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c , . ) „ , . t „ , • , r J  a  9 0  Collection: Paul A. Volcker Papers Call Number: MC279  Box 10  Preferred Citation: Congressional Correspondence,June 1980; Paul A. Volcker Papers, Box 10; Public Policy Papers, Department of Rare Books and Special Collections, Princeton University Library Find it online: http://findingaids.princeton.edu/collections/MC279/c430 and haps://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 Library, Princeton, NJ These documents can only be used for educational and research purposes ("fair use") as per United States copyright law. By accessing this file, all users agree that their use falls within fair use as defined by the copyright law of the United States. 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C. 20610 JOAX  Vaiiruam Prosairoz  understand thct un 4wen4m*nt !,e offered to 1980 hosei. authorisation :; . 111 on the door of the Utnakto: woald (a) a44 cor;orate securities and conmercha la At#,Sets ju1Ltjin as 114iiid1k: invtoetetta for menl)ers t.;4o f4deral A0Norg. Loan Vank %titer„, and (t) .rovida t%2 the extent aii*roired Li the redural 1.45016 LWoAA Wink ?oard, tat led,.tte deq-ocita in the lievinis Ntake Trur,t Co..orri4 5ew )VZI _ A.*00Weoonsidured asseta 1:cr t7.0 iurx.iozie of tooetin tI;c V‘Alasal home Loan tnk i2yaitem's ro-uireuents. redima Emmett* Doard %(ilievet that only ,ualiti a;..cts aral omtions with t/ort.term zaturitias shotila az1.tit1itj invuetv:ents. In or4er to ovoid inttactst rill, In tie vti1 ret situation thr‘t 1-az 4;:aructerimed recent 4tento te.tul ,t,lars, we telieve ,AtuzIticati Los tLit: rurioeu stiould lit iteC to ma Mr 14ig4. 4/Art Lzoa. tLis oonsidcration, w* would dcter to tpe tW:;!rul 140441 Sank 4A tc tho m;,Frok'riatenems • qeotl tor lvjialation in thin arca inasiguch me it relates w that a4enoi and instituti<mt, urAlt,r its sinervisorlf jurisdiction. i;Incsrely / SgulA.Volcker  CLairnan Janis fl- cart11. Yoaat :man 17,anit r;,tard c.  Lindy narinaccio (Vonata Wanking) Carol Corcoran, 5recial Asst. to Sen. Javitr vcd  171.te,.  )  .  71.c. :olua:&Jle !xeust: oi P.e,zeoentatives C. 20515  heftel  Dear 1 can 4v.11 aitC.-4tant.! -i our concto evut F-uLt 3ituation and can agsuge ou Milt I:;,alte no more sy:w:At171 than you tor aeir i4rtormance. The loon, iic I zieither kel roved nor diasspi,rove& is exklained in •,reater &Anil in an enclosed report On ttic 'financial &sleets' uf ttAs overall aituation. in sumar. the loan under discussion, wbich has been i:rivately ner:otiated. contains L3rovisions to prevent during its life further tTecu lative wntures !xi the Uunts in related rti.a. The gunte 1;ave not cleared themselves of theix speculative debts -- •a,c1 Ion rostructursa but doss not 'clear those debts. While the i,4„)tion of the creditors and tl,e. :::unts would presumably be staLilized -- and that is why they ireoli decided to the loan -- the Hunts cannot return to - buviness as segoti usual so lonrv as the deLta are outstamdins, and indted apvear to tame been torced to liquidate kLome other assetA to rvice silver debts. The rederal reserve has not, and will not. 'underwrite the loans. Our analysis susivasts this no loan should not su', stantially affect the national 3y of credit at t'!in because the now loan will reiaace Jebts (t*te earlier debts, of which we were unaware cts increasek!, could construe4 aa fri,teculative lartAly /4,:-ear to have been incurred to cover 4peculative 1c7Procs or to avoid tivn rather than to lAirchase silvvr). The ;Tactical and unfortunate situation ‘e f.avott was tilt, az a Lyproduct of the munt sveculation ant tthe conaeriutnt anivsurta of other institutions ta:-Ac tley d‘,alt, the stakility oi certain fioancial iti tutions srtd markets' wax areatened, t.ad el.et tbreat uzaterialize& . is innocent bistanders, inclucin,j those de::.eindent on vrderly flow of lAink credit, who would have iaid part ef: tt'e  sonorable Cecil 'Coe Notts' za.A Tut.)  I thirty it iv also appropriate to point out ttilt, in the si.,etnc of tLo k6deral Reserve ;11,ecial Crcidit Restraint krociram, trAT loan undcz cenzid4ration may well have been arran-Ad and ihut in iacce without any prior k.novledvt of the -gedexal (4c4IMPO and other vovernwent officials. Looked at in that 11..,ht, the !ae.t of the Cre,dit Zestraint Program has :er clit• t1.441 redetal f.saxvia to insizt on the prohibitions on i,art of tbk traz4sactin and whiel Arcsomulation 101'.W1  it th  uL.Iicintaromt.  iv: ortant for the future is urtmt CArt IN4* donc to forestall anothctr wiisode 01 this kind. We have turned oux attention and vtforts in that direction. or  A-merely! SAWA.Volder  LQC:vod (IV-222) boo:  Mx. Corri,jan Kallaxdi (2)  EXO.  Action assigned Mr. Corrigan WASHINGTON orr1ct•  CECIL "CEC" HEFTEL  •  322 CANNON HOUSE OFFICE Di/ILDING  110  1ST DISTRICT. HAWAII COMMITTEE ON WAYS AND MEANS  WASHINGTON. D.C.  20515  (202) 225-2726  CongrecA of flit aniteb Rptate5  DISTRICT OFFICE:  SURCOM U ITTEES1 HEALTH OVERSIGHT  .00100000 300 ,1111 M OANA BOULEVARD  lipuEse of ikeprefsentatibef Washington, ae. 20515  R00HI 4104  ✓  P.O. Box 50143 HONOLULU, HAWAII  96650  (80s),55-8997  May 15, 1980 Mr. Paul Volcker Chairman, Board of Governors Federal Reserve System Twentieth Street f, Constitution Ave., N.W. Washington, D.C. 20551  ••••••••  Dear Chairman Volcker: I am writing to indicate my grave concern about your recent approval of the loan refinancing package fashioned for Herbert and Nelson Bunker Hunt. Last Fall, you expressed your opposition to loans for speculative activities. This step seemed effectively aimed toward reducing instability in the economy and introducing a comprehensive credit restraint program. Since that time, credit to consumers has also been severely restricted. The e ffect that the increase in the prime lending rate has had on potential home buyers and sellers as well as small businesses has, as you know, been tremendous. But not only hs the avel'age American family been asked to forego buying o r selling their homes, they have also been required to limit their credit card expenditures while the cost-ofliving continues to increase. I am, however, confident that the American public remains steadfast even in the face of these difficult economic times. From discussions with my constituents, it is evident to me that people are beginning to lower their expectations and to prepare for the inevitable financial sacrifices that they will have to make_ Mr. Chairman, I am not asking for your sympathy for the average American family's economic woes, serious as they may be. I am, however, asking that you compare the demands imposed upon them in light of the demands made, more correctly not made, of large financial investors like the Hunt brothers. Your approval of the refinancing package for the Hunt brothers is a direct contradiction of your previously expressed policy to discourage lending policies that favored speculative investment practices. After the extent of the Hunt family control over the extreme fluctuations in silver prices became public, the possibility that there had been speculation on a grand scale was raised. When the possibilit y o f such speculation is raised, it is certainly appropriate for the Federal Reserve, the Securities and Exchange Commission or the Commodities Futures Trading Commission to inves tigate the situation to determine the extent of speculative and  • Mr. Paul Volcker May 15, 1980 Page 2 irresponsible investment activity. However, I question the value of condoning the past investment activities before knowing the true nature of the trading. I especially question approval of the cing package when every other borrower has more for credit and every other lender has forebear on new loans. This contradictory democratic system where each individual is equal economic opportunities.  generous refinanbeen asked to pay been required to action defies our presumed to have  While Congress is asking middle and low-income families to tighten their belts, it is incongruous for the Federal Reserve Board to require the Hunt brothers to do any less. The contrast is particularly frustrating when evidence comes to light showing that the Hunt brothers themselves may have created the fluctuations that eventually threatened them with a financial loss. Mr. Chairman, the American public should be able to expect equal and fair consideration in the far-reaching financial decisions that you make. Our government is based on one standard of performance and we cannot tolerate a dual system when it comes time to divide burdens and responsibilities. Surely, the Federal Reserve Board's contact with the Hunt brothers' silver futures contracts has not yet terminated. In further activity on this matter, I urge you to consider the concerns I have expressed. Thank you for your time. Sii erely  C He te Member of CH:admd  Zune 3, 1990  Ueuorable Cherles ;';(1-C. flat:aux, Jr. ited i;tates Senate tlAinctofl, .c. 2;45lV bear z-;t:,nator  thia  Thank ..cou for your letter of :lay forwardin a 1:Ater fro Eurlong galdwin. The communication fror :. aLlwin suipoetz4 tigat Oirtancil of the Federal Loserve are made on asset s-that is, reserve balauces—which Lelong to banks while tl,zat ray aii,ear to be the came to an individual bank, for the nv odiAttai as a whole reserves are determined by Federal Lanki rzeserve onetary policy. Since 1)anks eed otter de,,,ocitory institutinc:, are re3quim! to 110,14 reuerves in veult cash or in reserve nalancea at r*ederal reserve Dank behind certain depoeits -and :,;articularly deIos itri tu;e4 ier transactions purpoees--thc rederal neserve can Influence the nation's stoney euvply and alto bank credit, turough to icoun t of reserves it create4. The reserves arc crested =ainly throucjh t;;t. iurc4asel of iiecuritiea in tho oren nlarket at the initiative el toe ioderal reserve. Thus, in a turIZaalental sense hank reserves are the i.roduct of national uonotary policy, rather than simpl y aaitiets belonin-,, to Lanka. The earning on those reserves, after eac,extaeo, are traawferre4 from the roCeral e:serve to the Treas ury, and the;,, are a oonsiderable element in !oudgetzsvj recei pts. Of ccurse, reserves cau o consiacred es a burden on iadividual banks, since they reduce the earning* potential of a deposit received. The recently enacted 7.enetary Control 7.ct or 19$0 (i.L. 96-221) bas lut that shurden at ii%iat would eq.l.ear to be minimal lovelti, while placing all dol)oeitorI iestitutienii on au equal footing with rest-pact to reserve requirements. If reser ve requirement& vex. eigniricautly los4or, it is not clear that they would be sufficient to assure 4 rt?-al,40111e &acmes of r.oaetary control. Of course, we will be "4,etter el,lo to tell that when we have tA;N40 experience working within the new Act. If a lower level ol reserves will suffice, there iAs autitority un4ar the Act to reduce them. If si-.411ificantly more are needed, the Act permit  iLsUllorai.le eltarles  Paue  L, ..Ithias, Jr.  1.1e nuard under certain conditions* to eat ablioh a limited 4ugvIuenta1 rvzervis requirement, with the reservez carnim..7, interest at uzsentialll a market rate. itr,y,:e these remarku clarify the role of reserve require>.4entti in riAmation to „tonotary contro l. Sincerety, S'Paul - A. Nail  SUACO:J111,iljt (#V-210) Nr. Axilrod nailardi (2) ,  CI-ARLES McC. MATHIAS. JR. MARYLAND  •  •  REPLY TO:  358 RUSSEU- SENATE OFFICE BUILDING WASHINGITON. D.C. 20510  'ZICnifeb Zfafez Zenale WASHINGTON. D.C.  May  20510  9, 1980  71  rs. Paul Volcker Chairman Federal Reserve Board Washington, D. C. 111•••••••.-.  Dear Mr. Chairman: I wanted to share with you the reaction of one of my constituents to the impact of the reserve requirements which the Congress authorized the Federal Reserve to impose as part of the Depository Institutions Act. Mr. Baldwin is the Chairman of the Board of a major Maryland trust company and, as his letter notes, will require a substantial set aside of assets which be believes will benefit the earning assets of major international banks. I expect we won't know the full impact of such reserve requirements But I did on banks and their customers-for several years down the road. want you to see-the enclosed letter and the first-cut reaction. • with best wishes, Sincerely,  '/ , ) Charles McC. Mathias, Jr. United States Senator Enclosure CM:mtmn  i'•.  •••1,  •  4  H C'  urz  ' L. -  r  •fi b TRVST (  \n,ANY  Ein  a71 cf  E-ard  March 27, 1980  •  Honorable Charles McC. Mathias, Jr. United States Senate 358 Russell Senate Office Building Washington, D. C. 20510 Dear Mac: Thank you for your letter of March 12. As you can imagine, we were disappointed with the results of the conference on compulsory reserve requirements. In addition to requiring us to maintain sterile rese rves with the Fed on the type of accounts you mentioned in your letter, the conference bill also includeA all checking account balances and a large chunk of our time deposits as.yell. While we have not studied the final form of the bill; it looks as though we will have to idle some thing on the order of 517,000,000. Our quarrel all along has been with the Fed's lack of justification for the level of reserves which it requires the banking syster to mFAintain. As you know, the Fed operated at a S9 billion surplus last year and Earned this surplus primaril y out it r.ade on assets which belong to banks. Its membersh of the Earnings ip problem is totally self-inflicted because of this "tax" and simp ly redistributing the burden fails to address the basic fact that the tax is unjustified. What the Fed needs is the - ability to change the leve l of reserves and it has not and cannot justify any given level of reserves e:cept as a seurce of re'.enur,s for tie Treasury which was never the purprJse of the cricinal F=c:eral Fjarve ct. I was struck with the irony of a culelent rator Pro,Lire rude in a letter to me on March 12 in which he said "I . have sut•stential doubts that reserves are needed at all for the effective ranejement of monetary policy." What I was particuarly unhappy to see receive an inad equate airing is the fact that the primary beneficiaries of this legislat ion are the lerae international hanks in places like New York and Chicago. Maryland banks as a group will receive very little benefit, but banks such as ours, Suburban Trust, Equitable Trust and many others will in effect rake a contribution to the earning assets of Citi bank, Chase Manhattan, • !:can Guaranty and so on. Why this is in the interest of Maryland or in the interest of the nation as a whole, has neve r been exolained in any way that we could u-e:e.st:,..nd it, and ar .:as not cc,nsid.?red tie an i.eeortant i rr in . 4 .;:E . t  :  ci  - e77  21;73  •  ii."41 ,  In ny event, it anars as though HR 69F6 is on a fast track and we will sn;!ly H:v-7: to ir_arn to adjust to it and live with the burden that it will or clur stoc01:1rs rd custoT, .ys. I appreciate your ir:!7-2st jr .Jr ri,sition, but I am disappointed with the way it all t6-red out. F,est regards. Sincet:ely  H. Furlong Baldwin HFB/sr/TH6  MI6  ..--•••zoo.-  ..10•717.04  ,t:,44.43r CA t4* C4WIA;;Oft, 4.7allia !a COLCGrilAX: t.- t !le• nct rectlf tint.rldri that 1.ia wife hat: 4174 7f0 Jr. (:;v-trrrit ol to khiAer*I. a4.6urvi.p Y,4".ek of St. at tLei V'k:txt.lnr.d onzcL 20. .1c zci,rcv4414t4t.i.v4 troA% tl2e l'cxtlath 1:ranch rti tlkon, it vox. Lov4ardoe. on the AL._ t at 4fter tLe tr4e Lc t.16 Loz Jhki‘u1o6 :7s4.0ch, aerv '4ovIcriAiLlant 7,ttiremm7.4. Lon4 1.tAt'sZ. auct to Cigt wortr. volumo 14.4 lt4ranc. kr.7heti this teulutAt wax rimelved o it wou net. tv ter16,1oci trautiactioris and 1. roceltsta thec:, on a first-inVflo Los Antaciti :c.TranE tirat-out rc4:x4Asont1tivri: roceiviod thatAokody ve-Acil were intortei u% tWit %.2", CS419100 3C4 *Nailult to Lit4 un ratoat that Ar. Car11;4un )!A%. excrIcae to comit t.;_ 4cc,tivini his loondii„ nowevur i • ii not auttore4 otv interaxt loas due to Clio T%st- ' tnd /4 wor* iaivacd $t au oUstotiv* 4iate oi irc41 .,ill be cowioundsd istaa-annua114 from tblo date, • ti trans4atioal La* Witats rievorts ttqA the nuriftre of e ' ;4socessia,,j. this tyva of transactivr. hitoll teen roduce. .441 • tIlat ttle Lou A:Neleu tranel is t44.- 1:v; the necessarv :rocekatin iu wrder to i4mintint a 1'40w:fence or VA.& ty.:* of :  lct  hovo thin itactswItionwiLt be helz'fnl to," -Yva %:..4744. if 1 ma; t-46 of Oirtter aseiztence.  ..1„Cc.N4c1 (#V-213) Wallace ,txrmudez •41.r.  Acillln assigned h4r. Wallace  •  1' MARK 0 HAIFIELO  onr,GoN  '31Cnitc6 Ztatez Zenate WASHINGTON,  C  20510  -  t:ay 13, 1930  Mr. Paul A. Volckr,T, Chairman Federal heserve L,ystem board of' Governors Twentieth Street and Corstitution Washirw,ton, P..C. 20551  •.)  C.7)  Dear rr. Volcker: Attach01 is a cov. of a 1.ttEr I recived recently from John Carlson concernir7, non-receipt of the goverment retirement bonds, -Ind his communication with your a,:,ency and the Internal hvenu Service. Lecause of the desire of this office to be responsive to all inquiriEs and communications, your consideration of the attached is requstEA. Your findinr,s and view-3, in duplicate form, along with return of. the enclosure, will be appreciatod. Please reply to my Sale.11 office, P.O. lox 732, Salem, cregon  97308. Thank you for your kind attention to this inquiry. Sincerely,  •  )26"`"•••••"'") rark O. Hatfield United States Senator MCH/lh Enclosurp  A copy of Mr. Carlson's letter has been sent to the Internal Revenue Service for their comments.  •••  OP"  S  •  •  0in 077. ear/son May 9, 1980  )7a a ng .0..z/c/ress;  Q  Senator Mark.O. Hatfield 104 Pioneer Court House Portland, Oregon  I worked for a company that went out of business and took my retirement fund and "rolled it over" into an individual retirement account with a private savings and loan. In March of this year 1 decided the account might be more secure with the government so my wife took the account out of the private savings and loan and went to the Portland Branch of the Federal Reserve Bank to purchase Government Retirement Bonds, this happened on March 20, 1980. The amount was around My wife ordered the bonds and we paid for them with . a check from the savings and loan, really a cashiers check. My wife asked for a receipt but the person at the Federal Reserve Bank said they did not give receipts, we would just have to trust them. It is not easy to trust the government but my wife went ahead with the transcation. A month went by and we did not receive any bonds and I started writing to the Federal Reserve Bank in Portland, I could not find out who to write to regarding the matter but I did write. A little later a person called us from a Federal Reserve office on Los Angeles andhe said he had our letter but we could not buy Government Retirement Bonds in a "Roll Over". Well I had spent a small fortune in long distance calls with the IRS and the Federal Reserve Bank in Portland and they had all said I could do that. we explained 66—flie man In—LA uldr—it was okay. He said he would check with Washington, D. C. A day or so later he said when he called back that it was okay, they could do it. The bonds would be issued from Washington , D. C. , well it is now the ninth of May and we still have nothing to hold in out hand. I took the money out of a savings bank because I was concerned about the stability of the bank, I still have not the slightest idea of the Federal Reserve has cashed the check or what they are doing. We decided to take a far less interest rate from the Federal Reserve in exchange for the security of government bonds but we just cannot get a handle on anything and I dread to think what I will have to go through to get these bonds back into a private savings and loan or bank. The government is so anonymous that I am very frustratedstrying to get a handle on this matter and hope you can find some way for me to get relief. Very truly yours,  re.  John M. Carlson  —  ItleRrnMIOWWWWWWw=wmw  ZIm 4, 3.-;u  4,..0.4.611 Don Y, Clausen tiOttliQ Of 441vrez,e;ltatives waallinjten, L,C, 20515 A.kuuzv. Clauaen; I akixtoiate and Balers your concern ii'o.out the iiffioulties L'aced by homekuillers and 171:Juzi-related industries includini; luer. 1477 until a few weeks avAl, con4itions in housin and related Aitarat( clearki Leon tdeterioratin rt:r 4-0aeths in rc:,4.0r44;e tt; accfAlexatin of infliAtion awl ovicrtLti.ztv:1 polittier, designed to bring inf3at1Qn undar ct)ntrl. Ihtat A;eriez rw=t,tazi and credit actions amiounc4e;:: L. ard ou %arch 14 ..4erta devil:ed to Ilalp !, ,oAllw,lent other of reatzaint as Te,art of tte 4.ovcrnment's cioneral 4:$flort, ;,ander its t;iecial Credit Reetraint Proram, however, the 30ard—roce-gnisin%, ttAtt unusual iJrohlems oonfronting residential cimg,truction and related activities--emoouraled comwercisl banvf. to ivo i-,,rlority to maiz4tainin-; a reasonaLle flow of funds to nutoineaset WW1 aai1I nd builders)/ hot;e1myers, tarp-Ara i and othera with litlited alternative souroe4 of funds* Speolul del:focit re,iuirements raaced on inoreeees in certain typo* 0‘. 4441.41iUMAX credit troacificalli excludad Aukartgage credit to buy izgrove hceil. la addition tre Tioard announced on Arril 17 & tizzotary x4;tazuaal eredit !-roratA to 1-4614> small ,haaks under UiUt ,reassures to ueet the creait needs of their to-casualties, including wakil businesses end taruers. ::114 on tiny 221 the Board annouricerd Ao4121Betian* 01 the 5vucia1 Crodit Aestraint Prolran to unauxv that iwrs 'moat credit -uc & those for small business o tLa boozing markets and agriculture—sr* being met. Copies of ;.ress allasstas on the Soard 44 ection .4trati 14, April_ 17, an. y 22 arc analyzed. 7es sem* years/ the Federal %nerve has suplivrted and izontliluo!1 to 1-reas for eutn,,:tio in m.;ulatory processes that will 044,0 credit re readily available for housing durin,4 periods intereAut ra.tes. ;leaiiurer. enbancing the abilit-,z of thrift institutiosa t44 414.,s,tit4 far Amax, suet as the recently enacted ti e*U1a:f‘zx darok:ulation of dowomitor: imAitutiona, are an im;iortaat cuntritivn in thia ret,ara.  „MM.  *"&31101 Aii:u4QX44.a.4. 4.4.141:4  t..1z4v  11a4w rNo  rectoac.11, dc,:411124 rcr credit Lave relaxed, and iatcrthckt ratOZ %4.1vc., ridbar,42 in looth 2:..i.Irt-tera and longturA Linaucial C.e cattent that lover interest rates iiczeiiiat, they .;tkould ,- 14a a cumtructivo r:ple in encoara“:14 tlow of fundQ to tLe credit-zenzitive houuino; zector. The etfootavu dan>1 for 1-4QUZ:14,, 4Z a volls.e,aence i :act ap• (ecer 'Uw ?eriod *Laud. the IA.:torsi. Reserve exTfects to coutiauw to erovide thatt reLaxvt fOr orderly, reatrained criowth in soomoy and credit that Li consistent with unwindiw; the natiQu's inflationary avixal. krovresa toward irice stability ahould booboo uvident in appini4 months. Witt a diAisiation of inflatinnarl ierwi4urea, l'housin-; and its related induztrie6 can De ex.:Acted to e ai4ong the firzt areas of the econo061 to kAlnefit. apparel:Late the euv ort that yOU bave expreased for roderal MOSOWV* politiatu, and 1 look forward to woriang vith %jou and our o3magw2s in the Con.iress in anding soluticnI4 to our natiQA'a ecO5SSiO proLlems. Sinoare17. S/Paul A. Volcker  foreoloaux4N .124rolLK;Jkjt (V207) 1=1 nr. icIir nr. 11,-.41or .r4. ilallardi (2)  •  A Cn  ff CLAUSEN REPFH CI .4•A r I IN CONGRESS T. CAI IT(IRMA 2o r "TM Fti t v.or/0 DISTRIC.T.• DON  Congurf.z" of tbe Ziniteb *tates'  wto .,4111".yr,..1 0, 11Cr .:N  1-401,• ,  ('cc Icr  WA .4..4..1' NI I) C..  B11/1 flING  20515  Aptt5e o 1kepre5entatibe5 ZIL-mbington, D.C. 20315  22`,-1311  rPl• I  1111  7  1•  cr,k4+,417--rr PUBLIC WORKS  WATER RESOURCES TRANSPORTATION ECONOMIC DEVELOPMENT INVESTIGATION AND REVIEW  commiTIFF. INTERIOR  AND INSULAR AFFAIRS  1; 1  silscomPAITTFCS:  A  WATER AND POWER RESOURCES  ,..Tn  SANTA Rc A. CAI  •  StmCOmmITTFFS.  •  2336 R.•  assigned Mr. Kichline  t1  V/ 1411,  lcl,41A  May 8, 1980  95404  NATIONAL PARKS AND INSULAR AFFAIRS SPF:CIAL INVESTIGATIONS  Pow., .;2•• -4116  INDIAN AEVAIRS AND PUBLIC LANDS A INN  Room 216  7Tm ANn F STFIIITS Ellitf  NA, CAL If 041.4i1li F'11014f  95501  442-0912  The Honorable Paul A. Volcker The Chairman Federal Reserve System Room B 2046 - 20th Pz Constitution, N.W. Washington, D.C. 20551 Dear Ir. Chairman: Along with some of my Congressional Colleagues, I recently had the privilege of meeting with the President, yourself and some of the Presidents other principal advisers on fiscal matters to discuss our basic economic situation. This letter is written to expand on some of the ideas discussed. •••  . In general, I have been supportive of actions by the Fcderal Reserve Board under your leadership. The instigation of a tough monetary policy has been necessary to check inflation. Indeed, in the absence of any consistent fiscal policy from the White House, monetary policy was the only vehicle available to redress our economic problems. Nevertheless, it has been bitter medicine and hopefully this economic shock treatment has performed its function of bursting the inflationary'bubble, The group of economic indices released last week by the Commerce Department support my belief that we may indeed be within a far more serious recessionary period than President Carter suggests. I am hopeful you share my concern with respect to our domestic housing and support industries, When across the board monetary credit restraint actions are initiated, as we have recently seen, the housing industry bears a greater share of the burden than other sectors of the economy. We need only look to recent figures within our domestic lumber industry.  • • The Honorable Paul A. Volcker May 8, 1980 Page 2  For the week ending April 19th, of the 175 mills in the softwood plywood business nationwide, 72 were closed, 52 were operating on a curtailed basis, and 20,000 workmen had been laid off or were working a reduced work week. Of western sawmills, 184 were closed, 260 were on curtailed production schedules, and 52,250 employees had been laid off or were working a reduced work week.  .„  We are looking at the same ball of wax when you take into account the lumber industry is heavily dependent upon the credit sensitive homebuilding industry. Construction contract values awarded in March plummeted 25 percent from the same time last year as we see the recession expanding across various construction markets, Residential building contracts plunged 34 percent in March. Mr. Chairman, present policy has the potential to make ghost towns out of lumbering communities throughout the natron., A large metropolitan area can absorb a job Fos of bne to two hundred jobs without serious impact, but tvhen these same jobs are lost in a small rural community, economic disaster results. Normally all those employed in satellite industries which support the men and women who work in our forests and sawmills are also adversely affected,  ww.  These men and women and their families are bearing a disproportionate share of the "medicine" with which our inflation ridden economy is being treated. It'is not only unfair, but in the long run will be counter-productive if we cripple our home-building industry while we're trying to help the economy. I am hopeful the Fed will loosen some of its pressure in our domestic money markets. I ask that you personally review what is occurring in our housing industry. I believe it has carried too large a burden in this Administration's economic package. Sincerely, " rtat  DON- H C AUSEN Represe tative in Congress DHC:jd ••.  198G  Uonoraule ail writ Bowie of Rekrezentativez kasLinsitonp L.C. 20515 tG  Wright. I si',eraciats And ahsre .4.our concern relardin:7; recent ilffoctin,r3 te automelyilse industri i es expressed in your letter of ,a: ; 7. 30wever I eliQma that the shar;) decline in laitere.4t vital; 4inee 4dri1. ;114 recent rederal Reserve state_Acute clari4inv tLe i4ui4elinaa for tile $17,ecia1 Credit neAtraint :vo,:raz will 'lel; to alleviate, the financinv, difficulticn tlpe 2n4uistr is reorted to have L,cen experiaricin. In .oux 1etitcr :ou swigented Cut autoAoI.41e financiw:: 6e G.er.,.1.4,t fro4;th G to 9 zercent ceilin on 4rowth in bankllosna. 'Me kederal ;veaerve does not , ; elieve it .a.v.Triats at this timt to spr4cifica11y oxemt t„ptit of Loan, beceuo of the itakortance of wAintainimz 4hAvatrol ver te; , ;rowtia Of credit. Lod over; els noard 4az ancourae4 ccorci41 anksi te give reriorit;• to Laaintaininçs. a reabonazIle flow 4f 4un4s to certaia Categories col: borrower:. In a lottar of ' ha, 221 1900 to the chief executive officer oi *AinXin -,; inatitutions, 1 said tit swell banks 'sawmill not feel under ani s„ocial restraint in a=csetiri the needs of their v..;iular local eustozers, consiatent it their individual capital a.4 Ii id1t reoAretzunte.m the letter wont on to say, ^'In .;:rticular, the krrau is not iliael 7incd to exert restraint ou dtutal,ina31 bueinets, con:Aviation and itaprovement (uclutling energy conaervation), ltgAt 4,0,5rtezid:A; and auto-relate4 crutlit." Larger batutt. also are exposited to treat requests for theau xinds 10AAA iu a norl manner, an4.1 to restrain loans to other i.urrowers to the uxtent necesseri to 1-clei loan 5rowth in 19ac to 141•4 than nine olircest. Any bank, lar.1;e or :small, is luutified in exceedia.j this rate ot ifterease if ias 1endin5 is es.seatiallx couZined to the priority areas listed m'L)eve. This lettex of :41 22 at:Quid have cleared 14 the emiereat confusion on toe t art of wsn..4 Lanks 418 to what w-Artges in their lending ,csautic4& ti4u ilo4r4 vx2ected of thca• Vour secon4 iroirocal -that a credit against the svacia1 deposit that ei:ijieu tt,) increaset in covered consumer credit he  •  •  .  The Honorable Jim Wright Page Two  provided for uncovered credit extended to autobuyers--would be quite complicated to administer. Moreover, with the special deposit already reduced from 15 percent to 7-1/2 percent, effective on credit outstanding in June, it is doubtful that the credit could be large enough to stimulate more lending to autobuyers and to make the necessary additional reporting worthwhile, and at the same time not be so large as to significantly reduce the effect of the remaining 7-1/2 percent deposit requirement. While I do not have an alternative proposal at the present time for increasing the attractiveness of consumer auto loans, I want to assure you that the Board and the Federal Reserve Banks are fully aware of the importance of credit availability in this area. In our written communications with banks, our monitoring of bank compliance with the Special Credit Restraint Program guidelines, and our contacts with individual lenders, we will continue to urge that no special restraint be placed on automobile credit. I hope these comments prove useful to you. Sincerely, , ) El  , I  /  •  JIM WRIGI;iT 7X AS  MA "jRITY LEADER  Congre55  • of die Zinittb  100115f  'tate  of iktpregentritititz  Office of tbe friajoritp Reaber Wassliington, 1D.C.  20515  /..67:4PS.16  May 7, 1980  Hon. Paul A. Volcker Chairman, Board of Governors Federal Reserve Board Washington, D.C. Dear Chairman Volcker: It was highly instructive to have the visit here at the Capitol yesterday. Let me use this means of pursuing one particular but highly critical segment of our immediate economic problem -- that which specifically affects America's automobile industry. As you are keenly aware, the automobile industry is in extremely dire straits. According to my information, approximately 25 percent of the automobile workers directly associated with the production of automobiles are now unemployed. This does not include the thousands of workers in allied industries, such as glass and rubber, whose jobs have also been terminated.  1.11111111•11W--  ••••  'Car sales are down dramatically and dealers are forced to pay extremely high floor-planning costs on the large inventories that they are unable to move. Hundreds of small business dealers have already gone out of business and thousands are just barely hanging on. Our whole economy is sensitive to, and strongly affected by, what happens in the automobile industry. Events of the past few weeks have made the plight of the industry even more dire and the need for assistance even more urgent. 'As I understand the Federal Reserve Board's recent action, an overall ceiling of 6 to 9 percent over the 1979 credit levels has been established on all bank loans. In general, I applaud the Board's action as a necessary and salutary thing. This limitation, however, coupled with the decline of the long-term industrial bond market and the corresponding demand for bank credit by large industrial firms, has rapidly and significantly reduced funds available for dealer floor-planning and consumer loans for automobile purchases. Mr. Chairman. this particular industry in my opinion needs immediate assistance. The problem is, of course, multi -facetted. However, a program which would make consumer loans for automobile purchases more attractive to banks is the type of program which the industry generally, and the small business dealer specifically, desperately need to survive these very volatile times.  E2112::k  •  -eV  -2-  Please let me suggest for your consideration two possible actions which might provide a degree of assistance for this industry which has been forced to bear a disproportionate share of the national sacrifice imposed by the need to control inflation. First, I would urge the Board to consider exempting automobile financing from the 6 to 9 percent ceiling on bank loans. In addition, I'd recommend that the Board consider providing a credit against a bank's 15 percent reserve account for loans extended to retail purchasers of automobiles and trucks. While I am not prepared to suggest the exact amount of such credit, it should be substantial enough to make these specific types of loans very attractive to banks. These actions are not, of course, the only set of mechanisms that are needed to assist this industry. However, these actions could be instituted rapidly and the automobile industry is in critical need of immediate assistance. I would very much appreciate your consideration of these ideas, and I would like to express my willingness to join in a:1y effort to help alleviate the critical problems that now exist in the industry. Best wishes.  Sincerely, I penuper. •  un W/Light  41-  •  •  Arlr  June 3, 1980 The Honorable Leo C. 2eferctti House of Reprosentative Washinvton, L.C. 20515 isear ix. Zeferetti; IL tlie absence of Chairman Vol cker, I aw pleased to resi.ond to .our letter of .:;ay n o 19800 rec,uesting the aoard's views; on lilt, 2255, which shortl will be on the floor of the house of P.e,recontat ives. In brief, 2255 would aluend section 4(c)(8) of the liar* Holding Company Act to lL4t the omperty and casual ty and life insurance activities of bank holdiw... cook,ani es and their subsidiaries. The Board has consistently opp osed legislation of thiu kind on the grounds that the provision of credit related insurance by bank holding cork.i anies generally is in the pub interelit and, thus, that bank lic holding companies should he allowed to sell credit related insura nce al)* insurance. In the first ", , including property and casu- la companie4; to provide such aervic ce, pomitting Lank holding e iv pro-coetitive, since it provides an additional source of insurance to the public. Als sa1e-4 of insurance by such Lan o, king organizations has provided useful and convenient service to as, none-stop" shopping, includ the public in the past, mich ing ea es at locations that are coorly served i others. Another troublesome fea kroiliLiitions apply only to bank ture of the bill 1.3 that the sidiariec and not to other leudduholding companies ana their out:, rs who also may engage in insurance agency activitief.:. Th serious comietitive ineluitieti e efCect would be to create bet amid other financial inutitutiom ween Lan% holdint; companies We $ec no good rea4;on for L;i2u3 and nonreculated lenders. linv out bank holding covTanies for sucb di4crininatory tre atment.  0.(;1011.,mtiAtiMAIdOM  The lionerable Leo C. Zeferetti Page Tvo  If Conress Should nevertheless decide to legislation to vrobibit the sale of property and casualty inzurance by bazaz holding couvanies, we see no justification for the proposed exemption for firms with "'el's than $50 utillion in aGsets% This exemption would exclude from coverage many ovjanizations in smaller market areas tat control a siejnificant portion of their zarket. Loroover, ta $50 million exemption could greatly expand the scope of insurance Until; Ll.at aucli companies may offer as agent to include the sale; of irxurance unrlated to an extension of crcaaits suoil as health, cria anl fire insurance, and insurduce lines previously not authorized by tho Doard. If you have any further fiuestionz regarding these matters, please do not ilellUtatol to'contact me. Cinceruly,  Is, J. Charlet; . Partee  LEB:DJWyjt bcc; Gov. Nike Mrs.  Ov-238) Partee Bleier nallardi  LEO C. ZEFERETTI 15 el-I DISTRICT. NEW YORK  Mike illr is preparing response;  •  WASHINGTON OFFICE: 245 CANNON HOUSE OFFICE BUILDING WASHINGTON, DC.  20515  (202) 225-4105  Congre55 of die 'Unita' tate5  COMMITTEE ON RULES AO HOC SELECT COMMITTEE ON OUTER CONTINENTAL SHELF  SELECT COM MITTEE ON NARCOTICS ABUSE AND CONTROL  31)otife of Ikepreiqntatibet  DISTRICT OFFICES: 9306 41'H AVFNUE BROOKLYN, Niw Yowl< 11209  tillassbingtort, ae. 20515  (212) 6eo-1003 229 PROSPECT PARK WEST BROOKLYN. Nrw YORK 11215 (212) 768-0021  May 29, 1980  r  Mr. Paul A. Volcker, Chairman Board of Governors of the Federal Reserve System 20th on Constitution Avenue, N.W. Washington, D. C. 20551 Dear Chairman Volcker: H.R. 2255, the Bank Holding Company Act Amendments, will shortly be before the Floor of the House of Representatives. If it would not be of too much inconvenience, I would greatly appreciate having the Board of Governors' views on this legislation. I would like to thank you in advance for your time and attention to this matter. Sincerely,/  7(7  /i (  LEO C, ZEFERE11I Member of Congress LCZ/rb  4  June 4, 1300  '11,1a 4onorwd1u aanry $. Chaiman Cceamittee on 1,8autkini„, and Urban Arlairu House of P.ei,reaentatives 20515 Wasiiin.;ton. •14.,  '401/.44.  TflAnk 4Lort-termbu  ii  your letter  fcr an analysiz of  loan4 Pada at rates 1:4t1o* tt'le pri.;!'o rate.  ave i,aug.tad 4 toux rot on to our Imaft, and  4  re;.ort will  avullable in the near future. :5incurcaly, SAO& Volcker  1311.Z10. TB:1-61V,I.jt (#V-231) r. Vrell 1acc r. Brady  mallardi (2)%0°'  •  1 HENRY S..,REUSS. WIS., CHAIRMAN THOMA•i.L. ASHLEY, OHIO Vr/ILLIAM S. MOORHEAD. PA. •  ekction assigned Mr. Kichlin.e  FERNAND J. ST GERMAIN. R.I.  GEORGE HANSEN. IDAHO  HENRY B. GONZALEZ. TEX. JOSEPH G. MINISH. N.J. FRANK ANNUNZIO. ILL. JAMES M. HANLEY, N.Y. PARREN J. MITCHELL. MD.  U.S. HOUSE OF REPRESENTATIVES  HENRY J. HYDE. ILL. RICHARD KELLY, FLA. JIM LEACH, IOWA  COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS  THOMAS B. EVANS. JR., EEL. S. WILLIAM GREEN, N.Y.  WALTER E. FAUN-TROY, D.C. STEPHEN L. NEAL. N.C.  NINETY-SIXTH CONGRESS  JERRY M. PATTERSON. CALIF. JAMES J. BLANCHARD, MICH.  J. WILLIAM STANTON. OHIO CHALMERS P. WYLIE., OHIO STEWART B. McKINNEY. CONN.  RON PAUL. TEX. ED BETHUNE. ARK. NORMAN D. SHUMWAY, CALIF.  2129 RAYI3URN HOUSE  OFFICE  BUILDING  CARROLL_ HUBBARD. JR., KY. JOHN J. LAX ALCE, N.Y. GLADYS NOON SPELLMAN, MD. LES AuCOIN, OREG. DAVID W. EVANS, IND.  WASHINGTON, D.C. 20515  May 23, 1980  CARROLL A. CAMPBELL JR.. S.C. DON RITTER, PA. JON HINSON, MISS. 2.25-412411  NORMAN E. D•AMOURS. N.H. STANLEY N. LUNDINE, N.Y. JOHN J. CAVANAUGH, NEBR. MARY ROSE (DAKAR. OHIO JIM MATTOX. TEX. BRUCE F. VENTO, MINN. DOUG BARNARD, GA. WES WATKINS, OKLA. ROBERT GARCIA, N.Y. MIKE LOWRY, WASH.  Honorable Paul A. Volcker Chairman, Board of Governors Federal Reserve System 20551 Washington, D.C. Dear Mr. Chairman: Information received from the Federal Reserve for the first quarter of 1980 indicates that 66.96 percent of business loans by "large New York banks" were made at below the prime rate. This compares with 28.85 percent below-prime loans made in the previous quarter (4th quarter, 1979), and with the 30.22 percent below-prime rate average fof all previous quarters since the series started in 1977. For "44 1arg4 banks," which includes large banks in New York, the first quarter of 1980 percentage of below-prime loans was 50 percent. This compared with 19.78 percent for the previous quarter, and 21.4 percent average for all previous quarters. The nation's 14,500 other banks did not engage in comparable below-prime lending. Their first quarter percentage of below-prime business loans was a modest 15.18 percent, compared to 26.59 percent for the previous quarter and 12.91 percentage for the average since 1977. Information from published sources indicates that during this period, large corporate borrowers were obtaining loans as much as 6 percent under the prime rate. Obviously the big banks were unfairly discriminating against small business, farmers, home builders, and others who were charged more than the posted prime rate. Those who watch the prime rate as an indicator of what's going on in the economy have been misled by the banks' posted rates. How can bank examiners enforce such laws as The Equal Credit Opportunity Act, which bans discrimination against women and minorities, if the examiners have been flim-flammed on the real prime rate?  1 e ye  Honorable Paul Volcker May 23, 1980 Page Two  I would appreciate an investigation and report concerning this entire situation. Sincerely,  I  5. Henry S. Reuss Chairman  •  .  I C  errEP' LIAL NEAL_ PC JERRY M. PATTERSON, CALIF. JAMES J. BLANCHARD. MICH. enAR D. JR.., KY. C.APIROLL JOHN J. ....APALCE. G. ADYS NoON SPELLMAN, MD. Lee AuCOIN, OREG. DAVID W. EVANS, IND. NORMAN IL CrAMOURS, N.H. STANLEY P4.. LJJNDINE. N.Y. JOHN J. CAVANAUGH, NEBR., MARY ROSE OAKAR. OHIO JIM MATTOX, TEX. BRUCE P. VENTO, MINN. DOUG BARNARD, GA. WES WATKINS, OKLA. ROBERT GARciA, N.Y. MICHAEL LOWRY, WASH.  NINDYSIXMCoNGRESS  0  2129 RAYBURN HOUSE OFFICE BUILDING  WASHINGTON, D.C. 20515  •  FD BETHumf ARK. NORMAN D. sHumwAY, C.AR nou_ A. cAN4FeralDON RITTER. PA. JON HIKSoN, MISS. 4147  FOR 6:00 P.M. RELEASE FRIDAY, MAY 23, 1980  NE73 RELEASE  ".11111MEMIIMPIM• Alinalet  SURVEY SHOWS BIG BANKS HAVE BEEN FASHIONING PRIME RATE 'PALSIES' -- Chairman Reuss Chairman Henry S. Reuss of the House Committee on Banking, Finance and Urban Affairs asked COWPS Chairman Alfred E. Kahn and Federal Reserve Board Chairman Paul A. Volcker to investigate what he called "prime rate falsies fashioned by the nation's major banks this year that would shame the brassiere industry." By posting  prim6 rates in  the 20 percent range, but actually charging  large corporate borrowers as much as 6 percent under the prime rate, the big banks unfairly discriminate against small business, farmers, home builders and others who were charged more than the "falsie" prime rate, Reuss said. Reuss' information came from an unpublished survey he obtained from the Federal Reserve for the most recent period (the first quarter of 1980). That survey, Reuss said, indicates that for 1980 so far more than two-thirds (66.96 percent)  of business loans by "large New York banks" were made at  below the prime rate.  This compares with 28.85 percent below-prime loans  made in the previous quarter (4th quarter, 1979), and with the 30.22 percent below -prime rate average for all previous quarters since the series started in 1977.  For "48 large banks," which includes large banks in New  York, the first quarter of 1980 percentage of below -prime loans was 50 percent.  This compared with 19.78 percent for the previous quarter, and 21.4  percent average for all previous quarters. "The nation's 14,500 other banks," Reuss noted, "did not indulge in the 'falsie fetish'. Their first quarter percentage of below -prime business loans was a modest 15.18 percent, compared to 26.59 percent for the previous quarter and 12.91 percentage for the average since 1977." "The, prime rate is supposed to represent what banks charge their bigest  Reuss said.  Why did the big New York banks, apparently -MORE-  •  • 2  acting in unison, kid the world by posting a phony prime rate which was actually much higher than what they were charging their favored customers? Whatever the purpose, the result was to rip off smaller borrowers who are now going through the wringer because they couldn't afford to pay these exorbitant rates." Reuss said that those who watch the prime rate as an indicator of what's going on in the economy have been misled by the banks' "falsic" rates. "How can bank examiners enforce such laws as the Equal Credit Opportunity Act, which bans discrimination against women and minorities, if the examiners have been flim-flammed on the real prime rate?", Reuss asked.  Ju.  The Masataka. Charles United States Senate Washiagtans D.C. 20510 beat Senator Mathias; X appinseiate and share your concern re5ardinlir recent diffiaeLties effoctimQ autcwobile dealers 4nd con:414r1:0 an r ay 23. expresood in your Lottar I'm )(our information, / au 0.cattlekl Lc) eacloiie of my dixeat rou/zruite to 4r. Irvin, ulon9 with t..%e  c07.2  Pleai3e Let La know if / can b* of furthw: aouit,tance.  IJIciet :1414-1c4=-4.  (Ltr. to  r. Irvin  CO L it (#V-235) :Jac: i•allardi (2) 1.0°b  ron Chairnan Volcker dtd. 5/29/V.)  ABRAHAM we:corr. CONN.. CHAIRMAN I4ERYII. JACKSON. WASH. THOMAS r. LAGLETON. MCI. LAWTON CHILES.  rL.A.  . SAM NUNN. GA. JOHN GLENN. (4110 TENN. JIM SASSTP DAVID H. PRYOR, ARK. • MiC)4.  CARL  CHARLES H. PERCY. ILL. JACOB K. JAVITS, N.Y. WILLIAM V. ROTH, JR.. DEL. TED STEVENS, ALASKA CHARLES MC C. MATHIAS, JR.. MD. JOHN C. DANFORTH. MO. WILLIAM S. COHEN. MAINE DAVID DURENBERGER, MIMI.  RICHARD A. wrGmAN CHIEF COUNSEL AND STAFF DIRECTOR  Action assigned Mr. Kiine  'ZICrtifeb Zfafez Zenate COMMITTEE ON GOVERNMENTAL AFFAIRS WASHINGTON, D.C. 20510  May 23, 1980 /i Mr. Paul Volcker Chairman Federal Reserve Board Washington, D.C. 20551  rKM••••••  Dear Mr. Chairman: I am writing to call your attention to the impact of recent credit control decisions by the Fed on automobile dealers and consumers. Auto dealers are faced with heavy carrying costs of their inventory which is not selling quickly partly because of the unavailability of bank auto loans. Although the Fed's March 14 credit controls specifically exempted auto loans from control, the auto buying public is nevertheless faced with a shortage of auto loans. Those which are available carry a very high rate of interest.  U.Yri IISERNINK  Given the serious situation which the American auto industry is in, especially in terms of foreign competition, I urge you to consider steps which will ease the current situation. In particular, I call your attention to a letter of April 28 to you from the National Automobile Dealers Association which proposes specific steps which might be taken by the Board. I appreciate your attention to this matter.  With best wishes, Sincerely,  Charles McC. Mathias, J United States Senator CM:mtm Enclosure  •  4-11:1111  •  8.2.00  GEC•ftGE S  W Efr.:TPA I? K  DUI VII: • MC LEAN, VIIIOINIA  22102  iivr April 28, 1980  The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve Board Washington, D.C. 20551 Dear Chli=an Volcker: In the past few months, 800 new car and truck dealers have gone out of business, victims of large inventories, soaring costs, high interest rates and credit restrictions. The problems dealers face are not of their own making. The rapid increase in the price of gasoline caused a dramatic shift in public demand for small vehicles which, in many cases, left dealers with huge inventories of large, high Priced vehicles. As a result of the tightening of credit by the Federal Reserve Board, car and truck financing has become a very low priority for most banks. Floor plan financing of inventories has become more costly, and in Lack of retail credit some cases, impossible to obtain. has drastically slowed car and truck sales, making it virtually impossible for dealers to reduce their inventories The exemption of car and truck financing from consumer credit restraints has not helped the dealers' situation. Potential car and truck buyers still cannot get bank loans. There is no auestion that industrial and business loans are more attractive to financial institutions than This dealer floor plan loans or retail car and truck loans. is evidenced by the dramatic increase in credit extensions by the financing subsidiaries cE auto manufacturers from 22% to 33% in February, 1980 versus the previous year. At the same time, bank credit extensions for retail auto loans fell 7 percentage points. In order to make financing available for dealers' car and truck inventories and retail sales, it is es2ential that the Board provide incentives to financial 1nst1titi7ns to make these types of loans. At prescnt, the  *  edf.. ; of 1(,,:.s for cr:r (st  C :  •  I :• • t it. g:cwth r‘,7ult(-7: in a curtail;71r:nt of available truck financinc. This is the experience of 4 :•d 11.:..7k and r]cr.ileIs (.ven thouch the r:1C: a' c' loans frcm th 1 5i 7. . Cc•ns-P:71uent1y, we i=“..,,!a 10 (:- :•c7i!nt f:om the 91 li!ritation on thn of 1 (.L:ns. Such dction would provide an ferr nstitutions to provide inv entory rc;tail financinc for c:s ,71 d trucks. mr.  We that the Boaid provide additic:nal incentives to financ ial institutions to extend fi:-:ancinc on .cars and trucks. We sugcest that a c; t c7- aiitd for loans extnc.ci to finance car and tr-2ch r. , ca the 1 5% reserve requirement of C ,•7- • r, 7:S. r  !-I)ch a t will not he It will a ,-ccni::e this lnd ustry's r; evcrl hicbrr ecc, n&mic and social It 7.E tht the intended automotiv _ . e ITic,n C2'1- •Ctr'(.; Dv Pr :sidc.nt Car ter on Y.arch 14th will ol7cur. ror ncw, we find ourselves sul:ject to de C t0 contiarv tc he 1/e5-icen, S fxrilessed _ _  1 IC: , _  .  ;•:•-• (•r!'v  ,  (  -1" 1. r t  ask  nt  _•••  r•k  z Witb •  (7cal  rn r% I.  (-.H.  4  •  Much da:T.E-aoe has already bee n done and have been lost. The real c'!r 1 4. (-2 s iS not unde ,-stat.d that i:.uni t11.7.ir' of We have a disastrous situat ion on .ncwe nr.r.:3 7  r  ,  hr::s,  Since-ely yours,  Ci-orce S. •  tOCCItt  Atii4xti,1-14 .QUX lvtter i9 uns! tle 1 iiV t., t.14f in ir;tetest raten, ;;;inct, reonut :04treil .4e401-1,44 AaAtrifiev; t4tctiu Cxotdit 1;:g:tatxaint .11(lavAilte 14: ir ofat, mutoraflotiv af4 truc(., 4t4z4Xort. An 2oux - strict. rot ec,nviZet 1 z:rc,,xlato at to aolciall, 4,111 earticular t r e of loat fror v%te C to 5 :vvacrit ikoitatton r the ILoard t;raciura964 k-kza :4.aka to 0.ve tc a rsr 1 clo;„; 1: te c6xtain t;x'i ti,orrowerz. n1 6 lt,tt‘*r a 22, 1 oAocutiv44 ctficer of l,anXiiwi oz-411 !AuLfit, *secloula not feta uneer any At.,etotl restra-t t%*,:; notuln. of t4;1,ir rcoulac 3C4t euzAol,.41r3 oartaiotek tt4=cir(iti. £t it xc,uix*menta. TT1A) 14tttftX want 16,41 tO 7.1"‘ *T.xticular, ia Lot ileitio„rted to :vxt„rt 17:•trisialt en a74*1 !vuzinitso, 1^4,rtre con,LtructLn 44, 4 14 qVoliiient critv2:i eongeorlitstion), ,Lowe p.oxt,„ai,‘A, xl,t4 auto-rolotec. creZIt. - Lar4tr trdvAtt alao aro exi.octod ta trv4tr. im a nomad, canner, arid t4.-d re.45trala lo4A3 to ot14ve or:r t t;AK -gxtont nectes'ar:, to 14i,a4 jmA,tt, iu i9 t. to 1414t tLtAA 1 ,tronht. P.rly or 4 -all, ;uuti.tioti 3 it itp 44scaltia11;,Luw tO Cot i,riv,rity areat list Above. 11:iv lettot ot 54_ . 22 sLoul4 L&v clear,e4 u: t' trnt eonfuzion VLti;,11,rt of maay Lranks az to wtAt c;-qA,L,Ictv is tItcyir 1di3. rac‘ tice»; oxi,totted of ti,*m.  s;onort4,14:2 riou0.az  creuter  ::*,14 ',ere gtt 14Itar :iow,‘nrer, the efitaeri; 5o!' izonc(Jrnee. about the co.gt of LanY. uru.Jit as .a.:ut it!1vaiiaiiit fr.=thc wry and thei uutivoxited .04Lis to isolate tutu level of it.terost rateo that %cAt; inevltablu in 4 r'etiod of ra; id ut we are now seeini; r4int4 inflation and heavy credit 4eiland4, that inilation awl inflationary I:ressures are (a.fr$_n.:: and credit 46.4ax14..; weateniv4. As a result, intsirest rat** aure declinimj sharp1;,' into a Laoro affordethle rane. In my view, measures Iluch r qovernment loans 4enitjned to benefit i1it ag intereat rt L zeeciLie iadwitry sihould rAb 00naidertd only in foctrelma circutdo not f4n.1 tat their adotion could !le justified ltance*. an4 In 4.c,-1,4, i r3 euvirowcnt. 3. hue4 thczat conts 1-rove uictul to :4au. rincerel*,'; S/Paul &Mali  VAIS:JLE;JPE:vcd (11V-217) . Stockwell  tion assigned Mr. Eachline  DOUGLAS BEREUTER  41  •  1ST DISTRICT, NEBRASKA  WASHINGTON, D.C.  v(1P  COMMITTEE ON INTERIOR AND INSULAR AF FAIRS SUBCOMMITTEES: ENERGY AND ENVIRONMENT NATIONAL PARKS AND INSULAR AFFAIRS WATER AND POWER RESOURCES COMMITTEE ON SMALL BUSINESS  WASHINGTON orricr:  1314 LONGWORTH HOUSE OFFICE BUILDING 20515  (202) 225-4806 DISTRICT OFFICES: 1045 K STREET P.O. Box 82454 LINCOLN, NEBRASKA  Congrez of tbe Viniteb  68501  (402) 471-5400  tate  220 WEST 7TH STREET P.O.Box213  3DotifSe of ikepre5entatibe5  WAYNE. NEBRASKA  68787  (402) 375-3030  RURAL CAUCUS  Ulazbington, D.C. 20515 May 19, 1980 i  ii••••••••  Mr. Paul Volcker Chairman Board of Governors of the Federal Reserve Federal Reserve Bldg. 21st & Constitution Ave., N.W. Washington, D.C. 20551 Dear Mr. Volcker: Please find enclosed copies of a number of letters I have received from automotive and truck dealers in my district. They offer a number of suffestions that might ease their current economic plight, which I know you agree is indeed quite severe. The dealers suggest: 1) A need for 12% interest on floor plan units to assure credit;  r277-  2) Implementation of low-interest government loans for dealers; 3) A pre-emption (temporarily, at least) of state usury laws; and 4) Clarification by the Federal Reserve of the scope of automotive exemptions to credit restraints. I certainly would appreciate your response to their suggestions. Thank you for your assistance. I look forward to hearing from you. ...11&:t wishes, DO= BEREUTER Member of Congress Di IS STATIONERY PRINTED ON PAPER MADE WITH RECYCLED FIBERS  DB/rwh  •••-• -  •  /r'—r -ALT  j  •  CHEVROLET HALL MOTOR COMPANY £28 Id Street  Box 578  HUMBOLDT NEBRASKA 68376  Telephone 462-862-21 21  April 2, 1q90  Dear Sir: I am a small Chevrolet car dealer in a small town, Humboldt, Nebraska. I have worked very hard since buying this business in February 1979, doing everything I know how to do, to keep my doors open. I employ 11 people. 911-t if we don't get some relief as far as lower interest rates on our floor plan from G.V..A.C. or lower interest rates for our customers, it will be impossible for me to operate my business any longer as it is. I have never astcd anyone to help me before, but now it is my only salvation as a business man. hOpinq 7,o7-ethinc-. can be done very soon.  Sincerely,  l itizen Jerni'L. Hall  JL9:bjh  F-11  • 'KEN BOY CHEVROLET CO. CHEVROLET OLDSMOBILE HEBRON, NEBRASKA 68370 PHONE 768-6141  •••••12,11..r.77  '  ""7*^1.7" ,  "  .0=-Ivexarir :7%41  ;IZE.:ZC  .7  •  •  •••  7.7-1.7.77:LEC"'—'177.711-71Et..2;7E"  • •••  "1" —1777LIZCIL`  April 28, 1980 The Honorable Douglas Dereuter House of Represenatives 1317 Longworth Building Washington, D. C o 20515 Dear Sir: It is with very deep concern this morning that I 2111 writing to ask you to do every thing possible to influence our people in Washington to provide a "Survival Kit" for the Nebra ska farmer, the rural Nebraska Businessman in general, and most of all the automobile ftealers. In this program we need to get the interest rate back down where we cn live with it; we need to establish a_low-inte rest overnert loan r,ro:.ram to help car and truck dealers; We -need-t o -et the Feeleral Res,-:rve to clarify the scope of the automotive type exemptions, so that credit restraints can be eased at the retail and wholesale level s; and also :e.. need_leP7Islation to temporr.rily pre-enpt state usery.laws_. These things need immediate action, because there !ire busin essmen, including automobile dealers, who will not survive another 60-90 days of this so called atte7:Ipt to control inflatinn. I have great concern for the Nebraska farmer because at the present interest rates, if he can ever obtain a loam to operate, the price of the fuel that he will have to use to farm, and the price of his produce when he gets ready to sell it, leave him losing money and ('or a good .r2ume:.' of them having to go out of business. It is simple enough, in rural America we have to rely upon the f'rmers busincss to 'Keep our doors open, and if he can't 7:11:e it, the ch'mces of our survival are pretty slim. Legislation has to be enacted now to ease these iroblems. sincerely ask for your help and concern. Yourruly, ,%  --  Lorence Kenning Yon-7o4/ Chevrolet Co. Hebron, .n P.S. Attached please find a copy of a news editorial that might be of interest to you. • irirr  fi AN', I  A  I ifswITI"  I[(1  • • Strong - Hecke Auto Villa, Inc. P. 0. Box 405 Phone 995-4456  Holdrege, Nebraska 68949  CHEVROLET  OLDSVOPILf IAINION....•  7,••3  ,Rn •  7  ,  OfffIc -•40.1•11.111041  The Honorable JouE7las Bereuter House of Representatives 1317 Loncworth Building 'shin6-ton, D. C. 20515 De;_r ?.erresentative 3ereuter: I '17.1 writin,.; you to urce :jour ii:nediate estalishment of a nc,w low int,,rest Covernment loan pro6ram to help the United truck iealers throuL;h a very critical crisis. Asc,U re we 11, .ve 1- Icei with an all tine hi,:h in int -irm.,t rites ;,n1 the dristic leluction of Aomostic s1 e; are it inl,ossible for our infiw;try to survive uri7!er these conditions. "'he rditorJobile in-lustry is the largest employer of people, outsii, . the Govern7.ent, and. witImut some ir,mediate action we will be forcel into the worst lepression since the 30's. Im70ii%te action is rielPd!  \  C. 'itrong r,,si 'ent  LIF  jig/I:PEI° CHRYSLER —PLYMOUTH — DODGE  [ill I kl SI 1.1  EAST HWY. 30  FREMONT, NEBRASKA 68025  It '  OMAHA  FREMONT  402-35•2S00  402-721-2200  April 26, 1980  The Honorable Douglas Bereuter House of Representatives 1317 Longworth Building Washington, D.C. 20515 Dear Mr. Bereuter: I have been in the automobile and truck business for 32 years, and during those 32 years I can not remember the auto & truck business as slow as it has been this last month. Somethings must be done immedi— ately to help auto and truck dealers. I would suggest the following: 1 'uLJI 1. Interest rates must be lowered. -- r'-) --interest government loan program 2. I request that anew low : • be instituted immediately to help car and truck dealers. 3. Pave the Federal Reserve publish clarifications about the scope of the automotive exemptions to credit. restraints at the retail & wholesale level. 4. Legislation shoUld be passed which temporarily pre—empts \state usury laws.  C  ,-....4T. ,  r ,c ,, . )•(.:;'d  )._:CC.--r-v•'0, ,4,  Please make every effort to have the above four sw:gestions acted upon as soon as possible! This should be done to keep many of the auto and truck dealers from going out of business.  11.'; tit) il (  Your cooperation will be sincerely appreciated. Sincerely yours, AL PIMPER CIJRYSLER PLMOUTH DOME z7. --  / L.  Al Pimper, Jr. fP:j1  •  • Motors  Rolfsai ieier  • TELEPHONE SEWARD,643 3611 LINCOLN, 477.1408  rev'te r  c5\6.5 14crncrreUe Tke . Noose_ c 'KefresaAta4-1 v st..-)•rki 13 1-I I. 2oSiS-  14 C11 j /  StCb  r  C c.,A3CCSS4001\  s;ykess  srstatl  45 a  cclivey -to  SEWARD, NEBRASKA 68434  139 NORTH 6TH STREET  HEADQUARTERS FOR GENERAL MOTORS PRODUCTS  rflciq  c--04- s:Ava-kcvk .  v)kcy  yoA.) "Oke  rt....,'.‹J‘ to  a.A11. aukb  cf---czJIt eve r ytrrie  Lir e to.k,k et,s't ?ev e  vt---6  QS  etif  pia°,  tk,k;  k  I a\  ec 1  e  r  0+ ( ).-  ram  c 's•-. 6 ‘c\- tk cfecN tet5  ko \\e  rcti  ty?Ijk ‘CI\ tk,V_NA  (--Q  Ir\ier?s*  jet-  ke /p (0 scc)C-  3 aur  rt.iNA 4-aA L,_3e tteeci (eTtsta•t",\ 1 V./  tkat  pre -1 1Z4IrtS  S ) '0.  f>u avvi  yci r  sit”ketS1C2ktioN.Clt1\  Sei'ICSUS  S  C- y  e(sQ sis  e  JQ  ‘Not-L)  o cri} r busl v\ess. LkJe fl e  -t-‘,,k, t trtj  us  a Vla  ckA  e55 ett  (3  cu (-4.--)e I \  zrectkokco\3  t(Dc  •On 1 ‘‹  r ::)1v\cczieky  ‘‘V-  1-  y  youc  s  it;r1kQ  ucck.  rea,c:1  er.  A P  *dr  BUICK  CHEVROLET  GMC TRUCKS  OLDSMOBILE  PONTIAC  , 'NFU 0  •  , 0 , 00 rwur  to-  Vern Bender Chev.-Buick, MAIN AND AVE 'B OSHKOSH, NEBRASKA 69154 'SALES AND SERVICE TO BELIEVE IN" April 25, 1950 Douglas Bereuter 1314 Longworth Building Washington, D.C. 20515 Mr. Bereuter. I know you have many problems in todays world and slso in our economy which need attention immediately. One such problem that concerns me in being a new and used car dealer in a small community of 1100 people. Our whole county has only 2700 people, and falling every year due to the fact that it is made up of mostly farmers and ranchers and as interest, fuel, and other costs sky rocket many fall by the way side every year. For our community to survive we need more not less rural people. /,',y big concern is my high rate of interest on my floor plan since units which at this time is 20.506; which has tripled has going into business in 1975. As a result my cash flow least dwindled. I feel we need interest rater.; dropped to at essmen 12;; on floor plan units and to assure small busin Credit -until—the-Se -Problems can biesolved. - We need to stimulate business not need to be lowered so prospective the products which our work force economy will grow and our Country  curtail it. Interest rates buyers can afford to buy produces and in turn our will prosper.  nec,:-.3ities Our avurLe people afLer fulJfi1linr lieir daily have nothing left to buy products which keep our and our small people in their respective jobs, also to let bone of our communities grow. Small business is the back Great Country of which I am proud to be one. ly for :;mall These matters need to be dealt with im7;ediate intended to. business and our Country to progress as it was Sincerely,  Vernon D. Bender Inc. President,Vern Bender Chev. & Buick, •  h*'  •  REPLY To  P.O. Box 82246 Lincoln, Nebraska 68501  ROSE EQUIPMENT INC. Serving the Construction and Transportation Industries in Nebraska and Western Iowa.  April 30, 1980  The Honorable Douglas Bereuter House of Representatives 1317 Longworth Building Washington, D.C. 20515 Mr. Bereuter: In order for the automotive and truck dealer to surv ive and continue to inventory products in the traditional way, it is imperative we be able to floor plan our inventory at a maximum of 12% Simp le Interest.. If we cannot inventory equipment, the manufacturer s must shut down production thus creating layoffs and putting those people in a position of not being able to buy our inventory. As you can see, this creates a selfperpetuating destruction of an entire industry and endangers the economy of our nation. In view of the serious consequences involved, an in-depth review, of the current national economic policies is needed.  Respectfully, /-  .  A,  LArry Rose President  LR/bjg  TWO LOCATIONS:  3200 WEST "O'' STREET, 402/475-5988 /LINCOLN ODESSA EXIT I-80, 308/234-5555  June 5, 1980  ILEA honorable  iroxwire  C!iairluan Coi..z.ittee on Basking, EiGusinfj ar.d urban Affairs United States Senate Washington, D. C. 26510 Dear Chairman Proxmire: I have reed your letter very carefully and I em fully sensitive to the skirit in which it is written. Generally, I think you know and appreciate the fact that the special deposit on increases in mousy market fun was, and is, viewed by the Zoard as a tweeprary meaeure. We have. as you Icri*w, reduced the amount of the specie" deposit and I look forward to the time when we can fully dismantle these extraordinary measures. In that oontext I think you can appreciate that I would be reluctant to introduce any further wrinkle* at this time. At the same time, I recognize that the suggestions contained in your letter have relevance *von beyond the tit** at which the special der_osit requirement is lifted. As you koint out, in a vcri basic way, making 4100,0e0 CD's (even when fully insured) attractive and aemeitahle investments to r„onay warket Lunds retituires the L.;reseeee of a viable secondary xicAst whore, these instruments can be bought and sold easily and with little price iwz.l act. The traders in these instruments rely heavily on their recognition of and "colafort* with the ne&ie of the issuing bank. liecauee of this, mad even with a change in SEC rules and the higher level of FDIC insurance, I am net optimistic that a viable secondary market could developed quickly, if at all. I do not u4san to throw ''cold water' . on the idea for it is an innovative appreeeh to an onioinc rob1. Ir the immediate teem the problem for banks and thrifts should ease in cart because of the recent sharl- drop in rates but also because of tho action of the DIM on interest rate ceilings  The aonorable william Proxmire Preo Two  on V&XiQl4 classes of eertificates at all depository institutions. Indeed, 141.i1.e the immediate outlook i iml-roved, I am not as sanliuine as I was some 'months avo that bOMG wore permanent steps i-itiLt not 1:44 needed to liA.t the aiphonin.j: off of funds from local :Jenks and oviullaunitieb to the detrimunt of local :4)rroworti. we will continue to consider wLat ItiLt Le constructively done in that revaxd, includins giving fuxtler consideration to thc: temll bank CD. We airiereciate of our thinkintj.  c.)ux suggestions and will keep you informed Sincerollf SHWA.VO!CkC  IDLNTICAL LETTERS TO SUNATOR DONALD STEWART AND SEWATOr PAUL  EGC:vod (IIV-225)1-- 1/-P? bcci  Nr. CorriJjan xxxxxxxi nrs.  r. TOONCAZ  0  WILLI,AL4 PROXMIRC, WIS.. CHAIRMAN Action ! .4.AJIR30441 t WILLIAMS. JP., NJ. JAKE GANN. UTAH ALAN CRANSTON. C-ALII. JOHN TOWCR. TEX. ADt-A I C. INTKVIENSI ••ON. -L. >OHM wriNa. P AROOlt R T 'MORGAN N C. WILLIAM L.. ARMSTRONG. C.O. DONIA'...D W. PIIaLI JR.. MICH. NANCY LANDON KASSCEAUM. KANS. PAUL 3 SAPHIANCS. MD. RICHARD G. LUGAR, IND. DONALD W. STEWART, ALA. PAUL C. TIIONDAS, MASS.  assigned Mr. Axilroc6  'ZICrtifeb Zfatez --Senate  KrNNETH A. MC LICAN. STAFF ORIECTOR U. DANNY WALL_ MINORITY STAPP DIRECT'OR MARY FRANCK/ DC LA PAVA, CHIC' CLLR <  COMMITTEE ON BANKING. HOUS11440.,A1417 URBAN AFFAIRS WASHINGTON, D.C. 20510  May 19, 1980  The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: The Federal Reserve in implementing the Credit Control Act of 1969 on March 14, 1980, applied a 15 percent reserve requirement on money market mutual fund assets above a base level. The principle reason for this action was concern that money market funds were attracting funds from smaller banks and savings and loans and investing them in CDs issued by money center banks. At the Committee's hearing on the implementation of the Credit Control Act on March 18, 1980, a question was raised whether the $100,000 deposit insurance coverage proposed in II. R. 4986 would provide a vehicle whereby the money market funds could invest a significant amount of funds in CDs of smaller banks and savings and _loans without risk. We believe that it would be in the best interest of the financial system a way could be found to permit money market funds to invest in CDs issued by small banks and savings and loans. This would provide those institutions with additional funds to lend to housing, small business, and farmers -- funds that otherwise might find their way into the money market. We have several suggestions as to how this might be done:. First, the Securities and Exchange Commission could modify their regulations permitting the money market funds to invest a larger share of their assets in $100,000 CDs issued by small banks and savings and loans. This would be facilitated if a secondary market in their CDs were developed. Second, the Federal Reserve could modify its 15 percent deposit requirement applied to money market funds under the Credit Control Act permitting the CDs of banks and savings and loans with assets of less than $100 million to count toward the deposit requirement or the Board could provide an exemption of those CDs held by money market funds from the deposit requirements. This would have the advantage of providing an incentive to the money market funds to plowback funds into small institutions. In turn, those institutions would have more funds to lend to housing, small business, and farmers.  •  •  •  The Honorable Paul A. Volcker '$k,19, 1980 Page Two  Third, the money market funds could be encouraged, in a similar manner, to invest in mortgaged-backed commercial paper issued by savings and loan associations if a secondary market in such paper could be developed. We would appreciate your consideration of each of these options, especially the one dealing with the 15 percent deposit requirement on the money funds which you could implement without delay. We would hope to have your thoughts on these suggestions within a week or two. For your information we are enclosing a copy of a recent letter to Chairman Harold Williams on this issue. We look forward to hearing from you. Sincerely, ,x  lanti  Chairman  Q15-Don-  Stewart, U.S.S  Paul E. Tsong Enclosure  cc:  The Honorable Harold Williams Chairman, Securities Exchange Commission  • .•  • A  1  •I ft. STI.11••••••4•  ler  P.1  I. 6A111.1..•et I t.fe4.Al.  le.  11.4'n".4  S1 r  1.43.  •.1.144- 4  PA.  1 •4:  I I4 L tAr.a•t  •  K  1  1  •  'II  p  g Ts* n 04  CrA.O.  ••SlrA•Um. Pk API.  PICA/ANL)  IM  •••••". ALA.  PAUL C. T.114.0.4'1A  •11 S.  letP4.4CrS.4 A. MC tr•P4. ITArl• 1TAFP tvilicinfe M. r)•,.•••4 MARY I RAJ+Cf1 nr LA. PAVA, C141111 C.LIINK  ?JCnifeb  ,-.:°)crtafe  COMMITTF.E ON RANKING, HOUSING, AND URI)AN AFFAIRS  WASHINGTON, D.C. 20510  May 6, 1980  Honorable Harold M. Williars Securities and Exchange Cornission 500 North Capitol Street 1c:asilington, D.C. 20549 Dear Mr. Chairman: As you know the banking and thrift industries have expressed concerns about the rapid growth of money market mutual funds last year and early this year. At hearings held by the Subcommittee on j'171113ry, sc,vorll witnsc...•:; were critical of the fact that the money market funds may be attracting funds from smaller institutions and using those funds to purchase CD's issued by the largest banks; therefore, further concentrating fuod availability, with the largest institutions. This charge has he. of some concern to me and to other members of the Committee. On March 18, 1980, Chairman Volcker appeared before the CoTrunittee fo discuss the actions taken by the Federal Reserve to implement Credit Control Act. At that time I asked the Chairman whether the $100,000 deposit insurance being considered by the Congress would make it possible for the money market funds to invest in CO's issued by smaller banks and savings and loans without causing unaao risk-taking. He answered affirmatively. I might add that I 1-calize liquidity of these CD's is also an important issue that norHs to be considered carefully. I have recently received several letters concerning this issue. enclosed a copy of a letter from Glen R. Johnson, President 1 I :lave DE Federal Cash Management Systems, in which he notes the liquidity problem but shows strong interest in finding a way to allocate a slibstantial amount of funds to smaller institutions. I am also enclosing a copy of a letter from the Investment Company Institute Treasury along the same general lines. tp Money market mutual funds have benefited many individuals and he proven that the market place works. Without them Regulation Q would be depriving a significant ntunber of individuals access to a market rate of return on their savings. However, at the same time,  •  •  Honorable 411o1d N. Williams Nay 6, 19n Pae Two  I am very concerned about the health of smaller financial institutions. It would be in the best interest of the financial system if a way could he found to permit the money market funds to purby those institutions. T hope that you and chase CD's your z;talf co..11,1 tale a very careful look at this problem and advise me as to what steps might be taken. As always, I look forward to your assistance. <  incer ly, —77  •  -am 1 roxmire Cha i rman '  Enclosures  ••t FEDERATEDIN,ESTORS 11UI1DING•  O  411 SEVENTH AVENUE • PI .FISFiURC;II, PENNSYLVANIA 15219 (F00) 745 66.5.5 In PA, GLII Cnik•ct (412) 238-1944 EEDERATFD MASTER TRUST MONEY MARKET TRUST TRUST FOR SHORT-TERM U. S. GOVT. SECURITIES  GLEN R.. JOHNSON Pr 1•I;4-1 VI;  March 27, 1980  Hon. William Proardre, Chatrmin CommAttee on Ban%ing, Housing and Urban Affairs 5300 Diri;s.-m n. n Office PAU! 1CUIY.3 w! - shinjton, EC 20510 I.r!ar Senator Prox=rtire: I a7.1 writing to you as President of six money market funds managed by Federated research Corp. in Pittsburgh, Pennsylvania. These funds, which we refer to generically as "Federated Cash ran.:IgemE2rit Systems," presently have total assets of ap7)rc-Iximate1y $6 billion and are steadily growing in size. For instance, we ,presently hold .,,1,800,00D,000 in Farm Credit Bank Issues and are the .1r-c.;est single holder in the col:ntry. Also we buy 25% of each new issua. I believe we can be helpful in pursuing a suggestion made by you at a recant p-r:•eting of the S•mate Bant:ing Ccrrrittce that a substantial anount of these furris can be rade available to smaller cormrarcial banks, savings banks, and savings and loan associations. I understand that at the hearing before the Senate Banking Corradttee on March 18, at which Federal Reserve Board Cnairran Volcker testified, there was a discussion of the dwindling assets of sailer banks which was seen to be a cause of the unavailability of working capital credit to farmers and small bul;inessmen. You personally observed that urldar the proposed new, Banking Act deposits in these banks would be insured up to $100,000 and that this might permit the investment by large money market funds in certificates of deposit of these smaller banks. We find this of great interest. I shall noL go into great detail our funds beuse I want to be as brief as possible in this ccuaNnication. I will point out, however, that we are unique in the money market fund inclust_ry in that our principal customers -that is, the shareholders of our furvis -- arc trust departirents of banks which Nive found it mire to the benefit of their own clients and beneficiaries to miintain idle cash invested in one or more of our funds than to attempt to marLige this cash thurcelves. (In your awn state, for example, some twenty banks -- both national and state chartered -- own over $82,500,000 of our shares.)  IsaniVA!k7 •  414;!ptc%4 , r-f.-7 , 7 !WilgraP4410i111112177 et '7 "4  • .  -  •  i'dyjC  •  1Ce are extrc.-7-re1y p-r:oud of the services we offer to bank trust. depi»-Iments. These sane services are offered to individuals by SCXTI e of oar funds, but this is »ot. a Trajor factor in our husiness develop-rent at this t.irr. Bank trust departments find our funds acceptable for i»vestirkant for several reasons, such as diversification, dAily inccue, and compatible cc.nputer systi-.5ns for incorre allocation. In addition, th2 assets of our funds (which are, of coarse, all short-term money market instrume nts) are valued at amortized co3t— that is, at their face arrount plus or minus ,:?rerrtium or discount, with the discount or prernii_rn arrortizcd incrtm over the :life of the instrument. E-*?1.7nits us to value our sh.-u-.c.:s at $1.00 Elacti and tx»naintain that value at all tirres, SO that a shareholder who is investin g $1.00 with us m,.)), at any Lille red,---an his invesLraant and receive $1.00 hack. This rrt-A.hod valuation of short-term instru-rents is traditional in fiduciary acco unting ;31.Id f; understood by C1:!Pc1.17 T1 011/)11 I iOfl it the o Ly reasonable way to value our portfolio. Fc)ur vc:ars a:jo 77ecut it ies ancl tTflCC armission published an interpretive release tilling w.; that we cauld no :longer value our portfolios Ett T 1 (". C`D n of th.2 \•;'151 1111 -P.N.!eptabie Ccf.,r;dssion g-rantd us an (...).xt-miption fron the inte rpretive re1e15e pennitted us to cont_im,? our rw-tbo3 of valuatio n. One of th conditions to this exemption is, howr:mer, that our funds inVest only in instrarts which pres:7mt "minimal credit risk s, and which are of 'high quality'. Because of this, we are 'prohibited from investin g n inF.-,trunvnt.s issued by banks or savisr,.;s and 3:->an aE;Fociations unless they have capital,. surplus and undivided profits in h.xo ..-2ss of $100 million. Today our various funds have approximtely a bill ion dollars invested in the 100 largest banks in the cx)untry. Thes e funds r.cAmonly nvilze .invest-merits in miltiples of dollars end are properly viewed as major factors in the rroney mar'Ket. .1Ce be1i.ee that b'ing such a fact or N‘ou:lei be most reasonable to allocate a yortion of our assets to banks whic h f..-ca:font) a vitaI function in the develo7rant of our nation's econ-lny. It would be our intention, therefore, if Federal D2posit Insurance Corypration coverage is increased to $300,000 to allocate tens of millions of dollars to sound, Eznaller banks and savings and loan associations with intarest rates which are colv oLitive in the indus This would require a rrodification of the conditio ns to our present exonption from the S.E.C. Under present Reserve requircim.-, ants,the S.E.C. insists that every instrument in a fund's portfolio mast be "liquid" , i.e. marketable Or refundable. This %.,oald necessitate either a sr:!conclary mitrket fcr . these CD's or som2. "takehack" condition by the issuing' institution with sc77.cc typn of yield adjustment. It wculd be very rarc, that. this vx..)uld occur, but. scnx, hc./y) the )117!chanism NqouTid have to b2 in place to do so. As a pioneer roney market fund (January, 1974), and prominent in the irany other fund groups luNok to us for 1.eade.r ship. ) f.;1»7C several of thcirt would Lake similar action in the managamont of their p:m7tfolios. All in all, I would anticipate that a very substantial amount. of Ironey could 132  In-St Gi.PITE •:  rir-"I"P"."."-",  •  f  z  • riVn available as you suggested, and I am writing to you to volunteer whatever services we can provide to see that this is done. I should be pleased to come to Washington at any time to discuss this matter with you if you think that would be beneficial. Sincerely, •  /2  Glcn R. Johnson President (,/ F Cd:-; GPJ:jm cc:  Steve Roberts  ••••  lelenr"  InvegiPment Company Instilke 1775  STRSET N W  w...5-iiNG1ON, 0 C 20005  2021 Z93•'TOO  A  EW  "  P  7:11.40(  May 2, 1980  COUNSSL  Mr. John J. Mingo Deputy Assistant Secretary of the Treasury for Capital Markets Policy Room 3023 Department of the Treasury 15th Street and Pennsylvania Avenue, N. W. Washington, D. C. 20220 Da.  Yorce .37:11L.iy Pursuant to Section 406 of the Depository Lristitutions Deregulation and Monetary Control Act of 1980  Dear Mr. Mingo: This lette.r is submitted by the Investment Company Institute which is the national•associatinn of the American mutual fund industry. The Institute's membership includes 504 open-end investment companies ("mutual funds"), their investment advisers and principal underwriters. The Institute's mutual fund members have assets of approximately $89 billion, and have approximately 7.3 million shareholders. The Institute's membership includes most of the money market mutual funds in the country. Pursuant to Section 406 of the Depository Institutions Deregulation and Monetary Control Act of 1980, the task force is to study and submit to the President by June 30, 1980 recommendations regarding: options available to provide balance to the asset-liability management problems in the thrift portfolio structure, options available to increase thrift institutions' ability to pay market rates of interest in periods of rapid inflation and high interest rates, and options available through the Federal Home Loan Bank System and other Federal agencies to assist thrifts in times of economic trouble. The Institute is sympathetic to the problems created for thrift institutions by the current rapid inflation and high interest rates, and we have supported governmental efforts to assist the thrift industry in meeting these problems. For example, on January 24, 1980, we testified before the Subcommittee on  2.I.r. John J. Mingo -a.ge 2 -  Financial Institutions of the Senate Committee on Banking, Housing and Urban Affairs in connection %Frith its oversight hearings on money market funds, and called for the orderly elimination of existing interest rate ceilings on thrift institutiI ns and other deposit institutions. We recognized that "the elimination of interest rate ceilings on deposit institutions could 'nave an adverse impact t'ne growth of the money market fund industry by malzing deposit institutions Iore competitive", but we stated that "[W]e nevertheless support efforts in this direction as constituting the only just, as well as the only workable, public S• the enclosed Institute testimony). I.licy." (See pages  I  We therefore were pleased that the 1980 Act provides for the orderly of interest rate ceilings on thrift institutions. We similarly are hopeful that other provisions of the 1980 Act, including ,.vhich permit sIvings : and loan associtions to invest their reserves and other assets in n:;dney will assi.st these institutions in meeting the problems created by rapid inflation and high interest rates.* II  As set forth in. our, testimony, i.ve believe that efforts to assist thrift institutions by imposing restrictions on competitors, including money market funds, will only serve to penalize small investors, and will not in fact assist the thrift industry. On page 16 of our testimony we noted that: "Historical evidence demonstrates that households typically have shifted from savings deposits to credit market instruments during periods of high interest rates. This pattern of behavior was eviI•ng before the existence of money market funds and indeed on one recent occasion was even more pronounced. In 1968-69, prior to the advent of money rn. arket funds, groi.v-th in outstanding time and while in 1978-79 the savings deposits of households dropped 71.4 I- cline was about Recent experience supports our view that restricting money market funds will not assist thrift institutions. In March, money market fund assets increased by only a marginal $232 million, apparentl:y- due in part to the Federal Reserve Board's action on March 14th imposing 15c#,c reserve requirements on net increases in the size of the funds after that date. Despite this slow -down in money market fund growth, the Federal Home Loan Bank Board announced that in March federallyinsured savings and loan associations suffered a $939 million deposit outflow. During the same month direct non-competitive purchases of 13 and 26 week Treasury bills amounted to 36. 7 billion, up from $4.5 billion in February.  tfo'nn .J. Mingo 'Page 3. •  We believe that the mutual fund industry can pro vide further assistance to thrift institutions. A major category of investments made by money market funds are certificates of deposit issued by commercial ban ks, which constituted approximately 30% of money market fund assets at yea r-end 1979. As noted on pages 8-9 of our testimony, we estimate that at year-end 1979, money market funds were invested in certificates of deposit issued by commercial banks in at least 24 states. However, the investments in certificates of deposit issued by savings and loan associations were concentrated in CDs issued by savings and loan associations located in California. To the extent that such investments can he made by money mark?.t funds, they obviously would assist thri ft institutions by providing them with billions of dollars of badly-needed depo sits. However, as set forth in our testimony, money market funds presently are generally precluded from investing in certific ates of deposit issued by and tl-irift instit,itio7.9 because of liquidity pro blems and other investment factors. Many CDs are issued by sma ller institutions which are not rated by national rating services or are issued in sizes and amounts below those appropriate for purchase by money market funds. More importantly, rules of the Securities and Exchange Commissio n generally prohibit money market funds frQm investing in securities whi ch are illiquid, e.g., which lack a secondary trading market. Whereas there is a secondary trading market in CDs issued by major banks and thrift institutions , similar secondary markets do not presently exist in the case of CDs issued by smaller institutions. These legal restrictions on money market funds genera lly have prohibited the funds from investing in certificates of deposit issued by smaller thrift institutions. Some of these problems may be ameliorated by pro visions in the 1980 Act which increase the FSLIC insurance limit on S & L certificates of deposit to :3100, 000. This increase in federal insurance cov erage may in itself lead to active secondary markets which is a prerequisite for investment by mutual funds. If such markets do not develop automatically, govern mental agencies could work to develop such secondary markets or the SEC might develop different ground rules for portfolio liquidity in view of the special nat ure of money market funds. The usual limit on aggregate holdings by a mutual fund of illiquid assets is 10% of the value of the fund's total net assets. See SEC Release No. 1C-7220, dated June 9, 1972, and SEC Accounting Series Releas e No. 113, dated October 21, 1969. The SEC staff recently took the position that new money market funds subject to the 15% reserve requirement imposed by the Fed eral Reserve Board may not invest in any illiquid securities except for deposits required to be maintained with the Federal Reserve Board. See letter dated March 13, 1980 from the SEC's Division of Investment Management to the Institut e. We believe that this interpretive position of the SEC imposing a lrc limi t, which has been carried over from the equity area, is not necessarily approp riate when dealing with issues of short-term debt. Here sufficient liquidity may be ach ieved through a proper mix of maturities even though each issue held may not have a secondary market.  2,Ir.. John J. Mingo  Pge 4 •  We believe that other mechanisms can be developed to open the way to major investment by money market funds (and other mutual funds) in certificates of deposit issued by smaller thrift institutions. For example, federal and state Taws and regulations could be amended to permit a number of thrift institutions to join together to issue single large certificates of deposit with reasonable frequency. Each participating thrift institution could be liable for the entire amount of the certificate or an insurance company, other private firm, or a governmental agency could guarantee the certificate. Another possibility would be to permit thrift institutions to pool their FSLIC insurance coverage up to .3100, 000 for each participant. Again, secondary markets might develop automatically or with government assistance, or the SEC could develop different rules for portfolio liquidity. We realize that such programs may require amendments to federal and state laws and regulations and will require hard work by the thrift industry, money market funds and the appropriate agencies of the government. However, we believe that the severe problems created for thrift institutions by rapid inflation and high interest rates require imaginative and innovative responses by both the private sector and government. We would be pleased to work with the task force and with representatives of the thrift industry to develop such programs. Very truly yours,  Matthew P. Fink General Counsel Enclosure cc: Joan Robinson Allan Schott Ellen Harvey  Action as-11:Trie-a to Steve Axilrod  WILL/AM•PROXMIRE, WIS., CHAIRMAN HARRISON A. WILLIAM  JAKE GARN, UTAN  ALAN GRAN...TON. GAUP.  JOHN TOWER, TEX. JOHN HEINZ, PA.  ADLAI E. STEVENSON, ILI.. ROBERT MORGAN, N.C. DONALD W. RIEGLE, JR.. MICH. PAUL 5. SARSANES, MD. 004`4ALO W. STEWART, ALA. PAUL E. TISOP•KIA 9, M ASS.  •  •  WILLIAM L.. ARMSTRONG, COLO. N.ANCY LANDON KASSERAUM, KANS. RICHARD G. LUGAR, IND.  KENNETH A. MC LEAN, STAFF DIRECTOR M• DANNY WALL. MINORITY STAPP DIRECTOR MAAY FRANCES DS LA PAVA, CHIEF CLERK  'Unitas -States Zenafe COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS  WASHINGTON. D.C. 20510  March 14, 1980  Chairman Paul A. Volcker Federal Reserve System 20th St. Constitution Ave. Washington, D.C. 20551 Dear Mr. Chairman: eade  ntcri  tt mhgre wheni i y n-  vpnsrs vho rsuot fi yIII'iI,  , n-  mat riuyhes i On the legal issue, the purpose of the Credit Control Act is to control inflation generated by the extension of credit in an excessive volume. I am aware of no definitive studies showing that the money market funds have contributed to excessive credit creation. Indeed, most of their funds are invested in obligations issued by regulated financial institutions or by the Federal government. Moreover, unlike the commercial banking system, money market funds have no substantial capacity to expand the supply of credit through the creation of additional transaction balances. You, yourself, in recent testimony before the Senate Banking Committee, indicated that the money market funds do not offer transactions services to the IS where reserves would be necessary. Finally, I would point out that the Federal Reserve Board's own statistics I lace money market shares in the M-2 category rather than the transactions category.  e •  I am sure you are aware of the efforts by banks and thrift institutions to curb the growth of money market funds through reserve requirements. Such a move would ,  L  • •  ,•  •-•  a.•  •  .  thav  A  410  chairman Volcke.  •  3/14/80  affect the distribution of funds between depository institutiS ns and the money market funds but would not suS stantially alter the volume of credit being extended. Reserves on money market funds would also have a beneal effect on the earnings of depository institutions Special measures may indeed be necessary to deal with the squeeze on the earnings of financial institutions and especially the thrifts. But the Credit Control Act was never enacted for this purpose. I would hope, therefore, that the Federal Reserve would not use the Credit Control Act for a purpose that is clearly beyond the reach of the Act. kt-`1••...'  An argument might be made that certain of the assets of money market funds contribute to excess credit creation -- e.g. investments in commercial paper and eurodollar deposits. If these arguments have merit, the problem could be dealt with directly by regulating the permissible levels of investment in assets deemed to be growing at an excessive rate. Placing a reserve requirement against liabilities will penalize depo ors in money market funds without necessarily curbing the growth of the particular assets whose growth rates may be excessive. This brings me to my second point. Across the board reserve requirements against all deposits in money market funds will reduce the rate of interest received by fund depositors without achieving any significant reduction in the amount of credit extended. The sterile reserves maintained by the funds would presumably be reinvested in the government securities market by the Federal Reserve Banks. Such a measure would be blatantly "anti-saver" when the efforts of the Congress and the Administration have been in just the opposite direction. These reserve requirements would function essentially as a back door form of Regulation Q on money market funds. Moreover, once reserve requirements are used(or perhaps I should say abused) in this manner, it will be extremely difficult to remove them as indicated by the 14-year history of the "temporary" Interest Rate Control Act of 1966.  mmilimmimmw  •  '4 Chairman Volcke0  - 3 -  3/14/80  My third point is that in the long run, across the board reserve requirements on money market funds will be counter productive in the fight against inflation. Such an action will simply penalize savers by holding down interest rates payable on fund shares and ultimately discourage saving and stimulate consumption. At a time when we have the lowest saving rate in our history, we should be looking for ways to stimulate and not discourage savings. In summary, I urge the Board not to apply across the board reserve requirements against the liabilities o f money market mutual fund shares. If the Board is concerned about the excessive growth of particular types of financial assets, those growth rates can be directly controlled with the wide variety of other authorities available to the Board under the Credit Control Act. Sincerely,  APP air e  rrtiv,  Chairman  Imwook" , "m"1"---1 7 t, •  •••:  •  )-.  CiP  ,7 •  ';;••  June 6, 1980  The lionor4;444Ji Leach Souse of Usexesentative,t. 20515 Washington, D.C. Luar  r. Leacn,  I share your concern that the repent silver situation railsea u0110 inL4)rtant ;mestions aLout the adequacy of regulation of "futures' sad relate4 ularets. I think you may know that we, In cooi,oration with ether interested 41„110n4i414, have initiated a .3ieneral raviaw of these markets with a view toward providing a-docific reco4a4:endatioas to the Congrees--at least din a preliminary fahion--by said-sunnar. In the process, X will see to it tLat the ‘enexal aroadhas contained in your draft bill are considered• ilowever, until that analysis is further along, am keeping an open mind in* to What steps sea and should be taken. is in you draft bill concerning the way, the consuluitions with foreign officials is very relevant. Soma of t,4este narketa are clearly worldwide in scope and sivnificance. tis will keep you informed es to our procures's and °lir thinking. sincerely, gotNII A. bicker  ECC&pjt (tV-211) Nrs.jil1..rdi (2)‘/ licca  JIM LEACH_  Note to Mr. Corrigan whether he wants it referred to Mr. Petersen for ysis. C01414.11tft  •  1ST D'STPri, 1;4A  r •I`.1 45 FINANCE AND URPAN Aa lle POST OFFICE AND CIVIL SERVICE  CONGRESS OF THE UNITED STATES HOUSE OF REPRESENTATIVES WASHINGTON, D.C. 20515  May 14, 1980  The Honorable Paul A. Volcker Chairman, Board of Governors The Federal Reserve 21st and Constitution Avenue NW Washington, DC 20551  -  Dear Chairman Volcker: Enclosed is a discussion draft of a bill which I may introduce aimed at correcting abuses in the silver futures market. I would greatly appreciate receiving any comments you may have on this draft bill at your earliest convenience. Sincerely, \. Jim Leach Member of Congress  en( 1 JL:jb  •  •I •  .4  •  [LICUEICN ay 9, 19E? -(4 1- rCNGFI:SS 7 74?-7.1on  P. E.  IF THE HOUSE CF REPFESENTATIVFS  V •  of Ic;..a intrcduced the follcwinc bill; wt.ich was Lc:fecred to the Ccl:Inittee on  A FILL  lb  c  •  the. FedEral , 7,r2serve Act tc authcrIze the rcard of Ccverriors cf. the Fec';eral Fer-- erve STystc7F tc regulate the arount cf crcdit cxt.erded 1th rcEL'ect to futures ccntracts.  1  tti ,  -•  k=1.-)L:  Qt FrIrcfC:f:IaIlv5."Z  rs r-r=-Irp ir re-)7)-rrcez  Qc,cc:E 1-1. (2.1•  •  2  •  1  That tJ..is Act may be clIr-d Ls the "culatIve Credi t  2  Fr-straint Act cf 1960".  3  Sec. 2. Section 19 of the Federal Reserve Act is amended by adr',1no at the end thereof the following new sutse ction:  5  ( )( 1)( A ) Fcc  urp'cLes cf Frevc..ntina (I) excessive  6  f7pecu1ation in futures contracts, (11) the excessive use of  7  credit for the creatlen or carrying cf, or tracing in,  8  futures contracts, and (iii) the inflationary impact of such  9  artions on censurer t- rices and Industrial costs, the Board  1C  -hall lirit the  11  raintained on any fulures contract.  12 13 14 15 16 17 1E  r.,cunt of credit which may be Extended or  "(E) The Fcard :;hall issue regulations to carry out the 1,rcvis1o;-:s of this varacraph. Such regulations may-'0.) define iny term used In this paragraph other than the tern 'futures contract'; "(Ai) require any person to submit such reports as the Beard deerrs nece!--.:;acy; "(iii) exempt frerr the provisions of this parag raph  19  such transactions as the Board deems unnecessary to carry  2f  out the purlic:---es of this 1- airaaraph; and  21  "(iv) mE:Ye such differentiations amonc ccmmodities,  22  transactior:s, or Lortcwrs,. lenders, or other perso ns as the Beard dc-cats al_proprIate.  14  '1 (.2) For the pulpccs of this subsection, the term  •  •  • c:untriictg  Trr-  a  .::)ntrac:t for the future delivery  2  cf ars cerrity which the Board determines has mcnetary  3  -'r=!racteristics, excelit that such tern  4  agricultural ccucdity.  5  does not include any  '(3) The Chairman of the Board of Governors of the  6  Federal Pesecve System, tocether with the Secretary of the  7  Treasury, shall Lecin immediate consultations with central  8  bank and finance ministry cificials of other ccuntries to  9  encourage such ccuntries to prevent excessive speculation by  IC  re-oulatine credit for.futures contracts. Not later than  11  telve ronths eftEr the date cf the enactment cf this  12  Taragreph, the Chair- Fan shall transmit a report cn the  13  p[o(1:- ss cf such effcrts tc the Ccmmittee on Banking,  14  iu..(71.nc, and U- bar. Affairs of the Senate and the Committee on  15  Fanking, Finance and UrLan Affairs of the House of  16  Fepresentatives.  17  `(4) In the annual rei;ort required under the seventh  le  paragraph of section 1f7 cf this Act, the Soard shall include  19  a statement regarding the effectiveness of regulations issued  2e  under paragraph (1).Y.  21  f-ec. 3. The ;ITiendrrents node by section 2 shall take  22  effect 9Y days after the date of the enactment of this Act.  June 6, 19$0  The Bonorable Al Ullman houst, of ileprosentatives loiasLinflton, D.C. 2051S Dear fx. Ullman; Your letter of Nay 7 expressed concern about the Lmiact of hi3h interest rates and the restricted availability of credit to small busiues.aes in C/revon. In addition, it urged the Federal Reserve to riet a 10 4-411rcent discount rate for Winks 4erving the seasonal credit needs of local farmers and smell LAusinesses. Since early ilay, interest rates have, of course, declined substantially—with the bank prime rate dropping most recoutly to 13 percent. At the same t_me, as overall demands for credit have slackened, general credit availability has eased apkreciably. These develoz ments should have gone a suli stantial distance toward modurating the credit pressures on farmers, homeheilders, and small buain‘sses in your district. Your specific proposal to lower the Federal Reserve diseount rate tv 10 percent for banks that serve the rarticular seasonal needs of farmers and snaller businesses would not be permitted, however, Ly the FedlgrAl -,etyierve Act. The discount rate charged banks seeking credit frou. the Federal Reserve is applied strictly on the basis of tLe collateral provided as security, not on the use to which the borrowing bank channels the credit. Thus, any beak with arpropriate collateral can borrow on the same basis as any other bank with similar collateral, rofaardlesto of the use to w?-;ich each wculd allocate this credit. koreover, a special krovision of t1-41 Act states that any bask offering 1-4 family c.ortgages as collateral will be oli5ible to borrow at the lowest discount rate. For this reason, banks lending to farmers and other *mall businesses could not be given a 10 vereent rate without 'taking the :tame rate available to ani other bank using 1-4 family mortgages as collateral. Please let me know if lyou Izave additional questions. FRK$CO:pjt (W-202) bcci Lx. Mrs. Mallardi (2)  Sincerely, .,JAA_uU  AL! ULLMAN  ',CHAIRMAN. COMMITTEE ON WAYS AND MEANS  Action 110gned Mr. Keir  20 DISTRICT, OREGON  ••••  JOINT COMMITTEE ON TAXATION  Congrts's) of tbe iLlniteb *tatt5 30ottge of lAtprOentatitiO bilasbington, ae. 20315  7oV 1111•1111110w.  May 7, 1980 The Honorable Paul Volker Chairman, Board of Governors Federal Reserve System Washington D.C. Dear Chairman Volker: I am very concerned about the impact of high interest rates and the restricted availability of credit to farmers, homebuilders and other small businesses. The plight of these groups in rural areas of Oregon is particularly acute because the state's major industry is forest products. I urge that the Federal Reserve Board take action now to lower the discount rate for banks that need assistance to extend credit to their local customers who are farmers and small businesses. Specifically, urge that the discount rate for banks serving the seasonal credit needs of local 'farmers and small business be lowered immediately to 10 per cent. Such action would be in keeping with the Board's mid -April decision to assure certain lenders special accomodation at the discount window and the recent decline in interest rates. In my judgment, this action would be of great benefit in relieving the acute financial distress of many farmers, homebuilders and small businesses who are seriously threatened by the current economic downturn. Sincerely„,  Al Ullman. M.C.  • 'Imbr  ^  JUN  6 1980  The lionoralaa Donald W. Stewart United Statea IA:nate 20510 washinIton, D.C. Dear Lenator .Stmart, r recent rezi:ondiu-.; on tmhalf of the Board to you ress concern about the letter reliparainq FAKulation E. VAX exp casY. or checks at autoIsoardie characterisation of dillosits of onic furtd transfers that uated teller oachines (7T;16) as electr relulation, and ask the are sulject to tile requironts of the board to reconbider it ;oiUor. a.u1;ured that the dei,o6it imsue has Leen Vices* the Board. The initial decision iA carefulli conaidered AT.;.7 4.A electronic January to characterize del,oceite made at discussicn of tho relafuta trautiferz was rklacLed after full /. In April, in ustx. tive Ltiorits to conLuners and to tkle ind titutions, the ::4>ard response to comr.Rantr. frogit financial ins second time. ?ftar turned ita attention to this mattiaz for a requirement that further deliberation, the Board waived the --i•es, tht need financial institutions found utozt 1*(urdansomewhich the deposit at to discloae the Location of thtenUnal rd also addrecsed wau made on the .veriodic etatealent. "Mc lloaattention, includiT its other concurnE. that had Leen brought to the concerns dicussed in your letter. sure of ?aro icu point out in your letters, the disclo statAtment would have reprotlas terlArsal location on the 14:rio4ic ulation erational barrier to compliance with neg with ayanted a ziajor coaa ran deposits E, since most financial institutions pro ure or store the doi,osits from other sources And do Mot cat utions to omit the tit terainal information. Dy permitting ins relieves the= from terminal Location, the Soerd'a arcendnent ation information for the need to capture and retrieve the loc on need oily shoe diuclonure on the statement. An instituti e, without Ilavinj. deLor.;it, the amount, and the posting dat Informal At 4 terminal. to indicate tliAtt the deposit took ;4ace mption inCicato a cowlIwnts received by the staff on the exe . iav‘sral.ile reaction by financial inatitutions  The Sonorable Donald W. Stewart PaJje tto  You alao exi,rosas concern that treating deposits at AT-4. as electronic fund transfers %fill subtject virtually every account at financial institutions to the recuirements of the regulation because many institutions will accept delJosita to any amount, The Board tag stated, however, that an account generally becomes subject to Itegulation I! only wLen it is speciticalll tied to an access device issued for use in the terminals or an LYT service offeredtd e financial institutions. Thu, other accounts will rezain 40 the regulation's coverage* doctios 9414(f) o th ct provides that any doeumentation lw rovideg:; to thie consumer under the Act con4titutes ill!s facie roof that a transfer was fz;Alde to another person. tou'beiieve that tLis erovisiat. recluire financial inatitutiona to accept a terminal receipt bootlace content a4mittedly will reflfIct infor:aatian keyed in 1,;,- the consumer) U2 ir.roof that depor.,it Wok plass. Since ILL* ..;reert majorit:i of deposits occurring at Jails are deposits to accounts of tho consumer and do not involve a transfer to another verzon, the Board believes that thit. state. tory provision will not create aa serious a prOblem as UOMA institution4 ma/ fear4,  Xz conolu1in9 that der,osits at terminals are encompassed within the definition of electronic fund transfer, tt!e Board attelvted to balance tha need of consumers to feel secure in their uze of xm systems (whicti will, in turn e helr -,roaote the 5rowth of such systems) and t!Al need of financial inatitutions to provide grz services in an efficient and cost-effoetive aanner. iiNa believe that an appropriate balance has boon struck 1)e.tween these interests with respect to delPosita, roviding important ,..rotectiona to the consumer whilps 2e=ittintj financial institutiomh to continue offerin a teneficial service without seriow; (;7:orxt1onal difficultieu. ...ou for elaring your concerns with us. Sincerely, ygal A. Volcker  LIBB:pjt (V-200;m42  265, 271) beet  Lynne I.trr Hrs.1a3.1ardi (2)../  DONNA) W. STEWART ALABAMA  Action Govern  signedJanet Hart; all received an identical letter  • AGRICULTURE. NUTRITION. AND FORESTRY  ?Jenifeb ,Sfafez Zertafe  CHAIRMAN: SUBCOMMITTFE ON AGRICULTURAL RESEARCH AND GENERAL LEGISLATION • RURAL DEVELOPMENT ENVIRONMENT. SOIL CONSERVATION. AND FORESTRY  WASHINGTON. D.C. 20510  NKING. HOUSING. AND URBAN AFFAIRS  9  IRMAN: INSURANCE SUBCOMMITTEZ RURAL HOUSING FINANCIAL INSTITUTIONS  SMALL BUSINESS GOVERNMENT REGULATION GOVERNMENT PROCUREMENT •  May 2, 1980  r  Chairman Paul A. Volcker Federal Reserve Board 20th and Constitution Ave., N.W. Washington, D.C. 20551 lionmen.  Dear Chairman Volcker:  •  The Federal Reserve Board recently approved the final regulations regarding the Electronic Funds Transfer secti9n of P.L. 95-630. I.would greatly appreciate the Board's r6consideration of the portions of those regulations which deal with ATM deposits. I feel strongly that by characterizing an ATM deposit as an Electronic Funds Transfer, the Board will be stretching the definition of an EFT beyond the original intent of the law. An EFT has been defined as "any transfer of funds, other than a transaction originated by check, draft, or similar. paper instrument, that is initiated through an electronic terminal, or telephone, or computer, or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit an account." (12 CFR 205.2 (g) ) The ATM, on the other hand, serves only as a secure conduit for receipt and transmittal of paper. In terms of definition, ATM deposits are no different than deposits made physically at any depository. No electronic impluse resulting in the movement of funds is involved: Transfer of funds only takes place when the bank remiews and accepts ATM deposits. Deposits accepted at ATMs are mixed with, and treated the same as, all other deposits. Since the EFT Act and Regulation E require submission of periodic statements, financial institutions will be forced to separate ATM deposits from all other deposits. This segregation is necessary for gathering the information demanded in EFT periodic reports. As a result, compliance will compel banks to assume the cost of implementing new procedures. ; Currently, some ATMs do not generate tapes, and the only verification of an ATM deposit is the deposit slip and any existing deposit envelope notations. Under the EFT Act  •  P;Ige Two  Regulation E, all ATMs will haveto produce a tape so that financial institutions will have records of those deposits treated as EFT transactions. Furthermore, the tape will have to be processed quickly so that it may be used to verify each ATM deposit by the next day. For the sake of timing, tapes that were previously processed centrally might have to be processed locally, thus adding new costs to the banking system. II: The operational problems resulting from the treatment of ATM deposits as EFTs take on new dimensions when one considers the frequent use of ATM cards for unorthodox deposits in Christmas Club accounts and dividend accounts. Theoretically, the financial institutions could refuse to accept such deposits. Yet, because most banks have not experienced operational problems in this area, they do not take pains to determine the method of deposit.  L..  The EFT Act and Regulation E will require the submission of costly periodic statements for these unorthodox accSunts. Presently many of these accounts are structured to be low-cost and thus produce zero or only quarterly periodic statements without the detailed transaction information requirela by Regulation E. Furthermore, up to now banks have not adopted a policy of refusal on the use of ATM cards for unorthodox deposits. As a result, consumers have found ATM cards to be a great convenience. If ATM deposits are considered as EFTs, these conveniences will be curtailed as banks will probably implement a policy of refusal due to the extraordinary costs associated with characterizing unorthodox deposits as EFTs. I disagree with those who claim that financial institutions engaged in memo-posting will be better able to handle ATM deposits as EFTs. In fact, they will probably be in no better position and perhaps, be in a considerably worse While such institutions are already checking deposits against the tape, they are unable to determine immediately that a consumer has made an unorthodox deposit to an unlinked account. I In addition to producing burdensome operational difficulties, the inclusion of ATM-originated deposits within the scope of the EFT Act gives rise to legal problems as a result of provisions requiring banks to furnish consumers with  Lau •  Mir  S .  •  Page Three  documentation of an electronic transfer. Section 906(f) of the Act states that any documentation "required to be given to a consumer which indicates that an electronic fund transfer was made to another person shall be admissible as evidence of such transfer and shall constitute prima facie proof that such transfer was made." Therefore, in a legal dispute between a consumer and a financial institution as to the amount of a deposit, the consumer's presentation of an ATM receipt would constitute "prima facie proof" of deposit. The danger here is that an ATM deposit receipt produces a document on which the consumer has full power to vary the amount keyed into the ATM. Hence, a consumer may key in a deposit of $100 and receive a receipt for the amount of that deposit, while in- fact, depositing only $10 or nothing at all. I suggest that the Board avoid these obvious legal difficulties and clarify that the prima facie standard of Section 906(f) does not apply to ATM deposits. I do not believe that the statutory definition of EFTs allows for the inclusion of deposits at ATMs, as such deposits are currently made. In addition, the resulting costs and problems for consumers and financial institutions from such incluiori certainly outweigh any of the potential benefits. I hope that the Board will seriously consider these arguments and delete provisions that will characterize ATM deposits as EFTs. Sincerely,  DONALD W. STEWART United States Senator DWS:jrd  r  June G i 1980  The Memorable William trommire Chairman Committee on Deakins. Bousialo aad Urbau ALfaits United State* Lienate viashington, fA. C. 2051C Dear Chairman krOmmire: In your letter of ;1%irril 23 jou forvArds4 a letter from a constituent objoctirmi to VISA's perticioutinlh in the offerin ot credit card krotection. Simply stated, ttli COUSUMer IMO A Lee and in exchanrje cilia contact the credit card service company U a wallet conteinins & card or cards is lost. Te co:lapany in tur immediately notifies the consumer's credit card issuers of the Loss. while a consumer sonnet he held liable for sore than $5G ea each card, Cie eccatiling ss prompt notification of the issuera could vac well **suit in the consumer bating no liability, The rsoard'io taft first became aware of Credit Card fiervice Sareau when a hank requested the Sward to rale t%at assisting in the male of the credit word peoteetion was an unfair amdt decevtive practice. Litigation hilkd developed bvtween ataff rosponded sM and Cre4it Card $4rviee auream, t4A it wet in&i,4-rceriat4 to Latetveme under the rric Impreva4Amate ,Ixt iv commercial litigation between corporations, ?be staff elect xesie,40eded that te Creait Card Service nureau wee seder the jurie . It diction act of the lIosird liut of the tederal Trade COMMLSOI0A. ia our understandin4 tat the bank has visited 'with the ntaff of the fedteral Tzsde cvnriiion sAd has been told that no further tLe Com:lesion or its staff is likely to !As tses. action b Coomission 14ta aotained the agreement et Credit 4trent1y t call! tvoxvice k- ouxesau on twe ixicx ceaseless te itaprove the disclosure of its services, 24a1co, tie Commission apparently Loney** no iustrAct action iv warranted. tinalki, the Zoard has concerns about mutat.; its powers to prohibit unfair sod decektive trade preetiees against an institution ofteriwo & uerwics 1411c:. is of seas benefit to consurrera  william Prosaic* . T4,4 .0noraLle  La that it earves to rikuluas a 0100111ex's potential Liability thti ‘crvia may or may not tn cf Lox uroauthatised 'Abet. 4iinificaot boarafit La may 41.vax4 ciscumstmages aod it could Ne over-A:sr/ad, ,,i.esticiyating in tbe 4e10 of the service uay not te an unfair or &baklava practiee.  —  ta:1;:ved (V-178) tix. butler Mrs. eallardi  votzker  WILLIAM  pRoxmIRE. WIS., CHAIRMAN  HARRISON A. WILLIAMS. JR.. N.J. ALAN CRANSTON. CALJF. AOLAI V. STEVENSON. ILL. ROBERT MGAGAN. N C. DONALD w. RIEGLE. JR..'MICH. 'PAUL 9 SARRANES. MO. CONAt_ID W. STEWART. ALA. PAUL E. TSONGAS. MASS.  JAKE GOAN. UTAH JOHN TOwlEP, TEX. JOHN HEINZ, pA.  •  WILLIAM L. ARMSTRONG. COLO. NANCY LANDON KASSFISAUM. KANS. RICHARD G. LUGAR. IND.  KENNETH A. MC LEA14. STA,/ DIRECTO* M. DANNY WALL. MINORITY STAPP DIRECTOR  Action assigig Janet Hart  'ZICnifeb Ziatez -.Senate COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS  MAAY rreAmccs DC LA PAVA, CHIEF CLX/tK  WASHINGTON. D.C. 20510  April 25, 1980  The Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman, I have enclosed material which was recently forwarded to me by a constituent. While VISA is certainly free to sell insurance of this type, the manner and form of their closure of the protections afforded consumers under federal law raises the issue of whether this approach is a deceptive practice.  111110•01m.•  I would appreciate the opinion of your staff in this Ed1!t. Best wishes. 74.711 ce/1 44" 410401111r '''PlImi --mire Chairman Enclosure  it4fr .P 4  ,,,„44.44,i-agt  •  • COUNTY BOARD OF SUPERVISORS  ilwaukce tAi  01111V  Supervisor, 18th District  FRED N. TABAK  April 3, 1980  Senator William Proxmire 5241 Dirksen Senate Office Bldg. --wanington, 1j. u. 2U51-0 Dear Bill: RE:  VISA- Protection of Your Credit Cards  The enclosed information, I believe, qualifies for your golden fleece award. VISA is attempting to sell to the public "an insurance policy" to protect against lost or stolen cards. Perhaps they think they can fleece the public into thinking they will be the public's saviors should they lose a credit card. Perhaps they are unfamiliar with the Proxmire credit card legislation. Obviously, you needn't return the enclosed, for I think it's a huge ripoff. Sincerely,  /OLA7R Fred N. Tabak Supervisor, 18th District FNT/lh Encs.  ROOM 201. COURTHOUSE  •  901 NORTH 9th STREET  CHAIRMAN Housing and nelocatior. Committee  •  MILWAUKEE, WISCONSIN 53233 MEME3111 Committee on Environment Economic & Extension Education  Tor !nclialio:CiESIDENCL 4223 N taftm St  •  •  Milwaukee. Wisconsin 53222 •  Public V'^rks Committee  462-0919  TELEPHONE 278-42r,  Removal Notice The item(s) identified below have been removed in accordance with FRASER's policy on handling sensitive information in digitization projects due to copyright protections.  Citation Information Document Type: Advertisement Citations:  Number of Pages Removed: 4  Visa card holder agreement, "Protection of your credit cards," sent to Barbara Strain Tabak, May 31, 1980.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  ▪ • •  •••  OCT.. T.,.a,popAAN  • ft  LYLIL WILLIAMS, OHIO JIM JCIFFIICS. KAN:, JOEL. DECKARO. IND.  T  ••"I. •I.. ••I V • MA. s• GTNIAA • .1••••••:, „ TTI PVT CI , • 114-1_, fi R. LI VITAt, GA.  •  NINO  CON . . ;RESS MAJOItiTY —(202) 225-44)1  Congre.51S of tije Zlititcb ,..tatecs • ibousit of cpre entatibt5 COMMERCE. CONSUME.P. AND MONETARY AFFAIRS SUBCGMMIT1EE CY THC  COMS',ITTEE ON GOVERNMENT OPERATIONS RAYBURN PICA...SC OP  F104.DM n-377 ;Cr: WASP41?iii- TON.0 C. 2;515  June 13, 190  Hon. Paul A. Volcker, Chairman Board of Governors Federal Reserve System Washington, D. C. 20551 Dear Mr. Chairman: The investigation of the Hongkong and Shanghai Bank case by the Commerce, Consumer, and Monetary Affairs Subcommittee has focused in large part, as you know, on the many nonfinancial activities in which subsidiaries and affiliates of Hongkong are engaged overseas. It has been my impression that domestic U.S. I.nk holding companies are not permitted to engage, either directly or indirectly, or to be affiliated with firms that engage, in the nonfinancial activities abroad that are permissible under U.S. law for foreign bank holding companies that own U.S. banks. In other words, it has been my impression that U.S. law and Federal Reserve regulations apply a different and more liberal standard to foreign bank holding companies that own U.S. banks than to domestic U.S. bank holding companies as regards the permble scope of overseas nonfinancial businesses that may be owned or controlled by or affiliated with the firm. Is my impression on this in substance correct? I would appreciate having a letter or memorandum, suitable as a sunnary briefing document for members of the subcommittee, that states in broad policy terms the essential differences between how the law and regulations limit the range of overseas nonfinancial activities permissible to domestic U.S. bank holding companies as compared with how they limit the range of otivities permissible to foreign bank holding companies that own U.S. banks. Please provide this letter or memorandum prior to June 25.  I Benjamin S. Rosenthal Chairman BSR:tv •  •••  •  •  v,  BOARD OF GOVERNORS OFTHE  .0  FEDERAL RESERVE SYSTEM WASHINGTON, D.C. 20551  A./AL Rt • • • .. • • •  June 13, 1980  The Honorable Jerry Huckaby House of Representatives Washington, D.C. 20515 Dear Mr. Huckaby: Thank you for your letter of June 9 requesting comment on correspondence you received from Mr. Mickey Riley concerning difficulties he encountered regarding outstanding adjustments with the Federal Reserve Bank of Dallas. As you are aware, Mr. Riley had written directly to Chairman Volcker, and I am pleased to enclose a copy of the Board's reply. I hope this situation will be cleared up to Mr. Riley's satisfaction. Please let me know if I can be of further assistance. Sincerely yours,  Donald J. Winn Special Assistant to the Board Enclosure  ! .1  • JERRY HUCKABY 5n4 DIsrpocT, LouiSIANA  •  •  WASHINGTON OFFICE: 228 CANNON HOUSE OFFICE BUILDING  WASHINGTON. DC. 20515 (202) 225-2376  COMMITTEES: AGRICULTURE  if  tuncommr-rms, CON.SERvATroN AND CREDIT  DISTRICT OFFICES:  FC RE.STS  1200 NORTH 18TH STREET MONRCr, LOuv:IANA 71201  INTERIOR AND INSULAR AFFAIRS  Congre55 of the Unitcb *tatc5s  SURCOmMITTEES•  3Loti5e of Iktprewitatibt  ENERGY AND THE ENVIRONMENT MINES AND MINING  (318) 387-2244  P 0. Box 34 OLD COURTHOUSE. ELCLOING  NATCHITOCHES. LOUISIANA  Klasbington, D.C. 20515 June 9, 1980  (318) 352-9000 MODILE OFFICE  Mr. Paul A. Volker Federal Reserve System , 20th and Constitution Avenue, N.W. Washington, D.C. 20551 Dear  :1f.  Volker:  am writing in behalf of my constituent, Mr. Mickey Riley with regard to the problems that he has been encountering with the Federal Reserve System. I am enclosing a copy of correspondence that was sent to me and I would appreciate your checking into this matter so that I may properly respond to him. Thank you for your time and attention to this matter. Sincerely,  igerry JH/afs  pet&  uckable'  71457  •  • May 23, 1930  Mr. Paul A. Volker Federal eserve System 20th & Constitution Avenue, N. W. )hashington, D. C. 20551 Dear Mr. Volker, n? We have been on ce is growing steadily  May I take a few minutes of your tim the Fed Par list for about a year worse. We clear our checks through Dsllas, going to go wrong occasionally. 3ut Mr film our bookkeepers looking up a day.  ealize that things are 'er, I am having one of he average of 2.)'12 hours  for Aurust 30, 1979, ents outstand We have errors and adju 7, 1930, January 23. 1930 2, 1930, Jan' December 21, 1979, Janu We have made numerous February 4, 1930 (2), a. February 24, unning three (3) months beus they a. calls to Dallas. They t ere also told that one lady ' hind in the adjustment de nr on her desk for four (4) °lac. had quit and no weeks. We are only the larg-er bank person  seven (7) mil Jks are going t and they are  n dollar bank. I hate to think what ourh. I have talked to several other ving the same problems.  act if your bank asked you for authori'ould yo Mr. Volker, h ." of a check that you had written seven (7) zation to pay a months earlier? This has happened to us. This is entirely too slow in making adjustments. I ask your help in correcting the situation. Sincerely,  711 / cLi  C25,Th  Mickey Riley Vice President-Manager L.4.;,-.LLE STATE BANK cc:  Hon. J. Bennett Johnston Jerry Muckaby ion. Russell Long  MWmrh  ALAN CRANSTON CALIFORNIA  • Ileniteb ,Totafez Zervate WASH I NGTON, D.C. 20510  June 16, 1980  Mr. Paul Volcker, Chairman Board of Governors of the Federal Reserve System Washington, D. C. 20551 Dear Paul, Your message of sympathy and support was a source of strength in a time of great sadness, and our family is deeply grateful to you. We'll never know, now, what Robin would have in his life. But we who loved him know of his immense capacity and potential. So that those who did not know will have an opportunity to know, and to preserve a record of the memories that live on in those of us who did, I dedicated a speech to Robin in the I Senate on May 22. I enclose a copy. With heartfelt appreciation to you for your thS ughtfulness and friendship, Ever,  Alan  anston  United Sites of America Vol. 126  Congressional Record PROCEEDINGS AND DEBATES OF THE 96th CONGRESS, SECOND SESSION WASHINGTON, THURSDAY, MAY 22, 1980  ROBIN MAcGREGOR Mr. CRANSTON. Mr. President, I dedicate this speech to my son, Robin MacGregor Cranston. I make it in order to preserve in the history of the United States, on the page or SO of the CONGRESSIONAL RECORD where these remarks will appear, a few of the memories of Robin that live in those who knew and loved him. Robin's was a life of tumult, like our times. It was touched in many ways by the great and small events of our era, and he, in turn, touched many of those with his ambition, his determination, his hopes, his dreams. My life in public affairs affected his life in many ways, some fortunate, some unfortunate, and directly and indirectly involved him in the issues facing my generation and his and with some of the great and some of the not-so-great leaders of the past three decades. In his private life and in his own public concerns—against the war in Vietnam, for the protection of our environment and all living things—he was a unique mixture: restless, fearless, reckless, rebellious, yet also gentle, sensitive, creative. He was born free, incredibly free. He was further resentful of all authority that impinged upon his own sovereign spirit. His brother, Kim, said of him today: Robin was a spirited adventurer, with an incredible imagination, a wonderful sense of humor, a strong, kind heart, and a sense of fairness and justice he may have inherited from his ancestor, Rob Roy MacGregor, a Scottish Robin Hood. Robin lived a very full life, in which a moment was not wasted, and every experience and opportunity was taken to its outer limits. Robin did not hurt anyone and, despite occasional setbacks he experienced, his spirit remained strong and free.  David Thompson, a friend of Robin's over the years stretching back to Mira Loma High School in Sacramento, said of him on the night of his death: Rob pushed life to the hilt. If there was trouble, it was disaster. If there was laughter, it was hysterics. If there was love, it was all-consuming. Wherever he is now, he's busy rearranging things—or trying to.  A Texas businessman, Bernard Rapoport, called from New York early this morning to say: Only a small portion of the three score and ten that was supposed to have been Robin's was allotted to him. It is a tragedy. He dreamt bigger than most. As his good friend for many years and prospective employer. I sensed—no, I knew—that maturity, a little late in coming, had indeed arrived.  No. 84—Part //  CRANSTON "He possessed a beautiful heart and an enquiring mind. He wanted to taste every ingredient of life before settling on a final recipe. He was taken from us too soon, and we will never know exactly what that recipe would have been. I have no doubt that it would have won a blue ribbon. "For me, his greatest asset was that he epitomized what Sophocles said, 'I was born not to share in hate, but to share in love.'"  When Robin lay shattered and unconscious after the random accident that took his life, the President of the United States prayed for him, as did many others, known and unknown.I express abiding appreciation, on Robin's behalf, to them all, and to my Senate colleagues for the strength derived from their support and sympathy. A friend and former colleague, Senator Harold Hughes, spoke at ceremonies for Robin on May 18 at a beautiful place overlooking the Pacific Ocean he so loved. Harold said in part: Some words come to mind from the Book of Genesis as we sit together here on this superb spot of God's creation and as we remember Robin's great concerns ai:c1 contributions to the cause of preserving the beauty of God's world for all time. The Book of Genesis begins: In the beginning God created the heaven and the earth, and the earth was without form and void, and the spirit of God moved upon the face of the waters. And God said: Let there be light. And there was light. Now the spirit of God moved in creation and brought into being all that there is. And as we sit here today and realize that out of a void and chaos came the wonder of God's creation—of which he gave us the stewardship of all that we have—and realize that our lives are a commitment to that, we can come to understand the kind of God we are talking about. I want to share with you today a bit of my own faith, my own belief in the way God has led me in my life. I couldn't speak of truth, I couldn't experience sadness, I couldn't understand pain, if it hadn't come my way in my life, also, to know what this day means in the lives of those of you who love Robin. In my own faith I have had to experience the advent of what we call death in my life of my own brother and all of the members of my family at one time or the other—my brother in an automobile accident. In the last three years my daughter died, my mother died, and my son-in-law was killed in a traffic accident. I know the shock and pain that comes into a family. But I know the strength and faith of God through Jesus Christ that brings us the real joy of understanding. You know, as the Lord spoke to us, I remember the day especially when he hung on the cross taking the sins of the world upon himself. And the thief who was at his side looked at him and said, "AtIg_ster, re-  11111  member hen you've come into your kingdom." And He turned and He looked back at this man hanging on the cross next to Him and said, "You shall be with me this day in paradise." I believe with absolute assurance today that Robin is there in paradise, that he is aware of everything that is going on here today, that he is with us, that as God is spirit, he is spirit," said Harold Hughes. I am assured in the scriptures that the spiritual body is as real as the physical body and that we feel a physical absence as if we took off an old suit of clothes when we shed the body. We have a fullness of realization that life is as real and forever as we know it today. So I come with my friends and the friends of Robin to share an absolute trust in the word that God has given us in the fullness of realization that what he has done for us is to show us the way to eternal life. As we gather today to commemorate a life and to celebrate a victory—not a defeat, not the end, but an ongoing time of life—we come together to realize that God gave us something beautiful. The Cranston family had Robin for 32 years—a beautiful period of his life. You, his friends, shared many of those years with him. You knew his loves, you knew his concerns, you knew his compassion, you knew his heart, you knew what he believed and the depth of his feeling. His concern for the creatures of the earth that God has created. His concern for humanity itself that we discuss in terms of war and peace. His concerns for everything that mattered, really, in life. And as you shared those concerns with him and the understanding that he had, you now come to the realization that God, for some reason, has needed him for a greater cause. There's no way that we can ever understand the ending of a life at an early stage. But one day we will understand that completely, when, as we will, we come to know the reason behind it. I'm sure that God had a greater need for Robin where he is now that we can ever understand in this world, in our worldly thinking, in our worldly thoughts. So as we come to the realization that God has prepared a place for him, that God has said to him that he will be with Him in paradise, that God Himself, coming into the world and taking upon Himself our sin and rising in the Resurrection, has assured us that if we live with Him and die with Him and rise with Him, that we have then eternal life. And I'm grateful for the opportunity that God has given us—each and every one—to come to the fullness of life and to the fullness of the realization of what that means.  So spoke Harold Hughes. Then a friend of Robin's who is a young and graceful actor, Charles Valentino— he played the Scarecrow in "The Wiz"— recited a poem of his entitled "Universal Children." He dedicated it to Robin, who adored children and related to them superbly, as he did also to much, much older people like the late actor, Will Geer. UNIVERSAL CHILDREN From the other side of the sky we came, Through a system we called birth, Seeking knowledge for our brains on a sea and space called earth. Before our arrival the mission was set, From the first source and center of all, To perform on the grandest stage ever built Until that last curtain call. Universal children, children of the universe. Coming at you from all ends, Expressing that of the highest law to the souls of hungry men. And we are everywhere. Before the beginning the ending is seen, It happened without any warning. Empty space became a silver screen,  Upon l this new world was dawning. Truth and understanding is the message we bring. Through love, disappointments will fade, Through the words of wisdom in the songs we sing, We bring about change. We are everywhere, believing and achieving. From the Father of us all we bring this message to you: It is not enough to know where you're going, You have to know where you're coming from, too.  And then Charles sang a song from "The Wiz": Be A LION There is a place we'll go, Where there is mostly quiet. Flowers and butterflies, A rainbow lives beside it, And from a velvet sky, a summer star. I can feel the coolness in the air But I'm still warm. And then a mighty roar will start the sky to cryin', Not even lightning will be frightening my lion. And no fear inside. No need to run, no need to hide. You're standing strong and tall, You're the bravest of them all. Keep on trying. It's on courage you must call, Then Just keep on tryin', tryin', tryin', And in your own way, you're a lion, a lion, You're a lion.  Another gifted young friend of Robin's, Bob Berryman, then strummed his guitar and sang this song: You and I are such good friends, We drink and laugh and talk together. Riding out the stormy weather all around us. You and I are such good friends, We think about each other often, Come together, watch the hours moving. You and I, you and I, you and I, you and I. You and I are quite a pair of comets streaking through the heavens, Out of God's creation, you and I. You and I, we share the rain, Children in a mountain forest, Drinking from the fountains of our youth, you and I. You and I, we walk the same roads Where the chilly north winds blow, Sing our songs together, you and I. You and I have cried the same tears, Learned to minimize our fears, Our love will never die. Our love will never die.  Then Senator Hughes said: I wonder if we could just bow our heads for a word of prayer for a moment, and then we'll have a time of sharing by whoever the spirit moves to speak out today among Robin's friends and family. I think especially, if we might, we should remember his fainily--Geneva, Kim,Lori, Christa, Alan, Norma, and Robin's beloved Kimberly. And remember that those who loved Robin very much and were so very close to him feel today the closeness of his spirit with them right at this very moment. We know that God's love is with us, that the Lord Jesus Christ—himself living—la with us. And as we turn to our God, our Father today, and lift up our hearts in prayer, let's feel that closeness and kindred spirit one with another. Our dear Father, we come to you now at this moment Just seeking your great comfort and love. We're aware of the great love that you have for us. That you created this very earth that we might live in it and have dominion over it, that you're aware of the birth of every child that takes place, of the  length of their life and the way t lye. That you had a special plan for bin's life, and that as that plan unfolded, and he unfolded it, a beautiful way of life was lived by him. That we must come to grips with the concern and the care of his family that was with him always and felt so deeply. I pray that you will pour out a great peace in the hearts of this family especially, that you will give them a fullness of understanding of your mercy and your compassionate love, as you have loved all of us. We want to pray for Robin today, as we know he is praying for us, and pray, Oh God, that you grant him a peace of heart himself, that you grant him a time that he can know truth and come face-to-face with the reality of what we are created for, and that through love he can fulfill that purpose now and be busy in doing that for which you have called him to do. We ask again, Oh Lord, that you will grant us your grace, your understanding and the peace that only you can give. We ask It in the name of Jesus Christ. Amen."  There was a silence, and then Harold spoke softly: If I could now, I ask for anyone to rise who might want to share a glimpse, an insight of Robin's life. This is really a time of celebration of life, a time for recalling memories—the joyful, the funny, the whole part of all of us and of what we have of him.  Bob Berryman said this: The thing I remember most about Robin is that he always had words of encouragement and a smile for me whenever I saw him. That's the best thing you can give a person, I think. Each of us has our destiny, to a certain extent, in our own hands, and to another extent in the hands of the Lord. And for someone to be able to be encouraging—that's a lot. It's a lot to me. So in my mind Robin will always live for that.  Jackson Leighter, an older friend of the family and of Robin's, said: I had the privilege of knowing Robin through various stages of his life, growing up. He always had a lot of courage, a very vivid imagination—sometimes like a wild horse. But he had great beauty and an enormous capacity for love. He could have achieved a lot. He'll be missed. We love him very much.  An attorney, Alan Sigal, spoke: I remember reading that Cicero wrote that he didn't want to be mourned by tears or have any celebration of mourning at his funeral. And that's Robin, as I know him. And I know that the last thing he would want would be sorrow here, as difficult as it may be not to feel sorrow. I met Robin almost 10 years ago in my capacity as a lawyer. His scrapes with the legal system are no secret. On the way over, we were discussing why it was that Robin had those difficulties. He was such an outgoing fellow, he was so trusting and he believed so much in the basic good in people. I think it, was really that naivete that led him into so many altercations with our legal system. I know from firsthand knowledge, having participated in extricating him more than once from these problems, that he really was falsely accused. Reading about It all, you might not have known that. I remember the trial itself in the course of which I first came to know him—an incredible trial that got massive coverage. At the end, Robin was exonerated. The news media asked him if he wouldn't call his dad to tell him of the verdict. Robin, accommodating always, agreed to do so, e.n.d a cadre of reporters followed him to a telephone. He placed his dime in the instrument. Flashbulbs were going and television cam-  0  eras were whirring, and he be to talk animatedly with his father, "They found me Innocent," he said joyfully. After a few moments, he handed the phone to me and said, "Dad wants to thP '- you." I took the receiver, put it to rr a*, and was astounded to hear a bus) signal. I stared at Robin. He was smiling. I didn't know what to say, but I managed to mumble and stumble a few words into the mouthpiece, hung the phone up, and to my horror heard the dime drop down. I sounded like a gong going off. Robin reached over and retrieved it. No one noticed. When we left the courthouse, I said, "Robin, why did you do that?" He said,"Well, I did call Dad. The line was busy." As always, the accommodating Robin didn't want to disappoint anybody, so he went on with his imaginary conversation. Those of you who know him as I do know that I didn't need to ask why he handed the instrument to me. That was Robin's sense of humor. My memory of Robin is so pleasant. He was such an endearing young man, energetic and fun to be with, both as a client and as a friend. I just don't intend to let my sorrow at his loss mar those earlier memories. I hope his family and his friends follow In that belief, as well. Nevertheless, I really will miss him.  Leslie Stevens, the motion picture and television producer, made these remarks: I was very much influenced and touched by Robin in my entire life outlook. When I first met him and associated with him, he came to work with me at Universal Studios, where he was a production associate on Thc Man From Shiloh and on McCloud. And the course of all of the work on the budgets and casting and everything that ne was involved with, he would occasionally come up to my house in the Hollywood hills. One evening there was a Santa Ana wind blowing, and Robin was gazing down on the lights in the valley. He called me over and said that there was this strangest phenomenon where you could see the twinkling of the lights going along in the path of the wind. Robin explained to me that you could see the wind if you actually looked down there and saw how those lights were affected and disturbed by it. So I looked down, and sure enough—I could actually see the outline of the wind, just like you see it on water at the beach. And I began to think: God, somebody who can see the wind has really got something going for him. So I began to listen to a part of his world which is what they put under the "ecology" label. I thought at first it was a fad. I wondered, "What's he into here?" But then I began to get involved. I don't know whether he talked me into it or we talked each other into it, but before the two of us we bought a whole missile base up in the middle of California. It was 65 acres of tunnels and underground chambers and stuff that had been abandoned by the government. It was Robin's idea that we turn it Into an ecology center, turning swords into plowshares, in a way. The perimeter has barbed wire all around it, but to this day there's a field of wheat planted on top of the missile base, and there are roses all entwined in the barbed wire—Robin's idea. He was dead serious about ecology. It wasn't anything trivial or passing with him. I expected it to go away, but it didn't. And every few months he'd be coming back and telling me that I ought to get involved with whales and dolphins and things. I really listened, and heard what he was talking about, and I find to this day that I'm passionate about dolphins and whales. What Robin was really talking about is a very deep sense of the unity of nature. He was religious in the strongest and best sense  III  He had a feeling for what you of the wc. might call the cosmic order of things. He knew then—and he said it many times in many conversations--that it was all one thing: that if you were really lined up with it properly, and if you had the right alignments and the right feelings about it, theia you merged into you became like And I have this feeling now —in this strangest and most inexplicable way—that Robin has achieved that, that he has become 555 while he was alive, that what he •5• he's part now of the cosmic order of nature-something that he understood and believed in. An image of a moment in time keeps coming to me. It happened way back at Universal one afternoon when he was in a particularly happy mood. He was yelling goodbye to me acm.ss the parking lot. At the time in a kind of c3mical way I thought it was naive, but he held up his two fingers in that old V-sign and just waved at me like that. It was kind of— good luck and we're going to be all right. and everything's gonna be good. In the last few days I've seen it again a dozen times. I've seen Robin against the sky, holding up his two fingers. And I remember that Egyptian thing he used to se,y sometimes--he talked about the Eye of Ra, and the Lord of Eternity, and the star-god of millions and millions of years. And I know that's where Robin is, and that he's with us, and that he always will be.  The creator of "Mandrake the Magician" and "The Phantom Lee Falk, rose. He said: These stories about Ftobin have brought back so much. I knew him from the age of three or four, and followed his picturesque, colorful career from the East. There's a favorite first line in an old novel I used to love, "Scaramouche": "He was born with a gift of laughter, and a sense that the world is mad." That's Robin. He could laugh at himself very well, which is very rare. Robin really did a remarkable thing. He came unheralded into the New York show business world with no experience there, and put a great big show on Broadway. This would be a tremendous accomplishment for anybody, much less a young man only 27 or 28 who with a co-producer brought this ice shS w starring Tonal' Cranston to the Palace Theater in Times Square. I saw the show—it was magnificient. It drew standing ovations and rave reviews. On opening night I vras standing with Robin and his father, looking up at the marquee, where it said in bright lights, "So-andso and Robin Cranston present was quite a moment. Alan was very proud. And I said to Ftobin, "Robin, this just goes to show that when you're a good boy and do your homework, and obey your parents, stay straight and have no trouble, this is what happens. You're a success." Well, his father really cracked up, I must say, and so did Robin. I was the last to speak, and the followingsort a blend a what I said and what I felt then and upon other occasions in these recent days: I think that all of us who knew and loved Rob have only learned in these last few days how deep that love was. And we have found ourselves loving him more and more as we have exchanged stories about him and expressed our affection for him. He taught and he is now teaching us and others much about life.  Not Printed or Mailed at Public Expense  I th f a friend and fellow Senator whos rst and only words, when he heard about Robin's accident, were "I'm going home to hug my children." There was a measure of anxiety and anguish in our time with Robin. But that was overwhelmingly surpassed by the excitement, the exhileration, the joy, and the pride he gave us. We miss him terribly, separated physically as we now are. He had a wonderful sense of family, and it is heartrendering that he was taken from ours and from life at 32. But spiritually we are together—forever. Our lives will be forever enriched by our memories of llobin. I remember one of our first Christmases with him. He became more and more excited as Christmas approached, and in his excitement he misbehaved excessively. He was 3 or 4 or 5 then. We drove down from the North to stay with his Aunt Lee Fairbrother over the holidays in the snow in the mountains by Lake Arrowhead. And on the way we had to stop several times to chastise Robin for the trouble and commotion he was making in our crowded car. On Christmas Eve, after he had finally fallen asleep, we laid out gifts for all the family under the tree. Early Christmas morning Rob arose, crept to the head of the stairs, and peeked over the bannister. When he saw the mountain of gifts, he awakened us all by shouting,"Boy, have I been good." When Rob was about 10, we were up in a small town in the mother lode country Rob explored the little mountain community, and came back to report to me that he had discovered a place where illegal gambling was occurring. He asked what we should do about it. The future Governor of California, Pat Brown, who was then Attorney General, was in t,own for a reception that we planned to attend, so I told Robin that he should tell the Attorney General. Soon we were at the reception, and when Pat Brown arrived, Robin approached him and said,"I would like to speak with you." Pat bent over and said,"What is it, son?" Robin replied, "I want to speak to you in private—alone." So Pat led Robin over to a corner where the two spoke earnestly for a minute or two. The Attorney General came back shaking his head and said, "Oh, that son of yours!" Some 3 months later, the press reported that there had been a police raid in that mother lode community and that a gambling ring had been broken up. This was not really the first achievement in Rob's remarkable life, and of course it was far from the last. One of our greatest sadnesses is that he could have achieved, in time, so much, much more, and that those who have not known or understood him could then have come to see him as we see him. But, as Harold Hughes told us, there is a place where Robin is now doing what he was called from us to do. And we know that he is doing it--magnificently.  June 2.0, 1980  Uonorable Berkley SeSell nous* of Aepresentatives Witizhinvtou, s.C. 20515 AMAX  kis. Sedelli  In Chaim)* Volcker's abet/meet I want to thank you for 4...)ur letter of Ne4 LS empreeeing 1014ur concerns ruriarding the pro i)ose4 kolloy statement ea the disposition of imams from the sale of credit lire insurance by financial institntiona, As you know, t4e Board of A.:44,vor1ors issued the proosed policy jointly 'with tt.e rederal Dei,osit Insurance Corporation, the com;)troller of the Curxesloy, the federal Moe Loan Mak Soaxdf and the Motional Credit ‘inion Administration* Ito Fedezal banking agencies are kerticularly concerned about the effects of regulation on small conkanies and, in issuinr,. the policy for ,u14141 oommont, electrically requested comments on the effects of the proposal on small Lanka and holding companies* 1e addition to your taonqlsts, CAA eqsacies have received numerous, corgt4ents reysesting asemktione fox eftall banks, and I can &souse you that all mob Oggeations will be carefully reviewed and cousidered prior te final adoption* In the sad, of opuses. *11 coc4:.ents will ;...ave to be assessed in light of the proposal's 0a4lic iur;rout of enhaucing the spogadneus of the many depositor:4 iuutitutiona thxovqhout the country that hold the savissIt o rtid euettLsl serviees to small depositora. addition to t1:4; credit lite imurance issue, the Board shares your i_roador concurao aloout 1--otential rinulatorl burden OA the day-to-day operaition of small banks. Theee concerns have been recognised and manifested in various *otiose of the So4rd, nest reoently i tht Seward exempted Small banks frov* the re./ortinii revairements of the Special Credit Restraint rr, In ednitionp the noard".e. re,porting- re%iuiremeets for the quarterly reporta of condition filed by Mall banks and the reporting requireeenta fee snail holding eempanies are significantly lugs than those imposed on Larcer booking institutions. , oreoveri the aoard will emetinue to give special attention to the potential effects of polioj actions on small businesses. In  , TEkarrrtiv! "lati w61440NUOTtrIg '214 uwAn foxv  4A00 t30q 4 4,1'001ST trZE-A0 4  Mut*" *X 11.121090A1  is' aftsaming 44101mumme amo4 taw% segvfnox4411 p/**1 *40v 4ierir .10019T0410021140 arle44 pee elmsq ITO., med. etorolui sql Atom mot p.m emus...0 *Milne rT. SOM. Arin7 TITft esorp.Wr twn appX *MOO TvaT7 el Nol!npv illeimmect 44,10 . 47 Olt Vic awl viesseerts frwrrod petwoz-t. alp ercrim  -morel  oft coltea rtyriles sotqW2otrion  onm  BERKLEY BEDELL 6TH DISTRICT, IOWA  Action aligned Jack Ryan  A COMMITTCCS• AGRICULTURE SUBCOMMITTEES  •  WASHINGTON orr•ct: 405 CANA•opo Hovsr OrriCE ButLopiell WASHINGTON, D.C. 20515  Congre5g of tbe Zlititeb 6tate5  LIVESTOCK AND GRAINS rAMILY FARMS. RURAL DEVELOPMENT AND SrECIAL STUDIES  of 3.- cp rt5enta tibesS  (202) 223-5476 DISTRICT OrFICES: 479 FEDERAL BUILDING FONT DOOGE, IOWA 50501 (515) 573-7169  CONsTRVATIoN AND CREDIT SMALL DuSINESS  41.1azijingtott, 73.e. 20315  !WIXOM P.4 1TTEES•  318 FEDERAL BUILDING SIOUX CITY, loviA 51101 (712) 252-4164 ExT. 281  ANTITRUST AND RESTRAINT OF TRADE ACTIVITIES AFFECTING SMALL BUSINESS  May 15, 1980 Chairman Paul Volcker Board of Governors Federal Reserve System Washington, D.C. 20551 Dear Chairman Volcker: We have had considerable correspondence back and forth in regard to rules and regulations on the disposition of credit life insurance income. It would appear to.me that the apparent rules and regulations very likely make good sense for large banks. However, for the small country banks, it appears to me that this is just another instance of government over-regulation. Have you given any consideration to exempting smaller banks from these regulations? ny small banks.'are having a most difficult time because of government over-regulation, and this would be one opportunity to ease the burden somewhat. I would appreciate hearing from you in regard to this suggestion. Sincerely, /' Berkley B&lell BB:cst  •  A  I  •  • • • • •.. •• .  a • ••  Of (.()t  0  .-  , .. •ZJ  •  -4  •  -..,„ _ 4',I, •.  kjf•2 ' . 0 • `....':' , ,.  BOARD 13F GOVERNORS n r THE  1YV.C6104;._ CV- AL.1(4)  • ..: . ,\ ,  .; • • /-- •  , 1  FEDERAL RESERVE SYSTEM ViASHINGTON  •  •  •• '/<,_)  •• • •.  gf • •  rPEOERICK H SCHULTZ  VICE CHAIRMAN  June 17, 1980  The Honorable Max S. Baucus Chairman Subcommittee on Limitations of Contracted and Delegated Authority Committee on the Judiciary United States Senate Washington, D.C. 20510 Dear Chairman Baucus: In the absence of Chairman Volcker, I am responding to your request for information regarding in-house and outside expenditures of the Board for advertising and public relations. The Federal Reserve does no advertising, but the Board maintains an Office of Public Affairs. This office deals with the media, develops educational materials, conducts teacher workshops and handles a variety of other matters related to public affairs and public information. We do not maintain, however, separate budgets for the various media. The Board's Public Affairs office is staffed by four professionals and two secretaries. Total expenses for the office for 1978 were $267,368, which included $26,253 for the distribution of a new film developed to explain the role of the Federal Reserve System, $9,000 to an advertising agency which acted as consultant in selecting the film producer and in overseeing production of the film, and $15,000 for a public opinion survey aimed at helping us plan new publications and public information and education materials. In 1979 expenses were $265,303 and included an additional $20,617 for continued distribution of the film mentioned above and $2,800 for an outside consultant to produce a slide show for our tour program. Projected expenses for 1980 are $313,439, with $18,000 expected for distribution of the 1978 film, $17,000 for distribution of a new film about consumer protection under the Electronic Fund Transfer Act, and $12,000 for outside preparation and printing of a teacher's guidO to be used with the new film.  % . 404  ,  •  •  The Honorable Max S. Baucus Page Two  We hope the information will be useful to your Subcommittee. Please let me know if we can be of further assistance. Sincer r _--/ Frederick H. Schultz  -,  •  Action assigned Mr. Coyne •  •  'ZICrliteb ZIafez Zertate  -  .,j  WASHINGTON. D.C. 20510  June 5, 1980  Honorable Paul A. Volcker Chairman Federal Reserve System 20th Street & Constitution Avenue, NW Washington, D.C. 20551 Dear Mr. Volcker: I seek information on your organization's in-house and outside expenditures for advertising and public relations in various media. Please, therefore, forward to me the following information: 1.) The amount of money expended by the agency (department) on advertising and public relations done internally by agency (department) employees in FY 78, broken down in terms of dollars expended for television, radio and print media. The same breakdown is requested for the same time period expended on outside consultants or contractors for the same services. 2.) The amount of money spent by the agency (department) on advertising and public relations done by agency employees om FY 79, broken down by dollars expended for TV, radio and print media. The same breakdown is also sought for FY 79 for money spent on outside consultants and contractors for such services. 3.) The same data for FY 80, up to the date of this communication. Your prompt cooperation in providing this information to the Subcommittee will be appreciated. Please make it available by June 17, 1980. Thank you. Sincerely,  4 ( r2 Max Baucus Chairman, Subcommittee Limitations on Contracted and Delegated Authority  (  r11.••• S , Vlif"..  #rt,. .  June 18, 1980  •  4irpolgt The Honorable Paul A. Volcker Federal Reserve System 20th and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Mr. Chairman: As you know, the Senate Banking Committee favorably reported "The Export Trading Company Act of 1980" on May 15, 1980. I am enclosing copies of the bill as reported (S. 2718), and the Committee's Report which includes a copy of your letter of May 12, 1980, and an extended discussion of the issue of bank involvement. The reported bill differs significantly from the earlier S. 2379, on which Governor Wallich submitted written testimony and, most recently, written responses to several questions I had earlier posed. The section of S. 2718 on bank participation (Section 105), includes substantially all of the changes recommended in your letter of May 12, 1980. The only major difference remaining between the bill as reported and your May 12 letter concerns whether a banking organization should be permitted to have a controlling interest in an export trading company. You recommended a per se prohibition, while the bill as reported permits a banking organization to acquire a controlling interest, i.e., any voting equity interest of 25% or greater, subject to the prior approval of the Federal Reserve, Comptroller of the Currency, or FDIC for their respective institutions. The bill also gives the banking agencies additional regulatory and supervisory powers in the case of banking organization controlling investments. I would, of course, appreciate your comments on the reported bill, which I believe meets virtually all of the objections earlier raised in your letter or Governor Wallich's statement and submissions. First, concerning controlling investments, the reported bill contains all of the financial limitations suggested in your letter of May 12: No banking organization, except an Edge ACorporation not engaged in banking, may invest more than 5% f its consolidated capital and surplus in the stock of one or more ETCs. A non-  0111"r".""Wryr  The Honorable Paul. Volcker June 18, 1980 Page Two  •  banking Edge could invest up to 25% of its capital and surplus. §105(b)(1). -  No banking organization may invest more than $10 million in the stock of one or more ETCs without prior agency approval. §105(b)(1)(A)(B).  -  The total historical cost of the direct and indirect investments by a banking organization in an ETC combined with extensions of credit by the banking organization and its direct and indirect subsidiaries to such ETC shall not exceed 10% of its capital and surplus. §105(c)(2).  The bill also contains the supervisory safeguards which you suggested: The banking agencies are given clear authority to require divestiture of any ETC investment that may constitute a serious risk to a banking organization investor. §105(d)(4). The name of an ETC cannot be similar in any respect to that of a banking organization investor. §105(c)(1). A banking organization must terminate its ownership of an ETC if the ETC takes speculative positions in commodities. §105(c)(3). The previous section prohibiting preferential bank lending to an ETC in which it has an equity interest has been strengthened. Specifically, the section tracks more closely the prohibitions on insider lending contained in Title I of the Financial Institutions Regulatory and Interest Rate Control Act of 1978. §105(c)(4). Furthermore, the bill contains additional safeguards in the case of controlling investments: Any controlling investment, even if less than $10 million, must be approved by a bank regv atory agency. Control is defined according to Bank Holding Conpany Act standards, i.e., 25% or greater voting share inte4.3st, control of a majority of the directors, or exercise of a controlling influence. 105(b)(1)(A) (B).  The Honorable Pau1410 Volcker June 18, 1980 Page Three  •  No group of banks can acquire more than SO% of an ETC without prior agency approval, even if no one bank were to acquire a controlling interest, and no bank were to invest $10 million or more. §105(b)(1)(B). -  The agencies could disapprove any investment where, in their judgment, export benefits are outweighed by adverse banking factors. §105(d)(1).  -  The agencies may impose conditions and limitations on controlling investments to limit a banking organization's financial exposure or prevent possible conflicts of interest or unsound banking practices. §105(d)(2).  -  The agencies must set standards on the taking of title by banking organization-controlled ETCs to ensure against any unsafe or unsound practices that could adversely affect a controlling banking organization investor, including specifically with respect to the holding of title to inventory. §105(d)(2). The agencies may examine banking organization-controlled ETCs and use cease-and-desist authority to enforce any and all requirements imposed under the law. §105(f)(1)E(2).  Permitting controlling investments subject to the above limitations, should not increase risks or potential competitive or conflict of interest problems, but, as indicated in the Committee Report, should actually serve to reduce them: A banking organization with a controlling investment has the legal ability to ensure that the ETC is at all times operating in a safe and sound manner and in accordance with law and agency regulations. It is thus in a better position to protect its investment and regulate risk exposure. In this regard, I am told many U.S. banking organizations have a policy in their international operations of favoring controlling 01-er minority investments, because equity control ensures opera-ipnal control and hence better risk management.  •  •  The Honorable Paull" Volcker June 18, 1980 Page Four  Some banking organizations may only want to organize an ETC for limited purposes, e.g., to assist in certain project financing, to export from a local region or to a specific trade area such as China, where more creative financing packages, perhaps involving barter elements, may be required, or merely to expand their range of export trade services. Permitting controlling investments allows them to do so without having to invest in ventures organized by others that may engage in a range of activities that may exceed their aims and entail more risks. Permitting controlling investments thus encourages the formation of smaller, independent trading companies, with less Zaibatsu-like combinations between banking and industry. A banking organization may find that conflict of interest problems are minimized when it has control. A banking organization with many export customers may not want to join with any one or two customers in an ETC, but may want to set up its own independent ETC. An ETC controlled by a banking organization would have no unfair competitive advantage over other ETCs or ETCs with minority bank participation . The bill's restrictions on total loans and investments and preferential lending are across the board and pertain whether a banking organization has either a minority or majority participation. In this regard, a non-bank owned ETC could obtain a larger line of credit from a non-affiliated bank than a bank-owned ETC could from its bank affiliate. Small ETCs have the advantage of special start-up assistance from SBA and EDA and a special Eximbank window, a privilege that would not appear available to most bank-controlled ETCs under the legislative criteria. In order to assure that bank participation in ETCs is consistent with sound banking principles and to provide Congressional guidance based on the experience of this participation, the bank regulatory agencies must report to the Banking Committees within two years, with respect to implementation of Section 105, their recoinmendations for any changes'i- i.?Federal law. This dislocation which might conceivrequirement should foreshall any systemic ably arise from this activity.  ..J.rmrreviter,upworm-..0.•  rwls•-',r7;•••-rierir^nrmiriaiwriglopmPumnim  •  The Honorable Pault Volcker June 18, 1980 Page Five  I would, of course, be glad to consider any further safeguards you might suggest concerning bank-controlled ETCs. In this regard, I did note in Governor Wallich's answers, that he registered some concern about the fact that a bank-affiliated ETC might be highly leveraged. If necessary, we could clarify in the law that the agencies would have authority to impose appropriate leverage ratios for bank-owned ETCs, such as are now applied to Edge Act Corporations. Your comments on this suggestion would be particularly appreciated. Second, concerning the more philosophical issue of separation of banking from conunerce, the numerous conditions and limitations discussed above ensure that the domestic separation of those activities will not be breached. It is true, however, that this bill will alter those rules to a limited extent for the field of export trade, just as the Edge, WebbPomerene, Eximbank, Commodity Credit Corporation and DISC legislation, among others, create somewhat special rules for the export area to meet foreign competition. While I agree our domestic rules have generally served us well, they are designed to preserve domestic competitive equality, not to meet foreign competition, which, as you know, plays under an entirely different set of rules. In applying those rules to our export trade, we, in fact, give foreign exporters an unfair competitive advantage over our own industry. I would appreciate a response as soon as possible as we are endeavoring Wobtain early floor consideration of this important legislation. With best regards, Sincerely,  Enclosures  2d Session  zr;NATE  No. 90-735  • EXPORT TRADING COMPANIES, TRADE ASSOCIATIONS, AND TRADE SERVICES  REPORT OF THE  COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS UNITED STATES SENATE TO ACCOMPANY  S. 2718 together with ADDITIONAL VIEWS  MAY 15 (legislative day, JANUARY 3), 1980.—Ordered to be printed  U.S. GOVERNMENT PRINTING OFFICE 59-010 0  WASHINGTON: 1980  •  IRS COMMIT'l'EE ON BANKING, HOUSING, AND URBAN AFFA WILLIAM PROXMIRE, Wisconsin, Chairman Utah HARRISON A. WILLIAMS, JR., New Jersey JAKE GARN, , Texas TOWER JOHN nia ALAN CRANSTON, Califor Pennsylvania , HEINZ JOHN Illinois NSON, ADLAI E. STEVE RONG, Colorado ARMST L. AM WILLI na Caroli North N, MORGA ROBERT BAUM,Kansas KASSE ON LAND NANCY DONALD W. RIEGLE, JR., Michigan a Indian , LUGAR G. RD RICHA nd PAUL S. SARBANES, Maryla a Alabam RT, DONALD W. STEWA PAUL E. TSONGAS, Massachusetts KENNETH A. MCLEAN, Staff Director M. DANNY WALL, Minority Staff Director  SUBCOMMITTEE ON INTERNATIONAL FINANCE ADLAI E. STEVENSON, Illinois, Chairman JOHN HEINZ, Pennsylvania HARRISON A. WILLIAMS, JR., New Jersey WILLIAM L. ARMSTRONG. Colorado nia Califor TON, ALAN CRANS NANCY LANDON KASSEBAUM, Kansas PAUL E. TSONGAS, Massachusetts  PAUL  ROBERT W. RUSSELL, COUniel FREEDENBERG, Minority Professional Staff  •  Member  S  CONTENTS  4  1 2 3  11111  Page .  History of the legislation Purpose of the legislation Need for the legislation Explanation of the bill: Title I—Export Trading Companies: 1. Definitions 2. Promotion by Secretary of Commerce 3. Ownership by Banks 4. Initial Investments and Operating Expenses 5. Guarantees by Export-Import Bank Title II—Export Trade Associations: 6. Antitrust Exemption for Certified Export Trade Activities_._ 7. Certification Procedures 8. Amendment, Revocation or Invalidation Title III—Taxation of Export Trading Companies: 9. Application of DISC Rules 10. Subchapter S Status Section-by-section analysis of the bill Fiscal impact statement Regulatory impact statement Changes in existing law Additional views  1. 5 7 7 12 13 14 15 17 17 18 18 24 26 27 31  1  1  I I I  vErrurruar-niro 96TH CONGRESS 2d Session  SENATE  REPorr No. 96-735  EXPORT TRADING COMPANIES, TRADE ASSOCIATIONS, • AND TRADE SERVICES  MAY 15 (legislative day, JANUARY 3, 1980).—Ordered to be printed  Mr. STEVENSON (for himself and Messrs. HEINZ, BENTSEN,_ Rom, GLENN,SCHMITT. MELCHER,TSONGAS.LUGAR.STEWART,and JAvrrs), from the Committee on Banking, Housing, and Urban Affairs, submitted the following REPORT together with ADDITIONAL VIEWS [To accompany S. 2718]  The Committee on Banking, Housing, and Urban Affairs, to which was referred the bill (S. 2718) to encourage exports by facilitating the formation and operation of export trading companies,export trade associations, and the expansion of export trade services generally, having considered the same, reports favorably thereon and recommends that the bill do pass. HISTORY OF THE LEGISLATION The concept of legislation to encourage the formation of U.S. trad,ing companies was discussed at hearings on U.S. export policy held in early 1978 by the Subcommittee on International Finance (see. in particular, parts 3, 6, 7, and 8 of those hearings). The Subcommittee's report on the need for a U.S. export policy, issued in March 1979, included a recommendation that U.S.export trading companies be established to expand exports of the products of smaller U.S. producers and that the Webb-Pomerene Act be revised to clarify antitrust treatment of export activity. S. 1663, the Export Trading Company Act of 1979, was introduced by Senator Stevenson on August 2, 1979, and referred jointly to the Committees on Banking, Housing, and Urban Affairs and Finance. Hearings were held on the bill before the Subcommittee on International Finance on September 17 and 18, 1979. Also considered during the hearings were three bills to amend the Webb-Pomerene Export Trade Act of 1918 concerning export trade associations: S. 864, the (1)  ‹.;  forth, Bentsen, Chafee, Javits and Mathias on April 4, 1979; S. 1499. the Export Trade Activities Act,introduced by Senator Roth on July 12, 1979; and S. 1744, introduced oftptember 13, 1979. by Senator Stevenson for Senator Inouye. • The Subcommittee received testimony from Luther IL Hodges, Jr.. Under Secretary of Commerce; C. Fred Bergsten, Assistant Secretary of the Treasury for International Affairs; Ky P. Ewing. Deputy Assistant Attorney General in the Antitrust Division of the Justice Department; Daniel Deputy Director of the Bureau of Competition of the Federal Schwartz, TradeCommission ; Senators Danforth. Bentsen. Chafe°, Mathias and Javits; and a number of other witnesses. The testimony ranged across all the issues raised in the bills: antitrust treatment of trade associations and trading companies, tax treatment of export trading companies, Federal assistance for start-up costs and financial leverage of export trading companies, and bank ownership of export trading companies. A new bill, S. 2379, the Export Trading Company Act of 1980, was introduced on March 4, 1980, by Senators Stevenson, Heinz. Javits. Bentsen and Glenn. The bill contained revised versions of each of the basic provisions of S. 1663. On February 26, 1980, Senators Danforth. Bentsen, Chafe,e. Mathias and Javits introduced a revised version of their legislation to reform the Webb-Pomerene Act: Amendment 1674 to S. 864. Hearings were held on the revised legislative proposals on March 17 and 187and April 3. 1980. Testimony was received from Secretary of Commerce Philip Klutznick, speaking on behalf of the Administration and accompanied by Assistant Secretary of the Treasury C. Fred Bergsten, Deputy U.S. Trade Representative Robert Hormats. and Assistant Secretary of State for Economic Affairs Deane Hinton: Deputy Assistant Secretary of State Erland Heginbotham (who appeared in his individual capacity as an expert on Asian trade)• Governor Henry Wallich ofthe Board of Governors of the Federal Reserve System, (who was unable to appear in person due to foreign travel commitments): W. Paul Cooper, President of Acme-Cleveland Corporation and representing the National Machine Tool Builders Association; J. D. Minutilli,-President of Commercial Credit Company Ted D.Taubeneck.President of Rockwell International Trading Company and representing the Chamber of Commerce of the United States: E. Anthony Newton, Senior Vice President of Philadelphia National Bank; James B. Sommers. President, the Bankers Association for Foreign Trade and Executive Vice President of North Carolina National Bank; Lawrence A. Fox, Vice President of the National Association of Manufacturers: Jerry L. Hester, President of International Trade Operations. Inc.; Robert L. McNeill, Executive Vice Chairman of the Emergency Committee for American Trade: John R. Liebman, General Counsel of the Export Managers Association of California. Inc.; Ruth Schueler, President of Schueler and Company. Inc., representing the Subcommittee on Export Promotion of the President's Export Council: and Thomas M. Rees, representing the Task Force on International Trade of the White House Conference on Small Business. The full Committee marked up a Committee print on May 12. 1980, which contained r Tised versions of S.2379 and Amendment 1674 to S. 864. and agreed te report favorably an original Committee bill. •  1  0 PURPOSE OP THE 14  LATION  The purpose of the legislation is to im ove U.S.export performance by facilitating the creation of U.S. export trading companies which could perform export services for tens of thousands of small and medium-sized American producers. Despite the success of trading companies as "export middlemen" for European, Japanese, and Korean producers, such companies have been slow to develop in the U.S. due to deterrents presented by banking regulations, antitrust uncertainties, and the traditional insularity of the U.S. market. This legislation modifies provisions of existing law which have acted to discourage the establishment or expansion of export trading companies, and offers modest incentives to the development of such companies. The bill would provide for certification of antitrust exemption for specified export trade activities of such companies and of export trade associations; afford tax and financing incentives to encourage formation and growth of export trading companies, including existing export management companies; direct the Export-Import Bank to develop an improved guarantee program to support commercial loans to U.S. exporters; require the Secretary of Commerce to provide information to U.S. producers regarding export trading companies and other firms offering export trade services; and permit banks and banking institutions to make limited investments in export trading companies. The legislation is intended to lay the basis for a significant expansion of export services and, thereby, U.S. exports. NEED FOR THE LEGISLATION This legislation is necessary to encourage the formation of export trading companies and export trade associations designed to link potential U.S. exporters with overseas markets. The Department of Commerce and others have estimated up to 20,000 U.S. nianufacturers and agricultural producers offer goods and services which could be highly competitive abroad. Yet the small size and inexperience of these firms leave them ill-equipped to absorb the front-end costs and risks involved in developing overseas markets. Greater efforts to encourage and assist U.S. producers to export directly are desirable, but for most producers the marginal costs of developing fully their export opportunities abroad will prove prohibitive. Export expansion on the scale required to offset U.S.trade deficits will depend on the development of intermediaries, including export trading companies, which, by diversifying trade risk and developing economies of scale in marketing, financing, and other export trade services, can do the exporting for large numbers of U.S. producers. Although a variety of existing enterprises do provide export services to U.S. producers—freight forwarders, brokers, shippers, insurance companies, comercial banks, export management companies, advertising firms, trade lawyers, foreign purchasing agents, and others—most fulfill only one or a few of the many functions required to engage in export trade. In constrast, most European countries, as well as Japan and Korea, possess sophisticated, large-scale general purpose trading companies which perform the full range of requisite functions for potential exporters; the success of such companies has contributed significantly to the export earnings of all of our major trade competitors.  or  pames operating m the U.s. over the past tew years, the growth of U.S.-owned export trading companies has been slow, except in a few  sectors such as grain and raw materiallre. If U.S. export trading companies sound business proposition, why have not the working of the marketplace and American enterpreneurship produced such companies already ? First, the U.S. domestic market has been much larger and more prosperous than foreign markets—until recently. Belatedly U.S.companies are beginning to see the greater growth possibilities in foreign markets, but foreign producers are already well organized for exporting and can offer quality products at competitive prices. Second, many foreign markets have been largely closed to U.S. exporters. China is an extreme example, but Japan and other countries have maintained high tariff walls and nontrariff barriers to imports almost as effective as the isolation of China. Due to the recently concluded Multilateral Trade Agreements in GATT and persistent U.S. bilateral efforts, trade barriers are being reduced. Foreign competitors, however, with a longer history of aggressive exporting, are better poised to seize these new market opportunities; U.S. negotiating successes may only be opening markets for our competitors. Finally, U.S. laws and regulations, as well as traditional business and banking practices, have discouraged cooperative export trading companies,export trade associations, or bank participation in export trade activity. Legislation is needed to remove these deterrents and to encourage the formation and growth of general purpose export trading companies by means of tax and financing incentives. Rapid formation of export trading companies on a scale sufficient to affect overall U.S. export levels will require the involvement of banks and major corporations. whose financial resources,international marketing networks and trade financing experience position them well to play a major role in the establishment of export trading companies. This legislation is needed to enable banks and banking institutions to make limited investments in export trading companies, subject to prior approval and conditions imposed by Federal bank regulatory agencies for all controlling investments. The bill also provides for revision of the Webb-Pomerene Act of 1918 to clarify the antitrust provisions applicable to export trade associations and to provide a certification procedure enabling export trading companies and other such associations to receive antitrust clearance for specified export trade activities. The lack of clear cut antitrust immunity provided exporters by the 1918 legislation and the exclusion of services from its coverage has severely limited the statute's effect on exports. Under the review procedures established by the present legislation any U.S. company may determine in advance exactly which export trade activities would be immune from antitrust suit and organize its operations accordingly. In order to encourage the direct involvement of smaller exporters in the formation of export trading companies,the legislation urges the Economic Development Administration and the Small Business Administration to give special attention to the financng needs of small and medium-sized concerns interested in exploring export opportunities in this manner. It authorizes an additional $20 million per year  in fiscal years 1981 through 1985 tlir and SBA to support loans or guarantees for these purposes. This legislation would also improve the financial leverage of export trading companies. It directs the EXIM Bank to establish an expanded guarantee program for commercial credits secured by export accounts receivable or inventory held for exportation, if the Board of Directors of the Bank determines the private credit market is inadequate and EXIA1 guarantees would facilitate exports which would not otherwise occur. The bill would direct the Secretary of Commerce to promote actively the formation of export trading companies and the dissemination of information about related export opportunities. • Finally, the legislation would extend the tax deferral available under the DISC (Domestic International Sales Corporation) provisions of the tax code to all export trading company income, derived from exports handled or the provision of trade services. The use of subpart S of the tax code, permitting certain passthroughs to shareholders of closely held corporations, would be allowed for some export trading.companies. The Department of Commerce, with the assistance of the International Revenue Service,is directed to prepare a guide to help export trading companies form DISCs or elect subpart S tax treatment. These provisions would remove the most serious deterrents to the emergence of significant U.S. export trading companies. The legislation would foster competition by decreasing government regulation, and would offer the potential for greatly increased U.S. export competitiveness with minimal direct Federal government participation. EXPLANATION OF THE BILL TITLE I—EXPORT TRADING COMPANIES 1. Definitions The bill defines an export trading company as a U.S. company "organized and operated principally for the purposes of:(A) exporting goods or services produced in the United States; and (B) facilitating the exportation of goods and services produced in the United States by unaffiliated persons by providing one or more export trade services." The definition is intended to encompass most existing firms which offer export trade services to U.S. producers to whom they are not affiliated, while doing some exporting at their own risk. Many of these American firms, called export management companies or trading companies, are very small and have difficulty obtaining adequate financing to expand their operations. Encouragement and assistance to such firms are major objectives of the legislation. The definition of an export trading company is meant to exclude firms by any name which export solely the goods or services of the company itself, its parent company or its subsidiaries, or other members of the corporate family. Many major American corporations have subsidiaries which may be called trading companies, but which in fact export only the products of the corporate group. If such companies wish to qualify as•export trading companies as defined in the bill, they will need to do some exporting for, or provide trade services to, unaffiliated persons (generally, small and medium size U.S. firms). The  S.Rept. 96-735 --- 2  export activity an export trading company must perform on behalf of unaffiliated persons; instead, the Fe al agencies with administrative of the bill are given flexibility responsibilities related to the provi to interpret and apply the definitions as seems most appropriate to further the purpose of the Act. Because another principal objective of the Act is to induce major corporations with extensive export trade experience to offer exporting services to less experienced U.S. producers, it would be consistent with the Act to expect export trading companies to develop a significant portion of their total business in the export of goods or services produced by unaffiliated persons, or in the provision of export trade services to such persons. For example, a company claiming to be organized and operated principally as an export trading company within the definition in section 103(5) of the Act, but which over a reasonable period of years received on the average less than 10 percent of its gross sales or income through exporting goods for, or providing export services to, unaffiliated U.S. persons might be disqualified. The bill also defines U.S. exports and establishes a presumption that the principal business of a U.S. export trading company should be U.S. exports. Export trade is defined to mean exports of goods produced in the United States or services provided by U.S. citizens or otherwise attributable to the United States. The bill requires that at least 50 percent of the value of such goods or services must be of U.S. origin in order for the goods and services to be considered U.S. exports for purposes of the Act. Fifty percent was chosen because it is the existing standard in the Internal Revenue Code for eligible "export receipts" of Domestic International Sales Corporations (DISCs). Setting a higher minimum threshold for U.S. content would not only create the legal anomaly that a sale could be an "export" for DISC purposes but not for meeting the definition of an export trading company, but could also unreasonably restrict the trade possibilities for companies seeking to qualify as export trading companies. Section 103(5) defines an export trading company as one engaged "principally" in export trade, both on its own behalf and on behalf of unaffiliated persons. Thus, the presumption is established that on the average at least one-half the company's total business—which may include some domestic trade, some import trade and some "thirdparty" international trade wholly outside U.S. commerce—will be directly related to U.S. exports which must contain at least 50 percent value attributable to the U.S. If the company exports a product with 49 percent of the value added in the U.S., for example, the export sale counts as part of the "other" business of the company. not as part of its export business. Furthermore, successful trading companies must develop two- and three-way trade in order to reduce foreign exchange risk and maintain good relations with foreign customers. The presumption established in the Act will not be an easy one for trading companies to meet, but it does insure that "export trading companies" as defined in the Act will be principally and substantially engaged in exports of goods and services produced primarily by Americans. The term "export trade services" is defined in section 103(4) of the Act to include a broad range of services provided in order to facilibill does not establish minimum percentages tor the proportion or  •  taw tne export or goods or services proaucea in the uniteti ZNtates. While the Act's purpose is to enable the performance by export trading companies of a wide range of .ices to expand U.S. exports, including transportation and forwat g, the bill is not intended to repeal or amend the provisions of the S ipping Act of 1916 (46 U.S.C. 800 et seq.), which govern the licensing of independent ocean freight forwarders. Export trading companies wishing to render forwarding services may do so upon qualifying for, and receiving, a license under that Act. 2. Promotion by Secretary of Commerce The bill directs the Secretary of Commerce to promote and encourage the formation and operation of export trading companies by providing information and advice to interested persons and by facilitating contact between producers of exportable goods and services and firms offering export trade services. The provision is intended to lead to a better two-way referral system by the Department of Commerce. The Department has an established role in assisting companies interested in learning how to export and in acquiring foreign market information, but in many cases a more effective approach may be to put companies in contact with export trading companies or other private enterprises which can either provide export assistance or do the actual exporting. Conversely,as part of the Department's responsibility to promote export trading companies, it should help such conipalms and others providing export trade services to locate and contact U.S. producers of exportable goods and services. It is the Committee's view that the Commerce Department should be more responsive than it has been in the past to the needs of export management companies and international trade consultants to make contact with potential clients. 3. Ownership by Banks This legislation seeks to stimulate a form of business activity in the United States which has been neglected by major corporations and investors and has consequently been deprived of significant financial resources, as the history of U.S. export management companies clearly demonstrates. In an economy which has been primarily oriented to the domestic market, it is not obvious where the investment and entreneurship can be found to establish export trading companies on an economical scale and one which can also make a difference in the U.S. trade accounts. 'This legislation attempts to stimulate initiative from at least three possible sources: (1) accelerated internal growth by existing U.S. export management or export trading companies; (2) formation of independent export trading companies fostered by major corporations with international trade experience; and (3) investments by U.S. banking institutions in new or existing export trading companies. Banks with international offices, experience in trade financing, business contacts abroad, international marketing knowledge, and familiarity with domestic U.S. producers are the most likely source of leadership in forming export trading companies. Their skills which are important to the organization and management of trading companies. A number of large non-Japanese trading companies are owned ky banks in Europe. For example, Hongkong and Shanghai Banking Corp. owns a 33 percent controlling interest in Hutchinson Whampoa  10*  tnree Muting companies; tiarclay's Bank International owns 24.5 percent of Tozer, Kernsley and Millbourn ; Credit Lyonnais owns SO per-  cent of ESSOT PME; and Banco d razil owns 100 percent of Beke Company. The potential contribution of U.... banks was explained by Erland Heginbotham, Deputy Assistant Secretary of State for East Asian and Pacific Affairs in testimony on March 18, 1980. before the International Finance Subcommittee: wile development of bank-owned trading companies promises to offer enormous potential for overcoming most of the major disadvantages now seriously inhibiting T.S. exports to Asia. A number of European banks now operate some of the largest European-owned trading companies... Banks bring not only assets but almost all of the supporting facilities and services which U.S. exporters now most lack by contrast with competitors. More importantly, banks can encourage and help exporters develop a longerterm view of, and presence in the market. Bank-affiliated trading companies would have special effect on encouraging more medium and small exporters who are now discouraged by the remoteness and strangeness of foreign markets and buyers, exchange risks, and by the complexity and expense of documentation." Section 105 of the bill would permit U.S. banks to make limited investments in export trading ocmpanies, subject (except for noncontrolling investments of less than $10 million) to the prior approval of Federal bank regulatory agencies. and subject to conditions and safeguards designed to ensure the safety and soundness of the bank-s and prevent favoritism in bank lending to a trading company in which it has an interest on the company's customers. U.S. banks have been excluded from most commercial activities. including direct participation in export trade for more than a century. Among the reasons given for maintaining the traditional distinctions are: (1) that banks should focus on loans and deposits and can better exercise independent judgment on whether or not to make a loan if they are prohibited from holding a stake in the management of actual or potential borrowers; (2) that banks could be exposed to unfamiliar and excessive risks in commercial trading and the holding of inventories; (3) that the bank regulatory agencies lack the capacity to evaluate the commercial risks banks would encounter in owning export trading companies;(4) that bank capital is low and should be reserved for support of bank loans; and (5) that bank-owned export trading companies or companies dealing with them may have preferential access to bank credit. A majority of the Committee members, while supporting the general principle of separation of banking and commerce, believes there is good and sufficient reason to make an exception on a controlled basis for limited and conditional bank ownership of export trading companies in order to strengthen the Nation's capacity to meet non-traditional international trade competition. The maiGrity of the Committee members further believe that the bill as ordered reported contains prohibitions, restrictions, limitations, conditions and requirements more than ample to meet each of the concerns raised with respect to bank ownership of export trading companies: (1) The bill prohibits banks from making loans to any export trading company in which the bank holds any interest whatsoever, and to 4  any  USWIlWF  U 1 SIILV•11  company.  011 LCUIllh more 1 a 0111131C Mall 1,110tie  afforded similar borrowers in similar circumstances" or involving "more than the normal risk of repaisrt" or presenting "other unfavorable features". Thus, banks wo e barred from making preferential or unusually risky loans to export trading companies or their customers. (2) The bill prohibits banking organizations from owning any interest. in any export trading company which "takes positions in commodities or commodities contracts other than as may be necessary in the course of its business operations.- That is, speculation in commodities is forbidden for any trading company controlled by a banking organization. (3) The bill empowers the Federal financial institutions regulatory agencies (the Federal Reserve Board,the Comproller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Home Loan Bank Board for Federal savings banks) when acting on a bank's application to take to take a controlling interest in an export trading company,to impose any conditions they deem necessary (A) to limit a banking organization's financial exposure to an export trading company. or (B) to prevent possible conflicts of interest or unsafe or unsound banking practices. (4) The bill directs the Federal financial institutions , regulatory agencies to establish standards with respect to the taking of title to goods by any export trading company subsidiary of a banking organization, standards "designed to ensure against any unsafe or unsound practices that could adversely affect a controlling banking organization investor, including specifically practices pertaining to an export trading company subsidiary's holding of title to inventory." Any changes in the trading company's practices with respect to taking title would have to be approved in advance by the Federal agency. (5) The bill would bar any banking organization t-from taking a controlling interest or making any investment over $10 million in any export trading company without receiving the prior approval of the appropriate Federal financial institutions regulatory agency. The Federal agency would be required to disapprove any application for which it findl That the export benefits of such proposal are outweighed in the public interest by any adverse financial, managerial, competitive, or other banking factors associated with the particular investment. (6) The bill would prohibit aggregate investments by any banking organization of more than 5 percent of its consolidated capital and surplus in one or more export trading companies. (7) The bill would prohibit the total of a banking organization's historical direct and indirect investments in a trading company and loans to such company and its subsidiaries from exceeding 10 percent of the bank's capital and surplus. (8) The bill would allow the appropriate Federal agency Whenever it has reasonable cause to believe that the ownership or control of any investment in an export trading company constitutes a serious risk to the financial safety, soundness, or stability of the banking organization and is incon-  L_  I ! 1 ; .1 I i i I ! i I i t  1  bistrin Wit ILsonitu tntitKilig 1)1 int Ipieb m %Vlt II I IW 1)1111)4Y-41S 01 this Act or with the Financial Institutions Supervisory Act of 1966, order the banking org *zation ... to terminate ... its investment in the export tra company. The majority of the Committee are supported in their view that the bill contains appropriate Federal regulatory authority over bank investments in export trading companies by the Administration, by the Comptroller of the Currency, and (with one exception) by the Federal Reserve Board. For the views of the agencies, see the letters in the Appendixes to this report. The sole exception is the Board's view that Federal bank regulatory agencies should not be authorized to approve any controlling investments by banks in export trading companies. Specifically, the Board would prohibit any one banking organization from acquiring more than 20 percent of export trading companies and any group of banking organizations from acquiring more than 50 percent of a trading company. The Board would accepit non-controlling investments, subject to the provisions contained in the bill. The Board appears to question the ability, as well as the propriety, of permitting banks, either singly or as a group to manage export trading companies. The Bankers' Association for Foreign Trade, in testimony before the Subcommittee on International Finance on March 18, 1980. stressed the importance of flexibility with respect to the types of permissible bank investments in export trading companies: Because the trading company concept is new to the United States, it is difficult for me to indicate at this time the precise ways banking organizations may choose to participate. Some banking organizations may want to finance export trading companies and their customers but not take an equity position; others are more interested in investing in export trade service firms than export trading companies; and others are interested in investing in export trading companies, but. may differ on the scope of participation they may find appropriate e.g., some are interested in joint ventures and others are interested in forming their own subsidiaries. Given this diversity of interest, we support S. 2379's flexible approach and would thus recommend against foreclosing any options at the present time because trading companies must and will evolve m response to market forces, and banking organization involvement will be controlled through the existing bank regulatory framework. James B. Sommers, Executive Vice President of North Carolina National Bank, testified that banks might wish to organize export trading companies to put together large "turnkey" export projects. e.g., the construction of a plant in a developing country. Such companies will most likely be regional trading companies involving more than one banking organization. E. Anthony Newton. Senior Vice President of Philadelphia National Bank, testified that his bank has an overseas financing subsidiary which could be a more effective competitor in the Far East if it could take title to (roods—an activity it safely engaged ;n before acquisition by Philadelphia National Bank. The Federal Reserve Board would have the Congress deny it the authority to approT a such investments and activities by U.S. banks. For  example,even a trading company organized by banking organizations for a single project overseas would be rohibited. Permitting banking organization take controlling interests in trading companies promotes the safe nd soundness ofthe investing banking organization, since it gives them greater ability to protect their investment through control of the business operations of an export. trading company. A banking organization is more likely to become involved in an export trading company if it. has a substantial or controlling voice in management. Arbitrary statutory limits on controlling investments serve only to lock banking organizations out of a management roll; increase the risks of their investment, and deny •to trading companies their substantial international expertise. The regulatory controls included in the bill insure that the greater degree of bank control, the greater degree of bank regulatory agency control. The Committee believes this flexible approach adopted in the bill is necessary to encourage effective bank participation. Without initiatives by U.S. banks, the effort to stimulate U.S. export trading companies would be seriously weakened. The amounts of bank capital potentially involved and the risks to the banks must be put into perspective based on the restrictions in the bill. Total capital of all the banks in the United States is about $98 billion. Because the bill limits aggregate investments to 5 percent of capital, if every bank in the country fromthe smallest to the largest were allowed by the Federal regulators to invest the maximum amount under the Act, the total investment allowed would be $4.9 billion. Because the bill limits the total of investments and loans in export trading companies to 10 percent of capital, if every bank in the country both invested and lent the maximum under the Act,the total of all investments and loans would be $9.8 billion. Realistically, only a small fraction of U.S. banks,large and small, will invest in,or lend to, an export trading company. Both the banks and the Federal bank regulatory agencies can be expected to proceed cautiously. At most,$1 billion in total bank investments and loans to export trading companies might be anticipated within 5 years after enactment. In an economy which has long passed the $1 trillion mark, such amounts seem unlikely to dry up credit or significantly affect bank capital. Investments in export trading companies should strengthen bank capital by earning profits and diversifying risks. The 10 percent limit on combined investments and loan is quite conservative, considering that state banks in several states, including New York, may lend up to 25 percent of capital to a single borrower, and that some banks have more than half of their capital exposed in loans to borrowers in a single developing country. In considering individual applications or notifications,the appropriate Federal agency may determine that safeguards are needed to protect against certain activities or practices which could reflect adversely on the banking organization investor. For example, the agencies may want to prohibit an ETC owned by a banking organization from engaging in manufacturing operations or owning other commercial concerns. They may also want to set conditions designed to insure that a bank-owned ETC is run in a financially-sound manner in order to safeguard the reputation and integrity of the banking organization investor.  jUHUILIUIlSappropriutu lt/ Ull rA Ij wiluity-uwitru  or rum nil it.(1 ifr.%  banking organization may be wholly inappropriate where a banking organization is to be a non-controllino- vestor. The size of the banking anking organization involveorganization and ETC, the degree stren,th of other participants are all the size and financial ment, and factors that need to be weighed. Conditions imposed by the Federal banking agencies should not unnecessarily disadvantage, restrict or limit bank-owned ETCs iii competing in world markets or achieving the purposes of section 102 of the Ace. Conditions thus should be carefully drawn to meet legitimate concerns, without unduly handicapping bank-owned ETCs in meeting foreign competition. The Committee strongly believes that such conditions should not serve to discourage involvement of banking organizations, but rather should encourage their participation in the most prudent manner. 4. Initial Inve8tment8 and Operating Eaven8e8 - The bill provides in section 106 for greater support by the Economic Development Administration (EDA) and the Small Business Administration (SBA) for the formation and expansion of export trading companies. Both agencies have given some support to export-related activities in the recent past, but only in minimal amounts. The Assistant Secretary of Commerce for Trade Development, Herta Lande Seidman, testified before the International Finance Subcommittee on April 28,1980: Through the facilities of the Economic Development Administration, the Commerce Department is in a position to make loans and grants to meet the combined objectives of job creation and export promotion. In 1979, for example, EDA funding of export-related efforts amounted to $6.7 million in loans and $2.5 million in grants. These funds supported, among other efforts, an extensive textile, apparel. and footwear export expansion drive and promotion projects of the New York/New Jersey Port Authority. We in the International Trade Administration are working closely with EDA to develop grant- and loan-making procedures to ensure that the export programs funded by EDA are closely meshed with Trade Development activities in ITA. ED...k is prepared in 1980 to supply a somewhat larger amount in grants and a significantly larger amount in loans for trade facilitation programs through its trade adjustment assistance, distressed area and other programs. Similar levels of activity are feasible in the future if funding for those programs continues. EDA, depending on its resources, is interested in giving continuing support to export-related programs. The Small Business Administration, according to President Carter's Export Policy statement of September 26, 1978 was to provide up to $100 million in assistance to small businesses getting started in exporting. Less than $5 million has actually been used by SBA for this purpose, and SBA is widely charged with lack of intere and expertise in export development. S. 2379 would have provided a $100 million, five-year facility in the Export-Import Bank to assist the.formation of export traaing  •  conipanies by providing loans on a matching basis of not more than $1 million per year or $2.5 million in total to applicants to assist with ses associated with launching initial investments and operating e an export trading company. The illtstance would only have been available where private credit was inadequate and other criteria were met. Because the Export-Import Bank and the Administration opposed lodging the program in the Bank. the present. legislation vests responsibility in EDA and SBA to help export trading companies meet start-up costs. Section 106(a) would direct. EDA and SBA, when considering loan or guarantee applications from export trading companies, to give ,"special weight to export-related benefits, including opening new markets for United States goods and services abroad and encouraging the involvement of small or medium-size businesses or agricultural concerns in the export market." The purpose of the amendment is to encourage EDA and SBA to consider favorably those applications with export benefits which also meet other criteria which EDA and SBA are required to consider. The provision is not intended to override or dilute other considerations the agencies are required to take into account. Section 106(b) would authorize appropriation of an additional $20 million per year in fiscal years 1981 through 1985 to either EDA or SBA to support loans (or guarantees, if necessary) provided to meet the purposes of section 106(a). If existing authorizations and appropriations thereunder are deemed adequate by the Appropriations Committees of the Congress to meet the purposes of section 106(a), the authority of section 106(b) would not be used. 6. Guarantees by Export-Import Bank Section 107 authorizes and directs Eximbank to establish a guarantee program for commercial loans to U.S. exporters secured by export accounts receivable or inventories of exportable goods, when in the judgment of the Board of Directors: 1. Private credit is inadequate to enable otherwise credit-worthy exporters to complete export transactions. and 2. Such guarantees would facilitate exports which would not otherwise occur. The Administration did not object to guarantees in support of loans against export accounts receivable, but contended that inventories are adequately financed by the private sector. The amendment takes the Administration's view into account by permitting the guarantee program to operate only to the extent that the Board of Directors determines the private credit market is not providing adequate. financing. It is the intent of the Committee that the guarantees be directed primarily toward securing credit for small exporters. The amounts of guarantees would be limited by limits set in annual appropriations Acts. TITLE II—EXPORT TRADE ASSOCIATIONS  Under the Export Trade Act of 1918.commonly known as the WebbPomerene Act (15 U.S.C. 61-65), the joint exporting activities of export trade associations (associations engaged solely in export trade) receive a limited exemption from the Sherman and Clayton 4.ntitrust Acts.  S.Rept. 96-735 --- 3  1  •  IL,.  Tr c- L.ri ri‘7111‘ IllIK  Ilan all  VI a I  1/11  trade activities affecting U.S. companies prepared by the Federal Trade Commission in 1916. The CIission's report found that American manufacturers and produce Were disadvantaged in attempting to enter foreign markets individually because of strong combinations of foreign competitors and organized buyers. The report concluded that in order for small American producers and manufacturers to enter world markets on a profitable basis and on more equal terms with these foreign combinations, they should be permitted to cooperate in their exporting efforts without fear of prosecution under the antitrust laws. Section 2 of the Webb Act exempts from the Sherman Act (which prohibits contracts, combinations, or conspiracies in restraint of trade occurring either in interstate commerce or in commerce with foreign nations) an association entered into for the sole purpose of engaging in export trade as long as the association, its acts, or any agreements into which the association enters do not:(1) restrain trade within the 'United States; (2) restrain the export trade of any domestic competitor of the association; or (3) artificially or intentionally influence prices within the United States of commodities of the class exported by the association. The Act also provides for oversight of WebbPomerene associations by the Federal Trade Commission. Between 1930 and 1935 Webb-Pomerene associations numbered 57 and accounted for approximately 19 percent of total U.S. exports. By 1979 the number of associations had dwindled to 33 and their share of total U.S.exports had dipped to less than 2 percent. The reasons for this poor showing are many. First, the vast majority of the 250 or so Webb-Pomerene associations formed over the last 60 years lacked sufficient product-market domination to exert foreign market price control and membership discipline. Second, the business community traditionally has placed top priority on tapping the vast domestic market and has been much slower to focus on the prospects overseas. Third, the ever expanding U.S. service industries have been excluded from qualifying for the Act's antitrust exemption, xhile cooperative and joint ventures have become increasingly important in the exportation of services. Fourth, and perhaps most important, the Department of Justice, and to a lesser extent the Federal Trade Commission, have been perceived by the business community as exhibiting a thinly veiled hostility toward Webb-Pomerene associations. The vagueness of the Webb-Pomerene Act leaves uncertain what activities will constitute a substantial restraint of domestic trade. As a result, the threat of antitrust litigation has served as a deterrent to broader utilization of the Webb-Pomerene Act. With the increasing emphasis on the need to improve the competitiveness of U.S. companies in the world marketplace has come an awareness of the need to reduce the domestic barriers to exports. The provisions of this bill are intended as a step toward that goal. At the same time, however, the bill contains numerous procedural and substantive safeguards to ensure that this goal is not achieved at the cost of violating traditional principles of U.S. antitrust law. 6. Antitrust Exemption for Certified Export Trade Activities Title II does the following: First. It makes the provisions of the Webb-Pomerene Act explicitly applicable to the exportation of services (the National Commission for the Review of Antitrust Laws and  150 . Procedures made this same recommendation in its report to the, President in January Second. It expands and clares the Act's antitrust exemption kr export trade associations and export trading companies; Third. It requires that the antitrust immunity be made contingent uSill certcatwn procedure and in conkrmance with existing standar& of antitrust law ; Fourth.It transfers the administration of the Act. from the Federal Trade Commission to the Department of Commerce; Fifth. It provides kr procedures whereby the J ustice Department and the, Federal Trade Commission can provide their advice to the Department of Commerce during the certification process, and can seek invalidation of any certification which fails to conform to the substantive standards of the Act; Sixth. It creates within the Department of Commerce an office to promote the krmation of export trade associations and export tradmg companies; and Seventh. It provides kr the establishment of a task krce whose purpose will be to evaluate the effectiveness of the Webb-Pomerene Act in increasing U.S. exports and to make recommendations regarding its future to the President. Title II reflects a recognition of the significant contribution to the ISIStion of U.S. export tra& which can be made by export trade associations and export trading companies if they are allowed to engage in specific joint activities without rear of prosecution under the a trust laws. Title II provides immunity from the application of U.S. antitrust laws kr speced export trade, export trade activities and metho& of operation of export tra& associations and export trading companies only when: 1) the proposed export activities are determined not to be in violation of specified antitrust standards; 2) there is an established need kr the immunity; and 3) the association or company successfully completes the certification process required in the bill. 7. Certification, proCedUre8 The certcation process mandates that the Departnient of Commerce, after consulting with the Justice Department and the Federal Trade Commission, determine that the export trade activities of the association or company violate none of the substantive standar& of antitrust law set krth in Section 204(a) of the bill. That Section, which amends the second and kurth sections of the Webb-Pomerene Act (15 U.S.C. 62 andsets out ebty criteria for the antitrust exemI tion II II un&r the Act kr export trade associations and trading c,ompanies. With the exception of the requirements in paragraphs (1) and (6) of Section 204--provisions that impose further criteria for eligibility in addition to those kund in the standar& of the current Webb-Pomerene Act—the substantive law of antitrust as moed by the WebbPomerene Act has not been altered. As the court stated in United States v. Minnaota Mining and Manufacturing Company,92 F. Supp. 947 at 965(D.Mass.1950): NOW it May very well be, that every successful export cS mpany does inevitably affect adversely the kreiffn commeree of those not in the joint enterprise and does biing the  t  •  VGA.M. lj LAM  Wialp..LIU  III lil/111e6LIU  l/111111t•L CC. 1  every export company may be a restraint. But if there are only these inevitably eonsequeser export association is not an unlawful restraint. The W omerene Act is an expression of Congressional will that such a restraint shall be permitted. The amendment of the Webb-Pomerene Act by Section 204(a) of Title II, with the exceptions as noted above, is a codification of court interpretations of the Waebb-Pomerene exemption to domestic antitrust law. Further, the amendment is consistent with the enforcement policy of the Department of Justice. As stated by Ky Ewing, Deputy Assistant Attorney General, Antitrust Division, Justice Department. during hearings on S. 864 (now Title II) before the International Finance Subcommittee: We note (that S. 864) would require that a restraint of U.S.domestic trade be substantial before the exemption would disappear. The purpose of this proposal. .. is to bring the act into what we conceive to be the current state of antitrust law interpreted by the court. (September 17, 18th hearing record on Export Trading and Trade Associations, p. 138) Similarly, Daniel Schwartz, Deputy Director, Bureau of Competition, Federal Trade Commission, testified that the antitrust standards specified in S. 864 "are essentially equivalent to the standards of the ebb-Pomerene Act."(id. at p. 194). In his prepared statement, Mr. Ewing further explained that: The judicially accepted legal threshold test for applicability of the Sherman Act to activity abroad places a heavier burden on government and private plaintiffs than that applicable domestically. The presence of a substantial and foreseeable effect on U.S. domestic or foreign commerce is required,not merely some minimal effect.(Id.at 144). Mr. Ewing also noted in his testimony before the Subcommittee that: The Department of Justice has long predicated its enforcement efforts in export related matters upon the ability to prove a substantial and foreseeable effect on U.S. commerce. (Id. at pp. 154-155) This interpretation of existing antitrust law was confirmed by Sanford Litvack, Assistant to Attorney General, Antitrust Division. In a letter to Senator Proxmire, Chairman of the Committee on Banking. Housing, and Urban Affairs, Mr. Litvack noted that certain activities undertaken by exporters "may well not violate the Sherman Act in any event due to their lack of 8ub8tantial effect on U.S. trade or commerce."(emphasis supplied) These interpretations of existing antitrust law are consistent with long standing policy. For example, the 1955 Report of the Attorney General's Antitrust Committee stated:  •  V V  V  .m..t. ar.n  m+ a as.ww .a  .••••..  la..• ww..,  ..—  ..:  rangements between Americans alone, or in concert with foreign firms, which have such substantial anticompetitive nmerce * * * with foreign effects on this country's trade o able restraints. (Report, nations' as to constitute unre supra at pp.76-77). The bill also adds two new substantive standards, requested by the Department of Justice, to the Webb-Poinerene Act—a requirement that the export trade must not constitute trade or commerce in the licensing of patents, technology, trademarks or know-how, and that the export activities must serve to preserve or promote export trade. Before an association or export trading company can obtain certification, the Secretary of Commerce also must find that the export activities to be certified will serve a specified need. Only those export trade, export trade activities and methods of operation specified in the certification issued by the Secretary of Commerce are immunized. The certification must include any terms or conditions deemed necessary by the Secretary, in consultation with the Department of Justice and. the Federal Trade Commission, in order to bring the company or its export activities into compliance with any of the substantive standards. Any material change in the export trade, export trade activities or methods of operation must be reported to the Secretary and any modification to the certification must be approved by the Secretary. The guidelines to be used in making these determinations are to be issued by the Secretary of Commerce,after consultation with the Attorney General and the Federal Trade Commission. 8. Amendment, Revocation or Invalidation Even after the export activities of an association or export trading company have been certified, they remain subject to the continuing scrutiny of the Department of Commerce and Justice and the Federal Trade Commission. The certification of any association or export trading company whose activities fail to comply with any of the substantive standards is subject to modification or revocation by the Department of Commerce. Additionally, either the Department of Justice or the Federal Trade Commission at any time may initiate an action to .:invalidate all or any part of the certification of an association or trad. ing company. Once the certification has been revoked,civil or criminal actions and enforcement proceedings may be brought on a prospective basis.  .  TITLE III-TAXATION OF EXPORT TRADING COMPANIES  9. Application of DISC Rules The tax provisions have two purposes:(1) to enable export trading companies to use DISC with respect to all their income from exports of services as well as products; and (2) to permit small, closely held companies to use Subchapter S to pass through net losses in the first few years when start-up costs are likely to exceed income. If there is any significant revenue loss directly attributable to the tax provisions, it will be because export trading companies succeed in significantly expanding U.S. exports, which means additional revenue is being produced through additional exports. Section 301 would provide that gross receipts of an export trading company from "export trade services" as well as the export of "services  1 1 I  4 i 1 4 i  i 1 I I  f i i 1 i 1 !  .i .,  •  trading companies to segregate artificially certain services in order to enjoy DISC status for the receilirom such services. This section would also requir Assistant Secretary of Comcooperation merce, with the and assistance of the Director of the Internal Revenue Service to disseminate information to exporter and export trading companies on how to form and use DISCs. The Treasury Department computed the potential revenue cost of extending DISC benefits to "services produced in the United States" at $740 million for 1978. Acknowledging the difficulties of computing the actual revenue cost,this figure was reduced to a "more conservative estimate of $200-500 million." Similarly, Treasury noted that the potential revenue cost of extending DISC benefits to "export trade services" as $200 million, reduced to "a conservative ball park estimate of $100-200 million." However, Treasury's computations were based on the premise that DISC benefits would be extended to the services produced in the U.S. or the export trade services of all DISC's. The bill extends DISC treatment of these services only to DISCs which are export trading companies. Thus, to the extent Treasury's estimates are based on income from DISC's which would not qualify as export trading companies, the estimates necessarily overstate the actual revenue costs. Since most DISC's are exporting, either solely or principally, the goods or services of a parent or affiliate, the number of present DISC's which would qualify as export trading companies is likely to be relatively small. 10. Subchapter 8 Status Section 302 would amend Subchapter S of the Tax Code to permit an export trading company to use the provisions of that subchapter without limiting the foreign source income of such company to less than 20 percent per annum. Some export trading companies might have difficulty complying with the existing statutory restriction. Section 302 would also permit shareholders in companies eligible to use subchapter S to be not more than 15 individuals or companies, if the companies are each owned by not more than 15 individuals. SECTION-BY-SECTION ANALYSIS OF THE BILL TITLE I—EXPORT TRADING COMPANIES Short Title Section 101 provides that Title I may be cited as the "Export Trading Company Act of 1980." Findings Section 102 includes eight findings by Congress concerning exports and export trading companies,and states that the purpose of the Act is to increase U.S. exports by encouraging more efficient provision of export trade services to U.S. producers. Definitions Section 103 defines the following terms used in the title: "export trade," "goods produced in the United States," "services produced in the United States,""export trade services,""export trading company," •  "United States," "Secretary," and "company." An export trading company is defined as a U.S. compa "organized and operated principally for the purposes of (A) exp ig goods or services produced in the United States; and (B) faci 1 ating the exportation of goods and services produced in the United States by unaffiliated persons by providing one or more export trade services." Promotion of Export Trading Companies by Secretary of Commerce Section 104 requires the Secretary to promote and encourage formation and operation of export trading companies by providing infor, mation and advice to interested persons and by facilitating contact between producers and firms offering export trade services. Definitions in Section on Bank Ownership Section 105(a) defines "banking organization,""State bank,""State member bank," "State nonmember insured bank," "bankers' bank," "bank holding company,""Edge Act Corporation,""Agreement Corporation," "appropriate Federal banking agency," "capital and surplus," "affiliate," "control," "subsidiary," and "export trading company." The terms"control" and "subsidiary" are defined as in the Bank Holding Company Act. The term "export trading company" means an export trading company as defined in see. 103(5) or a company organized and operated principally for the purpose of providing export trade services. Authority to Own Export Trading Companies Section 105(b)(1) would authorize banking organizations, subject to the procedures and limitations of section 105 (b) and (c) to invest in the aggregate not more than 5 percent of the banking organizations consolidated capital and surplus in export trading companies. Section 105(b)(1)(A) would authorize investments of up to $10 million in total by a banking organization without prior approval by the appropriate Federal banking agency if such investment did not make the export trading company a subsidiary of the banking organization (Pursuant to the Bank Holding Company Act, ownership of 25 percent of the stock is presumed to constitute control and therefore make the company a subsidiary, and ownership of less than 25 percent may be found by the Federal banking agency to constitute control and make the company a subsidiary. If the agency made such finding it could require divestiture or place conditions on the investment.). Section 105(b)(1)(B) would permit investments of more than $10 million, or controlling investments, or investments which give a group of banking organizations more than 50 percent of the stock of an export trading company, only with prior approval of the appropriate Federal banking agency. Section 105(b)(2) would require banking organizations to notify the appropriate Federal banking agency 60 days before making any additional investment in an export trading company subsidiary or engaging in any line of activity, including specifically the taking of title to goods, which was not previously disclosed. The Federal banking agency could disapprove or place conditions on such investment or activity. Section 105(b)(3) would provide that if the appropriate Federal banking agency failed to act upon an application or notification within the specified time period,approval would be assumed.  2 t g Ti 1  • f,  I  li  Section 105(c) would place the flowing limitations on export lem by banking organizations: trading companies and investments (1) the export trading company cou l not use a name similar to that of any banking organization owning any of its stock: (2) the total historical cost of aPnbanking organization's direct and indirect investments in an export trading company, plus any credit extended by the organization and its subsidiaries to the company, could not exceed 10 percent of the banking organization's capital and surplus; (3) banking organizations could not hold stock in export trading companies which take speculative positions in commodities; and (4) banking organizations could not extend credit to any export trading company in which it holds stock, or to the company's customers, on terms"more favorable than those afforded similar borrowers in similar circumstances, and such extension of credit shall not involve more than the normal risk of repayment or present other unfavorable features." Factors to be considered by Federal Banking Agencies in Disapproving or Placing Conditions on Investments Section 105(d) would require the appropriate Federal banking agency to consider the resources, competitive situation, and future prospects of the banking organization and export trading company concerned in any application, and the effect on United States competitiveness in world markets, and authorize the agency to disapprove the investment if it finds the export benefits are "outweighed in the public interest by adverse financial, managerial, competitive, or other banking factors. The agency would be authorized to impose such conditions on approved investments or activities as it deemed necessary" (A) to limit a banking organization's financial exposure to an export trading company, or (b) to prevent possible conflicts of interest or unsafe or unsound banking practices." The agency would be required to set standards for the taking of title to goods and holding of inventory to prevent unsafe or unsound practices. In imposing conditions, the Federal banking agency would be required to consider the size of the banking organization and export trading company involved, the degree ofinvestment or other support to be provided by the banking organization, and identity and financial strength of other investors. The agency could not impose conditions on the taking of title which unnecessarily disadvantage, restrict or limit trading companies in competing in world markets. Not withstanding any other provision, the appropriate Federal banking agency could after due notice and opportunity for hearing, order an investment in an export trading company terminated if the agency had reasonable cause to believe the investment constituted a serious risk to the banking organization or was inconsistent with sound banking principles or the Financial Institutions Supervisory Act of 1966. Within two years after enactment a report to Congress by the Federal banking agencies would be required. Court Appeals Section 105(e) would provide an opportunity to appeal orders of Federal banking agencies to the Federal Court of Appeals and require cases of Fr vedural error to be remanded to the agency and  Rulemaking and Enforcement Section 105(f) would provide er oal rulemaking authority to Federal banking agencies for purp f administering this section. Initial Investments and Operating Expenses Section 106 would direct EDA and SBA to give special weight to export benefits, including opening new export markets and encouraging exporting by small and medium-size businesses or agricultur concerns, when considering applications by export trading compa al for loans and guarantees. $20 million would be authorized to benies appropriated for each of the next 5 fiscal years for the purposes of this section. Guarantees for Export Accounts Receivable and Inventory Section 107 would direct the Export-Import Bank to establish a guarantee program for commercial loans secured by export accounts receivable or inventories of exportable goods when the Bank's Board judged the private credit market was not providing adequate export financing to otherwise creditworthy exporters and such guarantees would facilitate exports which would not otherwise occur. The guarantees would be subject to limits in annual appropriation Acts. TITLE II-EXPORT TRADE ASSOCIATIONS  Section 201. Short Title: Export Trade Association Act of 1980 Finding and Declaration of Purposes Section 202 sets forth findings by the Congress regarding exports and joint exporting activities and the purposes of the Act. Definitions Section 203 defines the pertinent terms. The definition of "export trade" is expanded from the definition contained in the Webb-Pomerene Act (15 U.S.C. 61-66) to include services. The term "service" means intangible economic output, including, but not limited to business, repair, and amusement services; management,legal, engineering, architectural, and other professional services; and financial, insurance, transportation, and communication services. The term "export trade activities" includes any activities or agreements in the course of export trade. The term "association" refers to any combination of persons, partnerships, or corporations, all of which must be citizens of the United States or created under the laws of any State or of the United States. A foreign controlled subsidiary created under the laws of any State or of the United States, however, cannot be a member of the "association." The term "antitrust laws" means the antitrust laws defined in the first Section of the Clayton Act and Section 4 of the Federal Trade Commission Act. Exemption from Antitrust Law Section 204 strikes Sections 2 and 4 of the Webb-Pornerene Act and inserts in lieu thereof a new Section 2. Section 2 provides that an export trade association or export trading company and their memb ers, certified according to the procedures set forth in this Act is exem pt  certification provided that the association or export frac ing companyt to preserve or promote expor and its export trade activities (1) or trade; (2) neither result in a subsillial lessening of competition e a substantial restrain of trade within the United States norconstitut substantial restraint of the export trade of any competitor of the association; (3) do not unreasonably enhance,stabilize, or depress prices within the United States;(4) do not constitute unfair methods of competition against competitors engaged in export trade; (5) are not reasonably expected to result in the consumption or resale in the exUnited States of goods or services exported by the association or rce port trading company; and (6) do not constitute trade or comme in the licensing of patents, technology, trademarks, or know-how, except as incidental to the sale of goods or services exported by the association or export trading company or its members. Section '2 also provides for a 30 day suspension of the effective date of the exemption if the Attorney General or the Federal Trade Commission formally advises the Secretary of Commerce that it. disagrees with the Secretary's determination to issue a certification. Section 205. Conforming Changes in Style Section 205 amends Section 3 of the Webb-Pomerene Act to provide for conforming change in style. Administraton; Enforcement; Reports Pomerene Act and in: Section 206 strikes Section 5 from the Webb onal new sections. additi serts in lieu thereof a new Section 4 and eight A new Section 4(a) establishes the procedure for applying for certification as an export trade association or export trading company. It requires associations or export trading companies seeking certification to file applications describing in detail their proposed export activities including the goods or services to be exported, the methods of export trade, including, but not limited to, any agreements to ments sell exclusively to or through the. association, any agreeagreeany . with foreign persons who may act as joint selling agents ments to acquire a foreign selling agent, any agreements for pooling tangible or intangible property or resources, or any territorial, pricemaintenance, membership, or other restrictions to be imposed upon members of the association or export trading company, and any other information the Secretary may request on the association or company, its relations with other associations or companies, and effects on competition or potential competition. A new Section 4(b) requires the Secretary to certify an association or export trading company within 90 days after receiving. the application if the Secretary determines, after consultation with the Attorney General and Federal Trade Commission, that the proposed trade activities and methods of operation meet the standards set forth in amended Section 2 of the Act and will serve a specified need in promoting export trade. The certificate must specify permissible activities and any terms and conditions deemed necessary to ensure that the standards of the Act are met. Expedited certification and appeals procedures are specified. ney This Section also requires the Secretary to provide the Attorprothe of copy a with General and the "Tederal Trade Commission  it  posed certificate and sets forth procedures to be followed by the Attorney General and the Commissio ' rendering advice on a certification. Certifications may be issued b Secretary prior to the expiration of forty-five days after the prop d certification has been delivered to the Attorney General or the Commission only if no formal notice of disagreement has been made by the Attorney General or Commission under the procedures specified in the Act. A new Section 4(c) of the Webb-Pomerene Act requires certified export trade associations and export trading companies to report any material chancres in membership, export trade, export trade activities and methods of operations and allows them to apply for an amended certificate. There is no interruption in the certification period for applications made within 30 days of the change and approved by the Secretary. A new Section 4(d) of the Act permits the Secretary to require certified export trade associations or export trading companies to modify their organization or operation to correspond with their certification, or to revoke or amend the certification. . A new Section 4(e) to the Webb-Pomerene Act authorizes the Attorney General or Federal Trade Commission to bring an action to invalidate, in whole or in part, a certification on the grounds that the export trade, export trade activities or methods of operation of an export trade association or export trading company fail to meet the standards of Section 2 of the Act. This Section also permits the Attorney General or Commission to seek preliminary relief pending the disposition of an action if the Attorney General or Commission brings an action for invalidation the 30 day period provided in Section 2(b)(2). No person other than the Attorney General or the Commission would have standing to bring an action against an association or company for failure to meet the standards of Section 2 of the Act. A new Section 5 to the Webb-Pomerene Act requires that the Secretary,the Attorney General. and the Chairman establish guidelines for purposes of determining whether an association, its members and its export trade activities meet the requirements of the new Section 3. A new Section 6 to the Webb-Pomerene Act stipulates that every certified association or export trading company shall submit to the Secretary an annual report setting forth the information required in the application for certification. A new Section 7 to the Webb-Pomerene Act establishes within the Department of Commerce an office to promote and encourage to the greatest extent feasible for formation of export trade associations through the use of provisions of this Act. A new Section 8 to the Webb-Pomerene Act provides for automatic certification for existing export trade association registered under current law. In order to obtain automatic certification, an existing export trade association must file and application for certification with 180 days after the date of enactment of this Act. A new Section 9 to the Webb-Pomerene Act provides for the confidentiality of the information contained in an association's application for certification, application for amendment of certification, and annual report.  •  ••  •  01111111ilni 11/1 till Al tome uenerai mg company which has been filed 'by an association or export t ification if the Secretary becertified or, which has applied for lieves the applicant is eligible for ce,rti cation. the SecreA new Section 10 to the Webb-Pomerene Act authorizes comtary of the Treasury to require an association or export tradinginterfuture with ent consist pany to modify its operations so as to be national obligations of the United States set by treaty or statute. A new Section 11 to the Webb-Pomerene Act authorizes the Secreto tary, in consultation with the Attorney General and the Chairman,out promulgate such rules and regulations as are necessary to carry the purposes of this Act. A new Section 12 to the Webb-Pomerene Act requires the President seven years after the date of enactment of this Act to appoint a taskc force to examine the effect of the operation of this Act on domesti competition and on the United States' international trade deficit and to recommend either continuation, revision, or termination of the Webb-Pomerene Act. Section 6 of the WebbTomerene Act is redesignated as "Section 14. Short Title". YYY  TITLE III: TAXATION OF EXPORT TRADING COMPANIES DISC Section 301 would amend the provisions of The Internal Revenue Code concerning Domestic International Sales Corporations (DISCs) in order to: (a) insure that. bank investments in export trading companies would not disqualify such companies from using DISCs; (b) make receipts from exports of services or export trade services eligible DISC receipts, that is, eligible for partial deferral of income taxation; and (c) require the Secretary of Commerce in consultation with the Secretary of the Treasury to prepare and distribute information on how export trading companies could use DISC status and the likely advantages or disadvantages of doing so. Subchapter S Section 302 would amend provisions of subchapter S of the Internal Revenue Code which permit closely held corporations (15 or fewer individual shareholders) to pass through certain losses or income to shareholders. The amendments would exclude export trading companies from the requirement that 20 percent of the annual income of a subchapter S corporation be domestic income, and permit an export trading company to qualify for subchapter S if owned by shareholders which were .small business corporations as defined in subchapter S authorizing in effect a second-stage subchapter S corporation. FISCAL IMPACT STATEMFNT In accordance with section 252(a) of the Legislative Reorganization Act of 1970,the Committee estimates the bill will result in additional outlays during fiscal year 1981 of $15,000,000. This concurs with the estimate prepared by the Congressional Budget Office, which follows:  4  25 U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Washington,D.0., May 15,1980.  Hon.WILLIAM PROX3fIRE, Chairman,Committee on Banking,11owing,and Urban A/Taira, U.S.Senate,Waahington,D.C. DEAR MR. CHAIRMAN: Pursuant to Section 403 of the Congressional Budget Act of 1974, the Congressional Budget Office has prepared .the attached cost estimate for a bill to encourage exports by facilitating the formation and operation of export trading companies, export trade associations, and the expansion of export trade services generally,as ordered reported on May 12,1980. Should the Committee so desire, we would be pleased to provide further detail on the attached cost estimate. Sincerely, ALICE M. RIVLIN, Director. CONGRESSIONAL BUDGET OFFICE—COST ESTIMATE 1. Bill number: Not Yet Assigned. 2. Bill title: A bill to encourage exports by facilitating the formation and operation of export trading companies, export trade associations, and the expansion of export trade services generally. 3. Bill status: Committee Print No. 2 as ordered reported by the Senate Committee on Banking, Housing, and Urban Affairs on May 12, 1980. 4. Bill purpose: The purpose of Title I is to encourage more efficient provision of export trade services to American producers and suppliers. Section 106 directs the Economic Development Administration and the Small Business Administration to give special weight to export-related benefits when considering loan and guarantee applications by export trading companies. In addition, it, authorizes the annual appropriation of $20 million for fiscal years 1981 through 1985 for this purpose. Section 107 directs the Export-Import Bank to establish a program to provide loan guarantees to export trading companies. These loan guarantees are subject to the limitations provided in the annual appropriation acts. Title II applies the Webb-Pomerene Act to the exportation of services and transfers the Administration of that Act from the Federal Trade Commission to the Secretary of Commerce. Section 205 establishes an office within Commerce to encourage the formation of export trade associations. In addition, the section requires that a task force be appointed seven years after enactment of this bill to examine the effect of these trade associations. Title III applies the Domestic International Sales Corporation (DISC) rules to export trading companies and directs the Secretary of Commerce to prepare and distribute information on the application of these rules. • 5.Cost estimate:  4  •  Fiscal year: 1981 1982 1983 1984 1985 Estimated outlays: Fiscal year: 1981 1982 1983 1984 1985  Ifififfifir  •  $20 20 20 20 20 15 20 20 20 20  6. Basis of estimate: This estimate assumes enactment of this legislation before October 1, 1980. It further assumes that the annual authorization amounts will be appropriated in full in the year authorized. The only direct budget cost estimated for the bill occurs in Title I which authorizes the annual appropriation of $20 million to the Economic Development Association and Small Business Administration. Outlays were derived by applying a composite outlay rate. Loan guarantees of the Export-Import Bank are assumed to he provided within the annual limitation on program activity. In any case, guarantees are estimated not to be drawn and therefore result in no budget authority or outlays. While Title IT creates an office within the Department of Commerce. there is no authorization for appropriation for the office. It is assumed. therefore, that funds for this office will be transferred or reprogrammed to fulfill this section. The task force requirement is beyond the projection period; no costs are included for this provision. The provisions of Title III, allowing certain export trading companies to be treated as DISCs,will reduce corporate profit tax receipts. In the time available, however, CB0 has not been able to estimate the amount of the reductions. 7. Estimate comparison: None. 8. Previous CB0 estimate: None. 9. Estimate prepared by:Rita Seymour and Rosemary Marcus. 10. Estimate approved by: C. G. NUCKOLS. (For James L.Blum, Assistant Director for Budget Analysis). EVALUATION OF REGULATORY IMPACT In the opinion of the Committee,it is necessary to dispense with the Rules of the Senate, the Committee has evaluated the regulatory impact of this bill. The Committee concludes that the bill will have no additional regulatory impact.  CHANGES IN EXISTING LAW In the opinion of the Committee, necessary to dispense with the requirements of section 4 of Rule XXIX of the Standing Rules of the Senate in order to expedite the business of the Senate. ComPTRoLLER OF THE CURRENCY, ADMINISTRATOR OF NATIONAL BANKS, Washington,D.0 ay 12,1980.  Hon. WILLIAM PROXMIRE, Chairman, Committee on Banking, Housing and Urban Affairs, • Washington,D.C. DEAR MR. CHAIRMAN: This is in response to your request for the views of the Office of the Comptroller of the Currency (OCC) on the proposed "Export Trading Company Act of 1980", S. 2379. The proposed legislation promotes the expansion of U.S. exports by permitting the formation and operation of export trading companies ("ETCs"), which would facilitate the marketing and export of goods and services on behalf of small and medium sized U.S. firms. S. 2379 also proposes a leading role for U.S. banks informing and operating ETCs. The OCC strongly supports S. 2379 with certain reservations. The OCC believes in the need to expand U.S. exports, as well as in the benefits of employing the national and international marketing and financial networks of U.S. banks for export expansion. Bank ownership of ETCs does raise supervisory concerns; however, the OCC believes the proposed legislation can be amended to address those concerns while still permitting a leading role for banks in ETCs. Specifically, the OCC's primary concern is the degree of exposure a bank-owned ETC may raise for the bank investor. Exposure can be the amount of loans and investment a bank provides an ETC. However, exposure also can include a bank's moral obligations on behalf of a subsidiary which is closely identified with the bank through equity participation, and borrows in the marketplace on the basis of that equity interest. Accordingly, the OCC suggests the proposed S. 2379 be amended to recognize these supervisory concerns. This Office especially recommends during this threshold stage of ETC development that the proposed legislation permit a banking organization to invest the lower of $10 million or five percent of its consolidated capital funds in less than twenty-five percent of the equity of an ETC without the prior approval of the appropriate federal banking agency. Aggregate bank investments in ETCs should be limited to 10 percent of a banking organization's consolidated capital funds. At a minimum, any ihvestments by banks in ETCs which require prior approval should be subject to whatever safety and soundness conditions the appropriate banking agency may wish to impose. Sincerely, JOHN G. HEIMANN, Comptroller of the Currency.  THE SECRETARY OF COMMERCE. Wehington,D.0., May L.?,1980. Hon. ADLAI E. STEVENSON, U.S.Senate, Washington, D.C. DEAR ADLAI: This letter supplements my April 3, 1980. testimony on S. 2379 and S. 864 with a more detailed Administration position ies. on an antitrust exemption for export trade activit As you know, I reported during my April 3 testimony that the Administration had been unable to agree on the form of participation by the Justice Department in the process of certifying certain export activities to be exempt from application of the antitrust laws. Since that time, extensive consultations among the Commerce Department. USTR, the Justice Department, and other agencies have led to Administration agreement upon the form of that participation. Accordingly,I am pleased to state on behalf of the Administration that, with the few changes I have noted below, we could support an antitrust provision for export trade associations and export trading companies such as that contained in title II of the draft committee print of May 3, 1980. (The Administration has not yet considered whether the antitrust exemption should be applicable, as proposed in the May 3 print, to individual companies, other than export trading companies, which are not part of an export trade association.) 1. The Administration believes that the Attorney General and the Federal Trade Commission should have an opportunity to review any certificate that the Commerce Department proposes to issue beforethat certificate becomes effective. This review would allow for consuletations between the Commerce Department and the antitrust enforcies ment agencies in an effort to avoid issuing certificates for activit The that would have anti-competitive effects in the United States.if an even Commerce Department would be free to issue a certificate antitrust agency objected. However, when such an objection had forcertifimally been lodged, the antitrust exemption provided for in the language cate would not take effect for thirty days. I have enclosed ple. princi drafted by the Administration to implement this l or the 2. The Administration believes that the Attorney Genera relief Federal Trade Commission should be able to seek preliminary from tion during this thirty-day period to prevent the antitrust exemp relief in taking effect. Normal judicial standards for preliminary ge, which antitrust cases would apply. Therefore. the following langua provision appears in other antitrust laws, should be included in the l or the for invalidation of the certificate by the Attorney Genera Commission: Pending such action, and before final decree, the court may at any time make such temporary restraining order or prohibition as shall be deemed just in the premises. before an In this regard, the provision requiring thirty-day notice opriate inappr is antitrust agency institutes an action for invalidation thirty-day and should not apply in the case of an action brought in any period before an exemption takes effect. nt knowl3. In order for the antitrust enforcement agencies to comme certificate. edgably upon th- competitive consequences of granting a  these agencies must have the information provided by applicants for certificates. However, the agencies nee this information only where they will actually be called upon to ment. Accordingly, the following language should be included in e beginning of the provision on discosure of information to the Attorney General and the Commission: Whenever the Secretary believes that an applicant may be eligible for a certificate, or has issued a certificate to an association or export trading company, lie shall promptly make available all materials filed by the applicant, association or export trading company, including applications and supple• ments thereto, reports of material changes, applications for amendments and annual reports, and information derived therefrom. • We are, of course, prepared to assist you or the Committee in any way in drafting suitable language or in rectifying the minor drafting problems in the current draft committee print. Sincerely, PHILIP W. KLITTZNICK, Secretary of Commerce. FEDERAL RESERVE SYSTEM, Washington,D.0., May 12,1980.  Hon. ADLAI E. STEVENSON, U.S. Senate, Wash,ington, D.C. DEAR SENATOR STEVENSON: My letter to you of May 2 expressed certain reservations regarding S. 2379. Those reservations stem not from lack of sympathy with the purpose of this legislation in making export related services available to more firms in the U.S. Rather, we in the Federal Reserve have substantial questions about the degree to which banking organizations should be permitted to participate directly in, or even control, export trading companies. In that connection, we feel strongly that the tradition of separation of banking and commerce has served the country well. To assure that separation is maintained, while permitting a degree of banking participation in support of export trading companies. I would suggest certain amendments to the proposed bill establishing substantive and procedural standards that are necessary with regard to bank involvement in such companies. Those recommendations, which I endorse, include the following elements: first, no banking organization would be permitted to acquire more than 20 per cent of the voting stock of an export trading company or to control the company in any other manner; second, not more than 50 per cent of an export trading company's voting stock could be owned by any group of banking organizations; third, the aggregate investment by any banking organization would be limited to 5 per cent of its aggregate capital and surplus (25 per cent in the case of Edge and Agreement Corporations) in one or more export trading companies nor could a banking organization lend to an export trading company in an amount which, when combined with its invest lent, would exceed 10 per cent of the banking organization's capita' and • •  purposes; an positions in securities or commodities for speculative ing activity; lend arms length relationship would be maintained in any the export and the name of the bank could no.used in the name of trading company. to investment, Furthermore, we propose that any major commitment $15 million— $10 to in an export trading company—in excess, say, ofrnor nce. As adva s in be specifically approved by the Board of Goverisks that may attend this suggests, we believe that because of the of experience of U.S. export trading; company activities and the lack companies, it would banks and their regulators in dealing with such to exercise control not be prudent to permit banking organizations . For that reason, the over export trading companies at this timeent version of S. 2379. Board of Governors cannot support the curr ittee's consideraThe amendments that I am enclosing for the Comm course, would be of tion have been discussed with your staff. We, pleased to provide any further assistance. Sincerely, PAUL A. VOLCKER.  4  • ADDITIONAL VIEWS OF SENATOR WILLIAM PROXMIRE I find it unfortunate that important banking legislation was reported by the Committee on Banking-, Housing and Urban Affairs without the Committee having had the benefit of appearance before it of the bank regulatory agencies charged with the safety and soundness of the banking system. • Unquestionably it would have been inconvenient for the movers of this legislation to have heard first hand the doubts of the banks regulatory agencies which bear the ultimate responsibility for underwriting the liquidity and solvency of the banking system. But the inconvenience of listening to responsible contrary views just might have given the Senate a better understanding of the magnitude of this legislation and its potential effect of the public interest. Let us make no mistake about it, this is major banking legislation. It breaks the demarcation between banking and commerce because it allows banks to take controlling equity positions in export-import companies,trading goods of production and commodities. Historically, banking and commerce have been separated by law in this country. This has been so for over 100 years for good reason. Banks play a significant role in the life of our economy by safeguarding the Nation's savings and providing the lifeblood of our economic system: credit. Credit judgments should be made on the merits. Arms length dealing in the credit mechanism has been ensured by the traditional separation of banking and commerce. When a bank has a stake in economic enterprise its credit judgments tend to be skewed.The most recent example is the involvement of banks in the real estate inevstment trust business where bank losses ran to the hundreds of millions of dollars. Congress, in fact, had to adopt special legislation just this year to bail out large banks holding real estate in connection with RtIT defaulted loans so that those banks would not have to charge off large losses to their already depleted capital base. Now, the same big banks are to be given the power to engage in lines of commerce in which they have no expertise. This legislation gives rise to identical risks to the banking industry which came out of the REIT experience, only the risks are far greater this time. The ramifications of this legislation are enormous. Banks would be permitted to take controlling equity positions in Export Trading Companies. A bank owned Export Trading Company would be permitted to engage in a wide range of export-import transactions. Such a bank owned Export Trading Company would be permitted to contract to build a textile mill in China, purchasing the equipment both in the U.S. and overseas. In payment for the mill, the Export Trading Company could take oil in a barter transaction ship the oil to the U.S. market on tankers which it would be permitted to own, and market the oil in the U.S. The bank owned Export Trading Company could purchase wheat or grain in the forward market for (31)  an Export Trading Company would be permitted to engage in the travel agency business overseas and for travel to and from the United States; amusements for export wollpe permitted,no doubt including motion pictures. While banks may provide a useful service to Export. Trading Companies in providing financing and financial services to exporters. it is clear to me that banks have no expertise to offer in actual construction projects, purchase and sale of commodities and barter transactions which may include expomting a truck factory and importing vodka in payment. Thus, while I remain skeptical of the entire Export Trading Company concept for banks at all, I can understand that perhaps to facilitate-the financial aspects of export-import transactions banks may need to have a non-controlling position in an Export Trading Company. • That is why I supported the Federal Reserve Board amendment prohibiting bank control of Export Trading Companies and which would have restricted any bank's investment in an Export Trading Company to a non-controlling interest, not to exceed 20 percent of the Export Trading Companies stock and to restrict the interest of several banks in a single Export Trading Company to under 50 percent. The Federal Reserve amendment—which was supported by the Federal Deposit Insurance Corporation—would have retained the benefits of bank participation in Export Trading Companies while avoiding the pitfalls associated with bank control of commercial enterprises. The pitfalls are substantial. At a time when the banking system is undercapitalized and with the shortage of capital being particularly acute at litre% banks, the needs of a soundly capitalized banking system require at the largest banks that banks not be encouraged to drain capital away from their credit function. We should remember all to well the unfortunate consequences of the recent era of "go-go" banking and REITs and not encourage banks to stray from their essential economic purpose which is to provide financing for productive purposes. Controlling equity investments in lines ofcommerce holds the probability that the public will suffer the consequences as it did in the REIT experience and `go-go" banking of recent years. Those consequences include the need for Congress to pass special legislation to allow banks extended time to hold real estate held in connection with defaulted loans made for speculative lending purposes• Federal Reserve lending to prevent bank failures; and ultimate FDIC funding to prevent deposit payouts by banks in receivership. It is clear to me that in breaching the 100 year old separation between banking and commerce that prudence dictates caution. The Federal Reserve amendment would have allowed bank participation in Export Trading Companies while ensuring the prevention of the type of abuses associated with bank expansion into nonbanking activities. The virtue of the Federal Reserve amendment is that it would have given the Congress the option down the road in a year or two based upon the record of limited bank 'Participation in Export Trading Companies to determine whether the public interest would be at all served by bank control of Export Trading Companies. The Corn-  nate° has made this judgment now, prematurely in my view, without even the benefit of bank rek,rulator agency participation in open hearings. This legislation also contains amen ents to the Internal Revenue Code which lie completely outside this Committee's jurisdiction. The tax proons to which I refer would make Export Trading Companies with bank ownership eligible kr DISC tax treatment; make receipts from export trade services eligible kr DISC tax benefits; and would exclude Export Trading Companies from the requireinents of Subchapter S relating to closely-lield corporations requiring that 20 percent of such a corporation's annual income be domestic income. am afraid that the Committee's action on the tax code is another example of the questionable procedures that have been followed in considering this bill. That bill should not be considered at all by the Senate until the tax writing committees have given detaikd consideration to these tax provisions. On substantive grounds, I join with the Administration in opposing this major expansion of the tax benefits afforded to export activities. In the most recent Committee hearings on this legislation, Commerce Secretary Klutznick, giving the Administration's position, stated the knowing: Many, if not all, ETCs should be able to meet the requirements of present DISC legislation and benefit from DISC tI. deferral status. Modification of U.S. banking laws to Iermit bank ownership of export trading companies will effectively expand DISC coverage without requiring any chI nge in the DISC statute itself. However, to amend DISC legislI tion to cover exports of all services, as well as services provided by other ..Irms to export trading companies, as S. 2379 would do, would definitely alter the nature and scope of tePISC program and substantially increase its revenue costs. The present realities of the budget situation IS not permit such an extension at this time. I could also raise questions about our international obligations in this area and our concerns kr tax equity. Assistant Treasury Secretary Bergsten subsequently provided the Committee with a more detailed statement of teImnstrato IS sition and with estimates of teSte impact of Title III on tax revenues. Giving what were styled as "conservative estimates," the Bergsten letter stated that the extension of DISC benefits to "services III uced in the United States" could result in revenue losses of $200 tS••500 million and similar coverage of "export trade services" could cost the Treasury $100—$200 million. I also agree with the Ad istration's opposition to the amendments to Subchapter S contained in Title II on the ground that any legislittion of this sort should be considered within the context of the proposal by the Joint Committee on Internal Revenue Taxation to overhaul Subchapter S. This seems to me to be perfectly reasonable and nIct far prehrable to pre tous actions by this Committee.  •  erene Act which now contains a limited exception to the proscriptions of the Sherman Act for joint ventures which are limited to exports. I know that the authors did not inteo make substantive changes in the Webb-Pomerene exceptions.* NI1Prtheless, I believe the Senate would have been better served if the Judiciary Committee—with its antitrust expertise—had reviewed these provisions in hearings. Once again, the procedure followed here to rush a bill to the Senate floor may not serve the public interest well. Antitrust raws are complicated and they deserve careful consideration. Especially is this so with respect to this bill which ousts the Justice Department Antitrust Division out of the Administration of the Webb-Pomerene Act in favor of the Commerce Department. With all due respect to the Commerce Department, I think it fair to say that it has no expertise at all in enforcing the antitrust laws. In my judgment, it is no answer to say that if Commerce makes a mistake Justice can sue them in the courts. Courts are not administrators. Enforcement action will be at the desk in Commerce which reviews the application for exceptions to the antitrust laws. The Senate needs to ask itself if the public deserves the defanging of the Antitrust Division of the Justice Department, especially in the light of the fact that upon Commerce Department approval carries with it immunity from suit by private parties and state attorneys general on behalf of persons who might have been injured by reason of agreements in restraint of trade. WILLIAM J. PROXMIRE. FEDERAL RESERVE SYSTEM, ashington,D.0., May 12,1980. Hon. WILLIAM PROXMIRE, Chairman, Committee on Banking, Housing and Urban Affairs. U.S. Senate, Washington,D.C. DEAR CHAIRMAN PROXMIRE: My letter to you of May 2 expressed certain reservations regarding S. 2379. Those reservations stem not from lack of sympathy with the purpose of this legislation in making export related services available to more firms in the U.S. Rather, we in the Federal Reserve have substantial questions about the degree to which banking organizations should be permitted to participate directly in, or even control, export trading companies. In that connection, we feel strongly that the tradition of separation of banking and commerce has served the country well. To assure that separation is maintained, while permitting a degree of banking participation in support of export trading companies,I would suggest certain amendments to the proposed bill estabilshing substantive and procedural standards that are necessary with regard to bank involvement in such companies. Those recommendations, which I endorse, include the following elements: first, no banking organization would be permitted to acquire more than 20 percent of the voting stock of an export trading company or to control the company in any other manner; second, not more than 50 percent of an export trading company's voting stock could be owned by any group of banking organizations; third, the aggregate investment by any banking organization would be limited to 5 percent of and surplus (25 percent in the case of Edge and its aggregate car Agreement Corpnrations) in one or more export trading companies -,a1 . .4  in an amount whicii, when combined with its investment, would exceed 10 percent of the banking organization's capital and surplus; an export trading company would not iiipermitted to take positions in securities or commodities for specuWre purposes; an arms length relationship would be maintained in any lending activity; and the name of the Bank could not be used in the name of the export trading company. Furthermore, we propose that any major commitment to investment in an export trading company—in excess say, of $10 to $15 million— be specifically approved by the Board of Governors in advance. As this suggests, we believe that because of the risks that may attend export trading company activities and the lack of experience of U.S. banks and their regulators in dealing with such companies, it would not be prudent to permit banking organizations to exercise control over export trading companies at this time. The amendments that I am enclosing for the Committee's consideration have been discussed with your staff. We, of course, would be pleased to provide any further assistance. Sincerely, PAUL A. VOLCKER.  •  r 11411P"g".""i"Illv"IrP"—  •  ADDITIONAL VIEWS OF SENATORS TOWER,CRANSTON, AND GARN The purpose of the Export Trading Company Act of 1980. as stated in Sec. 102(b) thereof, is to increase United States exports of products and services by encouraging more efficient provision of export trade services to American producers and suppliers. We fully support this objective. The sooner our merchandise trade balance becomes a surplus rather than a deficit, the healthier our economy will be. We are concerned, however, that this bill provides a significant departure in the manner in which our financial institutions have traditionally operated. Throughout our history, commercial banks hare financed commercial activities. They have not maintained ownership interests in commercial ventures. There are many questions that have been raised by the provision in the bill allowing banking organizations to obtain ownership interests in commercial ventures. These questions relate to areas such as the safety of accounts of bank depositors, the safety of stockholder interests in banking organizations, and the ability of banking organization personnel to manage commercial ventures,to name a few. Proponents of a strong banking organization role in an export trading company argue that active participation or control is necessary because many banking organizations have foreign branches, and therefore, have commercial contacts both domestically and abroad. A banking organization, it is argued, can serve as the catalyst that will bring together U.S. businesses and foreign markets. "Banking organizations" is defined by the bill to include state and national banks, as well as bank holding companies, bankers' banks, Edge Act Corporations and Agreement Corporations. Our primary concern is for the protection of the depositors and shareholders in our commercial banks. Additionally, we are very concerned about the manner in which some of these financial institutions might operate in the future. The hearing record is virtually silent on these questions. In almost 1,000 pages of printed testimony there are but a few paragraphs which touch upon this area. Most of these comments questioned this new role of commercial banks. Treasury Assistant Secretary C.Fred Bergsten testified that: It is a long established principle in this country that banks should not be owners of commercial organizations. Giving banks an equity interest in the success of a commercial venture could bias their lending, trust. and other activities, and could require substantial policing to insure that such financial relationships are based solely on sound and equitable business considerations. The basic tenet of American law,that banking and banking related activities should be separate from other business practices, demonstrates the difficulty of transferring (36)  •.  to the t  Nates the Japanese model, where bank-firm re-  lationships are an integral part of the entire business and commercial structure. Additionally, Paul Volcker, Cliknan of the Federal Reserve Board, has expressed reservations about an expansion of the scope for banks to invest in commercial activities. The American Bankers Association has not, appeared to testify on the bill and has no curret n position on the proposed legislation. Several officers of commercial banks whom we have contacted regarding this proposal have expressed a very cautious and "go-slow" approach to changing the powers of banking organizations. . In summary, we are e,oncerned about the mounting inerchandise trade deficit of the last few years. Much of this deficit results from declining domestic business productivity coupled with increases in the price and volume of energy imports. While we believe that export tradinv companies have an important role to play in increasing export opporrunities. we do not believe they are a •panacea for resolving our balance of trade problems. • The model of the export tradina company as it is known in Japan or Western Europe is not well undreistood by American businesses. It remains to be seen how it might adapt to U.S. business practices or how U.S. business practices might change to accommodate the model of foreign export trading companies. Until a better record is built as to how banking organizations might adjust to the new climate of not only financing, but directly participating in the management of commercial organizations, we believe it is wise to proceed very cautiously in promoting this new area of coinmercial activity. II  JOHN TOWER. ALAN CRANSTON. JAKE GARN. 0  _•••••••••  •  • Calendar No. 785  96TH CONGRESS 2D SESSION  S.2718 [Report No. 96-735]  To encourage exports by facilitating the formation and operation of export trading companies, export trade associations, and the expansion of export trade services generally.  IN THE SENATE OF THE UNITED STATES MAY 15 (legislative day, JANUARY 3), 1980 Mr. STEVENSON, from the Committee on Banking, Housing, and Urban Affairs, reported the following bill; which was read twice and ordered to be placed on the calendar  A BILL To encourage exports by facilitating the formation and operation of export trading companies, export trade associations, and the expansion of export trade services generally. 1  Be it enacted by the Senate and House of Representa-  2 lives of the United States of America in Congress assembled,  TITLE I EXPORT TRADING COMPANIES  1  SHORT TITLE()  2 S 3  SEC. 101. This title may be cited as the "Export Trad-  4 ing Company Act of 1980". FINDINGS  5 6  SEC. 102. (a) The Congress finds and declares that—  ?  (1) tens of thousands of American companies pro-  8  duce exportable goods or services but do not engage in  9  exporting;  10  (2) although the United States is the world's lead-  11  ing agricultural exporting nation, many farm products  12  are not marketed as widely and effectively abroad as  13  they could be through producer-owned export trading  14  companies;  15  (3) exporting requires extensive specialized knowl-  16  edge and skills and entails additional, unfamiliar risks  17  which present costs for which smaller producers cannot  18  realize economies of scale;  19  (4) export trade intermediaries, such as trading  20  companies, can achieve economies of scale and acquire  21  expertise enabling them to export goods and services  22  profitably, at low per unit cost to rifoducers,  23  (5) the United States lacks well-developed export  24  trade intermediaries to package expo:t trade services  25  at reasonable prices (exporting services are fragmented  1  into a multitude of separate functions; companies at-  2  tempting to of. comprehensive export trade sees  3  lack financial leverage to reach a significant portion of  4  potential United States exporters);  5-  (6) State and local government activities which  6  initiate, facilitate, or expand export of products and  8  services are an important and irreplaceable source for expansion of total United States exports, as well as for  9  experimentation in the development of innovative  10  export programs keyed to local, State, and regional  11  economic needs;  7  12  (7) the development of export trading companies  13  in the United States has been hampered by insular  14  business attitudes and by Government regulations; and  15  (8) if United States export trading companies are  16  to be successful in promoting United States exports  17  and in competing with foreign trading companies, they  18  must be able to draw on the resources, expertise, and  19  knowledge of the United States banking system, both  20  in the United States and abroad.  21  (b) The purpose of this Act is to increase United States  22 exports of products and services by encouraging more effi23 cient provision of export trade services to American pro24 ducers and suppliers.  4  DEFINITIONS 2• SEC. 103.(a) As used in this A3  (1) the term "export trade" means trade or com-  4  merce in goods source1 in the United States or serv-  5  ices produced in the United States exported, or in the  6  course of being exported, from the United States to  7  any foreign nation;  8  (2) the term "goods produced in the United  9  States" means tangible property manufactured, pro-  10  duced, grown, or extracted in the United States, the  11  cost of the imported raw materials and components  12  thereof shall not exceed 50 per centum of the sales  13  price;  14  (3) the term "services produced in the United  15  States" includes, but is not limited to accounting,  16  amusement, architectural, automatic data processing,  17  business, communications, construction franchising and  18  licensing, consulting, engineering, financial, insurance,  19  legal, management, repair, tourism, training, and  20  transportation services, not less than 50 per centum of  21  the sales or billings of which is provided by United  22  States citizens or is otherwise at tributable to the  23  United States;  •  24  (4) the term "export trade service:" includes, but  25  is not limited to, consulting, international market re-  search, adveiiing, marketing, insurance, pro* re2  search and design, legal assistance, transportation, in-  3  eluding trade documentation and freight forwarding,  4  communication and processing of foreign orders to and  5  for exporters and foreign purchasers, warehousing, for-  6  eign exchange, and financing when provided in order to  7  facilitate the export of goods or services produced in  8  the United States;  9  (5) the term "export trading company" means a  10  company which does business under the laws of the  11  United States or any State and which is organized and  12  operated principally for the purposes of-  13 14  (A) exporting goods or services produced in the United States; and  15  (B) facilitating the exportation of goods and  16  services produced in the United States by unaffil-  17  iated persons by providing one or more export  18  trade services;  19  (6) the term "United States" means the several  20  States of the United States, the District of Columbia,  21  the Commonwealth of Puerto Rico, the Virgin IslaLds,  22  American Samoa, Guam, the Commonwealth of .,he  23  Northern Mariana Islands, and the Trust Territory cf  24  the Pacific Islands;  :474  dSeillIMMOONIPPIRIPOP,PPIPIPPINFORWIlliwrirriorprrirmierfrwqr  1 2 3  (7) the term "Secretary" means the Secretary of •Commerce; and  •  (8) the term "company" means any corporation,  4  partnership, association, or similar organization.  5  (b) The Secretary is authorized, by regulation, to further  6 define such terms consistent with this section. 7 8  FUNCTIONS OF THE SECRETARY OF COMMERCE SEC. 104. The Secretary shall promote and encourage  9 the formation and operation of export trading companies by 10 providing information and advice to interested persons and by 11 facilitating contact between producers of exportable goods 12 and services and firms offering export trade services. 13 OWNERSHIP OF EXPORT TRADING COMPANIES BY BANKS, 14  BANK HOLDING COMPANIES, AND INTERNATIONAL  15  BANKING CORPORATIONS  16  SEC. 105.(a) For the purpose of this section—  17  (1) the term "banking organization" means any  18  State bank, national bank, Federal savings bank, bank-  19  ers' bank, bank holding company, Edge Act Corpora-  20  tion, or Agreement Corporation;  21  (2) the term "State bank" means any bank which  22  is incorporated'under the laws of any State, any terri-  23  tory of the United States, the Commonwealth of  24  Puerto Rico, Guam, American Samoa, the Common-  25  wealth of the Northern Mariana Islands, or the Virgin  •  1  Islands, or  2  operating under the Code of Law for the District of  3  Columbia (hereinafter referred to as a "District bank");  4  (3) the term "State member bank" means any  5  State bank, including a bankers' bank, which is a  6  member of the Federal Reserve System;  81) bank  (except a national bank) lich is  7  (4) the term "State nonmember insured bank"  8  means any State bank, including a bankers' bank,  9  which is not a member of the Federal Reserve System,  10  but the deposits of which are insured by the Federal  11  Deposit Insurance Corporation;  12  (5) the term "bankers' bank" means any bank  13  which (A) is organized solely to do business with other  14  financial institutions, (B) is owned primarily by the fi-  15  nancial institutions with which it does business, and (C)  16  does not do business with the general public;  17  (6) the term "bank holding company" has the  18  same meaning as in the Bank Holding Company Act of  19  1956;  20  (7) the term "Edge Act Corporation" means a  21  corporation organized under section 25(a) of the Fe ir  22  eral Reserve Act;  23  (8) the term "Agreement Corporation" means a  24  corporation operating subject to section 25 of the Fed-  25  eral Reserve Act;  2  (9) the term "appropriate Federal banking agency, means-  3  (A) the Comptroller of the Currency with re-  1  4  •  1  spect to a national bank or any District bank;  5  (B) the Board of Governors of the Federal  6  Reserve System with respect to a State member  7  bank, bank holding company, Edge Act Corpora-  8  tion, or Agreement Corporation;  9  (C) the Federal Deposit Insurance Corpora-  10  tion with respect to a State nonmember insured  11  bank except a District bank; and  12 13  (D) the Federal Home Loan Bank Board with respect to a Federal savings bank.  14  In any situation where the banking organization hold-  15  ing or making an investment in an export trading corn-  16  pany is a subsidiary of another banking organization  17  which is subject to the jurisdiction of another agency,  18  and some form of agency approval or notification is re-  19  quired, such approval or notification need only be oh-  20  tamed from or made to, as the case may be, the appro-  21  priate Federal bi nking agency for the banking organi-  22  zation making c;:holding the investment in the export  23  trading company;  24  (10) the term "capital and surplus" means paid in  25  and unimpaired capital and surplus, and includes un-  1  divided profitlind such other items as the appreiate  2  Federal banking agency may deem appropriate;  3  (11) an "affiliate" of a banking organization or  4  export trading company is a person who controls, is  5  controlled by, or is under common control with, such  6  banking organization or export trading company;  7  (12) the terms "control" and "subsidiary" shall  8  have the same meanings assigned to those terms in  9  section 2 of the Bank Holding Company Act of 1956,  10  and the terms "controlled" and "controlling" shall be  11  construed consistently with the term "control" as de-  12  fined in section 2 of the Bank Holding Company Act of  13  1956; and  14  (13) the term "export trading company" has the  15  same meaning as in section 103(5) of this Act, or  16  means any company organized and operating princi-  17  pally for the purpose of providing export trade serv-  18  ices, as defined in section 103(4) of this Act.  19  (b)(1) Notwithstanding any prohibition, restriction, limi-  20 tation, condition, or requirement of any other law, a banking 21 organization, subject to the limitations of subsection (c; and 22 the procedures of this subsection, may invest directly and 23 indirectly in the aggregate, up to 5 per centum of its consoli24 dated capital and surplus (25 per centum in the case of ar 25 Edge Act Corporation or Agreement Corporation not enS. 2718—rs-- 2  1 gaged in banking) in the voting stock or other evidences of 2 of rnership of one or more export tralikg companies. A bank3 ing organization may4  (A) invest up to an aggregate amount of  5  $10,000,000 in one or more export trading companies  6  without the prior approval of the appropriate Federal  7  banking agency, if such investment does not cause an  8  export trading company to become a subsidiary of the  9  investing banking organization; and  10  (B) make investments in excess of an aggregate  11  amount of $10,000,000 in one or more export trading  12  companies, or make any investment or take any other  13  action which causes an export trading company to  14  become a subsidiary of the investing banking organiza-  15  tion or which will cause more than 50 per centum of  16  the voting stock of an export trading company to be  17  owned or controlled by banking organizations, only  18  with the prior approval of the appropriate Federal  19  banking agency.  20 Any banking organization which makes an investment under 21 authority of clause (A) of the preceding sentence shall 22 promptly notify the appropriate Federal banking agency of 23 such investment and shall file such reports on such invest24 ment as such agency may require. If, after receipt of any 25 such notification, the appropriate Federal banking agency de-  A.. A.  1 termines, after noticend opportunity for hearing, thatdie 2 export trading company is a subsidiary of the investing bank3 ing organization, it shall have authority to disapprove the 4 investment or impose conditions on such investment under 5 authority of subsection (d). In furtherance of such authority, 6 the appropriate Federal banking agency may require divesti7 ture of any voting stock or other evidences of ownership pre8 viously acquired, and may impose conditions necessary for 9 the termination of any controlling relationship. 10  (2) If a banking organization proposes to make any in-  11 vestment or engage in any activity included within the fol12 lowing two subparagraphs, it must give the appropriate Fed13 eral banking agency sixty days prior written notice before it 14 makes such investment or engages in such activity: 15 16  (A) any additional investment in an export trading company subsidiary; or  17  (B) the engagement by any export trading  18  company subsidiary in any line of activity, including  19  specifically the taking of title to goods, wares, mer-  20  chandise, or commodities, if such activity was not dis-  21  closed in any prior application for approval.  22 During the notification period provided under this paragraph, 23 the appropriate Federal banking agency may, by written 24 notice, disapprove the proposed investment or activity or 25 impose conditions on such investment or activity under au-  1 thority of subsection (d). An additional investment or activity 2 cOered by this paragraph may be mae or engaged in, as the 3 case may be, prior to the expiration of the notification period 4 if the appropriate Federal banking agency issues written 5 notice of its intent not to disapprove. 6  (3) In the event of the failure of the appropriate Federal  7 banking agency to act on any application for approval under 8 paragraph (1)(B) of this subsection within the ninety-day 9 period which begins on the date the application has been ac10 cepted for processing by the appropriate Federal banking 11 agency, the application shall be deemed to have been 12 granted. In the event of the failure of the appropriate Federal 13 banking agency either to disapprove or to impose conditions 14 on any investment or activity subject to the prior notification 15 requirements of paragraph (2) of this subsection within the 16 sixty-day period provided therein, such period beginning on 17 the date the notification has been received by the appropriate 18 Federal banking agency, such investment or activity may be 19 made or engaged in, as the case may be, any time after the 20 expiration of such period. 21  (c) The following - limitations apply to export trading  22 companies and the invettments in such companies by banking 23 organizations: 24  (1) The name of any export trading company shall  25  not be similar in any respect to that of a banking orga-  l  nization that ow.any of its voting stock or otheroi-  2  dences of ownership.  3  (2) The total historical cost of the direct and indi-  4  . tion in an •rect investments by a banking organiza  5  export trading company combined with extensions of  6  credit by the banking organization and its direct and  7  indirect subsidiaries to such export trading company  8  shall not exceed 10 per centum of the banking organi-  9  zation's capital and surplus.  10  (3) A banking organization that owns any voting  11  stock or other evidences of ownership of an export  12  trading company shall terminate its ownership of such  13  stock if the export trading company takes positions in  14  commodities or commodities contracts other than as  15  may be necessary in the course of its business oper-  16  ations.  17  (4) No banking organization holding voting stock  18  or other evidences of ownership of any export trading  19  company may extend credit or cause any affiliate to  20  extend credit to any export trading company or to cus-  21  tomers of such company on terms more favorable than  22  those afforded similar borrowers in similar circum-  23  stances, and such extension of credit shall not involve  24  more than the normal risk of repayment or present  25  other unfavorable features.  411.0015111%4Pawria----40r  (d)(1) In the case of every applietion under subsection 1• 2 (b)(1)(B) of this section, the appropriate Federal banking 3 agency shall take into consideration the financial and man4 agerial resources, competitive situation, and future prospects 5 of the banking organization and export trading company con6 cerned, and the benefits of the proposal to United States 7 business, industrial, and agricultural concerns, and to improv8 ing United States competitiveness in world markets. The 9 appropriate Federal banking agency may not approve any 10 investment for which an application has been filed under 11 subsection (b)(1)(B) if it finds that the export benefits of such 12 proposal are outweighed in the public interest by any adverse 13 financial, managerial, competitive, or other banking factors 14 associated with the particular investment. Any disapproval 15 order issued under this section must contain a statement of 16 the reasons for disapproval. 17  (2) In approving any application submitted under sub-  18 section (b)(1)(B), the appropriate Federal banking agency 19 may impose such conditions which, under the circumstances 20 of such case, it may deem necessary (A) to limit a banking 21 organization's financial exposure to an c.(port trading compa22 ny, or (B) to prevent possible conflicts oi interest or unsafe or 23 unsound banking practices. With respect to the taking of title 24 to goods, wares, merchandise, or commodit:es by any export 25 trading company subsidiary of a banking organization, the  15 1 appropriate Federal bang agencies shall establish star. 2 ards designed to ensure against any unsafe or unsound prac3 tices that could adversely affect a controlling banking organi4 zation investor, including specifically practices pertaining to 5 an export trading company subsidiary's holding of title to in6 ventory. Such standards should be established no later than 7 two hundred and seventy days after enactment of this Act, 8 and opportunity should be provided for public comment and 9 participation in developing such standards. If an export trad10 ing company subsidiary of a banking organization proposes to 11 take title to goods, wares, merchandise, or commodities in a 12 manner which does not conform to such standards, or prior to 13 the establishment of such standards, it may only do so with 14 the prior approval of the appropriate Federal banking agency 15 and subject to such conditions and limitations as it may 16 impose under this paragraph. 17  (3) In determining whether to impose any condition  18 under the preceding paragraph (2), or in imposing such condi19 tion, the appropriate Federal banking agency must give due 20 consideration to the size of the banking organization and 21 export trading company involved, the degree of investment 22 and other support to be provided by the banking organization 23 to the export trading company, and the identity, character, 24 and financial strength of any other investors in the export 25 trading company. The appropriate Federal banking agency •  1 sha  not impose any conditions or set standards for the  o  2 taking of title which unnecessarily ditantage, restrict or 3 limit export trading companies in competing in world markets 4 or in achieving the purposes of section 102 of this Act. In 5 particular, in setting standards for the taking of title under 6 the preceding paragraph (2), the appropriate Federal banking 7 agencies shall give special weight to the need to take title in 8 certain kinds of trade transactions, such as international 9 barter transactions. 10  (4) Notwithstanding any other provision of this Act, the  11 appropriate Federal banking agency may, whenever it has 12 reasonable cause to believe that the ownership or control of 13 any investment in an export trading company constitutes a 14 serious risk to the financial safety, soundness, or stability of 15 the banking organization and is inconsistent with sound bank16 ing principles or with the purposes of this Act or with the 17 Financial Institutions Supervisory Act of 1966, order the 18 banking organization, after due notice and opportunity for 19 hearing, to terminate (within one hundred and twenty days or 20 such longer period as the Board may direct in unusual cir21 cumstances) its investment in the export trading company. 22  (5) On or before two years after enactment of this Act,  23 the appropriate Federal banking agencies shall jointly report 24 to the Committee on Banking, Housing, and Urban Affairs of 25 the Senate and the Committee on Banking, Finance and  1 Urban Affairs of the4iouse of Representatives their recom2 mendations with respect to the implementation of this sec3 tion, their recommendations on any changes in United States 4 law to facilitate the financing of United States exports, espe5 cially by smaller and medium-sized business concerns, and 6 their recommendations on the effects of ownership of United 7 States banks by foreign banking organizations affiliated with 8 trading companies doing business in the United States. 9  (e)(1) Any party aggrieved by an order of an appropriate  10 Federal banking agency under this section may obtain a 11 review of such order in the United States court of appeals 12 within any circuit wherein such organization has its principal 13 place of business, or in the court of appeals for the District of 14 Columbia Circuit, by filing a notice of appeal in such court 15 within thirty days from the date of such order, and simulta16 neously sending a copy of such notice by registered or certi17 fled mail to the appropriate Federal banking agency. The ap18 propriate Federal banking agency shall promptly certify and 19 file in such court the record upon which the order was based. 20 The court shall set aside any order found to be (A) arbitrary, 21 capricious, an abuse of discretion, or otherwise not in accor1,22 ance with law; (B) contrary to constitutional right, powe ,• 23 privilege or immunity; or,(C) in excess of statutory jurisdic24 tion, authority, or limitations, or short of statutory right; or 25 (D) without observance of procedure required by law. Except  S. 2718—rs—  3  4  1 for*lations of subsection (b)(3) of  section, the court  2 shall remand for further consideration by the appropriate 3 Federal banking agency any order set aside solely for proce4 dural errors and may remand for further consideration by the 5 appropriate Federal banking agency any order set aside for 6 substantive errors. Upon remand, the appropriate Federal 7 banking agency shall have no more than sixty days from date 8 of issuance of the court's order to cure any procedural error 9 or reconsider its prior order. If the agency fails to act within 10 this period, the application or other matter subject to review 11 shall be deemed to have been granted as a matter of law. 12  (0(1) The appropriate Federal banking agencies are au-  13 thorized and empowered to issue such rules, regulations, and 14 orders, to require such reports, to delegate such functions, 15 and to conduct such examinations of subsidiary export trad16 ing companies, as each of them may deem necessary in order 17 to perform their respective duties and functions under this 18 section and to administer and carry out the provisions and 19 purposes of this section and prevent evasions thereof. 20  (2) In addition to any powers, remedies, or sanctions  21 otherwise provided by law, compliance with the requirements 22 imposed under this section may be enforced under section 8 23 of the Federal Deposit Insurance Act by any appropriate 24 Federal banking agency defined in that Act.  "*"""kwiwilikrelfi«allefirowTarrow—•  IV 1 2  INITIAL INVESTONTS AND OPERATING EXPENSE* SEC. 106. (a) The Economic Development Administra-  3 tion and the Small Business Administration are directed, in 4 their consideration of applications by export trading compa5 nies for loans and guarantees, including applications to make 6 new investments related to the export of goods or services 7 produced in the United States and to meet operating ex8 penses, to give special weight to export-related benefits, in9 eluding opening new markets for United States goods and 10 services abroad and encouraging the involvement of small or 11 medium-size businesses or agricultural concerns in the export 12 market. 13  (b) There are authorized to be appropriated as necessary  14 to meet the purposes of this section, $20,000,000 for each 15 fiscal year, 1981, 1982, 1983, 1984, and 1985. Amounts 16 appropriated pursuant to the authority of this subsection shall 17 be in addition to amounts appropriated under the authority of 18 other Acts. 19  GUARANTEES FOR EXPORT ACCOUNTS RECEIVABLE AND  20  INVENTORY  21  SEC. 107. The Export-Import 'lank of the United  22 States is authorized and directed to e, cablish a program to 23 provide guarantees for loans extended by financial institu24 tions or other private creditors to export trading companies 25 as defined in section 103(5) of this Act, or to other exporters,  1 when such loans are secured by export accounts receivable or 2 invilkories of exportable goods, and wilk in the judgment of 3 the Board of Directors4  (1) the private credit market is not providing ade-  5  quate financing to enable otherwise creditworthy  6  export trading companies or exporters to consummate  7  export transactions; and  8 9  (2) such guarantees would facilitate expansion of exports which would not otherwise occur.  10 Guarantees provided under the authority of this section shall 11 be subject to limitations contained in annual appropriations 12 Acts. 13  TITLE II EXPORT TRADE ASSOCIATIONS  14  SHORT TITLE  15  SEC. 201. This title may be cited as the "Export Trade  16 Association Act of 1980". 17 18  FINDINGS; DECLARATION OF PURPOSE SEC. 202. (a) FINDINGS. The Congress finds and de-  19 clares that20  (1) the exports of the American economy are re-  21  sponsible for creating and maintaining..one out of every  22  nine manufacturing jobs in the Unite.1 States and for  23  generating one out of every $7 of tots,' United States  24  goods produced;  21  1  (2) exports.11 play an even larger role in.  2  United States economy in the future in the face of  3  severe competition from foreign government-owned and  4  subsidized commercial entities;  5  (3) between 1968 and 1977 the United States  6  share of total world exports fell from 19 per centum to  7  13 per centum;  8  (4) trade deficits contribute to the decline of the  9  dollar on international currency markets, fueling infla-  10  tion at home;  11  (5) service-related industries are vital to the well-  12  being of the American economy inasmuch as they  13  create jobs for seven out of every ten Americans, pro-  14  vide 65 per centum of the Nation's gross national  15  product, and represent a small but rapidly rising per-  16  centage of United States international trade;  17  (6) small and medium-sized firms are prime bene-  18  ficiaries of joint exporting, through pooling of technical  19  expertise, help in achieving economies of scale, and as-  20  sistance in competing effectively 'n foreign markets;  21  and  22  (7) the Department of Comm.rce has as one of its  23  responsibilities the development and promotion of  24  United States exports.  "w""Pmme110191111111,11111.71T"r"  1  4013) PURPOSE.—It  this Act to encour-  is the purpose  2 age American exports by establishing an office within the 3 Department of Commerce to encourage and promote the for4 mation of export trade associations through the Webb 5 Pomerene Act, by making the provisions of that Act explic6 itly applicable to the exportation of services, and by transfer7 ring the responsibility for administering that Act from the 8 Federal Trade Commission to the Secretary of Commerce. 9 10  DEFINITIONS SEC. 203.  The Webb-Pomerene Act (15 U.S.C. 61-66)  11 is amended by striking out the first section (15 U.S.C. 61) 12 and inserting in lieu thereof the following: 13 14 15  "SECTION 1. DEFINITIONS.  "As used in this Act"(1) EXPORT TRADE.—The  term 'export trade'  16  means trade or commerce in goods, wares, merchan-  17  dise, or services exported, or in the course of being ex-  18  ported from the United States or any territory thereof  19  to any foreign nation.  20 21 22 23 24 25  "(2) SERVICE.—The term 'service' means intangible economic output, including, buflot limited to"(A) business,  repair,  and  amusement  services; "(B) management, legal, engineering, architectural, and other professional services; and  23 "(C)Oancial, insurance, transportation.d  1 2  communication services.  3  "(3) EXPORT TRADE ACTIVITIES. The term  4  'export trade activities' includes activities or agree-  5  ments in the course of export trade.  6  "(4) TRADE WITHIN THE UNITED STATES.—The  7  term 'trade within the United States' whenever used in  8  this Act means trade or commerce among the several  9  States or in any territory of the United States, or in  10  the District of Columbia, or between any such territory  11  and another, or between any such territory or territo-  12  ries and any State or States or the District of Colum-  13  bia, or between the District of Columbia and any State  14  or States.  15  "(5)  ASSOCIATION.—The  term  'association'  16  means any combination, by contract or other arrange-  17  ment, of persons who are citizens of the United States,  18  partnerships which are created under and exist pursu-  19  ant to the laws of any State or of the United States, or  20  corporations 'which are created undc.r and exist pursu-  21  ant to the laws of any State or of the United States.  22  "(6) EXPORT TRADING COALPANY.—The term  23  'export trading company' means an export trading  24  company as defined in section 103(5) of the Export  25  Trading Company Act of 1980.  •  Ill".+Po  rr"4111111111MROPPorwourvww.4.11•M'PRE"WwworePr  +•••-nox.wwr , r1 " 3 "."  94.1.111.1111.PM.IMenr..W•lp.nrlift.rifylr1111WWWW,  1  •  "(7)  ANTITRUST  LAWS.1Vhe  term 'antitrust  2  laws' means the antitrust laws defined in the first sec-  3  tion of the Clayton Act (15 U.S.C. 12) and section 4  4  of the Federal Trade Commission Act (15 U.S.C. 44),  5  and any State antitrust or unfair competition law.  6 7 8 9 10 11 12  "(8)  SECRETARY.—The  the Secretary of Commerce. "(9)  ATTORNEY GENERAL.—The  term 'Attorney  General' means the Attorney General of the United States. "(10)  COMMISSION.—The  term 'Commission'  means the Federal Trade Commission.".  13 14  term 'Secretary' means  ANTITRUST EXEMPTION SEC. 204.  The Webb-Pomerene Act (15 U.S.C. 61-66)  15 is amended by striking out section 2 (15 U.S.C. 62) and in16 serting in lieu thereof the following: 17 18  "SEC. 2. EXEMPTION FROM ANTITRUST LAWS.  "(a) ELIGIBILITY.—The export trade, export trade ac-  19 tivities, and methods of operation of any association, entered 20 into for the sole purpose of engaging in export trade, and 21 engaged in or proposed to be engaged it such export trade, 22 and the export trade and methods of ope ation of any export 23 trading company, that24  "(1) serve to preserve or promote xport trade;  "(2) result  1  neither a substantial lesseningof  2  competition or restraint of trade within the United  3  States nor a substantial restraint of the export trade of  4  any competitor of such association;  5  "(3) do not unreasonably enhance, stabilize, or de-  6  press prices within the United States of the goods,  7  wares, merchandise, or services of the class exported  8  by such association;  9  "(4) do not constitute unfair methods of competi-  10  tion against competitors engaged in the export trade of  11  goods, wares, merchandise, or set-vices of the class ex-  12  ported by such association;  13  "(5) do not include any act which results, or may  14  reasonably be expected to result, in the sale for con-  15  sumption or resale within the United States of the  16  goods, wares, merchandise, or services exported by the  17  association or export trading company or its members;  18  and  19  "(6) do not constitute trade or commerce in the  20  licensing of patents, technology, trademarks, or know-  21  how, except as incidental to the sale of the good's,  22  wares, merchandise, or services exported by the assoei-  23  ation or export trading company or its members  opr arvir...••••-  Tower  1 slówhen certified according to thediocedures set forth in 2 this Act, be eligible for the exemption provided in subsection 3 (b). 4  "(b) EXEMPTION.—An association or an export trading  5 company and its members with respect to its export trade, 6 export trade activities and methods of operation are exempt 7 from the operation of the antitrust laws as relates to their 8 respective export trade, export trade activities or methods of 9 operation that are specified in a certificate issued according 10 to the procedures set forth in the Act, carried out in conform11 ity with the provisions, terms, and conditions prescribed in 12 such certificate and engaged in during the period in which 13 such certificate is in effect. The subsequent revocation or in14 validation of such certificate shall not render the association 15 or its members or an export trading company or its members, 16 liable under the antitrust laws for such trade, export trade 17 activities, or methods of operation engaged in during such 18 period. 19  "(c) DISAGREEMENT OF ATTORNEY GENERAL OR  20 COMMISSION.—Whenever, pursuant to section 4(b)(1) of this 21 Act, the Attorney General or Commission has formally ad22 vised the Secretary of disagreement with his determination to 23 issue a proposed certificate, and the Secretary has nonethe24 less issued such proposed certificate or an amended certifi25 cate, the exemption provided by this section shall not be  Z.I 1 effective until thirtipays after the issuance of 2 certificate.". 3 4  AMENDMENT OF SECTION  3  SEC. 205.(a) CONFORMING CHANGES IN STYLE.—The  5 Webb-Pomerene Act(15 U.S.C. 61-66) is amended— 6 7 8  (1) by inserting immediately before section 3 (15 U.S.C. 63) the following: "SEC. 3. OWNERSHIP INTEREST IN OTHER TRADE ASSOCI-  9  ATIONS PERMITTED.",  10 11 12 13  (2) by striking out "SEC. 3. That nothing" in section 3 and inserting in lieu thereof "Nothing". ADMINISTRATION: ENFORCEMENT: REPORTS SEC. 206.(a) IN GENERAL.  The Webb-Pomerene Act  14 (15 U.S.C. 61-66) is amended by striking out sections 4 and 15 5 (15 U.S.C. 64 and 65) and inserting in lieu thereof the 16 following sections: 17 18  "SEC. 4. CERTIFICATION.  "(a)  PROCEDURE  FOR  APPLICATION.—Any  associ-  19 ation, company, or export trading company seeking certifica20 tion under this Act shall file with the Secretary a written ., 21 application for certification setting forth the following: 22 23  "(1) The name of the association or export trading company.  1  "(2) The location of all of  offices or places of  2  business of the association or export trading company  3  in the United States and abroad.  4  "(3) The names and addresses of all of the offi-  5  cers, stockholders, and members of the association or  6  export trading company.  7  "(4) A copy of the certificate or articles of incor-  8  poration and bylaws, if the association or export trad-  9  ing company is a corporation; or a copy of the articles,  10  partnership, joint venture, or other agreement or con-  11  tract under which the association conducts or proposes  12  to conduct its export trade activities or contract of as-  13  sociation, if the association is unincorporated.  14  "(5) A description of the goods, wares, merchan-  15  dise, or services which the association or export trad-  16  ing company or their members export or propose to  17  export.  18  "(6) A description of the domestic and interna-  19  tional conditions, circumstances, and factors which  20  show that the association or export trading company  21  and its activities will serve a specified need in promot-  22  ing the export trade of the described goods, wares,  23  merchandise, or services.  24  "(7) The export trade activities in which the asso-  25  ciation or export trading company intends to engage  29 1  and the methogiby which the association or eOrt  2  trading company conducts or proposes to conduct  3  export trade in the described goods, wares, merchan-  4  dise, or services, including, but not limited to, any  5  agreements to •sell •exclusively to or through the associ-  6  ation, any a•greements with foreign persons who may  7  act as joint selling •agents, any agTeements to acquire a  8  foreign selling• agent, •any agTeements for pooling tan0i-  9  ble or intangible property or resources, or any territo-  10  rial, price-maintenance, membership, or other restric-  11  tions to be imposed upon members of the association or  12  export trading company.  13  "(8) The names of all countries where export  14  trade in the described goods, wares, merchandise, or  15  services is conducted or proposed to be conducted by  16  or through the association or export trading company.  17  "(9) Any other information which the Secretary  18  may request concerning  •the organization, operation,  19  management, or finances of the association or export  20  tracling company; the relation of the association or  21  export trading company to other associations, corpora-  22  tions, partnerships, and individuals; and competition or  23  potential competition, and effects of the association or  24  export tradin•g company thereon. The Secretary may  25  request such information as part of an initial applica-  '"""4141.111111pwrmomprwormatapwrirprvrtinTivel... , : -"TlliqpOrlpftrprPlrrPrwwPIFIIRrrqFriflfV/Iqgrfp)If.VW4W/11/1Ijrfp/RwVfqfaPXYPM5SVuWriqrrrwrPSIIMIIPFMPTMOlrgPMO*errrrmYnWr'MlgllPPwgnrrw  py  2  eion or as a necessary supplemellihereto. The Secretary may not request information under this paragraph  3  which is not reasonably available to the person making  4  application or which is not necessary for certification of  5  the prospective association or export trading company.  6  "(b) ISSUANCE OF CERTIFICATE.-  1  7  "(1) NINETY-DAY PERIOD.—The Secretary shall  8  issue a certificate to an association or export trading  9  company within ninety days after receiving the applica-  10  tion for certification or necessary supplement thereto if  11  the Secretary, after consultation with the Attorney  12  General and Commission, determines that the associ-  13  ation, its export trade, export trade activities and  14  methods of operation, or export trading company, and  15  its export trade, export trade activities and methods of  16  operation meet the requirements of section 2 of this  17  Act and that the association or export trading company  18  and its activities will serve a specified need in promot-  19  ing the export trade of the goods, wares, merchandise,  20  or services described in the application for certification.  21  The certificate shall specify the permissible export  22  trade, export ti .de activities and methods of operation  23  of the association or export trading company and shall  24  include any terms and conditions the Secretary deems  25  necessary to comply with the requirements of section 2  •  31 1  ) of this Act. The Setetary shall deliver to the Attoinel  2  General and the Commission a copy of any certificate  3  that he proposes to issue. The Attorney General or  4  Commission may, within fifteen days thereafter, give  5  written notice to the Secretary of an intent to offer  6  advice on the determination. The Attorney General or  7  Commission may, after giving such written notice and  8  within forty-five days of the time the Secretary has de-  9  livered a copy of a proposed certificate, formally advise  10  the Secretary of disagreement with his determination.  11  The Secretary shall not issue any certificate prior to  12  the expiration of such forty-five day period unless he  13  has (A) received no notice of intent to offer advice by  14  the Attorney General or the Commission within fifteen  15  days after delivering a copy of a proposed certificate,  16  or (B) received any notice and formal advice of dis-  17  agreement or written confirmation that no formal dis-  18  agreement will be transmitted from the Attorney Gen-  19  eral and the Commission. After the forty-five day  20  period or, if no notice of intent to offer advice has been  21  given, after the fifteen-day period, the Secretary shall  22.  either issue the proposed certificate, issue an amended  23  certificate, or deny the application. Upon agreement of  24  the applicant, the Secretary may delay taking action  25  for not more than thirty additional days after the forty-  •::12  •  `VelmwriglirlipffeWfirim"'"  1  day period. Before offeringivice on a proposed  2  .five certification, the Attorney General and Commission  3  shall consult in an effort to avoid, wherever possible,  4  having both agencies offer advice on any application.  5  "(2) EXPEDITED CERTIFICATION.—In those in-  6  stances where the temporary nature of the export trade  7  activities, deadlines for bidding on contracts or filling  8  orders, or any other circumstances beyond the control  9  of the association or export trading company which  10  have a significant impact on its export trade, make the  11  90-day period for application approval described in  12  paragraph (1) of this subsection, or an amended appli-  13  cation approval as provided in subsection (c) of this  14  section, impractical for the association or export trad-  15  ing company seeking certification, such association or  16  export trading company may request and may receive  17  expedited action on its application for certification.  18  "(3) APPEAL OF DETERMINATION.—If the Secre-  19  tary determines not to issue a certificate to an associ-  20  ation or export trading company which has submitted  21  an application or an amended application for certifica-  22  tion, then he shit11-  23  "(A) notify the association or export trading  24  company of his determination and the reasons for  25  his determination, and  1  "(B) upoirquest made by the association oe  2  export trading company afford it an opportunity  3  for a hearing with respect to that determination in  4  accordance with section 557 of title 5, United  5  States Code.  6  "(C) MATERIAL  CHANGES  IN  CIRCUMSTANCES;  7 AMENDMENT OF CERTIFICATE.—Whenever there is a ma8 terial change in the membership, export trade, export trade 9 activities, or methods of operation, of an association or export 10 trading company then it shall report such change to the Sec11 retary and may apply to the Secretary for an amendment of 12 its certificate. Any application for an amendment to a certifi13 cate shall set forth the requested amendment of the certifi14 cate and the reasons for the requested amendment. Any re15 quest for the amendment of a certificate shall be treated in 16 the same manner as an original application for a certificate. 17 If the request is filed within thirty days after a material 18 change which requires the amendment, and if the requested 19 amendment is approved, then there shall be no interruption in 20 the period for which the certificate is in effect. 21  "(d) AMENDMENT OR REVOCATION Oj CERTIFICATE  22 BY SECRETARY.—After notifying the assoCation or export 23 trading company involved and after an oppoi tunity for hear24 ing pursuant to section 554 of title 5, United States Code, 25 the Secretary, on his own initiative—  1  "(1) may require that the organization or oper-  2  Oation of the association or exp.trading company be  3  modified to correspond with its certification, or  4  "(2) shall, upon a, determination that the export  5  trade, export trade activities or methods of operation of  6  the association or export trading company no longer  7  meet the requirements of section 2 of this Act, revoke  8  the certificate or make such amendments as may be  9  necessary to satisfy the requirements of such section.  10  "(e) ACTION FOR INVALIDATION OF CERTIFICATE BY  11 ATTORNEY GENERAL OR CHAIRMAN12  "(1) The Attorney General or the Commission  13  may bring an action against an association or export  14  trading company or its members to invalidate, in whole  15  or in part, the certification on the ground that the  16  export trade, export trade activities or methods of op-  17  eration of the association or export trading company  18  fail or have failed, to meet the requirements of section  19  2 of this Act. The Attorney General or Commission  20  shall notify any association or export trading company  21  or member thereof, against which it intends to bring an  22  action for revocation, thirty days ir *advance, as to its  23  intent to file an action under this subsection. The dis-  24  trict court shall consider any issues presented in any  25  such action de novo and if it finds that the require-  1  ments of section.re not met, it shall issue an .oralo  2  declaring the certificate invalid and any other order  3  necessary to effectuate the purposes of this Act and  4  the requirements of section 2.  5  "(2) Any action brought under this subsection  6  shall be considered an action described in section 1337  7  of title 28, United States Code. Pending any such  8  action which was brought during the period any ex-  9  emption is held in abeyance pursuant to section 2(c) of  10  this Act, the court may make such temporary restrain-  11  ing order or prohibition as shall be deemed just in the  12  premises.  13  "(3) No person other than the Attorney General  14  or Commission shall have standing to bring an action  15  against an association or export trading company or  16  their respective members for failure of the association  17  or export trading company or their respective export  18  trade, export trade activities or methods of operation to  19  meet the criteria of section 2 of this Act.  20 "SEC. 5. GUIDELINES. 21  "(a) INITIAL PROPOSED GUIDELINES. Within ninety  22 days after the enactment of the Export Trade Association 28 Act of 1980, the Secretary, after consultation with the Attor24 ney General, and the Commission shall publish proposed 25 guidelines for purposes of determining whether export trade,  1 expoetrade activities and methods of op ration of an associ2 ation or export trading company will meet the requirements 3 of section 2 of this Act. 4  "(b) PUBLIC COMMENT PERIOD.—Following publica-  5 tion of the proposed guidelines, and any proposed revision of 6 guidelines, interested parties shall have thirty days to com7 ment on the proposed guidelines. The Secretary shall review 8 the comments and, after consultation with the Attorney Gen9 eral, and Commission, publish final guidelines within thirty 10 days after the last day on which comments may be made 11 under the preceding sentence. 12  "(c) PERIODIC REVISION.—After publication of the  13 final guidelines, the Secretary shall periodically review the 14 guidelines and, after consultation with the Attorney General, 15 and the Commission, propose revisions as needed. 16  "(d) APPLICATION OF ADMINISTRATIVE PROCEDURE  17 ACT.—The promulgation of guidelines under this section 18 shall not be considered rulemaking for purposes of subchapter 19 11 of chapter 5 of title 5, United States Code, and section 20 553 of such title shall not apply to their promulgation. 21 "SEC. 6. ANNUAL REPORTS. 22  "Every certified adsociation or export trading company 04  23 shall submit to the Secntary an annual report, in such form 24 and at such time as he may require, which report updates  37 1 where necessary the infikation described by section 4(a)  ill  2 this Act. 3 "SEC. 7. OFFICE OF EXPORT TRADE IN COMMERCE  DEPARTMENT.  4 5  "The Secretary shall establish within the Department of  6 Commerce an office to promote and encourage to the great7 est extent feasible the formation of export trade associations 8 and export trading companies through the use of provisions of 9 this Act in a manner consistent with this Act. 10  "SEC. 8. AUTOMATIC  FOR  EXISTING  ASSOCIATIONS.  11  12  CERTIFICATION  "The Secretary shall certify any export trade associ-  13 ation registered with the Federal Trade Commission as of 14 April 3, 1980, if such association, within one hundred and 15 eighty days after the date of enactment of such Act, files with 16 the Secretary an application for certification as provided for 17 in section 5 of this Act, unless such application shows on its 18 face that the association is not eligible for certification under 19 this Act. 20 "SEC. 9. CONFIDENTIALITY OF APPLICATION AND ANNUAL 21 22  REPORT INFORMATION. "(a) GENERAL RULE.—Portions of applications made  23 under section 4, including amendments to such applications, 24 and annual reports made under section 6 that contain trade 25 secrets or confidential business or financial information, the  V••••••••••••111••••••  1 disillure of which would harm the copetitive position of 2 the person submitting such information shall be confidential, 3 and, except as authorized by this section, no officer or em4 ployee, or former officer or employee, of the United States 5 shall disclose any such confidential information, obtained by 6 him in any manner in connection with his service as such an 7 officer or employee. 8  "(b) DISCLOSURE TO ATTORNEY GENERAL OR Com-  9 MISSION.—Whenever the Secretary believes that an appli10 cant may be eligible for a certificate, or has issued a certifi11 cate to an association or export trading company, he shall 12 promptly make available all materials filed by the applicant, 13 association or export trading company, including applications 14 and supplements thereto, reports of material changes, appli15 cations for amendments and annual reports, and information 16 derived therefrom. The Secretary shall make available appli17 cations, amendments thereto or annual reports, or informa18 tion derived therefrom, to the Attorney General or Commis19 sion, or any employee or officer thereof, for official use in 20 connection with an investigation or judicial or administrative 21 proceeding under this Act or the antitruEi laws to which the 22 United States or the Commission is or may be a party. Such 23 information may only be disclosed by the Secretary upon a 24 prior certification that the information will ba maintained in  •  39 1 confidence and will only411 used for such official law enforce 2 ment purposes. 3 4 5  "SEC. 10. MODIFICATION OF ASSOCIATION TO COMPLY WITH UNITED STATES OBLIGATIONS.  "At such time as the United States undertakes binding  6 international obligations by treaty or statute, to the extent 7 that the operations of any export trade association or export 8 trading company, certified under this Act, are inconsistent 9 with such international obligations, the Secretary may re10 quire it to modify its operations so as to be consistent with 11 such international obligations. 12 13  "SEC. 11. REGULATIONS.  "The Secretary, after consultation with the Attorney  14 General and the Commission, shall promulgate such rules 15 and regulations as may be necessary to carry out the pur16 poses of this Act. 17 18  "SEC. 12. TASK FORCE STUDY.  "Seven years after the date of enactment of the Export  19 Trade Association Act of 1980, the President shall appoint, 20 by and with the advice and consent of th,; Senate, a task 21 force to examine the effect of the operation of this Act on 22 domestic competition and on United States international 23 trade and to recommend either continuation. revision, or ter24 mination of the Webb-Pomerene Act. The task force shall  OlerIzeirpleir....10111.114177110.1111111111111,011119MMYINCRIMPC7(.10'  NJ  1 havege year to conduct its study and. make its recom2 mendations to the President.". 3  (b) REDESIGNATION OF SECTION 6. The Act is  4 amended(1) by striking out "SEc. 6." in section 6 (15  5 6  U.S.C. 66), and (2) by inserting immediately before such section  7 8  the following:  9 "SEC. 14. SHORT TITLE.". 10  TITLE ILI TAXATION OF EXPORT TRADING  11  COMPANIES  12  APPLICATION OF DISC RULES TO EXPORT TRADING  13  COMPANIES  14  SEC. 301. (a) Paragraph (3) of section 992(d) of the In-  15 ternal Revenue Code of 1954 (relating to ineligible corpora16 tions) is amended by inserting before the comma at the end 17 thereof the following: "(other than a financial institution 18 which is a banking organization as defined in section 19 105(a)(1) of the Export Trading Company Act of 1980 in20 vesting in the voting stock of an export trading company (as 21 defined in section 103(5) of the Export Trak ing Act-of 1980) 22 in accordance with the provisions of section 105 of such 23 Act)".  1  (b) Paragraph (1) of section 993(a) of the Internal Re  ve.  • 2 nue Code of 1954 (relat ing to qualified export receipts of a 3 DISC)is amended4  (1) by striking out "and" at the end of subpara-  5  graph (G),  6  (2) by striking out the period at the end of sub paragraph (H) and inserting in lieu thereof "and", and  7 8 9  (3) by adding at the end thereof the following new subparagraph:  10  "(I) in the case of a DISC which is an  11  export trading company (as defined in section  12  103(5) of the Export Trading Company Act of 1980), or which is a subsidiary of such a compa-  13 14 15 16 17  fly, gross receipts from the export of services pro duced in the United States (as defined in sectio n 103(3) of such Act) or from export trade services (as defined in section 103(4) of such Act).".  18  (c) The Secretary of Commerce, after consultation with 19 the Secretary of the Treasury, shall develo p, prepare, and 20 distribute to interested parties, including pot ential exporters, 21 information concerning the manner in which an export trad22 ing company can utilize the provisions of part IV of sub23 chapter N of chapter 1 of the Internal Rev enue Code of 1954 24 (relating to domestic international sal es corporations), and 25 any advantages or disadvantages whi ch may reasonably be  expecte  rom t e e ec ion o  2 meOf a subsidiary corporation which et DISC. (d) The amendments made by this section shall apply  3  4 with respect to taxable years beginning after December 31, 5 1980. 6  SUBCHAPTER S STATUS FOR EXPORT TRADING  7  COMPANIES SEC. 302. (a) Paragraph (2) of section 1371(a) of the  8  9 Internal Revenue Code of 1954 (relating to the definition of a 10 small business corporation) is amended by inserting ", except 11 in the case of the shareholders of an export trading company 12 (as defined in section 103(5) of the Export Trading Company 13 Act of 1980) if such shareholders are otherwise small busi14 ness corporations for the purpose of this subchapter," after 15 "shareholder". (b) The first sentence of section 1372(e)(4) of such Code  16  17 (relating to foreign income) is amended by inserting ", other 18 than an export trading company," after "small business 19 corporation". (c) The amendments made by this. section shall apply  20  21 with respect to taxabl• years beginning after December 31, 22 1980.  ••••10.111.VPIRIPWIr  •  •••••••••.7  •••••••••••••••wempit  A  Calendar No. 785 96TH CONGRESS s 2o SESSION  .2718  [Report No. 96-735]  A BILL To encourage exports by facilitating the formation and operation of export trading companies, export trade associations, and the expansion of export trade services generally. MAY 15 (legislative day, JANUARY 3), 1980 Read twice and ordered to be placed on the calendar  •  MIMI\  Juno 1111 19110  TheZonorabla Spar* getsunaga United States Sonata Wisahimiton, D.C. 20510 Dear Senator ':atsunacjia. In Chairman Volo;-;oree aLsenoe, I am writing to thank iou for : ;our Uttar of flay 21 regarding tarther correermndenoe you received from Mx. 1ichae1 N. Tanaka, Senior vice rresidant of the Dank of timmelulu, emmeerning the imAict of rublic Law 96-221 oa the Ilaik of Honolulu and other raderal Veserve mamber banks in sini1ar position4;. The Doaird's staff is reviewing tha ismame raised iR ;Ar. Tanaka's letter and we expect to %av* a roop000e to you shortly.  alassamoly,  Prederick r. Adhultm COODJW:pjt (011-236) bcc: Gov. Schultz  Mr. Wallace (for follow up) Eallardi  •  SPARK M. MATSUNAGA  •  Action assigned Mr. Wade CHIEF DEPUTY MAJORITY WHIP  HAWAII  WASHINGTON OrrICIC.  /Z1Cnifeb ,Sfafez „Senate  362 Russrt.t. BUILDING WASHINGTON. D.C. 20510  WASHINGTON. D.C. 20510 HONOLULU OFIr I  CHAIRMAN, SURCOMMITTEE ON TOURISM AND SUGAR COMMITTEE ON FINANCE m(*Am'a.  T:  3104 PosP4ct Kumio EluiLotNo HONOLULU. HAWAII 96850  May 21, 1980  COMMITTEE ON ENERGY AND NATURAL RESOURCES COMMITTEE ON VETERANS' AFFAIRS  Mr. Paul Volcker, Chairman Board of Governors Federal Reserve System Washington, D. C. 20551 Dear Mr. Chairman: In connection with my letter to you of April 30, 1980, enclosed please find further correspondence which I have received from Mr. Michael N. Tanaka, Senior Vice President of the Bank of Honolulu concerning the impact that H.R. 4986, now Public Law 96-221, will have on the Bank of Honolulu and other Federal Reserve member banks in similar positions. Mr. Tanaka has raised four points relating to the reserve requirement provisions: 1) if cash items due from banks and in process are not considered as reserves, the Bank of Honolulu will experience a sizable decrease in funds available for loans; 2) the impact on the Bank's earnings will be severe as a result of the shift of funds between interest bearing loans to sterile reserves; 3) small national banks are at a competitive disadvantage as a result of the six year exemption from the reserve requirement accorded to state chartered banks; and 4) the new competition from savings and loans and credit unions will further hamper the ability of the banks to compete. In light of these concerns, I am again requesting that consideration be given to proving relief from reserve requirement provisions for the Bank of Honolulu and other banks in similar positions under the discretionary authority granted to you by Public Law 96-221. Thank you for your attention to this matter. Aloha and best wishes. Sincerely, 7-70:4 --4 -X F / r Spark Matsunaga U. S. Senator Enclosure:  Ltr. fr. Michael N. Tanaka, Senior Vice President and Cashier, Bank of Honolulu, dtd. 5/9/80 with copy of Schedule I -III  In 0 KY 1 14 FA 2 45 •  •  Bank of Honolulu May 9, 1980  The Honorable Spark M. matsunaga United States Senate 362 Russell Building Washington, D. C. 20510 Dear Senator Matsunaga: We have concluded our study on the H.R. 4986, Depository Institutions and Monetary Control Act of 1980. believe the act penalizes the Bank in the following areas: • • • •  impact of Deregulation Briefly, we of Honolulu  $1,588,000 decrease in lendable funds $680,000 less income out to 1985 Unfair competition New competition  Each of the areas is discussed in detail below and supported by our analysis. $1,588,000 Decrease in Lendable Funds Reserve requirements have a_direct_impact. on the amount of lendable funds available for the Hawaii Community. The critical variables for computing reserve requirements are (1) reserve requirement rates, (2) deposits which are subject to the reserve requirement and (3) cash items which are considered reserves. Of the three variables, the later has the largest impact on Hawaii based banks and has been a chief deterrent to Federal Reserve System membership. Cash items due from banks and in process represenE- a significantly larger amount for Hawaii banks due to "off-shore time and space constraints" i.e., distance from the mainland. The State of Hawaii banking laws recognize this fact and have therefore allowed such items to be considered cash for reserve purposes. The Federal Reserve System does not allow these items to he considered cash for reserve purposes and as a result the Bank of Honolulu would have $1,588,000 less available for loans, as shown on Schedule I and II.  841 BISkAOP STREET • HONOLULU. HAWAII 96813  The Honorable Ork May 9, 1980 Page Two  Matsunaga  $680,000 Less Income out to 1985 The shifting of funds between interest bearing loans to sterile reserves at the Federal Reserve System would have an adverse impact on the Bank's earnings. As shown on Schedule III, the penalty would amount to $680,000 out to 1985 and $907,000 out to 1993. (The Bank of Honolulu earned only $334,800 in 1979). This earnings penalty represents the difference between State chartered vs. Federal chartered membership as provided for under the Act. We are confident that this inequity was not intentional but merely an oversight. Unfair Competition As provided for under the Act, State chartered banks are exempted from the reserve requirements for six years and will phase-in over another eight-years; This exemption recognized the "off-shore time and space constraints" of Hawaii banks. Since our last letter, we have asked the Federal Reserve Board of Governors for a similar type exemption. In a letter dated April 22, 1980 from Mr. Gilbert T. Schwartz, Assistant General Counsel, the Board denied our request stating that "granting the requested relief would be inconsistent with the statutory language and the intent of Congress . . and that " . . . the Bank of Honolulu's competitive situation should best be remedied through congressional action." We believe that the Board has erred in their interpretation of congressional intent. The federal reserve member banks , Bank of Honolulu, Bank of Maui and Hawaii National Bank, represents only 3.7% of all Hawaii Bank assets in 1979 and 2.0% of profits. We are confident that a similar exertion for the sElaller national banks was inadvertently left out of the act and that Congress did not intend to reward the large banks and penalize the small banks.  The Honorable *Irk M. flatsunaga May 9, 1980 rage Three  •  New Competition Savings & Loans and Credit Unions will be allowed to offer personal checking accounts starting next year and Savings & Loans will also be able to offer consumer loans. The entry of these competitors, who are as large as the banking industry in Hawaii, should further penalize the Bank's ability to compete. The table below illustrates the impact of these large new competitors: Amount Total Bank depos Bank of Honolulu  1979  3,783,792,000 31,746,000  100.00% 0.84%  *******  Total Savings & Loans and Credit Unions  3,202,897,000  Total All depositories Bank of Honolulu  6,986,689,000 31,746,000  100.00% 0.45%  As can be seen, the Savings & Loans Associations and Credit Unions will be very large competitors. Further, as we understand, Savings & Loans and Credit Unions will be allowed to phase-in reserve requirements over eight years. This inequity surely could not have been Congress'intent. Reserve Requirement Under H.R. 4986  I  Reserve requirements under H.R. 4986 will be applied for any member banks as of July 1, 1979. On the date of enactment of the Act, March 31, 1980, Bank of Honolulu was a member bank and therefore, would be subject to the current reserve requirements which phase-down over four-years as shown on the following page:  M. matsunaaa 1 The Honorable 11)ark May 9, 1980 Page Four  Period  Reserve Requirement  • Phase-down of Requirement  $1,813 M  1.  Current  2.  1980 - 1981 FY  1,521 M  292 M  3.  1981 - 1982 FY  1,229 M  584 M  4.  1982 - 1983 FY  939 M  874  5.  1983 - 1984 FY  648 M  1,165 M  y  r 4, Beainning with the fiscal year starting Septembe 1980, Bank of Honolulu would phase-down its reserve requirement position over a 4-year period. 1.  The current reserve rates before enactment of the Act requires a reserve requirement of $1,813,000 per day during the reserve period of April 3 - September 3, 1980.  2.  For the fiscal year starting September 4, 1980, a 25% phase-down would be in effect. The Rank's reserve requirement would be $1,521,000; a reduction of $292,000.  3.  4.  5.  4, In the second fiscal year starting September 1981, a 50% phase-down would be in effect. The Bank's reserve requirement would be $1,229,000; a reduction of $584,000. In the third fiscal year starting September 4, 1982, a 75% phase-down would be in effect. The Bank's reserve requirement would be $939,000; a reduction of $874,000. ember 4, In the fourth fiscal year starting Sept 1983, the Rank's reserve requirement will have Gross the full impact of the 100% phase-down. reserve would be $648,000; a reduction of $1,165,000.  gulation The full impact of the Depository Institutions Dere realized by and Monetary Control Act of 1980 will not be dule I. this Bank until September 4, 1983 as shown on Sche  The Ponorable Irk M. Matsunaga May 9, 1980 Page Five  •  Conclusion The difference in philosophy as to the timing of phasedown over the number of years is extremely inequitable and does not afford member banks the same benefits as non-member banks. The Monetary Control Act definitely should be equitable for both phase-downs and phase-ins but, more importantly, the length of period to harmonize the banking industry over a phase period must be fair. Non-member banks outside the continental United States enjoy a discriminatory advantage over member banks outside the continental United States (Please see Schedule III). The discriminatory provisions of the Act do not provide an equitable return to our shareholders. If this Bank were granted the same reserve requirements and phase-in periods which are applicable to non-member banks, we could have an additional gross earnings of $907,000 from the reserve differential between the two types of banks. This is based on a nominal rate of 10% per year to 1993 (Please see Schedule III). Special provisions were made for non-member banks outside the continental United States. Why must current member banks be treated as second-class banks? We have supported the Federal Reserve System since our inception in April of 1973; however, it definitely appears that we are being punished for being members of the Federal Reserve. The law has lost sight of the original intent of the bill - to maintain membership in the Federal Reserve System so monetary and fiscal controls can be exercised more effectively and to provide a level playing field for all banks. Recommendation The Federal Reserve Bank, through its Board of Governors should cure the extremely discriminatory provisions between member banks versus non-member banks outside the continental United States. The Congressional delegation can assist the Bank of Honolulu by contacting the Board of Governors indicating that Congressional intent was not to discriminate against the smaller Hawaii Banks and urge the Board to adopt one of the following remedies:  The Honorable S ark M. Matsunana May 9, 1980 Page Six  •  1.  Waive time limitation pursuant to SFC 103 section 19(b)8(d) of the Act for bank outside the continental United States. This will allow us to be treated as a state charter bank and will qualify us for the same phasein period as other non-member banks in the State.  2.  Avail to all banks outside the continental United States the same phase-in period as that granted to non-member banks in the same market place. This will allow all banks in their relevant market to be competing in a level playing field.  3.  Allow member and non-member banks in the State of Hawaii the same basis for computation of reserves maintained. That is, the use of State reserve formula and take 100% deduction on due from banks and cash items in_process of collection. (The current ST-11 format allows the effective reduction of reserve requirements by approximately  We appreciate the support you have given us on this issde and look forward to your continued support. If I can provide further details, please call me at (808) 523-2461. Sincerely, at t  tt )  Michael N. Tanaka Senior Vice President and Cashier MNT/cpa Attachment  RESERVE COMPUTATION WEEK ENDED 3/26/80 EFFECTIVE PERIOD - 4/03 - 4/09/80 EFFECTIVE SEPT. 4 - TRANSITIONAL ACJISTNENTS (1) 3rd Year 2nd Year 1st Year 1982-83 '1981-22 1980-81 Res. Rate Amounts  CURRENT  EMAND DEPOSITS Less:  Gross  Cash Items in Process Due From Banks Demand  Amounts $131 836 X  Res. Rate  1,583 X 429 X $11 1824 X  Reserves on First 2 Million ver 2 XX to 10 XX ver 10 XX Reserves on Transaction A/C (A.T.S.) 115 X $ On First 25 Million -0Over 25 Million Net Demand Deposits $15,963 X  7% 9.5 11-3/4%  $ 6,025 X  3%  li  ;AVINGS AND CLUB ACCOUNTS  Reserves  4th Year 1983-84  3% N/A ___  $  140 X 7604 214 X  3 X N/A $ 1,117 X  $11,824 X N/A $11,824 X  3% 12%  2,470 X  0%  $  181 X (2  3% 6% 2-1/2% 1%  $  150 13 156 1  2%  $  195 X  $  N/A 515 X  MEM AM MIN  $  926 X  $  735:4  $  $  136 X  .$  91 X  $  $  355X N/A  545X. $  355:4  46 X  $  -0-  293 X 2934" 648 X  "IME DEPOSITS Maturities: 30 Days But Less Than 180 Days $ 5,000 X On First 5 Million 212 X Over 5 Million 6,234 X Amk180 Days But Less Than 4 Years 35;4 Years and Over Supplemental Res. on Time Certificates of 100 X andOver$ 9,760 X Reserves on Non-Personal N/A Time Deposits (2) $11,481 X Time Deposits  lip4  GROSS RESERVE REQUIREMENT  N/A  X X X X  $ 1,813 X  $ 9,760 X $ 9,760 X  403 X  $  348.4  $ $  $ 1,229_4  S  939 X  $  3% $  459X  $ 1,521 X  $  Footnotes: Sec. 103. Section 19(b) of the Federal Reserve Act (12 U.S.C. 461(b)(8)(c)(i)). Increase of Transaction Dollar Amount Using 80% Factor Not Applied.  (1)  Transitional Adjustments:  '(2)  Estimated 85% of Time Deposit of $11,481 $ or $9,760 $ -is Public and Business (Non -Personal).  RESERVE COMPUTATICN BASED ON BANK OF HONOLULU'S BASE CURRENT Reserves Res. Rate  Amounts :MAND DEPOSIT Less: Less:  Gross  Rees on Transaction A/C (A.T.S.) $ On First 25 Million  115 X -0-  12%  1992  19  $ 1,627 X (A)(21160 X) $(1,681 X)  5%  $  6 X N/A  N/A  $t2,208 X)  $13,675 X $ 6,025 X  5%  $  301 X  $11,481 X Secured Public Deposits$ $ 5,110 X $ 6,371 X Reserves on Non-Personal — N/A Time Deposits***  5%  $  319 X  $  N/A 319 X  AVINGS AND CLUB ACCOUNTS  1991  $13,836 X  276 X Secured Public Deposits* $13,560 X Demand Deposits 100% Due From Banks** 100% Items in Process of Collection**  Over.:25 Million Net Demand Deposits  Amounts  EFFECTIVE JANUARY AT PHASE-IN RATES (B) 1990 1988 1987 1939 Res. Rate 1986  $11,824 X N/A $11,324 X N/A  3% 12%  $44 X N/A  $176 X  $220 X  N/A $176 X  N/A $220 X  $215 X  $309 X  $35: ::  $44 X  $88 X N/A $38 X  N/A  N/A  N/A  N/A  N/A  $37 X $37 X  $74 X  $111 X  $111 , 1  $184 X $184 X  $220 X $220 X  $256 X $256 X  $29_  $74 X  $148 X $148 X  $81 X  $162 X $243 '4  $324 X  $404 X  $485 X, $565 X  $6,  N/A  $132 X N/A $132 X  N/A  $215 X , N/A  N/A  $339 X N/A  $3:••  TmB DEPOSITS  Total Less:  Time Deposits  $ 6,371  y  •-ROARESERVE REQUIREMENT  *  No Reserves Required on Secured Deposits,  $ 9,760 X $ 9,760 X  $(1,588 X)  3%  During Phase-In, Amount Included in Base Deposits.  ** :Due From Banks and Cash Items in Process of Collection (Float) Counts as 100% Reserves. **  Estimated 85% of Time Deposit of $11,481 X or $9,760 X is Public and Business (Non -Personal).  A)  Assume the inclusive of $1,850 X Held as reserves at Federal Reserve Bank.  'B)  1/8 of Required Rates Each Year From 1986 - 1993 Increase of Transaction Dollar Amounts Using 80% Factor Not Applied.  During Phase-In, Amount is Excluded.  $2..  •  1980 MEMBER BANK' (Schedule I)(1) $ 1,813 NON-MEMBER BANK (Schedule II)  •  1981 $ 1,521 $  , . (1,588 $) (1,588 $).  1982 $ 1,229 $  (1,588 $  COMPARATIVE RESERVE REQUIREMENT FOR BANKS OUTSIDE THE CONTINENTAL UNITED STATE  1983 $  939'$  (1,588 $)  1984 $  1985  648 $  648 $  (1,588 $) .(1,588 X)  1986  1987  1988  1989  1990  1991  $648 $  $648 $  $648 $  $648 $  $648 $  $648 $  $648  g  81 $  162 $  243 pi  324 $  404 $  485 $  565  y  Net Difference L$ 3,401  $ 3,109 $  $2,817 44  $ 2,527 pl  $:2,236 $  $'2;23644  $567 0  $486 $  $405 $  $324 $  $244 $  $163 $  $ 83 0  Investable Difference(2)  $ 1,813  $ 1,521 $  $1,229 $  $  939 $  $  648 $  $.  648 $  $567 0  $486 $  $405 $  $324 $  $244 $  $163 $  $ 83 $  Gross Earning at 10%  $  12344  $  94$  $  65$  $  6544  $ 57 $  $ 49 $  $ 41 $  $ 32 $  $ 24 $  $ 16 $  $  181  $  15244  $  GROSS EARNINGS  •  1992  (1)  Curren Reserve Comparative thru effective date of Phase-Out Period (impact on earnings annualized)  (2)  Negative Non-member Amount Excluded  844  June 20, 1980  The Honorable Beery Hellman United States Senate Washington, D.C. 20510 Dear Senator Hellman, In Chairman Vole&ar's absence, Ian writing to acknowled9a receipt of your letter of June 4. The loan to the First rennsylvesia Beak VINA made by the  Yoliong Deposit insurance Correration7 teroixfotre your lettur to that agency for rsaponee. Sincerely,  Donald J. vinn Special Assistant to the nonre ;  Congressional Liaison  mac CO:pjt (IV -251) bcc: Jack Ryan ;Iro. Mallard  resseir  •  4.•  •  HENRY M. JACKSON, W44.. CHAIRMAN  FRANK CHURCH, IDAHO L BENNETT JOHN•JTON, LA. DALE BUMPERS. ARK. WENDELL H. rORD, KY. JOHN A. DURKIN, N.H. HOWARD M. METZENBAUM, 01410 S”ARK M4ArSUNAGA. HAWAII JOHN pm-Lc:HIER, MONT. PAUL E. TSONGAS. MASS.  MARK 0. HATFIFL 0, DREG4110 JAMES A. MC CLURE. IDAHO LOWELL P. WEICKER. JR., CONN. PETE V. DOmENICI, N. MEX. TED STEVENS, ALASKA lir NRY OELLMON. OKLA. MALCOLM WALLOP, WYO.  BILL BRADLEY, N.J.  ?Jertifeb Zfafez 'Zettafe COM MIT TEE iDN1 ENERGY AND NATURAL RESOURCES  DANIEL A. DREYFUS, STAFF DIRECTOR D. MICHAEL HARVEY, CHIEF COUNSEL STEVEN G. HIC• OK. STAFF DIRECTOR FOR THE MINORITY  WASHINGTON. D.C. 20510  June 4, 1980  Mr. Paul Volcker Chairman Federal Reserve System Federal Reserve Building 20th and Constitution, N. W. 20551 Washington, D. C. Dear Mr. Chairman: Enclosed is a copy of an article from the April 29 issue of American Banker relating to the free loan which the FDIC made to the First Pensylvania Bank. With the current interest rates, this amounts to a "gift" of over $40 million to this bank which came into difficulty due to the mismanagement and greed of its officers. This would seem to be a dangerous precedent in addition to an indefensible double standard. Had First Pennsylvania been a small country bank, it is unlikely that such a lucrative arrangement would have been worked out. To date I have seen no understandable defense of this action in print. If such an explanation has been made, I would appreciate receiving a copy. Sincerely, /Lo Henry Bel mon HB:csb Enclosure  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  Carson, Teresa. "$500 Mil. Package for 1st Penn." American Banker, April 29, 1980.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  June 23, i•:ii The Honorable Warren G. Eavntmon United States Jenate Washington, D. C. 20510 Dear Senator navnueon; Thank for our letter of June le rec.ueL:ting comment on the enclos.ed corresvondonce you mceivail from yeur con3tituent, nr. J. C. Vaux, President of Vaux Conotruction Comiany, regsrdinc_: the recent runt-silvvir marltot situation. rederal ;,aserve car. fulk atreciate and undorvtand iour constituent's concern eJout the recent vroen reports—often taioleadinv--cencernini; the rolc ,layftd 101- tlac. Federal reserve in curtain loans to the runt family. ara encloein..4 Cowjreseional testimony ilivcn by Chairman Volckor that I helps clarify the issues. Me loan in question was negotiateZ entirely by private tArties in a framework in whiCh both the croditorn and debtors perceived that the prosiioctive credit facility would strens.then their respective pozons. Veither Chairman Volcker, the Federal F,eserva, nos any government official instigated, guide4 or alprovnd the loan no;,jotiations Letueon the Uunt intereots and the (2roul? of banks involved. The Federal _4# •- has obi. said it would not oLject to such a credit, providod that the Runts would not allowed to engage in freah speculative activit,1?- ef any Yind and that their renainim nilver would he liquidated in an orderly fashion. The neNAtiations involve a restructurin3 of exi!;timj obli.Ationn- they will not lead to any new funds for t!:e TaIntt. The Federal f-tJaervo's wale concern has been to ensure that sucl I. rodyral Reserve Special Credit Rcstraint a Loan coml-lie!I with Program, i,articularly ae it apf:lies to Treventing new speculation. Poyon4 this, Col 7ederal aeserve cannot and should not interject itself into inclividual private trancactions between lenaers and i,orrowers, and I would reemi.,hasise that no 94vernr;ent money roetly, or intUrectly, wegi involved. I hore this information is ugeiul to you. no know if I can be of further asistance. (C0):vcd =12E2 (V-263) bcc: Mrc. vallardi  rleaoe let  51incerel! your3. (signed) Jay P. Brenneman P Fro:riTIC1(41;\ .A.usistant to thf':t L.,0,7Lr61  2:nclocure3 — 5/1/80 testir.tom;  WARREN G. MAGNUSON. WASH., CHAIRMAN JOHN C. STENNIS. MISS. ROBERT C. BYRD, W. VA. WILLIAM PROXMIRE. WIS. DANIEL K. INC-KITE. HAWAII ERNEST F. HOLLINGS. S.C. BIRCH BATH. IND. THOMAS E. EAGLETON. MO. LAWTON CHILES, FLA. J. BTP4NF TT JoHNSTON, LA. WALTER D. HUDDLESTON, KY. QUENTIN N. !BURDICK. N. OAK.  •  0  4ILTON R. YOUNG. N. OAK. IARK 0. HATFIELD. OREG. ED STEVENS, ALASKA CHARLES MC C. MATHIAS. JR.. MO. RICHARD S. SCHWEiKER, PA,  '311C2ifc ,)fn fez -.Senate  HENRY BELLMON. OKLA. LOWELL P. WEICKER. JR CONN. JAMES A. MC CLURE, IDAHO  COM M I TT E E ON APPROPRIATIONS  PAUL LAXALT. NEV. JAKE GARN. UTAH HARRISON SCHMITT, N. MEX.  WASHINGTON,  D.C. 20510  PATRICK J. LEAHY, VT. JIM SASSER. TENN. DENNIS DE CONciNi. ARIL DALE SIUMPEFIS. ARK. JOHN A. DURKIN, N.H.  3 June 18, 1980  REQUEST FOR RESPONSE TO CONSTITUENT INQUIRY Please find an enclosure from: Mr. J. G. Vaux Vaux Construction Company 935 Kirkland Avenue Kirkland, Washington 98033 Mr. Vaux recently contacted me conce rning a situation within the purview of the Federal Reserve System. Your report in duplicate along with the return of the enclosure will be appre ciated. Sincerely,  WGM:tm  ^ •  "ors  VAUX CONSTRUCTION CO. 4  GENERAL  16010OITY  CONTRACTORS  INDUSTRIAL -COMMERCIAL  935 Kirkland Avenue KIRKLAND, WASHINGTON 98033 206-822-1206  May 1, 1980  The Honorable Warren G. Magnuson United States Senate Washington, D. C. 20510 Dear Senator Magnuson: It seems as if Paul Volcker of the Federal Reserve is rewarding the giants and at the expense of the small guy. (See enclosed article on Union vs Non-Union from ENR 4-24-80, and the article on Hunts from Journal-American 5-1-80.) The struggle between unions and non-union contractors has been going on for a long time, but when the government says NE have to cut back, then I feel that the government should do THe same. If a job can be done more economically by a non-union contractor, then he should get the job. If the government is going to continue to protect the unions, then the problem of inflation is going to continue. can not understand why Mr. Volcker wants to help out the Hunts. One day he says that the speculators are causing the high interest rates and inflation, and then the following day he says "Let's lend them S1 Billion because they are in financial trouble." Their own greed and the greed of the financial markets created the problem. They should be required to solve their own problems. he are a small contracting firm and I know that if I over-extended the company and was in financial difficulties, the government would not come to my rescue. It is just another case where the government looks out for the big guy but could care less about the little man. Since the people elect the government, our only way to get the point across is the ballot box. ve as small business men want some protection from the government-not outright gifts. Respectfully yours, VAUX CONSTRUCTION CO.,  JGV/afr  Enclosures  Vaux, President  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/newspaper articles Citations:  Number of Pages Removed: 2  "ENR Editorials." Engineering News-Record, April 24, 1980. Associated Press. "Fed Boss Volcker Backs $1 Billion Loan to Hunts." 1980.  Federal Reserve Bank of St. Louis  https://fraser.stlouisfed.org  Junit 23, 19t0  The eonerwale Tony P. Hall Souse of E417-resentatives Washington, P.C. 20515 Deer hr. hall; Thank you for ycAir lctter of Nay 29 comeerning an lequiry you received from mr. howar4 Stank of Dayton, Ohio, A col,y of the notice Mr, Blank received was not included vitt your letter, but be indicated that his aaseent wittt Town and Couatxy Charge would be subject to additional interest if the balsas. was not paid by t4ay 31, even thougott the purchases were made prior to the credit restraint reculations, From the information provide& it an:Nears that the now terms implemaated hy Town and Country Charge zay net met with the intent of the credit reetraint regulations. Mewever, we wield need a copy of the notice Rlank receivee fres Town and Country Charge to vakf, that determination. Iz. amendments to the credit restraint regulation*, the Board established a uniform rule for creditor* to follow if they impose certain changes en egess-.d emedit asseants. Creditors whe either impose or increase any rinsing* ohm,* or  or change the nothod of eseputing the belies. ether c;, Ishic.ti to cares are applied( or increase the saquired niobium pentedie payme13t4 aest provide a written notiee of the chomps to euetemem ist least 30 days before the effective date of the chow.* Perthempores essesmare must be gives the option' to pay off their cetstesdiag haloes.* in seeeedearte with the original t6rms of the clmtreet• Now team sumr be impelled es all outstanding credit is the account it awmpeust holds, weep in writing to a change in terns or agrees by esatinuing to meet V  a credit card or revo1vin9 credit account after the effective date of the specified ekanges*  ratt1e Ton:i i'aiAt Two  X.4  It ;‘..t. LInni sAll rrsvid gows sod CI:Aultr:f Ctl4rvo 4 eft 11/411  tcoky of VA! mAtcx ,Jatei to r4?vie it itor ccmiplionOo with the evincit xvotraint re,:lalotiane ami ford it to tho appeeprLato awsloy tor attention. noose Lot no know it 2con looat ft,..cter ausistAnce. Streftwely,  'Si 7roAtitick IT. Schultz.  RP:Calved (11V-237) bee:  Robin Fenner  Gov, schultz nrs. vallardi  TONY P. HALL  • A c tion assigned Janet Hart  •  THIRD DISTRICT, OHIO  20515  (202) 225-6465  DISTRICT OFFICE. 501 FEDERAL nuiLDP4G  CongreE;5 of tbe OHIO *tatc5 ji?otifse of 3AepreiSentatitn5  SUBCOMMITTEE ON ANTITRUST RESTRAINT OF TRADE ACTIVITIES AFFECTING  200 WrsT SECOND STREET DAYTON, OHIO  45402  SMALL BUSINESS  SUBCOMMITTEE SBA AND SBIC AUTHORITY AND GENERAL SMALL BUSINESS PROBLEMS  1009 LON:WORTH HOUSE OFFICE DUIUDINc) WASHINGTON, D C.  COMMITTEES:  Washington, D.Q. 20315  /A  (513) 225-2843  SMALL BUSINESS FOREIGN AFFAIRS SUBCOMMITTEE ON ASIAN AND PACIFIC AFFAIRS SUBCOMMITTEE ON INTERNATIONAL ORGANIZATIONS  May 29, 1980  Honorable G. William Miller, Chairman Board of Governors of the Federal Reserve System Federal Reserve Building Washington, D.C. 20551 Dear Chairman Miller: I have received an inquiry from Mr. Howard Blank, of 1026 Hyde Park Drive, Dayton, Ohio. Mr. Blank advises me that he received a notice from Town and Country Charge, Lock Box 1158, Chicago, Illinois 50590, that if the balance of his charge was not paid by May 31st, his current account would be charged extra interest, even though the purchases were made prior to the new regulations. He questions how this action can be taken. I would appreciate your comments on this matter. Specifically, I am interested in knowing if the above meets with the intent of the regulations you promulgated. Please advise me in this regard. Sincercl  Tony P. Hall Member of Congress  TPH:hl  p •  •  110  ..•••...  BOARD OF GOVERNORS OF THE  :t12 • co . 7i  Lu • i--• •  • d-4  FEDERAL RESERVE SYSTEM WASHINGTON  cn . .a.  2  •‘• 6WAL FIES:•.  FREDERICK H. SCHULTZ  •••••••  VICE CHAIRMAN  June 23, 1980  The Honorable Benjamin S. Rosenthal Chairman Subcommittee on Commerce, Consumer, and Monetary Affairs Government Operations Committee U.S. House of Representatives Washington, D. C. 20515 Dear Mr. Chairman: In Chairman Volcker's absence I am pleased to respond to your letter of June 13, 1980, and to enclose a Board staff memor andum summarizing the legal and the policy principles which determine the kinds of nonbanking activities that may be engaged in abroad by foreign and domestic bank holding companies. Your general understanding that forei gn bank holding companies may engage in a wider range of activities abroad than domestic bank holding companies is confirmed in the memorandum . However, it is also pointed out that U.S. banking organizations are afforded additional latitude in conducting their foreign nonbanking activ ities abroad from what is generally permissible in the U.S.  committee.  I hope the enclosed memorandum is useful to you and the Sub-  Sincerely,  Frederick H. Schultz Enclosure  BENJAMIN S. ROSENTHAL. N.Y.. CHAiRMAN LYLE WILLIAMS, OHIO JIM JEFFRIES, KANS.  rBERT T. MATSUI, CALIF. EUGENE V. ATKINSON. RA. FERNANO J. ST GERMAIN. R.I. JOHN CC.NYERS. JR..  JOEL DECKARD,  NINETY-SIXTH CONGRESS  ELLIOT I H. LEVITAS. GA. Congrt  MAJORITY-(202) 225-440:  of tbe Uniteb .itate5  ott.qe of 1lepre5entatibel COMMERCE. CONSUMER. AND MONETARY AFFAIRS SUBCOMMITTEE  I  OF THE  /  COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING. ROOM 13-377 WASHINGTON. D.C. 20515  June 13, 1980  Hon. Paul A. Volcker, Chairman Board of Governors Federal Reserve System Washington, D. C. 20551 Dear Mr. Chairman: The investigation of the Hongkong and Shanghai Bank case by the Commerce, Consumer, and Monetary Affairs Subcommittee has focused in large part, as you know, on the many nonfinancial activities in which subsidiaries and affiliates of Hongkong are engaged overseas. It has been my impression that domestic U.S. bank holding companies are not permitted to engage, either directly or indirectly, or to be affiliated with firms that engage, in the nonfinancial activities abroad that are permissible under U.S. law for foreign bank holding companies that own U.S. banks. In other words, it has been my impression that U.S. law and Feaeral Reserve regulations apply a different and more liberal standard to foreign bank holding companies that own U.S. banks than to domestic U.S. bank holding companies as regards the permissible scope of overseas nonfinancial businesses that may be owned or controlled by or affiliated with the firm. Is my impression on this in substance correct? I would appreciate having a letter or memorandum, suitable as a summary briefing document for members of the subcommittee, that states in broad policy terms the essential differences between how the law and regulations limit the range of overseas nonfinancial activities permissible to domestic U.S. bank holding companies as compared with how they limit the range of activities permissible to foreign bank holding companies that own U.S. banks. Please provide this letter or memorandum prior to June 25. Sincerely,  Benjamin S. Rosenthal Chairman BSR:tv  • BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM June 23, 1980 STAFF MEMORANDUM ON THE OVERSEAS NONBANKING ACTIVITIES PERMISSIBLE FOR DOMESTIC AND FOREIGN BANK HOLDING COMPANIES  In a letter dated June 13, 1980, to Chairman Volcker, the Honorable Benjamin S. Rosenthal, Chairman of the Commerce, Consumer, and Monetary Affairs Subcommittee of the House Committee on Government Operations, asked for confirmation of his understanding that under existing laws and regulations domestic bank holding companies are not permitted to engage in the nonfinancial activities abroad that are permissible for foreign bank holding companies, i.e. foreign organizations that own or control U. S. banks.  Chairman Rosenthal also requested  a "summary briefing document" for use by members of the Subcommittee that sets forth in policy terms the essential differences between U. S. laws and regulations as they affect the foreign nonfinancial activities of domestic and foreign bank holding companies.  This memorandum addresses  the matters raised by Chairman Rosenthal. I.  General Statement and Summary It has long been a fundamental policy of the United States  financial system that banking and commerce should be conducted separately. Separation of the two activities is intended to prevent undue concentration of financial resources, conflicts of interests, unfair competition and unsound banking practices and, thereby promote the public interest. .  The policy is embodied most prominently in the Glass-Steagall Act (12 U.S.C.  24, 78, 377, 378) and the Bank Holding Company Act ("BHCA")  (12 U.S.C.  1841 et seq.)  National banks are authorized to exercise  • -2-  "such incidental powers as may be necessary to carry on the business of banking."  (12 U.S.C. 24, 1r 7)  Section 16 of the Glass-Steagall  Act prohibits a national bank from purchasing for its own account shares of stock of any corporation except as is otherwise permitted by 1aw.1/ Section 4 of the BHCA (12 U.S.C. 1843) prohibits any bank holding company from engaging directly or indirectly in activities other than banking or managing or controlling banks except as may be permitted by the BHCA. While the principle of separation of banking and commerce has served the U. S. well, promoting economic competition and a strong banking system, other nations have pursued a different philosophy. The financial systems that prevail in many foreign countries authorize, and in some instances encourage, participation by banks in a range of nonfinancial activities that would not generally be permissible for U. S. banking organizations without an exception being afforded from the laws discussed above.  Because of this and in order to enable U. S.  banks to compete viably in foreign banking markets, U.S. laws and regulations are considerably more flexible with regard to the foreign nonbanking activities of U.S. banks. Foreign banks, on the other hand, when engaged in the banking business in the U. S., are subject to the nonbanking prohibitions of the BHCA both with respect to their operations in the U. S. and their operations abroad.  Again, however, Congress has recognized that it  would be unrealistic to require foreign banks to conform their worldwide operations to the nonbanking requirements of the BHCA as a condition  1/ The stock purchase provision of section 16 is made applicable to State member banks by section 9 of the Federal Reserve Act (12 U.S.C. 335).  -  -3-  for doing a banking business in the U. S.  Thus, the BHCA contains  provisions which grant certain foreign organizations limited exceptions for their nonbanking activities abroad. Under the BHCA and IBA, the Board has been given the major responsibility for implementing the statutory exceptions with respect to the foreign nonbanking activities of both U. S. banking organizations and foreign banks and bank holding companies.  The Board has carried  out that responsibility by allowing U. S. banking organizations, consistent with principles of safety and soundness, to engage abroad in a range of financially related activities not generally permissible to domestic banks in the U. S.  However, the Board has not permitted  domestic institutions to undertake activities abroad that are of a purely commercial nature even where such activities may be permissible for indigenous banks.  With respect to foreign banks and foreign bank  holding companies, the Board has not attempted to apply the princip le of separating banking from commerce extraterritorially.  Rather, the  Board has attempted to ensure that foreign organizations that are engaged in banking in the U. S. are banks in their own right and serve as a source of strength to their U. S. operations.  Regulations that have  recently been published for comment would accomplish this by requiri ng that a foreign organization be principally engaged in banking outside the U.S. in order to qualify for exemption from the nonbanking prohibitions. Qualifying foreign organizations would not be required to conform their foreign nonbanking activities and investments to U. S. standards.  Never-  theless, when it comes to nonbanking activities in the U. S., the Board has maintained that foreign organizations should be subject to generally the same standards as domestic institutions.  -4-  II.  Key Statutes and Regulations The principal statutes and regulations that deal with exceptions  from the nonbanking prohibitions for domestic and foreign organizations are sections 25 and 25(a) of the Federal Reserve Act (12 U.S.C. 601 and 611); section 4(c)(13) of the BHCA (12 U.S.C. 1843(c)(13); Regulation K (12 CFR 211); sections 2(h) and 4(c)(9) of the BHCA (12 U.S.C. 1841(h) and 1843(c)(9)); and section 225.4(g) of Regulation Y (12 CFR There follows a general description of these provisions: Section 25 of the Federal Reserve Act a.  Foreign branches of member banks  Section 25 of the Federal Reserve Act authorizes the Board 2/ to approve the establishment of foreign branches of national banks— and to issue regulations which, in addition to regulating powers which a foreign branch may exercise under other provisions of law, may authorize foreign branches to exercise further powers as may be usual in connection with the transaction of the business of banking in the places where the foreign branch transacts business.  Under section 25, however, the  Board's regulations cannot authorize a foreign branch to enI..•eneral business of producing, distributing, buying or selling goods, wares or merchandise; nor, except as to such limited extent as the Board may deem necessary with respect to securities issued by any "foreign State" as defined in section 25(b) of the Federal Reserve Act (12 U.S.C. 632), can such regulations authorize a foreign branch to engage or participate, directly or indirectly, in the business of underwriting, distributing, or selling securities.  2/ Section 25 also applies to State member banks by virtue of section 9 of the Federal Reserve Act (12 U.S.C. 321).  -5-  The Board had implemented its authority to permit member banks to engage in additional activities abroad through the issuance of Regulation K. Section 211.3(b) of that Regulation, for example, permits foreign branches -3/ of member banks to guarantee customers' debts, to deal in securities of the host country, and to act as insurance agent or broker.  The Board  has not exercised its regulatory powers to permit branches to engage in all activities usual in connection with banking abroad.  The activities  it has permitted, however, enable U. S. banks to compete on a more equitable basis with local banks abroad and the Board, in its regulation, has invited member banks to petition to engage in additional activities considered to be usual in connection with banking abroad.  Even if the  Board were to exercise its full powers under section 25, the specific limitations with respect to securities activities would prevent U. S. banks from having powers fully comparable with local institutions. b.  Investments in Foreign Banks  A 1966 amendment to section 25 authorized national banks (and indirectly State member banks) to acquire the stock of foreign banks with the prior approval of the Board.  National banks were also authorized  to lend to foreign banks in which they had invested without regard to the restrictions on loans to affiliates imposed by section 23A of the Federal Reserve Act (12 U.S.C. 371(c)).  This exception to the stock  purchase prohibitions of the Glass-Steagall Act discussed above was deemed necessary in part to enable U. S. banks to engage in the banking business in those countries whose laws did not permit branches of foreign banks.  3/ Because State member banks derive their banking powers from their charters issued under State laws, this regulation does not expand the powers of foreign branches of such banks but relieves them from restrictions arising out of Federal law.  -6-  The term "foreign bank" is not defined in the statute but has been defined by the Board in section 211.2(g) of Regulation K as an organization that:  "is organized under the laws of a foreign country;  engages in the business of banking; is recognized as a bank by the bank supervisory or monetary authority of the country of its organization or principal banking operations; receives deposits to a substantial extent in the regular course of its business; and has the power to accept demand deposits."  Regulation K (section 211.6(c)) also permits  a member bank to make loans to its foreign bank affiliates (those held directly or indirectly by the member bank) without regard to the limits imposed by section 23A of the Federal Reserve Act. As administered by the Board, therefore, a member bank may only invest in a foreign institution that engages in commercial banking activities.  While such foreign institution may engage to a limited  extent in nonbanking activities, the receipt of deposits must be a substantial segment of its normal business and the local bank regulatory authorities must view it primarily as a bank..  This regulation comports  with the purpose of section 25 by providing U. S. banks an alternative organizational form through which to engage in banking abroad. Section 25(a) of the Federal Reserve Act (the "Edge Act") National banks and State member banks are authorized to invest, within certain statutory limits, in the stock of Edge Corporations. An Edge Corporation is an organization chartered by the Board for the purpose of engaging directly or indirectly in international or foreign banking or other international or foreign financial operations. Edge Corporations operate in the U. S. as international banks.  Many Others  serve as investment vehicles for foreign holdings.  1P"'"  41IME  -7--  Under the Edge Act, the Board may approve an Edge Corporation's purchase of stock in "any other corporation organized . . . under the laws of any foreign country."  The Act places limits on the amount which  may be invested in foreign corporations and on the activities that such corporations may engage in in the U. S., but there are no limits set forth in the law on the kinds of activities that a corporation whose shares are held by an Edge Corporation may engage in abroad. On its face, the provision would appear to grant broad investment powers to Edge Corporations.  The Board, however, in administering  the statute has tended to stress the purpose of Edge Corporations of serving as a means of engaging in "banking" and "financial" operations abroad.  Thus, the Board's Regulation K is designed to ensure that the  investment powers of Edge Corporations are not used as a means of engaging indirectly in nonfinancially related foreign activities.  In keeping  with that purpose, the scope of the nonbanking companies that Edge Corporations are permitted to invest in is directly related to the extent of Edge Corporation ownership; i.e. passive minority investments are permitted in a wider range of companies than are controlling investments. Regulation K establishes three categories of Edge Corporation investments -- portfolio, joint venture and subsidiary.  In general,  the nature of an investment is determined by the percentage of voting stock held by the Edge Corporation (portfolio 0 - 20 per cent; joint venture 20 - 50 per cent; and subsidiary 50 - 100 per cent).  The proce-  dures to be followed in obtaining the Board's consent for each type of investment are set out in detail in the Regulation (section 211.5(c)).  -8-  There are no restrictions in the regulation as to the kinds of foreign nonbanking companies in which an Edge Corporation can make 1/ portfolio investments.  The regulation does, however, limit the total  amount of portfolio investments that may be made in nonfinancial companies. Section 211.5(b)(iii) provides that the total direct and indirect portfolio investments in organizations that are engaged in actives that would not be permissible for joint ventures (see discussion below) may not exceed the investor's capital and surplus.  While the Board permits  relatively small portfolio investments to be made without its specific consent, any portfolio investment that exceeds either $2 million or 25 per cent of the Edge Corporation's capital and surplus can only be made after application to and specific approval by the Board. The Board's regulations with respect to portfolio investments are designed to afford  IS  Corporations a degree of flexibility in  their foreign operations particularly in instances where small equity acquisitiS ns may be a part of a financing transaction.  At the same time,  the limits imposed ensure that Edge Corporations do not serve solely as holding companies for investments in commercial enterprises. With regard to jpint ventures, the Board's regulation is more restrictive as to the kinds of activities that may be engaged in.  Section  211.5(b)(1)(ii) provides that, unless otherwise permitted by the Board, a joint venture in which an Edge Corporation is a participant may not  4/ An Edge Corporation may not, however, make an investment in any -foreign company that buys and sells goods, wares, merchandise or commodities in the U. S. or that engages in any activities in the U. S. that are not incidental to its international or foreign business.  -S-  have more than 10 per cent of its business (as measured by consolidated assets or revenues) attributable to activities that are not on the list of permissible activities for subsidiaries (see discussion of subsidiary powers below).  The authority for joint ventures to engage in a limited  amount of nonfinancial actives is considered necessary in view of the inability of the Edge Corporation to control their activities. Imposition of rigid limits on their actives would hinder the competitive position of such companies and would make Edge Corporations undesirable coventurors.  Nevertheless, because of the increased managerial and  financial involvement associated with joint ventures as opposed to portfolio investments, the Board considered it necessary to impose some activity limits. In instances where the Edge Corporation owns a majority of the voting stock or otherwise controls a foreign company, the Edge Corporation is considered to be engaged indirectly in the foreign company's activities.  Regulation K lists the permissible activities that an Edge  Corporation may engage in through a subsidiary abroad (see Attachment addition to commercial banking and actives that the Board has determined under section 4(c)(8) of the BHCA as being closely related to banking, the list includes management consulting, data processing, general insurance brokerage, and underwriting, distributing, and dealing in securities (subject to specific limits).  The regulation also invites  Edge Corporation investors that are of the view that other actives are usual in connection with the transaction of banking or other financial operations abroad to apply to the activities are permissible.  IS  for a determination that such  A subsidiary that engages in any activity  -10--  not on the list of permissible activities must be disposed of promptly unless the Board authorizes its retention. Section 4(c)(13) of the BHCA The 1970 amendments to the BHCA authorized the Board to permit by regulation or order the holding by a bank holding company of shares of a nonbanking company that does no business in the U. S. except as an incident to its international or foreign business.  In implementing  this section, the Board is required to determine whether, under the circumstances and subject to conditions the Board may impose, the exemption from the nonbanking prohibition is substantially at variance with the purposes of the Act and in the public interest.  In general, the Board  has applied the investment powers and procedures of section 211.5 of Regulation K to bank holding companies as well as to member banks and Edge Corporations. Section 4(c)(5) of the BHCA authorizes a bank holding company to acquire shares of the kinds and amounts that are eligible for investment by national banks.  Since a national bank may invest in an Edge  Corporation, a bank holding company by virtue of section 4(c)(5) may do so as well.  Finally, under section 4(c)(6) of the BHCA a bank holding  company may acquire up to 5 per cent of the voting shares of any company, domestic or foreign. Section 4(c)(9) of the BHCA In 1970 the BHCA was amended to enable foreign bank holding companies to engage in nonbanking activities abroad that would not generally be permissible for domestic bank holding companies.  In Senate  testimony supporting the Board's proposal, Chairman Burns stated:  "We  •  S -11-  do not believe Congress intended the Act to be applied in such a way as to impose our ideas of banking on other countries.  To do so might  invite foreign retaliation against our banks operating abroad, to the detriment of the United States."  Section 4(c)(9) of the BHCA, which  became part of the 1970 Amendments, authorizes the Board to exempt by regulation or order nonbanking activities or investments of a foreign institution the greater part of whose business is conducted outside the U. S. where the Board determines that the exemption would not be "substantially at variance with the purposes of[the]Act and would be in the public interest." In December 1971, the Board amended Regulation Y to implement its exemptive authority under secion 4(c)(9).  Those regulations apply  only to "foreign bank holding companies" defined as bank holding companies "organized under the laws of a foreign country, more than half of whose consolidated assets are located, or consolidated revenues derived, outside the United States," (section 225.4(g)(1)(iii) of Regulation Y). (Section 4(c)(9) of the BHCA and the implementing regulation, section 225.4(g) of Regulation Y, are reproduced in Attachment B).  Although  not required by the regulation, most foreign bank holding companies are foreign banks in their own right. A foreign institution covered by the definition may engage in any direct or indirect activities outside the U. S. and may engage in direct or indirect activities in the U. S. where the U.S. activities are incidental to international or foreign business.  In addition,  without applying to the Board, a foreign bank holding company may own or control up to 25 per cent of the voting shares of any foreign company  •  MM.  -12-  regardless of the direct or indirect activities of that company in the U. S., subject to two qualifications:  (1) more than half of the foreign  company's consolidated assets must be located and consolidated revenues derived outside the U. S.; and (2) the company may not engage directly or indirectly in the securities business in the U. S.  A foreign institution  whose investment does not qualify for any of the above regulatory exemptions may apply to the Board for a specific exemption under § 4(c)(9). Section 2(h) of the BHCA As discussed, the Board's regulations under § 4(c)(9) allow foreign institutions considerable freedom to engage in nonbanking activities outside the U. S.  However, where those foreign nonbanking activities  spill over into the U. S., the regulations are more restrictive.  Section  2(h), as amended by the International Banking Act of 1978, is intended primarily to remove impediments to investment in the U. S. by a foreign commercial company which arise on account of foreign bank ownership of the foreign company.  As amended, section 2(h) permits a qualifying  foreign institution (one that is principally engaged in the banking business outside the U. S.) to hold through an exempt foreign company (one that is principally engaged in business outside the U. S.) shares of a U. S. company that is "engaged in the same general line of business or in a business related to . • •" the business of the exempt foreign nonbanking company.  Although section 2(h) does not expand the  scope of foreign investments that are permissible under section 4(c)(9) and the Board's regulations, it does have the effect of codifying the ability of a bank holding company principally engaged in banking outside the U. S. to engage indirectly in any nonbanking activities outside the U.S.  -13-  The significance of the exemptions afforded by sections 4(c)(9) and 2(h) increased with the passage of the International Banking Act expanding coverage of the nonbanking prohibitions of the BHCA to include foreign banks that operate in the U. S. through branches, agencies or commercial lending companies.  On May 1, 1980, the Board issued regulations  for comment which seek to clarify many of the issues left unresolved in this area (Attachment C). III.  Policy Summary The Board has sought to strike an appropriate balance in the  exorcise of its responsibility to grant exceptions from the nonbanking limitations imposed by U. S. laws.  In the case of the foreign activities  of domestic banking organizations, considerations of bank safety and soundness and possible conflicts of interests have had to be weighed against the benefits associated with enabling U. S. banking organizations to compete in world markets.  While the Board has the authority under  the law to permit a wider range of activities than is currently provided for in its regulations, it does not appear at this time that significant additional powers are necessary to enhance the competitive position of U. S. banks.  In its regulations, which were completely revised as  a result of the International Banking Act, the Board has provided a means by which additional activities, either direct or indirect, can be presented to the Board by domestic institutions for possible inclusion in the lists of permissible activities.  In connection with any such  additional activities, relevant considerations would be the appropriateness of the activity from a bank supervisory standpoint, including the effect that new activities may have on the allocation of the limited capital resources of the banking system.  •  -14-  With regard to foreign banks and bank holding companies, the Board has considered the possible consequences of imposing the nonbanking prohibitions of the Bank Holding Company Act on their worldwide operations. In all likelihood, such an effort would result in most foreign banks withdrawing from competing in the U. S.  The benefits that are associated  with foreign bank involvement in the U. S. make such a course undesirable. The approach the Board has under consideration would impose the nonbanking prohibitions on a foreign organization's activities abroad only to the extent that it is necessary to ensure that the organization is principally engaged in banking.  This approach conforms to the Board's view that  the institution abroad should be a source of strength to its U. S. banking operations.  This policy would be in the public interest in that it  would allow foreign banks to bring to the U. S. added capital, banking expertise, and competition.  Furthermore, the Board's approach would  not be at variance with the purposes of the Act since both section 4(c)(9) and 2(h) limit the Act's extraterritorial effect. In sum, while U.S. banks are afforded greater latitude abroad as to their nonbanking activities, they do not have the same powers as foreign bank holding companies.  Thus, Chairman Rosenthal's under-  standing that foreign banks that own U.S. banks are permitted to engage abroad in a wider range of activities than U.S. banking organizations is, in essence, accurate.  This condition, while not totally equitable  from the standpoint of U.S. banks operating abroad, is a result of efforts by Congress and the Board to accommodate contrasting regulatory systems while promoting competition in the U.S. and abroad.  5 210(c.:; tto Listed acri,ific,. I he  Board has determined that the lollowing acti\ ittcs are usual in connection with the Aransaction of banking or other financial operations abroad: (1) commercial honking: (2) financing, including commercial financing. consumer financing, mortgage banking, and factoring; (3) leasing real or personal property if the lease serves as the functional equivalent of an extension of credit to the lessee of the property; (4) acting as fiduciary; (5) underwriting, credit life insurance and credit accident and health insurance related to extensions of credit hy the investor or its affiliates; (6) performing services for other direct or indirect operations of a United States honking organization. including representative functions, sale of long term debt, name saving, and holding assets acquired to prevent loss on a debt previously contracted in good faith; (7) holding the premises of a branch of an Edge Corporation or member bank or the premises of a direct or indirect subsidiary; (8) providing investment, !Marcelol or economic advisory services; (9) general insurance brokerage; (10) data processing; (11) managing a mutual fund if the fund's shares are not sold or distributed in the United States or to United States residents and the fund does not exercise managerial control over the firms in which it invests; (12) perforwing management consulting services provided that such services when rendered with respect to the United States market shall be restricted to the•initial entry; (13) underwriting. distributing. aria dealing in debt and equity securities outside the United States. provided that no under.writing commitment by a subsidiary of an investor for shares of an issuer may exceed S2 million or represent 20 per cent of the capital and surplus or voting stock of an issuer unless the underwriter is cos ered by binding commitments from subunderwriters or other purchasers: (1 4) engaging in other activities that the Board has determined by regulation or order arc closely related to banking under section 4(c) (8) of the 1311CA.  An investor that is of the opinion that other activities are usual in connection with the transaction of the business of banking or other finan cial operations abroad and arc consistent with the FRA or the 1111CA may apply to the Board for such a determination.  •  ATTACHMENT A  •  4(c)(9) of the BHCA  Exemptions  (c) such prohibitions shall not, with respect to any other bank holding company,apply to—  (9) shares held or activities conducted by any company organized under the laws of a foreign country the greater part of whose business is conducted outside the United States, if the Board by regulation or order determines that, under the circumstances and subject to the conditions set forth in the regulation or order, the exemption would not be substantially at variance with the purposes of this Act and would be in the public interest;  ATTACHMENT B  • 5  •  225.4(g) of Regulation Y  (g) Foreign hank holding companies. (1) As "revenues" means used in this paragraph: gross income and "consolidated- means consolidated in accordance with generally accepted accounting principles in the United States consistently applied; (ii) "foreign country- means any foreign nation or colony. dependency, or possession thereof; and (iii) "foreign bank holding company- means a bank holding company. organized under the laws of a foreign country. more than half of whose consolidated assets are located, or consolidated revenues derived. outside the United States. (2) A foreign hank holding company may: (i) engage in direct activities of any kind outside the United States; (ii) engage in direct activities in the United States that are incidental to its activities outside the United States: (iii) own or control voting shares of any company that is not engaged, directly or indirectly, in any activities in the United States except as shall be incidental to the international or foreign business of such company; (iv) with the consent of the Board, own or control voting shares of any company principally engaged in the United States in financing or facilitating transactions in international or foreign commerce: v) own or control voting shares of any company. organized under the laws of a foreign country, that is engaged. directly or indirectly, in any activities in the United States if (a) such company is not a subsidiary of such bank holding company, t b) more than half of such company's consolidated assets and revenues are located and  derived outside the United States. and (c) such company does not engage, directly or indirectly, in the business of underwriting. selling, or distributing securities in the Uniied States; and (vi) own or control voting shares of any company in fiduciary capacity under circumstances which would entitle such shareholding to an exemption under section 4(c)(4) of the Act if the shares were held or acquired by the bank. Nothing in this subparagraph shall authorize a foreign hank holding company to own or control more than 5 per cent of any class of voting shares of any other bank holding company or company accepting deposits or similar credit balances in the United States, except in a fiduciary capacity or with prior approval of the Board. (3) A foreign bank holding company that is of the opinion that other activities or investments may. in particular circumstances, meet the conditions for an exemption under section 4(c)(9) of the Act may apply to the Board for such determination by submitting to the Reserve Bank of the district in which its banking operations in the United States are principally conducted a letter setting forth the basis for that opinion. (4) A foreign hank holding company shall inform the Board, through such Reserve Bank within 30 days after the close of each quarter, of all shares of companies engaged. directly or indirectly, in activities in the United States that were acquired during such quarter under the authority of this paragraph. Such information shall (unless previously furnished) include a brief description of the nature and scope of each such company's business in the United States. Information required need be given only insofar as it is known or reasonably available to a foreign bank holding is unknown company. if any required in and not. reasonably available to the bank holding company, either because the obtaining thereof would involve unreasonable effort or expense or because it rests peculiarly within the knowledge of a company that is not controlled by the bank holding company. the information need not he provided, but the bank holding company shall (i) on the subject as it posgive such in sesses or can acquire without unreasonable effort or expense together with the sources thereof, and (ii) include a statement either showing that unreasonable effort or expense would be involved or indicating that the company whose shares were acquired is not controlled by the hank holding company and stating the result of a request made  -••••••=1141.1  to such companY for information. No such request need he made, however. to any foreign government, or an agency or instrumentality thereof, if. in the opinion of the hank holding company, such request would he harmful to existing relationships. (5) If, in the Board's judgment, a company is a substantial competitor in any line of commerce in the United States, an exemption under this paragraph with respect to ownership or control of such company's voting shares may not he predito escated on the unavailability of in tablish whether or not such company's activities in the United States are consistent with such an exemption. in the absence of available information, it will he presumed that such a company's activities do not justify an exemption under this paragraph for the holding of its shares by a foreign bank holding company. A company will he deemed to he a substantial competitor in any line of commerce in the United States if its products or services arc nationally advertised or distributed in this country or if they are widely advertised or distributed in a regional market in which a banking subsidia•ry, branch or agency of the foreign hank holding company is located. If unable to obtain sufficient information to establish whether or not an exemption is available, a foreign hank holding company should seek prior approval of the Board before investing in any company that might he a substantial competitor in any line of commerce in the United States.  . .  ..  ..........................4..._........._____....  •  1. ----.-7,-------,,F. .._.._  I  .... , •  - .  ..  .....  0  .  •-• In.s•wompo-,-rwriffrel• ..es•-•-..m..,...4-........r...14. ,  .4....milmimaraWri61......is...howl • _.... ......  ......,..........- ,  - ,. a •  .  C, Aftactlency-ct• • / . .• ...„,1• of Gov,;•  "IrW. , 7 ,.... " ... .........7 • ." . , "7,-1 . 1.4, 10.' 4r..-.. ....r.". -.1.--......" "  4.. -iailtialiblia66.21:44031+4....4...••• 11.4 ....a......Asa,  0// • .,,,,.....4.0.............---........—.......... - -•co • • -0 /  FEDERAL RESERVE press release  4{, :7 '5-  •O c:6 • ••fiti-L-R -ES'•• •. . . .••  Hay 1, 1980  For Immediate release  The Federal Reserve Board today issued for comment draft revisions to itn Regulation K dealing with the nonbanking activities of foreign bank holding companies and foreign banks that have banking offices in the United States. The Board requested comment by June 30, 198°. The proposals would grant certain limited exemptions.from the nonbanking prohibitions of the Bank Holding Company Act.  The proposals address  the questions of what foreign institutions should be eligible for exemption and what types of nonbanking activities by these institutions should be exempted. The Board has supervisory responsties, under both the Bank Holding Company Act and the International Banking Act, over the banking operations in the United States of foreign institutions (subsidiary banks, branches, agencies, and commerical lending companies). Further, foreign institutions engaged in banking activities in the United States through such offices here are subject to the prohibitions on nonbanking activities of the Bank Holding Company Act and the Board's Regulation Y. Under the Board's proposals: 1.  Foreign organizations in order to qualify for exemption would be required to be principally engaged in the banking business outside the United States (i.e., more than half of their business must be banking and more than half of their banking business must be outside the United States).  2.  Foreign organizations that fail to qualify for two consecutive years would no longer be entitled to the exemptions.  3.  Foreign organizations that do not qualify under the proposed numerical criteria would have an opportunity to petition the Board for specific determinations as to eligibility for the exemptions.  LI  • -24.  Permissible nonbanking activities in the U.S. would be determined by reference to the four-digit "establishment" category of the Standard Industrial Classification (SIC).  5.  Activities in the United States that are included in Division H of the SIC (Finance, Insurance and Real Estate) could only be engaged in with specific Board approval under sections 4(c)(8) or 4(c)(9) of the BHCA.  The Board's proposals are made under two sections of the Bank Holding Company Act ((2)(h) and 4(c)(9)) that permit qualifying foreign institutions to engage in any type of nonbanking activity outside the United States.  Under one  section ((4)(c)(9)) the Board may determine the type of organization that may qualify for exemption and what nonbanking activities in the U.S. may be exempted. The other section ((2)(h)) is self-implementing, requiring only Board clarification and interpretation.  This provision allows foreign institutions "principally  engaged in the banking business outside the United States" to engage indirectly in limited nonbanking activities in the United States. The Board's proposed amendment of Regulation K is attached.  -0  • TITLE 12 - BANKS AND BANKING CHAPTER II - FEDERAL RESERVE SYSTEM SUBCHAPTER A - BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM [Reg. K; Docket No. R-0291] PART 211 - INTERNATIONAL BANKING OPERATIONS  Nonbanking Activities of Foreign Bank Holding Companies and Foreign Banks AGENCY:  Board of Governors of the Federal Reserve System  ACTION:  Proposed rule.  SUMMARY: Foreign banks that have branches, agencies, or commercial lending company subsidiaries in the U.S., companies controlling such foreign banks, and foreign companies that have bank subsidiaries in the U.S. are subject to the nonbanking prohibitions of the Bank Holding Company Act (12 U.S.C. 1841 et seq.). That Act also affords exemptions from the nonbanking prohibitions for qualifying foreign organizations. The regulation proposed for comment implements and interprets those exemptions by describing the types of foreign organizations that are eligible to use the exemptions and the types of nonbanking activities and investments that are permissible. DATE:  Comments must be received by June 30, 1980.  ADDRESS: Comments, which should refer to Docket No. R-0291, may be mailed to Theodore E. Allison, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington, D.C. 20551, or delivered to Room B-2223 between 8:45 a.m. and 5:15 p.m. Comments received may be inspected at Room B-1122 between 8:45 a.m. and 5:15 p.m., except as provided in section 261.6(a) of the Board's Rules Regarding Availability of Information (12 CFR § 261.6(a)). FOR FURTHER INFORMATION CONTACT: Frederick R. Dahl, Associate Director (202/452-2726), Division of Banking Supervision and Regulation; C. Keefe Hurley, Jr., Senior Counsel (202/452-3269), or Kathleen M. O'Day, Attorney (202/452-3786), Legal Division, Board of Governors of the Federal Reserve System.  ••••-•-•  -2SUPPLEMENTARY INFORMATION: Section 8(a) of the Internati onal Banking Act of 1978 (12 U.S.C. 3101 et seq.) ("IBA") provides that a foreign bank that does business in the United States through a branch , agency or commercial lending company shall be subject to the provis ion s of the Bank Holding Company Act ("BHCA") in the same manner and to the same extent as a bank holding company. Companies that own suc h foreign banks are also subject to the provisions of the BHCA. For eig n banks and companies that control U.S . banks are "bank holding com pan ies" and, therefore, subject to the nonbanking prohibitions of the BHCA. Sections 4(c)(9) and 2(h) of the BHCA afford foreign institutions certain exempt ions from those prohibitions subject to regulation by the Board. The se exemptions are intended to limit the extraterritorial impact of the prohibitions on the nonban king business of foreign organizations. Sec tion 4(c)(9) authorizes the Board to exempt by regulation or order nonbanking activities of for eign organizations the greater part of whose business is outside the U.S. where the Board determines that the exemption is not substa ntially at variance with the purposes of the BHC A and is in the public intere st. Section 225.4(g) of Regulation Y (12 C.F.R. 225.4(g)) implements section 4(c)(9). Section 2(h) permits a foreig n organization that is princi pally engaged in the banking business out side the U.S. to acquire and hold shares of foreign nonbanking compan ies, and indirectly to engage in nonbanking activities in the United Sta tes. There is considerable overla p between the exemptions afford ed under 5§ 2(h) and 4(c)(9). For example, both permit a for eign organization to engage in any type of nonbanking activity abroad, yet, there are essential differences bet ween the two. Section 4(c)(9 ) depends upon the Board for its imp lementation both as to the kin ds of organizations that qualify for the exemption and the types of non banking activities exempted. The Board has broad discretionary power under that section. Section 2(h), on. the other hand, is self-imple menting, but requires Board regulation for clarification and interpretati on. By its terms it applies only to foreign institutions "principa lly engaged in the banking business out side the United States." Under the Board's proposals: 1.  Foreign organizations in order to qualify for either exemption would be required to be principally engaged in the banking business out side the United States (i.e., more than half of their busine ss must be banking and more than half of their ban king business must be outside the United States).  •  -3-  2.  Foreign organizations that fail to qualify for two consecutive years would no longer be entitled to the exemptions.  3.  Foreign organizations that do not qualify under the proposed numerical criteria would have an opportunity to petition the Board for specific determinations as to eligibility for the exemptions.  4.  Permissible nonbanking activities in the U.S. would be determined by reference to the four-digit "establishment" category of the Standard Industrial Classification (SIC).  5.  Activities in the United States that are included in Division H of the SIC (Finance, Insurance and Real Estate) could only be engaged in with specific Board approval under sections 4(c)(8) or 4(c)(9) of the BHCA.  The Board has attempted to resolve issues in connection with these two exemptions in a manner consistent with the purposes of the statutes and their legislative histories. There follows a discussion of these issues and the Board's proposed responses: Qualifying foreign organizations. Because many foreign banks engage in nonbanking activities abroad that would not be permissible for U.S. bank holding companies, the failure of a foreign institution to qualify for the exemptions of 5§ 2(h) and 4(c)(9) would present it with the choice of either foregoing doing a banking business in the U.S. or conforming its worldwide activities to the standards that apply to domestic bank holding companies. In April 1979, the Board proposed to change the definition of "foreign bank holding company" in section 225.4(g) of Regulation Y to ensure that organizations that qualify for the exemption afforded by section 4(0(9), in addition to being foreign, are principally engaged in banking outside the U.S. (44 Fed. Reg. 24,864). The proposal reflected the Board's policy that only foreign organizations with considerable banking experience should be permitted to acquire U.S. banks. That proposal, on which no final action was taken, is subsumed in the current proposals. It continues to be the Board's view that a foreign organization that controls a domestic bank should be principally engaged in banking abroad to ensure that it is a source of financial and managerial strength to the subsidiary bank. Moreover, it is the Board's view that a foreign organization that engages in the banking business in the United States through a branch, agency, or commercial lending company should also be predominantly a banking organization. Thus, the Board is proposing that the statutory requirement of section 2(h), that an organization  411  -4-  be principally engaged in banking outside the Unit ed States, also be used for the exemptions afforded by section 4(c) (9). Foreign bank holding companies and foreign banks with branches and agencies in the U.S. would receive comparable treatment under the exemptions. The Board's proposed redefinition of "for eign bank holding company" included the term "principally enga ged in the banking business outside the United States." Several commente rs on that proposal pointed out that the term is susceptible to several mean ings. It is the Board's view that the most reasonable interpretati on of the term and that most consistent with Congressional intent is that which would include only foreign organizations for which more than.hal f of their activities worldwide are banking and more than half of their banking activities are located outside the United States. Definition of "banking business" Under the IBA, a foreign bank with a U.S. branch or agency is subject to the nonbanking prohibitions of the BHCA. "Foreign bank" is defined in § 1(13)(7) of the IBA as incl uding, in addition to companies that engage in the business of banking, "foreign commercial banks, foreign merchant banks and other foreign inst itutions that engage in banking activities usual in connection with the business of banking in the countries where such foreign institut ions are organized." (Emphasis added.) This expansive definition brings within the scope of the BHCA foreign institutions on the basi s of banking activities that are usual in the institution's home country. It would appear that the objective of ensuring that a foreign organiza tion that does a U.S. banking business is a source of financial and managerial strength to those banking operations can be accomplished by a test that is broader than commercial banking in the U.S. context. The Board proposes to treat as. "banking" the activities in section 211.5(d) of Regulation K (12 CFR 211.5(d)) that have been determined to be usual in connection with banking or financial operations abroad. Measurement of banking business. Under the proposed criteria, a foreign institution must meet two test s in order to qualify for nonbanking exemptions. First, more than half of its worldwide business must be banking; and second, more than half of its banking business must be outside the U.S. The first test involves a measurement of banking versus nonbanking business; the second, foreign banking versus U.S. banking. Measurement of banking and nonbanking busi ness poses problems primarily because under most accounti ng conventions consolidation occurs at ownership levels above 50 per cent , while control is assumed at 25 per cent levels of ownership under the BHCA. The proposed regulation would address these problems by using as a measurement total assets or total revenues, leaving it to the foreign organization to choose the level of ownership (25 or 50 per cent) at which consolidation or combining will take place.  -r.  -5-  S  Measurement of foreign versus U.S. banking presents fewer problems once it is determined which activities will be considered banking. The Board proposes that a foreign organization be required to meet this test on the basis of more than half of its banking assets being located or banking revenues being derived outside the U.S. It is also proposed that all of the assets and revenues of a U.S. subsidiary bank, branch, or agency be counted as U.S., regardless of whether the assets or revenues are booked at foreign offices of the U.S. bank or received from or belong to foreign residents. Change in status. In its proposal to revise the definition of "foreign bank holding company," the Board invited comment on the question of whether the test should be applied only at the time of an application to form a bank holding company or continuously thereafter. Comments on this issue were divided. It was pointed out that under the tests proposed, uncontrollable events such as exchange rate fluctuations could result in temporary disqualification of some organizations. The Board proposes that an organization that fails to qualify for two consecutive years, as reflected in its annual report filed with the Board, lose its eligibility for the exemptions. Such an organization could apply for a specific determination as discussed below. Activities and investments undertaken while a foreign organization qualified for the exemptions could be retained after the loss of qualified status. However, activities or investments undertaken after the end of the first fiscal year in which the organization did not meet the criteria would not be grandfathered. Such an organization would, in effect, be on notice of the possible loss of qualified status. Other foreign organizations -- Most foreign institutions currently conducting a banking business in the U.S. would qualify under the recommended definition of "principally engaged in the banking business outside the United States." In addition, most foreign organizations with tiered structures would qualify since the test would be applied on a consolidated basis. There are, however, instances where large reputable foreign banks owned by industrial groups would fail to qualify under the recommended test even on a consolidated basis. Some of these institutions may have the financial history, condition and banking experience to enable them to operate on a safe and sound basis in the U.S. banking market. Strict application of the "principally engaged" test would force the parents of such foreign banks to either forego doing a banking business in the U.S. or divest their nonbanking (foreign as well as U.S.) interests.  -6-  1 The Board has the authority under § 4(c)(9) to grant exemptions on a case-by-case basis to foreign organizations where the Board determines that under the circumstances the exemption would not be substantially at variance with the purposes of the Act and would be in the public interest. The Board would exercise this authority where application of the qualifying tests would prevent sound and reputable foreign banks from doing business in the U.S. The Board proposes to permi t these organizations to apply for exemption from the nonbanking prohi bitions of the BHCA. The Board would examine the particular facts and circumstances of each case to determine if granting the exemption were appropriate under § 4(c)(9). If the Board were to determine that a potential for abuse exists, the Board could deny the exemption or approve the application conditioned in a manner to prevent the occur rence of such abuses. Nonbankin9 activities in the United States -- Section 2(h) permits a foreign organization to engage in activities in the U.S. through a foreign nonbanking company where the U.S. activ ities are in the same general line of business or in a business related to that of the foreign nonbanking company. The foreign company must be principally engaged in business outside the U.S. and the exemption may not be used to engage in the securities business in the U.S. Banking and financial activities and activities permissible under section 4(c)(8) of the BHCA may only be engaged in with the Board's approval. It is clear from the legislative history of the IBA that Congr ess intended the Board to use the Standard Industrial Classifica tion system for determining the comparability of U.S. and foreign nonba nking activities. While the SIC system categories are not precise, they do appea r to afford a reasonable basis for comparing activities. Because it confo rms to Congressional intent, and due to the complexity and burden of devising an alternative classification system, the Board proposes that the SIC be used as the standard by which U.S. activities of exempt foreign organizations are measured. The Board invites comments on the feasibility of using the SIC for determining whether U.S. and foreign nonba nking activities are in the same general lines of business. Section 2(h)(2)(1)(B) states that an exempt foreign compa ny: may engage in the United States in any banking or financial operations or types of activities permitted under section 4(c)(8) or in any order or regulation issued by the Board under such section only with the Board's prior approval under that section (emphasis added) The legislative history of that provision indicates that its purpose was to preserve competitive equality with domestic organizations by limiting the banking and financially related activities that a foreign institution could conduct under that exemption, and not to inhib it investments by commercial and industrial companies that have a for.:Agn bank in their ownership structures.  • 1"'"  Section 8 of the IBA permanently grandfathered nonbanking activities of foreign banks that were commenced or applied for prior to July 26, 1978. Commenters on the proposed regulations may wish to take the opportunity to comment on any interpretive issues with respect to the grandfather provisions of the IBA. Pursuant to its authority under the International Banking Act of 1978 (12 U.S.C. 3101 et seg.) and the Bank Holding Company Act (12 U.S.C. 1841 et seq.), the Board proposes to amend Regulation Y (12 C.F.R. Part 225) and Regulation K (12 C.F.R. Part 211) as follows: 1. as follows:  Section 225.4(g) of Regulation Y would be revised to read  (g) Foreign banks and foreign bank holding companies. In addition to the exceptions afforded by this Part, foreign banks and foreign bank holding companies may engage in activities and make investments under Part 211 (Regulation K). 2. Regulation K would be amended by designating sections through 211.7 as Subpart A. Section 211.1 of Regulation K would t' be revised to read as follows: SUBPART A SECTION 211.1--AUTHORITY, PURPOSE AND SCOPE  (b) Purpose and scope. This Part is in furtherance of the purposes of the FRA, the BHCA, and the IBA. It applies to corporations organized under section 25(a) of the FRA (12 U.S.C. 611-631), "Edge Corporations"; to corporations having an agreement or undertaking with the Board under section 25 of the FRA (12 U.S.C. 601-604(a)), "Agreement Corporations"; to member banks with respect to their foreign branches and investmeT's in foreign banks under section 25 of the FRA (12 U.S.C. 601-604(a));— and to bank holding companies with respect to the exemption from the nonbanking prohibitions of the BHCA afforded by section 1/ Section 25 of the FRA, which refers to national banking associations, also applies to State member banks of the Federal Reserve System by virtue of section 9 of the FRA (12 U.S.C. 321).  16.  -8-  4(c)(13) of the BHCA (12 U.S.C. 1843(c)(13)); to foreign banks with respect to the limitations on interstate banking under section 5 of the IBA (12 U.S.C. 3103); and to foreign banks and foreign bank holding companies with respect to the exemptions from the nonbanking prohibitions of the BHCA and the IBA afforded by sections 2(h) and 4(c)(9) of the BHCA (12 U.S.C. 1841(h) and 1843(c)(9)). */ 3. Regulation K would be amended by adding a Subpart B.— Within Subpart B, a new section, section 211.23, would be added as follows: SUBPART B  SECTION 211.23--NONBANKING ACTIVITIES OF FOREIGN BANKING ORGANIZATIONS (a) Definitions. The definitions of section 211.2 apply to this subsection subject to the following: (1) "Directly or indirectly" when used in reference to activities or investments of a foreign banking organization means activities or investments of the foreign banking organization or of any subsidiary of the foreign banking organization. (2) "Foreign banking organization" means a foreign bank that operates a branch, agency or commercial lending company subsidiary in the United States; a foreign bank that controls a bank in the United States; and a company of which such foreign bank is a subsidiary. (3) "Subsidiary" means an per cent of the voting stock of indirectly by a foreign banking otherwise controlled or capable foreign banking organization.  organization more than 25 which is held directly or organization or which is of being controlled by a  (b) Qualifying foreign bankin9 organizations. To qualify for the exemptions afforded by this section a foreign banking organization, unless specifically made eligible for the exemptions by the Board, shall meet the following requirements: (1) more than 50 per cent of its total assets shall be banking assets or more than 50 per cent of its total revenues shall be derived from the banking business; and  */ Also included within new Subpart B will be regulations concerning -7 interstate banking operations of foreign banks and bank holding companies, designated as section 211.22. (See 44 F.R. 62902)  -9-  (2) more than 50 per cent of its total banking assets shall be located outside the United States or more than 50 • per cent of total banking revenues derived from outside the United States. All assets and revenues of a United States subsidiary bank, branch, agency, or commercial lending company shall not be considered as "outside the United States." (c) Determining assets and revenues. (1) For purposes of paragraph (b), the total assets and revenues of an organization shall be determined on a consolidated or combined basis. Assets and revenues of companies in which the foreign organization owns 50 per cent or more of the voting shares shall be included when determining total assets or revenues. The foreign organization may include assets or revenues of companies in which it owns 25 per cent or more of the voting shares if all such companies within the organization are included; (2) Assets or revenues that involve in section 211.5(d) of this Part shall be assets or banking revenues when conducted banking organization by a foreign bank or  activities listed considered banking within the foreign its subsidiaries.  (d) Loss of eligibility for exemptions. A foreign organization that qualified under paragraph (b) of this section shall cease to be eligible for the exemptions of this section if it fails to meet the test of paragraph (b) for two consecutive years as reflected in its Annual Reports (F.R. Y-7) filed with the Board. A foreign organization that ceases to be eligible for the exemptions may continue to engage in activities or retain investments commenced or acquired prior to the end of the first fiscal year for which its Annual Report reflects nonconformance with paragraph (b). Activities commenced or investments made after that date may continue to be engaged in or held only with the consent of the Board under paragraph (e). (e) Specific determination of e1iqihility for nonqualifying foreign banking organizations. A foreign organization that does not otherwise qualify for the exemptions afforded by this section, including organizations that cease to be eligible for the exemptions, may apply to the Board for a specific determination of eligibility for the exemptions. In determining whether eligibility for the exemptions would be consistent with the purposes of the MICA and in the public interest, the Board shall consider the history and the financial and managerial resources of the organization, the amount, type and location of its nonbanking activities, and whether eligibility of the foreign organization would result in undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices. Such determination shall be subject to any conditions and limitations imposed by the Board.  IM\  S (f) Permissible activities and investments. organization that qualifies under paragraph (b) may: (1) States;  A foreign  Engage in activities of any kind outside the United  (2) Engage directly in activities in the United States that are incidental to its activities outside the Unite d States; (3) Own or control voting shares of any company that is not engaged, directly or indirectly, in any activities in the United States except as shall be incidental to the international or foreign business of such company; (4) With the prior specific consent of the Board, own or control (i) voting shares of a commercial lending company; or (ii) 25 per cent or rore of the voting shares of another foreign banking organization; (5) Own or control voting shares of any company in a fiduciary capacity under circumstances that would entit le such shareholding to an exemption under section 4(c)(4) of the BHCA if the shares were held or acquired by a bank; (6) Subject to the following limitations, own or contr ol voting shares of a foreign company that is engaged directly or indirectly in business in the United States: (i) more than 50 per cent of the foreign company's consolidated assets shall be located, and consolidated revenues derived from, outside the United State s; (ii) the foreign company shall not engage direc tly or indirectly in the business of underwriting, selli ng, or distributing securities in the United State s except to the extent permitted bank holding companies; (iii) if the foreign company is a subsidiary of th.. foreign banking organization, its direct or indirect activities in the United States shall be subject to the following limitations: (A) the foreign company's activities in the United States shall be the same kind of activities or related to the activities engaged in by the foreign company abroad as measured by the "establishment" categories of the Standard Industrial Classification (SIC) (an activity in the United States  Com  -11-  outside shall be considered related to an activity ly, dis- • the United States if it consists of supp activity); tribution or sales in furtherance of the ts (B) the foreign company may acquire the asse d or shares of a United States company that woul company's cause more than 50 per cent of the foreign ar assets or revenues associated with a particul the SIC category to be located in or derived from banking United States only after the parent foreign ce organization has given 60 days prior written noti fito the Board. The Board may, during the noti end cation period, disapprove the investment, susp be made the period, or authorize the acquisition to period; prior to the termination of the notification es (C) the foreign company may engage in activiti or in the United States that consist of banking perfinancial operations, or types of activities 4(c)(8) mitted by regulation or order under section of the BHCA, only with the prior approval of the , InBoard. Activities within Division H (Finance consurance, and Real Estate) of the SIC shall be this sidered banking or financial operations for purpose. BHCA. A foreign (g) Exemptions under section 4(c)(9) of the activities or investments organization that is of the opinion that other itions for an exemption may, in particular circumstances, meet the cond to the Board for such a under section 4(c)(9) of the BHCA may apply of the district in which determination by submitting to the Reserve Bank es are principally conducted its banking operations in the United Stat ion. a letter setting forth the basis for that opin inform the Board, (h) Reports. A foreign organization shall the close of each quarter, through such Reserve Bank within 30 days after or indirectly, in activities of all shares of companies engaged, directly such quarter under the in the United States that were acquired during l (unless previously authority of this section. Such information shal nature and scope of each furnished) include a brief description of the rmation required need company's business in the United States. Info ly available to a forbe given only insofar as it is known or reasonab is unknown and not eign organization. If any required information organization, either because reasonably available to the foreign banking effort or expense or the obtaining thereof would involve unreasonable e of a company that is because it rests peculiarly within the knowledg ion need not be pronot controlled by the organization, the informat information on the subvided, but the organization shall (1) give such asonable effort or exject as it possesses or can acquire without unre (2) include a statement pense together with the sources thereof, and  either showing that unreasonable effort or expense would be involved or indicating that the company whose shares were acquired is not controlled by the organization and stating the result of a request made to such company for information. No such request need be made, however, to any foreign government, or an agency or instrumentality thereof, if, in the opinion of the organization, such request would be harmful to existing relationships. Board of Governors of the Federal Reserve System, April 30, 1980.  (signed)  Theodore E. Allison  Theodore E. Allison Secretary of the Board  EsEALJ  June 24, 1980  Rosenthal The Honorable tenjamin Chairman Subcomwittes on CoiAmerce, Consumer and nonstsry Affairs Cormittee on Governtiont OLAIrationn ;louse of Representattves Washinvton, D. C. 20515 Dear Chairman ilosenthal; In response to your Letter of Kay 6, I am by the roard's pleased to enclose a vilext;orandum prelared tled "Lcoal staff on the Library of Congress analisis enti Acquisition iteview of Federal Fveserve Board's Decision Pe: of :iarino Midland tank, Inc. Sincerely i  mcne  Ofl3Td I. Winn Donald J. Vinn SFecial Pta5intant to the roard  CO:vcd (V- 193) bcc: Gov. tr. Mannion Mr. Hurley Mr. McAfee Mr. Dahl Mrs. Yallardi (2)  Governor S  Wallich  ROSENTogAL. N.Y., CHAIRMAN  will  be  411info  testifying;  copies  sent  Con  to  Hurley  Messrs.  has  NINETY-SIXTH CONGRESS  FERNAND ). ST GERMAIN, R I. JOHN CONYERS. JR  on  attached  and Gemmill.  D•  ROPURT T. MATSUI. CALIF. EUGENE V. ATKINSON. PA.  r  action  request  LYLE WILLIAMS. OHIO JIM JEFFRIES, KANS.  'cart.  DECKARD. IND.  MICH.  LEVITAS. GA.  CongrefsfS of tbe Unittb :t)tatez  mAionrry—(202) 225-4407  3Dotif5e of Ileprefqntatibt.g COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE OF THE  COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING, ROOM E1-377 WASHINGTON. D.C. 20515  May 6, 1980  Hon. Paul A. Volcker Chairman Federal Reserve Board Washington, D. C. 20551 Dear Mr. Chairman: This letter concerns the Board's testimony to be presented Friday, May 16, concerning the overseas nonbanking activities of foreign bank holding companies. In addition to the testimony the Board's witness will present concerning the questions -specified in my letter of January 29, I am writing to request Board testimony responding to the Library of Congress analysis entitled "Legal Review of Federal Reserve Board's Decision Re: Acquisition of Marine Midland Bank, Inc." This analysis by Raymond Natter and dated April 21, 1980, has already been sent to the Board under separate cover. In order that the record may be complete concerning the administrative procedure aspects of the Hongkong and Shanghai case, I am also requesting a written response containing a full technical review or rebuttal of Library of Congress analysis. If the full technical review or rebuttal should require more time to complete than is available before the hearing date, the hearing record will remain open for a period of time subsequent to the hearing to receive that document. Si nckerely,  Benjamin S. Rosenthal Chairma BSR:tb  June 25; 190e  Thenonocsblo Willitun Proxmire Chairman CouAittee on Lankia',), aouting and Urban Aftaixs Unitod States Sonata Liashinuton, D. C. 20510 Dear Chairman kroxmire, Thank you for your letter oi June 13 re,4,0trei,r1 your Committeels hearin:js on the Oonduct of 7-onotary iAlroAallt tc„ , :111)11 Lay 95-5234 i ay. Lookini$ forvard to .::tmrin_ an July 22  1C;CC A.noprely i  'aul A.  CO:vcd (#V-252) 1;cc,  r. Corri#4an Ax. Axilrod tire. Uallardi (2)  et  z  •  WILLIAM PROXMIRE, WIS., CHAIRMAN  Copies given Messrs. Corrigilind Axil rod  •  HARRISON A. WILLIAMS, JR., N.J. ALAN CRANSTON, CALIF. ADLAI E. STEVENSON, ILL. ROBERT MOPGAN, N.C.  JAKE GARN, UTAH JOHN TOWER. TEX. JOHN HEINZ, PA. WILLIAM L. ARMS1RONG, COLO.  DONALC,• RIEGLE, JR., MICH. PAUL S. SARBANES, MD. DONALD W. STEWART, ALA. GEORGE J. MITCHELL. MAINE  NANCY LANDON KASSEBAUM, KANS. RICHARD G. LUGAR, IND.  KENNETH A. MCLEAN, STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR  ?.Jertifeb Zfa.tez. Zertafe COMMITTEE ON BANKING. HOUSING, AND URBAN AFFAIRS  MARY FRANCES DE LA PAVA, CHIEF CLERK  WASHINGTON. D.C.  20510  June 13, 1980  Pe/  The Honorable Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System Washington, D.C. 20551 Dear Mr. Chairman: The Committee on Banking, Housing, and Urban Affairs will conduct its semi-annual hearings on the Conduct of Monetary Policy by the Federal Reserve System (pursuant to Public Law 95-523) on July 21 and 22, 1980. We would like to have you appear before the Committee on behalf of the Board of Governors and the Federal Open Market Committee on Tuesday, July 22, 1980, to give the Federal Reserve's report on monetary policy for the remainder of 1980 and for 1981, including the proposed target ranges for growth in the monetary and credit aggregates. The hearing will be held in the Committee hearing room, 5302 Dirksen Senate Office Building, and will begin at 10:00 A.M. Enclosed is a copy of the Committee's Guidelines for Witnesses. Public Law 95-523 indicates that the report on the Conduct of Monetary Policy is due on or before July 20. Therefore, I would hope that we would receive your statement and the reports on monetary policy several days in advance of the hearings: I look forward to these important hearings and greatly appreciate your continued cooperation on this and other issues. If you have any questions about these hearings you may contact Steven M. Roberts, Chief Economist for the Committee, at 224-7391. With all best wishes.  Enclosure  WP:srl  44  WILLIAM PROXMIRE, WIS., CHAIRMAN HARRISON A. WILLIAMS. JR., N.J. ALAN CRANSTON, CALIF. ADLAI E. STEVENSON, ILL. RODER; MORGAN, N.C. DONALD W. RIEGLE, JR., MICH. PAUL S. SARDANES, MD. DONALD W. STEWART. ALA.  •  JAKE GARN. UTAH JOHN TOWER, TEX. JOHN HEINZ, PA. WILLIAM L. ARMSTRONG. COLO. NANCY LANDON KASSE DAUM, KANS. RICHARD G. LUGAR, IND.  Crtiieb Ztafez Zenate  ' Z 1  PAUL E. TSONGAS, MASS.  COMMITTEE ON BANKING, HOUSING. AND URBAN AFFAIRS  KENNETH A. MC LEAN, STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANCES DE LA PAVA, CHIEF CLERK  WASHINGTON. D.C.  P -  20510  GUIDELINES FOR WITNESSES 1.  These guidelines apply to all hearings of the Senate Committee on Banking, Housing and Urban Affairs, unless otherwise indicated.  2.  All hearings will begin at 10 a.m. in Roo m 5302, Dirksen Senate Office Building, unless otherwise indicated.  3.  Committee rules require that ali witnes ses submit at least 100 copis of their written statem ents 48 hours prior to their appearance. Sundays and holidays are not to be included in determining this 48 -hour period. Statements should he delivered to Roo m 5300, Dirksen Senate Office Building, Washington, D.C . 20510. Strict adherence to this rule is essential in order that Committee members may review the statement s before the hearing, thus enabling the participants to more thoroughly discuss the issues involved. Statements will not he reicased to the news media prior to the day of your testimony.  4.  Oral presentations must be limited to a bri ef summary not to exceed 10 minutes. Your complete statement will be printed in the hearing record.  5.  Please complete the attached card and bri ng it to Room S300 prior to the hearing. You will be given copies of sLItements of those testifying with you th:At  at •••••  Please supply the address to which you prefer the reporter's transcript delivered for your correction. Kindly turn this card in at Room 5300 Dirlisen Office Building prior giving your testimony. to  ion is appreciated.  (Name)  (Organization) •. 11.••.• • '  (Business address)  (City and State) st:NATI:  RANKING, 110lISING ANII l'ItRAN  (Phone)  (ZIP Code) AFFAIR: COMNIITTEE 313-545-h  GPO  Jvme 25, 1940  The Somorable William Proxmire Chairman Committee on Banking, Pouting and UrLe4 Affairs United States Senate waslaington, D.C. 20510 `Lear Chairman PrOMMiZim, Thank you for your letter of Jilts 16 rowdily) your Committee's hearings op se 39, S. 3$0 and Va. 2255. / am Amos' to inform you that devemmer 3. Charles rartee will appose es bebalf of tllo toard on ly 1 at 9 30 a.m. Sincerely,  CO;pjt (i1V-262) bac: Gov. Vartee (w/copy of incoming) Sob Eigenbeis (w/copy of incorking) :;allardi (2)  ••••  WILL IAM PROXMIRE. WIS.. CHAIRMAN HARR:SON A. WILLIAMS. JR.. N.J. ALJ.PZ1SRANSTON. CALIF.  I  ADLAI C ROBERT tiONALD PAUL S. DONALD  STEVENSON. ILL. MORGAN. N.C. W. RIEGLE. JR.. MICH. BARBANES, MD. W S.• NAIVE, ALA.  •  •  JAKE GARN, UTAH JOHN TOWER. TEX. JOHN HEINZ, PA. WILLIAM L. ARMSTRONG. COLO. NANCY LANDON KASSEBAUM, KANS RICHARD G. LJJGAR.  'ZICnifeb ,Sfafez -.Senate  GEORGE J. MITCHELL. MAINE  COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS  K ENNrTH fr. MC LEAN, !RECTOR M. DANNY WALL. MINORITY (RECTOR MARY FRANCES DE LA PAVA. CHIEF CLERK  WASHINGTON. D.C.  20510  June 16, 1980  The Honorable Paul Volcker Chairman Federal Reserve Board Washington, D. C. Dear Mr. Chairman: This will confirm this Committee's invitation for your testimony on S. 39, S. 380 and H. R. 2255 on July 2, 1980 at 9:30 a.m. Enclosed please find a copy of the Committee's Guidelines for Witnesses for your information. Sincerel  Chairman WP:lmg Enclosure  ^  •  WILLIAM PROXMIRE, WIS., CHAIRMAN HARR, ON A. WILLIAMS. JR., N.J. ALAN !"1ANSTON, CALIF,  JAKE GARN, UTAH JOHN TOWER, TEX. JOHN HEINZ, PA.  r, OHALD W. RIEGLE, JR., MICH.  NANCY LANDON KASSERAUM, KANS.  erAut_  S. SARRANES, MO. DONALD W. STEWART, ALA.  •  •  ADL-Al C. STEVENSON, ILL. PH- SIERT MORGAN, NC.  WILLIAM L. ARMSTRONG. COLD. RICHARD G. LUGAR. ND.  'ZiCrtifeb --States Zertafe  PAUL S. TSONGAS, MASS.  COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS  KENNETH A. MC LEAN. STAFF DIRECTOR M. DANNY WALL, MINORITY STAFF DIRECTOR MARY FRANC/II DIE LA PAWL, CHM' CLERK  WASHINGTON, D.C.  20510  GUIDELINES FOR WITNESSES  1.  Those guidelines apply to all hearings of the Senate Committee on Banking, Housing and Urban Affairs, unless otherwise indicated.  assiortratm  'tie*  2.  All hearings will begin at 10 a.m. in Room 5302, Dirksen Senate Office Building, unless otherwise indicated.  3.  Committee rules require that all witnesses submit at least 100 copies of their written statements 48 hours prior to their appearance. Sundays and holidays are not to he included in determining this 48 -hour period. Statements should be delivered to Room 5300, Dirksen Senate Office Building, Washington, D.C. 20510. Strict adherence to this rule is essential in order that Committee members may review the statements before the hearing, thus enabling the participants to more thoroughly discuss the issues involved. Statements will not he released to the news media prior to the day of your testimony.  4.  Oral presentations must be limited to a brief summary not to exceed I0 minutes. Your complete statement will be printed in the hearing record.  S.  Please complete the attached card and bring it to Room 5300 prior to the hearing. You will be given copies of statements of those testifying with you at that time.  Please supply the address to which you prefer the reporter's transcript delivered for your correction. Kindly turn this card in at Room 5300 Dirksen Office Building prior to giving your testimony.  immssIN •  fr  ion is appreciated.  (Name)  (Organization) I  (Business address)  (City and State) SENATE  RANKING, HOUSING  AND l'RRAN  (Phone)  (ZIP Code) AFFAIFLq  COMMITTrE  36-545—h  •11,-  GPO 1  I  June 25 r 19no  The .tonere-le&jfljn1 ;roamire Chairman en uentLik.,, 14)4441.1c,; Comu4 ea4 .4.40es Aftaire United States Zonate Aa4hin4toc e a. C. 2010 Dear Chairmaa Prsonsire. 2 rokoaestinc: omment e un ., , of er tt le ur yo r fo u yo Tbeak tv:e csole'An of Treasur ni ni er nc oo y uir inq se el ak Di cot ACS• Charles note interest couvon*. fiscal event tor tLe The retaeral Reserv* acts as * on ot Tree:nary totatv ti rT 4m sy d an e met e th in nt me Treasury Depart alate eitt=er t?%4 vlo : isl abl est t so es do It s, uoints 411414 me4 heed GC C14sir interest cpe ee ti ri ra ae e th nl li nd ha iereeedures tor cOmMtralal bliett to cots sal e tol sys ve ser Ize l ra Altheesb the Fede it cannot roquire sg pon eem st re te ta t dn a) es 440erate in the a. 014401 rvcoived itr n io et os fo in e th ., or at rc Me thee to tio es, t technically correct. fgon the Zaltimore Wrench Wisi no GOOm*/CiAl beaks will vt no e, nc ie en nv co of er tt na 44 & t, particularly far on w, ce, st re te in or IM4 tAN ti si cu ch cash Treasuri se fivv ACTINinitOr tAnWs4 su a i. tel una ort Unf r*, ide their eaourant !vo tOt.ir crasterers. ly on e ie rv se is th nd te ex ik. Sep se Suburbia Trust it ray renUlt frau t bu r• en el un o ar is th r The reasons to the instruments through a corr.if dln war tot of )* ent eni onv inc * CI epoe4ent for :oent. ons at *ay Federal up co st re te in r he sh ca y =a el nk Di /art. rson. at =bet cospe in or ll ma LI er th , ei oi. ase iir at ssuzfro uank that h4114s beg persoaal acoausti e on ly lar icu art i. , nks ;aa l ia rc 4e in washton, If ste viable* to at ce fi of 's rer asu Tre * tto at or a. beak other than the one th to ns ava car r ars tAa ri au ea Tr nt omaa iaatile to telephone beforehand adv 4 slia it to oun noe r he s ld ho q ouch eam4460. sod detsesise its ieolic), on csahin  Tiftik ftlaorsiAt '44.11iam krommiret kaso Tvo  tuilni viae *ft  DiAkskl mlay bags mairevad. re;rot aoi ivceuvellionc* gdViSO4 tlao r'altiz.ore tkrigOe L.Ntt the ialossittiea they pmTX44.4111X viosponiti. etwould 17c  Let =a *2O  hkde thi.› inicroatitireptiave* hell,Cul to yes. Ueon to .44 •rt*r se4o1staaee.  AmmixOly. eStred) Donald J. riØj  WIN  141na CI:m*14 Aimistmat to tIrAt  F.THWIved (tV-242) t1r. Lobort D. McTeer, Jr. - Daltlamm Branch (/coy of 'zooming) nr. Snyder -r. Wallace -rs. Nallardi  Please  WILLIAM PROXMIRE, WIS., CHAIRMAN HARRISON A. WILLIAMS, JR., N.J. ALAN CRANSTON. C.ALIF. ADLAI E STEVENSON, ILL. ROSERT MORGAN. N.C. DONALD W. RIEGLE, JR., MICH. PAUL S. SARBANES. MD. DONALD W. STEWART, ALA.  O  JAKE GASH, UTAH JOHN TOWER, TEX. JOHN HEINZ PA. WILLIAM L. ARMSTRONG. COLO  Action assigned Mr. Wallace.)  NANCY LANDON KASSEBAUM, KANS. RICHARD G. UJGAR. IND.  GEORGE J. MITCHELL, MAINE  'ZICtiiteb ,T)falcs ,53eTtate  KENNETH A. MC LEAN. STAFF DIRECTOR M. DANN); WALL. MINORITY STAFF DIRECTOR MARY FOIANCES LA PAVA, CHIEF CLERK  COMMITTEE ON BANKING. HOUSING. AND URBAN AFFAIRS  oic  WASHINGTON, D.C.  20510  June 2, 1980  Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, D.C. 20550  ir  Dear Chairman Volcker: I have enclosed correspondence from a Mrs. Charles Dinkel of Maryland who has experienced some difficulty in cashing the interest coupons on her U.S. Treasury notes. It appears that Mrs. Dinkel purchased these notes following the assurance of the Federal Reserve Bank in Baltimore that the coupons could be cashed at any local bank upon maturity. Would you please have your staff review the facts in this case. I would appreciate a response at your earliest possible convenience. Best wishes.  Chairman  WP:jqj Enclosure  ('L,11,•:; 1)."11.(1. Irutr 1, II„x r!  ri'2, A1\1,11'1:I I r1.1  .I  1  2';  May 1, 1980  3r.-'tor ;i11 ;:im rDxri12r, r-:hairT.nn Senate Banking Committee 5300 Dirkson Building Washington, D.C. 20510 Dear Senator Froxmier: The continual rise in inflation has caused my husband and me to look for a good investment for our money. We have investigated several saving plans, and we believe the U.S. Treasury Note is our best investment. The 1O interest paid' by the Federal Reserve Bank is higher than any other cash savings plan we have found. In January 1979,  purchased from the Federal Reserve Rank in Note. -At.1 ;:tnk • L upon maturity, interest coupons would be redeemable at any local bank. In June 1979, our first coupon matured. We cashed the interest coupon without any difficulty at Suburban Trust Bank, Rockville, Maryland. We  Now our second interest coupon has matured. We returned to Suburban Trust Bank to cash the second coupon and the bank now refuses to hoor our U.S. Treasury Note. When we explained to Mr. Brewer, the manager, that we had redeemed a matured coupon in June 1979, he told us this was an error on behalf of the bank. As you can imagine, we were very surprised. We asked Mr. Brewer if he knew where we could cash cy.r rnaturel c,),)on locallz. infon7e1 U3 17e 1,r1-2w of no b -ink that honors U.S. Treasury Notes. Mr. Brewer also told us the only way we could cash the coupon would be to take it to the Federal Reserve Bank in Baltimore or Washington. Since that time, I have written and explained this incident to Mr. Heisner, Senior Vice President and Regional Executive of Suburban Trust Bank in Washington, D.C. I have received accurate evidence from Mr. Heisner verifying Suburban Trust Bank's policy. It is true; they do not cash U.S. Treasury Note interest coupons, unless we have an open account with them. Senator Proxmier, as Chairman of the Senate Banking Committee, we feel you should know we purchased our note with the complete assurance from the Federal Reserve Bank in Baltimore that upon maturity th3 interest coupon could be cashed at any local bank. This is not true at Suburban Trust Bank. We feel the bank's policy is discriminatory because we cannot cash our interest coupon at this bank. I am sure you will agree with us, having to send our coupon by registered mail to Baltimore and wait for our interest is an inconvenience.  •  fl'044  r't  t.tt  -4 A. • 4-  ,  1"":.•1  ; • .,  e,f• • •.r  CA.r.  •  e j**It' t.1" S • " I.. fr " 1 4 . 4% . %e.  e •Ife'  ,' •  „  4  ."  •  • --- •  * 00 ir  NW • r+,•. "•:.!A4'f I" • 4- •  . •.  0 / ,  • rk  • -.''  .4 414, .4 : 1 4 ,  .  ••  ,  2 interest coupons is unclear Since the present policy of cashing Committee to clarify to us confusing, we want the Senate Banking regarding U.S. Treasury Notes. the committee's policy  ::  Very truly yours,  Mrs. Charles Dinkel  v,•t•  June 26, 1980  The Honorable Tom Tauke House of Representatives Washington, D.C. 20515 Dear nr. Tauke: I apologize for the long delay in responding to the concerns of your constituent, Mr. Ilarold M. Becker, about the reallocation of funds from local banks and savings and loan associations to money market funds. The Board shares many of the concerns of Mr. Becker. The unprecedented growhh of the money market funds apparently diverted funds from thrift institutions and smaller commercial banks and threatened to interfere with reasonable flows of credit to several important segments of the economy, including hSusing, small businesses, and agriculture. Under the authority of the Credit Control Act of 1969, the Board imposed a special deposit requirement of 15 cdercent on increases in total investment assets of money market funds and similar entities. The aim of the si,ecial deposit requirement was to provide some greater assurance of the continued availability of funds to worthy borrowers who have access to only a limited range of credit sources. Although the recent slackening of credit demands, lower interest rates, and some strengthening of flows to banks and thrift institutions allowed us to announce a reduction in the special non-interest bearing deposit requirement from 15 to 7-1/2 percent on May 22, there remain serious questions about the impact of money market funds on the distribution of credit and about competitive equity between the money market funds and depository institutions. The 2oard intends to continue to monitor the activities of money market funds. Over the long run, the competitive position of banks and thrift institutions can be improved by increasing their flexibty to attract and retain interestsensitive deposits. I might note that the Depository Institutions Deregulation Committee announced severil such actions on May 29, 1980. Uhile the Board agrees with some of the concerns of your constituent, two of his other comments require clarification. First, as registered investment companies, money market funds have always been subject to the regulatory authority of the Securities and Exchange Commission. Second, the Federil Reserve's recent  Tht dQuora*:.,10  TOITI ?auks  ,e,,,m4e Two nvii(atfinition of tim mcastary :Luna shares in the redefined  ates includeA noney market onetary rate.  neoXer°s letter atrissed !Lis o.i-,inicn that Lank* uialaild Le a62e to set up tiloir own =cney market funds. At present, thoix abiliky to do so is ;recluded /4 the provisions of the GlassLA6424111 Act, az islterkreted !/.1; the United States Snprcmc Court, which prohibit, li*nerelly, deomitcri, institstioas tram cna.;;Ini; JP, the buziness of issuin, umlerwritini o selling, er dia,trthutin 4,ecurities, and otherviso i,r*hibit affiliations betwten 12anks and secuxitieu couliAnies. In our view commercial books would k4e zer tUtted to 41i4192040t, ercAlliNti and control re3istered investrant coovinies only if this Glass-Steimjall 7,,ct :cre anandod. 11 the thinediste tem tLe irobltum for Ival.kt, nnald acze in i,art :;ve4U,841 at the recent sham% droi in rates Lut alxo cecauze of tLe ActAou of the Depository Institutions Dereuulation Cm=ittee vith respect to interest rate ceilinrA on various cis/Luis of certificate* at all depository institutions. Indeed, while tno immediate outloci. is improved, I aft net as tate:pain* as I was some wontha ago that 44060 =ore pormament steps not 7-.;* needed to limit the ci;411:41in off of funds from al banks taes communities to the detrix4ut of local borrowers. i,4) will continuo to consider what might be ocosttuctiveli dome in that rei.vard. let  no  Lo% that th6ao com4a.nts mill ugeful to you. knov it Na of can furthex assistAnct. Sincerely#  Wag!,A Volcke,' MI:1)=$BCC  DJ  jrzr (V95)  lad= Corrirjan :iAllardi (2)  Meese  •  •  Action assiffned to Mr. Axilrod  TOM TAUKE 2ND DISTRICT. IOWA  m rrrinrs• EDUCATION AND LABOR SMALL BUSINESS  19B0Enfi 17 frl 9: 54 CONGRESS OF THE UNITED STATES-:..- Y.,I,VE;; • -.1 t March 5, 1980  Mr. Paul Volcker Chairman Federal Reserve System 21st Street and Constitution Avenue, N.W. Washington, D.C. 20551 Dear Mr. Volcker: I have enclosed a copy of a letter I received from Mr. Harol d Becker, Chairman of the Board of Guaranty Bank & Trust Company in Cedar Rapid s, Iowa. I believe that Mr. Becker has raised a very good and valid point concerning the use of money market funds. I would greatly appreciate your comments on this subject. I realize that there are no regulations governing the stockbroker, but I would be interested in your perspective of the regulations that affect the commercial bank that issues money market certificates. Additionally, is the Federal Reserve System considering any regul ation changes in the area of savings mechanisms? I have had several constituents raise the same points, but Mr. Becker's letter is the most concise and informative. Thank you for any information that you can share with me. Best wishes.  Tom Tauke Member of Congress  TT/jh Enclosure  COMMUNICATIONS SHOULD BE DIRECTED TO THE OFFICE INDICA TED. 0 319 CANNCN HOUSE OrricE BUILDUP:A WASHINGTON. D.C. 20515 (202) 225-2911  0 698 CENTRAL AVENUE DUBUQUE. lovvi. 52001 (319)557-7740  0 1756 Fiptir Avrp.iut. N.E. CEDAR RAPIDS. IOWA 52402 (319) 366-8709  0 116 Socrri-i Srcomr) SrpriT CLINTON. IOWA 52732 (319)242-6180  pro, w-  GUARANTY  BANK • &  TRUST • COMPANY  P.O. BOX 1807 CEDAR RAPIDS, IOWA 52406  February 13, 1980  The Honorable Thomas Tauke The House of Representatives Washington, D.C. 20013 My dear Mr. Tauke: The issue for which this letter is being directed to you is concerning our antipathy to the "money market funds" being promoted and fostered by all of the stockbroker companies. The end effect of this activity is that they participate in the banking function by accepting funds on a daily "in and out" basis at a much higher rate than permitted by the banking industry. Our concern is manifold. First, these funds are NOT regulated in any manner, yet they operate as a general checking account for those participating. Secondly, there is no insurance factor supporting these funds as with the banking industry. They are not required to maintain any reserves or protection for the participant. In one instance, we know of a client who was issued a "check book" which allows him to draft in and out of that account in multiples of $100.00. The largest dilemma of all is the fact that our own Trust Department finds themselves in a fiduciary dichotomy and in order to protect their fiduciary position, places many dollars in these accounts for our own trust customers under IRA and Keogh trust accounts. My position is strong in believing that these funds are effective banks. And while I don't believe any lobby could now remove the funds from the market, the SAME POWERS SHOULD BE GRANTED TO COMMERCIAL BANKS. COMMERCIAL BANKS SHOULD HAVE THE RIGHT TO SET UP THEIR OWN MONEY MARKET FUNDS. Commercial Banks could continue to act as banks under the complete authority of every agency and still provide their clients with yields competitive in the field.  302 Third Avenue SE • 1819 42nd Street NE • 191 Jacolyn Drive NW . Annowv.0.11raFfirI .-.1 "1"""rill"P•"1"7110"",”  ,ARANTY BANK & TRUST COMPAili  •  CEDAR RAPIDS, IOWA  The Honorable Thomas Tauke  -2-  February 13, 1980  Funds placed in these money market accounts are not part of M-1 or M-2 statistic, yet actually are part of the flow and volume of money. Lendable funds are being withdrawn from local banks and savings and loans through disintermediation and transferred to money market funds. This reduces the liquidity of the banks and savings and loans in the smaller communities of America and allows these funds to be transferred to the big city money market lenders. It works an undo hardship on middle America and should be statistically reviewed by some agency.  I  The minimum that should be allowed is that banks, through their own Trust Departments, be entitled to administer funds through an arrangement of a controlled money market fund.  Sincerely yours,  Harold M. Becker ' Chairman of the Board HMB/jd  June 26, 1980  °T.t lionorable Daniel K. Inouye United States Senate T;ashington, D. C. 20510 Dear Sevator Inouye: agree with the concern oxpressee in your letter of June 13 about the response of the Federal Peserve rank of San Francisco to the inquiry of your constituent, Mr. Edwin N. Tt,omas. have brought this to tile attention of the Dank management, and / at sure they will write Mr. Thonan directly. Sincerely,  \occ  61L C c-t.tA Lev  PAV:ccm #258  • DANIELK.INOUYE HAWAII  PRINCE K PFOrRILL. 111/1LrlINCA Room 6104. 300 ALA MnANA Flom[vim) HONOLULU, HAWAII 96850 (808) 546-7550  'ZCrtifeb Ziafez ,Ze2 1 nfe ROOM 105, RUSSELL SENATE BUILDING WASHINGTON, D C. 20510 (202) 224-3934  June 13, 1980  /14  Mr. Paul A. Volcker Chairman, Board of Governors of the Federal Reserve System 20th and Constitution Avenue Washington, D.C. 20551 Dear Chairman Volcker: I wish to share with you recent communications from one of my constituents regarding a discourteous response received from the Federal Reserve. While this problem appears insignificant in light of the many other problems we deal with on a daily basis, I do share Mr. Thomas' concern that he should have been given a more courteous response to his question. As a taxpayer he deserves a formal response. Within applicable rules and regulations, I would appreciate your advice and comments on the concerns expressed by Mr. Thomas. Thank you for the time and effort you devote to this matter.  N  Aloha,  ANIEL K. INOJJE United State ,cnator DKI:vqhf Enclosure  •  EDWIN N. T110.MAS, LIMITED I i4(  • 1001  DILLINGHAM  1171Y PA ^NAN( IA!  BOULEVARD. SUI1E 301  NI •PI NI AL 11... • 1641'0141t HONOLULU. HavvAtt 96817  I`oloPirr; 847-1812  June 3, 1980  •••••••  Lr Dan Inouye U.S.Senator Washington,D.C. Dear Senator Inouye: On May 16th I wrote the attached letter to the San Francisco Federal Reserve Bank. As a taxpayer and buyer of Government Securities am I not entitled to more courtesy than to have this discourteous recipient scribble a reply below one paragraph,"That's how it's done"? This neither answers our question or tells us how to proceed. Can you forcefully call this matter to the attention of Chairman Paul Volker?The Government would indeed be in a serious position if myself and others stopped buying Treasury securities. Lay I hear from you?  Sincerely, EDWIN N. THOMAS, LTD -17 (" 1't /-‘ Edwin N. Thom as President  EDWIN N. THOMAS, LIMITED  #  I 14()1'I 1147 Y INANAGI 1001  DILLINC.HAP# DOUir vAND  StiiTL  301  Federal Reserve rank of San Francksco,CA  I N7 • 141  • INal %/WA #4`.  HONOLUt U. 14awAti 96017  flay 16, 1980  Dear Sirs: We have been purchasing 'T 1 and need some information.  bills for r;Dmetime  Could you please tell us when we sen d you our (1,;rt;ifled chgck j_f you can just hc:..1 ;lur 'T 1 bills for us? 7at/13 4040 /*I's  ‘40fie.  We understand that we don't have to mai l these 'T' bills back and forth at high cos t for regioterod mail. (We have the folder "Information abo ut Treasury Bills Sold at Original Issue" Form I'D 809-0 but can't find the answers to the above).  •  /  June 2, li?tt  eUe Nosocablo A4141 X, etalmnswi Usito4 Stites bosat* isashisitions D. C. 2053 lhoos  iStorrommon ha's ra*d your 141-ttAr 4:0141.4141:4 am4 I  •  st to th.lit  OeSICUlatiVit  antad J ae to know t!-.6t, No. inuprld to sulatit Compattot  OA  exporleuracts  Cr6dit staztvgant Prolitau in conAeetioa  t! , .0e ay  i,‘,(J4ulod a.coixriwa* tpoloco trio Cocanittent on .7104 22, acereli, Sgaql A. Volcker EGCorad (0V-241) bcc COY e-.ultz Corriaz r. Xichlino Ztockwell nallardl (2)-'  •  ADLAIE.STEVENSON  Action  of ILLINOIS  eigned  Mr. Corrigan  elMITTEE ON BANKING. HOUSING AND URBAN AFFAIRS SUBCOMMITTEE ON INTERNATIONAL FINANCE (CHAIRMAN)  dr  'Unifeb Ztafez Zenale WASHINGTON. D.C. 20510  COMMITTEE ON COMMERCE. SCIENCE AND TRANSPORTATION SUBCOMMITTEE: ON SCIENCE, TECHNOLOGY AND SPACE (CHAIRMAN)  May 29, 1980  111111111111111111111 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 Dear Mr. Chairman: Thank you for your testimony on silver trading financing before the Senate Banking Committee. On several occasions, I have requested information regarding compliance of the banking industry with the Federal Reserve directive to make loans for productive, rather than speculative, purposes. I have been told the impression of the bank regulators is that banks are complying, but no data are available. Yet today the statement of Chairman Stone of the C.F.T.C. said that the "urgings went so unheeded that the Hunts soon managed to amass well over a billion dollars in speculative borrowings." With the latest loan to the Hunts, in addition to such financing as $185 million in construction loans for Atlantic City gambling complexes, a thorough and structured survey is clearly warranted. I again request a report on compliance with the Federal Reserve's directive for the record. With best wishes,  11=INEft  frxie  June 27. 1980  The nomoraLle Meaty S. neuss Chairmen Committee om Soaking, name. and Urban Affairs nous* of Sapreaentatives Washington, D.C. 20515 Dear Chairman lieseet As xeciested in our letter of JU.n. 19. I will te pleasee ta provide, yes with a pxsliainary report by SeptemLer 30 on actions taken Ly the Federal neaerve to implement the ronetary Control IN,ct of 1980 0 as well as actions taken ty the repozitory /nstitutionz Dereeijulatios ComslOpttes, Sincerely, SiP_aill A. Vo,Isler  ECEiCOspjt (tV-266) bcc: Mr. Ettin nra. Mallardi  HE/  e  S. REUSS. WIS., CHAIRMAN  THCANAS L. ASHLEY, OHIO WILLIAM S. mooni-frAo, PA. Ft.RNAND J. Sr GERMAIN. R.I.  •  J. WILLIAM STANTON, OHIO CHALMERS P. WYLIE, OHIO SrFWART Ii. Mr:KINNEY. CONN. at-orRar HANtIFN, IDAHO  HENRY 3. GONZALEZ, TEX. JOSEPH G. MINISH, N.J. FRANK ANNUNZIO, ILL. JAMES M. HANLEY, N.Y. PARREN J. MITCHELL, MD.  U.S. HOUSE OF HEPRESENTATIVES COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS  WALTER E. FAUNTROY. D.C. STEPHEN L. NEAL, N.C. JERRY M. PATTERSON. CALIF.  NINETY-SIXTH CONGRESS  JAMES .1. BLANCHARD, MICH.  2129 RAYBURN HOUSE OFFICE BUILDING  CARROLL HUBBARD, JR., KY. JOHN J. LAFALCE, N.Y.  WASHINGTON, D.C. 20515  JIM LEACH, IOWA THOMAS 13. EVANS, JR., DEL. S. WILLIAM GREEN, N.Y. RON PAUL, TEX. ED BETHUNE, ARK. NORMAN D. SHUMWAY, CALIF. CARROLL A. CAMPBELL, JR., S.C. DON RITTER, PA. JON HINSON, MISS.  GLADYS NOON SPELLMAN, MD. LES AuCOIN. OREG. DAVID W. EVANS. IND. NORMAN E. D'AMOURS, N.H. STANLEY N. LUNDINE, N.Y.  HENRY J. HYDE. ILL. RICHARD KELLY. FLA.  ns-4247  June 19, 1980  JOHN J. CAVANAUGH, NEBR. MARY ROSE OAKAR, OHIO JIM MATTOX, TEX. BRUCE F'. VENT°, MINN. DOUG BARNARD, GA. WES WATKINS. OKLA. ROBERT GARCIA, N.Y. MIKE LOWRY, WASH.  Honorable Paul A. Volcker Chairman Board of Governors of the Federal Reserve System Washington, U. C. 20551  Dear Chairman Volcker: Section 10 of the Federal Reserve Act requires that tne Federal Reserve annually make a full report to Congress on its activities. I anticipate that the report for the current year (to be issued next spring) will contain an extensive discussion of the Federal Reserve's implementation of the Monetary Control Act of 1980. However, I would also appreciate a preliminary report by september 30, 1980 on the actions taken up to that time to implement the Act. In addition, by that date I would appreciate a preliminary report along the lines required of all members of the Depository Institutions Deregulation Committee by section 206 of the Depository Institutions Deregulation and Monetary Control Act of 1980. 1 would like this report to discuss the Deregulation Committee's actions taken up to that date, and the effect those actions have had on the issues raised by section 2U6. Sincerely,  s• Henry 6uss Chairman  June 27, 1980  The Honorable 21liott N. Levities House of Representatives vaahington, D.C. 20510 Dear Hr. Levitea Thank you for your letter of April 20 on behalf of your constituents who 14ave oncountered difficulty when attempting to cash their Internal ?avenue Service refund checks at banks where they do not maintain an account. The Board's legal staff has informed ma that there are no Federal laws or regulations that require banks to cash checks. In I972# a bill was introduced in Congress that would have requital rederally-insured banks to cash, free of charge, any check lrawn upon the Treasury of the United States; but that hill was never, reported out of committee. One of the main rroblems that came to light in the hearings was the difficulty banks have in guardin7 auainst fraudulent identification. In such cases the bank and not the gayer/IL-lent bears the loss. Although the Board of Governors has broad supervisory and regulatory powers over banks that are northers of the Federal Feserve System, a :41ink's check cashing policy has generally been rekArded as a ratter of internal operatinq procedures, and a ban* is free to estalaish its own policies regarding the circumstances under which it will cash chocks. The toard's staff is aware that any banks have adopted a lolicy of cashing cheeks only for customers who maintain an account with the bank. This rolicy is based on eammomic grounds since substantial costs are incurred in providing check cashing services and there is little incentive for a bank to i:trovide this service to nondevositors. Furthermore, in repeat years, banks have been experiencing a growin9 rrohlem in cashing checks, especially checks that are presented for payment by nonderouitors. Banks have frequently oncounterel instances whore check that were cashed for moudepeeitors of the 1-Ank are returned to the bank uni)aid. Whea the bank attenntm to recoup the funds from the lervion for whom the chock war; caahed, it discovera that the person is unaUs to 1-:e. found or is otherwise unable to reiLburse t1-.e bank. In order to avoid losses resulting  The Honorable Elliott 11. 'davit's Page Two  from such transactions:10 many banks have found it necessary to estaLlish a policy of cashinc etecks only for depositorst This practice inuuree that te bask will be able to locate the deroeitor in tho avant that * check he or she has cashed is returnad to the bank unpaid. Ta risk situation is similar for banks cashing govern-  ment checkr; for nondopositors end, bemuse of this, legislation requiring L)anks, to cash government checks for nondepeeiters would probably not be ocluitaLle. In order teoffer free oohing of government checks, the bank vould have to &morel the routin. handling emits and losses associated with improrer payment, or pass them on to its customers, because there are no aremmyements for the goverment to reimburse the financial inetituldame for their added experups. hope this information is helpful to you, Sincerely, Sjfa41 A. Volcus (DLROCO4pjt (UT-181)  Imcz  Mrs. luIllardi  ELLIOTT H. LEVITAS  e  ction assigned Neal Petersen.  4TH DISTRICT. GEORGIA  WASHINGTON 329 CANNON  HOUSE  WAsiginsGrom,  OFFICE BUILDING 20515  (202) 225-4272  TRINITY  DECATUR. GEORGIA  Congrt55 of tfie Einiteb  PLACE  C.TLIatibington, 33.C. 20515  30030  (404) 377-1717  MOSILE OFFICE:  TRAVELS THE DIETRICT  tate5  jlptuk of iltprefientatibesS  HOME OFFICE:  141 EAST  USCOMMITTIti  CHAIRMAN, PUBLIC BUILDINGS AND GROUNDS  OFFICE:  D.C.  PUBLIC WORKS AND TRANSPORTATION COMMITTEE  SERvma You  April 20, 1980  AVIATION OVERSIGHT AND REVIEW GOVERNMENT OPERATIONS COMMITTEE SUSCOMMITTTESI  COMMERCE, CONSUMER AND MONETARY AFFAMS LEGISLATION AND NATIONAL SECURITY  //if 1  The Honorable Paul A. Volcker Chairman - Board of Governors Federal Reserve System Federal Reserve Building Washington, D. C. 20551 Dear Chairman Volcker: I have been contacted recently by several constituents, who do not maintain accounts with local banks, about the difficulty they encountered in cashing their Internal Revenue Service refund checks. The various financial institutions which they contacted refused to cash the government checks unless these individuals opened accounts, deposited the checks, and waited sufficient time for the checks to clear before withdrawing the refund amounts. One of my constituents has suggested to me that legislation be proposed to require financial institutions to cash government checks without such requirements. I would appreciate having your comments on the check-cashing policies I've described here and your thoughts on the legislation recommended by my constitutent. With best wishes, I am ti1  ELL OTT 1. LE FAS Member ofCongress EHL:mh
Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102