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r co,9 iV  ci- r c- i'''‘   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1990  Collection: Paul A. Volcker Papers Call Number: MC279  Box 10  Preferred Citation: Congressional Correspondence, March 1980; Paul A. Volcker Papers, Box 10; Public Policy Papers, Department of Rare Books and Special Collections, Princeton University Library Find it online: httpndingaids.princeton.edu/collections/MC279/c427 and https://fraser.stlouisfed.org/archival/5297  The digitization ofthis collection was made possible by the Federal Reserve Bank of St. Louis. From the collections of the Seeley G. Mudd Manuscript Lilyrary, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United States copyright law. By accessing this file, all users agree that their use falls within fair use as defined by the copyright law of the United States. 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Mudd lVfanuscript Library 65 Olden Street Princeton, NJ 08540 609-258-6345 609-258-3385 (fax) mudd@princeton.edu   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • BOARD OF GOVEPNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON,O.C. 20551  March 31, 1980  The Honorable Toby Roth House of Representatives 20515 Washington, D.C. Dear Mr. Roth: Chairman Volcker has asked me to respond to your letter of March 11, 1980, forwarding an inquiry from your constituent, Mr. Ed Petitjean, concerning Treasury bills. The Federal Reserve Banks and branches act as fiscal agents for the Treasury Department in selling new issues of Treasury securities and, therefore, must follow Treasury regulations in handling these transactions. Treasury bills with maturities of 13 and 26 weeks are generally sold at auction every Monday. The Federal Reserve offices are authorized to accept applications from ir.Jividuals that are accompanied with a certified or cashier's check for the face amount of the security being purchased until 1:30 p.m. (EST) on the auction date. The Treasury bills are normally issued the following Thursday and earn interest from the issue date. Since Treasury bills are sold at auction, the discount rate at which the bills are sold varies based on the competitive bids received by the Treasury Department and reflects the money market rates at the time of the auction. For several years, Treasury bills have been offered in book-entry form only. Since the Treasury Department maintains all book-entry accounts for individual investors, we are forwarding Mr. Petitjean's inquiry to Mr. H.J. Hintgen, Commissioner of the Bureau of Public Debt, for an explanation of the rollover procedures. I hope this information is helpful. will respond to you shortly.  I am sure Mr. Hintgen  Sincerely yours,  ow NIA aarill Alt (v,44) boss 71s TOMO KUNO Ossmsdes 14 I Mee walls's. NW**, aillimaa. special cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Hintgen  Donald J. Winn Assistant to the Board   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 31, 1980  The Ponorable G. winter Olitehurst ouse of RepresentativQs invton, D. C. 20515 rFear Mr. Whiteburst: Thank you for your recent letter reari77 Federal rneerve policy. I share your concerns about the uneven ifvract of monetary restraint, and in particular about the effect of the rise in interest rates or A policy of monetary restraint, such as i currently beinr pursued by the Federal Reserve, is al',sclutely essential to any anti inflationary effort. Unfortunately, such a policy. carrtild out in the face of credit denands conditioned by rapid inflation and intense inflationary expectAtions, brinnft with it consVerable upward pressurPs on interest rtes in the near terr. Orly wl-!er it becomes clear that inflation will moderate will those presrourw4 abate and interest rates stow a sustained decline. Portebuildinc tends to he 1ii(7hly sensitive to changes in interest rates. This in partly a result of the nature of the hove itself as a lonr!,lived investent, but it also reflects the nature of financitl rarYete. Thrift institutions, ovine; to the iL,alance in the i.aturity structure of their assets and lietilities, tend to encounter liquidity and earnings pressure as interest rates rise. Various innovations, in many instances the result of federAl reculatory action, have helped to reluce the impAct of biqh interest rates on thrift institutions an the housino industry, but they have not eliminated that Linpact entirely. The Feral Reserve has been sensitive to the relative harshness of monetary strinejency on the housinc sector. The noard's recently announced prograr of credit restraint was Cesitmed in part to reduce the disruption of nomal flows of funds into the residential mortqaqe market. Rut you are quite correct in suqcesting that a broadly based approach to solving our inflation nrobler is needed - and would ease the bueen or housinc7 and   https://fraser.stlouisfed.org law Federal Reserve Bank of St. Louis  411PP  The Honorable G. Villiam Page Two  1'•••••••91.1  tlidtehurst  other sectors that arci especially sensitive to credit market conditions. T believe that the other rarts of the covernment's anti-inflation nroqram -includino the focus on budtletary discipline and on improvinc.; productivity—are an important step in this direction ana can help to alleviate the tensions in financial narkets. I look forward to worldtzT with you and your collea,:mes in the Com.ress to find solutions to cur nation's serious econoric problems. -incarely, SL A. INICket  (1431):vcd (0V-113) bcc:  Mrs. Mallardi (2)  q. WILLIAM  WHITEHURST WASHINGTON OFFICE:  2No DISTRICT. VIRGINIA  2427 RAYBURN BuiLoiNo  •  •  WASHINGTON. COMMITTEES:  C.  20515  (202) 225-4215  ARMED SERVICES ..suilcomommEs,  Congre55 of tbe Zinittb 6tateg  CHARLES H. FITZPATRICK ADMINISTRATIVE ASSISTANT  ji)ou5e of ikepre5entatities5  CONST/TUENT SERVICE OFFICES'  MILITARY INsTALLATIONS AND FACILITIES RESEARCH AND DEVELOPMENT  PERMANENT SELECT COMMITTEE ON INTELLIGENCE  815 FEDERAL BuILDING  611a5bingtoit, n.e. 20515  NORFOLK. VIRSINIA  23510  (804) 441-3340  VERENA C. wASSERMAN OFFICE MANAGER  SumommurTrri PROGRAM AND BUDGET AUTHORIZATION  P0044 601, P BROK IE ONE VIRGINIA BEACH, VIRGINIA 21462  OVERSIGHT  (804) 490-2393 U S DELEGATE TO  NORTH ATLANTIC ASSEMBLY   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 26, 1980  BLANcHE M. norLis  The Honorable Paul A. Volcker Chairman Federal Reserve System 21st Street and Constitution Avenue. NW Washington, D. C. 20551 Dear Mr. Chairman: I was visited today by a delegation of homebuilders from my district. These individuals were unanimous in the view that the homebuilding industry is in a virtual depression. New home starts are at a standstill. Many builders have already laid off a majority of their permanent workforce. What these homebuilders want is a reduction in interest rates. I recognize that the Congress must adopt a more prudent fiscal policy before the pressure on interest rates can be eased. I believe Congress is now prepared to cut spending and achieve a balanced federal budget. As one Member of Congress, I certainly will give my strong support to these efforts. Given IS in support of fiscal the current Congressional restraint, I hope that you can see fit to recognize the future serious plight of the homebuilders na monetary policy. As you know, projections are that the demand for housing will remain at extremely high levels for the remainder of this decade. Consequently, pushing the homebuilding industry into a severe recession could, in the long run, add further inflationary pressure to home prices.  orrict MANAGER  •  • daft   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Once again, I hope that you will keep the hardships already being experienced by the homebuilding industry in mind in charting the future course for monetary policies. With all best wishes, I remain Sincerely,  G. WILLIAM WHITEHURST GWW:Frl  March 31, 1980  The lamorable William Proxmire cnairmaft Cemmittee em Winking. Housing sod Urania Affairs Waited States Senate Washington, D.C. 20510 Dear Chairman Proxmiret Inclosed are responses to the additional questions from the Credit Control Keerincs of Parch le, raised in your letter of March 24, Sincerely,  is4 Pau! Lncloziures LE:pjt (4V-106) bcc Mr. ttin   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mrs. i4I11ardi (2)  Action assirmei to Mr. Aiiroi   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  WILLIAM PROXMIRE, WIS., CHAIRMAN HARR'SON A. WILLIAMS, JR., N.J. ALAN CRANSTON. CALIF. ADLAI E. STEVENSON, ILL. ROBERT MORGAN, N.C. DONALD w. RIEGLE, JR., MICH. PAUL S. SARRANLS, Mo.  JAKE GARN, UTAH JOHN TOWER, TEX. JOHN HEINZ, PA. WILLIAM L. ARMSTRONG. COLO. NANcY LANDoN KASSrisAUM, KANS. RICHARD G. LUGAR, IND.  l'Or,A_D W. STEWART, ALA. PAUL E. TSONGAS, MASS.  '"Zenite Zialez Zertale COMMIT" FE ON BANKING, HOUSING, AND  KENNETH A. MC LEAN, STAFF DIRECTOR M• DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANCES DE LA PAVA, CHIEF CLERK  URBAN AFFAIRS WASHINGTON, D.C.  20510  March 24, 1980  -  The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: Attached are additional questions which I was not able to ask, due to time considerations, at the Credit Control Hearings on March 18, 1980. I would appreciate it if you would answer these as quickly as possible for insertion in tho hearing record. With best wishes. .•  IL••-•  r  kmw4s0 `0441§H 111•0•3114••••  WP:srl  O.... J..  •  _ 0•••• •  0 ,4041•••••• •  vim(  •-  •  ...  •0•01••• • Digitized for•••FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  '•-••  :%•„„,...S,44.10..• 0•;. (4%0, 41144.a .  , •  0  ,  •. " 6 ..  • .0 . ••,••  f  .74.• • v  ,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  QUESTIONS: 1.  If a b:Ink subject to the surcharge becomes a "frequent user" of the discount window, the surcharge will become effective. But it is not clear how it will be applied. Let me give you an example. In week ift a bank borrows $15 million, and in week #2, $10 million. Will the surcharge apply to both the $5 million borrowed in week #1 retroactively, and the $10 million borrowed in week #2, just the $10 million, or only to future borrowings?  2. The Fed has instituted a surcharge to the basic discount rate that is to apply to large banks that are frequent borrowers. I'm not sure that the surcharge should be applied in a way that discriminates against big banks. We should have a discount rate set at a slight penalty against market rates for all banks, regardless of size. Nevertheless, your press release says the surcharge wiii be 3%, but then goes on to say that the rate will generally be related to market interest rates. How will the surcharge vary? In other words, what rules will you follow for changing it? 3. You have increased the marginal reserve requirements for member banks to 10%. We have heard and seen reports that the marginal reserve requirements were being easily evaded or avoided, as the case may be. You and I discussed this several weeks ago. What steps has the Fed taken to make evasion more difficult and thus the requirements more binding? 4.. Member banks do not have to hold reserves against Federal funds borrowed from other member banks. Do non-members have a similar exclusion for Federal funds? Now that both members and non-members have the same marginal reserve requirements, why should there be any exclusion for Federal funds borrowed -- they are, after all, managed liabilities? S.  Large-time deposits with original maturity over one year are not subject to the marginal reserve requirements. Why not?  6. Only member banks and non-member banks have the marginal reserve requirement on managed liabilities. Large savings and loans and mutual savings banks also use man.lged liabilities and are depository institutions. Why aren't they covered also? 7.  Y(Al were quoted this week as stating that money market funds "have contributed to the inflationary pressure" by "siphoning a good ck.al of' credit away from thrifts and smnll hnnk•;." 1!: it proper for the Fed to utilize the 1969 Credit Control Act for the purpose of favoring one competitor over another? Do you have any statistical data to support the statement attributed to you that money market funds arc "siphoning a good deal of credit from thrifts and smal1 banks"? Will you please supply that data for the record.  Ab  •  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  QUESTION: (cont) S.  Since ri-7,erve requirements .on money market funds hurt Fund shareholders, and if the Board's concern was about the kinds of investments made of the Funds, did the Board consider limiting the kinds of investments tht- Funds are making, rather than using the shot-gun approach of cutting the return to Fund shareholders?  9.  In the Committee's monetary policy henrinp, on February 25, T discussed with you the desirability of establishing some kind of Federal credit budget. The purpose of this would be to control the unchecked growth of direct loan and loan guarantee programs and to allocate scarce Federal credit resources to areas where they can be used most effectively.-- for instance, to -small businesscs rather than to Chrysler. Last week I wrote to the Chairman of the House and Senate Budget Committees urging them to set an aggregate ceiling on Federal credit programs in the first concurrent budget resolution for fiscal year 1981, as part of the anti-inflation effort. Such a ceiling could, of course, be modified in a later concurrent resolution if necessary in response to Changing economic conditions. To follow up on my earlier questions, do you think this would be a good first step toward establishing a Federal credit budget? And would it be helpful to the Federal Reserve in its efforts to restrain the growth of the monetary and credit aggregates and to administer the credit controls program just laid out?  LLOYD BENTSEN, TEX., CHAIRMAN WILLIAM PROXMIRE, WIS. ABRAHAM RIBICOFF, CONN. EDWARD M. KENNEDY, MASS. GEORGE MC GOVERN, S. DAK. PAUL S. SARBANES, MD. JACOB K. JAVITS, N.Y. WILLIAM V. ROTH, JR., DEL. JAMES A. MC CLURE, IDAHO ROGER W. JEPSEN, IOWA JOHN M. ALBERTINE, EXECUTIVE DIRECTOR  •  •  Congre55 of the Viniteb  tate5  JOINT ECONOMIC COMMITTEE (CREATED PURSUANT TO SEC. S(a) OF PUBLIC LAW 304, 71ITH CONGRESS)  RICHARD BOLLING, MO., VICE CHAIRMAN HENRY S. REUSS, WIS. WILLIAM S. MOORHEAD, PA. LEE H. HAMILTON, IND. GILLIS W. LONG, LA. PARREN J. MITCHELL, MD. CLARENCE J. BROWN, OHIO MARGARET M. HECKLER, MASS. JOHN H. ROUSSELOT, CALIF. CHALMERS P. WYLIE, OHIO  VVASH ING TON. D.C. 20510  March 24, 1980  Honorable Paul Volcker Chairman Board of Governors Federal Reserve Board Washington, D.C. 20551 Dear Mr. Chairman: Thank you for taking your valuable time to appear before the Joint Economic Committee on Thursday, March 20, 1980, to testify on President Carter's new economic proposals. The members of the Committee appreciate the assistance you have given us on this issue, and your testimony will be a valuable part of the hearing record. Sin erely,  Ll Ch LB:wbe   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Bentsen rman   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March  1980  The Ponorable Henry S. Reuss Chairman Committee on Ranking, rinance and Urk^n Affairs nous* of representatives C. 20S15 'Alasl%inr!ton, Dear Mairman I ary writine; ir response to your request that we comunicato dircrctly vltb Dr. Potor T/.1Veny regarding his complaint acairst sAink of America, 7ntornational, and a Cuateralon honk. %a are quite aware 00 rr. 'ekeny's complaint and, as you ale* knew, it has been tt,oroucAly investigated by the , _ of New York. Since coNpletion of the Federal Reserve rien) investigation, staff of the rew Yfirk Reserve Work have spoken it nr. uskeny on a number of fvccasione, as have toard staff. Additionally, staff of the Division of Thnsunx and Community Affairs and the nivieion of ranking 1.,urervision and Regulation have carefully reviewed t146 case file provided by the Reserve rank and concur with the analysis end conclusions of the ReserVe Bank. rinco there is ro evidence of imrroper or illegal activity or any violation of federal law by the F5ank of Arrerica, Internstional i there is notH.nr7 further the !Federal Poserve System can do ttl tlelp I en enclosing a copy of our response to Dr. Ilekeny for your information. Pleaswe let I:* know if I can be of further assistance. r.incerely yours,  (Signed) Donald J. Win  Donald J. winn Speciel Assistant to the losure KAC:JPB:CO:vcd (V-21) bcc: Ms. Casey Mrs. Mallardi  oard  •  •  • HENR•1 S. REUSS. WIS., CHAIRMAN  J. WILLIAM STANTON. OHIO CHALmERS P. WYLIE, OHIO STEWART B. McKINNEY. CONN.  THOMAS L. ASHLEY. OHIO WILLIAM S. MOORHEAD. PA. FERNAND J. ST GERMAIN, R.I. HENRY El. GONZALEZ. TEX. JOSEPH G. MINISH, N.J. FRANK ANNUNZIO. ILL. JAMES M. HANLEY. N.Y. PARREN J.  MITCHELL.  MD.  U.S. HOUSE OF REPRESENTATIVES  RICHARD KELLY, FLA. JIM LEACH. IOWA  COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS  WALTER E. FAUNTROY. D.C. STEPHEN L. NEAL, N.C.  NORMAN D. SHUMWAY, CALIF. CARROLL A. CAMPBELL. JR., S.C. DON RITTER. PA.  2129 RAYBURN HOUSE OFFICE BUILDING  CARROLL HUBBARD. JR., KY. JOHN J LAFALCE, N.Y.  WASHINGTON, D.C. 20515  GLADYS NOON SPELLMAN, MD. LES AuCOIN, OREG. DAVID W. EVANS, IND. NORMAN E. D'AMOURS. N.H. STANLEY N. LUNDINE. N.Y.  THOMAS B. EVANS. JR.. EEL. S. WILLIAM GREEN, N.Y. RON PAUL, TEX. ED BETHUNE. ARK.  NINETY-SIXTH CONGRESS  JERRY M. PATTERSON. CALIF. JAMES J. BLANCHARD, MICH.  GEORGE HANSEN. IDAHO HENRY J. HYDE. ILL.  JON HINSON. MISS.  ef  .T25-4247  January 23, 1980  JOHN J. CAVANAUGI-4. NEBR. MARY POSE °AKAR. OHIO JIM MATTOX, TEX. BRUCE r. VENTO, MINN, DOUG BARNARD. GA. WES WATKINS. OKLA. ROBERT GARCIA. N.Y. MIKE LOWRY. WASH.  Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D. C. 20551  Dear Chairman Volcker: Please find attached a letter and correspondence regarding a complaint Dr. Peter Bekeny has made against the Bank of America and a Guatemalan bank. Though this matter has apparently been investigated in detail by the New York Federal Reserve Bank, I would appreciate it if your staff would review this matter and respond to Dr. Bekeny. Sincerely,  Henry 8. Reuss Chairman Enclosures   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4,  .1••  TAPhas been iiscussei with Reuse staff an-I our Division of Supervision an-I Requlation will review.  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  r4l,  • "I 7 ( 1 7(2 . a) 7 e  .  ‘\c ------  7  1I  c (-t 14 ti-:ALe se—  tmltlet, Onii.ing, Env & total tif.f.3. %-eLl 1  LA  ii i 1/1)I • 1 it  ••>\'‘.7:-::-r--;  ;-:-/C"-.) / I:  --C--e-e-tr:/::  4t/ bi,,._ r pi,t',1J,1---_c7 i f - --7..L( c2., fx ,iT C ? i-.J /  4 f /t/f :-./1( f /-S)  )re -(; F  4 1-  . ). r I f ro)  /t S- er /.: 1// •=--r/r/7(  . tr  i. ,  ,  i--  0  Co/Li&i..f ct tic/  fr / •----  0  0 To  li f." if ri-1,7 /2 . .__ //2 • S b. /,(/ it(,-.:.  co //  ,  f p ,z -__ ,./,_f/r !IL g A/ .0 , 4/_/_____--s ____„. 1/_"`!" (' LLiz%__i--___ i•1 s r 0 : I.-1 0 it ,--: b a /   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Az_  / -,/  , /1,/'  • .M.15C10(11177)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  FEDERAL RESERVE BANK OF NEW YORK NEW YORK, NEW YORK 10CL4.1  7.7t:t-!•_2-2 1.710 1 7  1 f-cr -7 Irou tn.lt h.:: is 1r N.z:w L:=v.:.:1 at- Cietnat  rto t..-•; . tD is, to L4.as  .1 17  1ir.; ?  f no rt:c1-!1—  •••• ••••  icr  yo.,1  •,••••••••  ••.• I..  1erv  - `1  /  7 1  -, •  :r.  JJ7f.:  A.  1 "•••• • a•  •  4  342•7.-e7.! A.  7f:U  r  1:11.7 -  <  1.  FEDERAL RESERVE BANK OF NEW YORK NEW YORK, N.Y. 10045 ARE A  CODE 212-701 3000  Decerber 3, 1979  In Reply Please Refer To 10575  Dr. Petnr Bekeny P.O. Box 185 larchmont, New York  10533 Re: European Arrerican BariVlcst drafts  Dear Mr. Bekeny: This is to advise you that as a result of your recent correspondence submitted to our office, we are reopening your case for further investigation. Consequently, we have contacted the bank in question, and we will matter. advise you of our findings upon completion of our review of the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Very truly yours,  t.  James M. McNc,i1, Chief .Regulations Division Consumer Affairs and Bank Regulations Department  FEDERAL RESERVE BANK OF NEW YORK NEW YORK, N.Y. 10045 AREA CODE 2 1 2-79 I .5000  December 10, 1979  \ i/ Dr. Peter Bekeny Post Office Box 185 LarclEunt, New York  if) /(2 1 0V .1-(/_7 I  10538  Dear Mr. Bekeny: This refers to the numerous recent reetings and tPlephone conversations with me and members of my staff concerning your complaint against Bank of America, New York, in which you seek repayment of two lost /- drafts whichapu_purcha.sed flan Credito Hipotecario Nacional de Guatemala, —TuCreditt5"). We have, together with our Legal Department, GUA -LerriZ1a carefully reviewed the entire file including the recent correspondence you sUbmittPd.  /(  I regret that the most recent correspondence does not alter the views indicated in our previous letters of August 22, and May 29, 1979. The res-oonse by Crcxlito which is quoted in Mr. Bela Szathmary's letter, dated October 23, 1979, to James A. Hillary, Esq., does notmore than indicate_ that the drafts were paid over to the buyers. This information does not refleCtraiparirthe conduct or-BankaThrr;triaTas it L:44)es nut Show any improper , action by Bank of America. Although your claim is that you have lost there is nothing to suggest that Bank of America had any responsibility for the drafts drawn on it by Creclito since the drafts were never presented to Bank of America for payment. -;erve System has no regulatory or administrative The Federal Re, jurisdiction over Credit°. Accordingly, again we are informing you that, unless you can provide substantive new information, we are not precared to consider your problem any further. Any new information must support your claim of improper conduct by Bank of Americ,'1. However, we are conducting an investigation in response to the question you raised as to the authenticity of Credito's response as quoted in Mr. Szathmary's letter. We will inform you of our findings upon its completion.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  L,  a)(- ---  ,v1/7 l9  K OF NEW YORK FEDERAL RESERVE DAN  l Reserve Regulation K, We are also enclosing a copy of Federa ch Should re.qolve the question "International Banking Cperations" whi Edge Act corporations, Which you regarding the business activities of discussed with me on December 7, 1979.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Very  y your  George R. Ttirke1i, Manager Conner Affairs and Bank Regulations Department  •  •  •  •  A: BANK0FAMERICA Bn   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BELA SZATHMARY Vice President and Assistant General Couns..!I  October 23, 1979  OC.T 20 T9A James A. Hillary, Esq. 25 West 39th Street 10018 New York, New York Re:  Bank of America ("Bank") Peter Bekeny ("Mr. Bekeny") United States Estate Bank ("United") Credito Hipotecario Nacional de Guatemala ("Hipotecario") and Checks for (Our Ref. No. 2491)  Dear Mr. Hillary: This is jo inform you that in reply to the telex sent to Hipotecario pursuant to your letter of October 12, 1979, Bank of. America received from Hipotecario the following reply: "EN RESPUESTA A SUS TELEX 9/17/79 Y 10/17/79 MR. BEKENY'S. Y REF NUESTROS GIROS NO. FUERON REEMBuLLAS CANTIDADES DE US= Y usc SADAS A LOS COMPRADORES DE LOS GIROS. POR REQUERIMIENTO DE ELLOS NUESTRA INSTITUCION CONSIDERA CERRADO ESTE CASO." Sincerely yours,  •  BANK OF AMERICA NATIONAL'MUST AND SAVINGS ASSOC44TION • 2 /  // /  PARK AVENUE• NEW YORK. NEW YORK 10017  FROM : CREDI T° H IPOTECARIO NACIONAL  -71 "Cb .0  GUATEMALA REP.OF GUATEMALA IC)  j ,„ 7,4,0-V3 ioxi..10,  I  •  "5, le ▪ •  t 95°  xj,IK CY: P*413.:-  ••••• ....-  am.  •  1.  - .. ...; •-  ••••  ••  ••  •  •m.  a* • • •••  - r,  On.  r-%  •••  I  ....  7  1  I c51,  -...•c.,. ••••  •r.  e  .r...-\ --—•.•• rs le t „, %. • t I.  C) ‘ — b" ,e.......is..n. r-1  •••••  "."  .... ••  .....;.• -  . ...- •- s „,.. " 1..1,.3 •  •••  ••  •  /  ..  .•  7.- ...  •••  f••  •  •  I sd  •••  .  cc• ) CD  70-  _ _. •_  ••• ••  .  •••• ••••  ZD •• ••••  •  ;  sm.  • • c.o•  •••0  T  '.1 r% •• •  • •  '7r •••  •••••  • .* S. •  . :  .7_ 7" 17  •  • 0 •-• • 1°.**  - •,  ,„-  , r s -  S  rm. rt  I  J. ru.. I • • • 1::I  L  es  .•  7/  Y  1.,  r‘  / ••••••  .  LO: a a • AS 6 IJ I • •• s  •-• - •  . .-  *-  . r-%  "•  •  "•  I  ,r  77' .  .  L'E. >,  r-.  r%  se .*  .  •, •  _  ;  • -  • r•-•  r. •  1  I  1.•  I %  -.• r.  V •  c-.  I  ••-• •• r-•  •▪  '41 ••• •  -  •  ▪  •  „!,• •-•  ' -51 L. Csmi  s .  4(4,r  .4>  71R,Vi;,? AltONS -  _ •  •  -  .  •  ."  I •••  •••• P".   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .5  = f"' . .  ••  •  •  _  •  •  ..111••••••••  ' .•7 •  SEP 1:1979  X • ;  ,•  F. A. ZAGAR/LAD •  •  CREDITO HIPOTECARIO NACIONAL DE GUATEMALA GUATEMALA, ((GUATEMALA)) •  THIS IS FURTHER TO YOUR TELEX OF AT MR. BE(ENY'S REQUES-, MENTS NO.  ORDER  STOP PAYMENT  DATED APRIL  DATED APRIL  MAY 16, 1978  7, 1978  FOR  17, 1978  FOR  US  PLACING,  ON YOUR INSTRUAND NO..  US BOTH  DRAWN ON US  -AND PAYABLE TO THE. ORDER OF UNITED STATES ESTATE WELL AS FURTHER TO YOUR TELEX OF MAY Uq T"AT  THE POLICE OF  YOUR  COUNTRY  17, 1973  BANK AS  INFORMING  ARE INVESTIGATING THE  AFOREMENTIONED TWO INSTRUMENTS AND YOU WILL ADVISE US LATER STOP AT MR. BEKENY'S REQUEST ON<< AND ON HIS BEHALF AND WITHOUT RESPONSIBILITY ON OUR PART WE REQUEST THAT YOU INFORM US WHAT, IF ANYTHING, IS PREVENTING you TRANSFERRING THE  US  FUNDS  FROM  REPRESENTED BY THE AFORESTATED  INSTRUMENTS IN FAVOR OF THE ORIGINAL PAYEES WHO, PURSUANT TO MR. BEKENY'S STATEMENT, PAID YOU FULL VALUE STOP WOULD GREATLY APPRECIATE YOUR  IMMEDIATE TELEX REPLY STOP  AGAR/LAD/BANY__ 17 /7   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  / /L, 7  (1_1 7 /1  /V  1?  //::// /;_r" ,  .1  •  •  /  _  2  ( /  -1-  •  •  ••, FEDERAL RESERVE BANK OF NEW YORK NEW YORK, N.Y. 10045 AHEA CODE 212-791.5000  August 22, 1979  Dr. Peter R. Bekeny P.O. Boy. 185 Larchmont, NY 10538 Dear Dr. Bekeny: After your visit on August 20, 1979, we reviewed our files covering your complaint against Bank of America, New York, New York, with respect to de Guatemala. the two drafts you purchased from Credito Hipotecario Nacional We also reviewed the matter with our Legal Department. It is our conclusion, based on the facts developed in our investi— o gation of your problem, that the type of draft you purchased from Credit ution and Hipotecario Nacional de Guatemala was a liability of that instit strative not of the Bank of America. We have no regulatory or admini Bank of America authority over the Guatemalan bank. We also found that the matter. It is our con— has not violated any U.S. law or regulation in this ing your problem. clusion that we cannot be of further assistance in resolv We understand that Bank of America, New York, New York, continues We believe this may to offer to follow up on this matter in your behalf. seek the advice of be your best course of action, although you may wish to private counsel. Based upon this latest review, I must inform you that we are not e sub— prepared to consider your problem any further unless you can provid stantive new information.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Very truly yours,  ••••••••••  • S •••.,  •  ;am--  •••••••••  Leon Korobow Assistant Vice President   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  FEDERAL RESERVE BANK OF NEW YORK NEW YoRK, N. Y. 10045 APEA COOE 217-791- 45000  August 21, 1979  Dr. Peter Bekeny P.O. Box 185 Larchmont, NY 10538 Dear Dr. Bekeny: In our conversation yesterday, I recalled that at some point in your file, there was an indication that someone had been unable to verify that a Mr. Andreansky was an employee of Chase Manhattan Bank, N.A., a fact that we both know can be readily verified. I reviewed the file and have determined this reference was supplied to us by you as part of your March 2, 1979, letter. That letter included a copy of a United States Government memorandum which indicated the Bank of Guatemala had determined that Chase did not have an employee by the name of Andreansky. There is no other indication in the file that Mr. Andreansky could not be verified as an employee of Chase. I hope this clarifies our discussion. Very t uly y  rs,  George R. Junc er, Manager Consumer Affairs and Bank Regulations Department  FEDERAL RESERVE BANK OF NEW YORK NEW YORK, N.Y. 10045 APEA CODE 212-791-5000  May 29, 1979  Dr. Peter Bekeny 330 East 56 Street 10022 New York, N.Y. Dear Dr. Bekeny: erning the loss of two bank This is in response to your letters conc Nacional de Guatemala (Credito drafts purchased from Credito Hipotecario New York, New York. You requested Hipotecario) and payable at Bank of America, payable to you or your company; that Bank Of America issue duplicate drafts the United States Estate Bank. d by you, as well as that We have reviewed the correspondence submitte to your complaint. The facts in the submitted by Bank of America in response case appear to be as follows:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1.  2.  3.  4.  , from Credito and You purchased drafts, Nos. , respectively, drawn and Hipotecario, for U.S. ble to the United on its account with Bank of America and paya States Estate Bank; .3, 1978 the *wo l 1( Subsequent to the above purchase, on Apri drafts were stolen from you; ed a stop payment At your request, Credito Hipotecario issu 1978. To order on the drafts to Bank of America in May for payment. date, the drafts have not been presented est, Credito Bank of America telexed, again at your requ esenting the value Hipotecario to ask that it remit funds repr ent orders were placed. of the lost drafts on which the stop paym Credito Hipotecario In its telexes of May 16 and 17, 1978, by it on the drafts confirmed the stop payment orders issued paid since the and stated that the drafts should not be g the matter. Guatemalan police were still investigatin  2 FEDERAL RESERVE DANK OF NEW  YORK  You recently claimed during a visit to our office that the drafts Bank of America and you purchased in Guatemala were, in fact, obligations of them or pay you the that Bank of America was therefore obligated to reissue s records to . You also requested that a review be made of that bank' verify this fact. of In response to this request, our representatives did visit Bank nt. They re— America to review its handling of the Credito Hipotecario accou ng deposit account ported that the account represents a correspondent banki drafts issued by used primarily to clear dollar drafts and other collection to the account the Guatemala bank. All of the items which were processed issued by, and bore the identification that at time of issuance they were branches. were solely liabilities of, Credito Hipotecario or its Bank Based on the foregoing information, it does not appear that al Reserve has of America has violated any regulation over which the Feder would appear that administrative responsibility in this matter. In fact, it ecario. In this resolution of the ratter must be pursued with Credito Hipot Credito regard Bank of America did offer to follow up the matter with claim against Hipotecario on your behalf provided that you withdraw your I would Bank of America. If you are unwilling to accept this offer, then n a conflict suggest that you seek private counsel since there would remai resolved in in facts between you and Bank of America which can only be the courts. ng you I regret that we can be of no further assistance in helpi resolve this matter.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Very truly yours, ;- ! '1  •4.  1-•  Edward F. Kipfstuhl, 'Manager Consumer Affairs and Bank Regulations Department  •  BAN:0F AMERICA NEW YORK  May 15, 1978  Mr. Peter Bekeny  New York  Dear Mr. Bekeny:  We acknowledge receipt of  representing cable charges  for two cables to Credito Hipotecario Nacional de Guatemala concerning your request to stop payments pf two checks. +IP  Thank you.  incerelY,7 ••••  (SkAis cca -7 1 F. V. Parravicini Assistant Cashier  4  (mono STREET • NEW YCRK.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1MA • USA • CABLE ADDRESS BANKAMERICA • WHCLLy OeiNED SU3SIDIARY CF BANK OF AMERir  •  ft  1 •.  RR4VICINI  A6 , ...tiLa .  •r•<.•  5/4/78  t. CREDITO HIPQTECARIO NACIONAL  GUATEMALA CITY, ((GUATEMALA, C.A.)) • MR. PETER BEKENY SUPPOSEDLY REPRESENTATIVE UNITED STATES ESTATE BANK SAN VINCENT CLAIMS 'HE PURCHASED FROM YOUR COBAN BRANCH TWO AND DLRS  CHECKS DLRS  DRAWN ON LJ  T  APDRW,<IMATELY APRIL •••••-•  4 AND 17, 1978 PAYABLE TO ABOVE BANK STOP NO OTHER DETAILS GIVEN 41 STOP HE CLAIMS SUCH CHECKS WERE STOLEQIN COBAN AND CABLED YOU  •••••••••  tr.")  :TWICE APRIL 27 AND 30, 1978 FROM MIAMI INSTRUCTING YOU STOP PAYMENTS AND ISSUE NEW CHECKS STOP YOU MAY WISH TO CABLE REPLY C.3  TO MR. BEKENY c/o OUR BANK MY ATTENTION REGARDS PARRAVICINI  40.  FRA NCESCO  V. PA it 11 A NICiN I.  ASSISTANT  CASHIER 1  •  1  NK  or  AMERICA •  SIROA0 SIR! LT  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Nave  Yortx,  N.  Y.  10004  •  747.4012  L  tel  Ac CJ  DISPATCHED COPY OF TELEGRAM OR CABLEGRAM RECEIPTED CCPY FOR ORlf.3INATING ,7.ECTIO:1  !:7) BANK0F AM ER;CA Oa)LI  Awhortz•J • i• •• . • •  :•  •- r I V.rit:en  Oa'.  By  5/03/78  CP.t:DITO HIPOTECARIO NACIONAL DE GUATE1ALA  GUATEMALA CITY, ((GUATEMALA, C.A.))  -7-C:: 7  Z  PETER CE::ENY  PAYMENT OF TO i\THANYOU FOR YOUR CABLE IMPLY COUCERNING STOP DRAFTS NO.  AND  VINCEt;T STOP MR.  ORDER U;;ITED STA ES ESTATE OANX SA4 •••••••  •••••••••••  EKENT URGES YOU TO RE1IT FUNDS INVOLVED BY  137:GENT TELEX TO DANZ OF A=ICA NEU  Tont;  ATTENT/On F. V.  PARRAVICII FO :1 ACCOUNT UNITED STATES ESTATE J3A!ii: STOP THANKS REGARDS   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  PARRAVICINI  ••••  \\ c  Ind.cat•Iø Nano. 1 & aft.1 'rhea netorelc...  CACLE DEPARTnET: PLEA ;:t:: AnISE F. V. P1M-1AVKC:1T OF COST f)i: CAbLE. 'THAN!: YOU.  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U.,S,DOLLARS  ****DR.PETER BEKENY ***********************  oRciE ct oF  !II • • 0...• ••.• ••. • • • I • • •  •  II  -••••••• •44....i.•-••••...  .;•••••••  $0 ,  I  a  '. •  ••  • 1. 1 ••• •e'r. l a l.1  .fito; -0  A111L'A  r-  •  0::11,4t C r`k  "A  r.:r  a L---.11s,  . • .........%&•••••Ir.14 • .•  it. I. .4. • • • '1441:10411.  CREDITO HIPOTECARIO NACIONAL DE GUATEMALA, GUATEMALA / GUATEMALA 35136  ;  •  .„  1612xL  S  zr:  .: " • ."p. •  . •  AUTHORIZED SION' , TU•IE V; ,a*.00Si41 1/.2-••=••--.1=  .  .. • •  • ••  •••-•  OCTACH PiglettA‘i  JANUARY 18, 9 Y9  E3A.. ,OF AMERIL:A •e  r\  *J .,' •. •`„  ••(4 •or  I  4A I N Y  OATE 1001 5  IS  kPR.PETER BEKENY  I \\ •  %.0  L.)\  Ne  ir ,/  CONDITIONS  :\ \ \.j IT Is 4:r.r.ED EY THE PEP.SON WHO ACCEPTS TH IS PECEIP1 AND BY 1HE BAEREI NK H N 4.1,11:0. 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L'•  •• lir • •  •  .  •  .. ,• ,. •,...-,." -7..*.. . • ' • •. • ••••"-... sie r ,-. :: ., ••:• ..  • -• •  • .; - .., .:-...:: ...1:1 ' '..• •d-•-• •'• •• • •• ••.. •  ••••  ...:........7.-er7.:7-.1'.4;;:i . • -..-- -,...* ,' ••  0.  •  •  1 '  •  •••.••••••• ••11,.... • „  APPLICATION FOR FOREIGN .:1-1ECK OR TRANSrER OF FUNDS BY AIR MAIL. CABLE OR WIRELESS TO: OF AMERICA, 41 BROAD ST. NEW YORK 10004 N Y  BAN  DATE  /  /C7 /  el.  PLfASI ISSUE CHECK OR Tit ANSUC14 FUNI.JS AS SNOII...Ai10 He LOW.  C  licHECK ( TO E)RDER /  -  I k•  DI • O r --....-  IeLe.AsE Ptii•••••ri  I  (CITY)  RA  /V  - 1"//4-•• ICOur•rny)  ON OR TRANSFER TNROUGN ILJAHK USE OP;LY)  TRANSFER OF FUNDS: (PLEASE PRINT  ? A. 4 •  •.••  O  CAOLC OH WIRELESS  •••••••  /ft  FULL NAME  TO  AIR MAIL_  R(.11.11T UV  A /  •• /ir  /C  AND  comeLt TE  / /7)  -  ADDNI SS  7.7./7) • •  FOR ACCOUNT OF  //Al' A )  r-  BY ORDER OF  AMOUNT or CHECK THANsrEn SPECIAL INSTRUCTIONS. IF ANY 0'4  RATE  AIR/MAIL CABLE CHARGES  HANDLING CHARGES  BP,T.1K OF Al 'Ar 1C t- -rP — 41 11;s.C.P.0  TOTAL  It is  hereby and a.irJ mit 11181 11.1.1L./C!.on is undert..ken by Paok of America only upon the terms and conditions •!;!FL•f•Uing cdr. tL fever ›e Licit I.er••,,f which Jiall riot be altered .i::le$s expressl•: , Jgretd to in v.-rity!g. Fank of Ame:ics s•91'. 1t1 customary steps (or r.”nitt.inre. •  -(  PURCHASER  /t'  -  r  ADDRESS  CASII HEnCwrr•-• CHLCK  MV  CNA UGC  ACOUNT  /  OUN  -  -j  /  t  79 0  Oli 1 Z et;  Y1 X 14S 10k1 9/12  •rT UNE,  •  :  .0   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • S.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ?Web 27, 1910  Th* Itorerible hob c•Ictiardt Chairman lubooplAttee Olt Oversight awl Invostketleasi comatteo cc Interstate an,f torelle ememerce ;444-eso of Representative* vaehIngton, D. C. 20515 Dear Cheirvan Fekhardt Thank yov, for your letter of. arvt, 25 trivitisw, Vie noard to testify hefore your .1:11bcommittatt the Teasers/ Reserve's pro4krst- of restraitt on certsir types of consumer twedift. pleaseel to info Tooter* will erpear or beltalf o April 1. 1 /AP  yom that Ooverner *Amway the Aosrd at 10.00 mt.ol. or  TAncorely,  ge-ALLI Ykkik  CO vcd (0V-111) bee- Gov. Teeters; Snot Hart Mrs. Mallardi  Room2323  NINETY-SIXTH CONGRESS  RAYBURN HOUSE OFFICE BUILDING PNONE (202) 225-4441  DOD ECKHARDT, TEX.. CHAIRMAN JIM SANTINI, NEV. ALEITRT GORE, JR., TENN. PHILIP R. SHARP, IND. ANTHONY TOPY MO4 FETT, CONN. ANDREW MACU1RE, N.J.  DOUG WALGREN, PA. RONALD M. MOTTL. 04410 MICKEY LELAND, TEX. TIMOTHY E. WIRTH, COLO. EDWARD J. MARKEY, MASS. HARLEY O. STAGGERS, VV, VA. (EX OFFICIO)  NORMAN F. LENT, N.Y. MATT44(W J. RINALDO. N.J. MARC L. MARKS. PA. TOM CPPC.ORAN, ILL. WiLLIAM E. DANNEMEYER, CALIF. JAMES T. BROYHILL, NC. (EX OFFICIO)  CONGRESS OF THE UNITED STATES  MARK J. RAABE CHIEF COUNSEL/STAFF DIRECTOR  HOUSE OF REPRESENTATIVES SUBCON1MITTEE ON OVERSIGHT AND INVESTIGATIONS OF THE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE  WASHINGTON, D.C. 20515  March 25, 1980  /  0  Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Constitution Avenue Ul 20th Street Washington, D.C. 20551 Dear Mr. Volcker: The Subcommittee on Oversight and Investigations, under Rules X and XT of the United States House of Representatives, is conducting an investigation into proposed Federal Reserve Board actions designed to restrict the availability of consumer credit. Pursuant to this inquiry you are requested to appear before the Subcommittee on April 1, 1980 at 10:00 a.m. in the Rayburn House Office Building. The Subcommittee will employ the following procedures in this hearing: I.  Fach witness will be asked to provide an opening statement of any length that will be included in its entirety in the published hearing record.  2  Witnesses will be asked to summarize their opening statements in not more than ten minutes.  3.  After the witness has made his opening remarks, he will he asked to respond to the questions of the Subcommittee Members concerning his testimony.  4.  Witnesses arc requested to provide the Subcommittee with fifty (SO) copies of their opening statement twenty-four hours in advance of their testimony.  If you have any questions, please contact Mary Foldes of the Subcommittee staff at (202) 225-4441.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Honorable Paul A. Volcker Page Two March 2S, 1980  On behalf of the Subcommittee, I would like to thank you in advance for your assistance and cooperation. We look forward to seeing you.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincp-re-1-77  Bob Eckhardt Chairman Subcommittee on Oversight and Investigations   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  marc  The fioaoratle varkley of Representatives washinIton, D. e. Deer Serkley. Thanks for yoar letter of !raric 5 concerninl die semination of reonIatiens amdi emeneepts thereto.. I! share your views about the need to out dowri ot remulations and unneceasary paper work, and can srapotvilse with the proble*.! tbat beaters l'AVO if‘ keepinç up with all the rInulatory fulmar/al that crosses their 44,sks. I can also assure you f the Board's interest in floilinq ways to make it easier for the ineustry rtd gemorel public to kleial with new or oren4ed regulations. T 'Nola like to clarify one point regerdist7 ttte annual popeaustooe rate ameadmoats to Regulation T o which you discussed 1,101 our staff. Tour lottor maintions the disclaimer la tl‘e ret5sTAI gliciftir *boot the reterial not beteg intended for tlay- twday sae tty cm:liter* in tbeir Loodisc ogoorationa. This lamvuece reforre4 only to the material Iftatified as FAipplei-ert 1, which contairs titte sathomaticel formulas used hy ranufacturers of calculation tools to verify the accuracy of their products. cre4itors do need to booms* familiar with the other provisions publiebed by the tear& which contain rale* with which creditors wust coftply, staff has boom working, es the possibility of reInclm9 tho amount of regulatory materials that ere distributed to persons lobo are not diret:tly affected. v. holm to he able to make some siconificant thong** In this direction. mf you car ur.ierstando a program of this klad must be worked out very cari!fully. in or.i*r to eel:* sure that material* of letAtinete interest to l‘RrAL.ers de reet titem. Per esrapla, the revent comeemor cre.3it restraint program wee of interests OUK   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mt* t?ororill. . 40 Y,erkley nedell  tt) all basket eves the smallest ones, ultboulN I, eves there it ftleht bee* been possible to or it details of the reculutory raekaos that only affect other sectots of the credit industry. Ale*. In ator•e eas. a revelation must be adopted within a stetutery ,loadline and If the naximur time for consent is to ho ave1le$1*. these affected nay neeJ to receive the text as quicidy as possible. ;;ot even vivito thee* corstraints, It stou14 1Q31, r‘ossible to reduce sebstantially the volume of rellinr,,, Us cer, of course, las* work her'sler at identlfyinq pronimently whother a particular proposal or rule is sonething that creditors, seped to *gastrin* ta detail. al.r,reciate bovine, your vlevs,  Sincerely, %KaA1664*ker LIS:JPazJP;vcd ($-73)  bcc:  Delores riplith Janet Raft Mrs. Mallardl (2) %V.  BERKLEY BEDELL 6rro DISTRICT, IOWA ✓ ▪  •  WASHINGTON orricE: 405 CANNON HOUSE OrrICE BUILDING WASHINGTON. D.C.  AGRICULTURE ..,ncomMITT( F  20515  (202) 225-5476  COMMITTEES:  Congte55 of tly ZUiiitb*tate5  DISTRICT OFrICES: 479 FEDERAL BUILDING  LIVESTOCK AND GRAINS FAMILY FARMS. RURAL DEVELOPMENT AND SPECIAL STUDIES  ji)otte of 1Aepre5entatibesii  FORT DODGE". IOWA  50501  (515) 573-7169  CONSERVATION AND CREDIT SMALL BUSINESS  ibilacsbington,13.C. 2051.5  318 FEDERAL BUILDING SIOUX CITY. IOWA (712) 252-4164  SUEICOMMITTEES: ANTITRUST AND RESTRAINT OF TRADE ACTIVITIES AFFECTING SMALL BUSINESS  March 5, 1980 The Honorable Paul A. Volcker Chairman The Federal Reserve Board 20th St. and Constitution Avenue, NW Washington, D.C. 20551 Dear Paul: I am writing to follow up on a series of phone conversations that I had with one of the members of your Board as well as several of your very able staff concerning the Federal Reserve Board's policy with respect to dissemination of regulations and amendments thereto. The purpose of this letter is to ensure that I did not misunderstand the intentions of your people with respect to streamlining your regulation/paperwork operation, as well as to enlist your personal support in this effort. The specific catalyst of my phone calls was a letter I received from one of my banking constituents, Jim Lipton (letter attached). I found that I had great sympathy for his argument that the amendment to Regulation Z that the Federal Reserve Board has sent out to all bankers not only seemed to be a very expensive enterprise (printing, handling, mailing, etc.), but that it represented a terrific drain on bankers' time due to its complexity and the time required for reading it. In my calls to your people, I was able to determine that not only was the length and complexity of the regulation not a statutory requirement (which had initially been contended), but that, in fact, hidden away in the back of the material was the qualifier that "This material ... is not intended for day-to-day use by creditors in their lending operations. Rather, it is used by manufacturers of calculation tools in producing and verifying their products." I find it hard to disagree with my constituent's contention that this sort of disclaimer should be prominently displayed at the beginning of the material to save uninterested and busy persons from having to wade through the entire material. Of even more interest was the revelation by one of your people that consideration has been given to sending out only a brief explanatory listing of the recent amendments or new regulations issued by the Federal Reserve. In this way, anyone interested in detailed information on the issue could then order the comprehensive treatment of it. Obviously, such an approach has many benefits: the taxpayer benefits from reduced governmental costs due to the reduction of printing, mailing, and handling; the private sector benefits from a saving of time (and possible anxiety); and the government would also benefit from the reduced handling and paperwork requirements.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  51101  Ex-r. 281  Paul Volcker Page Two  I am confident, Paul, that you share my desire to see that unnecessary regulation and paperwork is eliminated in all areas of the government. I look forward to working with you in this regard. Thank you for your consideration of this matter, and I look forward to meeting with you on the 14th. With best regards, I am Sincerely,  Berkley Bedell BB:dhc   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •P•  • u',surjI.u,i  II Milidr  ALAA,AAA._.11 Nay   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  6-)-4 joki.-k N'ki-f4-450 DA COUNT? swE 13 Am K. Ida Grove, Iowa 51445 TEL. 712-364-3393  February 4, 1980 Rep. Berkley Bedell 503 Cannon House Office Buil ding Washington, D. C. 20515 Dear Berkley: I am enclosing the most re cent of a flood of regula tions to change regulations that have be en amended by previous bu lletins. I am sure some bureaucrat worked long and hard on this masterpiece "Designed to promote grea ter uniformity and accura cy -- to simplify." The Fed. accepted public comment until last Augu st, the regulations were issued December 1979 but are not effective un til October 1980. The public is exposed to this great peril but no action need be taken for over a year. They require accuracy wi thin 1/8th of 1%. This amounts to $1.25 a $1,000.00 per year. Th e rate is effective only if payments are made on the exact due date ea ch month. Any variance of a day or two in payment would distort the in terest more than this am ount. There is not one note in a thousand th at is paid exactly on th e due date, especially. since we do not conduct business on the 104 Satu rdays and Sundays and twelve legal holidays about one-third of the year. I have not read nor expect to read 11 pages of extr emely small type. I would call your attentio n to the last four pa ges and ask if you know of anyone that can interp ret them. I would vent ure that in the whole Federal Reserve System no t over 1/8th of 1% of their employees could give a logical explanatio n.  4  Although the Fed, say th at they received favorabl e comments on this proposed regulation, I do ubt that the commentato rs had a chance to se the final results. e This is asinine, ridicu lous, another example of Ivory Tower thinking and a burden on every fi nancial institution in th e United States. Because of such regulation s, we are subject to ci vi l and criminal liabilitie far in excess of $1.25 s per year. c:,71 •  'nn our desk daily from al l the  other bureaus and agen cies.  Sii!ncerely,  144V/I ames Lipton resident 1.-• dr... •  .......•.•••••••,•sr  •  •  FEDERAL RESERVE BANK OF CHICAGO 2)0 SOUTH LA SALLE STREET CHICAGO, ILLINOIS 606%  (312) 322-5322  January 29, 1980  To the Member and Nonmember Banks and Others Concerned in the Seventh Federal Reserve District: .  REGULATION Z TRUTH IN LENDING The Board of novernors of the Federal Reserve System has adopted amendments to Regulation Z, "Truth in Lending," relating to the calculation and simplification of the annual percentage rate. The amendments become mandatory on October 1, 1980, but may he put in use at any time before then. The Board has also amended its Supplement No. I to Regulation Z setting forth the equations and instructions for determining the exact annual percentage rate. Copies of the Board's press release, the adopted amendments, and Supplement No. I in the Federal Register form, are enclosed.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  /ec;i4gt14,,President  1  4  S  •  DERAL RESERVE press release For immediate release  Di-her 21, 1979  The Federal Reserve Board today announced amendments to Regulation 2, Truth in Lending, bearing on disclosure to borrowers of the Annual percentage rate (APR) and other credit terms. The APR expresses the cost to the consumer of borrowing money and paying for purchases on credit. The Board proposed these changes for public comment in August. They Are designed to -promote greater uniformity and accuracy in the ca]culAtion of the APR by creditors, and to simplify its use, in order to enhance the ability of consumers to shop for credit. The amendments become mandatory Ocrober 1, 19B0, -but may 1.e put in use At any time before then.  The Board acted after consideration of numerons  comments on its August proposal, mostly favorable. The three most important changes adopted by the Board relate to (1) Tolerances permitted in disclosure of the annual percentage rate, (2) The special treatment accorded certain minor Irregular payment schedules—generally entered into as a convenience for customers, such as A long first payment peTil)(1 to make payments coincide with the customer's payday, And (3) The protection provided creditors against liability for errors in annual percentage rates and finance charges resulting from the use in good faith of faulty calculation tools.  1.  As a general rule, an annual percentage rate -will be considered  accurate if It is within 1/8 of 1 percentage point above or below the correct annual percentage rate.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The current rule permits only the precise rate or  rounding to the nearest 1/4 of 1 percentage point.  •  -2-  2.  •  The minor irregu larities provisio n provides essentially the same latitude as now availabl e for computing an annual percen tage rate, while making it easier to de termine which irre gularities fall within specified perm issible ranges. A chart illustra ting the provisio ns of the amended ru le for tolerance of minor irregula rities in computin g the APR is atta ched. A parallel provision that rela tes to the computation of the finance charge an d other terms has also been ad opted, in order to make si milar protecti on available to those creditors wh o would have difficulty taking account of payment schedu le irregularities . 3. Regulation Z states that an error in the di sclosed annual percentage rate due to a corres ponding error in a chart or table us ed in good faith by a creditor is not a violation. The Board has extended this rule to errors resulting from ma lfunction of any ca lculation tools used by the creditor in good faith, without regard to type. The Board also took action on se veral other specia l exceptions relating to the degree of accu racy in the annu al percentage rate, certain common creditor practices, and revisions of Supp lement I to Regulati on Z. The Board decide d not to adopt ce rtain changes it had proposed to make in Volume I of the Board' s Annual Percenta ge Rate Tables, as well as several minor revisions relati ng to open end cr edit. The Board's am endments are atta ched.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -0--  •  COMPUTATIONS MINOR IRREGULARITIES PROVISIONS FOR APR  No matter what the unit-period is For a tern of the  _:noaction of .  be treated as The first period It differs from regular even thou days: regular by up to tIlia many  Up to 1 year  6 shorter 13 longer  1-10 years  Over 10 years  - 11 shorter 21 longer  any number shorter 32 longer •  AND ity may be disregarded ults from the first period irregular res t tha y Irit gul: irre t men Any pay   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  Federal Register / Vol. 44, No. 251 / Monday, Dece mber 31, 1979 / Rules and Regulations   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  FEDERAL RESERVE SYSTEM 12 CFR Part 226 [Reg. Z; Docket No. R-0239]  Truth In Lending; Calculation and Disclosure of Annual Percentage Rates AGENCY: Board of Governors of the Federal Reserve System. ACTION: Final rule. SUMMARY: The  Board is adopting revisions in the requirements of Regulation Z. Truth in Lending. with regard to the calculation and disclosure of the annual percentage rate and other credit terms. The most important changes are:(1) adoption of a tolerance of Vs of 1 percentage point in either direction from the exact annual percentage rate, in place of the existing rounding rule;(2) adoption of simplified rules for treating minor payment schedule variations: and (3) expansion of the protection available to creditors who have relied in good faith on faulty calculation tools. The revisions, which are set forth below, include amendments to §§ 228.5 and 226.8 of the regulation, deletion of several Board Interpretations, and expansion of Supplement Ito Regulation Z. The issues addressed were the subject of a prior proposal published by the Board (44 FR 45141, August 1, 1979). EFFECTIVE DATE: January 10, 1980, but compliance optional until October 1, 1980. FOR FURTHER INFORmAT1ON CONTACT:  Regarding the regulation: Dolores S. Smith, Section Chief (202-452-2412), Ellen Nialand, Attorney (202-452-3867), or Margaret Stewart, Attorney (202-4522412), Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, Washington, D.C. 20551. Regarding the economic impact analysis: Thomas A. Durkin, Economist (202-452-2503). Division of Rpcearch rrrid Statistics.  r ;  ,  :e Cy: ft:ri,  :  D.C.  20:)51. SUPPLEMENTARY INFORMATION:(1) Introduction. In January 1979, the  77139  •  • ,40-  Federal Register / Vol. 44, No. 251 / Monday, December 31, 1979 / Rules and Regulations  Board's staff undertook an extensive review of the provisions of Regulation Z relating to calculation and disclosure of the annual percentage rate. This rate expresses in percentage terms the cost of a consumer credit transaction. Because of its usefulness as a tool for comparing various credit sources, this term Is considered to be the most important disclosure required by the Truth in Lending Act. The Act directs the Board, as part of its rulemaking responsibilities, to prescribe rules for calculating and disclosing this rate. The review focused primarily on the variety of special rules in the regulation regarding annual percentage rate determination and the absence of specific guidance in certain areas. The study was prompted by adoption in January 1979 of uniform guidelines for the enforcement of Regulation Z (44 FR 1222. January 4, 1979), efforts by Congress and the Board to simplify the requirements of the Act and Regulation Z, and the Board's Regulatory Improvement Project. The proposal published by the Board last January (4-4 FR 1116, January 4, 1979) described five areas in which the Board believed clarification or further guidance was necessary, together with alternative ways of dealing with the issues raised. Based on the more than 300 comments received in response to this publication, the Board in August 1973(44 FR 45141, August 1, 1979), published specific regulatory changes which it proposed to make regarding these issues. The August publication proposed amendments to §§ 2.26.5 and 226.8 cf the regulation, revision of the Board's Supplement I (the rules for determination of the annual percentage rate), and revision of Volume I of the Board's Annual Percentage Rate Tables. Approximately 235 commenters responded to the August proposal. The great majority of comments were from banks and other financial institutions. Based on these comments and the Board staffs analysis, the Board now adopts amendments to §{i 226.5 and 226.8, together with revisions to Supplement I to Regulation Z. These changes are discussed below. The Board has decided not to make the proposed changes to Volume I of the Board's Annual PrTCP:IftFf. /3:! le In i.i(!, , !  TP1111,5. t C.:'/"Ii;1),.. •  to the 1-(..(1H;(*!! .:1!;Et:Lt: amended, the Board will not recuire them to comply with the revised regulation until October 1, 1980. However, the Board notes that many of the revisions, such as the Vs cf 1 percentage point tolerance, provide creditors with greater protection than is available to them under the existing   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  regulation. Iherefore, the Board hat determined that the revised provisions should be effective concurrently with the existing regulation until October 1, 1980. Creditors who have the capability and who wish to comply with the revisions before that time may do so, while creditors who require a longer period of adjustment may continue to operate under the existing rules in the interim. After October 1, 1980, all creditors will be required to comply with the new rules. Set forth below is a discussion of the changes to be made and the economic impact of the changes, followed by the text of the amendments to g § 226.5 and 228.8, and the revised Supplement I to Regulation Z. (2) Regulatory Provisions. Tolerance. Section 226.5(b)(1) sets forth the general standard of accuracy for calculation and disclosure of the annual percentage rate in closed end credit transactions. An annual percentage rate will be considered accurate, subject to the exceptions discussed below, if it is within Vs of 1 percentage point above or below the exact annual percentage rate. Currently, the annual percentage rate must be disclosed either as an exact rate or rounded to the nearest V4 of 1 percentage point. The Board notes that the Y8 of 1 percentage point tolerance is in accord with the Truth in Lending amendments now being considered by Congress and that a large majority of the commenters addressing this issue supported such a tolerance. The comments indicated no basis for applying different tolerance rules depending on such factors as length of the transaction or type of credit extended. Therefore, the tolerance will be available, as a general rule, without regard to any distinguishing factors. The regulation continues to recognize both the actuarial method and the United States Rule method in calculation of the annual percentage rate. Under the actuarial method, the unpaid balance of the obligation is increased by the finance charge earned during each unit-period (or fractional unit-period), and decreased by any payments made at the end of that period, limier the United States Pule ir used by T..itm it ';  .• i  ••  11. !; to C!  r. 1 ,'.; •  RI  balance of the obligation, but is accumulated separately until such time as payments are sufficient to pay the earned unpaid finance charge. A second characteristic distinguishing this method from the actuarial method is that no interest calculation is made until a payment is received.  In application of the Vs of 1 percentage point tolerance, the accuracy of the disclosed annual percentage rate will be judged in accordance with whichever of these two methods was used in calculating the disclosed rate. In transactions involving equal payments and equal periods, either method will produce the same annual percentage rate. In irregular transactions, however, there may be slight variations in the annual percentage rate. Supp.',?ment I. Supplement I to Regulation Z. which was first adopted 10 years ago. sets forth equations and instructions for determining the exact annual percentage rate. This material, s-\ which is incorporated byiereFence iz thFlic-gillilliciri, is not intended for day: to-day-use by-ciedrs in their-Tending operations. Rather it is used by-nUfa-c-turerS-61-Efikulation tools M -g_tEeir—PiOducts. prOrdiiti-nrririd- verirVin The§eprcithicts are—in turn used by a great majority of creditors: in this sense, the supplement provides a standard of accuracy for the credit industry. In its August proposal, the Board suggested revising Supplement Ito expand the number and variety of eYamples. to include explanations and equations for determining the annual percentage rate in accordance with the United States Rule as vvell as the actuarial method, and to provide further guidance on determination of unitperiods and fractional unit-periods.. With the exception of the materiar relating to the United States Rule, the revisions proposed in Supplement I have been adopted by the Board. The material relating to the United States Rule has not been adopted because the comments and other information available to the Board indicated that there is no compelling need for this material. In view of the apparent lack of necessity for such an expansion, the Board has determined that Supplement I should continue to be based solely on the actuarial method. As indicated above, however, the supplement has been expanded to provide further examples and more specificity regarding the determination of unit-periods and fractional unit-periods. The existing Supplement I permits fractional unitpr•rioris in the denominator for the :-.c- Harial method equ.4ti,,n to he d ill-r. .• r Ide H more uniform standez-d, the new supplement requires the use of the linear form, which is widely used in the credit in Board tables and other tools. Section 228.5(b)(2)(i) describes Volumes I and II of the Annual Percentage Rate Tables. This material provides creditors with a •r  Federal Register / Vol. 44, No. 251 / Mond ay, December 31, 1979 / Rules and Regulations readily-usable calculation tool applying the technical information contained in Supplement I. An annual percentage rate computed in accordance with the instructions in the tables is deemed to comply with the regulation, even in those cases where its use may produce an annual percentage rate that falls outside the general rule on accuracy. Volume 1. the more commonly-used of the tables, applies to credit transactio ns invoking equal payment amounts and periods, as well as to transactions with an odd first payment, odd first period, or odd final payment. In its August proposal. the Board had suggested revising Volume I by expanding the explanatory material regarding its use. amending the adjustments needed to accommodate certain irregularities, and reprinting the factor tables in Ya of 1 percentage point rather than V4 Of I percentage point increments. The Board has now determined that the proposed changes are not warranted. In making this decision, the Board was particularly mindful of the possible difficulties creditors would experience in adjusting to the new material, as compared to the relatively slight increase in accuracy produced by the revisions. The Board also notes that this volume has been widely distributed throughout the credit industry in the last 10 years. compounding the difficulty of disseminating new material. Section 226.5(b)(2)(ii) authorizes the use of any other computation tool, including charts, tables, computers and calculators, which produces the same degree of accuracy as called for by I 226.5(b)(1). Single odd-on rote. Section 226.5(b)(3 ) permits creditors assessing finance charges in a certain manner to disclose an annual percentage rate which may not meet the general accuracy requirements of the regulation. Where a single add-on rate is applied to all trdnsactions up to 60 months in length, the creditor may disclose for all those transactions the single highest annual percentage rate. For example, an add-on rate of StO per 2100 per year woul d produce the following annual percentage rates at various meturities: at 3 months, r•  • .1 ,•  i  •  1,  !!,f - I iutlitf.r disiic;.e for all tralsactions up to 60 months an annu al par( entage rate of 18.18% (the highest ..i•nual percentage rate). This provision 'clients the current Board Interpreta tion f. 2.a-)502. In its August proposal. the !t.''d had suggested limiting this special ralc in transactions with maturities L:reater than 9 months since short-term   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  transactions produee the greatest degree that diffe rs in amount from the other of overstatement. As an alternative, the payments. Board also requested comment on The new f 228.5(b)(5) states that, for whether the rule could be eliminated purposes of computing an annual entirely. percentage rate, the irregularity of an The available evidence indicates that initial payment period may be the present rule may still be necessary disregarded if it is within a specified for certain creditors, for short-term number of days longer or shorter than a transactions as well as those over 9 regular period. Since first period months in length. Therefore, the Board is irregularities have a greater impact on retaining the current rule enunciated in the rate in short-term than in long-term Interpretation § 226.502. For transactions, the provision makes organizational purposes. however, the distinctions based on the length of the Board is eliminating the interpretation term. The degree of first period and placing this special rule in the body irregularity that may be ignoied under of the regulation itself, as reflected in the new provision is shown in the § 226 5(b)(3). The Board emphasizes that following table: this provision continues to he available F or a lorm DI UP 10 I r ay4 *sal 1 r '0r' only in transactions which are payable the tiris than ave. Nahaact .on 10 ITS in equal installments at equal intervals. Range of balances. Section 226.5(b)(4). The ley b shorte, 13 11 et.cele• 21 Any numbfr period may icovey longer like the preceding paragraph, represents shclef, 32 be treatt-d 10,13, an exception to the general rule on as renota, &merit accu:acy of disclosed rates, for creditors from tectuia, assessing finance charges by a certain try ut 10 th,s method. This special rule is currently ma fty days reflected in 225.5(c)(2)(iv). Under this In addition, any payment irregularity rule, creditors applying a single finance that resti!ts from an irregularity in the charge to all balances within a specified first period within these specified ranges range may understate the annual could also be disregarded percentage rate by up to 8% of the actual This new provision reiiiaces the minor rate for the lowest balance, bv irregularities provisions in the existing disclosing for all balances within that § 226.5(d) of the regulation and Board range the annual percentage rate Interpretation § 226 503. It provides a computed on the median balance. That similar approach in defining which Is, if a finance charge of $9 applies to all irregularities in the first period way be • balances between $91 and $100. an disregarded by comparing Elie number of annual percentage rate of 10% (the rate days in the irregular period to the on the median balance) may be number of days in a regular period. The disclosed as the annual percentage rate new rules are simpler to apply, however, for all balances, even though a $9 since they make no distinctions based finance charge applied to the lowest on the length of the unit-period. balance (SRI) would actually produce an Elimination of that distinction appears annual percentage rate of 10.7%. justified since the effect of first period In its August publication. the Board variations on the annual percentage rate had proposed two alternatives: (1) limit is more closely related to the term of the the special rule to transactions involving transaction than to the unit-period's orders by mail or telephone. or (2) length; furthermore, dropping the eliminate the special provision entirely. distinction permits a simpler and more The available evidence indicates that a understandable rule for determining need may continue to exist for this which irregularities may be disregarded. provision, but only with respect to the The ranges of irregularities specified are preliminary disclosures made on series basically those that have been of sales agreements and orders by mail applicable to transactions payable or telephone. Therefore, the Beard is monthly under the existing rules. This limiting 2.26.5(b)(4) to annual choice was made because a month is the perc.entate rttes cflsclosed r-r,aeint to niest rernmon tin;1-prr;ori and br•ruce § F f1) (;) . it 5 • • he ;.1 from cLit.crac•L rate.--The Board is adopting the existing version in its treatment of two provisions. fi 22.6.5(b)(5) and variations in payment amounts. The 226.8(r). that deal with the impact of existing rule requires that the irregular minor payment schedule irregularities payment be measured against the on the annual percentage rate, finance regular payment to see if it falls within charge and other disclosures. A common 25% or 50% (depending on the irregularity is an initial payment period transaction's term) of the regular that is longer or shorter than the other payment. If it met that test, it couid he periods: another involves one payment disregarded. The new rule simply states r  r  7714)  ••  ,  f  ;II  7  (  •  • /142  Federal Register / Vol. 44. No. 251 / Monday, December 31, 1979 / Rules and Regulations  that any payment irregularity that results from a first period irregularity within the specified ranges may be Ignored. By describing the variation in payment amount in terms of its cause, the most common minor irregularity will be taken care of. while the need to independently measure the irregular payment is eliminated. In its August proposal, the Board had offered three alternative ways of dealing with the effect on the annual percentage rate of payment schedule irregularities. The most stringest of the alternatives was to eliminate the minor irregularities provisions and require all creditors to disclose a rate meeting the general standard of accuracy of Ys of 1 percentage point. There was relatively little support for this approach among the commenters. The second alternative suggested was to continue the approach currently taken and simply improve the regulatory language. This alternative received the greatest support from the commenters. The third option was to replace the existing provision with one permitting a larger degree of overstatement (but a smaller degree of understatement) where an initial payment or payment period is irregular. The board has chosen the second of the three alternatives by adopting a provision that provides essentially the same protections now available to creditors computing an annual percentage rate, while simplifying the determination of which irregularities fall within the specified ranges. Minor irregularities—finance charge. The new § 226.8(r) provides a similar minor irregularities provision for purposes of computing and disclosing the finance charge and the schedule of payments. It is parallel to the annual percentage rate provision discussed above, new § 226.5(b)(5), in that it defines in the same way the first period irregularities that may be disregarded. It differs from both Board Interpretation § 226.505(which it replaces) and the new § 226.5(b)(5), however, in that it permits disregarding only variations in the final payment that result from first period irregularities. The Board believes that this limitation is warranted, on the grounds that a liestrnents made in other " ;• at. tf the fiist payini lit to ara cunt for an irregular first period (for example, where a first payment due January 1 on a mortgage loan made on November 20 is increased to pay the extra 10'days. interest) or where the charge for the odd first period is spread out among all the payments. it is a simple matter to reflect the adjustments when disclosing the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  finance charge and the payment schedule. The minor irregularities protection is needed, however, when the adjustment for an irregular first period is made at the end of the transaction. For example, a credit union making a loan on November 20 with the first payment due January 1 will frequently collect payments that are determined as if there were a regular first period, but will accrue interest based on the actual time the principal is outstanding and will adjust the final payment to account for the effect of the long first period. The new § 226.8(r) permits the credit union to disregard the effect of such a practice in disclosing the finance charge and payment schedule. This provision differs from the one proposed in August in several ways. Its applicability is not limited to certain socalled simple interest obligations. Furthermore, it permits less overstatement (resulting from long first periods), while countenancing some degree of understatement (resulting from short first periods). The comments suggested that long first periods are far more common than short ones and that the minor irregularities provision should be expanded to cover them. In addition. the provision adopted has the advantage of providing parallel rules for defining period irregularities for purposes of both annual percentage rate and finance charge computation. It should be noted in connection with both of the minor irregularities provisions that creditors are always free to arrange payment schedules with irregularities that fall outside the categories defined in those provisions. In such cases, a creditor has two choices: it can take specific account of the effect such irregularities have on the disclosures; alternatively, in the case of the annual percentage rate, it can ignore the irregularity provided the disclosed rate is not more than Ye of 1 percentage point from the true rate. Certain creditor practices. The new § 226.8(s) states that, when making calculations and disclosures, creditors may ignore the effect of certain facts or practices, namely, collecting of payments in whole cents, changing dates of paymants and ;IdV, 7;:Tr'F v:11rn r  11_  .! '.,! : : r base different ninnbeis.of days. These things have very slight effects on disclosures and the Board believes the negligible benefit to consumers of taking account of such matters does not justify the burden of doing so. This provision differs from the August proposal in that the authorization to treat all months as equal is not  restricted to simple interest creditors, and the requirement to mark as an estimate the finance charge disclosed in reliance on such a provision has been deleted. Faulty calculation tools. Section 226.5(c) represents an extension of the existing § 228.5(c)(3). Under the latter provision, an annual percentage rate or finance charge error that results from an error in the chart or table used by the creditor does not violate Regulation Z. The Board proposed in its August publication to extend this provision to errors resulting from the use of faulty calculators and computers. or, in the alternative, to eliminate the provision entirely. The first alternative—extrnsion of the protection to all types of calculation tools—would not have extended to the software or programming elements of elect ionic calculation tools. This proposal was suggested in an effort to limit the protection of the rule to errors beyond the creditor's control and to alleviate possible enforcement difficulties in confirming errors in software. The comments received by the Board on this issue clearly supported the extension of the provision to all calculation tools. including software elements of calculators and computers. The Board believes that this protection should be made available for all calculation tools, without regard to type, and new § 226.5(c), set forth bekw, reflects this decision. In the Board's view, the vast majority of creditors do not possess the specialized technical knowledge necessary to evaluate calculation tools internally and must continue to rely on the producers of those tools to provide that knowledge. The inaccuracies which may be countenanced by this provision will, in the Board's view, be offset by the restrictions imposed on the availability of the protection. First, the creditor's reliance on the tool must be in good faith. This imposes on the creditor a reasonable degree of responsibility for assunng that the tool in question provides the degree of accuracy required by the regulation. For example, the creditor might verify the results obtained by use of the tool by, comparing those resalts to the flgares -" •• f ' !i rely on the expertise of the. cnforcemiait agency in making such a determination. Second, any creditor vs ith reason to believe that the tool is in fact inaccurate must promptly discontinue use of that tool and notify the Federal Reserve Board of the error. That is, a _creditor who was aware of the error and continued to use the tool for disclosure I  •!.  ••••••••••.e........••••1*  •  •  Federal Register / Vol. 44, No. 251 / Mond iy, December 31, 197 9 / Rules and Reg ulations purposes would no longer have the terms available to him and avoid the protection of 226.5(c) as to inac The amendment will permit a curate uni fixed nformed use of credit.,.,"However, tole disclosures made after that time rance of ± irk of 1 percentage . The in the 10 years since the effective date Board imposes no specific req of on all transactions, which is the point uirement the Act, the com ple xity of the Act and on creditors with regard to the tolerance proposed in the Truth In its implementing regulation has information contained in the noti Lending Simplification Act that has fication presented serious complianc to the Board. However, the e passed the Senate. The amendment will description difficulties. Despite Indications that of the tool in question must be hav e the effect of bringing into specific most financial institutions have made enough to identify the tool. The com pliance some transactions which Board good -faith attempts to comply with envisions that the notification are, technically, not in compliance would Regulation Z. technical violations are normally include the name of bec aus e of misconceptions about or the common. In Its Annual Report on Truth manufacturer or producer of the erro rs in using the rounding rule. tool, a in Lending for the Year 1978. the Board trade name, or a model name Con sum protections should not be er or number. reported that more tha n four-fifths of the sacrificed because the tolerance In describing the error, the creditor allowed need banks anti almost three-fifths of the not identify the specific source to aid compliance is relatively narrow. of the credit unions examined that year by the error, as for example by determin At present. there is no available ing the Fede ral regulatory agencies were found steps in a calculator program whi evidence that consumers make credit ch not to be in complete compliance with produced the inaccurate results. Whi deci sions on the basis of variations in le Regulation Z. This Annual Report the creditor is encouraged to incl ann percentage rates as small as Si ual ude its indicated, though. that "for both kinds opinion regarding the source of the of of 1 percentage point. In terms of dollars institutions most violations were error, a description of the erroneous and cents. a tolerance of ¼ of 1 nonsubstantive."(See p. 11, Annual results and the transactions to which percentage point is about 7 cents per Report for 1978.) Nonsubstantive they relate would be sufficient for $100 financed on 12-month loans and violations include such things as errors purposes of this requirement. about 22 cents per $100 on 36-month that might arise on account of loans. On larger. longer-term loans like Open end credit_ Section 226.5(a), misunderstanding the regulation, clerical mor tgages where 'is of 1 percentage relating to the determination of the errors, carelessness, and oversights that poin t may be more significant in annual percentage rate in open end do not materially affect the accuracy of absolute dollar terms. it is still a small credit, has been retained in its present the most important disclosures. The proportion of the annual percentage rate form except for the addition of the Vb f difficulties of complying in good faith at current market levels 1 percentage point tolerance. Thus, an with a complex law and regulation, annual percentage rate calculated and The second major amendment along with indications that not all disclosed pursuant to {; 226.5(a) would con cerns the part of Regulation Z known current provisions of Truth in Lending be subject to the seine standard of as the minor irregularities rule. A are helpful to consumers in shopping for accuracy as that set forth for closed end rela tively narrow tolerance. such as the credit, have prompted Congressional credit tiansactions. The Board staffs tole rance resulting from either the Ys of calls for Truth in Lending simplificati on. analysis. together with the comments, perc 1 entage point rule or the rule of • .Earlier this year. as part of its own indicates no basis for making any other rounding to the nearest / 1 4'of 1 efforts to simpHy its regulations, the changes in the provisions of {I 226.5(a) per cen tag poin e t, may not be sufficient at Board requested public commen t on this time. to ease certain compliance problems in certain relatively technical issues cases involving irregular payments. Effective date. In accordance with 5 concerning methods of calculating and Creditors often arrange. mostly for the U.S.C. 553(d)(1) and (3), the Board has disclosing annual percentage rates and convenience of their customers, determined that the effective date of finance charges under Regulation Z (4-4 payment patterns which allow minor these amendments need not be delaye d FR 1116. January 4, 1979, and 44 FR irregularities in the schedule of 30 days, but may be issued effective 45141, August 1, 1979). Each of the payments. A common example is an immediately since these amendments changes resulting from this review abnormally long first period so that for the most part are less restrictive than appears to be consistent with the goal of mon the provisions that they replace. In thly payments can be due on the simplifying the regulation. In general. customer's payday. The problem is that add:tion, compliance with the the amendments should increase on loans with relatively short maturities amendments is not required until 9 somewhat the levels of technical a long (or short) first payment or other months have elapsed, thus providing compliance with the regulation without irregularity may cause the true annual persons subject to these provisions requiring creditors to make costly percentage rate to deviate from the sufficient time to analyze their adjustments in their operations. Also, disclosed rate by more than the allowed procedures and tools in light of the although technical compliance is made tolerance. The result is an added burden changes made and adjust to the new somewhat easier, it is done without for creditors attempting to comply with requirements. Although mandatory sacrificing important consumer the regulation in good faith but also compliance is not immediately required , protections. the Board has determined that both tryin to satisfy the payment period the "Fhe .1 .,1 H rm. t' • j • ; H .n Z , . , Lfr dr tc,!(.1;nces fer cert 'es that creditors v.,ihing ain varif,tions which would comply with Regulati and 'ble to take advantage of the in payment amounts and patterns that on Z. new Existing § 226.5(b) of Regulation Z fall within the minor irregularities provisions at this time may do so. requires, as a general rule, that the provisions. (3) Economic Impact Analysis. annual percentage rate disclosed be According to § 102 of the Act, Truth in The existing minor irregularities rule either the precise rate or the precise rate I.end;ng was intended "to assure a is complex. It allows a payment to be rounded to the nearest / 1 4 of 1 meaningful disclosure of credit terms classified as regular for purposes of so perc enta ge poin t. Apparently some that the consumer will be able computing an annual percentage rate to if cred itor s hav inte e rpreted this provision compare more readily the various it varies in size from regular payments credit to be a true tolerance, which it is not. by no more than a certain percentage. It „  II  (!H• (  1:11•1;!11  pel   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ;,0  •  11  77144  Federal Register / Vol. 44, No. 251 1 Monday, December 31, 1979 / Rules and Regulations  also permits a first payment period to be treated as regular if it varies from the other periods by no more than a certain number of days. The number of days in first periods that may be counted as regular depends upon the frequency of payment and upon the original maturity of the loan contract. All other paym ents must be equal in size and be schedule d at equal intervals. The new minor irregularities provisions appear to be a useful simplification because they achieve the basic purpose of the minor irregularities rule—reducing the compliance burden for creditors attempting to accommodate customers—and it makes the present rule clearer and easier to understand. This approach, together with the tolerance rule, should aid good -faith compliance efforts somewhat, especially for newer or smaller creditors not as familiar with the technicalities of Regulation Z but attempting to comply without the aid of expensive legal advice or calculating equipment. For two reasons it does not seem that understatement or overstatement of the annual percentage rate disclosed as a result of the minor irregularities rule is harmful io consumers. First, if a long first period or a smaller first payment is counted as regular under the minor irregularities rule, to the extent that the disclosed rate varies from the exact annual percentage rate, the exact rate will be lower. Since a long first period Is probably the most frequent minor irregularity, consumers generally will not be burdened with annual percentage rates higher than those disclosed. Second, minor irregularities in the first period are often arranged for the convenience of consumers after the essentials of the credit offer are accepted. As a result, variations in annual percentage rates resulting from minor irregularities in such cases are not likely to be very useful in credit shopping. The third major provision concerns extending to users of calculating equipment the existing protection from liability provided to creditors relying in good faith on faulty charts or tables. In many cases the sophistication of the technics' ,1;11. needed to evsl-ste tLe s : t /14) I  1\  •  )1  On occ(.r.ion, minor errors beyond their control could subject creditors to major litigation costs and civil penalties. Although the ¼ of I percentage point tolerance may obviate the need for protection from some minor errors, protection for a creditor using calculating devices and computers in good faith appears reasonable. InantlfLCIW el .1.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Consumer's interests should be protected by the fact that conscious errors or continued use of devices known to produce erroneous results would subject creditors to the penalties of Truth in Lending. as with any other violation. Furthermore, protection for creditors using calculating devices and computers in good faith should facilitate the adoption of improved calculating equipment (4) Text of Amendments. In consideration of the foregoing and pursuant to the authority granted in § 105 of the Truth in Lending Act (15 U.S.C. 1504 (1970)), the Board amends Regulation Z(12 C.F.R. Part 2.28) as follows: (I 226.5. (Amended) 1. Effective October 1, 1980, existing § 228.5(a) is amended by deleting both the title "General rule—open end credit accounts" and the first sentence beginning 'The annual percentage rates for open end credit" and ending "nearest quarter of 1 percent."; §§ 226.5 (b) through (e), Interpretations §§ 228.500, 228.503. and 226.505, and Supplement I to Regulation Z are rescinded. 2. Effective January 10, 1980 § 228.5 is amended by amending paragraph (a) and revising paragraphs (b) and (c) in their entirety. Section 226.8 is amended by adding paragraphs (r) and (s) and Supplement Ito Regulation Z, to read as follows: § 226.5. Determination of annual percentage rata. (a) Open end credit—general rule. The annual percentage rate is a measure of the cost of credit, expressed 88 a yearly rate. An annual percentage rate shall be considered accurate if it is not more than Ya ofl percentage point above or below the annual percentage rate determined in accordance with this section. • • • (b) Credit other than open end.(1) General rule. The annual percentage rate is a measure of the cost of credit, expressed as a yearly rate, which relates the amount and timing of value received by the consumer to the amount • !Id t H r:• : -10 •  1: 1.  •t  .1  percentage rate is accordance with the actuarial method are set forth in Supplement I. which is incorporated in this Part by reference. (2) Computation.tools. (1) The Regulation Z Annual Percentage Rate Tables produced by the Board may be used to determine the annual percentage rate, and any such rate determined from these tables in accordance with the instructions contained therein will comply with the requirements of this section. Volume I of the tables applies to single advance transactions involving up to 480 monthly payments or 104 wsekly payments. It may be used for regular transactions. and for transactions with any of the following irregularities: an odd first period. an odd first payment, and an odd final payment. Volume II applies to transactions involving multiple advances and any type of payment or period irregularity. (ii) Creditors may use any other computation tool in determining the annual percentage rate so long as the annual percentage rate so determined equals the annual percentage rate determined in accordance with Supplemental I. within the degree o! accuracy set forth in paragraph (b)(1) o.' this section. (iii) Supplement I and Volumes I and II may be obtained from any Federal Reserve Bank or from the Board in Washington, D.C. 20551. (3) Single add-on rate trans(actio ns. a single add-on rate is applied to all transactions with maturities up to 60 months and if all payments are equal in amount and period, a single annual percentage rate may be disclosed for all such transactions, provided that it is the highest annual percentage rate for any such transaction. (4) Certain transactions involving ranges of balances. For purposes of disclosing the annual percentage rate referred to in §§ 228.8(g)(1) and (2) (Orders by mail or telephone) and 2288r,h)(1)(Series of sales), if the same finance charge is imposed on all balances within a specified range of balances, the annual percentage rate computed for the median balance may he disclosed for all of the balances. However, if the rnnuq•l rercesoaye rste ,•'  : !!.r  F : .  :''it.r  the actuerial irwthod or the United States Rule method and shall be considered accurate if it is not more than VI al percentage point above or below the annual percentage rate determined in accordance with whichever method is used. Explanations, equations and Instructions for determining the annual  • 'r! le  fur the lowest balance by more than 8% of the latter rate, the annual percentage rate shall be computed on whatever lower balance will produce an annual percentage rate which does not result in an understatement of more than 8% of the rate determined on the lowest balance. (5)Payment schedule irregularities. In determining and disclosing the annual  •  S  Federal Register / Vol. 44, No. 251 / Monday, December 31, 1979 / Rules and Regulations percentage rate, a creditor may disregard an irregularity in the first period k that falls within the limits described below and any payment schedule irregularity that results from the irregular first period: (i) For transactions in which the term k is less than 1 year a first period not more than 8 days shorter or 13 days longer than a regular period; (ii) For transactions in which the term is at least 1 year and less than 10 years: a first period not more than 11 days shorter or 21 days longer than a regular period; or (iii) For transactions in which the term is at least 10 years: a first period shorter than or not more than 32 days longer than a regular period. (c) Errors in calculation tools. An error in disclosure of the annual percentage rate or finance charge shall not, in itself, be considered a violation of this Part if: (1) The error resulted from a corresponding error in any calculation tool, such as a chart, table, calculator or computer, used in good faith by the :-editor, and 12) Upon discovery of the error, the ,ciitor promptly (1) Discontinues use of that calculation tool for disclosure purposes. and (ii) Notifies the Board in writing of the error in the calculation tool. The notification shall include an identification of the tool and a description of the error, and shall be addressed to the Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, Washington, D.C. 20551. •  •  •  •  § 226.8 Credit other than open end— specific disclosure. • • • • •  (r) Payment schedule irregularities. In determining and disclosing the finance charge and the payment schedule under paragraph (b)(3) of this section, a creditor may disregard an irregular final payment or portion of a final payment that results from an irregular first period 'k within the limits described below and may treat the irregular first if it v.•, rr r  (I) For transactions in which the term is less than 1 year: a first period not more than 6 days shorter or 13 days longer than a regular period: (ii) For transactions in which the term Is at least 1 year and less than 10 years: a first period not more than 11 days shorter or 21 days longer than a regular period; or (iii) For transactions in which the term is at least 10 years: a first period shorter tnan or not more than 32 days longer than a regular period. (s) Disregarding certain practices. In making calculations and disclosures, a creditor need not take into account the effects of the following: (1) The fact that payments are collected in whole cents; (2) The fact that the dates of payments and advances are changed because the scheduled date falls on a Saturday, Sunday, or holiday; and (3) The fact that months have different numbers of days. • • • • Supplement Ito Regulation Z Rules for Determining the Annual Percentage Rat( or Other than Open End Credit Trankactions Pursuant to f 225.5(b) of Regulation Z I. Introduction Section 228.5(b) of Regulation Z provides that the annual percentage rate for other than open end credit transactions shall be determined in accordance with either the actuarial method or the United States Rule method. This supplement contains an explanation of the actuarial method as well as equations, instructions and examples of how this method applies to single advance and multiple advance transactions and transactions involving required deposit balances (as defined in 226.8(e) qf the regulation). Under the actuarial method, at the end of e;:ch unit-period (or fractional unit-period) the unpaid balance of the amount financed is increased by the finance charge earned during that period and is decreased by the total payment (if any) made at the end of that period. The determination of unit-periods and fractional unit-periods shall be consistent with the definitions and rules in Sections II (C),(D) and IF) and the general equation in Section II (H). • In contrast, under the United States Rule method, at the end of each payment period, the unpaid bali-.nce of the ; rrnnt fin; nr -3 is -r "I t' r. :•- C' I 1 •  , .,..... cf .! •. , period is the pPriticl from tic de t%- h.ch itiefirance cliarge begins to be earned to the dale of the first payment, and the "term" is the period from the ddle on which the finance charge begins to be eJrned to the dale of the final payment. For purposes of this paregrcph. the "first period- is the per!od from the date on which the finance charge begins to be earned to the date of the first pdyment. and the "term" is the period from the on which the finance charge begins to be earned to the date of the final payment.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  ,  1.13 0.12 a  . 'J .,' .1!  • n:L  4 ; •  77145  II. Instructions and Equations for the Actuarial Method (A) General rule. The annual pekentage rate shall be the nominal annual percentage rate determined by multiplying the unit' period rate by the number of unit-periods to a year. (B) Term of the transaction. The term of the transaction begins on the date of its consummation, except that If the finance charge or any portion of it is earned beginning on some other date, the term begins on that other date. The term ends on the date the last payment is due, except that if an advance is scheduled after that date, the term ends on the later date. For computation purposes, the length of the term shall be equal to the time interval between any point In time on the beginning date to the same point in time on the ending date. (C) Definitions of time intervals.(1)A period Is the interval of time between advances or between payments and includes the interval of time between the date the finance charge begins to be earned and the date of the first advance thereafter or the date of the first payment thereafter, as applicable. (2) A common period is any period that occurs more than once in a transaction. (3) A standard interval of time is a day. week, semimonth. month, or a multiple of a week or a month up to, but no exceeding. 1 year. (4) All months shall be considered equal. Full months shall be measured from any point in time on a given date of a given month to the same point in time on the same date of another month. If a series of payments (or advances) Is scheduled for the lest day of each month, months shall be measured from the last day of the given month to the last day of another month. If payments (or advances) are scheduled for the 29th or 30th of each month, the last day of February shall be used when applicable. (D) Unit-period. (1) In all transactions other than a single advance, single payment transaction, the unit-period shall be that common period, not to exceed 1 year, that occurs most frequently in the transaction. except that (a) If 2 or more common periods occur with equal frequency. the smaller of such common periods shall be the unit-period: or (h) If there is no common period in the transaction. the unit-period shall be that period which is the average of all periods rounded to the nearest whole standard Interval of time. If the average is equally near 2 standard intervals of time, the lower shall be the unit-period. (2) In a single edvence, tinFle priyment rify! ,‘.; " tr.T7n .•,1 , 1  C:,!t  -p:iyment period_ If the payment is less than the finance charge earned, the adjustment of the unpaid balance of the amount financed is postponed until the end of the next payment period. If at that time the sum of the two payments is still less than the total accrued finance charge for the two payment periods, the adjustment of the unpaid belance of the amount financed is postponed still another payment period, and so forth.  (E) Number of unit-periods between 2given dates. (1) The number of days between 2 dales shall be the number of 24-hour intervals between any point In time on the first date to the same point in time on the second date. (2) If the unit-period is a month, the number of full unit-periods between 2 dates shall be the number of months measured back from the later date. The remaining fraction of a unit-period shall be the number of days  7•  77148  4  Federal Reg ister / Vol . 4-4, No. 2 51 / Monda y, D  measured fo ecember 3 rw 1, 1979 / Ru beginning of ard from the earlier d les end Reg at ulations by 30. If th the first full unit-period, e to the P ,...The amou e unit -perio di n vi t or de d th e d is• month It 12 unit -per 11 h p = a The numbe , there are iods r of full unit yment (3) If the un per year. n -,The numb b e g i n n i n it -period Is g of the ter -periods fr-i'm the er of payment multiple of m of the tran a s e s. to m imonth or a The percenta the jth pay a month not sa ct io m ge rate of fi n e n t . exceeding the number fi , T h nanc a unit-period.ex fraction of a 11 m of days betw pressed An e charge p zulit-period een 2 dates onths, 30 times th In te e 4decimal q in the time rval from th uivalent. e nu shall be e beginning back from th mber of full months T h u o tr f Symbols -Liv th ansaction to me e ed to the a!xart the jth paym e term of remaining d later date, plus the n asured this supplem nplais shcrwr ent. umber of ays. The num e n i ta ters defined ber of full penods and a T ea !allows: urut he prese th n t period shall e remaining fraction of v a l ue of 1 p 7(1 be determin a unit.r uniz—pa ed by divi number of d rtmd -for ding such ays by 15 in periods, Nual. first pay the case of semimonthl ment due a y unit-perio ll in • kallietely d or by the appropriate 1+ • 1 multiple of + 1 30 in the c multimonth • . ( . 1 • +0 age of a • ly unit-perio • ---I .-+ 1 d. If the unit a semimont h. -p (141.) year shall b the number of unit -per eriod is ▪ + The ri e 24. If the t.rther of number of un iods per (1+1) is a multiple unit-perio it ds per ye -periods of a month, 1 00 • The a r periods per the number . nominal an (H) Genem year shall b nual perc l equation. e 12 divided of unit number of entage ra T h months per te. by the e a fo tr ll an ow sa in ct g equation se unit -period. ion: (4) If the ts forth the re unit-period is a day. a w lationship multiple of A among the eek, a terms of periods and week, the number of full or a A 1 the remainin un it g fraction of penocl shal 2 A l be determi a unit+ • • • ned by divi number of d ( 1 4 -e 1)(14-1) ding the ays betwee 1 (1+e )( n the 2 give the numbe 1 1+1) 2 n r of days pe r unit-period. dates by unit-period 2 (14-e i)(1+ If is i) m periods per a day. the number of un the ityear shall be period is a 38 week or a mult 5.1f the unitnumber of iple of a we 1 unit-periods e per year shal k, the divided by 2 l be 52 the number of period ( 14-f 1)( weeks per un 14-i) 1 it(14-f 1)( (5111 the un 1 1+i) 2 it-period is (I ) of full unit a year, the Solution of 11+f 1)(1 2 -penods bet n u +1) g m e b n er eral equati process. Th ween 2 date the number o n e b y s shall be ge it of full years ne er ra at l io n equation in 11(H). when (each equa Step 1: months) me Se applied to l asured bac a simple tr ction which a lo k from the la to 12 The remain Let I, =estim an ansaction in ter date. ing fraction ated annu payments of of $1000 is repaid by of a unit-p al percenta be: rate = 12.5 36 monthl S3 enod shall ge 3. 01 61 t e a y c f h, takes th orm: , E v (a) The rem a luate expre e special aining num s s i o n for A. lett ber of mont divided by (100w) .01 ing 1=i. hs 12 0416667 / equal to a w if the remaining interv Result (ref al is erred to as hole numbe Step 2: r of months A)=1004. (b) The rem 874391 , or aining num 33.61 ber of days by 385 if th Let divided e remaining A• interval is n Evaluate a whole nu 351 rv.p7e ot equal to mber of mon (14- 1) t hs. (100w)= .0 ssion for A. letting 1 (6) In a sing =1,/ 10500000 le advance, Result (ref transaction single paym erred to as in which th ent Al= 1003 Step 3: e term is less year and is .2.3 34t38 than a eq Interpolate months, the ual to a whole number for I(annua of nu I• I + l percentag .1 (A term shall b mber of unit-periods in A') e rate): e 1, and the th e 1 number of un periods per ( A ' 'A it ' year shall b ) e 12 divided number of m by the onths in th • 1 2 . 5 0 + .1 (1 e term. U) In a single a 000.0000 dvance, sing 00 - 1004 transaction .674 19 le (1003.23 payment 11• in which the 5 3 6 6 - 100 12.82483 S tep 4: I term is less year and is 4 . 042 X 674391) not equal to than a First iterat a whole nu months, th ion. let 1=12 mb e number of ,82483042 unit-periods er of term shall b M. Exampl repeat % and in the e 1, and the es for the number of un Steps 1, 2, Actuarial M periods per and 3 obtain (A)Single ityear shall b ethod in e 385 divid a number of g d v 1 a a = n n 1 c e 2 e w 8 transaction 2557859% ed by the without an days in the , with or term. odd first p Second iter (F) Percent eriod, end regular. Th ation, let 1,-age trite for o e t herwise period. The g a fraction o 1 e 2 8255785 neral equat repeat (H) can be f percentage 9% and ion In Sect pu rate of financ a unitt for a fracti S ion II in teps 1, 2, a the follow for this typ on (less tha e nd 3 obtain ing specia n 1) of a tni: charge e in o shall be equ f g l form I = 12.8.255 a new transaction: t period al to such fr 7529% action mult the pementi-.F In this case, n ipli e i•ate of fi o further it nance r.'"Lrz, ed by rnit 1,1,- 1. er required to c per obtain the ations are annual per rate correc cen t to two deci . (1+ f ) tl o• 1.-7: • reP1 places tage (1+0 !.. , ,. • ', 11 forth in Sect . • .,", iun 11 (1 1) r r • (A .1(1)..!-I!; •1 ti defined es A,,=-The am xptr_tud hu follows:' !; • 1. • ount of the t c.t:lcu;at !) it kt ur th=The nu be progra mmed to carr s or uci;,puters cil mber of full h advance. unit-periods y decimals t beginning of ; from the hroughout th ell 8% eilable the term of e e ca n o lc th u N to the kth ad g ul e u h tr m at b it an io e er sa r n ations vrill ction of pa and that be virtually ce e k - The fracti vance. Unit-period yments 1n)— 24. rtain tha: th performed to make on of a unit -p e annual p rate obtain erio interval fro year (w)=1 month. Unit-periods ercentage ed, when r m the beginnin d In the time 2. per ounded to t decimals, is g of the te the transact Advance, wo co r io rr m 1 ec n o 1 f t. to 0 7 th 8 . First p e kth advanc ma.The num Annual perc From 1-1 ayment, 2e. ber of advan 0-78 thro 10-78. ces. ugh 2-10below were entage rates in the e period. (t.. 78=1 unit. xamples obtained by 1; f-= 0) programmab us Annual perr le ealeutoi,-,. ing a '10 diRit .entsce rnir  • https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ,M1  .•  •  4  S  Federal Register / Vol. 44, No. 251 / Monday, December 31, 1979 / Rules and Regulations Amount advanced (A).46000. Payment (P)=.1200Number of payments (n)-36. Unit-period a. 1 month. Unit-periods per year (w).12 Advance. 2-10-78. First payment. 4-1-78. From 3-1-78 through 4-1-78..1 unit-period. (t=1) From 2-10-78 through 3-1-78-.19 days. (1=19/30) Annual percentage rate (1) wi =1182 .= 11.82% Example (A)(3). Semimonthly payments (short first period) Amount advanced (A)= 15000. Payment (P)= S.219 17. Number of payments (n)- 24 Unit -period= Y. month Unit-periods per year (w)=24. Advance. 2-23-78. First payment. 3-1-78. Payments made on 1s1 and 16th of each month. From 2-23-78 through 3-1-78=8 days. 11=01=s/110 Annual percentage rate (l)= wi =.1034 = 1034% Example (A)(4)• Quarterly payments (long first period) Amount advanced (A)=S10.000. Payment (P)=S385 Number of payments (n)=40. Unit-period =3 months. Unit-periods per year (w)=4 Advance. 5-23-78. First payment. 10-1-78 From 7-1-78 through 10-1-78=1 unitperiod (t = 11 From 6-1-78 through 7-1-78=1 month= 30 days. From 5-23-78 through 6-1-78=9 days.(f= 39,10) Annual percentage rate (I)= wi =.0897=8.97% Example (A)(5): Weekly payments (long first period) Amount advanced (A)=S500. Payment (P)=S17.60. Number of payments (n)=30. Unit-period= 1 week. Unit-periods per year (w)=52. Advance. 3-20-78. First payment. 4-21-78. From 3-24-78 through 4-21-78=4 unitperiods. (t =4) From 3-20-78 through 3-24-78=4 days. (1=4/7) Annual percentage rate (I)= wi =1496 = 14.96% (B) Single advance transaction, with an odd first payment, with or without an odd first period, and otherwise regular. The general equation in Section 11(H) can be put in the following special form for this type of transaction:  Amount advanced (A)...Nal First payment (PI)..1.39.50. Regular payment (P)=.11.3&31. Number of payments (n)..12. Unil-period -.4 weeks. Unit-periods per year (w) 11% -13. Advance. 3-18-78. First payment. 4-20-78From 3-23-78 through 4-20-78 1 unitperiod. (t..1) From 3-18-78 through 3-23-78-5 days. (1=%.) Annual percentage rate (1)= wi = 1850= 28.50% (C)Single advance transaction, with on odd final payment with or without on odd first period, and otherwise regular. The general equation in Section 11(H) can be put in the following special form for this type of transaction: Pa  A  n-11 (1+1)  (1+11)(1+1)  Example (C)(1). Monthly payments (regular first period and irregular final payment). Amount advanced (A)=S5000. Regular payment (P)=S230.  1  F  +  n-11  1 (1+fi)(14-1)  Final payment[P.).1280. Number of payments (n)-24. Unit-period month. Unit-periods per year (w)..12_. Advance. 1-10-78. First payment. 2-10-78. From 1-10-78 through 2-10-78-.1 unit. period.(t-1; 1=0) Annual percentage rate (I)= vi1,=.1050 -.10_50% Example (C)(2).. Payments every 2 weeks (short first period and irregular final payment) Amount advanced (A)...S.20a Regular payment (P)..49.50. Final payment (P.),-430:1 Number of payments (n)..2). Unit-period...2 weeks. Unit-period. per year (w)..52/2.28. Advance. 4-3-78. First payment. 4-11-78. From 4-3-78 through 4-11-76-8 days. (I =0 1..8/14) Annual percentage rate (1) wha.12.22 =12_22% (D)Single advance transaction. with an odd first payment. odd final payment. with or without an odd first period. ond otherwise regular. The general equation In Section 11 (H)can be put in the following special form for this type of transaction: •••••••••  .• P a A  P + 1  1 (l+f1)(1+1)  Example (D)(1). Monthly payments (regular first period. irregular first payment, and irregular final payment) Amount advanced (A) 5.5000. First payment (P,)=S250. Regular payment (P)=5230. Final payment  ber  Nu (m P"l'S28° of pa . yments (n)=24. Unitperiod =1 month. Unit-periods per year(w)= 12._ Advance, 1-10-78 First payment. 2-10-78. From 1-10-78 through 2-10-78=1 unitperiod.(1=1; f=0) Annual percentage rate (I)= wi =.1090 = 10.90% Example (D)(2) Payments every two months (short first period, irregular first payment, and irregular final payment) Amount advanced (A)=58000. First payment (P,)=$449.36. Regular payment (P)=5465. Final payment (P.)= S200. Fora 1 - Tern less than 1 year: • 100w( P A  P a A•  Pn  er-1 (1+1)  Number of payments (n)=20. Unitperiod =2 months. Unit-periods per year(w) 12/2 8. Advance, 1-10-78. First payment. 3-1-78. From 2-1-78 through 3-1-78=1 month. From 1-10-78 through 2.-1-78..22 days. • (t =0-, f= 52/80) Annual percentage rate (I).wia..13730 a. 7.30% (E) Single advance, single payment transaction. The general equation in Section 11(11) can be put in the special forms below for single advance, single payment transactions. Forms 1 through 3 are for the direct determination of the annual percentage rate under special conditions. Form 4 requires the use of the iteration procedure of Section 11 (1) and can be used for all single advance. single payment transactions regardless of term.  - 1)  Forel 2 - Term more than 1 year but less than 2 Years: 1/2 2 1 I • 30 + f)  •••,  (PIO): M, (!..- • ; !:•t;.r; • • ) ; paymcnt (P,)--!;25,0. • Regular payment (P)= 2.30.Number of payments (n)= 24. Unit-period = 1 month. Unit-periods per year (w)=12. Advirnce. 1-10-78. First payment. 2-10-78. From 1-10-78 through 2-10-78=1 unitperiod. It f= 0) Annual percentage rate (I)= wi =.1008 = 10.08% Example (8)(2) Payments every 4 weeks (long first period and irregular first payment)  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  7714.  r  1 • 10.7 (EA / For  r.  ii  4 - Special form for iteration procedure (no restriction on term, A (1 + fi)(1 + 1)  Example (E)(1). Single advance. single payment (term or less than 1 year, measured in days) Amount advanced (A)=S1000. Payment (P)= VOW.  Unit-period =235 days Unit-period per year (w)--- 365/255. Advance. 1-3-78. Payment. 0-15-78 From 1-3-78 through 9-15-78=2_55 days. (t=0, 1-0)  1148  Federal  Register / Vol. 44, No. 251 / Monday. Dece mber 31, 1 979 / Rules and regulations  Annual percentage rate (1)=w1=.1145.11.45%.(Use Form 1 or 4.) Example (E)(2): Single advance. single payment (term of less than I year, measured in exact calendar months) Amount advanced (A)=$1000. Payment (P)=S1044. Unit-period8 months. Unit-periods per year(w)= 2. Advance, 7-15-78. Payment. 1-15-79. From 7-15-78 through 1-15-79=6 mos. (t=1: f=0) Annual percentage rate (II= =.0880 = 8.80%. Mae Form 1 or 4.) Example (E)(3): Single advance, single payment (term of more than 1 year but less than 2 years. fraction measured in exact months) Amount advanced (A)=-$1000. Payment (P)=S1135.19. Unit-period =1 year. Unit-periods per year (w)=1. Advance. 7-17-78. Payment. 1-17-80. From 1-17-79 through 1-17-80=1 unit period.(t=1) From 7-17-78 through 1-17-79=6 mos. (1=6/12) Annual percentage rate (I)= wi =.0876= 8.76%.(Use Form 2 or 4.) Example (E)(4): Single advance, single payment (term of exactly 2 years) Amount advanced (A)=S1000. Payment (P)= $1240. Unit-period = I year. Unit-periods per year (w)-=- 1. Advance. 1-3-78. Payment. 1-3-80. From 1-3-78 through 1-3-79=1 unit-period. (t=2,1=0) Annual percentage rate (1)=w-1=1138=11.38%.(Use Form 3 or 4.) (F) Complex single advamx. transaction. Example (F)(1): Skipped payment loan (payments every 4 weeks) A loan of $2135 is advanced on 1-25-78.. It is to be repaid by 24 payments of $100 each. Payments are due every 4 weeks beginning 2-20-711 However, in those months in which 2 payments would be due, only the first of the two payments is made and the following payment in delayed by 2 weeks to place It in the next month. Unit-period= 4 weeks. Unit period, per year (w)=52/4=13. First series of payments (single payment) ocenrs 26 days after 1-25-78.(t1=0 : f, 28/28) Second series of payments begins 9 unitperiods plus 2 weeks after 2-20-7& (t,r--10-, fi r-12/28) Third series of payments begin! 6 unitperieds plus 2 weeks Oft,start of !:«(ieri 111.1. (t, .1f): f,-I '••• r ••:. '• 1. •; d (t, 23; f, The general equaticn in Section 11(11) can . -'1!en in the special form:  Annual percentage rate (1).=w1.-.1200=12.00% Example (F)(2): Skipped payment loan plus single payments A loan of $7350 on 1-3-78 Ii to be repaid by three monthly payments of $1000 each beginning 9-15-78. plus s single payment of $2000 on 3-15-79, plus 3 more monthly payments of $750 each beginning 9-1579. plus a final payment of 310(X) on 2-180. Unit-period =1 month. Unit-periods per year (w)=12_ 1000 a 7350 eii  2000  6 (1+( 12/30)0(1+1)  (1+( 12/ 30)1 )( 1+ t  750; 31  1000  (1+(12/30)i)(141.)  lb  41.  Annual percentage rate (I) =, wi = .1022 =10.22% Example (F)(3): Mortgage with varying payments A loan of $39688.58 (nett on 4-10-78 is to be repaid by 360 monthly payments beginning 8-1-78. Payments are the same for 12 month. at a time as follows: Year  100 *Ai F)1  21: 5 (1+(26/28)1  100; -t-1 16 (1*(26/18)M1+1)  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Year  kAontn.y payment  18  17  le 19 20 21 22 :3  MonM1y PrIfoord  1.291 81 30(H8 306 78 31761 326 85 335 92 345 42 355 15 365 12 375 33 385 76 385 12 385 03 381 62 384 17  2 4  5 7  10 11 12 13 11 15  27 ... . 28 29 30 ......_.......  ... ........  .................  .............. ...............  .  383 87 3.8313 38254 181 90 181 20 360 4.3 379w 37666 377(9 376 60 3754? 374 ,3 372 72 371 18 369 50  Unit-period 1 month. Unii-perias per year(w) 12. From 5-1-78 through 8-1-78 = 1 unit. period. (I = 1) From 4-10-78 through 5-1-78 = 21 days.(1  = 21/30)  The general equation in Section 11(H) can be written in the special form:  39,688.56 •  171I 291.81 + 3n0.18 + 3r.8.78 +. • (1*(21/ 30)i)(1+1) 12 24. (1+1) (14 1) Th . . . . 4-369.50 3-8 (141) Annual percentage rate (1) -= wi = From 4-10-79 through 6-12-79 = (2 4 2/30) 9.80% unit-periods. (G) Multiple advance transactions. From 4-10-79 through 9-18-79 = (5 -f 8/30) Example(cp): Construction loan unit-periods. Three advances of $20000 each ;ire made From 4-10-70 through 12-10-79 = (8) uniton 4-10-70,6-12-79. and 9-18-79. periods. Pr prlyrnerit it by 710 mnr11%,12.• TI 0 Ff • , 1 1! r:11 is •  ,  d (w)  •  )  :  1  ;‘ nc63ti% e ayments: 612.36  4 .  10 (1+(12/28)t)( 1+1)  +  11  (1+(29/.30)0(1+1)  2401 100 •a•  First series of payments begins 6 unitperiods plus 12 days after 3-3-78.(t,=8. 1.= 12/30) Second series or- payments (single payment) occurs 12 unit-penods plus 12 days after 3-3-78.(!s= 12: f = 12/30) Third series of paymtnta begins 18 unitperiods plus 12 days after (t,=18, 1,=12/30) Final payment Occurs 22 unit-periods plus 29 days after 3-3-78. (t.= 22;14=29/30) The general equation in Section II (H) can be written in the special form:  100'a• il 21  (1+1.) Annual percentage rate (1) - wi = .1025 =10.25% Example (G)(2): Student loan A student loan consists of 8 advances: $1800 on 9-5-78, 9-5-70. 9-5--80, and 9-5-  20,000  20 000 2  (1+(2/ 30)i)(14-i)  5 (1+(8/30)1)(14-1.)  81: plus $1000 on 1-5-79,1-5-80. 1-5-81. and 1-5-82. The borrower is to make 50 monthly payments of $240 each beginning 7-1-78 (prior to first ad% ance).  •  • ••  Federal Register  Vol. 44, No. 251 / Monday, December 31, 1878 / Rules and Regulations  Unit-period = 1 month Unit-perioda per year(w) 12. Zero point is date of first payment 'since it precedes first advance. From 7-1-78 to 9-5-741 = (2 + 4/30) unitperiods. From 7-1-78 to 9-5-79 = (14 + 4/30) unitperiods. From 7-1-78 to 9-5-80 = (28 + 4/30) unitperiods. From 7-1-78 to 9-5-81 = (3.8 + 4/30) unitperiods From 7-1-78 to 1-5-79 = (8 + 4/30) unitperiods 240 -240-479 -1 -  (i+i)  1 (1+1)  negative payments:  1800 1+(4/30)i  + 14  From 7-1-78 to 1-6-80 (18 + 4/30) unitper ads. From 7-1-78 to 1-6-111 mi (30 + 4/30) unitperiods. From 7-1-78 to 1-8-82 .• (42 4/30) wiltperiods. Since the zero point is date of first payment, the general equation in Section II (H) is written in the single advance form below by treating the first payment as a negative advance and the 8 advances as  1 26 (1+1)  +  1 381 (1+1)  1000 [ 1 + 1 + 1 + I 1+(:/30)i 6 18 30 42 (1+1) (1+1) (1+/) (141) Annual percentage rate (1) = wi = .3204 = 32.04%  •  ) ) *1 (   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  110  (H) Transaction involving required deposit balance. Example Mt):Required constant deposit balance Creditor advances $1(00 on 4-12-79 and requires borrower to maintain a deposit balance of S=03 throughout the 12 month loan. The loan is to be repaid by 12 equal monthly payments of S90 each beginning 5-12-79. Toe deposit balance will be released on 4-12-&). Unit-period = 1 month. Unit-periods per year(w) = 12. From 4-12-79 through 5-12-79 = I unitperiod. From 4-12-79 through 4-12-80 12 unitperiods. The general equation in Section II [If) can be written at:  1000 +  240  121 (1+1)  12  (1+1) Or  for iteration solution as:  110 • •• 1000 •  1 21 (1+1)  240 12  (1+1) Annual percentage rate (I) au  ••  800+  200  .1.  12 (1+1)  121 (1+1)  or for iteration solution as: ••  90 a 800  (1+1)  200 12 (1+0  ,  1, ; .!c r.i!e (1")  into a restricted account Creditor advances S1000 on 6-15-79. Borrower is required to make 12 monthly payments of Sil0 each beginning 7-15-79. of which $20 is to be deposited into an account. The account will be released to the borrower at time of final payment on 6-15-80. Unit-period = 1 month. Unit-periods per year(w) = 12_ From 6-15-79 through 7-15-79 I unitperiod. • The general equation in Section 11(U) can be writirn as:  .1779  By order of the Board of Governors. December 21,1979. Theodore E. Allison, Secretory of the Boord. [FR Doc 710-30811 Filed 12I/ I LUNG COO( 1210-0 1-111  90 a  Wi ms  17.79%.  L-48 alai  77149  march 27. 19S0  The Memorable George Nedevarm limited States Semmes saishimoton. D.C. 2•510 Dear L;enutor racesversi for your letter of ;Ards 391c100. regarding the ifct of monetary volley, we at the rederal ';-.- koserve share your conturn about the hardships caused by high interest tete* end tiqhtex credit availability amd would llhe very ranch to SO4 * solenincful relaxation of financial ameditioes• Tlank 7000  As you Itnoi. this cesmtry currently is essfrontee with a owes* /nation problera. we cannot hope to solve that problem without adequate restraint on the itrowth of neesy. Unfortunately. in • circumetaace where credit demands are sebeeeed by expecta. times of seetiemod rapid pri00 Leareases readi saestary restraint Amiss epeard pressures on Letsrest rates. It iv our hope that. Laos that policies are in place that are as the public roe lestesistent with ttio wetlesation of recent inflationary trenea, pries eepeetationa will nederete and interest rates will decline. Theopaea with Which tae adjustrent in expect/otiose aed eredit dionamlia easars can be influenced considerably by the stems of ether iseermeeetal policies. If. in !Articular, there ir sem* plesembary restraint iu federal fiscal pollay mad the Treasury's damasis aa finnocial warkets are limited. we me expect salutary eitesta on inflation and internam rates* medwation in private mace mad price action's also see he very helpful. While 2 think At As by se as eertain that there will be a oarless national reemaeles, we rem that risk. but it la not such a risk that can be avoided by as "easier° aseetary policy a policy *would otaly amacerbete inflatimary pressures and lead ultimately to more serious eiceoele disruptions and dislocation*. This Laep not to say that we can oe samosine about the 4iffiei4tie articular sectors of the economy. I am actin familiar witft the problem you note in your letter: they clearly extend well beyond the borders of your home state. It is impoe*ibis to shelter eempletely housing smell busineives, or &agriculture from the *meets of siretery restraint. i:olootver, as a   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  411.  4.10AorAiale 041,worve !..cc4.overn ;'actitT Two  pest of the special. crtlit csOtraint nrocrwa tbat we have 411044W recently4 attention was JArtal to tlio Ao#ds of thee, soctors• The special depoalt re4tarent applied ti ) , r4lAtel mar:tat ostual funds4 ter opczoplo, was tioain4A..0. la pert to rtoderate the Jiveirston of tends from institutions that typically nye important Le meetinr the credit seeds of hemming, smell boalnes*, atu; acriculture. The gaidaliaesletOomeNarci4,1 beak 1ea4in‘ aaso ritcovraire tho Ousir*bility Of giving dee 00Beid4t,ratioa to th re4it :Amide of those sectors* I believe Idiot ww 14all4 COA4 tO 4 point t.elere no soctor AM Leek forward with say coufidencE to a prosperous future unless we are *Wm to reverse the tarsal; ot tallaties. The rederel Reserve 4111M rester* price atatiLlity aloe* only at greet oast; we therefore hope that the other breaches of the government will contiru4 to is La the direction of fl$Ainf4 inflation. fAncerolyi SNui A. ioluivi  PaPalitpit (1V-99)  bac/.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Xicblina Mr. Prall Mrs. Mellardi (2)6,/  1011111ms.  Action assinne GEORGE McGOVERN SOUTH DAKOTA  r. Kichline  •  "Z1Cni1eb Zfates ,3)enctfe 1•  F. )  WASHINGTON. D.C. 20510  March 19, 1980 Mr. Paul A. Volcker, Chairman Federal Reserve Board Washington, D.C. 20551 Dear Mr. Chairman: I want to register my deep concern and grave reservations over the nation's monetary policy. I have never personally felt that "high interest rates and tight money" were an especially satisfactory way to fight inflation. Over the course of the past few days I have been visiting with scores of farmers, businessmen, bankers and savings and loan officials from South Dakota. Their message is the same; namely that, in their view, we are headed toward a serious recession that will bankrupt many of them. Let me call the following points to your attention: 1.  Agricultural producers - both farmers and cattlemen - traditionally require a firm line of credit to meet their operational expenses. This is needed to provide funds to purchase basic herd stock, plant crops and other outlays which must run for a minimum of several months until a crop is harvested, livestock sold, etc. On -the -farm prices have not benefited from the inflationary spiral. For many commodities, the prices for the farmer are not much different than they were ten years ago - yet his cost of production keeps increasing. In some instances, the only thing that has kept them going is the inflated cost of their land which has given them the collateral to obtain credit for operating costs until they are able to sell their product. But no farmer or rancher - large or small - can afford upwards of a 20% interest rate. I am, frankly, fearful that many of them will not be able to plant this Spring or, if they have received a loan, they will not have the resources to pay it back.  2.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Automobile, farm equipment and truck dealers in South Dakota have suffered a substantive reduction in sales. There is concern that they will not be able to maintain the interest or carrying charges on their inventory, depending on their individual relationship with the manufacturer and/or commercial lending institution. Some have advised me that they are considering terminating their operations entirely.  111111111.0 ••••.,  ‘,.  •  2  3.  As is probably true in most of the country, the housing market has collapsed in South Dakota. Several real estate firms have already gone out of business and more are considering it. Construction firms have laid off most of their employees.  4.  Small businessmen their inventories cannot afford the in many cases, is  5.  Smaller banks are unable to provide loans to even their long time customers. "No farmer or businessman, regardless of how good an operator he is, can afford these interest rates. They will either go broke, or the bank will end up with a bad loan", one banker told me.  6.  Savings and Loan Associations have suffered substantive withdrawals as depositors rush to invest in higher yield securities in an effort, often futile, to keep price with inflation. In several instances, S&L officers report that they will show "red ink" this quarter for the first time since their association was formed.  7.,  Many families, depending on borrowing money for personal reasons, to finance their children's college education, or for other purposes - simply do not have access to the necessary funds.  are reporting that they are unable to replace where a line of credit is required. They interest rate and other carrying charges which, simply not available.  Mr. Chairman, I would hope that the policy of the Federal Reserve Board is not to trigger a national recession or depression. Yet, in my State, we are right on the brink of a severe economic downturn that will cause hardships far in excess of the concerns that focus on inflation. As a member of the Congressional Joint Economic Committee and the Senate Committee on Agriculture, Nutrition and Forestry, I am giving serious consideration to scheduling an inquiry into these "high interest rate - tight money" policies. Before proceeding on that course, however, I would welcome any comments that you might have on this very serious economic situation. With every good wish, I am   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Si nc  George McGovern   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Tioinorat%le Proxmire CtAir%tlen twf, PerOeirPy, Arfeirs ar0 '.tgattts 1.-erAto vr  near Chairf.tzn rrolmire.  This is in responam to yur request of to.orct. 11. 1S00, concerainq specific inCorrilation as to what writter instruction* ars in place and bow *or exeriners review ertv plisnce with the Zank ecrecy Act. Your letter included a reluest for ioforknation recurdinq the number of violations of the Rank Ziecrecy Act that wore citeel ty our *seminars in 1970-79, es well as t*Ile number considered serious ercikpit to refer to Om Treasury Dspartment fee hirtIler ection, toi.:,qther witl: the roast= fox, referral, Yolk also requeeted a breakout of such violatior involving Pleckda banks, Amid lastly. steps tOien by the -71fzitt to sv:lopt Treasury Department proposals for tW•tanino financia.1 recordkeepino Sad reparting and currency distribution 00 lines ere osaminetions. :mclasod ore Ileard staff response* to the specific questiwts rosed In your letter, teqether with appropriate atteehr-ovts  rf yes or rtimbers Of your staff %dab furtbor tutorsnatioe or have any questions concerning the responses, gasses call Pot*rt A. JecoLsen. Assietant tAreeter in the roartils Nvistun of ;An%ine:: Supervision and Ptteulstion (452-25271. PAAT , vc. .! (#V-91) , sincerely, t.cc. Jaet Ryan Sgaul Ifilu t 7A11 wpllace (with attacEments)  WILLIAM PROXMIRE, WIS., CHAIRMAN HARRISON A. WILLIAMS, JR., NJ. ALAN CRANSTON. CALIF. ADLAI E. STEVENSON, ILLROBERT MORGAN. N.C. DONALD W. RIEGLE, JR., MICH. PAUL R. faRRANES. MD. DONAL-5 W. STEWART. ALA. rAUL E. TSONGAS, MASS.  o  , Action assierned to B•  •  JAKE CARPI, UTAH JOHN TOWER. TEX. JOHN HEINZ. PA. WILLIAM L. ARMSTRONG. COLO. NANCY LANDON KASSESAUM, KANS. RICHARD G. LUGAR. IND.  tr.  Wallace  .I  /Xnifeti Zfalea senate  KENNETH A. MC LEAN, STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANCES Da LA PAVA, CHIRP CLERK  COMMITTEE ON BANKING, HOUSING. AND URBAN AFFAIRS WASHINGTON, D.C.  20510  March 13, 1980  II el (  ,  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. 20551 Dear Chairman Volcker: The Committee on Banking, Housing and Urban Affairs is concerned about illegal drug trafficking in Florida and the involvement of banks in the handling and laundering of drugrelated money. The Committee, which is planning to hold hearings shortly on this problem, is interested in the records that banks are required to keep under the Bank Secrecy Act and other records of bank transactions that could be useful in determining whether drug-related or other illicit money may be flowing into or through a bank. As background for its hearings, the Committee is interested in the following information: --the written instructions to the Federal Reserve System examiners and a description of how the examiners actually go about reviewing compliance with the Bank Secrecy Act, especially the filing of IRS Form 4789 Currency Transaction Reports and the verification of exemptions granted by a bank to customers from the filing of Currency Transaction Reports; currency deposits or transactions at a bank, especially those that are unusually large or deviate from a bank's usual pattern of activity; bank requests for large denomination currency that are significantly greater than a bank's normal requirements and records retained concerning the purchase of money orders and cashier's checks; --figures for 1978 and 1979 on the number of violations of the Bank Secrecy Act cited by your examiners, the number of   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  . tsik  • • .04  .-r  , "  Abf‘t ••  *  fl•.'• • " 1 . 0` ) •  .a2t-• .1.14,40110  ••  •  The Honorable Paul Allolcker Page 2 •  violations of the Act referred to the Treasury Department as serious violations requiring further action and the nature of those serious violations. The Committee would like the figures on Florida banks broken out; and --the steps taken by the Federal Reserve System to adopt Treasury Department proposals for tightening financial recordkeeping and reporting and currency distribution guidelines and examinations. The Committee would appreciate receiving a reply no later than March 31. Thank you in advance for your cooperation. Sincerely,  William Proxmire Chairman WP/bfj   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  OP.  1:4•6-  1'It s \:44.:4 ; 11 `  BOARD OF GOVERNORS  .• .0  1  OF THE  FEDERAL RESERVE SYSTEM  •  P•  •  WA5HINGTON, D. C. 205S1  4.) •  PAW. A. VOLCA  &AL RtS* : • ••••••  CHAIRMAN  March 26, 1980  The Honorable J. William Stanton House of Representatives Washington, D.C. 20515 Dear Mr. Stanton: I am writing to you to express my str ong hope that the House of Representatives will approv e without delay H.R. 4986, the "Depository Institutions Deregulation and Monetary Control Act of 1980." Present conditions in the financial markets and the urgency of the anti-inflation progra m only emphasize the need to improve our systems of financial con trol, to strengthen the structure of our thrift institutions , and to achieve fair and equitable competitive conditions amo ng institutions. H.R. 4986 \Nould make enormous strides toward tho se objectives. And, the bill would also greatly expand the fle xibility of the Federal Reserve_in meeting any particular liquidity problems that might arise -in the current circumstances. After several years of debate in the Con gress, I believe the proposed legislation does ind eed represent a broad consensus amollg affected institutions abo ut what is feasible and desirable, and, most importantly, meets the principal concerns of those of us charged with supervisory res ponsibilities and the conduct of monetary policy. Put simply, the legislation provides us with the tools we need to conduct effective policy during a particularly sensitive period. The progress of this bill is being watched carefully by markets and all intereste d parties. Failure to secure enactment at this juncture of our fin ancial and economic affairs could only work to undermine our effort s to restore economic and fJnanrial stability. Sincerely,  QCWJ  ANNIMIlimimar   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •••  ?arch 26, 1980  11s fl'onorable winters Proxmire Chairman Committee on Fankinc, Neueinq and Urban Xffairs Unite! States Senate usehin2tent D.C. 20510 Dear Senator Proxmire: In response to your request of January 8, I ast emelosin eata an,3 ether information concerning State membor beaks one bank N1dinr,1 companies to t..sa used in connection with bearinc:s on the con4ition of the financial system. If members of your staff have any questions *bout .rector of theme material*, Mr. nanuel P. Talley. AsAistant our Livision of flanking Surtrxvision ailed Ret5u1etion, is available to assist Sincerely.  Enclosures   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Trr!: kr  (V-6)  bcc: Mr. Talley Ma. Mallardi (2)  •  6  an  Action assignei. Jack  WILLIAM PROXMIRE. WIS., CHAIRMAN  HARRISON A. WILLIAMS, JR., NJ. ALAN CRANSTON. CALIF. ADLAI E. STEVENSON. ILL. ROBERT MORGAN. N.C. DONALD W. RIEGLE. JR., MICH. PAUL S. CARBANES. MD. DONALD W. STEWART. ALA. PAUL E.aYSONGAS. MASS.  JAKE GARN, UTAH JOHN TOWER, TEX. JOHN HEINZ. PA. WILLIAM L. ARMSTRONG. COLO. NANCY LANDON KASSFPAUM, KANS. RICHARD G. LUGAR, IND.  'United -.States Zertate COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS  RECTOR KENNETH A. MC LEAN. M. DANNY WALL. MINORITY STAFF DIRECTOR MARY FRANCES DIE LA PAVA, CHIEF CLERK  WASHINGTON. D.C. 20510  January 8, 1980  g544  The Honorable Paul Volcker Chairman, Federal Reserve Board The Honorable Irvine Sprague Chairman, Federal Deposit Insurance Corporation The Honorable John Heimann Comptroller of the Currency  0•111111ww-...  The Honorable Jay Janis Chairman, Federal Home Loan Bank Board The Honorable Lawrence Connell Administrator, National Credit Union Administration  'TM !N'irt  Gentlemen: This Committee has held annual hearings on the condition of the financial system for the past three years. We have found the record developed during those hearings to be most useful in our legislative and oversight functions. I believe that it would be in the public interest to continue such hearings on the condition of the financial system at least once in each year. Accordingly, sometime in May 1980 this Committee intends to conduct the Fourth Hearing on the Condition of the Financial System. In preparation for the hearings, I suggest that the following statistical data be supplied to the Committee separately stated for categories of institutions as appropriate. The categories are, of course: national banks; state member banks; insured nonmember banks; bank holding companies; mutual savings and loan associations; stock savings and loan associations; federally insured credit unions; and, mutual savings banks, separately stated for institutions with deposits of $5 billion and over, $1 billion to $4.99 billion, $500 million to $.999 billion, $100 million to $499 million and $0 million to $99 million, for each of the past five years.  0111WSIMI1b. •  •  ......••••••••••1•1110.  ••"" •. •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  "  • -7-.7...  .•  . •  •••  • Page Two  1) A list of each category of institutions and problem institutions utilized by each of your agencies in the exercise of your regulatory or supervisory jurisdiction, along with a detailed description of the characteristics that are considered in categorizing any particular institution into each such category. Pertinent copies of rules or manuals should be supplied. All additions and deletions to such categories utilized during the past five years should be specifically set forth, including the new uniform rating system that will become effective in 1980. 2) The number of institutions that each of your agencies placed in each such category as of December 31, 1975 to December 31, 1979, along with the combined assets and combined deposits of all such institutions in each such category (including, of course, composite categories 3, 4, and 5, which are the categories requiring more than. normal and special supervisory attention, under the system for evaluating the soundness of depository institutions adopted in December 1979). 3) The number of institutions moving into and out of categories 3, 4, and 5 on each date along with their total assets and deposits. For each date, the length of time each institution had been so designated.  111111•1111W-  4) The number of days institutions in each category borrowed from the Federal Reserve, Federal Home Loan Bank Board, or National Credit Union Administration, and the amount of their average daily borrowings (i. e., under emergency borrowing procedures). 5) The total equity and debt capital of all such institutions. Further, equity capital expressed as percentages of total assets and total deposits; debt capital expressed as percentages of total capital; total capital expressed as a percentage of total assets.and as a percentage of risk assets; also loan reserves as percentages of (a) capital and (b) loans. 6) A statement of the policy and procedures of each of your agencies that insure compliance by institutions with the terms of disciplinary standby agreements entered into by foreign countries with the International Monetary Fund. Copies of manuals or rules should be supplied along with a sampling of such IMF agreements and a list of all countries in which such agreements are in effect.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  „ . IF"  •X  •  -  ro‘-t..  Page Three 7) Aggregate assets classified by examiners as substandard, doubtful, loss and specially mentioned along with the average assets classed by examiners for institutions in each category including a separate breakdown for domestic and foreign operations. 8) Classified assets expressed as a percentage of total capital in the aggregate and averaged for institutions in each category including a separate breakdown for domestic and foreign operations. 9) Aggregate loans made by institutions in each category along with the loan to deposit ratios of institutions in each such category and the ratio of net loan losses to total loans including a separate breakdS wn for domestic and foreign operations. 10) The 30 day average daily borrowings of institutions in each category (Federal funds, borrowings from the Federal Reserve, Federal Home Loan Bank Board, or National Credit Union Administration, and securities sold under repurchase agreements) along with the ratio of such borrowings to 30 day average deposits.  ea -1  11) The dollar volume of property held by such institutions as real estate owned other than premises. Include copies of all regulations, policy statements, or guidelines in effect on such matters during any of teI.st five years, along with an explanation of the reasons for changes in such regulations, policy statements, or Suidelines. 12) The dollar volume of commitments undertaken by such institutions including, and separately stating, a figure for standby letters of credit. Also, total standby letters of credit for banks with total deposits over $1 billion. 13) The number of cease and desist actions under the Financial Institutions Supervisory Act of 1966 against (a) institutions and (b) individuals with a short description of each. 14) The number of institutions that failed along with their total assets and deposits and a description of the specific cause of failure in each case. The name of each failed firm should be supplied. 15) The number of institutions that were the subject of mergers or holding company acquisitions to avert a failure or for some other supervisory reason. Supply the total assets and deposits of such firms along with their names and the specific deficiency in each case.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  ..  •  vt.•  .  •  -  h.  '  *••  '  • —  .•  .  .  z  "d1;ti.Z. or.•`0.1.1 re""-"•• .‘'  "•.v.:24.-Ag.4111711f •  It10111114 ask.n.a.  ...,••••••••  •  Page Four 16) A table showing the size of your insurance fund each year since its inception along with the percentage of such insurance funds to insured deposits, total deposits and total assets of the institutions that it covers (including all bank holding company assets), separately stated, for those years. 17) The number of institutions under the jurisdiction of your agency for each of the past five years along with the number of such entities that were the subject of full examination by your agency each such year.  : -0 41  111•==, •11••••  18) Aggregate net income (after all charges and credits) and aggregate net income as percentages of average equity capital and average assets. The data requested herein are to be supplied to the Committee by April 1, 1980 so that the Committee will have ample time to review the data before the May hearings. I would appreciate your staffs contacting Mr. Lindy Marinaccio, Special Counsel to this Committee, if there are any questions on the matters requested. Coordination among all three agencies will ensure a standard reply format and uniform definitions of terms and methodology so that information from the agencies can be readily compared and combined. I understand that the FDIC has on its computer much of the data requested herein for all banks. A single reply prepared by the FDIC from its data may facilitate the standard format. This information has been supplied in past years and needs only to be updated. In supplying the information, I suggest that separate replies be made to each question setting out data going back five years so that trends and comparisons may be made. Unless otherwise specified, all data should be based on consolidated statements for domestic and foreign operations.  LILL.  I thank you in advance for your cooperation with the work of this Committee on these hearings. , 11 " — •  ".  Tv7 Chairman •  . 497••-• • ;•.;   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ".7  -41iFirr-'"•;;;7•"'"'"`"'7 7 77'.•  • P•41•-•• yrIcr.V.IP .nr•-•or  4e ,  At."711711.v  • ... . . .. 0  . . • 0 0 f GO  .. . .!0  4: . .  .r  EiOARO OF GOVERNORS  .  ..  1  OF THE  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  PAUL A. VOLCKER CHAI PI MAN  March 26, 1980  The Honorable Henry S. Reuss Chairman Committee on Banking, Finance and Urban Affairs House of Representatives Washington, D.C. 20515 Dear Chairman Reuss: I am writing to you to express my strong hope that the House of Representatives will approve without delay H.R. 4986, the "Depository Instituti ons Deregulation and Monetary Control Act of 1980." Present conditions in the financial markets and the urgency of the anti-inflation pro gram only emphasize the need to improve our systems of financial control, to strengthen the structure of our thrift institutions , and to achieve fair and equitble competitive conditions among institutions. H.R. 4986 would make enormous strides toward those objectives. And, the bill would also greatly expand the flexibility of the Federal Reserve in meeting any particular liquidity problems that might arise' in the current circumstances. After several years of debate in the Congress, I believe the proposed legislation does indeed represent a broad consensus among affected institutions about what is feasible and desirable, and, most importantly, meets the principal concerns of those of us charged with supervisory res ponsibilities and the conduct of monetary policy. Put simply, the legislation provid es us with the tools we need to conduct effective pol icy during a particularly sensitive period. The progress of this bill is being watched carefully by markets and all interested partie Failure to secure enactment at this juncture of our financ s. ial and economic affairs could only work to undermine our efforts to restore economic and financial stability. Si cerely,  4e.e6Videfe-1 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  IT! o !!!!MENMP;  I.. MMEMEMMEMMINIMMINOMM  :tr:S, 1S4V,  th* 400loret3e Gillyetie V. mentseeecy  of Repreeentetives waohingtoe, C. 2015  MOUS*  akiftt  rMaateeNticy4  Tbanli IOU for sen43se me e copy c Ur,Leo CmaAthaWs Rat1Clia am inaction, interest rates, and nevinc b011.4vior. Pr* Choittien, I 410 'testi concerned 000ut ttv of seviatos. moreover, I scree with 140 that La recent 11104S41 the failure et aspect.* tnaation to be fully reflected Ix somisel LOteroet rates probobly One opoperege4 *pendia, (44t*a OS 40041t) in iv4,v4nci* of exported pine. looresoes. *low agree %het iieveruz4ent speodipi seeds to be seduced. Ibis Le preterro4 beforc;. orice eonsider upojor tea out* tO *put **vim* oft& Loweet000t. iAnceroly. ;00 -4411  ME= MMIL Mi4OKC4IPspit (0VS) boot Messrs. Leufeabervi taboo Proll Mrs. Mellerdi (2)ir   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • GA/...SIONNYMIONTGOMERY  -ioneer to Jim Kichlio Action as s •  3RD DISTRICT. MIssisstrrN  COMMITTEES. ARMED SERVICES VETERANS' AFFAIRS  2367 RAYRURN Housc Orrtcr EltruDING AREA CODE (202) 225-5031  Congre55 of the inititeb §btate5  DISTRICT OFFICE! MERIDIAN, MISSISSIPPI 39301  3iptize of ikepresqlitatibef  AREA CODE (601) 693-6681   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ADMINISTRATIVE ASSISTANT JACK VANCE  Ulazbington, 0.e. 20315 March 12, 1980  "r4st, er Mr. Cr•--W44-1-1-ani 44 Chairman, Federal Reserve System Constitution Avenue and 20th Street, N.W. Washington, D. C. 20551 Dear Mr. Chairman: The President of one of the banks in Mississippi has called my attention to an enlightening article that I believe is worthy of consideration by your office. I am, therefore, taking the liberty of attaching it for your information. With warm personal regards, I am Sincerely, ,/ VbMERY ILLESPIE V. MO Member of Congress GVM:cmm  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: Article Citations:  Number of Pages Removed: 6  Cheatham, Leo R. "Inflation Impacts on Interest Rates and Savings." 1980.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  c  March 25, 1980  The Honorable Ed Bethune U.S. House of Representatives Washington, D.C. 20515 Dear Mr. Bethune: This is in response to your letter of Mnrch 6 requesting the Federal Reserve's views on the use of reserve requirements as a tool for controlling credit availability. At the outset I might note that the day-to-day operations of monetary policy--and movement toward credit restraint or ease--is implemented mainly through open market operations that control the supply of bank reserves. Discount rate and reserve requirement changes influence the cost and demand for reserves and are used as important supplements to open market operations. Reserve requirement changes can also be used both in a samara' low sod to implement specific policy operations. For smampiss ilissAmmies in the Late 1960's the Federal Reserve used changes in reiftif0 requirements mainly to influence banks' choices regarding the ismwOMMO of specific types of liabilities. Early in the 1970's the Board applied a reserve requirement to increases above a base level in Eurodollar borrowing by commercial banks. This "marginal reserve requirement," by raising bank costs of issuing additional Eurodollar liabilities, vas designed to curb such financing of bank credit growth during a period of restrictive monetary policy. Similarly, in 1973 a marginal reserve requirement was applied against increases in the sum of large time deposits (in denominations of $100,000 or more) and funds obtained via balk-related commmrcial paper and sales of finance bills. And a series of actions were undertaken in the mid-1970's to encourage banks to sea to lengthen the maturity of their time deposit liabilities, and thereby improve their liquidity positions. These latter actions produced a structure of time deposit reserve requirements graduated according to maturity, with successively lower requirements on longer-term deposits. Most recently, attempts to damp the rate of expansion of bank credit available to domestic residsmite have aimed at increasing the coot of banks' m000sed liabilities. On Nowember 2, 1978 a supplementary reserve regniremMut of 2 percent vas imposed sa large-denomination time   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Ad Mothune .2.  deposits. Thes4 en October 6, 1979 an 8 percent marginal reserve requirememt lees imposed on imereeses in the sem of certain managed liabilities in weft of the amount outstamdimg in Late September 1979. Covered by the proms Imre largo member balks aed U.S. agencies and branches of foreign balks; managed liabilities ineloded large time daposits, net Eurodollar borrowings, Mecurities sold under agreements to remorse, and federal funds borrowed free institutions not covered by the prelims. On March 14, 1980, as pert of a bend government program to help curb inflationary pressures, the Federal Meserve assemsced a series of monetary and credit actions. Imcluded among these actions was an increase from 8 to 10 percent in the oferememtiomoi Marginal reserve requirement on the managed liabilities of large member books mod U.S. branches and agencieo of foreign banks and a reduction in the base epos which the liabilities subject to the requirement are calculated. UMier the authority granted by the President by the Credit Control Act of 1969, this action was also applied to large nonmember banks. Demand deposit reserve requirements were levered several times in the 1970'm as the Board ielieeed that the level of smeh ratios wee too high for competitive equity batman amber and nommember banks. Within the constraints of effective mmeetary policy, the bard had to consider the orship ditch lergely reflected the coat to increasing attrition from member books of federal reserve requirements. Thus, whee policy called for ease, reductions in dememd deposit reserve reties were mood, alomg with ether terms; when restraint was called for, other actiome were takes. ever, it still remains that bank reserve requiremomta be served as the fulcrum for the ystem's ongoing control of the mew stock. The precision of such control depends am the stability of the memey-reserve multiplier, i.e., the amount of money that can be supported by each dollar of bank reserves. With a relatively stable multiplier, and home a predictable relationship betwees money and reserves, the Federal leserve can provide an amount of ressings to the banking system Ali grill bring abort approximately the targeted level of the money stook. The Larger the proportion of transactions deposits that are covered by federal reeler.* revivalists, the better is oer short-ron Centro' of mosey. That is imby the 100dOral Reserve PO strongly supports the broader MOM coverage of traidectione accounts at all depository institutions provided by Title I of the ?reuniteReuss Depository Institutions Deregulation and lbeetary Control Act of 1980. Sincerely,  Paul A. Volcker JWilliams/DELindsey/ECEttin:kt # V-74  •  sign. to Mr. Kichljne EJ  •  ED BETHUNE 2ND DISTRICT. ARKANSAS  Congre55 of tbe tiniteb  tatai  3Dou5e of ikepreckntatilitsS WASHINGTON OFFICE: 1330 LONGWORTH HOUSE OFFICE BUILDING WASHINGTON. D.C. 20515 (202) 225-2506  DISTRICT OFFICE: 1527 FEDERAL BUILDING 700 WEST CAPITOL LITTLE ROCK. ARKANSAS 72201 (501) 378-5941  lillassbington, D.C. 20315 February 13, 1980  Federal Reserve System Board of Governors 20th & Constitution Avenue, N.W. Washington, D.C. 20551 :Jr  Dear Members of the Board of Governors: The current schedule of the Subcommittee on Financial Institutions calls for the Federal Reserve to testify oh; February 20. At that time, it is my intention to ask yo.0 if the legislation which I am enclosing will enhance the competitive status of financial institutions. This bill would authorize state chartered, insured banks; insured branches of foreign banks; insured lending institutions until Title IV of the National Housing Act; HUD approved mortgagees; Small Business Investment Companies; and federal chartered credit unions to charge on any loan subject to a state usury law, interest at the higher of the state usury ceiling or a rate of one percent above the Federal Reserve Bank discount rate where such financial institution is located. On December 17, 1979, the Senate Banking Committee held a hearing on S. 1988, a similar bill. In addition to alerting you to my intentions during the upcoming hearing, I am hoping that you will take this opportunity to respond, in writing, to three important aspects of the legislation that are set forth below:  I  1. Should there be parity among the financial institutions? For 46 years, national banks have enjoyed the authority to lend at a maximum interest rate of one percent above the discount rate, regardless of state law. Only within the last year or so have high interest rates created a prolonged need for this authority. Similarly, exceedingly high interest rates and severe economic conditions have affected the relationship between national banks and other financial institutions that must abide by state usury laws. These conS itions do not appear to be improving. In my state of   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  "*.  . 40110.0.10000.000000A00  •  The Federal Reserverystem . Page Two  Arkansas, for example, national banks may lend at rates up to 13 percent, whereas other institutions are subj ect to the 10 percent usury limit set by the State constitu tion. Voters in my State won't have an opportunity to amend the constitutional usury law until next November, and any change could not take effect until the following July of 1981. Consequently, funds are drying up, particularly in small communities that do not have access to national bank service. Twentytwo other states have a restrictive usury rate on one or more types of loans. 2. Should Congress equalize competition between financial institutions now? Congress is presently delibera ting over legislation to phase out Regulation Q, preempt usury laws on real estate loans, allow nationwide NOW accounts , and expand the powers of savings and loan institutions. If current economic conditions continue, the disparity betw een national banks and other financial institutions may incr ease, depite attempts in H.R. 4986 to give the financial comm unity tools to compete more equitably. Would the enclosed legislation not support the intent of H.R. 4986? 3. Should parity be established permanently? The legislation I am sending you calls only for a temporary equa lization, while S. 1988 addresses the situation permanen tly. Since national banks have been given permanent authorit y to lend, notwithstanding state usury laws, would it not be appropriate to treat this ameliorative legislation similarly? The intent of the 1933 Banking Act was to assure that lend ers could continue to lend money at rates that cover the costs of their funds. Isn't it just as important to give state banks and other lenders permanent ability to cover their costs, as it is for national banks? Thank you for your kind consideration. I look forward to hearing from you soon and discussing this matter with you at the upcoming hearing.  Ed Bethune Member of Congress EB:vj Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  AL. .•• •  95th 2d Sflion  P. R.  IN THF NOUSE OF PEPRFSENTATIVES  1!r. Alcxander Ini=rcucrA the fellcwinc bill; ',Mich was referred to the Ccrmitt(Te cn  A ?I'LL  equa1i7e ccri7EtitIcn totwqen State and natioral banks, and for other rucirs.  1 2  .75,  it en;:cted hv thin (7or?fr? arri q(711:-.e of FrcrriseptatIves  of tto U   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ted Ftatp< of 2T0firli ic Cnrcr(L.Fs at-sEmtled,  2  I  •  Short Title  2  Secticn 1. This Act may be cited as the "Interest Rate 17(;(_114 2/1 0c,t1 3 . -11,-,4t-y Act of 19evg. 4  TITLE I—INIEREST RATE M!END:IENTS RE7,AFDING STATE USURY  5  CFILINCS ON CERTAIN LOANS  6  Insured Banks  7  Sec. 101. The Federal Depcsit Insurance Act (12 U.S.c.  8  1911 et.mPrIded by adding at the end thereof the  9  following new section:  10  "Sec. 27. (a) In creer tc prevent discrimination against  11  State-chartered ir.- ured tanXs or insured tranches of foreign  12  tan!.(s with respect to interest rates, if the applicable rate  13  p.rescrited in this sutsection excceds the rate such State  14  bank cr irL:ured branch of a fcroicin bdrk '.culd be permitted  15  to charge in the absence of this subsecticn, a State bank or  15  an insured trarch of a fcreion bark may, rotT4ithstanding any  17  State ccnstitution or statute, which is h2reby preempted for  18  the purpcses of this section, take, receive, reserve, and  19  charge on any lcar or disccunt made, cr upon any note, bill  22  of erct'ance, oc other eviderce of debt, irtecest at a rate of  21  not mcre than 1 per centum in eycess of the discount rate cn  22  ninety-day commercial paper in effect at the Federal R2secve  23  tank in th.e Federal Reserve district where the bank cc  24  insured branch of a foreign bank is lccated or at the rate   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  3 • • by the Ja‘fs cf tJ- e Statr, territory, or district eue the Link Is located, whichever may be qreat r. "(t) If the Late prescribed in subsection (a) exceeds 14  the rate such State bank or insured branch of a foreicn bank  5  would be permitted to charge in the absence of this  6  paranrarh, and such State fixed rate is thereby preempted by  7  the Late drsccited in ::uil.section (a), the taking, receiving,  8  reserving, or chacgini a e,reater rate of interest than is  a  allcwied by eubf-ection (a), when :r.rewingli dcne, shall be 1 deemed a forfeiture cf the entire interest which the not?.  11  bill, or cther evidence cf debt carries with it, or which has  12  been anreed to be paid therecn. If such greater rate of  13  interest I  14  a civil action cormenced in a court of ap;.cocciate  15  jurisdicticn net later than to years after the date of such  16  11ayment, an amcunt equal to twice the amount of the interest  17  raid from the State tank or irsured branch of a fcceion bank  1?  taking or receiving such interest.  19 2i  been paid, the person who paid It may recover in  Insured Sevires and Loan Associaticns Sec. 102. Title IV of the National Housing Act (12 U.S.C.  21  172u Pt sec.) is emended by adding at the end thereof the  22  following new section:  23  "Sec. 414. (a) If the arriicable rate prescribed in this  24  section exceeds the rete an Insured institution wculd be  .25  permitted to charce in the absence of this section, such   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • a  •  1  instituttcn nay, rotwithrdInci any state constitution or:  2  statute, which is hereby preempted for the puri,oses of this  3  section, take, receive, reserve, and charge on any loan or  4  discount made, or upon any note, bill of exchange, or other  5  evidence cf debt, interest at a cate of nct more than  6  centum in exces of the discount rate cn ninety-day  7  commercial ra!:cr in effect at the Federal Peserve bank in the  8  Federal 179F.erve district where the Institution is located or  9  at the rate allowed by the laws of the State?, t2rritory, or  10  district .f;tsere the in;titution is located, whichever 'lay be  11  creater.  12  '''(h) If the rate prescribed  1 per  tn subsecticn (a) exceeds  13  the rate such Institution would be permitted to charge in the  14  absence of this secticr, and c7uch State fixed rate is thereby  15  precmpted by the rate described in subsection (a), the  6  takino, receivind, reservinr', or charoing a greater rate of  17  interest than that rcPscrihed by susecticn  1a  kncwingly dcne, shall he deemed a forfeiture of the entire  19  interest uhich the note, bill, or other evidence of debt  20  carries with it, cc which has been agreed to be paid thereon.  21  If such  22  who paid it 7ay'recover, in a civil action commenced In a  23  court cf appropriate jurisdiction not later than two years  24  after the date of such payment, an amount equal to t4Ice the  .25  when  reater rate of interest has been paid, the person  ancunt of the intcrest raid from the Institution taking or   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  1  cpceivinc !:uch intereFt.".  2 3  !14ortgage ?anc=rs Srlc. 1i'3. Title V cf the Naticnal IVusing Act (12 U.S.C.  4  171 et seq.) is amended ty adding at the end thereof the  5  followinc riQw :=ecticn:  6  'Sec. 530. (a) If the applicable rate prescribed in this  7  secticn c-xceed  8  mortgagee under section 203 of this Act would be'permitted to  9  charge in the (3trcnce of this section, the mortgagee may,  tl- e rate an institution avproved as a  netwithst7Inding any State constitution or statute, which is 11  hereby preempted foc the purpcses cf this section, take,  12  receive, reserve, and charge on any such loan, interest at a  13  rate of rot more than 1 per centum in excess of the Jiscolint  14  rate cn ninety -day cormercial paper in effect at the Federal  15  Feserve bank ir the rderal Pr2:.;erve diFirict whore the  16  mortgagee is located or at the rate allol:ed by the lav.is  17  the State, territcry, or district where the mortgacee is  19  located, vhichver may he grr_?ater.  •  "(b) If the rate prescrited in subsection (a) exceeds  21  the rate si!ch mortgacee would be permitted tn charce in the  21  absence of this sectior, and such State fixed rate is thereby  22  preempted tv the rate descrited in subsection (a), the  23  taking, receiving, reF.ecvina, or charcing a greater rate than  24  is allcwed ty susection (a), when knowingly done, shall be deemed a forfeiture cf the entire interest which the loan   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1  c(-Irris 'i - h tt, or which hosbeen agreed to be paid th.-?cl?on.  2  If such greater rate of interest has been paid, the person  3  who paid it ray recover, In a civil actior commenced in 3  4  ccurt of approl:riote jurisdiction not later than two years  5  after 1_1-.e date of such payment, an amount equal to twice the  6  amount of interest paid from the Torteagee taking or  7  receiving such intecest.".  8 9  Insured Credit Unions Sec. 124. SPctior 2C5 cf the Federal Credit Uninn ACt (12  10  U.S.C. 1785) is amended by ad.dina at the end thereof the  11  followinr new subf7ecticn:  12  t'( )(1) If the applicable rate prescribed in this  13  !. - .zuhsecticr excceds the rate an insured cr2dit union  14  permitted to charge in the absence of this subsection, the  15  credit I.Jr1cn iav, notwitt- standing J.nv  15  statute, which is hereby preempted for the purposes of this  17  s2ction, take, receive, reserve, and ctlaTce on any loan,  18  interest at a rate of rot more than 1 per crltum  10  the disccunt rate on ninety -day ccmmPucial paper in effect at  20  the Federal Reserve bank in the Federal Reserve district  21  where the insured credit union is located or at the rate  22  alloPed by the laus of the State, territory, GC district  23  where the credit union is located, whichever may be  2t1 25  ou1d be  tPte constitution or  In excess of  reater.  11(2) If the rate vrccrited in paragraph (1) exceeds the rate such credit union would be permitted to charc7e in the   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  'ALEXAN.v13 •  7  •  1  absence cf this subsectien, and such  9  thereby pree7pted by the rate described in paracraph (1), the  3  takina, receivina, reservinc, or charging a greater rate than  4  is allowed by rardgraph (1), when knowingly done, shall be  5  deemed a fcrfeiture of the entire interest which the loan  6  carries with it, or 0 ,ich has been agreed to be paid thereon.  7  If such greater rate flf interest has teen paid, the person  8  who paid it may recover, in a civil action commenced in a  9  court of appropriate jurisdiction not later than two years  tate fixed rate is  10  after the date of such payment, an amount equal tc tr4ice the  11  amount of interest paid from the credit union taking or  12  receivina such Interest.".  13 14  Small Business Investment Cor- panies Sec. 105. Secticn 30P of the Small Pusiness Investment  15  Act of 1958 (15 U.S.C. 637) is amended by adding at the end  16  thereof the following new subsection:  17  —(1)(1) The rurpcse of this subsection is to facilitite  13  the orderly and necessary flow of long-term loans and equity  19  funds from small lusiness investment companies to small  23  business concerns.  21  "(2) In the case cf a business lcan, the small business  22  Investment company making such loan may charge interest on  23  such loan at a rate which dc2s not exceed the lowest of the  2!4  rates described in subparagraphs (A), (B), and (C).  25   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  "(A) The rate described in this subparagraph is the  ,,ALRXA3.k 13  •  •  1  maxirnum rate cresorited hy r riulation by the Small  2  Pusines ?&.tristuation for lcz,.ns made by .1iy snail.  3  business investment company (determined without regard to  4  any State rate incorporated by such regulation).  5  ''(2) The rate described in this subpacaccaph is the  6  maximum rate authorized by an arplicable State law which  7  is nct preempted for purposes of this subsection. '(C)(1) :he rate described in this subpacaoraph is  8 9  the hicher of the Federal Reserve rate or the maximul  10  ✓ ate authoci7ed by applicable State l,-2w (determined  11  w ithout regard to the preemption of such State law).  12  '1(ii)  r ruuposrs of clause (i), the terrr 'Federal  13  Peserve rate' means the rate equal to the sum of 1  14  Dercertace point 71us the discount rate or ninety-day  15  commercial pair in effect at the Federal Reserve balk in  16  the rederal Peserve district in which the principal  17  office of the  18  located.  19 n  business investment company is  "(iii) The rate described in this subparagraph shall  made in  4  nct a7ply to loans  21  ✓ ate authorized by applicable State law for such loans or  22  there is a maximum rate authorized by an applicable State  23  law which is not preempted for purposes of this  24.  subsection.  25  4'(3)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  a State if there is no maximum  State law shall be preempted for purposes of  ALrXAN.013  1  raracraph (2)(7) with rapectto any lcan if such loan is  2  m;ade before July 1, 1982. the m.xlmum rate of interest authorized under  4  paragraph (2) cn any loan made by a small business 1nvetment  5  company exceeds the rate which would be authorized by  6  applicable State law if cuch State law wore not preempted for  7  purposes cf this subsection, the charaina of interest at any  • 8  rate in Excess of the rate authorized ty rac.agraph (2) shall  9  be der.med a forfeiture of the greater cf (i) all interest  10  which the loan carries with it, or (11) all interest which  11  has be.en agreed tc be paid thereon.  12  "(B) In the case cf anv loan with respect to which there  13  is a fcrfelture of interest under subparagraphthe  14  perFon whc paid the interest ray recover from a small  15  tusiness investment company makinc such loan an amount equal  15  to twice the amount cf the interest paid cn such loan. Such  17  interest may be recovered in a civil action commenced in a  13  court cf apprcpriate jurisdiction not later than twc Fears  19  after the most recent rayment of interest.".  23 21  Fffective Date Sec. 106. The amendments rade ty sections 10 1 tt'.rouqh 104  22  cf this title shall aPP1y only with respect to loans made In  23  any State ciurirg the pericd heqinning cn the date of  24  enactment of this Act and ending on July 1, 1982.  • 25  TITLF•CF STATE USUPY CFILINGS TO CERTAIN   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ALEYAN.;'13 1  •  1  CRLIGATICNS ISSUED r.rBANKS AND AFFILIATES  2  fember Ranks  3  Sec. 201. Section 19 of the Federal Reserve Act is  4  amended by addina at the end thereof the following new  5  subsection:  6  "(1)  memter bank or affiliate thereof, or any  7  successor or assirnee cf such member* tank or affiliate or any  8  endorser, guarantor, cc surety of such member bank or  9  affiliate may plead, raise, or claim directly cc by  10  counterclaim, setoff, cc otherwise, with respect to any  11  deposit cc oblioation of such member bank or affiliate, any  12  defense, right, or benefit under any provision of a statute  13  or constitution of a State cc of a territory of the United  14  States, or of any law cf the Eistrict of Columbia, regulating  15  cc limiting the rate of interest which may be charged, taken.  16  received, cc reserved, and any such provision is hereby  17  preempted, and no civil cc criminal penalty which would  19  otherwise be acplicable under such provision shall apply to  19  such member bank cc affiliate or to any other person.".  20 21  Insured Ranks Sec. 202. Section 16 of the Federal Deposit Insurance Act  22  (12 U.S.C. 182E et sea.) is amended by adding at the end  23  the.recf the following new subsection:  24 • 25  ''(m) 'To insured ncnmember bank or affiliate thereof or insured branch of a fcceign bank, or any successor or   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  z •  • 1  assicnPe cf such bank, affiliate, or insured branch or any  '")  endors(?c, guarantor, cr surety of such bark, affiliate,, or  3  insured branch may plead, raise, or claim, directly or by  4  counterclaim, setoff, cr otherwise, with respect to any  5  dev.osit or obligation of such bank, affiliate, or insured  5  branch, any defence, richt, or benefit under any prevision of  7  a statute or constitution of a State cc of a territory of the  P  united States, or of any law of the District of Columbia,  9  regulating or limiting the rate of interest which may be  10  charged, taken, received, cc reserved, and any such provision  11  is hereby preempted, and no civil or criminal penalty which  12  would otherwise be applicable under such provision shall  13  a,rply to such tank, affiliate, or inured branch or to any  14  other cerscn.". Savings and Lcan Associations  16  Sec. 203. Section FR of the Federal uome Loan Bank Act  17  (12 U.S.C. 1425t) is amended by adding at the end thereof the  18  following new subsection:  19  "(f) No Terber cc nonmember association, institution, or  20  bank or affiliate thereof, or any successor or assignee, or  21  any endorser, cuarartoc, or surety thereof may plead, raise,  22  or claim, directly or by counterclaim, setoff, or otherwise,  23  with respect tc any deposit cc obligation of such member or  24  nonmember assocition, institution, bank, or affiliate, any  25  defense, right, or benefit under any provision of a statute   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  12  •  • cc constitution of a State or of a territory of the United 2  States, or of any law of the District of Columbia, regulating  3  or limiting the rate of interest which may be charged, taken.  4  received, or reserved, and any such provision is hereby  5  preempted,  6  otherwise be applicable under such provision shall anply to  •  such member cc normember association, institution, bank, or  3  affiliate cc to any other perscn.".  nd no civil cc criminal penalty which would  9  Effective Date  10  Sec. 2014. The amendments made by sections 201, 212, and  11  203 of this title shall apply only with respect tc deposits  12  made or ctlir'atiors isued in any State during the period  13  beginning on the date cf the enactment cf this Act and ending  14  on July 1, 1982.  15  TITLE III—GENERAL PROVISIONS  16 17  Fffective Date Sec.  3e1.  The amendments made by this Act shall take  18  effect cn the date of the enactment of this Act, except that  10  such amendments shall not apply in any case in which the  20  amendments made by, or the provisions of, the Act of November  21  5, 1979 (93 Stat. 789; Public Law 96-104) or the Act of  22  December 28, 1979 (93 Stat. 1233; Public Law 96-161) are  23  applicable to the transaction involved.  24 25  Severability Sec. 302. If any provisicn of this Act or the application   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ALY.:KAN.i:13 13 '  •  1  cf 7Lich 7ccvisicn to any pecsqn cc ciccumstance shall be held  2  in.valld, the ce7ainclnc of this Act and the allcatIon of  3  such Fccvisior to anl; person cc ciccumstarce other' than that  4  as to which it Is hi-A.d Invalid shall not Le affected theceby.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  S . . • • • • •.  ..  W•(1 ( ) Ve  ••  , . s,•(•*.• 1 -i: V1 .. , •:N,0 • '.. ' \' ' \• • .. Qj 4' 1.4. fr.t...• . ",:i . • ., I • '; r il ..Cg, 'P:  k3i34iC1 tF GOVI i)t.11W (51-. 71.4  FEDERAL RE El t2V E !3'0:5T E M  ' [Iiir 1 7 1 ''.1 : *C . ' 4 ,,c.. “, ,?::•iill,•• , :..i.,,4" 4V .. • OR., -'-z: ....t--,(,,-* •  • ' • 'GAL RE."'•• . .  March 25, 1960  The Honorable Robert A. Roe 1:youse of ReprescntaLives Washington, D.C. 20515 Dear Mr. !oe: Thank you for your ree(-nt _It ter to Chirma n Volcker requesting comment on the enc losed letter ftom !Ir. Howard Gri mes of Wayne, New Jersey, concer ning inLerost rate ceilings and the time deposit early withOrawa l penalty. rqr- Crimes' concerns apparently arise from his exp eriences with a Federal savings and loan association which is subject to regulations prdMulgat ed by the Federal Home Loan Ban k Doard. "lhe Federal - Reserve Board's regulations only apply to han ky that are members of the Federa l Reserve System. Comment on Mr. crimes' concerns is being pro vided, however, since the Federa l financial institution regulator y agencies have adopted similar interest rate regulations. The Board of Govornors he:; the responsibility for establishing the maximunL rates of interest payable on savings and time deposits by banks that are members of the Federal Reserv e System. Similar responsibility for set7t- ing rates payable by federally insured savings and loa n associations rests with the Federal Deposit Insurance Corpor ation and the Federal Home Loan Bank Board, respectively. The present interest rate limitations are intended to preserve balanc ed competition among depository institutions and . have been develo ped in part on the basis of legislation enacted by congre ss in 1966 (Public Law 89-597) and renewed periodically since tha t time. The intent of Congress in enacting Public Law 89-597 was to halt the then prevailing interest rate escalation and the undue diversion of savings away from thrift institutions whi ch have a major role in the financing of housing. In May 1979, the Board rd Lbo other federal financial regulatory agencies announced a series of requLktory changes designed to help small savers ol,tain a higher return on their deposits, including a new time deposit with a maturity of four years or more with a ceiling rat e for four-year Treasury securitis of interest based on the yield . This variable ceiling time deposit category was rep]aced wit- L a rcw 2-]/2 ye‘ir variable ceiling time deposit effective Jantiary 1, 10. The ceiling   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  01.  •  The Honorable Robert A. Roc Page 2  rate of interest payable on the new 2-1/2 year time deposit is based on the yield for 2-1/2 year Treasury securities. Mr. Grimes notes that the ceiling rate of inter est payable on the new time deposit •is substantially highe r than the ceiling rate of interest payable on fixed -ceiling time deposits of comparable maturity. He states further thit when he converted several lower yielding certificates of comparable maturity to a new higher yielding certificate, an interest forfe iture penalty of $885 was imposed by the savings and loan association. Mr. Grime.s questions the appropriateness olT apply ing such a penalty in a situation in which no funds are actua lly withdrawn from the institution. The interest forfeiture rules for financial insti tutions have been in effect for many years. The purpo se of the rules is to discourage requests for early withdrawals in recognition of the fact that financial institutions that obtai n funds through the issuance of longer-term time deposits gener ally use those funds for immediate or long-terrl investments. Uncertainty regarding the possible withdrawal of large amoun ts of funds from the bank or other financial institution befor e the agreed upon maturity could seriously disrupt the insti tution's loan and investment programs. If such a pr7:.ctice becime widespread, it could have a substantially adverse effect on th., stability of the nation's bankino system. From the stand point of portfolio management, the conversion of an outstanding time deposit to a higher yielding instrument, ovel; though the funds remain on deposit, has the same effect as an early withd rawal on a financial institution's ability to structure its loan and investment pertfolies. i\ceordingly, the ager:cic:. hdve regarded it as a!propriate to applythe early vdthdrawal penalty to conversions that result in an increase in the rate of interest paid on outstanding time deposits. • Mr. Grimes also comment:3 on the severity of the early withdrawal penalty. The Board and the other ajenc ies modified their interest forfeiture rules effective last July to generally lessen the severity of the early withdrawal penal ty. Section 217.4(d) of the Board's Regulation Q (enclosed) provi des that for deposits with original maturjties of more than one year, the minimum required penalty is a loss of six months' interest. For deposits with original maturities of one year or less, the minimum required penalty is a loss of three months' interest. The former penalty rule required a reduction of the rate paid on the funds withdrawn to the savings deposit rate plus forfeiture of three months' interest at that rate. The new penalty rule applies to   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  The Honorable Robert A. Roe Page 3  all time deposit contracts entered on or after July 1, 1979, and to all pro-existing time deposits that are renewed on or after July 1. In addition, financial institutions are permitted, at their option and with the consent of the depositor, to apply the new penalty rule to all other time deposits entered into prior to ,July 1, 1979. Since, as indicated in Mr. Crimes' letter, his time doposits were issued before 3-113y 1, 1979, and not renewed on or after that date, the deposits were subject to the former early withdrawal penalty. The Federal Reserve floard and the other financial regulatory agencies are constantly reviewing their interest rate ceilinc; and time deposit regulations. With reference to interest rate ceilings, the Board or .1;CAO timc has taken the view that such coi]ings are undesirablc because they can distort credit allceation toy diverting funds from their most effective use. In this regard, it !,Loula be noted that Congress is currently considering El. R. 49P,S which, among other things, would provide for the gradual phae-out of all interest rate ceilings over a six-year period. The Fdetal 'eservo supports this approach and believes that the gradual abolition of interest rate ceilings will work not cnly to the benefit of the small savers, but will benefit the financial system as well. I hope this information is useful to you. let me know if I can be of further assistance.  Please  Si.ncercly yours,  Donald J. Winn Special Assistant to the Board Enclosure  Fe:Y47 fra ar-A71• V • a ti 6,11  lett '• 1   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Wei   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  OS MO  ROBERT A. ROE (ITU DISTRICT. NEW JERSEY  •  WASHINGTON OFFME: ROOM 2243 RAYWRN HOUSE Orrtcr BvIt..como 202-225-5751  PUBLIC WORKS AND TRANSPORTATION COM M ITTEE Cali7RMAM— EcoNomic DEVELOPMENT a•  WBCOMMITTEES: SURFACE TRANSPORTATION OVERSIGHT AND REVIEW SCIENCE AND TECHNOLOGY  DISTRICT OFFICES:  CongrecZ of flit Einiteb &taus  SUBCOMMITTEES: ENERGY RESEARCH AND PRoDUCTION ENERGY DEVELOPMENT AND APPLICATIONS  3i)oticSe of ileprelentatibei4 ETIassbington, 33.e. 20515  100 HAmILTow PLAzA Sum: 1402 Box 26 PATEw SON. NEw J[11161E1' 07505 201-523-5152 158 1313oNroix Rowo WAYNE. NEWaJERSEY 07470 201-696-2077  February 4, 1980  Hon. Paul A. Volcker Chairman, Board of Governors Federal Reserve System Constitution Avenue and 21st Street, N.W. Washington, D.C. 20551 Dear Mr. Chairman: Enclosed is a copy of a letter sent to you by one of my wherein he expresses his amazement at the complex regulati R ons regarding various interest rates. nts have considerable merit and I would appreciate ?'1- '1i1119f1tIt  your views on same.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Thank you for your assistance in this matter. With all good wishes, Sincerel  t A. Roe er of Congress  c_n  •  Etnkter 0 21 Wayne, N. J.  C7470 Janunry 18, 1950  t,  Fedral eserve Federal F.,eserve r.C. Station, New York, N. Y. 10045 Attention:  -•  Tnul A. Volcker, Tres.  Lear J.r. Volcer: Ls I see the slt.uetlen tcAny, sce,ethinz is wrcrIF with the Federal ystn:: and we are in trouble. eserve Federal rewulations control the activlties of the banking industry, includinz National Banks, Trust Ccmpanies and Savinz & Loan Institutions. Each is operating under separate rules governing the rate they can charge for loans or the interest payable cn savings accounts and certificates of deposit. inv b ,-,nks are s;:ending- thousands of dcllars competinc for business, advertisin:7 tLn ;cunt cf interest r.,aynble on savin:s, and offering Fifts to entIce yecr2e to put their rcney Into R11 sorts cf accounts. iessbook rates vnry frcr 14 tc 5.5'; certificates range from 6 months tc 8 years at 6. 5 fcr cne year tc E for eight years. In November 1979 some banks were offerinF 4 year certificates Ft 10.55Z while others In :enunry 1980 anew 2 year c'ertificate with have 4 years at n00.00 n1nimu7 is beinF offered at 10.40Y, while other 212 year There is 7.P.SS confusion and certlfictes are offered at 6.75. isunderstandinr,, while depositors switch from one type of certificate Cr savInz-s to another to cern more interest. The penalty for chan:71ng from one type to another is outrageous, es I . The transaction involved recently discovered to the tune of : chan:ing two 6 year certificates to one 4 year certificate that took about 15 rinutes and a few pieces of paper tc cancel the two 7-3/4; and issue a new 10.55 4 year certificates, and , The money did not leave the bank at all, certificate for PS th-ei - elleck drawn to cover the cancellation was endcrsed to pay for was at 7-3/4 Twenty-cne months of earnin the ne 0,6rtificate. was and the difference of reduced tc'paSsbook rate of 5 withheld from the total accumulation cf principal and interest, as a penalty.  I took. my complaint to the Iresident of the Seving_E Loan two months Els reply tore was, "I feel very later because it had me very upset. sorry for what happened, but we are bound by Federal rezulnticns crer which we have no control." You know end I know that something is wrong'- but before recuestin.7 the AA RT le:Islative co=ittee tc take any action, 1 would appreciate a reply fre::-. you or soecne in .h.ashington, D.C. t6 clarify any misunderstandini: I ray have.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  S BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM WASHINGTON,0 C  20F.  PAUL A  VOLCK ER  CHAIRMAN  March 25, 19Fn  The Honorable Ed Jones House of Representatives Washington, D.C. 20515 Dear Mr. Jones: I have read the recent letter from your constituent, Mr. Joseph B. Wood, and I understand his concerns. There can be no doubt that the rise in interest rates has had an adverse effect on homebuilding and on the savings and loan industry. A policy of monetary restraint, such as is currently being pursued by the Federal Reserve, is absolutely essential to any anti-inflationary effort. Unfortunately, such a policy, carried out in the face of credit demands conditioned by rapid inflation and intense inflationary expectations, brings with it considerable upward pressures on interest rates in the near term. Only when it becomes clear that inflation will moderate will those pressures abate and interest rates show a sustained decline. Homebuilding tends to be highly sensitive to changes in interest rates. This is partly a result of the nature of the house itself as a long-lived investment, but it also reflects the nature of financial markets. Savings and loan associations, owing to the imbalance in the maturity L.,tructure of their assets and liabilities, tend to encounter liquidity and earnings pressures as interest rates rise. Various innovations, in many instances the result of federal regulatory action, have helped to reduce the impact of high interest rates on thrift institutions and the housing industry, but they have not eliminated that impact entirely. The Federal Reserve has been sensitive to the relative harshness of monetary stringency on the housing sector. The Board's recently announced program of credit restraint was designed in part to reduce the disruption of normal flows of funds into the residential mortgage market. But Mr. Wood is quite correct in suggesting that a broadly based approach to solving our inflation problem is needed--and would ease the burden on the housing sector. I believe that the other parts of the government's anti-inflation program--including the focus on budgetary discipline and on improving productivity--are an important step in this direction and can help to alleviate the tensions in financial markets. Sincerely, MJP:jmr (V-96) bcc: Mr. Prell Mr. Kichline  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  --Mrs. Mallardi (2)"  Action as-sicined to Mr. Alkhline .   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  ,•  ED JONES 7TH OISTRICT, TENNESSEE  •"r  PEAY H. LANCASTER  fdli CANNON HCK/SE OFFICE BUILDING • (202) 225-4714  COMMITTEE ON AGRICULTURE  ADMINISTRATIVE ASSISTANT  Congre55 of tbe ihtiteb .1,z)tate5  DISTRICT Orricrs, Room B-7, POST OFFICE BUILDING JACKSON. TENNESSEE 38301 (901) 423-4848  CHAIRMAN  SUBCOMMITTEE ON CONSERVATION AND CREDIT COMMITTEE ON HOUSE ADMINISTRATION  AptifSe of 1kepreiqntatibet4  9179 NosErm WA -Ex ims MEMPHIS. TENNESSEE  38127  (901) 358-4094  Uiltusbington, 0.e. 20515  P.O. Box 128  CHAIRMAN  YORKVILLE. TENNESSEE  March 12, 1980  SUBCOM M I TT EE ON HOUSE SERVICES  38389  (800 643-8123  Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. 20551  immmump  NP°e"  Dear Mr. Chairman: Enclosed is a copy of a letter I recently received from Mr. Joseph B. Wood, one of my constituents. I would appreciate your consideration of his comments, and I will be looking forward to your response. 8 7P.r. 1111Fi•r-  With kindest regards and best wishes, I am  ppommemP.  Sincerely yours,  ED JONES, M. EJ/st Enc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  A ,  •••  44rCY•lbt  NO  •  •  1(011 tiavings and Loan- •  February 26, 1980  Congressman Ed Jones Cannon Building Room 104 Washington, D.C. 20515  J01\;;.ii, 711:  Dear Congressman Jones: Once again housing and home finance will bear the brunt of the government's single-dimension approach to controlling inflation. Home loan activity in many markets throughout the country has slowed to a trickle and the Fed's action today could well shut it off completely. Last October, the Federal Reserve pushed interest rates to record levels, but the results in terms of curbing inflation have been most disappointing and discouraging. Instead of curbing inflation, we must now consider whether the higher interest rate program is actually aggravating inflation and causing it to feed upon itself. The savings and loan business as the mainstay of credit for home buyers and sellers calls upon President Carter, the Congress and the Federal Reserve to create a more balanced approach. Sincerely,  Joseph B. Wood President JBW/kld   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  P.O. Box 38269, 7770 Poplar Ave., Germantown, TN 38138,(901) 754-5560  N7Nr•  •  BOARD OF SOVERNDRS Or THE  FEDERAL RESERVE SYSTEM WASHINGTON,0 C  20Sr'l  PAU L  A  VO LC K ER  CHAIRMAN  March 25, 1980  The Honorable Ed Jones House of Representatives Washington, D.C. 20515 Dear Mr. Jones: I am responding to your recent letter asking for consideration of the concerns expressed by one of your constituents, Mr. Jeffrey S. Owen, regarding monetary policy. Mr. Owen described the impact of high interest rates on his business, a building materials firm. Clearly, construction activity is relatively sensitive to changes in financial conditions, and residential building has been relatively severely affected by the rise in interest rates over recent months. Mr. Owen asks that current monetary policy be re-examined with an eye to the advisability of seeking lower interest rates. High interest rates, unfortunately, are an inevitable and unavoidable by-product of the rapid inflation confronting us today. Borrowers, anticipating further price increases and increased nominal incomes, are willing to pay relatively high interest rates, while lenders are seeking high rates in order to offset the prospective erosion of the purchasing power of later repayments. The Federal Reserve could offset the reF;ultant pressures on interest rates only by expanding the supply of money at an accelerated pace; however, such a policy would add fuel to the fires of inflation and lead before long to still greater upward pressures on rates. The only way we can achieve a lasting decline in interest rates is to get inflation under control. Monetary discipline is a necessary element in this effort; but if there is complementary restraint in fiscal policy and in private wage and price decisions, the slowing of inflation can be achieved more quickly and with less tension in financial markets. The need for such a broadly based approach is reflected in President Carter's anti-inflation program. Sincerely,  PITO IIvor  (1,11- 94)  beet Mr. ICAOhlime Ned. Simon Wei 11011avdi   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sa_aiil Wojc.kit  assionecl to Jim Kichline DigitizedAction for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ••••  •  •ED JONES ,7TH DISTRICT. TENNESSEE 10.1 CANNON HOUSE Orr-TEE BulLoimo  •  (202) 225-4714 COMMITTEE ON AGRICULTURE  Congt55 of die Zianiteb .5;)ttc  ADMINISTRATIVE AssisTxPrT RAY H. LANCASTER  DISTRICT °Priors, Room B-7. POST Orrice BUILDING JACKSON, TENNESSEE 38301 (901) 423-4848  CHAIRMAN SUFICOM M IT/ EE ON CONSERVATION AND CREDIT COMMITTEE ON HOUSE ADMINISTRATION  3i)otifse of 1epregentatibe5  3179 NoFT-TH WATKINS MEMPHIS. TENNESSEE 38127 (901) 358-4014  ti/lagbington, ID.Qt. 20515  P.O. Box 126 YosxxviLLE. Tr  CHAIRMAN  38389  (901) 643-6123  SUBCOMMITTEE ON HOUSE SERVICES  March 12, 1980  Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. 20551 Dear Mr. Chairman: Enclosed is a copy of a letter I recently received from Mr. Jeffrey S. Owen, one of my constituents. I would appreciate your consideration of his comments, and I will be looking forward to your response. plawmp—  With kindest regards and best wishes, I am Sincerely yours,  ED JONES, M. C. EJ/st Eric:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  oftt  AS  17.  • I  •  '  Os a 4814,  ats,  •  •  CUR JitLf  2.f.)25 Surnm(.,  February 18,  .  N  rnphis. 1ennessee 38112 • P. O. Box 12765 • Phone (901) 324-4441  14ev  RECEIVED FEB 20 1900  Congressman Ed Jones 104 Cannon Bldg. Washington, D.C. 20515  ED JONES, ACC:.  771-4 015TUICT TENNESSEE  Dear Congressman Jones: I wish to discuss with you my concern over the present fedFiJeral monetary pAicies that presentty emsist in this country. As of Friday, Februiry 15, 1980 the Federal Reserve raised their rate to thoir my,!Ior h. 1 t/". J realize thlt everyone is !.truggling to hold N ..1(wn, i,ut tfl brin several tings to your attention. 7::lt_rials business, ve rc.!:1!1 nrld ( , .pproximately 40-60 employees. The amount. of employe..3 d-pcnd:-; upon the amount- of local construction activity. - v7_  As of lnte, with tho ti;,litcnid money situation, it hnc caused our firm to lay off several cmploy:cs, duc to lack of construction. As of last veek prfte inde% rose 1.5Z, this is the lar;,,est :pimp in the Index ✓ ince 1974. UnYever, there are several thinw..; behind this that I feel should be bronlit to )our Minimum vago just incrci,;(,d to $3.15 nn hour, socill sorurity has taken an increase, gaselin has increa-cd from appro:Amately .68 per gallon wholesale n yoar orm lo 1.06 whole' -110 por gallon preqently, ,n1d Interest rates have ju,Iped nearly 3K since year. A t;r1311 such as Our3 cannot continuo to ah.;orb Ow cost of doing business and not pass this along to the cam_s---ATT-11157ri-nment spending increases and contunued oil prices push upvard, along with other factors this c:ftinguish nuch demand for housing or future hnildin. I urge von to r-oy,l'oine tio! currcnt wonetary ptdiey of this coontry. Especially nrount of itliefc;:t charea bv the Federal Reserve, that has to be passed along to the coasuclor. rppro,iAte ✓  ns ur, M  :!tfout;,n, to tiii!; problem, and look forward to your yniir rictifm.  Sinc7ly yodr / 0 / d' j ; 4 't j."  !;. ()won l'it ;t.lcnt   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  v..ith integrity'.  r   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .•  •  , of  • . 9 9 7 •  ;• o  •  . •  BOARD OF GOVERNORS  o•  Or THE  •  FEDERAL RESERVE SYSTEM wt.GHINGTON, O. C. 205r_;!  • 0,4. ,,,4% • • s RA!. a0- •• • • • • • • ••  F'ALII. A. VOLCKER CHAIRMAN  March 24, 1980  The Honorable Richard Bo lling Chairman Committee on Rules House of Representatives Washington, D.C. 20515 •, „ • a•  Dear Chairman Bolling:  •1 . •  .V  The Rules Committee this we ek will be considering H.R. 4986, the "ProxmireReuss Depository Inst itutions Deregulation and Monetary Control Act of 1980". I am writing to you to express my strong hope th at this legislation will enacted. be promptly Present conditions in th e financial markets an urgency of the anti-inf d the lation program unly emph asize the need to improve our systems of financial control, to st rengthen the structure of our thrift institutions, and to achiev e fair and equitable compctitive co nditions among institut ions. H.R. 1986 would make enormous stri des toward those object ives.  After several years of debate in the Congress, the proposed legislation I believe does indeed represent a br oad consensus among affected institutio ns about what is feasib le and desirable, and, Most importantly, meet s the principal concer ns of those of us charged with supervis ory responsibilities and the conduct of monetary policy. Put simply, the legisl ation provides us with the we need to conduct effect tools ive policy during a part icularly sensitive period. The progre ss of this bill is bein g watched carefully by markets and all inte rested parties. Failur e to secure enactment at this juncture of our financial and econ omic affairs could only work to undermine ou r efforts to restore ec onomic and financial stability. Sincerely,  4apeodkA.  march 24, 1920  ne oonorable _itter :otse of Reoresentatives ..-./stsAtir. ton, C. 20515 r'ccr vr, ritter:  Thank you for your recent letter regarding rederal esorvo policy. I share your concerns about the uneven inpact of monetary restraint, and in particular *bout the effect of the rise in interest rates on borlebuildinn. A policy of ronetary restraint( such as is currently  being pursPea by the Teral Reserve, is absolutely essential to any anti-inflationnry effort. unfortunately. such a policy, carried out in the lane of credit eeTands conationed t'y rapid inflation and intense inflationalry exoctations, brings with it consitierable urward pressures on interest rates in the near term. rynly when it becomes clear that inflation will moderate will those pressures abate and interest rates show a sustained decline. qomebuil4inl tens to be hilhly sensitive to chances in interest rates. This is L,artly a result of the neture of the house itself as A lonc-lived investrqent, but it also feflects the nature of financiiil maer.ets. 'Thrfft institutions, owinc, to the ir,balenee in the Iraturity structure of their assets cmi liabilities, tend to encounter lequidity rnd eerninizs pressure as interest rates rise. Various innovations, in nany instance* the result of federal reeuletory action, have helped to reduce the inpoct of high interest rates on thrift institutions anr the housing intivstry, but they have not eliminate4 tIlat impact entirely. The Tederal Reserve has been sensttive to ttle relative harshness of monetary stringency on the housing sector. The Doard's recently announced procram -of credit restraint was desinned in part to rwiuce the disruption of normal flows id funds into the residential v4Irtpaelo market. nut you ere quite correct çtinc that a broadly-based approach to solving our inflation in problem is needee -and would ease tho burden on housing and other   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  7r..:norte7;le '.)on Ritter Poi::e 2  sectors that are especielly sensitive to credit market conOitions. T believe that the other petits of the voverment's 4nti-inf1atior procram—includine: the focus en budoetary discipline an6 or improving productivity—ere an tmportant step in tbis direction and can help to alleviate the tensions in financial rarRete. I look forward to working with you and y-,Iur colleanues in tbe Concress to fine solutions to our nation's sterlowt economic problems. Sincerely,  MJP:jrrr  bcc! Mr. (ichline Mr. Prell Mrs. Mallardi (2) 4VOS7)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Action asaffned-to Jim KAIline   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  DON RITTER 15TH DISTRICT. PENNSYLVANIA  •  •  CANNON OFFICE BUILDING WASHINGTON, O.C. 20515 (202) 225-6411  COMMITTEES: DISTRICT OFFICES: •  • BANKING, FINANCE AND URBAN AFFAIRS SUBCOMMITTEES:  Concire55 of tbe Unita litate5  HOUSING AND COMMUNITY DEVELOPMENT DOMESTIC MONETARY POLICY CONSUMER AFFAIRS •  3Doua of Atpreantatib0 ?alassbington, ae. 20515  SCIENCE AND TECHNOLOGY  Surrr 1005 I BETHLEHEM PLAZA BETHLEHEM, PENNSYLVANIA 18018 (215) 866-0916 Room 212 ALLENTOWN POST OFFICE BUILDING ALLENTOWN, PENNSYLVANIA 1810i (215) 439-8861 • Room 705 ALPHA BUILDING EASTON, PENNSYLVANIA 18042 (215) 258-8383  SUBCOMM I TTEE St ENERGY DEVELOPMENT AND APPLICATIONS SCIENCE, RESEARCH AND TECHNOLOGY NATURAL RESOURCES AND ENVIRONMENT   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 12, 1980 Mr. Paul A. Volcker Chairman Board of Governors of the Federal Reserve System 20th and C Streets, N.W. Washington, D.C. 20551  -  Dear Mr. Chairman: I am writing to you as a result of a meeting I held today with some fifty homebuilders, realtors and bankers from the Lehigh Valley area of Pennsylvania. It is hard to describe in words their feelings of frustration bordering on desperation. They are extremely hard-working, productive individuals who employ large numbers of workers throughout the All area of Pennsylvania. They are feeling betrayed by the current financial situation, and believe that they have been unfairly singledout for severe belt-tightening while other segments of the economy - the federal government in particular - benefit from inflation. This meeting emphasized to me even more than before the negative shortterm impact the recent Fed move to raise interest rates has had on the housing industry. I, too, am deeply disturbed that certain segments of our economy are "singled-out" to wage the fight against inflation. It is my feeling that the Fed policies to curb inflation, in the absence of discipline on the part of Congress and the Administration, can only lead to the further destruction of income-producing segments of our economy rather than fight inflation as originally intended. Reduced revenues to the Treasury will be the result as will larger deficits. C;lair-an, I urge you to reevaluate current Fed policies and expedite further actions to work with Congress in supporting federal spending limitations, reductions in the tax rates to enhance productivity, slowing of monetary growth and the promotion of measures that work with the American economy, not against it. I appreciate your goals and share them with you. But solo Fed actions as currently being implemented take unfair advantage of a vital part of our economy to the detriment of all of us.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mr. Paul A. Volcker March 12, 1980 Page 2 I would greatly appreciate your careful consideration of this plea for help by providing more positive methods to avoid the further decline of this vital segment of our economy. With kindest regards, I am Sincere  ,  DON RITTER Member of Congress DR:jmb   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 24, 1980  The Honorable Claude Pepper House of Representatives Washington, U. C. 20515 Dear Mr. Pepper: Thank you for your letter of March 14 enclosing the resume of 1r. Juan E. Acosta. Mr. Acosta's qualifications are impressive, and I appreciate your calling them to our attention. President Carter has recently submitted a nomination that of Lyle E. Gramley -- to fill the existing vacancy on the Board of Governors, so there would be no way to consider Mr. Acosta for membership on the Board. We will keep his resume on file, however, and consider him for any vacancies that may occur in our Legal Division for which he would appear to be qualified. Sincerely, SLPaul A. Vo!ciug  ITAIllson:red #V-98 bcc: Personnel Legal   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 24, 1980  The Honorable Butler Derrick House of Representatives Washington, D. C. 20515 Dear Mr. Derrick: Thank you for your recent letter inviting me to address the annual business meeting of the Greenwood, South Carolina, Chamber of Commerce. In view of what has been happening in the economy in recent months, I have tried to avoid taking on new commitments, even as far sway as November, and consequently I must send regrets to your kind invitation. With best regards. Sincerely,  cc:  Mrs. Mallardi #68  JRC:tjf  Action assicfned to Mr. Coyne  •  BU,TLER DERRICK T&i.tt 30  SOUTH CAROLINA  •  JOHN D. GREGOR./ ADMINISTRATIVE ASSISTANT DISTISICT OPVICES, 154 LAURENS STRI UT P4oprm WEST AIKEN. SOUT14 CAROLINA 29801  * 133 C•NNON HOUSI OFFICE BUILDING WASHINGTON.  C.  20515  Congre5g of die liniteb  (202) 225-5301  COMMITTEE:  3i)oui‘e of ikepre5entatibefS  RuLES  Ullagbington, D.C. 20515  tate5  (803) 849-7155  0'  February 29, 1980  POST Orrtcr Box 4126 ANDERSON, SOUTH CAFICKJHA 29622 (803) 224-7401 124 FEDERAL BUILDING  Goectmw000, Soorn4 CARGLINA 29646 (803) 223-8251  The Honorable Paul Volcker Chairman Federal Reserve System Twentieth & Constitution Avenue Washington, D. C. 20551  :1  Dear Chairman Volcker: The President of the Greenwood, South Carolina, Chamber of Commerce has extended to you an invitation through me to be the guest speaker at their annual business meeting in Greenwood. This meeting is to be a very special occasion with the Greenwood business community in attendance. Between three and four hundred persons should be present. They have offered to schedule it anytime during the month of November except Thanksgiving for your convenience. The Chamber would be in a position to offer an honorarium of $2000.00 plus expenses. Greenwood is one of the most outstanding small towns that I represent. It is a progressive and expanding community. I encourage you to accept this invitation to address the annual business meeting of the Greenwood Chamber of Commerce. Thanking you for the courtesy of an early reply, I am  ember of Congress  COUNT I E S ABBEVILLE  AIKEN   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ANDERSON  EDGEFIELD  GREENWOOD  McCORMICK  NEWBERRY  OCONEE  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  PICKENS  SALUDA  •  BOARD Or GOVERN(3q5 OF- THE  FEDERAL RESERVE SYSTEM  •  WASHINCiTON, 0. C. 20' '  PAUL A. VOLCKER CHAIR M  March 24, 1980  The Honorable Richard Bolling Chairman Committee on Rules House of Representatives Washington, D.C. 20515 Dear Chairman Bolling: The Rules Committee this week will be considering H.R. 4986, the "Proxmire-Reuss Depository Institutions Deregu lation and Monetary Control Act of 1980. I am writing to you to express my strong hope tha t this legislation will be promptly enacted. Present conditions in the fin ancial markets and the urgency of the anti-inflation program only emphasize the need to improve our systems of fin ancial control, to strengthen the structure of our thrift ins titutions, and to achieve fai r and equitable competitive condition s among institutions. H.R. 4986 would make enormous strides toward those objectives. After several years of debate in the Congress, I believe the proposed legislation doe s indeed represent a broad con sensus among affected institutions abo ut what is feasible and des irable, and, most importantly, meets the principal concerns of those of us charged with supervisory responsibilities and the conduc t of monetary policy. Put simply, the legislation provides us with the tools we need to conduct effective pol icy during a particularly sen sitive period. The progress of this bill is being watched car efully by markets and all interested parties. Failure to secure ena ctment at this juncture of our fin ancial and economic affairs could only work to undermine our eff orts to restore economic and fin ancial stability.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Sincerely,  Adaalae-L-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  Knrch 21, 1980  The Honorable Thcrinas Ludlow hshley House of Representatives Washington, D.C. 20515 Dear Pr. Ashley: I am writing in response to a letter you received from Av. James F. Nagy of Toledo, Ohio, who is concerned that he is not getting full income tax deduction credit for interest he has paid on his loan with the Toledo Trust Company. No federal law requires a cr(ditor to give the customer a statement showing the amount of deductible interest pid durinv th.e tax year. The Truth in Lending Act and Regulation Z merely require that the creditor disclose the total amouLt of the finance charge, including interest, to be paid over the_ tot6,1 life of the loan and the corresponding annual percentage rate. For these purposes, the law does not address itself to when the interest portion of the finance charge is conzidered earned by the creditor or paid by the consumer. According to Toledo Trust .7ersonno1, the bank arrives. at the figure to he deducted by the consumer for tax 1;urposes by calculating the total interest to be paid over the life of the loan, dividino by the number of months in the loan, and multiplying the resulting figure by the number of monthly payments in the tax year. That is how the bank arrived at the figure Mr. Nagy cites in his letter. The bank believes that by reporting interest paid in this way, the 4;ame amount will iJe deductible on a per-month basis during the life of the loan. This, they believe, is less confusing to the consurf&r. Lvidently Hr. ,4:( acked for a January 1, 1990, pay-off fiAjure in order to ropey the loan. The tAnk informed un that, in such cases, the interest calculation is based on the Rule of 70's rebate 11,ethod, which takes into account the fact that during the early taces of tho loan the customer has the use of more loan funds than will be the case after payments nave been made and the outstanding principal has been reduced. Conoequently, during the early stages the customer pays, and the creditor earns, more interest than in the later stages. Therefore, a larwr portion of each payment is allocated to interest durinQ the early stages, as reflected by the figure Mr. 1:zv,y cites in his letter.  NMI  •  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Eonorable Thomas Ludlow Ashley Pace Two  The bank iniomed us that it issued a payment coupes to Mr. Nagy that indicaten the portion of each payment actually apportioned to interest payment. As we understand it, Mr. Nagy could add those figures toccther for payments made durin g CP,e tax year and claim the rcsultiny amount of interest as a deduction instead of usinq the level interest figures discussed previously. zank personnel indicated that they have discussed this matter at lensith witb Mr. Nagy/ have gone througb an actual calculation, and bclieve that they have answered hia question to his satisfaction. I hope this inforwation is useful to you. let 1,0 know lf I can be of further assistance.  Please  Sincerely yours,  Donald J. Winn Special Assistant to tlie aoard GEL:JPtspjt (W-49) bcc: Glenn Loney Mrs. Mallardi  THOMAS LUDLOW ASIWLEY srni DisTpticT. Ow° •  Assigned to Janet Hart  •  2406 R A Y BURN BUILDING WASHINGTON. D.C.  COMM ITT EES  20515  DISTRICT OFFICE:  BUDGET BANKING. FINANCE AND  Congres'5 of the Uniteb 57)tate5  URBAN AFFAIRS MERCHANT MARINE AND FISHERIES  FEDERAL BuILDINa  234 SUMMIT STREET TOLEDO, OHIO 43604  30ouge of ikepre5entatibe5 li/lacsbington, ae. 20515 February 12, 1980  Chairman Paul A. Volcker Federal Reserve Board Room #B-2046 20th and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Chairman Volcker: Enclosed is a letter from Mr. James F. Nagy, Jr., , who complains that the Toledo Trust Bank is not giving him an accurate statement of the interest he paid in 1979 on a loan.  gcm. ; 14C  I understand that Toledo Trust is a State bank but is a member of the Federal Reserve and that the Reserve would therefore administer the Truth in Lending laws that apply. Please give me a report on whether Toeldo Trust has accurately Dlifl•ptI his interest and how they do it.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  With thanks and best wishes, I am Sincerely,  Thomas Ludlow Ashley, M.C.  °‘ 1441  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  11.0  14.  r  --  -;'•• P ; • **•" ••  • ,.. •  ThgVirp Web* i41 4. 4  .  2.1 • •  ." 16:4 1kt.0.111t,  410  JAMES F. NAGY JR.  Subject: Another Consumer Rip-off Dear  Congressman Ashley:  I am writing you concerning the false Truth in Lending Laws of Ohio. The lending institutions of Ohio are not giving consumers the full truth about the interest on their loans. An example is: Last year I took out a loan from Toledo Trust Bank for . I paid nine (9) payments on this loan last year of for a total of . I want to claim the interest paid on this loan for Income Tax purposes. My bank claims that I paid in interest. I requested from the bank a payoff balance as of January 1, 1980. They claim a payoff of . If you subtract from the original loan of $8100.10 you get . Now subtract the from the I paid last year and I come up with , this being the true figure I paid in interest for the year 1979. The bank claims the interest figured is over the total time of the loan. Most consumers either sell or trade their merchandise before the term of the loan and are losing several hundred dollars they could have claimed against their Income Tax. I feel that the lending institutions should have to send consumers yearly facts on what the true payments consumers have paid in interest each year. If I were to claim the I would be losing  the bank claims I paid in interest, .  This unjustice again puts the taxpayers in the position of another rip-off. I am President of Local 1892 UAW and represent several hundred members who are in the same position. If we are going to have Truth in Lending Laws let's make the lending institutions tell the whole truth. Sincerely yours  0  A  „James F. Nagy   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  MAteh  :a, Mr  Jona* The lionoraialre Ag4f0i a AoprosuntatIves 2051S 04,4., 04- 4. Jones*  am plawased to reepead to the gepoerea empeoseed by s high 4:41* Oi your cemetiteeets. mr. Harold J. Plumley. regerdie Latorsst rates 41116 Latlettem. et the federal it0~,00 fenovnite that the rise in Interest r4tes ia creating bardshipe for :Amy besimeesmea and coneumerz 0011411411 the oemetr. We weld wry oelb like to ass a return to lower interest rate, *ad a circumstance in which ko  the gnat of credit the sequialktioa Si taterast vitals are the inflation that  would not prove a sulipetaatitl impediment to homes sod outomobiles. Unfortumately, bi4) the saters1 sad useveidable eseeequeaeo of 'nee amented in intensity ever the year.  Whoa lozders Lou that lunettes will persist, tiley mask to 'retest CAmmielvee against a loss et pore-Asing power o. meamatile, borD1 ashieg to hivi er interest rates on leea rowers whe eaticipate that their incortos will coatis's, to rise wit* the gemeral prime Level are willisc to olti bilher interest rates. The eeefluemae of these forces toads to gals* isterest rates is Line with the rise in expected Unction. the money supply to The Padova Reserve, by al the u;..wsrd preasures 4;lrow vary tepidly, might be able to oa intereot rates tore tine. Met eventually the still .6=r isflation tbat 4suosesive aesetery espanstes weld • the force interest sates to eves hiclier levels,. rederel eserve has set a sews* of sometary restreimt widish seestuully shield reismin tatlatlemary tomes in the smomemy. Although this sestreint has results:4 La higher' interest sates is the seer berme it anoeld help set the stave tor a elewiag of intlaties *ad 4 lOworiOc 91 latlatleeery expectatioee, wttleh are seoessery SOOditionz Zor a sustaieed deelies La interest rates.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Its iseftesableM Ammo "POW IPM.  Of eseree• this Ati 004 te deny the imimetanse et/44x anti-Latlehillanly aetiems, Mr. Plumley bee idestified tuo *roes to whirl* the can de Atte% to ease the infletiemaxy prosisames this economy. tiodqetaxy diseiplime an4 the eveidasce et eeet-raisame actions ouch Cm increases is the minima neve eseld do much to speed the achievement of pries 6tebility--eed is the krocese relieve somo of the presence* ea interest rate*.  Sincereil.  m471)4.7141zrjt ($-02) bcc: Mike Pren Ina Kichline Mrs. Maliardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  Kichline Alion assiomed to Mr.  jONES  ADMINISTRATIVE ASSISTANT RAY H. LANCASTER  7TH DISTRICT, TENNESSEE 104 C,ki-4NON HOUSE OFFICE BUILDING (202) 225-4714  Congre55 of tije  COM MITTEE ON AGRICULTURE  :4)tattE‘  DISTRICT orricEsi Room 13-7, POST OFFICE BUILDING JACKSON. TENNESSEE  38301  (90 1) 423-4848  c~premilav. SUBCOMMITTEE ON CONSERVATION AND CREDIT  .3Dou5Se of ikepreWitatibe  COMMITTEE ON HOUSE ADMINISTRATION  3179 NORTH WaTxtms MEMPHIS. TENNESSEE  VElazbington, 3D.C. 20515  P.O. Box 128 YORKVILLE. TENNESSEE  CHAIRMAN:  March 12, 1980  SUBCOMMITTEE ON HOUSE SERVICES  38127  (901) 358-4094  38389  (901) 843-8123  f  Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. 20551  10 " 1 tkli dit4  Dear Mr. Chairman: Enclosed is a copy of a letter I recently received from Mr. Harold Plumley, one of my constituents. I would appreciate your consideration of his comments, and I will be looking forward to your response. With kindest regards and best wishes, I am Sincerely yours,  EJ/st Enc:  OPT—  • •' •  spr".•  . •4‘  -••   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ;IP" ''..14firASISSI4011 ‘" • • • ••• 'IP  •• .  P 4.1 ; • 4 t  •  • .) • 4. "- "I. •  • &  " 'A • "IR f"*E*.•4 . '  •  li440 4-, " •  •  IV`  pLIVILEV Min COMPAPJV HAROL D J PLUME EY Presv1,7!nt  FT.:") JONES. M.C. i  TurINSSEE  February 21, 1980  Honorable Ed Jones United States Representative 104 Cannon House Office Bldg. Washington, D. C. 20515 Dear Ed: in my opinion, high interest rates will never control increasing prices. Let me give you an illustration. If oil were flowing in the stream behind my office, the cost for recovering it would be minimal, but wh7ltever cost was involved would have to be included in the price of oil. When a pipeline has to be built from Alaska to Washington, the cost has to be included in the price of the oil. Additional costs of production are costs, and should not be considered inflationary. What I am saying is, higher interest rates will not control rising prices.  111111.••••  I .  t: P  r  Higher interest rates are really hurting us as a small business. They are really hurting the mobile home owner who would normally be ready to purchase a $35,000-$45,000 house. Higher interest rates are really hurting the car owner who has little equity in the old car and would like to buy a new one. Higher interest rates are going to be devastating to the Federal Government just to. carry its debt. The ways to reduce inflation is to balance the federal budget and to quit paying people for not working. When the government mandates wage increases through minimum wage, prices must increase. It seems clear to me that some innovative statesmanship is now required to solve our current problems. The reduction in interest and putting people back to work who are now on unemployment or other forms of government hand-outs will not be accomplished by a simplo'stroke of the pen. Very truly/yotIrs,  (c ((-W/ --Harold J6/ Plumley HJP:op   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1101 NORTH MARKET STREET • PARIS, TENNESSEE 38242 • (901) 642-5582  •  L'4   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 20, 1980  The Honorable Lionel Van Deerlin House of Representatives Washington, D. C. 20515 Dear Mr. Van Deerlin: Thank you for your letter urging me to accept an invitation to address the annual conference of the Pacific Coast Builders on June 28. Unfortunately, my schedule calls for me to be out of the country at that time and consequently, I have been forced to send my regrets to the builders conference. With kind regards. Sincerely,  cc:  Mrs. Mallardi #70  JRC:tjf g   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  vare. 20, 1980  The Uonoraole William Proxsoire Chairman Committee on Banking, iiousinc and Urban Affairs United States Senate 20510 washington, D.C. Dear Chairman Proxmire; During the hearinc on February 28 you asked for a staff analysis of the impact of tl'e wage-price controls and CID programs of the early 1970 1 s. I am pleased to furnish the enclosed staff analysis. 1,incerely.  Lmclosur CO:pjt bcc: nrs. Mallardi (2) (Insert drafted by Bob Gay & Jared Enzler) (Encls.: "Analysis by the Staff of the Doard of Governors of the Federal keserve System on Incomes Policies: The 1971-74 ZMAX Experience; "Shortages, Price Control Disruptions, and Capacity Constraints by John D. Paulus: and Report of the Committee on Interest and Dividends.) Nike Prell has cleared the Paulus paper with everyone concerned 4 it can be released.)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  0  1/1  votroh 20, 11V  Yloykl 71,f;nctx cr n•Irretrvnt0.ivs r. C. 21515  you for yir lettf-, or Varch 10 roefustire; ce,7r.r-nt ccrrrrronelence you recolvel frer,1 jour constituent, irc%rnror nvrris releroliq tim purchanc of Treasury T'rofc!'ssr--r rucll-As inOicnt-s tlInt he hnd sumittwl two Trctoury hill tenlerm—one on Jonunry 10 and tho other rn tho ChArlcitte N i& of the reral rf)serve 7s.r11: Vo have contact -a tImx, Charlotte ilranch nn0 tNnr Wicmto that the Accounl- entries for both Treasury hfl1vere trarf, trred Cron the cr flotte ;q-milch to the Tre:7491:ry r r(7, rilnry 11. 117t.vn nIso contscteC kTrs_kpmitry PilTartment rer6inr:, t'Ar ..- ttor 'Arc' they imlicate that they eio hold 1.-oth rr. t..?)f3 1111s on their locN) .-ertry recoras—one listed ur10.,r fit.v;;hes an6 the ot!..c linted in his wife's rr , et, 1.1111:m r. Fc'wever. to cornrutor error, ststrvnts c717 rtccolInt for the!— were not clenereted until :!,./-e.11 11. 7:he Trennury Per.T.tncnt informs; un thot ',111.cr! Cra: ti.xr.c0t to rcu'lve the stnte•ents of -r(!•rA-t wittAr. th nctfznt, eays.  T  rorct Ir!r-otvonit!-.:o tl'at tl!is c.lolny 7-7.1y fr!r ymr ci.mvtitunt. -411:74ise let me krow if r.r11iirteIt.Pspirto..- 1c7e, ycurs,  3. winn rrocinl APrIltsnt to the Poord MP/CO.vcd (k81) Tlc.0 Mr. Scrmneez Nr. Mrs. '"nlinrei  Aaidri-Assioned to Mr. Wallace FLOYD SPENCE 2ND DISTRICT. SOUTH CAROLINA  WA!i4iNGToN 01 ICE 2351 14, yetmm FlousE Orricr BUILDING A 'A COOE 202, 225-2452  411  COMMITTEES: ARMED SERVICES STANDARDS OF OFFICIAL CONDUCT  Congrt55 of tije Ziniteb  tate5  COI4'r7t S A LLENDAU[  DISTRICT orrIcEs. THURMOND FEDERAL BUILDING,  Poti5e of 1Irpre5entatibeE‘  AND 372 Sr. PAUL STREET. NE. ORANGEBURG, SOUTH CAROLINA 29111 AREA CODE 803, 536-4641  ORANGEBURG  BARNWELL  ROOM 1149 1835 ASSEMBLY STREET COLDE.E•IA. SOUTH CAROLINA 29201 AREA CODE 803, 765-5871  CALHOUN LEXINGTON  BAMBERG  R IC FILJU.S0  Wazbington,33.e. 20515  W. A. -AL" COOK ADMINISTRATIV1 ASSISTANT  March 10, 1980  SANDERS W. L DISTRICT IMPsea sio-rATIVC  The Honorable G. William Miller, Chairman Board of Governors of the Federal Reserve System Twentieth Street & Constitution Avenue, NW Washington, D.C. 20551  • n —  LP  Dear Mr. Miller: Enclosed is a copy of a letter just received from Professor Morris B. Hughes, , regarding two Treasury Bills he and his wife purchased through the Charlotte Branch of the Federal Reserve Bank of Richmond. I believe his request is self-explanatory. After you have had a chance to look into this matter, I would appreciate a report of your findings and any comments you might make in order that I may respond further to my constituent. I am sure that all interested parties would be very grateful for your prompt consideration of this request. With kindest regards, I am Sincerely,  LO Me  D. SPENCE r of Congr  s  FDS/km Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  II  V  Earch 5, 1980 The Honorable Floyd Spence Congress of the United States House of Representatives Washington, D.C. Dear Er. Spence: On January 10 and on January 11 I sent bank money orders to thc Charlotte Branch of the Federal Reserve Bank of Richmond for Treasury bills,6 months. According to the brochuret we were to expect receipts within 10 days after the Thursday following the Eonday afternoon auction.By now,approximately two months have elapsed and I have never received receipts for either of the  treasury bil1s,althou3h I did receive checks for the  discount amounts. I wrote to the Charlotte Branch more than a month ago and wrote to the Bureau of the Public Debt,Department X, on February 21 to inquire if those receipts have been lost in the mail or whether they were ever sent. I have had no reply from either organization. I am quite disturbed that neither of these two Federal organizations have answered my query.  represents a considerable part  of my entire capital. When I was on the Staff of Clemson I always answered all letters within a week. I felt this was just common courtesyl even when no money was involved. Could you find out for me why these organizations do not answer my letters? :hank you very much for any help you can give me in this way. Yours trul , to * 1 7 / 7 24 florris B. Hu,hes Emeritus Profer-.or Clemson University Hu„hes. F.. We. listed depositors for these bills as Vorris B. and Lillian and They were non-competitive and our "Locial Security nos were   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  7  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  BOARD OF GOVERNC1RS Or THE  FEDERAL RESERVE SYSTEM WASHINGTON, D C  20'  PAUL A  vOLCKER  C HA I R MAN  March 20, 1980  The Honorable Adlai E. Stevenson United States Senate Washington, D. C. 20510 Dear Senator Stevenson: I am pleased to respond to your recent letter requesting additional information in regard to matters raised at the February 25 oversight hearing on monetary policy. With respect to the first matter you mentioned, namely the composition of bank lending, I can report that the Board, as part of its special credit restraint program, has established a system of reporting that will permit us to better assess the extent to which credit is flowing to productive uses as opposed to the financing of purely speculative and economically unproductive undertakings. At this time, however, we have no data that would permit any submission for the hearing record. Your letter also requested my views on S. 359, the proposed "Inflation Review Board Act". It may be most useful to comment on the proposals for prenotification and for deferral of price and wage increases specified in the bill in the context of the voluntary standards that we now have. As you know, the President has announced that prenotification of wage and price increases will be an integral part of the anti-inflation effort, but the full details have yet to be worked out. In any plan involving prenotification of price increases, there could be benefits from informing a company in advance that it was not complying with the standard, or from calling public attention to the prospect of a violation. However, the value of these benefits will be diminished somewhat by extra reporting burdens and surveillance costs, and these costs could be substantial if companies were required to report in advance their planned price increases for individual products and services,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  flei.!onorahle Adlai Pace Two  stovonson  as is proposed in F. 359. Tt scfrms to pte nere usefla mnfl less burdensome to linit prenotification reruirements to the average price adjustments planned for A company's various proftcts a procedure that would be consistent with the current reportinfl requirerents specified by moms. rrw the wace sie. I rioht sierly note Chat prenotification of proposal settlements in the collective bargaining sector coulA seriously eisrupt the bargaining process. Furthorpore. knowledge of the various offers and counteroffers would provide little information of ultimate value to the tronitorinl aclency. With neKotiated agreements, it seems adequate to require irr,ediate notification of the details of a tentative settlettesnt once it is reached se that compliance could be deterrined prior to mombershir ratification. r sorrie similar agency the authority Crantinc CWP to estaLlish an effective nlachanism for temporarily leferrinq WACE or price increases would clearly be a step ir the direction of mandatory controls, which the Administration has already aisavowed. T concur it their opposition to riiandatory controls, and I em skeptical that deferring wa:;;e and price increases would significantly reduce inflationary pressures. 1r-fleet:g1 , *sob deferrals would carry the risk of creatim - the sorts of distortions End dislocations that outri-Iht controls can cause--with this rossbbility of produciri,..! ultistaly greater wale/price pressures. Sincerely,  I'  RO:rMeK:MJP:JPEIved (#V-83) beer  Messrs. Prell, mecelvey, Cy Mrs. Mellarai (2)  AOLA I E. STEVENSON 41  Axilrod Action assirrned to Steve  ILLINOIS  OM M ITTEE ON BANK I NC;, HOUSING AND URBAN AFFAIRS  0  SU BCOMM ITTEE ON INTERNATIONAL FINANCE (CHAIRMAN)  ?.1Cn[ui1rx&irile WASHINGTON. D.C.  20510  March 12, 1980  COMMITTEE ON COM MERCE, SCIENCE AND TRANSPORTATION SUBCOMMITTEE ON SCIENCE, TECHNOLOGY AND SPACE (CHAIRMAN)  SELECT COM MITTEE ON ETHICS (CHAIRMAN)  SELECT COM M I TTEE ON INTELLIGENCE SUBCoMMITTEE ON THE COLLECTION. PRoDUCTION AND QUALITY OF INTELLIGENCE (CHAIRMAN)  DEMOCRATIC POLICY COMMITTEE  The Honorable Paul A. Volcker Federal Reserve System 20th and Constitution Avenue, N.W. Washington, D.C. 20551  00j  Dear Mr. Chairman: At thc recent Senate Banking Committee oversight hearing on monetary policy, I asked you two series of questions which require more information for the record. The first group of questions involved the October 1979 direction of the Federal Reserve to banks to extend credit for productive rather than speculative purposes. You stated that "we have reached a time where we need perhaps to do some surveys to get firmer information." In light of recent publicized transactions such as the acquisition of Harrah's Casino by Holiday Inns for some $300 million in cash and stocks and, on the other hand, increasing difficulty of home builders and small borrowers to obtain credit, I urge the Federal Reserve to make such a survey and, if possible, submit the results for the monetary policy hearing record.  •  Second, concerning wage and price policy, you statcd that, while you were not particularly enamored of pre-notification and temporary suspension authorities for COWPS, you would not close your mind to • them. Given the emergency economic situation and the inability of a tight monetary policy to curb inflation, I would • appreciate your considered review of S. 359, which authorizes an independent Inflation Review Board with pre-notification and temporary suspension authorities, and the submission of your recommendations on this proposal for the record.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  tk,w  Thank you for your attention to these questions. With best wishes, Sincerely,  ; 4/rtlititirOt   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  '=vercb 19. 1980  The Honorable Wes wetWins Eouse of Representatives Washirmton, D. C. 20515 rmar mr. watl(insl / punt apolovise for the loin- delay in respoodinc to licy overthe request you node, at the February 19 ronotary sight tearinel. for a follow-up statement on the control of credit. Events in the economy an0 then in pcliey formation produced rapid changes in the situation are made any putlic statement untimely. I'm sure you can appreciate the sensitivity of the circumstances. As you know, the Federal Reserve. acting under the Credit Contr.r,1 Act of 1960, hes recently established e special credit restraint program as pert of the oovernmentss effort to overcore the inflationary nressures in the economy. It bad become apparent that, in the post month or so. adverse expect's tional forces bad oathered considerable mormentus sne that urlent action was requirea to enhance the strength of the policies already in effect. while the special restraints on credit in no way reduell the need for discipline in monetary an:3 fiscal to achieve our policy, it is our hove that they will enable objective of slowirw the rive of rrices more quickly and with loss disruption of financial mar‘ets and institutions. To the extent that cur pimmarn leads to some ‘,,reater degree of non price rationing of credit, interest rates—es ycu suyvoste4 at the bearing—may not be under as much pressure 1 ur pro2rem also takes as otherwise would heve been the case. note of the already depressed condttion of the housing sector 4,atter about which you expressee. concern. This is reflectel in tbst etion of isortrwler Da other houitinn related loans loft anti from the special deposit require/pent* for con!. els* in the special deposit roomirement on money r.seget ovtual funds fron traditionally Ic.ey r,.ort funds, which have divert lendinv institutions.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Tonorable '!!es vatRins 7sce Two  I trust that our actiorip vill compensate for tho lock of * timely response to your lnery, rincerolys  MITP:ved bee:  Mr. Pre11 !Ars. MAllardi (2)  Ito monoronl* Pomo 4. Mitcoll Cbeiirowim 514.,colualttae OR 001110Otle %onettry '1tcy Coattas en tanking. Finance aril Vrban Affairs ;40u4O  of topr000mtetiveo  ti**MfltO*  XSCS  20515  Clairol= Attehaill 411 94040001 1110 1044Xorte to yokm letter Art Aaron 10 roquisatinQ the koorro oonrest position on locintstion sognisiag that ilotallod simnel. of MAC nostincts ho pu%lishod on•dotereed boots.  The Loard centimes to ouppost tie opprosob soflooted CS'504, Ttio bill, no yes know, I$ this outgrowth of ontos.  botvoon sionhoss of oar soopootivo staffs, to our vieu* the NOOSUCO inoorposellos t onsy sefogosrete 4Iiinut pireouturo disolosure of somoitive information end fimmibi.lity es to th* fors of Aotoiloi minotoo,. sly* at  *Ls  0.taierloly; Sgatit A. Voicke(  JP14pjt (0V-72) bocci Mr. Axi1ro4 :4r, Corrigan   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (Handwritten note from Chrmn) P. S.  it.41taan ?ix*. Peter,. MU* ifollordl.  T certainly would not make the time period any shorter. PAV  (2)6./  PARR,- N J. MITCHELL. MD., CHAIRMAN STEPHEN L. NEAL, N C. NORMAN E. D'AMOURS, N.H. DOUG BARNARD, GA. JIM MATTOX. TEX. JOHN J. CAVANAUGH, NEBR. -  225-7315  •  Conrfressional Liaison Offilphandlina (Jay Brenneman)  GEORGE HANSEN IDAHO RON PAUL. TEX. DON RITTER. PA.  U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON DOMESTIC MONETARY POLICY OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS NINETY-SIXTH CONGRESS  WASHINGTON, D.C. 20515  March 10, 1980  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: Attached is H.R. 6350, a bill to require that detailed minutes of Federal Open Market Committee meetings shall be published on a deferred basis. This legislation was passed by the House last year as H.R. 4998 with the support of the Federal Reserve Board. Also, late last year it was approved by Senate Banking and placed on the Senate's "Consent" calendar. However, on the Senate floor, because of an objection by Senator Childs, H.R. 4998 was amended to delete all language pertaining to FOMC minutes. Hence it is necessary to begin the process anew. The Subcommittee plans to mark-up H.R. 6350 on March 20. We would appreciate it if you would let us know whether the Board still supports the legislation by writing to me before March 20. Sincerely, /  t-y( Parren 1. Mitchell Member of Congress PJM/rw;jb Attachment   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  96TH CONGRESS 1 2D SESSION  To amend the Federal Reserve Act to require that detailed minutes of Federal Open Market Committee meetings shall he published on a deferred basis.  fp   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  6350  IN TILE HOUSE OF REPRESENTATIVES JANUARY 30, 1980 Mr. MITCHELL of Maryland (for himself, Mr. NEAL, Mr. D'AmouRs, Mr. BARNARD, Mr. M.ATTOX, Mr. CAVANAUGH, Mr. HANSEN, and Mr. PAUL) introduced the following bill; which was referred to the Committee on Banking, Finance and Urban Affairs  •  A To amend the Federal Reserve Act to require that detailed minutes of Federal Open Market Committee meetings shall he published on a deferred basis. 1  Be it enacted by the Senate and House of Representa-  2 lives of the United States of America in Congress assembled, 3 That section 12A of the Federal Reserve Act (12 U.S.C. 4 263) is amended by adding at the end thereof the following: 5  "(d)(1) The Board of Governors of the Federal Reserve  6 System shall take and maintain detailed minutes of all meet7 ings of the Committee.  q.  • •  2  6  1  "(2) Subject to paragraph (3), the minutes of each such  2 meeting shall include a transcript of the proceedings of such :3 meeting. Such transcript may be edited, without changing  4 the substance involved, in accordance with regulations pre5 scribed by the Board. Such regulations may authorize the •I   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  6 inclusion of staff reports. Views expressed by any member of  7 the Committee shall be attributed to such member in such 8 minutes. 9  "(3)(A) Before the publication of any minutes in accord-  10 ance with the provisions of paragraph (4), the Board may 11 delete from such minutes any information regarding any for12 eign country, central bank of a foreign country, or any inter13 national institution which has a majority of members who are 14 foreign countries or central banks of foreign countries. Any 15 such deletion shall be indicated in such minutes. 16  "(B) Not later than fifteen years after the date of each  17 meeting with respect to which information is deleted under 18 subparagraph (A), the Board shall review such information to 19 determine whether such information should be published. 20  "(C) Not later than thirty years after the date of each  21 meeting with respect to which information is deleted under 22 subparagraph (A) and withheld from publication under sub23 paragraph (B), the Board shall publish such information. 24  "(4) The minutes of each meeting of the Committee,  25 prepared pursuant to paragraphs (1) through (3), shall be  •  4  3 •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1 published by the Board on, but not before, the first business 2 day of February of the fourth calendar year following the 3 calendar year in which the meeting involved occurs.". 4  SEC. 2. (a) The amendments made by the first section of  5 this Act shall apply only to meetings of the Federal Open 6 Market Committee which are held after the date of the enact7 ment of this Act. 8  (b) With respect to any meeting of the Federal Open  9 Market Committee which was held before April 1, 1976, not 10 later than six months after the date of the enactment of this 11 Act, the Board of Governors of the Federal Reserve System 12 shall publish all minutes of such meetings which have not 13 previously been published. 0  march 10, 19$0  Italort“.:16 it404,11 1_,(Aute *L. sepr*sismtativims 4,14$hitujton,C. 20S1S 4Ator  nede1L1  Theni‘ you for your letter of February 13 eM0100ime correspondence gresa 14r. E. 14. Youells Jr.. recording, the proposed policy statemeot deslinc with the dispeeition of credAt life insurance income* At tho and of 1979, the beard of Severnore ot tue Feesoral rNeserve Systter approved the leesernee for public coolest Of 4 etat4mott reuarding the disposition of ere:34A life iseuranca incase. ma polley statement we* develepod ty tits roe:Aare/1 Fin-metal Institutions iretinaties Council on behalf of it. remlwilkr a4encies. aseely. the POderal Deposit Tnsurancs Corperatiom e korel of Qeverocry of the rederal Reserve flystom, Oftlee ci tzt. comptroller of tile Currency, Federal !tome Loan eank Deere* ar,4 the AatiAmAl credit Union Admialstretion. The Sioard shares your and Nr. Youellie 40MOORMS reoardia9 potentially the gdverse effects of regulatory policies oath* day.. to-day operatioes ei swell beaks. Ai a recolt, all revelatory and supervisory policy sWjectives are eeretelly analysed to detormise the meet offoctile and least beledsseesle limy to ashieve ts lutesese requlatory purpose. With reepeet to the credit life lasuramse policy1 the redewel esencles are Oencerned that the divemSSON of crimissios imams to insiders mould eumstitute an unsafe er umeomnd bankies preettee: Bowe''', the agenciso do recovniee the prectioel problems involved sod have proposed that financial institutions met sow sebiset to a rule be given up to one year to comply with the policy. Kt:tremor, the policy also provides that certain fiaaacial iastitutione may be Omeeptea from the genera/ rule es a casopy-esse basis if * clear berdelijp oviste and satisfactory esearasee is provi4o4 that compliance will he torthoominv witLis ask appitepristo perio4 of time. In sheet4 the krop0O04 policy reflects on effort to oddress e legitimate supervisory Oeneern while remeAniag soositive to the policy,* practical eltect ma Amdividuad lastitotSsoes   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  t5,11,r4,11111 ;11  4,-a• ta  toarft orielcIatc4 recetvinl y6ur etivnts ar.1 Youioll. Tot, v4y 4utAirt4 thot tNeto cittment2 tAit4tn; r}art a t7No gtcletr-.1 tn4 4111 be carefully const,Zer04 auy diocUirla re4arinio the policy atittteorlt.  Aineerely,  .2110pjt (2 OV-55) bee; Sandy croon*   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Rich Spilleokotlien Jack Ryan Nallardi (2)  BERKLEY BEDELL Gm DISTRICT. 10\YA  Assigned to J?ck Ryan.  •-  •  •  FUSCOmmITTEFS. LIVESTOCK AND GRAINS  WASHINGTON. D.C. 20515 (202) 225-5476  COI.APAITTI r S. AGRICULTURE  viAsiosiGrom orricr! 405 CANNON Housr Orricr BUILDING  Congre55 of tbe Unita!  FAMILY FARMS. RURAL DEVELOPMENT AND SPECIAL STUDIES CONSERVATION AND CREDIT SMALL BUSINESS evrocommurms, ANTITRUST AND RESTRAINT OF TRADE ACTIVITIES AFFECTING SMALL BUSINESS  tate5  DISTRICT OFFICES, 479 FEDERAL BUILDING FORT DODGE. Iowa 50501  3iptia of 1kepreZentatibe5  (515) 573-7169  tinatifington, Ile. 20515  318 FEDERAL BUILDING 51101  SIOUX CITY, 101YA (712) 252-4164  Ext. 261  February 13, 1980  41  Paul A. Volcker, Chairman Federal Reserve System Federal Reserve Building Constitution Avenue Washington, D.C. 20551  /<"  Dear Mt. Volcker: a constituent I am enclosina two letters I recently received from Credit Life Insurance Income of mine, Mr. E.W. Yo 11, Jr., regarding the regulations of the Federal Reserve System. regulations that I share Mr. Youell's concern over governmental the result of which is apply the same to large and small organizations, placed on small organizations. usually a tremendous and disproportionate burden be a good example of this The provisions Mr. Youell comments on appear to I am forwarding these type of inappropriate regulations, therefore, letters on to you for your reaction. I look forward to receiving your response. Sincerely,  DflIL BERKLEY Member of Congress BB/n4cy   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  AIANSIIN STIPTE HANli MANSON, IOWA 50563  PHONE (712) 469-3355  Jan 22, 1980  The Honorable Berkley Bcdell U. S. House of Representatives Washington, D. C. Deer Berk: i.;iclosed is a copy of a Letter I wrote to the. Federal Reserve Board.I am sure I have wasted my time. Most members of the Board are either college professors or former government employees in some branch of government. I doubt if many of them have ever had tiny practical banking experience. I doubt if any of them have any conception what a real honest to goodness small bank is like. In my banks the stockholders at their annual meeting each year give approval how credit life insurance income is to be dis— tributed. The Board of Direcrors also approves this. After this is done why shoulci the Fed or FDIC dome along and dic— tate whet you must do with it????? The stated purpose to preserve the safety and soun dness of inancial institutions is a bunch of hog wash . It is just more of their unannouced policy of want ing to put a lot of small banks out of business. When I wee in Washington last spring one Fed Bora der memver said we had too many banks. Mr Coldwell things we shou ld accept sore bank failures — of course smell banks. He woul d want to use the full resources of the government to prev ent a large New York City 171rik from going under. Very truly yours,  E. W. Youell, Jr.  A FULL SERVICE 3ANIK  „... /  •  /\ /-  R.11k.R1:1,1 R1  MANSON, IOWA 50563  PHONE (712) 4G9-3355 Jan 22, 1980  E W. YOUELL JR.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CHAIRMAN  Re:  Disposition of Crodit Life Insuranco Income  gmleral Reserve Board WachLngton, D. C. Gentlemen: X own controlling interest in a bank that was organized in 1928 and hrla 39 stockholders: 39 stockholders. Of the 11 17 15 14 18  or or or or or  28% 44% 38'); 36% 46%  inherited their stock from their grandparents in total Inherited their stock live outside the State of Iowa to the best of my knowledgo we havo never met do no business whatcoevor with the bank  Iliminnte the Board of DIroctors and the rest of the stockholders would have lees than $100,000,00 on dopoait at thi: bank. I am at a completo loss to understand why you arc so concerned about the stockholders when 46% of thom contribute absolutely nothing toward the success of this bank. I bolieve it is all wrong to make rules that apply the game to a ton million dollar bank as a ton billion dollar bank. The small bank is usually run by come one who hac a cubtainal stake is his bank and knows full well keeping the Credit Life Insurance Income out of the bramk ic not going to effoct the safety and soundness of his bank. The result of your ruling is it Is going to make it more difficult to cot good people to work for small banks to cziy nothing &bout, it z.-lking it hard for a person to buy and pay for a small bank. Of course tap ruling is in keeping with the Fed and FDIC': un:l.cknowleged coal of eliminating mnny of the small banks over a period of time. Very truly yours,  E. cc cc cc  W. Youell,,Ir. - Senntor John Culver - SenRtor Roger Jepson - Esprecenative Berkley  A F-1-J - I SERVICE 13ANy  •  tI i  MASON SIRE BM  MANSON, IOWA 50563  •  PHONE (712) 469-3355  Jan 26, 1980 E. W. YOUELL, JR.   https://fraser.stlouisfed.org • Federal Reserve Bank of St. Louis  CHAIRMAN  The Honorable Btrkley B2dell U. S. Houve of Representatives Vashington, D. C. I really don't knew why I cen-.2 you thn enclosed. I know you can't do anything about it. Congress does not run this country— hr b.:rcaucratc do. Ag m- cll as I have invested in my bunks you know and anyone with tiny common sense knows I Gm not goint to do anytning to joop— ardi%e the rufety and soundnEss of my banks. I can never understand why when ordinry people, once they cet to Washington suddenit think they have acquired the wisdom of Soloman and think they know more what to good for ma than I know mycolf. The stockholders who own the bank should have the right to de— ternine brl Crcdit Life Insurance Income should be distributed— POT the Federal ILlicerve Board of Governors. Very truly your;,  E. W. Youell, Jr.  A FULL SERVICE _13AN1(  z  • 1117 11  Eld  \X /l A  PA  2 1 0r\I  MANSON, IOWA 50563  E  m  LI  PHONE (712) 469-3355  Jan 23, 1980  \  CHAIRMAN  E. W. YOUELL, JR.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Re:  Docket Number Lr-0265  Mr. Thoodore E. Allison, Secretary Board of Governors of the Federal Roserve System WaohIngton, D. C. 20551 Denr Mr. Allison: In Iv life time I have owned the controling intorest in our differont banks. Throe of these banks I purchased, using in er..ch caco a One Bank Holding Comoe.ny as the vehiclo. In each case I borrowed 300% of th3 purchase price. I h.(Ive sorviccd this debt w.lthout plis.oing a strain on the bank's resources or straining the capital of the subcidory bank. Under your propoced ruloe I would have been unable to buy any of those bc.nka. I realiva you must have bench marks but debt not to exceed 75% of the purcha3e price should not be ongraved in stone. The quLlity of the bank's ac3etc, the ability to service the debt told tha compotoncy of the management are far more important thlin any debt ratio. Your rule is going to help but under it it will still be difficult for an individual to buy a, bank. Very truly yours,  cc - Senator Jo}In Culver cc - Senator Pager Jepson cc - Ropresenative Barkley Bedell  FU (SERVICE 3ANIK   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  C.„'1\1  rift E  MANSON, IOWA 50563  PHONE (712) 469-3355  Jan 23, 1980 E. VI. YOUELL. JR. CHAIRMAN  Ro:  Dispo:;ition of Credit Life Insurance Income  Mr. Thlodore E. Allicon, rd'ocrotary Bot.rd of Goornorc of the Federal Enserve .Vstom Wachington, D. C. 20551 Doar Mr. Allickon: At the present timo I (M,,in thrco banks each of which iu controlled by a One E,Ink Boldin- Company. One RUC does not own 80q, of ito oubeldiary bank and I know of no ler.y to acquire BO% of thio bank'a otock. ConacqurIntly, to avoid thic PE(1 from boing doclarod a rorconal Dolding Compt.ny, oubjoct to the 70% peroonal holding company tax, it io noceogary for thn BBC to havQ at leact 40% of ito r_djuotod ordinary grooa incoao b5: other tbyln what ic conoiderod, "poroonal holding company incomo, ouch up dividondo. Innuranco comzic:lono qu:dfly for the 40% requiroment. we use credit lifo inouranco incoNo nu part of the 40%  Conoequontly,  Take credit life incuranco incomo from tho BUC and it lower° tho amount of itc; bnoo. To avoid bocominr a Personal Uolding Conpany tba bAcio I-F.(111(10Q the nmount oPIPf dIvidenda thAt onn be pald by tpo bunk. Yorcing n bank, rorardloou of Ito carnIne,6, to lowor the r.mount of dividenda it can pz.y out la u otrani:wat2y for the 11DdoreAl Poservo Bob.rd to bo concornod about tho wolfare of thn otookM1dorc. Very truly ;'ourp,  E. W. Youell, Jr. cc — Senator John Culver cc - Senator Roc,or Jepen cc - 11,Jpresonative Borkloy Bodoll  :F=ULL SERVICE 3/N11(   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  march 18, 1980  The nonorarle 7ichard (nick) !none United 'tats Senator Post Office wax 4081 323/3 Tallahassee, Florida et l'Nftsr  rile 2:000140010  fonator Stone:  Thank you for the opportunity to responl to the enclosed letter from- your constituents re rth te ceilinc on 2-1/2 year certificate rater. The is.oard understanOs their concern, for it supports the creation of a new financial environment in wMch depositary institutions could pay marXet-Aeterained rte of return or all their deposit Ttle cap on the deposit rate ceiIinc is tomr,orpry and we hcne it will be tiFort-livee. It was necessarv to impose th1.1 restriction in the current high interest rate environnent, becaxise it would be quite disruptive for rainy benXs and thrift institutions to pay effective yields in excess of 14 percent on relatively lon7 0-term olioationc. nepositary institutions that hold • high proportion of their assets in longer- term fixedrate loans payinn the low interest rates of the past would find it particularly difficult to pay today's high market rates on longer-term certificates. The Federal r4eserve and tit. other financial regulatory seencies will continuo to monitor financial martots closely, and we are hopeful that future conditions will allow this restriction to be lift. Tr this connection, the goard supports the ltrtt lit-eralisation of thrift institution asset pcneers so that all deposit rate controls Tay be gradually elaninated. The Roard endorses the eoal that all severs--t-ot Ewell end litres...be provided the opportunity to earn competitive rates of return on deposit instruments. SSA:JS:CO:pjt (0V-70 bcc: Ms. AtRinson Mrs. Mallardiu/°-  Sincerely yours, 7onald 3. WInn  noneld vinn special Nssistant to t)le roarC finclosure  RICHARD (DICK) STONE  COMMITTEES:  FLORIDA  AGRICULTURE. NUTRITION, AND FORESTRY FOREIGN RELATIONS  ?-1Crtiteb Zfafez Zenate  VETERANS  AFFAIRS  WASHINGTON. D.C. 20510 ••  .  March 10, 10P0 Our File:  Mr. Paul Volcker, Chairman Federal Reserve System 20th Street g, Constitution Ave., NW Washington, D.C. 20591  z00r15140nl0  ••••*".  plimplimor  Dear Mr. Volcker: Recause of the desire of this office to he resnonsive to all inquiries and communications, your consideration of the attached is requested. Your findings and views, in duplicate form, along with return of the enclosure, would he greatly anpreciated. It would also he helpful to me if your response is mailed to my office at the address below and INCLUDES THE FILE NUMBER SHOWN ON THE COMMUNICATION I HAVE SENT TO YOU.  11•••••••••.4.  "  Richard (nick) Stone 111111•1111/M11•1••••••,.  RDS/lah Enclosure  PLEASE REPLY TO:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  POST OFFICE BOX 40ql TALLAHASSEE, FLORIDA  32303  ,^)  ploamme  S  •  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  17 ,0 Pine Vail ey Dr. Apt. 3(!E: 71. yers, "la. 319(17 7. arch 1, 1S0  Senn tor 11i c are Stone Suite 200 11 Yorth  on roe  Tallahassee, 1.'1 a. 3'303  Dear Sir:  We should like to ask your con sie ern tion of the regulatory can on the 2-1 /2 year l'or:ey 1arket e• Certi fica tes of 12i, eV f'ective Yarch 1, 1980 ' hen 1 .75% you ld have lieen permitted by the increase in 2-1/2 year Treasury Certi fica tes rates. stronrrly object to this regulatory eeci sion for the fo 1 1 or imr reasons: 1 . It is ei scriminati.m rrrinst the snal iuveatAr T a r7er certi f ica tes are un touched . :1 2. The justi f icn Lion for the cap on 14 the 1; ; :rareilX have been "0 i sruntive to financial inst i tu tru th. The 2-1/2 year 1, oney ! nrket Certifi ! ;- ti.:F con st;i4tit , 0.7' of Ravin!!s an( loan Oenosi ts —hi le thi-1 Gr- )n OU rIpritgTicntes nre 79.C5 of tlieir Cenosits. fly all logic i-3 af, ilOrvCr isruntive than 0.7 . 0•  17.n 11 investors n re en ti tl ed to the protection s larer investors. Any un fa i Sr: V  1,7 `7  .rs  to  er-17 4tIzi  ' s:.our7.ffeS  inilrttion.  1. It is r: (liscrininatory ,orm of ,)ric e control because it anplies only to those or limited means.  We  appreciate your help in correcting this injustice.  Yours very truly, -  ,  D. Doll  •  orothy I—.loll  9'   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  r?,  The Honorablst Parry r, v;yrd, Jr. Chailiwis* Raboommitfee en Taxation an4 Debt alla*:;eiftent Comittite on rinonee united 5t3to, fvnatal iftsIlinctone O.C. 201I Dear earryl Thank you for yr lettor of arch 13 ropiarainr: your Subcomnittmeo lieerinz. or tNa Aetminietration's rlans to soak an tOOroaso in t14,6, 7uo1ic aobt eoiliav. T am tookinl forward to appoarinc on April 2 at 00• •Itto  rtneeroly. 54!:a4  co:nit (0V-97) mr. Corrigan Mr. Azilrod (w/copy of incoring) tire, vallnrdi (2)  HARRY F. BYRD. JR • VIRGINIA   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  9-JCnifeb Zfatez -.Serrate WASHINGTON. D.C. 20510  1`.1501  17  ` L4  March 13, 1980 a  My dear Paul:With further reference to our telephone conversation, thc-Subcommittee on Taxation and Debt Management will hold a public hearing on Wednesday, April 2, regarding the Administration's plans to seek an increase in the public debt ceiling. While the Federal Reserve is not directly involved in this issue, the Committee feels that your expertise would be of much value in regard to the broad question of government spending, deficit financing, the ever-mounting debt, and the borrowing it necessitates and its effect on interest rates, etc. The Committee appreciates your willingness to appear and has scheduled you as the first witness at 9 a.m. In closing, may I say that I feel that it is vital that Congress attack the question of inflation with the same vigor as has the Federal Reserve Board under your leadership. Cordially,  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Constitution Avenue between 20th and 21st Streets Washington, D. C. 20551   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Parch 14  Me . .J;14-xiablei Sonjamin t, Posonthel Chtirman ubcor,mittereor CeIMMarea. Cnilaurier ane Monetary Affair* CommIttao clra covercoort CTerations House of Ropreaantatives Washington, C, 2031! Dear Mr. Chairman; Manic you for your letter of March It ragarding your Subcommittee's hearins on consumer safecuarda to guarantee fair treatment on variable rat*, rollovar, and renegotiabla rmte rortomores. / mr rleased to inforr you that Per. mathanial t. nutlet', Nssociate tirector, Division of Consume-1P and rt..r7tilurit1 Affairs, will arvaar on behalf of the 3oar d on "arcb 27 at 10-00 n,7 sincer*Iy.  COived (Iv 78) bee;  Mrs. Mallard' (2) Rail Sutler  lgc(•  p.  Conaressional Liaison Office nectotiatincr with Hill recrardincr tillphearinq  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • BENJAMIN S. ROSENTHAL, N.Y., CHAIRMAN ROSIEFIT .T. MATSUI,  ✓ucrNe  CALIF.  V. ATKINSON, PA.  KERMAN° J. ST GERMAIN. R.I. JOHN CONYERS. JR., MICH.  LYLE WILLIAMS, 06410 JIM JEFFRIES, KANS.  111  NINETY-SIXTH CONGRESS  JOEL DEOKARD. IND.  MAJORITY— (202)  ELLIOTT H. LEVITAS. GA.  Congrt  of tbe Uniteb 5--)tate5S  229-4407  3[)ourSe of ilepre5entatibe COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE  COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING. ROOM 8-377 WASHINGTON, D.C. 20515  March 10, 1980  Hon. Paul A. Volcker Chairman Federal Reserve Board Washington, D. C. 20551 Dear Mr. Chairman: The Commerce, Consumer, and Monetary Affairs Subcommittee has been concerned for some time with the adequacy of the consumer safeguards to guarantee fair treatment to the consumer who takes out a variable rate or rollover mortgage at a bank or thrift institution. Most recently, it has come to the subcomittee's attention that many questions have been raised concerning the adequacy of the consumer safeguards included by the Home Loan Bank Board in the proposed regulations for renegotiable rate mortgages (RRMs) at savings and loan associations. Finally, the subcommittee has some concern that no federal consumer safeguards have yet been established for variable rate, rollover, and renegotiable rate loans issued by commercial banks and savings banks. In order to examine further the issues of consumer safeguards for these new mortgage instruments, the Commerce, Consumer, and Monetary Affairs Subcommittee will holding hearings March 26 and 27. I am writing to request the testimony of the Federal Reserve at these hearings on March 27 at 10 AM. , The three main topics on which I am requesting the Federal Reserve to testify are (1) truth in lending disclosures on variable-rate and related mortgage instruments, (2) the role of the Federal Reserve in regulating unfair and deceptive trade practices and its applicability to variable rate and related mortgage instruments, and (3) the use of an index to limit rate changes on individual loans. I am also requesting the views and plans of the Board on certain other aspects of consumer protections for these instruments. More specifically, the Federal Reserve's statement should cover the following questions: 1.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Truth in Lending: a.  What special truth in lending disclosure problems arise in the case of variable-rate and renegotiable rate mortgages, and how does the Federal Reserve handle these problems under Regulation Z?  Hon. Paul A. Volcker  2.  3.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  2  March 10, 1980  b.  Do the disclosure requirements of the Federal Home Loan Bank Board in the existing reaulations for variable-rate mortgages and the proposed regulations for renegotiable rate mortgages meet the truth in lending requirements?  c.  If not, does this lack of conformity, with the consequent need for a supplemental truth in lending disclosure, create any potential problems, such as creating confusion for borrowers or causing an unnecessary paperwork burden on lenders?  d  Does the Federal Reserve have any concern that lack of conformity in the disclosures might impede effective truth in lending enforcement by increasing unnecessarily the burden on the compliance examiners?  e.  What efforts is the Federal Reserve making to ensure that its concerns are known to the Bank Board and to achieve the most effective truth in lending disclosures in the case of variable rate and renegotiable rate mortgage instruments?  Unfair/deceptive trade practices: a.  Does the Federal Reserve's authority under the FTC Improvement Act of 1975 to regulate unfair and deceptive practices at banks provide a possible legal basis for imposing minimum consumer protection restrictions on the terms of variable rate, renegotiable rate, and rollover mortgages issued by banks (including savings banks)?  b.  Does this authority of the Federal Reserve extend to such loans issued by savings and loan associations?  c.  Has the Federal Reserve any plans to regulate the terms of such mortgages issued by banks under either this or any other authority? If so, please describe these plans.  d  To what standards would variable rate and renegotiable rate mortgages have to adhere in order not be in violation of the Federal Reserve's general standards for fairness and lack of deception?  Rate changes: a.  What are the views of the Board on whether it would be acceptable for banks to issue variable rate or renegotiable rate mortgages whose rate changes were not pegged to any index but whose contract terms permitted the renewal rate to be set at the individual lender's "then-current market rate of interest on similar loans?"  b.  In the Board's judgment, might it frustrate the Truth In Lending Act objective of meaningful cost disclosure for comparison shopping if rollover or renegotiable rate mortgages are issued having contract terms that permit the lender to set the renewal rate, at the time of renewal, at whatever rate is that individual lender's "then -current market rate of interest on similar loans?"  Hon. Paul A. Volcker  c.  4  3  March 10, 1980  Might it be an unfair trade practice for a commercial or savings bank to issue a renegotiable rate mortgage having contract terms that permit the lender to set the renewal rate, at the time of renewal, at whatever rate is that individual lender's "then-current market rate of interest on similar loans"?  Monitoring: What are the plans or present programs of the Federal Reserve to monitor the market for variable rate and related mortgage instruments, including monitoring the pattern of contract terms, interest rates, costs and fees, consumer acceptability and complaints, and aggregate lending flows or portfolio investments in such instruments?  The rules of the Government Operations Committee, as you know, require that prepared statements be available at the subcommittee office 24 hours in advance of the hearing. I shall look forward to hearing the Federal Reserve's testimo ny. Sincerely, I) Benj min S. Rosenthal Cha lrman BSR:tb   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  wl:Irch 17, 1980  The "onorable A1i r. Stevenson Maimen Subcommittee on International rinance Committee on Pankinc, :'nusincr and Urban Affairs United f'tatiss F.enste Washington, T).C. 20510 Dear Chairman Rtevenscan: Thank you for your letter of re+ruary 29 invitinr the ?toot(' to testify at your subcomlittee's hearinc on export traing company an tree association lecieletion. T am pleased to inform you that Oovernor Henry C. Malie+ will apre,ar nP behalf of tho Poare on Marcl 19 at 4100. sincerely,  CO:olt (017-69) boo: nov. Messrs. Purley, Cemmill, ! ' , artinsnn an,4 risenheis Mrs. Mallardi (2)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  O  C  March 17, 1980  The Honorable William Proxmire Chairman Committee on Banking, Housing and Urban Affairs United States Senate Washington, D. C. 20510 Detr Mr. Chairman: Enclosed, as requested in your February 7 letter, are tables for recent quarters showinp, various measures of borrowing from the Federal Reserve System by member commercial banks in different size categories. As one would expect, larger banks account for a bigger share of the overall dollar volume of borrowing from the Federal Reserve than smaller banks; however, smaller banks regularly borrow larger shares of their required reserves. Because borrow ings by larger banks do respresent the lion's share of the total dollar volume of borrowing, any calculation of the value of obtaining credit at a discount rate below the federal funds rate also sums to a greater absolute dollar total for large banks than for small banks. However, the value of the rate spread to large banks is not very large when measured as a ratio to bank assets or bank capital. Large money market bank are expected to borrow from the Federal Reserve only on a very telvorary basis to assist in making orderly adjustments to unexpected deposit and credit flows. For this reason, money market banks are Infrequent borrowers, and in the weeks they do borrow, their typically for only one day in the bank settlement period, elther on the final day or just before the weekend. These bet FOW L,5 are repaid the following business day. When large banks do borrow, the dollar sums needed are often relatively large—as is sug,Tsted by some of the numbers in  ;.,,T1trAllmityAltIntlIMR101101117Trtenn.H.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •111.0.1••••  •  •  The Honorable William Prox m/re  -2-  the accompanying tables. However, the administra tive rules for access to the discount wi ndow efft2ctively limit this use to days when legitimate adjustment credit needs develop. Moreover, as you know the System lime recently imposed a 3 pe rcentage point surcharge aUove the basi c discount rata on borr owings by largo banks for ordinary adjust ment credit when such borrowing occurs n.., .ccessively in two statem ent weeks or more, or wh en the borrowing rc. curs in more than four week; in a calendar quarter. I hope this inforration catisfies your needs.  Sincerely, Si.P4.1  cc:  Mr. Axilrod Mr. Keir  Mau  4111.  Axilrjr—-Action assigned to Mr.  • WILLIAM PROXMIRE, WIS.. CHAIRMAN HARRISON A. WILLIAMS, JR., N.J. ALAN CRANSTON, CALIF. DLAI E. STEVENSON. ILL. ROBERT PIORGAN, N.C. DONALD W. atirGur, JR., MICH. PAUL 5. SARSANES, MD.  •  JARE GARR, UTAH JOHN TOWER, TEX. JOHN HEINZ. PA. WILLIAM L. ARMSTRONG. COLO. NANCY LANDON RAISE DAUM, KANS. RICHARD O. LUGAR, IND.  DiNALD W. vrtwootr. ALA. PAUL E. TSONGAS, MASS.  ?Anifeb „Slates -.Senate COMMITTEE ON BANKING. HOUSING, AND URBAN AFFAIRS  KENNETH A. MC LEAN, STAFF DIRECTOR U. DANNY WALL, MINORITY $TAFF DIRECTOR MARY 'RANGES DC LA PAVA, C141EF CLERK  WASHINGTON. D.C. 20510  February 7, 1980 The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20551  4CP°  Dear Mr. Chairman: At the Joint Economic Committee hearing on Friday, February 1, 1980, we had a brief discussion about the use of the Federal Reserve discount window and the subsidy it provides member banks and the effect that the spread between the discount rate and market rate may have on monetary policy. I asked that additional analy sis be prepared on this issue in time for the oversight hearing on monetary policy on February 25. I have attached details of three types of tables that I wold like your staff to prepare as part of this exercise. The first would look at borrowing in relation to required reserves by bank size. The second would look at the average subsidy given to borrowing banks by bank size. The third would look at the interest rates for borrowing. These tables should be prepared for each calendar quarter begin ning at mid-year 1973. I would appreciate it if your staff would also provide an analysis of these tables and their implicatio ns for changes in the Federal Reserve discount mechanism.  /  Chairman  Enclosure WP:srl  Digitized for •...NOP FRASER .7.r a, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4  ,  • -  ••  . P.- •  *.•1 1" ' ,5:, 1 "e N.._  : tr r.r 4 • •  ti:•  F iva ‘"r 1 4, 1' • r" - . .7-0t.;  -•  A  laid . 1. iels:::74  •  • The following tables should be prepared on a quarterly basis beginning Q 111:1978 to Q IV:1979.  •  f NMI  Table I:  Member Bank Borrowing in Relation to Required Reserves, by Bank Size. Size Categories:  0 to 5 Million 5 to 10 Million 10 to 25 Million 25 to 50 Million 50 to 100 Million 100 to 500 Million 500 to 1,000 Million 1,000 to 5,000 Million 5,000 and over Totals All Banks  Column Headings:  (1) (2) (3) (4)  Number of Banks: total # members Number of Banks: borrowing at the Fed Borrowing banks as percentage of total Average number of borrowing days during month (a) Average number of borrowing days during quarter (5) Daily average amount of required reserves (6) Daily average amount borrowed (7) Borrowing as a percentage of required reserves.  ONO  Table 2.  Table 3.  Average Subsidy Given Borrowing Banks, by Bank Size. Size Categories:  Same as above  Column Headings:  (1) Number of Borrowing Banks (2) Average Monthly Subsidy* (a) Average Quarterly Subsidy* (3) Average Amount Borrowed (4) Distribution of Average Subsidy (Quarterly)  Daily Average Interest Rates Paid by Borrowing Banks (monthly) Column Headings:  (1) Federal Funds Rate (2) Federal Reserve Discount Rate (3) Spread  * Subsidy would be calculated as follows: (Fed Funds Rate - Discount Rate)/365 x (# borrowing days per month) x (daily average borrowing per bank).  •  ,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .', -•  . a,-  yr-.• -,  yr" :  PCS;  -*/—. •'  ,V  plibt%  l'iNti4  FERNAND 2. ST GERMAIN, R.I., CHAIRMAN FRIXNK ANNUNZIO, ILL. JAMES M. HANLEY. N.Y. CARPOU...HUEIBARD. 114 KY. .JERRY M. PATTERSON, CALIF. THOMAS L. ASHLEY, OHIO NORMAN E. OAMOURS, N.H. JOHN J. CAVANAUGH. NEBR. JIM MATTOX, TEX. JOSEPH G. MINISH. N.J. WALTER E. FAUNTROY, D.C. DOUG BARNARD, GA.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  O  U.S. HOUSE OF REPRESENTATIVES  CHALMERS P. WYLIE. OHIO HENRY J. HYDE. ILL. GEORGE HANSEN, IDAHO JIM LEACH. IOWA CARROLL A. CAMPBELL. JR.. S.C. ED BETHUNE, ARK.  SUBCOMMITTEE ON FINANCIAL INSTITUTIONS SUPERVISION, REGULATION AND INSURANCE OF THE COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS NINETY-SIXTH CONGRESS WASHINGTON, D.C. 20515  February 7, 1980  Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D. C. 20551 Dear Mr. Chairman: The Subcommittee on Financial Institutions Supervision, Regulation and Insurance will conclude its current round of hearings on the Senate amendments to H.R. 4986, H.R. 6198 and H.R. 6216 on February 21. We wish to extend an opportunity to the Federal Reserve Board to testify on February 20 at 9:30 a.m. in Room 2222 of the Rayburn House Office Building. Copies of the relevant bills, my opening statement of January 24, Deputy Secretary Carswell 's statement of January 30 and Federal Home Loan Bank Board Chairman Janis' statement of January 24 are enclosed. While the Subcommittee in no way wishes to limit the Board's presentation on any of the myriad of issues raised in the pending legislation, we anticipate a restatement of the Board's position on Regulation Q, including an evaluation of the concepts presented in my opening statement as well as differing approaches advocated by Congressman Barnard (H.R. 6198) and Congressman Patterson (H.R. 6216). Inasmuch as the Senate amendments contain a number of banking proposals on which there has been little or no public testimony and very little floor debate, the Board is invited to comment as fully as deemed necessary on any of these provisions. You may wish, for example, to restate the Board's position on bank stock loan provisions of the Senate amendments. The Subcommittee will have available your letter of January 22 for distribution as well as copies of the Board's press release of December 13, 1979, in furtherance of Governor Partee's statement during the Subcomittee's recent bank holding company hearings. We assume also that the Board may wish to comment specifically on the proposed foreign acquisition moratorium of U.S. financial institutions. The Board's attention is called to the Administration's position appearing on page 11 of Deputy Secretary Carswell 's statement of January 30.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Honorable Paul A. Volcker  - 2  February 7, 1980  The problem of state usury laws, not confined to interest ceilings, is a particularly troublesome problem for the Subcommittee for a number of understandable reasons. As we review the range of proposals for temporary or permanent override, we are troubled about the thrust of certain of these proposals insofar as their long range affect on the ability of the Federal Reserve Board to efficiently discharge its primary monetary policy objectives. As a consequence, the Board's counsel in this respect is deemed essential. While the Subcommittee, of course, would be honored to have your testimony on behalf of the Board, given the many demands on your schedule, your designee will be fully acceptable. Pursuant to the rules of the Committee, please furnish the Subcommittee with 100 copies of your written statement to permit advance distribution by 12:00 noon on February 19 to be delivered to the Subcommittee office (Room B303 Rayburn). Your verbal presentation should be limited to ten minutes to permit adequate time for questioning. Your written statement will be placed in its entirety in the record.  Fernan Chairm • FJStG:gSj Enclosures  St Germain   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 17, 1980  Dear Ken: I appreciate the memento have it framed! Sincerely,  Mr. Kenneth A. McLean Staff Director Committee on Banking, Housing and Urban Affairs United States Senate' Washington, D. C. 20510  PAV:ccm  we'll  WILLIAM PROXMIRE, WIS., CHAIRMAN HARRISON A. WILLIAMS, JR., N.J. ALAN CRANSTON, CALIF.  JAKE GARN, UTAH JOHN TOWER, TEX.  ADLAI E. STEVENSON, ILL. ROBERT MORGAN, N.C. DONALD W. RIEGLE, JR., MICH. S, MD. PAUL S. SARBANE°  JOHN HEINZ, PA. WILLIAM L. ARMSTRONG, COLO. NAhiCY LANDON KASSEEAUM, KANS. RICHARD G. LUGAR, IND.  DONALD W. STEWART, ALA. PAUL r, TSONGAS, MASS. KENNETH A. MC LEAN, STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANCES DE LA PAVA, CHIEF CLERK   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  11Cnifeb Ztatez ,Tienate COMMITTEE ON BANKING. HOUSING, AND URBAN AFFAIRS '!i.c-i:iu  D.C. 20510  March 7, 1980  .17_1  Chairman Paul A. Volcker Federal Reserve System 2nth St. & Constitution Ave. Washington, D.C. 20551 C.1)  Dear Mr. Chairman: I thought you might like to have the ficial" talley sheet used to record the vote of the Senate conferees when they accepted the final version of the Fed membership legislation. Sincerely,  Kenneth A. McLean Staff Director  Enclosure  • ttiniteb  •  tate5 5-7)enate  MEMORANDUM  rrox(vr 't P T 'Aft  (A(v1  C rcortvA) 6   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  An./   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  C: . (4.1-4;• t  BOARD OF GOVERNORS OF THE  FEDERAL RESERVE SYSTEM  ri  WASHINGTON, O. C  %. .• •• .5 •• •• 0 ' • •L fit 1• • •. • .• • •  20551  PAUL A. VOLCKER CHAIRMAN  March 17, 1980  The Honorable Bruce Vento House of Representatives Washington, D. C. 20515 Dear Mr. Vento: I am pleased to respond to the questions you raised in your letter of March 5. In regard to the first question, which dealt with the impact of monetary policy on government interest costs, there is of course no disputing that the higher interest rates associated with the Federal Reserve's efforts to restrain monetary expansion in an environment of strong inflation have tende d to raise federal interest payments. It is our expectation that, by applying the needed restraint, we will turn the corner on inflation and create the potential for a sustained lowering of interest rates. If we fail to get inflation lower, then the hope for lower interest rates is futile. Obviously, we can use all tHe help we can get in turning the present situation aroun d. That is why the effort to restrain spending and balance the budget is so important. That effort will, of course, limit the debt, and therefore interest payments, directly. Your second question concerns federal "tax expenditures". I do not have a specific recommendation for the accounting of these items, though it clearly is important that they be given due attention in light of their impact on resource allocation and on federal revenues. Nor do I have a firm position on the taxation of social security payments; it has long been argued that the "ability to pay" principle of equity in taxation might lead to consideration of the social security recipient's total income and possibly to some form of taxation of social security payments. However, this gets one into a very complex area of the philosophy of the social security system, and I would not feel comfortable in expressing a view on the issue at this time. Your third query deals with legislative or constitutional constraints on the growth of the monetary aggregates. As I have remarked on a couple of occasions recently, I have some sympathy for the view that such constraints might add to the credibility   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Bruce Vento Page Two  of the Federal Reserve's commitment to the anti-inflationary control of monetary expansion. I also have noted, however, the concern that any highly specific or rigid formulation of this objective would run a serious risk of proving counterproductive as unpredictable economic developments or changes in the public's financial behavior made a prescribed target unattainable or undesirable. Under the circumstances, I would prefer not to go down the legislative or constitutional avenue at this time. I might note that, while I have stated that I find myself increasingly favorably disposed toward the idea of federal spending limits, I have noted as well my fears that the constitutional approach could have serious pitfalls. The notion of the Congress setting Clown some guidelines for itself as a means of coping with the difficult politics of budgetary discipline does, however, Ilvc some appeal and seems worth exploring. Your final question raises the issue of the "underground economy" that operate:; on a cash-only basis. The analysis of the Board's staff reveals no extraordinary increases in the public's demand for cutli2ncy in recent years, suggesting that the growth of this phenomenon may be exaggerated. While I doubt the phenomenon has changed so strikingly as to account for the surprisingly robust business picture generally, I do share some of the view that rising inflation, taxes, and regulation may be leading to a sub rod "off the books" economy. WHIP  Sincerely,  MJP:PAV:vcd (#V-71) bcc:  Mike Prell Mrs. Mallardi (2)  ActicA ,--hassicrned to Mr. Axilrod  BRUCE F. VENTO • 4TH DISTRICT, MINNESOTA  •  230 CANNON HouSE Orricr BUILDING (202) 225-6631  ROBERT E. HESS ADNIINISTPIATIVE ASSISTANT  •  SUBCOMMITTEES.  Congress5 of die Ziniteb  ECONOMIC STABILIZATION  tate5  j/)oufSe of 1keprtf5entatilmi  DISTRICT Orricr:  CONSUMER AFFAIRS HOUSING AND COMMUNITY DEVELOPMENT  HOUSE COMMITTEE ON INTERIOR AND INSULAR AFFAIRS  Washington, 33.C. 20315  Room 544  HOUSE COMMITTEE ON BLANKING. FINANCE AND URBAN AFFAIRS  FEDERAL BuILDING AND U.S. COURT HOUSE 316 NOPFTH ROOEFtT STREET SAINT PAUL, MINNESOTA  SUBCOMMITTEES, ENERGY AND THE ENVIRONMENT  55101  11  (612) 725-7669  March 5, 1980  NATIONAL PARKS AND INSULAR AFFAIRS  an  Mr. Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System Federal Reserve Building 20th and Constitution Ave. Washington, D.C. 20551  • Sr (fl..)  —774  Dear Mr. Chairman: It was a pleasure to have you appear before the House Banking Committee on February 19th. I was very interested in your testimony and enjoyed having the opportunity to hear your responses to the various questions posed by the Committee members.  1  tear-  As our individual question time was limited to five minutes, I was unable to pursue several important questions I have regarding the monetary policies of the Federal Reserve Board. I would appreciate very much if I might pose these questions to you now. My first question relates closely to one I asked you during the hearing concerning the Fed's tight monetary policies and their effect on the rapid escalation on interest payments on the national debt over the last several years. In 1978, with T-bill interest rates averaging 6.6%, the interest paid on the national debt was $48.7 billion; in 1979, with T-bill rates averaging 9.25%, interest on the debt rose to $59.8 billion; and, in 1980, assuming a T-bill rate of 11.1%, interest on the debt has been estimated at $73.3 billion. There is no doubt that Fed policy has significantly affected these increases in interest on the debt through the encouragement of rising interest rates. How do you justify such Fed actions in forcing up interest payments in light of your expressed desires for limits on federal spending, extreme fiscal restraint and possible tax reform. If we didn't have to cope with ever-increasing payments on the national debt, tax reform might be a real possibility.  [Ow  r-77p W4-42.• A 77 .  Second, with regard to your claims that the government must limit federal spending and adopt a tighter fiscal budget, how do you feel we should account for tax expenditures? Bear in mind that our nation's largest tax expenditures are on social security payments, the money our nation's elderly depend on to survive. Should this money be taxed in order to tighten the federal budget?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  _  •  , 111 1 10 1 11. t:7)7 3:54 1  •  Mr. Paul A. Volcker Page 2 March 5, 1980  Third, you indicated support for a spending limit on the fiscal side tied to the GNP. Should not a similar policy apply to the growth targets for the monetary aggregates as established by the Federal Reserve Board? Would you favor legislative or constitutional action to establish rigid floors and ceilings for monetary growth? Such limits, for example, could be tied to GNP indices or perhaps more appropriately the unemployment rate. Finally, reports indicate that there is a very sizable amount of money in circulation that is being used in off-the-record, cash only transactions. Given our present inflationary situation, it is quite probable that more and more people will be seeking to purchase goods and services off the record as a way to cut costs. What are your feelings on this phenomenon? Could these transactions help explain some of the bouyancy in the economy? Could they be affecting our inability to accurately predict the onset of a recession? I would very much appreciate learning your responses to these questions. Thank you very much for your attention to these concerns. I look forward to hearing from you. Warm regards. Sincerel  ruce F. Vento Member of Congress BFV/sr   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •••  Wigt '  ,  'larch 17, 1980  The Honorable Robert V. Daniel, Jr. House of Representatives uaahington, D.C. 20515 Dear 9r. louden In your letter of !arch 7, you asked if the Board had considered raising the reserves that banks have to hold instead of increasing the discount rate. As you kaow, in early October the Board imposed a marginal reserve requireuent on increases in managed liabilities and last Friday the Board increased that reserve require— ment and took other actions to stiffen its impact, as well as extend— ins it to more institutions under the President's authorisation using the Credit Control Act of 1969. At the 00114 time, the Sward introduced a surcharge to the discount rate for larger banks who borrow relatively frequently; the basic discount rate remained unchanged. Theme and other actions taken last Friday are described in the enclosed documents. I believe that these measuren--in conjunction with those taken by the President and I hope by the Congress on the fiscal front--will tend to constrain inflationary trends with a minimum of upward interest rate pressure. !lowever. I must point out that, taken alone, increases In the discount rate and increases in reserve requirements, each tend to raise interest rates. These two tools, along with open market oper— ation*, are the major traditional vehicles used to implement monetary policy in the United States. I appreciate your interest and concern about the tools of monetary policy. Sincerely,  Paul A. Volcker f.nclosures.  Fatttin:kt # - V-77   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (31141so 1).r)  •••••  R1013ERT W. DANIEL, JR. 4TH DISTRICT. VIRGINIA  gjtion assio'ned to Steve Axilrod  WASHINGTON orricr, (202) 225-6365  et  CONSTITUENT SERVICE OFFICES!  COMMITTEES: ARMED SERVICES DISTRICT OF COLUMBIA  Congto5 of tfie  THAD s. MURRAY ADMINISTRATIVE ASSISTANT   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -TztateE4  )otifSe of leprecAntatiin5  Room 215. FEDERAL_ BUILDING/ PORTSMOUTH. VIRGINIA 23704 (804) 441-6797 Room 209. POST OFFICE BUILDING PETERSBURG. VIRGINIA (804) 732-2544  23803 •••••••••.•  Elicifsbington, Ile. 20515 March 7, 1980 f o  Mr. Paul A. Bolcker Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Constitution Avenue Washington, D. C. 20551 Dear Mr. Bolcker: I have recently received inquiries concerning the Board's actions in raising the discount rate which results in the increase in interest rates being charged by banks. The question was raised as to whether consideration has been given by the Board to raising the reserves that banks have to hold in order to reduce the availability of money. I shall appreciate your advice concerning whether consideration has been given to such an effort and any comment you may care to make concerning the feasibility of such a vote. Sincerely,  12  a00,itt).Da4;uf 11. Robert W. Daniel, Jr.  rTh  CI:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • CON'• ''o 4 ,.•  • :120  OF THE ‘P  -0 • -n •  iN /1141\1 ‘ 2 " . • 4n. IVY41 °  •  BOARD OF GOVERNORS  •  AL  FEDERAL RESERVE SYSTEM VIAEJHINGION, O. C. 20E5.51  •,••• • RES':••  PAUL A. v0 LCK ER C HAI R MAN  March 17, 1980  The Honorable Clarence J. Brown House of Representatives Washington, D. C. 20515 Dear Mr. Brown: I am pleased to respond to the questions you raised in regard to Professor Feldstein's remarks at your recent hearings. With respect to the first question, I must note that it is very difficult in practice to assess the level of "real" interest rates, since they involve the expectations of the public about inflation and these cannot be measured. Actual inflation rates are only a crude proxy--one based on the overly simple assumption that people expect future price increases to match those in the current period. Moreover, in terms of assessing the impact of any given level of interest rates on aggregate demand and thus on inflationary pressures, it is necessary to ask whether, after taking all the risks into consideration, businessmen and consumers view the expected real returns on investments as exceeding the real costs of credit. In a sense, the only real test of whether monetary policy is "tight" enough or not is whether excessive borrowing and inadequate savings are contributing to the inflationary process. Certainly the performance of the economy and inflationary pressures at this time would be difficult to reconcile with overly tight policies. More generally, monetary policy--as represented by the ranges we have specified for the monetary aggregates—should exert sustained restraint on inflationary forces in the months ahead. As the Federal Reserve pursues its monetary growth objectives, there will be a tendency for interest rates to move in an "automatically stabilizing" fashion--that is, as inflation or inflationary expectations rise and credit demands intensify, there will be a tendency for interest rates to rise and thereby exert some restraint on borrowing and spending. Your second question deals with the effects of taxes on saving and borrowing. It is quite clear that higher levels of saving are necessary to free additional resources for capital  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Clarence , . brown Page Two  formation. Higher after -Lax rates of return shou ld promote increased saving, and the kind of problem that Dr. Feldstein indicates seems to me serious indeed. I should note that voluminous research over the years has not indi cated that as a practical matter personal saving is highly resp onsive to changes in interest rates, but those studies do not reflect a period of high inflation and interest rates when the difference between before- and after-tax yields is so large. While some tax relict for savers could be helpful in enhancing capital formation, I would caution the Congress to look very closely at the design of any proposed incentives. Many that have been mentioned, including the exemptio n for interest and dividends agreed to recently by the conferen ce committee on the windfall profits tax, would likely produce very little additional saving in the aggregate while givi ng up sizable amounts of federal revenue. I believe that more cost-effective means of enhancing business capital formation is likely to be found by improving incentives for investment. There are any number of devices that might be used. More generous deprecia tion allowances may be one of the more desirable options--and they do represent one indirect way of compenating for the impa ct of inflation on corporate tax burdens--but others should be considered as well. Unfortunately, howeveL, this does not appe ar to be an appropriate time tor tax action:-; th,it will cut into federal revenues and enlarge the government' budget deficit. A deeper deficit would add to inflationary force:; and to pressure s on credit markets. Neither of these developments would be favo rable to capital formation. I would hope that sometime soon , having turned the corner on our present difLiculties and having achieved adequate restraint on the spending side of the fede ral budget, there will be an opportunity to modify the structure of taxation in such a way as to promote oreater investment. Finally, I must that the present problem for savers has become so acute because of the strength of inflationary pressures. Getting control of that situatio n is the first priority today. Sincerely,  MJP:JLK:PAV:vcd (#V-61) bcc: Messrs. Prell and Kichline Mrs. Mallardi (2) Mr. John M. Albertine, Executive Director, JEC  eiction assigned Mr. Kichline  Lure!" ert.rrsrv. TEX., CHAIRMAN WILLIAM pOXMIRE. WIS. ..BRAHAM RIBICOFF, CONN. EDWARD M. KENNEDY, MASS. GEORG/ MC GOVERN. S. OAK.  •  PAUL S. cARBANES, MD. JACOB K. JAVITS. N.Y. WILLIAM V. ROTH, JR., JAMES A. MC CLORE. IDAHO  Concsrt55 of the tiniteb iptate5  DEL.  JOINT ECONOMIC COMMITTEE  ROGER W. JEPSEN. IOWA JOHN H. ALBERTINE. EXMUTIVEMRECTOR   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  111  (CREATED PURSUANT TO SEC. 5( 1) OP  rtrauc LAW  304, TOTH COPOGRESS)  RICHARD BOLLING, MO VICE CHAIRMAN HENRY S. REUSS. WIS. WILLIAM S. MOORHEAD, PA. LEI H. HAMILTON. IND. GILLIS W. LONG. LA. PARREN J. MITCHELL. MD. CLARENCE J. BROWN, OHIO MARGARET M. HECKLER. MASS. /OHM H. ROUSSELOT. CALIF. CHALM ER S P. WY UE, OHIO  WASHINGTON. D.C. 20510  February 20, 1980  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Chairman Volcker: Representative Clarence J. Brown has requested that the enclosed material and questions be sent to you for comment. They, along with your answers, will be included in the record of the hearings on our Annual Report which were held on February 1. We would appreciate your reply as soon as possible in order to insert the answers in the final transcript. Thank you for your attention to this matter. k  Sincerely, SINMIN114  a  jObvv.  JA:sel Enclosure  John M. Albertine Executive Director  QUESTIONS POSED BY REPRESENTATIVE CLARENCE J. BROWN  •  Mr. Chairman, On January 31, a number of Minority Members of this Committee had breakfast with Dr. Martin Feldstein of Harvard. Dr. Feldstein said that interest rates were very misleading. They look high, but they are barely above the rate of inflation, which is now 11 to 13 percent, depending on which index you use. Borrowers can repay their loans in cheaper dollars, while savers see the value of their savings slipping away.  Thus, the real  cost of borrowing and the real reward to saving is about zero. He went further. earned is taxed.  Interest paid is tax deductible.  Interest  After taxes, for someone in the 25 percent tax  bracket, a 12 percent mortgage costs only 9 percent, and the real cost of money after taxes is a negative 3 percent. true for savers.  The same is  If they earn 12 percent on a Treasury bill,  they keep 9 percent after taxes, and lose 3 percent in real terms. Dr. Feldstein said that we were punishing savers and subsidizing borrowers, and beating investment over the head with inadequate depreciation allowances.  The inflation, in other words, is reduc-  ing the nation's savings, and steering most of our available savings into consumer borrowing and away from investment in plant and equipment, which cripples productivity and opens the door to imports.  (Business borrowers also see a lower real interest rate,  but this is offset by a lower rate of return on investment.) We have sharply lowered the incentive to save since the late 1960's.  In 1967, Treasury bills were paying 4 to 5 percent.  Inflation was just under 3 percent.  There was a 1 to 2 percent  real interest rate (before taxes) for both borrowers and lenders.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • There was even a / 1 2 .to IA- percent real interest rate after taxes to both borrowers and lenders, depending on their tax brac ket. Saving was encouraged, at least a little. thing, at least a little.  Borrowing cost some-  Today, the real interest rate is zero  before taxes, and 2 to 6 percent below zero after taxes, depe nding on the tax bracket.  Yet we thought interest rates were low  in 1967, and we think they are high today.  Is it any wonder that  saving was 7.5 percent of personal income in 1967, and only 4.5 percent in 1979 (3.5 percent by year-end 1979)? Chairman Volcker, I have three questions: First, is monetary policy tight or isn't it, judging from real after-tax interest rates; and is it really fighting inflation? Second, hadn't we better make room in the budget to reduce the tax burden on savers if we want to get more economic grow th? Third, hadn't we better make room in the budget to do something about the depreciation problem?   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ft   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .• .• • 01-  • GOtt'• — •  BOARD OF GOVERNORS OF THE  .• 6 --n  FEDERAL RESERVE SYSTEM  •  WASHINGTON, D.C. 205SI  RALitecft" •  PAUL A. VOLCKER  • •.. • • CHAIRMAN  March 14, 1980  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 Mr. Chairman: This is in response to your request of February 12, 1980, for copies of interagency memoranda and other information regarding the monitoring of foreign ownership of U. S. depository institutions. Enclosed are Board staff responses to the specific questions posed in that letter, along with several other attachments. Your letter included a request for a copy of Mr. Carswell's letter of August 2 regarding the regulatory agencies' monitoring system and any subsequent response. A copy of that letter is enclosed as Attachment A. The subject matter was discussed by the Interagency Coordinating Committee, of which Mr. Carswell is a member. Consequently, while a general approach was agreed upon with the ICC, no formal response was made to Mr. Carswell. If you or members of your staff wish further information or have any questions concerning the responses, please call John E. Ryan, Director of the Board's Division of Banking Supervision and Regulation (452-2893). Sincerely,  Enclosures JVH:vcd (0)-46) bcc: Messrs. Ryan, Dah/Coupt Mrs. Mallardi (2)  tt.  Ig  BEUJAMIN S. ROSENTHAL, N.Y., CHAIRMAN ROBERT T. MATSOI. CALIF. EUGENE V. ATKINSON, PA. FERNAND J. ST GERMAIN. R.I. JOHN CONYERS. JR.. MICH. ELLIOTT H. LEVITAS, GA.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  LYLE WILLIAMS, OHIO JIM JEFFRIES, KANS. JOEL DECKARD, IND.  NINETY-SIXTH CONGRESS  Congre55 of tbe Uniteb  tate5  4144)  1L)otite of Ilepretentatibet4 COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE  COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING, ROOM B-377 WASHINGTON, D.C. 20515  417  March 13, 1980  Hon. Paul A. Volcker Chairman Federal Reserve Board Washington, D. C. 20551 Dear Chairman Volcker: It is my understanding that Mr. Houpt of the Federal Reserve staff has been working for some months on a research study of the effects of foreign ownership on U.S. banks and that this work is virtually complete. I am writing to request that a copy of this study be made available to the Commerce, Consumer and Monetary Affairs Subcommittee prior to the forthcoming hearing, tentatively scheduled for April 15 and 16, on the nonbanking activities of foreign bank holding companies. Sincevely,  Benja0n S. Rosenthal Chairman BSR:tv  i.iikioarre—(202) 225-4407  Action assigned to Jack Ryan 'BENJAMIN S. ROSENTHAL, N.Y., CHAIRMAN ROBERT T. MATSUI, CALIF. EUGENE V. ATKINSON, PA. FERNAND J. ST GERMAIN, R.I. JOHN CONYERS, JR., MICH. ELLIOTT H. LEVITAS, GA.  NINETY-SIM H CONGRESS  Congrems of the Viniteb  LYLE WILLIAMS, OHIO JIM JEFFRIES, KANS. JOEL DECKARD, IND.  •  tatez  MAJORITY(202) 225-4407  3E)oti5e of ilfpresSentatiberS COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE  COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING. ROOM B-377 WASHINGTON. D.C. 20515  February 12, 1980  Hon. Paul A. Volcker Chairman Federal Reserve Board Washington, D. C. 20551 r  Dear Mr. Chairman: In connection with the Commerce, Consumer, and Monetary Affairs' investigation of foreign ownership of U.S. financial institutions, it has come to the subcommittee's attention that the Commerce Department, which has been assigned responsibility by the President for monitoring foreign direct investment in the U.S. economy, has been seeking improved data from the banking regulatory agencies on foreign ownership of U.S. banks and other depository institutions. This request for better data and coordination was conveyed to Mr. Heimann in his capacity as chairman of the Federal Financial Institutions Examination Council in a memorandum from C. Fred Bergsten on July 20, 1979. In a recent letter to me, a copy of which is attached, Mr. Heimann stated that Mr. Robert Carswell made a similar request to all five depository institution regulatory agencies on August 2, 1979. Mr. Heimann's response also suggests that the Federal Reserve would be able to respond more fully to questions on this subject. I am writing to request copies of relevant interagency correspondence and additional information. Specifically, I am writing to request copies of (a) Mr. Carswell 's letter of August 2; (b) the Federal Reserve's response to this letter (or any joint response from the Federal Reserve acting jointly with other agencies); (c) any subsequent related correspondence between you or your staff and Mr. Carswell or other Treasury staff; and (d) any subsequent related correspondence between you or your staff and the Commerce Department's Office of Foreign Investment in the U.S. or other Commerce Department offices or officials. In addition, please provide to the subcommittee answers to the following questions, to the extent the information requested is not already provided in the correspondence you will be sending: 1. sof   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  What information, in addition to the names of the affected institutions, will be kept on the second and third lists identified in the attached letter from Mr. Heimann (lists of institutions for, which a change of control has been approved or for which a change of control application or notice has been filed)?  Hon. Paul A. Volcker  2  February 12, 1980  2.  Will these second and third lists be publicly available?  3  Will the second and third lists (or equivalent information) be made available regularly and in a timely fashion to any other government agencies?  4.  a.  If so, please state which agencies and the details of the information sharing arrangements.  b.  If not, please state the reasons for not sharing this information.  Is it correct, as asserted by Mr. Westbrook Murphy in a comment article in the February 7 American Banker (copy attached), that there is no procedure for the bank management or other parties affected by a prospective change in bank control to receive notice of or to comment on the prospective change of control? a.  If this is essentially correct, please state the Board's (or the nt agencies') reasoning for not providing notice or an opportunity to comment.  b.  If this is not in substance correct, please state what are the Board's (or the joint agencies') position and procedures regarding notice of and opportunity to comment on prospective changes of control.  5.  Has the Board received any public comments or correspondence requesting notice and the opportunity to comment on prospective changes in control? If so, please provide copies of all such correspondence.  6.  What actions has the Board taken or will it take to identify the banks that were under foreign ownership or control prior to the effective date of the Change in Bank Control Act?  7.  Will the list of institutions under foreign ownership or control be formatted in such a way as to identify in distinct and separate sections of the list the following classes of institutions: a.  U.S. chartered banks owned or controlled by foreign individuals, chartered banks owned or controlled by foreign banks, chartered banks owned or controlled by domestic bank holding cI mpanies under foreign control,  8   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  I.  FDIC-insured branches of foreign banks, and  e.  other branch and agency offices of foreign banks?  Will the Federal Reserve or any other agency provide, in a regularly scheduled periodic public report or tabulation, aggregate statistics showing the numbers of institutions, dollar amounts of assets and deposits, and related information on foreign owned institutions? If so,  Hon. Paul A. Volcker  9.  February 12, 1980  3  a.  What items will be reported?  b.  Will the information be tabulated separately for each class of institutions identified in the previous question?  c.  Will the information be tabulated by state?  d.  How frequently will this information be updated and released?  Will institutions to be listed on the first list identified in Mr. Heimann's letter (the publicly available list of institutions under foreign ownership and control) be entered on the list only subsequent to actual consummation of an acqution or actual formation of a new unit? If so, how will the Federal Reserve and other agencies determine that this final step has occurred? What report or other source of information will be relied upon as the "trigger" for entering onto the first list an institution that was previously on the second list?  I would appreciate receiving the requested correspondence and information by Friday, March 7. Sincerely, 1 \ Benjamin Chairman  osenthal  Enclosures BSR:tb   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  4  • _ Comptroller of the Currency Administrator of National Banks  coTor-7'rc-  P.71  ,  Washington, D.C. 20219  January 31, 1980  Dear Mr. Chairman: 0, asking for inforThis will have reference to your lett filkfCC/1). mation on how the banking agencies have collectively addressed the question of improved information on foreign investment in the U.S. banking industry. Your concern relates particularly to actions taken as a result of a memorandum dated July 20, 1979, addressed to me from Mr. C. Fred Bergsten, Chairman of the CoEunittee on Foreign Investment in the U.S. Mr. Bergsten's memorandum, which transmitted a copy of an earlier and more detailed memorandum from Mr. Milton A. Berger, Director of the Office of Foreign Investment in the United States, sought the cooperation of the banking agencies under the aegis of the Federal Financial Institutions Examination Council. The Council's mandate, however, is limited to matters of an examination and supervisory nature whereas the request of Messrs. Bergsten and Berger seemed to have much broader implications. At almost the same time Mr. Robert Carswell, Deputy Secretary of the Treasury, on August 2, 1979, wrote to the three federal banking agencies, the Federal Home Loan Bank Board and the National Credit Union Administration, requesting that identical concerns be deliberated before either the Interagency Coordinating Committee or the Examination Council. Since the areas of concern of the ICC reach beyond the examination process, it seemed far more logical and appropriate that these issues be discussed by the Coordinating Committee. Accordingly, ICC members considered and recommended, on November 30, 1979, that the individual agencies fully participate in the maintenance of a master listing of institutions controlled by foreign interests. Most of the information to be maintained will be derived from the Change of Control Reports filed pursuant to Titles VI and VII of FIRA as originally proposed. There will actually be four listings maintained by the Federal Reserve, each representing a different stage in the process of acquiring control, ranging from publicly reported "rumors" to final acquisition. The first list will present the name, location and size of the institution and the percent of' ownership and citizemlhip or Liv. rorf.in ownr.r. Thi:; 11;:t Will include the following institutions controlled by foreigners: American banks, holding companies, Edge Act and Agreement subsidiaries, savings and loan associations, agencies in the U.S. of foreign banks, and New York investment companies. Since this list would be publicly available, an interagency legal croup advised the ICC members that public comment should first be solicited pursuant to The Privacy Act. Preparations are now being made by the legal staffs of the Federal Reserve and the Federal Deposit Insurance Corporation to fulfill this recommendation.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • The second list will consist of the namcs of institutions for which foreigners have applied for and received approval to acquire control but where the actual acquisition of control has not yet been consummated. The third list will consist of the names of institutions for which change of control applications have been filed by foreigners but which have not been approved or disapproved. The fourth list will consist of information obtained through newspapers, including The American Banker, Wall Street Journal, Journal of Commerce and New York Times, relating to foreign ownership of U.S. depository institutions. This list will be publicly available. So far as this Office is concerned, it will cooperate fully in this interagency effort and it has every reason to believe that all of the affected members of the ICC intend to do the same. If we may be of further service, please call upon us. However, we suggest for more precise information and greater detail on the scope and operation of the Plan that is now being implemented that you contact the Federal Reserve Board directly. Sincerely,  Thiann John N Comptroller of the Currency  The Honorable Benjamin S. Rosenthal, Chairman Subcommittee on Commerce, Consumer, and Monetary Affairs House of Representatives Washington, D.C. 20515   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Magazine article Citations:  Number of Pages Removed: 1  Murphy, C. Westbrook. "Return of the Huggermugger." American Banker, February 7, 1980.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Magazine article Citations:  Number of Pages Removed: 1  Murphy, C. Westbrook. "Return of the Huggermugger." American Banker, February 7, 1980.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 14, JAW  The assemble Weltew •Nemiele Preeideet ef the limited Stets. Smote Weehlsobse, b. C. 2010 Seer M. Vise FaMidesti  The lewd  Gewersers of the Federal aseerve System  Le plowed to esibmit its fifth Ammal before ea the board's  functions with meoest to Settles 13(1) of the Federal  Trade  Commieiime Act.  Siacerely,  tncios.r.  President of the U. S. Senate received (date)  President of the U. S. Senate by bee:  Mrs. Mallardi (2) Desiree J. Wolidaw  +10111...  .01...11••••••111.0.0....•  .••••••=•••••••••111.00.  Action as sinmed Mr. Allison  CLAUDE PEPPER 14'm DIE,TRICT, FLORIDA  JAMES F. SOUTHERLAND ADMINI IVE ASSISTANT  COMMITTEE ON RULES  CHARLOTTE DICKSON  CHAIRMAN. SELECT COMMITTEE O.N AdING  Concsre55 of tbe Ziniteb *tato  OFFICE MANAGER  2.239 R A Y OUR N I-1 OUS E OFF IC E BUILDING  JO °lige of 1arpre5entatibe5  R0f3ERT S. WEINER STAFF DIRECTOR JAMES A. BRENNAN ASSISTANT TO THE CHAIRMAN  lasbington, 33.e. 20515  WASHINGTON. D C.  20515  DON PETIT DISTRICT REPTIESENTATIVIE  DISTRICT OFFICE. 712 Housr Apmetx 1 WASHiNGTON, D C.  ROOM 823 FEDERAL BuiLoir40  20515  MIAMI. FLORIDA  111111111P"'  33030  March 14, 1980 k Dear Mr. Chairman: You will please allow me to call to your attention the resume of Mr. Juan E. Acosta of Miami, Florida, who has expressed his desire to serve on the Board of Governors of the Federal Reserve System. As his enclosed resume will attest, Mr. Acosta possesses a very fine legal background, in addition to his experience in the financial and banking affairs of Latin America and his experience as advisor to the Boards of Directors of the Sunshine State Bank and the Total Bank of Coral Way. Mr. Acosta has also expressed the desire that, should there be no existing vacancies on the Board at the present time, he would like very much to serve the Federal Reserve System in a legal capacity. Both Mr. Acosta and I will be most grateful to you for any consideration which can properly be given to his application. Kind regards, and  Very  4ere1y,  de P p ember of Congress Honorable Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Constitution Avenue between 20th and 21st Streets Washington, D.C. 20551 •  Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  THIS STATIONERY PRINTED ON PAPER  MADE WI TH RECYCLED FIBERS  .•• •••.•  ••••* 411  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 personally identifiable information.  Citation Information Document Type: Resume Citations:  Number of Pages Removed: 2  Resume, Juan E. Acosta, 1980.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Nerch 14, 1900  the Neeerlable asses Pa O'Neill, Jr. Speeder si the Nouse et Nepreeeetatives ihmidestes, D. C. 20515 laws  $peehm The Oestd  Ghoersere el the redeye' esserve Systole  Le pleased te abaft its fifth manual seen is the Neerd's fumatises with respect to Seettea 16(f  cd the Federal Trade  cersissies Act. Slaessely,  Speaker of the EMI et Mepauisentatives received (date) Spoakor of the asses of ileperesestativos by  bcc:  Mrs. Mallardf (2) Desires J. Woidaw   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  lloworibut ssi$• assoadmil allsismos essioses. Cessmor thibisimisso eta Iftaitaty Mails Opmeseas ea isimmas alposeelamt ispossaimilliess lam thga• SIMS Vs.  Isessasit  Ikea pee 1st pasii %Ws el Ammolip 1 sipoillo yaw ousweikat llowes ow ifts sidims al es iamb swoosese sambaddis 111161116 illawpor Ass es wiptisi or si IMO* Wei Was ampabiso ft to we andessisillig Oat tba baurts WO beim me ilwilows yaw Oft liewanwor Sir *veil 14 at 10,05 Lob 1 as glismos4 lbws" C. thdlists vill wars se Isholl ad iis $ao&  &BENJAMIN S. ROSENTHAL, N.Y., CHAIRMAN ROBERT T. MATSUI, CALIF. EUGENE V. ATKINSON, PA. FERNAND J. ST GERMAIN. R.I. JOHN CONYERS, JR., MICH. ELLJOTT H. LF.1. /ITAS, GA.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  NINETY-SIXTH CONGRESS  Congrems of tie Unita, tates  LYLE WILLIP.t4S, GHt0 JIM JEFFRIES,!WES. JOEL. DECKARD, INO.  MAJORITY-4202) ?25-4407  3bou5t ot ISeprefientatibefi COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE  COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSL OFFICE BUILDING, ROOM 0-377 WASIiIhGTON,D.C. 20515  January 29, 1980  Hon. Paul A. Volcker Chairr:In Federal Reserve Board Washington, D. C. 20551 Dear Mr. Chairman: The Commerce, Consumer and Monetary Affairs Subcommittee, as you know, has been conducting an oversight review of the public policy issues raised by the Federal Reserve Board's approval last March of the Hongkong and Shanghai Banking Corporation's application to take over control of the Marine Midland Bank in New York. In connection with this oversight review, I am writing to request your testimony before the subcommittee at an oversight hearing on the administration of the Bank Holding Company Act as applied to the overseas nonbanking activities of foreign bank holding companies. I am also writing to request a postponement of any final rulemaking by the Federal Reserve to implement Sections 2(h) and 4(c)(9) of the Bank nolding Company Act until the subcommittee has had a reasonable time to submit comments based upon the record at this hearing. On December 11, 1979, I wrote to you to suggest that the Federal Reserve should withdraw its approval, previously granted under the requirements of the Bank Holding Company Act, of the application of the Hongkong and Shanghai Banking Corporation to acquire control of the Marine Midland Bank of New York. In that letter I also requested that the Federal Reserve report to the subcommittee, at the time of any reconsideration of this application, on its findings with regard to certain questions concerning the qualifications of the Hongkong and Shanghai Bank and the Federal Reserve Board's policy toward the nonbanking activities of foreign bank holding companies. In your response of January 14, 1980, you stated that it would be inappropriate for the Board to vacate its previous approval order, but that you would be prepared to discuss with the subcommittee the public policy issues involved in foreign bank acquisitions of domestic banks. You attached to your response a Board staff memorandum addressing certain questions that had raised in my December letter,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Hon. Paul A. Volcker  2  January 29, 1980  After reviewing your January 14 letter and the attached staff memorandum, I have concluded that this response does not address the central substantive question the subcommittee is raising. That central question is whether, and for what reasons, it is in the public interest and not substantially at variance with the purposes of the Bank Holding Company Act for the Federal Reserve to grant the Hongkong and Shanghai Banking Corporation an exemption from the nonbanking prohibitions of Section 4 of the Bank Holding Company Act. The Congress, in approving the Bank Holding Company Act, recognized that there could be circumstances in which the public interest would be served by exempting certain foreign organizations from the nonbanking prohibitions of the Act. However, this Act assigns to the Federal Reserve the responsibility to determine, by regulation or order, what exemptions granted under the authority of Section 4(c)(9) would be consistent with the public interest and the purposes of the Act. In other words, the Act requires the Federal Reserve to define the public interest, as regards allowing U.S. banks to be owned by foreign corporations having major nonbanking interests. This the Federal Reserve has not done, at least not publicly. While extensive overseas nonbanking activities may not have been an issue in any major holding company applications prior to the Hongkong case, it is clearly a major circumstance in this case. Consequently, because of the precedent setting nature of this case, especially as regards the extensive nonbanking activities controlled by the applicant, it is essential, and necessary for adherence to responsible administrative procedure, for the Federal Reserve to state publicly and analytically the basis for its conclusion that exemption from the monbanking prohibitions of the Act is in the public interest and not substantially at variance with the purposes of the Act. In order to facilitate a congressional review of this fundamental issue, therefore, lam writing to request your testimony before a subcommittee hearing to present the Federal Reserve's analysis on these questions. I would like to hold this hearing, at a date to be determined, as early in March as a suitable prepared statement can be completed and your schedule permits such an appearance. As the subcommittee's oversight hearing will deal directly with certain issues that are (or may soon be) before the Board in rulemaking proceedings related to the overseas nonbanking activities of foreign bank holding companies, I am also requesting that the Board postpone the issuance of any final rules or rule revisions concerning the implementation of Sections 2(h) and 4(c)(9) of the Bank Holding Company Act until after the subcommittee's hearing on this topic and until after the subcommittee has had a reasonable time to prepare comments to the Federal Reserve on the basis of the hearing record. This request for a postponement in final rules need not apply to the issuance of proposed rules for public comment. While you should feel free to include in your prepared statement for the subcommittee hearing any points or material that you believe to be relevant, this statement should contain at least the following elements:  ....1111.141•••• • •  Hon. Paul A. Volcker  3  January 29, 1980  a.  A statement of the nonbanking prohibitions that apply to domestic bank holding companies and the public policy basis for these prohibitio ns;  b.  The Federal Reserve's analysis of (i) how the public interest may be advanced by an exemption from the nonbanking prohibitions for certa in foreign bank holding companies, (ii) how such an exemption for foreign bank holding companies is consistent with the policy of prohi biting domestic bank holding companies from having any nonbanking activities not closely related to banking, even if such activities were locat ed overseas, and (iii) how extensive an involvement in nonbanking activ ities on the part of a foreign bank holding company the Federal Reser ve is willing to accept as consistent with the general public policy objectives of Section 4 of the Bank Holding Company Act;  c.  A statement of how the general position stated above applies to the Hongkong and Shanghai Banking Corporation; and  d.  A statement of whether it is consistent with the policy of "national treatment" for foreign holding company organizations with extensive nonbanking activities overseas to be permitted to own major U.S. banks when (i) U.S. organizations with similar nonbanking interests overseas are not permitted to own U.S. banks and (ii) U.S. banking organizations are not permitted to own nonbanking businesses overseas of the sort controlled by Hongkong and Shanghai?  In addition to the elements identified above, I would also appre ciate having yoGY statement address the following questions: e.  Is it still the Board's position that "it would be inconsiste nt with the purposes of the Act and would not be in the public interest for the exemptions afforded by Section 4(c)(9) of the Act and Secti on 225.4(g) of Regulation Y to be extended to a foreign organization that is not principally engaged in banking?" (This statement appea rs in the supplementary information issued in April 1979 in connection with the proposed rule change that would alter the definition of "foreign bank holding company.")  f.  What is the Board's current thinking, or what alternatives are currently being considered by the Board, concerning a revised definition of "foreign bank holding company?" Has the Federal Reserve under consideration any other possible rules or rule changes to implement the statement of policy identified in question e. above (or any similar revised policy position)? If so, pleas e explain the nature of the alternatives being considered. Sincerely, _  BSR:dtv   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Benjamin S. Rosenthal Chairman  •••••   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Marsh 13, 1,94L  The Itsmasibis Theme S. Foley Souse of Sapessontatives Weshiagtea, D. C. 20515 pear Mt, 7,10y,  lhauk you tor yo-ar letter dated tobouery 22, 1.90, requoottag cornets ea correeveadm se pm maimed from hr. G. aevt41 hibtamao asautive Vice .44resi4ant of Spokone`• First Nat Lem) Bank anatomies Poliposod rwiationo of the Mince of Federal GaotraKto Peepreme el the DeRaronent of Labor (ONco). the rosaLationo no origisally nesomigited defined federal, deposit tesurenre as agovernmeet clearest ter the oixraoaes of gesoutiwo °vier 11246. tnSer the rswiatioes ass 'reposed. OK4P would have the authority to terminate the sismesit inatimme of an legume hook for esseemoliamro with the Order or its imalemettes regplattses. Vibe Sword of Clovereera se the Fedeeel lesewre System Aimed the Otbof fimottal roguistel, aiMaLies La 1,140100401,17 4101,01,105 Orc‘Pse teolweier el deposit isemmemeeIs She deftettise ed a gewerament asatreat. In reepemee to the eameases of the flommist VOgolatery agosicles Sad other p:emmeators, °MCP Lamed a "alartryLeg mondonact to its prepeeed regulations as fahruary 14, IttC, The ameadoent state* that OPOCIPwill met Sober neonatal testitutima tree future faders' dexmat or share keels:ems or eanse1, terminate or suspend onisttmg fedissi tiavoit eat ahem Imogene*. astivithateedies the uLerityies ameadeeet, OFCLe coattail= to moire that deposit sad shore hmeuresee are gamer nest contracts. The Nerd, aloes with the ether agameles, cortieues to motet this definition. "deo setter Ls posding before the Soot Eaplafaiallt Opportunity Csmissies for reselettos ender the dispute essoluttoo procedures is Ileinutive Order 12067. Pors peer eseesehmace. I hews onetelted a cOpy of ClvA,P 4 o clarifying ausaissat• issaarealy• Sffaul A. Volcker  JJJ:CO:Ired (0V-67) JektIess bcc: Mrs. Mallardi (2)„ Mr. Patentee, P. Jennifer  Aeon assianed Mro Petersen  TNOMIASS.FOLEY 6-n; DISTRICT. WAS#IINOTON  CHAIRMAN COMMITTEE ON AGRICULT URE   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Congren of tbe Ziniteb  •  tate5  3DotifSe of ArpretqntatibesS Wastington,;D.C. 20515  OFFICES, House DEVICE BUILDING WASHINGTON, D.C. 20515 AREA Coot 202. 2.25-2004I 574 U.S. COURTHOUSE SPOKANE. W A SHIN()TON 99201 AIWA Coot 509. 454-4680 40 Sour++ CoLvit_LE WALLA. WASHINGTON 19362 AREA Coo 509. 529-4111  WALLA  February 22, 1980  Dear Mr. Volcker: Enclosed is a self-explanatory let ter that has come to my office indicating problems that could occur should certain regulations of the Office of Federal Contract Compliance Programs be approved. These regulations would have, it appear s, a detrimental effect on the efficient operations of member ban ks;)and a number of such institutions in my district have asked und er what authority such regulations can be approved and what the position of the Federal Reserve is on this most important matter. Sincerely',  ( Thomas S. Foley Member of Congress The Honorable Paul A. Volcker Chairman Federal Reserve System Washington, D. C. 20551 TSF:wbk Enclosure  '! 0  1 .1  • 1'()!< A N  VV A fi 14 1 N  I  N  99 2 I 0  455-6424  I  G. DAVID ROBINSON  January 31, 1980  Mr. Werner Brandt Office of Congressman Thomas S. Foley 1201 Longworth House Office Building Washington, D.C. 20515 Dear Werner:  •  A matter has come to my attention that I feel indicates the problems which we have with the regulatory bodies, and am writing you to bring it to the attention of the Congressional office, as Congress may be able to influence the final resolution of this matter. Briefly what has happened is this. Late last year the Office of Federal Contract Compliance Programs, in proposing new regulations, requested that that agency, in the event of a finding of non-compliance with this regulation, could administratively debar a bank from Federal Deposit Insurance (Sec. 60-15(a)). I believe that this is an extremely serious matter which carried potential that is detrimental to the public good. There are some legal grounds for arguing against this proposal which arc briefly:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1.  The OFCCP, whose authority is derived from an executive order, has no authority to enforce their laws or independent regulatory agencies (FDIC, etc.).  2.  The explicit and exclusive guide lines covering the issuance or revocation of deposit insurance do not include references to compliance with the executive order granting authority to the OFCCP. Non-compliance with this executive order may not legitimately be a consideration governing the subscription to deposit insurance.  3.  Deposit insurance is not a contract inasmuch as it is a condition of membership in the Federal Reserve System, the granting of a National bank charter, and in most states, the granting of a State charter. Deposit insurance is more in the nature of a License from these regulatory bodies rather than a contract with them. To revoke the deposit insurance would, in most  •  •  1.  Mr. Brandt  Page 2  Jan. 31, 1980  cases, cause the revocation of the bank's charter. The reasons for revocation of deposit insurance relate to practices which jeopardize depositors' funds - not to violations which in no way affect the solvency or liquidity of the bank. I think it is a matter of extreme public concern that a field operator of the Office of Federal Contract Compliance could, hypothetically, by a single telephone call, remove the deposit insurance of all of the depositors in a bank. I feel this is contrary to the public interest and totally beyond the scope of authority of the OFCCP as well as the intent of equal opportunity legislation. In effect, an alleged violation of a law affecting one person could be detrimental to thousands or hundreds of thousands of depositors. Moreover, I look at this particular move as a sterling example of the total tunnel vision of Federal regulators who fail to comprehend the over-all effects of their particular actions.  •  If the congressional office can exercise any influence with the OFCCP it would be greatly appreciated, not only by the banking industry but also its millions of depositors. Best personal regards.  G. David Robinson Executive Vice President GDR ej   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  • • : oc G011-4  .  EiCIARO OF  0.•  • 01.7(4?  13 • ••• • LAJ  •  •  • Os  •  1-4  FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551  • L.  , I  • ..ee  GOVERNORS r  ); ‘ 4?..  Rt.s• •• • • • • •...  ••  PAUL A. VOLCKER  CHAIRMAN  May 2, 1980  The nonorable Adlai E. Stevenson United States Senate Washington, D. C. 20510 Dear Adlai: I am replying to your letter of April 22 regarding your bill to encourage the creation of export trading compan ies. I agree fully that the United States needs a strong exilort sector. As you know, our export performance in the past several years has been good, with exports of nonmanufactured goods rising by 20 percent in volume during that time. Fundamental to continued growth in our exports is a sharp reduction in the rate of inflation in this country. But marketing considerations are also important. The Export Trading Company Act (S. 2379) puts great emphasis on the need for bank investment in trading companies. As I understand it, banks are regarded as a source of expertise in interliational transactions and as a source of investment capital for trading company ventures. By and large, bank expertise in a range of aspects of international trade is now available to bank customers as an adjunct to the trade financing that banks have traditionally supplied. When one turns to banks as a source of venture capital, it is necessary to ask whether this scarce resource--and, to my regret and concern, bank capital is becoming increasingly scarce--should be conserved as support for bank lending, or permitted to be diverted to other lines of activity that may yield national benefits. I confess that I tend to be conservative in such matters. United States banks with expertise in international banking are already able to make investments in up to 5 percent of the stock of export trading companies through their parent holding companies. To my knowledge, there have been few (if any) such investments to date. If it should prove necessary to expand the present scope for bank investments in trading companies. I hope that such action could be taken cautiously, subject to statutory limits and regulatory restraints, perhaps on a   V,$) , *NO 4,1*. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  44 . 44.  45  • •  •  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The Honorable Adlai E. Stevenson Page Two  case-by-case basis. It would he important to guard against significant involvement by banks that do not have the requisite experience in international finance. I should he glad to discuss the response to those questions further if it would be helpful. I also understand that Governor Wallich is responding to a number of questions that you have raised in connection with his statement on S. 2379. Sincerely, fe w /  heAQ 44:ir  SZe  ptaaite zriLe aiik dt /taw, etLete cstee   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mae* it, 19$0  the Ilemeghl• IWO= L. 1101 Cheismee Sibeenmituse es laternetiemel Zmiestmema Meeetary Maw Germatee se fleemos end *bee AMU* NM* afteeemtativeS Ilealiegies, G. C. 2CitS am  Chettwootz  lima you ter peer keilieit et Mirek le inviting the Demi a esetity at your eabeemmiteesse hoertele oe the role 611 IL S. beim La 'recrting7 the WIC Surplus, 'antes:do/1y to lesivideveleped csuatrisa. Oavermer Meng C. Italtta elil appear se behalf of the leord ea *INK' 1 10:0C 4416 Sincerely,  cO:ved (#V80) bcc  4ev. Wallah We. Miallardi (2)  STEPHEN L. NEAL, N C.. CHAIRMAN •  JIM LEACH. IOWA HENRY J. HYDE. ILL.  LES AIJCOIN. OREG. JOHN J. CAVANAUGH, NEBR. JAM175.1..BLANCHAFD. MICH. DAV.D W .7:TANt EY N. LUNDINE, N.Y. DOUG EI.ARNARD. GA. MARY ROSE OAKAR, OHIO JERRY M. PATTLRSON. CALIF. JOHN J. LAFALCE. N.Y. JIM MATTOX, TEX. MICHAEL LOWRY, WASH.  i.lottorofatrprrseittatittes SUBCOMMITTEE ON INTERNATIONAL TRADE. INVESTMENT AND MONETARY POLICY OF THE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS  GEORGE HANSEN. IDAHO CARROLL A. CAMPBELL. JR., S.C. NORMAN D. SHUMwAY, CALIF. J. WILLIAM STANTON. OHIO  1/7  NINETY-SIXTH CONGRESS  illttslyirtgton, D.C. 20515 I  March 10, 1980  The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, DC 20551  Dear Mr. Chairman: This Subcommittee would like to invite a member of the Board o Governors to testify on the role of U.S. banks in "recycling" the OPEC surplus, particularly to less-developed-countries. We have completed several days of Hearings on H.R. 5970, a bill to increase the quota of the United States in the International Monetary Fund. Much of the testimony stressed that, though banks will continue to play an important role in financing the current account deficits of developing economies, they may not be able to finance as large a share of the anticipated level of deficits as they have in the past. Thus, alternative channels for "recycling" the OPEC surplus must be found. If those alternative channels are not adequate, the deficits of oil-importing countries will fall below desired levels, to the detriment of their plans for economic development, with possible damage to the world economy. In the course of this testimony, serious concerns have been raised about the role of U.S. banks in this "recycling" process. If they were to reduce their role in recycling to a significant extent, the danger could arise that, even with greater reliance on the IMF, the alterna tive channels would not be adequate to the task. If, on the other hand, U.S. banks increase their international lending, to whatever extent might be required to insure the financing of the projected non -OPEC deficits, they could be saddled with a dangerous level of risk on their international assets.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -  It is important that the proper role of the banking system in "recyc the ling" process be well understood, and that the risks of an excessive role be thoroughly evaluated. Such an evaluation would be an important component of the rationale for policies that promote alternative channels for "recycling," such as the IMF. To help us evaluate the proper role of the banks, the risks they face in international lending, and the activity of bank regulators in identifying and minimizing those risks, we invite the Board, through the Governor it designates, to address these questions:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  (1).  What will constrain the role of banks, in the future, in financing LDC deficits, relative to the role they have played over the past six years?  (2).  Does the increase in the absolute level of debt owed by many LDC's substantially increase the risk of further lending to them?  (3).  Is the capital of major U.S. banks adequate to support further lending to LDC's?  (4).  How do the supervising and regulating authorities evaluate "country risk" in examining bank loans? Are there indications of an increase in "country risk?"  (5).  If the major banks engaged in international lending reach their prudential or legal limits of exposure in various LDC's, will other banks, not previously involved in significant international lending, be drawn into the process? Is it realistic to expect that they could take on a large amount of international lending? Would it be desirable for them to try? Should bank regulators discourage extensive international lending on their part?  (6).  Should constraints on bank lending to LDC's be modified or relaxed, in recognition of the need to "recycle" a much larger OPEC surplus, and recognition of a lack of major alternative channels outside the banking system ?  (7).  If U.S. banks cannot, or should not, play quite as large a role in "recycling" the OPEC surplus, can the banks of other countries be expected to fill the gap?  •  •  3  •  (8).  How do the banking authorities evaluate the riskiness of loans of foreign branches and subsidiaries of U.S. banks? Are the examination procedures and criteria the same as those applied to foreign loans extended by banks in the United States? Do the risks incurred by banks, and the potential dangers to the banking system, differ significantly between loans extended from domestic banks and loans extended from their foreign branches or subsidiaries?  While we have formulated tot h  es ti ii ns, and e, e rigid or exhaustive. Please feel free to extend your testimony to any related matters that would be useful to our Hearing. We have also invited the Comptroller of the Currency to testify on these questions. The Hearing is scheduled for 10:00 a.m., in room 2128 of the Rayburn House Office Building, on Tuesday, April 1. Sinc  .4%  SLN/bj   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1  en L. Neal hairman   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  3e.reb 11. MO  lbs Memorable Mosglaa Serriotior ammo si Aspsesestatiose Ifteligesseu4 D.C. 20315 lees irt lieroeter I esploseed to respood to the essOmese of ewe of yews seustitft omits, lire Jobe X. Vas, Aleut the resent esoduct of eaustery policy and its .1fist ea the henibuildiog isduetry. The resent eherp imeresses is itememst rates hove fellswod Mom the eceeleretium ef islistise pod cemetery restraint. The neje, Oblesttes of rederel Meseros Wiley bee heels to motels the esprogste growth of sway sod credit sod them*, assist is the matises effort to fight ions. ties. Progreso toward semerleg as adsocete supply of mortgage credit at reeleteble rates of Lamar* 1140410/1101 abet isf/stionery pressures be Meleed. Sy *Optima so imeedinetely okay esustery policy, the federal Mersorve migbt he able le hese tbe lemeral level of interest rates to VAMO10+44141d tosser * IWO maple supply of dritifirra-Rfarleding of limey emd credit, mosIgsgssiSIft. Aosonessive learsese th ti hosevore would provide only tosposerp :allege Before lame beth Leolets ami borrowess would adjust choir behavior ems esiebssed peso ed iellation, sod Lateran rates comill wise sharply despite Mhe eutpooriag of lowly soested mosey. Inflation' end high imtereet rotes hoed to go togethvt, as history esply iesseetretle, sad both bead em sorieue difficulties for hoset• rupees sod hemsbuilders. The Pederel ammo =derives& that retie& of tight credit siesta palsies for she hentlis Sedeetry M particular. la this relsoi, it is hopertamt that she herdes of fightimg imitative mot rely am the Federal Mesons alms and that beaks sod ether teatitatiome tehe sees is mating the appregelste soodit meads of the homsiag industry. I hoes orgmd the beehive soommoity to mobs special efforts to assomesdate worthy borrowers, inelodies hemibeysre, sod all businesses among others. Uopsfully, eddittoes1 gererensetal efforts to gels control ef imitation will be fortheawiss and will bosoms the retorts of lower WOVIIMIt rotes, JLE:pjt (0V-65) bee: W. Kichlise Wes. Mellardi (2)  Sineesely, _  vo ,  DCUOLASBEREUTER 1ST DISTRICT. NEBRASKA  ZOMMITTEE ON INTERIOR AND INSULAR AFFAIRS suRcomwmm ENERGY AND ENVIRONMENT NATIONAL PARKS AND INSULAR AFFAIRS WATER AND POWER RESOURCES  alb  jAsimwrom evict: 1114 LONGIVORTH HOUSE Ornu BUILDING WASHINGTON. D.C. 20515 (202) 225-4806 DISTRICT OrTICES:  Congrust4 of tfie Uniteb *tato:4 jipule of 11tprcentatibel  COMMITTEE ON BUSINESS RURAL CAUCUS  SMALL  1043 K STREET P.O. Box 82454 LINCOLN. NEBRASKA 68501 (402) 471-5400 220 WEST 7TH STREET P.O. Box 213  adington, 3D.C. 20515  WAYNE. NEBRAskA 68787 (2)37S-3030  (NJ ( '  •• •  •  February 26, 1980  Mr. Paul Volcker Chairman Federal Reserve System Board of Governors Constitution Ave. and 20th Sts., N.W. Washington, D.C. 20551  .n 1  -  -AIKIMMU  Dear Mr. Chairman: Please find enclosed a copy of a letter I have received from a constituent of mine.  4..11•111I  ,4140.41e„0 • ,04 •) , • 0,4:,,3 •  Would you please address the concerns he expresses in a letter to me? Thank you for your attention to this matter. mammomasie  Best wishes,  tAido DOUGLAS BEREUTER Member of Congress  •  -••  f.`.  o  DB/rwh  Action assigned to Mr. Kichline  •otTHIS STATIONERY PRINTED ON PAPER MADE WITH  RECYCLED FIBERS  al1111111111Minmenommigiaimmemm_ .Ak • ‘1,1•  •. 7.,  'r •  .r  ^  1  4:447;Irs:•.'!•.'"   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  Vahoc Cowtraction Co.  Oa  113 SOUTH MAIN • WAYNE. NEBRASKA 68787 • PHONE 375-3374 RESIDENTIAL AND INDUSTRIAL BUILDING ROBERT L. VAKOC. PRESIDENT - JOHN E. VAKOC. VICE-PRESIDENT  February 21, 1980  Honorable Doug Bereuter House of Representatives Washington, D.C. 20515 Dear Ccngressman Bereuter: IT'S NOT WORKING! Chairman of the Federal Reserve Board Volcker's attempt to fight inflation with tight money is akin to fighting a fire with gasoline. As homebuilders and operators of a retail building materials outlet, we are caught in a battle where few buyers can afford current house prices and mortgage rates and, where at the same time, wholesale prices continue to rise at better than 1% per month. We have already seen a collapse of auto sales and housing sales. The forced maintenance of those inventories with high interest financing is proving calamitous to businessmen in both industries. Our 33 year-old family business is struggling to survive with the prospect of success becoming dimmer each day. By the time this reaches you 75% of our work crews will have been laid off. Our attempt to realign our operation with a market crying for affordable housing by developing a subdivision of small building lots may soon be squashed under the impact of regulatory costs and high interest.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Congressman, we need relief and we need it quickly!  Sincerely yo.urs, , John E. Vakoc, Vice-president   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 8, 1980  Ths H movable Mermen D. She-way ages et lepreeeetattves Iftehiegtos, D.C. 205/5 Dear Mr. Shammy: la response to several petitions, including yeer February $ Latter* the Sewed has de/eyed until May 31* DSO* the effective date of its settee revoking the Truth in Leedieg ememdment regardieg the resets.. stem reruiremetits for eertais epeemeed sada Sam secured by borrows' Isms. As is prueeetly revolved, creditors mould be prohibited from daring env plane or emprodiss ezistieg plass during the twommath smasmsism. Ms pesos silissee essomunsing this desisios is enclosed fer yew bilimemsitou liaserely*  Leeleeure (press release dtd. 2/29/80.) BR:14112:DJW:p t (#V-45) bcc: Mrs. Mallardi   • https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 7, IOW  lbe ileeeroble Jigs Sasser Veined Stites Senate Slashlegtoe. D.C. 20510 011er 114110tie  Sesser:  Thank pee ger your letter of Mibrnery 12 coeserains campilsieta you reeetved free*. lefts Odes, Meesettee Vice Possideet of the Misses Sauk, Solthwille, lissOnses, reisrdime certain eeemiseties premeditate mad findings. Your totter tediestes the toiletries teeapseifto 4,04101alata by Mi. Odom: 1. That Mr. Hee end his wife have bees galled to esoemet by federal %mem emeadoers ger small overdrafts of sheet &reties te their pommel onseemats at the Citifous lesh4 and 2. That the Citifying Seek is betas ambily seeitered by the fedaral Meserve Senh ef Attests so arrideased by dis bict that two emendmetiese of the belh hresbeseessinsted is the pest twelve months. With respect to eneolsatios bloomer', it is the policy of the Bedard Seeerve System te ememine each State esaber bank at toast esse par eelesdor year. lu eshodwiles the enasimettee of a particular beak, it is sometimes accessary or desirable to very the timing of the ingemlestise within the cal/seder year. Sesh chaise& la schedolleg are the moult of a variety of factors isaludies availability of personal, coordiesties with state eneelastieee end is same cases the seed to preserve the elemeat of surprise is the badk ommdastise process. Regardimg the twee of overdrafts by Meek insiders, eur maidares awe shed with the reppmegibility to edgeree the prehtbitiess es am* preetices as outlined in the recently eseeted gimemelal leetitutions Sew latery sod Interest late Control Act of 19711. the Federal Lasers* Bea eg Attests has bees requested to review the foots supportiss the omemimees Medials with respect to Citiesse Sank end to communicate the results to Mr. Ilkiesh SITICOspjt (#1,-53) bec: Sill Taylor Jack Ryan Mrs. MsIlardi  Sieeerely, Sea41 A. Voicket  Assigno to Jack Ryan.  JIM SASSER  '  COM MITTICS•  TENNESSEE  APPROPRIATIONS BUDGET GOVERNMENTAL AFFAIRS  '21Cnifeb ,Sfafez Zenate WASHINGTON, D.C. 20510  . 3 r• • • I". r  F - nFr  February 12, 1980  Honorable Paul Volcker Chairman, Board of Governors Federal Reserve System 20th Street and Constitution Ave., NW Washington, D. C. 20551 Dear Mr. Chairman: Mr. Hoyte Odom, Executive Vice President of Citizens Bank, Smithville, Tennessee, has contacted me concerning what he considers to be a minor infraction in connection with his banking activities. Mr. Odom contends that slight overdrafts by him or his wife do not remain on the bank's books more than a few days at a time, and it is his feeling that he should not be called to account for them. Also, Mr. Odom indicated that it is highly unusual for a bank examination to take place in September, and then another to occur in late January. The attached remarks were provided by Mr. Odom as having been made by the Federal Reserve Bank of Atlanta, Georgia during the September examination. It is his feeling that the Citizens Bank is being unduly monitored.  1044444...  110111. • fr  44? 4  I wanted to pass Mr. Odom's complaint along to you for your information and for any action you may I will be pleased to share with my deem appropriate. constituent any report you may wish to provide on the matter. ncerely,  im Sasser United States Senator  Ao-AA$Ar . art   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  v'r. • P' • -  ' ,f;, .•  fs ••4 •••• • .%  "  • 115•*- ."1 -"" .arfte ' ••••• .•  T •  .••••',":  • •a-r •  -  ' • •/1:ft• "'Id 0- • "•';'"4 ••• eocirs-  -  %my  7;*!6'4%-re).-11, - :';, :,:.?"1 "-Iffs:.1`, ,.;:yr.7Y4  .*.t, 4 7' '201. ,rt 7.: 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 internal or confidential information.  Citation Information Document Type: Bank examination Citations:  Number of Pages Removed: 1  Report of bank examination of Citizens Bank, Smithville TN, by the Federal Reserve Bank of Atlanta, 1980.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Ihesedge Fes* hemeelie IIWoes Illsbeessiesee ea ttosemer Onotiales se lieldast Mom Mei $16110 Atb ism. of leproesstottees litallittegtee. D.C. 20513 Ism Chairman Ausuansios %Ma La te eslitasSeaps your Letter of February 27, la which t. a per *joss to Beard piqpineie diet stembil delay the effective da eenalla liaised portless d lisiosisttea Ze aft witbdreoel of these Ibe BOW MINIS up ths  nwiere be seeemell drat your request  peipesola bill be essolliseed esrefully oboe Meter stew the clasp elf tie eaument portal as  The Sewed oppiesiesso heviss poor emismi, aftlimalips SiPatAIA.Voklig ileagespjt (V-64) imost Deiares Smith Mrs. Itellardi 2)  7.  Hart •Action assigned Janet  •  FRANK a.NNUNZIO, ILL., CHAIRMAN GL),DYS NOON SPELLMAN, MD. BRUCE F. VENTO, MINN. WALTER E. FAUNTROY, D.C. PARREN J. MITCHELL. MD.  THOMAS B. EVANS, JR.. DEL. CHALMERS P. WYLIE. OHIO DON RITTER. PA.  U.S. HOUSE OF REPRESENTATIVES  CURTIS A. PRINS. STAFF DIRECTOR  NINETY-SIXTH CONGRESS  SUBCOMMITTEE ON CONSUMER AFFAIRS TELEPHONE.225, M81  OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS  )01  ROOM 212 HOUSE OFFICE BUILDING ANNEX  WASHINGTON, D.C. 20515  February 27, 1980 Docket No. R-0272 Honorable Paul A. Volcker Chairman Federal Reserve Board 20th Street & Constitution Avenue, N.W. 20551 Washington, D.C. Dear Chairman Volcker: I strongly protest the Board's proposals to delay the effective date of some of the provisions of Regulation E. The proposed delays are completely unjustified and exceed Board regulatory authority. Congressional criticism of the Federal Trade Commission for exceeding its authority should perhaps be directed at the Board for blatantly exceeding its authority with respect to the Electronic Fund Transfer Act. Consumers may be harmed by the proposed delays. The periodic statement information proposed to be omitted is needed to provide consumers meaningful periodic statements, for resolution of errors and for periodic statements to be usable proof-of-payment documents. The other proposed delay, the requirement of having an electronic terminal receipt available at the time of a transaction, is also important to avoid errors. The proposed delays are not warranted. Financial institutions have been on notice since November 10, 1978, that the Electronic Fund Transfer Act and its implementing regulations would go into effect on May 10, 1980. With respect to the proposed periodic statement delays, the Board staff conceded at the January 23 Board meeting that 50 percent of the financial institutions were prepared to be in compliance by the May 10, 1980 effective date. Similarly, with respect to the proposed delay in requiring cash dispensing terminals to make a receipt available to consumers, the Board staff at the January 23 Board meeting indicated that only two financial institutions had notified the Board that they anticipated a compliance problem. If the financial institutions who are requesting these delays would incur additional costs in the event no delays are permitted, that is a price they should pay for not making a good faith effort to meet the compliance requirements of the law and Regulation E as other financial institutions have done.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  w  e  -, .,  Honorable Paul A. Volcker February 27, 1980 Page Two  Furthermore, as I stated in my letter to you of January 18, regardless of when Regulation E or any of its provisions go into effect, the Electronic Fund Transfer Act will go into effect as Congress provided in the statute, on May 10, 1980. For all of these reasons, I believe the Board should withdraw these two proposals for delay.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  With every best wish, Sincerely,  Frank Annunzio Chairman   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  march 6, MO The ilseersiote Bealoofa $4, IIafrt Cholalee Sebelowittoe oe Memo% fiseemer sad liewstery Affable Ceseittee ea asteitsemet Oyer -tiara sewn a SepreesseetSoes laseldhatea, D.C. MI5 sv Cheireme aseeelibsts Thaw& yea Saar war letter of Mama 27, with %oldish yea essliesed year essmets to the liedosel Boss Loan Sash lieerd se their remesotiabie wet* isartgege pempseel• Tee are eseeorsed the. the $ash Beardes proposed vegslatiess nay peewit tieseeing arrappeammts ghat affeetively frestralle a esesommes ability to somperteee ahoy Sir 411111edit. We see aware the, the rseesotlible reels mortgage raises some iditammit ouestiees Meet bow to sobs useful sad esearete disclosures to IMMOMMIOS ado, both the Teeth Is Leal* Aft sed the $alk Iseves riewlew Oboes. laer staff has taltiebed dissuasions et* the haeal lewd staff es Mfg Illittar. I. se betpdal that WO Mill be shte to demise a solstice that semmege the meet ememdegful informatics to Os sawarars at a tins sad is a iru-r thet facilitates istollieeilt astedie abeiedws. with romeod to yew ilmolairy abase 01111111111101 pretectises applicable teeieble rate emd reessealahl• rime osolipesse„ I isead agate that ell Seedtes efforts. ewe alootemies are regates. to alma.** folly the terse pertlealar, whims a verioble rate feature is seder hagulatise 110 beilleded, the ossilettee requires disegeomme of tediometisa about whoa sof bow woes tesseeess will eteme and erepples of whet offset a rate se04 *WA bees ea dos'emu* smog atmotwritY• The hoard doe est ceetoaplate areWorietias she lesesees of at barbs. we Wriabla rate or resegotishie sets eortgagse by state de, bswevor, easaitor tberaowtb of varis eltenottwo assigaige iestreseets, est vs will certainly emplers soy abuses yr wafair practises that say deeellepik appavelate 'OMR ausere Mott olds matter. aupjt (P1-63) Wand bees Mrs. Manardi (2)  44411It, Volckec  ction assigned to Janet Hart •  •  BENJAMIN S. ROSENTHAL, N.Y.. CHAIRMAN ROBERT T. MATSUI, CALIF. EUGENE V. ATKINSON. PA. FERNAND J. ST GERMAIN. R.I. JOHN CONYERS. JR., MICH. ELLJOTT H. LEVITAS, GA.  NINETY—SIXTH CONGRESS  Congre55 of the Uniteb taws  LYLE WILUAMS, OHIO JIM JEFFRIES, KANS. JOEL DECKARD. INC/.  MAJORITY-(202) 225-4407  rJ  3bott5e of iIeprefSentatibui COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE  COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING. ROOM B-377 WASHINGTON. D.C. 20515  February 27, 1980  Hon. Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, P. C. 20551 Dear Mr. Volcker: Enclosed is a copy of my comments to the Federal Home Loan Bank Board on the proposed regulations for renegotiable rate mortgages. I would urge your particular attention to the possible effect of these regulations in permitting contractual arrangements that may frustrate the basic truth-in-lending objective of facilitating comparison shopping. Consequently, I would urge that serious consideration be given to the imposition of basic consumer protections on renegotiable rate mortgages issued by state member hanks. Any such consumer protections should include, in my judgment, a requirement that the rate change at the time of renewal be based upon the movements of an index of national average market interest rates. Renewals at the banks' own prevailing interest rates should be prohibited. Are you currently considering the imposition of any consumer protection restrictions on variable rate or renegotiable rate mortgages issued by state member banks? If so, when might such regulations be proposed for comment, and what basic consumer protections may they contain? Sin  rely,  Benja in S. Rosenthal Chairman  BSR:dtv Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ROSEHrHAL N.Y.. CHAIRI.AAN  LYLC WILLIAM% OHIO ltrt- Rif S. KAMS.  Poo:rprT T MAT!.1/1. cALir, ;WAN(' V..,TAiN...r.)H. PA. ' FERNAND J. ST cd ....PAIN. R.I. CONTERS. JR., p.41CH. CLUOTT H. LEvITA5, G.A.  /0[1- OTCKARD. IND.  NINETY-SIXTH CONGRESS muonirr —WO 2:5-4407  Copgrcfsil of the Ziniteb  tatez  3i)ott5e of 1Vprt5entatibr5 COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE  COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING. ROOM B.-377 WASHINGTON, D.C. 20515  February 26, 1980  Hon. Jay Janis Chairman Federal Home Loan Bank Board 1700 G Street N.W. Washington, D. C. 20552 Dear Chairman Janis: From the perspective of consumers, the Federal Home Loan Bank Board's proposed regulations for "renegotiable rate mortgages" (RRM's) are seriously deficient in certain respects. I am writing to state the most important elements of the proposed regulations that need revision or strengthening in order to meet the requirements of fairness to consumers. My criticisms, in summary, are that (a) the provision permitting the interest rate on renewals to be set at the individual association's current market rate is inherently unfair to consumers and will prevent effective comparison shopping for RRM's; (b) it is essential that the interest rate at which renewals are made be based upon changes in a national index of market rates, not upon the individual association's current market rate; (c) an index reflecting the average cost of funds of associations (or some related measure based upon the rates being paid on depository institution liabilities) is inherently unfair to consumers and should not be used as a substitute for an index of market rates; (d) the proposed disclosure requirements omit several essential disclosures; (e) as a consumer protection measure lenders should be required to provide in their RRM contracts the option for the borrower to renegotiate the rate on an outstanding RRM at any time prior to the contract renewal date; and (f) as an alternative to the renewal option for borrowers, the index on which rate changes would be based at the time of renewal should be a moving average of market rates over the previous five years (or other period of time between renewals). Disclosure of the cost of credit in a meaningful way that facilitates comparison shopping by prospective borrowers has been a fundamental objective of the Congress for many years. The Truth in Lending Act is built around this principle, and the disclosures to consumers concerning the terms of variablerate mortgages have also had as one of their objectives facilitating meaningful comparison shopping by prospective borrowers. If at the time of renewal of   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  •  Hon. Jay Janis  2  February 26, 1980  renegotiable rate mortgages lenders are permitted to charge interest rates determined at their own discretion, then the objective of meaningful cost disclosure for comparison shopping will be completely frustrated. Prospective borrowers will have no basis for determining which lender's mortgage loan will be the least costly in future years. If the future interest rates on all renegotiable rate mortgages are required to have their rate changes move up or down according to the movements of the same national index of interest rates, on the other hand, then every prospective borrower will be able to know with certainty that (a) two lenders who offer to charge the same interest rate initially will always charge the same interest rate in the future also (i.e., they will both impose the same permitted rate increases or decreases in the future) and (b) any lender whose loans initially have a lower interest rate than those of competitors will continue to charge a lower interest rate in the future, after renewals, for the same reason. Therefore, it is essential to meeting the minimum requirements of cost disclosure for comparison shopping that all renegotiable rate mortgages be required to base their interests ratesat renewal on the movements of a national index. In the absence of this requirement that renewal rates be based on a national index, some associations may be expected to raise their rates to their RRM customers by more than market rates have gone up. A likely scenario would be for an association to experience a profit squeeze or a shortage of new loan funds (due'to poor deposit growth, for example) at some future date and to decide as a consequence to charge a higher rate on its new mortgages than competing lenders are charging. The consequence of such a decision, taken quite possibly for sound business reasons, would be that borrowers whose RRM's were renewed at this time would be subjected potentially to greater rate increases than comparable borrowers at other associations. The theoretical option for the borrower to refinance with another lender at this time is not a satisfactory protection against such abnormal rate increases. Substantial costs and fees must be incurred by the borrower who refinances with another lender. Furthermore, at certain times and in certain local lending markets, mortgage funds become virtually unavailable, and the borrower who attempts to refinance under such conditions may be unable to find any alternative source of funds at any reasonable terms. Consequently, it is essential that the renegotiable rate mortgage regulations provide protections to guarantee that borrowers will be able to receive fair and reasonable lending terms on all renewals with the same lender with whom the initial loan is contracted. This, as I have stated above, requires that any interest rate changes at the time of renewal be constrained to be no greater than changes in a national index. For reasons that I have stated in previous correspondence, a national cost of funds index (or some other index based upon the rates paid on depository institutional liabilities) is not an acceptable substitute for a national market rate index. Rather than repeat the analysis I have presented previously, I am attaching to this letter my previous correspondence and article.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Hon. Jay Janis  •  3  February 26, 1980  The proposed regulations for renegotiable rate mortgages do not provide adequately for disclosures of information that would enable the borrower to make an intelligent judgment. In addition to the disclosures already provided, there should be disclosure of (a) the exact dollar or percentage amount of any prepayment penalties that will be assessed in the event of prepayment at times other than a renewal date; (b) the history for the past 15 years of any index to which the changes in the mortgage rate on an RRM are pegged; and (c) the exact charges that will be made for documents or other costs at the time of renewal. In addition, if it is decided to permit renewals at each individual association's current market rate, then the disclosures at the time of the initial loan must be structured in such a way as to convey forcefully and prominently the information that this contractual arrangement permits the borrower to raise the rate on this loan by more than the increase in general market interest rates for other comparable borrowers. While this is a minimal disclosure requirement for this situation, it in no way would make adequate cost comparisons possible. Consequently, provision of this disclosure would not meet the objection raised earlier that effective cost comparisons are not possible if renewal rates can be based on the lender's own current market rate. There has in the past been a substantial cyclical element in the movements of mortgage interest rates, such that these rates may at certain times change up and down by as much as two percentage points or more in a period of less than two years. Because of this cyclical element, whose future pattern borrowers can not know in advance at the time they contract for a loan, certain unlucky borrowers will be subjected to greater increases in their rates at the time of renewal than other borrowers whose renewal takes place at a more favorable time in the interest rate cycle. In order to lessen the impact of this random unfairness in the operation of the RRM's, therefore, all lenders should be required to provide in their RRM contracts the option for the borrower to renew his loan at any time prior to the contractual renewal date. In the case of unlucky borrowers whose initial renewal has occurred at the time of a cyclical peak in interest rates, this option will provide them the opportunity to get a lower rate one or two years later when the rates have declined from the cyclical peak. As an alternative to the early renewal option, the index on which rate changes would be based at the time of renewal should be a moving average of past market interest rates, averaged over the previous five years (or whatever other period of time corresponded to the span of time between renewals). This use of a moving average index would also protect borrowers from random unfairness because their renewal dates happened to coincide with a cyclical peak in interest rates. Cyclical peaks would be averaged together with more normal interest rates in constructing the moving average, and consequently all borrowers would be treated in a more nearly equal fashion in the setting of renewal rates.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  J,  •-•  Hon. Jay Janis  4  February 26, 1980  I hope that the weaknesses of the proposed regulations that these recommendations have addressed can be fully corrected by the Bank Board before the promulgation of final regulations. Sincerely,  Benjamin S. Rosenthal Chairman  BSR:dtv Attachments   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  'nrcis 6, 1980  The Sonersble Alan Cranstal Onitosi States senate Weektegtore, D.C. 20510 I_ er Senses, Cremations Is nespesee to eleeema petitions, including your February 19 lettor, the Siete hes leisysil until May 31, 1980, the effective dote of its action weelking ths Troth in Lanais ementemet regarding the weecianice remanent') for certain open-eed credit gam seemed byberrowers' hones. As is presently reruired, creditors would be prebibited from offering new piens ow expanding existing Flame dories the twemneuth extension. ibe press releAse announcing this desisies ie emelesed for your information. aineelitty, Sib'II A. Ifolskat  imelosere (press release dtd. 2/29/80) BR:MPE:DJW:pjt (V-56) bcc: Mrs. Mallardit-' -(Identical letters also sent to Sonation, Sere awl Trater,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  S, 1940  The liseersbits f I. illetseehens Ratted Stets* $emebe Veshimeheet D. C. SO310 NM Senator tietesabess. thank yes ler yew recent Letter veseedise the effectiommess semotary psi$e La siortio tmeleties. ten hove *steed a amber el Speeffi, . mast* es sell es the beeeder glostien et the relatimmelkap betwese tmesseet rate* sestil Ube te oohs * weber et eemeeste tellealerk freeeease. ?trim, you eee oereect Shea MOM leiesest rates de raise the orate ef **ins Waimea mod in erne *am MOP* Sags resserss 0* the geeerst zealot et orioles fa the sheet roe* ilsommer,I Mateo* tbst* sess sop esno.Aseul peried St Mans, the set etto t of a rise is Meterest SO000--Imere partielleLerty. 'reel" sates—Ls se reCiee Intiattemery pre,esese• 'Weed* the rise Ls Letlerest rotes oem beesily be delleetited with She Latlatfeesey possess itself. Salvoes ei meet. imiLl be ee mem them iliedisoese of gado sad seeviees t• beep their Woes Lev tadeftmitely sine ether priAme ewe rising'. Myer* lolli instead speed. es they ere dotes Seder* se esese4 seam of the feet tbst Maher temitoes integer* seas de raise the Ceesumer Fries beam; and if owe mesesse• Odes iserAemmesce by this Wen. the Sesame, for tetseeet rotes mud esseemed ieflatime to be peetaketly meresteted is essAedeed. 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Nits• IMIttlandi (2) Hz.  wAnnr4c.. MAC:M.)50N. WASH.  mAiNr. CHAIRMAN HENRY nrt.LmoN. ()Kt A  ERNECT F. HOLLINGS, SC.  PETE V. DOMENICI, N. Mr  rnmoNn • LAW-7) ..4 cum- s, FLA. JOSEPH R.  Action assigned Sore Axilrod  MUSKIE,  p,ni-N.  JR.. DEL. ot4NtTON, LA.  J. BENNETT Jim sA, , , ,ER, TENN.  GARY HINT. COLO. HOWARD U. METZENFIAIJIA, 01410  4:••  13011 PACKWOOD.(MFG. IL (lAM L NANCY I.  AoRmstitoNr., cot 0.  KAS5rnAtim. KAN.".  RuDy 110' C“WiTz. MINN ORRIN G. HATCH. ('TAN  "Zertifeb ,T•tafez Zeltate  LARRY PRESSLER, S. OAK.  DONALD W. RIEGLE, JP., MICH.  COMMITTEE ON THE BUDGET  DANIEL PATRICK MOyNRIAN, N.Y. J. JAMES EXON, NEBR.  WASHINGTON, D.C.  20510  JOHN T. MC EVOY, STAFF DIRECTOR ROBERT S. BOYD, MINORITY STAFF DIRECTOR  February 25, 1980 The Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20th and Constitution Ave. N.W. Room B2046 Washington, D.C. 20551 Dear Chairman Volcker: In your recent testimony before the House Banking Committee you made clear your intent to continue indefinitely the tight money policy that you announced on October 6, 1979, after your return from the Belgrade meeting of the International Monetary Fund. I share your sense of urgency about the compelling need for tough and effective anti-inflation measures. But I am concerned because the high interest rates produced by the Fed's actions have had no apparent success to date in bringing down the inflation rate. It is time that the policy be re-evaluated. As the accompanying chart demonstrates, our recent history gives little reason to believe that interest rates have had much effect on controlling inflation. There is no dispute about the fact that a high interest rate policy contributes in the short run to the very inflation that it is designed to counter. Last year, for example, soaring home mortgage rates contributed a staggering 2.4 percentage points to the overall increase in the Consumer Price Index. And it is clear that mortgage rates represent just one part of the inflationary impact of rising interest rates. Ultimately, the interest costs of doing business in every sector of the economy show up in the prices paid by consumers. In theory, higher interest rates should reduce demand and thereby reverse the upward pressure on prices. In housing, an industry highly responsive to interest rates, starts are, in fact, approaching record lows and savings and loan institutions report a thirty percent drop since last September in the volume of their lending.  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •-  'Nom:  • •  •  •  The Honorable Paul A. Volcker February 25, 1980 Page Two But high prices and interest rates have not suppressed the demand for housing. Rather, slower growth in new housing has sharply increased prices for existing homes and has encouraged the nationwide trend to conversion of rental units to condominiums. And bankers report that purchasers remain willing to pay thirteen and fourteen percent mortgage interest rates in the expectation that future appreciation in property values will more than offset today's high interest costs. These inflationary expectations may or may not prove justified, but it is a fact that continued strong demand for housing is based on more than the willingness of some purchasers to speculate. Housing demand is strong and will remain strong for no other reason than the movement into the market of millions of Americans born during the post-World War II baby boom. Their demand is such that instead of contracting, housing should at this time be a vigorously expanding industry. It has also been argued that higher interest rates will dampen demand for goods and services outside the housing sector. But that hasn't happened. Retail sales in January increased on a seasonally adjusted basis by 2.8 percent over the December level and according to the Congressional Budget Office, this translates to an extraordinary compound annual rate of increase of 30.8 percent as compared to an increase of 10.5 percent in 1977-78 and 10.6 percent in 1978-79. Clearly, people are buying in anticipation of higher prices in the future, a judgement that is confirmed by January's 4.3 percent increase in orders for durable goods. Another argument that has been made is that we can slow down business expansion and capital investment by raising the prime rate. But that hasn't happened. Business and industry have not been at a loss for loan funds -- the pattern has been to "pay the rate" and pass the added costs on to consumers. Furthermore, Henry Kaufman of Salomon Brothers has said that the disorderly behavior of the bond market is likely to produce new corporate borrowers in the short-term credit market. I need not tell you that one of the most challenging problems facing the Congress is the need to balance the Federal budget. But higher interest rates have made that task all the more difficult. According to the Congressional Budget Office, each one percent increase in the interest rate on Federal instruments in calendar year 1980 will add $1 billion to debt service outlays   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  111011111111M ,  •  The Honorable Paul A. Volcker February 25, 1980 Page Three in FY 1980, $2 billion in FY 1981 and $1.1 billion in FY 1982. And just last week, the Dow Jones average of twenty municipal bonds crossed the eight percent mark for the first time since the New York City crisis, thereby ensuring higher debt service outlays in the future for state and local units of government, which already face serious problems in balancing their budgets. In conclusion, Mr. Chairman, I urge you once again to undertake an immediate policy review in the light of what I believe to be persuasive evidence that high interest ates contribute to, rather than reduce, inflation.  Ho ard A. Metzenbaum United States Senator  HMM:dgp cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The President The Honorable William Proxmire  frq'  immulb•••••  =sreffirdr-,  -  •  41,g.I1Veit4.•  • • • e0  1977  PRIME INTEREST RATE  CPI ANNUAL RATE OF I4CREASE  JANUARY  6.25 •%  8,0 %  MAY  6.5  5,0  JUNE  6,75  5,0  SEPTEMBER  7.25  5,0  DECEMBER  7,75  7.0  JANUARY  8.0  8.0  NAY  8,5  9,5  JUNE  8,75  9,5  JULY  9.0  9.5  SEPTEMBER  9,0  8,5  OCTOBER  10,0  9,0  DECEMBER  11,75  11,0  JANUARY  11,75  11,0  NAY  11.75  13,0  JUNE  11,5  13.0  SEPTEMBER  13,0  13,0  OCTOBER  14,5  13,0  DECEMBER  15,25  13,4  1978  1979   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  ,   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 511 19110  Ito lissmibie neusld wo Stelae. Jr. UMW afteme $mits 11106410064 OA.  2010  lasso Sigma_ aillaa: Amite' %he hoortes eel Yoloweery 23 yew requested that I furnish fogiMmotIon all pmetteetor seetwa of the wow *Meted by high intereet MOOD* /Or yew isferuntleas I am pleitsed ee enclose a copy of the ustertal I se Murelshles ger the hearing reseed. Simeesely, SLEUR MAK  z.ncteeure 03:pjtbet: Mire. (Insert prepared by Larry XXI Slifman and Mao Prell)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Insert page 68 (Feblikry 25, 1980, transcript before  nate Banking)  Chairman Volcker subsequently submitted the following information for the record of the hearing:  Economic activity has been well maintained since interest rates rose sharply in the aftermath of the Federal Reserve policy announcements on October 6. rate.  Real GNP in the fourth quarter advanced at a 2 percent annual  Moreover, production and spending have continued to advance in many  sectors since the beginning of the year; industrial production rose .3 percent in January, and there were sizable gains in spending for consumer goods and business capital goods. This is not to say that higher interest rates have had no impact on economic activity--agregate demand pressures likely would have been still stronger if the Federal Reserve had attempted, at the cost of excessive monetary expansion, to hold interest rates down.  In response  to your request, the paragraphs that follow summarize developments in certain sectors that typically are viewed as especially sensitive to interest-rate changes. Residential construction.  The most noticeable impact of the recent  rise of interest rates has occurred in the housing sector.  Interest rates  on new commitments for conventional home mortgages at savings and loan associations have increased more than 2 percentage points, on a nationwide average basis, since October.  Nonprice terms of lending, such as downpayment  requirements, also have tightened.  A combination of lender caution and  reduced demand for loans has been reflected in a substantial decline in the volume of new mortgage loan commitments extended by thrift institutions. Banks and other institutions also have tightened their terms on construction loans, adding to the downward pressures on homebuilding activity.  While  11.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2-  government support of various types (for example, government guarantees of pass-through securities and Federal Home Loan Bank advances) has tended to buttress mortgage credit availability compared to what was experienced in past periods of monetary restraint, there has been a considerable drop in housing demand.  Sales of new and existing houses have declined, and prices  have shown a tendency to level off.  Housing starts have fallen from around  a 1.8 million unit annual rate last spring and summer to a 1.4 million unit rate in January. Autos.  The impact of higher interest rates on auto demand is  difficult to disentangle from other forces operating on the sector-especially the 60 percent rise in gasoline prices and concern about future fuel availability.  However, total auto sales--both imported cars and those  built in North America--have been running well below year ago levels, and credit conditions likely have played some part.  Extensions of consumer  installment credit to purchase automobiles have fallen over 15 percent from the peak level of September 1979.  Reflecting the higher costs of  funds to lenders, consumers have encountered higher interest rates, shorter loan maturities, and, especially where usury ceilings are relatively low, some problems with respect to credit availability.  Dealers also have been  finding it increasingly expensive to carry their inventories. State and local government.  In recent weeks, a number of state and  local governmental units have called off bond issues as a result of the rise in interest rates.  For example, in February nearly $600 million of proposed  bond issues were canceled or postponed--about twice the average amount. In most cases, issues were withdrawn because the offering agencies,  •  41.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  3-  exercising their discretion, decided that interest rates were unattractive; in some cases, however, statutory ceilings prohibited financing at prevailing rates.  (Bonds issued by 19 states have interest rate ceilings and  local governmental units in 29 states have interest rate ceilings; not all of the ceilings are binding at present.)  Some state and local governments  have removed or are planning to remove interest rate ceilings, which should increase their ability to tap the bond market.  However, historically,  state and local units have frequently found alternative means of financing planned outlays--for example, by drawing down liquidity or through intragovernmental transactions--so that actual short-run financial impacts have been small.  To date, it doesn't appear that higher interest rates have  significantly affected state and local spending. Small businesses.  The Board's staff has made a special effort to  monitor the impact of recent interest rate increases on small businesses, focusing especially on commercial bank business lending.  The evidence  suggests that high interest rates have cut loan demand by small businesses. Although bank interest rates for larger borrowers also have risen rapidly-indeed, apparently faster than for small firms--the increase in rates perhaps has been more burdensome for smaller firms, since these companies may have fewer financial resources and alternative credit sources to fall back on.  The non-rate terms of credit to small businesses also have been  tightened somewhat in recent months, but the firmer policies are about in line with restrictions affecting large business borrowers.  Many banks have  instituted special below prime base rates for small customers, and more generally banks have taken account of the more limited flexibility small businesses typically have in their finances and have made special allowances in setting loan terms.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  name 4, 1960  Ike Onereble Wtllja. 1114 tattoo Some 0 lepreseststiveo Onbiestee, tee. 2051S tom Ite. Conan Meek yee Set your mien latOor ampooseies your sneers Moot ths Aility of enmereial bombeis Ceommostieet to *street Suede if the *rift institution yield differential reenised em the 'immune' essey ontet certificates (NNW. coemorstel babe *mos the *WWI States—evaill portiemlerly the emelt bombe that semeelly rely so tbe onr earket•ftfaved one te have llama their prisetpel *gene of deposit growth dories 1,79. Late lest year, the spemetes motherhood smother eimmeout•ilipieerimble tLj seseout, sorrytus s stab= 144/2 yew meterity, tintelsa presisem to allea tbe isotitettem to emopete *West epee sorbet iestromests. Amore relines es Me is libely to be Waned msetoot relines es the leoper-tera earieble seiltos deposit, been pomittiog a better est& henna the iestitotimmo' amens mod liabilities. Mosardies the differ* tette/ es INCe„ let se aeons tbet the revelatory asousies are eassitive to the possible earwigs* mud liquidity repoonastase the% night "an Stem as eltewetiee of the ionewleetitotises1 emopetitive balsam ems in plass The Isderel Seserve Bond hes bees les reend Set * ember of yews so fwvories the iseedosi remevel el ell deposit iSOMOSOI Imo oeillesm• la this event, whatever 4460mentisi remind meld he difteneed by ebet tsvise wee reiterated in test ii Alstmee. sfees es Saeger, 20 by flevorsor Parte*, sad espy st bis resserke Ls engend Sew your possible Sseerest. ztaserelLy. WNW A. ItoIcAof Besiegole 111010EWL1403:pjt (#V-42) boas Mr. Kiehlim Mr. iindery Opper  rsigned to Jim Kichline  O  WILLIAM R. COTTER • 151'0157 RICT. CONNECTICUT W A SMINGTON orrfcr, r-LAYOURN BUILDING  2134 ▪  WAShINGTON. D.C.  •  WAYS AND MEANS COMM IT-TEE  Congre55 of tbe Uniteb ztbz)tate5  20515  TELEPHONE:(202) 2.25-2265  3NII5e of 1epre5entatituf  PIM  Magijington, Il(. 20515 pinewm-  February 13, 1980  Mr. Paul A. Volcker Chairman Federal Reserve Board 20th and Constitution Avenue, N. W. Washington, D. C. 20551 Dear Mr. Volcker: The number one problem that commercial banks in Connecticut face today is the substantial potential loss of deposits which will be caused by the reimposing of the rate differential on six month ($10,000) certificates in favor of the thrift institutions at such time as the controlling Treasury Bill rate drops to 9 percent or less.  rA  A very substantial percentage of commercial bank deposit growth during 1979 centered around this six month certificate. I have just learned that in some Connecticut banks virtually all of their deposit growth was in the six month certificate.  1414411111140-  The very real possibility of losing a substantial percentage of these deposits, at such time as a drop in interest rates triggers in the differential, imposes very severe limitations in the use of these funds by commercial banks. They cannot utilize them in making commercial loans which are needed by business and industry in Connecticut, nor can they utilize them in the type of loans related to the Community Reinvestment Act.  Liam-  tat:  100%,  In the event the differential is reimposed, this would increase deposits at savings banks, but not in the type of funds that could be used for mortgages. It also will increase the attractiveness of the various "money market funds." These "funds" use the money collected to purchase CDs of major money center banks, purchasing only CDs from banks of three billion dollars and up. There are no banks this large in Connecticut. Without question, all of these much needed funds will leave our state.  or+ -  In summary, a reimposition of the differential will cause an outflow of deposits from commercial banks shifting it to thrift institutions that could not use it for mortgages and to money market funds that will redeposit it only in large money center banks. Connecticut's smaller commercial banks will be especially hard hit.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  froi  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  ,  •  '  • 40 .7i4 " 1.  -  " % 7. 4  • •  'A.- •7 .111V  y7.•  ear  • -  Mr. Paul A. Volcker Page Two February 13, 1980 I urge you as a member of the Interagency Coordinating Committee to address this issue now, and to preserve interest rate parity across the board on six month CDs irrespective of interest rates on Treasury Bills, and thus allow Connecticut's comniercial banks to utilize these deposits in a most positive manner in the form of loans to business and industry and to individuals.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  , 1'•••  Sincerely, r— rt:1‘ WILLIAM R. COTTER Member of Congress  AT  -  .• .• 'L  ; •  . •  SA"  A••••••••••  v •"0"  .4- :IF •  IKAJ 4P1. 94:‘' ‘ _9• ;•'')  • , Pft-z oi;Wriajir . "•''avit . '"`.. 4"•- .sr"C T 44 Awl.4 "46 v• '  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Harsh 4, 11103  Ifie140 essisteblo lintsisse amuse of Soprossatatives  D.C. NM Wt. 1.4se14os lbsik yes Mir yew letter of robes's, 1S, sensesides Kr. Jones V. sommemes so pienasspragraas beim' sifted by fisimsisl institutions se as indessment t oda use deposits. Chairman Irsishor ssesiesd espy of Ws. Allses letter and lbs liserd is asstostlyasenteins prontwo prereepmedod directly te sages gisnmeslly and is snpseted to nobs s disidelse se this subject in the sesperatias wit i ether sem tutus's. Thu study de Win sardessed Word fismosial instifttiss rspulAttory wastes nod will addises tbs Pribmiliml Lamm rittmellinrilar. Ansel. asses be sesseed sbet sir. Allones somments will to stops des asesidsootion in this roped* lb ees/4 be pleased to lbw you iskingsd ofelbsseenv desistss is mode by Ike $4. Omsk pin iWr your imesseet is this ttor.  Shamlly p..", (Signed) Donald I • Donald J. Vim Opsoial Assistant tetbeSoard (PV-54) Den lbsmds sta. MaIlardi Legal Files  MRsaltpit  MATTHEW J. R INALDO  Assigned to Neal PeteAlla.  12 , 14 DISTR/CT, NEW JERSEY 0 WASHINGTON OFFICE! 2338 RAysupt4 t-IOUSE Orrict BOLDING WASHINGTON.0 C. 20515 (202) 225-5381  DISTRICT OFfICE: 1981 MORRIS AVENUE UNION, Ncw JERSEY 07083 (201) 687-4235   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Congre55oftbeZinittb:sotate5 PotuSe of AtpreleiltatibeiS Madington,30.e. 20515  Commtrrirsi INTERSTATE AND FOREIGN CQMMETICE SIRICOIAMITTEESI OVERSIGHT AND INVESTIGATIONS CONSUMER PRoTECTIoN AND FINANC E SELECT CO MM I TTEE ON AGING TTEE3 SUSICOMMIrrii HUMAN SERVICES  February 15, 1980  Mr. Paul A. Volcker Chairman Federal Reserve System 20th & Constitution Ave., N.W. Washington, D.C. 20551 Dear Chairman Volcker: A constituent of mine, Mr. James W. Allen, has info rmed me that he sent a copy of the attached letter to you. I would appreciate being kept advised of your action in this matter. Thank you for your assistance. Sincerely yours,  MATTHEW J. RINALDO Member of Congress MJR:bwl Enclosure  •••• •  111  fa!  at ratk Al, l' —...  *  * .. * * ii7z...4-3 .. . C ..:f7;CS *  X  1.7! , „--, '..r .  *  ...,...4 ......;‘,":.;1eelt (-)t:1 lir '::% - c.IL .A.C' . *  *  JAP.filS W. AL! EN  *  P.asnt ..t, l.'f..., J••••!0:, 6.7ce: Nil - 755-570  *  Fti s .- .enf and ExecutIbe C'f,cer  Februry 8, 1980  Mr. Irvine H. Sprague, Chairman Federal Deposit Insurance Corporation Washington, D.C. 20429  Dear Chairman Sprague: I am enclosing copies of newspaper advertisements which are appearing alrost daily in our local papers, offering premiums which have wholesale costs substartially greater than that which is permitted under F.D.I.C. regulations. I assum.e that the inter-agency council members have also issued similar regulations to those institutions regulated by them. It is obvicus that the wholesale cost of most of these items exceeds the maximum permitted under regulations as has been evidenced to me by quotes I have received from wholesalers who have been attempting to offer these premiums to our bank. ouoted to us is also enclosed. A copy of .  •••  •-•  I would like to ro on record in cppcsing the use of premiums by depository institutions for solicitation of deposits. I am especially concerned vhen the cost of those premiums violates regulations which have been imposed by Federal regulatory authorities for the express purpose of precluding the use of said premiums in the past as 2 method of increasing the interest paid on deposits. While it is acknowledged that the benefits from the use cf these premiums to solicit his funds, there are a n...:7- ber of negatives with respect to use of these premiums that I would ", urge --..., Federal regulatory agencies to consider: ^^.1C1.•••••=M •.• ••• • • — .• •  ,. ./. IL ..  1) The use of premiums as a gereral practice, simply adds to the cost of operations of thrift institutions which in this market are already operatinr on the thinnest marFins of earninzs in their history. Indeed, many ti-rift institutions including The Savings rank of' 7entra1 Jersey, will be operating a break-even or in the red, in 1980 if current rates continue. The cost of premiums further enhances that possibility. 2) The interest paid to depositors who are being solicited by these premiums, is directly related to short-term money market rates and, therefore, those deposits have no stability and cannot be invested in other than short-term securities by the financial institutions soliciting those, teposits.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  F.r.l.C. I.  F ,- trul-.rv 8, 1;50 2  -7--ufaeturers rieh as a 3) -The rcally r;.-111t of a Id ?Cirn net'ring but s'riftins the ee,nosits from cre irr3tit'it-n to rot...1:. r, cn ..ho is riv'ng the larger rift this No r, w srowth is beircz Evnerated. Ex:sting deposits are just week. costinr more. 4) As if the cost of the premium itself was not a siqnificant factor in increasing the cost to the b2nk, the fact'that the premiun cost, when added to the interest cost c,,:ntracted for with the deco's:tor, s'.:bstartially irprcves the interest yield that the customer will be earning on his deposit, allowing that yicld to exceed the maximum permitted under the regulations laid down by the rerulatory erencies. Gifts teinr cf"cred have wholesale costs rarring from the low 20.00 firure, to as rucn as t.'=?.0 for the La Vachine food ocersor. When addinr that premium cost to the Y.tercst cost on a t10,000 deresit, the yield to the eencsitor is incrased 7:1-7:t 3/4 cf a percent, considerinz that the custorer c7in one rix rcnth C.D. and obtain a hrt-miu7 and six r=ths later Fet another nix month C.D. ane ;m7et 2 cc:nd pre7ium even thouzh the funds ri!Crit remain in the rIme institution. 5) The wh-)le c:in--nt of offerin rifts for de7osits i2 becoming a moe'fery and 0-t caurinr fir=.roial institutions to rc.:act in self-e-fense and offer prc7'.urs 50 that their deresit flow te hurt to the sare degree t..at they have been for the last several renh..=. A survey of our official chr:,eks eurinF Ihe reried from rece'nter 25, 1 979 throur, January 1q80 hoirts out that ov:n .S'2, 1 D:,2'20 car be allocated to deposits havirr gone to combetinF. instituti:n= i7reCiate treee area are offerin,7 q,ifts which exceed the price ran;7e permitted under Federal rerulatiers. Tt should te noted h^r- th=t cur had pre-v;ously offered a prf.7iu7, tfrorrar-. in (I-steor lc:79 with rrc-.iu-s li7ited to the 7aximum of t10.00 per iteT. That Darticular T.rw:ra7 The Eavinrs Sank of n:t at all Fuocersful. Central Jer.00y cannot tolerate another cutfLz.... cf deboc't similar to that which it has exrrirt-ed vith;n the l_nst tht.t reriod of time, we !-.ae a net cash ct'low of almost 2-1/2'; -' c..1r tctal der.,osit tase, in excess of 4.7 million dollars. c tEirIP 7:1'40 by re7ulatory authorities to It would t'r.at no atte7pt control the vi.-lation of rcru:ations l'rit'n; cf pre7iums by mary thrift J i..71:)re you to a-t Tromotly eloinc with the other Int,:rarencv institutions. ,ly with rr‘r,1171m Coordiratirr Cc:7-ittc2e 7c.7ters to reouire cur c=etitors to com: :se and tons spellinr out !- aximu7 costs of srE-"...-- by isuin7 imr.ediate ce, desict creers in the form of a Feneral to all financial institutions under your jurisdiction.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  A AD  4•4  F.D.T.C. I.  rirrin  FOJruary 'FPFe 3  Pll ir,rued by tl- a F.-dcral rc;:ulators viol',tr,(i if nothil:0 is on iclative to prc-,iwis.  pre  in  8, 1950  jcPprody of being  While it 1;-Is not been our intention to violate regulations pertaining to cost of prc s, cur bank will have no alternative but to join the violators in the next few weeks unless our competition is forced to comply with the rezulations which we hr,vc previously abided by. Fair is fair, but the current co-npetition is Erc:-- sly unfair as well as dpmacing to the overall concep t of "Truth in Advz-rtisinr" pnd everyone playirs the re un:irr the sar-e set of rules. I look fcrward to your early reply. Very truly yours, TFIE SAVINGS FANK OF CENTPAL JERSEY  James W. Allen President and Chit!' Executive J.e:A:ahs Enc. cc: Ftt: -)r. Vi1lia7s Sentor Frae.ley ConFresswo7]an Fenwick Cor7resF7an Rinaldo Coar Patten   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Officer   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  iiar‹...sh 4,  The leserable Adial S. Stevenson Chairmen Imilernattenel Flansoe linheennittee Osenittee so Sesetles, Mineleg and Urban Affairs United States gamete Ilsehimaten, I. C. 201c Seer Chairmen Stevenson, baclesed ie a ceoy of s report as foreigs eschew operations by the Treseury and the Federal Swarm owerins the period from AVOW 1979 dove* Amory 19110. The report will be printed in Wbe tierg_h issue of the Federal MOSOrve bulletin. It is being released to the press fee use is tomorrow mitidallie MOMMOMpers. S ji •  Enclosure identical letters to:  JRC:vcd bcc: Mrs. Mallardi  Sen. Heinz (ranking minority member of Senate Bkg. Subcmte. on International Finance) chrmn. Neal (House Mtg. Subcmte. on International Trade, Investment and Monetary Policy) and Cong. Jim Leach (ranking min. member) Ranking minority members--Sen. Javits (JEC) Sen. Uarn (Senate 14.) Cong. Stanton (House liks.)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  March 4, 19tC,  the Mieserible Lloyd Dentsem Chetma Joint Reenemie Committee washtmeMes, D. C. 2010 Dear Chairmen 'sateen: Inclesed Ls a oopy of a report on &masa encheese operations by the Treasury and the Federal Meserve ceseries the ported from Moat 1979 through January 19W. The repast will be printed is the March issue of the rederal Reserve Bulletia. It is being released to th ress for use in tomorrow morning's newspepers. Cooies of the repert are also being sent to the Jvatrwen of other interested Committees. Addittsaal copies are enclosed for the wee if selibere and staff of year Arm . Sincerely, Sakti A. Nom&  !ost..4res (30 op jars) Identical letters to:  JRC:vcd bcc:  Mts. Mallardi  Chairman Proxmire (20 copies) Chairman Reuss (50 copies)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  .•.0J  41/ F 1-3  Ann  envERrJons n I:I II  •  F EDERAL RESERVE SYSTEM  ' •  • "'I •;  V. 11  (r;  () C  . 1, •  4 /  •  •  oi  •  PA.I.A. A  .•  VOLCKER  CHAIR  API  March 4, 1980  Tho 1!o'c)rat10 linry S. ! ,Itss Chairma Committc'e on Bankinn, Finance and Urban Affairs 11 .,1se of representatives Washington, P. C. 20515 Doir Henry: The prc-, osals under discussion reducing reserve requirement (Jive risc to a t.,2 chnical problem regarding collateral against Federal Reserv e notes. Put simply, as currency rises and reserves derline, the Fed might run out of collateral, as presen tly defined (essentially Covc.rnment securities, discounts , and gold certificates) to Lick i:'odcral Reserve noties. A part of this collateral problem cou ld be rcsclved by eliminating the presen t requirement that notes rcmainint in he vaults of the Federal Reserve Banks be collatt.raltzed. Tt would also be of assiTEince if ass ets arising out of foreign (-r- ren cy operations were added to th- list of a5F-(J.5 oligihie for collateralizing currency, as is iottmon practiro awono central banks holding foreign (1:.;Lts. ;n '- hat connection, I would note we are now !(' holdini priv:-Ite obligations abroad and , our WO'.) it..! ho facii_itated, and som o interest earnings !,!, if the f..tiera.l. ,.serve could invest in short-term •nt: ion:-; when 4/4-2 Z1C1111 ire foreign cur. n ,.• 1 ,7-prduc:t • our operations. ame.ndment that would make these ,Ind which would rtfectively sol ve the problem.  sincerely, / Enclosure  •  • Collateral  H.R. 7 Is amended by redesignating section 7 as section 8 by iiddirr) a new section 7 as follows:  "Sec. 7.  The second paragraph of section 16 of the Federal  Reserve Act (12 U.S.C. 412) is amended (1) by adding at the end of the !Alird sentence the following: , or assets that Federal Reserve Banks may purchase or hold under § 14 (A  this Act." and (2) by adding at the end thereof the following:  shall not b  "Collateral  requited for Federal Reserve notes that ace held in the  vaults ol Federal Rescrve banks."  (2)  S,iction 14(b)(1) of the Federal Reset ye Act.(12 U.S.C. 355)  ,imended by in!;ecting at ter the words" United States" the first time It appears the follwing: "and obligations of, or fully guaranteed as to principal and interest by, a foieign government or agency the  Purpo::e:  In view of the reserve uquirement reductions that are required  as a re.;ult of  the mon(Aary improvement legislation, the Federal Reserve  will have insufficient collateral ruquired for Federal Reserve notes. This ami!ndmi_int insures that there will be sufficient assets rival) able to oqiaterallze Fe(ieral RefiCUVO nnte  by 1 ,1.1,1.!nin9 the typi  ot assets  that can he used as collatetal, including obligations of foreign governme nts, and by eliminatinq the requirement that notes hell in Federal Reserve Prink vaults lie collateralized.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  1411111111  4* IPSO  Jobe G. Tower 'as Semite UAW States Illesilisstos„ D.C. 2/3510 ems Seeetor Town le-missed ars OD the additional emeations osessieles Obit yes esetirith your letter el sems4asr Improommmet Mbsesry 19, 1.980. Matas, he the usessial thilimme117 supplied to yew stet earlier, three haw MN Sem Mess selielesS to oreeticoes 1, 4, mg 16  stooreelia Saafil A. Yogka  yapIsom (0-50 bee: lar. Tittle es. Deus* Mts. Wlardi (2).7  S 1.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  On page six of your statement you state that the Fed needs about $20 billion in reserve balances (in 1977 terms) to effectively conduct monetary policy. S. 353, with or without the supplemental provides this. 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? Whatever structure of basic reserve requirements is made the vehicle for legislation, the Federal Reserve urges the Committee to enact standby authority for the Board to call for interest— bearing supplementary deposits.  This approach would provide the  Federal Reserve with assurance that reserve balances adequate for effective monetary control will be available if needed. The precision of money control depends on the size and stability of the money/reserve multiplier--i.e., the quantity of money that can be supported by each dollar of reserves.  With a  relatively stable multiplier, the Federal Reserve is assured of a fairly predictable relationship between money and reserves and can provide an amount of reserves to the banking system which will bring about the desired level of the money stock.  For a  stable multiplier relationship, Federal reserve requirements against transactions balances must be binding at most depository institutions, that is, an increase in the required reserves asso— ciated with increases in deposits at these institutions must lead to a nearly proportional increase in total reserves.  This will  occur if excess reserves at these institutions are minimal.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2-  If Federal reserve requirements on transactions balances were uniform and binding at all banks, then the multiplier relationship would not change with shifts in the distribution of deposits among banks.  On the other hand, if reserve requirements are not binding  on all banks, then a shift of deposits between banks with binding reserve requirements and banks at which the requirement is not binding could result in an excess or deficiency of reserves in the banking system.  Such excesses or deficiencies permit expansion or con-  traction of the money stock, even though there is no change in the total reserves the Federal Reserve has provided.  Thus, a reserve  structure in which not all banks are bound by a uniform reserve requirement introduces instability into the money/reserve multiplier when deposit shifts occur.  Simple models of the monetary control  process show that the smaller the proportion of transactions deposits that are bound by Federal reserve requirements, the more variability is introduced into the money/reserve multiplier. Under the current reserve structure, about 70 percent of all transactions balances are at member banks, virtually all of whom have binding reserve requirements.  Some alternative reserve struc-  tures which result in required balances of $15 to $20 billion can generate a similar proportion of transactions balances at banks with binding reserve structures.  However, it is difficult to pre-  dict whether or not, after the banking system adjusts to an alternative   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -3 _  reserve structure, the size and stabty of the multiplier will I- adequate for monetary control.  We have suggested that reserve  S.lances of about $20 billion in 1977 terms might be adequate for purposes of monetary policy.  To achieve that or a somewhat higher  level of reserves without imposing unacceptable costs on the Treasury and without extending the tax-like features of reserve requirements tS the point where they will drive deposits out of the banking system is best achieved by the interest-bearing supplemental.  2.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  You object to the unanimous vote and the 4-year sunset provisions of the supplemental amendment. How would you change this to make it more acceptable to you? To ensure the workabty of the supplementary deposit proposal, the unanimity requirement should be replaced by a requirement that five or more members of the Board affirmatively vote to require suPplementary deposits.  The Board should make a finding that such  I- posits are necessary to effectuate monetary policy or for the efficient operation of the payments mechanism.  The Board should  consult with the other Federal financial institution regulators S.fore requiring supplementary deposits and should report to Congress after such deposits are required on the reasons for exercise of the supplementary deposit authority. There should be no "sunset" provision because the need for supplementary deposits for monetary policy purposes would not be expected to cease at the same time that the authority expires under a "sunset" rule. The Board should, however, review and determine the need for continuing maintenance of supplementary deposits on a annually.  fixed interval, perhaps  After that review, it would be appropriate for the Board to  report to Congress if there is a continued need for such deposits.  3.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  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 percent 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. An important criterion in evaluating the various proposals before the Congress has been their net effects on Treasury revenues.  Those  bills that pay interest on all basic reserves at or near a market rate would raise the cost to the Treasury to amounts in excess of that acceptable to the Administration and many members of Congress.  By  contrast, no earnings impact in excess of that chosen by Congress for either the banks or the Treasury would be caused by introduction of interest-earning supplemental requirements over and above the basic requirement.  Yet such deposits guarantee that the Federal Reserve has  a sufficient reserve base for monetary policy as well as operational purposes. Authority to impose a noninterest-bearing supplemental deposit requirement would provide the Federal Reserve a type of "safety net" that would assure adequate reserves for monetary control.  However,  Imposition of such a supplemental would have adverse earnings effects on the depository institutions covered under such a plan.  Moreover,  the ultimate impact on Treasury revenues would depend on whether or not the Federal Reserve used its standby authority.  Thus, to meet the  reserve constraint, it appears more straightforward to impose noninterest-bearing reserve requirements under the basic reserve provision and   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2  make supplementary deposits interest bearing.  Decisions on using the  supplementary deposit authority then can be based on monetary control and operational factors without regard to the effect on Treasury revenues, which would be negligible.  I'  4.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  On page 14 you state that reserve requirements should be imposed on short-term nonpersonal accounts. Why don't you include short-term personal accounts as well? What is the preferred category of accounts upon which reserves should be placed? All short-term accounts? Personal short-term? Nonpersonal short-term? Please explain your reasoning.  If noninterest-bearing reserve requirements must be imposed on time deposits, they should be confined to short-term nonpersonal accounts and be relatively low.  Saving and personal time accounts represent the princi-  pal depository vehicles for household savings.  Imposition of noninterest-  bearing reserve requirements amounts to a tax on such accounts, reducing the potential return the banks and thrifts can pay.  At best, this tax  leads to funds flowing out of depository institutions to other savings outlets; at worst, it could reduce total personal savings.  Thus,  noninterest-bearing reserve requirements on such accounts are undesirable and, partly for these same reasons, we understand that banking institutions vigorously oppose such reserve requirements.  Of course, if a market  interest rate were paid on reserves against these accounts these distortionary effects would not occur. A noninterest-bearing reserve requirement on short-term nonpersonal time deposits could at times serve a useful purpose.  These deposits are  not generally used for long-term savings purposes; rather, they are similar to other market instruments and are normally used by depository institutions as managed liabilities.  On occasion a noninterest-bearing  reserve requirement on these managed liabilities would be useful to restrain excessively rapid growth of near-money or bank credit, particularly by large institutions.  Thus, it is desirable to retain the  authority to impose reserves on these deposits on a temporary basis in unusual and exigent circumstances.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2-  On the other hand, imposition of a permanent, relatively high, reserve requirement on these funds poses an important problem.  Compe-  tition for funds flowing into nonpersonal time deposits is intense and growing.  The competitive handicap for covered institutions would be  significant when the commercial paper market, the Eurodollar market, and money market mutual funds are growing rapidly, as they recently have been. A substantial permanent reserve requirement on such deposits would also place new burdens on thrift institutions and perhaps on their nonpersonal customers, including state and local governments.  5.  On page 14 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 become members? Why wouldn't they become mem— bers if they have to pay the price of maintaining reserves at the Fed with— out interest being paid on them? Membership in the Fed provides certain benefits, but at the same time, it imposes obligations on member banks.  The principal benefits are access  to the discount window and to Reserve Bank services.  The most important  obligations, beyond maintenance of reserves, are supervision and regula — tion by the Federal Reserve (or the Comptroller of the Currency, in the case of national banks) rather than the state, and the requirement to purchase stock that yields only 6 percent. The legislation now before the Congress greatly reduces the benefits of membership while affecting only the obligation to hold reserves.  Each of the  bills requires the Federal Reserve Banks to provide discount window credit to a broader class of institutions and to offer operational services to all insti— tutions on the basis of service charges.  Thus, these benefits of membership  will be available to nearly all institutions!' on almost equal terms.  There  will be very little motivation to become a member. At the same time the obligations of membership, except for maintenance of reserves, will not decrease.  Members (except national banks) will still  be examined by Federal Reserve examiners as well as by state bank examiners.  1/   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Senator Tower's bill (S. 353) affords these facilities to members and institutions voluntarily holding member bank reserves.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2-  Members will still be required to purchase stock that yields only 6 percent, considerably less than the member bank could earn on alternative investments of the.funds involved.  These obligations impose substantial  costs of membership, and there is little reason to suppose a large number of banks will voluntarily choose to assume them. In the open access environment that would be created by the proposed legislation, merely to reduce reserve requirements or even to pay interest on reserves at a market rate should have little or no positive effect on membership.  It is possible, however, that some (probably larger) nonmember  banks might choose to convert to a national charter to obtain different powers from those permitted by its state bank supervisors.  A national  charter also permits a bank to avoid dual examination by both State and Federal examiners, because national banks are examined only by national bank examiners.  In the past the high cost of Federal reserve require-  ments may have discouraged some state nonmember banks from making such a charter conversion to obtain the benefits.  Of course, the state bank  supervisors could take compensatory steps to prevent banks from being attracted by these advantages of national charters. Even in a framework in which interest were paid on reserve balances, many banks might wish to retain non-member status either because they could obtain banking services from correspondent banks and/or because they preferred to maintain supervisory relationships with their respective state supervisors.  The mere fact of holding reserves with the Federal  Reserve does not preclude the exercise of such "freedom of choice" by individual banks.  They may choose a national charter or a State charter  based on their own evaluation of the relative benefits and powers that would accrue to them under each option.  S.  6.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The supplemental amendment would he 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? The authority for supplemental deposits would not be used unless the Federal Reserve found that, in practice, monetary control could not be effectively implemented with the balances required under the other provi— sions of the legislation.  The precision of short—run monetary control  depends on the size and stability of the money/reserve multiplier (see question 1).  After the banks adjust to the new basic reserve requirement  environment, the money/reserve multiplier may become much larger than cur— rently, thus amplifying any errors made by the System in providing A tar— geted level of reserves.  Moreover, the lower basic reserve requirements  could lead to banks holding much greater excess reserves--a condition which likely would introduce additional unpredictable variation into the multiplier relationship.  On the other hand, the legislative proposals  generally spread the reserve requirements more uniformly and equitably across the banking system and thus could make the multiplier more stable. Thus, we cannot be certain precisely how large reserve balances need to be to assure effective monetary control and a well functioning banking system.  Only after the banking system begins to react to the new basic  reserve requirements can the Federal Reserve determine whether the money/ reserve multiplier relationship is behaving in a manner conducive to effective monetary control.  If this relationship deteriorated from its   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  -2-  current status--and thereby diminished our capacity to control the growth of money--then supplemental deposits would be necessary.  Using  the supplemental authority, it is anticipated, could stabilize monetary control before an emergency developed.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  merecla 4, I9,0  Ike asassilble 'Woes J. Namibian abstows lislommittes asm bicestany Ossodetas kwMae NOM* mod labs* Weirs Miss. it OmpsosentAtisss limskimessa, La* 20513 Oast Chstress Kitchell* Um* yes dor ysor lectswit Iimmay 27 loritiss the Dowd emo testify mo likommilkOss's bostings as idle woo mossosmos at the Sliaptary ssesaypiesma as ow possobsos est issotraslitaig tits ismodi alt Oise messesss. O•vesusr J.ellorlso Roses illicsk 20 se IMO° mi.os.  wise se belliett Stasis*ly. Wald A. blow  (OV-42) bees Gar. Part** Mt. Azilred Mrs. Mallardi (2)  eke limmst  PAR,(EN J. MITCHELL, MD., CHAIRMAN  S .  STEPHEN L. NEAL. N C. NORMAN E.()AMOURS, N.H. DOUG BARNARD, GA. JIM MATTOX, TEX. JOHN J. CAVANAUGH NEBR. 225-7315  •  •  GEORGE HANSEN IDAHO RON PAUL, TEX. DON RITTER. PA.  U.S. HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON DOMESTIC MONETARY POLICY OF THE  COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS NINETY-SIXTH CONGRESS  WASHINGTON, D.C. 20515  February 27, 1980  The Honorable Paul A. Volcker Chairman Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: The Subcommittee is planning hearings on March 20 and 25 on the Federal Reserve's new measures of the monetary aggregates and new procedures for controlling the growth of these measures. In this latter regard, we are especially interested in the role being played and to be played by Reserve Banks' discount rates and administration of discounting. We plan to have outside experts testify on these matters on March 20 and would greatly appreciate it if you or a Board member you may wish to delegate would testify on March 25. We would welcome as well hearing from key staff persons at the Board and the New York Reserve Bank. I would appreciate your early consideration of this request. forward to receiving the Federal Reserve's views on these matters. Sincer ly,  1(441e‘-d v/7.  4 1)444 /i  Parren J. Mitchell Chairman, Subcommittee on Domestic Monetary Policy PJM/n,q:jb   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  We look  NINETY-SIXTH CONGRESS  JOHN D. DINGE" PICHARD L. 0ITINGER,  MICH., CHAIRMAN  PHONE (:02) 223-1030  CLARENCE J. LIPOWN, OHIO  Y.  PHIUP R. SHARP, IND. ANTHONY TONY MOFFETT. CONN. DAVID E. SATTERFIELD III, VA. TIMOTHY E. WIRTH, COLO. EDWARD .1. MARKEY, MASS. PHIL GRAMM. TEX. Al- SWIFT, WASH. RICHARD C. SHELBY, ALA. ANDREW MAGUIRE, NJ. ALBERT GORE, JR., TENN. MICKEY LELAND, TEX.  ROOM 3217 HOUSE OFFICE BUILDING ANNEX NO. 2  CARLOS .1. MOORHEAD. CALIF. JAMES M. COLLINS, TEX. DAVE STOCKMAN, MICH.  CONGRESS OF THE UNITED STATES HOUSE OF REPRESENTATIVES  TOM CORCORAN, ILL. TOM LOEFFLER. TEX. SAMUEL L. DE.VINE, OHIO (EX OFFI )  SUBCOMMITTEE ON ENERGY AND POWER UTNE  COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE  WASHINGTON, D.C.  HARLEY 0. STAGGERS, W. VA. (EX OFFICIO)  Cl  t)*  20515  March 4, 1980  Honorable G. William Miller Secretary Department of the Treasury 15th and Pennsylvania Avenue, N.W. Washington, D.C. 20220 Subject: Energy Emergency Contingency Planning Dear Mr. Miller: Events are clearly drawing us cloSer and closer to the pnobability of a serious discontinuity in the worldwide flow of oil. Many of the major oil supplying countries have announced intended cutbacks in production or are nearing physical constraints on their ability to produce and expo-t oil. At the same time, the free world's reliance on oil from a few, rather politically unstable, governments in the Middle East remains high. While U.S. oil consumption has apparently dropped by some Li% in the past year, there is no guarantee that this trend will continue, and our major allies have not been able to reduce oil use very much. Today this country still imports 40% of its oil needs, or nearly eight million barrels per day--44% of it from Middle East and Northern Africa producers. We are, by any reasonable measure, extremely vulnerable to disruptive events in that region. I believe it is critically important that this government be prepared to deal with an energy emergency. Every response to such a crisis-- energy demand reduction, use of oil stocks, allocation and distribution, foreign policy, domestic and international economic and fiscal moves, administrative coordination and information dissemination, and military options--must be explored, and to the maximum extent practicable, the various contingency plans should be coordirated and consistent with one nnother. To be sure, there is a wide variety of possible interruptions--short or long in dunaticn, minor or major in severity, narrow or broad in scope and national involvement. Each conceivable "scenario" of disruption could produce a different set of appropriate response measures. It would seem to be desirable to have a "shelf" of response options, each suited to a different kind of interruption. If and when a crisis occurs, one could simply take the appropriate measures from the "shelf", modify them slighty for the particular circumstances, and proceed with their timely and effective implementation. Stocking this shelf of response options is, I recognize, not an inxpensive or simple undertaking. In view of its critical bearing on national security and stability in time of crisis, however, I hope that vou will proceed without delay, if you have not already done so, to identify and analyze the range of options that fall within your purview, that you will work closely with your colleagues in other agencies, and that you will keep us abreast of your considerations and analyses.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  THIS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  A fairly long list of potential emergency response measures are already being debated. On the energy demand reduction side, possible measures include gasoline rationing, product price decontrol, four day work weeks, alteration of environmental and other regulations, gasoline tax and rebate programs and other proposals. On the energy supply enhancement and shortage allocation side, possible actions include strategic petroleum reserve use (once it has been filled), accelerated decontrol of crude oil prices, import fees or quotas, natural gas imports, gasohol and other proposals. Internationally, there are the International Energy Agency oil import targets and the shortage sharing scheme, and a range of other foreign policy or military moves not unlike those taken or being considered during the current crisis in relations with Iran. Some of these measures, Properly defined and carried out, may be positive; others may well exacerbate the problem or have no impact at all. Also, a distinction must be drawn between actions to be imposed only in the event of an energy emergency, and actions which should betaken, in general, to reduce.our vulnerability to oil import cutoffs. I would appreciate knowing your agency's views on this mattter. For example, what "scenarios" have you considered as conceivable during the coming 6 months, or 18 months? Where, in your view, are the US and its allies most vulnerable to unilateral actions of oil suppliers? What signals exist which could warn of impending crisis? What are your plans for monitoring the situation, and keeping the Congress up-to-date? What are the broad options available in your areas of responsibility for response to possible scenarios? What authority might be necessary if we are to be better able to meet possible emergencies? In sum, what is your state of readiness to pursue an organized, coordinated effective response to energy supply crises when and if these occur? This issue of energy emergency contingency planning is one of the most critical questions which this country confronts today. I offer my support and counsel in your efforts to deve propriate plans and programs, and I look forward to hearing from you. 46  Sinee el,  John D. Dingell Chairman  , 16  JDD:jsn  , cc:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System  •  March 4, 1980  A SIMILAR LETTER IS BEING SENT TO THE FOLLOWING AGENCIES:   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  DEPARTMENT OF STATE DEPARTMENT OF DEFENSE DEPARTMENT OF ENERGY DEPARTMENT OF THE TREASURY DEPARTMENT OF TRANSPORTATION OFFICE OF MANAGEMENT AND BUDGET COUNCIL OF ECONOMIC ADVISERS BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM FEDERAL EMERGENCY MANAGEMENT AGENCY  ,  • CONGRESSMAN STEVE NEAL HOUSE OF REPRESENTATIVES 502 CANNON BUILDING WASHINGTON, D.C. 20515  a.,didee  •  •  q't1 4,44frtd  https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  CONGRESSMAN STEVE NEAL HOUSE OF REPRESENTATIVES   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  Congre55 of tbc Ziniteb atatt5 Pout of ikrpre5entatibesS STEVE NEAL  March 3, 1980  5TH DISTRICT. NORTH CAROLJNA  The President The White House Washington, D. C.  20500  Dear Mr. President: The time has come, I believe, for the Administration and the Congress, working together with the States, to significantly reduce our dangerous dependence on foreign oil. The following suggestions are in no way meant to be criticism of you, Mr. President. I admire and respect the leadership you have shown and believe you are way ahead of Congress in your perception of the energy situation. Nor am I suggesting that the responsibility of taking the steps here outlined should be entirely yours. In fact, I have introduced a bill in the House to accomplish the same goals, and to give you a stronger indication of congressional support. I will continue to work for passage of the bill and am willing to help in whatever way that I can. As you know, and have advised the American people many times, we are now importing almost half of all the oil we use. Much of it comes from countries which are unstable and/or unfriendly or hostile to the United States, and is transported over routes which are extremely vulnerable. Moreover, there is no short-term (two or three years) supply solution that could significantly reduce our imports. As a result we and our allies are precariously vulnerable-militarily, economically, and socially--to the whims of foreign governments and to the expansionist policies of the Soviet Union. I believe that these conditions constitute a grave threat to our country, and that in dealing with the situation we have, basically, only four options: (1) We can continue to do little or nothing for the short term and hope for the best.  WASHINGTON OFF/CEt 331 CANNON HOUSE  OFFICE  BUILDING  WASHINGTON, D.C. 20515 PHONE_.: (202) 225-2071   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  HOME DISTRICT  MOBILE  of-FicE:  TRAVELS THE DISTRICT TO SERVE YOU  OFFICE!  421 FEDERAL BUILDING WINSTON-SALEM, NORTH CAROLINA PHONE:(919) 761-3125  27101   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The President March 3, 1980  Page Two  (2) We could add taxes of one kind or another to gasoline and other petroleum products (ration by price). That, in my opinion, would not be fair and would not pass the Congress. We could require nationwide rationing by coupon, (3) but that would be bureaucratic, very expensive, and acceptable only as a last resort. (4) We can impose a discipline on ourselves and determine that we are going to reduce imports by a specific amount by setting and achieving mandatory energy conservation targets in each state. Mr. President, you have the authority, under Title II of the Emergency Energy Conservation Act of 1979, to set such conservation targets. I believe you should do so right away, and am further convinced that both Congress and the American people would approve of that action. At last week's Democratic Caucus in the House of Representatives, I introduced a resolution urging you to take this action. While a quorum was not mustered, the fifty or so members in attendance were, by and large, receptive to the idea. Several of these members have indicated that they wanted to co-sign this letter, so you will be receiving another similar letter within a few days. In setting such conservation targets, I believe the goal should be to reduce our oil imports by ten percent by the end of the first six months of the program, and by another ten percent by the end of the second six months. Since we import about half our oil, to achieve this twenty percent reduction in imports, we would have to cut our total oil consumption by about ten percent. This twenty percent reduction in imports would produce many benefits, including: (1) Our foreign oil bill (expected to be about $90 billion this year) would be reduced by a corresponding percentage, or about $18 billion. Our trade deficit would thus be lessened by approximately the same amount, and through the ensuing increased value of the dollar, the price of imports would be reduced also. (2) Since at least four percentage points of inflation (as measured by the Consumer Price Index) are directly related   https://fraser.stlouisfed.org ar Federal Reserve Bank of St. Louis  The President March 3, 1980  Page Three  to the price of oil and the effects of the trade deficit, this action would fight inflation. (3) The decrease in demand would put pressure on OPEC countries to limit price increases, in both amount and frequency, and conceivably could at some point encourage price reductions. (4) Since we are presently importing about 1.8 million barrels of oil a day from the Persian Gulf states--which is almost twenty percent of our total imports--this reduction would put us in a position to virtually eliminate our dependence on the Persian Gulf area, if events should make that advisable or inescapable. (5) While requiring such reductions in our imports would clearly show that our dependence on oil from abroad constitutes an emergency, it would, at the same time, lessen tensions among those people who perceive our expanded military presence in the Indian Ocean, and our increased emphasis on preparedness, as the beginning of "a war over oil." (6) I have no doubt that as a result of mandatory conservation, the American people would think more seriously about using energy more efficiently. Perhaps the major benefit of this action would be the release of the creative vitality that exists in our market system and among individuals, who would find creative and innovative ways to overcome this threat to our security and our heritage. Is such a conservation goal realistic? Can each American reduce his or her oil use by ten percent over the next twelve months? Certainly we can. We comprise about six percent of the world's population, but use thirty percent of the world's energy. A cutback to twenty-seven percent, in the objective view, constitutes very little sacrifice. Finally, we must ask if the states can achieve the goals without implementing coupon rationing? I am convinced that they can. There are many things they could do to adjust to the shortfall. They could require that city lighting be reduced (most cities are lit up like carnivals at night). They could require that each car not be driven one day a week. Some states might want to go to a four-day work week. States could enforce or reduce highway speed limits. They could raise the age requirement for initial driver's license. States could  4.  •   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The President March 3, 1980  Page Four  work out many energy-savers on their own, and I believe they would ask only that the targets be set in an equitable way which does not penalize them for geography, demography, or inordinate dependence upon imported oil. I was recently reminded, Mr. President, of a statement made by the late General Douglas MacArthur in the 1930's in a letter to William Allen White. "The history of failure in war can be summed up in two words: Too Late. Too late in comprehending the deadly purpose of a potential enemy; too late in realizing the mortal danger; too late in preparedness; too late in uniting all possible forces for resistance; too late in standing with one's friends." General MacArthur was of course writing in another era on another subject, but I think his comments are relevant to our energy situation. I believe the time to act is now and hope that you will give serious consideration to this proposal, which I believe to be the most effective and acceptable action that could be taken at this time. Respec  ully,  HEN L. EAL U. S. Congressman  •  a  •  •  Congre55 of flit anitcb atatt5 STEVE NE_AL  Potilt of r\tproSentatibuS • February  22, 1980  5m DISTRIcT, N0RTH CAROLINA  Dear Caucus Member: I am writing to inform you that I have requested, along with more than 50 other Members, that the Resolution printed on the reverse of this page be taken up by the Democratic Caucus on Tuesday, February 26. In petitioning the Chairman, I am compelled by the following facts: We are importing about one-half of the oil we use, often from countries which are unstable and/or unfriendly or hostile to this oil is transported over •routes that are extremely vulus; nerable; and, finally, there is no short-term (2 or 3 years) solution to the problem. These conditions, I belieV.6-,spply'side u leave Us and our allies precariously vulnerable -- militarily, socially and economically -- to the whims of foreign governments, to the expansionist policies of the Soviet Union, and to any number of other possible eventualities. We are not yet facing up to this reality. As I see it, there are only four possible options: (1) We can continue to do little or nothing and hope for the best; (2) We could add taxes to gas and other petroleum products (rationing by price), but that would not be fair and would not pass Congress; (3) We could require nationwide rationing by coupon, but that would be bureaucratic, expensive, and acceptable only as a last resort; (4) We could pursue the option suggested in my Resolution. The Resolution urges the President to use the authority of Title II of the Emergency Energy Conservation Act of 1979 to establish mandatory monthly emergency energy conservation targets It suggests cutting imports by 10% over<Zhe next for the states. six months, and another 10% over the following six months. To cut imports 20%, we need to cut total consumption about 10%. I believe the public response to the action recommended would be both positive and productive. Convinced that a serious situationexists, I have no doubt that the American people would find creative and innovative ways to use petroleum more efficiently, and that as a matter of pride and patriotism they would attain the suggested goals. Whether you -agree or disagree with the Resolution, your advice and insight are needed. I hope you can attend the Caucus. Best WASHINGTON or•-•cr) 331 CANNON NOUSE OFFICE BUILDING WASHINGTON. D.C. 20515   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  PHonir.,(202) 2.25-2071  shes HOME OFFICE: OFFICE:  S pcpsHM:19I NEAL U.S. Congressman  421 FEDERAL BUILDING WINSTON-SALEM. NORTH CAROLINA PHONE:(919) 761-3125  27101  •  A RESOLUTION offered by MR. NEAL •  Whereas the United States depends on foreign imports for approximately one-half of its petroleum needs; and Whereas such dependency on foreign petroleum has contributed and will continue to contribute to the current strain on our economy, thereby thwarting efforts to reduce inflation and maintain a steady economic growth; and Whereas much of this imported petroleum originates in countries which are politically unstable and militarily volitile, and in many instances hostile or unfriendly toward the United States; and el-, Whereas this petroleum is transported over routes which are increasingly vulnerable to potential aggressive action  .  by adversary powers; and Whereas there are no short term supply answers to the problems which would arise if the United States'and its allies were deprived of a significant amount Of these petroleum imports; and Whereas this precarious supply situation leaves the United States and its allies extremely vulnerable should these critical foreign petroleum supplies be seized, blockaded, or controlled by an outside power; and Whereas the President of the United States has the authority under Title II of the Emergency Energy Conservation. Act of 1979 (42 U.S.C. 6261 et seq.) to establish mandatory monthly emergency energy conservation targets for gasoline,  '  diesel fuel and home heating oil for, the nation and for each State:  Now, be it  Resolved that the Democratic Caucus of the House of Representatives expresses to the President of the United States its belief that the President should immediately move to establish the mandatory energy conservation targets authorized in the Emergency Energy Conservation Act of 1979 (42 U.S.C. 6261 et seq.); in determining the energy conservationtargets, the President use the goal of reducing petroleum imports by 10 percent, beginning not later than 6 months after:tha program, is put into effect, and by an additional 10 percent, beginning not:slater than 12 months after the plan is put into effect.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  •  • resslortal  •  United States  of America  PROCEEDINGS AND DEBATES OF THE 96th CONGRESS, SECOND SESSION ...••••••.11mMENNIC  Vol. 126  •IM..".m."•••••••1•111.  •••••••••••••-•.11,  WASHINGTON, WEDNESDAY, MARCH 5, 1980  No. 35  WE MUST CUT OIL IMPORTS NOW  The SPEAKER pro ternpore. Under a previous order of the House, the gentle- • man from North Carolina (Mr. NEAL) is recognized for 30 minutes. Mr. NEAL. Mr. Speaker, I have today introduced legislation which would require the President to set mandatory energy conservation targets for each of the States, in accordance with the provisions of title II of the Emergency iergy Conservation Act of 1979. I have done so because the time has come, in my opinion, for the administration, the Congress, and the States to work together to significantly reduce this Nation's dangerous dependence on foreign oil. Mr. Speaker, it is known to all of us that we are now importing almost half of all the oil we use. Much of it crrnes from unstable countries, some of which are unfriendly or hostile to the United States. Mcreover, much of this oil is transported over precarious routes which are extremely vulnerable. We have no short-term supply solutions to a drastic curtailment of this oil, whether by embargo or by intervention in production and shipment. As a result, the United States and its allies are precariously vulnerable—militarily, economically, and socially—to the whims of foreign governments and to the threatening expansionist policies of the Soviet Union. I believe these conditions pose a verY grave threat to the United States, and ; that in dealing with the situation we t have basically only four options. First. We can continue to do little or nothing to lessen our dependence on fcreign oil, and hope for the best. Second. We could add burdensome taxes of one kind or another to gasoline and other petroleum products, but that would not be fair and, I believe, would not be approved by the Congress. - Third. We could require nationwide rationing by coupon, but that would be bureaucratic, very expensive, and acceptable only as a remedy of last resort. Fourth. Finally, we can, by enacting proper legislation, impose a discipline upon ourselves and determine that we are going to reduce these imports by a specific amount by setting and achiev-   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mg mandatory energy conservation goals In each of the 50 States, and thus in the Nation as a whole. In setting these conservation targets. I believe the goal should be to reduce our oil imports by 10 percent by the end of the first 6 months of the program, and by another 10 percent by the end of the second 6 months. Since we import about half of all the oil we use, to reduce imports by 20 percent over a 12-month period would require that we reduce our total consumption by 10 percent. This ' 20-percent reduction in imports would, I believe, produce many benefits, including the following: First. Our foreign oil bill (expected to be S,90 billion this year) would be reduced by a corresponding percentage, or about SI8 hiiflcn. Our trade deficit would thus be lessened by approximately the same amount, and through the ennuing Increase in the value of the dollar, the price of our imports _would also be reduced. Second. Since at least 4 percentage ; points of inflation (as measured by the Consumer Price Index) are direcidy related to the price of oil and the effects I of the trade deficit, this action would fight inflation. • Third. The decrease in demand would ! put pressure on OPEC countries to limit price increases, in both amount and' frequency, and conceivably could at some point encourage price reductions. Fourth. Since we are presently importing about 1.8 minion barrels of oil a day from the Persian Gulf States— which is almost 20 percent of our total oil imports—this reduction would put us In a position to virtually eliminate our dependence on the Persian Gulf area, if events should make that advisable or inescapable. Fifth. While requiring such reductions in our imports would clearly show that our dependence on oil from abroad constitutes an emergency, it would, at the same time, lessen tensions among those people who perceive our expanded military presence in the Indian Ocean, and our increased emphasis on preparedness, as the beginning of "a war over oil." Sixth. As a result of mandatory conservation, the American people would think more seriously about using energy more eMciently. Perhaps the greatest; benefit of this action would be the release of the creative vitality that exists In our market system and among individuals, who would find creative and innovative ways to overcome this threat to our security and our heritage.  Is such a conservation goal realistic? Can each American reduce his or her oil use by 10 percent over the next 12 months? Certainly we can. We comprise about 6 percent' of the world's population, but we use about 30 percent of its energy. A cutback to 27 percent, in the objective view, would constitute very little real sacrifice, but some inconvenience. Finally. Mr. Speaker, we must ask ourselves if the States can achieve the goals without resorting to coupon rationing. I am convinced that they can. There are many things they could do to adjust to the shortfall. They could require that city lighting be reduced (most cities are lit up like carnivals at night). They could require that each car not be driven 1 day a week. Some States might want to go to a 4-day workweek. States could enforce or reduce highway speed limits. They could raise the age requirement for initial driver's license. States could work out many energy-savers on their own, and I believe they would ask only that the targets be set in an equitable way which does not penalize them for geography, demography, or inordinate dependence on imported oil. Mr. Speaker, I am reminded of a statement made by Gen. Douglas MacArthur in the 1930's to the famous Kansas newspaper editor, William Allen White. This is what the general wrote: The history of failure in war can be summed up in two words: Too late. Too late In comprehending the deadly purpose of a potential enemy; too late in realizing the mortal danger; too late in preparedness; too late in uniting all possible forces for resistance; too late in standing with one's friends.  General MacArthur was writing, of course, in another era about another subject, but I think his comments are relevant to our energy situation. I believe the way to avoid failure in the future is to act now. The most effective action we can take, in'my judgment, is that which I have proposed in this bill. Let it not be said by our own children, or by some future generation, that we did too little, and acted too late.   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Mardi 3* MO  Sesproble Peeek teemaile Chainese Seheenatittee an OIMINmall, Cematttes es Simkins, 111kmais iiIw mei gybes Altair, Ihmeee et Illepareeentat tine weektessea, D.C. 20313 Joor Choirons Amusetos This ts la respeeme to your letter at Sebrusry 6, requesting sla investigation ead essimmt es aa Levetry tree Me Carol Ammo batielski mem Ceemewee and Delhootry. Chiang*, of catalog the panties ot the Seek Ww71141 mmise ehmesse asstmet deemeet aseeumme, NI. tnaieloki states egetmot her daughter's that the book oestmeeed SIONVIMMI Amp of 11111.111/0 •OWNINg 1111SWOOO Og bilk a activity in thak assaaat stithotic giVing egtioe of eat astles. As a gemersl natter, e0OVeite shows homed by flnenciol lastitom time hese treditiemolly bees ireguided se ogittars falling within the glopeeit eposemet sehebtiobed Menem the teetituttes end its dopseiters. Although State ember Woke ere vegatoed to dboide by State lam that proscribe the types of chAeloo that asir be impseed es deeeeme aseesete. ve understood that Illinois dies set hem sip erectile statute, or regulations Inch teepee he these mhempre. It should bo motet that sway states, Illimede tathedet„ have atetetory provision* for the esehaat of Alma La doom* amounts to the State after irseylas period. of time. with sispord to edwielig difeettees of those tares, the Sword hes auditstod its eameera dhet ember hada edeemately disclose the geterisl teem of depseit aostraets, sed chemise to these term that are adverse to Oho depositor, to ell depesitete. Is this vegmed, the Sowed, in 1970, published sa imeerpretatioa (12 C.F.*. i 217.144) relating to dioeloeise iutorgetiou to depositors regardiag the 'amputating of interest ea deposits. The Seeree Wool Division hme adelasi me that the prowtsiege of Obis igtorpretation appear to be applleable to the ellositieme set teeth is 1114 Sugielskise letter. Adeardiselt. ths Semreol altaf WPOOttgate   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  The liemeilble remit asaimite Ps Toe  tie bealkee petiete* mud Iteeetreet provisiese with mow ter diteelleme leremit lee Seem Ned seseitteseo1liereettise et servile* ellsiges 1111Ipso 41timpliettee the irevetigatiess ve will be ~el to Mese yes el  liediass•  SZPagi A. iklytkik  MNROJW:pjt (011-37) bott Dim Rhoads (for follow-up with 2000VVO Mai) ft$. Mallardi (2)  tion assigned Mr. Petersen  FRANK ANNUNZIO, ILL., CHAIRMAN 0,LADYS NOON SPELLMAN. MD. BRUCE F. VENTO. MINN. WALTER E. FAUNTROY, D.C. PARREN J. MITCHELL, MD.  ii  •  THOMAS r, EVANS, JR.. on_ CHALMERS P. WYLIE, OHIO DON RITTER. PA  U.S. HOUSE OF REPRESENTATIVES  CURTIS A. PR INS, STAFF DIRECTOR  NINETY-SIXTH CONGRESS  SUBCOMMITTEE ON CONSUMER AFFAIRS  TELEPHONE: 225- 181  OF THE  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS ROOM 212 HOUSE OFFICE BUILDING ANNEX  WASHINGTON, D.C. 20515  February 6, 1980  41)  Honorable Paul A. Volcker Chairman Federal Reserve Board 20th St. & Constitution Ave., N.W. Washington, D.C. 20551 Dear Mr. Chairman: I have received the enclosed correspondence from Ms. Carol Anne Bugielski, a constituent of mine in Chicago. Ms. Bugielski is unhappy with the high account inactivity penalty charge imposed by the Bank of Commerce and Industry, on her daughter's savings account. This high penalty reflects a change in policy by this bank apparently without notice to its depositors. This penalty reduced Ms. Bugielski's daughter's savings account from a balance of to . This penalty has resulted in Ms. Bugielski stating in her lette r to me that she now has, " . . a child who refuses to put her money in the bank again. I would appreciate it if you would review the correspondence and investigate to determine if the conduct of the Bank of Commerce and Industry in this matter is legal, is consistent with its obligations under the passbook agreement it has with the depositor, and is in conformity with all applicable bank laws and regulations. The bank is located at 6104 N. Northwest Highway, Chicago, Illin ois 60631 and the phone number there is (312) 775-8000. Please inform me of the results of this investigation. cooperation in this matter.  Thank you for your  With every best wish, Sincerely,  2-..;../i•••••••••e41 Frank Annunzio Chairman Enclosure   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  rannowaswitniri;..777.  .  • •-•••  :Congressman Frank Annunzio 11th Congressional District, illinoiFEs U.S. House of Representatives Washington, D.C. 20515  1930  fillit70...6TillEE ON CONSUMER ARAMS  Dear Congressman Annuntio: • My name is  e-fe  Date  c2)e-k--AgzJ  . Address Home Phone  2-8, Business Phone 790  Ward  Precinct  Complete blanks where applicable: Weere and when filed  V.A. Claim number  •IP~mr  Type of benefits  Soc. Sec. number  ••  Where and when filed Military identification number Oa  Other numbers identifying you' case  AM. ••..  My problem is as follows; kkat,0_,A, 22.1.4.44 Cieis34  _  y.s11.2 .2dz.,abul4 f /00 X044.f241.4.44  1,11444,Leza.4,42...6.  _  _i_917y_. _  Aet-Le  _ . ‘1.-0Azt-c-f_-_lct__• â4 . _ rGki-64  47wz'-  4a-4ez. ,41.f.__:41 -LC__ ___Zzet- _01-er  or-  -  4i l hereby authorize Cnngressman Frank Annunzio or a member of his staff To make the appropriate inquiry in my behalf. Sincerely. ••  /tte4tf.4.. (Use other side if more room is needed)   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  et-t---  elL- deelt  vryst  rzrzrzrret,rxyzNi1}.7:77".7.3111DIMir  ,. . .,Thet.ee6 ,,i_v, AA,ceA,c, fik..,z a._-.e___. "a410  e&)t_  •  ,,J—ke., (-=ei--L ,  271Coe  ,!.../(:,4-,-;-0 a,„ A U.  IJ-e--e--d ,,  aA_z-  ec:2-4.‘, 1 XJ,t, ,Cat% .L(;a1A)  ,t6  a___  ,i,u, t-tt.n.toilt.,44x-i, --e-i-tic-el -f---ft-1.. -x7 V,g , (. 1_ 3 4C4.0 ,&wA.t a /979 lateA a4X  -e-f e 2 i (  ‘;ve.."_,AJ  4-7u  A6u,t 2.0  x  a,cca-etr  rA_ el6,0 ,&0 ,e)cle,__..8  „,efee. )67)6L  41i7t7)-e,e-  6C4/.t  a_  aitdi ,.Cee. -iv ,61te_,  &U,s6/-ence_4_4  ao 0  a 44 4,e,  ,IfLA,6ea a,„  tlett,  zA..,e_  01,6"., %afAz- g-etld', ,elt}  Zte  t   https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis  Jtt61 Zilt45—,1,e7,  . -er,6  -d;-t_L  •  ( et,e,;  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: Savings passbook Citations:  Number of Pages Removed: 4  Savings passbook with account information, 1980.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org
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