 25, 1980 Page Two  The project also involves a computerized analysis of major shareholders and interlocking directorates among some 200 of the nation's largest corporations. After we analyze your initial response, we may ask you to provide us with such information for certain companies within your jurisdiction, to the extent that the data is included in your public files.  111111111MPP-  Similarly, we would appreciate obtaining a copy of any study or analysis your agency has made during the past five years concerning corporate concentration, stock ownership, or interlocking directorates relating to companies under your jurisdiction.  Illmond01•11-  We would like to complete our project as soon as possible; thus I have asked our consultant, Mr. E. Winslow Turner, to be in contact with your liaison office to work out the most expeditious method for your response. Mr. Turner's phone number is 342-0823. Federal Reserve Bank of St. Louis  Thank you for your cooperation. Sincerely,  Abe Ribicoff  Ao• vi:21. 1kt ;;;-...• • * 41f 3far  4 .•  ,  siaz. •  •c  '477-11.  E  14'114 p:At a.  • February 8, 1980  The Honorable Loon Z. Panetta House of Representatives Washington, D. C. 20515 Dear Mr. Panetta: Thank you for your kind invitation toaldreas the annual dinner of the Santa Cruz Chamber of Commerce. Unfortunately, my schedule over the first six months of this year is so crowded that I em unable to take on another commitment and must send my regrets.  With kind regards. Sincerely, Sgaut  cc:  Volsher  Mrs. Mallardi #25  JRC:tjf  2orremprirtart;rtairrIviiiIrmermortratt6,7wernlirimi.i.rt ; Federal Reserve Bank of St. Louis  •  • '-• :•  . -4i F5L"'W.  t.Trlitniflitri *7t:: Federal Reserve Bank of St. Louis  •  0  C M  BOARD OF GOVERNORS OFTHE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  February 7, 1980  PAUL A. VOLCKER  CHAIRMAN  The Honorable Abraham A. Ribicoff United States Senate Washington, D. C. 20510 Dear Senator Ribicoff: Thank you for your recent letter inviting my participation in the conference on the competitive position of the United States to be conducted at Harvard University on April 25-26. Unfortunately, I have a long-standing commitment that will take me out of the country at that time and I must send my regre ts. I appreciate your sending the invitation, however. With kind regards. Sincerely,  71-2 /251, 7(;,‘4, 44,4 61tt_ coca  tartie‘d elltazal aud/  aM dhlAt Anain(Vemie dut Federal Reserve Bank of St. Louis  ..••••.. • of GOlet ••  •-:\ •.m0 fi/4"(A\ • -4s.  BOARD OF GOVERNORS OF THE 2•  FEDERAL RESERVE SYSTEM  i(P. • 7  WASHINGTON, a C. 20551  c, •  PAUL A. VOLCKER CHAIRMAN  February 6, 1980  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 fourth quarter of 1979. Sincerely,  AteMia-tEnclosure Federal Reserve Bank of St. Louis  Board of Governors of the Federal Reserve System Staff Report February 6, 1980  DOMESTIC FINANCIAL DEVELOPMENTS IN THE FOURTH QUARTER OF 1979 expanding As the fourth quarter opened, the monetary aggregates were inflation, a depreciating dollar in rapidly in an environment of double-digit in metals and foreign exchange markets, and increasing speculative activity other basic commodities markets.  On October 6, the Federal Reserve announced  g the growth of a policy package designed to address this situation by slowin se announced money and bank credit with the intent of achieving rates of increa earlier for the year as a whole. centage point, to 12 percent.  The discount rate was increased a full per-  In addition, a marginal reserve requirement  d levels in of 8 percent was made applicable to any increase over base-perio agencies managed liabilities issued by large member banks and by branches and of certain foreign banks.  Such managed liabilities include time deposits  well issued in denominations of $100,000 or more maturing within one year, as llar as net borrowings from own foreign branches and certain other Eurodo sold transactions; also included are federal funds purchased and securities sources under repurchase agreements, net of a trading-account exemption, from other than member banks, U.S. branches and agencies of foreign banks, and Edge Act corporations. The policy package also included a change in the System's daily operating procedures to emphasize control of the volume of member bank reserves as the means of achieving desired monetary growth rates.  Previously,  open market operations had focused attention primarily on maintaining the federal funds rate at a level thought consistent with monetary growth objectives.  This procedure had become less satisfactory as institutional inno-  vations and changing inflationary expectations made it more difficult to Federal Reserve Bank of St. Louis  ascertain the short-run relationship between interest rates and the monetary aggregates. Interest rates increased sharply during the three weeks following the October 6 action, and short-term rates exhibited unusual day-to-day volatility.  The federal funds rate, which had averaged just under 12 percent  the week preceding the announcement, peaked above 15-1/2 percent two weeks later; other short-term rates also rose abruptly, though by less.  At banks,  the prime lending rate reached 15-3/4 percent in mid-November compared with 13-1/2 percent on October 6.  Medium- and long-term rates rose between 1 and  1-1/2 percentage points, and stock pri..;:es dropped markedly--by 10 percent or so on average.  By the middle of iovember, however, upward pressures on  interest rates dissipated as markets adjusted to the System's new operating procedure and as growth in credit flows and in the monetary aggregates slowed. By mid -December, interest rates were down from their mid-November peaks, the bank prime rate had been reduced to 15-1/4 percent, and stock price averages had recovered to about September month-end levels. As a result of the new policy procedures, the accompanying sharp increase in interest rates, and further slowing in the expansion of real and nominal GNP, growth in money and credit slowed sharply in the fourth quarter. Narrowly defined money, M-1, grew at an annual rate of 5 percent, on a quarterly average basis, little more than half the pace of the preceding three months.  Inflows of time and savings deposits included in the broader  aggregates (14-2 and M-3) also weakened, and excluding 6-month money market certificates (IAMCs), those deposits declined.  M-1 and M-3 were within, and  M-2 was only slightly above, the growth ranges established by the Federal Open Market Committee (FOMC) for the year ending with the fourth quarter of 1979.  Interest rates Percent per annum 14 - LONG-TERM  - SHORT-TERM  Conventional mortgages HUD  12 Commercial paper 90- to 119-day  /  10  Aaa utility bonds New issues  Treasury bills Federal funds  3-month  U.S. government bonds  State and local government bonds  Federal Reserve discount rate 4 1977  1978  1979  1980  1977  1978  1979  1980  Monthly averages except for Federal Reserve discount rate and conventional mortgages (based on quotations for one day each monthl. 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 U.S. 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 adjusted 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  Bank credit expansion also slowed sharply in the quarter, with business loans increasing at only a 6 percent annual rate, compared with more than 20 percent during the spring and summer.  Indeed, credit flows  to the private sector in general diminished in the fourth quarter.  Sub-  stantially increased credit costs discouraged some borrowing, and the supply of funds was constrained as usury ceilings became binding in certain states and as lenders instituted new restrictions on nonprice terms. Households reduced their borrowing in the consumer installment credit and residential mortgage markets.  In the public sector, Treasury borrowing  was relatively sizable reflecting the large fourth quarter deficit, and state and local financing also remained quite high. Monetary Aggregates and Bank Credit The reduced pace of M-1 growth in the fourth quarter brought its growth rate for the year to 5-1/2 percent, within the 3 to 6 percent range 1/ established by the FOMC.  Growth over the course of the year is estimated  to have been reduced slightly less than 1-1/2 percentage points by a diversion of funds from demand deposits into interest-bearing savings accounts wal subject to automatic transfer service (ATS) or negotiable order of withdra (NOW).  Such transfers declined in volume as the year progressed, however;  in the fourth quarter they had a negligible impact on M-1 growth. The sharp changes in market yields in the fourth quarter had a marked effect on the structure of the interest-bearing component of M-2. 1/ The Committee had originally adopted a range of 1-1/2 to 4-1/2 percent, on the assumption that shifting to newly authorized ATS and NOW accounts g would depress growth of M-1 by 3 percentage points. When such shiftin appeared likely to be no more than half that amount, the range was adjusted to 3 to 6 percent.  1/ CHANGES IN SELECTED MONETARY AGGREGATES-Seasonally adjusted annual rates of change, in Dercent  1979  1977  1978  1979  1978 Q4  5.3 3.1 8.3  6.7 6.8 9.1  2.8 0.8 7.6  2.4 4.7 8.5  -3.0 -3.4 5.6  -5.0 -9.8 3.9  6.3 9.2 9.9  13.1 7.5 10.1  7.9 9.8 11.7  7.2 8.7 9.5  5.5 8.3 8.1  4.3 9.5 q.8  -1.3 2.8 5.3  8.1 8.8 8.0  0.7 11.9 10.5  5.1 8.9 7.8  Time and savings deposits in M-2, 5/ Small time plus total saving&Savings Small time Time and savings in M-2 excluding MMCs  11.2 10.5 11.1 9.7  9.7 6.1 1.8 11.9  10.4 10.8 -5.8 31.0 -5.2  11.5 7.6 -1.2 19.2 2.5  5.8 2.7 -11.8 20.3 -8.2  9.3 15.0 -3.5 35.9 -5.0  11.3 15.7 5.8 25.7 1.7  11.5 8.3 -13.9 30.0 -9.6  Thrift deposits in M-3 Excluding MMCs  14.5  10.6  7.8 -10.1  11.6 -5.7  8.8 -3.8  6.8 -21.3  8.4 -1.0  6.3 -15.5  27.5 8.0 10.8 8.7 -3.8 12.4  68.3 23.1 22.1 23.1 6.6 16.5  50.5 0.0 9.2 413 25.8 15.5  19.7 5.5 6.7 7.5 3.9 3.7  20.8 7.0 4.7 9.1 4.3 4.8  4.0 -10.3 -3.3 17.6 11.9 5.7  12.8 -4.0 1.1 15.7 9.1 6.6  12.8 7.3 6.7 -1.2 0.7 -1.9  Item 2/ Member bank reservesTotal Nonborrawed 3/ Monetary base4/ Concepts of moneyM-1 M-2 M-3  Memo (change in $ billions, seasonally adjusted) Managed liabilities Large negotiable CDs at large banks All other large time deposits Nondeposit funds Net dpc to related foreign institutions Other-' 1/ 2/ 3/  4/  5/ 6/  Ql  Q2  43  Q4  Changes are calculated from the average amounts outstanding in each quarter. Annual rates of change in reserve measures have been adjusted for changes in reserve requirements. 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. M-1 is currency plus private demand deposits adjusted. M-2 is M-1 plus bank time and savings deposits other than negotiable CDs in denominations of $100,000 or more. M-3 is M-2 plus deposits at mutual savings banks and savings and loan associations plus shares in credit unions. Interest-bearing deposits subject to Regulation Q. Includes borrowings from other than commercial banks through federal funds purchased and securities sold under repurchase agreements, plus loans sc,ld to affiliates, loan RPs, and other borrowings. Federal Reserve Bank of St. Louis  • Federal Reserve Bank of St. Louis  -4-  Savings accS unts contracted at a record annual rate of  -s_e  as  yields on MMCs and on market instruments rose to almost twice the ceiling rates on savings accounts.  Reflecting entirely the robust gains in MMCs,  particularly during November, small-denomination time deposits at commercial banks grew at a near-record annual rate of 30 percent.  Large-denomina-  tion time deposits included in M-2 also expanded at a substantial 25 percent annual rate over the quarter.  Overall, the time and savings deposit com-  ponent of M-2 increased at a rate only slightly below that of the third quarter  Thus, the slowinggrowth was less pronounced than that  fSr M-1. MMCs also were the primary source of funds to thrift institutions during the fourth quarter.  As at banks, depositors at thrift institutions  withI rew funds from low-ceiling passbook accounts and placed them in MMCs; such shifts during the past year and a half have substantially altered the institutions' liabty mix toward high-cost short-term instruments.  Dur-  ing the fourth quarter, savings and loan associations --particularly the bigger institutions--issued large-denomination time deposits to supplement reduced deposit flows from the household sector.  In total, however, growth  in deposits at thrift institutions slowed considerably toward year-end. Consequently, the pace of expansion in M-3 abated to a  -I-rcent rate  in the fourth quarter—from a 10-1/2 percent rate in the preceding three months. Households also acquired a substantial volume of nondeposit assets as they sought to benefit from higher market yields available during the quarter.  Money market mutual funds continued to attract investors' funds;  their assets increased by an average $3-1/2 billicn per month.  Direct Federal Reserve Bank of St. Louis  Treasury yield curves and deposit rate ceilings Percent per annum - 13 - 12 December 31, 1979  - 11  %„..  September 28, 1979  -10  ------------------------------  - 9 Ceilings at commercial banks  -8  Ceilings at S&Ls ^  - 7 -6 2  3  6 4 5 Years to maturity  * This point marks the maximum yield on money market time deposits at commercial banks and thrift institutions for December 31, 1979. t This point marks the maximum yield on two-and-one-half-year floating ceiling accounts authorized January I. 1980 Ithrill institutions. 11.12 percent; commercial banks. 10.84 percent). Data reflect annual effective yields. Ceiling rates are yields derived from continous compounding of the nominal ceiling rates. Market yield data are on an investment-yield basis.  5-  acquisitions of short-term U.S. Treasury securities also appealed to more savers than earlier in the year, and noncompetitive tenders at Treasury auctions swelled during November to a high for the year. At year-end, the federal regulatory agencies further increased the opportunity for savers with limited financial resources to earn nearmarket rates of return on their deposits.  Specifically, effective  January 1, 1980, banks and thrift institutions were permitted to offer an account with a minimum maturity of two and one-half years in any size they choose and with an offering yield tied to the market yield on 30-month U.S. Treasury securities; the return, once established, remains fixed throughout the life of the deposit.  The ceiling rate is 75 and 50 basis  points below the Treasury yield for banks and thrift institutions respectively; with continuous compounding the effective ceiling yield at thrift institutions is nearly equal to the yield of the Treasury security.  In  January, the effective yields on the 2-1/2-year certificates were 11.12 percent at thrift institutions and 10.84 percent at commercial banks.  Regu-  lators also authorized an increase of 1/4 percentage point in the 90-day to 1-year time account ceiling applicable to both banks and thrift institutions. Total member bank reserves grew at a 13 percent annual rate during the fourth quarter--exceeding growth of required reserves by 1 percentage point--as banks, as a group, evidenced a desire for larger excess reserves in the aftermath of the System's October 6 actions.  Nonborrowed  reserves grew a great deal more slowly than total reserves with member banks meeting a larger proportion of their reserve needs at the discount window. Federal Reserve Bank of St. Louis  •  S -6-  The managed liabilities of commercial banks increased $12-3/4 billion during the fourth quarter, the same as during the third.  For the first  time in six months, domestic offices issued substantial amounts of largedenomination time deposits, but this growth was partially offset by runoffs in nondeposit funds.  Large banks relied much less on increased borrowing  from their overseas offices; and other nondeposit borrowings, a composite that includes federal funds and repurchase agreements (RPs), actually declined. With credit demands apparently weakening and with the 8 percent marginal reserve requirement adding to the already high costs for managed liabilities, many banks sought to keep their balances below base-period levels.  By year-  end, a number of large member banks and most U.S. agencies and branches of foreign banks had accomplished this objective, despite growth in their loan portfolios.  In total, managed liabilities subject to the marginal reserve  requirement averaged about $5-1/2 billion in the second half of October but dropped to about $3-1/4 billion in December. With slackening economic expansion and with firmer credit market conditions, total loans and investments at commercial banks grew at a pace of only 3-1/4 percent during the fourth quarter, down sharply from 15-3/4 percent in the previous quarter.  Investments grew only marginally.  Treasury  securities were liquidated for the first time since a year earlier, but the decline was more than offset by acquisitions of other securities, primarily state and local obligations.  Growth in total loans outstanding at banks  dropped from an annual rate of 18-1/4 percent in the third quarter to 3-1/4 percent in the fourth, largely reflecting a reduction in business loan growth and slower growth in consumer loans. Federal Reserve Bank of St. Louis Federal Reserve Bank of St. Louis  • Major categories of bank loans  Components of bank credit  Change, billions of dollars - TREASURY SECURITIES 4 BUSINESS Li  0  4  16 12  1111111.  in nJuin n  - 8 4 0 40 _ REAL ESTATE  OTHER SECURITIES  Ln aLI  TOTAL LOANS  32  H  24  16  8 4 0 12 8 4 0  CONSUMER  -n_tnn n n  8 4 0  NONBANK FINANCIAL  4  8 r--i  0  1  Q4  1978  QI  Q2  Q3  1979  Q4  Q4  1978  QI  Q2  Q3  Q4  1979  Seasonally adjusted. Total loans and business loans are adjusted for transfers between hanks and their holding companies, affiliates, subsidiaries, or foreign branches.  -7  Business Finance Total funds raised by businesses in financial markets decreased substantially in the fourth quarter.  Among nonfinancial corporations,  external financing needs fell to their lowest level since 1977, as a further slowing in inventory accumulation reduced capital expenditures while internally generated funds continued to rise moderately.  Reduced short-  and intermediate-term borrowing accounted for much of the resultant decline in financing activity.  In long-term markets, nonfinancial businesses con-  tinued to make substantial use of commercial mortgages, but net issuance of bonds and stocks remained well below the first-half pace. Business loan growth at commercial banks fell off quite sharply in the fourth quarter.  In part, this reduction was a reaction of firms to  a sizable increase in the cost of bank loans; the prime rate increased 2 percentage points during the October-December period, reaching a high of 15-3/4 percent in late November.  In addition, data available for large  banks indicate that nonprice lending terms and standards of creditworthiness tightened, with banks becoming more reluctant to lend to new customers and more strict about compensating balance requirements. The outstanding commercial paper of nonfinancial firms fell, and growth in banker acceptances slowed early in the fourth quarter.  In  December, however, business borrowing in these markets strengthened again. Gross offerings of bonds and stocks by both nonfinancial and financial corporations fell to a seasonally adjusted annual rate of $44 billion, the lowest level recorded in 1979 and down from $58 billion in the third quarter. Federal Reserve Bank of St. Louis  Public offerings of bonds by nonfinancial corporations Federal Reserve Bank of St. Louis  •  BUSINESS LOANS AND SHORT- AND INTERMEDIATE-TERM BUSINESS CREDIT Seasonally adjusted annual rates of change, in percent 1/  Period Year 1973 1974 1975 1976 1977 1978 1979 1979-Q1 Q2 Q3e/ Q41/ 2/  3/  e/  Business loans at banks2/  Short- and intermediate -term business credit3/  21.8 19.3 -3.8 1.3 10.5 16.3 17.2  21.5 23.5 -4.0 4.4 13.6 18.3 n.a.  20.5 16.6 22.7 5.7  20.8 20.1 27.4 n.a.  Growth rates calculated between last months of period. Based on monthly averages of Wednesday data for domestically chartered banks and an average of current and previous month-end data for foreignrelated institutions. Adjusted for outstanding amounts of loans sold to affiliates. Short- and intermediate-term business credit is business loans at commercial banks plus nonfinancial commercial paper plus finance company loans to businesses and banker acceptances outstanding outside banks. Commercial paper reflects prorated averages of Wednesday data. Finance company loans and banker acceptances outstanding reflect averages of current and previous month-end data. Estimated. Federal Reserve Bank of St. Louis  8-  are estimated to have declined somewhat in the fourth quarter, largely because of a relatively low level of bond issuance by industrial firms following the sharp rise in rates after October 6.  The volume of public  offerings by utilities picked up in the quarter, however, with most of that increase in October and November.  Financial businesses markedly  reduced their issuance of bonds during the quarter; this drop partly reflected a slowdown in offerings of mortgage-backed bonds by savings and loan associations.  Intermediate- and long-term bond offerings by financial  companies accounted for about 40 percent of total public offerings in the first half of 1979, but only about 20 percent of the second-half total. Takedowns of private bond placements in the fourth quarter are estimated to have remained near the pace of the third quarter, well below the levels recorded in the first half of 1979.  Life insurance companies  (the principal lenders in the private placement market) appear to be channeling a large volume of their funds into mortgages--especially commercial mortgages.  In addition, investable funds of these institutions  were reduced by a sharp rise in loans on insurance policies after October 6. Yields on corporate bonds increased appreciably during the fourth quarter.  Bond yields jumped 75 to 125 basis points between the  Federal Reserve's October 6 policy announcement and month-end, and reached new highs in early November; over the remainder of the quarter, they changed little on balance.  The upward movement in corporate bond yields and the  uncertainty about economic and financial prospects accompanying the System's policy actions gave rise to an increased sensitivity by investors to differences in risk.  By the end of the fourth quarter, the spreads between 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. e/ Estimated.  1979  Q4  Si1  Q2  43!  e/ Q4—  42  47  58  58  44  30 18 12 12  39 17 22 8  51 35 16 7  40 29. 11 18  35 23 12 9  r/ T—  9.  5  r/ 42.—  43  50  5 48  r/ 3— 39  9-  rates on higher and lower quality bonds had diminished considerably from as their mid -October levels but were still generally about twice as large before October 6. Stock prices declined sharply after October 6, reflecting investor concern that higher interest rates and reduced credit availability would detract significantly from economic activity and corporate profits in the future.  The fall in stock values prompted several corporations to  postpone or to cancel scheduled equity offerings, which contributed to the reduction in total stock offerings during the fourth quarter.  The stock  offerings that came to market during the quarter were concentrated in public utility issues.  By year-end, stock prices generally had retraced their  fourth quarter declines.  The American Stock Exchange composite index was  tion of at a new high at the end of the quarter; the National Associa Securities Dealers index posted sufficient gains late in the quarter to Federal Reserve Bank of St. Louis  New end the year just below a record level set on October 5; and the York Stock Exchange composite index ended the quarter near its high for the year. Government Finance Gross bond offerings by state and local governments increased substantially in the fourth quarter, on a seasonally adjusted basis, despite Lhe postponement or cancellation of a large volume of issues as interest rates rose in October.  The volume of offerings continued to be bolstered  by borrowing to finance housing, which, as in the third quarter, was dominated by single-family housing issues.  These bonds were sold on the basis of  indications from the Congress that they would be exempt from any new restrictions  -10-  that federal legislation, if passed, would impose on home mortgage financing by state and local authorities. Like yields in other markets, interest rates on state and local obligations rose appreciably in the fourth quarter.  The Bond Buyer index  of yields on general obligations rose 60 basis points to end the quarter at 7.2 percent.  Yields on taxable issues increased much more, however, and the  in the ratio of tax-exempt to corporate bond yields declined to a new low fourth quarter.  Continued strong demands for tax-exempt bonds by commercial  banks and property-casualty insurance companies apparently tempered the rise in municipal rates. Federal Reserve Bank of St. Louis  Treasury net cash borrowing from the public increased in the fourth quarter to $18.9 billion, not seasonally adjusted.  The combined federal  deficit--including off-budget items--rose to about $26 billion and was financed in part by drawing down the Treasury's operating cash balance. In contrast to the wide range of movements over the preceding two outquarters, there was little net change during the fourth quarter in the standing volume of nonmarketable Treasury obligations.  Most of the Treasury's  borrowing was accomplished through domestic sales of marketable securities to the public, both coupon issues and bills.  Given the need for large  amounts of new money at a time when a sizable volume of coupon issues was maturing, the Treasury made significant net additions to the weekly bill auctions for the first time since 1976.  New funds raised in this manner  totaled about $3.5 billion for the quarter.  The Treasury also issued about  $7.5 billion of cash management bills dated to mature in the spring, substantially more than the volume of such bills issued in the fourth quarters of other years.  FEDERAL GOVERNMENT BORROWING AND CASH BALANCE Not seasonally adjusted, in billions of dollars  1978  1977 Q4 Treasury financing Budget surplus, or deficit (-) Off-budget deficit 1/ New cash borrowings, or repayments (-) 3/ Other means of financingChange in cash balance Federally sponsored credit 4/ agencies, net cash borrowings1/  2/ 3/ 4/  e/  1979  012  Q3  44  41  Q2  Q3  -20.4 -3.0  21.4 -5.2  -4.4 -4.2  -24.6 -.9  -4.6 -1.9 9.8  12.4 2.9 6.7  18.9 -1.7 -8.3  5.5  4.7  -28.8 -1.3  -25.8 -3.7  14.0 -2.2  -8.1 -3.1  -23.8 -.1  20.7 2.6 -6.8  20.8 2.8 -5.9  2.5 -3.2 11.1  15.1 1.0 4.9  15.3 2.6 -6.1  2.0  4.5  6.5  6.1  5.2  2/ 10.64.2 -8.6  6.3  7.3f/  Includes outlays of the Pension 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 $2.6 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). Estimated. Federal Reserve Bank of St. Louis  •  Net borrowing by federally sponsored agencies totaled a record $7.3 billion in the fourth quarter, not seasonally adjusted.  The increased  borrowing reflected efforts by the Federal Home Loan Bank System and the Federal National Mortgage Association to buttress residential mortgage credit flows and by the Farm Credit System to meet demands for agricultural credit usually provided by banks and life insurance companies. Interest rates on Treasury securities increased appreciably during the fourth quarLer, along with rates on private debt securities.  Yields  on shorter dated bills rose slightly more than those on comparable private issues, however, largely because of the sizable net issuance of bills in the fourth quarter and the substantial sales of bills anticipated in the first quarter of 1980.  Interest rates on long-term government bonds increased  about 1 percentage point for the quarter, somewhat below the increases in yields on long-term corporate bonds, in line with the greater risk aversion noted earlier. Mortgage and Consumer Credit Mortgage credit conditions tightened markedly after October 6. The average interest rate at savings and loan associations on new commitments for conventional home mortgages with 80 percent loan-to-value ratios rose more than 1-1/2 percentage points in the fourth quarter and in general nonprice lending terms firmed.  Many savings and loan associations drastically  reduced or completely halted their commitment activity in October, and although there was some indication of a liberalization of lending policies in late November and December, on the whole conditions remained much more stringent than in the previous quarter. Federal Reserve Bank of St. Louis Federal Reserve Bank of St. Louis  -12-  The curtailment of credit availability was especially marked in states where usury ceilings prevented home mortgage rates from adjusting upward.  During December, 16 states had fixed ceilings below the national  average for conventional mortgage rates, and in several other states floating-rate ceilings tied to Treasury yields were below market mortgage yields.  It was against this backdrop that the Congress passed and the  President signed into law on December 28 a bill that temporarily exempts from state usury limits the conventional first mortgages made by most types of lenders for the purchase of residential property.  Unless revoked by  state action, the exemption will apply until March 31, 1980, and covers new mortgage commitments made, as well as loans closed, during the suspension period. Net mortgage lending, which largely reflected earlier commitment activity, moderated slightly in the fourth quarter.  The decline was con-  centrated in the residential sector and represented a marked reduction in mortgage acquisitions by savings and loan associations.  Purchases of resi-  dential mortgages by the Federal National Mortgage Association (FNMA) increased sharply in the fourth quarter, and issues of mortgage-backed securities guaranteed by the Government National Mortgage Association (GNMA) reached a record level.  An increase in net mortgage lending by life insur-  ance companies contributed to a rise in commercial mortgage loans. The relatively large decline in mortgage commitment and lending activity at savings and loan associations was largely a response to the uncertainty about future deposit flows in view of the firming in credit markets.  With a slowing in deposit growth in the fourth quarter and a jump  in the cost of borrowing from Federal Home Loan Banks (FHLBs) and other Federal Reserve Bank of St. Louis  •  NET CHANGE IN MORTGAGE DEBT OUTSTANDING Seasonally adjusted annual rates, in billions of dollars  1978 Q4  Ql  1979 Q2 13  Q4e  •  By type of debt: Total Residential Otherl/  160 124 36  158 119 39  164 118 46  160 114 46  157 109 49  35 52 6 13 9 45  33 45 6 11 12 51  34 51 4 • 11 8 56  34 43 4 13 2 64  33 33 3 17 10 61  By type of holder: Commercial banks Savings and loans MutualI1Yt1114s Life insurance companies FNMA and GNMA Other2/ 1/ 2/  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. Partially estimated.  •  -13-  sources, savings and loans drew down holdings of liquid assets, causing the average liquidity ratio--cash and liquid assets divided by the sum of shortterm borrowings and deposits --to fall.  To encourage savings and loans to  free more funds for mortgages, the FHLBB reduced minimum liquidity ratios near the end of the quarter and proposed a liberalization of limits on borrowing from sources other than FHLBs.  Net borrowing from FHLBs by sav-  ings and loan associations declined somewhat in the fourth quarter. Growth in consumer installment credit outstanding slowed substantially during the fourth quarter.  The slackening was most pronounced  for auto credit, presumably related to the substantial drop in auto sales. The moderation also may have reflected some retrenchment on the part of households, whose debt burdens have mounted over the course of the economic expansion.  The amount of installment loans outstanding at credit unions  contracted during the October -December period, the first quarterly decline in more than seven years.  Primary reasons for the falloff in new loan  extensions by credit unions were the net redemption of shares in the fourth quarter and the 12 percent ceiling imposed on consumer loan finance rates at federally chartered and most state-chartered credit unions.  Rate ceil-  ings were also a factor limiting consumer installment loans at some commercial banks; in 16 states, for instance, the statutory ceilings on new auto loans extended by commercial banks were 13 percent or lower (annual percentage rate), which was about the same as the marginal cost of lendable funds for banks during the fourth quarter. Federal Reserve Bank of St. Louis  0  DANIEL K. INOUYE  PRINCE KUNIO FEDERAL BUILDING Room 6104, 300 ALA MOANA BOULEVARD HONOLULU, HAWAII 96850  HAWAII  (808) 546-7550  'ZIG-tifett Zfatez Zenafe ROOM 105, RUSSELL SENATE BUILDING WASHINGTON. D.C. 20510 (202) 224-3934  February 6, 1980  Mr. Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Volcker: Thank you for your detailed reply to Senator Matsunaga's and my letter concerning the acquisition of Bishop Trust Company by Crocker National Corporation. I am pleased that your letter states that "Crocker is aware that it may have to divest Bishop if the legislation is enacted as proposed, and has made appropriate provisions for that event". Thank you for your assistance. Aloh  EL K. INOU United States eiator DKI:jmpl Federal Reserve Bank of St. Louis Federal Reserve Bank of St. Louis  February 6, 1980  The Momeroble Lloyd Bentsen Chairmen Joint BoomemL... Committee Washington, D. C. 20510 Dear Chablis' Bentsen: In secefddlice with arrangements that have been made with your Committee, enclosed is a staff report covering finan'ial developments in the fourth (mortar of 1979. Sisters y,  VFW A. Volcker  Enc. qm.,re MS:vcd cc: Joint Economic Committee (along with 30 copies of ltr. and report) Vice Chairman Bolling Elinor Bachrach, Tommy Brooks, Steve Roberts (Senate Banking) Paul Nelson, Graben Nor thup (House Banking) Bob Weintraub (Domestic Monetary Policy Subcmte. of House Bkg.) John Farmer Mike augo (House Approps.) Federal Reserve Bank of St. Louis  eebruary 5  The Memersite Tres& Ammosio Oloirmes ilisommittee en consumer Affairs Cemeittee Oa loaktal, Vials e a;td lase Affairs WNW Depreoantatio0o iiikiagtea. D. C. 20315 DearTTAmmoniac 'his is in res)onse to your letter et MOOSOber i3 eeemontias sa tft Heal sod proposed seLtions et the regulates to implement the alectremie ?mid ftanster Act. The Beard hes new adopted Impulation in Heal form, end I IN Odalosiag espy of the 'rims release on the regulation for your intensities. Ow first teem that you seised osecerned the model disclosure louse that seta forth the liability ef iimencial institutive* ter failure te seise er step cartels tremsfeme. lieu felt thee tbe clause did not ccurately disclose some important sonsumer pootectleme provided by the Act, and taat these deficiencies would mehe the form less useful than it sho,Ild be for conamaara• The lewd agrees with the caa40faa you empseseed about the model disclaimer sod hes anseded it to poevide gimes, specificity. The revised cisme* appears se 'age 49 of the sealseed material. You iemeneenJad that Regulation I pewit champs for error 111060iatiOa sely iham the financial fostituties determtnee that no error hme amommed, am only to the extent that chemise are reasonable and do net Ontaed the actual costa Lecurred by the financial inatitutieme in imetigating the error. The final regmlatims adopted by the Beard does not specifitually address the issue el charging ter error r seolution. Comments on the epodial indteatod that most financial instituttime do est now chars. for error remplutien. lime beard felt that addreseleg the issue in the obviation at this time maibt emoursige the im5osittem et such charges. the Board mimeo your concern that Alarms for error reeslutLos amor discourage eseeemers from emir-Jaime tir he rights under Federal Reserve Bank of St. Louis  The floresible Fmk kireiheato Page lag  this Act, and intemde te leatter the practices of institutions with resoleet to chimps for error reeeletien, sled take appropriate action if necessary.  lims reined several objection to the 1/001P0sa1s 40111114 Isla error tnveetigeties. The first ome osneerned the ineeetigation of MIMS in tremem fore node to or fain third parties with *Leh the finsiecial inotitntiee hee as egreememt--for ememple, preentheeloed trensfers teen the Sesial Seentity An or peeleutherimed pepmemes to stutiIity company. In Goa Odeee the Unsocial institution would be required oily to enemies it. own records; it geoid met hope to carry the investisaties beyond its "four walls% Yea telt that this -Irovisinsimeeld enooureee financial institatimes to swede the statutory reqqlrements by rotaisies to stem agreements VIA third parties wish *WI they deal. You else felt that the coniuMOr Wild not hove say IsOOMMOS in attemptieg to resolve on error utth a Wrd farty. The ihreed edepeed this prevision in erhetaetially the Mem that lt appeeeed is the toot preposel. Cemmeeta as the popsies' iadLosted that fismotia1 imetitatteme would tied it entremely difficult sod coetty te attempt Seeelutiss of Wirers eommdtted by third Forties with imbieh they hem as esmenemtop particularly within the prescribed time gloried*, The regmlettee attempts to aommedsto those eetwerns. Providing, the ;C 11 with the infermetten, as quickly as peeethles that the fimalecial itketteitiats he. or hem use committed as erretwill then emible the minemmer to apposes& the Wird peaty, if meessery. Tbe Board envisions that this Integmaties win almost always be pmeetded to the oftliftwor within 10 burial's dery *ins a leaser pooled Iseeld 'squire that the institt:ttes ieersdlt the oseesammeo actoseeti, liem also objected to the proposal that when a financial inotitutaees third partite with which it dens beam se aisemert. is ties Jog en alleged error, the institutive may rely em the teememetios tram the third party. That provision he* been deleted fres the roust flail sesolatien. finally) You disagreed with the position When La the eeepeeel that a fieepotal institution ear withheld up to Melee it reseedits the casemate* aosemet alter ea allegaties of possible emmuthorieed use of an acereee devise, lhe peeposal would hose 'emitted an institution to withheld up to $50 it it believed that inemtherimed u011 was involved. lito feel thee the institutions should have te Ohm that the coalitions for impesteg liability for emeethecieed trunnions have all base use beefinal regulation will roomire an fore it sae withhold spy 41010111* Federal Reserve Bank of St. Louis  The *movable rvank Annosale Pegs Uses  testitutton to has It reasonable basis for Wiwi's. that emeethorised use was involved Aid that it has satisfied the vagsieasteta Of5 203.6W -that the laced* dewiest rem properly Issued and sosapead, amid that cartels disclosure had born mede—before it can viseld spy sesurt. Theak yes fee bringing theme essomms ft Mho lisswess afteethen. incleally a  EDC loeure  LIWDS:vcd (#V-111) bec:  Mrs. Hallardi (2) Ms. Barr MB. D. Smith Federal Reserve Bank of St. Louis  Plibruars7 Se 11100  Ileeeceble feel S. ilimed Stable ISOM*  9•C•  IMO  Dees Seeseer itamboeses limb yes Stat year Wein el llemerey evesineeittas Mr• Setae D. as Wow • workers of die Seeires thistime hieifiemy GiNalittl• sembere t* sem for 1,10 home ahead, base ealasemit by Strica• isemiess. I ens astroon yes that thr, tames estlitiaitteellvtlI $111111d1* eassidemetiee by the heard ghee it mhos the 1114111 appmehiteerata t• *he Comeet1 la the fail el We year.  appiesitatas ~pixies TOW ramemeeleties and yore isiseseet ihe the Geasenew ihrilirstaery comett. Stesentely• Semi A. Voldot  CO:pjt (#11-31) bec: Amin Marie Bray (for iallars-up) Mrs. Mallardi (2)  PAULS.SARBANES MARYLAND  S Federal Reserve Bank of St. Louis  'R/Cnifeb Ziafez ,e3ettafe WASHINGTON. D.C. 20510  '  January 31, 1980  Paul Volcker, Chairman Federal Reserve System 20th & Cbnstitution Avenue, NW Washington, DC 20551 Der Mr. Chairman: I had been in touch with your predecessor, G. William Miller, to bring to his attention Mr. Bruce D. Patner, who had contacted me concerning his interest in an appointment to the Consumer Advisory Council of the Federal Reserve Board.  07o  Although I do not know Mr. Patner personally, I am impressed with his background and believe his experience and qualifications mark him as someone meriting your careful consideration as you review candidates for appointment to the Council. With best regards, Sincerely,  Paul S. Sarbanes United States Senator PSS/brnk Enclosure  0•••••••..  • •  !.7  .• :,..• ra4"t  r•• 4 a•  ftwirL  e:r  . .). 4 .  •  ).  s81,4r:  ^, ie  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to personally identifiable information.  Citation Information Document Type: Resume Citations:  Number of Pages Removed: 3  Resume, Bruce D. Patner, 1980.  Federal Reserve Bank of St. Louis Federal Reserve Bank of St. Louis  February Se 1960  The Mietteeble winks Progating Chairman Committee as nonhing, ileselet sad When Affairs Vetted States Senate 11100hIngtoa. 0.C. 20510 FM,thalami* Prellaire Thank yes fer your letter of Jamery 24, lOSO, eammersies the appileetlen of •bailtbaUt conpeny to aegeirs s smatiel mimeo haiih. emierne yet pormeaelly fIlMr with the ewe, but I ea informed the appliestiee has beam proteelliet by soyeeo1 parties is New Mompshire. .1snuery 10, 1,80, ee oral timings ctadeseed at the laird's Wiese isWashington at the protestant* end the applieant were sloes the Lty to eeeteet es issues raised la ceemection with the paopeee • At the peemant time the spritsails* is beteg reviewed by the Seard'a staff. Tail 41.1 be ameured that year vises will be brought to the Sesrd's eiteetlen at the tine the application is slagged by the Beard. I appreciate you? istelreet La this larelter end yew  ttne to give us the benefit eg your visa.  lamanally,  bcc: Messrs. Petersen. Mannion, And McAfee (w/copy of incoming) Ms. Gadzials (w/copy of incoming) SSIR Clearing Unit (w/copy of incoming) Mrs. Mallsrdi (2)  11111WW:PAII:pjt (#V-27)  swum ditl.  ... Action assignei to Mr. Petersen '   ..a.1=1•... Federal Reserve Bank of St. Louis  AIII\  qt.  11.  WILLIAM PROXMIRE. WIS., CHAIRMAN 1 JAKE GARN, UTAH HARRISON A. WILLIAMS. JR., N.J. JOHN TOWER, TEX. ALAN CRANSTON, CAUF. JOHN HEINZ. PA. E. STEVENSON. ILL. WILLIAM L. ARMSTRONG. COLO. ROSERT MORGAN. N.C. NANCY LANDON KASSEDAUM, KANS. DONALD W. RIEGLE. JR., MICH. RICHARD G. LUGAR. IND. PAUL S. SARSANES. MD.  'Alertifeb Ziatez -.Senate  DONALD W. STEWART, ALA. PMJL E. TIONGAS, MASS.  COMMITTEE ON BANKING. HOUSING. AND KENNETH A. MC LEAN. STAFF DIRECTOR M. DANNY VIALL, MINORITY STAFF DIRECTOR MARY FRANCES OE LA PAVA, C.HIEF CLERK  URBAN AFFAIRS WASHINGT'ON. D.C. 20510  January 24, 1980  111 The Honorable Paul Volcker Chairman Federal Reserve System Washington, D. C.  e  cr)  Dear Mr. Chairman: It has come to my attention that the Board of Governors is currently considering a holding company application which would have the effect of permitting the acquisition of a savings bank. It is further my understanding that this would be the first time that a holding company has applied to acquire a savings bank which had heretofore been operating on an independent basis. As I am sure you are aware, this Committee has had under consideration for some time legislation dealing with a broad range of issues regarding the continued expansion of holding companies in both banking and nonbanking areas. With regard to the acquisition of thrift institutions by bank holding companies, this committee has assumed that the guidelines set forth in the Baldwin decision are still controlling. In that case the Board stated: ...such action could set in motion a train of events that might tend to erode such institutional rivalry, which would undoubtedly become less intense as banks and thrifts came under common control and this commonality of interest between the two industries grew. The Board believes that a judgment having the potential for such long range effects should be made by Congress."  i  1  i r_ . • k".01k  et:"71 -4  W llia Proxmire Chairman --.•••• •:h..  •_:  • i&' 4" 7.A Federal Reserve Bank of St. Louis  • •  "  . .• •  •%, ••  •-•4‘. •  %-•vg•  '  .."  •  „„ory  .  -  "•  -r  '"  '  •  1.  1......1”.  In view of the principles laid down in the Baldwin case and the ongoing Congressional examination of bank holding company activities, it would be mI.e that the Board will refrain from action which would subject any segment of the thrift industry to takeovers by ,bankiholdin coM nies.  •  o  . 0  ge* Federal Reserve Bank of St. Louis  •  •  •  ;•211t:  •r•- r3ovER1'iorisT, N ry,,E= FEDERAL RESERVE SYSTEM PCJAPD  • •  . :\'4.;111119 . •• -‘  • 411.1 • '•....•'  1-3 C  20r1  PAUL A  VOLCKER  CHAtrz 4.4 AN  February 4, 1980  The Honorable William Proxmire Chairman Committee .11 Banking, Housing nnd Urban Affaixs Unit(d States Senate Was D. C. 20510 ar Lhair:Aan In v(.ur recent letter yen proposed that, in light of the availability of "loophole" certificates, the regulatory agencies should simplif, ! matters by introducing a new "money market certificate" (MMC) with a minimum donomination of $5,C00 and a ceiling rate one percentage point hi 1w that on the $10,000 MMC. As you know, the agencies, among their other objectives, are charged with protocting the safety and soundnes s of the institutions they regulate. AL this time, many thrift institutions and some banks - 1,t11 a large amount of relatively low yielding mortgages in their portfolio have a severe earnings problem. We necessarily, therPfore, have had t ppraise the impact of a lower denomination !TIC in aggravating this siivation, which in turn has implicat ions for the mortgage and other financial markets. I note that such concerns are also reflected in H. P. 4986, now being considered by the Conference Committee, which calls for a reduction in the minimum deno mination on MMCs unless the agencies conclude that such action would have adverse effects on depository institutions. Recent discussions among the agencies have cons idered the desirability of reducing the minimum denomina tion on MMCs in order to increase the options available to small savers, but concluded that the viability of a number of institutions would be jeopardized by such an action and others would be placed in a weakened position. This view reflects the concern that such a regulatory acti on at this time would increa( tile incidence ol shifting of fund s from existing deposits -especially passbook savings --to a small denomina tion MMC and that such shitting Is like!" to be greater than the volum e of new funds at to deposit:1-v institutions by such an instrument. The resulting cost !ncreases would be particularly sharp at mutual savings banks, the Federal Reserve Bank of St. Louis  4.4;4-4 • PirkNirtip  The Honorable William Proxmire Page Two  in:t- itutional groups with the largest volume of savings accounts and the lowest earnings, and the institutions as a group would not gain appreciable new funds to invest in mortgages or otherwise. You suggest that "loophole" certificates already have the effect making available to the public a $5,000 minimum denomination rAC with a lower ceiling rate. While such instruments have received considerable press publicity, tt is our understanding that "loophole" certificates are being offered by relatively few institutions in a sm:111 number of markets, r!nd the total amount outstanding is quite small. Consequently, they have not significantly altered the compet itive balance among the institutions generally. In contrast, if a new $5,000 !E1C were introduced, most institutions probably would be forced by market pressures to offer the new instrument at the specified ceiling rate. If a smaller denomination MIIC were authorized, we would expect some institutions also to offer them in "loophole" form. It has been a long-standing policy of the agencies to permit --at the option of the institutions --depositors to borrow against the security of their deposits. Distin7,uishing between the so-called loophole certificates and regular deposits for this purpose would have significant regulatory and enforcement problems. Yet we would not want to prohibit the practi ce of allowing depositors to borrow against their deposits, since this would be anticonsumer and would make deposits a less attractive form of financ ial investrant.  The Floral Reserve and the other agencies will continue to take every opportunity to permit regulated institutions increased opportunities for making higher-yielding deposit instruments available to small SlVcf. Our interest was clearly signaled by our actions in mid and late -1979. Among the options that will continue to be considered is a :maller-denomination Sincerely,  Sieaut A. Volciter, -  MOP  •  fr  WILLIAM PROXMIRE, WIS., CHAIRMAN  HARRI‘ON A. WILLIAMS. JR., NJ. ALAN CRANSTON, CALIF. •  AMA! E. STEVENSON, ILL. ROMERT MORGAN, N.C. DONALD W. RIEGLF, JR., MICH. PAUL S. AAAAA NES, MO. DONALD W. STEWART, ALA. PAUL E. TSONGAS, MASS.  JAKE GARN, UTAH JOHN TOWER, TEX. JOHN HEINZ, PA. WILLIAM L. ARMSTRONG, COLO. NANCY LANDON KASSt 7.AUM. KANS.  'Zertiteb Zfalez Zenafe  RICHARD G. LUG‘R, NO.  COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS  KENNETH A. MC LEAN, STAFF DIRECTOR Al. DANNY WALL, MINORITY STAFF DIRECTOR MARY orRANcrs OE LA PAVA, CHIEF CLERK  WASHINGTON, D.C.  20510  January 21, 1980  Sommi.  Thc Honorable Paul Volcker Chairman, Federal Reserve System  Lime  The Honorable Irvine Sprague Chairman, Federal Deposit Insurance Corporation  4•••-•fr  The Honorable Jay Janis Chairman, Federal Home Loan Bank Board Gentlemen: I continue to be deeply concerned about the manner in which the financial institutions regulatory agencies administer Regulation Q in respect to the money market certificate. Money market certificates discriminate against the small saver. The Senate is on record as favoring eliminating the discrimination as soon as feasible upon unanimous agreement of all the regulatory agencies. I strongly favor this rational approach to take the discrimination out of the money market certificate and to place the deposit base of financial institutions on a solid footing. Recent actions by each of your agencies on the "loophole" certificate concern me. They concern me primarily because I believe the government should administer interest rate control authority during periods when such control authority is in effect in a straightforward manner, balancing the needs of the depositor, the viability of thrifts and the needs of housing. "Loophole" regulations are no way for the government to conduct its business. Instead of "loophole" certificates where a depositor must go through the rigmarole of placing a $5000 deposit and taking out a $5000 loan to qualify for a $10,000 certificate, why not provide for a money market certificate of $5000 denomination at one percent below the $10,000 certificate. Such an action would begin to provide some relief to the smaller saver while at the same time having the virtue of simplicity. Federal Reserve Bank of St. Louis  A  C.  —•  'Cr...14%r  •  p • . .• •  t- ...-• : r. • •••• •ver4:,..  -Kw.• 1.s'•  .  1,7  .r  ..r  41 : c .  IT • •et:.  •  Page Two NIP  I request that the regulatory agencies through the Federal Financial Institutions Examination Council consider this proposal at the earliest date.  P•:”•"" 0  Chairman WP:lmg  6-44•4‘  pliilla10111.• •  4  ‘t ,  ' • Federal Reserve Bank of St. Louis  •  .1r. •  •'  -t."ot  w;411,`;41TAit:f  41111r Federal Reserve Bank of St. Louis  February 11 LOW  The donorebie asseld W. Stalest Onited Ntatos $eashe Washington D. C. 2CS1C! Beer Amstar Steuart On behalf el the membeis of the Soares 1 severities in feather res'onee to your letter se January IC oeseernies ,reiblams e1 sompliaace with the requireMOMI, stated in the Ilectresir resef Treamfer Acts tbst floamcial imetitetteee glebe a toreioal receipt available at the Usage SIPT teemeectiem *mem lhe board has despied tne fleet patowisimmo of Seselotise to tepleeest the £'t, iscludieg the prortateme Anaemia" decussatetis.ihe Seerd Mee rsepeeed aosedeemse ele deter the effective dote se clonal. requirsneete (including the requiresSa SOperdias tieing of tecalael wallas la the case of *alb dielnesele Obet de net Minarets receivta) beveled MS, 10, 1090, the effec:tive date of the Act and vssulatiss6 The mesa far Lewin the propsaals is that the Beard seeds additional infemmetbso befere it tan he a detereloatien whether to adept a deferral of lite* requiressats. I ao ?lammed to mod you the adapted 08 , iisiou*. the proposed esendmeate sad the atempeoptaseneesic lepet Analysis. twang",  Itscleoure  cSuc-k  Jcw:co:vcd (#v-e) bee:  Melterdi (2) &he Mood N. E. lutlar  Jn) Federal Reserve Bank of St. Louis  • BOARD Or GOVERNORS OrTHE  FEDERAL RESERVE SYSTEM WASHINGTON. D C  20551  c•I • — •r-4 P,41.14f—$t• • • • •..• • •  PAUL A  VOLCK ER  CHAIRMAN  February 1, 1980  The Honorable Bob Eckhardt Chairman Subcolum_ ittee on Oversight and Investigations Conmdttee on Interstate and Foreign Commerce House of Representatives Washington, D.C. 20515 Dear Chairman Eckhardt: In your letter of January 24 you expressed your disappointment in my response to the detailed questions previously raised in your letter of January 7. To my surprise, you also indicated that Board staff had previously indicated to the subcommittee staff that quantitative staff estimates could be provided in response to at least some of the questions you raised. I have closely questioned Board staff who met with Messrs. Nelson and Milton and have been informed by them that they had indicated that staff quantitative estimates would be so speculative as to be virtually meaningless. Indeed, I strongly believe that this is the nub of my inability to answer your questions with the degree of precision that you desire. The staff could perhaps provide quantitative ranges, or even point estimate "best guesses," to some of your questions. But I would not want to use such estimates for the particular questions you raise, or have the Federal Reserve's name associated with them, because in the current environment they would imply a spurious precision in areas where experience simply does not justify such conclusions. I would like to explain more fully why that is so. Any economic forecast is based on historical relationships within some theoretical framework. Unfortunately, recent and prospective developments are so different from historical experience that these relationships are not providing economists and policy makers the guidance necessary to attach a high degree of confidence to forecasts and projections. In particular, the U.S. and world economy has never in*modern history experienced the degree of sustained inflation encountered in the last decade. It appears that this inflation has altered spending and savings decisions so fundamentally that once stable past relationships seem no longer to hold. Throughout most of 1979, for example, most economists had predicted an imminent recession. Yet it now seems clear that consumers, certain of Federal Reserve Bank of St. Louis  The Honorable Bob Eckhardt Page Two  continued future inflation, have maintained their spending in order to beat price rises, thereby reducing their savings rate to unexpected record lows. This has surprised and frustrated most forecasters and served to increase the debate as to whether inflationary expectations will continue to sustain real spending, helping assure that any recession will be mild, or rather increase the severity and duration of the still imninent recession as consumers retract in reflection of their increasingly distorted financial and debt positions. Such uncertainty about forecasts of spending behavior is increased by the debate among economists as to the applicability of the theory of rational expectations. Put simply, adherents to this theory believe that if the public perceives that sustained monetary and fiscal policy actions are, in fact, being taken to restrain inflation, businesses and labor will moderate price and wage increases in their own self-interest. They will do so because they do not think that such increases could be successfully maintained since buyers, in turn, assuming that inflation will soon moderate, will postpone buying goods at rapidly rising prices. Supporters of this theory believe that the resultant moderation of inflation can occur with relatively little short-term impact on output and employment. In contrast, doubters of this view do not believe that the public reacts in such a fashion and that anti-inflationary public policy will consequently restrain nominal spending first by reducing real output and then, with perhaps quite long lags, begin to affect prices. Adjustments to energyprice shocks will distort this lag structure in unknown ways since the economy must adjust its entire stock of capital goods to the new reality of expensive energy. In any event, I think we can agree that expectations are important in affecting any outcome, and these expectations turn in substantial part on the overall posture of public policy. Financial uncertainties are also greater now than in the past, distorting historical relationships further. As interest rates have risen to record levels, the public has developed new techniques to minimize its holdings of money and reallocate its financial portfolio. As a result, it seems possible that the same rate of growth of money now may have far different impacts on economic activity than used to be the case. Financial innovations and regulatory changes--such as NOW, ATS, and share draft accounts, money market mutual funds, and adjustments in deposit rate ceilings- -havefurther confused the meaning of movements in specific monetary aggregates. (Reflecting these developments, the Federal Reserve will shortly announce a redefinition of the monetary aggregates in an attempt to make them more meaningful.) Similarly, the high inflation rate and the public's inflationary expectations have changed the nexus between nominal interest rates and spending and therefore predictions based on historical relationships may have become less meaningful, particularly given the rapid institutional changes in financial markets-especially in the mortgage market. Federal Reserve Bank of St. Louis  The Honorable Bob Eckhardt Page Three  International financial relationships have also changed dramatically. Worldwide banking markets, the increasing importance to the United States of foreign trade, and foreign concern about U,S. energy and anti-inflation policies have all heightened the sensvity of the fS reign exchange value of the dollar, while OPEC continues to price in terms of the dollar. In evaluating likely impacts on the value of the dollar, economists here too are divided as to the relative weight to place on differential price behavior and expectations as opposed to differential interest rates. Some believe that the exchange value of the dollar will weakeninterest rates decline, even as public policies succeed in lowering inflation, and that could in turn have an influence on OPEC pricing policies. Others, like myself, believe that that is unlikely to occur if the rate of growth of the monetary aggregates remains modest and we are seen to be making progress on inflation. I must emphasize my intention in cataloging these fundamental changes in the U.S. economy--and the way economists react to them--is not to suggest that policy makers should avoid attempting to look ahead and to anticipate and forecast the impact of their own actions. Rather, it is to emphasize the range of uncertainty involved, and the necessity to consider a variety of risks and possible outcomes. This kind of analysis-more complex and often judgmental--I find valuable. But it cannot be caS tured by any single estimate, the validity of which is quite uncertain, that you have requested. Moreover, given all the difficulties of forecasting global measures of economic performance, it is virtually impossible to forecast accurately smaller segments of the economy--such as income by deciles. With this as background, let me once more address the questions you raised in your letter of January 7, with your understanding for my continued lack of precision. I am hopeful that the present course of monetary policy--which assumes the degree of fiscal restraint underlying the President's budget message--will contribute to a slowing of the rate of increase of the consumer price and other price indexes later this year, but the actual results during the course of 1980 will depend in part on expectational factors. Relaxation of the targets set earlier would likely have adverse expectational effects. I also think it likely that the consumer price index itself will remain high and even accelerate further over the next few months, in part as the effect of recent oil price increases continues to spread throughout the economy and in part as the lagged impact of past increases in mortgage rates and housing prices are mechanically recognized in that index. More generally, I believe that a significant reduction in the rate of inflation, as measured by any index, is going to take time-certainly beyond 1980. What is important now is that the Congress and the Federal Reserve resist the spread of further price increases in order to begin to stop the inflationary momentum that now exists. Any attempt Federal Reserve Bank of St. Louis  The Honorable Bob Eckhardt Page Four  to bring an abrupt end to built-in inflationary forces will increase the risk of a sharp downturn in economic activity; some risk is obviously inherent in efforts to slow inflation over a longer period. But decisions to adopt policies to assure the avoidance of a contraction in activity will worsen inflationary pressures and simply postpone, perhaps for a very short period, a possibly sharper recession. It is for these reasons I see no way to set a monetary target assuredly consistent with 6 per cent unemployment. Given the degree of uncertainties discussed earlier, I want to emphasize again that an attempt to quantify the effects of small differences in money growth on prices and employment in 1980 is likely to be misleading rather than helpful. While the direction of impact in the short run may be relatively clear, other things, in my view, could simply swamp such effects, and the short and longer run impacts may be different. It is clear that now we must continue in steps to slow the rate of growth of money. As I previously indicated, under the terms of the Humphrey-Hawkins Act I will be reporting to Congress on February 19 and 25 (before the House and Senate Banking Committees, respectively) as to the Federal Reserve's monetary goals for 1980 and will supply you with a copy of that report. While it will provide more specific quantitative information, it may not-for reasons discussed earlier--be as precise as you might desire. With respect to your interest rate questions, I do not think that it would be responsible for any Chairman of the Federal Reserve to forecast interest rates and as a result induce speculation on the part of financial market participants. If economic activity weakens in 1980, as market economists expect it will, credit demands should moderate, contributing to some decline in interest rates. But the degree and persistence of any decline will be affected by expectations about the trend of inflation and the economy beyond 1980, as well as by current developments. Recent regulatory actions to permit depository institutions to offer more attractive deposits are likely to increase the supply of mortgage credit relative to demand at current interest rates. But, fundamentally, sustained declines in interest rates can occur only as inflation rates are reduced. Significant lowering of inflation rates is going to take time and thus a return to the average level of interest rates of the 1970's is unlikely to occur in 1980. Any effort on the part of the Federal Reserve to lower interest rates faster than the inflation rate will only exacerbate inflation and soon lead to even higher interest rates. It is difficult to determine the ultimate impact of interest rates on any price index or its components. It is true that rising mortgage rates mechanically increase the consumer price index as it is presently constructed. But indirect effects (including in housing prices) tend to work in the opposite direction. For instance, as lower mortgage rates contribute to increased housing expenditures and more demand for those raw materials necessary for housing production, housing prices might rise more. Federal Reserve Bank of St. Louis  The Honorable Bob Eckhardt Page Five  I do not believe it is productive for me to debate in detail the wisdom of particular past decisions on monetary and fiscal policy. But with the considerable advantage of hindsight, I think most observers now wish that both fiscal and monetary policies would have been more restrictive earlier in the 1970's. Our inflation problem would without doubt have been far less today if that had occurred, just as I believe that our future inflation will be less if we resist inflation more vigorously now. At the same time, we should all be aware that even more restrictive policies following the unusual oil and food price shocks of 1972-73 would have probably contributed to a more severe recession in 1974-75. Fundamentally there is simply no way to have avoided all of the external price impacts that have shocked the U.S. economy in the 1970's. But public policy makers must also come to grips with the fact that now inflation has become much more pervasive at the same time that our productivity performance has deteriorated, making it more difficult to reduce inflation rapidly. And the heritage of inflation has increased the present risks of adverse economic developments. Capital formation is urgently required to improve our productivity performance and to adjust our capital stock to higher energy prices. Considered against the background of inflation and inflationary expectations, as I noted in my earlier letter, I doubt that the higher level of nominal interest rates has discouraged needed capital investment relative to earlier periods; during many recent years, real interest rates were low or even negative. I firmly believe that as it becomes clear that public policies are being successful in slowing inflation, and businesses as a result face less uncertainty in their planning, higher needed capital outlays will occur. It may well be--although it is not clear--that we could stimulate some additional short-run capital formation by attempting to lower nominal interest rates and increasing credit availability through large increases in the money supply. But such policies would only serve to worsen inflation, contribute to subsequent rises in nominal interest rates, and increase the uncertainty of the economic outlook which, in turn, would likely reduce the pace of productive investment. In my view, macro-economic policies designed to resist inflation--linked, at the proper time, with a tax policy designed to foster capital investment--should be adopted in an effort to increase our economy's productivity. Without such increases, as your last set of questions imply, the problems associated with reducing inflation are made more difficult. I hope that these additional comments, responding to your questions, are more useful to you. Federal Reserve Bank of St. Louis  februery to 1980  The Seesreble'Wm r. Models President of ths UAW States ii,rnete Weshismotss. *.C. Dow AN Vise resilient* Amami to the remissness of males PP of the  Snot Credit Oppeiteeity Act, the !Ward of Oevereers 1. pleased to siihnit Its fourth imenel 'sport es the legal Credit Opportunity Act. the report *mules * emossy of the Soares administrative function sedge the Mt and as assessmest of ths extent to which sompliense with the Mt is being aebtavad. Siesesely,  teelesure  bcc:  He. Weidew Mrs. Mallardi  Identical letter also sent to Speaker O'Neill.  •  • Federal Reserve Bank of St. Louis  February 1, 1980  The it narehle Wilites Prommtre Chairman Committee en SashIss, lossiss Rad Urban Affairs United States &mate waohinstea, D.C. 20310  Door Outflows Prommfro: The board of Goversoss is pie ael to send you a copy of its Ammual Report to Congress on the Zeual Credit Opportunity Act for the year 1979.  Simeerely,  feelosure bec: Ms. Weida, Mrs. Mallardi (2) Identical letters also sent to: Chrua. Tomas, Senators Gprn and Armstrong; pad ChatANNII Remelt & Aimmisikt, i Cong. Stanton 5. Evms. Federal Reserve Bank of St. Louis  February 1,  2he Scaeraile Willies Prenntre amines Cenmdttee en Sankiss. Mensing end Whas Affairs united states &mete washintos, D.C.  2011611  Dear Chairmos fremmire:  The 1104i4 of Covernewe Le pleased to as  you a  eopy of Its Memel Report to Comereas as the Segal Credit Opportunity Mt ter the year 1979. Sineerely,  Fnelosure bee: Ma. Weidaw Mrs. Mallardi (l) Identical letters also sent to: Chrun. Teases, Senators Cern and Armstrong; vnd Chairmen Reuss z Annunzio, C.Stanton c Evpns. Federal Reserve Bank of St. Louis  February 1, 1980  The Neserable Walter F. liaudeis President of the United States 'valets Washington, 0.C. 20510 Dear Mr. Vies PrbeidOett heseest to the requirements of section 707 et the frviii Credit Apportatity Shot, the board of Governer* ts pleased to eibait ite taarth Aseumil Segue* es the Una' Credit Opportunity A. lbs report eoatslas emmery of the &meres sdainistrativa fimmidemo seder Cho Lit and an saseedeoot it the **teat to Ala oseplieuse with the MI is babe eghteeed. Sincerely,  Ftmclosure  bcc:  Ms. Weidaw Mrs. Mallardi  Identical letter also sent to Speaker O'Neill.
Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102